Company Overview

In valuing the shares of MADARA, we are following two main valuation methods: 1) an income approach, based on the Discounted Cash Flow (‘DCF’) calculations and 2) a market approach, based on valuation multiples of a peer group of comparable listed companies. We have used the weighted average of values derived from the DCF and peer valuation, applying different weights to each method. Overall, based on our current projections for MADARA and other assumptions, we decided to slightly increase our fair value range (‘FVR’) for the stock from the previous EUR 8.60-9.40 to EUR 23.8026.30 per share.

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. 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 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. Cosmetics NORD SIA is focused on rendering contract manufacturing services using the production infrastructure and capacity of MADARA, with sales amounting to EUR 0.3m in 2020, down 51% y-o-y, due to difficult circumstances related to the COVID-19 restrictions in the operation of several partners. However, the management claims that in response to the drop in turnover, Cosmetics NORD SIA developed a new contract strategy, which is actively implemented in 2021. 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. 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. 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:

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. 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 MADARA 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.

Shareholders

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 in the 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 the 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

MADARA Shareholders (9th Feb2021)

15.90%

6.67% 6.79%

22.94% 23.93%

23.77% Uldis Iltners

Lote Tisenkopfa-Iltnere

Oy Transmeri Group AB

Liene Drāzniece

Zane Tamane

Other

Source: MADARA

History

Major milestones in the Company’s history 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 receives ECOCERT certification for its products and launches industrial-scale production. 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 north ern 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 for the Finnish market, and goes on to become the third best known organic cosmetics brand in Finland. 2014 Harper’s Bazaar cites MADARA’s products as “Natural cosmetics for Aesthetics” and the concept store-salon, SKIN CAFE, is opened in Riga.

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 of “Most Loved Brands in Latvia”, and the new factory opens and commences full-scale production. 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. Source: MADARA

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 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 2018, MADARA also 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 of 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 as moisturising cream with Centella Asiatica (CICA) plant extract in SOS Hydration skincare line.

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 more than double the current production volumes by increasing the number of shifts and batch sizes. Currently, the Company is making additional capital investments in packaging machinery and a mixing unit in the existing production plant. Also, the planned new production plant (the expected start of construction works in 2023) will allow further growth. 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, haircare, 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. It is believed that this business line will assist 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 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, 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 57% of the total revenues in 2020, dominate the breakdown of MADARA’s sales by product categories. Other larger product groups of the Company include body care (12%) and makeup (12%) products, followed by anti-age (11%) and hair care products (7%). The launch of makeup products in September 2019 affected the breakdown of MADARA’s revenues by product groups significantly in 2020 compared to 2019. 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. In 2020, MADARA launched a number of new products in the market, continuing to prove itself as an innovative and contemporary manufacturer of natural cosmetics. These new products have been added to the existing product categories, as well as new categories have been launched. Among the new product categories, the ACNE range for problem-prone skin should be highlighted, which has successfully attracted a new segment of cosmetics users for the Company. The Company also started the production of both classic lip balms and lipsticks, which is an important addition to the makeup line. The most important individual new products are Time Miracle Hydra-Firm Hyaluron Concentrate Jelly and FAKE IT Healthy Glow Self Tan Serum for the face, which have rapidly become the bestsellers for MÁDARA. In 2020, the new products accounted for EUR 2.2m of the Company’s total turnover.

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.

Brand

Brand positioning statement

Brand USP

Target audience ‘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. 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.

‘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’

‘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.

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

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

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, where revenues grew at a compounded annual growth rate (“CAGR”) of 23.1% during 2018-2020. It has high brand recognition and consumer loyalty. In 2020, the Company’s net sales in the Latvian market amounted to EUR 4.2m (+36.9% y-o-y), with c.a. 20% of this being generated through its own physical stores. Originally MADARA gained popularity as a local, sustainable skincare manufacturer, but it is now a well-known story of successful Latvian entrepreneurship. 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 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 bestsellers. 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. In Latvia, the Company’s subsidiary Cosmetics Nord SIA has partnered with The Frost Beauty (a brand developed by Monami Frost) and the management indicated that the Company is happy with this partnership. 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, 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. The Company is also planning to enter 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

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 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 in 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 20+ 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 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. The Company has recently added two remarkable retail partners. First, a digital consumers brand group, The Hut Group, operating various beauty online retail websites globally (e.g. Lookfantastic, Skinstore) and has a presence in 169 countries. Lookfantastic beauty online store where MADARA’s products are listed is one of the leading online beauty retail stores in Europe. The second partnership is with Douglas for the German market. Douglas is the leading premium beauty platform in Europe, with a 39.9% e-commerce market share in Germany. Considering that Germany is the biggest cosmetics market in Europe, this cooperation is an important step for rapid expansion, sales growth, and brand recognition. These partnerships hold great potential for MADARA’s growth globally with an emphasis on the European market, as such recognised marketplaces will significantly improve MADARA’s brand recognition.

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 physical stores.