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Edited Transcript of NATU3.SA earnings conference call or presentation 6-Mar-20 2:00pm GMT

Q4 2019 Natura Cosmeticos SA Earnings Call

SAO PAULO Mar 27, 2020 (Thomson StreetEvents) -- Edited Transcript of Natura Cosmeticos SA earnings conference call or presentation Friday, March 6, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Angela Cretu

Natura &Co Holding S.A. - CEO of Avon

* João Paulo Brotto Gonçalves Ferreira

Natura &Co Holding S.A. - CEO of Natura &Co Latin America

* José Antonio de Almeida Filippo

Natura &Co Holding S.A. - Chief Financial & IR Officer

* Roberto de Oliveira Marques

Natura &Co Holding S.A. - Executive Chairman of the Board & Group CEO

* Viviane Behar de Castro

Natura &Co Holding S.A. - IR Director

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Conference Call Participants

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* Helena Villares

Itaú Corretora de Valores S.A., Research Division - Analyst

* Olivia B. Petronilho

JP Morgan Chase & Co, Research Division - Analyst

* Robert Erick Ford Aguilar

BofA Merrill Lynch, Research Division - MD in Equity Research

* Ruben Couto

Santander Investment Securities Inc., Research Division - Research Analyst

* Tobias Stingelin

Citigroup Inc, Research Division - Director

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Thank you for waiting. At this time, we would like to welcome everyone to the Natura &Co conference call on the 2019 fourth quarter and full year results.

Today, with us we have Mr. Roberto Marques, Executive Chairman of the Board and CEO of Natura &Co; Mr. José Filippo, CFO of Natura &Co; Mr. João Ferreira, CEO of Natura; Ms. Angela Cretu, CEO of Avon; Ms. Viviane Behar, Investor Relations Director of Natura &Co.

This event is being recorded. (Operator Instructions)

We have a simultaneous webcast that may be accessed through Natura's IR website, www.natura.net/investor. The slide presentation may be downloaded from this website. There will be a replay facility for this call on the website after the end of the event.

This presentation may contain forward-looking statements. Such statements are not statements of historical fact and reflect the beliefs and expectations of Natura &Co's management. This presentation also includes adjusted information prepared by the company for information and reference purposes only, which have not been audited. Forward-looking statements speak only as of the date they are made, and the company does not undertake any obligation to update them in light of new information or future developments.

Now I will turn the conference over to Ms. Viviane Behar, Investor Relations Director of Natura &Co. Ms. Viviane Behar, the floor is yours.

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Viviane Behar de Castro, Natura &Co Holding S.A. - IR Director [2]

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Good morning or good afternoon to everyone. I am Viviane Behar, Natura &Co's Head of Investor Relations. Thank you for joining us today for this call to present Natura &Co's Fourth Quarter and Full Year 2019 Earnings.

Please note, Natura &Co and Avon have filed their respective Q4 and full year financials separately, considering that in this period, the companies were independently managed and the acquisition was completed on January 3, 2020. As such, we will briefly comment on Avon's Q4 and full year financials given that Avon will not host an earnings call of its own, but those numbers are not part of the 2019 consolidated accounts of Natura &Co that we are presenting today.

I am joined here today by Robert Marques, Executive Chairman and CEO of Natura &Co; José Filippo, CFO of Natura &Co; as well as João Paulo Ferreira, CEO of Natura &Co Latin America; and Angela Cretu, CEO of Avon, who will both join us for the Q&A session. Our Investor Relations team of Natura &Co is also with us.

The presentation we will be referring to during this call is available on the Natura &Co Investor Relations website. Roberto will start with an overview of our performance. Filippo will detail our financials for Natura &Co. He will also comment on 2019 pro forma consolidated P&L, combining Natura &Co and Avon, and provide a brief overview of Avon's Q4 and full year results. After that, Roberto will make concluding remarks, and we will open the floor to your questions.

Let me now hand over to Roberto.

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Roberto de Oliveira Marques, Natura &Co Holding S.A. - Executive Chairman of the Board & Group CEO [3]

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Thank you, Viviane, and hello to everyone. Thank you for joining us. Let me begin on Slide 3 with an overview of our performance. 2019 was another year of profitable growth and transformation for Natura &Co as we continue to build what has now become the world's fourth largest pure-play beauty company with a portfolio of iconic brands further enhanced by the acquisition now of Avon.

Our fourth quarter performance demonstrates again the power of our multi-brand, multichannel group. The strength of our results continues to show our ability to serve ever-increasing number of customers across price points and distribution channels. Again, this quarter and year, all of our business and brands contributed to a strong performance, with consolidated net sales growth of 7.3% in the fourth quarter and 7.8% in the full year.

Natura posted further growth in Brazil and Lat Am while developing its relationship selling model and multichannel strategy. The Body Shop continued to successfully implement its ongoing transformation plan and expanded margin to achieve its guidance. And Aesop returned to strong double-digit growth in sales and profitability, and its store footprint continued to grow with 20 net opening in the year. This is all despite the challenges we continue to face with both a weak CFT market in Brazil and ongoing events in Hong Kong, an important market for both The Body Shop and Aesop.

Our consolidated adjusted EBITDA grew in double digits by 12.2% in Q4 and by 7.5% in the full year. Our underlying operating income, which provides a picture of our profitability without nonrecurring costs, rose by a strong 18.2% in Q4 and by a solid 5.7% in the year.

Thanks to our strong cash generation, we also continued to deleverage the group to 2.41x net debt-to-EBITDA from 2.71x at end of 2018.

The past year was marked by the announcement of our acquisition of Avon, which we successfully closed ahead of schedule just after the New Year. With this transaction, we are taking another transformation step, creating a leading direct-to-consumer global beauty group with unparalleled reach and a unique portfolio of global brands. We recently announced a new organization structure to ensure a successful integration and leverage the full capabilities of the group. We also began trading on the New York Stock Exchange through ADRs in early January.

We continue to see significant growth opportunity and potential to unlock the planned synergies of $200 million to $300 million per year as we announced back in January. We are already working with Avon's teams to create a group committed to our triple bottom line: making positive social, economic and environmental impacts while having a stronger voice to advocate for causes that matters to us. Together, we have started our journey to build not the best beauty company in the world, but the best beauty company for the world.

Before handing over to Filippo, I also would like to share with you that we are closely monitoring the situation regarding the business and financial impact of coronavirus situation. Fortunately, to date, we have not had cases with our employee base, which is the most important thing for us. And the group low overall sales exposure to China and Asia help mitigate the initial currency impact, although we are fully aware that the issue is evolving and becoming globally on a daily basis almost, unfortunately. I will return to this at the end of the presentation.

Let me now hand over to Filippo to go into our financials in greater details.

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José Antonio de Almeida Filippo, Natura &Co Holding S.A. - Chief Financial & IR Officer [4]

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Thank you, Roberto, and hello to everyone. Before going to our financials, I thought it would be helpful to step back for a second and remind you of the adjustments that impact our numbers. In addition, the results presented today refer to the Natura &Co Holding S.A., which replaced Natura Cosméticos S.A. as part of the corporate restructuring implemented to conclude the Avon acquisition. Throughout this presentation, we will refer to the adjusted EBITDA.

And on Slide 5, we describe the principal adjustments that we applied to our reported figures to allow better understanding of our underlying performance. Q4 was marked by fewer nonoperational adjustments as we now have a comparable base for the effects of hyperinflation in Argentina and IFRS 15, and so there are no adjustments in revenues. We continue to adjust EBITDA for nonrecurring items, such as transformation costs related to The Body Shop and acquisition costs related to the Avon transaction. All results presented here exclude the effects of IFRS 16.

That said, let's now look at our Q4 and full year performance. I will start this overview of our P&L with our consolidated net revenue on Slide 6. Our consolidated net sales grew by 7.3% to BRL 4.6 billion in Q4. In constant currency, net revenue was up 6.1%. This solid increase in sales results from growth in all 3 of our businesses in Brazilian reals as we will shortly see.

In the full year, consolidated net revenue grew by 7.8% in Brazilian reals and 7% at constant currency to reach BRL 14.4 billion.

On Slide 7, we turn our consolidated adjusted EBITDA, which stood at BRL 816.7 million in Q4. This represents strong double-digit growth of 12.2%. Adjusted EBITDA margin was very solid at 17.6%, a gain of 80 basis points. On a reported basis, Q4 EBITDA was BRL 744.5 million, including BRL 37.5 million in Avon acquisition costs and 2 effects at The Body Shop, transformation costs for BRL 18.7 million and intangible write-offs for BRL 15.9 million.

In the full year, adjusted EBITDA rose 7.5% to nearly BRL 2 billion with stable margin at 13.8%. Reported EBITDA was a little over BRL 1.9 billion, up 3.2%, with margin of 13.2%, reflecting Avon-related acquisition costs for BRL 141.3 million and The Body Shop transformation cost of $51.5 million. It also reflects the same intangible write-off of BRL 15.9 million at The Body Shop.

Turning to Slide 9, we look at Natura &Co's underlying operating income in Q4, which accelerated by a very strong 18.2% to BRL 641.2 million. This was driven by higher gross margin and well-controlled SG&A expenses. It includes acquisition-related expenses, transformation costs, financial expenses and income tax, and therefore, provides a clearer vision of our operating performance, which, as you can see, reflects strong sales and cost discipline.

Q4 net income after these charges stood at BRL 14.3 million. It reflects noncash, nonrecurring accounting effects of BRL 206.6 million and tax linked to the corporate restructuring and net Avon-related acquisition costs of BRL 104.2 million.

Underlying operating income in the full year was up 5.7%. Solid gross profit helped offset slightly higher SG&A expenses. In the full year, net income was BRL 190.9 million. This figure also includes the same noncash, nonrecurring accounting effects from tax from the corporate restructuring and net Avon-related acquisition costs of BRL 206.6 million.

On Slide 11, we will look at our balance sheet items, beginning with cash flow. In the quarter, cash generation was strong at BRL 802.6 million, up 13.2%. This was driven by improved working capital at Natura, supported by lower accounts receivable and improved inventory levels. In the full year, cash flow was down 15.2% to BRL 397.8 million, impacted by Avon-related acquisition costs. We continue deleveraging the company in line with our expectations. At year-end, our net debt-to-EBITDA ratio stood at 2.41x.

After looking at our consolidated numbers, let me now comment on individual performance of our 3 businesses, starting on Page 13 with the key highlights of Natura. Total net sales were up 5.2% to BRL 2.76 billion in Q4, with growth both in Brazil and Latin America despite challenging market conditions.

In the full year, consolidated sales were up an even stronger 6.7%. In Brazil, sales rose 3% in Q4, which represents a very strong performance against a very challenging comparable basis. If you recall, Q4 2018 happened to be the strongest quarter since 2010, with growth of 11.2% driven notably by Natura's best-ever Christmas campaign.

This year's Christmas was also strong, and the gift and presents categories performed well. In the full year, sales in Brazil were up 4% to BRL 6.2 billion, and we maintained leadership in the Brazilian CFT market. Natura's solid performance reflects the success of our Relationship Selling model, which is leading to higher productivity in Brazil. Consultant productivity increased for the 13th consecutive quarter, up by 0.5%. The average number of consultants was up 1.8% versus the same quarter last year to 1.1 million consultants.

Within the consultant base, we continue to see movement towards our top silver, gold and diamond segments, attesting to the good momentum of the model. Adoption of our digital platform by our consultants continued to increase as did the range of available digital solutions and services. The number of consultants using our digital platforms, which include the app and the web, rose to over 900,000.

We are seeing good adoption of the Natura digital account. Rede Natura, our online platform, ended Q4 with approximately 700,000 virtual stores in Brazil compared to about 400,000 1 year earlier. This contributed to double-digit growth in online sales, and the quarter saw a significant increase in the number of visits.

We also continued our multichannel expansion with 9 new stores opened in the quarter, all under the new concept, totaling 58 stores, which contribute to a near doubling in retail net revenue. Our consultant franchise stores totaled just over 400, doubling from last year and posted strong double-digit like-for-like sales. In the quarter, we will launch our premium Una brand, which includes makeup, fragrances and nail polish.

Our Innovation Index reached 58.4%, in line with our expectations and reflects the innovation phasing and the focus on extending the life cycle of existing hero products. The Latin America, Q4 net sales grew 10.6% in Brazilian reals and 28.9% at constant currency. Sales in the full year were up 13.5% in reals and 23.9% at constant currency. The number of consultants grew 9.2% versus Q4 2018. And we are seeing very strong adoption of the mobile platforms, contributing to significant growth in consultant productivity.

Volumes were up in the region by 29%. Highlights included Colombia, Mexico and especially Argentina, where despite the challenging economic environment, we are posting strong growth outplace inflation. Natura became the leader in brand preference in Argentina and ranked first in 4 of our 5 countries in the region.

I will conclude on Natura with its adjusted EBITDA on Slide 14, which was BRL 467.2 million in Q4, up 7% and up 2.7% in the full year to BRL 1.4 billion. We saw growth both in Brazil and Latin America. In Brazil, EBITDA margin grew by a strong 100 basis points to 20.5% in Q4, thanks to higher gross margins at 68.9% due to favorable category mix with strong sales of fragrances. In the quarter, adjusted selling, marketing and logistics expenses increased 30 basis points to 39.2% of net revenue while adjusted G&A expenses also rose 30 basis points to 14.2% of net revenues to drive investment in innovation, IT and projects. In full year, gross margin was also up by 30 basis points to 68.8%.

Adjusted selling, marketing and logistics expenses as well as adjusted G&A expenses rose 20 basis points to 41% and 14.5% of net revenue, respectively, both broadly in line with 2018 as was already the case in the 9-month results.

In Latin America, EBITDA was up by a strong 11.5% in Q4. EBITDA margin was 10.7%, up 10 basis points, driven by a strong top line performance and continued efforts to improve operational efficiency, with SG&A down by 60 basis points. In the full year, EBITDA was up 8.9% and margin was 13%, down 60 basis points as a result of gross margin pressure linked to strong depreciation of the Argentine peso.

Let's now move to The Body Shop on Slide 16. Net revenue in reals increased by 6.7% in Q4 and were down 1.2% at constant currency. This reflects the closure of 24 owned stores in the year and ongoing Hong Kong effect. Excluding Hong Kong, net revenue grew 0.4% at constant currency driven by solid sales in Australia and the U.K., supported by retail growth and double-digit growth in the at-home direct sales channel.

In the full year, The Body Shop's net revenue was up 6.3% in reals and 0.7% in constant currency. Excluding Hong Kong, constant currency growth was 2.4% in the period. Sales were particularly strong in the U.K. where it grew by 8.8% in the year, attesting the successful revival of the brand in its home market. The Body Shop continues to optimize its store footprint, with 56 net closures in 2019 and 170 since the launch of the plan. At the end of the year, it had 2,879 stores.

On Slide 17, we show that The Body Shop's EBITDA in the quarter increased by 9.8%, reaching to BRL 229.3 million, with a margin of 16%, up 50 basis points. In the year, EBITDA margin reached 9.7%, up by 180 basis points, achieving margin guidance of 10% to 11% for 2019. Nominal EBITDA was BRL 399.5 million, equivalent to GBP 77.3 million, 6% lower than 2018 nominal EBITDA guidance of GBP 82 million to GBP 86 million primarily due to the Hong Kong effects.

Adjusted Q4 EBITDA, which excludes transformation costs and intangible asset write-off, was BRL 263.9 million, with adjusted margin of 18.4%, up by 20 basis points. Adjusted 2019 EBITDA was BRL 467 million, with margins up 90 basis points to 11.3%. Excluding Hong Kong, the adjusted EBITDA margin would have been 18.9% in Q4 and 11.5% in the year. The Body Shop transformation program is ongoing successful, with costs and benefits in line with the plan. Transformation costs in the quarter was BRL 18.7 million or GBP 3.8 million. The cost we had announced at the launch of the plan has now been fully incurred and a total of GBP 30.6 million, in line with our estimates. This cost went to such initiatives as store footprint optimization, discount reduction and organizational design. And we are very pleased with the results to date.

On Slide 19, we look at Aesop, which posted strong double-digit growth in both sales and profitability in Q4 and the full year. Net revenue grew in reals by 25.7% in Q4 and by 13.4% at constant currency. Like-for-like growth in signature stores increased 7% in Q4, with strong growth in Americas and Asia, despite the deceleration in Hong Kong.

Digital sales also grew strongly. Aesop continues to open signature stores, and the total reached 247 with 20 net openings in the past 12 months, of which 7 in the past quarter. Profitability also grew in strong double digit in reals, with EBITDA up 44.8% in Q4, resulting in an EBITDA margin of 27.5%, up 360 basis points. In the full year, Aesop's revenue increased 22.5% in reals and 12.3% in constant currency to BRL 1.3 billion. EBITDA was up 40% to BRL 227.3 million. Margin rose 210 basis points to 17.4%.

As you may have seen, this morning, Avon filed their 2019 full year results. On Slide 21, I will provide a brief overview of those numbers. Let me remind you that they are not part of Natura &Co's '19 numbers as the acquisition was closed on January 3, 2020, but we wanted to give you a bit of color on the progress Avon made during the year.

Avon continued to execute against its Open Up turnaround strategy in 2019 and recorded a number of key advances that all set the strong foundation for future growth. This includes the improvement in price mix and average representative sales, cost reduction and cash flow. 2019 saw more innovation at higher price points, which is an encouraging sign of Avon's ability to upgrade its business model.

For the year, revenue was down 6% in constant currency, with an expected deceleration in Q4. As anticipated, revenue declined as a result of shopper choices need to drive the healthier, more sustainable and profitable business. Average representative sales were up 4%. And Avon worked to stabilize the number of active reps while restoring file fundamentals and lowering bad debt.

Free cash flow improved to $164 million from a negative $1 million in the prior year, and adjusted operating margin was up by 100 basis points in the year. The rollout of digital tools were accelerated in the year, and Avon increasingly leveraged the use of influencers, bloggers and social sellers. All this paves the way for a smooth integration into the Natura &Co family of brands.

Natura &Co will work with Avon's management team to continue the Open Up Avon strategy, restore brand equity and return value to representatives and shareholders. As just mentioned, we completed the Avon transaction on January 3, and the company is therefore not consolidated in our accounts for 2019.

However, we thought it would be useful to provide you with the 2019 consolidated pro forma P&L of Natura &Co and Avon, building the baseline to capture future value. We aligned Avon's P&L in U.S. GAAP with Natura's IFRS P&L to create a pro forma P&L in IFRS, and these numbers include IFRS 16. This implies 2 category of adjustments that are detailed on Slide 23.

We also like to highlight new segment reporting that we will be implementing this year. We will have 4 P&Ls, which reflect the group's new management structure. These are: Natura &Co Lat Am, which includes Natura, Avon, The Body Shop and Aesop for the region; Avon International, ex-Lat Am; The Body Shop, ex-Lat Am; and Aesop, ex-Lat Am.

So moving to Slide 24, we show pro forma consolidated net revenues, which accounted to BRL 32.9 billion. On this, Natura &Co Lat Am represents 56% of total revenues; Avon represents 27%; The Body Shop, 13%; and Aesop, 4%. When we segment revenues by brand, Avon represents 56%; Natura, 27%; and The Body Shop and Aesop continue with 13% and 4%, respectively.

On Slide 25, we show consolidated pro forma and adjusted EBITDA for 2019, which stands at nearly BRL 3.6 billion, of which, BRL 2.46 billion from Natura &Co Holding, and the remaining BRL 1.13 billion from Avon. Margin is 10.9%, and excluding acquisition costs of BRL 316.1 million, would be 11.9%. Consolidated pro forma gross margin stands at 64.1%. SG&A expenses were 55.5% of net revenue. Corporate expenses represent 0.8% of net revenue.

Slide 26 shows pro forma 29 (sic) [2019] net income and underlying operating income. As you see, our consolidated underlying operating income reached BRL 2.5 billion, of which, BRL 1.41 billion from Natura &Co Holding scope; and BRL 1.12 billion from Avon. This excludes transaction costs and several other nonrecurring impacts, including Avon acquisition-related costs of BRL 316.1 million, transformation costs of BRL 601.2 million and taxes on the creation of the holding company for BRL 206.6 million.

Net income, including these nonrecurring costs, was BRL 173 million, of which, BRL 155.5 million came from Natura &Co and BRL 17.5 million from Avon.

Slide 27 looks at the 2019 pro forma debt profile of the group, including Avon. Total debt is BRL 1.89 billion] (sic) [BRL 8.89 billion], which represents an indebtedness ratio of 2.6x EBITDA. Please note that this ratio is not comparable to Natura &Co's 2.41x reported at year-end 2019 because that ratio exclude the impact of IFRS 16, as we previously stated.

In the pro forma basis, in order to be comparable baseline from 2020 numbers, the impacts of IFRS 16 are included. The debt is 56% in dollars and 42% in Brazilian reals, with the remaining 2% in other currencies.

More than half of the debt, 56%, is in bonds, 24% in debentures and 17% in promissory notes. Note that we do not have major maturities coming due this year and next year, with the main maturities coming in 2022 and 2023 when Avon and Natura bonds fall due.

Between 2024 and 2043, when the next Avon bond is due, there are no further maturities. Against these maturities, we currently have more than BRL 8 billion in cash.

Let me now hand back to Roberto for his closing remarks.

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Roberto de Oliveira Marques, Natura &Co Holding S.A. - Executive Chairman of the Board & Group CEO [5]

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Thank you very much, Filippo. Before concluding remarks, I would like to share with you what we know at this stage of the impact of coronavirus situation on our business on Slide 29.

Let me begin by saying that the safety of our people is first and foremost. We are closely monitoring the situation and acting on several fronts, such as limiting travel to essential business trips and mapping effect on the supply chain. The situation as we all know is evolving daily and has spread beyond Asia to other regions. And it's still too early to provide you with a complete view of the full impact.

Concerning Asia. What we can say at this stage is while it's an important market for us, we have a smaller footprint there than many of the global peers. This is notably true in China, partly due to our long-stand opposition to animal testing for cosmetics.

Asia as a whole represents just under 10% of our pro forma revenue by geography. We have a presence in 23 countries in the region, of which, the Philippines is the biggest, with under 4% of the group sales. China accounts for 0.5% of the group sales.

In terms of commercial exposure, Aesop is most exposed as Asia represents about 40% of its net revenue while accounts for less than 20% for The Body Shop and less than 10% of Avon. Our supply chain impact mainly involves some Christmas packaging sets and material sourcings from The Body Shop and the home and fashion products for Avon. Aesop is not impacted as suppliers and manufacturing are based in Australia, and Natura is also not materially exposed.

As part of our mapping process, we are working to mitigate any potential supply chain impact. We are obviously monitoring the situation continuously and looking at its impact beyond Asia, and we'll keep you updated.

Let me now conclude on Slide 30 with the key takeaways. Let me mention 3 of them. First of all, Natura &Co posted a solid performance in Q4 and in the full year. Our strong revenue growth demonstrates the growth momentum of the global multi-brand and multichannel group we are building.

Second, we are managing to grow profitability, with double-digit growth in adjusted EBITDA and margin expansion and the strong growth in underlying operating income. And even as we invest in the future growth, we have strengthened our financial structure with our solid cash flow generation, allowing us to continue deleveraging our balance sheet.

And third, after successfully completing the acquisition of Avon ahead of schedule, we created the world's fourth largest pure-play beauty group. The integration is now underway. We are all very excited with the growth, the prospects and the synergies ahead of us.

Thank you very much for your attention. We are now going to open the Q&A session with Angela, Filippo, JP and myself, happy to take your questions. So the floor is now yours.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question is from Ruben Couto from Santander.

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Ruben Couto, Santander Investment Securities Inc., Research Division - Research Analyst [2]

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First, can you talk a little bit more about the recent working capital improvement in Brazil? What we saw into the 4Q was something timely or should we expect further improvements in 2020? And I know it's early, but can you go and share a little bit with us how was the first 2 months of operating Avon in Brazil, how consultants are reacting? Any sort of feedback on how these first 2 months will be quite interesting.

And a second one on The Body Shop. The company achieved its margin guidance for 2019 but barely missed the targets, thinking about the absolute figures, because of the soft sales performance. So thinking about the '22 guidance that includes some sort of acceleration in top line growth, are you thinking about reviewing this guidance, considering now the recent events in Hong Kong and now the coronavirus? Should we focus on the 12% to 14% EBITDA margin as a target instead of the absolute EUR 130 million target, just to get a sense of your point here.

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João Paulo Brotto Gonçalves Ferreira, Natura &Co Holding S.A. - CEO of Natura &Co Latin America [3]

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Okay. Ruben, JP speaking. So as regards to your questions the possibility -- the Brazilian operation. Yes, there's been working capital improvement, both in inventories as well as in accounts receivable. So that should be the level going forward basically, if you want to project that.

As regards Avon's operations. It's too early to say. Just can reassure that there's a lot excitement in the company and in the field force. So that should -- at least it's setting the tone for the improvements that we want to introduce very soon.

I will then hold back to deal quickly on The Body Shop. So one, again, just for perspective, right, I mean, we are super excited and happy with the progress on margin against the guidance, right? So let's just -- from context, when we acquired The Body Shop, they were operating around 8% EBITDA margin. And we are now, on an adjusted basis, finished the year over 11%. So that in itself is a 300 basis points improvement, which is way ahead of our guidance that we provided.

Now moving forward, to your point, we still are projecting improvement in terms of the margin. And of course, we are monitoring the impact in terms of the commercial side and the sales side because of the coronavirus as we articulated in the presentation, but we are still optimistic. If you look at it long term about all the progress, if you look at the sales number, excluding Hong Kong, the sales for the year grew 2.4%. And all the activities that David and the team are doing, we feel confident that we will drive the sales growth, and we remain committed to drive the -- to deliver the guidance, especially on the margin base.

And regarding the working capital that you asked about. I think that we -- yes, at the end of the year was more related to inventories. That happened. However, the -- this is an improvement compared to 2018. And if you recall that during 2019, we already mentioned that we are getting better situation here. So I believe that going forward, we still can expect some improvement but more in a normalized way. I think that 2019 was something that we improved compared to the previous year, which we had a certain higher level. And so that's what we'd expect going forward.

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Operator [4]

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Our next question is from Thiago Cruz (sic) [Thiago Macruz] from Itaú.

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Helena Villares, Itaú Corretora de Valores S.A., Research Division - Analyst [5]

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Actually, this is Helena here. We have just a follow-up on Ruben Couto questions. So the thing is that we are talking here about The Body Shop. And we understand that the situation is a little bit harder and tougher than you imagine first. But we were just talking about when do you think that the company is going to show an acceleration of constant currency growth as already presented in third Q? And actually, what's the main challenges here? What's the things that you're seeing that is the challenge and -- the main challenge for the company to start growing top line -- to start now to come back to growth in the top line? So that's the first thing.

And the second thing is about Natura Brazil. So we saw improvement in gross margin due to the better mix, especially fragrances. And we just wanted to understand what's the -- what was the difference in the fragrance strategy here because it's a very challenging market in Brazil. So we just wanted to understand this. And if you have any kind of any future improvement in gross margin.

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Roberto de Oliveira Marques, Natura &Co Holding S.A. - Executive Chairman of the Board & Group CEO [6]

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Okay. Helena, Roberto here. On The Body Shop, again, right, excluding Hong Kong, if you look at the total year, we grew 2.4%, which is a pretty healthy growth. It's actually the highest that we had for The Body Shop in the last probably 5 years. But yes, to your point, we're still aiming for continuing to improve that.

There are 2 things that are going to really drive that. One is the reset of the store layout. We have one right now in U.K. with a very good performance that we are planning to roll out in 2020. Also in terms of innovation and the new brand positioning, we are very bullish with the new position, really bringing back the leads, the causes that really made The Body Shop very strong brand and iconic brand. So those things will continue to roll out in 2020.

But as you all know, we needed to monitor the impact that we have seen globally in terms of coronavirus. So we needed just to be cautious about that while we control what we can control, which is continue to drive the margin improvement and continue to roll out the new store layout.

And then regarding the gross margin of our Brazilian business. We have indeed -- have been -- we have been successfully moving our portfolio to more premium products, particularly in fragrances, which is good, helping to improve the gross margin. However, there is pressure building from exchange rate going forward, so -- which we can -- we believe we can cope with. So I would expect gross margins to remain at current levels.

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Helena Villares, Itaú Corretora de Valores S.A., Research Division - Analyst [7]

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Okay. That's very clear. And if you permit just a follow-up question about Aesop. We saw a very improvement in accelerating top line growth, even with the Hong Kong situation. So we just wanted to be -- to understand a little bit more if you have any difference or any change of strategic on Aesop. What's happened here for we see -- so we can see this acceleration on top line?

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João Paulo Brotto Gonçalves Ferreira, Natura &Co Holding S.A. - CEO of Natura &Co Latin America [8]

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Yes. Thank you for the follow-up question. Again, we're very pleased with the Aesop results, and those were driven primarily very strong performance in the U.S., which, again, very proud of the team in a very tough environment in retail we have continued to outpace that in U.S. significantly.

And also in North Asia, very strong performance in Japan and Korea. So the fundamentals of the business continues to be very strong and continue to be very bullish for Aesop.

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Operator [9]

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Our next question is from Tobias Stingelin from Citibank.

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Tobias Stingelin, Citigroup Inc, Research Division - Director [10]

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I'm sorry, same question was already made. But if you want to give us -- kind of just give us an update about your first month kind of looking into Avon from inside and in terms of kind of the short-term and the medium-term priorities that you have for the brand.

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Roberto de Oliveira Marques, Natura &Co Holding S.A. - Executive Chairman of the Board & Group CEO [11]

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Tobias, Roberto here. So a couple of things. One is as we completed the acquisition in January, a couple of things already happened. So one, we already pretty much named all the management team, the leadership team, both at Latin America and Avon International. As you know, the main, Angela, with maximum years seeing after Avon. So those things are already up and running. JP is already working on integrating the Latin America organization. So we're? Feeling pretty good about that.

Our first impressions, I would say, really, the passion of the people of Avon about the purpose, the reason for being of the brand is something that's very, very important for Angela. And her experience in direct selling, understanding the commercial model and working very closely with JP and the team here in Natura, I think, is going to accelerate our competence and confidence in terms of really drive the right commercial model for Avon.

I also would say that the level of innovation we did at Suffern, New York is really state-of-the-art. I think it is a facility that only can help the innovation for Avon. But even beyond that, at the group level, with some of the assets in terms of manufacturing, distribution centers, are also something that will benefit the group.

I don't know if, JP, you want to comment as well on that?

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João Paulo Brotto Gonçalves Ferreira, Natura &Co Holding S.A. - CEO of Natura &Co Latin America [12]

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I think I can only add that the more I learn about Avon's selling size, the more confident I am on the size of the opportunity.

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Tobias Stingelin, Citigroup Inc, Research Division - Director [13]

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If I can just kind of follow-up. But what are the key challenges that you kind of identified in regards to the brand? And I know that you're changing kind of your disclosure policy going forward. But I think that to some extent, it is also important for us to understand kind of how the brands are performing, how kind of Avon is performing. So I don't know if you can just kind of send a sense to us of Avon right now. For instance, in Brazil, they are kind of stable. If they are starting to grow, what should we expect going forward? This will be kind of just my follow-up.

And then to João, I don't know if Joao can just give us a sense about what's happening in the first quarter in Brazil right now. For the fourth quarter, we're -- we saw tough homes. So just want to get a sense about how we are starting the year.

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João Paulo Brotto Gonçalves Ferreira, Natura &Co Holding S.A. - CEO of Natura &Co Latin America [14]

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Okay. Tobias, let me start with your last portion. You know that we made several adjustments in our operation during last year, merging the online, harmonizing promotional policies and so on and so forth. And actually, the second half was much healthier than the first half of the year. And we set ourselves for a strong start of 2020 as regards Natura.

Now we are also seeing some initial excitement coming from Avon in Latin America, so it looks like a good start of the year. As regards the brand, well, then than having me telling you about the brand, we have the pleasure of having Angela with us today. So I'll hand over to Angela to tell you a little bit about how the brand is going to be strengthened.

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Angela Cretu, Natura &Co Holding S.A. - CEO of Avon [15]

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Thank you. I would just like to give first a little bit of context about Open Up and growth strategy just on spend all our efforts to strengthening our core and how we plan to accelerate our growth going forward. As you all know, we are in a possible multiyear transformational plan with the Open Up. And currently, we are looking to stabilize the core and accelerate our recovery, tapping into the resources, synergies and the turnaround experience that we'll have from Natura &Co.

Part of this strategy, there are 3 main pillars: one is to create a compelling relationship sales framework; second, is to reunite our brand, so back to your question, this is an important pillar of our strategy. And then third, it would be to multiply the assets.

Now back to the brand. We all understand that we require a strategic reset to gain relevance consideration and in creating that, instantly gratifying exciting shopping choice for our consumers around the world. We do that by simplifying our brand architecture by continuing innovating with breakthrough formulas at all price tiers and create a new blend of purpose and brand positioning in each and every market where we operate.

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Operator [16]

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And our next question is from Bob Ford from Merrill Lynch.

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Robert Erick Ford Aguilar, BofA Merrill Lynch, Research Division - MD in Equity Research [17]

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Filippo mentioned some big increases in app and digital store usage in the Brazilian consultant base. And I was hoping you could touch on efforts, which were more successful in driving digitalization in the Brazilian and Lat Am experiences, and some of the opportunities and hurdles you face as you attempt to drive more accelerated digitalization of Avon.

And then just further to Avon and in Brazil, JP, how quickly can you begin running Avon to be more complementary to Natura in terms of price points, promotions and innovation schedules?

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José Antonio de Almeida Filippo, Natura &Co Holding S.A. - Chief Financial & IR Officer [18]

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Bob, so as regards to the digitization of our consultants. So we saw the acceleration of the adoption as -- mid last year as we integrated the model, the offline, the online. We introduced our e-wallet as well. So that accelerated the adoption, which is now getting close to 90% of our consultants across Latin America, actively using the digital mobile platform.

Now the level of maturity with which they use varies is quite a lot. So we are also tracking maturity in terms of usage of the various services which are there. I don't see many obstacles in that fact. It's a matter of getting more use, seeing the relevance of the services. Our sales force are helping in educating consultants towards that end. And so I think we are on track of -- as regards the digitization of the sales force.

When it comes to a combined strategy between Avon and Natura across Latin America, we have already a draft version of that strategy, which we are refining as we speak, right? We can -- we do believe that we can use many of our existing assets -- digital assets to shortcut the development. We have the leadership team now in place. Towards the end of this month, we're going to have the next layer of organization appointed. So I would expect that towards the second half of this year, you're going to see already results of a combined strategy being implemented.

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Robert Erick Ford Aguilar, BofA Merrill Lynch, Research Division - MD in Equity Research [19]

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Got it. That's very helpful. And if I could, just one other question, and it's an unrelated topic. But the growth rates of Body Shop in the U.K. and Australia were impressive. And I assume that a big part of that or a substantial part of that was the at-home business. And I was wondering how you're thinking about developing that at-home or direct sales business within those markets for The Body Shop but across all Body Shop markets.

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Roberto de Oliveira Marques, Natura &Co Holding S.A. - Executive Chairman of the Board & Group CEO [20]

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Bob, Roberto here. Thanks. Yes, and you're absolutely right. So we are very pleased to see the performance of both U.K. and Australia as the key fastest growing markets for The Body Shop. And you are right, there is absolutely a direct lead with the at-home, the direct selling component.

Interesting also that we are seeing that the like-for-like, the strongest markets in retail are actually U.K. and Australia, which showed a very nice complementarity between their at-home and the retail business. And to the point that you mentioned, David and the team, we are working now, of course, with the help of Avon to potentially accelerate at-home of The Body Shop in some other markets. So hopefully, by the Investor Day, end of April, we're going to be able to show you a road map what that might look like.

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Operator [21]

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Our next question is from Olivia Petronilho from JPMorgan.

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Olivia B. Petronilho, JP Morgan Chase & Co, Research Division - Analyst [22]

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I have 2 questions, actually. There's -- talked a little bit about the variation in FX. I just wanted to understand what is the expectations that those have with this new levels of FX, especially Natura for gross margins, how should that impact your COGS? What you guys can do to cope with the new FX?

And in this topic, still talking a little bit about the price dynamics, what you're seeing from competition, are you seeing a better environment for passing through prices? Because I think at the results we saw lower volumes, which is a mix effect, but definitely higher prices. And a little bit about Avon, not on the operating side, but looking on the debt side. Do you guys expect to refinance that or any of those bonds that we currently listed? That would be that on my end.

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José Antonio de Almeida Filippo, Natura &Co Holding S.A. - Chief Financial & IR Officer [23]

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Olivia, it's Filippo. So regarding FX, I think, first of all, we have -- of course, we'll be dealing with this as we have the situation of increasing our revenues coming from other sources or other currencies. So this year is not different. I think now we have to see the company as more of a global footprint that we have participation of currency difference than we used to have historically.

Regarding cost, it's going to be something that will be happening. I believe that this is -- we only move with that in other situations. So we can say that that's through like managing the situation through anticipating inventory sense in some opportunities. Other than that, our contracts are dollar-denominated. The ones that are done, they have a parametrical form, which we amortize as debt, like, gradually. So again, we see that this is something that were already made, so shouldn't be assumed in the short term.

Regarding debt. Of course, there is an opportunity for us to go through now that we have a new legal situation of a new portfolio of debt. Liability management is something that we talk and we consider as opportunities that we see. But at this time, we're going to be dealing with that and sharing with you some of those opportunities. But I believe there are definitely some upside and opportunity going forward for that.

And one last point on that, again, we are in a very strong cash position, over BRL 8 billion. And the first really important debt maturity that we have is only 2022 and 2023. And by that time, we're going to be able to capture a lot of the synergies that we already communicated to the market. So I think in terms of managing cash, I would say, we're in a very strong position. Thank you.

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Operator [24]

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This concludes today's question-and-answer session. I would now like to invite Mr. Roberto Marques to proceed with his closing remarks. Please go ahead.

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Roberto de Oliveira Marques, Natura &Co Holding S.A. - Executive Chairman of the Board & Group CEO [25]

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So again, thank you, everybody, for joining us today. As you saw from today's results, again, we are very proud and very happy with the results that we showed again a strong momentum with our Natura &Co business. And of course, we are very excited about welcoming and working with Avon to accelerate our growth.

So thank you very much for your attention, and I hope I can see some of you or most of you at our Investor Day that we're planning to do end of April, and wish you all a good day on behalf of all of us. So thank you.

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Operator [26]

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This concludes the Natura &Co audio conference for today. Thank you very much for your participation. And have a good day.

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