August 15, 2019 / 3:42 PM / 2 months ago

UPDATE 1-Brazil's Natura sees protests dragging business in Hong Kong

(Adds details from conference call, analysts’ comments on Q2, and share performance)

By Gabriela Mello

SAO PAULO, Aug 15 (Reuters) - Brazilian cosmetics firm Natura&Co sees a stronger performance in its operations in Asia, except for Hong Kong, where both The Body Shop and Aesop brands have been affected by recent protests, executives said on Thursday.

In a call to discuss quarterly results, Chief Executive João Paulo Ferreira told analysts that Natura is working to boost businesses, in Asia and plans to double its presence in key markets such as South Korea and Japan.

“In terms of The Body Shop, we see a slight decrease in North America, but Asia is having a very strong performance, excluding Hong Kong,” he said, adding that operations of its Australian brand Aesop have also been affected.

Natura has more than 50 stores in Hong Kong, operating under the Aesop and The Body Shop brands.

Ten weeks of increasingly violent confrontations between police and protesters have plunged Hong Kong into its worst crisis since it reverted from British to Chinese rule in 1997, and police tactics have been toughening.

In another market, Argentina, currently lurching back into a crisis amid presidential elections, Ferreira noticed that Natura posted both volume and market share growth in the second quarter despite lower margins, and is confident it will get through the turmoil.

“We’re extremely happy with our business in Argentina and we’re well prepared to succeed and continue to gain market share under any market condition,” he said.

Asked about the integration with Avon Products Inc, Chairman Roberto Marques said the process is expected to be completed by March 2020. “And we cannot further comment on the Avon deal at this stage,” he added.

The company is also on track to fulfill the guidance of reducing leverage ratio to 1.4 times net debt/EBITDA by 2021, the same level seen prior to the acquisition of The Body Shop in 2017, according to Marques.

On Wednesday night, Natura reported a second-quarter net profit more than twice as big from the same period in 2018, surpassing market expectations amid solid sales growth in all segments as well as cost cuts.

Analysts at BTG Pactual said results came in better than expected despite several adjustments. “Sequential improvement in Brazil should maintain the company’s good momentum, despite our caution due to risks related to the turnaround of The Body Shop and Avon integration,” they wrote in a report on Thursday.

Natura shares were up 1.3% at 64.81 reais in early afternoon trading, bringing gains so far this year to 45%. (Reporting by Gabriela Mello Editing by Chizu Nomiyama and Jonathan Oatis)

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