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Local Conference Call
NATURA INT`L
3Q06 Earnings Presentation
October 27, 2006
(9:55 to 28.31)
Q & A SESSION

Operator: Excuse me. 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.

Excuse me. Our first question comes from Ms. Daniela Bretthauer from Banco
Santander.

Ms. Daniela Bretthauer: Hi, good morning and congratulations on a very strong
quarter. I have a question on the sustainability of your margins. You obviously had
a record-high gross margin in the quarter, which led to also record-high Ebitda
margin, but what can you tell us in terms of gross margins estimates or guidance
going forward? Is it possible to enjoy such a strong combination again on the cost
front? And then how much do you plan to spend on your internationalization
process so that, to be able to post a very good Ebitda margin?
Mr. Josť David Uba: Daniela, this is David speaking. Let's start with the gross
margin. We do not have, at this moment, any reason to believe that our gross
margin should go down in the near future. We think that we are now operating at a
feasible margin, as far as we can see in the future. Of course we were, in some
sense, helped by the fact that our raw materials had a very small adjustment for
inflation this year but we believe that in the next years we can compensate that for
a larger leverage if our sales go on increasing as they did in the last years. Now for
Ebitda margin we will see some pressures on administrative and sales expenses in
the next years, couple of years, as a result of our acceleration of international
expansion. As you know, a new subsidiary in a new country operates below break-
even point. We have a lot of efforts being put in building our brand in that country,
in expanding our distribution network; therefore, as we decide to accelerate the
international expansion we will see some pressures mainly on sales expenses and
a little bit on administrative expenses as well. For next year, at this moment we
expect something from 1 to 2 percentage points in our operating expenses as a
result of this international expansion a
nd... for 2007. We still are refining our
planning for 2007, but that is the interval we expect for an increase in our expenses
for next year and that should be a direct impact on the Ebitda margin, of course.

Ms. Bretthauer:
Thank you David, very clear. And in terms of productivity of your
sales force, you also had very good productivity both in Brazil and abroad. Do you
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expect to sustain such good productivity levels going forward, or was it a little bit
better than expected? Any color on that?

Mr. Alessandro Carlucci: Daniela, it is Alessandro speaking. I don't believe that
we have any reason to project some change in the Brazilian productivity for the
future and when we saw the international operations probably we could expect, in
a medium term, a growth in the productivity because the thing that is more related
with the productivity, gains in productivity, is the time that the Natura consultant is
doing the activity of Natura consultant. So we believe that we can grow the
productivity in the international operations in a medium term, but in Brazil we don't
have any reasons to believe that it should change the productivity.

Ms. Bretthauer: Thank you and congratulations again on the results.

Mr. Carlucci: Thank you.

Operator: Ladies and gentlemen as a reminder, If you would like to pose a
question, please press star (*), one (1). Our next question comes from Akani
Manidi from Prudential.

Ms. Akani Manidi: Good morning. I am very new to this story, so I hope this
question isn't too basic, but I was
hoping you would clarify for me what the goal of
your international growth is? Did you say that you want 20% of sales to be in the
international market over the next 10 years or was the goal to have a share of 20%
in the international market in which you compete?

Mr. Carlucci: Akani, thank you for the question. Probably we should say in better
words that what we would like to have in 10 years, 20% of our sales coming from
the international operation and not having 20% of market share in those
operations. So it means that in 10 years the Brazilian operation should represent
80% and the international operation should represent almost 20%.

Ms. Manidi: That is helpful and secondly could you comment on the competitive
environment activity in Brazil right now?

Mr. Carlucci: Well, we are living now in Brazil, in the last probably 3, 4 years, a
very high-competitive market in our industry and I don't think that we are living this
year a huge change in this environment, even though all the competitors are
fighting to gain market share; and of course because we are in a market that is
growing, the competition is not so aggressive, because we have the opportunity to
fight, but the market is growing around 15% in the last 3, 4 years so we are living in
a tough environment, but not with aggressive, real aggressive competition.

Ms. Manidi:
Thank you very much.

Mr. Carlucci: You are welcome.
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Operator: Our next question comes from Celso Sanchez of Citigroup. Please go
ahead.

Mr. Celso Sanchez: Hi, good morning. First of all, thank you very much for the
better understanding of your international expansoins, it sounds very promising,
but in terms of detail, is there anything you can help us understand with respect to
the importance of the orientadora role and/or the Casa Natura role in your
continued expansion outside of Brazil, or is that something that is very market-
specific so far in Mexico and Brazil?

Mr. Carlucci: Celso, thank you for your question. Is very important share that
every day we are trying to innovate our commercial model and the Casa Natura, or
Natura Place, is a way to innovate our relationship with our consultants and we
have, as you know, a Casa Natura in Mexico and we started the first one in Brazil
last week and we believe that we have a strong marketing tool - if I could call like
this - in our hands to enhance the relationship with our consultants. Of course that
this is the first in Brazil; we are learning, we are happy with the beginning of the
Casa Natura and the reception of our consultants but we need to learn a little bit
more in the next months. But we really believe that we can use this place to really
offer a brand opportunity, a brand experience to our consultants and to their
customers because is a place where they can be in contact with our portfolio, to
receive a massage and other things. So we believe that this is a strong tool for
Brazil and for the international expansion. Talking about the Natura consultant, the
orientadora, this is a project and still a project in Brazil to enhance the relationship
and to accelerate the growth of the number of consultants, but we are testing and
we are still analyzing and when, if we implement the CNO - as we are calling here
it should be with more risk management, because it is a major change in our
relationship with our sales force, so we are going to do it gradually but we did not
decide yet to implement the CNO; we are still learning with the project that we are
realizing in a small area in Brazil, and the Casa Natura we really believe that it is a
very good marketing tool and we would like to implement this marketing tool
probably in the international operations and expand here in Brazil.

Mr. Sanchez: To be clear; Casa Natura sounds like it is more transferable across
borders as a concept, but you are not necessarily convinced that the orientadora
is?

Mr. Carlucci: Yes, yes, and only because the CNO, the orientadora, is a major
change, so we must be sure that we have reached the best results. In the Casa
Natura
it is another marketing tool; Casa Natura is not going to change so much
the relation with our consultants, it is only going to enhance, because it is a place
where the consultant can be in contact with Natura, so I believe that Casa Natura
we are going to implement in the next years.

Mr. Sanchez: If I could just follow up on the international business, obviously 20%
is a big-picture number, specific I am sure on the countries from which you expect
the bulk of that to come, but if we think about international profitability, I think one
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of the concerns I have heard many times is that structurally it must be dramatically
less profitable than Brazil. Do you share that view, or do you see any reason why
the international business, apart from Brazil, in 10 years' time or a longer term
structurally could not have profitability that is not that far below or perhaps even at
the level of Brazil?

Mr. Uba: Celso, as you know it takes about five years in order to get the break-
even point in a new operation in a new country, because you take our sales force
for instance, it operates below those volumes that we see here in Brazil. Let's take
a sales supervisor for instance. In Brazil each one of those supervisors has more
than, in average, 500 CNs
consultants - being under their supervision; in a new
country we have 5,000, so that has a tremendous impact in the final productivity as
the time goes on, we expect the final productivity to be closer to that we have here
in Brazil. Let's take gross margin for instance. Gross margin is not very different in
the new countries from the one we have here in Brazil and that is a very good sign
that in the long term we should be able to achieve higher productivity in these new
countries. But it's still too early for guaranteeing what level of final
productivity, of
final margin, we will have in these new countries but we are very confident, given
that the gross margin is in the same level we have here in Brazil, that the
perspectives are very good.

Mr. Sanchez: Sorry, just one last question. That is encouraging to hear, I think
many people might think of it as more likely that the advertising expenditure
required in other markets might be dramatically higher. Is that something that also
you are confidant, like not necessarily will be the case or does that remain to be
seen? Marketing.

Mr. Uba: Advertisement? Yes, marketing costs yes. Advertisement is something
different, because the direct sales model the way you have to build your brand is
different from a more traditional retail distribution model. We build on margin, a lot
of the margin building; the brand building is through our consultants, our sales
force. But on marketing efforts, a broader concept of marketing you are right, you
have to invest more in the first years and that also has an impact in the
productivity. This is a slow building business model, it takes, since it is people
intensive, it takes some years until you have a solid business, but once you have it,
it is really, really solid. It has a different dynamics and that is why it takes so long in
order to reach the break-even point and to reach the same productivity we have
here in Brazil, which is a 35 year-old company. We had time in order to increase
productivity of our sales force and to build our brand.

Mr. Carlucci: And Celso, just to add something about what we are calling the seed
strategy, that means that we are going to seed small operations with low cost, low
investment, in markets that we believe that we have potential and we are going to
see how they manage the business, we are going to see the primary indicators of
the health of those small units before increasing the investments to manage the
risks and to capture the opportunities, to understand in which one of those small
operations we can be succeeded and this is important to share with you the
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strategy that we intend to apply in the international expansion. It is not a big-bang
expansion investing directly huge amounts of money in markets.

Mr. Sanchez: Mexico is effectively a seed strategy, correct?

Mr. Uba: Pardon?

Mr. Sanchez: I was just clarifying, so Mexico was an example of the strategy?

Mr. Carlucci: Yes, yes. But you know that in Mexico we did not have the first step.
I believe that the seed strategy should start with smaller operations than we started
in Mexico. In Mexico we started in a more enthusiastic way, because - we were
not wrong, I believe - we thought that Mexico was a very good market for Natura
and for the direct selling system, so we started more accelerated in Mexico. I think
that in the seed strategy we are going to be smaller in the beginning on those
markets, but you are almost right. More or less like we started in Mexico.

Mr. Sanchez: Thank you very much.

Mr. Carlucci: You are welcome.

Operator: Ladies and gentlemen, again, to pose a question, please press star (*),
one (1). 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 for your time and wish a nice Christmas
time for everybody and for Natura a very nice time to sell our products, because
people here like to have Natura products for the Christmas time. So our next
meeting is going to be in the beginning of 2007, in February, and it is going to be a
pleasure to have you at that time.

Operator:
That does conclude the Natura audio conference call for today. Thank
you very much for your participation and have a good day.

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