McPherson : CEO's AGM Address 2021

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23 November 2021

ASX: MCP

Company Announcements

ASX Limited

Level 4, 20 Bridge Street

SYDNEY NSW 2000

Dear Sir / Madam,

2021 ANNUAL GENERAL MEETING - CHIEF EXECUTIVE OFFICER'S ADDRESS

The Chief Executive Officer of McPherson's Limited, Mr. Grant Peck, is today addressing shareholders in the company's Annual General Meeting (AGM), which is being held virtually at https://web.lumiagm.com/371792891, commencing at 11.00 a.m. (Sydney time).

The Chief Executive Officer's AGM Address follows below.

The Chairman's AGM Address has been lodged separately.

The AGM Presentation will be lodged separately.

Approved for release by MCP's Company Secretary.

Yours sincerely,

Phil Bennett

Company Secretary

105 Vanessa Street, Kingsgrove NSW 2208, Phone: [phone] Fax: [phone]

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McPherson's Limited 2021 Annual General Meeting

CEO Address - Mr. Grant Peck

23 November 2021

Thanks Ari.

Thank you for your attendance and interest in McPherson's today.

I was appointed McPherson's CEO almost 12 months ago. As I reflect on the 2021 financial year - I can only agree with Ari - I think it is fair to say it was one of McPherson's most challenging years in the last decade.

Throughout the year, due to Covid-19, we have continued to see Australians living through various lockdowns, with large parts of the population having to navigate some form of stay-at-home measures during this time.

The McPherson's team largely performed their roles remotely and with great commitment and focus. Equally the warehouse and distribution teams continued to fulfil orders, adapting quickly to the health requirements directed by the authorities.

We continued to meet the protective measures implemented by the various levels of government with a lens on protecting the health and safety of team members, customers, and the broader communities in which we operate.

I am grateful for the support of my team, customers and suppliers as we navigated 2021 against this challenging backdrop.

[SLIDE - FY 21 RECAP]

And while it was challenging, FY2021 was also a year of significant contrasts. We delivered strong growth in core Beauty brands Manicare, Lady Jayne, Swisspers and A'kin with a 9% increase in domestic sales of company-owned brands during the year.

Unfortunately, our resilient domestic performance was more than offset by the significant decline in sales of Dr LeWinn's products to China, which resulted in a 10% decrease in revenue.

We recorded underlying EBIT of $11.3 million and our balance sheet remains strong with low debt and gearing.

It's not possible to review 2021 without reflecting on the disappointment and impact of the business outcome in respect of the China market so I am going to go into some detail on that now.

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[SLIDE - CHINA UPDATE]

In the year ending June 2020, our Dr. LeWinn's brand delivered stellar growth in China through our cross-bordere-commerce channel to this market. The growth was on the back of our successful anti-ageing product innovations in the Australian market.

The daigou phenomenon, fueled by international tourism and students, created significant demand for from Chinese consumers. This, in turn, generated substantial growth in turnover from fiscal 2017 to fiscal 2020, with particular success in the key Chinese consumer promotional periods, like Singles Day.

As we moved through fiscal 2021, the impact of the Covid-19 pandemic on our narrow path to market, played out on what had been a runaway success. In the context of rapid growth and repeated out-of-stock positions, the Company faced the prospect of supply chain uncertainty and in conjunction with our in-market distributor, thought it prudent to build considerable stock positions. With an already long supply chain, inflated by contingency, the inventory levels reflected an expectation of significant continued growth.

The first few promotional periods during the early onset of Covid-19 continued the growth profile we had experienced pre-pandemic. However, as we now unfortunately have seen, the fundamentals for international skincare brands in a cross-bordere-commerce sense changed. The sales outcomes, across the market, from the 11/11 promotion in November 2020, which is normally the largest annually, fell well short of expectations.

The combination of materially reduced daigou demand for Australian products, and stronger domestic Chinese skincare offerings appealing to the Chinese consumer, resulted in a significant reduction in sales for Dr. LeWinn's in China.

Our expectation of a modest rebound in demand in China in the first half of fiscal 2022 which was supported by feedback from our key China customer has disappointingly not transpired. We announced on 1 November the decision to incur a one-off provision in the range of $8 million to $10 million in relation to excess Dr. LeWinn's inventory, in our first half fiscal 2022 results. Ultimately this will protect the Dr LeWinn's brand equity longer- term.

The lessons from this experience are numerous and will result in an improved strategy and approach to international markets.

As a board and a management team, we are clear that performance must improve.

Whilst China will remain as a key market for McPherson's, as it's one of the world's largest skincare markets, our updated strategy involves broader distribution, acknowledging the vulnerability of over-reliance on one channel in China. The Dr. LeWinn's brand remains popular in China, consequently the Company does expect improvement over time.

A measured, self-funding approach to expansion into other international markets has also commenced with the Company recording its first sales of approximately $100,000 to the United States in September 2021.

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[SLIDE - HEALTH WELLNESS & BEAUTY - A GROWING MARKET]

But there remains a broader context for McPherson's.

The daigou cross border opportunity at its peak was only 15% of McPherson's turnover.

The domestic core business resilience and performance through a prolonged period of changing consumer behaviors arising from the pandemic is very positive.

McPherson's underlying core performance is based on a breadth of channel participation, six strong core brands and participation in categories poised for continued and enduring growth, with an addressable market in Australia of $15 billion.

We are well positioned to leverage positive macro trends in our industry; the growth of pro- active beauty, the strong reputation for beauty products made in Australia, the growth of beauty routines at home, which has been particularly supported by Covid, and the consumer trend towards more sustainable products.

[SLIDE - OPERATIONAL REVIEW]

Following these disappointing results out of China and having just been appointed as CEO, the company undertook an operational review to identify and prioritise McPherson's key growth drivers, with a view to implementing strategies that deliver both short and long term value to shareholders. The review had two core components; firstly an examination of the group's strategic frameworks and secondly the construction of a disciplined strategy, supported by a highly capable team, to achieve those objectives.

I'd like to update you all on progress against the Operational Review, which will simplify our business, drive efficiencies and assist in returning the Company to profitable growth.

The review identified initiatives across four key areas with a target to deliver $300 million in total sales and $50 million in total EBIT by FY26.

The four key strategic pillars are:

1. Continued focus on core owned brands and key domestic channels
2. Establish health and wellness as a new growth platform
3. Expand our international footprint
4. Recalibrate our cost base.

A key first step to execution of the Operational Review has been the extensive reshaping of the management team with a focus on accountability to deliver against the strategic cornerstones.

In-order to support the strategy we have restructured the Executive Team with Commercial leads for ANZ, Health and Wellness and International, each with divisional profit and loss

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accountability. Furthermore, the Executive Team has been reduced by three, simplifying the reporting structure and reducing costs.

We now believe we have the right team in place, focusing on the key objectives in our three business units of Core Brands, Health & Wellness and our International business. I would now like to look at each of these strategic pillars in more detail and provide an update on our progress.

[SLIDE - CORE OWNED BRANDS]

Our first strategic pillar is a focus on our core owned brands where we will achieve growth through better ranging, as well as customer and channel expansion. By focusing on innovation, we will also tap into adjacent categories, leveraging the strength of our brands.

This is the key pillar of our Operational Review and I am pleased to report that our focus is delivering results. As at the end of October, we continue to track positively towards our targets. Some highlights are shown on the presentation slide that you can see and I want to point out a few.

On Ranging - we have confirmed an additional 60,000 distribution points of our 79,000 annual target and are on track to reach our full year 22 target of 1.2 million in total.

Our focus on well-definedinnovation continues to fuel our growth with incremental sales from 163 active and planned projects in the NPD pipeline.

The Company will continue to evolve its sustainability credentials, established through the market leading position it has taken with its Multix Greener range and new product development targeted at removing plastic packaging and product components.

Establishment of clear sustainability goals, with relevant product innovation will continue to be an important element of the Company's future sustainability agenda.

The Company is actively leveraging the strength of its brands and expanding into adjacent sectors such as launching a Swisspers hypoallergenic skincare range specifically for infants.

This has resulted in the continued growth of our core brands with sales up 9% year to date at 30 October 2021 when compared with the same period last year.

[SLIDE - HEALTH AND WELLNESS PLATFORM]

Moving on to our second strategic pillar - establishing a growth platform in Health & Wellness.

During FY21, McPherson's expanded into health category with the acquisition of the Fusion Health and Oriental Botanicals brands in December 2020.