Good morning, ladies and gentlemen. Thank you for waiting. At this time, we would like to welcome everyone to the Natura & Co fourth quarter 2021 results. This event is being recorded and all participants will be in a listen-only mode during the company's presentation. After Natura'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 zero to reach the operator. This presentation 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 that they are made, and the company does not undertake any obligation to update them in light of new information or future developments.
This presentation also includes adjusted information prepared by the company for information and reference purposes only, which have not been audited. Now, I will turn the conference over to Mrs. Viviane Behar, Investor Relations Officer of Natura & Co. Mrs. Behar, the floor is yours.
Good morning or good afternoon to everyone. I am Viviane Behar, Natura & Co's Investor Relations Officer. Thank you for joining us today for this call to present Natura & Co's fourth quarter and full year 2021 earnings. I am joined today by Roberto Marques, Executive Chair and CEO of Natura & Co, Guilherme Castellan, CFO of Natura & Co. João Paulo Ferreira, CEO of Natura & Co Latin America will join us for the Q&A session. The Natura & Co Investor Relations team is also on this call. The presentation we will be referring to during this call is available on the Natura & Co Investor Relations website. Roberto will start with an overview of our performance. Guilherme will detail our financials for Natura & Co, and after that, Roberto will make concluding remarks and we will open the floor to your questions.
For the sake of timing, in order for us to accommodate questions from all of you, we'd like to ask you to please limit yourselves to one question each in the Q&A session. Thank you for your understanding and cooperation on this. Let me now hand over to Roberto. Roberto, please.
Thank you, Viviane, and hello to everyone. Thank you for joining us. In the current circumstances, we cannot start this presentation without talking about the war that unfortunately is happening between Russia and Ukraine. We are all shocked and sad by these tragic events that are unfolding. In the face of this terrible violence, our thoughts are with those who find themselves in harm's way, and our utmost priority is to ensure the safety and well-being of our teams and to support them in any way we can. The group and its companies are fully mobilized to provide assistance. We have donated more than BRL 3 million to date to relief organizations on the ground in Ukraine such as the International Red Cross, and we're also providing donations of personal care products to refugees. Overall, the group has limited presence in Russia and Ukraine.
Total revenues in these two markets are less than 5%, and contribution to EBITDA margins, even less than that. We have our relationship selling and production presence at Avon and a franchise operation for The Body Shop and Aesop. In light of what's happening, we have decided on the following actions. The Body Shop and Aesop are suspending operations via their franchisees in Russia. Avon is also suspending exports from Russia and moving some volumes to the Poland main facility. Avon, however, is continuing for now to supply to its network of representatives aligned with our values and business model, mainly from its local plant to help them with their livelihoods. At this stage, there is no material impact on our financial statements, and we are continuously assessing the situation.
At Natura & Co, we believe the world must unite and stand together for peace while acting with solidarity with all people impacted by this unacceptable aggression against human rights in Ukraine. Let me now, on slide four, quickly take you through the main highlights of the quarter and the year. Overall, we posted a strong EBITDA margin expansion with significant increase in net income despite a tough fourth quarter. Our Q4 revenue dropped only 3% in reais and 5.3% at constant currency. This reflects a very challenging environment, including a decline in CFT market in Brazil and still pandemic effects in key markets for The Body Shop and Avon with the Omicron wave.
We also face continued cost pressure from high inflation, supply chain disruption, and strong exchange effects, even as we continue to invest in the business for future growth. Moreover, we are comparing against an exceptionally strong comparable base as we had posted 24% growth in Q4 of 2020 versus the same period in 2019. Compared to Q4, 2019, our sales were up by a strong 20.6%, underscoring the underlying strength of our business. Even in these challenging circumstances, profitability was very strong. Our strict cost discipline, in addition to continued transformational changes at Avon and the ability to extract synergies faster than anticipated, allow us to expand our adjusted EBITDA margin by 90 basis points in the quarter and to post net income of BRL 695 million.
The gain was also driven by a new benefit from the Avon integration related to our corporate structure optimization. In the full year, we posted revenue growth of 8.8% in reais and 3.8% at constant currency, while net income reached BRL 1 billion, reversing a loss of BRL 650 million in 2020. If we compare our performance to two years ago, sales were up almost 22% in reais and stable at constant currency. This is ahead of the average of the global CFT market in reported currency. We made significant advances during the year in Avon's integration and transformation. Overall, net revenue of Avon brand as a whole, combining Avon International and Latin America, was nearly stable in full year 2021 versus full year 2020, marking the best revenue trend for the company in three years.
Synergies are ahead of plan, reaching nearly $200 million in the year, mainly across procurement, logistics, and administrative functions. That's close to 50% of the plan, ahead of the 40% run rate in 2021 that we guided to. We have deployed the new commercial model in Avon International top nine markets, and the result in the quarter has been higher representative productivity and activity levels. Similarly, in Hispanic LATAM, we are rolling out the new commercial model in Ecuador, the first market in which it was implemented, showing initial positive signs with double-digit improvement in representative activities, increased retention, higher productivity, and reduction in churn ratio. In Brazil, we continue to adjust the model with some measures adopted in October, which are showing some recent positive trends in recruitment and activity.
As we continue to have a solid balance sheet, our net debt to EBITDA ratio improving sequentially to 1.52 x in Q4 from 1.83 x in Q3. We ended the year with a strong cash position of BRL 6 billion. This allow us to pay a dividend of BRL 180 million, in addition to BRL 140 million in share we purchased through the end of the quarter, underscoring commitment to create value for our stakeholders. On slide five, we look at the continued progress we are making on digital as part of our omni-channel transformation. Digitally enabled sales, which includes both online sales from e-commerce and social selling, as well as relationship selling using our main digital apps, reached 52% of total revenue.
This is in fact 2.5 percentage points above Q4 2020, and significantly above their pre-pandemic level of 35% in Q4 of 2019. As you see on the slide, digitalization is continuing to grow across all brands with increased adoption of the Avon ON app at Avon International. At Natura, we saw an increase in online sales and in the numbers of consultants sharing content, while both The Body Shop and Aesop posted higher online sales compared to pre-pandemic levels. In our digital payment system, Ecopay, and Natura in Brazil, posted strong growth in both number of accounts, reaching approximately 340,000 accounts, and in total payment value, rising to BRL 6.5 billion in full year 2021, well above the BRL 4 billion estimate for the year.
On slide six, we also feature some examples of our robust innovation pipeline in the quarter. Avon expanded its product range to higher value products in the form of advent calendars for the holiday season. Natura launched Biōme, a natural tech zero-plastic personal care brand in solid bars that use natural and vegan formulations with recycled and post-consumer recyclable packaging. This underscores our sustainability-oriented innovation. The Body Shop launched their first advent calendar with reusable packaging for other purposes, in line with our sustainability practice as well. Aesop launched purpose-driven gift called Anatomy of Generosity, which are tied to chosen charities funded by the Aesop Foundation. With this, I'll now hand over to Gui to discuss our financials and brand performance.
Thank you very much, Roberto, and hello to everyone. On slide eight, we continue to face a challenging operating environment, and we also face a challenging comparable base. Net revenue at BRL 11.6 billion was down 3.8% in reais and 5.3% at constant currency compared to the previous year. The full year performance, however, resulted in 8.8% revenue growth, reaching BRL 40.1 billion and 3.8% growth in constant currency. Compared to the pre-pandemic period in 2019, Q4 revenue was up 20.6% in reais and broadly stable at constant currency, while full year net revenue was up 21.9% in reais and also broadly stable at constant currency.
Looking at each business segment in the quarter against Q4 2019, revenue was up in reais at all of our brands. At constant currency, we had exceptional growth at Aesop and very solid progression at Natura & Co LATAM, while The Body Shop was down slightly, and Avon International was still down, running improving quarterly revenue trends. On a full year comparison against 2019, all brands were up in reais. On a constant currency base, all brands were up as well, notably Natura up 27.3% and Aesop up 41.6%, with the exception of Avon International as we continue to evolve its turnaround process. On slide nine, we focus on our improved profitability despite increasing costs and continued pressure in some of our key markets. All brands were able to expand adjusted EBITDA margin in Q4, with the exception of Aesop due to organic investments.
On a consolidated level, both reported and adjusted EBITDA were up in the quarter. Adjusted EBITDA reached BRL 1.5 billion with an adjusted margin of 13.3%, up 90 basis points. This margin improvement is coming from Avon International, reflecting structural changes in addition to strict financial discipline across the group, and also synergies in LATAM that were ahead of the plan, offsetting continued costs and FX pressures. In the full year, adjusted EBITDA margin stood 10.3%, down 110 basis points. On slide 10, we show the building blocks that allow us to post margin expansion in a tough environment. As you can see in Q4, we incur 540 basis points impact from inflationary and FX pressures. We're able to fully offset this amount through synergies and revenue management.
Other temporary business pressures, notably sales deleverage, reduced margin by an additional 230 basis points, and higher investments to accelerate growth had an unfavorable impact of a further 150 basis points with our business plan. These were more than offset by cost containment actions with strict financial discipline and other one-off effects that had positive impact on margin of 470 basis points. This resulted in a margin of 13.3%, which is up 90 basis points versus last year. On slide 11, you see that we posted a very strong increase in net income and underlying net income, both in the fourth quarter and full year. Q4 net income was BRL 695 million, growing from BRL 177 million in Q4 2020. This increase was mainly driven by increased EBITDA and positive income tax impacts.
These impacts are mainly from the recognition of deferred income tax resulting from corporate restructure simplification in LATAM enabled by the Avon integration. Q4 underlying net income also more than tripled to BRL 980 million. This excludes PPA effects for Avon acquisition related impacts. In the full year, we posted solid net income of BRL 1 billion, reversing a loss of BRL 650 million in the previous year. Underlying net income reached at BRL 1.7 billion. This enables dividend distribution based on realized profits in the amount of BRL 180 million as part of our value creation for shareholders. The dividend proposal will be submitted for approval at the April 20th general shareholder meeting. On slide 12, we look at our liquidity profile.
We ended the year with a strong cash position of BRL 6 billion after generating BRL 136 million in free cash flow in the quarter. Higher adjusted earnings and positive working capital, partially offset by income tax payments and increased CapEx to support our strategic plan of long-term growth with margin expansion. As shown the first graph, our net debt to EBITDA ratio stood at 1.5 x in Q4. This is down from 1.83 x in Q3, but it's above Q4 of last year as a result of lower cash flow generation in the full year. This was mainly due to an increase in working capital, especially inventories. Our strong cash position is what enabled us to propose to our shareholders the dividend payment of BRL 180 million.
This comes on top of a share buyback of BRL 140 million through December 2021. Management has a strong focus on optimizing cash conversion in the short and medium term. On working capital, we are working to address excess inventory in the next two quarters, on top of simplifying our portfolio structure and plant sites to deliver bigger savings in the medium term. We are also targeting improvements on receivables and payables. Other priorities include optimization of CapEx, both gross CapEx and divestments, and a more optimal cash tax rate in the future. Let's turn now to our performance by business units, beginning with Natura &Co LATAM on slide 14. In the fourth quarter, total net sales were down 2.8% in reais and 5.7% at constant currency on the back of a very tough comparable base.
For the first year, Hispanic markets represented more than half of our sales in the region, highlighting our diversified footprint that helped offset challenging conditions in Brazil. The Natura brand as a whole was up 3.5% in Q4. In Brazil, sales were down 6.4% on a tough comparable base and further impacted by continued erosion of disposable income, resulting in trading down. We adapted with a gifting strategy of more affordable products in beauty and personal care, supporting our Christmas campaign. Sales accelerated sequentially, continuously improving since Q3. The Natura brand outperformed the target CFT market by 6.1 percentage points in the quarter, thus maintaining its leadership position in CFT in Brazil. Consultant productivity in the quarter was stable, showing a significant sequential improvement from Q3 and a normalizing trend.
In Latin America, the Natura brand grew in all markets, with revenue up 22.4% in reais and 13.3% at constant currency, supported by an increase in the number of consultants and productivity. Natura brand gained market share in all operating countries in Hispanic LATAM during 2021. The Avon brand in Brazil and Hispanic LATAM combined was down 12.3% in the quarter. In Brazil, Avon was down 27.2%. The revenue decline was related to a lower representative base, a contracting CFT market in Brazil, and lower fashion and home sales. However, the measures adopted to increase recruitment and stabilize the new commercial model started to show impact recently. In Hispanic LATAM, Avon was down 3.7% in reais and 6.2% at constant currency.
We started deploying the new commercial model in Ecuador and five markets in Central America, as well as Colombia, with positive first results. In the full year, revenue for Natura & Co LATAM was up 9.1% in reais and 6.3% at constant currency. Overall, the Natura brand was up 10.5% in the full year, and Avon was up 6.6%, driven by Hispanic LATAM, up double digits for both Natura and Avon. While both brands were down in Brazil, Natura by 2.5% and Avon by 13.2% as a result of the tough environment in the second half of the year. We turn now to slide 15 to Natura & Co LATAM's adjusted EBITDA.
Adjusted EBITDA margin was 12.1%, down 10 basis points compared to Q4 2020, impacted by sales deleverage, raw material inflation, and FX headwinds, partially offset by synergies, revenue management, and strict financial discipline. In the full year, adjusted EBITDA at Natura & Co LATAM was a little over BRL 2.5 billion, up 2.6%. Margin was down 70 basis points at 11.2%. Let's now move to Avon International on slide 17. Q4 net revenue was down 5.6% in reais and down 7.4% at constant currency. Revenue has been steadily progressing quarter-over-quarter since Q1 2020, but as expected, it is still impacted by a 9.3% drop in the number of representatives.
This was partially offset by higher representative productivity as a result of structural changes in the new commercial model that were fully implemented in Q4 in the top nine markets. Compared to Q4 2019, net revenue was up 5.8% in reais and down 18.2% at constant currency. In the full year, net revenue was up 2.5% in reais versus full year 2020, and down 4.3% at constant currency. Q4 adjusted EBITDA margin reached a strong 10.7%, up 606 basis points versus Q4 2020. The strong margin was driven by normal seasonality in Q4, strict financial discipline, structural savings from the simplification of the operating model, revenue management and synergies. The growth came despite continued impact from inflation and higher investments in digital and IT to accelerate growth.
In the full year, adjusted EBITDA margin reached 6%, up 80 basis points from last year. On slide 19, we move now to The Body Shop, whose Q4 net revenue declined 8.8% in reais and 10.3% at constant currency. Sales were impacted by the Omicron variant's effect in retail sales in the holiday season, mainly in the U.K., the brand's largest market. Compared to Q4 2019, revenue was up 35.4% in reais and down 1.5% at constant currency. The quarter saw continued channel rebalancing as expected, with the reopening of retail resulting in a slowdown in e-commerce and at The Body Shop At Home. Although both channels are still 1.5 x above pre-pandemic levels. In the full year, sales were up 9.2% in reais and up 0.7% in constant currency.
Q4 adjusted EBITDA margin was 22.2%, - 150 basis points versus Q4 2020, mainly due to sales deleverage, channel mix effect, and the absence of government support and rent waivers as in Q4 2020. In the full year, it was down 260 basis points to 17.6%. On slide 21, Aesop again recorded an excellent performance with another quarter of double-digit growth. Net revenue increased by 22.8% in reais and 20.8% at constant currency. Growth was driven by retail channels, particularly in North America, Asia and Australia. Like at The Body Shop, Aesop saw some channel rebalancing, with retail accounting for 72% of sales in the quarter, and online sales representing 24%, down from 27% in Q4 2020. Online sales remain 1.5 x above their pre-pandemic Q4 2019 levels.
Q4 adjusted EBITDA margin was 26.7%, down 10 percentage points compared to Q4 2020. This is mainly due to planned higher investments in digital, categories, and geographies to drive future sustainable growth. In the full year, EBITDA margin was down 700 basis points. Now let me hand back to Roberto.
Thank you, Gui. On slide 23, I want to focus on our operational priorities and actions to mitigate the challenging environment we expect in first half 2022. It is important to highlight that our fundamentals remain solid, and we are confident we have the right priorities from both a financial and strategic standpoint to navigate the headwinds. First of all, as you have seen, we are strongly focused on execution to preserve profitability as we navigate in a challenging operating environment with further impacts in Central and Eastern Europe. We continue to advance on strategic initiatives such as supply chain consolidation and organization structure optimization. Second, we'll be paying particular attention to discretionary OpEx and CapEx. Third, we'll be focused on protecting liquidity and cash flow.
Fourth, I'd like to take the opportunity to update you on the primary listing project in the U.S. that we mentioned in our Q3 call. Over the last couple of months, we're able to discuss the project with several stakeholders, and so I'd like to thank you for sharing with us and helping us form a view on this project. Our assessment is that the listing in the U.S. with BDRs in Brazil is the right strategic direction, but not the right time to do it, as we need to continue navigating these uncertain times and to focus on delivering a successful Avon integration. Given all of that, we'll continue to assess the right timing and will, of course, keep you updated.
Last but not least, we count on a strong and experienced team around the world with strong global and local knowledge, especially in Central and Eastern Europe, that will help guide us through the current challenges in the region. We are very thankful to them. In particular, Angela Cretu, our CEO of Avon International, who is from the region and leading where the team is in the region. On slide 24, I would like to conclude on our core strategic initiatives to drive sustainable and profitable growth in 2022. At Natura & Co LATAM, we'll continue to roll out the new Avon commercial model in Hispanic LATAM and expand Natura social selling tools such as eBrochure, live shopping, and inter-launch events. We'll also be stepping up cross-selling and upselling of Natura and Avon with the wave two of our transformational plan.
Building on the success of Ecopay, we plan to roll it out at Avon Brazil and then at Natura in Latin America. At Avon International, we'll continue the implementation of the new commercial model and scale up the Avon ON digital platform. Efforts to improve profitability through organization streaming will continue, and we'll put even more focus on the Avon brand rejuvenation, with a particular focus on core products and gifting. At The Body Shop, we'll continue rolling out the new store concept, already deployed in 100 stores with strong sales uplift and complete the deployment of the refill stations in 500 stores. We'll also develop a strong product pipeline and roll it out accordingly. Finally, at Aesop, we continue to expand and grow in North America and Asia Pacific. Steady progress is being made for the China entry plan late in the year.
The brand will ramp up its focus on fragrance and continue to invest in digital platforms. Thank you very much for your attention. Now, Gui, JP, and I are happy to take your questions.
Ladies and gentlemen, we will now begin the question-and-answer session. If you have a question, please press star followed by the one key on your touch tone phone. If you wish to be removed from the queue, please press star then two. We'd like to ask you to limit yourself to one question each in the Q&A session. The first question today comes from Richard Cathcart with Bradesco. Please go ahead.
Hi, everyone. Good morning. Thanks for taking the question. Just a very quick one on Russia, which I think you've already addressed, Robert. I just wanted to get your view on whether there are any kind of wider impact on the business beyond kind of Russia and Ukraine. Then my main question, just on the cost containment, if you could give us some more detail about how the 4.7 percentage points from the chart on page six of the release breaks down, and also whether the bonus and incentive plans that were mentioned in the footnote, if you could just give us some more color on whether the positive margin impact there was simply the bonus declining year-on-year or whether there was also reversion of bonus provisions made in the prior quarter. Thank you.
Hi, Richard. Roberto here. In regards to the war and the implications, of course, there is a clear and very significant impact in both Russia and Ukraine, which you already discussed and talked about it. What we are seeing is actually an impact that goes beyond that, right? We are seeing, you know, cost pressures increasing because of some of the sanctions in crude oil and palm oil on top of what we're already seeing before the war in terms of inflation and some of the commodities. We are seeing that exacerbating in a much bigger way than just in Russia or Ukraine. At the same time, we are seeing, you know, confidence level demand also being impacted.
I think there is an apprehension, especially in the Europe region, that it is also creating some impact from a demand perspective. Unfortunately, you know, this war, I would say, has a devastating impact, of course, in Ukraine and also an impact economically in Russia. It goes much beyond that, which is the reason we're really, you know, calling for a resolution and peace, which is what I think we all hope for. Again, as we mentioned in the presentation, we are projecting that already taking measures for cost containment, and I'll pass that to Gui that can elaborate a little bit more. Gui, please.
Yes. Thank you, Roberto. Thank you, Richard. It's good to hear from you. Let me start just apologizing here for my voice. I hope you can hear me well. But on your question, Richard, first of all, I want to highlight that in the same waterfall that you see the 4.7 percentage points impact in the adjusted EBITDA margin, you see 150 basis points of higher investments that we did in the business. Right? Those are new categories that we'll continue to invest depending, of course, on the BU and depending, of course, on the category that we're talking about.
The 4.7%, basically they are savings in some categories that we didn't have in Q4 2020 and one-off impacts, right? A big part of this number, you can assume it's recurring savings. Recurring savings, which basically are results of the transformational savings that we're doing Avon International, and of course, other synergies in G&A that we continue to deliver in LATAM, more specifically. On top of that, there are of course additional efficiencies that we have in the business, which will continue to be recurring. Yes, there is also a part of, let's call it discretionary savings, which was basically things that we chose not to invest in Q4, that we may invest in the future depending on business momentum.
There is the one-off to your point, which is mainly related to STI and LTI. Just to make it clear, this is normal part of the business, right? This is just adjustments that we do throughout the year on our variable compensation. In a nutshell, again, this 4.7% is basically composed by a big part of recurring savings, discretionary savings that again, we chose not to spend in Q4, and this impact in one-offs, which is again, regular part of the business.
Okay, great. Thanks so much for the responses.
The next question comes from João Soares with Citibank. Please go ahead.
Hi, good morning. Thanks for taking my question. I have two questions. The first one regarding the wave two and the cross recruitment that you talked about in the release. I just wanted to understand what are the early signs that you're seeing in terms of consultant rep productivity? I think it's interesting to see that in this moment that you also talked about a trade down and into mass consumption categories. How is Avon's lower ticket playing with this assortment, allowing you to navigate this competitive landscape? That's my first question. My second question is more of a follow-up to what you just said, Guilherme, on the savings.
Talking, looking in the short term in terms of additional savings that you can maybe achieve in terms of other cost containment, other recurring cost containments that you can achieve in the short term, I think will be interesting.
Hi, João. Roberto here. The first question on the wave two, I'm gonna invite JP to talk about it, and then Gui can talk about some of those discretionary savings. Thank you for the question. Please, JP.
Hi, João. Let me start with the trade-down part of your question. Actually, we are already seeing Avon picking up volume in many categories where consumers are trading down. We can see that very clearly already. Fragrances, color cosmetics, toiletries. As I mentioned in a previous occasion, we have been working on optimizing our combined assortment between Avon and Natura to optimize for the changes in the markets and the consumption pattern, right? We've been doing that successfully already through Q4 in our regular offerings, as well as in gifts across the region. By the way, that applies to all of the countries, not only to Brazil. Very glad that we have the power of this combined assortment.
As regards the combination of our networks of representatives and consultants, we basically started a sort of beta operation in Brazil in the last weeks of the year, which will now scale up in this first half until it reaches full speed in the second half of the year. For that purpose, and given the importance of this wave two initiative, which includes not only the network of reps and consultants, but also the combined portfolio, as you properly pointed, we've allocated a dedicated team led by one of our most experienced executives, Erasmo Toledo, who used to lead Natura in Brazil, to lead that initiative. In summary, we expect it to reach full speed in the second half of the year.
Thank you, JP. Gui, can you talk a little bit about some of the actions on discretionary spending moving forward?
Sure. Thanks, João, for the question. I think as Roberto explained in that slide, right, we're starting the year in a very fluid scenario, especially with the war right now that exacerbated in the last couple of weeks, right? I think here we are basically accelerating some strategic moves to deliver cost savings. Part of that is what Roberto mentioned in terms of accelerating our global supply organization and how to, of course, continue to optimize our resources in the operational side and also in the back office side of the organizations. Right?
Those are more strategic initiatives that were planned to happen this year, and of course, we are accelerating that given the business environment. On top of that, of course, we continue to manage our expenses on a daily basis here, right? It's how we run the business, both on discretionary expenses, meaning consultants, travel, all those things that we're again reassessing completely in the beginning of the year. We're trying to protect working money as much as we can. Meaning the money that we continue to invest in the channels, in our consultants, in the reps and in the brands. Of course, that is also very fluid depending on the region and depending on the country. We'll continue to work on synergies, right?
I mean, we finalized the last year ahead of the plan with 50% of the synergies delivery in LATAM. We have more to do this year. João and the team here in LATAM, they are working nonstop to continue to look for those efficiencies. The same thing in Avon International with the transformational savings, right? Again, I hope it helps. I mean, we're accelerating a lot of the strategic moves that we did that we were planning to do this year. But also, of course, on a quarterly basis, actually on a monthly basis, taking tactical moves to protect our profitability and bottom line.
That's very clear, Gui. Thanks everybody.
As a reminder, I'd like to ask you to limit yourself to one question each, so everyone can have the opportunity to ask a question. Thank you for your cooperation. The next question comes from Joseph Giordano from JPMorgan. Please go ahead.
Hello. Good morning, everyone, and good afternoon for everyone in Europe. Thanks for taking my question. Actually, would like to go back to the waterfall chart you guys showed. Again, like, try to quantify a few things and widen that. Right? We had a massive beat on Avon International and I think, just like trying to gauge what's actually like the recurring part of this. 'Cause I mean, like, if you look back on the pandemic, we had like a ton of noise, right? With like repressed expenses. Basically like, if you can help us to quantify this 4.7 percentage points of revenues of what's really recurring, it would really help.
Then the second part of my question goes on the cost pressures, right? So, you guys mentioned that things are being exacerbated. So I would like to understand from your side, like what can be done on a cost front, right? So basically like pricing, revenue management to kind of cushion those like potential pressures that are likely shaping up to be stronger than anticipated. Thank you.
Hi, Joe, Roberto here. Regarding Avon International, part of the improvement of margin is the structural changes that we've been implementing over the last two years. We've been talking about a change in the structure, where we move from a very decentralized organization, almost like 40 different Avons, to a hub-spoke lead-market approach. That structural change will continue, right? That benefit would remain moving forward. We also saw the benefits in margin on Q4, which is related, especially compared to Q3, to some seasonality effect that we always have on Q4 of the business.
As you kind of project forward in terms of additional savings to actually mitigate some of this challenge environment, as Gui said, you know, there is a combination of many things. One is we're gonna continue to push for synergies, right? As Gui mentioned, we deliver 50% of the synergies versus a guidance that was about 40%, toward the end of 2021. This clearly was one way for us to mitigate the pressure, the inflation, cost increases that we saw, in 2021. As we project that those things will continue and maybe even exacerbated in 2022, we're gonna continue to drive as hard as we can, the synergies that we're already identifying in the plan and trying to find additional ones, right?
Gui mentioned some of the structure ones in supply chain, enabling functions, discretionary spending, that we'll continue to look at it. There is no crystal ball. It is about running the business. It is about pushing for the synergies. It is about financial discipline that I think we've been demonstrated over the last two years, during the pandemic. I think what we are saying it is our projection that this pressure will continue, potentially get even more exacerbated, especially in the first half of 2022, but we are gonna really put very strong plans to make sure that we can protect the P&L and the cash flow of the company. Gui, do you wanna add something?
Thanks, Roberto. I think that was great. Joe, just to help you think a little bit more about Avon International, right? I think it's very important for you to start with the gross margin expansion, right? That is there. You can see that Avon International gross margin in Q4 2021 increased by almost 360 basis points compared to Q4 2020, right? That, of course, is driven by revenue management efficiencies and mix, right? Those type of savings, of course, depends on the scenario, but they are recurring, right? On top of that, there was a significant amount, as Roberto explained, that comes from the transformational savings, which again, is what the team is relentlessly implementing in the different countries, different parts of the organization, Avon International, right?
That had a significant impact in the year, and of course, that will continue to impact going forward. There were other cost containment actions, and that again, those are more discretionary, right? And one-offs.
Which again, as explained before, is the variable comp adjustment, which is part of the business that basically offset sales deleverage and other organic investments. If you had to think about even international, I'll start with the gross margin. I start with the transformational savings. Those again basically were the bulk of the expansion of margin. Then, of course, there were some one-offs and discretionary savings that basically offset the deleverage of revenues, and other organic investments. As Roberto mentioned, there is the seasonality impact in Q4, which compares to Q3 and Q1. Q4 as a quarter with higher sales usually tends to deliver better margins as well.
Okay, guys. Thank you very much.
The next question comes from Robert Ford with Bank of America. Please go ahead.
Thank you. Well, good day, everybody, and congratulations on the profitability improvements. JP, on Avon Brazil, can you explain the 9% decline in rep productivity? You know, I think I understand the disruption to the network, but presumably with an 18% contraction and the network skewed towards the least productive reps, you know, what happened with the remainder? And how big is the home and fashion category for Avon Brazil?
Hi, Bob. You already gave me the answer. It was fashion and home. Yeah, indeed. It was the difference between the top line decline and the decline in the absolute number of reps came fundamentally from fashion and home. The category contracted and moved to in store by and large. We were affected by that. Having said that, you know, as I said, with all the fixes, I mean, and I should have started with that, by the way. You know, the fixes that we implemented as of October are working. I'm totally confident that, you know, in the middle of the quarter, Q4, we saw the inflection point in that operation.
Ever since, we have been seeing improving number and total count of reps, the number of active reps, the consecutiveness of all the reps, especially the one and two star reps, as well as productivity. That machinery is now working properly. As volumes are being picked up from this in these categories, which are being traded down in CFT categories, we are starting to see now more recently a compensation for the lost volumes in fashion and home. That is the explanation, Bob. Thanks.
No, thank you, JP How big was fashion and home last year?
Well, as a category, it corresponded to 30% of the overall Avon business in Brazil.
Okay. That's very helpful. Thank you very much.
The next question comes from Helena Villares with Itaú. Please go ahead.
Hi, guys. Thank you for taking the question. Our question is still about the cost savings and the synergies. We totally understand that most of them are recurrent, and we do also understand that first half 2022 should be a little bit more challenging with everything that's happening, supply chain, commodity prices and et cetera. What we try to understand here is considering that second half 2022 could be a more normalized scenario, and if that assumption holds water, can we use the fourth Q 2021 margins as a run rate for this company? Does that make sense for you guys?
Just a last thing here of the 4.7% basis points o f cost savings and cost control and also one-off things, how much of the 4.7% is more one-off and how much is really cost that you can maintain in a sustainable way? That's it from our side. Thank you.
Hi, Helena. Roberto here. I will start, and then I'll turn to Guilherme. In terms of projection, again, what we can say is we are projecting still a more challenging environment in terms of cost pressure in first half of 2022, hoping that we can get resolution sooner than later on this war, and then all the impact that we are seeing spreading out in other geographies besides, again, where, you know, the war is happening. That's our assumption, right? Again, your guess might be better than mine, what's gonna happen. What we are doing is actually again, putting in place a very strict austerity in terms of spending, both in terms of CapEx and OpEx, to try to protect the margins, especially in the short term.
Again, we feel that we have a strong track record of doing that. We did that during the peak of the pandemic. Not easy to do, but I think again, the team is coming together, working very collaborative in a way that we can potentially put in place measures to offset and to mitigate some of that pressure, right? If everything, you know, goes according to what we're projecting, we are expecting a better second half, to your point. It all depends how things are gonna evolve. It's very hard to predict at this point. Hence why we're not changing guidance, we're not changing any of that because it's still we are seeing a very volatile and uncertain times. I hope, you know, you all understand that.
It's very much. Outside of our control, we are gonna control what we can control, which is primarily all the measures that we are taking from discretionary spending, being much more choiceful about where and how we are spending CapEx and OpEx. With the hope that the second half, everything goes according to our projections, we are gonna see some of the benefits of the things that Gui was talking about that are more ongoing in terms of margin improvement, especially at Avon, right? But also across our business. Gui, anything else to add?
Yeah, no, I think that was great. I just didn't quite understand your, the second part of your question related to the one-offs. If you can repeat that'd be great.
Sure. No, it's only that in the bridge, if you need the down margin, you guys show 470 basis points, but everyone already ask about it. 470 basis points of cost savings and also one-off events. How much of these 470 are more related to one-off things, and how much is more sustainable in a more normalized scenario, of course?
Yeah. Thanks. No, understood. I think I answered that when Richard asked the question. Just to be clear, right? 470 basis points, most of it, I wanna be clear, is coming from what we call transformational savings in Avon International, synergies in LATAM, and efficiencies across the businesses. Okay? There's a significant part of that that is 100% recurring, and it's coming from those three pillars that I explained. Now, there is the second pillar, which is composed by discretionary expenses savings and one-offs, right? Discretionary expense savings, to be clear, is how we run the businesses, right? We chose not to invest. We may invest in the future, we may not.
It's how we are, of course, we're looking at the market, we're looking at our brands, as I mentioned, trying to protect working money as much as we can. Basically that drives our decision to invest or not invest. The other parts, they are one-offs, right? Which again, it's not the majority of this 4.7%, I want to be extremely clear on that. That is coming from normal accruals and reversals as part of the business, right? The biggest part of that number, in relation to Q4 is what I mentioned before related to the variable comp adjustments that we did.
Okay. We can look forward, we can think that most of it is recurring, right? That's great. Great. Thank you, Guilherme. Great. Thank you, Roberto.
The next question comes from Danniela Eiger with XP Investimentos. Please go ahead.
Hi. Thanks for taking my question. Just on regarding the synergies, I have just wanted to understand the fact that the beat of the 40% expected for the year. Was that driven by faster than expected synergies being captured or actually higher than expected synergies? Also, still on synergies, we saw the tax, the positive tax effect being a positive driver for net income, and we should also potentially expect that to continue going forward as you guys enjoy benefit from Avon's accumulated losses. I just wanted to check if that is actually an upside risk on your synergies guidance regarding Avon. That's it. Thanks.
Hi, Danniela. Roberto here. Thank you for the question. Regarding the synergies, it's an acceleration, not an additional synergy that we are projecting. Again, we are projecting to deliver 40% of the synergies by end of 2021, and we are able to accelerate that, again, to deal with some of the headwinds. Again, the team move with very discipline to actually bring forward some of those synergies, and we're able to finish with 50%. The number is not changing. What we promised to deliver to the market, the guidance, we're not changing that. It's just that end up happening faster as a way, again, as Gui was explaining, to mitigate some of the pressure that we're seeing in terms of cost and inflationary pressures.
Regarding the benefit on the net income, you're right. Some of those come from the accumulated losses of Avon, the operating losses. This is what we are able to materialize at this point. We'll continue to evaluate moving forward, but at this point, again, there is no guidance. This is not included in our guidance because those things are uncertain, and we'll continue to evaluate the opportunities as they come.
Perfect. Thank you.
The next question comes from Steph Wissink with Jefferies. Please go ahead.
Good morning, and thanks for the question. This is Grace Menk for Steph. My question was on Aesop. I was wondering if you could talk more about the share gains that you're seeing there and the marketing strategy. What's been working well, and are you seeing any improved efficiency in any areas? Thanks.
Hi, Stephanie. Roberto here. You're absolutely right. I mean, we are very pleased.
To see the performance of Aesop in pretty much all geographies where we are gaining share in the luxury cosmetic market. It is important that we continue to invest. That's one of the reasons we are, Grace, over-investing with Aesop because we are seeing the momentum, the expansion in some new categories like fragrance, where we are posting over 50% growth. Of course, very excited about the future entrance in China, which is moving according to plan. We are progressing with registration, and we are targeting to enter in China with a physical presence toward the end of this year. We're very pleased to the market share gains and hence why we are actually over-investing with Aesop at this point.
That's helpful. Thank you.
The next question comes from Irma Sgarz from Goldman Sachs. Please go ahead.
Yes. Hi. Thanks for taking my question. I know there's been a lot of focus on expense and cost control and synergies. I'd like to go back just in terms of how we should think about sort of the revenue outlook. Obviously some brands have seen some declines, some of that to do with macro, some of that to do with pandemic-related restrictions. As we're sort of looking into the first half of this year, if you could just help us think through how we think about revenue growth recovery across your main brands and businesses. Basically the question is, was the fourth quarter really sort of the perfect storm?
Was that sort of the trough point, and we should see a gradual recovery from here? Or do you see sort of near term still continued pressure of the same magnitude because of the macro, for example, in Brazil? Connected to that, I was curious about price increases, what sort of room you saw for taking up prices for the Natura and Avon brands, specifically in Brazil, but maybe also for some of the other markets. Thank you.
Hi, Irma. Roberto here. In regard to, you know, the top line, again, as I said, we are projecting still a challenging first half, both because of the macroeconomic situations, still pressure in disposable income. Which, as we know, in many of the markets that we operate, we are seeing highs in inflation, which has a direct impact on discretionary consumer goods, which we are part of that. We are projecting that this will continue to impact, especially first half of this year. On the other hand, you know, we are progressing on some of the fundamentals, and especially with Avon, you know, with the new commercial model in place, and you heard from JP some of the indications of the health of the channel.
We're also seeing that at Avon International, right? As we also implemented the new commercial model. We feel pretty good about the progress on the fundamentals. Brand health, for example, Natura just came again with a report as the most admired brand across all categories in Brazil, in Peru. We feel pretty good about the brand. We feel, of course, we have to do more work on Avon transformation from a brand rejuvenation, which we're gonna also put a lot of focus this year. Commercial model is progressing, but we are facing and we are projecting a strong headwinds in terms of consumer demand, macroeconomic environment and impact in consumer demand in general in the first half of the year.
In regards to pricing and how we are managing that, especially in Brazil, I'll ask JP to talk about some of the actions that we are taking.
Hi, Irma. The entire industry is being increasing prices to try and protect the margins, and so are we. We even shared with you what happened in the markets, actually, as we started telling you about that in Q3. Even in our release, we show that in spite of the price increases, the value of the market's been contracting due to the trading down activities and the lower consumption power. Because of that, we look at our competitors, we look at the elasticity of our categories and play the assortment to try and capture more combined value across all categories. Actually, Natura's results in Q4 shows that we outperformed the market. We were in the middle of that adjustment.
Going forward, I can only tell you that the portfolio is even more adjusted to the needs of the markets.
Thank you.
As a reminder, if you would like to ask a question, please press star and then one to join the question queue. The next question comes from Ruben Couto with Santander. Please go ahead.
Hi, guys. Quick one here. Can you comment a little bit on the impact that you guys expect on the recent IPI reduction in Brazil? Is somewhat relevant in this process of trying to defend margin given the many headwinds? That is the question. Thank you.
Ruben, JP here. Well, let me start by saying we strongly support the idea of a thorough tax reform in Brazil, that will help the country driving productivity up. We were a bit surprised that, you know, the government decreed the reduction in IPI only. Having said that's very welcome because we do think that IPI is one of the most outdated taxes we have in our system, and that carries a lot of distortions. Now, it is a non-cumulative benefit, so it has to be deducted from the previous stages of the value chain. Although it is helpful to release the cost pressure, I can tell you that it's only a fraction of the total cost pressures that we are seeing in the market, Ruben.
Okay. Not that major then. Thank you.
This concludes today's question and answer session. I would like to invite Mr. Roberto Marques to proceed with his closing statement. Please go ahead, Mr. Marques.
Thank you very much, guys, for being with us today. As you saw from the presentation, and hopefully also with a little more context on the Q&A, we are operating in a challenging environment, no question about it. At the same time, I think we have a number of strategic and tactical initiatives to drive our future growth and protect our profitability. By the way, I think you're all gonna have an opportunity to detail this plan with you shortly as we are planning to hold an Investor Day next month on April 8th. We'll send further details shortly. Wish you all a good day with hope for a peaceful resolution sooner rather than later in Central and Eastern Europe. Thank you very much.
This concludes the Natura & Co audio conference for today. Thank you very much for your participation. Have a good day.