Brazil-based Natura Cosmeticos has published its prospectus in advance of its listing on 26 May 2004 on the country's Novo Mercado.
The Novo Mercado is a segment of the Bovespa stock exchange designed for companies that voluntarily undertake to abide by corporate governance practices and disclosure requirements over and above those required by Brazilian legislation.
In a statement, Natura said nearly 20 per cent of the company's capital would be sold in an Initial Public Offering. The privately owned company's shareholders aim to realise Brazilian Reals 623.6 million (€173 m) through the flotation. The operation is being led by UBS Investment Bank with support from Banco Pactual and Banco Itau BBA.
A source in Brazil suggested to cosmeticsdesign.com that the company, which has annual sales of more than one billion reals (€0.28 m), does not actually need any money at the moment but would, in future, find it easier to get access to credit if it had listed company status.
While Natura is currently mainly concerned with expanding in the domestic market, according to the source, they speculated that the company might have plans for greater expansion in the future. Access to finance would probably be key to any such future plans.
The company, which has been likened to the British company the Body Shop for its attitude of corporate responsibility towards environmental and social matters already has operations in Argentina, Chile, Peru and Bolivia. It has been previously reported in trade press that the company planned to open a retail outlet in Paris, France in 2004.
Cosmetics and Toiletries in Brazil
The Natura IPO will take place against the backdrop of a relatively stable Brazilian economy. In a recently published report entitled Cosmetics and Toiletries in Brazil, Euromonitor said that: "Following the economic turmoil experienced in 2002, Brazil managed to lower its inflation rate, stabilise the value of the real vis-à-vis the US dollar, revise fiscal agreements with the IMF, and register remarkable balance of trade results."
The cosmetics and toiletries industry was summarised as having "mixed results", historically, as the main beneficiaries of the increased stability were the agricultural industry and exports.
While cosmetics and toiletries have not fared as well as these other sectors, there has been growth over the past decade. The number of women working has increased, and they have bought more cosmetics products. Men have also been buying more personal care products.
Trends in sales of cosmetics and toiletries in Brazil
The Euromonitor report stated that super- and hypermarkets account for 40 per cent value share of cosmetics and toiletries in Brazil but direct sales grew between 1998 and 2003.
Asked whether the trend for growth in direct sales would continue, Euromonitor's research analyst for Brazil Lisandra Minussi pointed out that this historic growth was the result of the dynamics of distribution in the last three years with the currency valuation and uncertain economic condition.
"In times of economic hardship, it is usually the woman in a family who takes on a second or even third job. Women benefit from the flexibility associated with direct selling, for example working hours," Minussi said. "Companies involved in direct selling benefit during such troubled times because the number of their field representatives increases."
Natura and Avon both benefited in this way from the historic adverse economic factors, but the economic situation and stability has been improving. Minussi said she believed that while companies involved in direct selling would not necessarily continue to grow at such a rate, Natura would more than likely be able to sustain its growth because it is particularly well known for its environmentally friendly products.
Another trend that may impact on direct sales is increased competition from super- and hypermarkets. "Super- and hypermarkets have been investing heavily in 'beauty spaces'," said Minussi, "they have been developing special sections, there is more space for point-of-sale displays and they have introduced representatives who can give in-store demonstrations and stimulate sales."
"An advantage of direct selling for Natura and Avon is that beauty care needs consultation; women want to hear which products are suitable for them and what the effects are going to be. With direct sellers they can actively sell the products. But now hypermarkets are also competing with similar sales techniques.
Skin care and sun protection is a growth area
A particular growth area has been skin care for which the Euromonitor report referred to both Avon and Natura as being at the forefront of product development.
Minussi said: "They are both very strong in skin care. Sun care and skin care are developing quickly because Brazilians are increasingly concerned, they are more aware of the dangers of exposure to UV rays. Years ago, the most popular sun protection products were 10 to 15 factor SPF whereas now perhaps 30 to 50 SPF or even higher products are more popular."
During the period covered by the Euromonitor report, skin care manufacturers were reported to have developed active formulas that were increasingly sophisticated and offered rapid results by combining natural ingredients through advanced biotechnology.
Avon and Natura were noted to be at the forefront of new product development, introducing unique formulations for their already popular Renew and Chronos skin care lines, respectively.
Avon's executive director financial communications Victor Beaudet confirmed to cosmeticsdesign.com the importance of the Latin American market to the company: "In terms of global sales for 2003, Latin America represented 26 per cent of sales and 31 per cent of operating profit. For year-end 2003, sales in Brazil specifically amounted to almost US$490 million (€410 m)."
These sales represented an increase on the previous year's figures, Beaudet said: "Avon's overall sales in Latin America grew six per cent in US dollars and 15 per cent in local currency."
Regarding Avon's future strategy, "Latin America is one of the leading growth areas. Avon has sizeable market shares and expects this growth to continue."
International players compete for hair care market share
Euromonitor's report also covered the hair care sector, which it referred to as one of the largest sectors in value terms. Hair care is also one of the most competitive, with domestic as well as international manufacturers such as L'Oréal and Unilever competing head-to-head for larger shares and constantly innovating product lines.