One Year After Buying Avon, Natura & Co Has Big Dream: to Conquer China

RIO DE JANEIRO, BRAZIL – Natura & Co can celebrate the first Avon acquisition anniversary. The group, which has become the fourth in beauty worldwide, has reached the highest market value of its history at the turn of the year and is worth over R$70.7 (US$13.5)  billion.

The company is now ready to expedite its geographic expansion, which includes nothing less than taking its first steps in China.

Its current value in the B3 exchange is more than double that recorded in late 2019, just before the absorption by merger of Avon, and more than 40% above what it was worth just after the transaction was completed, on January 6th, 2020, and before the pandemic. At the height of last year’s stress, the company reached the value of R$25 billion on the stock market.

“Avon is better within the Natura &Co group and Natura &Co is a better group because of Avon. We can safely say that it was a good deal for both,” says Roberto Marques, global president of the company, in an exclusive interview to EXAME IN.

The official expectation is that the combination synergy could reach up to US$300 million in the 36 months after the merger. Between January and September, the figure achieved has already exceeded US$50 million, according to the executive.

In 2019, before Avon, the then Natura Cosméticos had a net income of R$14.4 billion. In the first nine months of 2020 alone, the group’s consolidated revenue, as Natura & Co, stands at R$25 billion, of which R$14.2 billion were achieved in Latin America – 57% of the total.

But if 2020 was a year to double in value and look inward, with all the challenges posed by the pandemic, 2021 will be a year to expedite international expansion. The group is preparing to enter China, a coveted market of almost 1.5 billion people (one billion active, aged between 15 and 64).

“Our capacity for organic growth is tremendous. We are the fourth largest in the sector worldwide despite not having a strong presence in the largest markets. Avon has brought us a tremendous opportunity for revenue growth through joint action. It is a tremendous entrance door.” The consolidated net income outside Latin America in 2020, up to September, reached R$10.7 billion, with growth concentrated in The Body Shop and Aesop.

From now on, the company will be increasingly demanded for its integration results with Avon and also for the internationalization progress. A significant part of the synergies expected by the company, as a result of the business combination, is related to revenue growth that the four brands can achieve together.

China, Latin America and U.S.A.

China is the second largest cosmetic market in the world, behind only the United States. “It is expected that over the next three to four years, it will become the largest in the world,” says Marques.

Natura&Co has already registered the group brand with the Chinese ideograms and is currently in the product registration phase. And it is not a matter of setting foot in China: the group will begin with local production. “The dimension justifies it.”

However, the executive prefers not to disclose the details on its production and supply chain, which are still confidential. “But I can guarantee that we will do it while respecting our principles of not performing animal tests. That is why we are still keeping some strategies confidential”.

Arrival starts this year with Australian origin brand Aesop, following with The Body Shop in 2022 and, then, the aim is to prepare for Natura to also be sold in the Chinese market in the future. There is currently a national brand pilot in Malaysia, testing the Asian market more broadly.

Japan, the third largest global cosmetics market, is also targeted. The Asia region in general is a major consumer of skin products. But there is also room for hair products, in particular in countries with Muslim population.

João Paulo Ferreira, Natura & Co Latam president, said that in 2021, starting from the second semester, the company will be entering countries in the region in which Avon is already present (in all of them), but Natura is not. For the time being, the Brazilian brand is present in seven Latin American countries. There is yet 15% of the total market to be explored – a process for the next 12 to 18 months.

The executive explains that the integration between the two companies has progressed substantially in the region and is the main source of synergies already achieved. “Avon representatives engagement data in Brazil and Mexico reached its best position in the past ten years,” emphasizes Ferreira.

“Avon brought scale to the group and knowledge on how to operate a truly global brand, with presence in so many different countries. On the other hand, Natura has a strong experience with digitalization to pass on.” completes Marques.

When it comes to international expansion, the United States is also in the picture. Some four months ago, the group began to operate the English brand of The Body Shop through resellers, following what was done in England and Australia. “We already have over 4,000 representatives in this short time. The market response has been very positive,” comments the global president.

Surprise

Although right after acquiring Avon, Natura’s debt skyrocketed, the group has already restored its capital structure: it raised no less than R$7.6 billion in shares over the past year, in two operations. In November, it prepaid US$900 million in maturities inherited from Avon for 2022.

The year 2020 was surprisingly positive for Natura &Co, considering the challenges brought on by the pandemic, particularly for the consumer sector. At year end, the company decided to reward employees for their performance. At the peak of the insecurity produced by the pandemic, the group had launched a voluntary program for a 20% cut in salary.

However, in December, the company decided to repay these efforts by its employees, paying all amounts that had been discounted from their salaries. It maintained consistency in a sad and challenging year, but marked by the company’s strong performance and significant revenue.