Earnings Call: Q2 2018

Aug 10, 2018

The slide presentation may be downloaded from this website. There will be a replay of this call available on our website as well. Before proceeding, please be informed that forward looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward looking statements are based on the beliefs and assumptions of Natura Management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Natura and could cause results to differ materially from those expressed in such forward looking statements. Now, I will turn the conference over to Mr. Roberto Marques, Executive Chairman of the Board of Natura and Co. Mr. Marquez, the floor is yours. Thank you, Larissa, and good morning to all of you and thank you for joining us on this conference call to talk about Natura and Co's 2nd quarter results. I'm joined on this call by Jutef Lippo, who, as you know, joined us in May as our CFO and to whom I would like to extend a warm welcome. He came to us from Embraer and brings vast experience both in Brazil and international markets. Also with me is Jean Paulo Ferreira, the CEO of Natura and Vivien Iber, who recently joined us as Director, Investor Relations and whom are also happy to welcome to our team. I will start by presenting the highlights of Natura and Co's Q2 performance. Filippo will then present our consolidated financials and performance by brand I'll make some concluding remarks before the 3 of us can take your questions. As usual, I'll be referring during this call to the presentation that is available on our website. So let's begin on Slide 3 with the key highlights of Q2. In a nutshell, this was a very strong quarter for Natura and Co, delivering double digit revenue and EBITDA growth, demonstrating once again the power of multi brand, multi channel group in the global footprint that we are building. And as you can all appreciate, in a quarter that was pretty challenged for all of us being able to report double digit growth in revenue and EBITDA is pretty exciting and something that we are really, really pleased. And this is even more evident in the headline numbers. Reported net revenue increased by 53% in Brazilian reais and by 13.6% on a pro form a basis, which, as you know, includes the body shop in the base. Profitability was also up with a solid EBITDA increase of 12% on a reported base and 8.5% on an adjusted base. This quarter, we are also introducing to help all of you the concept of underlying operating income, which excludes non operating results, financial expenses, income tax and nonrecurring effects, providing a clear view of the health of each business and the group. And in this metric, this quarter, underlying operating income rose 9.4% in the quarter and 54.1% in H1. Again, Filippo will provide greater details on the numbers shortly. Each one of our 3 brands and businesses is contributing to this performance. Natura's relationship selling, an increasingly multichannel model is continuing to deliver strong results despite the impact of the truckers' strike in Brazil, with solid sales growth, both in Brazil and in Latin America, and EBITDA also growing. The Body Shop transformational plan is underway and delivering its initial results. Underlying profitability, excluding Underlying profitability, excluding the transformational costs that we are now implementing, was strongly up, in line with the plan to generate EBITDA margin improvement. Sales in the quarter were impacted by the commercial calendar that helped us in Q1 as we disclosed in our last earnings call, But H1 sales were up by a healthy 3.6%, something again that we are very pleased to see those sales number already coming from The Body Shop. And Aesop continues to deliver remarkable growth with high double digit growth in sales and EBITDA across all channels and geographies. We have also brought in some new leadership talent for the group, Natura and The Body Shop that I would like to highlight. I've already talked about Filippo, who joined us as a CFO of the group and Natura and Vivien Iber as Director of Investor Relations, a role that has become more global. Natura also recently announced the appointment of Paolo Andrade as Head of its Retail Operations and Fernando Lemos as Head of Digital. The Body Shop also announced the appointment of Domenico Tricchio to the newly created role of Chief Operating Officer, Amy Leed as Global Finance Director and Alan McCaskill as Global Customer Director as well as Lionel Turrell as Global Brand Director to support the CEO, David Boyden and the team of The Body Shop in this brand transformation, which has gotten off to a strong start. In line with our triple bottom line approach, we recorded also new initiatives and advances in sustainability this quarter. Let me mention in particular a new certification by the Union for Ethical Biotrade for Natura's Echos line and also the Body Shop global campaign, Forever Against Animal Testing, that has also continued to show With this strong performance in Q2 and H1, Natura and Co is fully on track to deliver the medium term target that we present back in April at our Natura and Coal Day. With that, let me hand over to Filippo to go into our financial performance in greater details. Thank you, Alberto, and good morning to everyone. It's a pleasure to have joined Natura and to do with you today. And I'm very much looking forward to our future exchange. Roberto mentioned that Natura and Co. Posted another quarter of very strong growth. And in Slide 5, you see that pro form a consolidated net revenue, which includes figures for The Body Shop in 2017, was up in double digit growth both in Q2 and H1. In the Q2, consolidated net revenue reached BRL2.1 billion, up 13.6% versus the same quarter of last year on a pro form a basis and up 8.6% at constant foreign exchange rate. This increase was driven by double digit growth at constant exchange rate both at Natura and Aesop, while The Body Shop's Q2 sales was impacted by the commercial calendar and the phasing of purchases by franchisees, which boosted Q1 sales as we reported at the same time. In the first half, sales reached almost BRL5.8 billion, representing 12.4% growth on a pro form a basis and 8.6% at constant currency. All three brands posted sales growth in the half with Natura up by the same 8.6% in constant currency, The Body Shop up 3.6% and Isold up by a very strong 30 3.4%. On a reported basis, Q2 sales were up 53% and H1 sales were up by 54.2%. On Slide 6, we turn to our consolidated adjusted EBITDA, which was up 8.5% to almost BRL272 1,000,000 in Q2 and up 27% in H1 to almost BRL691 1,000,000. Adjusted EBITDA is a metric we are using to provide a clean reading of our operating performance, which excludes all one off effects linked to the Body Shop acquisition. These include acquisition expenses included in Q2 of 2017 for BRL36.1 million and transformation costs incurred in Q2 2018 for BRL37.5 million. As you see on the slide, all three business has improved their performance and therefore contribute to our EBITDA growth in the quarter. Reported EBITDA was up by a solid 12% to BRL334.4 million after taking into account The Body Shop's transformation costs in Q2. In H1, reported EBITDA was down 1.5%. Let's turn on the following slide to our bottom line. As shown in the graph, underlying operating income grew by a solid 9.4% in Q2 and by a very strong 54.1% in H1. Q2 growth was driven by The Body Shop and Iso, while Matura was broadly stable on lower gross margin and higher SG and A, as we will see shortly. As Roberto mentioned, here again to provide comparable numbers, our underlying operating income excludes acquisition related effects and expenses such as debt servicing and transformation costs. On a reported basis, net income stood at BRL31.8 million in Q2 versus BRL163.5 million in Q2 2017, reflecting this acquisition financing and transformation costs. In H1, reported net income was BRL56.2 million versus BRL352.6 million in H1 2017. On Slide 8, let me conclude the rapid overview of our key financial aggregate this quarter with a couple of balance sheet considerations. We recorded a free cash flow of BRL 131.5 million in Q2 with a positive contribution from all 3rd. This compares with BRL225.5 million in Q2 2017, mainly attributed to a lower reported net income in the peers impacted by acquisition effects and higher working capital due to seasonal inventory at The Body Shop and higher receivables from sales growth at Natura. Our net debt to EBITDA ratio stood at 3.3x at the end of Q2, in line with our expectations. We are on track to reach our target of 1.4x by 2021. With this, let's turn to a more detailed look at the performance by business. On Slide 10, we begin with Natura with the key highlights of Q2 performance. Overall, Q2 saw further consolidation of Natura's transformation with sales growth in both Brazil and Latin America and market share gains in Brazil, outstanding the impact of the Turkish strike in May. This demonstrates the strong reliance of resilience of Natura's business model. Brazil's performance was driven by excellent Mother's Day and Valentine's Day campaign this year, both which outperformed last year's campaign on the back of stronger sales of key categories. Our relationship selling model continues to progress with our productivity per consultant up by a very strong 24.1% in Brazil, as shown in the graph and further improvements in Latin America. Our multichannel strategy is all advancing with high double digit growth in online sales in Brazil and an acceleration in Argentina and Chile. And our innovation index improved again and stood at 60 4.3% in the quarter, up from 64% in Q1 and 62.1% in the year ago period. Let's take a closer look at top line performance on Slide 11. Overall, Natura's net sales were up 9.8% in Q2 to a little over BRL2 1,000,000,000 and up 8.1% in the first half to BRL3.7 billion. At constant currency, growth was 10.3% in Q2 and 8.6% in H1. We grew both in Brazil and Latin America. In Brazil, sales grew by 6.7% in the quarter and 4% in the half, driven by strong performance in key categories. The shift in mother's days to Q2 this year helped us offset the impact of the trucker strike in Brazil as well as some sales interruptions due to the World Cup. The number of consultants in Brazil stabilized and even increased slightly compared to the Q1, and productivity improved sharply. We continue to wrap the digitalization of our business with more than 50% of our consultants now using our mobile higher average ticket and a strong conversion rate. The higher average ticket and a strong conversion rate. E commerce now accounts for about 3% of the sales. We have also continued to roll out our multi channel strategy with a new wave of store openings beginning this month. Latin America sales were up by a very strong 17.7% in Q2 and 18.8% in H1. At constant currencies, growth was even stronger at 20.6% in the quarter and 21.8% in the half. All geographies grew with a particular good performance in Argentina, Chile and Mexico. The number of consultants grew 10.5% in Latin America, and we are also seeing improvement in productivity, and we're rolling out our relationship selling model in Chile with positive initial results. Let's now look at Taltura's profitability on Slide 12. Overall, EBITDA was up by 5% in Q2 in Brazilian reais, and strong growth in Latin America more than offset a broadly stable performance in Brazil. In Brazil, EBITDA was down by 0.5% in the quarter. The performance was impacted by lower gross margin pressured by higher manufacturing costs as a result of the truck strike, foreign exchange effects and promotional investment. G and A expenses were up in the quarter due to a higher investment in technology to support the increasing digital nature of our business and in research and development as we strengthen our product portfolio to keep delivering innovative and desirable products. Conversely, selling, marketing and logistics expenses improved sharply, falling by 2 60 basis points a percentage of net sales, even with higher marketing expenses, demonstrating that our relationship selling model is more productive and efficient. Latin America is maintaining its excellent momentum and its profitability was boosted by productivity and efficiency gains with EBITDA up 23.1% in the quarter. In H1, EBITDA was down 13.5% overall, with Brazil down 34%. However, it's important to note that H1 last year was boosted by a nonrecurring tax reversal of BRL154.8 billion. If you exclude this, comparable EBITDA was up 11.7% overall and 3.5% in Brazil in H1, which constitutes a solid underlying performance. We now turn to The Body Shop on Slide 14. In Brazilian reais, The Body Shop posted double digit growth in net revenues, both in Q1 and H1. In Q2, net revenues were up by 14.8% to BRL806.7 million. And in H1, they rose 15.6 percent to a little over BRL1.6 billion. At constant currency, the sales were down 1.1% in Q2 due to The Body Shop's commercial calendar and strong purchase in Q1 by franchisees, in line with our forecast. Q2 did not benefit from those same effects as expected. Looking at H1, which eliminates these effects, we saw reported sales rise by a healthy 3.6 percent with growth in owned stores, sales by franchisees and Hawaiian. In terms of geographies, Asia Pacific and Europe, Middle East and Africa region drove growth. This H1 growth was achieved despite having fewer stores as The Body Shop continues to optimize its store network. At the end of Q2, it had 1050 owned stores, 52 fewer than the end of Q2 last year and 19 28 franchised stores, down 6. Most of the store closures were concentrated in the UK and the U. S. On Slide 15, we take a closer look at The Body Shop's profitability. As mentioned previously, The Body Shop began implementing its transformation plan and booked its transformation cost in Q2 of BRL 37,500,000 or GBP 7,600,000. These are part of the estimated transformation cost totaling £30,000,000 to be booked in 2018 2019. These costs are in line with our plan and are already factored in the guidance we have provided to the market. The costs are tied to initiatives that will bring about a return improvement in the business with an estimated cumulative margin improvement between £105,000,000 £135,000,000 over the next 5 years, in line with our guidance. These initiatives include such actions as organizationally redesign, storpled with optimization and measures to improve operational efficiency among others. We already seen a strong improvement in The Body Shop's underlining performance, excluding these costs. As you see on the slide, adjusted EBITDA grew in Q3 to BRL24.7 million from BRL8 million with margin of 3.1 percent. On a reported basis, including the transformation cost, reported EBITDA was negative BRL12.8 million in Q2. In H1, the improvement was even stronger with EBITDA increasing to BRL44.4 million on a reported basis. Adjusted EBITDA, excluding transformation costs, reached BRL82 million, equivalent to margin of 5.1%. This improvement is largely due to a lower discount in the quarter as well as lower occupancy costs in owned stores and better franchise sales. These numbers reinforce our confidence that The Body Shop's 5 years transformation plan is on track and already delivering results. Let's now turn to Aesop on Slide 17. As shown in the graph, Aesop turned in another impressive performance, both in the quarter and in the half, with sales up 36.6% in Q2 to BRL235.5 million and 33.4 percent in H1 to BRL436.6 million at constant currency. This high double digit growth was across all channels and geographies. This growth was supported by continued store openings, including 25 new signature stores in the past 12 months as Zesoft entered new markets. Like for like sales in signature stores were also up by 21.6% with particularly strong growth in Asia Pacific, demonstrating the brand's increasing appeal. Online sales were also up in double digits. The graphs on Aesop profitability on Slide 18 also speak for themselves and show that EBITDA growth from strength to strength. EBITDA grew by a remarkable 30 2.5% at constant currency in Q2 to BRL25.3 million and 66.6 percent in H1 to BRL52.3 million. EBITDA margin reached 10.7% in Q2 and 12% in H1, a 300 basis points improvement. On Slide 19, we conclude this overview with a few sustainability highlights. 1st, as Roberto mentioned in his introduction, Natura became the 1st Brazilian brand and 1 of the 2 only 2 worldwide to be awarded by certification for its Ecos project line by the Union of Ethical Biotrades. This reflects how Natura sources its natural ingredients, respecting fair trade, conservation of diversity and first base relations with Camino. 2nd, the United Nations Global Compact nominated Ilerende Al, one of our founders of Matura and Curt Chairman of the Board of Directors, as a member of its Global Council in submission of his commitment to sustainable business practice. And finally, with 7,000,000 signatures in its global forever against animal testing campaign, the better shot is nearly to its target of retaining 8,000,000 signatures for the petition we intend to submit to the United Nations later this year. So now let me hand back to Roberto for his concluding remarks. Thank you, Filippo. Let's now conclude on Slide 20 with our key takeaways. With another quarter of growth in revenues and EBITDA, Natura is delivering, showing the strength of the group we are building. So hopefully, the story of the group now becoming multichannel, multi brand with a more international presence is helping the group and the business delivering solid results despite some of the challenges that we saw in Brazil, particularly in Q2. And all brands are contributing to this performance. Natura's good momentum continues, both in Brazil and Latin America, and its relationship selling model and multichannel strategy are advancing quarter after quarter. The Body Shop is making significant strides to deliver its vision of the future. The transformational plan is advancing and already showing early results as evidenced by a significant improvement in sales and underlying profitability, excluding the transformational costs. And Aesop's impressive growth story continues, with strong growth in sales and profitability quarter after quarter. With this solid second quarter performance, Natura and Co is on track to deliver the medium term target it presented recently, namely a high single digit compound annual growth in net sales and a low double digit compound annual growth in EBITDA through 2022, while at the same time reducing our net debt to EBITDA ratio to 1.4x by 2021, a year Our first question comes from Thiago MacRus with Itau BBA. Hello, guys. Good morning. My question is regarding the Brazilian operation. I would like to get more color on the impact this quarter of the trucker strike. You've mentioned some recurring and non recurring effects to explain the stronger top line and softer profitability. Just want to make sure I understand what was the impact of the truckers strike in profitability. And when it comes to your strategy moving forward, is it reasonable to assume that you will adopt a more aggressive stance in terms of pricing in Brazil from now on? Should we see these as a new normal? That's my question regarding the Brazilian operation guide. Thank you very much. Hi, Thiago, JP speaking. So, as regards to the effect of the truckers' strike, it actually impacted us 2 fold. 1, on top line, so our top line, which was really good, would have been even better if it was not for the strike. But once again, we proved the high quality of the services we provide and the capabilities we build over the years that deliver us ongoing advantage in the business, but proves itself in moments of stress like this. So that was the first impact. And indeed, we had impacts on costs because we had some idle assets. We produced as much as we could of what we could. Our Our distribution centers did their best. But however, I mean, we did face some idle time with our assets reflected in our gross margin. So and that's one of the reasons I'm very, very confident on margin improvements going forward in the second half, both in terms of gross margin, but moreover in EBITDA margin. As it comes to pricing, as you said, we are sort of seeing a moderate, not to say shy consumption pattern in the country, which, yes, not there's not much room for aggressive price increases. Although, we do plan a slight price increase as of next month. So the overall promotional activity grew in comparison to last year, but we do think this is a temporary level and should normalize as economy picks up. That's super clear, JP. Thank you very much for your answer. Is it better to say that the impact of the structure strike in profitability this quarter was north of 100 basis points? Is this a good estimate just for us to really have a ballpark and be more educated in our forecast for the remaining of the year? Yes. That's a fair assumption. That's a good ballpark. It be a higher impact on top line and above that in profitability. Our next question comes from Olivia Petronelli with JPMorgan. I have questions actually. The first one is on the gross margin in Brazil. I'd like to understand a little bit more the effects that resulted in the drop in margins. And maybe if you can link that a little bit to the lower average ticket that we saw in the quarter. So is this a matter of mix? Is this a matter of actual investments in prices? Is this impacted by the commissioning structure? If you could give us a little bit more visibility here? The second question is regarding The Body Shop. So basically, you gave us a little bit more guidance regarding the investments in the revamping process of the banner. If you could give us a bit more visibility on which regions we should be focusing on, if they should be mostly focused on franchise own stores, e commerce, new launches, etcetera? So thank you. Oliver, JP, I'll take your first question and then Roberto will take the second, okay? So as regards gross margin impact in our Brazilian business for Natura, 4 main drivers for that impact that you noted. First of all, the strike, as I mentioned before, so some fixed costs that couldn't be diluted. There's already showing some ForEx effect, right, exchange rate effect in our raw materials, right? There was a third element of product mix, which explains your second part of the question on a lower average ticket. Actually, one of the categories with a lower price outgrew the average, right? And finally, an increased promotional activity. So these are the 4 elements that explain the gross margin in Brazil. And Olivia, hi, good morning. Roberto here. I'll take the body shot on behalf of David, who is not here on the call with us. So the transformational program, as I think Filippo mentioned, we now have a very, very good handle in terms of the cost of the transformation. We are planning to spend about £30,000,000 between 2018 2019, roughly, I would say, dollars 20,000,000 will be in 'eighteen and then the other $10,000,000 will be in 2019. Most of that is going to be related to some of the organization design to improve the efficiency and efficacy of our structure. That's primarily in our company market, so Europe, North America and some parts of Asia, and also in terms of optimizing our store footprint. As we communicated throughout the strat plan over the next 5 years, we think we're going to match with a reduction between 100 to 120 stores in some of those key markets for us, again, company markets, okay? So hopefully, that helps. Okay. Now on the Body Shop, it's great. If I could just have a follow-up on the Brazil margin. Do you think this strike apart, do you think this should be the what we should continue seeing in second half? I mean, a little bit of question from FX and still promotional activities? Yes. Strike effects apart, there will be a pressure on those elements. However, partially compensated by a slight price increase. Moreover, a volume increase because as you recall, our volumes are skewed through the second half of the year, and we foresee huge flow through through our P and L. Okay. Thank you. Our next question comes from Guilherme Assis with Brazil Plurals. Hi, good morning, everyone. Thanks for taking my question. I'd like to get your views, maybe JP's views actually on the growth of the Brazilian market. Like we lost some of the information that you used to have about the potential growth. So I'd like to understand like market share wise, how you're seeing the company and how you're seeing the market grow in Brazil like the expectations for this year, maybe for next year? And how do you think the market share wise Natura will perform? So that's one question. And another question is about the consultant base in Brazil. Like we understand that Natura underwent like a cleanup. And it seems like the churn this quarter, like in the last quarter, actually became a net addition again, right? So the question here is, do you think that the cleanup is true? And should we expect the base to start growing again like in the short term? So those are my questions. Thank you. Hi, Guilherme, JP speaking. Thanks for the questions. Starting with the market, the market is very market growth is very modest currently as we read it. All information following the GDP growth, smaller GDP growth than forecast originally. So consumption is quite contained. Having said that, we're very, very pleased to say that we continue to gain market share after achieving or recovering market leadership last year, we continue to see Natura growing its market share. And actually, looking forward, it's also very promising. As you know, I mean, this Sunday, we're going to celebrate Father's Day. By the way, for all of you who are listening, enjoy the day with your families. But this is a very important day for us, which is being outperforming our expectations, which suggests that we will continue to increase our competitiveness in our market. So excellent opportunity for Natura going forward in spite of a lower market growth. As it comes to your second question on the consultant base, indeed, it seems it's stabilized. So it seems that most of the cleanup is over. The total number of consultants end Q2 is very similar, actually slightly higher than end of Q1. So as of now, we should see a sort of stable or perhaps an even slight growth going forward. Okay. I think that's clear, JP. Just a follow-up on my first question, if I may. Regarding like the market share gains and when you look at the numbers like the operating data that you provided, like you mentioned before that there was like a decline in the average price. I tend to think that as a mix of more promotions, but also an important part in product mix, right? So when you think about that and try to reconcile with market share gains, is it fair to say like that you are that like maybe last year the main driver for market share gains was fragrances and this year like you're more diversified in market share gains? I think basically, I mean, the core ones. So, basically, I mean, the core ones. So more diversified than last year indeed. Last year, fragrances was perhaps the biggest driver and continues to be, but the other categories are performing as good as some of them at this moment even better. So it is a more spread growth and that has an effect on the category mix in this particular quarter. Okay. Okay. Thanks. And maybe one just one last thing now that you mentioned that you believe that your consultant base is already stabilizing now. So should we start to see like a reduction in the productivity gains we saw like that was a big highlight in this quarter, like in the second quarter, should we start to see like a more modest productivity gains going forward? Well, Guilherme, that will lead to our modernization digitization strategy. So as we start filing new services and new possibilities of improving the shopping experience through the consultants, through digital services, through our end consumer. If that continues to work fine, we're going to continue to see improvement gains. Whether they're going to be as sharp as they were in the last, say, 4 quarters, That's yet to be seen, but we are working to have that indicator continuing to grow. Our next question comes from Richard Cathcart with Bradesco. Hi, guys. Good morning. Thanks for taking the question. Just a couple of questions about Matori in Brazil. Firstly, you said that you're going to begin to open more of the owned stores by the end of the year. Should we expect to see kind of a new different updated store concept? Or are you continuing to roll out the stores kind of that we already see in some locations in Brazil? And then the second question is just about the drugstores channel. You've got some specific products for that channel, the face makeup, the sole body care, etcetera. Could you just kind of give us some information about how that business is performing? What your expectations are for the rest of the year and next year? Thanks very much. Thank you for the question. JP speaking again. As it comes to store concept, we are indeed opening stores in the second half of the year. We opened Iperoi 2 weeks ago. Today, this morning, we just opened Goyanya. So there's sort of a dozen stores yet to be opened or more in the second half. It's still under the current concept. We are indeed working on a new store concept, but that should be should materialize next year. When it comes to drugstores, we are happy with the performance so far and we are looking at the opportunities to gear it up next year. So it's work in progress, understanding where the opportunities lie. And as soon as we have more news on that, we will inform you accordingly. Okay. And if I may, just to follow-up on The Body Shop in Brazil and Latin America. I think when the acquisition was made, one of the strategies you wanted to implement was direct sales of the Body Shop in Brazil, so leveraging the relationship that you already have. Can you just give us an update on kind of on that strategy and when we should begin to see that in place? Thanks. Hi, Richard. It's Roberto here. Again, just on The Body Shop, LATAM, again, we still see this as one of the biggest opportunities to drive growth. And we have now under David, but also under Robert Chapin, our Chief Transformation Officer, really starting to study what potentially could even help and boost even more the presence of The Body Shop at Innovate. We are looking at our store footprint. We are looking at the franchise model that we currently have. And we are going to be evaluating potentially direct selling as a complement. We don't have the strategy defined yet. It's work in progress as a piggyback here on JP's point. Our next question comes from Gustavo Oliveira with UBS. Thank you for taking my question. I want to start a little bit in Brazil, if I may. I understand there is a recent price increase being implemented. If you could comment a bit on that and whether you expect with this price increase the margin improvement, gross margin improvement in the half of the year or not? That's the first question. Gustavo, as I just mentioned, yes, we will increase prices slightly and that should help gross margin increase going forward. And Jean, what's the magnitude of the price increase? And just to confirm, you usually do a price increase at the beginning of the year. So I'd like to understand if this is the second price increase and but you didn't do in the first half of the year. And if you could give us a sense for what's the magnitude of the price increase now? And also if it's more related to pressures in related to the BRL devaluation or if you are seeing opportunity in the marketplace at the moment, since it seems that you're going to share in the competitive area at the moment? So not a big price increase, so low single digit, right? We did an increase price earlier, not much room for price increases in the market. Okay. And the second question is with respect to G and A. I think in the Q1, you had very good results in G and A in Brazil. But right now, your G and A expenses have been up 25% in this quarter. What we should expect for the rest of the year? Is it going to generally going to be growing more in line with revenues in your expectations? Or there should be some traction to stay for the rest of the year? Gustavo, it's Filippo. Yes, in terms of the projections for the year, I think we should take this number as a remainder. We don't expect to see increases on this number. They should be keeping this level. Again, that reflects, as we indicated, our investment in innovation is important about our digitalization and IT platform as well that we're incurring in some OpEx to that. And also that we took some of the IT assets in terms of the life we revised the useful life of some of the IT assets that also accounted for what you see there. But we expect to see this remaining in nominal terms for the year. However, with the growth, we definitely will dilute those costs throughout the year in the future. That's very clear, Felipe. And two last questions on The Body Shop, if I may. I would like to understand a bit. I understand you are cutting probably discounts. You're reducing the level of probably discounts. I wonder where you stand on that process and whether you would expect any impact on your revenue in the second half of the year or whether the consumers are actually continuing to buy and therefore, the elasticity of this discount is actually very low or not or whether there would be a potential deceleration on revenues going forward. It's quite difficult still at this stage to forecast your revenue line, although I recognize you had given a good mid to long term guidance. But in the very short term structure and perhaps in the second half, it's quite difficult to understand where you stand in terms of the potential impact of the product discounts reduction of product discounts on your top line? So, Roberto here. Let me see if I can help you. Again, I think, yes, we are on the process of reducing London's off discount for The Body Shop. And again, we think that the brand is worth more. And we are seeing some very good results in store, in a couple of markets where in Europe and also in the U. S, where we are experimenting and seeing consumers respond in terms of transaction positively even though we are reducing levels of discount. We felt as part of our due diligence that probably the brand was too much discounted. And we have great products, a great brand and the team is really starting again to work on the rejuvenation of the brand and how we can add more value. So that trend will continue. There is a projection from a revenue perspective. Again, we are very pleased with the results on the half one, right? So if you look at half one, we grew a little bit above 3%, 3.5%, 3 point percent. And I would say our expectation is that we'll continue that trend, right? Again, a combination of improving a little bit to the transformation, reducing discount. But again, we still have a long way to go to implement this brand designation. So that's pretty much the best proxy that we can have at this point. It's based on the half one results. That's very helpful. And one last question on the gross margin for The Body Shop. In the Q4 of 2017, and I'm asking a little bit ahead of the fact that the 4th quarter is your most important quarter. This is a very seasonal business. And you had a margin contraction versus the Q3 2017 number. But you're managing the company differently now. Should we still see a drop in the margins in 4 quarters because of mix effect in different campaigns? Or you think markets could be more stable than where they are right now, gross margin? Yes, Gustavo. We still expect to see the margin at a level that we saw before, but not a recession. This as you saw, the 1st two quarters already had a good indication about the capacity and the momentum of this business. And the 4th quarter is the strongest. There's a clear seasonality in this business for TBS, and we expect to see stronger Q4 as we saw in good years. That's what we expect. 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, Larissa, and again, thank you all for joining us. I'd like to just to wrap up and acknowledge and thank all of our associates at Natura, The Body Shop, very proud of. And the results, again, hopefully, you would agree with us, are pretty encouraging and very positive on the quarter. And for the ones in Brazilian, wish you a happy Father's Day and just reinforce JP to make sure that you are buying in a tour gift for your fathers. And thank you very much. Have a good weekend. Thanks, everybody. That concludes the Natura audio conference for today. Thank you very much for your participation and have a good day.