Natura Cosmeticos : Earning Releases - 4Q15

Earnings Release

Earnings Release 4Q15

0

São Paulo, February 17, 2016 - Natura Cosméticos S.A. (BM&FBOVESPA: NATU3) announces today its results for the fourth quarter of 2015 (4Q15) and for fiscal year 2015. Except where stated otherwise, the financial and operating information in this release is presented on a consolidated basis, in accordance with International Financial Reporting Standards (IFRS).

Introduction

In 2015, we conducted a comprehensive strategic review in the light of structural aspects of our market and business. Based on the findings, we defined actions focused on revitalizing our direct selling channel, streamlining our portfolio, concentrating investments in priority brands and projects and reviewing our brand position and strategy to move closer to the new profile of consumers. This process created opportunities that are bearing fruit and that, combined with the new tools and technologies offered to consultants and consumers, leave us confident that we are boosting our competitiveness and performance in the industry.

In terms of results, the year 2015 was marked by a sharp contrast between Brazil and International Operations.

In Brazil, the deterioration in the economic environment, the higher tax burden and the weaker local currency contributed to lower sales and profitability in comparison with the previous year.

Meanwhile, the International Operations, which represented 29,2% of total sales, maintained their accelerated pace of growth in sales and profitability.

In this context, on a consolidated basis, we closed the year with gross revenue of R$10.8 billion (+8.6% vs. 2014), 1.9 million consultants (+8%1 vs. 2014), EBITDA of R$1.5 billion (-3.8% vs. 2014), net income of R$513 million (-29.9% vs. 2014) and free cash flow generation of R$818 million (R$209 million in 2014).

In Brazil, where gross revenue retreated 3.6% from 2014, the Cosmetics, Fragrances and Toiletry (CFT) market posted its first year of contraction in 23 years, according to Abihpec/Sipatesp2. Specifically in 4Q15, our gross revenue fell 5% from 4Q14, with Christmas sales weaker than in 2014.

Despite the challenging scenario, we maintained our focus on initiatives to resume growth in Brazil and capture operating efficiency gains, such as:

• We carried out important launches in the period. The Ekos line gained two biodiversity active ingredients: murumuru and ucuuba. In fragrances, we launched a new sub-brand Esta Flor that expands the line of fine perfumery with two monothematic fragrances based on the scents of classical flowers from international fragrances. In the face care category, we launched the TEZ line, which prioritizes quality and convenience. We also launched a complete line of Tododia Framboesa and Pimenta Rosa products and relaunched the men's line Natura Homem.

• We began conducting credit analyses of consultants on an individual basis, with the consequent expansion in credit limits generating R$212 million in incremental gross revenue.

• In partnership with PagSeguro UOL and Claro, in July 2015, we launched the Você Conecta Program, which gives consultants access to credit and debit card readers, mobile phone chips and an application for placing orders. As of December 2015, the program had distributed 98,000 mobile phone chips, 201,000 app downloads (8% of orders are already made via the app) and 43,000 card readers.

1. Growth in the consolidated number of consultants (Brazil, Latam and France) in December 2015 vs. December 2014.

2. Sipatesp/Abihpec: São Paulo State Perfumery and Toiletries Association / Brazilian Cosmetics, Fragrances and Toiletries Industry Association.

   In December, we commemorated the first anniversary of the nationwide rollout of the Rede Natura ("Natura Network'), with consistent growth and around 60,000 NDCs3 serving more than 700,000 registered consumers.

   Our International Operations4 posted revenue growth of 65.1% in Brazilian real compared to 2014, demonstrating robust and consistent expansion and margin improvement.

   In Latam, we closed the year with 505,000 consultants (+19.5% vs. 2014)5, revenue of R$2.4 billion (+62.9% vs. 2014 in BRL and +30.4% in local currency) and EBITDA margin of 9.1% (5.6% in 2014).

   Aesop ended the year with 135 stores in 18 countries (98 stores in 14 countries in Dec/14), maintaining its robust growth in revenue and EBITDA. In June 2015, we opened the first store in Brazil, on Rua Oscar Freire in São Paulo City, whose initial results are very promising.

   
   

   
   

   
   

   
   

   
   

   
   

   In the year, consolidated EBITDA fell 3.8% from 2014, heavily influenced by the higher tax burden in Brazil and the weaker BRL, which combined generated an impact of R$229 million.

   In a hypothetical scenario excluding these effects, EBITDA would have grown by 11% from 2014, as shown in the following chart.

   
   

3. Natura Digital Consultant. 4 Latam, France and Aesop

1. Growth in the consolidated number of consultants in December 2015 vs. December 2014.

   
   

   
   

   Note that the unfavorable impacts shown above were mitigated by the reductions in expenses achieved over the year. In Brazil, in comparison with the previous year, administrative expenses6 declined 2.9% and selling expenses7 remained stable, both in nominal terms.

   In the case of net income, in addition to the factors affecting EBITDA, the 29.9% decline is also explained by higher interest rates and the non-cash effects from the mark-to-market adjustment of financial instruments to hedge foreign-denominated debt (MtM) and the revaluation of the provision for acquiring the remaining 21.26% interest in Aesop. In the following table, if these two last impacts are excluded, net income for 2015 would be approximately R$599.6 million, compared to the R$513.5 million recorded on the balance sheet.

   
   

   R$ million

   
   

   The year was also marked by the greater rigor adopted in cash generation. We optimized capex, which amounted to R$383 million (R$385 million according to our early 2015 guidance / R$505.7 million in 2014) and freed up R$313.6 million in working capital (target of freeing up R$200 million in 2015 / R$208.3 million invested in 2014). As a result, our free cash generation in the year was R$818 million (R$209 million in 2014), while our leverage ratio (net debt / EBITDA) remained stable from the prior year: 1.13x in 2015 vs. 1.08x in 2014.

   
   

2. Administrative, R&D, IT and Project expenses. 7 Selling, marketing and logistics expenses