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Natura Cosméticos S.A.
Interim Financial Statements for the
Quarter and Six-Month Period Ended June 30,
2006 and Independent Accountants' Review
Report




Deloitte Touche Tohmatsu Auditores Independentes
(Convenience Translation into English from the
Original Previously Issued in Portuguese)
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(Convenience Translation into English from the Original Previously Issued in Portuguese)
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Shareholders of
Natura Cosméticos S.A.
São Paulo - SP
1. We have performed a special review of the accompanying interim financial statements of
Natura Cosméticos S.A. and subsidiaries (Company and consolidated), consisting of the
balance sheets as of June 30, 2006, and the related statements of income for the quarter and
six-month period then ended and the performance report, all expressed in Brazilian reais and
prepared in accordance with Brazilian accounting practices under the responsibility of the
Company's management.
2. We conducted our review in accordance with specific standards established by the Brazilian
Institute of Independent Auditors (IBRACON), together with the Federal Accounting
Council, which consisted principally of: (a) inquiries of and discussions with persons
responsible for the accounting, financial and operating areas as to the criteria adopted in
preparing the interim financial statements, and (b) review of the information and subsequent
events that had or might have had material effects on the financial position and results of
operations of the Company and its subsidiaries.
3. Based on our special review, we are not aware of any material modifications that should be
made to the interim financial statements referred to in paragraph 1 for them to be in
conformity with Brazilian accounting practices and standards established by the Brazilian
Securities Commission (CVM), specifically applicable to the preparation of mandatory
interim financial statements.
4. Our review was conducted for the purpose of issuing a review report on the interim financial
statements referred to in paragraph 1 taken as whole. The individual and consolidated
statements of cash flows, contained in the Attachment, for the six-month periods ended June
30, 2006 and 2005 are presented for purposes of additional analysis and are not a required
part of the interim financial statements. Such statements have been subjected to the review
procedures described in paragraph 2 and, based on our review, we are not aware of any
material modifications that should be made to these supplemental statements in order for
them to be fairly stated, in all material respects, in relation to the interim financial
statements for the six-month periods ended June 30, 2006 and 2005 taken as a whole.
5. We have previously reviewed the individual and consolidated balance sheets as of March
31, 2006, and the statements of income for the quarter and six-month period ended June 30,
2005, and the supplemental statement of cash flows for the six-month period ended June 30,
2005, presented for comparative purposes, and issued unqualified review reports thereon,
dated April 20, 2006 and July 21, 2005, respectively.
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Deloitte Touche Tohmatsu
2
6. The accompanying interim financial statements have been translated into English for the
convenience of readers outside Brazil.
São Paulo, July 20, 2006
DELOITTE TOUCHE TOHMATSU
Edimar Facco
Auditores Independentes
Engagement Partner
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(Convenience Translation into English from the Original Previously Issued in Portuguese)
NATURA COSMÉTICOS S,A,
BALANCE SHEETS AS OF JUNE 30, 2006 AND MARCH 31, 2006
(In thousands of Brazilian reais - R$)
ASSETS
06/2006
03/2006
06/2006
03/2006
LIABILITIES AND SHAREHOLDERS' EQUITY
06/2006
03/2006
06/2006
03/2006
CURRENT ASSETS
CURRENT LIABILITIES
Cash and banks
33,105
4,804
53,783
12,115
Loans and financing (Note 14)
85,362
66,637
108,028
94,871
Cash investments (Note 5)
179,021
127,687
261,836
180,533
Domestic suppliers
29,008
18,672
136,945
103,529
Trade accounts receivable (Note 6)
272,855
234,464
287,289
247,854
Foreign suppliers
-
-
3,075
6,495
Inventories (Note 7)
952
1,792
184,411
189,878
Suppliers - related parties (Note 10)
106,345
108,070
-
-
Recoverable taxes (Note 8)
567
404
28,270
28,625
Salaries, profit sharing and related charges, net
29,405
19,112
73,580
50,701
Advances to employees and suppliers
3,420
3,231
7,733
6,065
Taxes payable (Note 15)
59,746
63,992
73,420
78,842
Related parties (Note 10)
7,088
6,240
-
-
Dividends (Notes 10 and 17.c)
112,155
142
112,155
142
Deferred income and social contribution taxes (Note 9.a)
24,312
16,324
33,249
24,261
Accrued freight
11,715
11,380
11,715
11,380
Other receivables
13,335
12,892
22,607
23,678
Sundry accruals
7,165
9,110
7,330
9,274
Total current assets
534,655
407,838
879,178
713,009
Other payables
16,455
14,239
19,749
15,513
Allowance for losses on swap contracts (Notes 20.b and 20.d)
2,630
2,824
3,886
2,824
Total current liabilities
459,986
314,178
549,883
373,571
LONG-TERM ASSETS
Receivables from shareholders (Notes 10.e and 17.b)
30
16
30
16
Advance for future capital increase (Note 10.d)
1,037
1,017
-
-
LONG-TERM LIABILITIES
Recoverable taxes (Note 8)
1,630
1,492
10,489
11,314
Loans and financing (Note 14)
2,275
21,810
78,882
95,161
Deferred income and social contribution taxes (Note 9.a)
19,137
18,515
32,184
30,148
Allowance for losses on subsidiaries (Note 11)
5,207
5,182
-
-
Escrow deposits (Note 16)
25,068
24,227
31,576
30,295
Reserve for contingencies (Note 16)
57,460
55,955
100,342
92,758
Other receivables
-
-
532
511
Other payables
2,122
1,990
3,750
3,539
Cash investments (Notes 5 and 16.i)
-
-
4,061
4,128
Total long-term liabilities
67,064
84,937
182,974
191,458
Total long-term assets
46,902
45,267
78,872
76,412
MINORITY INTEREST
-
-
8
8
PERMANENT ASSETS
SHAREHOLDERS' EQUITY (Note 17)
Investments (Note 11)
556,329
537,972
5,751
5,477
Capital (Note 17.a)
232,237
230,762
232,237
230,762
Property, plant and equipment (Note 12)
20,544
17,044
398,309
377,018
Capital reserves (Notes 17.a, 17.b and 17.e)
128,018
124,441
128,018
124,441
Total permanent assets
576,873
555,016
404,060
382,495
Profit reserves (Notes 17.f and 17.g)
271,649
254,497
269,514
252,370
Treasury shares (Note 17.d)
(524)
(694)
(524)
(694)
Total shareholders' equity
631,380
609,006
629,245
606,879
TOTAL LIABILITIES AND
TOTAL ASSETS
1,158,430
1,008,121
1,362,110
1,171,916
SHAREHOLDERS' EQUITY
1,158,430
1,008,121
1,362,110
1,171,916
The accompanying notes and Attachment are an integral part of these financial statements.
Company
Consolidated
Company
Consolidated
3
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(Convenience Translation into English from the Original Previously Issued in Portuguese)
NATURA COSMÉTICOS S.A.
STATEMENTS OF INCOME
FOR THE QUARTER AND SIX-MONTH PERIOD ENDED JUNE 30, 2006 AND 2005
(In thousands of Brazilian reais - R$, except for earnings per share)
Company
Consolidated
04/01/2006
a
06/30/2006
04/01/2005
a
06/30/2005
01/01/2006
a
06/30/2006
01/01/2005
a
06/30/2005
04/01/2006
a
06/30/2006
04/01/2005
a
06/30/2005
01/01/2006
a
06/30/2006
01/01/2005
a
06/30/2005
Gross sales to domestic market
943,212
764,308
1,636,439
1,351,816
948,264
770,191
1,647,088
1,362,872
Gross sales to foreign market
-
-
-
-
32,196
22,522
55,687
40,602
Other sales
1
-
1
-
365
454
688
678
GROSS OPERATING REVENUES
943,213
764,308
1,636,440
1,351,816
980,825
793,167
1,703,463
1,404,152
Taxes on sales, returns and rebates
(211,272)
(176,958)
(366,802)
(311,963)
(284,411)
(235,423)
(495,222)
(419,299)
NET OPERATING REVENUES
731,941
587,350
1,269,638
1,039,853
696,414
557,744
1,208,241
984,853
Cost of sales
(295,928)
(234,316)
(510,994)
(421,099)
(223,425)
(174,548)
(382,932)
(319,541)
GROSS PROFIT
436,013
353,034
758,644
618,754
472,989
383,196
825,309
665,312
OPERATING (EXPENSES) INCOME
Selling
(180,555)
(149,951)
(319,797)
(261,362)
(210,855)
(175,398)
(376,832)
(310,194)
General and administrative
(109,995)
(86,161)
(197,992)
(166,979)
(91,807)
(84,377)
(171,346)
(141,166)
Management compensation
(1,829)
(1,908)
(4,103)
(3,609)
(2,998)
(2,649)
(6,206)
(5,349)
Equity in subsidiaries (Note 11)
11,041
(3,122)
13,565
1,139
-
-
-
-
Other operating expenses, net
(665)
(2,973)
(4,214)
(2,973)
(665)
(1,605)
(4,214)
(2,738)
INCOME FROM OPERATIONS BEFORE FINANCIAL EFFECTS
154,010
108,919
246,103
184,970
166,664
119,167
266,711
205,865
Financial expenses (Note 20)
(3,461)
(1,893)
(7,068)
(3,510)
(8,884)
(14,854)
(18,484)
(23,457)
Financial income (Note 20)
6,194
4,790
17,888
15,068
9,896
12,194
25,746
26,431
INCOME FROM OPERATIONS
156,743
111,816
256,923
196,528
167,676
116,507
273,973
208,839
Nonoperating (expenses) income, net
287
(1,098)
480
(1,062)
287
(1,094)
427
(2,179)
INCOME BEFORE TAXES ON INCOME
157,030
110,718
257,403
195,466
167,963
115,413
274,400
206,660
Income and social contribution taxes (Note 9.b)
(27,768)
(23,138)
(46,233)
(37,846)
(38,710)
(27,539)
(63,494)
(49,106)
NET INCOME BEFORE MINORITY INTEREST
129,262
87,580
211,170
157,620
129,253
87,874
210,906
157,554
Minority interest
-
-
-
-
-
(2)
(1)
(2)
NET INCOME
129,262
87,580
211,170
157,620
129,253
87,872
210,905
157,552
EARNINGS PER SHARE - R$ (Note 17.a) (*)
0.3033
0.2064
0.4955
0.3715
0.3033
0.2071
0.4949
0.3713
The accompanying notes and Attachment are an integral part of these financial statements
(*) O lucro líquido por ação referente ao 2o trimestre e 1o semetre de 2005 foi calculado comtemplando o efeito do desdobramento das ações acorrido
em março de 2006, para permitir a comparação com o 2o trimestre e 1o semestre de 2006.
4
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(Convenience Translation into English from the Original Previously issued in Portuguese)
NATURA COSMÉTICOS S.A.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (COMPANY)
Treasury
Share
Investment
Retained
Capital
shares
premium
grants
Legal
Retenção
earnings
Total
BALANCES AS OF DECEMBER 31, 2004
230,762
(3,655)
105,673
9,998
18,650
76,024
-
437,452
Sale of treasury shares by exercise of stock options (Note 17.d)
-
337
4,537
-
-
-
-
4,874
Payment of receivables from shareholders (Note 17.b)
-
2,053
249
-
-
-
-
2,302
Tax incentives
-
-
-
717
-
-
-
717
Net income
-
-
-
-
-
-
397,357
397,357
Allocation of net income:
Profit retention reserve (Note 17.g)
-
-
-
-
-
77,915
(77,915)
-
Dividends - R$3.357 per outstanding share (Note 17.c)
-
-
-
-
-
-
(285,237)
(285,237)
Interest on capital - R$0.403 per outstanding share (Note 17.c)
-
-
-
-
-
-
(34,205)
(34,205)
BALANCES AS OF DECEMBER 31, 2005
230,762
(1,265)
110,459
10,715
18,650
153,939
-
523,260
Sale of treasury shares by exercise of stock options (Note 17.d)
-
76
1,133
-
-
-
-
1,209
Payment of receivables from shareholders (Note 17.b)
-
-
1,998
-
-
-
-
1,998
Tax incentives
-
-
-
631
-
-
-
631
Net income
-
-
-
-
-
-
81,908
81,908
BALANCES AS OF MARCH 31, 2006
230,762
(1,189)
113,590
11,346
18,650
153,939
81,908
609,006
Sale of treasury shares by exercise of stock options (Note 17.d)
-
170
2,629
-
-
-
-
2,799
Payment of receivables from shareholders (Note 17.b)
-
-
56
-
-
-
-
56
Payment of capital
1,475
1,475
Tax incentives
-
-
-
892
-
-
-
892
Net income
-
-
-
-
-
-
129,262
129,262
Allocation of net income:
Dividends - R$0.263 per outstanding shares (Note 17.c)
-
-
-
-
-
-
(112,110)
(112,110)
BALANCES AS OF JUNE 30, 2006
232,237
(1,019)
116,275
12,238
18,650
153,939
99,060
631,380
Capital reserves
Profit reserves
FOR THE QUARTER ENDED MARCH 31, 2006 AND JUNE 30, 2006
(In thousands of Brazilian reais - R$)
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(Convenience Translation into English from the Original Previously Issued in Portuguese)
NATURA COSMÉTICOS S.A.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE QUARTER AND SIX-MONTH PERIOD ENDED JUNE 30, 2006
(Amounts in thousands of Brazilian reais - R$, unless otherwise indicated)
1.
OPERATIONS
Natura Cosméticos S.A. (the "Company") and its subsidiaries are engaged in the
development, production, distribution and sale, substantially through direct sales by Natura
beauty consultants, of cosmetics, fragrances, hygiene and health products. The Company
also holds equity interests in other companies in Brazil and abroad.
2.
PRESENTATION OF INTERIM FINANCIAL STATEMENTS
The interim financial statements have been prepared in accordance with Brazilian
accounting practices and standards established by the Brazilian Securities Commission
(CVM).
The terminology and grouping of certain accounts in the statements of income and cash
flows have been changed from the prior year for better classification and presentation. Such
changes included the first quarter of 2005, in order to allow comparability between the
periods. Please note that such changes did not result in any change in the individual account
balances and total balances, except for the cash flow for the first half of 2005 in which
payments of swap and forward contracts were reclassified from financing activities,
changing the disclosed subtotals, although without affecting the total change in cash and
banks.
3.
SIGNIFICANT ACCOUNTING PRACTICES
a)
Results of operations
Determined on the accrual basis of accounting.
b)
Cash investments
Consists of highly liquid temporary investments stated at cost plus income earned
through the balance sheet dates.
c)
Allowance for doubtful accounts
Recognized based on an analysis of risks on realization of receivables, in an amount
considered sufficient to cover possible losses.
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Natura Cosméticos S.A.
7
d)
Inventories
Stated at the average cost of acquisition or production, adjusted to market value and for
possible losses, when applicable.
e)
Investments
Investments in subsidiaries are accounted for under the equity method, plus goodwill on
acquisition of investments, as shown in Note 11.
f)
Property, plant and equipment
Recorded at acquisition cost, monetarily restated through December 31, 1995, plus
interest capitalized during the construction period, if applicable. Depreciation is
calculated under the straight-line method, based on the estimated economic useful lives
of the assets, at the rates shown in Note 12.
g)
Deferred charges
Represented by goodwill arising from the merger of shares of Natura Empreendimentos
S.A., into Natura Participações S.A., less the provision for maintenance of dividend
payment capacity, as described in Note 13.
h)
Current and long-term liabilities
Stated at known or estimated amounts, plus, if applicable, interest and monetary and
exchange variations incurred through the balance sheet dates.
i)
Income and social contribution taxes
The provision for income tax was recorded at the rate of 15%, plus a 10% surtax on
annual taxable income exceeding R$240. Social contribution tax was calculated at the
rate of 9% of taxable income. Deferred income and social contribution taxes recorded in
current and long-term assets result from expenses recorded in income, although
temporarily nondeductible for tax purposes. Additionally, deferred income and social
contribution taxes were recorded on tax loss carryforwards.
Pursuant to CVM Resolution No. 273/98 and CVM Instruction No. 371/02, deferred
taxes are recorded at their probable realizable values, as detailed in Note 9.
j)
Loans and financing
Adjusted based on exchange and monetary variations and interest incurred through the
balance sheet dates, as provided for by contract and mentioned in Note 14.
k)
Reserve for contingencies
Adjusted through the balance sheet dates based on the probable loss amount, according
to the nature of each contingency and supported by the opinion of the Company's
attorneys. The fundamentals and the nature of reserves are described in Note 16.
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Natura Cosméticos S.A.
8
l)
Swap and forward contracts
The nominal values of swap and forward contracts are not recorded in the balance sheet.
Unrealized gains or losses on these transactions are recorded on the accrual basis of
accounting, as mentioned in Notes 20.b and 20.d.
m)
Financial income and expenses
Represented by interest and mo netary and exchange variations on cash investments,
escrow deposits and loans and financing.
n)
Interest on capital
For corporate purposes, interest on capital is accounted for as allocation of income in
shareholders' equity. For tax purposes, interest on capital is treated as financial expense,
reducing the income and social contribution tax basis.
o)
Earnings per share
Calculated based on the number of shares at the balance sheet dates, excluding treasury
shares.
p)
Supplementary information
In order to permit additional analysis, the Company presents as supplementary
information the individual and consolidated statements of cash flows (Attachment).
q)
Use of estimates
The preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities as of the date of the financial statements, and the
reported amounts of revenues and expenses for the reporting periods. Since
management's judgment involves estimates of the probability of future events, actual
results may differ from the estimates.
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Natura Cosméticos S.A.
9
4.
CONSOLIDATION CRITERIA
The consolidated financial statements have been prepared in accordance with the
consolidation principles established by Brazilian accounting practices and regulatory
instructions and resolutions established by the CVM, and include the financial statements of
the Company and its direct and indirect subsidiaries, as follows:
Ownership interest - %
06/2006 03/2006 06/2005
Direct:
Indústria e Comércio de Cosméticos Natura Ltda.
99.99
99.99
99.82
Natura Cosméticos S.A. - Chile
99.99
99.96
99.96
Natura Cosméticos S.A. - Peru
99.94
99.93
99.93
Natura Cosméticos S.A. - Argentina
99.82
95.00
95.00
Natura Brasil Cosmética Ltda. - Portugal
98.00
99.99
99.99
Nova Flora Participações Ltda.
100.00
99.99
100.00
Natura Inovação e Tecnologia de Produtos Ltda.
99.99
99.99
99.99
Natura Europa SAS
100.00
100.00
100.00
Natura Cosméticos S.A. - México
99.99
99.99
99.99
Natura Cosméticos C.A. - Venezuela
99.99
99.00
-
Indirect:
Natura Logística e Serviços Ltda.
99.99
99.99
99.99
Flora Medicinal J. Monteiro da Silva Ltda.
100.00
100.00
100.00
Ybios S.A. (proportional consolidation - joint control)
33.33
33.33
33.33
The consolidated financial statements have been prepared based on the financial statements
as of the same date and consistent with the accounting practices described in Note 3.
Investments in subsidiaries were proportionally eliminated against shareholders' equity and
net income of the respective subsidiaries. Intercompany balances and transactions and
unrealized profits were also eliminated. The minority interest in the Company's subsidiaries
was shown separately. The financial statements of foreign subsidiaries were translated into
Brazilian reais at the exchange rates in effect on the date of the related financial statements.
In relation to the first period of 2005, the Company resumed operations of Natura
Cosméticos C.A. - Venezuela (currently in preoperating stage).
The shareholders' equity balances as of June 30, 2006 and March 31, 2006, reported by the
Company, differ by R$2,135 and 2,127, respectively, from those recorded in the
consolidated financial statements due to the elimination of unrealized profits of subsidiaries.
For the same reason, net income balances reported by the Company as of June 30, 2006 and
2005 differ by R$265 e R$68, respectively, from the balances in the consolidated financial
statements.
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Natura Cosméticos S.A.
10
Net income Shareholders' equity
06/2006 06/2005 06/2006 03/2006
Company
211,170 157,620 631,380 609,006
Elimination of unrealized profits of the
subsidiary Indústria e Comércio de
Cosméticos Natura Ltda. with other
subsidiaries
(265) (68) (2,135) (2,127)
Consolidated
210,905 157,552 629,245 606,879
The operations of the direct and indirect subsidiaries are as follows:
·
Indústria e Comércio de Cosméticos Natura Ltda.: engaged principally in the production
and sale of Natura products to Natura Cosméticos S.A. - Brazil, Natura Cosméticos S.A.
- Chile, Natura Cosméticos S.A. - Peru, Natura Cosméticos S.A. - Argentina, Natura
Cosméticos S.A. - Mexico and Natura Europa SAS, whose amounts are mentioned in
Note 10.
·
Natura Cosméticos S.A. - Chile, Natura Cosméticos S.A. - Peru, Natura Cosméticos S.A.
- Argentina, Natura Cosméticos C.A. - Venezuela (currently in the preoperating stage),
Natura Brasil Cosmética Ltda. - Portugal (this company has no activities currently): their
activities are an extension of the activities conducted by the parent company Natura
Cosméticos S.A. - Brazil.
·
Nova Flora Participações Ltda.: holds equity interest in the subsidiary Flora Medicinal J.
Monteiro da Silva Ltda.
·
Natura Inovação e Tecnologia de Produtos Ltda.: its activities consist of product and
technology development and market research.
·
Natura Europa SAS: engaged in the purchase, sale, import, export and distribution of
cosmetics, fragrances in general, hygiene and health products.
·
Natura Cosméticos S.A. - Mexico: engaged in the purchase, sale, import, export,
distribution and storage of cosmetics, fragrances in general, hygiene and health products.
·
Natura Logística e Serviços Ltda.: engaged in the provision of administrative and
logistics services.
·
Flora Medicinal J. Monteiro da Silva Ltda.: engaged in the sale of phytotherapic and
phytocosmetic products of its own brand. This company has no activities currently.
·
Ybios S.A.: engaged in research, management and development of projects, products and
services in the biotechnology area, and may also enter into agreements and/or
partnerships with universities, foundations, companies, cooperatives, associations, and
other public and private entities; provision of services in the biotechnology area; and
holding of equity interest in other companies.
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Natura Cosméticos S.A.
11
5.
CASH INVESTMENTS
Company
Consolidated
06/2006 03/2006 06/2006 03/2006
Bank certificates of deposit (CDBs)
168,775 119,160 255,652 176,134
Investment funds
10,246 8,527 10,245 8,527
179,021 127,687 265,897 184,661
Long term (Note 16.i)
-
-
4,061
4,128
Current
179,021 127,687 261,836 180,533
As of June 30, 2006, CDBs yield interest rates ranging from 100% to 109.5% (100% to
102,5% as of March 31, 2006) of the interbank deposit rate (CDI), and the share in the total
investment portfolio is 96,2% (95,4% as of March 31, 2006). Investments funds yield
interest rates ranging from 92,2% to 103,1% of CDI (100,7% to 101,6% as of March 31,
2006).
6.
TRADE ACCOUNTS RECEIVABLE
Company
Consolidated
06/2006 03/2006 06/2006 03/2006
Trade accounts receivable
294,176 253,563 309,914 268,217
Allowance for doubtful accounts
(21,321) (19,099) (22,625) (20,363)
272,855 234,464 287,289 247,854
7.
INVENTORIES
Company
Consolidated
06/2006 03/2006 06/2006 03/2006
Finished products
1,111
1,718 120,299 116,714
Raw materials and packaging
-
-
62,681
66,925
Promotional material
38
74
9,842
14,279
Work in process
-
-
7,352
7,002
Allowance for losses
(197)
- (15,763) (15,042)
952
1,792 184,411 189,878
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Natura Cosméticos S.A.
12
8.
RECOVERABLE TAXES
Company
Consolidated
06/2006 03/2006 06/2006 03/2006
ICMS (state VAT) on purchases of fixed assets
2,174
1,894
13,305
12,701
ICMS (state VAT) on purchases of goods
2
2
10,258
12,160
IVA - value-added tax (foreign operations)
-
-
4,365
3,384
IRPJ (corporate income tax)
-
-
3,933
5,096
CSLL (social contribution tax)
-
-
3,527
3,636
PIS/COFINS/CSLL - withheld at source
-
-
1,208
943
COFINS (tax on revenue)
11
-
431
495
PIS (tax on revenue)
2
-
93
339
Other
8
-
1,639
1,185
2,197
1,896
38,759
39,939
Long term
1,630
1,492
10,489
11,314
Current
567
404
28,270
28,625
ICMS credits on the acquisition of fixed assets are offset at the rate of 1/48, pursuant to
prevailing legislation.
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Natura Cosméticos S.A.
13
9.
INCOME AND SOCIAL CONTRIBUTION TAXES
a)
Deferred
Deferred income (IRPJ) and social contribution (CSLL) taxes recorded in the financial
statements result from temporary differences (Company and subsidiaries) and tax loss
carryforwards (subsidiaries). These credits are recorded in current and long-term assets,
in view of their expected realization based on projections of taxable income, considering
the limit of 30% for annual offset of tax loss carryforwards aga inst taxable income,
pursuant to applicable legislation. The amounts are as follows:
Company
Consolidated
06/2006 03/2006 06/2006 03/2006
Current:
Tax loss carryforwards
-
-
40
1,100
Temporary differences:
Allowance for doubtful accounts (Note 6)
7,249
6,891
7,249
6,891
Allowance for inventory losses (Note 7)
67
-
5,359
5,047
Allowance for losses on swap and forward
transactions (Notes 20.b and 20.d)
894
960
1,321
960
Other provisions
16,102
8,473
19,280
10,263
Deferred income and social contribution taxes
24,312
16,324
33,249
24,261
Long term:
Tax loss carryforwards
-
-
-
375
Temporary differences:
Reserve for contingencies (Note 16)
18,077
17,565
31,087
28,515
Other provisions
1,060
950
1,097
1,258
Deferred income and social contribution taxes
19,137
18,515
32,184
30,148
As required by CVM Resolution No. 273/98 and CVM Instruction No. 371/02,
management, based on projections of results, estimates that the recorded tax credits will
be fully realized within five years. The amounts recorded in long-term assets will be
realized as follows:
Consolidated
06/2006 03/3006
2007
22,466
20,284
2008
2,439
2,315
2009
5,530
5,357
2010
1,749
2,192
32,184
30,148
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Natura Cosméticos S.A.
14
b)
Current expense
Reconciliation of income and social contribution taxes:
Company
Consolidated
06/2006 06/2005 06/2006 06/2005
Income before taxes on income
257,403 195,466 274,400 206,660
Income and social contribution taxes at the rate
of 34%
(87,517) (66,458) (93,296) (70,265)
Reversal of provision for maintenance of
dividend payment capacity (Note 13)
24,967
24,967 24,967 24,967
Technological research and innovation benefit -
Law No. 11,196/2005 (*)
6,982
-
6,982
-
Tax incentives (donations)
847
217
970
238
Equity in subsidiaries and exchange variation
on translation of foreign investments (Note
11)
3,179
(624)
-
-
Permanent differences
(1,036)
(446)
(1,321)
(511)
Losses generated by subsidiaries
-
-
(7,870)
(8,124)
Interest on capital
7,328
4,550
7,328
4,550
Other
(983) (52) (1,254) 39
Income and social contribution taxes: net
expenses
(46,233) (37,846) (63,494) (49,106)
Income and social contribution taxes: current
(55,598) (43,600) (73,860) (53,333)
Income and social contribution taxes: deferred
9,365 5,754 10,366 (4,227)
Income and social contribution taxes: net
expenses
(46,233) (37,846) (63,494) (49,106)
Effective rate - %
18.0
19.4
23.1
23.8
(*) Refers to the tax benefit established by Law No. 11,196/2005, which allows for the
direct deduction in the calculation of taxable income and the social contribution tax
basis from the amount corresponding to 60% of the total expenses on technological
research and innovation, observing the rules established in said law.
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Natura Cosméticos S.A.
15
10.
RELATED PARTIES
Receivables from and payables to related parties are as follows:
Company
Consolidated
06/2006 03/2006 06/2006 03/2006
Current assets:
Related parties:
Natura Logística e Serviços Ltda. (a)
2,924
2,659
-
-
Natura Inovação e Tecnologia de Produtos Ltda. (b)
3,331
2,748
-
-
Nova Flora Participações Ltda. (c)
833 833 -
-
7,088 6,240 -
-
Advance for future capital increase-
Nova Flora Participações Ltda. (d)
1,037 1,017 -
-
Receivables from shareholders (e)
30 16 30
16
Current liabilities:
Suppliers:
Indústria e Comércio de Cosméticos Natura Ltda. (f)
81,225
88,580
-
-
Natura Logística e Serviços Ltda. (g)
13,104
10,854
-
-
Natura Inovação e Tecnologia de Produtos Ltda. (h)
12,016 8,636 -
-
106,345 108,070 -
-
Dividends payable:
Shareholders
112,155 142 112,155
142
Transactions with related parties are summarized as follows:
Product sales
Product purchases
06/2006 06/2005 06/2006 06/2005
Natura Cosméticos S.A.
-
- 597,578 484,962
Indústria e Comércio de Cosméticos Natura Ltda.
618,000 499,098
Natura Cosméticos S.A. - Argentina
-
-
8,782
5,665
Natura Cosméticos S.A. - Peru
-
-
5,940
4,293
Natura Cosméticos S.A. - Chile
-
-
3,290
3,315
Natura Cosméticos S.A. - México
-
-
1,876
103
Natura Europa SAS
-
-
149
502
Natura Inovação e Tecnologia de Produtos Ltda.
- - 385 258
618,000 499,098 618,000 499,098
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Natura Cosméticos S.A.
16
Product sales
Product purchases
06/2006 06/2005 06/2006 06/2005
Administrative structure: (i)
Natura Logística e Serviços Ltda.
112,525 86,909
-
-
Natura Cosméticos S.A.
-
-
79,368
63,303
Indústria e Comércio de Cosméticos Natura Ltda.
-
-
23,618
16,608
Natura Inovação e Tecnologia de Produtos Ltda.
- - 9,539 6,998
112,525 86,909 112,525 86,909
Product and technology research and development: (j)
Natura Inovação e Tecnologia de Produtos Ltda.
66,992 55,157
-
-
Natura Cosméticos S.A.
- - 66,992 55,157
66,992 55,157 66,992 55,157
Lease of properties and common charges: (k)
Indústria e Comércio de Cosméticos Natura Ltda.
2,794
2,794 -
-
Natura Logística e Serviços Ltda.
-
-
1,619
1,619
Natura Inovação e Tecnologia de Produtos Ltda.
-
-
651
651
Natura Cosméticos S.A.
- -
524
524
2,794 2,794 2,794 2,794
Total service sales and purchases
800,311 643,958 800,311 643,958
(a)
Refers to advances granted for provision of logistics and general administrative services.
(b)
Refers to advances granted for provision of product and technology development and
market research services.
(c)
Amount receivable due to the capital reduction made on January 30, 2004, approved by the
shareholders' meeting held on the same date.
(d)
Cash contributions to Nova Flora Participações Ltda. mainly for maintenance of working
capital.
(e)
On September 29, 2000, April 30, 2002, December 30, 2002 and January 5, 2004, under a
stock purchase and sale agreement, a financing in the total amount of R$6,174 was made to
two directors of the Company, with interest rate of 3% per year and maturities between
April 30, 2009 and September 30, 2010. This financing was granted to the directors in order
for them to acquire common shares in Natura Empreendimentos S.A. and Natura
Participações S.A. In the corporate restructuring completed in March 2004, these shares
were exchanged for common shares issued by Natura Cosméticos S.A. The financing, in the
amount of R$341 as of June 30, 2006 (R$383 as of March 31, 2006), is amortized with
dividends and interest on capital paid by the Company to those directors, based on the
shares acquired by them and which are restricted.
(f)
Payables for the purchase of products. Prices and terms are within normal market
conditions.
(g)
Payables for services described in item (i).
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Natura Cosméticos S.A.
17
(h)
Payables for services described in item (j).
(i)
Logistics and general administrative services.
(j)
Product and technology development and market research services.
(k)
Rental of part of the industrial complex located in Cajamar and buildings located in the
municipality of Itapecerica da Serra.
The main intercompany balances as of June 30, 2006 and March 31, 2006, as well as the
intercompany transactions that affected the results for the period ended as of June 30, 2006
and 2005, refer to transactions between the Company and its subsidiaries, which were
substantially carried out under usual market conditions for each type of transaction.
11.
INVESTMENTS
Company
Consolidated
06/2006 03/2006 06/2006 03/2006
Investments in subsidiaries
556,329 537,964
-
-
Goodwill on acquisition of investment - Nova
Flora
-
-
8,015
8,015
Amortization of goodwill - Nova Flora
-
- (8,015) (8,015)
Goodwill on acquisition of investment - Natura
Europa
-
-
5,751
5,469
Other
- 8
-
8
556,329 537,972
5,751
5,477
The goodwill on the acquisition made by the subsidiary Nova Flora Participações Ltda. was
fully amortized in 2005, due to the low expectation of profitability from 2006 onwards.
Liabilities related to this subsidiary are properly reflected in the consolidated financial
statements.
The goodwill generated on the purchase of a commercial location where Natura Europa
SAS operates is supported by an appraisal report issued by independent appraisers,
attributable to the fact that it is an intangible, marketable asset, which does not suffer any
decrease in value over time. The balance variation between June 30, 2006 and March 31,
2006 is basically due to the effects of the exchange variation for the quarter.
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Natura Cosméticos S.A.
18
Investments in direct subsidiaries are as follows:
Indústria e
Comércio de
Cosméticos
Natura
Ltda.
Natura
Cosmético
S.A. -
Chile
Natura
Cosméticos
S.A. - Peru
Natura
Cosméticos
S.A. -
Argentina
Natura
Cosméticos
C.A. -
Venezuela
Nova Flora
Participações
Ltda.
Natura
Inovação e
Tecnologia
de Produtos
Ltda.
Natura
Europa
SAS
Natura
Cosméticos
S.A. - México
Natura Brasil
Cosmética
Ltda. - Portugal
Total
Shares of subsidiaries
432,500
47,728
2,254
8,881
2,216
2,413
5,008
38,144
20,624
111
Number of shares (common shares) held
432,457
47,723
2,253
8,865
2,216
2,413
5,007
38,144
20,622
109
Ownership interest - %
99.99%
99.99%
99.94%
99.82%
99.99%
100.00%
99.99%
100.00%
99.99%
98.00%
Capital
432,500
47,728
2,254
8,881
2,216
2,413
5,008
38,144
20,624
111
559,879
Shareholders' equity of subsidiaries
500,014
1,732
1,529
4,186
979
(5,207)
28,803
12,392
6,683
23
551,134
Share in shareholders' equity
500,014
1,732
1,528
4,178
979
(5,207)
28,801
12,392
6,682
23
551,122
Net income (loss) of subsidiaries, net of
exchange variation on translation of
foreign investments
16,173
(479)
508
(912)
(563)
(25)
3,755
(4,369)
(2,913)
(1)
11,174
Book value of Company's investment:
Balances as of March 31, 2006
483,842
2,299
1,196
5,481
605
-
25,046
13,725
5,747
23
537,964
Equity in subsidiaries
16,038
(479)
508
(910)
(563)
(25)
3,755
(4,369)
(2,913)
(1)
11,041
Changes in ownership interest in
affiliates
134
-
-
(134)
-
-
-
-
-
-
-
Exchange variation and other
adjustments on translation of foreign
investments
-
(333)
(176)
(259)
(30)
-
-
662
(530)
1
(665)
Recognition (reversal) of provision for
losses
-
-
-
-
-
25
-
-
-
-
25
Capital increase
-
245
-
-
967
-
-
2,374
4,378
-
7,964
Balances as of June 30, 2006
500,014
1,732
1,528
4,178
979
-
28,801
12,392
6,682
23
556,329
Provision for losses:
Balances as of March 31, 2006
-
-
-
-
-
(5,182)
-
-
-
-
(5,182)
(Recognition) reversal of provision for
losses
-
-
-
-
-
(25)
-
-
-
-
(25)
Balances as of June 30, 2006
-
-
-
-
-
(5,207)
-
-
-
-
(5,207)
Net balances as of June 30, 2006
500,014
1,732
1,528
4,178
979
(5,207)
28,801
12,392
6,682
23
551,122
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Natura Cosméticos S.A.
19
12.
PROPERTY, PLANT AND EQUIPMENT
Company
Annual
06/2006 03/2006
depreciation
Accumulated Net book
Accumulated Net book
rate - % Cost depreciation value
Cost depreciation value
Vehicles
20
19,913
7,862
12,051 16,656
6,820
9,836
Software
20
5,875
2,413
3,462
5,293
2,158
3,135
IT equipment
20
4,204
2,581
1,623
3,961
2,462
1,499
Furniture and fixtures
10
2,420
1,543
877
2,391
1,498
893
Machinery and equipment
10
1,099
248
851
1,097
221
876
Leasehold improvements
20 to 33
1,039
209
830
987
194
793
Advances to suppliers
-
610
-
610
-
-
-
Construction in progress
-
240
-
240 12
-
12
35,400
14,856
20,544 30,397
13,353
17,044
Consolidated
Annual
06/2006 03/2006
depreciation
Accumulated Net book
Accumulated Net book
rate - % Cost depreciation value
Cost depreciation value
Buildings
4
144,144
27,438 116,706 144,144
26,020 118,124
Machinery and equipment
10
149,978
49,845 100,133 143,881
46,476
97,405
Installations
10
69,228
29,086
40,142 67,369
27,380
39,989
Vehicles
20
29,143
10,431
18,712 25,003
9,184
15,819
Software
20
27,127
11,048
16,079 25,965
9,793
16,172
Molds
33
42,846
26,854
15,992 40,352
24,795
15,557
Land
-
15,910
-
15,910 15,910
-
15,910
IT equipment
20
31,658
17,006
14,652 29,048
15,784
13,264
Furniture and fixtures
10
14,926
5,513
9,413 13,761
5,230
8,531
Leasehold improvements
20 to 33
5,219
343
4,876
745
212
533
Advances to suppliers
-
19,528
-
19,528 18,453
-
18,453
Construction in progress
-
23,038
-
23,038 14,166
-
14,166
Other
10
6,058
2,930 3,128 5,964
2,869 3,095
578,803
180,494 398,309 544,761
167,743 377,018
13.
DEFERRED CHARGES
On March 5, 2004, Natura Participações S.A. was merged into the Company. Natura
Participações S.A. had recorded goodwill on the investment in Natura Empreendimentos
S.A., amounting to R$1,028,041, and a corresponding provision for maintenance of future
dividend payment capacity in the same amount. This goodwill arose from the merger of the
shares of Natura Empreendimentos S.A. into Natura Participações S.A. on December 27,
2000. This merger was approved by the Extraordinary Shareholders' Meeting held on that
date, and the amounts are supported by a valuation report issued by independent experts.
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Natura Cosméticos S.A.
20
The amounts are as follows
:
Company
06/2006
03/3006
Goodwill on investments
685,360 722,076
Provision for maintenance of future dividend payment capacity
(685,360) (722,076)
- -
The provision for maintenance of future dividend payment capacity, as it is in the full
amount, will result in the recognition of the goodwill amortization tax benefits for all of the
Company's shareholders. The goodwill amount is being amortized over a seven-year period.
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Natura Cosméticos S.A.
21
14.
LOANS AND FINANCING
Company Consolidated
Type
06/2006
03/2006
06/2006
03/2006
Maturity
Charges
Guarantees
BNDES - PROGEREN (Support
Program for Enhancing Employment
and Income Capacity)
74,032
72,098
74,032
72,098
June 2007
Interest of 3.5% p.y. + TJLP (long-
-term interest rate)
Bank guarantee.
BNDES (Brazilian Bank for Economic
and Social Development)
13,605
16,349
27,885
31,518 October 2007 and
April 2010
Interest of 4.0% p.y. and 4.5% p.y. +
UMBNDES (*) or TJLP (long-term
interest rate)
Mortgage (**) and guarantee of
Indústria e Comércio de
Cosméticos Natura Ltda.
FINEP (Financing Agency for Studies
and Projects)
-
-
27,029
30,505
December 2008
Interest of 3.0% p.y. + TJLP
Guarantee, promissory notes and
receivables of Natura Cosméticos
S.A.
FINEP II (Financing Agency for
Studies and Projects)
-
-
5,219
-
March 2013
TJLP (long-term interest rate)
Guarantee of Natura Cosméticos
S.A. and bank guarantee.
BNDES - FINAME (Government
Agency for Machinery and
Equipment Financing)
-
-
14,329
13,407
July 2006 to
March 2011
Interest of 4.5% p.y. + TJLP
Chattel mortgage and guarantee of
Natura Cosméticos S.A. and
promissory notes.
Resolution No. 2,770 and overdraft
account
-
-
4,198
9,523
July 2006
Interest between 106.5% and 115% of
CDI
Promissory notes and guarantee of
Natura Cosméticos S.A.
NCE (Export Credit Note)
-
-
34,218
32,981
April 2008
Interest of 104.7% of CDI
Promissory notes and guarantee of
Natura Cosméticos S.A.
Total
87,637
88,447
186,910
190,032
Current
85,362
66,637
108,028
94,871
Long term
2,275
21,810
78,882
95,161
(*)
UMBNDES - BNDES monetary unit
.
(**) Financing in local currency from the BNDES is guaranteed mainly by the Cajamar unit.
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Natura Cosméticos S.A.
22
Maturities of long-term debt are as follows:
Consolidated
06/2006 03/2006
2007
11,446
35,351
2008
52,553
50,929
2009
8,092
6,679
2010
3,882
2,202
2011
1,319
-
2012
1,272
-
2013
318 -
78,882
95,161
15.
TAXES PAYABLE
Company
Consolidated
06/2006 03/2006 06/2006 03/2006
ICMS (state VAT)
48,983
48,010
48,988
48,018
IRPJ (corporate income tax)
5,127
7,022
7,177
8,993
COFINS (tax on revenue)
215
193
3,730
3,119
IRRF (withholding income tax)
2,024
4,138
3,881
9,769
CSLL (social contribution tax)
1,916
3,505
2,482
4,029
PIS/COFINS/CSLL (Law No. 10,833/03)
1,385
1,041
1,942
1,495
IVA - value-added tax (foreign operations)
-
-
1,411
1,303
IPI (tax on revenue)
-
-
1,108
489
PIS (tax on revenue)
44
42
785
656
ISS (tax on service)
52
41
765
568
Other
-
-
1,151
403
59,746
63,992
73,420
78,842
16.
RESERVE FOR CONTINGENCIES
The Company and its subsidiaries are parties to certain tax, labor and civil lawsuits and to
tax proceedings at the administrative level. Based on the opinion and judgments of its
internal and external attorneys, management believes that the reserve for contingencies is
sufficient to cover probable losses.
The balances of contingencies are as follows:
Company
Consolidated
06/2006 03/2006 06/2006 03/2006
Tax
48,011
47,188
84,715
77,849
Labor
4,774
4,473
6,289
5,945
Civil
4,675
4,294 9,338
8,964
57,460
55,955 100,342
92,758
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Natura Cosméticos S.A.
23
Tax contingencies
Accrued tax contingencies are comprised of the following proceedings:
Company
Consolidated
06/2006 03/2006 06/2006 03/2006
IPI - zero rate (a)
-
-
22,130
16,387
PIS (tax on revenue) - semiannual - Decree-laws
No. 2,445/88 and No. 2,449/88 (b)
13,555
13,179
15,178
14,759
Late payment fines on federal taxes paid in
arrears (c)
5,280
5,117
6,278
6,085
Deductibility of CSLL (social contribution tax)
(Law No. 9316/96) (d)
6,140
6,030
6,140
6,030
Tax assessment - INSS (social security
contribution) (e)
5,200
5,076
5,200
5,076
Monetary restatement of federal taxes
(IRPJ/CSLL/ILL) according to the UFIR (fiscal
reference unit) (f)

4,877
4,853

5,002
4,978
IPI tax assessment - attorneys' fees (g)
-
-
4,550
4,532
IPI credit on purchases of fixed assets and
consumption material (h)
-
-
4,557
4,450
IPI (federal VAT) - tax collection lawsuit (i)
3,975
3,882
3,976
3,882
Assessment notice - 1990 corporate income tax
(j)
2,577
2,518
2,577
2,518
Attorneys' fees and other
6,407
6,533
9,127
9,152
48,011
47,188
84,715
77,849
(a) Refers to IPI tax credits on raw materials and packing materials purchased at a zero tax
rate and with tax exemption. The Company filed for a mandate and was granted an
injunction for the right to the credit.
(b)
Refers to the offset of PIS paid as per Decree-laws No. 2,445/88 and No. 2,449/88, in
the period from 1988 to 1995, against federal taxes due in 2003 and 2004. The appeal
filed by the Company was judged favorably to it on September 12, 2005 by the 1
st
Panel
of the 2
nd
Board of Tax Appeals that, by a majority of the votes, denied the alleged
lapsing of the offset right and unanimously recognized the unconstitutionality of the
Decree-laws determining that the calculation basis should be the billing of the sixth
month prior to the occurrence of the taxable event, without monetary restatement. The
publication and notification of the decision occurred. The Federal Revenue Service filed
a special appeal, which is pending judgment at the Superior Chamber of Tax Appeals.
(c)
Refers to the levy of a late payment fine on the payment of federal taxes in arrears,
whose expectation of loss, according to the opinion of the attorneys, was changed to
probable, due to a recent decision by the Superior Court of Justice.
(d)
Refers to CSLL (social contribution tax) that was addressed by a mandate that questions
the constitutionality of Law No. 9,316/96, which prohibited the deduction of CSLL
from its own tax basis and the IRPJ (corporate income tax) basis. A portion of this
contingency, in the amount of R$4,032 (R$3,914 as of March 31, 2006), is deposited in
escrow.
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Natura Cosméticos S.A.
24
(e)
Refers to INSS (social security contribution) required by tax assessments issued by the
National Institute of Social Security as a result of an inspection. The Company, as a
taxpayer having joint liability for tax payment, is required to pay INSS on services
provided by third parties. The amounts are discussed in court through a tax debt
annulment action and are deposited in escrow.
(f)
Refers to the monetary restatement of federal taxes (IRPJ/CSLL/ILL) related to 1991
based on the UFIR (fiscal reference unit), discussed in a mandate. An escrow deposit
has been made for the amount involved in this contingency.
(g)
Refers to attorneys' fees for the defense in the tax assessment notice issued in
November 2005 by the Federal Revenue Service, relating to the tax basis of the IPI
(federal VAT) on intercompany transactions. The attorneys are of the opinion that the
likelihood of loss is remote.
(h)
The subsidiary Indústria e Comércio de Cosméticos Natura Ltda. is discussing through
injunctions the right to the IPI (federal VAT) credit on purchases of fixed assets and
consumption materials. In view of Federal Regional Courts' former decisions, the
attorneys believe that the risk of loss changed to probable.
(i)
Refers to a tax collection lawsuit seeking to collect the IPI (federal VAT) related to July
1989, when wholesale establishments began to be considered equivalent to industrial
establishments under Law No. 7,798/89. The lawsuit is in the Federal Regional Court of
3
rd
Region (SP) for judgment of the appeal filed by the debtor. The amounts involved in
this tax collection lawsuit are guaranteed by an affiliate's cash investment in the
updated amount of R$4,061 (R$4,128 as of March 31, 2006).
(j)
Refers to a tax assessment notice issued by the Federal Revenue Service requiring the
payment of income tax on profit from incentive-based exports made in base year 1989,
at the rate of 18% (Law No. 7,988, of December 29, 1989) and not 3%, as established
by article 1 of Decree-law No. 2,413/88, which supported the Company in its tax
payments at that time.
Labor contingencies
As of June 30, 2006, the Company and its subsidiaries are parties to 255 labor lawsuits filed
by former employees and third parties (307 as of March 31, 2006), claiming the payment of
severance amounts, salary premiums, overtime and other amounts due, as a result of joint
liability.
Civil contingencies
Accrued civil contingencies are comprised of the following lawsuits:
Company
Consolidated
06/2006 03/2006 06/2006 03/2006
Several civil lawsuits (a)
2,396
2,031
2,552
2,256
Civil lawsuits and attorney's fees - Flora
Medicinal (b)
2,279
2,263
6,786
6,708
4,675
4,294
9,338
8,964
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Natura Cosméticos S.A.
25
(a)
As of June 30, 2006, the Company and its subsidiaries are parties to 913 lawsuits (824
as of March 31, 2006), at the civil court, special civil court and PROCON (Consumer
Protection Agency), filed by beauty consultants, consumers, suppliers and former
employees, mostly related to indemnity claims
(b)
The Company is a party to civil lawsuits filed by a former shareholder of the indirect
subsidiary Flora Medicinal, which seek the determination of any amounts and the
satisfaction of alleged liabilities due to the former shareholder's withdrawal. With the
end of the expert investigation phase in four of the five civil lawsuits, it was possible to
determine the amounts involved, although no decision, even by the lower court, has
been issued.
Escrow deposits
Escrow deposits, which represent the Company's restricted assets, refer to amounts
deposited in court until litigation is resolved. The balance of these deposits as of June 30,
2006 was R$31,576 (R$30,295 as of March 31, 2006) - consolidated, and is classified under
the heading "Escrow deposits", in long-term assets.
Possible losses
The Company and its subsidiaries are parties to tax, civil and labor lawsuits, for which the
risk of loss is considered possible by management and its attorneys. These lawsuits, for
which the Company did not record any reserve, are as follows:
Company
Consolidated
06/2006 03/2006 06/2006 03/2006
Tax:
INSS debt annulment action (a)
4,996
4,877
4,996
4,877
Offset of 1/3 of COFINS - Law No. 9,718/98
(b)
4,078
3,997
4,078
3,997
Tax assessment - transfer pricing on loan
agreements with foreign related company (c)
1,295
1,269
1,295
1,269
Other
1,118
1,098
1,305
1,283
11,487
11,241
11,674
11,426
Civil
3,783
3,167
13,951
13,712
Labor
8,579
6,340
11,525
8,898
23,849
20,748
37,150
34,036
(a) Lawsuit filed by the Company seeking the annulment of the tax demanded by the INSS
through a tax assessment notice issued for purposes of collecting the social security
contribution on the allowance for vehicle maintenance paid to sales promoters.
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Natura Cosméticos S.A.
26
(b) Law No. 9,718/98 increased the COFINS (tax on revenue) rate from 2% to 3%, and
allowed this 1% difference to be offset in 1999 against the social contribution tax paid
in the same year. However, in 1999 the Company and its subsidiaries filed for a
mandate and obtained authorization to suspend the payment of the tax credit (1% rate
difference) and to pay COFINS based on Supplementary Law No. 70/91, prevailing at
that time. In December 2000, considering former unfavorable court decisions, the
Company and its subsidiaries waived the lawsuit and enrolled in the tax debt
refinancing program (REFIS), for payment in installments of the debt related to the
COFINS not paid in the period. With the payment of the tax, the Company and its
subsidiaries gained the right to offset 1% of COFINS against social contribution tax,
which was made in the first half of 2001. However, the Federal Revenue Service
understands that the period for offset was restricted to base year 1999. This lawsuit is
awaiting ruling at the lower administrative court.
(c)
Refers to a tax assessment notice whereby the Federal Revenue Service is demanding
the payment of IRPJ and CSLL on the difference of interest on loan agreements with a
foreign related party. On July 12, 2004, an administrative defense was filed and is still
being judged.
17.
SHAREHOLDERS' EQUITY
a)
Capital social
On March 29, 2006, the Shareholders, at the Extraordinary Shareholders' Meeting,
approved the split of common shares, without par value, issued by the Company, in the
proportion of 5 shares after the split for each existing share. The purpose of this stock
split was to adjust the Company's share price to increase individual investor access to
the securities market, diversify the shareholder composition and increase liquidity of the
Company's shares.
Due to this stock split, the subscribed and paid-up capital represented by 85,438,611
common shares without par value as of December 31, 2005 increased to 427,193,055
common shares without par value as of March 31, 2006. Likewise, the balance of
authorized capital represented by 2,823,414 common shares as of December 31, 2005
increased to 14,117,070 common shares as of March 31, 2006.
According to a resolution of the Board of Directors in a meeting held on February 21,
2006 for exercise of options granted to management and employees of the Company and
its direct and indirect subsidiaries, which have adhered to the "Amendment to the stock
option plan for purchase or subscription of common shares related to calendar year
2003", in May and June 2006, 477,377 common shares were subscribed, of the
1,702,250 common shares issued, with average price of R$3.09. Accordingly, the
number of common shares subscribed and paid up was changed from 427,193,055 as of
March 31, 2006 to 427,670,432 as of June 30, 2006, and the authorized capital was
changed from 14,117,070 common shares to 13,639,693 common shares on the same
date.
As of June 30, 2006, the Company's capital is R$232,237 (R$ 230,762 as of March 31,
2006).
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Natura Cosméticos S.A.
27
b)
Receivables from shareholders
In 2004, the amount of R$3,029 was reclassified from the heading "Receivables from
shareholders" to the heading "Treasury shares" until it is paid up. Details are disclosed
in Note 10.e.
c)
Dividend payment policy
The shareholders are entitled to receive every year a mandatory minimum dividend of
30% of net income, considering principally the following adjustments:
·
Increase in the amounts resulting from the reversal, in the year, of previously
recognized reserves for contingencies.
·
Decrease in the amounts intended for the recognition, in the year, of the legal reserve
and reserve for contingencies.
On March 30, 2006, the Company paid dividends and interest on capital in the total
amount of R$194,803 and R$17,699, respectively, related to the remaining balances of
2005, as approved in the Annual Shareholders' Meeting held on March 29, 2006.
The bylaws allow the Company to prepare semiannual and interim balance sheets and,
based on these balance sheets, authorize the payment of dividends upon approval by the
Board of Directors.
Interim dividends were calculated as follows:
Company
06/2006 06/2005
Net income
211,170 157,620
Profit reserve - legal (to be recorded at the end of the year)
(10,559) (7,881)
Calculation basis for mandatory minimum annual dividend
200,611 149,739
Mandatory minimum annual dividend
30%
30%
Minimum annual dividend
60,183
44,922
Proposed interim dividends
112,110
90,434
Interest on capital, net of withholding income tax -interim
-
11,389
Withholding income tax - interest on capital
-
1,994
Total dividends and interest on capital
112,110 103,817
Amount exceeding the mandatory minimum annual dividend
51,927
58,895
Dividends per share - R$
0.263
0.213
Interest on capital per share - R$
-
0.031
Dividends and interest on capital per share - gross related to June 2005 are adjusted
according to the stock split occurred on March 29, 2006.
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Natura Cosméticos S.A.
28
d)
Treasury shares
As of June 30, 2006, common shares in treasury, after the stock split, as described in
item a) above, which have been used in the exercise of options in the Stock Option
Programs for purchase or subscription of shares, totaled 1,480,850 (1,980,065 as of
March 31, 2006), at a unit average cost of R$0.3535 (R$0.3501 as of March 31, 2006).
e)
Share premium
Refers to the goodwill generated on the issuance of 3,299 common shares resulting from
the capitalization of debentures in the amount of R$100,000, held on March 2, 2004.
f)
Profit reserve - legal
Since the balance of the legal reserve plus capital reserves exceeded 30% of the capital,
the Company decided, in accordance with article 193 of corporate law, not to recognize
a legal reserve on net income for 2005.
g)
Reserve for profit retention
As of December 31, 2005, this reserve was recorded in accordance with article 196 of
Law No. 6,404/76 for future investments, in the amo unt of R$77,915, in the Company.
The withholding referring to 2005 is based on a capital budget, which was approved in
the Annual Shareholders' Meeting held on March 29, 2006.
18.
STOCK OPTION PROGRAM
The Board of Directors meets once a year for the purpose of, pursuant to the terms of the
Program, establishing the Plan, indicating the directors and managers who will receive the
options and the total amount to be paid.
The Plans for 2002, 2003, 2004, 2005 and 2006 have a four-year time span for exercising
the options, and the exercise rights are 50% at the end of the third year and 50% at the end
of the fourth year. The deadline for exercising options was two years after the end of the
fourth year.
The balance of options as of June 30, 2006 is 8,161,983 (9.172.971 as of March 31, 2006)
and is composed by plan as follows:
Number of
call options or
subscription
(in shares)
Amount for
the year updated
according to the
IPCA through
June 30, 2006 - R$
2002
1,418,545
5.51
2003
2,927,118
3.09
2004
1,647,165
7.60
2005
1,032,455
16.31
2006
1,136,700
24.30
8,161,983
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Natura Cosméticos S.A.
29
As of June 30, 2006, had the Company's management opted to record the effects of the
plans based on the intrinsic value of the options (difference between market price as of June
30, 2006 and the option value updated according to the IPCA) recorded over their related
vesting period, the pro forma consolidated net income for the semester ended June 30, 2006
would have been R$206,287 (R$168,828 as of June 30, 2005), as shown below:
Consolidated
06/2006 06/2005
Net income for the period - Company
210,905 157,552
Effect of programs considering vesting period
(4,618) 11,276
Net income for the period - "pro forma"
206,287 168,828
The pro forma net income includes all estimated effects for the shareholders arising from
the probable exercise of the options.
As of June 30, 2006, the market price of the Company's shares, after the stock split, was
R$22,70 (R$20,59 as of December 31, 2005, already reflecting the effect of the stock split
occurred on March 29, 2006, to allow comparability between periods).
19.
PENSION PLAN
On August 1, 2004, the Company implemented a supplementary defined contribution plan
for all employees of the Company and its subsidiaries in Brazil. According to the terms of
this plan, the cost is shared between the employer and the employees, so that the Company's
share is equivalent to 60% of the employee's contribution according to a contribution scale
based on salary ranges from 1% to 5% of the employee's compensation. The plan is
managed by Brasilprev Seguros e Previdência S.A. and the Company's contributions for the
six-month period ended June 30, 2006 totaled R$1,648 (R$1,231 as of June 30, 2005).
20.
FINANCIAL INSTRUMENTS
a) General conditions
The Company and its subsidiaries enter into transactions involving financial instruments,
all recorded in balance sheet accounts, to meet their own needs, and reduce exposure to
market, currency, and interest rate risks. These risks and the respective financial
instruments are managed through the definition of strategies, establishment of control
systems, and determination of exchange exposure limits.
Cash investments are mainly made at negotiated rates of return, since the Company
intends to hold these investments to redemption. These investments reflect market
conditions at the balance sheet dates.
Loans and financing are recorded at the contractual interest rates of each transaction.
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Natura Cosméticos S.A.
30
b) Exchange risk
The Company has entered into swap and forward (only for March 2005) transactions to
hedge against exchange variation on its liabilities resulting from financing agreements
and operating activities. According to the Company's policy, swap transactions must be
contracted for all debts that may expose the Company to exchange risks. These
transactions consist of swaps between two variable rates: foreign currency and CDI
(interbank deposit rate).
As of June 30, 2006 and March 31, 2006, the Company had swap transactions with
financial institutions in the amounts of R$50,858 ("swaps" and "forwards") and R$3,656
("swaps"), respectively. The increase in the volume of transactions contracted between
March and June 2006 is due to the Company's decision to contract transactions for
coverage of equipment import, purchase of inputs linked to exchange variation, and
investments in foreign operations. These transactions resulted in a liability balance of
R$3,886 and R$2,824, respectively, recorded in consolidated current liabilities. The
exchange exposure is mainly indexed to the US dollar and euro.
The Company and its subsidiaries do not use derivative financial instruments for
speculation purposes.
c) Interest rate risk
The Company and its subsidiaries are exposed to fluctuations in the long-term interest
rate (TJLP) due to the financing agreements entered into with the BNDES and FINEP.
d) Fair values
The fair values of cash and banks, temporary cash investments, and accounts receivable
and payable approximate the carrying amounts due to the short-term maturity of these
financial instruments. The fair values of loans and financing substantially approximate
the carrying amounts since these financial instruments have variable interest rates.
Regarding the swap and forward transactions ("forward" only in June 2006) the carrying
and fair values are as follows:
Consolidated
06/2006
03/2006
Carrying
value
Fair
value
Carrying
value
Fair
value
Swap transactions
3,886
3,505
2,824
2,870
At the balance sheet dates the Company consults the financial market and updates the
fair value of financial instruments.
e) Credit risk
The Company's sales are made to a large number of beauty consultants. The Company
manages the credit risk through a strict credit granting process.
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Natura Cosméticos S.A.
31
21.
NET FINANCIAL INCOME
Company
Consolidated
06/2006 06/2005 06/2006 06/2005
Financial income
Interest on cash investments
15,305
12,101
21,088
16,561
Gains on monetary and exchange variations
1,837
2,212
2,520
7,861
Interest earned
45
99
525
728
Discounts obtained
1
4
42
54
Other financial income
700
652
1,571
1,227
17,888
15,068
25,746
26,431
Financial expenses
Interest on financing
(4,184)
(1,672)
(9,658)
(7,835)
Losses on monetary and exchange variations
(1,362)
(492)
(4,377)
(2,117)
Losses on swap and forward transactions
(962)
(274)
(2,265) (11,103)
Other financial expenses
(560)
(1,072)
(2,184) (2,402)
(7,068)
(3,510) (18,484) (23,457)
Total financial income, net
10,820
11,558
7,262
2,974
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Natura Cosméticos S.A.
32
22.
INSURANCE
The Company and its subsidiaries contract insurance based principally on risk concentration
and significance, at amounts considered by management to be sufficient, taking into
consideration the nature of its activities and the opinion of its insurance advisors. As of June
30, 2006, the insurance coverage was as follows:
Items
Coverage
Insured
amount
Industrial complex/inventories
Any material damages to buildings,
installations and machinery and equipment
578,397
Vehicles
Fire, theft and collision for 954 vehicles
32,782
Loss of profits
Nonrealizatio n of profits arising from
material damages to installations, buildings
and production machinery and equipment
604,241
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ATTACHMENT
(Convenience Translation into English from the Original Previously Issued in Portuguese)
NATURA COSMÉTICOS S.A.
STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED JUNE 30, 2006 AND 2005
(In thousands of Brazilian reais - R$)
06/2006
06/2005
06/2006
06/2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
211,170
157,620
210,905
157,552
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (Notes 12 and 13)
3,235
2,513
26,519
20,137
Monetary and exchange variations, net, except contingencies
7,772
1,248
8,981
(6,619)
Reserve for losses on swap and forward contracts (Notes 20.b and 20.d)
962
274
2,265
11,103
Reserve for contingencies (Note 16)
3,841
12,510
6,064
17,066
Allowance for inventory losses (Note 7)
197
-
576
(1,526)
Sundry accruals
-
187
-
1,137
Deferred income and social contribution taxes (Note 9.a)
(9,366)
(5,754)
(10,352)
(4,227)
Proceeds from sale and disposal of permanent assets
467
286
1,206
4,434
Equity in subsidiaries (Note 11)
(13,565)
(1,139)
-
-
Minority interest
-
-
1
-
204,713
167,745
246,165
199,057
(INCREASE) DECREASE IN ASSETS
Current assets:
Accounts receivable (Note 6)
29,833
7,484
28,975
8,131
Inventories (Note 7)
(314)
800
(32,681)
(45,172)
Other receivables
(7,380)
(4,892)
(2,788)
(373)
Long-term assets:
Escrow deposits (Note 16)
(297)
(395)
(559)
(1,488)
Recoverable taxes (Note 8)
(198)
(339)
(915)
(3,348)
Other receivables
115
(3,079)
44
800
Subtotal
21,759
(421)
(7,924)
(41,450)
INCREASE (DECREASE) IN LIABILITIES
Current liabilities:
Suppliers
(26,991)
(7,931)
(17,420)
15,720
Salaries, profit sharing and related charges, net
(776)
(3,040)
(1,944)
(8,536)
Taxes payable, net (Notes 8 and 15)
(15,850)
1,324
(19,707)
(12,670)
Other payables
(315)
1,149
2,417
2,505
Long-term liabilities:
Other payables
315
-
4,199
3,903
Subtotal
(43,617)
(8,498)
(32,455)
922
NET CASH PROVIDED BY OPERATING ACTIVITIES
182,855
158,826
205,786
158,529
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (Note 12)
(6,572)
(1,460)
(60,648)
(53,139)
Investments (Note 11)
(29,044)
(121,003)
-
-
NET CASH USED IN INVESTING ACTIVITIES
(35,616)
(122,463)
(60,648)
(53,139)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in short-term loans (Note 14)
(6,381)
(8,641)
(33,002)
(162,938)
Fundings - long-term loans (Note 14)
-
67,949
21,789
209,394
Payments of swap and forward contracts (Notes 20.b and 20.d)
(1,035)
(2,043)
(1,082)
(14,123)
Payment of dividends (Note 17.c)
(195,024)
(112,229)
(195,024)
(112,229)
Payment of interest on capital (Note 17.c)
(17,699)
(15,617)
(17,699)
(15,617)
Payment of capital
1,475
-
1,475
-
Other
1,523
-
1,523
-
Sale of treasury shares by exercise of stock options (Note 17.d)
4,007
1,233
4,007
1,233
Payment of receivables from shareholders (Note 17.b)
2,055
113
2,055
113
NET CASH USED IN FINANCING ACTIVITIES
(211,079)
(69,235)
(215,958)
(94,167)
NET (DECREASE) INCREASE IN CASH AND BANKS
(63,840)
(32,872)
(70,820)
11,223
Cash and banks at beginning of year
275,966
185,287
386,439
231,612
Cash and banks at end of year
212,126
152,415
315,619
242,835
CHANGE IN CASH AND BANKS
(63,840)
(32,872)
(70,820)
11,223
SUPPLEMENTARY CASH FLOW DISCLOSURE
Income and social contribution taxes paid (Note 9)
59,988
36,545
72,143
36,549
Interest paid on loans and financing (Note 14)
828
1,390
3,758
3,263
Consolidated
Company
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1

São Paulo, Brazil, June 26, 2006. Natura Cosméticos S.A. (São Paulo Stock Exchange - Bovespa: NATU3)
announces today its results for the second quarter 2006 (2Q06). The financial and operating information
included in this report, except where otherwise indicated, is presented on a consolidated basis, according to
the Brazilian Corporate Law.
>
FINANCIAL SUMMARY - CONSOLIDATED
2Q06
2Q05
Units sold ­ items for resale
(in millions) - Brazil
1
57.5
48.7
18.1%
Gross Revenues
980.8
793.2
23.7%
Net Revenues
696.4
557.5
24.9%
Gross Profit
473.0
383.2
23.4%
Gross Margin (%)
67.9%
68.7%
-
Ebitda
2
180.4
128.7
40.2%
Ebitda Margin (%)
25.9%
23.1%
-
Net Income
129.3
87.9
47.1%
Net Margin (%)
18.6%
15.8%
-
Total consultants in Brazil
3
(in thousands)
525.2
454.0
15.7%
Total consultants in Latin America
42.1
29.9
40.7%
>
Financial Summary ­ Consolidated (R$ million)
3
(in thousands)
4
1H05
94.4
1,404.2
984.9
665.3
67.6%
223.8
22.7%
157.6
16.0%
1H06
108.3
1,703.5
1,208.2
825.3
68.3%
293.7
24.3%
210.9
17.5%
14.8%
21.3%
22.7%
24.0%
-
31.2%
-
33.9%
-
525.2
454.0
15.7%
42.1
29.9
40.7%
%
Change
%
Change
2Q06
2Q05
Units sold ­ items for resale
(in millions) - Brazil
1
57.5
48.7
18.1%
Gross Revenues
980.8
793.2
23.7%
Net Revenues
696.4
557.5
24.9%
Gross Profit
473.0
383.2
23.4%
Gross Margin (%)
67.9%
68.7%
-
Ebitda
2
180.4
128.7
40.2%
Ebitda Margin (%)
25.9%
23.1%
-
Net Income
129.3
87.9
47.1%
Net Margin (%)
18.6%
15.8%
-
Total consultants in Brazil
3
(in thousands)
525.2
454.0
15.7%
Total consultants in Latin America
42.1
29.9
40.7%
>
Financial Summary ­ Consolidated (R$ million)
3
(in thousands)
4
1H05
94.4
1,404.2
984.9
665.3
67.6%
223.8
22.7%
157.6
16.0%
1H06
108.3
1,703.5
1,208.2
825.3
68.3%
293.7
24.3%
210.9
17.5%
14.8%
21.3%
22.7%
24.0%
-
31.2%
-
33.9%
-
525.2
454.0
15.7%
42.1
29.9
40.7%
%
Change
%
Change
(1) Total consolidated number of Cosmetics, Fragrances and Toiletries products resold by consultants. Therefore, units sold exclude samples, gifts, resale
support material, Crer para Ver products, among others.
(2) EBITDA = income from operations before financial effects + non-operating income + depreciation and amortization.
(3) Position at the end of the period of the 9
th
sales cycle.
(4) Argentina, Chile and Peru.
2Q06 Earnings Release
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2
>
COSMETICS, FRAGRANCE AND TOILETRIES (CF&T) SECTOR IN BRAZIL -
NATURA'S TARGET MARKET FIGURES (1
st
four months 06 X 1
st
four months 05)

Based on available information for the period from January to April 2006, the nominal growth of the sector
was 11.0%, according to information of Sipatesp/Abhipec
1
. In real terms, excluding the 5.5% IPCA
(Amplified Consumer Price Index) for the period, the growth reached 5.2%.

The table below shows the breakdown of the target market
2
in two segments: Cosmetics and Fragrances, and
Toiletries in one side, and Natura's market share in these segments in the other side.
Target Market (R$ million)
Natura's Market Share (%)
1
st
four
months 06
Cosmetics & Fragrances
1,124
1,318
17.3%
36.8%
38.8%
2.0
Personal Hygiene
1,756
1,878
6.9%
10.3%
11.1%
0.8
Total
2,881
3,196
11.0%
20.6%
22.5%
1.9
>
CF&T Target Market Net Revenues Breakdown and Natura's Market Share in Brazil
Source: Sipatesp/Abhipec
%
growth
% points
percentage
1
st
four
months 05
1
st
four
months 06
1
st
four
months 05
Target Market (R$ million)
Natura's Market Share (%)
1
st
four
months 06
Cosmetics & Fragrances
1,124
1,318
17.3%
36.8%
38.8%
2.0
Personal Hygiene
1,756
1,878
6.9%
10.3%
11.1%
0.8
Total
2,881
3,196
11.0%
20.6%
22.5%
1.9
>
CF&T Target Market Net Revenues Breakdown and Natura's Market Share in Brazil
Source: Sipatesp/Abhipec
%
growth
% points
percentage
1
st
four
months 05
1
st
four
months 06
1
st
four
months 05

Natura increased its market share in the target market in 1.9 p.p., from 20.6% in the first four months of 2005
to 22.5% in the first four months of 2006.
(1) Sipatesp/Abhipec ­ Brazilian Association of the Cosmetic, Toiletry & Fragrance Industry
(2) Target Market ­ Cosmetics and Fragrances (Skincare, Make up, Fragrances and Sun Protection) and Toiletries (Soaps, Hair care, Deodorants
and Shaving products)
>
CONSOLIDATED GROSS REVENUES

Natura's 2Q06 gross revenues were R$980.8 million, up 23.7% over the same period 2005 (R$793.2
million). This growth was driven by the successful launchings of products, good promotional campaigns and
good results provided by the sale of commemorative sets (Mother's Day and Valentine's Day).

By the end of 2Q06, the number of consultants in Brazil reached 525.5 thousand, a growth of 15.7% over the
same period of previous year. Considering active consultants, the average growth was 17.3% over the same
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3
period. Brazilian productivity per active consultant in 2Q06 reached R$3,259.00
(1)
, a 5.6% growth compared
to 2Q05.

This quarter, the former sales catalogue ­ Vitrine ­ was replace by Revista Natura, a magazine -catalogue
aligned with the strategic objective to work not only as an efficient instrument of sales support, but also as a
brand builder element. This shift, which was firstly implemented in Brazilian operations, is now being
replicated in Latin American operations.

1H06 consolidated gross revenues were R$1,703.5 million, recording a growth of 21.3% when compared to
the same period of 2005 (1H05: R$1,404.2 million).
(1) Estimated end-price sale per consultant.
>
COST & EXPENSES

Cost of goods sold (COGS)
­ COGS went from 31.3% of the net revenue in 2Q05 to 32.1% in 2Q06. The
main drivers that contributed to such increase were: (i) larger participation of promotional sets in sales; and
(ii) the intensification of promotional efforts of sales in 2Q06. These increases were partially offset by the
favorable effect of the Real appreciation in the cost of materials occurred in the quarters under comparison.
Item
2Q06
2Q05
RM/PM*
25.5
25.0
Labor
2.6
2.4
Depreciation
1.1
1.0
Others
2.9
2.9
Total
32.1
31.3
>
Composition of Cost of Sales (% Net Revenues)
* Raw material and packaging material
1H06
1H05
24.7
25.7
2.9
2.6
1.3
1.1
2.9
3.1
31.7
32.4
Item
2Q06
2Q05
RM/PM*
25.5
25.0
Labor
2.6
2.4
Depreciation
1.1
1.0
Others
2.9
2.9
Total
32.1
31.3
>
Composition of Cost of Sales (% Net Revenues)
* Raw material and packaging material
1H06
1H05
24.7
25.7
2.9
2.6
1.3
1.1
2.9
3.1
31.7
32.4

In 1H06, on the other hand, COGS declined from 32.4% in 1H05 to 31.7%. This decrease was driven by the
stability in the prices of materials in 1H06 compared to 1H05, due to the Real appreciation over the USD
between the periods.
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4
Selling expenses, which represented 31.4% of net revenue in 2Q05, decreased to 30.3% in 2Q06. This
decrease was primarily driven by the adjustment of the logistics process related to services provided to
consultants (order, picking and order delivery).

In spite of the decrease in 2Q06, when analyzing 1H06, selling expenses remained virtually stable. In sum,
the gains of efficiency in the logistics process were offset by the increase in expenses related to
communication and relationship with the sales channel occurred in 1Q06.

Administrative expenses declined from 15.1% in 2Q05 to 13.2% in 2Q06. This decrease was due to the
smaller impact of expenses with provisions. In the first half, these factors offset the increase in expenses with
IT, as previously informed, making administrative expenses remain virtually stable (14.4% in 1H06 and
14.2% in 1H05).
>
EBITDA AND NET INCOME

2Q06 EBITDA amounted to R$180.4 million, up 40.2% compared to 2Q05 (R$128.7 million). EBITDA
margin climbed from 23.1% to 25.9% in 2Q06. In the first half 2006, EBITDA amounted to R$293.7 million,
up 31.2% compared to 1H05 (R$223.8 million). EBITDA margin increased from 22.7% in 1H05 to 24.3% in
1H06.

2Q06 net income posted a 47.1% growth, from R$87.9 million in 2Q05 to R$129.3 million in 2Q06. Net
margin also increased, from 15.8% in 2Q05 to 18.6% in 2Q06. In 1H06, net income amounted to R$210.9
million, up 33.9% over the same period last year. Net margin grew from 16.0% in 1H05 to 17.5% in 1H06.
>
CAPEX

1H06 capital expenditures (CAPEX) totaled R$60.6 million, led by machine purchases aiming at increasing
the Company's manufacturing capacity. Total investments estimated for 2006 increased from R$180 million
to R$210 million. Most part of this increase derives from higher investments planned for both the innovation
process and the new Natura research center, as well as the enhancement of investments planned for IT.





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5
>
INTERNATIONAL OPERATIONS
>>
Argentina, Chile and Peru
2Q06
2Q05
Units sold ­ items for resale
(in millions)
2.4
1.6
47.4%
Net Revenues
10.1
6.6
53.2%
Income (loss) from operations
Operating margin
>
Financial Highlights ­ Argentina, Chile and Peru (US$ million)
Gross Revenues
13.2
8.6
53.8%
1H05
1H06
4.5
3.0
51.2%
17.6
11.6
52.2%
23.0
15.0
52.7%
-0.8
-0.6
27.5%
-2.2
-1.8
24.3%
-7.7%
-9.3%
-12.7%
-15.6%
%
Change
%
Change
2Q06
2Q05
Units sold ­ items for resale
(in millions)
2.4
1.6
47.4%
Net Revenues
10.1
6.6
53.2%
Income (loss) from operations
Operating margin
>
Financial Highlights ­ Argentina, Chile and Peru (US$ million)
Gross Revenues
13.2
8.6
53.8%
1H05
1H06
4.5
3.0
51.2%
17.6
11.6
52.2%
23.0
15.0
52.7%
-0.8
-0.6
27.5%
-2.2
-1.8
24.3%
-7.7%
-9.3%
-12.7%
-15.6%
%
Change
%
Change
Note: Mexican and Venezuelan operations are not included in the above table.

The results from Argentinean, Chilean and Peruvian operations continue to grow at the same pace of last
quarters, as evidenced by gross revenue evolution (growth of 53.8% in USD in the quarter and 55.1% in
weighted local currency) and operational loss reduction when compared to net revenue.

The number of consultants grew 40.7%, from 29.9 thousand in 1H05 to 42.1 thousand in 1H06.
>>
International expansion process

In 1H06, investments in the international expansion process, represented by negative operational results,
totaled R$17.2 million (1H05: R$ 17.0 million). For 2006, we estimate total investments of R$35.0 million in
this process.
>
CASH FLOW

1H06 gross cash generation reached R$246.2 million, up 23.7% over the same period of last year. Out of this
total, R$40.4 million were
used for working capital, long-term assets and liabilities and R$60.6 million for
fixed assets acquisition.
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6
The use of working capital focused basically on the payment to suppliers as a result of the concentration of
material and service purchases that took place in the end of 2005 and payment of taxes over December 2005
sales. Free cash generation in 1H06 reached R$145.1 million, up 37.7% over the same period 2005.
>
DIVIDENDS AND INTEREST ON CAPITAL

On July 26, 2006, the Company's Board of Directors approved the proposal to be submitted to the Ordinary
General Shareholder's Meeting, to be held in March 2007, for the payment, on August 10, 2006, of dividends
and interest on capital, related to profits recorded in the first half of 2006, in the amount of R$112.1 million
and R$33.6 million (R$28.5 million ­ net) respectively, representing 96.9% of free cash generation in the
first half and 66.7% of the net income in the same period.

These payments added up will result in a net yield of R$0.33 per share (R$0.24 in 1H05). It is worth noting
that the accounting of interest on capital will be carried out on 07/31/06.
This press release contains forward-looking statements. Such statements are not statements of historical fact, and reflect the beliefs and
expectations of the Natura's management. The words "anticipates", "wishes", "expects", "estimates", "intends", "forecasts", "plans", "predicts",
"projects", "targets" and similar words are intended to identify these statements, which necessarily involve known and unknown risks and
uncertainties. Known risks and uncertainties include, but are not limited to, the impact of competitive products and pricing, market acceptance of
products, product transitions by the Company and its competitors, regulatory approval, currency fluctuations, production and supply difficulties,
changes in product sales mix, and other risks. This press release also includes pro-forma information prepared by the Company for information
and reference purposes only, which has not been audited. Forward-looking statements speak only as of the date they are made, and the Company
does not undertake any obligation to update them in light of new information or future developments.