Natura & Co reported consolidated net income of R$14.3 million in the fourth quarter yesterday (5), a sharp drop from the profit of R$381.7 million a year earlier, due to expenses related to the purchase of Avon Products.
The results do not yet include Avon's revenue, as the deal was only completed earlier this year, creating the world's fourth-largest beauty company.
Costs associated with the transaction
Roberto Marques, the new chairman of the combined group, said Natura's profits would remain under pressure in early 2020 due to costs associated with the transaction.
“In the first quarter, (costs) will still be significant and then they should almost disappear,” Marques told Reuters in an interview last night.
The executive said he is monitoring broader trends that could affect the company. Mainly the outbreak of coronavirus around the world, a weak real and the potential slowdown of Latin America's largest economy.
“There will be an impact on our business,” he estimated.
He added that the Avon acquisition provided a “natural hedge” for Natura going forward. While the Brazilian real accounted for 70% of the company’s revenue in the past, it has now fallen to 30%. Avon has earned revenue in hard currencies such as the pound sterling and the euro, with some additional exposure to the Mexican peso.
But Marques noted that they remain underexposed to Asia overall, which has been the region hardest hit by the coronavirus outbreak.
Regarding economic growth, he predicts that the company will grow faster than Brazil's GDP. At a time when many banks have revised their 2020 forecasts downwards.
The negative global context, however, did not affect Natura's expected cost savings. Marques said he still expects annual cost savings of between US$200 million and US$300 million over the next three years due to the Avon acquisition.