Natura Cosméticos S.A. ($NATU3)

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Natura's Q4 2025 earnings call. [Operator Instructions] Joining us today are Joao Paulo Ferreira, CEO; and Ms. Silvia Vilas Boas, CFO of the Natura Group. The slide deck for today's call has been posted to our IR website. I will now turn the conference over to Mr. Joao Paulo Ferreira.

Good morning, everyone. And thank you for joining us today. I'd like to start by highlighting that 2025 was a watershed year for the company as we finally wrapped up the corporate simplification cycle we kicked off back in 2022 and led by Fabio Barbosa. Over the past year, we closed the divestiture of Avon International, Avon CARD and Avon Russia. We also streamlined our holding structure by finalizing the reverse merger, which allowed us to trade once again under the -- our original ticker, NATU3. On the operational side, we finished the Wave 2 integration in our 2 remaining markets, which are Mexico and Argentina. As a consequence, the company is back to basics, with a laser focus on our core Latin American operations. Now let's dive into the results for these businesses. In Q4, Natura Brazil saw a slight top line dip driven by channel downsizing and lower activity among less productive consultants, compounded by our heavy footprint in the Northeast, which felt the brunt of a tough consumer environment. Despite maintaining our leadership, we did see some slight market share erosion throughout 2025. We're already moving to get our flagship brand back on the growth track by overhauling incentives for our sales leaders and field force and boosting our pipeline of launches. I'll share more on that shortly. In Hispanic America, both Mexico and Argentina are still seeing some top line pressure from the Wave 2 integration. Mexico is already showing encouraging signs of a steady recovery, which makes us optimistic about the quarters ahead. Argentina has had a tougher time, and will take longer to steady because of that integration effects, we're still suffering the country's recent macroeconomic headwinds, which hit consumer spending. We're seeing some profitability pickup in the region as integration efficiencies start to kick in. Looking at our track record, moving beyond Q4 when we analyze the year's results. Let me point out the promises we had made to investors. We grew our reported and recurring Lat Am EBITDA margins by over 100 basis points year-on-year. We cut transformation costs by over 10% year-on-year. As promised, this was the last quarter in which we report this line. We kept leverage within our 1.0 to 1.5x sweet spot, ending the year at 1.3x. Finally, before Silvia takes over, I want to highlight our net income from continued operations, which amounted to almost BRL 1 billion, including transformation costs. This is a solid result, still below our potential, but that indicates the companies can be very profitable focusing on its core businesses. Silvia, over to you now for the financial results.

Good morning, everyone, and thank you for being here. Before we start, I'd like to reinforce, as I mentioned in our last call, the comparability issue around our financial statements. To make things easier and clearer, our release continues to show a pro forma view, both this deck and the supporting material on our IR website offer adjusted comparable basis. That means that for 2024 and 2025, we have not considered Avon assets which have been sold. As we know, those recurring adjustments add an additional layer of complexity to our analysis. So we thank you for your diligence here. But as we conclude our process, this issue is finally behind us. Starting in Q3 '26, compassions will be completely clean, fully reflecting the post reverse merger period. I have to say also that no one is happier than us as this cycle comes to an end. Moving on to the financial section on Slide #5, where we have a breakdown of our top line performance in Brazil. In Q4, Brazil saw a decline of 4.8% year-over-year. Specifically for the Natura brand, the drop was 2.2% when compared to last year's period. Let me bring some context on the drivers behind this number. First, we're up against a very tough comparison. In Q4, Natura Brazil grew 21%, setting a very high bar for this year's performance. Also, we saw a pullback in our consultancy activity with a 5% drop in the channel, primarily among lower productivity tiers. On the supply side, we dealt with out-of-stock issues for body splashes, one of our top sellers in 2025. Finally, we saw a demand slump in the Northeast, where we have a very high market share, which, of course, impacted our final numbers further. To fix this, we have resolved many things. The availability of body splashes has been addressed, and we have adjusted our incentive model to our sales force, adding metrics like net new recruits and order frequency. We see already positive points as of March, even though in Q1, we expect a performance for Natura in Brazil to come in flat or slightly better than Q4 2025. Avon Brazil posted a sequential improvement over Q3. This reflects our operating progress as things settle down following the footprint migration from Interlagos to Cajamar. Despite that, Avon brand revenue was down 11.5%, hampered by a light innovation pipeline during the period. We officially relaunched the brand last week, making the start of our turnaround plan. Mother's Day brochure already features the new concept, with the first products hitting the market in Q2. I'll emphasize that Avon's recovery will be gradual throughout the year, with progress tied to meeting our set milestones. Looking at the channels, direct sales saw a 5% drop in the consultant base, along with a lower activity at the bottom of the pyramid. Conversely, non-DS channels, digital and retail, continued to expand healthily. They accounted for 23% of total revenue this quarter, up from 18% last year. These channels remain key levers for growth and diversification. Moving on to Slide #6. We have a deeper look at Brazil's profitability. Recurring EBITDA margin hit 21.7% in Q4, a 410 basis point expansion vis-a-vis the 17.6% reported in Q4 '24. This was driven by a 150 basis point gross margin expansion against an easy comp. The 170 bps sequential dip on Q3 justifies that drop in Q4. Tactical promotions to counter soft consumer demand during the period also weighed on this. Full year 2025 gross margin landed at 69%, flat versus 2024. Our second lever was selling expenses, where we gained 300 bps in efficiency vis-a-vis Q4 2024. This reflects optimized sales force incentives and technical shifts in relationship building and events. G&A saw a 120 bps drag from IT and digital investments, which should normalize starting in 2026. Nominal G&A was down roughly 20% sequentially, thanks to technical cuts and variable comp adjustments. We ended 2025 with 20.1% profitability in Brazil, while down 140 basis points year-on-year, still remains healthy and above the 20% mark. On Slide #7, Hispanic America was down 1.4% in constant currency and 21.5% in Brazilian reals. Stripping out the Argentina effect, revenue grew 2.5% in constant currency. This reflects the region's sequential bounce back post Wave 2 and solid performance in our mature combined markets. Natura brand grew 6.7% in constant currency. Excluding Argentina, the brand posted single-digit growth in line with the consolidated view. Our more mature integrated markets continue to grow well. Mexico, while still under pressure from Wave 2, we see a recovery in the quarter, operating at levels near those of Q4 2024. Avon brands 14.7% constant currency drop is an improvement over the 27% decline posted last year -- or last quarter. Better operation in Mexico and selling to CARD supported that move. Argentina remains under pressure from the capital brochure migration and channel integration fallout. Similar to Brazil, the light innovation calendar weighed on the results. The brand relaunch in Mexico, alongside Brazil, underpins our turnaround strategy for the coming quarters. Lastly, Home & Style saw sequential improvement as well, but was down 27% (sic) [ 26.8% ] in constant currency. This number reflects Wave 2 in Mexico and Argentina, where we adjusted commercial incentives and saw lower channel activity. On Slide #8, we have a detailed view of Hispanic America's profitability, with EBITDA margin significantly improving to 7.5% this quarter. This is an 810 basis point expansion over the negative margin recorded in Q4 '24 and a 300 basis point sequential gain. Three main drivers are behind this. First, gross margin saw a slight 30 basis point gain, helped by Argentina's hyperinflation accounting, which conversely hit the top line. Without this, gross margin is still feeling the heat from the Mexico and Argentina integration processes. Second, selling expenses added 560 basis points to the EBITDA margin. This came from capturing Wave 2 efficiencies and lower marketing spend due to service levels. Finally, G&A provided 190 basis point efficiency lift, reflecting Wave 2 synergies, tactical cuts and also variable comp adjustments. Full year Hispanic America profitability reached 6.3%. While this is a significant step-up from 2024 and in line with our Natura Day guidance, it's still below the region's full potential. We remain committed to gradually close the profitability gap between Hispanic America and Brazil. Moving on to Slide #9, we'll take a look at our consolidated results. Revenue was down 3.4% in constant currency and 12.1% in BRLs, reflecting the operating and macro headwinds we've discussed. On the profitability front, group adjusted EBITDA margin expanded by 700 basis points. Lat Am gained 650 basis points, with a 50 basis point delta coming from lower corporate overhead. We slashed this line by 50%, dropping from 80 basis points to 30 basis points as a percentage of revenue. Lat Am margins were driven by gross margin expansion and selling and G&A efficiencies, a result of tactical cuts, variable comp adjustments and Wave 2 synergies. Full year Lat Am EBITDA margin hit 14.6%, up 130 basis points year-over-year. With this, we have met our annual margin expansion target, even when excluding the variable compensation tailwinds. We also sustained the reduction in transformation costs, totaling BRL 426 million in '25 vis-a-vis BRL 484 million the previous year. This marks the end of the transformation cost cycle. For '26, as we move past the cycle, which JP will touch upon in a moment, we are focused on further margin expansion, driven by more efficiencies, operating leverage and also a strict capital discipline with a focus on return. In Brazil, the priority is gaining share by revitalizing direct sales and accelerating digital and retail channels. In Hispanic America, the focus is on fully capturing Wave 2 efficiencies. Additionally, the new operating model, which JP will also discuss in a moment, will cement a leaner, more agile organization with a higher execution capacity. Moving now to Slide #10. We have the Natura's net numbers on Slide #10. Our net income was again hit by nonrecurring items from discontinued operations. As a result, we posted a BRL 321 million loss this quarter, which primarily reflects 3 events. Number one, the full write-off of the BRL 434 million receivables provision from The Body Shop sale. Second, a BRL 360 million settlement for the Chapman case linked to a legacy nonoperating Avon U.S. subsidiary. And finally, a BRL 147 million write-off from the Avon asset sale. It's important to note that we do not expect any further one-offs of this nature. Excluding these, net income from continued operations came out at BRL 620 million in Q4 compared to the adjusted net income of BRL 299 million in Q4 '24, also excluding nonrecurring accounting effects that accounts for an improvement of BRL 321 million when compared to Q4 '24, more than double year-over-year. This was driven by 2 main factors: number one, profitability expansion during the quarter; two, lower transformation costs. And again, and I want to emphasize, this is the final quarter for these costs. These gains were partially offset by the financial result line due to a noncash impact. This stems from the Brazilian real appreciation, which negatively affects our currency hedge on our U.S. backed debt. On Slide #11, we take a look at our free cash flow. For the full year of '25, we generated a cash flow of BRL 753 million, down BRL 276 million year-over-year. This drop was mainly due to a BRL 732 million drag from working capital, mostly inventory driven, but also partially offset by tax efficiencies and a more normalized CapEx. Breaking down the working capital dynamics, we see different levers that have changed our cash generation this quarter. Number one, we saw an inventory buildup of BRL 503 million, reflecting a mismatch between sales and commercial planning throughout the year. Accounts payable saw a smaller cash generation at BRL 502 million because of a lower purchase level due to containment measures. These were offset by accounts performance -- accounts receivable performance, which released BRL 1.3 billion in cash. This was driven by the sales slowdown and also by a tighter credit policy. Lastly, other assets and liabilities was a BRL 1 billion drag -- or saw a drag mostly from lower variable compensation provisions and also by the pace of tax credit offsets in line with the revenue performed in the period. As for the free cash flow, we saw an improvement of BRL 166 million, though we should adjust the 2024 number for the payout of BRL 610 million related to Chapter 11. So if we exclude that, the free cash flow for '25 would have been down by BRL 44 million due to lower firm free cash flow at BRL 260 million and higher interest rates and FX impact. On Slide 12, I close my section by detailing our debt and leverage position. We ended the quarter with a net debt of BRL 3.5 billion, down BRL 600 million sequentially and BRL 700 million when you consider a comparison year-over-year. This deleveraging is a direct result of our operating cash flow and also reinforces the company's commitment to a stronger balance sheet. As a result, our leverage ratio dropped sharply from 2.53x in Q3 to 1.57x in Q4. Note that Q4 EBITDA had a negative impact with no cash effect of BRL 434 million from The Body Shop receivables provision. Stripping that out, which is nonrecurring, adjusted leverage stands at 1.31x. With this number, we have hit our optimal capital structure of 1x to 1.5x net debt-to-EBITDA ratio, meaning yet another key 2025 market commitment. I now turn the floor back over to JP, and I'll be back for the Q&A session. Thank you.

Thank you, Silvia. So before we start the Q&A session, I'd like to share some closing remarks. 2025 marks the end of a pivotal simplification cycle which began back in 2022. During this time, we successfully divested noncore assets like Avon International, Central America and the Dominican Republic Avon and Avon Russia, allowing management to focus 100% on our core business. We've also wrapped up the Wave 2 integration across all our markets, cementing a leaner, more agile business model. Alongside this, we've defended Natura's market share leadership and laid the groundwork for the Avon brand relaunch, key drivers for our future growth. This disciplined execution has delivered our fourth straight year of EBITDA margin expansion, both recurring and reported in our Lat Am operations. We've delivered on our word, a simpler, financially sound company ready to accelerate. As you can see, the end of this cycle puts net income back at the top of our agenda. We posted BRL 974 million in net income from continued operations for the year. This proves our ability to unlock value and drive shareholder returns. Well, this new cycle, which combines innovation and growth, focusing on capital allocation and cost management activities, demanded a new organization. As we're moving on to the end of Wave 2 in mid-2025, we drafted a new operational model which has already been implemented. It's made up of a commercial and a brand platform, operating with integrated processes completely in line to the market's dynamics and the needs and the preferences of our customers. There are unique decision points, no duplicities in an organization with fewer layers. We organize more agile organizational businesses that could generate their own P&L with incentives completely online. At the same time, we have new organizational plans to promote innovation processes, management that are data-driven and by building digital solutions using AI. We believe that this new operational model will modernize the company and bringing back the entrepreneurship, the agility and the cost efficiencies we had at the beginning of Natura. That's why I remain confident in our capacity to meet our promises in 2026 and beyond, namely: grow Natura brand market share in Brazil; speed up revenue in both Mexico and Argentina; relaunch the Avon brand; increase health margins in the Hispanic America, implementing a new operational model with efficiencies offsetting implementation costs already in 2026, and of transformation costs and going back to historical investment levels; expansion of our annual margins; and finally, driving value and shareholder returns. That concludes my remarks. Thank you, and we now take your questions.

[Operator Instructions] All right. Danniela Eiger from XP asks the first question.

JP and Silvia, I actually have 2. First is about growth. You talked about resuming growth in -- at the end of the quarter for the Natura brand in Brazil. But can you elaborate on what you have been doing to guarantee that sustainability of that resumption? You talked about adjusting incentives, some gamification initiatives linked to the World Cup, but you also talked about investing gross margins in Q4, in a still-challenging macroeconomic situation and the Northeast remains the same in that aspect. Can you update us on what you have been doing? How do you believe it's going to play out for the remainder of the year now focusing on Natura Brazil? Okay. Second question is about expenses. I think it's clear that you've been adjusting your model and how much that can generate in terms of savings for 2026. But my question is about tactical expenses control. You focused on marketing and more opportunistic expenses that are somewhat related to revenue growth. But can you help us understand how we can estimate these expenses lines that are nonpersonal for the remainder of the year? Can you still capture more efficiencies, some optimizations? Or do you believe it's going to be normalized for the rest of the year?

Danni, let me first address your question about growth of Natura Brazil. There are 2 key components: number one, strengthening our direct sales channel, strengthening our innovation pipeline. As you pointed out, we have invested in incentives to boost activities of our sales force. Actually, we have seen some improvements throughout Q1. It's not disruptive at all, but that have promoted some improvements in the quarter. Once we project our expectations for the year, we have a solid commercial foundation to resume growth. At the same time, we have strengthened, we have sped up our launch pipeline vis-a-vis the competition in that market. We are confident as far as these activities are concerned. Well, let me address the [ non-BB ] channels as well as adjustments in our communications and our media-related activities. The combination of these components will help us speed up gradually for the rest of the year.

Let me just piggyback on another question. Do you see that reinforcement for the pipeline throughout 2026?

Yes, absolutely. We have shortened our development cycles substantially, and the pipeline will be stronger already in this year. Over to you, Silvia.

Thank you for your question. Let me address the expenses now. As you said, when we detected that slowdown in Brazil, we implemented all tactical cuts possible to ensure profitability. Looking ahead in 2026, our commitment remains the same. It's going to be the fifth year for profitability expansion in a row. And we'll keep on looking for opportunities. There are some that are very relevant for this year. The first is the implementation of a new operational model. There's a 25% drop in the number of positions. We'll see some benefits already in '26. But of course, given the severance, the benefit -- well, the full benefit will come in 2027. On top of that, we have the benefits of Wave 2, both in Mexico and Argentina. When you associate that to the growth in sales, as JP said, these will be important levers to deliver on that profitability expansion promise.

Perfect. Congratulations on the results.

Our next question is from Joseph Giordano from JPMorgan.

JP, Silvia, I'd like to ask 2 questions. Number one, going back to top line and operational cost. On one hand, you've seen a depressed channel activity. And on the other hand, new channels kind of offsetting the direct sales. Of course, it's more relevant, but these new channels are somewhat offsetting that. Now when we think about '26 and '27, what's your take on -- what should be our take on the expansion of both the digital channel in your own stores and the franchisees? How can that help mitigate -- how would Avon be part of those channels, especially on the physical world? My second question is maybe to Silvia. The question is about taxes. You have a new composition of the corporation this year. Can you already share of what the gains could be in terms of premiums, NOLs given this new incorporated company. And how should we take the tax line for the company in the coming years?

Joseph, well, these channels, I'm not including traditional direct channels, would indicate a faster growth in our projections, faster than those that are traditional sales. That is the expected contribution for this year and the coming year. Retail and online channels, let me remind you, would include formats in which consultants are part of. They will not happen with the support of consultants. This will depend -- we will rely on their support and dedication. And that's the main driver for the nondirect sales in -- Avon sales, mostly digital which are driven by consultants. This was not available to Avon. But as of now, it has been enabled to our consultants more than the physical channel. Well, having said that, we have been focusing on making adjustments that help us believe in the strengthening of the direct channel sales growth already in 2026. Over to you, Silvia.

Joseph, thank you for your question. As to the tax rate, so that rate is very low when you exclude the TBS impact, but that was very one-off, very specific because that impacted Brazil. And we -- for the safe harbor, we did not have to pay a 15% minimum. We don't expect that to keep on occurring as of now. At the same time, we've already concluded that reverse merger, which enabled us to turn on the premium, the '25 impact -- the impact in 2025 was not relevant, but we expect to keep on using that lever. And the Wave 2 activities, which were incorporated, and the model we chose will allow us to use that resort in both Mexico and Argentina. In other words, we'll keep on looking for opportunities, but we have to take into account the Pillar 2 with a minimum of 15% payment. Well, our expectation is to use all these levers to minimize the impact of any additional tax. But to talk about taxes in Brazil, this is something that can change on a daily basis. There have been so many changes already.

We see the new tax code coming on board next year, PIS COFINS. How are you getting ready for that in terms of pricing to adjust to the new tax code? You also need to tackle the interdependent allocation. So what will change for 2027, please?

Joseph, the new tax reform is partly known and partly unknown to us. We do not know the technical details in terms of rates and so on. So in our case, be it with PIS or COFINS or IPI, we do have opportunities and also challenges. We have been working on it for a long time since last year to try and better understand what we need to change in our business plan to be able to capture as most as we can so that we can mitigate the headwinds of that journey. So we have a very well implemented initiative to monitor all the impact coming from the tax reform to use to our favor.

Our next question comes from Rodrigo Gastim from Itau BBA.

Two things -- 2 questions. First about top line. We have been talking about it since last night. The comfort you now have with this growth in top line, especially around Natura Brazil for the coming quarters, and the best way 2 think about it would be if you could help us understand how you see the growth of Natura vis-a-vis the growth of the market in 2026? That would be nice and provide us with some guidelines. So today, when you look at the internal budget, how much do you expect to grow -- for the market to grow in cosmetics? Will it grow more than last year, 6.5%, or not? And how do you expect your revenue to catch up with the market in 2026? Number two, Silvia, it would be nice to hear from you about that comfort you have now in the EBITDA margin expansion in '26. And then on that, when you look at the recurring margin expansion for this year, on the plus side, we have expenses cut and so on. And the flip side is severance payment and a higher TLR in '26. Did I get it right? And what would then be the comfort level you have in terms of expanding the margin for '26? And in theory, what would need to happen for the top line for that to actually materialize? Those are my questions.

Well, the growth forecast for the market, to your point, the cosmetics market in Brazil, are very similar to what we had last year. You know that variables are the same, pricing, available income for consumption for households, economists do not expect major changes. So that's what we imagine, a market growing between 6% and 7%. And our objective is, of course, to gain market share for Natura. Last year, we lost some points. And the objective this year is to resume market share gain, and that does not happen through a major rupture throughout the year. It happens gradually throughout the period. Silvia, over to you.

Rodrigo, thank you for the question. Our commitment for 2026 remains the same. Today, we are quite confident in our ability to ensure yet another year where we'll expand profitability, and that confidence comes from the following. Brazil Natura, as JP mentioned, we already have indications of positive results and a solid business plan. And in addition to that, we have Argentina and Mexico. Mexico already normalized, sending out very positive growth signs. In Argentina, which, throughout the year, we expect to resume a growth journey. So from the top line perspective, that's what we have. From the SG&A point of view, we still have opportunities to capture both in Argentina and in Mexico coming from Wave 2. In terms of G&A, in addition to Wave 2, the severance impact we'll have this year, as I said in the previous question, it will be settled and generate benefits. So it will help generate profits in the year even if we do not capture the full year benefits. And lastly, Hispanic America as a whole will take yet another step issue -- to reduce the gap and gross margin and profitability when compared to Brazil. So those are 2 important contributors which makes us -- or make us confident that we are able to maintain our commitment around profitability for this year.

Next question comes from Alexandre Namioka from Morgan Stanley.

Congratulations on your numbers. I'd like to have some more color on Natura Brazil. You did mention in the release about a drop in the consultant base, do you see more room to further reduce that number of consultants in the coming quarters? You also mentioned some optimization efforts in terms of commissions for that channel. If you could provide some more detail on those adjustments, that would be helpful. And also if you would need to make other adjustments in other geographies apart from Brazil.

Alexandre, the set of incentives that we have for our sales force is normally adjusted spending business cycles. And this is a cycle where we have as our main objective to resume growth in the number of consultants and also increase their frequency, their recurring activities, especially for those smaller consultants. So incentives provided to the sales force, business managers, sales managers and leaders, they were adjusted along those lines to have higher business volume, especially focused on the smaller consultants. Those are the adjustments we made recently, in short. And that happened across Latin America. Maybe in the future, challenges will vary and incentives will be adjusted accordingly. It's also important to say that we already see an improvement in those indicators as we had planned and expected to see. That's what changes the makeup of commissions to your second point. It's always a combination of sales volumes or business volume and qualitative incentives on how to better manage the sales force. In this case, as I said, looking for more activity, more retention and focused, as I said, on the smaller consultants.

Our next question from Joao Soares. You have the floor, Mr. Soares.

Congratulations on your numbers. I have 2 questions and they are the following: JP and Silvia, I'd like to better understand the rationale behind the investments made on the brands. You have an important pipeline for 2026 as you relaunch Avon, also on Natura and the strengthening of channels. So I would imagine you have some expenses in R&D. So can you give us an estimate of that expense on R&D? I would imagine that Brazil would have fewer low-hanging fruits. So just growing to ensure operating margins. So I'd like to hear from you how do you plan to spread those investments across other geographies? The dynamics around it. And number two, looking at the recurring cash flow generation, 2025, we saw a larger weight on working capital. For 2026, how can we think about that cash conversion figure? We have that magic number of around 60% of converting EBITDA to cash. So for 2026, how realistic would it be to consider that same number, 60% for cash conversion.

Speaking about the investments behind the brands, Avon and Natura. Starting on R&D investments, to your point. Those investments, no major change. We have brought our R&D and innovation center here. We did this 1.5 years ago, Avon's Innovation Center was brought down here a year ago. And the level of R&D for Natura is also well balanced. So we should not expect major leaps in R&D unlike investments made in brand activation or communication. Those investments are going to happen as businesses progress. And there is a big question mark there concerning Avon's performance. But as we've said before, we will activate those investments to support the brand as the brand shows signs of recovery. I'm quite optimistic about that. You may have seen on social media what we've done -- been doing in terms of relaunching Avon, the reactions from the sales force. And I have to say I'm quite happy and excited with the initial reactions. Of course, now we have to wait and see what the clients, the consumers will say. If they do like it, we will free up more resources to support the brand. As for the Natura brand, it's a more consolidated brand, much more predictable in terms of brand performance. And you are right when you say that we need to consider differences across different geographies. On the one hand, in Brazil, we have both brands well spread across our consultant base. And what will define growth will be the individual performance for each brand. We'll see favorable tilt towards Avon. When compared to Mexico where we have a low household penetration and brands are not exactly spread equally across the base, the consultant base. So we expect more changes there. So that's how we will approach or manage the brand connection throughout the year. The resources have been allocated. We may speed up investments if results justify that will be slowed likewise, okay? Thank you. Silvia?

Thank you for the question. About cash generation, I said at our Investor Day that we wanted to resume historical levels that sit around 60% the number you mentioned. That figure remains our main target, and we are working towards that. And what would be the main drivers around that looking forward. In terms of working capital, you are correct, we had a high working capital consumption in 2025, which -- what really was a mismatch was an inventory stock. This year, we finalized the implementation of a new process to plan end to end, as I mentioned with you throughout the year. Our expectations are to better align demand planning with what we see materializing in the market. That's an important lever for us to better optimize our stock throughout the year. Additionally, in terms of receivables, as we resume growth, we intend to normalize the receivables generation within the company. And the same goes for payables. We had a year where we slowed it down, but we hope we can have a better balance this year. But beyond that one, we have other important levers to generate cash. Number one is the end of transformation costs. BRL 414 million transformation costs were incurred in 2025. Number two, the normalization of CapEx and OpEx, bringing them back to more normal levels. As this phase finalizes, we should expect also go back to historical levels. EBITDA will also be a lever in that respect as we expand profitability, an expansion that we expect to see this year. And lastly, growth generates results, and results lead to opportunities for us to use our levers. So all those items, when combined, will bring us the necessary confidence to improve cash conversion when compared to what we had last year.

Moving on. Irma Sgarz, Goldman Sachs asks the following question.

Let me focus on the relaunch of the Avon brand. There was a positive initial reaction from the channel, and now we have to look at how consumers will react. What metrics are you going to use to follow that up? You have the sell-in for consultants, which is your more direct metrics, but how are you going to monitor sellout to make sure you do not have excessive inventory? What KPIs will be used? In other words, how long do you expect to monitor the success of the brand? Can you talk about gross margin expectations for this year, especially in Brazil as well as in the Hispanic America? I note that are different activities, including FX, commodities, among others, as well as pricing. What your take on that issue? And my final question. Question -- or expenses on the delinquency rate, that is on the rise. You explained on the release about the delinquency expectations. But I would like to understand what the projections are for the year? To believe that this is going to be -- remain flat, are you comfortable at that level? And what about receivables for this year?

Hi, Irma. Well, the relaunch of Avon is taking place in Mexico and Brazil at the same time, starting with Campaign 6. And of course, we have to monitor other indicators than sell-in. We have to monitor how consumers are reacting. There are metrics that have some time lag [ inbuilt ] in them, brand considerations, market share, household penetration, but there is some lag. We can't estimate sellout based on performing analytical statistics monitoring our channels. So we are paying close attention to those metrics because if performance does not take place according to plan, we have to capture that information as soon as possible. What I can say to you now is that in a quarter, we are confident that we'll be able to detect that this is just an inventory effect or whether it's moving -- products are moving through consultants. Silvia, over to you.

Irma, let me talk about gross margins. In Brazil, it's at a level that we consider healthy. Our expectations for the year is to remain at a healthy level, taking into account seasonality among quarters. In Hispanic America, there are many opportunities out there. They can come through the benefits of Wave 2 in Mexico and Argentina or through the continuous and evolution of those more mature markets. So Hispanic America is below the potential. 2026 will be yet another year to reduce the gap between Brazil's gross margins and the Hispanic America margins. As to commodities, impacts from oil and other topics related to the macroeconomic, of course, we keep on monitoring them. We're make internal adjustments even in the balance between price and promotion efforts to take those pressures into account. Let me address delinquency now. There was a decrease in '25 when compared to '24 given this macroeconomic scenario in Brazil and restrictions. Our business is directly impacted by income constraints. Starting last year, to mitigate that, we have sped up the migration of that portfolio from the commercial to the pay system. And in the release, we explained that clearly. Delinquency in pay is smaller than that of the commercial portfolio because in the pay, we have more technological tools that can help us establish our relationship with consultants through digital tools, and that's very powerful. We've migrated 50% of the portfolio. We're about to conclude that still in 2026.

Due to time constraints, we won't be able to answer any further questions. That concludes the Q&A session and Natura Fourth Quarter 2025 Earnings Call. Our IR team is available to answer any follow-up questions. Thank you, and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]