AS MADARA Cosmetics (MDARA) Earnings Call Transcript & Summary

Good morning. Welcome to MADARA Cosmetics Investor Webinar. We will start with the presentation, after which we will be addressing your questions. [Operator Instructions] In case you'd like to rewatch the session, the recording will be available shortly after the call. Now let me introduce today's host. Gunta Sulte, member of the Management Board and the CEO; and Tatjana Nagle, member of the Management Board and the CFO. The floor is yours.

Thank you very much, and good morning, everybody, on this rainy day. As usual, we are very happy to welcome you on the investors update on MADARA Cosmetics has been proceeding in the first half of the year. Without further do, then I will move on to the some legal disclaimers. To today's agenda, as usual, you see myself, I'm CEO of the company, Gunta Sulte also a member of the Management Board. And here with me, as usual, is Tatjana Nagle, who is Chief Financial Officer of the company and also a member of the Management Board. And today, we are happy to share maybe in more detailed details how the first half of the year has been for MADARA Cosmetics. So going through key highlights, key numbers and then also a sneak peak of what's to be expected in the second half of the year. And as usual, you will have also linked to the full unaudited report of financial statements for the first half of the year and the active link in the presentation. So without further ado, I'm happy to share that first half of the year has been really, I would call it, trajectory changing and success for MADARA and I'm really, really proud of what the team in combined effort has achieved. And I think this is adjustment of all the previous years commitment to doubling down on e-commerce. So we are happy to report double-digit growth both in our revenue or turnover and then also growth in our efficiency, which has been relentless work in the background. I have been already on previous webinars explained and told why companies shifting to e-commerce first approach. And by this, I don't mean only the e-commerce as MADARA Cosmetics stand-alone. I mean by e-commerce, all the ecosystem that is surrounding it. So meaning MADARA Cosmetics store, meaning marketplaces, meaning third-party or B2B pure players, we see this is a fastest evolving segment or channel in the industry, where the decision-making is taking place and where the shopping is taking place. So I'm very, very happy to announce that we really grew double digit in e-commerce, and that was the driving for growth for MADARA in 6 months. We saw really tremendous growth in one of our categories, which is hair care, to much extent it was also driven by one single product that went viral, which is [indiscernible], and you see it on the bottom right corner of the slide. This particular product grew multiple times, and this was not an accident. So this was basically a relentless work of team finding the angles and products that we can really boost and grow online, and this trend started in TikTok, but it really grew in the only positive way, as a, let's say, this positive virus that took over also the other ecosystem of e-commerce, meaning. We saw the first positive spillovers on our direct e-commerce store on marketplaces like Amazon, like TikTok and then we also saw a fantastic spillover for our physical retail both for MADARA retail stores that we had here in Latvia but also other physical players across the Europe. So it's really the way to go. And with that, I'm also very pleased to inform that we are further continuing commitment of diversifying online channels. And we started already last year of opening the first TikTok shop in United Kingdom. This is a resource-heavy process and a heavy channel. So I'm not going to lie, it's not victory from day one. You really have to invest to unlock the channel. So we can't make too many at the same time, given [indiscernible] task that we want to be efficient in how we operate. So this is resource and finance having. And so with that, we have also taken commitment this year to enter another TikTok shop in Germany. But what I'm even more proud to present today is that because of MADARA Cosmetics teamwork with the TikTok shop Europe, because it's a different than TikTok U.K. We have really unlocked for the entire Latvian businesses to sell on TikTok European shops. It's not only Germany. There's TikTok shop France, there's TikTok shop Spain, et cetera. [indiscernible] shop from -- or to sell their goods from Latvia. It was not possible before you had to open your warehouse or ship goods from that particular country. So because of team's discussions and work with TikTok EU team, this is -- this obstacle is now removed. And ourselves, we are starting operations with really now in September. But I think it's, again, a very positive spillover that we are able to contribute to other e-commerce community in the region. Another highlight has been really in successful innovations. And here, we doubled down on [ Stick ] format. We launched [ stick ] format of our best-selling product, [ CC ] cream, that product is called [ CC GO ] also having [ SPF30 ], 6 shades and this has been by far, we launched it in April, and it has been by far the best-selling innovation of year-to-date. And then also another innovative format in [ stick format ] packaging, it's a [ disti ], which is coffee-infused gel-based serum in the [ stick format ], again, having a very positive take off in our B2B and also e-commerce channels. And last but not least, I have to -- even despite I'm saying e-commerce first, B2B is and will be a very important pillar for MADARA. And I think it's also making brand alive in physical retail. And not only physical because by B2B, we also mean online B2B partners. Which is not only almost half contributing to our turnover, but also a major or big part profit contributor as well. So I'm very happy to share that we also grew in most of our markets. Particularly, I'm very happy to share that Finland is finally back to growth, and we changed beginning of the year operating model in this particular market. Which is one of, let's say, most saturated markets for MADARA. The other one is Latvia. And in these high saturation markets, to be honest, it's very difficult to change the trajectory because it's quite saturated already in terms of our presence. However, despite the fact that we have been declining for multiple years in the market, so [indiscernible] or MADARA Cosmetics team took over e-commerce of that market or Finnish market. And Transmeri is continuing to operate in physical retail. And we see finally brand being back to growth. We see multiple times increase in new user acquisition, which again will bring positive spillover to physical retail. And with that, jumping also on the next sub-point on B2B footprint is that also Transmeri has had a major success of adding another major chain -- retail China to MADARA's B2B client list. [indiscernible] City market. But not only that, we had 2 major wins in France. So we started cooperation with -- it's almost a monopoly, but monopoly, maybe not the right word. It's a major player in professional hair care or specializing in hair care products. The chain called [ Blue Bell ], but with a really extensive physical retail more than 400 physical outlets in France. And we started with them as one of the few skin care brands that they are introduced within their retail channels. And another partner I'm very proud of is starting cooperation with [ Monoprix ], which is upper premium retail chain, and we started first half of the year with 30 stores and literally no are adding another 30 stores with MADARA makeup products. And last but not least, because the list is actually longer. Here are just a few biggest names. We also started an extended cooperation with [ Benno ] pharmacies in this particular case in Netherlands because we already have a successful partnership in Latvia. So with that, I'm giving the floor now to Tatjana to tell more about numbers.

Thanks, Gunta. Dear shareholders, so key numbers from my side, and I'm really happy to share such numbers with you. So if we look at the revenue, then we achieved a growth of more than 17%, which is EUR 13.36 million. And as you remember, the guidance for the year was plus 10% in revenue. So I'm super happy that in the first half of the year, we managed to overexceed. Then if we look at the profitability numbers, then there is also a major improvement. So if we look at the EBITDA, then it almost doubled compared to the same period last year. So it was EUR 1.51 million. Also, if we look at the pretax profit, then here is also a growth of roughly 300%. So also here, is a major improvement in comparison to the first half of the last year. And EBITDA margin is also improving. So last year in the first half, it was 7% year was about 10% than what we see in the first half of this year, then it is 11%. And here, I have to stress that it wasn't just the luck, it was really disciplined work to achieve these improvements. And of course, one part is revenue growth. Another part is cost discipline. So if you look at the P&L statement, and what you can see is administration costs have decreased. If you look at sales costs, then the growth of sales cost is much lower than the revenue growth. So yes, overall, the number of transformations were done within the company to improve efficiency. If we look at the markets and maybe a bit more about revenue stream, then overall, the proportions between these big segments sales in Latvia, sales in the European Union and outside the European Union, have not changed dramatically. So Latvian market still is just market, although we have candidates to become #1 markets as well outside Latvia. So here, one revenue stream and profit stream is MADARA brand. So MADARA grew by 13% combined and then manufacturing segment grew by 50%. And here, we have softened [ MOS ] as the main drivers for growth. And then if we focus more on MADARA brand, which is and will remain the core of the business, then here, what we see is that in Latvia, which is the biggest market revenue remained stable. And here, we have to admit and understand that in Latvia, we are quite mature brands. So it's very hard to report big increases. So rather for what we it's important to remain stable and not to drop. So here, I'm happy that we remain stable and there are no big negative changes. And then if we look at the markets outside Latvia then what we saw is that our top markets reported in total plus 20% growth, and these markets account for 45% of our brand turnover. So the markets are Germany, France, Czech Republic Spain, Finland. And here, Gunta already mentioned that we had very nice results in Finland also the operating model has changed with MADARA team taking over direct e-commerce. So we are happy to report that we had plus 20% growth in Finland. And also, there are some outperforming markets. So it is Czech Republic and Slovakia, together, as they are operated by one distributor, also, we are continuing a growth pattern in Spain spend grew by 51%. Also in France, we are doing the 21% growth. In Germany, growth this half of the year was weaker. We're mainly comes struggle to, yes, achieve high growth. So the growth is much milder. And also, if we look at global arena. So here, we are happy to continue our expansion in Saudi Arabia and also we made a market entry in Singapore market. If we look more closer at channels and here maybe more about e-commerce than, what we see is that our direct e-commerce share is increasing, so there is 2 percentage point increase compared to the same period last year. So now e-commerce e-commerce share is 40% of the revenue and revenue growth of this segment was 24% and here, so one channel is our own online store, which grew by 16% and then another sales channel internally, we call them marketplaces, but basically, what we have here, Amazon, TikTok Shop, Zalando. So all of these combined reported plus 100% growth in turnover. So Again, coming back to Gunta's point what we see is that we can achieve much faster growth in e-commerce, and it's very important to continue to develop these segments. So if we look at our online store and how we get there, and there is, of course, more metrics compared to other channels. So and basically, there are some markets which are continuing to outperform. So I'm super happy to see that we continue growth trend in Spain. And also what is important to note and where we see a bigger shift as in our online market, the proportion of new customers and repeated customers. So there is 7 percentage point increase of new customers, and again, referring back to Gunta's point on e-com strategy and working on new client acquisition and finding new angles and unlocking the correct way to approach new customers were this season, it happened to be our Keratin silk mist, so it really helped to achieve increase in new customer growth. So super happy for that. Yes, we can go to products.

Thank you. Then I will take over from here more explained into detail what happened with our product categories. Overall, alongside with the innovations I already mentioned, we launched in total 10 new products in MADARA portfolio in the first half of the year which contributed to more than EUR 0.5 million in turnover. And jumping on the picture to the right, I think we have had some really more visible shifts in product category split than if compared to previous reports, we really see 2 categories accelerating. And this is also visible in how they are, let's say, taking bigger share within our portfolio, which I am very pleased about because the more we diversify in terms of internal portfolio performance, the better it is for the company. So we see really substantial growth in share for hair care products by 6 percentage points. And again, this is going back to the -- starting from one product, which gave us the full over for the entire hair category. And another category, which continued acceleration was makeup, and this is a lot, thanks to [ CC Go ] launch in stick format. Respectively, because the [ ply ] is 100% than other categories, which grew less then obviously, their share decreased, which is logical. What I want to emphasize is that we see really market trend and also a growing demand in stick format products, both skin care makeup sun care, and this is why a company has made a prepayment and is bringing in-house our own stick or more advanced stick filling machine. You already have one, but it is rather, let's say, specific and limited in terms of output. So we are upgrading ourselves and bringing more higher pace and higher versatility, fueling machine from Germany, which is arriving second half of the year, and the team is really excited that we can really then increase the playground in stick formats like I mentioned, it's not only, let's say, the visible products that were showed, but really the opportunities are much wider, and we can also increase the production output for our mascaras concealers with this filling machine. And what I'm also very honored to see and humble to see is really a global level unpaid unused recognition from really a global stage. We have had these mentions already in the past and I was also very honored to see our team's efforts recognized by one of highest paid supermodels in the world. And she was mentioning MADARA Soft Glow Foundation, and we were presented in multiple vogue channels -- [ vogue ] France channels, which is one of the most prominent works in the globe. Again, this game is a very positive surprise for the team because it was not aimed or it was not targeted came entirely organic and really, I think, reemphasized that product comes first, product quality comes first and product functionality comes first. And then as let's say positive additional point that we bring is that we are clean and certified, but really that the product performance has to be there ultimately. And this is what I think we see both in positive numbers in the growth of revenue and new customer acquisition, but we also see this in more let's say, soft organic mentions that we get from world-class mentions. And then maybe just to show what were other innovations we were renovations that we did in the first half of the year. So another major trend in skincare is exosomes. So we launched exosomes and peptide rejuvenating serum. Then a massive project for the team was actually rebranded for one of the first products that brand had launched, which is deep moisutre line. So deep moisture line got even better formula more relevant formula for now days consumer, better packaging, more recyclable packaging. So the entire line was relaunched. And already mentioned innovations in stick format, so 6 shades of CC GO and then also DEWY stick and -- yes. Like the last 2 were definitely the stars of this first half of the year. And then just a quick sneak peak of what's to be expected for the upcoming second half of the year, then we are not changing the course. So it's further acceleration of our e-commerce channels, and I emphasize in multiple form that it's really, like I mentioned, it's both working on new user acquisition for our direct e-commerce shop but it's also diversifying marketplace. So we are starting operations in Germany in TikTok Shop, which we now in September. With that, we are also starting different platforms for affiliate marketing that should and will bring new user acquisition for our direct e-commerce, then we are further bringing in new products for the second half of the year, the focus will be on [ lip ] care is treatment and another core relaunch, which will be soft skincare line. And then what is happening in the background or behind the curtains that maybe is not visible to the outside world, but which is fundamentally important that we maintain or even further improve our operational efficiency is process automations. This is happening on multiple frontiers. Mainly e-commerce, planning and manufacturing is attributed -- not attributed sorry, covered this year. So really working on full scale automation in terms of how the process and data flows and also bringing AI layers for relevant, and with that, we are maintaining our commitment of growing at least 10% for this year, equaling to at least EUR 25.5 million and delivering efficient growth. and sustainably efficient growth, so maintaining double-digit EBITDA margin, which we believe is a good prerequisite for further future growth. So with that, thank you very much. This is the end of the presentation.

We will now be continuing with the questions-and-answer session. [Operator Instructions] We'll start with the first question that we have received. Where do you see MADARA Cosmetics in 3 to 5 years?

Thank you. So here, I have to be very, very careful not to give any external commitments and numbers. But I think definitely the scores that we have started off, first of all, becoming dominant com player. And I think this is very important for brand as such because this is where consumers are leaning towards. So it's further growing and doubling down on e-commerce channels our own? Or is it third party will be very important. And it's also very important that we continue finding markets that deliver growth like that Tatjana mentioned, also these saturated markets. So I really expect that in a couple of years' time, we already reached saturation in some other key European markets and then discover new ones. And having said that, I think ultimately for us, it's important that we deliver excellent products. And this is where team will continue to invest in the back office. It's really product excellence that we deliver functionally amazing formulations and products. And on top, we do it in a clean or more sustainable way. So e-commerce growth, further geographical diversification and excellent product.