Natura Cosmeticos : Earnings Releases 1Q16

Earnings release

Earnings release 1Q16

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São Paulo, April 27 2016 - Natura Cosméticos S.A. (BM&FBOVESPA: NATU3) announces today its results for the first quarter of 2016 (1Q16). 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 1Q16 our consolidated net revenue increased 2.9% from 1Q15. The international operations maintained their robust results and posted net revenue growth of 42.4% on 1Q15 to account for 33.6% of total net revenue (24.3% in 1Q15).

In Brazil, both gross and net revenue contracted from 1Q15, 5,4% and 9,8% respectively. This gap is explained by the 3.4pp increase in the effective tax rate on our gross revenue. In addition to the country's recessive scenario, it is important to highlight that we postponed the launch of the Mother's Day campaign in relation to 2015, placing a larger share of the resulting revenues in April. In the period we posted a consolidated net loss of R$69 million, which was impacted by noncash effects from the mark-to-market adjustment of instruments to hedge foreign-denominated debt and by the revaluation of the provision for acquiring the remaining interest in Aesop, which combined amounted to R$77 million and will be explained later in more detail.

According to the industry information recently published by the consulting firm Euromonitor, our market share in Brazil stood at 11.1% in 2015 (11.4% in 2014) and we remained the second-largest player in the market. In Latam, in the same period, we captured market share gains in all countries1 in 2015, achieving a consolidated market share of 4,1% (4,6% in 2014).

During a time when we are adopting much more rigorous budget management geared towards preserving cash, our priority is to execute the strategic plan formulated and approved in 2015 by the Board of Directors. Our focus will be on revitalizing direct selling, proposing innovative products and concepts with special technology and performance, streamlining our portfolio, reviewing our brand positioning and strategy, developing new alternative distribution channels, designing a more agile and efficient organization and maintaining accelerated growth outside of Brazil.

This plan addresses the structural issues in our business and leaves us confident that we are on the right path to capture market share gains and improve profitability in Brazil. Our resources are already being allocated more efficiently, with growing investments in marketing, and we are also streamlining our administrative expenses, which will not increase.

Some of these initiatives, which are outlined below, are in the development phase while others are already being implemented:

_We reinforced actions to improve the use of techonology in our direct selling channel, by making available to consultants a series of tools, systems and smartphone applications. Preliminary results have proven the potential of such resources to enhance productivity and efficiency. We already have registered 200,000 downloads of the smartphone application to place orders, 45,000 credit and debit card payment terminals acquired by the consultants and 7% of orders made via our mobile application.

_"Viva a sua beleza Viva": new positioning that goes back to the company's fundamental pillars and features higher investments to highlight our products and mission: beauty, pleasure and sustainability, at once.

1. Argentina, Chile, Colombia, Mexico and Peru

   _Relaunch of some of Natura's most important product lines, such as the Chronos face care line, featuring new technologies, new packaging and advances in the product's sensorial experience.

   _Streamlining our portfolio and shifting the focus of our brand and category management to "core beauty."

   _Advancing the Natura Network. In 2015, the first year after the nationwide rollout, we reached 60,000 digital franchisees and R$50 million in sales.

   _National expansion of the SOU line in drugstores. In March, the number of drugstores selling Natura products reached 700 and the plan is to surpass 1,200 by midyear.

   _On 26 April we launched our first brick-and-mortar store in Morumbi Shopping, in the city of São Paulo, as well as launched our e-commerce platform, oriented to the end consumer.

   See more details on our quarterly results on the following pages.

   Highlights in quarter

   In Brazil, the contraction in net revenue was mainly due to the higher effective tax rate in relation to 2015 and to the 11.4% drop in sales volume. To mitigate the impacts from the higher tax rate and cost inflation, we have raised prices over the last 12 months by an average of 9.1%.

   In Latam, net revenue advanced 31.8% (29.3% in local currency) while the consultant base maintained its strong growth pace (+16.7% in relation to 1Q15). Aesop posted growth of 96% (53% in Australian dollar) to end the quarter with 147 stores in 18 countries (104 stores in 14 countries in 1Q15), with same-store sales growth remaining around 20% and good results in the e-commerce and department store channels.

   Consolidated EBITDA amounted to R$217 million in the period, 24.1% lower than in 1Q15. In Brazil, the 41.8% contraction is explained by weaker revenue, the higher tax rate (R$54 million) and the effect from foreign exchange variation (R$52 million). These negative factors were partially neutralized by the streamlining of general and administrative expenses.

   In the International Operations2, EBITDA advanced 248% in relation to 1Q15, with Ebitda margin of 10.7% (4.4% in 1Q15). In Latam, the increases in EBITDA (R$50 million in 1Q16, vs. R$14 million in 1Q15) and EBITDA margin (11.6% in 1Q16, vs. 4.2% in 1Q15) were driven

2. Latam, France and Aesop