McPherson's Limited (MCP) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to McPherson's Consumer Products Investor Day. [Operator Instructions] I would now like to hand over to Mr. Grant Peck, CEO and Managing Director. Please go ahead.

Good morning, and thank you all for joining today's McPherson's operational review presentation. My name is Grant Peck, the CEO. Today, I'm joined by Lori Pirozzi, Sales Director; Donna Chan, Marketing Director; Paul Witheridge, CFO; David Fielding, our Strategy, Planning and Innovation Director; Dawn Swainston, our General Manager of McPherson's Health; and Jade Peak, our International Sales Director. I'm also joined by Jeremy Hunt from The Common Good, who is supporting the work we are doing in the international and cross-border e-comm space, but more on this later from Jade. This is a team with deep industry experience who have contributed to the success of our domestic business, provided us with a foothold in the Chinese market and transformed many of our brands into category leaders. We are all deeply invested in the success of McPherson's and are acutely aware that further work needs to be done in the short and long term to deliver value for shareholders. You will hear from these team members at various points throughout the session along with myself, and we encourage questions at the conclusion of the presentation. But firstly, some opening comments from me. The operational review commenced in December 2020, shortly after I was appointed as the interim CEO. The team were given a clear mandate to identify growth drivers, consider how innovation, research can enhance our brands, and assess all the channels at our disposal both domestic and international. The strategy we will present today is a sensible evolution of our business and maintains our intense focus on health, wellness and beauty. This definition remains our North Star as the market opportunity is significant. Put simply, the demographic bias to age well is not a flash in the pan in this country or in any others. In the past, much effort has gone into clarifying this position and it's clear, the corporate interest we see in McPherson's today is a function of the strength of our health, wellness and beauty brands. The feedback I've had from shareholders since I commenced my position is that there is broad alignment on the sector we are prioritizing, and we must now be laser-focused on execution. To that end, today, we'll talk you through 4 key strategic priorities: firstly, leveraging our 6 core owned brands through adjacencies and innovation; secondly, delivering a new platform for growth through our health and wellness category; thirdly, selectively expanding our international footprint; and finally, introducing a range -- an appropriate range of cost optimization measures. By executing these strategic priorities, we aim to meet the F '26 target of $300 million in sales and EBIT of $50 million. However, we understand -- we and shareholders expect immediate action to drive growth. And as a result, many of the initiatives we will discuss today will be enacted in the next 3 to 12 months. For example, new product innovations and campaigns across brands like A'kin, Manicare and Lady Jayne are already in development and will be in the market in the coming weeks and months. On the export front, we have created a position of scale and significance in China through Dr. LeWinn's, but acknowledge COVID-19 has affected our trajectory. We've already taken steps to improve communication and understanding in that channel, and we'll manage inventory in accordance with demand over the coming months. Our approach to export will mature with a broader but selective remit. And today, you'll hear about new markets and new channels that we're targeting. However, we're not here to overcommit. We will assess each market on its merits and apply the resources and application that matches the opportunity and the likelihood of success. Acquisition has a role to play in the future of McPherson's. And in the short term, however, we are focused on the integration of our Global Therapeutics business. I'm pleased to say this is gaining momentum and will be central to our health and wellness vision. We do remain a low-geared business with an attractive dividend policy. At the same time, we provide exposure to an industry that is set for significant expansion in line with our aging global population. We are confident that our execution will improve as we settle into our health, wellness and beauty definition, and today's presentation will explain that in more detail. But before I do, I recognize some of you may be considering McPherson's for the first time, so I will spend a short amount of time talking about McPherson's today. McPherson's is a company with a long history in Australia, dating back to the 1860s. After much work and very deliberate actions, we have clarified ourselves as a health, wellness and beauty company. Through our unique range of brands, we have a presence purchased and available in 50% of your Australian households. We have more than 300 staff and 40% of this number is customer-facing. We will turn over greater than $200 million this year. And we are not an Australian-only proposition with some of our brands available in 14 countries and over 11,000 stores. The choice to play in health, wellness and beauty has been a good one. These categories and the $15.2 billion market scale will benefit from the global aging trend and the ever-increasing sentiment to age well. Our choice in this space will mean our category dynamics in the domestic market are always a tailwind. The current global pandemic we're all living through will continue to drive health consciousness and well-being in the future. Now I don't intend to talk to all components of this slide. But clearly, a couple of key points. We are a player of significance in the Australian market as the second largest Australian-owned beauty supplier to the pharmacy category. And the category strength is clearly not a domestic-only trend as we expect to close to -- we expect close to 5% growth in the beauty industry worldwide, being a realistic expectation out to 2025. And all major markets are identifying that anti-aging beauty needs are at the top of their agenda in the future. For those unfamiliar with the business, these are the categories we operate in, in the domestic market. We have significant share positions in key categories and we'll continue to play in this space and the logical adjacencies for our brands. I'll now summarize the outcomes of the review at a high level, and the team will take you through further details. As a precursor to discussing the review outcomes, it is worth framing up our strategic intent. These principles are guides to the work we have performed and the priorities we've targeted. Not surprisingly, we recommit to the definition of our core focus. Our established positions have not been created by accident, but via leverage of our core competencies and capabilities via highly regarded relationships with customers and intimate channel understanding. Now we don't believe we have perfect execution in this space, far from it. We see considerable performance potential through greater collaboration, alignment and simplification of purpose. Our DNA and presence in health, wellness and beauty has been created through acquisition. So we will consider these in the future but only if scale and fit are within clear guide rails. Our review outcomes are in 4 areas. And this is a summary position which details, for each, will be elaborated on later by the team. Not surprisingly, a major component of the business and 80% of our sales is in core owned brands and key channels. An enhanced focus in this area will drive growth by tapping into adjacencies, and we continue to focus on R&D and innovation. The second outcome is in the health and wellness space. We've had great opportunity now to look at the acquisition of the GT business. And we've got a resonant position around ancient wisdom and modern medicine that tests extremely well with consumers. With our new understanding, we see great ranging upside in Australia and New Zealand, and we can see NPD as being a significant growth opportunity in this space. International is the third area of focus. We will moderate our expectations. We will derisk reliance on 1 brand, 1 channel, and 1 geography, but we have created a considerable position of significance in this market, and this is a robust example of what is possible with the right strategy in international. We'll take a conservative approach to leveraging our demonstrated achievements. And finally, in cost optimization, we do have opportunities arising from scale, combination of business and appropriate focus and will deliver considerable value out of an appropriate approach in this place -- in this space. A little more detail on each before my team will take you through further details. On the 6 core owned brands, Lori Pirozzi and Donna Chan will elaborate shortly. This is clearly the piece of our business that is the strongest and where our resources executionally and brand positions are the greatest. We've looked at this area closely in the last few months, and the realization is that we have significant upside. It's been our adjacencies performance and innovation has been a driver of positive outcomes in the past, and we expect that to be continued and improve in the future. We will deliver $230 million of sales and $29 million in EBIT in what is effectively our core part of the business. In health and wellness, it's clear from the work we have done that the opportunity is perhaps even greater than we had first thought. We've had great testing with consumers on our positioning. We see the significance of our ranging opportunity in Australia and New Zealand. And in NPD, where this portfolio has been stymied a little by previous ownership and the conflict that their portfolio brings, we know that we've got significant opportunity. And Dawn is going to talk to that later on today. So in the international space, as I've said, we have created a brand of significance with our partner. Like many, in a post-COVID environment, we've seen highs and lows, and we're working through our position from an inventory perspective and the future of that market. We've got a very close relationship with our partner in this space, and we expect and know that, that will continue. We will selectively use cross-border e-comm in the future to drive entry into new markets and these will be both inside and outside of China. We think we've got a very modest opportunity of $40 million of sales and $8 million in EBIT in the plan period out to F '26 in this space. In costs, we'll address the cost base whilst preserving capability that drives our growth. We know that we have immediate opportunity in supply chain and distribution as we consolidate businesses acquired and optimized. We also have brands of scale that continue to have procurement and component price opportunities in the formulated space, and there are immediate opportunities in the period. And finally, our overheads will be addressed whilst preserving, as I've said, the core capabilities to drive our growth. These initiatives are real. They commence in the next fiscal, and will deliver $6 million opportunity against EBIT in FY '24. Now Paul Witheridge will talk to the breakdown associated with these cost opportunities. We've got high confidence levels in addressing cost by having an ability to focus, not just on growth, but on an appropriate cost base. The key opportunities are in warehouse, delivery and procurement, which equate to around about half the target and then SG&A. So to conclude, in respect to the strategic and operational review, we land at a position that I think demonstrates we now have a far greater confidence in growth, particularly out of our core business that may have been the case in the past. We've got clear building blocks, sequenced deliverables that illustrate the pathway to this performance outcome. We will preserve the core value drivers, but at the same time, recognize that there are opportunities with cost optimization as you expect from a business that is growing in scale over the period. At the end of the day, a better performance expectation is the outcome. Most importantly, the message I would leave you with is that the breadth of opportunity from a growth perspective is greater than we've seen in the past, and this in itself is the best approach to a lower risk environment than any other. That's the top line summary. And what I'd like now to do is to hand over to Donna and Lori, and they'll take you through the first platform in our approach. Thanks, Donna.

Thanks, Grant. What I'm going to take you through today is the core 6 brands. And what I look after is Marketing Director on the owned brand. And I want to share with you our plans for our brands, but more importantly, what are our ambitions for each brand. Our McPherson's core 6 are strong market-leading consumer brands and pleasingly, as of the moment, healthy brand metrics. Dr. LeWinn's is the #1 Australian cosmeceutical brand and ranks in the top 10 brands within the total facial skin category within the pharmacy channel. A'kin holds the #2 position in natural haircare in pharmacy and through channel expansions, we've added 1.6 share points over the last year. Manicare and Lady Jayne are #1 brands in their respective categories and extended their market share position. Multix leads in sustainable wraps and foils and continues to drive the sustainability agenda. And Swisspers has strengthened its market-leading position, gaining 2.6 share points versus the prior year. Turning now to our future and more importantly, for our 5-year brand ambition. As part of our operational review, we brought a 5-year brand forecast, encompassing sustainable growth momentum delivered through a consumer-validated expansion plan. We see a real opportunity to drive share gains through innovation for Dr. LeWinn's and move up the ranking from #10 right up to #3. A'kin has plans to double in size through channel expansion and ramping up our efficacious natural claim. We expect growth momentum to continue in the beauty accessories category with Manicare leading the way. Lady Jayne has significant incremental opportunity through grocery expansion. Our ambition for Multix is to make sustainable bags, wraps and foils the everyday choice. And our trusted Swisspers brand is ripe for equity expansion into attractive adjacent categories. Now let me take you through the plans brand by brand. Looking first at Dr. LeWinn's where we have a strong track record for successful new product launches. Our most recent launch was Dr. LeWinn's Marine Collagen Liquid Shots, which is already proving to be a best seller, ranking in the top 5 NPD in all pharmacy facial skincare in the latest quarter and ranking as a #5 product within Dr. LeWinn's brand in Chemist Warehouse. Our most potent formula ever has been worked on through R&D to develop our new Caviar Eye Serum, which we featured in the 6.6 (sic) [ 6.6 Festival ] in China and launched in Australia in October. Next year, renovation will be with increased clinical will be a major thing as well as 30 live R&D projects currently in the pipeline. A'kin has 31 clinically proven products within the range. This is an extremely important differentiator for A'kin and has delivered strong results on our recent hair mask launch and our popular natural deodorant range. To increase consumer penetration and double our size, grocery plays an important role for brand accessibility and awareness. Above the line, we'll strengthen our clinically proven credentials and brand rejuvenation, leveraging the clean beauty macro trend will take it to even greater high. The Manicare brand has gone from strength to strength year-on-year and today represents a $68 million annual retail sales masterbrand. Brand growth accelerated during COVID, growing at plus 17%, and sales momentum continued after restrictions lifted in September last year at 7%. The beauty at home macro trends that we saw during COVID is here to stay. In particular, skincare beauty tools are all the rage, growing plus 37%. And Manicare is well placed to innovate in this area to bring new users to the brand and drive category value. Glam also continues to bring new lash technology to the market and leverage online technology to connect with consumers through app, QR codes and how-to videos. The hair accessories category has catapulted following COVID, with growth accelerating from 0.5% before COVID growing to 7.1% during COVID and now after COVID restrictions have lifted, plus 18.6%. Lady Jayne's growth post-COVID is an impressive 25%. Key drivers of this growth are increased demand for accessories and brush innovation. Growth momentum is expected to continue for Lady Jayne with the new fashion accessory ranges, and this is a segment where we have historically under-indexed premium brushes. And by targeting grocery expansion, where there is a $3 million retail sales opportunity if we capture 30% of branded products in this channel. Multix led the transformation of the bags, wraps and foil category with Multix Greener, a new sustainable range specifically designed to reduce the impact on the environment. Our goals are to make Multix Greener the brand of choice for sustainable options, make sustainable products the everyday norm and to lead sustainable innovation to protect future innovation -- generation. COVID saw a shift towards trusted Australian brands, including Swisspers, which achieved a 61% share high in the cotton category. We are now focused on making sustainable options the everyday norm in this category as well with new products, new materials and retail partnerships. In collaboration with Woolworths and Coles, we've eliminated 562 million plastic cotton tips and we'll continue striving for more plastic reduction. Our operational plan also highlighted the acceleration of targeted expansion plans, leveraging the strength of our current brands. Manicare is expanding within beauty power tools, bringing tools that have historically retailed at over $200 into the mass market at affordable pricing ranges from $50 to $130. The attractiveness of this offer, combined with a trusted Australian brand and clinically proven results, will ensure value growth and share gains for Manicare. As I mentioned earlier, Swisspers is ripe for category expansion, and we've developed a cotton milk baby range as a new growth pillar to compete in this fast-growing segment. A brand you may not have heard of before is Stratton, a humble little brand since 1860 that sat silently on the bottom of pharmacy shelf. We've dusted off the brand and transformed it into a proud men's grooming brand targeting the high-growth beard care segment. Our retail customers are excited, and we're looking forward to bringing this transformation to market in coming months. And tanning is also on our radar with the Sugarbaby brand. We've rejuvenated the brand to target the high-value Gen Z consumer who are looking for in-home beauty treatments endorsed by online skin influencers. The brand represents a real opportunity for McPherson's to broaden our consumer base and leverage the Australian tanning culture. I'm very confident and excited about our future brand plans. I'll now hand over to Lori Pirozzi, our Sales Director, who will take you through how we bring these to life in the retail market.

Thanks, Donna. I share your confidence given our solid position in market where McPherson's brands continue to play a significant role for our retail partners. We hold a 21% share in the categories we play in, which is up 0.4 percentage points versus a year ago. From a ranking perspective, we are the #2 Australian beauty supplier to pharmacy. And more broadly, amongst over the counter and multinational suppliers, we hold the #16 position. In grocery, we have moved up in 1 position to number 65, still safely in the top 100. With our strength, partly driven by the growing presence and accessibility of our brand, it's no surprise that distribution remains critical for the realization of our long-term growth agenda. You can see from our targeted momentum over the next 5 years that's captured on this slide, we forecast to end this fiscal with 1.1 million total distribution points. And in FY '22, target to reach 1.2 million across the Australian and New Zealand business. This includes plans of realizing further ranking improvements in the independent pharmacy and grocery. It considers further expansion in grocery, including the confirmed acceptance of 4 A'kin SKUs and 6 Multix SKUs in 183 Countdown stores in New Zealand. It also considers the exciting first half launch of 3 Swisspers baby products in 315 Chemist Warehouse stores as well as the acceleration of innovation and the Stratton transformation that we'll see in market later this year. Fast forward, we look to achieve over 1.5 million distribution points in fiscal year '26 driven by an expanding customer and category base. Our sales team coverage and service level of over 7,000 stores is a true enabler to achieving these results and a key strength in the execution of customer plans, particularly with the changing in shopper behavior. During COVID, behavior shifted, which saw us respond and pivot our approach. With the surge of the growth in the online channel, we reshaped investment and expanded our customer base, realizing an incremental 1,355 listings. As more retailers are onboarded in this space with a target approach such as THE ICONIC, who have accepted ranging of Maseur from this October, ready for the season peak for the brand, further growth is expected in this space. For our major customers, we invested 30% more in their online and social vehicles to realize the benefits of the channel's growth. With 53% of shoppers now making decisions based on what they see in store, we also reallocated funds to interrupt the path to purchase with off-location displays. We spent 39% more in FY '21 as we diversified our investment to participate in 30 education style activations in pharmacy to educate shoppers and retail systems alike. Insights indicate that these trends are likely to continue. Subsequently, a greater portion of spend is planned in these areas for FY '22. Activations and innovation launches will have an even stronger online component with planned spend to grow by 22% in online vehicles. And at point of purchase, 23% more in off-location displays across the pharmacy and grocery channels. In store, there will also be continued investment in category solutions, which has in the past supported and will continue to support navigation and category definition. In addition, we'll execute another 8 educational activations in the pharmacy to support those decision-making behaviors. This reshaped investment plan with higher index in these vehicles, combined with more traditional medium, provide powerful through-the-line campaign, and form an important part of our strategic joint business planning process with retail partners, which continues to be fundamental to our success. Strategically, we'll continue to foster established partnerships, including, but not limited to, our strong partnership in essential beauty and pharmacy. Our partnership with Metcash in cotton and bags, wraps and foils. In addition, we'll aim to partnering more subcategories within the grocery channel and expand our footprint there and attempt to unlock partnering opportunities in new customers like Costco with unique pack solutions. Our entry in new categories and brands with retail partners is already in play with Swisspers Baby and Chemist Warehouse launching later this year and Sugarbaby with Farmers already launched in New Zealand. With the view to be a 2 million (sic) [ $200 million ] RSV supplier across our 3 largest customers, we will create a step-change in developing longer partnership agreements to support achieving this. This is a result of the review outcome. And lastly, with sustainability high on our retailer's agenda, we will work closely with them to drive key outcomes in this space. Now just to bring this all together and summarize, Grant, in his opening, referred to opportunities for the ANZ business being greater ranging and focus on innovation, category, customer and channel expansion. Donna and I have discussed the importance of core range and innovation penetration for future success. We have defined target metrics for not only ranging but share and retail sales value ambitions set out across key brands and categories, which were shared in Donna's opening slides. Category expansion initiatives have been fast tracked with baby, beauty supplement innovation, and strengthened transformation along with planning or launching next fiscal. And at customer and channel level, partnerships are vital. We continue to gear investments to capitalize in the online space, look to unlock new customers, grow our presence in new channels and expand our footprint with existing customers such as Chemist Warehouse as they expand geographically. So what does this actually mean? With all these key elements, a sizable contribution to our future, we are targeting a $230 million sales number in 5 years or an additional $48 million on our forecast '21 number for the Australian and New Zealand baby, beauty and household personal care business. I'll now hand over to Dawn, who will take you through our health and wellness growth platform.

Thanks, Lori. I'm one of 41 people who transitioned into McPherson's as part of Global Therapeutics acquisition. My role has been General Manager of Global Therapeutics since 2016 and now General Manager of the newly formed division, McPherson's Health. The acquisition of Global Therapeutics delivered on the strategic decisions of McPherson's to enter the health and well-being category. This category is over $3.9 billion domestically and over USD 50 billion internationally. We have a brand, which resonates strongly with consumers and with McPherson's commitment to the Health division, I'm excited about the future, which lies ahead. The health team is passionate about natural health, with over 70% of the team having health qualification. The acquisition sees a diverse skill set transition into McPherson's, creating McPherson's own health capability. This includes regulatory, product development, quality, strategic sourcing and supply chain due to marketing, education and a sales team who all have health qualification. As part of a McPherson's operational review, opportunities for growth in the domestic and international markets have been identified. Ideation has been critically reviewed to ensure that choices selected will deliver the most meaningful new product development, which will also lead to category growth segments. McPherson's existing capability in international markets will be leveraged. A'kin, along with joint venture brands, Happy Flora and Soulful, are being represented in the health food channel by the health team. And operational efficiencies have been identified in partnership with the supply chain team. The operational review kickstarted the Health division's 5-year strategic growth plan. I'll share with you shortly the key focus areas coming out of this review. Business momentum is building. The in-stock position is the strongest we have had since February 2019. Consumer and retail-focused campaigns are driving sales and engagement with our brands. Since December, sales have increased month-on-month with April sales results being the strongest since September 2019, with the exception of March '20 when we experienced exceptional demand fueled by COVID-19 across the immune and cold and flu segments. In April, Fusion Health and Oriental Botanicals successfully transitioned into the McPherson's IT systems and warehouse. Pleasingly, by the end of April, we were dispatching within 48 hours of receiving an order. We are in the process of relocating 10 formulations out of the Blackmores manufacturing facility, and I'm absolutely delighted to share that all Fusion Health and Oriental Botanical products will continue to be manufactured in Australia. Leveraging the sales team's health qualifications, the Health division has commenced selling A'kin and joint venture brands into the health food channel and operate -- the operational review also identified warehouse efficiencies and delivery optimization solutions, which are captured in the supply chain cost-based amendments program. Herbal and traditional products are a $800 million subsegment of the vitamin and dietary supplement category, which has a total value of $3.9 billion in Australia. Both the primary category and the subsegment have strong compound annual growth rates of over 50% for the period 2014 to '19. McPherson's Health have products which are in the broader vitamin and dietary supplements category with quality products such as Magnesium Advanced and OceanPure Fish Oil. The herbal traditional product subsegment is where our brands have proven strong credentials and experience with a quality range of herbal and traditional products, which support consumers' health and well-being, such as Fusion Health Stress & Anxiety and Astra 8. Consumer engagement in complementary medicines is strong. As an example, 78% of Australians have purchased at least one form of complementary medicine in the last year. 52% of Australians consume a herbal, traditional products or supplement daily. And 1 in 3 Australians use complementary medicines to manage symptoms of chronic pain. As part of the McPherson's operational review, consumer research was undertaken. The research included exploration across natural health supplements, consumer and category with specific focus on opportunities for Fusion Health. The Fusion Health insights indicated 6 key points of validation. The red palette indicates strong cues to Chinese medicine principles or ingredients. In the tech line, ancient wisdom, modern medicine. Ancient wisdom suggests roots in Chinese medicine. It's respected and believable. Modern medicine, it's safe, it's reassuring and has indications that it is underpinned by science with rigorous testing. The Yin and Yang herb leaf iconography suggests balance between old and new or East and West and natural, herbal, plant-based products. Fusion is modern in terminology, scientific and is on trend. It feels both exciting and safe. The consumer research validated the Fusion Health brand messaging is resonating strongly with consumers. The initial insights show that the Fusion Health brand appears modern and credible with clear cues to nature, eastern philosophy and current and scientific approaches. The strategy for growth has been identified and is in progress. 4 core pillars underpin the growth strategy, which sees the Health division targeting a total of $30 million in sales by financial year '26. In the pharmacy channel, the focus will be on doubling the number of pharmacies, our brand is already ranged in today. Core range compliance in both new and existing pharmacies will be a key focus. New merchandising and improved self-selection solutions will support the shopability of our brand to consumers. While we explore key international markets, McPherson's existing capability in markets outside of Australia will be leveraged. This will see Fusion Health relaunched in New Zealand and an e-commerce strategy launched in Singapore. As I mentioned earlier, product development ideation has been critically evaluated to be prioritized and is leased to growth segments in the category. Fusion Health has a strong relationship with the health food channel which we respect. The focus in this channel is on improving core ranging, strong education and marketing solutions, reigniting our reputation to be known for delivering quality new products to market and representing McPherson's health-focused products in the health food channel. Health is a key strategic priority for McPherson's. The vitamin, dietary supplement category is a significant value and consumer insights show that the brand resonates well with consumers. McPherson's Health is poised for growth. The in-stock position across the portfolio is the best in over 2 years, supporting the delivery of improved service levels for our customers. Business momentum is building. We have a strategic plan which has been developed collaboratively across the McPherson's business, and we have a new owner committed to the success of our business. Now before I hand over to David, I'd like to acknowledge the engagement and support, which the newly acquired, ex Global Therapeutics business, has had from McPherson's. At a Board level and senior leadership team, the level of engagement has been greater in 5 months than what I've experienced since taking on the role as General Manager in 2016. The health team are passionate, capable and driven, and I look forward to the opportunity for the Health division to deliver strongly against our strategic plan with the support of McPherson's where our brands are core. Thanks, David.

Thanks, Dawn. The third strategic pillar of growth that we've been working on as part of the operational review is how we can accelerate and expand our international footprint. The key opportunity we have identified is how to rebalance our international growth. In FY '21, Dr. LeWinn's China is forecast to deliver 94% of McPherson's international sales. By 2026, our target is that new markets will account for 59% of the targeted $40 million in international sales. As you can see in the lower pie chart, the plan is to leverage the strength and success of our #1 anti-aging skincare brand, Dr. LeWinn's to launch firstly online into the dynamic and fast-growing U.S. market followed by a paced rollout into European markets. By FY '26, McPherson's skincare portfolio driven by Dr. LeWinn's, A'kin and Sugarbaby is targeted to deliver 84% of the growth with health brands such as Fusion delivering 14%. COVID has provided an immediate opportunity to target the U.S. -- the growth in the U.S. skincare market. The U.S. skincare market category is big and growing, valued at over $30 billion and growing at 3.7%. In the U.S., 42% of shoppers use online e-commerce to shop for beauty, making it a top 3 channel. The growth is so strong that beauty and personal care online e-commerce sales are forecast to reach 48% share of all beauty sales by 2023. Our confidence also comes from the insight that 86% of all beauty sales online are not from the top 20 beauty manufacturers. So what places McPherson's in a good position to go after the U.S. market? Well, firstly, McPherson's already has Dr. LeWinn's trademarks in both the United States and Canada. The latest consumer research conducted in April identified strong brand opportunity for Dr. LeWinn's with the brand achieving strong scores in both brand appeal and purchase intent amongst females seeking anti-aging skincare solutions. We have entered discussions with a specialist online fulfillment partner who operates across the 50 states, servicing 37 e-commerce platforms as well as a specialist e-commerce agency with strong understanding of the marketplace. In 2022, the plan is to launch Dr. LeWinn's online with key online e-commerce platforms such as Amazon, which by itself accounts for over $1.35 billion in retail sales in skincare. Over time, the plan will be to leverage our online business strength to then move forward to target specialty retail beauty doors such as Sephora, Ulta Beauty or Bath & Body Works. The U.S. online opportunity allows us to engage with online partners that operate in many countries and especially across Europe and the U.S., such as the hub groups, LOOKFANTASTIC and Amazon. The plan looks to target the top 4 European markets starting in 2023 onwards. Some latest insights on the European skincare market. So together, these top European skincare markets are valued at over $12 billion in retail sales. In the U.K. alone, online e-commerce accounted for 41% of prestige skincare sales in 2020, growing at over 50%. The research we conducted in the U.S., we also conducted in April in the U.K. It shows, again, a strong opportunity to leverage Dr. LeWinn's to target the top 5 U.K. beauty platforms such as Feelunique and LOOKFANTASTIC. In FY '24, we plan to further expand to other e-commerce platforms such as Cult Beauty. For the further 3 European markets, the plan is for a paced rollout of one market per year, starting with Germany in 2024 and France in 2025. By FY '26, our target is for the U.K. and Europe to be the #4 region for Dr. LeWinn's outside of Australia, China and the United States. For Asia and the Middle East, the skincare category is also experiencing strong growth, and McPherson's is already operating in many of these markets. In Asia, the growth of the emerging middle class is driven by rising incomes and is set to double by 2050. In the Middle East, North Africa, beauty and personal care categories are forecast to grow at twice the rate of global growth over the next 5 years ending 2026. Currently, over 60% of our current sales for Dr. LeWinn's and A'kin in Asia is coming from online beauty platforms such as Lazada, Shopee and Amazon. So in FY '22, the plan is to work with our existing online partners and expand the reach into new markets such as Vietnam, Malaysia and India. For A'kin, in the Middle East, we have signed an exclusive distribution agreement with a partner that has reach across 24 countries and 2,200 stores. For Dr. LeWinn's, a separate distributor has been appointed to focus on online beauty platforms such as Amazon, Groupon, the start-up with LOOKFANTASTIC as well as local online partners. So in FY '22 in Asia and the Middle East, the opportunities start to accelerate off the work that has commenced this year. I'll now hand over to Jade to take us through China.

Thanks, David. Dr. LeWinn's really is a strong brand in China. And based on year-to-date actual sales, the value of the brand in the hands of the consumer is estimated to be AUD 80 million. The market conditions remain incredibly challenging. But year-to-date, we remain in a stable position compared to the previous year, which was COVID inspired in its promotional-driven performance and was always going to be difficult to cycle. In the latest consumer research, we undertook on anti-aging skincare in China, 9% of shoppers said that Dr. LeWinn's was a very appealing brand and 10% said that they would definitely purchase the brand. And with online shopping trends and the expected growth in the beauty category in China, cross-border e-commerce remains a significant growth opportunity as a channel for Dr. LeWinn's. What does that mean for our future? The ABM channel continues to grow, and our 3 years plus partnership has delivered a stable brand presence in China with loyalty channels and advocacy that can be leveraged in the future. We continue to grow together with our strategic partner, ABM. We work closely on aligned objectives to increase the penetration of the Dr. LeWinn's brand and to explore additional growth opportunities in China within our strong partnership. Accelerating the brand exposure through new platforms and touch points will elevate the awareness of the Dr. LeWinn's brand in China. And we need to remain agile. We need to move with pace to meet the market expectations. To continue to expand sustainably, building on the support framework for our strategic partner ABM will be critical. China is highly dynamic. And to ensure we move with urgency to capitalize on immediate as well as long-term potential, we need to engage and collaborate more broadly. It gives me great pleasure to announce the commencement of our engagement with The Common Good. And I would like now to introduce Jeremy Hunt, Co-Founder of The Common Good, for an insight-led review of opportunities for McPherson's in China.

Thanks, Jade. Pumped to be here. Contrary to the clickbait out there, more brands from Australia have entered cross-border platforms over the last 18 months than the 18 months preceding that. Demand for the provenance, authentic, high efficacy that has been the driving force behind the cross-border e-commerce dominance of recent years is very much still present. COVID in China has shown self-care, antiaging focus on one's health is where consumers are at. When it comes to strong growth in aspirational categories for Chinese consumers to shop, beauty and health are where it's at. And Dr. LeWinn's is in the right category. Daigou have pivoted from retail shopping locally to social e-commerce platforms like ABM. This is where disruption is occurring in cross-border e-commerce. To top this off, China changed the policy on animal testing for the beauty category. It's a sweeping statement and it needs development, but the foundation is set. We're working -- TCG is working with government to -- for some initiatives in this space. And this category will expand out from cross-border e-commerce. TCG is here to support McPherson's and ABM in looking to broaden awareness through expanding marketing channels, creating hype in new areas. This is a collaborative approach that will open things up for Dr. LeWinn's. As I said before health and beauty are where it's at. Combine a culturally historic delivery of therapeutic health that customers in China know, traditional Chinese medicine, with the efficacy and appeal and provenance of Australia, this is exciting. I look at Swisse, Blackmores, BioIsland and they have all carved out an approach to traditional western VMS, now taking up 22% market share of cross-border e-commerce. I look at Fusion and see a blend that can have a piece of that action, where others don't sit and don't play. We need to build the foundational work with Fusion, which we started. We need to listen, learn, adopt and adapt the narrative to suit the target market. This, for us, is truly an exciting category.

So as you can see from the waterfall, we are targeting to grow our international sales from approximately $8 million in 2021 through to a targeted $40 million in 2026. As we have discussed, we will normalize the China Dr. LeWinn's sales as we work through the supply chain stock on hand. You've heard from Jeremy on the strong role that feedback in China will continue to play with brands such as Fusion Health as we align with strong local partners. As we heard earlier, the strength of the Dr. LeWinn's brand and the acceleration of online e-commerce platforms are key to the opportunity we are targeting primarily in the United States and a pace growth in Europe. So moving on from the 3 strategic growth pillars. We also wanted to showcase some of the unique capabilities that are both inherent at McPherson's, and that we have looked to accelerate as part of the operational review. I'll hand over now to Lori to take through us how McPherson's has sought to accelerate the importance of online as a tool to educate customer, shopper as well as our own team.

Thanks, David. While people capability and development has been an inherent case strength and focus, and as everyone went virtual, we were well positioned across key stakeholders to continue building that capability with initiatives we could execute. For the shopper, we launched 58 how-to videos, gaining over 3 million views, driving engagement with our brand. And we supported this education by our retailer platform I spoke to earlier, being 30 education-based activations. At customer level, we connect with over 200 retail assistants per month across our health and beauty online training platform, the McPherson's Academy. And with our formally trained, qualified teams consisting of 6 naturopaths and 2 beauty advisers, we trained over 2,000 retail assistants with a combination of virtual and face-to-face interactions over 14 formal customer events. And for our internal team, we conducted 30 training events online and virtually to ensure they remain experts in market. With the pivot to online platform, we were able to provide knowledge quickly and effectively to drive not only our core, but deliver on our innovation targets, which is critical to our long-term sustainable success. Donna will now touch on our innovation capabilities.

Thanks, Lori. Innovation success remains a key component of our sustainable long-term growth plan. As you can see, NPD contribution has steadily grown year-on-year in line with our increase in R&D investments. With the slowdown in fiscal year '21 as some of our retailers chose not to launch new products during COVID, we currently have 276 projects in the innovation funnel with 5-year NPD plan mapped out for all brands. In addition to this, our R&D team are focused on foreign market registration and our top 10 priority markets. The McPherson's sustainability goals have been developed by looking at a wide range of potential environmental, social and governance topics and then assessing these in terms of materiality to McPherson's from an internal and external perspective. The goals are essentially based on 3 key pillars: one, sustainable development of products; two, responsible sourcing and the supply chain; and three, how McPherson's operates within the community. Each of these goals are linked to a United Nations Sustainable Development Goal. By linking these goals with the United Nations, it helps us to align with other organizations to ensure we are doing and contributing towards the collective goal. The organizational goals that are in the process being set up are based on where McPherson's will be out had a significant impact or influence, how the topic aligns with our vision, mission and purpose as well as the values of each of our brands and how important they are for stakeholders such as customers, consumers and the community. Actions to support the goals will be driven through McPherson's sustainability working group that has been formed to drive this agenda across the business. They're also responsible for implementing actions and tracking our performance against our target.

Good morning, everyone, Paul Witheridge here. One of our recognized key capabilities is our supply chain. Its adaptability and flexibility are complemented by approximately 40% in available capacity, over 7,600 daily deliveries across Australia to over 1,600 postcodes and a long tenure of many of our supply chain team members. We have improved the efficiency and sustainability of our supply chain by reducing costs by approximately $7.5 million over the last 5 years and taking risk mitigation steps over the COVID-19 period to protect the continuity of supply for our top-selling 150 products with capable alternate suppliers defined should our existing key suppliers be compromised in any way. We've also future-proofed our domestic skincare supply by transferring 60% of formulated skincare products to the Aware Environmental group. And as Dawn has mentioned, we are progressing well in resourcing Fusion Health and Oriental Botanical supply from the Blackmores-owned Catalent facility to new suppliers. Now moving on to a financial summary of our 5-year plan, inclusive of the operational review outcomes presented today, which are aggregated on the target summary slide that you see. In summary, sales from our base ANZ business, excluding our Health division, international expansion and any incremental M&A activity is projected to grow at a compound annual growth rate of 4.8% from $182 million in fiscal '21 to $230 million in fiscal '26. Sales from our health and wellness division is projected to grow from a 7-month contribution of $10 million in fiscal '21 to $30 million in fiscal '26. And sales from our international business is projected to grow from $8 million in fiscal '21 to $40 million in fiscal '26. Noting that the fiscal '21 outcome is well below the pre-COVID trend. Consequently, inclusive of the $6 million cost optimization target presented today, underlying EBIT is projected to improve significantly from the fiscal '21 forecast range of $10 million to $13 million to $50 million by fiscal '26, noting that the group has material operating leverage to utilize as sales volumes increase. I note that the target figures presented today have been prepared taking into account the commercial risk landscape in which our business operates. The strong balance sheet and low leverage presents several capital deployment opportunities. Management will continue to be cautious in its review of strategic, complementary EPS accretive M&A opportunities as they arise. Capital management initiatives put on hold throughout the bid process will be reconsidered. The intent is to retain a high dividend payout ratio noting that our current dividend policy is to pay a minimum of 60% of underlying NPAT, subject to cash requirements, with the intent of returning franking credits from our franking account balance of approximately $25 million. Grant will now take you through a summary of today's presentation.

Thanks, Paul. So I'd like to thank all the presenters today, and I'd like to thank all the people on the call for their interest in McPherson's. I know there'll be questions, and we'll be very happy to deal with those questions in a moment. I think you can see from the conversation that we've had today that there's a certain amount of excitement in the room. We've got real confidence that we've got far greater growth breadths than we've seen in the past. We created a unique positioning in the Australian market around pharmacy, and most of our assets are deployed around core range. And not surprisingly, we see core ranges being the greatest opportunity for us in the future. And that's underpinning our confidence in the growth, but it's not limited to that. We clearly are recalibrating how we're thinking about the international opportunity. We've demonstrated that we can and do have a brand sort of significance that we've created with a partner. We're not only relying on our own IP in terms of building out that plan and the team from TCG are here today to demonstrate the fact that we're actually searching for the best approach to international, but we're not going to overread our expectations in that space. We've got clear building blocks beneath all of our initiatives where we've got a greater understanding of our capability and the things that we need to preserve, core competencies we need to preserve in order to achieve our ambition. And as a result, that's leading to a far greater confidence level in our ability to manage risk in the period going forward. With that, I'd like to thank you for your attention and hand the meeting over to James, and he can let me know of any questions.

There are no questions online at the moment. So we will go to phone questions.

[Operator Instructions] Your first question comes from Philip Pepe from Blue Ocean Equities.

If I look at the 5-year plan on Slide 58, put aside international at the moment, the $40 million revenue target is not far off what you delivered in FY '20, but obviously a different composition. So it looks more of the growth largely from domestic. How do you target such strong growth domestically, which isn't largely online-based with SG&A expenses going backwards $3 million? Normally, you invest more in selling to get that sort of sales increase. So for me, they seem opposite into the spectrum. How do you get a massive increase in sales without extra marketing spend?

You want to go, Paul?

Yes. Thanks for the question, Phil. As you probably know, we have significant operational leverage in the business. When -- we have gone into some detailed financial modeling, obviously, we expect to prepare these numbers. And the cost optimization that we have there, SG&A does have an element of marketing over the next 2-year period, but we have also built into our model some investment in marketing to support that beyond FY '23. So the answer to your question is that we are actually within that forecast projecting to spend some incremental money on marketing, particularly AMP, where we have not projected any form of reduction. Indeed, we have projected a fairly significant investment in AMP to drive that growth build.

Understand. That makes sense. And if I can sneak in a second one. Probably the most discussion going on at the moment is the purpose of the Strategy Day when there's 2 takeover offers on the table and it's -- limited to what you can say, but we assume there's no deal, the Board can entertain at the current price, so we move forward on a business as usual model.

Well, Philip, it's Grant. I think there's certainly not an endorsed position at the moment. What I obviously would say is that Arrotex is progressing with their due diligence and the discussions between both parties are being constructive. We'll update shareholders as that process progresses. Right at the moment, they're still going through their considerations. There's nothing for the shareholders to consider in respect of the transaction. But obviously, the Board's got a responsibility to act in the best interest from shareholders. And if and when that process moves forward to a position that they need to advise investors, they will.

Your next question comes from Ian Munro from Ord Minnett.

Just a couple for me. Perhaps on the strategy goals over a 3- to 5-year basis, particularly with the core brands in Australia. Can you perhaps give us an indication of how much of this is predicated on growth in the market versus your market share within the segments? And then secondly, just on the shorter-term issues obviously is -- FY '21 guidance in the market, so no question on that. But over the next 12 months, can you perhaps give us an indication of the dynamics on the demand side and the supply side that we should be thinking about in forming a view for the next 12 months?

Thanks, Ian. Perhaps I'll ask Donna and Lori to address the first part of your question, and then we'll hand over to Paul.

So thanks, Ian. So a combination of share gains in the market driven by our step-change approach from an investment perspective forms part of the assumption. Obviously, Donna took you through the share gains that we have achieved in the last 12 months. And there are some share gains built up year-on-year on what we believe is achievable. From a market perspective, there's been assumptions that there's an ongoing growth in the hair accessories, but we're expecting to be a decline in the bags, wraps and foils. So it is a mix across the category with some categories remaining. So we've made some assumptions that some of them will remain flat as well. So there's been assumptions based on where we think the category is growing, what share we believe we can achieve with the partnerships that we have in play, along with expansion of our core brands and the expansion of categories and subcategories within existing brands like Dr. LeWinn's.

And Ian, just to answer your question about projection for the next 12 months. We're in the process of formulating our budget at the moment for fiscal '22. So we're not really in a position to give you a detailed commentary on that and bring up that. Suffice to say, we're expecting some reasonable growth. But the initial fee we've had in our budget process is reasonable growth across our core brands reflecting the strength of fiscal '21, the domestic strength of fiscal '21. Of course, we are cycling a full year of our Global Therapeutics, which will be beneficial for our comp [ P&L ] as well.

Thank you. There are no further phone questions at this stage.

There is a question that is coming online, and I'm happy to address it. It is, when do you anticipate the process with Arrotex will conclude? And what is your position on the $1.60 price in terms of valuation? So in terms of process completion in the announcement that was made to the market, back on the 29th of April, a 4-week due diligence period was noted. So we would expect the process to conclude over the next week or 2. It's possible that Arrotex may extend that, but we're not -- we don't know whether that's the case. We're anticipating that. And with regard to the position on $1.60, well, that's really a question for our Board to address if that does come up as an unconditional offer. And at this stage, we don't have any further questions either online or from the operator, correct?

All right. Well, thanks very much to everyone who's attended today. I appreciate your interest in the business. And if you've got any further follow-up questions, as you mainly -- well, you would be aware, Paul and I will fill those with investors over the course of the rest of the week. So I look forward to talking to you then. And we might to call it a day. Thanks for your interest. Thanks, everyone. Well done.

Thank you.