Natura &Co posts constant currency sales growth and continuous improvement in cash conversion in Q4

Strong growth by Natura &Co Latam and Aesop, which made a successful entry into China in Q4; further improvement in Avon fundamentals and growth in the Beauty category

SÃO PAULO, March 13, 2023 /PRNewswire/ -- Natura &Co (NYSE – NTCO; B3 – NTCO3) posted a resilient performance in the fourth quarter, with sales growth in constant currency and continued progress in cash conversion, in line with its strategic priority.

Natura &Co posted Q4 consolidated net revenue of R$ 10.39 billion, up 3% at constant currency (-10.8% in BRL), driven by double-digit constant currency (CC) growth at Natura &Co Latam and Aesop. Adjusted EBITDA margin was 10.5%, down 280 bps vs the same period last year, reflecting a challenging environment and continued investments. Net income was R$ (890.4) million and the Group ended the quarter with a solid cash position of R$ 6 billion.

A key highlight of the quarter was Aesop's successful entry in the China market, with initial performance above expectations. Digital also continues to progress: At Natura Latam, the penetration of digital (consultants who logged in at least once to the digital catalog or the app during the quarter) reached 82.1% in Q4 compared to 80.5% in Q4-21. At Avon International, penetration of the Avon On app (active representatives who logged in at least once in the last three campaigns) reached 30.6%, compared to 25.5% in Q4-21.

Fabio Barbosa, Group CEO of Natura &Co, declared: "In the challenging environment we faced in 2022, we decided in mid-year to reassess the group's growth model to enter a new stabilization cycle. Important changes were carried out, such as a stronger focus on profitability and cash conversion, a revision of the cost structure and the role of the Holding company, alongside important revisions in our footprint worldwide to position the business for success going forward.

FY2022 showed stable revenue at constant currency while adjusted EBITDA margin decreased 160 bps. In the fourth quarter, sales growth improved at constant currency and we delivered further progress in cash conversion, in line with our priorities. We continued to see very strong momentum at the Natura brand, especially in Brazil, and at Aesop, which successfully entered the China market in Q4, as well as a solid performance by Avon in the beauty category in Latin America, strengthening our confidence in the potential of the second wave of integration of our businesses in the region.

Structural steps to create sustainable shareholder value are in motion in all our brands. At Natura &Co Latam, we are accelerating the integration of Natura and Avon in order to capture the full benefits of the combination. At Aesop, we are evaluating strategic options aiming to improve the Company's capital structure. At Avon International, we are further optimizing its geographic footprint in order to concentrate on profitable markets while reducing the cost structure. At The Body Shop, we are rightsizing the business, focusing on efficiencies and in the core retail model in the face of the challenging channel mix changes it has experienced.

We are confident that the actions we are taking will position Natura &Co to return to growth. While we expect 2023 to be another challenging year, our priorities of focusing on cash generation and improving the Company's capital structure will allow us to invest in our priorities, building the path to unlock significant value. We expect a continuous improvement in revenues, as well as better adjusted profitability and cash generation, while continuing to invest in transformational actions..

At the same time, the Group continues to focus on what made the group what it is today, its ESG agenda. Recently, the Avon Foundation, The Body Shop and Aesop used their networks to make donations to the victims of the earthquakes in Turkey and Syria through such institutions as the Red Cross and Médecins sans Frontières. Natura &Co matched those efforts to support humanitarian relief.  We remain as focused as ever on our commitment to our environmental agenda, the Amazon and its biodiversity, social inclusion and female empowerment that are core elements of Natura &Co's DNA and true sources of competitive advantage."

Performance by business unit:

Natura &Co Latam's net sales were up by 10.6% in constant currency ("CC) and down 3.2% in BRL. CC growth was driven by double-digit growth at the Natura brand, which grew by 17.5% at, while the Avon brand was also up slightly, at +2.2%. The Natura brand posted strong momentum, with growth of 17.9% in Brazil, supported by price increases, mix effects, as well as 14.9% growth in consultant productivity in Q4. In Hispanic Latam, net revenue was up 16.9% at constant currency despite a challenging situation in several countries, driven by Argentina, Colombia and Mexico. The Avon brand in Brazil entered positive territory in Q4, growing by +7.5%, albeit on a soft comparable base. The Beauty segment continued to grow, accelerating to +12%, while Fashion and Home (F&H) was down 10%, in line with our portfolio optimization strategy. In Hispanic markets, net revenue was down 1.1% at CC (-19.5% in BRL).   Performance was good in Argentina, but impacted by a decrease in Mexico, Peru and Chile. The Beauty category grew 7.3% in constant currency, but this was more than offset by F&H. Adjusted EBITDA margin was down 320 basis points to 8.9%. Margin benefited from strong top line performance and strict financial discipline, but this was more than offset by a 60 basis-point drop in gross margin and higher General & Administrative expenses as a percentage of net revenues, mainly driven by higher investments in R&D, notably at the Natura brand, where we are accelerating investments in marketing and innovation.

Avon International's revenue was down 9.9% at CC (-23.8% in Reais.) This drop continues to reflect the situation in Ukraine (excluding that, CC sales were down 6.2%). The TMEA and APAC regions showed year-on-year growth, while Western Europe posted softer performance. However, even in a tough macro environment, Avon International was able to pass through inflation and FX pressure to prices, which also benefits rep productivity. Digitalization is progressing and the use of digital tools reached 30.6%. Adjusted EBITDA margin was 5.8%, down 490bps, as gross margin expansion of 230 bps and continued focus on transformation savings were more than offset by the sales decrease and other factors.

The Body Shop's Q4 net revenue declined by 8.4% at constant currency (-20.6% in BRL), marking a sequential improvement over the previous quarter. Combined sell out sales of core business distribution channels (stores, e-commerce and franchise) were down by a more moderate 4.8% in constant currency, while The Body Shop at Home is returning to pre-pandemic levels. Adjusted EBITDA margin was 21.4%, down 80 bps year-on-year, while Q3 had seen a 1,170 basis-point decline, thanks to efficiency gains. Management is focused on stabilizing core distribution channels top line and the implementation of cost savings initiatives to deliver margin expansion and support cash generation. In early 2023, management announced the closure of the At-Home business in the US and of the dedicated distribution center in the UK, and in February, the company announced a restructuring of its global management structure and staffing cuts.

Aesop again recorded another quarter of double-digit growth in constant currency, up 18.2% (-2.1% in BRL). All regions delivered double-digit growth despite the challenging environment. Fragrance sales grew at more than twice the overall pace, aligned with Aesop's category diversification strategy. Q4 adjusted EBITDA margin was 28.6%, up +190 bps even while continuing to invest for future sustainable growth. The highlight of the quarter was Aesop's successful China market entry, with the launch of two physical stores, along with the Aesop.com platform and a domestic T-Mall operation. Performance has exceeded expectations and the stores are already the top two sellers of Aesop's 287 signature stores worldwide. As mentioned in the November 30, 2022 notice to the market, Natura & Co continues to evaluate strategic alternatives for Aesop, including a possible sale of a stake in the company.

About Natura &Co
Natura &Co is a global, purpose-driven, multi-channel and multi-brand cosmetics group which includes Avon, Natura, The Body Shop and Aesop. Natura &Co posted net revenues of R$36.3 billion in 2022. The four companies that form the group are committed to generating positive economic, social and environmental impact. For 136 years Avon has stood for women: providing innovative, quality beauty products which are primarily sold to women, through women. Founded in 1969, Natura is a Brazilian multinational in the cosmetics and personal care segment, leader in direct sales. Founded in 1976 in Brighton, England, by Anita Roddick, The Body Shop is a global beauty brand that seeks to make a positive difference in the world. The Australian beauty brand Aesop was established in 1987 with a quest to create a range of superlative products for skin, hair and the body.

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SOURCE Natura &Co