Good morning, ladies and gentlemen. Thank you for waiting. At this time, we would like to welcome everyone to Natura &Co conference call. This event is being recorded, and all participants will be in listen-only mode during the company's speech. After Natura &Co 's remarks are completed, there will be a question-and-answer session. At that time, further instructions will be given. Should any participant need assistance during this call, please press star then zero to reach the operator. This call may contain forward-looking statements. Such statements are not statements of historical fact and reflect the beliefs and expectations of Natura & Co's management. Forward-looking statements speak only as of the date they are made, and the company does not undertake any obligation to update them in light of new information or future developments.
We're joined today by Mr. Roberto Marques, Group CEO and Executive Chairman of Natura & Co, Mr. Guilherme Castellan, CFO of Natura & Co, and Mr. Fábio Barbosa , who is assuming the role of Chief Executive of Natura & Co. Guilherme and Fábio will be available for the Q&A session. In order for us to accommodate questions from all of you, we'd like to ask you to please limit yourself to one question each in the Q&A session. Thank you for your understanding and cooperation on this. Now I will turn the conference over to Mr. Roberto Marques. Mr. Marques, the floor is yours.
Good morning or good afternoon to all of you, and thank you very much for joining us at short notice for this conference call. To provide you with a bit more context on today's announcement of a corporate reorganization at Natura & Co, I'm here with Fábio Barbosa . We'll both share some brief introductory comments, and then he and Guilherme Castellan, our CFO, will open the floor and take your questions. You have seen the material fact and press release we issued today, and we thought it would be helpful to give you a bit more insight on the reasons behind this decision and what this represents going forward. Let me begin by saying that I'm enormously proud of what has been achieved collectively over these last five years. We have built a strong global, purpose-led group of amazing brands with an unparalleled direct-to-customer reach.
We have strongly advanced our omni-channel approach, including meaningful progress on our digitally enabled sales across all of our businesses. We have unveiled a very ambitious sustainability vision, our 2030 Commitment to Life, that reflects our ESG-driven approach. We also have put in place a unique ways of working that leverages the know-how and scale of the group while preserving brand autonomy. All of this has been achieved in a challenging context, facing headwinds that were unthinkable only two years ago with a global pandemic, macroeconomic disruptions, and a war impacting not only Europe, but with global consequences. My heartfelt thank you to our teams across our businesses and group, our network of consultants and representatives, our partners in all areas across the globe. Your dedication, resilience, and support of these last five years has been nothing less than extraordinary.
Let me also thank you, all of you, on this call for your partnership, belief in the Natura & Co investment case, but also by providing us feedback, challenging us appropriately, and engaging with us. Of course, there has been bumps along the way, opportunities to do things better and different, but the direction is clear, and we remain extremely confident about the future of our company, the performance of our brands, and our passion to become the best beauty company, not in the world, but for the world. Having built all of this, now it's time for a new chapter. While we believe that the current structure was necessary in a moment of business expansion, integration, and standardization of some practices across our business unit, now we needed to reset. With even more focus on our brand plans to unleash their full potential.
We live in a challenging and changing world, and more than ever, we believe we need to move faster and adapt with even more agility. Our reorganization announcement reflects exactly this. We are aiming to simplify our structure, giving more latitude and accountability for our business units, united by a leaner group that will continue to look to deliver efficiencies across the businesses. One of the key takeaways of our investor day last month was simplification of our operating model, and that is exactly what we are doing here. We are determined to reduce complexity and to implement a new organization that allows the brands to flourish and grow while preserving key group functions.
We also thought that to do this, not only a new structure is required, but also a new leader, a fresh perspective. Therefore, I will be stepping down and Fábio Barbosa will be stepping down effectively immediately. As you're probably aware, Fábio has been an active board member for the past five years, and he has a very strong track record as a principal executive of major companies. He is the right leader at this time to redesign Natura & Co's model, and I couldn't be happier to pass the baton to him for this new chapter in our growth history. I wish Fábio every success, and I'll continue to support him, as I will remain on our board of directors for the coming months to ensure a smooth transition before planning to retire as an executive at year-end.
I know that Natura & Co is in very good hands with Fábio and the rest of our leadership team. Let me now hand over to him for his remarks. Fábio, the floor is yours.
Also speak on behalf of the founders and the entire board of directors and myself. I mean, I congratulate you on all you have done bringing the company from basically a local business to an international business. As you said, there is a cycle. Many things that had to be done were done, and now it's time to go to another cycle. Thank you very much for helping and supporting the process throughout this quick transition that we are starting now. For those of you, I think most of you may know me. For those of you that do not know me, I was involved with Natura in terms of concepts and so on for the last 24 years.
Sustainability has been something that I worked for very deeply when I was heading the bank, but also throughout my life. I believe very much, and I share very much Natura's values. The important thing is that following that, those values, Natura became the leader that we know it is and expanded internationally. We have suffered a lot also in the last three years since the Russo-Ukrainian crisis and the effect, its impact, even internationally. We cannot only blame the international situation, but also look at the noise that we are getting inside the company, but also from new investors giving us hints here and there on what would have to be done in order for us to speed up the process of recovery of the company.
That goes very much along the idea of having a lighter structure at the top, as Roberto was saying, giving more latitude to each business unit. We will maintain the business units as they are headed by the people who are heading them today. No change on that. What we want to do is to make sure that they have more latitude, and accountability comes all together, of course. Having said that, we already did some small movements right now, like sustainable growth group and group transformational functions, which were the corporate and that we are already, let's say, redistributing it to the individual units, business units, or even to reducing it depending on the case. We have a lot to do in front of us. It's a challenge.
I'm very happy with it. I have been, let's say, a board member for the last five to six years. I have spoken a lot to Roberto, understanding what are the challenges and so on, also with the board, also with the BU heads. Therefore, we know more or less what to do. Of course, today is day one. Do not expect to come with any consideration more profound than the guidelines that I'll give now. We have a transition committee which I will be heading. The transition committee will be lean also, basically formed by the CFO, the HR head, and also the legal head, and one board member. We will work on what activities should be decentralized, what activities should be eliminated, what strategies in terms of geographies.
Talking about geographies, by where we want our brands to be playing or not, shall we be playing every single brand in every single market? Of course not. Where do we concentrate and things like that. The idea is that we have this expanded transition committee. We'll count on the CEOs and Josie, which is responsible for the supply chain, so to speak. We would like them to devote time for their activities, and then we share with them decisions which will make their life easier.
The whole thing is centered on making the business units having more space, more responsibility, and having more room to run and devote their time to do that, and not to have too much of a headquarters on top of it, which was necessary in the first moment to harmonize, to bring things together and so on. From now on, that's not what we would like to do. We already did this sustainable growth and so on, as I mentioned. The transition committee, which will start operating next Monday already, is the idea that we define what activities should we be prioritizing, what activities should we be decentralizing, what activities should we be maybe keeping it centralized, but always with the goal towards having a much leaner structure.
Which will also address another point which was very much pointed out by the investors as well as by the CEOs of the various units, which is reduce complexity. I mean, it gets complex, it gets more difficult for people to understand their role, also the remuneration. Everything will be addressed from now on with this perspective of this new cycle that we are living on. I'm very happy actually with the responsibility that I'm taking now. As I said, I have been always very close to Natura. I mean, officially in the last six years, but throughout 24 years, have followed and been together. So to me, it's an honor to be responsible now for this position. By the way, as Roberto pointed out, but I want to stress, we are decoupling also the position.
Roberto was the executive chairman as well as the CEO. We don't have those positions, and we don't have that accumulation. I'll be the main executive, but the founders will be the chairman. For the moment, for legal purpose, the position of executive chairman is vacant, but we will eliminate that at the next assembly. That will also address one of the good issues in terms of governance, which is to have the CEO and the chairman as separate responsibilities. I'm looking forward to it. I believe on the brands. I believe on the possibilities that we have ahead of us.
I believe in the team, and I believe that we will be able to focus on what is to be focused and to continue based on like a fish for an umbrella on our values, our Commitment to Life, and things that made Natura what Natura is today. The acquisitions that Natura was able to make has to do exactly with the culture on which it was built. I'm very happy for that. I will pass the word now to Gui, Guilherme, please, handle the Q&A. The ball is with you now. Thank you.
Thank you, Fábio. Thank you, Roberto, for your words. Fábio, thank you for your words as well. I just want to give a quick reminder to the audience, please focus the questions on the material facts that we published today.
We'll take it from there. I'll pass the word to the operator now.
Ladies and gentlemen, we will now begin the question -and -answer session. If you have a question, please press the star key followed by the one key on your touch-tone phone now. If you wish to be removed from the queue, please press the pound key, pound sign or the hash key. We'd like to ask you to limit yourselves to one question each in the Q&A session. The first question comes from Joseph Giordano of J.P. Morgan. Please go ahead.
Hi, good morning, everyone. Thanks for taking my question. Good luck, Roberto, and welcome, Fábio. My question to you guys goes into, like, this leaner structure that you guys are seeking, right? Over the past two quarters, we've seen the company doing a good job in controlling costs and expenses with a very, very challenging environment. My question to you is that, like, when you look specifically at this whole new structure that we have now, like it's about 1.5% of sales, how lean do you think this could become? The second part of the simplification strategies is if when you look at this, the business units today, like, if you have, like, anything that when you think about the mid-term strategy would not fit.
Basically meaning that, like, if you have any, potential assets, that could be divested from the company. Thank you very much.
Thank you, Joseph. Actually, the main priority when we decided to go through this new cycle was not exactly the cutting costs. Although it's absolutely important, don't take me wrong. I have a strong financial background, as I like to say. It's to have the organizations to be leaner and to be able to be more agile. We also have a focus on the revenue side. It's also each unit will have its own strategy. It will define their SKUs or things like that. We'll of course have guidelines in terms of geographies, as I mentioned, but each unit will decide on that.
It's also a focus on the revenue side, allowing the business units to work on what they understand are their priorities and giving them latitude to make decisions that will make it a lot easier and less complex for them to move. That's. Of course, there is a definition. By definition, this will bring a reduction on the corporate center expenses. It's not like this was the target. Reduce it and leave it as it is. It's not to reduce, it's to make sure that we decentralize what is to be decentralized, we eliminate what is to be eliminated, and as a consequence, as I said, it will be linear. That's not the reason why we are doing that, okay?
The transition committee will work on that, and in due time, I will be able to come here and talk a little bit more about that. As he was saying, I do not have the financials on that. We know that we have to improve margins, and we know we have to increase revenues, have to continue to pay attention to costs. By the way, recently we did some adjustments part on Natura and Natura & Co, being Avon and Natura here in Latin America. As far as the assets, we have not revisited anything. I mean, I am just. As Roberto said, it starts immediately, but effectively it means that we'll sit down, we'll revisit many things together, all together with this committee.
Of course, under the guideline of the board. We will revisit and then we will make any assessment. That's to be done on the next quarter or so. The idea, by the way, is that transition committee will have its job, let's say, done by the end of the year or before that, much before, I hope. That's the transition committee itself is something transitory. Of course my commitment in terms of the CEO is not transitory. The transition committee is by definition transition.
Perfect. Thank you very much.
Thank you, Joseph.
The next question comes from Irma Sgarz of Goldman Sachs. Please go ahead.
Yes. Hi. Thank you for taking my question and also welcome, Fábio, and good luck, Roberto. From your prior experience, either at Banco Real or Santander or you know, you've obviously has a rich set of experiences in the past, but I know you've gone through different integrations of past acquisitions of transformations. Is there one or two examples of your prior experiences that you think are particularly applicable to the current context from what you can see what is needed for Natura at this point of the company's cycle?
Irma, thank you very much for the question. By the way, actually, few people know that, but I spent 12 years of my life at Nestlé. I was in this business, retail business for 12 years, working in Brazil, in United States, in Switzerland, before I joined the bank. At the bank, you're right, that's where we had many acquisitions.
Yes, I think the thing I look at the most is that, and Roberto did work on that, which is to have some harmonization and bring something to have a certain culture on that. What I learned at the end is that imposing, which is not what we wanna do and not have been doing, but it's not to impose the, some, let's say, synergies that we believe are good, but the business may refrain from accepting that because from their perspective, it's not that good. What I would like to do, and that was my experience, is how can we make it the good balance between giving the authority and the accountability, but also keeping the culture.
If you have a good culture and if you have some functions, which of course will be necessary, finance and financial control, things like that, for the group and capital allocation, I think, giving space for the people and giving and respecting each people, if you notice that they are specialized in different things. Aesop works more, let's say, upscale. When you go to The Body Shop is more retail. When you go to Avon, it's an international to markets that we had not known before. If you go to Latin America, of course, that's where we found the synergies, and we used that, and we captured that a lot, and I think Roberto stressed that in previous calls.
Now, I think it's not time anymore for stressing efforts to capture synergies, but we need to go and say to the people, "Okay, you know your business. You go, and you do, and we'll be here controlling, giving the boundaries, also working on the capital allocation." Answering to your question is, I think, to respect that people on the ground, they know better what they could be doing, and it's up to us just to give the boundaries, but up to them to go for the, let's say, the tactics for each business, given the strategies that they are following. Thank you.
That's great. Thank you.
The next question comes from João Soares of Citibank. Please go ahead.
Thanks, and thanks for the call. I just wanted to understand a little bit more of the context, what may have triggered this corporate restructuring at this time. We understand it's a challenging time, full of exogenous effects. If Fábio maybe could talk a little bit more about that, I think it'd be interesting. Thanks.
Thank you, João. Actually, this, the idea that we would have to do some restructuring and some refocusing on the business and so on, I think started early in the year. Roberto was also part of that discussion of what do we do and so on. I think we also heard the market. I'm putting aside here the external difficulties, which were difficult to everyone, but in our case, especially on the very critical situation, Russia and Ukraine, which we all regret, but it had an impact, was in various fronts. It was an important business there. Having said that, the idea was more having heard the internal people. We had very good conversation the last two, three months with the CEOs and so on. The board evolved as well and Roberto as well.
Okay, we heard them say, "Listen, I think there is a major complaint going on here in terms of what kind of pressure they feel they are under." As you know, João, there will be false problems and true problems. Some of them are people's perceptions. We will work on that in transition. What is perception? What is reality? What is not working well? Because by design, it does not work well or what is not working well because it's just somebody's fault or something like that. The trigger was. Then we heard the investors. We talked, we heard the investors, we heard the market, we saw the stock price and so on.
By the way, it's not a unique problem for Natura, but we heard the investors say, "Okay, it's time for us to have a leaner, less complex organization, and it's time for us to revisit some of the scenarios that we have been working on, so define and revisit some of the boundaries for each brand so that we have them allocating their resources to the best of each one, and not that we go a little bit like." One example I may give you. We don't want every brand, for instance, to be present in a single market. If you allow me to, it's not a joke, but just not to give any hints. We don't have to have every brand in, I don't know, in Afghanistan. We may.
We don't have to have Natura and Avon and The Body Shop and Aesop. Maybe we can have some of them in some markets, some of them in other markets. These kind of things will be defined by this holding, by this parent organization. The strategy on how to play there and so on, we leave up to each one of them. Okay, João?
Very clear, Fábio, and good luck on the new role.
Thank you. I need it.
The next question comes from Robert Ford of Bank of America. Please go ahead. Robert, your line is open. Are you muted on your end?
Apologies. Thank you for taking my question. Fábio, Roberto, I wish you both the very best. Fábio, in your opinion, what do you think has been holding back the direct sales channels from more aggressively leveraging technology in your view, and what can you do to remedy that? Does this management change have implications for the plans in China?
I'll be very vague on the second part of the question because as I said, we are revisiting it, everything, and I have not even addressed that, Roberto. No, I'm not hiding anything. I just have not addressed it. That goes along with the idea that we have to make sure that we are taking the best of each brands to that particular market. The brand may do well, some others may not. Of course, we have also the issue of capital allocation. Where do we wanna put our bet? We cannot be betting in every brand in every single market. I will come back on that.
Regarding the direct sales and so on, I think, I mean, Brazil right now or Latin, I should say, João Paulo has made a major restructuring on the team and so on. He has had a reduction, and he has focused, and he has another strategy in terms of how to remunerate and so on. I'm talking about the direct sales, especially in Latin. That's the kind of thing, Roberto, which I would like the units to do it and not to discuss it centralized. I would like to work a little bit on this. The way, you know, many companies work, we can discuss.
I'm not a specialist on that, João Paulo and many other people are, and Angela also running the Avon International, that they decide on what kind of of, let's say, incentive they wanna work, what kind of people they wanna work, what kind of pricing strategy. Also in terms of the digitalization, which is very important. What was holding us back a little bit was the idea of having a good backbone which would allow the digitalization to be built on top of it. I understand that we are advanced on that. I will look at it when we have the transition committee in place. That's one of the main priorities, make sure that we have the backbone.
I don't wanna go into specifically, for instance, trying to have the same direct sales approach in Brazil that we have, I don't know, in Turkey or in Philippines for that purpose. I think that the markets ought to be more, let's say, working on their specificities rather than us trying to standardize everything. Which, by the way, going back to Irma's question at Goldman Sachs, is one of the things that I learned in this, trying to standardize everything in different markets is not a very sound process. It may be for some companies, but for a consumer business, B2C like we are, there is no way we can standardize things.
That would be, Roberto, up to each of the business unit to decide on exactly how to perform on that. But you're right, that's one of the concerns. That's why we have synergies, and that's one of the strengths of our group. Thank you.
Thank you. That's very helpful.
Okay.
The next question will be from Helena Villares of Itaú. Please go ahead.
Hi, guys. Good morning. Thank you for taking my question. Fábio, our question is actually for you. You have a brilliant career in the financial institutions, and you also know the challenges that Natura & Co has ahead. Our question is basically, what do you think that your career helps to and adds to these challenges that Natura is going to face? Thank you very much.
I missed your name at the opening, please. Your name is?
Helena.
Helena, thank you. That's a good question. I mean, I have been working primarily, although it wasn't my financial background, my primary consideration has always been on people and organization and motivation and incentives and taking the right people to the right place and taking the best out of it. I love it actually, working with people. I worked with numbers many years and I found out that working with people is very exciting. I love it. I think that my background, although I have little knowledge on retail, which I had many years ago, but I think it's more on the organization.
It's more on the fact that we are gonna have more, let's say, this decentralization, how to work, how to put it in place, and how to get the right people in the right places with the right incentives. That's something we will also revisit. What kind of incentives we are giving to the people? Are we incentivizing people on the right way to get what we want? Sometimes we have some complaints here and there, so we will revisit that as well. I would say that my main cooperation, the factor that can cooperate the most is on organization, the motivation, mobilization, the incentives. Having said that, I think we should not lose the perspective that this company was built on strong values.
This company was built around sustainability, it was around the purpose, around everything, which are things I share. By the way, I think they are more and more important. I would say that nowadays, this kind of attitude are even more, let's say, appreciated than they were in the past when it was like a standalone initiatives, be it by Natura or by Banco Real, if you allow me. Today we see everybody coming on that. This is like an umbrella. We do not wanna touch that. We wanna live under that. We wanna base our growth on that. The real focus is more on how to allocate people, how to have the right people on the right place and with the right incentives. I normally summarize saying that managing is about aligning incentives, right?
People will do whatever is good for them. It's up to us to make sure that when they do the best for them, we get the best for the company. Of course, it's a simplification with all the shortcomings of any simplification, but that's the way I see and that's how I think I can collaborate, Helena Villares.
Thank you very much. Very clear.
Apologies, but unfortunately we do not have time for further questions. This will conclude today's question and answer session. I would like to turn the call back over to Guilherme Castellan and Fábio Barbosa for any closing remarks.
Guilherme? I'll go and talk. Okay. Just saying thank you very much for the call. I mean, of course, this is more about the structure that we are building with the goals that we have in mind, with the direction that we have in mind. We'll be able to be more specific as we have the transition committee working and coming up with the results. As I said, we hope that the transition committee is really transitioned, and therefore we have, up to year-end, most of the items already decided. I will keep you updated. I mean, I have always been very close to the market and I hope I will be able to talk to you guys several times.
I mean, within the right perspective and a good governance, of course, making sure that we don't have any let's say commitments at this point in time because I'm just joining. I will be able to talk to you guys over time under an organized matter, and Guilherme will help me on that. Thank you everybody and wish you all good holidays for the ones which are in Brazil.
That concludes the Natura & Co audio conference call for today. Thank you very much for your participation, and have a good day.