A 70% drop in shares and a loss of R$ 2 billion: what happens to Natura?

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Maria Aparecida Pereira Toscana, 59, has no idea who Fabio Barbosa is. She doesn’t know that the command of the Natura and Avon brands, which she has been selling for almost 30 years, passed five months ago in the hands of Barbosa – who has in her resume the presidency of Santander Brasil and Febraban (Brazilian Federation of Banks).

But there is one thing that she has found strange: the price of the products has already risen twice this year and should rise the third in December. “And a lot of product has been out of stock. As soon as a promotions cycle starts, which everyone is after, I almost can’t close the first order, it’s already sold out”, says Cida, owner of a point of sale in a gallery, in the west of São Paulo. “Or the products have a purchase limit, which is bad, because I can’t serve my customers.”

Cida’s remarks reflect the tip of an iceberg that Brazilian cosmetics multinational Natura&Co. –owner of the Natura, Avon, The Body Shop and Aesop brands– has been trying to get around more since the hiring of Barbosa, who was already part of the company’s board of directors.

The rising inflation in the main markets of the group –Europe and Latin America–, accompanied by the impact of the exchange rate, the increase in the price of raw materials and commodities such as palm oil, resins and plastics, the unfolding of the war in Ukraine (which increased the energy costs, for example), in addition to the drop in the population’s purchasing power, have compromised the margins of the Brazilian multinational, which held back the level of promotions. Hence the lack of products with attractive prices.

Judging by the company’s third quarter results, released on Wednesday night (9), there is still a lot of work to do. The group suffered a loss of R$ 559.8 million between July and September this year, against a profit of R$ 272.9 million in the third quarter of last year. Net revenue, in turn, fell by 5.7% in the period, in the annual comparison, to R$ 9 billion. Ebitda (earnings before interest, taxes, depreciation and amortization) ON , which measures the potential for cash generation of a company, retreated 5.7%, to R$ 772.5 million.

Despite being bad, the numbers for the third quarter, the first under Barbosa’s management, are almost a breath of fresh air considering the accumulated of the first nine months of 2022, in the annual comparison: loss of BRL 1.97 billion (compared to a profit of BRL 1.97 billion). $ 352.6 million), a 9% drop in net revenue, to R$ 25.9 billion, and a 20% lower Ebitda, to R$ 2.06 billion.

“Of course we are not satisfied with these numbers”, said Barbosa this Thursday (10th), in a conference call with analysts and, later, with the press. “Our priority is to improve margins and cash flow.”

Spin-off, IPO or partner are options for profitable Aesop

A drop of almost 70% in the value of its shares traded on B3, the Brazilian Stock Exchange, separates Natura from November 2021 to Natura today. On November 10 of last year, common shares, with voting rights (ON), were traded at around R$ 40. This Wednesday (9), they closed the trading session at R$ 13.14. In the period, the Ibovespa, the main index of the Brazilian stock exchange, rose by around 4%.

After buying the Australian Aesop in 2013, Natura acquired the British The Body Shop in 2017 and the American Avon in 2019. With that, it became Natura &Co., with the proposal to become a global platform for beauty brands, in the L’Oréal style. But the company became too large and complex to quickly deal with different problems in different geographic regions. It was forced to decentralize decision-making.

With the arrival of Barbosa, the company announced a restructuring in order to make the holding lighter and more efficient. The group is also studying an alternative to “unlock value” of its luxury brand, Aesop, which has a consistent expansion plan in China. The brand’s first store opened this year in Shanghai.

For this, it studies an IPO (initial public offering of shares, its acronym in English), a spin-off (the company becomes independent from the group) or even the arrival of a new partner for the brand, coming from the private equity. “The three alternatives are on the table”, said Barbosa.

As for the record devaluation of the company’s shares, Barbosa says that the recovery of the shares will come as a result of the implementation of the company’s actions to increase margins and synergies between Avon and Natura, especially in Latin America, especially in Brazil, Colombia and Peru. in 2023. “It is necessary to accelerate this integration and the reorganization of the group.”

According to Barbosa, the company’s fourth quarter will be “very strong”, but still with pressured margins, due to inflation.

For analysts, group may sell Avon International operations

In the opinion of Thiago Macruz, an analyst at Itaú BBA, Natura has become a heavy company, especially after the acquisition of Avon, with several areas of support for each brand. “But with the arrival of Barbosa, we see an effort by the group to create greater autonomy for several areas, decentralizing decision-making, which tends to make the company more agile.”

For Macruz, Natura should turn to Latin America, its main market. In the region, net revenue grew 10% in the third quarter, year on year. In Europe, the company is more exposed to inflation and cost pressures, as a result of the war in Ukraine. “I would not be surprised if the group sold any assets abroad to generate cash, such as Avon International or The Body Shop operations”, says the analyst.

In the third quarter, Avon International’s net revenue (which encompasses all Avon operations outside Latin America) fell 8.1% in local currency. At The Body Shop, the drop was 19.5%. Aesop registered a high of 21.5% in the period.

For Danniela Eiger, an analyst at XP, it would also make more sense if the group left the loss-making markets of Avon International. “Anyway, the company needs to accelerate the integration between Natura and Avon in Latin America, to generate more synergies”, she says.

The XP analyst also draws attention to The Body Shop’s poor results. “There was an imbalance in the post-pandemic operation, with the closing of sales channels”, she says. “The performance of the brand is far below expectations.”

Danniela says that, in 2023, the company, like all large consumer groups, will have to deal with increasing inflationary pressure, on the one hand, and a certain relief with the control of the pandemic, on the other. “Here, more activities have returned to face-to-face activities than in Europe, despite the new omni wave,” he says.

For Ana Paula Tozzi, partner of AGR Consultores, there was a strategic error in the purchase of Avon, with the maintenance of decisions centralized in the holding. “The back office [funções administrativas] it became very heavy”, she says. “The businesses were left with little autonomy and speed of transformation”, she says, who believes that the performance of shares on the stock exchange should improve.

Ana Paula also expects the company to focus its efforts on Latin America next year. “There will be a recession in Europe in 2023, and 2024 will continue to be very bad,” she says. “With the exception of the luxury market, Aesop’s segment, which is doing very well.”


X-ray by Natura&Co. Data from 2021

  • Foundation: 1969
  • Employees: 35 thousand
  • Net Revenue: BRL 40.1 billion
  • Net profit: BRL 1 billion
  • Presence: More than 40 markets in the Americas, Europe, Asia and Oceania
  • Mainly competitors: The Apothecary, L’Oréal, Nivea

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