Natura & Co Holding SA
BOVESPA:NTCO3
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Natura & Co Holding SA
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Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Natura &Co Third Quarter 2020 Results. This event is recorded and all participants will be in listen-only mode during the company’s presentation. After Natura’s are completed, there will be a question-and-answer session. At that time further instructions will be given. We have simultaneous translation into Portuguese and questions maybe asked normally by participants connecting from abroad either in English or Portuguese. [Operator Instructions]
This presentation may contain forward-looking statements. Such statements are not statements of historical fact and reflect the beliefs and expectations of Natura & Co's management. Forward-looking statements speak only as of the date of they are made, and the company does not undertake any obligation to update them in light of new information or future developments. This presentation also includes adjusted information prepared by the company for information and reference purposes only, which have not yet been audited.
I will now turn the conference over to Mrs. Viviane Behar, Investor Relations Officer of Natura &Co. Ms. Behar, you may, the floor is yours.
Good morning or good afternoon to everyone. I'm Viviane Behar, Natura &Co's Investor Relations Officer. Thank you for joining us today for this call present Natura &Co's third quarter 2020 Earnings.
I'm joined today by Roberto Marques, Executive Chairman and CEO of Natura &Co; José Filippo , CFO of Natura &Co; as well as João Paulo Ferreira, CEO of Natura &Co Latin America, who will join us for the Q&A session. Our Investor Relations team of Natura &Co is also with us.
The presentation, we will be referring to during the call, is available on the Natura &Co Investor Relations website. Roberto will start with an overview of our performance. Filippo will detail our financials for Natura &Co. After that, Roberto will make concluding remarks, and we will open the floor to your questions.
For the sake of timing in order for us to accommodate questions from all of you, most would like to ask you to please limit yourself to one or two questions each at the most in the Q&A session. Thanks for your understanding and cooperation on this. Let me now hand over to Roberto. Roberto, please?
Thank you, Viviane and hello to everyone. Thank you for joining us. I hope you are all safe and well in this few challenging times.
Let me begin on slide three with our Q3 highlights. Overall, we posted a very strong performance in Q3 amid the continuing pandemic with a robust 32% sales growth, significantly outperforming the global CFT market and with a strong EBITDA and margin improvement as well.
We saw growth in all of our businesses, driven by Natura &Co in Latam, with strong growth in Natura and Avon in Brazil, showing continuous productivity improvement in the strength of our digital social selling model.
The Body Shop and Aesop saw further acceleration in digit and ecommerce, even as retail gradually reopened. Avon Internationals fundamentals show improvement with early positive sign in some key markets. Digital social selling continued its strong acceleration, with group e-commerce sales doubling in the quarter.
I'm also pleased to announce, a new step in our digital journey with the launch of &Co Pay, our preparatory financial services platform. &Co Pay will help drive productivity for our consultants and representatives by allowing them access to key financial service, while promoting digital and financial inclusion. &Co Pay launches first in Brazil will be rollout in Latin America and then globally, within the next couple of years.
Second major highlight, the continued progress we made on the integration of Avon, which is proceeding according to plan. Synergies are on track with $80 million [ph] captured in Q3. And we made further progress in working together, including cross-company manufacturing, distribution, storage and combined logistics contracts.
We also initiated the pilot of Avon’s new commercial model in Brazil, then will be Mexico early next year and also in South Africa, capitalizing on learnings from Natura.
At Avon International, we moved to monthly campaign cycles from two to three weeks cycles in five markets, including the UK, which will simplify the business model and reduce costs. The Avon brand relaunch began with the rollout of the Watch Me Now campaign in mid-September, through online and digital channels in over 30 countries.
Third key highlight, our ESG agenda. We are very pleased to announce that Aesop was certified as a B-Corp, joining now Natura and the Body Shop. Also in line with our 2030 sustainability commitments, we are partnering with the United Nations on two key initiatives. Ambition 1.5 degree Celsius and Target Gender
Equality, both attest to our determination to tackle issues of climate change and diversity and inclusion.
We also participated in Amazon Day with Natura, and in Breast Cancer Awareness Month, led by Avon with education programs for millions of women around the world.
And four major highlight. We strengthened our financial structure in October, with the successful completion of a $1 billion capital raise that was the largest ever in the Latin America consumer space. We do appreciate the strong vote of confidence from the market and the credit rating agencies, which attests to the attractiveness of our group and validates our strategies.
The capital raise was done to optimize our capital structure by accelerating deleveraging to the prepayment of the Avon 2022 bonds. And allow us also to make investments accelerate strategic priorities, including the Avon integration, group digitalization, geographically expansions, and the 2030 sustainability commitments.
Let me end here by saying that, while we have seen a very strong quarter, and a return to some normalization in our retail operations, the COVID-19 pandemic is far from over. We are closely monitoring its evolution worldwide, particularly the recent lockdowns or restriction measures adopted in parts of Europe.
In this context, I'd like to thank our teams, across the group and across the world. Our excellent performance in this challenging times that we face is the result of their efforts, purpose-driven resilience, and dedication.
Let me now hand over to Filippo to go into our financials in greater detail.
Thank you, Roberto and hello to everyone. On slide five, you see that we posted very strong consolidated sales growth in the quarter of 31.7% in reais, and 11.6% in constant currency, excluding the phasing effect of the Q2 cyber incident, sales were up 26% in reais and 6.7%, at constant currency, significantly outperforming the global CFT market.
Natura &Co Latam’s revenue increased by 29.5% in the reais, and 20.1% at constant currency. The Natura performance particularly well growing by 41.2%, while the Avon brand grew 19.3%. The Body Shop and Aesop also have very strong performances, with sales in the reais up 51.9% at the Body Shop and 8.2% in constant currency, and Aesop revenue up 67.2% in the reais and 19.9% at constant currency.
Avon Internationals revenue increased 22.5% in reais, down 7.3% at constant currency. In the nine months consolidated net revenue increased by 7% in reais and was down 5.8% at constant currency.
As Roberto mentioned, we managed to largely offset the impact of the COVID-19 pandemic in our business with a rapid pivot to online, complemented by the gradual reopening of retail stores throughout the quarter.
On slide six, the Group's online sales grew 150% in the quarter, supported by 83% at Natura and Avon brands to 164% at Aesop and 102% at the Body Shop. At the Natura brand content sharing grew by 170% since Q1, online orders grew by 45% year-on-here and consultant online stores increased by 75% versus the same quarter of last year, and topped the 1 million mark.
At Avon International sales via representatives sharing e-brochures more than doubled the number of consumers accessing the e-brochure was up 70% and e-brochure sales in the UK grew by 300%.
Slide seven shows that we posted very strong 71% increase in consolidated adjusted EBITDA reaching more than R$1.5 billion, excluding transformation costs. Adjusted EBITDA margin in the quarter was 14.8%, up 330 basis points. The strong growth in adjusted EBITDA was supported by cost discipline across all businesses, and was notably driven by solid EBITDA at Natura &Co Latam, and followed by the Body Shot and Aesop. In the nine months, adjusted EBITDA reached at more than R$2.7 billion with adjusted EBITDA margin of 11%, down 60 basis points.
Turning to slide eight, we look at Natura &Co’s underlying net income. In Q3, it stood at R$587.1 million, up 2.6%, excluding Avon acquisition effects and transformation costs. The growth in underlying net income was driven by higher EBITDA and lower income tax expense, partially offset by higher depreciation and financial expenses.
Reported net income was R$381.7 million in the quarter, up 1.3%. In the nine months, underlying net income reached at R$88.5 million, with reported net loss of R$827.6 million.
On slide nine, we show that we have strengthened our balance sheet by the $1 billion capital raise that we successfully completed last month. In the quarter, we had strong cash generation of R$793, which allow us to end the quarter with R$8 billion in cash before the capital raise. We used the proceeds from the capital raise to prepay Avon's $900 billion bond, due in 2032 in the beginning of this month. This will allow us to accelerate the leveraging, reduce US denominated debt, currency volatility and high interest costs.
As you see on the graph, our net debt to EBITDA ratio was three times at the end of Q3, down from 3.63 times at the end of Q2, and it drops to 1.38 times post the prepayment of Avon bonds.
Attesting to the strengthening of our balance sheet and improved credit profile, we were upgraded by S&P and Fitch in October and early November respectively. The rating outlook by both agencies has also been revised to stable from negative.
The second graph provides you with our amortization schedule and shows that we have limited debt maturities this year of R$100 billion, with an average maturity of 3.4 years.
Let's turn now to our performance by business unit, on slide 11, beginning with Natura &Co Latam. Total net sales were up 9.5% in reais and 20.1% at constant currency. Ex-cyber incident net sales were up 21.2% in reais, and 12.6% at constant currency, driven by the Natura brand whose sales were up 41.2%.
The branch strongly outperformed the CFD market in Brazil and posted solid growth in Hispanic Latam. Avon showed early positive signs with 19.3% growth in reais and 9.9% in constant currency. Ex-cyber incident sales were up 3.3% in the quarter in reais and up 6.1% in Brazil, this was driven by increased representative numbers and higher activity.
On slide 12, we look at the Natura brands. Sales at the Natura brand in Brazil rose 30.5% in Q3, which represents an exceptional performance with continued brand preference and market share gains. This demonstrates the success of our social selling module, which led to the 16th consecutive quarter of higher productivity in Brazil, up 13.8% even with a higher consultant base, which increased by 12.8% year-on-year to nearly 1.2 million.
In Hispanic Latam net revenue grew by an impressive 65.7% in reais and 32.7% at constant currency. In the quarter, we saw growth across all markets, notably Argentina, Chile and Mexico. The average number of consultants increased by 13.3% versus Q3 2019 to 759,000.
Turning to Avon on slide 13. The Avon brands revenue in Brazil grew by 24.9%. Ex-cyber incident, Avon's growth was 6.2% in Q3, the first growth since Q4 2018, supported by higher activity level and number of representatives.
In Hispanic Latam, the Avon brand posted revenue growth of 15.7% in reais, and was down 3.3% in constant currency. Ex-cyber incident, revenue increased 1.4% in reais and was down 14.9% at constant currency.
The region saw improving trends towards the end of the quarter, with key markets such as Argentina, Mexico and Chile, posting growth in September in constant currency.
On slide 14, adjusted EBITDA for Natura &Co Latam nearly doubled in the quarter, reaching R$1 billion, driven by strong revenue growth and operational leverage at both Natura and Avon. Adjusted EBITDA margin was up 560 basis points to 16.5% with improvement at both the Natura Brazil and Hispanic Latam. Avon Brazil also contribute to this increase, helped by operational leverage and the positive impact of phasing sales from the cyber incident.
Let's now move to Avon International on slide 16. Net revenue grew 22.5% in Q3 in reais and was down 7.3% at constant currency. Ex-cyber incident, sales were up 19.5% in reais, and down 9.6% at constant currency. Most markets showed signs of recovery from the impact of COVID-19, notably in Western and Central Europe.
Key markets such as Russia and Turkey reported growth versus Q3 2019, offset by markets still impacted by strict lockdowns, such as South Africa and the Philippines. Adjusted EBITDA was R$183 million with margin of 7.4%, down 200 basis points as a result of the impact of lower constant currency revenue, foreign currency impacts, hire sales leaders, and fuel investments to accelerate recover revenues, and also IFRS conversion adjustments in G&A.
We now move on to the Body Shop on slide 18. Net revenue increased by a very strong 51.9% in reais in Q3, and by 8.2% at constant currency, driven by growth in the UK and Australia, as well as the direct sales and online channels. The direct sales At-Home grew 333%, supported by 261% growth in consultants, and online sales increased 103%, helping offset slow retail sales, as a result of the pandemic.
Own-stores like-for-like sales decreased 16.5%, but by the end of the quarter 97% of retail stores had reopened. Adjusted EBITDA in Q3 increased 81.1% to R$308.3 million with margin of 22.3%, up 360 basis points driven by revenue growth, lower discounts, reduced discretionary spent in COVID-19 related government support.
On slide 20, Aesop posted outstanding net revenue growth of 67.2% in reais 19.9% in constant currency. This performance was driven by strong growth in digital sales, offsetting partial retail closures related to COVID-19 in markets such as the US and Australia. While retail like-for-like sales were down 16%, online sales were up 264%.
Q3 EBIDA stood at R$154.4 million, up an impressive 121.6%, with EBITDA margin of 31.3%, up 770 basis points, driven by topline sales growth, target cost reduction and utilization of government support programs to mitigate the impacts of COVID-19.
Let me now hand back to Roberto.
Thank you, Filippo. Let me now conclude on slide 22 with the key takeaways. First of all, Natura &Co’s omnichannel model has shown its strength in the past quarter, and more generally throughout the COVID-19 crisis. All of our business and brands are showing resilience and increasingly becoming omnichannel.
E-commerce, and digital social selling drove also strong results this quarter. We are planning increased investments in those areas to further build on this momentum. We posted a strong performance in Latin America, driven by Natura and Avon in Brazil. The integration and digitalization of Avon is progressing well, with some early positive signs in our Q3 numbers.
Our digital journey took another step forward with the launch of &Co Pay. Our ESG agenda is advancing, as demonstrated by Aesop becoming a B-Corp in our active involvement at UN Climate Week.
Lastly, we have optimized our capital structure, with the successful $1 billion capital raise, we continue to deleverage our balance sheet. And we have further resources to boost investment in key areas to accelerate growth. That position Natura &Co very well for the future.
So this has been a rewarding quarter, thus by challenging circumstances. And I'd like to conclude by expressing once again my gratitude to the teams across our group who enabled this performance.
Thank you very much for your attention. We are now going to open the Q&A session with Filippo, JP and I and are happy to take your questions. So the floor is now yours.
[Operator Instructions] We have a question from Helena Villares from Itaú BBA.
Hi, guys. Good morning. Thank you for taking my question. And congratulations for the results. My first question is actually for JP, we want you to really expand a little bit more about Natura brand dynamics, we saw very strong results in terms of topline and profitability suppliers. And what we are trying to understand here is about the market share gain that you showed.
So we are just trying to understand if you have any kind of KPI figures that you could share with us to understand how much of these market share gains is going to be sustainable for the next - for the coming quarters and next year? So that's our first question. Maybe something about clients, new clients, the profile of this client could help us a little bit.
And the second question is about the Body Shop. This is actually about direct sales for the Body Shop. So it's a completely new channel, and what we are trying to understand here – sorry, and what we are trying to understand here is about the consultants profile. So how – who is this consultants, and why do you think that that's going so well? And how you respond to this channel for the future? Thank you.
Hi, Elena, Roberto here. How are you? We're going to start – I’ll let JP to talk about Natura brand and the market share and then I'll take the Body Shop subject deeply.
Hi, Elena. Thank you for the question. So, indeed, we are experiencing market share gains in the Natura brand in Brazil. The market year-to-date has grown modest single digits. However, in Q3 the market stomped [ph] by in all the government [ph] incentives. The markets has drawn high single digits in Q3.
Nevertheless, when you compare that to Natura's performance, yes, indeed, we have gained significant market shares. As has been the case of the Natura brand in the last four years, so, we have succeeded in gaining and sustaining market share continuously over the last four years.
For this period, there are some new elements, as we sort of indicated. Saw an increase in a new consultants, which were recruited fundamentally through digital channels. These consultants are tech-savvy, they're younger, some 10 years younger than the average of the network. And they already bring new customers, which are also more used to online or digital shopping, if you will.
That has also come together with a strengthening of the brand. The way the company and the brand expressed themselves during the pandemic was completely in-tune with society's concerns. And that reflected in brand preference and then desire.
Following from also a continued launch of new products, which didn't stop through the pandemic. And just to finalize, we saw consumer - consultants loyalty increasing to levels that we had not experienced in the last years. So with all that combined, the ability to acquire new consultants, acquire new shoppers and the omnichannel solutions for the shoppers and consumers and the strengthening of the brand, we are well positioned to retain that acquired market share. To a lesser extent, that's also what we witnessed with the Avon brand in that period. And I can give you more details later.
Thank you, JP. Elena on the Body Shop, At-Home, there is some similarity to what JP just said in Brazil, what we have seen on At-Home is the explanation world, right, so we're seeing this quarter over 300% growth. In the two markets that we have At-Home, primarily UK, and Australia, as you know, we are expanding now At-Home into the US. We are already present in a very short period of time in 50 states, recruiting about 4000 consultants.
The profile of those consultants tend also to be more tech-savvy, therefore more native in digital, social selling. But one thing that is very important, which I think JP alluded to, is a very symbiotic connection with the brand identity, right, and the strength of the Body Shop brand now, especially in the UK, it's also driving the recruitment of new consultants into the brand. So the whole effort of the brand rejuvenation, the activist positioning of the Body Shop is helping bringing the profile of a younger, more digital savvy consultants into the profile of the At-Home business. And that is helping accelerating the social selling at the Body Shop, At-Home business.
Great. And just a follow up about this subject, because you just talk about this for Natura and Body Shop. So we think that maybe this is also the other side favourable...
Yeah, no. absolutely. I mean, that's why. Yeah. so that's why one of the key priorities for Avon is the rejuvenation of the brand because we think that is also - there is a very strong belief in our ability as we strength the brand and we make the brand more relevant to also attract a new consultant with a more social selling profile.
And that's one of the things that we're very excited about as we roll out this quarter over 30 countries the new position of Avon brand Watch Me Now campaign, which exactly try to make that connection even stronger.
Thank you. Our next question comes from Bob Ford from Bank of America.
Hey, everybody and congratulations on the quarter. JP, in addition to the changes from the commercial model, what makes you optimistic in terms - or most optimistic in terms of the broader turnaround of the Avon International based on what you're seeing in the Latam network, when it comes to brand or consultant digitalization or the synergies in Brazil? And how is that a transferred and prioritized for Avon International?
Hey, Bob. So let me start on Avon International and then I'll ask JP to comment on Brazil. Of course, even at Avon International to your statement, we are taking a lot of learnings from Natura on the commercial model, on the segmentation. Those things to be honest, hasn't been implemented yet, okay, so that's still to come, right.
So we are planning a pilot with South Africa using the kind of the same framework of segmentation from Natura, actually planned to be implemented in Q4 this year. JP will come in and some pilots as well in Latin America. But while we are already seeing at Avon, I would call some quick wins at Avon International is we are seeing increase on the channel additions, especially on four key markets growing double-digit, and the retention is also increasing.
So we are seeing a lower churn and again, those are things that were already there, call it quick wins on the earnings strategy on Avon International. And we are starting to see market share gains. So we saw market share gain for the first time in UK, Russia, Poland, which is encouraging but, you know, I want to be clear, there's still a lot to be done. The true change on the commercial model and segmentation yet to be implemented.
But we are seeing some positive wins, especially in terms of making the channel a little easier for new consultants to come in, driving digital to adoption to with a much higher level than what used to be before. So all those things are contributing to some increasing in productivity as well, and number of active reps, especially in some of those key markets. So I’ll turn to JP to comment specifically about Brazil and some of the things in Latam.
Hi, Bob. So we are indeed positive about the more recent results of Avon across Latin America, and in Brazil, in particular. And they are based on – and quickly they are not yet the structural changes as Roberto pointed out, but they - you know, it suggest us what the path that is ahead of us.
Starting with the brand, we resumed investing behind the Avon brand. So, for instance, in Brazil, Avon advanced 10 positions in the Merco Reputation Ranking. We also resumed communication, advertising the new Power Stay line couple of weeks ago, and only two days ago, we launched the new Black Suede [ph] line with you know, outstanding technology, very relevant for our market and still associated with social causes related to inclusion. So and that is pointing towards the relaunch of the Avon brand that is to be seen here in Latin America early next year, but already started in other geographies.
We also talked about strengthening the relationship with the representatives. And in this period, Avon in Brazil, as well as Avon in Mexico, reported highest satisfaction indices, concern - representative satisfaction indices of the last many years, which is showing that the proximity with the field, some of the incentives that are being put in place are also in the right direction.
So with that combination, we are starting to be able to show the sort of tailwinds that we have been living through in this market. Now, that that gives us the confidence that when the structural changes come early next year, based on the pilots that are already going on, we will be able to sustain the positive momentum that is growing through Avon across the entire level [ph]
Thank you very much. And just one follow up. And that is, there's a big step up in the SG&A in Avon International. And I was hoping you could give some additional color on how you're channelling those resources?
Yeah. Hi, Bob. How are you? I think that what we saw is more on a less dilution on some of those expenses. I don't think this is a trend. I wouldn't consider that, I think there's very specific that you see here. But I believe there is - as I said, there is lot of programs that were put in place to make sure that being efficiency, also in terms of Avon International we’ll have to see the were investment also in the channel.
So it helped us a lot. And that impacts. So I don't think that is something that could be considered as a trend. It's just a situation that we had specifically in the quarter. And then I don't think this is a standard we can see going forward.
Thank you. Our next question comes from Richard Cathcart from Bradesco.
Hi, guys. Good morning, and thanks very much for taking my question. Just wanted to ask a little bit more about the performance of Avon in the UK. I know it's a market that you're doing lots of testing and piloting. And so just in addition to the implementation of the digital tools in the channel, could you just talk a little bit more about what the drivers of the market share gains are in the UK over the last couple of quarters?
And then the second question was just whether you could give us an update on your plans for building out a bigger presence in China? Thanks.
Hi, Richard. Roberto, here. So you're right. I mean, we are putting a lot of focus in UK on social selling and really, we are seeing the incredible increase in the adoption of social selling too in UK. One data point is, e-brochure sales were up in UK almost 300% this quarter. So, really, this is a key driver of the market share gain.
I also would say that we are we are putting more focus on the simplification of the portfolio of Avon on the catalogs, on the campaign, UK move now also to a monthly cycle. So although simplification focus on the key categories and the key brands, and the adoption, a heavy adoption of digital tools, e-brochures, are really the key driver of the market share gain in UK.
UK for us is a market that we’ll continue to invest, we’ll continue to drive a lot of the social selling tools, new campaign, the Watch We Now campaign is just online campaign. UK, you know will benefit also from that. So still a lot to be done. But we are seeing some early wins, early signs, positive signs that are - they're very encouraging in UK.
Regarding China. China, it's early stage for us, but we are now very committed to you know make a more robust entering China, especially with Aesop and the Body Shop. We already establish our Natura &Co legal entity and the Body Shop and Aesop we are now starting the process of product registration that will take probably about the first half of next year.
Of course, we have been very careful and working with the right provinces. To make sure that the way we do it will continue to align with our values of not – no testing in animals. So we are potentially planning to have a first physical store, likely to be Aesop in Shanghai in the fourth quarter of next year. And then as we enter 2022, expanding that also with the Body Shop.
Perfect. Thanks very much, Roberto.
We have a question from Ruben Couto from Santander.
Hi, everyone. Can you talk a little bit more about &Co Pay? This seems to be a very interesting, new initiative. So I wanted to understand what is the difference compared to the previous financial solutions that you already offered to consultants in partnership with banks?
And I also wanted you to understand what do expect in terms of results. Is this kind of initiative and chiefly to improve consultants productivity and benefits that will give to the channel, or could you expect incremental features that eventually could be monetized and bring direct contribution through fee revenues or other sources of revenues? Thank you.
Hi, Ruben. Roberto, here, I will just start saying that, you know, &Co Pay, you need some thing that we're going to treat as a business unit, incubated initially in lockdown, to really validate and we have them go to scale that up in other the countries in Latin America and then worldwide in a couple of years. We are going to also dedicate a part of the proceeds that came from the capitalization to accelerate the development of equity. And I’ll JP now to give some details about your questions on the productivity and the benefits. We're very excited about this. So please, JP?
Thank you, Roberto. Ruben, so as Roberto pointed out, it is a new business unit. And hence, it has its own P&L, which generates new - it's a new revenue stream. However, it is meant to strengthen our core business precisely for the reason that you pointed out it, the better payment solutions and financial solutions, drive higher consultant productivity. And we know that from our previous experiences, so this is an initiative that has an unendurable [ph] benefit, which enhances the core and captures new revenue streams.
It is different from our previous experiences, because it's now all integrated, orchestrated within you Natura through partners and completely embedded in the consultant’s experience, right. Also, you know, all the information that is captured, is used to improve the knowledge we have about that relationship, that commercial relationship that is building. So, that is all new, completely embedded into the beauty consulting journey.
Thank you.
Thank you. Our next question comes from Gustavo Oliveira from UBS.
Good morning, everyone. Thank you for taking my question. I would like to understand, Roberto, you mentioned that your base in the Avon new commercial model are of what you're doing in Brazil to roll it out to Avon in other countries? What are the key features that you think that can travel well, across several countries? And if there will be a lot of adaptation or if the plan is to follow a more standardized approach?
And then if I may, a second question would be, there was a very nice increase in the number of new consultants in Brazil in Natura brand, if you could comment on what would be the drivers that led to these increase in new consultants? And what are the characteristics of the new consultants that are joining the base? Thank you.
Yeah, Gustavo. Roberto, here. Thank you for the question. What really the key elements of what we believe are transferable and again, the Avon International team is working very closely with the teams during lockdown in Brazil, to really understand is the notion of a lifetime value approach in the segmentation, where the retention driving productivity sometimes it's more important than just the transaction, the first transactions and just growing the channel.
So there is a lot of simplification that is already being implemented by the Avon International organization. As I mentioned, monthly cycle focused on earnings model that it's simpler than what it used to be. All those things are already ongoing. But I would say the segmentation approach of a lifetime value of the reps are probably something that, again, we want to validate it, we want, again do some prototypes and pilots. We want to make sure that also it works well.
We know that even as we did it here in Brazil, and Latam, it's not a simple execution, because you need to adjust in each segments, great P&L for each one of those segments to make sure that it works well as a whole. But we are excited about it.
I think as a nation, we are preparing a pilot in South Africa. And then the idea once we validate that it's starting a rollout, sometime, you know, next year, but it's really based on this notion of lifetime value and segmentation approach. So I'll turn to JP. JP [indiscernible] accommodate anything else in terms of the of the model that we transferred to Avon International, and then you can comment on the specific question.
Oh, just highlights. That Avon International, Angela and her team have been in continuous contact with our team here in North America. So we can exchange all the learnings we've had over the last many years. And so that gives us the confidence that you know, the acquired know-how will be transferred with the necessary adjustments.
So - and to your other question, Gustavo, on new consultant, the number of new consultants in Brazil, I think there are two main drivers for that increase. One is all the investment and know-how that we've developed on digital recruitment that became really seamless and facilitating those new comers to learn about the activity and the products and how to reach their customers. That's one of the drivers.
The other one, of course, is the fact that people spend more time At-Home, unemployment, trying to find new alternatives. And guess what, I mean, that combination allowed this us to attract a higher number of consultants, new consultants, and they are, on average 10 years younger than the average of the network.
They are tech-savvy. They are joining our network already through digital environment. And because of that, they're being able to reach customers that love the brand, but didn't find a good shopping experience so far. So they're coming back to the brand through these new recruits. So thank you for the question.
Thank you. The next question comes from Tobias Stingelin from Citi.
Yes, thank you. Good morning. Congratulations on the results. I think the question is, to some extent, a follow up to the question that Gustavo just posed. In regards to this increase in the number of consultant [indiscernible] do you think that is trained, will continue and you mentioned that they are kind of more tech-savvy that they already are more native to the environment. Do you have kind of productivity indicators of these consultants already? This is the first question.
The second question is just in regard to Avon in Brazil you mentioned that consultant satisfaction is very high. Can you let us know why the satisfaction increased so much? What are you doing that’s increasing satisfaction of the Avon consultant, please?
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Oh! Thank you. Sorry, we had a problem with our connections here. I - so let me resume from where I think we stopped Tobias. We talked about the new recruits and I was saying that it's too early to talk about their lifetime productivity. However, I can tell you that they started with a performance that is ahead of our historical records in terms of new consultants, right.
And you also asked about Avon’s representative satisfaction, a combination of new sales incentives, the elimination of burdens in the operation, and the proximity of our sales team with them during the pandemic, helping them to navigate through all sorts of difficulties they face in that period. Thank you.
Thank you. We have a question from Irma Sgarz from Goldman Sachs.
Yes. Hi, good afternoon, or good morning, sorry. And thank you very much. Well, good afternoon to those in Europe. But then, thank you very much for taking my question. I was curious in the center sales growth in reopened stores. Were you able – or are you able to provide a little bit of how that’s been trending for both Aesop and the Body Shop, it was very useful to have that number for the third quarter. But I'm just curious specifically, when you just look at the stores that have been reopened puzzles have been trending?
And maybe connected to that about how you're thinking about the store footprint for Aesop and the Body Shop in 2021 and beyond? I know you've made opposition already, a large chunk of the adjustment at the Body Shop, but just be curious for both franchises where you sort of see the growth trajectory from here?
And then the second question, just really minor question, government support for Aesop and the Body Shop. I know it helped to some extent the EBITDA margin this quarter. But if you just sort of indicate to us maybe the magnitude or sort of how we should think about this impacting margins in the next quarter? Thank you.
Hi. Roberto, here. Thank you. Thank you for the question. Regarding the store reopening, I mean, this quarter at the end we saw approximately 95% of the stores open. What we are seeing again, and that explained a little bit of very strong quarter is, even with the reopen of the store, we still continue to see very strong momentum of our e-commerce at the Body Shop and Aesop.
So of course, e-commerce came down a little bit versus what used to be in Q2, which as you might remember, was about 30% plus, was 40% of the revenue. It came down, but it came down to almost more than double than what used to be before the pandemic. So even with the reopening of the store, we still see very strong performance of the e-commerce.
The store in itself, we are seeing traffic still a way down versus prior to the pandemic, about you know 40%, but we have seen higher ticket, average ticket per person in general. Of course, you know, we'll continue to monitor now as we enter in Q4, which is our most important quarter, and with some of the lockdowns in some markets, especially in Europe.
But one of the things that we are seeing is that, we also got a lot of learning in terms of being able to adjust. So things like click and collect, curbside delivery, all those things are still in place. So in the combination of e-commerce we still think that we're going to be able to manage the Christmas season well, but of course, we'll be monitoring that.
In regards to margin, what I can say is that, in our calculation, I would say it's probably about 100 to 150 basis points in terms of the, call it, subsidies or the government incentives that we think that are non-recurring, that at some point will disappear. But even if we exclude that, we are still showing margin improvement on a recurring base, which is again - which shows the strength of our fundamentals. Thank you for the question.
Thank you. Our next question comes from Andrew Ruben from Morgan Stanley.
Great, thanks very much for the question. I guess, just following up on the margin points. So, more broadly, you showed some strong leverage in the Latam, Body Shop, Aesop. So if you could just provide some color on the bigger margin drivers. And if there's anything in addition to the government support that might be more temporary or any spending shifts in general, we should be aware of, as we think about modeling into 4Q and 2021?
And then just if you could clarify the 100 to 150 basis points, is that just for Body Shop and Aesop, or is that on a consolidated basis? That'd be very helpful. Thank you.
Hi, Andrew. Yes, I think that just to have – for a question, the 100 to 150 basis points is consolidated basis, it was not specific. Also, the Aesop [ph] of that that is related to the cyber phasing, that we already mentioned before. So we can consider like, half of the cyber and a half would be the stimulus.
So again, like we said, with that - taken that even if you do this, we will still have an expansion in margin compared to the previous year. So I believe that will concede, of course, this quarter, we had this increase, but I think the trend is to hit - to see that going forward, on adjusted basis like we said. And that's how we expect to see.
Our next question comes from Joseph Giordano from JPMorgan.
Hi. Good morning, everyone. Thanks for taking my question. They're actually a couple of ones. The first one is on integration. So if you could shed some light on how you are deploying the technology you have on Natura to Avon, so what can be done now particularly in the context that you prepaid your most restrictive bond? So that's my first question.
And the second question is, how do you guys feel about the outlook for Christmas, right? So particularly in Brazil, we saw like an outstanding growth and we had some emergency aids probably helping this disease. So - and you mentioned that you sold mostly perfumes and fragrances. So how do you feel about it and what's the strategy in terms of like packaging and branding like you have been doing over the past calendar events? Thank you.
Hi, Joseph. Roberto, here. So in terms of the restrict aspects or the covenants of the prepaid bond, this will allow us again to continue to optimize our structure as a group, especially in terms of subsidiary and better, combine some of those at a global scale and some of the opportunities that we have, as we now have Avon, Body Shop and Aesop overlapping some of those geographies. So that will give us some more flexibility for optimization on that.
In terms of the synergies, they are on track, I would say that is also explained part of the improvement in margins because we are already capturing about $17 million of synergies this quarter. So that's on track based on our communication and guidance that we talked about it back in Q1.
So we are excited about it. We are already seen very material examples of distribution centers, manufacturing sites, especially in Latin America are working in a combined way between Natura and Avon. And that's very promising in terms of not only driving costs down, but improving services to our reps and our consultants. So that's also pretty exciting.
And I think that's - did I miss anything? On your question? I think that was it, right?
Christmas?
Do you want to comment on that?
Yeah. So Joseph, JP, here. As regards to Christmas, you know, that for each of the Body Shop, Natura, with all these celebratory dates are quite important. And all the businesses around the world are well prepared to fulfill the demand of Christmas.
And actually, we do think that, in spite of the pandemic, people will be willing to see each other, touch each other, send a token of gratitude. And so we think that demand will be here. And we learn how to serve as customers in different ways. That's what you've heard so far.
Perhaps what might be new and relevant is that Avon didn't look at those dates, with the same intensity as the other business do. So I can tell you that we are upgrading Avon’s effort for those celebratory dates and for Christmas in particular. So I think Avon will see a positive performance out of - relative performance from the Christmas campaign.
Thank you. Our next question comes from Daniela Bretthauer from Eleven Financial.
Hi. Good morning, everyone. Congratulations on the results. Thank you for taking my questions. Most of them have already been answered. But I just wanted to follow up on the channel growth at Avon, you mentioned lowers returns. And actually a two fold the topic there. One is it was very impressive, that not only productivity growth, but the channel growth in Brazil. But then on Brazil [ph] you mentioned in the release that it's still decreasing. So do you think number one, the productivity and channel growth in Brazil will remain at this fast pace? Because it clearly doubled on a sequential basis? And second on Avon, the reduction has it flatten or when do we see a change? And then I'll ask my second question.
So in terms of the overall for Avon, what I would say is, again, some of the structural things we haven't implemented yet. While we are seeing again, some of the actions that we took to simplify the model, to make it easy for consultants to join. Of course, all the efforts on social selling and adoption, it's part of that.
And while we are seeing also as we make a couple of changes on the earnings model, that is also helping the rep sustain a longer and that's what's translate in a reduction of the churn that we made - that we mentioned.
Regarding Brazil, I'll invite JP to comment on some more specific. Please JP?
Hello, Daniela. Good to hear from you. So you know, that we're going push for productivity gains. That's the nature of our approach to direct selling and social selling. In Brazil, both Natura and Avon grew the number of representatives and consultants. Across Latin America, though, we didn't see Avon growing yet the number of consultants.
But I'd like to highlight that many of Latin American - sorry. So I just want to conclude saying that many of the Hispanic speaking countries face more strict, much more strict lockdowns. And so we're going to see improving numbers as of now. Thank you.
Thank you. We have reached the end of the question-and-answer session. I would like to invite Mr. Roberto Marques to proceed with his closing statement. Please go ahead, Mr. Marques.
Thank you, everybody. So let me first apologize, I don’t know what happened, somebody entering the line, so apologies for that on behalf of Natura &Co. We are very excited about this quarter in how we really performed. It's really an outstanding results in any sprach [ph] or any angle that we look at it from a topline growth, from a margin expansion, from very solid performance in each one of our business, which is really a testament of our teams. Our four amazing iconic brands and our really approach on a direct to consumer omnichannel, you know, retail, e-commerce, working in synergistic way, when we see our direct selling both physical and out through social selling, also compounding the performance of our business. So really, very excited with the quarter.
Having said that, we are also monitoring cautiously optimistic about the future. We believe we'll continue to outperform the market, but we'll continue to monitor some of those recent events on the lockdowns in parts of Europe. We are still not fast this global pandemic and we of course, we'll continue to monitor and adjust in response to those challenges. But anyway, thank you so very much for joining us. Hope you all stay well and stay safe and hope to talk to you guys soon. Thank you.
That concludes the Natura &Co audio conference for today. Thank you very much for your participation. Have a good day.