Digital markets key to EZZ (ASX: EZZ) growth

Cameron Drummond
Contributor, Advisir
info@advisir.com.au

• EZZ has recognised two important factors for growth: A booming e-Commerce sector and increased consumer interest in health and wellbeing products
• The expansion of its distribution channels is future-proofing EZZ’s revenue opportunities
• Market penetration into e-Commerce stores in China has had better than expected results
• In-house, data-driven market analytics to complement EZZ’s new e-Commerce platform and increase efficiencies
• The company is eyeing in-house manufacturing and further research and development

After pivoting from its traditional sales and marketing techniques this last financial year, EZZ Life Science (EZZ) is now making solid progress into multiple direct-to-consumer markets as a foundation for incremental revenue growth over the next three years.

EZZ’s genome research involves the study of genomes to formulate precision nutritional products that target specific health challenges.

The company uses its genomic research to develop a range of products to address four key health challenges:

• Weight Management
• Genetic Longevity
• Papillomavirus (HPV)
• Helicobacter Pylori (stomach infections)

Its products come in the forms of skincare products, health supplements, health foods and probiotics under its EZZ and EAORON brands.

Growth factors
A sea change in leadership at EZZ in December last year saw the appointment of renowned life sciences professional Glenn Cross. Mr Cross brings to the company more than 40 years of experience in the field – including a stint as chief executive of Australia’s AusBiotech – Australia’s peak body representing the life sciences sector.

His wealth of knowledge is fed into all of the company’s major business activities, including management, HR, product development, sales, marketing, finance, manufacturing and distribution.

So far into his tenure, Mr Cross has helped oversee a well-timed growth strategy that has seen EZZ navigate a waning COVID period to successfully future-proof revenue streams by targeting multiple digital distribution channels in a booming wellness sector.

EZZ chairman Glenn Cross said that two key factors identified by the company are giving them great confidence for the future of their products – both stemming from the global changes that occurred during the COVID-19 pandemic.

“What has been really interesting for us is that the global COVID pandemic has put a key focus on two areas for us,” Mr Cross said.

“Firstly, people are now much more interested in looking at and taking control of their own health; and secondly, people are now much more willing to buy products through the internet.”

To say the future is looking bright for EZZ would be an understatement. Let’s break it down.

e-Commerce surge
The COVID-driven surge in online shopping, originally borne out of necessity as people all over the world were put into lockdown, is proving not just to be a bump in growth.

The $3.3 trillion e-Commerce market has plenty of room to grow, according to global research heavyweight Morgan Stanley, which has projected the sector to rise to $5.4 trillion by 2026.
Global e-Commerce rose from 15 per cent of total retail sales in 2019 to 21 per cent in 2021, and now sits at 22 per cent of sales.

“We believe that the COVID-driven bump will not flatten future e-Commerce growth,” Brian Nowak, an equity analyst covering the US internet industry said.

He is bullish on the future of e-Commerce, stating it could be reaching 27 per cent of retail sales by 2026.

“Across the world, we have yet to see a ceiling for e-Commerce penetration,” Mr Nowak said.

EZZ has recognised this growth factor and has been busy seeking out multiple channels for growth in the e-Commerce landscape, finding successful growth in its product sales in targeting China and South-East Asian markets.

EZZ interim chief executive Mark (Qizhou) Qin said that instead of relying on one key distribution channel for its EZZ branded products, the team successfully built out from early success with Chinese e-commerce heavyweight Alibaba’s Tmall Global store into multiple channels in key Asian markets such as China in order to future-proof its e-Commerce distribution network.

“In addition to Tmall Global, the company commenced a cross-border e-Commerce store on Douyin, mainland China’s version of TikTok, and delivered revenue growth beyond the management’s expectations in the first month of operation,” Mr Qin said.

On top of pivoting its distribution channel landscapes, last year marked another year of success in product innovation by adapting to shifting consumer behaviours, with the company introducing seven new products under the EZZ brand in FY22.

“[The] L-Lysine Growth Capsule became another flagship product contributing 27 per cent to the revenue from the EZZ branded products,” Mr Qin said.

“Our market-driven product development approach is expected to continuously differentiate EZZ from its competitors.”

The burgeoning wellness sector
The $1.5 trillion global health and wellness sector is set to rise at an astonishing rate of between 5-10 per cent annually, according to a recent McKinsey survey.

After COVID-19 had initially stagnated the sector, the pandemic became a catalyst for its growth, with people more than ever before attuned to looking after their health and wellbeing.

The survey showed that consumers across the board are coming with increased purchasing power for improving their health, fitness, nutrition, appearance, sleep and mindfulness.

With these two major market growth drivers on the up, it’s no wonder EZZ is confident about its future.

FY22 by the numbers
In H1 FY22, EZZ management made a strategic decision to scale down its marketing and advertising expenditure in response to market uncertainties caused by COVID, as retail outlets continued to suffer due to lockdowns and supply chain issues.

Changes to expenditure and revenue streams were not a surprise for EZZ during FY22 as it moved to concentrate on growth in international markets – but a planned shift in focus to take advantage of market conditions.

EZZ refined its focus on cost control, reducing advertising and marketing costs by $4.88 million while its cost of sales fell $2 million as the company sought to bolster its e-Commerce growth.

“Over the last twelve months, there have been a number of positive changes at EZZ,” Mr Cross said.

“In the first half of FY22, a strategic decision was made to reduce marketing and advertising expenditure in response to continued market uncertainties which led to a decline in revenue by approximately 50 per cent from $13 million in 1H FY21 to $6 million in 1H FY22.”

The company rebounded strongly in the second half of FY22, generating a revenue of about $9 million – a 52 per cent increase over the previous 6-month period.

Mr Cross said that the successful turnaround was down to its diversification in its key distribution channels and looked forward to continued growth in those areas.

“EZZ is well positioned to emerge in both domestic and international markets with improved channel diversification, market-driven product development and deeply knowledgeable leadership team as it drives sustainable growth,” Mr Cross said.

Looking to the future
Both Mr Cross and Mr Qin were excited about what the company is set to achieve this financial year and beyond, having clear-cut strategies to transform into a fully-integrated genomic life science company.

These strategies include advancing genomic research, building in-house manufacturing capabilities, growing established omni-channel sales and marketing, and refining in-house data analytics for future growth.

“We already have a traditional business in Australia and New Zealand manufacturing and distributing health supplements and probiotics and functional foods which includes partnerships with major retailers such as Chemist Warehouse, Priceline and Blackmores,” Mr Cross said.

“To grow upon that successful base we have been working on our expansion into the SE Asian and Chinese markets with better than expected early results this financial year.”

Mr Cross said that the company’s significant business success in China and SE Asia meant that it would continue to grow its distribution channels in the region and were rapidly looking at growing in North America and Europe.

“Shareholders can expect that we will continue to meet our commitments to the market and our investors,” Mr Cross said.

“We are also looking to bring our manufacturing capability in-house and will also continue to expand our research and development capability, as well as keep growing our markets and product range.”

With the commencement of EZZ’s new e-Commerce platform, Mr Qin said the company would be able to unlock data-backed analytical capabilities to drive future decision-making and scale efficiencies.

“In-house e-Commerce capability is expected to significantly reduce sales and marketing expenses and generate strong incremental EBITDA growth over the next three years,” Mr Qin said.

“It will also provide opportunities to upgrade the skills of EZZ’s experienced operations team and improve the way EZZ’s customers are served.

“It will also allow technology-backed new services, strengthening our sustainable long-term competitive advantage and fuel the next phase of organic growth.”

With so much opportunity for growth, potential investors and shareholders alike would do well to keep tabs on how this company could maximise their potential in the near future.

Shares last traded at 31.5 cents each.