AS MADARA Cosmetics (MDARA) Earnings Call Transcript & Summary

Good morning, and welcome to MÁDARA Cosmetics investor webinar. As always, we will start the call with company's presentation, continued with a live Q&A session. [Operator Instructions] For your convenience, we are recording this session and replay will be available shortly after the call. Now let me turn the call over to our host, the member of the Management Board and the CEO, Gunta Sulte; and member of the Management Board and CFO, Tatjana Nagle.

Thank you, and good day, good morning or good evening, everyone, who has joined our webinar covering 2024 results and also a sneak peek into 2025. As usual, we have also disclaimers, which will be available in the presentation, you can go through. But for the sake of time, we will skip the disclaimer slides. So yes, agenda for today is highlighting what happened really in 2024, what were the events that happened in MÁDARA Cosmetics. Then also we will go through key financial results, covering company's financial health and performance results. And then we will also cover some other, important to our mind, events that happened. And then as well, like I mentioned, also a sneak peek of what to anticipate in 2025. As always, full management report, these are unaudited results, are available under our Investors section in our web page. And as usual, already for the third consecutive time presenting, it's myself, Gunta Sulte, I'm CEO of the company; and then also Tatjana Nagle, who is CFO of the company. So without further ado, let me go into the presentation. So 2024. I think we cannot go by 2024 without mentioning 2, I would say, most major events that happened. And I would summarize it under the really one name of focusing on really our core business and core activities, focusing on our core brand, MÁDARA. So we sold MOSSA brand to our strategic partner, Transmeri, back on 30th of April 2024. Transaction sum was rather significant as well, EUR 4 million. And with that, I believe it was a win-win deal where we sold a brand that we had semi-developed. I say semi because there was not entirely full focus devoted to MOSSA and our Finnish partner had really put attention to the brand and had managed to grow it significantly in Finland. It was always a question of where do we put our attention, MOSSA versus MÁDARA, because MOSSA is quite a different animal. It's a mass market retail brand requesting really high attention to mass retail channels, which is not the case of MÁDARA. So we are really excited about this opportunity, which I believe is a win-win for both parties. So not only MOSSA will continue to grow and flourish under now management and supervision of Transmeri, but then also we keep manufacturing products for MOSSA, for Transmeri now. And then also we keep new product development. So research and development for MOSSA also stays in MÁDARA Cosmetics. So I think it has been really a mutually beneficial deal for both parties. And yes, wishing all the best for Transmeri to continue growing MOSSA in Nordics region. And another significant deal that happened a couple of months later, on 1st of July, there was another company or project developed under the wings of MÁDARA Cosmetics, and it was an online print on-demand platform called Selfnamed. Under legal name, if you read the news, you recognize it as selling of SIA Cosmetics Nord, but for a wider audience, it is known as Selfnamed, which is a print on-demand platform. Again, this was a question of focus and where do we put our resources to. And Selfnamed, even to more extent than MOSSA, is a different business model. It's a different product. They are not producing cosmetics, they are creating online platform, which is Selfnamed product. So in order to really make sure that we dedicate the right resources to MÁDARA and where Selfnamed needed completely different set of skills and resources to develop Selfnamed further. In addition to that, they needed additional influx of investment, which, again, given that MÁDARA has always been about sustainable profitable growth, we decided we no longer can sustain the same level of investment needed to sustain Selfnamed growth. We had taken a decision that we will create -- not create, sorry, there will be a management buyout of SIA Cosmetics Nord. So 100% of shares of Selfnamed were bought out by its management. The total amount of the transaction was almost EUR 1.2 million. And again, in the same mindset as for MOSSA, we strongly believe this is and will be a win-win case for both parties, because while we keep in-house manufacturing for Selfnamed and we keep developing new products for Selfnamed needs, what they are bringing, they are bringing, I call it, a more modern look of contract manufacturing. So instead of us going and finding these maybe more traditional contract manufacturing clients, now Selfnamed, through their platform, and now with their new setup, where they can actually go more aggressively and invest more aggressively towards the growth, they are actually bringing more online -- and these are mostly online merchants in-house, which then translates into additional volumes in MÁDARA Cosmetics factory. So 2 significant deals, which allows us now to focus more on our core business, which is MÁDARA. Then I will give floor to Tatjana to cover key financial results and other significant events.

Thank you, Gunta. Hello, dear shareholders. So yes, from my side, we will start with the key financial results. So our revenue last year was EUR 21.52 million, which is plus 11% like-for-like, which means if we assume the same business structure as it was after sale of MOSSA and Selfnamed, then the growth is 11%, so that we compare apples-to-apples, so to say. If we don't adjust, then the growth of revenue was roughly 6%. What previous year was consequentially very interesting for the company was profitability, because we achieved the highest ever profitability results. Our EBITDA was EUR 6.95 million, our EBITDA margin was 32%, and our pretax profit was EUR 6 million. But of course, since MOSSA and Selfnamed deals are onetime deals, let's look at profitability excluding these deals. So excluding these deals, our EBITDA was EUR 2.49 million. Our EBITDA margin was 12%, and our pretax profit was EUR 1.55 million. Yes, these are slightly lower results than a year prior, but what we did actively in 2024, we invested in sales and our sales team, so the cost growth is explainable. If we go to the next slide and look at geographies, then here are no major shifts if we look across big geographical categories, Latvia, European Union countries and countries outside the European Union. So I won't comment on the small percentage point shift between these big categories, but I will comment on the country level. So for the past several years, we systematically and actively worked on diversifying our client portfolio and to decrease the dependency on one big partner, which was a Finnish distributor, Transmeri. So at the moment, Germany has become our #1 export market with revenue almost twice as high in Finland. And in Germany, we work with retail partners as well as we have full control over our direct e-commerce sales platform, which, of course, gives more space to maneuver and is very important for managing growth. So last year, Germany, the whole market, both B2B plus e-commerce, grew by 15%. Our second largest market at the moment is France, where we also actively invested our team's effort and time and France also achieved substantial growth, but not as high as in Germany. And also, I am very proud about our Scandinavian markets and Finland as well, where we also achieved 15% revenue growth despite the fact that the Finnish market is quite saturated. As we see, we can still grow in this market as well. But again, I'm super proud that we are diversifying across geographies, across clients, and we don't have such a big dependency on one client anymore. Now to give you more information about some clients. First, what I want to start with is highlight from Latvian market, our home market, where Madara Retail achieved a revenue milestone of EUR 1 million. And Madara Retail is only a part of our Latvian market. Around 20% of the sales in Latvia come from Madara Retail, which are our 4 brand stores in biggest Riga's shopping malls. And also highlight for retail in 2024 was, first of all, that we strengthened our team with 2 new positions. We added a very strong retail shop manager. And also, we added a trainer who will help our team to be more focused on sales and to help better serve our customers. And another highlight was that we closed our AKROPOLE shop. Actually, our contract ended and after doing profitability analysis and calculations, we made a decision to not continue working in AKROPOLE. And also a year prior, we added a very nice shopping center, Galleria Riga, where our new brand shop is performing very well. And this decision to close one store was, I would say, very justifiable. So basically, yes, the revenue milestone was achieved, I would say, mostly with these 4 stores. And also, we have plans to increase revenue this year as well despite the fact that last year, 4 months, we had AKROPOLE as well. If we talk about other markets besides Latvia, our home market then for Germany, I already told about growth. To give more detail about B2B customer side, then we onboarded 43 new customers. And one of them was Müller, where we are present now both in online and offline sales channels. Then talking about France, we added over 70 new customers, which are mainly pharmaceutical ones. And then we also had 2 major brand activities in France and also in other markets. So first one was our Skin Tints campaign, which was active in other markets as well. What was interesting in France and Paris specifically that we had a major outdoor campaign in Paris. And also, MÁDARA brand participated in Paris Women's Marathon, and we engaged with over 25,000 people, which is, of course, very important for brand building, and since we focus on B2B sales in France, then these activities were very important to increase brand recognition. And the last segment is Scandinavia. And for Scandinavia and Sweden specifically, we onboarded Boozt.com, which is a leading online retailer. And also, we onboarded LYKO, and MÁDARA is now present in its flagship store in Norway as well. Now let's talk about our product categories. So MÁDARA is very proud about our R&D and our new product launches each year. So what last year was interesting and important was development of our alternative first serum and then line as such. And what we see in our sales and distribution by product categories is a shift within 2 segments, facial and anti-age skin care segments. So what is important to note here is that the core competence of the brand and the company is facial care. This is what we do the best. And if we look at combined share of facial and anti-age, then it remains stable. There were no shifts. But then what we see are shifts between these 2 segments. And the reason for that is, as I already mentioned, the highlight of the year, our Retinol Alternative line, which managed to increase the share of anti-age segment by 5 percentage points and revenue of the line was roughly EUR 1 million, which is quite substantial. To add more on new products and the like. So we continue to innovate in our makeup segment. So first of all, we added additional shades to our SKINONYM foundation line. We saw good demand for initial launch. So our decision was to add additional stake. And then we also had new product categories, which we entered. So first one and which I think from R&D side was quite challenging and very important was to launch talc-free mineral pressed powders and blushes, which is a totally new segment for us. And from the sales what we had in last year and reviews, we see that our customers are satisfied with the result in new products. And also, I would have to say, finally, we also launched HIS Line, which is a line for men. And this line has also received recognition from our clients. And now more on recognition. So there were a number of awards what MÁDARA brand received for the new product launches. So our Retinol Alternative Serum was winner of the Dutch Beauty Award for years 2023, 2024, and it was named as #1 Popular Beauty Product in the Green Cosmetics category. And second award which we want to point out is Anne & Stiil Beauty Award, which Retinol Alternative Serum received the best product in the Natural & Organic category. Now HIS Line, our novelty of previous year, has also received Anne & Stiil Beauty Award in the category of Men’s Favorites. And 2 of our best-selling products with quite a history in the company already, I would say, our City CC Cream was featured among the top CC creams by Dutch Cosmopolitan, and our SPF 30 was listed among the top SPF by Dutch BAZAAR. So we are super happy that our products are recognized not only by customers, but also by these beautiful international awards. Let's go to the next slide. So regarding channels, I mentioned and I am continuing mentioning word diversification across all communication means that we have and in all the webinars. So our direct e-commerce is still very important for diversification and also for growth. And our direct e-commerce generates roughly 1/3 of revenue of the MÁDARA brand, and this is a very important segment for us, which is controlled by us, by our team, where we are more flexible to implement different new approaches, campaigns. So this is the channel where we will continue to invest our both financial and time resources. If we look at the split of new customers and existing customers, then also roughly 1/3 of customers were new. And this is also strategically important for the company to continue invest to money in new customer acquisition and to attract new customers, yes, to ensure growth in next period as well. And Gunta will also tackle upon this point in anticipation for the next year. And yes, I give word to Gunta now.

Thank you, Tatjana. 2025, which is 1 quarter almost passed. So what to look out for? So first of all, management has set a minimum, and I want to emphasize, a minimum revenue growth target of 10% like-for-like with the previous year, which would equal to EUR 23.67 million. Why 10%? And I saw we had a couple of questions, so I will also iterate here a bit. I want to emphasize this is a minimum. If you look at the industry growth rate, so these are from different sources, either -- I have read a couple of McKinsey reports, but then also other resources say that the expected industry growth rate will be around -- for the upcoming 5, 6 years will be around 6% cumulative annual growth rate -- sorry, compound. So this is just to say that the minimum we want to expect from ourselves and also to promise to our shareholders is that we grow at least ahead of industry, and that's the starting base. Of course, also then we have to balance that we do it in a profitable manner. And that has been always core of MADARA's financial model that we deliver sustainable profitable growth. So that's why we will always have to, with management team, manage these 2 levers that we grow ahead of industry, but we do it in a sustainable and profitable manner. Very, very important next step and where we do major resource focus and also investment focus is towards acceleration of new online user acquisition. By online, I mean our direct e-commerce. And here we have already unlocked, in Q4 last year, 4 markets where we have validated models that we see work in terms of acquiring new customers and then also making sure that they deliver value with the upcoming second or third purchase. And we are currently in more accelerated motion testing 4 markets: Germany, France, Latvia and Estonia, which doesn't ask to limit -- to add more, again, making sure that we deliver, within total company framework, profitable growth. So definitely ambition here is to double down on new user acquisition on e-commerce, which also gives us a head space when it comes to profitability because, of course, for us, this is more profitable channel if we compare it, for example, to B2B, which is more requiring long-term investments. But then also, of course, it requires more investments when we talk about managing the business today. Then also an important point, it might look vague on the slide, but actually, it has quite a few strategic initiatives behind, is increasing presence in strategic retail channels. Tatjana in her slides already mentioned a couple of those strategic channels, but I just want to reemphasize them. So first of all, Müller, it's a big name when we talk about beauty industry in Germany and in Austria. And I'm also happy already now to say that we didn't stop with 81 SKU launch last year and opening the first flagship. We already have added a couple of more physical retail stores with Müller, and we will continue to invest in the relationship and to open more stores in the upcoming months. And then also same goes with LYKO, which is the major beauty retailer in the Nordics. So again, we didn't stop with one retail store back in 2024, Q4, in Norway. I'm happy to report also this year already now in Q1, we have entered another 2 stores in Finland. And then, of course, ultimate goal is also to start opening stores with LYKO in Sweden as well, which is, of course, the biggest market if you look from a Scandinavian perspective. Another very important point is entering new channels and geographies. And again, it might look vague on the slide, but it has very concrete actions behind. By new channels, yes, we have been trying to unlock pharma in France, so pharma channel. And I think we have very successful attempts to do it. But of course, pharma channel is not an easy channel. And again, if we talk about sustainable profitable growth, we have to see where it makes sense financially. But then also talking about new channels, we talk also about TikTok Shop, which is the fastest-growing marketplace globally. And then this year, we already have done our homework, meaning we have all the legal and physical plans in place. That shop is up and running now in U.K. So it's done, and now we are in the phase of starting to scale the channel. The biggest bottleneck here is being successful of delivering enough of creative content, because this channel is really dependent and its success depends on how successfully, in qualitative, but also in quantitative figures we can deliver the content. But then also related to the next point, it's also entering new geographies. What Tatjana mentioned, we consciously invested more into our sales team. We have introduced position already last year as global business development position, where we hired a person with 10 years' experience in developing Polish mega brands, Dr. Irena Eris. So Mariusz joined us November last year, and we are expanding his team also this year and tackling new geographies. So I don't want to make any specific promises at the moment because, to be honest, pipeline is quite long, but it's anything on the map starting from U.S. to Middle East, but then also not excluding some of the European markets like Spain or Romania, where we are underlooked at the moment. And then -- yes, then moving to the next point is, we will continue, not to, money-wise, the same extent, but I think focus-wise to certain extent, further strengthening our teams. So I'm happy to report that already since January, we have a person who is ex-Aerones, which is a drone manufacturing and robotics manufacturing company, Chief Operating Officer has joined our company, started already as of January, like I mentioned, with core focus to further drive efficiencies in our operating side and help us more efficiently and then also have a positive impact on our gross margin. Then also, we had a change in a very important position of Chief Commercial Officer. So our previous Sales Director or Chief Commercial Officer of 7 years, Lotte, decided to leave the company, and it was her decision, and then also discussing in the management team what external qualifications and know-how we need to bring in. So this is also the background which we evaluated thoroughly, and we decided to bring a person with ex-Printful background. So a person from ex-Printful sales team has joined also in January as Chief Commercial Officer with the sole purpose of accelerating new business-to-business segment acquisition and then also very, very importantly, streamline our sales operations. So that's why we are also investing into sales operations function, where a person with previous experience in setting up automated CRM systems is joining to streamline our sales processes and ensuring that we can do more with the same resources smarter and more efficiently. And then like I mentioned, we also are strengthening our global sales team to more strategically and consciously have a discussion and also launching new geographies and new markets. And then last but not least, we will continue to innovate in terms of product offering. We are revising what we have, and we are bringing new items on the table. To mention maybe a couple of new items on the table. One you see right on the left-hand side, I would say, it's not a remake, it's actually a new innovation of tinted serum, where we took out from portfolio our sunflower and moonflower products, but I would say it's a completely new formula. It's a completely new packaging, fully recyclable, mono material, and we have launched this product into 5 shades, amazing formula, already praised by makeup artists, and we are expecting nothing less than also multiple awards on this product. But then also, we will continue innovating in the pressed powder segment, so launching highlighters. But on the other hand, like I mentioned, we also are revising our existing portfolio. So quite a few important rebrands are coming next year. Just to mention one, which is the soonest of them all, is going to be a rebrand of our anti-age line. It will be very much driven towards conscious aging makeup, [ Pro-Age ] line, which will be a complete rebrand in terms of formula, look, recyclability of the materials of our Time Miracle line. Yes. So 2025 is promising a lot of exciting things, growth and many new opportunities for both MÁDARA and its shareholders. So with that, thank you for giving us the time to present 2024 and 2025. And then we are happy to answer the questions.

[Operator Instructions] We'll start with the questions that have been submitted prior to the call. The first question is rather an opinion. So the balance sheet is strong, which enables us to set more aggressive growth targets. Sales growth target of a 10% increase is low. Gunta, you already covered this during the presentation. Is there anything you'd like to add?

I think I iterated it. I think we set our minimum benchmark against the industry, but then in the manner that we can do it in a profitable way. So...

On the same topic, in the expectation for 2025, you're talking about sales growing at least 10%, but could you elaborate more? Where do you expect the largest sales growth in terms of countries and product segments?

Yes. Thank you. I can comment in terms of how it looks internally, how we constructed the growth plan. And I have to say it's actually quite balanced in terms of growth expectation when it comes to our e-commerce and then B2B. So like Tatjana mentioned, it is very important for us to continue growing our e-commerce, and then we will invest more into new user acquisition. I mentioned those 4 test markets, but it doesn't limit us to only those 4 markets. And then when it comes to B2B side, it's continuing -- to put it plainly, we have to unlock a couple of more Germanies, so a couple of those, let's say, mid- to high double-digit markets where we see growth momentum is there, but then also it's viable in terms of absolute scale. So Germany, I'm very, very glad, and it's really showcasing the results of strategic effort to focus on the market where we have achieved double-digit growth, and we will continue to see that. I very much hope also by the plans that we have in place this year and upcoming years. So it still remains the Nordics. But like I also mentioned that we are setting and revising global map on the line when it comes also to B2B. I can't disclose any specific information at the moment, but we are in quite late stages with some of the major retailers in Western Europe, both also in Eastern Europe, but then also in quite late phases of negotiation with some of regions where we are not present. So yes, I think to achieve growth, we have to really nail down initiatives on both sides on e-commerce. So like I mentioned, new user acquisition and then accelerating existing markets, but then also stepping into new geographies.

Let's talk about selling and administration costs. In 2024, the total selling and administration expenses were at EUR 12.9 million. In 2023, it was EUR 11.3 million. Could you give us an idea where the sales and administration expenses are heading this year?

Yes, I'll answer this one. So if we look at budget for the year, then proportion of sales and administration costs is budgeted similar to what it was in 2024. And here, Gunta already mentioned about different initiatives where we are investing more, both on team's side and also on going to some new markets. For instance, TikTok was mentioned. So yes, the budgeted proportion is similar to previous year.

Over the 3, 4 years, we see that the gross margin has been around 64% to 67%. Where do you see the gross margin in 2025?

So here again, I will base my answer on what we have budgeted. So budgeted gross margin is similar to how we performed this year. So yes, we have internally discussed, and Gunta also brought up new position, which is the Chief Operations Officer. So let's see how it goes. But the budgeted margin, yes, is similar to what we delivered in 2024.

At the moment, the last question that we have received is about the dividends. So do the shareholders get gross or net dividend?

Yes. So shareholders get net dividend and company, MÁDARA, pays corporate income tax on these dividends. So similar as it was in previous couple of years.

It seems we have addressed all the questions. Before we're closing the call, Gunta, Tatjana, I'll hand over back to you for some closing remarks.

Yes. Thank you. So once again, thank you for joining. And like I mentioned, I truly believe 2025 and beyond is looking a very exciting year ahead of us. We have also set our internal mantra in terms of driving more experiments, smart experiments internally, I mentioned a couple of those. So for example, TikTok will be a major experiment, and then also coming down to scalable online acquisition model. That also is a calculated experiment that we want to scale in multiple of the markets. So an exciting year ahead and looking forward to seeing you on the next webinars, reporting how we go.

Thank you. Goodbye.