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2023 ReportPeers and competitors of Jamieson Wellness:
Sonoco Products CompanyIMPACT: GLOBAL ANNUAL REPORT 2022 I M PA C T: G L O B A L | A N N U A L R E P O R T 2 0 2 2 1 Expanding from coast to coast worldwide. In 2022, we celebrated a century of improving the world’s health and wellness with our Jamieson brand, while steadily advancing our mission of becoming the world’s most successful and trusted health and wellness company. To further extend our category leadership into the future, we seek to grow our business in significant markets both domestically and internationally. This year, we were successful on all fronts, as we ramped up the performance of our domestic brands, reinforcing the status of Jamieson Vitamins as the #1 consumer health brand in Canada, and increased our relevance worldwide, particularly in the U.S. and China. We believe our global ambitions, combined with the exceptional performance of our team in even the most challenging of macro environments, are what will drive our momentum into our next century of growth. I M PA C T: G L O B A L | A N N U A L R E P O R T 2 0 2 2 2 From our CEO. Dear fellow shareholders: 2022 was a milestone year for Jamieson Wellness, marking 100 years of improving the world’s health and wellness with our iconic Jamieson brand. The celebration of this achievement with our team, consumers and stakeholders reinforced the importance of our legacy while also inspiring us to take strategic action to fuel our next century of growth. With continued long-term profitable goals top of mind, in 2022 we moved aggressively to seize key opportunities for significant value creation in support of our mission to become the world’s most successful and trusted health and wellness company. Results in 2022 were outstanding as the Jamieson team continued to deliver against key priorities for driving profitable growth across our portfolio of brands. Total revenues increased 21% and adjusted EBITDA rose 24%, led by the ongoing leadership of our Canadian branded business as consumers continued to trust Jamieson for their health and wellness needs. We continued to expand our international presence, driven by marketing, innovation, and omnichannel distribution into new and established markets. We also took strategic actions in the U.S. and China that will dramatically transform our business by enabling us to further leverage our strong capabilities across a global platform and accelerate growth over the long term. In July, we closed on the acquisition of Nutrawise Health & Beauty Corporation, a leading innovator, manufacturer and marketer of supplements under the youtheory brand in the United States and other international markets. Youtheory is a mission-driven business and occupies a premium position in the market with a product assortment that is highly complementary to the Jamieson Brands portfolio and focus on holistic wellness. This acquisition creates a strategic platform for expansion in the United States, the world’s largest vitamin market, and gives us multiple pathways to drive growth by leveraging Jamieson’s product portfolio, innovation expertise, consumer insights, operating excellence, and commercial expertise. In November, we announced an agreement to acquire assets from our Chinese distribution partner that will allow us to build a closer relationship with our consumers in China and take full control of our value chain beginning in April 2023. Subsequently, we announced a strategic transaction with DCP Capital, whereby DCP will purchase a minority interest in our Chinese operations while providing Jamieson with key on-the-ground capabilities that will help us accelerate growth in the world’s second largest VMS market. The Jamieson brand perfectly matches the top purchase drivers of the Chinese consumer, and building on our prior successes in this market, it is our intention to ensure we maximize this and meet their health and wellness needs. We are proud of our many accomplishments in 2022, and as we look towards our next 100 years we know that every decision we make to support our continued success must be viewed through the lens of sustainability. In early 2022, we shared our targets and commitments towards reducing our environmental footprint, impacting social change, and improving our governance model. We have already made progress towards these targets, the highlights of which are shared within this Annual Report. As a health and wellness company, our ESG improvements are consistent with everything we stand for, including the physical, mental, and social well-being of people, the planet, and our communities. The strategic actions we took in our 100th year will shape our future by broadening our opportunity set, giving us access to more consumers, and continuing our history of growth into the future. 2023 will be a year of increased investment in our key growth pillars that will serve us well for years to come. On behalf of the entire management team, I would like to thank our team members, customers, consumers and shareholders. It’s a privilege to lead this incredible organization by honouring its legacy and setting us up for a successful future. I am grateful for your continued support and encouragement. MIKE PILATO Director, President & CEO I M PA C T: G L O B A L | A N N U A L R E P O R T 2 0 2 2 3 From our Chair. Dear fellow shareholders, Throughout 2022, Jamieson Wellness continued to deliver strong, consistent results despite significant volatility in the global macro environment. Management’s execution in the face of sharp inflation and geopolitical uncertainty was truly outstanding, with both revenue and profitability metrics growing over 20% for the year. In addition, we announced several important strategic actions that will significantly expand our geographic footprint as well as add new dimensions to our product and go-to-market strategies. We are extremely well-positioned for the future with a passionate leadership team, strong foundation and clear strategy coupled with strong industry tailwinds. Our success is ultimately a reflection of the amazing people who have helped to build this Company for more than 100 years and their steadfast commitment to our core values. The resolve and determination that made us the leader in the domestic market will serve us equally well on the global stage over the next century. In addition to driving strong returns for shareholders, we strive to optimize value for all stakeholders globally by consistently aligning our business practices with their needs, including our deep commitment to ESG principles. We made tremendous progress in our ESG initiatives in 2022 and look forward to continuing to build on this progress in the years ahead. I would like to thank the entire Jamieson team for their hard work and dedication along with our Board of Directors and management for their exceptional leadership. TIMOTHY PENNER Chair of the Board I M PA C T: G L O B A L | A N N U A L R E P O R T 2 0 2 2 4 L A N D A C K N O W L E D G E M E N T Jamieson Wellness gratefully acknowledges that our workplace lies on the unceded territories of the First Nation, Inuit, and Métis Nations. Our facilities and head office reside in Toronto and Windsor, Canada, which are traditionally the home of the Anishinabewaki , Wendake-Nionwentsïo, Ho-de-no-sau-nee-ga (Haudenosaunee), Mississauga and the Mississaugas of the Credit First Nation. Through our dispersed team, Jamieson Wellness conducts its work on the traditional territories of several Indigenous peoples across the world. We respectfully honour all people, cultures and traditions. As part of our acknowledgement, we are committed to amplifying Indigenous voices and working in partnership with Indigenous organizations, community members and ambassadors on our vision to improve the world’s health and wellness. F O R W A R D - L O O K I N G S TAT E M E N T S / N O N - I F R S F I N A N C I A L M E A S U R E S This annual report contains “forward-looking information” within the meaning of applicable securities laws, which forward-looking information represents management’s expectations as at the date hereof and is subject to change after such date. For a detailed discussion of forward-looking information, which applies in all respects to the forward-looking information contained herein, please refer to the section entitled “Forward-Looking Information” in Jamieson Wellness’ annual information form dated March 30, 2023. This annual report makes reference to certain financial measures, including non-IFRS financial measures that are historical. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. See “How we Assess the Performance of our Business” of the Company’s management’s discussion and analysis of the results of operations and financial condition of the Company for the year ended December 31, 2022 (the “MD&A”) for an explanation of the composition of each such measure and see “Selected Consolidated Financial Information” of the MD&A for a quantitative reconciliation of each non-IFRS financial measure to its most directly comparable financial measure disclosed in our financial statements to which the measure relates, which disclosures are incorporated by reference herein. I M PA C T: G L O B A L | A N N U A L R E P O R T 2 0 2 2 5 Breaking out into the U.S. In July 2022, we announced the acquisition of Nutrawise Health & Beauty Corporation, the manufacturer, marketer and distributor of youtheory – a premium brand of health and wellness supplements based in Southern California. Leveraging our broad product portfolio, best-in-class operational capabilities and global footprint, we intend to accelerate youtheory’s expansion across multiple categories and channels in the U.S. and around the world. +$40B VITAMIN AND SUPPLEMENT MANUFACTURING INDUSTRY IN THE U.S.* * Nutrition Business Journal, 2022. Figure in USD. I M PA C T: G L O B A L | A N N U A L R E P O R T 2 0 2 2 6 S T R AT E G I C R AT I O N A L E Creates platform for expansion in the U.S. VMS market Premium brand and product offering highly complementary to Jamieson Brands’ portfolio Mission-driven business culturally aligned with our focus on quality and holistic wellness State-of-the-art U.S. manufacturing facility increases available capacity and capabilities Diverse product distribution with strong presence in Club and Specialty and growing presence in FDM and eCommerce Proven marketing expertise with high customer loyalty and engagement metrics Significant potential to leverage our broad Jamieson portfolio under the youtheory brand in the U.S. I M PA C T: G L O B A L | A N N U A L R E P O R T 2 0 2 2 7 Greater aspirations in China. The growth of our business in China has continued to outpace the industry average, as we align our direct go-to-market strategy with a clear focus on growing our business for the long term. China is the second-largest vitamin market worldwide, currently at +$30B with significant annual growth.* * Euromonitor International, 2022. Figure in USD. I M PA C T: G L O B A L | A N N U A L R E P O R T 2 0 2 2 8 C H I N A G R O W T H P L A N E X E C U T I O N DEEPER PENETRATION OF TOP CROSS-BORDER E-COMMERCE PLATFORMS DIRECT CONSUMER COMMUNICATION ACTIVITIES INCREASED INVESTMENT IN TRADITIONAL MARKETING AND NEW CHANNELS EXPANSION IN DOMESTIC RETAIL AND E-COMMERCE THROUGH MAJOR CLUB PARTNERS D I S T R I B U T I O N A C Q U I S I T I O N In November 2022, we announced our agreement to acquire assets from our Chinese distribution partner, allowing us to shift to a company-owned distribution model. Moving forward, we will directly manage the customer and consumer relationships with our team in China, allowing us to take a more direct and holistic approach to delivering brand experiences for Chinese consumers in this key market. Our goal to truly scale our China business is transformational and supported by the demand that Chinese consumers have consistently shown for Jamieson and our 100-year history of quality and trust. I M PA C T: G L O B A L | A N N U A L R E P O R T 2 0 2 2 9 At peak position in Canada. Building on a century of trust, we have continued to grow all of our brands in Canada, keeping Jamieson Vitamins at the top of its category. In 2022, our domestic expansion was driven by our best-in-class innovation and the consistent demand from our elevated consumer base, as more and more Canadian consumers choose Jamieson for their health and wellness needs. I M PA C T: G L O B A L | A N N U A L R E P O R T 2 0 2 2 10 Amplifying our international presence. Throughout 2022, we continued to make strategic choices to support our growth in key geographies such as the Middle East and Southeast Asia, and we entered new markets, including Mexico and Croatia. L A N D M A R K A C H I E V E M E N T S 50+ COUNTRIES Onboarded new partners in the high priority markets of Spain and Italy to maximize our distribution opportunities Launched 5 new products in the European club channel (Spain, France) and secured first official club listing in Australia I M PA C T: G L O B A L | A N N U A L R E P O R T 2 0 2 2 I M PA C T: G L O B A L | A N N U A L R E P O R T 2 0 2 2 11 11 Setting a new bar for our financials. Our financial results continue to reflect the strength of our branded business and consistent consumer consumption. Throughout the year, we’ve met the demand from our new, elevated consumer baseline and invested capital to increase our capacity and operating efficiencies. These improvements will allow us to fund resources and marketing to accelerate topline growth. +21.4% +23.6% INCREASED REVENUE INCREASED ADJUSTED EBITDA1 +18% INCREASED ADJUSTED NET EARNINGS1 +17.4% ADJUSTED DILUTED EARNINGS PER SHARE1 1. “Adjusted EBITDA” and “Adjusted Net Earnings” are non-IFRS financial measures that do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Their most directly comparable financial measure that is disclosed in the audited consolidated financial statements for the year ended December 31, 2022 is net earnings. “Adjusted Diluted Earnings per Share” is a non-IFRS ratio that does not have a standardized meaning prescribed by IFRS and is therefore unlikely to be comparable to similar measures presented by other companies. A component of Adjusted Diluted Earnings per Share is Adjusted net earnings. For more information, see the non-IFRS and other financial measures disclaimer included on page 5 of this annual report. I M PA C T: G L O B A L | A N N U A L R E P O R T 2 0 2 2 12 Higher standards in sustainability. As a global organization, we have grounded our ESG Impact Strategy in internationally recognized standards, broad perspectives and deep awareness. We have established ambitious ESG goals to advance sustainable and equitable access to health and wellness for all our stakeholders and in the communities in which we operate. In our commitments, we recognize the importance of resilience, accountability and consistency in building a strong foundation for the next 100 years. I M PA C T: G L O B A L | A N N U A L R E P O R T 2 0 2 2 13 E N V I R O N M E N T We’re building stronger frameworks for a greener planet. This year, we disclosed climate commitments that include a 50% reduction of Scope 1 & 2 emissions by 2030 and the development of a formal action plan to reach Net Zero by 2050. H O W W E M A D E P R O G R E S S I N 2 0 2 2 : Launched our Sustainability Steering Committee for added accountability in governance Aligned with TCFD for climate-reporting governance Kicked off our partnership with EcoVadis, a globally-recognized 3rd party ESG rating company, to conduct individual sustainability performance assessments of our supply chain partners Formed working groups dedicated to our Scope 3 projects, including plastic packaging built with the Ellen MacArthur framework Partnered with Caldwell First Nation, the Essex Region Conservation Authority and the Essex Region Conservation Foundation to restore 40 acres of former agricultural land to natural forest and wetland habitat Assessed our environmental footprint in our Canadian facilities to build a strategic road map to Net Zero I M PA C T: G L O B A L | A N N U A L R E P O R T 2 0 2 2 14 S O C I A L We’re cultivating organizational change for connected communities. Our people are change-makers who continually foster the conditions required for establishing more equitable, inclusive, and sustainable well-being. They centre our culture around DE&I initiatives to allow people to show up as their authentic selves at Jamieson as well as in their local communities. I N C L U S I O N A N D E Q U I TA B L E W O R K P L A C E T R A I N I N G 2 0 2 2 A C C O M P L I S H M E N T S 2 0 2 5 T A R G E T 96% participation rate in DE&I training for all team members Annual mandatory DE&I and bias training with more than 90% compliance Hosted 7 organization-wide events through our Employee Resource Groups and Diversity & Inclusion Council FA I R R E P R E S E N TAT I O N I N L E A D E R S H I P 2 0 2 2 A C C O M P L I S H M E N T S 2 0 2 5 T A R G E T Achieved representation of women (32%) and racialized persons (29%) across our leadership team and board of directors At a minimum, leadership and board roles are held by 50% women and 25% racialized persons. This target has been achieved at the board level. N E W H I R E R E P R E S E N TAT I O N 2 0 2 2 A C C O M P L I S H M E N T S 2 0 2 5 T A R G E T External manager and above new hire candidate slates were representative of racialized (63%) and women (46%) populations Maintain representation of women at 50% and racialized persons at 22.5% for new hires at the managerial level and above I M PA C T: G L O B A L | A N N U A L R E P O R T 2 0 2 2 15 G O V E R N A N C E We’re establishing more ethical operations and sustainable practices. In our commitment to conducting business ethically, we have been regularly reviewing our governance practices to identify improvement opportunities. Our score in the Globe and Mail’s Board Games puts the Jamieson Wellness board of directors in the top 30% of TSX Composite boards. T H E U N I T E D N AT I O N S G L O B A L C O M PA C T I N I T I AT I V E ( T H E “ U N G L O B A L C O M PA C T ” O R “ U N G C ” ) We have joined the UN Global Compact, which is the largest corporate sustainability initiative globally, calling organizations around the world to: 1 2 Align their operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption Take action in support of UN goals and issues embodied in the Sustainable Development Goals I M PA C T: G L O B A L | A N N U A L R E P O R T 2 0 2 2 16 Our platform for another 100 years of global value creation. G R O W I N G I N K E Y M A R K E T S THE U.S. CHINA CANADA INTERNATIONAL H O W W E ’ R E G E T T I N G T H E R E ACQUISITION OPPORTUNITIES OPERATING LEVERAGE GLOBAL CONSUMER HEALTH AND WELLNESS MEGATREND ENVIRONMENTAL, SOCIAL, AND GOVERNANCE PRACTICES PEOPLE, VALUES, AND CULTURE I M PA C T: G L O B A L | A N N U A L R E P O R T 2 0 2 2 17 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the three and twelve months ended December 31, 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the three and twelve months ended December 31, 2022 The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) of Jamieson Wellness Inc. (together with its subsidiaries), referred to herein as “Jamieson”, the “Company”, “we”, “us” or “our”, is dated as of February 22, 2023. It should be read in conjunction with our audited consolidated annual financial statements and accompanying notes for the year ended December 31, 2022. Our audited consolidated annual financial statements and accompanying notes for the year ended December 31, 2022 have been prepared in accordance with International Financial Reporting Standards (“IFRS”). These audited consolidated annual financial statements include the accounts of our Company and other entities that we control and are reported in Canadian dollars. All references in this MD&A to “Q4 2022” are to our fiscal quarter ended December 31, 2022 and to “Q4 2021” are to our fiscal quarter ended December 31, 2021. All references in this MD&A to “YTD 2022” are to our year ended December 31, 2022 and to “YTD 2021” are to our year ended December 31, 2021. See “Forward-Looking Information” and “Risk Factors” for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results may differ materially from those indicated or underlying forward-looking information as a result of various factors, including those referred to under the heading “Risk Factors” and elsewhere in this MD&A. Non-IFRS and Other Financial Measures This MD&A makes reference to certain financial measures, including non-IFRS financial measures that are historical, non-IFRS measures that are forward-looking, non-GAAP ratios and supplementary financial measures. Management uses these financial measures for purposes of comparison to prior periods and development of future projections and earnings growth prospects. This information is also used by management to measure the profitability of ongoing operations and in analyzing our business performance and trends. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. We use the following non-IFRS financial measures: “EBITDA”, “Adjusted EBITDA”, “Adjusted net earnings”, “normalized gross profit”, “normalized SG&A”, “normalized earnings from operations”, “cash from operating activities before working capital considerations” and “net debt”, the following non-IFRS ratios: “Adjusted EBITDA margin”, “Adjusted diluted earnings per share”, “normalized gross profit margin”, “normalized operating margin”, and the following supplementary financial measures: “gross profit margin”, “operating margin” and “USD denominated revenue”, to provide supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS financial measures. Management also uses non-IFRS and supplementary financial measures in order to prepare annual operating budgets and to determine components of management compensation. See “How we Assess the Performance of our Business” for an explanation of the composition of each such measure, as applicable, and see “Selected Consolidated Financial Information” for a quantitative reconciliation of each non-IFRS financial measure to its most directly comparable financial measure disclosed in our financial statements to which the measure relates. Forward-Looking Information Certain statements contained in this MD&A including, in particular, in the sections below entitled “Summary of Factors Affecting our Performance”, “Liquidity and Capital Resources”, “Outlook” and “Risk Factors”, contain forward-looking information within the meaning of applicable securities laws. Forward-looking information may relate to our future outlook and anticipated events or results and may include information regarding our financial position, business strategy, growth strategy, budgets, operations, financial results, taxes, dividend policy, plans, intentions, beliefs, and objectives of our Company. Particularly, information regarding our expectations of future results, performance, achievements, prospects or opportunities is forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “targets”, - 19 - “expects”, “does not expect”, “is expected”, “an opportunity exists”, “budget”, “scheduled”, “estimates”, “outlook”, “forecasts”, “projection”, “prospects”, “strategy”, “intends”, “anticipates”, “does not anticipate”, “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might”, “will”, “will be taken”, “occur” or “be achieved”. In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management’s expectations, estimates and projections regarding future events or circumstances. In addition, our assessments of, and targets for, annual revenue, Adjusted EBITDA, Adjusted diluted earnings per share and certain other measures are considered forward-looking information. See “Outlook” for additional information concerning our strategies, assumptions and market outlook in relation to these assessments. The forward-looking information contained in this MD&A is based on management’s opinions, estimates and assumptions in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we believe to be appropriate and reasonable in the circumstances. Despite a careful process to prepare and review the forward-looking information, there can be no assurance that the underlying opinions, estimates and assumptions will prove to be correct. Certain assumptions in respect of the ability to pursue further strategic acquisitions; our ability to source raw materials and other inputs from our suppliers; our ability to continue to innovate product offerings that resonate with our target customer base; our ability to retain key management and personnel; our ability to continue to expand our international presence and grow our brand internationally; our ability to obtain and maintain existing financing on acceptable terms; currency exchange and interest rates; the impact of competition; changes to trends in our industry or global economic factors; and changes to laws, rules, regulations and global standards are material factors made in preparing the forward-looking information and management’s expectations contained in this MD&A. The forward-looking information contained in this MD&A represents management’s expectations as of the date of this MD&A and is subject to change after such date. However, we disclaim any intention or obligation or undertaking to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws in Canada. Forward-looking information is necessarily based on a number of opinions, estimates and assumptions that management considered appropriate and reasonable as of the date such statements are made, and is subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, including but not limited to those described below and referred to under the heading “Risk Factors” and those discussed under the “Risk Factors” section of our most recent annual information form. We caution that the list of risk factors and uncertainties is not exhaustive and other factors could also adversely affect our results. Readers are urged to consider the risks, uncertainties and assumptions carefully in evaluating the forward-looking information and are cautioned not to place undue reliance on such information. Overview Founded in 1922, Jamieson is Canada’s leading branded manufacturer, distributor and marketer of high- quality natural health products. We offer consumers a comprehensive and innovative line of branded vitamins, minerals and supplements (“VMS”) as well as sports nutrition products through our Jamieson, youtheory, Progressive, Smart Solutions, Iron Vegan and Precision brands. All of our brands are collectively referred to as our “Jamieson Brands” segment. In addition to our Jamieson Brands segment, we also offer comprehensive manufacturing and product development services on a contract manufacturing basis to select blue-chip consumer health companies and retailers worldwide, which we refer to as our “Strategic Partners” segment. VMS and sports nutrition are two large and growing segments of the consumer health industry. Jamieson is Canada’s #1 overall consumer health brand by sales and Canada’s #1 brand in VMS by sales. Our trusted reputation and success in Canada have allowed us to significantly grow the business internationally, with products being sold in greater than 50 countries and regions worldwide. - 20 - Our trusted reputation, strong industry relationships and certifications and commitment to meeting the highest standards of manufacturing, together with high quality production capabilities, attract opportunities for us to manufacture products for select blue-chip consumer health companies and retailers worldwide. Combining deep consumer insights with extensive research and development capabilities, we deliver category-leading innovation and growth. Our leading market position and brands, focus on quality and innovation and extensive selection of products, make us the preferred partner for retailers in Canada. Summary of Factors Affecting Our Performance We believe our performance and future success depend on a number of factors that present significant opportunities for us. These factors are also subject to a number of inherent risks and challenges, some of which are discussed below and referred to under “Risk Factors”. Impact of Ukraine Conflict We do not conduct any business operations in Russia or Ukraine and to date have not had any measurable disruption to our supply of raw materials and our ability to service customers. We did note that heightened inflation and consumer sentiment have caused uncertainty in international markets, especially in neighbouring Eastern European countries where we conduct business. In particular, we continue to actively monitor for potential or accelerating impacts from the conflict including whether consumer purchasing patterns continue to soften affecting international business performance. The continued risk surrounding the Ukraine conflict and any escalations may have an adverse impact on our business, financial condition, and results of operations. Our Brands Our iconic brands have been built around consumer trust through focus on product quality, purity and potency. Our well-established brands include Jamieson, Smart Solutions, Progressive, Precision, Iron Vegan and youtheory. Maintaining, enhancing and growing our brand appeal in Canada and internationally is critical to our continued success. Failure to maintain and enhance our brands in any of the targeted markets may materially and adversely affect the business, results of operations or financial condition. Product Innovation and Planning We believe that product innovation is integral to our success and we continue to focus on innovation as a key pillar of our growth. Our business is subject to changing consumer trends and preferences which is dependent, in part, on continued consumer interest in our new products, line extensions and reformulations. The success of new product offerings, enhancements, or reformulations depends upon a number of factors, including our ability to: (i) accurately anticipate customer needs; (ii) develop new products, line extensions or reformulations that meet these needs; (iii) successfully commercialize new products, line extensions and reformulations in a timely manner; (iv) price products competitively; (v) manufacture and deliver products in sufficient volumes and in a timely manner; (vi) differentiate product offerings from those of competitors; and (vii) maintain relationships with scientist employees and consultants and members of our panel of consumer health industry experts, which we call the Jamieson Scientific Advisory Board, in order to benefit from their expertise and innovations. We believe our pace of innovation and speed to market with the introduction of new products provide us with a competitive advantage within the space we compete. Customer Relationships We have longstanding and deeply entrenched customer relationships with top retailers across the food, drug, mass (“FDM”), club, health food store, specialty and online retail channels. We sell products through our knowledgeable retail partners and we are dependent on retail partners across all channels to display and present our products to customers, in their brick-and-mortar stores and on their online e-commerce sites. Our partners service - 21 - customers by stocking and displaying our products, and, in certain health food and other specialty stores, explaining product attributes and health benefits. Our relationships with these retail customers are important for consumer trust in the brand and the advertising and educational programs we continue to deploy. Failure to maintain these relationships with retail partners or financial difficulties experienced by these retail partners could adversely affect our business. Sourcing and Production We have developed a strong, global supply chain based on long-standing relationships and have had relationships with the majority of our suppliers for over ten years. We purchase our ingredients from approximately 300 high quality raw material ingredient and packaging suppliers worldwide and potential suppliers are subject to a rigorous evaluation process by our quality assurance department. We are dependent on a stable and consistent supply of materials and inputs, including ingredients and packaging products. Although materials and inputs are generally available from multiple sources, certain materials and inputs are sourced from a restricted number of suppliers. In 2022, our top ten suppliers accounted for approximately 50% of our purchases. As is customary in the consumer health industry, we do not have long-term written contracts with most suppliers and often enter into short to medium-term contracts for raw materials at fixed prices to provide time to address price increases and mitigate margin erosion. Distribution Our warehousing and distribution functions are operated under a third-party logistics model through various facilities globally. We enter into agreements with the third-party logistics partner to provide warehousing and distribution services for Jamieson Branded and Strategic Partners finished goods inventories. Our ability to satisfy our customers’ demands and achieve our cost objectives depends on our ability to maintain key logistic and transport arrangements. Our distribution and supply chain could be negatively affected by unforeseen disruptions due to fire, severe weather conditions, natural disasters, or other catastrophic events, public health events, labour disagreements, or other shipping problems. The loss of or disruption to these types of arrangements could interrupt product supply, which in turn could adversely affect the assortment and product availability at the store level of our customers. If not effectively managed or remedied, these events could negatively impact customer experience and adversely affect our operations or financial performance. By leveraging the expertise of the third-party logistics provider, we are able to operate more efficiently and diversify risk from our manufacturing facilities. Consumer Trends The Canadian consumer health industry is subject to shifts in consumer trends, preferences and spending. Our revenue and operating results depend, in part, on our ability to respond to such changes in a timely manner. As a result of our broad product scope and our strong innovation capabilities, we believe that we are well-positioned to respond to these shifts in consumer trends, preferences and spending. Our revenue is also impacted by consumer spending habits, including spending on our products, which are affected by many factors that are beyond our control, including, but not limited to, prevailing economic conditions, levels of employment, fuel prices, salaries and wages, the availability of consumer credit, and consumer perception of economic conditions. Competition The market for VMS and sports nutrition products is highly competitive. Our direct competition consists of publicly and privately-owned companies, which tend to be highly fragmented in terms of both geographic market coverage and product categories. In many of our product categories, we compete not only with widely advertised branded products, but also with private label products. Given our significant scale and broad product scope relative to our competition, iconic brand status, strong innovation capabilities and high-quality manufacturing, we believe that we are well-positioned to capitalize on favorable long-term trends in the VMS and sports nutrition segments. The specialized knowledge, expertise, and certifications required for production of VMS and sports nutrition products, is generally a significant barrier to entry for new competitors. Internationally, our competition varies by market and we have a strategic approach to entering international markets, which includes evaluating certain factors in each market, - 22 - such as competitiveness, pricing dynamics, growth potential, regulatory environment and the propensity to be attracted to foreign brands. Foreign Exchange We currently benefit from a natural currency hedge by purchasing certain materials and inputs in U.S. dollars and selling our products internationally in U.S. dollars. With respect to sales in Canada, we are exposed to fluctuating U.S.-Canadian currency exchange rates where the products sold contain materials and inputs purchased with U.S. dollars. We manage our net exposure to fluctuating U.S.-Canadian currency exchange rates with foreign exchange hedging contracts. We do not have foreign exchange hedging contracts in place with respect to all currencies in which we currently do business but may, from time to time, enter into additional foreign exchange hedging contracts in respect of other foreign currencies. Currency hedging entails a risk of illiquidity and, to the extent the applicable foreign currency depreciates or appreciates against the Canadian dollar, the use of hedges could result in losses greater than if the hedging had not been used. There can be no assurance that our hedging strategies, if any, will be effective in the future or that we will be able to enter into foreign exchange hedging contracts on satisfactory terms. Business Acquisitions We leverage our relationships and network of industry participants and advisors to actively source and identify acquisition opportunities. We continue to pursue strategic acquisitions that enable us to further broaden and diversify product offerings and leverage current manufacturing and distribution facilities for new products. Any acquisitions may involve large transactions or realignment of existing investments, and present financial, managerial and operational challenges, which, if not successfully overcome, may reduce our profitability. Implementation of Growth Strategies We have a successful track record of growing revenues faster than the broader VMS segment and we believe we have a strong domestic and international growth strategy in place aimed at continuing to exceed broader industry growth rates. Our future success depends, in part, on management’s ability to implement our growth strategy, including (i) product innovations within existing categories and growth into adjacent categories and continued growth of existing products in existing categories; (ii) further penetration into international markets and new geographies; and (iii) in support of our profitability targets, improvements in gross profit, earnings from operations and operating margins. The ability to implement this growth strategy depends, among other things, on our ability to develop new products and product line extensions that appeal to consumers, maintain and expand brand loyalty and brand recognition, maintain and improve competitive position in the channels in which we compete and identify and successfully enter and market products in new geographic markets, market segments and categories. Regulation We are subject to the laws and regulations applicable to any business engaged in formulation, production and distribution of consumer health products in the jurisdictions in which we operate. This includes natural health product regulations, laws governing advertising, consumer protection regulations, environmental laws, laws governing the operation of warehouse facilities and labour and employment laws. We hold all required and applicable site licenses, certifications and import licenses for all of our manufacturing and distribution centres. Our products sold internationally are subject to tariffs, treaties and various trade agreements as well as laws affecting the importation of consumer goods and we continuously monitor changes in these laws, regulations, treaties and agreements. There is currently no uniform regulation applicable to natural health products worldwide and there has been an increasing movement in certain foreign markets to increase the regulation of natural health products. The adoption of new laws, regulations or other constraints or changes in the interpretations of such requirements may result in compliance costs or lead us to discontinue product sales and may have an adverse effect on the marketing of our products, resulting in loss of sales. We believe that Canadian regulations are amongst the most stringent worldwide - 23 - and, as we currently operate in compliance with these high standards, increased regulation in foreign jurisdictions makes us uniquely positioned to grow sales in such jurisdictions. How We Assess the Performance of our Business The key performance indicators below are used by management in evaluating the performance of our Company and assessing our business. We refer to certain key performance indicators used by management and typically used by our competitors in the Canadian consumer health industry, some of which are not recognized under IFRS as identified below. See “Non-IFRS and Other Financial Measures” for more information on each non-IFRS financial measure, non-IFRS ratio and supplementary measure. See “Selected Consolidated Financial Information” for a quantitative reconciliation of each non-IFRS financial measure to its most directly comparable financial measure disclosed in our financial statements to which the measure relates. Revenue The majority of our revenue is derived from the sale of Jamieson branded products to distributors, retail and wholesale customers, as well as providing contract manufacturing services and the sale of product through our Strategic Partners segment. Revenue is recognized for the sale of Jamieson branded products and the manufacturing of products to our strategic partners at the point in time when control of the asset is transferred to the customer, based on applicable shipping terms. We generally have a right to payment at the time of delivery (which is the same time that we have satisfied our performance obligations under the arrangement), as such, a receivable is recognized as the consideration is unconditional and only the passage of time is required before payment is due. A portion of our revenue is derived from contract manufacturing services provided to customers in our Strategic Partners segment under a tolling arrangement where the customer supplies us with a raw material or ingredient. Revenue is recognized net of the cost of the raw material or ingredient supplied by the customer. Rights of return give rise to variable consideration. The variable consideration is estimated at contract inception using the expected value method as this best predicts the amount of variable consideration to which we are entitled. The variable consideration is constrained to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when any uncertainty is subsequently resolved. For products that are expected to be returned, a refund liability is recognized as a reduction of revenue at the time the control of the products purchased is transferred to the customers. We may provide discounts and sales promotional incentives to our customers, which give rise to variable consideration. The variable consideration is constrained to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when any uncertainty is subsequently resolved. The application of the constraint on variable consideration increases the amount of revenue that will be deferred. We apply the most likely amount method estimating discounts provided to customers using contracted rates and estimating sales promotional incentives provided to customers based on historical spending patterns. Jamieson may also provide other consideration to customers for customer-specific programs to promote the Company’s products. Consequently, revenues are recognized net of these estimated program costs. All other estimated non-customer-specific promotional costs and consideration are expensed as selling, general and administrative (“SG&A”) expenses. In subsequent periods, we monitor the performance of customers against agreed-upon obligations related to sales incentive programs and make any adjustments to both revenue and sales incentive accruals as required. As required for the audited consolidated annual financial statements, we have disaggregated revenue recognized from contracts with customers. Please refer to Note 23 in our audited consolidated annual financial statements for the disclosure on disaggregated revenue. - 24 - USD Denominated Revenue “USD denominated revenue” is defined as revenue in U.S. dollars, which excludes the impact of exchange rate fluctuations. USD denominated revenue is a supplementary financial measure. Gross Profit “Gross profit” is defined as revenue less cost of sales. Cost of sales includes product-related costs, labour, other operating costs such as rent, repair and maintenance, and amortization. Our cost of sales may include different costs compared to other manufacturers and distributors in the Canadian consumer health industry. Management believes that gross profit is a useful measure in assessing the Company’s underlying operating performance before SG&A expenses and share-based compensation. Gross Profit Margin “Gross profit margin” is defined as gross profit divided by revenue. Gross profit margin is a supplementary financial measure. Normalized Gross Profit and Normalized Gross Profit Margin “Normalized gross profit” is defined as gross profit adjusted for non-operating expenses. Normalized gross profit is a non-IFRS financial measure and its most directly comparable financial measure that is disclosed in our financial statements is gross profit. We believe normalized gross profit is a useful measure in assessing our operating results by excluding the effects of expenses that are not reflective of our operating performance. “Normalized gross profit margin” is defined as normalized gross profit divided by revenue. Normalized gross profit margin is a non-IFRS ratio. SG&A Our SG&A expenses are predominantly comprised of wages, benefits, travel, marketing, consulting fees, accounting fees, legal fees, non-customer-specific promotional costs and other expenses related to the corporate infrastructure required to support our business. Our SG&A expenses also include regulatory, legal, accounting, insurance, termination benefits and other expenses associated with being a public company. Normalized SG&A “Normalized SG&A” is defined as SG&A adjusted for non-operating expenses. Normalized SG&A is a non- IFRS financial measure and its most directly comparable financial measure that is disclosed in our financial statements is SG&A. We believe normalized SG&A is a useful measure as it excludes the effects of expenses that are not reflective of our operating performance. Earnings from Operations “Earnings from operations” is defined as gross profit less SG&A expenses and share-based compensation. Operating Margin “Operating margin” is defined as earnings from operations divided by revenue. Operating margin is a supplementary financial measure. Normalized Earnings from Operations and Normalized Operating Margin “Normalized earnings from operations” is defined as earnings from operations adjusted for non-operating expenses. Normalized earnings from operations is a non-IFRS financial measure and its most directly comparable financial measure that is disclosed in our financial statements is earnings from operations. We believe normalized - 25 - earnings from operations is a useful measure in assessing our operating results by excluding the effects of expenses that are not reflective of our operating performance. “Normalized operating margin” is defined as normalized earnings from operations divided by revenue. Normalized operating margin is a non-IFRS ratio. EBITDA “EBITDA” is defined as net earnings before: (i) provision for (recovery of) income taxes; (ii) interest expense (income); (iii) depreciation of property, plant, and equipment; and (iv) amortization of intangible assets. EBITDA is a non-IFRS financial measure and its most directly comparable financial measure that is disclosed in our financial statements is net earnings. We believe that EBITDA is a useful measure to assess the performance and cash flow of our Company. Adjusted EBITDA “Adjusted EBITDA” is defined as EBITDA before: (i) share-based compensation; (ii) foreign exchange gain/loss; (iii) international market expansion; (iv) business integration; (v) COVID-19 related costs; and (vi) other non-operating costs. Adjusted EBITDA is a non-IFRS financial measure and its most directly comparable financial measure that is disclosed in our financial statements is net earnings. We believe Adjusted EBITDA is a useful measure to assess the performance and cash flow of our Company as it provides more meaningful operating results by excluding the effects of interest, taxes, depreciation and amortization costs, expenses we believe are not reflective of our underlying business performance. Adjusted EBITDA Margin “Adjusted EBITDA margin” is defined as Adjusted EBITDA divided by revenue. Adjusted EBITDA Margin is a non-IFRS ratio. We believe Adjusted EBITDA margin is a useful measure to assess the performance and cash flow of our Company. Adjusted Net Earnings “Adjusted net earnings” is defined as consolidated net earnings adjusted for the impact of: (i) share-based compensation; (ii) foreign exchange gain/loss; (iii) international market expansion; (iv) business integration; (v) COVID-19 related costs; and (vi) other non-operating costs net of related tax effects. Adjusted net earnings is a non- IFRS financial measure and its most directly comparable financial measure that is disclosed in our financial statements is net earnings. We believe Adjusted net earnings is a useful measure to assess the performance of our Company as it provides more meaningful operating results by excluding the effects of expenses that are not reflective of our underlying business performance. Adjusted Diluted Earnings per Share “Adjusted diluted earnings per share” is defined as Adjusted net earnings divided by the total weighted average number of outstanding diluted shares at the end of the most recently completed quarter for the relevant period. Adjusted diluted earnings per share is a non-IFRS ratio. We believe Adjusted diluted earnings per share is a useful measure to assess the performance of our Company. Net Debt “Net debt” is defined as long-term debt less cash. Net debt is a non-IFRS financial measure and its most directly comparable financial measure that is disclosed in our financial statements is long-term debt. We believe net debt is a useful measure in managing our capital structure and financing requirements. Cash from Operating Activities Before Working Capital Considerations “Cash from operating activities before working capital considerations” is defined as cash from operating activities plus net change in non-cash working capital. Cash from operating activities before working capital - 26 - considerations is a non-IFRS financial measure and its most directly comparable financial measure that is disclosed in our financial statements is cash flows from operating activities. We believe cash from operating activities before working capital considerations is a useful measure in assessing cash flow from operations and liquidity. Selected Consolidated Financial Information The following table provides selected historical financial information and other data of the Company which should be read in conjunction with our audited consolidated annual financial statements and related notes. A quantitative reconciliation of net earnings to EBITDA, Adjusted EBITDA, and Adjusted net earnings can be found below for the respective fiscal periods. ($ in 000's, except as otherwise noted) Revenue Cost of sales Gross profit Gross profit margin (1) Selling, general and administrative expenses Share-based compensation Earnings from operations Operating margin (1) Foreign exchange loss/(gain) Interest expense and other financing costs Earnings before income taxes Provision for income taxes Net earnings Adjusted net earnings (2) EBITDA (2) Adjusted EBITDA (2) Adjusted EBITDA margin (3) Weighted average number of shares Basic Diluted Three months ended December 31 2022 2021 Twelve months ended December 31 2022 2021 192,775 121,586 71,189 36.9% 32,768 1,317 37,104 19.2% 978 5,757 30,369 8,278 22,091 26,759 41,201 48,871 25.4% 129,838 80,422 49,416 38.1% 19,521 1,021 28,874 22.2% 352 1,366 27,156 6,966 20,190 20,489 32,225 33,771 26.0% 547,369 349,031 198,338 36.2% 110,239 4,910 83,189 15.2% 269 12,417 70,503 17,695 52,808 65,149 100,168 123,761 451,032 288,591 162,441 36.0% 80,739 5,672 76,030 16.9% (92) 5,657 70,465 18,383 52,082 55,217 90,396 100,096 22.6% 22.2% 41,683,753 42,817,044 40,371,018 41,921,765 40,998,065 42,116,350 40,150,724 41,680,934 Earnings per share attributable to common shareholders: Basic, earnings per share Diluted, earnings per share Adjusted diluted, earnings per share (3) 0.53 0.52 0.62 0.50 0.48 0.49 1.29 1.25 1.55 1.30 1.25 1.32 (1) (2) (3) This is a supplementary financial measure and is used throughout this MD&A. See “Non-IFRS and Other Financial Measures” for more information on each supplementary financial measure. See “How we Assess the Performance of our Business” for an explanation of the composition of such measure. This is a non-IFRS financial measure and is used throughout this MD&A. See “Non-IFRS and Other Financial Measures” for more information on each non-IFRS financial measure. See “How we Assess the Performance of our Business” for an explanation of the composition of such measure. This is a non-IFRS ratio and is used throughout this MD&A. See “Non-IFRS and Other Financial Measures” for more information on each non-IFRS ratio. See “How we Assess the Performance of our Business” for an explanation of the composition of such ratio. - 27 - The following table provides selected consolidated financial position data for the periods indicated. ($ in 000's) Selected Consolidated Financial Position Data: Total assets Total non-current liabilities As at December 31, 2022 As at December 31, 2021 1,107,263 520,867 652,475 226,832 Results of Operations — three months ended December 31, 2022 and 2021 The following table provides a summary of our results for the three months ended December 31, 2022 and December 31, 2021. ($ in 000's, except as otherwise noted) Revenue Cost of sales Gross profit Gross profit margin Selling, general and administrative expenses Share-based compensation Earnings from operations Operating margin Foreign exchange loss Interest expense and other financing costs Earnings before income taxes Provision for income taxes Net earnings Adjusted net earnings EBITDA Adjusted EBITDA Adjusted EBITDA margin Three months ended December 31 2022 2021 $ Change % Change 192,775 121,586 71,189 36.9% 32,768 1,317 37,104 19.2% 978 5,757 30,369 8,278 22,091 26,759 41,201 48,871 25.4% 129,838 80,422 49,416 38.1% 19,521 1,021 28,874 22.2% 352 1,366 27,156 6,966 20,190 20,489 32,225 33,771 26.0% 62,937 41,164 21,773 - 13,247 296 8,230 - 626 4,391 3,213 1,312 1,901 6,270 8,976 15,100 - 48.5% 51.2% 44.1% (1.2%) 67.9% 29.0% 28.5% (3.0%) 177.8% 321.4% 11.8% 18.8% 9.4% 30.6% 27.9% 44.7% (0.6%) - 28 - The following tables provide a quantitative reconciliation of net earnings to EBITDA, Adjusted EBITDA, and Adjusted net earnings, as well as gross profit to normalized gross profit, SG&A to normalized SG&A, earnings from operations to normalized earnings from operations, each of which are non-IFRS financial measures (see “Non- IFRS and Other Financial Measures” and “How we Assess the Performance of our Business” for further information on each non-IFRS financial measure), for the three months ended December 31, 2022 and December 31, 2021. ($ in 000's, except as otherwise noted) Net earnings Add: Provision for income taxes Interest expense and other financing costs Depreciation of property, plant, and equipment Amortization of intangible assets Earnings before interest, taxes, depreciation, and amortization (EBITDA) Share-based compensation (1) Foreign exchange loss Acquisition related cost(2) IT system implementation (3) COVID-19 related costs Amortization of fair value adjustments(4) Other Adjusted EBITDA Provision for income taxes Interest expense and other financing costs Depreciation of property, plant, and equipment Amortization of intangible assets Share-based compensation(1) Tax effect of normalization adjustments Adjusted net earnings ($ in 000's, except as otherwise noted) Gross profit Amortization of fair value adjustments(4) Normalized gross profit (5) Normalized gross profit margin (6) Selling, general and administrative expenses Acquisition related cost(2) IT system implementation(3) COVID-19 related costs Other Normalized selling, general and administrative expenses(5) Earnings from operations Acquisition related cost(2) IT system implementation(3) COVID-19 related costs Amortization of fair value adjustments(4) Other Normalized earnings from operations(5) Normalized operating margin(6) - 29 - Three months ended December 31 2022 2021 $ Change % Change 22,091 20,190 8,278 5,757 3,579 1,496 41,201 1,317 978 3,165 1,417 - 793 - 48,871 (8,278) (5,757) (3,579) (1,496) (1,317) (1,685) 26,759 6,966 1,366 2,629 1,074 32,225 1,021 352 - - 72 - 101 33,771 (6,966) (1,366) (2,629) (1,074) (1,108) (139) 20,489 1,901 1,312 4,391 950 422 8,976 296 626 3,165 1,417 (72) 793 (101) 15,100 (1,312) (4,391) (950) (422) (209) (1,546) 6,270 9.4% 18.8% 321.4% 36.1% 39.3% 27.9% 29.0% 177.8% 100.0% 100.0% (100.0%) 100.0% (100.0%) 44.7% (18.8%) (321.4%) (36.1%) (39.3%) (18.9%) (1112.2%) 30.6% Three months ended December 31 2022 2021 $ Change % Change 71,189 793 71,982 37.3% 32,768 (3,165) (1,417) - - 28,186 37,104 3,165 1,417 - 793 - 42,479 22.0% 49,416 - 49,416 38.1% 19,521 - - (72) (101) 19,348 28,874 - - 72 - 101 29,047 22.4% 21,773 793 22,566 - 13,247 (3,165) (1,417) 72 101 8,838 8,230 3,165 1,417 (72) 793 (101) 13,432 - 44.1% 100.0% 45.7% (0.8%) 67.9% (100.0%) (100.0%) 100.0% 100.0% 45.7% 28.5% 100.0% 100.0% (100.0%) 100.0% (100.0%) 46.2% (0.4%) (1) (2) (3) (4) (5) (6) The Company’s share-based compensation expense pertains to our long-term incentive plan (the “LTIP”) (refer to “Share-based compensation”), with performance-based share units (“PSUs”), time-based restricted share units (“RSUs”), and deferred share units (“DSUs”) expenses, along with associated payroll taxes. Current quarter expense mainly pertains to integration costs relating to our acquisition of youtheory which closed on July 19, 2022 as well as legal and consulting costs associated with the acquisition of our distributor in China. Current quarter expenses pertain to system development and implementation costs of our advanced supply chain planning system which was completed in 2022 as well as early-stage development costs for our Enterprise Resource Planning (“ERP”) system implementation. Unlike other system improvement projects with costs capitalized, due to its cloud-based nature, these system implementation costs are expensed accordingly. This cost represents the post-closing amortization of the fair value increase of acquired inventories related to the youtheory acquisition. This is a non-IFRS financial measure and is used throughout this MD&A. See “Non-IFRS and Other Financial Measures” for more information on each non-IFRS financial measure. See “How we Assess the Performance of our Business” for an explanation of the composition of such measure. This is a non-IFRS ratio and is used throughout this MD&A. See “Non-IFRS and Other Financial Measures” for more information on each non-IFRS ratio. See “How we Assess the Performance of our Business” for an explanation of the composition of such ratio. The following table provides selected financial information for the Jamieson Brands operating segment for the three months ended December 31, 2022 and December 31, 2021. Jamieson Brands ($ in 000's, except as otherwise noted) For the three months ended December 31, Revenue Gross profit Gross profit margin Normalized gross profit Normalized gross profit margin Selling, general and administrative expenses Normalized selling, general and administrative expenses Share-based compensation Earnings from operations Operating margin Normalized earnings from operations Normalized operating margin Adjusted EBITDA Adjusted EBITDA margin (1) 2022 155,996 65,345 41.9% 66,138 42.4% 31,165 26,583 1,317 32,863 21.1% 38,238 24.5% 43,832 28.1% 2021 $ Change % Change 99,784 45,157 45.3% 45,157 45.3% 17,905 17,781 1,021 26,231 26.3% 26,355 26.4% 30,468 30.5% 56,212 20,188 - 20,981 - 13,260 8,802 296 6,632 - 11,883 - 13,364 - 56.3% 44.7% (3.4%) 46.5% (2.9%) 74.1% 49.5% 29.0% 25.3% (5.2%) 45.1% (1.9%) 43.9% (2.4%) The following table provides a quantitative reconciliation for the Jamieson Brands operating segment from earnings from operations to Adjusted EBITDA, which is a non-IFRS financial measure (see “Non-IFRS and Other Financial Measures” and “How we Assess the Performance of our Business” for further information on each non- IFRS financial measure), for the three months ended December 31, 2022 and December 31, 2021. - 30 - ($ in 000's, except as otherwise noted) For the three months ended December 31, Earnings from operations Depreciation of property, plant, and equipment Amortization of intangible assets Share-based compensation Acquisition related cost IT system implementation COVID-19 related costs Amortization of fair value adjustments Other Adjusted EBITDA 2022 32,863 2,781 1,496 1,317 3,165 1,417 - 793 - 43,832 2021 26,231 2,018 1,074 1,021 - - 61 - 63 30,468 $ Change 6,632 763 422 296 3,165 1,417 (61) 793 (63) 13,364 % Change 25.3% 37.8% 39.3% 29.0% 100.0% 100.0% (100.0%) 100.0% (100.0%) 43.9% The following table provides selected financial information for the Strategic Partners operating segment for the three months ended December 31, 2022 and December 31, 2021. Strategic Partners ($ in 000's, except as otherwise noted) For the three months ended December 31, Revenue Gross profit Gross profit margin Selling, general and administrative expenses Normalized selling, general and administrative expenses Earnings from operations Operating margin Normalized earnings from operations Normalized operating margin Adjusted EBITDA Adjusted EBITDA margin 2022 2021 $ Change % Change 36,779 5,844 15.9% 1,603 1,603 4,241 11.5% 4,241 11.5% 5,039 13.7% 30,054 4,259 14.2% 1,616 1,567 2,643 8.8% 2,692 9.0% 3,303 11.0% 6,725 1,585 - (13) 36 1,598 - 1,549 - 1,736 - 22.4% 37.2% 1.7% (0.8%) 2.3% 60.5% 2.7% 57.5% 2.5% 52.6% 2.7% The following table provides a quantitative reconciliation for the Strategic Partners operating segment from earnings from operations to Adjusted EBITDA, which is a non-IFRS financial measure (see “Non-IFRS and Other Financial Measures” and “How we Assess the Performance of our Business” for further information on each non- IFRS financial measure), for the three months ended December 31, 2022 and December 31, 2021. ($ in 000's, except as otherwise noted) For the three months ended December 31, Earnings from operations Depreciation of property, plant, and equipment COVID-19 related costs Other Adjusted EBITDA Revenue 2022 4,241 798 - - 5,039 2021 2,643 611 11 38 3,303 $ Change 1,598 187 (11) (38) 1,736 % Change 60.5% 30.6% (100.0%) (100.0%) 52.6% Revenue increased by 48.5%, or $62.9 million, to $192.8 million in Q4 2022. This was driven by 56.3% growth in Jamieson Brands revenue and 22.4% growth in Strategic Partners revenue compared with Q4 2021. Revenue in the Jamieson Brands segment increased by $56.2 million, or 56.3%, to $156.0 million in Q4 2022. Youtheory contributed $50.6 million driven by seasonally higher promotions ahead of new year offset by lower retail inventory levels as specific partners reduced stocks on-hand in support of 2022 innovation plans, while organic revenue in Jamieson Brands increased $5.6 million or 5.6% this quarter. Canada revenues increased by 6.3% in Q4 2022, reflecting continued consumer demand supporting our elevated base, higher average retailer inventories in conjunction with a severe cold and flu season, and in-year pricing. China grew 41.5% in Q4 2022 reflecting strong consumer demand for immunity products, while other international declined 21.0% as a result of geopolitical and - 31 - economic pressures in eastern Europe impacting consumer demand and delayed entries into certain markets due to regulatory changes. Revenue in the Strategic Partners segment increased by $6.7 million, or 22.4%, to $36.8 million in Q4 2022 reflecting pricing to maintain existing margin structure and program changes with existing customers. Gross profit Gross profit increased by $21.8 million to $71.2 million in Q4 2022 mainly driven by higher revenue, including the acquisition of youtheory. Gross profit margin decreased by 120 basis points to 36.9% in Q4 2022, driven by 80 basis points from youtheory with a relatively lower gross profit margin profile and 40 basis points due to a higher proportion of Strategic Partner sales. Gross profit in the Jamieson Brands segment increased by $20.2 million to $65.3 million in Q4 2022 mainly driven by higher revenue, including the acquisition of youtheory. Gross profit margin decreased by 340 basis points to 41.9% mainly due to the addition of youtheory. Jamieson Brands gross profit margin improved by 10 basis points excluding the impact of the acquisition as operating efficiencies were offset by higher depreciation expense from capacity expansions in prior periods. Gross profit in the Strategic Partners segment increased by $1.6 million to $5.8 million and gross profit margin increased by 170 basis points to 15.9% in Q4 2022 mainly due to customer mix while pricing offset higher supply chain and input costs. Selling, general and administrative expenses SG&A expenses increased by $13.2 million to $32.8 million in Q4 2022. Excluding the impact of specified costs of $4.6 million and the addition of youtheory of $7.0 million, SG&A expenses increased by $1.8 million or 9.6% in Q4 2022 largely driven by investments in Jamieson Brands to support its strategic initiatives and increased marketing to support its brands. SG&A in the Strategic Partners segment was relatively flat compared to Q4 2021. Specified costs of $4.6 million in Q4 2022 are mainly comprised of acquisition related costs and IT system development and implementation costs to advance our supply chain planning infrastructure. Specified costs of $0.2 million in Q4 2021 were mainly related to additional safety measures implemented at our facilities, including the establishment of rapid testing programs at each of our manufacturing facilities. Share-based compensation Share-based compensation increased by $0.3 million to $1.3 million in Q4 2022 reflecting higher compensation, lower forfeitures and the timing of payroll taxes on the exercise of share-based awards. Earnings from operations and operating margin Earnings from operations increased by $8.2 million as a result of higher revenue and gross profit, partially offset by higher SG&A. Operating margin decreased by 300 basis points to 19.2% in Q4 2022 due to factors affecting gross profit margin discussed above and higher SG&A expenses as a percentage of revenue, which were largely acquisition related. Normalized earnings from operations increased by $13.4 million, or 46.2% in Q4 2022 and normalized operating margin was 22.0% compared with 22.4% in Q4 2021. Earnings from operations in the Jamieson Brands segment increased by $6.6 million and operating margin decreased by 520 basis points to 21.1% in Q4 2022. Normalized operating margin decreased 190 basis points to 24.5% largely due to factors impacting gross profit margin discussed above. Earnings from operations in the Strategic Partners segment increased by $1.6 million due to higher gross profit. Operating margin increased by 270 basis points to 11.5% in Q4 2022 due to factors impacting gross profit margin discussed above. - 32 - Foreign exchange loss Foreign exchange loss of $1.0 million in Q4 2022 resulted from changes in the USD/CAD exchange rate on our USD denominated accounts receivable and accounts payable at the end of the quarter. We experience fluctuations in the USD/CAD exchange rates between the date of transaction and when cash is realized. Interest expense and other financing costs Interest expense and other financing costs increased by $4.4 million to $5.8 million in Q4 2022 resulting from higher average borrowings to support the youtheory acquisition and higher prevailing interest rates. Provision for income taxes Provision for income taxes was $8.3 million in Q4 2022 compared with $7.0 million in Q4 2021. Our Q4 2022 effective tax rate of 27.3% and Q4 2021 effective tax rate of 25.7% includes the impact of non-deductible share- based compensation expenses. Depreciation Depreciation expense increased by $0.9 million to $3.6 million in Q4 2022 resulting from prior period investments to increase capacity and higher depreciation from the acquisition impact of youtheory. Amortization Amortization expense increased by $0.4 million to $1.5 million in Q4 2022 due to the amortization of acquired intangibles for youtheory. EBITDA and Adjusted EBITDA EBITDA increased by $9.0 million to $41.2 million in Q4 2022 primarily due to the factors discussed above. Adjusted EBITDA increased by $15.1 million to $48.9 million driven by higher volumes, offset by lower operating margin. Adjusted EBITDA margin decreased by 60 basis points to 25.4% for the quarter reflecting lower margins in Jamieson Brands partially offset by favourable margin in Strategic Partners. Adjusted EBITDA in the Jamieson Brands segment increased by $13.4 million to $43.8 million and Adjusted EBITDA margin decreased by 240 basis points to 28.1% driven by lower gross profit margins, offset by lower SG&A costs as a percentage of revenues. Adjusted EBITDA in the Strategic Partners segment increased by $1.7 million, to $5.0 million and Adjusted EBITDA margin increased by 270 basis points to 13.7% impacted by mix and lower SG&A costs as a percentage of revenues. - 33 - Results of Operations — year ended December 31, 2022 and 2021 The following table provides a summary of our results for the year ended December 31, 2022 and December 31, 2021. ($ in 000's, except as otherwise noted) Revenue Cost of sales Gross profit Gross profit margin Selling, general and administrative expenses Share-based compensation Earnings from operations Operating margin Foreign exchange loss/(gain) Interest expense and other financing costs Earnings before income taxes Provision for income taxes Net earnings Adjusted net earnings EBITDA Adjusted EBITDA Adjusted EBITDA margin Twelve months ended December 31 2022 2021 $ Change % Change 547,369 349,031 198,338 36.2% 110,239 4,910 83,189 15.2% 269 12,417 70,503 17,695 52,808 65,149 451,032 288,591 162,441 36.0% 80,739 5,672 76,030 16.9% (92) 5,657 70,465 18,383 52,082 55,217 100,168 123,761 90,396 100,096 22.6% 22.2% 96,337 60,440 35,897 - 29,500 (762) 7,159 - 361 6,760 38 (688) 726 9,932 9,772 23,665 - 21.4% 20.9% 22.1% 0.2% 36.5% (13.4%) 9.4% (1.7%) 392.4% 119.5% 0.1% (3.7%) 1.4% 18.0% 10.8% 23.6% 0.4% - 34 - The following tables provide a quantitative reconciliation of net earnings to EBITDA, Adjusted EBITDA, and Adjusted net earnings, as well as gross profit to normalized gross profit, SG&A to normalized SG&A, earnings from operations to normalized earnings from operations, each of which are non-IFRS financial measures (see “Non-IFRS and Other Financial Measures” and “How we Assess the Performance of our Business” for further information on each non-IFRS financial measure), for the year ended December 31, 2022 and December 31, 2021. ($ in 000's, except as otherwise noted) Net earnings Add: Provision for income taxes Interest expense and other financing costs Depreciation of property, plant, and equipment Amortization of intangible assets Earnings before interest, taxes, depreciation, and amortization (EBITDA) Share-based compensation (1) Foreign exchange loss/(gain) Acquisition related cost(2) IT system implementation (3) COVID-19 related costs (4) Business integration(5) Amortization of fair value adjustments(6) Other Adjusted EBITDA Provision for income taxes Interest expense and other financing costs Depreciation of property, plant, and equipment Amortization of intangible assets Share-based compensation(7) Tax effect of normalization adjustments Adjusted net earnings Twelve months ended December 31 2022 2021 $ Change % Change 52,808 52,082 726 1.4% 17,695 12,417 12,153 5,095 100,168 4,910 269 12,919 4,527 175 - 793 - 123,761 (17,695) (12,417) (12,153) (5,095) (6,309) (4,943) 65,149 18,383 5,657 10,006 4,268 90,396 5,672 (92) - - 2,409 1,852 - (141) 100,096 (18,383) (5,657) (10,006) (4,268) (5,497) (1,068) 55,217 (688) 6,760 2,147 827 9,772 (762) 361 12,919 4,527 (2,234) (1,852) 793 141 23,665 688 (6,760) (2,147) (827) (812) (3,875) 9,932 (3.7%) 119.5% 21.5% 19.4% 10.8% (13.4%) 392.4% 100.0% 100.0% (92.7%) (100.0%) 100.0% 100.0% 23.6% 3.7% (119.5%) (21.5%) (19.4%) (14.8%) (362.8%) 18.0% - 35 - ($ in 000's, except as otherwise noted) Gross profit Business integration (5) Amortization of fair value adjustments(6) Normalized gross profit Normalized gross profit margin Selling, general and administrative expenses Acquisition related cost(2) IT system implementation(3) COVID-19 related costs (4) Business integration (5) Other Normalized selling, general and administrative expenses Earnings from operations Acquisition related cost(2) IT system implementation(3) COVID-19 related costs(4) Business integration(5) Amortization of fair value adjustments(6) Share-based compensation(7) Other Normalized earnings from operations Normalized operating margin Twelve months ended December 31 2022 2021 $ Change % Change 198,338 - 793 199,131 36.4% 110,239 (12,919) (4,527) (175) - - 92,618 83,189 12,919 4,527 175 - 793 - - 101,603 18.6% 162,441 653 - 163,094 36.2% 80,739 - - (2,409) (1,200) 141 77,271 76,030 - - 2,409 1,853 - 914 (141) 81,065 18.0% 35,897 (653) 793 36,037 - 29,500 (12,919) (4,527) 2,234 1,200 (141) 15,347 7,159 12,919 4,527 (2,234) (1,853) 793 (914) 141 20,538 - 22.1% (100.0%) 100.0% 22.1% 0.2% 36.5% (100.0%) (100.0%) 92.7% 100.0% (100.0%) 19.9% 9.4% 100.0% 100.0% (92.7%) (100.0%) 100.0% (100.0%) 100.0% 25.3% 0.6% (1) (2) (3) (4) (5) (6) The Company’s share-based compensation expense pertains to our LTIP (refer to “Share-based compensation”), with PSUs, RSUs, and DSUs expenses, along with associated payroll taxes. Prior year includes the acceleration of share-based compensation expense on our CEO transition in Q1 2021. Current year expense mainly pertains to costs for legal, investment banking, financing, consulting, due diligence, regulatory, tax, and fairness opinions primarily relating to the youtheory acquisition and integration. Current year expenses relate to system development and implementation costs as we build out our advanced supply chain planning infrastructure and ERP system. Unlike other system improvement projects with costs capitalized, due to its cloud-based nature, these system implementation costs are expensed accordingly. These costs are primarily associated with the implementation of additional COVID-19 initiatives to maintain continuity and safety measures at our facilities, including the use of rapid testing to detect and prevent spread in our manufacturing facilities. Prior year expenses mainly pertained to start-up costs to complete our transition to a third-party logistics provider to make room for capacity expansion at our Twin Oaks and Scarborough distribution facilities. This cost represents the post-closing amortization of the fair value increase of acquired inventories related to the youtheory acquisition. (7) Costs pertaining to our LTIP and a $1.4 million tax benefit realized on the vesting of certain share-based awards. Prior year expenses included the acceleration of share-based compensation expense in relation to our CEO transition, net of $0.9 million in tax benefits realized on the vesting of certain share-based awards (refer to “Share-based compensation”). - 36 - The following table provides selected financial information for the Jamieson Brands operating segment for the year ended December 31, 2022 and December 31, 2021. Jamieson Brands ($ in 000's, except as otherwise noted) For the twelve months ended December 31, Revenue Gross profit Gross profit margin Normalized gross profit Normalized gross profit margin Selling, general and administrative expenses Normalized selling, general and administrative expenses Share-based compensation Earnings from operations Operating margin Normalized earnings from operations Normalized operating margin Adjusted EBITDA Adjusted EBITDA margin 2022 2021 $ Change % Change 439,147 184,039 41.9% 184,832 42.1% 103,996 86,423 4,910 75,133 17.1% 93,499 21.3% 113,088 25.8% 343,245 148,371 43.2% 149,024 43.4% 74,056 70,854 5,672 68,643 20.0% 73,412 21.4% 90,301 26.3% 95,902 35,668 - 35,808 - 29,940 15,569 (762) 6,490 - 20,087 - 22,787 - 27.9% 24.0% (1.3%) 24.0% (1.3%) 40.4% 22.0% (13.4%) 9.5% (2.9%) 27.4% (0.1%) 25.2% (0.5%) The following table provides a quantitative reconciliation from earnings from operations to Adjusted EBITDA, which is a non-IFRS financial measure (see “Non-IFRS and Other Financial Measures” and “How we Assess the Performance of our Business” for further information on each non-IFRS financial measure) for the year ended December 31, 2022 and December 31, 2021. ($ in 000's, except as otherwise noted) For the twelve months ended December 31, Earnings from operations Depreciation of property, plant, and equipment Amortization of intangible assets Share-based compensation Acquisition related cost IT system implementation COVID-19 related costs Business integration Amortization of fair value adjustments Other Adjusted EBITDA 2022 75,133 9,583 5,095 4,910 12,919 4,527 128 - 793 - 113,088 2021 68,643 7,864 4,268 5,672 - - 1,990 1,782 - 82 90,301 $ Change 6,490 1,719 827 (762) 12,919 4,527 (1,862) (1,782) 793 (82) 22,787 % Change 9.5% 21.9% 19.4% (13.4%) 100.0% 100.0% (93.6%) (100.0%) 100.0% (100.0%) 25.2% - 37 - The following table provides selected financial information for the Strategic Partners operating segment for the year ended December 31, 2022 and December 31, 2021. Strategic Partners ($ in 000's, except as otherwise noted) For the twelve months ended December 31, Revenue Gross profit Gross profit margin Selling, general and administrative expenses Normalized selling, general and administrative expenses Earnings from operations Operating margin Normalized earnings from operations Normalized operating margin Adjusted EBITDA Adjusted EBITDA margin 2022 2021 $ Change % Change 108,222 107,787 14,299 13.2% 6,243 6,195 8,056 7.4% 8,104 7.5% 10,673 9.9% 14,070 13.1% 6,683 6,417 7,387 6.9% 7,653 7.1% 9,795 9.1% 435 229 - (440) (222) 669 - 451 - 878 - 0.4% 1.6% 0.1% (6.6%) (3.5%) 9.1% 0.5% 5.9% 0.4% 9.0% 0.8% The following table provides a quantitative reconciliation from earnings from operations to Adjusted EBITDA, which is a non-IFRS financial measure (see “Non-IFRS and Other Financial Measures” and “How we Assess the Performance of our Business” for further information on each non-IFRS financial measure) for the year ended December 31, 2022 and December 31, 2021. ($ in 000's, except as otherwise noted) For the twelve months ended December 31, Earnings from operations Depreciation of property, plant, and equipment COVID-19 related costs Business integration Other Adjusted EBITDA Revenue 2022 8,056 2,570 47 - - 10,673 2021 7,387 2,142 419 70 (223) 9,795 $ Change 669 428 (372) (70) 223 878 % Change 9.1% 20.0% (88.8%) (100.0%) 100.0% 9.0% Revenue increased by 21.4%, or $96.3 million, to $547.4 million in YTD 2022. Jamieson Brands revenue increased 27.9%, with 0.4% growth in Strategic Partners revenue year-over-year. Revenue in the Jamieson Brands segment increased by $95.9 million, or 27.9%, to $439.1 million in YTD 2022. Youtheory contributed $68.2 million while organic revenues in Jamieson Brands increased $27.7 million or 8.1%. Canada revenues increased by 8.7% over prior year, reflecting an expanded consumer base, customer pricing, and higher average retailer inventory levels in support of increased consumer growth in response to a post covid severe cold and flu season. China grew 36.3% over prior year reflecting strong consumer demand, along with the strengthening of the U.S. dollar. This was partially offset by a 12.0% decline in other international as we transitioned our Jamieson branded products in the U.S. to focus on youtheory branded innovations along with the geopolitical and economic pressures in eastern Europe impacting consumer demand in surrounding regions. Revenue in the Strategic Partners segment increased by $0.4 million, or 0.4%, to $108.2 million in YTD 2022 reflecting order timing and the strategic exit of certain programs to streamline our production processes. - 38 - Gross profit Gross profit increased by $35.9 million to $198.3 million in YTD 2022, mainly driven by higher revenue, including the acquisition of youtheory. Gross profit margin increased by 20 basis points to 36.2% in YTD 2022, while excluding the impact of the youtheory acquisition gross profit margin increased by 70 basis points mainly reflecting the mix impact of proportionally higher Branded sales including youtheory. Normalized gross profit increased $36.0 million and normalized gross profit margin increased by 20 basis points to 36.4% when taking into account the amortization of a fair value adjustment to inventory on purchase accounting in the current year and start-up costs for a third-party logistics transition in the prior year. Gross profit in the Jamieson Brands segment increased by $35.7 million mainly driven by revenue growth, including the acquisition of youtheory. Gross profit margin decreased by 130 basis points to 41.9% compared with YTD 2021 mainly due to the addition of youtheory with a relatively lower gross profit margin profile. Jamieson Brands gross profit margin improved by 30 basis points excluding the impact of the acquisition as operating efficiencies were offset by higher depreciation expense. Gross profit in the Strategic Partners segment increased by $0.2 million to $14.3 million and gross profit margin remained flat to YTD 2022 as higher input costs were passed through to customers. Selling, general and administrative expenses SG&A expenses increased by $29.5 million to $110.2 million in YTD 2022. Excluding the impact of specified costs of $17.6 million in YTD 2022, SG&A expenses increased by $15.3 million or 19.9% to $92.6 million in YTD 2022 largely from the addition of youtheory SG&A expenses of $11.2 million. Normalized SG&A increased by 5.4% excluding the impact of the youtheory acquisition largely driven by investments in Jamieson Brands to support its strategic initiatives and increased marketing to support its brands. SG&A in the Strategic Partners segment was relatively flat compared to YTD 2021. Specified costs of $17.6 million in YTD 2022 are mainly comprised of acquisition related costs and IT system development and implementation costs to advance our supply chain planning infrastructure. Specified costs of $3.5 million in YTD 2021 were mainly related to additional safety measures implemented at our facilities, including the establishment of rapid testing programs at each of our manufacturing facilities. Share-based compensation Share-based compensation reduced by $0.8 million in YTD 2022 mainly due to accelerated share-based compensation expense in relation to our CEO transition in the prior year. Earnings from operations and operating margin Earnings from operations increased by $7.2 million in YTD 2022 as a result of higher revenue and gross profit, offset by higher SG&A. Operating margin decreased by 170 basis points to 15.2% in YTD 2022 mainly due to factors impacting gross profit margin discussed above and higher SG&A expenses as a percentage of revenue. Normalized earnings from operations increased by $20.5 million, or 25.3% in YTD 2022 and normalized operating margin increased by 60 basis points to 18.6% in YTD 2022. Earnings from operations in the Jamieson Brands segment increased by $6.5 million to $75.1 million and operating margin decreased by 290 basis points to 17.1% in YTD 2022. Normalized operating margin of 21.3% remained relatively unchanged compared with YTD 2021. Earnings from operations in the Strategic Partners segment increased by $0.7 million to $8.1 million and operating margin increased by 50 basis points to 7.4% in YTD 2022 primarily due to factors impacting gross profit margin discussed above. - 39 - Foreign exchange loss Foreign exchange loss of $0.3 million in YTD 2022 is due to fluctuations in USD/CAD exchange rates between the date of the transaction and when cash is realized. Interest expense and other financing costs Interest expense and other financing costs increased by $6.8 million to $12.4 million in YTD 2022 resulting from higher average borrowings to support the youtheory acquisition and higher prevailing interest rates. Provision for income taxes Provision for income taxes was $17.7 million in YTD 2022 compared with $18.4 million in YTD 2021. Our YTD 2022 effective tax rate of 25.1% was lower than YTD 2021 of 26.1%, largely reflecting a higher tax benefit of $1.4 million from the vesting of certain share-based awards compared with $1.0 million in the prior year. Depreciation Depreciation expense increased by $2.1 million to $12.2 million in YTD 2022 resulting from prior period investments to increase capacity and higher depreciation from the acquisition impact of youtheory. Amortization Amortization expense increased by $0.8 million to $5.1 million in YTD 2022 due to the amortization of acquired intangibles for youtheory. EBITDA and Adjusted EBITDA EBITDA increased by $9.8 million to $100.2 million in YTD 2022 primarily due to the factors discussed above. Adjusted EBITDA increased by $23.7 million to $123.8 million driven by higher volumes and higher normalized operating margin. Adjusted EBITDA margin increased by 40 basis points to 22.6% mainly due to a higher proportion of Jamieson Brands volumes, including the acquisition impact of youtheory. Adjusted EBITDA in the Jamieson Brands segment increased by $22.8 million to $113.1 million and Adjusted EBITDA margin decreased by 50 basis points to 25.8% in YTD 2022 due to factors impacting gross profit margin discussed above, offset by lower SG&A expenses as a percentage of revenues. Adjusted EBITDA in the Strategic Partners segment increased by $0.9 million, to $10.7 million and Adjusted EBITDA margin increased by 80 basis point to 9.9% is driven by volume growth and lower SG&A expenses as a percentage of revenue. - 40 - Summary of Consolidated Quarterly Results The following is a summary of selected consolidated financial information for each of the eight most recently completed quarters prepared in accordance with IFRS. ($ in 000's, except per share amounts) Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 2022 2021 Revenue by segment Jamieson Brands Strategic Partners Total revenue Earnings from operations Net earnings Adjusted net earnings EBITDA Adjusted EBITDA Basic, earnings per share Diluted, earnings per share Adjusted diluted, earnings per share Revenue 155,996 36,779 192,775 112,248 26,681 138,929 87,715 24,275 111,990 83,188 20,487 103,675 99,784 30,054 129,838 85,175 27,193 112,368 82,391 28,165 110,556 75,895 22,375 98,270 37,104 22,091 26,759 41,201 48,871 0.53 0.52 0.62 16,319 14,581 15,185 28,874 20,593 16,043 10,520 10,882 10,094 9,741 20,190 14,284 11,472 14,221 13,415 10,745 20,489 14,051 12,041 6,136 8,636 21,744 18,785 18,438 32,225 24,794 19,424 13,953 29,505 24,439 20,946 33,771 25,456 22,327 18,542 0.26 0.26 0.34 0.25 0.24 0.32 0.24 0.23 0.26 0.50 0.48 0.49 0.35 0.34 0.34 0.29 0.28 0.29 0.15 0.15 0.21 Jamieson Brands segment revenue for the last eight quarters were impacted by factors including the following: accelerated demand for immunity and general health products as a result of the COVID-19 pandemic; periodic price increases to recapture cost escalation; the impact of innovation within our core VMS portfolio; shipment fluctuations in our international markets; the volume and timing of promotion and media; the volume of inventory and timing of shipments to distributors and retailers; seasonality; severity of cold and flu season; business combinations; and foreign currency fluctuations. • • • • • • • • • • Strategic Partners segment revenue for the last eight quarters were impacted by factors including the following: • • • • • • • available capacity when considering demand for Jamieson Brands products; launch of new programs with existing or new customers, which include initial pipeline shipments; the strategic exiting of programs with customers to drive operating efficiencies; availability of customer supplied materials; innovation and geographic demand for high quality certified manufacturers; periodic price increases to recapture cost escalation; and foreign currency fluctuations. Earnings from operations Earnings from operations for the last eight quarters were also impacted by factors including the following: • • • • revenue factors impacting price and volume noted above; return on incremental promotion and marketing programs; improvements in production efficiencies and higher economies of scale; temporary increases to production costs driven by physical distancing initiatives, rapid antigen testing and other safety measures established within our facilities to protect our employees as a result of the COVID-19 pandemic; - 41 - • • • • • • • • • supply continuity costs including air freight and third-party manufacturing and packaging costs to meet higher demand during the COVID-19 pandemic; additional costs incurred in our transition to a third-party logistics model to make room for capacity expansion at our Twin Oaks and Scarborough distribution facilities; increases to supply chain costs due to the impact of COVID-19 pandemic and other global geopolitical factors; raw material costs in native currency; timing of marketing spend and variable compensation; accelerated recognition of share-based compensation expense in relation to our CEO transition; IT systems implementation costs; costs incurred in business acquisition; and foreign currency fluctuations. Selected Annual Information The following selected annual information is shown for the three most recently completed financial years: ($ in 000's, except share and per share amounts) 2022 2021 2020 For the year ended December 31 Revenue by segment Jamieson Brands Strategic Partners Total revenue Earnings from operations Net earnings Adjusted net earnings EBITDA Adjusted EBITDA Basic, earnings per share Diluted, earnings per share Adjusted diluted, earnings per share Selected consolidated financial position data: Total assets Total non-current liabilities Dividends declared for the year: Cash dividends per common share 439,147 108,222 547,369 83,189 52,808 65,149 100,168 123,761 1.29 1.25 1.55 1,107,263 520,867 343,245 107,787 451,032 76,030 52,082 55,217 90,396 100,096 1.30 1.25 1.32 652,475 226,832 316,423 87,238 403,661 63,572 41,598 47,948 75,299 87,985 1.05 1.01 1.16 609,341 225,929 0.64 0.55 0.47 Over the three-year period, revenue increased year-over-year driven by strong growth in the Jamieson Brands segment through an expanded consumer base and international expansion in addition to revenues from acquired operations in 2022. Strategic Partners segment revenue was impacted in 2021 large driven by expanded programs and increased demand from existing customers. Total assets have increased over the three-year period reflecting acquired assets in 2022 as well as investments in working capital, property, plant, and equipment designed to improve efficiency and expand capacity. In 2021, significant investments were made to expand production capacity in response to growing demands driven by the COVID-19 pandemic, including right-of-use lease assets pertaining to our transition to a third-party logistics model. - 42 - Liquidity and Capital Resources Overview Our principal uses of funds are for operating expenses, capital expenditures, finance costs, and debt service. Management believes that cash generated from operations, together with amounts available under our Credit Facilities (refer to “Credit Facilities”), will be sufficient to meet the Company’s future operating expenses, capital expenditures, and future debt service costs. Our primary liquidity and capital requirements are for capital expenditures, working capital and general corporate needs. We have cash and availability under our Credit Facilities that we expect to utilize, along with cash flow from operations, to provide capital to support the growth of our business (primarily through working capital and capital expenditures), repay short-term obligations and for general corporate purposes. We believe that cash from operations, together with our cash balance and our Credit Facilities will be sufficient to meet ongoing capital expenditures, working capital requirements and other cash needs. Our ability to fund future debt service costs, operating expenses, and capital expenditures will depend on our future operating performance which will be affected by general economic, financial and other factors including factors beyond our control (refer to “Risk Factors”). From time to time, management reviews acquisition opportunities and if suitable opportunities arise, may make selected acquisitions to implement our business strategy. Historically, the funding for any such acquisitions has come from cash flow from operating activities and additional debt. Credit Facilities As at December 31, 2022, the Company had $126.2 million in cash and available revolving and swingline facilities and net debt of $373.8 million. ($ in 000's) Long-term debt Cash Net debt (1) As at December 31, 2022 As at December 31, 2021 400,000 (26,240) 373,760 149,125 (6,775) 142,350 (1) This is a non-IFRS financial measure. See “Non-IFRS and Other Financial Measures” for more information on each non-IFRS financial measure. See “How we Assess the Performance of our Business” for an explanation of the composition of such measure. On September 27, 2019, Jamieson Laboratories Ltd. (“JLL”), a wholly owned subsidiary of Jamieson, amended and restated its credit agreement to add Jamieson Health Products USA Ltd. (collectively with JLL the “Borrowers”) as a co-borrower and to provide a secured revolving facility of $275.0 million (including a $10.0 million swingline facility) with the option to increase the revolving facility by $200.0 million (collectively, the “Credit Facilities”). As of July 19, 2022, our newly acquired subsidiary, Nutrawise Health & Beauty LLC, was added as a Borrower under the Credit Facilities which increased from $275.0 million to $500.0 million under its revolving credit facilities, plus an expanded accordion feature of up to $250.0 million with an extended maturity to July 19, 2027. The Credit Facilities are collateralized by security agreements and first charges over the assets including property, plant and equipment and intellectual property of the Borrowers and certain other subsidiaries of JLL, subject to permitted liens. Under the terms of the Credit Facilities, the Borrowers are subject to restrictive covenants and must maintain an interest coverage ratio of not less than 3.00:1.00 and a leverage ratio not greater than 4.50:1.00. We are in compliance with all covenants as at the date of this MD&A. For the three months and year ended December 31, 2022, JLL made drawings of $24.9 million and $339.4 million, and debt repayments of $36.3 million and $88.5 million, respectively, applied against the Credit Facilities. For the year ended December 31, 2022, the weighted average interest rate on the Credit Facilities was 3.7% (2021 – - 43 - 2.7%) and is composed of variable rates. A portion of the Credit Facilities outstanding is fixed through the interest rate swap. Cash of $26.2 million as at December 31, 2022 was $19.5 million higher than December 31, 2021 due to foreign currencies (U.S. dollars) held for short-term obligations in Canada as well as the impact of our expanded global operations. Analysis of Cash Flows — three months ended December 31, 2022 and 2021 ($ in 000's, except as otherwise noted) Cash, beginning of period Cash flows from (used in): Operating activities Investing activities Financing activities Cash, end of period Cash flows from operating activities Net Change in non-cash working capital Cash from operating activities before working capital considerations Cash Flows Generated from Operating Activities Three months ended December 31 2022 2021 $ Change % Change 7,316 9,150 (1,834) (20.0%) 40,799 (2,692) (19,183) 26,240 40,799 (11,741) 29,058 34,309 (5,399) (31,285) 6,775 34,309 (9,799) 24,510 6,490 2,707 12,102 19,465 6,490 (1,942) 4,548 18.9% 50.1% 38.7% 287.3% 18.9% (19.8%) 18.6% In Q4 2022, cash flows generated from operating activities totalled $40.8 million compared with $34.3 million in Q4 2021. Cash from operating activities before working capital considerations of $29.1 million was $4.5 million higher due to increased earnings in the current quarter. Cash generated from working capital increased by $1.9 million mainly driven by favourable timing on payables and accelerated inventory purchases realized earlier in 2022. Cash Flows Used in Investing Activities Cash flows used in investing activities in Q4 2022 totalled $2.7 million compared with $5.4 million in Q4 2021. Purchases of property, plant and equipment was $2.6 million lower reflecting the acceleration of our capacity expansion plans in 2021. Cash Flows Used in Financing Activities Cash flows used in financing activities in Q4 2022 totalled $19.2 million compared with $31.3 million in Q4 2021. In Q4 2022, we made net repayments of $11.4 million on our Credit Facilities, distributed $7.1 million of dividends to common shareholders, and made payments of lease liabilities of $1.1 million, partially offset by proceeds of $0.4 million for the exercise of stock options and our employee share purchase plan (“ESPP”). In Q4 2021, we made net repayments of $25.3 million on our Credit Facilities, distributed $6.1 million of dividends to common shareholders, and made payments of lease liabilities of $0.8 million, partially offset by proceeds of $0.8 million from the exercise of stock options and our ESPP. - 44 - Analysis of Cash Flows — for the year ended December 31, 2022 and 2021 ($ in 000's, except as otherwise noted) Cash, beginning of period Cash flows from (used in): Operating activities Investing activities Financing activities Cash, end of period Cash flows from operating activities Net Change in non-cash working capital Cash from operating activities before working capital considerations Cash Flows Generated from Operating Activities Twelve months ended December 31 2022 2021 $ Change % Change 6,775 1,166 5,609 481.0% 50,589 (256,530) 225,406 26,240 50,589 27,012 77,601 44,405 (22,284) (16,512) 6,775 44,405 27,326 71,731 6,184 (234,246) 241,918 19,465 6,184 (314) 5,870 13.9% (1051.2%) 1465.1% 287.3% 13.9% (1.1%) 8.2% In YTD 2022, cash flows generated from operating activities totalled $50.6 million compared with $44.4 million in YTD 2021. Cash from operating activities before working capital considerations of $77.6 million was $5.9 million higher primarily due to higher earnings. Cash generated from working capital was relatively flat to prior year as reduced working capital investments and timing of tax payments in our base business were offset by initial working capital investments required for our newly acquired youtheory business. Cash Flows Used in Investing Activities Cash flows used in investing activities in YTD 2022 totalled $256.5 million compared with $22.3 million for the same period in the prior year primarily due to the acquisition of youtheory of $242.0 million. Purchases of property, plant and equipment of $13.9 million was $7.6 million lower reflecting the acceleration of our capacity expansion plans in 2021. Cash Flows Used in Financing Activities Cash flows generated in financing activities in YTD 2022 totalled $225.4 million compared with $16.5 million used in YTD 2021, an increase largely due to net drawings of $250.9 million from our Credit Facilities. Additionally, we distributed $26.3 million of dividends to common shareholders and made payments of lease liabilities of $3.3 million, partially offset by $4.2 million for the exercise of stock options and our ESPP. In YTD 2021, we distributed $22.1 million of dividends to common shareholders and made payments of lease liabilities of $3.2 million, partially offset by proceeds of $8.7 million from the exercise of stock options and our ESPP, while drawings on our Credit Facilities netted to $0.1 million. Contractual Obligations The following table summarizes our significant undiscounted maturities of our contractual obligations and commitments as at December 31, 2022. ($ in 000's) Operating leases (1) Trade and other payable Contingent consideration Post-retirement benefits Revolving credit facility (2) Total contractual obligations 2023 2024-2027 Thereafter Total $ 5,286 142,566 $ 18,965 - $ 9,047 - $ 33,298 142,566 542 - 36,693 - - 929 37,235 929 - 148,394 $ 400,000 455,658 $ - 9,976 $ 400,000 614,028 $ - 45 - (1) (2) We have entered into several operating leases for vehicles, production equipment, computer and communications equipment, office equipment, and office and warehouse space. In 2022, we assumed a lease in Irvine, California related to the acquisition of youtheory. The Credit Facilities provide for a secured revolving facility of $500.0 million (including a $10.0 million swingline facility) with the option to increase the revolving facility by $250.0 million. The Credit Facilities mature on July 19, 2027 with the outstanding principal repayable in full on this date. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. Related Party Transactions Balances and transactions between us and our subsidiaries, have been eliminated on consolidation. As at December 31, 2022, we have a $3.4 million holdback on the purchase price and contingent consideration fair valued at $37.2 million payable to the former owners of youtheory. Share-based compensation The LTIP is an equity-based compensation plan providing for the issuance of securities under which grants will be made. Under the LTIP, the board of directors of the Company, at its discretion, may grant share options, restricted shares, RSUs, PSUs, DSUs, and stock appreciation rights. The awards are settled in common shares of the Company (“Common Shares”) with a cash settlement alternative available to the Company. We also maintain the ESPP for all eligible employees for the purchase of Common Shares. Our share-based compensation expense, for the three and twelve months ended December 31, 2022 is $1.3 million and $4.9 million, respectively (2021 - $1.0 million and $5.7 million). Financial Instruments We primarily use foreign currency forward contracts to manage our exposure to fluctuations with respect to transactions in U.S. dollars pertaining to inventory purchases and our international sales. These agreements mature at various dates and qualify for hedge accounting as cash flow hedges of future foreign currency transactions. The terms of the foreign currency forward contracts match the terms of the expected highly probable forecast transactions. As a result, there is no hedge ineffectiveness to be recognized in the consolidated statements of operations and comprehensive income. As of December 31, 2022, no foreign exchange hedges were outstanding as the impact of our newly acquired youtheory operations provided a natural hedge against our pre-acquisition net U.S. dollars exposure. We also use interest rate swaps to manage our long-term interest rate exposure with respect to interest on our Credit Facilities which is based on fluctuating CDOR. We have entered into an interest rate swap with an effective date of October 1, 2020 to September 27, 2024 with a notional principal of $140.0 million and an annual amortization of $10.0 million on the first business day of each year. The notional principal of the interest rate swap is $120.0 million as at the end of this reporting period. The interest rate swap is a derivative measured at fair value and meets hedge accounting requirements. - 46 - Outstanding Share Capital As at January 1, 2022 Exercise of stock options Employee stock purchase plan Issuance of shares to acquire businesses As at December 31, 2022 As at January 1, 2021 Exercise of stock options Employee stock purchase plan As at December 31, 2021 Common Shares # 40,406,940 342,655 17,996 926,612 41,694,203 Common Shares # 39,872,912 517,277 16,751 40,406,940 $ 268,214 6,066 572 32,348 307,200 $ 255,795 11,862 557 268,214 As at December 31, 2022, the authorized share capital of the Company consisted of: a) Unlimited number of Common Shares. The holders of Common Shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company; and b) Unlimited number of Preference Shares, issuable in series. Critical Accounting Estimates and Judgments The preparation of consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenue and expenses. Estimates and assumptions are continuously evaluated and are based on management’s best judgments and experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Actual results may differ from these estimates. Significant judgments made by management in applying our accounting policies and key sources of estimation of uncertainty were the same as those applied and described in Note 3 in the accompanying notes of our Company’s audited consolidated annual financial statements for the year ended December 31, 2022. Items subject to significant estimate uncertainty and critical judgments which have the most impact on the amounts recognized in the audited consolidated annual financial statements are included both below and in the annual audited financial statement notes. Estimating variable consideration for returns, trade merchandise allowances and sales promotional incentives We use historical customer return data to determine the expected return percentages. These percentages are applied to determine the expected value of the variable consideration. Any significant changes in experience as compared to historical return pattern will impact the expected return percentages we estimated. We provide for estimated payments to customers based on various trade programs and sales promotional incentives. We estimate the most likely amount payable to each customer for each trade and incentive program separately using (i) the projected level of sales volume for the relevant period; (ii) customer rates for allowances, discounts, and rebates; (iii) historical spending patterns; and (iv) sales lead time. These arrangements are complex and there are a significant number of customers and products affected. Management has systems and processes in place to estimate and value these obligations. We update our expected return, trade merchandise allowances and sales promotional incentives on a quarterly basis and the refund liability and trade and promotional accruals are adjusted accordingly. To the extent that payments - 47 - differ from estimates of the related liability, accounts payable and accrued liabilities, net earnings, and comprehensive income will be affected in future periods. Valuation of inventory Management makes estimates of the future customer demand for products when establishing appropriate provisions for inventory. In making these estimates, management considers the product life of inventory and the profitability of recent sales of inventory. In many cases, products sold by us turn quickly and inventory on-hand values are low, thus reducing the risk of inventory obsolescence. However, code or “best before” dates are very important in the determination of realizable value of inventory. Management ensures that systems are in place to highlight and properly value inventory that may be approaching code dates. To the extent that actual losses on inventory differ from those estimated, inventory, net earnings, and comprehensive income will be affected in future periods. Receivables and allowance for expected credit losses We are exposed to credit risk with respect to amounts receivable from customers. Our allowance is determined by historical experiences, and considers factors including, the aging of the balances, the customer’s credit worthiness, updates based on the current economic conditions, expectation of bankruptcies, and the political and economic volatility in the markets/location of our customers. Long-lived assets valuation We perform impairment testing annually for goodwill and indefinite-life intangible assets and when circumstances indicate long-lived assets may be impaired. Management judgment is involved in determining if there are circumstances indicating that testing for impairment is required, and in identifying cash-generating units (“CGUs”) for the purpose of impairment testing. We assess impairment by comparing the recoverable amount of a long-lived asset, CGU, or CGU group to its carrying value. The recoverable amount is defined as the higher of: (i) value in use; or (ii) fair value less costs of disposal. The determination of the recoverable amount involves significant estimates and assumptions. Fair value less costs to sell is determined using market multiples. Value in use is determined using future cash inflows and outflows, discount rates, growth rates and asset lives. These estimates and assumptions could affect our future results if the current estimates of future performance and fair values change. These determinations will affect the amount of amortization expense on definite-life intangible assets recognized in future periods. Measurement of fair values A number of our accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. When the measurement of fair values cannot be determined based on quoted prices in active markets, fair value is measured using valuation techniques and models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. Changes in assumptions about the inputs to these models could affect the reported fair value of our financial and non-financial assets and liabilities. Tangible and intangible assets acquired through business combinations are initially recorded at their fair values based on assumptions of management. These assumptions include estimating the cost of tangible assets and future expected cash flows arising from intangible assets identified. Financial instruments acquired are determined based on the amortized costs at the acquisition date that approximate their carrying values. To the extent that these estimates differ from those realized, the measured asset or liability, net earnings, and/or comprehensive income will be affected in future periods. Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities are disclosed in Notes 8 13, 16, 17 and 20 in the accompanying notes of our audited consolidated annual financial statements for the year ended December 31, 2022. - 48 - Taxes The calculation of current and deferred income taxes requires us to make estimates and assumptions and to exercise judgment regarding the carrying values of assets and liabilities that are subject to accounting estimates inherent in those balances, the interpretation of income tax legislation across various jurisdictions, expectations about future operating results, the timing of reversal of temporary differences and possible audits of income tax filings by the tax authorities. Changes or differences in underlying estimates or assumptions may result in changes to the current or deferred income tax balances on the consolidated statements of financial position, a charge or credit to income tax expense in the consolidated statements of operations and comprehensive income and may result in cash payments or receipts. All income, capital and commodity tax filings are subject to audits and reassessments. Changes in interpretations or judgments may result in a change in our income, capital or commodity tax provisions in the future. The amount of such a change cannot be reasonably estimated. Useful lives of property, plant and equipment and intangible assets with finite useful lives We employ significant estimates to determine the estimated useful lives of property, plant and equipment and intangible assets with finite useful lives, including assets arising from business combinations, considering industry trends such as technological advancements, past experience, expected use and review of asset lives. Components of an item of property, plant and equipment may have different useful lives. We make estimates when determining depreciation methods, depreciation rates and asset useful lives, which requires taking into account industry trends and company-specific factors. We review these decisions at least once each year or when circumstances change. We will change depreciation methods, depreciation rates or asset useful lives if they are different from previous estimates. Significant Accounting Policies Our audited consolidated annual financial statements were prepared using the same accounting policies as described in Note 2 in the accompanying notes of our audited consolidated annual financial statements for the year ended December 31, 2022. Recently adopted accounting standards No recent accounting standard changes have been identified as applicable for the three and twelve month period ended December 31, 2022 and onwards. Disclosure Controls and Procedures The Chief Executive Officer and the Chief Financial Officer (the “Certifying Officers”), along with other members of management, have designed, or caused to be designed under their supervision, disclosure controls and procedures (“DC&P”) to provide reasonable assurance that (i) material information relating to the Company is made known to them by others, particularly during the period in which the annual filings are being prepared; and (ii) information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation. The Certifying Officers have evaluated, or caused to be evaluated under their supervision, the effectiveness of the Company’s DC&P as at December 31, 2022 and have concluded that the Company's DC&P was effective as at December 31, 2022. Internal Control over Financial Reporting The Certifying Officers, along with other members of management, have designed, or caused to be designed under their supervision, internal control over financial reporting (“ICFR”) to provide reasonable assurance regarding - 49 - the reliability of financial reporting and the preparation of financial statements for external purposes prepared in accordance with IFRS. The Certifying Officers have used the Internal Control – Integrated Framework (2013 COSO Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission to design the Company’s ICFR. The Certifying Officers have evaluated, or caused to be evaluated under their supervision, the effectiveness of the Company’s ICFR as at December 31, 2022 and have concluded that the Company's ICFR was effective as at December 31, 2022. There have been no changes in the Company’s ICFR during the three-month period ended December 31, 2022 which have materially affected, or are reasonably likely to materially affect, the Company’s ICFR. Limitations of an Internal Control System We believe that any DC&P or ICFR, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met and that all control issues, including instances of fraud, if any, within the Company have been prevented or detected. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. The design of any system of control is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all future conditions. Outlook In fiscal 2023, we expect revenue to range between $670.0 to $700.0 million (+22% to +28%). We anticipate Adjusted EBITDA to range from $140.0 to $146.0 million (+13% to +18%) and Adjusted diluted earnings per share to range from $1.62 to $1.72 (+5% to +11%). Our guidance reflects an accelerated investment in marketing, resources and infrastructure to support long-term growth opportunities in the United States and in China along with higher prevailing interest rates. Revenue in the Jamieson Brands segment is expected to increase between 24.0% to 30.0% to $545.5 to $572.5 million compared with fiscal 2022, driven by the following growth factors: • Jamieson Canada revenue growth of 3.0% to 6.0%, reflecting continued consumer demand, marketing plans, innovation and the impact of our prior year pricing. We expect revenues in the first quarter of 2023 to increase by up to 3% compared with the first quarter of 2022, reflecting timing of shipments as retailers ordered for cold and flu in the fourth quarter of 2022. • • Youtheory revenue of between $145.0 and $155.0 million (approximately 11.5% to 19.0% growth on a pro- forma basis) with growth driven by product innovation, expanded e-commerce initiatives and distribution gains. We expect revenue in the first quarter of 2023 to be between $14.0 and $17.0 million based on our seasonally slowest period combined with a continued reduction of customer inventories as we prepare to launch new innovation in the second quarter. Jamieson China revenue growth of between 65.0% to 75.0% reflecting a transition to an owned distribution model expected to be completed in the second quarter and the related step-up to distributor level pricing along with continued consumer demand in e-commerce and distribution gains in the domestic retail channels (growth of approximately 25.0% to 30.0% on a pro-forma basis). We expect revenues in the first quarter of 2023 to increase by 20% to 25% compared with the first quarter of 2022, reflecting continued strong demand for immunity solutions and new distribution. Jamieson International revenue growth of between 5.0% to 20.0% driven by marketing, innovation and distribution into new markets as well as expansion across key regions as we increase our local capabilities and brand investments. We expect revenues in the first quarter of 2023 to be between $6.0 and $7.0 million as consumption patterns in Eastern Europe normalize following the second quarter. • Revenue in the Strategic Partners segment revenue growth of between 15.0% to 20.0% compared with fiscal 2022, reflecting pricing to maintain our existing margin structure and program changes with existing customers. First - 50 - quarter 2023 revenues are expected to increase by 20.0% to 30.0% compared with the first quarter of 2022, reflecting the timing of available production in the fourth quarter and pricing. The outlook for Adjusted EBITDA growth and Adjusted diluted earnings per share reflect the following assumptions: • Consolidated gross profit margins are anticipated to be consistent with the prior year impacted by segment mix, the full year impact of the youtheory acquisition and the transition to an owned distribution model in China. o Jamieson Brands gross profit margins are anticipated to decline approximately 100 basis points impacted by the full year inclusion of youtheory and the transition to an owned distribution model in China. Excluding the full year impact of youtheory and transition to an owned distribution model in China our Jamieson branded margin is anticipated to be consistent with fiscal 2022 as operating efficiencies offset inflationary cost pressures, geographic and product mix. o Strategic Partners gross profit margins are expected to improve by approximately 150 basis points o due to customer and program mix. In the first quarter we anticipate consolidated gross profit margins to decline by approximately 50 basis points due to segment mix. • Normalized SG&A including marketing expenses are expected to increase 35.0% to 40.0% based on the acquisition of youtheory and an accelerated investment in marketing, resources and infrastructure to support long-term growth opportunities in the United States and in China. In the first quarter of 2023, we expect normalized SG&A to increase 34.0% to 38.0% compared to the first quarter of 2022 reflecting the acquisition of youtheory and changes to program timing. • Depreciation and amortization expense will be approximately $21.0 million reflecting the acceleration of our investment in capacity, tools and technology investments (assuming approximately $15.0 million of capital additions as we invest to drive efficiency and improvements in our manufacturing facilities and in our IT infrastructure); Share-based compensation costs of $5.0 to $5.5 million; Interest expense of $17.5 to $18.5 million based on our estimated borrowing and prevailing rates; Income tax rates of approximately 27.5% based on non-deductible stock-based compensation; • • • • A fully diluted share count of approximately 43.0 million shares; and • Average annual exchange rate between the U.S. and Canadian dollar of U.S. $1.00 to 1.30. We expect Adjusted EBITDA margins to decline by approximately 175 basis points reflecting the margin profile due to the factors discussed above. We expect Jamieson Branded AEBITDA margins to decline approximately 300 basis points year-over-year based on the impact of youtheory including realized synergies, the timing of pricing and operating efficiencies offset by our investments in resources to drive long-term growth in the United States and in China as well as the factors previously noted impacting gross margins. During fiscal 2023 we expect to incur certain non-capital costs related to the enhancement of our IT systems to improve operating efficiencies and augment our system infrastructure, integration costs associated with the acquisition of youtheory as well as costs associated with the acquisition of our China distribution partner. These costs will impact net earnings while our expected Adjusted net earnings and Adjusted diluted earnings per share for fiscal 2023 will reflect the adding back of these expenses on a tax-effected basis. The description of our financial outlook in this MD&A is based on management’s current views and strategies, our assumptions and expectations concerning our growth opportunities and our assessment of the opportunities for our business and the consumer health industry as a whole and the VMS and sports nutrition segments of the consumer health industry. Our financial outlook has been calculated in accordance with our current accounting policies and non-IFRS and other financial measures as defined in this MD&A. The description of our outlook is forward-looking information for purposes of applicable securities laws in Canada and readers are therefore cautioned that actual results may vary from those described above. Refer to “Summary of Factors Affecting Our Performance”, “Forward-Looking Information” and “Risk Factors” for a reference to the risks and uncertainties that impact our business and that could cause actual results to vary. - 51 - Current Share and Option Information As of the date hereof, an aggregate of 41,731,312 Common Shares are issued and outstanding. As of the date hereof, the Company had 2,788,435 options, 158,857 PSUs, 838 RSUs, and 23,865 DSUs outstanding. Additional Information Additional information relating to our Company, including our most recent annual report and annual information form are available on SEDAR at www.sedar.com. Risk Factors We are exposed to a variety of financial risks in the normal course of operations including credit risk, market risk and liquidity risk, each of which is discussed below. Management oversees the management of these risks. Our financial instruments and policies for managing these risks are detailed below. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations, resulting in financial loss to us. We are exposed to credit risk from our customers (primarily related to trade accounts receivable) in the normal course of business. We have adopted a policy of only dealing with creditworthy counterparties. To mitigate this risk, we carry out regular credit evaluations and purchase credit insurance for international customers, where appropriate, as a means of mitigating the risk of financial loss from defaults. We are also exposed to counterparty credit risk inherent in our financing activities, trade receivable insurance, foreign currency derivatives and interest rate derivatives. We have assessed these risks as minimal. Market Risk Market risk is comprised of foreign exchange risk, interest rate risk and commodity price risk. Foreign Exchange Risk Foreign exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Our exposure to the risk of changes in foreign exchange rates relates primarily from transactions in U.S. dollars such as a portion of trade accounts payable, trade accounts receivable and cash. Our purchases of certain materials and inputs in U.S. dollars are partially offset by international sales in U.S. dollars. We use foreign exchange forward contracts to manage foreign exchange transaction exposure. Interest Rate Risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Our accounts receivable and accounts payable are non-interest bearing. Our exposure to the risk of changes in market interest rates arises from long-term debt obligations issued at fixed rates that create fair value interest rate risk and variable rate borrowings that create cash flow interest rate risk. We manage our interest rate risk by entering into interest rate swaps, in which we agree to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. Commodity Price Risk We are exposed to price risk related to purchases of certain commodities used as raw materials. We may use fixed price contracts with suppliers to mitigate commodity price risk. Concentration in any one raw material is not significant to us. Liquidity Risk Liquidity risk is the risk we will not be able to meet our financial obligations associated with financial - 52 - liabilities. We are exposed to this risk mainly in respect of our accounts payable and accrued liabilities, various long-term debt agreements, obligations under our post-retirement benefits plan and lease liabilities. We manage our liquidity risk through continuous monitoring of our forecast and actual cash flows and through the management of our capital structure. We continually revise our available liquid resources as compared to the timing of the payment of liabilities to manage our liquidity risk. - 53 - Consolidated Financial Statements For the years ended December 31, 2022 and 2021 Table of Contents Independent auditor’s report ..................................................................................................................................... 56-69 Consolidated statements of financial position ................................................................................................................ 60 Consolidated statements of operations and comprehensive income ............................................................................... 61 Consolidated statements of changes in shareholders’ equity .......................................................................................... 62 Consolidated statements of cash flows ............................................................................................................................. 63 Notes to the consolidated financial statements .......................................................................................................... 64-97 INDEPENDENT AUDITOR’S REPORT To the Shareholders of Jamieson Wellness Inc. Opinion We have audited the consolidated financial statements of Jamieson Wellness Inc. and its subsidiaries (the Group), which comprise the consolidated statements of financial position as at December 31, 2022 and 2021, the consolidated statements of operations and comprehensive income, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2022 and 2021, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS). Basis for opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For the matter, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to this matter. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matter below, provide the basis for our audit opinion on the accompanying consolidated financial statements. - 56 - INDEPENDENT AUDITOR’S REPORT (continued) Sales promotional incentives Key audit matter How our audit addressed the key audit matter As described in the Summary of Significant Accounting Policies in Note 2 to the consolidated financial statements, the Group provides certain customers with discounts and sales promotional incentives, which results in variable consideration and the Group having to estimate expected levels of promotions that are typically settled in a period after the sale being recorded. The estimated costs of these discounts and customer-specific sales promotional incentives are recorded as a reduction to revenue at the time a product is sold to the customer. The Group’s sales promotional incentives are complex, and there are a significant amount of revenues and products affected. The measurement of sales promotional incentives involves the use of judgement related to estimating future promotional spending based on historical performance of promotions and adjustments for current trends, among other inputs. The timing difference between sales of goods by the Group and the settlement of customer-specific sales promotional incentives further increases the risk associated with the measurement of revenues. Changes in these estimates can have a significant impact on the amount of revenue recognized. • We considered the appropriateness of the Group’s revenue recognition accounting policies, specifically the recognition and classification criteria for discounts and sales promotional incentives, by reviewing the Group’s contractual and non-contractual arrangements with its customers. • Among other audit procedures, we tested the sales promotional incentives accrued at the end of the year by comparing program details with agreements or other correspondence between the Group and its customers, where applicable, taking customary trade practices into consideration. • We examined correspondence between the Group and its customers, and historical end-consumer spending patterns on similar promotions, to evaluate the reasonableness of the estimated end- consumer purchases forecasted by management during the promotional period. • We also analyzed retrospective reviews prepared by management on its ability to estimate customer- specific sales promotional incentives, which compared actual spending to amounts accrued at period end and analyzed trending of customer- specific sales promotional incentives as a percentage of revenue, to evaluate the accuracy and completeness of amounts accrued by management at year end. • Additionally, we performed inquiry procedures directly with sales representatives to evaluate the completeness of incentive programs. Initial measurement of trademarks and customer relationships acquired in the Nutrawise Health & Beauty Corporation business combination Key audit matter How our audit addressed the key audit matter The Group acquired Nutrawise Health & Beauty Corporation for a total consideration of $310 million in 2022. The fair value of the identifiable assets acquired included $171 million in intangible assets, which relate to trademarks and customer relationships. Management applied significant judgment in estimating the fair value of the intangible assets. To estimate the fair value of the intangible assets, management used the relief from royalty method to value trademarks and customer relationships using the distributor model. Management developed significant assumptions related to revenue and EBITDA margin forecasts, royalty rates and discount rates. We considered this a key audit matter due to significant judgement applied by management in estimating the fair Our approach to addressing the matter included the following procedures, among others: • With the assistance of business valuation specialists, we evaluated the reasonableness of the models used by management’s specialists in determining the fair value of the intangible assets acquired and royalty rates and discount rates used by testing the source information underlying the determination of the related rates and developing a range of independent estimates and comparing those to the rates selected by management. • We tested the reasonableness of forecasted revenue and EBITDA margin to actual historical results of - 57 - value of the intangible assets, including the development of significant assumptions. This, in turn, led to a high degree of auditor judgement, subjectivity and effort in performing procedures and evaluating audit evidence relating to the significant assumptions used by management. The audit effort involved the use of professionals with specialized skill and knowledge in the field of valuation. the acquired entity, underlying analysis detailing business strategies and growth plans. • Evaluated the adequacy of the business combination note disclosure included in notes 4 and 9 of the accompanying consolidated financial statements in relation to this matter. Other information Management is responsible for the other information. The other information comprises: • Management’s Discussion and Analysis • The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. The Annual Report is expected to be made available to us after the date of the auditor’s report. If based on the work we will perform on this other information, we conclude there is a material misstatement of other information, we are required to report that fact to those charged with governance. Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. - 58 - • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure, and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is Paula J. Smith. Toronto, Canada February 22, 2023 - 59 - Jamieson Wellness Inc. Consolidated Statements of Financial Position In thousands of Canadian dollars as at December 31, Notes 2022 2021 Assets Current assets Cash Accounts receivable Inventories Derivatives Prepaid expenses and other current assets Non-current assets Property, plant and equipment Goodwill Intangible assets Deferred income tax Total assets Liabilities Current liabilities Accounts payable and accrued liabilities Income taxes payable Derivatives Current portion of other long-term liabilities Long-term liabilities Long-term debt Post-retirement benefits Deferred income tax Other long-term liabilities Total liabilities Shareholders' equity Share capital Contributed surplus Retained earnings Accumulated other comprehensive income Total shareholders' equity Total liabilities and shareholders' equity Commitments and contingencies (see the accompanying notes to the consolidated financial statements) 26,240 160,798 154,488 6,580 4,298 352,404 111,709 272,916 367,205 3,029 1,107,263 142,566 7,387 - 4,852 154,805 400,000 929 58,007 61,931 675,672 307,200 17,115 85,483 21,793 431,591 1,107,263 5 6 20 7, 15 8 9 14 10 14 20 4, 15 12 13 14 4, 15 16 21 6,775 104,186 119,006 2,149 5,029 237,145 96,977 122,975 192,676 2,702 652,475 74,533 2,896 3,317 2,876 83,622 149,125 3,544 53,291 20,872 310,454 268,214 14,786 58,998 23 342,021 652,475 Approved on behalf of the Board: Steve Spooner Director Tim Penner Director - 60 - Jamieson Wellness Inc. Consolidated Statements of Operations and Comprehensive Income In thousands of Canadian dollars, except share and per share amounts, for the years ended December 31, Notes 2022 547,369 349,031 198,338 110,239 4,910 83,189 269 12,417 70,503 17,695 52,808 2,954 (753) 2,201 7,748 (1,967) 5,781 13,788 21,770 74,578 1.29 1.25 2021 451,032 288,591 162,441 80,739 5,672 76,030 (92) 5,657 70,465 18,383 52,082 233 (61) 172 7,063 (1,787) 5,276 (23) 5,425 57,507 1.30 1.25 40,998,065 42,116,350 40,150,724 41,680,934 Revenue Cost of sales Gross Profit Selling, general and administrative expenses Share-based compensation Earnings from operations Foreign exchange (gain) loss Interest expense and other financing costs Earnings before income taxes Provision for income taxes Net earnings Other comprehensive income Actuarial gain not to be reclassified subsequently to net earnings Income tax Net of tax Unrealized gain on amounts that may be reclassified to net earnings on cash flow hedges Income tax Net of tax Unrealized foreign currency gain (loss) that may be reclassified to net earnings on translation of foreign operations Total other comprehensive income Comprehensive income Earnings per share attributable to common shareholders Basic, earnings per share Diluted, earnings per share Weighted average number of shares Basic Diluted (see the accompanying notes to the consolidated financial statements) 22 6 17 19 14 13 14 20 14 24 24 - 61 - Jamieson Wellness Inc. Consolidated Statements of Changes in Shareholders’ Equity In thousands of Canadian dollars Notes Share capital Contributed surplus Retained earnings Accumulated other comprehensive income (loss) Total Shareholders' equity As at January 1, 2021 Net earnings for the year Issuance of treasury shares Common share dividend ($0.55 per share) Other comprehensive income Unrealized foreign currency loss on translation of foreign operations Share-based compensation As at December 31, 2021 Net earnings for the year Issuance of treasury shares Issuance of shares to acquire businesses Common share dividend ($0.64 per share) Other comprehensive income Unrealized foreign currency gain on translation of foreign operations Share-based compensation As at December 31, 2022 16 17 16 4 17 255,795 - 12,419 - - - - 268,214 - 6,638 32,348 - - - - 307,200 (see the accompanying notes to the consolidated financial statements) 12,986 - (3,684) 8 - - 5,476 14,786 - (2,445) - 18 - - 4,756 17,115 29,023 52,082 - (22,107) - - - 58,998 52,808 - - (26,323) - - - 85,483 (5,402) - - - 5,448 (23) - 23 - - - - 7,982 13,788 - 21,793 292,402 52,082 8,735 (22,099) 5,448 (23) 5,476 342,021 52,808 4,193 32,348 (26,305) 7,982 13,788 4,756 431,591 - 62 - Jamieson Wellness Inc. Consolidated Statements of Cash Flows In thousands of Canadian dollars, for the years ended December 31, Cash provided by (used in) Notes 7 9 17 4 7 9 12 12 15 16 Operating activities Net earnings Items not affecting cash Depreciation of property, plant and equipment and right-of-use assets Amortization of intangible assets Deferred income taxes Share-based compensation Others Net change in non-cash working capital Investing activities Acquisition of business Additions to property, plant and equipment, net Acquisition of intangible assets Financing activities Proceeds from credit facilities Repayment of credit facilities Payment of lease liabilities Dividends to Common Shareholders Exercise of stock options and ESPP Increase in cash Cash - Beginning of the year Cash - End of the year Supplemental disclosure Amount of income taxes paid Amount of interest paid (see the accompanying notes to the consolidated financial statements) 2022 52,808 12,153 5,095 1,669 4,756 1,120 (27,012) 50,589 (241,960) (13,933) (637) (256,530) 339,387 (88,512) (3,339) (26,323) 4,193 225,406 19,465 6,775 26,240 11,551 12,378 2021 52,082 10,006 4,268 (477) 5,476 376 (27,326) 44,405 - (21,498) (786) (22,284) 72,886 (72,819) (3,207) (22,107) 8,735 (16,512) 5,609 1,166 6,775 22,591 5,302 - 63 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 1. Company overview 1.1 Description of the business and consolidated financial statements Jamieson Wellness Inc. (“Jamieson” or the “Company”) is a Canadian public company with common shares (“Common Shares”) listed on the Toronto Stock Exchange under the stock symbol “JWEL”. The consolidated financial statements of Jamieson and its subsidiaries for the year ended December 31, 2022 were authorized for issue by the Board of Directors of the Company on February 22, 2023. Jamieson is a company continued under the Business Corporations Act (Ontario) and resident in Canada. Jamieson’s registered office is located at 66 Wellington Street West, Suite 5300, TD Bank Tower, Toronto, ON, M5K 1E6. The Company has manufacturing facilities located in Windsor, Ontario, Toronto, Ontario, and Irvine, California and is principally engaged in the manufacturing, development, distribution, sales and marketing of branded and customer branded health products for humans including vitamins, herbal and mineral nutritional supplements. 1.2 Subsidiaries The table below provides a summary of the Company's subsidiaries. Unless otherwise stated, the subsidiaries as listed below have share capital consisting solely of common shares, which are held directly or indirectly by the Company. As at December 31, Entity Jamieson Laboratories Ltd. International Nutrient Technologies Limited Body Plus Nutritional Products Inc. Jamieson Health Products (Shanghai) Co., Ltd. Jamieson Health Products Australia Pty Ltd. Jamieson Health Products UK Ltd. Jamieson Health Products USA Ltd. Jamieson Health Products Netherlands B.V. Nutrawise Health & Beauty LLC Nutrawise UK Ltd. Nutrawise Japan GK Jamieson Health Products (Hong Kong) Limited Jamieson Health Products (Cayman Islands) Limited Jamieson Health Products (Hong Kong) Trading Limited 2022 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 2021 % 100 100 100 100 100 100 100 100 - - - - - - Principal Place of Operations Functional Currency Canada Canada Canada China Australia United Kingdom United States of America Netherlands United States of America United Kingdom Japan China Cayman Islands China Canadian dollar Canadian dollar Canadian dollar Chinese yuan Australian dollar United States dollar United States dollar United States dollar United States dollar British pound sterling Japanese yen United States dollar United States dollar United States dollar 2. Summary of significant accounting policies 2.1 Basis of preparation and statement of compliance The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The consolidated financial statements have been prepared on a historical cost basis, except for certain derivative financial instruments and liabilities associated with the post-retirement benefit plan that have been measured at fair value. The consolidated financial statements are presented in Canadian dollars and all values are rounded to the nearest thousand ($000), except share and per share amounts and when otherwise indicated. Certain supplementary information in U.S. dollars is rounded to the nearest thousand where applicable. - 64 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 2.2 Basis of consolidation Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Company controls an investee if, and only if, the Company has: • Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee); • Exposure, or rights, to variable returns from its involvement with the investee; and • The ability to use its power over the investee to affect its returns. Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Company has less than a majority of the voting or similar rights of an investee, the Company considers all relevant facts and circumstances in assessing whether it has power over an investee, including: • The contractual arrangement(s) with the other vote holders of the investee; • Rights arising from other contractual arrangements; and • The Company’s voting rights and potential voting rights. The Company re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Company gains control until the date the Company ceases to control the subsidiary. Transactions and balances between the Company and its consolidated entities have been eliminated on consolidation. 2.3 Summary of significant accounting policies The following are the significant accounting policies applied by the Company in preparing its consolidated financial statements: 2.3.1 Business combinations and goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at the acquisition date fair value and the amount of any non-controlling interest in the acquiree. Acquisition-related costs are expensed as incurred and included in the consolidated statements of operations and comprehensive income. When the Company acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. All contingent consideration (except that which is classified as equity) is subsequently re-measured to fair value at each reporting period end, with the changes in fair value recognized in profit or loss. Contingent consideration that is classified as equity is not re-measured, and subsequent settlement is accounted for within equity. - 65 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interests) and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Company re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognized in net income. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Company’s cash-generating units (“CGUs”) (or group of CGUs) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill has been allocated to a CGU (or group of CGUs) and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed in these circumstances is measured based on the relative fair values of the disposed operation and the portion of the CGU retained. 2.3.2 Current versus non-current classification The Company presents assets and liabilities in the consolidated statements of financial position based on current/non-current classification. An asset is current when it is: • Expected to be realized or intended to be sold or consumed in the normal operating cycle; • Held primarily for the purpose of trading; • Expected to be realized within twelve months after the reporting period; or • Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non-current. A liability is current when: • It is expected to be settled in the normal operating cycle; • It is held primarily for the purpose of trading; • It is due to be settled within twelve months after the reporting period; or • There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. All other liabilities are classified as non-current. Deferred income tax assets and liabilities are classified as non-current assets and liabilities. 2.3.3 Fair value measurement The Company measures financial instruments, such as derivatives, at fair value at each consolidated statements of financial position date. Fair value related disclosures for financial instruments and non-financial assets that are measured at fair value or where fair values are disclosed are summarized in the following notes: - 66 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 • Accounting policy disclosures (Note 2.3.3) • Disclosures for valuation methods, significant estimates and assumptions (Notes 3 and 8) • Quantitative disclosures of fair value measurement hierarchy (Note 20) • Financial instruments (including those carried at amortized cost) (Notes 12 and 20) Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: • In the principal market for the asset or liability; or • In the absence of a principal market, in the most advantageous market for the asset or liability. The fair value of instruments that are quoted in active markets is determined using the quoted prices. The Company uses valuation techniques to establish the fair value of instruments where prices quoted in active markets are not available. Therefore, where possible, parameter inputs to the valuation techniques are based on observable data derived from prices of relevant instruments traded in an active market. These valuation techniques involve some level of management estimation and judgment, the degree of which will depend on the price transparency for the instrument or market and the instrument’s complexity. The Company categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by the Company’s valuation techniques. A level is assigned to each fair value measurement based on the lowest level input significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows: Level 1 - Unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets. Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3 - Significant unobservable inputs which are supported by little or no market activity. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. 2.3.4 Revenue recognition The majority of the Company’s revenue is derived from the sale of Jamieson branded products to distributors, retail and wholesale customers, referred to as the Company’s “Jamieson Brands” segment, as well as providing contract manufacturing services and the sale of products to strategic partners, referred to as the Company’s “Strategic Partners” segment. Revenue is recognized for the sale of Jamieson branded products and the manufacturing of products to its strategic partners at the point in time when control of the asset is transferred to the customer based on shipping - 67 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 terms. The Company generally has a right to payment at the time of delivery (which is the same time that the Company has satisfied its performance obligations under the arrangement), as such a receivable is recognized as the consideration is unconditional and only the passage of time is required before payment is due. A portion of the Company’s revenues derived from contract manufacturing services provided to customers in its Strategic Partners segment is under a tolling arrangement where the customer supplies the Company with a raw material or ingredient. Revenue is recognized net of the cost of the raw material or ingredient supplied by the customer. Rights of return give rise to variable consideration. The variable consideration is estimated at contract inception using the expected value method as this best predicts the amount of variable consideration to which the Company is entitled. The variable consideration is constrained to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when any uncertainty is subsequently resolved. For products that are expected to be returned, a refund liability is recognized as a reduction of revenue at the time the control of the products purchased is transferred to the customers. Jamieson may provide discounts and sales promotional incentives to its customers, which give rise to variable consideration. The variable consideration is constrained to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when any uncertainty is subsequently resolved. The application of the constraint on variable consideration increases the amount of revenue that will be deferred. Jamieson applies the most likely amount method estimating discounts provided to customers using contracted rates and estimating sales promotional incentives provided to customers based on historical spending patterns. Jamieson may also provide other consideration to customers for customer-specific programs to promote the Company’s products. Consequently, revenues are recognized net of these estimated program costs. All other estimated non-customer-specific promotional costs and consideration are expensed as selling, general and administrative expenses. In subsequent periods, the Company monitors the performance of customers against agreed-upon obligations related to sales incentive programs and makes any adjustments to both revenue and sales incentive accruals as required. 2.3.5 Foreign currencies The Company’s consolidated financial statements are presented in Canadian dollars. For each entity, the Company determines the functional currency, and items included in the financial statements of each entity are measured using that functional currency (refer to Note 1.2). Transactions and balances Transactions in foreign currencies are initially recorded by the entities at their respective functional currency spot rate at the date the transaction first qualifies for recognition. • Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange in effect at the reporting date. • Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. • Revenue and expense items are translated using the average exchange rate during the year. Differences arising on settlement or translation of monetary items are recognized in profit or loss. On consolidation, the assets and liabilities of foreign operations are translated into the reporting currency at the reporting currency spot rate of exchange in effect at the reporting date and their statement of operations are - 68 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 translated using the average exchange rate during the year. Exchange differences arising on translation for consolidation are recognized in other comprehensive income (“OCI”). On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is reclassified to profit or loss. 2.3.6 Taxes Current income tax Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Company operates and generates taxable income. Current income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statements of operations and comprehensive income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation, and it establishes provisions where appropriate. Deferred income tax Deferred income tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred income taxes are not recognized where: • The deferred income tax liability arises from the initial recognition of goodwill; • The deferred income tax asset or liability arises on the initial recognition of an asset or liability in an acquisition that is not a business combination and, at the time of the acquisition, affects neither the accounting profit nor taxable profit or loss; and • For temporary differences relating to investments in subsidiaries to the extent that the Company can control the timing of the temporary difference and it is probable that they will not reverse in the foreseeable future. Deferred income tax assets are recognized for unused loss carry forwards and deductible temporary differences to the extent that it is probable that taxable profit will be available against which they can be utilized. At each reporting period, previously unrecognized deferred income tax assets are reassessed to determine whether it has become probable that future taxable profit will allow the deferred income tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Current and deferred income taxes relating to items recognized directly in OCI or equity are also recognized directly in OCI or equity, respectively. Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognized subsequently if new information about facts and circumstances arise. The adjustment is either treated as an adjustment to goodwill (as long as it does not exceed goodwill) if it is incurred during the measurement period or recognized in net income. - 69 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 Sales tax Revenues, expenses and assets are recognized net of the amount of sales tax, except: • Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense item, as applicable; and • Receivables and payables are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the consolidated statements of financial position. 2.3.7 Property, plant and equipment Property, plant and equipment, with the exception of land, is recorded at cost less accumulated depreciation and any net accumulated impairment losses. Land is carried at cost and not depreciated. Construction-in-process assets are capitalized during construction and depreciation commences when the asset is available for use. Repair and maintenance costs are recognized in profit or loss as incurred unless the recognition criteria are satisfied and it substantially changes the useful life of an asset. Depreciation is calculated on a straight-line basis, after taking into account residual values, over the following expected useful lives of the assets: Land Buildings Machinery and equipment Furniture and fixtures Computer equipment and software Tools and dies Not depreciated 20-30 years 3-20 years 4-5 years 3 years 1 year When parts of an item of property and equipment have different useful lives, those components are accounted for as components of property and equipment. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statements of operations and comprehensive income when the asset is derecognized. The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed periodically. 2.3.8 Intangible assets Intangible assets are primarily established as a result of business combinations and measured on initial recognition at fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less accumulated amortization and any accumulated impairment losses. Upon recognition of an intangible asset, the Company determines if the asset has a definite or indefinite life. In making this determination, the Company considers the expected use, expiry of agreements, the nature of the asset, and whether the value of the asset decreases over time. Intangible assets with finite lives are amortized over their useful economic lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period, as appropriate, and are - 70 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 treated as changes in accounting estimates. The amortization expense on intangible assets is recognized in the consolidated statements of operations and comprehensive income on a straight-line basis over their estimated useful lives as follows: Customer relationships Registrations, licenses, and other 20-30 years 3-10 years The Company expects its trade names to generate economic benefit in perpetuity, and accordingly, has assigned the trade names as indefinite-life intangible assets. Indefinite-life intangibles including trade names are tested for impairment annually at December 31 and otherwise as required if events occur that indicate that the net carrying value may not be recoverable. 2.3.9 Financial instruments — initial recognition and subsequent measurement A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Classification and measurement All financial assets and liabilities are recognized initially at fair value plus, in the case of financial instruments not at fair value through profit or loss (“FVTPL”), transaction costs. Debt financial instruments are subsequently measured at FVTPL, fair value through other comprehensive income (“FVOCI”), or amortized cost using the effective interest rate method. The Company determines the classification of its financial assets based on the Company’s business model for managing the financial assets and whether the instruments’ contractual cash flows represent solely payments of principal and interest on the principal amount outstanding. The Company’s derivatives not designated as a hedging instrument in a qualifying hedge relationship are subsequently measured at FVTPL. Equity instruments within the scope of IFRS 9, “Financial Instruments” (“IFRS 9”), if any, are subsequently measured at FVTPL or elected irrevocably to be classified at FVOCI at initial recognition. Financial liabilities are subsequently measured at amortized cost using the effective interest method or at FVTPL. Financial liabilities are subsequently measured as FVTPL when the financial liability is: (i) contingent consideration of an acquirer in a business combination; (ii) held for trading; or (iii) it is designated as FVTPL if eligible. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. For financial liabilities that are designated as FVTPL, the amount of change in the fair value of the financial liability that is attributable to changes in the Company’s own credit risk of that liability is recognized in OCI unless the recognition of the effects of changes in the liability’s credit risk in OCI would create or enlarge an accounting mismatch in the consolidated statements of operations and comprehensive income. The remaining amount of change in the fair value of liability is recognized in the consolidated statements of operations and comprehensive income. Changes in fair value of a financial liability attributable to the Company’s own credit risk that are recognized in OCI are not subsequently reclassified to the consolidated statements of operations and comprehensive income; instead, they are transferred to retained earnings, upon derecognition of the financial liability. - 71 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 The Company has made the following financial instrument classifications: Financial Instrument Cash Accounts receivable Accounts payable and accrued liabilities Long-term debt Derivatives not designated as hedging instruments Derivatives designated as hedging instruments Lease liabilities Contingent consideration IFRS 9 Measurement Amortized cost Amortized cost Amortized cost Amortized cost FVTPL Fair value (hedge accounting) Amortized cost FVTPL Impairment IFRS 9 requires a forward-looking Expected Credit Loss (“ECL”) model. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive. For accounts receivable, Jamieson applies the simplified approach and has determined the allowance based on lifetime ECLs at each reporting date. The Company has established a provision that is based on the Company’s historical credit loss experience, adjusted for forward-looking factors specific to the customers and the economic environment. There was no transitional adjustment as a result of adopting the new impairment requirements. Derecognition A financial asset is derecognized when the rights to receive cash flows from the asset have expired, or the Company has transferred its rights to receive cash flows from the asset and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the consolidated statements of operations and comprehensive income. 2.3.10 Derivative financial instruments and hedge accounting The Company uses derivative financial instruments (primarily forward contracts and swaps) to manage exposure to fluctuations in foreign currency exchange rates and interest rates. Derivative financial instruments are initially recognized at fair value on the date the derivative contract is executed and are subsequently remeasured at fair value each reporting period end. At the inception of a hedging relationship, the Company designates and formally documents the relationship between the hedging instrument and the hedged item, the risk management objective, and its strategy for undertaking the hedge. The documentation identifies the specific asset, liability, or anticipated cash flows being hedged, the risk that is being hedged, the type of hedging instrument used, and how effectiveness will be assessed. The Company also formally assesses, both at inception and at each reporting date thereafter, whether or not the derivatives that are used in hedging transactions are highly effective in offsetting the changes attributable to the hedged risks in the fair values or cash flows of the hedged items. If a hedge relationship becomes ineffective, it no - 72 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 longer qualifies for hedge accounting and any subsequent change in the fair value of the hedging instrument is recognized in net income. The Company uses hedge accounting for highly probable forecasted transactions (cash flow hedges). When hedge accounting is appropriate, the hedging relationship is designated as a cash flow hedge. In a cash flow hedge, the change in fair value of the hedging instrument is recorded, to the extent it is effective, in other comprehensive income. If a hedged forecast transaction subsequently results in the recognition of a non-financial asset, the Company removes that amount from the cash flow hedge reserve and includes it directly in the initial cost of the inventory. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in other comprehensive income is immediately recognized in the consolidated statements of operations and comprehensive income. 2.3.11 Inventories Inventories are valued at the lower of cost and net realizable value. Raw material costs are accounted for using purchase cost on a first-in, first-out basis. Finished goods and work in progress costs are accounted for using cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs to sell. A provision for obsolescence is calculated based on historical experience and expiration. 2.3.12 Impairment of non-financial assets Disclosures relating to impairment of non-financial assets are summarized in the following notes: • Accounting policy disclosures (Note 2.3.12) • Disclosures for significant assumptions (Note 3) • Property, plant and equipment (Note 7) • Goodwill and intangible assets (Notes 8 and 9) The Company performs impairment testing annually for goodwill and indefinite-life intangible assets and, when circumstances indicate that there may be impairment, for other long-lived assets. Management judgment is involved in determining if there are circumstances indicating that testing for impairment is required, and in identifying CGUs for the purpose of impairment testing. The Company assesses impairment by comparing the recoverable amount of a long-lived asset, CGU or CGU group to its carrying value. The recoverable amount is defined as the higher of: (i) value in use; or (ii) fair value less cost to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, a market multiple approach is used. These calculations are corroborated by other available fair value indicators. The determination of the recoverable amount involves significant estimates and assumptions, including those with respect to valuation multiples, future cash inflows and outflows, discount rates, and asset lives. These estimates and assumptions could affect the Company’s future results if the current estimates of future performance and fair values were to change. These determinations will affect the amount of amortization expense on definite-life intangible assets recognized in future periods. - 73 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 Where the carrying amount of an asset or CGU (or group of CGUs) exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses, if any, of continuing operations are recognized in the consolidated statements of operations and comprehensive income in those expense categories consistent with the function of the impaired asset. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s or CGU’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset or group of assets does not exceed their recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the assets in prior years. Such reversal is recognized in the consolidated statements of operations and comprehensive income. Impairment losses relating to goodwill cannot be reversed in future periods. 2.3.13 Cash Cash in the consolidated statements of financial position is comprised of cash balances that are subject to an insignificant risk of changes in value. 2.3.14 Provisions Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the subsequent increase in the provision due to the passage of time is recognized as a finance cost. 2.3.15 Post-retirement benefits The Company’s post-retirement benefit plan (refer to Note 13) is unfunded and available to all Canadian hourly union personnel. The plan provides prescription and vision benefits to eligible employees upon attainment of age 65 with at least 15 years of service. Post-retirement benefit costs for the plan are actuarially determined using the projected unit credit method pro- rated on service and management’s best estimate of the appropriate discount rate, health care costs, inflation, mortality and other decrements. The accrued benefit obligation is based on the present value of future benefits based on the last actuarial valuation completed as of December 31, 2022. Current and past years’ service costs, interest income or expenses and gains and losses on curtailments are recognized in the consolidated statements of operations and comprehensive income as they occur and at the date of a plan amendment or curtailment. Re-measurements, comprising actuarial gains and losses, are recognized immediately in the consolidated statements of financial position with a corresponding debit or credit to OCI in the period in which they occur. Re-measurements are not reclassified to net income in subsequent periods. As of January 30, 2022, the Company transitioned its current employer-sponsored group RRSP plan for certain production hourly employees to participation in The Colleges of Applied Arts and Technology Pension Plan (the “CAAT Plan”). The CAAT Plan is a multi-employer, jointly sponsored defined benefit pension plan which is financed by contributions from participating members and participating employers, and by investment earnings. The Company’s participation in the CAAT Plan is accounted for as a defined contribution pension plan, where the Company’s contributions are expensed as incurred. The Company does not bear any performance risk on - 74 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 plan investments and is not required to fund the plan beyond the required annual contributions. Any pension surplus or deficit is a joint responsibility of the members and employers and may affect future contribution rates; the deficit or surplus is determined by the Plan’s actuarial valuation. 2.3.16 Share-based compensation The Company has an equity-based compensation plan providing for the issuance of securities under which the grants will be made by the Company. Under the long-term incentive plan (the “LTIP”), the Board of Directors of the Company, at its discretion may grant share options, restricted shares, restricted share units in the form of time-based restricted share units ("RSUs") or performance-based share units (“PSUs”), deferred share units (“DSUs”), and stock appreciation rights. The awards are settled in Common Shares with a cash settlement alternative available to the Company. Share-based compensation costs are accounted for on a fair value basis, as measured at the grant date, which is generally the date at which both the Company and employee have a mutual understanding of the terms of the award. The compensation expense is based on the estimated number of awards that will eventually vest and adjustments for forfeitures are made as they occur. Upon exercise of options and settlement of RSUs, PSUs, and DSUs, the amount recognized in contributed surplus for the award plus the cash received upon exercise is recognized as an increase in share capital. Options are granted with an exercise price equal to or greater than their fair value, as determined by the closing price on the TSX immediately preceding the grant date of the shares into which they may be converted. Options granted to directors of the Company fully vest on the one-year anniversary from the grant date. Options granted to persons other than directors of the Company vest at a rate of 25% or 33% per year on each anniversary date from the beginning of the vesting period. Options expire no later than the 10th anniversary of the beginning of the vesting period or upon termination of employment. The fair value of the share options is estimated using the Black-Scholes option-pricing model. Several assumptions are used in the underlying calculation of fair values of the Company’s share options using the Black- Scholes option-pricing model, including the market value at grant date, expected life of the option, stock-price volatility, forfeiture rates, and risk-free interest rates. PSUs, RSUs, and DSUs granted represent the right to receive one Common Share for each PSU, RSU, or DSU. Prior to 2021, PSUs granted vest on the third anniversary of the grant date if the weighted average price of the Common Shares on the TSX for the 90-day period immediately preceding the third anniversary of the grant date, measured over the three year term of the PSUs, increases 6% or more annually (using a compound annual growth rate) over the weighted average price of the Common Shares on the TSX for the 90 day period immediately preceding the grant date. PSUs granted after 2021 vest on the third anniversary of the grant date based on the Company’s total shareholder return (“TSR”) compared to a principal peer group. The Company has determined that the above specified performance condition represents a market condition. Accordingly, the Company recognizes the compensation cost over the vesting period, irrespective of whether the market condition is satisfied, provided that service conditions are satisfied. The fair value of PSUs is estimated at grant date using the Monte Carlo simulation. Prior to 2021, several inputs and assumptions are used in the underlying calculation of fair values of the Company’s PSUs, including the market value of a Common Share at grant date, expected dividend and stock-price volatility. For PSUs granted after 2021, the model simulates the TSR and compares it against the principal peer group. It takes into account the share price volatility of the Company relative to that of its peer group so as to predict the share performance. - 75 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 RSUs granted to directors of the Company fully vest on the one-year anniversary from the grant date. The fair value of RSUs is measured at grant date based on the market value of a Common Share at grant date. DSUs fully vest on the one-year anniversary from the grant date and are exercised upon termination of employment. The fair value of DSUs is measured at grant date based on the market value of a Common Share at grant date. Employee share purchase plan The Company maintains an employee share purchase plan (“ESPP”) for all eligible employees. Employees can contribute any amount of their eligible earnings subject to an annual cap of 10% of aggregate base salary and commissions to the ESPP. Share purchases occur 14 days following the end of the Company’s fiscal quarter (the “Purchase Date”), or the first business day thereafter if any Purchase Date is not a business day. Eligible employees are able to purchase Common Shares at 90 percent of the volume weighted average closing price on the TSX on the five trading days immediately preceding the Purchase Date. Employees pay for their share purchases through payroll deductions at a rate equal to any whole percentage from 1 percent to 10 percent. Contributions to the ESPP are recorded as share capital at each Purchase Date. A maximum of 10% of the issued Common Shares outstanding are reserved for issuance under the LTIP, the ESPP and the Company’s legacy option plan combined. 2.3.17 Leases The Company assesses at contract inception whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company has applied judgment to determine the lease term for some lease contracts that include renewal options. The assessment of whether the Company is reasonably certain to exercise such options impacts the lease term, which affects the amount of lease liabilities and right-of-use assets recognized. The Company recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets during the lease term for all leases. Right-of-use assets The Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. The recognized right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment. The Company’s right-of-use assets are included in property, plant, and equipment. Lease liabilities At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in- - 76 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. In calculating the present value of lease payments, the Company uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset. The Company’s lease liabilities are included in other long-term liabilities. Short-term leases and leases of low-value assets The Company applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low- value assets are expensed on a straight-line basis over the lease term. 2.3.18 Accounting standards issued but not yet effective The Company has not adopted any new standards in 2022. The Company is evaluating the impact of standards and interpretations that have been issued, but are not yet effective, up to the date of issuance of the consolidated financial statements. The adoption of these standards and interpretations are not expected to have a material impact on the consolidated financial statements. 3. Significant accounting judgments, estimates and assumptions The preparation of the Company’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. Judgments The Company has identified the following judgments, apart from estimates, that management made in the process of applying the Company’s accounting policies, and that have the most significant effect on the amounts recognized in the consolidated financial statements. Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are described below. The Company based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions when they occur. - 77 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 Estimating variable consideration for returns, trade merchandise allowances and sales promotional incentives The Company uses historical customer return data to determine the expected return percentages. These percentages are applied to determine the expected value of the variable consideration. Any significant changes in experience as compared to historical return pattern will impact the expected return percentages estimated by the Company. The Company provides for estimated payments to customers based on various trade programs and sales promotional incentives. The Company estimates the most likely amount payable to each customer for each trade and incentive program separately using (i) the projected level of sales volume for the relevant period; (ii) customer rates for allowances, discounts, and rebates; (iii) historical spending patterns; and (iv) sales lead time. These arrangements are complex and there are a significant number of customers and products affected. Management has systems and processes in place to estimate and value these obligations. The Company updates its expected return, trade merchandise allowances and sales promotional incentives on a quarterly basis and the refund liability and trade and promotional accruals are adjusted accordingly. To the extent that payments differ from estimates of the related liability, accounts payable and accrued liabilities, net income, and comprehensive income will be affected in future periods. Valuation of inventory Management makes estimates of the future customer demand for products when establishing appropriate provisions for inventory. In making these estimates, management considers the product life of inventory and the profitability of recent sales of inventory. In many cases, products sold by the Company turn quickly and inventory on-hand values are low, thus reducing the risk of inventory obsolescence. However, code or “best before” dates are very important in the determination of realizable value of inventory. Management ensures that systems are in place to highlight and properly value inventory that may be approaching code dates. To the extent that actual losses on inventory differ from those estimated, inventory, net income, and comprehensive income will be affected in future periods. Receivables and allowance for expected credit losses The Company is exposed to credit risk with respect to amounts receivable from customers. The Company’s allowance is determined by historical experiences, and considers factors including, the aging of the balances, the customer’s credit worthiness, and updates based on the current economic conditions, expectation of bankruptcies, and the political and economic volatility in the markets/location of customers. Long-lived assets valuation The Company performs impairment testing annually for goodwill and indefinite-life intangible assets and when circumstances indicate long-lived assets may be impaired. Management judgment is involved in determining if there are circumstances indicating that testing for impairment is required, and in identifying CGUs for the purpose of impairment testing. The Company assesses impairment by comparing the recoverable amount of a long-lived asset, CGU, or CGU group to its carrying value. The recoverable amount is defined as the higher of: (i) value in use; or (ii) fair value less costs of disposal. The determination of the recoverable amount involves significant estimates and assumptions. Fair value less costs to sell is determined using market multiples. Value in use is determined using future cash inflows and outflows, discount rates, growth rates and asset lives. These estimates and assumptions could affect the Company’s future results if the current estimates of future performance and fair values change. These determinations will affect the amount of amortization expense on definite-life intangible assets recognized in future periods. Measurement of fair values A number of the Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. When the measurement of fair values cannot be determined - 78 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 based on quoted prices in active markets, fair value is measured using valuation techniques and models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. Changes in assumptions about the inputs to these models could affect the reported fair value of the Company’s financial and non-financial assets and liabilities. Tangible and intangible assets acquired through business combinations are initially recorded at their fair values based on assumptions of management. These assumptions include estimating the cost of tangible assets and future expected cash flows arising from intangible assets identified. Financial instruments acquired are determined based on the amortized costs at the acquisition date that approximate their carrying values. To the extent that these estimates differ from those realized, the measured asset or liability, net income, and/or comprehensive income will be affected in future periods. Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities are disclosed in Notes 8, 13, 16, 17 and 20. Taxes The calculation of current and deferred income taxes requires the Company to make estimates and assumptions and to exercise judgment regarding the carrying values of assets and liabilities that are subject to accounting estimates inherent in those balances, the interpretation of income tax legislation across various jurisdictions, expectations about future operating results, the timing of reversal of temporary differences and possible audits of income tax filings by the tax authorities. Changes or differences in underlying estimates or assumptions may result in changes to the current or deferred income tax balances on the consolidated statements of financial position, a charge or credit to income tax expense in the consolidated statements of operations and comprehensive income and may result in cash payments or receipts. All income, capital and commodity tax filings are subject to audits and reassessments. Changes in interpretations or judgments may result in a change in the Company's income, capital or commodity tax provisions in the future. The amount of such a change cannot be reasonably estimated. Useful lives of property, plant and equipment and intangible assets with finite useful lives The Company employs significant estimates to determine the estimated useful lives of property, plant and equipment and intangible assets with finite useful lives, including assets arising from business combinations, considering industry trends such as technological advancements, past experience, expected use and review of asset lives. Components of an item of property, plant and equipment may have different useful lives. The Company makes estimates when determining depreciation methods, depreciation rates and asset useful lives, which requires taking into account industry trends and company-specific factors. The Company reviews these decisions at least once each year or when circumstances change. The Company will change depreciation methods, depreciation rates or asset useful lives if they are different from previous estimates. 4. Business Combinations On July 19, 2022, Jamieson Health Products USA Ltd (“Jamieson USA”) acquired Nutrawise Health & Beauty Corporation (“Nutrawise” or “youtheory”), and Nutrawise became the wholly owned subsidiary of Jamieson USA. In connection with the transaction, Nutrawise Health & Beauty Corporation converted from a California corporation to a California limited liability company (LLC). Consideration for the acquisition totalled $309,889 before post-closing cash adjustments, plus acquisition costs of $8,051 which were recognized within selling, general and administrative expenses in the audited consolidated statements of operations and comprehensive income. The purchase price was funded with cash of $241,960 (refer to Note 12), share consideration of $32,348 and acquisition-related contingent consideration of $35,581 for a total of $309,889. Pursuant to the purchase agreement, the former owners are entitled to additional payments up to USD $190,000 subject to meeting - 79 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 specific earnings before interest expense, income taxes, depreciation and amortization (EBITDA) targets up to 2025. In accordance with IFRS 3 “Business Combinations”, $35,581 has been accounted for as contingent consideration and is recognized as part of the purchase price equation. As of December 31, 2022, this contingent consideration was revalued and classified as $542 in the current portion of other long-term liabilities and $36,693 in other long-term liabilities on the audited consolidated statements of financial position. The fair value of contingent consideration is estimated using a Monte-Carlo simulation model. The simulation is revaluated at the end of each reporting period and any changes in fair value are recognized in the audited consolidated statement of operations and comprehensive income. The fair value for the contingent consideration is an estimate requiring judgment and key assumptions, including EBITDA forecasts until 2025, volatility and discount rates. Nutrawise is an innovator, manufacturer, and marketer of premium supplements under the youtheory brand in the United States and other international markets. The Company expects that this strategic milestone will create a platform for the Company to expand in the U.S., which hosts the world’s largest vitamin, mineral and supplements market, and leverage the broad Jamieson portfolio under the youtheory brand. The following table provides a reconciliation of measurement period adjustments to the purchase price allocation of the net assets acquired at their fair value amounts: Accounts receivable Inventories Prepaid expenses and other current assets Accounts payable and accrued liabilities Property, plant and equipment, net Goodwill Intangible assets Other long term liabilities Total net assets acquired Preliminary fair value as at July 19, 2022 Measurement period fair value adjustments Estimated fair value as at July 19, 2022 $ 6,083 20,333 1,663 (33,263) 8,143 143,536 171,054 (4,425) 313,124 $ (819) (214) - (2,022) - (180) - - $ 5,264 20,119 1,663 (35,285) 8,143 143,356 171,054 (4,425) (3,235) 309,889 Measurement period fair value adjustments are a result of closing working capital adjustments and adjustments related to the fair value of contingent consideration. The intangible assets acquired include customer relationships and trademarks in the amounts of $31,100 and $139,954, respectively. The customer relationships are amortized over 20-25 years and expensed through the consolidated statements of operations and comprehensive income on a straight-line basis over the estimated useful life. The Company expects its trademarks to generate economic benefit in perpetuity, and accordingly, has assigned the trademarks as an indefinite life intangible asset. The estimated goodwill represents the future economic benefit arising from other assets acquired in the acquisition that are not individually identifiable and separately recognized. The estimated goodwill arising from the acquisition of $143,356 is attributable to expected future income and cash-flow projections and synergies the Company expects to achieve in combining the acquisition into its operations while leveraging its platform in the United States. Estimated goodwill is expected to be deductible for tax purposes. Indefinite life intangibles including goodwill and trademarks are tested for impairment annually at December 31 and otherwise as required if events occur that indicate that the net carrying value may not be recoverable. - 80 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 Included in the Company’s consolidated statements of operations and comprehensive income for the year ended December 31, 2022 is $68,157 in revenue attributable to youtheory. 5. Accounts receivable As at December 31, Trade Other miscellaneous receivables Allowance for expected credit losses 2022 $ 156,591 4,326 (119) 160,798 2021 $ 103,623 666 (103) 104,186 The Company maintains an allowance for expected credit losses that represents its estimate of uncollectible amounts based on the Company’s historical credit loss experience, adjusted for forward-looking factors specific to the customers and the economic environment. The aging of receivables is as follows: As at December 31, Current Aged 1-30 days past due Aged 31-60 days past due Aged > 60 days past due Allowance for expected credit losses 6. Inventories As at December 31, Raw material and packaging Bulk product and work in process Packaged finished goods Inventory provision Inventories expensed during the year 2022 $ 138,137 18,257 3,372 1,151 (119) 160,798 2022 $ 65,953 23,979 68,114 (3,558) 154,488 319,529 2021 $ 92,778 7,731 1,889 1,891 (103) 104,186 2021 $ 46,750 21,897 53,204 (2,845) 119,006 261,129 An inventory provision is estimated by management based on historical sales, inventory aging and expiry, and expected future sales and is included in cost of sales. Subsequent changes to the provision are recorded in cost of sales in the consolidated statements of operations and comprehensive income. For the year ended December 31, 2022, inventory write-downs of $5,529 were expensed through cost of sales (2021 - $4,843). - 81 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 7. Property, plant and equipment Cost At January 1, 2021 Additions Disposals At December 31, 2021 Assets acquired through business combinations Additions Disposals Foreign currency translation At December 31, 2022 Accumulated Depreciation At January 1, 2021 Depreciation for the year Disposals At December 31, 2021 Depreciation for the year Disposals Foreign currency translation At December 31, 2022 Net book value At December 31, 2022 At December 31, 2021 Land $ Buildings $ Machinery and equipment $ Right-of-use Assets (Note 15) $ 2,497 - - 2,497 - - - - 2,497 - - - - - - - - 25,748 2,525 - 28,273 - 949 - - 29,222 7,277 941 - 8,218 1,008 - - 9,226 53,668 18,369 (290) 71,747 1,401 12,162 (353) 462 85,419 21,013 4,683 (152) 25,544 6,090 (269) 370 31,735 28,834 1,841 (230) 30,445 4,425 4,504 - 205 39,579 4,570 3,448 (216) 7,802 3,954 - 8 11,764 Other $ 10,580 604 - 11,184 2,317 822 - 226 14,549 4,671 934 - 5,605 1,101 - 126 6,832 Total $ 121,327 23,339 (520) 144,146 8,143 18,437 (353) 893 171,266 37,531 10,006 (368) 47,169 12,153 (269) 504 59,557 2,497 2,497 19,996 20,055 53,684 46,203 27,815 22,643 7,717 5,579 111,709 96,977 Other is comprised of furniture and fixtures, computer equipment, and leasehold improvements. 8. Goodwill Balance, beginning of the year Assets acquired through business combinations (Note 4) Foreign currency translation Balance, end of year 2022 $ 122,975 143,356 6,585 272,916 2021 $ 122,975 - - 122,975 Goodwill acquired through business combinations is allocated to the Jamieson Brands operating segment for the purpose of impairment testing, which is expected to benefit from the synergies of the business combination in which the goodwill arose. The estimated recoverable amount was determined by the Company as the fair value less costs of disposal of the Jamieson Brands operating segment by using the capitalized adjusted EBITDA approach, based on a multiple range of 13x - 15x (2021 - 13x - 15x) whereby the Company referenced comparable companies in determining adjusted EBITDA multiples. Comparable companies were determined by reference to size and operation in similar industries. The impairment analysis is not sensitive to reasonable possible changes to the multiple. - 82 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 There have been no impairment losses recognized against goodwill for the years ended December 31, 2022 and 2021. 9. Intangible assets Cost At January 1, 2021 Additions At December 31, 2021 Assets acquired through business combinations Additions Foreign currency translation At December 31, 2022 Accumulated amortization At January 1, 2021 Amortization charge for the year At December 31, 2021 Amortization charge for the year Foreign currency translation At December 31, 2022 Net book value At December 31, 2022 At December 31, 2021 Customer relationships $ Trademarks $ Registrations, licenses, and other $ 101,585 - 101,585 31,100 - 1,445 134,130 22,951 3,419 26,370 4,218 13 30,601 115,157 - 115,157 139,954 - 6,501 261,612 - - - - - - 3,230 786 4,016 - 637 - 4,653 863 849 1,712 877 - 2,589 Total $ 219,972 786 220,758 171,054 637 7,946 400,395 23,814 4,268 28,082 5,095 13 33,190 103,529 75,215 261,612 115,157 2,064 2,304 367,205 192,676 The carrying amount of indefinite-life intangible assets is comprised of trademarks, of which $68,000 is allocated to the domestic and international sales CGU, $47,157 is allocated to the specialty brands sales CGU (comprised of previous acquisitions of Body Plus Nutritional Products Inc., Sonoma Nutraceuticals Inc., and Lorna Vanderhaeghe Health Solutions Inc.) and $146,455 is allocated to the youtheory sales CGU. The estimated recoverable amount for the domestic and international sales, specialty brands, and youtheory sales CGUs were determined by the Company as the fair value less costs of disposal of the CGU by using the capitalized adjusted EBITDA approach, based on a multiple range of 13x - 15x (2021 - 13x - 15x), whereby the Company referenced comparable companies in determining adjusted EBITDA multiples. Comparable companies were determined by reference to size and operation in similar industries. The impairment analyses are not sensitive to reasonable possible changes to the multiple. Other intangible assets are comprised of patents, registrations, definite-life trademarks, system implementation, and website development costs. No impairment losses were recognized against intangible assets during the years ended December 31, 2022 and 2021. - 83 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 10. Accounts payable and accrued liabilities As at December 31, Trade payables and accrued liabilities Trade and promotional accruals Refund liabilities Salaries, commissions and bonuses Termination benefits Accrued interest - current 11. Related party transactions 2022 $ 74,584 54,183 3,106 10,394 18 281 142,566 2021 $ 30,271 27,647 4,198 12,143 194 80 74,533 Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Transactions with former owners of acquired businesses As at December 31, 2022, the Company has a $3.4 million holdback on the purchase price and contingent consideration fair valued at $37.2 million payable to the former owners of youtheory. Share-based compensation The Company offers its employees a share-based compensation plan. Please refer to Note 17 for details of the share- based compensation awards. Compensation of key management personnel of the Company Key management personnel are those persons having authority and responsibility for planning, directing, and controlling the activities of the Company and/or its subsidiaries, directly or indirectly, including any non-executive director of the Company. Remuneration of key management personnel including C-suite executives of the Company is comprised of the following expenses: For the years ended December 31, Short-term employee benefits Share-based compensation Total remuneration 2022 $ 4,793 2,868 7,661 2021 $ 5,929 3,993 9,922 The amounts disclosed in the table are the amounts recognized as an expense during the reporting period related to key management personnel. In 2021, it includes $1,498 of share-based compensation expense in relation to the Company’s CEO transition. 12. Long-term debt On September 27, 2019, Jamieson Laboratories Ltd. (“JLL”) amended and restated its credit agreement to add Jamieson Health Products USA Ltd. (collectively with JLL the “Borrowers”) as a co-borrower and to provide a secured revolving facility of $275,000 (including a $10,000 swingline facility) with the option to increase the revolving facility by $200,000 (collectively, the “Credit Facilities”). As of July 19, 2022, the Company’s newly - 84 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 acquired subsidiary, Nutrawise Health & Beauty LLC, was added as a Borrower under the Credit Facilities which increased from $275,000 to $500,000 under revolving Credit Facilities, plus an expanded accordion feature of up to $250,000 with an extended maturity to July 19, 2027. The table below illustrates the drawings and repayments applied against the Credit Facilities. For the years ended December 31, Credit Facilities Drawings Repayments 2022 $ 339,387 (88,512) 250,875 2021 $ 72,886 (72,819) 67 For the year ended December 31, 2022, the weighted average interest rate on the Credit Facilities was 3.7% (2021 – 2.7%). A portion of the Credit Facilities outstanding is fixed through the interest rate swap (Refer to Note 20). As at December 31, 2022, the interest rate on the Credit Facilities was 5.9% (2021 – 3.5%). The Credit Facilities are collateralized by security agreements and first charges over the assets including property, plant and equipment and intellectual property of the Borrowers and certain other subsidiaries of JLL, subject to permitted liens. Under the terms of the Credit Facilities, the Borrowers are subject to restrictive covenants and must maintain an interest coverage ratio of not less than 3.00:1.00 and a leverage ratio not greater than 4.50:1.00. The Borrowers are in compliance with all covenants as of December 31, 2022 and 2021. 13. Post-retirement benefits The Company maintains an unfunded post-retirement benefit plan that provides health and vision care coverage to retirees at age 65 with 15 or more years of service. The Company uses actuarial reports prepared by independent actuaries to measure its accrued obligation for funding and accounting purposes. Changes in the present value of the post-retirement benefit plan are as follows: As at December 31, Balance, beginning of the year Benefits paid Actuarial gain Interest costs Current service costs Balance, end of the year 2022 $ 3,544 (25) (2,954) 106 258 929 2021 $ 3,538 (9) (233) (34) 282 3,544 The following significant economic assumptions were employed to determine the accrued benefit obligation: As at December 31, Benefit obligations Discount rate - expense for the year Discount rate - year-end obligation Drug trend rate Impact of an increase/decrease in the health care trend of 1%: - 85 - 2022 % 3.00 5.00 4.50 2021 % 2.75 3.00 4.50 Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 As at December 31, 1% Increase 1% Decrease 1% Increase 1% Decrease 1% Increase 1% Decrease Accrued benefit obligation Service cost Interest cost 2022 2021 145 1,103 (119) (803) 20 97 (16) (68) 7 33 (6) (24) The sensitivity analyses above have been determined based on a method that extrapolates the impact on the post-retirement benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period. The sensitivity analyses are based on a change in a significant assumption, keeping all other assumptions constant. The sensitivity analysis may not be representative of an actual change in the post- retirement benefit obligation as it is unlikely that changes in assumptions would occur in isolation of one another. The same method has been applied for the sensitivity analysis as used to calculate the recognized post- retirement liability. The following payments are expected contributions to the post-retirement benefit plan over the next ten years: As at December 31, Within one year Between 2 and 5 years Between 5 and 10 years Total 2022 $ 23 153 317 493 2021 $ 25 166 395 586 As of January 30, 2022, the Company transitioned its current employer-sponsored group RRSP plan for certain production hourly employees to participation in The Colleges of Applied Arts and Technology Pension Plan. The Company’s contributions to the CAAT Plan during the year amounted to $1,220, in accordance with the agreed upon contribution schedule: Contribution Schedule January 30, 2022 to January 28, 2023 January 29, 2023 to February 3, 2024 February 4, 2024 to February 1, 2025 February 2, 2025 to January 31, 2026 February 1, 2026 to January 30, 2027 On and after January 31, 2027 Participating Member Contributions based on “Annual Earnings” Employer Contributions based on “Annual Earnings” Additional Employer Contributions based on "Annual Earnings" 1.0% 2.0% 2.5% 3.0% 3.5% 5.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 0.0% 0.0% 0.5% 1.0% 1.5% 0.0% The Company does not bear any performance risk on plan investments and is not required to fund the plan beyond the required annual contributions. Any pension surplus or deficit is a joint responsibility of the members and employers and may affect future contribution rates; the deficit or surplus is determined by the Plan’s actuarial valuation. Based on the most recent actuarial valuation as at January 1, 2022, the CAAT Plan has a surplus of $4,369. 14. Income taxes - 86 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 The major components of income tax expense for the years ended December 31 are as follows: Years ended December 31, Current income tax expense Deferred income tax expense Foreign currency translation Provision for income taxes Reconciliation of effective tax rate 2022 $ 16,048 1,669 (22) 17,695 2021 $ 18,844 (461) - 18,383 Income tax expense varies from the amount that would be computed by applying the combined federal and provincial statutory income tax rates as a result of the following: As at December 31, Income tax expense at combined statutory rate of 25.4% (2021 - 25.3%) Non-deductible expenses Share-based compensation Other and deductible temporary differences not benefited Foreign currency translation Income tax recognized in other comprehensive income As at December 31, Derivative instruments Post-retirement benefit plan Deferred income tax assets and liabilities 2022 $ 17,944 61 (470) 182 (22) 17,695 2022 $ (1,967) (753) (2,720) 2021 $ 17,817 38 428 100 - 18,383 2021 $ (1,787) (61) (1,848) Deferred income tax assets and liabilities arise on the timing differences between accounting and tax treatment of goodwill and intangible assets, property plant and equipment, post-retirement employee benefit obligations, deferred financing fees, and non-capital losses carried forward. Deferred income tax assets and liabilities are comprised of the following: - 87 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 As at December 31, Non-capital losses carried forward Deferred financing fees Post retirement Property, plant and equipment Goodwill and intangible assets Other Total deferred income tax liabilities Classified in the consolidated financial statements as: Deferred income tax assets Deferred income tax liabilities Net deferred income tax liabilities 2022 $ 5,806 465 236 (15,646) (46,362) 523 (54,978) 3,029 (58,007) (54,978) 2021 $ 4,532 137 900 (11,124) (45,736) 702 (50,589) 2,702 (53,291) (50,589) The Company has Canadian and foreign based non-capital loss carry forwards as at December 31, 2022 of $24,207 (2021 - $17,230) on a pre-tax basis. The Canadian non-capital loss expires in 2038-2042. The foreign non-capital loss expires from 2023 to indefinitely. 15. Leases The Company has lease contracts for various items of property, plant, vehicles and other equipment used in its operations. Leases of property and plant generally have lease terms between 3 and 10 years, while motor vehicles and other equipment generally have lease terms between 2 and 5 years. Set out below are the carrying amounts of right-of-use assets and lease liabilities recognized and the movements during the period: As at January 1, 2021 Additions Disposals Depreciation expense Interest expense Prepaid adjustment Payments As at December 31, 2021 Additions Assets acquired through business combinations Depreciation expense Interest expense Foreign currency and other adjustments Payments As at December 31, 2022 Property and Plant $ 23,651 1,228 - (3,217) - - - 21,662 4,459 4,425 (3,767) - 197 - 26,976 Right-of-use assets Vehicles $ 55 - (14) (27) - - - 14 - - - - - (6) 8 Other Equipment $ 558 613 - (204) - - - 967 45 - (181) - - - 831 Total $ 24,264 1,841 (14) (3,448) - - - 22,643 4,504 4,425 (3,954) - 197 - 27,815 Lease liabilities $ 24,969 1,841 (14) - 927 145 (4,120) 23,748 4,442 4,425 - 991 272 (4,330) 29,548 - 88 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 The following table shows the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments as at December 31, 2022: As at December 31, Within one year After one year but not more than five years More than five years 16. Share capital and redeemable preferred shares As at January 1, 2022 Exercise of stock options Employee stock purchase plan Issuance of shares to acquire businesses As at December 31, 2022 As at January 1, 2021 Exercise of stock options Employee stock purchase plan As at December 31, 2021 2022 $ 5,286 18,965 9,047 33,298 Common Shares # 40,406,940 342,655 17,996 926,612 41,694,203 Common Shares # 39,872,912 517,277 16,751 40,406,940 2021 $ 3,801 15,843 13,019 32,663 $ 268,214 6,066 572 32,348 307,200 $ 255,795 11,862 557 268,214 As at December 31, 2022 and 2021, the authorized share capital consisted of: a) Unlimited number of Common Shares. The holders of Common Shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Company. b) Unlimited number of Preference Shares, issuable in series. 17. Share-based compensation Outstanding options held to purchase Common Shares have the following expiry dates and exercise prices: 2022 Outstanding Options 2022 Exercisable Options Range of Exercise Prices $0.00-$20.00 $20.01-$30.00 >$30.01 Number of Options Outstanding 847,247 1,111,393 862,636 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price/Share Number of Exercisable Options Weighted Average Exercise Price/Share 3.75 3.64 4.71 12.30 23.57 33.72 847,247 969,889 129,186 12.30 23.26 34.73 - 89 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 The following is a summary of the Company’s share option plan activity for the years ended December 31: 2022 2021 Number of Shares Weighted Average Exercise Price/Share Number of Shares Weighted Average Exercise Price/Share Outstanding, beginning of year Granted Exercised Forfeited Outstanding, end of year Exercisable, end of year 2,576,838 416,679 (156,705) (15,536) 2,821,276 1,946,322 21.77 32.85 23.13 29.78 23.29 19.25 2,546,553 461,566 (412,571) (18,710) 2,576,838 1,520,112 19.19 34.52 19.82 27.45 21.77 17.15 The following is a summary of the Company’s PSU, RSU, and DSU activity for the years ended December 31: Outstanding awards, beginning of year Granted Exercised Outstanding awards, end of year Awards exercisable, end of year Outstanding awards, beginning of year Granted Exercised Forfeited Outstanding awards, end of year Awards exercisable, end of year PSUs (number of shares) 2022 RSUs (number of shares) DSUs (number of shares) 198,036 52,229 (91,408) 158,857 - 62 776 - 838 - 2021 15,563 12,742 (4,440) 23,865 - PSUs (number of shares) RSUs (number of shares) DSUs (number of shares) 256,894 39,909 (95,706) (3,061) 198,036 - 9,000 62 (9,000) - 62 - - 17,016 - (1,453) 15,563 - The inputs used in measuring the fair value of equity-based compensation granted during the years ended December 31 are shown in the tables below. 2022 Type of compensation Weighted average share price at the measurement date Weighted average fair value at the grant date Expected volatility (i) Risk-free interest rate (ii) Expected life (in years) (iii) Expected dividend yield Pricing Model Options PSUs DSUs RSUs $ 32.85 $ 33.06 $ 32.85 $ 32.85 $ 7.18 $ 37.05 $ 32.85 $ 32.85 30.0% 1.8% 4.0 1.8% n/a 2.1% 3.0 n/a n/a n/a n/a n/a n/a n/a n/a n/a Black-Scholes Monte Carlo Market Value Market Value - 90 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 Type of compensation Options 2021 PSUs DSUS RSUs Weighted average share price at the measurement date Weighted average fair value at the grant date Expected volatility (i) Risk-free interest rate (ii) Expected life (in years) (iii) Expected dividend yield Pricing Model $ 34.52 $ 34.47 $ 34.46 $ 40.93 $ 7.35 29%-30% 0.7%-0.9% 4.0-5.5 1.4%-1.5% Black-Scholes $ 39.00 n/a 0.0 3.0 n/a Monte Carlo $ 34.46 n/a n/a n/a n/a Market Value $ 40.93 n/a n/a n/a n/a Market Value (i) (ii) (iii) Estimated by considering comparable industry share price volatility. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may not necessarily be the actual outcome. Based on Government of Canada Bonds. Based on historical data and current expectations and is not necessarily indicative of exercise patterns that may occur. The Company’s share-based compensation expense for the year ended December 31, 2022 is $4,910 (2021 - $5,672), of which $4,756 (2021 - $5,476) is classified as contributed surplus in the Company’s consolidated financial statements and $154 (2021 - $196) is related to employment taxes paid on exercise of options. In the first quarter of 2021, the Company accelerated $1,498 of share-based compensation expense in relation to the Company’s CEO transition. 18. Employee benefits expense The Company recognized employee benefit expenses included in cost of sales and selling, general and administrative expenses on the consolidated statements of operations and other comprehensive income as follows: For the year ended December 31, Salaries, wages and bonus Other employee benefits Post-retirement benefits (Note 13) 2022 $ 84,271 18,085 364 102,720 2021 $ 77,482 15,622 248 93,352 Additionally, the Company recognized termination benefits for the year ended December 31, 2022 of $592 (2021 - $1,124) related to reorganization. The costs related to both years are mainly comprised of severance costs and salary continuances. 19. Interest expense and other financing costs As at December 31, Interest on debt and borrowings Interest on lease liabilities (Note 15) 2022 $ 11,426 991 12,417 2021 $ 4,730 927 5,657 - 91 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 20. Financial instruments and risk management activities Financial instruments The Company’s financial assets and liabilities have been classified in Note 2. Fair value measurement Foreign exchange forward contracts measured at FVOCI are designated as hedging instruments in cash flow hedges for forecast purchases and sales in U.S. dollars and have been classified as Level 2 in the fair value hierarchy. Interest rate swaps measured at FVOCI are designated as hedging instruments in cash flow hedges and have been classified as Level 2 in the fair value hierarchy. Derivatives not designated in a formal hedging relationship are classified as FVTPL and classified as Level 2 in the fair value hierarchy. Net gains and losses on financial instruments held for trading consist of realized and unrealized gains and losses on derivatives that were de-designated or were otherwise not in a formal hedging relationship. The fair values and notional amounts of derivative financial instruments shown below are as at December 31: As at December 31, Foreign currency forward contract designated as hedging instruments (forecast purchases) Foreign currency forward contract designated as hedging instruments (forecast sales) Interest rate swaps designated as hedging instruments 2022 2021 Notional Notional Amount Amount $USD $CAD Fair Value Asset Liability $ $ Notional Amount $CAD Notional Amount $USD Fair Value Asset $ Liability $ - - 120,000 120,000 - - - - - - 6,580 6,580 - - - - - - 60,000 - (3,317) (45,000) 264 - 130,000 130,000 - 15,000 1,885 2,149 - (3,317) On June 5, 2020, the Company entered into an interest rate swap with an effective date of October 1, 2020 to September 27, 2024 with a notional principal of $140,000 and an annual amortization of $10,000 on the first business day of each year. The notional principal of the interest rate swap is $120,000 as at the end of this reporting period. The interest rate swap is a derivative measured at fair value and meets hedge accounting requirements. The terms of the foreign currency forward contracts and interest rate swaps match the terms of the expected highly probable forecast transactions. As a result, there is no hedge ineffectiveness to be recognized in the consolidated statements of operations and comprehensive income. Potential sources of hedge ineffectiveness are: • Differences in the timing of the cash flows of the hedged items and the hedging instruments; • The counterparty’s credit risk differently impacting the fair value movements of the hedging instruments and hedged items; and • Changes to the forecasted amount of cash flows of hedged items and hedging instruments. The carrying values of financial assets and liabilities measured at amortized cost (excluding long-term debt) approximate their fair values due to their short-term nature. The carrying value of long-term debt as at December 31, 2022 and December 31, 2021 approximates their fair value. The fair value of the Company’s long-term debt was estimated based on discounted future cash flows using current rates for similar financial instruments subject to similar risks and maturities. The fair value of long-term debt is considered a Level 2 fair value measurement. Contingent consideration has been classified as Level 3 in the fair value hierarchy. There were no transfers between levels during 2022 and 2021. - 92 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 Financial instrument risk management objectives and policies The Company is exposed to credit risk, market risk and liquidity risk. The Company’s senior management oversees the management of these risks. The Company’s financial instruments and policies for managing these risks are detailed below. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations, resulting in financial loss to the Company. The Company is exposed to credit risk from its customers (primarily related to trade accounts receivable) in the normal course of business. The Company has adopted a policy of only dealing with creditworthy counterparties. To mitigate this risk, the Company carries out regular credit evaluations and purchases credit insurance for international customers, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company is also exposed to counterparty credit risk inherent in its financing activities, trade receivable insurance, foreign currency derivatives and interest rate derivatives. The Company has assessed these risks as minimal. Market risk Foreign exchange risk Foreign exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates relates primarily from transactions in U.S. dollars such as a portion of trade accounts payable, trade accounts receivable and cash. The Company's purchases of certain materials and inputs in U.S. dollars are partially offset by international sales in U.S. dollars. The Company uses foreign exchange forward contracts to manage foreign exchange transaction exposure. As of December 31, 2022, $nil (2021 - $79,317) of anticipated foreign currency denominated purchases have been hedged and $nil (December 31, 2021 - $57,275) of anticipated foreign currency denominated sales have been hedged with underlying foreign exchange forward contracts. The following table demonstrates the sensitivity to a reasonably possible change in the U.S. dollar exchange rate, with all other variables held constant, of the Company’s net income before income taxes (due to changes in the fair value of monetary assets and liabilities including non-designated foreign currency derivatives) and the Company’s pre-tax OCI (due to changes in the fair value of foreign exchange forward contracts designated as cash flow hedges). As at December 31, 2022 2021 Change in U.S.$ FX rate % Effect on earnings (loss) before tax $ Effect on pre-tax OCI $ 5 5 4,694 1,602 - 750 The Company’s exposure to foreign currency changes for all other currencies is not material. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s accounts receivable and accounts payable are non- - 93 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 interest bearing. The Company’s exposure to the risk of changes in market interest rates arises from long-term debt obligations issued at fixed rates that create fair value interest rate risk and variable rate borrowings that create cash flow interest rate risk. The Company manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings. To further reduce the long-term interest rate exposure and gain predictability over future cash flows, the Company uses interest rate swaps, in which it agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. With all other variables held constant, the sensitivity to a reasonably possible change in interest rates on floating rate borrowings of the Company would have the following impact to net earnings before taxes: As at December 31, 2022 2021 Increase/decrease in basis points +/- Effect on earnings (loss) before tax $ 100 100 1,559 417 Changes in market interest rates cause the fair value of long-term debt with fixed interest rates to fluctuate but do not affect net earnings, as the Company’s debt is carried at amortized cost and the carrying value does not change as interest rates change. Commodity price risk The Company is exposed to price risk related to purchases of certain commodities used as raw materials. The Company may use fixed price contracts with suppliers to mitigate commodity price risk. Concentration in any one raw material is not significant to the Company. Liquidity risk Liquidity risk is the risk the Company will not be able to meet its financial obligations associated with financial liabilities. The Company is exposed to this risk mainly in respect of its accounts payable and accrued liabilities, various long-term debt agreements, obligations under its post-retirement benefits plan and lease commitments. The Company manages its liquidity risk through continuous monitoring of its forecast and actual cash flows and through the management of its capital structure. The Company continually revises its available liquid resources as compared to the timing of the payment of liabilities to manage its liquidity risk. As at December 31, 2022, the Company had $126,240 in cash and available revolving and swingline facilities. The contractual undiscounted principal cash flows payable in respect of financial liabilities as at the consolidated statements of financial position date were as follows: As at December 31, Amounts payable in more than 12 months Amounts payable in less than 12 months Impact of Ukraine Conflict - 94 - 2022 $ 465,634 148,394 614,028 2021 $ 181,531 78,334 259,865 Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 The Company does not conduct any business operations in Russia or Ukraine and to date has not had any measurable disruption to the Company’s supply of raw materials and its ability to service customers. The Company did note that heightened inflation and consumer sentiment have caused uncertainty in international markets, especially in neighbouring Eastern European countries where the Company conducts business. In particular, the Company continues to actively monitor for potential or accelerating impacts from the conflict including whether consumer purchasing patterns continue to soften affecting international business performance. The continued risk surrounding the Ukraine conflict and any escalations may have an adverse impact on the Company’s business, its financial condition, and results of operations. Capital The Company’s objective is to maintain a cost-effective capital structure that supports its long-term growth strategy, supports the business and maximizes shareholder value. The Company typically uses leverage in its capital structure to reduce the cost of capital. The Company’s goal is to maintain its primary credit ratios and leverage at levels that are designed to provide continued access to investment-grade credit pricing and terms. The Company measures its credit profile using a number of metrics, some of which are non-IFRS measures, primarily cash, less long-term debt and bank indebtedness (“net cash (debt)”) to earnings before interest, income taxes, depreciation, amortization, restructuring and other related costs, and interest coverage. Additionally, the Company maintains a cash flow reserve to service obligations as they come due. In addition to Credit Facilities and equity, the Company uses leases as additional sources of financing. There have been no material changes to the Company’s risk management activities since inception of the Company’s operations. The Company is subject to capital requirements under its Credit Facilities, as described in Note 12. 21. Commitments and contingencies Lease commitments The Company does not have any lease contracts that have not yet commenced as at December 31, 2022. General contingencies Various claims and potential claims arising in the normal course of operation are pending against JLL. It is the opinion of management that these claims or potential claims are without merit and the amount of potential liability, if any, is not determinable. Management believes the final determination of these claims or potential claims will not materially affect the financial position or results of the Company. 22. Segment information The Company has two reportable operating segments with all material operations carried out in Canada and the United States: • The Jamieson Brands segment’s principal activity is the manufacturing, distribution and marketing of branded natural health products including vitamins, minerals and supplements; and • The Strategic Partners segment’s principal activity is providing contract manufacturing services to consumer health companies and retailers worldwide. - 95 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 The Company’s chief operating decision maker evaluates segment performance on the basis of earnings from operations, as reported to internal management, on a periodic basis. Inter-segment revenues and expenses are eliminated upon consolidation and relate mainly to sales from the Strategic Partners segment to the Jamieson Brands segment. Revenue Earnings from operations Foreign exchange loss Interest expense and other financing costs Provision for income taxes Net earnings Revenue Earnings from operations Foreign exchange gain Interest expense and other financing costs Provision for income taxes Net earnings Jamieson Brands $ 439,147 75,133 Jamieson Brands $ 343,245 68,643 Strategic Partners $ 108,222 8,056 For the year ended December 31, 2022 Total $ 547,369 83,189 269 12,417 17,695 52,808 Strategic Partners $ 107,787 7,387 For the year ended December 31, 2021 Total $ 451,032 76,030 (92) 5,657 18,383 52,082 Share-based compensation is allocated to the Jamieson Brands operating segment. Geographic information The following table provides the proportion of revenue based on the location of the customer. For the years ended December 31, Canada USA Other Information about major customers 2022 68.9% 18.3% 12.8% 100.0% The following table provides the proportion of revenue attributed to each significant customer: For the years ended December 31, Customer 1 Customer 2 Customer 3 2022 16.0% 13.2% 10.8% 40.0% 2021 74.8% 10.8% 14.4% 100.0% 2021 16.6% 13.2% 13.3% 43.1% Revenue from significant customers primarily affect the Jamieson Brands segment. It is management’s opinion that the loss of any customer, significant or otherwise, would not impact the Company’s viability. No other sales were made to any one customer that represented more than 10% of total sales. - 96 - Jamieson Wellness Inc. Notes to the Consolidated Financial Statements December 31, 2022 and 2021 23. Revenue from contracts with customers The following table sets forth the disaggregation of the Company’s revenue from contracts with customers in the Jamieson Brands operating segment: For the years ended December 31, Domestic operations International operations U.S. operations Total revenue from contracts with customers 2022 $ 309,554 61,436 68,157 439,147 2021 $ 284,902 58,343 - 343,245 International and U.S. operations are primarily denominated in U.S. dollars and subject to fluctuations in foreign exchange (see Note 20 - Financial instruments and risk management activities) on the conversion to Canadian dollars. 24. Earnings per share Basic earnings per share amounts are calculated by dividing the net earnings attributable to common shareholders of the Company by the weighted average number of shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net earnings attributable to common shareholders of the Company by the weighted average number of shares outstanding during the year, adjusted for the effects of potentially dilutive share options, PSUs, RSUs and DSUs. The following table sets forth the calculation of basic and diluted earnings per share: 2022 2021 Net earnings available to common shareholders Weighted average number of shares EPS $ Net earnings available to common shareholders Weighted average number of shares EPS $ 52,808 40,998,065 1.29 52,082 40,150,724 1.30 52,808 42,116,350 1.25 52,082 41,680,934 1.25 Year ended December 31, Basic Continuing operations Diluted Continuing operations - 97 - 833.223.2666 info@jamiesonwellness.com REPORT DATED MARCH 30, 2023 1 Adelaide Street East Suite 2200, Toronto, Ontario M5C 2V9 jamiesonwellness.com
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