Natura & Co Holding SA
BOVESPA:NTCO3
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Natura & Co Holding SA
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Good morning, ladies and gentlemen. Thank you for waiting. At this time, we would like to welcome everyone to Natura &Co conference call on the fourth quarter results. Today with us, we have Mr. Roberto Marques, Executive Chairman of the Board for Natura &Co; Mr. João Paulo Ferreira, Natura's CEO; Mr. Michael O'Keefe, Aesop CEO; Mr. David Boynton, The Body Shop CEO; Mr. Marcel Goya, Director of Finance and Investor Relations; Mr. Luiz Palhares, Investor Relations; Mr. Márcio Bologna, Natura's Financial Controller.
This event is being recorded. [Operator Instructions] We have simultaneous translation into Portuguese, and questions may be asked normally by the participants connected from abroad, either in English or in Portuguese. [Operator Instructions] We have a simultaneous webcast that may be accessed through Natura's IR website, www.natura.net/investors. The slide presentation may be downloaded from this website. There will be a replay facility for this call on the website after the end of the event.
Before proceeding, please be informed that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Natura management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Natura and could cause results to differ materially from those expressed in such forward-looking statements.
Now I'll turn the conference over to Mr. Roberto Marques, Natura &Co's Executive Chairman of the Board. Mr. Marques, the floor is yours.
Thank you, Paula, and good morning or good afternoon to all of you, of course, depending on where you are on the globe. Thank you for joining us on this call to present the Natura &Co fourth quarter and year 2017 results. This call today is actually taking place from London as the Natura Board of Directors was held here in order to take a deep dive into our Body Shop and Aesop businesses. And I think I speak for all of us when I say that it was really a truly great experience that reinforced our confidence in the potential of our 3 businesses.
As Paula said, today with me on this call are João Paulo Ferreira, our CEO for Natura; David Boynton, CEO of The Body Shop; Michael O'Keefe, CEO of Aesop; Robert Chatwin, our Chief Transformation Officer; and Marcel Goya, our IR and Finance Director. As all of you know, we are also in the process of hiring a new -- a Chief Financial Officer for Natura and for the group, and we should be in a position to announce the appointment in the near future.
Let me begin with an overview of an exceptional and transformational year for Natura &Co. Marcel will then run us through our financials. And then each CEO, João Paulo, Michael and David, will give you some colors on their respective companies. We'll then return with some concluding remarks, and then we'll open the floor for the Q&A session. Throughout this call, we'll be referring to a presentation that you'll find on your website, which complements our press release issued last night that I'm sure you have always -- already seen it.
So let's begin on Slide 3 with the key business highlights of the year. 2017 was truly a transformational year for Natura. With the acquisition of The Body Shop, which closed in September, Natura has made a step change becoming a multi-brand and a multinational group that now boasts a strong global footprint. The group we have created brings together 3 very distinctive and very strong brands but actually share a common purpose and vision: We are committed to doing business in an ethical and sustainable manner which generates positive economic, social and environmental impact.
To symbolize this change, we recently unveiled our new corporate identity. The combined group is now named Natura &Co, and its logo appears on the cover page of this presentation. Natura &Co at the same time refers to the brand that gave birth to this group while also expressing the bond between us through the E symbol, And the Co in our name represents connection, collaboration, co-creation and coexistence, behaviors that we want to really stress throughout our 3 businesses.
In order to leverage the scale and know-how of this group while we present brand autonomy, we have also created a governance structure that we already talked about, including the Group Operating Committee, which brings together the executive chairman, a new position within the board, the brand CEOs and key functional positions in order to oversee the group, identify and capture synergies.
And one example that we already established since we put together this governance is the global procurement process, gaining important savings among 3 companies. The great potential of this combination is already evident in our 2017 numbers. As you see in this presentation, we posted solid sales and profitability across the board, even excluding the 4-month contribution in our numbers from The Body Shop. Each one of our businesses posted a strong performance, which we are very proud. Natura continued to regain momentum and leadership in key categories, helped by a new relationship selling model and a more focused strategy, while Natura in Latin America grew strongly and continued to expand its sales channels. The Body Shop integration is proceeding smoothly. Measures to improve performance are already being taken. And we are pleased with the year-end performance of the business, one of the best we have had in the last couple of years. And Aesop accelerated its growth, driven by store openings and an outstanding same-store sales performance. At the same time, we also made new advances in sustainability, providing further evidence of our strong commitment to the triple bottom line. We will detail all of this in this presentation.
And with that, I will now hand over to Marcel Goya to tell you all on this in numbers. Marcel, to you.
Thank you, Roberto. So Slide #4, this provides you with an overview of our headline numbers. And as Roberto had said, this shows strong sales and profit growth throughout the business both in Q4 and in the full year. Consolidated net revenue rose sharply at 24.5% in the full year, including 4 months of The Body Shop. In Q4, reported sales were up, plus 62.7%. On a pro forma basis, revenue rose 7.2% in the year and 7.8% in the quarter at constant exchange rates.
We posted a strong improvement in profitability. Consolidated EBITDA was up 29.6% in the full year and up 36% in Q4. Comparable EBITDA, adjusted to exclude certain unusual effects and excluding all TBS-related figures, was up by 3.8% in the year and 8% in the quarter. We provide a waterfall graph in our earnings release which provides full details.
Consolidated net income was up 117.5% in full year and up 23% in Q4. If you look at net income on a comparable basis, also excluding TBS-related effects, net income grew by 183.5% in the year, and in the fourth quarter, it grew by 29.9%. Again, please refer to our earnings release to see an illustration of these effects.
Cash flow generation was very strong as we generated BRL 617 million in cash in the year, BRL 147 million more than what we generated in 2016. This is a very strong performance given that this amount is after a tax settlement we made in October 2017, that give details later. Without this, cash generation was BRL 859 million. And we managed to significantly deleverage the company, with our net debt-to-EBITDA ratio coming down to 3x, well ahead of our target of 3.6x.
These are the consolidated numbers, which, of course, were impacted over the year by the integration of The Body Shop and some other factors. We will look into this in greater detail at both a consolidated and brand level in the following slides.
Let me start with our consolidated net revenues on Slide 6. In the full year, net revenues reached nearly BRL 9.9 billion, representing a gain of 24.5% over the previous year, driven by growth in all 3 of our businesses. On a pro forma basis, considering The Body Shop for the full year 2017 and 2016 at constant exchange rates, revenue grew by 7.2% in the year. Of this total, Natura represented BRL 7.7 billion, growing by 7.8% while Aesop's revenue rose 30.3%. We had a 4-month contribution of The Body Shop for BRL 1.5 billion. The Body Shop reported 2.2% growth in the year on a pro forma basis and at constant exchange rates.
In Q4, consolidated sales rose 62.7%, again with solid growth by Natura, up 9% and strong double-digit growth by Aesop of 27.2%. Of course, the very strong growth in the quarter was also due to the addition of The Body Shop which contributed BRL 1.2 billion in sales. If you consider The Body Shop on a pro forma basis, consolidated net revenue at constant exchange rates increased 7.8% in the quarter, with The Body Shop reporting 2.1% growth.
On Slide 7, we turn to profitability. And as you can see, this slide also tells a growth story. In the full year, consolidated EBITDA stood at BRL 1.74 billion, rising by 29.6% year-on-year. Margin gained 7 basis points, reaching 17.7%. In the fourth quarter, EBITDA rose 36% to BRL 628.4 million, including a contribution of BRL 217.5 million from The Body Shop. Now if you look at EBITDA on a comparable basis, that is excluding The Body Shop EBITDA and its effects such as acquisition expense and excluding other operating income and expense which are not usual in nature, underlying EBITDA was, too, up by 3.8% in the year, with an EBITDA margin of 16.6%. In the quarter, EBITDA was up by 8%, with virtually stable margin of 19.8%. We have provided waterfall graphs in our earnings release detailing these figures.
In the Slide 8, you can see details about our consolidated net income. In the full year, net income was up by a very strong 117.5% on a reported basis, reaching BRL 670.3 million with margin nearly doubling to 6.8%. Of course, this number is also boosted by the inclusion of 4 months of The Body Shop. In Q4, consolidated net income is up 23% on a reported basis to BRL 256.8 million, with margin of 6.9%.
As you see on the chart on the bottom of this slide, comparable net income adjusted to exclude all effects related to The Body Shop, including all acquisition and transaction costs, was up 183.5% in the full year and 29.9% in Q4. We also provided graphs in our earnings release to explain these adjustments.
Before looking at our performance brand by brand, let's take a quick look on Slide 9 at key attributes of our balance sheet. In the full year, we generated free cash flow of BRL 617.2 million, a gain of close to BRL 150 million year-on-year. This figure comes after paying out BRL 242.5 million in previously accrued tax with the Brazil special tax regularization program known as PERT. We had a tax provision since 2009 for income tax on interest -- on rate payments by our consultants. We can choose to settle under this program. Excluding this payment, cash flow was a strong BRL 859.7 million.
In Q4, cash generation was BRL 296.2 million. This is down versus Q4 2016 when we generated BRL 403 million but it includes the tax payments I just mentioned. If you exclude PERT, cash flow was BRL 538.7 million. This number reflects our rigorous management of cash, leading to working capital improvement both at Natura and at The Body Shop, which realized even lower inventory levels and improvement in accounts payable. Our strong performance allowed us to significantly deleverage our balance sheet, and we ended the year with a net debt-to-EBITDA ratio of 3x, well ahead of our guidance of 3.6x.
Let's now look at our performance by each business, starting with Natura. So I do hand over to João Paulo. JP?
Thank you, Marcel. Hello, everyone. I'm now on Slide 11 where we're going to look at Natura's sales performance. As you can see on the charts, Natura posted solid sales increase, both in the full year and in Q4. In the full year, sales rose 7.8% at constant exchange rates to BRL 7.7 billion while in Q4, growth picked up, reaching 9% at constant exchange rates to BRL 2.3 billion. These numbers reflect growth at the same time in Brazil and in Latin America, with a particularly strong performance in Q4. Sales in Brazil increased by 4.5% in the year and 6.5% in the quarter. If we look at Latin America at constant exchange rates, growth was even stronger. The year saw sales growth by 18%, while in the quarter, sales grew by 17.5% at constant exchange rates.
We are particularly satisfied with our performance in Brazil where we posted our second consecutive growth -- or quarter of solid growth, underscoring our strong underlying fundamentals. We regained the #1 position in core categories, such as fragrances and gifts, and maintained leadership in body care. This allowed us to resume overall market share growth as of Q2, thanks to our focused strategy, diligent execution, our renewed commercial model and stronger innovation pipeline. Our multichannel strategy is also advancing now with 19 Natura stores and shopping malls in São Paulo and Rio de Janeiro and a presence in about 3,600 drugstores.
Rede Natura, our online business, posted strong double-digit growth in the year. And by the way last week, we won the prize for the best online store in Brazil, where we were also designated for the third straight year as the most desired cosmetics Web store.
As you see on the bottom part of the slide, our new relationship selling model has resulted again in strong productivity gains of more than 15% in the fourth quarter over a comparable period when we had already reported higher productivity. And we saw the total number of consultants decline by 9.6% in the quarter. We continued our accelerated digital transformation towards the convergence of our online and offline business models, leading to more than 0.5 million consultants using our mobile platform, which boosts their productivity and consumer experience. And by the way, now our latest consultant loyalty survey produced its best-ever results.
In Latin America, we are also seeing productivity gains even though we are still increasing the number of consultants. We're also complementing our direct sales presence in the region through the introduction of our first stores in Argentina and Chile, where we already have introduced our online channel.
Let's move to Slide 12 where we're going to look at Natura's profitability. In full year, Natura's EBITDA was up 23.1% at constant currency to BRL 1.5 billion. And margin was up by 270 basis points to 19.8%, reflecting the strong performance I just described. Brazil's EBITDA was up 21.8% in the year, with margin gaining 320 basis points to reach 22.6%.
In Q4, Natura's consolidated EBITDA was down 8.5%, and margin stood at 16.6%. This was -- the drop was caused mainly by changes in other operating income and expenses as well as in G&A, primarily driven by some nonrecurring effects, such as the change in estimates for the useful life of our intangible assets which keep both depreciation and write-offs, as much as some investments in strategic growth projects. We also had an effect of an increase in short- and long-term executive incentives as opposed to a reversal which was experienced in previous year. Nevertheless, we maintained our tight control over expenses which you can see in selling expenses, which grew by only 1.9% in the quarter and 4.3% in the year as we have higher investments in marketing. In Latin America, EBITDA was up in strong double digits both in the full year and in Q4.
On Slide 13, we point out 3 key highlights of our sustainability performance in the year. First of all, Natura was included for the 13th successive year in the ISE, the Corporate Sustainability Index of the B3 stock exchange in São Paulo, which comprises companies with the highest levels of sustainable practices in the country. Secondly, Natura was elected Company of the Year by the Exame Sustainability Guide, and this is the first time a company received that distinction twice. Third, we saw a record-high number of Natura beauty consultants engage in selling the Crer para Ver product line, whose profits are reverted to educational programs. The penetration of this product line in Brazil reached 28.5% of our beauty consultants.
Let me conclude on Slide 14 with the priorities for 2018. Overall, we continue to strengthen our business in Brazil and maintain our strong momentum in Latin America. We will do this through continued revitalization of direct selling, a repositioning of the Natura brand and a strategic review of our brand's architecture. We also aim to continue expanding both in developed and developing markets, introducing our brands to new geographies and continue to roll out our omnichannel buying experience.
With this, let me hand over to Michael O'Keefe, CEO of Aesop.
Thanks very much, JP. In 2017 and in Q4, Aesop accelerated its sales growth, as you can see on Slide 16. Our sales in the full year reached BRL 706 million, a 21.9% rise in reported terms and a 30.3% increase at constant exchange rates. We saw a similar strong trend in Q4, with sales up 30.1% on a reported basis and 27.2% at constant currencies. This resulted from a combination of very strong like-for-like sales growth and sustained pace of expansion. Same-store sales over the full year increased by 14.8%. But in the period, we also added 33 stand-alone signature stores and 14 stores within department stores, to reach a total 308 retail doors at year-end. During the year, we also entered 2 new geographies, opening our first stores in Austria and in the United Arab Emirates.
On Slide 17, we look at Aesop's profitability. In the full year, EBITDA at constant currency is up 2.2%. On a comparable basis, when we exclude one-off inventory adjustments of approximately BRL 8.7 million or AUD $3.5 million and excluding the acquisition-related retention plan, EBITDA would have grown 24.1%, leading to an EBITDA margin of approximately 19%. In Q4, EBITDA was up 24.3% at constant currency and that already includes the retention plan impact.
On Slide 18, we discuss our 2018 priorities. We will continue to build a strong omnichannel presence that provides a high level of customer service. We will generate strong cash in order to fund continued expansion and develop back-end capabilities to support our growth. We will continue to build and reinforce a distinct culture and develop a strong learning organization. And lastly, we will further strengthen our social and environmental activities.
With this, let me now hand over to David Boynton for The Body Shop.
Thanks very much, Michael, and hello, ladies and gentlemen. It's a great pleasure to have joined Natura &Co and The Body Shop and to be on this call with you today.
Before going into the numbers, I'd like to say that the integration within Natura has been very smooth, with no pun intended, a very natural fit. My first few months on the job left me firmly convinced of the huge potential to grow the brand. The Body Shop has always been different, quirky and outspoken. And over the last 10 years, it's struggled to express that side of its personality. These aspects of the brand as well as its ethics and activism have been welcomed and appreciated by Natura &Co, and we can now express them better and find a distinctive voice in the marketplace.
We're in the final stages of our medium-term plan and we look forward to coming back to you to present it. The plan is based on 5 pillars of activity as the key drivers of growth. Four of those pillars you may be familiar with from last year: rejuvenate the brand, optimize our retail operations, enhance omnichannel and improve operational efficiency. We've added a fifth and final pillar, which is redesign the organization to ensure we have the right structure and operating model to support profitable growth. As a consequence, we have worked up 17 detailed work streams and are in the process of mobilizing the workforce behind it.
On Slide 20, you can see our sales performance in both the full year and Q4, with growth in both periods even as we started work on our inspiration plans. In the year, sales stood at almost GBP 795 million, which represents a gain of 2.2% at constant exchange rates from 2016, driven largely by growth in North America and the important Asia Pacific region as well as by 9% online growth and 4% growth in franchisees. This is solid growth but it can be improved upon. This growth came despite a net reduction of 35 owned stores, ending the year at 1,099 owned stores, while we added 2 stores in the franchise on a net basis, ending the year at 1,950 stores under franchise. As of the end of last year, The Body Shop had 3,049 stores in total.
In Q4, our sales were up by 2.1% at constant exchange rates to GBP 280 million, with online sales up by 11% and sales by franchisees up by 6%. This reflects a solid Christmas holiday period for us which is very encouraging. One of our key objectives was to protect trade through the important Christmas period while we developed our transformation plans. It's also pleasing that our performance during Christmas was driven by sales of our core bestsellers.
Turning to profitability on Slide 21. You see that EBITDA margin was up by 50 basis points in the full year to 8.3%, reflecting the sales growth and solid control of expenses. In Q4, EBITDA margin was 18% as a result of nonrecurring separation and integration costs as well as costs linked to the implementation of the first transition programs. Comparable EBITDA, excluding these costs linked to the separation and integration, would have been 21.4%.
Slide 22, to round out, what are our priorities for 2018? Firstly, as discussed, we will rejuvenate the brand and give it back the spirit I mentioned in my opening remarks. Secondly, we'll continue optimizing retail operations and strengthen our relations with franchisees. Third, we will pursue efforts to improve operational efficiency. Fourth, we will enhance our omnichannel model and customer experience, both on and off-line. And finally, as I mentioned earlier, we will complete the redesign of our organizational structure.
I'll now hand back to Roberto Marques for his closing remarks.
Thank you, David, and thank all of you for this overview of our different es, which I think has provided you with a real sense of the strength of our brands. I want to take a parenthesis here and send a shout-out to all of our associates across of our businesses for this remarkable performance in 2017, at the same time, compliment our 3 CEOs. We are very fortunate to have 3 great leaders driving our business.
2017 was a transformational year and 2018 will be a year of consolidation of the strong gains we recorded in this past year. Each of our brands will build on its achievements and roll out the priorities that their CEO has described, in line with our decentralized management structure. All of this will be supported by the group level, using strict financial discipline to return to our pre-acquisition leverage ratio by 2021. As we recorded yesterday, this is 1 year ahead of schedule, as again we disclosed yesterday at the Brazilian regulatory filing, reflecting our strong confidence in the business. Through strict working capital management, we intend to continue generating strong cash flow. And last but not least, we expect profitability to keep improving and moving up.
We will also have an opportunity to discuss this in a greater detail at our Natura &Co Day, which will take place on April 20. More details will be provided shortly.
For now, thank you very much for your attention. The speakers on this call as well as Robert Chatwin, our Chief Transformation Officer, are happy to take your questions, and the floor is now yours.
[Operator Instructions] Our first question comes from Guilherme Assis, Brasil Plural.
I'd like to explore a little bit the results in Brazil, if I may, and to ask João Paulo not only about the performance, I think, this quarter with the 15% increase in productivity for the consultants. I'd like to understand a little bit about how much has the company been investing in incentives and economics to consultants to ignite the channel? I understand all the initiatives that you've been implementing with the change in the -- like, in the segmentation and the economics. I'd like to know what would be -- like, if we didn't have the positive impact from the tax burden, how much would the new incentive structure would represent or would the company have to give up on margins in order to deliver these kinds of results? And I think also on that sense, maybe another question would be, you mentioned also in the final remarks about Brazil operations and Natura operations, the repositioning of the Natura brand. I'd like to understand a little bit more what you mean by the repositioning of the brand. Like, are you talking about also rejuvenating the brand, like you say when you talk about The Body Shop? Those are my questions.
So let's go one by one. As we mentioned before, the new incentive scheme has no significant additional cost increase to our previous structure. Truly, it does shuffle the investment across different profiles of consultants, so it would not have hit our margins significantly at all. I mean, it just shows that the strategy is working, that we're getting more productive consultants, and they get a higher incentive thanks to the higher volume -- business volume, I think, they may bring. So -- and the other way around, of course. When you talk about repositioning of the brand, it's also a thing that we mentioned before. We have been talking about that over the last 12 months. And it is to do with getting the brand closer to a younger target, also closer to AB1 consumers, all right, and strengthening some beauty attributes of the brand. So that is already in place. It's been already in place for 1.5 years. There is some perceivable changes in our communication but also in the design of our portfolio. If you look closer to our portfolio, it will be reflecting those tranches already. And we'll continue to do that, right?
Okay. João Paulo, if I may, like, follow up on the first part of the question. Like, you mentioned, and I know you talked about this before, that you're not giving up on margins or to -- in the restructuring process, like in the new incentive segmentation system, right? But if you look at the results from the fourth quarter, you guys had, like, strategic margins, right, and you also had some positive impact from lower tax burden in the quarter. So in some ways or in one way or the other, you should have had lower margins in the quarter and I just wanted to make it clear that this is not coming from the segmentation. So is it, like, pricing strategy that you're more aggressive to -- in the -- in your brand positioning and market share positioning?
So okay. So I can guarantee there's no margin dilution due to the new segmentation scheme, right? We have been investing or making higher investments in marketing as a whole because we want to support our brands further. And by the way, it's paying off because we have resumed market share growth, right? So we have been investing further -- more in marketing as a whole. Now the EBITDA margin has been affected by other elements, which we briefly mentioned and which are part of the report. Some are nonrecurring effects like the change in useful lifetime of software, which was significant -- needed a significant correction this quarter, plus some financial adjustment and financial profits coming -- that disappeared due to the reduction of the Selic tax. So -- but this has nothing to do -- had nothing to do with the new incentive scheme.
The next question comes from Gustavo Oliveira, UBS.
I have 3 questions. One is, I'd like to understand how recurring is the increase in G&A expenses in Brazil. That will be the first question. The second question is on working capital improvements. You mentioned that you had -- you managed -- it's quite a difficult line to understand now given the consolidation of The Body Shop. But you mentioned in the press release and in the presentation that, that is related to inventory management. But also, when we look at the balance sheet, I think we see a lot of benefits coming from accounts payable. So I'd like your help in understanding if -- when we consolidate The Body Shop here, The Body Shop has much higher payment terms and that benefits you going forward, or whether it's something that have no recurrence in the fourth quarter as you consolidate that. And the last question is for The Body Shop team. I'd like to understand, in terms of the brand rejuvenation strategy, what you guys are thinking in terms of investment needed for that both in terms of OpEx and CapEx. And the timing for capturing some of the potential benefits that you see there. Those are the 3 questions.
[Technical Difficulty]
Ladies and gentlemen, please hold. Speakers, you may continue.
Hello?
Hello?
Yes, Gustavo?
Gustavo here, yes.
Okay, we are back. We are back. We couldn't hear you. Could you repeat the question, please?
Oh, apologies. Okay, sure, no problem. I had 3 questions. The first one is understanding your G&A expenses in Brazil, the recurrence of that and whether that -- we'll continue to see pressures in 2018 coming from that expense line. The second question is on working capital improvements. You mentioned that you had even lower inventory levels in the quarter but we also noticed improvements in accounts payables. And I don't know if that's related to The Body Shop and whether the accounts payable -- The Body Shop business had longer credit terms. And therefore, that is kind of recurring benefit or whether it's a one-off benefit. So I'd like to understand those 2 accounts. And the last question is, when you're thinking about The Body Shop -- the brand rejuvenation strategy, what do you think in terms of investments in OpEx and CapEx and the timing for that?
Okay. The first thing -- so Gustavo, speaking of the first, and we move to the others on here. So you asked about the practice on G&A going forward. I do want to highlight that many of those elements were -- impacted mainly Q4. So there was a significant portion to do with our incentive -- certain long-term incentive for executives compared to previous year where we had to do a reversal of that, even though this year, we are achieving our targets that didn't happen. So going forward, I would expect this to be stable. Changes in the way we account for intangible assets...
[Technical Difficulty]
Ladies and gentlemen, please hold. Ladies and gentlemen, please hold. We are waiting for the reconnection of the speakers. Sir, you may proceed. Speakers, your line is open.
Okay. Gustavo, Roberto here. So David will address -- I think your last question, if we heard correctly, was regarding The Body Shop brand rejuvenation and the plans and what is the timing. So I'll turn to David to address that. So thank you.
And if I may, I don't know if the line, but it seems that the line dropped on the other 2 questions. So we couldn't hear anything you guys said on the previous one.
Okay. So he's going to repeat the first one. So we'll address the first 2 ones again, Gustavo. And I'm sorry for the line drop.
Okay. Gustavo, so the first question was on G&A in Brazil.
Correct.
And I explained that most of these effects are -- impacted us only in Q4 this year. There were elements related to our executive compensation plan which in previous year had to be reversed given the bad performance. And this year, given that we did well, we accrued for the executive compensation. Going forward, we would expect that to be the pattern, and hence, no significant changes. I also mentioned that we were affected by changing -- change in accounting procedures for intangible assets, mainly software, which caused us to write off part of that value and accelerate depreciation. So again, moving forward, that should not be repeated, apart from an additional or an incremental portion of the accelerated depreciation, of course. And finally, we did invest in some growth projects. That should continue, but of course, then we would expect top line growth. It comes together with it, okay? So that was on G&A. I'll pass on to Marcel to talk about working capital.
Regarding the working capital, we don't have any big things when you incorporate the TBS figures because it does have very similar cash conversion time lines as Natura, similar to Natura. And we just have some difference between accounts. For example, inventory in TBS is a little higher than Natura because of the nature of the business and the -- because of the geography. At the same time, the days receivables is faster than Natura because of the retail model. So we have some things, but overall, it will have [ anything significant ].
It's David here. We're conducting -- we've got a team conducting a full review of capital allocation as part of our transformation plan under the pillar that I described earlier of the complete improvement of operational efficiencies. So we don't have the details to share with you right now, but we're working up that plan right now as we speak. And when we're in the position to be able to present the full plan back to you, of course, we will do it.
I understand, David. On that, I just think that the plan of maintaining margins relatively flat, I think that was the original plan in Natura. Now I don't remember if you were already on board on when that was announced. But I think the original plan was to maintain revenue more or less flat for the next 2, 3 years, with margins improving over time. Do you think that's a reasonable formula to be followed or you've envisioned some changes in strategies on that?
Just to confirm, Roberto here, as you saw yesterday, we not only are confident on that, we are even more comfortable and confident on that plan, which is, again, as we indicated just after we closed, our plan is actually to double the EBITDA of The Body Shop in the 5-year period, which is moving roughly the 8% EBITDA to roughly 14% in 5 years. And we are actually confirming that we are speaking to those numbers and actually increasing our confidence. Based on the work that's being done and how we finished the year in 2007 (sic) [ 2017 ], we are even more confident that we're going to be able to deliver.
The next question comes from Leandro Bastos, Crédit Suisse.
This is Tobias speaking. Just a quick follow-up question, but can you just, João Paulo, maybe tell us what we should expect in terms of these incremental investments that we are doing and, to some extent, how they might be related to technology, if you might see some major productivity enhancements? Is this something that will be eventually more tangible? Even in the results, I think it's pretty clear what's going on, it's happening fast. But if you can maybe provide us a little bit more detail on what's going on maybe on the technology front going forward. The second question, I would like to see -- do you have any estimate about what's the potential store -- total store footprint of Aesop as of now? So how many more stores do you think that the company thinks could be opened over the next few years? And the last question is to Roberto. Basically, in the material, you say that there will be further -- you're further redesigning the corporate structure of the company in 2018. This is another priority. There has been a lot of changes in the whole structure over the last few months. So what's going to change again? What's still missing?
Should I start? JP speaking. Thanks for your question. As we mentioned before, the online conversions of our business models is one of our priorities. We've seen by now that as our consultants adopt our online platform, mobile platform, that increases the rate of contact between consultants, our sales force, Natura and customers. And through that platform, we can tell news and give them more information about products, promotions, content, provide additional services, financial services and so on and so forth. And that is a significant driver of their productivity gains. Currently, we have already 500,000 of those consultants actively using that platform. I do expect -- and when they do, they're going to grow more than double digits with the current set of services, which changes every day. So we do expect that by the end of this year, we should have roughly 1 million of those consultants actively using our additional platform, hence driving additional perhaps, I mean, sales growth, right? And by the way, a significant portion of our investments is indeed on growing and improving our additional platform.
So just very quickly, so some of the expenses that we might have seen, for instance, on the G&A front in Brazil, they might be related to investments in technology, and you mentioned that the productivity, when the consultant adopts the online platform, increases by a factor of 2?
No. I said double digit, not a specific factor. Not there yet, but working hard there, yes.
Okay, fair enough.
From an Aesop perspective, in terms of our growth, actually we've been saying over the last 2 or 3 years, we've really built out our internal capabilities to develop new stores, working with both internal and external architects. And now that we have a presence across 22 countries over those years where we've scaled up the amount of stores that was opened and to now between 30 and 40 stand-alone stores per year and 10 to 20 counters. And I think for us, for the foreseeable future, that level of growth should continue. We still see a really substantial opportunity for Aesop across the globe. But I will just say that, increasingly, we're looking at it from an omnichannel perspective, and digital and retail combined is really our focus. And both channels, stand-alone physical bricks-and-mortar retail and our digital presence are both growing very quickly and will continue to be so for the foreseeable future.
How much is digital right now for Aesop, just for online?
Our own website is a little bit over 5% in terms of total sales. But if you include our digital wholesale partners, the total comes closer to 10%. Now I mean, we're focused on a relationship basis of selling. That personal connection is still very important, and so the physical retail experience is still a key pillar of our strategy. But we know that digital commerce is increasingly important and we're growing that channel very quickly as well.
And Tobias, your last -- Roberto here. Your last point, so we are not planning to make any further changes. We've put together this corporate governance. We feel good about it. We are starting to work together through the Group Operating Committee. Some are right -- some very positive things are coming out of this collaboration between the 3 business, like global procurement, as I mentioned. So we want to stabilize that. We want this to progress and continue to evolve as we see needed, in fact. But at this point, we feel pretty good about the governance that we've put in place.
The next question comes from Thiago Macruz, Itaú.
My question is regarding The Body Shop. Can you give us an idea of the revenue seasonality for that asset? What percent of your sales happens in the fourth quarter? And what would be the full EBITDA margins like, what you've managed to achieve in the fourth quarter in terms of profitability? That would help us a lot forecasting this operation.
[Technical Difficulty]
Could you repeat the question? We just want to make sure that we capture correctly the information.
There's no problem at all. What I want to try to understand is the following. First, is this an operation that has roughly 8, 8-point-something EBITDA margin from a full year perspective? The adjusted EBITDA margin for the fourth quarter was 21%. So I just want to understand what's the seasonality of top line for The Body Shop in terms of quarters. If you can just give me the fourth quarter, that would be great. And the other question is, I just want to understand if you ended the year on a high note. So my question is what would be the implied full year EBITDA margin given what you've managed to achieve in the fourth quarter in terms of profitability? These are my 2 questions.
Roberto here. We're not going to give you by quarter. But again, the profile that you saw, it's very common on the retail business. You do have a much higher profitability EBITDA margin on Q4. So what you saw in Q4 for The Body Shop is kind of what we expected. We ended a little better than what we expected, but in general terms, that's kind of the profile of the EBITDA margin that you will see in that kind of business for a Q4 compared for the rest of the year. Sales is slightly different, the ratio. But the EBITDA margin is very much aligned to what you saw in the Q4 results. Dave, if you want to add...
I mean, if I may just make a quick comment, so I mean, the nature of a business like The Body Shop, it's highly focused on gifting. I mean, that's completely normal. In my past experience, you might be familiar with L'Occitane. It's a very similar picture. So the final quarter of the year represents more than 1/3 of top line sales. It's significant. And I think the thing that we took as encouraging from performance in that first quarter where we had control of the business is that the run rate of top line growth was in line with the overall year. So we'll end this quarter at 2.1%. We were pretty satisfied with that performance. So it is a seasonal business, we understand that. That's when we make our money. The whole -- the way we plan operations through the course of the year is about being able to deliver strong performance during that peak. And the thing that was pleasing for us as the new owners of the business was that we maintained the same sales trends.
The next question comes from Olivia Petronilho, Banco JPMorgan.
This actually Joseph Giordano here. I have a question regarding The Body Shop and its turnaround plan. So based on the release, you mentioned that your company grew 2% on a year-on-year basis. And when we look into the guidance, we can extrapolate in that an implicit expected growth of about 7% the top line over the next 5 years. So here, I would like to understand, first, what should be the initial action plan here, so in terms of store closures and refurbishments and how they should also affect CapEx and what's also the actual plan here to revamp sales growth on this operation?
David here. We're looking at -- one of the things that's striking about The Body Shop as we inherited it today is that the actual individual store productivity is not especially high compared with industry benchmarks. And its -- and growth going forward will not be a function of significant investment in stores. There will be investment in stores, and there will be a rebalancing of the retail portfolio. We have a lot of stores that are well established in locations over a long period of time that's possibly not in the right place right now. We need to consider relocation. And there's a big piece of work as part of the transformation plan, really understanding what the future shape of the retail portfolio needs to be. The thing that's really clear to us when we look at our benchmark competitors is there's a big opportunity in this rejuvenation of the brand. And actually, making the brand more relevant, getting back to the original roots of the brand and what we stand for, we think is a fantastic opportunity connecting with today's customer. So really, we believe that we can drive sales -- we're very confident that we can drive sales through rediscovering our purpose and rejuvenating the brand that way. We've got work streams looking at pricing and how we make sure that there's a clearer, more effective communication of our price points. We're planning to invest also more in customer relationship marketing, which we see as being a big opportunity for the business. We have a very large database that we can exploit more. So it isn't so much about the bricks-and-mortar investments in stores. We will do that. We will rebalance the store portfolio but there's a lot more that we can do around branding and the way we -- that we manage those stores.
Unfortunately, we'll not have -- I'm sorry, we'll have to wrap up the call at 12:15 p.m. in Brazil or 3:15 p.m. in the U.K. So we'll be able to take another question only, but the IR team will be available to assist you afterwards.
The next question comes from Franco Abelardo, Morgan Stanley.
First question is regarding market share gains in Brazil in 2017. Can you share how much did you see the market grow in the year, and what are your expectations for 2018? Should the better macro environment help to accelerate sales growth in the country for the segment? And if you can share how have been the trends in the first quarter? We know that you start to face a little more difficult sales comps growth. So would like to check if you can keep growing or accelerating growth in the -- here in the first quarter as well. That's the first question. The second, back to the G&A expenses also in Brazil. You've mentioned some new projects that put some pressure for the G&A in the fourth quarter. Could you give more examples or details of these projects? I think you've mentioned the mobile app. Is there anything else that you are doing that's putting pressure in the G&A expenses? And whether or not these projects should keep putting some pressure. So talking about margins, I think that the idea is to keep investing in margins to accelerate growth. Is that the plan?
It's JP. So on market share growth, so I will not give you the number. I will just confirm that as of Q2, we resumed market share growth. I mean, we started gaining share again, and we recovered leadership in our key categories: fragrances, body care and gifts. But we also recovered -- so there, we are leading the gallery. And in all other categories, we are gaining share again. So good. I mean, it's been quite a while since we last saw that and we are very happy and confident. Expectations for market growth for this year, all of our models suggest that market should grow at similar levels as in 2017, all right? Given the projections of economy and disposable income, it's looking very similar. So we'll see. We are -- regaining market share is one of our priorities. That's what we said last year. It continues to be so. We are working in that direction. So far, we are pleased with the advances we've achieved. On the strategic projects, I cannot reveal them given the fact that they are strategic and it's too early for us to reveal. Maybe in our conference in a couple of months, all right?
Okay, right. But -- so we should expect more of those expenses related to these projects in the P&L this year. Is that right?
Could you repeat, Franco? I couldn't hear you well.
I was just checking whether or not we should see more pressure on margin coming from these strategic projects now in 2018.
Our objective -- I mean, this year, our margins improved significantly. So let me call your attention to that, that our full year result shows a significant margin increase with top line recovery and market share gain. And this is the game we want to keep playing, so it's not our intention to dilute market share to do that. We don't see the need for that but we will continue to pursue top line growth.
Okay. If I can just point out, in your press release, you say that consolidated -- or the EBITDA margin for Natura in Brazil actually declined 50 basis points on a comparable basis and actually increased the level of the other expense. Should we take that margin, including other income actually, the 22.6% as the -- actually the base margin for 2017? Or should we look to the 19% margin that you called like comparable margin? What's the right one to look, thinking about what you said about margin?
No, we want to keep gaining margin, Franco. And the decrease was mainly in Q4 -- was only in Q4. And our expectation is to continue to deliver higher and sound EBITDA margin.
This concludes today's question-and-answer session. I would like to invite Mr. Roberto Marques to proceed with his closing statements. Please go ahead, sir.
So thank you, Paula. And I just want to thank everybody for joining the call. Again, apologies for some of the technical difficulties here. But again, we are calling from London, so appreciate the patience of everybody. And again, we invite all of you for our Natura &Co Day, which we'll continue to address some of the questions, further elaborate on the plans and excitement about Natura &Co and our 3 businesses. So I look forward to seeing you, maybe some of you or all of you, on April 20. Okay, so thank you very much. Have a great rest of the day. Thank you.
That concludes the Natura audio conference for today. Thank you very much for your participation. Have a good day.