Company Overview

MADARA plans to benefit from the powerful market trends. Besides its domestic market, Latvia, the Company’s core markets include Northern European countries, where demand is high for quality organic products as people in this region have high disposable incomes and more advanced online shopping habits. This does not in any way preclude efforts in other European countries, though a focus closer to home is natural in the short term, with further opportunities identified over the longer term. One of the main markets for MADARA is Finland, where the trend towards natural beauty and personal care products is becoming more mainstream. The use of natural products first emerged with smaller, organic, and premium brands, though it is now spreading to more widely used products. Natural ingredients have featured in the vast majority of new product launches, including those from leading mass brands, such as Unilever and L’Oréal. Competition is therefore intensifying, with several other international best-selling, naturally-positioned brands with innovative ingredients entering the Finnish market in recent years. Skincare, haircare, and makeup are widely using organic care products, collectively accounting for nearly four-fifths of the global organic personal care and cosmetic products market. The cosmetics industry is highly competitive, with the skincare segment set to remain the dominant part, accounting for nearly one-third of the market by 2022. According to many research reports, a larger, ageing population is helping drive growth in this segment, feeding off increased demand for natural and organic anti-ageing creams, moisturisers, and body lotions. Consumers perceive natural and organic products to be safer and of higher quality, with oils from natural sources such as argan, marula, almond, aloe vera, and coconut proving to be particularly popular ingredients for organic skincare products. For a variety of reasons, consumers are seeking ways of embracing a more natural lifestyle, a trend that also applies to cosmetics. Those with the money are moving away from mass-produced items towards those marketed as a part of a healthier, wellness-oriented lifestyle. This is a worldwide trend based on a preference for organic products that have been developed ethically and in an environmentally friendly way through the entire value chain. The visibility given to organic skincare products by the entry of large multinationals to the segment has generated additional demand and accessibility. Therefore, retailers who promote product quality, transparency, and sustainability are doing better than ever. Sustainability as a concept is growing in importance – consumers are becoming more aware of the term and show a preference for products manufactured under its principles: using renewable energy, recyclable packaging, and locally sourced ingredients. In response, the major brands operating in the industry are altering their products mixes, shifting the types of their ingredients used and acquiring natural skincare brands. The main advantages for the larger market players are that they produce natural cosmetics with advanced formulas at a lower cost. However, the higher costs of smaller manufacturers and, therefore, higher prices seem to have relatively little effect on consumer preferences, as they are willing to pay a premium for natural cosmetics. The rise of the individual consumer is an important trend underlying the shift in consumption patterns. After scientific research started highlighting the damage inflicted on the skin by environmental factors (radiation, free radicals and the like), antioxidants were hyped as potential offsets. This gave rise to the trend of using plants that contain very high concentrations of powerful antioxidants in skin creams. The key to success on the market seems to be in combining multiple antioxidants to provide the fullest spectrum of protection possible. Active players in the market invest in research and development to introduce innovative products. These are sold mostly through supermarkets, brand outlets, department stores, drug stores, pharmacies, non-store retail formats, and concept stores. These traditional retail channels still dominate the global cosmetics market. However, increasing rates of internet penetration worldwide, together with ease of availability and attractive discounts, has led to a growing preference of consumers to buy through the online sales channel. This trend should give a further boost to online sales of organic personal care and cosmetic products in the coming years. It is estimated that e-commerce formed 12-13% of the global beauty market in 2018. For many companies, online sales has become the channel of choice, allowing them to increase market penetration, consumer reach, and expand their consumer base. Therefore, while demand for organic cosmetics is growing, the customer’s interaction and experience, using diagnostic tools and digital apps, as well as electronic payments and delivery, are also transforming the industry. For e-commerce sales, retailers must continue to invest in omnichannel presence, bundling together retail, online, and mobile app stores with other methods of engaging with a customer. Several communication channels give the customer the ability to remain in constant contact with a retailer through multiple means. The return on investment generated by more positive customer experiences can be quantified by correlating it with customer loyalty. Company Overview

MADARA was established in 2006, aiming to create effective and innovative organic skincare products, which are sustainable, safe and fully 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. Each product is exclusively developed and manufactured in MADARA’s own laboratories and production facilities, enabling it to take 100% control over all processes. Organic ECOCERT certification, GMP and ISO standards, in vitro and in vivo researches 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.

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, located in shopping centres – “Galerija Centrs”, “Spice”, “Alfa”, and “Akropole”. The newest store in “Akropole” was launched in April 2019. In 2019, MADARA Retail SIA generated revenues of EUR 0.94m (+28% y-o-y), accounting for nearly a third of the Company’s total sales in Latvia. Cosmetics NORD SIA is focused on rendering contract manufacturing services using the production infrastructure and capacity of MADARA, with sales amounting to EUR 0.6m in 2019, down 15% y-o-y. However, the management claims that Cosmetics NORD SIA attracted several new customers last year as well as performed development of several new products for contract manufacturing customers. MADARA Cosmetics GmbH provides cosmetics marketing services in Germany and organises the distribution of MADARA products in that market.

Also, there is a 19% minority shareholding in SIA Farmācijas, biomedicīnas un medicīnas tehnoloģiju kompetences centrs and a 9% holding in SIA Pharma and Chemistry Competence Centre of Latvia. 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.

Shareholders

As at the end of 2019, MADARA had a total of 3,745,242 shares outstanding, with the nominal value of EUR 0.10 each. The Company is effectively controlled by Mr Iltners and Mrs Tisenkopfa-Iltnere, who are spouses and exercise their voting rights jointly. With the combined ownership of 48.0%, these two shareholders jointly exercise a significant degree of influence over the Company. Other larger shareholders include Oy Transmeri Group AB, Mrs Zane Tamane, and Mrs Liene Drāzniece. The latter two were among the founders of the Company back in 2006. Oy Transmeri Group AB (‘Transmeri’) is a Finnish family-owned company mostly engaged in importing and distribution of 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.

MADARA shareholders (31st Dec 2019)

14.47%

6.83%

7.61%

23.09% 24.08%

23.92%

Uldis Iltners Zane Tamane

Source: MADARA

Lote Tisenkopfa-Iltnere Liene Drāzniece Oy Transmeri Group AB Other

Management

The operational management of the Company is structured as a regular two-tier system, comprising of the management board and supervisory board. The management board is responsible for the day-to-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. Supervisory 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: Zane Tamane, Anna Ramata-Stunda, Anna Andersone, and Liene Drāzniece. As the Company received the notification from the fifth member of the supervisory board, Anu Pauliina Koskinen, about leaving the board as of 30th June 2020, the supervisory board currently comprises four members until the AGM on 28th July 2020. According to the agenda of the AGM, it is proposed to recall Zane Tamane from the supervisory board and elect two new members to the board – Edgars Pētersons and Sari Hannele Rosin. Zane Tamane – Chairman of the supervisory board. Born in 1981. She is proposed to be recalled at the next AGM. Graduated from the Stockholm School of Economics in Riga in 2003, with a bachelor’s degree in economics, specialising in the field of marketing. Before co-founding MADARA in 2006, she worked in two international advertising agencies – McCann and Lowe – as a Brand Strategist for major Latvian brands. Anna Ramata-Stunda – Member 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 a board member and co-founder of the company SIA InCell, which provides biotechnology and research services. Ms RamataStunda is the co-author of many scientific publications, as well as holds several patents. Liene Drāzniece – Member 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. 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. Edgars Pētersons – Proposed to be elected as Member of the supervisory board at the next AGM. 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 – Proposed to be elected as Member of the supervisory board at the next AGM. 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 23.1% stake. She is also the CEO of Oy Sultrade Ltd, a sister company of Oy Transmeri Ab, importing, selling, and marketing wellknown sports brands in Finland and the Baltics. Since April 2020, she is the Chairman of the board in Finnish Cosmetic and Detergent Association.

Management Board The management board comprises of 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.

History

Major milestones in the Company’s history are listed below: 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. Paula Tisenkopfa – Member of the management board. Born in 1988. She graduated from the University of Latvia with a bachelor’s degree in philosophy. Ms Tisenkopfa co-founded the Group in 2006, and since then she has been actively involved in sales and export expansion, as well as in the areas of product and brand development. Currently, Ms Tisenkopfa’s main areas of responsibility are human resources and matters of corporate governance.

2005 The MADARA brand is conceived and developed by Ms Tisenkopfa-Iltnere and Mr Iltners.

2006-2007

2008

2008-2009 The brand is launched, and the first products are introduced into the Latvian market.

MADARA becomes a leader in the natural/organic cosmetics sector in Latvia. The Company opens its first factory and receives ECOCERT certification for its products and launches industrial-scale production.

MADARA Retail SIA is established, and MADARA brand shops are opened in Riga.

2009

2011

2012

2013

2014

2015

2016

2017

2018

2019 MADARA Retail SIA is established, and MADARA brand shops are opened in Riga.

The international online store is opened, and over 3,000 purchases are made on the first day of operation.

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.

MADARA starts successfully collaborating with Finnish blogger, Noora Shingler, launching custom-made products for the Finnish market, and goes on to become the third best known organic cosmetics brand in Finland.

Harper’s Bazaar cites MADARA’s products as “Natural cosmetics for Aesthetics” and the concept store-salon, SKIN CAFE, is opened in Riga.

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.

MADARA named the “No.1 Greenest Brand” in the annual ranking of “Most Loved Brands in Latvia”, and the new factory opens and commences full-scale production.

Successful IPO priced at EUR 6.25 per share and listing on the Nasdaq Riga First North.

MADARA launches a new sunscreen product line

New organic makeup line was launched in September 2019.

Research and Development

One of the key strengths of the Company is an in-house laboratory supplements industries. It is believed that this business line will assist

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 when the Company managed to develop a sun protection formulation based on mineral filters. In the industry of certified natural cosmetics, 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 2018, MADARA also started the development of a certified natural makeup product range. According to 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 of this category and expand its product range.

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 a new factory, which has been fully commissioned since February 2016. While the two production sites continued operating in parallel for some months, by September 2016 all production had moved to the new site. The new factory is 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 double or triple current production volumes by increasing the number of shifts and batch sizes. There is also room to accommodate more equipment, allowing for even greater expansion. 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. With its extra production capacity, the Company, under the Cosmetics NORD subsidiary, offers contract manufacturing to third parties. It has developed a reputation as a reliable supplier of certified manufacturing services for high quality, modern natural skincare, hair care and baby care formulae. Contract manufacturing customers are offered a range of readymade formulae already tested in the market that can be quickly adjusted to meet their specific needs. Alternatively, the Company is able to source and incorporate specifically selected ingredients and perform research to develop completely new formulations. This has been a growing business line for the Company, especially within the non-domestic market. The Company has around ten contract manufacturing clients, most of whom are located in Scandinavia, operating in the hospitality, fashion, and food

the management, this is considered the largest development project the Company’s expansion in foreign markets.

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 of the 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 on 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 80 different cosmetic products, including facial cleansers, toners, moisturisers, masks, serums, facial oils, eye- and lip-care products, soap bars, liquid soaps, body moisturisers, deodorants, shampoos, conditioners, 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. MADARA undergoes extensive research when creating and choosing a product. For example, the ‘Time Miracle’ product line, the world’s first anti-ageing skincare product based on birch water, 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. Facial care products, accounting for 58% of the total revenues in 2019, dominate the breakdown of MADARA’s sales by product categories. Other larger product groups of the Company include body care (15%) and anti-age (13%) products, followed by hair care products (10%). The newly launched products affected the breakdown of MADARA’s revenues by product groups for the last year. Following the introduction of functional hair products in Q1 2019, the portion of hair care products grew by 3pp last year compared to 2018. Although the Company launched the new makeup line only at the end of September 2019, makeup products formed c.a. 3% of full-year sales. Therefore, we assume that the makeup line had a good start and formed over 10% of the total sales in Q4 2019, allowing us to

expect more positive developments in the coming years. The Company stated that, by the end of 2019, the makeup line was launched in Latvia, Finland, Germany, and France, receiving positive feedback and market response. In 2020, MADARA plans to launch the sales of makeup in several new countries, and rapidly expand in the countries where the new products have already been launched, anticipating the new segment to form 7-10% of sales this year, with a gradual increase in the following years.

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.

Sales breakdown by product category (2019)

3% 1%

10%

13%

15% 58%

Face

Body Source: MADARA

Anti-age Hair Make-up Mother & Baby

Brand

Brand positioning statement

Brand USP ‘MADARA’

‘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.

‘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).

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. 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.

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’ 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.

Positioning and price range

Retail channels ‘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. ‘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.

‘MADARA’ product are to be offered in premium beauty stores, department stores and small luxury organic shops, including via e-commerce channels.

‘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.

Competitors

Main competitors to ‘MADARA’ are Lumene, Caudalie, Dr. Hauschka and Origins. Source: MADARA Cosmetics ‘MOSSA’

The competitors for ‘MOSSA’ are mass product lines in each respective country, such as Lumene, L’Oreal, Nivea, Lavera, etc.

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 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. It has high brand recognition, consumer loyalty (87% of customers say that they buy its products regularly), and average annual growth of nearly 20% for the last three years (2017-2019). In 2019, the Company’s net sales in the Latvian market amounted to EUR 3.1m (+15% y-o-y), with c.a. one-third of this being generated through its own physical stores. Originally MADARA gained popularity as a local, sustainable skincare manufacturer, but is now a wellknown story of successful Latvian entrepreneurship. Finland is one of the Company’s first and largest export markets, with 2019 net sales in the country of EUR 2.5m, contributing c.a. 22% of the total 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 beauty scene. 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 wellknown Finnish natural lifestyle advocate, journalist and blogger, Noora Shingler. This cooperation includes 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 best-sellers. MADARA has strong connections with Oy Transmeri Group AB (‘Transmeri’), one of the largest cosmetics and personal care products importer and wholesaler 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. Unfortunately, the Company does not disclose the breakdown of its sales by the EU countries. In its comments, MADARA has stated that regarding the EU markets, apart from Latvia and Finland, it focuses mostly on expansion in Germany, Netherlands, UK, Spain, and France. 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.

Distribution Channels

The Company sells its products through various distribution channels, including brand boutiques, online stores, and third-party retailers in over 25 countries. 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 Galerija Centrs, the Company also operates its own beauty salon, Skin Café, which offers beauty treatments and procedures with MADARA products. These brand boutiques and the beauty salon are all managed by MADARA Retail SIA. In addition to these stores, the Company has a factory shop at its production facility in Riga. MADARA has worked hard to develop its online distribution network, with national online stores. The stores are operated under the ‘madaracosmetics’ domain with many different extensions, such as .com, .lv, .ee, .fi, .de, .lt, .uk, .fr etc. For Germany in particular, the Company established its MADARA Cosmetics GmbH subsidiary in 2016 as additional support for the expansion on the Europe’s largest natural and organic cosmetics market. The German subsidiary is acting as the representative of the ‘MADARA’ brand in Germany. The Company’s third-party 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; up-market health food stores, such as Basic in Germany, Wholefoods in the United Kingdom, and Rouhonjuuri in Finland; niche perfumeries, individual perfumeries, and organic perfumeries, as well as beauty chains with dedicated shopping areas for natural skincare products. Online retailers include several well-respected specialised online shops like lovelula.com, najoba.de, and greenglam.de. 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.