Q2 2025 Natura &Co Holding SA Earnings Call
Speaker #1: No ícone em formato de globo, na parte inferior da tela, é possível escolher o idioma de sua preferência.
Speaker #2: Screen and select either Portuguese or English. If you are listening in English, you can mute the Portuguese audio by selecting 'Mute Original Audio.' Joining us today are Mr. João Paulo Ferreira, our Chief Executive Officer, and Silvia Villas-Boas.
Speaker #2: Our Chief Financial Officer. The slide presentation for today's call is already available on our investor relations website. I'll turn the call over to Mr. João Paulo Ferreira.
Speaker #2: Please go ahead, sir. Good morning, everyone. Thank you for being with us. This morning, to review, our second quarter 2025 results. Let me start with an update on the progress of our restructuring journey, which began in mid-2022.
Speaker #2: Since our last earnings call, we have completed the merger of Natura &Co into Natura Cosméticos. We now have assets held for sale. After the Chapter 11, a dedicated team, with the support of our legal and financial teams, resumed the separation or sale of these businesses.
Speaker #2: This initiative moved on substantially in recent months, our auditors have rectified as held for sale. Given the high likelihood of concluding these processes in up to 12 months, on top of that, we are now consolidating the merger of Natura &Co and Natura Cosméticos.
Speaker #2: On July 1st, we now have a simplified structure in the holding company. Such as our board of directors and investor relations. What does that mean?
Speaker #2: From this point forward, our continuing operations—meaning our P&L, cash flow, and balance sheet—will reflect only our core business. In other words, Latin America and the remaining corporate functions.
Speaker #2: That said, once the de-consolidation of assets held for sale is finalized, we may still see some non-operational, non-recurring accounting impacts. Moving on to our operating highlights for the quarter.
Speaker #2: During this period, we took another step in Wave 2, the integration of Avon and Natura in Latin America. We're now nearing the end of this long and important journey.
Speaker #2: Which is expected to wrap up by year-end. In May, we completed the integration in Mexico and moved ahead with preparations in Argentina, which went live in July.
Speaker #2: We're still seeing some volatility in both markets. In line with our planning activities, moving on to brands, our health indicators remain healthy throughout Latin America.
Speaker #2: And Natura brand grew substantially in previously integrated markets. Notably in Brazil, which increased double digits. Offsetting the Avon impacts. As we said during our investor day, Avon will go through some repositioning.
Speaker #2: It's innovation pipeline is being rebuilt. Significant positive effects are expected to come only in 2026. Moving on to our channels. Our digital operation increased above the consolidated numbers.
Speaker #2: Due to the modernization efforts in 2024, the strengthening of our teams and new sales models such as live shops and marketplaces. Our retail operations also maintained that consistent increase in productivity and efficiency.
Moderator: No ícone em formato de globo, na parte inferior da tela, e escolher o idioma de sua preferência.
Joao Paulo Ferreira: Screen and select either Portuguese or English. If you are listening in English, you can mute the Portuguese audio by selecting Mute Original Audio. Joining us today are Mr. João Paulo Ferreira, our Chief Executive Officer, and Sylvia Villas Boas, our Chief Financial Officer. The slide presentation for today's call is already available on our Investor Relations website. I will turn the call over to Mr. João Paulo Ferreira. Please go ahead, sir. Good morning, everyone. Thank you for being with us this morning to review our second quarter 2025 results. Let me start with an update on the progress of our restructuring journey, which began in mid-2022. Since our last earnings call, we have completed the merger of Natura &Co into Natura Cosméticos. We now have assets held for sale.
Joao Paulo Ferreira: After Chapter 11, a dedicated team, with the support of our legal and financial teams, resumed the separation or the sale of these businesses. This initiative moved on substantially in recent months. Our auditors have rectified assets held for sale, given the high likelihood of concluding these processes in up to 12 months. On top of that, we are now consolidating the merger of Natura &Co and Natura Cosméticos on July 1st. We now have a simplified structure in the holding company, such as our Board of Directors and Investor Relations. What does that mean? From this point forward, our continuing operations, meaning our P&L, cash flow, and balance sheet, will reflect only our core business. In other words, LATAM and the remaining corporate functions. That said, once the de-consolidation of assets held for sale is finalized, we may still see some non-operational, non-recurring accounting impacts.
Joao Paulo Ferreira: Moving now to our operating highlights for the quarter. During this period, we took another step in Wave 2, the integration of Avon and Natura in Latin America. We are now nearing the end of this long and important journey, which is expected to wrap up by year-end. In May, we completed the integration in Mexico and moved ahead with preparations in Argentina, which went live in July. We still see some volatility in both markets, in line with our planning activities. Moving on to Brands, our health indicators remain healthy throughout Latin America, and Natura brand grew substantially in previously integrated markets, notably in Brazil, which increased double digits, offsetting the Avon impacts. As we said during our Investor Day, Avon will go through some repositioning. Its innovation pipeline is being rebuilt. Significant positive effects are expected to come only in 2026.
Joao Paulo Ferreira: Moving on to our channels, our digital operation increased above the consolidated numbers due to the modernization efforts in 2024, the strengthening of our teams and new sales models, such as live shops and marketplaces. Our retail operations also maintained that consistent increase in productivity and efficiency. Amid all these developments, we kept recurring EBITDA margin at 14.7% in Latin America and 14% consolidated, delivering positive cash generation for the firm, a net income of $445 million for continuing operations in the quarter. On the ESG front, we earned an A score from the Carbon Disclosure Project for climate and supplier engagement, both of which reinforced the strength of our net zero roadmap and our deep commitment to our entire value chain. More importantly, we also published our 2050 vision and took a transformative step moving beyond sustainability to a regeneration-focused approach.
Speaker #2: Amid all these developments, we kept recurring EBITDA margin at 14.7% in Latin America and 14% consolidated, delivering positive cash generation for the firm in net income of $445 million for continuing operations in the quarter.
Speaker #2: On the ESG front, we earned an A-scored from the carbon disclosure project for climate for climate and supplier engagement. Both of which reinforced the strength of our Net Zero roadmap and our deep commitment to our entire value chain.
Speaker #2: More importantly, we also published our 2050 vision and took a transformative step, moving beyond sustainability to a regeneration-focused approach. By mid-century, our goal is to be a fully regenerative company promoting life and generating positive impact across four capitals: financial, natural, social, and human at the same time.
Joao Paulo Ferreira: By mid-century, our goal is to be a fully regenerative company, promoting life and generating positive impact across four capitals: financial, natural, social, and human at the same time. I will now hand it over to Sylvia, who will walk you through the quarter's financials, and I will return later with my closing remarks. Over to you, Sylvia.
Speaker #2: I'll now hand it over to Silvia, who will walk you through the quarter's financials. I'll return later with my closing remarks. Over to you, Silvia.
Speaker #3: Thank you, JP. Good morning, everyone. It's a pleasure to be here with you again and thank you for coming. Before I start talking about the financial results, I'd like to reinforce the point that JP made in his opening remarks.
Sylvia Villas Boas: Thank you, João Paulo Ferreira. Good morning, everyone. It's a pleasure to be here with you again, and thank you for coming. Before I start talking about the financial results, I'd like to reinforce a point that João Paulo Ferreira made in his opening remarks. Given the classification of Avon International and Card for assets held for sale and discontinued operations, this presentation will focus on Natura and LATAM, which is our core business. When we refer to continuing operations, we're always talking about the LATAM operation and the holding. We know that these changes are relevant and have an impact on your analysis. In order to make things easier, we've detailed the explanations in the release and included the reconciliation for the first quarter in the appendix. All the figures for the second quarter and the first half of the year are comparable.
Speaker #3: Given the classification of Avon International and Card available-for-sale assets and discontinued operations, this presentation will focus on Natura in Latam, which is our core business.
Speaker #3: When we refer to continuing operations, we're always talking about the Latam operation and the holding. We know that these changes are relevant and have an impact on your analysis.
Speaker #3: And in order to make things easier, we've detailed the explanations in the release and included the reconciliation for the first quarter in the appendix.
Speaker #3: All the figures for the second quarter and the first half of the year are comparable. With that being said, let's start with revenue. In the second quarter of 2025, revenue grew by 5.5% year-on-year in constant currency.
Sylvia Villas Boas: With that being said, let's start with revenue. In the second quarter of 2025, revenue grew by 5.5% year-on-year in constant currency and by 2% excluding Argentina. Speaking of the Natura brand in Brazil, the 10% growth was driven by the productivity gains of our consultants with a better mix, price gains, and stable volumes. This also reinforces our commitment to market share gains this year, which has already been boosted by the above-market expansion that the brand posted in the first half of 2025. It's worth noting, though, that we already felt a strong slowdown in the Brazilian macroeconomic scenario starting in June, which also impacted the cosmetics market as a whole. Moving on to the performance of the Natura brand in Hispana, we also saw an increase in revenue up 17.8% in constant currency or low single digits when excluding Argentina.
Speaker #3: And by 2%, excluding Argentina. Speaking of the Natura brand in Brazil, the 10% growth was driven by the productivity gains of our consultants with a better mix price gains and stable volumes.
Speaker #3: This also reinforces our commitment to market share gains this year, which has already been boosted by the above-market expansion that the brand posted in the first half of 2025.
Speaker #3: It's worth noting, though, that we already felt a strong slowdown in the Brazilian macroeconomic scenario starting in June, which also impacted the cosmetics market as a whole.
Speaker #3: Moving on to the performance of the Natura brand in each product, we also saw an increase in revenue up 17.8% in constant currency or low single digits when excluding Argentina.
Speaker #3: This was a healthy growth, but with a significant slowdown when compared to the year-on-year performance we had in the first quarter (Q1) of the year.
Sylvia Villas Boas: This was a healthy growth, but with a significant slowdown when compared to the year-on-year performance we had in the first quarter of the year. This was an expected slowdown, as we reinforced during Natura Day, given the implementation of Wave 2 in Mexico and the preparation in Argentina. Looking at the Avon brand, which, in line with what we said in the first quarter earnings call, continued to suffer with the effects of less innovation in the portfolio and thus showed a 12.9% drop in revenue in Brazil.
Speaker #3: This was an expected slowdown, as we reinforced during Natura Day, given the implementation of Wave 2 in Mexico and the preparation in Argentina. Now looking at the Avon brand, which, in line with what we said in the Q1 earnings call, continued to suffer from the effects of less innovation in the portfolio and thus showed a 12.9% drop in revenue in Brazil.
Speaker #3: In addition, similarly to Natura, but to a greater extent, the brand is also suffering from the evolution of Wave 2 in Mexico and Argentina.
Sylvia Villas Boas: In addition, similarly to Natura, but to a greater extent, the brand is also suffering from the evolution of Wave 2 in Mexico and Argentina, which is why we see a 13.6% drop in Avon's revenue in the Hispanic region. It is also worth noting that in this second quarter in Argentina, Avon completely discontinued the use of physical magazines and made the transition to fully digital magazines, something that had already been done by the Natura brand and which leads to expected and important impacts on revenue in the country. Finally, revenue from the home and style category grew by 2.8% in Brazil as a result of a successful opportunistic campaign in line with the strategy we commented for this category during Natura Day.
Speaker #3: Which is why we see a 13.6% drop in Avon's revenue in the Hispanic region. It's also worth noting that in this second quarter in Argentina, Avon completely discontinued the use of physical magazines.
Speaker #3: And made the transition to fully digital magazines. Something that had already been done by the Natura brand, which leads to expected and important impacts on revenue in the country.
Speaker #3: Finally, revenue from the Home and Style category grew by 2.8% in Brazil. This growth is a result of a successful opportunistic campaign that aligns with the strategy we discussed for this category during Natura Day.
Speaker #3: In the Hispanic region, revenue fell by 25.6%, excuse me, 0.9%, also impacted by the evolution of Wave 2. It's worth remembering here that, especially in Mexico, this is a more significant impact due to the greater exposure of this category in the country's total revenue.
Sylvia Villas Boas: In the Hispanic region, revenue fell by 25.6%, excuse me, 0.9%, also impacted by the evolution of Wave 2. It is worth remembering here that especially in Mexico, this is a more significant impact due to the greater exposure of this category in the country's total revenue. Now continuing with the profitability slide, you can see in the graph that we went from a recurring EBITDA margin of 13.2% in the consolidated figures for the second quarter of 2024 to 14% this quarter. One of the effects of 80 basis points year-on-year is the reduction in holding, as João Paulo Ferreira explained, which now represents 70 basis points of total revenue versus 150 in the same period last year.
Speaker #3: Now, continuing with the profitability slide, you can see in the graph that we went from a recurring EBITDA margin of 13.2% in the consolidated figures for the second quarter of '24 to 14% this quarter.
Speaker #3: One of the effects of a 80 basis points year-on-year is the reduction in holding as JP explained, which now represents 70 basis points of total revenue versus 150 in the same period last year.
Speaker #3: In addition, Latam maintained its recurring profitability of 14.7%, leveraged by a gross margin that evolved 80 bps year-on-year and which was driven by the expansion of gross margin in all countries that are more advanced with brand integration.
Sylvia Villas Boas: In addition, LATAM maintained its recurring profitability of 14.7%, leveraged by a gross margin that evolved 80 bps year-on-year and which was driven by the expansion of gross margin in all countries that are more advanced with brand integration. This EBITDA margin also reflects an improvement in selling expenses, which also benefited from the efficiencies obtained with Wave 2 and Natura's growth in Brazil. On the other hand, administrative expenses showed an increase of 180 bps year-on-year, explained mainly by greater investments in innovation, such as those we are making in the Avon brand and in systems, especially the new integrated planning process, which is very relevant to increasing the company's structural efficiencies and which we shared with you in more detail during Natura Day.
Speaker #3: EBITDA margin; this EBITDA margin also reflects an improvement in selling expenses, which benefited from the efficiencies obtained with Wave 2 and Natura's growth in Brazil.
Speaker #3: On the other hand, administrative expenses showed an increase of 180 bps year-on-year, explained mainly by greater investments in innovation, such as those we're making in the Avon brand.
Speaker #3: And in systems, especially the new integrated planning process, which is very relevant to increasing the company's structural efficiencies and which we shared with you in more detail during Natura Day.
Speaker #3: In addition to that, administrative expenses were also impacted by the expected deleveraging in the Hispanic region, given the volatility of revenue amid the integration in both Mexico and Argentina.
Sylvia Villas Boas: In addition to that, administrative expenses were also impacted by the expected deleveraging in the Hispanic region, given the volatility of revenue amid the integration in both Mexico and Argentina. After a long journey, it is now time to return to the company's net profit, net income. On this slide, you can see how profitability benefited our net income, which reached 445 million Brazilian reais in continuing operations during the second quarter of 2025 and 195 million when we include assets held for sale. This recurring EBITDA of 796 million was partially offset by adjustments of 138 million, which include 88 million in integration costs for Wave 2 and 46 million relating to the holding strategic projects.
Speaker #3: After a long journey, it's now time to return to the company's net profit net income. On this slide, you can see how profitability benefited our net income, which reached 445,000,000 Brazilian reais in continuing operations during the second quarter of '25.
Speaker #3: And $195,000,000 when we include assets for sale. This recurring EBITDA of $796,000,000 was partially offset by adjustments of $138,000,000, which include $88,000,000 in integration costs for Wave 2 and $46,000,000 relating to the holding strategic projects.
Speaker #3: When we exclude non-operational effects such as discontinued operations of R$250,000,000, the PPA and these EBITDA adjustments I've just mentioned, the adjusted or recurring net income is R$564,000,000.
Sylvia Villas Boas: When we exclude non-operational effects, such as discontinued operations of 250 million, the PPA and these EBITDA adjustments I have just mentioned are adjusted or recurring net income is 564 million reais. It is important to note that in calculating this, we included the benefits that the adjustments generate in income tax at an illustrative rate of 25%, as explained in the early earnings release. Moving on to cash flow. Here we see the cash flow from continuing operations for the first half of the year. As we see in the smaller orange bar, in the first half of 2025, we saw a cash flow for continuing operations of 219 million reais. This was benefited mainly from lower working capital use. This lower use especially reflects the accounts receivable line, which had better dynamics than the typical seasonal pattern for this period, given tighter credit restrictions this year versus 2024.
Speaker #3: It's important to note that in calculating this, we included the benefits that the adjustments generate in income tax at an illustrative rate of 25% as explained in the early earnings release.
Speaker #3: Moving on to cash flow, here we see the cash flow from continuing operations for the first half of the year. As we observe in the smaller orange bar in the first half of 2025, we saw a cash flow for continuing operations of R$219,000,000.
Speaker #3: This was benefited mainly from lower working capital use. This lower use especially reflects the accounts receivable line, which had better dynamics than the typical seasonal pattern for this period.
Speaker #3: Given tighter credit restrictions this year versus 2024. The company's cash flow of 219,000,000 is split between 408,000,000 in generation in Latam and a use of 118,000,000 at the holding.
Sylvia Villas Boas: The company's cash flow of 219 million is split between 408 million in generation in LATAM and a use of 118 million at the holding. When we include the expected impact of financial expenses of 299 million related to the company's leverage, we have a negative free cash flow from continuing operations of 9 million reais, negative 9 million reais. Now we have to explain how we got from a negative cash flow from continuing operations to a change in cash and cash equivalents of 2.1 billion reais. We will see this on the next slide. To make it clearer to you, here we are showing our net debt. You can see that it went from 2.4 billion at the end of 2024 to 4 billion at the end of the first half of 2025.
Speaker #3: When we include the expected impact of financial expenses of R$299,000,000 related to the company's leverage, we have a negative free cash flow from continuing operations of R$9,000,000.
Speaker #3: Negative R$9,000,000. Now we have to explain how we got from a negative cash flow from continuing operations to a change in cash and cash equivalents of R$2.1 billion.
Speaker #3: We'll see this on the next slide. To make it clearer for you, here we are showing our net debt. You can see that it went from $2.4 billion at the end of 2024 to $4 billion at the end of the first half of 2025.
Speaker #3: This increase in indebtedness is mainly explained by discontinued operations, which have more than offset the positive benefit of approximately R$500 million from our U.S. dollar-denominated bonds, given the appreciation of the Brazilian real.
Sylvia Villas Boas: This increase in indebtedness is mainly explained by discontinued operations, which have more than offset the positive benefit of approximately 500 million reais from our U.S. dollar denominated bonds, given the appreciation of the Brazilian real. But what were the main effects that impacted these operations? The two most significant effects are, first, the reclassification of 735 million reais of cash from Avon International and Card, which are no longer consolidated with the company's cash and now are included in the assets held for sale line. The cash consumption of these assets totaled 1 billion and is split into approximately 700 million of expected operating consumption due to the expected seasonal pattern this period. The remainder is mostly explained by unfavorable exchange rate effects, which total 1.8 billion.
Speaker #3: But what were the main effects that impacted these operations? The two most significant effects are first, the reclassification of 735,000,000 reais of cash from Avon International and Card, which are no longer consolidated with the company's cash.
Speaker #3: And now, we are included in the assets held for sale line and the cash consumption of these assets, which totaled $1 billion, is split into approximately $700 million of expected operating consumption.
Speaker #3: Due to the expected seasonal pattern, this period and the remainder is mostly explained by unfavorable exchange rate effects, which total $1.8 billion. In addition to that, we also had effects related to the share buyback program announced in March 2025.
Sylvia Villas Boas: In addition to that, we also had effects related to the share buyback program announced in March 2025, which to date has totaled 140 million, also exchange rate effects of 200 million, and as mentioned previously, financial expenses of nearly 300 million. All of these factors brought our net debt to EBITDA ratio to 2.18 times at the end of the second quarter. It is worth emphasizing that this in no way changes our view of the optimal capital structure for continuing operations, which varies between 1 and 1.5 times. We are always looking at the end of the fiscal year to discuss leverage, given the cash profile between quarters, which for us and other consumer companies tends to concentrate cash generation in the fourth quarter of the year. Finally, as mentioned on Natura Day, our amortization schedule remains very comfortable with the next major maturity only expected in 2028.
Speaker #3: Which to date has totaled 140,000,000, also exchange rate effects of 200,000,000. And as mentioned previously, financial expenses of nearly 300,000,000. All of these factors brought our net debt to EBITDA ratio to 2.18 times at the end of the second quarter.
Speaker #3: It's worth emphasizing that this in no way changes our view of the optimal capital structure for continuing operations, which varies between 1 and 1.5 times.
Speaker #3: And we're always looking at the end of the fiscal year to discuss leverage, given the cash profile between quarters, which for us and other consumer companies tends to concentrate cash generation in the fourth quarter of the year.
Speaker #3: Finally, as mentioned on Natura Day, our amortization schedule remains very comfortable, with the next major maturity expected in 2028. We're talking about Natura Day. Before I emphasize that this will be the last quarter that you will see the release in its current form.
Sylvia Villas Boas: Since we are talking about Natura Day, before I conclude, I would like to emphasize that this will be the last quarter that you will see the release in its current form. From the third quarter onwards, we will share a new disclosure presented at the end of the event, which goes into more details about operational KPIs and the operating income statement for Brazil and the Hispanic region. I will now hand the floor over to João Paulo Ferreira for his closing remarks, and I will return for the Q&A. Thank you.
Speaker #3: From the third quarter onwards, we will share a new disclosure presented at the end of the event, which goes into more detail about operational KPIs and the operating income statement for Brazil and the Hispanic region.
Speaker #3: I'll now hand the floor over to JP for his closing remarks and I'll return for the Q&A. Thank you.
Speaker #2: Thank you, Silvia. Before we move to Q&A, I'd like to wrap up with a few closing remarks. Cash consumption offsets the good performance in Latin America.
Joao Paulo Ferreira: Thank you, Sylvia. Before we move to Q&A, I would like to wrap up with a few closing remarks. Cash consumption offsets the good performance in Latin America. The conclusion of strategic efforts for becoming Natura Cosméticos International is an absolute priority for both the executive team and the board of directors. We have moved along substantially in Q2, but there is still plenty of work ahead in 2025. Wave 2 is on track to finish this year, and to get there, we still need to complete certain system simplifications and pull away transition production from our Interlagos facility to Cajamara. The micro backdrop in Latin America remains choppier than usual. We continue to strive for better EBITDA margins, focusing on operational expenses. We remain confident given the strengths of our business, as we have seen in Natura Day. This is based on five pillars: strong brands, strong markets.
Speaker #2: The conclusion of strategic efforts for becoming international, it's an absolute priority for both the executive team and the board of directors. We have moved along substantially in Q2.
Speaker #2: But there's still we have plenty of work ahead in 2025. Wave 2 is on track to finish this year and to get there, we still need to complete certain system simplifications and fully transition production from our interlagos facility to Cajamara.
Speaker #2: The micro backdrop in Latin America remains choppier than usual. We continue to strive for better EBITDA margins focusing on operational expenses. We remain confident given the strengths of our business as we've seen in Natura Day.
Speaker #2: This is based on five pillars: strong brands, strong markets, and again, we point out that we have brand equity indicators showing that our brands are very healthy in Latin America.
Joao Paulo Ferreira: Again, we point out that we have brand equity indicators showing that our brands are very healthy in Latin America, and we grew above market average with the Natura brand, despite having a lot of work to do with the Avon brand. The single distribution model, which we master, and we have proven that whenever the integration is mature, direct sales are maintained, remain to gain traction in productivity, and non-direct sales keep on growing above the company's average. Our innovation capacity is second to none. We innovate to protect our leadership, as we have seen in the Aura Alba introduction, strengthening the perfume category. We are now the number one player in Latin America. Again, building market share with the introduction of products for hair care, a category that we are growing double the company's average.
Speaker #2: And we grew above market average with the Natura brand. Despite having a lot of work to do with the Avon brand. The single distribution model which we master and we have proven that whenever the integration is mature, direct sales are maintained remain to gain traction in productivity.
Speaker #2: And non-direct sales keep on growing above the company's average. Our innovation capacity is second to none. We innovate to protect our leadership as we've seen in the Aura Alba introduction and strengthening the perfume category.
Speaker #2: We are now the number one player in Latin America and, again, building market share with the introduction of products for hair, a category that we are growing at double the company's average.
Speaker #2: And of course, new introductions, new launches that will help us in our pipeline. A very attractive economics background. We've seen margins getting better and better, driven by markets in which the integration is mature and improved profitability cash generation and net income.
Joao Paulo Ferreira: Of course, new introductions, new launches that will help us in our innovation pipeline. A very attractive economics background. We have seen margins getting better and better, driven by markets in which the integration is mature and improved profitability, cash generation, and net income. Finally, we can make a difference with our people. We have improvements in results. We can handle major changes, including the holding incorporation and the reclassifications of our assets as assets held for sale. In summary, we are at the same time simplifying and building our future. Looking forward, the business scenario is less favorable. Consumption is slowing down, and under a lot of pressure in Mexico, and on top of the FX effects in Argentina. But simplifying things with the right capacity makes us feel confident to capture opportunities and face possible challenges. That is it for me.
Speaker #2: And finally, we can make a difference with our people. We have improvements in results; we can handle major changes, including the holding incorporation and the reclassifications of our assets as held for sale.
Speaker #2: In summary, we are at the same time simplifying and building our future. Looking forward, the business scenario is less favorable; consumption is slowing down and is under a lot of pressure in Mexico.
Speaker #2: And on top of the FX changes in Argentina, simplifying things with the right capacity makes us feel confident in capturing opportunities and facing possible challenges.
Speaker #2: That's it for me. Thank you very much, and we'll now have the Q&A session. We'll now begin the Q&A session. To ask a question, click on the Q&A icon at the bottom of your screen and type it in to join the queue.
Joao Paulo Ferreira: Thank you very much, and we will now have the Q&A session. We will now begin the Q&A session. To ask a question, click on the Q&A icon at the bottom of your screen and type it in to join the queue. When your name is called, a prompt will appear to unmute your microphone. Please do so before asking your question. We kindly ask that you state all your questions at once. Our first question comes from Rodrigo Castin from Itaú BBA.
Speaker #2: When your name is called, a prompt will appear to unmute your microphone. Please do so before asking your question. We kindly ask that you state all your questions at once.
Speaker #2: Our first question comes from Rodrigo Castillo from Itaú BBA.
Speaker #4: Good morning, everyone. I have two questions from my side. The first is specifically about Avon International. I'd just like to understand from a technical standpoint, what are the strategic alternatives that would make the consultancy comfortable in moving this in assets to assets for sale?
Sylvia Villas Boas: Good morning, everyone. I have two questions from my side. The first is specifically about Avon International. I would just like to understand from a technical standpoint, what are the strategic alternatives that would make the consultancy comfortable in moving this to assets for sale? Secondly, Sylvia Villas Boas, you have talked about the deceleration of Natura Brazil in June. Did you feel anything in sell-in in your channel with the consultants? Do you have any perceptions of sell-out if there is also a slowdown there? That is my first question. That is my question. Thank you. Let me start by answering your second question. Yes, we have a detailed model, and we can feel movements in the consumer market based on our consultants' activities.
Speaker #4: Secondly, Silvia, you've talked about the deceleration of Natura Brazil in June. So, did you feel anything in sell-in in your channel with the consultants?
Speaker #4: And do you have any perceptions of sellout if there's also a slowdown there? That's my first question. That's my question. Thank you. Okay, so let me start by answering your second question.
Speaker #4: So yes, we have a detailed model and we can feel movements in the consumer market from based on our consultants' activities. So we were able to detect a slowdown at the end of June.
Speaker #4: And their activities. I'll let Silvia explain this technically about the reclassification to available for sale. Hi, Justine. Thank you for your question. So about discontinuing operations with Avon and Avon International and Card, as we mentioned, this was made available for sale.
Sylvia Villas Boas: We were able to detect a slowdown at the end of June in their activities. I will let Sylvia Villas Boas explain this technically about the reclassification to available for sale. Hi Gustin, thank you for your question. About discontinuing operations with Avon International and Card, as we mentioned, this was made available for sale. What we can share right now is that, as we have said from the first quarter and on Natura Day, this process has the company's full dedication. We are moving fast, and we are assessing all of the assets combined in this operation. I cannot go into further detail about the evidence that we have, but none of them have triggered a material fact or any communications to the market, and we will do that when the moment comes. Great, thank you.
Speaker #4: What we can share right now is that as we've said from the first quarter and on Natura Day, this process has the company's full dedication for moving fast and we're assessing all of the assets combined in this operation.
Speaker #4: I can't go into further detail about the evidence that we have, but none of them have triggered a material fact or any communications to the market.
Speaker #4: And we will do that when the moment comes. Great. Thank you.
Speaker #2: The next question comes from Vinicius from UBS. Go ahead, Vinicius. Good morning. Good morning, João and Silvia. Thank you for taking my question. My question is about gross margin, 80 bps in LatAm.
Joao Paulo Ferreira: The next question comes from Vinicius Stern from UBS. Go ahead, Vinicius. Good morning. Good morning, João. Sylvia, thank you for taking my question. My question is about gross margin, 80 bps in LATAM. Can you help us identify any impacts in pricing, product mix, geographies, what the sales are, what sales are in all these markets? Let me go back to Avon International. Can you elaborate on the exit strategy in deficient geographies? What is the status of that plan? What about cash consumption looking forward? Let me start with gross margin. I will ask Sylvia to explain that further, but let me say that combined operations have seen gross margins improvements. Sylvia, thank you for your question, Vinicius.
Speaker #2: Can you help us identify any impacts in pricing, product mix, and geographies? What are the sales like? What are sales in all these markets? And let me go back to Avon International.
Speaker #2: Can you elaborate on the exit strategy in deficient geographies? What's the status of that plan? And what about cash consumption looking forward? Well, very good.
Speaker #2: Let me start with gross margin. I'll ask Silvia to explain that further. But let me say that combined operations have seen gross margins improve.
Speaker #2: Improvements. Silvia. Thank you for your question, Vinicius. Well, let me address gross margin. As JP said, we've had expansions in all mature countries.
Joao Paulo Ferreira: Let me address gross margin. As João Paulo Ferreira said, we have had expansions in all countries that are mature, with the exception of Mexico, that in Q2 it was impacted by non-recurring transactions in our gross margin. We expect this to stabilize from now on, as it has happened in all combined countries. Solid margins in Brazil impacted by a richer product mix and good price management strategies. Argentina, that you also mentioned, had healthy gross margin in the first half. Gross margins in Argentina are usually below the total average for the region. Wave 2 is proving itself in helping gross margins in the region. Let me address your third question now about cash consumption in Avon International.
Speaker #2: With the exception of Mexico, that in Q2 it was impacted by non-recurring transactions in our gross margin. We expect this to stabilize from now on as it happened.
Speaker #2: As it has happened in all combined countries. Solid margins in Brazil, impacted by a richer product mix and good price management strategies. Argentina that you also mentioned.
Speaker #2: Had healthy gross margin in first half, gross margins in Argentina are usually below the total average for the region. Again, Wave 2 is proving itself in helping gross margins in the region.
Speaker #2: Let me address your third question now. About cash consumption in Avon International. As you've seen, in this half of the year, cash consumption was 700 million.
Joao Paulo Ferreira: As you have seen, in this half of the year, cash consumption was $700 million, slightly above what we had last year, about $500 million related to operation consumption per se. The difference accounting for transfer mission costs, let me remind you that these transfer mission costs are non-recurring. We made investments in Q2. We are about to make some more investments in Q3. Down the road, we do not see, we do not expect cash consumption at the same level in our continuing operations for Avon International. Consumption this year is expected to be smaller than that of last year. The restructuring, moving on according to plan, will contribute in that sense, even unlocking some value for PS. The other question is about the status of Avon International. As I said before, the process is moving along according to expectations, but it is gaining traction. Excellent.
Speaker #2: Slightly above what we had last year—about $500 million related to operational consumption per se. And the difference, accounting for transfer mission costs. Let me remind you that these transfer mission costs are non-recurring.
Speaker #2: We made investments in Q2; we're about to make some more investments in Q3. But down the road, we don't see we don't expect cash consumption at the same level in our continuing operations for Avon International.
Speaker #2: Consumption this year is expected to be smaller than that of last year. And the restructuring moving on according to plan will contribute in that sense.
Speaker #2: Even unlocking some value for the assets. And the other question is about the status of Avon International. As I said before, the process of moving along according to expectations.
Speaker #2: But it's gaining traction. Excellent. Thank you very much.
Speaker #4: The next question will be asked by Denny Ager from XP. Go ahead. Good morning. Thank you for taking my question. I have two, and they're both related to Wave 2.
Joao Paulo Ferreira: Thank you very much.
Sylvia Villas Boas: The next question will be asked by Danny Ager from XP. Go ahead. Good morning. Thank you for taking my question. I have two, and they are both related to Wave 2. My first question is about the challenges you have been having in Mexico, that transition of the magazine in Argentina, and the opportunity that comes with flexible orders from both brands starting in Q2 2025. I would like to ask how this is currently doing. Are you still facing challenges in Mexico according to your consultant's feedback? The same question for the magazine. Have you been doing trainings? What has been mitigated? With flexible orders, will this be implemented in all of Brazil or only on the regions where it was already being performed? My second question is about your gross margins.
Speaker #4: So my first question is about the challenges you've been having in Mexico, the transition of the magazine in Argentina, and the opportunity that comes with flexible orders from both brands, starting in the second quarter of 2025.
Speaker #4: I'd like to ask how this is currently doing. Are you still facing challenges in Mexico according to your consultant's feedback? And the same question for the magazine.
Speaker #4: So have you been doing trainings? What has been mitigated? And with flexible orders, will this be implemented in all of Brazil or only on the regions where it was already being performed?
Speaker #4: My second question is about your gross margins you expanded in all mature countries. Silvia mentioned now that margins in Mexico are close to being stable.
Sylvia Villas Boas: You expanded in all mature countries. Sylvia Villas Boas mentioned now that margins in Mexico are close to being stable, but I would just like to understand when we will start seeing effective gains, especially from Mexico. You are starting to see that in Q3, the expected gains from Wave 2. Thank you. Hi. The implementation of Wave 2, you know, during the implementation itself, there is always a level of instability, and we have not been surprised by anything. This was basically in line with what we had already been planning. With that being said, Mexico had a much smoother relationship with sales forces than we had expected, but we had more trouble in logistics than we expected. We had to change transportation companies, close a distribution center, and the mix changed significantly. The demand for Natura products changed significantly, and this will take a while to settle.
Speaker #4: But I'd just like to understand when we will start seeing effective gains, especially for Mexico if you are starting to see that in the third quarter, the expected gains from Wave 2.
Speaker #4: Thank you. Hi. So the implementation of Wave 2 you know during the implementation itself, there's always a level of instability. And we haven't been surprised by anything.
Speaker #4: This was basically in line with what we had already been planning. So, with that being said, Mexico had a much smoother relationship with sales forces than we had expected.
Speaker #4: But we had more trouble in logistics than we expected. So, we had to change transportation companies, close a distribution center, and the mix changed significantly.
Speaker #4: The demand for Natura products changed significantly and this will take a while to settle. But I am foreseeing that throughout Q3, the operations in Mexico will have reached stability.
Sylvia Villas Boas: I am foreseeing that throughout Q3, the operations in Mexico will have reached stability. I would like to make a side note that gross margins in Mexico dropped in Q2 due to non-recurring effects, which will not happen in Q3. In Argentina, it was the opposite to a certain extent. Logistics have been much easier. We were able to predict some of the effects we saw from Mexico, but in sales, we are seeing more noise because changes are more significant, such as the magazine. When we implemented the digital magazine in Natura years ago, we saw that this took about six months to be completely settled with our sales force. We are referring to a part of our sales force that started with Avon. I think we will still see some turbulence in Argentina until the end of the year.
Speaker #4: And I'd like to make a side note that gross margins in Mexico dropped in Q2 due to non-recurring effects, which will not happen in Q3.
Speaker #4: In Argentina, it was the opposite to a certain extent. Logistics have been much easier. We were able to predict some of the effects we saw from Mexico, but in sales, we're seeing more noise because changes are more significant.
Speaker #4: Such as the magazine. When we implemented the digital magazine in Natura years ago, we saw that this took about six months to be completely settled with our sales force.
Speaker #4: And we're referring to a part of our sales force that started with Avon. So I think we'll still see some turbulence in Argentina. Until the end of the year.
Speaker #4: Well, we call multi-flag orders so effects from one brand that allow a second brand to have an easier entry point are being implemented. And they will provide significant productivity gains.
Sylvia Villas Boas: What we call multi-flag orders, so effects from one brand that allow a second brand to have an easier entry point, are being implemented, and they will provide significant productivity gains. At the same time, we are making adjustments to our commercial model to facilitate the activity of the smaller consultants. All of this combined will give more energy to direct sales to our consultants' networks, and the first signs have been very positive. On gross margins, we do expect to see more stable gross margins, and as a consequence, we will capture more benefits from Wave 2 starting in Q3, but this is a gradual process after combining the businesses. What we expect in gross margins for the second half is for it to remain healthy across the region.
Speaker #4: At the same time, we're making adjustments to our commercial model to facilitate the activity of the smaller consultants. So all of this combined will give more energy to direct sales to our consultants' networks.
Speaker #4: And the first signs have been very positive. On gross margins, we do expect to see more stable gross margins and as a consequence, we will capture more benefits from Wave 2, starting in Q3.
Speaker #4: But this is a gradual process after combining the businesses. What we expect in gross margin for the second half is for it to remain healthy across the region.
Speaker #4: Obviously, we are paying close attention to Argentina. Because that can generate unforeseen impacts in the journey given the exchange rate fluctuations. Thank you.
Sylvia Villas Boas: Obviously, we are paying close attention to Argentina because that can generate unforeseen impacts in this journey, given the exchange rate fluctuations. Thank you.
Speaker #2: João Pedro from City. Asks the next question. Go ahead, sir. Thank you. Good morning. I'm sorry, but I would like to go back to the previous point.
Joao Paulo Ferreira: João Pedro from City asks the next question. Go ahead, sir. Thank you. Good morning. I am sorry, but I would like to go back to the previous point. What has changed when compared to Q1? Why was this asset held for sale in Q1? What was the reason behind it? Is the plan improved? Can you elaborate as to why that asset was not held for sale in Q1? A question to you, Sylvia. What does that mean to the premium, whether you can capture some tax savings? A question about operations, JP. Do you believe you have to adjust the deadlines or the extensions for consultants? Are you gaining market share? How are you going to position? Do you believe there is a need for any adjustments? Hi, João. As to Avon International, what happened between Q1 and Q2 is that the process simply evolved.
Speaker #2: What has changed when compared to first quarter? Was why wasn't this asset held for sale in Q1? What was the reason behind it? Is the plan improved?
Speaker #2: Can you elaborate as to why that asset was not held for sale in Q1? And a question to you, Silvia. What does that mean to the premium?
Speaker #2: Whether you can capture some tax savings? And a question about operations, JP. Do you believe you have to adjust the deadlines or the extensions for consultants?
Speaker #2: Are you gaining market share? And how are you going to position to believe there's a need for any adjustments? Hi, João. As to Avon International, what happened between Q1 and Q2 is that the process simply evolved.
Speaker #2: There are many steps taken along the way to restructure all these operations. We have to conduct market surveys in the and that moved along.
Joao Paulo Ferreira: There are many steps taken along the way to restructure all these operations. We have to conduct market surveys, and that moved along. They detected consultants deem that the likelihood is very high to happen to be finalized in 12 months. That is what happened. That is as much as I can tell you. Let me address the operation now, and then Sylvia will take or answer the next question. Consumption is slowing down in Brazil across the board. I have seen reports from other consumption companies. That seems to be a trend. We have been monitoring relative performance, and we have results that indicate we are gaining market share. We believe that the second half will bring slower consumptions, and that is why we have to make operational adjustments. We are controlling credit. Delinquency rates are very low, but we have to adjust the mix.
Speaker #2: And they detected consultants deem that the likelihood is very high. To happen to be finalized in 12 months. That's what happened. That as much as I can tell you.
Speaker #2: Let me address the operation now and then Silvia will take our answer the next question. Well, consumption is slowing down in Brazil across the board.
Speaker #2: I've seen reports from other consumption companies. That seems to be a trend. And we've been monitoring relative performance. And that we have results that indicate we are gaining market share.
Speaker #2: We believe that the second half will bring slower consumptions. And that's why we have to make operational adjustments. Where controlling credit, delinquency rates are very low.
Speaker #2: But we have to adjust the mix. And the mix will have to be moved more towards daily consumption products and a little less on beauty products.
Joao Paulo Ferreira: The mix will have to be moved more towards daily consumption products and a little less on beauty products that are more discretionary in nature. We have gained experience in the recent past, and we make adjustments in our efforts so that we can maintain our productivity. In other words, we have to navigate these waters according to the market waves, and we are well prepared to do so. Hi, João. Good morning. Thank you for your question. Let me address tax benefits from the reverse incorporation. We keep on assessing every possibility, and we are going to include those that make sense, but we are still in that consideration phase. Thank you very much.
Speaker #2: That are more discretionary in nature. We have gained experience in the recent past and we make adjustments in offers so that we can maintain our productivity.
Speaker #2: In other words, we have to navigate these waters according to the market waves, and we are well prepared to do so. Hi, João. Good morning.
Speaker #2: Thank you for your question. Let me address tax benefits from the reverse incorporation. We keep on assessing every possibility. And we're going to include those that make sense.
Speaker #2: But we're still in that consideration phase. Thank you very much.
Speaker #4: The next question will be asked by Ruben Couto from Santander. Go ahead, sir. Good morning. Thank you for taking my question. I'd like to ask about G&A expenses and R&D for the rest of the year.
Sylvia Villas Boas: The next question will be asked by Ruben Couto from Santander. Go ahead, sir. Good morning. Thank you for taking my question. I would like to ask about G&A expenses and R&D for the rest of the year. I think that was impacted from the reclassification from IT to OpEx, but I think there is still a lot of investments to be made in innovation and other things. I would just like to understand if you expect expenses to grow closer to the second quarter's level, or should we expect that for the rest of the year? Thank you. Hi, Ruben. Good morning. Thank you for that question. Concerning G&A, as you said it yourself, we have been making investments into innovation, not only in Natura but also in Avon, since we took over R&D and management for the brand here in the region.
Speaker #4: I think that was impacted from the reclassification from IT to OPEX, but I think there's still a lot of investments to be made in innovation and other things.
Speaker #4: I'd just like to understand if your expected excuse me, if you expect expenses to grow closer to the second quarters level or should we expect that for the rest of the year?
Speaker #4: Thank you. Hi, Ruben. Good morning. Thank you for that question. Concerning G&A as you said it yourself, we have been making investments into innovation, not only in Natura but also in Avon.
Speaker #4: Since we took over R&D and management for the brand here in the region, and that's a very important point in recovering our growth in Latin America.
Sylvia Villas Boas: That is a very important point in recovering our growth in Latin America. In addition to that, we are also making investments that are extremely important to execute our strategy that will unlock more value. The structural journey in systems was focused on reviewing our integrated plan, and that is one of the enablers for that. Considering in the intangibles, we still have a 20 basis points impact in Q2, and starting in Q3, we will have a more normalized level. For the future, we expect until the end of the year to capture more efficiencies from Wave 2 in Mexico and Argentina or from other efficiency initiatives that we are pursuing, just as João Paulo Ferreira said. But it is important to highlight that the slowdown in Brazil will make this for a greater challenge.
Speaker #4: In addition to that, we're also making investments that are extremely important to execute our strategy that will unlock more value. The structural journey insists was focused on reviewing our integrated plan.
Speaker #4: And that's one of the enablers for that. Considering in untouchables, we still have a 20 basis points impact in Q2 and starting in Q3, we will have a more normalized level.
Speaker #4: For the future, we expect until the end of the year to capture more efficiencies from Wave 2 in Mexico and Argentina, or from other efficiency initiatives that were pursuing just as JP said.
Speaker #4: But it's important to highlight that the slowdown in Brazil will present a greater challenge. However, we are always seeking efficiencies in G&A so that we can continue making investments to enable our strategy.
Sylvia Villas Boas: But we are always seeking efficiencies in G&A so that we can continue making investments to enable our strategy. Obviously, we are very disciplined in allocating capital. We are focusing on returns, and we are combining these two factors to support our income year on year. That was very clear, Sylvia. Thank you very much.
Speaker #4: Obviously, we are very disciplined in allocating capital. We're focusing on returns and we're combining these two factors to support our income. Year on year.
Speaker #4: That was very clear, Silvia. Thank you very much.
Speaker #2: Luis Luis Guanais from BTG is up next. Good morning, JP. Good morning, Silvia. Well, can you give us some more color as to the cash generation drivers for Natura Latam?
Joao Paulo Ferreira: Luis Guanais from BTG is up next. Good morning, João Paulo. Good morning, Sylvia. Can you give us some more color as to the cash generation drivers for Natura LATAM? You talked about working capital and the discipline in capital allocation. Can you elaborate on what we can expect from now on as far as cash generation goes in Natura LATAM? Thank you. Hi, Luis. Good morning. Thank you for your question. Let me address cash generation in LATAM. We have cash in Q1 and Q2, and more specifically in Q2, the main driver was operational working capital, mostly in accounts receivable. Basically, because of what João Paulo said, we are more credit-constrained to handle the scenario when compared to the situation last year. We had two important quarters for LATAM because these are seasonally or traditionally consumption quarters.
Speaker #2: You talked about working capital and the discipline in capital allocation. Can you elaborate on what we can expect from now on as far as cash generation goes in Natura Latam?
Speaker #2: Thank you. Hi, Luis. Good morning. Thank you for your question. Let me address cash generation in Latam. We have cash in Q1 and Q2 and more specifically in Q2, the main driver was operational working capital.
Speaker #2: Mostly in accounts receivable. Basically, because of what JP said, we are more credit constrained to handle the scenario. When compared to the situation last year.
Speaker #2: So we had two important quarters for Latam because these are seasonally or traditionally consumption quarters. And looking forward, we expect to keep on improving on the cash conversion.
Speaker #2: In 2024, the conversion rate was significant. And we expect that once we finalize Wave 2, putting an end to the transformation cycles, and a simplified holding structure, we will then be able to convert even more cash.
Joao Paulo Ferreira: Looking forward, we expect to keep on improving on the cash conversion. In 2024, the conversion rate was significant, and we expect that once we finalize Wave 2, putting an end to the transformation cycles and a simplified holding structure, we will then be able to convert even more cash. Anyway, we expect to have better cash conversions this year for the remainder of the year when compared to last year. Thank you, Sylvia.
Speaker #2: Anyway, we expect to have better cash conversions this year for the remainder of the year when compared to last year. Thank you, Silvia.
Speaker #4: The next question. Will be asked by Irma Skard from Goldman Sachs. Good morning. I have two quick questions. About the new product launches and innovations especially for the Avon brand, but also Natura I'd like to understand the timing for that if you could tell us a bit more.
Sylvia Villas Boas: The next question will be asked by Irma Skard from Goldman Sachs. Good morning. I have two quick questions about the new product launches and innovations, especially for the Avon brand, but also Natura. I would like to understand the timing for that, if you could tell us a bit more, and if this is still expected for the second half of the year or if it is expected for next year. Also, what should we consider for investments in marketing for the channel around these new launches? I imagine that with this slowdown, it would be very important to also support the new launches with marketing. But I would like to understand your thoughts on that, if you believe that is necessary. My second question is about the medium term.
Speaker #4: And if this is still expected for the second half of the year or if it's expected for next year. Also, what should we consider for investment in marketing for the channel around these new launches?
Available to answer any questions. You may have, thank you and have a great day.
Speaker #4: I imagine that with this slowdown, it would be very important to also support the new launches with marketing. But I'd like to understand your thoughts on that.
Speaker #4: If you believe that is necessary. My second question is about the medium term. With channels growing beyond direct sales at a very fast pace, other channels have been growing at around 10, 15% of your total sales.
Sylvia Villas Boas: With channels growing, beyond direct sales at a very fast pace, other channels have been growing at around 10% to 15% of your total sales. What can you tell us about this mix between direct sales and other channels, and how do you believe it will go in the next years, especially concerning the digital store that you have and the growth that you have been having in this channel? What interferences do you see in the traditional channel? Thank you. Hi. Starting with launches, our pipeline is being rebuilt, and there are some launches on this pipeline, but significantly, we will start seeing them more at the end of the year. We expect effects from this in early 2026. We are confident about this effort, but it is the result of a complex repositioning for the brand, so it will take some time.
Speaker #4: So what can you tell us about this mix between direct sales and other channels? And how do you believe it will go in the next years?
Speaker #4: Especially concerning the digital store that you have and the growth that you've been having in this channel. What interferences do you see in the traditional channel?
Speaker #4: Thank you. Hi, so starting with launches, our pipeline is being rebuilt and there are some launches on this pipeline, but significantly we will start seeing them more at the end of the year.
Speaker #4: So we expect effects from this in early 2026. We're confident about this effort, but it's the result of a complex repositioning for the brand.
Speaker #4: So it will take some time. Natura still has a very robust pipeline. And that's why we've been seeing significant market share gains across all categories we lead in.
Sylvia Villas Boas: Natura still has a very robust pipeline, and that is why we have been seeing significant market share gains across all categories we lead in. Fragrances, body, and the other categories that we are starting to get a better share on, such as hair products. Our launch pipeline has been very robust in Natura. Evidently, it needs to be supported. When there is unrestricted consumption, the strength of the brand makes a big difference, and training our consultants is also important. These are some areas that we are continuing to invest in. That is why we are seeking efficiencies in other lines, such as G&A, as Sylvia Villas Boas just mentioned, so that at the same time, we can ensure that we will have profitability gains and more investments into our launches, supporting our brands and our consultants. Now, to talk about our online and retail channels.
Speaker #4: So fragrances, body, and the other categories that we're deciding to get a better share on, such as hair products. But our launch pipeline has been very robust in Natura.
Speaker #4: Evidently, it needs to be supportive. When there's irrestricted consumption, the strength of the brand makes a big difference in training our consultants is also important.
Speaker #4: So these are some areas that we are continuing to invest in. That's why we're seeking efficiencies in other lines, such as G&A, as Silvia just mentioned.
Speaker #4: So that at the same time, we can ensure that we will have profitability gains and more investments to our launches. Supporting our brands and our consultants.
Speaker #4: Now to talk about our online and retail channels. Our strategic plans are for these channels to continue growing above the average for the company in the next three years.
Sylvia Villas Boas: Our strategic plans are for these channels to continue growing above the average for the company in the next three years. We expect that these channels will grow above company averages, and we have been learning to manage channel conflicts as they appear. We opened our first store in 2016, so it has been a while. We now have over 1,000. We have been learning to deal with conflicts between channels as they come up. This is solved through price policies, promotions that are specific for each channel, assortments, and this all makes all channels equally profitable. They make participants, especially consultants, have good business opportunities. We feel very confident with this accelerated growth. Thank you.
Speaker #4: So we expect that these channels will grow above company averages, and we've been learning to manage channel conflicts as they appear. We opened our first store in 2016, so that's been a while. We now have over 1,000.
Speaker #4: So we've been learning to deal with conflicts between channels as they come up. And this is solved through price policies, promotions that are specific for channel, for each channel, assortments, and this all makes all channels equally profitable.
Speaker #4: And they make participants, especially consultants, have good business opportunities. So we feel very confident with this accelerated growth. Thank you.
Speaker #2: Pedro Pinto from Bradesco BBI asks the next question. Hello, everyone. Good morning. Thank you for taking my question. The first one has to do with the environment in Mexico.
Joao Paulo Ferreira: Pedro Pinto from Bradesco BBI asks the next question. Hello, everyone. Good morning. Thank you for taking my question. The first one has to do with the environment in Mexico. You have detected a lot of pressure, something similar to what happens in Brazil. The company is making the necessary adjustments in Wave 2. Can you elaborate on your feel from the market, maybe a potential slowdown in demand? What about your market share for brands in that region as well? Thank you. Hi, Pedro. We have been keeping track of several reports of slowing down in orders in Mexico, which will impact the macro scenario. That impacts our market. We have the smallest market share. In relative terms, we have a lot of room to grow.
Speaker #2: You've detected a lot of pressure, some things similar to what happens in Brazil. And of course, the company is making the necessary adjustments when Wave 2.
Speaker #2: Can you elaborate on your feel from the market, maybe a potential slowdown in demand? And what about your market share for brands in that region as well?
Speaker #2: Thank you. Hi, Pedro. We have been keeping track of several reports slowing down in orders in Mexico, which will impact the macro scenario. That impacts our market.
Speaker #2: We have the smallest market share. In relative terms, we have a lot of room to grow. I cannot say that the macro economic scenario is impacting us directly.
Speaker #2: Especially with the micro changes in our internal activities. We're now implementing those internal changes and I believe we'll be able to gain market share.
Joao Paulo Ferreira: I cannot say that the macroeconomic scenario is impacting us directly, especially with the micro changes in our internal activities. We are now implementing those internal changes, and I believe we will be able to gain market share despite any market slowdown because we are relatively smaller there. We are closely monitoring everything. Thank you.
Speaker #2: Despite any market slowdown. Because we are relatively smaller there. But of course, we are closely monitoring everything. Thank you.
Speaker #4: The next question will be asked by Bob Ford from Bank of America. Go ahead, Bob. Thank you. Good morning, JP and Silvia. So what are your remarks about future capital injections into Avon International?
Sylvia Villas Boas: The next question will be asked by Bob Ford from Bank of America. Go ahead, Bob. Thank you. Good morning, JP and Sylvia. What are your remarks about future capital injections into Avon International? What are the beauty segments that Avon is losing share in? What are the efforts you are making to recover the brand? Thank you. Hi, Bob. Good morning. Bob, can you repeat your first question, please? Yes, of course. If you can talk about cash burn at Avon International and if there is any potential for future capital injections. Hi, Bob. Okay, now I understand your first question. Cash consumption at Avon International was around $700 million, as we mentioned, which is expected for the first half of the year due to the seasonal pattern for the year.
Speaker #4: And what are the beauty segments that Avon is losing share in? What are the efforts you're making to recover the brand? Thank you. Hi, Bob.
Speaker #4: Good morning. Bob, can you repeat your first question, please? Yes, of course. If you can talk about cash burn at Avon International, and if there's any potential for future capital injections.
Speaker #4: Hi, Bob. Okay, now I understand your first question. So cash consumption at Avon International was around 700 million as we mentioned. Which is expected for the first half of the year, due to the seasonal pattern for the year.
Speaker #4: Of course, there are still impacts from the investments into restructuring that we made, which will give us more value for this asset. Additionally, we'll contribute to reducing cash consumption at Avon International in comparison to last year.
Sylvia Villas Boas: Of course, there are still impacts from the investments into restructuring that we made, which will give us more value for this asset and will contribute to reducing cash consumption at Avon International in comparison to last year. Regarding investments, we mentioned that during Q2 and Q3, we will have investments in restructuring, but this is all in the plan that Avon International has been leading. Your second question was about cash consumption in Latin America. I do not have a lot to add to what I have already said. You have been analyzing the market for many years, and you understand that when we have pressures in consumption, we tend to see migration from beauty categories to personal care, and we have been seeing that to a certain extent. We also see movements towards lower price points in the beauty category.
Speaker #4: Regarding investments, we mentioned that during Q2 and Q3, we will have investments in restructuring but this is all in the plan that Avon International has been leading.
Speaker #4: And your second question was about cash consumption in Latin America. Well, I don't have a lot to add. To what I've already said, you have been analyzing the market for many years and you understand that when we have pressures in consumption, we tend to see migration from beauty categories to personal care.
Speaker #4: And we have been seeing that to a certain extent. And we also see movements towards lower price points in the beauty category. Our portfolio is quite broad and this allows us to capture many of these changes.
Sylvia Villas Boas: Our portfolio is quite broad, and this allows us to capture many of these changes. We also have a broader presence. As we mentioned during Irma's question, we have channels that are available in different moments and that offer different purchasing options. We can maneuver with these changes in the market, and we have been monitoring trends very frequently. We are making adjustments to what portfolios we are trying to encourage so that we can navigate these waves correctly. JP, would you be able?
Speaker #4: We also have a broader presence. So as we mentioned during Irma's question, we have channels you know that are available in different moments and that offer different purchasing options.
Speaker #4: So we can maneuver with these changes in the market. And we have been monitoring trends very frequently. We're making adjustments to what portfolios we're trying to encourage, so that we can navigate these correctly.
Speaker #4: And JP, would you be able to migrate Avon into an umbrella brand for Natura? That seems to already be happening in Brazil. No, it's a second brand.
Speaker #4: It's not a secondary brand. So it has different offers, different price levels, different target audiences. The commercial rationale behind it is different as well.
Joao Paulo Ferreira: To migrate Avon into an umbrella brand for Natura? That seems to already be happening in Brazil. No, it is a second brand. It is not a secondary brand. So, it has different offerers, different price levels, different target audiences. The commercial rationale behind it is different as well. So, the goal for Avon is to serve a different audience than Natura. The sales force is learning how to deal with multiple brands. It is the same sales force, but it should not be a sub-brand for Natura. Thank you.
Speaker #4: So the goal for Avon is to serve a different audience than Natura. waves The sales force is learning how to deal with multiple brands.
Speaker #4: It's the same sales force. But it should not be a sub-brand for Natura. Thank you.
Speaker #2: Andrew Andrew Rubin from Morgan Stanley asks the next question. Go ahead, sir.
Moderator: Andrew Rubin from Morgan Stanley asks the next question. Go ahead, sir.
Joao Paulo Ferreira: Thanks very much for the question. Just thinking about some of the LATAM markets, you spoke already about Wave 2 in Argentina and Mexico, but can you provide an update on some of the markets where you are more progressed with Wave 2, maybe Chile, Colombia, how these markets are performing in terms of growth margins versus the segment average or just any other color now that you are a bit further in those geographies? Thank you again.
Joao Paulo Ferreira: Hi, Andrew. Yes, in actual fact, in those markets in which integration is mature, Chile, Colombia, and Peru, we have seen the business grow overall with important representatives' growth, or the number of representatives that are growing. A relatively stable channel back to the growing trend, and at the same time bringing in margin gains, both gross and EBITDA margins. We remain satisfied with the results we have had so far, and I remain confident that the same thing will happen in Mexico and Argentina once we go through that initial phase. This concludes the Q&A session. This concludes the Q2 Natura's earnings call, and the IR team is available to answer any questions you may have. Thank you and have a great day.