Company Overview

Company Over view

MADARA was established in 2006, aiming to create effective and innovative organic skincare products, which are sustainable, safe and completely natural, and draw on examples of the best practices. With this ambition, the Company has managed to develop a competitive brand within the organic skincare niche that is distributed through both conventional and speciality channels. The ‘MADARA’ brand became a local pioneer in the field of natural cosmetics. The Company has extensive vertical integration with each product being exclusively developed and manufactured in MADARA’s own laboratories and production facilities, enabling it to take roughly 100% control over all processes. Also, the in-house marketing and design team enables MADARA to have a unique brand identity. Organic ECOCERT certification, GMP and ISO standards, in vitro and in vivo research emphasise MADARA’s passion for quality and perfection in every detail. The Company exports its own brand products worldwide as well as offers contract manufacturing services. Recently the Company has launched a print-on-demand platform – Selfnamed which offers personalisation of MADARA manufactured certified natural and organic cosmetic products. MADARA Cosmetics Group

The MADARA Cosmetics group is made up of several companies. AS MADARA Cosmetics is the parent company responsible for the development, manufacturing, and sale of organic cosmetic products under two brands: ‘MADARA’ and ‘MOSSA’. MADARA Cosmetics has three fully owned subsidiaries: MADARA Retail SIA, Cosmetics NORD SIA, and MADARA Cosmetics GmbH. MADARA Retail SIA manages four MADARA brand stores in Riga, which are important sales channels in the Latvian market, located in shopping centres – “Galerija Centrs”, “Spice”, “Alfa”, and “Akropole”. The newest store in “Akropole” was launched in April 2019. In FY 2020, the revenues of MADARA Retail SIA dropped 8.5% y-o-y to EUR 0.86m (accounting c.a. 20% of the Company’s total sales in Latvia), due to temporary store closures in Latvia because of the COVID-19 related restrictions imposed by the local government. In FY 2021, although sales from the Company’s brand stores declined to EUR 0.46m (-46% y-o-y) due to the COVID-19 related restrictions, net profit reached EUR 0.15m (FY 2020: EUR 0.01m) due to the government support. As restrictions have been loosened in Q1 2022, retail stores have seen increased activity. MADARA Cosmetics GmbH provides cosmetics marketing services in Germany and organises the distribution of MADARA products in that market. Cosmetics NORD SIA is focused on rendering contract manufacturing services using the production infrastructure and capacity of MADARA, with sales amounting to EUR 1.1m in FY 2021, up by 282% y-o-y and 88% compared to FY 2019. 2020 results were down due to difficult circumstances related to the COVID-19 restrictions in the operation of several partners. However, contract manufacturing sales grew rapidly in H2 2021 contributing 9% to total sales, while the contribution in FY 2021 was 6%. Such growth is attributed to the post-pandemic momentum and new contract manufacturing strategy that replaces individual adjustments in formulas with a ready-to-choose catalogue, which substantially increases efficiency and does not impact partner satisfaction. Generally, contract manufacturing is a thin margin business and for MADARA the gross margin in contract manufacturing has been around 18%, compared to the gross margin of c.a. 50% in Latvia’s own retail shop business and c.a. 60% for all operations taken together (largely driven by direct e-commerce). Besides improving efficiency in contract manufacturing processes, the new strategy also has a second leg which focuses on a new start-up project launched by MADARA, i.e. ‘Selfnamed’. SIA Cosmetics Nord’s subsidiary Selfnamed SIA is a new start-up in the print-on-demand industry. The print-on-demand platform Selfnamed (link: https://selfnamed.com) is providing an opportunity for clients to start their own natural and/or organic certified cosmetics line with their own brand logo and personalised design. SIA Cosmetics Nord produces distinct products compared to “MADARA” and “MOSSA” branded products. Also, there is a 19% minority shareholding in SIA Farmācijas, biomedicīnas un medicīnas tehnoloģiju kompetences centrs. Both facilities have been formed within the framework of the state aid programme ‘Competence Centres’, being implemented with the help of the European Regional Development Fund. The main aim of the programme is to bring together companies and scientific institutions working in the same field as well as to encourage cooperation between the industry and academia to foster new methods and technologies. Management

The operational management of the Company is structured as a usual two-tier system, comprising a management board and a supervisory board. The management board is responsible for the dayto-day management of the Company’s operations and is authorised to represent the Company based on the applicable laws and the Articles of Association. The supervisory board of the Company is the supervisory body representing the interests of the shareholders in general meetings and exercising oversight over the activities of the management board. Supervisor y Board According to the Articles of Association, the supervisory board consists of five members who are appointed by the General Meeting for five years. Currently, the composition of the supervisory board is as follows:

Anna Ramata-Stunda – Chairman of the supervisory board. Born in 1984. She graduated from the University of Latvia in 2008 with a master’s degree in life sciences and biology. Since 2010, she has worked as a researcher and lecturer at the University of Latvia, where she has participated in research projects for the Company. She is also a board member and co-founder of SIA InCell, which provides biotechnology and research services. Ms Ramata-Stunda is the co-author of many scientific publications, as well as holds several patents. Liene Drāzniece – Deputy Chairman of the supervisory board. Born in 1979. She graduated from the Latvian Academy of Art in 2003 with a bachelor’s degree in visual communication, specialising in the field of graphic design. In 2007, Ms Drāzniece graduated from the Istituto Marangoni Milano, Master Design Direction programme, where she studied brand strategy. Before co-founding MADARA, she worked in the international advertising agencies McCann, Leo Burnett, and Lowe as an Art Director for major Latvian brands, and she is the author of several brand identities for consumer goods and niche products. Since 2009, she has been the Art Director of the Company. In 2017, she also became a lecturer at the Riga School of Design and Art in the Department of Advertising Design. Edgars Pētersons – Member of the supervisory board. Born in 1981. He graduated from the Stockholm School of Economics in Riga in 2007 with a bachelor’s degree in economics and business administration. He is a founder and strategic planner of WKND, an advertising and strategic agency. He is also a founder and senior consultant of the company Pattern Consulting, a business consulting agency. Mr Pētersons has gained strong experience in strategic planning, branding, and marketing consulting areas. Sari Hannele Rosin – Member of the supervisory board. Born in 1972. She graduated from the South Carelian Business School in

1997 with a bachelor’s degree in business and economics. She is the CEO of Oy Transmeri Ab, a subsidiary of Oy Transmeri Group Ab and the market leader in Finland for many cosmetics categories, e.g. natural organic cosmetics. Oy Transmeri Group Ab is a strategic shareholder of MADARA with a 22.9% stake. She is also the CEO of Oy Sultrade Ltd, a sister company of Oy Transmeri Ab, importing, selling, and marketing well-known sports brands in Finland and the Baltics. Since April 2020, she is the Chairman of the board of the Finnish Cosmetic and Detergent Association. Anna Andersone – Member of the supervisory board. Born in 1981. She graduated from the Stockholm School of Economics in Riga in 2002 with a bachelor’s degree in business and economics, specialising in the fields of IT and marketing. Ms Andersone started her career in Marketing and Communications at McCann Riga and was promoted to a Project Director and Strategist (2003-2008), working with pan-Baltic campaigns. She gained international experience working in the UK and France. She is a co-founder of several start-up companies and holds management positions in numerous companies, including SIA HungryLab, SIA Froont, SIA Hello World, SIA One two free, and TechHub Riga foundation. Management Board The management board comprises three members who are appointed by the supervisory board for a term of five years. Each member of the management board may represent the Company alone. The current composition of the management board is as follows: Lote Tisenkopfa-Iltnere, Uldis Iltners, and Paula Tisenkopfa Lote Tisenkopfa-Iltnere – Chairman of the management board. Born in 1982. She graduated from the University of Latvia in 2005 with a bachelor’s degree in Asian studies, where she mastered Asian culture, business, and Japanese language. She co-founded MADARA in 2006. In 2009, Ms Tisenkopfa-Iltnere completed the Swedish Institute Management programme of leadership and corporate social responsibility practices. Ms Tisenkopfa-Iltnere is the wife of Mr Iltners and a sister of Ms Paula Tisenkopfa. Uldis Iltners – Member of the management board. Born in 1983. He graduated from the BA School of Business and Finance in 2003 with a bachelor’s degree in business management and leadership. Before co-founding MADARA in 2006, he worked as the CEO and analyst at an IT consulting firm providing computer simulation assisted production controlling and optimisation for manufacturing companies. He is a board member of SIA Wolf Candles, SIA “MC Properties”, and SIA Kalvi. Tatjana Čornija – Member of the management board. A graduate of the Stockholm School of Economics in Riga. Chief Financial Officer of AS MADARA Cosmetics since January 2021. She was a business analyst at MADARA Cosmetics from May 2018 to December 2020.

Histor y

ShareholdersMADARA shareholders (9th Feb 2022)

As at the end of 2020, MADARA had a total of 3,769,242 shares outstanding, with a nominal value of EUR 0.10 each. The increase i Uldis Iltners n the

6.79%

6.35% 16.25%

22.93% 23.92%

23.76% Lote Tisenkopfa-Iltnere Oy Transmeri Group AB Zane Tamane

Liene Drāzniece

Other

Source: MADARA

Major milestones in the Company’s histor y are listed below: 2005 The MADARA brand is conceived and developed by Ms Tisenkopfa-Iltnere and Mr Iltners. 2006-2007 The brand is launched, and the first products are introduced into the Latvian market. 2008 MADARA becomes a leader in the natural/organic cosmetics sector in Latvia. The Company opens its first factory and receiv ECOCERT certification for its products and launches industrial-scale production. es 2008-2009 MADARA Retail SIA is established, and MADARA brand shops are opened in Riga. 2009 MADARA Retail SIA is established, and MADARA brand shops are opened in Riga. 2011 The international online store is opened, and over 3,000 purchases are made on the first day of operation. 2012 The Company shapes a new approach to organic cosmetics - in vitro and in vivo research rejuvenating effects of birch juice and northern plant extracts; a new anti-ageing line ‘Time Miracle’ is developed based on these results. 2013 MADARA starts successfully collaborating with Finnish blogger, Noora Shingler, launching custom-made products fo market, and goes on to become the third best known organic cosmetics brand in Finland. r the Finnish 2014 Harper’s Bazaar cites MADARA’s products as “Natural cosmet in Riga. ics for Aesthetics” and the concept store-salon, SKIN CAFE, is opened

2015

The Company acquires and develops land for its new factory and office building. Trial production commences there. Ms TisenkopfaIltnere, the CEO, and the Company are ranked respectively 4th and 7th in the annual Business Reputation Awards 2016 by the Latvian Investment and Development Agency (‘LIAA’), Nords Porter Novelli, and Dienas Bizness newspaper. 2016 MADARA named the “No.1 Greenest Brand” in the annual ranking commences full-scale production. of “Most Loved Brands in Latvia”, and the new factory opens and 2017 Successful IPO priced at EUR 6.25 per share and listing on the Nasdaq Riga First North. 2018 MADARA launches a new sunscreen product line 2019 New organic makeup line was launched in September 2019.

2020 A new line of lipsticks and hygienic lip balms was launched. Also, the Company developed eyelash and eyebrow fixation and growth serum, ANTI skin disinfectant line, IMMU oral protection line, Derma Collagen facial skincare product line, as well as moisturizing cream with Centella Asiatica (CICA) plant extract in SOS Hydration skincare line.

2021

16 new skincare and makeup products were launched under the MÁDARA brand. The most significant new products included technologically complex formulas of vitamin C cream and serum as well as the Deep Matter Bold Volume Mascara, which was ranked among the best-selling MÁDARA products in the first month after it was launched. A product of completely new category has also been added to the assortment – natural certified, gynecologically tested intimate wash for women Source: MADARA

number of shares compared to 2019 (3,745,242) is due to the issuance of 24,000 shares to option holders. The Company is effectively controlled by Mr Iltners and Mrs Tisenkopfa-Iltnere, who are spouses and exercise their voting rights jointly. With combined ownership of 47.7%, these two shareholders jointly exercise a significant degree of influence over the Company. Other larger shareholders include Oy Transmeri Group AB, Mrs Liene Drāzniece, and Mrs Zane Tamane. The latter two were among the founders of the Company back in 2006. Oy Transmeri Group AB (‘Transmeri’) is a Finnish familyowned company mostly engaged in importing and distributing daily consumer goods and selective cosmetics in Finland and the Baltics. Transmeri was established in 1928 by Didrichsen family. Transmeri is one of the leading marketers of cosmetics in Finland, introducing hundreds of new cosmetic products to the Finnish market every year. Transmeri acquired a 6% stake in MADARA from the IPO in 2017 and increased its holding to over 23% in 2018, buying 17.09% from Sustainable Investments SIA. Currently, Transmeri holds a 22.9% stake in the Company. Research and Development

One of the key strengths of the Company is an in-house laboratory used for research and development, as well as ongoing testing and quality assurance of products. These tests include, but are not limited to, pH measurements, conductivity testing, and surface quality. Additionally, having its own laboratory means that each of the Company’s new products is exclusively developed in-house. This allows for a higher diversity of formulations, quick integration of innovative ingredients and solutions, and rapid adaptation to changing consumer preferences and market trends. In addition to the in-house laboratory, the Company closely cooperates with several academic institutions and organisations, such as the University of Latvia, the Riga Technical University, the Riga Stradins University, and several dermatological clinics. The benefit of this setup can be seen from 2017 onwards when the Company managed to develop a sun protection formulation based on mineral filters. In the certified natural cosmetics industry, sun protection products are considered to be technically one of the most complicated products. MADARA worked on the development of these products for almost five years and introduced the new sun protection product line to the market in 2018, launching several new products of this category during 2019. In 2019, MADARA introduced the ‘Time Miracle’ product line, the world’s first anti-ageing skincare product based on birch water, which has been proven to reduce the signs of ageing. According to the Company, birch water accelerates skin cell division by 25%, which can reverse both genetic and environmental ageing. In 2018, MADARA started the development of a certified natural makeup product range. According to the management, this is considered the largest development project of the Company over the last five years, which involves the development of about 50 new products and also the strengthening of the know-how and increasing the production capacity of decorative cosmetics. The new makeup line was introduced to the market at the end of September 2019, while the Company continues to develop new products in this category and expand its product range. A new line of lipsticks and hygienic lip balms was developed and launched in 2020. Also, the Company developed eyelash and eyebrow fixation and growth serum, ANTI skin disinfectant line, IMMU oral protection line, Derma Collagen facial skincare product line, as well a moisturising cream with Centella Asiatica (CICA) plant extract in SOS Hydration skincare line.

The quick integration of innovative ingredients and solutions as well as rapid adaptation to changing consumer preferences and market trends by in-house R&D was noticeably observed in 2021 when 16 new skincare and makeup products were launched under the “MADARA” brand. The most significant new products include technologically complex formulas of Vitamin C cream and serum, products of even higher protection in the highly demanded SPF line, as well as the Deep Matter Bold Volume Mascara, which was ranked among the best-selling MADARA products in the first month after it was launched. A product of a completely new category has also been added to the assortment – natural certified, gynecologically tested intimate wash for women.

The R&D competence is highly valued worldwide with MADARA skincare products regularly receiving recognition in international competitions. In 2021, MADARA Derma Collagen Hydra-Fill Firming Serum was recognised as the best serum in several categories at the Beauty Shortlist Awards (UK). MADARA ACNE Acute Spot RollOn was recognised as the best product for acne-prone skin. MADARA makeup products have also been ranked highly – MADARA Skin Equal Soft Glow Foundation SPF15 has been recognised as the best foundation, and MADARA Velvet Wear Matte Cream Lipstick has been recognised as the best lipstick. In the Dutch Beauty Awards 2021 – an important event in the Netherlands – MADARA skincare products were nominated in the Green Beauty and Innovative Beauty categories. Manufacturing

MADARA has been manufacturing on an industrial scale since 2008, from when it has strictly produced all of its products and had complete control of every stage of the manufacturing process. In late 2015, the Company completed the development and trial production phase of its current factory, which has been fully commissioned since February 2016. The factory was built in a way that the production can be scaled upwards easily. The Company estimates that using existing equipment, it would have the capacity to more than double the current production volumes by increasing the number of shifts and batch sizes. Currently, the Company is working with no shifts, meaning that one night shift can be implemented to raise the production capacity. Furthermore, with proper planning, the tasks could be distributed into shifts in a way that does not require doubling the people needed to double the production output. Also, MADARA manufacturing is highly automated, although still plenty of manual labour required in the packaging process. In H2 2021, the first robots joined MADARA’s production team, facilitating the packaging of products in the primary packaging and transportation boxes. MADARA is striving to enhance productivity and efficiency in manufacturing by extending and upgrading automatisation. MADARA is already planning the construction of a new manufacturing plant that is bigger in space and production capacity, located right across the street where the current plant exists. The current assumption is that the new plant will be able to achieve c.a. 10x capacity compared to the current plant which is a notable increase. Such production capacity expansion in our opinion is justified by the Company’s continuously growing product assortment, market expansion, and sales growth. Start-up project Selfnamed could potentially require a lot more production capacity in the coming three years or if Cosmetics Nord SIA decides to supply white-labelled cosmetics to other print-on-demand manufacturers.The construction is planned to begin in 2023, although the existing supply chain bottlenecks and soared material prices put certain risks to the planned project schedule and cost. The construction and transition period to new production facilities could take up to 2-3 years. Besides, the Company aims for a high level of environmental sustainability. This includes having a framework for environmental management with procedures monitoring all the key environmental impact indicators, such as CO2 emissions, energy and water consumption, rainwater pollution, and waste management, all of which are in place to evaluate and improve the Company’s environmental performance.

Raw Materials

MADARA prides itself on using pure, high-quality ingredients - c.a. 400 natural ingredients to formulate and make cutting-edge effective cosmetic products. Many raw materials are harvested from the forests, meadows, and lakes of the Northern and Arctic regions. The use of these Northern ingredients is one of the main things that differentiates the Company from its competitors, both in product performance and brand story. Raw materials of the following main categories are used: • active ingredients such as plant extracts, unique plant oils, hyaluronic acid, vitamins; • oils (plant oils, plant butter, waxes, natural emollients, etc.); • speciality waters: birch water, floral waters, etc. (some of which may be considered to be active ingredients); • surfactants (washing/foaming ingredients); • emulsifiers, gelling agents, stabilisers; • natural fragrances; • preservatives; and • colourants, pigments. The raw materials used by MADARA are purchased from trusted direct suppliers who harvest these ingredients from nature (birch water, fossil mud) or extract active substances from organic plant matter (plant extracts, cold-pressed oils, etc.). Raw materials that are readily available in the market like plant oils, natural emollients, surfactants, emulsifiers, preservatives, as well as general active ingredients like hyaluronic acid, vitamins, anti-age and lifting actives are purchased from reputable manufacturers directly or through their distribution partners. Products

The Company’s product portfolio includes over 150 different cosmetic products, including facial cleansers, toners, moisturisers, masks, serums, facial oils, eye and lip care products, makeup, suncare products, soap bars, liquid soaps, body moisturisers, deodorants, shampoos, conditioners, intimate wash as well as products for babies and children. While the primary target of these products is for the 25+ age group, certain product lines are designed for all ages and some for children. Facial care products, accounting for 55% of the total revenues in 2021, dominate the breakdown of MADARA’s sales by product categories. Other larger product groups of the Company include anti-age (14%), which are also rather facial care, and makeup (13%) products, followed by body (9%) and hair care products (8%). The launch of makeup products in September 2019 affected the breakdown of MADARA’s revenues by product groups significantly already in 2020 (12% of total sales) compared to 2019 (3% of total sales). By the end of 2019, the makeup line was launched in Latvia, Finland, Germany, and France. The turnover share of other categories decreased due to relatively faster sales growth of facial and makeup categories driven by new product launches. It is expected that the makeup segment will be one of the key priorities for MADARA’s further development and considering its rapid gain in turnover share within a year from the makeup line launch, it is also expected to continue to grow its share in total sales. Significant demand can be observed for certified natural makeup as the Deep Matter Bold Volume Mascara, was ranked among the bestselling MADARA products in the first month after it was launched in 2021. The Company continues to upgrade existing and release new products every year, many of them being highly demanded and some with technologically complex formulas. Continuous expansion of product assortment and new categories is one of the main drivers of MADARA’s brand recognition and sales growth. Brands

The Company’s production is sold under two main brands – ‘MADARA’ and ‘MOSSA’. The brand characteristics and positioning are summarised in the following table. Product design and marketing play a very important role in creating brand desirability and demand. All product and communication strategies of MADARA, as well as product designs, graphic designs, retail designs, points-of-sale, and online materials, are created by the Company’s in-house marketing and design team. The existence of a dedicated in-house team for design and marketing ensures better market and trend responsiveness as well as contributes to the continuous and consistent development

Brand ‘MADARA’ ‘MOSSA’

Brand positioning statement “MADARA provides natural, highly effective, visually attractive skincare products for intelligent, urban women aged 30-40. It uses locally sourced Nordic ingredients, and is developed and manufactured through extensive research and testing, in cooperation with the in-house design team.” Brand USP "Nature’s most potent ingredients are teamed with extensive research, science, and testing – to obtain the highest quality and effectiveness out of natural plants, to find new highly active local ingredients, and to prove that natural products can be really effective."

Target audience "MADARA customers are intelligent, urban women, who have an acute sense of genuine quality. They choose brands and products that enhance their lives in all aspects – with highest quality, positive image, engaging stories, deep experiences. They appreciate beautiful things that have been made through thought and effort. They appreciate sustainable design and materials." “MOSSA’ provides natural, healthy and simple skincare products for active women at the age of 30-40+. It is a simple product range with easily recognisable and wellknown ingredients (berries).”

It is scientifically proven that berries and fruits grown in Nordic climates contain more concentrated doses of nutritional elements. Therefore it contains healthy, effective ingredients, clear and straightforward product line, simple choices based on colour codes and detailed descriptions.

MOSSA’ customers are women aged 30-40+ with an urban lifestyle and average or slightly higher incomes. They are busy, thus choose brands that make their life easier. They want to look good but do not want to spend too much time on it, because life has so much else to offer.

Brand...continued ‘MADARA’ ‘MOSSA’

Positioning and price range "MADARA’ is positioned at the lower end of premium price segment in most markets. The quality of the products exceeds their price level, making them an attractive choice for consumers. Main products are priced at EUR 15-30. Some of the more advanced product lines (Smart Antioxidants, Time Miracle) and facial oils are priced at EUR 30-50." Retail channels "MADARA’ products are to be offered in premiumbeauty stores, department stores and small luxury organic shops, including via e-commerce channels."

Competitors "Main competitors to ‘MADARA’ are Lumene, Caudalie, Dr. Hauschka and Origins."

Source: MADARA Cosmetics MOSSA’ is positioned at the middle price range, with a slightly higher price than most competitors in mass market channels, justifying the price with natural, organic ingredients. Main products are priced at EUR 10-20.

"MOSSA’ products are sold through mass market skincare channels including beauty chain stores like Drogas, hypermarkets and drug stores; but also through premium skincare channels and perfumeries that include lower price products in their assortment." MOSSA’s competitors are mass product lines in each respective country, such as Lumene, L’Oreal, Nivea, Lavera, etc.

of the brands. We believe that the in-house creative team is one of the core competitive advantages, enabling MADARA to quickly generate and act on new ideas as market and consumer preferences evolve. Certification and Standards

The Company complies with all necessary regulations of EC No 1223/2009, which controls the cosmetics industry in the European Union. With rising demand among consumers for clear labelling of organic products, several organisations in Europe have created standards for formulating and labelling natural and organic cosmetics. For example, both ‘MADARA’ and ‘MOSSA’ products have been certified under the ECOCERT scheme, which issues ECOCERT and COSMOS certificates. Certification requires that the products are free from genetically modified ingredients, parabens, phenoxyethanol, nanoparticles, silicon, PEG, synthetic perfumes and dyes, and animal-derived ingredients, except those produced naturally, such as milk and honey. It also requires the use of biodegradable or recyclable packaging and sets a range of other compliance criteria. ECOCERT is an organic certification organisation founded in France in 1991 and the very first certification body to develop standards for natural and organic cosmetics. It is based in Europe but conducts inspections in over 80 countries, making it one of the largest organic certification organisations in the world. In addition to its own proprietary standard (ECOCERT), from January 2017, ECOCERT certifies cosmetic formulations according to the COSMOS standard. COSMOS is the first and only pan-European standard for organic and natural cosmetics, created by several associations and organic cosmetics certification bodies. Main Markets

The Company holds a prominent market share in Latvia’s premium skincare segment, where revenues grew at a compounded annual growth rate (“CAGR”) of 21.3% during 2019-2021. It has high brand recognition and consumer loyalty. In 2021, the Company’s net sales in the Latvian market amounted to EUR 4.8m (+14% y-o-y). Originally MADARA gained popularity as a local, sustainable skincare manufacturer, but now it is a well-known story of successful Latvian entrepreneurship. In 2021, total sales amounted to c.a. EUR 12.6m (+18% y-o-y) and EUR 1.8m (+89% y-o-y) in the EU (excluding LV) and other countries together, respectively, with a CAGR of 29% and 58.6%, respectively, during 2019-2021. Finland is one of the Company’s first and largest export markets, with 2020 net sales in the country of EUR 2.6m, contributing c.a. 23% of the total export sales. The Company’s presence in Finland includes more than 100 retailers and a powerful e-commerce platform. Being one of the most followed beauty brands in Finland and a leading organic beauty brand, MADARA keeps a strong position in the country’s organic cosmetics market. The brand’s story of Arctic and Northern ingredients is well-received among consumers there and gives the brand a local image. In order to strengthen brand recognition and its perception as local, in 2014, the Company started cooperating with a well-known Finnish natural lifestyle advocate, journalist and blogger, Noora Shingler. This cooperation included regular launches of co-branded products, activities in the media (including social media) and events. Together with Noora Shingler, MADARA has launched several new products in Finland, all of which have been among the bestsellers. After c.a. 8 years of successful cooperation, at the end of 2021, Noora announced the discontinuance of cooperation - although she mentioned continuing support to MADARA in other ways. It has given strong brand recognition and foundation to maintain as one of the main organic cosmetic players in the Finland market. MADARA has strong connections with Oy Transmeri Group AB (‘Transmeri’), one of the largest cosmetics and personal care products importers and wholesalers in Finland. In 2018, Transmeri lifted its ownership in MADARA to 23.09%, essentially becoming a strategic minority shareholder. Transmeri is also a primary reseller of MADARA products in the country. We believe Transmeri has done a good job in engaging its sales channels to promote MADARA’s product portfolio. The Company does not disclose the breakdown of its sales by the EU countries. In its comments, MADARA has stated that regarding the European markets, apart from Latvia and Finland, it focuses mostly on expansion in Germany and France, but also increasingly in the Netherlands, UK, Spain, Sweden, Denmark, and Belgium. Germany, both the largest cosmetics market in Europe overall and the largest for natural and organic cosmetics, particularly, is a growing and very promising market for the Company. Among MADARA’s primary target markets in Europe are countries with high demand for quality organic products, where people have high disposable incomes and more advanced online shopping habits. Although the competition is rather stiff in most of these markets, rapidly growing demand for natural and organic cosmetics and changing consumer habits are opening up opportunities for different market players. The Company is also entering Asia-Pacific and Middle East countries, and in fact, it already has a presence in some of them now.

The Company has also partnered with The Hut Group, a globally renowned end-to-end tech platform specialising in taking brands direct to consumers worldwide, with a presence in 169 countries. Given the success the Company has achieved through e-commerce channels in the past few quarters, it is strongly focused on expanding the presence of its both brands, i.e. MADARA and MOSSA, into new territories through e-commerce and retail. Distribution Channels

MADARA’s distribution can be broken down into two larger channels - direct and third-party distribution (wholesalers). For more than five years, the Company has done direct distribution to clients in Germany and France (the largest cosmetics markets in the EU) and considering the positive results, in recent years, MADARA has taken up the challenge to distribute its products directly in markets such as the Netherlands, Belgium, United Kingdom, Sweden, and Denmark. Direct distribution increases profitability by excluding intermediary - wholesalers, but increasing transportation costs and selling costs, however the end result (bottom profitability) is positive according to experience in Germany and France. For Germany, in particular, the Company established its MADARA Cosmetics GmbH subsidiary in 2016 as additional support for the expansion in Europe’s largest natural and organic cosmetics market. The German subsidiary is acting as the representative and direct distributor of the ‘MADARA’ brand in Germany. Direct e-commerce, which has become one of MADARA’s main distribution channel (2021 - 36% of total sales), possess the highest margins as it excludes all intermediaries (e.g., wholesaler, retailer), this fact is supported by steep growth in direct e-commerce sales proportions in 2020 (35%) and increasing gross margin by 6.2pp and EBITDA margin by 7.6pp y-o-y. The second is third-party distribution – wholesalers. Although this distribution type has thinner margins it is an important channel for new or complicated market penetration (e.g. Asia) as wholesalers usually have good knowledge about the market itself and have client networks with good business relations.

The Company’s brand boutiques, a proven and successful domestic channel, are located in Riga’s leading shopping centres, namely Alfa, Spice, Galerija Centrs, and Akropole. In addition to these stores, the Company has a factory shop at its production facility in Riga. MADARA has worked hard to develop its highest margin channel, a direct e-commerce platform. The stores are operated under the ‘madaracosmetics’ domain with many different extensions, such as .com, .lv, .ee, .fi, .de, .lt, .uk, .fr etc. Also, MADARA on regular basis is working on search engine optimisation and social media optimisation, which drives website visits, and consequently sales. Recently, MADARA invested to modify the e-commerce platform to be much more compatible for interaction and purchases via phones and tablets, considering that more than 50% of visits are via mobile phones and interaction from advertising on social media is via such devices (c.a. 95% use social media through mobile phones). Most people are also searching on Google using a mobile device. In November 2016, Google announced a major change to the way crawling websites and started to make their index mobile-first, which means the mobile version of a given website becomes the starting point for what Google includes in their index (search result priority). According to the latest announcement, MADARA is planning to utilise cookies to personalize offers according to customers’ profiles. The Company’s third-party retail distribution chain includes conventional and online retailers across 25+ countries. The physical retailers include different department stores, such as Sokos in Finland; Stockmann in Finland, Estonia, and Latvia; Magazine in Denmark; and Ahlens in Sweden. Also, up-market health food stores, such as Basic in Germany, Wholefoods in the United Kingdom, and Rouhonjuuri in Finland as well as niche perfumeries, individual perfumeries, and organic perfumeries, as well as beauty chains with dedicated shopping areas for natural skin care products. Online retailers include several well-respected specialised online shops like douglas.de, flaconi.de, feelunique.com, lovelula.com, najoba.de, and greenglam.de. Douglas is the leading premium beauty platform in Europe, with about 40% e-commerce market share in Germany. Products under the ‘MOSSA’ brand are often sold alongside the ‘MADARA’ brand but are also sold in drugstores such as Drogas, Latvia’s largest pharmacy chain. The Company is in the process of expanding the distribution chain for the MOSSA brand through other pharmacies outside Latvia and similar channels. COVID-19 Resilience

During the COVID-19 pandemic, MADARA has proven itself to be resilient and even strategically growing despite a strong uptrend in COVID-19 infections and related movement restrictions imposed in Latvia and many other EU nations, which led to the temporary store closures and considerable reduction in footfall in physical stores even when stores were reopened. As per the management, this resilience could be attributed to their increased focus on e-commerce with past and ongoing investment in e-commerce infrastructure, the successful market launch of new organic products, and further market penetration in key EU nations like Germany and France through a growing network of third-party platforms and physical stores. Russia-Ukraine War Implications

The Company has mentioned that no supply chains have been affected as there are no suppliers in Russia, Belarus, and Ukraine. Furthermore, MADARA has stopped exports to Russia, Belarus, and Ukraine which will have a very minor impact on the Company’s sales (less than 1%). Russia’s invasion of Ukraine has caused both sided sanctions which have torn mutual economic cooperation. Also, the warfare has resulted in a steep increase in commodity and energy prices, pressuring consumer purchase power which might reflect in MADARA´s sales. However, the personal care industry has shown resilience to the economic crisis as the personal care goods are similar to first necessity goods, namely, people need to wash and take care of their appearance. The Company reported Q1 2022 sales of EUR 4.8m (+7.4% y-o-y and +5.6% q-o-q). The sales in European Union countries (excluding Latvia) increased by 14% y-o-y, while sales in Latvia and outside the EU declined by 2% and 4%, respectively. This slower growth has been mostly the result of the escalating war in Ukraine in the first quarter which reduced activity in several of the Company’s markets. Especially in Eastern Europe, consumers are more anxious due to the proximity of warfare and history that is similar to current developments in Ukraine. Due to this situation, MADARA conducted much fewer sales campaigns, simply because it was not relevant to society as people were highly concerned about war escalation and focusing on their safety. The first panic reaction should be over, and although we expect more consumer activity in the rest of 2022, we now have empirical evidence that consumer behaviour is impacted by warfare developments in Ukraine. This will also depend on how quickly MADARA will restart its sales campaigns in Q2 or coming quarters. We believe that sales in the Latvian market were more impacted by the geopolitical crisis compared to central and western European markets, with people concentrating more on first necessity goods. We expect the geopolitical crisis to be long lasting, thus prolonging the commodity and energy inflation effect. MADARA has evaluated that high energy prices do not cause a meaningful decrease in profitability as the Company’s manufacturing does not involve high energy consumption. It is unlikely that product prices will be adjusted any time soon this year as business partners

usually ask for price adjustments in advance. This initially seems to significantly lower the profitability; however, the Company has sufficient finished goods and raw material inventories for the coming quarters this year, thus the price increase of raw materials during this year would not affect it. The energy, logistics, and salary inflation all together still will negatively impact profitability, but the impact should not be significant. With trade sanctions imposed by the EU on Russia, many supply chain disruptions have occurred, and the trade sanction list is continuously extended. Russia has gravity in global trade, e.g. it is the 5th global exporter of iron and steel, 1st in nickel and 2nd in aluminium exports. Construction companies are increasingly warning about the steep price increase in raw materials and even unavailability. Although the new production plant construction is planned to be initiated in 2023, the current situation has no timetable. The implications potentially could be postponed construction and a much higher capex than planned. But there should not be immediate growth concerns as the current production plant can achieve more than double the capacity.