Earnings Call: Q3 2018

Nov 9, 2018

Good morning, ladies and gentlemen. Thank you for waiting. At this time, I would like to welcome everyone to Natura and Co Conference Call on the Third Quarter Results. This event is being recorded and all participants will be in a listen only mode during the company's presentation. After investor'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 connected from abroad, either in English or Portuguese. We have a simultaneous webcast that may be accessed through Natura's IR website, www.natura. Macinvestor. 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 pro form a and adjusted information prepared by the company for information and reference purpose only, which have not been added. Forward looking statements speak only as of the date they are made, and the company does not undertake any obligation to update them in light of new information or future developments. Now I'll turn the conference over to Mr. Robert Marx, Executive Chairman of the Board for Natura and Co. Mr. Marx, the floor is yours. Thank you. Good morning and good afternoon to all of you, depending on where you are. Thank you for joining us for this call to present our Q3 9 months 2018 earnings. I will start with a few introductory remarks on our performance and then Josefilippo, CFO of Natura and Co and Natura will comment on our financials. I'll make some concluding remarks and we'll then open the floor to your questions. For the Q and A session, we'll be joined by Gonzalo Pereira, the CEO of Natura David Borgen, the CEO of The Body Shop and Michael Rapist, the CEO of Egypt. We're all in London this morning, a beautiful morning here in London, where we have very productive Board of Directors meeting and where Natura's 3 founders, Luis Jabra, Guillermo and Pedro Patos, were distinguished as Personality of the Year Last Night by the Brazilian UK Chamber of Commerce. And of course, our Investor Relations team headed by Guilherme Behar will also be available to you after the call to respond to any additional questions that you might have had. So let's start on Slide 3, and let me begin with a quick overview of Q3. With double digit growth in revenue and adjusted EBITDA and net income more than doubling, Natura and Co posted yet another strong performance across the board. All three of our brands and businesses contributed to this very solid performance, and we are very happy with that. So let me start with Natura. So Natura outperformed the market in Brazil in 2 categories and continued to gain market share and to see the benefits of the relationships held in commercial model. Consultant productivity improved for the 8th consecutive quarter and the number of consultants actually grew in Q3 attesting the new new attractiveness of our brand. Natura's multichannel model continues to evolve, with more than 650,000 consultants now using our exclusive mobile platform, online sales growth in high double digits and 12 stores opening in Brazilian cities in the past quarter. In LATAM, we're also showing strong momentum, gaining market share while rolling out our relationship selling model and digital strategy. Let me now talk briefly about The Body Shop. The Body Shop continued to show progress in the implementation of its transformational plan. Sales grew in EBITDA more than double in the quarter, excluding the expected transformational costs of BRL 24,000,000 that we spoke last quarter that we booked in Q3, demonstrating new advances in the operational efficiency and our ability to really execute the plan. Like for like service in our own stores grew a very healthy 2.1% in P3, while overall sales were stable despite 58 fewer stores as The Body Shop continued to optimize its network. Now as you know, The Body Shop entire organization is fully mobilized to deliver a successful Christmas campaign that is very important for the year results of the business. Finally, Auzoc turned another quarter of remarkable growth, with sales up in high double digits, rising all channels and geographies. Our like for like were up 17% in Q3, And the company is also becoming more omni channel with online sales doubling from last year, even as users continues to open signature stores with 6 new openings in this past quarter. In summary, Natura and Co continues to improve its financial structure and also deleveraging, and we are on track to achieve our 2021 target of returning to our pre acquisition in debt net relation that, as you know, is 1 year ahead of our initial plan. Finally, consistent with our triple bottom line approach, the group also saw some notable advances in sustainability, linked to commitment to ban animal testing that will be detailed later in the presentation. FLAYO Natura was the only Brazilian company to figure in the global corporate responsibility, CR WeTrack 100 surveys published by Forbes Magazine, 94th overall. So as we see, we will provide new evidence of the growing momentum and the strength of our global multi brand, Multistana Group. Let me now hand over to Salupo, who will detail our numbers. Thank you, Roberto, and hello to everyone. Before going to our financials on Slide 5, I thought it would be helpful to step back for a second and provide a bit of explanation on the various adjustments that continue to affect our numbers and give you some visibility on their impact. Indeed, this quarter was marked by further non operational adjustments. 1st, Batura, Brazil and LatAm were impacted by the IFRS 16 rule on reclassification of late payments, charges and receivables, with effect on Natura Brazil's net revenue and EBITDA of Natura and Natura Latent's net revenue. Natura Brazil's net revenue, cost of goods sold and EBITDA were affected by the reversal of tax provisions booked last year. Next one was Natura's P and L. P and L was impacted by IFRS 29 and IFRS 21 accounting standards relating to the hyperinflation in Argentina. And as already mentioned, last quarter, The Body Shop's EBITDA in the quarter was 9 months, reflected the booking of transformation costs, both in Q3 were BRL24.7 million and in the 9 months for BRL62.4 million. To make numbers comparable and focus on our underlying performance, which, as Roberto mentioned, we consider very strong. This adjustment has been excluded from the numbers I will be commenting today. Also, please note that The Body Shop's 2017 numbers include pre acquisition pro form a figures from January to August for the status comparison. Next slide, Slide 6, I'll start this overview of our P and L with our pro form a consolidated revenues and decline. As shown in the graph, it rose in double digits both in Q3, which saw a 16.6% increase and in the end market with a rise of 13.7%. This results from growth in all three of our businesses. MAPFERA posted strong single digit growth in both Q3 and the 9 months of 9% and 7.9%, respectively, at constant currency. Thanks to continued momentum in core categories and relationship selling in Brazil and further expansion in Latin America. The Body Shop sales were up by 3.6% in both Q3 and in the 9 months. The quarter was supported by strong orders from franchisees ahead of business, online players and lower discounting. And EMEA posted strong double digit growth of 34.8% and 33.9%, respectively, in Q3 and in the 9 months of 2018. Now moving to Slide 7, we turn to adjusted EBITDA, which as you see on the graph, grew by a very solid 33.7% in Q3 to nearly BRL 500,000,000 on the back of double digit growth in profitability in all three businesses. On a reported basis, Q3 EBITDA was up 7.2%. The 9 month period also saw strong growth of 29.1% on a retrospective basis and 1.7% growth in the quarter EBITDA. As a reminder, BBVA's performance includes The Body Shop in the base as it is as if it were already part of this group in Q3 2017 and is adjusted for various effects that I mentioned earlier. Turning to Slide 8. We look at Natura and Co's underlying operating income, which excludes acquisition related expenses, transformation costs, financial expenses and income tax. As shown in the box on the slide, we posted 10.2% growth in underlying operating income in Q3 and even stronger 30.4% growth in the 9 months. The Q3 growth was driven by strong performance in efficiency gains at The Body Shop in Napieras. Reported net income more than doubled in the quarter to nearly BRL113 million despite the hyperinflationary accounting effect from Argentina and The Body Shop's transformation costs, boosted by higher consolidated EBITDA and lower financial expenses. Moving to next slide, Slide 9. Let me conclude this quickly summary with our key financial highlights, which is a look at the main aggregate of the balance sheet. Cash flow in the quarter was an outflow of BRL9.9 million and this reflects 2 main factors. 1st, higher working capital requirements, both at Natura and at The Body Shop. At Natura, we see from higher level of inventory and lower accounts payable to suppliers, while at The Body Shop, it reflects traditional seasonality. 2nd, the higher financial expenses from debt services related to The Body Shop's acquisition. In the 9 months, free cash flow was an outflow of BRL239.5 million. Finally, we continue to deleverage the company in line with our expectations. Our net debt to EBITDA ratio stood at 3.27x at the end of September, down from 3.52x at the end of Q3 last year. We are first on track to achieve our target of returns by 2021 to our leverage ratio prior to the acquisition of The Body Shop of 1.4 times. After looking at our consolidated numbers, let me now comment on the individual performance of our 3 businesses, starting on Slide 11 with Natura. Natura posted a strong quarter both in terms of revenue and profitability. We are outperforming the Brazilian market in our key categories of fragrance, bodies and beef, resulting in market share gains. And our brand preference is improving both in Brazil and in Latin America. The solid performance reflects the success of our relationship selling model, which is leading to higher productivity in Brazil, and which we are now rolling out in Chile and Peru. In Argentina, despite the challenging economic environment, our business remains resilient, thanks to our robust business margin. Our innovation index, which measures the percentage of innovative products in our gross revenue, remained higher at 61.7% in Q3. And we continue our digital expansion in the quarter. Our mobile platform is already used by 650,000 consultants in Brazil and 137,000 in Latin America, representing respectively 60% 20% of our consultants. Next slide, Slide 12, we look at the sales performance of Natura both on a consolidated basis and in 2 geographic brands. As shown in the left hand of the slide, consolidated net revenue grew by 8.5% in the quarter and by 7.2% in the 9 months on an adjusted basis. At constant currency, sales were slightly higher with growth of 9% and 7.9%, respectively. This is driven by the ability both in Brazil and Latin America. In Brazil, adjusted net sales, excluding the effect of IFRS 15, rose by 5.8% in Q3, demonstrating the vigor of our relationship selling commercial modules, while in Manana, they were up by 3.4%. In Latin America, also adjusted the full effect of the EIS, 29 in EIS 21 account is standard. Net sales were up in double digit both in Q3 and in the 9 months by 15% 17.4%, respectively. Sales in the region were driven by Mexico, Chile and Argentina. At constant foreign exchange rates, growth was even higher at 16.9% and 20.4% respectively. Next slide, Slide 13. I will conclude material EBITDA on this slide. On a consolidated basis, adjusted EBITDA grew in double digits by 16.3% in Q3, driven by higher sales and lower G and A expenses. This translates into a 140 basis points increase in margin to 20.2%. On a 9 month basis, adjusted EBITDA was up 8.6%, topping BRL1 1,000,000,000, with margin increasing 20 basis points to 17.4%. In Brazil, Natura's adjusted EBITDA rose by a strong 17.5% and margin grew by 220 basis points to 21.6%. This results from the greater efficiency of our commercial model and lower G and A expenses as a percentage of sales. On 9 months, adjusted EBITDA grew by 2.8% with margin gradually stable at 18.6%. In Latin America, EBITDA grew in double digits both in Q3 and 9 months by 14% and 29.2%, respectively, thanks to higher productivity and efficiency gains. At constant foreign exchange, the growth was higher at 15.9% in Q3 and 30.1% in the 9 months. Let's move to The Body Shop on Slide 15. Net revenue in reais increased on a reported basis by 36.8% in Q3 and by 21.5% in the 9 months, helping by favorable currency effect. At constant foreign exchange, sales were up 3.6%, both in Q2 in the United Mine, driven by stronger orders by head franchisees and strong sales both in the U. S. Pacific and European Middle East and Africa regions. With 568 stores closure in the last 12 months, all the stores sales were stable in Q3. At the end of Q3, The Body Shop has 10 41 owned stores and 19 17 franchise stores. This represents a total of 80 fewer stores over the last 12 months as the company continues to optimize its store network. Next slide, turning to adjusted EBITDA on Slide 16. You see on the graph that we saw a very strong rise both in Q3 and in the 9 months, up 55.6% and 173.7%, respectively, at constant foreign exchange and not by an even stronger 142% and 402.4% on a reported basis. Margin in Q3 grew by 400 basis points to 8.4 percent as a result of higher franchisees sales and lower discounting, which is part of the Body Shop's strategy and income. The adjusted figures exclude the Body Shop's transformation costs, which stood at BRL 24,700,000 or £4,700,000 in Q3, mainly related to the execution of The Body Shop's retail footprint, organizational design and other initiatives. These costs are part of the total previously disclosed estimate cost of £30,000,000 during 2018 and 2018. Moving now to Slide 18. We round off the slope at the performance of our businesses with EBITDA, which posted another quarter of exceptional growth. On a reported basis, net revenue grew by EBITDA by 67% in Q3 and by 64.3% in 9 months, with a very strong performance across all channels and geographies. At constant currency, growth remained strong at 34.8% in Q3 and 33.9% over the 9 months. Crostabilios also grew in strong double digits, with reported EBITDA up 57% in Q3 and an even stronger 83.3 percent in annual or 30.1% and 54.4%, respectively, at first and foremost. Margins stood at 9% in Q3 and 10.9% in the 9 months. Acer continued opening single stores, adding 33 in the last 12 months to reach a total of 219 at the end of the quarter. So with now, let me hand over to Roberto for some concluding remarks. Thank you very much, Filippo. Before concluding, let me just mention some notable advances in the quarter on the Slide 19. The Body Shop kept a 15 month long global campaign against animal testing for cosmetics by delivering to the United Nations a petition signed by over 8,300,000 people. This campaign was also supported by Natura, which recently received 2 key certifications attesting to its commitment to end experiments on animals and allowing consumers to easily identify products that are not tested on animals. The gluten bunny label granted by Furo2P International, the body shop partner in its petition campaign and a seal granted by People for the Ethical Treatment of Animals, a leading animal rights organization. So congratulations again to both Body Shop and Natura for this very important undertaking. Finally, the Aesop Foundation made the first 10 recipients of the Next Chapter project, which aims at sharing the voices of riders for marginalized communities in Australia. Open to Slide 20, which just 3 key priorities. First of all, as you heard throughout Filippo's presentation, mature and co hosted a very solid performance in Q3, with each one of our business and brands performing stronger. Natura has clearly seen the benefits of its relationship to our international model in a multichannel approach. The Body Shop transformation is gaining speed and being well executed and is a remarkable growth quarter after quarter. 2nd, the growing momentum of Natura and Co in each of its existing business show the strength of the global multi brand, multi channel group that we are building. And 3rd, with this new quarter of solid performance, Matura and Co is on track to deliver to its medium term financial targets, while making a positive social and environmental impact. Thank you very much for your attention. And now we're going to open for Q and A, and I'll have with me again Filippo, Joao Paulo, David Borgen and Michael O'Keefe. I'm happy to take your questions. Ladies and gentlemen, we will now begin the question and answer Our first question comes from Thiago Macruz with Itau BBA. Good morning, everyone. This is Julia speaking here. We were very impressed with the Brazilian performance this quarter, and it seems that the combination of growth and margin expansion had a lot to do with the excellent operating KPIs presented by the relationship selling channel. It is fair to say that the recurring growth in the number of consultants, combined with the sequential increase in their productivity we saw this quarter is mainly due to the changes you implemented in the incentive model. And what would be the potential other reasons like the digital initiatives or other initiatives you mentioned in the release? And what can we expect for this channel and the results of this initiative going forward? And there is one other question that is related to The Body Shop and the revenue advance from Christmas sales to franchisees you mentioned in the release. We should expect an impact in the Q4 growth because of this phasing you have been engaging in? Thank you. Hello, JP here. On your first question, indeed, the results we are showing indicate the strength of the new models. The new commercial rules, incentives, recognition that have been the method are working well. And not only we're getting productivity gains, but also the number of consultants in our network will grow, as we pointed out. So proven extremely healthy. And by the way, we have already rolled it out to Chile with very successful results and most recently to Peru with excellent initial results. Now on top of that, I would like to highlight the strengthening of our brand and the strong innovation pipeline and the relevance of our launches, which are supporting together with the new commercial rules, our market share gains. So and we are indeed gaining market share in all of our geographies. Now let me hand it to David. Hi, there. David here. Thanks very much for the question. So Q3, we managed to get Christmas delivered on time, something we weren't able to do last year. So we're really pleased with the presentation in stores. We think we're in good shape, and we're feeling very confident about being able to deliver Q4 as planned. So no negative impact there. It's looking it's all looking as we expected by now. Okay. Thank you. Next question, Robert Ford, Bank of America. Hey, good morning, everyone, and congratulations on the results. David, could you speak a little bit on how you're driving same store sales at The Body Shop and your initial steps to improve pricing? And can you also discuss where you are in terms of renegotiating the rents and your vision when it comes to reimaging the store base? And within that process, is there an opportunity for landlords to co invest with you and franchisees in terms of paying for that reimaging in the locations? Great. Thanks very much for all those questions. I wasn't working fast enough to be able to jot them all down. So if I missed anything, then please let me know. I think one of the biggest factors that we're seeing since we're driving like for like sales are lower discount. We talked a little bit about that in the results. So we've been able to focus more on communicating product benefits and the very high quality of the products that we're selling in stores. And I think that historically, the focus has been really about communicating discounts, and we've moved away from that with some success, and that's really helping. Another factor in like for like is that in some cities and some markets around the world, where we've been reviewing our real estate position, we've seen that we're overshocked. So one of the things that's been quite pleasing so far this year is that we've seen in particular markets as we've closed stores, sales have moved to other stores and that's helped support our like for like ones. So I'd say they're the 2 principal points. In terms of rent reductions, it's a process that's underway. We really see the most of the upside is more likely to fall into 2019 than this year. It's been a long process. We found pleasingly that I think the landlords in general are understanding that it's a changed bricks and mortar retail paradigm and are receptive to having very good quality tenants like The Body Shop present and over the longer term. So there's a much more open conversation happening right now than there was several years ago. Let's put it that way. I don't know if I answered all the questions or there was something specific that I missed towards the end. That was great, David. I was just curious, given the shift in the balance of power, right, in terms of negotiating your occupancy cost, Is there an opportunity for you to go to landlords and help them pay for the reimaging? And when it comes to the reimaging that you want to do in the space, are you have you defined the concept that you're driving towards? Yes. That's a it's a great question. It's a work in progress. So we're clear that the concept that we inherited is not just for purpose. We know that stores don't have a reason to exist unless they're highly experiential state. We're fortunate that we happen to operate in a very experiential category, but we haven't done a good enough job of bringing that to life. So there's lots of plans underway. The target that we have at present is Q3, we'll have a fully developed new concept on the brand. So we'd then be looking to roll out into 2020 Q3 next year, sorry, just to be specific. But as you say, there's definitely been a change in the balance of power and long over Q1. Yes. Thank you very much. And again, congratulations on the results. Thank you. Next question from Juan Belado with Morgan Stanley. Hi, hello. Congrats on the results. I have a couple of questions. 1, more depends on the sales growth acceleration in Brazil. You mentioned a clearly gaining market share in core categories. Which categories would you highlight growing the fastest? And an update on the non exclusive franchised stores that are operated by consultants. Do you see sales in this channel going faster than overall in Brazil? And how many of the stores, consistent operated stores you have right now and what's the potential for the next 12 to 18 months? Thanks. Good morning. JP here. So on your first question, we are driving market share gains in the categories we decided to focus on, mainly services, body care, just as a whole, right? But we are also experiencing excellent market share gains in face care. So that's pretty in line with our predictions and the choices that we made. On the second one, the consultant franchise stores, they do grow faster than any other channel, not only because it's we are opening those stores, but also because their productivity is well ahead of what we predicted originally. So we roughly we have roughly 100 of them currently, and we want to keep that pace and maybe accelerate a little bit more next year. Thanks. That's great. And if I can do, I'll have a quick question on ASOP related to expansion. We saw that you left 10 department stores in ASOP this quarter. Is this part of the plan? And do you expect to accelerate expansion in the exclusive stores? And if flow in which regions or countries you see the biggest opportunities for Aviso? Thanks for the question. As of last quarter, the reduction in department stores was primarily because we decided to exit the David Jones department store chain in Shire and moved exclusively with Myer. And I can say that's had an immediate positive effect in that chain. Myer was already moved to a top 3 cosmetics brand across all of their stores. So it's really focusing our efforts more on one partner and having a stronger presence. In terms of the question of continued signature store expansion, it's actually fairly spread across the globe. North America is still our fastest growing region, but actually new stores in Asia, APAC and Europe continue at pace. Thanks very much, and congrats again on the results. Next question, Richard Cathcart with Bradesco. Hi, guys. Good morning. So just a couple of questions. One for JP on Laporte Brasil. Just hoping you could give us a little bit more color on the physical store strategy in Brazil. I mean, you've opened 12 stores in the quarter. So perhaps if you could just give us a bit more information about how those stores are performing and what your plans are kind of for additional stores? And I think kind of a different concept in the stores over the next 12 months. And then the second question for David on The Body Shop. Just kind of going back to one of the questions that Robert made. I just wanted to understand the impact of lower discounts because clearly it's had a positive impact on the same store sales. I was just wondering kind of if you've seen any noticeable impact on volumes or footfall. Clearly the higher ticket is helping the same store sales, but just kind of want to understand a little bit on the volume side. Thanks very much. Hello, Richard. Thanks for your question. JP here. So on our own stores, they're performing exactly in line with our prediction. And we opened a dozen more nice quarter. So we currently have 100 and 6 of them in Brazil. And they play on a very important role to complement the other channels as we do reach other customers or already customers of the brand in different shopping activities, right? And that is all including very complementary to what we already do, right? And we do see now people buying online, picking up in stores or buying going to the stores to try products and then buying with their consultants. So it's building very nicely into this omnichannel approach that we had in mind when we started that. And we do want to expand those stores going forward next year Roughly, we have the same pace as this year. Yes. It's David here. So yes, great question. Or is the risk, of course, when you're reining in the tenant activity? I think the thing that's been incredibly interesting for us, and we've been doing this on a very careful, iterative basis through the course of the year. I mean, the last thing that we wanted to do was reduce traffic to the stores. I mean, there's already enough pressure on that. And we've seen in years gone by looking at historical data for the business. But when there's been significant movements in price upwards, there's been dramatic reductions in transactions. And we're clear that we're a value brand and we have an acceptable price point in premium beauty and lifestyle, and we don't want to lose that. So through the very stuff that we've done, I mean, pleased to say that there's really no negative impact on transactions. I think the thing that's been interesting for us is the change in speech for the consultants in store. In the past, it's been very much a case of a very transactional interaction where people come into the store and the first thing we say is, we've got some great news. We've got a fantastic deal here and it's buy 3 get 3 3 or whatever. And we're having a more qualitative conversation about the new product launches that we're having in the store, the seasonal appropriateness of the products that we're featuring in the store. And it's a better quality transaction that seems to between the consumer and the consultant that seems to be maintaining sales. So no negative impact on transactions so far. We're watching it very closely, but so far so good. Next question, Joseph Jerkisson with JPMorgan. Hi, good morning, everyone. Thanks for taking my questions. So I just want to explore 2 points here. So the first one is the innovation index. JP commented a little bit that there are plans like to launch new products with Eptica in the Q4. So I'd like to understand like what's the target here in terms of innovation index and how you guys see that evolving over time? And then just also trying to understand why it came out as slightly lower than the past quarters as like we're seeing like an upward trend here? The second is also on the Brazil side. Like so in my view, like the May positive surprise here was actually like on the expense side. So I'd really like to understand like if there's more to come and what's really driving such a reduction to the admin change. I understand like there's some accounting change, but the underlying trends here are probably very favorable. So just understand here, I think we have several headcount reductions, so what's really driving that? Thank you. Pedro, Casey here. On the innovation index, we do consider that the current setup of the business that number would be fluctuating around 60%. So the changes that you've seen this quarter against previous ones It's absolutely in line with our prediction, right? And I have to tell you as well that we are putting more effort in sustaining our hero brands longer so that we don't have to be so dependent on new launches, right? So that combination drove that number to 62, 62, and that's where we would be in the coming quarters. And as I mentioned before, totally in line with our prediction. Yes. And Joe, regarding the expenses, yes, we confirm that we really are committed to focus on this item and to make the strong efforts to this SG and A, mostly coming from efficiency gain. So for example, if this quarter, we had, as we indicated, some nonrecurring provision adjustments that affected positively. However, if we take out those impacts, we have a gain of efficiency there. For example, without that effect, our G and A was 14.1 percent of net sales and we compared to 14 point 6% in the same quarter of last year. So that's the percentage we presented. I think that with the growth of the revenues as we expected, we continue to be not increasing the percentage and then gaining efficiency and diluting them. That's why we Perfect. Thank you. Next question, Tobias Stingoli with Citibank. Yes, thank you so much. Congratulations. Quick question. First on consultant growth in Brazil for JP. So there was kind of a sequential increase and you said at the beginning of the year that at some point the base should stabilize and then start growing again. What are your expectations going forward in regards to the consultant base? That's the first question. And then the second question, I just want to kind of dig on the digital strategy. Really, you are expanding very fast, 23% of orders already online. Can you give us a sense of where we are, what we should expect going forward and also some expectations on how this can impact kind of margins or productivity further? Thank you. Hi, Tobias. Good to hear you. The number of consultants, as you properly put that, I said it will drop, stabilize and then we didn't grow as it did. And going forward, what we see is that it should grow sort of in line with population growth, low single digit growth going forward with productivity gains. Now going to the following question on digitization, we are accelerating as much as we can. So we are targeting to have the vast majority of our consultants operating with mobile platform that best connect them among themselves with our sales force, with Matilda and moreover with their clients, right? So we want that to happen throughout next year. We do have some major activities going on in Q2 next year that will boost that moment that movement even further. Okay. And should we expect any major gains or some of the gains that we might see on the SG and A line or something like that should be related to that or to the process of really kind of moving the consultants faster to the digital platform? Well, there are efficiency gains, especially in our commercial structure. There might be other efficiency gains in a communication material, right, support material. That, as much as we can, we will need that in our growth. Okay, perfect. And thanks for congratulations and thanks also for helping with the reconciliation of the financials. Our next question comes from Gustavo de Vera with UBS. Hi, good morning everyone. Thank you for taking my question. I have two questions, one for David and one for Filippo. David, I want to go back to the first question of the call. Just to understand a bit your seasonality on sales here. You mentioned that you deliver your Christmas orders to franchisees on time this year, which definitely helped your sales in 3Q. Will that have an impact on your total sales in 4Q? Or can you still maintain the base of growth that you're delivering at 3.6% in constant currency? So we're not obviously giving guidance on sales going forward and what we predict for Q4, but we're feeling very confident about the plan. And just a little precision on the point about franchisees. Last year, even when the business was in the throes of the difficulties it was happening having on distribution, head franchisees, because the businesses, the majority of them are pretty far away from our base in the UK, that they were made a priority. So actually, a lot of the shipments to the franchisees, particularly the ones in Asia, were being delivered on time and the bigger material impact on performance and having a Christmas proposition ready in time within our company markets closer to home, particularly the U. K. So we're not really expecting to see significant change. We have a plan. As I said, it's looking really good in the stores. We have some customers and staff that's been great and from our partners. So our expectation is we'll make our plan for the year. Okay. Still around the franchisee performance, you mentioned that you had very strong like for like sales in your own stores of around 2.1%. Is this a big is there a big gap between your own stores performance to that of your franchisees? And is there a big dispersion in sales of your franchisees' network? And what is the opportunity? How you address that? Yes. Now honestly, overall, we're looking at a pretty similar picture. It's been a reasonably strong particularly in the second half, a reasonably strong product pipeline. As I said, Christmas is looking great. So the performance in our HF Partners and our own stores is similar over magnitude. Of course, we're in a lot of markets, so there's a spectrum of performances. But overall, it's pretty much there or thereabouts. Okay. And my last question is to Philippe, if I may. Philippe, in the second quarter, there were some large working capital investments needs in The Body Shop. And now in this quarter, there's some working capital needs in Natura, Brazil. Have we reached a level where you think that the working capital investments are behind and you think you are in a bet for cash generation already in the 4Q? How do you see the evolution of these working capital investments you're making? Yes, Gustavo. Thanks for the question. I think it's a very good point. Remember that we indicated earlier that we started 2018 with a higher level of inventories. And we had that situation that will impact our working capital. Because of the moment that we're having today in preparation for the last quarter, which we have typical activity, increasing activity, we still have levels that didn't show the reduction. But there is a lot of focus and discussion and working on trying to improve that. Going forward, by the end of the year, we definitely will be in a better situation in terms of working capital position. And then we'll benefit from the cash generation that we expect. This is Matura. And as you know, The Body Shop typically has its seasonality. It's more than what we have in Matura. That is going to be really improving in the last quarter. So we believe that in the end of the year, that's what we are convinced that we are committed to that and we are confident that we can get to a better situation of working capital in the year end and benefiting on the cash. Okay. Thank you very much. This concludes today's question and answer session. I would like to invite Mr. Roberto Marques to proceed with his closing statements. Please go ahead, sir. Thank you. And again, thanks everybody for joining the call. I hope that it was Again, our IR team will be available for any further questions. I want to take this opportunity and again thank our teams across the board, the Mature team, The Body Shop team, Uwe, represented here by JP, David and Michael and of course, Filippo, our CFO. So really a very strong Q3 and hopefully that continues to build confidence and really bring something especially with actually superior results. So thank you very much. Have a great rest of the day. Thank you. See you from London. That concludes the Neto Audio conference for today. Thank you so much for your participation. Have a good day.