Earnings Call: Q3 2019

Nov 14, 2019

Good morning, ladies and gentlemen. Thank you for waiting. At this time, we would like to welcome everyone to Natura and Co's Q3 2019 Results. Today with us, we have Mr. Roberto Marquez, Executive Chairman the Board of Natura and Co Mr. Jose Filippo, Chief Financial Officer of Natura and Co Mr. Joao Paulo Ferreira, CEO of Natura and Mr. Viviani Behar, Investor Relations Director of Natura and Co. 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. We have simultaneous translation into Portuguese and questions may be asked normally by participants connect from abroad either in English or Portuguese. We have a simultaneous webcast that may be accessed through Natura's IR website, https:naptu. Infoinvest.com dotbrsen. 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. This presentation may contain forward looking statements. Such statements are not statements of historical fact and reflect the beliefs and expectations of Natura and Co's management. This presentation also includes adjusted information prepared by the company for information and reference purposes only, which have not been audited. Forward looking statements speak only as of date they are made and the company does not undertake any obligation to update them in light of new information or future developments. Now, I will turn the conference over to Ms. Viviana Behar, Director of Investor Relations of Natura and Co. Ms. Behar, the floor is yours. Good morning or good afternoon to everyone. Thank you for joining us today for this call to present our Q3 9 month 2019 earnings. I am Viviane Behar, Natura and Co's Head of Investor Relations. I am joined today by Roberto Marcus, Executive Chairman of Natura and Co Jose Filippo, CFO of Natura and Co and Gianpaolo Ferreira, CEO of Natura. 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 website. Roberto will now start with an overview of our performance, Filippo will detail our financials on a consolidated basis and by business, And after Roberto's concluding remarks, we will open the floor to your questions. Let me now hand over to Roberto. Roberto, please. Thank you, Viviani, and hello to everyone. Thank you for joining us. Let me begin on Slide 3 with an overview of our performance. Natura and Co. Posted remarkable sales performance in the Q3 with all of our business and brands again contributing to a double digit growth at constant currency by 10.1%. This is more relevant as we continue to face a weak market in Brazil and a continuous challenges in Hong Kong, which as you know is an important market for both The Body Shop and Aesop. Natura posted total growth of 13.2% at constant currency, with significant growth and market share gains in Brazil and continued strong sales in Latin America. The Body Shop also posted healthy sales growth of 3.8% at constant currency and launched in mid September its new concept store in Bond Street, London as part of its transformational plan. This flagship store features several new elements that build on its heritage, such as return on the company's Pioneer Refill Station and an activist corner. Aesop continues to post double digit sales growth of 10.2% at constant currency and to grow its store footprint with 21 new stores over the past 12 months. Our profitability in the quarter was impacted by 2 effects that are part of our efforts to build a leading multi brand and multi channel group. The first is plan. Based increasing investments in Natura, notably in digitalization and in brand market, which is supporting current and future growth. The second is non recurring costs associated with the acquisition of Avon product, which accounted to BRL36.5 million on a net base in Q3. We are excited by the progress we have made in recent weeks to complete the acquisition of Avon. We recently received approval without Natura and Avon gave their green light to the transaction in the general assembly held in Sao Paulo and New York. These are very significant milestones that we have passed and we are well on track to close this transaction as planned in Q1 2020. We also continue to improve our leverage ratio to 2.98 times at the end of the quarter compared to 3.27 times in the year ago quarter. This also puts on track to achieve our guidance of returning by 2021 to a leverage ratio of 1.4 times, equivalent to the level prior to the acquisition of The Body Shop. Beyond the numbers, this quarter was also marked by new advances in sustainability. Let me just highlight a couple of them. Natura's carbon neutral program, which totally offset the company carbon emissions, received the 2019 United Nations Global Climate Action Award, the world's most important recognition of initiatives to fight climate change. And The Body Shop joined Natura in becoming a B Corporation, satisfying the demanding criteria in terms of sustainability. So as you can see, we continue to take decisive new steps in building our multi brand, multi channel, purpose driven group. 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 various adjustments that impact our numbers. Throughout this presentation, we will refer to adjusted revenue and EBITDA. And on Slide 5, we describe the principal adjustments that we applied to our reported figures to allow better understanding of our underlying performance. Indeed, as in the past quarters, Q3 was marketed by several nonoperational adjustments: IFRS 16, IFRS 15, hyperinflation in Argentina, nonrecurring tax effects in Brazil, continued transformation costs related to The Body Shop and acquisition costs related to AVA. As of Q1, we decided to present our results excluding the effects of IFRS 16, and we are doing this again this quarter as we will until the year end. Let's now look at our Q3 performance. I will start this overview of our P and L with our consolidated adjusted net revenue on Slide 6. Our reported sales grew by 7.2%, and in constant currency, adjusted net revenue was up 10.1%. As shown on the graph, the group's adjusted net revenue rose 6.3% in the quarter to BRL3.5 billion. The solid increase in sales results from growth in all three of our businesses as we will see shortly. In the 9 months, adjusted net revenue grew by 7% and 7.4% at constant currency to reach nearly BRL9.8 billion. On Slide 7, we turn to consolidated adjusted EBITDA, which, as you see on the graph, stood at BRL459.3 million in Q3. As Roberto explained, this 3.4% drop in the quarter reflects the combination of higher investments in Natura as planned, A1 acquisition related expenses and the impact on The Body Shop's profitability of the events in the Hong Kong market. Adjusted EBITDA margin remained solid at 13.2%, down 130 basis points. On a reported basis, Q3 EBITDA was nearly BRL 399 1,000,000, including BRL32 1,000,000 in Avon acquisition costs and BRL6.4 million in transformation costs at The Body Shop. In the 9 months, adjusted EBITDA was BRL1.2 billion, up 4.4% with margin down 30 basis points to 12.6 percent, while reported EBITDA was up 2.5% to BRL1.1 million. Turning to Slide 8, we look at Natura and Co's net income and underlying operating income in Q3. Net income stood at nearly BRL69 1,000,000 in the quarter, reflecting the previously mentioned effects on EBITDA and non recurring Avon related expenses. The later had a net impact after tax of BRL36.5 million in the quarter. Excluding that impact, net income was BRL105 million. Underlying operating income, which excludes acquisition related expenses, transformation costs, financial expenses and income tax, decreased by 15.8% in Q3. This is mainly due to higher SG and A expenses totaling more than BRL175 1,000,000 to lay the foundations for sustainable long term growth at Natura. Slide 9 looks at the same aggregates in the 9 months period, in which the effects I just mentioned had a significantly lower impact. Net income in the period at BRL176.6 million was up by a healthy 6% even after EVO related costs of BRL103 1,000,000. Underlying operating income was down by 3.4% in the 9 months, as solid gross profit of BRL508 million helped offset selling and G and A expenses. Let me conclude this quickly quick summary of the key financial highlights with a look at the main aggregates of our balance sheet on Slide 10. Cash flow in the quarter was an outflow of BRL74.3 million in Q3. And over 9 months, the outflow was about BRL 405 1,000,000. This expected drop versus Q3 of last year reflects lower net income as well as higher CapEx due to phasing of projects, notably digitalization at Natura and The Body Shop. These effects were partially offset by improved working capital at Natura. We continue to leverage the company in line with our expectations. Our net debt to EBITDA ratio stood at 2.98x at the end of Q3, down from 3.27x in the year ago period. This puts us well on track to achieve our target of returning by 2021 to our leverage ratio prior to the acquisition of The Body Shop of 1.4x. After looking at our consolidated numbers, let me now comment on individual performance of our 3 businesses, starting on Slide 12 with the key highlights of Natura. Total net sales were up 8.1 percent to BRL2.2 billion in Q3, with growth both in Brazil and Latin America despite challenging market conditions. In the 9 months, sales were up 5.8%. In Brazil, sales rose 7.2% in Q3, and the company continued to gain market share. This is particularly strong performance given that we are operating in a weak CFD market and face a tough comparable basis. Growth was driven by all channels, supported by core categories and new disruptive product launches, including Torudia with Pro Beotix and 100 percent vegan mom and baby. Over the 9 months, sales in Brazil were up 4.7%. Natura's solid performance reflects the success of our relationship selling Mojo, which is leading to higher productivity in Brazil. Consultant productivity increased for the 12th consecutive quarter, up by 6.8%. The average number of consultants was stable versus the same period of last year, and it increased by 2.4% versus the previous quarter. Within the consultant base, we continue to see movement towards our top silver, gold and diamond segments, attaching to the good momentum of our margin. Adoption of our digital platform by our consultants continued to increase as did the range of available digital solutions and services. The number of consultants using our digital platforms, which include the app and the web, rose by a strong 32.3% versus the same quarter of last year to $860,000 We are seeing good adoption of the Natura digital account in partnership with Santander Bank. This is an additional exclusive feature embedded in the consultant's mobile platform, which promotes banking and financial inclusion to our network of consultants. Resinatura, our online platform, which is operating under a new pricing alignment policy, confirmed its recovery. We ended Q3 with approximately 600,000 virtual stores in Brazil, a 7% increase versus last year. This contributed to double digit growth in online sales and the quarter saw an increase in the number of visits. We also continued our multichannel expansion with 6 new stores opening the quarter to reach 49, while the number of our consultants franchise stores exceeded 300. Latin America is also performing strongly. In Latin America, Q3 adjusted net sales grew 10.2% in Brazilian reals and 28.8% at constant currency. Sales in the 9 months were up 8.4% in the region. The number of consultants grew 8.3% versus Q3 2018 to nearly 690,000, and volumes were up in the where despite the challenging economic environment, we are posting strong growth to local currency, outpacing inflation. We are also pleased to say that Natura celebrated its 5th anniversary and ended the new country, Malaysia, and a new continent, Asia. Capitalizing on The Body Shop's knowledge of the market and in partnership with The Body Shop's head franchisee there, we recently began selling Natura products online in Malaysia and we will progressively roll out a multichannel offer in the country. I will conclude on Natura with its adjusted EBITDA on Slide 13. Overall, adjusted EBITDA was BRL 387.6 million in Q3, down 2.8% and up 0.7% in the 9 months. We saw a concentrated performance between Brazil and Latin America. In Brazil, EBITDA margin remained very resilient at 17.5% despite the investments mentioned earlier on adjusted EBITDA down 6.6%. Adjusted gross margin rose by a strong 60 basis points, but this was offset by higher SG and A expense linked to investments in Brazil and further digitalization, marketing investments such as sponsorship on the Rockin Rio Festival that connects the brand with young consumers, new innovative product launches and costs associated with Natura's 50th anniversary. In the 9 months, adjusted EBITDA in Brazil was broadly stable at BRL728.7 million with margin of 17.3%, down 80 basis points. SG and A expenses in Q3 reflected investments and were up 3.40 basis points as a percentage of sales, whereas in the 9 months, SG and A was up by 50 basis points. We expect SG and A expenses to be full year in Brazil to remain broadly in line as a percentage of sales with the 9 month period. In Latin America, adjusted EBITDA was up by a strong 13.9% in Q3. EBITDA margin was 19%, up 60 basis points with a significant drop in selling expenses, down 170 basis points. And in G and A, which was reduced by 30 basis points, attaching to strong operational leverage. In the 9 months, adjusted EBITDA was up 6.6% and margin was 16%, down 20 basis points. Let's now move to The Body Shop on Slide 15. Net revenue in reais increased on a reported basis by 1.1% in Q3. At constant foreign exchange, sales were up by a healthy 3.8%. This growth was driven by solid sales in the UK, Asia Pacific and Latin America as well as higher sales in the at home direct sales, online and head franchise channels. This more than offset the unfavorable effect of 35 net store closures over the past 12 months as The Body Shop continued to optimize its network as well as lower sales in Hong Kong, an important market for the Body Shop. Excluding the impact of the events in Hong Kong, net revenues grew 6.4% at constant currency. In the U. K, The Body Shop's home market and its biggest one, on store like for like sales were up 3.1% in the quarter. This is a very encouraging performance that confirms the successful first effects of the brand's rejuvenation. At the end of the quarter, The Body Shop had 2,863 stores, 1,006 owned stores and 1857 franchised stores. In the 9 months, The Body Shop's net revenue was up 6% in reais and 1.7% in constant currency. Excluding Hong Kong, constant currency growth was 3.8% in the period. On Slide 16, we see that The Body Shop's adjusted EBITDA in the quarter, which excludes transformation costs, stood at BRL69 1,000,000, down 10.9%. This resulted in an adjusted margin of 7.4%, down by 100 basis points. This drop is mainly attributed to the events in Hong Kong. Excluding that effect, adjusted EBITDA margin was up 30 basis points to 8% in Q3 and up to 120 basis points to 7.5% in the 9 months. The Body Shop's transformation program is advancing well with costs and benefits in line with the plan. As Roberto mentioned, we opened a new corset store in London on Bond Street that revised the brand activism and sustainability values. Transformation costs were BRL6.4 million or £1,200,000 in the quarter. As a reminder, we expect to incur circa £10,000,000 in transformation costs in 2019, of which £6,900,000 pounds have already been incurred in the 1st 9 months. On Slide 18, we round off this look at the performance of our business with Aesop. We posted solid growth in sales and profitability in Q3. Net revenue grew in reals by 10.8%. At constant currency, growth was 10.2%. Like for like growth in signature stores increased 9% in Q3 and the 21 new openings in these 12 months, of which falling the past quarter, Aesop has now 240 Signet 2 stores. Profitability also grew in strong double digit in reais with EBITDA up 47.1% in Q3, resulting in an EBITDA margin of 12%, up 200 basis points. In the 1st 9 months, Aesop revenue increased 20.8% in reais and EBITDA was up 34.7% also in reais. Margin rose 120 basis points to 12.1%. Let me now hand over to Roberto for his concluding remarks. Thank you very much, Filippo. Before concluding, let me first thank all of our associates across the globe of both Natura, The Body Shop and Aesop for again posting a very positive and strong quarter, It continues to contribute to building this very special group. So thank you very much to everybody. I also would like to update you on where we stand on the acquisition of Avon, whose integration planning is ongoing. As I mentioned in my introduction, we have passed 2 major milestones in the past few days with the approval by the Brazilian antitrust authorities of the shareholders of both Natura and Avon. Thank you very much for your confidence. We have also approved the corporate restructuring for the transaction with the creation of Natura and Co Holding Company, which will become our listed entity. Minority shareholders of Natura Cosmetics will migrate to Natura and Co in mid December and trading will begin on B3 Stock Exchange in Sao Paulo. As you know, a few conditions still remain, including antitrust approval by a handful of remaining jurisdictions, but we are fully on track for closing as planned in the Q1 of 2020. Upon closing, Natura and Co. Will also trade on New York Stock Exchange with ADRs. We are hugely excited by this transaction, which creates the world's 4th largest pure play beauty company. It marks another transformation step towards building a global multi brand, multi channel group reaching over 200,000,000 consumers through our iconic brands. So in conclusion, what are the key takeaways? So let me just mention 3 as you see on Slide 20. First of all, Natura and Co. Post a solid performance in Q3. Its strong revenue growth demonstrate the good momentum of the global multi brand, multichannel group we are building. 2nd, the investments we have made at Natura in its digitalization and its brand, the transformation underway at The Body Shop and the costs we incurred this quarter for the acquisition of Avon are all moves to lay the foundation for sustainable long term growth. And third, we are on track to close the acquisition of Avon in Q1 2020, a transaction that will help accelerate growth. Thank you very much for your attention. Before opening the Q and A, I would just like to tell you that as you know and you are curious to know more about the Avon transaction, but as you can appreciate, we cannot comment further at this stage beyond what was already said until the closing process. We'll, of course, update you in due course. Let me now hand over to Viviane Behar. Thank you, Roberto. We are now going to open the Q and A session, And Roberto, Filippo and JP are happy to take your questions. So the floor is now yours. And our first question comes from Elena Dilaris from Itau. Hi, guys. Thank you for taking my question. Just two quick questions. So the first one is about The Body Shop because we are seeing an acceleration in constant currency growth in the top line. And I just wanted to ask you if you could give us some more detail or some highlights about this growth. So which channels are growing more? Which regions? Just for us to have some highlights about this. And actually about the EBITDA margin, which is growing without the Hong Kong situation. So do you have any impacts on mix or something like this? Can you tell us about more about this, please? And second, about the Natura going to Malaysia. I just wanted some details what which are the characteristics of this partnership and if it is scalable to another region? Thank you. Elena, good morning. Roberto here. I will start answering a little bit of the Body Shop question and then I will invite JP to comment on Natura entering Malaysia, okay? So on The Body Shop, you're right. I mean, we are very pleased with the progress on the top line growth. And it's coming actually as a combination. It's coming from some markets and also channels. In terms of markets, we're very pleased to see the growth in U. K, really very, very strong growth as well as Middle East and Latin America. And from a channel perspective, we're also pleased to see high growth on our at home, which is the direct selling part of the business, The Body Shop, especially in UK. But for the first time also now that we consolidated some of the tools and the management, we're also seeing some good results on at home in Australia, which is the other market that we have a presence of The Body Shop at home. From a margin perspective, again, this is the result of our transformation and it's on track, which is both a combination of closing non efficient stores, running the business in a more efficient way and also our continued effort to reduce some levels of discount. So those are the key contributors for the margin improvement. So JP, you want to comment on Malaysia and the answer this quarter at Natura please? Yes, Roberto. Elena, thank you for the question. So our initiative in Malaysia, first of all, is perhaps an excellent example of the power of the Matura and Co Group. It's been done in partnership with The Body Shop, especially with The Body Shop's head franchisee who has been operating for decades with that brand in Malaysia. So that helps us entering a new country as you would imagine given the depth of knowledge this group has around that market. So that initiative is omnichannel, which means it includes retail, e commerce and digital social selling, right? It's early days so far, but we are very pleased with the first results. And perhaps the last important attribute of this initiative is that it's totally scalable, which means that when we are happy with the setup that will allow us to grow into new countries. Our following question comes from Bob Ford from Bank of America Merrill Lynch. Good morning, everybody, and congratulations on the underlying improvements. I was hoping you might be able to give some context for Hong Kong. In the press release, you mentioned some growth numbers with and without Hong Kong. But that helps convey its relative size and the impact to the period. Now it seems as if things have gotten a little bit worse. And I was hoping you might be able to touch on the disruption you're seeing and what we should be prepared for in the current quarter, please? Bob, good morning. Roberto here. You were right. I mean, the situation, it's not improving in Hong Kong. And our first and foremost responsibility is the safety of our people and really supporting them through this specific moment and we are doing that and really making sure that we're supporting them. Hong Kong as you know it is an important market for both The Body Shop and Aesop. It represents more or less mid single digit in terms of sales and even more from a profitability perspective. We have over 40 stores at The Body Shop in Hong Kong and the fact that also as you know we don't have a physical presence in China because of our non animal testing makes Hong Kong even more important for us than eventually some of our competitors on a global scale. But we think that that's we continue to remain very committed to our non animal testing. And the long term solution for us is to find a way to potentially increase our presence in China while at the same time keeping our values and principles which we are not going to compromise. So short term, we don't think that that's going to improve. I think we needed to continue to support the business, support our people and I would say more medium long term solution would be to potentially increase our presence, which we're already starting to do with Tmall Global. We already have that presence with Aesop and we started now with The Body Shop, but of course not at the scale that we need. And I think the medium long term solution is for us to find a way to increase our presence in China. Understood. And then can you talk a little bit about the relative sales lift you're seeing at the Bond Street Body Shop store in London versus some of the controlled units and maybe touch on its Yes. So we are very pleased with the results on Bond Street in London with the new design of The Body Shop store. I would say that the early results compared to control stores are very positive, I would say, which is encouraging. Our goal is to roll out that especially in 2020 to probably a dozen, a little 10 to a dozen stores. We're not going to disclose the cost of the refurbishing, Bob, but I will tell you that it's pretty much in line to a normal refurbishing. So it's not something significantly more expensive. I think the team has done a tremendous job in being very creative in bringing back some of the elements of the activism, some of the elements of the values of The Body Shop like with the refill station that has been a huge success. So we are pretty encouraged, but of course we still need to get some more learnings. Understood. And then lastly, JP, what are your estimates of industry growth rates right now in Brazil? And as you look into year end in Brazil, how do you feel about your innovation, your gift assortments and the ability to take further market share? Hi, Bob. Well, you know that we keep investing in innovation and we launched an incredible range of new products. We launched some of our core lines to support growth going forward. Similarly, we keep developing the network of our consultants, especially through digitization and that's been growing significantly. Currently, 1,200,000 of our 1,700,000 consultants across Latin America are actively utilizing our mobile digital platform. So with that, we concede and by the way, we keep launching new services and features on almost weekly basis to improve their offerings to their clients. So hopefully, that will keep supporting our growth going forward and we continue to aim at gaining not only maintaining leadership in the countries where we are already leading, but gaining market share in all of our operations. That's helpful, JP. And can you touch a little bit on the relative productivity of your digital consultants versus your average offline consultant? No. I don't feel very comfortable to disclose that number, Bob. Just but just remind everyone that when consultants adopt in addition to their traditional way of selling the digital solutions, their productivity go up. But when you look at our 12th consecutive quarter of increased productivity, you can figure out that how this is working out a little bit. Thanks. Yes. Thank you very much and again congrats. Our following question comes from Ruben Couto from Santander. Hi, guys. Good morning. First, I have two questions actually. First on the margins in Brazil, I think all of the efforts to foster top line growth seems to be working, but expenses are also catching up and we are still at a flat EBITDA in the 1st 9 months of this year. So when should we expect accelerating sales to dilute expenses and generate some margin gains? Can we expect some EBITDA margin expansion in the Q4 already? Or is it still some additional increase in marketing investments projected for this year or even for next year? And a second topic still on this consultants' productivity and overall digital use in Brazil. Can you give a little bit more color on the performance of Edinatura as a whole? I think after you made this convergence program in June, you mentioned that around 60% of the channel already have a virtual consultant store. But how relevant is the channel for these consultants? Like on average, how much of these consultants sales are coming from these virtual stores? Any numbers on that sense would actually help. Thank you. Hi, Ravi, Filippo. Let me start with the margin and then JP will as we mentioned, we had in the 3rd quarter some impacts related to phasing of investments, especially in Brazil, some related to digitalization, those marketing investments, the product launch that impacted in specific here, which you should not consider as a recurring type of impact. Talking about the Q4, we cannot I don't think we plan to that's on our guidance. But if you take the 9 months, I think will be what we should expect in terms of the recurring impact here. That's basically that. But I will also say that there are other positive things that sometimes cannot be captured immediately, which is the working capital improvement, which was something that we achieved this quarter, especially related to inventories, which can also bring some efficiencies and in the combination of this impact going forward. So basically, I would focus more on the 9 months that could be maybe a recurring trend for the future. Okay. If I may add, going back to your questions, the number of consultants with online stores grew more than 70% year on year, which shows that this is becoming increasingly more relevant to our consultant network, right? And as is, by the way, other formats like the consultant stores, like Quite Natura, which is also increasing in number, but also in productivity as we are seeing like for like growth of double digit like for like growth in those stores. So although still not big, this is growing very fast. But can you share like how much of the virtual stores account for these consultants that have the virtual stores on average? No. Like the thing that I kind of want to understand is like you change your way on encouraging consultants to adopt these virtual stores. But are they just like adding these virtual stores? Are they actually selling a good amount of products? Or they are just like moving towards your incentives are going just to get a sense if they are actually using or if they are just there? No, they are using. They are actually using that on an increasingly increasing rate. So there's also there's adoption, there's learning, but we track not only the penetration, but how much of is there activity, What is their activity in their online stores? And that is that it continues to grow, right? Okay, got it. Thank you. Our next question comes from Tobias Singleton from Citibank. Yes. Thank you. Good morning. I have a question for JP. Last year, we had a very strong Q4 and then at the end of the day, the Q1 was kind of a little weaker just because of some sort of inventor building the channel. As we look into the Q4 right now in Brazil, considering also the economic environment and all of the investments that we have been doing, what should we expect to see given that you're facing kind of these tougher comps as well? It appears. So yes, indeed, we have a hard comp for Q4, but we are positive. When we look at Black Friday and Christmas, we are positive despite the very weak consumption environment, which we described already. Just as a follow-up, in terms of sales trends, have they been kind of in an upward trend or kind of still volatile, so some weeks better or some cycles better and then worse? Or has it been kind of smoothly, gradually kind of moving in the right direction? You referred to the market or to our own performance to this? Yes, both. I think the market maybe if you're seeing some sort of market more stable and you're kind of benefiting from that or specifically also in your case, if you can kind of just give us a trend because you should hear that there was a lot of volatility between the performance within the months. And I just want to get a sense if we are kind of gradually going kind of a gradual recovery mode. Yes. We don't see from here spikes in the market. So they are moving relatively smoothly in a very contained way so far. So when you look at our performance, it's also affected by our phasing, the initiatives. Q3 was heavily loaded on innovation, 50th anniversary, drop in reactivation, etcetera, etcetera. But the market as a whole is relatively steady. Okay. And maybe if I may just kind of follow-up. In regards to all of these digital solutions that you are kind of implementing and the adoption that has been growing kind of significantly, can you kind of just give us some examples about how this has transformed the productivity or the operation of the consultant? Well, first of all, we see already a growing number of consultants acting as micro influencers. So using digital content to reach more often, more frequently and with more relevance their own client base, which is supporting recurrence and reach for those consultants. You've heard before about our payment solutions, which also enables a growing number of consultants to offer different payment alternatives to their customers, credit card and stuff like that, which also help improving productivity. I think these are 2 good examples for now. Okay, perfect. Thank you so much. Our next question comes from Irma Starz from Goldman Sachs. Yes. Hi. Thank you for taking my question. I have two quick questions. Firstly, on the new channels that you're building out in Brazil for the Natura brand. I think some years ago or maybe 18, 24 months ago, when you were starting to launch or starting to see more traction in both own stores and so called franchise stores, Quitting Natura, you were, I think, at that point sort of saying that over the years, you'd expect these new channels to achieve something, if I'm not mistaken, like 10%, 15% is probably what I have in my head in terms of the Natura base. Can you give us an idea of where we are in this journey? How relevant these new channels are already when you add together direct to consumer e commerce plus franchise channels plus owned stores? How relevant is that already overall? Are we still looking at less than 10%? Is it already more than 10%? And then when you given that you have quite substantial growth at some of these channels, what's the underlying growth that you're seeing if you just look at the isolation just at the direct sales channel? Thank you very much. So, Emma, direct sales is still the most important of our channels, the traditional selling format, if you want. So when you look at our performance and look at the market, it is slightly above the market, the direct selling. Otherwise, we wouldn't protect or even gain share, given it's still a big relevance. Having said that, our own stores plus our consultant stores plus the online format, we are already, I don't know, probably halfway through the targets that you referred to. Thank you. Our following question comes from Joseph Giordano from JPMorgan. Hi, good morning, everyone. Thanks for taking my question. I'd like to explore a little bit like the very good trends we've seen in Latin America. So I would like to understand how the competitive environment is shaping up, particularly in Argentina? How the expansion may be a little bit more aggressive now in Mexico is also playing out? Then going back to Brazil, like, if I'd like to understand a little bit the volume trends. So I'm not sure like if you have like any kind of statistical thing like bundling, because volumes have not been growing? And then second about any potential changes to the commissioning structure as you mentioned in the release that most of the sales reps are trending to the silver kind of like level? Thank you. Hi, Joseph. JP speaking. As regards Latin America, we are so pleased with the performance of all of our operations so far. I mean really, really nice to see how that is developing. Argentina, as you know, in a tougher environment, it's difficult to compete there, but the strength of our model, the preference keep growing, market share keeps growing and so pretty pleased with that. As we are in Mexico, as you said, I mean, we continue to see double digit growth in our Mexican operation in spite of relatively softer economy. I mean, our operation is doing pretty, pretty well. So very happy with our operations across Latin America. When it comes to Brazil, you asked about volume. Well, first of all, the market itself is showing negative volume growth at this point in time. But when you look at our numbers, that is somewhat twisted by the fact that we have a higher proportion of gifts in our mix, which do not count precisely one gift is not necessarily one item, and that distorts a little bit of volume as well as a much more premium mix, higher a growing number of fragrances, especially Prestige, which is helping our top line growth. As you could see there, improving our gross margin. So it's a more prestige portfolio as well. He also asked about commissioning. There's no change in the commissioning structure. We just see higher number of more productive consultants developing, which is great. That's the idea of our model. They dedicate more time to our brands, to know more about our launches and recommend our products to their clients and which makes them more productive. We are very pleased with that. Perfect. Thank you. Our next question comes from Gustavo Oliveira from UBS. Thank you for taking my question. JP, it's also a follow-up on the pricemix growth and volumes. Are you also implementing lower discounts in your products? Is this something that you're seeing? And also if you could comment on the new products, the new product launches in very important categories that you implemented this quarter, right, Momain Bebe and also the To do Gia. If you're already seeing a phase during the phasing process an acceleration in growth, meaning that you could even see a much faster 4Q number from these launches. If you could comment on that as well. Gustavo, thank you for the question. As you can appreciate our gross margin, our promotional policies keep well under control. And so on our intention to make any significant change to our promotional policy. And as it regards as regards our new launches, they are not they are all performing very, very well. You mentioned most of them, the new Totodile, our largest brand, non market day, all of them 110 vegan formulas, the Lumina new hair care line, which was launched beginning of the quarter, end of previous quarter, very happy with that. And just now we launched HUNA just starting in Q4. We launched UNA with huge success, not to mention the nail polish, which keeps us surprising us. But so far, all the new launches are performing above expectation. Thank you. This concludes today's question and answer session. I would like to invite Mr. Roberto Marquez to proceed with his closing statements. Please go ahead, sir. Thank you. And again, thank you all for joining the call this morning. As you saw from today's results, we continue with a strong momentum and making further progress toward delivering our targets even as we work to close the acquisition of Avon. We look forward to talking to you again very soon and we'll keep you posted on the development of the transaction. So thank you so very much for your attention and wish you all a good day on behalf of all of us. So thank you very much. That concludes the Antura and Co audio conference for today. Thank you very much for your participation and have a good day.