Jamieson Wellness Inc

TSX:JWEL

Earnings Call Transcript 2020-Q2

[Operator]

Good afternoon, everyone. Welcome to the Jamieson Wellness conference call to discuss financial results for the second quarter 2020. [Operator Instructions] As a reminder, today's call is being recorded. On the call today from management are Mark Hornick, President and Chief Executive Officer; Chris Snowden, Chief Financial Officer and Corporate Secretary; and Mike Pilato, President, Jamieson Wellness, Canada. Before I turn the call over to Mr. Hornick, please note that a press release covering the company's second quarter 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 management 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 Jamieson's press release issued this afternoon and in filings with the Canadian securities administrators for a more detailed discussion 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 will now turn the call over to Mr. Hornick to get started. Please go ahead, sir.

[Mark Hornick, President, CEO & Director]

Well, thanks a lot, Jenny, and good afternoon, everyone. Thanks for taking the time to join us today to discuss our second quarter 2020 financial results. Before I walk through the highlights of the quarter, I'd like to take a moment to say how proud I am of our team here at Jamieson. A number of you are on the call today, but for you and your colleagues, I'd just like to say that as an organization, our purpose is to improve the world's health and wellness. And 2020 continues to reinforce that now more than ever, our people and our brands are uniquely positioned to do so. We devoted efforts of everyone on the team to ensure uninterrupted access to our products throughout this period of increased need has been truly inspirational. Our team overall has stayed safe and healthy, and for that, I'm truly grateful. With that said, I'll turn the discussion over to our results. During the second quarter, we continued to see elevated demand for immunity related and general health supplement as the world continues to face the COVID-19 pandemic. As a result of increased consumer focus on health and wellness as well as having a very healthy base business, we generated 16% revenue growth, 16% growth in adjusted EBITDA and 25% adjusted net income growth. First of all, our Jamieson Brands segment grew 22%, led by a 14% increase in domestic sales, reflecting strong consumer demand for both community and general health supplements, partially offset by temporary retail closures of mall-based supplement-only health food stores. Our international sales increased 69% this quarter as a result of strong growth in multiple geographies led by China and Europe, as demand for immunity supplements increased significantly across all of our international markets. In China, we're seeing increased sales on cross-border e-commerce and shipments in Chinese domestic retail as we expand our distribution network. We continue to target approximately 30 products for the domestic market by the end of the year. In our Strategic Partners segment, we reported a 4% sales decline, which was in line with our expectations as last year's volumes were more heavily weighted to the first half given the timing of their marketing programs. Sales have also been impacted by the availability of production capacity to meet accelerated demand and lower volumes to a specific strategic partner customer. Now let me take a minute to update you on the current COVID-19 pandemic and how we're continuing to address it. We've implemented numerous strategies to adapt to the changing and challenging environment, each of which has prioritized the health and safety of our employees while allowing our operations to continue without any significant interruption. We made significant investments in physical distancing measures, PPE and immunity support for our employees in manufacturing, distribution and other critical on-site functions as well as extra cleaning to ensure safety. To support our local communities, we've donated PPE and our products to help frontline health care workers in Windsor, Essex and in Toronto. Additionally, we continue to monitor lead times and are working closely with our vendors to ensure that we have appropriate supplies of raw materials to maximize output of our highest demand products. In July, we began executing our plan to migrate our distribution centers in Windsor and Scarborough to a third-party logistics company. This will free up space needed for manufacturing and allow us to expand and maximize our tableting manufacturing and packaging capacity within our existing manufacturing footprint. Our entire team is taking this challenging environment in stride and adapting quickly to ensure that we can continue to supply our customers with the products they rely on. Again, I want to thank each and every one of our employees for all of their hard work through these challenging times. With that, let me turn the call over to Chris, and he'll discuss the second quarter financial results and our current guidance.

[Christopher Snowden, CFO & Corporate Secretary]

Thank you very much, Mark, and good afternoon, everyone. The second quarter was our first quarter of COVID-19 pandemic and continue to see elevated demand for our products as consumers remain focused on their health and wellness. We work tirelessly to ensure Jamieson can continue to deliver products around the world in this time of need. In the second quarter, revenue increased 15.6% to $93.2 million, driven by strong growth of Jamieson Brands, partially offset by the anticipated decline in our Strategic Partners segment, primarily due to the launch of new programs in the first half of the prior year and available production capacity. By segment, Jamieson Brands revenue increased 22.2% to $74.3 million, consisting of 14% growth in domestic revenue and 69% growth internationally. The strong domestic growth reflects sustained elevated demand for immunity and general health supplements as a result of the COVID-19 pandemic. The international growth reflects strong gains in multiple geographies, particularly in China and Europe, as demand for immunity products continued to have elevated levels across our specific markets. Revenue in our Strategic Partners segment decreased 4.4% as anticipated due to the timing of new programs that occurred in the prior year, the availability of production capacity to meet demand and lower volumes to a strategic partner who recently filed for bankruptcy protection as a result of the impact of COVID-19. These factors were all partially offset by incremental revenue related to the previously noted change in billing practices for a key strategic partner. Total gross profit increased 11.4% to $32.9 million, and gross margin decreased 11 -- sorry, 140 basis points to 35.3%. The decrease in gross margin in percentage was due to physical distancing initiatives and safety measures established in our production facilities to protect our employees. In the Jamieson Brands segment, gross margin declined by 230 basis points, driven by the physical distancing initiatives which reduced throughput and offset operational efficiencies that would normally accompany higher volumes and favorable product mix. Strategic Partners segment gross margins declined 330 basis points year-over-year, primarily reflecting the billing change of a significant customer and implementation of safety measures previously discussed. Selling, general and administrative expenses increased 23.9% to $21 million. Excluding the impact of specific costs related to COVID-19 and other costs of $3.2 million, normalized SG&A expenses increased by $0.8 million in the quarter due to higher variable compensation expenses, partially offset by the timing of marketing programs and lower travel, meals and entertainment expenses. Operating income decreased $1.3 million to $10.7 million, and operating margin decreased by 330 basis points to 11.5%. On an adjusted basis, operating margin -- operating income increased 15.5% to $14.8 million in the second quarter of 2020, and operating margin was 15.9% and relatively consistent with the prior year. Adjusted EBITDA increased 15.8% to $19 million, and adjusted EBITDA margin increased to 20.4% from 20.3% in the prior year. The modest growth of adjusted EBITDA margin reflects the mix of higher volumes in the Jamieson Brands segment. In the second quarter, interest expense and financing costs were $1.4 million compared to $2.5 million in the prior year. The difference was primarily due to lower average borrowings and lower interest rates in the period. Our reported net income was $6 million in the second quarter compared to $8.2 million in the prior year. On an adjusted basis, net income increased by 25.1% year-over-year to $9.9 million or $0.24 of diluted EPS. All of the adjustments to net income are described in today's press release and included in adjusted net income reconciliation table at the end of the release. Turning now to the balance sheet and cash flow. We generated $14.4 million of cash from operations during the second quarter compared to cash generated of $6.6 million in the prior year. Cash from operating activities before working capital considerations of $9.9 million was lower by $2.1 million, primarily due to higher COVID-19-related costs partially offset by higher volumes. Improvements in cash used in working capital were mainly attributable to favorable timing of collections and payments, partially offset by an increased investment in inventory for Strategic Partners and to secure immunity raw materials. Capital expenditures during the second quarter were $4.7 million and we paid $4.4 million in dividends. At the end of the quarter, we had over $115 million in cash and available operating lines. The Board of Directors of the company has authorized a $0.015 increase to the quarterly dividend and declared a cash dividend for the second quarter of 2020 of $0.125 per common share or approximately $5 million in aggregate. The dividend will be paid on September 15, 2020, to all common shareholders of record at the close of business on August 28, 2020. Now let me turn to guidance. We are increasing our 2020 outlook and now anticipate the following: net revenue in the range of $285 million to $295 million, representing top line growth of 11.5% to 14.5%, this compares to $345 million of revenue in 2019; adjusted EBITDA in the range of $84 million to $88 million, or 11% to 16% growth over fiscal 2019, replacing our prior guidance of $80 million to $84 million; adjusted earnings per fully diluted common share of $1.08 to $1.15, representing 12.5% to almost 20% growth, this compares to adjusted EPS of $0.96 in 2019. Additionally, I would like to note some assumptions to assist your modeling. We anticipate Jamieson Brands segment growth of 14% to 17% in fiscal 2020, including the following: 10% to 12% growth in our brands domestically in Canada, reflecting sustained strong demand for our products in the second half of 2020; approximately 40% to 50% international growth, which is expected to continue to be led by China as well as growth in Europe and across other markets. We expect Strategic Partners revenue to grow by up to 5%, and we now expect normalized SG&A increase of 8% to 10% to invest in marketing to drive international growth and additional resources to support our e-commerce initiatives. We're assuming interest expense of approximately $6 million to $6.5 million. Additionally, our guidance reflects an assumption of CAD 1.35 per U.S. dollar exchange and an effective tax rate of approximately 28%. Our estimate for fully diluted common shares has increased to approximately 41 million shares outstanding. Our outlook is based on the current situation and existing impacts and challenges of COVID-19. Consumer response to COVID-19 has resulted in an acceleration of demand for both immunity and general health supplements. We have not seen significant retail closures impacting the availability of our products, which remain widely available in food, drug mass and e-commerce channels. The higher demand will be slightly constrained while we manage the impact to physical distancing and other safety measures in our facilities. In support of our employees, we have increased sanitation, maximized physical distancing and where possible, establish shift gaps to avoid congestion during shift changeovers. Manufacturing closures for us or our suppliers have the potential to impact the continuity of supply and the availability of raw materials for production. The global surge in demand for immunity-related products has resulted in the need to secure higher inventory levels with our suppliers. We have adapted rapidly to the challenging environment to minimize the risk to our business due to COVID-19 while ensuring the steady supply of products for our consumers. A complete discussion of our outlook and factors impacting our expected performance in 2020 is included in the outlook section of our MD&A that will be filed today. In closing, we are proud of the entire Jamieson team as everyone continues to work hard to ensure we can deliver the trusted products people demand globally and even more relevant amidst today's challenging times. With that, I would like to turn the call back to the operator for Q&A.

[Operator]

[Operator Instructions] And we will go first to Saba Khan of RBC Capital markets.

[Unknown Analyst]

It's [ Chris ] on for Saba. I was wondering if you could walk -- I was just wondering if you could walk through the details of the $9.3 million of COVID-related EBITDA add-back? And if you have any expectations for COVID-19-related costs through H2?

[Christopher Snowden, CFO & Corporate Secretary]

Well, the COVID-related add-backs in the quarter are not that number. The -- what we can talk to are the add-backs in the quarter. Would that be preferable?

[Unknown Analyst]

Yes. That would be great.

[Christopher Snowden, CFO & Corporate Secretary]

So in the quarter, add-back specifically for COVID-related costs were $3.9 million. They relate to 3 essential items: donations by the company of personnel protective equipment and vitamins to frontline workers in Windsor, Essex and Toronto; it relates to the shift premium paid to our workers during the quarter; and it relates to a reserve taken on a strategic partner customer who claimed bankruptcy protection during the quarter, citing COVID-19 as the specific reason for their bankruptcy.

[Unknown Analyst]

Okay. Great. And then can you talk about the performance of the specialty brands in the current environment? And how you might expect those brands to perform if this was more of a sustained economic slowdown?

[Michael Pilato, President of Jamieson Canada]

Yes. It's Mike here. Thanks for that question. I would say this about specialty brands. In the early days of COVID, we did see some challenges on all of our brands in the health food channel. Really, it was due to store closures. And if you think about where those closures, they were mainly mall-based stores and also a shift to curbside pickup. The good side of that, we saw a shift over to e-commerce and growth in the e-com channel with those brands and also into the food, drug -- food and drug channels with those brands. So we saw some upside there. And since those early days, as things have reopened, we've really seen a return of these brands to pre-COVID expectations and levels that we would have expected going into COVID. We have confidence in our plans for the remainder of the year based on this. And we believe that even through economic slowdown, our brands are positioned well to continue to hit our expectations.

[Unknown Analyst]

Okay. Perfect. And then just one last one for me. Can you talk about any potential changes to your outlook for CapEx for the full year 2020?

[Christopher Snowden, CFO & Corporate Secretary]

Yes. We expect CapEx to be closer to $15 million for the full year 2020.

[Operator]

And we'll go next to Peter Sklar of BMO Capital Markets.

[Peter Sklar, Analyst]

On the $3.9 million adjustment for the COVID costs. Are those all your COVID costs? Or those are just the COVID costs that you're highlighting as an adjustment?

[Christopher Snowden, CFO & Corporate Secretary]

These are the COVID costs that we're highlighting. There's an adjustment that don't specifically relate to incremental volumes. So all of the social distancing measures, all of the PP&E spent in the equipment, all of the costs of actually managing the volume, those are included in cost of sales. And that's why you see a significant reduction in our gross margin in the quarter.

[Peter Sklar, Analyst]

Right. And Chris, like the 4 items you highlighted, the donation, the PP&E, the shift premium and the reserve for the bankrupt customer, like what lines on the financial statements are they going through? Is it like gross margin? Or SG&A? Do you have a breakdown of...

[Christopher Snowden, CFO & Corporate Secretary]

Yes. They're predominantly in SG&A, $3.2 million of that amount is in SG&A.

[Peter Sklar, Analyst]

Okay. And then the $700,000 would be a gross margin impact?

[Christopher Snowden, CFO & Corporate Secretary]

Yes. That's correct.

[Peter Sklar, Analyst]

Okay. The other thing I want to ask you about, like, I believe you see, like, point-of-sale data of your customers, the big grocery chains and mass. And now that we're slowly climbing out of COVID in Canada. I, mean, for example, Ontario has a lot less COVID cases identified every day. Are you seeing any slowdown in terms of the point-of-sale data? Or is it still at the same level as when we were in the thick of it?

[Michael Pilato, President of Jamieson Canada]

Yes. Thanks for that question, Peter, it's Mike here. I would say we saw a definite uptake of consumption during what I would call the panic buying days of -- early on, the early weeks of COVID. It seems like we've really seen a continued increase in demand across our portfolio, not just on annuity SKUs. We've obviously seen it on immunity SKUs, but across multiple segments that we play in. And we've seen it really level out week-to-week as we've gotten through that initial category surge of that panic buy. And really the reason is a few -- there's a few reasons there: one, we know that we've attracted new consumers to the category; we also know that current consumers or consumers that we had pre-COVID there may have increased their usage into the vitamin, mineral and supplement category; but we've also seen an expansion of consumers moving across some categories. So for example, coming in at immunity or being a core immunity consumer and then moving over to buy like a sweet based product or something like that. So we're seeing a spread across multiple categories as we continue to see health and wellness really being top of mind with consumers around the world. When we went into COVID, I would say health and wellness was what we would call a normal megatrend. And through COVID, we've seen it move to really being the #1 consumer priority globally, and we're feeling that in our business consistently week after week, month after month.

[Peter Sklar, Analyst]

Yes. So Mike, just to clarify what you're saying. So like you saw this tremendous uptick during the early panic buying and then have leveled out. But is that leveling remaining level? Or is it slowly tailing on and going back to the normal?

[Michael Pilato, President of Jamieson Canada]

No. It's -- outside of those first weeks of COVID, we've seen very, very consistent levels of elevated demand across the weeks and the months. So we're -- it's very encouraging what we've seen, and we feel like this is going to stick around for some time, as you heard from our outlook.

[Peter Sklar, Analyst]

Right. And then the other thing I wanted to ask you about is given this change in consumer behavior that you're -- that you've described and the increased demand for immunity products from Jamieson, like, has that changed? Like, is that, in any way, changed your relationship with your retail customers like a Loblaw? Or a Walmart? Or a Costco? Like, I mean, have they -- like, is this an area where they've maybe they want to focus on more and have come to you where they want to maybe undertake some different programs given the consumer interest in this particular category? I'm just wondering how your customers are reacting to all this interest in the category.

[Michael Pilato, President of Jamieson Canada]

Yes. I would say that we've had very strong relationships across all of our major retailers in Canada for a long time. We're the #1 player and the #1 trusted brand in Canada. Every retailer has put more of a focus on health and wellness going in and into the category going into COVID. And I would say it has become even elevated and more accelerated through COVID. We are in constant communication with all of our retailers. We're working closely with them to develop programs to make sure that we continue the growth that we're seeing and that we grab on to these new consumer behaviors. Because we're the market leader, and we have such strong marketing and insights and capabilities, they do work closely with us to help drive category growth, both short term and long term. So we feel very confident about those relationships and what we're working on with those retailers moving forward.

[Mark Hornick, President, CEO & Director]

Yes. just to add to that, Peter. It's not only helped us get closer with our existing customers as we work together to get through this with the increased demand, but we've also got quite a bit of new distribution coming out of this in places where the Jamieson brand was never available before. Maybe you want to touch on that a bit, Mike?

[Michael Pilato, President of Jamieson Canada]

Yes. We definitely see some increased distribution or demand for increased distribution. We saw an increase of the Jamieson brand across the health food channel. Despite some of the early challenges of the pandemic, that brand continues to grow in the health food channel. We've seen an expansion of some of our specialty brand products into the food direct mass channel as well as some of those products have become more and more in demand. And we're also starting to get listings or distribution in incremental or new channels. You'll start to see some of our Jamieson products selling, for example, in the convenience and gas channel in the next couple of months. And we continue to get requests from channels that we traditionally have not sold product into but are wanting to expand into health and wellness, and we are willing to meet our consumer where they want to buy those products, which are across all of these channels.

[Peter Sklar, Analyst]

And like in the thick of the pandemic, when there was really a surge in demand for these products, like, if you went into a retail store, would they have been out of the products because just you're beyond capacity? You weren't able to fulfill? Or are you largely able to keep the channel replenished?

[Michael Pilato, President of Jamieson Canada]

Yes. We -- there were challenges across the entire category from a supply chain perspective early on in the pandemic, and some have continued at much lower levels of issues. We have worked diligently to increase our capacity and our production, and we're turning out lots of product every day into the marketplace. And we continue to make more and more. We have plans through Q3 and Q4 to increase that capacity even more. What I would say in regards to what you were seeing on shelf, it has improved over time. The bigger stock issues across the category would have been in the unity SKUs, most notably vitamin C and vitamin D. But one of the things that we are confident is that we were out ahead of the market, and we're out ahead of the category. We picked up share through this period, which tells us we met the consumer demand more than our competition or more than the rest of the market, and we will continue to strive to do that as we maximize capacity.

[Peter Sklar, Analyst]

Okay. And then just the last question I have. I believe you indicated in your guidance that you're going to increase SG&A expense by, I think, it's 8% to 10%, which is quite an increase. I'm just wondering what is the justification for that, given that Jamieson is already so dominant on the shelf in Canada?

[Christopher Snowden, CFO & Corporate Secretary]

It's really about the capabilities and increasing resources to continue to extend our presence in e-commerce as well as international marketing to continue to drive Jamieson, particularly in China.

[Operator]

And moving on, we'll go to the question from Endri Leno of National Bank.

[Endri Leno, Associate]

Actually, I mean I was picking up. We just said, like the last one with the China increased margins. So I was wondering if you can talk a little bit about the strength that you saw in China and international. I mean, how do you see that developing in Q3? And then if you can comment a little bit on the volume that you are shipping there. Are you expanding your distribution channel?

[Christopher Snowden, CFO & Corporate Secretary]

And your last -- I just didn't quite hear everything, Endri. Which expanding into distribution channel?

[Endri Leno, Associate]

I'm sorry, expanding in China.

[Christopher Snowden, CFO & Corporate Secretary]

Yes. Sorry. Okay. So largely speaking, all of the trends that we're seeing manifest in Canada are manifesting internationally. And in -- and even before you saw that happening in Canada, it started in China and moved very quickly into Europe given that they experienced COVID first. So we have very large levels of demand across all of our international portfolio. You saw in the quarter, for example, our international volume was up almost 70% versus a year ago, which is quite extraordinary. It is led by China, although our European business is also very robust, especially with regards to immune products. The same fundamental around channel shifting that has occurred here in terms of more e-commerce and less bricks-and-mortar is also occurring in China. Great for us on one side is that we're already very developed in cross-border e-commerce, so that business is growing exponentially. And at the same time, although COVID slowed us down in Q1 in China with our physical distribution expansion, that's now largely gone away and that we are proceeding very rapidly with building our physical distribution for all our licensed products now in Q2 and moving into Q3. And we are now completely back on track with where we want it to be in terms of that flow of physical distribution build. And so to the point around marketing spend. So now given that we are getting a very solid level of physical distribution, you're going to see our planned marketing spend increase in China to start continuing to drive awareness and trial of the brands now that we have distribution increases. So the path of consumer acceptance and demand for our product that we're seeing in Canada is being replicated in our other geographies. And in China, even at an elevated level. So everything from a planning side is now kind of back on track and proceeding extremely well.

[Endri Leno, Associate]

Okay. Got it. So -- and then should we expect this physical shipping or locations in China start contributing even more of a Q3? Is it earlier or later in the second half of 2020?

[Mark Hornick, President, CEO & Director]

So I think Chris has got that encompassed in the guidance, and that will manifest itself over the second half.

[Endri Leno, Associate]

Okay. Great. The other question I always ask you that. Well, you had some availability of production capacity to be [indiscernible] there was some concern there. I was wondering, like, if you can expand the growth that you got going. And how you can address those concerns?

[Mark Hornick, President, CEO & Director]

So it has been challenging. We -- especially with the panic buying that Mike referred to, replenishing that has been challenging in the same environment as we are trying to protect our workers and making sure that they can operate safely. That has, in our existing facilities, limited our output. We countered that with using some of our qualified third parties to pack our product and we are fast-tracking some of our 2021 capital expansion in order to bring on more capacity before the end of 2020 in order to further increase our ability to service what is an unprecedented level of consumer demand. So yes.

[Endri Leno, Associate]

Okay. And last question for me. I was wondering if you can talk a little bit about the expansion into the U.S. [indiscernible] I mean what trends are you seeing there? And has it not exceeded or not met your expectations, at least for this initial 6 months?

[Michael Pilato, President of Jamieson Canada]

Yes. Thank you. We launched our U.S. test right in the middle of COVID, right, as COVID was becoming an issue. And some of the trends we've talked about, Mark talked about, I've talked about is in all of the countries we operate in where our brand is known, we've seen a strong shift to quality or move to brands that consumers know. And we've been very fortunate to have that upside in countries like Canada and China, in various countries across Europe in that we play in. Unfortunately, it has challenged us a little bit in a market like the U.S. where we introduced a new brand right as this COVID was kicking off. So what we did is we realized that early as we saw the uptake happening in the countries where we know where we have brand equity. And we saw the U.S. not quite taking off where we expected. So we slowed down our spending in market when we saw this happening, realizing COVID has thrown a new criteria into the test mix. Now that the initial days of COVID are behind us though, we are starting to turn this back on. We have some additional products launching shortly. And now we're going to continue the U.S. test from here now that COVID is starting to more normalize and grow the business from there.

[Operator]

And we'll go to our next question from George Doumet of Scotiabank.

[Jonathan Garfinkle, Research Analyst]

This is Jonathan Garfinkle calling in for George. Just focusing on Jamie domestic. Were you able to -- would you be able to break down the revenue growth in terms of pricing, soft and new doors, such as Dollarama?

[Michael Pilato, President of Jamieson Canada]

I'm sorry, I didn't hear the first part of that question. Sorry, just cut out of the -- you want to...

[Jonathan Garfinkle, Research Analyst]

Shall I repeat it or...

[Michael Pilato, President of Jamieson Canada]

Yes, please.

[Jonathan Garfinkle, Research Analyst]

Okay. Just focusing on Jamieson Domestic, would you be able to break down revenue growth in terms of pricing, sell-through and new doors such as Dollarama?

[Michael Pilato, President of Jamieson Canada]

I don't -- we're not in a position to divulge that information publicly. But what I can tell you is we've seen growth across increased usage by consumers, new consumers, the increased distribution that we've picked up. We've seen growth across the board on all the things that you've talked about there.

[Christopher Snowden, CFO & Corporate Secretary]

So just adding to that, I confirm that there has been -- guys, just adding to that. We will confirm that there has been no pricing this year in the market and very little distribution growth. So the volume delivery in the quarter has been primarily about consumer consumption.

[Jonathan Garfinkle, Research Analyst]

Okay. Great. Just moving on. In terms of China. The China FDA registration, I know you mentioned you're still on pace to achieve 30 through 2020. I was wondering where you see that number going by the end of next year. And how many are registered as of today?

[Mark Hornick, President, CEO & Director]

Yes. So we are -- we have more than 20 products in totality registered in China through the various licensing mechanisms. We feel pretty confident that we'll hit our 30 goal this year. The Chinese FDA did shut down for quite a period of time during the COVID lockdowns, as you would expect. That said, we have still got new registrations published since then. So it seems to be very much back on track, at least as regards to our company goes. And we will continue to apply and gain registration throughout 2021. I would -- a rough target for the end of 2021 would be around 40 registrations in totality would be probably a good number to use. I just caution you that our registration is -- all registrations are not created equal in terms of volume. So registrations in China are based on the Chinese FDA's confidence that they have enough scientific data to establish a standard for a product and then they publish that standard in as quickly as they can. But that doesn't -- the standard is not published in order of consumer demand. So one registration may yield significantly different volume than another. So it's not a linear equation if you're looking at that, just to give you some extra context.

[Jonathan Garfinkle, Research Analyst]

Okay. Understood. And just a last one for me. Just on working capital, should we assume the same guidance given last quarter? I think there's a $5 million to $10 million drag for the year.

[Christopher Snowden, CFO & Corporate Secretary]

So we probably will take more inventory just to ensure our supply through Q3 and Q4. So I would say low double-digit investment in working capital. I would estimate, at this point, between $10 million and $15 million as an investment in working capital for 2020.

[Operator]

[Operator Instructions] And we'll go next to Matt Bank of CIBC.

[Matt Bank, Associate]

I just want to ask a bit more on the capacity increase. So where do you sit today? Are you basically bumping up against full capacity? And then what is the specific plan for the second half of the year?

[Mark Hornick, President, CEO & Director]

Yes. So right now, as a network, we are at basically full capacity right now. That's a function of expanding our capacity while at the same time, deploying all the measures of social distancing that we need to keep our employees safe. You will see over the next months, on a month-by-month basis, more capacity becoming available through a combination of partnerships that we have with qualified packers for our product as well as incremental capital being turned into production assets between now and the end of the year.

[Matt Bank, Associate]

And then on the other side of COVID, assuming social distance thing is no longer required, would that increase your capacity significantly with the footprint [indiscernible]?

[Mark Hornick, President, CEO & Director]

It would. I think we are a little far away from that, though, and I don't foresee personally a change in our manufacturing procedures between now and the end of the year. We are still far away from a COVID vaccine and despite the great progress that the provinces have made in combating COVID, we now have to understand what the impact is going to be with the back-to-school program. And what the impact that is in our COVID environment. And during that time, we will not take any chances with our employee population. So as you know, we were quite proactive in taking measures to protect people even as far back as in January. And we will be the last company to back off of that, and we'll only do so when we are 100% sure that our employees can operate safely. That said, I think we've also, maybe a bit editorial, but I think we've also learned a lot about the -- how to keep employees in an even enhanced state of health and wellness through the whole COVID pandemic. And there are a number of procedures and policies that are in our plant now, which we would probably look to keep and even to the extent of improving attendance and having people who, in the past, if somebody had a cold, maybe they would come to work. Well, now they're never going to do that again. And so I think that will help spread -- or reduce the spread of things non-COVID-related in our employees and make our employees more productive. So we'll get to what that looks like, and we don't expect that's a significant cost, but it's going to be a significant step as a permanent commitment to make sure that our employees are amongst the safest of any company in Canada. So summary, don't expect any changes in capacity relative to measures that we're doing to keep employees safe. That's going to continue until we are 100% sure that a change is warranted.

[Matt Bank, Associate]

Okay. Great. And could you give an update on acquisitions? Your appetite right now? And any kind of active files or anything like that?

[Christopher Snowden, CFO & Corporate Secretary]

So there's actually been quite a number of deals come to market. Right now, Jamieson is focused on our domestic business, our capacity, keeping our employees safe and our international growth priorities. We assess these opportunities as they come. And really, there is no further movement in that direction at this point.

[Mark Hornick, President, CEO & Director]

You also got to recognize, Matt, that knowing our company, this is a hands-on management style company. We are big on management control. And so to take over another company, particularly not in Canada, will be extremely difficult to execute really well in a COVID environment, and we definitely factor that into our decision on how we prioritize organic growth versus M&A. And so from our side, the organic growth opportunities currently far outweigh the M&A opportunities. So that's where we're focused.

[Operator]

And with no other questions in queue, I would now like to turn the call back to Mr. Hornick for any additional or closing comments.

[Mark Hornick, President, CEO & Director]

All right. Thanks again, Jenny. So thank you all for your support of our company through this time. Health and wellness has emerged from a consumer trend to now become the #1 global consumer priority, as Mike mentioned. Existing consumers are taking more types of vitamins, and they're taking them more regularly. New consumers have entered the category, and more than ever, they are seeking the Jamieson brand. At JWEL, we are keeping our people safe and proudly meeting consumer needs in unprecedented times. And we'll continue to do that on our way to fulfilling our purpose, which is to improve the world's health and wellness. Thanks a lot.

[Operator]

And that does conclude the call. We would like to thank everyone for your participation. You may now disconnect.