Natura Cosmeticos SA (OTC:NUACF) Q4 2019 Results Earnings Conference Call March 6, 2020 9:00 AM ET
Viviane Behar - Investor Relations Director of Natura & Co.
Roberto Marques - Executive Chairman of the Board, CEO
José Filippo - CFO
João Ferreira - CEO, Latin America
Angela Cretu - CEO of Avon
Conference Call Participants
Ruben Couto - Santander
Tobias Stingelin - Citibank
Bob Ford - Merrill Lynch
Olivia Petronilho - JP Morgan
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 2019 Fourth Quarter and Full-Year Results. Today, with us we have Mr. Roberto Marques, Executive Chairman of the Board and CEO of Natura & Co.; Mr. José Filippo, CFO of Natura & Co.; Mr. João Ferreira, CEO of Natura; Ms. Angela Cretu, CEO of Avon; Ms. Viviane Behar, Investor Relations Director of Natura & Co. This event is being recorded and all participants will be in a listen-only mode during the company’s presentation.
After Natura’s remarks are completed, there will be a question-and-answer session. At that time further instructions will be given. We have simultaneous translation into Portuguese and questions maybe asked normally by participants connect from abroad either in English or Portuguese [Operator Instructions]. We have a simultaneous webcast that may be accessed through Natura's IR Web site, www.natura.net/investor. The slide presentation maybe downloaded from this Web site. There will be a replay facility for this call on the Web site after the end of the event.
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. This presentation also includes adjusted information prepared by the company for information and reference purposes only, which have not been audited. Forward-looking statements speak only as of date they are made and the company does not undertake any obligation to update them in light of new information or future developments.
Now, I will turn the conference over to Ms. Viviane Behar, Investor Relations Director of Natura & Co. Ms. Viviane Behar the floor is yours.
Good morning or good afternoon to everyone. I am Viviane Behar, Natura & Co's Head of Investor Relation. Thank you for joining us today for this call to present Natura & Co's fourth quarter and full-year 2019 earnings.
Please note Natura & Co. and Avon are filed their respective Q4 and full year financial separately. Considering that in disappeared the companies were independently managed and the acquisition was completed on January 3, 2020. As such, we will briefly comment on Avon's Q4 and full-year financials given that Avon will not host an earnings call of its own, but those numbers are not part of the 2019 consolidated accounts of Natura & Co that we are presenting today.
I am joined here 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 and; and Angela Cretu, CEO of Avon, who will both join us for the Q&A session. Our Investor Relations team at Natura & Co. is also with us.
The presentation we will be referring to during this call is available on the Natura & Co. Investor Relations Web site. Roberto will start with an overview of our performance. Filippo will detail our financials for Natura & Co. He will also comment on 2019 pro forma consolidated P&L, combining Natura &Co. and Avon and provide a brief overview of Avon's Q4 and full-year results. After that, Roberto will make concluding remarks and we will open the floor to your questions.
Let me know hand over to Roberto.
Thank you, Viviane, and hello to everyone. Thank you for joining us. Let me begin on July 3 with an overview of our performance. 2019 was another year of profitable growth and transformation for Natura and Co. as we continued to build what has now become the world’s fourth largest pure-play beauty company, with a portfolio of iconic brands further enhanced by the acquisition now of Avon.
Our fourth quarter performance demonstrates again the power of our multi-brand multi-channel group. The strength of our results continues to show our ability to serve ever increasing number of customers across price points and distribution channels. Again, this quarter and year, all of our business and brands contributed to a strong performance with consolidated net sales growth of 7.3% in the fourth quarter and 7.8% in the full year.
Natura posted further growth in Brazil and LATAM, while developing its relationship selling model and multi-channel strategy. The Body Shop continues to successfully implement its ongoing transformation plan and extended margins to achieve its guidance. And Aesop returned to strong double-digit growth in sales and profitability and its store footprint continues to grow with 20 net opening in the year.
This is all despite the challenges we continue to face with both weak CFT market in Brazil and ongoing events in Hong Kong, an important market for both the Body Shop and Aesop. Our consolidated adjusted EBITDA grew in double-digits by 12.2% in Q4, and by 7.5% in the full year. Our underlying operating income, which provides a picture of our profitability without no recurring costs, rose by a strong 18.2% in Q4 and by a solid 5.7% in the year. Thanks to our strong cash generation, we also continued to deleverage the group to 2.41 times net debt-to-EBITDA from 2.71 times at the end of 2018.
The past year was marked by the announcement of our acquisition of Avon, which we successfully closed ahead of schedule just after the New Year. With this transaction, we are taking another transformation step, creating a leading direct-to-consumer global beauty group with unparalleled reach in a unique portfolio of global brands. We recently announced a new organization structure to ensure a successful integration and leverage the full capabilities of the group.
We also began trading on the New York Stock Exchange through ADR in early to January. We continued to see significant growth opportunity and potential to unlock the planned synergies of $200 million to $300 million per year as we announced back in January. We’re already working with Avon's teams to create a group committed to our triple bottom line, making positive social, economic and environmental impact, while having a stronger voice to advocate for causes that matters to us. Together we have started our journey to build not the best beauty company in the world, but the best beauty company for the world.
Before handing over to Filippo, I also would like to share with you that we are closely monitoring the situation regarding the business and financial impact of corona virus situation. Fortunately, to-date we have not had cases with our employee base, which is the most important thing for us. And the group will overall save exposure to China and Asia help mitigate the initial impact, although, we are fully aware that the issue is evolving and becoming globally on a daily basis almost unfortunately. I will return to this at the end of the presentation.
Let me now hand over to Filippo to go into our financials in greater details.
Thank you, Roberto, and hello to everyone. Before going through our financials, I thought it would be helpful to step back for a second and remind you of the adjustments that impact our numbers. In addition, the results presented today refer to the Natura & Co. Holding SA, which replaced Natura Cosmeticos SA as part of the corporate restructuring implemented to conclude the Avon acquisition. Throughout this presentation, we will refer to the adjusted EBITDA and on Slide 5 we describe the principal adjustments that we applied to our reported figures to allow better understanding of our underlying performance.
Q4 was marked by fewer nonoperational adjustments as we now have a comparable base for the effects of hyperinflation in Argentina and IFRS 15, and so there are no adjustments in revenues. We continued to adjust EBITDA for nonrecurring items, such as transformation costs related to the Body Shop and acquisition costs related to the Avon transaction. All results presented here exclude the effects of IFRS 16.
That said let's now look at our Q4 and full year performance. I will start with overview of our P&L with our consolidated net revenue on Slide 6. Our consolidated net sales grew by 7.3% to R$4.6 billion in Q4. In constant currency, net revenue was up 6.1%. This solid increase in sales results from growth in all three of our businesses in Brazilian real as we will shortly see. In the full year, consolidated net revenue grew by 7.8% in Brazilian real and 7% at constant currency to reach R$14.4 billion.
On Slide 7, return on our consolidated adjusted EBITDA, which stood at R$816.7 million in Q4. This represents strong double digit growth of 12.2%. Adjusted EBITDA margin was very solid at 17.6%, a gain of 80 basis points. On a reported basis, Q4 EBITDA was R$744.5 million, including R$37.5 million in Avon acquisition cost and two effects at the Body Shop, transformation costs for 18.7 million and intangible write offs for R$15.9 million.
In the full year adjusted EBITDA rose 7.5% to nearly R$2 billion with stable margin at 13.8%. Reported EBITDA was a little over R$1.9 million, up 3.2% with margin of 13.2%, reflecting Avon related acquisition costs for R$141.3 million and the Body Shop transformation cost of R$51.5 million. It also reflects the same intangible right offs of R$15.9 million at the Body Shop.
Turning to Slide 9, you look at Natura & Co's underlying operating income in Q4, which accelerated by a very strong 18.2% to R$641.2 million. This was driven by higher gross margin and well controlled SG&A expense. It includes acquisition related expenses, transformation costs, financial expenses and income tax and therefore, provides a clear vision of our operating performance, which as you can see, reflects the strong sales and cost discipline.
Q4 net income after these charges stood at R$14.3 million. It reflects non-cash nonrecurring accounting effects of R$206.6 million and tax linked to the corporate restructuring and net Avon related acquisition costs of R$104.2 million. Underlying operating income in the full year was up 5.7%, solid gross profit helped offset slightly higher SG&A expense. In the full year, net income was $190.9 million. This figure also includes the same non-cash non-recurring accounting effect from tax from the corporate restructuring and net Avon related acquisition costs of $206.6 million.
On Slide 11, we will look at our balance sheet items, beginning with cash flow. In the quarter, cash generation was strong at R$802.6 million, up 13.2%, this was driven by improved working capital at Natura, supported by lower accounts receivable and improved inventory levels. In the full year, cash flow was down 15.2% to R$397.8 million, impacted by Avon related acquisition cost. We continue the leveraging the companies in line with our expectation. At year-end, our net-debt-to-EBITDA stood at 2.41 times.
After looking at our consolidated numbers, let me now comment on individual performance of our three businesses, starting on Page 14, with the key highlights of Natura. Total net sales were up 5.2% to R$2.76 billion in Q4 with growth both in Brazil and Latin America, despite challenging market conditions. In the full year, consolidated sales were up an even stronger 6.7%. In Brazil, sales rose 3% in Q4, which represents a very strong performance against a very challenging comparable basis. If you'll recall, Q4 2018 happened to be the strongest quarter since 2010, with growth of 11.2%, driven notably by Natura’s best ever Christmas campaign. This year, Christmas was also strong and the gift and presents category performed well. In the full year, sales in Brazil were up 4% to R$6.2 billion, and we maintain leadership in the Brazilian CFT markets.
Natura’s solid performance reflects the success of our relationship selling model, which is leading to higher productivity in Brazil. Consultant productivity increased for the 13th consecutive quarter, up by 0.5%. The average number of consultants was up 1.8% versus the same quarter last year to 1.1 million consultants. Within the consultant base, we continued to see improvement towards our top silver, gold and diamond segments, attesting to the good momentum of the models.
Adoption of our digital platform by our consultants continued to increase as did the range of available digital solutions and services. The number of consultants using our digital platforms, which includes the app and the web, rose to over 900,000. We have seen good adoption of the Natura digital accounts. Rede Natura, our online platform and it's Q4 with approximately 700,000 virtual stores in Brazil compared to about 400,000 one year-over-year. This contributed to double digit growth in online sales and the quarter saw significant increase in the number of visits.
We also continued our multi-channel extensions with nine new stores open in the quarters all under the new concept, totaling 58 stores, which contribute to a near doubling retail net revenue. Our consultant franchise stores totaled just over 400, doubling from last year and posted strong double-digit like-for-like sales. In the quarter, we will launch our premium Una brand, which includes makeup up, fragrances and nail polish.
Our innovation index reached at 58.4% in line with our expectations and reflects the innovation phasing and the focus on extending the life cycle of existing [hero] products. The Latin America Q4 net sales grew 10.6% in Brazilian real and 28.9% at constant currency. Sales in the full year were up 13.5% in real and 23.9% at constant. The number of consultants grew 9.2% versus Q4 2018 and we are seeing very strong adoption of the mobile platform, contributing to significant growth in consultant productivity.
Volumes were up in the region by 29%. Highlights included Colombia, Mexico and especially Argentina where despite the challenged economic environment we are posting strong growth outpacing inflation. Natura became the leader in brand preference in Argentina and ranked first in four of our five countries in the region.
I will conclude on Natura with its adjusted EBITDA on Slide 14, which was R$467.2 million in Q4, up 7.47% and up 2.7% in the full year to R$1.4 billion with growth both in Brazil and Latin America. In Brazil, EBITDA margin grew by stronger 100 basis points with 20.5% in Q4, thanks to higher gross margin at 68.9% due to favorable category mix with strong sales of fragrances. In the quarter, adjusted selling marketing logistics expenses increased 30 basis points to 39.2% of net revenue, while adjusted G&A expenses also rose 30 basis points to 14.2% of net revenue to drive investments in innovation, IT and projects.
In full year, gross margin was also up by 30 basis points to 68.8%. Adjusted selling, marketing and logistics expenses, as well as adjusted G&A expenses rose 20 basis points to 41% and 14.5% of net revenue respectively, both broadly in line with 2018 as was already the case in the nine months results. In Latin America, EBITDA was up by a strong 11.5% in Q4. EBITDA margin was 10.7%, up 10 basis points, driven by strong top line performance and continued efforts to improve operational efficiency with SG&A down by 60 basis points. In the full year, EBITDA was up 8.9% and margin was 13%, down 60 basis points as a result of gross margin pressure linked to strong depreciation of Argentine peso.
Let's now move to the Body Shop on Slide 16. Net revenue in real increased by 6.7% in Q4 and were 1.2% at constant currency. This reflects the closure of 24 owned stores in the U. S. and ongoing Hong Kong effects. Excluding Hong Kong, net revenue grew 0.4% at constant currency, driven by solid sales in Australia and the UK supported by retail growth and double digit growth in the at home direct sales channel. In the full year, the Body Shop’s net revenue was up 6.2% in real and 0.7% in constant currency.
Excluding Hong Kong, constant currency growth was 2.4% in the period. Sales were particularly strong in the UK where grew by 8.8% in the year, attesting the successful revival of the brand in its home market. The Body Shop continues to optimize its store footprint with 66 net closures in 2019 and 170 since the launch of the plan. At the end of the year, it had 2,879 stores.
On Slide 17, we show that the Body Shop's EBITDA in the quarter increased by 9.8%, reaching R$259.3 million with a margin of 16%, up 50 basis points. In the year, EBITDA margin reached 9.7%, up by 180 basis points achieving margin guidance of 10% to 11% for 2019. Nominal EBITDA was R$399.5 million equivalent to £77.3 million, 6% lower than 2019 nominal EBITDA guidance of £82 million to £86 million, primarily due to the Hong Kong effects.
Adjusted Q4 EBITDA, which excludes transformation costs and intangible assets write off was R$263.9 million with adjusted margin of 18.4%, up by 20 basis points. Adjusted 2019 EBITDA was R$467 million with margin up 90 basis points to 11.2%. Excluding Hong-Kong, the adjusted EBITDA margin would have been 18.9% in Q4 and 11.5% in the year.
The Body Shop transformation program is ongoing successes with cost and benefits in line with the plan. Transformation cost in the quarter was R$18.7 million or £3.8 million. The cost we had announced at the launch of the plan has now been fully incurred and the total of £30.6 million in line with our estimates. This cost went to such initiatives and saw footprint optimization, discount reduction and organizational redesign, and we are very pleased with the results to-date.
On Slide 19, we look at Aesop, which posted strong double digit growth in both sales and profitability in Q4 and the full year. Net revenue grew in real by 25.7% in Q4 and by 13.4% at constant currency. Like-for-like growth in signature stores increased 7% in Q4 with strong growth in Americas and Asia despite the deceleration in Hong-Kong. Digital sales also grew strongly. Aesop continues to open signature stores and the total reached 247 with 20 net openings in the past 12 months, of which seven in the past quarter. Profitability also grew in strong double-digits in real with EBITDA up 44.8% in Q4, resulting in an EBITDA margin of 27.5%, up 360 basis points. In the full year, Aesop's revenue increased 22.5% in real and 12.3% in constant currency to R$1.3 billion. EBITDA was up 40% to R$237.3 million. Margin rose 210 basis points to 17.4%.
As you may have seen this morning, Avon filed their 2019 full-year results. In Slide 21, I will provide a brief overview of those numbers. Let me you remind you that they're not part of Natura & Co's '19 numbers as the acquisition was closed on January 3, 2020. But we wanted to give you a bit of color on the progress Avon made during that year. Avon continued to execute against its open upstream around strategy in 2019, and recorded a number of key advances that all staff to strong foundation for future growth. This includes improvement in price mix and average representative sales, cost reduction and cash flow.
2019 saw more innovation at higher price points, which is an encouraging sign of Avon's ability to upgrade its business model. For the year, revenue was down 6% in constant currency with an expected deceleration in Q4. As anticipated, revenue declined as a result of shopper choices made to drive the healthier, more sustainable and profitable business. Average representative sales were up 4% and Avon worked to stabilize the number of active reps, while restoring filed fundamentals and lowering their debt.
Free cash flow improved to $164 million from a negative $1 million in the prior year. And adjusted operating margin was up by 100 basis points in the year. The rollout of digital tools was accelerated and Avon increasingly leveraged the use of influencers, bloggers and social sellers. All this paves the way for a smooth integration into the Natura & Co. family of brands. Natura & Co. will work with Avon's management team to continue to open up Avon strategy with strong brand equity and returns added to representatives and shareholders.
As just mentioned, we completed the Avon transaction on January 3, and the company is therefore not consolidating our accounts for 2019. However, we thought it would be useful to provide you with 2019 consolidated pro forma P&L of Natura & Co. and Avon, building the baseline to capture few of the future value. We aligned Avon’s P&L in U. S. GAAP with Natura’s IFRS P&L to create a pro forma P&L in IFRS and the numbers include IFRS 16. This implies two categories of adjustments that are detailed on Slide 23.
We also like to highlight the new segment reporting that we'll be implementing this year. We will have both P&Ls, which reflect the group’s new management structure; these are Natura & Co. LATAM, which includes Natura, Avon, The Body Shops and Aesop for the region; Avon international ex-LATAM, The Body Shop ex-LATAM and Aesop ex-LATAM.
So moving to Slide 24, we show pro forma consolidated net revenues, which accounted to R$32.9 billion. On this Natura & Co. LATAM represents 56% of total revenue, Avon represents 27%, The Body Shop 13% and Aesop 4%. When we segment revenue by brand, Avon represents 56%, Natura 27% and The Body Shop and Aesop continue with 13% and 4% respectively.
On Slide 25, we show consolidated pro forma adjusted EBITDA for 2019, which stands at nearly R$3.6 billion of which, R$2.46 billion from Natura & Co. Holding and the remaining R$1.13 billion from Avon. Margin is 10.9% and excluding acquisition costs of R$316.1 million would be 11.9%. Consolidated pro forma gross margin stands at 64.1%. SG&A expenses were 55.5% of net revenue. Corporate expenses represent 0.8% of net revenue.
Slide 26 shows pro forma  net income and underlying operating income. As you see, our consolidated underlying operating income reached R$2.5 billion, of which R$1.41 billion from Natura & Co. Holdings Co and R$1.12 billion from Avon. This excludes transaction costs and several other non-recurring impacts, including Avon acquisition related costs of R$316.1 million, transformation costs of $$601.2 million and taxes on the creation of the holding company for R$206.6 million. Net income, including these nonrecurring costs, was R$173 million, of which R$155.5 million came from Natura & Co. and R$17.5 million from Avon.
Slide 27 looks at the 2019 pro forma debt profile of the group, including Avon. Total debt is R$1.89 million, which represents an indebtedness ratio of 2.6 times EBITDA. Please note that this ratio is not comparable to Natura & Co.’s 2.41 times reported at year end 2019, because that ratio exclude the impact of IFRS 16 as we previously stated.
In the pro forma basis in order to be comparable baseline from 2020 numbers and impact of IFRS 16 are included. The debt is 56% in dollars and 42% in Brazilian real with the remaining 2% in other currencies. More than half of the debt, 56%, is in bonds, 24% in the debentures and 17% in promissory notes. Note that we do not have major maturities coming due this year and next year with the main maturities coming in 2022 and 2023 when Avon and Natura bonds fall due. Between 2024 and 2043 when the next Avon bonds is due, there are no further maturities. Against these maturities, we currently have more than R$8 million in cash.
Let me how hand back to Roberto for his closing remarks.
Thank you very much, Filippo. Before concluding remarks, I would like to share with you what we know at this stage of the impact of corona virus situation on our business on the Slide 29. Let me begin by saying that the safety of our people is first and foremost. We are closely monitoring the situation and acting on several fronts, such as limiting travels to essential business trips and mapping effect on the supply chain.
The situation, as you all know, is evolving daily and has spread beyond Asia to other regions as you know, and it's too early to provide you with a complete view of the full impact. Concerning Asia, while we can say at this stage is while it’s an important market for us, we have a smaller footprint there than many of the global peers. This is notably true in China, partly due to our longstanding opposition to animal testing for cosmetics.
Asia as a whole represents just under 10% of our pro forma revenue by geography. We have a presence in 23 countries in the region, of which the Philippines is the biggest with under 4% of the group sales. China accounts for 0.5% of the group sales. In terms of commercial exposure, Aesop is the most exposed as Asia represents about 40% of its net revenue, while account for less than 20% for The Body Shop and less than 10% of Avon.
Our supply chain impact mainly involves some Christmas packaging sets and material sourcing from The Body Shop and the home and fashion product for Avon. Aesop is no impacted as suppliers and manufacturers have based in Australia. And Nautra is also not materially exposed. As part of our mapping process, we are working to mitigate any potential supply chain impacts. We are obviously monitoring the situation continuously and looking at its impact beyond Asia and we'll keep you updated.
Let me now conclude on Slide 30 with the key takeaways. Let me mention three of them. First of all, Natura & Co. posted a solid performance in Q4 and in the full year. Our strong revenue growth demonstrates the growth momentum of the global multi brand and multi channel group we are building. Second, we are managing to grow profitability with double digit growth in adjusted EBITDA and margin expansion, and the strong growth and underlining operating income.
And even as we invest in the future growth, we have strengthened our financial structure with our solid cash flow generation allowing us to continue deleveraging our balance sheet. And third, after successfully completing the acquisition of Avon ahead of schedule, we created the world's fourth largest pure play beauty group. The integration is now underway. We're all very excited with the growth, the prospects and the synergies ahead of us.
Thank you very much for your attention. We are now going to open the Q&A session with Angela, Filippo, JP and myself, happy to take your questions. So the floor is now yours.
Thank you. Ladies and gentlemen, we now begin the question and answer session [Operator instructions]. And our first question is from Ruben Couto from Santander.
First, can you talk a little bit more about the recent working capital improvement in Brazil? What we saw into the 4Q was something timely or should we expect further improvements in 2020? And I know it’s early but can you guys share a little bit with how was the first two months of operating Avon in Brazil, how consultants are reacting to any sort of feedback on how these first two months would be quite interesting. And a second one on The Body Shop, the company achieved it's margin guidance for 2019, but barely missed the target, thinking about the absolute figures, because of the soft sales performance, so thinking about ‘22 guidance that includes some sort of acceleration in top line growth. Are you thinking about reviewing this guidance considering all the recent events in Hong-Kong and now the corona virus? Should we focus on these 12% to 14% EBITDA margin as the target instead of the absolute €130 million target, just to get a sense of your point of view? Thank you.
So as regards to the question about the Brazilian operation, there’s been working capital improvement both in inventories as well as in accounts receivable. So that should be the level going forward basically if you want the project that. As regards Avon’s operations, it's too early to say. Just can reassure that there's a lot of excitement in the company and in the field force, so that should that at least it's certainly the tone for the improvement that we want to introduce very soon.
I'll then hold back to deal quickly on the Body Shop. So one, again just for perspective, I mean we are super excited and happy with the progress on margin against the guidance. So let's just for some context. When we acquired The Body Shop, they were operating around 8% EBITDA margin and we are now on adjusted basis here over 11%, so that in itself is 300 basis points improvement, which is way ahead of our guidance that we provided.
Now moving forward to your point, we still are projecting the improvement in terms of the margin and of course, we are monitoring the impact in terms of the commercial side and the sales side, because of the corona virus as we articulated in the presentation. But we are still optimistic, if you look at long term about all the progress, if you look at the sales number, excluding Hong Kong, the sales for the year 2.4% and all the activities that David and the team are doing, we feel confident that really drive the sales growth. But we remain committed to drive the -- to deliver the guidance, especially on the margin base.
And maybe regarding the working capital to us, but I think that yes, at the end of the year it’s more related to inventory that happened. However, this is an improvement compared to 2018 in this call that during 2019 we already mentioned that we are having -- getting better situation here. So I believe that the board still can expects some improve but more in a normalized way, I think that 2019 was something that going forward we still can expect to improve but more in a normalized. I think that 2019 is something that will improve compared to previous year, we have the second higher level. So that’s what we'd expect going forward.
Our next question is from Thiago Cruz from Itau.
Actually this is Elena here. We have just a follow up on Ruben Couto's question. So the thing is that we are talking here about The Body Shop, and we understand that the situation's a little bit harder and tougher that you imagine first, but we were just talking about when do you think that the company is going to show an acceleration of constant currency growth as already presented in third Q? And actually what's the main challenges here, what’s the things that you're seeing that is the challenge and the main challenges for the company to start growing that top line, to start to come back to growth in top line. So that's the first thing. And the second thing, it's about Natura Brazil. So we saw improvement in gross margin due to the better mix, especially fragrances. And we just wanted to understand what was the difference in the fragrance strategy here because it's a very challenging market in Brazil, so we just wanted to understand these and if you have any kind of, any future improvement in gross margin?
On the Body Shop again, excluding Hong Kong if you look at for the year we reached 2.4%, which is a pretty healthy growth, is actually the highest that we had for the Body Shop in the last probably five years but yet to your point, we see aiming for continue to improve that. That's two things that are going to really drive that. One is the reset of the store layout. We have one right now in UK with very good performance that we're planning to rollout in 2020. Also are in terms of innovation and the new brand positioning, we are very bullish with the new position and really back to deduce the causes that really made the Body Shop very strong brand and iconic brand. So those things we continue to rollout in 2020.
But as you all know, we needed to monitor the impact that are seeing globally in terms of corona virus. So we need just to be cautious about that while we control what we can control, which is continue to drive the margin improvement and continue to rollout the new store layout. And then regarding the gross margin of our Brazilian business, we have indeed -- we have been successful in moving our portfolio forward to more premium products, particularly in fragrances, which is good, helping improve the gross margin. However, there is pressure building from exchange rates going forward, which we believe we can cope with. So I would expect gross margins to remain at current levels.
And if you permit just a follow-up question about Aesop, we saw a very -- improvement in accelerating top line growth even with the Hong Kong situation. So we just wanted to understand a little bit more as to have any details or any change of the strategic on Aesop. What's happened here so we can see this acceleration on top line? Thank you.
Again, we're very pleased with Aesop results in those were driven primarily very strong performance in the U. S., which again very proud of the team in a very tough environment. Aesop continues to outpace that in the west significantly and also in North Asia very strong performance in Japan and Korea, so the fundamental of the business continues to be very strong and continues to be very bullish for Aesop.
Our next question is from Tobias Stingelin from Citibank.
If you can just us a sense kind of just give us an update your first month kind of looking into Avon from inside and in terms of kind of the short term and the medium term priority that we have for the brand? Thank you so much.
So couple of things, one is as we completed the acquisition in January, a couple of things already happened. So one is we already pretty much named all the management team, the leadership team, both at Latin America and Avon international, as you know, named you know Angela, who's CEO of Avon. So those things are already up and running. JP is already working and integrating the Latin America organization. So we’re feeling pretty good about that.
Our first impression is, I would say, you know really the passion of the people Avon about the purpose, the reason for being of the brand is something that's very, very important for Angela and her experience in direct selling, understanding the commercial model and working very closely with JP and the team here in Natura, I think is going to accelerate our competence and confident in terms of really drive the right commercial model for Avon.
I also would say that the level of innovation we did in New York and really state-of-the-art, I think it is a facility that only can help the innovation for Avon. But even beyond that at the group level in some of the assets in terms of manufacturing, distribution centers are also something that will benefit the group. I don't know if JP you want to comment as well on that.
I think I can only add that the more I learn about Avon from inside, the more confident I am on the size of the opportunity.
And if I can just kind of follow up with what are the key challenges that you kind of identified with regards to the brand, and I know that you're changing kind of the disclosure policy going forward, but I think to some extent, I think also important for us to understand kind of how the brands are performing, kind of Avon is performing. So I don't know if you can just kind of send a sense to versus Avon right now, for instance in Brazil, they're kind of stable, if they are starting to grew, what should we expect going forward, this will be kind of just a follow up. And then I don’t know if you can give us a sense about what's happening in the first quarter in Brazil right now. For the fourth quarter we saw potholes but just want to get a sense about how we’re starting the year? Thank you very much again for your time.
Let me start with your last portion, you know that we made several adjustments in our operation during last year, merging the online, harmonizing promotional policies and so on so forth. And actually, the second half was much healthier than the first half of the year and we set ourselves for a strong start of 2020 as we've had Natura. Now we're also seeing some initial excitement coming from Avon in Latin America. So it looks like a good start of the year. As regards to the brand than having me telling you about the brand, we have the pleasure of having Angela with us today, so I'll hand over to the Angela to tell you a little bit about how the brand is going to be strengthened.
Thank you. I would just like to give first a little bit of context of our open-up and growth strategy, all our efforts to strengthening our core and how we plan to accelerate our growth going forward. As you all know, we are in a part of a margin year transformational plan will open up and currently we are looking to stabilize the core and accelerator our recovery tapping into the resources, synergies and the turnaround experience that we have from Natura & Co. Part of this strategy, there are three main pillars. One is to create a compelling relationship framework. Second, is to reorganize our brand, so that question, this is an important pillar of our strategy. And then third is we need to multiply the asset.
Now back to the brand, we all understand that we require a strategic reset to regain relevance, consideration and increasing that instantly gratifying exciting shopping choice for our consumers around the world. We do that by simplifying our actual brand architecture, by continuing innovating with the breakthrough formulas at all price tiers and create a new blend of purpose and brand positioning in each and every market where we operate.
And our next question is from Bob Ford from Merrill Lynch.
Filippo mentioned some big increases in app and digital store usage in the Brazilian consultant base. And I was hoping you could touch on efforts, which were more successful in driving digitalization in the Brazilian and LATAM experiences. And some of the opportunities and hurdles you face as you attempt to drive more accelerated digitalization of Avon? And then just further to Avon and in Brazil, JP, how quickly can you begin running Avon to be more complimentary to Natura in terms of price points, promotions and innovation schedules?
So as regards the digitization of our consultants, so we saw the acceleration of the adoption as mid last year as we integrated the model, the offline, the online, we introduced e-wallet as well. So that accelerated the adoption, which is now getting close to 90% of our consultants across Latin America actually using the digital mobile platform. Now the level of maturity with which they use varies quite a lot. So we're also tracking maturity in terms of usage of the various services which are there. I don't see many obstacles in that path. It's a matter of getting more use, seeing the relevance of the services, our sales force are helping and educating consultants towards that end. And so I think we're on track as we guided digitization of the sales force.
When it comes to combined strategy between Avon and Natura across Latin America, we have already a draft version of that strategy, which we are refining, as we speak. We do believe that we can use many of our existing assets, digital assets to shortcut that development. We have the leadership team now in place. Towards the end of this month, we're going to have the next layer of organization appointed. So I would expect that towards the second half of this year, you're going to see already result of a combined strategy being implemented.
And if I could just one other question, and it's an unrelated topic, but the growth rates of Body Shop in UK and Australia were impressive. And I assume that a big part of that or a substantial part of that was the at home business. And I was wondering how you're thinking about developing that at home or direct sales business within those markets for the Body Shop but across all body shop markets?
So we are very pleased to see the performance of both UK and Australia to keep growing market for the Body Shop. And you are right, there is absolutely directly into at home, the direct selling component. Interesting also that we are seeing that the like-for-like the strongest markets in retail are actually UK and Australia, which shows a very nice complementarily between the at home and the retail business. And to the point that we mentioned, David and the team we are working now of course with the help of Avon to potentially accelerate at home at the Body Shop in some other markets. So hopefully by the Investor Day end of April we're going to be able to show you a roadmap of what that might look like.
Our next question is from Olivia Petronilho from JP Morgan.
I have two questions actually. You guys talked a little bit about the variation in FX, I just wanted to understand what is the expectations that I have with this new levels of FX, especially in Natura for gross margins, how should that impact your COGS? What you guys can do to cope with the new FX. And in this still talking a little bit about the price dynamics, what you're seeing from competition? Are you seeing a better environment for passing through prices, because I think the results we saw lower volumes, which is a mix effect but definitely higher prices. And a little bit about Avon, not on the operating side but looking on the debt side. Do you guys expect to refinance the debt or any of those bonds that we currently listed? That would be that on my end. Thank you.
So regarding FX, I think first of all we have of course we’ve been dealing with debt. We have the situation of increase in our revenue is coming from other sources of other currencies, so this is different. I think now we have to see the company more as a global footprint that we have participation of currencies different than we used to have historically. Regarding cost it's going to be something that we'd be happy, I believe that this is -- we only need with that other situation. So we compare to that through like managing the situation and we’re anticipating that there are some opportunities other than that our [Technical Difficulty] in the short term.
Regarding debt, of course there is an opportunity for us to go through now we have a new legal situation of new portfolio of debt, liability management is something that we talk and we consider that opportunity that we see. But at this time we’re going to be dealing with that and share it with some of those opportunities. But I think that there are definitely some upside opportunity going forward for that.
And one last point on that again we are in a very strong cash position, over 8 billion and the first really important that maturity that we have is only 2022 and 2023 and by that time, we are going to be able to capture a lot of the synergies that we already communicated to the market. So I think in terms of managing cash, I would say we’re in a very strong position. Thank you.
This concludes today's question and answer session. I would now like to invite Mr. Roberto Marques to proceed with his closing remarks. Please go ahead.
So again, thank you everybody for joining us today. As you saw from today's results, again, we are very proud and very happy with the results that show there is strong momentum with our Natura & Co. business and of course, we're very excited about welcoming and working with Avon to accelerate our growth. So thank you very much for your attention and I hope I can see some of you or most of you at our Investor Day that we are planning to do end of April. And wish you all a good day on behalf of all of us. So, thank you.
This concludes the Natura & Co. audio conference for today. Thank you very much for your participation, and have a good day.