Merrill Lynch
Global Emerging Markets Conference
June 6th – 8th 2006
Merrill Lynch Global Emerging Markets Conference - 1
Agenda
Introduction
Strategy
Medium Term Goals
Financials
Merrill Lynch Global Emerging Markets Conference - 2
Natura Cosméticos S.A.
CF&T target market : fragrances, make-up, skin care,
sun care and toiletries
Direct Sales Distribution
Operations in Brazil, Argentina, Chile, Peru, Mexico
and France
Adherence to the “Novo Mercado” rules
Merrill Lynch Global Emerging Markets Conference - 3
Natura Cosméticos S.A.
Merrill Lynch Global Emerging Markets Conference - 4
strategy
Back to Agenda
Merrill Lynch Global Emerging Markets Conference - 5
Our strategy
Products
Innovation
Sales
Channel
Brand
Merrill Lynch Global Emerging Markets Conference - 6
Brand
Essencial attributes of our brand
Product design based on the Well being Well concept
Sustainable exploration of natural resources and creation
of value to all stakeholders
Transparency and factual communication building stronger
relationship with consultants and consumers
Premium products and high value
Merrill Lynch Global Emerging Markets Conference - 7
Brand perception
2nd in rank
2004
2005
2005
Top of mind
27%
27%
25%
Preference
42%
43%
19%
Innovation
64%
68%
49%
Quality
71%
70%
56%
Source: Survey commissioned by Natura. Conducted with 1,200 people across different social classes in three
large Brazilian cities (São Paulo, Porto Alegre and Recife).
Merrill Lynch Global Emerging Markets Conference - 8
Life celebration
Merrill Lynch Global Emerging Markets Conference - 9
refills
sustainable development
Merrill Lynch Global Emerging Markets Conference - 10
Innovation
Strong investments in R&D -3% of net sales
Brazil has one of the richest biodiversities in the world:
Open Innovation
– leverage
of R&D investments
 22% of all species
on Earth
 Encompasses a wide range of different ecosystems:
through a network of research partners
“Amazônia” (the largest rain forest in the world),
“Pantanal” (the largest flooded plain in the world),
Biodiversity as a research platform
“Cerrado” (steppe-like vegetation),
“Caatinga” (desert-like vegetation),
“Atlantic Forest” (tropical forest) and
“South Fields” (prairie-like vegetation).
Merrill Lynch Global Emerging Markets Conference - 11
Innovation
Number
of New
Products
Number
of New
Products
213
182
165
117
91
2001
2002
2003
2004
2005
Merrill Lynch Global Emerging Markets Conference - 12
Innovation
Total Innovation Index (innovation+improvements)
69.8%
63.2%
48.8%
44.9%
2001
43.5%
2002
2003
2004
2005
Merrill Lynch Global Emerging Markets Conference - 13
Channel
Consultants are provided with:
Marketing support
Flexible and fast logistics services
Full Portfolio available 100% of the time
Transparent rules with freedom of choice
Merrill Lynch Global Emerging
Markets Conference - 14
Itau First Annual Brazil Conference
Consolidated sales channel
Consolidated Number of Consultants* (thousand)
CAGR (2001-2005) = 14.7%
529
519
450
433
375
300
321
+19.8%
2001
2002
2003
2004
+17.7%
2005
1Q05
1Q06
(*) Number of consultants at Argentina, Brazil, Chile and Peru.
Merrill Lynch Global Emerging Markets Conference - 15
Consultant’s productivity-Brazil
Productivity in Brazil
(R$ thousand per average active consultant per year)
Productivity in Brazil (R$ per average active consultant)
CAGR (2001-2005) = 9.7%
12,288
12.3
11.5
10.5
8.5
7,262
9.0
+6.6%
Direct sales except Natura 2005
Natura´s consultants 2005 2.54
2.53
+0.3%
*source ABVED
2001
2002
2003
2004
2005
1Q05
1Q06
Merrill Lynch Global Emerging Markets Conference - 16
Channel
Consultants Turnover1 (Brazil)
33%
30%
28%
26%
2002
2003
2004
2005
(1) Number of consultants who stopped activity in relation to the average total consultants figures.
Merrill Lynch Global Emerging Markets Conference - 17
Natura’s sustainability: some
initiatives and results
EJA (Young and Adults Educacional Program)
66,600 students
Effective enrolments in 2005
Life Cycle Assessment (LCA)
100% of launched products under LCA packaging analysis
Natura´s average environmental impact
2004
2005
10.6
10.1
2004
2005
15.3
17.4
Sales of refills
% of refills over total items sold
Merrill Lynch Global Emerging Markets Conference - 18
Natura’s sustainability: some
initiatives and results
Soap noodle plant
project (Pará State)
Combination of innovation, sound
2600
2600 families
families
investment, strong social impact
and environmental protection
Start up in october/2006
• ROI = 19,6%
Oil extraction
Oil estraction
Exotic oils (special
soaps)
Palm oil
• Research and development based on
exotic oils
• Up to 2600 families benefited
Soap noodle manufacturing
Model manufacturing
• Present forested areas protected and
future recovering of degraded areas
Natura
Merrill Lynch Global Emerging Markets Conference - 19
Medium term goals
Back to Agenda
Merrill Lynch Global Emerging Markets Conference - 20
Medium term goals
1. Thoroughly explore the growth potential in
Brazil
- investment in R&D up to 3.5% of net sales
Gains of scale and savings from higher
productivity transfered to:
- brand building
- channel support
- marketing
- IT projects
Merrill Lynch Global Emerging Markets Conference - 21
Brazilian target market
CFT market grows three times faster than GDP
Growth drivers
2001
2002
2003
2004
2005
GDP
growth
1.4%
Target market
growth 1
4.7%
Ageing population – CFT total consumers growing at
1.5%
2,2% per year
throught 2014 5.7%
0.5%
4.6%in workforce and
Increasing participation
of women
income
5.2%
12.3%
Strong investments in R&D throughout CF&T industry
2.3%
9.7%
2.2%
7.4%
Migration of consumers to higher classes (D to C and
C to B)
CAGR( 2000-2005)
Sources: IBGE and Sipatesp.
(1) In real terms deflated by IPCA.
Merrill Lynch Global Emerging Markets Conference - 22
Market share CF&T target market - Brazil
Natura’s Market Share – Target Market1 (%)
21.4
19.2
21.0
18.6
17.1
14.3
2001
14.5
2002
2003
2004
2005
1B05
1B06
(1) Target market: Skin care, sunscreen, make-up, fragrances, hair care, shaving products and deodorants - excludes
diapers, nail polishes, sanitary pads, hair dyes and oral hygiene. Source: Sipatesp/ ABHIPEC.
Merrill Lynch Global Emerging Markets Conference - 23
Medium term goals
CF&T market
in Latin
America
2. Complete
expansion
in the
main(excluding
marketsBrazil)
Retail prices - US$ billion
in Latin America
Natura’s market share 2005 = 0.3%
- Venezuela – 2006
18
- Colombia – 2007
15
- Others Latin America
countries – 2010
2005
2009E
Source: Euromonitor (Cosmetics and Toiletries).
1. Real terms
Merrill Lynch Global Emerging Markets Conference - 24
Medium term goals
3. Assess the potential of Natura’s opportunities
in other CF&T markets
- Eastern Europe
- Western Europe and USA
Merrill Lynch Global Emerging Markets Conference - 25
Financials
Back to Agenda
Merrill Lynch Global Emerging Markets Conference - 26
Our size
Consolidated Gross Revenues (R$ million)
CAGR (2001-2005) = 29.1%
3,244
2,540
1,910
+27.7%
1,411
1,168
723
611
+18.3%
2001
2002
2003
2004
2005
1Q05
1Q06
Merrill Lynch Global Emerging Markets Conference - 27
Our results
EBITDA (R$ million)
564
CAGR (2001-2005) = 42.7%
432
296
+30.8%
199
136
113
95
+19.1%
2001*
2002
2003
2004
2005
1Q05
1Q06
(*) Natura Empreendimentos figures.
Merrill Lynch Global Emerging Markets Conference - 28
Our profitability
EBITDA Margin (%)
24.4
24.7
22.3
22.2
22.1
20.1
16.6
2001
-0.2pp
2002
2003
2004
2005
1Q05
1Q06
Merrill Lynch Global Emerging Markets Conference - 29
CAPEX
CAPEX (R$ million)
180
112
83
26
16
2004
2005
2006E
1Q05
+62.8%
1Q06
Merrill Lynch Global Emerging
Markets Conference - 30
Itau First Annual Brazil Conference
CAPEX breakdown
R$ Million
Manufacturing and Logistics
Facilities
Others
Total
2006E
69
90
Capacity (million of units)
3
42
manufacturing
20 separation
33
IT
Vehicles
2005
2005
290
2006E
370
9
320
11
345
11
4
112
180
Merrill Lynch Global Emerging Markets Conference - 31
Cash flow consolidated figures
R$ million
Net income for the period
2005
397
(+) Depreciation and amortization
44
(+) Other non-cash expenses
42
(=) Gross cash flow
(-)
Working capital
(-)
CAPEX
482
35
112
(=) Free cash flow
336
Dividends + Interest on capital
314
% of free cash flow
95
Merrill Lynch Global Emerging Markets Conference - 32
Dividends
Total Dividends and Interest on Capital, net (R$ million)
314
216
+48.0%
2004
Payout (%)
2004
Net income
72
81
107
95
Free cash generation
2005
2005
Merrill Lynch Global Emerging Markets Conference - 33
www.natura.net/investor
This presentation contains forward-looking statements. Such statements are not statements of historical fact, and reflect the beliefs and expectations of the Natura's
management. The words "anticipates", "wishes", "expects", "estimates", "intends", "forecasts", "plans", "predicts", "projects", "targets" and similar words are intended
to identify these statements, which necessarily involve known and unknown risks and uncertainties. Known risks and uncertainties include, but are not limited to, the
impact of competitive products and pricing, market acceptance of products, product transitions by the Company and its competitors, regulatory approval, currency
fluctuations, production and supply difficulties, changes in product sales mix, and other risks. This presentation also includes pro-forma information prepared by the
Company for information and reference purposes only, which has not been audited. Forward-looking statements speak only as of the date they are made, and the
Company does not undertake any obligation to update them in light of new information or future developments.
Merrill Lynch Global Emerging Markets Conference - 34
Glossary
Commercial cycles – 3 week period of sales where new products, campaigns
and promotions are developed.
Consultants – number of sales representatives who have placed at least one
order in the last 4 commercial cycles.
Active Consultans - number of sales representatives who have placed at least
one order in the last commercial cycle.
ABEVD – Brazilian direct sales association
Sipatesp/Abhipec – Brazilian syndicate of CF&T companies
IBGE – Official Brazilian statistics institute
IPCA – Official retail price index
Merrill Lynch Global Emerging Markets Conference - 35