Natura &Co Holding SA (NTCO) 2011 Q3 法說會逐字稿

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to the Natura 2011 Third Quarter Conference Call. Today with us we have Mr. Alessandro Carlucci, the CEO, Roberto Pedote, the CFO and Mr. 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, www.natura.net/investor. This live presentation may be downloaded from this website. There will be a replay facility for this call 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 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 now begin the conference, sir.

Good morning, everyone, and welcome to today's conference call, where we will comment on Natura's results. Natura's third quarter results in Brazil came in below our expectations, and we would like to begin our comments by addressing the cause of this deceleration and the actions we are taking to recover our growth base.

As you have seen, our revenue in Brazil grew by 5.5% in the period. In the external environments we observed a slower growth in the Brazilian -- in the Brazilian CFT industry, with more intense competition, as we have reported previously.

The internal environments, we have identified several opportunities to improve our execution. We are currently implementing a major initiative to modernize our ordering and billing systems, decentralize our logistic network and reformulate our planning processes, which will make our operation more robust and improve the level of service we provide to our consultants, while reducing cost and environment impacts.

This quarter in particular, the simultaneous implementation of these initiatives generated instability in our operations, which compromised the level of our service and led to a higher number of products being out of stock. We estimate that this factor has an impact of around 400 basis points on our sales.

We have already put into place all of the resources and energy required to stabilize our operations in the short term. Even though we expect to still face some instability during the first quarters, we believe that this issue will be solved by the end of the year.

We are also working to better manage our promotions, seeking to better balance promotions at the regional and national levels, which will allow us to increase their efficiency and profitability, with the results becoming apparent in 2012. We continue to make progress in implementing our program to reduce expenses and capture efficiency and productivity gains, the results of which will begin to be seen as of the fourth quarter of this year.

We reaffirm our EBITDA margin guidance for the year at the levels in line with our EBITDA margin in 2010, which stood at 24.5%. Note that the international operations are experiencing an excellent moment, with growth of 42% in local currency, with this operation already accounting for almost 10% of Natura's revenue. EBITDA in the operations in consolidation in the third quarter was BRL9.4 million, with EBITDA margin of 10.3%.

Our operations in implementation continue to invest in developing our sales model in order to foster entrepreneurship while integrating the generation of economical, social and environmental value. On this front, in Mexico, we continue to implement the sustainable relations network and in -- we started implementing the CMO model at the end of the third quarter.

The strong growth in the number of our consultants confirm consumers' preference for the Natura brand and the strength of their selling model in the region. And here we see an excellent opportunity to promote the productivity of our consultants.

Despite the high penetration of our brand in Brazilian households, which stands at around 60%, we still see an excellent opportunity to deleverage consumption frequency in these homes, which to date stands at three times per year. In other words, there are already around 100 million people in Brazil with whom we maintain a relationship and buy products from our consultants that the annual frequency of purchases is still low. Our focus going forward will be to increase this frequency and to boost the productivity of our consultants.

The main initiatives on this front will be to improve the quality of our services and the management of our promotions, as we have already mentioned. We will also focus on our marketing mix to increase the number of categories in the shopping baskets of our consumers, and also to expand our product portfolio into new segments and categories that we have not yet present.

Over the medium and long term, we believe innovations in our sales model, with the use of social networks and new technologies, will play a significant role in our business, with our consultants gaining a broader role and the purchase experience improving even more for our final consumers.

We have confidence that we will recover our growth rates supported by effective solutions to the problem we faced, by the quality of our initiatives on the internal front and by the strength of our consultants channel and our brand.

I would like to invite all of you to participate in Natura's Day on November 10, where we will provide more details on our logistic plans and the benefits we expect to obtain in terms of service quality, environmental impacts and cost reductions. Thank you, and now I will hand over to Roberto.

Good morning, everyone. First, I would like to comment on our growth margin, which has stayed at around the level of 70% registered in the first half of the year, but which was lower than in the same quarter last year.

This quarter, our margins were impacted by the higher investment in promotions and by higher product losses, which prevented margin expansion in the period. The level of losses should remain in line with last year, which is high, but this indicator showed a decline considerably with our planning initiatives, which are still in the stabilization phase.

As Alessandro mentioned, we are intensifying our actions to include efficiency and productivity by taking advantage of opportunities to cut costs and focus on projects that offer higher returns. As we have said, the results of these initiatives will be perceived gradually over the coming quarters.

Another important factor is our working capital, stabilizing our systems and process will also be critical for improving the efficiency of our inventory management. In addition to these initiatives to increase the use of tax credit that's currently underway should become apparent by the end of the year.

We continue to invest in infrastructure projects in our logistics and systems that will lead to significant improvement in our service equality and help reduce costs and environmental impact. CapEx this year should exceed our initial guidance by around 10%. The level of CapEx this year is compatible with our conservative capital structure and with our dividend policy.

And with that, I will pause here so then we can move on to the question-and-answer session of today's call. Thank you very much.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions). Excuse me. Our first question comes from Ms. Daniela Bretthauer from Raymond James.

Hi. Good afternoon, everyone. I just wanted to explore two issues that Alessandro mentioned in his opening remarks. The first one is what would be some of the internal solutions and initiatives that Natura could adopt or is adopting to reverse this slower sales growth? That's the first question.

And then the second, you talked about tax credits, so if you could be more specific -- you know, is there an amount or how much could we expect per quarter going forward, that would be helpful. Thank you.

Hi, Daniela. It's Alessandro speaking. The main initiatives to improve our sales and especially to improve the productivity of consultants are going to be first of all, improve the quality of our service, as I mentioned, in this quarter, and also in the fourth quarter we will -- in this one we lost around 400 basis points because of stock outs and we are going to solve this problem until the end of the year.

The second is we will -- we saw a huge opportunity to improve the promotion managing balance in a better way with the promotions that are done regionally and promotions that are done centralized, and these are going to improve not only -- only the average price, but also the efficiency of the promotion, the leverage and the cost of the promotions.

And the third point that probably is the more important one, we focus our marketing mix to increase the frequency of the purchase of the customer through the year, because as I mentioned in the speech, we have 60% of penetration but where the frequency of the purchase is only three per year.

So we have a huge opportunity to focus the marketing mix to increase the frequency and also occupying some large spaces in categories that we are, and matching new products in categories that we are not present yet. So these are the main initiatives that are going to support our recover in sales and I think this is -- this is the main important things.

How about, just on that topic still, if -- you know, if you don't see the expected results once you adopt and implement those three initiatives, would you consider something more, you know, profound, such as what you did with the action plan in 2007, or you don't think that there is a need to, dig as deep as you had in the past?

Well, I think that we -- we don't need to do a plan like we did in 2007, because at that time we saw that we were far behind the level of investment of our competitors. That is not the case today.

On the other hand, we are talking about something relevant when we say that we are going to focus more in the improvement of the frequency then the penetration, because in the last three years, the most important driver for our growth was the increase in penetration, and now we are going to change from penetration to frequency. So this is an important movement, but this is not -- how can I say -- a plan, an emergency plan, but is a strategic decision that we need to put focus and discipline to implement.

And with regards to the tax credits, maybe Roberto could answer that.

Hi, Daniela. What was mentioned with tax credits in the working capital, because we have some timings to compensate some [part] tax credits, especially related to IFMS and [fiscal themes]. And we believe that we have some good mechanisms to compensate them in the quarter -- during this current quarter that will give us a better position of for [14] capital in the end of the year. But it's related to timing to compensate IFMS and fiscal themes with all the regulations here in Brazil.

And if I may -- I'm sorry to monopolize this, but can I ask just another question, and that's with regards to the BRL27 million gain on the foreign exchange position you had in the quarter. I was surprised by the magnitude. Is it something that we should see again in the fourth quarter if the real, you know, continues to stay above, let's say, BRL1.70. Thank you.

Daniela, this is a non-cash impact related to market to market of some of our long term debts. If you've seen the cumulative number, it's much lower. There is -- it's a non-cash effect and it's not going to affect in the future, because we are not going to -- to anticipate the debt that we have, just to follow the rules of market to market. But there is no affect.

Right, I understand that. So as long as the dollar amount remains unchanged, then -- and the currency continues to fluctuate, we should see again this sort of non-cash impact in the fourth quarter, because that's my point.

It will depend on what's happening, but it's a non-cash impact and it will be zero in the end because -- but I will -- so I will tell you what, my treasury guy just send out detailed explanation of this.

That would be great. Thank you very much.

Thank you.

Excuse me. Our next question comes from Ms. Lore Serra from Morgan Stanley.

Hi, good morning. I wanted to start by just asking Alessandro for his perspective on the past year. And I know it's been below expectations, but you started the year thinking that it was a bit slower because it was a change in the promotion cycle, and then it became apparent maybe the market was slowing more than you thought. But then it became apparent that you didn't really have effective innovation, even though -- kind of with all due respect, we've heard about these white spaces for awhile, and yet they don't seem to be materializing.

And then the system issues kind of comes up, which really was -- I know systems go bad, but -- but, boy, that's a tough one, right? So I know you don't believe it's '07, and I guess the big thing I can see working out '07 is that your promotional levels don't look so bad, right, and you're still growing your channel very -- in a very healthy way, although I'm sure you're concerned by the decline in sales productivity.

So just stepping back from it, what didn't management do right to see this, because it's a little bit of a -- sort of a perfect storm in the year and I know some of the things you can control and some of the things you can't control, but it seems to me there are some things that you could have controlled better. So, why did it happen and why will it get better?

Hi, Lore. Let me try to summarize the answer, because you asked a lot of things. But first of all, we are facing a period, and this is going to be solved. It's being solved of operational problems. They were, of course, not planned. In the opposite, we are implementing very important programs that we -- to allow us to keep growing and to reduce costs and also to reduce environmental impact in all the IT logistic and the decentralizing the distribution centers.

So a lot of good things important and we are sure that are the right things to begin. But unfortunately, the implementation of those things creates an unstable environment in our process and systems, and we have a huge number of stock outs and this is going to be solved.

I don't have any doubts about this, but this impacted our results in this quarter and also are going to impact in the fourth one. They still impact. Decreasingly, but they still impact. And we are confident that we are going to solve all these issues until the end of the year, and we are going to be ready to have a very clean operation and to offer a good service to our people.

The second thing that I mentioned is that we realized -- we saw a good opportunity to improve efficiency of the promotions, to planning the promotions, because as you -- as you know, we started the decentralization process since 2008, with the regional units and the business units. And this year we -- we implement the promotion decentralizing, and we -- we saw that we can manage a better way between the size of promotions plan centralized. They are going to happen in all the country and the promotions that are going to be only defined by the regional.

And we saw that we can have a better balance than we have today, and this is a learning process. The only way to do is start and learn and to correct and to promote evolutions. And we -- we start -- we already did, but as you know, we need to plan in advance so the results we are going to see from the beginning of next year.

And when we talk about white spaces, this is something that is happening and is going to happen the next two or three years. So, for example, Vovo that we learned this quarter is an example of white space. It's a product line to grandmothers and grandsons, and this is a place where we weren't before.

And in 2012, we are going to have all the initiatives. In 2013, we are going to have again. So this is not a marketing program. This is a strategy, a medium and long term strategy. And the first thing is that we reached a very high level of penetration in Brazil. 60% of households buy our products. That means hundred millions of customers -- hundreds millions, really. This is the right number, not only an average.

We -- today we reach more than 100 million consumers in Brazil, but they buy relatively low. They buy with a low frequency, low. We believe that we can increase this, because they're already in contact with the consultants. They preferred our brand, so why not motivate them to buy another product. Instead of three times a year, maybe four or maybe five, and we are going to change a little bit our marketing mix to support this. And with this, we can leverage the growth of the channel that we reached this year, around 15%, and then recover the growth of our sales.

So these are the main initiative that we are doing. We don't see the need for an urgent emergency plan, even though we are working a lot. We want to see the revenues recover in in growth. So we are not satisfied with the actual levels, but we don't see an urgency plan, an emergency plan to be done, different from 2007, again, when at that time we saw that we -- and talking about marketing investments, we were far behind the other competitors. This is not the situation today. The situation today is to focus on those things that I mentioned to you.

Okay.

So I don't know if I'm answering your question. Sorry. Maybe a long answer. But these are the main initiatives that we are really putting focus and to have a 2012 better, and also as you know, we started this year with good expectations, so we invested some of our time to adapt the Company, adjust the Company for a new situation. Next year we are starting the year better prepared, so -- which is going to be something good for us.

I guess I wanted to ask a question specifically about the systems. I don't know if this better directed to Roberto, but, I guess I understand the general issue that happened in the quarter from talking to Helmut and [Keen] yesterday. But I guess you also have the unfortunate coincidence of reporting the same day as your competitor, who has had systems issues for a long time, right?

So I guess I'd love to understand two things. One is why you have so much confidence that this is largely going to be -- and you've been quoted first saying the worst is behind you and you're saying now it's going to be done by the fourth quarter. You know, systems issues, sometimes they're one quarter and they end up being six quarters, right?

So I'd like to understand what you think is so easily fixable, and then secondly, I'd like to understand why didn't you get ahead of this and talk about this to the market, because it looks like, you know, you weren't -- you weren't really ahead of this. So I just wanted to understand, given that I think some of these problems happened in July, why is it three months later we're hearing about the issues? So I think the first part of the question is the more important one, but I'd love your perspective on both.

Lore, I think we've been implementing several initiatives since the beginning of the year, like the decentralization of distribution centers, the new -- the new planning system and the -- and the new -- and the new billing -- billing system.

Independently, they are doing quite well, and in the third quarter, when we really tried to interact all of them with high volumes, because we have to do -- when we do it, and even to do risk mitigation, where starting is small parts of Brazil, then we start to increase, then we start to put volume on that, and the volume on this -- in this integration, a lot -- a lot this starting to happen in quarter three.

And when we put more volume on this, that way start to create some issues about -- even about slow down in the system and some aspects like this, about the transition of information from one system to another in a large scale, and these kind of things that happen in third quarter. In the second quarter, we were not seeing these issues.

We are quite confident that we'll solve these in the short term, because I think that -- first because we've been doing this implementation step by step, and when we started to put everything together, that we find some problems in the integration. But by itself, all of the initiatives have been quite well managed and controlled.

The interaction of all of them now that we've created some issues that we have already identified what are the issues, and we need to adjust operation now. We know what we need to do, but we need to adjust and we'll take some -- we expect, like, during this quarter enough time to adjust all of this together. But we are really quite confident and it was not happening in July.

Okay, and let me ask one more question, just in the interest of time. The one thing that has gone well this year is you continue to grow your rep base at a very good pace, and yet the rep productivity is declining and now you've got delivery issues.

So, Alessandro, can you comment a little bit on, you know, kind of your -- how you feel about the connectivity with the reps. You know, I can't imagine that they're as happy as they would like to be, right? So help me understand how you're going to manage that, you know, just given some of the glitches you've had, on the system side particularly.

Thank you for the question, Lore, very important one. First of all, the relationship that we have with our consultants is a long term one. So we -- in everything we do, we try to be very transparent, to be warm and to be honest with them not only when we have some problems, but during our relationship.

So first of all, I think that we have a strong relationship with them based on our history. That's only in the short term. But on the other hand, you're right, they were -- and they are disappointed because if we are having stock outs it's because they are having stock outs. So they are selling more than they could have, so they are probably more upset than we are.

And this is -- this is something that hurts us, because -- not only because we are growing less, but because we are generating less profit for them. And this is one of very important parts of our business, so we are very worried and upset about this. And they are also. They were impacted by this problem.

On the other hand, I'm sure to say that because of this strong relationship built on the history and the last years and selling to you that we have a very -- in the short term, we had a very good attendance -- attendance in the showrooms, the customer showrooms, and the consultants, even though they were complaining about the service, they were very motivated. They were enthusiastic about the Christmas gifts. So I don't see any major problems in our relationship, but recognizing that all the problems that we had affected their service and their relationships with the customer, but nothing really relevant that it is impacting our business.

They are still very motivated. I can say personally because I saw that and not only me, but the team reported that they are motivated. So if I can say a qualitative answer, but we are feeling that they like the Company, they really saw that the customers, they preferred the brand, so we don't have structural damage because of those problems.

Thank you very much.

No, thank you.

Excuse me. Our next question comes from Ms. Margaret Kalvar from Harding Loevner.

Yes, hi. Good morning. I have two questions. One is kind of a broader one on how you see the scalability of the direct sales model. It's required a great deal of investment at this phase. It seems like you've had to make some changes, not only this year but in the past on the way the whole rep structure is delineated. Where do you think comes the point where you can sort of leave -- have the system in place and leverage the investments that you've made in all the systems and structural changes?

And then the second question has to do with the white space that you still have to fill in. What is your view regarding the competition and where your competitors, who are increasing in both number and intensity, position in those particular white space areas?

Hi, Margaret. Let me know if I'm not answering your question, but the first one is that our actual commercial model in Brazil was designed to allow us to almost double the size of consultants. Today we have 1.2 million around this. We could reach at least 2 million consultants with the same commercial model. So it's scalable.

So this is not -- definitely this is not a problem, even though, of course, we need to improve. Every day we need to adjust because in a direct-selling company, you are dealing with people, so we need to understand their behave and adjust and improve the level of recognition, the indicators that you define that are the right ones to compensate people, but this is a day-by-day management. But talking about the structure of the model, it's really scalable.

And regarding the competition, as we mentioned, in the last three years it's increasing in Brazil, not only in the number of competitors, but in their investments as well. And I'm not sure if I understood your question regarding the white spaces. Could you -

Well, for example, are the white spaces that you're looking at, in terms of entering, are those areas where there is a high degree of competition already? For instance, perhaps there's less competition in some -- in the fragrance area, but maybe more in some of the hair care or body care categories? I'm just trying to get a feel for how much -- how much marketing investment you're going to have to make as you do penetrate more white spaces.

Okay, thank you. Now I understood better. First of all, there is -- there is a diversification depending on the category and the price points of the categories. So I would say that there are some white spaces where we are going to face more competition and there are some white spaces that are really white, you know, so we are going to face less competition.

So it's a mixed answer. But what we really believe, Margaret, that we have a huge opportunity because as I mentioned before, we are already in contact, in touch with the customers, 100 million customers, and because of this, our consultant is reaching them, our brand is reaching them, our catalog is reaching them, so we believe that with a lower investment, a marketing increasing one, we can add new categories that we already have or offer new price points or new categories for them. So we really believe that we -- if we can focus our -- our marketing mix to increase the frequency of the customers without a huge additional marketing effort, we can leverage our sales.

Okay, thank you very much. That's very helpful.

Thank you.

Excuse me. Our next question comes from Mr. Celso Sanchez from Citigroup.

Hi, good afternoon. I have a couple of questions. One is simply a check of my mathematics here. If I take your stated commitment to the similar margins of last year, 24.5%, and apply that -- I come up with a number for EBITDA growth that essentially 25% or more for the fourth quarter. Is there anything that suggests that that's not -- that's implied by your statement?

Hi Celso. We are confident that we can reach the EBITDA margin of 2011 in the same level that we reach it in 2010. And --

Celso, last year, like we have a strong quarter three and a weak quarter four, because we are planning the opposite.

Right, okay. So the math should work if I -- I just have to obviously figure out what the fourth quarter needs to be to get to 24.5%, and that implies a certain BITDA growth. There's nothing unusual that I should think about in terms of the weighting this year in the fourth quarter versus prior years? It's usually about 30%, right, the EBITDA as a percentage of the full year.

Yes, in this year as we Roberto said, we are going to see a change between the EBITDA margin the fourth and the third quarter, regarding 2010.

And some of the actions that we've been taking during this year, they will have more effect in quarter four, because it takes some time to make some improvement in efficiency and some adjustments to the Company.

And then I guess maybe taking a step back, you talked about in your remarks earlier -- actually in response to a question, the idea of a better promotional balance between the regions and nationally and that should improve the average price. Then I think about the frequency concept, which makes sense from a commercial standpoint, but I wonder -- that also suggests to me at least that the kind of products you'd be using to increase frequency would be -- I'm not sure if this is the right way to say it, less unusual.

Maybe less -- less special is not the word, but more daily type products, which I would assume would have lower average prices. So the net effect -- I'm wondering, should there be a net effect that's improving average price or would that be offset -- more than offset by the efforts on frequency, because that seems to be a structural issue that you might be focusing on longer term.

Joshua, I'm not sure if I understood your question, but let me try to answer. The first thing is that to do an information that the first product that the household buys from Natura is a fragrance that has a high price is for soap as we could imagine.

So we start a connection with the household with a very differentiated product. So the fact that we are going to motivate people to buy more frequent, I don't see any direct relationship with the average price point. And the same time when we talk about to occupy some white spaces, we have opportunities in a lower price point, not the mass, because in the mass, we won't feel that this is the place for Natura, because we are not going to be able to offer the quality of our product at the lowest price.

But in the mass [stage], we have some opportunities in a lower price, but also we have opportunity in a higher price in a lot of categories. So in the medium term, we are going to see a balance in the price points, maybe. In the short term, we are going to see smaller or higher price points, but in the medium long term, I don't see a huge change in the average of our price points.

I'm sorry, to clarify it, because you made the point that I was thinking of, only you made it more clearly. So if the first visit of the three a year to someone potentially is a fragrance which is very high priced, presumably every incremental visit from there is going to be at a lower price or at least bring down the average price even more?

So that's my concern, is if you're going to continue to -- or if you're going to visit them even more, they've already bought the most expensive thing potentially that they're going to buy, which is the fragrance, and each other thing they buy would presumably be weighting down the average price of what that particular of the 100 million customers has bought that year. Is that not the way to think about it?

Yes, it could be, but you can't forget that we have other high price points in Natura. We have skin care that has a very high price. We have some body products with a higher price. So they can start buying fragrance, but then they can buy skin care, they can buy some body creams, and they can buy also soap.

So maybe -- maybe you could see a decline, but I believe that -- a lower decline. And remember also, Celso, that in the fragrance area, we have fragrances of BRL130 and we have also fragrance of BRL30. So we are -- we don't sell only high price points in the fragrance. We have cheaper ones, that to be honest, they are one of the most selling products in our company is the [Frescor] affect us that I think is around BRL40 or BRL50.

So technically speaking you are right, but when we go a little bit deeper, I'm not sure to say that structurally speaking you are going to see a decrease in price points, especially in the -- in the medium term. In the short term, yes, maybe, but in the medium term, no.

Okay, thanks.

You're welcome.

Excuse me. Our next question comes from Mr. Ricardo Boiati from Bradesco.

Hi, good morning, everyone. Alessandro, could you elaborate a little bit more on the Company strategy regarding the Internet and the potential benefits of social networks and these kind of initiatives, the timing of this. How this could change, if at all, Natura's business model or even did the sales representatives business model? So any other thoughts on that front would be very helpful. Thank you.

Ricardo, I appreciate very much your question, even though we are going to talk more for -- in the medium and long term than short term, but I appreciate so much because we strongly believe that this is probably the way that we really could improve and change in a better way not only our business model, but the customer experience.

And first of all, we don't see this evolution without the consultants, so they are going to always be part of this business model. The way that we see is when we can connect the one million and a half -- 1,400,000 consultants with their customers, 100 million people, and we can also see their relationships, we can offer a lot of information for the consultant and for the customer to improve that frequency that I mentioned today that is only three times a year.

And today we don't know what is happening in the relationship between the consultant and the customer, and connecting all of them, we can know and allow them to really improve. This is a huge area of productivity gains and productivity improvements in the consultants.

Another area is in the catalog. So when people are connected in mobile also, we don't need to print three million catalogs every 21 days, that today it's a very important marketing tool for us but costs a lot, and also with a huge environmental impact, and when people is connected. They don't need to develop catalogs every 21 days.

On the other hand, I also can develop individual promotions, because the Internet, I don't have a cost to segment, a margin segment to individualize each promotion and the relationship with each customer. Now gaining effectiveness and also leverage because I am focusing the promotion for the right customer. And today, all the promotional planning is an average of those 100 million customers.

So there are a lot of things to improve and I will be glad to share with you if you have time during our Natura Day in November 10, to share our thoughts and to show how can we really improve. And in a practical way, this is going to happen in the medium and long term, even though we are setting a target to start some initiatives as a pilot in the second half of next year, because we believe that we need to start and to learn, and because of this we are going to have a [first] initiative already in the second semester of 2012.

Okay, thank you. Thank you very much.

Excuse me. Our next question comes from Ms. Irma Sgarz from Goldman Sachs.

Yes, hi. Good afternoon. Just a quick follow up question on the CapEx plan where you're increasing that by about 10% for this year, in terms of the -- in terms of the cost compared to what you'd originally budgeted for. Could you just provide us with some idea of where those increases come from, what exactly caused that and how do you look at 2012 in terms of -- in terms of CapEx? I understand you might not be giving explicit guidance at this point, but just to help us understand how we should think about that in relationship to the level that we're seeing for 2011. Thank you.

Hi, Irma. This year, I think that the fact that we will be ahead of our original guidance in our view here is a good news, because in fact the projects that were put in place, they've been really realized in the -- in the time that we are expected.

We had some very -- well, very good success in our project management this year that put in place other projects that we are planning for this year. It's much more a good news. Normally the guidance when you're doing the beginning of the year, there are some premises behind this, and [in] then this year were very effective in this.

If I understood, I think the guidance for next year we are going to give in the next conference, when we close the year, and I think that we should wait until then.

Okay, Roberto, just to understand then -- if I understand you correctly, some of the projects, even the faster implementation that you just mentioned, given some private projects may have been pulled forward into -- into this year.

Does that imply that potentially the level of CapEx could be lower next year, and is that generally how you look at next year, that you've already gone through the hump of investments, given the system changes you're currently undergoing and the distribution channels that you've been opening, or is there more to come for next year just to prepare the Company for future growth? Thank you.

Yes, the logistics investments I think at the most part was this year. We still have some parts related to Sao Paolo next year.

Next year also we will have some investments in -- more investments in plant capacity in our factory in Cajamar, and we are now just at the moment to balance how strong it needs to be next year in our revision of volumes and capacities. But what's going to happen next year is less investment in logistics and more investment in factory, in capacity. And we are exactly in the moment now to balance and to review volumes, review capacity to see how you can balance next year.

Okay, great. Thank you.

Thank you very much.

Excuse me. This concludes today's question and answer session. I would like to invite Mr. Carlucci to proceed with his closing statement. Please, sir, go ahead.

Thank you everyone for participating in today's conference call. I would like to emphasize that we are highly focused on improving the execution of our operations and we are also very confident in our strengths, the preference of the customer for the Natura brand, the strength and the expansion of our sales channel and that we are very excited about the opportunity to boost the productivity of our consultants by increasing purchase frequency through the initiatives that we have presented here today. Thank you, and I'm looking forward to see you in Tuesday -- on November 10.

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