Wave 2 of integration between Natura and Avon
launched in Brazil with
encouraging early results; Natura &Co returns to a
positive net cash position thanks to proceeds from Aesop
sale
SÃO PAULO, Nov. 14, 2023
/PRNewswire/ -- Natura &Co (NYSE – NTCO; B3 – NTCO3)
continued to improve its profit margins in the third quarter,
while deleveraging its balance sheet thanks to the proceeds of the
sale of Aesop, which closed on August
30th.
Natura &Co's Q3 consolidated net revenue stood at
R$ 7.5 billion, broadly stable at
constant currency (-0.7% at CC and -10.5% in BRL), with the Natura
brand posting strong growth in Brazil and Latin
America. Gross margin grew by 310 bps vs Q3 of last year to
65.3%, and adjusted EBITDA margin was 10%, up 190 bps vs the same
period last year, reflecting improving margins in all three
business units, Natura &Co Latam, Avon International and The
Body Shop, as well as cost discipline. Reported net income surged
to 7 billion Reais from a loss of R$ (560)
million in the same period, boosted by the capital gain from
the sale of Aesop. Underlying Net Income excluding this exceptional
gain, as well as transformation and restructuring costs and PPA
effects, was R$ 745 million, also
improving from R$ (198) million in
Q3-22. The Group ended the quarter with a solid cash position of
R$ 6.8 billion and a debt-to-EBITDA
ratio of -0.37x (vs 4.17x at the end of Q2-23 and 2.85x in Q3-22)
after prepaying more than half of its debt and accrued interest, or
approximately US$1.6 billion, in the
quarter.
Fabio Barbosa, Group CEO of
Natura &Co, declared: "Natura &Co Q3's performance
continued the trend of the first two quarters of the year, showing
a strong expansion of both Gross margin and EBITDA margin versus
the prior year, despite a small deceleration in revenue, mainly
caused by the implementation of Wave 2 in Latam and the continuing
declining trend in sales at The Body Shop.
The main highlight of the quarter was the launch of Wave 2 in
Brazil, which showed positive
initial results, delivering combined YoY revenue growth in the CFT
category. Productivity gains and cross-selling more than offset the
expected channel reduction. Peru
and Colombia have continued the
roll-out of the integration, started in the first half of the year,
showing further improvements in productivity. Although there have
been temporary challenges in the channel, we have seen the actions
implemented by the team yielding early signs of recovery ahead of
the holiday season. We are also encouraged by the margin expansion
of those countries in the most recent cycles, which is the main
objective of Project Elo. Avon International posted broadly stable
top line and further margin improvements, reaching
high-single-digit adjusted EBITDA margin.
The proceeds from the sale of Aesop, closed in late August,
enabled us to quickly advance in our liability management plan,
with more than half of our debt already prepaid by the end of the
quarter. This is an important step to unlock sustainable value for
our investors and deliver on our financial priorities of
maintaining a strong capital structure, strict financial discipline
on costs and expenses and boosting cash conversion. On the latter,
we reached a neutral cash generation this quarter despite the
normal seasonal cash consumption to build up inventories for the
holiday season.
Furthermore, marking the third year of our sustainability
vision, after having made substantial progress towards our goals
set in 2020, our approach has evolved. We have realigned our
metrics, and targets to address the pressing concerns of our time.
We have been a partner of the Union for Ethical Biotrade (UEBT) for
over fifteen years and together we will work towards Natura
&Co's adoption of regenerative practices to deliver even more
positive impact.
Finally, we recently announced updates related to The Body Shop
sale process and we will keep the market informed of any relevant
news. This is another important step to continue to streamline our
business, a journey started in the second half of 2022. We are
confident that our enhanced capital structure, combined with a
laser-focus on our key priorities, will allow us to unlock
significant value for our shareholders in the future through both
top line growth and margin expansion."
Performance by business unit:
Natura &Co Latam's net sales were up by 2.5% in
constant currency ("CC") and down 9.4% in BRL. CC growth was driven
by double-digit growth at the Natura brand (+18.6% at CC and +5.3%
in BRL). The Natura brand continued to show strong momentum,
with growth of 10.5% in Brazil, as
the combined Natura and Avon commercial cycles more than offset
some temporary operational setbacks during preparations for the
Wave 2 roll-out. In Hispanic Latam, net revenue was up
37.1% at constant currency (-2.6% in BRL). Excluding Argentina, revenue in Hispanic markets was up
in low-single digits in CC, still impacted by a softer, yet
positive, performance in Mexico.
The Avon brand posted a sales decrease of 11.6% in CC in the
Beauty segment. In Brazil, revenue
in the Beauty segment was down 24.8% at CC, mainly due to
preparations for the Wave 2 roll-out while in Hispanic markets,
they decreased by 1.5% at CC. Home & Style was down 41.6% in
Brazil and down 37.6% in Hispanic
Latam at CC, in line with our radical reduction of the portfolio.
Both in Brazil and Peru and Colombia, operating KPIs such as cross-sell
and productivity are showing improvement following the roll-out of
Wave 2. Adjusted EBITDA margin was up by a solid 100 basis points
to 12.3%. Margin benefited from strong gross margin improvement, up
320 bps to 63.7%, benefitting from the continued effects of price
increases, richer mix and marketing efforts.
Avon International's revenue was down 2.3% at CC (-11.6%
in BRL.) The Beauty category posted growth of 1.8%, notably driven
by fragrance. Digitalization is progressing and the use of digital
tools reached 31.6%, with digital sales representing 7% of the
total, up by 1.1 percentage point year-on-year. Adjusted EBITDA
margin was 8%, up 440 bps, driven by gross margin expansion of 490
bps thanks to price increases and product mix.
The Body Shop's Q3 net revenue declined by 13.2% at
constant currency (-15% in BRL.) Combined sales of core
distribution channels (stores, e-commerce and franchise) showed a
high-single digit decline in CC. Adjusted EBITDA margin improved
again this quarter, growing by 140 basis points to 7.7%, thanks to
another quarter of gross margin growth, up 30 bps to 76.6%,
combined with strict cost control. The Body Shop continues to work
on returning to sustainable growth.
The Q3 numbers have been restated to exclude Aesop's operating
performance and the comparable 2022 numbers have been restated
accordingly, but net income in both periods also includes
discontinued activities.
About Natura &Co
Natura &Co is a global purpose-driven, group uniting
Natura, Avon, and The Body Shop. We connect more than 200
million clients worldwide, engaging them through 7 million
dedicated Consultants and Representatives, 2,000 stores and
franchises, and 30,000 employees.
We believe in promoting real positive economic, social,
and environmental impact. We believe that the world does not
need another big company. The world needs symbols of
change capable of blazing new trails and inspiring others to
follow. We believe in the power of cooperation, co-creation,
and collaboration for a better way of living and doing
business.
We are Natura &Co.
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