AS MADARA Cosmetics ($MDARA)

Hello, and welcome to MADARA Cosmetics Investor Webinar. As always, we will begin with the company's presentation, after which we will address your questions. [Operator Instructions] For your convenience, the webinar is being recorded and replay will be available shortly after the session. Now let me introduce today's hosts, Gunta Sulte, Management Board member and the CEO; and Tatjana Nagle, Member of the Management Board and the CFO. Please, the floor is yours.

Thank you very much. I hope everyone hears me. Good day, dear investors, shareholders for joining. Pleasure to have you. And yes, together with Tatjana we will go through the highlights and results of 2025. So starting off, there are 2 slides, which are more of legal disclaimers as usual, so we will skip those, but they will remain in the presentation. So as mentioned, for the third consecutive year, that's the honor of mine. I'm CEO of the company, Gunta Sulte presenting the results of the company alongside with the CFO of the company, Tatjana Nagle. And what we cover today, so we will cover some key events or highlights of 2025, then we will go into more details of the performance, both top line and bottom line, and then also just to leave of -- leave the presentation with a taste of anticipation, then also what's to be expected of this year. As usual, the full management report at this point still are not that it can be found either through the presentation link or in NASDAQ or our web page Investors profile. So moving on, 2025, it was a very eventful year for the company. And I would really like to split the year into 2, let's say, phases. So first half of the year, I would call it the phase of experimentation. I would say we did really a lot of learning and discovery exercises in the first half of the year. And second half of the year was really a slogan was focused. And so in terms of what we discovered working well, we're not working well in the first half of the year, then on those initiatives where we strongly believed there are hints and evidence of success, we really doubled down in the second half of the year. I cannot start emphasizing enough the importance of e-com first strategy that we have already for a couple of years set in motion for the entire company. Why income first? Because this is where discovery for the entire beauty industry happens. And I cannot start mentioning the highlights of 2025 without mentioning that we actually did somewhat of a spinal surgery for our entire e-commerce page. So we migrated from one platform to another one. It might seem just words on the slides, but in reality, it was really relentless almost a year exercise and execution of seamless migration from Magento to Shopify. Why? Two very simple words, growth and optimization. So this ensures us really even more faster and agile way of learning, adapting towards acquiring new customers and selling up to the existing ones. But also in terms of cost perspective and Tatjana also will cover in numbers later on. This also gives us much faster mobility in terms of -- not faster, but, sorry, more agile mobility in terms of cost so that we can reinvest in other verticals. So I'm happy to inform that even though we plan to migrate to Shopify first half of this year, Q1. So like I mentioned, the execution was very seamless and it rarely happens with such a large-scale project. So we already launched the Black Friday campaign, which is the largest campaign of the year already through Shopify platform. And as also proudly reporting on our report that it was the biggest year-to-date in company's existence, Black Friday's campaign and partially thanks to Shopify. Another continuing e-com first approach is around scaling and diversifying across different channels. And this was one of the experiments that we launched in the first half of the year was building a TikTok presence, and more specifically, not only TikTok as communication channel but TikTok as a sales channel, to add to our portfolio. We chose U.K. because at that point, when we started across European platform or universe, only U.K. at that point was available. And in beginning of 2025, this was just a small couple of tens of thousands of revenue stream and already towards the end of the year, we managed to scale it to something already meaningful. The growth numbers, obviously, in these cases, it's beautiful to look at percentage or a growth rate. So this was phenomenal. But I want to emphasize that TikTok is the #1 discovery channel for beauty industry. This is what we see from U.S. data, this is what we see from European data, not mentioning also farther Southeast Asia or actually Middle East as well. TikTok is where consumers currently discover products and TikTok is currently one of the reliant channels how B2B buyers take their decisions. So if the product is trending on TikTok, it has to be good enough evidence for buyers in B2B to launch a product. So we have also set in our strategy TikTok to be a further channel of investment where we see we gain attraction for new customers. And then alongside with that, of course, we also deliver revenue. Third, the very important aspect and it's further going to this experimentation doubling down, is launching a new, I would say, with a very good symbiosis on the core business vertical, around hospitality. We see definitely in the industry, if you talk about rentals, vacation rentals, hotels, cafes, that there's increased demand for sustainable and, let's say, more upper level or premium solutions, I would not say luxury per se but let's say, premium. And we see there is really wide space where we can deliver with our brands. And why this is a win-win, it's not only a stand-alone channel, stand-alone channel with much higher customer lifetime value, but this is also definitely is another visibility and brand awareness channel that we can bring for MADARA. So we started our first sales literally end of November, beginning of December, and we are still learning, still discovering. But it is definitely a vertical where we'll continue investing also in 2026. Alongside with that, we continued the route of innovation, and I think this is where MADARA has really excelled, and this is why we remain very relevant also with our B2B partners and continue operating new customers online. And I want to specifically highlight the route that we started a couple of years ago. It's about the science-backed skin care innovation that we deliver. And I think this is really the reason of existence for MADARA. So this is where we merged the sustainability and being clean formulation developer alongside with bringing in science and science-backed formulation to our consumers. So just to mention one, Kojic Acid Alternative Serum, but many other innovations followed. Continuing also the route of growth, I would like to mention the change to our accelerated strategy towards B2B, where 2025 was really about reformulating teams and our -- how we approach channel as such, where we shifted from small fragmented retailers towards more larger pan-regional chains. And this is where we also reflected our team structure against moving into regional setup with the teams. Why? Because those omnichannel only meaning these retailers work both in e-com and in physical space. They also play on regional. And just to mention [ Muller ] there was a success of scaling from 10 stores in end of 2024 to 120 stores in 2025. This channel is where we are playing across a lot of the multiple markets, Germany, Swiss, Austria and adding new ones as well. And another important highlight was entering Middle East. The first corporation partner is in Kingdom of Saudi Arabia, parapharmacy chain called Al-Dawaa, a growing parapharmacy chain, a very dominant one with more than 1,000 point of sales, and we entered almost 800 points of sales, physical and also online. And this is a region which we will continue developing also in 2026. And last but not least, we reached also another highlight in terms of our commitment to both our shoppers, our shareholders, our employees and our partners in continuous pursuit of sustainability, an ethical approach on how we conduct business. So if up till now MADARA has been eco-certified, then COSMOS-certified, which really is a stand for our R&D and production, then B Corp certification was yet another milestone, which we reached in April last year, proving our commitment that we want to conduct matters, upstream, downstream within the company towards our shareholders with really ethical approach. And so we are proud B Corp certified company as of April 2025. So now I'm giving the floor to Tatjana, who will explain more in details what happened with 2025.

Hello, dear shareholders, let's dive into the numbers. So first of all, we will start with the revenue. Our revenue last year was EUR 23.22 million, which is a 12% increase. It is a like-for-like increase. And here to remind and maybe explain to those of you who did not follow company news then in 2024, we had 2 very significant deals. First of all, we sold our MOSSA brand, and second of all, we sold our daughter company, Cosmetics Nord, which had a Selfnamed.com platform. So because of that, we report comparative results where the base is aligned with the business model, what we have after these 2 deals took place. So if we look at comparative numbers, then revenue growth was 12%, and what is more important is the revenue growth trend. If in the first half of the year, our revenue increased by 9%, then in the second half of the year, we achieved 15% revenue growth and I'm super proud of the revenue growth trend we show. When it comes to profitability, again, it is very important to take into account these 2 deals, which took place in 2024. And here, MOSSA alone gave us onetime income of EUR 4 million, which is very substantial. So here to compare business as usual, we also adjusted revenue base and also profitability numbers. So when we talk about EBITDA, last year, it was EUR 2.3 million, which is 5% decline in comparison to 2024. And our margin was 10%. And here, again, what is important also for me is to look at the trend. So if we look at the first half of 2025, our EBITDA margin stood at 7%, then with relentless work by optimizing projects and also teams and processes, we arrived to EBITDA of 13%. And here, I have to say it was not luck. It was a lot of devotion and hard work of the teams in order to achieve this profitability result. Also, when it comes to profitability, yes, first of all, there were 2 significant, I would say, buckets. So first bucket happened in the first half of the year, and these were several pilot projects that we ran. It included also, Gunta mentioned, TikTok, it included our e-store acceleration in the United States and also testing Brand Lab, different new business concepts. So we came to universal business conclusion that not all pilot projects succeed. I have to admit we had to learn it the hard way. So it impacted our profitability in the first half of the year because all these pilot projects had direct impact on our various expenses. And what we did in order to improve profitability in the second half of the year, we also paused 2 of these projects, Brand Lab and U.S., and we are focused only on TikTok and I will also give more information on the next slide, but it was really important for our company to keep and continue investing in this channel. And then also, it is important to mention Shopify. As Gunta already told that we moved to the new system much faster than we initially anticipated. So because of that, we had to write off our previous e-store assets much faster. And it was onetime cost, which we wrote down last year in the amount of EUR 570,000, which is very substantial amount, and it, of course, impacted profitability. But the good news are it was onetime, so it won't impact our profitability in 2026. Which is also important to stress here is that the asset value of the new e-store, Shopify, is much, much lower. So also depreciation this year is expected to be lower than it was in 2025. So yes, both of these impacted our profitability last year. And if we talk about pretax profit, then, of course, this write-off of our previous e-store system affected it quite a lot. When we look at the market and sales distribution by region, there are, in reality, no big shift. Although if you look at the pie chart, you see that the share of Latvia has increased by 6 percentage points, and it is again related to sale of Selfnamed.com. And after the sale of Selfnamed, revenue that we still generate through this channel goes to sales in Latvia. So actually, we see our sales to Cosmetics Nord or Selfnamed under sales in Latvia. But if we look at MADARA brand than there are actually no substantial changes across these big regions. If we dive a bit deeper in sales of MADARA and what are the countries that contributed the most to our revenue growth for MADARA, then there are a number of countries which performed very, very well actually. So I will start with our home markets, and I'm very proud of Latvian market. So in Latvia, we continued growing despite the fact that situation in Latvian market is already quite high. Team managed to achieve growth, and it was 7%. And if we look at markets outside of Latvia, then we continued growing in Germany with 13%, in France with 8%. And also there is a number of markets where growth was positive. I'm also super happy about results in Spain, both in B2B and also in e-commerce. And I think this is also one of the top investment markets last year, where our team uncovered this growth opportunity and went after it. And at the moment, we see that Spain is already our sixth largest export market. And some changes with Finland. So unfortunately, as you know, we have been struggling with Finland for a number of periods. And also in 2025, our sale of MADARA in Finland was decreasing, and revenue declined by 11%. And of course, we are not very happy with that result. And because of the fact that there is a distributor on side of Finland, we are not very flexible when it comes to different growth opportunities, which we apply in other markets. But there was an agreement which took place in the end of 2025 with Finnish distributor. And as a result of this agreement, MADARA Cosmetics takes over e-store, which is actually a very big turning point for us. And we are planning investments in this year. So our team will test and try to recover the channel. If we talk about product category, then here, again, our focus remains quite solid for the past years. Our core competence is skin care products, including SPF. So this is the largest category where we grow and where we produce new innovation, but of course, there are some other categories, which we also have in our portfolio. So overall, regarding product category, I wouldn't say that there were many changes and the focus still remains on skin care. So last year, we launched over 20 new products or we rebranded existing ones. And when it comes to rebrands, then I'm super proud that we improved both formulas. And also team looks at opportunities how to make the packaging even more sustainable which is also what happened to a number of products, what we rebranded last year. And one of the most famous one is Time Miracle line, which last year was rebranded to new Age Pro line. And also what is very important for us is to review our portfolio. And last year, we took the decision to discontinue 21 SKU. It will happen gradually when the packaging finishes. But yes, overall, products are not only introduced but also the ones that perform not that good are discontinued. And speaking about the channel, as Gunta mentioned already in the beginning, e-commerce is and will be very important sales channel for us. And here what we see is our direct e-commerce revenue share increased by 3 percentage points last year, and it improved also Amazon and TikTok. If we look at our own e-store then new customer share actually decreased by 2 percentage points. And here, the explanation is that in 2025, we focused less on attracting new customers also because of our targets to improve profitability, and increased EBITDA margin. So the decision was to invest less money into new customers because the return does not come in a very short period of time. Nonetheless, our e-store revenue increased by 9%. Amazon increased by 65%. And as Gunta mentioned, regarding TikTok, so our revenue growth when we compare second half of the year with the first half of the year, we saw really good scalability. So revenue increased by 28 times, which is a very good number. But also if we look at levels, also revenue level was substantial. So in TikTok, we achieved EUR 223,000 of revenue. And here, what is even more important that we see more and more spillover effects to other sales channels and TikTok also helps us to discover what are the needs of customers and later on to reapply the knowledge from TikTok to other sales channels as well. And it is even more noticeable already this year, but we see that for some specific products, we are starting to running out of stock across different sales channels, not only TikTok. So yes, I have to agree with Gunta that TikTok is really powerful. And again, no comment about the Black Friday. So already in 2025, our Black Friday campaign was run on Shopify platform, and we also saw very substantial increase in conversion rate. And although the write-off of previous e-store assets impacted our profitability, I still see that it was a very correct decision of the management to start Shopify as fast as possible and to get the positive effect of what the system could offer and it includes both, as I mentioned, conversion rates were very good. It was more than 60% improvement in comparison to the previous platform, and also the way of adding different new features is much more fast and cheaper when we compare it to the previous system. So overall, I think this is very prominent element of our growth also when it comes to 2026. And now I give floor back to Gunta.

Thank you. So we already did some sneak peek what's to be expected from 2026, but just to recap and maybe give some other angles as well. So we will continue the started route of e-commerce first strategy execution. And I think and I believe Shopify is definitely one starting point when it comes to more efficient and faster running operations. But it also comes to how we approach both diversification of e-commerce when it comes to our sales, not only our e-commerce Shopify page, but also different channels like Amazon, TikTok. But also when it comes to B2B evaluation, so whether those customers understand e-com, whether they rely on omnichannel strategy or pure e-commerce strategy. So we will definitely also prioritize over such times of customers. Why? Because we see that is much cheaper way and faster way of both new user acquisition, but then also driving brand awareness with our level of budget and initiatives. So that's definitely why e-com first is so important for the company. Another important aspect will be further channel diversification, or I will say, overall diversification and it comes only for geographical diversification, but like I already touched upon also a different sales channel diversification and new user acquisition channel diversification. So when it comes to new geographies, we will strategically continue expanding outside EU. So EU doesn't go anywhere. So we will still -- our biggest markets are within EU. So Germany, France, like Tatjana mentioned, we are growing high double digit in Spain, and we also see the same growth continuing in 2026. But nonetheless, we will also explore other geographies, Middle East being one of them. Well, currently, it's a bit, let's say, sophisticated momentum. So we definitely have to monitor how this develops in the midterm. But then also, just, it is already at the beginning, also looking at other geographies as well that we can more balance and be less reliant on one specific country or one specific region. Second is TikTok. And TikTok, again, it's not just pursuing a single standalone channel TikTok itself, but we really see massive spillover to other channels, both to our e-com Amazon, but also to third parties. For example, in 2026, we already see that the products that are sold on TikTok they are sold out on Amazon. They are sold out on Zalando. They are sold out on Feelunique. So again, product discovery for beauty starts on TikTok. And third, but not least, it's also different business verticals, which are complementary, so not cannibalizing on the core business hospitality, so we will continue growing this segment. Obviously, this requires different skill. Our ambition is predominantly going after or pursuing the model, which is more B2C-focused. So this is more running it through Shopify and user acquisition through Shopify and by user, I mean hospitality players. So yes, like I mentioned, I believe this is a strong complementary sales vertical to all the existing MADARA channels. Another exciting news that I'm very excited to announce, it's about investment into our manufacturing. So this year, we have decided to buy a new machinery, which will allow us to even further accelerate and diversify our portfolio. And that specific machinery will be focused on stick or solid format type of pencil manufacturing. And by pencil, I mean it's different diameter bullets. So which leads us to the third point. One that new machineries employed, we already have innovation pipeline in place especially for lip category, which is growing at very fast pace at this moment, different type of stick formats. For example, we already have existing format of SPF stick. So bringing new innovations in similar like and look products, so not only SPF, it also covers makeup. It also covers hybrid formats and skin care formats. And last but not least, also teasing soon to be hitting the shelves. It's another breakthrough science backed innovation. So we will also pursue in 2026 this standpoint that we are not compromising neither on sustainability nor on product efficacy. So MADARA is the brand that actually does both science backed innovations, but being ethical and clean. So lots of exciting things to come. With that, management commitment as similar last year is of minimum 10% growth. So we see at the moment overall industries hitting at 2%, 3% growth run rate. So our ambition remains to grow way faster than the average of the industry. So 10% minimum, which would equal to EUR 25.5 million revenue consolidated and continuing already what we promised and insured and delivered last year second half is delivering sustainable double-digit EBITDA margin. Again, 2025 was impacted by a lot of one-offs with a much more clean slate in 2026. So both growing faster than the industry and delivering sustainable profitability to our investors will be a commitment of management also for 2026. With that, thank you for your attention. We have concluded reporting the results and also sneak peek into 2026. We did not receive any questions. Ieva, are you taking over moderation now?

Yes. Thank you for presentation. Let's continue with the interactive part of our call questions-and-answer session. There are 3 questions at the given moment, we'll take them one by one. [Operator Instructions]. So the first question. What is the number percentage what MADARA is targeting when it comes to sales revenue outside the EU?

Yes, I will take this one. There's not exact percentage we are targeting. I would say this is more a strategic approach in which regions we see market is growing faster than the average. Definitely one being Middle East, that's for sure. And we see this market is accelerating online and off-line. Other regions, which is very interesting is -- and I'm not saying their exact works in progress. It's definitely Southeast Asia, which is growing; another is Northern Africa, which is growing; U.S. definitely is on the map. So I would not like to commit on a specific percentage to saying that we strategically see where we have brand relevance, with that saying MADARA brand relevance and where we can form really long-standing and what is very important also profitable relationships with B2B partners.

Which specific countries outside the European Union are planned for market expansion?

So we will continue doubling down on Middle East. Like I mentioned, this is what we believe a very prosperous and, let's say, promising future outlook region. So we started with the Kingdom of Saudi Arabia, but there are more markets in discussions at this moment. I can mention Kuwait, I can mention Oman, I mentioned a couple of Emirates like Dubai. Again, like I mentioned in one of the previous webinars B2B is a much slower discipline. So it doesn't come or it doesn't convert as easily as, for example, e-commerce each of the markets like, for example, Middle East, each of the markets have their own specific regulation, regulatory that we have compliant with different requirements in terms of delivery of packaging, even product labeling. So it's not the fast moving, let's say, discipline that we can adjust to. But Middle East, definitely will be one of the focus areas for the nearby future.

Talking about the investments into your product portfolio, how much will the company invest to expand its product range.

I can take that...

You can, Tatjana, go.

Yes. So if we look at the numbers then, besides employee costs, it is roughly EUR 200,000 per year, but we invest in new product development and this year won't be different. Number one be higher despite the new product actual category what we will be developing. If we look together with the employee costs, then this number is closer to EUR 1 million each year, what we spend on new product development. Here, what is maybe less seen by public eye is how much we also gain from participating in different European Union project, which support innovation. And this year, I can tell that we -- where it is possible and our innovations classified as qualify as innovations then we, of course, also participate. And we received very good funding also from these programs. So I would say that around 20% is received back from different funds for actually running these innovations.

One more question to go. What is the main problem in Finland? Is Transmeri pushing MOSSA, which they bought from MADARA?

I can take this one. So MOSSA and MADARA, I would not say these are necessarily competing forces because MOSSA is much more represented in mass market chains such as Kesko, while MADARA is definitely a big portion of sales is sold through Sokos, which is #1 channel and the second channel definitely is direct e-commerce. Having said that, continuous problem, I would say, we identified too and we discussed it openly also with Transmeri team is definitely, number one is attracting new customers. So we call it an e-commerce leaking bucket type of scenario that we had in Finland for a couple of years that the team was not able to attract new customers to the brand. And this is a normal cycle that every brand goes through, especially in cosmetics. So -- it's not -- it's very rarely you see what a consumer would stay with you for 2, 3, 5 years. So it doesn't happen like that. So solely, but the business relies on how efficiently you can acquire new customers. And this is, I think, where we -- and I say we because obviously, we are managing the distributor. We failed in Finland. We also have to be honest, distribute their model margins were not allowing us to be as aggressive as we would like to be with our e-com. So hence, the decision number one that we will take over direct e-commerce channel, which we see in other markets like Germany, to be honest, like Latvia as well, which by the structure similar market like Finland, because it is saturated Latvia and it is also saturated in Finland, but also markets like in Spain. So we see where we managed to acquire new customers via our own direct e-com. It also has a positive spillover to B2B channel. So hence, the discussion and decision on taking over direct e-commerce channel so we can more aggressively focus on new customer acquisition. Another very important aspect is of brand positioning, where we believe over the years, MADARA was -- if you compare to the rest of the Europe, positioned at the more premium level than other European markets. And this is also a factor we discussed with Transmeri how to change the perception of the brand, which also is related about product affordability because Finnish buyer is a very, very sensitive customer. And in Finland, the product has been positioned by the distributor more premium than in the rest of the Europe, which is not consistent. And again, we are not working in that close to isolated market. So customers so easy can compare what's the brand costing in one or the other market. So that's another, I would say, more marketing and brand even more essentially brand topic we addressed with the distributors. So I really believe that we have a good enough and successful enough outcome in terms of decisions we took together with Transmeri that we can turn brand back to growth in Finland, because we have successfully done it in Latvia.

Thank you for taking time to explain. As no new questions have come in, we'll be concluding our Q&A session. Participants, thank you for joining us today.