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Local Conference Call
July 27
, 2007
Q & A Session
Operator: Thank you. Ladies and gentlemen, we will now begin the Question and
Answer session. If you have a question, please press the star (*) key, followed by
the one (1) key on your touch-tone phone. If at any time you would like to remove
yourself from the questioning queue, press star two.

Our first question comes from Margaret Calvar of Harding Loevner. Please go

Ms. Margaret Calvar: Yes hi, good morning. I have two questions; the first
concerns the innovation index. I believe you usually show a slide on that and
maybe I missed it, but I did not see one in this presentation and could you discuss
if you have a number for what it is or what is the direction that it is going?
And then the second question refers to the overall competitive environment in the
Brazilian market and whether or not the consumer is slowing in the purchases of
CF&T products in general, if you see any displacement of income to other things
as interest rates are coming down in the country? Thanks.

Mr. Carlucci: Hi Margaret, good morning.

Ms. Calvar: Good morning.

Mr. Carlucci: This is Alessandro speaking. First of all you have the numbers on
the presentation that is on the site about the innovation index, but I can talk about
it. In this quarter we had a decrease in the total index innovation and this is an
effect that we are probably going to see the next two, probably two quarters and is
due because we had some bad launches or bad products performance that were
launched in 2005. Basically we are talking about the fragrance part of our products
and they are going to still count on this index, still the end of this year, and this is
the main reason because we are seeing some decrease in this index. But again, is
in the webcast presentation and you can take a look.

Ms. Calvar: Ok.

Mr. Carlucci: Ok? And talking about the competitive environment in Brazil, as we
said before it is in the last three, four years our market is more and more
And regarding your question about the change in the consumer behavior investing
more money in other categories than the CF&T, I think that we are seeing this in
Brazil, even though our market is still growing as you can see in the numbers, so
probably we are seeing other industry growing more than the history and in our
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case we don't see a change in the growth pattern in the cosmetic industry; but we
are talking in high numbers - 13% in the beginning of this year is a relevant number
in our industry. But for example we are seeing in Brazil that the cellular industry is
growing faster than in the past, the automobile industry too, so there are some
industries that are growing more, so they are having a better performance in the
pocket-share of the customer than compared to the CF&T. Even though, again, the
CF&T is growing well as we saw in the last years here in Brazil.

Ms. Calvar: Ok. Could you do, could you expand a little bit on the marketing, on
your changes in the marketing strategy that you say you are making in the
earnings release?

Mr. Carlucci: Margaret we, unfortunately I can't give you so much detail because
this is very strategic for us and it will be nice to our competitors, but I can say to
you that we are working hard to be more efficient and to reach a better balance
between our investments in the short and the long term; and of course we are
going to give a better value proposition, better products, more innovative and
evolutions and part of those evolutions we mentioned - like the CNO - that is an
evolution of our commercial structure; the Casa Natura is another one, but they are
examples of the things that we are going to do. And in the short-term we are going
to be more efficient and probably we hope to accelerate the growth of the

Ms. Calvar: Would you say ...

Mr. Carlucci: Sorry, especially in the Brazilian market, because we believe that we
can grow a little bit faster than we are growing.

Ms. Calvar:
Ok. Would say that you are moving from a single-level direct sales
model to a more multi-level then across the board?

Mr. Carlucci: No, is not a multilevel, it is a bi-level because the CNO is not going
to have a fixed percentage of the sales of their group, so it is more a bi-level than a
multilevel, even though the CNO is not an employee of the company, they are
going to be representatives, they are going to buy and resell our products, but they
are not going to have the same scheme that the multilevel has, so they are not
going to have bonus based on the amount of the sales that their group have.
And we are talking - to give you more information - that if, we are going to
implement gradually the CNO in the whole country in the next two years. We
started the project in a specific region and now in the next two years we are going
to roll out the project to all the country and imagining that today we were already,
all of the country, operating with the CNO, we imagine that we will have 6 thousand
CNOs in all the Brazilian market - just to give you a rough idea about the project.

Ms. Calvar: Ok thank you.

Mr. Carlucci: Thank you.
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Our next question comes from Celso Sanchez of Citigroup. Please go

Mr. Celso Sanchez: Hi, good morning - I guess good afternoon in Brazil. I just
would like to get a bit more clarity if I could on the productivity, the drivers of the
productivity; obviously it has been a while, a trend now for a while that has been
declining and I think to some extent there is always the sense that that would
happen as you grew reps, consultants very rapidly; but to what extent do you think
this is really a function of, perhaps is not getting a merchandising strategy right?
And then you talked about it a couple of quarters in the past, but one has to
wonder if it is, it has actually become more
than just the new reps because if you
have been growing in a very high rate some consultants for a while and it always
seems to appear in the last few quarters so could you comment on how much of
the productivity short fall or drop you would attribute on a relative basis to just the
newer members of the sales force and how much you can attribute to the
merchandising or marketing strategy or products selection I suppose in the
market? That is the first question.

Mr. Carlucci:
Hi Celso good morning, is Alessandro speaking. I think that even
though, of course there is always an impact of the lower productivity of the new
consultant, I don't believe that this is the reason why we saw a decrease in our
productivity because as you know, in the last four years we are growing fast the
number of consultants, so this is not an explanation why we saw this decrease,
even though it always has an impact on the number. I think that this decrease is
based on the fact that we are growing the revenue less than the channel and as we
mentioned we really believe that we can grow a little bit more in Brazil and this is
mostly based on the marketing strategy that, as I mentioned, we are going to, we
started in the beginning of this year to plan and to implement some adjustments, so
this is the main reason. I think that there is a positive issue on that, that is the fact
that the channel is still growing 14%, and this is a very important number and
represents the preference and the acceptance of people to be part of Natura
business and I think that this is a good point to share with you.

Mr. Sanchez: I would agree that the growth of the channel obviously slow, is a lot
more encouraging; however, one has to wonder longer-term if the marketing
strategy does not keep up with the strength of recruitment and retention - your very
low turn over rate - I wonder if that becomes an issue at some point where the
product mix, even your merchandising strategy is not keeping up with the
successful recruitment efforts and it becomes an issue of a cycle of people looking
at the product portfolio, wondering if there are other opportunities with other
product portfolios out there; I guess that is more than concerns, I guess along
those lines do you have any, do you feel like you are going to see, you expect to
see results in the second half of this year from your marketing strategy tactics that
you may have implemented in the last few months? Have you already started to
show a turnaround in that trend or do you think it is a much longer evolution on the
other quarters rather than months to see those marketing changes that pay off?
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Mr. Carlucci: Celso, certainly because we are working hard to make those
adjustments we expect some changes. It is difficult to give you some expectations
about how much and when they are going to occur, but we of course expect some
changes in the growth of the company.

Mr. Sanchez:
Ok thank you. If I can just follow then on the CNO development.
First of all it is
to hear that you there to share with us details; can you give us a little
more color though on how you think it will, how you think it will roll out? You said
that next September
I assume just to clarify - September of 07, two more months
next year, right?
And then the second part of that is, can you give us a sense for how you see the
cost structure evolving as you hire, or as you look to get as many as 6 thousand of
these folks out there?
If I remember correctly was the target, each one would be
responsible for about 100 or 130 consultants; is that still the target? And then you
can obviously draw on that to decide what that means in terms of total consultant
force eventually. And just maybe a comment
on how it falls out and also the way to
structure the work in terms of personnel please? Thanks.

Mr. Carlucci: Hi Celso, we
let me see if I understood your question - first of all
we are announcing the beginning of the project on the first new region on
September and we are going to need probably two years, so in the middle of 2009,
in the end of 2009, we are going to complete all the implementation in Brazil and
we are going to start announcing in September and probably on March, February,
the first CNOs are going to be, are going to work in the next new region and we are
going to implement regionally as I said.
Regarding the costs, in the short term we are going to see probably slightly, a
higher cost slightly, but a higher cost in the sales expenses and in the medium and
long term a lower cost and it is little, it is not so relevant that we have today. So in
the average the cost impact of the project is almost zero, so we should not see
something relevant even in the short as in the long term. But in the beginning is
going to be a little bit higher and in the long term is going to be lower than the cost
that we have today. But this is not relevant, this is not relevant in our projections
and we are going to have around 100 and 120 consultants per CNO as you
mentioned, this is still the plan - that is why we believe that if we were today
running the company with all CNOs implemented we will have 6 thousand, so
almost 100 per CNO.

Mr. Sanchez: Ok thanks and just lastly on the costs, you said the costs should be
pretty material; how about the benefits on the revenue side? Do you think it helps if
you had an order then in priority
productivity, recruitment, retention, which of
those is the biggest benefit of this rollout do you think?

Mr. Carlucci: Celso, the most important benefits of this project are the recruiting
and the retention, because we believe - and we saw in the pilot - that the relation
between the consultant, the Natura consultant and the company is stronger when
the CNO is in the middle, because it is something else to establish relationship with
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the consultant. In the long term we could see some gains in the productivity,
because if they stay more, as you know the productivity is higher; but we only are
going to see those effects in the long term. In the short term we saw gains in
recruiting and in retention and in satisfaction of course, because they feel better in
the relationship with Natura.

Mr. Sanchez: Thank you very much.

Mr. Carlucci: You are welcome, thank you.

Operator: Excuse me. Ladies and gentlemen, as a reminder, if you would like to
pose a question, please press star (*) one (1). Excuse me. Our next question
comes from Mr. Márcio Kawasaki from Unibanco.

Mr. Márcio Kawasaki: Hi, is just a quick question. I did not get the new capex for
2007, can you repeat please and explain why will you increase it?
Mr. José David Uba: Márcio, this is David speaking. Actually we are decreasing
the capex for the current year, it was planned to be R$ 190 million for 2007 and
now we are decreasing it in 15 million to 175 and the main reason is that we have
some projects taking more time than we expected - you can see that the total
investment we made in the first half of the year was 48, I am sorry, R$ 43 million if
you compare the last year was 60, so we are expecting some delays in some of
our projects, so that is why we are decreasing the expected investment from 190 to

Mr. Kawasaki: Ok thank you.

Mr. Uba: Thank you.

Operator: Our next question comes from Mr. Gustavo Hungria with UBS Pactual.

Mr. Gustavo Hungria: Hello, good morning everyone. I have a question again on
the innovation index. I also could not see that on the presentation, actually I did not
get the presentation - there was something wrong with the website - but I did not
see that figure there and as we are seeing and as Alessandro mentioned in the
beginning, this rate has decreased over the past quarters and you expect this to
continue going down up to the year-end because of products that - if I understood
correctly - were launched in 2005. So I just would like to see if you have an index
that only takes into account the products launched over the past 12 months, so in
that way we could see how these newer products are doing. Is there any way we
can see that
(XXX 25.39)
as well?

Mr. Carlucci: Hi Gustavo, how are you? Is Alessandro speaking.

Mr. Hungria: Good, how are you?
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Mr. Carlucci: We don't have this index because we decided, in fact we could
calculate this index on the 12 months, on six months, but we decided to use the 24
months because gives more stability of this index. We are a very promotional
industry, especially not because of the cosmetics but because of direct selling so a
way to decrease those specific effects on promotion efforts is using a longer time
to use those indexes, so we decided to use 24 months, so unfortunately I could not
give you any information about this good information; even though, as I mentioned
we believe that we are going to see some decrease in the next two quarters and
probably in the next year we could see this number getting higher, especially
because of those fragrances launched in 2005 that we did not succeed as we

Mr. Hungria:
Ok, but you do have evidence that these newer products, let's say
the products launched over the past 12 months, they are showing a different
behavior than those ones that were launched in 2005 so that once these products
launched in 2005 they get out of the sample, then we should see a recovery of this
trend? That is now I am trying to understand.

Mr. Carlucci: Yes, we expect to, we saw better results in the launches of last year
and this year, so that is why this index should be better next year than in this year,
exactly what you said.

Operator: Excuse me. Ladies and gentlemen, as a reminder, if you would like to
pose a question, please press star (*) one (1). Our next question comes from
Guido Giammaddi of Rixder Capital Mgt. Please go ahead.

Mr. Guido Giammaddi: Good morning. I apologize, I joined the conference call a
little bit late, so I apologize if this question has already been asked. Could you give
us a feeling of the competitive environment and secondly also we noticed a big
improvement in the gross margins, if you could
(XXX 28.15)
a little bit for that? Is it
sustainable? Thank you.

Mr. Uba: Guido, this is David speaking. I will start with the impact on the gross
margin, then Alessandro will explore a little bit on the competitive environment.
Yes, I expect this improvement in the gross margin is sustainable; it came from two
main sources, the first one was a dilution of our fixed costs in the manufacturing
process. We had overhead expenses in the manufacturing processes
(XXX 29.08)
from last year to this year and that
(XXX 29.10)
impact on our decision to keep all
the overheads, the overhead of all processes
(XXX 29.17)
for this and next years,
so that had something like 40 basis points impact in our gross margin.
The remaining impact came from a better negotiation with our suppliers and also
reminding you that we had an increase in our selling prices in March - we adjust
our selling prices every year in March to reflect the inflation in the domestic market,
so the combination of better terms with our suppliers and the price adjustment
made in March resulted in the remaining impact in the gross margin. And as I said
we expect it to remain for the rest of the year.
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Mr. Carlucci: Hi Guido, is Alessandro speaking. As we mentioned several times,
the competitive environment in Brazil regarding specific the cosmetic industry is
getting tougher; and not this quarter, but in the last two or three years Brazil is an
important market, our CF&T market is growing fast in the last five or six years, so
all the competitors want to get profits of this good market that we have in Brazil. So
the competitiveness is getting higher, but as in the other industries in Brazil too,
because we are talking about a huge market in the world so we are facing probably
what other industries are facing too, the same.

Mr. Giammaddi: Thank you very much.

Mr. Uba: You are welcome.

Mr. Carlucci: Thank you, you are welcome.

Operator: Ladies and gentlemen, this concludes today's question and answer
session. I would like to invite Mr. Carlucci to proceed with his closing statements.
Please, sir, go ahead.

Mr. Carlucci:
I would like to thank you, all of you, to participate on our conference
call and invite you for the next one for the results of the third quarter of 2007 and
so see you soon and thank you for your time.
Operator: That does conclude our Natura audio conference call for today. Thank
you very much for your participation and have a good day.