Natura Cosmeticos : Earnings Releases 2Q16

Earnings release 2Q16

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São Paulo, July 27, 2016 Nat ura Cosméticos

S.A. (BM&FBOVESPA: NATU3) announces today it s result s for t he second quarter of 2016 (2Q16). Except where st ated ot herwise, t he financial and operating information in t his release is present ed on a consolidated basis, in accordance wit h International Financial Reporting St andards (IFRS).

EARNINGS RELEASE 2Q16

In t he second quart er of 2016, Nat ura posted consolidat ed net revenue of R$2,0 26 million (+5.0 % vs. 2Q15), EBITDA of R$345 million (- 3.5% vs 2Q15), net income of R$91million (- 22% vs. 2Q15) and free cash flow of R$96 million (- 66 % vs. 2Q15).

In Brazil, despite t he st ill- challenging scenario, our gross revenue1 advanced 1.2% from 2Q15, reversing t he negative t rend observed in t he last six quarters.

In t he period, we continued t o make progress on executing our st rategic plan, whose focus is on revit alizing t he direct selling channel, innovat ive proposit ions for products and concepts wit h different iated technologies and performance, st reamlining our port folio, reviewing our brand positioning and st rat egy, developing new alternative channels, designing a more agile and efficient organizat ion and maint aining accelerated growt h in t he International Operat ions.

Among t he highlights in t he quart er, we intensified t he use of t arget ed promot ions and communicat ions, defined a more at t ractive port folio for cycles wit h Day), published our new cat alog Revista Natura wit h enhanced present at ion of products, launched t he communicat ion st rat egy t hat reclaims our fundament al pillars and invest s more in and gives greater at tent ion t o product s, which included relaunching t he Chronos skin t reat ment line and expanding t he portfolio of t he UNA makeup line, bot h of which enjoyed posit ive init ial results.

In t he development of new channels, wit h t he positive result s of t he SOU line in t he drugst ore channel, we are execut ing t he expansion plan and, by July 31, we will be present in 1,278 st ores. For our owned st ores, in April 2016, t he first unit 2 was opened in São Paulo Cit y, wit h positive result s. The second st ore3 is slat ed t o open in August 2016, and our plan includes progressive openings of ot her units. Rede Nat ura, t he online channel t hat post ed double- digit revenue growt h, now has 70 ,0 0 0 digit al franchisees (32,0 0 0 in 2Q15) and 950 ,0 0 0 regist ered consumers.

In t he International Operat ions, which account for 32% of t ot al net revenue (27% in 2Q15), we maint ained our accelerated growt h pace in local currency in Lat am and in AUD4 at AESOP of 33.3% (20 .4% in BRL) and 47.4% (49.2% in BRL), respectively. In t he Lat am, note t hat growt h in BRL was affected by t his appreciat ion against . Aesop ended t he quarter wit h 157

st ores in 19 count ries (112 st ores in 16 countries in 2Q15) and same- st ore sales growt h of around 17%.

1 Gross revenue = net revenue + tax burden. Net revenue decreased 2.3% compared to 2Q15, due to the higher effective tax rate. 2 Store opened in the mall Shopping Morumbi.

3 The second store will be opened in the mall Shopping Villa Lobos in São Paulo City. 4 AUD: Australian dollar.

Brazil Gross Revenue	2.00 3,5	1.979,2	1,2	3.615,2	3.682,9	(1,8 )
International Gross Revenue	812,0	658,1	23,4	1.520 ,3	1.160 ,2	31,0
Brazil Net Revenue	1.376,2	1.40 8,9	(2,3)	2.497,9	2.651,7	(5,8 )
International Net Revenue*	649,5	520 ,1	24,9	1.217,5	918,9	32,5

International pro- forma EBITDA	73,8	51,5	43,3	134,5	68,9	95,1
% International pro- forma EBITDA Margin	11,4%	9,9%	1,5 pp	11,0 %	7,5%	3,5 pp

Consolidat ed Net Income	90 ,9	116,7	(22,0 )	21,8	236,3	(90 ,8 )
% Consolidated Net Margin	4,5%	6,0 %	(1,6 ) pp	0 ,6%	6,6%	(6 ,0 ) pp
Int ernal cash generat ion	219,3	215,5	1,8	220 ,9	40 1,8	(45,0 )
Free cash flow	96,3	281,6	(65,8 )	-71,4	329 ,8	n/a
Net Debt / EBITDA	n/d	n/d	n/d	1,43	1,17	22,4
*Net (Loss) income attributable to owners of the Copany

50 30 6 54 39

Brazil's EBITDA chang e

271

R$ million

2Q16

2Q15

Var. (%)

6M16

6M15

Var. (%)

Consolidat ed Gross Revenue

2.815,5

2.637,3

6 ,8

5.135,5

4.843,1

6 ,0

Consolidat ed Net Revenue	2.0 25,7	1.928,9	5,0	3.715,4	3.570 ,7	4 ,1
% Share International Net Revenue	32,1%	27,0 %	5,1 pp	32,8%	25,7%	7,0 pp
Brazil pro- forma EBITDA	270 ,9	30 5,7	(11,4)	427,3	574,2	(25,6 )
% Brazil pro- forma EBITDA Margin	19,7%	21,7%	(2,0 ) pp	17,1%	21,7%	(4,5) pp

EBITDA Consolidado	344,7	357,2	(3,5)	561,7	643,1	(12,6 )
% Margem EBITDA Consolidada	17,0 %	18,5%	(1,5) pp	15,1%	18 ,0 %	(2,9 ) pp

Consolidat ed EBITDA amount ed t o R$345 million in t he period, 3.5% lower t han in 2Q15.

As shown in t he chart on t he left , t he 11.4% decrease in EBITDA in Brazil is basically explained by t he higher effective tax rat e (31.3% in 2Q16 vs. 28.8% in 2Q15) and by t he negative effect from exchange variat ion on cost s of goods sold. These fact ors were part ially neut ralized by t he more robust

2Q15 Resources optimization

FX BRL/USD Sales taxes 2Q16

budget management, focused on capt uring product ivit y gains, which enabled

administ rat ive expenses t o remain at t he same levels of last year (in nominal terms).

EBITDA from t he Int ernat ional Operat ions (Lat am, Aesop and France) amount ed t o R$74 million, increasing 43.3% from 2Q15 and account ing for 21% of the consolidat ed amount (14% in 2Q15). When EBITDA from t he Int ernat ional Operations is t ranslated int o BRL and incorporated int o the consolidated result s, t he negative effect from appreciat ion was neut ralized by t he cont inued accelerat ed

growt h in revenue wit h operational leverage.

Internat ional Operat ions' EBITDA change

16 38 74 52

2Q15 Sales growth and

operational leverage

BRL appreciation 2Q16

Chang e in consolidated net profit

12

46

Consolidat ed net income for t he quarter amount ed t o R$91million (R$117 million in 2Q15), wit h t his cont raction due t o t he following fact ors:

50

11

117

1

_EBITDA: deterioration primarily due t o t he

higher effective t ax rate in Brazil and t he effects from exchange variation on our operat ions as a

91 whole, bot h as explained above;

_Depreciation: growt h in t he asset base due t o t he invest ment s made in recent years;

_Financial Result : a) (R$6 million) due t o t he higher CDI (Brazil Interbank Deposit Rate) rate (3.36% in 2Q16 vs. 3.0 3% in 2Q15); b) (R$13

million) due t o t he negat ive effect from BRL appreciat ion on t he balance of accounts receivable from export s in USD in t he Int ernat ional Operat ions; c) +R$3 million due to t he rest atement of the liabilit y purchase option; d) (R$9 million) due t o t he depreciat ion in t he ARS against the

BRL on t he balance of import s payable t o Natura Brazil, at Nat ura Argent ina recorded in BRL; e) ot her impacts (R$25 million): accrual of int erests on liabilit ies and cont ingencies, PIS/Cofins t axes on financial income, adjust ment of expenses on subsidized loan as per account ing pronouncement CPC 0 7 , bank suret yship, bank fees, et c.

_Income and Social Cont ribut ion t axes: posit ive effect in 2Q16 from t he lower net profit before income tax coupled wit h t he adoption of t he st raight - line met hod in t he period. Effect ive t ax rate of 9.8% in 2Q16 (32.5% in 2Q15) and 38.1% in 1H16 (32.0 % in 1H15).

Free cash flow in t he quarter was R$96 million (R$282 million in 2Q15). The decrease of R$185 million is explained by t he t he invest ment in working capit al due t o t he higher coverage of invent ories in Brazil and Lat am. In line wit h t he plan for 2016, t hese negat ive effects were mitigat ed by t he reduction in capit al expenditure (capex guidance for 2016 of R$350 million). In t he first six mont hs of t he year, we invested R$111million (R$141million in 1H15), wit h t he highlight t o t he Internat ional Operations (Lat am and Aesop).

R$ million Net Income* Depreciation and amortization Non- cash / Other**	2Q16	2Q15	Var. R$	Var. %	6M16	6M15	Var. R$	Var. %
	90 ,9	116,7	(25,7)	(22,0 )	21,8	236,3	(214 ,5)	(90 ,8 )
	64,4	52,7	11,7	22,1	127,4	10 9,9	17,6	16 ,0
	64,0	46,1	17,9	38 ,8	71,6	55,7	15,9	28 ,7
Internal cash generat ion	219,3	215,5	3,8	1,8	220 ,9	401,8	(18 0 ,9 )	(45,0 )
Working Capital (Increase)/Decrease	(60 ,2)	156,9	(217,2)	(138 ,4)	(181,6)	68,9	(250 ,6 )	(363,5)
Operat ing cash generat ion	159,0	372,4	(213,3)	(57,3)	39,3	470 ,8	(431,5)	(9 1,7)
Capex	(62,7)	(90 ,8)	28 ,0	(30 ,9 )	(110 ,6)	(141,0 )	30 ,3	(21,5)
Free cash flow***	96,3	281,6	(18 5,3)	(65,8 )	(71,4)	329,8	(40 1,2)	(121,6 )

(*) Net income attributable to owners of the Company equipment).

We remain confident in fundamentals, in t he st rengt h of our brand and in t he pot ent ial of our

st rategic plan t o boost our compet it iveness and ensure a financially healt hy company wit h st rong cash generat ion.