AS MADARA Cosmetics (MDARA) Earnings Call Transcript & Summary

Welcome to MADARA Cosmetics Investor Webinar. We will start with company's presentation and continue with a live Q&A session. [Operator Instructions] For your convenience, we will be recording this session, and a replay will be available shortly after the call. Let me now introduce you to our hosts, the member of the Management Board and CEO, Gunta Sulte, and member of the Management Board and CFO, Tatjana Nagle. The floor is yours.

Good morning, everybody, or good day. Welcome to the MÁDARA Investor webinar where we are going to discuss first half of 2024 results. So the plan for today. So I'm going to skip the disclaimer slides. You can just read them afterwards. So the plan for today is going through highlights and talk events of first semester of this year. We will deep dive into key financial indicators and results and other important highlights that happened through the first 6 months of the company and also sneak peek on what's to come. And then since we received quite a few of questions upfront to the webinar, so we are going to also go into question-and-answer session at the end of the presentation. As always, full management report, you can find on our website on the Investors Relations part. And today, you have a pleasure receiving presentation from myself, I'm CEO of the company, Gunta Sulte, and Tatjana Nagle, who is our CFO. So then, yes, I think to really cover the first half of this year, then I think the most important is that we are happy to report that we delivered stable growth of 9%, and that we are happy about. We grew consistently across our focused export markets, France, Germany, the Netherlands, et cetera. So that gave extra confidence that we are on the right path and the path of growth. But keeping the growth momentum in mind, I think even more important, the first half of the year has been really about refocusing on our core activity, which is growing MÁDARA brands. And with that happened 2, I would say, very important for business crucial carve outs. So we sold MOSSA brand, and we sold Selfnamed, which is print-on-demand platform under the legal name of Cosmetics Nord. I fundamentally believe that both of the transactions will ensure that our team can even more focus in the future and growing MÁDARA brands. But at the same time, I think this was truly a win-win scenario in both of the cases. First of all, we are going to keep future revenue generating streams in-house. So with both of the transactions we secured product development and product supply or production agreements. And what is, I think, same level important that the new owners of both entities, both of MOSSA and Selfnamed are highly motivated to drive future growth of both, MOSSA and Selfnamed. So what is important for me and for the MÁDARA team overall is that both of these entities, like I mentioned, they are not only future revenue-generating streams, but they are accelerated growth future revenue generating streams. So like I said, I truly believe this was a win-win. Going back to other highlights also what happened within the business. So I'm very happy and proud to report that the innovation of last year, which was Botanic Retinol Serum that we launched in August, last year, it has really hit to the top 3 of our portfolio, even more so in France, Germany, the Netherlands, this is #1 sold SKU across our portfolio. And actually, 2 months ago, we won, in the Netherlands, Dutch Beauty Award in the category of green skincare as the best innovation of the year. So it has been truly a bless and so I'm going to sneak peek what's to come after the success of Botanic Retinol. Also another testament that we are on right path, and we belong in the industry that we play in is that we landed our first flagship launch with Marionnaud. For those who might not know, Marionnaud is one of major specialized beauty retail chains in Europe. Just to give a scale, overall, they have more than 1,000 outlets across Europe, deflection that we entered it is in France and not to be confused, this is one store and, let's say, one of the most prominent ones. But just to say that we are starting to have these conversations with major retailers who fit our strategy and whose strategy MÁDARA fits. So I'm happy about that. And then also, we have an agreement with Boozt.com, which is an online global retailer. Then we heavily focused on bringing or investing into brand awareness. So this year, in April, we launched a global brand campaign, we call it internally Skin Tints, but it was all around our expertise in tinted products. Is it foundations? Is it concealers? Is it tinted serums? Or is it -- sorry, tinted moisturizers? Or is it pressed powders? So that was really where we focused on and also our focused markets of Germany, France, Latvia, Finland, but then in the rest of the markets as well. And I'm also happy to say that we saw continuous double-digit growth of our tinted category. And then last, but not least, another proud moment for MÁDARA team with the help of Norwegian brands, we set up a production facility that allows us to enter pressed powder production. So we launched first 3 shades of pressed powders. This is a tricky product to do technically, but then also this is talc-free and titanium dioxide-free And again, I'm happy to report here that since of launch, which seems like ages ago, but I think it was March, Tatjana, correct me, we have managed to be sold out for 3 times already. So it's really exceeding our expectations. And again, it just proves that the traction is there for clean COSMOS certified products and demand is there. So that's on the high notes. And then if -- focusing in terms of what innovations were launched, I touched upon some already, but continuing the success of retinol -- alternative retinol and I think here, we prove that we can be on the same arena with conventional brands -- and conventional ingredients -- sorry not brands but conventional ingredients like retinol, those big names of the industry. So we launched another success in March. So that's alternative to niacinamide, so Botanic Niacinamide. That's a serum. So we didn't invest into this product as much as we did in retinol. So that's more to come. But already, we saw a really nice pickup from the first days of the launch. Then like I mentioned, the first half of the year has been focused on tinted products. So we added 12 new shades to our Skinonym Semi-Matte Foundation, altogether now having 18 shade range, which again gives us right to play in the global arena of foundations. The more technical launches we had portfolio of clean-up action and then we joined Omega -- 2 Omega products into one concentrate of Omega power 3-6-9. I'm not going to repeat on soft mineral powder. So that we launched in 3 shades. And then I think another one fun route that we took with products just testing our agility, but then also seeing if even how fast we can adopt industry trends, so we introduced under our portfolio management, the so-called limited products or limited line for the sole purpose of seeing if there's a trend or quick idea that we want to put in the market and test without massive long-term resources. Put it in the market, see if it works. If it doesn't, then we pull it out after 6 months, if it works then we keep it. And under this concept, literally within 2, 3 months of time we launched 2 products, one was after-sun lotion, and that is very much a seasonal product. You see it on the top right corner. And then the other product, which I truly believe is here to say is scalp peel serum. So again, it picked up really nicely and then we still have traction for specialized scalp treatment products. And then -- yes, we also continued improving our set offering, which is allowing to play a -- around Christmas or gifting momentum, so we added 2 sets to our current range. So that's on the highlights, going simply through, and then I'm going to give floor to Tatjana who's going to cover more in detail of our financial performance.

Thank you, Gunta. Hello, dear, shareholders. So yes, speaking of financial results, what is important is to take into account MOSSA and Selfnamed deals, what Gunta has talked to you about. So we need to understand that these are one-time deals. And here, we are showing our EBITDA profit excluding these deals as, yes, as I said, they are just one time. So if we start from the top, our revenue was EUR 11.21 million, which is plus 9% versus first half of the year last year. Here, if we compare apples-to-apples and how that very growth would look like if the same business model was present. Last year, in the first half, meaning if MOSSA was at the same price level as it was this year then actually our revenue growth will be over 10%. It was more than 11%. This is just to understand that the deal affected short term also our revenue growth as we switched the contract going manufacturing model and 2 months, we work with lower prices. Then regarding profitability, again, here, our margins, you see the margins adjusted. So in the first half of the year, we feel the cost both for MOSSA and Selfnamed sale and also we received profit from MOSSA sale in the amount EUR 4 million for those who can financial statements. This EUR 4 million are included in our P&L. And then Selfnamed deal took place on the 1st of July. So revenue from the sale is not included in the first half results. We will see that in half 2 results. So taking this into account, our EBITDA was EUR 1.27 million. Our EBITDA margin was 11%. So meaning it was 6 percentage points lower when it was a year ago. And our pre-tax profit was EUR 740,000, which is less by 43%. And to understand, first of all, Selfnamed was a part of the group in the first half of the year. And as the company is actively investing in people, in marketing, et cetera, so these results, of course, they look at the overall group results. And if we look purely on MADARA Cosmetics, then we took and deliver that during the budgeting process because what is important for us is to maintain growth. So there are 2 activities what we need and where we spend more money. We can go to the next slide. So actually, why EBITDA margin is higher is that we invested purposefully in 2 key drivers for revenue growth. So first one is investing in brand awareness activities. So it was over EUR 0.5 million, and it included Skin Tints brand campaign, what Gunta already mentioned. So here, what we need to understand that the brand awareness activity is to attract new customers and to drive growth in the midterm and long term. So we did not expect immediate effect. Although as Gunta mentioned, we saw in Skin Tints category already during the campaign that the revenue was up for the segment, 15% which I think is a very positive side of that. But again, the purpose of brand activity was to increase awareness and to reach out to new potential customers who would eventually convert in the next periods. And second part, which is also a very important and strategic decision, which was already included in the budget was to strengthen our sales and marketing team who are in charge of driving growth of the company. So just to name a few positions and talents whom we attracted. So there is a number of sales representative, locals in Germany and France. Secondly, there is a very good professional in marketplaces. So one of the marketplaces this person is working with is Amazon, where we see huge market potential. Also, we added to our team, Chief Marketing Officer with a very good background in digital marketing. So I think we have really boosted our team confidence with these people. And of course, there are some other positions, both in digital marketing, in sales support, so just to understand. And yes, again, from my side, I think that these results are good, they resemble our budgeted margin and budgeted EBITDA as such, and these are important short-term larger investments to drive growth in the future. So we can go to next slide. So some key statistics from me regarding markets. So if we look at the split, what we see is the share of what the end market has decreased by 4 percentage points and then sales in European Union that was increase by the share -- only the share, not the revenue itself by 3 percentage points and also share of revenue outside European Union has also increased. So if this is a result of our strategy to focus on export markets. So what I'm really proud of is that at the moment, our 2 largest markets with a big confidence is Germany and France. They both grew in B2B segment double digit. So it's plus 11% and plus 15%. And also, we have taken over distribution function in Estonia. And we also implemented some brand awareness activities already in the first half of the year, and we saw a very positive traction in the medium. So if we look at product categories then here is also one quite a big shift, I would say, and it is in our anti-age category. So the share of anti-age has increased by 5 percentage points. And it is also in line with the company's strategy to focus on face care products and on tinted products. And here, we have to say a big thank you to our retinol alternative serum. It is a part of the success and it has contributed to several of these percentage points. And second segment is makeup. So as Gunta already mentioned that tinted products are important for us. We are adding shades. We are adding new products into makeup category. So here also, we saw that makeup was growing very rapidly. And given its lower share in the portfolio or else it cannot outgrow other segments as fast. But overall, we see that it is constantly growing in the first half of this year by 1 percentage point. And the last segment, how we look at sales is B2B versus direct e-commerce. And when we think from diversification perspective, it's very important for us to have different sales channels. So what we experienced in the first half of the year was that other sales channels were growing faster than direct e-commerce. So the share of direct e-commerce revenue decreased by 4 percentage points. Nonetheless, what we see and what we are constantly working on is attracting new customers. So a good thing is that we attracted new customers and the share of new customers increased by 5 percentage points compared to the same period last year, which will help us to drive our growth in the next period as well. And now, I give the word back to Gunta.

Thank you, Tatjana. And here's the promised sneak peek on what's to come. So I'm very confident about the innovation pipeline that is ahead of us. Actually, as we speak, we are hitting shelves with, I think, few really strong product launches. So first one being is -- or first, probably because to say first, men skincare line. So it's under label His, and you see it on the top left corner. So these will be 3 -- these are, not will be, these are 3 products: Facial moisturizer, eye cream and that aftershave lotion. So we already saw first sold out, all the products being taken by our B2B and then it's hitting e-commerce as well. So we really are looking forward to how the product and potentially more products under this line develop. Another important innovation following, like I mentioned, the success of retinol, but I think here, it's the larger point to make that MÁDARA has the muscle and ability to really deliver products, formulas that are keep competing with conventional synthetic products and it's appreciated by the industry. So I think here, under the product launch, we are building so much more reassurance of company's R&D potential. So we're launching another 3 products under alternative retinol. So those will be day and night moisturizers or creams and then eye serum. Yes, so these are again hitting the shelves as we speak. And then we are also expanding our pressed powder offering. So we are -- the first trio that we launched were powders -- setting powders. Now we are entering into blushes. So that's very exciting pipeline, but it's actually just a few of launches, I mention, they're actually more under, but they are more tactical. So these are strategic ones. Then another important point is that, at this point, I can't disclose, but I think Marionnaud flagship was one of the testaments that we are starting conversations with future expansion plans across Europe. So we are in negotiations with a few of major retailers in all of the strategic markets. So I'm looking forward to delivering some great news soon. And then, yes, due to the -- before I mentioned deals of MOSSA and Selfnamed carve out, that happened in the first half of the year, just to be fair with the team and numbers that we are adjusting because we are now not having these entities in consolidated parts as of second half. We are adjusted the yearly target to EUR 21.4 million. Tatjana, do you want to comment anything under it?

I think, yes, here, what is important to understand is, of course, taking out some parts of the business has a short-term effect, although as Gunta already explained that we really see a lot of benefits. And here is just not to lie to ask to shareholders, to employees, we adjusted the baseline. So I think we compare apples-to-apples, and here, so our promise still remains to deliver 10% revenue growth, at least for this year. So this is the goal we are striving to achieve.

Thank you. So that's it. Thank you very much for listening, and then we are ready to tackle the questions.

[Operator Instructions] We have received quite a few questions prior to the call. We have arranged them in blocks according to the topics, and we'll be covering each block separately. So the first question, what are the revenue and profit forecast for the upcoming years?

So yes, I'm going to tackle the first block of the questions, which will be more on the growth. So I can't -- and we have never in the course of MÁDARA, led a concrete percentage growth and profit targets. What I would say is that definitely, ambition and plan for the team and the budgeting process for this and also next years to come is that we have to grow faster than the industry. And while doing that, we also have to deliver a sustainable, profitable growth, so meaning that the growth that is attractive to our shareholders, but -- and potential investors. But then if I look at any of those indicators, then of course, growth is the most important one for me, and is to grow ahead of the industry, and I think we have every potential to do that. So just to benchmark for those maybe who are not that into the industry numbers, so it very much differs by reports than the ones of McKinsey, for example, forecast that the industry is going to grow 6% to 8% level range. And definitely, we want to beat that.

What innovative products are planned for release in the near future?

So I hope I tackled this with my last slide. So I mentioned we are continuing innovations in putting alternatives to conventional products, further innovations in the pressed powders, skincare products like His line, but then also tactical ones that I didn't show in the presentation. We are also launching eye and eyebrow pencils, which is going to be new one and actually, the first common products, so yes.

Talking about the global expansion, what is the company's strategy for expanding its market share internationally in Lithuania, Poland and other markets?

Yes. So if you look at the market expansion, so we weren't by the model of addressing 2 buckets, I would say. And one we call it strategic markets where we -- in most of them, except Finland, where we have historically very strong operations with Transmeri, but overall, in all of the strategic markets, we do have our directees. And hence Tatjana mentioned, we are also investing into those markets’ kind of, in the 360 model, meaning in terms of brand building, in terms of team, if needed local team presence and in France and Germany, that's exactly the case where we actually need local team presence. So yes, so those are strategic markets, which we will continue investing and growing. So like I mentioned, Germany and France. But then we have another bucket, which we call seeding. And here, we do every year a scanning of our current results in those seeding markets, industry growth, competition, et cetera, et cetera. And then we pick and select strategically, of course, but then now which are those seeding markets where we are not big enough, but where we want to be big enough in the future. And here, we -- it's different strategy market by market. Some of it could be very much only e-com-focused or direct e-com focused. Some of them could be business to business or basically retail focused. Some of it could be a holistic approach. So just to name a few, it's Sweden, Estonia. Like Tatjana just mentioned previously, we took over Estonia's distribution, and we see really high double-digit growth this year. It's the Netherlands where we see there's a big potential in terms of our direct e-commerce. That's also U.S. where we are doing our first explorations. But then it's not only market. It's also, if we talk about global expansion that's also channel-wise, which are globally important, for example, marketplaces like TikTok and Amazon. Again, here, we took a deliberate strategic move to hire person with extensive experience in setting up successfully businesses in direct marketplaces and TikTok is again on the seeding buckets where we are working.

How does the company assess its key competitors? And what is being done to enhance competitiveness?

Competition is tricky bit, and I think especially in industry where we are at. Just to give maybe a step back. I come from -- my previous experience was in the industry where basically there were -- you could make your competition on one hand fingers -- count on one hand. We are in the industry but MÁDARA, where basically competition is endless. Like everywhere, if you look, there is new brands coming up, there are new products coming up. So I think my approach to competition, working with our team and working with MÁDARA brand, is competition is a good benchmarking when you have to make certain decisions, but it shouldn't be your driving force for selling or strategy. So it's more whether you are reactive or proactive towards competition. I think we choose the last one that we are proactive. So basically, we go and do innovations or entry where we believe it makes sense for MÁDARA. Of course, then we will benchmark. Okay, what's the competition there? And believe me competition is very much different if we talk country-from-country or even channel-by-channel. France pharmacies, you would have brands like Caudalie or Payot, then we move to, I don't know, same exploring, Sweden or for same -- sorry, like, for example, U.S., you have brands like ILIA Beauty or Paula's Choice or Drunk Elephant. So it's very, very different. It's very different by the segment you are playing. So we do benchmark, but it's not a driving force in our decision-making. So I will frame it like that.

What strategies are being used to increase brand awareness for MÁDARA in key markets?

We fundamentally believe that brand is our strongest assets alongside with formulas. So I think these are 2 fundamental elements when MÁDARA is successful. So continued investment into the brand, which is expensed investments. So it's not a short-term week payback investment. But I believe it's essential for MÁDARA to be a brand that stays not only for 18 years, as it has, but to continue another 18 or 36 or we can continue counting. So brand investment is fundamental. So when we do brand investment activities, we really are conscious about how deep we can go and in which markets we can do. Because like I mentioned, it is an expensive investment and we have to be mindful that we can't go bold plus everywhere. So this year, we consciously were choosing on to brand building activities in Estonia, Germany, France and Latvia and for sure, the strategic markets are going to remain in the future. But then like I mentioned, there's the other buckets of seeding markets. And Estonia is one example of the seeding market where we said, okay, we are going into this market, 360 approach. So we drive our direct e-commerce, we go with new B2B customers, but then we also do brand building activities.

Are there any plans to intensify collaborations with influencers or other brands?

Short answer, yes. A bit longer answer is that we actually -- 2 weeks ago, a person started, we will exactly do that. So we will have more structured way and approach towards relationship building with our fan base community on social media through collaborations and through influencers, through key opinion leaders, through journalists. So that will be -- I wouldn't say that it hasn't been structured, it has been so far, but I think taking it a step further. So introducing those comps into CRM, doing more regular follow-ups and community building, so yes.

What is the consumer sentiment on your major markets? Are discounts at average level? Or you should make more discounts?

So first of all, I would say that we see a solid growth in our strategic markets, export markets and across most of the markets. So I would say there is a positive sentiment. And as I see from our innovation take off, I believe we are on the right path, and we are doing the right thing. So I'm having confidence in the growth numbers that we see and I'm having confidence in the innovations that we launched that they responded well too. Going to the second part of the question about the discounts, and it has been a ping pong here a bit, but then what I've seen over the course of my year being now with the company is that discounts were -- price promotion, it's a must-have tool if you want to play in the industry. And here, again, it comes more towards what specific strategy you have for the market or for the channel. And here, I think we are taking more deliberate steps into addressing very specific strategy for each of the markets. So for example, in France, we see there is a much better traction of B2B or retail growth. And retail discount is something we can't really impact. So that's the solely decision of the third party, but we discussed with the team, okay, so we are not going to intervene much with our direct e-commerce. And we see markets like, for example, the Netherlands, where there's potential -- very good potential on our direct e-commerce. And here, the name of the game is that you have to be on some kind of an offering. So offer must look very -- it can look very different. It can be a discount. It can be a voucher, it can be e-mail form with a private offer. So it's very, very different, yes.

The next question consists of 2 sub questions. How does the company plan to improve the liquidity of its shares on the stock market? And what are your steps to become more attractive to shareholders?

I think that here the key word is growth and what we can do and are doing as a company are striving to achieve our growth because nothing speaks better to shareholders than the results. So what we were discussing a lot during today's webinar is how we are structuring the team to achieve growth, what are the markets where we see potential growth. So yes, that's the answer.

And the next block of questions is on the liquidity topic, and I'll read all 3 of them together. Are there any plans to increase the public float or conduct a secondary offering to enhance trading activity? What steps are being taken to attract more institutional investors and broaden the shareholder base? And does the company consider a possibility of listing an additional stock exchanges to improve liquidity?

Yes. So at the moment, there is no plan for attracting more capital because the company itself has no financial resource to ensure profitable growth. And I want to stress the word profitable. So it is important for us to deliver profit each year. And at the moment, we see that the amount of money we have on our bank accounts is enough for us to work profitable and to grow opportunities what we see and what we believe in. So at the moment, we don't see the need to attract more capital.

How does the company measure and assess shareholder satisfaction?

This is a really good question. So there is no specific measure or KPI at the moment. So what we look at is, of course, share price, liquidity and also, we are very open to communication, and we have our e-mail published, I think everywhere on the Nasdaq and on our investor webpage. So we are really happy to receive feedback, receive questions, if you have any ideas or suggestions, how you see we should tackle this question, please, reach out to us.

And continuing on the same topic, shareholder engagement. Again, 3 sub questions that I'll read in this block. What are the current strategies to improve communication and transparency with shareholders? How does the company ensure that the interest of minority shareholders are taken into account and strategic decisions? And are there any plans to introduce or improve shareholder engagement initiatives such as regular meetings or Investor Days?

Yes. So what we do at the moment is, of course, we do publish regularly our financial reports with the management comments. We have an audited 2 times a year, we have audited financial statements, which is, by the way, audited by before company Deloitte. Also, we have these 2 webinars a year, where we talk about results, where we answer questions. Also, as I mentioned before, we are open to suggestions. Drop us an e-mail at Investor Relations [email protected], you can find us, e-mail on Nasdaq platform and also on our investor webpage. So regarding interest of minority shareholders, here, perhaps a bit of comment on company structure. So we have mentioned Board, and then we have Supervisory Board, and we have Independent Supervisory Board who are representing shareholders. We have policy in place there are decisions what should be brought to shareholder meetings to decide if there are questions, let me go to Supervisory Board, and they accept, they take decisions. So there is a policy in place how decisions are made in the company. And of course, major ones are always consulted with our Supervisory Board and then the biggest ones are brought to shareholder meetings. And of course, each shareholder again can comment and yes, give opinion on the matter.

Then 3 questions on the shareholders' value and dividends. What is the company's approach to balancing shareholder returns such as dividends or buybacks with reinvestment into the business for growth? Are there plans to pay dividends in the coming years? If not, what projects require profit reinvestment? And the third question, what criteria are used when deciding between dividend payments or reinvesting profits?

Yes. So here, going back to profitable growth. What we see so far is that we have enough capital for our investment activities. So we do pay regular dividends. Also, if you look over the years, the dividend per share has increased. And yes, so far, paying of dividends has not needed major investment in the company's development. And so far, there was no situation when we needed to decide whether to pay out dividends or invest in company's long-term growth. So we always did both. So I don't like giving promises, but I think we see here a stable trend, which we would like to continue. But of course, as it's always a very important decision of the company, whether to pay out dividends or to reinvest the money. And I think it's about -- the balance is about finding the best attribution of the money, whether to invest in the company or if there are not opportunities or there is fair money to distribute it in the form of dividends. And of course, it's important for us as a management team to have some safety net. So company still has quite a good reserve of cash, which means if we see a very good opportunity then we don't have to look for the money, we can act quite rapidly, and it is not a problem for us. I hope I answered.

We have one question left. [Operator Instructions] Meanwhile, let's continue with the last question that we have received. What measures are being taken to ensure transparency and accountability of management to shareholders?

Yes. So here, first of all, we have our financial reports, which are audited by, as I mentioned before, company, Deloitte. Each year, they full audit. There are some notes. They publish on annual financial of the reports. And of course, all significant information is disclosed. Second of all, all the decisions that by law should be decided by the shareholders are discussed and voted for during shareholder meeting. So this is an important part. And then of course, as I already mentioned, we have Independent Supervisory Board and we have policy in place which decisions should be taken by the Supervisory Board and what are the categories of the Management Board.

All questions have been answered. Thank you for tuning in today. It was a pleasure to be with you.

Thank you and have a great day.