UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
OR
For the fiscal year ended
OR
For the transition period from to .
OR
Date of event requiring this shell company report
Commission file number:
(Exact name of Registrant as specified in its charter)
Natura &Co Holding Inc.
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
+55 (11) 4389-7881
(Address of principal executive offices)
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
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N/A | ||
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N/A |
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
The number of outstanding shares as of December 31, 2023 was
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Yes
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements:
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b): ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
☐ U.S. GAAP
☒
☐ Other
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
NATURA &CO HOLDING S.A.
TABLE OF CONTENTS
This annual report on Form 20-F contains forward-looking statements. These statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial conditions, or other matters, based on current beliefs of our management as well as assumptions made by, and information currently available to, our management. Forward-looking statements can be identified by the fact that they do not relate only to historical or current facts and may be accompanied by words such as “aim,” “anticipate,” “believe,” “plan,” “could,” “would,” “should,” “estimate,” “expect,” “forecast,” “future,” “guidance,” “intend,” “may,” “will,” “possible,” “potential,” “predict,” “project” or similar words, phrases or expressions, although the absence of any such words or expressions does not mean that a particular statement is not a forward-looking statement. These statements are subject to various risks and uncertainties, many of which are outside the parties’ control. Therefore, you should not place undue reliance on these statements. Factors that could cause actual plans and results to differ materially from those in these statements include, but are not limited to, risks and uncertainties detailed in the section of this annual report entitled “Item 3. Key Information—D. Risk Factors” and the following factors:
- general economic, political, social and business conditions in Brazil, and in other markets in which we operate, including the impact of the current international economic environment (including any impact resulting from the ongoing Russia-Ukraine and Israel-Hamas conflicts, as well as tensions in the Middle East) and the macroeconomic conditions in Brazil and the rest of our markets, and government policies;
- further downgrading of Brazil’s credit rating;
- social and political instability, including allegations of corruption against political parties, civil servants and others;
- reductions in customer spending, a slowdown in customer payments and changes in customer behavior or demand for products and services;
- unanticipated changes relating to competitive factors in the industries in which the companies operate;
- ability to hire and retain key personnel;
- ability to attract new clients and retain existing clients in the manner anticipated;
- the impact of acquisitions the companies have made or may make;
- reliance on and integration of IT systems;
- changes in legislation or governmental regulations affecting the companies; international, national or local economic, social or political conditions that could adversely affect the companies or their clients;
- conditions in the stock and credit markets;
- risks associated with assumptions the parties make in connection with the parties’ critical accounting estimates and legal proceedings;
- our international operations, which are subject to the risks of currency fluctuations and foreign exchange controls;
- inflation, appreciation and depreciation of the real against the U.S. dollar, which has historically experienced significant volatility;
- risks associated with tax liabilities, or changes in U.S., Brazilian or other international tax treaties or laws or interpretations to which they are subject;
- events and risk perception in relation to corruption allegations involving Brazilian companies and politicians, as well as the impacts of the resulting investigation on the Brazilian economy and political outlook as a whole;
- risks that new businesses will not be integrated successfully or that the cost, time and effort required to integrate the newly combined businesses may be greater than anticipated;
- risks relating to unanticipated costs of integration;
- diversion of the attention of our management from ongoing business concerns;
- interruptions in our main IT systems;
- the inability to achieve the estimated benefits and synergies of our combined operations since the completion of the Transaction over the next five years as we currently expect or the effects of the Transaction on our financial condition, operating results and cash flows;
- failure to effectively manage the newly combined business or failure to realize estimated cost savings, value of certain tax assets, estimated synergies and growth or that such benefits may take longer to realize than the five years during which we currently expect to realize them;
- developments with respect to actual or potential epidemics, pandemics, outbreaks or other public health crises in Brazil and globally; and
- other risk factors as set forth under “Item 3. Key Information—D. Risk Factors” in this annual report.
The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other risks and uncertainties that affect the parties’ businesses, including those described in this annual report, and information contained in this annual report.
Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. Our future results may differ materially from those expressed in these estimates and forward-looking statements. In light of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this offering memorandum might not occur and our future results and our performance may differ materially from those expressed in these forward-looking statements due to, but not limited to, the factors mentioned above. Because of these uncertainties, you should not make any investment decision based on these estimates and forward-looking statements.
We are under no obligation, and we expressly disclaim any obligation, to update, alter or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise. Persons reading this document are cautioned not to place undue reliance on these forward-looking statements, which only speak as of the date hereof.
All references in this annual report to the “Company,” “we,” “us” and “our” refer to Natura &Co, as defined below, unless the context otherwise requires. All references herein to the “real,” “reais” or “R$” are to the Brazilian real, the official currency of Brazil. All references to “U.S. dollars,” “dollars” or “U.S.$” are to United States dollars, the official currency of the United States. All references to “pounds,” “pound sterling” or “£” are to the British pound sterling, the official currency of the United Kingdom. All references to “ARS$” are to the Argentinian peso, the official currency of Argentina.
In addition, as used in this annual report, the following defined terms have the following respective meanings:
“ADSs” means American Depositary Shares, each representing two Natura &Co Holding Shares.
“Aesop” means Emeis Holding Pty Ltd and its consolidated subsidiaries.
“Avon” means Avon Products, Inc., a New York corporation, and its consolidated subsidiaries.
“Avon International” means our segment comprising all operations under our Avon brand, except those located in Brazil and Latin America.
“B3” means the B3 S.A. – Brasil, Bolsa, Balcão, or the Brazilian Stock Exchange.
“BNDES” means the Banco Nacional de Desenvolvimento Econômico e Social, or the Brazilian National Economic and Social Development Bank.
“Brazil” means the Federative Republic of Brazil and the phrase “Brazilian government” refers to the federal government of Brazil.
“Brazilian Capital Markets Law” means Brazilian Law No. 6,385/76, as amended.
“Brazilian Central Bank” means Banco Central do Brasil, or the Central Bank of Brazil.
“Brazilian Corporation Law” means Brazilian Law No. 6,404/76, as amended.
“CDI” means the Certificado de Depósito Interbancário, or the Interbank Deposit Certificate, means the “over extra group” daily average rate for interbank deposits, expressed as an annual percentage, based on 252 business days, calculated daily and published by B3, or any other index as may be further used in substitution thereof.
“CMN” means the Conselho Monetário Nacional, or the Brazilian Monetary Council.
“consultants” are independent sales representatives who, although they are not employed by Natura &Co, sell Natura &Co products to customers of Natura &Co.
“CVM” means the Comissão de Valores Mobiliários, or the Brazilian Securities Commission.
“EU” means the European Union.
“Euromonitor” means Euromonitor International Limited.
“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.
“FGV” means the Fundação Getulio Vargas.
“IASB” means the International Accounting Standards Board.
“IBGE” means Instituto Brasileiro de Geografia e Estatística, or the Brazilian Institute of Geography and Statistics.
“IFRS Accounting Standards” means International Financial Reporting Standards as issued by the International Accounting Standards Board.
“IGP-M” means the general market price index measured by the FGV;
“IPCA” means a broad consumer price index measured by the IBGE;
“IT” means information technology.
“Natura” means Natura Cosméticos S.A., a corporation (sociedade anônima) incorporated under the laws of Brazil, and its consolidated subsidiaries (excluding Aesop, The Body Shop and their respective subsidiaries).
“Natura &Co” means (1) prior to the consummation of the Transaction, Natura Cosméticos S.A. and its consolidated subsidiaries, and (2) after the consummation of the Transaction, Natura &Co Holding S.A. and its consolidated subsidiaries, including Natura and Avon.
“Natura &Co LATAM” means our segment including all operations under our Natura and Avon brands located in Brazil and Latin America.
“Natura &Co Luxembourg” means Natura &Co Luxembourg Holdings S.à r.l., a private limited company (société à responsabilité limitée) organized under the laws of the Grand Duchy of Luxembourg.
“Natura &Co Holding” means Natura &Co Holding S.A., a corporation (sociedade anônima) incorporated under the laws of Brazil, excluding its subsidiaries.
“Natura &Co Holding By-Laws” means the by-laws of Natura &Co Holding.
“Natura &Co Holding Shares” means common shares of Natura &Co Holding.
“Natura Cosméticos” means Natura Cosméticos S.A., a corporation (sociedade anônima) incorporated under the laws of Brazil, excluding its subsidiaries.
“Natura Indústria” means Indústria e Comércio de Cosméticos Natura Ltda.
“Novo Mercado Rules” means the listing rules of the Novo Mercado segment of the B3.
“NYSE” means the New York Stock Exchange.
“Sales representatives” or “representatives” means independent contractors who are not employees of Avon or any of its subsidiaries, but directly or indirectly purchase products or services from Avon or any of its subsidiaries.
“Securities Act” means the U.S. Securities Act of 1933, as amended.
“Shareholders’ Agreement” means the Shareholders’ Agreement of Natura &Co Holding which was entered into on September 4, 2019, as amended.
“The Body Shop” means The Body Shop International Limited, a private limited company registered in England and Wales and its subsidiaries.
“Transaction” means the transaction effected by the Agreement and Plan of Mergers, dated May 22, 2019, as amended on October 3, 2019 and as may be further amended from time to time in accordance with its terms (the “Merger Agreement”) entered into by Avon, Natura Cosméticos, Natura &Co Holding, Nectarine Merger Sub I, Inc. and Nectarine Merger Sub II, Inc. pursuant to which (i) Natura &Co Holding, after the completion of certain restructuring steps, held all issued and outstanding shares of Natura Cosméticos, (ii) Nectarine Merger Sub II, Inc. merged with and into Avon, with Avon surviving the merger, and (iii) Nectarine Merger Sub I, Inc. merged with and into Natura &Co Holding, with Natura &Co Holding surviving the merger, and as a result of which each of Avon and Natura Cosméticos became a wholly owned direct subsidiary of Natura &Co Holding. The Transaction closed on January 3, 2020.
“United Kingdom” or “UK” means the United Kingdom of Great Britain and Northern Ireland.
“United States” or “U.S.” means the United States of America.
Consolidated Financial Statements
The consolidated financial information presented in this annual report has been derived from the audited consolidated financial statements as of December 31, 2023 and 2022 and for each of the years in the three-year period ended December 31, 2023 and the related notes thereto of Natura &Co Holding, included in this annual report.
The consolidated financial statements of Natura &Co Holding are prepared in accordance with the IFRS Accounting Standards as issued by the IASB and are presented in Brazilian reais.
We maintain our books and records in Brazilian reais, which is the functional currency and presentation currency of the consolidated financial statements of Natura &Co Holding. Unless otherwise noted, our financial information presented herein as of December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022 and 2021 is stated in Brazilian reais, our reporting currency.
Sale of Aesop and The Body Shop
We disposed of our interests in Aesop and The Body Shop in the year ended December 31, 2023. As a result of the disposals of Aesop and The Body Shop, the Aesop and The Body Shop balances are no longer disclosed in our consolidated balance sheet since September 1, 2023 and December 31, 2023, respectively. The results originating from the applicable segments were classified as discontinued operations in our consolidated income statement for the year ended December 31, 2023, 2022 and 2021.
In addition, as a result of the sales of Aesop and The Body Shop, our results of operations for the year ended December 31, 2023 are not directly comparable to our results of operations for the years ended December 31, 2022 and 2021, which may make it difficult for you to evaluate our business, financial condition, results of operations and prospects.
Please refer to note 35, “Discontinued Operations,” to our audited consolidated financial statements included elsewhere in this annual report for more information.
Currency Conversions
On December 31, 2023, the exchange rate for reais into U.S. dollars was R$4.841 to U.S.$1.00, R$5.218 to U.S.$1.00 as of December 31, 2022 and R$5.581 to U.S.$1.00 as of December 31, 2021, in each case, as reported by the Brazilian Central Bank. The real/U.S. dollar exchange rate fluctuates widely, and the selling rate as of December 31, 2023 may not be indicative of future exchange rates.
Solely for the convenience of the reader, we have translated certain amounts included in “Item 3. Key Information—A. Selected Financial Data” and elsewhere in this annual report from reais into U.S. dollars using the selling rate as reported by the Brazilian Central Bank as of December 31, 2023 of R$4.841 to U.S.$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange rate.
Rounding
We have made rounding adjustments to reach some of the figures included in this annual report. As a result, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that precede them.
Market Data
We obtained market and competitive position data, including market forecasts, used throughout this annual report from market research, publicly available information and industry publications, as well as internal surveys. We include data from reports prepared by the Brazilian Central Bank, the B3, the IBGE, the “ABIHPEC” means Associação Brasileira da Indústria de Higiene Pessoal, Perfumaria e Cosméticos, or the Brazilian Personal Hygiene, Perfumery and Cosmetics Association, the BNDES, the FGV and Euromonitor, among others. We believe that all market data in this annual report is reliable, accurate and complete.
Not applicable.
Not applicable.
Not applicable.
Not applicable.
Not applicable.
The following tables present a summary of our consolidated financial data as of December 31, 2023 and 2022 and for each of the years in the three-year period ended December 31, 2023, derived from our audited consolidated financial statements. The following information is presented in millions of Brazilian reais, unless otherwise specified, and is presented in accordance with the measurements and principles of the IFRS Accounting Standards.
The following information should be read in conjunction with the sections of this annual report entitled “Item 3. Key Information—D. Risk Factors,” “Item 5. Operating and Financial Review and Prospects,” and the annual consolidated financial statements included elsewhere in this annual report. Historical results for any period are not necessarily indicative of results to be expected for any future period.
Statement of Profit or Loss Data
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For the Year Ended December 31,(2) | ||||||
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2023(1) |
2023 |
2022 |
2021 | |||
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(in millions of U.S.$) |
(in millions of R$) | |||||
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Net revenue from continuing operations |
5,523.1 |
26,737.3 |
29,223.7 |
31,742.7 | |||
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Cost of sales |
(1,998.7) |
(9,675.5) |
(11,770.8) |
(12,531.3) | |||
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Gross profit |
3,524.5 |
17,061.8 |
17,452.9 |
19,211.4 | |||
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Operating income (expenses) |
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|
|
| |||
|
Selling, marketing and logistics expenses |
(2.275.6) |
(11,015.9) |
(11,558.9) |
(12,386.2) | |||
|
Administrative, R&D, IT and project expenses |
(872.8) |
(4,225.0) |
(5,023.6) |
(5,217.6) | |||
|
Impairment losses on trade receivables |
(125.2) |
(605.9) |
(604.8) |
(839.4) | |||
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Other operating income (expenses), net |
(283.0) |
(1,369.9) |
(649.1) |
(207.4) | |||
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Operating (loss) income before financial result |
(32.2) |
(154.9) |
(383.5) |
560.8 | |||
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Financial income (expense) |
(519.2) |
(2,513.5) |
(1,785.0) |
(908.0) | |||
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Net (loss) income before income tax and social contribution |
(551.4) |
(2,668.4) |
(2,168.5) |
(347.2) | |||
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Income tax and social contribution |
17.8 |
86.4 |
(92.4) |
1,297.2 | |||
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Net (loss) income from continuing operations |
(533.6) |
(2,582.0) |
(2,260.9) |
950.0 | |||
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Discontinued operations |
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Net income (loss) from discontinued operations |
1,147.8 |
5,556.5 |
(597.7) |
90.7 | |||
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Net (loss) income for the year |
614.2 |
2,974.5 |
(2,858.6) |
1,040.7 | |||
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Attributable to: |
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Controlling shareholders of the Company |
614.1 |
2,973.7 |
(2,859.6) |
1,048.0 | |||
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Non-controlling shareholders |
0.2 |
0.8 |
1.0 |
(7.3) | |||
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|
614.3 |
2,974.5 |
(2,858.6) |
1,040.7 | |||
| Basic earnings (loss) per share from continuing operations—R$ (unless otherwise indicated) | (0.3871) | (1.8739) | (1.6480) | 0.6898 | |||
| Diluted earnings (loss) per share from continuing operations—R$ (unless otherwise indicated) | (0.3849) | (1.8633) | (1.6365) | 0.6894 | |||
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Basic earnings (loss) per share—R$ (unless otherwise indicated) |
0.4458 |
2.1582 |
(2.0843) |
0.7610 | |||
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Diluted earnings (loss) per share—R$ (unless otherwise indicated) |
0.4437 |
2.1482 |
(2.0843) |
0.7503 | |||
(1) Solely for the convenience of the reader, we have translated certain amounts included in this annual report from reais into U.S. dollars using the exchange rate as reported by the Brazilian Central Bank as of December 31, 2023 for reais into U.S. dollars of R$4.841 per U.S.$1.00. The U.S. dollar equivalent information presented in this annual report is provided solely for the convenience of investors and should not be construed as implying that the amounts in reais represent, or could have been or could be converted into, U.S. dollars at such rates or any other rate.
(2) Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after taxes in the statement of profit or loss.
Statement of Financial Position Data
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As of December 31, | ||||||
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2023(1) |
2023 |
2022 |
2021 | |||
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(in millions of U.S.$) |
(in millions of R$) | |||||
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Assets |
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| |||
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Cash and cash equivalents |
774.8 |
3,750.9 |
4,195.7 |
4,007.3 | |||
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Short-term investments |
831.2 |
4,024.1 |
1,800.4 |
1,978.7 | |||
|
Trade receivables |
728.0 |
3,524.4 |
3,502.4 |
3,476.4 | |||
|
Inventories |
637.8 |
3,087.4 |
4,516.9 |
5,403.5 | |||
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Other current assets (2) |
330.6 |
1,600.4 |
2,106.0 |
2,469.4 | |||
|
|
3,302.5 |
15,987.2 |
16,121.5 |
17,335.3 | |||
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Assets held for sale |
- |
- |
- |
52.9 | |||
|
Total current assets |
3,302.5 |
15,987.2 |
16,121.5 |
17,388.2 | |||
|
Property, plant and equipment |
714.2 |
3,457.6 |
4,966.1 |
5,377.4 | |||
|
Intangible assets |
3,422.8 |
16,569.9 |
23,261.0 |
26,857.6 | |||
|
Right-of-use |
217.1 |
1,050.8 |
2,941.9 |
3,096.0 | |||
|
Other noncurrent assets (3) |
1,173.6 |
5,681.5 |
7,394.9 |
7,729.4 | |||
|
Total noncurrent assets |
5,527.7 |
26,759.8 |
38,563.9 |
43,060.3 | |||
|
Total assets |
8,830.2 |
42,747.0 |
54,685.4 |
60,448.5 | |||
|
Liabilities |
|
|
|
| |||
|
Borrowings, financing and debentures and leases |
95.5 |
462.4 |
1,209.6 |
1,950.6 | |||
|
Trade payable and reverse factoring operations |
1,095.3 |
5,302.5 |
6,376.0 |
6,770.6 | |||
|
Other current liabilities (4) |
960.3 |
4,648.6 |
5,752.3 |
4,880.0 | |||
|
Total current liabilities |
2,151.1 |
10,413.5 |
13,337.9 |
13,601.2 | |||
|
Borrowings, financing and debentures and leases |
1,404.6 |
6,799.7 |
15,653.4 |
14,314.1 | |||
|
Other noncurrent liabilities (5) |
498.5 |
2,413.4 |
3,342.9 |
3,966.4 | |||
|
Total noncurrent liabilities |
1,903.1 |
9,213.1 |
18,996.3 |
18,280.5 | |||
|
Total shareholders’ equity |
4,776.0 |
23,120.5 |
22,351.2 |
28,566.7 | |||
|
Total liabilities and shareholders’ equity |
8,830.2 |
42,747.0 |
54,685.4 |
60,448.5 | |||
(1) Solely for the convenience of the reader, we have translated certain amounts included in this annual report from reais into U.S. dollars using the exchange rate as reported by the Brazilian Central Bank as of December 31, 2023 for reais into U.S. dollars of R$4.841 per U.S.$1.00. The U.S. dollar equivalent information presented in this annual report is provided solely for the convenience of investors and should not be construed as implying that the amounts in reais represent, or could have been or could be converted into, U.S. dollars at such rates or any other rate.
(2) Other current assets include accounts receivable – sale of subsidiary, current recoverable taxes, current income tax and social contribution, current derivative financial instruments and other current assets.
(3) Other noncurrent assets include accounts receivable – sale of subsidiary, noncurrent recoverable taxes, noncurrent income tax and social contribution, deferred income tax and social contribution, judicial deposits, noncurrent derivative financial instruments, noncurrent short-term investments and other noncurrent assets.
(4) Other current liabilities include current dividends and interest on shareholders’ equity payable, current payroll, profit-sharing and social charges, current tax liabilities, current income tax and social contribution, current derivative financial instruments, current provision for tax, civil and labor risks and other current liabilities.
(5) Other noncurrent liabilities include noncurrent payroll, profit-sharing and social charges, noncurrent tax liabilities, deferred income tax and social contribution, noncurrent income tax and social contribution, noncurrent derivative financial instruments, noncurrent provision for tax, civil and labor risks and other noncurrent liabilities.
Not applicable.
Not applicable.
Our business, results of operations, financial condition or prospects could be adversely affected if any of these risks occurs, and as a result, the trading price of the Natura &Co Holding Shares or of the ADSs could decline. The risks described below are those known to us and those that we currently believe may materially affect us.
Summary of Risk Factors
This section is intended to be a summary of more detailed discussions contained elsewhere in this annual report. The risks described below are not the only ones we face. Our business, results of operations or financial condition could be harmed if any of these risks materializes and, as a result, the trading price of our common shares and our ADSs could decline.
Summary of Risks Relating to Our Business and Industries in Which We Operate
- Our success depends, in part, on the quality, safety and efficacy of our products, and the risk of product contamination resulting in product liability may materially adversely affect our business. If we fail to continuously update our product portfolio, we may be unable to maintain and expand our distribution channels. Interruption of our research and development, production or distribution units may materially adversely affect our business, financial condition, and results of operations.
- We face certain risks related to our business model. Certain parts of our business are conducted primarily in one channel, direct selling. Our inability to attract and retain our consultants and representatives may materially adversely affect our business, financial condition and operating results. Changes in the legal status of consultants, business leader sales consultants and representatives could adversely affect our operating results. We depend on third parties to manufacture our products. The loss or expiration of these agreements with third-party contractors or our inability to renew these agreements or to negotiate new agreements with other providers on equivalent terms could adversely affect our business and financial performance.
- The expected benefits from operating as a combined enterprise with Avon may not be achieved and we may face challenges with integration. Even if Natura &Co and Avon’s respective operations are successfully integrated, we may not realize the full benefits of the combination, including the estimated synergies, cost savings and growth opportunities.
- Interruption in our main information technology, or “IT” systems could adversely affect our business, financial conditions, operating results and reputation, and increase our costs. Furthermore, we could be the target of attempted cyber threats in the future. If we fail to effectively manage our cybersecurity risk, for example, by failing to update our systems and processes in response to threats, this could harm our reputation and adversely affect our operating results, financial condition and prospects through the payment of customer compensation, regulatory penalties and fines, and/or the loss of assets.
- We may face challenges in developing our omnichannel strategy and expanding our operations to e-commerce. We may also experience financial and strategic difficulties and delays or unexpected costs in implementing our long-term strategy, as well as any restructuring and cost-savings initiatives.
- Our indebtedness and any future inability to meet any of our obligations under our indebtedness, could adversely affect us by reducing our flexibility to respond to changing business and economic conditions.
- We may experience material weaknesses or significant deficiencies in our internal control over financial reporting in the future or otherwise fail to maintain an effective system of internal controls in the future.
Summary of Risks Relating to the Countries in Which We Operate
- Our business may be materially adversely impacted by unfavorable economic, political, social or other developments and risks in the countries in which we operate. A significant deterioration in economic conditions in any of our important markets, including economic slowdowns or recessions, inflationary pressures, disruptions to credit and capital markets and/or wars and conflicts (such as the ongoing Russia-Ukraine and Israel-Hamas conflicts, as well as tensions in the Middle East), could lead to decreased consumer confidence and consumer spending more generally, thus reducing demand for our products. Our operations are also subject to a variety of other risks and uncertainties related to our global operations.
- Our ability to conduct business in markets in which we operate may be affected by political, legal, tax and regulatory risks. Changes in existing laws and regulations and/or the imposition of new laws, regulations, restrictions and/or other entry barriers may cause us to incur additional costs to comply with the more stringent rules and/or limit our ability to expand, which could slow down our product development efforts, limit our growth and development and have an adverse impact on our financial position. In addition, our business is subject to several laws and regulations in various jurisdictions governing data privacy and security.
- We are subject to inflation and exchange rate risks in the countries in which we operate. In 2023 and early 2024, elevated interest rates in Brazil have contained the rise of inflation, but uncertainty remains as to the continued inflationary pressures resulting from the indirect impacts of conflicts, such as the ongoing wars between Russian and Ukraine and between Israel and Hamas, as well as tensions in the Middle East, on global supply chains. Inflation and government measures to curb inflation may adversely affect the economies and capital markets in some of the countries in where we operate, and as a result, harm our business and the trading price of our common shares. Furthermore, exchange rate instability may have adverse effects on the economy of the countries in which we operate, us and the price of our securities.
- We are subject to tax laws of numerous jurisdictions, and the interpretation of those laws is subject to challenge by the relevant governmental authorities given inherent complexity, which could result in potentially material administrative and judicial proceedings. In addition, Brazil has recently approved a major tax reform. The exact impact of this reform on us cannot yet be quantified because although the legislation already details changes to tax basis, rates and general obligations, some elements of it remain to be finalized.
- Difficult market and geopolitical conditions can adversely affect our business and materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition. Developments and the perception of risk in other countries, particularly in the United States, China, European countries and emerging countries, may adversely affect the economies of the countries in which we operate, our business and the market price of our securities. Since 2017, there has been an increase in volatility in Brazilian markets due to, among other factors, uncertainties about how monetary policy adjustments in the United States would affect the international financial markets, the increasing risk aversion to emerging market countries, and uncertainties regarding Latin American, particularly Brazilian macroeconomic and political conditions.
- Future governmental policy and regulations may adversely affect our operations and profitability. Uncertainty over whether the Brazilian federal government will implement reforms or changes in policy or regulation may affect economic performance and contribute to economic uncertainty in Brazil, which could have a material adverse effect on our business, financial condition and results of operations, as well as on the price of our securities.
Summary of Risks Relating to the Natura &Co Holding Shares and ADSs
- The market price of the Natura &Co Holding Shares and ADSs may be volatile. Shareholders could be diluted in the future, which could also adversely affect the market price of Natura &Co Holding Shares and the ADSs.
- Holders of the ADSs may face difficulties in protecting their interests because we are subject to different corporate rules and regulations than a U.S. company and holders of the ADSs may have fewer and less well-defined rights. Furthermore, holders of the ADSs may face difficulties in serving process on or enforcing judgments against us and other persons. Judgments of Brazilian courts with respect to our shares will be payable only in reais.
- Holders of the ADSs may not be able to exercise the preemptive rights relating to the Natura &Co Holding Shares and may also not receive dividends or interest on own capital.
- As a foreign private issuer, we have different disclosure and other requirements than U.S. domestic registrants.
- Holders of the ADSs do not have the same voting rights as our shareholders. Furthermore, due to delays in notification to and by the ADS Depositary, the holders of the ADSs may not be able to give voting instructions to the ADS Depositary or to withdraw the Natura &Co Holding Shares underlying their ADSs to vote such shares in person or by proxy.
- An exchange of ADSs for shares risks the loss of certain foreign currency remittance advantages. Furthermore, under Brazilian tax law, the disposition of Natura &Co Holding Shares will be subject to Brazilian tax and the disposition of ADSs may also be subject to Brazilian tax.
Risks Relating to Our Business and Industries in Which We Operate
Our business depends on highly recognized brands. We may not be able to maintain, modernize or revitalize and enhance our brands, or we may receive unfavorable customers, vendors, consultants and representatives’ complaints or negative publicity, which could adversely affect our brands.
We believe that our brands (principally Natura and Avon, among others) contribute significantly to the success of our business. We also believe that maintaining, modernizing, revitalizing and enhancing our brands is critical to maintaining and expanding our base of customers, vendors, consultants and representatives. Maintaining, modernizing, revitalizing and enhancing our brands will also depend largely on our ability to continue to create a positive customer purchasing experience through a pleasant environment at all of our points of sale, and based on our competitive pricing and large assortment and high quality of the products and services we offer, together with the range and convenience of product delivery options. If we are unable to meet these standards, our business and results of operations may be adversely affected.
Complaints from customers or negative publicity about the products we sell, prices we charge or services we provide could in the future reduce consumer confidence and the use of our services and adversely affect our business. In addition, some of the products we sell may expose us to product liability claims arising from personal injury and may require product recalls or other actions. We must also have a customer service team ready to resolve irregularities and disputes effectively and promptly. Effective customer service requires significant personnel expense and investment in developing programs and technology infrastructure to help customer service representatives carry out their functions. Failure to properly manage or train our customer service representatives could compromise our ability to handle customer complaints effectively. If we do not handle customer complaints effectively, our reputation and our business may suffer, and we may lose our customers’ confidence.
In addition, media coverage and publicity generally exert significant influence over consumers’ behavior and actions. If we are subject to negative publicity that causes our customers to change their purchasing habits, we may be materially adversely affected. New technologies, such as social media, are increasingly used to advertise products and services. The use of social media requires specific attention, as well as a set of monitoring and managing guidelines, which we may be unable to effectively develop and implement. Negative posts or comments about us, our products, our business, our operations, our raw materials, or our directors or executive officers on any social networking or other website could materially damage our reputation. In addition, our employees and representatives may use social media tools and mobile technologies inappropriately, which may give rise to liability, or which could lead to the exposure of sensitive information. Negative publicity that significantly harms the reputation of one or more of our brands may have a material detrimental effect on the value of our brands, which may materially adversely impact our sales, our business, our financial condition and our operating results.
Our business depends on our ability to maintain a strong community of engaged final customers, consultants and representatives including through social media. We may not be able to maintain and enhance our brand if we experience negative publicity related to our use of social media or otherwise fail to meet the expectations of our community of customers.
We use third-party social media platforms to raise awareness of our brands and engage with our community of customers. In recent years, there has been a marked increase in the use of social media platforms, including blogs, chat platforms, social media websites, and other forms of internet-based communications that allow individuals to interact with us, which act as means to enhance brand awareness. As existing social media platforms evolve and new platforms develop, we must continue to maintain a presence on these platforms and establish a presence on emerging popular social media platforms. If we are unable to cost-effectively develop and continuously improve our consumer-facing technologies, such as social media platforms, our ability to expand our community of customers may suffer. This failure could adversely affect our ability to compete with other companies and result in diminished loyalty to our brands.
The use of social media by us and our brand partners has increased the risk that our image and reputation could be negatively impacted. In particular, our social media reputation could impact how our community of customers views our products and/or brands. We also do not prescribe what our brand partners, consumers or other organic brand endorsers post, and our brand partners and consumers could engage in behavior or use their platforms in a manner that reflects poorly on our brand or is in violation of applicable regulations or social media platform terms of service. All of these actions may be attributed to us, which could lead to negative publicity related to our products or negative publicity related to actions taken (or not taken) by us or our executives, employees, brand partners, representatives or other individuals or entities that may be perceived as being associated with us. Such negative publicity may relate to actions taken (or not taken) with respect to social, environmental, and community outreach issues and initiatives. The resulting harm may be immediate, without affording us an opportunity for redress or correction, and could have an adverse effect on our business, financial condition and results of operations.
Further, laws and regulations, including associated enforcement priorities, rapidly evolve to govern social media platforms and other internet-based communications. Any failure by us, our brand partners or other third parties acting at our direction or on our behalf to abide by applicable laws and regulations in the use of these platforms could subject us to regulatory investigations, class action lawsuits, liability, fines or other penalties. Other risks associated with the use of social media and internet-based communications include improper disclosure of proprietary information, exposure of personally identifiable information, fraud, hoaxes or malicious dissemination of false information. Damage to any of our brand’s image and our reputation could have an adverse effect on our business, results of operations and financial condition.
Our industry is highly competitive, and strategic actions by our competitors may weaken our competitive position and negatively affect our profitability.
We and other retailers compete for capital, customers, employees, products, services and other important aspects of our business. In most of the business segments in which we operate, we generally compete with a number of large multinational and local retailers, as well as with local small businesses.
These competitors, some of which have a greater market presence in certain geographical areas, store formats and/or for certain categories of products, include traditional retailers, e-commerce, commerce via mobile phone applications, or “mobile commerce,” and catalog sales businesses, direct sales companies and other forms of retail commerce. Changes in pricing and other negotiated terms, contractual conditions or practices of these competitors may materially adversely affect us. Within the broader consumer packaged goods, or CPG, industry, we principally compete against large and well-known cosmetics, fragrance and skin care companies that manufacture and sell broad product lines through various types of retail establishments and other channels, including through the internet. In addition, we compete against many other companies that manufacture and sell more limited beauty product lines through retail establishments and other channels, including through the internet. This industry is highly competitive, and some of our principal competitors in the CPG industry are larger than us and have greater resources than we do. Competitive activities on their part could cause our sales to suffer. We also have many highly competitive global branded and private label competitors in the accessories, apparel, housewares, and gift and decorative products industries, including retail establishments, principally department stores, mass merchandisers, gift shops and specialty retailers.
In addition, increased competition may result in reduced gross margins, a decline in our working capital position and loss of market share, any of which could materially adversely affect us. Moreover, our competitors may be able to devote greater resources than us to invest in business development. Our competitors may be acquired by, receive investments from, or enter into other commercial relationships with larger, well-established and well-financed companies in certain lines of business. We may be materially adversely affected to the extent we are unable to compete successfully with our competitors.
The purchasing decisions of consumers are affected by factors including brand recognition, product quality and performance, availability of credit, price and subjective preferences. Some of our competitors may have marketing investments substantially larger than ours. If our advertising, promotional and marketing strategies do not succeed and if we are unable to offer new products to meet market demands, we may be adversely affected. If we cannot introduce new products in a timely manner or if our end consumers believe that our competitors’ products are more attractive, our sales, profitability and results of operations may be adversely affected.
Moreover, consumers are increasingly embracing online shopping and mobile commerce applications. As a result, a greater portion of total consumer expenditures with retailers could occur online and through mobile commerce applications. If we fail to maintain or grow our overall market position through the integration of our physical retail presence, our direct selling business and e-commerce platform, our net revenue and our financial performance could be adversely affected. In addition, a greater concentration of retail and wholesale sales in online and mobile commerce could result in a reduction in the amount of traffic we have in our physical stores and direct sales. Conditions in the online sales market could also change rapidly and significantly as a result of technological advances. New start-up companies that innovate and large competitors that are making significant investments in e-commerce may create similar or superior e-commerce platforms and technologies that will be disruptive to our e-commerce, direct selling business and the operations of our physical stores.
Changes in consumer preferences may adversely affect our business, financial condition and operating results.
We operate in an industry that is subject to rapid and unpredictable changes in consumer demand and trends. Changes in consumer preferences, including a move away from direct selling and shopping in physical stores toward online shopping, among other channels, and a potential decrease in demand, may adversely affect our operations and growth prospects.
In recent years, there has been an increase in e-commerce to the detriment of physical sales. As a result, we experienced an increase in e-commerce sales growth in 2021 as compared to 2020, with e-commerce sales remaining broadly stable as a percentage of revenues for all our business units through 2022 and 2023.
The success of our brand management strategy depends on our ability to foresee, evaluate and react effectively to changes in the spending levels of consumers and their preferences regarding beauty and other products.
Our competitiveness depends in part on the successful creation of new products, as well as on consumer satisfaction and preferences in line with market trends. Consumer preferences and trends may change due to a variety of factors, such as changes in demographic trends, changes in the characteristics and ingredients of products, new market trends, climate, negative publicity from lawsuits against us or our peers, or a weak economy in one or more of the markets in which we operate. In addition, consumers may switch to our competitors’ products, or the demand for products in our segment as a whole could decline. If we are unable to anticipate changes in consumer preferences and trends, our business, financial condition and results of operations could be materially adversely affected.
We may be held liable for losses or damage caused by our products or services to consumers, which may adversely affect our results.
We may be held liable under consumer protection and other laws applicable in the markets in which we operate for losses or damage caused by our products or services to consumers. Consumer protection laws typically favor consumers over suppliers or retailers. In Brazil, for example, consumer laws are strict and place the burden of proof on suppliers. Furthermore, in Brazil and in other markets in which we operate, consumer defense claims may be filed individually or as collective actions, and the latter can often be filed on behalf of consumers by consumer protection associations or governmental authorities (in Brazil for example such claims can be initiated by the Consumer Protection and Defense Foundation (Procuradoria de Proteção e Defesa do Consumidor) and the applicable Public Prosecutor’s Office).
In the event that we are found to be liable in a lawsuit or administrative proceeding, and are forced to indemnify consumers, this could have a material adverse effect on our business, reputation, brand, operating condition and finances, cash flow and profitability.
Furthermore, our defense in these legal proceedings could lead to additional costs in time and substantial attention from our administrative and technical personnel. In addition, the negative publicity associated with our products or services, including defects, errors, failings (including accidents) and poor quality could adversely affect our reputation with current and future consumers and our corporate image and brands, which could have an adverse effect on our business and financial condition.
The consumer defense code also establishes joint and several liability for defects of quantity in a product and establishes that companies belonging to the same business group, as well as controlled companies have subsidiary liability for obligations within the scope of consumer law, which shows that the hypotheses of liability involving consumers are broad.
If we fail to continuously update our product portfolio, we may be unable to maintain and expand our distribution channels.
One critical element of our strategy is our capacity to grow our distribution channels by continuously updating our portfolio of innovative and attractive products. Our ability to continuously evolve our portfolio depends on a variety of factors, including our capacity to foresee market requirements and use new raw materials and technologies effectively. If we are unable to continuously update our product portfolio, our ability to maintain and expand our different channels of distribution and our base of representatives could be materially adversely affected.
Interruption of our research and development, production or distribution units may materially adversely affect our business, financial condition and results of operations.
We develop and manufacture a significant portion of our products at our own manufacturing plants. We are exposed to certain risks inherent to our research, production, distribution and development activities, including industrial accidents, environmental actions, strikes and other labor disputes, interruptions in logistics, power supply or information systems, total or partial loss of operating units, product quality control, safety, specific license requirements and other regulatory factors, as well as natural disasters, disease outbreaks or pandemics and other external factors over which we have no control. For example, we use flammable and explosive substances, such as alcohol, in manufacturing our products. These flammable or explosive products are stored in our operational units and could damage our installations and/or cause injury or death to our personnel. Accidents at our operational units could expose us to risks related to the total or partial loss of our facilities, personal injury or death, depending on the severity of such accidents.
Additionally, we use third-party manufacturers to manufacture certain of our products. Therefore, as a company engaged in manufacturing, distribution and research and development on a global scale, we are subject to the risks inherent in such activities carried out by our third-party manufacturers. Such risks to us and to our third-party manufacturers include industrial accidents, environmental events, fires, strikes and other labor or industrial disputes, disruptions in logistics or information systems (such as the enterprise resource planning system), loss or impairment of key manufacturing or distribution sites, product quality control issues, safety concerns, licensing requirements and other regulatory or government issues, as well as natural disasters, disease outbreaks or pandemics, border disputes, acts of terrorism and other external factors over which we have no control. In addition, there can be no guarantee that all of our third-party manufacturers will fulfill their obligations under the service agreements into which we enter with them. If any of our third-party manufacturers encounters any situation affecting their output, or if any of our third-party manufacturers fails to meet their contracted obligations, this could affect our ability to deliver our products to market, which could have a material adverse effect on our business, prospects, financial condition, liquidity, results of operations and cash flows.
Since 2020, we have experienced an increase in the cost of certain raw materials used in the production of essential items due to the increase in demand for these inputs around the world. These inflationary pressures continued in 2022 and were aggravated by a number of issues, including the conflicts between Russia and Ukraine, Israel and Hamas, and the wider tensions in the Middle East that have arisen in the wake of the conflict between Israel and Hamas, which primarily impacted the European market, put pressure on world price benchmarks and aggravated disruption in global supply chains. While inflationary pressures on certain commodities cooled somewhat in 2023, other factors continued to put pressure on our costs, including: (i) the devaluation of the Brazilian real relative to other currencies; (ii) increased logistics costs; and (iii) the economic situation in Argentina, which added further pressure to our production and distribution costs.
We may also suffer interruptions to our research and development, production or distribution operations as a result of cyber incidents or other IT issues which we may encounter. See also “—We could be the target of attempted cyber threats in the future, which could adversely affect our business.”
These risks may be exacerbated by our efforts to increase facility consolidation covering our manufacturing, distribution and supply footprints, particularly if we are unable to successfully increase our resiliency to potential operational disruptions or enhance our disaster recovery planning. The loss of, or damage to, any of our facilities or centers, or those of our third-party manufacturers, could have a material adverse effect on our business, prospects, financial condition, liquidity, results of operations and cash flows.
Any interruption or delays in the construction or launch of our projects, or any increase in costs, could disrupt our business, decrease our expected revenues in our business plan, and adversely affect us.
Our organic growth, as well as growth arising from acquisitions, could place a significant strain on our managerial, operational and financial resources. Our ability to manage our future growth will depend on our ability to continue to implement and improve operational, financial and management information systems on a timely basis and to train, motivate and manage an enlarged workforce, including our ability to recruit qualified personnel with the necessary technical skills and experience and the integration of our existing workforce with that of any businesses that we may acquire. Failure to effectively manage our expansion may lead to increased costs, a decline in sales and reduced profitability.
Third-party suppliers provide, among other things, the raw materials required for our products, and the loss of these suppliers, a supplier’s inability to supply a raw material or a finished product or a disruption or interruption in the supply chain may adversely affect our business.
We manufacture and package a number of our branded products. Raw materials, consisting chiefly of essential oils, chemicals, containers and packaging components, are purchased from various third-party suppliers for our products. The loss of multiple suppliers or a significant disruption or interruption in the supply chain could have a material adverse effect on the manufacturing and packaging of our products, or the production of our brochures. This risk may be exacerbated by our globally coordinated purchasing strategy, which leverages volume. Regulatory action, such as restrictions on importation, or use of certain products, due to changes in the legal framework applicable to biodiversity, or restrictions on the exploration of areas within the Amazon rainforest, for example, may also disrupt or interrupt our supply chain. In addition, we are subject to increases in the costs of raw materials or other commodities or, in a worst-case scenario, the impossibility of obtaining raw materials and packaging due to several factors over which we have no control, such as climate, agricultural production, legitimate access to genetic heritage and/or traditional associated knowledge, economic conditions, and transportation and processing costs, among others. Each of these may adversely affect our profit margins if we are unable to pass along any higher costs in the form of price increases or otherwise achieve cost efficiencies in manufacturing and distribution. Furthermore, if our suppliers fail to use ethical business practices and comply with applicable laws and regulations, such as any child labor laws, our reputation could be harmed due to negative publicity.
If we experience any material shortages or delay in delivery of packaging materials, our ability to package and deliver our finished goods to our points of sale may be materially adversely affected, and our reputation and sales may suffer material damage, which would adversely affect our results of operation.
Our business depends on a supply chain and consequently we face inherent logistics-related risks.
If operations at our distribution centers or the operations of our suppliers, as well as our service providers, are adversely affected by factors beyond our control, such as fire, natural disasters, disease outbreaks or pandemics, armed conflict, such as the Russia-Ukraine and Israel-Hamas conflicts, as well tensions in the Middle East, strikes and stoppages, power shortages, failures in the systems, forest fires and deforestation, among others, and in the event that no other supplier or distribution center is able to meet the demand of the region affected, the distribution of products to the regions supplied by the affected supplier and/or distribution center will be impaired, which may adversely affect us. Our operations may be materially adversely affected if we are not able to find new suppliers, open new distribution centers or expand our existing distribution centers in order to meet the supply needs of our clients. In particular with respect to our products manufactured using a process that involves the use of bioactive ingredients obtained from our suppliers in forest regions, any event that could destroy the respective biome and harm the sustainability of the economy of the affected region may have a material adverse effect on our supply chain and consequently cause important risks related to our manufacturing process of products which are identified with our brand, as well as the logistics of such products. See also “—Climate change can create transition risks, physical risks and other risks that could adversely affect us.”
Additionally, any significant interruptions, failures or changes in the logistics infrastructure we or our suppliers use to deliver products in our distribution centers could prevent the timely or successful delivery of the products to our clients and adversely affect our operations.
Our distribution network is sensitive to fluctuation in oil prices, and any increases in the price, disruption of supply or shortage of fuel may result in increased shipping costs and adversely affect our business and results of operations. Furthermore, if stringent regulations to combat street traffic are enacted imposing further restrictions on the delivery of products to our clients within certain hours of the day in certain municipalities where we operate, our ability to distribute products in a timely manner to our clients may be affected. A general increase in street traffic can also impact our ability to distribute products to our clients in a timely manner. Also, our e-commerce business is subject to similar risks, and as we expand our e-commerce platform, these risks may affect our ability to deliver products to our end-consumers in a timely manner. Any inability to deliver the products promptly and successfully we sell to our customers through our e-commerce platform may result in the loss of their business and materially adversely affect our reputation, which may have an adverse impact on our sales.
We depend on third parties to manufacture our products.
We have entered into agreements with third-party contractors to manufacture the products which we sell. The loss or expiration of these agreements with third-party contractors or our inability to renew these agreements or to negotiate new agreements with other providers at equivalent rates could adversely affect our business and financial performance. Contractors’ negligence could compromise the quality and safety of our products and expose us to the risk of liability for product liability and environmental damage caused by such third parties. We expect that we will be dependent on such agreements for the foreseeable future.
Our success depends, in part, on the quality, safety and efficacy of our products, and the risk of product contamination resulting in product liability may materially adversely affect our business.
Our success depends, in part, on the quality, safety and efficacy of our products. As is the case with other consumer product manufacturers, we may be subject to product liability claims if our products are found to be unfit for human use or cause illness. Products may become unfit for human use if the ingredients used in our products that are contaminated during the transportation, production, distribution and sales processes due to reasons unknown to us or beyond our control, such as acts conducted by bad faith, sabotage or systemic failure whose causes are unknown. The occurrence of such problems may result in product recalls and regulatory sanctions which will cause serious damage to our reputation and brand, as well as loss of revenue. We cannot assure you that such incidents will not occur in the future. In addition, adverse publicity about these types of concerns relating to our brand or to the industry as a whole, whether or not legitimate, may discourage consumers from purchasing our products. If consumers lose confidence in our brand, we could experience long-term declines in our sales, resulting in losses which we may not be able to recover.
The expected benefits from operating as a combined enterprise with Avon may not be achieved and we may face challenges with integration.
The success of the Transaction will depend, in part, on the ability of Natura &Co and Avon to realize the expected benefits from integrating their respective operations. No assurance can be given that Natura &Co and Avon will be able to integrate their respective operations without encountering difficulties, which may include, among other things, the loss of key employees, diversion of management attention, the disruption of our respective ongoing businesses or possible inconsistencies in standards, procedures and policies. Additionally, Natura &Co and Avon may be required to make unanticipated capital expenditures or investments in order to maintain, integrate, improve or sustain our operations. Integrating our respective operations may involve additional unanticipated costs and financial risks, such as the incurrence of unexpected write-offs, the effect of adverse tax and accounting treatments and unanticipated or unknown liabilities relating to Natura &Co or Avon.
The difficulties of combining the operations of the companies include, among others:
- managing a significantly larger company;
- coordinating geographically separate organizations;
- the potential diversion of management focus and resources from other strategic opportunities and from operational matters;
- aligning and executing our strategy after the Transaction;
- retaining existing consultants and representatives and attracting new consultants and representatives;
- retaining existing customers and attracting new customers;
- maintaining employee morale and retaining key management and other employees;
- integrating two unique business cultures, which may prove to be incompatible;
- the possibility of faulty assumptions underlying expectations regarding the integration process;
- consolidating corporate and administrative infrastructures and eliminating duplicative operations;
- coordinating distribution and marketing efforts;
- integrating information technology, communications and other systems;
- changes in applicable laws and regulations;
- managing tax costs or inefficiencies associated with integrating our operations after the Transaction;
- unforeseen expenses or delays associated with the Transaction; and
- taking actions that may be required in connection with obtaining regulatory approvals.
All of these factors could decrease or delay the expected accretive effect of the Transaction. Even if Natura &Co and Avon’s respective operations are successfully integrated, we may not realize the full benefits of the Transaction, including the estimated synergies, cost savings and growth opportunities, within the expected time frame of five years, if at all. Natura &Co and Avon continue to evaluate the estimates of synergies to be realized from the Transaction. However, the actual cost savings, the costs required to realize the cost savings and the source of the cost savings could differ materially from the estimates of Natura &Co and Avon.
In addition, as a result of global political and economic factors, such as the ongoing conflicts between Russia and Ukraine, and between Israel and Hamas, as well as tensions in the Middle East, have resulted in significant volatility, uncertainty and economic disruption, which may materially and adversely affect our plans to integrate with Avon and our results of operations, cash flows and financial position.
Interruption in our main information technology, or “IT” systems could adversely affect our business, financial conditions, operating results and reputation, and increase our costs.
We use IT systems to support our business. Our IT systems and infrastructure, as well as those of third parties, are integral to our performance. The IT systems we use include support systems for financial reports, web-based tools, and an internal communication and data transfer network. We also use a variety of technological tools (online ordering system, electronic billing and online training tools) to assist us and enable us to communicate with our consultants. In the coming years, we plan to increase the use of IT tools to communicate with our consultants and representatives. We use third-party service providers in many instances to provide these IT systems. Over the last several years, we have undertaken initiatives to increase our reliance on IT systems, which has resulted in the outsourcing of certain services and functions, such as global human resources IT systems, call center support, sales representative support services and other IT processes. Any of our IT systems and infrastructure, or those of third-party service providers, is subject to failure or interruptions that are inherent in the complex scenario of localized applications and the system architecture. Incidents originating from legacy or non-integrated systems, or both, as well as fires, floods, power failure, telecommunication failure, terrorist attacks, break-ins, data corruption and similar events may also occur. Other risks and challenges could arise as we upgrade, modernize and standardize our IT systems. Our systems could also be vulnerable to computer viruses, data security failures, break-ins, data corruption and similar interruptions caused by unauthorized access to these systems. We rely on our employees, consultants, representatives, and third parties in our day-to-day and ongoing operations, which may, as a result of human error or malfeasance or failure, disruption, cyber incidents or other security breaches of third-party systems or infrastructure, expose us to risk. Furthermore, our ability to protect and monitor the practices of our third-party service providers is more limited than our ability to protect and monitor our own IT systems and infrastructure. The occurrence of these and other incidents could damage our IT systems and infrastructure, or those of third-party service providers, and adversely affect our business, financial condition and results of operations.
Our IT systems or those of our third-party service providers may be accessed by unauthorized users, such as cyber criminals, as a result of a failure, disruption, cyberattack or other security breach, exposing us to risk. As techniques used by cyber criminals change frequently, a failure, disruption, cyber incident or other security breach may go undetected for a period of time. A failure, disruption, cyber incident or other security breach of our IT systems or infrastructure, or those of our third-party service providers, could result in the theft, transfer, unauthorized access to, disclosure, modification, misuse, loss, or destruction of Company, employee, consultant and representatives, customer, vendor or other third-party data, including sensitive or confidential data, personal information and intellectual property. Moreover, as a result of the COVID-19 pandemic and consequent new ways of working, we have increased the number of employees working remotely and continue to allow remote and hybrid work even as the pandemic has receded. This will require us to continue relying on remote-access IT systems, which increases the risk of unavailability of our systems and infrastructure, disruption of telecommunications services, widespread system failures, and exposes us to increased vulnerability to cyberattacks. Any of these developments could adversely affect our ability to conduct our business, which may be adversely impacted.
We are investing in industry-standard solutions and protections and monitoring practices of our data and IT systems and infrastructure to reduce these risks and continue to monitor our IT systems and infrastructure on an ongoing basis for any current or potential threats. Such efforts and investments are costly, and as cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. As a company that operates globally, we could be impacted by commercial agreements between us and processing organizations, existing and proposed laws and regulations, and government policies and practices related to cybersecurity, privacy and data protection.
Our and our third-party service providers’ data, IT systems and infrastructure may be vulnerable. There can be no assurance that our efforts will prevent a failure, disruption, cyber incident or other security breach of our or our third-party service providers’ IT systems or infrastructure, or that we will detect and appropriately respond if there is such a failure, disruption, cyber incident or other security breach. Any such failure, disruption, cyber incident or other security breach could adversely affect our business, including our ability to expand our business, cause damage to our reputation, result in increased costs to address internal data, security, and personnel issues, and result in violations of applicable privacy laws and other laws and external financial obligations such as governmental fines, penalties, or regulatory proceedings, remediation efforts, such as breach notification and identity theft monitoring, and third-party private litigation with potentially significant costs. In addition, it could result in deterioration in our employees’, consultants and representatives’, customers’ or vendors’ confidence in us, which could cause them to discontinue business with us or result in other competitive disadvantages.
We could be the target of attempted cyber threats in the future, which could adversely affect our business.
We face various cybersecurity risks, including but not limited to penetration of our IT systems and platforms by ill-intentioned third parties, infiltration of malware (such as computer viruses) into our systems, contamination (whether intentional or accidental) of our networks and systems by third parties with whom we exchange data, unauthorized access to confidential customer and/or proprietary data by persons inside or outside our organization and cyber incidents causing systems degradation or service unavailability that may result in business losses.
We have been and may continue to be subject to potential fraud and theft by cyber criminals, who are becoming increasingly sophisticated, seeking to obtain unauthorized access to or exploit weaknesses that may exist in our systems. We continuously monitor and develop our IT networks and infrastructure. We also conduct periodical tests to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact on us. However, we cannot assure you that these measures will be effective in protecting us against cyber incidents and other related breaches of our IT systems. The techniques used to obtain unauthorized, improper or illegal access to our systems, our data or our customers’ data, to disable or degrade service, or to sabotage systems are constantly evolving, may be difficult to detect quickly, and often are not recognized until used against a target. Unauthorized parties may gain access to our systems or facilities through various means, including, among others, hacking into our systems or those of our customers, partners or vendors, or attempting to fraudulently induce our employees, customers, partners, vendors or other users of our systems to disclose usernames, passwords, financial information or other sensitive information, which may in turn be used to access our IT systems. Certain third-party efforts to access our IT systems may be supported by significant financial and technological resources, making them even more sophisticated and difficult to detect. We have seen in recent years computer systems of companies and organizations being targeted, not only by cyber criminals, but also by activists and rogue states. Cyber incidents could give rise to the loss of significant amounts of customer data and other sensitive information, as well as significant levels of liquid assets (including cash).
Further, we store highly confidential information on our IT systems, including personal data, financial information, and other types of information related to our business, products and customers. If our servers or the servers of the third parties on which our data is stored are the subject of a physical or electronic break-in, computer virus or other cyber risks, our confidential information could be stolen, rendered unavailable, devalued or destroyed. Any security breach involving the misappropriation, loss or other unauthorized disclosure or use of confidential information of our suppliers, customers or others, whether by us or a third party, could (1) subject us to civil and criminal penalties, (2) have a negative impact on our reputation or (3) expose us to liability to our suppliers, customers, other third parties or government authorities.
If we fail to effectively manage our cybersecurity risk, for example, by failing to update our systems and processes in response to new threats, this could harm our reputation and adversely affect our operating results, financial condition and prospects through the payment of customer compensation, regulatory penalties and fines, and/or the loss of assets. Furthermore, upon a failure to comply with applicable laws and regulations, we may be ordered to change our business practices, policies or systems in a manner that adversely impacts our operating results.
We may also be subject to the effects of cyber incidents involving critical infrastructures of Brazil and the other countries in which we operate. Our IT systems are dependent on such critical infrastructure, and any cybersecurity incident involving such critical infrastructure could negatively affect our ability to service our customers. As we do not operate such critical infrastructure, we have limited ability to protect our IT systems from the adverse effects of cyber incidents.
We have been the subject of cybersecurity incidents, and we cannot assure you that our IT systems will not suffer the impact of additional incidents in the future or that we will be able to adequately safeguard the confidential information which we hold. If we fall victim to successful cyber incidents or experience cybersecurity incidents in the future, we may incur substantial costs and suffer other negative consequences, such as remediation costs (liabilities for stolen assets or information, or repairs of system damage, among others), increased cybersecurity protection costs, lost revenues arising from the unauthorized use of proprietary information or the failure to retain or attract customers following a cybersecurity incident, as already mentioned, litigation and legal risks, increased insurance premiums, reputational damage affecting our customers’ and investors’ confidence, as well as damage to our competitiveness, stock price and long-term shareholder value. Any failure by us to adequately protect our IT systems and the confidential data which we hold could have a material adverse effect on our business, financial condition and results of operations.
It is important to highlight that even when a failure of or interruption in our systems or facilities is resolved in a timely manner or an attempted cyber incident or other security breach is successfully avoided or thwarted, substantial resources are normally expended in doing so, and we may be required to take actions that could adversely affect customer satisfaction or behavior, and that may also represent a threat to our reputation.
Avon was the subject of a cybersecurity incident in June 2020 that caused a partial and temporary interruption of its operations. Future cybersecurity incidents could again give rise to the disablement of our IT systems, including systems used to service our customers. Any of these developments could have an adverse effect on our business, results of operations and financial condition. As a result of the incident, Avon may be subject to litigation and investigations by regulators in the jurisdictions in which it operates. Avon may incur losses associated with potential claims by third parties or individuals, as well as fines, penalties and other sanctions imposed by regulators relating to or arising from the incident. Avon may also incur contingencies related to the incident. Avon is not able to reliably forecast all of the losses that may occur as a result of the incident, and such excess losses could have a material adverse effect on Avon’s and our financial condition or results of operations in future periods.
The loss of members of our senior management, the weakening of our corporate culture and/or our inability to attract, retain and train key personnel may adversely affect our business, financial condition and operating results.
Our success depends, in part, on our ability to retain our key personnel. The unexpected loss of or failure to retain one or more of our key employees could adversely affect our business. Our success also depends, in part, on our continuing ability to identify, hire, attract, train, develop and retain other highly qualified personnel. Competition for these employees can be intense and our ability to hire, attract and retain them depends on our ability to provide competitive compensation. If members of our senior management team resign, we may not be able to sustain our existing culture or replace them with individuals of the same experience and qualification. Key personnel may leave us for a variety of reasons and the impact of these departures is difficult to predict, which may hinder the implementation of our strategic plans and adversely affect us.
We may not be able to attract, assimilate, develop and retain qualified personnel in the future, and our failure to do so could adversely affect our business, including the execution of our global business strategy. Such turnover could create a risk of disruptions in our business processes if the turnover occurs with inadequate knowledge transfer. Competition for personnel is intense, and we may not be able to successfully attract, hire, train, retain, motivate and manage sufficiently qualified personnel, which may adversely affect our business. Any failure by our management team to perform as expected may have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows. This risk may be exacerbated by the uncertainties associated with the implementation of Open Up & Grow strategy of Avon and any other stabilization strategies and restructuring and cost-savings initiatives we undertake from time to time. For more information, see “Item 4. Information on the Company—B. Business Overview—Innovation and Product Development—Avon.”
Our inability to attract and retain our consultants and representatives may materially adversely affect our business, financial condition and operating results.
Natura and Avon conduct their business in countries in which they operate mainly in the form of direct sales through our different channels of distribution and representatives, who sell products of these brands, and independent sales advisers (Natura business leader sales consultants), who, in addition to selling our products, are also responsible for sharing business information and guidelines to small groups of Natura consultants. These consultants and representatives are our main sales channel for our Natura- and Avon-branded products and our business expansion is linked to the growth of the resellers’ network.
Natura consultants and Natura business leader sales consultants are consultants who buy products directly from us and sell to their clients. There is no exclusivity agreement between us and our consultants, nor do we require a minimum period of association with us. Similarly, Avon representatives are independent contractors and not our employees. As of December 31, 2023, we had approximately 3.5 million Natura &Co Latam consultants (including Natura and Avon brand) and approximately 2.3 million Avon International representatives. There is a high rate of turnover among consultants, business leader sales consultants and representatives, which is a common characteristic of the direct-selling business. Our success in attracting and retaining consultants and representatives depends on a series of factors, which include:
- maintaining close and quality relationships with our consultants and representatives;
- continuing to create innovative and successful products, which is important to secure the interest of consultants in our company and the Natura brand, and of our representatives in the Avon brand;
- maintaining the average prices of products that enable our consultants and representatives to increase their profits;
- public perception of our Natura and Avon brands, their respective lines of products and the direct sales channels;
- competitiveness among consultants and representatives of other direct sales companies;
- the level of service provided to our consultants and representatives;
- macroeconomic conditions in Brazil and other countries in which we operate;
- our ability to successfully execute our digital strategy;
- our ability to successfully implement other initiatives in the direct-selling channel;
- our ability to improve our brochure and product offerings;
- the legal, administrative and other conditions imposed on consultants and representatives by the authorities of the countries in which we operate; and
- our ability to improve our marketing and advertising.
Changes in the legal status of consultants, business leader sales consultants and representatives could adversely affect our operating results.
The consultants, business leader sales consultants and representatives who work with us are not our employees. However, governments in the countries in which we operate could enact laws or regulations or interpret existing laws or regulations in such a way that could characterize consultants, business leader sales advisers and representatives as employees or otherwise oblige us to make social security contributions or other employment-related contributions on their behalf. Any changes in law or unfavorable court decisions that find the existence of an employment relationship or result in our obligation to make social security contributions or other employment-related contributions for our consultants, business leader sales consultants and representatives would result in substantial additional costs that could result in a need for us to restructure our business and materially adversely affect our financial condition and operating results. For further information on the legal status of our consultants and representatives, please see “Item 4. Information on the Company—B. Business overview—Government Regulation—Legal status of our consultants and business leader sales consultants.”
A work stoppage or significant strike from our labor force could affect our operations.
A number of our employees are represented by labor unions and covered by collective bargaining or similar labor agreements, which are subject to periodic renegotiation within the time frames established by law and the applicable agreements. Strikes and other work stoppages or other labor disruptions in any of our facilities or labor unrest disrupting any of our third-party suppliers of goods or services may have a material adverse effect on our business and results of operations.
We cannot guarantee that our suppliers do not engage in irregular practices.
Given the decentralization and outsourcing of our suppliers’ production chains, we cannot guarantee that suppliers will not have issues regarding working conditions, sustainability, outsourcing of the production chain and improper safety conditions, or that they will not use these irregular practices in order to lower product costs. If a significant number of our suppliers engage in these practices, our reputation may be harmed and, as a consequence, our customers’ perception of our products may be materially adversely affected, thereby causing a reduction in net operating revenues and results of operations and the market prices of our securities.
We may not be able to execute our long-term strategy, particularly with respect to sourcing a sufficient volume and variety of products at competitive prices or adequately managing our supply of inventory, which could have a material adverse effect on us.
Achieving our long-term strategy will require investment in new capabilities, categories, distribution channels, supply chain facilities, technologies and emerging markets, including China. These investments may result in short-term costs without associated current sales and, therefore, may be dilutive to our earnings. In addition, we may dispose of or discontinue select products or streamline operations and incur costs or restructuring and other charges in doing so. Although we believe that our strategy will lead to long-term growth in sales and profitability, we may not realize the anticipated benefits. The failure to realize benefits, which may be due to our inability to execute plans, global or local economic conditions, competition, changes in the premium beauty and personal care industry and the other risks described herein, could adversely affect our business, financial condition and results of operations.
Furthermore, the operation of our business is dependent on our ability to strategically source a sufficient volume and variety of products at competitive prices. In addition, we may significantly overstock low-acceptance products and be forced to take significant markdowns. We cannot assure you that we will be able to identify the appropriate customer demand and take advantage of appropriate buying opportunities, which could have a material adverse effect on our business and financial results. In addition, overstocked goods in our distribution centers may become obsolete or their validity may expire during the time it takes to be sold to our clients. In addition, the improper handling of products may result in their breakage or malfunctioning. Further, if we or any third-party warehousing provider engaged by us fail to store our inventory at optimal conditions, such as at optimal temperatures and humidity levels, the quality and shelf life of our products may be adversely affected, and we may as a result suffer damage to our reputation, which may adversely affect our results of operation.
We may be liable for the labor and pension obligations of third-party suppliers.
We may be held jointly liable alongside third parties who provide services to us if such third parties fail to comply with certain of their obligations. For example, Brazilian labor laws provide that we may be held jointly liable with such third parties if they fail to comply with their obligations under labor and social security-related laws. This may result in fines and other penalties that may materially adversely affect us. We may also be held liable for bodily injury or death within our premises of third-party employees who provide services to us. Any of these developments could adversely affect our reputation, as well as our business, financial condition and results of operations.
We are involved, and may become involved in the future, in legal proceedings that, if adversely adjudicated or settled, could adversely affect our financial results
We are, and may in the future become, party to litigation, including, for example, new tax assessments, claims alleging violation of the federal securities laws or claims relating to employee or employment matters, our products or advertising. Currently, we are party to several civil, administrative, environmental, labor, tax and arbitration proceedings. These claims involve substantial amounts under dispute and could also result in other punitive measures. As of December 31, 2023, we were party to proceedings for which provisions in the total amount of R$1,366.6 million have been recorded.
We are involved in several individual disputes or categories of disputes which account for a significant portion of the total claims against us. These include in particular certain tax proceedings of an administrative or judicial nature, as detailed under “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings—Tax Proceedings.” In general, litigation claims can be expensive and time-consuming to defend against and could result in settlements or damages that could significantly affect our financial results and the conduct of our business. We have taken and will take uncertain tax positions which rely to a significant extent on our judgment as to the application of the law. The laws and interpretations based on which we have taken such positions may change. Furthermore, irrespective of whether any such change occurs, tax authorities may take a different view than our own with respect to such uncertain tax positions, which may result in the imposition of fines, penalties and interest. Any such developments may have a material adverse effect on our business, financial condition and results of operations.
Also, Avon currently is, and may in the future be, party to lawsuits filed in U.S. courts, alleging that certain talc products Avon Products Inc. sold in the past were contaminated with asbestos. Nationwide trial results in similar cases filed against other manufacturers of cosmetic talc products have ranged from outright dismissals to very large jury awards of both compensatory and punitive damages. Avon is currently vigorously contesting certain of these litigation claims. However, it is not possible to predict the final resolution of the litigation to which Avon currently is or may in the future become party to, or to predict the impact of certain of these matters on Avon’s business, prospects, financial condition, liquidity, results of operations and cash flows. Avon could in the future be required to pay significant amounts as a result of settlements or judgments in these matters, potentially in excess of provisions made to date, including matters where Avon could be held jointly and severally liable among other defendants. The resolution of, or increase in provisions for, one or more of these matters in any year could have a material adverse effect on Avon’s and our results of operations, financial condition and cash flows for that period, including Avon’s ability to continue as a going concern.
We cannot guarantee that such proceedings will have favorable outcomes for us or that the provisions made will be sufficient to pay any amounts due. Any proceedings that require us to make substantial payments, affect our reputation or otherwise interfere with our business operations could have a material adverse effect on our business, financial condition and operating results. In case of unfavorable decisions against us in claims involving substantial amounts, or if the actual losses are significantly higher than the provisions we have recorded in our financial statements, our financial condition and operating results could be adversely affected. Moreover, our management may be forced to dedicate time and attention to defend against these claims, which could prevent it from concentrating on our core business. Depending on the result, certain lawsuits could result in restrictions to our operations and adversely affect our business, financial condition and operating results.
Additionally, we may not have sufficient funds to post collateral or provide guarantees in judicial or administrative proceedings that claim substantial amounts. Even if we do not post such collateral or provide guarantees, we will be liable for paying any amounts due pursuant to any unfavorable outcomes in legal proceedings, which may have an adverse effect on our business, financial condition and results of operations. We cannot assure you that, if we cannot make such payments, our assets, including financial assets, will not be attached, or that we will be able to obtain tax good standing certificates, all of which may have a material adverse effect on our business, financial condition and results of operations.
See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings” for a detailed discussion regarding certain legal proceedings in which we are a party.
Our quarterly financial performance may fluctuate for a variety of reasons, which could have a material adverse effect on our financial performance.
Our quarterly results of operation have fluctuated in the past, and we expect them to continue to fluctuate in the future. A variety of factors affect our quarterly financial performance, including:
- global economic and political conditions, including the Russia-Ukraine and Israel-Hamas conflicts, as well as tensions in the Middle East;
- inflation and government measures to curb inflation, such as increases in interest rates;
- seasonality;
- changes in our merchandising strategy or mix;
- the effectiveness of our inventory management;
- timing and concentration of new store openings, including additional human resources;
- requirements and related pre-opening and other start-up costs;
- cannibalization of existing store sales by new store openings;
- levels of pre-opening expenses associated with new stores;
- timing and effectiveness of our marketing activities, such as new products, direct marketing;
- activity, television and magazine advertisements;
- actions by our existing or new competitors;
- general economic conditions and, in particular, the retail sales environment; and
- store employees’ motivation and effectiveness.
Accordingly, our results for any one financial quarter are not necessarily indicative of the results to be expected for any other quarter. In that event, our results of operations may fluctuate significantly.
The cosmetics, fragrances and toiletries segment is susceptible to periodic slowdowns as a result of decreases in consumer purchasing power, economic downturns and unfavorable economic cycles.
The success of operations in most of the business segments in which we operate depends on various factors related to consumer expenditures and consumers’ income, including general business conditions, interest rates, inflation, consumer credit availability, taxation, consumer confidence in future economic conditions, and employment and salary levels.
Our results of operations and financial condition have been, and will continue to be, affected by the growth rate of the GDP of the countries in which we operate. We cannot ensure that the GDP of the countries in which we operate will increase or remain stable. Developments in the macroeconomic conditions of the countries in which we operate, including Brazil which has been experiencing an economic slowdown since 2012, may affect such countries’ growth rates and, consequently, us. Any decrease or slowdown in such growth may materially adversely affect our sales and our results of operations. See “—Difficult market and geopolitical conditions can adversely affect our business in many ways, each of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition.”
Certain parts of our business are conducted primarily in one channel, direct selling.
Certain parts of our business are conducted primarily in the direct-selling channel. Sales are made to the ultimate consumer principally through direct selling by Natura consultants and Avon representatives, who are independent contractors and not our employees. There is a high rate of turnover among representatives, which is a common characteristic of the direct-selling business. Our direct-selling model contains an inherent risk of bad debt associated with providing representatives with credit, which is exacerbated if the financial condition of the representatives deteriorates. Additionally, consumer purchasing habits, including reducing purchases of beauty and related products generally, or reducing purchases from representatives through direct selling by buying beauty and related products in other channels such as retail, could reduce our sales, impact our ability to execute our global business strategy or have a material adverse effect on our business, prospects, financial condition, liquidity, results of operations and cash flows.
Within the direct-selling channel, we often compete on country-by-country basis with our direct-selling competitors. There are a number of direct-selling companies that sell product lines similar to ours, some of which have worldwide operations and compete with us globally. Unlike a typical CPG company which operates within a broad-based consumer pool, direct sellers compete for representative or entrepreneurial talent by providing a more competitive earnings opportunity or “better deal” than that offered by the competition. Providing a compelling earnings opportunity for our Natura consultants and Avon representatives is as critical as developing and marketing new and innovative products. Therefore, in contrast to typical CPG companies, we must first compete for a limited pool of representatives before we reach the ultimate consumer.
Consultants and representatives are attracted to a direct seller by competitive earnings opportunities, often through what are commonly known as “field incentives” in the direct-selling industry. As a result, we are subject to significant competition for the recruitment of consultants and representatives from other direct-selling or network marketing organizations as well as significant competition from other non-direct selling earnings opportunities. Changes to our compensation models are sometimes necessary to be competitive but could have short-term negative impacts on our total number of consultants and representatives. It is therefore continually necessary to innovate and enhance our direct-selling and service model as well as to recruit and retain new consultants and representatives. If we are unable to do so, our business will be adversely affected.
Additionally, if we lose market share in the direct-selling channel, our business, prospects, financial condition, liquidity, results of operations and cash flows may be adversely affected. Furthermore, if any government or regulatory body such as Brazil or the EU bans or severely restricts our business methods or operational/commercial model of direct selling, our business, prospects, financial condition, liquidity, results of operations and cash flows may be materially adversely affected.
We may face challenges in developing our multichannel strategy and expanding our operations to e-commerce.
The coordinated operation of our network of physical stores and e-commerce platforms across multiple brands is fundamental to the success of our multichannel strategy. We plan to continue our investments in digital growth to empower consultants to sell online, as well as enhance our digital tools to foster social media sales and welcoming new online customers. If we are unable to align and integrate the strategies of our multiple sales channels, or if our respective sales channels compete against each other, we may be unable to fully benefit from the advantages that an multichannel which may materially adversely affect us.
Also, consumers are increasingly embracing online shopping and mobile commerce applications. We expect a greater portion of total consumer expenditures with retailers and wholesalers to occur online and through mobile commerce applications. If we fail to maintain or grow our overall market position through the integration of our physical retail presence and e-commerce platform across our brands, including our efforts to replace our temporarily closed stores sales by online sales, our net revenue and financial performance could be adversely affected. In addition, a greater concentration of retail and wholesale sales in online and mobile commerce sales could result in a reduction in the amount of traffic we have in our physical stores, once those stores are reopened.
Conditions in the online sales market could also change rapidly and significantly as a result of technological advances. New start-up companies that innovate and large competitors that are making significant investments in e-commerce may create similar or superior e-commerce platforms and technologies that will be disruptive both to our e-commerce and the operations of our physical stores.
As we continue expanding our e-commerce operations across our brands, we will continue to face risks associated with online businesses. In addition, we may continue to pursue strategies within e-commerce that our brands have not utilized before, and we may expand into e-commerce in countries and jurisdictions in which we have less experience and in which our brands may be less well-known by customers. We may be unable to attract a sufficient number of customers and other participants, fail to anticipate competitive conditions or face difficulties in operating effectively across all of our channels and business formats, and could also be the target of illegal and fraudulent uses of our e-commerce platforms. Accordingly, any efforts to expand our e-commerce operations may not be successful, which could limit our ability to grow our revenue, net income and profitability, adversely affecting our results of operations. See “Item 4. Information on the Company—B. Business Overview—Our Distribution Processes.”
Restrictions on credit availability to consumers may adversely affect the sales volumes of certain of our subsidiaries.
Sales in installments account for a portion of the results of operations of retail companies in a number of countries in which we operate. An increase in the unemployment rate, combined with high interest rates to consumers, may result in increased restrictions on the availability of credit to consumers generally. Our sales volumes and, consequently, the result of operations of certain of our subsidiaries may be adversely affected if credit availability to consumers decreases, or if government policies are introduced that further restrict the granting of credit to consumers.
Governments may introduce from time to time regulations designed to regulate the availability of credit in order to reduce or increase consumption and, consequently, to control the rate of inflation. We cannot assure you that in the future the governments in the countries in which we operate will not adopt new regulations that reduce the access of our customers to credit from financial institutions.
In addition to providing for sales in installments, we may also extend other forms of credit to customers. Any form of lending carries a risk that our customers may not repay the credit we extend to them. An increase in the unemployment rate, an increase in interest rates, or a protracted economic downturn may further reduce the likelihood of repayment by our customers, which could require us to suffer losses and raise the rates we charge in connection with certain products. Any increase in interest rates by us may decrease the likelihood that customers will be able to take on debt to purchase our products.
Reductions in credit availability and more stringent credit policies by us and credit card companies (as well as increased interest rates) may negatively affect sales of certain of our subsidiaries. Unfavorable economic conditions globally that impact the economy of the countries in which we operate, may significantly reduce available income and consumer expenditure, particularly in the lower income classes, who have relatively less credit access than higher income classes, more limited debt refinancing conditions and are more susceptible to increases in the unemployment rate. These conditions may cause a material adverse effect on our sales, our business and our results of operations.
Our dependence on credit card companies for sales and consumer financing is a growing trend.
Our business is relatively dependent on credit cards as it is one of the preferred payment methods of our customers. To execute credit card sales, we are dependent on the policies of credit card companies and are affected by the fees that such companies charge us. Any change in the policies of the credit card issuers, including, for example, the administration fee charged to merchants, could materially adversely affect our business and results of operations.
Our proprietary financial services platform, “Natura &Co Pay”, involves a number of risks.
Our proprietary financial services platform, which is intended to improve the businesses of consultants and representatives, Natura &Co Pay, focuses on providing customized services to our consultants and representatives. Natura &Co Pay acquired a white label platform whose application and back-end programming interface integration depended on third parties for regulatory approvals and financial services. We are subject to the risks inherent in the design, implementation, expansion and support process, which could compromise the delivery of the expected benefits and results, such as, but not limited to:
- reliance on certain strategic partners to operate part of our services;
- difficulties in integrating information technology, communications and other systems;
- changes in applicable laws and regulations;
- complexity of regulatory standards applicable to the different geographies in which we operate our business;
- failure to comply with applicable sectoral regulations, including data protection legislation in the countries where Natura &Co Pay operates;
- an adverse macroeconomic environment for the launch of new credit products;
- need for significant investments associated with the implementation, expansion, and ongoing updates to the platform;
- failure to design and implement an ideal group corporate structure;
- unforeseen expenses or delays, including delays to obtain applicable licenses and permits;
- difficulties in implementing internal controls over financial reporting consistently across all our businesses;
- lack of people with the necessary expertise to operate in a new and specific business segment;
- difficulties in establishing partnerships to expand the platform to new brands and regions;
- failure to create a corporate culture based on risk management and governance;
- cyberattacks and failures in information security controls that could result in improper access to sensitive data and noncompliance with Brazilian Central Bank regulations;
- increase in fraud due to an increase in the volume of financial transactions processed after obtaining the regulatory license to operate as a financial institution;
- delays in obtaining applicable licenses and authorizations; and
- other risks inherent to new business ventures.
The levels of satisfaction and engagement of our consultants and representatives may be adversely affected if the platform is not successfully implemented. Any such developments could adversely affect our ability to attract and retain our consultants and/or representatives. If we are unable to structure, implement, expand and sustain the initiative, our business, financial condition and results of operations may be adversely affected.
Our franchise business model, “Aqui tem Natura,” is subject to a number of risks.
We offer consultants with an entrepreneurial profile and a high sales volume the opportunity to launch a Natura franchise store (under our “Aqui tem Natura”), thereby becoming Beauty Entrepreneurs.
Our success increasingly relies on the financial success and cooperation of franchisees, yet we have limited influence over their operations. Our margins from physical retail stores arise from two primary sources: fees from franchised stores (e.g., rent and royalties based on a percentage of sales, as well as the revenues from products we sell to our franchisees) and, to a lesser degree, sales from company-operated stores. Our franchisees manage their businesses independently, and therefore are responsible for the day-to-day operation of their stores. The revenues we realize from franchised stores are largely dependent on the ability of our franchisees to grow their sales. If our franchisees do not experience sales growth, our revenues and margins could be negatively affected as a result. Also, if sales trends worsen for franchisees, their financial results may deteriorate, which could result in, among other things, store closures or delayed increase bad debts from non-payment in markets seriously affected by the global pandemic, or reduced payments to us, or disruption to head franchisee ordering pattern. Our refranchising effort will increase that dependence and the effect of those factors.
Our success also increasingly depends on the willingness and ability of independent franchisees to implement major initiatives, which may include financial investment, and to remain aligned with us on operating, promotional and capital-intensive reinvestment plans. We may also be negatively impacted to the extent franchisees terminate their franchise contracts. Franchisees’ ability to contribute to the achievement of our plans is dependent in large part on the availability to them of funding at reasonable interest rates and may be negatively impacted by the financial markets in general or by the creditworthiness of our franchisees or us. Our operating performance could also be negatively affected if our franchisees experience operational problems or project an image inconsistent with our brand and values, particularly if our contractual and other rights and remedies are limited, costly to exercise or subjected to litigation. If franchisees do not successfully operate stores in a manner consistent with our required standards, the image and reputation of our brands could be harmed, which in turn could materially adversely affect our business and operating results.
Avon may experience financial and strategic difficulties and delays or unexpected costs in completing Open Up & Grow and Avon Integration and any other restructuring and cost-saving initiatives, including achieving any anticipated savings and benefits of these initiatives.
Subsequent to the merger of Natura &Co and Avon in January 2020, an integration plan (the "Avon Integration") was established to create the right global infrastructure to support the future ambitions of the Natura &Co Group while also identifying opportunities to leverage the combined strength, scale and reach of Natura &Co and Avon. In addition, since 2018, Avon has sought to take steps to improve its business, financial condition and results of operations through the “Open Up Avon” and, since 2020, the “Open Up & Grow” initiatives.
As of the date of this annual report, Avon has not realized the anticipated savings or benefits of these initiatives. In addition, Avon may not realize anticipated savings or benefits from one or more of the various restructuring and cost-saving initiatives it may undertake as part of these efforts in full or in part or within the time periods expected. Other events and circumstances, such as financial and strategic difficulties and delays or unexpected costs, including the impact of foreign currency and inflationary pressures, may occur which could result in Avon’s not realizing its targets or in offsetting the financial benefits of reaching those targets. If Avon is unable to realize these savings or benefits, or otherwise fails to invest in the growth initiatives, Avon’s business may be adversely affected. In addition, any plans to invest these savings and benefits ahead of future growth means that such costs will be incurred whether or not Avon realizes these savings and benefits. Avon is also subject to the risks of labor unrest, negative publicity and business disruption in connection with these initiatives, and the failure to realize anticipated savings or benefits from such initiatives could have a material adverse effect on Avon’s business, prospects, financial condition, liquidity, results of operations and cash flows.
There can be no assurance that Avon will be able to improve revenue, margins and net income or achieve profitable growth.
There can be no assurance that Avon will be able to improve revenue, margins and net income, or achieve profitable growth in the future, particularly in Avon’s largest markets and developing and emerging markets. Improving revenue, margins and net income and achieving profitable growth will depend on Avon’s ability to improve financial and operational performance and execute Avon’s global business strategy, and there can be no assurance that Avon will be able to achieve these goals. Avon’s ability to improve could be hindered by competing business priorities and projects.
To improve revenue, margins and net income and achieve profitable growth, Avon also needs to successfully implement certain initiatives, including Open Up & Grow and Avon Integration, and there can be no assurance that Avon will be able to do so. Avon’s achievement of profitable growth is also subject to the strengths and weaknesses of Avon’s individual international markets, which are or may be impacted by global economic conditions. We cannot assure that Avon’s broad-based geographic portfolio will be able to withstand an economic downturn, recession, cost or wage inflation, commodity cost pressures, economic or political instability (including fluctuations in foreign exchange rates), competitive pressures or other market pressures in one or more particular regions.
Failure to improve revenue, margins and net income and to achieve profitable growth could have a material adverse effect on Avon’s business, prospects, financial condition, liquidity, results of operations and cash flows, including its ability to continue as a going concern.
We are not insured against all risks affecting our activities and our insurance coverage may not be sufficient to cover all losses and/or liabilities that may be incurred by our operations.
We cannot provide assurance that our insurance coverage will always be available or will always be sufficient to cover any damages resulting from any kind of claims. In addition, there are certain types of risks that may not be covered by our policies, such as war, force majeure or certain business interruptions. In addition, we cannot provide assurance that when our current insurance policies expire, we will be able to renew them at sufficient and favorable terms. Claims that are not covered by our policies or the failure to renew our insurance policies may materially adversely affect us.
Changes in the availability and costs of energy and other utilities could materially adversely affect us.
Our operations consume material quantities of energy and other utilities. Energy and utility prices have been subject to significant price volatility in the recent past, including as a result of climate conditions, and may fluctuate again in the future. For instance, high energy prices over an extended period of time, as well as changes in energy taxation and regulation in certain geographies, may result in a material adverse effect on our operating revenues and could materially adversely affect our profitability. There is no guarantee that we will be able to pass along increased energy and public utility costs to our customers.
See also “—Climate change can create transition risks, physical risks and other risks that could adversely affect us.”
Failure to partner with startups successfully could materially adversely affect us.
Some of our innovation initiatives result from partnerships with startups. Partnerships with startups are different from partnerships with more mature companies and involve a number of risks, including the following:
- risks to our reputation;
- our resources may be insufficient to support an open innovation model;
- our ability to adapt and transform our internal processes to sustain partnership relationships with startups;
- we may become dependent on technologies and solutions developed by third parties;
- startups are, by definition, new businesses, and therefore may have a less robust professional culture;
- our partnerships with startups may be adversely affected by disputes among the partners and founders of these companies, including disputes arising as a result of a lack of formal arrangements among such persons, such as shareholders’ agreements;
- delays in obtaining licenses and permissions may jeopardize our and our partners’ ability to meet deadlines, which could have a detrimental effect on our partners’ cash flows;
- our partnerships with startup companies may be interrupted as a result of acquisitions of, and/or investments into, our partners, including by our competitors;
- partnerships with startups may involve the exchange of sensitive information regarding part of our plans and strategies, which may not be adequately protected; and
- changes may occur that adversely affect the innovative aspect of the partnership.
Any inability to form effective partnerships with startup companies may compromise our ability to innovate, which could have a material adverse effect on our business, financial condition and results of operations.
We may not be able to protect our intellectual property rights. If we are unable to protect our intellectual property rights, specifically patents and trademarks, our ability to compete could be adversely affected.
Our future success depends significantly on our ability to protect our current and future brands (including our private labels) and to defend our intellectual property rights, including trademarks, patents, domain names, trade secrets and know-how. Additionally, the improper or unauthorized use of our intellectual property rights, especially trademarks, may decrease the value of our brands, as well as cause a decline in our sales. There is also a risk that we could, even if by omission, fail to renew a trademark in a timely manner or that third parties will challenge, and succeed in obtaining the invalidation of any existing or future trademarks issued to, or licensed to us. Monitoring the unauthorized use of intellectual property requires significant efforts, and we cannot be certain that the steps we have taken to protect our portfolio of intellectual property rights will be sufficient or that third parties will not infringe upon or misappropriate proprietary rights. If we are unable to protect our proprietary rights against infringement or misappropriation, it could have a material adverse effect on us, and in particular, on our ability to develop our business.
The market for our products depends to a significant extent upon the value associated with our product innovations and our brand equity. We own the material patents and trademarks used in connection with the marketing and distribution of our major products where such products are principally sold. There can be no assurance with respect to the rights associated with intellectual property registered in certain countries where we operate. In addition, the laws of certain foreign countries, including many emerging markets, may not completely protect our intellectual property rights. The costs required to protect our patents and trademarks, especially in emerging markets, may be substantial.
Counterfeiting and imitation have occurred in the past for many consumer products, including cosmetics. As our brands are well-known brands around the world, we have in the past experienced counterfeiting and imitation of our products. We are unable to guarantee that counterfeiting and imitation will not occur or, if it does occur, that we would be able to detect and address the problem effectively. Any occurrence of counterfeiting or imitation could impact negatively upon our reputation and brand name, lead to loss of consumer confidence in our brand, and, as a consequence, adversely affect our results of operations.
The laws of some foreign countries do not protect our proprietary rights as fully as do the laws of Brazil, the United States, the United Kingdom, or the member states of the EU. As a result, we may not be able to protect our intellectual property rights adequately by legal means in some of the jurisdictions where we do business. Litigation may be necessary in the future to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. The costs required to protect our trademarks, trade names and patents, including legal fees and expenses, could be substantial.
Litigation may also be necessary to defend against claims of infringement or invalidity by others as we actively pursue innovation in the cosmetics and toiletries industry and enhance the value of our intellectual property portfolio. An adverse outcome in litigation or any similar proceedings could adversely affect our business, financial condition and results of operation. In addition, the diversion of management’s attention and resources while addressing any intellectual property litigation claim, regardless of whether the claim is valid, could be significant and could significantly affect our business, financial condition and results of operation.
Please see “Item 4. Information on the Company—B. Business Overview—Intellectual Property” for further information relating to our intellectual property.
Unauthorized disclosure of sensitive or confidential customer information or our failure or the perception by our customers that we failed to comply with privacy laws or properly address privacy concerns could materially harm our business and standing with our customers.
We collect, store, process and use personal information and other customer data in our business. A significant risk associated with our business and communications in general is the secure transmission of confidential information over public networks. The perception of privacy concerns, whether or not valid, may adversely affect us. We also collect and process a considerable volume of employee, consultant/representative and customer related information, including health related, ethnicity, race, and biometric data and other categories of personal data. These data are considered, in Brazil as well as in international legislation on data protection, to be sensitive personal data and subject to a stricter legal regimen and regulation. We are required to ensure that any processing, collection, use, storage, dissemination, transfer and disposal of data for which we are responsible comply with relevant data protection and privacy laws. Furthermore, the protection of our customers’, employees’, business partners` and company’s data is critical to us, as, for example, currently, a number of our customers authorize us to bill their credit card accounts directly. We rely on commercially available systems, software, tools and monitoring to provide secure processing, transmission and storage of confidential information, such as credit card and other personal information.
A significant risk associated with our business and communications in general is the secure transmission of confidential information over public networks. Our facilities and systems, either of our e-commerce platform or our physical stores, as well as those of our third-party service providers, may be vulnerable to security breaches, fraud, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors, or other similar events. Any security breach, or any perceived failure involving the misappropriation, loss or other unauthorized disclosure of confidential information, as well as any failure or perceived failure to comply with laws, policies, legal obligations or industry standards regarding data privacy and protection, whether by us or vendors in our online marketplace platform, could damage our reputation, expose us to litigation risk and liability, subject us to negative publicity, disrupt our operations and harm our business. We cannot provide assurance that our security measures will prevent security breaches or that failure to prevent them will not have a material adverse effect on us.
Recently, the progress of artificial intelligence, or AI, has resulted in a significant increase in data privacy challenges. As organizations adopt AI-based solutions to improve the efficiency and personalization of services, there is growing concern about the protection of users’ personal data. Collecting, saving and processing large volumes of data to feed AI algorithms can expose organizations to significant privacy risks, including unauthorized access, misuse of sensitive information and violation of data protection regulations. We may not be able to apply effective control measures given the complexity involved.
The interests of our controlling shareholders may conflict with the interests of our other shareholders.
Our controlling shareholders have the power to, among other things, appoint the majority of the members of our board of directors and determine the outcome of certain resolutions requiring approval from shareholders, even though they do not hold more than 50% of our voting capital.
The controlling shareholders may also have an interest in making acquisitions, disposals, partnerships, obtaining financing or entering into similar transactions that may conflict with the interests of our other shareholders and, in such cases, the interests of the controlling shareholders may prevail. The exercise by controlling shareholders of voting power or other rights may conflict with the interests of other shareholders and have a material adverse impact on ’our financial condition and business. We cannot assure you that the interests of the controlling shareholders will be aligned with the interests of our other shareholders’. For further information on our controlling shareholders, please see “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders.”
No shareholders or group of shareholders holds more than 50% of our voting capital.
We do not have a controlling shareholder or a group of control bound by a voting agreement that holds more than 50% of our voting capital. The absence of a controlling shareholder or a controlling group bound by a voting agreement that owns more than 50% of the voting capital may make it difficult to conduct certain decision-making processes, to the extent certain minimum quorums established by law for certain resolutions may not be reached.
Climate change can create transition risks, physical risks and other risks that could adversely affect us.
Climate risk is as a transversal risk that can be an aggravating factor for the types of traditional risks that we manage in the ordinary course of business, including without limitation the risks described in this “Item 3. Key Information—D. Risk Factors” section. Based on the Task-Force on Climate-Related Financial Disclosures recommendations, we consider different possible future climate scenarios to assess the potential impacts of climate change.
The risks and opportunities to our business we have identified as a result of this analysis can be grouped into seven broad areas of impact:
- Products that meet consumer preferences and behavior: to transform our business model in line with our climate commitments, it will be necessary to deliver solutions that are both environmentally and financially sustainable. We recognize that consumer-preference for more sustainable, lower climate impact products may be limited by expectations concerning price, aesthetics, functionality, and the ability and willingness to pay for product premiumization. Consumer preferences and behavior are evolving rapidly and the transition to more sustainable products.
- Direct and indirect regulatory impacts: regulation designed to support a low carbon transition is relevant, to our business, ranging from requirements for sourcing transparency, ingredients, and product labeling, to regulation of packaging and plastics that generate operational and innovation costs for compliance. In addition, new carbon markets and reporting regulations in different jurisdictions have and will continue to increase carbon compensation costs, as well as potential indirect impacts through increased regulation in our supply chain. See also “— Changes in environmental laws and regulations can adversely affect our business, including our capacity to develop new products.”
- Supply chain, raw materials and biodiversity: Scope 3 emissions represent a significant portion of Natura &Co’s greenhouse gases impact, and the largest proportion of emissions are derived from the extraction of raw materials and the distribution, use and disposal of products. Evaluating and incorporating sustainable alternative materials across our product portfolios will be key for reducing embodied product emissions in line with our climate commitments. However, the low carbon transition, in addition to physical climate trends and shocks, will also generate disruption and volatility within supply chains, with potential impacts on availability, quality, sustainability and pricing, that we will need to navigate.
- Infrastructure and partnerships to support low carbon transition: Reaching global Net Zero will require systemic change, including transformation of energy systems, infrastructure, financing, regulations, and consumer behavior. Our sustainability strategy sets out our commitment to actively supporting this transition. However, achieving our goals in a cost-effective way will require an operating environment that enables and empowers more sustainable business models and formats. Where gaps in regulation, technology and infrastructure are not addressed in line with the necessary pace of this transition, this may create additional barriers and costs for the company. There are concerns that there will be deficits in technology and infrastructure to enable significant emissions reductions in consumer goods. The transition also relies on national and local governments implementing the necessary regulation and developing the required infrastructure (e.g., recycling, renewable energy), fostering market adjustments to prevent the unfair competition and inflation of transition costs for the business. Increased collaboration at the industry and government level may contribute to advancing sustainable infrastructure, and agroforestry partnerships may be a route to improving resilience and reducing carbon impact.
- Physical damage and disruption in our operations and supply chain: In line with observation during recent years and established climate science, rising average global temperatures impact the nature, location, frequency, and severity of potentially extreme weather events. The impact of these changes will vary across the geographies in which we have direct operations, generating a need for adaptation actions, in addition to impacting our suppliers, partners, customers, and the infrastructure on which our operations rely.
- Operational processes, efficiency and resilience: Natura &Co Latam has committed to achieving Net Zero in its operations by 2030 and has advanced in improving efficiency and incorporating renewable energies in line with this. Nonetheless, achieving this target will require efficient capital allocation decisions, and the transition to a low carbon economy may create additional costs, for example, related to technology or competition for renewable resources. On the other hand, physical climate changes also create stress for facilities and logistics assets that will require investment in adaptation measures to ensure that operational continuity can be maintained and that our employees work in safe and comfortable conditions.
- Reputation, stakeholder and investor expectations: As climate change continues to rise up the political agenda and public consciousness, we can expect increasing scrutiny on the consistency and adequacy of companies’ actions to reduce their impact and support the low carbon transition. This has already been seen in markets such as Europe, where regulatory action has sought to crack down on greenwashing. For many years, our strategy and brand image have been closely linked to sustainability and natural attributes, and safeguarding of our reputation among our shareholders, investors, consumers and business partners is critical.
Any such developments could have a material adverse effect on our business. In addition, if our practices do not meet our organizational needs or do not live up to our own sustainability values, then our brands, reputation and employee retention may be adversely affected.
Changes in environmental laws and regulations can adversely affect our business, including our capacity to develop new products.
Our operations are subject to strict environmental laws at the national, sub-national and municipal levels, including regulations related to water consumption, solid waste, biodiversity protection and gas emissions, among others. In addition, we require permits and licenses to carry out certain of our activities. If we fail to comply with these laws and regulations or obtain the required permits and licenses, we could be subject to fines and other sanctions including the cancellation of our permits and licenses and we and our executive officers and directors could be subject to criminal sanctions. Certain environmental licenses and permits that we require to carry out some of our activities are in the process of being obtained or renewed, and we cannot assure you that we will be able to obtain or renew such licenses. We may have to incur in expenses related to remedial environmental measures or suspend certain of our operations until remedial measures are taken. Government agencies or other authorities may also enact new rules and regulations that are more restrictive or may interpret existing laws and regulations more restrictively, which could result in additional expenses related to compliance with environmental laws and regulations, which in turn, could adversely affect our business, financial condition and results of operations.
In particular, environmental rules and regulations could become more restrictive in areas related to our activities, including with regard to climate change (greenhouse gas emission standards), solid waste (targets for return of packaging to us and its recycling after use by consumers) and water resources (payments by companies for use of water), among other issues.
Our innovation strategy is mainly based on using the biodiversity of the Pan-Amazon region. This critical element of our strategy could be impaired if new laws or regulations, or different interpretations of existing laws, further restrict the use of Brazil’s natural resources or the associated traditional knowledge, potentially increasing our research and development costs. The biodiversity protection rules set forth in the UN Convention on Biological Diversity, in the Nagoya Protocol (ratified in August 2020 in Brazil) on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits Arising from their Utilization and in applicable laws represents additional costs and challenges to our research and development initiatives. In the future, these rules could become stricter, increasing our innovation and product launch costs. These changes could adversely affect our business, financial condition and results of operations, as well as our image as a company that creates, among others, products developed from the natural resources found in Brazil’s vast ecosystems.
See also “—Climate change can create transition risks, physical risks and other risks that could adversely affect us.”
Changes in taxes and other assessments may adversely affect us.
The legislatures and tax authorities in the tax jurisdictions in which we are subject to tax regularly enact reforms to the tax and other assessment regimes to which we, our consultants and representatives, and our customers are subject. Such reforms include changes in tax rates and, occasionally, enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes. In addition, the interpretation of tax laws by courts and taxation authorities is constantly evolving. The effects of these changes and any other changes that result from enactment of additional tax reforms or changes to the manner in which current tax laws are applied cannot be quantified and there can be no assurance that any such reforms or changes would not have an adverse effect upon our business directly or indirectly (e.g., by affecting the business of our consultants and representatives).
Brazil, where most of our operations are conducted, recently passed a major tax reform. The transition to the new Brazilian tax system will be gradual, with implementation scheduled to start in 2026 and end in 2033. The exact impact of this reform on us cannot yet be quantified because although the legislation already details changes to tax bases, rates and general obligations, some elements of it remain to be finalized. Nevertheless, everything indicates that the single-phase taxation of federal taxes will be abolished, resulting in an increase in the Brazilian federal tax burden. We cannot assure you that we will not suffer a material adverse effect on our business, financial condition and results of operations, whether directly or indirectly (for example, by affecting the business of our consultants and representatives). In addition, the legislation passed remains subject to potential amendments which may further increase the tax burden on us.
The Brazilian Congress has also been discussing proposals for change to the corporate income tax. These potential amendments to Brazilian tax laws and other potential changes to Brazilian tax laws may result in an increase of the tax burden and may directly or indirectly impact our business. These and any other possible future changes in tax policy laws in the countries where we are subject to tax may adversely affect our business, financial condition and results of operations.
We may not be able to identify and acquire new acquisition targets, or realize the benefits of business divestitures, or otherwise meet our strategic and financial goals in connection with any business acquisitions and divestitures we seek to undertake, and difficulties in effectively integrating and managing a growing number of acquisitions, or separating from divested businesses, may adversely affect our strategic objectives.
We may from time to time wish to start operating in markets where we currently have little or no presence, and to consider potential strategic alliances that would complement our current product offerings, increase the size and geographic scope of our operations or otherwise present growth and/or other opportunities. We cannot assure you that we will be able to identify targets responsive to these criteria that provide suitable acquisition opportunities, or to acquire such targets on favorable terms or at all. In addition, we may engage from time to time in divestitures of businesses or assets, and we cannot assure you that we will able to find suitable purchasers (including, without limitation, purchasers with appropriate creditworthiness), or to complete any such divestiture on favorable terms or at all.
Any previous and any future acquisitions and divestitures involve a number of risks and challenges that may have a material adverse effect on our business, financial condition and results of operations, including the following:
- failing to realize the strategic and other commercial objectives behind any acquisition or divestiture;
- acquisitions or divestitures may be subject to approval by regulatory authorities, which may deny the necessary approvals for, or impose conditions or restrictions on, the transaction;
- changes in laws and regulations with a significant impact on our business, our products and our operations;
- competition with established competitors in new markets, who may have greater knowledge of those markets and/or resources to expend in those markets than we do;
- difficulties in assimilating acquired operations or products, including the loss of key employees from any acquired businesses and disruption to our direct-selling channel;
- difficulties in understanding and adapting to local cultural norms, including, but not limited to, consumption patterns, seasonal effects, consumer trends and preferences, as well seasonal effects;
- acquisition and divestiture processes may require additional funds and/or may be time-consuming, and past and future acquisitions or divestitures and the subsequent integration or separation of new assets and businesses require significant attention from our management and could result in a diversion of resources from our existing business, which in turn could have a material adverse effect on our business operations;
- substantial costs, delays or other operational or financial difficulties, including difficulties in leveraging the expected synergies among the businesses to increase sales and obtain cost savings or achieve our expected results;
- in a divestment, substantial costs, delays or other operational or financial difficulties in a separation or carve-out;
- difficulties in assimilating acquired operations or products, including the loss of key employees from any acquired businesses and disruption to our direct-selling channel;
- adverse effects on existing business relationships with suppliers and customers;
- certain other risks involved in entering markets in which we have limited or no prior experience; and
- reputational and other risks regarding our ability to enter new markets successfully or to implement such strategic alliances, including obtaining financing which could dilute the interests of our shareholders, result in an increase in our indebtedness, or both.
We may from time to time assess divestiture opportunities and conduct divestitures where we believe such transactions would be beneficial to our business strategy. Divestitures may require us to expend significant time, funds and other resources, and may not always be completed within the expected time frame or on the terms and conditions that we expect. We may also be unable to reap the benefits of any divestitures we undertake. Our asset base, total revenue, cash flows and net income may also be reduced significantly following a divestiture, which could adversely affect our business, financial condition and results of operations as well as our ability to make distributions to our shareholders and result in a decrease in the price of our common shares. Any divestiture, whether we are able to complete it or not, may involve a number of risks, including receipt of the consideration for which we sold an asset or entity, receipt of sums owed to us or our subsidiaries by entities formerly part of our group, diversion of management’s attention, a negative impact on our customer relationships, costs associated with maintaining the business of the targeted divestiture during the disposition process, and the costs of closing and disposing of the affected business or transferring remaining portions of the operations of the business to other facilities. Furthermore, to the extent that we are not successful in completing desired divestitures, as such may be determined by future strategic plans and business performance, we may have to expend substantial amounts of cash, incur debt, or continue to absorb the costs of loss-making or under-performing assets.
The success of any acquisition, business combination, divestiture or other strategic transaction depends to a significant extent on our ability to accurately assess valuation, business operations, growth potential, integration and other factors relating to the company or business in question. Such assessments may not be accurate and such transactions may not be completed on terms and conditions or within a time frame favorable to us, or that we will be able to reap the benefits of any such transaction either in full or at all.
Our failure to acquire other businesses or assets, complete the integration of any new or acquired businesses successfully, enter new markets, enter into strategic alliances or to complete divestitures effectively could have a material adverse effect on our business, prospects, financial condition, liquidity, results of operations and cash flows. In addition, there can be no assurance that we will be able to identify suitable candidates or consummate such transactions on favorable terms or at all.
On December 29, 2023, we concluded the sale of Natura (Brasil) International B.V., the holding company of The Body Shop, to Aurelius Investment Advisory Limited for a total purchase price of £207 million, including deferred and contingent consideration (in the form of an earn-out) of £90 million (or R$829.4 million based on the real/U.S. dollar exchange rate as of December 31, 2023). On February 13, 2024, The Body Shop entered administration in the United Kingdom and Geoffrey Paul Rowley, Alastair Rex Massey, and Anthony John Wright of FRP Advisory were appointed as joint administrators. Subsequently, certain of The Body Shop’s subsidiaries in the United States, Canada and Germany also entered into insolvency proceedings. We cannot assure you that we will be able to receive the full amount of receivables arising from the sale of The Body Shop owed to us nor that Avon will be able to receive the full amount of operational receivables owed to it by The Body Shop. We also cannot assure you that The Body Shop’s UK administration will not have a material adverse effect on our or Avon’s business, financial condition, liquidity, results of operations and cash flows. See also “Item 4. Information on the Company—A. History and Development of the Company—History—Recent Developments—Administration of The Body Shop” and note 36.1, “Subsequent events,” to our audited consolidated financial statements included elsewhere in this annual report for more information.
Our indebtedness and any future inability to meet any of our obligations under our indebtedness, could adversely affect us by reducing our flexibility to respond to changing business and economic conditions.
As of December 31, 2023, we had R$7.3 billion of indebtedness outstanding (current and non-current borrowings, financing, debentures and leases). We rely on obtaining financing and refinancing of existing indebtedness in order to operate our business, implement our strategy and grow our business. Recent disruptions in the global credit markets and their effect on the global and Brazilian economies could materially adversely affect our ability to raise capital and materially and adversely affect our business. We may also incur additional long-term indebtedness and working capital lines of credit to meet future financing needs, subject to certain restrictions under our indebtedness, which would increase our total indebtedness. We may be unable to generate sufficient cash flow from operations and future borrowings, and other financing may be unavailable in an amount sufficient to enable us to fund our current and future financial obligations or our other liquidity needs, which would have a material adverse effect on our business, prospects, financial condition, liquidity and results of operations as well as reduce the availability of our cash flow to fund working capital, operations, capital expenditures, dividend payments, strategic acquisitions, expansion of our operations and other business activities. Our indebtedness could have material negative consequences on our business, prospects, financial condition, liquidity, results of operations and cash flows, including the following:
- limitations on our ability to obtain additional debt financing sufficient to fund growth, such as working capital and capital expenditures requirements or to meet other cash requirements, in particular during periods in which credit markets are weak;
- a downgrade in our credit ratings;
- a limitation on our flexibility to plan for, or react to, competitive challenges in our business and the beauty industry;
- the possibility that we are put at a competitive disadvantage relative to competitors with less debt or debt with more favorable terms than us, and competitors that may be in a more favorable position to access additional capital resources and withstand economic downturns;
- limitations on our ability to execute business development activities to support our strategies or ability to execute restructuring as necessary; and
- limitations on our ability to invest in recruiting, retaining and servicing our consultants and representatives.
Natura &Co Holding, Natura Cosméticos and Avon may also need to refinance all or a portion of their respective debt on or before maturity and may not be able to do this on commercially reasonable terms or at all. Certain of our indebtedness contain customary covenants, including, among other things, limits on the ability of the company and any restricted subsidiary to, subject to certain exceptions, incur liens, incur debt, make restricted payments, make investments or, with respect to certain entities, merge, consolidate or dispose of all or substantially all of its assets. In addition, we could have difficulty undertaking other alternatives to avoid noncompliance, such as obtaining necessary waivers from compliance with, or necessary amendments to, the covenants contained in our notes or repurchasing certain debt, and we could have difficulty addressing the impact any noncompliance with these covenants may have on our ability to secure financing with favorable terms.
The global economy has experienced significant disruptions in supply chains and reductions in international trade and business activity over the last few years as a result of geopolitical, economic and social crises. These factors have been compounded by ongoing conflicts around the world, such as the Russia-Ukraine and Israel-Hamas conflicts, as well as tensions in the Middle East. Substantial volatility in the global capital markets, unavailability of financing in the global capital markets at reasonable rates and credit market disruptions have had a significant negative impact on financial markets, as well as on the global and domestic economies. In particular, the cost of financing in the global debt markets has increased substantially, greatly restricting the availability of funds in such markets. Further, volatility in the markets has led to increased costs for obtaining financing in the credit markets, as many creditors have raised interest rates, adopted more rigorous loan policies, reduced volume and, in some cases, ceased offering financing on standard market terms. If we are unable to obtain new financing or to refinance existing loans when necessary or obtain or renew insurance guarantees on reasonable terms or at all, we may face difficulties in complying with our financial obligations or explore business opportunities. This possible scenario would have a material adverse effect on our business, financial condition and results of operations.
Changes in accounting standards could impact reported earnings.
The accounting standard setters and other regulatory bodies periodically change the financial accounting and reporting standards that govern the preparation of our consolidated financial statements. These changes can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retrospectively, resulting in the recast of prior period financial statements.
We may experience material weaknesses or significant deficiencies in our internal control over financial reporting in the future or otherwise fail to maintain an effective system of internal controls in the future, as a result of which, we may not be able to accurately report our financial condition or results of operations which may adversely affect investor confidence in us and, as a result, the value of our common stock. In addition, our disclosure controls and procedures over financial reporting may not prevent or detect all errors or acts of fraud.
Since the completion of the Transaction, Natura &Co Holding, as a foreign private issuer, began to be required to comply with the reporting, disclosure control and other applicable obligation under the Exchange Act, the Sarbanes-Oxley Act and Dodd Frank Act, as well as rules adopted, and to be adopted, by the SEC.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our cash flows, results of operations or financial condition. If we are unable to conclude that our internal controls over financial reporting are effective, or if the independent registered public accounting firm reports that we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the trading price of our shares could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal controls over financial reporting, or to implement or maintain other effective control systems required of public companies in the United States, could also restrict our future access to capital markets and reduce or eliminate the trading market for our shares.
Disclosure controls and procedures over financial reporting are designed to provide reasonable assurance that information required to be disclosed by the company is accumulated and communicated to management, and recorded, processed, summarized and reported in accordance with applicable rules.
These disclosure controls and procedures have inherent limitations which include the possibility that judgments in decision-making can be faulty and that breakdowns occur because of errors or mistakes. Additionally, controls can be circumvented by any unauthorized management override of controls. Consequently, our businesses are exposed to risk from potential noncompliance with policies, employee misconduct or negligence and fraud, which could result in regulatory sanctions, civil claims and serious reputational or financial harm. It is not always possible to deter employee misconduct and the precautions we take to prevent and detect this activity may not always be effective. Accordingly, because of the inherent limitations in the control system, misstatements due to error or fraud may occur and not be detected.
See also “Item 15. Controls and Procedures—A. Disclosure Controls and Procedures.”
Our business could be negatively impacted by social impact and sustainability matters.
There is an increased focus of certain investors, customers, consumers, employees, and other stakeholders on ESG, social impact and sustainability matters. From time to time, we announce certain initiatives, including goals and commitments, regarding environmental matters, packaging, responsible sourcing, social investments and inclusion and diversity, among other topics. We could fail, or be perceived to fail, in our achievement of such initiatives, or in accurately reporting our progress on such initiatives. Such failures could be due to changes in our business (e.g., shifts in business among distribution channels or acquisitions).
Moreover, the standards by which citizenship and sustainability efforts and related matters are measured are developing and evolving, and certain areas are subject to assumptions that could change over time. In addition, we could be criticized for the scope of our initiatives or goals or be perceived as not acting responsibly in connection with these matters. While our sustainability strategy and practices and the level of transparency with which we are approaching them are important to our business, they expose us to several risks, including:
- that our disclosures related to ESG may result in heightened scrutiny of our ESG performance, including stricter accounting requirements, activities and decisions from stakeholders or other third parties;
- that a failure or perception of a failure to disclose metrics and set goals that are rigorous enough or in an acceptable format, a failure to appropriately manage the selection of goals, a failure or perception of a failure to make appropriate disclosures, stakeholder perception of a failure to prioritize the “correct” ESG goals or an unfavorable ESG-related rating by a third party could negatively impact our brands, reputation and business;
- that certain metrics we utilize that receive limited assurance from and/or verification by third parties may involve a less rigorous review process than assurance sought in connection with more traditional audits, and such a review process may not identify errors and may not protect us from potential liability under the securities laws;
- that (1) ESG or sustainability standards, norms or metrics, which are constantly evolving, change in a manner that impacts us negatively or requires us to change the content or manner of our disclosures, and our stakeholders or third parties view such change(s) negatively, (2) we are unable to adequately explain such changes or (3) we are required to expend significant resources to update our disclosures, any of which could negatively impact our brands, reputation and business; and
- that our brands, reputation and business could be adversely affected if any of our disclosures are inaccurate, perceived to be inaccurate or alleged to be inaccurate.
Furthermore, if our practices do not meet investor or other stakeholder expectations and standards (which are continually evolving and may emphasize different priorities than the ones we choose to focus on), or if our practices do not live up to our own values or ESG- and sustainability-related goals, then our brands, reputation and employee retention may be adversely affected. Any such matters, or related social impact and sustainability matters, could have a material adverse effect on our business.
Achieving sustainability performance targets linked to certain of our indebtedness may require us to expend significant resources, while not meeting any such targets would result in increased interest payments on our debt and could expose us to reputational risks.
Certain of our indebtedness is linked to sustainability performance targets. Achieving these targets will require us to reduce our greenhouse gas emissions and increase our use of post-consumer recycled plastic. Therefore, pursuing such sustainability performance targets or any similar sustainability performance targets we may choose to include in future financings or other arrangements will require us to expend significant resources. In addition, if we do not achieve our sustainability performance targets or any such similar sustainability performance targets we may choose to include in any future financings, it would not only result in increased interest payments under the relevant indebtedness, but could also harm our reputation, the consequences of which could, in each case, have a material adverse effect on us, our business prospects, our financial condition or our results of operations.
Public health emergencies or any future outbreaks of highly contagious diseases, could materially and adversely impact our business, financial condition, liquidity and results of operations.
Although the World Health Organization declared that COVID-19 no longer constitutes a public health emergency, certain adverse effects of the COVID-19 pandemic continued to impact the macroeconomic environment in 2023 and may persist for some time. If new COVID-19 waves or variants of the virus, the emergence of variants resistant to existing vaccines, or any other highly contagious diseases or other public health emergencies force countries to readopt measures that restrict economic activity, the macroeconomic environment could deteriorate and adversely impact our business and results of operations. Moreover, our operations could still be impacted by risks from remote work or bans on nonessential activities. If, in connection with any future public health emergencies, we become unable to successfully operate our business from remote locations including, for example, due to failures of our technology infrastructure, increased cybersecurity risks, or governmental restrictions that affect our operations, this could result in business disruptions that could have a material and adverse effect on our business. The resurgence of COVID-19, variants thereof or any future outbreak of any other highly contagious diseases or other public health emergencies may have a material adverse effect on our business, financial condition, liquidity and results of operations or cause other risks to us.
Risks Relating to the Countries in Which We Operate
Our business may be materially adversely impacted by unfavorable economic, political, social or other developments and risks in the countries in which we operate.
We may be materially adversely affected by unfavorable economic developments in any of the countries where we have distribution networks, marketing companies or production facilities. In particular, our business is dependent on general economic conditions in our most important markets, including in Brazil, Mexico and Argentina. A significant deterioration in economic conditions in any of our important markets, including economic slowdowns or recessions, inflationary pressures, banking or financial crises and/or disruptions to credit and capital markets, could lead to decreased consumer confidence and consumer spending more generally, thus reducing demand for our products. Unfavorable economic conditions could also negatively impact our customers, suppliers and financial counterparties, who may experience cash flow problems, increased credit defaults or other financial issues. In addition, volatility in the credit and capital markets caused by unfavorable economic developments and uncertainties could result in a reduction in the availability of, or an increase in the cost of, our financing. Our business could also be affected by other economic developments such as fluctuations in currency exchange rates, the imposition of any import, investment or currency restrictions, including tariffs and import quotas, or any restrictions on the repatriation of earnings and capital. Any of these developments may have a material adverse effect on our business and financial results.
Our operations are also subject to a variety of other risks and uncertainties related to its global operations, including adverse political, social or other developments. Political and/or social unrest or uncertainties, potential health issues, natural disasters, disease outbreaks or pandemics, wars and conflicts, such as the ongoing Russia-Ukraine and Israel-Hamas conflicts, as well as tensions in the Middle East, politically motivated violence and terrorist threats and/or act may also occur in countries where we have operations. Any of the foregoing could have a material adverse effect on our business, financial condition and performance.
Many of the above risks are heightened, or occur more frequently, in emerging markets. A substantial portion of our operations is conducted in emerging markets, such as Latin America. In general, emerging markets are also exposed to relatively higher risks of liquidity constraints, inflation, devaluation, price volatility, currency convertibility, corruption, crime and lack of law enforcement, expropriation of assets, and sovereign default, as well as additional legal and regulatory risks and uncertainties. Developments in emerging markets can affect our ability to import or export products and to repatriate funds, as well as impact levels of consumer demand and therefore our levels of sales or profitability. Any of these factors may affect us disproportionately or in a different manner from our competitors, depending on our specific exposure to any particular emerging market, and could have a material adverse effect on our business and financial results.
See also “—Ongoing conflicts, such as the Ukraine-Russia and the Israel-Hamas conflicts, as well as tensions in the Middle East, may have a material adverse effect on our business, financial condition and results of operations.”
Our ability to conduct business in markets in which we operate may be affected by political, legal, tax and regulatory risks.
A significant deterioration in economic conditions in any of our important markets, including economic slowdowns or recessions, inflationary pressures and/or disruptions to credit and capital markets, banking crises or failures, could lead to decreased consumer confidence and consumer spending more generally, thus reducing demand for our products. In addition, our global operations are subject to adverse political, social, or other developments, such as political or social unrest, potential health issues, natural disasters, disease outbreaks or pandemics, politically motivated violence, and terrorist threats and/or act which may also occur in countries where we have operations.
Our ability to achieve growth and to improve operations in our existing markets is exposed to various risks, including:
- the possibility that a foreign government might ban, halt or severely restrict our business, including our primary method of direct selling;
- the possibility that local civil unrest, economic or political instability, bureaucratic delays, changes in macro-economic conditions, changes in diplomatic or trade relationships (including any sanctions, restrictions and other responses such as those related to the Ukraine-Russia and the Israel-Hamas conflicts or the wider tensions in the Middle East. See also “—Ongoing conflicts, such as the Ukraine-Russia and the Israel-Hamas conflicts, as well as tensions in the Middle East, may have a material adverse effect on our business, financial condition and results of operations”), or constraints in commercial trades and payables, pricing controls, or imposition of import and economic restrictions or other uncertainties might disrupt our operations in an international market;
- the lack of well-established or reliable legal systems in certain areas where we operate;
- the adoption of new tax legislation in the markets in which we operate or exposure to additional tax liabilities, including exposure to tax assessments without prior notice or the opportunity to review the basis for any such assessments in certain jurisdictions;
- banking crises or failures, such as the recent Silicon Valley Bank failure, which on March 10, 2023 was closed by the California Department of Financial Protect and Innovation and appointed the Federal Deposit Insurance Corporation as a receiver, as well as the financial issues which other banks and financial institutions may face;
- the possibility that a government authority might impose legal, tax or other financial burdens on our consultants or representatives, as direct sellers, or on certain of our subsidiaries, due, for example, to the structure of our operations in various markets, or additional taxes on our products, including in Brazil or in other countries where we operate;
- the possibility that a government authority might challenge the status of our consultants or representatives as independent contractors or require us to make social security contributions or other employment-related contributions for them; and
- those associated with data privacy regulation and the international transfer of personal data.
We are also subject to the adoption, interpretation and enforcement by governmental agencies abroad (including on federal, state and local levels) of other laws, rules, regulations or policies, including any changes thereto, such as restrictions on trade, competition, manufacturing, license and permit requirements, import and export license requirements, privacy and data protection laws, anti-trust laws, anti-corruption laws, environmental laws, records and information management, tariffs and taxes, laws relating to the sourcing of “conflict minerals,” health care reform requirements such as those required by the Patient Protection and Affordable Healthcare Act, and regulation of our brochures, product claims or ingredients, or litigation related to any of the above. Governmental policies affecting economic activity such as tariffs, taxes, subsidies and restrictions on the import and export of agricultural goods and commodities, which represent a substantial part of the cargo we transport, may influence the profitability of the industry as well as the volume and type of imports and exports. Any changes to the above may require us to adjust our operations and systems in certain markets where we do business.
For example, from time to time, local governments and others question the legal status of our consultants or representatives or impose burdens inconsistent with their status as independent contractors, often in connection with possible coverage under social benefit laws that would require us (and, in most instances, our consultants or representatives) to make regular contributions to government social benefit funds.
If we are unable to address these matters in a satisfactory manner or adhere to or successfully implement processes in response to changing regulatory requirements, our business, costs and/or reputation may be adversely affected. We cannot predict with certainty the outcome or the impact that pending or future legislative and regulatory changes may have on our business in the future.
Inflation and government measures to curb inflation may adversely affect the economies and capital markets in some of the countries in where we operate, and as a result, harm our business and the trading price of our common shares.
In the past, high levels of inflation have adversely affected the economies and financial markets of some of the countries in which we operate, particularly Brazil and Argentina, and the ability of their governments to create conditions that stimulate or maintain economic growth. Moreover, governmental measures to curb inflation and speculation about possible future governmental measures have contributed to the negative economic impact of inflation and have created general economic uncertainty and heightened volatility in the capital markets.
In addition, certain countries in which we operate may be considered from time to time as highly inflationary under the IFRS Accounting Standards. We cannot assure you that this trend will continue. Inflationary pressures may lead governments to intervene in the economy, including through the implementation of government policies that may have an adverse effect on us and our clients, especially in a context of increased market volatility given global political and economic events, and any increase of such interest rates may negatively affect our profits and results of operations, thereby increasing the costs of financing our operations. In recent years, inflationary pressures have escalated in Brazil, including as a result of the ongoing Ukraine-Russia and Israel-Hamas conflicts, as well as tensions in the Middle East, supply chain issues, and increases in energy prices. On December 31, 2023, inflation (as measured by the Brazilian National Broad Consumer Price Index – IPCA) fell from 5.79% in 2022 to 4.62%, staying within the Brazilian Central Bank’s target level, minimum limit of 1.75% and maximum of 4.75%, pursuant to the applicable law. Nevertheless, we cannot assure you that this trend will continue.
If the countries in which we operate experience high inflation rates, we may not be able to adjust the prices of our products to compensate for the effects of inflation in our costs structure, which may have an adverse effect on us. High interest rates may impact our cost of obtaining loans and also the cost of indebtedness, resulting in an increase in our financial expenses. This increase may adversely affect our ability to pay our financial obligations, as it reduces our cash availability. Mismatches between contracted indexes for assets versus liabilities and/or high volatilities in interest rates may result in financial losses for us. We also have operational lease agreements with adjustment directly linked to inflation which could be materially and adversely affected if governments in the countries in which we operate are unable to contain the rise in inflation rates.
Our business is subject to several laws and regulations in various jurisdictions governing data privacy and security.
We collect, use and store personal data from our employees, consultants or representatives, customers and other third parties in the ordinary course of business. We are required to comply with increasingly complex and changing data privacy and security laws and regulations governing the collection, storage, use, transmission and, generally, processing of personal information and other data, including in regard to the cross-border transfer of personal data between countries. In May 2018, the EU adopted robust data privacy regulations under the General Data Protection Regulation, or “GDPR.” Further changes are likely to be introduced through a revised Regulation on Privacy and Electronic Communications, or the ePrivacy Regulation. The GDPR in particular has broad extraterritorial effect and imposes a robust data protection compliance regime with significant penalties for noncompliance. Other countries in which we operate are developing comparable regulations. Brazil has approved the Brazilian Federal Law No. 13,709/2018, known as the Brazilian General Data Protection Law (Lei Geral de Proteção de Dados Pessoais), or “LGPD,” which is broadly equivalent to GDPR and came into force in September 2020, except for the applicability of the law’s administrative sanctions, which came into force on August 1, 2021, as provided by Brazilian Federal Law No. 14,010/2020.
In general, data privacy rules, such as the GDPR, LGPD and other local privacy laws, require continuous adaptation of our technologies or practices to satisfy local privacy requirements and security standards. We may also face audits or investigations by one or more domestic or foreign government agencies relating to our compliance with these regulations. An adverse outcome under any such investigation or audit could result in the issuance of investigations, enforcement action, stop-processing orders, subjecting us to potential penalties, financial, litigation and reputational harm.
The LGPD applies to all operations related to any form of processing of personal data, with rare exceptions, all of which are provided for by law, and extends to individuals and public and private entities, regardless of the country where they are based or where the data are hosted. LGPD shall be applicable whenever (i) the data processing occurs in Brazil; (ii) the data processing activity is intended to offer or provide goods or services to or process data from individuals located in Brazil; or (iii) the data subjects are in Brazil at the time their personal data is collected.
’Also, the expanding regulatory landscape with respect artificial intelligence, or AI, could lead to additional compliance costs, regulatory complexity, restrictions on the development and implementation of AI technologies, potential legal disputes and damage to our’ reputation in the event of noncompliance. We cannot assure you that we will be successful in mapping, measuring, and managing AI risks within our Company, or to adequately comply with any AI-related regulation.
Security incidents can also result in misappropriation of our information and/or our customers’ information or affect our servers or operations, which can materially and adversely affect us. In the event of a security incident in our systems that results in leakage, misappropriation, loss or unauthorized access to personal data, deletion or modification of information about our customers, service blocking or other interruption of business operations, we may by subject to (i) the abovementioned regulatory penalties, (ii) damage to our reputation causing us to lose existing or potential customers and strategic partnerships, and (iii) adverse effects on our business, impacting our operating and financial results. Any loss of intellectual property, trade secrets or other sensitive business information or the interruption of our operations may additionally adversely affect our financial results and our reputation.
We may be exposed to cyberattacks, malicious software, crashes and other problems that may unexpectedly interfere with our operations and may result in interruptions, delays, loss of data or inability to operate, and failures in network security controls. Any interruption in our systems could have a material adverse effect on our business or generate financial losses.
The scope of data privacy and data protection regulations continues to evolve and to require more transparency and accountability from companies which collect, process and use data. Part of this development is a response to increasing regulatory and consumer concerns, and we believe it is likely to continue across the jurisdictions in which we operate. Compliance with data privacy and security restrictions could increase the cost and complexity of our operations and failure to comply with such restrictions could subject us to criminal and civil sanctions as well as other penalties.
Changes in existing laws and regulations and/or the imposition of new laws, regulations, restrictions and/or other entry barriers may cause us to incur additional costs to comply with the more stringent rules and/or limit our ability to expand, which could slow down our product development efforts, limit our growth and development and have an adverse impact on our financial position.
We are subject to compliance with various laws and regulations relating to cosmetic products and general consumer protection and product safety in the jurisdictions in which we sell our products. These rules principally set out requirements for the composition, testing, labeling and packaging of our products. Failure to comply with these rules may result in the imposition of conditions on or the suspension of sales or seizure of our products, significant penalties or claims and, in some jurisdictions, criminal liability. In the event that the countries in which we sell our products increase the stringency of such laws and regulations, our production and distribution costs may increase, and we may be unable to pass these additional costs on to our customers. In the event that any such change in law or regulations requires that we obtain a license or permit for our operations, we may be unable to obtain or, if obtained, maintain such license or permit, which may result in a temporary or permanent suspension of some or all of our business activities, which could disrupt our operations and adversely affect our business. Further, in the event that any jurisdiction in which we operate or plan to operate imposes any new laws, regulations, restrictions and/or other barriers to entry, our ability to expand may be thereby limited and our growth and development may be adversely affected.
Natura &Co Holding and its subsidiaries are subject to tax laws of numerous jurisdictions, and the interpretation of those laws is subject to challenge by the relevant governmental authorities.
Natura &Co Holding and its subsidiaries are subject to tax laws and regulations in Brazil, the United States and the numerous other jurisdictions in which Natura &Co Holding and its subsidiaries operate. These laws and regulations are inherently complex, and Natura &Co Holding and its subsidiaries will be obligated to make judgments and interpretations about the application of these laws and regulations to Natura &Co Holding and its subsidiaries and their operations and businesses. The interpretation and application of these laws and regulations could be challenged by the relevant governmental authorities, which could result in administrative or judicial procedures, actions or sanctions, which could be material.
Difficult market and geopolitical conditions can adversely affect our business in many ways, each of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition.
We may be materially adversely affected by unfavorable political economic developments in any of the countries in which we operate. Our business, financial performance and results of operations may be adversely affected by changes in policy and regulations involving or affecting certain factors, such as:
- inflation;
- interest rate and exchange rate fluctuations;
- exchange rate control policies;
- any downgrade of Brazil’s credit rating;
- liquidity available in the domestic capital, credit and financial markets;
- banking or financial crises;
- expansion or contraction of the economies of the countries in which we operate, as measured by rates of growth in GDP;
- ports, customs and tax authorities’ strikes;
- changes in transportation market regulations;
- supply chains and logistics;
- price increases of oil and other inputs;
- price instabilities;
- social and political instability, including allegations of corruption against political parties, civil servants and others;
- global economic and political events, such as the ongoing Ukraine-Russia and Israel-Hamas conflicts, as well as tensions in the Middle East;
- labor and social security regulation;
- energy and water shortages and rationing;
- fiscal policies, including the potential impacts of the novel tax regime recently approved by the Brazilian Congress;
- other economic, political, diplomatic and social developments in or affecting Brazil; and
- developments with respect to actual or potential epidemics, pandemics, outbreaks or other public health crises in Brazil and globally.
We conduct a substantial part of our operations in Latin America, especially in Brazil, Mexico and Argentina. Brazil’s GDP, in real terms, decreased by 3.3% in 2020, followed by an increase of 5% in 2021, decreasing again by 3% in 2022 and increasing by 2.9% in 2023. Similarly, Mexico’s GDP, which had decreased by 9.0% in 2020 and increased by 4.8% in 2021, decreased by 3% in 2022 and by 3.2% in 2023. Argentina’s GDP decreased by 9.9% in 2020, increased by 10.7% in 2021, increased by 5.0% in 2022 and decreased by 1.6% in 2023.
Future developments in the Brazilian and Mexican economies may affect GDP growth rates and, consequently, the consumption of our products. As a result, these developments could impair our business strategies, results of operations and financial condition. For instance, the Brazilian economy has been characterized by frequent and occasionally extensive intervention by the Brazilian government and unstable economic cycles, which is expected to continue to occur in the future.
Latin American governments’ modifications to laws and regulations according to political, social and economic interests have often involved, among other measures, increases or decreases in interest rates, changes in fiscal and tax policies, wage and price controls, foreign exchange rate controls, blocking access to bank accounts, currency devaluations, capital controls and import restrictions. We have no control over and cannot predict the measures or policies that the governments of the countries in which we operate may take in the future.
Instability resulting from any changes to policies or regulations that may affect these or other factors in the future may contribute to economic uncertainty in the countries in which we operate, particularly in Brazil, and intensify the volatility of Brazilian securities markets and securities issued abroad by Brazilian companies. Furthermore, Brazil elected a new president in October 2022, for a four-year term starting in 2023. The president of Brazil has the power to determine policies and issue governmental acts affecting the Brazilian economy and, consequently, affects the operations and financial performance of companies, including ours. We cannot predict which policies the newly elected president will adopt, much less whether such policies or changes in current policies may have an adverse effect on us or on the Brazilian economy. The uncertainties regarding the new government’s ability to implement its agenda, considering that the majority of the elected federal legislature is from opposition parties, of changes related to monetary, fiscal and social security policies, as well as the political climate established after the elections, with significant demonstrations or strikes, can contribute to economic instability. These uncertainties and new measures may increase the volatility of the market for securities of Brazilian issuers.
Although we conduct a substantial part of our operations in Latin America, developments in the other markets in which we operate may also have a material adverse effect on us. Given our operations in Russia and Ukraine, the adverse effects—global or localized—of the ongoing Ukraine-Russia and Israel-Hamas conflicts, tensions in the Middle East, and/or economic sanctions and import and/or export controls to be imposed on the Russian government by the United States, the UK, the EU or others, and the adverse effect on the wider global economy and market conditions could, in turn, have a material adverse effect on our business, financial condition and results of operations. See also “—Ongoing conflicts, such as the Ukraine-Russia and the Israel-Hamas conflicts, as well as tensions in the Middle East, may have a material adverse effect on our business, financial condition and results of operations.” Furthermore, continued uncertainty around the terms of the UK’s relationship with the EU and the lack of a comprehensive trade agreement may negatively impact the economic growth of both regions, as well as the wider global economy, market conditions and investor confidence. This could, in turn, have a material adverse effect on our operations, financial condition and prospects. See “—The uncertainty surrounding the UK’s decision to withdraw from the EU may adversely affect our business.”
Exchange rate instability may have adverse effects on the economy of the countries in which we operate, us and the price of our securities.
Certain Latin American economies have experienced strong currency devaluations and shortages in foreign currency reserves and their respective governments have adopted restrictions on the ability to transfer funds out of the country and convert local currencies into U.S. dollars. This may increase our costs and limit our ability to convert local currency into U.S. dollars and transfer funds out of certain countries, including for the purchase of dollar-denominated inputs, the payment of dividends or the payment of interest or principal on our outstanding debt. In the event that any of our subsidiaries are unable to transfer funds to us due to currency restrictions, we are responsible for any resulting shortfall.
The Brazilian currency has been historically volatile and has been devalued frequently over the past three decades. Throughout this period, the Brazilian government has implemented various economic plans and used various exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system. Although long-term depreciation of the real is generally linked to the rate of inflation in Brazil, depreciation of the real occurring over shorter periods of time has resulted in significant variations in the exchange rate between the real, the U.S. dollar and other currencies. The real/U.S. dollar exchange rate reported by the Brazilian Central Bank was R$4.031 per U.S.$1.00 on December 31, 2019, which reflected a 4.0% depreciation of the real during 2019. The real/U.S. dollar exchange rate reported by the Brazilian Central Bank was R$5.197 per U.S.$1.00 on December 31, 2020, which reflected a 28.9% depreciation of the real during 2020. The real/U.S. dollar exchange rate reported by the Brazilian Central Bank was R$5.581 per U.S.$1.00 on December 31, 2021, which reflected a 7.39% depreciation of the real during 2021. The real/U.S. dollar exchange rate reported by the Central Bank was R$5.218 per U.S.$1.00 on December 31, 2022, which reflected a 6.5% appreciation in the real against the U.S. dollar during 2022. The real/U.S. dollar exchange rate reported by the Central Bank was R$4.841 per U.S.$1.00 on December 31, 2023, which reflected a 5.3% appreciation in the real against the U.S. dollar during 2023. As of May 10, 2024, the real/U.S. dollar exchange rate reported by the Central Bank was R$5.146 per U.S.$1.00.
Depreciation of the real relative to the U.S. dollar could result in additional inflationary pressures in Brazil, thereby leading to an increase in interest rates, limiting our access to foreign financial markets and weakening investor confidence in Brazil, and requiring the implementation of recessionary policies by the Brazilian federal government. On the other hand, the appreciation of the real against the U.S. dollar may lead to a deterioration of the country’s current account and the balance of payments and may dampen the country’s exports. Depending on the circumstances, either depreciation or appreciation of the real could materially and adversely affect the growth of the Brazilian economy and us.
Infrastructure and workforce deficiency in Latin America may impact economic growth and have a material adverse effect on us.
Our performance depends on the overall health and growth of the Latin American economy, especially in Brazil. Brazil’s GDP, in real terms, decreased by 3.3% in 2020, followed by an increase of 5% in 2021, decreasing again by 3% in 2022 and increasing by 2.9% in 2023. Growth is limited by inadequate infrastructure, including potential energy shortages and deficient transportation, logistics and telecommunication sectors, the lack of a qualified labor force, and the lack of private and public investments in these areas, which limit productivity and efficiency. In addition, the growth and performance of the Brazilian economy may be impacted by other factors such as nationwide strikes, natural disasters or other disruptive events. Any of these factors could lead to labor market volatility and generally impact income, purchasing power and consumption levels, which could limit growth and ultimately have a material adverse effect on us.
Developments and the perception of risk in other countries, particularly in the United States, China, European countries and emerging countries, may adversely affect the economies of the countries in which we operate, our business and the market price of our securities.
The market value of securities of Brazilian issuers is affected, to varying degrees, by economic and market conditions in other countries, including the United States, China, European countries, as well as in other Latin American and emerging market countries. Investors’ reactions to developments in these countries may have an adverse effect on the market value of our securities, even though economic conditions in Europe and the United States may differ significantly from economic conditions in Brazil and the other countries in which we operate. Additionally, banking or financial crises and political instability in developed and emerging market countries may diminish investors’ interest in our securities, as well as adversely affect the availability of credit to companies in the international markets. In particular, the availability and cost of credit and global capital markets have recently been affected by the cost of credit and political and economic factors, such as the ongoing Ukraine-Russia and Israel-Hamas conflicts, as well as the tensions in the Middle East, among others, including the turmoil in the banking industry caused by the closure of Silicon Valley Bank and other financial institutions in the United States, as well as financial issues faced by some European financial institutions. In addition, negative events in the financial and capital markets, any news or evidence of corruption in publicly traded companies and other issuers of securities, and the lack of rigorous application of investor protection rules or lack of transparency of information or eventual negative situations in the economy and in other economies may influence the capital markets and negatively impact the value of our securities. This could adversely affect the market price of our securities, restrict our access to capital markets and compromise our ability to finance our operations in the future on favorable terms, or at all.
Since 2017, there has been an increase in volatility in Brazilian markets due to, among other factors, uncertainties about how monetary policy adjustments in the United States would affect the international financial markets, the increasing risk aversion to emerging market countries, uncertainties regarding Latin American, particularly Brazilian macroeconomic and political conditions and, beginning in 2022, the ongoing Ukraine-Russia and Israel-Hamas conflicts, as well as the tensions in the Middle East. These uncertainties adversely affected us and the market value of our securities.
There have also been concerns over conflicts, unrest and terrorist threats in the Middle East, Europe and Africa, which have resulted in volatility in oil and other markets. The United States and Russia have been at odds over Ukraine and Eastern Europe. An escalation of the tensions between the United States and Russia could adversely affect the global economy. The United States and China have recently been involved in disputes regarding Taiwan (which tensions increased in 2022), rights to navigation in the South China Sea, alleged human rights abuses in China, as well as in a controversy over trade barriers in China that threatened a trade war between the countries. Sustained tension between the United States and China over these and other matters could significantly undermine the stability of the global economy. It is unclear whether these challenges and uncertainties will be contained or resolved, and what effects they may have on the global political and economic conditions in the long term. See also “—Ongoing conflicts, such as the Ukraine-Russia and the Israel-Hamas conflicts, as well as the tensions in the Middle East, may have a material adverse effect on our business, financial condition and results of operations.”
Additionally, economic conditions in Brazil or the other countries in which we operate may also be affected by political developments in the United States. We cannot assure you that any developments in the United States or elsewhere will not materially and adversely affect us in the future.
Any further downgrading of Brazil’s credit rating could reduce the trading price of our securities.
We may be adversely affected by investors’ perceptions of risks related to Brazil’s sovereign debt credit rating. Rating agencies regularly evaluate Brazil and its sovereign ratings, which are based on a number of factors including macroeconomic trends, fiscal and budgetary conditions, indebtedness metrics and the perspective of changes in any of these factors. Brazil’s sovereign credit rating is currently rated below investment grade by the three main credit rating agencies. Consequently, the prices of securities issued by Brazilian companies have been negatively affected. A prolongation or worsening of the current Brazilian recession and continued political uncertainty, among other factors, could lead to further ratings downgrades. Any further downgrade of Brazil’s sovereign credit ratings could heighten investors’ perception of risk and, as a result, cause the trading price of our securities to decline.
Ongoing conflicts, such as the Ukraine-Russia and the Israel-Hamas conflicts, as well as tensions in the Middle East, may have a material adverse effect on our business, financial condition and results of operations.
The ongoing war between Russia and Ukraine has provoked strong reactions from the United States, the UK, the EU and various other countries around the world, including from the members of the North Atlantic Treaty Organization, or “NATO.” Following Russia’s invasion of Ukraine beginning on February 24, 2022, the United States, the UK, the EU and other countries announced broad economic sanctions against Russia, including financial measures such as freezing Russia’s central bank assets and limiting its ability to access its U.S. dollar reserves. The United States, the EU and the UK have also banned people and businesses from dealings with the Russian central bank, its finance ministry and its wealth fund. Selected Russian banks have also been removed from Swift messaging system, which enables the smooth transfer of money across borders. Other sanctions by the UK include major Russians bank being excluded from the UK financial system, stopping them from accessing sterling and clearing payments, major Russian companies and the state being stopped from raising finance or borrowing money on the UK markets, and the establishment of limits on deposits Russians can make at UK banks. The United States, the EU and the UK adopted personal measures, such as sanctions on individuals with close ties to Mr. Putin, and placed visa restrictions on several oligarchs, as well as their family members and close associates, and freezing of assets. While the precise effect of the ongoing war and these sanctions on the Russian and global economies remains uncertain, they have already resulted in significant volatility in financial markets, depreciation of the Russian ruble and the Ukrainian hryvnia against the U.S. dollar and other major currencies, as well as in an increase in energy and commodity prices globally. Should the conflict continue or escalate, markets may face continued volatility as well as economic and security consequences including, but not limited to, supply shortages of different kinds, further increases in prices of commodities, including piped gas, oil and agricultural goods, among others. Given that Russia and Ukraine are among the largest grain exporters in the world, impacts on financial markets, inflation, interest rates, unemployment and other matters could affect the global economy. Other potential consequences include, but are not limited to, growth in the number of popular uprisings in the region, increased political discontent, especially in the regions most affected by the conflict or economic sanctions, increase in cyberterrorism activities and attacks, exodus to regions close to the areas of conflict and increase in the number of refugees fleeing across Europe, among other unforeseen social and humanitarian effects.
We have sales operations in multiple countries including in Russia and Ukraine. We have not identified any significant impacts on our business model for managing financial assets or the classification of these assets. Additionally, there are no indications of a significant increase in the expected credit loss associated with operations, considering the maintenance of receivables collection levels and the increase in cash transactions (considering the reduction in credit operations as a result of restrictions imposed locally and on credit card processing companies in connection with the war between Russia and Ukraine. Although we have made substantial changes to our structure, controls and commercial operations in response to the war, as a company that operates globally, the adverse effects—global or localized—of the ongoing war between Russia and Ukraine, and/or economic sanctions and import and/or export controls to be imposed on the Russian government by the United States, the UK, the EU or others, and the above-mentioned adverse effect on the wider global economy and market conditions could, in turn, have a material adverse effect on our business, financial condition and results of operations.
During October 2023, the state of Israel was the target of an attack by the terrorist group Hamas which led to the death of a number of civilians. As a result, Israel declared war on Hamas and conflicts commenced in Israel and the Gaza strip. Although the conflict is still developing, other world leaders have declared support to Israel, including through the commitment of funds and military personnel and capabilities. As the conflict has unfolded, concerns have been raised by the international community regarding the humanitarian situation in the region. Furthermore, tensions have also spread to the wider Middle East following confrontations between Israel and Iran. It is unclear whether the conflict and its underlying uncertainties will be contained or resolved, and what effects they may have on the global political and economic conditions in the long term.
While as of the date of this annual report there have not been any material impacts from the above-mentioned matters in our consolidated financial statements, consequences arising from the conflict, or any other unforeseen developments, could adversely impact our business and the price of our common shares.
See also “Item 4. Information on the Company—A. History and Development of the Company—History—Recent Developments—Conflicts Between Russia and Ukraine and in the Middle East.”
Government reviews, inquiries, investigations, and actions could harm our business or reputation. In addition, from time to time we may conduct other investigations and reviews, the consequences of which could negatively impact our business or reputation.
As we operate in various locations around the world, our operations in certain countries are subject to significant governmental scrutiny and may be harmed by the results of such scrutiny. The regulatory environment with regard to direct selling in emerging and developing markets where we do business is evolving, and government officials in such locations often exercise broad discretion in deciding how to interpret and apply relevant regulations. From time to time, we may receive formal and informal inquiries from various government regulatory authorities about our business and compliance with local laws and regulations. In addition, from time to time, we may conduct investigations and reviews. The consequences of such government reviews, inquiries, investigations, and actions or such investigations and reviews may adversely impact our business, prospects, reputation, financial condition, liquidity, results of operations or cash flows.
Additionally, any determination that our operations or activities, or, where local law mandates, the activities of the representatives, including our licenses or permits, importing or exporting, or product testing or approvals are not, or were not, in compliance with existing laws or regulations could result in the imposition of substantial fines, civil and criminal penalties, interruptions of business, loss of supplier, vendor or other third-party relationship, termination of necessary licenses and permits, modification of business practices and compliance programs, equitable remedies, including disgorgement, injunctive relief and other sanctions that we may take against our personnel or that may be taken against us or our personnel. Other legal or regulatory proceedings, as well as government investigations, which often involve complex legal issues and are subject to uncertainties, may also follow as a consequence. Further, other countries in which we do business may initiate their own investigations and impose similar sanctions. These proceedings or investigations could be costly and burdensome to our management, and could adversely impact our business, prospects, reputation, financial condition, liquidity, results of operations or cash flows. Even if an inquiry or investigation does not result in any adverse determinations, it potentially could create negative publicity and give rise to third-party litigation or action.
If we do not successfully comply with laws and regulations designed to prevent corruption in countries in which we operate, we could become subject to fines, penalties or other regulatory sanctions and our reputation, sales and profitability could suffer.
Doing business on a worldwide basis requires us to comply with the laws and regulations of various jurisdictions. In particular, our international operations are subject to anti-corruption laws and regulations, such as, among others, the U.S. Foreign Corrupt Practices Act, or the FCPA, the UK Bribery Act, Law No. 12,846/2013, or the Brazilian Anti-Corruption Law, 12,846/2013, and economic and trade sanctions, including those administered by the United Nations, the EU, the Office of Foreign Assets Control of the U.S. Department of the Treasury and the U.S. Department of State.
The FCPA prohibits providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper business advantage. We may deal with both governments and state-owned business enterprises, the employees of which are considered foreign officials for purposes of the FCPA. The provisions of the UK Bribery Act extend beyond bribery of foreign public officials and are more onerous than the FCPA in a number of other respects, including jurisdiction, non-exemption of facilitation payments and penalties. Economic and trade sanctions restrict our transactions or dealings with certain sanctioned countries, territories and designated persons. Any breach thereof may have a material adverse effect on our business, including the acceleration of loans and financing.
As a result of doing business in foreign countries, including through partners and agents, we are exposed to a risk of violating anti-corruption laws and sanctions regulations. Some of the international locations in which we operate have developing legal systems and may have higher levels of corruption than more developed nations. Our continued expansion and worldwide operations, including in developing countries, its development of joint venture relationships worldwide and the employment of local agents in the countries in which we operate increases the risk of violations of anti-corruption laws and economic and trade sanctions. Violations of anti-corruption laws and economic and trade sanctions are punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts (and termination of existing contracts) and revocations or restrictions of licenses, as well as criminal fines and imprisonment. In addition, any major violations could have a significant impact on our reputation and consequently on our ability to win future business.
The Brazilian Anti-Corruption Law imposes strict liability, in both the administrative and civil spheres, on companies for acts of corruption (such as (i) promising, offering or giving, directly or indirectly, any improper advantage to a public official or related party, (ii) financing, sponsoring, funding or in any way subsidizing the commission of illicit acts against the public administration ; (iii) using of an intermediary to conceal or disguise the real interests or the identity of the beneficiaries of the illegal acts performed), (iv) fraud or manipulation of public tenders and government contracts; and (v) and interference with investigations or inspections by governmental authorities. Companies found liable under the Brazilian Anti-Corruption Law face fines of up to 20% of their gross revenue in the immediately preceding year or, if such annual gross revenue cannot be estimated, such fines may range from R$6 thousand to R$60 million.
Among other sanctions, the Brazilian Anti-Corruption Law also provides for the seizure of assets or benefits obtained illegally, the suspension or partial prohibition of operations, the compulsory dissolution of the entity and/or the prohibition to receive incentives, subsidies, donations or financing from the government or from government-controlled entities for up to five years. Other relevant laws applicable to corruption-related violations, such as the Brazilian Administrative Improbity Law (Law No. 8,429/1992, as recently amended by Law No. 14,230/2021), also provide for penalties that include the prohibition to enter into government contracts for up to 14 years. The company sanctioned under the Brazilian Anti-Corruption Law or the Administrative Improbity Law, among others, can also be included in a registry of sanctioned, suspended and impeded companies.
There can be no assurance that policies and procedures will be followed at all times or will effectively detect and prevent violations of our ethical principles and of the applicable laws by our employees, consultants and representatives, agents, partners or any third parties acting in name, interest or benefit of the combined company and, as a result, we could be subject to sanctions and material adverse consequences on our business, reputation, financial condition and/or results of operations.
Risks Relating to the Natura &Co Holding Shares and ADSs
The market price of the Natura &Co Holding Shares and ADSs may be volatile.
The Natura &Co Holding Shares are listed on the B3. We also have ADSs which are not listed on any stock exchange but are transferable, subject to applicable law. The market price of Natura &Co Holding Shares and ADSs may be volatile. Broad general economic, political, market and industry factors may adversely affect the market price of Natura &Co Holding Shares and ADSs, regardless of Natura &Co Holding’s actual operating performance. Factors that could cause fluctuations in the price of Natura &Co Holding Shares and ADSs include:
- actual or anticipated variations in quarterly operating results and the results of competitors;
- changes in financial projections by Natura &Co, if any, or by any securities analysts that might cover ADSs;
- conditions or trends in the industry, including regulatory changes or changes in the securities marketplace;
- announcements by Natura &Co Holding or its competitors of significant acquisitions, strategic partnerships or divestitures;
- announcements of investigations or regulatory scrutiny of Natura &Co Holding’s operations or lawsuits filed against it;
- additions or departures of key personnel;
- the ongoing Ukraine-Russia and Israel-Hamas conflicts, as well as the wider tensions in the Middle East, which may have repercussions on the world’s geopolitical and economic scenarios;
- issuances or sales of Natura &Co Holding Shares or ADSs, including sales of shares by its directors and officers or its key investors; and
- developments with respect to actual or potential epidemics, pandemics, outbreaks or other public health crises in Brazil and globally.
The relative volatility and the lack of liquidity of the Brazilian securities market may adversely affect you.
The Natura &Co Holding Shares are listed on the B3, the Brazilian stock exchange. Our ADSs are not listed on any stock exchange. The Brazilian securities market is substantially smaller, less liquid, more concentrated and more volatile than major securities markets in the United States. This may limit your ability to sell our common shares and the common shares underlying your ADSs at the price and time at which you wish to do so.
Shareholders could be diluted in the future, which could also adversely affect the market price of Natura &Co Holding Shares and the ADSs.
It is possible that Natura &Co Holding may decide to offer additional Natura &Co Holding Shares or the ADSs in the future either to raise capital or for other purposes. If Natura &Co Holding shareholders do not take up such offer of Natura &Co Holding Shares or ADSs or are not eligible to participate in such offering, their proportionate ownership and voting interests in Natura &Co Holding would be reduced. An additional offering could have a material adverse effect on the market price of the Natura &Co Holding Shares and ADSs.
Exchange controls and restrictions on remittances abroad may adversely affect holders of the ADSs.
Brazilian laws provide that whenever a serious imbalance in Brazil’s balance of payments exists or is anticipated, the Brazilian federal government may impose temporary restrictions on the repatriation by foreign investors of the proceeds of their investment in Brazil and on the conversion of Brazilian currency into foreign currency. For example, for six months in 1989 and early 1990, the Brazilian federal government restricted all fund transfers that were owed to foreign equity investors and held by the Brazilian Central Bank, in order to preserve Brazil’s foreign currency reserves. These amounts were subsequently released in accordance with Brazilian federal government directives. Although the Brazilian federal government has never exercised such a prerogative since, we cannot guarantee that the Brazilian federal government will not take similar actions in the future.
Holders of Natura &Co Holding Shares and ADSs may be adversely affected if the Brazilian federal government imposes restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil and, as it has done in the past, on the conversion of the real into foreign currencies. These restrictions could hinder or prevent the conversion of dividends, distributions or the proceeds from any sale of shares, as the case may be, into U.S. dollars and the remittance of U.S. dollars abroad. We cannot assure you that the government will not take this measure or similar measures in the future. Holders of the ADSs could be adversely affected by delays in, or a refusal to grant, any required governmental approval for conversion of real payments and remittances abroad in respect of the shares, including the shares underlying the ADSs. In such a case, The Bank of New York Mellon, or the “ADS Depositary,” will distribute reais or hold the reais it cannot convert for the account of the ADS holders who have not been paid.
Holders of the ADSs may face difficulties in serving process on or enforcing judgments against us and other persons.
We are organized under and are subject to the laws of Brazil, and all our directors and executive officers and our independent registered public accounting firm reside or are based in Brazil. Substantially all of our assets and those of these other persons are located in Brazil. As a result, it may not be possible for holders of the ADSs to effect service of process upon us or these other persons within the United States or other jurisdictions outside Brazil or to enforce against us or these other persons judgments obtained in the United States or other jurisdictions outside Brazil. Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if certain conditions are met, our ADS holders may face greater difficulties in protecting their interests due to actions by us or our directors or executive officers than would shareholders of a U.S. corporation.
The relative volatility and illiquidity of the Brazilian securities markets may adversely affect holders of the Natura &Co Holding Shares and ADSs.
Investments in securities, such as our common shares or ADSs, of issuers from emerging market countries, including Brazil, involve a higher degree of risk than investments in securities of issuers from more developed countries. The Brazilian securities market is substantially smaller, less liquid, more concentrated and more volatile than major securities markets in the United States and other jurisdictions and may be regulated differently from the ways familiar to U.S. investors. There is also significantly greater concentration in the Brazilian securities market than in major securities markets in the United States. Although any of the outstanding shares of a listed company may trade on a Brazilian stock exchange, in most cases fewer than half of the listed shares are actually available for trading by the public, the remainder being held by small groups of controlling persons, governmental entities or one principal shareholder. These features may substantially limit the ability to sell the Natura &Co Holding Shares, including the Natura &Co Holding Shares underlying the ADSs, at a price and time at which holders wish to do so.
Our ADSs are not listed on any stock exchange. We cannot assure you that the market for ADSs will maintain sufficient levels of liquidity, which may undermine the selling of the shares and the shares underlying to the ADSs issued by our Company at the desired price or time.
Holders of the ADSs may face difficulties in protecting their interests because we are subject to different corporate rules and regulations than a U.S. company and holders of the ADSs may have fewer and less well-defined rights.
Holders of the ADSs are not direct shareholders of Natura &Co Holding and may be unable to enforce the rights of shareholders under our by-laws and Brazilian law, and holders of Natura &Co Holding Shares are generally required under our by-laws to resolve any disputes with us through arbitration. Our corporate affairs are governed by our by-laws and Brazilian law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, or elsewhere outside Brazil. Although insider trading and price manipulation are crimes under Brazilian law, the Brazilian securities markets are not as highly regulated and supervised as the U.S. securities markets or the markets in some other jurisdictions. In addition, rules and policies against self-dealing or for preserving shareholder interests may also be less well-defined and enforced in Brazil than in the United States and certain other countries, which may put holders of the ADSs at a potential disadvantage.
Holders of the ADSs do not have the same voting rights as our shareholders.
Holders of the ADSs do not have the same voting rights as holders of the Natura &Co Holding Shares. Holders of the ADSs are entitled to the contractual rights set forth for their benefit under the deposit agreement entered into by Natura &Co Holding and the ADS Depositary prior to completion of the Transaction, or the Natura &Co Holding Deposit Agreement. ADS holders exercise voting rights by providing instructions to the ADS Depositary, as opposed to attending shareholders’ meetings or voting by other means available to shareholders. In practice, the ability of a holder of ADSs to instruct the ADS Depositary as to voting will depend on the timing and procedures for providing instructions to the ADS Depositary, either directly or through the holder’s custodian and clearing system.
Under the Natura &Co Holding Deposit Agreement, if you do not provide instructions to the ADS Depositary to vote, the ADS Depositary may give us a discretionary proxy to vote the Natura &Co Holding Shares underlying the ADSs at shareholders’ meetings if we have timely provided the ADS Depositary with notice of the meeting and related voting materials and (i) we have instructed the ADS Depositary that we wish a discretionary proxy to be given; (ii) we have informed the ADS Depositary that there is no substantial opposition as to a matter to be voted on at the meeting; and (iii) a matter to be voted on at the meeting would not have a material adverse impact on shareholders.
The effect of this discretionary proxy is that you cannot prevent the underlying Natura &Co Holding Shares represented by the ADSs from exercising voting rights, except under the circumstances described above. This may make it more difficult for holders to influence the management of the company. Holders of shares are not subject to this discretionary proxy.
Due to delays in notification to and by the ADS Depositary, the holders of the ADSs may not be able to give voting instructions to the ADS Depositary or to withdraw the Natura &Co Holding Shares underlying their ADSs to vote such shares in person or by proxy.
The ADS Depositary may not receive voting materials for Natura &Co Holding Shares represented by ADSs in time to ensure that holders of such ADSs can either instruct the ADS Depositary to vote the Natura &Co Holding Shares underlying their ADSs or withdraw such shares to vote them in person or by proxy.
In addition, the ADS Depositary’s liability to holders of ADSs for failing to execute voting instructions, or for the manner in which voting instructions are executed, will be limited by the deposit agreement for the ADSs. As a result, holders of ADSs may not be able to exercise their rights to give voting instructions, or to vote in person or by proxy, and may not have any recourse against the ADS Depositary or Natura &Co Holding if the Natura &Co Holding Shares underlying their ADSs are not voted as they have requested or if the Natura &Co Holding Shares underlying their ADSs cannot be voted.
An exchange of ADSs for shares risks the loss of certain foreign currency remittance advantages.
The ADSs benefit from the certificate of foreign capital registration, which permits the ADS Depositary to convert dividends and other distributions with respect to common shares into foreign currency, and to remit the proceeds abroad. Holders of ADSs who exchange their ADSs for Natura &Co Holding Shares will then be entitled to rely on the ADS Depositary’s certificate of foreign capital registration for five business days from the date of exchange. Thereafter, they will not be able to remit non-Brazilian currency abroad unless they obtain their own certificate of foreign capital registration, or unless they qualify under CMN Resolution No. 4,373/14, as amended, or “CMN Resolution No. 4,373,” which entitles certain investors to buy and sell shares on Brazilian stock exchanges without obtaining separate certificates of registration. There can be no assurance that the certificate of registration of the ADS Depositary, or any certificate of foreign capital registration obtained by holders of ADSs, will not be affected by future legislative or regulatory changes, or that additional Brazilian law restrictions applicable to their investment in the ADSs may not be imposed in the future.
Under Brazilian tax law, the disposition of Natura &Co Holding Shares will be subject to Brazilian tax and the disposition of ADSs may also be subject to Brazilian tax.
Brazilian Law No. 10,833/03, as amended, or “Law No. 10,833,” provides that gains on the disposition of assets located in Brazil by non-residents of Brazil, whether to other non-residents or to Brazilian residents, will be subject to Brazilian taxation.
The ADSs may be treated as assets located in Brazil for purposes of the law, and therefore gains on the disposition of ADSs by non-residents of Brazil may be subject to Brazilian taxation. Although the holders of ADSs outside Brazil may have grounds to assert that Law No. 10,833 does not apply to sales or other dispositions of ADSs, it is not possible to predict whether that understanding will ultimately prevail in the courts of Brazil given the general and unclear scope of Law No. 10,833 and the absence of judicial court rulings in respect thereof.
Natura &Co Holding Shares are expected to be treated as assets located in Brazil for purposes of the law, and gains on the disposition of Natura &Co Holding Shares, even by non-residents of Brazil, as a general rule, are expected to be subject to Brazilian taxation. Despite such general rule, capital gains assessed by foreign investors on the sale of the Natura &Co Holding Shares in the Brazilian stock exchange are currently exempt from taxation in Brazil, provided that (i) the investment in the Natura &Co Holding Shares are carried out pursuant to CMN Resolution No. 4,373 and (ii) the investor is not resident or domiciled in a tax haven jurisdiction.
Holders of the ADSs may not be able to exercise the preemptive rights relating to the Natura &Co Holding Shares.
Holders of the ADSs may not be able to exercise the preemptive rights relating to the Natura &Co Holding Shares underlying their ADSs unless a registration statement under the Securities Act is effective with respect to the rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares or other securities relating to these preemptive rights, and we cannot assure holders of the ADSs that we will file any such registration statement. Unless we file a registration statement or an exemption from registration applies, holders of the ADSs may receive only the net proceeds from the sale of their preemptive rights by the ADS Depositary or, if the preemptive rights cannot be sold, the rights will be allowed to lapse. For a more complete description of preemptive rights with respect to the common shares, see “Item 10. Additional information—B. Memorandum and articles of association—Preemptive Rights.”
Our future issuances of new securities may result in a dilution of our shareholders’ stake.
We may seek to raise additional capital in the future through public or private issuances of shares or securities convertible into shares. According to Article 172 of the Brazilian Corporation Law, we may not be required to grant preemptive rights to our shareholders in the event of a capital increase through a public offering of shares or securities convertible into shares, which may result in a dilution of our current shareholders’ stake in our company.
The holders of the Natura &Co Holding Shares (including the Natura &Co Holding Shares underlying the ADSs) may not receive dividends or interest on own capital
According to our by-laws, our shareholders are entitled to receive a mandatory minimum annual dividend equal to 30% of our annual net profit, calculated and adjusted under the terms of the Brazilian Corporation Law. Our by-laws allow for the payment of intermediary dividends, to the retained earnings account or the existing earnings reserves in the last yearly or six-month balance, by means of the annual dividend. We may also pay interest on own capital, as described by Brazilian law. The intermediary dividends and the interest on own capital declared in each fiscal period may be imputed to the mandatory dividend that results from the fiscal period in which they are distributed. At the general shareholders’ meeting, shareholders may decide on the capitalization, on the offset of our losses or on the net profit retention, as provided for in the Brazilian Corporation Law, with the aforementioned net profit not being made available for the payment of dividends or interest on own capital.
In addition, Brazilian Corporation Law allows publicly held companies, like Natura &Co Holding, to suspend the required minimum distribution of dividends. The payment of dividends may be suspended if Natura &Co Holding’s management reports at an annual shareholders’ meeting that such distribution would be inadvisable in view of Natura &Co Holding’s financial condition and provided the shareholders at the annual general shareholders’ meeting with an opinion to that effect, which has been reviewed by Natura &Co Holding’s fiscal council, if installed. In addition, Natura &Co Holding’s management must submit a report to the CVM within five days following said meeting clarifying the reasoning for any such nonpayment. If the abovementioned occurs, holders of the Natura &Co Holding Shares (including the Natura &Co Holding Shares underlying the ADSs) may not receive dividends or interest on own capital.
No single shareholder or group of shareholders holds more than 50% of our capital stock, which may increase the opportunity for alliances between shareholders as well as conflicts between them.
No single shareholder or group of shareholders holds more than 50% of our capital stock. There is no guidance in Brazilian corporate law for publicly held companies without an identified controlling shareholder. Due to the absence of a controlling shareholder, we may be subject to future alliances or agreements between our shareholders, which may result in the exercise of a controlling power over our company by them. In the event a controlling group is formed and decides to exercise its controlling power over our company, we may be subject to unexpected changes in our corporate governance and strategies, including the replacement of key executive officers. Additionally, we may be more vulnerable to a hostile takeover bid. The absence of a controlling group may also jeopardize our decision-making process as the minimum quorum required by law for certain decisions by shareholders may not be reached and, as a result, we cannot guarantee that our business plan will be affected. Any unexpected change in our management team, business policy or strategy, any dispute between our shareholders, or any attempt to acquire control of our company may have an adverse impact on our business and result of operations.
Our holding company has no business operations of its own and is dependent on our subsidiaries to pay certain expenses and dividends.
Our operations are conducted through our subsidiaries. As a result, our ability to make future dividend payments, if any, is dependent on the earnings of our subsidiaries and the payment of those earnings to us in the form of dividends, loans or advances and through repayment of loans or advances from us.
Moreover, our operating subsidiaries may not generate sufficient cash flow to pay dividends or distribute funds to us because, for example, our operating subsidiaries may not generate sufficient cash or net income; local laws may restrict or prohibit our operating subsidiaries from issuing dividends or making distributions unless our operating subsidiaries have sufficient surplus or net profits, which they may not have; or contractual restrictions may prohibit or limit such dividends or distributions.
Judgments of Brazilian courts with respect to our shares will be payable only in reais.
If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of the Natura &Co Holding Shares, we will not be required to discharge our obligations in a currency other than reais. Under Brazilian exchange control limitations, an obligation in Brazil to pay amounts denominated in a currency other than reais may only be satisfied in Brazilian currency at the exchange rate, as determined by the Brazilian Central Bank, in effect on the date the judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then-prevailing exchange rate may not afford non-Brazilian investors with full compensation for any claim arising out of or related to our obligations under the ADSs.
As a foreign private issuer, we have different disclosure and other requirements than U.S. domestic registrants.
As a foreign private issuer under the Exchange Act, we may be subject to different disclosure and other requirements than U.S. domestic registrants. For example, as a foreign private issuer, in the United States, we are not subject to the same disclosure requirements as a U.S. domestic registrant under the Exchange Act, including the requirements to prepare and issue quarterly reports on Form 10-Q or to file current reports on Form 8-K upon the occurrence of specified significant events, the proxy rules applicable to U.S. domestic registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules applicable to U.S. domestic registrants under Section 16 of the Exchange Act. In addition, we rely on exemptions from certain U.S. rules which will permit us to follow Brazilian legal requirements rather than certain of the requirements that are applicable to U.S. domestic registrants.
Furthermore, foreign private issuers are required to file their annual report on Form 20-F within 120 days following the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days following the end of each fiscal year. In addition, our common shares and ADSs are not listed on any U.S. stock exchange and we are therefore not subject to the listing standards, rules and requirements of any U.S. stock exchange. As a result of the above, even though we are required to make submissions on Form 6-K disclosing the information that we have made or are required to make public pursuant to Brazilian law, or are required to distribute to shareholders generally, and that is material to us, you may not receive information of the same type or amount that is required to be disclosed to shareholders of a U.S. company.
Natura &Co Holding is a foreign private issuer and, as a result, we rely on certain home country governance practices from Brazil.
We report under the Exchange Act as a non-U.S. company with foreign private issuer status. As a result, the standards applicable to us are considerably different than the standards applied to U.S. domestic issuers. For instance, we are not required to:
- have a majority of independent members on our board of directors (other than as may result from the requirements for audit committee member independence under the Exchange Act);
- have a minimum of three independent members on our audit committee;
- have a compensation committee or a nominating and corporate governance committee;
- have regularly scheduled executive sessions of our board that consist of independent directors only; or
- obtain shareholder approval prior to the issuance of common shares, or securities convertible into or exercisable for common shares (provided that such issuance does not exceed the authorized capital stock limit provided for in Natura &Co Holding’s by-laws).
As a foreign private issuer, we may follow our home country practice in Brazil in lieu of the above requirements. Therefore, the approach to governance adopted by our board of directors may be different from that of a board of directors of a company that meets all of the above requirements, and, as a result, our management oversight may be more limited than if we were subject to all of the corporate governance standards of a U.S. domestic company, or of a company listed on a U.S. stock exchange. In addition, our common shares and ADSs are not listed on any U.S. stock exchange and we are therefore not subject to the listing standards, rules and requirements of any U.S. stock exchange. Accordingly, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers or whose securities are listed on a U.S. stock exchange.
General
Natura &Co Holding was incorporated on January 21, 2019 under the laws of Brazil as a corporation (sociedade anônima) of indefinite term, enrolled with the Brazilian taxpayers’ registry (Cadastro Nacional de Pessoas Jurídicas – CNPJ) under No. 32.785.497/0001-97. On July 17, 2019, Natura Holding S.A. changed its name to Natura &Co Holding S.A. and has the legal status of a stock corporation (sociedade por ações), under the Brazilian Corporation Law.
Natura &Co Holding’s registered office and principal executive offices are located in the city of São Paulo, state of São Paulo, at Avenida Alexandre Colares, No. 1188, Sala A17-Bloco A, Parque Anhanguera, 05106-000, Brazil (telephone: +55 (11) 4389-7881). Our principal website is https://ri.naturaeco.com/en/. In addition, the SEC maintains a website at www.sec.gov that contains information filed by us electronically. The information contained on our website, any website mentioned in this annual report, or any website directly or indirectly linked to these websites, is not part of, and is not incorporated by reference in, this annual report and you should not rely on such information.
The Natura &Co Holding Shares are traded on the Novo Mercado listing segment of the B3 (under the ticker symbol “NTCO3”). Natura &Co Holding had ADSs traded on the NYSE (under the ticker symbol “NTCO”) until February 9, 2024. On April 10, 2024, we announced the termination of our ADS program. On the same date, The Bank of New York Mellon, or “BNYM” or the “ADS Depositary” issued a notice of termination to holders and beneficial owners of ADSs. The effective date of termination of the deposit agreement for our ADS program and of the ADS program will be August 7, 2024.
History
The Natura &Co Group is formed by two iconic companies in the beauty industry. Over the years, Natura has expanded its operations, presence, and product line, consolidating as one of the largest beauty companies in Brazil and Latin America.
Our story began in 1969, when Antonio Luiz da Cunha Seabra joined forces with Jean Pierre Berjeaut and founded Indústria e Comércio de Cosméticos JeBerjeaut Ltda. Below are the timeline with the main events in the Company’s history:
1969: Luiz Seabra and Jean Pierre founded Indústria e Comércio de Cosméticos Berjeaut.
1970: Indústria e Comércio de Cosméticos JeBerjeaut Ltda. was renamed Natura Indústria. In the same year, the first store was opened at Oscar Freire Street, in São Paulo, where customers were served in person.
1974: Natura Indústria, through Mr. Seabra’s initiative, started to adopt the direct sales distribution model as a business model, reinforcing its belief in the strength of relationships.
1982: Natura’s entry into the international market, through a local distributor in Chile.
1994: Start of Natura’s operations in Argentina and Peru.
2001: Inauguration of the integrated cosmetics research and production center in Cajamar, in the state of São Paulo, one of the most advanced in South America.
2004: Natura Cosméticos goes public on the São Paulo Stock Exchange, where the shares began trading on the Novo Mercado of B3 S.A. -Brasil, Bolsa, Balcão.
2012: Beginning of the expansion process with the acquisition of 65% of Emeis Holdings Pty Ltd, an Australian manufacturer and retailer of premium cosmetics and beauty products sold under the Aesop brand, with operations in Oceania, Asia, Europe, Brazil and North America. In subsequent years, it acquired the remaining shares from non-controlling shareholders of Emeis Holdings Pty Ltd. until it completed the acquisition in its entirety.
2017: Incorporation of Natura Comercial Ltda. in February, to operate Natura’s retail business through its own stores, with the aim of providing more agility and autonomy for the business. In September of that year, it acquired 100% of The Body Shop - which added new stores, as well as two distribution centers to the existing fixed assets.
2019: Formation of Natura Holding S.A.
- May 2019: Merger Agreement to carry out the acquisition of Avon Products, Inc., initiating in the corporate reorganization process that created a holding company for the group - holding all Natura and Avon shares.
- July 2019: Change of the name of “Natura Holding S.A.” to “Natura &Co Holding S.A.”.
- December 2019: Completion of the merger by Natura &Co Holding of Natura Cosméticos. Natura Cosméticos became a wholly owned subsidiary of Natura &Co Holding.
2020: Completion of the acquisition of Avon, which became a wholly owned subsidiary of Natura &Co Holding.
- October 2020: Follow-on offering of new ordinary shares (follow-on), including ordinary shares represented by ADSs in an offering in the United States and other countries outside Brazil and in a concurrent offering in Brazil.
- October 2020: Launch of Natura &Co Pay, a financial services platform that aims to enhance the business of consultants and representatives and customized services.
2021: Completion of the issuance of notes linked to sustainability goals through Natura Cosméticos. The ESG Notes are guaranteed by the Company and include two sustainability performance targets, to be met by the end of 2026: (i) reducing scopes 1, 2, and 3 relative intensity of greenhouse gas emissions by 13%; and (ii) achieving 25% post-consumer recycled plastic in plastic product packaging.
- May 2021: Investment in Perfumer H, a company owned by British perfumer Lyn Harris, by Fable Investments, a subsidiary of Natura &CO.
2023: Business model simplification:
- August 2023: Conclusion of the sale of Aesop’ to L'Oréal.
- December 2023: Conclusion of the sale of The Body Shop to private equity group Aurelius.
Recent Developments
Delisting from NYSE
On January 18, 2024, in line with our long-term strategic objectives of simplifying operations, we decided to discontinue our secondary listing on the NYSE, as the vast majority of Natura &Co trading activity is concentrated on the B3 stock exchange. The decreasing trading volume of Natura &Co ADRs on the NYSE no longer made maintaining the listing a compelling option. We subsequently filed a Form 25 to delist our ADSs from the NYSE on January 30, 2024. The last day of trading of our ADSs on the NYSE was February 9, 2024. We have not arranged for listing, quotation and/or registration of our ADRs on another securities exchange or quotation medium.
Potential Separation Transaction
On February 5, 2024, our Board of Directors authorized our management to assess a possible separation of Natura &Co Latam and Avon into two independent publicly traded beauty companies in order to unlock further shareholder value, consistent with our strategy of simplifying our corporate structure. The structure of the potential transaction is still being assessed but it is expected that it would result in two separate standalone entities with unique business plans, independent governance and management teams. Natura would continue to operate with both brands in the region, so the potential separation would not impact the integration of the brands in Latin America. In turn, Avon would indirectly benefit from the sales in Latin America through a commercial arrangement with Natura, while continuing its operations in other markets outside Latin America. There can be no assurance that any separation will ultimately be recommended by our Board of Directors and completion of such a plan depends final approval by our Board of Directors and consent from the majority shareholders.
Termination of our ADS Program
On April 10, 2024, we announced the termination of our ADS program. On the same date, The Bank of New York Mellon, or “BNYM” or the “ADS Depositary,” issued a notice of termination to holders and beneficial owners of ADSs. The effective date of termination of the deposit agreement for our ADS program and of the ADS program will be August 7, 2024.
Administration of The Body Shop
On December 29, 2023, we concluded the sale of Natura (Brasil) International B.V., the holding company of The Body Shop, to Aurelius Investment Advisory Limited for a total purchase price of £207 million, including deferred and contingent consideration (in the form of an earn-out) of £90 million (or R$829.4 million based on the real/U.S. dollar exchange rate as of December 31, 2023), which includes: (i) a fixed installment received on January 2, 2024, in the amount of R$22.9 million; (ii) a fixed installment whose receipt is due on December 29, 2028, in the amount of R$320.1 million; and (iii) the fair value of two variable installments of contingent consideration, one due in December 2025 and the other one due in December 2026, tied to the achievement of certain performance targets, in the estimated amount of R$486.4 million. The price and the earn-out will be payable in up to five years after closing.
On February 13, 2024, The Body Shop entered administration in the United Kingdom and Geoffrey Paul Rowley, Alastair Rex Massey, and Anthony John Wright of FRP Advisory were appointed as joint administrators. Subsequently, certain of The Body Shop’s subsidiaries in the United States, Canada and Germany also entered into insolvency proceedings.
As disclosed above and in note 5.5 to our audited consolidated financial statements included elsewhere in this annual report, we have accounts receivable due in December 2025 and December 2026 conditioned on the achievement of certain performance targets by The Body Shop in each of the respective previous fiscal years. In addition, as of December 31, 2023, Avon had receivables from The Body Shop arising from the manufacture of certain products for The Body Shop.
In light of the administration of The Body Shop in the United Kingdom and of certain of its subsidiaries in other jurisdictions, we have assessed that the information that supported the fair value measurement of such receivables as of December 31, 2023 may no longer be deemed reliable for the purposes of determining the current fair value of the receivables from The Body Shop. We have therefore made reserves in our financial statements for 2024, as discussed in note 36.1, “Subsequent events,” to our audited consolidated financial statements included elsewhere in this annual report.
See also “Item
3. Key Information—D. Risk Factors—Risks Relating to Our Business and
Industries in Which We Operate—We may not be able to identify and acquire new
acquisition targets, or realize the benefits of business divestitures, or
otherwise meet our strategic and financial goals in connection with any
business acquisitions and divestitures we seek to undertake, and difficulties
in effectively integrating and managing a growing number of acquisitions, or
separating from divested businesses, may adversely affect our strategic
objectives.”
Flooding in the Brazilian State of Rio Grande do Sul
During May 2024, the state of Rio Grande do Sul in the south of Brazil was hit by a natural disaster. Significant flooding across the state has resulted in damage to third party property and displacement of populations, among other adverse effects. We are currently supporting our network of representatives and analyzing possible actions that may further assist the population at this time.
As of the date of this annual report, we are assessing the potential impacts on the Company’s assets that may have been affected, especially considering the existence of a distribution center in the region, where some of the Company’s products are stored.
Conflicts Between Russia and Ukraine and in the Middle East
The global economy has also been adversely affected by the ongoing war between Russia and Ukraine, which has resulted in significant inflationary pressures, supply chain disruptions and volatility in financial markets. Governments and authorities worldwide, including the United States and the European Union, have announced sanctions on certain industry sectors and parties in Russia. These and any additional sanctions, as well as any potential responses that may be provided by the governments of Russia or other jurisdictions, may adversely affect our business.
As a global company, with operations in Russia and Ukraine, our priority is the safety and well-being of all our associates, representatives, partners, suppliers, and customers. We are in close contact with the Avon associates based in Ukraine and Russia in order to support them. A crisis management team is closely monitoring events as this crisis unfolds and our thoughts are with everyone affected by this situation. At a time of war in Europe, we stand in solidarity with all the victims and refugees and seek to ensure the safety and well-being of our teams. We have donated resources to non-governmental organizations acting on the ground, mainly the Red Cross, an international humanitarian network, and are also making product donations to refugees.
Central and Eastern Europe is a relevant region for Avon, for which Russia is the largest market, while Ukraine is an important market for Natura &Co as a whole. Our total consolidated net revenue was R$26.7 billion in the year ended December 31, 2023, and these two markets represented under 5.0% of consolidated revenue in that year.
In addition, during October 2023, the state of Israel was the target of an attack by the terrorist group Hamas which led to the death of a number of civilians. As a result, Israel declared war on Hamas and conflicts commenced in Israel and the Gaza strip. Although the conflict is still developing, other world leaders have declared support to Israel, including through the commitment of funds and military personnel and capabilities. As the conflict has unfolded, concerns have been raised by the international community regarding the humanitarian situation in the region. Furthermore, tensions have also spread to the wider Middle East following confrontations between Israel and Iran. It is unclear whether the conflict and its underlying uncertainties will be contained or resolved, and what effects they may have on the global political and economic conditions in the long term.
As of the date of this annual report, the ongoing conflicts between Russia and Ukraine and in the Middle East have not had a material impact on our business, financial condition and results of operations. We are continuously monitoring the developments to assess any potential future impacts that may arise as a result of the ongoing crises The adverse effects—global or localized—of the ongoing war between Russia and Ukraine (especially given our operations there), and/or economic sanctions and import and/or export controls to be imposed on the Russian government by the United States, the UK, the EU or others, and the ongoing conflict between Israel and Hamas, as well as the wider tensions in the Middle East, and the adverse effects of these conflicts on the wider global economy and market conditions could, in turn, have a material adverse effect on our business, financial condition and results of operations.
See also “Item 3. Key Information—D. Risk Factors—Risks Relating to the Countries in Which We Operate—Ongoing conflicts, such as the Ukraine-Russia and the Israel-Hamas conflicts, as well as tensions in the Middle East, may have a material adverse effect on our business, financial condition and results of operations.”
Capital Expenditures and Divestitures
Our main capital expenditures include investments in enhancing digital technology, product innovation as well as projects that seek to increase our operational efficiency and productivity. In the years ended December 31, 2023, 2022 and 2021, total investments in capital were R$947.1 million, R$765.9 million and R$986.0 million, respectively.
Our ongoing capital expenditures consist primarily of investments to enhance IT infrastructure, technology for e-commerce and social selling, product innovation, projects that seek to increase our operational efficiency and productivity, action plans for continued transformation and integration between Natura &Co group companies, and the development of new products, among others.
For information on the funding of our capital expenditures, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Sources of Liquidity.”
Overview
Natura &Co is among the tenth largest companies in the beauty segment, by revenue size, in according to Euromonitor.
Our businesses operate under two main brands: Natura and Avon, each with its specific importance to us. The combination of these two iconic and complementary brands in our’ portfolio created one of the largest beauty companies in Brazil and Latin America.
Our product categories include: (i) face and body skin care; (ii) hair care and treatment; (iii) cosmetics; (iv) fragrances; (v) bath products; (vi) oral hygiene; and (vii) gifts and (viii) other products, as therapeutic products for home and body.
The union of these two brands gives our business model multichannel operations in different regions of the world, ranging from direct sales to distribution through retail and digital channels, in addition to different price positioning.
The following is a description of our main brands:
Natura
Natura was founded in 1969 in São Paulo, Brazil, believing in the potential of relationships and in the power of cosmetics as a consciousness booster. Over the years, it expanded its operations, diversifying and combining its cosmetic and personal care products with the environment, being recognized for its concern with sustainability. Our Natura product portfolio includes the following brands and categories:
- Fragrances: Offered through brands of women’s fragrances and perfumes, such as the Ekos line, Ekos, Humor, Una, Essencial, Biografia, Ilia and Luna, men’s fragrances, and colognes, such as the Natura Homem line, Essencial, Biografia, Sr. N and Kaiak, as well as the Mamãe e Bebê and Natura Naturé children’s lines that complement the portfolio.
- Makeup: Offered through our two brands of cosmetics, each with a different identity: Una and Faces.
- Body and Facial Care: Natura has lines dedicated to facial care, such as Chronos and some products from the Faces line, as well as a variety of body lotions from the Ekos, Tododia and Erva Doce brands.
- Sunscreen: Offered through the brand Fotoequilíbrio, which also offers products specifically developed for children.
- Soaps: Includes both liquid and bar soap, in addition to other items such as exfoliating products. We believe Natura was the first company in Brazil to introduce liquid hand soaps in 1984 with the Erva Doce brand. This segment of the Brazilian market is currently led by bar soaps, a category in which Natura operates with brands such as Tododia, Ekos, Erva Doce and Kayak. Natura’s soaps are all plant-based.
- Deodorants: Includes perfumed deodorants that work as extensions of the women’s and men’s scent ranges and of the Tododia and Erva Doce brands.
- Body Oils: Offered through two different brands, Séve and Ekos. We believe the Séve brand was a pioneer in the Brazilian oil market and has been part of our portfolio for more than 30 years.
- Hair Care: This category includes shampoos, conditioners, and capillary treatments such as hydrating masks, and is offered through four brands: Ekos, Plant, Lumina, Mamãe e Bebê and Natura Homem.
- Home Care: Launched at the end of 2023, the Bothânica line marks Natura’s entry into the category. Bothânica offers massage oils, candles, and home spray.
- Gifts: Offered through creative and adaptable kits, with a wide range of products for men, women and children, also including exclusive packaging for various occasions.
Our Natura brand uses, in the manufacturing of its products, sustainable ingredients ethically extracted from the Brazilian biodiversity. The formulas used by Natura prioritize the use of renewable, vegetable-based raw materials.
Avon
Founded in 1916 in New York, United States, with operations since 1886, Avon is a global manufacturer and marketer of beauty and related products. Under this brand, our products are distributed predominantly through direct sales by our representatives for beauty, fashion and home segments focused on mass markets in approximately 35 countries.
Avon’s product categories are:
- Makeup: Offered through different brands of cosmetics, each with a different identity and purposes, such as: Avon True and Power Stay and mark.
- Face Care: This category includes facial care products and facial treatments, offered through brands such as Anew and Avon Care, as well as skincare kits.
- Daily Care: Avon has a comprehensive line to use every day, which goes from bathing to hydration and includes body lotion, deodorants, foot care, sunscreen, and others.
- Fragrances: Offered through women's, men's and children’s fragrances and perfumes, through brands such as Avon Eve, Far Away, Lov u, Musk and others.
- Hair: This category includes shampoos, conditioners, serums, and hair gels.
- Home and Style: This includes decorative products, houseware, entertainment and leisure products, children's products, as well as accessories and other gifts.
- Gifts: This includes gift kits and souvenirs adaptable for various occasions, as well as a broad product line that includes makeup, body and bath, hair, skin care and packaging.
Our Global Presence
We are present in Brazil and internationally. We have expanded our operations to several countries through organic and inorganic growth.
With a presence in different regions and countries, we adopt different strategies for each our businesses.
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Following the expansion of our Natura brand into Latin America in the 1980s and 1990s, we identified several opportunities to further grow our business outside Brazil through mergers and acquisitions. We began implementing this strategy in 2012 with the acquisition of Aesop. We then acquired The Body Shop and Avon in 2017 and 2020, respectively. In the year ended December 31, 2023, we completed the sales of Aesop and The Body Shop. These transactions have supported our financial deleveraging and contributed to our efforts to streamline our business and operations, while focusing our main priorities in Latin America.
We believe that our experience over the years has helped us to consolidate in the development, manufacturing, distribution and resale of cosmetics, fragrances, and personal care products, leading us to become a diversified, global cosmetics group with differentiated values. We are the fourth-largest pure play beauty group in the world with a global market share of 1.9% as of December 31, 2023, according to Euromonitor data, (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices).
Our Strategy
Given the diversified and global scope of our operations, we adopt different strategies for each of our two segments:
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Environmental and Social Responsibility
Natura &Co
We believe that even though we have already been addressing sustainability over the years, we need to move faster. Accordingly, in June 2020, we set bold targets for the next decade by launching our Commitment to Life, a comprehensive sustainability vision as part of which we intend to step up our actions to address some of the world’s most pressing issues. We believe we have made significant progress in our commitments: aligning with the urgent needs of our planet and its people by addressing the climate crisis, protecting human rights, and building a circular and more regenerative economy. However, our vision is ever-evolving, adapting to new concepts and learnings, and some of our goals hinge on collaborations with partners and advancements in technology. Internally, we are seeking to advance our processes and exploring ways to engage with our suppliers and broader community to confront these challenges.
Our journey towards such goals started with Natura’s own vision for 2050, developed in 2014. The three businesses we operated at the time (Natura, The Body Shop and Aesop) jointly developed an agenda for sharing best practices through networks of excellence in fields such as innovation, strategy, digital commerce, retail and sustainability. Our sustainability network of excellence started out by discussing our vision in terms of priorities that embrace a positive and systemic approach to our business. Along with the environmental and social, we have included a third perspective, the transversal, which takes into account our role as a consumer company and the way our products are developed and disposed of, so that they give back more to the world than they take.
Furthermore, Natura &Co Holding Shares are traded on the Novo Mercado listing segment of the B3, a special category that lists companies with the highest levels of corporate governance. Moreover, Natura &Co’s stock was picked for the B3’s ISE list for the 19th consecutive year. The B3’s ISE compares Brazilian companies based on corporate sustainability, economic efficiency, environmental balance, social responsibility and corporate governance.
Natura and Avon have calculated scope 1 and 2 emissions of greenhouse gas, or “GHG.” For Scope 3 emissions each brand has calculated its level to varying degrees. In 2021 we consolidated the organizational footprints for scope 1 and 2 and we equalize the same boundaries to calculate and consolidate the footprint for scope 3.
Natura
Natura Cosméticos challenges itself to generate positive financial, social, cultural and environmental impacts. Natura Cosméticos articulated this challenge in its Sustainability Vision 2050, launched in 2014, in which it undertook the commitment to transform Natura into a brand with a positive impact by ensuring that its operations help improve the environment and society, going beyond the current paradigm of merely reducing and mitigating impacts.
In 2014, Natura Cosméticos was the first listed company in the world to be recognized as a B Corp (as approved by B Lab, an independent organization), a global movement of companies that give equal value to their economic, social and environmental results. After three years, Natura Cosméticos was recertified as a B Corp, attesting its commitment to positive social and environmental performance and impact on people and the planet. In 2022, we expanded the B Corp certification from Natura Cosméticos to Natura &Co, which is currently one of the largest consumer businesses in the world to have this certification.
For the seventeenth consecutive year, Natura Cosméticos’ stock was included in the B3’s Corporate Sustainability Index. From 2014 to 2021, Natura Cosméticos was listed on the Dow Jones Sustainability Index, or “DJSI,” a benchmark for investors who base their investment decisions on social and environmental aspects. Natura Cosméticos was the only emerging markets company on the DJSI in the Household and Personal Products segment.
Furthermore, for the twenty-second consecutive year, Natura Cosméticos presented its Annual Sustainability Report, which has provided unified disclosure of economic, social and environmental results of its operations since 2001. All information related to social responsibility is described in Natura Cosméticos’ annual report, which is drafted in accordance with the GRI G4 framework.
Natura Cosméticos seeks to create sustainable value for society by forging relationships based on quality and generating integrated social, environmental and economic results. As such, return on shareholder investment is obtained by balancing short- and long-term focuses. Some examples of such social actions include supporting organizations and associations that contribute in some way to the sustainable development of Natura Cosméticos’ industry; adopting fair trade principles in partnerships with extraction communities and supporting sustainable local development; and sharing benefits with communities through access to genetic heritage and associated traditional knowledge of Brazilian biodiversity.
Natura Cosméticos has a Social and Environmental Responsibility Policy, which sets out the following programs: “Natura Carbon Neutral Program” and “Natura Amazon Program.”
Natura Cosméticos’ Sustainability Vision 2050 is deeply connected to our strategy and influences Natura &Co’s corporate vision, “Commitment to Life.” We view it as a commitment by the entire business to have a positive impact. We endeavor to contribute to the protection and regeneration of the entire ecosystem to which we belong. The first milestone of this planning, 2020 Ambitions, is a set of goals on topics such as biodiversity, waste, carbon emissions, diversity and inclusion, and income generation, among others. We mobilized resources internally in this six-year cycle, overcame important business challenges and advanced strategic issues as part of our vision of transforming Natura into a company that generates a positive impact.
We remain committed to transparency and balance. We endeavor to establish clear criteria to define our achievements towards goals that are not quantifiable.
Based on clearly defined medium- and long-term goals, we deepened the monitoring of Natura’s impacts in these aspects and in decision-making. Innovation has driven research and development of new technologies and the development of new indicators to assess the development of consultants and communities in the Brazilian Amazon. We also developed new models for assessing our impacts on our network of relationships, such as the consultant’s human development index and environmental profit and loss and social profit and loss.
Avon
We believe that Avon is more than just a beauty brand: it is a movement connecting millions of women to each other and to a better life. This is the real value behind each sale made by Avon’s representatives around the world, and beauty is the journey that gets Avon there.
Avon recognizes the part it can play in addressing the challenges of rapid climate change and inequalities in income and opportunity. Therefore, in 2019, Avon expanded its sustainability strategy to ensure that it considers its environmental impact throughout its operations.
Avon is committed to this mission while continuing to minimize its environmental impact as a company that makes and sells responsibly sourced products. Avon is well on track to achieve its 2020 environmental goals but recognize that there is much more to do.
That is why Avon has now set even more ambitious targets – to improve packaging sustainability, and further reduce its carbon emissions and water use. Avon is also proud, in 2019, to have become the first global beauty company to end animal testing across all products in every country in which it operates. Avon and the Avon Foundation donated over U.S.$6.2 million in 2023 to causes including breast cancer awareness, the fight against gender-based violence and domestic violence, and Ukrainian war refugees, among others.
Our Operations
Overview
We believe we have a balanced business model with complementary brands, channels and a broad global footprint based on the diversity of channels and price positioning offered through our brands, ranging from direct selling to retail/digital distribution channels and from mass to prestige price positioning.
Channel and Value Proposition for Consumers
We present below a summary of certain of our key operational and financial highlights:
- In the year ended December 31, 2023, out of our total net revenues, 23.5% was generated outside of our Natura &Co LATAM segment (24.6% in the year ended December 31, 2022), and Brazil represented 44.9% of the total net revenue in the year ended December 31, 2023 (38.6% in the year ended December 31, 2022).
- In the year ended December 31, 2023, our revenue was derived from the following sales channels: 90.4% from direct sales, 1.6% from retail, 4.2% from online sales, 3.8% from other sales channels.
Natura
The Natura brand aims to combine sustainable design with traditional and scientific knowledge to develop products under an open innovation model, which involves a network of global partners. Natura works jointly with suppliers to reduce the environmental impacts of its products by using recycled materials, such as polyethylene terephthalate and glass. Since 2006, Natura has not performed animal testing during the research and development phases of its product production (Natura only performs in vitro and clinical tests), and it does not acquire active ingredients that were tested on animals.
Under the Natura brand, we offer a full range of cosmetics, toiletries and fragrances for women and men, including skin care products for the face and body, hair care and treatment products, makeup, fragrances, soaps, deodorants, sunscreen, and baby and childcare.
The Natura brand uses ingredients which we believe to be unique, sustainable and ethically extracted from Brazilian biodiversity in the manufacture of its products. The formulas used by Natura prioritize the use of vegetable-based renewable raw materials. As of the date of this annual report, to ensure the sustainable stewardship of these ingredients in Brazil, Natura works with 51 communities, generating social development and income for approximately 11.7 thousand families, based on sustainable production chains. We have helped to preserve around 2.2 million hectares of forest as of December 31, 2023, with our partnerships with organizations such as the State Secretariat for the Environment of Amapá (Secretaria de Estado do Meio Ambiente do Amapá), the Chico Mendes Institute for Biodiversity Conservation (Instituto Chico Mendes de Conservação da Biodiversidade) and the State Secretariat for the Environment of Amazonas (Secretaria de Estado do Meio Ambiente do Amazonas), in addition to agricultural communities and social organizations of the region. We work with these organizations by developing initiatives that we believe generate positive impacts for conservation, in areas such as “Reserva Extrativista Médio Juruá,” “Reserva de Desenvolvimento Sustentável Uacarí” and “Reserva de Desenvolvimento Sustentável do Rio Iratapuru.”
Natura uses organic alcohol in 100% of its fragrances. Organic alcohol does not contain any pesticides or chemical fertilizers and there is no burning process involved in the sugar cane harvest.
We believe Natura was one of the first companies in Latin America to measure the impact of its businesses on the environment, using the international environmental profit and loss methodology. Based on this analysis, which includes every stage of the product life cycle, we can measure the impact of our activities in Brazilian reais, taking into account factors such as water use and carbon emissions.
Our Natura product portfolio includes fragrances, makeup, body and facial care, sunscreen, soaps, deodorants, body oils, hair care and gifts, as further detailed under “Item 4. Information on the Company—B. Business Overview—Overview—Natura.”
One of our strengths is our different channels of distribution, who sell Natura branded products in Brazil and Latin America. Our relationship with these consultants is based on more than simple transactions, since Natura seeks to ensure that our commercial goals also promote human and social development of our network, through education, health access and digital inclusion, creating a strong value proposition.
Together with its consultants, Natura expanded its sales channels in 2014 through the launch of our e-commerce platform, Rede Natura, in Brazil. The platform was launched in Chile in 2015, Argentina in 2017 and Peru and Colombia in 2019. In 2019 we also launched Rede Natura in Malaysia as part of a pilot project to internationalize our business. The Rede Natura platform has attracted a new profile of consultant: younger individuals who feel at home in a virtual environment, and who prefer to not deal with operational factors directly, such as payments and delivery of products to customers. In June 2019, we started our convergence plan, with the objective of enabling consultants to manage their customers’ orders both in the traditional direct selling method and through the e-commerce platform. This unified our online and offline business models and rules. We also launched the Conta Natura for consultants, an exclusive digital account available on the consultants’ mobile app, which has made our network more inclusive from a digital and financial perspective, in addition to offering a microcredit service.
Our e-commerce platform was implemented in Chile in 2015 and in Argentina in 2017. We also believe that the implementation of Natura’s mobile platform has been successful: Natura has approximately 3.5 million consultants using Natura’s digital platforms (mobile application and web-based) in Brazil and other Latin American countries as of December 31, 2023. The mobile application contains a number of features which support consultants’ sales, including allowing order entry and access to sales performance records. As of December 31, 2023, 73.9% of Natura’s consultants were using digital platforms.
In 2016, Natura opened physical stores in the city of São Paulo to improve the shopping experience of our consumers.
As of December 31, 2023, Natura had 112 stores in Brazil and 45 outside Brazil (Chile, Argentina, Mexico and Peru). In addition, Natura is growing through a franchise model in Brazil. As of December 31, 2023, Natura had approximately 775 franchised stores in Brazil.
Natura also operates as a head franchisor of The Body Shop business in Brazil, Chile and Mexico.
Avon
Avon is a global manufacturer and marketer of beauty and related products. Avon commenced operations in 1886 and was incorporated in the State of New York on January 27, 1916. Avon conducts its business in the highly competitive beauty industry and competes against other CPG and direct-selling companies to, create, manufacture and market beauty and non-beauty-related products.
Avon’s product categories are Beauty and Fashion & Home:
- Beauty: consists of skin care, fragrance and color (cosmetics).
- Fashion & Home: consists of fashion jewelry, watches, apparel, footwear, accessories, gift and decorative products, housewares, entertainment and leisure products, children’s products and nutritional products.
Avon’s business is conducted primarily in one channel, direct selling, with a strategy to expand to multichannel. As of December 31, 2023, Avon’s operations outside the U.S. were conducted primarily through subsidiaries in approximately 35 countries and territories. Outside of the U.S., Avon’s products were also distributed in 18 other countries and territories.
Unlike most of its CPG competitors, which sell their products through third-party retail establishments (e.g., drug stores and department stores), Avon primarily sells its products to the ultimate consumer through the direct-selling channel, with a strategy to expand to multichannel. Sales of products are made to the ultimate consumer principally through direct selling by representatives, who are independent contractors and not Avon’s employees.
Avon’s principal properties worldwide consist of manufacturing facilities for the production of Beauty products and distribution centers where administrative offices are located and where finished merchandise is packed and shipped to representatives in fulfilment of their orders. On November 3, 2022, the board of directors of Avon approved a plan to relocate its research and development facilities to Brazil and Poland, two of its largest markets, in order to further deliver its Global Innovation Program and realize cost efficiencies. On December 1, 2023, Avon agreed to sell its facility in Suffern, New York, and expects to cease operating there by June 30, 2024.
Since January 2017, Avon’s principal executive offices are located in Northampton, UK. Avon also has a further executive office in London, UK. All the floors of its previous principal executive office location at 777 Third Avenue, New York, have been subleased.
In addition, other principal properties include the following:
- three manufacturing facilities, 10 distribution centers and one administrative office in Avon International; and
- one manufacturing facility and four distribution centers in Avon Latin America.
Our Segments
Net Revenue by Segment and Share of Net Revenue
The following tables present certain financial and operational indicators for the periods indicated of our Natura &Co LATAM segment:
|
|
For the Year Ended December 31, | ||||||
|
|
2023(1) |
2023 |
2022 |
2021 | |||
|
|
(in U.S.$) |
(in R$) | |||||
|
|
(currencies in millions, except as otherwise noted) | ||||||
|
Natura &Co LATAM: |
|
|
|
| |||
|
Net revenue from continuing operations |
4,222.4 |
20,440.8 |
22,027.4 |
22,413.4 | |||
|
Operating profit before financial results (2) |
1,570.8 |
7,604.5 |
1,000.2 |
1,723.7 | |||
|
Net income (loss) (2) |
1,235.3 |
5,980.2 |
(313.4) |
1,188.6 | |||
|
Number of consultants (average available) |
N/A |
3,535 |
4,655 |
4,480 | |||
|
Number of owned stores |
N/A |
157 |
229 |
219 | |||
(1) Solely for the convenience of the reader, we have translated certain amounts included in this annual report from reais into U.S. dollars using the exchange rate as reported by the Brazilian Central Bank as of December 31, 2023 for reais into U.S. dollars of R$4.841 per U.S.$1.00. The U.S. dollar equivalent information presented in this annual report is provided solely for the convenience of investors and should not be construed as implying that the amounts in reais represent, or could have been or could be converted into, U.S. dollars at such rates or any other rate.
(2) The amounts shown above do not include unallocated corporate expenses.
The following table presents certain financial and operational indicators of our Avon International segment for the periods indicated:
|
|
|
For the Year Ended December 31, | |||||
|---|---|---|---|---|---|---|---|
|
|
2023(1) |
2023 |
2022 |
2021 | |||
|
|
(in U.S.$) |
(in R$) | |||||
|
|
|
(currencies in millions, except as otherwise noted) | |||||
|
Avon International: |
|
|
|
| |||
|
Net revenue from continuing operations |
1,298.7 |
6,286.8 |
7,196.0 |
9,329.3 | |||
|
Operating (loss) before financial results (2) |
(329.3) |
(1,594.1) |
(1,138.9) |
(656.8) | |||
|
Net loss for the year (2) |
(572.2) |
(2,770.2) |
(2,005.0) |
(919.3) | |||
(1) Solely for the convenience of the reader, we have translated certain amounts included in this annual report from reais into U.S. dollars using the exchange rate as reported by the Brazilian Central Bank as of December 31, 2023 for reais into U.S. dollars of R$4.841 per U.S.$1.00. The U.S. dollar equivalent information presented in this annual report is provided solely for the convenience of investors and should not be construed as implying that the amounts in reais represent, or could have been or could be converted into, U.S. dollars at such rates or any other rate.
(2) The amounts shown above do not include unallocated corporate expenses.
The following table shows the proportion of our net revenue accounted for by each of our segments for the periods indicated:
|
|
For the Year Ended December 31, | ||||
|---|---|---|---|---|---|
|
|
2023 |
2022 |
2021 | ||
|
Natura &Co LATAM |
76.5% |
75.4% |
70.6% | ||
|
Avon International |
23.5% |
24.6% |
29.4% | ||
|
Total |
100.0% |
100.0% |
100.0% | ||
Our Production Processes
Natura
In 2023, Natura produced 76.7% of its cosmetics through its own production sites, while 23.3% was manufactured by third parties. In 2022, Natura produced 72.1% of its cosmetics through its own production sites, while 27.9% was manufactured by third parties. In 2021, Natura produced 69.5% of its cosmetics through its own production sites, while 30.5% was manufactured by third parties. Natura has two industrial units, one in Cajamar in the state of São Paulo and an industrial unit in Benevides in the state of Pará.
Natura’s Cajamar facilities were built to allow efficient expansion as our operations grow, thereby ensuring greater economies of scale at the production sites. In 2014, our unit in Benevides, called “Ecoparque,” was built based on sustainable chain concepts, promoting a form of symbiosis between the different companies operating therein and contributing to the development of local communities.
In the year ended December 31, 2023, Natura reached a production volume equal to approximately 62.5% of its production capacity, compared to 57.8% in 2022 and 66% in 2021. Given the characteristics of Natura’s commercial model, Natura opted for a manufacturing structure that favored flexibility, thereby allowing Natura to meet spikes in demand influenced by either product promotions that lead to significant changes in normal demand behavior or strategies that offer exclusively prepared packaging for important commemorative dates, such as Mother’s Day or Christmas.
In the year ended December 31, 2023, Natura produced 451 million units internally at Cajamar, in comparison with 434 million units in 2022 and 469 million units in 2021. Natura’s soap plant produced 123 million units in the year ended December 31, 2023, compared to 114 million units in 2022 and 106 million units in 2021.
Natura outsources the production of products including bar and liquid soaps, hair care products, aerosol products and certain types of makeup, in addition to samples and gifts. The decision to produce a product internally or to outsource production is based on an analysis of the cost of each option, in addition to requirements such as formula confidentiality and the specific nature of the production process.
Of the products manufactured in Brazil, either by Natura or by its partners, 26.9% were exported in year ended December 31, 2023, in comparison with 26.9% in 2022 and 30.6% in 2021.
Natura’s production process is interspersed with continuous preventive and corrective maintenance procedures to meet its production and sales demand. Natura’s production processes mainly use German, French, Italian and Brazilian technology, which is provided by several different suppliers. Our equipment, facilities and operations are insured against incidents.
In 2006, Natura received the ISO 9001 certification, resulting from its continuous commitment to the quality of processes, products and services, which Natura seeks to improve daily. Since then, Natura has maintained its certification through annual audits or recertification.
Avon
Avon manufactures and packages the majority of its Beauty products, which are formulated and designed by its staff of chemists, designers and artists. Raw materials, consisting chiefly of essential oils, chemicals, containers and packaging components required for Avon’s Beauty products are purchased from a range of third-party suppliers. The remainder of its Beauty products and all of its Fashion & Home products are purchased from various third-party manufacturers.
In 2023, Avon produced 78% of its cosmetics through its own production sites, while 19% was manufactured by third parties and an additional 3% was purchased from B+ vendors. In 2022, Avon produced 72% of its cosmetics through its own production sites, while 25% was manufactured by third parties and an additional 3% was purchased from B+ vendors.
Avon’s products are affected by the cost and availability of materials such as glass, fragrance and fuel. For the vast majority of items Avon has more than one source of supply available. Avon believes that sufficient raw materials and supplies can be obtained to manufacture and produce Avon’s Beauty products for the foreseeable future.
Additionally, Avon designs the brochures (whether paper or online) that are used by the representatives to sell Avon’s products. The brochures are then produced on Avon’s behalf by a range of printing suppliers.
We do not believe that the loss of any one supplier would have a material impact on Avon’s ability to source raw materials for the majority of Avon’s Beauty products or source products for the remainder of Avon’s Beauty products and all of Avon’s Fashion & Home products or paper for the brochures.
See “—Logistics Network” below for additional information regarding the location of Avon’s principal manufacturing facilities.
Our Distribution Processes
Natura
We distribute Natura-branded products through direct sales channel. We have opted for the direct sales channel due to our belief in the power of sales through relationships, which allows greater interaction between the buyer and the seller, thereby providing a more individualized service. This commercial model has been adopted in Brazil, Argentina, Chile, Peru, Colombia and Mexico. Accordingly, our products are distributed through a network of approximately 3.5 million consultants as of December 31, 2023, as shown in the table below:
|
|
As of December 31, | ||||
|---|---|---|---|---|---|
|
|
2023 (2) |
2022 |
2021 | ||
|
|
(in thousands) | ||||
|
Consultants(1): |
|
|
| ||
|
Brazil |
1,781.0 |
1,166.5 |
1,099.6 | ||
|
Argentina |
492.6 |
230.4 |
230.1 | ||
|
Chile |
124.3 |
83.5 |
88.3 | ||
|
Mexico |
604.5 |
329.1 |
319.2 | ||
|
Peru |
132.6 |
99.0 |
98.2 | ||
|
Colombia |
217.0 |
140.6 |
132.6 | ||
|
Ecuador |
55.0 |
— |
— | ||
|
Other (3) |
128.4 |
— |
— | ||
|
Total |
3,535.4 |
2,049.1 |
1,968.0 | ||
(1) Represents the number of Natura consultants that sent orders during the last four of our sale cycles.
(2) Information as of December 31, 2023 reflects the combination of Natura and Avon in Latin America.
(3) Includes other Latin America countries with less than 50 consultants per country.
The consultants use a catalogue of Natura products, or the Natura Magazine, available in both print and digital form, to present and resell products to their clients. Natura Magazine offers almost all of the products in Natura’s portfolio, as well as the suggested sale price to the consumer, even though Natura consultants are free to establish prices and sales conditions for the final consumer. Natura Magazine is an important marketing tool for the brand and transmits Natura’s beliefs and values, as well as the concepts of each sub-brand.
A new Natura Magazine is released approximately every 21 days with new promotions and launches, thereby forming different sales cycles throughout the year. In each cycle, we send at least one print version of Natura Magazine (except in Argentina) to consultants who placed at least one order in the previous three cycles. The average number of catalogues distributed per sales cycle was 2.1 million and 1.9 million in the years ended December 31, 2023 and 2022, respectively. In order to better communicate and strengthen the relationship with consultants, we are also investing in a mobile application and in the Natura Network (an online business). With these tools, consultants can view Natura Magazine, place orders, receive online training, and check their default status and other activities. We believe digitalization will be crucial for the future performance of our brand and enable Natura to build upon its existing strengths.
Natura offers its products through a direct sales model with high levels of service. In 2018, we transformed this direct selling model, renaming it to “Relationship Sales Model,” which is now guided by three core principles: Prosperity, Partnership and Purpose.
The new model offers progression levels to consultants, who begin as Seeds, and as they improve their performance, progress to Bronze, Silver, Gold and Diamond. At each new level, their sales margin increases, and they also have access to distinct benefits, such as training courses, awards and a recognition plan. Other progression options offered to consultants include the opportunity of becoming a Business Leader (upon reaching the Silver level), a position that combines the sale of products with the task of leading a group of consultants and assisting them in developing their business. Business Leaders, like consultants, do not have labor ties with the company and are not exclusive to Natura. Consultants with an entrepreneurial profile and high sales volumes also have the opportunity to launch a Natura franchise store (named “Aqui tem Natura”), thereby becoming Beauty Entrepreneurs.
Products in the Natura Magazine in Brazil are assigned points based on the suggested retail price. For example, the greater the suggested retail price, the greater the number of points assigned. Consultants may place as many orders as they wish during the sales cycle, as long as the order meets a minimum of 50.0 points, which is equal to approximately R$285.00 in terms of suggested sales price as indicated in the Natura Magazine.
In order to improve communication and strengthen our relationships with our consultants, we advanced the digitalization of our relationship sales model. In the years ended December 31, 2023, 2022 and 2021, approximately 3.5 million, 1.8 million and 1.8 million, respectively, consultants from Brazil and other Latin American countries used our digital platform, which is available in both a mobile and web browser format.
The use of technology exponentially amplifies our connections and our relationships by empowering our consultants and unlocks value by improving both the experience of our end consumers and the efficiency of our operating processes.
To encourage Natura consultants to provide quality service in their resale and product consulting activities, Natura invests in recognition and training on the brand, products and categories, especially training relating to the fragrance, face care and makeup categories. Natura’s direct sales model has been adapted to the regional characteristics of each country. For this reason, although Natura operates the same sales model within Brazil, it operates different direct sales models in each country throughout Latin America.
Avon
During 2023, we had sales operations in 35 countries and territories, and distributed products in 18 other countries and territories.
Unlike most of its CPG competitors, which sell their products through third-party retail establishments (e.g., drug stores and department stores), Avon primarily sells its products to the ultimate consumer through the direct-selling channel, with a strategy to expand to multichannel. Sales of products are made to the ultimate consumer principally through direct selling by representatives, who are independent contractors and not employees of Avon. As of December 31, 2023, the Avon brand had approximately 3 million Active Representatives (calculated as the number of representatives submitting an order in a sales campaign, totaled for all campaigns during the year ended December 31, 2023 and then divided by the number of campaigns). Representatives earn by purchasing products directly from Avon at a discount from a published brochure price and selling them to their customers, the ultimate consumer of Avon’s products. Representatives can start their Avon businesses for a nominal fee or, in some markets, for no fee at all. Avon generally has no arrangements with end users of its products beyond the Representative, except as described below. No single Representative accounts for more than 10% of Avon’s net sales globally.
Sales through Representatives accounted for 87% of Avon’s net revenue for the year ended December 31, 2023.
A Representative contacts its customers directly, selling primarily through Avon’s brochure (whether paper or online), which highlights new products and special promotions (or incentives) for each sales campaign. In this sense, the Representative, together with the brochure, are the “store” through which Avon’s products are sold. A brochure introducing a new sales campaign is typically generated every three to four weeks. A purchase order is processed, and the products are picked at a distribution center and delivered to the Representative usually through a combination of local and national delivery companies. Historically, the Representative then delivers the merchandise and collects payment from the customer for her own account. Several of the larger countries in which Avon is active have begun to offer direct to customer delivery of the ordered products. A Representative generally receives a refund of the price the Representative paid for a product if the Representative chooses to return it.
Avon employs certain web-enabled systems to increase Representative support, which allow Representatives to run their business more efficiently and also allow Avon to improve its order-processing accuracy. For example, in many countries, representatives can utilize the internet to manage their business electronically, including order submission, order tracking, payment and communications with Avon. In addition, in many markets, representatives can further build their own business through personalized web pages provided by Avon, enabling them to sell a complete line of Avon products online. Self-paced online training also is available in certain markets. Avon is actively deploying and training the representatives on additional digital tools and sales methods to help increase its customer reach.
In some markets, particularly in Asia Pacific, Avon uses decentralized branches, satellite stores and independent retail operations (e.g., beauty boutiques) to serve representatives and other customers. Representatives come to a branch to place and pick up product orders for their customers. The branches also create visibility of the Avon brand, channel with consumers and help reinforce Avon’s beauty image. In certain markets, Avon allows its beauty centers and other retail-oriented and direct-to-consumer opportunities to reach new customers in complementary ways to direct selling. Avon increasingly utilizes e-commerce and markets its products through consumer websites.
The recruiting or appointing and training of representatives are the primary responsibility of independent leaders supported by zone managers. Depending on the market and the responsibilities of the role, some of these individuals are Avon’s employees and some are independent contractors. Those who are employees are paid a salary and an incentive based primarily on the achievement of a sales objective in their district. Those who are independent contractors are rewarded primarily based on total sales achieved in their zones or downline team of recruited, trained and managed representatives. Personal contacts, including recommendations from current representatives (including the sales leadership program) and local market advertising constitute the primary means of obtaining new representatives. The sales leadership program is a multi-level compensation program which gives representatives, known as independent leaders, the opportunity to earn discounts on their own sales of Avon’s products, as well as commissions based on the net sales made by representatives they have recruited and trained. This program generally limits the number of levels on which commissions can be earned to three. The primary responsibilities of independent leaders are the prospecting, appointing, training and development of their downline representatives while maintaining a certain level of their own sales. As described above, the Representative is the “store” through which we primarily sell Avon’s products and, given the high rate of turnover among representatives, which is a common characteristic of direct selling, it is critical that Avon recruits, retains and services representatives on a continuing basis in order to maintain and grow its business.
From time to time, local governments and others question the legal status of representatives or impose burdens inconsistent with their status as independent contractors, often in regard to possible coverage under social benefit laws that would require Avon (and, in most instances, the representatives) to make regular contributions to government social benefit funds. Although we have generally been able to address these questions in a satisfactory manner, these questions can be raised again following regulatory changes in a jurisdiction or can be raised in other jurisdictions. If there should be a final determination adverse to Avon in a country, the cost for future, and possibly past, contributions could be so substantial in the context of the volume and profitability of our business in that country that Avon would consider discontinuing operations in that country.
Logistics Network
Natura
After our Natura-branded products are manufactured in the industrial unit, large volumes are transferred to the warehouse (which functions as a hub). Later our products are sold either to Natura Comercial Ltda. to serve retail stores, or to Natura Cosméticos to be transported and stored at our distribution centers in Brazil or exported to distribution centers and warehouses in other Latin American countries, France and the United States.
Natura’s logistics network is currently as follows:
- Brazil: Seven distribution centers located in São Paulo (state of São Paulo), Matias Barbosa (state of Minas Gerais), Uberlândia (state of Minas Gerais), Murici (state of Alagoas), Canoas (state of Rio Grande do Sul), Simões Filho (state of Bahia), Castanhal (state of Pará) and one warehouse (hub) in Itupeva (state of São Paulo); and
- Other regions operations: based out of five distribution centers (Argentina, Chile, Peru, Colombia and Mexico).
A “hub” acts as a point for receiving and consolidating raw material and finished product inventory, thereby allowing the supply from different distribution centers to be managed in accordance with the demand of each region. Since 2011 this supply management has been conducted using advanced demand planning systems. Distribution centers are responsible for separating the orders of each sales representative, which are then automatically verified, packaged and labeled for delivery to the consultants.
Distribution centers are highly automated and equipped with cutting-edge sorting technology, consuming very little energy, and thereby contributing to productivity gains and reducing the cost of each order. The distribution center infrastructure in Brazil is capable of handling an order volume from consultants in accordance with the minimum order size (50.0 points, equal to approximately R$285.00 in suggested resale price), even if the order comprises a smaller number of items.
We own the equipment that sorts orders made by Natura consultants in these distribution centers, although the buildings where this equipment is installed are owned by third parties.
In addition to the hub, as described above, we operate with seven distribution centers throughout Brazil.
Once product orders are packaged and labeled, they are sent to consultants in nearly every city, using third-party transportation companies. Natura works with different transportation companies selected through a bidding process in accordance with rules determining the cost per order, service level for each region and concentration of order volume, thereby preventing dependence on any given third-party company.
All deliveries are tracked in order to ensure service levels are met and compliance with contracts. In Brazil, the delivery time for consultants from the time they submit the order is five days on average. In the fiscal years ended December 31, 2023, 2022 and 2021, 45.6%, 61.0% and 68.5% of all orders were delivered within five days, respectively.
Avon
Avon’s principal properties worldwide consist of manufacturing facilities for the production of Beauty products, distribution centers where administrative offices are located and where finished merchandise is packed and shipped to representatives in fulfilment of their orders, and one principal research and development facility currently located in Suffern, New York. On November 3, 2022, the board of directors of Avon approved a plan to relocate its research and development facilities to Brazil and Poland, two of its largest markets. On December 1, 2023, Avon agreed a deal to sell the Suffern, New York facility, and as such will close and exit the site by the end of the quarter ending June 30, 2024.
Since January 2017, Avon’s principal executive offices are located in Northampton, UK, with a further executive office based in London, UK. All the floors of its previous principal executive office location at 777 Third Avenue, New York, New York have been subleased.
In addition, other principal properties include the following:
- three manufacturing facilities, 6 distribution centers and two administrative office in Avon International; and
- three manufacturing facility and three distribution centers in Avon Latin America.
Suppliers
We value quality relationships with our suppliers, many of whom have been supplying our Natura brand for more than 20 years. Our supplier relationships are guided by our Code of Conduct for Suppliers, released in 2014 and reviewed in 2020 to serve as one single document for the whole Natura &Co group. This document is an expansion of our Relationship Principles from 2007, providing guidelines for social, environmental and quality aspects, describing our supplier network’s expectations and reflecting our commitment to the well-being of our partners, our people, our society and our planet.
Our Global Procurement Policy provides that new and existing suppliers and their production sites must be aware of and in compliance with our relevant corporate policies and procedures, including our Supplier Code of Conduct, and the applicable due diligence and other requirements, such as Natura &Co’s policies on the supply of critical materials. When we become aware of a supplier or production site that is not meeting required standards, we will work with suppliers to ensure that corrective action is taken that benefits affected parties.
Our supplier onboarding process is divided into two stages: registration and qualification. In the first stage, suppliers will be required to complete a registration process and agree with the Natura &Co Supplier Code of Conduct, the General Terms of Contract (GTP) and the Privacy Statement. After completing the registration, the qualification process begins. Based on the information provided, the system determines whether due diligence is required and, if so, which form it should take. After completing and sending the appropriate documentation, an approval flow is generated for each applicable step. Possible due diligence processes that a supplier may be required to complete are: ethics and compliance, responsible procurement due diligence, data privacy and data protection, quality, cybersecurity and financial health.
Our Natura-brand relies on a diverse supplier base. This base is divided among suppliers for outsourcing (finished products), suppliers for productive input (biodiversity assets, raw materials and packaging material) and suppliers for indirect materials and services. As of December 31, 2023, we had 7,665 active suppliers in productive input and in indirect materials and indirect services. Of these, 364 partners accounted for 80% of our purchasing volume during the period. As of December 31, 2022, we had 10,662 active suppliers in productive input and in indirect materials and indirect services. Of these, 449 partners accounted for 80% of our purchasing volume during the period. As of December 31, 2021, we had 4,667 active suppliers in productive input and in indirect materials and indirect services. Of these, 213 partners accounted for 84% of our purchasing volume during the period.
Our main suppliers for the Natura brand include: International Flavors and Fragrances (IFF), Agropalma, Givaudan, Aptar, Wheaton, Silgan, Fedex, Accenture and Vitro. For the year ended December 31, 2023, we had 182 key suppliers, which represented 41.5% of our total spending with suppliers. For the year ended December 31, 2022, we had 207 key suppliers, which represented 44% of our total spending with suppliers. For the year ended December 31, 2021, we had 163 key suppliers, which represented 55% of our total spending with suppliers.
We identify key suppliers by performing a segmentation analysis on our supplier base considering value generation criteria (which consider factors such as innovation, sustainability and spend) and risk. To evaluate the performance of key suppliers, a monitoring process was created guided by six pillars that support Natura &Co’s Vision and Strategy: Quality, Service, Innovation, Competitiveness, Capacity and Ability and Commitment to Life. The evaluation of the program is carried out through a scoring system capable of identifying and annually recognizing the partners that present the best practices within the pre-established indicators for each category by awarding them the Embrace Award. This group of suppliers also participates in specific events where Natura &Co shares its strategy, plans for the future and good practices. We also offer training and take certain other steps to reinforce sustainability precepts and qualify these partners to improve their social and environmental management.
When managing our supplier risk under the Natura brand, we consider market, financial, social, environmental, occupational health and safety and quality factors, in addition to other legal requirements. As of December 31, 2023, 2022 and 2021, Natura identified 219, 416 and 357 eligible suppliers, respectively, in our evaluation and risk control process. From audits to development of plans for continuous improvement, as of December 31, 2023, 2022 and 2021, 219, 289 and 126 suppliers, respectively, showed improvement and 219, 281 and 118 suppliers, respectively, displayed aspects that could reduce their negative impact in the society, respectively. These aspects include actions with differing levels of impact (high, medium and low).
Further, all contracts signed with suppliers contain clauses regarding human rights, such as the risks involved in child labor and forced or slave-like labor. Natura has a zero tolerance policy for human rights violations.
Natura Supplier Community Partners
When sourcing the supply of active ingredients from Brazil and Latin America´s countries, such as Peru, Colombia and Ecuador, social biodiversity for our Natura-branded products, we prioritize working with cooperatives and small farmers. We seek to establish relationships that go beyond the commercial aspect, and that are built on fair pricing and the sharing of benefits arising from the use of genetic heritage and the associated traditional knowledge.
We believe that these relationships contribute to our corporate strength and economic diversification and foster sustainable development in the regions where we operate. As of December 31, 2023, Natura had 51 community partners, contributing to the well-being of approximately 11.7 thousand families. As of December 2022, Natura had 48 community partners, contributing to the well-being of approximately 10.6 thousand families (approximately 9.6 thousand, 8.3 thousand and 6.2 thousand in 2021, 2020, and 2019, respectively).
In addition to purchasing inputs, Natura has established contracts for the sharing of benefits, and in some cases, providing financial or development support to suppliers and their productive chains. The table below shows the amount of funds that were allocated to partner communities and the number of communities and families impacted for the periods indicated:
|
|
For the Year Ended December 31, | ||||
|---|---|---|---|---|---|
|
|
2023 |
2022 |
2021 | ||
|
|
(in thousands of R$) | ||||
|
Supply(1) |
24,157 |
15,123 |
24,884 | ||
|
Sharing of benefits(2) |
7,751 |
7,886 |
8,598 | ||
|
Forest services(3) |
12,099 |
9,426 |
7,334 | ||
|
Social and environmental initiatives(4) |
282 |
401 |
2,636 | ||
|
Environmental services(5) |
1,692 |
58 |
628 | ||
|
Total assigned to the communities |
45,982 |
32,875 |
44,081 | ||
(1) Acquisition of materials from the social biodiversity to be used in Natura products.
(2) Amounts paid in benefit sharing to communities that provided genetic heritage and/or associated traditional knowledge of a species of Brazilian biodiversity.
(3) Financial support for projects of local infrastructure development, particularly those related to efficiency and value creation for supply chain.
(4) Includes investments applied to education, community health, digital inclusion, recycling and gender equity.
(5) Payments made as carbon credits (insetting and offsetting) and payment for environmental services.
Natura monitors its community partners through Embrace, a monitoring and development program similar to the program for regular suppliers but focused on rural suppliers instead. The program was revised in 2014 and applied in 2015, implementing a system to verify the social and biodiversity input chains based on the principles of ethical bio trade of the Union for Ethical Bio Trade. By monitoring actions to improve the social and biodiversity input chains, Embrace fosters the improvement of our production and chains and the preparation of communities with the market in general.
Furthermore, we work with communities by setting high standards for human rights, promoting the practice of dignified work with suppliers that maintain direct commercial relations with Natura, and using contracts to require practices identical to those seen among partners in the previous supply chain.
In 2015, Natura implemented the Biodiversity Verification System in all communities to promote and/or encourage corrective actions throughout the supply chain. These actions involve organizational management, knowledge of legislation applicable to cooperatives, best stewardship practices and more.
Avon
Avon manufactures and packages the majority of its Beauty products, which are formulated and designed by its staff of chemists, designers and artists. Raw materials, consisting chiefly of essential oils, chemicals, containers and packaging components required for Avon’s Beauty products are purchased from a range of third-party suppliers. The remainder of its Beauty products and all of its Fashion & Home products are purchased from various third-party manufacturers.
Avon’s products are affected by the cost and availability of materials such as glass, fragrance and fuel. For the vast majority of items Avon has more than one source of supply available. Avon believes that sufficient raw materials and supplies can be obtained to manufacture and produce Avon’s Beauty products for the foreseeable future.
Additionally, Avon designs the brochures (whether paper or online) that are used by the representatives to sell Avon’s products. The brochures are then produced on Avon’s behalf by a range of printing suppliers.
We do not believe that the loss of any one supplier would have a material impact on Avon’s ability to source raw materials for the majority of Avon’s Beauty products or source products for the remainder of Avon’s Beauty products and all of Avon’s Fashion & Home products or paper for the brochures.
In addition, Avon and a privately-held company that is majority-owned and managed by an affiliate of Cerberus Capital Management, L.P., or “New Avon,” entered into several agreements, including among others, a Manufacturing and Supply Agreement, which provides that Avon and New Avon will manufacture, or cause to be manufactured, and supply certain products to each other. For more information, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industries in Which We Operate—Third-party suppliers provide, among other things, the raw materials required for our products, and the loss of these suppliers, a supplier’s inability to supply a raw material or a finished product or a disruption or interruption in the supply chain may adversely affect our business” in this annual report.
Major Clients
For the years ended December 31, 2023, 2022 and 2021, we did not have any client or consultant that accounts for more than 10% of our consolidated net revenue, when considering all our business segments in existence during such periods.
Certain Agreements with Third Parties
We enter into agreements with third parties in the ordinary course of business to fund our activities, manufacture and distribute our products and other matters.
Financing Agreements
For a description of the main agreements comprising our short- and long-term indebtedness as of December 31, 2023, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Indebtedness.”
Other Agreements
On March 1, 2016, Cleveland Apple Investor L.P., an affiliate of Cerberus, or the Cerberus Investor, contributed U.S.$170 million of cash into New Avon in exchange for 80.1% of its membership interests, and Avon contributed certain assets, assumed certain liabilities of its North America business and transferred the employees of its North America business into New Avon in exchange for a 19.9% ownership interest of New Avon, collectively referred to as the “Separation.”
In August 2019, Avon and Cerberus finalized the sale of Avon’s respective interests in New Avon to LG Household & Health Care Ltd. In connection with the Separation, Avon entered into a Separation Agreement and various other agreements with New Avon to govern the separation and the relationship of the two companies going forward. These agreements provide for specific indemnity and liability obligations and could lead to disputes between the companies involved. The indemnity rights Avon has against New Avon under the agreements may not be sufficient to protect Avon. In addition, Avon’s indemnity obligations to New Avon may be significant and these risks could negatively affect their financial condition. In connection with the Separation, Avon entered into a Separation Agreement and various other agreements with New Avon to govern the separation and the relationship of the two companies going forward.
In addition, Avon has entered into a licensing agreement with LG for pursuant to which Avon has licensed the Avon name and certain other intellectual property rights to LG for use in Japan and South Korea.
In March 2020, Avon signed an agreement to sell the China Wellness Plant for a total selling price of U.S.$6.6 million before expenses. In August 2020, the sale of the China Wellness Plant was completed and the full amount involved was collected. The transaction generated proceeds of U.S.$1.5 million before tax. The proceeds represent the difference between the net proceeds (after associated expenses) and the carrying value of the China Wellness Plant on the date of sale.
In April 2020, Avon signed an agreement to sell the Hungary distribution center in Gödöllő for a selling price of U.S.$3.4 million and received a deposit of U.S.$3.0 million. In June 2020, Avon completed the sale and the remaining proceeds of U.S.$3.1 million were received.
Natura and Avon had granted exclusive rights for third parties to market their products in certain geographies, including (i) a Distribution and License Agreement, executed on April 1, 1997 and automatically renewed every two years, pursuant to which Avon granted to Avon Costa Rica S.A. exclusive rights for marketing and distribution of Avon products in Costa Rica; and (ii) a Distribution contract, executed by Natura Cosméticos and Natura Indústria with Alta Estética SRL by virtue of which Natura Cosméticos and Natura Indústria granted Alta Estética SRL exclusive rights for marketing and distribution of Natura products in Bolivia, from March 21, 2011 to March 20, 2021.
In September 2021, Avon completed the sale of its Spanish distribution center for a total selling price of U.S.$14.7 million, the proceeds of which are presented as investing activities in the consolidated statement of cash flows.
In June 2022, an Avon subsidiary concluded the negotiation of a settlement agreement to resolve a breach of contract dispute in Japan. As a result, Avon received cash compensation in the amount of U.S.$27.0 million of which U.S.$3.2 million related to the settlement of historically recognized revenues while the remaining U.S.$23.7 million was recognized by Avon as other operating income.
On April 3, 2023, our subsidiary Natura Cosméticos entered into a binding agreement to sell Aesop to L’Oréal Groupe for U.S.$2.525 billion. Natura &Co acts as a guarantor of the obligations of Natura Cosméticos under the share purchase agreement. The transaction aimed to support Natura &Co’s financial deleveraging and position it to focus, with strict financial discipline, on its strategic priorities, notably the integration in Latin America, as well as the further optimization of Avon International’s business. The purchase price was paid in cash at closing, which occurred on August 30, 2023, after obtaining all regulatory approvals. The total gain obtained from the derecognition of the subsidiary’s assets and liabilities and recognized as discontinued operations net of income tax and social contribution was R$7.3 billion, which includes the reclassification of accumulated balance sheet conversion gains recognized in other comprehensive income amounting to R$115.2 million.
On November 13, 2023, we entered into a binding agreement with Aurelius Investment Advisory Limited to sell Natura (Brasil) International B.V., the holding company of The Body Shop, for a total purchase price of £207 million, including deferred and contingent consideration (in the form of an earn-out) of £90 million. The price and the earn-out will be payable in up to five years after closing. The sale of The Body Shops’ holding company was completed on December 29, 2023. The Body Shop has since entered administration in the United Kingdom and certain of The Body Shop’s subsidiaries in other jurisdictions also entered into insolvency proceedings. See also “Item 4. Information on the Company—A. History and Development of the Company—History—Recent Developments—Administration of The Body Shop.”
See also “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industries in Which We Operate—We depend on third parties to manufacture our products.”
Price Volatility
Prices in our sector are characterized by gradual increases over time, primarily due to (1) increases in production costs and (2) increases in the demand for products with higher value added. Consistent productivity gains in our sector have allowed manufacturers to prevent price increases to our consumers. As a result of low concentration and high competitiveness of sector suppliers, increases in raw material costs could be minimized. We expect that consumer prices will continue to grow gradually and that companies in our sector will continue to obtain productivity gains in order to prevent increases in prices to consumers.
Some of the raw materials, packaging materials and finished products that our brands purchase from suppliers have their prices impacted by fluctuations in inflation and also lasting supply chain challenges as a result of the Ukraine-Russia and the Israel-Hamas conflicts, as well as the wider tensions in the Middle East. In addition, the business is impacted by foreign currency exchange rates with respect to imported items.
We may not always be able to insulate our final customers from these fluctuations or to pass on cost increases to our final customers.
Overview of Global Market
According to Euromonitor International data, the Global Beauty and Personal Care market amounted to U.S.$569.4 billion in 2023 (vs. U.S.$537.6 billion in 2022), growing at a compound annual growth rate, or CAGR, of 2.5% from 2018 to 2023. The top five countries are the United States, China, Brazil, Japan, and Germany, which collectively represent 49.0% of the market. Estimates suggest that by 2024, Global Beauty and Personal Care revenues will reach U.S.$587.6 billion, implying a 3.2% year on year growth versus 5.9% in 2023 (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices).
It is worth noting that from a global perspective, and even for key regions to which Natura &Co is exposed, the category historically not only usually grows more than retail, but also historically exhibits greater resilience than the average discretionary retail market.
Natura is the 10th largest company in Beauty and Personal Care in the world and the fourth largest pure player in the category, with a global market share of 1.9% (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices).
Latin America
The Beauty and Personal Care market in Latin America reached U.S.$71.9 billion in 2023, showing a five-year CAGR of 2.1% between 2018 and 2023, as the regional market returned to its pre-pandemic size in 2023 after a decline in 2019 and 2020. Between 2022 and 2023, the regional market expanded by 16.2%. The projected CAGR for the following five years is estimated at 5.1% (compared to overall retail in Latin America of 3.4%). The largest markets are Brazil, Mexico and Argentina, accounting for 43.6%, 21.0% and 8.2% of the total market, respectively (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care and Retail, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices).
In this context, we can see that Natura &Co’s market share in Latin America is estimated at 11.3%, with the Natura brand accounting for 8.6% and Avon for 2.6%. When examining the performance by country, Argentina boasts the highest market share for the company at 20.2% (14.8% for Natura and 5.4% for Avon), mainly due to its challenging macroeconomic environment, which creates a more lenient competitive environment. Brazil ranks second with a 16.0% market share for Natura &Co (13.2% for Natura and 2.6% for Avon). While Mexico stands as the second-largest market for Beauty and Personal Care in Latin America, our current market share is a modest 6.0% (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices).
From a market analysis perspective, Natura &Co still leads with 11.3% of the Latin American Beauty and Personal Care market in 2023, while the second and third players lag behind with 10.3% and 8.3% of the market, respectively (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices).
Looking at distribution channels, the Latin American Beauty and Personal Care Market was divided among grocery retailers, direct selling, pharmacies, beauty specialists, and retail e-commerce, each representing 37.5%, 24.9%, 14.4%, 11.6% and 7.1%, respectively. The remaining distribution channels account for only 4.5% of the total market (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices).
In this sense, sales of the Natura brand were mostly concentrated in direct selling, comprising 91% of our revenues, while retail and digital accounted for only 4% and 5%, respectively. This comparison underscores the opportunities that the Natura brand has to further explore other distribution channels, especially when we consider that most of the brand’s sales come from direct selling, which comprises only 24.9% of the Beauty and Personal Care Market in Latin America (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices). This analysis is also valid for Avon, given that 93% of the sales comes from the direct selling channel. Currently, the retail channel is not a strategic priority for the brand, but digital (especially social selling) is a priority.
Finally, by examining the category breakdown, we can see that the top five pure categories in which Natura &Co plays are Fragrances*, Hair Care, Skin Care, Color Cosmetics and Deodorants. Natura brand leads in Fragrances*, Skin Care and Bath and Shower. Avon brand ranks third in Fragrances*, fifth in Skin Care and fourteenth in Bath & Shower. From the perspective of Color Cosmetics, Avon is the second largest brand, followed by Natura in fourth place. Lastly, in the Hair Care category the Natura brand ranks ninth while the Avon brand ranks eighteenth. It is important to highlight that in 2023, the Natura brand gained position in Hair Care, even with a relatively stable share compared to 2022 (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices; *Natura &Co data compilation aggregating Euromonitor´s Adult Fragrances + Baby and Child-specific Toiletries).
Brazil
The Beauty and Personal Care Market in Brazil reached U.S.$31.3 billion in 2023, showing a five-year CAGR of 0.3% between 2018 and 2023, mainly reflecting the recovery from pandemic period, restricted income and unfavorable macroeconomic environment from past years. Between 2022 and 2023, the Brazilian market expanded by 16.6%. The projected CAGR for the following five years is estimated at 4.9%, compared to Brazilian overall retail of 3.6% (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care and Retail, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices).
Looking at the distribution channels, the Brazilian Beauty market was divided among grocery retailers, direct selling, pharmacies, beauty specialists, and retail e-commerce, each representing 28.0%, 26.6%, 19.2%, 16.6% and 8.3%, respectively. The remaining distribution channels account for only 1.3% of the total market. It is important to note that Natura derives most of its sales from direct selling, which comprises only 26.6% of the Brazilian market (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices).
Finally, by examining the category breakdown in Brazil, we can see that the top five pure categories are Fragrances*, Hair Care, Skin Care, Deodorants and Bath and Shower. Natura brand leads in Fragrances*, Skin Care and Bath and Shower. Avon brand ranks fourth in Fragrances* and Skin Care and eleventh in Bath and Shower. Additionally, from the perspective of Deodorants, Natura is the fourth largest brand. From the Hair Care Perspective, Natura ranked in twelfth, while Avon holds the twenty-fourth. On that note in 2023, the Natura brand gained position (from thirteenth in 2022) and share in Hair Care in the Brazilian market, compared to 2022 (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices; *Natura &Co data compilation aggregating Euromonitor´s Adult Fragrances + Baby and Child-specific Toiletries).
Emerging Markets – Outside Latin America – Avon International
Avon International's product portfolio caters to diverse consumer demands across numerous global markets. Its global presence spans a wide variety of markets across different regions. At the end of 2023, Avon had operations in approximately 35 countries worldwide (excluding the Latin American region), with the main operating markets being Eastern Europe, the Middle East and Africa, Western Europe, and the Asia-Pacific regions.
The beauty market in these regions has decreased in size after the COVID pandemic but regained and maintained pre-pandemic levels since then. However, several factors have been shaping these markets, such as (i) changes in consumption trends, e.g. the increase in demand for natural products, (ii) how products are acquired, with the digitalization of the category and the entry of small players, and (iii) demographic trends themselves and the changes in the age structure of the population that have impacted the market.
Since 2022, with the change in Avon’s strategy towards increasing profitability and cash generation, Avon has strategically honed its focus on the most profitable markets, particularly in emerging countries, to optimize its business operations through a direct selling approach that has proven effective in these areas.
Even with a smaller presence in the markets compared to the past, Avon has spent the last few years adjusting the commercial and operational business model, which has had an impact on revenue, but it has already resumed to investment in some markets.
Eastern Europe
The Beauty and Personal Care market in Eastern Europe reached U.S.$27.3 billion in 2023, showing a five-year CAGR of 0.5% between 2018 and 2023, favored by the retake of social and professional occasions in the end of the period, as well as the persistence of pandemic habits such as skincare routines. Between 2022 and 2023, the regional market expanded by 2.5%. The projected CAGR for the following five years is estimated at 1.7%, with countries such as Poland, Romania, and the Czech Republic as the key countries for the Avon brand to operate (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices).
Avon’s market share in Eastern Europe is estimated at 2.6%, with Romania boasting the highest market share for the brand at 5.0%. Other key markets are the Czech Republic at 3.8% and Poland at 2.4% (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices).
In recent years, Avon's market share in Eastern Europe has experienced a significant decline, mainly reflecting the shift in consumer behavior. Direct selling channels dropped from 11.6% to 8.4% between 2018 and 2023, while retail and digital channels gained share (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices). In addition to that, the changes in our commercial model focused more on productivity and impacted the channel size negatively.
Middle East and Africa
In the Middle East and Africa region, South Africa is Avon’s most relevant market. In this country, the Beauty and Personal Care segment reached U.S.$3.6 billion in 2023, showing a five-year CAGR of -2.0% between 2018 and 2023. The projected CAGR for the next five years is estimated at 3.2% (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices).
The history of the Avon brand in South Africa dates back to the 1930s when Avon established its presence in the country. Since then, the company has had a significant presence in the country’s Beauty and Personal Care market, offering a wide range of products and direct selling opportunities. In 2023, Avon’s market share in South Africa reached 3.0% (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices).
Given the context of the graphic above, some of the key opportunities for Avon in South Africa includes: (i) enhancing e-commerce to capitalize on its growth and bolster online presence to reach consumers across all regions; (ii) reinforcing the direct selling model to provide employment and entrepreneurship opportunities for local communities; (iii) investing in product innovation and marketing strategies that appeal to South Africa's diverse communities and capture emerging trends in the beauty and personal care market.
Western Europe
The Beauty and Personal Care market in Western Europe reached U.S.$110.2 billion in 2023, showing a five-year CAGR of 1.3% between 2018 and 2023. The projected CAGR for the following five years is estimated at 1.8% (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices).
In the Western European region, Turkey United Kingdom and Italy are Avon’s most significant revenues. The brand reached 3.7%, 0.8% and 0.5% market share in 2023, respectively. In Turkey the Beauty and Personal Care segment reached U.S.$3.2 billion in 2023, with a five-year CAGR of -1.5% from 2018 to 2023. The projected CAGR for the next five years is estimated at 4.6% (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices).
Historically, Turkey represented one of Avon's largest market shares outside of Latin America. In 2018, it stood at 4.2%, compared to 2.8% in 2022 and 3.7% in 2023 (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices). The decline in Avon’s market share in Turkey over the past years can be attributed to a variety of factors, including increased competition in the beauty and personal care sector and shifts in Turkish consumer preferences and channels, among others.
Even though the direct sales channel has reduced its presence, it still accounts for 11.7% of the market (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices), recognizing the challenges mentioned before, digital arises as a priority for Avon.
Regarding the United Kingdom and Italy, the Beauty and Personal Care segment reached U.S.$18.7 billion and U.S.$13.6 billion in 2023, with a five-year CAGR of 0.9% and 1.9% from 2018 to 2023, respectively. The projected CAGR for the next five years is estimated at 2.5% for the UK and negative 0.3% for Italy. The UK and Italy are very relevant markets for the brand, being among the 10 largest countries in terms of revenue, however market share still presents very low levels, given that the main channel, which is direct sales, is currently responsible for 1.8 % in the UK and 4.4% in Italy (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices).
Observing the change in consumer purchasing behavior in the past years, the Avon brand is diversifying its channels, increasing its presence in retail, in the UK via Superdrug, in Italy via Naima stores, and in Turkey via representatives retail franchise stores. Avon is also increasing its presence on online channels, with marketplace presence in many European countries (Amazon UK, Allegro Poland, Trendyol Turkey) additionally in direct-to-consumer electronic commerce in some countries.
Asia Pacific
In the Asia Pacific region, the Philippines is Avon’s most relevant market, where the Beauty and Personal Care segment reached U.S.$4.7 billion in 2023, showing a five-year CAGR of 4.0% between 2018 and 2023. The projected CAGR for the next five years is estimated at 6.7% (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices).
In 2023, Avon’s market share in the Philippines reached 3.3% (Natura &Co, based on Euromonitor International Limited, Beauty and Personal Care, April 2024, Retail Value RSP including sales taxes, USD, Historic Year-on-Year Exchange Rates / Forecast Fixed 2023 Exchange Rates, Historic Current Prices / Forecast Constant 2023 Prices). Direct selling plays a significant role in the Beauty and Personal Care market in the Philippines, offering a personalized approach and reaching non-urban areas, driven mainly by the culture of entrepreneurship, access to additional earnings, growth of the middle class in the region, company training and training for the channel, among others.
However, the channel that has grown the most in the region is online. The influence of social media and celebrities substantially drives consumer trends and preferences. Future trends include an increasing focus on skincare products, a greater emphasis on e-commerce, and social media and celebrities continuing to play a pivotal role. In response, the Avon brand is adapting to these trends by bolstering its online presence and investing in strategies to meet the evolving needs of Filipino consumers.
Competition
The beauty and personal care industry is competitive, both in Brazil and in the other markets in which we operate. Strong brands and new product launches, as well as revitalization of the channels, are important to attract and retain customers. Our extensive product portfolio, categories and brands position us as competitors to several companies, which often operate through different distribution channels, such as direct sales, retail and digital platforms.
Natura &Co LATAM
Competitors vary by product category and region. For example, in the fragrance and makeup categories, the main competitors are O Boticário, Mary Kay and Corporación Belcorp. For body and skin care, the main competitors are Beiersdorf AG (specifically the Nivea brand) and Unilever. For hair care, the main competitors are Unilever, L’Oréal, P&G and Colgate-Palmolive.
In other countries where the Natura and Avon brands are present, the market conditions are quite similar, as are the local competitors per category and distribution channels. The main differences can be found in the strong operations of Corporación Belcorp and Grupo Unique-Yanbal in Peru and Colombia, and the Jafra brand in Mexico. Other domestic competitors in Brazil, such as Jequiti, do not have significant operations in other regions of Latin America.
Avon International
Avon faces competition from various products and product lines. The beauty and beauty-related products industry is highly competitive and the number of competitors and degree of competition that Avon faces in this industry varies widely from country to country. Avon competes with products sold to consumers in a variety of distribution methods, including direct selling, digital sales, and through mass market retail and prestige retail channels.
Within the broader CPG industry, Avon competes primarily against large, well-known cosmetics fragrance, and skin care companies that manufacture and sell broad product lines through various types of retail outlets and other channels, including digital sales.
Avon also has many private label and global brand competitors in the fashion and home category, primarily department stores, mass merchandisers, gift stores and specialized retailers.
Avon believes that the personalized customer service offered by its representatives, the high quality, attractive designs and prices of its products, together with the innovation of its product line and the easily recognized brand name, are factors that contribute to establishing and maintaining its competitive position.
Seasonality
In Brazil, we observe peaks in demand on specific commemorative dates such as Mother´s Day, Valentine´s Days and Christmas. These commemorative dates occur throughout the year and, as a result, we do not experience significant variations in sales between quarters.
The table below shows our quarterly net revenue from our total consolidated operations:
|
|
For the Year Ended December 31, | |||||
|
Share of Net Revenue by Quarter (%) |
2023 |
2022 |
2021 | |||
|
Consolidated: |
|
|
| |||
|
First quarter |
24% |
23% |
24% | |||
|
Second quarter |
26% |
25% |
24% | |||
|
Third quarter |
25% |
25% |
24% | |||
|
Fourth quarter |
25% |
27% |
28% | |||
|
Total year consolidated |
100% |
100% |
100% | |||
Global Presence
Our international expansion under the Natura brand started in 1982, when Natura Cosméticos introduced its business in Chile, and later in Argentina and Peru in 1992, Mexico and France in 2005 and finally Colombia in 2007. In December 2016, we opened our inaugural store in New York City, United States.
Currently, Natura has 45 stores outside Brazil. We are also present in other countries in Latin America and Europe through the Natura brand.
In 2016 when our business consisted only of the Natura and Aesop brands we had net revenue of R$7.9 billion, 92.5% of which was derived from Latin America (67.7% from Brazil) and 7.5% from the rest of the world. As our business grew it became more international. In 2018, when our business consisted of Natura, Aesop and The Body Shop, we had net revenue of R$13,397.4 million, 63% of which was derived from Latin America (45% from Brazil) and 37% from the rest of the world. Finally, in the year ended December 31, 2021, after we added Avon to our business, we had net revenue of R$40,164.7 million, 56% of which was derived from Natura &Co LATAM (26% from Brazil) and 44% from other segments. In the year ended December 31, 2022, our net revenue was R$36,349.6, 61% of which was derived from Natura &Co LATAM (31% from Brazil) and 39% from other segments. In the year ended December 31, 2023, our net revenue was R$26,737.3, 76.5% of which was derived from Natura &Co LATAM (45% from Brazil) and 23.5% from Avon International.
Avon’s operations outside of the United States are conducted primarily through subsidiaries in 35 countries and territories. Outside of the United States, Avon’s products are also distributed in 18 other countries and territories. In particular, Avon derived approximately 17.6% of its consolidated revenue during the year ended December 31, 2023 from Brazil, which is its largest market and is included within its South Latin America reportable segment.
Innovation and Product Development
We believe that innovation is an important driver of growth, and that our innovation and product development platform based on a strong innovation platform with sustainable practices across all brands. During the year ended December 31, 2023, the Natura and Avon brands had 683 products launched under an open innovation model, which involves a network of partners and scientists.
Natura
We believe that innovation is an important driver of Natura’s growth, supporting the pace of the business and attracting consumers to our Natura-brand. During the year ended December 31, 2023, Natura Cosméticos launched more than 273 products and reported an innovation index of 50.8% related to Natura. In comparison, Natura Cosméticos launched 222 products in 2022 and 367 products in 2021 and reported an innovation index of 57.4% and 66.3% in 2022 and 2021, respectively, related to Natura. In addition, Natura Cosméticos has plans to continue regularly launching new products in line with market trends and evolving customer preferences. Total investment in innovation amounted to 2.1% of net sales in 2023 for the brand.
The table below shows the number of products launched by Natura Cosméticos and its innovation index for the periods indicated related to Natura.
|
|
For the Year Ended December 31, | |||||
|
|
2023 |
2022 |
2021 | |||
|
Number of products launched(1) |
273 |
222 |
367 | |||
|
Innovation index(2) |
50.8% |
57.4% |
66.3% | |||
| (1) | Information regarding products posted counts only products that represent a new value proposition, including new packaging and formulations. The number considers only Brazil. | |
| (2) | Share of sales of products launched in the last 24 months in the total gross revenue of the last 12 months. The index considers only Brazil. | |
Avon
Avon’s research and development, or “R&D,” department’s efforts are important to developing new products, including formulating high-performing beauty products relevant to women’s needs, and redesigning or reformulating existing products. As part of our Open Up & Grow Avon strategy and to improve its brand competitiveness, Avon is focusing on developing breakthrough new technology and product innovation to deliver first-to-market products that provide visible consumer benefits and developing a relevant portfolio of innovation which also delivers against the company’s ambitious sustainability goals. R&D also works extensively with third party companies to bring in new ideas, help accelerate development time and deliver against local market trends.
Avon’s global R&D facility is currently located in Suffern, New York. A team of researchers and technicians play a role in bringing products to market around the world. We believe that relationships with dermatologists and other specialists enhance Avon’s ability to deliver new formulas and ingredients to market. Additionally, Avon has R&D facilities located in Brazil, China, Mexico, the Philippines, Poland, South Africa and the UK. On November 3, 2022, the board of directors of Avon approved a plan to relocate its research and development facilities to Brazil and Poland, two of its largest markets. On December 1, 2023, Avon agreed a deal to sell the Suffern, New York facility, and as such will close and exit the site by the end of the quarter ending June 30, 2024.
The amounts incurred on research activities relating to the development of new products and the improvement of existing products by Avon were U.S.$29.2 million in the year ended December 31, 2023. This research included the activities of product research and development and package design and development. Most of these activities were related to the design and development of Beauty products.
Intellectual Property
Natura &Co’s most important intellectual property comprises the following brands: Natura and Avon. Natura &Co manages its brands to preserve the appeal of our products across broad demographic lines and the association of its brands with innovative products and social and environmental responsibility.
Natura &Co is not dependent on any third-party patents, brands, licenses, concessions, franchisees and royalty contracts that are relevant to the development of its activities.
Trademarks
The Natura and Avon trademarks are Natura &Co’s most important trademarks:
- The Natura trademark was considered a highly renowned brand in 2005 by the Brazilian National Institute of Intellectual Property (Instituto Nacional de Propriedade Intelectual), or INPI, meaning that, as a brand, we enjoy significant recognition in all classes of products and services. With this recognition, the Natura trademark benefits from special protection in Brazil. The INPI renewed this recognition in 2010, and subsequently in 2016 for a period of 10 years. In addition to Brazil, the Natura trademark is registered in the following countries and regions, among others: Argentina, Chile, Colombia, Peru, Mexico, Malaysia, France, the United States and the EU.
- The Avon trademark is Natura &Co’s most important trademark under the Avon brand. The Avon trademark is registered worldwide, including in the United States, Canada, the EU, the United Kingdom, France, Japan, China and Brazil, where the trademark was considered a highly renowned brand in 2019 by the INPI. With this recognition, the Avon trademark also benefits from special protection in Brazil. Avon’s intellectual property rights, including trademark rights, are subject to an Intellectual Property License Agreement, or the “New Avon IPLA,” by which Avon has licensed all intellectual property rights used in its North America business as of March 1, 2016 to New Avon Company (formerly New Avon, a privately held company majority owned and managed by Cerberus NA Investor LLC, an affiliate of Cerberus), now a subsidiary of LG Household & Healthcare, on an exclusive basis with respect to the sale of beauty, wellness, fashion, and home products in the North America region, including the United States of America (including its possessions and territories), Canada, and some Caribbean countries with the exception of the Dominican Republic. Certain of Avon’s Japan and Korea trademarks and domain names are also subject to a non-exclusive, royalty-bearing Trademark License Agreement between Avon and FMG & Mission Co., Ltd (Japan) (formerly Avon Products Company Ltd. (Japan)) dated December 18, 2017.
As of December 31, 2023, Natura &Co had 938 trademarks registered and 91 trademark registration requests pending in Brazil, and 19,462 trademarks registered and 1,640 trademark registration requests pending outside of Brazil. As of December 31, 2022, Natura &Co had 935 trademarks registered and 76 trademark registration requests pending in Brazil, and 22,349 trademarks registered and 1,697 trademark registration requests pending outside of Brazil. As of December 31, 2021, Natura &Co had 888 trademarks registered and 91 trademark registration requests pending in Brazil, and 22,986 trademarks registered and 2,433 trademark registration requests pending outside of Brazil.
Registration and Renewal
In Brazil, registration of a brand with the INPI grants the brand owner the exclusive right to use the brand throughout Brazil for an initial 10-year period, which may be extended by successive 10-year periods. During the registration process, the applicant has the right to the use of the relevant brands for identification of its products or services.
Trademarks registered in other countries are subject to the legislation of the relevant jurisdiction. Natura &Co uses a computerized system to monitor trademark expirations and to manage its portfolio.
Patents
As of December 31, 2023, Natura &Co had 480 patents granted and 49 patent registration requests pending worldwide. As of December 31, 2022, Natura &Co had 791 patents granted and 224 patent registration requests pending worldwide. As of December 31, 2021, Natura &Co had 834 patents granted and 97 patent registration requests pending worldwide.
Natura &Co’s patents mainly protect the technologies applied in its skin care, makeup, personal care, fragrance, and hair care products as well as innovative package design.
Industrial Designs
As of December 31, 2023, Natura &Co had 42 industrial designs registered and six industrial design registration requests pending worldwide. As of December 31, 2022, Natura &Co had 123 industrial designs registered and 31 industrial design registration requests pending worldwide. As of December 31, 2021, Natura &Co had 103 industrial designs registered and seven industrial design registration requests pending worldwide. The majority of these industrial designs are related to fragrance bottles, containers in general and the packaging of makeup products.
Domain Names
Natura &Co and its subsidiaries are the holders of certain domain names in Brazil and abroad, including “natura.com,” and “avonworldwide.com.” Avon also owns “avon.com” subject to an exclusivity granted to New Avon Company with respect to the marketing and sale of products in the North America region.
The information contained on Natura &Co’s website, any website mentioned in this annual report, or any website directly or indirectly linked to these websites, is not part of and is not incorporated by reference in this annual report, and investors should not rely on such information.
Insurance
Natura &Co maintains insurance coverage for the principal risks related to our operation and required by law. Our coverage primarily relates to our facilities and equipment for loss and replacement, natural disaster and business interruption. We also have a domestic and international cargo insurance policy and vehicle fleet, for example, and we carry insurance for civil general liabilities and responsibility for directors and executives, under our global directors’ and officers’ insurance program.
Additionally, we continue considering extending Natura Cosméticos’ cyber insurance policy to the whole Natura &Co group.
Risk Management
Overview
We have adopted a Risk Management Policy, a document establishing guidelines for risk management, reviewed and approved by the Audit, Risk Management and Finance Committee and the Board of Directors on annual basis.
Risks Identification, Classification and Mitigation Resources
Our risk management policy aims to protect our value against uncertainty regarding potential losses and increase this value by maximizing opportunities. Therefore, we establish principles, concepts, guidance and responsibility in the risk management process. Through our Risk Management Policy, risks are managed through a system composed of (i) each area of our business, directly responsible for the risks they manage, acting as a first line of defense; (ii) control structures, acting as a second line of defense, which aid management in the first line of defense to correctly manage risks; and (iii) the internal audit team, acting as a third line of defense, with an independent look to verify the efficacy of the models used.
Our risk management policy applies to every entity and function within our group, and in all regions in which we operate. Our risk management policy was prepared in accordance with the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission, or “COSO.”
We seek protection against risks inherent to our activities and that could possibly impact the reach of our strategic objectives, as per an evaluation conducted in line with the corporate risk management policy.
We seek to mitigate our risks through a structured process that encompasses (i) analyses captured when formulating strategic decisions of internal and external factors; (ii) identifying factors that could impact the reach of our business goals; (iii) passing judgment on the level of exposure to these impacts and probabilities of risks based on set criteria; (iv) identifying controls and management practices related to such risks; (v) defining the treatment to be given to such risks, including taking out and managing insurance policies; (vi) creating and maintaining ongoing procedures to supply, share and obtain information, as well as training and discussions that contribute to the evolution of risk management practices; and (vii) monitoring of such risks and the efficacy of the treatments administered to reduce or mitigate them.
As part of the process described above, we have adopted a Global Cybersecurity Program and over the past two years, since the implementation of this global framework, several initiatives have been undertaken, including the adoption of market-leading solutions, review and creation of new processes, as well as the structuring of teams with defined responsibilities and clear operational models. These actions have enhanced our security level in the control environment based on NIST CSF and ISO 27.002:2013 standards. In 2023, we updated our Information Security Policy and published new technical security standards. We also completed updated mandatory training for all staff, including regular phishing testing. Our improvements in cybersecurity maturity have been independently assessed using the National Institute of Standards & Technology (NIST) Cyber Security.
Both the risk scenarios and risk matrices are updated and revised annually, depending on our strategic decisions and changes in the business. The internal controls are also reviewed annually, and their efficiency is evaluated through test cycles. These analyses and revisions are monitored by the board of executive officers and by the committees that assist the board of directors.
Given the breadth and complexity of our operations, we understand that the risks and mechanisms we implement to mitigate and control such risks can vary and include, but are not limited to, those listed below. The principal risks against which we seek to protect ourselves from are divided into four major classes: strategic risks, operational risks, regulatory risks and financial risks.
Organizational Structure
We have an internal control and a risk management function that reports to our Chief Legal and Compliance Officer. This function is responsible for supporting our overall strategy, identify and monitor the main risk scenarios, support and oversee group-wide risk management processes and guidelines to be operated by all businesses, oversee and assess internal control and support alignment across the organization, conduct Sarbanes-Oxley program across all entities and alignments with external auditors, promote the partnership with compliance function and oversee insurance management across businesses.
Aside from the internal controls and risk management function, we also have a defined governance structure, including:
- Board of Directors. The board of directors is responsible for defining our risk management practices in accordance with our corporate purpose, values and principles; establishing levels of risk appetite based on our short-, medium- and long-term business goals; reviewing and approving our risk management strategy, including our risk management policy; monitoring critical alignments, including strategy, risks, controls, compliance, incentives and human resources; and periodically acknowledge and assess whether the corporate risk management processes, including scenarios that have been prioritized, allow the board of directors to achieve its risk supervision goals, and recommend alterations if required.
- Audit, Risk Management and Finance Committee. The audit, risk management and finance committee is responsible for, among other things, overseeing the suitability of our risk management and internal controls systems in line with the guidelines set by our board of directors, support our management in the formulation of concepts and methodologies used in management of corporate risk, monitor our risk exposures and the evolution of the management of identified risks, as well as the compliance with applicable legislation as well as with our policies, rules and procedures, and the effectiveness of controls and addressed response actions, assess the suitability of the human and financial resources allocated to our corporate risk management process, and keep our board of directors properly informed of the effectiveness of the risk management processes, including prioritized scenarios, as well as, whenever necessary, to recommend changes to the concepts and risk appetite levels.
- Executive Leadership. Our executive leadership is responsible for, among other things, submitting general guidelines on the management of risks and exposure limits for the analysis of the audit, risk management committee and the board of directors, assess the performance of the risk management process, ensuring the resources required for the implementation of the general guidelines on risk management, validating the periodic reviews of the risk map with impact on the Holding company’s strategies and monitoring the behavior of exposures of priority risks.
- Chief Executive Officers (Group-wide and Business Units). The Chief Executive Officers of Natura &Co Holding and of our Business Units are responsible for, among other things, promoting the integration of risk management and the cycles of review and construction of the Group’s and Business Units’ strategic plan.
- Internal Audit Function. The internal audit department is responsible for assessing the reliability of information, reviewing the effectiveness and efficiency of transactions and information produced by these, and protecting our assets ensuring compliance with laws, regulations and contracts, examining the internal controls system, providing an assessment of its effectiveness to the senior management, providing advice to the Chief Executive Officer of Natura &Co Holding and to the board of directors, through the audit, risk management and finances committee, monitoring, examining, assessing, informing, and recommending improvements for the internal environment and effectiveness of the risk management process, identifying and indicating the risks that may not have been mapped by the organization, by means of an independent assessment of the internal controls’ environment, and assessing the quality and effectiveness of our enterprise risk management processes, periodically monitoring the risk mitigating actions and the frailties recorded in the audit reports and feed the enterprise risk management model with information, and conducting internal audit, as part of our internal review processes and investigating any irregularities.
- Internal Controls and Risk Management Function. Our internal controls and risk management function is responsible for developing and applying our risk management strategy and methodology in compliance with the applicable laws, regulations, policies, rules, internal procedures and best management practices, acting with the second and third lines of defense to reconcile the risk measures, impact and probability so the same risk classification concepts are used for all activities, keeping the risk management policy and other complementary documentation up-to-date, disseminating our risk management culture, assisting our business areas with the identification, analysis and assessment of risks and related responses, monitoring our exposure levels, reporting to our executive leadership and audit, risk management and finance committee the levels of potential exposure of key business risks and monitoring the implementation of action plans addressed by the risk owners, whenever applicable, in order to verify their mitigation or reduction.
- CISO: The Chief Information Security Officer (CISO) oversees cybersecurity across Natura &Co and leads our Cyber Hub providing strategic direction, assurance, operational services, and improvements to our Business Units. The CISO frequently provides reporting to the Board of Directors, directly or through the Cybersecurity Subcommittee, which reports to the Audit, Risk Management and Finance Committee. In addition, each Business Unit maintains a dedicated Cyber Board overseen by a senior Business Information Security Officer. These boards are supported by a risk management structure linked to the Enterprise Risk Management Framework.
- Compliance Function. Our compliance function is responsible for providing guidance and conducting compliance reviews, including reports of corruption received throughout the hotline, which are also available to our suppliers, partners, clients and consumers.
- Risk Owners. Risk owners are responsible for, among other things, identifying, evaluating, mitigating and monitoring the risks in the business units for which they are responsible based on criteria established for the group as a whole, defining and implementing mitigation actions and management practices for exposure to risks, creating and updating the key risk indicators to monitor risks, ensuring the performance and effectiveness of existing internal controls used to mitigate risks and formalizing occasional exposures to risks identified due to the monitoring of transactions that are unknown to our management.
In addition, the management of market risks is conducted by our treasury function, which approves all investment and borrowing operations conducted by our subsidiaries and monitors compliance with the leverage ratios established in the financial covenants to which we are bound.
Government Regulation
We and our products are subject to regulation by various federal, state and local regulatory authorities in the countries in which our products are produced or sold. Such regulations principally relate to the ingredients, labeling, manufacturing, packaging, advertising and marketing and sales and distribution of our products. We are also subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, as well as other countries’ anti-corruption and anti-bribery regimes, such as the UK Bribery Act.
We are subject to numerous foreign, federal, provincial, state, municipal and local environmental, health and safety laws and regulations relating to, among other matters, safe working conditions, product stewardship and environmental protection, including those relating to emissions to the air, discharges to land and surface waters, generation, handling, storage, transportation, treatment and disposal of hazardous substances and waste materials, and the registration and evaluation of chemicals. We maintain policies and procedures to monitor and control environmental, health and safety risks, and to monitor compliance with applicable environmental, health and safety requirements. Compliance with such laws and regulations pertaining to the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect upon our capital expenditures, earnings or competitive position. However, environmental and social responsibility laws and regulations have tended to become increasingly stringent and, to the extent regulatory changes occur in the future, they could result in, among other things, increased costs and risks of noncompliance for us.
Legal Status of Our Consultants and Business Leader Sales Consultants
Our consultants and business leader sales consultants are independent entrepreneurs with whom we maintain commercial relationships that entitle them to resell our products on a nonexclusive basis at their own expense and risk. Consultants do not receive any kind of compensation from us, while business leader sales consultants receive compensation according to the product purchases made by the consultants they advise. In addition, there is no subordination in our relationship with our consultants or with our business leader sales consultants, a characteristic that would have to exist in order for there to be an employment relationship. Rather, our consultants and business leaders enjoy great flexibility in the way they resell our products and conduct their activities and are not accountable to us for any aspect of their business.
As of December 31, 2023, Natura Cosméticos was party to 848 labor lawsuits filed by former business leader sales consultants and/or consultants’ advisers (which were similar figures that preceded the business leaders) seeking the recognition of their alleged employee status. In most of these cases, Natura Cosméticos obtained judgments confirming that the business leader sales consultants and/or consultants’ advisers do not have an employment relationship with the company.
Any regulatory change requiring the establishment of an employee relationship with our consultants or with our business leader sales consultants, or any adverse decisions finding that an employee relationship exists, could result in contributions and incremental costs so substantial that we would have to restructure our operations.
The following chart shows a summary of our corporate structure:
Note: Our subsidiary Avon International Operations, Inc. owns 1.3% of Avon Products, Inc.
A list of our direct and indirect subsidiaries is included as Exhibit 8.1 to this annual report.
Properties
Below is a description of our principal property, plant and equipment. See also note 15 to our audited consolidated financial statements included elsewhere in this annual report.
Natura has seven distribution centers in Brazil in the cities of São Paulo (state of São Paulo), Matias Barbosa (state of Minas Gerais), Uberlândia (state of Minas Gerais), Murici (state of Alagoas), Canoas (state of Rio Grande do Sul), Simões Filho (state of Bahia), Castanhal (state of Pará) and one warehouse (hub) in Itupeva (state of São Paulo). In addition, it also has ten distribution centers and one warehouse (hub) in other Latin America Countries (Argentina, Chile, Colombia, Ecuador, Peru, Guatemala, Dominican Republic and Mexico). In 2012, to ensure the evolution of our business and expansion of our logistics network, we opened a new distribution center in São Paulo with an expanded capacity to drive growth and reduce product delivery times. The São Paulo distribution center was built under a build–to-suit lease agreement, and it includes high-technology equipment and an administrative unit.
Our industrial site in Cajamar, called “Espaço Natura,” was designed by renowned architect Roberto Loeb, and consists of a cutting-edge manufacturing unit and a corporate space that we believe contributes to the high level of satisfaction of our employees. The three industrial units inside this site use modern production equipment designed to ensure the safety of our employees and environmental responsibility.
We also maintain manufacturing and distribution activities in the city of Benevides (state of Pará), in a project called “Ecoparque.” This project concentrates the production of soaps and oils of Natura. Inaugurated in March 2014, Ecoparque has a production capacity of 543.0 million bars of soap and approximately 67.0 tons of noodles (used as a base to make soaps). The production complex is built on an area of 155 hectares and it is planned that the space will receive companies from various market sectors.
In addition to our facilities in Brazil, we also own or rent facilities outside of Brazil to support our international operations under the Natura brand. As of December 31, 2023, Natura had 5 distribution centers located in Argentina, Chile, Peru, Colombia and Mexico.
Since January 2017, Avon’s principal executive offices are located in Northampton, UK, with a further executive office in London, UK. All the floors of its previous principal executive office location at 777 Third Avenue, New York, New York have been subleased. In addition, other principal properties include:
- three manufacturing facilities, 10 distribution centers and one administrative office in Avon International; and
- three manufacturing facility and three distribution centers in Avon Latin America.
Production Capacity and Expansion Potential
Natura Cosméticos’ facility in Cajamar was designed to facilitate its expansion as operations grow, creating greater economies of scale in the physical plant. Natura Cosméticos’ Ecoparque facility was designed to be an industrial park with a strong sustainability concept, based on concepts of sustainable chains, fostering symbiosis between the different companies that operate in this industrial area, in addition to contributing to the development of local communities, involving approximately 11,700 families that supply biodiversity ingredients, of which 86% live in the Amazon region. In the year ended December 31, 2023, 451 million units were produced in Cajamar, compared to 434 million in 2022 and 469 million in 2021. Ecoparque produced 123 million packs in 2023 (or approximately 615 million soap bars), compared to 114 million in 2022 and 106 million in 2021.
Not applicable.
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements as of December 31, 2023 and 2022, and for the years ended December 31, 2023, 2022 and 2021 and the related notes thereto, and with the financial information presented under the section entitled “Item 3. Key Information—A. Selected Financial Data” included elsewhere in this annual report. The preparation of the consolidated financial statements referred to in this section required the adoption of assumptions and estimates that affect the amounts recorded as assets, liabilities, revenue and expenses in the years and periods presented and are subject to certain risks and uncertainties. Our future results may vary substantially from those indicated as a result of various factors that affect our business, including, among others, those mentioned in the sections “Forward-Looking Statements” and “Item 3. Key Information—D. Risk Factors,” and other factors discussed elsewhere in this annual report. Our consolidated financial statements as of December 31, 2023 and 2022, and for the years ended December 31, 2023, 2022 and 2021, prepared in accordance with the IFRS Accounting Standards as issued by the IASB and the report of our independent registered public accounting firm are included in “Item 18. Financial Statements.”
Presentation of the Consolidated Financial Statements
The discussion in this section is based on our audited consolidated financial statements as of December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022 and 2021, and the related notes thereto, which are included in this annual report, as prepared under the IFRS Accounting Standards as issued by the IASB. See also “Presentation of Financial and Other Information—Consolidated Financial Statements.”
Segment Information
As a result of the acquisition of Avon and the disposals of Aesop and The Body Shop as described under “Presentation of Financial and Other Information—Consolidated Financial Statements—The Transaction,” we manage our operations based on the following two reportable segments:
- Natura &Co LATAM: This segment includes all operations under our Natura, Avon, Aesop and The Body Shop brands located in Brazil and Latin America, which account for a significant portion of our operating revenues; and
- Avon International: Starting in January 2020, following our acquisition of Avon, this segment includes all operations under our Avon brand, except those located in Brazil and Latin America, and has sales operations in approximately 35 countries and territories, and distribution in 18 other countries and territories, as of December 31, 2023.
Discontinued Operations
On August 30, 2023, we concluded the sale of Natura Brazil Pty Ltd., the holding company of Aesop, to L’Oréal for a total amount of U.S.$2.554 billion (or R$12.429 billion based on the real/U.S. dollar exchange rate as of August 30, 2023), after obtaining all regulatory approvals.
On December 29, 2023, we concluded the sale of Natura (Brasil) International B.V., the holding company of The Body Shop, to Aurelius Investment Advisory Limited for a total purchase price of £207 million, including deferred and contingent consideration (in the form of an earn-out) of £90 million (or R$829.4 million based on the real/U.S. dollar exchange rate as of December 31, 2023). The Body Shop has since entered administration in the United Kingdom and certain of The Body Shop’s subsidiaries in other jurisdictions also entered into insolvency proceedings. See also “Item 4. Information on the Company—A. History and Development of the Company—History—Recent Developments—Administration of The Body Shop.”
As a result of the disposals of Aesop and The Body Shop, the Aesop and The Body Shop balances are no longer disclosed in our consolidated balance sheet since September 1, 2023 and December 31, 2023, respectively. The results originating from the applicable segments were classified as discontinued operations in our consolidated income statement for the year ended December 31, 2023, 2022 and 2021.
In addition, as a result of the sales of Aesop and The Body Shop, our results of operations for the year ended December 31, 2023 are not directly comparable to our results of operations for the years ended December 31, 2022 and 2021, which may make it difficult for you to evaluate our business, financial condition, results of operations and prospects.
Please refer to notes 24 and 35, “Information on Segments” and “Discontinued Operations,” respectively, to our audited consolidated financial statements included elsewhere in this annual report for more information.
Principal Factors Affecting Our Results of Operations
Macroeconomic Environment
Our results of operations are dependent, to a large extent, on the level of demand for our products in the countries in which we operate. Demand for our products in those countries is affected by the performance of their respective economies in terms of GDP, as well as prevailing levels of employment, inflation and interest rates. Our results are particularly affected by the economic environment in Latin America and Europe, particularly in Brazil. See also “Item 3. Key Information—D. Risk Factors—Risks Relating to the Countries in Which We Operate.”
The Brazilian economic environment has historically been characterized by significant variations in economic growth, inflation, interest and currency exchange rates. A significant portion of our operations are in Brazil. As a result, our revenues and profitability are affected by political and economic developments in Brazil, and the effect that these factors have on the availability of credit, disposable income, employment rates and average wages in Brazil. Our operations, and the industry in general, may be affected by changes in economic conditions.
Brazil is the largest economy in Latin America, as measured by gross domestic product, or GDP. The following table shows data for real GDP, inflation and interest rates in Brazil and the U.S. dollar/real exchange rate at the dates and for the periods indicated.
|
|
For the Year Ended December 31, |
|||||||
|
|
2023 |
2022 |
2021 |
|||||
|
Real growth (contraction) in gross domestic product |
2.9 |
% |
2.9 |
% |
4.6 |
% | ||
|
Inflation (IGP-M)(1) |
(3.2) |
% |
5.5 |
% |
17.8 |
% | ||
|
Inflation (IPCA)(2) |
4.6 |
% |
5.8 |
% |
10.1 |
% | ||
|
Long-term interest rates—TJLP (average)(3) |
6.5 |
% |
6.8 |
% |
4.8 |
% | ||
|
CDI interest rate (4) |
13.0 |
% |
12.4 |
% |
4.5 |
% | ||
|
Period-end exchange rate—reais per U.S.$1.00 |
R$ 4.8413 |
R$ 5.218 |
R$ 5.581 |
|||||
|
Average exchange rate—reais per U.S.$1.00(5) |
R$ 5.21 |
R$ 5.165 |
R$ 5.395 |
|||||
|
Appreciation (depreciation) of the real against the U.S.$ in the period(6) |
(7.2) |
% |
6.5 |
% |
(7.4) |
% | ||
|
Unemployment rate(7) |
7.8 |
% |
7.9 |
% |
11.6 |
% | ||
Source: FGV, IBGE, Central Bank and B3.
(1)Inflation (IGP-M) is the general market price index measured by the FGV.
(2)Inflation (IPCA) is a broad consumer price index measured by the IBGE.
(3)The long-term interest rate (Taxa de Juros de Longo Prazo), or “TJLP,” is the Brazilian long-term interest rate (average of monthly rates for the period).
(4)The overnight interbank deposit rate (Certificado de Depósito Interbancário), or “CDI,” interest rate is an average of interbank overnight rates in Brazil, average during the corresponding period.
(5)Average of the exchange rate on each business day of the year.
(6)Comparing the U.S.$ closing selling exchange rate as reported by the Central Bank at the end of the period’s last day with the day immediately prior to the first day of the period discussed.
(7)Average unemployment rate for year as measured by the IBGE.
As a result of inflationary pressures in 2021 and 2022 (due to supply chain disruptions, climate events that had an impact on energy prices and instability in the oil and gas markets), the Brazilian Central Bank started to gradually increase SELIC in May 2021. In the third quarter of 2023, the Brazilian Central Bank reversed this trend, decreasing Brazil’s official interest rate to 13.25% on August 3, 2023, to 12.75% on September 21, 2023 and to 12.25% on November 3, 2023. As a result, the SELIC rate reached 9.25% as of December 31, 2021, 13.75% as of December 31, 2022, 11.75% as of December 31, 2023 and 10.75% as of the date of this annual report.
We are not able to fully estimate the impact of global and Brazilian political and macroeconomic developments on our business. Furthermore, uncertainty over whether the Brazilian government will implement reforms may have an adverse effect on our business, results of operations and financial condition.
Any deterioration in the rate of economic growth, changes in interest rates, the unemployment rate or price levels generally in Brazil or in the other countries in which we operate may limit the availability of credit, income and purchasing power of our customers, thereby adversely affecting demand for our products.
Inflation
While variations in the rate of inflation can be passed on to our customers with no impact on the demand for our products and services, we believe that a significant increase in the rate of inflation may adversely affect demand for our products in that it may (i) adversely affect consumer confidence; and (ii) adversely affect consumers’ purchasing power.
In addition, a significant part of our costs and expenses are incurred in reais and adjusted when our suppliers or service providers increase their prices. In Brazil, our service providers in general use the IPCA index to adjust their prices, while our suppliers use the National Consumer Price Index (Índice Nacional de Preços ao Consumidor), disclosed by IBGE, or INPC, the National Consumer Price Index, disclosed by FGV, or IGP-M, or the variation in the price of certain commodities, to adjust their prices according to the inflation.
Our gross revenue is also indirectly affected by inflation, since in general we transfer part of our cost increases to our consumers through price increases.
Foreign Exchange
We operate globally, with manufacturing and distribution facilities in various countries around the world. The increase or decrease in value of the real against the U.S. dollar and the euro affected and will continue to affect the results of our operations, particularly with regards to: (1) the changes in raw material costs and imported goods or those linked to U.S. dollars; (2) our loans in foreign currency; (3) Natura’s costs of products sold in reais to our companies operating in Argentina, Chile, Peru, Mexico and Colombia; and (4) our operations around the world through Avon for which we had net underlying foreign currency exchange rate exposures through the Argentine peso, real, British pound, Chilean peso, Colombian peso, the euro, Mexican peso, Peruvian new sol, Philippine peso, Polish zloty, Romanian leu, Russian ruble, South African rand, Turkish lira and Ukrainian hryvnia. Certain of our receivables and financial obligations assumed are denominated in foreign currencies.
We and our subsidiaries are exposed to the foreign exchange rate risk resulting from financial instruments in currencies other than their functional currencies, as well as operating cash flows in foreign currencies. To reduce this exposure, policies were implemented to hedge against foreign exchange risk. These policies set maximum exposure levels regarding these risks and also determine that we and our subsidiaries cannot enter into derivative and any other financial instruments for trading or speculative purposes.
Natura Cosméticos
The procedures set by these policies include monthly assessments of the consolidated foreign exchange exposure of Natura Cosméticos and its subsidiaries. The results of these assessments are used to inform decisions taken by management.
Natura Cosméticos’ foreign exchange protection policy considers the amounts in foreign currency of the balances to be received and of payables from commitments already assumed and recorded in the financial statements, as well as future cash flows, with an average term of six months, not yet recorded on the balance sheet.
Pursuant to the abovementioned foreign exchange protection policy, Natura Cosméticos and its subsidiaries may enter into derivative transactions (swaps and non-deliverable forwards) to hedge against foreign exchange risk arising from financial instruments denominated in currencies other than their respective functional currencies to limit potential losses from exchange rate variation.
Avon
Avon has a financial risk management program to reduce the potential negative effects from changes in foreign exchange and may reduce its exposure to fluctuations in fair value or cash flows associated with changes in foreign exchange rates by creating offsetting positions, including through the use of derivative financial instruments. Avon may use foreign currency rate-sensitive instruments to hedge a portion of our existing and forecasted transactions, and it expect that any loss in value for the hedge instruments generally would be offset by changes in the value of the underlying transaction.
Interest Rates
Interest rate risk arises from financial investments and short- and long-term loans and financing. Financial instruments issued at floating rates expose us to cash flow risks associated with the interest rate. Financial instruments issued at pre-fixed rates expose us to fair value risks associated with the interest rate. Our cash flow risk associated with the interest rate arises from investments and short- and long-term loans and financing issued at floating rates. We adopt the policy of maintaining our rates of exposure to asset and liability interest rates pegged to floating rates. Short-term investments are adjusted by the CDI rate whereas borrowings and financing are adjusted based on the TJLP, CDI and fixed rates (e.g., SOFR for U.S. dollars), according to the contracts made with the related financial institutions, and trading securities with investors in this market. In the case of debts issued with interest rates linked to price indices or other market indicators other than floating rates, Natura &Co uses derivative instruments to hedge against such exposures.
Other Factors
In addition, our results of operations have been influenced and will continue to be influenced by the following key factors:
- the growth rate of GDP in the countries in which we operate, which can impact the demand for our products and, consequently, our distributed volumes and sales;
- inflation and government measures to curb inflation, including increases in interest rates;
- demand for our products;
- acquisitions, partnerships and corporate restructurings;
- seasonality;
- hedging transactions (as discussed under “Item 11. Quantitative and Qualitative Disclosures About Market Risk”);
- trade barriers in North America, Europe and other markets;
- the tax policies adopted by the governments of the countries in which we operate; and
- cross-border commercial regulations.
Operating Results
The following discussion of our results of operations is based on the financial information derived from Natura &Co Holding’s audited consolidated financial statements prepared in accordance with the IFRS Accounting Standards as issued by the IASB. In the following discussion, references to increases or decreases in any period are made by comparison with the corresponding prior period, as applicable, except otherwise indicated.
Unless otherwise indicated, in the discussion that follows, references to 2023, 2022 and 2021 are to the years ended December 31, 2023, 2022 and 2021, respectively.
Overview
The following table shows our key consolidated financial information for the periods indicated.
|
|
As of and for the Year Ended December 31, |
|||||
|
|
2023 |
2022 |
2021 |
|||
|
|
(in millions of R$, except number of shares and per share amounts) |
|||||
|
Shareholders’ equity |
23,120.5 |
22,351.2 |
28,566.7 |
|||
|
Total assets |
42,747.0 |
54,685.4 |
60,448.5 |
|||
|
Net revenue from continuing operations |
26,737.3 |
29,223.7 |
31,742.7 |
|||
|
Net income (loss) for the year |
2,974.5 |
(2,858.6) |
1,040.7 |
|||
|
Number of shares (excluding treasury stock) |
1,386,848,066 |
1,383,206,405 |
1,374,685,197 |
|||
|
Market value per share (R$/unit) (1) |
R$ 16.89 |
R$ 11.61 |
R$ 25.43 |
|||
(1)Market value per share is disclosed based on the share price on the B3.
In 2023, 76.5% (75% and 71% in 2022 and 2021, respectively) of our net revenue derived from Natura &Co LATAM segment, primarily from the sale of products to our consultants. The increase in Natura &Co LATAM’s total net revenue as a proportion of our overall net revenue is mainly driven by the growth in Brazil, while Avon International had a challenging 2023, with a net revenue decrease of 12.6%. The number of our consultants and their productivity are the main drivers of our gross operating revenue.
We recorded a net income of R$2,974.5 million in 2023, compared to a net loss of R$2,858.6 million in 2022. The main factors affecting our net income in 2023 were the impacts from the sale of the former subsidiaries Aesop and The Body Shop, with an impact of R$ 6,296.4 million on our 2023 net income.
We recorded a net loss of R$2,858.6 million in 2022, compared to a net income of R$1,040.7 million in 2021. The main factors affecting our net loss in 2022 were (i) higher transformation and restructuring costs resulting from the acceleration of changes to ensure sustainable growth, in the amount of R$640.9 million in 2022, compared to R$511.0 million in 2021, (ii) higher other operating expenses in 2022 compared to 2021, mainly impacted by a goodwill impairment loss of R$383.0 million recorded in 2022, (iii) higher net financial expenses in the amount of R$1,900.9 million in 2022, compared to R$1,027.0 million in 2021, as a result of an increase in interest rates globally, and (iv) income tax and social contribution expense in the amount of R$119.6 million in 2022, compared to income tax and social contributions credits in the amount of R$1,048.0 million in 2021, when we had benefited from deferred tax assets related to corporate restructuring processes.
Results for 2023 Compared to 2022
The following table sets forth our consolidated financial information for 2023 and 2022.
|
|
For the Year endedDecember 31, |
|
||||
|
|
2023 |
2022 |
Variation |
|||
|
|
(in millions of R$) |
|
||||
|
Net revenue from continuing operations |
26,737.3 |
29,223.7 |
(8.5%) |
|||
|
Cost of sales |
(9,675.4) |
(11,770.8) |
(17.8%) |
|||
|
Gross profit |
17,061.9 |
17,452.9 |
(2.2%) |
|||
|
Operating income (expenses) |
|
|
|
|||
|
Selling, marketing and logistics expenses |
(11,015.9) |
(11,558.9) |
(4.7%) |
|||
|
Administrative, R&D, IT and project expenses |
(4,225.0) |
(5,023.6) |
(15.9%) |
|||
|
Impairment losses on trade receivables |
(605.9) |
(604.8) |
0.2% |
|||
|
Other operating income (expenses), net |
(1,369.9) |
(649.1) |
111.0% |
|||
|
|
(17,216.7) |
(17,836.5) |
(3.5%) |
|||
|
Operating (Loss) Income Before Financial Result |
(154.8) |
(383.5) |
(59.6%) |
|||
|
Financial results |
(2,513.5) |
(1,785.0) |
40.8% |
|||
|
Net (loss) income before income tax and social contribution |
(2,668.3) |
(2,168.5) |
23.0% |
|||
|
Income tax and social contribution |
86.4 |
(92.4) |
(193.6%) |
|||
|
Net (loss) income from continuing operations |
(2,581.9) |
(2,260.9) |
14.2% |
|||
|
Net income (loss) from discontinued operations(1)(2) |
5,556.5 |
(597.7) |
(1,029.6%) |
|||
|
Net income (loss) for the year |
2,974.6 |
(2,858.6) |
(204.1%) |
|||
n.m. = not meaningful.
(1)On December 17, 2015, Avon signed contracts that resulted in the separation of operations in the United States, Canada and Puerto Rico from New Avon. These transactions were closed on March 1, 2016. As of December 31, 2023 and 2022, contingent liabilities prior to this transaction and related to operations in the United States, Canada, and Puerto Rico are treated as discontinued operations.
(2)Includes the results of Aesop until August 30, 2023 and the results of The Body Shop until December, 2023. It also includes the results from the sale of the subsidiaries Aesop and The Body Shop as of December, 2023.
Net Revenue
|
|
For the Year Ended December 31, |
|
||||
|
|
2023 |
2022 |
Variation |
|||
|
|
(in millions of R$) |
|
||||
|
Operating segments |
|
|
|
|||
|
Natura &Co LATAM |
20,440.8 |
22,027.4 |
(7.2%) |
|||
|
Avon International |
6,286.8 |
7,196.0 |
(12.6%) |
|||
|
Other |
9.7 |
0.3 |
3,133.3% |
|||
|
Net revenue |
26,737.3 |
29,223.7 |
(8.5%) |
|||
n.m. = not meaningful.
Our consolidated net revenue decreased by 8.5%, to R$26,737.3 million in 2023, from R$29,223.7 million in 2022, mainly due to the appreciation of the real in 2023 compared to 2022, devaluation of the Argentinean peso during 2023 and decreases in net revenue at Avon International.
The following is a discussion of our main segments:
- Natura &Co LATAM. Net revenue decreased by 7.2%, to R$20,440.8 million in 2023, from R$22,027.7 million in 2022, primarily due to a decrease in revenue in the Home and Style category, a decrease in revenue in from sales of Avon-branded products and the appreciation of the Brazilian real compared to other currencies in the period, partially offset by the growth of the Natura brand in Brazil and Hispanic Latin America.
- Avon International. Net revenue reached R$6,286.8 million in 2023, or 23.5% of our total consolidated revenue, which represents a decrease of 12.6% compared to R$7,196.0 million of net revenue in 2022 (when it amounted to 24.6% of our total consolidated net revenue). Avon International’s net revenue decreased mainly due to a challenging macroeconomic environment in some of its main markets, portfolio adjustments in the Home and Style category and the appreciation of the Brazilian real compared to other currencies in the period.
Cost of Sales
The following tables show the components of our cost of sales for the periods indicated:
|
|
For the Year Ended December 31, |
Variation |
||||
|
|
2023 |
2022 |
||||
|
|
(in millions of R$) |
|
||||
|
Raw material for products and packages(1) and resale products(2) |
8,541.5 |
10,588.0 |
(19.3%) |
|||
|
Personnel expenses |
516.0 |
565.4 |
(9.7%) |
|||
|
Depreciation and amortization |
170.3 |
168.7 |
0.9% |
|||
|
Other costs(3) |
447.7 |
448.7 |
(0.2%) |
|||
|
Cost of sales |
9,675.5 |
11,770.8 |
(17.8%) |
|||
(1)Particularly plastic, glass, graphics and fragrance bottles.
(2)Products manufactured by third parties, including soaps, hair products and others.
(3)“Other costs” include electricity, water, gas, computer services and others.
|
|
For the Year Ended December 31, |
Variation |
||||
|
|
2023 |
2022 |
||||
|
|
(in millions of R$) |
|
||||
|
Operating segments |
|
|
|
|||
|
Natura &Co LATAM |
7,395.3 |
8,880.2 |
(16.7%) |
|||
|
Avon International |
2,287.3 |
2,890.6 |
(20.9%) |
|||
|
Other |
(7.1) |
— |
— |
|||
|
Cost of sales |
9,675.5 |
11,770.8 |
(17.8%) |
|||
In 2023, our cost of sales decreased by 17.8%, to R$9,675.5 million, from R$11,770.8 million in 2022, mainly due to decrease in sales (in reais) within all brands. Cost of sales decreased by 4.1% compared to net revenue, representing 36.2% of net revenue in 2023 compared to 40.3% in 2022, mainly driven by our pricing levels and our products sales mix, the effect of which more than offset inflationary pressures and the effect of exchange rates.
With respect to our main reporting segments:
- Natura &Co LATAM: In 2023, Natura &Co LATAM accounted for 76.4% of our total cost of sales. Cost of sales decreased by 16.7%, amounting to R$7,395.3 million in 2023, compared to R$8,880.2 million in 2022. Cost of sales represented 36.2% of the net revenue of the segment in 2023, from 40.3% in 2022, with the decrease being primarily due to the segment’s products sales mix and portfolio optimization.
- Avon International: In 2023, Avon International accounted for 23.6% of our total cost of sales, amounting to R$2,287.3 million and 36.4% of its net revenue. In 2022, Avon International’s cost of sales amounted to R$2,890.6 million, accounting for 40.2% of its net revenue for the year, with the decrease being primarily due to the segment’s products sales mix and portfolio optimization.
Gross Profit
As a result of the foregoing, consolidated gross profit decreased by 2.2%, amounting to R$17,061.8 million in 2023, from R$17,452.9 million in 2022. Our consolidated gross margin, which we calculate as gross profit divided by net revenue, expressed as a percentage, reached 63.8% in 2023, compared to 59.7% in 2022. Our gross margin increased mainly due to an increase in profitability caused by price increases and a favorable mix of products sold, the latter driven mainly by portfolio optimization.
Operating Expenses
Consolidated operating expenses decreased by 3.5%, amounting to R$17,216.7 million in 2023, representing 64% of consolidated net revenue compared to R$17,836.5 million in 2022, when they represented 61% of net revenue, primarily due to the factors listed below.
Selling, Marketing and Logistics Expenses
Consolidated selling, marketing and logistics expenses decreased by 4.7% to a cost of R$11,015.9 million in 2023, compared to a cost of R$11,558.9 million in 2022. This decrease is lower than our net revenue decrease by 4.1%, and is primarily due to planned marketing investments during the year. Selling, marketing and logistics expenses accounted for 41.2% of our net revenue in 2023, compared to 39.6% in 2022
Administrative, R&D, IT and Project Expenses
Administrative, research and development, technology and other project expenses decreased by 15.9% to R$4,255.0 million in 2023 from R$5,023.6 million in 2022. The decrease was mainly due to (i) foreign exchange rate impact from all business units during 2023, and (ii) lower level of corporate expenses, benefiting from the initiatives implemented by management, and (iii) cost reductions at Natura &Co LATAM and Avon International.
Other Operating Income (Expenses), Net
Other operating expenses increased to R$1,369.9 million in 2023, from R$649.1 million in 2022. This change was primarily driven by a R$663 million non-cash impairment (related mainly to goodwill of Avon International).
Net Financial Result
Net financial expenses amounted to R$2,513.5 million in 2023, compared to R$1,785.0 million in 2022, primarily due to (i) higher losses with financial derivatives and (ii) losses with exchange rate variation, mainly due to the devaluation of the Argentinean peso.
Income Tax and Social Contribution Expenses
Income tax and social contribution income increased to R$86.4 million in 2023, from expenses of R$92.4 million in 2022. This decrease of income tax and social contribution expenses was primarily due to higher government investment subsidies received in Brazil during 2023 compared to 2022.
Net (Loss) Income for the Period
For the reasons described above, we had a net income of R$2,974.5 million (equivalent to 11.1% of net revenue) in 2023, compared to a net loss of R$2,858.6 million (equivalent to 9.8% of net revenue) in 2022.
Results for 2022 Compared to 2021
The following table sets forth our consolidated financial information for 2022 and 2021.
|
|
For the Year Ended |
| ||||
|---|---|---|---|---|---|---|
|
|
2022 |
2021 |
Variation | |||
|
|
(in millions of R$) |
| ||||
|
Net revenue from continuing operations |
29,223.7 |
31,742.7 |
(7.9%) | |||
|
Cost of sales |
(11,770.8) |
(12,531.3) |
(6.1%) | |||
|
Gross profit |
17,452.9 |
19,211.4 |
(9.2%) | |||
|
Operating income (expenses) |
|
|
| |||
|
Selling, marketing and logistics expenses |
(11,558.9) |
(12,386.2) |
(6.7%) | |||
|
Administrative, R&D, IT and project expenses |
(5,023.6) |
(5,217.6) |
(3.7%) | |||
|
Impairment losses on trade receivables |
(604.8) |
(839.4) |
(27.9%) | |||
|
Other operating income (expenses), net |
(649.2) |
(207.4) |
213.0% | |||
|
|
(17,836.5) |
(18,650.6) |
(4.4%) | |||
|
Operating (Loss) Income Before Financial Result |
(383.6) |
560.8 |
(168.4%) | |||
|
Financial results |
(1,785.0) |
(908.0) |
96.6% | |||
|
Net (loss) income before income tax and social contribution |
(2,168.6) |
(347.2) |
524.4% | |||
|
Income tax and social contribution |
(92.4) |
1,297.2 |
(107.1%) | |||
|
Net (loss) income from continuing operations |
(2,261.0) |
950.0 |
(338.0%) | |||
|
Net (loss) income from discontinued operations(1)(2) |
(597.6) |
90.7 |
(759.0%) | |||
|
Net (loss) income for the year |
(2,858.6) |
1,040.7 |
(374.7%) | |||
n.m. = not meaningful.
(1) On December 17, 2015, Avon signed contracts that resulted in the separation of operations in the United States, Canada and Puerto Rico from New Avon. These transactions were closed on March 1, 2016. As of December 31, 2023 and 2022, contingent liabilities prior to this transaction and related to operations in the United States, Canada, and Puerto Rico are treated as discontinued operations.
(2) Includes the results of Aesop and The Body Shop for the years ended on December 31, 2022 and 2021.
Net Revenue
|
|
For the Year Ended |
| ||||
|---|---|---|---|---|---|---|
|
|
2022 |
2021 |
Variation | |||
|
|
(in millions of R$) |
| ||||
|
Operating segments |
|
|
| |||
|
Natura &Co LATAM |
22,027.4 |
22,413.4 |
(1.7%) | |||
|
Avon International |
7,196.0 |
9,329.3 |
(22.9%) | |||
|
Other |
0.3 |
- |
100.0% | |||
|
Net revenue |
29,223.7 |
31,742.7 |
(7.9%) | |||
n.m. = not meaningful.
Our consolidated net revenue decreased by 7.9%, to R$29,223.7 million in 2022, from R$31,742.7 million in 2021, mainly due to the appreciation of the real in 2022 compared to 2021.
The following is a discussion of our main segments:
- Natura &Co LATAM. Net revenue decreased by 1.7%, to R$22,027.7 million in 2022, from R$22,413.4 million in 2021, primarily due to the impact of foreign exchange and in particular the appreciation of the real in 2022 compared to 2021, which offset a 6.3% increase in the net revenue of the Natura brand in local currency terms in 2022 compared to 2021, driven by strong growth mainly in Brazil.
- Avon International. Net revenue reached R$7,196.0 million in 2022, or 24.6% of our total consolidated revenue, which represents a decrease of 22.9% compared to R$9,329.3 million of net revenue in 2021 (when it amounted to 29.4% of our total consolidated net revenue). Avon International’s net revenue decreased mainly due to (i) the challenging macroeconomic environment, including the deterioration in the global macroeconomic environment as a result of the war between Russia and Ukraine, and (ii) an increase in the average exchange rate for U.S.$ into reais of 6.5% in 2022. In its functional currency (U.S.$), Avon International’s revenue decreased by 9.9% in 2022, mainly driven by the challenging macroeconomic conditions referred to above.
Cost of Sales
The following tables show the components of our cost of sales for the periods indicated:
|
|
For the Year Ended |
Variation | ||||
|---|---|---|---|---|---|---|
|
|
2022 |
2021 | ||||
|
|
(in millions of R$) | |||||
|
Raw material for products and packages(1) and resale products(2) |
10,588.0 |
10,703.6 |
(7.5%) | |||
|
Personnel expenses |
565.4 |
554.9 |
1.9% | |||
|
Depreciation and amortization |
168.7 |
246.2 |
(31.5%) | |||
|
Other costs(3) |
448.7 |
1,026.6 |
57.3% | |||
|
Cost of sales |
11,770.8 |
12,531.3 |
(6.1%) | |||
(1) Particularly plastic, glass, graphics and fragrance bottles.
(2) Products manufactured by third parties, including soaps, hair products and others.
(3) “Other costs” include electricity, water, gas, computer services and others.
|
|
For the Year Ended |
Variation | ||||
|---|---|---|---|---|---|---|
|
|
2022 |
2021 | ||||
|
|
(in millions of R$) |
| ||||
|
Operating segments |
|
|
| |||
|
Natura &Co LATAM |
8,880.2 |
8,833.1 |
0.5% | |||
|
Avon International |
2,890.6 |
3,698.2 |
(21.8%) | |||
|
Cost of sales |
11,770.8 |
12,531.3 |
(6.1%) | |||
In 2022, our cost of sales decreased by 6.1%, to R$11,770.8 million, from R$12,531.3 million in 2021, mainly due to decrease in sales (in reais) within all brands. Cost of sales increased by 0.8% compared to net revenue, representing 40.3% of net revenue in 2022 compared to 39.5% in 2021, primarily due to rising energy prices and overall inflation (especially on wages).
With respect to our main reporting segments:
- Natura &Co LATAM: In 2022, Natura &Co LATAM accounted for 75.4% of our total cost of sales. Cost of sales increased by 0.5%, amounting to R$8,880.2 million in 2022, compared to R$8,833.1 million in 2021. Cost represented 40.3% of the net revenue of the segment in 2022, from 39.5% in 2021. This increase in cost of sales as a proportion of net revenue is mainly due to the impact of inflation and rising energy prices in 2022.
- Avon International: In 2022, Avon International accounted for 24.6% of our total cost of sales, amounting to R$2,890.6 million and 40.2% of its net revenue. In 2021, Avon International’s cost of sales amounted to R$3,698.2 million, accounting for 39.6% of its net revenue for the year. This increase in cost of sales compared to their net revenue is mainly due to the impact of inflation throughout 2022, as inflationary pressures were not fully passed on to customers through pricing increases during that year.
Gross Profit
As a result of the foregoing, consolidated gross profit decreased by 9.2%, amounting to R$17,452.9 million in 2022, from R$19,211.4 million in 2021. Our consolidated gross margin, which we calculate as gross profit divided by net revenue, expressed as a percentage, reached 59.7% in 2022, compared to 60.5% in 2021. Our gross margin decreased mainly due to inflationary pressures across all business units during 2022, due to rising energy prices and overall inflation (especially on wages), partially offset by some price increases passed to consumers during the period.
Operating Expenses
Consolidated operating expenses decreased by 4.4%, amounting to R$17,836.5 million in 2022, representing 61.0% of consolidated net revenue compared to R$18,650.6 million in 2021, when they represented 58.8% of net revenue, primarily due to the factors listed below.
Selling, Marketing and Logistics Expenses
Consolidated selling, marketing and logistics expenses decreased by 6.7% to a cost of R$11,558.9 million in 2022, compared to a cost of R$12,386.2 million in 2021. This decrease is aligned with our net revenue decrease by 7.9%, and is primarily due to lower level of commissions and the implementation of strict cost control measures. Selling, marketing and logistics expenses remained stable and accounted for 42.8% of our net revenue in 2022, compared to 42.1% in 2021. This stability is a result of effective cost management throughout all business units during 2022.
Administrative, R&D, IT and Project Expenses
Administrative, research and development, technology and other project expenses decreased by 3.7% to R$5,023.6 million in 2022 from R$5,217.6 million in 2021. The decrease was mainly due to (i) foreign exchange rate impact from all business units during 2022, and (ii) lower level of corporate expenses, benefiting from the initiatives implemented by management. These were offset by inflationary pressures across all business units and, to some extent, reduced sales.
Other Operating Income (Expenses), Net
Other operating expenses increased to R$649.2 million in 2022, from R$207.4 million in 2021. This change was primarily driven by a R$383 million non-cash impairment (related mainly to goodwill of Avon International).
Net Financial Result
Net financial expenses amounted to R$1,785.0 million in 2022, compared to R$908.0 million in 2021, primarily due to an increase in financial expenses as a result of an increase in gross debt and interest rates in 2022 compared to 2021.
Income Tax and Social Contribution Expenses
Income tax and social contribution expenses increased to R$92.4 million in 2022, from a gain of R$1,297.2 million in 2021. This increase of income tax and social contribution expenses was primarily due to tax benefits identified mainly in our Avon entities in Luxembourg in 2021, and to the impacts of deferred amount over tax losses at Avon as well as amortization of deferred income tax liability on appreciation of assets and liabilities as a result of the purchase price allocation in connection with the acquisition of Avon.
Net (Loss) Income for the Period
For the reasons described above, we had a net loss of R$2,858.6 million (equivalent to 9.8% of net revenue) in 2022, compared to a net income of R$1,040.7 million (equivalent to 3.3% of net revenue) in 2021.
Overview
Our financial condition and liquidity are influenced by several factors, including:
- our ability to generate cash flow from our operations;
- the level of our outstanding indebtedness and related accrued interest, which affect our net finance expenses;
- inflation and interest rates;
- prevailing Brazilian and international interest rates, which affect our debt service requirements;
- our ability to continue borrowing funds from Brazilian and international financial institutions and to obtain pre-export financing from certain customers;
- our capital expenditure requirements; and
- credit ratings, including factors that may materially influence credit ratings, implications of potential changes in ratings and in management’s expectations; and covenant compliance, including the implications arising from breaching financial or other covenants and our capacity for additional borrowing under our covenants
Sources of Liquidity
Our cash needs have traditionally consisted of working capital requirements, servicing of our indebtedness, capital expenditures related to investments in operations, maintenance and expansion of plant facilities, as well as acquisitions. Our sources of liquidity have traditionally consisted of cash flows from our operations (which may vary according to the fluctuations of our operating income, cost of sales, operating expenses and financial results) and short- and long-term borrowings. We have financed acquisitions through third-party financing. We believe that, for the next 12 months, our current working capital is sufficient to satisfy our present needs. We expect to be able to meet any potential shortfalls in our working capital needs through either short- and long-term borrowings or debt offerings in the domestic and international capital markets. Our principal sources of financing for working capital and for investments in noncurrent assets are: (1) cash generated from our operating activities and (2) loans and financing.
In addition on August 30, 2023 and December 29, 2023, we concluded the sales of Natura Brazil Pty Ltd., the holding company of Aesop, Natura (Brasil) International B.V., the holding company of The Body Shop, respectively. See “Presentation of Financial and Other Information—Consolidated Financial Statements—Sale of Aesop and The Body Shop.”
Cash Flows
In the discussion that follows, references to 2023, 2022 and 2021 are to the fiscal years ended December 31, 2023, 2022 and 2021, respectively.
The following table shows our consolidated cash flows for the periods indicated:
|
|
For the Year Ended |
Variation | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
2023(1) |
2022 |
2021 |
2023/2022 |
2022/2021 | |||||
|
|
(in millions of R$, except percentages) | |||||||||
|
Net cash flows provided by (used in) operating activities |
(2,347.7) |
671.5 |
(114.2) |
(449.6%) |
(688.2%) | |||||
|
Net cash flows (used in) provided by investing activities |
9,953.6 |
(771.8) |
(652.0) |
(1,389.7%) |
(18.4%) | |||||
|
Net cash flows provided by (used in) financing activities |
(7,761.8) |
598.5 |
(1,245.2) |
(1,396.9%) |
(148.1%) | |||||
|
Increase/(decrease) in cash and cash equivalents(2) |
(444.8) |
188.5 |
(1,814.4) |
(336.0%) |
(110.4%) | |||||
|
Cash and cash equivalents at the beginning of the period |
4,195.7 |
4,007.3 |
5,821.7 |
4.7% |
(31.2%) | |||||
|
Cash and cash equivalents at the end of the period |
3,750.9 |
4,195.7 |
4,007.3 |
(10.6%) |
4.7% | |||||
(1) Includes the results of Aesop until August 30, 2023 and the results of The Body Shop until December 31, 2023.
(2) Includes the effect of exchange variation on cash and cash equivalents, as presented in the statement of cash flows.
In 2023, consolidated cash and cash equivalents amounted to R$3,750.9 million, compared to R$4,195.7 million in 2022 and R$4,007.3 million in 2021.
Net Cash Provided by (Used in) Operating Activities
Net cash used in operating activities amounted to R$2,347.7 million in 2023 compared to net cash provided by operating activities of R$671.5 million in 2022. Operating cash flow was mainly impacted by the settlement of derivatives related to the exercise of liability management (in an amount of R$1.5 billion), recording of goodwill impairment of the Avon brand (in an amount of R$663.9 million) and a greater working capital consumption in 2023 than in 2022.
Net cash provided by operating activities amounted to R$671.5 million in 2022 compared to net cash used in operating activities of R$114.2 million in 2021. The variation is mainly related to improvements in our working capital, primarily due to (i) continued inventory optimization (especially finished goods), (ii) lower advances to suppliers, and (iii) improvements in income tax and social contribution. These were partially offset by an increase in receivables as a result of sales growth in Natura &Co LATAM.
Net Cash (Used in) Provided by Investing Activities
Net cash provided by investing activities amounted to R$9,953.6 million in 2023, compared to cash used in investing activities of R$771.8 million in 2022. This variation was primarily due to the proceeds from the sale of the former subsidiary Aesop, in the approximate value of R$12.3 billion.
Net cash used in investing activities amounted to R$771.8 million in 2022, compared to cash used in investing activities of R$652.0 million in 2022. This variation was primarily due to higher short-term financial investments, which was offset by a lower level of capital expenditure.
Net Cash Provided by (Used in) Financing Activities
Net cash used in financing activities amounted to R$7,761.8 million in 2023, compared to cash provided by financing activities of R$598.5 million in 2022. This variation is primarily associated with the lower volume of loans and financings raised in 2023 compared to 2022, as well as with the reduction in our indebtedness starting in the third quarter of 2023.
Net cash provided by financing activities amounted to R$598.5 million in 2022, compared to cash used in financing activities of R$1,245.2 million in 2021. This variation is primarily due to a higher cash inflow from new borrowings and financing, offset by a lower cash inflow from derivatives settlement.
Capital Structure
The following table shows our sources of capital as of the dates indicated:
|
|
As of December 31, | |||||
|---|---|---|---|---|---|---|
|
|
2023 |
2022 |
2021 | |||
|
|
(in millions of R$, except percentages) | |||||
|
Shareholders’ equity |
23,120.5 |
22,351.2 |
28,566.7 | |||
|
Current and noncurrent borrowings, financing and debentures, including lease liabilities |
7,262.0 |
16,863.0 |
16,264.7 | |||
|
Total source of capital |
30,382.5 |
39,214.2 |
44,831.4 | |||
|
Shareholders’ equity as a percentage of total source of capital(1) |
76.1% |
57.0% |
63.7% | |||
|
Current and noncurrent borrowings, financing and debentures, including lease liabilities as a percentage of total source of |
23.9% |
43.0% |
36.3% | |||
(1) Shareholders’ equity divided by the total source of capital.
(2) Current and noncurrent borrowings, financing and debentures, including lease liabilities, divided by total source of capital.
Shareholders’ Equity
As of December 31, 2023, our shareholders’ equity amounted to R$23,120.5 million, an increase of R$769.3 million compared to R$22,351.2 million as of December 31, 2022, primarily due to the net income generated during 2023.
As of December 31, 2022, our shareholders’ equity amounted to R$22,351.2 million, a decrease of R$6,215.5 million compared to R$28,566.7 million as of December 31, 2021, primarily due to the losses generated during 2022 and foreign currency adjustments.
Current and Noncurrent Borrowings, Financing and Debentures, Including Lease Liabilities
As of December 31, 2023, current and noncurrent borrowings, financing and debentures, including lease liabilities, totaled R$7,262.0 million, presenting a decrease of R$9,601.0 million compared to R$16,863.0 million as of December 31, 2022, mainly due to the debt rebalancing process initiated in the third quarter of 2023, consisting of: (i) a tender offer for the 6.950% notes due 2043 issued by Avon for an amount of R$1,156.7 million, resulting in the repurchase of 89.87% of the aggregate principal amount outstanding of such notes; and (ii) a tender offer for up to U.S.$550.0 million aggregate principal amount of the outstanding U.S.$1.0 billion aggregate principal amount of 4.125% sustainability-linked notes due 2028 of Natura &Co Luxembourg and up to U.S.$330.0 million aggregate principal amount of the outstanding U.S.$600.0 million aggregate principal amount of 6.000% senior notes due 2029, for a total of R$4,142.9 million. Other amortizations carried out during the year also include the payment of working capital debt amounts at Natura &Co Luxembourg in the total amount of R$2,402.8 million.
As of December 31, 2022, current and noncurrent borrowings, financing and debentures, including lease liabilities, totaled R$16,863.0 million, presenting an increase of R$598.3 million compared to R$16,264.7 million as of December 31, 2021, mainly due to (i) the prepayment of Avon Products Inc bonds in the amount of U.S.$462.0 million; and (ii) the prepayment of the 9th and 10th issuance of debentures in an aggregate amount of R$1,879.0 million. These factors were partially offset by the net proceeds from the offering of our 6.00% notes due in 2029 in the aggregate principal amount of U.S.$600.0 million.
Cash and Cash Equivalents and Short-Term Investments
As of December 31, 2023, our cash and cash equivalents and short-term investments amounted to R$7,775.0 million, an increase of R$1,778.8 million compared to R$5,996.2 million as of December 31, 2022.
As of December 31, 2022, our cash and cash equivalents and short-term investments amounted to R$5,996.2 million, an increase of R$10.1 million compared to R$5,986.0 million as of December 31, 2021.
Indebtedness
We have raised funds to finance our working capital needs, our investments in property, plant and equipment, as well as to finance costs related to the acquisition of Avon and The Body Shop. As of the date of this annual report, our loans and financings consist primarily of debenture and bond issuances, pursuant to Law No. 4,131, financial commercial leasing, debentures and the BNDES.
As of December 31, 2023, current and noncurrent borrowings, financing, debentures and bond issuances, including lease liabilities, totaled R$7,262.0 million, of which R$462.4 million was current and R$6,799.6 million was noncurrent. As of December 31, 2022, current and noncurrent borrowings, financing, debentures and bond issuances, including lease liabilities, totaled R$16,863.0 million, of which R$1,209.6 million was current and R$15,653.4 million was noncurrent. As of December 31, 2021, current and noncurrent borrowings, financing, debentures and bond issuances, including lease liabilities, totaled R$16,264.7 million, of which R$1,950.6 million was current and R$14,314.1 million was noncurrent.
The table below shows the details of our debt instruments, expressed in millions of reais, as of the dates indicated:
|
|
As of December 31, |
Currency |
Maturity |
Interest |
Security/ Guarantee | |||||||||
|
2023 |
2022 |
2021 | ||||||||||||
|
Local Currency |
|
|
|
|
|
|
| |||||||
|
FINEP (Financing Agency for Studies and Projects) |
3.5 |
17.0 |
44.2 |
Real |
June 2023 |
Interest of 3.5% per year. |
Bank-issued guarantee letter. | |||||||
|
Debentures |
1,962.2 |
1,913.2 |
1,922.7 |
Real |
July 2027 up to September 2032 |
Interest of CDI+1.65%, CDI+0.8%, CDI+1.34% e CDI+1.60% |
None | |||||||
|
Commercial notes |
517.5 |
519.0 |
— |
Real |
September 2025 |
CDI interest + 1.55% with bi-annual payments |
Guarantee of Natura &Co Holding S.A. | |||||||
|
Financial lease |
1,150.4 |
3,270.7 |
3,547.9 |
Real |
Various up to 2036 |
Interest of 9% per year + IPCA (3) |
Fiduciary sale of assets object of lease contracts. | |||||||
|
Working capital – The Body Shop |
— |
— |
526.7 |
GBP |
March 2021 |
Sonia plus 2.9% per year |
Guarantee of Natura Cosméticos S.A. until 2021 and of Natura &Co Holding from January 2022 onwards | |||||||
|
Working capital – Avon |
1.8 |
113.7 |
164.5 |
Various |
May 2022 |
Sonia plus 1.65% per year |
None | |||||||
|
Working capital – Lux |
— |
1,304.4 |
— |
U.S. Dollar |
November 2025 |
SOFR + 2.47% p.a. with biannual payments |
Guarantee Natura &Co Holding and Natura Cosméticos | |||||||
|
Notes – Avon |
129.5 |
1,421.3 |
4,256.0 |
U.S. Dollar |
March 2043 |
6.45% and 8.45% per year |
None | |||||||
|
Notes – Lux |
3,497.1 |
3,130.7 |
— |
U.S. Dollar |
May 2028 |
Interest of 6.00% p.a. with biannual payments |
Guarantee Natura &Co Holding and Natura Cosméticos | |||||||
|
|
|
|
|
|
|
|
| |||||||
|
Total in local currency |
7,262.0 |
11,690.0 |
10,462.0 |
|
|
|
| |||||||
|
Foreign Currency |
|
|
|
|
|
|
| |||||||
|
Law No. 4,131 |
— |
— |
279.4 |
U.S. Dollar |
May 2022 |
Sonia + interest 1.1% per year (5) |
Guarantee of Natura Indústria. | |||||||
|
Notes |
— |
5,173.0 |
5,523.3 |
U.S. Dollar |
April 2029 |
Interest of 5.375% per year (5) |
None | |||||||
|
Total in foreign currency |
— |
5,173.0 |
5,802.7 |
|
|
|
| |||||||
|
Overall total |
7,262.0 |
16,863.0 |
16,264.7 |
|
|
|
| |||||||
|
Current |
462.4 |
1,132.0 |
1,950.6 |
|
|
|
| |||||||
|
Noncurrent |
6,799.6 |
13,817.8 |
14,314.1 |
|
|
|
| |||||||
|
Debentures |
|
|
|
|
|
|
| |||||||
|
Current |
68.2 |
77.6 |
350.1 |
|
|
|
| |||||||
|
Noncurrent |
1,852.7 |
1,835.6 |
1,572.6 |
|
|
|
| |||||||
(1) Overnight interbank deposit rate (Certificado de Depósito Interbancário), or “CDI.”
(2) Investment Support Program, or “PSI.”
(3) Consumer Price Index Expanded (Índice de Preços ao Consumidor Amplo), or “IPCA.”
(4) TIIE – (Tasa de Interés Interbancaria de Equilibrio) Interbank Equilibrium Interest Rate from Mexico.
(5) Loans and financing for which swap contracts (CDI) were entered into. These loans and financing are not being shown net of their derivatives.
The following table shows the maturities of our current and non-current consolidated debt, including lease liabilities, as of December 31, 2023:
|
|
Borrowings, Financing and Debentures |
Leases |
Total | |||
|
|
|
(in millions of R$) |
| |||
|
Maturity of loans and financing, including lease liabilities: |
|
|
| |||
|
2024 |
163.8 |
298.6 |
462.4 | |||
|
2025 |
101.6 |
388.0 |
489.6 | |||
|
2026 |
— |
183.3 |
183.3 | |||
|
2027 and thereafter |
5,846.2 |
280.5 |
6,126.7 | |||
|
Total |
6,110.8 |
1,150.4 |
7,262.0 |
Main Financing Agreements
Our principal financing agreements as of December 31, 2023 are described below:
Debentures
As of December 31, 2023, the outstanding balance on these debentures was R$1,962.2 million.
On July 22, 2019, Natura Cosméticos carried out its tenth issuance of non-convertible unsecured debentures in the aggregate amount of R$1,576.5 million. A total of 157,645 registered, book-entry, non-convertible and unsecured debentures were issued in four series, without the issue of provisory or final certificates, at a nominal unit value of R$10,000, of which 40,000 were in the first series, 9,570 in the second series, 68,623 in the third series, and 39,452 in the fourth series, all of which will mature on August 26, 2024, bearing interest at the cumulative variation of the average daily CDI rate plus 1% for the first series and the cumulative variation of the average CDI rate plus 1.15% for other series. On December 6, 2022, the Company carried out the total amortization of the four series of the tenth issuance of debentures in the amount of R$913.2 million. On December 6, 2022, Natura Cosméticos repaid in full the fourth series of the tenth issuance of debentures in the amount of R$913.2 million, which was originally due to mature in August 2024.
On July 25, 2022, Natura Cosméticos carried out the 11th issue of simple, non-convertible, unsecured debentures in single series, for public distribution with restricted placement efforts in the aggregate amount of R$826.0 million. A total of 826,030 debentures at a nominal unit value of R$1,000 were issued. The debentures of the 11th series will mature on July 21, 2027 and accrue interest at the CDI rate plus 1.65%. The net proceeds from the issuance were used for the partial repayment of debentures of the third series of the ninth issuance of debenture in an aggregate amount of R$162.8 million, partial repayment of debentures of the first series of the tenth issuance of debentures in an aggregate amount of R$145.8 million, partial repayment of debentures of the second series of the tenth issuance of debentures in an aggregate amount of R$19.2 million, partial repayment of debentures of the third series of the tenth issuance of debentures in the amount of R$295.3 million and partial repayment of debentures of the fourth series of the tenth issuance of debentures in the amount of R$202.9 million.
On October 6, 2022, Natura Cosméticos carried out its twelfth issuance of non-convertible unsecured debentures in the aggregate amount of R$1,050.0 million. The debentures are guaranteed by Natura &Co. A total of 1,050,000 registered, book-entry, non-convertible and unsecured debentures were issued in three series, without the issue of provisory or final certificates, at a nominal unit value of R$1,000, of which 255,889 were in the first series, 487,214 in the second series and 306,897 in the third series, all of which will mature on September 2027, 2029 and 2023, respectively, bearing interest (i) at the cumulative variation of the average daily CDI rate plus 0.8% p.a.; (ii)(b) at the cumulative variation of the average IPCA plus 6.80% p.a.; or (iii)(a) at the cumulative variation of the average IPCA plus 6.90% p.a.
Commercial Notes
On September 19, 2022, Natura Cosméticos issued an aggregate principal amount of R$500 million notes due 2025, guaranteed by Natura &Co Holding. A total of 500,000 registered, book-entry, non-convertible and unsecured notes were issued in a single series at a nominal unit value of R$1,000. These notes accrue interest at the cumulative variation of the average daily CDI rate plus 1.55%. The proceeds of this offering were used to strengthen Natura Cosméticos’ cash position. As of December 31, 2023, a total aggregate amount of R$517.5 million was outstanding under the commercial notes.
Natura Cosméticos Notes Due 2023
On February 1, 2018, Natura Cosméticos issued 5.375% senior notes due in 2023 in the aggregate principal amount of U.S.$750 million, with semiannual interest payments in February and August. The proceeds from this issuance were used to repay part of the debt arising from the third issuance of 74 promissory notes totaling R$3.7 billion, which were issued to finance the acquisition of The Body Shop. Concurrently with the issuance of the notes, Natura Cosméticos entered into derivative financial instruments, or swaps, to mitigate its exposure to exchange rate variations arising from the principal and interest owed in connection with the notes.
On May 21, 2021, Natura Cosméticos redeemed the total outstanding amount under these notes pursuant to the optional redemption provisions of the indenture governing the notes. We also subsequently terminated the related hedging derivative instruments.
Law No. 4,131
Natura Cosméticos entered into a transfer facility of funds raised abroad denominated in foreign currency via Law No. 4,131 with financial institutions due to favorable rates. The funds raised in this operation will be allocated to finance our working capital. On May 20, 2019, a total of U.S.$50 million was raised at Sonia plus 1.1% per year plus the exchange rate variation, with semiannual interest payments in May and November, maturing on May 20, 2022. As of December 31, 2023, there was no outstanding balance of these letters of credit.
Notes – Avon
Avon has issued the following series of notes:
|
Notes – Avon |
Principal in |
Principal in Millions of R$ |
Annual |
Maturity | ||||
|---|---|---|---|---|---|---|---|---|
|
8.95% Notes due 2043 |
216.1 |
1,205.9 |
8.45% |
March 15, 2043 |
The effects of the purchase price allocation arising from the business combination, which on December 31, 2020 totaled R$449.7 million, were added to the notes issued by Avon.
On May 20, 2022, Avon redeemed the total outstanding amount under its Senior Notes due 2023 pursuant to the optional redemption provisions of the indenture governing the notes. In order to fund the redemption, Avon and its subsidiary Avon Cosmetics Limited entered into certain intercompany promissory notes with Natura &Co UK Holdings Plc, a subsidiary of Natura &Co Holding S.A. For more information the notes and other related party transactions.
On July 11, 2023, Avon launched an offer to purchase any and all of its notes due 2043, as well as a solicitation of consents to adopt certain amendments to the indenture governing the notes due 2043 and eliminate substantially all of the covenants and related provisions contained therein. On expiration of the tender offer and consent solicitation, a total of U.S.$194.2 million in aggregate principal amount of the Notes (or 89.87% of the aggregate principal amount outstanding of Notes as of the expiration date of August 7, 2023) had been validly tendered. On August 8, 2023, Avon entered into a supplemental indenture to effect these proposed amendments and, as a result, Avon is no longer required by the indenture governing the Notes to file voluntary reports and other information with the SEC. On August 9, 2023, filed a Form 15 with the SEC to terminate Avon’s obligation to voluntarily file reports with the SEC, which became effective 90 days after filing. Upon the filing of Form 15, Avon’s reporting obligations to the SEC were immediately suspended.
Working Capital – The Body Shop
As of December 31, 2020 The Body Shop had a credit facility of up to £70 million, which was guaranteed by Natura Cosméticos and which could be drawn in installments to meet The Body Shop’s short-term financing needs. This facility was used by The Body Shop since the first quarter of 2020 to support its working capital and liquidity requirements (with annual interest payments of LIBOR plus 2%). This facility was repaid and terminated in March 2021.
On April 23, 2021, The Body Shop International Limited entered into a credit facility with UK Export Finance and HSBC Bank PLC in the amount of £100 million, guaranteed by Natura &Co Holding and Natura Cosméticos. This facility bears interest at the Sonia rate plus 2.9% per year, with maturity dates for payment of principal and interest in December 2021, April 2023 and April 2024. The facility was fully drawn on June 30, 2021. On December 23, 2022, this credit facility was repaid in full by The Body Shop, with no outstanding balance related to this facility agreement.
ESG Debt Securities, or “ESG Notes”
On May 4, 2021, Natura Cosméticos concluded the offering of its 4.125% sustainability-linked notes due in 2028 in the aggregate principal amount of U.S.$1,000 million, or the “ESG Notes,” with semiannual interest payments in May and November of each year until the maturity date. The ESG Notes are guaranteed by Natura &Co Holding S.A. and included two sustainability performance targets, to be met by year-end 2026: (i) reducing scopes 1, 2 and 3 of relative greenhouse gas emissions intensity by 13%; and (ii) reaching 25% of post-consumer recycled plastic in packaging. Under the terms of the notes, from and including November 3, 2027, the interest rate payable on the notes shall be increased by 65 basis points per annum unless the sustainability performance targets have been satisfied, as confirmed by an external verifier. 2019 is the baseline year for the sustainability performance targets. In connection with the offering of the ESG Notes, derivative financial instruments were contracted for foreign exchange hedging purposes. The indenture governing the ESG Notes allows us and our affiliates (as defined therein) at any time and from time to time purchase the ESG Notes in the open market or otherwise.
On August 28, 2023, Natura Cosméticos, Natura &Co, Natura &Co Luxembourg and the trustee of the ESG Notes entered into a first supplemental indenture, effecting the substitution of Natura Cosméticos for Natura &Co Luxembourg as the issuer under the ESG Notes, in accordance with the terms of the ESG Notes indenture. As a result of the substitution, Natura Cosméticos became an additional guarantor under the ESG Notes.
On September 25, 2023, Natura &Co Luxembourg announced a tender offer and consent solicitation for up to U.S.$550 million of the outstanding ESG Notes. Upon expiration of the tender offer and consent solicitation on October 5, 2023, an aggregate amount of U.S.$550 million of the ESG Notes were tendered and accepted for purchase by Natura &Co Luxembourg.
Revolving Credit Facility
On March 11, 2022, we, through our subsidiary Natura &Co Luxembourg, entered into a revolving credit facility loan in the principal amount of U.S.$200.0 million. The revolving credit facility has a 31-month term, subject to extensions. Natura Cosméticos and Natura &Co Holding provide an unconditional guaranty under this facility. The facility contains certain customary covenants, events of default, cross-default provisions and change of control provisions. On May 6, 2022, we repaid U.S.$50 million due under of the revolving credit facility and on November 17, 2022 we repaid the remaining U.S.$150 million outstanding.
Working Capital – Natura &Co Luxembourg
On November 15, 2022, we, through our subsidiary Natura &Co Luxembourg, entered into a club loan in the principal amount of U.S.$250.0 million. The club loan has a 36-month term, subject to extensions. Natura Cosméticos and Natura &Co Holding provide an unconditional guaranty under this facility. The facility contains certain customary covenants, events of default, cross-default provisions and change of control provisions. As of December 31, 2023, there was no outstanding balance of these letters of credit.
Natura &Co Luxembourg Notes, or “Natura &Co Luxembourg Notes”
On April 19, 2022, Natura Cosméticos concluded the offering of its 6.0% senior notes due in 2029 in the aggregate principal amount of U.S.$600 million, with semiannual interest payments in April and October of each year until the maturity date. The Natura &Co Luxembourg Notes are guaranteed by Natura &Co Holding S.A. and Natura Cosméticos S.A. The indenture governing the Natura Cosméticos S.A. allows us and our affiliates at any time and from time to time to purchase the Natura &Co Luxembourg Notes in the open market or otherwise.
On September 25, 2023, Natura &Co Luxembourg conducted a tender offer and consent solicitation for up to U.S.$330 million of the outstanding Natura &Co Luxembourg Notes. Upon expiration of the tender offer and consent solicitation on October 5, 2023, an aggregate amount of U.S.$330 million of the Natura &Co Luxembourg Notes were tendered and accepted for purchase by Natura &Co Luxembourg.
Certain Covenants under Our Main Financing Agreements
ESG Notes Covenants and Natura &Co Luxembourg Notes
The indenture governing the 4.125% sustainability-linked notes due 2028 and the indenture governing the 6.000% senior notes due 2029 of Natura &Co Luxembourg contain certain customary covenants (including maintenance of office or agency, maintenance of corporate existence, maintenance of properties, limitations on liens, and purchase of notes on a change of control), customary events of default, cross-default provisions and change of control provisions. The indentures governing each of the ESG Notes and the Natura &Co Luxembourg Notes also allow Natura Cosméticos, Natura &Co Luxembourg or Natura &Co Holding S.A. (as applicable) or their respective affiliates, to at any time and from time to time purchase notes in the open market or otherwise.
Moreover, as discussed under “—Main Financing Agreements—ESG Debt Securities,” the ESG Notes include two sustainability performance targets. Under the terms of the ESG Notes, from and including November 3, 2027, the interest rate payable on the notes shall be increased by 65 basis points per annum unless the sustainability performance targets have been satisfied, as confirmed by an external verifier.
Avon Notes Covenants
The indentures governing Avon’s outstanding notes described above contain certain customary covenants, customary events of default, cross-default provisions and change in control provisions.
Compliance with Covenants
As of December 31, 2023 and 2022, we were in compliance with the covenants of our financing agreements, including the financial covenants.
Working Capital
As of December 31, 2023, our working capital (which is defined as consolidated current assets minus current liabilities) was R$5,573.7 million, an increase of R$2,790.0 million, in comparison to R$2,783.7 million as of December 31, 2022, mainly as a result of the deleveraging process that took place during 2023, as well as higher cash and cash equivalents and short-term investments as of December 31, 2023 than as of December 31, 2022 due to the sale of our former subsidiary Aesop.
Capital Expenditures
Our operating activities require regular capital expenditures, particularly with regards to the development of its infrastructure and the acquisition of supplies, such as software, machinery, tools, vehicles and industrial casts.
Investments
The following table sets forth additions to property, plant and equipment and to intangible assets for the periods indicated:
|
|
As of and for the Fiscal | |||||
|---|---|---|---|---|---|---|
|
|
2023 |
2022 |
2021 | |||
|
|
(in millions of R$) | |||||
|
Software |
391.1 |
155.0 |
88.1 | |||
|
Machinery and accessories |
51.5 |
40.5 |
37.2 | |||
|
Vehicles |
9.2 |
— |
5.0 | |||
|
Buildings and facilities |
16.0 |
7.2 |
111.0 | |||
|
Templates(1) |
— |
— |
2.1 | |||
|
Information technology equipment |
23.3 |
26.6 |
58.2 | |||
|
Furniture and fixtures |
57.6 |
72.0 |
107.1 | |||
|
Projects in progress |
376.5 |
495.8 |
606.4 | |||
|
Other investments |
136.0 |
277.2 |
382.9 | |||
|
Total acquisitions of property, plant and equipment and intangible assets |
1,061.2 |
1,074.3 |
1,398.0 | |||
(1) Refers to steel tooling or templates specially manufactured by Natura &Co’s suppliers, used in the production of bottles and plastic packaging for its products. Natura &Co holds the property of such tooling.
In the year ended December 31, 2023, acquisitions of property, plant and equipment and intangible assets totaled R$1,061.2 million compared to R$1,074.3 million in the year ended December 31, 2022, representing a decrease of 1.2%. Our capital expenditure program is currently focused on IT infrastructure, technology for e-commerce and social selling, opening and renovation of existing stores, as well as product innovation, projects aimed at increasing operational efficiency and productivity.
In the year ended December 31, 2022, acquisitions of property, plant and equipment and intangible assets totaled R$1,074.3 million compared to R$1,398.0 million in the year ended December 31, 2021, representing a decrease of 23.2%. Our capital expenditure program is currently focused on IT infrastructure, technology for e-commerce and social selling, opening and renovation of existing stores, as well as product innovation, projects aimed at increasing operational efficiency and productivity.
Tabular Disclosure of Contractual Obligations
The following table sets forth the maturity schedule of our material contractual financial obligations as of December 31, 2023:
|
|
Less than |
1 to 5 |
More than |
Total | ||||
|---|---|---|---|---|---|---|---|---|
|
|
(in millions of R$) | |||||||
|
Borrowings, financing and debentures(1) |
357.6 |
4,194.5 |
4,078.5 |
8,630.6 | ||||
|
Derivatives |
140.7 |
71.1 |
(160.6) |
51.2 | ||||
|
Lease liabilities(1) |
401.2 |
912.5 |
135.2 |
1,448.9 | ||||
|
Trade payables and reverse factoring operations |
5,302.5 |
— |
— |
5,302.5 | ||||
|
Dividends |
294.2 |
— |
— |
294.2 | ||||
|
Total |
6,496.2 |
5,178.1 |
4,053.1 |
15,727.4 | ||||
(1) The amounts presented above are the undiscounted contractual cash flows.
Off-Balance Sheet Arrangements
Our subsidiary Indústria e Comércio de Cosméticos Natura Ltda. has certain off-balance sheet arrangements arising from power supply agreements for its manufacturing activities that provide for minimum supply payments: (i) up to one year of R$273.5 million as of December 31, 2023, R$614.1 million as of December 31, 2022 and R$929.2 million as of December 31, 2021, (ii) from one to five years of R$487.0 million as of December 31, 2023, R$659.7 million as of December 31, 2022 and R$460.0 million as of December 31, 2021 and (iii) more than five years of R$0.8 million as of December 31, 2023 and R$49.3 million as of December 31, 2022.
Except as mentioned above, as of December 31, 2023, we did not have any off-balance sheet arrangements.
See “Item 4. Information on the Company—B. Business Overview—Innovation and Product Development” and “Item 4. Information on the Company—B. Business Overview—Intellectual Property.”
The following discussion is based largely upon our current expectations about future events and trends affecting our business. Actual results for our industry and our performance could differ substantially. For further information related to our forward-looking statements, see “Forward-Looking Statements” and for a description of certain factors that could affect our industry in the future and our own future performance, see “Item 3. Key Information—3D. Risk Factors.”
Other Trends Affecting our Business
The following list sets forth, in our view, the most important trends, uncertainties and events that are reasonably likely to continue to have a material effect on our revenues, income from continuing operations, profitability, liquidity and capital resources, or that may cause reported financial information to be not necessarily indicative of future operating results or financial condition:
- developments with respect to the ongoing Ukraine-Russia and Israel-Hamas conflicts, as well as the wider tensions in the Middle East (see “Item 3. Key Information—D. Risk Factors—Risks Relating to the Countries in Which We Operate—Ongoing conflicts, such as the Ukraine-Russia and the Israel-Hamas conflicts, as well as the wider tensions in the Middle East, may have a material adverse effect on our business, financial condition and results of operations” and “Item 4. Information on the Company—A. History and Development of the Company—History—Recent Developments—Conflicts Between Russia and Ukraine and in the Middle East”);
- global economic conditions;
- events and risk perception in relation to corruption allegations involving Brazilian companies and politicians, as well as the impacts of the resulting investigation on the Brazilian economy and political outlook as a whole;
- changes in legislation or governmental regulations affecting the companies; international, national or local economic, social or political conditions that could adversely affect the companies or their clients;
- conditions in the stock and credit markets;
- developments with respect to actual or potential epidemics, pandemics, outbreaks or other public health crises in Brazil and globally;
- risks associated with assumptions the parties make in connection with the parties’ critical accounting estimates and legal proceedings; and
- the risks of currency fluctuations and foreign exchange controls.
For more information, see “—A. Operating Results—Principal Factors Affecting Our Results of Operations” and “Item 3. Key Information—D. Risk Factors.”
Critical Accounting Policies
Our financial statements are presented in the IFRS Accounting Standards as issued by the IASB. For summary information about critical judgments, assumptions and estimation uncertainties in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements, see note 4 to our audited consolidated financial statements as of December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022 and 2021, included elsewhere in this annual report.
New Standards, Amendments and Interpretations
For summary information about new standards, amendments and interpretations issued but not yet effective and new standards, amendments and interpretations of standards adopted for the first time for the year beginning on January 1, 2023, see notes 3.27 and 3.28 to our audited consolidated financial statements as of December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022 and 2021, included elsewhere in this annual report.
In this section, unless otherwise stated, references to “we,” “us,” “our,” “Natura” or “the Company” refer to Natura &Co Holding S.A. only and do not include its subsidiaries, and references to “the Group” refer to Natura &Co Holding S.A. and its consolidated subsidiaries.
Pursuant to our by-laws (estatuto social), our board of directors and our statutory officers are responsible for the management of our business.
Board of Directors
Our board of directors is the decision-making body responsible for, among other things, approving the Company’s policies and determining the general guidelines for our business. The board of directors also supervises our statutory and executive officers and monitors their implementation of the policies and general guidelines that our board of directors establishes from time to time.
At the Annual General Meeting held on April 26, 2023, the shareholders approved significant structural changes proposed by the Company’s management culminating, among others, in the reduction of the Board of Directors, discontinuation of the positions of Executive Chairman of the Board of Directors and Main Executive of the Group and the creation of the position of Chief Executive Officer. In accordance with our current by-laws, the board of directors can comprise a minimum of seven members and a maximum of nine members, who are elected to a term not to exceed two years at a general meeting of shareholders and are eligible for reelection. Our by-laws do not include any citizenship or residency requirements for members of our board of directors or term limitations. Our current board of directors shall have up to three co-chairmen, who shall be elected by the majority of the members of the board of directors at their first meeting held after the investiture of such members, or whenever there is a vacancy or resignation, provided that no co-chairman may also hold the office of Chief Executive Officer simultaneously. The directors shall also determine, at their first meeting after the applicable general meeting, the number of co-chairmen and appoint who among them shall preside over all the meetings of the board of directors held during their term of office. If there is a vacancy on the board of directors, the remaining members will appoint a substitute director, who will temporarily exercise his or her term of office until the date of the next general meeting of shareholders is held.
Under the provisions of the Novo Mercado Rules, at least two members or 20% of the members of our board of directors, whichever is higher, shall be independent directors, as defined in accordance with the criteria of the Novo Mercado Rules. Should compliance with the foregoing percentage requirement led to a fractional number of directors, the number of directors who are required to be independent will be rounded up. However, Natura &Co adopted a higher standard of board independence following the Brazilian Code of Corporate Governance and established that at least one-third (1/3) of the directors shall be independent, according to the definition of the Novo Mercado Rules. The qualification of the members appointed as independent directors will be resolved upon at the general meeting of shareholders that elects such independent directors. A director elected under Article 141, paragraphs 4 and 5 of the Brazilian Corporation Law will also be deemed an independent director if there is a controlling shareholder.
The number of directors to be elected for upcoming terms will be decided by a majority vote at the general meeting of shareholders. A shareholder or a group of shareholders representing at least 10% of the capital stock of Natura &Co Holding may separately elect up to one additional director as provided for in paragraphs 4 and 5 of Article 141 of the Brazilian Corporation Law. Additionally, shareholders representing a percentage of the share capital of Natura &Co Holding of at least 5% (given the current aggregate value of the share capital of Natura &Co Holding and pursuant to the applicable CVM ruling) may request that the election of directors be subject to cumulative voting proceedings, as provided for in Article 141 of the Brazilian Corporation Law and CVM Instruction No. 165, dated December 11, 1991, as amended.
Members of our board of directors are subject to removal at any time with or without cause at a general meeting of shareholders.
Our board of directors meets six times each year in the ordinary course; however, extraordinary meetings may be called at any time by the co-chairman appointed to preside over the meetings of the board of directors or by the majority of its members. In the event of a director’s temporary absence that director may be substituted by another director at meetings of the board of directors where the substitute director is expressly appointed by a specific power of attorney, stating, among other things, the votes to be cast on the agenda items for each meeting by the substitute director on behalf of the absent director. Thus, the substitute director, in addition to his or her own vote, will cast the vote previously indicated by the absent director. Meetings of the board of directors must be called at least 72 hours in advance. Meetings of the board of directors may be held via conference call, video conference, email or any other means of communication that allows identification of the members and simultaneous communication with all other persons attending the meeting. The board of directors’ resolutions must be recorded and transcribed in the book of minutes and signed by present directors.
Our board of directors currently has nine directors. Antonio Luiz da Cunha Seabra, Pedro Luiz Barreiros Passos and Guilherme Peirão Leal were reelected as co-chairmen at the Board of Directors meeting held on June 15, 2022, with the latter also being appointed as the chair of the Board of Directors meetings during his two-year term. Bruno de Araújo Lima Rocha and Maria Eduarda Mascarenhas Kertész were elected at the general meeting of shareholders held on April 26, 2023 also as independent directors and for a consolidated term. The independent directors, Carla Schmitzberger, Gilberto Mifano, Andrew George McMaster Jr. and Georgia Melenikiotou were elected at the general meeting of shareholders held on April 20, 2022.
The following table sets forth certain information related to the current members of our current board of directors:
|
Name |
Date of Birth |
Date of Election |
Position Held | |||
|---|---|---|---|---|---|---|
|
Antonio Luiz da Cunha Seabra |
March 23, 1942 |
April 20, 2022 |
Co-chairman of the Board | |||
|
Guilherme Peirão Leal |
February 22, 1950 |
April 20, 2022 |
Co-chairman of the Board | |||
|
Pedro Luiz Barreiros Passos |
June 29, 1951 |
April 20, 2022 |
Co-chairman of the Board | |||
|
Andrew G. McMaster, Jr. |
November 4, 1952 |
April 20, 2022 |
Independent Director | |||
|
Carla Schmitzberger |
June 21, 1962 |
April 20, 2022 |
Independent Director | |||
|
Georgia Melenikiotou |
July 6, 1959 |
April 20, 2022 |
Independent Director | |||
|
Gilberto Mifano |
November 11, 1949 |
April 20, 2022 |
Independent Director | |||
|
Bruno de Araújo Lima Rocha |
August 21, 1961 |
April 26, 2023 |
Independent Director | |||
|
Maria Eduarda Mascarenhas Kertész |
March 28, 1973 |
April 26, 2023 |
Independent Director |
The term of office for the members of our board of directors is up to two years, reelection being permitted.
The following is a summary of the business experience of the members of our board of directors. Unless otherwise indicated, the business address of the members of our board of directors is Avenida Alexandre Colares, No. 1188, Vila Jaguara, in the city and state of São Paulo, Brazil.
Antonio Luiz da Cunha Seabra. Mr. Seabra has a degree in economics and founded Natura Cosméticos in 1969, having joined its Board of Directors in 1998. Mr. Seabra started Natura as a small high street store in the city of São Paulo, Brazil, expanding the business by adopting a direct sales model (sales consultants). Over the years, he has developed innovative products and consolidated Natura as one of the largest cosmetics companies globally while remaining strongly committed to ethics and sustainability. Mr. Seabra is currently one of the co-chairmen of the Board of Directors and member of the Corporate Governance Committee of Natura &Co Holding S.A., and Director of Instituto Natura. He is also the Chief Executive Officer of Vivavida Instituto de Ações Solidárias, an NGO that supports social assistance, education and sustainable development initiatives.
Guilherme Peirão Leal. Mr. Leal holds a degree in Business Administration from the Universidade de São Paulo (USP). He co-founded Natura Cosméticos and joined its Board of Directors in 1998. He is currently the co-chairman of the Board of Directors of Natura &Co Holding S.A., chairman of the Corporate Governance and Sustainability Committees, and one of the company’s main shareholders. Moreover, he serves as a board member of Instituto Natura. Mr. Leal is the founder and board member of Dengo, a chocolate brand created in 2017 with the aim of building a fairer cocoa production chain. Throughout his career, Mr. Leal has actively participated in the development and promotion of several social organizations, such as the Ethos Institute of Business and Social Responsibility. He was also involved in environmentally focused institutions, such as the Brazilian Biodiversity Fund (Funbio), WWF Brazil, and the UN Global Compact. Since 2008, Mr. Leal has structured his socio-environmental activities through the Arapyaú Institute, a private, non-profit institution promoting dialogue and networking for sustainable solutions. In 2010, he ran in the presidential elections as a candidate for vice president alongside former Senator Marina Silva. In 2012, he helped found the Political Action Network for Sustainability (RAPS) and became part of the B-Team, a group of international leaders committed to advancing a vision of business success that incorporates social and environmental objectives into profits. More recently, Mr. Leal supported the creation of networks, such as the Brazilian Coalition on Climate Forests and Agriculture, a multi-sectoral movement focused on promoting a harmonic land use. In 2020, he co-founded the Amazon Concertation, a network of leaders from the private and public sectors, researchers, indigenous people, and civil society to propose solutions for this territory’s sustainable development. Mr. Leal is currently the President of the Board of Directors of RAPS, co-founder of The BTeam, and a member of the Board of Directors of the Arapyau Institute for Education and Sustainable Development.
Pedro Luiz Barreiros Passos. Mr. Passos, graduated in Production Engineering at Escola Politécnica da Universidade de São Paulo, with postgraduate studies in Business Administration from Fundação Getúlio Vargas – FGV. He co-founded Natura Cosméticos and began his activities on the Board of Directors in 1998. Currently, he is a co-president of the Board of Directors and a member of the Corporate Governance Committee of Natura &Co Holding S.A., and he is also an Instituto Natura’s Director. Mr. Passos has experience serving different private entities and organizations: (i) Member of the Board of Directors of IEDI (Private Institution); (ii) Member of the Board of Directors of Fundação Dom Cabral (Private Foundation); (iii) Member of the Board of Directors of Fundação SOS Mata Atlântica (Private Foundation); (iv) Member of the Board of Directors of AC Camargo (Private Foundation); (v) Member of the Board of the Brazilian Industrial Research and Innovation Company – EMBRAPII (Private Association), as well as and public entities: (vi) Member of the Board of Directors of the State of S. Paulo Research Support Foundation - FAPESP (Public Foundation).
Andrew G. McMaster, Jr. Mr. McMaster was Deputy Chief Executive Officer and Vice-Chairman of the board of directors of Deloitte & Touche LLP from 2010, and Vice-Chairman of Deloitte LLP from 2003 to his retirement in May 2015. He joined Deloitte in 1976, holding several national and global leadership positions, including National Managing Partner and leader of Deloitte’s U.S. and Global Forensic and Dispute Consulting practice. Mr. McMaster was a Director of Avon Products, Inc. since 2018, and Chairman of the Audit Committee and member of the Finance Committee. In 2020, he was appointed as an independent member of the Board of Directors of Natura &Co. Holding S.A. and is also a member of the Audit Committee. Mr. McMaster also acts in other organizations, including being Member of the Board of Directors and Lead Director of Black & Veatch Holding Company, Member of the Board of Directors and Chairman of the Audit Committee of UBS Americas Holding LLC in the United States, and Member of the Board of Trustees, Former Co-Chairman of the Presidential Search Committee, Member of the Executive, Financial Management and Governance Committee, Chairman of the Audit Committee, and Vice-Chairman of the Investment Committee of Hobart and William Smith Colleges.
Carla Schmitzberger. Ms. Schmitzberger has a degree in Chemical Engineering from Cornell University (1984) and a Strategic Management postgraduate course from the FDC/INSEAD (2001). She was Vice-President of the Sandals Division at Alpargatas S.A., managing the company’s global Havaianas business and Statutory Officer throughout her 13-year tenure, which ended in December 2019. Previously, she worked at Citibank S/A for eight years, holding positions such as Vice-President of Marketing and Products at Credicard S.A. and Vice President of Marketing at Citibank Consumer, including responsibility for Marketing and Decision Management for Latin America for one year. Before that, Ms. Schmitzberger had an 11-year career at Procter & Gamble managing several product categories (consumer goods) in several countries, in addition to two and a half years at Johnson & Johnson in Brazil. Ms. Schmitzberger joined the Board of Directors of Natura Cosméticos in 2016 and is currently an independent member of the Board of Directors of Natura &Co Holding S.A. She is also chairwoman of the People and Organizational Development and the Strategic Committees. Furthermore, she holds the position of independent member of the board of directors of VIVEO.
Georgia Melenikiotou. Mrs. Melenikiotou is an experienced professional in the beauty and personal care industry. As former Executive Vice President of Corporate Marketing at Estée Lauder Companies (ELC) and a member of the ELC leadership team, she led the company’s "digital first" transformation. She was responsible for the Marketing Excellence capabilities of more than 30 brands globally. With 11 years of experience at ELC, she reported to the CEO and played a crucial role in adapting the company to the digital era. Before her career at ELC, Georgia spent 27 years at Johnson & Johnson in leadership positions in seven countries. Her positions included Global President of Beauty EMEA, President J&J France, and Global President for Strategy and New Growth. She played a crucial role in the development of the J&J Beauty Global Business Unit and led the creation of the J&J consumer business in France. In addition to her executive career, Georgia serves as an Independent Board Member at Inspire Medical (NYSE: INSP), Pulmonx (NYSE: LUNG) and Douglas AG. Originally from Greece, she has a degree in Mechanical Engineering from the National Polytechnic of Athens and an MBA from MIT Sloan, where she attended as a Fulbright scholar. She is currently an advisor for both MIT Sloan and One-to-World Fulbright. Georgia was appointed as a director of Natura &Co Holding’s Board of Directors in 2021 and is also a member of the Strategy Committee.
Gilberto Mifano. Mr. Mifano has a degree in Business Administration from the Business Administration College of Fundação Getúlio Vargas - FGV-SP, 1972. He has been an independent member of the board of directors of TOTVS S.A.—since 2017, and Pacaembu Construtora S.A.—since 2018 and also coordinates the Audit Committees of these companies. In addition, he has served as an advisor to Pragma Patrimônio Ltda. since 2009. Between 1994 and 2008 he was CEO of BOVESPA—Bolsa de Valores of São Paulo and CBLC—Companhia Brasileira de Liquidação e Custódia, becoming Chairman of the Board of Directors of BM&F BOVESPA from 2008 to 2009. Mifano was also an independent director of Cielo S.A (2009-2021), SEB Educacional S.A., Isolux Infrastructure S.A., Baterias Moura S.A., Âmbar S.A., and member of the Sustainability Committee of Banco Santander Brasil S.A. Internationally, he was member and vice-president of the executive committees of WFE—World Federation of Exchanges and FIAB—Federación Latino Americana de Bolsas for around eight years. At Natura, he served as a consultant to the Audit, Risk Management and Finance Committee from 2009 to 2016, joining the Board of Directors in 2017. He is currently an independent member of the Board of Directors of Natura &Co Holding S.A. and chairman of the Audit Committee, Risk Management and Finance. Gilberto Mifano also holds (i) member of the Fiscal Council of the Arapyau Institute. In the past he was (ii) member of the Fiscal Council of Instituto Natura; (iii) chairman of the Board of Directors of IBGC—Brazilian Institute of Corporate Governance and; (iv) member of the Fiscal Council of CIEB – Center for Innovation for Education (Institute); (v) member of the Fiscal Council of Amigos da Poli (Institute); and (vi) member of the Advisory Board of RAPS – Political Action Network for Sustainability (Institute).
Bruno de Araújo Lima Rocha. Mr. Rocha obtained a bachelor’s degree in economics from Pontifícia Universidade Católica do Rio de Janeiro in 1982. He co-founded Dynamo in Brazil in 1993. In 2005, he moved to London and was responsible for Dynamo’s investment activity in international markets until the beginning of 2023. Before Dynamo, he was a partner at Banco Garantia, where he worked from 1983 to 1992. Bruno was appointed as an independent director of Natura &Co Holding S.A. in 2023 and is also a member of the strategy and people and organization development committees.
Maria Eduarda Mascarenhas Kertész. Ms. Kertész earned a B.S. degree in Business Administration from Fundação Getúlio Vargas - FGV in São Paulo and a Certificate of Special Studies in Administration and Management from the Harvard Extension School. Ms. Kertész has 30 years of global experience in the health, wellness, and beauty space. With a renowned career at Johnson & Johnson Consumer Health, she served as president of U.S. Skin Health & Beauty, leading renowned brands such as Neutrogena® and Johnson’s®. Previously, she served as president of U.S. HealthE and played several roles at Johnson & Johnson Consumer Brazil, including Chief Marketing Officer, Vice President of the Global Unit of Baby and Beauty’s Business for Latin America and subsequently President of Johnson & Johnson Consumer Brazil. In addition to her work in the health and beauty area, Ms. Kertész is the founder of the WLI Chapter for Latin America and an active member of the HOLA ERG, Johnson & Johnson Diversity and Inclusion North America Advisory Board. She also contributed as a member of the Board of the American Chamber of Commerce in Brazil and was a founding member of the group “Mulheres do Brasil”. Ms. Kertész plays leading roles on the Executive Committee and Board of Directors of the Personal Care Products Council (PCPC) and Cosmetic Executive Women (CEW). Her trajectory is marked by consolidated leadership and significant contributions to the sector. She was appointed as an independent director of Natura &Co Holding S.A. in 2023 and is also a member of the sustainability and People and Organization Development committees.
Statutory Officers
Our board of statutory officers serves as our executive management body. It is responsible for managing our daily activities and implementing the general policies and guidelines set by our board of directors.
Pursuant to our current by-laws, our board of statutory officers shall be comprised of a minimum of two officers and a maximum of eight officers. Our by-laws require that we have a Chief Executive Officer, a Financial Officer, a Legal and Compliance Officer, an Executive Officer for Latin America, a Corporate Governance Officer, an Investor Relations Officer and the remaining executive officers. Pursuant to Article 21 of our by-laws, our officers are elected by our board of directors for a term of three years and may be reelected or removed by the board of directors at any time. Our by-laws also authorize our officers to be appointed to more than one of the positions mentioned above, provided that at least two officers are elected. Similar to members of the Board of Directors, the members of the board of officers need not be a resident of Brazil. Both members of the Board of Directors and the board of officers may or may not be a shareholder of the Company.
The following table sets forth certain information related to our current officers:
|
Name |
Date of Birth |
Date of Election |
Position Held | |||
|---|---|---|---|---|---|---|
|
Fábio Colletti Barbosa |
October 3, 1954 |
April 26, 2023 |
Chief Executive Officer | |||
|
Guilherme Strano Castellan |
December 6, 1983 |
April 26, 2023 |
Chief Financial Officer and Investor Relations Officer | |||
|
Itamar Gaino Filho |
October 18, 1976 |
April 26, 2023 |
Legal and Compliance Officer | |||
|
João Paulo Brotto Gonçalves Ferreira |
December 9, 1967 |
April 26, 2023 |
Chief Executive Officer for Latin America | |||
|
Moacir Salzstein |
December 31, 1958 |
April 26, 2023 |
Corporate Governance Officer |
The term of office of our executive officers will expire is three years, reelection being permitted.
The following is a summary of the business experience of our executive officers. Unless otherwise indicated, the business address of the executive officers is Avenida Alexandre Colares, No. 1188, Vila Jaguara, in the city and state of São Paulo, Brazil.
Fábio Colletti Barbosa. Mr. Barbosa is the Chief Executive Officer of Natura &Co Holding S.A. and member of the boards of directors of several organizations, including Itaú-Unibanco, CBMM and Ambev. He joined the Board of Directors of Natura Cosméticos in 2017 and remained a member of the Board of Directors of Natura &Co Holding S.A. until 2023. In addition, he was also a member of the Audit, Strategic, People and Organizational Development, Group Operational, in addition to being a member of the Corporate Governance Committee of Natura &Co. With a solid career in the financial sector, Mr. Barbosa was president of Banco ABN Amro Real, later assuming the presidency of Santander Brasil after the acquisition. Between 2007 and 2011, he was president of Febraban. Furthermore, he was president of Abril Mídia from 2011 to 2015. He currently holds positions on boards of third sector organizations, including the Public Leadership Center (CLP), UN Foundation, among others. Mr. Barbosa has a degree in Business Administration from Fundação Getúlio Vargas and an MBA from the Institute for Management Development (IMD) in Lausanne, Switzerland. He is also recognized by awards such as Personality of the Year by the Brazil-United States Chamber of Commerce (2011) and Champions of the Earth by UNEP (2012). His performance and leadership were highlighted in several awards, including recognition by Worldfund for Education in 2017.
Guilherme Strano Castellan. Mr. Castellan is a Brazilian citizen and received a degree in Business Administration and Finance from Fundação Getúlio Vargas – FGV, in Sao Paulo. He currently serves as Chief Financial Officer and Investor Relations Officer for Natura &Co Holding S.A. Mr. Castellan started his career in the banking industry, holding jobs in different organizations such as Lehman Brothers, Barclays Capital and JPMorgan Chase, across different functions focusing on M&A and Trading, and in different geographies. In 2013, Mr. Castellan joined Anheuser Busch – InBev, as Global Treasury Officer in New York. After that, he held different roles within ABI organizations, including Treasury Director for Ambev in Sao Paulo, Brazil and M&A & Corporate Development Director for the Asia and Pacific Region in Shanghai, China. In 2017, Mr. Castellan was appointed as Chief Financial Officer for Budweiser Brewing Co. APAC Ltd., or BUD APAC (AB-Inbev’s arm in Asia), where he continued to serve until March 2021.
Itamar Gaino Filho. Mr. Gaino Filho holds a degree and a master’s degree in law from the Pontifícia Católica Universidade de São Paulo (PUC-SP) and completed a postgraduate program at CEU Law School, with experience in law, tax and compliance matters at multinational companies. He worked as a senior legal officer for PepsiCo and held management positions at General Motors, Monsanto and Coca-Cola Femsa before joining Natura &Co. He is currently Chief Legal and Compliance Officer of the Natura &Co Group.
João Paulo Brotto Gonçalves Ferreira. Mr. Ferreira has a degree in Electrical Engineering from the Universidade de São Paulo (USP) and an executive MBA from the University of Michigan in the United States. He is currently the Executive Director for Latin America at Natura &Co Holding S.A. and, since 2016, he has served as Chief Executive Officer of Natura Cosméticos S.A., Company he joined in 2009 as vice president of operations and logistics. Throughout his career at Natura, Mr. Ferreira held key positions, including vice president of networks, responsible for the Commercial Area and Channel Development, and leadership of International Operations and the Sustainability Area. He is also a member of the Board of Instituto Natura. Before working at Natura, Mr. Ferreira accumulated 20 years of experience at Unilever, where he reached the position of vice president of supply chain and, between 2021 and 2023, he was an independent member of the Board of Directors of Infracommerce, a business digitalization solutions company.
Moacir Salzstein. Mr. Salzstein has a degree in chemical engineering from the Escola Politécnica da Universidade de São Paulo and a postgraduate degree in business administration and an MBA from Fundação Getúlio Vargas - FGV-SP. He serves as Corporate Governance Officer at Natura &Co Holding S.A., having previously held the position of Strategic Planning Officer for Natura Cosméticos S.A. With a diversified professional career, he has accumulated experience in companies such as Monitor Group, Ultrapar, Dow /Union Carbide, Itaú, Jaakko Poyry and Promon Engenharia. Since 2020, Mr. Salzstein has served as an advisory advisor to Samplemed/Grupo Samplemed, and since 2022, he has been a guest professor at IBGC - Brazilian Institute of Corporate Governance.
Fiscal Council
According to the Brazilian Corporation Law, the fiscal council is an optional body that is independent from our management and external auditors. When convened by the shareholders following a request made at the AGM, the principal responsibility of the fiscal council is to review the acts and records of management, analyze our quarterly and annual financial statements and report its findings to our shareholders.
Our fiscal council is a non-permanent body. Our by-laws require the fiscal council to be comprised of, when convened, three members and an equal number of alternate members. The fiscal council, in accordance with our by-laws and the Brazilian Corporation Law, may be installed at any general shareholders’ meeting at the request of shareholders representing at least 2% of our common shares and will remain in office until the first ordinary general shareholders’ meeting following its installation. The request to install the fiscal council can be submitted during any shareholders’ meeting, at which time the election of members of the fiscal council would occur.
The Brazilian Corporation Law establishes the responsibilities, duties and powers of the fiscal council. Fiscal council resolutions are passed upon the majority of votes of fiscal council members present at fiscal council meetings.
Our fiscal council was convened at Natura &Co’s annual general meeting on April 26, 2024, for a one-year mandate ending at the annual general meeting at which the Company’s shareholders will vote on the financial statements for the year ended December 31, 2024. It is an independent body composed of three members elected by the shareholders, two of whom were nominated by Natura &Co’s controlling group and the third by minority shareholders.
The following table sets forth certain information related to our current fiscal council:
|
Name |
Date of Birth |
Date of Election |
Position Held | |||
|---|---|---|---|---|---|---|
|
Carlos Elder Maciel de Aquino |
April 9, 1961 |
April 26, 2024 |
Chairman of the Fiscal Council | |||
|
Carla Trematore |
October 30, 1975 |
April 26, 2024 |
Co-chairman of the Fiscal Council | |||
|
Cristina Fontes Doherty |
May 26, 1965 |
April 26, 2024 |
Member of the Fiscal Council |
The term of office for the members of our Fiscal Council will expire on the date of the annual general meeting at which the Company’s shareholders will vote on the financial statements for the year ended December 31, 2024.
The following is a summary of the business experience of the members of our Fiscal Council.
Carlos Elder Maciel de Aquino. Mr. Maciel de Aquino holds a bachelor’s degree in accounting from the Federal University of Pernambuco (UFPE), a master’s degree in Accounting and Actuarial Sciences from the Pontifícia Universidade Católica de São Paulo (PUC-SP) and a PhD candidate in Controllership and Accounting from the University of São Paulo (USP). He holds an MBA in Finance from IBMEC-SP and an MBA in Controllership Finance from the University of São Paulo (USP-SP), as well as a master’s in Engineering Economics from the Universidade Católica de Pernambuco (UNICAP-PE). He was an executive at companies such as Unibanco, Itaú Unibanco, KPMG, Diagnósticos da América S.A. He is a guest professor at the Fundação Instituto de Pesquisas Contábeis, Atuariais e Financeiras (Fipecafi) e FIA-USP. He is also author and co-author of articles published in national and international books and journals on finance, accounting, governance, regulatory aspects and auditing. He has more than 40 years of professional experience, having held executive positions in the financial, auditing, health, private pension and third sector. In addition, he was a member of the board of directors, fiscal council and audit committees, risk management, internal controls, ethics and conduct, prevention of money laundering and transactions with related parties committees. He is currently a member of the board of directors and chairman of the audit committee of Locaweb Serviços de Tecnologia S.A., chairman of the audit committees of Allied Tecnologia S.A., Lojas Quero-Quero S.A., Nibs Participações S.A. (Copenhagen) and Fortbras S.A. He is a member of the audit committee of Tokio Marine Seguradora S.A., Tigre S.A. Participações and Ebanx Holdings LLC and a member of the ethics and conduct committee of Nibs Participações (Copenhagen). He is a member of the fiscal council at Folha Participações S.A. and Natura &Co Holding S.A. He is certified as a board member, fiscal council member and audit committee member by the Brazilian Institute of Corporate Governance (IBGC). He is also a member of the American Accounting Association (AAA).
Carla Trematore. Mrs. Trematore has a Bachelor's degree in Computer Science from the Universidade Estadual Paulista – UNESP and in Accounting Sciences from the Pontifícia Universidade Católica de Minas Gerais – PUC Minas. She worked at the independent auditing companies Arthur Andersen, Deloitte and EY between 1996 and 2010. She was a partner at Hirashima & Associados, where she led accounting and financial consultancy services.She also worked as a consultant for the Fundação Instituto de Pesquisas Contábeis, Actuarial e Financeiras- FIPECAFI.From July 2014 to August 2017, she held the controller position in energy generation companies. She was president of the Audit Committee of Caixa Econômica Federal and Board Member of BRB – Banco de Brasília. She is currently an independent member of the Board of Directors and the Audit Committee of BR Partners, CI&T and Allied, the Supervisory Boards of Localiza, nima Educação, RUMO, Comgás, ISA CTEEP and EMBRAER and the Audit Committee of COSAN and Agrogalaxy.
Overview
Our compensation practices are divided into fixed and variable compensation (short- and long-term incentives). The objectives of our compensation practices include (1) the alignment of interests between executive management and shareholders, (2) incentivizing results generation and an increase in Company value, as well as social and environmental values and (3) the recognition of contributions by, and the retention of, professionals based on market references. The compensation we offer allows us to attract, retain and recognize highly qualified professionals in our management.
Members of our management team are eligible to receive base compensation, variable compensation and indirect benefits. Base compensation is the monthly sum paid which reflects the value of the experience and responsibility of the position of each member of management. The variable portion of the compensation is a way to reward managers for achieving goals based on economic, social and environmental factors, which we believe can help us meet our economic, social and environmental goals.
The variable component of compensation represents a greater portion of compensation for senior executives compared to the other employees. Besides well-defined payout limits, all variable compensation is linked to effectively meeting performance goals, i.e., exceeding the minimum expectations of growth established annually by management. Variable compensation includes long-term cash awards granted under certain legacy plans.
All such awards vested in 2022 and no further awards will be granted under such plans. We continue to grant performance share units under our plan up until 2023. These awards will be fully vested in 2026. From 2024 onwards our core long-term incentive grants were in the form of restricted share units with no performance metrics attached.
The aggregate amount of compensation paid by Natura &Co Holding to the members of its board of directors and its executive officers for the years ended December 31, 2023, 2022 and 2021 are as follows:
|
|
Board of Directors |
Board of Executive |
Total | |||
|---|---|---|---|---|---|---|
|
|
(in thousands of R$) | |||||
|
2021 |
87,230.0 |
122,738.0 |
209,968.0 | |||
|
2022(2) |
159,855.0 |
84,826.0 |
244,681.0 | |||
|
2023(3) |
19,872.0 |
228,520.0 |
248,392.0 | |||
(1) Includes executives remunerated by Natura Cosméticos, Avon, The Body Shop and Aesop entities.
(2) Includes severance payments to certain departed executive officers.
(3) Includes severance payments to certain departed executive officers related to the sale of Aesop and The Body Shop.
Equity Compensation
We offer long-term incentives for senior executives and employees responsible for implementing our long-term strategy. These long-term incentive programs aim to ensure a sense of ownership, emphasize the relationship between the Company’s performance and compensation, create long-term value at the Company and ensure healthy growth along with a balanced participation in value creation when possible. These programs also help us recruit, retain and engage qualified professionals.
As a result of the Transaction, all of the Natura &Co equity plans, award programs and awards were converted to mirror plans, programs and awards adopted and approved at the Natura &Co Holding level. In addition, in line with the Merger Agreement, on the effective time of the Transaction, each outstanding Avon option and share appreciation right was canceled and settled for its spread value, if any, and each outstanding Avon restricted stock unit and performance restricted stock unit prior to such effective time was converted into substantially equivalent awards in Natura &Co Holding with any applicable performance goals measured where possible, but otherwise deemed to be attained at target level. As of the date of this annual report, we have two equity incentive plans pursuant to which further awards may be granted: the Co-Investment Program, or CIP, and the Long-Term Incentive Program, or LTIP. All equity compensation programs must be approved by our shareholders before coming into effect.
Outstanding Equity Incentive Awards
As of December 31, 2023 and 2022, the members of our Board of Directors and Board of Executive Officers had equity incentive awards outstanding pursuant to the programs described below.
Stock Option Programs
In 2009, shareholders of Natura Cosméticos approved an evergreen Common Shares Purchase or Subscription Option Granting Program, or the 2009 Share Program, which establishes the general conditions for granting of options to purchase or subscribe for shares issued by Natura Cosméticos, or the “Options,” with a fixed term and exercise price, to officers and employees of Natura Cosméticos as well as to the officers and employees of other companies that are or may be under the direct or indirect control of Natura Cosméticos. Such eligible participants under the program may invest a maximum of 100% of the net value of their short-term incentives in Natura Cosméticos’ shares, which remain locked up until the Options are exercised according to the following schedule: 50% of Options become vested and exercisable three years after the grant date; however, if such Options are exercised after three years and before four years following the grant date, the other 50% of the Options will be fully canceled. At the end of the fourth year from the grant date, 100% of the Options become vested and exercisable. The maximum term for exercising each Option is eight years after the approval date of the Option grant.
In 2015, shareholders of Natura Cosméticos approved an additional evergreen Common Shares Purchase or Subscription Option Granting Program, or the 2015 Share Program, which establishes the general conditions of granting of Options, with a fixed term and exercise price, to eligible senior executives and employees. Such eligible participants under the program may invest a maximum of 50% of the net value of their short-term incentive in the Natura Cosméticos shares, which remain locked up until the Options are exercised according to the following schedule: one-third of Options become vested and exercisable two years after the grant date, one-third become vested and exercisable three years after the grant date, and the remaining Options become vested and exercisable four years after the grant date. The maximum term for exercising each Option is eight years after the approval date of the Option grant.
Restricted Stock Programs
Natura Cosméticos implemented a restricted stock program during the 2015 fiscal year (the “2015 Restricted Stock Program”) and a second restricted stock program during the 2017 fiscal year (the “2017 Restricted Stock Program,” and together with the 2015 Restricted Stock Program, the “Restricted Stock Programs”) for groups of senior executives and employees deemed eligible by the board of directors. The purpose of the Restricted Stock Programs is to encourage improved management and employee retention. The Restricted Stock Programs have an indefinite duration.
For the 2015 Restricted Stock Program, the board of directors will determine the number of restricted shares to be awarded from time to time to each participant. For the 2017 Restricted Stock Program, eligible participants under the program may invest up to a maximum of 100% of their bonus or other payment to acquire shares from Natura Cosméticos and for each share acquired, Natura Cosméticos will grant to the participant three restricted shares.
Each participant’s restricted shares under the 2015 Restricted Stock Program will only vest according to the following schedule if the participant remains employed by Natura Cosméticos or by companies belonging to the same economic group as Natura Cosméticos during the period between the grant date and the following vesting dates: one-third vests two years after the grant date, another one-third vests three years after the grant date, and the remaining restricted shares vest four years after the grant date.
Each participant’s restricted shares under the 2017 Restricted Stock Program will only vest according to the following schedule if the participant remains employed by Natura Cosméticos or by companies belonging to the same economic group as Natura Cosméticos during the period between the grant date and the following vesting dates: one-third vests one year after the grant date, another one-third vests two years after the grant date and the remaining restricted shares vest three years after the grant date.
Stock Option Program for Strategy Acceleration
Natura Cosméticos implemented a Stock Option Strategy Acceleration Plan (the “Accelerate Strategy Program”) in 2015 and a Second Stock Option Strategy Acceleration Plan in 2017 (the “Second Accelerate Strategy Program,” and together with the Accelerate Strategy Program, the “Accelerate Strategy Programs”). The Accelerate Strategy Programs allow the board of directors to grant, at its discretion, Options to purchase or subscribe to Natura Cosméticos common shares to senior executives and employees of Natura Cosméticos or of companies under the direct or indirect control of Natura Cosméticos.
Under each of the Accelerate Strategy Programs, 50% of Options vest and are exercisable four years after the grant date, and the remaining 50% of Options vest five years after the grant date. The maximum term for exercising each Option under the Accelerate Strategy Programs is eight years after the approval date of the Option grant.
Long-Term Incentive Program, or LTIP
The LTIP establishes the general conditions of granting of performance shares or Options to participants selected by the board of directors as provided under the LTIP. The performance shares will only become vested and Options will only become exercisable to the extent the participant remains continuously engaged by Natura &Co Holding or by companies under the direct or indirect control of Natura &Co Holding as an employee, subject to any stipulations regarding the participant’s termination and certain special situations (such as a change of control or other extraordinary event) in accordance with the LTIP during the period between the grant date and three years after the grant date. If the grant becomes subject to performance or other conditions, the board of directors will determine whether the applicable performance conditions were satisfied. If the grant is an Option, unless otherwise determined by the board of directors, the term for the exercise of the Option shall be 30 days after it becomes exercisable. The exercise period for the Option may not be extended beyond 10 years from the grant date. From 2024 onwards, awards granted under the LTIP were in the form of restricted share units with no performance conditions attached.
Co-Investment Program, or CIP
The CIP which aims to connect short-term incentives (such as annual bonuses or profit-sharing results) with long-term incentives by providing for the granting of restricted shares or options conditioned upon investment by the participant of part of his or her annual bonus and/or profit-sharing results. A grant under the CIP will only become vested to the extent that the participant remains continuously engaged by Natura &Co Holding or by companies under the direct or indirect control of Natura &Co Holding as an employee, subject to any stipulations regarding the participant’s termination and certain special situations (such as a change of control or other extraordinary event) in accordance with the CIP. Each grant will be divided into three tranches (each a “Tranche”). The first and second Tranches shall each correspond to one-third of the total number of shares granted, whereas the third Tranche shall correspond to the balance of shares under such grant. The Tranches will vest according to the following schedule: the first Tranche will vest on the first anniversary following the grant date, the second Tranche will vest on the second anniversary of the grant date, and the third Tranche will vest on the third anniversary following the grant date. If the grant is in the form of an Option, unless otherwise determined by the board of directors, the term for the exercise of the Option shall be 30 days after it becomes exercisable. The exercise period for the Option may not be extended beyond 10 years from the grant date.
Retirement Benefits
Our executive officers participate in a defined contribution incentive savings pension plan maintained by the Company (the “Natura Retirement Plan”). The Company matches 60% of the executive’s contribution up to a certain limit. This is the same plan that is offered to all employees of Natura Cosméticos in Brazil.
For the fiscal years ended December 31, 2023, 2022 and 2021, a total amount of R$0.015 million, R$0.064 million and R$0.052 million, respectively, had been set aside or accrued to provide benefits under the Natura Retirement Plan for members of Natura Cosméticos S.A.’s board of directors and our executive officers.
Clawback Policy
On November 27, 2023, a new version of our compensation policy was approved by our board of directors and adopted by the Company. This version includes rules relating to the clawback of incentive-based compensation of our executives in the event of a restatement of our financial statements as a result of material failure to comply with financial reporting requirements under applicable U.S. federal securities laws. This policy is intended to comply with the requirements of Section 10D of the Exchange Act.
Certain Relationships of Members of Our Board of Directors with Third Parties
Certain of our directors hold equity interests in companies that maintain relations with Natura &Co Holding and/or its subsidiaries, as detailed below:
- Mr. Antonio Luiz da Cunha Seabra, Mr. Guilherme Peirão Leal and Mr. Pedro Luiz Barreiros Passos are indirect controlling shareholders of Fundo Imobiliário Bresco Logística. Bres Itupeva Empreendimentos Imobiliários Ltda. has provided services to a subsidiary of Natura Cosméticos in the last three years and was merged into Fundo Imobiliário Bresco Logística on August 30, 2019. Prior to this merger Mr. Antonio Luiz da Cunha Seabra, Mr. Guilherme Peirão Leal and Mr. Pedro Luiz Barreiros Passos were the indirect controlling shareholders of Bres Itupeva Empreendimentos Imobiliários Ltda.
- Mr. Antonio Luiz da Cunha Seabra, Mr. Guilherme Peirão Leal and Mr. Pedro Luiz Barreiros Passos are indirect controlling shareholders of Bresco IX Empreendimentos Imobiliários Ltda. who has provided services to Natura Cosméticos starting on January 2021.
See also “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Related Party Transactions Policy of Natura &Co Holding—Principal Related Party Transactions.”
Directors’ and Officers’ Insurance
We have put in place a directors and officers liability insurance policy which we renew on an annual basis. The policy covers losses and damages suffered by third parties arising from acts related to the exercise of functions and powers by our board of directors and/or executive officers. In accordance with market practice, we have also entered into indemnity agreements with our executive officers and members of our board of directors to provide them with additional protection against losses which they may incur in connection with the exercise of their functions, and which are not covered by the directors’ and officers’ liability insurance policy.
Committees of Our Board of Directors
Audit, Risk Management and Finance Committee
In 2011, the CVM approved Instruction No. 509/2011, which amended Instruction CVM No. 308/1999, governing the comitê de auditoria estatutário (statutory audit committee), an audit committee established under the by-laws of issuers that are subject to certain requirements under the CVM rules. Effective January 2018, the B3 listing rules for its Novo Mercado segment require that a company listed on the Novo Mercado (such as ours) create and implement an audit committee in accordance with the CVM rules. The Novo Mercado segment of the B3 is a premium listing segment for Brazilian companies that meet the highest standards of corporate governance.
Our audit, risk management and finance committee was established at the annual general meeting of shareholders held on July 17, 2019. The audit, risk management and finance committee is an advisory committee of our board of directors, as provided for in Article 25 of Natura &Co Holding’s by-laws, that provides assistance in matters involving our accounting, internal controls, financial reporting, risk management and compliance, among others, as set forth in Article 26 of our by-laws. According to CVM Instruction No. 509/2011 and Natura &Co Holding’s by-laws, our audit, risk management and finance committee must have at least three members of whom (1) at least one must be an independent director (as defined in the Novo Mercado rules), to be appointed by our board of directors; (2) at least one must have recognized experience in corporate accounting (in compliance with the applicable rules of the CVM); (3) at least one shall not be a member of our board of directors; and (4) one may have the qualifications described in items (1) and (2).
The following table sets forth certain information related to the current members of our audit, risk management and finance committee:
|
Name* |
Date of Birth |
Date of Election |
Position Held | |||
|---|---|---|---|---|---|---|
|
Gilberto Mifano |
November 11, 1949 |
May 3, 2023 |
Chairman | |||
|
Andrew G. McMaster Jr. |
November 4, 1952 |
May 3, 2023 |
Member | |||
|
Eduardo Rogatto Luque |
July 6, 1969 |
March 25, 2024 |
Independent external Member |
*All the members of our audit, risk management and finance committee are independent as defined in the Novo Mercado rules.
The audit, risk management and finance committee currently has three members elected by the board of directors for a term of office of two years, until May 3, 2025, in accordance with Item 3.4 of the Internal Regulations of our audit, risk management and finance committee.
We present below a brief biographical description of each member of our audit, risk management and finance committee.
Gilberto Mifano. See “—Board of Directors.”
Andrew G. McMaster Jr. See “—Board of Directors.”
Eduardo Rogatto Luque. Mr. Rogatto Luque is chairman of the Fiscal Councils of Qualicorp and Fundação Antônio e Helena Zerrenner (Ambev Foundation); member of the Fiscal Councils of Itausa and Ambev; member of the Audit Committees of Porto Seguro and Cantu Store; member of the Board of Directors of Cantu Store and the Advisory Board of the Irko Group; vice-president of ABRAPSA (Brazilian Association of Administrative Service Providers); member of IBRACON (Brazilian Independent Audit Institute), the American Institute of “Certified Public Accountants” (AICPA), the IBGC (Brazilian Institute of Corporate Governance), and the Brazilian Accounting Institutes (CRC and CFC). He was a PwC partner between 2004 and 2016 (total career of 27 years; with a three-year exchange in the United States) with extensive experience in serving large business groups, including in Initial Public Offerings of Shares (IPOs) processes in Brazil (CVM regulation) and in the United States (SEC regulation). Mr. Luque graduated with an accounting degree from the Pontifícia Universidade Católica de São Paulo, with an MBA in Controllership from the Universidade de São Paulo - USP and with the APG Senior Program focused on leaders in management positions from Amana-Key (SP). He is a Public Accountant in Brazil with registration with the Federal and Regional Councils of São Paulo, qualified Auditor with the National Certificate of Independent Auditors (CNAI) from the CVM, as well as Certified Public Accountant (CPA) by the State of California, USA, and specialist in corporate governance and application of the IFRS Accounting Standards and USGAAP.
Other Committees
We also have non-statutory committees such as the Organization and People Committee, the Strategy Committee and the Corporate Governance Committee.
Employees and Labor Unions
Natura &Co
As of December 31, 2023, Natura &Co had 19,955 employees. The following table shows Natura &Co’s number of employees as of the dates indicated:
|
|
As of December 31, | |||||
|
|
2023 (1) |
2022 |
2021(2) | |||
|
Segment: |
|
|
| |||
|
Natura &Co LATAM |
14,421 |
16,681 |
16,718 | |||
|
Avon International |
5,458 |
5,989 |
7,208 | |||
|
Natura &Co Group |
76 |
87 |
140 | |||
|
Total |
19,955 |
22,757 |
24,066 | |||
(1) The information presented as of December 31, 2023 reflects the sales of Aesop and The Body Shop.
(2) The information presented as of December 31, 2021 reflects employee allocation after our acquisition of Avon, pursuant to which employees in Latin America operations of Avon and The Body Shop became Natura &Co LATAM employees.
Our relationship with our employees is subject to the terms and conditions set forth in each of the collective labor agreements executed by it with the local unions to which its employees belong.
The following tables set forth a breakdown of Natura &Co’s employees by business division, function and geography as of the dates indicated.
Natura &Co LATAM
As of December 31, 2023, we had 14,497 employees working in our Natura operations. The following table shows the number of employees by geographic location for the periods indicated:
|
|
As of December 31, | |||||
|
|
2023 |
2022 |
2021(1) | |||
|
Location: |
|
|
| |||
|
Argentina |
2,107 |
2,218 |
2,145 | |||
|
Brazil |
7,685 |
8,628 |
8,791 | |||
|
Chile |
542 |
583 |
460 | |||
|
Colombia |
786 |
1,173 |
1,108 | |||
|
Dominican Republic |
118 |
121 |
119 | |||
|
El Salvador |
65 |
67 |
75 | |||
|
Ecuador |
227 |
257 |
229 | |||
|
France |
11 |
12 |
13 | |||
|
Guatemala |
356 |
417 |
402 | |||
|
Honduras |
61 |
65 |
71 | |||
|
Mexico |
2,078 |
2,542 |
2,771 | |||
|
Nicaragua |
65 |
68 |
70 | |||
|
Panama |
39 |
50 |
51 | |||
|
Peru |
293 |
456 |
383 | |||
|
Uruguay |
22 |
27 |
29 | |||
|
United States |
7 |
— |
1 | |||
|
Malaysia |
35 |
— |
— | |||
|
Total |
14,497 |
16,681 |
16,718 | |||
(1) The information presented for the year ended December 31, 2021 reflects employee allocation after our acquisition of Avon, pursuant to which employees in Latin America operations of Avon and The Body Shop became Natura &Co LATAM employees.
Avon International
As of December 31, 2023, we had 5,458 employees in our Avon International operations, including office employees. The following table shows the number of Avon International employees by geographic location for the periods indicated:
|
|
As of December 31, | |||||
|
|
2023 |
2022 |
2021(1) | |||
|
Location: |
|
|
| |||
|
Europe |
4,078 |
4,470 |
5,319 | |||
|
Americas (2) |
185 |
201 |
217 | |||
|
Asia |
642 |
706 |
968 | |||
|
Africa |
553 |
612 |
704 | |||
|
Total |
5,458 |
5,989 |
7,208 | |||
(1) The information presented for the year ended December 31, 2021 reflects employee allocation after our acquisition of Avon, pursuant to which employees in Latin America operations of Avon and The Body Shop became Natura &Co LATAM employees.
(2) Includes Brazil.
Compensation and Benefits
Our executive compensation philosophy is common to all companies within the group, which is to promote the achievement of short-, mid- and long-term goals aligned with shareholders’ interests. We seek to offer benefits policies and programs that are competitive with the local market.
The variable component, whether short-term compensation or gains from long-term incentives, represents a greater portion of compensation for senior executives. Besides well-defined payout limits, all variable compensation is linked to effectively meeting performance goals, i.e., exceeding the minimum expectations of growth established annually by management.
Our long-term incentive programs (including the CIP and the LTIP, as described in “—B. Compensation”) are part of a strategy for retention of our management team and employees, with the purpose of generating value for our shareholders. Moreover, it increases the variable component as a percentage of compensation for program participants across our organization.
These programs aim to align expectations of shareholders and program participants with our long-term performance, incentivize improved performance of our management team, give program participants the opportunity to become our shareholders and encourage them to add value to our organization. Other benefits include giving employees a more entrepreneurial and corporate perspective (by sharing in our risks and earnings), harmonizing and improving relations between the companies within our organization, encouraging retention of the management team and employees and increasing our attractiveness to potential hires.
In addition, part of the program aims to connect short-term incentives (annual bonuses and/or profit-sharing awards) with long-term incentives by granting awards conditioned upon the investment by the participants of part of their annual bonus and/or profit-sharing awards.
For more information on the compensation of our directors and officers, see “—B. Compensation.”
Certain of our directors are also controlling shareholders of Natura &Co Holding and shareholders of companies that are signatories to the Shareholders’ Agreement:
- Mr. Antonio Luiz da Cunha Seabra, Co-Chairman of the Board of Directors, is one of our direct controlling shareholders. He is a signatory of our Shareholders’ Agreement. He forms the “Seabra Control Block” jointly with Ms. Lucia Helena Rios Seabra, who is also a signatory of the Shareholders’ Agreement.
- Mr. Antonio Luiz da Cunha Seabra is also an indirect controlling shareholder in our Company through Orbix Multimercado Fundo de Investimento Crédito Privado Investimento no Exterior, which is a direct controller of Kairós Fundo de Investimento em Ações – Investimento no Exterior, which in turn owns an interest in our Company and is also a signatory to the Shareholders’ Agreement.
- Mr. Guilherme Peirão Leal, Co-Chairman of the Board of Directors, is one of our direct controlling shareholders and a signatory of our Shareholders’ Agreement. He forms the “Leal Control Block” with Mr. Felipe Pedroso Leal and Mr. Ricardo Pedroso Leal, and both are also signatories of the Shareholders’ Agreement.
- Mr. Guilherme Peirão Leal is also an indirect controlling shareholder through Sirius III Multimercado Fundo de Investimento Crédito Privado Investimento no Exterior, which owns an interest in our Company and is also a signatory to the Shareholders’ Agreement.
- Mr. Pedro Luiz Barreiros Passos, Co-Chairman of the Board of Directors, is a direct and indirect controller, through Passos Participações S.A., a Brazilian corporation, and Fundo de Investimento de Ações Veredas – Investimento no Exterior, an investment fund which forms the “Passos Control Block” with Mr. Pedro Luiz Barreiros Passos, Mr. Guilherme Ruggiero Passos and Ms. Patrícia Ruggiero Passos. Mr. Pedro Luiz Barreiros, Mr. Guilherme Ruggiero Passos, Ms. Patrícia Ruggiero Passos and the abovementioned entities are signatories of the Shareholders’ Agreement.
The table below sets forth the beneficial ownership of our board of directors, board of executive officers and controlling shareholders in Natura &Co Holding’s share capital as of December 31, 2023:
|
|
Shares Held |
Shares underlying equity incentive awards outstanding(1) | ||
|---|---|---|---|---|
|
Controlling Shareholders |
533,197,873 |
225,381 | ||
|
Other Directors |
143,492 |
309,274 | ||
|
Other Executive Officers |
1,055,511 |
5,456,625 | ||
|
Total |
534,396,876 |
5,991,280 |
(1) These figures follow the normal compensation and benefits reporting, pursuant to which the definition of “outstanding” is unvested, exclusive of options that have vested but are unexercised. The estimated number of vested but unexercised options is 1.96 million, with a weighted average exercise price of R$13.94. These figures were provided by Natura &Co’s registrar bank on December 31, 2023. The vested but unexercised options will expire within five years.
See also “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders—Shareholders’ Agreements and Other Arrangements of Natura &Co Holding” for additional information on the shareholders’ agreement relating to Natura &Co Holding.
Not applicable.
As of April 30, 2024 and December 31, 2023, our issued capital stock including treasury shares was R$12,697,285,074.75 fully issued and paid in, comprising 1,386,848,066 common shares, nominative and without nominal value (including 6,204,048 treasury shares).
The following table sets forth, as of March 31, 2024, except where otherwise noted, certain information with respect to the number of common shares beneficially owned (as defined by the SEC’s rules and regulations) by (1) each of our executive officers, (2) each member of our board of directors, (3) all current executive officers and directors as a group and (4) each person known to us to own beneficially more than 5% of our outstanding common shares.
|
Shareholders |
Total Number of |
Percentage | ||
|---|---|---|---|---|
|
Antonio Luiz da Cunha Seabra |
199,185,205 |
14.362% | ||
|
Fabio Dalla Colletta de Mattos |
4,367,930 |
0.315% | ||
|
Fabricius Pinotti |
6,324,444 |
0.456% | ||
|
Felipe Pedroso Leal |
45,349,492 |
3.270% | ||
|
Fundo de Investimento de Ações Veredas Investimento no Exterior(1) |
22,516,378 |
1.624% | ||
|
Guilherme Peirão Leal |
99,376,3299 |
7.166% | ||
|
Gustavo Dalla Colletta de Mattos |
4,367,930 |
0.315% | ||
|
Kairós Fundo de Investimento em Ações – Investimento no Exterior(2) |
5,236,954 |
0.378% | ||
|
Lucia Helena Rios Seabra |
96 |
0.000% | ||
|
Maria Heli Dalla Colleta de Mattos |
24,305,810 |
1.753% | ||
|
Norma Regina Pinotti |
37,942,838 |
2.736% | ||
|
Passos Participações S.A.(3) |
50,670 |
0.004% | ||
|
Pedro Luiz Barreiros Passos |
2,656,685 |
0.192% | ||
|
Ricardo Pedroso Leal |
45,349,492 |
3.270% | ||
|
Guilherme Ruggiero Passos |
11,804,241 |
0.851% | ||
|
Patrícia Ruggiero Passos |
11,804,241 |
0.851% | ||
|
RM Futura Multimercado Fundo de Investimento Crédito Privado Investimento no Exterior (4) |
1,303,309 |
0.094% | ||
|
Sirius Fundo de Investimento Financeiro Multimercado Crédito Privado (5) |
4,997,397 |
0.360% | ||
|
Vinicius Pinotti |
6,324,444 |
0.456% | ||
|
Subtotal |
533,197,873 |
38.447% | ||
|
Other Directors |
143,492 |
0.010%% | ||
|
Other Executive Officers |
1,055,511 |
0.076%% | ||
|
All Directors and Management |
140,969,188 |
10.165%% | ||
|
Others |
636,720,305 |
45.911% | ||
|
Treasury shares |
3,163,215 |
0.228% | ||
|
Total |
1,386,848,066 |
100.00% |
(1) Fundo de Investimento de Ações Veredas Investimento no Exterior is controlled by Pedro Luiz Barreiros Passos.
(2) Kairós Fundo de Investimento em Ações – Investimento no Exterior is controlled by Antonio Luiz da Cunha Seabra.
(3) Passos Participações S.A. is controlled by Pedro Passos, a member of our board of directors. The shareholding above represents the sum of the equity held by the individual person and the legal entity.
(4) RM Futura Multimercado Fundo de Investimento Crédito Privado Investimento no Exterior is controlled by Maria Heli Dalla Costa Mattos.
(5) Sirius Fundo de Investimento Financeiro Multimercado Crédito Privados controlled by Guilherme Peirão Leal.
As of March 31, 2024, there were a total of 3,461 registered holders of ADSs and 16,784,327 ADSs outstanding, representing 33,568,654 common shares or 2.42% of outstanding common shares. Since some of these ADSs are held by nominees, the number of record holders may not be representative of the number of beneficial holders. Our major shareholders do not have different voting rights.
Shareholders’ Agreements and Other Arrangements of Natura &Co Holding
Passos Participações S.A., Antonio Luiz da Cunha Seabra, Guilherme Peirão Leal, Pedro Luiz Barreiros Passos, Fundo de Investimento de Ações Veredas – Investimento no Exterior, Felipe Pedroso Leal, Ricardo Pedroso Leal, Norma Regina Pinotti, Vinicius Pinotti, Fabricius Pinotti, Maria Heli Dalla Colletta de Mattos, Gustavo Dalla Colletta de Mattos, Fabio Dalla Colletta de Mattos, Lucia Helena Rios Seabra and Natura &Co Holding, as an intervening party, are parties to the Shareholders’ Agreement, which was entered into on September 4, 2019. In addition, the following investment vehicles and individuals have acceded to the Shareholders’ Agreement after its execution: (i) Kairós Fundo de Investimento em Ações – Investimento no Exterior, which is indirectly controlled by Mr. Antonio Luiz da Cunha Seabra; (ii) Sirius III Multimercado Fundo de Investimento Crédito Privado Investimento no Exterior, which is directly controlled by Mr. Guilherme Peirão Leal; (iii) RM Futura Multimercado Fundo de Investimento Crédito Privado Investimento no Exterior, which is directly controlled by Mrs. Maria Heli Dalla Colletta de Mattos; (iv) Guilherme Ruggiero Passos; and (v) Patrícia Ruggiero Passos.
The Shareholders’ Agreement will remain in force until February 12, 2025. All signatories to the Shareholders’ Agreement, as well as their successors, on any account, shall exercise their respective voting rights in accordance with the provisions of the Shareholders’ Agreement.
The Shareholders’ Agreement signatories are organized into five groups (the “Shareholder Groups”) that each have a representative (the “Group Representative”), whose main duties are to represent their Shareholder Group in its relations with the other Shareholder Groups, to represent their Shareholder Group at Preliminary Meetings (as defined below), to consider and vote on any and all matters discussed at Preliminary Meetings, and to represent the Shareholder Group and each member of the Shareholder Group in the exercise of all rights and in the compliance with all obligations established by the Shareholders’ Agreement.
The Shareholders’ Agreement states that Natura &Co Holding shareholders’ meetings will be preceded by a meeting of the Group representatives, or the Preliminary Meeting, to discuss each of the matters on the agenda of the Natura Cosméticos shareholders’ meeting. Approvals at the Preliminary Meeting will be subject to the favorable vote of Group representatives holding at least 60% of the shares present at such Preliminary Meeting. At the Preliminary Meeting, each Share with the right to vote, held by a party belonging to a Shareholder Group represented by a Group Representative at the Preliminary Meeting, will be entitled to one vote. The decisions approved at the Preliminary Meeting will bind the vote of all parties at the respective Natura Cosméticos shareholders’ meeting.
The signatories shall exercise their voting right and power of control in good faith to ensure that the activities of Natura Cosméticos are based on the following basic principles and assumptions: (i) Natura &Co Holding’s management will be run by ethical, experienced and independent professionals; (ii) Natura &Co Holding’s strategy will be based on the principle of sustainable growth and the exercise of Natura &Co Holding’s purpose, in line with our economic, environmental and social commitments; (iii) Natura &Co Holding’s operations with related parties shall be conducted in accordance with market practices; (iv) Natura &Co Holding’s management shall pursue high levels of profitability, efficiency and competitiveness, always complying with its commitment of being an agent of economic, environmental and social development; and (v) except if authorized, in writing, by all signatories, Natura &Co Holding may not, directly or indirectly, hire as an employee, worker or service provider of Natura &Co Holding and/or its subsidiaries, the heirs and/or spouses of any of its shareholders and related parties.
In the event of any breach or delay in performance of the Shareholders’ Agreement, if the defaulting party fails to remedy the breach within 90 days of receiving notice of the default, the right to vote at the Preliminary Meetings conferred on the shares held by the defaulting party will be suspended, and the parties not in default must convene a Preliminary Meeting to suspend the voting rights of the defaulting party. The suspension of voting rights of one of the parties will not lead to the suspension of voting rights of other parties in the Shareholder Group. Once the breach is remedied, the shares held by the defaulting party will once again have the right to vote at the Preliminary Meetings.
The Shareholders’ Agreement establishes rules for the election of directors, including that its signatories must always elect the highest possible number of directors and that, 20% or two, whichever is greater, at least, of the members of the board of directors must be independent directors, elected for a unified term, with the possibility of reelection.
In connection with the transfer of shares by the signatories to the Shareholders’ Agreement and the preemptive right to acquire shares, the Shareholders’ Agreement provides, among other things, that:
- the sale of shares owned by the signatories may only take place in strict observance of the Shareholders’ Agreement, and any acquirer or assignee of the shares must subscribe to the Shareholders’ Agreement;
- shareholders who wish to sell their shares, in whole or in part, must first obtain from the interested third party a written offer, in good faith, in a binding and irrevocable manner, including the price to be paid and the number of shares offered. The selling shareholders then must, through the Group Representative of the Shareholders’ Group to which they belong, notify other parties belonging to other Shareholders’ Groups of their intention to sell shares and grant such parties preemptive rights to acquire the shares. The exercise of the preemptive rights by the offered parties must be received in writing within 60 days from the receipt of such notice of sale;
- if any legal entity shareholder that is the object of a sale of interest has, for any reason, liabilities or contingencies, the party who had exercised the preemptive right can deduct the amount corresponding to said liabilities and any contingencies not related to the shares or Natura &Co Holding from the acquisition price in the offer made, regardless of the chance of loss or materialization of said liabilities and contingencies; provided that in the case of disagreement regarding the value of said liabilities and contingencies, the party that exercised the preemptive right and the legal entity shareholder must select a specialized audit firm to determine the value of said liabilities and contingencies, and that value shall be final and binding on the parties;
- a Group Representative can delink shares equivalent to twenty percent (20%) of the net equity held by all the parties who are members of his Shareholder Group, in the same proportion among them, for sale on the stock exchange, at any time and to any person, while the Shareholders’ Agreement is in effect; provided that the Group Representative informs the other Group representatives of the other Shareholder Groups, in writing, of the plan to sell said shares on the stock market and gives them the same period, of up to, but no more than, 10 calendar days to pay the market price for all the shares that the parties wish to sell. The delinking of shares may only be disproportionate among the parties to a Shareholder Group if unanimously approved by the parties of said Shareholder Group; and
- if a signatory to the Shareholders’ Agreement decides to sell shares representing an amount greater than or equal to 10% of the total shares to any third parties, the other signatories will be entitled to jointly sell the shares held by them, in proportion to the shares held by the offering party being sold in the transaction.
The Shareholders’ Agreement does not restrict the right to vote of members of the board of directors.
Related Party Transactions Policy of Natura &Co Holding
Policy Regarding Related Party Transactions
On December 14, 2021, our board of directors approved an update to our Related Party Transaction Policy, which aims to ensure that our and our subsidiaries’ transactions with related parties are carried out transparently and under conditions not less favorable to us than they would be if carried out with third parties that are not related parties, under the same circumstances or similar scenarios.
Our Related Party Transaction Policy is applicable to the individuals and legal entities mentioned below. All of Natura &Co Holding and its subsidiaries’ officers and directors are required to comply with it.
As per our Related Party Transaction Policy, we define Related Parties as (i) those, directly or indirectly, related by means of one or more intermediaries, when the party (a) controls, is controlled by, or is under our common control (including our controlling shareholder and subsidiaries); (b) holds equity that provides material influence on Natura &Co Holding; or (c) exercises common control of Natura &Co Holding; (ii) Natura &Co Holding’s associated companies; (iii) joint ventures which Natura &Co Holding is an investor; (iv) key members of Natura &Co Holding’s management or its controller companies; (v) family relatives or relatives of any person mentioned on items (i) or (iv) above; (vi) any subsidiary, with common control or materially influenced by, or which the material voting rights are held by any person mentioned on items (iv) or (v); and (vii) any company which promotes post-employment benefit plan in favor of our employees.
According to our Related Party Transaction Policy, Natura &Co Holding and its subsidiaries may carry out Transactions with Related Parties to the extent such transactions are performed (i) in accordance with the interests of the Company; (ii) on an arm’s length basis or with in exchange for adequate consideration; and (iii) in a transparent way with respect to its shareholders and to market in general.
Role of Management
We adopt our own corporate governance practices, in addition to those recommended and/or required under applicable law. All decisions regarding our operations are submitted to our management, in accordance with the responsibilities of management established in our by-laws. Thus, our transactions, particularly those between related parties, are submitted to our decision-making bodies in accordance with our corporate governance practices.
In the event of a potential conflict of interest between a matter under discussion and any member of our management team, we endeavor to comply with the Brazilian Corporation Law, and said member of our management team must abstain from voting on such matter. The remaining members of our management team who do not have a potential conflict of interest will make a decision on such matter. Pursuant to Article 156, of the Brazilian Corporation Law, an officer may not take part in any corporate transaction in which he has an interest that conflicts with the company’s interests, nor in the approval of resolutions by other officers with respect to such matters. Any such conflicted officer, pursuant to the abovementioned rule, must disclose his disqualification to the other officers and have the nature and extent of his interest to be recorded in the minutes of the meeting of the company’s applicable corporate body.
Principal Related Party Transactions
Our principal related party transactions are as follows:
- On June 5, 2012, Natura Indústria entered into an agreement with Bres Itupeva Empreendimentos Imobiliários Ltda., or Bres Itupeva, for the construction and lease of processing, distribution, storage, in the city of Itupeva in the state of São Paulo and a distribution center, also in the city of Itupeva in the state of São Paulo. On June 20, 2013, Bres Itupeva disposed of certain credits to BRC Securitizadora S.A.
- On January 8, 2021, following a bidding process, Bresco IX Empreendimentos Imobiliários Ltda., a special purpose company indirectly held by Messrs. Antônio Luiz da Cunha Seabra, Guilherme Peirão Leal and Pedro Luiz Barreiros Passos (as lessor and surface-right owner), entered into a build-to-suit real estate lease agreement with Natura Cosméticos (as lessee and owner), Natura Indústria and the Company (both as guarantors) pursuant to which Bresco IX is required to build a distribution center in the state of Alagoas, which will then be leased to Natura Cosméticos. As a guarantee of Natura Cosméticos’ obligations under the agreement, Natura Cosméticos will obtain lease insurance from a reputable insurance company. Considering that Bresco IX will build the property on land owned by Natura Cosméticos to later lease it to Natura Cosméticos, Natura Cosméticos has granted a free of charge surface usage right to Bresco IX for a duration equivalent to that of the agreement, or the Deed. Natura Indústria will guarantee Natura Cosméticos’ obligations under the Deed through to May 10, 2021 when the parties, Natura Indústria and the Company are expected to enter into an amendment to the Deed, whereby Natura Indústria will be replaced by Natura &Co as guarantor of Natura Cosméticos’ obligations under the Deed.
As of the date of this annual report, we do not have any loans or other financing agreements with any of our directors or executive officers. For further information regarding our principal related party transactions, please see note 31 to our audited consolidated financial statements included elsewhere in this annual report.
Not applicable.
Financial Statements
See “Item 18. Financial Statements,” which contains our audited financial statements prepared in accordance with the IFRS Accounting Standards as issued by the IASB.
Legal Proceedings
We and our subsidiaries are parties to numerous judicial and administrative proceedings of tax, civil, regulatory, environmental, criminal and labor natures, including proceedings with probable, possible and remote risks of loss. Our provisions are recorded pursuant to accounting rules, based on an individual analysis of each contingency by our internal and external legal counsel. We constitute provisions for proceedings that our external counsel evaluates as having a probable risk of loss. In addition, due to the high number of labor and civil claims, we also constitute provisions based on the historic chances of success and losses for certain types of legal proceedings.
In cases where unfavorable decisions in claims involve substantial amounts, or if the actual losses are significantly higher than the provisions constituted, the aggregate cost of unfavorable decisions could have a significantly adverse effect on both our financial condition and operating results. Moreover, our management may be forced to dedicate time and attention to defend against these claims, which could prevent it from concentrating on our core business.
As of December 31, 2023, we were party to proceedings for which provisions in the total amount of R$1,366.6 million have been recorded. As of December 31, 2022, we have recorded provision for tax, civil and labor risk related to the business combination with Avon’s in the amount of R$1,337.3 million.
A description of the principal proceedings in which we are involved in for each category (civil, labor and tax) is set out below. For additional details regarding the legal proceedings in which we are involved, please see note 21 to our audited consolidated financial statements included elsewhere in this annual report.
Civil Claims
As of December 31, 2023, we were party to civil claims of an administrative or judicial nature for which we had recorded provisions in the total amount of R$626.6 million. Our provisions are reviewed periodically based on the evolution of the lawsuits and the loss of civil claims to reflect the best current estimate.
The majority of these lawsuits involve claims of undue inclusion of the names of both Natura consultants and third parties in the database of the Brazilian credit protection service as debtors due to the fraudulent registration practices.
Avon has been named a defendant in numerous personal injury lawsuits filed in U.S. courts, alleging that certain talc products Avon sold in the past were contaminated with asbestos. Many of these actions involve a number of co-defendants, including manufacturers of cosmetics and manufacturers of other products that, unlike Avon’s products, were designed to contain asbestos. As of December 31, 2023, there were 372 individual active claims pending against Avon. During the year ended on December 31, 2023, 234 new cases were filed and 90 cases were dismissed, settled or otherwise resolved.
In December 2022, one case, captioned Chapman, et al. v. Avon Products, Inc., et al. resulted in an adverse jury verdict after a trial, with the jury awarding plaintiffs a total of U.S.$36.0 million in compensatory damages and U.S.$10.3 million in punitive damages against Avon. Avon believes there are strong grounds for seeking to overturn the verdict in this case and the case is currently under appeal.
Avon believes that the claims asserted against it in all of these cases are without merit and is defending vigorously against these claims and will continue to do so. Additional similar cases arising out of the use of Avon’s talc products are reasonably anticipated. Given the inherent uncertainties of litigation, Avon cannot predict the outcome of all individual cases pending against it, and Avon is only able to make a specific estimate for a small number of individual cases that have advanced to the later stages of legal proceedings. This estimated liability for claims and associated legal costs incurred to date includes an amount for the Chapman case described above, taking into consideration the strong grounds for appeal and seeking to overturn the verdict as noted above. Should Avon ultimately lose the case, significant additional amounts could be incurred. For the remaining cases, Avon provides an estimate of exposure on an aggregated and ongoing basis, which takes into account the historical outcomes of all cases Avon has resolved to date. However, any adverse outcomes, either in an individual case or in the aggregate, could be material and have a material adverse effect on Avon’s and our results of operations, financial condition and cash flows for that period, including Avon’s ability to continue as a going concern. Future costs to litigate these cases, which Avon expenses as incurred, are not known but may be significant.
Labor Claims
We are also parties to a number of labor claims filed by former employees, third parties and autonomous workers relating, among other things, to severance pay, occupational diseases, additional wages, overtime and amounts due to subsidiary liability and the recognition of the employment relationship.
As of December 31, 2023, we were parties to several labor proceedings for which provisions amounting to R$187.3 million were recorded.
Tax Proceedings
As of December 31, 2023, we were party to tax claims of an administrative or judicial nature with a probable risk of loss involving a total amount of R$166.7 million for which we have recorded provisions in the same amount, and in proceedings with a possible risk of loss involving an aggregate amount of R$10,375.8 million. In addition, we are party to tax proceedings with a remote risk of loss.
The following is a description of the principal proceedings with a possible risk of loss to which we are a party:
- Tax infraction notices in connection with CIT and Social Tax on Net Profit (CSLL) questioning the deductibility of goodwill amortization for tax purposes, resulting from the incorporation of the shares of Natura Empreendimentos by Natura Participações S.A. and subsequent merger of both companies by Natura Cosméticos. Natura Cosméticos is challenging in court the legality of the decisions that rejected the motions of clarification as a preliminary matter to discuss crucial points of the appellate decisions that, by a majority of votes, denied its special appeals, upholding the tax liability. Of the total amount under discussion on December 31, 2023, R$1,598.2 million is classified as possible risk of loss.
- Natura Cosméticos, Avon Cosméticos and Natura Indústria, the latter in the situations where it operates exclusively as a distributor, are legally challenging the condition brought by Decree No. 8,393/2015, which, for purposes of the IPI, sees interdependent wholesale establishments that sell products taxed over 15% as a manufacturing company. Of the amount under discussion as of December 31, 2023, R$2,456.7 million is classified as a possible risk of loss.
- Administrative and judicial proceedings challenging the legality of changes in Brazilian federal and state laws regarding the collection of ICMS and ICMS under tax substitution (ICMS ST). As of December 31, 2023, the total amount under discussion is R$1,640.4 million and the risk of loss is classified as possible risk of loss.
- Tax infraction notice issued by the São Paulo State Finance Department against a branch of Natura Indústria, requiring ICMS under tax substitution (ST), which had been fully paid by Natura Cosméticos, i.e., the distributor establishment. We are currently awaiting the administrative-level decisions. Of the total amount under discussion as of December 31, 2023, R$682.3 million is classified as possible risk of loss.
- Tax infraction notices issued by the Brazilian Federal Revenue claiming IPI (Tax on Manufactured Products) arising from the tax classification to certain products. We are currently awaiting the administrative-level decisions. Of the total amount under discussion as of December 31, 2023, R$2,199.9 million is classified as a possible risk of loss.
Tax Amnesty Programs
On July 5, 2022, the Brazilian Congress overrode veto No. 58 of Brazil’s President and, as a result, Bill No. 2,110/19 was converted into Law No. 14,395/2022, which establishes that legal concept of “plaza” would correspond to “municipality” for purposes of defining the minimum taxable amount for calculating the Tax on Manufactured Products, or “IPI.” As a result and on the advice of counsel, we have reclassified, from possible to remote, the risk of loss in the amount of R$3,586.0 million (R$2,472.6 million as of December 31, 2022), relating to certain tax assessments by the Brazilian Federal Revenue Service with respect to Natura Industrial and Avon Industrial Ltda. seeking to collect IPI tax on our sales operations to interdependent wholesale establishments, based on the alleged failure to apply the minimum calculation basis required by law.
Judicial Deposits
Pursuant to court orders concerning certain tax, civil and labor lawsuits, our judicial deposits amounted to R$408.0 million as of December 31, 2023.
Dividends and Dividend Policy
On July 28, 2021, the Board of Directors approved a new Income Allocation and Distribution of Dividends Policy, which sets forth the guidelines, criteria, and procedures for allocation of income, in compliance with requirements set forth by Brazilian regulation and Natura &Co Holding’s By-laws.
Our by-laws require that we distribute annually to Natura &Co Holding’s shareholders a mandatory minimum dividend, which we refer to as the mandatory dividend, equal to at least 30% of Natura &Co Holding’s net income after taxes, after certain deductions, including accumulated losses and any amounts allocated to employee and management participation, any amount allocated to Natura &Co Holding’s legal reserve, any amount allocated to the contingency reserve and any amount written off with respect to the contingency reserve accumulated in previous fiscal years, in each case in accordance with Brazilian law.
However, the Brazilian Corporation Law permits a company to suspend the mandatory distribution of dividends if its board of directors reports to the shareholders’ meeting that the distribution would be incompatible with the financial condition of the company, subject to approval by the shareholders’ meeting and review by the fiscal council, when installed. In addition, our management must submit a report to the CVM clarifying the reasoning for any such non-payment. Net income not distributed due to such a suspension must be attributed to a separate reserve and, if not absorbed by subsequent losses, must be paid as dividends as soon as the financial situation of the company permits.
The amounts available for distribution are determined on the basis of financial statements prepared in accordance with the requirements of the Brazilian Corporation Law. In addition, amounts arising from tax incentive benefits or rebates are appropriated to a separate capital reserve in accordance with the Brazilian Corporation Law. This investment incentive reserve is not normally available for distribution, although it can be used to absorb losses under certain circumstances or be capitalized. Amounts appropriated to this reserve are not available for distribution as dividends.
The Brazilian Corporation Law permits a company to pay interim dividends out of preexisting and accumulated profits for the preceding fiscal year or semester, based on financial statements approved by its shareholders. We may prepare financial statements semiannually or for shorter periods. Natura &Co Holding’s board of directors may declare a distribution of dividends based on the profits reported in semiannual financial statements. Natura &Co Holding’s board of directors may also declare a distribution of interim dividends or interest based on profits previously accumulated or in profits reserve, which are reported in such financial statements or in the last annual financial statement approved by resolution taken at a shareholders’ meeting. The board of directors may also declare dividends based on financial statements prepared for interim periods; provided that the total amount of dividends paid in each semester does not exceed the amounts accounted for in our capital reserve account set forth in paragraph 1 of Article 182 of the Brazilian Corporation Law and any dividends that fail to be claimed within a period of three years as of their payment due date will revert to Natura &Co Holding.
In general, Non-Resident Holders must register their equity investment with the Brazilian Central Bank to have dividends, sales proceeds or other amounts with respect to their shares eligible to be remitted outside of Brazil. The common shares underlying the ADSs are held in Brazil by Itaú Unibanco S.A., also known as the custodian, as agent for the ADS Depositary, which is the registered owner on the records of the registrar for Natura &Co Holding’s shares.
Payments of cash dividends and distributions, if any, are made in reais to the custodian on behalf of the ADS Depositary, which then converts such proceeds into U.S. Dollars and causes such U.S. Dollars to be delivered to the ADS Depositary for distribution to holders of ADSs. In the event that the custodian is unable to convert immediately the foreign currency received as dividends into U.S. dollars, the amount of U.S. dollars payable to holders of ADSs may be adversely affected by devaluations of the Brazilian currency that occur before the dividends are converted. Under the Brazilian Corporation Law, dividends paid to Non-Resident Holders will not be subject to Brazilian withholding tax; however, it is not clear under Brazilian law whether such withholding income tax exemption is also applicable to dividends distributed to holders of ADSs abroad.
Brazilian law allows the payment of dividends solely in reais, limited to the unappropriated retained earnings in Natura &Co Holding’s financial statements prepared in accordance with the IFRS Accounting Standards.
Please refer to “Item 3. Key Information—D. Risk Factors—Risks Relating to the Natura &Co Holding Shares and ADSs—The holders of the Natura &Co Holding Shares (including the Natura &Co Holding Shares underlying the ADSs) may not receive dividends or interest on own capital.”
None.
The Natura &Co Holding Shares trade on the B3 under the symbol “NTCO3.” We also had ADRs listed and traded on the NYSE under the symbol “NTCO” from January 6, 2020 to February 9, 2024, when we delisted our ADRs from the NYSE.
Not applicable.
Our common shares are traded on the B3. The regulation of Brazilian securities markets which affects these securities is discussed below.
The Brazilian Securities Market
The Brazilian securities market is regulated and supervised by the CMN (which has general authority over the stock exchanges and securities markets), as provided for by the Brazilian Capital Markets Law and Brazilian Corporation Law. The CMN is responsible for supervising the CVM’s activities, granting licenses to brokerage firms to govern their incorporation and operation, and regulating foreign investment and exchange transactions, as provided for by the Brazilian Capital Markets Law and Law No. 4,595 of December 31, 1964, as amended. These laws and regulations provide for, among other things, disclosure requirements to issuers of securities listed on stock exchanges, criminal sanctions for insider trading and price manipulation, protection of minority shareholders, the procedures for licensing and supervising brokerage firms and the governance of Brazilian stock exchanges.
Under Brazilian Corporation Law, a company is either publicly held and listed (a “companhia aberta”), or privately held and unlisted (a “companhia fechada”). All listed companies are registered with the CVM and are subject to reporting requirements to periodically disclose information and material facts. A company registered with the CVM is authorized to trade its securities either on the Brazilian exchange markets, including the B3, or in the Brazilian over-the-counter market. Shares of companies listed on B3 may not be simultaneously traded on the Brazilian over-the-counter markets. The over-the-counter market consists of direct trades between persons in which a financial institution registered with the CVM acts as an intermediary. No special application, other than registration with the CVM (and, in case of organized over-the-counter markets, with the relevant over-the-counter market), is necessary for securities of a publicly held company to be traded in this market. To be listed on the B3, a company must apply for registration with the B3 and the CVM.
Our common shares are traded on the B3. The regulation of Brazilian securities markets which affects these securities is discussed below. In addition, we also had ADRs listed and traded on the NYSE from January 6, 2020 to February 9, 2024, when we delisted our ADRs from the NYSE. For further information, see “—A. Offer and Listing Details.”
Trading on the Brazilian Stock Exchange
Settlement of transactions conducted on the Brazilian Stock Exchange (B3 S.A. — Brasil, Bolsa. Balcão), or the B3, becomes effective two business days after the trade date. Delivery of, and payment for, shares is made through the facilities of separate clearinghouses for each exchange, which maintain accounts for member brokerage firms. The seller is ordinarily required to deliver the shares to the clearinghouse on the second business day following the trade date. The clearinghouse for the B3 is the Central Depositária of the B3.
In order to better control volatility, the B3 has adopted a “circuit breaker” system pursuant to which trading sessions may be suspended for a period of 30 minutes or one hour whenever the indices of these stock exchanges fall below the limits of 10% and 15%, respectively, in relation to the index registered in the previous trading session. In the event the stock exchange index falls below the limit of 20% in comparison to the previous trading day, the B3 may determine the suspension of trading sessions for a certain period to be defined at its sole discretion.
The Brazilian securities market is substantially smaller, less liquid, more concentrated and more volatile than major securities markets in the United States and other jurisdictions, and may be regulated differently from the ways familiar to U.S. investors. There is also significantly greater concentration in the Brazilian securities market than in major securities markets in the United States. Although any of the outstanding shares of a listed company may trade on a Brazilian stock exchange, in most cases fewer than half of the listed shares are actually available for trading by the public, the remainder being held by small groups of controlling persons, governmental entities or one principal shareholder.
Trading on the B3 by non-residents of Brazil is subject to certain limitations under Brazilian foreign investment and tax legislation. For additional information, see “Item 10. Additional Information—E. Taxation” and “Item 10. Additional Information—D. Exchange Controls.”
Brazilian Stock Exchange Corporate Governance Standards
The B3 has three main listing segments:
- Level 1;
- Level 2; and
- Novo Mercado.
These listing segments have been designed for the trading of shares issued by companies that voluntarily undertake to abide by corporate governance practices and disclosure requirements in addition to those already required under the Brazilian Corporation Law and the rules of the CVM. The inclusion of a company in any of these listing segments requires adherence to a series of corporate governance rules. These rules are designed to increase shareholders’ rights and enhance the quality of information provided by Brazilian corporations.
As our common shares are listed on the Novo Mercado segment of the B3, in addition to the disclosure obligations imposed by the Brazilian Corporation Law and the CVM, we also must comply with the following additional disclosure requirements set forth by the Novo Mercado rules:
- In 2000, the B3 introduced three special stock market segments for the trading of shares named, Level 1, Level 2 and the Novo Mercado, which were amended in April 2011 and October 2017. These stock market segments have the purpose of prompting public companies to (1) disclose information to the market and their shareholders in connection with their business in addition to the information required by law and (2) adopt corporate governance practices, such as best practices for management, transparency and protection of minority shareholders.
- Our common shares are listed on the Novo Mercado segment. To have our shares listed on the Novo Mercado, we entered into the Novo Mercado Participation Agreement and our by-laws comply with the rules of the Novo Mercado. Companies listed on the Novo Mercado are voluntarily subject to stricter rules than those provided for listed companies under the Brazilian Corporation Law and CVM regulations, such as requirements to, among others: (i) issue common shares only; (ii) ensure that shares of the issuer representing at least 25.0% of its total capital are effectively available for trading; (iii) make best efforts to achieve shareholding dispersion in all public share offerings via guaranteed access for all interested investors and distribution to individuals and non-institutional investors of at least 10% of the offered shares; (iv) have its own internal auditing department, or engage independent auditors registered with the CVM to perform this function, as well as implement compliance, internal control and corporate risk management functions, all of which must be kept separate from its operational activities (v) agree to adopt and publish until April 2022 (1) the by-laws of its board of directors, advisory committees and fiscal council, if it has one, (2) disclose material events, information about dividends and other distributions and earnings releases, (3) a code of conduct that establishes the principles and values that guide the company, (4) an insider trading policy that applies, at a minimum, to the issuer, its controlling shareholder, the members of the board of directors and fiscal council, the executive management team and members of other corporate bodies that have a technical or consultative role as may be created from time to time by the company’s by-laws,(5) a related party transactions policy, (6) a risk management policy, (7) a compensation policy and (8) a policy that determines the criteria and the proceedings to nominate the management of the Company; (vi) stipulate in its by-laws that direct or indirect transfer of control is allowed only on condition that the acquirer of control undertakes to hold a public tender offer for the shares of all other shareholders to ensure they are offered the same treatment as the seller of control; (vii) agree to require the issuer, its shareholders, directors, and members of the fiscal council to resolve any and all disputes among them by arbitration before the Market Arbitration Chamber (Câmara de Arbitragem do Mercado), or CAM, operated by the B3.
- Moreover, the board of directors of companies listed on the Novo Mercado must consist of members elected at a shareholders’ meeting, with a unified term limited to two years, subject to reelection. At least two or 20.0% of the members of the board of directors, whichever is greatest, must be independent directors, i.e., that (1) are not direct or indirect controlling shareholders of the company, (2) whose voting rights at board meetings are not bound by a shareholders’ agreement, (3) are not a spouse, partner or direct or collateral first or second degree relative of the controlling shareholder or of any executive officer of the company or of its controlling shareholder, and (4) have not been an employee or executive officer of the company or its controlling shareholder in the past three years. Likewise, all commercial and work relationships between these directors and the company, its subsidiaries and affiliates must be analyzed in order to verify their independence. Furthermore, the rules of the Novo Mercado do not permit the same individual to simultaneously hold the positions of chairman of the board of directors and chief executive officer (or comparable position).
- In addition, all of the new members of the board of directors and all executive officers of companies listed on the Novo Mercado must execute an instrument of investiture agreeing with the submission to CAM, provided for in the Company’s by-laws. Companies listed on the Novo Mercado are required to, among other things: (i) conduct public tender offers for purchase of shares under certain circumstances, such as a delisting from the Novo Mercado; (ii) conduct offerings that will facilitate broad share ownership; and (iii) extend to all shareholders the same conditions given to the controlling shareholder by occasion of the sale of the share control of the company.
Pursuant to CVM Resolution No. 80, dated March 29, 2022, as amended, or CVM Resolution No. 80, the following information must also be included in our formulário de referência within seven business days of the occurrence of the following events, among others:
- change in management or of an audit committee member;
- change in capital stock;
- issuance of new securities even if for private subscription;
- change in the rights of the securities issued;
- change in direct or indirect holdings by controlling shareholders or variations in their share positions that causes them to surpass the thresholds of 5%, 10%, 15%, etc., of the same type or class of stocks of the issuer;
- when any natural or legal person, or a group of persons representing the same interest, have a variation in their share position that causes them, directly or indirectly, to surpass the thresholds of 5%, 10%, 15%, etc., of the same type or class of stocks of the issuer, provided that the issuer is aware of such change;
- merger, merger of shares, or spin-off;
- change in the projections or estimates or disclosure of new projections or estimates;
- execution, amendment or termination of a shareholders’ agreement filed at the company’s headquarters or to which the controlling shareholder is party that provides for the exercise of voting rights or the control of the company;
- bankruptcy, judicial recovery, liquidation or court approval of an extrajudicial recovery; and
- communication, by the Company, of a change to its independent auditors.
Additionally, pursuant to CVM Resolution No. 44, dated August 23, 2021, as amended, or CVM Resolution No. 44, on the 10th of each month, the issuer must disclose if there were any changes in the share position of the company’s management, controlling shareholders, members of the fiscal council, if installed, or of the company itself (shares kept in treasury) that happened in the previous month.
Finally, pursuant to the Novo Mercado rules, we must, by December 10 of each year, publicly disclose and send to the B3 an annual calendar with a schedule of our corporate events. In case the company intends to modify subsequently the date of any event, the calendar must be updated previously to such event.
Not applicable.
Not applicable.
Not applicable.
Not applicable.
The following is a summary of certain significant provisions of the Natura &Co Holding By-Laws (estatuto social), as amended, and certain laws of Brazil. This description does not purport to be complete and is qualified by reference to the complete text of the Natura &Co Holding By-Laws, attached as Exhibit 1.1 to this annual report in its entirety, and the applicable laws of Brazil. This summary should not be considered as legal advice regarding these matters. You are urged to carefully review the Natura &Co Holding By-Laws in their entirety as they, and not this description, will control your rights as a holder of Natura &Co Holding Shares. In this section, unless otherwise stated, references to “we,” “us,” “our,” or “the Company” refer to Natura &Co Holding.
General
Natura &Co Holding is a corporation (sociedade anônima) of indefinite term incorporated under the laws of Brazil, having its registered office in the city of São Paulo, state of São Paulo, at Avenida Alexandre Colares, No. 1188, Sala A17-Bloco A, Parque Anhanguera, 05106-000, Brazil, enrolled with the Brazilian taxpayers’ registry (Cadastro Nacional de Pessoas Jurídicas—CNPJ) under No. 32.785.497/0001-97. Natura &Co Holding was incorporated on January 21, 2019. Natura &Co Holding is governed by the laws of Brazil, as well as by the Natura &Co Holding By-Laws.
Capital Stock
As of April 30, 2024 and December 31, 2023, our issued capital stock including treasury shares was R$12,697,285,074.75 fully issued and paid in, comprising 1,386,848,066 common shares, nominative and without nominal value (including 6,204,048 treasury shares).
The capital stock of Natura &Co Holding is represented solely by common shares, and each common share is entitled to one vote on the resolutions to be adopted by the shareholders. Natura &Co Holding is authorized to increase its capital stock, regardless of an amendment to the Natura &Co Holding By-Laws, in up to 1,500,000,000 common shares, with no par value, upon a resolution of its board of directors, which will establish the terms of issuance, including the price and payment. The board of directors may also approve the issuance of warrants (bonus de subscrição) and convertible debentures, as well as capitalization of profits of reserves, whether or not by issuing bonus shares, within the limits of the authorized capital.
The board of directors of Natura &Co Holding may grant stock purchase or subscription options, under the plan or programs approved at the shareholders’ meeting, to the managers and employees of Natura &Co Holding, as well as to managers and employees of other companies directly or indirectly controlled by Natura &Co Holding, without preemptive rights to the shareholders at the time of either grant or exercise of such options, subject to the balance of the authorized capital limit at the time of exercise of subscription options, analyzed together with the balance of treasury shares at the time of exercise of purchase options.
Corporate Purpose
As per Article 3 of the Natura &Co Holding’s By-Laws, Natura &Co Holding’s purpose is the management of, and the holding of interests in, beauty companies, including, but not limited to fragrances, skin care, hair and cosmetics with color, or branches that conduct activities related or complimentary beauty businesses, including, but not limited to home and fashion, as a shareholder or quotaholder, in Brazil or abroad.
The development of activities by the companies that Natura &Co Holding holds direct or indirect interest in any type considers the following factors: (i) the short- and long-term interests of Natura &Co Holding and its shareholders, and (ii) the short and long-term economic, social, environmental and legal effects on its employees, suppliers, partners, clients and other creditors, as well as on the communities in which Natura &Co Holding operates, both locally and globally.
Rights of Holders of Common Shares
Each of Natura &Co Holding’s common shares entitles its holder to one vote at Natura &Co Holding’s annual or extraordinary general shareholders’ meetings (assembleia geral ordinária or assembleia geral extraordinária). Pursuant to the Natura &Co Holding By-Laws and its B3 listing agreement in connection with the listing of the common shares on the Novo Mercado, we cannot issue shares without voting rights or with restricted voting rights. As long as we are listed on the Novo Mercado, we may not issue preferred shares. In addition, the Natura &Co Holding By-Laws and the Brazilian Corporation Law provide that holders of Natura &Co Holding Shares are entitled to dividends or other distributions made in respect of Natura &Co Holding Shares in accordance with their respective participation in Natura &Co Holding’s capital. See “Item 8. Financial Information—A. Consolidated statements and other financial information—Dividends and Dividend Policy” for a more complete description of payment of dividends and other distributions of Natura &Co Holding Shares. In addition, in the event of Natura &Co Holding’s liquidation and following the payment of all Natura &Co Holding’s outstanding liabilities, holders of Natura &Co Holding Shares are entitled to receive their pro rata interest in any remaining assets, in accordance with their respective participation in Natura &Co Holding’s capital. The shareholders have preemptive rights to subscribe for new shares issued by us, pursuant to the Brazilian Corporation Law, subject to certain exceptions set forth therein, but are not obligated to subscribe for future capital increases.
Pursuant to the Novo Mercado Rules, the Natura &Co Holding Shares have tag-along rights which enable their holders, upon the sale of a controlling interest in us, to receive in exchange for their shares 100% of the price paid per common share for the controlling block.
Pursuant to the Brazilian Corporation Law, neither the Natura &Co Holding By-Laws nor actions taken at a shareholders’ meeting may deprive a shareholder of: (1) the right to participate in the distribution of net income; (2) the right to participate equally and proportionally in any residual assets in the event of liquidation of Natura &Co Holding’s company; (3) preemptive rights in the event of issuance of new shares, convertible debentures or subscription warrants, as per Brazilian Corporation Law; (4) the right to hold Natura &Co Holding’s management accountable in accordance with the provisions of the Brazilian Corporation Law; and (5) the right to withdraw from us in the cases specified in the Brazilian Corporation Law, including merger or consolidation, which are described in “Item 10. Additional information—B. Memorandum and articles of association—Right of Withdrawal” and “Item 10. Additional information—B. Memorandum and articles of association—Redemption.”
Neither the Natura &Co Holding By-Laws, nor the Brazilian Corporation Law, contain any restriction on voting by Non-Resident Holders of Natura &Co Holding Shares.
Public Tender Offer upon Sale of Control
The direct or indirect disposal of controlling interest in Natura &Co Holding in a single transaction or series of successive transactions must be agreed upon under a condition precedent or subsequent that the acquirer will make a tender offer to purchase the shares issued by Natura &Co Holding and owned by the remaining shareholders, subject to the terms of, and within the time limits prescribed by, prevailing regulation and legislation and the Novo Mercado Rules, so that the holders of such remaining shares may receive the same treatment as accorded to the seller pursuant to Article 254-A of the Brazilian Corporation Law and Articles 37 and 38 of the Novo Mercado Listing Rules and Article 33 of the Natura &Co Holding By-Laws.
The Natura &Co Holding By-Laws (Article 34) also provide that any shareholder that acquires or becomes the owner of the capital stock of Natura &Co Holding corresponding to 25% or more of the total shares of the capital stock of Natura &Co Holding must make or apply for registration of, as the case may be, a tender offer to purchase all shares of the capital stock of Natura &Co Holding, subject to the provisions of the applicable regulations issued by the CVM and Novo Mercado Rules.
Allocation of Net Income
Together with the financial statements for the fiscal year, the board of directors will submit to the Annual Shareholders’ Meeting the proposed allocation of net income, in compliance with the provisions of law and Natura &Co Holding By-Laws.
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- Under Article 31 of Natura &Co Holding by-laws, the shareholders will be entitled to receive as dividends each year a mandatory minimum percentage of 30% of the net income, as adjusted by:
- adding the amounts resulting from reversal during the year of contingency reserves previously established;
- deducting the amounts set aside during the year for establishment of the statutory reserve and contingency reserves; and
- where the mandatory minimum dividend exceeds the realized portion of the net income for the year, the management may propose, and the shareholders’ meeting may approve, allocation of the excess to an unrealized profits reserve (Article 197 of Brazilian Corporation Law).
Under the Brazilian Corporation Law, payment of the mandatory dividend is not required if the board of directors has formally declared such distribution to be inadvisable in view of Natura &Co Holding’s financial condition and has provided the shareholders at the annual general shareholders’ meeting with an opinion to that effect, which has been reviewed by Natura &Co Holding’s fiscal council, if installed. In addition, Natura &Co Holding’s management must submit a report to the CVM within five days following said meeting clarifying the reasoning for any such non-payment. See “Item 8. Financial Information—A. Consolidated statements and other financial information—Dividends and Dividend Policy.”
Preemptive Rights
Each of Natura &Co Holding’s shareholders has a general preemptive right to subscribe for shares or convertible securities in any capital increase, in proportion to its shareholding, except (i) in the event of the grant and exercise of any stock option to acquire or subscribe for shares of Natura &Co Holding’s capital stock; (ii) in the context of a capital increase derived from merger, merger of shares and/or spin-off implemented according to the Brazilian Corporation Law; (iii) in a sale on a stock exchange or public offering; and (iv) in an exchange of shares transaction in the context of a public tender offer upon sale of control. A minimum period of 30 days following the publication of notice of the issuance of shares or convertible securities is allowed for exercise of the right, and the right is negotiable. However, according to the Natura &Co Holding By-Laws and the Brazilian Corporation Law, Natura &Co Holding’s board of directors may, in its discretion, exclude or restrict preemptive rights when issuing shares, convertible debentures and warrants placed by way of sale on a stock exchange, public offering or exchange of shares in a tender offer, according to the provisions of law and within the limits of the authorized capital.
Arbitration
In accordance with the regulations of the Novo Mercado and the Natura &Co Holding By-Laws, Natura &Co Holding, its shareholders, executive officers, directors and fiscal council members, if installed, are required to resolve through arbitration any disputes or controversies, including those related to or arising out of the application, validity, effectiveness, interpretation and violation, among others, of the provisions of the Brazilian Corporation Law, the Natura &Co Holding By-Laws, the rules published by the CMN, the Brazilian Central Bank, the CVM and other rules applicable to the Brazilian capital markets in general, as well as those set forth in the Novo Mercado Rules, in the Novo Mercado Listing Agreement and in other rules issued by the B3, and such arbitration is the exclusive means to settle such disputes with Natura &Co Holding’s shareholders. As the holders of ADSs are not direct shareholders of Natura &Co, these arbitration requirements do not apply to such ADS holders; however, because the ADS Depositary is a holder of Natura &Co. Holding Shares, it would be bound by these mandatory arbitration provisions if it sought to exercise remedies against Natura &Co Holding under Brazilian law.
Liquidation
Natura &Co Holding shall be liquidated upon the occurrence of certain events provided for in the Brazilian Corporation Law, whereupon a meeting of the shareholders shall determine the form of liquidation, electing the liquidator(s) and the members of Natura &Co Holding’s fiscal council, which must operate on a mandatory basis during the liquidation period.
Redemption
According to the Brazilian Corporation Law, we may redeem Natura &Co Holding Shares subject to the approval of Natura &Co Holding’s shareholders at an extraordinary shareholders’ meeting where shareholders representing at least 50% of the shares that would be affected are present. The share redemption may be paid with Natura &Co Holding’s retained earnings, income reserves or capital reserves, with the exception of the legal reserve.
If the share redemption is not applicable to all shares, the redemption will be made by lottery. If custody shares are picked in the lottery and there are no rules established in the custody agreement, the financial institution will specify, on a pro rata basis, the shares to be redeemed.
Right of Withdrawal
The Brazilian Corporation Law provides that, under certain circumstances, a shareholder has the right to withdraw its equity interest from the company and to receive payment for the portion of shareholders’ equity attributable to its equity interest. Withdrawal rights may be exercised by dissenting or non-voting shareholders, if a vote of at least 50% of voting shares authorizes us:
- to create preferred shares or increase the existing class of preferred shares, without the requirement to issue a proportionate number of other classes of preferred shares
- to change the redemption conditions or rights of one or more classes of preferred shares, or to create a new more senior class;
- to reduce the mandatory distribution of dividends;
- to merge with another company (including if Natura &Co Holding is merged into one of its controlling companies) or to consolidate, except as described in the fourth paragraph following this list;
- to approve Natura &Co Holding’s participation in a centralized group of companies, as defined under the Brazilian Corporation Law, and subject to the conditions set forth therein, except as described in the fourth paragraph following this list;
- to materially change Natura &Co Holding’s corporate purpose;
- to transfer all of Natura &Co Holding’s shares to another company or in order to make us a wholly owned subsidiary of such company, known as a merger of shares (incorporação de ações), except as described in the fourth paragraph following this list;
- to acquire the totality of shares of another company through a merger of shares (incorporação de ações), except as described in the fourth paragraph following this list;
- to approve the acquisition of control of another company at a price which exceeds certain limits set forth in the Brazilian Corporation Law, except as described in the fourth paragraph following this list;
- to conduct a spin-off that results in (a) a change of Natura &Co Holding’s corporate purpose, except if the assets and liabilities of the spin-off company are contributed to a company that is engaged in substantially the same activities, (b) a reduction in the mandatory dividend or (c) any participation in a centralized group of companies, as defined under the Brazilian Corporation Law;
- to change Natura &Co Holding corporate nature; or
- to include an arbitration provision in Natura &Co Holding’s By-Laws.
In addition, in the event that the entity resulting from incorporação de ações, or a merger of shares, a consolidation or a spin-off of a listed company fails to become a listed company within 120 days of the shareholders’ meeting at which such decision was taken, the dissenting or non-voting shareholders may also exercise their withdrawal rights.
Only holders of shares adversely affected by the changes mentioned in the first and second items above may withdraw their shares. The right of withdrawal lapses 30 days after publication of the minutes of the relevant shareholders’ meeting. We would be entitled to reconsider any action giving rise to withdrawal rights within 10 days following the expiration of such rights if the withdrawal of shares of dissenting shareholders would jeopardize Natura &Co Holding’s financial stability.
The Brazilian Corporation Law allows companies to redeem their shares at their economic value, subject to certain requirements. Since the Natura &Co Holding By-Laws currently do not provide that Natura &Co Holding’s shares be subject to withdrawal at their economic value, Natura &Co Holding’s shares would be subject to withdrawal at their book value, determined on the basis of the last balance sheet approved by the shareholders. If the shareholders’ meeting giving rise to withdrawal rights occurs more than 60 days after the date of the last approved balance sheet, a shareholder may demand that its shares be valued on the basis of a new balance sheet that is of a date within 60 days of such shareholders’ meeting. In this case, Natura &Co Holding must immediately pay 80% of the net worth of the shares, calculated on the basis of the most recent statement of financial position approved by its shareholders, and the balance must be paid within 120 days after the date of the resolution of the shareholders’ meeting.
Pursuant to the Brazilian Corporation Law, in events of consolidation, merger, incorporação de ações, participation in a group of companies, acquisition of control of another company and the inclusion of an arbitration provision in Natura &Co Holding’s By-Laws, the right to withdraw does not apply if the shares meet certain tests relating to liquidity and dispersal of the type or class of shares on the market (they are part of the B3 Index or other stock exchange index (as defined by the CVM)). In such cases, shareholders will not be entitled to withdraw their shares if the shares are a component of a general securities index in Brazil or abroad admitted to trading on the securities markets, as defined by the CVM, and the shares held by persons unaffiliated with the controlling shareholder represent more than half of the outstanding shares of the relevant type or class.
Registration of Shares
The Natura &Co Holding Shares are held in book-entry form with Itaú Corretora de Valores S.A. Transfer of the Natura &Co Holding Shares is carried out by means of an entry by Itaú Corretora de Valores S.A. in its accounting system, debiting from the depositing shareholders’ account and crediting the buyers’ account, upon a written order of the transferor or a judicial authorization or order.
Form and Transfer
Because the Natura &Co Holding Shares are in registered book-entry form, the transfer of shares is made under article 35 of the Brazilian Corporation Law, which determines that a transfer of shares is effected by an entry made by the registrar, by debiting the share account of the transferor and crediting the share account of the transferee. Itaú Corretora de Valores S.A. performs safe-keeping, share transfer and other related services for us.
Transfers of shares by a foreign investor are made in the same way and executed by that investor’s local agent on the investor’s behalf except that, if the original investment was registered with the Brazilian Central Bank, pursuant to CMN Resolution No. 4,373, the foreign investor, through its local agent, should also seek amendment, if necessary, of the electronic certificate of registration to reflect the new ownership.
The B3 operates a central clearing system (the Central Depositária of the B3). A holder of Natura &Co Holding Shares may choose, at its discretion, to hold Natura &Co Holding Shares through this system and all shares elected to be put into the system will be deposited in custody with the relevant stock exchange (through a Brazilian institution duly authorized to operate by the Brazilian Central Bank having a clearing account with the relevant stock exchange). The fact that those shares are subject to custody with the relevant stock exchange will be reflected in Natura &Co Holding’s register of shareholders. Each participating shareholder will, in turn, be registered in Natura &Co Holding’s register of beneficial shareholders maintained by the relevant stock exchange and will be treated in the same way as a registered shareholder.
Shareholders’ Meetings
Pursuant to the Brazilian Corporation Law, Natura &Co Holding’s shareholders are generally empowered to take any action relating to Natura &Co Holding’s corporate purposes and to pass resolutions that they deem necessary. Shareholders at Natura &Co Holding’s annual general shareholders’ meeting, which is required to be held within the first four months of the end of each year, have the exclusive right to approve Natura &Co Holding’s audited financial statements and Natura &Co Holding’s management accounts, as well as to determine the allocation of Natura &Co Holding’s net income and the distribution of dividends with respect to the fiscal year ended immediately prior to the date of the relevant shareholders’ meeting. Generally (i) the installation of the fiscal council and election of its members, (ii) the election of the members of Natura &Co Holding’s board of directors and (iii) the determination of the annual compensation of Natura &Co Holding’s executive officers, board of directors and fiscal council are approved in the annual shareholders’ meeting, but such matters may also be approved at extraordinary shareholders’ meetings.
An extraordinary shareholders’ meeting may be held at any time during the year, including concurrently with the annual shareholders’ meeting. The following matters, among others, may be resolved only at a shareholders’ meeting:
- amendment of the Natura &Co Holding By-Laws;
- election and dismissal of the members of Natura &Co Holding’s board of directors and fiscal council, whenever requested by Natura &Co Holding’s shareholders, and setting the compensation to be received by such persons;
- approval of management accounts and of Natura &Co Holding’s audited financial statements on a yearly basis;
- suspension of the exercise of a shareholder’s rights in the event of noncompliance with the Brazilian Corporation Law or the Natura &Co Holding By-Laws;
- approval of valuation reports of assets offered by a shareholder to us as payment for the subscription of shares of Natura &Co Holding’s capital stock;
- approval of issuance of shares in excess of the limit of Natura &Co Holding’s authorized capital;
- determination of the annual compensation of Natura &Co Holding’s executive officers, board of directors and fiscal council, when installed;
- approval of any transaction involving Natura &Co Holding’s transformation into a limited liability company, consolidation, merger or spin-off;
- approval of any transaction involving Natura &Co Holding’s dissolution or liquidation, the appointment and dismissal of the respective liquidator and the official review of the reports prepared by it;
- authorization to delist from B3 Novo Mercado and to become a private company, as well as to retain a specialist firm to prepare a valuation report with respect to the value of Natura &Co Holding’s common shares, in such event;
- authorization to Natura &Co Holding’s directors and officers to petition for bankruptcy or file a request for judicial or extrajudicial restructuring;
- approval of stock option plans for managers and employees of Natura &Co Holding and companies directly or indirectly controlled by Natura &Co Holding, excluding shareholder preemptive rights;
- approval of any stock splits or reverse stock splits; and
- approval of any transaction with related parties, disposal or contribution of assets to another company, if the value of the transaction corresponds to more than 50% of the value of Natura &Co Holding’s total assets as set forth in the last balance sheet approved by its shareholders.
Quorum
As a general rule, the Brazilian Corporation Law provides that the quorum for purposes of a shareholders’ meeting consists of the presence of shareholders representing at least 25% of Natura &Co Holding’s issued and outstanding shares on first call, and, if that quorum is not reached, any percentage on second call. If Natura &Co Holding’s shareholders meet to amend the Natura &Co Holding By-Laws, a supermajority quorum of shareholders representing at least two-thirds of Natura &Co Holding’s issued and outstanding shares shall be required on first call, and any percentage will be sufficient on second call.
A shareholder may be represented in a shareholders’ meeting by an attorney-in-fact appointed no more than one year prior to the date of the relevant shareholders’ meeting. The attorney-in-fact must be a shareholder, director or executive officer of Natura &Co Holding, a lawyer or a financial institution registered by their manager.
Generally, the affirmative vote of shareholders representing at least the majority of Natura &Co Holding’s issued and outstanding shares present in person, or represented by proxy, at a shareholders’ meeting is required to approve any proposed action, with abstentions not taken into account. Exceptionally, according to the Brazilian Corporation Law, the affirmative vote of shareholders representing not less than one-half of Natura &Co Holding’s issued and outstanding shares is required to, among other measures:
- to create preferred shares or increase the existing class of preferred shares, without the requirement to issue a proportionate number of other classes of preferred shares
- to change the redemption conditions or rights of one or more classes of preferred shares, or to create a new more senior class;
- reduce the percentage of mandatory dividends;
- change Natura &Co Holding’s corporate purpose;
- consolidate with or merge us into another company;
- engage in a spin-off transaction;
- approve Natura &Co Holding’s participation in a group of companies (as defined in the Brazilian Corporation Law);
- apply for cancellation of any voluntary liquidation;
- approve Natura &Co Holding’s dissolution; and
- approve the merger of all of Natura &Co Holding’s common shares into another Brazilian company.
Location of a Shareholders’ Meeting
Natura &Co Holding’s shareholders’ meetings take place at Natura &Co Holding’s headquarters in the city of São Paulo, state of São Paulo, Brazil. The Brazilian Corporation Law allows Natura &Co Holding’s shareholders to hold meetings in another location in the event of a force majeure, provided that the meetings are held in the city of São Paulo and the relevant notice includes a clear indication of the place where the meeting will occur.
All information relating to shareholders’ meetings will be available (i) at Natura &Co Holding’s headquarters, in the city of São Paulo, state of São Paulo, at Avenida Alexandre Colares, 1188, Sala A17-Bloco A, CEP 05106-000 and (ii) on the internet at Natura &Co Holding’s website (https://ri.naturaeco.com/en/), the website of the CVM (www.cvm.gov.br). The information included on these websites does not form part of this annual report and is not incorporated by reference herein.
Who May Call a Shareholders’ Meeting
The shareholders’ meetings may be called by Natura &Co Holding’s board of directors and by:
- any shareholder, if Natura &Co Holding’s board of directors fails to call a shareholders’ meeting within 60 days after the date it is required to do so under applicable law and the Natura &Co Holding By-Laws;
- shareholders holding at least five percent of Natura &Co Holding’s capital stock, if Natura &Co Holding’s board of directors fails to call a meeting within eight days after receipt of a justified request to call the meeting by those shareholders indicating the proposed agenda. Such percentage may be reduced according the capital stock of the Company, according to CVM Instruction 627/2020;
- shareholders holding at least five percent of Natura &Co Holding’s capital stock if Natura &Co Holding’s board of directors fails to call a meeting within eight days after receipt of a request to call the meeting for the creation of the fiscal council; or
- Natura &Co Holding’s fiscal council, if one is created, if the board of directors fails to call an annual shareholders’ meeting within one month after the date it is required to do so under applicable law and the Natura &Co Holding By-Laws, or if the fiscal council believes that there are important or urgent matters to be addressed.
Documents and Information
The specific documents and information requested for the exercise of the voting rights of our shareholders will be made available electronically on the websites of the CVM and the U.S. Securities and Exchange Commission, as well as on our investor relations website. The following matters, without prejudice to others provided under Brazilian Corporation Law and the regulations issued by the CVM, require specific documents and information:
- matters concerning related parties;
- ordinary Shareholders’ Meeting;
- election of members of the Board of Directors;
- compensation of the Management of our company;
- amendment to our company’s by-laws;
- capital increase or capital reduction;
- issuance of debentures or subscription warrants;
- reduction of the mandatory dividend distribution;
- acquisition of the control of another company;
- appointment of evaluators;
- any matter which entitles the shareholders to exercise their withdrawal rights; and
- mergers, spin-offs, stock swap mergers or consolidation with at least one publicly held company registered with the CVM in a certain category (category A).
Notice of a Shareholders’ Meeting
According to the Brazilian Corporation Law, all notices of general meetings must be published at least three times in the Diário Oficial do Estado de São Paulo, the official newspaper of the state of São Paulo, and in any other newspaper widely circulated, which, in Natura &Co Holding’s case, is the Valor Econômico. The first notice must be published no later than 21 days before the date of the first call of the meeting, and no later than eight days before the date of second call of the meeting. However, in certain circumstances, and upon the request of any shareholder, the CVM may require that the first notice be published 30 days prior to the meeting. The CVM may also, upon the request of any shareholder, terminate, up to 15 days, the period for calling the extraordinary general meeting, in order to understand and analyze the proposals to be submitted to the specific meeting. The notice must include, in addition to the place, date and time, the agenda of the meeting and, in the case of a proposed amendment to the Natura &Co Holding By-Laws, a description of the subject matter of the proposed amendment.
Conditions of Admission to Natura &Co Holding’s Shareholders’ Meeting
In order to attend a shareholders’ meeting and exercise their voting rights shareholders must prove their status as shareholders and their ownership of by presenting his or her identity card/organizational documents and proof of power of attorney, if applicable, and proof of deposit issued by the financial institution responsible for the bookkeeping of the Natura &Co Holding Shares.
A shareholder may be represented at a shareholders’ meeting by a proxy, appointed less than one year before the meeting, who must be one of Natura &Co Holding’s shareholders, or one of Natura &Co Holding’s executive officers or directors, a lawyer or a financial institution represented by their manager.
Delisting from the Novo Mercado
At any time, Natura &Co Holding may decide to delist its common shares from the Novo Mercado. In order to delist its common shares from the Novo Mercado, Natura &Co Holding (or its controlling shareholders) would be required to first launch a tender offer through which Natura &Co Holding or the controlling shareholders would acquire the free float shares, or the Delisting TO. The Delisting TO must comply with the applicable rules of CVM Instruction No. 361, dated March 5, 2002, as amended, or CVM Instruction No. 361, and (i) have a “fair price,” according to the Brazilian Corporation Law; and (ii) be approved by the holders of more than 1/3 of the outstanding free float shares. However, the Delisting TO requirement can be waived so long as holders of a majority of the free float shares approve such waiver. Natura &Co Holding’s delisting from the Novo Mercado will not necessarily result in the loss of its registration as a public company on the B3.
If Natura &Co Holding delists from Novo Mercado due a corporate restructuring transaction, either (i) the surviving company must submit the application for listing on the Novo Mercado within 120 days after the date of the shareholders’ meeting that approved such corporate restructuring transaction or (ii) if the resulting companies do not wish to be listed on the Novo Mercado, the majority of the holders of the outstanding free float shares must approve such corporate restructuring transaction.
In certain circumstances, Natura &Co Holding (or its controlling shareholders) could be required under the Novo Mercado rules to launch a Delisting TO. Novo Mercado regulation stipulates that the compulsory delisting from Novo Mercado will be applied only in the event Natura &Co Holding has violated Novo Mercado listing rules for a period of more than nine months.
Under CVM rules, if the offeror in a Delisting TO (the “Delisting TO Offeror”) subsequent transfers shareholding control within the 12-month period following the occurrence of a Delisting TO, the Delisting TO Offeror must pay to the former shareholders that tendered their shares in the Delisting TO (the “Delisting TO Former Shareholders”), on a pro rata basis, the difference, if any, between the tender offer price paid to the Delisting TO Former Shareholders and the price the Delisting TO Offeror received in such subsequent transfer.
Purchases of Natura &Co Holding’s Common Shares for Treasury
Pursuant to CVM Instruction No. 567/2015, as amended, or CVM Instruction No. 567, the purchase or sale by us of Natura &Co Holding’s own shares requires shareholders’ approval in the event that the transaction:
- takes place outside a stock exchange or over-the-counter market, involves more than 5.0% of the outstanding shares of a certain type or class, and is performed within an 18-month period;
- takes place outside a stock exchange or over-the-counter market and at prices that are 10.0% higher with respect to purchases, and 10.0% lower, with respect to sales, than the price of Natura &Co Holding’s common shares quoted on the relevant stock exchange;
- aims to change or prevent a change in Natura &Co Holding’s controlling shareholding or administrative structure; and
- takes place outside a stock exchange or over-the-counter market and the counterpart is a related party.
Subject to certain conditions described in CVM Instruction No. 567, Natura &Co Holding’s shareholders’ approval is not required for the purchase or sale by us of Natura &Co Holding’s own shares:
- where the counterparty is a member of Natura &Co Holding’s board of directors, Natura &Co Holding’s officer, employee or supplier in the context of exercise of stock options granted under a stock option plan (or other similar plans); or
- in the context of a secondary public offering of treasury shares (or securities convertible or exchangeable into treasury shares).
We may acquire Natura &Co Holding’s own shares to be held in treasury, sold or canceled, pursuant to a resolution of Natura &Co Holding’s board of directors or Natura &Co Holding’s shareholders, as applicable. We may not acquire Natura &Co Holding’s common shares, hold them in treasury or cancel them in the event that such transaction:
- targets shares owned by Natura &Co Holding’s controlling shareholders;
- takes place on organized securities markets at prices higher than market price;
- is concurrent with a public offering for the acquisition of Natura &Co Holding Shares, pursuant to the applicable securities regulations; or
- requires funds greater than those currently available to us.
In order to authorize the purchase of Natura &Co Holding’s own shares, Natura &Co Holding’s board of directors or Natura &Co Holding’s shareholders (through a resolution approved at a shareholders meeting) must specify the purpose of the transaction, the maximum number of shares to be acquired, the total number of Natura &Co Holding’s outstanding shares and the maximum period of time to effect such purchase (not exceeding 18 months), among other information required by CVM Instruction No. 567.
Policy for the Trading of Natura &Co Holding’s Securities by Natura &Co Holding and Its Controlling Shareholder (If Any), Directors and Officers
CVM Resolution No. 44 establishes that “insiders” must abstain from trading Natura &Co Holding’s securities, including derivatives backed by or linked to Natura &Co Holding’s securities, prior to Natura &Co Holding’s disclosure of material information to the market.
Pursuant to our Securities Trading Policy, as approved by our Board of Directors on June 30, 2023, the following persons are considered insiders for purposes of CVM Resolution No. 44: we, Natura &Co Holding’s controlling shareholder (if any), members of Natura &Co Holding’s board of directors, executive officers, members of Natura &Co Holding’s fiscal council, when installed, members of any of Natura &Co Holding’s technical or advisory bodies and whoever by virtue of its title, duty or position in Natura &Co Holding’s company, Natura &Co Holding’s controlling shareholder, controlled companies or affiliates has knowledge of a material fact and is aware that such fact has not been disclosed to the market, including auditors, analysts, underwriters and advisers.
Such restriction on trading also applies:
- to any of Natura &Co Holding’s former officers, members of Natura &Co Holding’s board of directors or Natura &Co Holding’s fiscal council for a six-month period, if any such officer, director or member of the fiscal council left Natura &Co Holding’s company prior to the disclosure of material information he/she was aware of while in office;
- in the event that we intend to acquire another company, consolidate, spin off part or all of Natura &Co Holding’s assets, merge, transform, or reorganize;
- to us, in connection with or for the transfer of Natura &Co Holding’s control, or in the event that an option or mandate to such effect has been granted;
- to Natura &Co Holding’s direct and indirect controlling shareholders, their officers and members of their board of directors, whenever we, any of Natura &Co Holding’s subsidiaries or affiliates are in the process of purchasing or selling Natura &Co Holding Shares or have granted stock options over Natura &Co Holding Shares, or if a mandate for such purposes has been granted; or
- during the 15-day period preceding the disclosure of our quarterly information (informações trimestrais) or our standardized financial statements (demonstrações financeiras padronizadas), which is a standard form report containing relevant financial information derived from our financial statements that we are required to file with the CVM.
A copy of our Information Disclosure and Securities Trading Policy is included as Exhibit 11.2 to this annual report.
Disclosure of Information
We are subject to the reporting requirements established by the Brazilian Corporation Law, the CVM and the B3. We also have an information disclosure policy which was approved by our Board of Directors on June 30, 2023.
Disclosure of Occasional and Periodic Information
Pursuant to the Brazilian Corporation Law, CVM regulations and the listing rules of the Novo Mercado, public companies are required to disclose to the CVM and the B3 the following occasional and periodic information, among others:
- financial statements prepared in accordance with Brazilian GAAP, as well as management’s and the independent auditors’ report, within three months after the end of the fiscal year, or on the date they were made available to the shareholders, whichever is earlier; together with the standard financial statements (Demonstrações Financeiras Padronizadas), a report in a standard form covering the material financial information contained in the financial statements;
- notices of annual shareholders’ meeting on the earlier of (a) the date of their publication or (b) the 21-day prior to the annual shareholders’ meeting;
- summary of the decisions and actions taken at annual shareholders’ meetings, on the date they were held;
- standard financial statements (Demonstrações Financeiras Padronizadas), within three months after the shareholders’ meeting;
- interim standard financial statements (Informações Trimestrais), together with the special review report issued by an independent auditor duly registered with the CVM, within 45 days from the end of each quarter of the year, except the last quarter, or when the company discloses the information to the shareholders, or to third parties, whichever occurs first;
- notices of special shareholders’ meeting on the date of their publication;
- a summary of the decisions and actions taken in our special shareholders’ meetings, on the same day they were held;
- a copy of the minutes of each special shareholders’ meeting, within seven days after the meeting;
- a copy of any shareholders’ agreements, within seven days after the date they are filed with our registered office;
- disclosure of any material developments, on the same date a notice to the market on these developments is published;
- information on any request for judicial reorganization or ratification of extrajudicial reorganization, or for a petition declaring our bankruptcy or a third‑party petition for our bankruptcy that are based on a material amount, on the same date of its filing with a court or on the date we take notice of it in the case of a third‑party petition; and
- information on any judicial decision on our bankruptcy, on the date we take notice of it.
Information the B3 Requires from Companies Listed on the Novo Mercado
In addition to the information required pursuant to applicable legislation, a company with shares listed on the Novo Mercado listing segment of the B3, such as ours, must observe the following additional disclosure requirements, among others:
- the company must disclose the material statements (fatos relevantes), information about payment of dividends and earnings release in English simultaneously with its disclosure in Portuguese; and
- the company must mention in our by-laws the arbitration provisions to which its shareholders and managers are bound.
Disclosure of Trading by Members of Our Board of Directors, Our Executive Officers, Our Fiscal Council Members and Shareholders
According to CVM regulations, our directors, executive officers and members of our fiscal council, when installed, as well as members of any of our technical or advisory committees are required to report to us ownership and trading of our shares or shares of any publicly held company that we control or are controlled by, or entities closely related to them. If the person is an individual, the communication must include the shares held by his or her spouse, partner or dependent that is included in his or her Brazilian tax return and any company directly or indirectly controlled by any of these persons. Such communication must include the following information:
- the name and qualifications of the person providing the information;
- the amount, type and/or class of shares traded, or in the case of other securities traded, the characteristics of such securities, and identification of the issuing company as well as the balance of the amount withheld before and after the trading; and
- the form, price and date of the transaction or transactions.
This information must be sent (1) on the first business day after the appointment of the director, officer or member for his or her position, (2) when the publicly held company registration is submitted to the authorities and (3) within five days after each transaction.
We must provide such information to the CVM and, if applicable, to the stock exchanges and organized over-the-counter exchanges where our securities are listed within 10 days after the end of each month in which any change in ownership occurred, after the end of each month in which our directors, executive officers and members of our fiscal council take office or after the end of each month in which our directors, executive officers and members of our fiscal council communicate to us any change in the information provided with respect to their spouses, partners or dependents that is included in their Brazilian tax return and any company directly or indirectly controlled by any of these persons.
This information must be delivered individually and in consolidated form by each category of persons indicated therein and the consolidated information will be available from the CVM in electronic form.
Our investor relations officer is responsible for the transmission of information received by us to the CVM and, if applicable, to the stock exchanges and organized over-the-counter exchanges where our securities are listed.
Pursuant to CVM Resolution No. 44, whenever there is an increase or reduction of multiples of 5.0% in the ownership of any type of shares forming our capital stock by any shareholder or group of shareholders, including with respect to equity derivative instruments related to such shares, whether directly or indirectly, that shareholder or group of shareholders must disclose the following information to us: (1) the name and credentials of the person acquiring the shares; (2) the target of the acquisition of the ownership interest and the quantity of shares intended to be acquired, including, if relevant, a declaration that the transaction is not intended to effect a change the composition of our Company’s control or administrative structure; (3) the number of shares and other securities and/or derivatives referenced in the shares (with physical or financial settlement); (4) reference to any agreement or contract regulating the exercise of voting rights or the purchase and sale of our securities and (5) in the case of foreign shareholders, the name and Brazilian tax file number of their representative in Brazil. Moreover, we are required to send this information to the CVM and the B3 and update our Brazilian reference form (formulário de referência) accordingly.
Annual Calendar
Pursuant to the Novo Mercado Rules, we must, by December 10 of each year, publicly disclose and send to the B3 an annual calendar with a schedule of Natura &Co Holding’s corporate events. In case the company intends to modify subsequently the date of any event, the calendar must be updated previously to such event.
Corporate Governance
In conducting Natura &Co Holding’s business, we adopt corporate governance practices based on the principles of transparency, general equity principles, accountability and corporate responsibility, all in accordance with the Brazilian Institute of Corporate Governance (Instituto Brasileiro de Governança Corporativa), or “IBGC,” which provides guidelines to companies in order to: (a) increase value; (b) improve performance; (c) facilitate access to capital at lower costs; and (d) contribute to the continuity of operations. Among other corporate governance practices recommended by the IBGC, we have adopted the following practices:
- capital stock composed exclusively by common shares, providing all shareholders with voting rights;
- registration, whenever requested by its shareholders, of the occurrence of dissenting votes;
- maintenance and disclosure of the registry containing the quantity of shares that each member possesses, identifying them by name;
- the requirement that in the event of a sale of shares that would result in a change of control, all shareholders have the right to sell their shares under the same terms as any controlling shareholders (tag along). The change of control premium must be transparent. In the event of the sale of all of any controlling shareholder block, the offeror must provide tag-along rights for shareholders who do not form part of a control block;
- hiring independent auditors to audit Natura &Co Holding’s financial statements;
- forwarding to the CVM and to B3 all the minutes of Natura &Co Holding’s shareholders’ meetings;
- provision in the Natura &Co Holding By-Laws for a fiscal council (on a non-permanent basis upon the affirmative vote of the requisite number of shareholders);
- clear by-laws with respect to (1) the manner in which shareholders’ meetings will be convened; and (2) the election, removal and term of Natura &Co Holding’s directors and executive officers;
- adoption of a board of directors, consisting of nine to thirteen members, who have a unified term of office not to exceed two years, with possibility of renewal;
- policy of disclosure of material acts or facts, with the Investor Relations Officer as the Company’s main spokesperson;
- adoption of a trading policy regarding shares issued by the Company, approved by the board of directors and with controls that enable its compliance;
- transparency in the disclosure of annual reports;
- free access to the information and facilities of Natura &Co Holding’s companies for members of Natura &Co Holding’s board of directors;
- resolution of conflicts between Natura &Co Holding and its shareholders through arbitration, which is the exclusive means of resolving such disputes;
- a general meeting of shareholders with power to (a) elect and dismiss the board of directors’ members, (b) determine the overall annual compensation of the members of the board of directors and board of executive officers, as well as compensation of the members of the fiscal council, when installed, (c) analyze, on an annual basis, the managers’ accounts and resolve the financial statements presented by them, (d) amend the by-laws, (e) resolve the dissolution, liquidation, merger, split and consolidation of us, or of any of Natura &Co Holding’s companies, (f) approve the granting of stock option plans to Natura &Co Holding’s managers and employees, as well as to managers and employees of other companies, direct or indirectly, controlled by us, (g) resolve, as per proposal presented by the management, the allocation of net income for the year and distribution of dividends, (h) elect the liquidator, as well as the fiscal council that shall be installed during the liquidation period, (i) resolve to deregister as a publicly held company and to delist from the special listing segment referred to as the Novo Mercado of B3 and (j) choose a specialized company in charge of determining Natura &Co Holding’s economic value and preparing the valuation report of Natura &Co Holding’s common shares, in the event of deregistering as a publicly held company and delisting from the Novo Mercado, within the companies appointed by the board of directors; and
- the site for the general meeting of shareholders in order to facilitate the presence of all shareholders or their representatives.
See “Presentation of Financial and Other Information—Consolidated Financial Statements—The Transaction,” “Item 4. Information on the Company—B. Business Overview—Certain Agreements With Third Parties” and “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Indebtedness.”
Investors who are non-residents in Brazil must register their investment in shares under Law No. 4,131, or CMN Resolution No. 4,373, and CVM Resolution No. 13 of November 18, 2020 (as amended).
CMN Resolution No. 4,373 affords favorable tax treatment to foreign investors who are not residents in a low or nil tax jurisdiction, as defined by Brazilian tax laws (please refer to the section “Item 10. Additional Information—E. Taxation” for further discussion on the concept of a low or nil tax jurisdiction under Brazilian law).
Under CMN Resolution No. 4,373, investors who are non-residents in Brazil may invest in almost all financial assets and engage in almost all transactions available in the Brazilian financial and capital markets, provided that certain requirements are met. CMN Resolution No. 4,373 covers investors who are individuals, companies, mutual funds and other collective investment entities domiciled or headquartered outside of Brazil. Under CMN Resolution No. 4,373, an investor under this category must:
- appoint one or more representatives in Brazil, which must be a financial institution duly authorized by the Brazilian Central Bank to receive service of process related to any action regarding financial and capital markets legislation, among others;
- obtain a taxpayer identification number from the Brazilian tax authorities;
- appoint one or more authorized custodians in Brazil for its investments, who must be duly authorized by the CVM; and
- through its representative or representatives, register as a foreign investor with the CVM and register its investments with the Brazilian Central Bank.
In addition, an investor operating under the provisions of CMN Resolution No. 4,373 must be registered with the Brazilian internal revenue service pursuant to its Normative Ruling No. 1,863/2018. This registration process is undertaken by the investor’s legal representative in Brazil.
Securities and other financial assets held by non-Brazilian investors pursuant to CMN Resolution No. 4,373 must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Brazilian Central Bank or the CVM. In addition, securities trading is restricted to transactions carried out in the stock exchanges or through organized over-the-counter markets licensed by the CVM, except for transfers resulting from a corporate reorganization, or occurring upon the death of an investor by operation of law or will.
Non-Brazilian investors may also invest directly under Law No. 4,131 and may sell their shares in both private and open market transactions, but these investors are subject to less favorable tax treatment on gains than Resolution No. 4,373 investors. A non-Brazilian direct investor under Law No. 4,131 must:
- register as a foreign direct investor with the Brazilian Central Bank;
- obtain a Brazilian identification number from the Brazilian tax authorities;
- appoint a tax representative in Brazil; and
- appoint a representative in Brazil for service of process in respect of suits based on the Brazilian Corporation Law.
If a holder of ADSs decides to exchange ADSs for the underlying common shares, the holder will be entitled to (i) sell the common shares on the B3 and rely on the depositary’s electronic registration for five business days from the date of exchange to obtain and remit U.S. dollars abroad upon the holder’s sale of our common shares, (ii) convert its investment into a foreign portfolio investment under CMN Resolution No. 4,373, or (iii) convert its investment into a foreign direct investment under Law No. 4,131.
If a holder of ADSs wishes to convert its investment into either a foreign portfolio investment under CMN Resolution No. 4,373 or a foreign direct investment under Law No. 4,131, they should begin the process of obtaining foreign investor registration with the Brazilian Central Bank or with the CVM, as the case may be, in advance of exchanging the ADSs for common shares.
The custodian is authorized to update the depositary’s electronic registration to reflect conversions of ADSs into foreign portfolio investments under CMN Resolution No. 4,373. If a holder of ADSs elects to convert its ADSs into a foreign direct investment under Law No. 4,131, the conversion will be performed by the Brazilian Central Bank after receipt of an electronic request from the custodian with details of the transaction.
If a foreign direct investor under Law No. 4,131 wishes to deposit their shares into the ADR program in exchange for the ADSs, such holder will be required to present to the custodian evidence of payment of capital gains taxes. The conversion will be performed by the Brazilian Central Bank after receipt of an electronic request from the custodian with details of the transaction.
For additional information on Brazilian tax consequences of investing in our common shares, see “Item 10. Additional Information—E. Taxation.”
The following summary contains a description of certain Brazilian and U.S. federal income tax consequences of the ownership and disposition of Natura &Co Holding Shares or ADSs (for purposes of only this section “E. Taxation” referred to as “Shares” and “ADSs,” respectively), but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to the ownership or disposition of Shares or ADSs. The summary is based on the tax laws of Brazil and regulations thereunder and on the tax laws of the United States and regulations thereunder, as of the date hereof, which are subject to change.
Although there is at present no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may culminate in a treaty. No assurance can be given, however, as to whether or when a treaty will enter into force or how it will affect the U.S. Holders (as defined below) of Shares or ADSs. Prospective holders of Shares or ADSs should consult their tax advisers as to the tax consequences of the acquisition, ownership and disposition of Shares or ADSs in their particular circumstances.
Brazilian Tax Considerations
The following discussion is a summary of the Brazilian tax considerations relating to the acquisition, exchange, ownership and disposition of Natura Common Shares or ADSs by a Non-Resident Holder. The discussion is based on Brazilian law as currently in effect, which is subject to change, possibly with retroactive effect, and to differences of interpretation. Any change in such law may change the consequences described below.
The tax consequences described below do not take into account the effects of any tax treaties or reciprocity of tax treatment entered into by Brazil and other countries. The discussion also does not address any tax consequences under the tax laws of any state or locality of Brazil.
The description below is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, exchange, ownership and disposition of our Shares or ADSs. Holders of Shares or ADSs and prospective purchasers thereof should consult their tax advisers with respect to the tax consequences of owning and disposing of Shares or ADSs in light of their particular investment circumstances.
Income Tax
Dividends
Dividends paid by a Brazilian company, such as ourselves, including stock dividends to a Non-Resident Holder are currently not subject to withholding income tax in Brazil, to the extent that such amounts are related to profits generated since January 1, 1996. Dividends relating to profits generated prior to January 1, 1996 may be subject to Brazilian withholding tax at varying rates, depending on the year the profits were generated.
Law No. 11,638, dated December 28, 2007, significantly altered the Brazilian Corporation Law in order to align Brazilian GAAP with the IFRS Accounting Standards. Nonetheless, Law No. 11,941, of May 27, 2009, introduced the Transitory Tax Regime, or “RTT,” in order to render neutral, from a tax perspective, all the changes provided by Law 11,638/07. Under the RTT, for tax purposes, legal entities should observe the accounting methods and criteria that were effective on December 31, 2007.
Profits determined pursuant to Law 11,638/2007, or the IFRS Accounting Standards Profits, may differ from the profits calculated pursuant to the accounting methods and criteria as effective on December 31, 2007, or 2007 Profits.
While it was general market practice to distribute exempted dividends with reference to the IFRS Accounting Standars Profits, Normative Ruling No. 1,397 issued by the Brazilian tax authorities on September 16, 2013 established that legal entities should observe the 2007 Profits in order to determine the amount of profits that could be distributed as exempted income to their beneficiaries.
Any profits paid in excess of said 2007 Profits, or “Excess Dividends,” should, in the tax authorities’ view and in the specific case of non-resident beneficiaries, be subject to the following rules of taxation: (1) 15% withholding income tax, in case of beneficiaries domiciled abroad, but not in a Tax Haven jurisdiction (as defined below, and (2) 25% withholding income tax, in the case of beneficiaries domiciled in a Tax Haven jurisdiction.
In order to mitigate potential disputes on the subject, Law No. 12,973, of May 13, 2014, in addition to revoking the RTT, introduced a new set of tax rules, or “New Brazilian Tax Regime,” including new provisions with respect to Excess Dividends. Under these new provisions, (1) Excess Dividends related to profits assessed from 2008 to 2013 are exempt; (2) potential disputes remain concerning the Excess Dividends related to 2014 profits, since Law No 12,973/2014 has not expressly excluded those amounts from taxation and Normative Ruling No, 1,492, issued by the Brazilian tax authorities on September 17, 2014, established they are subject to taxation when distributed by companies which have not elected to apply the New Brazilian Tax Regime in 2014, like our company; and (3) as of 2015, as the New Brazilian Tax Regime is mandatory and has completely replaced the RTT, dividends calculated based on the IFRS Accounting Standards should be considered fully exempt.
We cannot assure you that the Brazilian federal government will not increase the withholding income tax on dividends in the future. In the ongoing tax reform proposals, the Brazilian government presented last year to the Brazilian Congress a bill of law - Bill of Law 2,337/2021 - to reinstate a withholding taxation of dividends. Bill of Law 2,337/2021 was approved by the House of Representatives, to establish a 15% withholding taxation on dividends paid to non-resident beneficiaries. The appreciation of this bill of law, however, has been suspended in the Brazilian Senate, and currently there is no certainty as to if and when such bill of law will be enacted. At this point, it is uncertain if such bill of law will be voted by the Senate in the short term.
Interest on Shareholders’ Equity
Law No. 9,249, dated December 1995, as amended, allows a Brazilian corporation, such as ourselves, to make distributions to shareholders of interest on net equity and to treat those payments as a deductible expense for purposes of calculating Brazilian corporate income tax and social contribution on net profits, subject to the limits described below. These distributions may be paid in cash. For tax purposes, this interest is limited to the daily pro rata variation of the Long-Term Rate (Taxa de Longo Prazo – TLP) multiplied by certain net equity accounts of the Brazilian company with certain adjustments, as determined by the Brazilian Central Bank from time to time, and the amount of this deductible expense may not exceed the greater of:
- 50% of the net profits (after the deduction of social contribution on net profit but before taking into account allowances for income tax and the interest on shareholders’ equity) for the period in respect of which the payment is made; or
- 50% of our accumulated profits and profits reserves.
Payment of interest on shareholders’ equity to a Non-Resident Holder is subject to withholding income tax at the rate of 15%, or 25% for individuals or entities residing in a “Tax Haven.”
According to Brazilian legislation, a “Tax Haven” jurisdiction is one in which there is no income taxation or where the local income tax rate is generally applied at rates under 20%. In addition, jurisdictions where the legislation imposes restrictions to the disclosure of the shareholder composition of the legal entity, its ownership or the identification of the ultimate beneficiary of the earnings attributed to the non-resident are also deemed to be “Tax Havens.” Ministry of Economy (formerly Ministry of Finance) Ordinance No. 488, dated November 28, 2014, provided for the possibility of that 20% threshold being reduced to 17% if the corresponding jurisdictions are aligned with international standards of fiscal transparency in accordance with rules established by the Brazilian tax authorities in Normative Ruling No. 1,530 dated December 19, 2014.
On June 24, 2008, and with effect as of January 1, 2009, Law No. 11,727/08 created the concept of a Privileged Tax Regime, in connection with transactions subject to Brazilian transfer pricing rules and also applicable to thin capitalization/cross border interest deductibility rules, which is broader than the concept of a Tax Haven. Pursuant to Law No. 11,727/08, a jurisdiction will be considered a Privileged Tax Regime if it (1) does not tax income or taxes it at a maximum rate lower than 20% or 17%, provided that the requirements set forth in Normative Ruling No. 1,530 and Ordinance No. 488 are met; (2) grants tax advantages to a non-resident entity or individual (i) without the need to carry out a substantial economic activity in the country or a said territory or (ii) conditioned on the non-exercise of a substantial economic activity in the country or a said territory; (3) does not tax or taxes proceeds generated abroad at a maximum rate lower than 20% or 17%, as applicable provided that the requirements set forth in Normative Ruling No. 1,530 are met; or (4) restricts the ownership disclosure of assets and ownership rights or restricts disclosure about economic transactions carried out.
In addition, on June 4, 2010, the Brazilian tax authorities enacted Normative Ruling No. 1,037 listing (i) the countries and jurisdictions considered Tax Havens; and (ii) the Privileged Tax Regimes.
Although we believe that the best interpretation of the current tax legislation is that the abovementioned “privileged tax regime” concept should apply solely for purposes of Brazilian transfer pricing, thin capitalization/cross border interest deductibility rules, there is no assurance that Brazilian tax authorities will not attempt to apply the concept of Privileged Tax Regimes to other types of transactions.
As of the date of this annual report, the understanding of the Brazilian tax authorities is in the sense that the rate of 15% of withholding income tax applies to payments made to beneficiaries which are resident in Privileged Tax Regimes (Tax Ruling COSIT No. 575, of December 20, 2017 and Tax Ruling COSIT No. 217 of May 9, 2017). In any case, if Brazilian tax authorities determine that payments made to a Non-Resident Holder under a Privileged Tax Regime are subject to the same rules applicable to payments made to Non-Resident Holders located in a Tax Haven, the withholding income tax applicable to such payments could be assessed at a rate up to 25%.
Holders of Shares or ADSs and prospective purchasers should consult with their own tax advisers regarding the consequences of the implementation of Law No. 11,727/08, Normative Ruling No. 1,037 and of any related Brazilian tax laws or regulations concerning Tax Havens and Privileged Tax Regimes.
These payments may be included, at their net value, as part of any mandatory dividend, as discussed above under “Item 8. Financial Information—A. Consolidated statements and other financial information—Dividends and Dividend Policy.”
Distributions of interest on shareholders’ equity to Non-Resident Holders may be converted into U.S. dollars and remitted outside Brazil, subject to applicable exchange controls, if the investment is registered with the Brazilian Central Bank.
It is important to highlight that Bill of Law No. 2,337/21 revokes the possibility of a Brazilian company paying Interest on Shareholders’ Equity. However, as mentioned in the previous topic, it is currently uncertain whether the Brazilian Senate will appreciate and vote this bill in the short term.
Sale of Shares
Taxation of Capital Gain Earned in the Country in a Transaction Not Carried Out on the Brazilian Stock Exchange (Or Similar Exchange)
According to Law No. 10,833, the gains recognized on a disposition of assets located in Brazil, such as our Shares, by a Non-Resident Holder, could be subject to withholding tax in Brazil. This rule is applicable regardless of whether the disposition occurs in Brazil or abroad and regardless of whether the disposition is made to an individual or entity resident or domiciled in Brazil.
Generally, capital gains realized as a result of a disposition of Shares are the positive difference between the amount realized on the disposition of the Shares and the acquisition cost of such Shares.
Historically, the income tax on these gains had to be withheld at source and the tax rate would vary depending on the domicile of the Non-Resident Holder:
- Arguably, capital gains earned by a Non-Resident Holder who (i) has its investment registered in Brazil with the Brazilian Central Bank under the rules of CMN Resolution No. 4,373, or “Registered Holder,” and (ii) is not a Tax Haven resident should be subject to the income tax at a 15% rate, although different interpretations may be raised to sustain the application of the progressive rates set forth by Law No. 13,259/2016 (see below);
- If the Non-Resident Holder is not a Registered Holder and is not located in a Tax Haven, a progressive tax rate will be applied as provided for in Law No. 13,259/2016, as follows: (i) at a rate of 15% for the portion of the gain up to R$5 million, (ii) at a rate of 17.5% for the portion of the gain that exceeds R$5 million but does not exceed R$10 million, (iii) at a rate of 20% for the portion of the gain that exceeds R$10 million but does not exceed R$30 million, and (iv) 22.5% for the portion of the gain that exceeds R$30 million. This same tax treatment may arguably apply to the Non-Resident Holder that is a Registered Holder and is in a Tax Haven, although a different interpretation may be raised; and
- If the Non-Resident Holder is not a Registered Holder and is located in a Tax Haven, the tax rate will be 25% (flat rate).
The tax must be withheld and paid by the buyer or, in cases where the buyer and seller are domiciled abroad, a Brazilian legal representative of buyer shall be designated for the payment of the tax. If the capital gains are related to transactions conducted on the Brazilian non-organized over-the-counter market with intermediation of a financial institution, the withholding income tax of 0.005% will apply and can be offset against the potential income tax due on the capital gain.
On September 22, 2015, the Brazilian federal government enacted Provisional Measure No. 692/2015, later converted into Law No. 13,259/2016, which introduced a regime based on the application of progressive tax rates for income taxation of capital gains recognized by Brazilian individuals on the disposition of assets in general and, as per Normative Ruling No. 1,732 of August 25, 2017, also by non-resident entities and individuals on the disposition of permanent assets (generally noncurrent assets from an accounting perspective) not carried out on a Brazilian stock exchange. Under Law No. 13,259/2016, effective as of January 1, 2017 (as confirmed by Declaratory Act No. 3, of April 27, 2016), capital gains recognized by Brazilian individuals on the disposition of assets in general and by non-resident entities and individuals on the disposition of permanent assets outside of a Brazilian stock exchange shall be subject to the following rates of income tax: (1) 15% for the part of the gain that does not exceed R$5 million, (2) 17.5% for the part of the gain that exceeds R$5 million but does not exceed R$10 million, (3) 20% for the part of the gain that exceeds R$10 million but does not exceed R$30 million and (4) 22.5% for the part of the gain that exceeds R$30 million. However, there are good arguments to sustain that the progressive tax rates provided for in Law No. 13,259/2016 should not apply to gains recognized by a Non-Resident Holder that is a Registered Holder and not a Tax Haven resident.
Taxation of the Capital Gains Earned in the Country in a Transaction Carried Out on the Brazilian Stock Exchange (Or Similar Exchange)
There could also be the levy of income tax on net gains earned by a Non-Resident Holder on the disposition of Shares sold on the Brazilian stock exchange, commodities or futures exchange (or similar exchange). The tax rate will vary according to the type of investment registration made by the Non-Resident Holder at the Brazilian Central Bank, as well as the location of the beneficiary:
- Capital gains earned by a Non-Resident Holder who (i) has its investment registered in Brazil with the Brazilian Central Bank under the rules of CMN Resolution No. 4,373, or “Registered Holder,” and (ii) is not a Tax Haven resident are exempt from income tax;
- Capital gains earned by a (A) Non-Resident Holder who (i) is not a Registered Holder and (ii) is not a Tax Haven resident and (B) a Non-Resident Holder that (i) is a Registered Holder and (ii) is a Tax Haven resident are arguably subject to income tax at a rate of 15%, although controversies do exist if a more burdensome tax rate should be applicable. In the latter case, withholding income tax of 0.005% will be levied by the intermediary institution (that is, a broker) that receives the order directly from the Non-Resident Holder, which can be later offset against the 15% income tax due on the capital gain, which will be paid by the Non-Resident Holder’s tax representative in Brazil; and
- Capital gains earned by a Non-Resident Holder who is not a Registered Holder and is a Tax Haven resident are subject in principle to income tax at a rate of 25%.
Any other gains realized on a disposition of Shares that is not carried out in an exchange environment or that is conducted in the non-organized “OTC market” are subject to the same rules set forth in item “(i) Taxation of Capital Gain Earned in the Country in a Transaction Not Carried Out on the Brazilian Stock Exchange (Or Similar Exchange).” Gains realized by a Non-Resident Holder on the disposition of preemptive rights held in stock will be subject to Brazilian income tax, according to the same rules applicable to the sale of Shares.
Capital Reduction
In case of a capital reduction by a Brazilian corporation, such as ourselves, the positive difference between the amount received by the Non-Resident Holder and the acquisition cost of the shares is treated as capital gain derived from a transaction held out of a Brazilian exchange described above. There can be no assurance that the current preferential tax treatment of Registered Holders will continue in the future.
Sale of ADSs
Pursuant to Article 26 of Law No. 10,833, the sale of an asset located in Brazil by a Non-Resident Holder, whether to a Brazilian resident or to another Non-Resident Holder, is subject to Brazilian income tax. Our understanding is that ADSs do not qualify as assets located in Brazil and thus should not be subject to the Brazilian income tax. Notwithstanding the foregoing, since the tax rule referred to in Article 26 of Law No. 10,833 provides broad language and has not been definitely analyzed by the administrative or judicial courts, we are unable to assure you of the final outcome of such discussion.
Gains on the Exchange of ADSs for Shares
Non-Resident Holders may exchange ADSs for the underlying Shares, sell the Shares on the Brazilian stock exchange and the sale proceeds may be remitted abroad. As a general rule, the exchange of ADSs for shares is not subject to income taxation in Brazil.
Upon receipt of the underlying Shares in exchange for ADSs, Non-Resident Holders may also elect to register with the Brazilian Central Bank the U.S. dollar value of such Shares as a foreign portfolio investment under CMN Resolution No. 4,373, which will entitle them to the tax treatment applicable to Registered Holders described above.
Alternatively, the Non-Resident Holder is also entitled to register with the Brazilian Central Bank the U.S. dollar value of such Shares as a foreign direct investment under Law No. 4,131, in which case the respective sale would be subject to the tax treatment applicable to transactions carried out of by a Non-Resident Holder that is not a Registered Holder.
See “Item 3. Key Information—D. Risk Factors—Risks Relating to the Natura &Co Holding Shares and ADSs—An exchange of ADSs for shares risks the loss of certain foreign currency remittance advantages.”
Gains on the Exchange of Shares for ADSs
The deposit of Shares in exchange for ADSs by a Non-Resident Holder may be subject to Brazilian income tax on capital gains if the acquisition cost of the Shares is lower than the market price for such Shares.
There are arguments to support the position that there should be no withholding tax on this transaction, because: (i) the deposit of Shares would not have represented the disposal of the investment; and (ii) the transaction is registered on the stock exchange. Given the uncertainty of these two positions, we recommend that you consult your tax advisers.
Tax on Foreign Exchange Transactions (IOF/Exchange)
The Tax on Foreign Exchange Transactions, or “IOF/Exchange,” is due on the conversion of Brazilian or foreign currency, or any document that represents it, into an available equivalent amount. Currently, for most foreign exchange transactions, the IOF/Exchange rate is 0.38%.
However, currently different IOF/Exchange rates apply to foreign exchange transactions carried out in connection with investments made by Non-Resident Holders in the Brazilian financial and capital markets under CMN Resolution No. 4,373. These rates are:
| (i) |
in the settlement of foreign exchange transactions contracted by a foreign investor for the inflow of funds into Brazil, including by means of simultaneous foreign exchange transactions, for the constitution of a guarantee margin, initial or additional, required by stock, commodities and futures exchanges, demanded: zero; |
| (ii) |
in the settlement of foreign exchange transactions contracted by a foreign investor for the inflow of funds into Brazil, including by means of simultaneous foreign exchange transactions, for application in the financial and capital markets: zero; |
| (iii) |
simultaneous foreign exchange transactions for the inflow of funds into Brazil resulting from the cancellation of depositary receipts for the acquisition of shares negotiated on the stock exchange: zero; |
| (iv) |
returns of investments made in the Brazilian capital and financial markets: zero; |
| (v) |
distribution of interest on shareholders’ equity and dividends: zero; |
| (vi) |
in the settlement of simultaneous exchange transactions for the inflow of funds into Brazil, deriving from the change in the foreign investor’s regime, from the direct investment referred to in Law No. 4,131, for investment on shares negotiated on the stock exchange, as regulated by CMN; zero; and |
| (vii) |
in the transaction for the acquisition of foreign currency by a legal entity authorized to operate in the foreign exchange market, contracted simultaneously with a sale transaction, when required exclusively due to regulatory provisions: zero. |
Under the provisions of the Law, the Brazilian government may increase any of these rates at any time, up to 25%. However, any increase in rates may only apply to future transactions.
Tax on Transactions Involving Bonds and Securities and Derivatives
Brazilian law imposes a tax on transactions involving securities, including those carried out on a Brazilian stock exchange, or IOF/Securities Tax.
The IOF/Securities Tax rate applicable to most transactions involving shares is currently zero, although the Brazilian Federal Government may increase such rate at any time to up to 1.5% of the transaction amount per day, but only in respect of transactions after the applicable rate increase becomes effective.
Other Brazilian Taxes
There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of common shares by a Non-Brazilian Holder, except for gift and inheritance taxes imposed by certain Brazilian states on gifts or bequests by individuals or entities not domiciled or residing in Brazil to individuals or entities domiciled or residing within such states. There are no Brazilian stamp, issue, registration or similar taxes or duties payable by holders of common shares.
Material U.S. Federal Income Tax Considerations for U.S. Holders
The following is a description of the material U.S. federal income tax consequences to the U.S. Holders described below of owning and disposing of Shares or ADSs, but it does not purport to be a comprehensive description of all tax considerations that may be relevant to a particular person’s decision to hold the securities. This discussion applies only to a U.S. Holder that holds Shares or ADSs as capital assets for tax purposes. In addition, it does not describe all of the tax consequences that may be relevant in light of the U.S. Holder’s particular circumstances, including alternative minimum tax consequences, the potential application of the provisions of the Internal Revenue Code of 1986, as amended (the “Code”) known as the Medicare contribution tax, the tax consequences to persons subject to special accounting rules as a result of any item of gross income with respect to our Shares or ADSs being taken into account in an applicable financial statement and tax consequences applicable to U.S. Holders subject to special rules, such as:
- certain financial institutions;
- dealers or traders in securities who use a mark-to-market method of tax accounting;
- persons holding Shares or ADSs as part of a straddle, wash sale, conversion transaction or integrated transaction, or persons entering into a constructive sale with respect to the Shares or ADSs;
- persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
- entities classified as partnerships for U.S. federal income tax purposes;
- tax-exempt entities, including an “individual retirement account” or “Roth IRA”;
- persons that own or are deemed to own 10% or more of our voting stock;
- persons who acquired our Shares or ADSs pursuant to the exercise of an employee stock option or otherwise as compensation; or
- persons holding shares in connection with a trade or business conducted outside of the United States.
If an entity that is classified as a partnership for U.S. federal income tax purposes holds Shares or ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding Shares or ADSs and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of holding and disposing of the Shares or ADSs.
This discussion is based on the Code, administrative pronouncements, judicial decisions, and final, temporary and proposed Treasury regulations, all as of the date hereof, any of which is subject to change, possibly with retroactive effect.
A “U.S. Holder” is a holder who, for U.S. federal income tax purposes, is a beneficial owner of Shares or ADSs and is:
- a citizen or individual resident of the United States;
- a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or
- an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
In general, a U.S. Holder who owns ADSs will be treated as the owner of the underlying shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the underlying shares represented by those ADSs.
U.S. Holders should consult their tax advisers concerning the U.S. federal, state, local and non-U.S. tax consequences of owning and disposing of Shares or ADSs in their particular circumstances.
This discussion assumes that we are not, and will not become a passive foreign investment company (a “PFIC”) as described below.
Taxation of Distributions
Subject to the PFIC rules described below, distributions paid on Shares or ADSs, other than certain pro rata distributions of common shares, will be treated as dividends to the extent paid out of the Company’s current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because the Company does not maintain calculations of its earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to U.S. Holders as dividends. Subject to applicable limitations, dividends paid to certain non-corporate U.S. Holders may be eligible for taxation as “qualified dividend income” and therefore may be taxable at rates applicable to long-term capital gains. Dividends will constitute qualified dividend income if the Shares or ADSs with respect to which such dividends are paid are readily tradable on an established securities market in the U.S. (such as the NYSE, where our ADSs were traded until they were delisted), and we are not a PFIC in the year in which the dividend is paid (or the prior taxable year). Dividends paid to non-corporate U.S. Holders in 2023 with respect to ADSs may be eligible for taxation as qualified dividend income, and therefore be subject to tax at rates applicable to long-term capital gains, because the ADSs were traded on NYSE in 2023. It is unclear whether these reduced rates will apply to dividends paid with respect to our Shares that are not represented by ADSs. Following the delisting of our ADSs from the NYSE, any dividends paid may not be eligible for taxation as qualified dividend income. U.S. Holders should consult their tax advisers regarding the availability of the reduced tax rate on dividends in their particular circumstances.
The amount of a dividend will include any amounts withheld by the Company in respect of Brazilian taxes. The amount of the dividend will be treated as foreign-source dividend income to U.S. Holders and will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code. Dividends will be included in a U.S. Holder’s income on the date of the U.S. Holder’s or in the case of ADSs, the Depositary’s, receipt of the dividend. The amount of any dividend income paid in reais will be the U.S. dollar amount calculated by reference to the exchange rate in effect on the date of receipt, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder should not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt.
Subject to certain generally applicable limitations, which may vary depending upon a U.S. Holder’s circumstances, a U.S. Holder generally will be entitled to a credit against its U.S. federal income tax liability for Brazilian income taxes withheld from dividends on Shares or ADSs, if such taxes were paid or accrued in a taxable year beginning before December 28, 2021. A U.S. Holder will be entitled to use these foreign tax credits to offset only the portion of its U.S. tax liability that is attributable to foreign-source income. This limitation on foreign taxes eligible for credit is calculated separately with regard to specific classes of income. In addition, a U.S. Holder must satisfy minimum holding period requirements in order to be eligible to claim a foreign tax credit for foreign taxes withheld on dividends. Treasury regulations, which apply to foreign taxes paid or accrued in taxable years beginning on or after December 28, 2021 (the “Final Treasury Regulations”), impose additional requirements for foreign taxes to be eligible for credit. We have not determined whether these requirements have been met with respect to any withholding tax imposed on dividends on Shares or ADSs. However, recent notices from the Internal Revenue Service (the "IRS") indicate that the Treasury and the IRS are considering proposing amendments to the Final Treasury Regulations and allow taxpayers, subject to certain conditions, to defer the application of many aspects of such regulations until the date when a notice or other guidance withdrawing or modifying this temporary relief is issued (or any later date specified in such notice or other guidance). Instead of claiming a credit, subject to generally applicable limitations under U.S. law, U.S. Holders may be able to elect to deduct otherwise creditable withholding taxes in computing their taxable income. An election to deduct creditable foreign taxes instead of claiming foreign tax credits applies to all creditable foreign taxes paid or accrued in the taxable year. Even if the Brazilian withholding taxes on dividends are not eligible for a foreign tax credit, a U.S. Holder may be entitled to deduct such taxes, subject to applicable limitations under the Code. The rules governing foreign tax credits and deductibility of foreign taxes are complex and U.S. Holders should consult their own tax advisers regarding the availability of foreign tax credits for any amounts withheld with respect to dividends on Shares or ADSs to which the Final Treasury Regulations apply.
Sale or Other Disposition of Shares or ADSs
For U.S. federal income tax purposes, gain or loss realized on the sale or other disposition of Shares or ADSs (including any sale or disposition of the underlying Share of an ADS upon the cancellation of the ADS) will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder held the Shares or ADSs for more than one year. The amount of the gain or loss will equal the difference between the U.S. Holder’s tax basis in the Shares or ADSs disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. This gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes.
Because a U.S. Holder’s gains from the sale or exchange of Shares or ADSs will generally be treated as U.S. source income, the limitation described above may preclude a U.S. Holder from claiming a credit for all or a portion of the foreign taxes imposed on any such gains. In addition, in taxable years to which they apply, the Final Treasury Regulations generally will preclude U.S. Holders from claiming a foreign tax credit with respect to any tax imposed on gains from the disposition of shares by a jurisdiction, such as Brazil, that does not have an applicable income tax treaty with the United States, although certain of such taxes may be applied to reduce the amount realized by the U.S. Holder on the disposition. However, as discussed above, recent notices from the IRS indicate that the Treasury and the IRS are considering proposing amendments to the Final Treasury Regulations and allow taxpayers, subject to certain conditions, to defer the application of many aspects of such regulations until the date when a notice or other guidance withdrawing or modifying this temporary relief is issued (or any later date specified in such notice or other guidance).
The rules governing foreign tax credits are complex and, therefore, U.S. Holders are urged to consult their own tax advisers regarding the creditability or deductibility of any Brazilian tax in their particular circumstances (including any applicable limitations).
Passive Foreign Investment Company Rules
We believe that we were not a PFIC for U.S. federal income tax purposes for the taxable year ending December 31, 2023. However, PFIC status depends on the composition of a company’s income and assets and, for so long as a company is "publicly traded" for purposes of the PFIC rules, the market value of its assets from time to time. After our ADSs are delisted from the NYSE, we might not be considered "publicly traded" for purposes of the PFIC rules. If certain conditions are met, we or certain of our shareholders may elect to determine our PFIC status by reference to the adjusted basis in our assets or those of our subsidiaries. Accordingly, there can be no assurance that the Company will not be a PFIC for the current or any subsequent taxable year.
If we were a PFIC for any taxable year during which a U.S. Holder held Shares or ADSs, gain recognized by a U.S. Holder on a sale or other disposition (including certain pledges) of the Shares or ADSs would be allocated ratably over the U.S. Holder’s holding period for the Shares or ADSs. The amounts allocated to the taxable year of the sale or other disposition and to any year before the Company became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed on the tax on such amount. Further, to the extent that any distribution received by a U.S. Holder on its Shares or ADSs exceeds 125% of the average of the annual distributions on the Shares or ADSs received during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, that distribution would be subject to taxation in the same manner as gain, described immediately above. Certain elections may be available that would result in alternative treatments (such as mark-to-market treatment) of the Shares or ADSs. U.S. Holders should consult their tax advisers to determine whether any of these elections would be available and, if so, what the consequences of the alternative treatments would be in their particular circumstances.
In addition, if we were a PFIC or, with respect to a particular U.S. Holder, were treated as a PFIC, for the taxable year in which we paid a dividend or for the prior taxable year, the preferential dividend rates discussed above with respect to dividends paid to certain non-corporate U.S. Holders would not apply.
If a U.S. Holder owns Shares or ADSs during any year in which we were a PFIC, the holder generally must file annual reports containing such information as the U.S. Treasury may require on IRS Form 8621 (or any successor form) with respect to the Company, generally with the holder’s federal income tax return for that year.
U.S. Holders should consult their tax advisers regarding whether the Company is or was a PFIC and the potential application of the PFIC rules.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is a corporation or other exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding.
The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the holder’s U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to the IRS.
Not applicable.
Not applicable.
We are subject to the informational requirements of the Exchange Act. Accordingly, we are required to file reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. You may inspect and copy reports and other information filed with the SEC at the Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet website that contains reports and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov. The information included on these websites does not form part of this annual report and is not incorporated by reference herein.
Not applicable.
Not applicable.
Overview
We are exposed to market risks in the ordinary course of our business, including the effects of interest rate changes and foreign currency fluctuations. Information relating to quantitative and qualitative disclosures about these market risks is described below.
Derivative Financial Instruments to Hedge Foreign Market Risks
We classify derivative financial instruments as “financial” derivatives and “operating” derivatives. Financial derivatives include swaps or forwards used to hedge exchange rate or interest rate risks related to loans, financing, debt securities and loans between related parties. Operating derivatives include forward contracts used to hedge the exchange rate risk of our operational activities (such as import and export transactions).
The table below sets forth the balances of financial derivatives as of the dates indicated:
|
|
Fair Value(2) |
Gain (Loss) | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
As of December 31, |
As of December 31, | |||||||||
|
|
2023 |
2022 |
2021 |
2023 |
2022 |
2021 | |||||
|
|
(in millions of R$) | ||||||||||
|
Type of transaction |
|
|
|
|
|
| |||||
|
Swap contracts(1) |
|
|
|
|
|
| |||||
|
Asset position: |
|
|
|
|
|
| |||||
|
Long position in U.S. dollars |
876.7 |
6,108.5 |
6,882.0 |
19.5 |
34.9 |
978.4 | |||||
|
Liability position: |
|
|
|
|
|
| |||||
|
CDI floating rate: |
|
|
|
|
|
| |||||
|
Short position in CDI |
(824.3) |
(6,874.3) |
(6,348.4) |
- |
(697.7) |
(823.9) | |||||
|
Forward contracts (3) |
|
|
|
|
|
| |||||
|
Net exchange position |
(103.5) |
(31,1) |
(17.2) |
(62.9) |
(14.1) |
(0.1) | |||||
|
Total net financial derivatives |
(51.2) |
(796.9) |
516.4 |
(43.5) |
(676.9) |
154.4 | |||||
(1) Swap transactions consist of swapping the exchange rate fluctuation for a percentage of the floating rate Interbank Deposit Rate (CDI rate) — post-fixed CDI rate — in the case of Brazil.
(2) Fair value refers to the value of outstanding contracted derivatives recognized in balance sheets.
(3) Forward operations consist of hedging against exchange variation through operations involving various currencies against the pound sterling.
As of December 31, 2023, 2022 and 2021, for derivatives maintained by us and our subsidiaries, since our derivative financial instrument contracts are entered into directly with financial institutions and not through a stock exchange, there are no margin calls deposited as guarantees of these transactions.
Foreign Currency Exchange Rate Risk
We are exposed to the exchange risk resulting from financial instruments in currencies other than their functional currencies, as well as operating cash flows in foreign currencies. To reduce this exposure, policies were implemented to hedge against foreign exchange risk. These policies set maximum exposure levels with regard to these risks.
The treasury procedures defined by the current policies include quarterly projection and assessment of our consolidated foreign exchange rate exposure, on which management’s decision-making is based. Our foreign exchange hedging policy considers the amounts of foreign currency of receivables and payables balances from commitments already assumed and recorded in the financial statements, as well as future cash flows associated with transactions predicted to be highly probable with an average term of up to twelve months.
On August 28, 2023, Natura Cosméticos, Natura &Co, Natura &Co Luxembourg and the trustee of the ESG Notes entered into a first supplemental, effecting the substitution of Natura Cosméticos for Natura &Co Luxembourg as the issuer under the ESG Notes, in accordance with the terms of the ESG Notes indenture. As a result of the substitution, Natura Cosméticos became an additional guarantor under the ESG Notes.
Our debt denominated in U.S. dollars was included in a hedge accounting structure, to hedge against variations in payments arising from exchange rate and interest rate risks. Considering the substitution of the issuer of the ESG Notes described above and given that the functional currency of Natura &Co Luxembourg is the U.S. dollar, the protected risk was no longer eligible within the hedge accounting structure and, consequently, we proceeded with the derecognition of this structure. As a result, the amount of R$4,958.3 million, previously recognized in the liabilities of the subsidiary Natura Cosméticos, was derecognized and recognized in the subsidiary Natura &Co Luxembourg. Losses recognized in other comprehensive income of R$700.8 million, before tax effects, were reclassified to the statement of profit and loss for the nine-month period ended September 30, 2023, as a financial expense. Additionally, the derivatives liability position of R$1,380.4 million was settled with the corresponding financial institutions in September 2023.
Sensitivity Analysis
Our foreign exchange risk sensitivity analysis considers, in addition to the assets and liabilities with exposure to fluctuations in exchange rates recorded in the balance sheet, the fair value of the financial instruments entered into by us to hedge certain exposures as of December 31, 2023 and 2022, as set forth in the table below:
|
|
As of December 31, | |||
|---|---|---|---|---|
|
|
2023 |
2022 | ||
|
|
(in millions of R$) | |||
|
Borrowing and financing in foreign currency in Brazil (1) |
— |
(5,252.4) | ||
|
Trade accounts receivable in foreign currency in Brazil |
328.3 |
521.4 | ||
|
Trade accounts payable in foreign currencies in Brazil |
(158.5) |
(15.2) | ||
|
Fair value of financial derivatives |
(38.4) |
6,101.4 | ||
|
Net asset exposure |
131.4 |
1,355.2 | ||
(1) Excluding transaction costs.
This analysis considers only financial assets and liabilities recorded in Brazil in foreign currency, since exposure to the foreign exchange rate variation in other countries is close to zero. The following table shows the projection of the incremental loss that would have been recognized in profit or loss for the subsequent year, if the current net foreign exchange exposure remains static, based on the following scenarios:
|
|
Scenario (R$4.8413 for U.S.$1.00) |
Scenario (R$4.8953 for U.S.$1.00) |
Scenario I (R$3.6715 for U.S.$1.00) |
Scenario II (R$2.4477 for U.S.$1.00) | ||||
|---|---|---|---|---|---|---|---|---|
|
Operation/Instrument |
Brazilian Real |
Probable |
Depreciation 25% |
Depreciation 50% | ||||
|
Assets denominated in U.S.$ |
|
|
| |||||
|
Fair value of financial derivatives |
(38.4) |
(38.9) |
(29.1) |
(19.4) | ||||
|
Trade accounts payable in foreign currency in Brazil |
328.3 |
332.0 |
249.0 |
166.0 | ||||
|
|
|
|
|
| ||||
|
Liabilities denominated in U.S.$ |
|
|
|
| ||||
|
Trade accounts payable in foreign currencies in Brazil |
(158.5) |
(160.3) |
(120.2) |
(80.1) | ||||
|
Impact on net income and shareholders’ equity |
131.4 |
1.5 |
(31.8) |
(65.0) | ||||
The probable scenario considers future U.S. dollar rates for a 90-day term according to quotations obtained at the B3 as of December 31, 2023, and in line with the first maturities of financial instruments with an exchange rate exposure of R$4.8953 / U.S.$1.00. Scenarios I and II consider an increase/decrease in the US dollar of 25% (R$3.6715 / U.S.$1.00) and 50% (R$2.4477 / U.S.$1.00), respectively.
Interest Rate Risk
Interest rate risk arises from short and long-term investments, borrowing, financing and debentures. Financial instruments issued at variable rates expose us to cash flow risk associated with interest rates. Financial instruments issued at fixed rates expose us to the fair value risk associated with the interest rate.
Our cash flow risk associated with interest rate arises from short-term and long-term investments, borrowing and financing issued at floating rates. Our indebtedness is, for the most part, tied to floating interest rates. Short-term investments are adjusted by the certificate interbank deposits rate, or “CDI rate,” whereas borrowing and financing are adjusted by the CDI and fixed rates, according to the contracts entered into with financial institutions and through the negotiation of securities with investors in that market.
Sensitivity Analysis
As of December 31, 2023, there are borrowing, financing and debentures contracts denominated in foreign currency that are linked to interest swap agreements, changing the applicable index rate to the CDI rate. Accordingly, our risk becomes the exposure to the variation of the CDI rate. The following table presents the exposure to interest rate risks of transactions related to the CDI rate, including derivative transactions (borrowing, financing and debentures in Brazil were considered in full, given that 99.4% of the amount is pegged to the CDI rate):
| As of December 31, 2023 | ||
| (in millions of R$) | ||
| Total borrowing, financing and debentures - in local currency | (6,111.7) | |
| Operations in foreign currency with derivatives pegged to the CDI rate (1) | 52.3 | |
| Short-term investments | 5,661.4 | |
| Net exposure | (397.9) |
(1) Refers to transactions involving derivatives related to the CDI rate to hedge the borrowing, financing and debentures arrangements raised in foreign currency in Brazil.
The sensitivity analysis considers the exposure of borrowing, financing and debentures, net of short-term investments, pegged to the CDI rate. The following tables show the projection of incremental loss that would have been recognized in profit or loss for the following year, assuming that the current net liability exposure is static and the following scenarios:
|
Description |
Company Risk |
Probable scenario |
Scenario II |
Scenario III | ||||
|---|---|---|---|---|---|---|---|---|
|
Net liability |
Rate increase |
(5.7) |
40.2 |
86.1 |
The probable scenario considers future interest rates for a 90-day term according to quotations obtained at the B3 as of December 31, 2023, and in line with the first maturities of financial instruments with exposures to interest rates. Scenarios II and III consider an increase interest rates by 25% (14.13% per year) and 50% (16.95% per year), respectively, over a CDI rate of 11.30% per year.
Derivative Instruments Designated for Hedge Accounting
Cash-Flow Hedges
We formally designated our operations subject to hedge accounting for derivative instruments to hedge borrowings, financing and debentures denominated in foreign currency and other expenses, for derivative instruments contracted to hedge the purchase of nationalized materials of our subsidiaries.
There is an economic relationship between the hedged items and the hedging instruments, as the terms of the contracts correspond to (i) the terms of anticipated and highly probable transactions (for example, the notional amount and expected payment date) to the case of derivative instruments contracted to protect highly probable purchases; and (ii) terms associated with debts contracted in foreign currency which are hedged by derivatives that aim to eliminate the variability of cash flows associated with dollar-denominated debt.
We established a hedge ratio of 1:1 for the hedge relationships, as the underlying risks of the contracts are identical to the protected risk components. To test the effectiveness of the hedge, we use the hypothetical derivative method and compare the changes in the fair value of the hedging instruments with the changes in the fair value of the hedged items attributable to the hedged risks.
The sources of ineffectiveness of the hedge, which have historically been immaterial, may come from: (i) differences in the timing of cash flows from hedged items and hedging instruments; (ii) different indices (and, consequently, different curves) associated with the hedged risk of hedged items and hedging instruments; (iii) counterparty credit risk having a different impact on fair value movements of hedging instruments and hedged items; and (iv) changes in the expected amount of cash flows from hedged items and hedging instruments.
For years ending on December 31, 2023 and 2022, we designated for hedge accounting the derivative instruments (forward swap) contracted in May 2021, which hedge against the variation in the payments of principal amount and interest in U.S. dollars associated with the ESG Notes, making the payments fixed at the CDI rate plus spread. Due to the fact that Natura &Co Luxembourg became the substitute issuer of the ESG notes, the protected risk was no longer eligible within the hedge accounting structure, and, consequently, we proceeded with the derecognition of the structure.
As of December 31, 2023, the net position of derivative instruments designated as cash flow hedges consists exclusively of operational derivatives and is detailed below:
|
|
Hedged item |
Notional currency |
Fair Value |
Gain (loss) in the year |
Gain (loss) in the year | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| (in millions of R$) | ||||||||||
|
Currency swap – U.S.$/R$ - Natura Cosméticos |
Currency and interest rate |
Real |
(5.9) |
(2.1) |
763.2 | |||||
|
Forward agreements (Avon Industria) |
Currency |
Real |
(3.7) |
(3.7) |
5.4 | |||||
|
Forward agreements (Natura Dist. Mexico) |
Currency |
Real |
0.3 |
0.2 |
0.2 | |||||
|
Forward agreements (Natura Industria) |
Currency |
Real |
(21.5) |
(21.5) |
(22.6) | |||||
|
Forward agreements (Natura Holding) |
Currency |
Real |
1.7 |
0.5 |
0.5 | |||||
|
Total |
|
|
(29.0) |
(26.7) |
746.6 | |||||
Fair Value Hedges
For the years ending December 31, 2023 and 2022, the designation (which only included financial derivatives) referred to derivative instruments (swap contracts) contracted in October 2022, which hedge against the variation in interest rates associated with the second and third series of debentures from the 12th issuance of debentures, or “CRI debentures” which accrue interest at the Brazilian IPCA rate. The effect of the hedge is to replace the exposure to the IPCA rate with exposure to the CDI rate, plus a spread in each case.
The type of hedge relationship applied to such instruments is fair value hedge, which is used to offset variations arising from changes in the fair value of the liability attributable to the specific risk.
There is an economic relationship between protected items and hedging instruments, as the terms of the contracts correspond to terms associated with the contracted debt. We established a hedge ratio of 1:1 for the hedge relationships, as the underlying risks of the contracts are identical to the protected risk components.
To test the effectiveness of the hedge, we use the sensitivity test, measuring the variation using the offset method in U.S. dollars. Sources of ineffectiveness, historically immaterial, may arise from: (i) reductions or modifications of the protected item (debt payment); (ii) changes in our credit risk or the counterparty to the contracts; (iii) changes in the spread over IPCA in the swap.
As of December 31, 2023, the net position of derivative instruments designated as fair value hedges consists exclusively of financial derivatives and is detailed below:
|
|
Item protected |
Reference currency (Notional) |
Fair Value | |||
|---|---|---|---|---|---|---|
|
|
(in millions of R$) | |||||
|
Fair Value |
Interest Rate |
Real |
52.3 | |||
|
Total |
|
|
52.3 | |||
Not applicable.
Not applicable.
Not applicable.
Depositary
The Bank of New York Mellon, or “BNYM” or the “ADS Depositary,” has acted as depositary in relation to the ADS (each representing two Natura &Co Holding Shares) program since November 1, 2019. The principal executive office of BNYM is located at 240 Greenwich Street, New York, New York 10286, United States.
Fees and Expenses
The holder of an ADS may have to pay the following fees and charges related to services in connection with the ownership of the ADS up to the amounts set forth in the table below:
|
Persons Depositing or Withdrawing Shares |
For: | |
|---|---|---|
|
U.S.$5.00 (or less) per 100 ADSs |
Delivery of ADSs, including deliveries resulting from a distribution of shares or rights | |
|
Surrender of ADSs and withdrawal of deposited securities, including if the Natura &Co Holding deposit agreement terminates | ||
|
U.S.$0.05 (or less) per ADS |
Any cash distribution to ADS holders | |
|
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs |
Distribution of securities distributed to holders of deposited securities (including rights) that are distributed by the ADS Depositary to ADS holders | |
|
U.S.$0.05 (or less) per ADS per calendar year |
ADS Depositary services | |
|
Registration or transfer fees |
Transfer and registration of shares on Natura &Co Holding’s share register to or from the name of the ADS Depositary or its agent when you deposit or withdraw shares | |
|
Expenses of the ADS Depositary |
Cable (including SWIFT) and facsimile transmissions fees (when expressly provided in the Natura &Co Holding deposit agreement) | |
|
|
Converting foreign currency to U.S. dollars | |
|
Taxes and other governmental charges the ADS Depositary or the custodian have to pay on any ADSs or shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes |
As necessary | |
|
Any other charges incurred by the ADS Depositary or its agents for servicing the deposited securities |
As necessary |
The ADS Depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The ADS Depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The ADS Depositary may collect its annual fee for ADS Depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The ADS Depositary may collect any of its fees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to pay those fees. The ADS Depositary may generally refuse to provide fee-attaching services until its fees for those services are paid.
Direct and Indirect Payments
From time to time, the ADS Depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance of the ADS program, waive fees and expenses for services provided to us by the ADS Depositary, or share revenue from the fees collected from ADS holders. For the year ended December 31, 2023, such payments and reimbursements received from BNYM amounted to U.S.$1.0 million, net of taxes.
Under certain circumstances, including the removal of BNYM as depositary, we are required to repay to BNYM amounts reimbursed in prior periods.
Termination of our ADS Program
On April 10, 2024, we announced the termination of our ADS program. On the same date, the ADS Depositary issued a notice of termination to holders and beneficial owners of ADSs. The effective date of termination of the deposit agreement for our ADS program and of the ADS program will be August 7, 2024.
Other Information
See Exhibit No. 2.4 to this Form 20-F for the form of deposit agreement between us and the ADS Depositary and Exhibit No. 2.5 to this Form 20-F for a description of the rights of holders of the ADSs.
No matters to report.
No matters to report.
Not applicable.
Not applicable.
Not applicable.
Not applicable.
Not applicable.
We have established an internal controls framework, prepared in accordance with the criteria established by the COSO—a private U.S.-based organization whose mission is to disseminate principles and guidance for companies on their internal control structures. Our internal controls are based on the COSO framework, which assist in the preparation of our financial statements. The internal controls and the risk management department is responsible for keeping the internal control framework up-to-date and for reviewing the control descriptions, testing their effectiveness and monitoring the implementation of action plans when needed.
Our management, with the participation of our principal executive and principal financial officers, has evaluated the effectiveness of our disclosure controls and procedures (as defined in the Exchange Act under Rules 13a-15(e)) as of the end of the period covered by this annual report. In this context, “disclosure controls and procedures” means controls and procedures of a company that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.
Based on this evaluation, our principal executive and principal financial officers concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2023, to ensure that information required to be disclosed under the Exchange Act is recorded, authorized, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and the information required to be disclosed is accumulated and communicated, in order to allow timely decisions regarding required disclosure.
We are committed to maintaining strict internal controls and recognize that an environment with effective controls generates transparency and security for our stakeholders.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. The Company’s internal control system was designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with the IFRS Accounting Standards. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation in accordance with the IFRS Accounting Standards. Our management, under the supervision and with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2023. Management reviewed the results of its assessment with our Audit Committee. The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by PricewaterhouseCoopers Auditores Independentes Ltda., an independent registered public accounting firm, as stated in its report.
Under the supervision and with the participation of our management, including our principal executive and principal financial officers, we assessed as of December 31, 2023, the effectiveness of our internal control over financial reporting. This assessment was based on criteria established in the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our assessment using those criteria, our management concluded that our internal control over financial reporting as of December 31, 2023, was effective.
PricewaterhouseCoopers Auditores Independentes Ltda., the independent registered public accounting firm that has audited our consolidated financial statements, has issued an audit report on the financial statements and internal control over financial reporting as of December 31, 2023, as stated in their report, which is included herein.
Our management has evaluated, with the participation of our principal executive and principal financial officers, whether any changes in our internal control over financial reporting that occurred during the fiscal year ended December 31, 2023 have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on this evaluation, our management has concluded that no such changes have occurred.
The board of directors has determined that one of the members of our audit committee, Gilberto Mifano, is an “Audit Committee Financial Expert” and meets the requirements set forth by the SEC. He is also deemed independent under the applicable Brazilian law and the regulations of the SEC. For more details about the audit committee see “Item 6. Directors, Senior Management and Employees—C. Board Practices—Committees of Our Board of Directors—Audit, Risk Management and Finance Committee.”
The Company has adopted a code of ethics that applies to the Company’s board of directors and executive officers, including the Company’s principal executive officer, principal financial officer, and principal accounting officer and controller. A copy of the code of conduct is included as Exhibit 11.1 to this annual report. The code of conduct has never been waived.
Audit and Non-Audit Fees
The following table sets forth the fees billed to us by our independent registered public accounting firm, during the years ended December 31, 2023 and 2022. Our independent registered public accounting firm was PricewaterhouseCoopers Auditores Independentes Ltda. (PCAOB ID: 1351) for the years ended December 31, 2023 and 2022:
|
|
For the Year Ended | |||
|---|---|---|---|---|
|
|
2023 |
2022 | ||
|
|
(in thousands of reais) | |||
|
Audit fees |
66,391.1 |
68,349.8 | ||
|
Audit related fees(1) |
260.3 |
18,395.7 | ||
|
Tax fees(2) |
39.9 |
866.7 | ||
|
All other fees(3) |
97.8 |
235.3 | ||
|
Total |
66,789.2 |
87,847.4 | ||
(1) Audit related fees include fees for services that can only be reasonably provided by our independent auditors.
(2) Relates to services regarding tax compliance.
(3) All other fees related to services on specific issues.
Under the listed company audit committee rules of the SEC, we must comply with Rule 10A-3 under the Exchange Act, which requires that we establish an audit committee composed of members of the board of directors that meets specified requirements. The SEC has recognized that, for foreign private issuers, local legislation may delegate some of the functions of the audit committee to other advisory bodies. Natura &Co Holding has established a statutory audit committee. Natura &Co Holding’s By-Laws have established an audit, risk management and finance committee that meets the requirements for the exemption available to foreign private issuers under paragraph (c)(3) of Rule 10A-3 under the Exchange Act. The statutory audit committee is not the equivalent of, or wholly comparable to, a U.S. audit committee. Among other differences, it is not required to meet the standards of “independence” established in Rule 10A-3 and is not fully empowered to act on all the matters that are required by Rule 10A-3 to be within the scope of an audit committee’s authority. See “Item 6A. Directors and Senior Management—C. Board Practices—Audit, Risk Management and Finance Committee” for a description of our audit committee.
Not applicable.
Not applicable.
See “Item 6. Directors and Senior Management and Employees—C. Board Practices”.
Not applicable.
Not applicable.
We have adopted an Information Disclosure and Securities Trading Policy that governs the trading in our securities by our directors, officers and certain other covered persons, and which is reasonably designed to promote compliance with applicable insider trading laws, rules and regulations, and any listing standards applicable to the Company. A copy of the Information Disclosure and Securities Trading Policy is included as Exhibit 11.2 to this annual report. Since its effective date, we have not waived compliance with our statement of trading policies.
Cybersecurity Risk Management Framework
Cybersecurity risk management is an integral part of our overall Enterprise Risk Management, or “ERM,” program. Our Cybersecurity Risk Management program, or “CRM,” is designed to align with the NIST Cybersecurity Framework, which provides a framework for handling cybersecurity threats and risks, including those associated with the provision of applications and services by third-party vendors, and to facilitate coordination across different departments of our company. This framework includes steps for assessing the severity of a cybersecurity risk, identifying the source of a cybersecurity risk including whether the cybersecurity risk is associated with a third-party service provider, implementing cybersecurity countermeasures and mitigation strategies and informing management and our board of directors of material cybersecurity risks, threats and incidents.
Our CRM is designed to ensure that cybersecurity risk is visible and integrated into our business units operating the assets and processes covered by the program. As part of this integration, our Cyber Hub (as defined below) facilitates risk management at the Natura &Co level, measuring and monitoring cyber risks on a frequent and consolidated basis. In addition, we have created a risk taxonomy with 20 sub-risks based on the functions of the NIST Cybersecurity Framework (identification, protection, detection, response and recovery). For each of these risks, at least one control has been identified and will be constantly measured through performance and risk indicators. As of the date of this annual report, certain of these controls are yet to be implemented and/or fully matured.
Examples of the key cyber risks and corresponding controls include the following:
- Compromise of Unmanaged Assets / Primary Control: Asset Management;
- Inappropriate Cybersecurity Governance / Primary Controls: Policy review framework, Control assurance framework;
- Third Party – Supply Chain Cyber Risks / Primary Control: Vendor risk management;
- Unauthorized Access / Primary Controls: Privileged Access Management, User Access Reviews;
- Insufficient awareness and/or training / Primary Control: Phishing exercises and Awareness trainings;
- Risk to corporate data’s confidentiality, integrity and/or availability (Data Security) / Primary Controls: Cloud posture and compliance management, Vulnerability and patch management, Pentest and Red teaming, DevSecOps;
- Insufficient security or resilience of systems / Primary Controls: CDN/WAF/Bot detection, AV protection, EDR protection, Network monitoring, Data Leak Prevention;
- Failure to detect an attack / Primary Control: SOC service; and
- Inappropriate incident response and recovery / Primary Controls: Incident response training, DC and DR plans review and testing, Restore tests.
Moreover, in order to reduce the risk of supply chain attacks, we have implemented a third-party risk management policy, that sets forth processes for: (i) triage of new and existing third-party vendors, which allows for risk profiling and assurance monitoring; (ii) training on the conduct of business with third-party vendors; (iii) additional cybersecurity contractual provisions; and (iv) risk reporting within our cybersecurity risk governance structure.
Reporting of our most relevant risks is performed in each business unit within its own risk map. The Natura &Co group’s risk map, which is reported as part of our ERM, comprises a consolidated view of the business units’ risk maps. Risk maps used in our program typically classify a business unit or the Natura &Co group’s overall maturity level, the evolution of monitored risks over time and status of mitigatory actions. Risk tolerance levels are determined by our cybersecurity steering committees, in conformity with our cyber improvement program’s guidelines and taking into account factors potentially affecting the efficacy of our controls, such as business unit-specific risk factors, incidents, the external threat environment, audit findings and project improvement activity.
Control testing within Natura &Co’s security risk framework is done using a specific set of NIST questions to evaluate the maturity and efficacy of these controls, which input is then added to the performance indicators that track effectiveness of the control measures. Risk assessments at the Natura &Co group and business units’ levels are updated quarterly and reviewed by the respective business unit cybersecurity board and/or the Natura &Co cyber and data privacy board, as applicable.
Board Oversight of Cybersecurity Risks
In February 2022 following the appointment of a global Chief Information Security Officer, or “CISO,” for Natura &Co in 2021, all security functions from each business unit were combined into a central cybersecurity hub, or the “Cyber Hub.” Each of our business unit’s separate cybersecurity projects have also been consolidated into a single program under the Cyber Hub, leveraging the efficiencies and enhanced capability of stronger global teams and centralized budgets. Through the work of our Cyber Hub, we continuously monitor the maturity and improve the effectiveness of our cybersecurity framework in each of our business units. The Cyber Hub also engages third-party security experts to provide independent risk and maturity assessment and system enhancements.
Our board of directors has overall oversight responsibility for our risk management, and delegates cybersecurity risk management oversight to the Audit, Risk Management and Finance Committee of the board of directors. The Audit, Risk Management and Finance Committee is responsible for ensuring that management has processes in place designed to identify and evaluate cybersecurity risks to which the company is exposed and implement policies, processes and programs to manage cybersecurity risks and mitigate cybersecurity incidents. Natura &Co’s Cybersecurity Policies and Standards are reviewed at least annually. Management, including the CISO and our cybersecurity team, regularly update the Audit, Risk Management and Finance Committee on our cybersecurity programs, material cybersecurity risks and mitigation strategies, and also report to our full board of directors, at least annually, on topics including third-party assessments of the company’s cybersecurity program, developments in cybersecurity and updates to the company’s cybersecurity programs and mitigation strategies.
Management’s Role and Expertise In Assessing and Managing Cybersecurity Risks
Management is responsible for identifying, considering and assessing material cybersecurity risks on an ongoing basis, establishing processes to ensure that such potential cybersecurity risk exposures are monitored, putting in place appropriate mitigation measures and maintaining cybersecurity programs. Our cybersecurity programs are under the direction of our CISO, who receives reports from our cybersecurity team and monitors the prevention, detection, mitigation, and remediation of cybersecurity incidents.
Each business unit has a dedicated Business Information Security Officer, or “BISO,” tasked with monitoring and mitigating cybersecurity risks through improvements and services provided by the Cyber Hub. In addition, BISOs are responsible for raising cyber risks with asset and business owners and to support prioritization of mitigation plans, assessing the maturity of controls and evaluating KPI’s within the business unit as well as managing remediation through the Business Unit Cybersecurity Steering Committee.
Our Natura &Co Group CISO has decades of extensive leadership and cybersecurity experience, including as the Security & Information Director at HM Revenue & Customs, CISO EMEA at Sumitomo Mitsui Banking Corporation, and Group CISO at International Airlines Group. Our Natura Latam BISO has served in several cybersecurity management roles at various Brazilian and multinational organizations over the past 20 years. Our Avon International BISO is a Certified Information Systems Security Professional (CISSP), having served in several cybersecurity and information technology GRC (Governance, Risk and Compliance) management roles at various multinational organizations for over 15 years.
Security Operations and Incident Response
Serving under our cybersecurity leadership are several teams that play distinct roles in our cybersecurity program. Our cybersecurity strategy team is responsible for creating and maintaining the overall strategy, policies and standards and for the effective execution of the risk management processes by crafting key risk indicators in consultation with the CISO and BISOs. The evolution of the risk environment is monitored and reported quarterly to the CISO and BISOs, while enterprise risk management reporting is provided upon request. The cybersecurity strategy team also provides training to all employees annually. The assurance team acts as a second line of defense by evaluating the maturity and effectiveness of controls, through the definition and assessment of key performance indicators. The operations and engineering teams ensure the quality and effectiveness of technical controls. The cybersecurity program team manages project delivery to implement and improve cybersecurity controls and reduce risks.
We monitor cybersecurity threats through our security operations center, which includes a joint security operation with a reputable information security third-party supplier. The security operations center detects suspicious activities and monitors indicators of potential attacks within the organization’s systems, networks, and remote connections, as well as atypical usage of accounts and malicious behavior, by using tools that correlate events and audit log information from various sources combined with threat intelligence mechanisms that proactively hunt for indicators of compromise. In addition, an in-house security operations specialist is tasked with the coordination and management of detected threats through our documented threat management processes and procedures. Any potentially harmful events detected generates a timely response by the security operations center, through a documented triage and response process. We also conduct incident management training on a regular basis in order to test and improve incident response procedures.
Independent Assessment of the Natura &Co Cybersecurity Risk Management Program
Cybersecurity across Natura &Co is audited by a number of internal and external parties, Natura &Co Internal Audit function and internal functions responsible for second-line defense within the organization, such as the internal controls function of Natura Cosméticos and Avon.
Natura &Co annually commissions an independent assessment of its cybersecurity program using a standardized methodology based on the NIST framework. In 2023, a maturity assessment of our cybersecurity controls was measured against the NIST framework by a reputable third-party security specialist firm, showing a significant improvement in maturity of all NIST domains compared to prior years. Action plans are in place to further improve maturity across all NIST domains.
Significant Cybersecurity Incidents
In the fiscal years ended December 31, 2023, 2022 and 2021, we did not identify any cybersecurity incidents that have materially affected or are reasonably likely to materially affect our business strategy, results of operations, or financial condition. However, despite our efforts, we cannot eliminate all risks from cybersecurity threats, or provide assurances that we have not experienced an undetected cybersecurity incident.
In June 2020, we became aware that Avon was exposed to a cyber-incident which interrupted some of Avon’s systems and partially affected its operations without material impacts. Avon contained the incident and by mid-August 2020 it had re-established all of its core business processes and resumed operations in all its markets, including all of its distribution centers. Following this incident, Avon strengthened procedures and controls with the support of external cybersecurity and IT general controls specialists and accelerated its investment in IT infrastructure to strengthen its cybersecurity controls.
For more information about these risks, please see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industries in Which We Operate—Interruption in our main information technology, or “IT” systems could adversely affect our business, financial conditions, operating results and reputation, and increase our costs” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industries in Which We Operate—We could be the target of attempted cyber threats in the future, which could adversely affect our business” in this annual report.
We have responded to Item 18 in lieu of this item.
Financial Statements are filed as part of this annual report, starting on page F-1 of this annual report.
The following documents are filed as part of this annual report:
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Exhibit No. |
Exhibit |
|---|---|
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1.1 |
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2.1† |
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2.2 |
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2.3 |
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2.4 |
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2.5 |
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3.1† |
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3.2† |
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3.3 |
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4.1 |
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4.2 |
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4.3 |
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4.4 |
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4.5 |
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Exhibit No. |
Exhibit |
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4.6 |
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4.7 |
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4.8 |
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4.9 |
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8.1 |
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11.1 |
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11.2 |
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12.1 |
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12.2 |
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13.1 |
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13.2 |
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97.1 |
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101.INS |
XBRL Instance Document. |
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101.SCH |
XBRL Taxonomy Extension Schema Document. |
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101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB |
XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document. |
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104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
† Exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
|
NATURA &CO HOLDING S.A. |
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| May 13, 2024 |
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By: |
/s/ Fábio Colletti Barbosa |
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Name: Fábio Colletti Barbosa |
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Title: Chief Executive Officer |
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By: |
/s/ Guilherme Strano Castellan |
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Name: Guilherme Strano Castellan |
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Title: Chief Financial Officer |
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| Audited Consolidated Financial Statements of Natura &Co Holding S.A. as of December 31, 2023 and 2022 and for the Years Ended December 31, 2023, 2022 and 2021 | |
| F-3 | |
| Consolidated Statement of Financial Position as of December 31, 2023 and 2022 | F-6 |
| Consolidated Statement of Profit or Loss for the years ended December 31, 2023, 2022 and 2021 | F-7 |
| Consolidated Statement of Comprehensive Income for the years ended December 31, 2023, 2022 and 2021 | F-8 |
| Consolidated Statement of Changes in Shareholders’ Equity for the years ended December 31, 2023, 2022 and 2021 | F-9 |
| Consolidated Statement of Cash Flows for the years ended December 31, 2023, 2022 and 2021 | F-10 |
| Notes to the Consolidated Financial Statements | F-11 |
| F-1 |
Natura &Co Holding S.A.
Consolidated Financial Statements as of
December 31, 2023 and 2022 and for the
Years Ended December 31, 2023, 2022 and 2021 and
Report of independent registered public accounting firm
To the Board of Directors and Shareholders of Natura &Co Holding S.A.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Natura &Co Holding S.A. and its subsidiaries (the "Company") as of December 31, 2023 and 2022, and the related consolidated statements of profit or loss, comprehensive income, changes in shareholder's equity and cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and, 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 15B. Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Impairment test of indefinite useful lives intangible assets in the group of cash-generating units Avon International
As described in Note 16(a) to the consolidated financial statements, as of December 31, 2023 the total balance of intangible assets with indefinite useful lives in the group of the cash-generating units ("CGUs") called Avon International, including goodwill from business combinations allocated to this group of CGUs, was R$ 4,128 million. As of December 31, 2023, the carrying amount of the Company’s net assets was above its market capitalization. Additionally, as disclosed in Notes 16 (a) and 24 to the consolidated financial statements, the group of CGUs Avon International has reported recurring losses, and a goodwill impairment in the amount of R$ 282 million was recognized on 31 December 2022. Management performs impairment tests of indefinite useful lives intangible assets (including goodwill) at least annually, or more frequently if events or circumstances indicate that the carrying value of goodwill and intangible assets with indefinite useful lives may be impaired. An impairment loss is recognized if the recoverable amounts of an asset, a CGU, or a group of CGUs are above their carrying amounts. The Company determined the recoverable amount based on value in use, using a discounted cash flow model. The cash flow projections used by management to estimate the recoverable amount of the group of CGUs Avon International included significant judgments and assumptions relating to revenue growth rates, perpetuity growth rate, operating margin, and discount rate.
The principal considerations for our determination that performing procedures relating to the impairment assessment of the group of CGUs Avon International is a critical audit matter are (i) the significant judgments made by management when estimating the recoverable amount of the group of CGUs; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management's significant assumption related to revenue growth rates, perpetuity growth rate, operating margin, and discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management's impairment tests of goodwill and intangible assets with indefinite useful lives, as well as controls over the valuation of the group of CGUs Avon International. These procedures also included, among others (i) testing management's processes to develop the value in use estimates for the group of CGUs called Avon International; (ii) evaluating the appropriateness of the discounted cash flow model; (iii) testing the completeness and accuracy of the underlying data used in the model; and (iv) evaluating the reasonableness of the significant assumptions used by management related to the revenue growth rates, perpetuity growth rate, operating margin and discount rate. Evaluating management's assumptions related to the revenue growth rates, perpetuity growth rate, operating margin and discount rate involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the group of CGUs Avon International; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company's discounted cash flow model, and the significant assumptions related to revenue growth rates, perpetuity growth rate, operating margin, and discount rate.
Realization of the deferred income tax assets of the subsidiary Avon Cosmetics Manufacturing S. de R.L. de C.V (“Avon Mexico”)
As described in Note 11.1 to the consolidated financial statements, as of December 31, 2023, the balances of deferred tax assets (“DTA”), comprising income tax and social contribution, arising from prior years' net operating losses and temporary differences relating to the subsidiary Avon Mexico, was R$ 376 million. Management assesses the realization of the DTA’s balances at the end of each reporting period. Deferred income tax assets are recognized to the extent that management concludes it is probable that sufficient taxable profit will be available to allow the tax assets to be realized, also taking into consideration the monitoring of initiatives (which also involve the restructuring of operations in the Latin America) that were approved at the highest levels of governance. Management's estimate included significant judgments, assumptions, and the interpretation of tax laws and regulations in effect.
The principal considerations for our determination that performing procedures relating to the realization of deferred tax assets of the subsidiary Avon Mexico is a critical audit matter are (i) a high degree of auditor judgment, subjectivity, and effort in evaluating management’s assessment of the realization of deferred tax assets through the assessment of the Company's ability to generate sufficient future taxable income, reversal of temporary differences mainly due to interpretation of tax laws and regulations in effect; (ii) significant audit effort was required in assessing the significant judgments and the interpretation of tax laws and regulations in effect, including assessing legal opinions provided by management’s experts; and (iii) the audit effort involved the use of professionals with specialized skills and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s assessment of the realization of the deferred tax assets. These procedures also included, among others; (i) testing management’s process to assess its ability to generate sufficient future taxable income; (ii) evaluating the appropriateness of the approach utilized for estimating the future taxable income; (iii) testing the completeness and accuracy of the underlying data used in the calculations; (iv) evaluating the accuracy of the data used for purposes of estimating the future taxable income; and (v) evaluating the completeness, accuracy and sufficiency of disclosures. Professionals with specialized skill and knowledge were used to assist in the evaluation of the reasonableness of the tax rate utilized in the future taxable income estimate, the accuracy and completeness of the carryforward net operating losses and temporary differences and in assessing the tax laws and regulations in effect.
/s/PricewaterhouseCoopers
Auditores Independentes Ltda.
São Paulo, Brazil
May 13, 2024
We have served as the Company's auditor since 2020.
| NATURA &CO HOLDING S.A. |
| STATEMENT OF FINANCIAL POSITION AS OF DECEMBER 31, 2023 AND 2022 |
| (In thousands of Brazilian reais - R$) |
| Note | Consolidated | Note | Consolidated | ||||||||||||
| ASSETS | 2023 | 2022 | LIABILITIES AND SHAREHOLDERS' EQUITY | 2023 | 2022 | ||||||||||
| CURRENT | CURRENT | ||||||||||||||
| Cash and cash equivalents | 6 | Borrowings, financing and debentures | 18 | ||||||||||||
| Short-term investments | 7 | Lease | 17 | ||||||||||||
| Trade accounts receivable | 8 | Trade accounts payable and reverse factoring operations | 19 | ||||||||||||
| Accounts receivable - sale of subsidiary | 1.2 | Dividends and interest on shareholders' equity payable | 23 | |
|||||||||||
| Inventories | 9 | Payroll, profit sharing and social charges | |||||||||||||
| Recoverable taxes | 10 | Tax liabilities | 20 | ||||||||||||
| Income tax and social contribution | Income tax and social contribution | ||||||||||||||
| Derivative financial instruments | 5 | Derivative financial instruments | 5 | ||||||||||||
| Other current assets | 14 | Provision for tax, civil and labor risks | 21 | ||||||||||||
| |
Other current liabilities | 22 | |||||||||||||
| Assets held for sale | 13 | ||||||||||||||
| Total current assets | |
Total current liabilities | |||||||||||||
| NON-CURRENT | NON-CURRENT | ||||||||||||||
| Accounts receivable - sale of subsidiary | 1.2 | Borrowings, financing and debentures | 18 | ||||||||||||
| Recoverable taxes | 10 | Lease | 17 | ||||||||||||
| Deferred income tax and social contribution | 11 | Payroll, profit sharing and social charges | |||||||||||||
| Judicial deposits | 12 | Tax liabilities | 20 | ||||||||||||
| Derivative financial instruments | 5 | Deferred income tax and social contribution | 11 | ||||||||||||
| Long-term investments | 7 | Income tax and social contribution | |||||||||||||
| Other non-current assets | 14 | Derivative financial instruments | 5 | ||||||||||||
| Provision for tax, civil and labor risks | 21 | ||||||||||||||
| Other non-current liabilities | 22 | ||||||||||||||
| Total non-current liabilities | |||||||||||||||
| TOTAL LIABILITIES | |||||||||||||||
| Property, plant and equipment | 15 | ||||||||||||||
| Intangible | 16 | |
SHAREHOLDERS' EQUITY | 23 | |||||||||||
| Right of use | 17 | Capital stock | |||||||||||||
| Treasury shares | ( |
) | ( |
) | |||||||||||
| Total non-current assets | |
Capital reserves | |||||||||||||
| Legal Profit Reserve | |||||||||||||||
| Retained earnings (losses) | ( |
) | |||||||||||||
| Other comprehensive income (loss) | ( |
||||||||||||||
| Shareholders' equity attributed to the Company's shareholders | |||||||||||||||
| Non-controlling interest in shareholders' equity of subsidiaries | |||||||||||||||
| TOTAL ASSETS | |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||||
| *The accompanying notes are an integral part of the Financial Statements. |
| NATURA &CO HOLDING S.A. |
| STATEMENT OF PROFIT OR LOSS |
| FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 and 2021 |
| (In thousands of Brazilian reais - R$, except for earnings per share) |
| Note | Consolidated | |||||||||
| 2023 | 2022 | 2021 | ||||||||
| NET REVENUE FROM CONTINUING OPERATIONS | 25 | |||||||||
| Cost of Sales | 26 | ( |
) | ( |
) | ( |
) | |||
| GROSS PROFIT | ||||||||||
| OPERATING (EXPENSES) INCOME | ||||||||||
| Selling, marketing and logistics expenses | 26 | ( |
) | ( |
) | ( |
) | |||
| Administrative, R&D, IT and project expenses | 26 | ( |
) | ( |
) | ( |
) | |||
| Impairment loss on trade receivables | 8 | ( |
) | ( |
) | ( |
) | |||
| Other operating income (expenses), net | 29 | ( |
) | ( |
) | ( |
) | |||
| OPERATING PROFIT (LOSS) BEFORE FINANCIAL RESULT | ( |
) | ( |
) | ||||||
| Financial result | 29 | ( |
) | ( |
) | ( |
) | |||
| PROFIT (LOSS) BEFORE INCOME TAX AND | ||||||||||
| SOCIAL CONTRIBUTION | ( |
) | ( |
) | ( |
) | ||||
| Income tax and social contribution | 11 | ( |
) | |
||||||
| (LOSS) PROFIT FROM CONTINUING OPERATIONS | ( |
) | ( |
) | ||||||
| DISCONTINUED OPERATIONS | ||||||||||
| PROFIT (LOSS) FROM DISCONTINUED OPERATIONS | 35 | |
( |
) | ||||||
| NET INCOME (LOSS) FOR THE YEAR | |
( |
) | |
||||||
| ATTRIBUTABLE TO | ||||||||||
| The Company´s shareholders | |
( |
) | |||||||
| Non-controlling shareholders | |
( |
) | |||||||
| NET INCOME (LOSS) PER SHARE FOR THE YEAR FROM CONTINUING OPERATION-R$ |
||||||||||
| Basic | ( |
) | ( |
) | ||||||
| Diluted | ( |
) | ( |
) | ||||||
| NET INCOME (LOSS) PER SHARE FOR THE YEAR -R$ | ||||||||||
| Basic | 30 | ( |
) | |||||||
| Diluted | 30 | ( |
) | |||||||
| *The accompanying notes are an integral part of the Financial Statements. |
| NATURA &CO HOLDING S.A. |
| STATEMENT OF COMPREHENSIVE INCOME |
| FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 and 2021 |
| (In thousands of Brazilian reais - R$) |
| Note | Consolidated | |||||||||
| 2023 | 2022 | 2021 | ||||||||
| PROFIT (LOSS) FOR THE PERIOD | ( |
) | |
|||||||
| Other comprehensive income (loss) to be reclassified to income statement in subsequent periods: | ||||||||||
| Conversion of financial statements of controlled companies abroad | ( |
) | ( |
) | ( |
) | ||||
| Exchange rate effect on the conversion from hyperinflationary economy | ||||||||||
| Earnings (losses) from cash flow hedge operations | 5.3 | ( |
) | ( |
) | |||||
| Tax effects on earnings (losses) from cash flow hedge operations | 11 | ( |
) | |||||||
| Other comprehensive income (loss) not reclassified for the income (loss) of the periods in subsequent periods: | ||||||||||
| Actuarial earnings (losses) | ( |
) | ||||||||
| Tax effects on earnings (losses) from actuarial | ( |
) | ( |
) | ||||||
| Comprehensive income (loss) for the periods, net of tax effects | ( |
) | |
|||||||
| ATTRIBUTABLE TO | ||||||||||
| The Company´s shareholders | ( |
) | |
|||||||
| Noncontrolling shareholders | ( |
) | ( |
) | ( |
) | ||||
| ( |
) | |
||||||||
| *The accompanying notes are an integral part of the Financial Statements. |
| NATURA &CO HOLDING S.A. |
| STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY |
| FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 and 2021 |
| (In thousands of Brazilian reais - R$) |
| Equity appraisal adjustment | ||||||||||||||||||||||||||||||||||||||||
| Capital Reserves | ||||||||||||||||||||||||||||||||||||||||
| Note | Capital stock | Treasury shares | Share premium | Special reserve | Additional paid-in capital | Income (loss) from transactions with non-controlling shareholders | Legal profit reserve | Retained earnings (losses) | Other comprehensive income (loss) | Shareholders' equity attributed to the company's shareholders | Non-Controlling interest in Shareholders' equity of subsidiaries |
Total shareholders' equity | ||||||||||||||||||||||||||||
| Tax Incentives | Retained earnings | |||||||||||||||||||||||||||||||||||||||
| BALANCES AS OF JANUARY 1, 2021 | |
( |
) | |
( |
) | ( |
) | |
|||||||||||||||||||||||||||||||
| Net income for the year | - | - | - | - | - | - | - | - | - | ( |
) | |
||||||||||||||||||||||||||||
| Exchange rate effect on the conversion from hyperinflationary economy | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Total comprehensive income for the year | - | - | - | - | - | - | - | - | ( |
) | |
|||||||||||||||||||||||||||||
| Share repurchase | - | ( |
) | - | - | - | - | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||||||||||||||
| Loss absorption | - | - | ( |
) | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Transactions in stock and restricted shares option plans: | ||||||||||||||||||||||||||||||||||||||||
| Provision for stock and restricted shares option plans | 23 | - | - | - | - | - | - | ( |
) | - | - | - | ||||||||||||||||||||||||||||
| Exercise of stock and restricted shares option plans | 23 | - | - | ( |
) | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||||||||||||||||
| Reclassification of grant reserve - Natura Cosméticos | - | - | - | - | - | - | ( |
) | - | - | - | - | - | |||||||||||||||||||||||||||
| Dividend declared and not yet distributed | - | - | - | - | - | - | - | - | ( |
) | - | ( |
) | - | ( |
) | ||||||||||||||||||||||||
| Constitution of tax incentive reserve | - | - | - | - | - | - | - | ( |
) | - | - | - | - | |||||||||||||||||||||||||||
| BALANCES AS OF DECEMBER 31, 2021 | |
( |
) | |
( |
) | |
|
||||||||||||||||||||||||||||||||
| BALANCES AS OF JANUARY 1, 2022 | |
( |
) | |
( |
) | |
|
|
|||||||||||||||||||||||||||||||
| Loss for the year | - | - | - | - | - | - | - | - | ( |
) | - | ( |
) | ( |
) | |||||||||||||||||||||||||
| Exchange rate effect on the conversion from hyperinflationary economy | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - | - | - | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||
| Total comprehensive income for the periods | - | - | - | - | - | - | - | - | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Share repurchase | - | ( |
) | - | - | - | - | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||||||||||||||
| Transactions in stock and restricted shares option plans: | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Provision for stock and restricted shares option plans | 23 | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Exercise of stock and restricted shares option plans | 23 | - | - | ( |
) | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Reclassification of hyperinflationary economy adjustment effect | - | - | ( |
) | - | ( |
) | - | - | ( |
) | - | - | - | - | |||||||||||||||||||||||||
| Loss absorption | - | - | - | - | - | - | - | ( |
) | - | - | - | - | |||||||||||||||||||||||||||
| BALANCES AS OF DECEMBER 31, 2022 | |
( |
) | |
( |
) | - | ( |
) | |
|
|||||||||||||||||||||||||||||
| BALANCES AS OF JANUARY 1, 2023 | |
( |
) | |
( |
) | ( |
) | |
|
||||||||||||||||||||||||||||||
| Net income for the year | - | - | - | - | - | - | - | - | |
- | |
|
||||||||||||||||||||||||||||
| Exchange rate effect on the conversion from hyperinflationary economy | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | - | - | - | - | - | - | - | - | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||
| Total comprehensive income (loss) for the periods | - | - | - | - | - | - | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Transactions in stock and restricted shares option plans: | ||||||||||||||||||||||||||||||||||||||||
| Provision for stock and restricted shares option plans | 23 | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Exercise of stock and restricted shares option plans | 23 | |
- | - | ( |
) | - | - | - | - | ( |
) | - | ( |
) | |||||||||||||||||||||||||
| Dividends | - | - | - | - | - | - | - | - | ( |
) | - | ( |
) | - | ( |
) | ||||||||||||||||||||||||
| Legal profit reserve | - | - | - | - | - | - | - | ( |
) | - | - | - | ||||||||||||||||||||||||||||
| Reclassification of hyperinflationary economy adjustment effect | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| BALANCES AS OF DECEMBER 31, 2023 | ( |
) | |
( |
) | - | - | ( |
) | |
||||||||||||||||||||||||||||||
| NATURA &CO HOLDING S.A. |
| STATEMENT OF CASH FLOWS |
| FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 and 2021 |
| (In thousands of Brazilian reais - R$) |
| Note | Consolidated | |||||||||
| 2023 | 2022 | 2021 | ||||||||
| CASH FLOW FROM OPERATING ACTIVITIES | ||||||||||
| Profit (loss) for the year | ( |
) | ||||||||
| Adjustments to reconciliate profit (loss) for the periods with net cash genereted by (used in) operating activities: | ||||||||||
| Depreciation and amortization | 15, 16 and 17 | |
||||||||
| Interest and exchange variation on short-term investments | 28 | ( |
) | ( |
) | ( |
) | |||
| Loss from swap and forward derivative contracts | 28 | ( |
) | |||||||
| Increse (reversion) of provision for tax, civil and labor risks | 21 | ( |
) | |||||||
| Monetary adjustment of judicial deposits | 12 | ( |
) | ( |
) | ( |
) | |||
| Monetary adjustment of provision for tax, civil and labor risks | 21 | |
|
|
||||||
| Income tax and social contribution | ( |
) | ( |
) | ||||||
| Income from sale and write-off of property, plant and equipment and intagible | 13, 15 and 16 | |
|
|||||||
| Interest and exchange rate variation on leases | 17 | |
|
|
||||||
| Interest and exchange rate variation on borrowings, financing and debentures, net of acquisition costs | 18 | |
|
|||||||
| Adjustment and exchange rate variation on other assets and liabilities | |
|
|
|||||||
| Provision (reversal) for losses on property, plant and equipment, intangible assets and leases | |
|
|
|||||||
| Impairment of goodwill | 29 | |
|
|||||||
| Increase (reversion) of provision for stock option plans | |
|||||||||
| Trade accounts receivables losses, net of reversals | 8 | |||||||||
| Inventory losses, net of reversals | 9 | |
||||||||
| Reversion of carbon credits provision | ( |
) | ( |
) | ( |
) | ||||
| Effect from hyperinflationary economy | |
|
||||||||
| Gain on Borrowing and financing prepayment | ( |
) | ( |
) | ||||||
| |
||||||||||
| DECREASE (INCREASE) IN ASSETS | ||||||||||
| Trade accounts receivable and related parties receivable | ( |
) | ( |
) | ( |
) | ||||
| Inventories | ( |
) | |
( |
) | |||||
| Recoverable taxes | |
|
( |
) | ||||||
| Other assets | ( |
) | |
( |
) | |||||
| Subtotal | ( |
) | |
( |
) | |||||
| INCREASE (DECREASE) IN LIABILITIES | ||||||||||
| Domestic and foreign trade accounts payable and related parties payable | ( |
) | |
|
||||||
| Payroll, profit sharing and social charges, net | |
( |
) | ( |
) | |||||
| Tax liabilities | ( |
) | |
( |
) | |||||
| Other liabilities | ( |
) | ( |
) | ( |
) | ||||
| Subtotal | ( |
) | ( |
) | |
|||||
| OTHER CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||
| Payment of income tax and social contribution | ( |
) | ( |
) | ( |
) | ||||
| Release of judicial deposits net of withdrawals | 12 and 21 | |
|
( |
) | |||||
| Payments related to tax, civil and labor lawsuits | 12 and 21 | ( |
) | ( |
) | ( |
) | |||
| Payments due to settlement of derivative transactions | ( |
) | ( |
) | ( |
) | ||||
| Payment of interest on lease | 17 | ( |
) | ( |
) | ( |
) | |||
| Payment of interest on borrowings, financing and debentures | 18 | ( |
) | ( |
) | ( |
) | |||
| Operating Activities - discontinued operations | ( |
) | ||||||||
| CASH (USED IN) GENERATED BY OPERATING ACTIVITIES | ( |
) | |
( |
) | |||||
| CASH FLOW FROM INVESTING ACTIVITIES | ||||||||||
| Additions of property, plant and equipment and intangible | ( |
) | ( |
) | ( |
) | ||||
| Proceeds from sale of property, plant and equipment and intangible | |
|
||||||||
| Short-term investments acquisition | ( |
) | ( |
) | ( |
) | ||||
| Redemption of short-term investments | ||||||||||
| Redemption of interest on short-term investments | |
|
|
|||||||
| Investing activities - discontinued operations | ( |
) | ( |
) | ||||||
| CASH (USED IN) GENERATED BY INVESTING ACTIVITIES | |
( |
) | ( |
) | |||||
| CASH FLOW FROM FINANCING ACTIVITIES | ||||||||||
| Repayment of lease - principal | 17 | ( |
) | ( |
) | ( |
) | |||
| Repayment of borrowings, financing and debentures – principal | 18 | ( |
) | ( |
) | ( |
) | |||
| New borrowings, financing, and debentures | 18 | |||||||||
| Acquisition of treasury shares, net of receipt of option strike price | ( |
) | ( |
) | ||||||
| Payment of dividends and interest on equity | ( |
) | ||||||||
| Receipt (payment) of funds due to settlement of derivative transactions | ( |
) | |
|
||||||
| Capital Increase | |
|
||||||||
| Financing activities - discontinued operations | ( |
) | ( |
) | ( |
) | ||||
| CASH (USED IN) GENERATED BY FINANCING ACTIVITIES | ( |
) | ( |
) | ||||||
| Effect of exchange rate variation on cash and cash equivalents | ( |
) | ( |
) | ||||||
| (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | ( |
) | ( |
) | ||||||
| Opening balance of cash and cash equivalents | ||||||||||
| Closing balance of cash and cash equivalents | ||||||||||
| (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | ( |
) | ( |
) | ||||||
 |
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
Natura &Co Holding S.A. (“Natura &Co”) was incorporated on January 21, 2019, and has the purpose of holding interests in other companies, as partner or shareholder, whose main business is in the cosmetics, fragrance and personal hygiene segments, through the manufacturing, distribution, and sale of their products in Brazil, in the city of São Paulo, State of São Paulo, at Avenida Alexandre Colares, No. 1188, Vila Jaguará, CEP 05106-000. Natura &Co and its subsidiaries are hereinafter referred to as the “Company”. Additionally, Natura &Co used to trade American Depositary Receipts (“ADRs”) on the New York Stock Exchange (“NYSE”), under the ticker “NTCO”, however, on January 18, 2024, the Company's Management approved the delisting from the NYSE, which is in line with its long-term strategy of simplifying its operations. The effective date of termination of the deposit agreement for our ADS program and of the ADS program will be August 7, 2024.
Brands managed by the Company include “Natura” and “Avon”. In addition to using the retail market, e-commerce, business-to-business (B2B) and franchises as sales channels for the products, the subsidiaries highlight the performance of the direct sales channel carried out by the Consultant(s).
1.1 Sale of subsidiary Aesop
On August 30, 2023, the Company concluded the sale of the subsidiary Natura Brazil Pty Ltd. (hereinafter referred to as “Aesop”) to L’Oréal for a total amount of R$
Further details about this transaction, as well as the results of discontinued operations for the years ended December 31, 2023, and 2022, are presented in explanatory note no. 35.
1.2 Sale of subsidiary The Body Shop
On December 29, 2023, the Company concluded the sale of the subsidiary The Body Shop to Aurelius Investment Advisory Limited (“Aurelius”) for a total amount of R$
The total loss incurred in the derecognition of assets and liabilities of the subsidiary, recognized as discontinued operations, net of income tax and social contribution, amounted to R$
The total consideration recognized as a result of discontinued operations considered: i) a fixed installment received on January 2, 2024, in the amount of R$
Further details about this transaction, including the breakdown of contingent considerations to be received and the results of discontinued operations for the years ended December 31, 2023, and 2022, are presented in explanatory note no. 35.
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
The consolidated financial statements (herein referred to as “financial statements”) have been prepared and are being presented in accordance with the International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS Accounting Standards”).
The financial statements show all the relevant information specific to the financial statements, and only them which are consistent with those used by the Management in its activities.
The Company’s financial statements were approved by the Board of Directors and authorized for issuance at the meeting held on May 9, 2024.
The financial statements were prepared on a historical cost basis, except for items measured at fair value through profit or loss, which include (i) derivative instruments; (ii) contingent considerations arising from the disposal of the former subsidiary The Body Shop; (iii) other financial assets referred to in explanatory note no. 3.6.1; and (iv) financial liabilities designated as fair value hedging instruments (explanatory note no. 3.6.2).
The financial statements are expressed in thousands of Reais (“R$”), rounded to the nearest thousand, and the disclosures of amounts in other currencies, when necessary, were also made in thousands. The items disclosed in other currencies are duly identified, whenever applicable.
| F-12 |
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
The material accounting policies applied in the preparation of these financial statements are defined below. These practices have been applied consistently in all the years presented, except for the accounting policies adopted for the first time in 2023, as described in note no. 3.28).
3.1Current versus non-current classification
The Company presents assets and liabilities in the balance sheet based on the classification of current and non-current, according to the expectation for realization and/or expected consumption during the ordinary course of the operating cycle, as defined in CPC 26 (R2) - Presentation of Accounting Statements - (IAS 1).
Deferred tax assets and liabilities are classified as non-current assets and liabilities, as disclosed in note no. 3.17.
3.2Foreign currency translation
Functional currency
The items included in the financial statements of the Company and each of the companies included in the consolidated financial statements are measured using the currency of the main economic environment in which each of the companies operates (“functional currency”). The financial statements are presented in the Company’s functional and presentation currency, the Brazilian Real.
3.2.1Transactions and balances in a currency other than the functional currency
Transactions in foreign currency, that is, any currency other than the functional currency, are translated into the functional currency of the entities included in these consolidated financial statements using the exchange rates prevailing on the dates of the transactions.
Balance sheet account balances are translated using the exchange rates prevailing on the dates of the reporting period. Gains and losses from exchange rate variation arising from the settlement of such transactions and the translation of monetary assets and monetary liabilities denominated in foreign currency are recognized in the statement of profit or loss as “finance income” and “finance expenses”.
3.2.2Subsidiaries with different functional currency
In preparing the consolidated financial statements, the statement of profit or loss and cash flow statement and all other changes of assets and liabilities of foreign subsidiaries, whose functional currency is not the Brazilian Real, are translated into Brazilian Reais at the monthly average exchange rates, which approximates the exchange rate in effect on the date of the transactions.
The balance sheet is translated into Brazilian Reais at the exchange rate prevailing at each reporting date. The effects of exchange rate variations resulting from these translations are presented under the item Other Comprehensive Income (“OCI”) in the statement of comprehensive income in shareholders’ equity.
The translation calculation is different for Natura Cosméticos S.A. – Argentina (“Natura Argentina”), Cosmeticos Avon Sociedad Anonima Comercial e Industrial (“Avon Argentina") and Avon Kozmetik Urunleri Sanayi ve Ticaret Anonim Siketi (“Avon Turkey”), which became hyperinflationary economies as of July 1, 2018 for Argentina and June 1, 2022 for Turkey, in which other than the balance sheet, the revenue and expenses are also translated into Reais at the exchange rates prevailing at each reporting date (note no. 3.2.4).
3.2.3Hyperinflationary economy
On July 1, 2018 and June 1, 2022, Argentina and Turkey were considered hyperinflationary economies, respectively considering the rise in the official price indices of the respective countries accumulated on those dates (Consumer Price Index, or “IPC” for the Argentina and the Internal Wholesale Price Index, or “IPIM” for Turkey).
Accordingly, non-monetary assets and liabilities recorded at historical cost in these subsidiaries were restated based on the respective indices mentioned above, with the effects resulting from changes in general purchasing power being presented in the statement of income. The net effect of the inflation adjustment for the years ended December 31, 2023 and 2022 was presented in a specific account for the effect of hyperinflation in the financial result (see note no. 28).
For the purpose of converting the accounting balances of the respective subsidiaries into the presentation currency (reais R$) used in the Company's individual and consolidated financial statements, the following procedures were adopted:
| ➢ | Assets and liabilities were translated at the exchange rate prevailing at the reporting date ( |
| ➢ | Revenues and expenses of the year were translated at the exchange rate prevailing at the reporting date (the same as indicated above), instead of the average exchange rate of the year, which is used to translate currencies in non-hyperinflationary economies. |
The accumulated inflation for the year ended December 31, 2023 was
3.3Consolidation
The following procedures are applied in the preparation of the financial statements:
a)Investments in subsidiaries
The Company controls an entity when it is exposed to, or is entitled to, the variable returns arising from its involvement with the entity and can affect those returns by exercising its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date when the Company obtains control until the date when the control ceases to exist.
Below is a list of the Company’s direct subsidiaries as of December 31, 2023 and 2022:
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2022 |
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Direct interest: |
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Avon Products, Inc. |
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Natura Cosméticos S.A. |
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Natura &Co International S.à r.l. |
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The activities of the direct subsidiaries are described below:
| ➢ | Avon Products, Inc. (“Avon Products”): a global manufacturer and marketer of beauty and related products, with operations started in 1886 and established under the laws of the State of New York in the United States of America on January 27, 1916. It conducts its business in the beauty sector and other consumer products through direct selling companies to create manufacture and market beauty and non-beauty products. Its business is carried out mainly through one channel: direct selling. |
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Natura Cosméticos S.A. (“Natura Cosméticos”): is a privately held corporation, established in accordance with the laws of the Federative Republic of Brazil on June 6, 1993, for an indefinite term and the main focus of which is the commercialization of cosmetics and fragrances in general. It also operates through e-commerce and has an expanded network of its own physical stores. The former subsidiaries The Body Shop International Limited (The Body Shop) and Emeis Holding Pty Ltd. (Aesop) were fully sold during the year ended December 31, 2023 (see explanatory notes no. 1.1, 1.2, and 35). |
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Natura &Co International S.à r.l. (“Natura &Co International”): a company established in Luxembourg on February 14, 2020 with the main purpose of operating as the finance arm of the Company (a “Finco”), centralizing the fundraising activities with external entities and providing funding for the other entities of the economic group on behalf of the parent company. Furthermore, the entity has also the purpose of managing and holding stakes in national and foreign companies. |
As of December 31, 2023 and 2022, there are
3.4Goodwill
Goodwill arising from a business combination is initially measured at cost, with the exceeding aggregate amount of: (i) the consideration transferred, measured at fair value; (ii) the amount of any non-controlling interest in the acquiree; and (iii) in a business combination achieved in stages, the fair value of the acquirer’s previously held equity interest in the acquiree at the acquisition date; over the net assets acquired (identifiable net assets acquired and assumed liabilities). When this aggregate amount is lower than the net amount of the identifiable assets acquired and the assumed liabilities, a gain on a bargain purchase is immediately recognized in the statement of profit or loss. Subsequently, goodwill is measured at cost less any accumulated impairment losses.
For impairment testing purposes, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the group of Cash-Generating Units (“CGU”) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units and annually tested, and whenever circumstances indicate that the carrying amount may present impairment losses.
3.5Cash and cash equivalents
Cash and cash equivalents are maintained for the purpose of meeting short-term cash commitments, not for investment or other purposes. Cash and cash equivalents include cash, demand deposits and short-term investments realizable within
3.6Financial instruments
3.6.1Financial assets
Initial recognition and measurement
Upon initial recognition, a financial asset not measured at fair value through profit or loss, is measured at fair value plus or minus transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Subsequently, financial assets are measured at amortized cost, at fair value through other comprehensive income (“FVTOCI”), or at fair value through profit or loss (“FVTPL”).
The classification of financial assets at initial recognition depends on the characteristics of the contractual cash flows of the financial asset and the business model of the Company for the management of these financial assets. The business model of the Company for managing financial assets refers to how the Company manages its financial assets to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortized cost are “non-derivative” financial assets held within a business model with the objective to hold financial assets to collect contractual cash flows, while financial assets classified and measured at fair value through OCI are held within a business model with the objective of holding financial assets to collect contractual cash flows and selling them.
Subsequent measurement
Financial assets at amortized cost
Financial assets at amortized cost are subsequently measured using the effective interest method and are subject to impairment analysis. Gains or losses are recognized in the statement of profit or loss when the asset is written off, modified, or impaired.
The main financial assets of the Company classified as amortized cost include balances of trade accounts receivable, other current assets and non-current assets balances (see note 5.5).
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are presented in the balance sheet at fair value with net changes in fair value recognized in the statement of profit or loss. This category includes derivative instruments and short-term investments which the Company had not irrevocably elected to classify according to the fair value through OCI.
The financial assets measured at fair value through profit or loss are investment funds, government securities, restricted cash, treasury bills, investment fund Dynamo Beauty Ventures Ltd. fund (“DBV Fund”), Certificate of Bank Deposits (“CDB”), repurchase operations, derivatives financial and operational instruments and contingent considerations arising from the disposal of the former subsidiary The Body Shop, as presented in note no. 5.5.
Derecognition (write-off) of financial instruments
A financial asset (or, where applicable, part of a financial asset or part of a group of similar financial assets) is written off when the rights to receive cash flows from the asset have expired, when the Company transfers its rights or risk to receive cash flows from the asset or when the Company has assumed an obligation to pay the full amount of received cash flows, without significant delay, to a third party under an on-lending agreement and either (i) the Company has transferred substantially all risks and benefits of the asset, or (ii) the Company has neither transferred nor retained substantially all risks and benefits of the asset, but transferred the asset control.
When the Company transfers its rights to receive cash flows of an asset or executes an on-lending agreement, it assesses whether, and at which extent, it has retained the risks and benefits of ownership. When the Company has neither transferred nor retained substantially all risks and benefits of the asset, nor transferred control over the asset, the Company continues to recognize the asset transferred to the extent of its continued involvement. In this case, the Company also recognizes an associated liability. The transferred assets and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Impairment of financial assets
The Company recognizes an allowance for expected credit losses (“ECL”) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted by an approximation of the original effective interest rate.
ECLs are recognized in
For trade accounts receivable, the Company applies a simplified approach in calculating ECLs. Therefore, the Company does not track changes in credit risk, but instead recognizes an allowance for losses based on the ECL at each reporting date. The Company has recorded a provision that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. Further details are disclosed in note no. 4.6.
The Company considers a financial asset in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
3.6.2Financial liabilities
Initial recognition and measurement
All financial liabilities are recognized initially at fair value and, in the case of borrowing, financing and debentures, net of directly attributable transaction costs. The Company’s main financial liabilities include borrowing in local and foreign currency, financing and debentures (note no. 18), derivative instruments (note no. 5), trade accounts payable and reverse factoring operations (note no. 19), trade accounts payable - related parties (note no. 31), lease liabilities (note no. 17), insurance payable (note no. 22) and dividends payable (note no. 23).
Subsequent measurement
For purposes of subsequent measurement, financial liabilities are classified in
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities classified upon initial recognition at fair value through profit or loss. Due to the fair value hedge established to protect against interest rate variability associated with the issuance of real estate receivable certificates (“CRI”), the respective liabilities presented in borrowing, financing and debentures were designated at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the short term. This category also includes derivative instruments entered into by the Company that are not classified as hedging instruments in the hedge relationships defined by CPC 48 - Financial Instruments (IFRS 9). Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognized in the statement of profit or loss.
Financial liabilities designated on initial recognition at fair value through profit or loss are designated on the initial recognition date and only if the criteria of CPC 48 (IFRS 9) are met.
Financial liabilities at amortized cost
This is the most relevant category for the Company. After initial recognition, interest-bearing borrowings, financing and debentures are subsequently measured (except issuance of the aforementioned real estate receivables certificates) at amortized cost using the effective interest rate method. Gains and losses are recognized in profit or loss when the liabilities are written off as well as through the effective interest rate amortization process.
Any difference between raised and settled amounts is recognized in the statement of profit or loss, using the effective interest rate method during the year in which the borrowings, financing and debentures are outstanding.
Amortized cost is calculated by considering any premium or discount on acquisition and fees or costs that are an integral part of the effective interest rate method. The effective interest rate amortization is included as finance expenses in the statement of profit or loss.
This category generally applies to trade accounts payable and reverse factoring operations (see note no. 19), interest-bearing borrowing, financing and debentures (see note no. 18) and lease liabilities (see note no. 17).
Derecognition
Financial liability is written off when the obligation under the liability is discharged, canceled, or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as derecognition of the original liability and recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit or loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset, and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.
The offsetting of financial instruments is also applied to bank balances subject to the central treasury management system (“cash pooling”) instituted with the financial institution, in which the current account positions of the Company (including overdraft balances) are offset since the Company has a legally enforceable right to settle at the net amount and intends to settle the positions on a net basis.
3.6.3Derivative financial instruments
Derivative financial instruments transactions contracted by the Company consist of swaps and non-deliverable forwards (“NDF”) intended exclusively to hedge against foreign exchange risks related to (i) exchange rate risks associated to balance sheet position, purchase of goods and property, plant and equipment, forecast exports in addition to and foreign-denominated cash flows for capital contributions in foreign subsidiaries; and (ii) variability in interest rates associated with contracted debt.
The derivative instruments are measured at fair value, and changes are recognized through profit or loss, except when they are designated as cash flow hedge accounting, in which changes in fair value are recorded in OCI.
The fair value of derivative instruments is measured by the treasury department of the Company based on information on each contracted transaction and related market inputs as of the reporting date of the financial statements, such as interest and exchange rates.
For the purpose of hedge accounting, hedges are classified as: (i) fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment; (ii) cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment; and that may affect the result. The Company does not have a hedge of a net investment in a foreign operation on the years presented.
At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which it wishes to apply hedge accounting, the risk management goal and strategy for hedging.
The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the Company will assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing and future basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Any imbalance between the hedge index of the object and the hedge instrument that is not in compliance with the hedge purpose is adjusted so that the index returns to the standards established in the protection strategy.
Fair value and cash flow hedges that meet all the qualifying criteria for hedge accounting are accounted for as described below.
Fair value Hedge
It consists in providing protection against variation at fair value of assets or liabilities recognized or firm commitments not recognized, or a component of any such items, that is attributed to a specific risk and that may affect the result.
Any gain or loss arising from variations at fair value of the derivative instruments designated as hedge instruments and the hedged assets or liabilities are recognized in the financial result.
In the years ending on December 31, 2023 and 2022, the Company used derivative instruments, and the hedge accounting was used at fair value, as disclosed in note no. 5.3, to hedge against the variation in the interest rates agreed upon as part of the issue of the real estate receivable certificates (“CRI”).
Cash flow hedges
It consists in providing a hedge against variation in cash flows attributable to a specific risk related to a known asset or liability or a highly probable forecast transaction and that may affect statement of profit or loss.
The effective portion of changes in fair value of derivative instruments that is designated and qualified as cash flow hedge is recognized in OCI and accumulated in the “gains (losses) from cash flow hedge operations” and “tax effect on gain (loss) from cash flow hedge operations”. In a cash flow hedge, the effective portion of gain or loss from the hedge instrument is recognized directly in OCI, in shareholders’ equity, while the ineffective portion of hedge is immediately recognized as finance income (expense).
For the years ended December 31, 2023 and 2022, the Company used derivative instruments, applying cash flow hedge accounting and, as disclosed in note 5.3, for hedge against the risk of change in exchange rates related to borrowings in foreign currency, purchase and sale transactions in foreign currency and intercompany borrowing operations that: (i) are highly related to the changes in the market value of the hedged item, both at the beginning as well as during contract term; (ii) have documentation of the transaction, hedged risk, risk management process and methodology used in assessing future effectiveness; and (iii) are considered effective in reducing the risk associated with the exposure to be hedged. It allows the application of the hedge accounting methodology, with the effect of the fair value measurement on the shareholders’ equity and the realization on the statement of profit or loss in the item related to the hedged item.
Discontinuing hedge accounting
Hedge accounting is discontinued when the Company terminates the hedge relationship, the hedge instrument matures or is sold, revoked, or executed, or no longer qualifies to hedge accounting. Any gains or losses recognized in OCI and accumulated in shareholders’ equity up to that date remain in shareholders’ equity related to cash flow hedge and are recognized when the forecast transaction is eventually recognized in the statement of profit or loss.
If a forecast transaction results in the subsequent recognition of a non-financial asset or liability, the cumulative gain or loss in OCI is recycled to profit or loss during the same year for which the non-financial asset acquired or non-financial liability assumed affects the profit or loss. For example, when the non-financial asset is depreciated or sold.
On the other hand, if a forecast transaction results in the subsequent recognition of a financial asset or liability, the cumulative gain or loss in OCI is recycled to profit or loss during the same period for which the financial asset acquired or financial liability assumed affects the profit or loss. For example, when financial income or expense is recognized.
When the forecast transaction is no longer expected, cumulative gains or losses and deferred in the statement of changes in shareholders' equity are immediately recognized in the statement of profit or loss.
The Company assesses, on a prospective basis, throughout the hedge term, the effectiveness of its derivative instruments, as well as changes in their fair value.
The fair values of derivative instruments are disclosed in note no. 5.5.
3.7Trade accounts receivable
Trade accounts receivable correspond to amounts receivable for the sale of goods and services in the ordinary course of the activities of the Company and are recognized to the extent that the consideration, which is unconditional, is due by the customer (that is, only the passage of time is required before payment of the consideration is due) and are measured on initial recognition at cost for the consideration to which the Company expects to be entitled in exchange for the products promised to the client.
Subsequently, trade accounts receivables are measured at amortized cost by using the interest rate method and they are subject to an impairment test.
3.8Inventories
Inventories are valued at their average cost and the net realizable value, whichever is lower. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
The Company considers the following items when determining its allowance for inventory losses: discontinued products, products with slow turnover, expired products or products nearing the expiration date and products that do not meet quality standards, recorded as “cost of sales”.
3.9Carbon credits – carbon neutral program
In 2007, the Company assumed, with its associates, clients, suppliers and shareholders, a commitment to be a Carbon Neutral company, which is to neutralize its emissions of greenhouse gas (“GHG”), throughout its production chain, from extraction of raw materials to post- consumption.
This commitment, which presently refers to the operations of all Company and does not reflect a legal obligation to the extent in which the specific regulations still have not been promulgated by the legislative branch.
Thus, considering the practices historically applied by the Company and the specificity of the commitments assumed and disclosed to the market and society, this commitment is considered a non-formalized obligation, according to CPC 25 - Provisions, Contingent Liabilities and Contingent Assets (IAS 37).
The liability is estimated through carbon emission inventories carried out annually and valued based on the best estimate of the cash disbursement that will be required to settle the current obligation at the reporting date, considering the history of similar transactions carried out by the Company for such end. As of December 31, 2023 and 2022, the balance recorded as “Other non-current liabilities” refers to the total carbon emissions during the period of 2015 to 2023 that have not yet been neutralized by corresponding projects and therefore not granting of the carbon neutral certificate.
The Company elected to make purchases of carbon credits by investing in projects with environmental benefits arising from the voluntary market. Thus, the costs incurred will generate carbon credits after completion or maturation of these projects. Such expenses are recorded in the line item “other current assets” (see note 14) and are measured on initial recognition at cost based on the amounts invested and subsequently measured based on the estimated average value of certificates receivable from recent transactions between unrelated parties.
Upon effective delivery of the related carbon neutral certificates to the Company, and duly filed, the obligation of being carbon neutral is effectively fulfilled; therefore, the asset balances are offset against those of the liabilities.
3.10Property, plant and equipment
Property, plant and equipment is measured at cost of acquisition or construction, plus interest capitalized during construction period, in the case of qualifying assets, and reduced by accumulated depreciation and impairment losses, if applicable. Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted, if applicable.
Land is not depreciated. Depreciation of the other assets is calculated to reduce the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their useful lives and is recognized in the statement of profit or loss. The estimated useful lives of the assets are mentioned in note no. 15.
Gains and losses on disposals are calculated by comparing the proceeds from the sale with the carrying residual amount and are recognized in the statement of profit or loss as “other operating income (expenses), net”.
Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated with the expenditure will flow to the Company.
3.11Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are reported at cost less any accumulated amortization and accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and the related expenditure is reflected in profit or loss in the year in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the method for an intangible asset with a finite useful life are reviewed at least at each reporting date. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense regarding intangible assets with finite lives is recognized in the statement of profit or loss in the expense category that is consistent with the function of the intangible assets.
Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, and when circumstances indicate that the carrying amount may be impaired, either individually or at the CGU level. The assessment of indefinite life is reviewed annually to determine whether indefinite life continues to be supportable. If not, the useful life is changed from indefinite to finite on a prospective basis.
An intangible asset is written off upon disposal (i.e., at the date the receiver of the asset obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising upon write-offs of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss in item “other operating income (expenses), net”.
The main classes of intangible assets and useful life are detailed below and described in note no. 16.
3.11.1Software
Licenses of software and enterprise management systems acquired are capitalized and amortized according to the useful lives, and maintenance costs are recognized as expenses when incurred.
Business management system acquisition and implementation costs are capitalized as intangible assets when the asset is identified, when there is evidence that future economic benefits will be generated and when the asset is controlled by the Company, taking into consideration its economic and technological viability. Contracts involving hosting and/or processing of information in the cloud (“cloud computing arrangements”) generate intangible assets to the extent that on the contract start date, the Company obtains control of the software. Contracts which only provide the right of access to the supplier's software during the term of the contract are treated as a service contract and, consequently, recognized as an expense in the statement of profit or loss as the service is provided (since the right of receiving access to the supplier's software does not give the Company, at the commencement date of the contract, the power to obtain the future economic benefits arising from the software itself and to restrict third parties' access to those benefits).
The amounts incurred on software development recognized as assets are amortized under the straight-line method over its estimated useful life. The expenditures related to software maintenance are recognized in profit or loss of the year when incurred.
3.11.2Trademarks and patents
Separately acquired trademarks and patents are stated at their historical cost. Trademarks and patents acquired in a business combination are recognized at fair value on the date of acquisition. For trademarks and patents with a defined useful life, amortization is calculated using the straight-line method.
3.11.3Relationship with agents
Relationships with agents acquired in business combinations are recognized at fair value on the date of acquisition and amortization is calculated using the straight-line method.
3.11.4Technologies developed
Technologies developed include technology for product development (including formulas, labeling data, manufacturing processes, regulatory approvals, product packaging and designs) arising from business combination, and are recognized at fair value on the date of acquisition and its amortization is calculated using the straight-line method.
3.12Impairment of non-financial assets
The Company reviews, on each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when the annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset or the CGU fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written off to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their current value using a pre-tax discount rate that reflects the subsidiary’s weighted average cost of capital in which the CGU operates, which reflects the risks specific to the CGU and is derived from its existing business and respective risks.
The Company bases its impairment calculation on most recent budgets and forecast calculations, which are prepared separately for each of the Company’s CGU (or groups of cash-generating units with respect to goodwill for future profitability) to which the individual assets are allocated and monitored for the purpose of its recoverability. These budgets and forecast calculations generally cover a period of
Impairment losses are recognized in the statement of profit or loss in expense categories consistent with the function of the impaired asset.
For non-financial assets, excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such an indication exists, the Company estimates the assets or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had
Goodwill and other intangible assets with indefinite useful lives are tested for impairment annually as of December 31, and when circumstances indicate that the carrying amount may be impaired. Impairment losses relating to goodwill cannot be reversed in future periods.
3.13Lease liability
The Company reviews, at the beginning of the contract, whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. The Company (as a lessee) applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Company recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the strike price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating the lease, if the lease term reflects the Company exercising the option to terminate.
Variable lease payments that do not depend on an index or a rate are recognized as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.
In calculating the current value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate that is implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (i.e., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
The Company's lease liabilities are disclosed in note no. 17.
3.13.1Right-of-use assets
Right-of-use assets are recognized at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated using the straight-line method over the shorter of the lease term and the estimated useful lives of the assets, disclosed in note no. 17.
The right-of-use assets are also subject to impairment, as disclosed in note no. 3.12.
3.13.2Short-term leases and leases of low-value assets
The Company applies the short-term lease recognition exemption to its short-term leases regardless of their nature (that is, those leases that have a lease term of
3.13.3Sale and leaseback transaction
When an entity transfers an asset to another entity and leases that asset back from the buyer-lessor, the entity (as the seller-lessee) determines whether the transfer of an asset is accounted for as a sale of that asset in accordance with IFRS standards.
Whenever the transfer of the asset by the seller-lessee satisfies the requirements to be accounted for as a sale of the asset, the Company, as seller-lessee, measures the right-of-use asset resulting from a sale and leaseback transaction in proportion to the previous carrying value of the asset relating to the right of use retained by the seller-lessee. Therefore, in a sale and leaseback transaction, the seller-lessee recognizes only the amount of any gain or loss related to the rights transferred to the buyer-lessor.
If the transfer of the asset does not satisfy the requirements to be accounted for as a sale, the Company continues to recognize the transferred asset and recognizes a financial liability equal to the transfer proceeds.
For subsequent measurement, the Company, as seller-lessee, determines “lease payments” or “revised lease payments” in a way that the seller-lessee would not recognize any amount of the gain or loss that relates to the right of use retained. The application of these does not prevent the seller-lessee from recognizing in profits or loss results any gain or loss relating to the partial or full termination of a lease.
3.14Discontinued operations
A group of assets comprising operations intended for disposal qualifies as a discontinued operation disposal group if it is a component of an entity that either has been disposed of, or is classified as held for sale, and: (i) represents a separate major line of business or geographical area of operations; (ii) is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or (iii) is a subsidiary acquired exclusively for the purpose of resale.
Discontinued operations are excluded from the results of continuing operations and are presented as a single amount in the statement of profit or loss as profit or loss after taxes in the statement of profit or loss.
On December 31, 2023, the discontinued operations refer to the results derived from the derecognition of assets, liabilities, and operations of the former subsidiaries Aesop and The Body Shop, arising from the conclusion of the sale of the entities on August 30, 2023, and December 29, 2023, respectively, and to costs incurred with the resolution of lawsuits associated with the operation that the subsidiary Avon kept in North America, which was sold prior to the acquisition of subsidiary Avon by the Company. The Company presents these effects as part of its discontinued operations since it considers the discontinued operations of the subsidiary Avon as an extension of the Company and for assessing that this presentation reliably represents the essence of the associated transaction.
3.15Trade accounts payables and reverse factoring operations
The Company is part of a reverse factoring operation (“supplier finance arrangement”) with a financial institution to facilitate administrative procedures for suppliers to advance receivables related to the routine purchases of the Company. In this operation, the financial institution separately offers to pay the supplier in advance in exchange for a discount and, when agreed between the bank and the supplier (the decision to join this transaction is solely and exclusively on the supplier), the Company pays the financial institution on the original payment date at the full-face value of the originating obligation.
This operation does not change the amounts, nature, and timing of the liability (including previously agreed-upon terms, prices and conditions) and it does not affect the Company with financial charges practiced by the financial institution, on performing a thorough analysis of suppliers by category. There is no guarantee given by the Company.
Additionally, the payments made by the Company represent purchases of goods and services, are directly related to invoices from trade accounts payable and do not change the Company’s cash flows. Thus, the Company continues to recognize the liability as a trade accounts payable and these transactions are presented as operating activities in the cash flow statement.
3.16Provisions for tax, civil and labor risks
Provisions are recognized when the Company has a legal or constructive obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation, and its value can be reliably estimated. Provisions are quantified at the current value of the expected outflow of resources to settle the obligations using the appropriate discount rate according to risks related to the liability.
The provisions for tax, civil and labor risks are monetarily adjusted through the end of the year to cover probable losses, based on the nature of the risk and the opinion of the Company’s legal advisors. The monetary adjustments are recorded in finance income (expenses), see note no. 28.
Contingent assets are not recognized by the Company and are only disclosed in case of probable receipt of economic benefits. If it is practically certain that economic benefits will be received, the assets and the corresponding gain are recorded in the financial statements of the year corresponding to the change in the estimate.
Contingent liability recognized in a business combination is initially measured at its fair value. Subsequently, it is measured at the higher of the amount that would be recognized in accordance with the requirements for provisions above or the amount initially recognized less (when appropriate) cumulative amortization recognized in accordance with the requirements for revenue recognition.
The Company has contracts that provide for the payment of success fees arising from tax, civil and labor proceedings in which it is a defendant, and based on its best estimate, calculated, and provisioned the amounts for which it understands that there is an expectation of future disbursement.
3.17Current and deferred income tax and social contribution
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the tax authorities based on the tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Company operates and generates taxable income. The Company periodically assesses the tax treatment assumed in the determination of taxes on profit with respect to situations in which the applicable tax regulation gives rise to interpretations that may be different and considers whether it is likely that the tax authority would accept the uncertain tax treatment. The Company assesses these taxes balances based on the most probable or expected value, depending on which method is assessed as the one that provides the best forecast for resolving the uncertainty.
The Company applies the provisions of ICPC 22/IFRIC 23 - Uncertainty regarding Treatment of Taxes on Profit in relation to treatments that affected the calculation of taxes on profit (uncertain tax treatments), as disclosed in explanatory note no. 21 - Provision for risks tax, civil and labor.
The Company has material uncertain tax positions, and which - in case of any unfavorable outcome under litigation - could result in a material adverse impact to the financial statements.
In Brazil, they include the corporate income tax (“IRPJ”) and the social contribution on net income (“CSLL”), which are calculated based on taxable income by applying the
Deferred taxes represent tax debits and credits on temporary differences between tax base and accounting base of assets and liabilities on accrued tax losses. Deferred tax assets and liabilities are classified as non-current as required by CPC 32 - Income taxes (IAS 12).
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are re-assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. The estimate of future taxable income requires judgements, estimates and interpretation of tax laws.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted at the reporting date and reflect the uncertainties relating to these taxes, when applicable.
Deferred tax assets and liabilities are offset if there is a legal feasible right to offset tax liabilities against tax assets, and if they are related to taxes registered by the same tax authority under the same taxable entity. Thus, for presentation purposes, tax asset and liability balances are disclosed separately.
3.18Employee benefits
3.18.1Short-term benefits
The obligations of short-term benefits for employees are recognized as personnel expenses as the corresponding service is rendered. The liability is recognized at the amount of the expected payment if the Company has a legal or non-formalized obligation to pay the amount due to services rendered by the employee in the past and the obligation can be reliably estimated.
3.18.2Profit sharing program
The Company recognizes a liability and an expense for its profit-sharing program based on criteria that considers the profit attributable to its shareholders and which is tied to the achievement of specific operational goals and objectives established and approved in the beginning of each year.
3.18.3Defined contribution plans
Obligations to contribute to defined contribution plans are recognized in the statement of profit or loss as personnel expenses when the related services are rendered by employees. Contributions paid in advance are recognized as an asset to the extent that a cash refund or a reduction in future payments is possible.
3.18.4Defined benefit plans
The Company’s net obligation for defined benefit plans (retirement and post-employment health care) is calculated for each plan based on the estimated amount of the future benefit that beneficiaries will receive in return for services rendered in previous years. This amount is discounted to its current value and is presented net of any plan asset’s fair value. The calculation of the defined benefit plan obligation is carried out annually by an external and independent actuary using the Projected Unit Credit Method. When the calculation results in a potential asset for the Company, the asset to be recognized is limited to the current value of economic benefits available in the form of future reimbursements or reductions in future contributions. To calculate the current value of economic benefits, any applicable minimum cost requirements are considered.
The current service cost and accrued interest on the present value of the liability are recognized in the statement of income and the actuarial gains and losses, generated by the remeasurement of the liability due to changes in actuarial assumptions, are recognized in “OCI”. In the event of changes or reductions in the plan, the effects of the cost of past services are recognized in the statement of profit or loss on its occurrence date.
3.19Share-based payments
The Company’s executive officers are granted the following purchase option plans, settled exclusively with its own shares.
| i) | Stock option plans; | |
| ii) | Restricted share purchase program; | |
| iii) | Stock option plan related to the strategy acceleration; and | |
| iv) | Performance share purchase program. |
The plans are measured at fair value at the grant date. In determining the fair value, the Company uses an adequate valuation method, details of which are disclosed in note no. 27.1.
The cost of transactions settled with equity instruments is recognized, together with a corresponding increase in shareholders’ equity under “additional paid-in capital”, throughout the period in which the service conditions are fulfilled, ending on the date on which the employee is fully vested in the right to the award (vesting date). The cumulative expense recognized for equity instruments transactions settled on each base date up to the vesting date reflects the extent to which the vesting period has transpired and the Company’s best estimate of the number of equity instruments to be vested. The expense or credit of the year is recorded in the statement of profit or loss under “selling or administrative expenses”, depending on the internal department where the eligible employee is allocated.
For the stock options plan and the strategy-acceleration program, even after expiration of the term for exercise, the recognized expense is not reversed since the right has been vested in executive officers.
When an award of equity instruments settlement is canceled (except when the cancellation occurs due to loss of right over the equity instrument for not fulfilling the grant conditions), it is treated as if it had been acquired on the date of cancellation, and any expense not recognized is registered immediately. This includes any award for which the Company or the counterparty have the option of not fulfilling the non-vesting obligation. All cancellations of transactions settled with equity instruments are treated in the same way.
The dilution effect of options granted is reflected as additional share dilution in the calculation of diluted earnings per share.
3.20Dividends and interest on net equity
The proposed payment of dividends and interest on net equity made by the Management that is within the portion equivalent to the minimum mandatory dividend is recorded in the line item “dividends and interest on net equity” in current liabilities, as it is considered a legal obligation provided for by the Company’s bylaws; However, the portion of dividends exceeding minimum mandatory dividends the reporting date but declared and approved by Management after the reporting date, the respective liability is not recognized and the proposed balances are reclassified within lines in shareholders’ equity.
For corporate and accounting purposes, interest on net equity is stated as allocation of income directly in shareholders’ equity.
3.21Treasury shares
The Company’s own equity instruments which are reacquired (treasury shares) are recognized at acquisition cost and deducted from shareholders’ equity. No gain or loss is recognized in the statement of profit or loss regarding the purchase, sale, issue or cancellation of the Company’s own equity instruments.
Upon disposal or transfer of treasury shares to beneficiaries of share-based payment plans (settled in shares), the amount of the consideration received is recognized as an increase in shareholders’ equity, and any gain or loss resulting from the transaction is recorded as a capital reserve.
3.22Operating segments
The information per business segment is presented in note 24 in a manner consistent with the internal report provided to the chief operating decision maker. With the sale of the operations of the former subsidiaries The Body Shop and Aesop (which substantially represented their respective homonymous operating segments), as of December 31, 2023, the operating segments consist of the operations of Avon International and Natura &Co Latin America.
The main decision-making body of the Company, which is responsible for defining the allocation of funds and for the performance assessment of the operating segments, is the Board of Directors, which is supported by
3.23Revenue from contracts with customers
Revenue from contracts with customer is recognized when control of the goods or services is transferred to the customer at an amount that reflects the fair value of the consideration the Company expects to be entitled in exchange for those goods or services. The Company has concluded that it is the principal in its revenue arrangements.
The Company considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price, the effects of variable consideration, existence of a significant financing component, non-cash consideration, and consideration payable to the customer (if any) are considered.
The nature and other considerations on the transaction price and the moment in which the performance obligation is fulfilled for each of the main revenue streams are shown below.
3.23.1 Direct sales
Revenue from direct sales is generated by sales to the Company’s consultants (our customers) based on the fair value of consideration received/receivable, excluding discounts, rebates and taxes or charges on sales. Revenue from sales is recognized when the performance obligation is fulfilled, i.e., when the promised product is physically delivered, and the Consultant obtains control over the product.
3.23.2Direct sales – Additional charges and penalties for late payments
The Company charges their customers (Consultants) additional charges and penalties for late payments in the settlement of sales receivables. Due to the level of uncertainty in collecting these amounts (variable consideration), the subsidiaries recognize revenue from additional charges and penalties based on the consideration that Company expects to be entitled given its history of collection from customers.
3.23.3Retail sales
The Company, which operates in the retail market, measures sales revenues based on the fair value of the consideration received/receivable, excluding discounts, rebates and taxes or charges on sales. These revenues are recognized when the performance obligation is fulfilled, i.e., when the promised product is physically delivered, and the consumer obtains control over the product.
3.23.4Other performance obligation
3.23.4.1Loyalty program (points campaign)
The Company offers points campaign (loyalty program), in which customers accumulate points - while buying the Company’s products - to be exchanged (redeemed) for products in the future. Measurement of points is based on their expected cost, plus a margin. The amount allocated to the loyalty program is deferred and the revenue is recognized upon redemption of the points accumulated by consultants for retail and direct sales, or when they expire or are no longer considered redeemable. The loyalty program points are valid for up to approximately
3.23.4.2Program for recognition of Natura and Avon beauty consultants’ performance
The Company has performance recognition programs, in which the beauty consultants are awarded based on different indicators, for example, volume of purchases, length of service, among others. The Company believes that this performance recognition program has an added value and hence is considered a commitment to our network. Measurement of performance recognition programs is based on their expected cost, plus a margin. The amount allocated to performance recognition programs is deferred and revenue is recognized when awards are delivered to the Company’s Consultants.
3.23.4.3Events
The Company organizes events to encourage and recognize the best Consultants. The Company believes that these events have added value for the Consultants, in addition to generating in them an expectation to participate in these events. Thus, the Company has determined that these events are a performance obligation. Measurement of events is based on their expected cost, plus a margin. The amount allocated to events is deferred and the revenue is recognized when the event is held.
3.23.4.4Franchises (courses, training and consulting/outfit and opening)
Upon execution of the agreement, the Company charges from franchisees a fixed amount, part of which is allocated to courses, training and consultancy to train and instruct the franchisee to sell “Natura” and “The Body Shop” brand products. In addition, the other part of the charged amounts refers to outfit (specific products to be used at the franchisee store) and inauguration (franchisee’s store opening event). The Company believes that these items represent a material right and, for such, they are considered a performance obligation. Measurement is based on the market value of these items, being initially recognized as deferred revenue. When the franchisee’s store is opened, this deferred revenue is allocated to the statement of profit or loss.
3.23.4.5Franchises (brand right of use)
Upon the execution of the agreement, the Company charges from franchisees a fixed amount, part of which is for the use of the “Natura” brand. The Company believes that this item represents a material right and, for such, it was considered a performance obligation. Measurement is based on residual value, i.e., the remaining value after excluding the market value of courses, training and consultancy services, outfit and inauguration, and the advertising fund. This amount is initially recognized as deferred revenue. This deferred revenue is allocated to statement of profit or loss, on a straight-line basis, over the term of the franchise agreement.
3.23.4.6Incentives related to “free-of-charge” products and promotional gifts
The Company grants incentives related to “free-of-charge” products and promotional gifts for its customers (Natura and Avon consultants and/or end consumers). Since it is considered a material right, the Company recognizes it as a performance obligation. Considering that the delivery of products and the fulfillment of the performance obligation to deliver “free-of-charge” products or promotional gifts occurs at the same time, the Company concluded that an allocation of prices and monitoring these
3.24Sales taxes
Net revenues are recognized net of sales taxes, except (i) when sales taxes incurred on the purchase of goods or services are not recoverable from the tax authorities, in which case the sales tax is recognized as part of the acquisition cost of the asset or expense item, as the case may be; (ii) when the amounts receivable and payable are presented together with the sales taxes amount; and (iii) when the net amount of sales taxes, recoverable or payable, is included as a component of the amounts receivable or payable in the balance sheet.
Tax incentives related to taxes on sales for the current year are recognized in the Company's statement of profit or loss for the year and recorded in net sales.
3.24.1Concept of supplies for calculating credits of PIS and COFINS contributions
The Company claims that PIS and COFINS credits are measured and calculated reliably and based on the best interpretation of current legislation and the country’s jurisprudential scenario, whose evolution is permanently assessed by the Company and its legal advisors.
3.25Earnings per share
The basic earnings per share are calculated by dividing the profit (loss) attributable to the Company’s shareholders by the weighted average number of outstanding common shares, excluding common shares purchased by the Company and held as treasury shares.
Diluted earnings per share are calculated by adjusting the weighted average number of outstanding common shares, assuming the conversion of all potential common shares that would cause dilution. The Company has stock options, restricted shares, strategy acceleration and performance shares that would have a dilutive effect on any earnings per share.
The Company chose to present the basic and diluted amounts per share resulting from discontinued operations together with the information on earnings per share of continuing operations in note 31, presenting the information for continuing operations in the statement of profit or loss. Such information is presented based on consolidated statement of profit or loss.
3.26New standards, amendments and interpretations issued but not yet effective
The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issue of the Company’s financial statements are disclosed below, except for those which, in the Management’s assessment, cannot produce any effect on the financial statements. The Company intends to adopt these new and amended standards and interpretations, if applicable, when they become effective.
3.26.1Amendments to IAS 1 (CPC 26 (R1)) - Noncurrent liabilities with covenants
IASB issued amendments to IAS 1 (CPC 26(R1)), so as to improve on the information provided by an entity when its right to avoid liquidation of a liability for at least
The amendments are effective for years beginning on or after January 1, 2024. and are not expected to have an impact on the Company's financial statements due to the history of the Company of satisfying covenants, as well as the consistency between the Company's classification policies for current and non-current liabilities and the clarifications established by the amendments."
3.26.2Amendments to IFRS 16 (CPC 06 (R2)) - Lease liabilities and sale and leaseback
IASB changed the amendments issued for IFRS 16 (CPC 06 (R2)) to include the subsequent measurement requirements for sale and leaseback transactions to satisfy the requirements of IFRS 15 (CPC 47) for them to be counted as a sale. The amendments require that a seller-lessee subsequently measure the lease liabilities arising from relocation so as to not recognize any amount with gain or loss related to its right of use.
The amendments are effective for years beginning on or after January 1, 2024, and are not expected to have an impact on the Company's financial statements, as there is consistency between the Company's policies for sale and leaseback accounting and the clarifications established by the amendments (including the disclosure of leaseback recognition as disclosed in explanatory note no. 17)
3.26.3Amendments to IFRS 7 and IAS 7 - Supplier Finance Arrangements ("reverse finance operation")
IASB issued amendments to IFRS 7 and IAS 7, which require additional disclosure of supplier finance arrangements in order to assist users of financial statements in understanding the effects of such arrangements on an entity’s liabilities, cash flows and exposure to liquidity risk.
These additional required disclosures will include: (a) the terms and conditions of the arrangements (for example, extended payment terms and security or guarantees provided); (b) as at the beginning and end of the reporting period: (i) the carrying amounts, and associated line items, of the financial liabilities that are part of a supplier finance arrangement; (ii) the carrying amounts, and associated line items, of the financial liabilities for which suppliers have already received payment from the finance providers; (iii) the range of payment due dates for both the financial liabilities disclosed under (i), as the comparable trade payables that are not part of a supplier finance arrangement; and (c) the type and effect of non-cash changes in the carrying amounts of the financial liabilities.
The amendments are applicable for years beginning on or after January 1, 2024, and do not affect the measurement and classification bases for such transactions in the financial statements. The Company will include such disclosures in its financial statements when these changes become effective.
3.27New standards, amendments and interpretations of standards adopted for the first time for the year beginning on January 1, 2023
Standards and changes that came into force as of the years started on or after January 1, 2023, did not have any material impact on the Company’s financial statements. The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
As of January 1, 2023, amendments to CPC 23 - Accounting Policies, Change in Estimates and Error Correction (IAS 8) and CPC 26 (R1) (IAS 1 - Presentation of Financial Statements) came into force, along with amendments to IFRS Practice Statement 2, Making Materiality Judgments, educational document issued by the IASB and not published by the CPC in Brazil), where the concepts of accounting estimates and applying materiality judgments to accounting policy disclosures to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their “significant” accounting policies with a requirement to disclose their “material” accounting policies. In the preparation of financial statements, these concepts were considered, however, there were no material effects on the nature and detail of the information presented, since, in a manner consistent with the requirements of CPC 26 (R1), aspects of materiality were already applied in determining the accounting policies to be disclosed.
Additionally, in May 2023 IASB published amendments to IAS 12, Income taxes, determining the application of a mandatory exception in the recognition of deferred taxes on taxable profit arising from the application of the requirements of the “Pillar 2” legislation, an initiative by the Organization for Economic Cooperation and Development (OECD), through which it seeks to implement a new tax system that will consist of an "extra layer" to the domestic taxation of the countries involved, seeking to ensure the payment of a global minimum effective rate of
During 2023, various Countries in which the Company operates have enacted or proposed legislation implementing the Pillar Two model rules published by the Organization for Economic Co-operation and Development (OECD). In addition, various Countries have either enacted or are intending to enact legislation implementing certain transition rules implementing the Country-by-Country reporting Safe Harbor (“CBCR-SH”). The Company applies the exception in IAS 12 Income Taxes to the requirement to recognize and disclose information about deferred tax assets and liabilities related to Pillar Two income taxes.
Based on the Company’s ongoing evaluation of the CBCR-SH rules published by the OECD and expected to be enacted as applied to the results, the Company does not expect that there would be any material significant exposure to incremental income taxes associated with Pillar II legislation. The Company’s analysis is currently indicating that substantially all countries in which the Natura Group operates will satisfy at least one or more of the three CBCR-SH requirements or will be subject to a Qualifying Domestic Minimum -Top-up Tax which is not expected to result in a material/significant impact to the Company’s exposure to income taxation.
The Group will continue to assess its exposure to Pillar II as further legislation is implemented for Pillar II as well as the CBCR-SH. Provided that further legislation is aligned with OECD guidance, the Group would not expect any change in our present assessment noted herein.
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NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
The preparation of the consolidated financial statements requires management to make certain judgments and use assumptions and estimates based on experience and other factors considered relevant, which affect the values of assets and liabilities, and which may present results that differ from actual results.
The areas that require a higher level of judgment and have greater complexity, as well as the areas in which assumptions and estimates are material for the financial statements, are disclosed below.
4.1Income tax, social contribution, and other taxes
Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgement is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies and other sources of income.
The Company has R$
4.2Provision for tax, civil and labor risks
The Company is party to several legal and administrative procedures as described in note no. 21. Provisions are recorded for processes related to tax, civil and labor risks related to lawsuits that represent probable, except for those related to business combinations, and are estimated with a certain degree of certainty. The assessment of the likelihood of loss includes the assessment of the available evidence, the hierarchy of laws, the available jurisprudence, the most recent court decisions, and their relevance in the legal system, as well as the assessment of legal advisors.
4.3Post-employment health care plan
The cost of the post-employment health care plan is determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These are based on a series of financial and demographic assumptions, such as the discount rate, medical inflation, and percentage of adhesion to the plan, which are disclosed in note no. 22. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
4.4Stock option plan, restricted share plan, strategy-acceleration program and performance share program
Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which depends on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option or appreciation right, volatility and dividend yield and making assumptions about it.
The stock option plan, restricted share plan, strategy-acceleration program and performance share program are measured at fair value at the grant date and the expense is recognized in profit or loss during the vesting period and in “Additional paid-in capital” in shareholders’ equity. On the balance sheet dates, Management reviews the estimates as to the number of purchase options/restricted shares and, where applicable, recognizes the effect arising from this review in profit or loss for period against shareholders’ equity. The assumptions and models used to estimate the fair value of the stock option plan, restricted share plan and strategy-acceleration program are disclosed in note no. 27.1.
4.5Impairment of non-financial assets
An impairment loss exists when the carrying amount of an asset or CGU exceeds its recoverable amount, which is the higher of fair value less cost of disposal and value in use. Fair value less costs of disposal is calculated based on information available about similar assets sold or market prices less additional costs to dispose of the asset.
Value in use is calculated based on the discounted cash flow model. Cash flow derives from financial budgets approved by the Board of Directors for period of
4.6Allowance for trade accounts receivables expected losses
The allowance for expected losses on trade accounts receivable from customers is estimated based on the loss risk in an aging list model. The characteristics of the Company’s trade accounts receivable are (i) immaterial financial component; (ii) non-complex receivables portfolio; and (iii) low credit risk.
For trade accounts receivable, the Company applies the simplified approach in calculating expected credit losses (“ECL”) based on expected credit losses at each reporting date. The allowance determined based on (i) each of the subsidiaries credit losses historical experience, observed in each group of the trade accounts receivable aging list, and (ii) adjustments for specific forward-looking factors for defaulters and the economic environment. An estimated range is used based on the weighted average of the losses for the last 12 months. The calculation also considers the length of time of the relationship of the independent beauty consultant and a division between renegotiated and non-renegotiated overdue trade accounts receivable.
4.7Allowance for inventory losses
The allowance for inventory losses is estimated using a methodology to contemplate discontinued products, materials with slow turnover, materials with an expired expiration date or close to the expiration date, and materials outside the quality parameters.
4.8Leases - Incremental borrowing rate
The Company cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (“IBR”) to measure lease liabilities. The IBR is the interest rate that the Company would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Company “would have to pay”, which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when they need to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s functional currency).
The Company estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates.
4.9 Measurement of the fair value of the contingent consideration from the sale of The Body Shop
As disclosed in explanatory notes 5.5 and 35, part of the agreed consideration, from the former subsidiary The Body Shope sale, involved in the future collection of installments are contingent on meeting performance targets: of the operation of The Body Shop.
The eventual achievement of these goals is assessed based on likely hood studies associated with the specific results of The Body Shop as of the balance sheet date, applying the discounted cash flow method. Further details about premises and measurement basis are included in explanatory note 5.5.
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NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
5.1General considerations and policies
Risks and financial instruments are managed through policies, the definition of strategies and implementation of control systems, defined by the risk management committees of the entities of the group, and approved by the Company’s Board of Directors. The compliance of treasury financial instruments positions, including derivatives, in relation to these policies, is presented and assessed on a monthly basis by the Company’s Treasury Committee and subsequently submitted to the analysis of the Audit and Risk Management and Finance Committees, the Executive Committee and, if necessary, the Board of Directors.
Risk management of the Company’s operations is performed by the Company’s Corporate Treasury, which is also responsible for approving short-term investments and borrowings transactions. Risk management of the subsidiaries Aesop, The Body Shop, Avon and Natura Cosméticos is conducted by local treasury teams, subject to monitoring and approval of the Company’s Corporate Treasury.
5.2Risks associated with the conflict between Russia and Ukraine
The Company's Management is continuously monitoring developments to assess any possible future impacts that may arise as a result of the ongoing crisis, including the impairment of financial and non-financial assets, which the Company’s Management assesses based on the best information available.
So far, the conflict resulted in the suspension of the operations of exports from the Russian manufacturing unit to other countries in the region, including Ukraine, which are now supplied by our unit in Poland. Avon, however, continues to provide a basic earning opportunity to its representatives through a simplified operating model. As of the date of these financial statements, the Company confirms that the facilities, as well as the goods and stocks held therein, have not been damaged and are in a suitable condition to be operated.
Regarding operations of the subsidiary Avon in Russia, as of the date of these financial statements, no significant impacts were identified that affect the business model for managing financial assets or the classification of these assets. Additionally, there are no indications of a significant increase in the expected credit loss associated with operations, considering the maintenance of receivables collection levels and the increase in cash transactions (considering the reduction in credit operations as a result of restrictions imposed locally and of credit card processing companies in the country).
Considering the maintenance of collection levels and sales operations for the local market in Russia, as well as the inexistence of significant restrictions that affect the Company's ability to carry out the management and cash changes necessary to maintain its operations, there is no significant risk of liquidity related to these events that affect this financial statement. Similarly, market risks associated with the transaction, including interest rate, currency and other price risks, including raw materials, did not significantly affect the Company's financial assets, considering the expectation of recoverability of the amounts in the ordinary course of business.
Regarding the operations in Ukraine, the impacts arising from the lower economic activity under the new simplified operating model are not relevant to the individual and consolidated financial statements.
As a result of the developments of the conflict in the year ended December 31, 2023, there were still no impacts resulting from possible breaches of covenants or losses related to derecognition and/or modification of financial instruments or reclassification of cash flow hedge reserve amounts as a result of loss of effectiveness of derivatives recognized by hedge accounting or by the loss of expectation that transactions evaluated as highly probable will actually occur.
5.3Financial risk factors
The Company’s activities expose them to several financial risks: market risks (including foreign currency and interest rate risks), credit risk and liquidity risk. The Company’s overall risk management program is focused on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance, using financial instruments to hedge certain risk exposures. The Company does not operate derivative instruments with the purpose of speculation.
5.3.1 Market risks
Market risks reflect the risks that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in market prices, including foreign exchange risk, interest rate risk and other price risks. The Company is exposed to market risks arising from their business activities. These market risks mainly comprise possible fluctuations in exchange and interest rates.
Other price risks include, among others, exposures to financial instruments due to changes in commodity and raw material prices. Climatic aspects, such as the availability of natural raw material used in the products and/or significant changes in the cost of these items may expose the Company to additional market risks that affect the entity's operations as well as the measurement and/or recoverability of financial instruments. As of December 31, 2023, the Company’s Management assessed these risks and concluded that they are not material.
5.3.1.1 Derivative financial instruments used to manage market risks
The Company classifies derivative financial instruments as financial derivatives and operational derivatives. Financial derivatives include swaps or forwards used to hedge exchange rate or interest rate risks related to loans, financing, debt securities and loans between related parties. Operational derivatives include forward contracts used to hedge the exchange rate risk of the Company's operational activities (such as import and export transactions).
As of December 31, 2023 and 2022, derivative contracts are maintained directly with financial institutions and not through stock exchanges, and are not subject to margin deposits to guarantee these operations.
As of December 31, 2023 and 2022, the balances of derivative are presented as follows:
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|
Short position in CDI |
( |
) |
( |
) | ( |
) |
|
( |
) | ( |
) | |||||||
|
|
|
|
|
|
||||||||||||||
|
Forward contracts and NDF: |
|
|
|
|
||||||||||||||
|
Liability portion: |
|
|
|
|
||||||||||||||
|
Post-fixed CDI Rate: |
|
|
|
|
||||||||||||||
|
Natura Cosméticos |
( |
) |
( |
) | ( |
) |
( |
) |
( |
) | ( |
) | ||||||
|
Natura Indústria |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||
|
Natura Mexico (Latam) |
|
|
|
|
||||||||||||||
|
The Body Shop |
|
|
( |
) |
|
( |
) | |||||||||||
|
Aesop |
|
( |
) |
|
|
|||||||||||||
|
Avon Brasil |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||
|
Avon Internacional |
( |
) |
( |
) | ( |
) |
( |
) |
( |
) | ||||||||
|
Natura Luxembourg |
( |
) |
( |
) | ( |
) |
|
|
( |
) | ||||||||
|
|
|
|
|
|
||||||||||||||
|
Total derivative instruments, net: |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||
a)
Below are the changes in net derivatives balances for the years ended on December 31, 2023 and 2022:
|
|
Consolidated |
||
|
Balance as of December 31, 2021 |
|||
|
Losses from swap and forward derivative contracts for the year (unrealized) |
( |
) | |
|
Payment of funds due to settlement of derivative transactions - operational activity |
|
||
|
Receipt of funds due to settlements of derivative instruments - financing activity |
( |
) | |
|
Losses in cash flow hedge operations (other comprehensive income) |
( |
) | |
|
Other movements |
( |
) | |
|
Balance as of December 31, 2022 |
( |
) | |
|
Losses from swap and forward derivative contracts for the year (unrealized) |
( |
) | |
|
Payment of funds due to settlement of derivative transactions - operational activity |
|
||
|
Payment of funds due to settlements of derivative instruments - financing activity |
|
||
|
Losses in cash flow hedge operations (other comprehensive income) |
|
||
|
Other movements |
( |
) | |
|
Balance as of December 31, 2023 |
( |
) |
Foreign currency risk
The Company is exposed to foreign exchange risk resulting from financial instruments and operations in currencies other than their functional currencies, as well as to operating cash flows in foreign currencies. To reduce this exposure, policies were implemented to hedge the Company from foreign exchange risk, which establish exposure levels related to these risks. Pursuant to the Foreign Exchange Hedging Policy, the derivatives entered into by the Company should eliminate the foreign exchange risk of financial instruments in currencies other than their functional currencies and should also limit losses due to exchange rate variation on future cash flows.
The treasury procedures defined by the current policies include quarterly projection and assessment of the consolidated foreign exchange rate exposure of the Company, on which Management’s decision-making is based. The Company’s foreign exchange hedging policy considers the amounts of foreign currency of receivables and payables balances from commitments already assumed and recorded in the financial statements, as well as future cash flows associated with transactions predicted to be highly probable with an average term of up to
During 2023, the Company transferred its sustainability-linked debt (“Notes”, as described in explanatory note 19) from the subsidiary Natura Cosméticos S.A. to the subsidiary Natura &Co Luxembourg Holdings S.á.r.l. (“Natura &Co Luxembourg”), as part of the rebalancing and reorganization process of the Group's debt initiated when the sale of the former subsidiary Aesop.
The debt denominated in US dollars was included in a hedge accounting structure, aiming to protect the variability of payments arising from exchange rate and interest rate risks. Considering the transfer made to the subsidiary Natura &Co Luxembourg, whose functional currency is the US dollar, the protected risk was no longer eligible within the hedge accounting structure and, consequently, the Company proceeded with the derecognition of this structure. As a result, the amount of R$
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
Sensitivity analysis
For the foreign exchange risk sensitivity analysis, the Company’s Management believes that it is important to consider, in addition to the assets and liabilities with exposure to fluctuations in exchange rates recorded in the balance sheet, the fair value of the financial instruments entered into by the Company to hedge certain exposures as of December 31, 2023 and 2022, as set forth in the table below:
|
|
Consolidated |
|||||
|
|
2023 |
2022 |
||||
| Borrowing and financing in foreign currency in Brazil (a) |
|
( |
) | |||
|
Trade accounts receivable in foreign currency in Brazil |
|
|
||||
|
Trade accounts payable in foreign currencies in Brazil |
( |
) |
( |
) | ||
|
Fair value of financial derivatives |
( |
) |
|
|||
|
Net asset exposure |
|
|
||||
a)
This analysis considers only financial assets and liabilities recorded in Brazil in foreign currency, since exposure to the foreign exchange rate variation in other countries is close to zero. The following table shows the projection of the incremental loss that would have been recognized in profit or loss for the subsequent year, if the current net foreign exchange exposure remains static, based on the following scenarios:
|
|
Consolidated |
||||||||
|
Parity - R$ vs US$ |
|
|
|
||||||
|
|
Scenario |
Scenario I |
Scenario II |
||||||
|
Operation/Instrument |
Brazilian Real |
Depreciation 25% |
Depreciation 50% |
||||||
|
Assets denominated in US$ |
|
|
|
||||||
|
Fair value of “financial” derivatives |
( |
) |
( |
) |
( |
) | |||
|
Trade accounts receivable in foreign currency in Brazil |
|
|
|
||||||
|
|
|
|
|
||||||
|
Liabilities denominated in US$ |
|
|
|
||||||
|
Trade accounts payable in foreign currencies in Brazil |
( |
) |
( |
) |
( |
) | |||
|
Impact on net income and shareholders’ equity |
|
( |
) |
( |
) | ||||
The probable scenario considers future US dollar rates for a
a) Interest rate risk
The interest rate risk arises from short and long-term investments, borrowing, financing and debentures. Financial instruments issued at variable rates expose the Company to cash flow risk associated with interest rate. Financial instruments issued at fixed rates expose the Company to the fair value risk associated with the interest rate.
The Company’s cash flow risk associated with interest rate arises from short-term and long-term investments, borrowing and financing issued at floating rates. The Company’s Management holds, for the most part, the indexes of its exposures to deposit and lending interest rates tied to floating rates. Short-term investments are adjusted by the Certificate interbank deposits (“CDI”) whereas borrowing and financing are adjusted by the CDI and fixed rates, according to the contracts entered into with financial institutions and through the negotiation of securities with investors in that market.
Additionally, the Company considered potential aspects related to sustainability and climate change commitments as part of the risks to which it is exposed in relation to the interest rate on financial instruments, except for the risks associated with the ESG notes (disclosed in item (f) below), there is no exposure to material risks which should be subject to specific disclosure.
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
Sensitivity analysis
As of December 31, 2023, there are borrowing, financing and debentures contracts denominated in foreign currency that are linked to interest swap agreements, changing the liability index rate to the CDI variation. Accordingly, the risk of the Company becomes the exposure to the variation of the CDI. The following table presents the exposure to interest rate risks of transactions related to CDI, including derivative transactions (borrowing, financing and debentures in Brazil were considered in full, given that
|
|
Consolidated |
||
|
Total borrowing, financing and debentures - in local currency (note 19) |
( |
) | |
|
Operations in foreign currency with derivatives related to CDI (a) |
|
||
|
Short-term investments (notes 6 and 7) |
|
||
|
Net exposure |
( |
) |
(a)
The sensitivity analysis considers the exposure of borrowing, financing and debentures, net of short-term investments, linked to CDI (notes no. 6 and 7).
The following tables show the projection of incremental loss that would have been recognized in profit or loss for the following year, assuming that the current net liability exposure is static and the following scenarios:
|
|
Description |
Company Risk |
Probable scenario |
Scenario II |
Scenario III |
||||||||
|
Consolidated |
Net liability |
|
( |
) |
|
|
The probable scenario considers future interest rates for
5.3.1.2 Derivative instruments designated for hedge accounting
a) Cashflow hedge
The Company formally designated its operations subject to hedge accounting for derivative instruments to hedge borrowings, financing and debentures denominated in foreign currency and other expenses of Company, for derivative instruments contracted to hedge the purchase of nationalized materials of indirect subsidiaries Avon Industrial and Natura Industria and for derivative instruments contracted to hedge the operating cash flows from subsidiary The Body Shop’s foreign currency purchase and sales transactions.
There is an economic relationship between the hedged items and the hedging instruments, as the terms of the contracts correspond to (i) the terms of anticipated and highly probable transactions (for example, the notional amount and expected payment date) to the case of derivative instruments contracted to protect highly probable purchases; and (ii) terms associated with debts contracted in foreign currency which are hedged by derivatives that aim to eliminate the variability of cash flows associated with dollar-denominated debt.
The Company established a hedge ratio of
The sources of ineffectiveness, historically immaterial, may come from: (i) differences in the timing of cash flows from hedged items and hedging instruments; (ii) different indices (and, consequently, different curves) associated with the hedged risk of hedged items and hedging instruments; (iii) counterparty credit risk having a different impact on fair value movements of hedging instruments and hedged items; and (iv) changes in the expected amount of cash flows from hedged items and hedging instruments.
For years ending on December 31, 2023 and 2022, the Company designated for hedge accounting the derivative instruments (forward swap) contracted in May 2021, which aim at eliminating the variation in the payments of principal amount and interest in dollars associated with (“ESG Notes”), making the payments fixed at CDI plus spread. As previously mentioned, due to the transfer of this debt to Natura &Co Luxembourg, the protected risk was no longer eligible within the hedge accounting structure, and, consequently, the Company proceeded with the derecognition of the structure.
As of December 31, 2023, the net position of derivative instruments designated as cash flow hedges consists exclusively of operational derivatives and is detailed:
|
|
|
|
|
Other comprehensive income |
|||||||||
|
|
Hedged item |
Notional currency |
Fair value |
Gain (loss) in the year |
Gain (loss) in the year |
||||||||
|
Currency swap – US$/R$ - Natura Cosméticos |
|
|
( |
) |
( |
) |
|
||||||
|
Forward agreements (Avon Industria) |
|
|
( |
) |
( |
) |
|
||||||
|
Forward agreements (Natura Dist. Mexico) |
|
|
|
|
|
||||||||
|
Forward agreements (Natura Industria) |
|
|
( |
) |
( |
) |
( |
) | |||||
|
Forward agreements (Natura Holding) |
|
|
|
|
|
||||||||
|
Total |
|
|
( |
) |
( |
) |
|
||||||
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
The changes in cash flow hedge reserve recorded in OCI are shown below:
|
|
Consolidated |
|
| Cash flow hedge balance as of December 31, 2020 | ||
| Change in the fair value of hedge instrument recognized in OCI | ( |
) |
| Tax effects on fair value of hedge instrument | ||
|
Cash flow hedge balance as of December 31, 2021 |
|
|
|
Change in the fair value of hedge instrument recognized in OCI |
( |
) |
|
Tax effects on fair value of hedge instrument |
|
|
|
Cash flow hedge balance as of December 31, 2022 |
( |
) |
|
Change in the fair value of hedge instrument recognized in OCI |
|
|
|
Tax effects on fair value of hedge instrument |
( |
) |
|
Cash flow hedge balance as of December 31, 2023 |
( |
) |
b) Fair value hedge
For the years ending December 31, 2023 and 2022, the designation (which only included financial derivatives) referred to derivative instruments (swap contracts) contracted in October 2022, which aim to eliminate the variation in interest rates associated with the 2nd and 3rd series of debentures from the 12th issue ("CRI debentures") contracted in IPCA for a flow in CDI plus spread, in accordance with the Group's risk management policy.
The type of hedge relationship applied to such instruments is fair value hedge, which is used to offset variations arising from changes in the fair value of the liability attributable to the specific risk.
There is an economic relationship between protected items and hedging instruments, as the terms of the contracts correspond to terms associated with the contracted debt. The Company established a hedge ratio of
To test the effectiveness of the hedge, the Company uses the sensitivity test, measuring the variation using the offset method in US dollars. Sources of ineffectiveness, historically immaterial, may arise from: (i) reductions or modifications of the protected item (debt payment); (ii) changes in the credit risk of the Company or the counterparty to the contracts; (iii) changes in the spread over IPCA in the swap.
As of December 31, 2023, the net position of derivative instruments designated as fair value hedges consists exclusively of financial derivatives and is detailed below:
|
|
Protection object |
Reference currency (Notional) |
Fair value |
|---|---|---|---|
|
Fair value |
|
|
|
|
Total |
|
|
|
5.3.2 Credit risk
Credit risk refers to the risk of a counterparty not fulfilling its contractual obligations, causing the Company to incur financial losses. The Company's sales are made to a large number of Natura and Avon Consultants and this risk is managed through a credit granting process. The result of this management is reflected in the item “provision for expected credit losses” in “accounts receivable from customers”, as shown in explanatory note no. 8.
The Company is also subject to credit risks related to financial instruments contracted in the management of its business, mainly represented by cash and cash equivalents, financial investments and derivative financial instruments. The Company considers the credit risk of the operations it maintains in financial institutions with which it operates to be low, which are considered by Management to be first line.
The financial investment policy established by the Company's Management elects the financial institutions with which contracts can be concluded, in addition to defining limits regarding the percentages of resource allocation and absolute values to be applied to each of them.
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
5.3.3 Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash, short-term investments, funds available through credit facilities and the ability to settle market positions.
Management monitors the Company’s liquidity level considering the expected cash flows in exchange for unused credit facilities, as shown in the following table:
|
|
Consolidated |
||||
|
|
2023 |
2022 |
|||
|
Total current assets |
|
|
|||
|
Total current liabilities |
( |
) |
( |
) | |
|
Total net working capital |
|
|
|||
As of December 31, 2023 and 2022, the carrying amount of financial liabilities, measured using the amortized cost method, considering interest payments at a floating rate and the value of debt securities reflecting the forward market interest rates, may be changed due to the variation in floating interest rates. Their corresponding maturities, considering that the Company is in compliance with contractual covenants, are evidenced below:
|
2023 |
Less than a year |
One to five years |
More than five years |
Total expected contractual cash flow |
Interest to be accrued |
Carrying amount |
|||||||||||
|
Borrowing, financing and debentures |
|
|
|
|
( |
) |
|
||||||||||
|
Derivatives |
|
|
( |
) |
|
- |
|
||||||||||
|
Lease liability |
|
|
|
|
( |
) |
|
||||||||||
|
Trade accounts payables, related parties and reverse factoring operations |
|
|
|
|
- |
|
|||||||||||
|
Dividends payable |
|
|
|
|
- |
|
|
2022 |
Less than a year |
One to five years |
More than five years |
Total expected contractual cash flow |
Interest to be accrued |
Carrying amount |
|||||||||||
|
Borrowing, financing and debentures |
|
|
|
|
( |
|
|||||||||||
|
Derivatives |
|
|
( |
|
- |
|
|||||||||||
|
Lease liability |
|
|
|
|
( |
|
|||||||||||
|
Trade accounts payables, related parties and reverse factoring operations |
|
|
|
- |
|
||||||||||||
|
Dividends payable |
|
|
|
|
- |
|
New borrowing and financing in the year ended December 31, 2023 are disclosed on note no 19.
Matters related to climatic factors and other sustainability commitments assumed may expose the Company to possible risks related to its financial instruments, especially related to the potential variability of cash flows required to settle obligations with third parties on financing that involve such commitments. On May 4, 2021, subsidiary Natura Cosméticos concluded the offer of the notes linked to the sustainability goals subject to interest of
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
The targets, to be met by 2026, include a reduction in greenhouse gas emissions by
5.4Capital management
The Company's objectives when managing its capital are to safeguard the Company's ability to continue to provide returns to shareholders and benefits to other interested parties, in addition to maintaining an ideal capital structure to reduce this cost.
The Company monitors capital based on financial leverage ratios. This index corresponds to net debt divided by EBITDA (earnings before interest, taxes, depreciation and amortization - EBITDA). Net debt, in turn, corresponds to total loans and financing (including short- and long-term loans and financing, as shown in the consolidated balance sheet) subtracted from the amount of cash and cash equivalents and marketable securities (except resources of “Crer Para Ver” and the investment fund Dynamo Beauty Ventures Ltd (“DBV”).
5.5Fair value measurement
Financial instruments that are measured at fair value on the balance sheet dates as determined by CPC 46 – Fair value measurement (IFRS 13) follow the following hierarchy:
| ➢ | Level 1: Valuation based on quoted (unadjusted) prices in active markets for identical assets and liabilities at balance sheet dates. A market is viewed as active if quoted prices are readily and regularly available from a securities exchange, broker, industry group, pricing service or regulatory agency and those prices represent actual market transactions that occur regularly on a purely commercial basis; |
| ➢ |
Level 2: Used for financial instruments that are not traded in active markets (for example, over-the-counter derivatives), whose evaluation is based on techniques that, in addition to the quoted prices included in Level 1, use other information adopted by the market for the asset or passive directly (i.e. as prices) or indirectly (i.e. derived from prices); and |
| ➢ |
Level 3: Valuation techniques for which the lowest level of input that is significant for measuring fair value is not observable. |
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
Below, we present the carrying amount and fair values of the Company's financial instruments as of December 31, 2023 and 2022:
|
|
|
|
|
Carrying amount |
Fair value |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Consolidated |
Nota |
Classification by category |
Fair value hierarchy |
2023 |
|
2022 |
|
2023 |
|
2022 | ||||
|
Financial assets |
|
|
|
|
|
|
|
|||||||
|
Cash and cash equivalent |
6 |
|
|
|
|
|
|
|||||||
|
Cash and banks |
|
Amortized cost |
Level 2 |
|
|
|
|
|||||||
|
Certificate of bank deposits |
|
Fair value through profit or loss |
Level 2 |
|
|
|
|
|||||||
|
Repurchase operations |
|
Fair value through profit or loss |
Level 2 |
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|||||||
|
Short-term investments |
7 |
|
|
|
|
|
|
|||||||
|
Government securities |
|
Fair value through profit or loss |
Level 2 |
|
|
|
|
|||||||
|
Restricted cash |
|
Fair value through profit or loss |
Level 2 |
|
|
|
|
|||||||
|
Financial treasury bills |
|
Fair value through profit or loss |
Level 2 |
|
|
|
|
|||||||
|
Loan investment fund |
|
Fair value through profit or loss |
Level 2 |
|
|
|
|
|||||||
|
DBV fund |
|
Fair value through profit or loss |
Level 3 |
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|||||||
|
Trade accounts receivables - related parties |
8 and 32.1 |
Amortized cost |
Level 2 |
|
|
|
|
|||||||
|
Judicial deposits |
12 |
Amortized cost |
Level 2 |
|
|
|
|
|||||||
|
Sublease receivables |
14 |
Amortized cost |
Level 2 |
|
|
|
|
|||||||
|
Receivables from service providers |
14 |
Amortized cost |
Level 2 |
|
|
|
|
|||||||
|
Accounts receivable - sale of subsidiary |
|
Amortized cost |
|
|
|
|
|
|||||||
|
Fixed consideration |
34 |
Amortized cost |
Level 2 |
|
|
|
|
|||||||
|
Contingent consideration |
34 |
Fair value through profit or loss |
Level 3 |
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|||||||
|
Financial derivatives (hedge instrument) |
|
Fair value through profit or loss |
Level 2 |
|
|
|
|
|||||||
|
Financial derivative instruments |
|
Fair value through profit or loss |
Level 2 |
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|||||||
|
Financial liabilities |
|
|
|
|
|
|
|
|||||||
|
Borrowing, financing and debentures |
19 |
|
|
|
|
|
|
|||||||
|
Borrowing in local currency |
|
Amortized cost |
Level 2 |
( |
) |
( |
) |
( |
) |
( |
) | |||
|
Foreign currency borrowings |
|
Amortized cost |
Level 2 |
|
( |
) |
|
( |
) | |||||
|
|
|
|
|
( |
) |
( |
) |
( |
) |
( |
) | |||
|
|
|
|
|
|
|
|
|
|||||||
|
Financial and operating derivative instruments |
|
Fair value through profit or loss |
Level 2 |
( |
) |
( |
) |
( |
) |
( |
) | |||
|
|
|
|
|
|
|
|
|
|||||||
|
Lease liability |
18 |
Amortized cost |
Level 2 |
( |
) |
( |
) |
( |
) |
( |
) | |||
|
Prepaid insurance |
|
Amortized cost |
Level 2 |
|
|
|
|
|||||||
|
Trade accounts payables, related-parties’ and reverse factoring |
20 e 32.1 |
Amortized cost |
Level 2 |
( |
) |
( |
) |
( |
) |
( |
) | |||
|
Insurance payables |
23 |
Amortized cost |
Level 2 |
( |
) |
( |
) |
( |
) |
( |
) | |||
|
Dividends payable |
24 |
Amortized cost |
Level 2 |
( |
) |
( |
) |
( |
) |
( |
) | |||
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
When measuring, the carrying value represents a reasonable approximation of the fair value, as described below:
| (i) | the balances of cash and cash equivalents, trade accounts receivables, accounts payable to suppliers and other current liabilities are equivalent to their carrying amounts, mainly due to the short-term maturities of these instruments; |
| (ii) | the balances of the short-term investments: a) measured at amortized cost approximate their fair values as a result of the transactions to be conducted at floating interest rates; and b) measured at fair value through profit or loss based on the rates agreed with the financial institutions considering the agreed rates among the parties, including market information that allows for such calculation; |
| (iii) | except for the real estate receivables certificates the carrying amounts of borrowing, financing and debentures are measured at their amortized cost and disclosed at fair value, which does not differ materially from the carrying amounts as interest rates are consistent with current market rates; and |
| (iv) | the fair value of exchange rate derivatives (swap and forwards) is determined based on the future exchange rates at the dates of the balance sheets, with the resulting amount being discounted at present value. |
The fair value of the investment in the Fundo Dynamo Beauty Ventures Ltda. (“DBV Fund”), classified at level 3 of the fair value hierarchy is calculated based on information on the net value of the investment in the Fund (NAV) calculated by the Fund’s manager based on valuation assumptions consistent with the accounting practices adopted in Brazil and IFRS, adjusted to reflect the fair value assumptions applicable to the nature of the Company’s investment. The Company’s valuation considers inputs not observable in the model, to reflect the contractual restrictions on this investment for early redemption of the security in the market. The significant unobservable inputs used in the fair value estimate reflect a discount due to the lack of liquidity of the security, which represent the values that the Company determined that market agents would consider for these discounts when defining the investment price. An increase (reduction) of
As part of the sales agreement with the acquirer of the former subsidiary The Body Shop (as disclosed in explanatory note no. 35), a contingent consideration was agreed, stipulating additional cash payments to the Company of up to £
There were no transfers between measurement levels in the fair value hierarchy in the year ended December 31, 2023 and 2022 for these assets and liabilities.
Additionally, in the year ended December 31, 2023, there were no material effects on the fair value of financial assets and liabilities as a result of an increase in price volatility in markets affected by the conflict between Russia and Ukraine, counterparty risk in financial assets or market inactivity considered in the evaluation.
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
|
|
Consolidated |
|||||
|
|
2023 |
2022 |
||||
|
Cash and banks |
|
|
||||
|
Certificate of bank deposits |
|
|
||||
|
Repurchase operations (a) |
|
|
||||
|
|
|
|
||||
| (a) |
|
|
Consolidated |
|||||
|
|
2023 |
2022 |
||||
|
Loan investment funds (a) |
|
|
||||
|
Treasury bills (b) |
|
|
||||
|
Government securities (LFT) (c) |
|
|
||||
|
DBV fund |
|
|
||||
|
Restricted cash |
|
|
||||
|
|
|
|
||||
|
|
|
|
||||
|
Current |
|
|
||||
|
Non-current |
|
|
||||
| (a) | |
| (b) | |
| (c) |
|
The breakdown of securities constituting the Essential Investment Fund portfolio, regarding which the Company holds 100% interest, on December 31, 2023 and 2022 is as follows:
|
|
Consolidated |
|||||
|
|
2023 |
2022 |
||||
|
Certificate of bank deposits (CDB) |
|
|
||||
|
Repurchase operations (cash and cash equivalents) |
|
|
||||
|
Treasury bills |
|
|
||||
|
Government securities (LFT) |
|
|
||||
|
|
|
|
||||
These amounts are presented together with the other investments of the same nature of the Company in the consolidated.
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
|
|
Consolidated |
|||||
|
|
2023 |
2022 |
||||
|
Trade accounts receivable |
|
|
||||
|
(-) Allowance for expected credit losses |
( |
) |
( |
) | ||
|
|
|
|
||||
Maximum exposure to credit risk on the date of the financial statements is the carrying amount of each maturity date range, net of the allowance for expected credit losses. The following table shows trade accounts receivables by exposure to allowance for expected credit losses as of December 31, 2023 and 2022:
|
|
Consolidated |
|||||||||||
|
|
2023 |
2022 |
||||||||||
|
|
Trade accounts receivable |
Allowance for expected credit losses |
Trade accounts receivable |
Allowance for expected credit losses |
||||||||
|
Current |
|
( |
) |
|
( |
) | ||||||
|
Past due: |
|
|
|
|
||||||||
|
Up to 30 days |
|
( |
) |
|
( |
) | ||||||
|
31 to 60 days |
|
( |
) |
|
( |
) | ||||||
|
61 to 90 days |
|
( |
) |
|
( |
) | ||||||
|
91 to 180 days |
|
( |
) |
|
( |
) | ||||||
|
Over 180 days |
|
( |
) |
|
|
|||||||
|
|
|
( |
) |
|
( |
) | ||||||
The changes in the allowance for expected credit losses for the year ended December 31, 2023 and 2022 are as follows:
|
|
Consolidated |
||
|
Balance as of December 31, 2020 |
( |
) | |
| Additions, net of reversals | ( |
) | |
| Write-offs (a) | |||
| Translation adjustment | ( |
) | |
|
Balance as of December 31, 2021 |
( |
) | |
|
Additions, net of reversals |
( |
) | |
|
Write-offs (a) |
|
||
|
Translation adjustment |
|
||
|
Balance as of December 31, 2022 |
( |
) | |
|
Write-off from sale of subsidiaries |
|
||
|
Additions, net of reversals |
( |
) | |
|
Write-offs (a) |
|
||
|
Translation adjustment |
|
||
|
Balance as of December 31, 2023 |
( |
) |
| (a) |
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
|
|
Consolidated |
||||
|
|
2023 |
2022 |
|||
|
Finished products |
|
|
|||
|
Raw materials and packaging |
|
|
|||
|
Auxiliary materials |
|
|
|||
|
Products in progress |
|
|
|||
|
(-) Provision for inventory losses |
( |
) |
( |
) | |
|
|
|
|
|||
The changes in the allowance for inventory losses for the years ended December 31, 2023 and 2022 are as follows:
|
|
Consolidated |
|
| Balance as of December 31, 2020 | ( |
) |
| Additions, net of reversals (a) | ( |
) |
| Write-off (b) | ||
| Translation adjustment | ( |
) |
|
Balance as of December 31, 2021 |
( |
) |
|
Additions, net of reversals (a) |
( |
) |
|
Write-off (b) |
|
|
|
Translation adjustment |
|
|
|
Balance as of December 31, 2022 |
( |
) |
|
Write-off from sale of subsidiaries |
|
|
|
Additions, net of reversals (a) |
( |
) |
|
Write-offs (b) |
|
|
|
Translation adjustment |
|
|
|
Balance as of December 31, 2023 |
( |
) |
| a) |
|
| b) |
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
|
|
Consolidated |
||||
|
|
2023 |
2022 |
|||
|
ICMS on purchase of goods (a) |
|
|
|||
|
Taxes on purchase of goods – foreign subsidiaries |
|
|
|||
|
ICMS on purchases of property, plant and equipment and purchase of goods |
|
|
|||
|
PIS and COFINS on purchase of property, plant and equipment and purchase of goods (b) |
|
|
|||
|
Withholding PIS, COFINS and CSLL |
|
|
|||
|
Tax on Manufactured Goods - IPI (c) |
|
|
|||
|
Other |
|
|
|||
|
|
|
|
|||
|
|
|
|
|||
|
Current |
|
|
|||
|
Non-current |
|
|
|||
| a) |
|
| b) | |
| c) |
11.1 Deferred
The deferred Corporate Income Tax - IRPJ and Social Contribution on Net Income - CSLL amounts arise from temporary differences in the subsidiaries. For certain subsidiaries and the Company, deferred tax balances on tax losses were also recognized. The Company’s Management assesses the possibility of offsetting deferred income tax assets and deferred income tax liabilities according to each jurisdiction.
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
The amounts are as follows:
i) Breakdown of deferred income taxes and social contribution
|
|
Consolidated |
||||
|
|
2023 |
2022 |
|||
|
Tax loss carryforwards |
|
|
|||
|
Receivables |
|
|
|||
|
Inventory |
|
|
|||
|
Fixed and intangible assets |
|
|
|||
|
Lease liabilities |
|
|
|||
|
Accruals, reserves and provision for tax, civil and labor risks (b) |
|
|
|||
|
Employee benefits |
|
|
|||
|
Non-functional currency positions, including derivatives and hedge accounting transactions (c) |
|
|
|||
|
Foreign tax credit carryforwards (a) |
|
|
|||
|
Other temporary differences |
|
|
|||
|
Total deferred tax assets |
|
|
|||
|
|
|
|
|||
|
Non-functional currency positions, including derivatives and hedge accounting transactions (c) |
( |
) |
|
||
|
Fixed and intangible assets |
( |
) |
( |
) | |
|
Employee benefits |
( |
) |
( |
) | |
|
Right to use assets |
( |
) |
( |
) | |
|
Contingent consideration |
( |
) |
|
||
|
Fair value of identifiable net assets in business combination (d) |
( |
) |
( |
) | |
|
Other temporary differences |
( |
) |
( |
) | |
|
Total deferred tax liabilities |
( |
) |
( |
) | |
|
|
|
|
|||
|
Total of deferred income tax and social contribution, net |
|
|
|||
|
|
|
|
|||
|
Deferred income taxes and social contribution assets, net (e) |
|
|
|||
|
Deferred income taxes and social contribution liabilities, net (e) |
( |
) |
( |
) | |
| a) | |
| b) | |
| c) | |
| d) | |
| e) |
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
See Footnote 3 for a summary description of the income tax accounting policies adopted by the Company related to deferred taxation. Management continuously evaluates all sources of income to allow unrecognized deferred tax asset to become recognized when it is probable that there are sufficient sources of taxable income to allow for their recognition. Generally, recognition will occur when there is a history of profits that can be sustained and relied upon in the future and/or when facts/circumstances change indicating that a history of losses has been overcome due to elimination of loss-making factors, changes in operations and other factors. Similarly, management evaluates when de-recognition is appropriate when the sources of income are not sufficient to support continued recognition of deferred tax assets.
As of December 31, 2023, there are deferred tax assets recognized in the current and previous periods arising from tax losses and negative CSLL base in the total amount of R$
Additionally, there are deferred tax assets recognized in the current and previous periods for tax losses and/or other deferred tax assets arising from operations of the indirect subsidiary Avon México, which is currently in deficit, totaling R$
The changes in deferred asset and liability income tax and social contribution for the years ended December 31, 2023 and 2022 were as follows:
|
|
Consolidated |
||||
|
|
Asset |
Liability |
|||
|
Balance as of December 31, 2021 |
|
( |
) | ||
|
Effect on statement of profit or loss |
|
( |
) | ||
|
Reserve for grant of options and restricted shares |
|
( |
) | ||
|
Other comprehensive income impact |
|
|
|||
|
Translation adjustment |
( |
) |
|
||
|
Balance as of December 31, 2022 |
|
( |
) | ||
|
Effect on income statement |
( |
) |
( |
) | |
|
Transfer between deferred income tax and social contribution liabilities and assets |
( |
) |
|
||
|
Reclass of UTP to Deferred Tax Liability |
|
( |
) | ||
|
Transfer of Prepaid to Deferred Tax |
|
|
|||
|
Discontinued operations |
( |
) |
|
||
|
Reserve for grant of options and restricted shares |
( |
) |
|
||
|
Other comprehensive income impact |
|
|
|||
|
Translation adjustment |
( |
) |
|
||
|
Balance as of December 31, 2023 |
|
( |
) | ||
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
As of December 31, 2023, the Company had the following unrecognized deferred tax assets:
|
Item |
Amount |
Indefinite Expiration |
Definite Expiration |
|||||
|
Net operating loss (a) |
|
|
|
|||||
|
Credits (b) |
|
|
|
|||||
|
Other future deductible Items |
|
|
|
|||||
|
Total |
|
|
|
| a) | |
| b) |
Unrecognized deferred tax assets are substantially associated with the acquisition of Avon’s operations, especially from operations in Luxembourg, United Kingdom and United States. As of December 31, 2023, there are no events or circumstances that could allow for further recognition of unrecognized deferred tax assets. This situation could change in the future as events and/or relevant facts and circumstances allow.
11.2 Reconciliation of income tax and social contribution reflected in continuing operations:
|
|
Consolidated |
||||
|
|
2023 |
2022 |
|||
|
Loss before income tax and social contribution |
( |
) |
( |
) | |
|
Income tax and social contribution at the rate of |
|
|
|||
|
Brazil Investment subsidies |
|
|
|||
|
Share of profit of equity investees |
|
|
|||
|
Effect from differences of tax rates of entities abroad |
( |
) |
( |
) | |
|
Taxation of profits of foreign subsidiaries (a) |
( |
) |
|
||
|
Unrecognized Deferred income tax (b) |
( |
) |
( |
) | |
|
Exercise of purchase options and restricted share plans |
|
|
|||
|
Non-Deductible donation and contribution |
( |
) |
( |
) | |
|
Interest on Net Equity |
|
|
|||
|
Withholding and Sub-national taxes not recognized |
( |
) |
( |
) | |
|
Goodwill impairment (b) |
( |
) |
( |
) | |
|
Other permanent differences |
( |
) |
( |
) | |
|
Income tax and social contribution benefit (expenses) |
|
( |
) | ||
|
|
|
|
|||
|
Income tax and social contribution - current |
( |
) |
( |
) | |
|
Income tax and social contribution - deferred |
|
|
|||
|
|
|
|
|||
|
Effective tax rate - % |
|
( |
) | ||
| a) | |
| b) |
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
11.3 Income tax and social contribution included in discontinued operations
During the year ended December 31, 2023, a pre-tax profit of R$
During the year ended December 31, 2022, a pre-tax loss of R$
See section 11.1 for the cumulative amount of unrecognized tax benefits that exist for the Company related to its assets, liabilities and tax attributes (net operating loss and income tax credit attributes that exist as of December 31, 2023).
Judicial deposits represent restricted assets of the Company and are related to the amounts deposited and held in court until the resolution of the disputes to which they are related. The judicial deposits held by the Company as of December 31, 2023 and 2022 are as follows:
|
|
Consolidated |
||||
|
|
2023 |
2022 |
|||
|
Unaccrued tax proceedings(a) |
|
|
|||
|
Accrued tax proceeding(b) |
|
|
|||
|
Unaccrued civil proceedings |
|
|
|||
|
Accrued civil proceedings |
|
|
|||
|
Unaccrued labor proceedings |
|
|
|||
|
Accrued labor proceedings |
|
|
|||
|
Total judicial deposits |
|
|
|||
| a) | |
| b) |
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
Changes in judicial deposits balances for the year ended December 31, 2023 and 2022 are presented below:
|
|
Consolidated |
||
|
Balance as of December 31, 2021 |
|
||
|
New deposits |
|
||
|
Redemptions in favor of the Company |
( |
) | |
|
Monetary adjustment |
|
||
|
Application in the liquidation of proceedings |
( |
) | |
|
Transfers |
|
||
|
Translation adjustment |
( |
) | |
|
Balance as of December 31, 2022 |
|
|
|
Consolidated |
||
|
Balance as of December 31, 2022 |
|
||
|
New deposits |
|
||
|
Redemptions in favor of the Company |
( |
) | |
|
Monetary adjustment |
|
||
|
Application in the liquidation of proceedings |
( |
) | |
|
Translation adjustment |
( |
) | |
|
Balance as of December 31, 2023 |
|
In addition to judicial deposits, the Company has contracted insurance policies for certain lawsuits.
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
The changes in the balance for the years ended December 31, 2023 and 2022 are as follows:
|
|
Consolidated |
||
|
Balance as of December 31, 2021 |
|
||
|
Transfers from property, plant and equipment, other assets and liabilities |
|
||
|
Impairment |
( |
) | |
|
Sale |
( |
) | |
|
Translation adjustment |
|
||
|
Balance as of December 31, 2022 |
|
||
|
|
|
||
|
Balance as of December 31, 2022 |
|
||
|
Transfers from the former subsidiary Aesop(a) |
|
||
|
Other transfers(b) |
|
||
|
Impairment (c) |
( |
) | |
|
Write off due to Sale(d) |
( |
) | |
|
Translation adjustment |
( |
) | |
|
Balance as of December 31, 2023 |
|
| a) | |
| b) |
|
| c) | |
| d) |
| F-53 |
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
|
|
Consolidated |
||||
|
|
2023 |
2022 |
|||
|
Marketing and advertising advances |
|
|
|||
|
Supplier advances |
|
|
|||
|
Employee advances |
|
|
|||
|
Rent advances and guarantee deposit (a) |
|
|
|||
|
Advance insurance expenses |
|
|
|||
|
Overfunded pension plan (b) |
|
|
|||
|
Customs broker advances - Import taxes |
|
|
|||
|
Sublease receivables (c) |
|
|
|||
|
Carbon credits |
|
|
|||
|
Receivables from service providers (d) |
|
|
|||
|
Other |
|
|
|||
|
|
|
|
|||
|
|
|
|
|||
|
Current |
|
|
|||
|
Non-current |
|
|
|||
| a) | |
| b) | |
| c) | |
| d) |
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
|
|
Consolidated | |||||||||||||||||||||||||
|
|
Useful life range (in years) |
2022 |
Additions |
Write-offs |
Transfers |
Transfer to asset held for sale |
Write-off due to sale of subsidiary |
Translation adjustment |
2023 |
|||||||||||||||||
|
Cost: |
|
|
|
|
|
|
|
|
||||||||||||||||||
|
Vehicles |
|
|
|
( |
) |
|
|
|
( |
) |
|
|||||||||||||||
|
Tooling |
|
|
|
( |
) |
|
|
|
|
|
||||||||||||||||
|
Tools and accessories |
|
|
|
( |
) |
|
|
|
|
|
||||||||||||||||
|
Facilities |
|
|
|
( |
) |
|
( |
) |
|
|
|
|||||||||||||||
|
Machinery and accessories |
|
|
|
( |
) |
|
( |
) |
( |
) |
( |
) |
|
|||||||||||||
|
Leasehold improvements |
|
|
|
( |
) |
|
( |
) |
( |
) |
( |
) |
|
|||||||||||||
|
Buildings |
|
|
|
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
|
||||||||||||
|
Furniture and fixtures |
|
|
|
( |
) |
|
( |
) |
( |
) |
( |
) |
|
|||||||||||||
|
Land |
- |
|
|
( |
) |
|
( |
) |
( |
) |
( |
) |
|
|||||||||||||
|
IT equipment |
|
|
|
( |
) |
|
( |
) |
( |
) |
( |
) |
|
|||||||||||||
|
Other assets |
- |
|
|
( |
) |
|
|
|
( |
) |
|
|||||||||||||||
|
Projects in progress |
- |
|
|
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
|
||||||||||||
|
Total cost |
|
|
|
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Accumulated depreciation: |
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Vehicles |
|
( |
) |
( |
) |
|
|
( |
|
|
( |
) | ||||||||||||||
|
Tooling |
|
( |
) |
( |
) |
|
( |
) |
|
|
( |
) |
( |
) | ||||||||||||
|
Tools and accessories |
|
( |
) |
( |
) |
|
( |
) |
|
|
|
( |
) | |||||||||||||
|
Facilities |
|
( |
) |
( |
) |
|
( |
) |
|
|
|
( |
) | |||||||||||||
|
Machinery and accessories |
|
( |
) |
( |
) |
|
( |
) |
|
|
|
( |
) | |||||||||||||
|
Leasehold improvements |
|
( |
) |
( |
) |
|
|
|
|
|
|
|||||||||||||||
|
Buildings |
|
( |
) |
( |
) |
|
|
|
|
|
( |
) | ||||||||||||||
|
Furniture and fixtures |
|
( |
) |
( |
) |
|
|
|
|
|
( |
) | ||||||||||||||
|
IT equipment |
|
( |
) |
( |
) |
|
|
|
|
( |
) |
( |
) | |||||||||||||
|
Other assets |
|
( |
) |
( |
) |
|
|
|
|
|
|
|||||||||||||||
|
Total depreciation |
|
( |
) |
( |
) |
|
( |
) |
|
|
|
( |
) | |||||||||||||
|
Net total |
|
|
|
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
|
||||||||||||
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
|
|
Consolidated |
||||||||||||||||||||
|
|
Useful life range (in years) |
2021 |
Additions |
Write-offs |
Impairment |
Transfers |
Translation adjustment |
2022 |
|||||||||||||
|
Cost: |
|
|
|
|
|
|
|
|
|||||||||||||
|
Vehicles |
|
|
|
( |
) |
|
|
( |
) |
|
|||||||||||
|
Tooling |
|
|
|
( |
) |
|
|
( |
) |
|
|||||||||||
|
Tools and accessories |
|
|
|
( |
) |
|
( |
) |
|
|
|||||||||||
|
Facilities |
|
|
|
( |
) |
|
|
( |
) |
|
|||||||||||
|
Machinery and accessories |
|
|
|
( |
) |
|
|
( |
) |
|
|||||||||||
|
Leasehold improvements |
|
|
|
( |
) |
( |
) |
|
( |
) |
|
||||||||||
|
Buildings |
|
|
|
( |
) |
|
|
( |
) |
|
|||||||||||
|
Furniture and fixtures |
|
|
|
( |
) |
( |
) |
|
( |
) |
|
||||||||||
|
Land |
- |
|
|
|
|
|
|
|
|||||||||||||
|
IT equipment |
|
|
|
( |
) |
( |
) |
|
( |
) |
|
||||||||||
|
Other assets |
- |
|
|
( |
) |
|
|
( |
) |
|
|||||||||||
|
Projects in progress |
- |
|
|
( |
) |
|
( |
) |
( |
) |
|
||||||||||
|
Total cost |
|
|
|
( |
) |
( |
) |
|
( |
) |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Accumulated depreciation: |
|
|
|
|
|
|
|
|
|||||||||||||
|
Vehicles |
|
( |
) |
( |
) |
|
|
( |
) |
|
( |
) | |||||||||
|
Tooling |
|
( |
) |
( |
) |
|
|
|
|
( |
) | ||||||||||
|
Tools and accessories |
|
( |
) |
( |
) |
|
|
|
( |
) |
( |
) | |||||||||
|
Facilities |
|
( |
) |
( |
) |
|
|
( |
) |
|
( |
) | |||||||||
|
Machinery and accessories |
|
( |
) |
( |
) |
|
|
( |
) |
|
( |
) | |||||||||
|
Leasehold improvements |
|
( |
) |
( |
) |
|
|
( |
) |
|
( |
) | |||||||||
|
Buildings |
|
( |
) |
( |
) |
|
|
( |
) |
|
( |
) | |||||||||
|
Furniture and fixtures |
|
( |
) |
( |
) |
|
|
( |
) |
|
( |
) | |||||||||
|
IT equipment |
|
( |
) |
( |
) |
|
|
( |
) |
|
( |
) | |||||||||
|
Other assets |
|
( |
) |
( |
) |
|
|
|
|
( |
) | ||||||||||
|
Total depreciation |
|
( |
) |
( |
) |
|
|
( |
) |
|
( |
) | |||||||||
|
Net total |
|
|
|
( |
) |
( |
) |
( |
) |
( |
) |
|
|||||||||
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
|||||||||||||||||||
|
|
Useful life range (in years) |
2022 |
Additions |
Write-offs |
Impairment |
Transfers |
Transfer to asset held for sale |
Write-off due to sale of subsidiary |
Translation adjustment |
2023 |
|||||||||||||||||||
|
Cost: |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Software |
|
|
|
( |
) |
|
|
( |
) |
( |
) |
( |
) |
|
|||||||||||||||
|
Trademarks and patents (defined useful life) |
|
|
|
|
|
|
( |
) |
( |
) |
( |
) |
|
||||||||||||||||
|
Trademarks and patents (indefinite useful life) |
- |
|
|
|
|
|
|
( |
) |
|
|
||||||||||||||||||
|
Goodwill Avon (a) |
- |
|
|
|
( |
) |
|
|
|
( |
) |
|
|||||||||||||||||
|
Goodwill Emeis Brazil Pty Ltd. (b) |
- |
|
|
|
|
|
( |
) |
|
|
|
||||||||||||||||||
|
Goodwill The Body Shop (c) |
- |
|
|
|
|
|
|
( |
) |
|
|
||||||||||||||||||
|
Goodwill acquisition of The Body Shop stores |
- |
|
|
|
|
|
|
( |
) |
|
|
||||||||||||||||||
|
Goodwill aquisition of Singu |
- |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Relationship with retail clients |
|
|
|
( |
) |
|
|
( |
) |
( |
) |
|
|
||||||||||||||||
|
Key money (indefinite useful life) (d) |
- |
|
|
( |
) |
|
|
|
( |
) |
|
|
|||||||||||||||||
|
Key money (defined useful life) (e) |
|
|
|
( |
) |
|
|
|
( |
) |
( |
) |
|
||||||||||||||||
|
Relationship with franchisees and sub franchisees and sales representative (f) |
|
|
|
|
|
|
|
( |
) |
( |
) |
|
|||||||||||||||||
|
Technology developed (by acquired subsidiary) |
- |
|
|
|
|
|
|
|
( |
) |
|
||||||||||||||||||
|
Other intangible assets and intangible under development |
- |
|
|
( |
) |
|
( |
) |
( |
) |
( |
) |
( |
) |
|
||||||||||||||
|
Total cost |
|
|
|
( |
) |
( |
) |
|
( |
) |
( |
) |
( |
) |
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Accumulated amortization: |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Software |
|
( |
) |
( |
) |
|
|
|
|
|
|
( |
) | ||||||||||||||||
|
Trademarks and patents |
|
( |
) |
( |
) |
|
|
|
|
|
|
( |
) | ||||||||||||||||
|
Key money |
|
( |
) |
|
|
|
|
|
|
|
|
||||||||||||||||||
|
Relationship with retail clients |
|
( |
) |
( |
) |
|
|
|
|
|
( |
) |
( |
) | |||||||||||||||
|
Relationship with franchisees and sub franchisees |
|
( |
) |
( |
) |
|
|
|
|
|
|
( |
) | ||||||||||||||||
|
Technology developed |
|
( |
) |
( |
) |
|
|
|
|
|
|
( |
) | ||||||||||||||||
|
Other intangible assets |
|
( |
) |
( |
) |
|
|
|
|
|
( |
) |
( |
) | |||||||||||||||
|
Total accrued amortization |
|
( |
) |
( |
) |
|
|
|
|
|
|
( |
) | ||||||||||||||||
|
Net total |
|
|
( |
) |
( |
) |
( |
) |
|
( |
) |
( |
) |
( |
) |
|
|||||||||||||
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
|
|
Consolidated |
|||||||||||||||||||||
|
|
Useful life range (in years) |
2021 |
Additions |
Write-offs |
Impairment |
Transfers |
Translation adjustment |
2022 |
||||||||||||||
|
Cost: |
|
|
|
|
|
|
|
|
||||||||||||||
|
Software |
|
|
|
( |
) |
( |
) |
|
( |
) |
|
|||||||||||
|
Trademarks and patents (defined useful life) |
|
|
|
|
|
|
( |
) |
|
|||||||||||||
|
Trademarks and patents (indefinite useful life) |
- |
|
|
( |
) |
|
|
( |
) |
|
||||||||||||
|
Goodwill Avon (a) |
- |
|
|
|
( |
) |
|
( |
) |
|
||||||||||||
|
Goodwill Emeis Brazil Pty Ltd. (b) |
- |
|
|
|
|
|
( |
) |
|
|||||||||||||
|
Goodwill The Body Shop (c) |
- |
|
|
|
( |
) |
|
( |
) |
|
||||||||||||
|
Goodwill acquisition of The Body Shop stores |
- |
|
|
|
|
|
|
|
||||||||||||||
|
Relationship with retail clients |
|
|
|
|
|
|
( |
) |
|
|||||||||||||
|
Key money (indefinite useful life) (d) |
- |
|
|
( |
) |
( |
) |
|
( |
) |
|
|||||||||||
|
Key money (defined useful life) (e) |
|
|
|
( |
) |
( |
) |
|
( |
) |
|
|||||||||||
|
Relationship with franchisees and sub franchisees and sales representative (f) |
|
|
|
|
|
|
( |
) |
|
|||||||||||||
|
Technology developed (by acquired subsidiary) |
- |
|
|
|
|
|
( |
) |
|
|||||||||||||
|
Other intangible assets and intangible under development |
- |
|
|
( |
) |
|
( |
) |
( |
) |
|
|||||||||||
|
Total cost |
|
|
|
( |
) |
( |
) |
|
( |
) |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
Accumulated amortization: |
|
|
|
|
|
|
|
|
||||||||||||||
|
Software |
|
( |
) |
( |
) |
|
|
( |
) |
|
( |
) | ||||||||||
|
Trademarks and patents |
|
( |
) |
( |
) |
|
|
|
|
( |
) | |||||||||||
|
Key money |
|
( |
) |
|
|
|
|
|
( |
) | ||||||||||||
|
Relationship with retail clients |
|
( |
) |
( |
) |
|
|
|
|
( |
) | |||||||||||
|
Relationship with franchisees and sub franchisees |
|
( |
) |
( |
) |
|
|
|
|
( |
) | |||||||||||
|
Technology developed |
|
( |
) |
( |
) |
|
|
|
|
( |
) | |||||||||||
|
Other intangible assets |
|
( |
) |
( |
) |
|
|
( |
) |
|
( |
) | ||||||||||
|
Total accrued amortization |
|
( |
) |
( |
) |
|
|
( |
) |
|
( |
) | ||||||||||
|
Net total |
|
|
( |
) |
( |
) |
( |
) |
|
( |
) |
|
||||||||||
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
| a) | |
| b) |
| c) | |
| d) | |
| e) | |
| f) |
a) Impairment test of intangible assets with indefinite useful lives
Goodwill balances arising from business combinations, as well as intangible assets with indefinite useful lives were allocated to the CGU groups which expect to benefit from the synergy of the business combinations. In accordance with CPC 01 (R1) / IAS 36 - Impairment of Assets, when a CGU or group of CGU has an intangible asset with an indefinite allocated useful life, the Company must perform at least annually the impairment test of it carrying amount.
With the sale of the stake in the former subsidiaries The Body Shop and Aesop, the respective balances of intangible assets with an indefinite useful life were derecognized in 2023.
The carrying amount of intangible assets with undetermined useful life and goodwill allocated to each CGU group are presented below:
|
Groups of CGUs |
Trademarks and patents |
Goodwill |
Total |
|||||||||
|
|
2023 |
2022 |
2023 |
2022 |
2023 |
2022 |
||||||
|
Natura &Co Latam |
|
|
|
|
|
|
||||||
|
Avon International |
|
|
|
|
|
|
||||||
|
TBS International |
|
|
|
|
|
|
||||||
|
Aesop International (*) |
|
|
|
|
|
|
||||||
|
Total |
|
|
|
|
|
|
||||||
(*)
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
The main assumptions used to calculate the value in use as of December 31, 2023 are presented below:
|
|
Avon International |
Natura &Co Latam |
|
Impairment estimate (value in use) |
| |
|
Operating margin |
| |
|
Estimated cost |
| |
|
Revenue growth rates |
| |
|
Perpetuity growth rate (*) |
Constant growth of |
Constant growth of |
|
Discount rate |
Discount rates represent the risk assessment in the current market, specific to each group of CGUs, taking into account the value of overtime and the individual risks of related assets that were not incorporated in the assumptions included in the cash flow model. Such cash flows were discounted at the discount rate calculated before tax on the currency with the one used for the projections, | |
(*)
The Company considers the correlation between its market capitalization and its book value, among other factors, such as the decline in the performance of certain operations and macroeconomic indicators that involve the sector in which it operates, when evaluating potential indications of impairment. On December 31, 2023, the Company's market capitalization was lower than the book equity value. In addition, inflationary pressures, and uncertainty in the markets, impacting the economic recovery in the retail and cosmetics sectors, as well as the generalized effects of the conflict between Russia and Ukraine, negatively affected the results and prospects of some of the Company’s operations, in particular for the Group of CGUs comprising Avon International operations. Such factors led to continuous monitoring of this indicator during the year.
On December 31, 2023, a loss due to reduction in recoverable value was recorded in the amount of R$
The recoverable value of Avon International's CGUs totaled R$
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
|
Significant assumption affected by possible deterioration |
1 p.p. increase in the discount rate |
Reduction of 1 p.p. in the growth rate in perpetuity |
Reduction of 1 p.p. in operating margins |
|
Additional impairment that would be recognized in profit or loss for the year |
|
|
|
|
Total impairment that would be recognized in profit or loss for the year |
|
|
|
In relation to the groups of CGUs that comprise the operations of Natura &Co Latam, the results of the procedures did not indicate the need to recognize a loss due to impairment. The Company performed a sensitivity analysis considering any deterioration in: (i) discount rate; (ii) growth rate in perpetuity; and (iii) estimated future operating margin, given its potential impacts on cash flows. An increase of 1 percentage point in the discount rate or a decrease of 1 percentage point in the growth rate of the perpetuity would not result in the need to recognize a loss due to impairment. Similarly, a decrease of 1 percentage point in the estimated operating margins applied from the cash flow would also not result in the need to recognize a loss due to impairment.
|
|
Consolidated | |||||||||||||||||||||||||
|
|
Useful life range (in years) (a) |
2022 |
Additions |
Write-offs |
Transfer to asset held for sale |
Write-off due to sale of subsidiary |
Translation adjustments |
2023 |
||||||||||||||||||
|
Cost: |
|
|
|
|
|
|
|
|
||||||||||||||||||
|
Vehicles |
|
|
|
( |
) |
|
( |
) |
( |
) |
|
|||||||||||||||
|
Machinery and equipment |
|
|
|
( |
) |
|
( |
) |
( |
) |
|
|||||||||||||||
|
Buildings |
|
|
|
( |
) |
|
( |
) |
( |
) |
|
|||||||||||||||
|
IT equipment |
|
|
|
( |
) |
|
( |
) |
|
|
||||||||||||||||
|
Retail stores |
|
|
|
( |
) |
( |
) |
( |
) |
( |
) |
|
||||||||||||||
|
Software |
|
|
|
|
|
|
|
|
||||||||||||||||||
|
Tools and accessories |
|
|
|
( |
) |
|
( |
) |
( |
) |
|
|||||||||||||||
|
Total cost |
|
|
|
( |
) |
( |
) |
( |
) |
( |
) |
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
Depreciation value: |
|
|
|
|
|
|
|
|
||||||||||||||||||
|
Vehicles |
|
( |
) |
( |
) |
|
|
|
|
( |
) | |||||||||||||||
|
Machinery and equipment |
|
( |
) |
( |
) |
|
|
|
|
( |
) | |||||||||||||||
|
Buildings |
|
( |
) |
( |
) |
|
|
|
|
( |
) | |||||||||||||||
|
IT equipment |
|
( |
) |
( |
) |
|
|
|
|
( |
) | |||||||||||||||
|
Retail stores |
|
( |
) |
( |
) |
|
|
|
|
( |
) | |||||||||||||||
|
Software |
|
( |
) |
( |
) |
|
|
|
( |
) |
( |
) | ||||||||||||||
|
Tools and accessories |
|
( |
) |
( |
) |
|
|
|
( |
) |
( |
) | ||||||||||||||
|
Total accrued depreciation |
|
( |
) |
( |
) |
|
|
|
|
( |
) | |||||||||||||||
|
Net total |
|
|
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
|
|||||||||||||
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
|
|
Consolidated |
|||||||||||||||||||||
|
|
Useful life in Years(a) |
2021 |
Additions |
Write-offs |
Impairment |
Transfers (c) |
Translation adjustment |
2022 |
||||||||||||||
|
Cost: |
|
|
|
|
|
|
|
|
||||||||||||||
|
Vehicles |
|
|
|
( |
) |
|
|
( |
) |
|
||||||||||||
|
Machinery and equipment |
|
|
|
( |
) |
|
|
( |
) |
|
||||||||||||
|
Buildings |
|
|
|
( |
) |
|
( |
) |
( |
) |
|
|||||||||||
|
IT equipment |
|
|
|
( |
) |
|
|
( |
) |
|
||||||||||||
|
Retail stores |
|
|
|
( |
) |
( |
) |
|
( |
) |
|
|||||||||||
|
Software |
|
|
|
|
|
|
|
|
||||||||||||||
|
Tools and accessories |
|
|
|
( |
) |
|
|
( |
) |
|
||||||||||||
|
Total cost |
|
|
|
( |
) |
( |
) |
|
( |
) |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
Depreciation value: |
|
|
|
|
|
|
|
|
||||||||||||||
|
Vehicles |
|
( |
) |
( |
) |
|
|
|
|
( |
) | |||||||||||
|
Machinery and equipment |
|
( |
) |
( |
) |
|
|
|
|
( |
) | |||||||||||
|
Buildings |
|
( |
) |
( |
) |
|
|
|
|
( |
) | |||||||||||
|
IT equipment |
|
( |
) |
( |
) |
|
|
|
|
( |
) | |||||||||||
|
Retail stores |
|
( |
) |
( |
) |
|
|
( |
) |
|
( |
) | ||||||||||
|
Software |
|
|
( |
) |
|
|
|
|
( |
) | ||||||||||||
|
Tools and accessories |
|
( |
) |
( |
) |
|
|
|
|
( |
) | |||||||||||
|
Total accrued depreciation |
|
( |
) |
( |
) |
|
|
( |
) |
|
( |
) | ||||||||||
|
Net total |
|
|
|
( |
) |
( |
) |
|
( |
) |
|
|||||||||||
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
a) The useful lives applied refer to the term of the contracts in which the Company is sure that it will use the assets underlying the lease contracts according to the contractual terms.
|
|
Consolidated |
|||||
|
|
2023 |
2022 |
||||
|
Amounts recognized in the statement of income and losses: |
|
|
||||
|
Financial expense on lease |
|
|
||||
|
Amortization of right of use |
|
|
||||
|
Appropriation in the result of variable lease installments not included in the measurement of lease liabilities |
|
|
||||
|
Sublease revenue |
( |
) |
( |
) | ||
|
Short-term lease expenses and low-value assets |
|
|
||||
|
Benefits granted by lessor related to Covid-19 |
( |
) |
( |
) | ||
|
Adjustment to recoverable value of right-of-use assets - impairment |
|
|
||||
|
|
|
|
||||
|
Amounts recognized in the financing activities in the cash flow statement: |
|
|
||||
|
Lease payments (principal) |
|
|
||||
|
Amounts recognized in the operating activities in the cash flow statement: |
|
|
||||
|
Lease payments (interest) |
|
|
||||
|
Variable lease payments, not included in the measurement of lease liabilities |
|
|
||||
|
Short-term and low-value assets lease payments |
|
|
||||
a) Lease liability
|
|
Consolidated |
|||||
|
|
2023 |
2022 |
||||
|
Current |
|
|
||||
|
Non-current |
|
|
||||
|
Total |
|
|
||||
Below are the changes in lease liability balances for the year ended December 31, 2023 and 2022:
|
|
Consolidated |
||
|
Balance as of December 31, 2021 |
|
||
|
New agreements and modifications |
|
||
|
Payments (principal amount) |
( |
) | |
|
Payments (interest) |
( |
) | |
|
Appropriation of financial charges |
|
||
|
Write-off(a) |
( |
) | |
|
Translation adjustment |
( |
) | |
|
Balance as of December 31, 2022 |
|
||
|
Transfer to held for sale |
( |
) | |
|
New agreements and modifications |
|
||
|
Payments (principal amount) |
( |
) | |
|
Payments (interest) |
( |
) | |
|
Appropriation of financial charges |
|
||
|
Write-offs(a) |
( |
) | |
|
Write-off due to sale of subsidiary(b) |
( |
) | |
|
Translation adjustment |
( |
) | |
|
Balance as of December 31, 2023 |
|
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
| a) | |
| b) |
The amount of lease liability payments, considering the interests payments, and corresponding maturities, are disclosed in note no. 5.3.3.
The table below set forth the rates applied, according to the lease terms:
As described in note no. 3.13, the Company applied its incremental borrowing rate as the discount rate on lease liabilities. Considering that the Company’s lease contracts are substantially contracts with payment flows indexed by inflation indexes and, also considering the disclosure suggestions published in CVM Circular Letter no. 02/19, the Company presents below additional information on the characteristics of the lease contracts so that users of the financial statements may, at its discretion, carry out projections of future payment flows indexed to inflation.
|
|
|
Contractual payments - consolidated |
|||||||||||||
|
Maturity |
Average discount rate |
2023 |
2024 |
2025 |
2026 |
2027 |
Onwards 2028 |
||||||||
|
2023-2024 |
|
|
|
|
|
|
|
||||||||
|
2025-2027 |
|
|
|
|
|
|
|
||||||||
|
2028-2030 |
|
|
|
|
|
|
|
||||||||
|
2031-2036 |
|
|
|
|
|
|
|
||||||||
|
Total |
|
|
|
|
|
|
|
||||||||
|
Projected inflation1 |
|
|
|
|
|
|
|||||||||
1
|
|
Consolidated |
|||||
|
|
2023 |
2022 |
||||
|
Less than 1 year |
|
|
||||
|
From 1 to 5 years |
|
|
||||
|
More than 5 years |
|
|
||||
|
Total expected cashflows |
|
|||||
|
Interests to incur |
( |
) |
( |
) | ||
|
Total |
|
|||||
17.1.Sale and Leaseback transaction
Interlagos Manufacturing Unit
In December 2023, the subsidiary Natura Cosméticos sold and leased back the Interlagos manufacturing unit in Brazil, for receiving approximately R$
Since the sale was made in an amount equal to the carrying amount of the asset, the transaction did not generate gains in profit or loss (the respective asset was already measured at fair value deducted from sales costs, as part of its reclassification to assets held for sale in 2023, with a loss due to impairment in the amount of R$
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
|
|
Ref. |
Consolidated |
|||||
|
|
2023 |
2022 |
|||||
|
Local currency |
|
|
|
||||
|
Financing Agency for Studies and Projects -FINEP |
|
|
|
||||
|
Debentures |
A |
|
|
||||
|
Business notes |
B |
|
|
||||
|
Working capital – Avon operation |
|
|
|
||||
|
Working capital -Natura &Co Luxembourg operation |
C |
|
|
||||
|
Notes – Avon |
D |
|
|
||||
|
Notes – Lux |
E, F |
|
|
||||
|
Total in local currency |
|
|
|
||||
|
|
|
|
|
||||
|
Foreign currency: |
|
|
|
||||
|
Notes |
F |
|
|
||||
|
Total in foreign currency |
|
|
|
||||
|
Grand total |
|
|
|
||||
|
|
|
|
|
||||
|
Current |
|
|
|
||||
|
Non-current |
|
|
|
||||
|
|
|
|
|
||||
|
Debentures |
|
|
|
||||
|
Current |
|
|
|
||||
|
Non-current |
|
|
|
||||
|
Ref. |
Currency |
Maturity |
Charges |
Effective interest rate |
Guarantees |
|
A |
|
|
|
|
|
|
B |
|
|
|
|
|
|
C |
|
|
|
|
|
|
D |
|
|
|
|
|
|
E |
|
|
|
|
|
|
F |
|
|
|
|
|
Changes in the balances of borrowing, financing and debentures for the years ended December 31, 2023 and 2022 are as follows:
|
|
Consolidated |
|
|
Balance as of December 31, 2021 |
|
|
|
New borrowing and financing (a) |
|
|
|
Repayment (b) |
( |
) |
|
Appropriation of financial charges, net of costs of new borrowing and financing |
|
|
|
Financial charges payment |
( |
) |
|
Exchange rate variation |
( |
) |
|
Translation effects (OCI) |
( |
) |
|
Balance as of December 31, 2022 |
|
|
|
New borrowing and financing (c) |
|
|
|
Repayment (d) |
( |
) |
|
Gain on Borrowing and financing prepayment |
( |
) |
|
Appropriation of financial charges, net of costs of new borrowing and financing (e) |
|
|
|
Financial charges payment |
( |
) |
|
Exchange rate variation |
( |
) |
|
Translation effects (OCI) |
( |
) |
|
Balance as of December 31, 2023 |
|
| a) | |
| b) | |
| c) | |
| d) | |
| e) |
|
The maturities of non-current portion of borrowing, financing and debentures recorded as non-current liabilities are as follows:
|
|
Consolidated |
||||
|
|
2023 |
2022 |
|||
|
2025 |
|
|
|||
|
2026 |
|
|
|||
|
2027 onwards |
|
|
|||
|
Total |
|
|
|||
i) Debentures
On July 25, 2022, carried out the 11th issue of simple, non-convertible, unsecured debentures in single series, for public distribution with restricted placement efforts, in accordance with CVM Instruction 476, of January 16, 2009 (“Issue”, “Restricted Offer”, “Debentures” and “CVM Instruction 476”, respectively) in the aggregate amount of R$
The funds arising from the 11h issue were used as follows: partial repayment of the 3rd series of the 9th issue in the amount of R$
On October 6, 2022, the subsidiary Natura Cosmeticos made the twelfth (12th) issue of simple, non-convertible unsecured debentures, in three series, with additional personal guarantee by the Company. The main features of the debentures are listed in the table below and support an issue operation of Real Estate Receivables Certificates (CRI). The issue of debentures was the subject of a private placement by the subsidiary Natura Cosmeticos.
|
Debentures of the 12th Issue | ||||
|
Title |
Contractual fee |
Maturity |
Total Amount |
Number of Debentures |
|
1st series |
|
|
R$ |
|
|
2nd series |
|
|
R$ |
|
|
3rd series |
|
|
R$ |
|
The net proceeds obtained by the subsidiary Natura Cosmeticos with the issue of the Debentures will be used to pay rents not yet incurred and to reimburse expenses with rents already incurred in the 24 (twenty-four) months prior to the issue date.
On December 6, 2022, the subsidiary Natura Cosmeticos fully repaid the 4 series of the tenth (10th) issue of debentures in the amount of R$
The appropriation of costs related to the issue of debentures in the year ended December 31, 2023 was R$
ii) ESG Notes
On May 4, 2021, the subsidiary Natura Cosmeticos concluded the offer of the notes linked to the sustainability goals subject to annual interest of
The targets, to be met by 2026, include a reduction in greenhouse gas emissions by
On August 28, 2023, Natura &Co Luxembourg Holdings S.a.r.l, a subsidiary of the Company, assumed the position of debtor of the ESG Notes, replacing the subsidiary Natura Cosmeticos as issuer of the debt securities. With the replacement, the ESG Notes are now guaranteed by the Company and Natura Cosmeticos S.A. The appropriation of costs related to the issuance of ESG Notes in August 2023 was R$
There are
iii) Notes - Avon
As of December 31, 2023 the subsidiary Avon has the following note issued:
|
Notes - Avon |
Main US$ |
Main R$ |
Annual percentage interest rate |
Maturity |
|
Unguaranteed |
|
|
|
|
iv) Commercial notes
On September 19, 2022, the 1st issue of commercial notes by the subsidiary Natura Cosmeticos took place, in a single series in the amount of R$
The appropriation of costs related to the issue of commercial notes in the year ended December 31, 2023 was R$
18.1 Covenants
As of December 31, 2023, and 2022, the Company and its subsidiaries no longer have the obligation to calculate and disclose restrictive clauses (covenants), which establish the maintenance of minimum financial indicators resulting from the quotient of dividing the net debt of treasury by the EBITDA of the last 12 months, function the maturity and early settlement of the 9th and 10th series of debentures in December 2022.
The Company also has covenants related to non-financial indicators according to each contract. The Company is in compliance with such covenants as of December 31, 2023, and 2022.
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
|
|
Consolidated |
||||
|
|
2023 |
2022 |
|||
|
Domestic trade accounts payable |
|
|
|||
|
Foreign trade accounts payable (a) |
|
|
|||
|
Subtotal |
|
|
|||
|
Reverse factoring operations (b) |
|
|
|||
|
Total |
|
|
|||
| a) | |
| b) |
|
|
Consolidated |
||||
|
|
2023 |
2022 |
|||
|
ICMS (ordinary) (a) |
|
|
|||
|
ICMS-ST provision (b) |
|
|
|||
|
Taxes on invoicing abroad |
|
|
|||
|
Withholding tax |
|
|
|||
|
Other taxes payable - foreign subsidiaries |
|
|
|||
|
Income tax |
|
|
|||
|
PIS and COFINS payable (c) |
|
|
|||
|
INSS and service tax (ISS) payable |
|
|
|||
|
Other |
|
|
|||
|
Total |
|
|
|||
|
|
|
|
|||
|
Current |
|
|
|||
|
Non-current |
|
|
|||
| a) | |
| b) | |
| c) |
| F-69 |
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
21.1 Contingencies assessed as probable risk of loss
The changes in the provision for tax, civil and labor risks and contingent liabilities are presented below:
|
|
Consolidated |
||||||||||||||||||||||||||||
|
|
Tax |
Civil |
Labor |
Contingent liabilities (business combination)(3) |
Total |
||||||||||||||||||||||||
|
|
2023(4) |
2022 |
2023 |
2022 |
2023 |
2022 |
2023(2) |
2022 |
2023 |
2022 |
|||||||||||||||||||
|
Balance at the beginning of the years |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Additions |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Reversal(2) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | |||||||||
|
Payments/utilization of judicial deposits(1) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
|
|
( |
) |
( |
) | |||||||||||
|
Inflation adjustment |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Exchange rate variation (OCI) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | |||||||||
|
Disposal of The Body Shop |
|
|
( |
) |
|
( |
) |
|
|
|
( |
) |
|
||||||||||||||||
|
Balance at the end of the years |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Current |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Non-current |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| (1) | |
| (2) | |
| (3) | |
| (4) |
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
a) Disputes related to talc (Civil)
The subsidiary Avon Products, Inc (“Avon”) has been named a defendant in numerous personal injury lawsuits filed in U.S. courts, alleging that certain talc products the company sold in the past were contaminated with asbestos. Many of these actions involve several co-defendants, including manufacturers of cosmetics and manufacturers of other products that, unlike the subsidiary Avon’s Products, were designed to contain asbestos. As of December 31, 2023, there were
In December 2022, a case, titled Chapman, et al, v, Avon Products, Inc. et al., No, 22STCV05968, resulted in an adverse jury verdict after a trial, with the jury awarding the plaintiffs a total of US$
21.2 Contingent liabilities assessed as possible risk of loss
The Company maintains administrative and judicial discussions related to certain tax positions adopted in the calculation of IRPJ and CSLL, whose current prognosis analysis, based on Management's assessment, is that they will probably be accepted in decisions of higher courts of last instance, in in line with the provisions of ICPC 22/IFRIC 23 - Uncertainty regarding the Treatment of Taxes on Profit. The Company also has lawsuits of a mainly tax nature, related to other taxes, which involve risks of possible loss, for which there is no provision set up, due to the prognosis assessment carried out, as per the following composition and estimates:
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
|
|
Consolidated |
||||
|
|
2023 |
2022 |
|||
|
Tax |
|
|
|||
|
Civil |
|
|
|||
|
Labor |
|
|
|||
|
Total contingent liabilities |
|
|
|||
21.2.1 Tax
Below are the most relevant tax contingencies related to the following matters:
| a) | Lawsuits in which the industrial establishment equivalence is discussed, as provided for in the Decree No. 8,393/2015, which now requires IPI taxation of products listed in the referred legal provision in outbound transactions carried out by interdependent wholesalers. On December 31, 2023, the amount under discussion is R$ |
| b) | Administrative and judicial processes that discuss the illegality of changes in Federal State laws regarding the collection of ICMS and ICMS-ST. As of December 31, 2023, the total amount under discussion is R$ |
| c) | Infraction notices in which the Brazilian Federal Revenue Office requires IRPJ and CSLL tax debts to challenge the tax deductibility of the amortization of goodwill generated in the context of a corporate reorganization between related parties. Currently, the legality of the administrative decisions that rejected the motions for clarification presented to challenge the special appeals dismissed is being discussed in the courts. As of December 31, 2023, the total amount under discussion classified as possible loss is R$ |
| d) | Infraction notices in which the Finance Department of the São Paulo Federal State requires the collection of ICMS-ST, which was fully collected by the recipient of the goods, the distributor. Currently, the process is pending judgment at the administrative court level. As of December 31, 2023, the total amount under discussion classified as possible loss is R$ |
| e) | Infraction notices in which the Brazilian Federal Revenue Office requires IPI tax debts for disagreeing with the tax classification adopted by the Company for some products. The tax assessment notices are awaiting judgment at the administrative court level. As of December 31, 2023, the total amount under discussion is R$ |
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
|
|
Consolidated |
||||
|
|
2023 |
2022 |
|||
|
Pension and post-employment health care plans(a) |
|
|
|||
|
Deferred revenue from performance obligations with customers (b) |
|
|
|||
|
Provision for incentives to consultants |
|
|
|||
|
Provision for operating expenses (marketing / technology, etc.) (c) |
|
|
|||
|
Provision for store renovation |
|
|
|||
|
Crer Para Ver (d) |
|
|
|||
|
Provision for restructuring (e) |
|
|
|||
|
Insurance payables |
|
|
|||
|
Other liabilities(f) |
|
|
|||
|
Total |
|
|
|||
|
|
|
|
|||
|
Current |
|
|
|||
|
Non-current |
|
|
|||
| a) |
|
| b) | |
| c) | |
| d) | |
| e) | |
| f) |
|
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
Post-employment health care and Pension plan
a) Defined benefit pension (Avon)
The subsidiary Avon has contributory and noncontributory defined benefit retirement plans for substantially all of its employees. Benefits under these plans are generally based on an employee’s length of service and average compensation near retirement, and certain plans have vesting requirements. The plans are funded based on legal requirements and cash flow.
The largest defined benefit pension plan of the subsidiary Avon outside the United States (“US”) is in the United Kingdom (“UK”). The UK defined benefit pension plan was frozen for future accruals as of April 1, 2013. The US defined benefit pension plan, the Avon Products, Inc. Personal Retirement Account Plan (the “PRA”), is closed to employees hired on or after January 1, 2015. Qualified retirement benefits for US-based employees hired on or after January 1, 2015 will be provided exclusively through Avon Personal Savings Account Plan (the “PSA”), as described in note no. 27.2.
The most recent actuarial valuation of plan assets and the present value of the defined benefit obligation was carried out on December 31, 2023. The present value of the defined benefit obligation and the respective cost of current services and cost of past services were measured at projected unit credit method.
The change in actuarial liabilities for the years ended December 31, 2023 and 2022 are shown below:
|
|
Pension plan |
||||
|
|
2023 |
2022 |
|||
|
Balance at the beginning of the year |
|
|
|||
|
Cost of services – current |
|
|
|||
|
Interest cost – recognized in the statement of profit or loss |
|
|
|||
|
Administrative costs |
|
|
|||
|
Company contributions |
( |
) |
( |
) | |
|
Benefits paid |
( |
) |
( |
) | |
|
Actuarial loss in OCI(a) |
( |
) |
( |
) | |
|
Reclassifications |
|
|
|||
|
Other |
|
|
|||
|
Translation adjustment |
( |
) |
|
||
|
Balance at end of year |
|
|
|||
(a)
The significant actuarial assumptions for the determination of the actuarial liability are discount rate and rate of compensation increase. The details of the assumptions are as follows:
|
|
2023 |
2022 |
|||
|
Discount rate |
|
|
|||
|
Rate of compensation increase |
|
|
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
The fair values of each major class of pension plan assets are presented below:
|
|
Consolidated |
||||
|
|
2023 |
2022 |
|||
|
Cash and cash equivalent |
|
|
|||
|
Equity instruments of other entities |
|
|
|||
|
Government bonds |
|
|
|||
|
Corporate bonds |
|
|
|||
|
Real estate |
|
|
|||
|
Other |
( |
) |
( |
) | |
|
Total |
|
|
|||
b) Post-employment health care plan (Natura Cosmeticos)
Post-employment health care plan as detailed in note no. 3.19.4. As of December 31, 2023 and 2022, the obligation weighted average duration is around
➢
➢
The actuarial liability was calculated, as of December 31, 2023 and 2022, considering the following main assumptions:
|
|
2023 |
2022 |
|||
|
Discount rate |
|
|
|||
|
Initial growth rate of medical cost |
|
|
|||
|
Inflation rate |
|
|
|||
|
Final growth rate of medical cost |
|
|
|||
|
Growth rate of medical costs due to aging - costs |
Per age range |
Per age range |
|||
|
Growth rate of medical costs by aging - contributions |
|
|
|||
|
Percentage of adherence to the plan in retirement |
Bradesco Plan |
Bradesco Plan |
|||
|
Schedule of disabled mortality |
|
|
|||
|
Schedule of mortality |
|
|
|||
|
Schedule of turnover |
|
|
The reduction in the annual discount rate from
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
The table below sets forth the medical inflation rate and the discount rate sensitivity analysis, and their respective effect on the balance (present value of the obligation, or “PVO”) accounted as on the actuarial liabilities (maintaining the other assumptions):
|
Rate |
Chance |
PVO |
||||
|
Discount rate |
|
|
|
|||
|
Discount rate |
|
|
|
|||
|
Rate of compensation |
|
|
|
|||
|
Rate of compensation |
|
|
|
The changes of actuarial liabilities for the years ended December 31, 2023 and 2022, is set forth in the table below:
|
|
Consolidated |
||||
|
|
2023 |
2022 |
|||
|
Balance at the beginning of the year |
|
|
|||
|
Cost of the current service of subsidiary Natura Cosmeticos |
|
|
|||
|
Cost of interest |
|
|
|||
|
Expenses paid |
( |
) |
( |
) | |
|
Actuarial gains in OCI |
|
( |
) | ||
|
Balance as of the end of the year |
|
| |||
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
23.1 Share capital
On December 31, 2023, the share capital of the Company is of R$
23.2 Dividends payment policy
The shareholders are entitled to receive every year a mandatory minimum dividend of
| | Increase in the amounts resulting from the reversal, in the period, of previously recognized reserves for contingencies. |
| | Decrease in the amounts intended for the recognition, in the period, of the legal reserve and reserve for contingencies. |
| | Whenever the amount of the minimum mandatory dividend exceeds the realized portion of net income for the year, management may propose, and the General Meeting approves, allocate the excess to the constitution of the unrealized profit reserve (article 197 of Law No. 6404/76); accumulated losses and tax will be deducted from net income, prior to distribution (article 189 of Law No. 6.404/76). |
Based on the profit for the year 2023, dividends were proposed in the amount of R$
The Board of Directors may pay or credit interest on equity, in accordance with applicable legislation
23.3 Treasury shares
As of December 31, 2023 and 2022, item “Treasury shares” has the following composition:
|
|
Number of shares |
R$ (in thousands) |
Average price per share - R$ |
|||||
| Balance as of December 31, 2020 | ||||||||
| Used | ( |
( |
||||||
| Acquired | ||||||||
|
Balance as of December 31, 2021 |
|
|
|
|||||
|
Used |
( |
) |
( |
) |
|
|||
|
Acquired |
|
|
|
|||||
|
Balance as of December 31, 2022 |
|
|
|
|||||
|
Used |
( |
) |
( |
) |
|
|||
|
Balance as of December 31, 2023 |
|
|
|
There was
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
23.4 Capital reserve
In the year ended 31 December 2021, there was a reduction in the capital in the amount of R$
In the year ended December 31, 2022, there was an increase of R$
During the year ended 31 December 2022, the amounts related to cumulative translation adjustment of subsidiaries in hyperinflationary economies presented in capital reserves and retained earnings was reclassified to other comprehensive income, as well component of the Company's shareholders' equity, for better presentation.
In the year ended December 31, 2023, there was an increase of R$
The capital reserve as of December 31, 2023 amounted to R$
23.5 Cumulative translation adjustment – Other comprehensive income
The Company recognizes in this equity item the exchange rate variation effect from investments in foreign subsidiaries, including exchange rate variations in a hyperinflationary economy, actuarial gains and losses arising from the employee benefit plan, and the effect from cash flow hedge operations. For exchange rate variation, the accumulated effect will be reversed to statement of profit or loss as a gain or loss only in the event of disposal or write-off of the investment. For actuarial losses and gains, the amounts will be recognized when the actuarial liability is remeasured. The cash flow hedge transactions are transferred to the statement of profit or loss in case an ineffective portion is identified or when the hedge relationship is terminated.
Operating segments and information by geographic area presents no changes in relation to disclosed in the financial statements for the year ended December 31, 2022, other than the sale of the former subsidiaries Aesop and The Body Shop, where information relating to these segments was presented as discontinued operations.
Net revenue by segment is as follows for the year ended December 31, 2023:
Natura &Co Latam –
Avon International –
The accounting policies for each segment are applied uniformly as described in note no. 3.
The following tables provide summarized financial information related to the segments and geographic distribution of the Company’s commercial operations for December 31, 2023 and 2022.
24.1 Operating segments
|
|
2023 | ||||||||||||||||||||||||
|
|
Reconciliation to net income for the year | ||||||||||||||||||||||||
|
|
Net Revenue |
Performance assessed by the company |
Depreciation and amortization |
Discontinued operations (1) |
Financial results |
Income tax |
Net income (loss) for the year |
||||||||||||||||||
|
Natura &Co Latam |
|
|
( |
) |
|
( |
) |
|
|
||||||||||||||||
|
Avon Internationa 1 |
|
( |
) | ( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||
|
The Body Shop 1 |
|
|
|
( |
) |
|
|
( |
) | ||||||||||||||||
|
Aesop 1 |
|
|
|
( |
) |
|
|
( |
) | ||||||||||||||||
|
Corporate expenses |
|
( |
) | ( |
) |
|
|
( |
) |
|
|||||||||||||||
|
Consolidated |
|
|
( |
) |
|
( |
) |
|
|
||||||||||||||||
(1)
|
|
2022 |
||||||||||||||||||||
|
|
Reconciliation to net loss for the year |
||||||||||||||||||||
|
|
Net Revenue |
Performance assessed by the company |
Depreciation and amortization |
Discontinued operations |
Financial results |
|
Income tax |
Net loss for the year |
|||||||||||||
|
Natura&CoLatam |
|
|
( |
) |
|
( |
) |
|
|
( |
) | ||||||||||
|
Avon International1 |
|
( |
) |
( |
) |
( |
) |
( |
) |
|
( |
) |
( |
) | |||||||
|
The Body Shop 2 |
|
|
|
( |
) |
|
|
|
( |
) | |||||||||||
|
Aesop 2 |
|
|
|
|
|
|
|
|
|||||||||||||
|
Corporative expenses |
|
( |
) |
( |
) |
( |
) |
|
|
|
( |
) | |||||||||
|
Consolidated |
|
|
( |
) |
( |
) |
( |
) |
|
( |
) |
( |
) | ||||||||
|
|
2021 |
||||||||||||||||||||
|
|
Reconciliation to net loss for the year |
||||||||||||||||||||
|
|
Net Revenue |
Performance assessed by the company |
Depreciation and amortization |
Discontinued operations |
Financial results |
|
Income tax |
Net loss for the year |
|||||||||||||
|
Natura &Co Latam |
|
|
( |
) |
|
( |
) |
|
|
|
|||||||||||
|
Avon International 1 |
|
|
( |
) |
( |
) |
( |
) |
|
|
( |
) | |||||||||
|
The Body Shop 2 |
|
|
|
( |
) |
|
|
|
( |
) | |||||||||||
|
Aesop 2 |
|
|
|
|
|
|
|
|
|||||||||||||
|
Corporative expenses |
|
( |
|
|
|
|
|
|
|||||||||||||
|
Consolidated |
|
|
( |
) |
|
( |
) |
|
|
|
|||||||||||
|
|
2023 |
2022 |
|||||||||||||||||||||||
|
|
Non-current assets |
Total assets |
Current liabilities |
Non-current liabilities |
Non-current assets |
Total assets |
Current liabilities |
Non-current liabilities |
|||||||||||||||||
|
Natura &Co Latam |
|
|
|
|
|
|
|
||||||||||||||||||
|
Avon International 1 |
|
|
|
|
|
|
|
|
|||||||||||||||||
|
The Body Shop 2 |
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Aesop 2 |
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Corporate expenses |
|
|
|
|
|
|
|
||||||||||||||||||
|
Consolidated |
|
|
|
|
|
|
|
|
|||||||||||||||||
1
2
24.2 Net revenue and non-current assets, by geographical area of operations
|
|
Net revenue |
Non-current asset |
|||||||||
|
2023 |
2022 |
2021 |
2023 |
2022 |
|||||||
|
Asia |
|
|
|
|
|
||||||
|
North America |
|
|
|
|
|
||||||
|
Mexico |
|
|
|
|
|
||||||
|
Other |
|
|
|
|
|
||||||
|
South America |
|
|
|
|
|
||||||
|
Brazil |
|
|
|
|
|
||||||
|
Argentina |
|
|
|
|
|
||||||
|
Other |
|
|
|
|
|
||||||
|
Europe, Middle East and Africa (EMEA) |
|
|
|
|
|
||||||
|
United Kingdom |
|
|
|
|
|
||||||
|
Other |
|
|
|
|
|
||||||
|
Oceania |
|
|
|
|
|
||||||
|
Consolidated |
|
|
|
|
|
||||||
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
|
|
Consolidated |
|||||||
|
Gross revenue: |
2023 |
2022 |
2021 |
|||||
|
Direct Selling |
|
|
|
|||||
|
Retail |
|
|
|
|||||
|
Online |
|
|
|
|||||
|
Other sales |
|
|
|
|||||
|
Subtotal |
|
|
|
|||||
|
|
|
|
|
|||||
|
Returns and cancellations |
( |
) |
( |
) |
( |
) | ||
|
Commercial discounts and rebates |
( |
) |
( |
) |
( |
) | ||
|
Taxes on sales |
( |
) |
( |
) |
( |
) | ||
|
Subtotal |
( |
) |
( |
) |
( |
) | ||
|
Total net revenue |
|
|
|
|||||
|
|
Consolidated |
|||||||
|
Classified by function |
2023 |
2022 |
2021 |
|||||
|
Cost of sales |
|
|
|
|||||
|
Selling, marketing and logistics expenses |
|
|
|
|||||
|
Administrative, R&D, IT and project expenses |
|
|
|
|||||
|
Total |
|
|
|
|||||
|
|
|
|
|
|||||
|
Classified by nature |
|
|
|
|||||
|
Cost of sales |
|
|
|
|||||
|
Raw material/packaging material/resale |
|
|
|
|||||
|
Employee benefits expense (note 28) |
|
|
|
|||||
|
Depreciation and amortization |
|
|
|
|||||
|
Other |
|
|
|
|||||
|
|
|
|
|
|||||
|
Selling, marketing and logistics expenses |
|
|
|
|||||
|
Logistics costs |
|
|
|
|||||
|
Personnel expenses (note 28) |
|
|
|
|||||
|
Marketing, sales force and other selling expenses |
|
|
|
|||||
|
Depreciation and amortization |
|
|
|
|||||
|
Impairment |
|
|
|
|||||
|
|
|
|
|
|||||
|
Administrative, R&D, IT and project expenses |
|
|
|
|||||
|
Innovation expenses |
|
|
|
|||||
|
Personnel expenses (note 28) |
|
|
|
|||||
|
Restructuring expenses |
|
|
|
|||||
|
Other administrative expenses |
|
|
|
|||||
|
Depreciation and amortization |
|
|
|
|||||
|
|
|
|
|
|||||
|
Total |
|
|
|
|||||
| F-81 |
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
|
|
Consolidated | |||||||
|
|
2023 |
2022 |
2021 | |||||
|
Payroll, profit sharing and bonuses |
|
|
||||||
|
Pension Plan |
|
|
||||||
|
Share-based payments, net of charges |
|
|
||||||
|
Health care, food and other benefits |
|
|
||||||
|
Charges, taxes and social contributions |
|
|
||||||
|
INSS |
|
|
||||||
|
Total |
|
|
||||||
27.1 Share-based payments
Natura &Co offers long-term incentives to senior executives and employees responsible for implementing its long-term strategy.
Overview of plans
The share-based payment programs granted before the corporate restructuring, on December 18, 2019, were originally granted considering the shares of Natura Cosmeticos that were traded on B3. SA - Brasil, Bolsa, Balcão (“B3”, Brazilian Stock Exchange). As a result of the corporate restructuring, the shares of Natura Cosmeticos originally granted were replaced by shares of the Company.
Awards outstanding as of December 31, 2023 relate to various share-based plans, the terms of which are summarized in the tables below.
In 2023, stock options, restricted shares and performance shares were granted in accordance with the “Co-investment Plan” or “Long-Term Incentive Plan”.
Under the “Co-Investment Plan”, eligible employees may invest part of their payout from the Profit Share Program in the purchase of Company’s shares. Company will grant awards ("Matching Awards”) to match such purchased shares on a
In the “Long-Term Incentive Plan”, Company shares are granted to eligible employees. Certain “Long-Term Incentive Plan” awards are only subject to a requirement to remain in employment at the Company over the vesting period. While the awards referred to as “Performance Shares” are subject to both a requirement to remain employed at the Company over the vesting period and meeting certain performance conditions.
| F-82 |
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
For the outstanding awards presented in this note, there are generally no cash settlement alternatives (awards are settled with shares).
Changes in the number of awards based on shares outstanding are shown below:
|
Stock option plan and Strategy Acceleration Plan |
|||||
|
|
Weighted average strike price per option – R$ |
Options (thousands) |
|||
| Balance as of December 31, 2021 | |||||
| Granted | |||||
| Changes from options to restricted shares | ( |
) | |||
| Expired/Cancelled | ( |
) | |||
| Exercised | ( |
) | |||
|
Balance as of December 31, 2022 |
|
|
|||
|
Granted |
|
|
|||
|
Expired/Cancelled |
|
( |
) | ||
|
Exercised |
|
( |
) | ||
|
TBS Awards – equity to cash settlement conversion |
|
( |
) | ||
|
Balance as of December 31, 2023 |
|
|
|||
|
|
Restricted shares (thousands) |
Performance shares (thousands) |
|||
| Balance as of December 31, 2021 | |||||
| Granted | |||||
| Changes from options to restricted shares | |||||
| Expired/Cancelled | ( |
) | ( |
) | |
| Released | ( |
) | ( |
) | |
|
Balance as of December 31, 2022 |
|
|
|||
|
Granted |
|
|
|||
|
Expired/Cancelled |
( |
) |
( |
) | |
|
Stock adjustment based on acquisition performance |
|
( |
) | ||
|
Released |
( |
) |
( |
) | |
|
Adjustments related to vesting in the sale of Aesop |
|
( |
) | ||
|
Awards related to the sale of Aesop |
( |
) |
( |
) | |
|
Adjustments related to the acquisition of rights in the sale of TBS |
( |
) |
( |
) | |
|
TBS Awards – equity to cash settlement conversion |
( |
) |
( |
) | |
|
Balance as of December 31, 2023 |
|
|
The number of shares above and throughout this disclosure:
| (I) | The plans are presented using B3 equivalents for awards that are to be exercised in ADRs to ensure consistency; and |
| (II) | The number of performance shares is disclosed considering achievement of the performance conditions target, whereas the expense recognized reflects the latest reassessment of the number of awards expected to vest. |
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
The share-based payment expense recognized in the year ended December 31, 2023 was R$
The outstanding stock options, restricted shares and performance shares as of the end of the period have the following maturity dates, fair values and strike prices:
As of December 31, 2023 – Stock options
|
Grant date |
Conditions for acquisition of right as of the grant date |
Strike Price (R$) |
Fair value at grant date (R$) |
Existing shares (thousands) |
Maximum remaining contractual life (years) |
Exercisable options (thousands) |
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As of December 31, 2023 – Restricted shares
|
Grant date |
Conditions for acquisition of right as of the grant date |
Existing shares (thousands) |
Fair value at grant date (R$) |
Maximum remaining contractual life (years) |
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| F-84 |
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
As of December 31, 2023 – Performed shares
|
Grant date |
Conditions for acquisition of right as of the grant date |
Existing shares (thousands) |
Fair value at grant date (R$) |
|
Maximum remaining contractual life (years) |
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Assumptions
Ranges of valuation assumptions for the new granting of restricted and performance shares in May 2023 are set out below. The valuation models used were Black-Scholes, Stochastic and Finnerty, depending on the type of award.
|
Assumptions |
B3 shares |
ADRs |
||
|
Share price (also used as strike price on Finnerty) |
R$ |
USD |
||
|
Strike price |
R$ |
USD |
||
|
Expected volatility |
|
|
||
|
Expected term |
|
|
||
|
Expected dividend yield |
|
|
||
|
Risk-free interest rate |
|
|
Volatility was calculated over the period consistent with the expected grant term (or over the remainder of the performance period, where applicable) immediately prior to the grant date. In the Finnerty model, volatility is calculated over the period proportional to the holding period immediately prior to the grant date.
As of December 31, 2023, the market price was R$
27.1 Employee benefit plans
The Company and some of its subsidiaries grant defined contribution retirement plans to eligible employees and, through some of their foreign subsidiaries, grant defined benefit plans to employees that are eligible.
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
Defined contribution plans
The Company, through its subsidiary Avon, offers a defined contribution plan for Avon employees in the United Kingdom (“UK”), which allows eligible participants to contribute eligible compensation through payroll deductions. The Company double employee contributions up to the first
The Company offers a qualified defined contribution plan for U.S.-based employees, the Avon Personal Savings Account Plan (the “PSA”), which allows eligible participants to contribute up to
For U.S.-based employees hired on or after January 1, 2015, the Company made additional contributions to a Retirement Savings Account (“RSA”) within the PSA. Such contributions will range from
Defined and post-retirement benefit plans
The Company, through its subsidiary Avon and certain subsidiaries, have contributory and noncontributory defined benefit retirement plans for substantially all employees of those subsidiaries. Benefits under these plans are generally based on an employee’s length of service and average compensation near retirement, and certain plans have vesting requirements.
The actuarial liability for the health care plan of the Company refers to a post-employment benefit plan for employees and former employees who made fixed contributions to the cost of the health plan until April 30, 2010, date when the design of the health plan was changed, and the employees’ fixed contributions were eliminated. For those who have contributed to the medical plan for
Avon’s largest defined benefit pension plan outside the United States (“US”) is in the UK, which has been frozen for future accruals as of April 1st, 2013. The U.S. defined benefit pension plan, the Personal Retirement Account Plan (the "PRA"), is closed to employees hired on or after January 1st, 2015, so that qualified retirement benefits for US-based employees hired on or after January 1st, 2015 will be provided solely through the PSA.
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
The breakdown set forth below is intended to provide a summarized view of the net of financial expense based on the nature of the related transactions.
|
|
Consolidated | ||||||||
|
|
2023 |
2022 |
2021 |
||||||
|
Finance expesnes (debt interest) |
( |
) |
( |
) |
( |
) | |||
|
Financial short-term investments and others income |
|
|
|
||||||
|
Exchange variations on financial activities, net |
|
|
( |
) | |||||
|
Losses with derivatives on exchange rate variations on financial activities, net |
( |
) |
( |
) |
|
||||
|
Losses on derivatives on interest payments and other financial activities, net |
( |
) |
( |
) |
|
||||
|
Monetary adjustment of provision for tax, civil and labor risks, and tax liabilities |
( |
) |
( |
) |
( |
) | |||
|
Leases interest expenses |
( |
) |
( |
) |
( |
) | |||
|
Other finance expenses |
( |
) |
( |
) |
( |
) | |||
|
Hyperinflationary economy adjustment |
( |
) |
( |
) |
( |
) | |||
|
Other gains (losses) from exchange rate variation on operating activities |
( |
) |
( |
) |
( |
) | |||
|
Financial results |
( |
) |
( |
) |
( |
) | |||
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
|
|
Consolidated | |||||||
|
|
2023 |
2022 |
2021 |
|||||
|
Other operating income, net |
|
|
|
|||||
|
Result on write-off of property, plant and equipment |
|
( |
) |
|
||||
|
Tax credits (a) |
|
|
|
|||||
|
Tax benefit from amnesty program (b) |
|
|
||||||
|
Reversal for impairment provision |
|
|
|
|||||
|
Revenue with sale of the customer portfolio |
|
|
|
|||||
| Royalty income (c) |
|
|
|
|||||
|
Other operating income |
|
( |
) |
|
||||
|
Total other operating income |
|
|
|
|||||
|
|
|
|
|
|||||
|
Other operating expenses, net |
|
|
|
|||||
|
Result on write-off of property, plant and equipment |
( |
) |
|
( |
) | |||
|
Crer para Ver (d) |
( |
) |
( |
) |
( |
) | ||
|
Goodwill Impairment |
( |
) |
( |
) |
|
|||
|
Provision for losses on fixed assets. intangible assets and leases |
( |
) |
( |
) |
|
|||
|
Expenses with sale of customer portfolio |
( |
) |
|
|
||||
|
Transformation and integration plan (e) |
( |
) |
( |
) |
( |
) | ||
|
Restructuring expenses (f) |
( |
) |
( |
) |
( |
) | ||
|
Increased provision for tax, labor and civil contingencies |
( |
) |
|
|
||||
|
Tax benefit for joining the amnesty program |
|
( |
) |
|
||||
|
Other operating expenses |
( |
) |
( |
) |
|
|||
|
Total other operating expenses |
( |
) |
( |
) |
( |
) | ||
|
Other operating expenses, net |
( |
) |
( |
) |
( |
) | ||
| a) |
|
| b) |
|
| c) |
|
| d) |
|
| e) |
|
| f) |
|
| F-88 |
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
The basic earnings per share are calculated by dividing the profit (loss) attributable to the Company’s shareholders by the weighted average number of outstanding common shares, excluding common shares purchased by the Company and held as treasury shares.
|
|
Consolidated | |||||||
|
|
2023 |
2022 |
2021 |
|||||
|
Profit (loss) attributable to the Company’s controlling shareholders |
|
( |
) | |
||||
|
Weighted average of the number of issued common shares |
|
|
|
|||||
|
Weighted average treasury shares |
( |
) |
( |
) | ( |
) | ||
|
Weighted average of the number of outstanding common shares issued, net of treasured shares |
|
|
|
|||||
|
Basic gain (loss) earnings per share - R$ |
|
( |
) | |
||||
Diluted earnings per share are calculated by adjusting the weighted average number of outstanding common shares, assuming the conversion of all potential common shares that would cause dilution. The Company has stock options, restricted shares and strategy acceleration that would have a dilutive effect on any earnings per share.
On December 31, 2022 The Company incurred loss for the year ended, therefore any adjustment would have an anti-dilutive effect and, for this reason, the diluted result is equivalent to Basic earnings per share.
The diluted earnings per share for the result for the year ended December 31, 2023 and 2021 is presented below:
|
|
Consolidated | |||
|
|
2023 |
2021 |
||
|
Profit attributable to the Company’s controlling shareholders |
|
|
||
|
Weighted average of the number of issued common shares issued, net of treasured shares |
|
|
||
|
Adjustment for stock options and restricted shares |
|
|
||
|
Weighted average of the number of ordinary shares for diluted earnings calculation |
|
|
||
|
Diluted earnings per share – R$ |
|
|
||
Net income (loss) per share for results from discontinued operations for the years ended December 31, 2023 and 2022 is presented below:
|
|
Consolidated | |||||||
|
|
2023 |
2022 |
2021 |
|||||
|
Profit (loss) attributable to the Company’s controlling shareholders |
|
( |
) | |
||||
|
Weighted average of the number of issued common shares |
|
|
|
|||||
|
Adjustment for stock options and restricted shares |
( |
) |
( |
) | ( |
) | ||
|
Weighted average number of common shares issued, net of treasured shares |
|
|
|
|||||
|
Basic profit (loss) per share – R$ |
|
( |
) | |
||||
The diluted earnings per share for the results of discontinued operations for the year ended December 31, 2023 and 2021 is presented below:
|
|
Consolidated | |||
|
|
2023 |
2021 |
||
|
Profit attributable to the Company’s controlling shareholders |
|
|
||
|
Weighted average of the number of issued common shares issued, net of treasured shares |
|
|
||
|
Weighted average number of treasury shares |
|
|
||
|
Weighted average number of common shares considered to diluted earnings per share |
|
|
||
|
Diluted earnings per share - R$ |
|
|
||
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
In the course of the Company’s operations, rights and obligations are generated between related parties, arising from administrative expenses and provision of services.
31.1 Uncontrolled and unconsolidated transactions with related parties
Instituto Natura holds shares in the Essential Investment Fund, As of December 31, 2023, the balance is R$
On June 5, 2012, an agreement was signed between Indústria e Comércio de Cosmeticos Natura Ltda. and Bres Itupeva Empreendimentos Imobiliários Ltda., (“Bres Itupeva”), for the construction and rental of a goods processing, storage, and distribution center (HUB), in Itupeva, São Paulo. In 2019, Bres Itupeva assigned its credits to BRC Securitizadora S/A to whom the Company makes monthly payments. Messrs. Antônio Luiz da Cunha Seabra, Guilherme Peirão Leal and Pedro Luiz Barreiros Passos, members of Natura &Co Holding S.A. controlling group, indirectly control Bres Itupeva. The amount involved in the transaction is recorded under the heading “Right to Use – Buildings”, the balance in the year ended December 31, 2023 was R$
On January 8, 2021, a related-party transaction was carried out between the Company, as lessee and owner, the subsidiary Indústria e Comércio de Cosmeticos Natura Ltda. and Natura &Co Holding S.A., as guarantors, and a special purpose company (Bresco IX) indirectly held by Messrs. Antônio Luiz da Cunha Seabra, Guilherme Peirão Leal and Pedro Luiz Barreiros Passos, as lessor and surface-right owner (Co-Chairmen of the Board of Directors of the Company and shareholders members of the controlling group of Natura &Co Holding S.A., Company's parent company). This transaction was entered into with the purpose of expanding the Company’s distribution network and increasing its logistical efficiency through the installation of a new distribution hub in the State of Alagoas. The amount involved in the transaction is recorded under item “Right of Use” of “Buildings” in the amount of R$
On May 12, 2021, a transaction was entered between the Company, as lessee, and Bresco Logística Fundo de Investimento Imobiliário, as lessor, indirectly held by Messrs. Antônio Luiz da Cunha Seabra, Guilherme Peirão Leal and Pedro Luiz Barreiros Passos. (Co-Chairmen of the Board of Directors of Natura &Co Holding S.A. and shareholders members of the controlling group of Natura &Co Holding S.A). This transaction had the purpose of keeping the Company’s distribution hub activities in the city of Canoas, State of Rio Grande do Sul. The amount involved in the transaction is recorded under item “Right of Use” of “Buildings” in the amount of R$
In the year ended December 31, 2023, the Company and its subsidiaries transferred to Instituto Natura as a donation associated with the net income from sales of the Natura Crer Para Ver product line in the amount of R$
The Company has a policy for transactions with related parties, in addition to an internal control structure to support the identification, monitoring and approvals of transactions between related parties.
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
31.3 Key management personnel compensation
The total compensation of the Company's key Management personnel is as follows:
|
|
2023 |
2022 |
2021 | |||||||||||||||||||||||
|
|
Compensation |
Compensation |
Compensation | |||||||||||||||||||||||
|
|
Fixed |
Variable |
Total |
Fixed |
Variable |
Total |
Fixed |
Variable |
Total |
|||||||||||||||||
|
Board of Directors |
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Executive Directors |
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
The totals in the table above include the employer's social security charges.
The amounts include increases and / or reversals of the cumulative expense recognized in the previous years due to reassessments of the number of awards expected to vest and re-estimation of the social security charges expected to be payable by the Company on vesting.
Amounts in the variable category for the twelve-month period ended December 31, 2023 include termination benefits for certain key management employees, related to the review process of the Company's corporate structure. Additionally, the share-based expense shown in the variable category includes the expense accelerations/reversals that were necessary to reflect the number of shares that dropouts are entitled to keep.
In the ordinary course of its business, the Company enters into long-term agreements for provision of manufacturing, transportation, information technology services and electric power supply (with physical delivery, for its manufacturing activities). The agreements have termination clauses for noncompliance with essential obligations. In general, the minimum agreed upon is acquired and therefore there are no liabilities recorded in addition to the amount recognized on the accrual basis.
Total minimum supply payments, measured at nominal value, according to the contract, are:
|
|
Consolidated |
||||
|
|
2023 |
2022 |
|||
|
Less than one year |
|
|
|||
|
One to five years |
|
|
|||
|
Above five years |
|
|
|||
|
Total |
|
|
|||
The Company adopted an insurance policy that mainly considers risk concentration and its materiality, considering the nature of their activities and the guidance of their insurance advisors. As of December 31, 2023 and 2022, insurance coverage is as follows:
|
Item |
Type of coverage |
Amount insured |
||||
|
2023 |
2022 |
|||||
|
Industrial complex and administrative sites |
|
|
|
|||
|
Vehicles |
|
|
|
|||
|
Loss of profits |
|
|
|
|||
|
Transport |
|
|
|
|||
|
Civil liability |
|
|
|
|||
|
Environmental liability |
|
|
|
|||
The following table presents additional information on transactions related to the cash flow statement:
|
|
Consolidated |
|||||||
|
|
2023 |
2022 |
2021 |
|||||
|
Non-cash items |
|
|
|
|||||
|
Hedge accounting, net of tax effects |
|
( |
) |
( |
) | |||
|
Dividends declared and not yet paid |
|
|
|
|||||
|
Net effect of acquisition of property, plant and equipment and intangible assets not yet paid |
|
|
|
|||||
|
Application of judicial deposits in the settlement of legal proceedings |
|
|
|
|||||
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
35.1 Sale of the previously subsidiary Aesop
On August 30, 2023, the Company concluded the sale of the previously controlled subsidiary Aesop to L’Oreal for a total consideration of R$
In addition to the gain obtained with the derecognition of assets and liabilities, certain incremental costs involving legal advisors and bank fees in the transaction were incurred and classified as part of discontinued operations.
35.2. Sale of previously subsidiary The Body Shop
On December 29, 2023, the Company concluded the sale of the previous subsidiary, The Body Shop, to Aurelius Investment Advisory Limited. The final consideration includes the payment of
Based on the information available as of December 31, 2023, no indications were identified that the metrics for receiving the variable consideration would not be met.
The total loss incurred in the derecognition of assets and liabilities of the subsidiary, recognized as discontinued operations, net of income tax and social contribution, amounted to R$
|
|
2023 |
|
|
Fair value of the previously subsidiary The Body Shop (a) |
|
|
|
Incremental transaction costs on sale |
( |
) |
|
Fair value less selling costs |
|
|
|
|
|
|
|
Net assets of the previously subsidiary The Body Shop (b) |
( |
) |
|
Impairment loss |
( |
) |
|
|
|
|
|
Balance after recognition of loss due to impairment |
|
|
|
|
|
|
|
Adjustments to the fair value of assets held for sale |
|
|
|
|
|
|
|
Balances on the date of derecognition |
|
| (a) | |
| (b) |
In addition to the loss obtained with the derecognition of assets and liabilities, certain costs involving legal advisors and bank fees in the transaction were incurred and classified as part of discontinued operations.
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
35.3. Breakdown of discontinued operations
The breakdown of results presented in discontinued operations in the income statement for the years is presented below:
|
|
2023 |
2022 |
2021 | |||||
|
Cash Consideration received for the sale to the previously controlled Aesop |
|
|
||||||
|
Net assets of the previously controlled Aesop, derecognized |
( |
) |
|
|||||
|
Accumulated gains in other comprehensive income from currency translation |
|
|
||||||
|
Incremental transaction costs on sale |
( |
) |
|
|||||
|
Income tax and social contribution |
( |
) |
|
|||||
|
Net gain on the sale of the previously controlled Aesop |
|
|
||||||
|
|
|
|
||||||
|
Fair value of the consideration receivable from the sale of the previously subsidiary The Body Shop |
|
- |
- |
|||||
|
Fixed amount receivable upon completion |
|
|
||||||
|
Fixed amount receivable in 2028 |
|
|
||||||
|
Contingent consideration |
|
|
||||||
|
Total fair value of the consideration |
|
|
||||||
|
|
|
|
||||||
|
Impairment loss |
( |
) |
|
|||||
|
Assets derecognized(1) |
( |
) |
|
|||||
|
Adjustments to the fair value of assets |
( |
) |
|
|||||
|
Conversion gains rolled into other comprehensive income |
|
|
||||||
|
Incremental transaction costs on sale |
( |
) |
|
|||||
|
Income tax and social contribution |
|
|
||||||
|
Net loss on the sale of the previously controlled The Body Shop |
( |
) |
|
|||||
|
|
|
|
||||||
|
Net gain on the sale of subsidiaries |
|
|
||||||
|
|
|
|
||||||
|
Loss before taxes from discontinued operations |
( |
) |
( |
) | ||||
|
Income tax and social contribution |
|
( |
) | ( |
) | |||
|
Loss from discontinued operations |
( |
) |
( |
) | ||||
|
|
|
|
||||||
|
Total discontinued operations |
|
( |
) |
(1)
|
|
NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
The results in discontinued operations, which includes the operational results of the former controlled subsidiaries Aesop and The Body Shop for the years ended on December 31, 2023 and 2022 are presented below:
|
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2023 |
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Gross profit |
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Operating (expenses) income |
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Selling, marketing, and logistics expenses |
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Administrative, R&D, IT and projects expenses |
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Other operating income (expenses), net (a) |
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Operating profit (loss) before financial result |
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Financial results |
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Net income (loss) before income tax and social contribution |
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Net income (loss) for the year |
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a) In addition to the results of the former subsidiaries Aesop and The Body Shop, the amount includes R$
The net cash flows incurred by the discontinued operations are:
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Operational activities |
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NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
36.1 Announcement of former subsidiary The Body Shop entering administration in the UK
During January 2024, information became public that under the guidance of its new controllers, the former subsidiary The Body Shop filed for administration in the United Kingdom, covering operations in that country in the request. Receipt of this information led the Company's management to assess whether such event subsequent to the balance sheet date would affect the financial statements. The main receivables potentially impacted and management's considerations are included below:
a) Receivable arising from the sale or former subsidiary The Body Shop
As disclosed on footnote 5.5, the Company has accounts receivable due in 2025 and 2026 conditioned on the achievement of certain performance targets by the former subsidiary The Body Shop in each of the respective previous fiscal years. Based on management's analysis and information available as of December 31, 2023, there were no indications or other evidence as of that date that the performance targets associated with such accounts receivable would not be achieved.
However, in April 2024, when the joint administrators of The Body Shop International issued their proposals for administration, such proposal contained additional information that affect the fair value assessment of the receivable..
The Company has assessed that the information that supported the fair value measurement of such receivables as of December 31, 2023 may no longer be deemed reliable for the purposes of determining the current fair value of the receivable. Therefore, while no adjustment is required to be made on the financial statements for the year ended December 31, 2023, the full balance described on footnote 5.5 has been reserved for in 2024, with the respective impact affecting the statement of profit or loss in the Discontinued Operations in 2024 in the amount of approximately R$
With regards to the deferred fixed consideration due from the acquirer, (Aurelius Group) the Company has not identified indications that credit risk of the counterparty would have increased significantly to a point that would require the recognition of expected credit losses as of December 31st, 2023.
Management continues to monitor the evolution of the operations of the former subsidiary The Body Shop to assess whether they affect the fair value of the receivable and give rise to accounting adjustments in the financial statements of future periods.
b) Operational receivables held by Avon from The Body Shop
On December 31, 2023, the subsidiary Avon had receivables from the former subsidiary The Body Shop arising from the manufacture of products in the total amount of approximately R$
Therefore, while no adjustment is required to be made on the financial statements for the year ended December 31, 2023, the full balance described above, along with the additional receivables that arose in 2024, have been reserved for in 2024, with the respective impact affecting the statement of profit or loss in 2024 in the amount of approximately R$
36.2 Dividends distribution
On March 11, 2024, the Company's Board of Directors approved the distribution of dividends in the total amount of R$
36.3 Flooding in the Brazilian State of Rio Grande do Sul
During May 2024, the state of Rio Grande do Sul in the south of Brazil was hit by a natural disaster. Significant flooding across the state has resulted in damage to third party property and displacement of populations, among other adverse effects. We are currently supporting our network of representatives and analyzing possible actions that may further assist the population at this time.
As of the date of this annual report, we are assessing the potential impacts on the Company’s assets that may have been affected, especially considering the existence of a distribution center in the region, where some of the Company’s products are stored.
| F-96 |