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1
São Paulo, Brazil, July 26, 2006. Natura Cosméticos S.A. (São Paulo Stock Exchange -
Bovespa: NATU3) announces today its results for the second quarter 2006 (2Q06). The
financial and operating information included in this report, except where otherwise indicated,
is presented on a consolidated basis, according to the Brazilian Corporate Law.
>
FINANCIAL SUMMARY - CONSOLIDATED
2Q06
2Q05
Units sold ­ items for resale
(in millions) - Brazil
1
57.5
48.7
18.1%
Gross Revenues
980.8
793.2
23.7%
Net Revenues
696.4
557.5
24.9%
Gross Profit
473.0
383.2
23.4%
Gross Margin (%)
67.9%
68.7%
-
Ebitda
2
180.4
128.7
40.2%
Ebitda Margin (%)
25.9%
23.1%
-
Net Income
129.3
87.9
47.1%
Net Margin (%)
18.6%
15.8%
-
Total consultants in Brazil
3
(in thousands)
525.2
454.0
15.7%
Total consultants in Latin America
42.1
29.9
40.7%
>
Financial Summary ­ Consolidated (R$ million)
3
(in thousands)
4
1H05
94.4
1,404.2
984.9
665.3
67.6%
223.8
22.7%
157.6
16.0%
1H06
108.3
1,703.5
1,208.2
825.3
68.3%
293.7
24.3%
210.9
17.5%
14.8%
21.3%
22.7%
24.0%
-
31.2%
-
33.9%
-
525.2
454.0
15.7%
42.1
29.9
40.7%
%
Change
%
Change
2Q06
2Q05
Units sold ­ items for resale
(in millions) - Brazil
1
57.5
48.7
18.1%
Gross Revenues
980.8
793.2
23.7%
Net Revenues
696.4
557.5
24.9%
Gross Profit
473.0
383.2
23.4%
Gross Margin (%)
67.9%
68.7%
-
Ebitda
2
180.4
128.7
40.2%
Ebitda Margin (%)
25.9%
23.1%
-
Net Income
129.3
87.9
47.1%
Net Margin (%)
18.6%
15.8%
-
Total consultants in Brazil
3
(in thousands)
525.2
454.0
15.7%
Total consultants in Latin America
42.1
29.9
40.7%
>
Financial Summary ­ Consolidated (R$ million)
3
(in thousands)
4
1H05
94.4
1,404.2
984.9
665.3
67.6%
223.8
22.7%
157.6
16.0%
1H06
108.3
1,703.5
1,208.2
825.3
68.3%
293.7
24.3%
210.9
17.5%
14.8%
21.3%
22.7%
24.0%
-
31.2%
-
33.9%
-
525.2
454.0
15.7%
42.1
29.9
40.7%
%
Change
%
Change
(1) Total consolidated number of Cosmetics, Fragrances and Toiletries products resold by consultants. Therefore, units sold exclude samples,
gifts, resale support material, Crer para Ver products, among others.
(2) EBITDA = income from operations before financial effects + non-operating income + depreciation and amortization.
(3) Position at the end of the period of the 9
th
sales cycle.
(4) Argentina, Chile and Peru.
2Q06 Earnings Release
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2
>
COSMETICS, FRAGRANCE AND TOILETRIES (CF&T) SECTOR IN BRAZIL -
NATURA'S TARGET MARKET FIGURES (1
st
four months 06 X 1
st
four months 05)
Based on available information for the period from January to April 2006, the nominal growth
of the sector was 11.0%, according to information of Sipatesp/Abhipec
1
. In real terms,
excluding the 5.5% IPCA (Amplified Consumer Price Index) for the period, the growth reached
5.2%.
The table below shows the breakdown of the target market
2
in two segments: Cosmetics and
Fragrances, and Toiletries in one side, and Natura's market share in these segments in the
other side.
Target Market (R$ million)
Natura's Market Share (%)
1
st
four
months 06
Cosmetics & Fragrances
1,124
1,318
17.3%
36.8%
38.8%
2.0
Personal Hygiene
1,756
1,878
6.9%
10.3%
11.1%
0.8
Total
2,881
3,196
11.0%
20.6%
22.5%
1.9
>
CF&T Target Market Net Revenues Breakdown and Natura's Market Share in Brazil
Source: Sipatesp/Abhipec
%
growth
% points
percentage
1
st
four
months 05
1
st
four
months 06
1
st
four
months 05
Target Market (R$ million)
Natura's Market Share (%)
1
st
four
months 06
Cosmetics & Fragrances
1,124
1,318
17.3%
36.8%
38.8%
2.0
Personal Hygiene
1,756
1,878
6.9%
10.3%
11.1%
0.8
Total
2,881
3,196
11.0%
20.6%
22.5%
1.9
>
CF&T Target Market Net Revenues Breakdown and Natura's Market Share in Brazil
Source: Sipatesp/Abhipec
%
growth
% points
percentage
1
st
four
months 05
1
st
four
months 06
1
st
four
months 05
Natura increased its market share in the target market in 1.9 p.p., from 20.6% in the first
four months of 2005 to 22.5% in the first four months of 2006.
(1) Sipatesp/Abhipec ­ Brazilian Association of the Cosmetic, Toiletry & Fragrance Industry
(2) Target Market ­ Cosmetics and Fragrances (Skincare, Make up, Fragrances and Sun Protection) and Toiletries (Soaps, Hair care, Deodorants and
Shaving products)
>
CONSOLIDATED GROSS REVENUES
Natura's 2Q06 gross revenues were R$980.8 million, up 23.7% over the same period 2005
(R$793.2 million). This growth was driven by the successful launchings of products, good
promotional campaigns and good results provided by the sale of commemorative sets
(Mother's Day and Valentine's Day).
By the end of 2Q06, the number of consultants in Brazil reached 525.5 thousand, a growth of
15.7% over the same period of previous year. Considering active consultants, the average
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growth was 17.3% over the same period. Brazilian productivity per active consultant in 2Q06
reached R$3,259.00
(1)
, a 5.6% growth compared to 2Q05.
This quarter, the former sales catalogue ­ Vitrine ­ was replace by Revista Natura, a
magazine-catalogue aligned with the strategic objective to work not only as an efficient
instrument of sales support, but also as a brand builder element. This shift, which was firstly
implemented in Brazilian operations, is now being replicated in Latin American operations.
1H06 consolidated gross revenues were R$1,703.5 million, recording a growth of 21.3% when
compared to the same period of 2005 (1H05: R$1,404.2 million).
(1) Estimated end-price sale per consultant.
>
COST & EXPENSES
Cost of goods sold (COGS) ­ COGS went from 31.3% of the net revenue in 2Q05 to 32.1%
in 2Q06. The main drivers that contributed to such increase were: (i) larger participation of
promotional sets in sales; and (ii) the intensification of promotional efforts of sales in 2Q06.
These increases were partially offset by the favorable effect of the Real appreciation in the
cost of materials occurred in the quarters under comparison.
Item
2Q06
2Q05
RM/PM*
25.5
25.0
Labor
2.6
2.4
Depreciation
1.1
1.0
Others
2.9
2.9
Total
32.1
31.3
>
Composition of Cost of Sales (% Net Revenues)
* Raw material and packaging material
1H06
1H05
24.7
25.7
2.9
2.6
1.3
1.1
2.9
3.1
31.7
32.4
Item
2Q06
2Q05
RM/PM*
25.5
25.0
Labor
2.6
2.4
Depreciation
1.1
1.0
Others
2.9
2.9
Total
32.1
31.3
>
Composition of Cost of Sales (% Net Revenues)
* Raw material and packaging material
1H06
1H05
24.7
25.7
2.9
2.6
1.3
1.1
2.9
3.1
31.7
32.4
In 1H06, on the other hand, COGS declined from 32.4% in 1H05 to 31.7%. This decrease was
driven by the stability in the prices of materials in 1H06 compared to 1H05, due to the Real
appreciation over the USD between the periods.
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Selling expenses, which represented 31.4% of net revenue in 2Q05, decreased to 30.3% in
2Q06. This decrease was primarily driven by the adjustment of the logistics process related to
services provided to consultants (order, picking and order delivery).
In spite of the decrease in 2Q06, when analyzing 1H06, selling expenses remained virtually
stable. In sum, the gains of efficiency in the logistics process were offset by the increase in
expenses related to communication and relationship with the sales channel occurred in 1Q06.
Administrative expenses declined from 15.1% in 2Q05 to 13.2% in 2Q06. This decrease
was due to the smaller impact of expenses with provisions. In the first half, these factors
offset the increase in expenses with IT, as previously informed, making administrative
expenses remain virtually stable (14.4% in 1H06 and 14.2% in 1H05).
>
EBITDA AND NET INCOME
2Q06 EBITDA amounted to R$180.4 million, up 40.2% compared to 2Q05 (R$128.7 million).
EBITDA margin climbed from 23.1% to 25.9% in 2Q06. In the first half 2006, EBITDA
amounted to R$293.7 million, up 31.2% compared to 1H05 (R$223.8 million). EBITDA margin
increased from 22.7% in 1H05 to 24.3% in 1H06.
2Q06 net income posted a 47.1% growth, from R$87.9 million in 2Q05 to R$129.3 million in
2Q06. Net margin also increased, from 15.8% in 2Q05 to 18.6% in 2Q06. In 1H06, net
income amounted to R$210.9 million, up 33.9% over the same period last year. Net margin
grew from 16.0% in 1H05 to 17.5% in 1H06.
>
CAPEX
1H06 capital expenditures (CAPEX) totaled R$60.6 million, led by machine purchases aiming
at increasing the Company's manufacturing capacity. Total investments estimated for 2006
increased from R$180 million to R$210 million. Most part of this increase derives from higher
investments planned for both the innovation process and the new Natura research center, as
well as the enhancement of investments planned for IT.
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>
INTERNATIONAL OPERATIONS
>>
Argentina, Chile and Peru
2Q06
2Q05
Units sold ­ items for resale
(in millions)
2.4
1.6
47.4%
Net Revenues
10.1
6.6
53.2%
Income (loss) from operations
Operating margin
>
Financial Highlights ­ Argentina, Chile and Peru (US$ million)
Gross Revenues
13.2
8.6
53.8%
1H05
1H06
4.5
3.0
51.2%
17.6
11.6
52.2%
23.0
15.0
52.7%
-0.8
-0.6
27.5%
-2.2
-1.8
24.3%
-7.7%
-9.3%
-12.7% -15.6%
%
Change
%
Change
2Q06
2Q05
Units sold ­ items for resale
(in millions)
2.4
1.6
47.4%
Net Revenues
10.1
6.6
53.2%
Income (loss) from operations
Operating margin
>
Financial Highlights ­ Argentina, Chile and Peru (US$ million)
Gross Revenues
13.2
8.6
53.8%
1H05
1H06
4.5
3.0
51.2%
17.6
11.6
52.2%
23.0
15.0
52.7%
-0.8
-0.6
27.5%
-2.2
-1.8
24.3%
-7.7%
-9.3%
-12.7% -15.6%
%
Change
%
Change
Note: Mexican and Venezuelan operations are not included in the above table.
The results from Argentinean, Chilean and Peruvian operations continue to grow at the same
pace of last quarters, as evidenced by gross revenue evolution (growth of 53.8% in USD in
the quarter and 55.1% in weighted local currency) and operational loss reduction when
compared to net revenue.
The number of consultants grew 40.7%, from 29.9 thousand in 1H05 to 42.1 thousand in
1H06.
>>
International expansion process
In 1H06, investments in the international expansion process, represented by negative
operational results, totaled R$17.2 million (1H05: R$ 17.0 million). For 2006, we estimate
total investments of R$35.0 million in this process.
>
CASH FLOW
1H06 gross cash generation reached R$246.2 million, up 23.7% over the same period of last
year. Out of this total, R$40.4 million were
used for working capital, long-term assets and
liabilities and R$60.6 million for fixed assets acquisition.
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The use of working capital focused basically on the payment to suppliers as a result of the
concentration of material and service purchases that took place in the end of 2005 and
payment of taxes over December 2005 sales. Free cash generation in 1H06 reached R$145.1
million, up 37.7% over the same period 2005.
>
DIVIDENDS AND INTEREST ON CAPITAL
On July 26, 2006, the Company's Board of Directors approved the proposal to be submitted to
the Ordinary General Shareholder's Meeting, to be held in March 2007, for the payment, on
August 10, 2006, of dividends and interest on capital, related to profits recorded in the first
half of 2006, in the amount of R$112.1 million and R$33.6 million (R$28.5 million ­ net)
respectively, representing 96.9% of free cash generation in the first half and 66.7% of the net
income in the same period.
These payments added up will result in a net yield of R$0.33 per share (R$0.24 in 1H05). It is
worth noting that the accounting of interest on capital will be carried out on 07/31/06.
>
CONFERENCE CALL & WEBCAST
BRAZILIAN CONFERENCE CALL:
Friday, July 28, 2006
09:00 a.m. US EST / 10:00 a.m. Brasília
In Brazil: 11-4688-6301
International: 1-412-858-4600
In USA: 1-800-860-2442
INTERNATIONAL CONFERENCE CALL:
Friday, July 28, 2006
11:00 p.m. US EST ­ 12:00 a.m. Brasília
In Brazil: 11-4688-6301
International: 1-412-858-4600
In USA: 1-800-860-2442
Live webcast will be available on Natura's IR website at
www.natura.net/investor
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>
INVESTOR RELATIONS TEAM
Phone: +55 11 4196-1421
Helmut Bossert,
helmutbossert@natura.net
Ricardo Capella,
ricardocapella@natura.net
Edgar Katayama,
edgarkatayama@natura.net
This press release contains forward-looking statements. Such statements are not statements of historical fact, and reflect the
beliefs and expectations of the Natura's management. The words "anticipates", "wishes", "expects", "estimates", "intends",
"forecasts", "plans", "predicts", "projects", "targets" and similar words are intended to identify these statements, which
necessarily involve known and unknown risks and uncertainties. Known risks and uncertainties include, but are not limited to, the
impact of competitive products and pricing, market acceptance of products, product transitions by the Company and its
competitors, regulatory approval, currency fluctuations, production and supply difficulties, changes in product sales mix, and
other risks. This press release also includes pro-forma information prepared by the Company for information and reference
purposes only, which has not been audited. Forward-looking statements speak only as of the date they are made, and the
Company does not undertake any obligation to update them in light of new information or future developments.
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8
>
ANNEX 1 - STATEMENT OF INCOME (CONSOLIDATED)
(in R$ million)
2Q06
%RL
2Q05
%RL
Var%
1H06
%RL
1H05
%RL
Var%
Gross sales to domestic market
948.3
96.7
770.2
97.1
23.1%
1647.1
96.7
1362.9
97.1
20.9%
Gross sales to foreign market
32.2
3.3
22.5
2.8
43.0%
55.7
3.3
40.6
2.9
37.2%
Other sales
0.4
0.0
0.5
0.1
-19.6%
0.7
0.0
0.7
0.0
1.5%
GROSS OPERATING REVENUES
980.8
100.0
793.2
100
23.7%
1703.5
100.0
1404.2
100
21.3%
Taxes on sales, returns and rebates
(284.4)
29.0
(235.4)
29.7
20.8%
(495.2)
29.1
(419.3)
29.9
18.1%
NET OPERATING REVENUES
696.4
100.0
557.7
100
24.9%
1208.2
100.0
984.9
100
22.7%
Cost of sales
(223.4)
32.1
(174.5)
31.3
28.0%
(382.9)
31.7
(319.5)
32.4
19.8%
GROSS PROFIT
473.0
67.9
383.2
68.7
23.4%
825.3
68.3
665.3
67.6
24.0%
OPERATING (EXPENSES) INCOME
Selling
(210.9)
30.3
(175.4)
31.4
20.2%
(376.8)
31.2
(310.2)
31.5
21.5%
General and administrative
(91.8)
13.2
(84.4)
15.1
8.8%
(171.3)
14.2
(141.2)
14.3
21.4%
Management compensation
(3.0)
0.4
(2.6)
0.5
13.2%
(6.2)
0.5
(5.3)
0.5
16.0%
Other operating expenses, net
(0.7)
0.1
(1.6)
0.3
-58.6%
(4.2)
0.3
(2.7)
0.3
53.9%
INCOME FROM OPERATIONS BEFORE FINANCIAL
EFFECTS
166.7
23.9
119.2
21.4
39.9%
266.7
22.1
205.9
20.9
29.6%
Financial expenses
(8.9)
1.3
(14.9)
2.7
-40.2%
(18.5)
1.5
(23.5)
2.4
-21.2%
Financial income
9.9
-1.4
12.2
-2.2
-18.8%
25.7
-2.1
26.4
-2.7
-2.6%
INCOME FROM OPERATIONS
167.7
24.1
116.5
20.9
43.9%
274.0
22.7
208.8
21.2
31.2%
Nonoperating income, net
0.3
0.0
(1.1)
0.2
-126.2%
0.4
0.0
(2.2)
0.2
-119.6%
INCOME BEFORE TAXES ON INCOME
168.0
24.1
115.4
20.7
45.5%
274.4
22.7
206.7
21.0
32.8%
Income and social contribution taxes
(38.7)
5.6
(27.5)
4.9
40.6%
(63.5)
5.3
(49.1)
5.0
29.3%
NET INCOME BEFORE MINORITY INTEREST
129.3
18.6
87.9
15.8
47.1%
210.9
17.5
157.6
16.0
33.9%
Minority interest
0.0
0.0
(0.0)
0.0
-100.0%
(0.0)
0.0
(0.0)
0.0
-50.0%
NET INCOME
129.3
18.6
87.9
15.8
47.1%
210.9
17.5
157.6
16.0
33.9%
Depreciation
13.4
1.9
10.6
1.9
26.5%
26.5
2.2
20.1
2.0
31.7%
EBITDA
180.4
25.9
128.7
23.1
40.2%
293.7
24.3
223.8
22.7
31.2%
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9
>
ANNEX 2 - BALANCE SHEET (06/30/06 AND 03/31/06) ­ R$ million
ASSETS
jun/2006
mar/2006 LIABILITIES
jun/2006 mar/2006
CURRENT ASSETS
CURRENT LIABILITIES
Cash and Banks
53.8
12.1
Loans and financing
108.0
94.9
Cash Investments
261.8
180.5
Domestic suppliers
136.9
103.5
Trade account receivables
287.3
247.9
Foreign suppliers
3.1
6.5
Inventories
184.4
189.9
Payroll and related charges
73.6
50.7
Recoverable taxes
28.3
28.6
Tax payable
73.4
78.8
Advances to employees and suppliers
7.7
6.1
Dividends
112.2
0.1
Deferred income & social contribution taxes
33.2
24.3
Freights payable
11.7
11.4
Other receivables
22.6
23.7
Other provisions
7.3
9.3
Total current assets
879.2
713.0
Other payables
19.7
15.5
Reserve for losses on swap contracts
3.9
2.8
Total current liabilities
549.9
373.6
LONG-TERM ASSETS
Receivables from shareholders
0.0
0.0
Recoverable taxes
10.5
11.3
LONG TERM LIABILITIES
Deferred income & social contribution taxes
32.2
30.1
Loans and financing
78.9
95.2
Escrow deposits
31.6
30.3
Reserve for contingences
100.3
92.8
Other receivables
0.5
0.5
Other payables
3.8
3.5
Cash investments
4.1
4.1
Total long-term liabilities
183.0
191.5
Total long-term assets
78.9
76.4
MINORITY INTEREST
0.0
0.0
SHAREHOLDER'S EQUITY
Capital
232.2
230.8
PERMANENT ASSETS
Capital reserves
128.0
124.4
Investments
5.8
5.5
Profit reserves
269.5
252.4
Property. plant and equipment
398.3
377.0
Treasury shares
(0.5)
(0.7)
Total permanent assets
404.1
382.5
Total shareholders' equity
629.2
606.9
TOTAL ASSETS
1,362.1
1,171.9 TOTAL LIABILITIES
1,362.1
1,171.9
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10
>
ANNEX 3 - STATEMENT OF CASH FLOW (CONSOLIDATED)
(in R$ million)
1H06
1H05
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
210.9
157.6
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortisation
26.5
20.1
Monetary and exchange variations, net
9.0
(6.6)
Reserve for losses on swap and forward transactions
2.3
11.1
Reserve for contingencies
6.1
17.1
Reserve for obsolete inventories
0.6
(1.5)
Other reserves
-
1.1
Deferred income and social contribution taxes
(10.4)
(4.2)
Proceeds from sale and disposal of permanent assets
1.2
4.4
Minority interest
0.0
-
246.2
199.1
(INCREASE) DECREASE IN ASSETS
Current assets:
Accounts receivable
29.0
8.1
Inventories
(32.7)
(45.2)
Other receivables
(2.8)
(0.4)
Long-term assets:
Escrow deposits
(0.6)
(1.5)
Recoverable taxes
(0.9)
(3.3)
Others receivables
0.0
0.8
(7.9)
(41.5)
INCREASE (DECREASE) IN LIABILITIES
Current liabilities:
Suppliers
(17.4)
15.7
Payroll and related charges
(1.9)
(8.5)
Taxes payable
(19.7)
(12.7)
Other payables
2.4
2.5
Long-term liabilities:
Other payables
4.2
3.9
(32.5)
0.9
NET CASH PROVIDED BY OPERATING ACTIVITIES
205.8
158.5
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment
(60.6)
(53.1)
NET CASH USED IN INVESTING ACTIVITIES
(60.6)
(53.1)
FINANCING ACTIVITIES
Decrease - short-term loans
(33.0)
(162.9)
Increase - long-term loans
21.8
209.4
Payment of swap and foward contracts
(1.1)
(14.1)
Payment of dividends
(195.0)
(112.2)
Payment of interest on capital
(17.7)
(15.6)
Payment of subscried capital
1.5
-
Others
1.5
-
Sale of treasury share by exercise of stock options
4.0
1.2
Payment of receivables from shareholders
2.1
0.1
NET CASH USED IN FINANCING ACTIVITIES
(216.0)
(94.2)
NET INCREASE IN CASH AND BANKS
(70.8)
11.2
Cash and banks at the beginning of quarter
386.4
231.6
Cash and banks at the end of quarter
315.6
242.8
CHANGE IN CASH AND BANKS
(70.8)
11.2
SUPPLEMENTARY CASH FLOW DISCLOSURE:
Income and social contribution taxes paid
72.1
36.5
Interest on paid on loans and financing
3.8
3.3