2020-2021 Cosmetics Sector Assessment

During the pandemic period that negatively affected the world in 2020, MG International Fragrance Company continued production without slowing down. We prioritized employment protection and continued our investment planning to meet increased demand in certain product groups domestically and internationally. In particular, the rising demand and consumption of hygiene and cleaning products offset the contraction in premium cosmetic products sold through retail channels. The first quarter of 2020 was marked by growth and success for the chemical sector. However, the unpredictable pandemic process in the remainder of the year caused delays in targets and action plans designed to achieve them, bringing disadvantages such as closure of important markets for producers and customs restrictions. The pandemic began showing its initial effects in March, April, and May 2020. Adaptation to new dynamics and controlled normalization from June onwards were reflected in domestic and foreign sectoral markets. The increasing interest in disinfectants, home and personal hygiene products—a source of encouragement for producers—contributed to production increases and strengthened cooperation with local suppliers. This formed a brief summary of the success in reaching 2020 targets. From a global perspective, the pandemic process caused contraction worldwide and quantitative and volumetric losses in certain product groups. Interest increased in alternative private label (PL) branded products with similar effect and quality to the sector's flagship products: soap, cologne, and disinfectants. We saw the impact of this in our exports over the first 10 months. In these product categories, we experienced growth of nearly 50% compared to the same period last year. This process changed shopping habits and priorities in our country and worldwide. I believe that in 2021, new PL branded products will be added and interest will continue to increase. In the first quarter of 2021, we will add another line to our state-of-the-art robotic production facility. With this investment, we planned increases in both capacity and efficiency, and while maintaining our steady growth rates over the last 5 years, we will produce more for our friends in the sector. Exports are very important for us and our country. We will continue our export offensives to increase our own foreign exchange reserves, and 2021-2022 will be the PL year. I anticipate that hygiene product consumption will gradually increase over the next 2 years. In consumer habits, home care and personal care products will see greater demand. I believe that going forward, consumers will act much more consciously, conduct more detailed examinations of product contents, and make new purchasing decisions accordingly. This actually means consumer preferences directing sector dynamics. As MG International Fragrance Company, we work both internally and with our sector stakeholders and official organizations to protect public health, prevent the spread of Covid-19, and ensure supply chain continuity. We continue our operations with certain precautions to ensure production continuity and navigate this period safely. *** In 2020, there were differences in the expectations and product demands of our existing customers. Different from the products we supplied, certain product expectations emerged related to personal hygiene and protection against the Covid-19 virus. At this point, as a result of our R&D department's work, we developed hand, environmental, and surface disinfectant products. We particularly exported these products to the United Kingdom, Ireland, the United States, and Northern European countries. We also observed notable increases in demand for the organic cosmetic products we currently produce. We observe that demand for hygiene products will continue for at least another 2 to 3 years. There is a trend toward increased demand for organically certified cosmetic care products in our own product portfolio. We particularly observe that Generation Y and Z have high sensitivity regarding sustainable cosmetics, environmentally friendly production, safe content, and natural ingredient use. The fact that our COSMOS-certified organic certified product count increased fourfold in just one year, combined with world-renowned brands continuing to increase their investments in this area, supports our view in this direction. In addition to all this, "do it yourself" approaches are gradually gaining importance. Increased time spent at home and guidance for individuals to stay away from crowded spaces created the need for people to produce their own personal care products at home. At this point, manufacturers created product kits for this purpose, meaning they offered product alternatives for customers to experience the production process themselves. The Covid-19 pandemic process must be evaluated in two separate categories: sectoral results and its impact on how we work in the factory. With the onset of the process, there was an explosion in demand for antibacterial products and personal hygiene products such as cologne and soap. Managing this demand increase was quite difficult initially. As an R&D team, we provided intensive support in evaluating alternative sources for the supply chain. We also evaluated new product ideas that came to the forefront during this period and implemented new launches. As a company aware of its responsibilities to the society we live in, we sought to ensure that personal cleaning products reached those in need across all parts of the country as part of this responsibility. Regarding the impact on our way of working, we created security measures under 40 different headings to create a safe work environment. Among these, I can particularly mention the installation of fixed and contactless thermal body temperature measurement stations at the factory entrance, establishment of digital epidemiological infrastructure, monitoring of employees' risk analyses through a 4-question online mobile survey updated daily, transition to remote work arrangements in office operations, reorganization of common use areas such as service/cafeteria/common/changing rooms according to safe social distancing requirements, establishment of a Psychological Support Line to support employees, and transition to periodic PCR testing applications. Vaccination results, the risk of virus mutations beyond our control, and similar issues may continue to affect our lives. As Evyap, we continue our operations without compromising on precautions. While demand for products appears to have balanced and stabilized at a certain level, pandemics of this scale can cause long-term changes in consumer hygiene habits. We continue to work on reviewing and updating our product portfolio in line with these trends. HR work toward widespread adoption of remote work models for office employees is being conducted in our company as in most companies; sustainable remote work models are being investigated. In this regard, we believe we are entering a period where companies' technological infrastructure will gain importance and remote communication channels will diversify. 2020 was a good year for the cosmetics sector with no major contraction. It was also a year of growth for pharmaceuticals. Even during the pandemic, we maintained our leadership in direct sales in Turkey, closed 2020 in 26 countries with high success, with USD 500 million in turnover and four million entrepreneurs, beyond our targets. According to 2020 data released by "Direct Selling News," the world's most prestigious direct sales website, we achieved a first for Turkey by ranking 32nd in the world's top 100 direct sales rankings as Farmasi. Farmasi's exports in 2020 showed 2.5% growth. In particular, the rapid growth of Farmasi USA in North America was the main reason for this increase. In 2021, we will further increase our exports to the major markets we will enter. With the pandemic, user preferences also changed. While our makeup sales decreased, our skincare products sales increased, and our home cleaning and food supplement products saw great competition. People turned to health and care during this special period. We shaped our investments according to consumer preferences, quickly caught trends, and focused on global growth. Farmasi is a profitable, high-investment capacity, fast-decision-making, dynamic family company. We have an investment plan of USD 150 million for the next 5 years. As Farmasi, we will enter new countries in 2021. These countries include Mexico, Canada, and Germany. We will establish our own operations in these countries. Each country has an investment value of USD 5 million. We plan to enter the Asian market in one year. Additionally, this year we established a technology company called FarmasiX in Turkey. Here we are conducting all types of automation, robotics, and e-commerce development. In March, we opened Farmasi Plaza in the area where our factory is located in Istanbul Ömerli for our white-collar employees. With the pandemic, the importance of healthy nutrition increased significantly, and we took action to meet this demand. This year we are establishing Turkey's most advanced food supplement facility. We are continuing our foreign investments without slowing down. In America, we purchased two separate 300-acre plots of land in 2020. We will use one plot solely as storage space, and on the other plot we will have both our America headquarters and a robot-equipped warehouse investment. We are also establishing an operations center on the island of Puerto Rico, a US territory, and will provide direct service to our entrepreneurs there. According to an independent research company's results, Farmasi became Turkey's most preferred and most liked cosmetics brand. As these results that make us proud come in, we continue to compete with ourselves and challenge ourselves. Our goal is to be one of the world's top 10 cosmetics brands and a world brand.