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spk02: Good afternoon, everyone. Welcome to the Jameson Wellness Conference call to discuss financial results for the fourth quarter and full year 2020. At this time, our participants are in a listen-only mode. Later, we'll conduct the question and answer session and instructions will be given at that time. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from the company. As a reminder, today's call is being recorded. On the call today from management are Mark Hornick, President and Chief Executive Officer, Mike Pilato, President of Jameson Canada, and Chris Snowden, Chief Financial Officer and Corporate Secretary. Before I turn the call over to Mr. Hornick, please note that a press release covering the company's fourth quarter and full year 2020 financial results was issued this afternoon, and a copy of that press release can be found in the investor relations section on the company's website. Please note that the prepared remarks, which will follow, contain forward-looking statements, and managers may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance and, therefore, undue reliance should not be placed upon them. We refer you to all risk factors contained in Jameson's press release issued this afternoon and in the filings of the Canadian Securities Administrators for more detailed discussions of the factors that could cause actual results to differ materially from those projections and any forward-looking statements. The company undertakes no obligation to publicly correct or update the forward-looking statements made during the presentation to reflect future events or circumstances except as may be required under applicable securities laws. Finally, we would like to remind listeners that the company may refer to certain non-IFRS financial measures during this teleconference. A reconciliation of these non-IFRS financial measures was included with the company's press release issued earlier today. Also, please note that unless otherwise stated, all figures discussed today are in Canadian dollars and are occasionally rounded to the nearest million. I'll now turn the call over to Mr. Hornick to get started. Please go ahead, sir. Well, thanks, James, and good afternoon, everyone. Thank you for taking the time to join us for our Q4 and full year 2020 financial results call. Before we begin, as you might expect, I'd like to take the time to address our leadership transition, which we announced concurrently with Ernie this afternoon. I'm very pleased to announce that on June 1st, Mike Pilato will become president and CEO of Jameson Wellness upon my retirement from the company. Early retirement has always been a personal goal. And with the planning that the board, myself, and Mike have been able to do together, the timing is now right on all fronts. Over the past two and a half years, we've worked with Mike to prepare him in a way that not only will result in a seamless transition, but a significant upside for our business in the future. I know most of you have already had the chance to interact with Mike, but I met Mike in 2017. And from our first meeting, it was very clear to me that he'd be a perfect fit for our company. He joined us the following year, and since then he's shown phenomenal performance and capabilities in progressive leadership roles, ultimately leading the strategy and operations as the president of Jameson Canada. He came with an extremely strong background, including being the president of Clorox Canada for four years prior to coming to Jameson. His increasing responsibilities here over the past three years have prepared him to be uniquely positioned to balance the continued execution of our winning strategy, which he helped develop, and also being able to adapt to future changes in our environment. The fundamentals of Jameson Wellness have never been stronger, and Mike has the respect and support of our entire team, which ensures that we are well positioned to build on our progress to date and then take Jameson to the next level. Mike and I are going to finish our transition over the next three months. I've thoroughly enjoyed my seven years here at Jameson, and I am thrilled with the continued momentum we are sure to see. Now let's go on to Q4 results. As you might expect, I am very proud to record such a strong finish to a challenging year for everyone. The COVID-19 pandemic made health and wellness a top priority for consumers in 2020, and Jameson Wellness was there to support them. Our existing consumers increased their daily compliance and added more vitamins and supplements to their routines. We also engaged many new consumers as shoppers looked for quality brands they could trust during an uncertain time. The COVID-19 pandemic has also tested our Jameson team's ability to navigate unprecedented challenges in a constantly changing environment. I'm incredibly proud of how our team pulled together to ensure uninterrupted supply of products when our consumers needed them most. while doing everything possible to maintain a healthy and safe working environment for our people. Now, let me walk through some financial highlights of the first quarter. During the quarter, we saw a continuation of the strong trend we experienced earlier in the year, reporting a revenue of $120 million, while presenting growth of nearly 17% from the fourth quarter of 2019. Adjusted EBITDA increased almost 16% to $29 million, and adjusted EPS was $0.42, which is an increase of 17% versus the year earlier period. The Jameson brand segment revenue increased nearly 14%. We benefited from the underlying strength in the overall VMS market, the power of our brand, supported by our winning marketing and innovation strategy, and solid executions. This is led to another consecutive quarter of increased market share, of which I'm very proud. Similarly, the breadth of our business continues to impress as we experience solid performance across all of our major categories and all of our channels. We have a new expanded consumer base coming out of 2020 globally that we look forward to growing from in 2021. In the fourth quarter, our international revenue increased nearly 15%. and when combined with the timing of shipments in previous quarters, resulting in a full-year international revenue growth of 50%. Consumer demand remains strong and in this broad-based category across different geographies, including China, Eastern Europe, and the Middle East. In the fourth quarter, the pace of growth on a year-on-year basis normalized compared to the third quarter, which benefited from earlier shipments of crop and coal products in anticipation, of course, of accelerated demand. Our strategic partner segment had another strong quarter with revenue increasing 25%, consistent with the rate of growth we experienced in the third quarter. Of course, timing again is a factor as order fulfillment was more back-end rated in 2020. In summary, we have solid momentum in all of our business and remain well-positioned to continue driving strong growth in 2021. Before I turn the call over to Chris and then Mike, to discuss our financials and guidance, I want to stress that the health and wellness and safety of our employees, customers, and communities remains our top priority at Jameson. In addition, we continue to accelerate our investment plans in our manufacturing facilities to increase production capacity to ensure we have the ability to meet increasing consumer demand for our products that our consumers trust and rely on. And with that, let me turn the call over to Chris to discuss the fourth quarter's financial results.
spk00: Thank you, Mark, and good afternoon, everyone. As Mark discussed, our business continues to perform very well and grow steadily, reflecting elevated demand, stemming from our customers' ongoing focus on their health and wellness. In the fourth quarter, revenue increased 16.6% to $120.4 million, driven by strong growth in both reported segments. In Jameson Brands, revenue increased 13.9%, to $89.7 million, consisting of 13.7% growth domestically and 14.8% growth internationally. We gained share domestically as point of sale growth consistently demonstrated expanded consumption and the development of a broader consumer base. International growth reflected timing of shipments to China realized in the preceding quarter We continue to experience strong demand in each of our primary international markets, resulting in fourth quarter shipment growth in Eastern Europe and the Middle East. Revenue in our strategic partners segment increased 25.3%, reflecting timing factors as well as higher soft gel volumes, offsetting lower powder volumes in the quarter. Gross profit margin decreased 300 basis points to 35.3%, including 130 basis points primarily from the impact of transition costs associated with our move to a third-party logistics provider. Normalizing for this impact, gross profit margin declined by 170 basis points, including 110 basis points from the impact of higher costs to maximize output and ensure supply continuity. and 60 basis points due to segment mix attributable to higher strategic partner volumes as a percentage of our overall revenues. In the Jameson brand segment, gross margin decreased by 260 basis points to 43%, including 180 basis point impact from the transition and startup costs as we adopt a new third-party logistics model to make room for capacity Expansion projects in our roads in Scarborough facility. On a normalized basis, gross margin in the Jameson brand segment decreased 80 basis points, reflecting higher supply continuity costs, including our COVID-19 health and safety measures, partially offset by gains from promotional efficiency and increased volume. Strategic partners segment gross margins declined by 170 basis points to 12.9%. as efficiency from higher soft gel and tablet volumes were offset by increased supply chain costs and a reduction in volume and efficiency at our powder processing facility. Selling general and administrative expenses increased by $1 million from a year earlier to $18.6 million. Excluding the impact of specific costs related to COVID-19 and business integration, Normalized SGN expenses increased by $1.4 million to $18.1 million. The majority of this increase was attributable to the Jameson brand segment, with increased headcount to support worldwide and e-commerce expansion, higher variable compensation, and increased marketing investments. Operating income increased $2.4 million to $22.7 million, and operating margin decreased 80 basis points to 18.9%. On a normalized basis, operating income increased $3.7 million to $24.9 million, and adjusted operating margin increased 10 basis points to 20.7%. Adjusted EBITDA increased 14.6% to $29.4 million, and adjusted EBITDA margin was 24.4% versus 24.8% in the year earlier period. The modest decline in adjusted EBITDA margin reflects segment mix and internet incremental costs to maximize output, secure supply, and the costs associated with COVID in our operating facilities. This was offset by a reduction of selling in general and administrative expenses as a percentage of revenues. Interest in financing costs were $1.4 million compared to $2 million, reflecting reduced borrowings and lower interest rates compared to the year earlier. Our effective tax rate in the fourth quarter was 25.5% compared to 27.6% in the fourth quarter of 2019. This is due to the impact of non-deductible share-based expenses relative to higher earnings. Our reported net income was 15.4 million in the fourth quarter compared to 13.2 million in the prior year, an increase of 17%. On an adjusted income basis, net income increased 23.6% to 17.6 million and adjusted diluted EPS increased by 16.7% to 42 cents. All of the adjustments to net income are described in today's press release and included in the adjusted net income reconciliation table at the end of the release. Turning now to the balance sheet and cash flow. We generated cash from operating activities before working capital considerations of $22.2 million, a $4 million increase from the prior year primarily due to higher earnings in the quarter. Cash invested in working capital decreased by $1.7 million due to the timing of payments and significant shipments in the quarter. Capital expenditures during the fourth quarter were $4.2 million, and we paid approximately $5 million in dividends. We ended the quarter with over $127 million in cash and available operating lines. Additionally, the board of directors of the company have declared a cash dividend in the fourth quarter of 2020 of 12.5 cents per common share, or approximately $5 million in aggregate. The dividend will be paid on March 15 2021. To all common shareholders of record at the close of business on March 5 2021. Now with that, let me turn the call over to Mike to discuss our guidance.
spk02: Perfect. Thank you, Chris. Good afternoon, everyone, and thank you, Mark, for your comments at the top of the call. They are very, very much appreciated. It has been a great, great privilege to work alongside you for the past few years, and it's something that I will take some lessons with me from you for the rest of my life, so thank you for that. Before we discuss 2021 guidance, I just want to say I am honored to have been chosen to lead this incredible company and this passionate, driven team. I'm grateful to Mark and the board of directors for their support and confidence, and I'm looking forward to continuing this great story and this great track record of success here at Jameson. I'm fully committed to continuing to execute on our proven growth strategy and committed to staying ahead of consumer trends around the world to continue driving strong growth and market leadership. 2020, as you just heard, was an incredible year for Jameson, building on what was already multiple years of branded business growth, driven by our world-class marketing and innovation initiatives. We are driving accelerated brand growth pre-COVID, and we believe the strength of 2020 has bolstered our 2021 growth prospects and the future of this company. We continue to see points of consumer data and business results that indicate we are now operating off a new elevated base of consumers and a step change for our category and for our brands from which we will continue to grow. Health and wellness in vitamins, minerals, and supplements We're seeing sustained growth as a global megatrend pre-COVID. It has accelerated during COVID, and we are confident it will continue to see sustained growth post-COVID as consumers continue to drive towards healthier lifestyles, preventative healthcare solutions, and self-care. Based on this, we are initiating our 2021 guidance and anticipate the following. Net revenue in the range of $421 million to $438 million. representing top-line growth in the range of 4.3 to 8.6%. This compares to $404 million in revenue for 2020, reflecting consumer concern for their health and wellness, driving demand for our branded products both domestically and internationally. We expect adjusted EBITDA in the range of $95 million to $100 million, or 8% to 13.6% growth over fiscal 2020, adjusted EBITDA of $88 million, and adjusted diluted earnings per share of between $1.24 and $1.32. Revenue in the Jameson Brands segment is expected to increase between 4% and 8% compared to fiscal 2020, driven by growth in the following categories. Domestic branded revenues are expected to grow between 2% and 5%, including the impact of both pricing and volume expectations while lapping surge COVID-19 demand realized early on in the pandemic. We plan to expand our market position by continuing to focus on innovation and consumer education while increasing investment in digital commerce. We expect our international growth to continue to be strong at 20% to 30%, excluding a 5% headwind resulting from strengthening Canadian dollar. Our guidance reflects strong growth in China while sustaining a higher baseline demand in our remaining international markets. We will increase our marketing investment in China to build brand equity and accelerate our long-term growth in the region. Revenue in the strategic partner segment is expected to increase between 5% and 10%, reflecting the higher demand of our customers' branded products. The foregoing financial outlook is based on the following assumptions for fiscal 2021. Normalized FG&A expenses will increase by approximately 9% to 13% as we continue to expand in our e-commerce capabilities, and we grow marketing investments, including approximately $3 to $4 million investment in marketing, primarily to support our long-term international growth opportunities. Depreciation will be approximately $10.5 million, reflecting the acceleration of capital additions and our third-party logistics platform. Interest expense of approximately $5.5 to $6 million, based on our estimated borrowing and prevailing rates. Income tax rates of approximately 27%, and a fully diluted share count of between 41.5 and 42 million shares. A complete discussion of our outlook and factors impacting our expected performance in 2021 is included in the outlook section of our MD&A that will be filed today. With that, now let me turn the call back to James for Q&A. Thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to let us know to reach our equipment. Again, press star 1 to ask a question. And we'll take our first question today from Sabahat Khan with RBC Capital Markets.
spk01: Sabahat Khan with RBC Capital Markets. Thanks, and good afternoon. Defender 2021 guidance for revenue.
spk02: Can you maybe share some color on what you're seeing by channel heading into 2020 or going through 2021? across food, drug, and mass, and is there any channel that, you know, stands out to the upside or to the softness? Yeah, thanks, Mike. Thanks for the question. We have seen strong growth across all the channels we play through 2020, and we are not presently seeing any slowdown as we flip into the new year. So, you know, we talked about this the last few calls. The growth has been led by econ. It definitely was the strongest growing channel. But we've seen growth across every channel in Canada, food, drugs, masks. We've seen club. We've seen dollar. We've seen it across the board. And the elevated levels of demand we're seeing from the consumer we expect to continue. Okay. And then I guess just on that theme, one of the topics we've discussed a lot this year is, you know, the new consumers that have entered the category, the existing ones that are using the product more.
spk01: I guess, where do you stand on that as in 2020? How are the trends at the end of the year versus perhaps during summertime, during peak pandemic? And what's your expectation for consumers to continue to stay with the Category 3 this year?
spk02: Yeah, so we've seen sustained elevated levels of demand through the entire year. You know, after we got through that initial COVID panic buying period, we saw elevated levels of demand remain consistent through the year, and it was really led by the trends we talked about. New entrants into the category, increased compliance across pre-COVID consumers, continued growth across all of the categories, or most of the categories, I should say, not just limited to immune-boosting products. and this continued shift to quality where consumers are looking for brands that they know and they trust. We're extremely confident based on a couple data points and some research that we have out in the marketplace that tells us consumers are going to stay with the category long-term. We know from the past that the longer consumers build vitamins, minerals, and supplements into their daily habits and routines, the higher likelihood it is they stay in the category. We know this from our past success. We know this from all of our research over the years. When we talk about that typically, we talk about a consumer staying in the category three to four months, and then there's a high likelihood they stay in the category. We're going down a year now, and we're seeing some trends continue to strengthen. We've seen new consumers enter in the early days of the pandemic. We've seen them repeat purchase, and we've seen new consumers enter the category since. On the increased compliance side, our research shows that more and more consumers are increasing their usage of vitamins, minerals, and supplements and actually crossing over to more categories, and we've seen that number of crossover increase in every wave of research that we've done, and it's been quite encouraging to see for us. So we're very confident that they will stay with us. The other piece I would talk about, just while we have everyone here, is this increased research that we're seeing in the press and we're seeing around the world on vitamin D. There's upwards of 65 studies going on on vitamin D around the world, And the studies are looking at the impact of what vitamin D has in terms of fighting off or lessening the impact of COVID. And the scientific data that's going to come out of that research is going to be quite incredible, we believe. And it will halo out to over more than just COVID. It will halo to general viruses and general immune system boosting overall. We're very confident that that's going to help drive this category for the long term and that section of the category for the long term as well. We recently fielded some research in market in Canada, and what came back is that 50% of consumers are aware of the vitamin B research going on around the world, are following it, and are looking to increase the vitamin B usage through this. So lots of signs point us in the direction we've been talking about for the last three quarters.
spk01: Okay, thanks for that, Colin. And then this one on China, you know, with, I guess, COVID-19, I think we've seen updates in demand even abroad. But can you maybe update us on your legacy strategy there, some of the licensing process that you're a part of and some of the retail that you're trying to get shelf space for? Maybe an update on how that strategy is expected to travel over the course of 2021 as we move beyond the impact of the pandemic.
spk02: Yeah, we have had tremendous increase in business in China over 2020, and it has been followed our strategy but shifted a little bit due to the pandemic, and we've talked about it before. So, you know, the e-com side of that business has continued to accelerate at very high demand levels, and we continue to grow there, mainly due to the fact that early on in the pandemic when China was pretty much shut down, consumers shifted more to e-com than what we originally expected, and that was great, and we picked up a lot of growth there, and we continue to invest in those capabilities and in the marketing that we use in that channel. We did see an initial slowdown early in the year in terms of our distribution of brick and mortar stores in mainland China. But once that country started reopening and the stores started reopening, we got right back to plan in terms of number of stores that were in, the distribution that we expected for the year, and frankly, the number of registrations that would allow us to build a shelf set of scale of which we can now grow off of. So we have scale in our shelf set and the numbers of registrations we have, and we have some scaled building and the numbers of stores we're in. So Our strategy is moving forward. You heard we've invested marketing in international led by China in 2021, and we expect to continue to accelerate that growth. Okay. Thanks very much for the call. Thank you, Simon. Next, we'll hear from Peter Sklar with BMO Capital Markets. Good afternoon. First of all, a couple of things impacting your margin that I don't quite understand, I think. you said that transition to a new logistics framework was a drag of 130 basis points. So could you explain what that means?
spk00: Yeah, so this is us essentially moving our distribution centers out of our Twin Oaks Drive facility in Windsor and our Scarborough facility to a third-party logistics provider. So it is really just transition costs. of setting up and moving that inventory to make space for additional capacity, generating projects in our existing facilities. So, Chris, then that won't be repeatable. That's kind of a one-time item. Yeah, so we talked about this in our guidance at the end of the third quarter, that that project is ongoing between Q3. It started in Q4 and will be completed in Q1. So the costs to move and establish that distribution framework will be in those two quarters, but ongoing they will not affect our margins. Okay.
spk02: And then the other item was something called supply continuity costs. Explain what you mean by that expression.
spk00: Yeah, so those are all the costs related for us to ensure that we maximize their throughput. It's the use of third party manufacturing and packaging to increase her output. It's the COVID costs in our manufacturing facilities with shift gaps, physical distancing and PPD. It's also the the the cost of accelerated freight and taking on additional inventory. to ensure that we had the supplies of any at-risk critical ingredients.
spk02: Okay. And so those costs will still be even in 2001, won't they?
spk00: Yeah. So we expect those costs have impacted really Q2 to Q4 in 2020. Q1, you'll see another similar 100 basis point impact with those costs. But then as you get into Q2, you're lapping a similar operating structure year on year, so we don't think that that will affect our margins as significantly by the end of the year. Okay.
spk02: Then, Mike, you talked about that all your domestic channels are strong, but I didn't hear you call out specialty. I was just wondering if specialty was weaker because it's largely – you know, a bricks-and-mortar basis with relatively small store footprints. And plus there were lockdowns that would have affected those stores. Yeah, so what was interesting, Peter, was in wave one of lockdowns, we definitely saw an impact that, you know, we've mentioned in the last few calls on our specialty brands business at some of those stores. you know, either closed or went to curbside pickup or were forced to an e-com platform that a lot of them didn't have. You would be surprised, though, how strong the e-com platform is in a lot of specialty channel stores. So we did feel that in Q2, late Q1, early Q2, the initial shutdowns and the initial lockdowns. And we talked about as those stores started to reopen, those businesses really got back to what we expected of them in the back half of the year. We didn't see that same slowdown in the second set of – of lockdowns what we saw was the accounts invested they you know or to curbside a lot of them went online or started to build out with an online presence sorry mike i've lost you i'm not too sure if it's you or me
spk00: Sounds like that might be Mike Peter. So essentially those customers found ways to access consumers through alternate channels, whether it's curbside pickup or through e-commerce in Q3 and Q4. So our growth exiting the year in those channels met our expectations. So we look forward to continued growth in those channels going forward. Right. Okay.
spk02: And then just one last question. I'm not too sure who wants to field this one. I think in your guidance, you're saying your SG&A line is going to grow 9% to 13%, you know, which is a big growth rate. I think you're attributing it to investment in e-commerce. Can you just add a little more flavor there exactly? What investments are you making on the SG&A line?
spk00: So it's really that big nut that we called out, $3 to $4 million in incremental marketing. And that's really about brand building in China and making sure that we maximize the opportunity there. And how do you... As well as increment... Sorry. So it's all about brand building, brand awareness. It's through KOLs. It's through promotional activities. It's through... you know, expanding our website and working with our partners there to expand awareness of the Jameson brand and continue to message around our Canadian heritage, our quality, our 100 years of experience in Canada and the benefits of our brands to the Chinese consumer. Okay. And, Chris, I'm trying to think, like, if you segment out,
spk02: your international sales, like what they amount to now?
spk00: I think they're in our revenue note in our financial statements. So I think you can see what the number is there. Let me see if I can pull that for you, Peter.
spk02: Hey, Chris, I'm back. Sorry, my phone dropped.
spk00: It's all good.
spk02: And then at the same time, can you give us some guidance as to what proportion of your international sales in 2020 are now composed of, you know, China sales?
spk00: As normal, Peter, unfortunately, we're not disclosing what specific component of our international sales are from China. But I can get you the international numbers. Give me a second here. Sorry, Mike. I did answer the rest of your question. I don't know if there's anything else you wanted to say around that specialty brand.
spk02: No, I'm sure you handled it perfectly. So thanks, Chris. I can look that up, Chris, myself. I don't need to hold you up. Just a second.
spk00: All right. Let's take that offline, Peter. I'll give it to you shortly. Okay. And that's all my questions. Thank you.
spk02: Thank you. George Dumais with Scotiabank has our next question. Yeah. Good afternoon, guys. Congrats, Mike, on the payment and happy retirement, Mark. Thank you. Looking into your 2021 revenue guide, to the 5% growth for domestic, does that assume negative volumes offset by pricing? And if so, can you maybe talk a little bit about what the pricing looks like? Yeah, yeah, yeah, for sure. We are not expecting negative volumes. You know, there's going to be some lumpy quarters in here. So, you know, Q1 ended extremely strong last year and Q2 started out very strong. So we do expect to see some level of growth on the year in our domestic business. So there definitely is some volume growth in there. We also have done what we need to do to protect our margins. So we have seen some increased costs and some cost pressures on our business. And as we've done in the past and as we've committed, you know, through the years, we will do everything in our power to protect our margins. So we have taken action that we needed to take. We have worked with all of our retailers to ensure that everything that – we need from a margin perspective has happened and has been recovered, and we're going to move forward through the year driving both volume growth and some growth off of the necessary pricing actions. Okay, thanks. Maybe on stuff, like the comment you alluded to earlier, I think you guys got it for 90 base points of margin expansion at the midpoint of the guide for 2021. Can you talk a little bit about how much of a headwind we're seeing because of the higher input costs embedded in that guide against that margin expansion? Chris, do you want to talk to that?
spk00: Well, I guess the critical point is, yeah, with the higher demand levels, within our process from a supply chain perspective, we have some input costs. We're going to pass those costs along in the ordinary course of business. But the key drivers of our margin expansion is really about efficiency in the year and bringing some of that volume that was manufactured externally into into our manufacturing facilities as well as growing volume organically on those within our operations and continuing to lever. So we're not really pricing for margin. We're pricing to cover cost, elevated cost inputs coming into our system.
spk02: Okay. And maybe one last one for Chris as well. On to the year. Can you maybe give us a sense a little bit about what you think in terms of CapEx and what you think in terms of working capital? Just trying to get a sense of, I guess, free cash flow conversion in 2021 versus 2020.
spk00: Yeah, so we're going to – when you look at our cash from operations before working capital, you know, we ended 2020 at about $60 million. We invested about $20 million in working capital. Next year, I would expect to earn, you know, if you go to the midpoint, about $10 million in more free cash from operations before working capital. I would expect to invest a little bit less in working capital in 2021 as we take a higher level of raw materials entering 2020 and replace that with a higher level of finished goods to bring back our stock of cycle stock. And then when you look at capital expansion, we're moving a whole bunch of internal distribution out to the third parties, and that's making room for us to expand our operations, both at Rhodes Drive and at Scarborough. We're bringing tablet manufacturing and packaging to our Scarborough facility and including some rollover and capital projects from 2020 that did not get completed. We could spend up to $25 million in total capital and intangibles as we look to also upgrade some of our IT systems at the same time.
spk02: That's helpful. Thanks a lot. Good luck, guys. Our next question will come from Mr. Andre Leno with National Bank.
spk01: Hi, good evening and thanks for taking my questions and congrats Mark on the retirement and Mike on your new position.
spk02: My question actually, I just want to ask a little bit about China. I was wondering if you can talk on the progress in selling the physical store. Do you think are you in a good spot right now or do you see it expanding further?
spk01: And a bit further to that question, the new product approvals, have you had any new ones, and are you still targeting that 4D by year end, if my notes are correct?
spk02: Yeah, thanks, Andrew, for the congratulations. Oh, you want to go, Chris? By all means, go ahead. No, no, go ahead. All right, perfect. Thank you, Andrew, for the question. Thanks for the congratulations. From a China perspective, you know, we are, you know, as we talked about a little earlier, we had a little bit of a slowdown early in the pandemic as China slowed down in terms of our physical storage distribution. But by the end of the year, we have caught right back up to our expectations, and we are now in the number of doors that we expected to be, and we expect to continue growing that through 2021. And we're very happy with that and very happy to be doing that. From a registration perspective, we stopped reporting actual numbers only because it was giving some competitors some competitive information that is not available to them unless we say it, and we cannot really understand what they're doing. What we know is that we are the clear market leader in the numbers of registrations. We are on target for what we were hoping to have in terms of registrations at this point in time, and we will continue to apply for new registrations as new ingredients become available to be registered for and to apply for Orange Hat and Blue Hat registrations. Great. Thank you. And I've been looking at in 2021 in China, and you have more growth in e-com there in 2020. Do you expect a similar kind of growth profile looking further, or do you expect a bit more shift towards physical stores? Well, I think we expect to see some more shift in physical stores just because that's a new part of our strategy. However, we expect e-com, and especially cross-border e-com, to continue drive substantial growth in China. It is a rapidly growing channel there. It is seeing great growth across the category, and we will drive a lot of our investment and our time to build in that category. It's estimated by the end of 2021 that in China it will be the first time that sales to consumers across the board will be over 50% in the e-com channel for the first time. It will be larger than bricks and mortar. So the growth on bricks and mortar will be there because we haven't been there. But we are going to continue to really accelerate and really grow on the e-com channel as well because it is hot, it is growing, and it is where the consumer is moving to for sure. Great. Thank you for the call.
spk01: A couple more questions for me. Just on the Canadian side of the business, you mentioned that you've gained market share of the competition. Do you have any estimates where you are right now in terms of share? Sure.
spk02: So we don't release share data, Indri, but what I can tell you is we grew over three times more than our closest competitor in share in 2020. And what I can also tell you is we saw share growth across multiple categories. This was not just driven by Indri. We saw share growth across 10 of 12 categories that we track. They were all growing substantially, and we managed to grow share in all of them. So we're really quite proud of it. We're really quite pleased with it. And we were the clear share gainer in the market in TANDA in 2020 for sure. Great. Thank you. And last one for me. There were some reports that there were inventory depletions at some retailers during 2020 for vitamin and turkey, and that's because there was lots of demand.
spk01: Do you factor in your guidance any replenishment of those inventories, or is it purely the guidance or continuation of the consumption patterns that you saw this year? And that's it for me. Thank you.
spk02: Yeah, so, yeah, you're right. I mean, some stores across multiple categories, not just vitamins and other open supplements, have some stock issues in stores with the pandemic heated up and all throughout the pandemic. And if you go to storage, you'll see we've had a few of those issues. We are manufacturing more products than we ever manufactured, and we are selling it to the consumer. So, or to the stores who meet the consumer needs. So, we are meeting more of the consumer's demand on shelf than what the eye would think when you see the shelf. Where we're short is some safety stock both in our warehouse and in the retailers' warehouses. And as we add all the capacity we've been talking about and that Chris has referred to, we will be refilling the pipeline of inventory at the retailers, the safety stock there, the safety stock with us. And we do expect to shift some of that through the year. So really when you look at the domestic business, we're really expecting kind of three things. We're expecting some consumption growth off of a really high base from last year. We're expecting to refill some of that safety stock at the accounts that meet some safety stock top-up. And we're expecting some of the pricing that we talked to earlier to roll through into our growth number. So all those three things combined are what's driving us to see growth in Canada year over year off of a record year. So we're quite pleased with that and feel that we can deliver on that. Great. Thank you very much for the call. As a reminder, press star 1 if you have a question. We'll hear from Graham Krimer with Eight Capital.
spk01: Hi, good afternoon, and thank you for taking my questions. I wanted to follow up regarding the efforts made to free up capacity. I appreciate the commentary on those costs being finished up by Q1. With respect to those increases in capacity, how far does that take the company in terms of the growth trajectory of continuing to see elevated demand? Does that satiate demand for and there might need to be further increases of capacity, or how many years out exactly does that take you? Thank you.
spk00: Yeah, so thanks, Graham. Our capacity plans right now are required because we continue to operate in a constrained manner with health and safety measures and physical distancing in our plant as well as shift gaps in a in in our plants so from that perspective we need to add the capacity today to continue to meet the demand of our consumers by the time we're finished 2021 we should have enough inherent capacity to be able to satisfy normal growth for the next three years so we should have enough capacity taking us into 2025 before we need to continue to do a similar level of capital expansion. And at that point, we'll be really thinking about whether it's third parties, whether it's an acquisition of a facility or just a greenfield or brownfield project that we take on ourselves to add capacity for the next 20 years of growth for Jameson.
spk01: So just to clarify, Chris, so sort of exit 2021, And with that growth, sorry, the capacity over the next few years, that assumes that those shift gaps, those physical distancing, that returns to a more normalized environment after this year?
spk00: That's correct.
spk01: Okay. Thank you very much. And then just one other question on a different note. With respect to the U.S. market, I know that was – that initiative was tampered down or put on – on hold at the start of the pandemic. Is Jameson revisiting that at all or looking to ramp that back up at any point soon? Thank you.
spk02: Yeah, thanks, Grant, for the question. So in regards to the U.S., you know, we launched a test in the U.S. on a very pay-as-you-go variable model early in this year, in early Q1. It got slowed down due to COVID. I mean, it just was not the time to be developing a new brand in a country where, or in a situation where consumers are looking for brands that they know and they trust, and we pulled that back. In the very late periods of Q3 into Q4, we did reinitiate some of the variable spend on our tests in the U.S. around our probiotics lineup on Jameson and our Iron Vegan lineup in terms of plant-based sprouted proteins. We continue to operate that in a test mode. We have seen some progress on a couple SKUs. We've seen them move up the rankings on Amazon, and we're going to continue in a pay-as-you-go variable model to see if we can start to build those up as we continue to be in test mode. We're also looking at some other platforms in the U.S. to possibly test some products out on, some other e-com platforms. But I fully expect it to be in test mode through 2021. We don't expect anything material from it this year. But we do plan on spending some time this year really, really unlocking and thinking about what is our strategy to really grow at scale in the U.S. over the next few years. Our strategy is, we've been very clear multiple times, is to double this business over the next five to seven years. And we've got three very distinct priorities. One is growing Canada at historical rates or more, which is a very material amount of growth to our business over the next five to seven years. The second is our international expansion led by China and really building a scale business globally led by China. And number three is to find a way to build some level of scale in the U.S. So while we're testing, we will continue to look at different strategies to do that, and we'll continue to figure out how do we make that third priority come to life in future years to meet our goals.
spk01: Okay. I appreciate the call. Thank you very much for that. That's excellent.
spk02: Next question will come from Justin Keywood with Stiefel GMP. Good afternoon, and thank you for taking my call. Just for this year, are there any new key product launches or variations to highlight? And I'm also wondering if there are certain product categories that may come back as the restrictions ease. I'm thinking perhaps the sports nutrition products, or have those categories relatively held up? Yeah, so we have seen – sports nutrition is an interesting one. We get bucketed in sports nutrition quite often. But the truth of it is we don't have a lot of hardcore sports nutrition business. We have a little bit. It's kind of immature in our portfolio. Most of our specialty brands are built more on foundational health and foundational active athleticism and things like that. We have seen them start to rebound, as I'm sure Chris talked about when I got cut off in the call. They did get off to a bit of a slow start in the original lockdown, but they did start to recover, and we are seeing some growth with some of those for sure. And we do expect them to recover globally, and we do have some innovations coming out in that space in the new year. So from an innovation perspective, and I think that was the start of your question, we are on the full offense in terms of innovation. This is not a time for us to slow down in innovation. We have a robust innovation plan going into 2021, as we do in every year. It is the lifeblood of vitamins, minerals, and supplements. and we plan on bringing a lot of exciting products to the market. We don't usually talk about what we're launching prior to doing it just for competitive reasons, but we continue to follow the consumer trends, see where they're shifting, and we have products ready to go that meet those consumer needs, be it in increased demand and immunity. We're seeing a lot of growth in natural energy and sleep and stress relief, and we've got some products launching around that. We see growth around healthy aging. women's health and beauty, and, of course, continued growth in herbals and superfoods. And you will see different innovations from different brands around those pockets as we follow the trends and the ingredients. What we did launch in late 2004, which is an interesting one if you're out in the specialty brand stores, is we did launch a line of progressive mushrooms, mushroom products. And mushrooms are a hot ingredient right now. They're really hot when it comes to stress relief, when it comes to energy, when it comes to all these things that consumers are looking for today. We did launch that lineup. We're excited about it, and we're hoping it brings us some growth in 2021 for sure. Thank you. That's very helpful, Colin. And then on the investment in e-commerce, and if I heard correctly, it was primarily related to the international markets. Is that for the U.S. and some of those promotion activities resuming, or is it more broadly based? Are you talking for 2021? Correct. Yeah, so... No, that is not U.S. So U.S., as I talked about a few minutes ago, is very much in test mode. It's a very immaterial expectation we have and a very immaterial spend on a variable basis that we're looking to make as we just test various, I would say, marketing platforms and, you know, what do we want to say, who do we want to say to, who are we targeting, and really trying to unlock where can we pick up a little bit of growth there as we look to unlock it for the future. The spend we talked about in terms of increasing marketing is mostly international for 2021. It is a big chunk of it. It is a lot of it focused on China and really continuing to build scale in that country, both in terms of working media from a digital perspective and also driving more insights. As we continue to build in China, we really want to unlock our understanding of the consumer like we have in Canada, really get to know them when we're spending a little bit more money in terms of understanding that consumer so we can build for the future. But most of it's working media in a digital environment. I understand that.
spk00: Sorry, so just to add to that, Mike. Sorry, just to add to that, from an e-commerce perspective, it's really building out our core capabilities with our international distributors as well as our Canadian customers. making sure that they're bringing the best product offering in the best way possible to their customers from a consumer strategy perspective. We do a lot of work both from a direct-to-consumer perspective as well as helping our distributors and customers go to market from an e-commerce perspective.
spk02: For sure. Thanks, Chris. You're right. Domestic as well. That's correct. Thank you. Next we'll hear from Tanya Gonsalves with Kennecor Genuity.
spk03: Hi, guys. Just a couple from me here. In terms of China, as you see your sales continue to grow there and your penetration of that market continues to grow, do you have any plans to acquire a distributor or manufacturing power in the country?
spk00: Can we take that one, Mike? Yeah, go ahead, Chris. So we entered our current agreement with our existing distributor in China at the end of 2017, and that's a five-year agreement. That agreement comes to an end at the end of 2022. And at that point in time, we have an option to buy that distributor out at an existing price, or we have the ability to find a new distributor or to take that take those activities in-house and kind of go on our own from a China perspective. I think long-term, for us to maximize the opportunity in China, we want to control our own destiny. So we'll look to transition over the next few years from a distributor model to a Jamison-owned model over time.
spk03: And in terms of menus on the ground manufacturing, are there any plans for that?
spk00: No, not in the near future. We prefer to make everything in facilities that we can control and our QA team can assess. So the reason why we are spending the amount of capital we are in Canada is to ensure that we maintain that high-quality position and have the capacity to grow both domestically and internationally while maintaining those very high Canadian production standards.
spk03: Okay, excellent. Thank you for that. And then domestically, I guess, could you provide a little bit more color on what you're seeing in terms of the competitive landscape here? I'm hearing about new health and wellness, VMS brands pop up every day. What kind of pressure are you either seeing from those companies, or is there the opportunity to acquire these targets?
spk02: Yeah, thanks, Tanya. So, you know, this industry, vitamins, minerals, and supplements, is still a very fragmented industry. There's a lot of players in it, and We see small players and challenger brands pop up all the time for years. It's nothing new that they would be popping up this year. They pop up all the time. And it is something that we have gotten through as a company by continuing to build around our brand that is trusted and has a high quality experience. We look for our brand. They know that they trust us. And they look at our resource. And remote quality and trust, that's the number one thing consumers are looking for pre-pandemic and they're looking for now. And our share growth is growing because of that. And we continue to drive that and we'll continue to drive that. So these small players that we see poke their heads in and out, we've been dealing with them for years and they haven't slowed it down and we don't expect them to slow it down anytime soon. Sorry, I think there was a second part to that question. What was the second part, Tony?
spk03: Yeah, is there the opportunity to acquire some of these brands similar to what you did with specialty five years ago, like mushrooms, for instance, instead of just a novel skew? Is there the opportunity to buy like a Four Sigmatic, for instance, that has a customer base already?
spk02: Well, so we actually think that we have the right brands in Canada, which we're building an innovation pipeline around, and we continue to launch products. So there isn't really a category out there that we are interested in, that we don't have a brand that has a right to play in it and a right to win in it, frankly, if we launch products in it. So Mushroom is a great example. Progressive lineup of products is known as an accessible professional-level product in the specialty brands channel. We saw an opening of, you know, a trend moving towards mushroom-based products from a consumer perspective. Instead of going out and buying a company that would be quite small and operate in the mushroom side of the business, we launched a lineup of mushroom products. And that's really how we look at this. We look at consumer trends, and then we say, okay, where is the consumer going? What trends do we want to follow or do we think are worth following? and then what brand makes the most sense to launch this in to make sure we target the consumer that's looking for it. So we don't see a big opportunity to start acquiring more small brands in Canada. Where we see an M&A opportunity for us longer term is more international. We're into the U.S., into some countries that have a lot of scale in the category, but we don't yet have a strong presence, and that could really step change us in terms of building scale somewhere where we're not. So that's where we focus a lot of our M&A thinking and a lot of our time. Not really in Canada. We feel like we've got the right brand to build any portfolio that we want right now.
spk03: Okay, perfect. Thank you. And another question on the domestic market. I know e-commerce was a really strong segment in 2020. Apart from increased consumption, your e-commerce business, Did you start selling a wider assortment of SKUs to these partners, and were there any big-name e-commerce websites that you were added to over the year that you think are not as low penetration today and you could see significant growth in?
spk02: Yeah, I mean, there's really three pillars of digital commerce that we look at in Canada. One is the traditional e-com channels that we would know as like Amazon or Well.ca, and we continue to expand our assortment with them based on innovation and based on where the consumer trends are going, and we have quite a robust business in that channel of trades. We have our direct-to-consumer business as well, which has been growing steadily and had a very good year in 2020 as more and more consumers shifted online. And we have our full assortment of products there. We actually have all of our brands up online now on separate sites and continuing to draw in consumers. Where we've seen the biggest assortment improvement over 2020 and we expect to see over the next few years is really the expansion of Econ into our brick-and-mortar partners. So, We have very strong relationships with the traditional retailers here in Canada. You've seen many of them launch new e-com capabilities or platforms. We are working hand-in-hand with them as partners to help them really build out and drive their vitamin and mineral supplement sections of those sites and of those platforms. And we are growing along with them, and we've seen them increase distribution of our products through their e-com platforms and, of course, reaching more and more consumers as consumers shift online. So I think the partnership with the Plex and Mortar retailers that are moving or shifting some business online, that's where the biggest growth has been, and we'll continue to grow along with that.
spk03: And now that a big portion of your sales is coming from online, is there any way to put a number on how much of that revenue is recurring, say, like through Amazon as customers sign up for, like, the recurring shipment of vitamin C every month or so? is there the opportunity to increase recurring revenue by instituting this kind of optionality on your own website, for instance?
spk02: Yeah, I mean, we do have some indication of it. We don't release those numbers. We will continue to grow and try to get people to repeat purchase through, you know, different levels of subscriptions or repeat purchases or subscribe and save, so whatever the different platforms call it. You know, our research would tell us that while that is something that some consumers are interested in, the vitamin and mineral supplement side of the business, it is not as, I would say, as in demand as you would think. So there are other businesses and brands and categories out there that are much more in demand on a subscription-based business here in Canada. We see it as a longer-term opportunity. We continue to look for ways to grow that. But it isn't like a very top priority for us right now because we're just not seeing the consumer acceptance of it as you would think. And we went out and actually researched it with the consumer. We actually fielded some research on this because we wanted to understand how big it is and how interested consumers are in it. And we actually found them to be not as interested as we thought in this category. But we'll continue to monitor it. We'll continue to watch it. We have those capabilities. We offer it to consumers. And I think you'll just see it grow organically over time.
spk03: Okay. That's all from me. Thank you so much, gentlemen.
spk00: Thank you.
spk02: And that will conclude today's question and answer session. Now I'll turn the conference over to Mr. Hornick for any additional closing remarks. Well, thank you very much, everyone, for joining us. We remain very confident in our 2021 and beyond plans and look forward to speaking to you again on our next call. In the meantime, please stay healthy and safe and have a good night. Thank you. I will conclude today's conference. Thank you for your participation. You may now disconnect.
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