Natura Cosmeticos' Q3 net income fell 5.2% year-over-year to 201.6M reais, due in part to slower market growth, increased competition; net revenue rose 7.8% year-over-year to 1.38B reais

Michelle Rivera

Michelle Rivera

Oct 26, 2011 – Natura Cosméticos

SAO PAULO , October 26, 2011 (press release) – Natura Cosméticos S.A. (BM&FBOVESPA: NATU3) announces today its results for the third quarter of 2011 (3Q11). 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).

In the third quarter of 2011 (3Q11), Natura’s consolidated net revenue was R$1,381.4 million, growing 7.8% in relation to 3Q10. EBITDA was R$333.3 million in the quarter, advancing 3.0% from 3Q10, with EBITDA margin of 24.1%. Net income in the quarter was R$201.6 million, for growth of 5.2% on the year-ago period.

In our Brazilian operations, net revenue grew 5.5% in the quarter to R$1,249.3 million (R$3,576.6 million in 9M11, up 7.8% on 9M10). EBITDA margin in the quarter was 27.9%, in comparison with 29.4% in 3Q10 (27.3% in 9M11, versus 28.9% in the year-ago period).

Our international operations continue to post strong growth. In 3Q11, revenue from these operations grew 42.8% in weighted local currency to reach R$ 132.1 million, while in 9M11 this revenue grew 38.8% to R$ 344.3 million. EBITDA1 posted a loss of R$14.8 million in 3Q11, improving by 39.3% from the R$24.2 million EBITDA loss in 3Q10. In 9M11, the EBITDA loss was R$52.0 million (R$59.8 million in 9M10). In 9M11, revenue from the international operations already represented 8.8% of total income, expanding from 7.3% in the same period of 2010.

The operations in consolidation (Argentina, Chile and Peru) registered revenue growth in weighted local currency of 40.3% in the quarter and 33.7% in 9M11. Operating income as measured by EBITDA continued to grow, reaching R$9.4 million in 3Q11 (EBITDA margin of 10.3%), in comparison with R$2.8 million in 3Q10. In 9M11, EBITDA came to R$18.8 million,
In the first nine month R$3,9 20.9 million, for an increase of ated net e same period of Based on pro-forma EBITDA.

We continue working on enhancements to our sales model in order to foster entrepreneurship, while integrating the generation of economic, social and environmental value. On this front, in Mexico we continued to implement the Sustainable Relations Network and in Colombia we began implementing the CNO (Super Consultant) model at the end of the third quarter.

Our sales channel continued its strong pace of growth, which is the product of the investments we have made over the last few years. The consolidated consultant base ended the quarter at 1,362,000, expanding by 16.3% from a year earlier. In Brazil, we reached 1,131,000 consultants, for expansion of 14.9% on the previous year. In the international operations, the base grew by 23.2% to reach 230,000 consultants.

A highlight of this quarter was the launch of the new product line VôVó, which features the innovative proposal of celebrating the bond between grandparents and grandchildren. We also began the re-launch (which will be concluded by year-end) of the Natura Ekos line, which features new formulas and packaging that strengthen the connection these products enjoy with Brazil’s biodiversity. In the third quarter, we launched 69 new products, which, combined with the 40 products launched in the first six months of this year, brought to 109 the total number of product launches in 9M11.

Based on the latest data from ABIHPEC / SIPATESP2, Natura’s core market, grew by 9.3% in nominal terms in the first six months of this year. Natura maintained its market share stable at 24.6%.

This year, Natura’s operations in Brazil grew at a slower pace than last year, with the results coming in below our expectations. This performance reflected external factors, such as the slower growth in the CFT3 market and the increased competition in this market, as well as internal factors.

This quarter, the simultaneous implementation of projects aimed at promoting important improvements in our ordering and billing systems and in our logistics model, with the opening of new distribution centers and the reformulation of our planning processes, led to significant instability in our transaction systems and processes, which adversely affected our service
2 The Brazilian Cosmetics, Fragrance and Toiletries Industry Association and the São Paulo State Perfumery and Toiletry Association 3 Cosmetics,FragranceandToiletries

quality and led to more products being out of stock. We have already made available all of the resources and energy required to stabilize our operations in the short term and we are certain that these initiatives will improve the level of service and support our company’s continued growth.

We also identified opportunities to capture efficiency gains in the management of our promotions that should leverage performance while reducing costs, with these impacts beginning to be felt at the start of next year. Another important development was the initiative to strengthen the cost-cutting and operational-efficiency programs, the results of which will help generate the investment resources needed to ensure our competitiveness in the Brazilian market.

We believe the continuous expansion of our consultant base represents an excellent opportunity to support Natura’s growth by increasing productivity, for which we have adopted a series of measures to improve service quality and the management of promotions and to expand the product portfolio into new price and category segments. Bear in mind that these initiatives will be supported by investments in both the research and development of new products and concepts and in innovating our sales model, with a focus on digital midia, which will play an important role in expanding our relationship with consultants and ultimately create an even better buying experience for our final consumers.

Cosmetics, Fragrance and Toiletries Industry
According to ABIHPEC/SIPATESP data, Natura’s target market expanded by 9.3% in the period. Natura maintained its market share stable at 24.6%.

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