Elixinol Global sees steady improvements in first quarter revenue as UK COVID restrictions ease and US stimulus packages take effect

Elixinol Global Ltd’s (ASX:EXL) (OTCMKTS:ELLXF) (FRA:E8M) group revenue steadily improved across the course of the March quarter as consumers recovered from Christmas trading periods, COVID-related restrictions started to ease in the UK and the impact of US stimulus packages took effect. Its lead indicators for the current quarter are looking positive as the UK comes out of a hard lockdown and customers have started placing replenishment orders, boosted by its products now supported by a valid novel food application under the UK Food Standards Agency (FSA).  The company is well-funded with A$23.3 million in cash and equivalents to support acquisitive growth and sustain conditions in markets that are still COVID-affected. Impact of COVID Elixinol global chief executive officer Oliver Horn said: “The first quarter of the calendar year is traditionally softer for retail, while consumers curb discretionary spend after Christmas and holiday trading periods. “This seasonal trend was compounded by the continued impact of COVID in two of our key markets: the UK and US, where footfall into physical venues continued to be significantly reduced. Pleasingly, in March we saw green shoots start to appear both in the UK and the US as the impact of economic stimulus packages, easing of COVID restrictions came into effect and increased vaccination rates started lifting consumer confidence. “Moving closer to summer and with the UK coming out of lockdown and vaccination programs being implemented, we expect to see an improvement in consumer spending." Re-orders starting from late March He said: “Our confidence is underscored by recent re-orders commencing in late March from major pharmacy channel customers, Superdrug, Well Pharmacy and PharmaCare. “Now that we have our UK Novel Food Application validated by the UK Food Standards Agency, our products can remain in distribution, and new customer opportunities are opening up with the benefit of this improved regulatory certainty." CannaCare performance consistent with expectations “In March we announced the proposed acquisition of CannaCare, whose performance in Germany has been consistent with our expectations, supported by a successful skincare launch. “We are now looking forward to presenting this transaction to shareholders at our coming AGM on May 17 and discussing the strategic importance and accretive EBITDA outlook that this acquisition is anticipated to bring to the group,” Horn added. First-quarter numbers Elixinol reported revenue of A$2.3 million for the first quarter of financial year 2021, a 26% decline on the fourth quarter of financial year 2020, hit by the seasonality and COVID lockdowns. The company saw improved EBITDA levels across all business units, with its e-commerce channel contributing around A$833,000 or 36% of overall revenue. Hemp Foods Australia contributed A$871,000 or 37% to the quarter’s revenue result. Elixinol is finalising its repositioning towards a higher margin, consumer-led branded nutraceuticals model. The company’s focus on the use of e-commerce for driving sales through the COVID-19 operating environment, and the sale of higher-margin Elixinol-branded products, continues to shift the revenue and margin mix, leading to improved EBITDA levels across all business units. Operating cash used for the first quarter, excluding CannaCare transaction costs, was A$3.6 million, substantially improved compared with A$9.0 million in the corresponding first quarter in 2020 and down from A$3.8 million in the fourth quarter. Margin growth in Americas Throughout the quarter, Elixinol’s US business showed improvement, growing from a low base. Revenue through the e-commerce channel now represents 64% of Americas' revenue, which comes with higher margins than in traditional bricks and mortar environments. E-commerce transaction conversions across e-commerce channels improved 26% between February and March. As the Elixinol team continues to focus on e-commerce channel growth to hedge against physical retail trading environments, a mix of online and offline marketing campaigns and activations are being run. Elixinol Good Night capsules have been included in the 'Oscars Bags' – luxury bags provided to nominees of the Oscars awards, positioning Elixinol product with a luxury audience both online and offline. A new product is being launched in the US to coincide with spring and easing of lockdowns. Its new Immune Gut Health capsules are the first CBD product to include the power of Ginfort™ - concentrated ginger with 13x more ginger actives than any other ginger extract. The unique combination of full-spectrum CBD and Ginfort™’s concentrated ginger actives allows support a healthy immune system at a time when a strong immunity has never been more important. New orders in UK COVID-related bricks and mortar retail shutdowns in the UK led to a softer January and February, before revenue lifted by 180% in March. Following FSA validation and post-quarter, Elixinol has received an order from PharmaCare for the co-branded Naturopathica CBD+ range, which is sold in Holland & Barrett, the UK’s leading health and wellness retailer. Naturopathica CBD+ is being sold via Holland & Barrett’s online store, and over 800 Holland & Barrett retail stores. Existing brick-and-mortar customers, Superdrug and Well Pharmacy, have also placed new product orders for the first time in months. Horn said, “These UK orders are signs of optimism that we’re coming out the other side of what has been a difficult trading period. We are encouraged by what we’re seeing in our lead indicators and expecting revenue improvement in the second quarter of financial year 2021.” Hemp Foods Australia Hemp Foods Australia (HFA) continued to contribute a significant portion of group revenue, and margins also improved with the now optimised cost base. HFA continues to operate close to break-even with consistent focus on e-commerce resulting in 12% of sales coming from this channel and showing consistent month-on-month growth. March saw nearly 13,000 sessions representing a 20% month-on-month improvement and 70% growth year-on-year. The new, certified organic Hemp Gold launch is performing well with advanced discussions on new listings. CannaCare acquisition The company said its CannaCare acquisition will position Elixinol as a leading pan-European CBD business and accelerate path to profitability. On March 15, Elixinol signed a binding agreement to acquire CannaCare Health GmbH (CannaCare), owner of CANOBO, which has dominant retail distribution with over 4,500 bricks and mortar retail distribution points, and an extensive range of 20 products.