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NATURA COSMÉTICOS S.A.
ASSETS
09/2004
06/2004
09/2004
06/2004
LIABILITIES AND SHAREHOLDERS' EQUITY
09/2004
06/2004
09/2004
06/2004
CURRENT ASSETS
CURRENT LIABILITIES
Cash and banks
15,724
29,380
16,428
32,449
Loans and financing
12,396
13,052
25,423
24,300
Temporary cash investments
80,352
95,137
123,030
157,299
Domestic
suppliers
5,264
5,980
82,170
64,846
Trade accounts receivable
177,374
152,453
190,153
162,071
Foreign
suppliers
-
-
1,191
1,983
Inventories
809
820
127,078
98,287
Suppliers - related parties
80,882
76,608
-
-
Recoverable taxes
1,205
2,815
13,140
13,518
Payroll and related charges
28,873
19,972
64,357
45,046
Advances to employees
4,589
2,533
6,537
5,010
Taxes payable
45,558
36,048
52,965
47,299
Related parties
833
932
-
-
Related parties
94
138
-
-
Deferred income and social contribution taxes
13,799
10,252
27,526
21,462
Dividends
73
73,333
73
73,333
Other receivables
2,695
5,624
12,855
12,172
Interest on capital
5,485
11,418
5,485
11,418
Total current assets
297,380
299,946
516,747
502,268
Other payables
19,914
20,050
23,153
23,091
Reserve for losses on swap contracts
4,193
1,041
4,857
1,016
LONG-TERM ASSETS
Total current liabilities
202,732
257,640
259,674
292,332
Advance for future capital increase
12,759
3,239
12,019
2,689
Receivables from shareholder
139
1,721
139
1,721
Tax incentives
1,452
1,452
1,492
1,492
LONG-TERM LIABILITIES
Deferred income and social contribution taxes
12,229
11,457
17,584
15,914
Loans and financing
22,581
25,958
77,228
79,870
Escrow deposits
20,422
16,491
24,762
19,635
Reserve for contingencies
38,121
34,809
54,172
48,063
Other receivables
-
-
1,716
1,717
Provision for losses on subsidiaries
51
67
-
-
Total long-term assets
47,001
34,360
57,712
43,168
Other payables
301
-
1,162
872
Total long-term liabilities
61,054
60,834
132,562
128,805
MINORITY INTEREST
-
-
7
8
(Continues)
(Convenience Translation into English from the Original Previously Issued in Portuguese)
(Convenience Translation into English from the Original Previously Issued in Portuguese)
(In thousands of Brazilian reais - R$)
Company
Consolidated
Company
Consolidated
BALANCE SHEETS AS OF SEPTEMBER 30, 2004 AND JUNE 30, 2004
2
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NATURA COSMÉTICOS S.A.
(In thousands of Brazilian reais - R$)
(Continuation)
ASSETS
09/2004
06/2004
09/2004
06/2004
LIABILITIES AND SHAREHOLDERS' EQUITY
09/2004
06/2004
09/2004
06/2004
PERMANENT ASSETS
SHAREHOLDERS' EQUITY
Investments
368,072
366,586
2,598
2,670
Capital
230,762
230,762
230,762
230,762
Property, plant and equipment
13,500
9,756
275,556
263,192
Treasury shares
(3,781)
(3,554)
(3,781)
(3,554)
Total permanent assets
381,572
376,342
278,154
265,862
Capital
reserves
115,113
114,947
115,113
114,947
Profit reserves
3,629
3,629
3,629
3,629
Retained earnings
116,444
46,390
114,647
44,369
Total shareholders' equity
462,167
392,174
460,370
390,153
TOTAL LIABILITIES AND
TOTAL ASSETS
725,953
710,648
852,613
811,298
SHAREHOLDERS' EQUITY
725,953
710,648
852,613
811,298
The accompanying notes are an integral part of these financial statements.
Company
Consolidated
Company
Consolidated
BALANCE SHEETS AS OF SEPTEMBER 30, 2004 AND JUNE 30, 2004
2
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NATURA COSMÉTICOS S.A.
7/1/2004 to
9/30/2004
7/1/2003 to
9/30/2003
1/1/2004 to
9/30/2004
1/1/2003 to
9/30/2003
7/1/2004 to
9/30/2004
7/1/2003 to
9/30/2003
1/1/2004 to
9/30/2004
1/1/2003 to
9/30/2003
Gross sales to domestic market
622,725
463,712
1,678,635
1,241,555
628,579
468,755
1,688,770
1,256,403
Gross sales to foreign market
-
-
-
-
16,903
12,837
49,146
32,063
Other sales
-
-
5
72
174
165
490
953
GROSS OPERATING REVENUES
622,725
463,712
1,678,640
1,241,627
645,656
481,757
1,738,406
1,289,419
Taxes on sales, returns and rebates
(145,957)
(112,296)
(395,617)
(296,826)
(197,493)
(150,098)
(532,528)
(395,635)
NET OPERATING REVENUES
476,768
351,416
1,283,023
944,801
448,163
331,659
1,205,878
893,784
Cost of sales
(185,256)
(165,579)
(536,602)
(438,512)
(141,835)
(109,127)
(396,145)
(317,687)
GROSS PROFIT
291,512
185,837
746,421
506,289
306,328
222,532
809,733
576,097
OPERATING (EXPENSES) INCOME
Selling
(122,962)
(89,632)
(319,724)
(249,236)
(140,987)
(103,270)
(371,507)
(281,127)
General and administrative
(70,726)
(54,315)
(187,084)
(120,126)
(66,461)
(51,822)
(168,046)
(129,089)
Management compensation
(1,807)
(1,148)
(5,121)
(3,142)
(2,178)
(1,467)
(6,176)
(4,059)
Equity in subsidiaries
(554)
17,385
13,988
15,668
-
-
-
-
INCOME FROM OPERATIONS BEFORE
FINANCIAL EFFECTS
95,463
58,127
248,480
149,453
96,702
65,973
264,004
161,822
Financial expenses
(6,965)
(8,187)
(13,071)
(62,204)
(9,057)
(9,554)
(29,552)
(66,701)
Financial income
7,088
779
18,579
33,550
10,781
4,268
31,013
40,410
INCOME FROM OPERATIONS
95,586
50,719
253,988
120,799
98,426
60,687
265,465
135,531
Nonoperating income (expense)
233
151
570
603
(931)
1,207
(820)
80
INCOME BEFORE DEBENTURE PARTICIPATION
95,819
50,870
254,558
121,402
97,495
61,894
264,645
135,611
Debenture participation
0
(30,590)
(7,178)
(73,388)
0
(30,590)
(7,178)
(73,388)
INCOME BEFORE TAXES ON INCOME
95,819
20,280
247,380
48,014
97,495
31,304
257,467
62,223
Income and social contribution taxes
(18,656)
(1,655)
(44,721)
(11,441)
(20,108)
(12,879)
(56,605)
(26,887)
NET INCOME BEFORE MINORITY INTEREST
77,163
18,625
202,659
36,573
77,387
18,425
200,862
35,336
Minority interest
-
-
-
-
-
9
-
37
NET INCOME
77,163
18,625
202,659
36,573
77,387
18,434
200,862
35,373
The accompanying notes are an integral part of these financial statements.
Company Consolidated
(Convenience Translation into English from the Original Previously Issued in Portuguese)
STATEMENTS OF INCOME
FOR THE QUARTERS ENDED SEPTEMBER 30, 2004 AND 2003
(In thousands of Brazilian reais - R$)
4
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NATURA COSMÉTICOS S.A.
DEMONSTRAÇÕES DAS MUTAÇÕES DO PATRIMÔMIO
LÍQUIDO
PARA OS TRIMESTRES FINDOS EM 30 DE JUNHO E 30
DE SETEMBRO DE 2004
(Em milhares de reais)
Capital reserves
Profit reserves
Treasury
Share
Investment
Retained
Capital
shares
premium
grants
Legal
Retention
earnings
Total
BALANCES AS OF DECEMBER 31, 2003
56,387
-
-
9,998
10,687
45,544
-
122,616
Net income
-
-
-
-
-
-
46,122
46,122
Capitalization of debentures
138,569
-
100,000
-
-
-
-
238,569
Capital increase through merger of Natura Empreendimentos SA
1,415
-
-
-
-
-
-
1,415
Treasury shares
-
(1,415)
-
-
-
-
-
(1,415)
Sale of treasury shares through exercise of stock options (item f)
-
38
716
-
-
-
-
754
Receivables from shareholders
-
(2,385)
-
-
-
-
-
(2,385)
Absorption of excess liabilities through merger of Natura
Empreendimentos S.A, after elimination of the merged
company's investment in the Company
-
-
-
-
-
(23,367)
-
(23,367)
Absorption of excess liabilities through merger of Natura
Participações S.A, after elimination of the merged company's
investment in the Company
-
-
-
-
-
(29,235)
-
(29,235)
Absorption of reserve
-
-
-
-
(7,058)
7,058
-
-
BALANCES AS OF MARCH 31, 2004
196,371
(3,762)
100,716
9,998
3,629
-
46,122
353,074
Net income
-
-
-
-
-
-
79,374
79,374
Capital increase through subscription of shares
34,391
-
-
-
-
-
-
34,391
Sale of treasury shares through exercise of stock options (item f)
-
208
3,892
-
-
-
-
4,100
Profit on sale of shares
-
-
341
-
-
-
-
341
Additional absorption of excess liabilities through merger of
Natura Empreendimentos S.A, after elimination of the merged
company's investment in the Company
-
-
-
-
-
-
7,660
7,660
Dividends payable
-
-
-
-
-
-
(73,333)
(73,333)
Interest on capital
-
-
-
-
-
-
(13,433)
(13,433)
BALANCES AS OF JUNE 30, 2004
230,762
(3,554)
104,949
9,998
3,629
-
46,390
392,174
Net income
-
-
-
-
-
-
77,163
77,163
Receivables from shareholders
-
(644)
-
-
-
-
-
(644)
Profit on sale of shares
-
417
166
-
-
-
-
583
Additional absorption of excess liabilities through merger of
Natura Empreendimentos S.A, after elimination of the merged
company's investment in the Company
-
-
-
-
-
-
(675)
(675)
Interest on capital
-
-
-
-
-
-
(6,434)
(6,434)
BALANCES AS OF SEPTEMBER 30, 2004
230,762
(3,781)
105,115
9,998
3,629
-
116,444
462,167
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Natura Cosméticos S.A.
Interim Financial Statements for the
Quarter and Nine-Month Period Ended
September 30, 2004 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 (Company and consolidated) as of September 30, 2004, the related
statements of income for the quarter and nine-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. We have also reviewed
the statements of income for the quarter and nine-month period ended September 30, 2003
(Company and consolidated).
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 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.
We had previously reviewed the Company and consolidated balance sheets as of June 30,
2004, presented for comparative purposes, and issued an unqualified special review report
thereon, dated July 16, 2004.
5.
The accompanying interim financial statements have been translated into English for the
convenience of readers outside Brazil.
São Paulo, October 15, 2004
DELOITTE TOUCHE TOHMATSU
Edimar Facco
Auditores Independentes
Engagement Partner
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5
(Convenience Translation into English from the Original Previously Issued in Portuguese)
NATURA COSMÉTICOS S.A.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE PERIODS ENDED JUNE 30, 2004 AND MARCH 31, 2004
(Amounts in thousands of Brazilian reais - R$)
1.
OPERATIONS
The Company and its subsidiaries are engaged in the development, production, distribution
and sale, substantially through direct sales by Natura beauty consultants, of cosmetics,
perfumery in general, and hygiene and health products, and hold equity interests in other
companies in Brazil and abroad.
The Extraordinary Shareholders' Meeting held on March 5, 2004 approved the merger into
the Company of the net assets of the companies Natura Empreendimentos S.A. and Natura
Participações S.A. based on the accounting valuation supported by a valuation report issued
by independent experts. These mergers did not modify the activities described in the
paragraph above.
The amounts of the net assets merged into the Company as of January 31, 2004 were
R$104,951 related to Natura Empreendimentos S.A. and R$75,716 related to Natura
Participações S.A.
In the recording of the adjustments of the mergers of the net assets, the eliminations of the
accounts receivable and payable existing between the merged companies and the Company,
as well as corporate investments and shareholders' equity, were considered, as required by
Brazilian accounting practices.
In light of the aforementioned, the liabilities of Natura Empreendimentos S.A. and Natura
Participações S.A., in the amounts of R$23,367 and R$29,235, respectively, were absorbed.
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Natura Cosméticos S.A.
6
The amounts of the net assets are as follows:
NATURA EMPREENDIMENTOS S.A.
ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT ASSETS
CURRENT LIABILITIES
Cash and banks
24,105 Loans and financing
17,566
Recoverable taxes
645 Taxes payable
660
Other receivables
33,338 Dividends
61,215
Total current assets
58,088 Other payables
3,747
Total current liabilities
83,188
LONG-TERM ASSETS
Related parties
10,544 LONG-TERM
LIABILITIES
Total long-term assets
10,544 Loans and financing
17,004
Other payables
11
PERMANENT ASSETS
Total long-term liabilities
17,015
Investments 136,522
Total permanent assets
136,522 SHAREHOLDERS' EQUITY
Capital 86,950
Capital
reserves
5,347
Profit reserves
12,654
Total shareholders' equity
104,951
TOTAL ASSETS

205,154
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY
205,154
NATURA PARTICIPAÇÕES S.A.
ASSETS
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT ASSETS
CURRENT LIABILITIES
Cash and banks
307 Other payables
86,001
Recoverable taxes
129 Total current liabilities
86,001
Related parties
61,215
Total current assets
61,651 LONG-TERM
LIABILITIES
Related parties
10,391
LONG-TERM ASSETS
Total long-term liabilities
10,391
Receivables from sale of shares 5,506
Total long-term assets
5,506 SHAREHOLDERS'
EQUITY
Capital
1,107,776
PERMANENT ASSETS
Capital reserves
5,450
Investments 104,951
Profit
reserves
5,550
Goodwill on investments
1,028,041 Accumulated deficit
(1,043,060)
(-) Provision for maintenance
of
dividend payment capacity
(1,028,041
)
Total shareholders' equity
75,716
Total permanent assets
104,951
TOTAL LIABILITIES AND
TOTAL ASSETS
172,108 SHAREHOLDERS' EQUITY
172,108
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Natura Cosméticos S.A.
7
2.
PRESENTATION OF FINANCIAL STATEMENTS
The accompanying financial statements have been prepared in accordance with Brazilian
accounting practices and standards established by the Brazilian Securities Commission
(CVM).
Until December 31, 1995, the Brazilian corporate law established a simplified methodology
for the recording of inflation effects determined to that date. This methodology, named
Monetary Restatement of the Balance Sheet, consisted of the restatement of permanent
assets (investments, property, plant and equipment, and deferred charges) and shareholders'
equity accounts at the indexes disclosed by the Federal Government. The net effect of the
monetary restatement was accounted for in the statements of income in a specific account
under the heading Monetary Restatement of the Balance Sheet.
This monetary restatement was prohibited by Law No. 9249, of December 26, 1995,
effective January 1, 1996.
3.
SIGNIFICANT ACCOUNTING PRACTICES
a) Results of operations
Determined on the accrual basis of accounting.
b) Temporary cash investments
Consists of highly liquid temporary investments with maturities of less than three
months, stated at cost plus income earned to 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.
d) Inventories
Stated at average cost of acquisition or production, adjusted to market value, 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 to December 31, 1995, plus interest
capitalized during the construction period. 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.
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Natura Cosméticos S.A.
8
g) Deferred charges
Represented by goodwill arising from the merger of shares of Natura Empreendimentos
S.A. by Natura Participações S.A., less the provision for adjustment to realizable value,
as described in Note 13.
h) Current and long-term liabilities
Stated at amounts payable plus, if applicable, interest and monetary and exchange
variations incurred to 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 estimated realizable values, as detailed in Note 9.
j) Loans and financing
Adjusted based on exchange variations and interest incurred to the balance sheet dates,
as provided for by contract and mentioned in Note 14.
k) Reserve for contingencies
Adjusted to the balance sheet dates based on the probable loss amount, according to the
nature of each contingency. The fundamentals and the nature of reserves are described in
Note 16.
l) Hedge
transactions
The nominal values of hedge transactions 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 Note 18b).
m) Financial income and expenses
Represented by interest and monetary and exchange variations on temporary cash
investments, loans and financing.
n) Interest on capital
Interest on capital is accounted for directly in retained earnings, rather than in income, as
required by CVM Resolution No. 207/96, and is shown in note 17d).
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Natura Cosméticos S.A.
9
o) Earnings per share
Calculated based on the number of shares at the balance sheet dates.
p) Stock option plan
The Company offers to its directors and certain managers the option for purchase of
shares through stock option plans. The information and effects related to the plans are
mentioned in note 17h).
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 the
management's judgment involves estimates of the probability of future events, actual
results may differ from the estimates.
4.
CONSOLIDATION CRITERIA
The consolidated balance sheets as of September 30, 2004 and June 30, 2004 and the
consolidated statements of income for the quarters and nine-month periods ended September
30, 2004 and 2003 have been prepared in accordance with the consolidation principles
established by Brazilian accounting practices and regulatory instructions established by
CVM, and include the financial statements of the Company and its direct and indirect
subsidiaries, as follows:
Ownership interest - %
09/2004 06/2004
Direct:
Indústria e Comércio de Cosméticos Natura Ltda.
99.76
99.76
Natura Cosméticos S.A. - Chile
99.96
99.96
Natura Cosméticos S.A. - Peru
99.85
99.85
Natura Cosméticos S.A. - Argentina
99.99
99.99
Natura Brasil Cosmética Ltda. - Portugal
99.99
99.99
Commodities Trading S.A. - Uruguay
100.00
100.00
Nova Flora Participações Ltda.
100.00
100.00
Natura Inovação e Tecnologia de Produtos Ltda.
100.00
100.00
Natura Europa SAS
100.00
-
Ybios SA
33.30
-
Indirect:
Natura Logística e Serviços Ltda.
99.99
99.99
Flora Medicinal J. Monteiro da Silva Ltda.
100.00
100.00
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 proportionately eliminated against shareholders' equity and
net income of the respective subsidiaries. Intercompany balances and transactions and
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Natura Cosméticos S.A.
10
unrealized profit 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.
The Company's shareholders' equity as of September 30, 2004 and June 30, 2004 differs by
R$1,797 and R$2,021, respectively, from those amounts stated in the consolidated financial
statements, due to the elimination of subsidiaries' unrealized profit.
In addition, net income for the quarters ended September 30, 2004 and 2003 differs by
R$224 and R$(191), respectively, due to the elimination of unrealized profit on inventories
of the Companies in Peru, Chile and Argentina.
Reconciliation between consolidated and individual (Company) net income and
shareholders' equity:
Net income Shareholders'
equity
09/2004 09/2003 09/2004 06/2004
Company
77,163
18,625 462,167 392,174
Elimination of unrealized profits of the
subsidiary Indústria e Comércio de
Cosméticos Natura Ltda. with other
subsidiaries
224
(191)
(1,797) (2,021)
Consolidated 77,387 18,434 460,370 390,153
The operations of the direct and indirect subsidiaries are as follows:
·
Indústria e Comércio de Cosméticos Natura Ltda. - Engaged in the production and sale of
Natura products to Natura Cosméticos S.A. - Brazil, Chile, Peru and Argentina, whose
amounts are mentioned in Note 10.
·
Foreign operations (Natura Cosméticos S.A. - Argentina, Natura Cosméticos S.A. - Chile
and Natura Cosméticos S.A. - Peru) - Their operations are an extension of the operations
developed by the parent company Natura Cosméticos S.A. - Brazil.
·
Natura Europa SAS ­ Engaged in the purchase, sale, import, export and distribution of
cosmetics, fragrances in general, and hygiene and health products.
·
Nova Flora Participações Ltda. - Holds equity interest in the subsidiary Flora Medicinal
J. Monteiro da Silva Ltda.
·
Natura Logística e Serviços Ltda. - Engaged in the provision of administrative and
logistics services to other Group companies.
·
Flora Medicinal J. Monteiro da Silva Ltda. - Engaged in the production and sale of
phytotherapics of its own brand.
·
Natura Inovação e Tecnologia de Produtos Ltda. -Engaged in product research and
development.
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Natura Cosméticos S.A.
11
·
Ybios S.A. ­ Engaged in the 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;
equity interest in other companies; and similar and related activities.
5.
TEMPORARY CASH INVESTMENTS
Company Consolidated
09/2004 06/2004 09/2004 06/2004
Bank CDs
55,594
85,332
84,100 132,506
Investment funds
24,758
9,805 38,930 24,793
80,352
95,137 123,030 157,299
As of September 30, 2004, bank CDs are remunerated at rates ranging from 100% to 101%
of the CDI (interbank deposit rate) (100% to 100.75% as of June 30, 2004). As of
September 30, 2004, investment funds are remunerated at rates ranging from 92.92% to
103.25% of the CDI (83.06% to 104.04% as of June 30, 2004).
6.
TRADE ACCOUNTS RECEIVABLE
Company Consolidated
09/2004 06/2004 09/2004 06/2004
Trade accounts receivable
191,350 167,069 205,103 177,637
Allowance for doubtful accounts
(13,564) (14,242) (14,538) (15,192)
Allowance for return of goods
(412) (374) (412) (374)
177,374 152,453 190,153 162,071
7.
INVENTORIES
Company
Consolidated
09/2004 06/2004 09/2004 06/2004
Finished products
801
803
58,718
50,580
Raw materials and packaging
-
-
64,136
42,491
Work in process
-
-
9,282
5,775
Promotional material
8
17
8,885
9,536
Imports in transit
-
-
29
2,649
Reserve for losses
-
- (13,972) (12,744)
809
820 127,078
98,287
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Natura Cosméticos S.A.
12
8.
RECOVERABLE TAXES
Company Consolidated
09/2004 06/2004 09/2004 06/2004
Social contribution tax
-
302
351
598
IRPJ (corporate income tax)
-
1,833
2,517
6,524
IPI
(Federal
VAT)
-
- 259 180
ICMS (State VAT)
1,205
680
4,838
1,948
Other
-
-
5,175
4,268
1,205
2,815 13,140 13,518
9.
INCOME AND SOCIAL CONTRIBUTION TAXES
a) Deferred
Deferred income and social contribution taxes recorded in the financial statements result
from temporary differences (Company) and temporary differences 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 taxable income offset by tax loss carryforwards, pursuant to
the applicable legislation. The amounts are as follows:
Company Consolidated
09/2004 06/2004 09/2004 06/2004
Current:
Tax loss carryforwards
-
-
691
1.793
Temporary differences:
Reserve for inventory losses
-
-
4,750
4,333
Allowance for doubtful accounts
4,849
5,068
4,849
5,068
Reserve for losses on swap contracts
1,426
382
1,651
382
Provision for profit sharing
3,927
2,040
10,038
5,223
Other
3,597
2,762
5,547
4,663
Deferred income and social contribution taxes
credits
13,799
10,252 27,526 21,462
Long-term:
Temporary differences:
Reserve
for
contingencies
11,498
10,744 16,549 14,898
Other
731
713
1,035
1,016
Deferred income and social contribution taxes
12,229
11,457 17,584 15,914
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:
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Natura Cosméticos S.A.
13
09/2004 06/2004
2005 1,360
5,482
2006 3,135
1,095
2007 8,149
7,450
2008
4,940
1,887
17,584 15,914
b) Current expense
Reconciliation of income and social contribution taxes:
Company Consolidated
09/2004 09/2003 09/2004 09/2003
Income before taxes on income
247,380
48,014 257,467 62,223
Income and social contribution taxes at the
rate of 34%
(84,109) (16,325) (87,539) (21,157)
Tax effect on principal additions and
exclusions:
Equity in subsidiaries
4,756
5,327
-
-
Losses generated by subsidiaries
-
-
(3,687)
(5,215)
Deferral of exchange variation
-
(1,086)
-
(1,086)
Interest on capital
6,755
-
6,755
-
Other
(1,251)
643 (1,262)
571
Reversal of provision for maintenance of
dividend payment capacity
29,128
- 29,128 -
Income and social contribution taxes
(44,721)
(11,441) (56,605) (26,887)
Current income and social contribution taxes (50,455) (18,802) (68,419) (32,566)
Deferred income and social contribution
taxes
5,734
7,361
11,814 5,679
(44,721)
(11,441) (56,605) (26,887)
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Natura Cosméticos S.A.
14
10.
RELATED PARTIES
Receivables from and payables to related parties are as follows:
Company Consolidated
09/2004 06/2004 09/2004 06/2004
Current
assets:
Accounts receivable:
Indústria e Comércio de Cosméticos
Natura Ltda. (b)
-
50
-
-
Nova Flora Participações Ltda (a)
833
833
-
-
Natura Logística e Serviços Ltda. (b)
-
42
-
-
Natura Inovação e Tecnologia de
Produtos Ltda. (b)
-
7
-
-
833
932
-
-
Long-term assets:
Advance for future capital increase (j)
Natura Europa SAS
11,987
2,689
11,987
2,689
Ybios SA.
32
-
32
-
Nova Flora Participações Ltda.
740
550
-
-
12,759
3,239 12,019 2,689
Receivables from sale of shares (k)
139
1,721
139
1,721
Current liabilities:
Suppliers:
Natura Inovação e Tecnologia de
Produtos Ltda. (c)
8.394
5.935
- -
Indústria e Comércio de Cosméticos
Natura Ltda. (d)
66.362
64.548
-
-
Natura Logística e Serviços Ltda. (e)
6.126
6.125
-
-
80.882
76.608
-
-
Accounts payable:
Natura Inovação e Tecnologia de Produtos Ltda.
94
137
-
-
Natura Logística e Serviços Ltda.
-
1
-
-
94
138
-
-
Transactions with related parties in the quarters ended September 30, 2004 and 2003 are
summarized below:
Product sales Product
purchases
09/2004 09/2003 09/2004 09/2003
Natura Cosméticos S.A.
-
- 646,320 197,985
Indústria e Comércio de Cosméticos Natura Ltda.
662,937 202,889
-
-
Natura Inovação e Tecnologia de Produtos Ltda.
-
-
64
45
Flora Medicinal J. Monteiro da Silva Ltda.
-
- 16 101
Natura Cosméticos S.A. ­ Chile
-
- 2,737 808
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Natura Cosméticos S.A.
15
Natura Cosméticos S.A. ­ Peru
-
-
4,593
1,174
Natura Cosméticos S.A. ­ Argentina
-
-
9,207 2,776
662,937 202,889 662,937 202,889
Service sales Service
purchases
09/2004 09/2003 09/2004 09/2003
Guarantees commission: (f)
Natura Participações S.A.
-
189
-
-
Natura Empreendimentos S.A.
-
447 - -
Natura Cosméticos S.A
-
-
-
593
Indústria e Comércio de Cosméticos
Natura Ltda.
-
-
-
40
Natura Logística e Serviços Ltda.
-
-
-
3
-
636
- 636
Administrative structure: (g)
Natura Logística e Serviços Ltda.
86.282
26.148
-
-
Natura Cosméticos S.A.
-
- 60.970 19.239
Indústria e Comércio de Cosméticos
Natura Ltda.
-
- 18.041
6.909
Natura Inovação e Tecnologia de Produtos Ltda.
-
-
7.271
-
86.282
26.148 86.282 26.148
Product research and development: (h)
Natura Inovação e Tecnologia de Produtos Ltda.
51.505
14.908
-
-
Natura Cosméticos S.A.
-
- 51.505 14.908
51.505
14.908 51.505 14.908
Service sales Service
purchases
09/2004 09/2003 09/2004 09/2003
Lease of properties and common charges: (i)
Natura Cosméticos S.A.
(136)
-
787
-
Natura Empreendimentos S.A
-
- 27
(107)
Natura Participações S.A
-
- 14 152
Natura Inovação e Tecnologia de Produtos Ltda.
-
-
1.245 (641)
Indústria e Comércio de Cosméticos
Natura Ltda.
6.308
1.833
(116)
-
Natura Logística e Serviços Ltda.
-
- 4.215 2.429
Total service sales
6.172
1.833 6.172 1.833
Total service sales/purchases
806.896 246.414 806.896 246.414
a) Amount receivable due to the capital reduction made on January 30, 2004, approved by
the shareholders' meeting held on the same date.
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Natura Cosméticos S.A.
16
b) Receivables from sale of Natura products to employees.
c) Payables for the provision of services described in item (h).
d) Payables for the purchase of products. Prices and terms are within normal market
conditions.
e) Payables for the provision of services described in item (g).
f) Guarantees of Natura Empreendimentos S.A., merged into Natura Cosméticos S.A., as
mentioned in Note 1.
g) Provision of logistic and general administrative services.
h) Provision of product and market development.
i) Rental of the industrial complex located in Cajamar and several units that compose
Natura's facilities.
j)
Remittances to Nova Flora Participações Ltda., Ybios S.A. and advance for acquisition
k)
On September 29, 2000, April 30, 2002, December 30, 2002 and January 5, 2004, we
granted financing to two directors for them to buy common shares issued by Natura
Empreendimentos and Natura Participações. As part of our corporate restructuring in
March 2004, the directors, like our other shareholders, received common shares issued
by Natura Cosméticos in exchange for their common shares issued by Natura
Participações. The financing totaled R$6,174, with interest of 3.0% per year and
maturity on April 30, 2009 and September 30, 2010. The debit balance as of September
30, 2004 was R$4,846. The directors pay the financing obtained with all the dividends
and interest on capital received from our Company.
The main intercompany balances as of September 30, 2004 and June 30, 2004, as well as the
intercompany transactions that affected results for the periods refer to transactions with the
Company and its subsidiaries, which were substantially carried out under usual market
conditions for each type of transaction.
11.
INVESTMENTS
Investments are represented by:
Company Consolidated
09/2004 06/2004 09/2004 06/2004
Investments in subsidiaries
368,072 366,586 - -
Goodwill on acquisition of investment
-
- 8,015 8,015
Amortization of goodwill
-
- (5,417) (5,345)
368,072 366,586 2,598 2,670
The goodwill on the acquisition made by the subsidiary Nova Flora Participações Ltda. is
supported by an appraisal report issued by independent appraisers, based on expectation of
future profitability which, as of December 31, 2003, was reviewed by management based on
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Natura Cosméticos S.A.
17
new projections of future results, also supported by an appraisal report issued by
independent appraisers, and is being amortized over ten years.
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Natura Cosméticos S.A.
18
Indústria
Comércio e
Natura
Cosméticos
Natura
Cosméticos
Natura
Cosméticos
Natura
Brasil
Cosmética Commodities Nova
Flora
Natura
Inov. Tec.
Cosméticos
S.A
S.A
S.A
Ltda
Trading S.A.
Participações
Prod.
Ltda.
Chile
Peru Argentina
Portugal
Uruguay
Ltda.
Ltda. Total
Shares of subsidiaries
328,992
46,261
23,423
69,088
14
319
2,413
5,008
Number of shares
(common shares) held
328,213
46,242
23,388
69,081
14
319
2,413
5,008
Ownership interest - %
99.76
99.96
99.85
99.99
99.99
100.00
100.00
100.00
Capital
328,992
46,261
23,423
69,088
14
319
2,413
5,008
475,518
Shareholders' equity of
subsidiaries
350,411
178
2,777
3,970
(50)
21
1,362
10,188
368,857
Share in shareholders'
equity
349,580
178
2,773
3,970
(50)
21
1,362
10,188
368,022
Net income (loss) of
subsidiaries from July 1
to September 30, 2004
1,195
(1,421)
(740)
(700)
16
(2)
(397)
(1,495)
(554)
Book value of Company
investment:
Balances as of June 30,
2004
348,388
646
2,921
4,156
-
23
1,759
8,693
366,586
Increase in investments
-
952
591
514
-
-
-
-
2,057
Equity in subsidiaries:
1,192
(1,420)
(739)
(700)
17
(2)
(397)
1,495
(554)
Recognition
of
provision for losses
-
-
-
-
(17)
-
-
-
(17)
Balances as of September 30, 2004
349,580
178
2,773
3,970
-
21
1,362
10.188
368,072
Provision for losses:
Balances as of June 30,
2004
-
-
-
-
67
-
-
-
67
Provision for losses
-
-
-
-
(17)
-
-
-
(17)
Balances as of September 30,
2004
-
-
-
-
50
-
-
-
50
12.
PROPERTY, PLANT AND EQUIPMENT
Is composed of:
Company
Annual
09/2004 06/2004
depreciation
rate - %
Restated
cost
Accumulated
depreciation
Net book
value
Restated
cost
Accumulated
depreciation
Net book
value
Machinery
and
equipment
10 950 (588)
362
950 (566)
384
Furniture
and
fixtures
10 3,893 (2,957) 936
3,878 (2,881) 997
Vehicles 20
15,252
(6,423) 8,829
10,746 (5,959) 4,787
IT
equipment
20 6,694 (5,450)
1,244
6,705 (5,281)
1,424
Construction
in
progress
0 84 -
84
- -
-
Leasehold
improvements
12 690 (150)
540
660 (142)
518
Software licenses
20
2,587
(1,086) 1,501 2,579
(959) 1,620
Other
10
6
(2) 4 6 (3) 3
Advances to suppliers
0
-
-
-
23
-
23
30,156 (16,656) 13,500 25,547 (15,791) 9,756
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Natura Cosméticos S.A.
19
Consolidated
Annual
09/2004 06/2004
depreciation
rate - %
Restated
cost
Accumulated
depreciation
Net book
value
Restated
cost
Accumulated
depreciation
Net book
value
Machinery
and
equipment 10 71,458 (30,579)
40,879
70,120 (28,869)
41,251
Molds
33 25,203 (19,515) 5,688
24,209 (18,313) 5,896
Furniture and fixtures
10
12,687
(6,654) 6,033
12,326 (6,455) 5,871
Installations 10
64,390
(23,261) 41,129 63,040 (21,835) 41,205
Vehicles 20
22,317
(9,648) 12,669 17,449
(9,250) 8,199
IT
equipment
20 30,228 (18,089)
12,139
30,340 (17,672)
12,668
Land
0
15,910 -
15,910
15,910 -
15,910
Buildings
4 126,990 (17,909)
109,081
126,990 (16,652)
110,338
Construction in progress
0
12,231
-
12,231
8,089
-
8,089
Leasehold
improvements
12 709 (168)
540
679 (161)
518
Software licenses
20
11,658
(4,977) 6,681
10,960 (4,448) 6,512
Other 10
6,489
(4,908)
1,581 6,373 (4,902) 1,471
Advances to suppliers
0
10,994
-
10,994
5,264
-
5,264
411,264 (135,708) 275,556 391,749 (128,557) 263,192
13.
DEFERRED CHARGES
As mentioned in Note 1, on March 5, 2004 the Company merged the company Natura
Participações S.A., which had goodwill on the investment in the then subsidiary Natura
Empreendimentos S.A. in the amount of R$1,028,041 and a corresponding provision for
maintenance of 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 share merger operation was approved by the Extraordinary
Shareholders' Meeting held on that date, and the amounts are supported by a valuation
report issued by independent experts.
The amounts are as follows:
Company
09/2004 06/2004
Goodwill on investments
942,371
979,086
Provision for maintenance of dividend payment capacity
(942,371) (979,086)
- -
The provision for maintenance of dividend payment capacity will result in the payment of
goodwill amortization tax benefits to all shareholders. The goodwill amount is being
amortized over a seven-year period.
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Natura Cosméticos S.A.
20
14.
LOANS AND FINANCING
Company
Consolidated
Type 09/2004 06/2004 09/2004 06/2004 Charges Guarantees
Import financing
(BNDES Exim)
-
-
-
3,782 Interest of 3.7% per
year + TJLP (long-
-term interest rate)
Natura
Cosméticos
ACE (advance on
export contracts)
-
-
2,202
- Interest of 1.81% per year
+ exchange variation
Natura
Cosméticos
BNDES (Brazilian
Bank for Economic
and Social
Development)
34,240 37,841 34,240 37,841 70%
Interest
of
4%
per year + TJLP
30% Interest of 4%
per year +
UMBNDES(**)
Guarantee,
mortgage
and bank
guarantee
BNDES-FINAME
(Government
Agency for
Machinery and
Equipment
Financing)
-
- 4,015 3,754
Interest
of
5.0%
per year + TJLP
Chattel
mortgage and
Natura
Cosméticos
BNDES-Poc* 737
1,169
737
1,169
Interest
of
4.5%
per year + TJLP
Natura
Indústria
FINEP (Financing
Agency for Studies
and Projects)
-
- 32,199 26,447 Interest
of
3%
per year + TJLP
Guarantee
and
promissory
notes
Bank loans and
financing
-
-
29,258
31,177 6-month Libor + 6.05%
per year
Promissory
notes and
Natura
Cosméticos
Total 34,977 39,010 102,651 104,170
Current 12,396 13,052 25,423 24,300
Long term
22,581 25,958 77,228 79,870
(*) Poc - Proposal of Credit Operation
(**) UMBNDES - BNDES monetary unit
Maturities of long-term debt are as follows:
Consolidated
09/2004 06/2004
2005 7,159
12,741
2006 24,454
23,100
2007 20,812
19,446
2008 12,490
11,258
2009 4,138
4,437
2010 4,082
4,437
2011
4,093
4,451
77,228 79,870
Financing in local currency from BNDES is guaranteed mainly by the Itapecerica da Serra
and Cajamar units.
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Natura Cosméticos S.A.
21
Natura Inovação e Tecnologia de Produtos Ltda. contracted financing from the Financing
Agency for Studies and Projects (FINEP) in the amount of R$39,153. The amount of
R$29,994 has been released to date. The funds are being used in the development of new
products in the biodiversity segment.
Other bank loans and financing in the amount of R$29,258 (R$31,177 as of June 30, 2004)
refer mainly to a repass from the International Finance Corporation (IFC) financing line,
which is being used to finance the increase in production capacity and production
optimization.
15.
TAXES PAYABLE
Taxes payable are represented by:
Company Consolidated
09/2004 06/2004 09/2004 06/2004
Current liabilities:
ICMS (State VAT)
37,958
31,696
37,540
34,238
Cofins (tax on revenue)
100
337
2,865
4,338
PIS (tax on revenue)
23
71
624
932
Income tax
3,040
-
3,921
922
Social contribution tax
1,507
-
1,902
468
Withholding income tax
2,061
3,241
2,624
4,021
PIS/Cofins/CSLL (Law No. 10,633/03)
841
647
1,082
813
Other
28
56
2,407
1,567
45,558
36,048 52,965 47,299
16.
RESERVE FOR CONTINGENCIES
The Company and its subsidiaries are parties to tax, labor and civil lawsuits and to tax
proceedings at the administrative level. Based on the opinion of its legal counsel,
management believes that the reserve for contingencies is sufficient to cover probable losses
from unfavorable judgments according to the best estimates.
The balances of contingencies are as follows:
Company
Consolidated
09/2004 06/2004 09/2004 06/2004
Tax
35,974
32,518
48,707
42,618
Labor
1,710
1,904
2,542
2,748
Civil
437
387
2,923 2,697
38,121
34,809
54,172 48,063
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Natura Cosméticos S.A.
22
Accrued tax contingencies are comprised of the following proceedings:
Company
Consolidated
09/2004 06/2004 09/2004 06/2004
a. ) Deductibility of CSLL (social
contribution tax) ( Law No. 9316/96 )
7,901
5,503
7,901
5,503
b. ) Monetary restatement of federal taxes
(IRPJ / CSLL / ILL) according to Ufir
(fiscal reference unit)
4,886
4,861
5,011
4,986
c. ) Tax assessment ­ INSS (social security
contribution) 4,250
4,125
4,250
4,125
d. ) IPI (federal VAT) ­ Tax collection
lawsuit
3,264
3,170
3,264
3,170
e. ) PIS (tax on revenue) ­ Semiannual ­
Decree-laws No. 445 and 2449
10,668
10,005
11,954
11,208
f. ) IPI ­ zero rate
-
-
10,118
7,364
g. ) Attorneys' fees and other
5,005
4,854
6,209 6,262
35,974
32,518
48,707 42,618
a.) Refers to the social contribution tax discussed through a writ of mandamus that questions
the constitutionality of Law No. 9316/96 that prohibited the deduction of CSLL from its
own tax basis and IRPJ (corporate income tax) basis.
b.) Refers to the monetary restatement of federal taxes (IRPJ/CSLL/ILL) related to 1991
based on the UFIR, discussed through a writ of mandamus. Escrow deposit has been made
for the amount involved of this contingency.
c.) Refers to the 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 have
escrow deposits.
d.) Refers to a tax collection lawsuit seeking to collect the IPI related to July 1989 when
wholesale establishments began to be considered equivalent to industrial establishments.
Escrow deposits have been made for the amounts involved in this tax collection lawsuit.
e.) Refers to the offsetting of PIS paid as per decree-laws Nos. 2445 and 2449, in the period
from 1988 to 1995, against federal taxes due in 2004.
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Natura Cosméticos S.A.
23
f.) Refers to IPI tax credits on raw materials and packing materials purchased at zero tax
rate. The Company discusses in court the right to tax credit through a writ of mandamus.
Labor contingencies
As of September 30, 2004, the Company and its subsidiaries are parties to 161 labor lawsuits
filed by former employees and third parties (154 as of June 30, 2004), claiming the payment
of severance amounts, salary premiums, overtime and other amounts due for subsidiary
liability.
Civil contingencies
As of September 30, 2004, the Company and its subsidiaries are parties to 489 proceedings
(413 as of June 30, 2004) at the civil court, special civil court and Procon (Consumer
Protection Agency), filed by consultants, consumers and former employees, mostly related
to indemnity claims.

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 September
30, 2004 was R$ 24,762 (R$ 19,635 as of June 30, 2004) ­ Consolidated, and is classified as
Escrow Deposits in long-term assets.
Possible losses
The Company and its subsidiaries are parties to tax lawsuits, for which the risk of loss is
considered possible by management and its legal counsel. These lawsuits, for which the
Company did not record any reserve, are as follows:
Company
Consolidated
09/2004 06/2004 09/2004 06/2004
a. ) IPI tax credit from purchases of fixed
assets
-
-
8,551
8,154
b. ) Unapproved requests for offset/ refund
of ILL (tax on net income)
2,996
2,913
3,081
2,996
c. ) INSS debt annulment action
4,083
3,963
4,083
3,963
d. ) ICMS tax collection lawsuit ­ PE
1,149
1,117
1,149
1,117
e. ) Writ of mandamus for IOF (financial
transactions tax)
2,908
2,845
2,908
2,845
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Natura Cosméticos S.A.
24
f. ) Tax assessment ­ transfer pricing, IRPJ
and CSLL
1,650
1,589
1,650 1,589
g. ) Other
2,783
2,746
3,245 3,195
15,569
15,173
24,667 23,859
a.) The subsidiary Indústria e Comércio de Cosméticos Natura Ltda. is discussing through
writs of mandamus the right to the IPI credit on purchases of fixed assets and consumption
materials. Tax credits recognized as of September 30, 2004 under judicial discussion are R$
8,551 (R$ 8,154 as of June 30, 2004).
b.) The Company and its subsidiaries offset in 2000 the ILL amounts paid incorrectly due to
the Federal Supreme Court's declaration of unconstitutionality. There are 14 offset
processes in the total amount of R$ 3,081 as of September 30, 2004 (R$ 2,996 as of June 30,
2004), which have not yet been approved by the Federal Revenue Service.
c.) The Company filed a tax debt annulment action seeking the annulment of the tax
payment of R$ 4,083 (R$ 3,963 as of June 30, 2004) demanded by the INSS through a tax
assessment issued for purposes of collecting the social security contribution on the
allowance for vehicle maintenance paid to sales promotors.
d.) The Company is questioning in a tax collection lawsuit the ICMS required by the
Pernambuco State Finance Department in a tax assessment demanding the difference in
ICMS rates for certain products.
e.) The Company filed a writ of mandamus for purposes of offsetting IOF paid on loan
transactions with related parties.
f.) The Company contested the tax assessment whereby the Federal Revenue Service is
demanding the payment of IRPJ and CSLL on the difference of interest on loan agreements
with foreign related parties. On July 12, 2004, an administrative defense was filed and is still
being judged.
The Company and its subsidiaries are parties to other civil and labor lawsuits, for which the
risk of loss is considered possible by management and its legal counsel. There are 105 civil
lawsuits amounting to R$4,585, and 55 labor lawsuits amounting to R$8,246.
17.
SHAREHOLDERS' EQUITY
a)
Merger of companies
As mentioned in Note 1, on March 5, 2004 the Company conducted the merger of the
companies Natura Empreendimentos S.A. and Natura Participações S.A.
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Natura Cosméticos S.A.
25
The merger adjustments referring to the shareholders' equity accounts of the merged
companies produced significant effects on the statement of changes in shareholders'
equity of the Company (merging company) for the quarter ended March 31, 2004. To
allow for an analysis of these effects, the changes in shareholders' equity of the
Company are stated below:
Capital
reserves
Profit
reserves
Treasury
Share
Investment
Retained
Company Capital
shares premium
grants Legal Retention earnings Total
BALANCES AS OF DECEMBER 31,
2003
56,387
-
- 9,998 10,687
45,544
-
122,616
Net income
-
-
-
-
-
-
46,122
46,122
Capitalization of debentures
138,569
-
100,000
-
-
-
-
238,569
Capital increase through merger of Natura
Empreendimentos SA
1,415
-
-
-
-
-
-
1,415
Treasury shares
-
(1,415)
-
-
-
-
-
(1,415)
Sale of treasury shares through exercise of
stock options (item f)
-
38
716
-
-
-
-
754
Receivables from shareholders
-
(2,385)
-
-
-
-
-
(2,385)
Absorption of excess liabilities through
merger
of Natura Empreendimentos S.A, after
elimination of the merged company's
investment in the Company
-
-
-
-
-
(23,367)
-
(23,367)
Absorption of excess liabilities through
merger
of Natura Participações S.A, after
elimination of the merged company's
investment in the Company
-
-
-
-
-
(29,235)
-
(29,235)
Absorption of reserve
-
-
-
-
(7,058)
7,058
-
-
BALANCES AS OF MARCH 31, 2004
196,371 (3,762) 100,716 9,998
3,629
-
46,122
353,074
Net income
-
-
-
-
-
-
79,374
79,374
Capital increase through subscription of
shares
34,391
-
-
-
-
-
-
34,391
Sale of treasury shares through exercise of
stock options (item f)
-
208
3,892
-
-
-
-
4,100
Profit on sale of shares
-
-
341
-
-
-
-
341
Additional absorption of excess liabilities
through merger of Natura
Empreendimentos
S.A, after elimination of the merged
company's investment in the Company
-
-
-
-
-
-
7,660
7,660
Dividends payable
-
-
-
-
-
-
(73,333)
(73,333)
Interest on capital
-
-
-
-
-
-
(13,433)
(13,433)
BALANCES AS OF JUNE 30, 2004
230,762 (3,554) 104,949 9,998
3,629
-
46,390
392,174
Net income
-
-
-
-
-
-
77,163
77,163
Receivables from shareholders
-
(644)
-
-
-
-
-
(644)
Profit on sale of shares
-
417
166
-
-
-
-
583
Additional absorption of excess liabilities
through merger of Natura
Empreendimentos
S.A, after elimination of the merged
company's investment in the Company
-
-
-
-
-
-
(675)
(675)
Interest on capital
-
-
-
-
-
-
(6,434)
(6,434)
BALANCES AS OF SEPTEMBER 30,
2004 230,762 (3,781) 105,115 9,998
3,629
-
116,444
462,167
b)
Capital
On December 31, 2003, the Company's capital was R$56,387, divided into 25,000
common shares without par value and 10,955 preferred shares without par value.
On March 2, 2004, the shareholders decided at an Extraordinary General Shareholders'
Meeting to: (i) capitalize the credits arising from the redemption of the subordinated
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Natura Cosméticos S.A.
26
debentures held by them and from the net remuneration on the debentures through
January 31, 2004; and (ii) split the shares issued by the Company in the proportion of
2,099 new shares for each existing share. The total amount of the capitalized credits was
R$238,569, and they were applied to a capital reserve in the amount of R$100,000 and a
capital increase in the amount of R$138,569 through the issuance of 3,299 new common
shares at the issue price of R$72.3 thousand per share. These shares were subsequently
split in the proportion of 2,099 new shares for each existing share, resulting in a capital
of R$194,956, divided into 59,399,601 common shares and 22,994,545 preferred shares.
In the General Shareholders' Meeting held on March 5, 2004, the shareholders
approved, among other matters:
a)
Merging the Companies Natura Participações S.A. and Natura Empreendimentos
S.A., which were until then the Company's parent companies.
b)
Canceling the Company shares held by the merged parent companies.
c)
Amending the bylaws to R$196,371, represented by 83,266,061 shares.
On May 24, 2004, the Board of Directors' Meeting approved (i) an increase in the
Company's capital within the limit of authorized capital, due to the exercise of the right
to convert the debentures issued by the Company and fully subscribed by BNDES
Participações S.A. into common shares of the Company, as allowed by the Private
Indenture of Issuance of Registered Debentures Convertible into Common Shares, dated
February 23, 2001.
Consequently, 2,172,550 registered common shares without par value, totaling
R$34,391, were subscribed, and the Company's capital was changed from R$196,371,
represented by 83,266,061 common shares, to R$230,762, represented by 85,438,611
common shares.
As of September 30, 2004, the Company's capital is R$230,762. The subscribed and
paid-up capital is represented by 85,438,611 common shares without par value.
c) Receivables from management
In the quarters ended September 30, 2004 and March 31, 2004, the amounts of R$644
and R$2,385, respectively, were reclassified from the caption "Receivables from
shareholder" to the caption "Treasury shares" until they are paid up. Details are
disclosed in Note 10, item k.
d) Interest on capital
The Company's management recorded interest on capital pursuant to CVM Resolution
No. 207/86 and Law No. 9,249/95.
As of September 30, 2004, the gross amount of interest on capital is R$ 19,867 and was
calculated in accordance with statutory limits, and the withholding income tax was
retained and paid by the Company.
e) Dividend distribution policy
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Natura Cosméticos S.A.
27
Each year, shareholders are entitled to a minimum dividend equivalent to 30% of net
income for the year, considering principally the following adjustments:
·
The increase in the amounts resulting from the reversal, in the year, of reserves for
contingencies, recognized previously.
·
The decrease in the amounts intended for the recognition, in the year, of the legal
reserve and reserve for contingencies.
The bylaws allow the Company to prepare semi-annual and interim balance sheets, and
based on these balance sheets, authorize the payment of dividends upon approval by the
Board of Directors.
The Company page, in August 2004. Dividends and interest on capital in the amounts of
R$73.333 and R$13.433, respectively, for first half of the year.
f) Goodwill on the issuance of shares
Refers to the goodwill arising from the issuance of 3,299 common shares resulting from
the capitalization of debentures in the amount of R$100,000, as mentioned in detail in
item b) above.
g) Reserve for profit retention
As of December 31, 2003, this reserve was recorded in accordance with article 196 of
Law No. 6,404/76. On March 5, 2004 it was used for absorbing excess liabilities arising
from the mergers of the companies Natura Empreendimentos S.A. and Natura
Participações S.A. See details in item b) above.
h) Stock option program
In 1998, the extinguished Natura Empreendimentos S.A. approved an incentive policy
for certain directors and managers of the group's companies, through which they would
be entitled to buy shares. Subsequently, this Program was also assumed by the
extinguished Natura Participações S.A., and the general bases of the Stock Option Grant
Program remained unchanged.
On March 5, 2004, the General Shareholders Meeting of Natura Cosméticos S.A.
approved the merger of Natura Empreendimentos S.A. and Natura Participações S.A.
into the Company, and fully assumed the Stock Option Program. As it became a
publicly-held company, Natura Cosméticos S.A. changed its Stock Option Program, and
the main changes were the criteria for establishing the subscription or purchase price,
and the Company's obligation to repurchase the shares was discontinued.
The Board of Directors meets once a year for the purpose of, within the Program's
general bases, establish the Plan, indicating the directors and managers who will receive
the options.
Before the Company went public, the amount established for exercising the options was
updated according to inflation levels as measured by the Expanded Consumer Price
Index (IPC-A), and the Company had the obligation to repurchase the shares. The plans
for 2000, 2001, 2002, 2003 and 2004 were approved under these rules.
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Natura Cosméticos S.A.
28
The plans for 2000 and 2001 have a 3-year time span for exercising the options, that is,
the right to exercise options will be based on 1/3 per year. The plans for 2002, 2003 and
2004 have a four-year time span for exercising the options, and the exercising rights are
50% at the end of the third year and 50% at the end of the 4
th
year.
After the Company went public, the Company's Management, in a meeting held on
April 26, 2004, changed these Programs in which the Company is no longer obliged to
repurchase the shares acquired under the Program, and modified the criteria for
determining the purchase or subscription price of the shares, which became the average
market price of the Company's common shares at BOVESPA over the last ten sessions,
and maintained the rules regarding updating based on the IPC-A index.
The deadline for exercising the options received is two years, counted from the date
when all the holder's options have matured (became exercisable).
The information related to the stock option plans is summarized as follows:
Number of stock options (in shares):
Balance of options as of February 1, 2004 (after merger of Natura
Participações S.A.)
2,476,351
Cancelled options
(24,127)
Exercised options (*)
(511,321)
Balance of options as of March 31, 2004
1,940,903
Distributed options
380,292
Cancelled options
(51,019)
Exercised options (*)
(438,556)
Balance of options as of September 30 and June 30, 2004
1,831,620
(*) Breakdown of exercised options through September 30, 2004
Options converted into shares and sold
805,064
Options converted into shares and held
144,813
Total options exercised
949,877

Options converted into shares and sold generated a cash disbursement in the amount of
R$ 11,086, resulting from the difference between the amount paid by option holders in
the amount of R$16,574 and the amount of R$27,660, which was paid by Natura
Cosméticos S.A. for the repurchase.
Breakdown of call options by plan:
Number of
call
options
(in shares)
Amount for the
year updated by
IPCA through
September 30, 2004
2000 46,348
17.30
2001 84,513
18.15
2002 585,786
25.19
2003 743,439
14.11
2004
371,534 34.72
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Natura Cosméticos S.A.
29
Total 1,831,620
As already mentioned above, the Company, after going public, no longer is obliged to
repurchase the shares acquired under the program, and, since the recording of the
provision related to the stock option program as set forth in CVM's Official Circular No.
01/2004 is no longer mandatory and is a practice not adopted by publicly-held
companies in Brazil, the amount of R$9,564 related to this provision was reversed as of
June 30, 2004, against the administrative expenses account, in the amount of R$2,578,
and retained earnings, in the amount of R$6,986. The amount of R$6,986 recorded in the
retained earnings account is due to the fact that the provision was originated in the
company Natura Participações S/A and received by Natura Cosméticos S/A as net assets
in the merger process of March 2004, as disclosed in Note 1, and therefore had no effect
on the income of Natura Cosméticos S/A.
On September 30, 2004, if the Company's Management had opted to recognize in the
accounting books the effects of the plans, taking into account the time span for maturity,
and using the intrinsic value method (the difference between market price as of
September 30, 2004 and the option value updated by the IPC-A), the pro forma net
income for the quarter and nine-month period ended September 30, 2004 would be
R$25,710 and R$10,816, respectively, as shown below:
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Natura Cosméticos S.A.
30
IFS Pro Forma IFS Pro Forma
1/1/2004 to
9/30/2004
1/1/2004 to
9/30/2004
7/1/2004 to
9/30/2004
7/1/2004 to
9/30/2004
GROSS OPERATING REVENUES
1,738,406
1,738,406
645,656
645,656
Taxes on sales, returns and rebates
(532,528)
(532,528)
(197,493)
(197,493)
NET OPERATING REVENUES
1,205,878
1,205,878
448,163
448,163
Cost of sales
(396,145)
(396,145)
(141,835)
(141,835)
GROSS PROFIT
809,733
809,733
306,328
306,328
OPERATING (EXPENSES) INCOME
Operating expenses
(545,729)
(571,439)
(209,626)
(220,442)
INCOME FROM OPERATIONS BEFORE
FINANCIAL EFFECTS
264,004
238,294
96,702
85,886
Financial expenses
(29,552)
(29,552)
(9,057)
(9,057)
Financial income
31,013
31,013
10,781
10,781
INCOME FROM OPERATIONS
265,465
239,755
98,426
87,610
Nonoperating income (expense)
(820)
(820)
(931)
(931)
INCOME BEFORE DEBENTURE
PARTICIPATION
264,645
238,935
97,495
86,679
Debenture participation
(7,178)
(7,178)
-
-
INCOME BEFORE TAXES ON INCOME
257,467
231,757
97,495
86,679
Income and social contribution taxes
(56,605)
(56,605)
(20,108)
(20,108)
NET INCOME
200,862
175,152
77,387
66,571
18.
PENSION PLAN
On August 1, 2004, the Company implemented a supplementary defined-contribution
pension plan for all employees of Natura and its subsidiaries. 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 1.0% to 5.0% of the employee's
compensation. The plan is managed by Brasilprev Seguros e Previdência S.A. and the
Company's contributions as of September 30, 2004 totaled R$359.
19.
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.
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Natura Cosméticos S.A.
31
Temporary cash investments are mainly made at negotiated return rates, since the
Companies intend to hold these investments to redemption. These investments reflect the
market conditions at the balance sheet dates.
Loans and financing are recorded at the contractual interest rates of each transaction.
b) Exchange risk
The Company has entered into swap and forward transactions to hedge against exchange
variation on its liabilities resulting from assumed liabilities. According to the Company's
policy, hedge transactions should be contracted for all debts that may expose the
Company to exchange risks. As of September 30, 2004 and June 30, 2004, the Company
had swap transactions with financial institutions in the amounts of R$41,092
(US$14,375,000) and R$43,685 (US$14,058,000), respectively. Forward transactions as
of September 30, 2004 amounted to R$3,557 (Euros $ 1,002,000). These transactions
generated losses as of September 30, 2004 and June 30, 2004, of R$4,857 and R$1,124
respectively, which were recorded in current liabilities. The exchange risk is
substantially indexed to the U.S. dollar and euro.
The Company and its subsidiaries do not have derivative financial instruments for
speculative 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 BNDES and Finep, as
well as to Libor on the agreement with IFC.
d) Fair values
As of September 30, 2004 and June 30, 2004, the fair values of cash and banks,
temporary cash investments, and accounts receivable and payable approximate the
amounts recorded in the financial statements due to their short term. The fair values of
loans and financing substantially approximate the amounts recorded in the financial
statements since these financial instruments have variable interest rates.
The amounts of swap and forward operations are as follows, considering book value
curves and fair value curves.
Company and Consolidated
09/2004
06/2004
Book
value
Fair
value
Book
value
Fair
value
Payables - swap and forward transactions
4,857
4,921 1,124
896
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.
32
20.
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 opinion of its insurance advisors. As of
September 30, 2004, the insurance coverage was as follows:
Item Coverage
Insured
amount
Industrial complex/inventories Any material damages to buildings, installation
and machinery and equipment
384,862
Vehicles
Fire, theft and collision for 816 vehicles
16,891
Loss of profits
Nonrealization of profits arising from material
damages to production installation, buildings
and machinery and equipment
558,270





















































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(Convenience Translation into English from the Original Previously Issued in Portuguese)
OPERATING ACTIVITIES
Net income
200,862
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
25,821
Monetary and exchange variations, net
7,819
Loss on swap contracts
2,961
Restatement of reserve for contingencies
26,906
Increase in other reserves
6,949
Subsidiaries' unrealized profits
1,797
Deferred income and social contribution taxes
(11,814)
Net book value of property, plant and equipment written off/sold
752
Proceeds from debentures
5,743
Minority interest
(1)
267,795
(INCREASE) IN ASSETS
Current assets:
Accounts receivable
(9,158)
Inventories
(54,926)
Other receivables
(1,503)
Long-term assets:
Escrow deposits
(8,997)
Other receivables
(11,964)
Subtotal
(86,548)
INCREASE (DECREASE) IN LIABILITIES
Current liabilities:
Suppliers
20,192
Payroll and related charges
21,195
Taxes payable
(25,028)
Other payables
(10,047)
Long-term liabilities:
Other payables
(918)
Subtotal
5,394
NET CASH PROVIDED BY OPERATING ACTIVITIES
186,641
INVESTING ACTIVITIES
Purchase of property, plant and equipment
(44,125)
NET CASH USED FOR INVESTING ACTIVITIES
(44,125)
FINANCING ACTIVITIES
Proceeds from loans and financing
41,849
Payment of loans - principal and interest
(83,498)
Payment of dividends
(129,997)
Payment of interest on capital
(11,402)
NET CASH USED FOR FINANCING ACTIVITIES
(183,048)
Acquisition of Natura Empreendimentos S/A and Natura Participações S/A with net assets
43,879
NET INCREASE (DECREASE) IN CASH AND BANKS
3,347
Cash and banks at beginning of period
136,111
Cash and banks at end of period
139,458
CHANGE IN CASH AND BANKS
3,347
SUPPLEMENTARY CASH FLOW DISCLOSURE:
Income and social contribution taxes paid
46,279
Interest paid on loans and financing
9,296
Swap contracts paid
9,170
(In thousands of Brazilian reais - R$)
NATURA COSMÉTICOS S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 30, 2004
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RESULTS FOR THE THIRD QUARTER OF 2004 (3Q04)

HIGHLIGHTS OF 3Q04
This report is presented on a consolidated basis, except when otherwise indicated.
The number of units sold rose from 35.9 million in 3Q03 to 47.4 million in
3Q04 (growth of 32.2%);
Consolidated net revenue grew 35.1% in the same comparison of
quarters;
The gross margin increased from 67.1% in 3Q03 to 68.4% in 3Q04;
EBITDA rose 38.0% over the same period, and the EBITDA margin grew
from 22.8% in 3Q03 to 23.3% in 3Q04;
Net income amounted to R$77.4 million for 3Q04, and totaled R$200.9
million for the first nine months of the year.
The number of consultants available in Brazil
1
increased from 340,200 in
3Q03 to 392,100 in 3Q04, growing 15.3%;
The number of consultants available
1
in Latin America
2
increased from
18,300 in 3Q03 to 24,100 in 3Q04, growing 31.6%;
For the second consecutive year, Natura was elected the Best Company
for Women to Work For (according to Exame-Você S/A magazines);
The magazine Carta Capital released the InterScience research, which
granted to Natura the award for the Most-Admired Company in Brazil.
Other awards in the quarter: for the second consecutive year, the
Company was voted as having the Best Annual Report for closely-held
companies (Abrasca) and the 2003 Best Social Balance sheet (Aberj,
Apimec, Ethos, Fides and Ibase). It was also voted as having the best
financial statements for closely-held companies ­ 2004 Transparency
Trophey (Anefac, Fipecafi and Serasa).
(1)
By the end of sales cycle 13.
(2)
Argentina, Chile and Peru.
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1- FINANCIAL SUMMARY ­ CONSOLIDATED DATA
R$ million
3Q04
3Q03
% Change
9M04
9M03
% Change
Units Sold (million)
47.4
35.9
32.2
131.7
101.4
29.8
Gross Revenues
645.7
481.8
34.0
1,738.4
1,289.4
34.8
Net Revenues
448.2
331.7
35.1
1,205.9
893.8
34.9
Gross Profit
306.3
222.5
37.7
809.7
576.1
40.6
Gross Margin (%)
68.4
67.1
---
67.1
64.5
---
EBITDA
104.5
75.7
38.0
289.0
186.0
55.4
EBITDA Margin
23.3
22.8
---
24.0
20.8
---
Net Income
77.4
18.4
319.8
200.9
35.4
467.8
Net Debt/(Investments)
(32.0)
54.2
n/a
(32.0)
54.2
n/a
Available consultants
(1)
in Brazil
(thousand)
392.1
340.2
15.3
392.1
340.2
15.3
Available consultants
(1 )
in Latin
America (thousand)
(2)
24.0
18.3
31.6
24.0
18.3
31.6

(1) Position at the end of the 13
th
sales cycle.
(2) Argentina, Chile and Peru.



2 - DATA ON THE SECTOR IN BRAZIL (1H04)

Cosmetics, fragrance and toiletries companies in Brazil had net revenue of
R$5,939.6 million in 1H04, compared to R$4,997.9 million in 1H03 (growth
of 18.8% in the period), according to data from sector associations SIPATESP
/ ABIHPEC. Natura's net revenue in Brazil, considering only cosmetics,
fragrance and toiletries business, went from R$523.2 million in 1H03 to
R$710.6 million in 1H04, with growth of 35.8%. Thus, according to the data
presented, our market share grew from 10.5% in 1H03 to 12.0% in 1H04.

Considering only Natura's core categories (excluding diapers, oral hygiene,
hair dyes, nail polish, sanitary napkins, etc.), the sector's net revenue in
Brazil went from R$3,278.3 million in 1H03 to R$3,859.1 million in 1H04,
growing 17.7%. Natura's share of this target market grew from 15.9% to
18.4% in the same comparison. Considering the cosmetics and fragrances
category, our market share was 31.3% in 1H04 (28.7% in 1H03). In
toiletries, our market share grew to 9.5% in 1H04 (7.8% in 1H03).

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Target Market Brazil ­ Net Revenue in R$ million
Source: Sipatesp, ABIHPEC
(*)
Comprising only the market in which Natura operates, excluding diapers, oral hygiene,
hair dyes, nail polishes, sanitary pads, etc.



3- OVERVIEW OF SALES
Consolidated Gross Revenue

Natura's consolidated gross revenue totaled R$645.7 million in 3Q04,
representing growth of 34.0% over the same period in 2003 (R$481.8
million). In 9M04, consolidated gross revenue was R$1,738.4 million, with
growth of 34.8% compared to the same period in 2003 (R$1,289.4 million).
The graphs below present the breakdown of gross revenue by category and
region.








Consolidated Gross Revenue ­ Breakdown by category
Net Revenue in R$ millions
3,278
3,859
521
708
1H03
1H04
15.9%
18.4%
+17.7%
+35.8%
Target Market*
2,287
216
1,272
365
28.7%
2,006
156
7.8%
1,572
492
31.3%
9.5%
Target Market* - by Category
CFT Market
Natura
Market share
Cosmetics and
Frangrances
1H04
1H03
1H04
1H03
Toiletries
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Breakdown by Category - 9M04
68.4%
27.5%
4.1%
Cosmetics (1)
Toiletry items (2)
Others (3)
Breakdown by Category - 9M03
68.7%
26.8%
4.5%
(1) - Fragrances, makeup, creams and lotions, and sunscreen.
(2) ­ Hair care products, soaps, deodorants, shaving products and oral hygiene products.
(3) ­ Mainly resale support material, samples, demonstrators, accessories (cosmetics bags, hand bags, etc.),
sales by Flora Medicinal, among others.




Consolidated Gross Revenue ­ Breakdown by region

Breakdown by Region - 9M04
97.2%
2.8%
Brazil
Latin
America
Breakdown by Region - 9M03
97.5%
2.5%





By category, the growth in sales of toiletries in 9M04 was slightly higher than
in cosmetics and fragrances.
By region, sales in other Latin American countries accounted for 2.8% in
9M04, compared to 2.5% in 9M03.
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The table below shows the evolution in sales in physical units.

Evolution in sales volume by category (in millions of units)
Categories
9M04
9M03
Change %
Cosmetics and Fragrances (A)
61.4
42.1
45.8
Toiletry Items (B)
63.9
45.8
39.5
(A)+(B)
125.3
87.9
42.6
Note: excludes units sold regarding other products such as: support material, samples, demonstrators,
accessories (cosmetics bags, hand bags, etc.), sales by Flora Medicinal, among others.




Gross Revenues in Brazil

In the domestic market, gross revenue was R$628.6 million in 3Q04,
accounting for 97.4% of total revenue, with growth of 34.1% in relation to
the same period in 2003 (R$468.8 million).

Domestic sales volume in 3Q04 was 46.4 million units (35.3 million in 3Q03),
with growth of 31.4% between the two periods. Prices had been adjusted by
an average 6.2% at the end of March 2004.

A highlight in the period was the growth in the number of consultants. The
number of consultants available in Brazil, at the end of the 13
th
sales cycle,
was 392,100 in 3Q04 (340,200 in 3Q03), with growth of 15.3%.

The average number of active consultants went from 257,300 in 3Q03 to
305,400 in 3Q04 (18.7% increase), and the average productivity of active
consultants (average sales in R$, in terms of final consumer prices, per
active consultant for the period) increased 12.2% between the two quarters.
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Evolution of consultants number vs. productivity (Brazil)
(1) Active Consultants ­ corresponds to the number of consultants who have made at least
one order per month. The number represents the average active consultants in 3Q03 and
3Q04.
(2) Productivity ­ average sales in R$, in terms of final consumer prices, per active consultant
for the period.


In summary, the growth of domestic sales, at the same pace as in prior
quarters, reflects the success of the Company's strategy over the year,
fundamentally based on continued investment in research & development, in
the marketing program and the increase in the sales channel. It should be
observed that, even with the increase in the sales channel, our consultants'
average productivity grew 12.2% in the comparison of quarters.


4- COST OF SALES

Cost of sales, in relation to net revenue, fell from 32.9% in 3Q03 to 31.6% in
3Q04. The factors that contributed to this reduction were essentially (i) the
change in tax legislation, which allowed the Company to take credits on PIS
and COFINS (taxes on revenue) embedded in our suppliers' prices, and (ii)
the dilution of fixed costs, in the items labor, depreciation and other costs, as
shown in the table below:
Average Active Consultants
in Brazil
(thousand)
+18.7%
305.4
257.3
3Q03
3Q04
Productivity
2
in Brazil
(R$)
+12.2%
2,837
2,529
3Q03
3Q04
1
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Composition of Cost of Sales (% of net revenue)

Item
3T04
3T03
Raw Material
24.8%
24.9%
Labor Cost
2.5%
2.6%
Depreciation
1.2%
1.6%
Others
3.2%
3.9%
Total
31.6%
32.9%



The share of the item raw materials in total net revenue remained stable, in
the comparison between the periods, despite the aforementioned change in
tax legislation on PIS and COFINS, due to the fact that in 3Q03, part of the
losses due to the discontinuation of products, already recorded over the
course of 1H2003, were recovered through promotional actions.

Oscillations in these losses did not affect the comparative analysis of cost of
sales in 9M03 and 9M04. These losses maintained the same share of net
revenue, of approximately 0.7%.


5- GROSS PROFIT

Gross profit was R$306.3 million in 3Q04, with growth of 37.7% compared to
the R$222.5 million earned in 3Q03. Gross margin, therefore, rose from
67.1% in 3Q03 to 68.4% in 3Q04. In the nine-month period ended
September 30, 2004, gross profit was R$809.7 million, 40.6% higher than
the R$576.1 million earned in 9M03.

6 - EXPENSES

Selling Expenses

Selling expenses increased in relation to revenue, going from 31.1% in 3Q03
to 31.5% in 3Q04. This increase is due to greater investment in the
marketing program in 3Q04.
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Administrative Expenses

Administrative expenses in relation to net revenue was reduced from 15.6%
in 3Q03 to 14.8% in 3Q04.

It is important to point out that in the comparison between the periods there
was a change in the corporate structure. In this change, in February 2004,
Natura Inovação, responsible for the research & development process for
new products, became a wholly-owned subsidiary of Natura Cosméticos S.A.
In 3Q03, the R&D expenses recorded in Natura Cosméticos S.A. included the
profit margin of Natura Inovação. If we eliminated this effect, administrative
expenses, as a percentage of net revenue, would go from 13.3% in 3Q03 to
14.8% in 3Q04, a 1.5% increase, on a more comparable basis.
This increase, which occurred despite the dilution of fixed costs, is mainly
due to (i) expenses referring to the process of going public (not including
commissions to banks), in the amount of R$3.5 million (these expenses
already total R$6.8 million for 9M04), and (ii) the increase in accrued profit-
sharing, as a result of the growth in income at a higher rate than sales.

7- EBITDA

EBITDA in 3Q04 was R$104.5 million, growing 38.0% in relation to 3Q03
(R$75.7 million). EBITDA margin was 23.3% in 3Q04, against 22.8% in
3Q03.

In 9M04, EBITDA totaled R$289.0 million (R$186.0 million in 9M03),
representing growth of 55.4%. EBITDA margin went from 20.8% in 9M03 to
24.0% in 9M04, due to efficient cost and expense management, and the
dilution of fixed costs.


8- NET INCOME

Net income generated in 3Q04 was R$77.4 million (R$18.4 million in 3Q03).
In addition to the evolution of revenue and margins explained above, the
increase in net income between the periods was also due to:(i) the end of
subordinated debenture participation in income (redeemed on March 2,
2004), and (ii) the reduction in average net debt between the two periods.
Net margin increased from 5.6% in 3Q03 to 17.3% in 3Q04.

In 9M04, net income totaled R$200.9 million, compared to R$35.4 million in
the same period in 2003. The reasons for this increase are the same as those
background image
presented in the paragraph above.

9- INVESTMENTS

Investments in 3Q04 totaled R$21.5 million, of which the highlight was
construction work for the new vertical warehouse (R$7.5 million) and the
renewal of the vehicle fleet of approximately one third of the sales promoters
(R$5.8 million). For 9M04, investments totaled R$44.2 million, concentrated
mainly in the increase in storage capacity.


10- OPERATIONS IN THE REST OF LATIN AMERICA (Argentina, Chile
and Peru)

Financial Highlights (US$ million)
3Q04
3Q03 Change %
9M04
9M03
Change %
Units Sold (thousand)
980.2
572.8
71.1%
2,494.2
1,504.8
65.8%
Net Revenues
5.1
3.2
60.9%
12.7
8.1
57.6%
Losses from operations
-0.6
-0.8
-21.5%
-2.1
-2.2
-5.5%
Operating Margin
-12.5%
-25.6%
-
-16.3%
-27.3%
-



Our operations in the rest of Latin America had significant results in 3Q04
compared to 3Q03. Net revenue in US dollars of these operations grew
60.9% and operating loss decreased 21.5%. As a result of the dilution of
fixed costs, operating loss, as a percentage of net revenue, decreased from
(25.6%) in 3Q03 to (12.5%) in 3Q04.

The number of available consultants grew 31.6%, from 18,300 in 3Q03 to
24,000 in 3Q04.
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Annex 1
Statements of Income
Natura Cosméticos SA ­ Consolidated Data for the Period (R$ thousand)

3Q04
%NR
3Q03
%NR
Change
9M04
%NR
9M03
%NR
Change
GROSS OPERATING REVENUES
645,656
100.0
481,757
100.0
34.0%
1,738,406
100.0
1,289,419
100.0
34.8%
Taxes on sales, returns and rebates
(197,493)
30.6
(150,098)
31.2
31.6%
(532,528)
30.6
(395,635)
30.7
34.6%
NET OPERATING REVENUES
448,163
100.0
331,659
100.0
35.1%
1,205,878
100.0
893,784
100.0
34.9%
Cost of Sales
(141,835)
31.6
(109,127)
32.9
30.0%
(396,144)
32.9
(317,687)
35.5
24.7%
GROSS PROFIT
306,328
68.4
222,532
67.1
37.7%
809,733
67.1
576,097
64.5
40.6%
OPERATING (EXPENSES) INCOME
(209,626)
46.8
(156,559)
47.2
33.9%
(545,729)
45.3
(414,275)
46.4
31.7%
Selling
(140,987)
31.5
(103,270)
31.1
36.5%
(371,507)
30.8
(281,127)
31.2
33.2%
General and Administrative
(66,461)
14.8
(51,822)
15.6
28.2%
(168,046)
13.9
(129,089)
14.7
27.9%
Management Compensation
(2,178)
0.5
(1,467)
0.4
48.5%
(6,176)
0.5
(4,059)
0.5
52.4%
INCOME FROM OPERATIONS BEFORE
FINANCIAL EFFECTS
96,702
21.6
65,973
19.9
46.6%
264,004
21.9
161,822
18.1
63.1%
Financial Expenses
(9,057)
(9,554)
-5.2%
(29,552)
(66,701)
-55.7%
Financial Income
10,781
4,268
152.6%
31,013
40,410
-23.3%
INCOME FROM OPERATIONS
98,426
22.0
60,687
18.3
62.2%
265,465
22.0
135,531
15.2
95.9%
Nonoperating income (expense)
(931)
0.2
1,207
(0.4)
-177.1%
(820)
0.1
80
(0.0)
-1125.0%
INCOME BEFORE DEBENTURE PARTICIPATION
97,495
21.8
61,894
18.7
57.5%
264,645
21.9
135,611
15.2
95.2%
Debenture Participation
-
-
(30,590)
-100.0%
(7,178)
0.6
(73,388)
-90.2%
INCOME BEFORE TAXES ON INCOME
97,495
21.8
31,304
9.4
211.4%
257,467
21.4
62,223
7.0
313.8%
Income and social contribution taxes
(20,108)
4.5
(12,879)
3.9
56.1%
(56,605)
4.7
(26,887)
3.0
110.5%
NET INCOME BEFORE MINORITY INTEREST
77,387
17.3
18,425
5.6
320.0%
200,862
16.7
35,336
4.0
468.4%
Minority Interest
9
-100.0%
-
37
-100.0%
NET INCOME
77,387
17.3
18,434
5.6
319.8%
200,862
16.7
35,373
4.0
467.8%
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Annex 2
Natura Cosméticos SA ­ Consolidated Data (R$ thousand)
Balance Sheets as of September 30, 2004 and June 30, 2004



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Annex 3
Natura Cosméticos SA ­ Consolidated Statements of Cash Flows for the
period ended September 30, 2004 (R$ thousand)
OPERATING ACTIVITIES
Net income
200,862
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
25,821
Monetary and exchange variations, net
7,819
Loss on swap contracts
2,961
Restatement of reserve for contingencies
26,906
Increase in other reserves
6,949
Subsidiaries' unrealized profits
1,797
Deferred income and social contribution taxes
(11,814)
Net book value of property, plant and equipment written off/sold
752
Proceeds from debentures
5,743
Minority interest
(1)
267,795
(INCREASE) IN ASSETS
Current assets:
Accounts receivable
(9,158)
Inventories
(54,926)
Other receivables
(1,503)
Long-term assets:
Escrow deposits
(8,997)
Other receivables
(11,964)
Subtotal
(86,548)
INCREASE (DECREASE) IN LIABILITIES
Current liabilities:
Suppliers
20,192
Payroll and related charges
21,195
Taxes payable
(25,028)
Other payables
(10,047)
Long-term liabilities:
Other payables
(918)
Subtotal
5,394
NET CASH PROVIDED BY OPERATING ACTIVITIES
186,641
INVESTING ACTIVITIES
Purchase of property, plant and equipment
(44,125)
NET CASH USED FOR INVESTING ACTIVITIES
(44,125)
FINANCING ACTIVITIES
Proceeds from loans and financing
41,849
Payment of loans - principal and interest
(83,498)
Payment of dividends
(129,997)
Payment of interest on capital
(11,402)
NET CASH USED FOR FINANCING ACTIVITIES
(183,048)
Acquisition of Natura Empreendimentos S/A and Natura Participações S/A with net assets
43,879
NET INCREASE (DECREASE) IN CASH AND BANKS
3,347
Cash and banks at beginning of period
136,111
Cash and banks at end of period
139,458
CHANGE IN CASH AND BANKS
3,347
SUPPLEMENTARY CASH FLOW DISCLOSURE:
Income and social contribution taxes paid
46,279
Interest paid on loans and financing
9,296
Swap contracts paid
9,170