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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Natura &Co's Q1 2024 Earnings Conference. It's important to inform you that if you need simultaneous translation, the service is available on the platform. You may access the service by clicking the globe shaped icon labeled interpretation located at the bottom side of your screen and choose your preferred language between Portuguese and English. If you choose to listen to the conference in English, you may also choose to mute the Portuguese audio by clicking on new original audio. Joining us today are CEO, Fabio Barbosa; and CFO Guilherme Castellan, Executive Director for Latin America, Joao Paulo Ferreira will be joining us as well for the Q&A session. The slide deck to which we will be referring to during this call is available for download on the company's Investor Relations website. I will now turn it over to Mr. Fabio Barbosa. Mr. Barbosa, please proceed.
[Interpreted] Good morning, everyone, and thank you for joining us for our first earnings call of the year. I can't begin without first expressing our solidarity toward the people of Rio Grande do Sul, who is experiencing the biggest climate tragedy in the state's history. We're facing a challenging scenario, but our priority remains unchanged, and that is to take care of people. We have teamed up with public and private organizations, local communities and suppliers to facilitate donations and ensure continued support for the people who Rio Grande do Sul. We are donating essential toiletries to the civil defense department. Our offices, plants and distribution centers are working as collection points for warm clothes and blankets as well as other items that will be sent to Rio Grande do Sul according to local needs. We're offering everyone medical, social and psychological support through telemedicine resources and our social center. We're also launching a campaign to help the consultants who were most affected by the rainfall to rebuild their homes. Our goal is to double the volume of funds that have been donated. So for every BRL 1, we'll donate another BRL 1.Finally, we have planned steps to stimulate the local economy as soon as possible, including restocking, inventories, extending payments and supporting the reconstruction of stores and points of sale. Let's now turn to the main highlights of the quarter. Natura Brazil once again has once again stood out in terms of growth in the quarter. The brand has shown strong growth, and this quarter has been no different. Revenue growth compared to the first quarter of 2023 was in the low double digits. The strong innovation plan for the band throughout 2024 is expected to average -- to leverage the continued solid performance for the year.Natura's solid performance was not offset by Avon LatAm and Avon International, but in very different ways. Avon LatAm, the drop in revenue was planned given the implementation of Wave 2, which is still impacted by the reduction in consultants and SKUs. Where Wave 2 has also been implemented, we continue to see sustainable improvements in key operational metrics, productivity, cross-selling and a better portfolio mix to name just a few, and these improvements have been positively impacting profitability. These are early signs, but we're very confident about Wave 2. At Avon International, on the other hand, we had a quarter of shrinking margins as sales were deleveraged. The new management is still committed to simplifying markets and focusing on key countries combined with an optimized portfolio and improved promotional strategy leading to stabilize revenues and improve profitability. On that note, I'd like to hand over to Guilherme, who will give you more details about our financials, and then I'll come back for my final remarks and to answer your questions. Thank you.
[Interpreted] Thank you, Fabio. Let's move on to Slide #6 with the company's consolidated revenue, which reached BRL 6.1 billion in the 3 months, up 1.1% in constant currency, while excluding Argentina and -- the Body Shop, the drop was 3.9% in constant currency. In BRL, sales fell by 5.7%. As you can see on the chart, Natura Co LatAm, which accounts for 77% of our revenue grew by 3.1% in constant currency, while AVON International fell by 4.7% in constant currency as well. In LatAm, as Fabio mentioned, the performance was driven by Natura Brazil, with revenues growing 11% vis-a-vis Q1 '23. And it's worth noting that this growth came on top of a strong comparison basis a year ago. This expansion was around 25%. It was also a richer quarter from the mix standpoint, especially with the launch of the Perfumada sales campaign focused on fragrances. On the other hand, Avon LatAm showed an expected drop in top line due to the impact of Wave 2 in the region, which reduced consultants and SKUs. The Home & Style category, which showed a double-digit drop due to the integration process in place. Avon International, we had a 4.7% drop in revenue. If we exclude the Body Shop, a 7.2% drop. The performance reflects the 4.2% drop in the beauty category and a stronger drop in the Home & Style category. Now let's move to Slide #7 and see how those results reflect profitability. As you know, it is our focus, profitability on Slide 7. Once again, we can see the performance of our adjusted EBITDA. This is the fifth consecutive quarter in which the company has shown an improvement in profitability. In the first quarter of the year, we had an improvement of 110 bps and adjusted EBITDA margin year-on-year. 90 bps coming from gross margin increase and 20 bps, some corporate expense reduction. In LatAm, the evolution in profitability was significant at 120 bps, mainly explained by the Wave 2 initiatives and the country mix, including brands and countries. This advance in LatAm was partially offset by the 80 bps contraction in Avon International's margin. Moving on to Slide #8, we present our net and underlying results. In Q1 24, the reported net loss was BRL 935 million, negatively impacted by the write-off of BRL 485 million of earnout receivables from the Body Shop and the impairment/eoff of BRL 139 million from Avon International, also mostly related to the restructuring of the Body Shop. As we evaluate the underlying, which is the net profit, excluding the cost of transformation, integration, restructuring, discontinued operations and the effects of the PPA, the amount of the loss falls to BRL 116 million. About 1/3 of the amount recorded a year ago of BRL 373 million. This improved result reflects a higher adjusted EBITDA and the reduction of financial expenses. Due to the drop in debt offset by the increase in taxes related to the mix across profitable and unprofitable countries. If we exclude the nonrecurring BRL 137 million amount relative to expenses from transferring cash from Argentina, underlying net profit would be positive at BRL 21 million in the quarter. We now turn to Slide #9 to talk about our cash flow for the quarter. Free cash flow from continuing operations in Q1 was negative at BRL 1 billion, an improvement of BRL 368 million on a pro forma basis or BRL 803 million when compared to the cash outflow registered in Q1 '23, which sat at BRL 1.8 billion. This improvement is due to a combination of higher adjusted net income, slightly better working capital dynamics including improved accounts payable and lower CapEx explained by the phasing of investments. These effects combined more than offset cash consumption at BRL 176 million for inventory building for the second quarter and the effects of the Body Shop, which impacted total working capital at BRL 86 million. Moving on to the next slide, Slide #10. We have data on our debt level. As you will remember, we used the funds from the sale of Aesop to write off part of our debt, and we ended the first quarter of 24% with a cash balance of BRL 5.9 billion. Our current net debt over EBITDA ratio is 0.13x reflecting a net debt of BRL 275 million, excluding leasing at the end of the quarter and made seasonal cash burn of BRL 1 billion, combined with the payment of taxes related to discontinued operations.Let's now talk about our operating results -- we continue to implement Wave 2 in Latin America. And as Fabio mentioned earlier in the call, the results we are now seeing make us confident that we are on the right track with continuous improvement in operating metrics and also in profitability in Latin America and countries where material and Avon brands were consolidated. Activity in Brazil remains solid with cross-selling growing even amidst the maintenance of the 2 order minimum split between Avon and Natura. It's worth noting here that in Avon Brazil, we can already see a trend of improvement when we look month on month. And our expectation is that Avon's revenue will begin to stabilize throughout the second half of the year. From the standpoint of the evolution of several projects, it's worth mentioning the harmonization of delivery times between Natura and Avon in Brazil, which has meant the average delivery times are now similar for both brands in most regions. With regard to inventory, the failure reported in the last quarter continues to improve but has not been totally addressed. Inventories of the SKUs in the main categories have been protected, including fragrances, and that has allowed us to have a healthy performance for the Natura brand. It's important to note that the consultant base is still down compared to the previous year, but it is now stable compared to the previous quarter. There was also no significant change in the organization of sales leaders and their consultants as well over the quarter. In Hispanic Latin America, Meanwhile, productivity in Peru and Colombia continues to show a strong growth compared to the previous year, partially offsetting activity that is still down year-on-year, but which is recovering on a better trend. It is also worth noting a significant expansion of margins in Peru and Colombia as a result of Wave 2 emerge in full at the same time, investments in other channels and other nonrecurring items become less relevant and start to be phased out. On Slide #13, we have a detailed breakdown of Natura &Co LatAm's performance. Revenue rose 3.1% in constant currency, which includes Argentina. Excluding Argentina, we recorded a fall of 2.7% in constant currency. In the CFT category, the tour Brazil grew 11 [ Break ]A testament to the brand's accelerating dynamics in the country, even considering the impact of a higher tax burden on our net revenue. In the Hispanic region, Natura's CFT revenue was about the same in constant currency, excluding Argentina. Avon in Brazil fell 11% in CFT, while the Hispanic region fell 12%, as you have already mentioned, both still impacted by Wave 2 as expected. In the Home & Style category, the reductions were stronger to the tune of 26% in the Hispanic region and 42% in Brazil, directly linked to the planned strategy of optimizing our portfolio and reducing commercial incentives, still showing an improvement in profitability and return on invested capital. This is the fifth consecutive [ Break ] margin since Q1 23. In this quarter, Natura &Co's LatAm's EBITDA rose by 5.5%, reaching a level of BRL 666 million with the adjusted EBITDA margin reaching 14.2%, an increase of 120 bps, partially offset by the acceleration of plant investments linked to marketing, especially for the Natura brand and the improvement of service levels, reaching to an increase in sales expenses compared to the previous year. These investments are relevant because there is a high correlation between the improved level of service, consultant satisfaction and consumer satisfaction as well and the level of productivity, which are important KPIs for the company. It's worth mentioning that there was a reallocation of expenses in the tune of BRL 44 million from the G&A line to commercial expenses, which has also impacted that specific indicator. Now let's move on to Slide 16 and talk about Avon International, which continues to underperform. In constant currency, the drop was 4.7%. And if we exclude revenues coming from the Body Shop for the production of products, the drop was 7.2%. In addition to the Home & Style category, which fell by 22% as a result of portfolio optimization. The beauty category fell 4% year-on-year. Those falls reflect not only a lower number of representatives, but also weaker promotional execution starting Q4 last year, which we expect to normalize as of Q3 this year. As a result, AVON International's adjusted EBITDA margin was 5.3% in the quarter, down 80 bps amid operational deleveraging, although partially offset by the lower selling expenses. I'll now hand over the floor back to Fabio for his closing remarks.
[Interpreted] Thank you, Guilherme. Well, we continue to move forward in studying a potential separation of Avon as we said in February of this year to simplify our corporate strategy and give our business units more autonomy. We will communicate that to the market as soon as we have news. In addition, as you were able to see, we had a solid beginning of the year at Natura &Co LatAm with positive results and signs that the initiatives we are introducing with Wave 2 are delivering the expected results. Margins and cash generation are still are absolute priorities in the near term, as our resource allocation will continue to be essential to value generation. It's important to highlight that in the last 2 years, our profitability has nearly doubled. Our adjusted EBITDA margin pro forma was 5.9% in Q1 2022 and is now at 11.2% this quarter. I'd like to reinforce that strengthening our margins was a priority, and that's what we did. Lastly, I'd like to once again reinforce our message of hope for Rio Grande do Sul. As we work toward rebuilding, we are committed to keeping our focus on the mission of taking care of people. Let's now move on to your questions.
[Interpreted] We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Felipe Rached with Goldman Sachs. Please proceed.
[Interpreted] I'd like to explore the potential unification of Natura & Co. in Avon in Brazil. So far from what you understood about how your representatives are working, does it make sense to combine all the orders? And do you know when this will cause the minimum possible impacts on those orders? Any color you may add to that will be absolutely appreciated. [ Break ]
[Interpreted] Sorry for the inconvenience. Filipe. So going to your question, we have concluded all of the studies on different order combinations, both the commercial side and the logistics side and it makes sense for us to keep our orders separated by brand, but unified during checkout and delivery -- so the process is expected to evolve along those lines in the next few months.
[Interpreted] Perfect. So no specific timing so far, right?
[Interpreted] Yes, we should have concluded all of that very soon.
[Interpreted] Okay. Perfect. Our next question comes from Ruben Couto sell-side analyst with Santander.
[Interpreted] Good morning, everyone. I'd like to hear a little bit more about Natura LatAm. Again, this was a highlight despite the smaller basis and despite the increase in prices compared to last year. I'd like to understand what we could expect in terms of gross margin for the rest of the year with pull coming from higher-priced products, should we see a steady margins compared with last year. The level we saw in Q3 is something that we can expect to persist for the rest of the year?
[Interpreted] Thank you. Ruben, this is Guilherme speaking. I will start very quickly by talking about the gross margin, and then I'll turn it over to Joao, if in case he has anything to add. In a nutshell, the tone was very much impacted by the mix of products. We talked a lot about fragrances, the mix per country. And obviously, we continue to pass along the pass through the prices at least when it comes to inflation. This is true both for Avon and LatAm, Latin America. But of course, when it comes to gross margin, we're still being very positively affected by the management, especially in LatAm with the new portfolio, seeking better margins, as we said earlier as well as a positive product mix. It's important to underscore before turning over to Joel for him to add whatever he may have to the LatAm issue. Avon International, also excluding the Body Shop has grown its margins year-over-year. And this is also due to the strategy of passing through inflation to our prices and promotional sales as well. But of course, the LatAm strategy is to blame in large part, both in terms of choosing the SKUs and in executing the pass-through as well.
[Interpreted] Guilherme, this is Joao. I'd like to add only that we are absolutely connected to the market, monitoring prices in the marketplace at large and also the elasticity of our brands to identify price adjustment opportunities. I'd also like to point out that during this quarter, our strength indicators both for the Natura and the Avon brands did really well. We saw brand equity improvements across all our markets in the region for both brands -- this makes us even more confident in terms of managing our revenue as calmly as we need to.
[Interpreted] That was perfect. Thank you, everyone.
[Interpreted] Moving forward, our next question comes from João Soares, sell-side analyst with Citibank.
[Interpreted] I just wanted to follow up on what Guilherme mentioned that you've finished the order combination study that over the next few months, you will be unifying checkout and delivery. We have been discussing whether it be the risk of initiating a wider logistics operation in Brazil may affect you. I just wanted to understand how that's going? Should we expect to see maybe a more gradual transition to prevent disruption and ensure that the brand's commercial performance is still consistent. I just wanted to understand the discussion around that integration. My second point, this is to Guilherme specifically. When we look at the balance sheet and the liability management that you've performed, we had the underlying profit in our minds, that would be around $100 million. Is this feasible if we exclude all the noncash expenses that you added, I don't think you added that to the waterfall. Where would that fall currently?
[Interpreted] Thank you for your question. I will turn over to Joao for him to ask -- for him to answer your logistics question, and then I'll take the second part.
[Interpreted] Thank you. Well, from the integration perspective, all the main Hispanic Latin American countries or the link markets have already executed that integration. But Brazil is a very large market. So operations in the North and Northeast have already been integrated from the distribution perspective. It's not been the case for itself, but that doesn't prevent us from combining deliveries. So delivery flows will be integrated, and I don't see any major risk of disruption from here on out. Our transportation companies have also already been integrated. So I don't see any major risk of disruption in the next stages. -- Guilherme?
[Interpreted] Thank you for your question, João. This is an important point to address. So thank you for asking the question about the net profit. There have been many things affecting our profit during this period. So it's important to look at the breakdown of that more calmly. Being very pragmatic, if we look at the net profit for the quarter, minus BRL 935 million Several different one-offs have impacted that during this quarter. Starting with what we're calling order operating expenses, BRL 50 million. And we also talked about that in our release. This was, in large part, caused by an impact from write-offs in Avon. Those were connected to the Chapter 11 by the Body Shop. So this was the receivables that we relied on. I believe that we did everything that we had to. So there's no more impact expected along those lines. Maybe in mind that this line was positive in Q1 '23, positive by BRL 30 million. So of course, this is a one-off. We expect to not see major impacts on this line in the following quarters, but it's difficult to predict that. Also in Avon, there was the issue of the Body Shop products. The second line that has had an impact on that is transformation, which is what we called cost to achieve before as well as transformational costs. That was -- that accounted for EUR 89 million in the quarter. And just as we've said in the past, this is one line of cost that's expected to persist not in the same magnitude as in Q1 '23 -- you may notice that it was higher in '24 when compared to '23. So we expect this to be a bit lower moving forward, but it will remain high. So as we said earlier, at least in 2024, we expect that to remain but decrease significantly in 2025 to a very, very low level in '26. So decreasing in the next couple of years, but over the course of 2024, it should remain high. We should begin to see easier comps along this line starting in 2025. Another important point to address is our net financial expenses. That was BRL 100 million better than last year only. But you can already see the difference between interesting commitment expenses between our investments and expenses because of our cash position. But this line has been impacted by Argentina. So you have the impact of hyperinflation in Argentina. In this quarter, something that we judge not to be recurring, but on an opportunistic basis, nearly BRL 130 million in accounting losses relative to the cash position in Argentina, which obviously affected this quarter. So obviously, we do not project these costs to be repeated every quarter moving forward. But another thing I wanted to stress here, and I'm going very much into detail on this point because I think it's important to talk about net profit because of the magnitude of these figures is taxes. We had a higher than average effective tax rate this quarter as a result of the mix of countries in terms of profit, but more specifically, nonrecurring effects, one-offs and noncash items that affected that this year. So obviously, we do not offer any guidance in terms of taxes, but we are pointing out that our ETR was higher than average this quarter because of these significant impacts. And lastly, there were discontinued operations, which was somewhat offset by the earn-outs with the Body Shop. These were essentially short-term earnouts. We're talking about essentially 2-year payments. So the situation with the Body Shop at present is, we chose to take the conservative route and show that we are not going to be receiving these earn-outs. These had to do with specific financial targets we had with the body shop. So in a nutshell, when you look at our underlying net profit and you can correct that for these issues with something closer to EUR 900 million, so negative EUR 100 million. But there's also the impact of inflation and the cash withdrawal in Argentina as well as other one-offs, as I said earlier, such as the ETR issue that affected the result this quarter, noncash element. So we are sharply focused on our net profit, and we are working for this figure to be clear, so to speak, and we believe we have what it takes for this to be positive next quarter
[Interpreted] Thank You, that was very clear.
[Interpreted] Our next question comes from Joseph Giordano, sell-side JP Morgan.
[Interpreted] Hello. Good morning, everyone I have a couple of doubts about Avon International. I'd like to have some more context about the nature of those Intercompany transactions in terms of profitability, what can we expect going forward for the next quarters? And also the potential spin-off from Avon International, which has been on the table for some time. I'd like to understand what would be the main drivers that you're talking about the pros and cons. If you could share that would be useful -- and also, I'd like to understand the main initiatives you have in place to try to resume your operating leverage on that front? Or if you're thinking about simply cutting costs so that you can resume cash neutral margins.
[Interpreted] Thank you for your question. We mentioned some of that in our release, Avon International had yet another quarter where revenues dropped. That was somewhat expected after Q4 performance of last year. So we were to be sure, expecting that level of results, especially for CFT category almost minus 4%, Home & Style saw a higher impact. For Avon International, which is important is to prioritize different markets. We talked about it before. And it's not only a priority along the lines of changing the way you operate. But it's also to really believe to gamble on up-trending markets that have shown strength. And then invest resources that were before allocated to other markets. So we may continue to see a slowdown in revenues in the short term for Avon international, but with a focus on improving both revenue in the future, especially margins. As we prioritize key markets, as I said, important markets, markets that show strength where we see positive signs coming from both channels, also markets that can recover faster than other markets. It's important to highlight that. As we have also mentioned in Q4 and now in Q1 once again, there were impacts coming from promotions that were not well executed in this quarter, just as it happened in the previous quarter -- and we believe that we will start to normalize as of the second half of the year. So we continue to work to stabilize revenues just like we did in the first 9 months of last year, second and third quarters, in particular, as I said, stabilizing revenues is important so that we can have a better operating leverage as you mentioned yourself. So we do believe and the plan we have in place is an aggressive cost reduction plan going forward. And we do believe that once we are able to stabilize revenue, we will resume levels of margin expansions that is our main focus now. I'll turn it over to Fabio, and then I'll be back.
[Interpreted] Just one observation about the split, our strategy about that is that both units have to be feasible. It's not about splitting and each one have an independent path. -- the idea is to keep both units viable, feasible. In terms of taxes, R&D, IT, brands, it's a complex issue, as you will know. Guilherme said it and said it well, we need to focus on operation margins, costs, and we are taking our time to do that. It's all part of the same equation. So be sure and we need to be sure we have viable units. That's our focus with no definite deadline to achieve that.
[Interpreted] Jo, that's what we had. If you have any follow-up, we can do this off-line. But in terms of Avon International, that's what we had to share with you.
[Interpreted] Thank you, Fabio. Thank you, Guilherme.
[Interpreted] Our next question comes from Luiz Poli Guanais sell side from BTG Pactual.
[Interpreted] Two questions. If you could give us some more context on the working capital trend, if we can expect an improvement as Wave 2 is ramped up in Latin America? And also a second question about capital structure and dividend payout, after that first payout you announced earlier in the year and considering what you just said, you are always going after improvement in the bottom line, better profitability. What can we expect going forward in terms of dividend payouts?
[Interpreted] Thank you for your questions. Starting with your first question about the working capital dynamics. That's yet another commitment we can -- two years ago, as we plan to expand margins, we also announced we wanted to improve the company's cash conversion levels and with a couple of hiccups in some quarters. But overall, we are quite confident that we will improve the company's gas conversion. It is already happening in a very sustainable way as we see it. We see important relevant KPIs performing well, payables, inventory, receivables. And as I said before, in the past, the company had historically used receivables and other financial levers to improve working capital. That's something we no longer do -- so that has had an impact. And we are now overcoming gradually, but positive results are emerging quarter-on-quarter even amidst some headwinds we are facing. But we're no longer doing that just to be sure our working capital is quite clean. And we do believe there is room for that, as I have always mentioned, and I'll reinforce once again, receivables, especially given the strength of Natura Brazil and Natura LatAm, especially in Brazil and the expansion we have going forward, and we've been talking about it about expanding margins and cash flow, but we are now going through a moment to go back talking about growth. This is true for Brazil, for Latin America. Let's go back to talking about growth. Joao and his team have had another strong quarter for Natura with a very strong innovation pipeline for the year. As revenues grow, we have to expect some headwinds on the receivables front, but we are quite bullish that we continue to improve inventories and improve payables. Just as we have filed in the first quarter of this year, there are initiatives in place for inventory. For example, there is a very broad logistics program being put in place to improve service levels and also to improve inventory levels. And also for payments, we've talked about it extensively in the past in terms of payment terms and other levers that the team has been using and we continue to do so to help smaller suppliers that we have in our chain, and that's important for us to keep them healthy. In terms of working capital, I repeat, it's still a very important lever for us as we convert cash, and we see room to improve on that front in the coming quarters. As for the capital structure, -- we talked about it in the last quarter when we announced the dividend payout numbers, the cash burn in the first quarter is seasonal. So it's not unexpected. We were able to improve actually working capital levels, which was a priority, especially when you look at the results of the first quarter of last year is still including the Body Shop. We saw a cash burn of BRL 800 million for us in addition to what we had. So we are quite optimistic about the year about the potential of our cash conversion for the year. And we are confident in the plans that we have in place. So nothing changes in that respect. The second half is a period of much stronger cash generation for the company. So we need to take seasonality factors into account. And we look at our optimal capital structure at the same level as we have last year, between 1 and 1.5x. But as we also said, that number is not going to materialize overnight. So we need to continue to deliver our plans, our strategies, and we are quite optimistic about the coming quarters and will increase the payout as we move forward and as the company improves performance, both in terms of profitability and also in cash conversion. I'll give it back to Fabio for his observations.
[Interpreted] As Guilherme just said I'd like to reinforce our capital discipline. That's something we take very seriously, where to allocate the best return levels Also, for the past 2 years, we have been working on improving profitability and also cash conversion. Those 2 drivers are important. And that sometimes has sales growth -- so what Sao Paulo did he tweaked with the prices. It's a very strong market that worked well. He has revisited some SKUs, the Fashion & Home. So sales suffered to some extent, but the objective was reached. Now once we have reached a level of profitability, which is continued satisfactorily, the idea is to reach a level of resuming growth. It also happened in Avon International, the same concept, reducing SKUs, improving prices, work with fashion and home, which may be important in terms of compensation for consultants, but which is not -- is what sustains the company, right? Just to say those adjustments have implications in terms of growth, of course. But I think we are now turning that page and we can look ahead and be talk about profitability, the same way we talk about sales growth, something we have been addressing differently in the past 2 years.
[Interpreted] That's the focus that Fabio mentioned, but just to be sure I'd like to repeat, we will continue to talk about growth, of course -- but we are not satisfied with the current margin, of course. Now we believe that margin is at a level where we can sustain margin expansion. So this will continue to be our focus. And as brands also grow, we continue to focus on the company's EBITDA margin.
[Interpreted] Our next question will be asked in English. It will be asked by Bob Ford, sell-side analyst with Bank of America.
[Interpreted] What share of your income came from cash in the 3 and the $73 million in net debt with the holding, how much of that came from the listing and delisting in the United States? And how should we think about savings relative to regulatory expenses and other nonrecurring expenses. And also to Guilherme, you mentioned your pipeline. How should we think about innovation this year in terms of categories, prices and types of technology. And lastly, -- what rate of sales and profitability is coming from rebounded to -- where is your mind at in terms of how long and for how -- and how deep will be the impacts of what we're seeing right now?
[Interpreted]Thank you for your question. And congratulations on the perfect Portuguese. I'd just like to address a few points that you touched on. Of course, everything that's relative to Latin America goes to Natura, but it has been a journey, Bob, both with LatAm and Brazil when it comes to house and style. So again, you look at the results from 2 years ago. There were a few countries where Home & Style accounted for over 30% of revenue. In some cases, over 40% of revenues -- and obviously, there has been a dramatic decrease in these figures, both for LatAm and Brazil and Latin America, even more so because of Natura's expansion plan. So you see a decrease by 40% in Brazil and Hispanic Latin America, going down by over 20% in other quarters. And again, this is something we had warned the market about. And this was a category that was relevant, especially because of activation reasons. But now that we have a platform that unifies Natura and Avon. -- even with separate orders, we believe that this category will maybe increasingly lose room and will be important to add value to the brand at large. So we are not going to see millions of SKUs, and this is not something we see as adding value to the brand moving forward. But it's important to say both for Avon International and Avon Latin America that as much as we've seen developments in this category, this came at the expense of our larger margin. So it's not like we're bleeding with this decrease. So we have been able to improve our margins by reducing our revenue, especially with the improvements that we've seen in our gross margins. And naturally, we continue to work along the lines we've mentioned before in terms of capital by category and payroll loan lines as well to improve the cash conversion within this category. So a lot has already been done. There's been significant improvements. We do not inform the market about decreases in percentage terms, but you may see that there's been an important improvement. This is no longer an essential category in most countries, except for a few, such as the Philippines, where this is sort of a base category also South Africa. But in LatAm, this no longer is as important as it once was, but we are still working on an SKU optimization strategy, expecting some stabilization in the future. But in the near term, we still expect revenues to continue to go down. I don't know if you have anything to add in terms of LatAm, I will be turning over to Joao now, and then I will come back to answer the questions about the holding. And also, if you'd like to talk about the innovation pipeline for Latin America that was Bob's other question. Thank you...
[Interpreted] Hi Bob Guilherme mentioned that we have a very strong pipeline, and I'd like to attest to that once again, starting with the Avon brand. Of course, we -- we're innovating across every brand. But in Avon, we have prioritized makeup and facial products. And notice in Q1, both makeup and pace have gone up in Brazil. Later in the year, we'll have a stronger pipeline of perfumer that's also important to strengthen the brand. When we move to the Natura side we do not have that -- there's no way of not having a very strong body and perfumery products innovation because that helps us to stay at the top in these categories. And naturally, there's a very strong pipeline in phase and here adding to the strengthening of our portfolio. As to Home & Style, Guilherme has already touched on that. In Latin America, when you look at the overall business we work on, and this is -- this makes up 5% to 10% of our total revenue when you combine Avon and Tor. And I insist, we have recovered the profitability and cash generation to a large extent in this category with a very, very healthy ROIC. So when it comes to the pipeline that we are looking at, we are very, very confident
[Interpreted] Now Bob, just to go back to the ABR leasing -- we have savings that we didn't even address in this quarter, but which wasn't really a main driver of our decisions. And it's also not as significant when compared to the results of our holdings. So we're obviously still working on streamlining the holding as we said earlier. We are still making efforts to simplify things with many projects underway at the same time, we are still simplifying things as much as we can, but we still see room to work on that as we continue to deliver our streamlining plan. So naturally, we expect improvements in this figure, but nothing of that having to do with the listing of our ABR. Now as for Rio Grande do Sul, I will turn back again to Fabio, who will go a little bit more in detail into that, and we'll have answered everything you asked... Thank you.
[Interpreted] Well, Rio Grande do Sul accounts for about 2.5 -- between 2.5% and 3% of our revenue in Latin America -- and our standard practice is the same we've done during the pandemic. We're trying to contribute to society to help recover and help the population as much as we can via donations and protect those who are part of our network, our suppliers, associates and most importantly, our consultants. And as much as possible, keep the economy running, especially a few weeks from now, by helping to rebuild their stores and help consultants to go back to work. We are very proud of the entire work that we've mobilized between the donations we've had, both in terms of clothes, essential and staple items, fund matching by Natura. -- we have donated over BRL 2 million to the region. We know that it's not that much, but anything anyone can do right now is extremely valuable -- going back, I did not want to be that dramatic, but I'd be remiss not to say that this is a long-term rebuilding process. And I'm speaking not only of reground tool but Brazil at large because the water is still rising. So it really is a catastrophe. And the work that we have to do here with the tour is not just to provide the staples, toilets, clothes and all of that, but it also has to do with what will happen once the water has gone down. So as a Brazilian company, we are very happy to see how people are moving to support everyone in the state. And Natura has a specific -- a special focus on people. We have a large consultant network, and we are doing everything we can. I just wanted to reinforce that. This is extremely important for us.
[Interpreted] Congratulations, everyone. That was perfect.
[Interpreted] Moving forward, our next question will be asked in English. That's from Andrew Ruben, sell-side analysts with Morgan Stanley.
[Interpreted] Most of mine have been answered. Just to try to understand a bit about the Argentina operations, understanding there's the various accounting impacts. But what are you seeing on the ground in terms of business performance, both any trends in sales and margins and the outlook would be very helpful?
[Interpreted] I will start with operations Guilherme and then you go into financials, okay? Well, Andrew, what we're seeing now is a downturn in consumer spending at large, which is translating into smaller volumes. This was more intense at the beginning of the quarter and has sort of leveled off now at the end of the quarter, but there has been a decrease in spending in it seems to me this is a trend for the Argentina market. From the operational standpoint, there's no restriction in terms of the traffic of goods. So imports and exports of items, components and so on. That's no longer an obstacle, something we had to deal with very often in previous years. This makes it easier for us to respond and changes in consumer trends along the way. But that being said, the business continues to work. We do see progressive spending with our consultants. And for now, what we see are good economics despite challenges in flow and translation, right Gui?
[Interpreted] That's very accurate Joao, said it very well. I just wanted to reinforce that Argentina is a country we are leaders in with Natura and Avon. And as much as we understand that there might be very significant short-term macroeconomic challenges. We're still committed to our work in the country and committed to our base of consultants in that country. And obviously, also committed to growing our market share and growing our financial indices. So going into financials, we talked a little bit about our results in Q4 Andrew, when we mentioned the year and that we should expect this to be a year of growing margins for the company, looking at our operations, excluding Argentina because we don't exactly know what's to come in the next few quarters. For example, this quarter, we saw hyperinflation, so high inflation levels, but with; our index is not moving alongside that. So we might see changes quarter-to-quarter, but it's difficult to predict what things will look like in Argentina in the near term, but this quarter in particular, Argentina benefited in a way from the increase in prices following inflation as we've seen lately, obviously, benefiting from the inventory levels because of the inventory that we had in the country. So this was a relatively positive quarter in Argentina earlier this year. Now whether things will remain the same or not, that's hard to predict. But again, we continue to work to maximize our profitability in that country. And -- we're obviously happy despite all the macroeconomic challenges that we are seeing and experiencing in that country, we're very happy with the results we were able to deliver in the first quarter of this year, and we'll continue to work to deliver positive results in the next few quarters...
[Interpreted] The Q&A session is now over. We'd like to turn the floor back over for the company's final remarks. Over to you, sir.
[Interpreted] Well, just to thank you all for participating. We have been walking together along this journey. We took some commitments a few years ago. Things are now materializing. Of course, adjustments are needed here and there. Sometimes the pace is not the pace we expected. But the most important thing is that we're going towards the same direction towards cash generation, profitability, CFT always looking at Fashion Home, not as a strategy, but as a complement to our strategies, also in terms of consultants compensation. So the focus -- that focus has been bearing fruit. Of course, we want to improve Avon International, which is somewhat lagging behind to some extent, but we continue to pursue that objective, so that the company as a whole will bring the results we all expect. And once again... Thank you...
[Interpreted] To reinforce our commitment right now, this topic has been impacted. All of us, the real granted floods. We are all galvanized around helping that state. The severity is very, very important. So we count on you to help us support in the coming periods. Thank you all. And our IR team remains available for other questions or comments you may have offline.
[Interpreted] Thank you. Natura's first quarter earnings call is now over. The company's IR team remains available for questions you may still have. Thank you all for participating, and have a nice day, everyone.