Q4 2024 Natura &Co Holding SA Earnings Call

Thank you.

Speaker Change: Bom dia senhoras e senhores e obrigado por aguardar. Sejam todos bem-vindos à teleconferência de resultados do quarto trimestre de 2024 da Nature&Co.

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Speaker Change: Fábio Barbosa, CEO of Nature&Co, João Paulo Ferreira, Executive Director for Latin America, and Guilherme Castelã, CFO of Nature&Co.

Speaker Change: The presentation we will refer to during this case is on the investor relations website. I now hand over to Fábio Barbosa, please go ahead.

Speaker Change: Good morning everyone and thank you for being here with us today to talk about the fourth quarter and the year 2024.

Speaker Change: I will start by looking back a little, quickly, at this journey towards the simplification of the group that we began in July 2022.

Speaker Change: Since then, we have sold Isop, TBS and made progress in deleveraging and integrating the Natura and Avon brands in Latin America in 2023.

Speaker Change: With this, we reach 2024, concluding the integration of Mature and Avon, called Wave 2, in Brazil, and going through the voluntary restructuring of API Avon Products Inc, which was concluded in December , as you know.

Speaker Change: Regarding international flights, we repurchased operations outside the United States through a credit offer of US$ 125 million. Its operating result remains pressured by the deleveraging of revenues.

Speaker Change: Latin America, on the other hand, we showed a year with strong revenue profitability and expanded 40 basis points year over year. The efficiencies of Wave 2 were partially reinvested in structural marketing projects that led to the acceleration of the sales trend throughout the year.

Speaker Change: Excluding the effects of investments in systems that are now classified as OPEX instead of CAPEX, and the FOIATs, which are now treated as intercompany, the margin expanded 160 basis points in the year 2024 compared to the year 2023.

Speaker Change: The performance of the quarter also showed an acceleration in revenues, with special emphasis on the gift category.

Speaker Change: Regarding profitability, the fourth quarter was impacted by the concentration of various investments, which ended up interrupting the sequence of quarters with margin expansion that we had been recording.

Speaker Change: On the other hand, these investments are important levers for the sustainable growth recovery of the company. Amidst this intense year, Tura ranked first in ESCO as the company with the best reputation in Brazil for the 11th consecutive year.

Speaker Change: I will now hand over to João Paulo and Guilherme Castelan for the presentation of the results, and I will return for the final conclusions of the Q&A.

Good morning everyone, this is João Paulo speaking.

Guilherme Castelan: Fábio has just commented on the various solid advances we had in 2024 and I wanted to highlight the progress in the so-called Wave 2, in the integration of Natura and Avon within Latin America.

Guilherme Castelan: I remind everyone that Wave 2 was based on the integration of consultant and representative networks, which would bring them productivity gains and bring the company efficiency gains in commercial management.

Guilherme Castelan: It also included the optimization of combined portfolios and, finally, efficiencies in administrative and back office processes.

Guilherme Castelan: In 24, we completed Wave 2 in Brazil and the results are here. The performance of Brazil and other countries where Wave 2 has already been completed shows revenue gains.

Guilherme Castelan: substantial gain in profitability and cash generation. In Brazil, in particular, we have seen an increase in cross-sell between brands, especially after the launch of the combined order and integrated checkout.

Guilherme Castelan: Which now allows consultants to purchase both brands in a single order and, in many regions, receive them in a single delivery.

Guilherme Castelan: Now, the very important result of wave 2 that I would like to highlight

Guilherme Castelan: The efficiencies we have achieved have allowed us to intensify our investments in innovation, support for our brands, marketing, and structuring projects, which has brought market share gains for the Natura brand.

Guilherme Castelan: And I am confident that many additional efficiencies will still be reflected in the P&L as our learning curve advances in all our countries.

Guilherme Castelan: By 2025, we have the implementation of Wave 2 in Mexico and Argentina, where our approach has been gradual and phased.

Guilherme Castelan: In Mexico, we have already announced, at the end of the year, the discontinuation of Natura's multi-level model and its replacement with the bi-level model.

Guilherme Castelan: Therefore, aligned with our operating model in all other countries. And this was an important step for the unification of sales channels between the two brands.

Guilherme Castelan: And in Argentina, we have the start of Wave 2 in December with the closure of Avon's distribution center, thus beginning the logistical consolidation of the brands.

Guilherme Castelan: Anyway, that was the brief summary I wanted to share with you.

Guilherme Castelan: about the integration of Natura and Avon, Wave 2, within Latin America.

show our confidence in the results obtained so far.

Guilherme Castelan: revenue gains, significant profitability gains, cash flow, showing that we are well prepared for the completion of the other countries in 2025 and, as always, I will be available at the end for questions.

Bom dia.

Guilherme Castelan: We are reporting, in the fourth quarter, a revenue increase of 16.1% in constant currency, highlighting the strong performance of Natura in Brazil, where the brand grew by 21%.

Guilherme Castelan: maintaining strong sales momentum and benefiting from productivity and volume gains, especially amid investments in marketing and innovation, but also a healthy beauty market in the country.

Guilherme Castelan: In the Hispanic region, the brand's performance was also robust, showing improvements in trends in wave 2 countries and an acceleration of revenue growth in Mexico.

Guilherme Castelan: Looking at flights in Brazil, the brand remained practically stable, with a 1% drop.

Guilherme Castelan: In the year, the brand also delivered stability, but the brand's performance is still highly dependent on commercial incentives, such as promotions, marketing initiatives, and innovations.

Guilherme Castelan: In the Hispanic region, Avon showed a growth of 1.7% and a decline of 16.5% excluding Argentina. Both Mexico and Argentina have already felt the impact of the brand integration stages.

Guilherme Castelan: The home and style segment showed, for the fourth consecutive quarter, stability in Wave 2 countries, but still shows a sharp annual decline.

Guilherme Castelan: Here on slide 7, we will talk about profitability. The recurring EBITDA for the fourth quarter was R$ 703 million and the recurring EBITDA margin was 9.1%, a decrease of 70 bps year over year.

Guilherme Castelan: As you can see in the graph, we started with a lower gross margin this quarter.

Guilherme Castelan: As a result of strong sales performance of gifts with lower margins, one-time tactical commercial incentives of the quarter, and especially the impacts in Argentina. Excluding Argentina, the margin shows significant year-over-year improvement.

Guilherme Castelan: The gross margin, combined with the increase in general and administrative expenses due to investments in structuring projects, especially in ITI systems, led to a small increase of 10 BIPs in the recurring EBITDA margin of Alatam, excluding investments in intangibles and royalties.

Guilherme Castelan: By including intensives and volts, we reached this 70 bps drop in the recurring margin.

Guilherme Castelan: We also had, in the quarter, the effect of reducing corporate expenses, which fell by 36% year-on-year. The impact is expected to be recurring from Aboa International in December .

Guilherme Castelan: Here on the profit slide, you can see that the reported loss is basically related to the non-operational impacts of EBITDA and the line of discontinued operations.

Guilherme Castelan: By returning 34% of tax yields from these EBITDA adjustments, the adjusted net profit becomes positive at R$ 238 million.

Guilherme Castelan: 703 million of recurring EBITDA for the quarter were more than offset by the discontinued operations line of 114 million and 843 million in expenses related to the API's Chapter 11.

Guilherme Castelan: the non-cash reconsolidation effects of Aboa International and the investments of Wave 2.

[inaudible]

In this slide, you can see our cash flow.

Guilherme Castelan: The adjusted net profit was R$ 3.1 billion in 2024, similar to the year 2023.

Guilherme Castelan: However, this year, the profit includes R$ 610 million in expenses from Holden with the Chapter 11 of EPI and other strategic projects.

Guilherme Castelan: In this sense, the year showed an underlying improvement of R$ 595 million year over year. This improvement is a result of margin expansion, even including R$ 217 million in system investments accounted as OPEX instead of CAPEX.

Guilherme Castelan: As a consequence, the capex line also decreases year after year.

Guilherme Castelan: These improvements were, in part, reinvested in operational working capital, which worsened by R$ 251 million year over year, due to the extension of receivables we have mentioned throughout the year, partially offset by the payments line.

Guilherme Castelan: Additionally, the taxes this year were also higher due to a lower payment of interest on equity from Natura Cosméticos to Holden.

Guilherme Castelan: In the year 2024, the firm's cash flow was R$ 321 million, or R$ 931 million when we exclude the non-recurring effects of Holden's expenses, which were mostly related to Chapter 11.

In this slide, you can see our shareholding.

Guilherme Castelan: With this, we closed the fourth quarter with a cash balance of R$ 4.5 billion and a net debt of R$ 2.4 billion, leading to a net debt to EBITDA ratio of 1.27 times.

Guilherme Castelan: Our debt position is low, but slightly above our initial expectation, impacted by the non-operational effects of Chapter 11 and the non-cash impacts of Avon International, which totaled R$ 560 million of EBITDA for the year.

Guilherme Castelan: Furthermore, on December 31, 2024, we had 420 million dollars in derivatives to mitigate foreign exchange risks of the principal of our dollar-denominated debt.

Guilherme Castelan: These derivatives had a gain of approximately R$ 300 million in the quarter, which are not included in the net debt position.

Guilherme Castelan: Adjusting for these effects, our net debt to EBITDA would be 0.86 times.

Fabio Barbosa: I will now hand the word back to Fábio for the final remarks and next steps.

Fabio Barbosa: To conclude our message today, I would like to emphasize a few points here.

Speaker Change: First, I want to congratulate the entire team for the completion of Wave 2 in Brazil. This is an important milestone that has strengthened our company.

Speaker Change: The efficiencies and productivity achieved have allowed the wave 2 countries to grow, improve margins and free cash flows, while investing in strategic projects for sustainable growth.

Speaker Change: And we are working to have even more progress this year in all these metrics.

Speaker Change: It is important to remember here that Anda 2 must be completed by the end of this year, with the finalization of the processes in Mexico and Argentina.

Speaker Change: Second, the process of simplifying the company is evolving and remains the primary goal of management. It is along this line that we continue to execute the additional efficiency opportunities mapped for Rolling and also continue with studies for strategic alternatives for Rolling International.

Speaker Change: The Executive team at Voa International is focused on seeking ways for recovery while minimizing cash outflow in the short term.

Speaker Change: Third, we will maintain an absolute focus on capital allocation, seeking an optimal structure that supports profitable investments so that we can deliver good returns to shareholders.

Speaker Change: And finally, our ongoing commitment to the Triple Bolt Online strategy, which remains strong and steadfast in unlocking value for managers in a sustainable way. Thank you, and now let's move on to your questions.

Agora começaremos a sessão de perguntas e respostas.

Speaker Change: To ask questions, click on the Q&A icon at the bottom of your screen and type your question to enter the queue. When announced, a request to activate the microphone will appear on the screen, and then you should activate your microphone to ask questions. We advise that questions be asked all at once.

Speaker Change: Our first question is from Joseph Giordano, from J.P. Morgan. I will be sending a request to activate your audio. Please, Joseph, you can ask.

Joseph Giordano: Hello, good morning everyone. Good morning, Fábio, Gui, JP. Thank you for taking my question.

Joseph Giordano: I wanted to explore a little with you perhaps here the topic, discussing with investors in the early hours, much in terms of expenses, even when we make the adjustment.

Joseph Giordano: etc. You can see that even SG&A with CAPEX, it was way above.

Joseph Giordano: increase in marketing. So, I wanted to understand from you if there was something specific, more relevant from the marketing investment point of view in this fourth quarter, or even a provision for PLR or bonuses, given that when we look at the picture of the year, it was not the picture we see in the fourth quarter, it was much more...

Joseph Giordano: adherent with a constructive view, right, while the fourth here was a little, if not, quite below market expectations. So, I wanted to explore with you how we should understand this expense dynamic going forward.

Joseph Giordano: and how would this reconcile with top-line growth. And lastly, I think there's the issue of the good international that...

Joseph Giordano: for this third part to solve the problem, then some... a little more visibility on this would help a lot. Thank you very much.

Joseph Giordano: with the expansion of profitability, with the expansion of cash generation.

Joseph Giordano: How, in fact, we deliver on a Full Year Basis here in Latin America, despite additional pressures such as the increasing expense of software. So, I want to start by reaffirming this goal of ours.

Joseph Giordano: And I regret that Q4 was a quarter where comparisons are not straightforward due to various effects. This also appears in the expenses, in the DNA, Joseph.

You know what's behind me?

We, throughout the year, consume more or less 100 bips.

Joseph Giordano: in the reduction of punches, and this quarter was above average, but it is an abnormal seasonality. But that wasn't all, Joseph. The effects of Argentina, the Argentine hyperinflation...

Speaker Change: They were also very significant in this, but really very much so, okay? I mean, remember that in Q4 of '23 there was the maximum devaluation, in addition to the effects of hyperinflation?

Speaker Change: that affected both the comparison base there in 23, as well as the numbers of 24. This has a disproportionate effect in Q4.

Speaker Change: These two components, software depreciation and Argentina's hyperinflation, represent the vast majority of the variation in the DNA you are observing.

Are there any additional investments to support the brand's growth?

There was nothing very unusual, except...

Speaker Change: Our confidence in the offers we had at the end of the year for Christmas. We had a spectacular Christmas. You are also following Natura's revenue.

Speaker Change: But we saw the acceleration in the Hispanic countries, not only in Brazil, so there is a bit of R&D due to the setup of the laboratory, there is a transfer of functions that were from Avon International that came here.

Speaker Change: nothing abnormal, but the big chunk, the big piece that explains these variations are indeed the software expenses, with a seasonality above average and the effects of Argentina, whether in 23 or in 24 as well.

With that, I pass it to Gui.

Gui: Thank you, João. Joe, thank you for the question. Well, about the international flight, I think that, basically, it's a bit of what we have already been talking about to the market in the last few quarters.

Speaker Change: It's also a bit of what we released in the relevant fact about two weeks ago, that we are building alternatives, so, at this moment.

Speaker Change: I think that, basically, we have talked a lot about this journey.

Speaker Change: It's a two and a half year project that started in July 2022.

Speaker Change: Chapter 11 Volunteer of Avon International, which was an important step that Avon decided to take, precisely to prepare this year for us to carry out the separation. Now, in terms of alternatives, what I can say is that everything is on the table.

Speaker Change: So, like you said, we obviously are open, there are talks about a potential diverse, but a potentially large one.

Speaker Change: We mentioned this, including in the relevant fact, we continue negotiating today without exclusivity, we continue talking today without exclusivity, but the sale is an alternative. There is also a potential alternative.

But, like, the fact is that, when we look ahead...

Speaker Change: We repeat what we have been saying, we don't see synergies today between Avon International and Avon Latin America. As much as I repeat, right, the brand...

Speaker Change: The Avon brand in Latin America is an important asset for us and it is an asset that will be considered in any of these alternatives, whatever they may be.

Perfeito. Muito obrigado, JPG.

Speaker Change: Our next question is from Dani Heger from XP. Please, Dani, you can continue with your questions.

Speaker Change: a little bit we, I think this helps to think about what profitability we can assume for the company in 2025.

My second question, it is related to wave 2.

Speaker Change: feelings, especially there in Mexico, right, due to such a significant change, we saw that there was a bit of a product disruption, it can even be seen as a glass half full, right, a lot of demand for the product, for the launches you have been doing, but if you could perhaps provide an overview of these first signs, I know it's still early, but it's already nice for us to understand, especially given that the consultants had to kind of adhere, right, to the new model, so I think it would be nice.

mainly, and you too, Gui, in this simplification. So...

Speaker Change: To understand what you would see, perhaps more so for Fábio, as the conclusion of this process, right? I saw some concerned that you might eventually leave before this is properly concluded. So, to understand what the endgame of the mandate is. When will you understand that...

Speaker Change: who delivered the project that was given to them and maybe more to Fábio than to you, Gui. I think it would be these three. Thank you.

João Paulo: Hey Dani, it's João Paulo here, I'll take your first questions regarding the operation and then pass them to Fábio and Gui.

João Paulo: We are committed to expanding the company's profitability here in Latin America year over year. So, that's what we are working towards. We are confident about it.

João Paulo: We talk about the Gross Margin, which would have expanded ex-Argentina, or rather, which actually expanded ex-Argentina and was quite substantial.

João Paulo: If you look at the pace of expansion in the previous quarters...

João Paulo: The expansion in the fourth quarter ex-Argentina was not exactly the same as in previous quarters, but it was quite substantial.

João Paulo: It arrives, it keeps coming, it approaches at the previous pace, even if it was slower. So, just to say that we continue to have profitability as a fundamental driver, as well as cash generation.

Speaking of Wave 2, in Mexico and Argentina...

Really, this sliced approach...

João Paulo: has been very positive and takes into account all the lessons we learned in previous countries, as well as the peculiarities.

João Paulo: From each of these countries, you know about the delicacy that existed in Mexico regarding the multilevel model.

And the feeling has been very good.

I have to say that we are positively surprised.

João Paulo: With all the reactions that occurred within the network, our focus in preparation was on the consultants so that they would feel supported.

and, therefore, the changes in the commercial structure.

João Paulo: were greatly reduced, and the consumers are being very active, receptive to changes, doing good business.

João Paulo: So, we are reaching the moment, we are approaching the moment of effective integration.

João Paulo: in a much more comfortable situation than we originally imagined, okay?

João Paulo: Finally, transformation costs. This year there are still many transformation costs, despite us having already done a lot.

There is still a lot to be done.

I didn't think fabrica

GBA

Speaker Change: still finishing the operation here in Interlagos, in Brazil, there is still...

the commercial activities in Mexico and Argentina.

There are systems.

Speaker Change: supporting all this infrastructure, so this is a year in which the magnitude of transformation investments will still be maintained, okay? I hope this helps you a little with your estimates, in the modeling, and then I'll pass it to Fábio, okay?

Obrigado, João.

Speaker Change: I'm just remembering that Argentina causes a distortion that bothers all of us when it comes, puts, interferes, and everything else, but anyway. And not just questions specifically, I would first like to remember...

that in the case of...

Speaker Change: the mandate of Avon International, which remains an asset with which we are seeking alternatives for the COEN, which is seeking strategic alternatives.

Speaker Change: that we have a strong program to reduce cash consumption, right? So, important measures, in other words, we are not standing still...

Guilherme Castelan: But wait, let's see what happens in the line of what Gui already commented.

Speaker Change: But yes, we cut many investments, costs, and everything else, in the sense that cash consumption is substantially lower than what happened last year and the year before. So, continue in parallel, while we seek a definitive strategic solution.

Speaker Change: Speaking still about the mandate, I think the good thing is that we had, at the end of it all, the company's financial situation today is much healthier.

Speaker Change: So, I think it gives some breathing room, and that's a point that I have...

Speaker Change: draw attention so that we can resume some investments, right? I had a big concern back then.

Speaker Change: I remember that in 2022, maybe I have already mentioned it, one thing that scared me when I had not yet been...

Speaker Change: mandated, let's say, for this, right, that João Paulo kept telling me that he was cutting investments in marketing, in IT, and that scared me, that led me to talk to the founders to say, look, we are going to end up, excuse the expression here, harming Natura to a perhaps irreversible extent, we can't do this, right. And that's where this whole story of, look, how do we protect this, started.

Speaker Change: And, at some point, it returns to the level of investment necessary for the company to maintain its competitiveness. Whether in terms of PPE, marketing, or deadlines. Because we, even due to the pressure that Gui and I...

Speaker Change: we placed, and João Paulo obviously always shoulder to shoulder with us, to reduce cash consumption. Therefore, we did not relax accounts receivable when the competitor offered terms. So, we had the opportunity to do that. So, all to say that we are on track. Regarding the mandate...

Speaker Change: Specifically, I have, I don't even know if it's ever finished yet, but I think the most important thing is for me to have a total commitment to the company, right? I mean, if the mandate, the execution of this, stops depending so much on me and starts to fall more on João Paulo's shoulders, in a good way, because he is the one who runs the operation, right?

Speaker Change: No, my commitment is total and will continue for quite some time, there is no plan other than to continue collaborating with the company, okay. So, do you want to add anything?

Thank you, Fábio. I think that's it.

Andrew Shea

You said, right? What moment do you think?

Speaker Change: that did their part, that the mandate is concluded, I think no executive thinks that the mandate is concluded. There always has to be a gap opened to close a gap and a gap opened to close a gap and I think just like Paulo and Fabio said,

Speaker Change: We continue the company today, there is an important cultural change.

Speaker Change: Compared to three years ago, I think this is important too, that even though maybe Cuar, Cuar, as João said, we also leave a little frustrated with this...

Speaker Change: There is a culture of achievement, a culture of margin, a culture of effective flow that is already established, I think due to everything we've been through in recent years, very strong in the company. So, this is very important as well.

Speaker Change: Excellent. Sorry, if I could only be sure that I understood one point from João Paulo, does the order of magnitude of the transformation cost remain in 2025, or do the costs remain, but not at the same magnitude?

Speaker Change: Well, we don't exactly open, right, Dani, but like, there's still a lot to do in 25, okay? That's what I wanted to tell you. I take this opportunity to...

is connected here

Fabio Barbosa: To build just a little more detail on profitability, on the comment that Fábio just made. We have returned to investing in brand support and will continue investing in structural investments, in systems, in omnichannel, research and development, up to this point.

Fabio Barbosa: It was necessary, as Fábio pointed out, so you could argue that this is pressure on the margin, indeed it is, but without mentioning exchange rates, inflation. On the other hand...

Fabio Barbosa: The logistics of Brazil have just been merged and the combined orders still have efficiencies to be captured, there are still systems being eliminated that bring DNA efficiencies.

Fabio Barbosa: Not to mention that the brand's strength, particularly the Natura brand, at this moment...

It gives us space.

of price adjustments and promotional investments.

Fabio Barbosa: to maintain or expand, in some cases, our margins. So, I just wanted to put into perspective that, on one hand, we invest more for the health of the business, but on the other hand, we still have important sources of efficiency.

Fabio Barbosa: to give us this confidence that I want to convey to you about the expansion journey and that it should continue in 25, okay? Thank you. That's great. Thank you very much, everyone.

Our next question is from João Pedro Soares, from CIT.

Please, João, you may proceed.

Speaker Change: Thank you, everyone. Good morning there. I have two points here. Three points, actually, relatively quick.

Speaker Change: First, regarding the gross margin, and you mention some effects here, I think it's important for us to try to separate the wheat from the chaff here, to understand, like, there was an effect here of...

Speaker Change: commercial activity a little later, there is a mix effect, there is an effect of giftable items, there is an effect from Argentina, so let's try to understand it like this, what should we imagine here as a more recurring effect, how should we imagine this more recurring gross margin?

Speaker Change: to understand a little the dynamics for 2025, in terms of pricing, cost pass-through, I think it's important for us to understand what can also be captured in terms of deficiency here in gross margin.

Speaker Change: The second point is regarding this discussion of international aviation, I just wanted to look a little from the perspective of closure. We have an estimate, which we are reading in the dockets,

Speaker Change: from an amount of, if I'm not mistaken, 60 to 110 million dollars that it would cost to close the non-core markets, which today are the markets that burn the most cash. So I wanted to look a little, explore this point with you, what you are looking at in relation to this, if it is possible to generate value.

Speaker Change: Maybe by really continuing some operations that today are not profitable, that today burn cash. How do we look at this equation? And lastly, sorry to overdo it, but we were looking at the adjusted leverage of 0.86 times.

Speaker Change: leave room for dividend payment when you think about the optimal capital structure of one time, one and a half times. I wanted to explore this discussion of capital structure with you a little bit as well. Thank you!

Speaker Change: João, this is João as well, I will talk about the gross margin and then pass it to Gui.

for your other questions, okay? So, gross margin, the effects. First.

Speaker Change: The fourth quarter has gross margin seasonality, mainly due to Christmas campaigns, a bit of Black Friday, so the gross margin is always a bit lower in the fourth quarter, it's a seasonal effect.

Speaker Change: If it weren't for Argentina, the gross margin expanded significantly, year on year, okay? So, I hope this helps you and I'll pass it to Gui.

Bye.

Bye.

Speaker Change: Thank you, JP. And hi, João. I hope everything is fine over there. I'll touch a bit on the issue of the beautiful shadow, then we'll talk about the...

Speaker Change: The number that you have access to in Dockers is really a number that the company worked with advisors to calculate this closing of these markets.

Speaker Change: Um, that do not generate cash and two, that we see that we have a right win, perhaps a smaller one in these markets and it would give this range that you mentioned there.

Speaker Change: with important contributions and even a potential growth of significant drought in some countries that have this potential, right? But many countries, obviously, we don't see this right-wing, right? And, obviously, one of the reasons, João, that...

Bye.

We ended up in exclusivity, we didn't...

Speaker Change: did not renew and, again, we continue negotiating, I say this.

I repeat.

Speaker Change: But it's because we also want to accelerate these agendas, we want to accelerate the transformation agenda. What is happening...

Speaker Change: at Boa Internacional, in terms of positions and courses, I know we've been talking a lot about this for some time now, but this wave that's happening here, it never happened in the past, okay? What we're doing now in the first quarter of this year, okay?

Speaker Change: Again, we still believe that the brand has significant potential in some countries.

Speaker Change: But we see that in some other countries our right-wing is not so big and this country, obviously, if there is no structural day to be announced, we will try to accelerate as much as possible in the coming months, okay?

Speaker Change: you commented a little about the value, right? Obviously, the leverage of this quarter, when you look at it closely... very impacted by the EBITDA write-offs, especially the write-offs caused by Boa Internacional's chapter 11, right? Which impacted a lot, both...

Speaker Change: the numerator with Caixa, as well as the denominator with EBITDA, and obviously EBITDA has an important impact in this business.

Speaker Change: And obviously, when you think about this leverage, we never like to say adjusted, but when you think about the leverage of these monops,

Speaker Change: potentially, there would be room for us to go up to our spot, it's great.

Speaker Change: But, having said that, we believe there are important steps that we have to take first.

GG

to resume paying dividends in the short term.

Speaker Change: And it is about giving this confidence to the market, precisely, that, obviously, the company has a strong cash generation and a strong margin expansion going forward, which we are confident about, just like João said. So, I think this is important.

Speaker Change: in that sense. And just to finish here, João, of course Natura, in the past, has always been a company that...

Speaker Change: that everyone has always seen as a good cash flow generator, including this before the Gemini movies, before The Body Shop, before 2017, etc.

Speaker Change: Always seen as a good dividend player, a company that...

Speaker Change: I think it's an important point. When I look now at the generation of professional doctorates in the medium term,

Speaker Change: And here I am not giving any kind of branch, I am just trying to help the market think a little. I see a much larger generation...

Speaker Change: coming from a large expansion of this 1.8 billion bidar reported that we are putting there, a very large expansion of this number, rather than a debt in detail.

Speaker Change: in the medium term, right? Obviously, again, this does not impact, does not prevent us from being able to pay dividends again in the short and medium term.

My only worry will help me to improve the return in the course of the next couple of years.

Speaker Change: He is much more weighted in the history of nature today, in this margin expansion.

Speaker Change: And, again, the Q4 had important one-offs and there was also a bit of a mea culpa on our part as well, which obviously could have been better in some countries.

Speaker Change: which, obviously, João and the team are already working on, but this will be the main lever in the short and medium term. Which, again, does not prevent a nil debt, but, obviously, the extension of the GBI will be a balance in this story.

Speaker Change: Okay, that's great, everyone. Thank you. I have a follow-up here, but I'll do it outside of the public. I've already, already, already taken up too much space here. Thank you.

Speaker Change: Our next question is from Vinícius Preto, from Itaú BBA. Please, Vinícius, you may proceed.

Vinícius Preto: Good morning, everyone. Thank you for taking our question. I have a follow-up on that comment about Avon International, Gui. I wanted to better understand if this agenda of closing deficit geographies is starting now?

Vinícius Preto: And if so, how much are you willing to invest in this agenda, or does it first depend on you not seeing such a likely outcome in the full development of the operation and only then deciding to start looking a little more at this part of the deficit agenda.

Vinícius Preto: And a second follow-up, we received many questions here, even during the call, about the issue of gross margin and EBITDA margin. There was an impression that we saw a significant expansion in recent quarters and expected a much higher level in the fourth quarter.

Vinícius Preto: We understand some of these aspects as the more promotional mix, the more giftable mix in the fourth quarter, but the difficulty lies in understanding what the recurring level is.

Vinícius Preto: It is perhaps the comparison base that we were looking at in the past, which was somewhat influenced by the issue in Argentina, and the recurring level for the fourth quarter should be structurally lower than we were expecting, or if there is some other effect here. If you could break it down, how much would be the impact of the higher mix of giftable items in the fourth quarter? That might help a lot.

Brigado.

The vehicle is just taken.

I like it, I like it.

Speaker Change: Take the photo of the abogação, which is the first question, and then you play the second.

Speaker Change: But, João, just... Sorry, Vinícius, just talking a little more about the VOM, right? Of course, we don't provide guidance on cash outflow, cash consumption.

Speaker Change: And, obviously, about what we are going to do first, second, and how this phasing will be. The message we want to convey to the market is, in case, obviously, we do not have a feasible transaction.

Speaker Change: We are indeed working on this market closure, we are indeed working on it.

Speaker Change: Whether by closing with cash, or by moving to the distribution model. Obviously, always aiming to minimize cash outflow in the short and medium term. And always aiming to generate this torsionist value in this way.

my

Speaker Change: It's not that we are going to stand still waiting for a transaction to go through in three or six months, right?

Mm-hmm.

Speaker Change: We will continue, yes, working and, again, I repeat what we have already started to do and we will, perhaps, talk a little more about this in the Q1 results, but what we have already started to do in terms of cost transformation at Abuon.

Speaker Change: in this trimester, and obviously what is in the pipeline to work in relation to some countries, has never been done in the past.

Speaker Change: Just to complete a little word here, if I may, to reinforce what Gui said. Actually, we can't just stand still waiting for these transactions, we believe that the solution is a strategic solution, without a doubt.

Speaker Change: Asking like this, just standing there waiting, it doesn't work, right? So, let's move forward, also because the company becomes healthier, and it even becomes easier for other businesses. But the main focus is low cash consumption, right? So, do the things that can be done when we reduce the company's cash consumption, that is, there are no major investments, but keep the company alive, because otherwise, the strategic solution we seek becomes increasingly difficult.

That's all for today.

Vinícius Preto: Vinícius and the others there in the question about the recurring margins, right. And it occurred to me, Vinícius, for us to look at the full year, right, both gross margin and EBITDA margin.

Vinícius Preto: Starting from the escape and from the realization that we are still in the middle of wave 2, which was a major vector of profitability expansion. You will remember, at the beginning of the story, we looked at Natura's historical margins.

Vinícius Preto: we made inferences about the banks of the Avon and how the Avon would start to rise, reach halfway, and so on. So, we are not there yet.

Vinícius Preto: We are not. There is still a lot to come. For example, Mexico is the largest country for Avon here in Latin America, after Brazil, with margins that are low. So, there are still paths to take.

Vinícius Preto: Argentina, India, is the second largest, so there are great paths for expansion, in addition to the DNA efficiencies that we are still collecting from the simplification of the corporate structure in the region.

Vinícius Preto: two transactional systems, control, accounting. So, there are many sources of efficiency yet to be tapped into. So, if we start from this observation, that we are still halfway through capturing the value of wave 2...

Looking at the full-year averages...

reinforcing our commitment to expansion.

Vinícius Preto: You should design, I think it can help you design what is recurring.

I also have to remind them that...

Vinícius Preto: This is not absolutely linear, it does not mean that every quarter will absolutely show the same expansions or contractions compared to the previous year.

Vinícius Preto: Mainly because the very tall grass is gone, so now, on average, you can project that our journey continues, okay, please. And gross margin, João, ex-Argentina improved, you emphasized that, right? Exactly, it improved a lot.

Vinícius Preto: I think you explained well the tendency for the future, right?

Speaker Change: that this market concern to anchor this beginning of margin with Q4, we don't see it that way, even though things are obviously fluid and have to change, but if you take the three main ones here

their main impacts.

Speaker Change: on the gross margin. First, we talked a little about Argentina, but even Argentina with all the impact it had from comparison and, obviously, there are operational reasons, such as inventory turnover, which will probably continue to impact,

Speaker Change: which had significant non-operational impacts, such as the shutdown at the Moreno factory and also Amorfis taxes that affected Q4, which do not continue to impact the rest of the year.

Speaker Change: Of the potential presidential candidates, as João mentioned, which, of course, impacts, obviously, the gross margin, but also helps, obviously, when you think about revenue and revenue management, to continue improving the margin of these products through innovation.

Speaker Change: it will also be an important lever for the future and obviously it carries more weight in specific events and of course Q4 with Christmas has an important weight in this mix issue.

Speaker Change: of category. And the last point that João mentioned, which I also repeat, was the issue of revenue management and, perhaps, tactical investments in pricing, this is also fluid. Again, we don't see this all the...

all the beginnings. Then, it happened again.

Speaker Change: important impacts on this Q4 margin, with or without Argentina, that you can think of in this way.

João Paulo: that they will not necessarily be going forward, even though João said things are not linear, but as you look at the flow to Bezos, we are confident that there are still many good things to come and one of these major levers will obviously be the second wave in Mexico and Argentina.

Excellent, thank you for helping to detail here.

Speaker Change: Thank you, everyone. If you allow me just a follow-up to the follow-up. That comment that the magnitude of transformation costs will remain caught a lot of attention as well. I wanted to understand that, I understand that you don't give guidance, right, but that presentation made at the beginning of Wave 2 had an almost linear trajectory of reducing transformation costs.

Speaker Change: So, this comment that it will be maintained, it draws little attention because of that. And also, when you say it will be maintained, is it in relation to the closed level of 2024 or is it the level of the fourth quarter which was also a bit above the previous quarters?

Speaker Change: Vinícius, I just want to remind you that the transformation course, I'm not saying it's going to be the same, it won't stop being the same, I'm saying it's still material, but it also has the effect of CAPEX to OPEX in software, it's still contained in the transformation course, okay?

Speaker Change: There are a lot of system things that we are doing there, it's also with you, but I hope it helps you.

Speaker Change: And just quickly, when we did that presentation in 2023 about the second wave,

Bye.

The mapping we had of timing is very fluid.

The people, we were expecting that Mexico would already be done in 2024.

Again, we have already started...

Speaker Change: with important actions, both in Mexico and in Argentina, regarding this.

Speaker Change: So, again, the point is that these programs, due to their complexity, and I think that, for now, we remain very excited, again, very excited about the structuring results that we see in all the countries where Únida 2 is implemented.

Speaker Change: When you look again, even though you almost had...

Speaker Change: various expense events in those countries. When you look at the clean result of wave 2, we are very satisfied with the result.

Speaker Change: All of this is still to enter Argentina and Mexico next year, but this comes, obviously, with a course of transformation and, of course, I am sure that the team is working hard to try to minimize it.

Perfect. Thank you very much, everyone.

Speaker Change: Our next question is from Andrew Rubin, from Morgan Stanley. Please, Andrew, you may proceed.

Andrew Rubin: Thanks very much for the question. I was hoping you could talk through some more of the trends for the Avon brand in Brazil. I know you mentioned the more difficult comparison base, but I'm curious items such as how you see the wave to sells up list balance between the Natura and Avon brands. Maybe how you think about the marketing investments going behind behind Avon and also if you can just remind how much of a drag there could still be from the de emphasis of certain products and categories within Avon Brazil.

Thanks very much [inaudible]

Andrew J.P.A.K E.P.A.K

João Paulo: From the transition that took place in '23, in September , we saw a growth of 5, 6% of the Avon brand in Brazil in the second half of the year. And I highlight the categories of makeup and face.

João Paulo: which are historical strengths of Avon, which has been doing quite well, we are satisfied with that.

João Paulo: In the last quarter, we made an important launch in perfumery, Far Away was relaunched here in Latin America, particularly in Brazil.

João Paulo: with support for the brand and has been having quite a relevant performance.

When this 25 is created…

Our confidence increases.

João Paulo: because the management of the Avon brand in Latin America was transferred here.

João Paulo: precisely at the end of the year 24. In this process of separation between Voo Internacional and Natura, we also agreed on the separation of brand management.

João Paulo: So, the team that manages the brands and categories for Latin America has been reshaped...

João Paulo: in market spaces that are, at the same time, complementary to Natura and more relevant to the Latin American consumer.

João Paulo: So, this has made us reshape the innovation pipeline. When I see these trends in Avon's key categories, namely makeup and face.

João Paulo: The first trends of strengthening in perfumery and I see what has been remodeled in the innovation pipeline, this gives us...

confiança.

João Paulo: that we have a very promising path for strengthening the Avon brand here in Latin America. Still to be proven, I know that our history does not allow everyone to immediately have the conviction that this will happen, but there are many signs that give us confidence.

That's great color. Thank you.

Perfect, I think with that we are wrapping up.

João Paulo: The questions, I regret to say, obviously don't have much to be clarified, but the general trend has been good and we remain very excited.

Speaker Change: so that Latin America can develop all its potential. Some people, obviously, ended up staying out of this, if you don't want to ask, I'm sorry about that, but obviously Helena and all her team at IRI are available for clarification, as well as, for example, Gui and João Paulo. Guys, thank you very much and have a good day.