We produced another year of strong earnings in 2008, this time driven by the action plan to restore growth in Brazil, our largest market. Through this plan, whose initiatives will continue until 2010, we are moving forward with our strategy to expand our business, in a sustainable way, in Brazil and Latin America, using the direct sales model.

We believe that the pursuit of international expansion with a global brand is still important for the future of our business. However, even before the global economic crisis had fully taken hold, we had already decided to indefinitely postpone our entry into the United States market. Instead, we are focusing our efforts on operations in countries where we already have a presence, by demonstrating that our brand, products, values, and sales model are well accepted and that there is still plenty of room for growth.

We have good reasons to believe that we are on the right track. The Brazilian cosmetics, fragrances and personal hygiene industry experienced another year of growth in 2008, expanding 16.3% in the target market or 9.3% in real terms up until October, according to partial data from the Brazilian Personal Hygiene Industry Association. The direct sales segment also continued its pace of growth in Brazil, with a turnover of R$18.5 billion in 2008, up 14.1% from the previous year, and employing some 2 million active resellers, an increase of 7.2% in the sales force, according to data from the Brazilian Association of Direct Selling Companies.

However, as we headed into the second half of 2008, we found ourselves confronted by fallout from the global economic crisis that will, in one way or another, affect all the various sectors of the Brazilian economy. Nevertheless, we have a solid economic grounding, which lowers our risks:

  • there is a consensus, among analysts, that Brazil will be less affected by the crisis;

  • we are the market leader with a widely admired brand and broad consumer preference; in 2008, we advanced from 42% to 47% in a preference survey of consumers, while the second-place brand fell from 18% to 16%;

  • we have low indebtedness and a growing cash generation capacity, enabling us to continue our business expansion;

  • our business model, based on direct sales, does not depend on credit;

  • we operate on the personal hygiene, perfumes and cosmetics market, which historically has proved highly resilient to economic downturns.

We are well prepared for this economic climate. The plan we put into practice 2008 was, on the one hand, to improve and increase investments in marketing to speed up our sales growth, funded by productivity gains, and, on the other hand, to reinforce our culture of and commitment to sustainability and to improve our organizational model. See below the progress we have made.

1 – Innovating the sales model – In order to streamline the relationship with our consultants, we expanded the Natura Consultant Adviser (NCA) model in Brazil. This measure supported the growth of the sales force and increased sales. The model has also improved customer service, due to an increase in both the amount of training and the number
of consultants.

In 2008, the new model was implemented in 65% of the sales force in Brazil and 5,844 NCAs were trained. By May 2009, we should have covered the entire sales force. The effects were felt more strongly in the second half of the year, when the growth in the sales force in Brazil increased, up 15.5% from the previous year, compared to growth of 9.2% in the first half of the year in relation to the same period in 2007 (see graph).

2 – Focus on product innovation – In 2008, we opted for the Menos é Mais (Less is More) strategy for our product portfolio. We began a process to reduce the number of items from 930 to 739, concentrating our efforts on those with greater popularity. This helps us minimize costs and focus more on management, which will maximize the results of communication with and training of consultants, and in turn benefit our end consumers.

We focused on four launches – the Naturé, Tododia and Amor América product lines and the Chronos Soy Polytensor anti-wrinkle cream, whose sales exceeded our expectations.

We applied the same strategy we use for developing new products, so as to concentrate efforts on projects that can have a significant commercial impact. We also kept investments in innovation unchanged, and the scale of our creative capacity can be seen in the sharp recovery of our innovation rate, which had dropped to 56.8% in 2007 but climbed back up to 67.5% in 2008.

3 – Investments in marketing – In order to support all the initiatives mentioned here and to improve the exposure of our brand, we increased our investments in marketing by R$88.0 million in 2008, funded by productivity gains, which totaled R$94 million over the year. This saving was the result of more efficiently managing the processes of preventing product losses, lower costs of manufacturing and inputs, a reduction in the costs of sales catalogues, and an increase in Internet orders placed by our consultants. These investments make us more commercially vigorous and reduce the emphasis on promotions and discounts in our marketing strategy.

We have made better use of the Internet, increasing orders placed over the web. This is due to incentive campaigns such as the Connectivity Project. Internet-based orders represented, on average, 40.9% of monthly orders in 2008, peaking at 52.4% in December.

4 – Management based on processes – The changes in the structure of Natura were intended to make the company more agile, with fewer levels of corporate hierarchy, putting us closer to consultants and consumers. Throughout 2008, we implemented an organization model based on the management of processes catering to business units and regional units.

This new configuration decentralizes decision-making and the execution of key processes. The business units are responsible for product development and for the management and results of brands and categories; they interact with the regional units, which in turn are responsible for the relationship with consultants, sales management, and local results. This joint action is improving the business of Natura by region and by brand and category.

As a result, there has been a change in the composition of the Executive Committee and the leadership team, which will be responsible for implementing the main processes of Natura.

5 – Organizational culture – We are strengthening our organizational culture and reasserting the company’s values and beliefs, since we believe that in them reside the uniqueness of our organization and the driving force of our business. Thus developing engaged leaders and a management model in line with our essence are key factors for our growth.

6 – Quality of relationships – To ensure the utmost transparency in our governance systems and to allow our key stakeholders to actively engage the management, we have developed a systematic process of stakeholder engagement. We believe the time is right to start preparing for a new cycle of growth and, accordingly, it is essential to listen to and understand the needs of all stakeholders and to turn their contributions into opportunities to improve our business.

The direction we took in 2008 has proved to be the right one, and we are going to continue on the same track. We are focusing on the successful execution of the plan to restore growth and on the development of the management model. We are, therefore, preparing for a new cycle of expansion as an increasingly more innovative and productive company that has adjusted to the challenges of our times. We anticipate tremendous opportunities for companies like ours that have an inclusive value proposition (built in collaboration with stakeholders) and are highly suited to the climate of change in the global economy.