Earnings Call: Q1 2020

May 8, 2020

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Natura and Company's First Quarter 2020 Results. Today, we have with us Mr. Roberto Marquez, Executive Chairman of the Board and Natura and Company Mr. Jose Filippo, Chief Financial Officer of Natura and Company Mr. Joao Paulo Fiera, CEO of Natura and Ms. Vivian Behar, Investor Relations Director of Natura. This event is being recorded and all participants will be in 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. We have simultaneous translation into Portuguese and questions may be asked normally by participants connecting from abroad, either in English or Portuguese. We have a simultaneous webcast that may be accessed through Natura's IR website, www.natura.net/investor. The slide presentation may be downloaded from this website. There will be a replay facility for this call on the website after the end of the event. I will now turn the presentation over to Ms. Vivienne Behar. Vivienne, you may begin. Good morning or good afternoon to everyone. I'm Vivienne Behar, Natura and Co's Investor Relations Officer. Thank you for joining us today for this call to present Natura and Co's Q1 2020 earnings. I'm joined today by Roberto Marquez, Executive Chairman and CEO of Natura and Co Jose Filippo, CFO of Natura and Co as well as Jean Paulo Ferreira, CEO of Natura and Co Latin America, who will join us for the Q and A session. Our Investor Relations team of Natura and Co is also with us. The presentation we will be referring to during this call is available on the Natura and Co Investor Relations Web site. Roberto will start with an overview of our performance, Philippe will detail our financials for Natura and Co. After that, Roberto will make concluding remarks, and we will open the floor to your questions. Let me now hand over to Roberto. Roberto, please. Thank you, Viviani, and hello, everyone. Thank you for joining us. I hope all of you are safe and well. Let me begin on Slide 3 with an overview of our performance. The Q1 of 2020 is an atypical one for two reasons: 1 internal to our group and 1 external. The internal one is that Q1 is the first to include Avon in our scope. With the addition of Avon, Natura and Co becomes the number one player in the CFT market in Latin America. We are very pleased by the rapid progress that has been made in integrating the company. Today, we are announcing that we are raising our target synergies by an additional $100,000,000 The external one is, of course, the dramatic spread of the COVID-nineteen pandemic, which resulted in lockdown measures across the globe. In the face of the pandemic, Atur and Co took quick actions to adapt with 3 key priorities: care for our people, care for our communities and societies in which we operate and care for our company. 1st and foremost, care for our people. Even before lockdown measures were implemented, Natura and Co took steps to protect the health and safety of our associates, consultants and representatives and suppliers. We imposed strict social distancing measures, gave job security assurance to employees, provided credit flexibility to consultants and representatives and offer such service as telemedicines to our network as well. 2nd, we care for our communities and societies in which we operate. Because we sell essential products as soap and hand sanitizers, Natura and Co. Quickly retool its operations across its brands to step up their production by 30%. Sales of hand sanitizers increased by over 500%, both at The Body Shop and MISO. And Natura used some underutilized capacity at Avon Plants to produce 16,000,000 units of alco gel and 1,000,000 liter of alco with partners, mainly directly through donations. All of our businesses made significant donations to hospital, health workers and NGOs. And I would also like to highlight that the group also launched a very important campaign focusing on the increase of domestic violence associated with social distance. And the Avon Foundation donated over $1,000,000 to organizations in 50 countries. These actions are a clear demonstration of Natura and Co purpose driven approach. I would like at this moment to express my heartfelt gratitude to our teams for their exceptional commitment that they have shown during this very challenging times, allowing us to meet essential needs across our network and across all the communities that we operate. Finally, care for our company. The group also implemented measures to protect cash and liquidity, including reducing operating expenses, limiting capital expenditure to essential projects, implementing a hiring freeze and reducing executive pay on a voluntary basis. We have a solid cash position of BRL 4,600,000,000 and no immediate debt maturities. We have also strengthened our balance sheet and enhanced our liquidity through an infusion of fresh equity of between BRL 1,000,000,000 to BRL 2,000,000,000 led by our controlling shareholders and through an additional financing line of BRL 750,000,000 without impacting our net debt. This gives us additional financial flexibility to navigate the current challenging environment. We have also continued to deleverage with the net debt to EBITDA ratio at Natura Cosmetikos improving to 2.70x at the end of Q1 versus 2.95x 1 year earlier. From a business standpoint, this crisis has shown Atur and Co remarkable resilience in the strength of its multichannel model. Across our brands and businesses, digital sales helped offset the impact of store closures at The Body Shop in Iso, and we have strengthened social selling as our response to social distancing at Natura and Avon. We launched, for instance, a digital and interactive essential item sales catalog that can be shared over instant messaging tools and social media. And our consultants and representatives showed remarkable adaptability. At Avon International, representatives increased adoption of digital assets from a very low single digit in 2019 to over 37% in recent weeks, very exciting. E commerce sales have grown exponentially in the past few weeks as a reaction to lockdown and are up almost 2 50% at a group level, with growth of 150% of Natura and Avon combined, over 300% at The Body Shop and 500% yes, 500% at Aesop. This strong growth in digital and online sales across our brands and the resilience of our direct sales channel at Natura allow us to post almost 2% growth in consolidated revenue reals, while adjusted EBITDA continued to reflect one off costs related to the acquisition of Avon and the impact of the COVID-nineteen pandemic. The integration of Avon is making great strides, and the company continues to see progress in its Open Up strategy to stabilize the core business and rapidly set up digital adoption in the face of the current situation. The rapid progress in integration lead us to raise our total synergy target, including our top line synergies in Latin America to $300,000,000 to $400,000,000 over the next 4 years. We will have the opportunity to detail this later today at our Investor Day. But for now, let me now hand over to Filippo to go into our financials in greater detail. Thank you, Roberto, and hello to everyone. Before going to our financials, I thought it would be helpful to step back for a second and remind you of the adjustments that impact our numbers as shown in Slide 5. Throughout this presentation, we will refer to the adjusted EBITDA as this slide described the principal adjustments that we applied to our reported figures to allow better understanding in our underlying performance. This includes nonrecurring costs associated with the Avon acquisition, transformation costs at both Naturinco LATAM and Avon International this quarter and at The Body Shop in the Q1 of last year, purchase price allocation as a result of the business combination with Avon, a reversal of a provision for ICMS tax in Q1 2019 and a gain on the sale of a naval manufacturing facility in China in 2019. That said, let's now look at our Q1 performance. I will start this overview of our P and L with our consolidated net revenue on Slide 6. Our consolidated net sales grew by 1.9% to BRL7.5 billion in Q1. In constant currency, net revenue was down 6.2%, excluding currency effects in the quarter. The solid increase in sales was driven by double digit growth in reais@iso, a solid performance at Natura and The Body Shop despite the impact of COVID-nineteen in the second half of March and a strong acceleration in digital social selling and online sales across all brands, with e commerce sales up almost 250% at group level in the past few weeks. On Slide 7, we turn to consolidated adjusted EBITDA, which stood at BRL 71,500,000 in Q1, excluding 3 effects. 1st, nonrecurring Avon related acquisition costs of BRL 298,300,000 2nd, a noncash nonrecurring purchase price allocation effect of BRL 102,900,000 resulting from the fair market value assessment of Avon, which reflects a step up in inventory value in the cost of goods sold. And finally, the transformation costs at Natura and Col Latam Tan and April International for BRL 25,100,000. Adjusted EBITDA margin in the quarter was 7.6%, down to 120 basis points. On a reported basis, EBITDA was BRL 145.3 million. Turning to Slide 8, we look at Natura and Co's underlying net income in Q1, which excludes nonrecurring and or noncash effects and which stood at a negative BRL284.8 million. This reflects too many facts. First, BRL 510.9 million in expense associated with the Avon acquisition and second, BRL 25,100,000 in transformation costs at Naturin Colacan and Avon International. We recorded a net loss of BRL820.8 million in the quarter, reflecting COVID-nineteen impacts on EBITDA, a higher effective tax rate due to nondeductible acquisition related expenses and PPA effect at The Body Shop. On Slide 9, we look at our balance sheet items and capital structure. We have a strong cash position with BRL 4,600,000,000 in cash at the end of the quarter. Cash flow in the quarter was an outflow of about BRL 1,700,000 as expected, reflecting our historical seasonality and further impacted by COVID-nineteen effects. It includes Avon and is mainly related to non recurring acquisition costs of BRL501 1,000,000, financial expenses, COVID-nineteen impacts on sales and foreign exchange effects due to the depreciation of the Brazilian real in working capital at Avon International, The Body Shop and Aesop. Working capital was also impacted by extended payment terms offered to consultants and representatives at Natura and Avon. On an estimated and non audit basis, pro form a cash flow in Q1 2019 would have been an outflow of BRL 765,000,000. As Roberto mentioned in his opening remarks, in the current environment, we have taken 2 additional steps to further strengthen our capital structure and our liquidity. First, we are raising fresh equity of BRL1 1,000,000,000 to BRL2 1,000,000,000, and we have already secured BRL1 1,000,000,000 through the commitment from the controlling shareholders and a select group of investors. Subscription rights will be available to all current shareholders based on their ownership position as of close of trading on May 12 at the price of BRL 32 per share. This will result in an improved capital structure and reduced leverage. 2nd, to improve liquidity, we have raised new 1 year financing of BRL 750,000,000 with no impact in net debt. On Slide 10, we show that we continue deleveraging in Q1 with Natura Cosmetico's net debt to EBITDA ratio dropped to 2.7x compared to 2.95x in the same quarter last year. At Natura and Co Holding, consolidated net debt to EBITDA stood at 4.91x and at 3.84 times adjusted for non recurring transaction costs and PPA impact on EBITDA. Please note that indebtedness ratio at the holding company level will not be considered for financial covenant purpose in June 2020. On Slide 11, we provide some color on our consolidated indebtedness. As shown in the first pie chart, 66% of our debt is in bonds, of which 45% in Avon bonds and 21% in Natura bonds. Another 22% is in debentures and 6% in promissory notes. By currency, as shown on the 2nd pie chart, 52% is in reais and 45% in dollars. The average maturity is 3.9 years. We have no major maturities until September 2021. The main maturities are in 20222023, and there are no further maturities between 20242043. After looking at our consolidated numbers, let me now comment on the individual performance of our 4 businesses, including Avon for the first time. Starting on Page 13 with the key highlights of Natura and Cola Tham. As you know, that is the new business unit and reporting segment the setup that encompasses all 4 of our brands in the region, Avon, Natura, The Body Shop and Aesop. To allow comparison, we adjusted 2019 results pro form a. The brands combined are the biggest player in the Latin America CFT market with number one position in such markets as Brazil, Argentina and Colombia. Total net sales were up 2.4 percent to BRL 4,100,000,000 in Q1, driven by strong growth at Natura both in Brazil and Latin America, despite challenging market conditions. In constant currency, sales were down 1.3%. On Slide 14, we look at Natura brand. Sales at Natura brand in Brazil rose 9.8% in Q1, which represents a very strong performance in a challenging environment. This reflects record revenue in January February with a strong price mix improvement. The trend was interrupted in March by the COVID-nineteen pandemic, but we were able to keep our operations running to produce essential products such as soap and hand sanitizers and a big increase in digital sales contribute to the strong performance. The Natura brand's solid performance reflects the success of our relationship selling model, which is leading to higher productivity in Brazil. Consultants productivity increased by the 14th consecutive quarter, up to a strong 7.6%. The average number of consultants was up 1.6% versus the same quarter last year. Digital played a critical role in the current context and the adoption of our digital tools by consultants doubled in the weeks following the COVID-nineteen impact as well as the number of orders from our consultant digital stores. As a response to social distancing, we implemented a digital and interactive brochure focused on essential items that can be shared over instant messaging and social media in addition to our complete e catalog. Over 95% of our consultants use our digital platforms and approximately 700,000 consultants have virtual stores in Reina Tura, a 40% increase versus last year. In the last few weeks, since lockdown measures began, Regginatura sales grew over 200%. In the retail channels, own store performance remained strong until lockdown in mid March with increased traffic and higher conversion, resulting in a strong double digit growth in net revenue. Our 400 franchise stores accelerated sellout sales in the quarter until lockdown. At the Natura brand in Hispanic Latin America, Q1 net sales grew 25.8% in reais and 19.7% at constant currency. We saw very strong growth in volumes, up 18.2% with strong sales momentum in Argentina, Mexico and Chile. We also felt the impact of COVID-nineteen related lockdowns in Argentina, Peru and Colombia in the 2nd part of March. The number of consultants grew by a strong 12.1 percent versus Q1 2019 to almost 714,000,000 dollars and strong adoption of the mobile platform has contributed to significant growth in consultant productivity. Turning to Avon on Slide 15. The Avon brand's revenue in Brazil declined 4.3% in Q1 with an encouraging pricemix increase of 9.8%. The quarter saw important launch in skincare and in color cosmetics, both significantly outperforming estimates. Sales via digital brochure have increased 5 times since January 1, and e commerce sales grew 85% at Avon Brazil and Hispanic LatAm combined. In Hispanic LatAm, the Avon brand's revenue declined 8.9% in Q1 in reais and 16.8% at constant currency due to a 13.6% reduction in average number of representatives and lower units sold. The second half of March was significantly impacted by strict lockdowns due to COVID-nineteen in Central America, Argentina, Peru, Colombia and Ecuador. The period also saw important losses in fragrances that are outperforming expectations. I will conclude in Natura and Col LatAm with its adjusted EBITDA on Slide 16, which rose in double digit by 10.5 percent to BRL287,500,000 in Q1. Adjusted EBITDA margin was up 50 basis points to 6.9%. Adjusted EBITDA excludes transformation costs of BRL 10,500,000 and a nonrecurring purchase price allocation impact on cost of goods sold for BRL 42,300,000. On a reported basis, EBITDA was down 0.5% at BRL 234,700,000. Excluding PPA effects, selling, marketing and logistics expenses increased by 300 basis points to 43.8 percent of net revenue, mainly driven by commercial measures to mitigate COVID-nineteen impacts, such as extended payment terms for consultants, more flexible credit conditions and higher online sales commissions. Also excluding PPA effect, administrative, R and D, IT and projects expenses reached 13.5 percent of net revenue, down 80 basis points in the quarter on the back of cost control initiatives adopted by both Natura and Avon to offset COVID-nineteen impacts, which included freezes in hiring, pay rises, promotion and travel as well as a reduction in executive remuneration and discretionary spending. Let's now move to Avon International on Slide 18. This is the Q1 in which Avon is included in our scope and Avon International comprises Avon's activity in 50 markets in Europe, Asia, Africa and Middle East with 3,700,000 representatives. In the 1st 3 months since completing the acquisition of Avon, there has been a continued focus on stabilizing the core business, which will continue throughout 2020. Q1 saw continued signs of recovery, building on the turnaround initiated in the second half of 2018 with the launch of the Open Up event plan, including another quarter of stabilization in the representative count compared to the previous quarter and increased digital adoption compared to Q1 2019. Net revenue declined 2.4% in Q1 and 15% at constant currency to BRL 2,100,000,000, mainly impacted by a 6.3% reduction in average number of representatives, partially offset by improved price mix of 2.6% across most markets. Units sold declined 17.4%. In the quarter, representatives were equipped by a new digital capabilities, including new order management features in the instant messaging digital brochure and direct to consumer shipping, available in 25 markets. Sales via digital brochure have increased nearly fivefold since January 1. As shown on Slide 19, Evo International's adjusted EBITDA was BRL102.9 million with adjusted EBITDA margin of 4.8%. This was impacted by the previous described revenue decrease and lower gross margin, which was partially offset by a positive price mix effect. Selling, marketing and logistics expenses were up as a result of commercial measures to mitigate COVID-nineteen impact, and G and A expenses were also up, but contained thanks to spending cuts. We now move on to The Body Shop on Slide 21. Net revenue in reals increased by 2.6% in Q1 to a little over BRL893,000,000 and was down by 10.5% at constant currency. This reflects the closure of 21 owned stores in the last 12 months as part of the store footprint optimization plan as well as the impact of store closures due to the COVID-nineteen impact. Retail in general reported positive like for like sales growth, but this was interrupted by COVID-nineteen started to spread, 1st in APAC, then in European markets and in North America in March, leaving about only 25% of company stores open in some markets. In this context, digital sales and direct selling stood out Since closure of most of the stores due to the lockdown restrictions, e commerce grew 300%, recovering 40% of lost retail sales, and we saw 61% growth in at home direct sales in the quarter, largely driven by the U. K. The Body Shop benefited from having about 35% of its sales comprised of essential items. 2 new concept stores were launched in the period in Toronto and in Hong Kong. The quarter ended with 977 owned stores and 1728 franchised stores for a total of 2,705. On Slide 22, we show that The Body Shop's EBITDA in the quarter stood at BRL 133,600,000 with margin of 15%, down 460 basis points on an adjusted basis. The margin decline was due to revenue reduction from store closures and lockdown measures and the phasing of cost measures taken in Q1 that will benefit coming quarters. SG and A expenses increased in reals due to the foreign exchange impact. At constant currency, these expenses decreased by 2.5%. It is worth highlighting that The Body Shops no longer incur transformation costs as of this quarter. On Slide 24, we look at Aesop, whose success story continued with strong double digit growth in both sales and profitability in Q1. Net revenue grew in reals by 26.6% in Q1 and by 10.5% at constant currency to BRL340.9 million, despite physical store closures reaching about 90% of market by the end of Q1. Retail revenue still grew in the quarter, although at a lower rate, supported by key markets in Asia, while online sales were the highlight. Since closures of most of the stores due to lockdown restrictions, e commerce grew over 500% in recent weeks over the same period of last year, recovering 50% of lost retail sales. Market highlights included the Americas, Asia and Europe, which posted double digit sales growth offsetting sales drop in Australia and New Zealand due to COVID-nineteen lockdowns. Signet 2 stores reached 2 47 in the quarter, up 17 since Q1 2019 and flat versus Q4 2019. There were 91 department stores in Q1 2020, stable versus Q1 2019 and down 8 stores since Q4 2019. Profitability also grew in strong double digit reals, with EBITDA up 28.1 percent to BRL 77,800,000 with EBITDA margin of 22.8%, up 30 basis points supported by sales growth and cost reduction initiatives, including discretionary spending cuts, hiring and travel freeze and full owing of staff. Let me now hand back to Roberto. Thank you, Filippo. Let me now conclude on Slide 26 with key takeaways. Let me mention 3. First of all, Natura and Co. Multichannel model has shown its resilience in the middle of the COVID-nineteen crisis, with strong growth in digital social selling and e commerce. 2nd, with the addition of Avon, Natura and Co is the leading player in the Latin American CFT market. We are very pleased with the integration and have raised our target synergies to be achieved of 4 years by $100,000,000 now between $300,000,000 to $400,000,000 And third, we have strengthened our financial structure to be able to capture future growth opportunities. The environment continues to be challenging. In this changing environment, social distance and lockdown measures will continue to have a significant impact on the CFT market and in our business, especially in Q2. But markets in which measures were eased have shown some rebounds already, especially in Asia, we're starting to see in some countries in Europe. We have decided to suspend the guidance that we have provided before for Natura Cosmetics for medium term compound annual growth rates for revenues and EBITDA, both as a result of the change scope of the group following the Avon acquisition, but also due to the current uncertainty. We will provide new group guidance in due course as visibility improves. Thank you very much for your attention. We are now going to open for Q and A session, and Filippo and JP and myself will be happy to take your questions. So the floor now is yours. And from Bank of America, we have Bob Ford online. Please go ahead. Thank you for taking my question and I hope you and your families are all very well. Alberto, how are you thinking about trough earnings and cash consumption in the pandemic? And with much of The Body Shop selling space closed, can you give us an update on the outlook for store based expenses or the ability perhaps to deploy salespeople with e commerce tools? And then also at Avon, can you talk a little bit about the declining consultant numbers? Is that similar to what was done at Natura or is this something else? And should we expect faster adjustments to the network in terms of the structure, the compensation packages and processes given your early successes and the added pressure from the pandemic? And then lastly, your e commerce and digitalization benchmarks were impressive. Which e commerce tools have proven to be the most effective? And what are you doing to accelerate the availability and adoption of those? Thank you. Hey, Bob. Roberto here. Hope you're doing well in your family as well. So thank you for the question. So on the retail side, we got to a certain point on the peak of the crisis that we had almost 90% of our stores between Aesop and The Body Shop closed. This number now, it's coming down because we are seeing a reopening, especially in Asia and some countries in Europe is starting to come back up. So but during this period, I think that the key learning was the amazing response on our e commerce business, both at The Body Shop in Aesop. It forces us to be very creative and very agile. The Body Shop was quickly responding to create a new distribution center to be able to meet the demand on a different fulfillment with smaller quantities shipping directly to customers versus selling to stores. Aesop, for instance, use over 8 of their stores to become fulfillment centers, where they were able to then divided their orders and shipped directly to customers. The good news is that we are seeing a surge on e commerce on both business, Body Shop growing the last couple of weeks over 300% and Nizook over 500%, which is pretty impressive. As we look forward, we are starting to modeling with the business and we're going to talk more a little bit more detail this afternoon, that we don't think we're ever going to go back to prior to the crisis. So we are now doubling down on the e commerce. Of course, retail will be important, but we are really now reassessing what's the right mix between physical and e commerce with the surge that we are seeing on e commerce. Your second question on Avon decline on representatives, I would say that at this point, Volvo was more directly linked to the lockdown that we've seen in many markets. But I think it's fair to say that as the same thing that Natura has done, one of the key strategies that JP is putting in place and Angela is changing the earnings model and the segmentation of our representatives at Avon. And that most likely might continue to see some kind of streaming of number of reps overall. But I would say this quarter was more particularly impacted by some of the lockdown. And finally, in terms of your question on digital tools that are really working well, So no question, especially in Natura and JP can comment, the growth of utilization of the online consultants page has been very, very successful. And I would say that Avon is the expansion of the digital brochures. We now are at pretty much 40 markets at Avon with the digital brochures, with a growth of almost 500% compared to prior year. So we are seeing a tremendously growth in terms of adoption of social selling tools. And we think that this will be also something very Sure, Roberto. Hi, Bob. Sure, Roberto. Hi, Bob. So first of all, the growth you see in our online channels, so to say, has not been driven by increasing promotions, for instance. That is all been driven by the reduction of barriers for our consultants' representatives. So we made it even easier for them to open their online stores or start sharing the catalogs, the brochures, the posts, customizing the content. So we made it even easier and very fast. We did that very quickly during this period as well as we enhanced training and improve their margins so that they could try and maintain their profitability by shifting their business to the online channel. And both for Avon and for Natura, that caused that amazing growth in all of our operations. That's very helpful. Thank you. And then just Filipo, if you could comment a little bit about how you're thinking about trough earnings and cash consumption in the environment? Filippo, do you want to answer that just in terms of cash consumption? Sure. Thanks, Roberto, and good morning for you, Bob. As Roberto mentioned, of course, we have a lot of actions in place to really prioritize cash and also results. A lot of things that we did, we already mentioned during the presentation. So we're still very focused on that. There was as you also noticed, we end up first quarter with a very strong cash position with a BRL 4,600,000,000 of cash. And recently, those initiatives of strengthening our cash and our balance sheet about the capitalization and also the borrowing for 1 year also help us on making sure that we keep that position. So there's no debt net debt increase. Definitely, it's a reduction of the capitalization, but also we're taking care that no spending happens. So we created a lot of ways of control in the leaders of financial leaders of each business to track that and to monitor discretionary spendings are really concentrated and centralized, so to make sure that we keep this. Generally, we've taken those initiatives and making sure that we monitor that very, very close to make sure that we keep this. So we believe that the cash position, I think we're happy the way we are, the way we finished. Although Q1, as you know, is the consumption of cash normally, but we end up with a very strong position that lead us to a very comfortable situation going forward. Basically, that's how we are addressing this. Yes. Just one thing to add, Bob. Again, just to be clear, this capitalization and the line of credit of $750,000,000 we are doing that not actually to consume that. We want to keep it really as a reserve for us at this point. So we didn't do that because we need it from a cash perspective. To Filippo's point, we feel very strong about how we finished the quarter with over $4,500,000,000 in cash. In our projections, even in a scenario more conservative, we still would be without the use of the capitalization or this new line of credit above our minimum threshold. So at this point, we feel pretty good about the usage and our starting point. That's very helpful. Thank you very much. From JPMorgan, we have Joseph Giordano. Please go ahead. Hi, good morning, everyone. Thanks for taking my question and thanks for the very detailed release. It was very helpful to understand the trends with Avon inside. So I have like a few questions. The first one is related to synergies. So I kind of understand like how much you guys feel you should need to reinvest of those synergies to react to the growth in the operations of Avon. So I understand that it's EUR 300,000,000 to EUR 400,000,000. It's mostly like on a gross basis. So we're like to listen like how much really like stays afterwards. And the second one like Roberto mentioned and GP then followed up like on the efforts and initiatives related to WaveOne's sales rep base. I would like to understand like how you guys plan to revamp volume growth within those sales reps Because I understand that probably like with the segmentation strategy here, we do have like member base continue to decline. But on the flip side, we need to see volumes growing and that's been a challenge like any color here would be great. Thank you. Hi, this is Roberto here. So starting with the synergies again, I want to highlight again that this has been a result of an acceleration of the integration and the teams working together since January that has given us strong confidence about those numbers. Different than when we announced it in January, which was the synergy between EUR 200,000,000 to EUR 300,000,000 This time, we are including some synergies that will come from revenue growth in Latin America. And we're going to explain more later this afternoon, but it's really a component of 3 different waves of a turnaround of Avon in Latin America, an opportunity that what we call cross sell and up sell among households that either by Natura or by Avon or consultants that potentially work with one product and versus the other catalog and 3rd wave is the expansion of Natura brand in markets in Latin America that are not present. And JP will detail that later this afternoon on Investor Day. We feel pretty good about that. And as we communicated, we think that this will create fuel, those synergies that we can then reinvest to accelerate growth. In specifically in areas like digital, there's momentum that we are seeing, we want to build on that momentum. We think that this might be a little bit of a silver lining of this very devastating crisis is that maybe some of the plans that we have on digitalization, that we are planning maybe in 18, 24 months, it's happening in a much shorter period of time and we want to seize that opportunity and double down on that as well as the relaunch of the Avon brand. The team is already working on that and we're very excited about potentially in the Q3 to relaunch Avon as a brand. And at the same time, take all the learnings from Natura about, again, the earnings model and the segmentation of the representatives and consultants, then Natura will serve almost like as a footprint both in Latin America, but also a very good collaboration between JP and Angeles to make sure that we take all their learning to Avon International as well. So we don't have exactly what is the percentage of the synergies that we want to reinvest at this point. But I would say, we are very excited that the number went up with a high degree of confidence and that we're going to reinvest to accelerate growth in some of those areas. The other thing that is just important to highlight because I don't know if all of you noticed, but the synergies actually went up by $100,000,000 on a different exchange rate, right? When we announced back in January, the synergies between $200,000,000 to 300,000,000 we were using exchange rate of real at EUR 385. We actually now are using a more close to current exchange rate and even with that is increasing $100,000,000 on an annual base. If we are to use the same apples to apples constant currency compared to January, the synergies would have gone up almost $200,000,000 on this revised plan. So we feel pretty good about that and that will create a lot of fuel for us to not only improve the bottom line, but be able to reinvest. Right. Perfect. Thank you very much. From Bradesco, we have Richard Cathcart. Please go ahead. Richard Cathcart, your line is open. Yes. Hi. Good morning, everyone. Thanks for taking my question. And again, thanks for the disclosure between the Natura and Avon brands in Latin America and Brazil. That's very helpful. That's actually one of the first questions that I had just about Natura in Brazil. The growth was very strong there. So perhaps JP, you could just talk a little bit about what were the main drivers there? Any new product launches or particular promotional campaigns that went well? And just the second part to that question, if you can give us any idea of how the Aquitaine Natura stores were performing in terms of same store sales growth before the COVID crisis hit. And then the second question, Hoberto, you mentioned that you're seeing some of your markets beginning to open up, particularly in Asia. So is there anything that you can tell us about stores perhaps in Hong Kong to help us understand kind of the dynamics around footfall once we come out of these lockdown measures that could perhaps help us as a read across for some of the markets in Europe? Thanks. Great. JP, go ahead first and I'll take the latter part of Richard's question. Okay. So, Richard, as regards to Natura's performance in Brazil in Q1 indeed, very, very strong. And that was driven by commercial strategy. So the way we build Q1 and that we leveraged now the different segments of our consultants in the network. So that is now allowing us to be even more precise in our commercial strategy targeting them differently. Together with investment in certain categories and brands that are more demanded in typically more demanded in Q1 that was very well combined, the support of the categories and brands with new commercial strategy for the quarter. So that was basically it. And as regards to Aquitaine Natura's performance, we were extremely happy with that double digit like for like sales growth so far before the shutdown of the COVID. Roberto? Yes. Richard, regard Asia, what we are seeing is again and some of that we are incorporating also in our modeling is a more gradual recovery, right? So even though some of the lockdown are being eased or left, there is still very much attention to research of contagions and the virus and therefore a lot of steel measures to make sure that it doesn't go back in large scale. So for the most part, traffic is still down and that varies by category, but we are seeing between some categories between steel traffic minus 20% to minus 40%. We are seeing a higher basket in general. So people are making fewer trips, but potentially buying more. And e commerce and digital selling continues to be very, very strong. So I think to the point that I was making to Bob, I think we see this really as an opportunity to double down in digitalization, and we needed to be prepared and we'll continue to invest behind that. So those are kind of early signs of what we're seeing in Asia, Richard. Great. Thanks very much. And if I may, just to follow-up perhaps for Filippo this one. Just on Avon International, if you could just talk a little bit more about the profit decline Obviously, there was weakness in revenue because of COVID-nineteen, but perhaps we could have expected to see a little bit more cushion from variable costs falling. So if you can just give us a little bit more insight into the drivers of the margin decline in Avon International? Yes. Filippo, go ahead please. Yes. Hi, Richard. As we said, we're starting to turn around and there's a new business unit that was created. So there's a lot of focus on now on keeping and increasing the profitability of the business. I think there's still some situation that was affected, like you said, in terms of the COVID-nineteen impact, most of some markets. LatAm was a little bit in the end of the quarter. I think Central Europe and Asia, which are the core most participants of EVO International was in there. But there is a very important thing about EVO International regarding the cost reduction. And as you know, there was a after we did the season to change and to have the business units separate and even internationally, the business units, we don't longer have that corporate structure that Avon is to carry as of course, as a public company that has a board and has a lot of compliance requirements for that. This is no longer needed. This was absorbed by Natura and Co, which already had the structure in place. So this is going to be something that we're going to see going forward. Is effect of not the burden of that structure into AIVO International. But this quarter, still AIVO International was affected by some of the transaction costs that because we already said that most of the quarter. But going forward, I think we can see an evolution for that reduction in those costs that would benefit the profitability of the business. That's what I see. From Citibank, we have Tobias Stingelin. Please go ahead. Yes. Thank you so much and congratulations for the disclosure. Think you have a lot of information to process. Thank you very much there. If I can just make a question, I know there are several moving parts. The group is much more geographically dispersed right now and has different realities in the different markets because of the COVID situation. But is it possible to get a sense of kind of what's happening during the month of April, the beginning of May? So maybe you can just give us a sense that, well, if you compare with last year, we are running with regards to sales on an extra amount of level, something like that, just to have an idea of the running rate. And I know that there are several moving parts, Asia starting to improve again, but Brazil probably still being hit. If you can maybe give us any sense of what's going on to help? And then also just given all of this transformation taking place in regards to digital, what's kind of the running rate right now of e commerce of the group as a whole or maybe some specific markets? Just to kind of let us know where the business is. Thank you so much. I'll start, Tobias. I hope I'm well with you as well. And so listen, it's your point. There's a lot of moving parts, right? And again, I think it's fair to say there's as a result of that, there's still a lot of uncertainty. We do project a second quarter probably to be the toughest one, right? It probably will be the biggest impact of the lockdown in most of the geographies and the ones that are most critical for us. If you take Brazil, if you take UK, even parts of the United States for The Body Shop and Aesop are important markets that we believe we'll see the biggest impact in Q2. We are again, as I've seen, we highlighted seeing tremendous agility and resilience response from our business in actually finding ways to mitigate the lockdown. We always talk about the resilience of the direct selling channel, which clearly we're seeing this and the adoption of social selling tools and consultants and representatives becoming continue to be active and by using more and more social selling tools and the e commerce component that it's growing exponentially. We got what I can tell you is that for the most part, and this is still a very moving part. We saw you heard from Tullipo, The Body Shop, with the growth of e commerce and at home at some point compensating between 50% to 60% of store closure, which is pretty remarkable if you think about that almost 90% of the stores at the peak were closed. Aesop compensated even more than that, growing 500% their e commerce business. So we are seeing an ability for the business to really navigate and respond to that in a way that probably we did not anticipate. But by having said all of that, of course, there will be and will continue to have an impact in terms of business. And we believe Q2 will probably will be the most challenging one. Perfect. And in regards to the second question, in regards to kind of just the basis of incremental how e commerce, I don't know, like to be objective, I'd like to have like a number of how much you're selling right now in e commerce in a consolidated basis. But I know it might be hard to provide something like that. But if there is any color just to understand what's the basis on e commerce is because this for sure, I think from what everything that you're seeing will change completely, right? Or it's growing very fast and it will be the future as well. Yes. I mean, it is Tobias, it's a hard question because it depends, right? So at some point, for example, when you had for ease of in the body shop, almost 90% of the stores closed, you were pretty much almost at 85% of your business in e commerce, right? But that is actually not very realistic to say that our business will be 85% in e commerce because you had all your physical stores closed. As we are reopening the stores, I think we're going to have a different accommodation. But what I can tell you is that before the crisis, so let's just take the business of Body Shop in Aesop that they were about 12% percentage in e commerce before the crisis. We think that again, based on what we are seeing of growing up 200%, 300%, 500%, this will probably going to double, right, even after the crisis. So we think that is realistic to say that as we are seeing growth of 300%, 500 percent, even if you have some accommodation with, of course, all those stores coming back up, we don't see e commerce going back to 12%. So it's going to be at a much higher it's going to be at a much higher level. Perfect. That's great. And if I can maybe just ask you something, I think you kind of addressed already some of these issues. But what kind of are the long lasting changes that you expected to see that you have been able to identify already in regards to the whole sales process? I think you already kind of mentioned that probably you have to revise the stores at some point because everything is kind of moving digital, but you also spoke about the e books and about all of the digitalization. Is it something else that you're seeing really in regards to kind of the sales process, right, from a consultant perspective? Some trends that maybe might not be obvious that you're seeing right now, but they can be very important long term? Thanks again, of course, for the answer, Roberto. Yes. So I will start answering, then I will invite JP to share his perspectives on Latin America. I think again, we are very excited about the acceleration of the integration with Avon, right. And I would say that, again, maybe another silver lining of this very important crisis is that we are seeing the teams working together in a way that probably would have taken longer for us to get to that point. So one example, we already seen Natura products being produced at Avon manufacturing sites. We already seen Body Shop products being produced at Avon sites, probably things that we want to do it over time and it's already happening. So this integration, it's been accelerated and we see that very positively. We see the digitalization in the e commerce. We talk a lot about already on the call, but we are very bullish that because we always believe in this notion of social selling and direct selling evolving to be much more offline and online relationship selling and the adoption and the training and the tools that are becoming more and more available, I think it is something that will continue after the crisis. I would add a third one is the portfolio. There is no question about we are seeing high demand of parts of our more essential products, soap, hand sanitizer, more personal care items. And I think even coming out of the crisis, there's going to be a change in terms of consumer behaviors. Consumers are being much more aware about some of those caring aspects, hygiene, etcetera. And we are already working with the business in terms of innovation and new product development to be able that we can really seize this consumer demand and new consumer habit. JP, what else you want to share from your perspective that you're seeing more specifically in Well, I think you highlighted a big one, which is the integration. I think as regards to digitalization, which is almost obvious, but I'd just like to point out that as our online sales are growing at the rate of many 100%, depending on the country, It's interesting to see that from the incoming orders, the orders coming from new customers are going to IFSFest. And that means that we are bringing customers in and from previous research, you know that many of them that buy through that channel, we're not buying our products as frequently as the average. So that is interesting because we're bringing more customers to the brands. And also very interesting that most of these new customers have been acquired by the consultants and representatives, which shows that there is a structural change in the way they do the direct selling into social selling, digitally enhanced, which is not going to come back. Also perhaps interesting to notice, Timbir, is that through this crisis, suddenly delivery or home delivery is something that is part of everyone's life. So everyone accepts that having products or services delivered to your home is safe and convenient. So here's the opportunity where the new direct selling, if you want, has the opportunity of being positioned as perhaps one of the fairer, most trustful, convenient and safest means of commercialization. And so I think the way we see direct selling may be positioned in an even stronger way for the society after the crisis. That's all I wanted to add. That's perfect. Thank you so much again and hope everybody stays safe. Thank you. We will now turn it back to Mr. Roberto Marquez for closing remarks. So thank you everybody and I appreciate it. As you know, we're going to have an Investor Day later this afternoon where each year we talk a little bit about in more details, all the great things that they are doing to cope with the crisis and then really starting to think about the new normal, some of the areas that we want to really double down and think about how we needed to continue to position Natura and Co Group. Listen, we still feel very good about where we are going. Number 1, I think we are seeing progress on the integration, acceleration of this integration, which is very important with the synergies now going up, which is very important not only to improve profitability, but to create fuel for growth in some of those strategic areas. Number 2, we are seeing tremendous growth in social selling, which is something that we always believe in terms of the future of direct selling in e commerce as a way to really truly become even more omnichannel business. We are seeing the importance of having iconic brands. Consumers are choosing our brands and making those changes from channel to channel because we have strong and iconic brands in our portfolio. And last but not least, we have a very solid financial position, not only in terms of cash position, in terms of how we are managing cost moving forward, but also now this infusion of a fresh capitalization and a line of credit that will give us even more strength to go through this challenging times. So thank you very much for your time. I hope we all stay well and safe. And I'll talk to you maybe most of you later today at our Investor Day. So thank you very much. Thank you. Ladies and gentlemen, this concludes the Natura audio conference for today. Thank you very much for your participation and have a good day.