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Merrill Lynch Global Emerging Markets Conference - 1
Merrill Lynch
Global Emerging Markets Conference
June 6th – 8th 2006
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Introduction
Strategy
Medium Term Goals
Financials
Agenda
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Natura Cosméticos S.A.
Adherence to the “Novo Mercado” rules
CF&T target market : fragrances, make-up, skin care,
sun care and toiletries
Direct Sales Distribution
Operations in Brazil, Argentina, Chile, Peru, Mexico
and France
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Natura Cosméticos S.A.
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strategyBack to Agenda
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Brand
ProductsInnovation
Our strategy
SalesChannel
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Brand
Product design based on the Well being Well concept
Sustainable exploration of natural resources and creation
of value to all stakeholders
Transparency and factual communication building stronger
relationship with consultants and consumers
Premium products and high value
Essencial attributes of our brand
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2005
71%
64%
2004
Source: Survey commissioned by Natura. Conducted with 1,200 people across different social classes in three large Brazilian cities (São Paulo, Porto Alegre and Recife).
70%
68%
2005
56%
49%
2nd in rank
27% 25%27%
Brand perception
Top of mind
Preference 43% 19%42%
Innovation
Quality
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Life celebration
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sustainable development
refills
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Innovation
Strong investments in R&D -3% of net sales
Open Innovation – leverage of R&D investments
through a network of
research partners
Biodiversity as a research platform
Brazil has one of the richest biodiversities in the world:
22% of all species on Earth
Encompasses a wide range of different ecosystems:
“Amazônia” (the largest rain forest in the world),
“Pantanal” (the largest flooded plain in the world),
“Cerrado” (steppe-like vegetation),
“Caatinga” (desert-like vegetation),
“Atlantic Forest” (tropical forest) and
“South Fields” (prairie-like vegetation).
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165
91
117
182
213
Number of New Products
Innovation
2001 2002 2003 2004 2005
Number of New Products
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2001 2002 2003 2004 2005
44.9%43.5%
48.8%
63.2%
69.8%
Total Innovation Index (innovation+improvements)
Innovation
Merrill Lynch Global Emerging Markets Conference - 14Itau First Annual Brazil Conference
Channel
Consultants are provided with:
Marketing support
Flexible and fast logistics services
Full Portfolio available 100% of the time
Transparent rules with freedom of choice
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CAGR (2001-2005) = 14.7%
(*) Number of consultants at Argentina, Brazil, Chile and Peru.
300321
375
433
519
+19.8% +17.7%
450
529
2001 2002 2003 2004 2005 1Q05 1Q06
Consolidated sales channel
Consolidated Number of Consultants* (thousand)
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CAGR (2001-2005) = 9.7%
8.59.0
10.5
11.512.3
2.53 2.54
+0.3%
2001 2002 2003 2004 2005 1Q05 1Q06
Consultant’s productivity-Brazil
+6.6%
Productivity in Brazil (R$ thousand per average active consultant per year)
*source ABVED
12,288
7,262
1.7 X
Natura´s consultants 2005Direct sales except Natura 2005
Productivity in Brazil (R$ per average active consultant)
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Consultants Turnover1 (Brazil)
(1) Number of consultants who stopped activity in relation to the average total consultants figures.
33%
30%28%
26%
2002 2003 2004 2005
Channel
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Natura’s sustainability: some initiatives and results
EJA (Young and Adults Educacional Program)
Effective enrolments in 2005 66,600 students
Life Cycle Assessment (LCA)
Natura´s average environmental impact
20052004
10.110.6
100% of launched products under LCA packaging analysis
% of refills over total items sold
20052004
17.415.3
Sales of refills
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2600 families
Oil estraction
Model manufacturing
2600 families
Oil extraction
Soap noodle manufacturing
Natura
Exotic oils (special soaps)
Palm oil
Start up in october/2006
•ROI = 19,6%
•Research and development based on
exotic oils
•Up to 2600 families benefited
•Present forested areas protected and
future recovering of degraded areas
Combination of innovation, sound
investment, strong social impact
and environmental protection
Soap noodle plant project (Pará State)
Natura’s sustainability: some initiatives and results
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Medium term goalsBack to Agenda
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Medium term goals
Thoroughly explore the growth potential in
Brazil
- investment in R&D up to 3.5% of net sales
1.
Gains of scale and savings from higher productivity transfered to:
- brand building- channel support
- marketing- IT projects
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Brazilian target market
2001
2002
CAGR( 2000-2005)
2003
2004
Sources: IBGE and Sipatesp.(1) In real terms deflated by IPCA.
CFT market grows three times faster than GDP
2005
2.2% 7.4%
GDP growth
1.4%
Target market growth 1
4.7%
1.5% 5.7%
0.5% 4.6%
5.2% 12.3%
2.3% 9.7%
Growth drivers
Ageing population – CFT total consumers growing at 2,2% per year throught 2014
Increasing participation of women in workforce and income
Strong investments in R&D throughout CF&T industry
Migration of consumers to higher classes (D to C and C to B)
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14.314.5
2001 2002
17.1
2003 2004
19.2
Natura’s Market Share – Target Market1 (%)
(1) Target market: Skin care, sunscreen, make-up, fragrances, hair care, shaving products and deodorants - excludes diapers, nail polishes, sanitary pads, hair dyes and oral hygiene. Source: Sipatesp/ ABHIPEC.
1B05
Market share CF&T target market - Brazil
2005
21.4
1B06
21.0
18.6
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Complete expansion in the main markets in Latin America
- Venezuela – 2006
- Colombia – 2007
- Others Latin America countries – 2010
2.
Medium term goals
15
18
Natura’s market share 2005 = 0.3%
2005 2009E
Source: Euromonitor (Cosmetics and Toiletries).1. Real terms
CF&T market in Latin America (excluding Brazil) Retail prices - US$ billion
CAGR1 = 3.7%
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Assess the potential of Natura’s opportunities in other CF&T markets
- Eastern Europe
- Western Europe and USA
Medium term goals
3.
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FinancialsBack to Agenda
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Consolidated Gross Revenues (R$ million)
Our size
CAGR (2001-2005) = 29.1%
1,168
1,411
1,910
2,540
3,244
+27.7%
611
723
+18.3%
1Q05 1Q062001 2002 2003 2004 2005
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CAGR (2001-2005) = 42.7%
Our results
136
199
296
432
564
95113
+19.1%
(*) Natura Empreendimentos figures.
1Q05 1Q06
EBITDA (R$ million)
+30.8%
2001* 2002 2003 2004 2005
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Our profitability
2001 2002 2003 2004 2005
16.6
20.1
22.2
24.424.7
1Q05 1Q06
22.322.1
-0.2pp
EBITDA Margin (%)
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CAPEX (R$ million)
83
2004
112
2005
180
2006E 1Q05 1Q06
16
26
+62.8%
Itau First Annual Brazil Conference
CAPEX
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9 11
CAPEX breakdown
R$ Million 2005 2006E
Manufacturing and Logistics 69 90
Facilities 3 42
IT 20 33
Others 11 4
Total 112 180
Vehicles
Capacity (million of units)
manufacturing
2005 290
370 345
320
separation
2006E
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Cash flow consolidated figures
2005R$ million
Net income for the period
(+) Depreciation and amortization
397
482
(+) Other non-cash expenses
(=) Gross cash flow
(-) Working capital (-) CAPEX
314
(=) Free cash flow
Dividends + Interest on capital
% of free cash flow
95
44
42
35
112
336
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Payout (%) 2004 2005
Net income 72 81
Free cash generation 107 95
2005
314
216
2004
+48.0%
Total Dividends and Interest on Capital, net (R$ million)
Dividends
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This presentation contains forward-looking statements. Such statements are not statements of historical fact, and reflect the beliefs and expectations of the Natura's management. The words "anticipates", "wishes", "expects", "estimates", "intends", "forecasts", "plans", "predicts", "projects", "targets" and similar words are intended to identify these statements, which necessarily involve known and unknown risks and uncertainties. Known risks and uncertainties include, but are not limited to, the impact of competitive products and pricing, market acceptance of products, product transitions by the Company and its competitors, regulatory approval, currency fluctuations, production and supply difficulties, changes in product sales mix, and other risks. This presentation also includes pro-forma information prepared by the Company for information and reference purposes only, which has not been audited. 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.
www.natura.net/investor
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Glossary
Commercial cycles – 3 week period of sales where new products, campaigns
and promotions are developed.
Consultants – number of sales representatives who have placed at least one
order in the last 4 commercial cycles.
Active Consultans - number of sales representatives who have placed at least
one order in the last commercial cycle.
ABEVD – Brazilian direct sales association
Sipatesp/Abhipec – Brazilian syndicate of CF&T companies
IBGE – Official Brazilian statistics institute
IPCA – Official retail price index