Natura &Co Holding SA (NTCO) 2006 Q4 法說會逐字稿

Good morning, ladies and gentlemen. At this time we would like to welcome everyone to Natura's 2006 fourth quarter results and full year results conference call. Today with us we have Alessandro Carlucci, the CEO, Jose David Uba, the CFO, and Helmut Bossert, Investor Relations.

We would like to inform you that this event is being recorded and all participants will be in listen only mode during the Company's presentation. After Natura's remarks are completed there will be a question and answer session. At that time, further instructions will be given. [OPERATOR INSTRUCTIONS].

We have a simultaneous webcast that may be accessed through Natura's IR website at www.natura.net/investor. The slide presentation may be downloaded from this website. There will be a replay facility for this call on the website. We remind you that questions which will be answered during the q and a session may be posted in advance on the website.

Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Natura management and on information currently available to the Company. They involve risks, uncertainties and assumptions because they relate to future events and, therefore, depend on circumstances that may or may not occur in the future.

Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Natura, and could cause results to differ materially from those expressed in such forward-looking statements.

Now, I will turn the conference over to Mr. Alessandro Carlucci, the CEO. Mr. Carlucci, you may begin the conference.

Good morning, everyone. It is our great pleasure to welcome you in Natura's 2006 earnings release conference call. We will briefly comment about the 2006 highlights, then we will comment in more detail about the results and the analysis of the fourth quarter. And, finally, we will talk about our future strategies and challenges.

As a whole, the year 2006 was highly positive with various highlights and some points of attention. We continue observing the growth in our Brazilian CFT markets and direct sale which reflects the vitality of our industry. Concerning such growth in 2006, Natura continued gaining market share, achieving 22.8% according to our industry association data, which means a gain of 1.4 percentage points over last year.

We had a growth of consolidated net revenues of 19.9% and an evolution of EBITDA of 16%. The difference between these two growth rates was concentrated in the last quarter, to be approached later in more detail.

The consolidated number of consultants reached the mark of 670 -- 617,000. The growth of operations under consolidation of Latin America, Argentina, Chile, and Peru was 51.8% with significant increase in the knowledge and acceptance of our brand, ending 2006 with more than 51,000 consultants in these countries. We just received two data from our surveys evidencing our capacity of competing in the Brazilian market.

Once more our brand is the most preferred brand by 43% of the targeted public, maintaining exactly the same index of the past three years, highly distant from the second one in the ranking. And the satisfaction index of our consultants concerning the relationship with Natura who have maintained in the same high levels of last year, reaching 89% in terms of favorableness.

Points of attention are concentrated in the increase of investments and administrative expenses necessary to support the 170,000 [per cent] growth of the past four years and allowed the progress of our international expansion.

Now, concerning the fourth quarter results. The main issue to be approached is that we went through frustration in sales despite the growth recorded. We've made a significant change in our mission guiding strategy at the end of the year, expecting that we could grow considerably more than the average of the year, gaining a share in the markets of products used as Christmas gifts to our promotional kits maintaining, on the other hand, high sales of our regular products. Despite having some positive aspects, this strategy did not yield the expected effects on the growth of total sales.

Despite another negative impact observed in the gross margin of the period, even with a positive result in the sale of the promotional kits which had significantly higher performance than last year's, this result cannibalized our other regular products and we had a relative decrease in the gross margin. Due to an increase in rate in discounts and in promotionals in the total sale mix.

These two combined aspects made some administrative expense stand out above expectations in this period. Despite a gradual increase in our market's competitiveness over the last years, we haven't seen a specific action from any competitor concentrated in this period. We are already revealing our strategy planning for the end of this year, taking into account what we learned from the last year, and some positive aspects we had, such as the logistic efficiency.

Moving now along to our strategy and our future challenge, we continue to believe that we have a lot of room for growth, keeping the innovative spirit that has marked our history. While, at the same time, we need to address to our consolidating our investment and the projects that have supported our strong growth over the last years.

Therefore, our consolidation and growth strategy will be based on the following guidelines. Our focus will continue to be concentrated on the growth and cash generation of our Brazil operation, taking advantage of the strength of our brand and of the quality of the relationships we have with our sales consultants and with our end consumers.

And we will base it on the following aspects. First, a greater efficiency in our marketing actions, and a better balance between short and long-term market [actions], which doesn't necessary mean a greater investment in discounts and promotions.

Second, a freezing of the Company's administrative expenses for the coming two years, as we believe they already are on a level that can support our future plans.

Third, a search for productivity gains in the Company's operational process in view of the size and dimensions of our business.

And, fourth, an organizational structure dedicated to the Brazilian market management comprised of a part of our best executives.

In the other operations of Latin America we will continue to invest for the growth of Argentina, Chile and Peru in view of the positive results coming from a good acceptance of our brand and from the direct selling channel, speeding up the achievement of the breakeven point in this operation providing -- proving, sorry, that we have a profitable and a multipliable model.

At the same time we will complete our presence in the main markets of the region with the opening of our operations in Venezuela and Colombia in 2007. On the other hand, we will continue to search for new markets and, as already disclosed, we have started the planning for the opening up of operations in United States and Russia in 2008. In this sense, Natura's experience in France will continue to be a wide learning source.

For 2007 our plans focuses to our operational margin, at least at the same level of 2006 year, with a gradual recovery at each quarter. In the environmental plan we continue to mitigate and, when possible, eliminate impacts that cause damages to environment with the purpose of becoming carbon-free up to 2008.

With the perspective that we use, in large scales, assets from the Brazilian biodiversity, we will continue to dedicate resources and energy to use it in a sustainable way in partnership with agricultural and [inaudible] communities we have a relationship with. Within the social scope our focus will continue to be the improvement in the quality of relations and the increase of wealth distribution to all publics of our business chain.

Confident of the consistence and quality of our strategy which has not changed and, at the same time, performance in relation to necessary adjustments to reach the right implementation, we'll have discipline and enthusiasm with the assurance that we will continue to generate positive results and quality of relations to all publics we have a relationship with.

As from now, we remain at your disposal for the questions. Thank you.

Ladies and gentlemen, we will now begin the question and answer session. [OPERATOR INSTRUCTIONS]. Thank you, our first question comes from Daniela Bretthauer of Santander. Please go ahead.

Hello everyone. A question on your international expansion strategy. Can you, Alessandro, or David provide more details on exactly how do you plan to enter the U.S. and Russia market? Would that be in the same format of France, i.e., a flagship store and then you go into the direct sales level? Or what do you have in mind for those two countries? That's the first question.

Hello, Daniela. The strategy in those two countries, even if we are beginning the planning, is to use a model based on direct selling. We are not planning to use a flagship store as a commercial model. So it's going to be more like the Mexican approach than the French approach.

We believe that maybe, on the other hand, we can use the flagship store to build the brand but not as a commercial approach to U.S. and Russia. So the model is going to be more related with the model that we used in Mexico than the model that we used in France.

Still in that, France, would there be a specific region that you will rollout first in U.S.? For instance, Miami which has a lot of Brazilians, or will it be nationwide?

Daniela, we are still discussing in which region we believe that we should start. But we are going to start in a specific region. We are going to learn a little bit in this region and then rollout all over this region. But we haven't decided yet in which one we are going to start. We are studying right now.

Same thing in Russia?

The same thing in Russia.

And do you, at this point, have any idea of the CapEx that you need to spend to build that business in those two countries?

It's very small, because we don't need so much CapEx to start an operation. Our operation starts very small with almost no CapEx involved.

Okay, thank you. And then the second part of the question, you mentioned that SG&A -- no, sorry, you mentioned that G&A were frozen, right, going forward? Is that in absolute amount or is that as a percentage of sales?

That's an absolute amount taking as a reference the level of G&A that we had in the last quarter of 2006. It's an absolute amount, maybe -- not maybe, certainly adjusted by inflation, but with a zero increase in real terms.

So, from fourth quarter levels, not for the full year of '06?

No, because as we mentioned, our administrative structure we consider it now adequate, properly designed for the next three years. So we are thinking about the end of 2006, not the average of 2006.

Okay, thank you very much for this clarification.

Thank you.

Our next question comes from Robert Ford of Merrill Lynch. Please go ahead.

Good morning, everybody. Also, David, I have a question with respect to pricing. But I also want to clarify something that came up in the Portuguese language call. Maybe I should do that first. What I understood in the prior call is that you're budgeting, or believe in general, that you can have comparable EBITDA margin in '07 versus '06 based on the things that you've [actually controlled], is that correct?

Hello, Bob. Could you repeat the last part of your question? We had some trouble understanding you precisely.

Of course, David, I was just saying that my understanding was that your belief is that you can maintain a flat EBITDA margin in '07.

Yes, that's correct. We believe our plans, [the study] of our plans, we believe that we have a minimum EBITDA margin of 20, maybe 20.7, that's the same we had in 2006. That's absolutely -- you are absolutely right, that's what was -- what we are saying.

Okay, now I also heard Alessandro say that this is not the -- there's more of a promotional issue in terms of the strategy that was employed in the fourth quarter than it was a single competitor action, right? And -- but in general you're saying a proliferation of smaller knock-up brands. You've been so successful with your base [studies and brand] positioning and the aspirational values that you've created around the brands that you are starting to see a little bit more competition.

And there has been a tremendous escalation in advertising by your biggest competitor, which is likely to increase further this year, at least that's what they're saying. And they're actually saying that they're so happy with Brazil they're modeling other geographies around the world after Brazil.

And I was curious, if you -- in a -- if you have to fund more aggressive advertising or marketing, how do you do that? And how do you deploy your marketing spend a little bit more cost effectively? What were some of the mistakes that you learned from in 2007 -- or in 2006?

And then the other question I had was with respect to price. For the last [two] years there's been a pretty regular 6% price increase that occurs in the March/April timeframe. And I was curious as to what your view was with respect to pricing, please.

Pardon me, sir, are we finished answering this question?

No, no, we didn't. We're waiting for a response.

Hello Bob, it's Alessandro speaking. In the marketing approach we are going to do two things. Without splitting a specific action because of strategic reasons, we are going to enhance the efficiency of our marketing actions. And we are going to try to have a better balance between short-term and long-term marketing campaigns and actions. So we are going to focus on those two things; be more efficient, and a better balance between long-term and short-term marketing actions.

I would also like to add to that point on marketing expenses, Bob, that we see some opportunities of having some productivity gains. I can give you an example. Our catalog, for instance. We believe that we can rationalize it a little bit, decrease printing and distribution expenses. And, therefore, saving resources for applying other initiatives.

So all these combined, in our opinion, we render a better marketing effect in the current year. On the price issue, your question on price adjustment, we have a price adjustment this year around the same -- in the same amount we had, [the same] percentage we had last year in 2006 at the same time.

Great, thank you very much, both of you. I appreciate it.

Our next question comes from Lore Serra of Morgan Stanley. Please go ahead.

Hello, I had a couple of questions, but let me ask them one at a time. And I wanted to go back to the fourth quarter, because I guess I'm not sure I fully understand what happened. You decided, or your product mix moved toward kits which to me seems very promotional. And yet you sales growth decelerated. And it's the combination of that that I'm still struggling with understanding.

The sales decline in and of itself doesn't seem that odd to me, the market wasn't as strong, there was more competition. But, at the same time, there were promoting. So something changed in the fourth quarter. Can you just help us understand what changed? And I know you don't want to talk about guidance for sales, but do you feel that factor's still affecting you as you go into 2007?

Hello, Lore, it's Alessandro speaking. What happened in the fourth quarter was that we tried, this is last year, to be more innovative in our Christmas strategy approach. And we offered almost the double of the promotional kits comparing with the previous year.

And what happened is that they cannibalized our regular line more than we expected, more than we could expect. So we didn't have the increase in sales that we thought that we could have and, at the same time, because we showed more promotional items, we had an impact in our gross margin. And that's what happened in a resume view of the fourth quarter.

But -- I'm sorry.

No, no. We are planning this year in a different way, of course.

The fourth quarter was similar to the first quarter in the sense that your sales per rep were flat. And in the first quarter you talked about how certain product launches didn't work. And you rectified that because the second and third quarter numbers were a lot more solid. In the fourth quarter -- more promotion would normally mean higher sales growth. Was there something in terms of competitive offerings, or something more specific that caused -- normally more promotion would mean more sales.

We, in fact, didn't see any specific action from our competitors concentrated in this period. So it's not because of some competitive action that we didn't succeed in our promotional approach. And when we increased the promotional kits, as I said, they cannibalized the regular line.

And we are talking about different categories. Because in most part of times, the promotional kits are from the fragrance area and the body care area. And we didn't succeed so well in other categories that weren't in the promotional kits. So one cannibalized the other. And not because we had specific action from a competitor. We believe that mostly we caused this problem.

Okay. And just to move to the cost for a second, earlier in 2006 you were talking about 2007 as a year where you might see a couple hundred basis points of margin impact from the international business expansion. And now you're saying that you're very determined to keep your operating margin flat in '07 versus '06. Can I read that to mean that more of your international expansion calls were in the fourth quarter than, maybe, I'd understood before the fourth quarter -- before going into the fourth quarter? Do you see my question?

Lore, can you explain again your rationale? Why are you concluding that the most efforts came before the fourth quarter? If you could explain that a little bit better for us?

Yes, yes, during the fourth quarter you were saying expect margin decreases in '07 as a result of international, and large margin decreases I think are a couple of hundred basis points. And the fourth quarter margin was a lot lower than we thought. And now you're saying you're going to have a flat margin in '07.

So I'm trying to understand, does that mean that some of the spending for the international, or a higher proportion of it was put into the fourth quarter? Because you're now no longer expecting '07 to have a margin impact on international. And I'm trying to understand why.

You are right, we put more effort on the fourth quarter international expansion, that's absolutely right. But it doesn't mean that during 2007 we're going to decrease that effort. Actually, we're going to increase it a little bit, even when compared to the fourth quarter, excuse me.

What is keeping the operating EBITDA margin flat in 2007 is the compensation that you get from rescale gains from keeping all our agents' [inaudible] expenses fixed in this current year, as well as searching gains of productivity during the year. So we invest more in international expansion 2007 but we, at the same time, have more gains in productivity and in leveraging during 2007.

Okay, we can do this offline, but if you just annualize your fourth quarter admin expenses, then you're talking about a 25% increase in admin into '07. So, I'm not entirely sure where all the leveraging is going to come from, but I can do that offline.

The other question I guess I wanted to ask was, you mentioned that you're going to speed up the breakeven in places like Argentina. And you've been in that market for a long time. I'm wondering why haven't you -- maybe you will breakeven in Argentina, but why has it taken longer in the past to get to breakeven and what can you do to accelerate that as you try to move those operations into breakeven into '07, '08?

Let me make some comments on your comment on [that average]. You are right, if you compare 2007 to 2006, there is no leverage gain since, as you stated, expenses are increasing around 20% in real terms. What we're saying here that we'll keep those expenses fixed for at least for the next two years when we'll have some leverage gains from doing that.

And also during 2007 we expect to keep on growing our sales in 2007 and, therefore, along the year these expenses are kept fixed. We have some leverage effects with more impact by the end of the year. We are comparing, let's say for instance, the fourth quarter of 2007, you have a stronger leveraging effect, as compared with the same period of 2006. Now, Alessandro is going to comment on the international aspects.

Well, we decided to speed up the breakeven point in those three operations, because now they are reaching a size big enough to maintain growth, but start to look for the breakeven. In the last -- in the previous years we didn't decide to do this, because we were looking for -- reach a better position in those markets. We don't want to have small and profitable operations in the international markets. We like to be a relevant player.

So, in the case of Argentina, Chile, Peru, we believe that they are reaching a size that allow us to try to reach the breakeven. It doesn't mean that they are not growing anymore. They are -- keep growing. But we are going to make more efforts to reach the breakeven, to prove that we have a profitable model that could be rolled out for the other markets.

Thanks very much.

You're welcome.

[OPERATOR INSTRUCTIONS]. Our next question comes from Jose Yordan of UBS. Please go ahead.

Good morning everyone. Just to follow up on one of the clarifications you made in the other call. You mentioned that the 380 point decline in the gross margin for the quarter, that 280 came from the issues of the fourth quarter marketing campaign and all that. But that 100 came from an actual increase in costs. And that 60 were recurring expenses due to restructuring of production to accommodate the higher growth outside of Brazil. And that 40 were non-recurring.

And my two questions are can you give us a little more detail about what that restructuring of production capacity was, what that entails and what's leading to the increase in -- to that 60 basis points recurring increase?

And then what were the non-recurring costs in the quarter that we can expect to go away?

And a follow up to that is what's your outlook for packaging and raw material costs for 2007, versus the end of '06, independent of all this other stuff, how do you see your main inputs going up or down?

Okay, just let me just correct a little bit the numbers you've just mentioned. We said that 200 basis points were due to a price discounts, and 80 basis points were on changes in the category mix. And then 100 basis points due to increasing costs.

The 60 basis points are more related to the overheads in the administrative restructure for the manufacturing. In order to face a more complex manufacturing process, we are investing more on the manufacturing planning, on sourcing and purchase. And, therefore, -- and these are the areas, in manufacturing, where most of the expense increases are concentrated.

[Please] do not expect any increases in raw materials for this year, at least above our domestic inflation. We expect it to be in line with domestic inflation. So we are not expecting any [corruption] on the raw material costs for 2007.

And the other 40 that were part of that 100 bass point increase in costs, what was behind that?

Okay, those 40 came mainly from some accounting adjustments, of a few things that actually took place in previous periods. They were not associated to the fourth quarter. And we do not expect them to occur again. I can give you an example. Some losses in raw materials in products, in one of our international operations that we didn't have the proper provisions. And we concentrated those provisions in the fourth quarter. And [as a reference] they were covering a period of one and half years approximately. So we -- okay?

That's perfectly -- that's great, thanks a lot.

Okay, thank you.

Our next question comes from [Marco Spinar] of Oppenheimer Funds. Please go ahead.

Hello, good morning guys. I just wanted to ask about your thinking, getting back to the original question on the expansion plans for U.S. and Russia, and the reliance on the direct sales model. Maybe just a little bit -- to help me out, in terms of how you think about which countries to go into as you approach, not just the U.S. and Russia, but also Venezuela and Colombia. And what it is about those markets that make a direct sales channel make sense to you.

My own expectations is that the direct sales channel in the U.S. will be tougher than the other routes. I'd be kind of curious as to why it is that you believe so completely that it's the right way to go in markets outside of Brazil where you already have that embedded strength.

Hello, Marco, it's Alessandro speaking. You are right about the fact that the relevance of direct selling in the U.S. is different from Latin America, even though direct selling represents around 10%, or a little bit more, of the CFT markets in the U.S. Different, for example, from France where the direct selling represents 2%. So the U.S. is in between markets where the direct selling is not competitive and, Latin America, where it is very competitive.

On the other hand, the U.S. is the largest direct selling market in the world. And we believe that we have a strong value proposal that is going to be more accepted in the U.S. Because now we believe that the society is more worried about the climate change and companies that are worried, not only to sell products, but to decrease the impact in the environment in their activities.

So, we believe that U.S. is a good market, not the best for direct selling, but not the worst. And it's a very important one, for where our value proposals could be well accepted. That's why we selected this market to start the new operation.

And what about some of the other markets, Venezuela, Colombia and Russia?

Sorry, in those three markets the direct selling is very important, it's very important. If I am not wrong in Venezuela direct selling represents 25% of the total CFT. In Colombia, more than 30%. In Russia, 20 and growing fast. As you know, the market in Russia is growing very fast. So in those three markets we are confident that our channel is going to fit the needs of the customers in those markets.

Okay, alright. Thank you.

Thank you.

Try again.

Mr. Ford?

Yes.

Our next question is from Mr. Ford from Merrill Lynch. Please go ahead sir.

I just had a short follow up, and I wanted to clarify one thing. And that is in your accounting for individual items sold, do the kits count as a single item, or do you include the number of items within the kit?

The kits have more than one item, except for a couple of them. I don't know why you are asking that question, probably you are trying to figure out how we cannibalize the other category. Is that your question?

David, it was -- as I recall, it was a mid single-digit number in terms of actual unit growth in the quarter, and then if you are selling more kits, and the kit itself counts as a single item versus the number of items inside. So if the kit has 10 items but you've counted for that particular metric as a single item it makes some sense to me. But if you don't then, maybe, that's another issue that we can go into later. Do you understand what I am saying?

Yes.

Because it was -- as I recall it was a little over 5% in terms of the unit growth rate for the quarter that you reported in the press release, which could be an error I don't know. But it would make more sense if the kits counted as a single item. And I was just trying to clarify that or confirm that.

Well, probably you are right we are counting just as one. But I would like to make sure if that is the case and give you a more precise information today, later on, okay.

Thank you very much David.

Thank you.

Our next question comes from Celso Sanchez of Citigroup. Please go ahead.

Hello, good morning. The first question is actually pretty simple; you made a comment earlier about decreasing printing and distribution expenses for the catalogue as a potential savings opportunity. Can you clarify, when you talk about distribution expenses, lowering them, is that -- is there going to be any impact on the channel, i.e., any impact on the consultants having to have them pay more for the catalogues? Or is there going to be some [rationalize] out of your cost structure before it gets to them? That's the question please.

Opportunities here for savings are not associated, are not related to [inaudible] for a decrease in number of catalogues, but are more effectively of some [40%] to printing them. So we -- part of them, for instance, we will [sell] together with the regular products we sell to our consultants. Just to give you an example, and then save a lot of distribution costs.

We also intend to rationalize the size and the presentation of products in those catalogues and, therefore, decreasing the number of pages, without affecting the communication, even improving communication with our consultants during that process.

So, we believe that we will be able, after three years working on the catalogue, and after big changes we made in 2006, we followed what happened and from this knowledge that we've got from our [standards], we believe now we can save a lot of money, and also improve the communication power of our catalogue. So we probably get both; savings and a more effective marketing tool with the catalogue.

And do we expect to see this process begin the second half of the year, the first half of the year, or has it already begun?

In the first half of the year, but not right now as we have a certain number of catalogues already designed and planned probably to start in two months from now, two to three months from now.

Great, thank you. And a second question, to follow up on some earlier questions about the fourth quarter as well as the first quarter last year. My understanding was one of the issues in the first quarter last year, with respect to the productivity, was a seasonality that perhaps wasn't as effectively accounted for internally as could have been from pre-Christmas and post-Christmas sales.

Is that something that we can -- that you feel that you've been able to fix for this year? Or, perhaps, I don't know if I understood it, but if that was the issue is that something you feel that you've -- are on the right path now?

And as part of that question, we've seen two of the last four quarter where there have been a couple of things that haven't quite worked out as you would have hoped. Is there a -- is it a lack of personnel do you think? As you grow internationally do you think there is a -- the management is over-stretched? Or do you think really it's just a question of changes in consumer preference that are made perhaps a little faster or [differently] that you had previously anticipated?

Celso, please, would you mind to repeat the question, we didn't [hear you] so well.

Yes sorry, I'll break it down a bit. The first question is more straight forward, basically, I thought the first quarter of '06 might have been related to a seasonality issue, post the holiday sales of the fourth quarter of '05. I wonder if that similar pattern -- if you are concerned that that will be repeated this year. Or if you think that seasonality issue has been addressed through your own internal actions, through -- from [inaudible] standpoint and so forth for the channel? That's the first part of the question.

Okay, no, the problems that we faced on the first quarter of last year were not related with something so seasonal about the Christmas time in the previous year. We expected to have better launches and better promotional campaigns. And this is an isolated effect. So, it's not related with the Christmas period. And I don't believe that we should see the same effect this year.

Okay great, thank you. And the follow up part of the question is, taking last year's first quarter and again this past fourth quarter, is there any reason to believe that that has anything to do with your international expansion in terms of how demanding it is on building the brand internationally, perhaps, pulling the focus away from the Brazilian market?

No, I don't think so, Celso. We are still focusing a lot in the Brazilian market, because it's the place that we are going to generate cash and the possibility to expand. What happened that -- is real that we failed in our promotional approach and, unfortunately, we didn't reach the results that we were expecting. So they are different issues.

Okay, thank you.

Thank you.

Our next question is from Andrea Teixeira of JPMorgan. Please go ahead.

Hello Alessandro, hello David. I just wanted to follow up with the question that I had on the Portuguese version, regarding Mexico. In general you are seeing -- I know that it's a longer breakeven point. But let's say from the Avon results in the fourth quarter, they were saying that they were more -- they had [these quarters] in Mexico.

Is that opportunistic for you, or its more of a structural problem in Mexico that direct sales are more developed there, and you don't have such a percentage of growth in Mexico ahead of you. So how are you going to be -- is there anything that you can add in terms of the competitive environment there, I'd appreciate it, thank you?

Hello, Andrea, let me see what I can share with you about the Mexican competitive environments. So we are not so specialist in the market. But we believe that Mexico is a very good market for direct selling. And not because it represents around 25% of the CFT market, but because our value proposal is well accepted in Mexico since we started last year. And we are not reaching problems in recruit, and motivate and activate our consultants.

So the environment is good. We are very small in Mexico, so it's difficult to compare what has happened to Natura with other huge competitors in Mexico. So, I think that we are talking about different things. We are happy with our fist results even though, as I said, we are really small. And I don't think that the -- what we are seeing with other big competitors are related with our operation in Mexico.

Okay, so in general your business plan is more of a -- something internal that they have, your business plan pretty much hasn't changed from last year's entrance. But there is nothing you'd revise there, in terms of the growth of the industry?

No, no we didn't change our business plan; we are reaching the growth and the results that we planned. So we are maintaining our business plan. I am confident that the first steps of this business plan are -- we are succeeding [well].

Okay, very perfect, thank you.

Thank you.

[OPERATOR INSTRUCTIONS]. Our next question comes from [Muthu Sankar] of Northwestern Mutual. Please go ahead.

Hello, my question is on competition productivity. You mentioned your fourth quarter results were not impacted by competitions, because it's mostly because of your strategic [inaudible]. And -- but I would like to focus on competition. Avon has done well, and they are increasing advertising in Brazil.

And I also hear the makers of Nivea, they are also testing the [access] model in Brazil. And a few other branded companies are doing the same. Definitely competition is increasing in Brazil, and should have either direct or indirect impact on Natura.

I don't know if you have -- you mentioned that the comp this -- your fourth quarter results were not impacted by competition, but I think it probably was impacted directly or indirectly. But my focus would be, going forward, what do you see regarding competition in Brazil, and how you are going to deal with the increase in competition.

And, second, you mentioned about product -- market efficiency, I am not really clear how cost reductions in catalogues or doing something in catalogues is going to increase sales for you. Could you be specific on what you are going to do, in terms of marketing that would help in either increasing volume or increasing sales productivity? If you can give those -- if you can give us clarity on competition, and also how you are going to improve productivity that would be great?

Hello, Muthu, it's Alessandro speaking. I will try to help with some information. First of all, when we said about the fourth quarter, we didn't see a specific action concentrated in this period, even though we had seen that the competitive environment in Brazil is getting tougher and the competition is investing more.

So, we agree, and we are facing competitors moving. But we didn't see something specific in the fourth quarter. That's why we really believe that it was mostly our fault, the results of the campaign, especially because this year, the last year, we tried to do something different than the previous year.

Talking about the future, as I mentioned before, we have very strong indicators about the relevance of our brand and the relationships with our consultants. We are the preferred brand in Brazil. And with an important distance from the second brand and the relationship with our consultants is very strong.

So what we are going to do, we are going to maintain the value proposition of our Company, delivering high quality products. So we are not going to change the main strategy of the brand building. In the marketing actions we are going to -- we are trying to be more efficient, and the catalogue was only one example. We have some other actions where we can spend less and do more, so we could gain productivity in some marketing actions.

And, on the other hand, we are going to balance the marketing actions, focusing on the short term and the long term. And those are the two main issues for the future. And that's how we believe that we are going to compete with other brands. We really believe that we could offer a different value proposition in our markets and we are going to welcome it.

Of course, I have not mentioned that we are going to maintain the levels of the launchings, the innovative products and new concepts are planned for this year. But this is our regular marketing approach.

Okay, so you are going to follow your strategy and go back to basics, and focus on your core strength, and see what happens, right?

Totally right.

Okay, thank you.

Before we end, I would like to clarify the question made by Robert Ford, and I don't know if he is still connected. But we count just one item per Christmas set. So, Bob, your assumption is absolutely right, it's one item per set.

Excuse me, 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.

We would like to thank you all. And I would like to say, again, that we are really confident about our strategy, which has not changed. And we are really enthusiastic about our future. And we are going to implement the strategy, the same strategy, with discipline and motivation, because we really believe that Natura has a lot of room to grow. Thank you, and see you at the next call.

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