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Our Reason for Being is to create
and sell products
and services that promote
well-being/being well.
well-being
is the harmonious,
pleasant relationship of
a person with oneself,
with one's body.
being well
is the empathetic, successful,
and gratifying relationship
of a person with others,
with nature and
with the whole.
Reason for Being
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Vision
Because of its corporate behavior,
the quality of the relationships it
establishes and the quality of its
products and services, Natura will be
a global brand, identified with the
community of people who are committed
to building a better world,
based on a better relationship with
themselves, with others, with the nature of
which they are part and with the whole.
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Beliefs
Life is a chain of relationships.
Nothing in the universe exists alone.
Everything is interdependent.
It is our belief that the appreciation
of the importance of relationships
is the foundation of an enormous
human revolution in the search
for peace, solidarity and life
in all of its manifestations.
The continuous search for improvement
promotes the development of individuals,
organizations and society.
"The things I do for Natura are things
that I like and would do for myself because
they are valuable and genuine."
Beto Von Poser, engineer by trade,
scenographer by choice and Natura
supplier for the last 13 years
Commitment to the truth is the route
to perfecting the quality of relationships.
The greater the diversity, the greater the
wealth and vitality of the whole system.
The search for beauty, which is the genuine
aspiration of every human being, must be free
of preconceived ideas and manipulation.
The company, a living organism, is a
dynamic set of relationships. Its value
and longevity are connected to its
ability to contribute to the evolution
of society and sustainable development.
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NATURA ENJOYED YET ANOTHER YEAR OF
GROWTH IN 2007.THE COMPANY'S GROSS
REVENUES GREW 10.6% COMPARED TO 2006,
FOR A TOTAL OF R$ 4.3 BILLION. THE EBITDA
WAS R$ 702 MILLION, 7.3% HIGHER THAN
THE PREVIOUS YEAR, WITH A MARGIN OF 22.8%. NET
INCOME TOTALED R$ 462.3 MILLION, GENERATING AN
INITIAL RETURN ON NET EQUITY OF 72.1%, ONE OF
THE HIGHEST PROFITABILITY LEVELS ON THE
BRAZILIAN MARKET. THE NUMBER OF CONSULTANTS
WHO MAKE UP OUR DIRECT SALES FORCE) GREW
SIGNIFICANTLY (16.4%) IN THE COUNTRIES IN WHICH
WE OPERATE.
NATURA HAS DOUBLED IN SIZE OVER THE PAST
FOUR YEARS. WE ASSUMED THE LEADERSHIP OF THE
COSMETIC AND DIRECT SALES SECTORS, BECAME ONE
OF THE MOST ADMIRED BRANDS IN BRAZIL, ENTERED
IMPORTANT LATIN AMERICAN MARKETS, INVESTED
IN INFRASTRUCTURE AND RESEARCH AND
DEVELOPMENT AND WENT PUBLIC. WE CURRENTLY
HAVE 5,900 EMPLOYEES AND MORE THAN 718,000
CONSULTANTS IN THE MARKETS IN WHICH WE OPERATE.
Message
from the President
From left to right:
Guilherme Leal, Luiz Seabra, Pedro
Passos and Alessandro Carlucci.
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Antonio Luiz da Cunha Seabra
Co-Chair of the
Board of Directors
The growth reflected our financial performance, leadership,
brand recognition and scale, and we are grateful to all those
who contributed to these results. With this growth have come
challenges. We have reached a level at which our expansion
requires enhanced operational efficiency. Natura has become a
larger, more complex organization, and this complexity affects our
operations in different ways. In Brazil, our revenues increased 9.5%,
nearly double the GDP growth, although still below the growth of
the market in which we operate (13.4%). International revenues,
driven by our advance into new Latin American markets, grew
41.4%. We reached a virtual break-even point in the consolidated
result in Argentina, Chile and Peru, countries where we have
operated for a longer time. We began operating in Colombia and
Venezuela and expanded into Mexico, where we surpassed our
growth goals. We currently have 86,000 active consultants in the
Latin American markets outside of Brazil.
The acceptance of our brand and direct sales channel indicates
that the region as a whole will be an important generator of cash
for the company by 2010, with earnings of US$ 500 million in
2012. The figures show that our expansion in Latin America has
been successful and that these markets constitute a concrete
platform for future business.
Our operations in France help us build the brand in a
sophisticated market, generating the experience required to
implement a business model in developed markets. The next step
in our international expansion is the United States, and we have
chosen a group of senior executives to improve our entry plan
in this market, the world's largest for cosmetics and direct sales.
In the Brazilian market, we see vast opportunities to accelerate
our growth and improve efficiency and profitability.
Therefore we developed an operating plan with the following
focus points: 1) innovate the business model to strengthen the
relationship with our consultants; 2) reduce the number of
products and concentrate on the most important product
launches; 3) increase and improve investments to make
communications and marketing more effective; 4) implement a
management culture focused on processes to obtain productivity
gains; 5) reinvigorate our organizational culture by investing in the
development of leaders who share our values.
We understand the challenges and we are enthusiastic about the
new cycle that is beginning. Natura will grow while reinforcing
its commitments to sustainable development and to a business
model that not only generates but also shares economic, social
and environmental benefits with all of society. For us, global
citizenship means operating as a leading organization in the
search for sustainability and a better future for all.
With this in mind we launched an ambitious and innovative
Carbon Neutral Program in 2007, designed to reduce and
off-set our emissions of greenhouse gases (GHG). In addition to
controlling the emissions from our factories and processes, we will
involve our suppliers in efforts to reduce emissions along the
entire value chain, including the final disposal of our products.
At a time when so many companies are working to protect the
planet, we would like to pay a heartfelt tribute to Anita Roddick,
the founder of Body Shop, in hopes that the seed she planted will
continue to bear fruit. Our two companies, both founded in the
1970s with separate identities and in different places, remained
united in the search for a better world, long before this effort
became a marketing tatic for many companies. Anita, who left us
with fond memories of her visit to our Cajamar factory in 2002,
never deviated from her activism and ethics. For us, as for her,
social and corporate responsibility is not a box to tick off but a
transforming passion.
Our progress results from the quality of our relationships,
products and services. We will continuously improve our focus
and efficiency. Therefore, we invite all who share Natura's
vision to participate with enthusiasm and joy in the new
cycle now beginning.
Alessandro Giuseppe Carlucci
CEO
Pedro Luiz Barreiros Passos
Co-Chair of the
Board of Directors
Guilherme Peirão Leal
Co-Chair of the
Board of Directors
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Profile
The Natura brand originated in Brazil, born from a passion for
cosmetics and relationships. The company operates in seven
Latin American countries and in France. We are the leading
Brazilian company in the cosmetics, fragrances and personal
hygiene market as well as in the direct sales sector. A public
company since 2004, our shares are listed on the New Market,
the highest level of corporate governance of the São Paulo
Stock Exchange (Bovespa).
Through our business conduct, we seek to create value for society
as a whole, generating integrated results in the economic, social
and environmental sectors. We believe that sustainable results
are those achieved through high quality relationships, and we
therefore seek to maintain open channels of communication with
all of our stakeholders in a continuous exercise of transparency.
Our products are the greatest expression of our essence. To
develop them, we mobilize expansive social networks capable
of integrating scientific knowledge with the wisdom of traditional
communities, while also promoting the sustainable use of Brazil's
rich biodiversity. We do not use animal testing and we strictly
observe the most rigorous international safety norms. These
approaches produce high-quality cosmetic creations that
promote pleasure and well-being, with designs inspired by
the different forms of nature.
Our consultants are our first `consumers.' They put Natura
products in the hands of our customers, and we encourage
them to establish quality relationships with customers based
on the understanding and fulfillment of their needs. To that end,
our consultants first learn about, use and experience the
benefits of Natura products before offering them to relatives,
friends and acquaintances.
We support the personal, material and professional
development of our consultants and encourage them to
become agents of change, helping to spread the Well-Being-Well
concept and to build a more prosperous, just and united society.
Mexico
Commercial Operation
México City Natura House
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Venezuela
Commercial Operation
Peru
Commercial
Operation
France
Natura Paris Maison
Research and Technology Laboratory
Commercial Operation
Colombia
Commercial
Operation
Bogotá
Natura House
Chile
Commercial
Operation
Brazil
Benevides (Pará)
Factory
Research and Technology Laboratory
Cajamar (São Paulo)
Factory
Research Center
Campinas (São Paulo)
Natura House
Itapecerica da Serra (São Paulo)
Distribution Center
Jaboatão dos Guararapes (Pernambuco)
Distribution Center
Matias Barbosa (Minas Gerais)
Distribution Center
Argentina
Commercial Operation
Buenos Aires Natura House
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Main Events during the Year
Economic
· Start of operations in Colombia and Venezuela.
· 41.4% growth in international operation revenues.
· 10.6% growth in consolidated gross revenues.
Social
· Expansion of employment opportunities in direct
sales, with an increase in the direct sales force
from 617,000 in 2006 to 718,000 in 2007 in all the
markets in which we operate.
· Inauguration of the soap noodle factory in
Benevides (Pará).
Environmental
· Launch of the Natura Carbon Neutral project, which
will reduce and offset greenhouse gas emissions along
Natura's entire value chain, from the extraction of
raw material to the final disposal of our products.
· Replacement of conventional alcohol with organic
alcohol in perfume products.
· Inclusion of an environmental table on the labels and
packaging of our new products.
Key Sustainability Topics
Greenhouse gas emissions
­ We take global
warming seriously and thus have launched an
ambitious program to become carbon neutral. Read
more about the Carbon Neutral Program in the
Environmental Performance chapter.
Biodiversity
­ The sustainable use of biodiversity
is one of our main innovation platforms. Learn
more about our 2007 actions and Natura's strategy
for managing biodiversity in the Environmental
Performance
chapter.
Social and environmental impacts of our
products
­ We want our products to be a vehicle
for sustainability; so we study and minimize their
negative environmental impacts while maximizing
the social benefits they bring to the communities
involved. Read more in the Environmental Impact
of Products and Supplier Communities
chapters.
Quality of Relationships
­ We seek lasting, high
quality relationships with all of our stakeholders.
We base our relationships on ethics, open dialogue
and transparency. Learn more about our advances
in 2007 and the next steps for developing our
relationships in the chapters on Strategy and
Management and Quality of Relationships
.
Education
­ Education in its broadest sense is
crucial for human development. We create
educational projects for employees, mobilize our
consultants through the Natura Movement and
we invest in school education through the
Believing is Seeing Project. For further information,
please see the Employees, Consultants and Social
Performance
chapters.
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Main Indicators
Economic and Financial Performance
2005
2006
2007
Evolution of the Consolidated Net
Revenues (R$ millions)
3,243.6
3,890.0
4,301.6
Evolution of EBITDA (R$ millions)
564.4
654.5
702.0
Evolution of EBITDA Margin (%)
24.7
23.7
22.8
Net Income (R$ millions)
396.9
460.8
462.3
Distribution of Wealth to
Shareholders (R$ millions)
6
319.4 359.4 415.1
Shareholders
Number of Shareholders
2,706
9,705
20,798
Employees and Third Parties
Distribution of Wealth to
Employees (R$ millions)
306.4
379.7
390.3
Number of Employees (un)
4,128
5,085
5,919
Percentage of Employees
with Disabilities (%)¹
3.6
4.2
5.2
Climate Survey ­ Favorability (%)¹
70
69
71
Consultants
Distribution of Wealth
to Consultants (R$ millions)¹
5
1,311.7 1,583.9 1,722.1
Number of Natura
Consultants (thousands)²
520.5
617.4
718.6
Satisfaction ­ Favorability (%)¹
90
90
90
Quality of the Relationship¹ (%)
90
89
90
Consumers
Number of Products Launched¹
213
225
183
Investments in Innovation (R$ millions)
67.1
87.8
108.4
Satisfaction ­ Favorability (%)¹
98
97
97
Suppliers and Supplier Communities
Distribution of Wealth
to Suppliers
(R$
millions)
1,731.7 2,132.3 2,329.7
Satisfaction ­ Favorability (%)¹
83
87
83
Government and Society
Taxes Paid to the
Government (R$ millions)
727.2
817.14
948.3
Investment in Corporate
Responsibility (R$ thousands)¹
23,379.7
38,174.0
53,007.2
Environment
Water Consumption per
Invoiced Unit (L / un) ³
0.58
0.53
0.42
Total Energy Consumption per
Invoiced Unit (kjoules / un) ³
503.8
469.5
510.2
Total waste weight by
Invoiced Unit (grams/unit)
25.3
25.7
24.1
Percentage of Waste Recycled (%)
81.1
84.1
88.0
Total CO
2
e emissions (tons)
4
N/A
179,589
183,619
Average Environmental Impact
of Packaging - ACV (mPt/kg)
89.3
83.2
73.4
Percentage of Refills per
Invoiced Unit (%)¹
17.4
19.8
21.3
1 Indicators associated with the Brazilian operation.
2 Refers to the number of consultants available at the end of the year.
3 During previous years, this indicator was reported per sold units. This is why the historical
was altered.
4 Due to the improvements implemented in the 2007 inventory, we recalculated the 2006
figure, thus providing a basis for comparison of our emissions over two years. The 2005
inventory was not revised. CO
2
e (or CO
2
equivalent): measurement used to compare
greenhouse gas emissions based on each one's potential to add to global warming.
5 Estimate considering a presumed income margin of 30%.
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Awards
and Recognition
Natura's business activities and its ethical and
transparent relationships with stakeholders
brought it various awards in 2007, including:
Brand
Most Admired Company in Brazil and
Top Company in the Key Areas: Ethics,
Commitment to Human Resources, Management
Quality, Social Responsibility and Innovation
The Most Admired Companies in Brazil,
Carta Capital and InterScience Magazine
Brazil's Most Valuable Brand in the
Consumer Goods Sector
Brazil's Most Valuable Brands, Interbrand and
Isto É Dinheiro Magazine
Highest Brand Recognition in the
Environmental Preservation Category
Top of Mind, Datafolha and
Folha de São Paulo Newspaper
Highest Brand Recognition by Women
Top of Mind Internet,
UOL
Highest Brand Recognition in the
Beauty Product Category
Top of Mind Internet,
UOL
Sustainability
Top 20 Sustainability Model Companies
Exame Magazine Sustainability Guide,
Exame Magazine and
Center for Sustainability Studies of the
Getúlio Vargas Foundation of São Paulo
Human Resources
Best Company for Leaders in Latin America
Fortune Magazine,
Hewitt Associates and the RBL Group
150 Great Places to Work in Brazil
Great Places to Work, Você S/A - Exame Magazine
100 Great Places to Work in Argentina
Great Place to Work ­ Argentina,
Great Place To Work Institute and
Economic Insert of Clarín Newspaper
25 Great Places to Work in Peru
Great Place to Work ­ Peru, Great Place To Work
Institute and El Comércio Newspaper
60 Great Places to Work in Mexico
The Super Companies: The 60 Top Companies in
Mexico, Editorial Expansión Group
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Financial
Top Company from the Pharmaceutical,
Personal Hygiene and Cleaning sector
"Best Off Financially,"
Isto É Dinheiro Magazine
Top Company from the Pharmaceutical,
Personal Hygiene and Cleaning sector
Companies of the Year,
DCI Newspaper
Company of the Year in the Perfume Sector
FGV of Business Excellence,
Getúlio Vargas Foundation
Top Company in the Consumer Goods Sector
Biggest and Best,
Exame Magazine
Top Company in the Pharmaceutical
and Cosmetics Industry
Valor 1000, Valor Econômico Newspaper
Marketing and Product
Company of the Year
Design and Packaging ­
Brazilian Packaging Association
Ecodesign
Design and Packaging ­
Brazilian Packaging Association
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"We will reduce our
portfolio to make
our value proposal and
our market position
clearer for the consumer ."
Eduardo Luppi,
Natura's Vice President of Innovation
From left to right: Tatiana Pignatari,
Erik Galardi, Eduardo Luppi, Mônica
Gregori, Denise Alves, Fernanda Hoefel
and Fernando Del Mar
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The 2007 results reaffirm the soundness of our business strategy.
The Brazilian operation recorded an EBITDA margin of 26.0%
in 2007, practically the same as in 2006 (26.3%).We maintained
the 90% satisfaction rate in the survey conducted among our
consultants, while Natura achieved its highest ever global brand
recognition rate among consumers, according to a survey by
Ipsos Insight Brazil. Natura also continues to be the most
preferred brand in its sector, with a 42% preference rate,
compared to the 18% rate of our closest competitor.
Our international operations grew 58.2% in weighted local
currency, spurred on by our advance throughout Latin America.
We began operations in Colombia and Venezuela and expanded
our operations in Mexico, with a total of 86,000 consultants
in the region. This performance assures us that consumers
enthusiastically approve both our brand and our sales model.
In Brazil we maintained our leadership position in the cosmetics,
fragrances and personal hygiene sector, which continued to grow
steadily at a nominal rate of 13.4% in the accumulated results
for the first 10 months of 2007, compared to the same period
in 2006, according to the Brazilian Personal Hygiene Industry
Association (ABHIPEC). In real terms, discounting the National
Consumer Price Index for the period, the growth was 9.8%. The
direct sales segment also enjoyed accelerated growth, and Brazil
moved into fifth place in the global ranking for the sector, falling
Strategy and Management
behind only Germany, Korea, Japan and the United States,
according to the World Federation of Direct Selling Associations
(WFDSA), which is affiliated with the Brazilian Association of
Direct Selling Associations (ABEVD). From January to June 2007,
the segment moved R$ 7.2 billion in Brazil, representing a 12.5%
increase compared to the R$ 6.4 billion recorded for the same
period in 2006, according to the ABEVD.
These are good results, but we still see opportunities to
accelerate our growth and increase our share in the Brazilian
market. Thus we plan to invest R$ 400 million in this
acceleration from 2008 to 2010, an investment primarily
directed at improving and increasing our main marketing tools
and improving our business model. This investment will be
financed entirely by the enhanced efficiency of our
manufacturing and distribution processes, as well as by
improved portfolio management, with fewer products.
We will obtain additional gains by reducing fixed costs and
expect a two percent gain in net revenues in 2010.
Natura will continue its international expansion, especially in
Latin America, where our performance demonstrates that our
brand, products and sales model have been widely accepted.
We want to grow at an accelerated pace in the Latin American
countries and generate revenues of US$ 500 million in the
region by 2012, or about a 4.5% growth in our market share.
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spread the "Well Being Well" concept, which is our Reason for
Being. We will promote consultants engagement and efforts as
agents of social change, conscious of their global citizenship.
2. Reduce the number of products and focus our efforts on the
more important launches ­ The development of our products
will be oriented by the idea that "less is more." Over the next
three years, we will reduce the number of available products
from 930 to 780, concentrating on those truly innovative
products that add value to our brand. Through such measures,
we hope to recover our innovation rate (gross revenues
originating from the products that were launched or improved
over the past 24 months versus the total gross revenues for
the year), which fell from 58.3% in 2006 to 56.8% in 2007.
We have already begun to reduce the number of product
launches (183 launches in 2007 compared to 225 in 2006).
This does not mean reduced investment in innovation, but
rather more focus, precision and impact. We invest more in
R&D than any other Latin American company in our sector:
in 2007 alone, we invested R$ 108.9 million in R&D, 3.4% of
net revenues.
3. Invest to enhance the efficiency of communications and
marketing ­ We will increase and improve investment in our
marketing tools to mobilize our consultants, encourage them
to boost their productivity and increase sales. We will
communicate more effectively to build the Natura brand,
which in 2007 was once again judged the most valuable
among Brazilian consumer goods companies and the sixth
most valuable company in Brazil, according to a survey by
Interbrand and Isto É Dinheiro Magazine.
4. Implement a management culture focused on processes to
achieve productivity gains ­ We will develop the company's
organizational model and design by adopting a management
model focused on processes.
Therefore, we reformulated our corporate architecture and
created three autonomous management groups with their
own teams that will conduct business operations in Brazil,
Latin America and the new markets. These operations are in
different stages of maturity and present in markets of different
sizes and levels of development. Across all operations we need
to maintain closer relationships with our stakeholders. We have
assembled a team of senior executives who will be dedicated
full-time to preparing our entry into the United States market
in 2009.
Together, these initiatives will be the pillars of corporate growth,
our goal being to maintain profitability at a minimum level of 23%
the EBITDA margin during the period.
To reach the goals of our 2008-2010 strategy we are developing
an action plan focused on the following initiatives:
1. Improve the business model to strengthen our relationship
with our sales force and boost their productivity ­ The first
major change will be the expansion of the Natura Consultant
Adviser (NCA) project throughout Brazil
over the next two years. This project was successfully piloted
program in Brazil's Central-Western. Under this new model,
the Sales Promoter will be responsible for a group of NCAs,
who in turn will help manage the relationships with their
consultants, serving to strengthen the relationships.
New Natura Houses will be built all over Brazil. These
provide spaces where consultants can get to know our
products, receive training and improve their relationships
with the company. To further improve the support and
services that we provide, we will shorten order delivery
times by decentralizing our distribution system.
Finally, we will increase training, which has always been one
of our differentials. We will help our consultants to become
continually better qualified agents to serve customers and
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5. Energize our organizational culture by developing leaders
with our values ­ We will invest more in managing the
organizational culture and the development of employees and
leaders to guarantee the perpetuation of crucial company values.
6. Ensure the company's dedication to managing and constantly
improving the quality of the relationships
we build ­ Managing the quality of relationships is so important
for Natura that during the first half of 2008 our governance
model will begin to monitor indicators in this area. We created
a Relationship Quality Committee, led by our CEO, which will
help the Board of Directors monitor the evolving relationship
with each of our stakeholders.
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During the mid-1990s the company created its Board of
Directors and auxiliary committees. This helped put in place the
structure we needed for our initial public offer (IPO) in 2004,
crowned with the trading of company shares at the highest level
of corporate governance on the São Paulo Stock Exchange: the
New Market. The separation of the company's administration and
ownership was completed in 2005 with the nomination of the
first executive president who did not belong to the group
of controlling shareholders.
The Board of Directors, the highest administrative authority at
Natura, consists of three founding partners and four external
independent board members, none of whom has an executive
position. To support them, there are six auxiliary committees:
Strategic; Corporate Governance; Audit, Risk Management and
Financial; People; Management Systems; and International, this
last committee was created in 2007.
The year 2007 also saw an increase in the transparency and
independence of the board with the appointment of two new
members: Julio Moura Neto and Luiz Ernesto Gemignani.
Julio Moura Neto is the former chairman of GrupoNueva, a holding
company that owns companies operating in 15 countries
in the Americas, as well as former vice president of the Executive
Committee of the World Business Council for Sustainable
Development (WBCSD), headquartered in Geneva, Switzerland.
Luiz Ernesto Gemignani has been CEO of Promon for the past
six years, chairman of the Deliberative Council of the Promon
Social Security Foundation, vice president of the Trustee Board
of the National Quality Foundation and vice president of the
Brazilian Association of Infrastructure and Base Industries.
As professionals with outstanding reputations, their qualifications
complement the skills of the other members of the board.
They bring experience in international business and management
excellence, both of which are perfectly-suited to our future plans.
Corporate
Governance
The Executive Board is composed of market professionals:
Alessandro Carlucci
CEO
David Uba
Vice President of Finance and Information
Eduardo Luppi
Vice President of Innovation
José Vicente Marino
Vice President of Marketing and Sales in Brazil
Maurício Bellora
Vice President of Internationalization
Paulo Lalli
Vice President of Operations & Logistics
Andréa Sanchez
Latin American Marketing Director
Angel Medeiros
Logistics Director
Antônio Siqueira
Legal Director
Arno Araújo
Sales Director
Claudia Falcão
Human Resources and Organization Director
Daniel Gonzaga
Research and Technology Director
Denise Alves
Business Unit Director
Board Evaluation
The performance of board members is
evaluated each year. Part of their remuneration
is fixed and paid monthly, and part is variable,
paid annually and associated with economic,
social and environmental goals (See Note 18
of the Financial Statements).
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Eduardo Costa
Brand and Communication Director
Eduardo Zornoff
Financial Director
Erasmo Toledo
Relationship Marketing Director
Fernando Mesquita
Corporate Governance Secretary
Fernando Pantaleão
New International Business Director
Flávio Pesiguelo
Organizational Development Director
Ítalo Flammia
Information Technology Director
Joel Ponte
Marketing and Innovation Director
Jorge Casmerides
International Finance Director
Marcello Rodrigues
Supply Director
Marcos Vaz
Technical Services Director
Moacir Salzstein
Strategic Planning Director
Mônica Gregori
Business Unit Director
Pedro Villares
Latin America Operations Director
Renata Ribeiro
Business Innovation and Strategic Planning Director
Renato Abramovich
Sales Director
Roberto Zardo
Client Services Director
Rodolfo Guttilla
Corporate Affairs and
Government Relations Director
Valeria Grossmann
Olfactive Center Director
Victor Fernandes
Development Director
Anderson Ferracini
General Director of the Venezuelan Operation
Denise Figueiredo
General Director of the French Operation
Guto Pedreira
General Director of the Chilean Operation
Heriovaldo Silva
General Director of the Argentinean Operation
José Paez
General Director of the Mexican Operation
José Ramón
General Director of the Peruvian Operation
Maurício Restrepo
General Director of the Colombian Operation
Audits
At Natura, the internal audits include
procedures and tests to evaluate
the internal control environment,
including possibilities of fraud. In 2007,
13 processes were audited, including
in our international operations.
In 2007, employees in Brazil and in the
international operations, as well as suppliers from
the Brazilian operation, contacted the Ombudsman,
providing yet another source of information on
cases of corruption. We investigated eight
possible cases in 2007, two of which
required action. During the year we did
not receive any fines or sanctions
related to non-compliance with the laws
and regulations associated with our activities.
Risk Management
Risk management is a key part of our governance structure. The
Audit, Risk Management and Financial Committees assist the
Board of Directors in analyzing accounting, fiscal, tax, corporate
and new investment matters, among others.
Over recent years, we have improved our controls and created
a "panel" that we use to identify risks in two areas: strategic and
operational. The analysis of the strategic topics allows us to
interpret possible scenarios that may affect the company and
develop alternative paths to take.
We created a self-evaluation tool within the operational sphere
that provides a methodology to help each manager work with his
or her team, evaluate the risks of the process and issue an official
report. In 2007 we conducted two pilot self-evaluations: one in
Chile, on compliance with local law, and another in Brazil, focused
on asset management. Please see the Explanatory Notes on page
16 of the Financial Statements for more details.
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"The greatest thing is that
we learn with each interaction.
The stakeholders testimonials are
always surprising and show the
extent to which we are achieving
that which we believe in."
Estelita Thiele,
Natura Ombudsman
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Quality
of Relationships
Total Number of Contacts Received
through the Ombudsman Channel
2005
2006
2007
Internal Public - Brazil
N/A
100¹
649
Internal Public - Latin America
N/A
N/A
29²
Suppliers - Brazil
N/A
N/A
12³
1 Data associated with the period from October to December 2006
(launch of the Ombudsman: October 2006).
2 Data associated with the period from October to December 2007
(launch of the Ombudsman: October 2007).
3 Data associated with the period from May to December 2007
(launch of the Ombudsman: May 2007).
There is also an Ethics Committee associated with Natura's
Executive Board that receives and analyzes the most important
cases involving misconduct, to ensure that employee concerns
reach the highest levels of governance.
2007 COMMITMENT
EXTEND THE RELATIONSHIP PRINCIPLES AND
IMPLEMENT THE OMBUDSMAN SERVICE FOR ALL
STAKEHOLDERS WITH WHOM NATURA RELATES IN
BRAZIL AND IN THE INTERNATIONAL OPERATIONS.
GOAL PARTIALLY ACHIEVED
IN 2007, WE EXTENDED THE OMBUDSMAN
SERVICE TO SUPPLIERS AND EMPLOYEES IN THE
OTHER LATIN AMERICAN COUNTRIES. WE
DECIDED NOT TO EXTEND THE RELATIONSHIP
PRINCIPLES AND IMPLEMENT AN OMBUDSMAN
SERVICE FOR ALL THE OTHER STAKEHOLDERS,
SINCE WE KNOW THAT IT IS ONLY THROUGH
INCREASED LEARNING THAT WE CAN SERVE
THESE STAKEHOLDERS WITH QUALITY,
RESPECT AND EFFICIENCY.
2008 COMMITMENT
EXTEND THE OMBUDSMAN SERVICE
TO THE CONSULTANTS.
Throughout our history, we have searched for lasting, high quality
relationships with all those who interact with our business:
shareholders, consumers, consultants, employees, suppliers,
communities and other stakeholders in Brazil and throughout our
international operations. We promote high quality relationships
through open dialogue, ethics and transparency.
The Natura Relationship Principles define the ways in which we
want to interact with each stakeholder and should guide us in
our attitudes and daily actions. In October 2006, we launched the
Relationship Principles for our employees, and in April 2007 for
our suppliers. The principles designed for consultants, shareholders,
government officials, supplier communities, surrounding
communities and consumers will be disclosed in 2008.
Learn more about the Relationship
Principles by visiting
www.natura.net/relatorio
We created an Executive Committee, including Natura's CEO,
to manage the quality of the relationships, effective as of the first
half of 2008. The committee is responsible for closely monitoring
the evolution of the quality of the relationships with the
stakeholders, implementing a management system and
incorporating it into the strategic planning.
Ombudsman
After starting its activities in 2006 to serve employees in Brazil,
the Ombudsman extended activities to employees who work
in the other Latin American countries as well as to suppliers.
Associated directly with our CEO, the service is designed to
ensure the effective implementation of the Relationship
Principles and to discover opportunities for improvement. With
this new channel of communication, we seek to create a
structure to identify opportunities for improvement in our
processes, policies and relationships.
At the end of each contact with the Ombudsman, a satisfaction
survey is sent to the individual who contacted the service. In 2007,
the survey revealed a satisfaction rate of 97% among the
employees who evaluated the channel in Brazil. We did not report
the survey results for the other stakeholders since the service has
been operating for too short a time to produce significant data.
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Shareholders
We aim to keep our shareholders and potential investors
well informed about our activities and results by ensuring
transparency and equal access to information. In 2007, we held
a series of events and meetings in Brazil and abroad, reaching
a total of 399 institutions, more than 500 market analysts and
over 300 individual investors.
Our main channels of communication with these stakeholders
include the "Contact IR" service on the Investor Relations
website, the quarterly results teleconferences, the Association of
Capital Market Investment Analysts and Professionals (APIMEC),
and the national and international financial institution
conferences and the meetings that occur frequently at our
offices. At the Ordinary Shareholder Meetings, Natura gathers
the members of the Board of Directors and professionals from
the Accounting, Financial, Legal and Investor Relations areas to
create an opportunity for dialogue among all those present.
The number of Natura investors has grown significantly since
the IPO and, in 2007, the number of shareholders grew 114%
for a total of 20,798. We offer each of them the same
conditions obtained by the controllers in terms of company
sale and control (Tag Along).
Approximately 95% of our shareholders are individuals, while
only 5% are companies. Of the latter, 64% are in Brazil, and
36% are abroad. However, if we consider only the outstanding
Natura shares, the stake of companies outside Brazil increases
to 67.6%.
Shareholder Profile
2005
2006
2007
Individuals
2,206
8,614
19,813
Companies in Brazil¹
165
616
633
Companies Abroad
335
475
352
Total
2,706
9,705
20,798
1 Excluding Controllers and Treasury
Currently, 25.46% of the company's shares are outstanding.
This meets the requirements of the New Market, the highest
level of corporate governance of the São Paulo Stock Exchange
(BOVESPA), on which our shares are listed.
Shareholder Structure - 12/28/07 Base
Shareholders
Number of Shares
Percentage
Controllers
314,993,430
73.44%
Shares in Treasury
161,303
0.04%
Administrator Shares
4,538,428
1.06%
Outstanding Shares
109,235,890
25.46%
Total Shares
428,929,051
100%
Natura shares are present on the most important BOVESPA
indexes: Ibovespa; IBrX-50 and IBrX-100 (which list the 50 and
100 most profitable shares on the BOVESPA); Differentiated Tag
Along Share Index (ITAG) and the Corporate Governance Index
(IGC). Since 2005, we have also been included on the BOVESPA
Corporate Sustainability Index (ISE), which includes a series of
sustainability criteria that the listed companies must fulfill, as well
as the Morgan Stanley Composite Index (MSCI), a reference
index for foreign investors.
Distribution of Dividends
Even though the dividend policy included in the company
bylaws establishes the distribution of a required minimum
dividend of 30% of the annual net income, the Natura Board of
Directors recommends that this percentage be no lower than
45% of annual net income. In practice, however, we have
surpassed these guidelines and paid out 100% the free cash
generated during the year.
In 2007, we made a total payment of R$ 171,497,983.20 in
dividends and interest on own capital, net of income tax withheld
at the source. In addition to R$ 237,751,716.27 distributed in the
form of dividends, paid on April 8, 2008, this amount represented
89% of net income.
Learn more about the performance
of Natura shares and our communication
channels with shareholders at the Investor
Relations website:
www.natura.net/investidor
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2007 COMMITMENT
ACHIEVE A 72% SATISFACTION RATE IN THE
CLIMATE SURVEY INVOLVING EMPLOYEES.
GOAL PARTIALLY ACHIEVED
DESPITE NOT REACHING THE GOAL OF 72%,
WE IMPROVED BY TWO PERCENTAGE POINTS,
FROM 69% TO 71% SATISFACTION IN THE
BRAZILIAN OPERATION. CONSIDERING THE
INTERNATIONAL OPERATIONS AS WELL, WE
ACHIEVED THE GOAL OF 72%.
In addition to the climate surveys, we offer our employees
channels of open dialogue to inform them of all important
corporate actions and receive their comments and suggestions.
Among these channels are the internal monthly newspaper
Being a Natura Employee (5,500 copies in Brazil), the Intranet
Portal and the Ombudsman.
In 2007, the Ombudsman received some 650 comments from
our employees and contracted workers. Most of these (64%)
were directed at the Human Resources Board and addressed
technical issues such as benefits, policies, processes and
infrastructure. The channel was accessed by people from all levels
and areas of the organization.
Dialogue, transparency and collaboration also serve as a basis for
our relationship with labor unions. As in previous years, Natura
reported progress on negotiations through internal bulletins. The
collective bargaining agreements established with the labor unions
apply to all of our employees, in compliance with Brazilian law.
We also inform employees of all operational changes, such as
the implementation of a semi-autonomous cell approach to
manufacturing, which we began three years ago and completed in
2007. This was implemented with the consent of employees, but
the United Chemists Union, to which some 500 Natura Brazil
Employees
Natura's relationship with employees is guided by ongoing
dialogue, recognition of diversity and encouragement of
professional development. Our main "thermometer" for measuring
progress is the Organizational Climate Survey, which revealed an
unfortunate decline since 2004 in the Natura Brazil results. The
good news is that we were able to reverse this trend in 2007 and
improve the favorability rating by 2 percentage points.
Despite this improvement, primarily among employees in the
Sales and Operational areas, the decline of satisfaction remains an
issue for the administrative staff.
The organizational climate also improved in the international
operations in 2007, with the exception of Chile.
Climate Survey
2005
2006
2007
Brazil
70%
69%
71%
Argentina
60%
64%
69%
Peru
59%
68%
80%
Chile
58%
73%
72%
Mexico
76%
77%
83%
France
68%
47%
56%
Colombia¹
N/A
N/A
86%
Venezuela¹
N/A
N/A
52%
1 In the operations in Colombia and Venezuela, 2007 was the first year in which Natura
conducted the survey.
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employees belong, threatened a walkout. We managed to resolve
the dispute in a way that guaranteed the rights of all those
involved, without any type of action that would violate our
employees' rights of association, organization and expression ­
pursuant to our usual practice.
The move to semi-autonomous cells eliminated a hierarchical
level and created a structure in which all employees report
directly to the factory manager, which helped achieve a qualitative
and quantitative leap in employee productivity. In the place of the
former "leaders," we now have "manufacturing analysts"
responsible for the continuous improvement of their cells and
individually responsible for aspects such as productivity, planning,
environment, safety and human resources. Implemented gradually,
such modifications were accompanied by the publication of
policies and rules, as well as a series of training sessions.
Diversity
Our payroll has grown significantly over recent years in line with
the expansion of our business.
Number of Natura Employees
2005
2006
2007
Brazil
3,575
4,361
4,798
Argentina
237
262
276
Chile
93
122
179
Mexico
70
141
259
Peru
133
179
229
Venezuela¹
N/A
35
63
Colombia¹
N/A
N/A
79
France
20
30
36
Total
4,128
5,130
5,919
1 The Venezuela operation began in 2006 and the Colombia operation in 2007.
Other Employment Contracts¹
2005
2006
2007
Interns
41
60
73
Temporary Workers
2
679
321
151
Third Party Workers
3
1,209
1,797
1,170
1 Includes the Argentina, Brazil, Chile, France, Mexico, Peru and Venezuela operations.
2 Those workers contracted for a pre-determined period.
3 Third-party workers are those allocated at the company units for continuous services.
Even with the rapid growth in employees, we have been able
to continue promoting diversity. We are an organization that
employs mostly women and that has made advances in the
inclusion of professionals with disabilities -from 185 to 251
employees, surpassing the goal of 5%. In 2007, we focused on
contracting professionals with disabilities in the commercial area
as sales promoters. Called the Apprentice Program, it resulted in
contracting seven sales promoters.
Composition of Employees in the Brazilian Operation
1
2005
2006
2007
Total Employees
3,575
4,361
4,798
Individuals with Disabilities
128
185
251
Percentage Compared to Total
Number of Employees
3.6%
4.2%
5.2%
Women
63.1%
63.7%
63.9%
Black and Mixed-Race Women
24.0%
21.9%
22.4%
Black and Mixed-Race Men
29.4%
21.8%
24.9%
Over Age 45
11.0%
10.3%
9.1%
1 Employees provided their own racial classification based on Brazilian Institute of
Geography and Statistics (IBGE) criteria, the only official criteria available in Brazil: "race:
white, Asian, indigenous, black or mixed-race." The expression "neither black nor mixed-race"
indicates the total number of employees who chose white, Asian or indigenous. The company
recognizes that this classification does not meet the claims of several social movements in
the country.
In 2007, we distributed R$ 390.3 million to our employees.
We seek to compensate our employees on just and equal terms,
in accordance with the priciples of diversity and multiculturalism.
In all of our operations, we pay higher than the minimum monthly
salary for these markets.
Proportion of the Lowest Salary Compared to the Minimum
Monthly Salary (in %)
2005²
2006²
2007
1
Brazil
2.1
1.9
1.9
Argentina
N/A
N/A
1.1
Chile
N/A
N/A
1.5
Peru
N/A
N/A
1.6
Mexico
N/A
N/A
2.8
Colombia
N/A
N/A
1.5
Venezuela
N/A
N/A
1.9
France
N/A
N/A
1.3
1 The indicator was first measured in 2007 in the international operations.
Despite our efforts to promote equal opportunities, the average
salary of black and mixed-race women is lower than the overall
average salary because fewer black and mixed-race women are
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senior managers. In the same way, the average salary for director
positions is higher for men, since there are no women serving as
vice presidents. Among administrative positions, the average salary
for women is lower because many of the women in the sales force
are just starting their careers and thus have a lower salary base.
Salary Profile¹
Average Monthly Salary for the Brazilian Operation in R$
2005
2006
2007
Women
5,511.51
5,179.61
5,450.72
Men
6,030.85
5,060.58
6,075.77
Black and Mixed-Race Women
4,485.52
3,604.90
3,606.47
Other Women
5,322.03
5,236.48
5,555.55
(not black or mixed-race)
Black and Mixed-Race Men
3,227.23
2,922.06
3,833.49
Other Men
5,949.80
5,110.73
6,262.53
(not black or mixed-race)
Over Age 45
7,978.61
7,699.67
8,064.09
Age 45 and Under
5,187.87
4,866.75
5,101.37
1 In order to calculate this indicator, we considered the bonuses given to sales managers
and sales promoters. When distributed in the categories, the sales force employees reinforce
the female salary averages through the bonus, excluding the production positions. The data
consolidation methodology was improved, which can generate a small difference in relation
to the previous years.
In international operations, we do not have a formal recruiting
policy for top management positions. However, in all the countries
in which we operate, a high proportion of such positions are
occupied by native professionals, which helps us better adapt
to the characteristics of each market.
Learn more about the proportion of native
professionals in the international operations
by visiting:
www.natura.net/relatorio
The current management system of the Chilean operation,
designed to reverse the trend of high sales team turnover, has
begun to produce results. In Mexico, the turnover rate increased
significantly due to the high number of Sales Promoter
resignations, leading the company to adopt an action plan to
reduce this figure by improving Sales Promoter recruitment and
training processes and developing the sales manager position. In
Venezuela, we are focusing on improving recruitment and staff
selection to reduce the turnover rate among employees in the
business area.
Employee Turnover Rate
Operation
2005
2006
2007
Brazil
7.6%
6.7%
9.0%
Argentina
11.9%
19.7%
16.1%
Chile
25.4%
31.6%
20.4%
Mexico
7.1%
36.3%
56.5%
Peru
21.7%
15.0%
17.2%
France
1
N.A.
6.6%
4.0%
Venezuela
2
N.A.
N.A.
43.5%
Colombia
1
N.A.
N.A.
4.6%
1 The operation in France began in 2005 and in Colombia in 2007.
2 In 2006, the operation in Venezuela was undergoing structuring for the start of operations
and the turnover indicator was not measured.
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Professional Development
We provide all the required technical training for our employees
to perform their duties and to support their personal and
professional development. Corporate education has four pillars:
lessons about competitive differentials, training for the job, general
education and Natura leadership.
In 2007, we consolidated the training programs implemented
over the previous years. We also tested the viability of the new
corporate education models, which meet our future challenges
both in international operations as well as at the Benevides
factory unit (in the state of Pará in the Amazonian region of
Brazil).We surpassed our goal of offering 101 average hours
of training per employee, achieving an average of 105 hours.
Investments in Employee Education and Training (R$ thousands)¹
Operation
2005
2006
2007
Brazil
12,674
16,286
15,951
1 The data incorporates Sales Force training (Managers and Promoters).
Learn more about investments in education
and training for international operations
by visiting:
www.natura.net/relatorio
Leaders of the Future
In 2007, we launched a pilot version of the Leader
Training Program, designed to retain and develop
employees with high potential and performance.
We seek to assist these employees to occupy
important positions in the company. More than
anything, we want to develop enough high-quality
leaders, making management through people one
of the key pillars for Natura's sustainability over
the medium and long term.
The program, started in 2007 with the Dom
Cabral Foundation and expected to last two
years, is both conceptual and practical, involving
participants in three projects in the social,
individual and business sectors.
Fortune Magazine, in partnership with Hewitt
Associates and the RBL Group, recognized
Natura as the top-ranked among Latin American
companies in terms of innovative leadership
development programs. We currently hold 16
th
place in the global ranking.
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Average Training Hours per Year, per Employee and per
Functional Category in the Brazilian Operation
Group
2005
2006
2007
Production
122
164
120
Administrative
86
82
92
Management
77
61
90
Board
22
38
55
Total
101
111
105
This indicator includes the training of the Sales Promoter public and
Natura Education Program.
In 2007, we developed a new Employee Integration Program
module for the managers of international operations, designed to
present the company's values, beliefs and relationship principles.
Through the program, all new employees and contract workers ­
including security personnel ­ receive training in topics associated
with the Natura essence, which covers human rights. We do not
have a specific training program that covers practices to fight
corruption, a topic that is included in the Relationship Principles
Letter that Natura sent to all of its employees in 2006.
For women, who make up 64% of our employees, we offer
the "Caring for Those Who Care for Themselves" program,
which includes different initiatives designed to support these
employees in making good choices and help them balance their
different roles as professionals and mothers. Especially important
is the individual mentoring program designed for senior
management employees, which provides these women an
opportunity to reflect and assume responsibilities in their
professional and personal lives.
Health and Safety
We consider the physical safety, health and well-being of all those
at Natura to be a top priority. Every one of our employees is
represented by formal health and safety committees, which
analyze accidents, identify situations of risk, plan health and safety
audits and debate possible solutions for any problems. Results are
documented in the meeting minutes and communicated to the
company so that preventive measures may be taken. Between
2006 and 2007, the number of accidents among our employees
in Brazil dropped 40%. There was a 50% reduction among
contractors and service providers. This result was due to
awareness raising activities, the laying down of fundamental
safety rules, increased efforts to publicize prevention concepts,
a more detailed monitoring of service provider activities and
the implementation of actions to eliminate risks.
Typical Injuries and Work Days Lost and Absenteeism Rate
(including workers and contractors) in the Brazilian Operation
Employees
2005
2006
2007
Accidents with Work Leave
6
12
10
Accidents without Work Leave
6
10
3
Accidents per Employee
0.004
0.005
0.003
Contractors
Accidents with Work Leave
21
16
8
Accidents without Work Leave
11
18
9
Work Days Lost
69
108
115
During the same period, the incidence of occupational diseases
fell considerably, from 14 to seven cases, due primarily to
improvements in ergonomics. In addition to routine evaluations in
the workplaces and whenever there is a change in shift, we train
safety monitors from the factory production cells about
ergonomics.
Natura offers a wide array of benefits for its employees, which
constitutes an important differential when it comes to attracting
talent. Of special importance is the Quality of Life Program, which
covers four areas: health; social and family; environment; and
culture and leisure. The initiatives involve everything from the
creation of spaces for exercise, relaxation and even professional
orientation for the adolescent children of our Employees. There
is also an incentive savings account, in which the employee applies
5% of his or her salary per month and Natura contributes 60%
of this value. This pension plan covers all employees; in 2007, 82%
participated in the program. Natura's contribution during the year
totaled R$ 3.8 million.
Learn more about the benefits that
Natura offers its employees by visiting:
www.natura.net/relatorio
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A great friendship: this is how they
like to describe the way they feel
about one another.
Vildete (first to the left) is a Natura Consultant
and is on the team of Maria Amélia (far right),
who is a Natura Consultant Adviser and is
on the team of Cátia Oshiro (middle), who is
Relationship Manager just like Nádia (standing up),
who is the daughter of Maria Amélia.
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Consultants
Our business model is based on direct sales. Our consultants
(independent dealers who purchase and resell Natura products)
are our main connection with final consumers. This work provides
our consultants with income and personal and professional
development and has attracted a growing number of people.
At the end of 2007 Natura had more than 718,000 consultants,
representing a 16.4% increase over 2006. This expansion took
place both in Brazil, where we expanded our sales force by 12.7%,
as well as abroad, with a growth of 53.1%.
Number of consultants available in Brazil in December
(in thousands)
2005
2006
2007
Brazil
483
561
632
Abroad
37
56
86
We have different channels of communication and dialogue with
our consultants, such as a special website, magazine, meetings
and training programs, among others. In 2007, we launched a
pilot Ombudsman program on a regional level, which will be
extended throughout all of Brazil in 2008.
We conduct an annual survey to see how satisfied our
consultants are with their relationship with Natura, and satisfaction
rates have remained stable at around 90%. Despite these good
results, there is room for improvement, primarily in terms of the
services provided to consultants. During 2008 we will spare no
effort to improve product manufacturing and distribution
processes, guaranteeing on-time deliveries and enhancing
the communication and service of our various channels.
Consultant Satisfaction
1
Jan/06
Jan/07
Jan/08
Satisfaction - Favorability (%)
90%
90%
90%
Quality of the Relationship (%)
90%
89%
90%
1 Percentage of "Satisfied" and "Fully Satisfied" Consultants (top 2 boxes).
We have increasingly encouraged the use of the Internet to
close orders.
Thus, we have achieved a gradual, planned reduction in the
number of calls to the Natura Service Center (CAN). Orders
closed via CAN dropped from 60.7% in 2006 to 56.1% in 2007
without affecting the total volume, which continued to grow
during the year.
CAN - Natura Service Center
2005
2006
2007
Daily volume of answered calls
34,191
41,571
37,889
To make the support and services that we provide our
consultants even better, in 2008 we plan to improve
our regional business management processes, invest in
increased training ­ which has always differentiated us from
the competition ­ and decentralize the distribution centers
to shorten order delivery deadlines.
Having signed the Direct Sales Code of Conduct for Direct
Sellers and between Companies, created by the Brazilian
Association of Direct Selling Companies, Natura trains its
consultants for direct sales as well compliance with our ethical
standards. Consultants sign a contractual commitment to resell
the products by their own means. We are unaware of any
incidents of child or slave labor.
To learn more about Natura's relationship
with its consultants, please visit:
www.natura.net/relatorio
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Natura Consultant Adviser
Starting in 2008, we will revolutionize our relationship with our
consultants by innovating the commercial model The first major
change will be the expansion of the Natura Consultant Adviser
(NCA) project throughout Brazil over the next two years.
The program's success was proven through the pilot program
implemented in Brazil's central-western region. According to
the new model, the Sales Promoter will assume the role of
Relationship Manager and support a group of NCAs. These
NCAs will then support a group of consultants. In this way
we hope to more directly and personally meet the needs
of our sales force.
This work will be strengthened by the opening of 30 Natura
Houses over the next two years, serving as sites for meetings
between promoters, consultants and consumers. The company's
Reason for Being ­ "Well Being Well" ­ served as inspiration
when developing the Natura House concept, spaces designed in
perfect harmony with the brand's forms of expression: from the
decoration of the grounds to the warm reception. The houses
serve as spaces for our consultants to meet, talk, exchange
knowledge, develop activities such as sales technique courses,
discuss digital inclusion, learn about product launches and test
the products, among other activities.
In 2007, we inaugurated the first Natura Houses in the
Argentine and Colombian operations as well as a new unit
in Mexico.
2007 COMMITMENT
MAINTAIN THE 89% SATISFACTION RATE IN
THE SURVEY MEASURING THE QUALITY OF
OUR RELATIONSHIPS WITH CONSULTANTS.
GOAL ACHIEVED
WE RECORDED A 90% SATISFACTION RATE
IN THE SURVEY MEASURING THE QUALITY OF
OUR RELATIONSHIPS WITH CONSULTANTS.
2008 COMMITMENT
MAINTAIN THE 90% SATISFACTION RATE IN
THE SURVEY MEASURING THE QUALITY OF
OUR RELATIONSHIPS WITH CONSULTANTS.
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Suppliers and
Supplier Communities
Natura purchases production inputs (raw materials, biological
ingredients and packaging materials), indirect materials, ingredients
and services from its suppliers. Guaranteeing quality and on-time
delivery with cost and productivity gains is a fundamental task for
ensuring the longevity of our company's business activities. Over
recent years, the number of suppliers has increased with the
expansion of our operations.
Today, Natura has nearly 4,800 active suppliers, with about 15%
of whom providing production inputs, and 85% providing direct
or indirect services. Of which, we identified some 100 companies
that are essential to our business strategy. We need to strengthen
our relationships with these suppliers and improve in the areas
of quality, logistics, innovation, costs, customer service, traceability
and risk management. A challenge that involves all suppliers is
correcting the structural process problems that remain to
improve the quality of the relationships.
We work intensely on these two fronts, establishing constructive
channels of dialogue with all suppliers. We restructured the
satisfaction survey in 2007 to better diagnose our relationships
with the suppliers. We reduced the number of questions and
increased the sample; in 2006, we interviewed 106 people at
63 companies, and in 2007 we interviewed 306 people at 152
companies, including the service centers and contract labor
allocated at the company units. The margin of error of the
results dropped from 7% in 2006 to 3.5% in 2007.
Supplier Satisfaction¹ (%)
Jun/05
Aug/06
Sep/07
General Satisfaction ­ Favorability
­ per respondent
83
87
83
General Satisfaction ­ Favorability
­ per supplier company²
N/A
88
84
1 Percentage of suppliers who are satisfied and completely satisfied (top two boxes).
2 For methodological purposes, we started to monitor satisfaction per supplier company.
We experienced a drop in the supplier satisfaction rate, not
one that is statistically significant but an indication that we can
do better in terms of dialogue with managers, communications
and project planning. The survey also revealed that the majority
of suppliers perceived significant changes in their relationship with
Natura over the previous 12 months.
2007 COMMITMENT
ACHIEVE 87% SATISFACTION RATING IN THE
SUPPLIER SATISFACTION SURVEY.¹
GOAL NOT ACHIEVED
THE RATE FELL TO 83%, ALTHOUGH
THE INCREASED SAMPLE SIZE MAKES IT
DIFFICULT TO COMPARE RESULTS.
2008 COMMITMENT ² ³
ACHIEVE 85% SATISFACTION RATING IN THE
SUPPLIER SATISFACTION SURVEY.
1 The goal was revised after the final layout of the 2006 Annual Report, which had
a goal of 89% satisfaction.
2 For methodological purposes, as of 2008 we will track the rates only by supplier
company and no longer by respondent.
3 The goal of 85% is challenging, granted that we will increase the supplier sample.
To improve our communications with these stakeholders, we
prepared the Letter to the Supplier, a mandatory attachment
to all the contracts that conveys Natura's Relationship Principles
and Values using simple and clear language. We also created an
online contact tool that has a link to the Ombudsman service, in
addition to other features. The Ombudsman received 12 supplier
criticisms and complaints during the year, mainly in relation to
technical questions regarding contract management.
Contract Preparation Efficiency
Projeto Mercúrio (Project Mercury), developed
in 2007 for implementation at the start of 2008,
represents an important evolution in supplier
relationships. It aims to improve the purchasing
process flow, reduce the time necessary to prepare
contracts and assure enhanced efficiency and
timeliness. This is a response to a request suppliers
made in our satisfaction survey. With this new
management tool, the period for contract
preparation drops from 37 days (average in 2006)
to an average of seven working days, and the
reduction of invoices with overdue payments may
be as high as 95%.
We also committed ourselves to virtually eliminate
failures in transactions with our suppliers in 2008.
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Evaluation and Certification
We seek out supplier companies with high standards of
excellence, not only in terms of quality and cost, but also in their
social and environmental performance. We adopted the Quality,
Logistics, Innovation, Cost/Contract, Service and Traceability
(QLICAR) program as our main evaluation tool. This is a highly
structured assessment and monitoring tool with social and
environmental requirements that suppliers must fulfill in order
to become certified.
We chose 60 strategic partners for this evaluation and
certification process. These companies conduct a self-evaluation
of quality, environment and social responsibility and undergo
quality audits.
Evolution of Relationships with Suppliers
Both the self-evaluation and audit include requirements related to
human rights, which means that all of the suppliers who obtained
the QLICAR certification were evaluated in this area. All contracts
prohibit companies from using child, forced or slave labor.
Among the sectors that supply products to Natura, alcohol
factories have a history of using this type of labor. The factories
that supply organic alcohol to Natura were audited in 2007, and
no evidence of child or slave labor was found. We chose to use
organic alcohol because its producers have no illegal contracting
practices, manage soil effectively and do not use pesticides or
controversial products.
New suppliers, participants or non-participants in the QLICAR
program, may be audited starting in 2008 by an external company
or organization.
Certification
Qualification
Approval
Mutual
Benefits
Creation
of Value
Joint
Process
Improvements
Percentage of suppliers who underwent self-evaluation and
auditing in quality, environment and social responsibility
2005
2006
2007
Self-evaluated QLICAR suppliers
1
30%
93%
100%
Audited Qlicar suppliers
1
15%
24%
36%
1 The human rights aspects considered are child and forced or slave labor.
2007 COMMITMENT
GUARANTEE THAT 100% OF QLICAR SUPPLIERS
UNDERGO A SELF-EVALUATION IN QUALITY, THE
ENVIRONMENT AND SOCIAL RESPONSIBILITY.
AUDIT 35% OF QLICAR SUPPLIERS, ESPECIALLY IN
CASES OF POTENTIAL SOCIAL AND
ENVIRONMENTAL RISK.
GOAL ACHIEVED
ALL OUR QLICAR SUPPLIERS PERFORMED
A SELF-EVALUATION, AND 36% WERE AUDITED.
Supplier Communities
Natura's main technological platform is based on the sustainable
use of raw materials from Brazilian biodiversity. Access to these
raw materials ­ Brazil's genetic patrimony ­ occurs through
supply contracts with communities that extract the ingredients,
groups of agricultural families and rural business owners.
The work we undertake with all of them is focused on sustainable
production, including plans to manage and certify certain
ingredients (read more about this work in the "Environmental
Performance" chapter
). In general, their products are sent to
processing companies that then provide the industrialized raw
materials to Natura ­ these then become the direct raw materials
used in our products.
Natura recognizes the importance of these partners. Thus, we
work to improve our relationships with them. When we need
new raw materials, we first try to purchase them from our
current partners instead of starting new business relationships.
We seek to provide the best conditions for these producers and
work to reduce the impacts of discontinued products, especially
when it comes to communities.
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We have a team responsible for relationships with supplier
communities. We study concepts and ways to better share
benefits of the access to genetic patrimony and the associated
traditional knowledge based on principles of the Convention
for Biological Diversity, signed at the 1992 Earth Summit
in Rio de Janeiro.
Natura currently works with 19 supplier communities with a total
of 1,684 families located in biomes such as the Amazon and the
Atlantic Rain Forest. All of Natura's innovative projects were
registered to obtain authorization from the Genetic Patrimony
Management Board (CGEN), a part of the Brazilian Ministry of
the Environment (MMA), for access to genetic patrimony and/or
associated traditional knowledge. In 2007 alone, we received
seven authorizations.
We comply with Brazilian law in all of our relations with
these communities. All of the contracts that Natura signs with
suppliers contain clauses prohibiting child or forced labor.
Suppliers presenting a risk for child labor were audited
and none was found.
In communities that supply raw materials from nature, the work
organization is culturally based on the family structure and may
or may not include the participation of children. Many times
including children is a way to support traditional cultural practices.
In 2007, Natura ordered an anthropological study in one of the
communities to better understand this issue. The findings of
this study will be implemented in 2008.
In 2007, these supplier communities received resources in four
ways: they were paid for supplying raw materials, for sharing the
benefits of their genetic patrimony or associated traditional
knowledge and for the use of their image in photos and videos.
They also received funds to promote the sustainable development
of their communities.
Resources Directed at Supplier Communities (R$)
2005
2006
2007
Sharing of benefits through
access to genetic patrimony or
associated traditional knowledge
-
300,000
324,716
Supply
1,309,671
741,165
909,368
Use of Image
54,205
36,410
38,409
Funds and Sponsorships
123,000
204,478
755,126
Other Natura Investments that Benefit Communities (R$)
Studies and Advisories
815,023
504,661
396,137
Training
15,000
20,000
49,907
Monitoring and Development
To monitor the entire supply chain of raw materials from nature
and to help us turn suppliers into partners in sustainable business
practices, Natura launched the BioQlicar program in 2007. This
is an extension of the QLICAR program for communities that
supply ingredients from Brazilian biodiversity. It helps us assess
the supplier communities, establish indicators for monitoring and
identify opportunities for improving the supply chain, carefully
taking account of sustainability.
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"We are working to create a
differentiated communication style.
This includes an analysis of our
advertising, website and the
Natura Magazine."
Marcelo Soderi,
Natura's Communication Manager
From left to right: Clara Belluzzo,
Ângela Fujita and Marcelo Soderi, employees,
and Veridiana Pomarico, from Trip Editora
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Consumers
There are an estimated 41.5 million Natura product consumers
in Brazil. Our relationship with our consumers is based on a wide
range of product choices, a commitment to safety and quality,
effective consumer services and open dialogue.
We began including an "Environmental Table" on our packaging in
2007 to enhance transparency and help educate our consumers.
Inspired by the nutritional table required for food products, it has
six indicators covering the materials used in our products: three
related to ingredients and three related to the packaging.
The quality and safety of our products are not merely objectives
to be achieved, but the results of who we are and the way we
do things.
We maintain a Product Safety Committee that is responsible for
defining strategies and guidelines. All of Natura's new ingredients
and formulas are analyzed by product safety specialists and
submitted for tests by dermatologists or, in certain cases, by
multidisciplinary teams. We employ the Precautionary Principle;
in other words, we avoid any ingredient or product for which
there is no consensus among the medical and scientific
communities as to its safety for human use.
The Natura Consumer Service Center (SNAC), which
answered 1.8 million calls last year, helps us relate directly to this
large universe of customers. In addition to providing information,
SNAC receives compliments, suggestions and complaints.
These services play a crucial role in helping us provide consumer
satisfaction. We perform an average of 49,000 product
transactions every month. This demand generates knowledge
and learning for us. In 2007, for example, consumer suggestions
led us to replace aerosol deodorant valves.
In 2007, after stabilizing the costumer service supplier
migration process completed during the second half of 2006,
the number of non-answered call returned to normal.
SNAC ­ Natura Consumer Service Center (calls in thousands)
2005
2006
2007
Total
1,885
2,204
1,984
Answered
1,791
1,664
1,854
Not answered
94
540
130
We conduct satisfaction surveys with consumers to learn about
various aspects associated with products, prices, delivery time,
relationships, post-sales services, customer service, communication
channels and materials. The survey covers the five regions of Brazil,
including state capitals and rural areas. The results are excellent,
with a satisfaction rate near 100%.
Consumer Satisfaction
Jan-05
Jun-06
Jun-07
Favorability (%)
1
98
97
97
1 In the studies conducted up to January 2005, the figure refers to the percentage of
"satisfied" and "fully satisfied" consumers. As of 2006, the figure refers to the percentage
of 8, 9 and 10 scores.
For 2008, we have made a commitment to formalizing our way
of interacting with consumers by publicizing our Relationship
Principles for these stakeholders, as we have already done for
employees and suppliers.
Learn more about our Product Safety Policy at:
http://www2.natura.net/Web/Br/Inst/politicas/
politicas_seguranca.asp
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Surrounding Communities
Natura's commitment to sustainability goes beyond the value
chain and extends into the communities in which we are
located. We contribute to local development by generating
income for suppliers and training leaders from civil society and
government. In 2007, we invested R$ 391,000 in projects in
the municipalities of Cajamar and Itapecerica da Serra (both
in the metropolitan region of São Paulo), which are the
communities most influenced by our operations.
Investments (R$ thousands)
2005
2006
2007
Investments in the communities
near Cajamar and
Itapecerica da Serra
427.5
433.9
391.5
We also strive to strengthen our relationship with our employees
from the surrounding communities, and our volunteer program
focuses on this effort. In 2007, 77 volunteer employees helped
out at schools and other educational institutions in Itapecerica da
Serra and Cajamar. As of December, nearly 17% of our employees
from the Cajamar factory were residents of the municipality itself.
Our supplier development program trains local companies so
they can offer us better goods and services, an activity that
benefits both us and them and makes us a more potent social
force in these municipalities.
Purchases from Suppliers of the Communities Near the Factory
Units
1
(R$ millions)
2005
2006
2007
Cajamar
2
30.61
32.52
45.99
Itapecerica da Serra
2
0.23
0.41
0.82
Benevides
3
N/A
0.48
6.45
1 The consolidated method for this indicator was changed, and therefore the historical data
was updated. The values consider taxes.
2 Calculation assumption: purchases from suppliers located in the municipalities of Cajamar
and Itapecerica da Serra, in the metropolitan region of São Paulo, Brazil.
3 New calculation assumption: purchases from suppliers in the State of Pará, exclusively
for soap making at the factory located in Benevides, in Northern Brazil. Operations began
in 2006.
No Animal Testing
In line with our beliefs, we eliminated animal testing
completely in 2006 without sacrificing the rigorous
safety criteria applied to Natura products. This
commitment extends to all the suppliers of our
development process. We do not accept animal
testing during the phases of research and
development of new products designed exclusively
for Natura, nor do we purchase main active
ingredients that have been tested on animals. In an
attempt to discourage animal testing everywhere,
we encourage our raw material suppliers to extend
this condition to all of their production, even
products meant for other companies.
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2007 COMMITMENT
INCREASED PURCHASING FROM LOCAL SUPPLIERS:
25% IN CAJAMAR; 100% IN ITAPECERICA DA SERRA
AND 60% IN BENEVIDES.
GOAL ACHIEVED
WE ACHIEVED OUR GOAL FOR PURCHASES FROM
LOCAL SUPPLIERS IN THE THREE SURROUNDING
COMMUNITIES: CAJAMAR, BENEVIDES AND
ITAPECERICA DA SERRA.
2008 COMMITMENT
ADOPT AN INDICATOR TO EVALUATE OUR
IMPACT ON THE DEVELOPMENT OF THE
SURROUNDING COMMUNITIES.
Benevides: Strengthening Relationships
Our work in Benevides involves the organization and training
of complex networks of people that extract raw materials from
natural settings and require time to build up a structure.
In a context characterized by social disintegration, one of our
challenges is to strengthen the quality of local relationships
and create a supply-chain that helps us all contribute toward a
sustainable business model.
Our goal is to obtain plant-based oils through a business
model that prioritizes gatherers and family farmers as well as
relationships with the communities and cooperatives that
produce the ingredients, benefiting small local producers.
These local producers are not only in the municipal area but
spread throughout the state of Pará.
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Cajamar: Agenda 21
In Cajamar (São Paulo), we created a tripartite group of
representatives from business, civil society and local government
responsible for the implementation of Agenda 21. After a
community awareness-raising effort in partnership with the
NGO "Native Forest" to emphasize the importance of
community involvement, in 2006 and 2007 we encouraged
discussions on the formulation of the municipality's Master Plan.
Working together to create the Master Plan, as called for by
law, helps create local sustainable development by presenting
a panorama of what the city wants in the coming decade and
developing programs, projects and monitoring mechanisms to
make the effort viable. In December 2007, the Master Plan was
approved in a public meeting held in the Natura auditorium
in the presence of the mayor of Cajamar, local city council
members, municipal secretaries and members of civil society.
The development of local suppliers also accelerated. In 2006,
we found three new potential suppliers: a taxi cooperative
(Coopercaj), a motorcycle delivery company (Ninja Express)
and the bakery of the NGO "Agar Cabin," which cares for
HIV-positive children. After some due diligence, we began
working with them in 2007. We provided training in defensive
driving for the taxi cooperative and trained Agar Cabin in best
management and hygiene practices, offering a permanent
advisory service in the management area. In 2008, we
plan to expand and further develop actions geared
toward supplier development.
Itapecerica da Serra: Strengthening Leadership
Natura's activities in Itapecerica da Serra are mainly in the
urban neighborhood of Potuverá, home to our facilities
and nearly 9,000 people. We invest in strengthening local
leadership and community associations in an effort to prepare
them for the implementation of the Potuverá Agenda 21.
To disseminate this concept, we focused in 2007 on building
Agenda 21 Schools. In partnership with the Municipal Secretary
of Education, Secretary of Planning and the Environment and
the Educational Director of Itapecerica da Serra, we involved
approximately 65 schools in the municipal public network of
Itapecerica and 60 state schools from the municipalities of
Itapecerica da Serra, Embu-Guaçu, São Lourenço da Serra
and Juquitiba.
Itapecerica da Serra, a municipality that is part of the
Guarapiranga Basin, is working to preserve its water sources.
Natura sponsored training in environmental education and
Agenda 21 for community leaders (teachers, council members
and members of civil society) of the seven municipalities of the
Basin. In 2007, we also sought to identify local suppliers who
could be developed and contracted in 2008.
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Government
Natura's relationships with the various political institutions are
guided by ethics, transparency and dialogue. It is legitimate
for business to exercise influence on the government and civil
society, preferably through means of trade associations. That is
why Natura supports the legalization of lobbying, with clear and
transparent rules, and encourages national discussion of this topic.
Although we consider financial contributions to political
parties and candidates legitimate in a democratic system, our
Corporate Policy on Financial Contributions to Political Parties
and Candidates, published in 2006, prohibits earmarking any
financial resources or similar items for this purpose,
both inside and outside election periods.
In 2007, we developed Relationship Principles with the
government that guide our conduct with this stakeholder
and which will be launched in 2008 along with our policies
on anti-corruption practices, bribes and lobbying. This effort
involved employees from various different areas of the
company working with the Ombudsman. The Anti-Corruption
Pact of the Ethos Institute ­ Business and Social Responsibility
and the voluntary international rules of the Organization for
Economic Cooperation and Development (OECD) inspired the
development of our policies.
Our platform for discussions with the government includes
matters of direct interest to us as well as broader issues. In 2007,
our relationship with the government was based on two main
agendas: tax issues, primarily at the state level, in an ongoing
debate regarding the increased tax burden; and the legal
framework related to access to genetic patrimony and the sharing
of benefits with communities for access to traditional knowledge,
whether or not it is associated with genetic patrimony.
Despite an unclear legal framework, we continued investing
in the sustainable use of Brazilian biodiversity as the main
base of our products because we believe that this model can
bring great competitive advantages to Brazil and promote a
sustainable business model with benefits for all those involved.
Much of our communications with the government and society
on this matter are conducted through the Brazilian Personal
Hygiene, Perfumery and Cosmetics Industry Association. We
also participate actively in the Brazilian Association of Direct
Selling Companies and the Perfumery and Hair Care Product
Industry Trade Union in the State of São Paulo. We exchange
experiences with our competitors in these forums, seeking a
consensus on matters of interest to the sector. Natura faces
no lawsuits involving matters of competition , including anti-trust
and monopoly practices.
2008 COMMITMENT
PUBLISH A POLICY REGARDING
LOBBYING AND RELATIONSHIP PRINCIPLES
WITH THE GOVERNMENT.
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"The progress we are making
in the industrial area is the
result of participative
management and the belief
that a `limit' is something that
exists only in our heads."
Ângela Pinhati, Natura's Industrial
and Infrastructure Manager
From left to right: Nilda da Silva,
Simone Nascimento, Maria Soares, Ângela
Pinhati, Igor Ferreira and Patrícia Lopes,
employees from the perfume factory
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Performance
Social
The quality of our relationships with our stakeholders, described
in the previous chapter, is key to Natura's social performance. The
understanding of our business activity as part of an articulated
and connected whole within a social network inspires us to make
efforts to accelerate society's development.
We are proud of helping to create value for society, both through
the generation of jobs and the distribution of wealth to our main
stakeholders, a distribution that increased again in 2007.
Distribution of Wealth (R$ millions)
2005
2006
2007
Shareholders
319.4
359.4
415.1
Consultants
1
1,311.7
1,583.9
1,722.1
Employees
306.4
379.7
390.3
Suppliers
1,731.7
2,132.3
2,329.7
Government
727.2
817.1
948.3
1 Estimate considering a presumed income margin of 30%.
+24.3%
+15.4%
4,128
5,130
5,919
05
06
07
Generation of Direct Jobs
The number of our consultants continued to grow significantly
to reach more than 718,000 at the end of 2007, representing a
16.4% increase over 2006.This expansion occurred both in Brazil,
where we increased our sales force by 12.7%, as well as abroad,
with a growth of 53.3%.
Generation of Job Opportunities
Number of available consultants (in thousands)
2005
2006
2007
Brazil
482.8
561.1
632.4
Abroad
36.2
56.2
86.2
We want to increase our capacity to mobilize society, primarily
through our consultants. This objective of involving our consultants
in the social and environmental transformation process led us to
create the Natura Movement.
Natura Movement
The Natura Movement includes the three parts of the
sustainability tripod: Our Business, Our Planet and Our People.
On the economic level, which corresponds to Our Business,
Natura promotes a series of initiatives to recognize and increase
the value of the consulting activity. For example, every year we
award the consultants with the best overall sales results as a way
of encouraging productivity and entrepreneurship.
At the Our Planet level, which expresses care for the environment,
the main focus is on incentives to purchase products with refills,
which achieved a sales record in 2007. (See the results in the
"Environmental Performance" chapter
.) Another highlight of the
wyear was the launch of the Natura Product Recycling Project,
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started in February in Recife and in August in São Paulo.
Through the program, our consultants collected 90.8 metric tons
of post-consumer packaging from Natura products purchased by
their clients and sent it to local garbage collector cooperatives via
partner transport companies.
On the social level, entitled Our People, we created a campaign
to mobilize consultants to encourage individuals who never
completed basic education to return to school by enrolling in
the Youth and Adult Education (EJA) program developed by the
Brazilian Ministry of Education. Since we joined this cause in 2005,
our consultants have prompted more than 162,000 people to
go back to school. In 2007 alone, we achieved a total of 38,929
enrollments, 15,675 of which were re-enrollments, surpassing the
goal of 24,000.
Enrollments in EJAs by Consultants
2005
2006
1
2007
66,660
57,090
38,929
1 The data released in 2006 was incorrect and has been corrected.
"Believing is Seeing"
Also in the social area, we encourage our consultants to collect
resources for the "Believing is Seeing" program, which contributes
to high quality public education in Brazil. The program is financed
with resources from sales of a special line of products, without
any income for Natura or remuneration for the consultants.
Collections for Investments in Projects Focused on Education
for Public Benefit (R$ thousands)
2005
2006
2007
Net revenues from
"Believe to See"
3,041.70
5,382.40
2,487.80
Fundraising dropped to R$ 3.2 million in 2007, R$ 700,000 below
what was planned. This was due primarily to a delay in the launch
of the new line of products. With money collected in previous
years, we invested R$ 4.3 million during 2007 in the EJA program
and in five reading promotion projects for children, youth and
adults in Brazil:
1. Learning in a Network
- developed in partnership with the
Avisa Lá Institute and Razão Social Institute for the education
of children ages zero to six.
2. Reading Promotion Project
- undertaken in partnership
with the NGOs Education Action, Solidary Literacy and the
Center for Studies and Research in Education, Culture and
Community Action (CENPEC), the project distributed an
archive of 50 books and reading support materials to each
of the 1,500 public EJA schools throughout Brazil.
3. Reading Meetings
- in partnership with the Education and
Documentation Center for Community Action (CEDAC), the
meetings are focused on the training of professionals who
assist with the education of public school students aged four
to six from 10 municipalities, including the distribution of
18,352 quality literature books to the 248 participating schools.
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Investment Matrix
To help our managers be more socially responsible, we offer
them a support tool for monitoring and viewing the results of
our relationships with each group of stakeholders: the Corporate
Responsibility Investment Matrix. We use the matrix to consolidate
investments in projects or actions that are not intrinsic to Natura's
business and which go beyond legal requirements.
Corporate Responsibility Investment Matrix¹
(R$ thousands)
2005
2006
2007
Employees, Families and Third Parties
8,231.7
11,637.5
19,084.0
Consultants
214.0
1,387.6
1,801.4
Consumers
194.1
380.0
468.3
Suppliers
158.7
130.0
232.3
Supplier Communities
896.3
1,141.7
3,299.9
Surrounding Communities
427.5
433.9
391.5
Government and Society
3,820.5
7,453.9
7,058.7
Environment
1,111.7
442.7
1,849.1
TOTAL Invested in different publics 15,054.5
23,007.3
34,185.1
Management expenses
2,559.6
5,799.7
9,591.9
TOTAL Natura Resources
17,614.1
28,807.0
43,777.0
Percentage of net revenues
0.8%
1.0%
1.4%
Net resources collected by
Consultants in the
"Believe to See" program
2
3,041.7
5,382.4
2,484.8
Fiscal incentives invested
Rouanet Law
1,726.9
1,936.3
2,059.5
Audiovisual Law
-
-
1,098.0
Value-Added Tax (ICMS)
996.9
1,500.0
2,101.6
in Minas Gerais
Value-Added Tax (ICMS)
-
-
814.3
in São Paulo
1% Income Tax on CMDCA
3
-
160.2
227.0
1% Income Tax on CONDECA
4
-
388.0
445.0
GENERAL TOTAL
23,379.7
38,174.0
53,007.2
1 The amounts invested in Support and Sponsorship are also considered in this matrix,
although they are divided among the assisted publics.
2 For more information, please see the chapters entitled "Consultants"
and "Social Performance."
3 CMDCA ­ Municipal Boards for the Rights of Children and Adolescents.
4 CONDECA ­ State Board for the Rights of Children and Adolescents.
4. Chapada Project
- developed by the Chapada Education and
Research Institute, the project focuses on the continuous
training of coordinators, educational directors and other
teaching professionals in the 26 municipalities of the Chapada
Diamantina region in the Brazilian state of Bahia.
5. "In Every Understanding a Way of Being"
- developed by the
Regional Small Appropriated Agricultural Institute (IRPAA), this
project trains professors who work with the Youth and Adult
Education (EJA) in the cities of Sento Sé, Senhor do Bonfim
and Filadélfia.
Support and Sponsorship
In 2007, we sponsored projects in three areas: sustainable
development, focused on the generation of work, income and
the protection of threatened areas and species; the
strengthening of governmental and non-governmental
organizations; and Brazilian music.
Investments per Theme (R$ thousands)
2005
2006
2007
Sustainable Development
1,322
3,237
3,589
Female Entrepreneurialism
1
178
165
-
Strengthening of Civil
Society Organizations
1,138
1,442
1,817
Brazilian Music
3,165
3,942
5,239
1 Investments interrupted because we are reviewing the guidelines and focus of the operations.
Our activities to support Brazilian music are financed through
public tax revenues with additional financing from Natura. In the
areas of strengthening civil society organizations and sustainable
development, we use only our own resources. We established a
partnership in Latin America with Ashoka ­ a global non-profit
organization ­ to support an innovative project for social ventures
in each country in which we operate.
Over recent years, Natura has joined several different
organizations and made commitments to important
international initiatives such as the United Nations Global
Compact, which seeks to promote corporate citizenship and
sustainable development.
Learn more about Natura's international
commitments by visiting:
www.natura.net/relatorio
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The increase in absolute emissions in 2007 was due mainly to the
increased consumption of raw materials during the year. However,
CO2 emissions of byproduct mass fell 7% in comparison to 2006,
in line with our five­year objective. The 2007 GHG inventory was
audited by Det Norske Veritas (DNV).
CO
2
e Emissions by Activity (tons)
2005
2
2006
2007
Extraction of Raw Materials and
Packaging Materials
N/A
64,619
68,869
Direct Suppliers
N/A
22,453
24,078
Energy Acquired
N/A
3,288
2,032
Mobile Sources
N/A
3,594
3,340
Product Transportation
(to the final consumer)
N/A
25,417
25,630
Final Disposal of Product and Packaging
N/A
45,768
40,744
Others
1
N/A
14,449
18,926
TOTAL
N/A
179,589
183,619
1 Fixed sources, exports, business trips, effluent treatment, international operations and
other types of transportation.
2 Due to the improvements implemented in the 2007 Inventory, we recalculated the
2006 value, thus providing a basis for comparison of our emissions over a two-year period.
The 2005 inventory was not revised.
For more details on the offset projects
that we will support, please visit:
www.natura.net/carbononeutro
2007 COMMITMENT
FINALIZE THE EMISSIONS INVENTORY FOR
ALL PROCESSES AND IMPLEMENT A PLAN TO
BECOME CARBON NEUTRAL BY 2008.
GOAL ACHIEVED
THE INVENTORY WAS CONCLUDED AND
OUR PRODUCTS WILL BE CARBON NEUTRAL
STARTING WITH THE OFFSET OF EMISSIONS,
SET TO BEGIN IN 2008.
Environmental
Our business model is based on the generation of positive
economic results in harmony with society's needs and the
environment. We made important advances in 2007 in our
environmental performance, primarily in terms of measuring
our greenhouse gas (GHG) emissions for offset starting in 2008;
the reduction in the environmental impacts of our packaging
beyond the established goal; the increased sale of refills; and the
incorporation of the environmental table on packaging.
Carbon Neutral
We are aware of the phenomenon of global warming and its
correlation with greenhouse gas (GHG) emissions and we intend
to do our part to mitigate climate change. Thus, we launched an
ambitious Carbon Neutral Program in 2007 designed to reduce
and offset GHG emissions all along our value chain from the
extraction of raw materials to the final disposal of products.
We can then offer our clients carbon neutral products.
To calculate the emissions at all stages along the value chain,
we adopted the product lifecycle approach and performed an
inventory of GHG emissions based on the standards of the
Greenhouse Gas Protocol Initiative and ISO Norm 14064-1.
During this process, we saw the possibility of reducing 33% of
the GHG emissions over the next five years in relation to 2006
levels, which became a corporate goal.
That which we cannot reduce we will offset in 2008 through five
projects involving reforestation and the use of renewable energy
sources. The work will be monitored by outside evaluators, and
the results will be published periodically.
Total Emissions
2005
2006
2007
Total Emissions of CO
2
equivalent (tons)¹
N/A
179,589
183,619
Relative emissions
(Kg of CO
2
e / Kg of product)
N/A
4.39
4.09
1 CO
2
e (or CO
2
equivalent): measurement used to compare greenhouse gas emissions
based on each one's potential to add to global warming.
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Biodiversity
One of the main focuses of Natura's innovation process ­ the
sustainable use of Brazilian biodiversity in the creation of our
products ­ assumes a balance between the use of natural
resources and their capacity for regeneration. We support
organic production models, agroforestry systems and sustainable
agriculture guided by the ecological handling of pests and
diseases, crop rotation, maintenance of water resources, the use
of "green" fertilizer and species consortiums, among others.
To assure an adequate supply of biodiversity resources in our
production chain and ensure the traceability of raw materials, we
use the Plant-Based Raw Material Certification Program, in which
we invested R$ 111,800.00 in 2007.
The program uses four different certification models based on the
region's characteristics. For forest management (non-wood forest
resources), we follow the principles and criteria of the Forest
Stewardship Council (FSC). For agricultural cultivations, we use
the certifications of the Sustainable Agriculture Network (SAN),
the Biodynamic Institute (IBD) and Ecocert.
Certifications
2005
2006
2007
Total certified assets (un)¹
16
22
24
Percentage of total
certified species²
46%
63%
51%
1 Exclusion of a plant-based raw material due to the discontinuation of a product.
2 The data are not comparable due to expansion of the Certification Program for
Latin American ingredients. Starting in 2007, all the raw materials obtained in the
region (not just in Brazil) were recorded.
2007 COMMITMENT
INCLUDE FOUR MORE INGREDIENTS IN PHASE III
OF THE CERTIFICATION PROCESS.
GOAL NOT ACHIEVED
WE CERTIFIED THREE INGREDIENTS.
THE NON-FULFILLMENT OF THE
GOAL WAS DUE TO A CHANGE IN THE
NATURA PRODUCT LAUNCH STRATEGY.
HOWEVER, CERTIFICATION PROGRAM
EFFORTS WERE REDIRECTED TO THE
FRUTÍFERA PROJECT ­ THE LAUNCH OF A
LINE OF NUTRITIONAL AND BALANCED
FOODS IN A TEST MARKET. TWENTY FOUR
CERTIFIED ORGANIC RAW MATERIALS WERE
INCORPORATED INTO THIS PROJECT.
2008 COMMITMENT
INCLUDE FOUR MORE INGREDIENTS IN PHASE III
OF THE CERTIFICATION PROCESS.
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Environmental Impact of Our Products
In 2007, we replaced part of the alcohol used in our perfume
products with organic alcohol, since we consider the organic
certification to be the best path for acquiring alcohol produced
through environmentally sound practices.
The increased use of plant-based ingredients is another important
trend in the manufacturing of our products, given that ­ if they
comply with sustainable extraction models ­ they have a low
environmental impact and are renewable. In 2007, all of our body
oils were entirely plant-based, and 78.8% of the raw materials
used in our products were of a renewable plant-based origin.
To reduce post-consumer environmental impacts, we are focusing
on selling refills, using recycled polyethylene terephthalate (PET)
in packaging and running a pilot project to collect and dispose of
our post-consumer packaging (see "Social Performance" chapter).
2007 COMMITMENT
AS OF THE SECOND HALF OF 2007, PLACE A TABLE
WITH ENVIRONMENTAL INFORMATION ON
ALL NEW PRODUCTS AND NEW PACKAGING.
20% INCREASE IN THE PERCENTAGE OF REFILLS
PER INVOICED ITEM IN THE BRAZILIAN MARKET.
GOAL ACHIEVED
THE ENVIRONMENTAL TABLE WAS INCLUDED
ON ALL NEW PACKAGING AND PRODUCTS
LAUNCHED IN 2007.
WE EXCEEDED THE PLANNED GOAL
OF INCREASING THE PERCENTAGE OF REFILLS
PER INVOICED ITEM BY 1.27%.
2008 COMMITMENT
INCREASE TO 79% THE TOTAL RAW MATERIAL
OF A RENEWABLE PLANT-BASED ORIGIN
IN OUR PRODUCTS.
USE 100% ORGANIC ALCOHOL IN OUR PRODUCTS.
REDUCE THE AVERAGE ENVIRONMENTAL IMPACT
OF OUR PACKAGING TO 72 MPT/KG.
INCREASE THE TOTAL AMOUNT OF
POST-CONSUMER RECYCLED PACKAGING TO 13%.
ATTAIN A MINIMUM OF 18.5% REFILLS PER
INVOICED ITEM IN THE BRAZILIAN MARKET.*
* In 2007, we made an exaggerated promotional effort to stimulate refill sales. The goal
for 2008 balances the promotional refill effort with that used for regular products. We will
continue with our education and awareness efforts for refill sales; however we will reduce
the promotions.
Materials¹ ²
2005
2006
2007
Percentage of materials used
from recycling (%)
N/A
7.8
10.7
1 The indicator considers packaging and distribution materials (magazines, distribution
boxes and bags) recycled after consumption.
2 The criteria for calculating this indicator were revised, thus the historical number was changed.
Percentage of Refills per Invoiced Item (%)
2005
2006
2007
Brazil
17.4
19.8
21.3
See the percentage of refills per invoiced item
in the International Operations by visiting:
www.natura.net/relatorio
To reduce our environmental impact, in 2001 we incorporated
the packaging Lifecycle Evaluation into the product development
process, an approach that considers the impacts caused during
material extraction, production, transportation and final disposal.
In 2007, we reduced the environmental impacts caused by
our packaging by 12% compared to the previous year. This
drop occurred due to changes in the packaging design and
the propor tion of sold products, as guided par tly by our
promotion policies.
Impact of Packaging
2005
2006
2007
Environmental Impact of Packaging
per Product Quantity (mpt/kg)*
89.3
83.2
73.4
* Natura's average is obtained by weighing the values of mPt (0.001 of Pt) per kg of each
product, per the quantity invoiced during that year (according to Eco-Indicator 99 methodology).
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GOAL ACHIEVED
WE CONSUMED 114,694 M
3
OF
WATER IN CAJAMAR AND ITAPECERICA.
2008 COMMITMENT
CONSUME A MAXIMUM VOLUME
OF 148,700 M
3
OF WATER IN CAJAMAR
AND ITAPECERICA.
Energy
In 2007, we used 9.4% more total energy and 8.7% more energy
per invoiced unit; our consumption increased particularly during
the start of operations and the testing of certain new machines.
Total Energy Consumption (joules)
2005
2006
2007
Energy Consumption at the
Cajamar and Itapecerica
da Serra sites (joules)
119.2 x 10¹² 131.7 x 10¹² 135.9 x 10¹²
Other Natura Spaces in Brazil
1
N/A
N/A
8.2 x 10¹²
Total Energy Matrix (joules)
119.2 x 10¹² 131.7 x 10¹² 144.1 x 10¹²
Energy Consumption ­ Energy
Matrix per Invoiced Unit
(kjoules / Unit)
2
503,8
469,5
510,2
1 Refers to advanced posts, the factory in Benevides, office in Alphaville and
Natura Brasil House. We started collecting information in 2007.
2 During previous years, this indicator was reported in kjoules per unit sold, thus the
historical number was changed.
Water and Effluents
In 2007, our total water consumption dropped 17.2% in relation
to 2006, from 141,883 m
3
to 117,451 m
3
. This resulted from the
introduction of new equipment and processes and the efforts of
employees from the administrative areas, restaurant and factories.
Water Consumption
2005
2006
2007
Water Consumption at the Cajamar
and Itapecerica da Serra sites (m
3
)
136,677
141,883
114,694
Water Consumption at the Other
Natura Spaces in Brazil (m
3
)
1
N/A
N/A
2,757
Total Water Consumption (m
3
)
136,677
141,883
117,451
Water Consumption per
Invoiced Unit (L /unit)
2
0.58
0.53
0.42
1 Refers to advanced posts, the office in Alphaville and the Natura Brasil House.
We started collecting information in 2007.
2 During previous years, this indicator was reported in liters per unit sold, thus the historical
number was changed.
2007 COMMITMENT
CONSUME A MAXIMUM VOLUME
OF 150,042 M
3
OF WATER IN CAJAMAR
AND ITAPECERICA.
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Waste
Natura aims to improve its waste management by recycling
and choosing the destinations of waste carefully. In December
2007, 88.03% of our waste was recycled; 9.15% went to landfills
and 2.82% was incinerated at the units in Cajamar and
Itapecerica da Serra.
In 2007, we generated a total of 6,799.9 tons of waste,
representing a 0.5% reduction compared to 2006, even with
the incorporation of the waste from the new Benevides factory.
There was also a drop in the weight of waste per invoiced unit,
which fell from 25.7 grams in 2006 to 24.1 in 2007.
2007 COMMITMENT
INCREASE THE PERCENTAGE OF RECYCLED WASTE
TO 87% IN CAJAMAR AND ITAPECERICA DA SERRA.
GOAL ACHIEVED
WE RECYCLED 88% OF OUR WASTE.
2008 COMMITMENT
RECYCLE A MINIMUM OF 89% OF THE
WASTE GENERATED IN CAJAMAR AND
ITAPECERICA DA SERRA.
Energy Matrix - Brazil¹
Electric
Diesel
LPG
Solar 0.01%
0.02%
0.01%
1 Data calculated considering the Cajamar and Itapecerica da Serra sites.
Due to uncertainties about national energy supplies, in 2007
we purchased energy from a small hydroelectric power plant
for the 2010-2017 period, which has reduced environmental
and social impacts compared to a common hydroelectric
power plant.
2007 COMMITMENT
ACHIEVE A TOTAL ENERGY CONSUMPTION
OF LESS THAN 129.3 X 10
12
JOULES IN
CAJAMAR AND ITAPECERICA DA SERRA.
GOAL NOT ACHIEVED
WE CONSUMED 135.9 10
12
JOULES IN CAJAMAR
AND ITAPECERICA DA SERRA. THE STATED
GOAL WAS NOT ACHIEVED, BUT AFTER
PUBLISHING THE 2006 ANNUAL REPORT, WE
REVISED THE GOAL TO 137.2 X 10
12
JOULES.
2008 COMMITMENT
CONSUME A MAXIMUM OF 151.4 X 10
12
JOULES IN
CAJAMAR AND ITAPECERICA DA SERRA.
75.20%
1.20%
23.60%
05
76.95%
1.67%
21.36%
06
76.60%
1.71%
21.67%
07
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Economic
The year 2007 was another year of growth for Natura. The
consolidated gross revenues totaled R$ 4.3 billion, with a growth
of 10.6% over 2006. The consolidated EBITDA was R$ 702.0
million, with a 7.3% growth over the previous year and a margin
of 22.8%. The consolidated net income was R$ 462.3 million,
generating an initial return on net equity of 72.1%. The number
of our consultants (direct sales force) increased by 16.4% in 2007
to more than 718,000.
Consolidated Gross Revenues
The company's consolidated gross revenues totaled
R$ 1,312.5 million in 4Q07, representing a 9.3% growth
compared to the revenues in 4Q06. In Brazil, the company's
gross revenues grew 8.4% and in the international market, 30.2%
in reais (52.0% in weighted local currency).The percentage of
international sales in the total revenues increased from 3.6% in
4Q06 to 4.2% in 4Q07.
Consolidated gross revenues in 2007 totaled R$ 4,301.6 million
for a growth of 10.6% compared to 2006. In the domestic market,
the gross revenues grew 9.5%, and in the external market, 41.4%
in reais (58.2% in local weighted currency).The percentage of
international market revenues compared to the total revenues
increased from 3.4% in 2006 to 4.3% in 2007.
There were over 718,000 consultants at the end of December
2007, representing a significant 16.4% growth over the same
period the previous year.
Costs and Expenses
The cost of products sold (COPS) decreased from 35.7% of net
revenues in 4Q06 to 32.6% in 4Q07. This reduction is primarily
due to: (i) the enhanced efficiency of raw material price
management; (ii) enhanced efficiency of the Holiday Gift Box
strategy; and (iii) readjustment in the price of our products in
March 2007. Some of these effects were offset by increased
losses from discontinued products. During the entire year of
2007, the COPS remained stable at 32.3% when compared
to the fiscal year of 2006.
The following table shows the cost broken down into
main components:
COPS Composition (% of net revenues)
Item
2005
2006
2007
MP/ME¹
25.9
25.4
25.4
Labor
2.5
2.8
2.8
Depreciation
1.0
1.1
1.2
Others
2.6
3.0
2.9
Total
32.0
32.3
32.3
1 Raw Material and Packaging Material.
Sales expenses as a percentage of net revenues increased
150 base points, from 32.3% in 4Q06 to 33.8% in 4Q07. This
increase primarily reflects increased marketing expenses, as
planned and announced by the company in October 2007.
The accumulated result for the year shows that sales expenses as
a percentage of net revenues also increased 150 base points, from
32.1% in 2006 to 33.6% in 2007, mainly reflecting expansion and
opening of new operations in Venezuela and Colombia, in addition
to the items mentioned for 4Q07.
Administrative expenses as a percentage of net revenues
increased from 12.7% in 4Q06 to 13.7% in 4Q07, the rise
caused by extraordinary effects, primarily the increased provision
set aside for civil actions.
There was a slight decrease in administrative expenses as a
percentage of net revenues in 2007, from 13.4% in 2006 to 13.2%
in 2007. The increased IT expenses during the year were more
than offset by a lower provision for profit sharing and the
recognition of gains (revenues) resulting from a tax-related case
decided in Natura's favor in August 2007 and recorded in 3Q07.
EBITDA and Net Income
The consolidated EBITDA was R$ 199.4 million in 4Q07 versus
R$ 177.5 million in 4Q06, a growth of 12.3%. The EBITDA
margin increased from 20.8% in 4Q06 to 21.3% in 4Q07. The
improved gross margin during this period more than offset
increased operating expenses, resulting in an EBITDA margin
increase of 50 base points.
In 2007, the consolidated EBITDA was R$ 702.0 million versus
R$ 654.5 million in 2006, a growth of 7.3%. The EBITDA margin
was 22.8% in 2007, in line with our estimate announced in
October 2007.
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EBITDA (R$ millions)
2005
2006
2007
Net Revenues
2,282.2
2,757.0
3,072.7
(-) Costs and Expenses
1,760.6
2,158.0
2,446.1
EBIT
521.6
599.0
626.6
(+) Non-Operating Result
-1.2
0.9
0.5
(+) Depreciation/Amortization
44.0
54.6
74.9
EBITDA
564.5
654.5
702.0
The net income totaled R$ 135.6 million in 4Q07 versus
R$ 116.7 million in 4Q06, a growth of 16.2%. The accumulated
net income for the year was R$ 462.3 million compared to
R$ 460.8 million during the previous year (+0.3%).
The deviation between the net income and EBITDA growth
rates during the year was due to: (i) increased depreciation
of R$ 54.6 million in 2006 to R$ 74.9 million in 2007 (37.2%);
(ii) net financial expenses of R$ 9.4 million in 2007 compared
to the net financial revenues of R$ 9.9 million in 2006; and
(iii) a higher income tax rate in 2007 than in 2006.
Investments (Fixed Assets)
Investments made in 2007 totaled R$ 120.9 million and were
mainly concentrated on: (i) expansion of production and logistics
capacity and (ii) information technology.
The planned investments for 2008 total R$ 135 million, to be
allocated to: (i) manufacturing and logistics; (ii) a new research and
development center in Campinas; and (iii) information technology.
Pro Forma Results by Operating Block
Since 2Q07, we have presented the pro forma results
(in reais) for the Brazilian blocks ­ the operations under
consolidation and implementation. The income margin
recorded for expor ts from Brazil for the international
operations was subtracted from the COPS of the respective
operations to demonstrate the real impact that these
subsidiaries have on the company's consolidated result. Thus,
the pro forma Income Statement for Brazil shows only the
result of the sales closed in the domestic market.
Pro Forma EBITDA per Operation Block (R$ millions)
2006
2007
Brazil
697.6
759.7
Argentina, Chile and Peru
(8.5)
(3.9)
Mexico, Venezuela, Colombia
1
and France
(33.3)
(41.5)
Exchange Rate Effect on Conversion
of Investments Abroad
(1.3)
(12.3)
Total
654.5
702.0
1 The Colombia operation began during the first half of 2007.
For 2008, the expenses related to the international expansion
in Latin America, France and the United States are estimated at
R$ 97 million.
Brazil ­ Pro Forma DRE
Financial Highlights (R$ millions)
2005
2006
2007
Total Number of Consultants ­
End of Period¹ (in thousands)
482.8
561.1
632.4
Resale Product
Units (in millions)
216.0
241.0
265.9
Gross Revenues
3,154.0
3,759.5
4,115.8
Net Revenues
2,212.8
2,656.0
2,926.8
SEC
-
851.4
939.0
Gross Income
-
1,804.6
1,987.8
Gross Margin
-
67.9%
67.9%
Sales Expenses
-
812.1
922.6
Administrative Expenses
-
336.4
371.5
Other Net Revenues (expenses)
-
1.1
3.5
Net Financial Result
-
9.9
(9.6)
Operating Income
-
654.7
678.1
Net Income
-
509.0
527.9
EBITDA
597.2
697.6
759.7
EBITDA Margin
27.0%
26.3%
26.0%
1 Number of consultants at the end of Sales Cycle 17.
In Brazil, the gross revenues totaled R$ 1,256.3 million in 4Q07
versus R$ 1,158.6 million in 4Q06, a growth of 8.4%. Average
productivity per active consultant during the quarter remained
stable at R$ 3,500.
Gross revenues from the Brazilian operation totaled
R$ 4,115.8 million in 2007 versus R$ 3,759.5 million in 2006,
a growth of 9.5%. The EBITDA margin continues to be robust
at 26.0%, stable in comparison with the previous year.
In Brazil, the number of consultants reached 632,400 at the
end of 2007, representing a growth of 12.7% in comparison
with 2006. The average productivity per active consultant was
R$ 12,200 during the year, 2.6% lower than that recorded the
previous year (R$ 12,500).
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Operations Under Consolidation ­ Argentina, Chile
and Peru ­ Pro Forma DRE
Financial Highlights (R$ millions)
2006
2007
Total Number of Consultants ­ Final
for the Period¹ (in thousands)
51.2
69.4
Resale Product
Units (in millions)
11.6
16.2
Gross Revenues
119.3
157.5
Net Revenues
91.3
121.2
SEC
35.3
44.9
Gross Income
56.0
76.3
Gross Margin
61.3%
63.0%
Sales Expenses
50.7
65.6
Administrative Expenses
14.2
17.0
Other Net Revenues (expenses)
(0.6)
1.1
Net Financial Result
(0.1)
0.1
Operating Result
(9.6)
(5.1)
Result for the Period
(11.7)
(8.6)
EBITDA
(8.5)
(3.9)
EBITDA Margin
(9.3%)
(3.2%)
1 Number of consultants at the end of Sales Cycle 17.
For the operations under consolidation, the gross revenues
presented an impressive growth of 42.4% in weighted local
currency (21.3% in reais) in 4Q07 compared to 4Q06. The
EBITDA margin was negative at 6.7%, compared to the 22.0%
margin, also negative, during the same period in 2006.
In the accumulated result for the year, the net revenues grew
46.5% in local weighted currency (32.0% in reais) compared
to 2006. The operating loss represented by EBITDA fell from
R$ 8.5 million in 4Q06 to R$ 3.9 million in 4Q07, with an
EBITDA margin of 9.3% and ­3.2%, respectively, even with
continued investments in new sectors.
There were a total of 69,400 consultants at the end of the year,
a significant growth of 35.5% compared to 2006. The average
productivity per active consultant was US$ 2,900, compared to
US$ 2,800 in 2006, a growth of 5.2%.
Operations Under Implementation ­ Mexico,
Venezuela, Colombia and France ­ Pro Forma Result
Financial Highlights (R$ millions)
2005
2006
2007
Total Number of Consultants ­
Final for the Period¹ (in thousands)
1.4
5.1
16.8
Resale Product
Units (in millions)
0.06
0.6
2.8
Gross Revenues
1.2
11.1
28.4
Net Revenues
1.1
9.6
24.6
Losses for the Period
-
(35.4)
(44.6)
EBITDA
-10.0
(33.3)
(41.5)
1 Number of consultants at the end of Sales Cycle 17.
For those operations under implementation, the gross revenues
totaled R$ 10 million in 4Q07, compared to the R$ 4.4 million
recorded for the same period during the previous year. The
operating loss represented by EBITDA was R$ 12.6 million in
4Q07, compared to R$ 10.9 million in 4Q06.
The accumulated gross revenues for the year was R$ 28.4 million
versus R$ 11.1 million in 2006, with a negative EBITDA of
R$ 41.5 million versus R$ 33.3 million in 2006, due mainly to
higher sales expenses in the growing sectors in these countries
under implementation. The number of consultants in this
operating block reached 16,800 at the end of 2007, showing
impressive growth in relation to the previous year.
The main highlight in 2007 for this block was the opening of
operations in Venezuela and Colombia, in February and June,
respectively, and the expansion of the Mexican operation to the
city of Monterrey. It is also important to point out the start of
market research and design activities for the North American
operation set to begin in the first half of 2009.
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Dividends and Interest on Own Capital
In February 2008, the Board of Directors approved a proposal
to be submitted to the General Ordinary Shareholders Meeting
scheduled for March 31, 2008, for the payment of dividends
and interest on own capital in relation to the results reported
for the year 2007, in the amounts of R$ 375,890,168.61 and
R$ 39,246,506.88 (R$ 33,359,530.85 net of income tax), respectively.
Of the aforementioned amount, on August 10, 2007, the
company paid dividends and interest on own capital¹ associated
with the results recorded during the first half of 2007 in the sum
of R$ 138,138,452.35 and R$ 39,246,506.88 (R$ 33,359,530.85
net of income tax withheld at the source), respectively. The
remaining amount to be paid on April 8, 2008, after ratification
by the General Ordinary Shareholders Meeting, will be
R$ 237,751,716.27 in the form of dividends.
These dividends added to the interest on own capital associated
with the results for 2007 will represent a net remuneration of
R$ 0.95 per share (R$ 0.83 per share in 2006).
1 Also refers to the months of August to December 2006.
Liquidity and Financial Volume
In December 2007, Natura's capital consisted of 428.9 million
ordinary shares. Despite the negative movement of Natura's share
value seen in 2007, the growth in the financial volume of the shares
traded ­ from R$ 3,592.4 million in 2006 to R$ 6,894. million in
2007 ­ shows that they have good market liquidity. The average
daily trading volume went from R$ 14.7 million in 2006, to
R$ 28.1 million in 2007 ­ a 93% increase.
Natura (Natu3) X IBOVESPA Appreciation
Base 100 (5/25/04)
Ma
y 04
Jul.
04
Sep
.
04
No
v
.
04
Jan.
05
Mar
.
05
Ma
y 05
Jul.
05
Sep
.
05
No
v
.
05
Jan.
06
Mar
.
06
Ma
y 06
Jul.
06
Sep
.
06
No
v
.
06
Jan.
07
Mar
.
07
Ma
y 07
Jul.
07
Sep
.
07
No
v
.
07
Natu3 165%
Ibovespa
239%
Cash Flows
The company's internal cash flows in 2007 were R$ 537.2 million,
4.2% higher than in 2006. Of this, R$ 209.1 million were consumed
in operating working capital and R$ 46.6 million in other current
and non-current assets and liabilities.
Pro Forma Consolidated Cash Flows ­ (R$ millions)
2005
2006
2007
Net Income for the Period
396.9
460.8
462.3
(+) Depreciations and Amortizations
44.0
54.6
74.9
Internal Cash Flow¹
440.9
515.4
537.2
Operating Working Capital²
-3.6
(73.1)
(209.1)
Other Assets and Liabilities³
1.5
(46.7)
(46.6)
Operating Cash Flows
438.7
395.6
281.4
Fixed Asset Acquisitions
-111.6
(193.6)
(120.9)
Generation of Free Cash
4
327.1
202.0
160.5
1 (Net income for the period) + (depreciation and amortization).
2 Assets ­ Accounts receivable, stocks and taxes recoverable over the short term.
Liabilities ­ suppliers, salaries, profit sharing and social charges, tax obligations, provisions
and freight payable.
3 Assets ­ Advance payments to employees and suppliers, income tax and short-term
deferred social contributions, other credits and long-term realizable assets. Liabilities ­ other
short-term and long-term accounts payable and provisions for tax, civil and labor risks.
4 (Internal cash generation) +/- (variations in working capital and realizable and payable
over the long term). (Acquisitions of fixed assets).
Of the R$ 209.1 million growth in operating working capital,
approximately R$ 147 million was associated with temporary
situations, notably: (i) the extraordinary increase in the accounts
receivable balance of R$ 122 million due to the more flexible
credit policy adopted for sales during the 2007 Christmas period;
(ii) R$ 25 million increase in the stock balance due to lower
revenues than estimated by the company.
There was a R$ 39 million reduction in the supplier balance
due to the higher concentration of expenses at the end of
2006. Of this reduction, approximately R$ 35.0 million may
be considered atypical.
Free cash flows in 2007 totaled R$ 160.5 million, a 20.5%
reduction compared to the previous year (2006: R$ 202.0 million).
By reincorporating the extraordinary investments into the
accounts receivable, the adjusted free cash generation would
be R$ 288 million.
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Natura Cosméticos S.A.
Financial Statements for the Years
Ended December 31, 2007 and 2006
and Independent Auditors' Report
In compliance with legal and statutory rules, we are submitting the balance sheets and
financial statements for the years ended December 31, 2006 and December 31, 2007
for your review. In addition to the information contained in the explanatory notes, the
company management is available to provide any further clarifications.
Financial
Statements
Balance Sheets
as of December 31, 2007 and 2006
(In thousands of Brazilian reais - R$)
ASSETS
Company
Consolidated
2007
2006
2007
2006
CURRENT ASSETS
Cash and banks
15,347
43,176
49,398
65,293
Cash investments (Note 5)
90,224
90,186
355,994
209,863
Trade accounts receivable (Note 6)
512,094
356,181
535,528
374,168
Inventories (Note 7)
29,246
28,659
251,079
237,091
Recoverable taxes (Note 8)
2,022
1,517
49,368
38,687
Advances to employees and suppliers
2,305
9,939
3,569
12,705
Related parties (Note 10)
12,456
7,140
-
-
Deferred income and social contribution taxes (Note 9.a)
26,451
17,860
52,799
32,236
Other receivables
11,606
8,462
25,513
20,535
Total current assets
701,751
563,120
1,323,248
990,578
NONCURRENT ASSETS
Long-term assets:
Receivables from shareholders (Notes 10 and 19.b)
-
20
-
20
Advance for future capital increase (Notes 10.d and 10.e)
25
590
-
-
Recoverable taxes (Note 8)
2,370
1,990
22,284
20,981
Deferred income and social contribution taxes (Note 9.a)
16,647
20,692
34,318
35,809
Escrow deposits (Note 16)
35,119
10,512
38,603
13,367
Advances to suppliers
783
1,639
3,935
2,715
Other receivables
-
-
595
557
Cash investments (Notes 5 and 16.g)
-
-
4,848
4,336
Permanent assets:
Investments (Note 11)
766,764
707,422
-
630
Property, plant and equipment (Note 12)
27,866
26,190
470,963
445,546
Intangible assets (Note 12)
6,548
3,550
63,817
51,389
Total noncurrent assets
856,122
772,605
639,363
575,350
TOTAL ASSETS
1,557,873
1,335,725
1,962,611
1,565,928
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LIABILITIES AND SHAREHOLDERS' EQUITY
Company
Consolidated
2007
2006
2007
2006
CURRENT LIABILITIES
Loans and financing (Note 14)
120,785
45,052
284,707
75,888
Domestic suppliers
43,092
48,679
173,574
208,739
Foreign suppliers
148
-
2,076
5,518
Suppliers - related parties (Note 10)
145,037
168,927
-
-
Salaries, profit sharing and related charges
33,776
34,229
87,068
88,718
Taxes payable (Note 15)
85,141
80,490
118,511
95,672
Dividends (Notes 10 and 19.d)
237,898
213,813
237,898
213,813
Accrued freight
17,231
18,805
18,044
18,944
Other payables
19,456
17,130
21,436
18,522
Reserve for tax, civil and labor contingencies (Note 16)
-
-
13,420
Allowance for losses on swap and forward transactions (Notes 22.b and 22.d)
5,695
1,993
8,514
2,185
Sundry accruals
835
2,726
888
3,739
Total current liabilities
709,094
631,844
966,136
731,738
NONCURRENT LIABILITIES
Loans and financing (Note 14)
116,847
28
259,992
127,077
Allowance for losses on subsidiaries (Note 11)
10,060
4,565
-
-
Reserve for tax, civil and labor contingencies (Note 16)
33,270
45,094
51,021
62,210
Other payables
5,400
3,219
7,342
4,348
Total noncurrent liabilities
165,577
52,906
318,355
193,635
MINORITY INTEREST
-
-
1
4
SHAREHOLDERS' EQUITY (NOTE 19)
Capital (Note 19.a)
390,618
233,862
390,618
233,862
Capital reserves (Notes 19.b and 19.e)
124,471
134,867
124,471
134,867
Profit reserves (Notes 19.g and 19.h)
170,318
282,480
165,235
272,056
Treasury shares (Note 19.e)
(2,205)
(234)
(2,205)
(234)
Total shareholders' equity
683,202
650,975
678,119
640,551
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
1,557,873 1,335,725
1,962,611 1,565,928
The accompanying notes and Attachment are an integral part of these financial statements.
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Statements of changes in Shareholders' Equity (Company)
For the Years Ended December 31, 2007 and 2006
(In thousands of Brazilian reais - R$, except for dividends per share)
Capital reserves
Profit reserves
Treasury
Share
Investment
Retained
Capital
shares premium
grants
Legal
Retention
earnings
TOTAL
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
-
541
8,039
-
-
-
-
8,580
Payment of receivables from shareholders (Note 19.b)
-
-
2,272
-
-
-
-
2,272
Capital increase through subscription of shares
3,100
-
-
-
-
-
-
3,100
Tax incentives
-
-
-
3,872
-
-
3,872
Net income
-
-
-
-
-
- 469,326
469,326
Allocation of net income:
Dividends - R$ 0.7630 per
outstanding share (Note 19.d)
-
-
-
-
-
- (325,866) (325,866)
Interest on capital - R$ 0.0787 per
outstanding share (Notes 19.c and 19.d)
-
-
-
-
-
-
(33,569)
(33,569)
Profit retention reserve (Note 19.h)
-
-
-
-
-
109,891 (109,891)
-
BALANCES AS OF DECEMBER 31,2006
233,862 (724)
120,770 14,587 18,650 263,830
- 650,975
Sale of treasury shares by exercise of
stock options (Note 19.e)
-
20,724
(13,273)
-
-
-
-
7,451
Payment of receivables from
shareholders (Note 19.b)
-
-
92
-
-
-
-
92
Capital increase through subscription
of shares (Note 19.a)
2,817
-
-
-
-
-
-
2,817
Acquisition of treasure shares (Note 19.e)
-
(22,701)
-
-
-
-
(22,701)
The increase in capital by capitalization
of profit reserve (Note 19.h)
153,939
-
-
-
- (153,939)
-
-
Tax incentives
-
-
2,791
-
-
2,791
Net income
-
-
-
-
-
-
456,914
456,914
Allocation of net income: Dividends - R$ 0.8767
per outstanding share (Note 19.d)
-
-
-
-
-
- (375,890) (375,890)
Interest on capital - R$ 0.0915 per
outstanding share (Notes 19.c and 19.d)
-
-
-
-
-
-
(39,247)
(39,247)
Profit retention reserve (Note 19.h)
-
-
-
-
-
41,777
(41,777)
-
BALANCES AS OF DECEMBER 31,2007
390,618 (2,701)
107,589 17,378 18,650 151,668
- 683,202
The accompanying notes and Attachment are an integral part of these financial statements.
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Statements of Changes in Financial Position
For the Years Ended December 31, 2007 and 2006
(In thousands of Brazilian reais - R$)
Company
Consolidated
2007
2006
2007
2006
SOURCES OF FUNDS
From operations:
Net income
456,914
469,326
462,255
460,773
Items not affecting working capital:
Depreciation and amortization (Note 12)
8,523
6,966
74,916
54,601
Monetary and exchange variations, net, except
those referring to tax, civil and labor contingencies
3,153
(506)
(5,435)
(73)
Reserve for tax, civil and labor contingencies, including monetary
variation on those reserves (Note 16)
(12,223)
8,547
(8,043)
12,998
Deferred income and social contribution taxes (Note 9.a.)
4,045
(3,012)
1,491
(6,485)
Equity in subsidiaries (Note 11)
317
(28,229)
-
-
Proceeds from sale and disposal of property, plant and equipment
and intangible assets
3,205
2,141
5 ,683
3,881
Minority interest
-
-
(3)
(4)
From shareholders:
463,934
455,233
530,864
525,691
Capital increase through subscription of shares (Note 19.a.)
2,817
3,100
2,817
3,100
Acquisition of treasure shares
(22,701)
-
(22,701)
-
Sale of treasury shares by exercise of stock options (Note 19.e.)
7,451
8,581
7,451
8,581
Payment of receivables from shareholders (Note 19.b.)
92
2,272
92
2,272
From third parties:
Reclassification of recoverable taxes from property, plant and
equipment to current and noncurrent assets
-
-
-
10,536
Decrease in noncurrent assets (long-term assets)
1,059
-
-
-
Increase in noncurrent liabilities
122,340
830
280,987
31,570
Tax incentives
2,791
3,872
2,791
3,872
Total sources
577,783
473,888
802,301
585,622
USES OF FUNDS
Acquisition of property, plant and equipment and intangible assets (Note 12)
16,402
21,165
120,856
193,596
Increase in investments (Note 11)
62,527
163,423
-
-
Increase in noncurrent assets (long-term assets)
67,790
1,925
70,687
14,232
Decrease in noncurrent liabilities
-
1,274
-
29,119
Transfer from noncurrent to current liabilities
1,576
44,348
144,379
20,740
Dividends proposed and paid (Note 19.d.)
375,890
325,866
375,890
325,866
Interest on capital proposed and paid (Notes 19.c. and 19.d.)
39,247
33,569
39,247
33,569
Total uses
563,432
591,570
751,059
617,122
(DECREASE) INCREASE IN WORKING CAPITAL
14,351
(117,682)
51,242
(31,500)
REPRESENTED BY
(Decrease) increase in current assets
138,631
(49,602)
332,669
65,714
Increase in current liabilities
124,280
68,080
281,427
97,214
(DECREASE) INCREASE IN WORKING CAPITAL
14,351
(117,682)
51,242
(31,500)
The accompanying notes and Attachments are an integral part of these financial statements.
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Statements of Income
For the Years Ended December 31, 2007 and 2006
(In thousands of Brazilian reais - R$, except for earnings per share)
Company
Consolidated
2007
2006
2007
2006
GROSS SALES
Gross sales to domestic market
4,083,301
3,731,862
4,111,505
3,754,968
Gross sales to foreign market
-
-
188,884
133,604
Other sales
56
1
1,225
1,388
GROSS OPERATING REVENUES
4,083,357 3,731,863
4,301,614 3,889,960
Taxes on sales, returns and rebates
(914,743)
(837,107)
(1,228,913)
(1,132,973)
NET OPERATING REVENUES
3,168,614 2,894,756
3,072,701 2,756,987
Cost of sales
(1,232,280)
(1,161,087)
(992,253)
(891,317)
GROSS PROFIT
1,936,334 1,733,669
2,080,448 1,865,670
OPERATING (EXPENSES) INCOME
Selling (847,329)
(730,986)
(1,033,195)
(885,749)
General and administrative
(474,631)
(442,924)
(377,505)
(330,845)
Employee profit sharing (Note 17)
(10,541)
(11,866)
(28,664)
(37,353)
Management compensation
(6,414)
(8,569)
(9,539)
(12,385)
Equity in subsidiaries (Note 11)
(317)
28,229
-
-
Other operating expenses, net
(13,128)
(1,514)
(4,942)
(388)
INCOME FROM OPERATIONS BEFORE FINANCIAL EFFECTS
583,974 566,039
626,603 598,950
Financial expenses (Note 23)
25,695
26,707
51,039
43,391
Financial income (Note 23)
(31,876)
(13,239)
(60,380)
(33,453)
INCOME FROM OPERATIONS
577,793 579,507
617,262 608,888
Nonoperating income, net
685
688
512
909
INCOME BEFORE TAXES ON INCOME
578,478 580,195
617,774 609,797
Income and social contribution taxes (Note 9.b)
(121,564)
(110,869)
(155,519)
(149,023)
NET INCOME BEFORE MINORITY INTEREST
456,914 469,326
462,255 460,774
Minority interest
-
-
-
(1)
NET INCOME
456,914 469,326
462,255 460,773
EARNINGS PER SHARE - R$
1.0656 1.0978
1.0781
1.0796
The accompanying notes and Attachment are an integral part of these financial statements.
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Statements of Cash Flows
ATTACHMENT I
For the Years Ended December 31, 2007 and 2006
(In thousands of Brazilian reais - R$)
Company
Consolidated
2007
2006
2007
2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
456,914
469,326
462,255
460,773
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortizations (Note 12)
8,523
6,966
74,916
54,601
Monetary and exchange variations, net, except those referring to tax,
civil and labor contingencies
(1,370)
7,339
4,748
14,529
Reserve for losses on swap and forward contracts (Notes 22.b and 22.d)
24,835
1,585
28,119
4,022
Reserve for tax, civil and labor contingencies, including monetary variation
on those reserves (Note 16)
(12,223)
8,547
5,377
12,998
Income tax, social contribution and other deferred taxes ( Note 9.a)
(4,546)
(4,468)
(24,046)
(12,964)
Proceeds from sale and disposal of property, plant and equipment
and intangible assets
819
736
8,190
2,476
Equity in subsidiaries (Note 11)
317
(28,229)
-
-
Other adjustments of income, including provisions in allowance
for inventory losses
998
146
9,630
1,626
Minority interest
-
-
(3)
(4)
474,267
461,948
569,186
538,057
(INCREASE) DECREASE IN ASSETS
Current assets:
Accounts receivable (Note 6)
(155,913)
(53,493)
(161,360)
(57,904)
Inventories (Note 7)
(1,585)
(27,970)
(23,618)
(86,410)
Other receivables
(8,480)
(2,528)
(5,527)
(2,317)
Noncurrent assets (long-term assets):
Escrow deposits (Note 16)
(67,792)
(1,467)
(68,144)
(29,369)
Recoverable taxes (Note 8)
(380)
(558)
(1,303)
(8,019)
Other receivables
1,441
(1,051)
879
(2,575)
Subtotal (232,709)
(87,067)
(259,073)
(186,594)
INCREASE (DECREASE) IN LIABILITIES
Current liabilities:
Suppliers
(22,149) 49,383
(32,097) 54,736
Salaries, profit sharing and related charges, net
22
3,376
(1,141)
15,545
Taxes payable, net (Notes 8 and 15)
51,176
3,944
64,710
(4,366)
Other payables
1,245
4,054
(3,343)
6,233
Noncurrent liabilities (long-term liabilities):
Other payables
2,181
1,414
2,994
8,491
Subtotal 32,475
62,171
31,123
80,639
NET CASH PROVIDED BY OPERATING ACTIVITIES
274,033
437,052
341,236
432,102
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment and intangible assets (Note 12)
(16,402)
(21,165)
(120,856)
(193,596)
Investments (Note 11)
(64,495)
(163,423)
-
-
Other Investments
-
-
630
-
NET CASH USED IN INVESTING ACTIVITIES
(80,897) (184,588)
(120,226)
(193,596)
CASH FLOW FROM FINANCING ACTIVITIES
Decrease in loans (Note 14)
(395,788)
( 52,207)
( 581,919)
(116,005)
Fundings - loans (Note 14)
596,596
-
913,537
111,322
Payments of swap and forward transactions (Notes 22.b and 22.d)
(21,133)
( 2,295)
(21,790)
(4,540)
Payment of dividends (Note 19.c)
(351,805)
(307,123)
(351,805)
( 307,123)
Payment of interest on capital (Notes 19.c and 19.d)
(39,247)
(51,268)
(39,247)
( 51,268)
Payment of capital (Note 19.a)
2,817
3,100
2,817
3,100
Acquisition of treasure shares
(22,701)
-
(22,701)
-
Tax incentives
2,791
3,872
2,791
3,872
Sale of treasury shares by exercise of stock options (Note 19.e)
7,451
8,581
7,451
8,581
Payment of receivables from shareholders (Note 19.b)
92
2,272
92
2,272
NET CASH USED IN FINANCING ACTIVITIES
(220,927)
(395,068)
( 90,774)
(349,789)
NET DECREASE (INCREASE) IN CASH AND BANKS
(27,791) (142,604)
130,236 (111,283)
Cash and banks at beginning of year
133,362
275,966
275,156
386,439
Cash and banks at end of year
105,571
133,362
405,392
275,156
CHANGE IN CASH AND BANKS
(27,791) (142,604)
130,236 (111,283)
SUPPLEMENTARY CASH FLOW DISCLOSURE
Income and social contribution taxes paid
122,080
112,978
156,527
143,276
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Statements of Value Added
ATTACHMENT II
For the Years Ended December 31, 2007 and 2006
(In thousands of Brazilian reais - R$)
Company
Consolidated
2007
2006
2007
2006
Revenues
4,022,979
3,686,217 4,237,900 3,842,193
Sales of goods, products and services
4,075,403
3,724,334
4,291,770
3,880,988
Allowance for doubtful accounts - recognition
(53,109)
(38,805)
(54,382)
(39,704)
Nonoperating 685
688
512
909
INPUTS PURCHASED FROM THIRD PARTIES
(2,525,201) (2,321,827)
(2,329,712)
(2,132,303)
Cost of sales and services
(1,431,092)
(1,347,257)
(1,362,574)
(1,274,736)
Materials, energy, outside services and other
(1,094,109)
(974,570)
(967,138)
(857,567)
GROSS VALUE ADDED
1,497,778 1,364,390
1,908,188 1,709,890
RETENTIONS
(8,523)
(6,966) (74,916)
(55,625)
Depreciations and amortizations (Notes 12 and 13)
(8,523)
(6,966)
(74,916)
(55,625)
VALUE ADDED GENERATED BY THE COMPANY
1,489,255 1,357,424
1,833,272
1,654,265
VALUE ADDED RECEIVED IN TRANSFER
25,378 54,936 51,039 43,391
Equity in subsidiaries (Note 11)
(317)
28,229
-
-
Financial income
25,695
26,707
51,039
43,391
TOTAL VALUE ADDED TO BE DISTRIBUTED
1,514,633
1,412,360
1,884,311
1,697,656
DISTRIBUTION OF VALUE ADDED
(1,514,633) 100% (1,412,360) 100% (1,884,311) 100% (1,697,656) 100%
Payroll and related charges
(141,485)
9%
(144,832) 10%
(390,264) 21%
(379,669) 22%
Taxes and contributions
(877,065) 58%
( 781,410) 56%
( 948,252) 50%
( 817,140)
48%
Financial expenses and rents; includes exchange variation on
translation of foreign investments (Note 11)
(39,169)
3%
(16,792)
1%
(83,539)
4%
(40,073)
3%
Dividends
(Note
19.d.)
(375,890) 25%
(325,866) 23% (375,890) 20% (325,866) 19%
Interest on capital (Notes 19.c. and 19.d.)
(39,247)
3%
(33,569)
2%
(39,247)
2%
(33,569)
2%
Minority
interest
- -
- -
(1)
-
(1)
-
Retained earnings (*)
(41,777)
3%
(109,891)
8%
(47,118)
3%
(101,338)
6%
(*) Unrealized profit from subsidiaries is eliminated.
Supplemental information to the statements of value added
Of the amounts recorded under "Taxes and contributions" in 2007 and 2006, the amounts of R$ 506,085 and R$ 467,418, respectively, refer to ICMS (State VAT) under the taxpayers'
substitution regime levied on the estimated profit margin defined by the State Finance Secretariats obtained from sales made by Natura beauty consultants to final consumers.
In order to analyze this tax impact on the statements of value added, these amounts should be deducted from the amounts recorded under "Sales of goods, products and services" and
"Taxes and contributions", since sales revenue does not include the estimated profit attributable to Natura beauty consultants upon the sale of products, in the amounts of R$ 1,722,090
and R$ 1,583,938 in 2007 and 2006, respectively, considering an estimated profit margin of 30%.
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59
Notes to the Financial Statements
For the Years Ended December 31, 2007 and 2006
(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
1. OPERATIONS
Natura Cosméticos S.A. (the "Company") and its subsidiaries are engaged in
the development, production, distribution and sale, substantially through direct
sales by Natura beauty consultants, of cosmetics, fragrances, hygiene and
health products. The Company also holds equity interests in other companies
in Brazil and abroad.
2. PRESENTATION OF FINANCIAL STATEMENTS
The financial statements have been prepared in accordance with Brazilian
accounting practices and standards established by the Brazilian Securities
Commission (CVM).
Certain account captions and groups in the statements of income and cash
flows have been changed in relation to the prior year, for better classification
and presentation. In the statement of income, administrative expenses were
reclassified to selling expenses, although without changing total operating
expenses. The changes made include the 2006 information to allow
comparability between years. These changes did not affect the group balances
or totals. Additionally, there was a reclassification in the balance sheet as of
December 31, 2006 of R$ 10,319 (Company) and R$ 13,117 (Consolidated)
from reserves to tax, civil and labor contingencies to the caption "escrow
deposits". The property, plant and equipment and intangible assets accounts
have also been reclassified as of December 31, 2006 without, however, any
impact on the balance of assets.
Until December 31, 1995, the generally accepted accounting principles in Brazil
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. 9,249, of December 26, 1995, effective January 1, 1996.
3. SIGNIFICANT ACCOUNTING PRACTICES
a) Results of operations
Determined on the accrual basis of accounting.
b) Cash investments
Consists of highly liquid temporary investments, except for the long-term
investments, stated at cost plus income earned through the balance sheet
dates, as described in Note 5.
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, as described in
Note 6.
d) Inventories
Stated at the average cost of acquisition or production, adjusted to market
value and for possible losses, when applicable. The details show in Note 7.
e) Investments
Investments in subsidiaries are accounted for under the equity method, as
shown in Note 11.
f) Property, plant and equipment and intangible assets
Recorded at acquisition cost monetarily restated through December 31, 1995,
plus interest capitalized during the construction period, when applicable and
goodwill on acquisition of investment and business lease. Depreciation and
amortization are 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 noncurrent 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 noncurrent assets result
from expenses recorded in income, although temporarily nondeductible for
tax purposes.
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) Reserves for tax, civil and labor contingencies
Updated through the balance sheet dates based on the probable amount of
loss, according to their natures and supported by the opinion of the
Company's attorneys. For purposes of the financial statements, they are
presented net of related escrow deposits. The grounding and nature of the
reserve for tax, civil and labor contingencies are described in Note 16.
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 22.b and 22.d.
m) Financial income and expenses
Represented by interest and monetary and exchange variations on cash
investments, escrow deposits and loans and financing and swap and forward
contracts as mentioned in Note 23.
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 (Attachment) and consolidated
statements of cash flows (Attachment I) and value added (Attachment II).
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 repor ting periods. Since management's judgment involves
estimates of the probability of future events, actual results may differ from
the estimates.
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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 - %
2007 2006
Direct:
Indústria e Comércio de Cosméticos Natura Ltda.
99.99
99.99
Natura Cosméticos S.A. - Chile
99.99
99.99
Natura Cosméticos S.A. - Peru
99.94
99.94
Natura Cosméticos S.A. - Argentina
99.94
99.91
Natura Brasil Cosmética Ltda. - Portugal
98.00
98.00
Nova Flora Participações Ltda.
99.99
99.99
Natura Inovação e Tecnologia de Produtos Ltda.
99.99
99.99
Natura Europa SAS
100.00
100.00
Natura Cosmeticos y Servicios de Mexico, S.A. de C.V.
99.99
99.99
Natura Cosmeticos de Mexico, S.A. de C.V.
99.99
99.99
Natura Distribuidora de Mexico, S.A. de C.V.
100.00
100.00
Natura Cosméticos C.A. - Venezuela
99.99
99.99
Natura Cosméticos Ltda. - Colombia
99.99
99.99
Natura Cosmetics USA Co.
99.99
-
Indirect:
Natura Logística e Serviços Ltda.
99.99
99.99
Flora Medicinal J. Monteiro da Silva Ltda.
100.00
100.00
Ybios S.A. (proportional consolidation - joint control)
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.
The shareholders' equity balances as of December 31, 2007 and 2006,
reported by the Company, differ by R$ 5,083 and R$ 10,424, respectively, from
those recorded in the consolidated financial statements due to the elimination
of unrealized profits in the inventories of subsidiaries and the Company. For the
same reason net income balances reported by the Company as of
December 31, 2007 and 2006 differ by R$ 5,340 and R$ 8,553, respectively,
from the balances in the consolidated financial statements.
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 Ltda. - Colômbia, Natura
Europa SAS, Natura Cosmeticos de Mexico, S.A. de C.V., e Natura
Cosméticos C.A - Venezuela, 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, Natura Cosméticos Ltda. - Colômbia, Natura Cosmetics
USA Co. ( as of December 31, 2007 currently in the preoperating
stage) and Natura Distribuidora de Mexico, S.A. de C.V.: their
activities are an extension of the activities conducted by the parent
company Natura Cosméticos S.A. - Brazil.
· Nova Flora Par ticipações Ltda.: holds equity interest in the subsidiar y
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. It is
the wholly owner of Natura Innovation et Technologie de Produits
SAS, research and technology satellite center opened in 2007, in Paris,
where researches are developed for in vitro tests, an alternative to
tests in animals, for studies of asset security and effectiveness, skin
care, and new packaging materials.
· Natura Europa SAS: engaged in the purchase, sale, impor t, expor t
and distribution of cosmetics, fragrances in general, hygiene and
health products.
· Natura Cosmeticos de Mexico, S.A. de C.V.: impor ts and sells
cosmetics, fragrances in general and personal hygiene and care
products to Natura Distribuidora de Mexico, S.A de C.V.
· Natura Cosmeticos y Ser vicios de Mexico, S.A. de C.V.: provides
administrative and logistics services to Natura Cosmeticos de Mexico,
S.A. de C.V. and Natura Distribuidora de Mexico, S.A. de C.V.
· Natura Logística e Ser viços Ltda.: engaged in the provision of
administrative and logistics ser vices to Natura Group companies
based in Brazil.
· Flora Medicinal J. Monteiro da Silva Ltda.: engaged in the sale of
phytotherapic and phytocosmetic products of its own brand. Since
2005 this company has had no activities.
· Ybios S.A.: engaged in research, management and development of
projects, products and ser vices in the biotechnology area, and may
also enter into agreements and/or par tnerships with universities,
foundations, companies, cooperatives, associations, and other public
and private entities, provision of ser vices in the biotechnology area,
and holding of equity interest in other companies.
5. CASH INVESTMENTS
Company Consolidated
2007 2006
2007 2006
Bank certificates of
deposit (CDBs)
89,316 79,338
348,004 203,351
Investment funds
908 10,848
12,838
10,848
90,224 90,186 360,842 214,199
Noncurrent (Note 16.g.)
-
-
4,848
4,336
Current 90,224
90,186
355,994
209,863
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As of December 31, 2007 and 2006, CDBs yield interest rates ranging
from 100.0% to 102.0% of the interbank deposit rate (CDI). The share
in the total investment por tfolio, as of December 31, 2007 is 96.4%
(94.9% as of December 31, 2006). Weighted-average yield of investment
fund investments is 94.8% of the CDI as of December 31, 2007
(98.3% as of December 31, 2006).
6. TRADE ACCOUNTS RECEIVABLE
Company
Consolidated
2007 2006
2007 2006
Trade accounts receivable
546,372 379,023
573,278 399,209
Allowance for
doubtful accounts
(34,278) (22,842)
(37,750) (25,041)
512,094 356,181 535,528 374,168
The changes in the allowance for doubtful accounts for the year ended
December 31, 2007 are as follows:
Company
2006
Additions
(
*
)
Reversals Write-offs
(
**
)
2007
Allowance for
doubtful accounts
(22,842) (53,852)
743 41,673 (34,278)
Consolidated
2006
Additions
(
*
)
Reversals Write-offs
(
**
)
2007
Allowance for
doubtful accounts
(25,041) (56,498)
2,116 41,673 (37,750)
(
*
)
Provision recognized according to Note 3.c.
(
**
)
Refers to notes more than 180 days past due, written off due
to nonreceipt.
7. INVENTORIES
Company
Consolidated
2007 2006
2007 2006
Finished products
27,713 23,280
198,890 156,543
Raw materials and packaging
-
-
52,850
77,193
Promotional material
2,677
5,525
21,257
15,221
Work in process
-
-
7,944
7,346
Allowance for losses
(1,144)
(146)
(29,862) (19,212)
29,246 28,659 251,079 237,091
The changes in the allowance for inventory losses for the year ended
December 31, 2007 are as follows:
Company
Additions, Write-offs
2006
net
(
*
)
(
**
)
2007
Total of allowance for
inventory losses
(146)
(998)
- (1,144)
Consolidated
Additions, Write-offs
2006
net
(
*
)
(
**
)
2007
Total of allowance for
inventory losses
(19,212) (31,279) 20,629 (29,862)
(
*
)
Refers mainly to the recognition of the reserve for discontinuance,
expiration and quality losses, according to actual need and the policy
established by the Company and its subsidiaries.
(
**
)
Refers to write-offs of products discarded by the Company and
its subsidiaries.
8. RECOVERABLE TAXES
Company Consolidated
2007 2006
2007 2006
ICMS (State VAT) on purchases of fixed assets
3,170
2,653
18,811 16,838
COFINS (tax on revenue) on fixed asset acquisitions
-
-
16,193 10,858
ICMS (State VAT) on purchases of goods
1,037
811
14,584 13,382
IVA - value-added tax (Foreign Operations)
-
-
11,740
8,089
PIS on fixed asset acquisitions
-
-
3,516 2,357
Income Taxes (Foreign Operations)
-
-
2,678 2,291
PIS/COFINS/CSLL - withheld at source
-
-
1,568 1,782
IRPJ (income tax)
-
-
1,069 1,868
PIS (tax on revenue) and COFINS on purchases of goods
185
35
576
325
CSLL (social contribution tax)
-
-
520 725
IPI (Federal VAT)
-
-
9 895
Recoverable INSS (social security contribution)
-
8
-
170
Other
-
-
388
88
4,392 3,507
71,652 59,668
Noncurrent
2,370 1,990
22,284 20,981
Current
2,022 1,517
49,368 38,687
ICMS, PIS and COFINS credits on fixed asset acquisitions are offset at the rate of 1/48 per month, pursuant to rules established in prevailing legislation.
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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). These credits are recorded in current and noncurrent assets, in view of their expected realization based on projections of taxable income. The
amounts are as follows:
Company
Consolidated
2007 2006
2007 2006
Current:
Temporary differences:
Allowance for doubtful accounts (Note 6)
11,655
7,766
11,655
7,766
Allowance for inventory losses (Note 7)
389
50
9,382
6,108
Non-inclusion of ICMS in the PIS and Cofins basis (Note 15)
701
-
4,780
-
Reserves for tax, civil and labor contingencies (Note 16)
-
-
4,563
-
Effects of unrealized profits in the inventories of the Company (Note 4)
-
-
3,087
5,370
Allowance for losses on swap and forward contracts (Notes 22.b. and 22.d.)
1,936
678
2,895
743
Provision for ICMS - ST ( Paraná and Santa Catarina) (Note 15)
1,931
-
1,931
-
Other provisions
9,839 9,366
14,506 12,249
Deferred income and social contribution taxes
26,451 17,860
52,799 32,236
Noncurrent:
Temporary differences:
Reserves for tax, civil and labor contingencies (Note 16)
15,398 19,554
32,858 34,635
Other provisions
1,249 1,138
1,460 1,174
Deferred income and social contribution taxes
16,647 20,692
34,318 35,809
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 noncurrent assets will be realized as follows:
Consolidated
2007 2006
2008
21,557 26,774
2009
8,768 6,168
2010
3,690 2,867
2011
303
-
34,318 35,809
b) Current expense
Reconciliation of income and social contribution taxes
Company
Consolidated
2007 2006
2007 2006
Income before taxes on income
578,478 580,195
617,774 609,797
Income and social contribution taxes at the rate of 34%
(196,683) (197,266)
(210,043)(207,331)
Reversal of provision for maintenance of dividend payment capacity (Note 13)
49,933 49,933
49,933 49,933
Technological research and innovation benefit - Law No. 11.196/05
(
*
)
13,348 15,370
13,348 15,370
Interest on capital (Notes 19.c and 19.d)
13,344 11,413
13,344 11,413
Tax incentives (donations)
2,871 2,564
4,134 2,957
Equity in subsidiaries and exchange variation on translation of foreign investments (Note 11)
(2,951)
9,084
-
-
Temporary differences
(1,579) (2,049)
(2,783) (2,843)
Losses generated by subsidiaries
-
- (24,095)
(23,091)
Others
153
82
643 4,569
Income and social contribution taxes - net expenses
(121,564) (110,869)
(155,519)(149,023)
Income and social contribution taxes - current
(126,110)(115,337)
(174,416)(161,987)
Income and social contribution taxes - deferred
4,546
4,468
18,897 12,964
Income and social contribution taxes - net expenses
(121,564)(110,869)
(155,519)(149,023)
Effective rate - %
21.0 19.1
25.2 24.4
(
*
)
Refers to the tax benefit established by Law No. 11,196/05, 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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10. RELATED PARTIES
Receivables from and payables to related parties are as follows:
Company
Consolidated
2007 2006
2007 2006
Current assets:
Related parties:
Natura Inovação e Tecnologia
de Produtos Ltda. (a)
5,909
3,098
-
-
Natura Logística e Serviços Ltda. (b) 5,714 3,209
-
-
Nova Flora Participações Ltda. (c)
833 833
-
-
12,456 7,140
-
-
Advance for future capital increase:
Nova Flora Participações Ltda. (d)
25
162 -
-
Natura Cosméticos Ltda.
-Colombia(e) -
428
-
-
25 590
-
-
Receivables from shareholders
(see details in Note 19.b)
-
20
-
20
Current liabilities:
Suppliers:
Indústria e Comércio
de Cosméticos Natura Ltda. (f) 110,913 132,221
-
-
Natura Logística e Serviços Ltda. (g) 17,411 16,615
-
-
Natura Inovação e Tecnologia
de Produtos Ltda. (h)
16,713 20,091
-
-
145,037 168,927
-
-
Dividends payable -
Shareholders 237,898
213,813
237,898
213,813
Transactions with related parties are summarized as follows:
Product
Product
sales
purchases
2007 2006
2007 2006
Natura Cosméticos S.A.
-
- 1,486,139 1,381,926
Indústria e Comércio
de Cosméticos Natura Ltda. 1,556,816 1,435,844
-
-
Natura Cosméticos S.A.
- Argentina
-
-
23,660
22,842
Natura Cosméticos S.A. - Peru
-
-
19,238
14,523
Natura Cosméticos S.A. - Chile
-
-
11,988
9,103
Natura Cosméticos S.A. - México
-
-
10,145
6,138
Natura Cosméticos C.A. - Venezuela
-
-
1,872
-
Natura Europa SAS
-
-
1,545
817
Natura Cosméticos Ltda. - Colômbia
-
-
1,408
-
Natura Inovação e Tecnologia
de Produtos Ltda.
-
-
817
495
Natura Logística e Serviços Ltda
-
-
4
-
1,556,816 1,435,844 1,556,816 1,435,844
Product
Product
sales
purchases
2007 2006
2007 2006
Administrative structure: (i)
Natura Logística e Serviços Ltda. 277,981 261,776
-
-
Natura Cosméticos S.A.
-
-
209,806 184,186
Indústria e Comércio de Cosméticos
Natura Ltda.
-
-
45,775
55,209
Natura Inovação e Tecnologia
de Produtos Ltda.
-
-
22,400
22,381
277,981 261,776 277,981 261,776
Product and technology research and development: (j)
Natura Inovação e Tecnologia
de Produtos Ltda.
169,181 152,781
-
-
Natura Cosméticos S.A.
-
-
169,181 152,781
169,181 152,781 169,181 152,781
Provision of research and in vitro testing services: (k)
Natura Innovation et Techonologie
de Produits SAS
3,331
-
-
-
Natura inovação e Tecnologia
de Produtos Ltda.
-
-
3,331
-
3,331
-
3,331
-
Lease of properties and common charges: (l)
Indústria e Comércio de Cosméticos
Natura Ltda.
5,728
5,588
-
-
Natura Logística e Serviços Ltda.
-
-
3,319
3,238
Natura Inovação e Tecnologia
de Produtos Ltda.
-
-
1,334
1,301
Natura Cosméticos S.A.
-
-
1,075
1,049
5,728 5,588 5,728 5,588
Total of service sales
and purchases
456,221 420,145
456,221 420,145
(a)
Refers to advances granted for provision of product and technology
development and market research services.
(b)
Refers to advances granted for provision of logistics and general
administrative 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. In August 2006, cash contributions made
in prior years were capitalized.
(e)
Refers to remittances made to Natura Cosméticos Ltda. - Colombia,
necessary for the start-up of activities in Colombia in 2006.
(f)
Payables for the purchase of products.
(g)
Payables for services described in item (i).
(h)
Payables for services described in item (j).
(i)
Logistics and general administrative services.
(j)
Product and technology development and market research services.
(k)
Provision of research and in vitro testing services.
(l)
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 December 31, 2007 and 2006, as
well as the intercompany transactions that affected the results for the years,
refer to transactions between the Company and its subsidiaries, which
were substantially carried out under usual market conditions for each type
of transaction.
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11. INVESTMENTS
Company
Consolidated
2007 2006
2007 2006
Investments in subsidiaries
766,764 707,422
-
630
766,764 707,422
-
630
Investments in direct subsidiaries are as follows:
Indústria e
Natura
Comércio de
Natura
Natura
Natura
Natura
Nova Flora
Inovação e
Natura
Natura
Natura Brasil
Natura
Natura
Cosméticos Cosméticos Cosméticos Cosméticos Cosméticos Participações Tecnologia
de
Europa Cosméticos
Cosmética Cosméticos
Cosméticos
Natura Ltda.
S.A. - Chile
S.A. - Peru S.A.-Argentina C.A.-Venezuela Ltda.
Produtos Ltda.
SAS
(*) México Ltda.-Portugal Ltda. EUA Ltda. Colômbia Total
Capital
534,184
59,258
2,013
34,099
12,295
3,695
5,008
27,377
50,948
105
2,189
8,392 739,563
Ownership interest - %
100.00%
99.99%
99.94%
99.94% 99.99% 100.00% 100.00% 100.00%
-
98.00%
99.99%
99.99%
Shareholders' equity of subsidiaries
692,324
5,836
1,207
14,201
3,552 (10,059)
19,934
12,074
15,378
(1)
526
1,383 756,715
Share in shareholders' equity
692,323
5,835
1,206
14,193
3,552 (10,058)
19,934
12,074
15,737
(1)
526
1,383 756,704
Net income (loss) of subsidiaries,
net of exchange variation on
translation of foreign investments
56,782
(5,039)
52 (11,004) (6,520)
(5,762)
14,235 (16,255) (17,966)
-
(1,666)
(7,185)
(328)
Book value of Company's
investment:
Balances as of December 31, 2006
635,541
2,714
1,346
8,189
1,421
-
35,852
12,676
9,683
-
-
- 707,422
Equity in subsidiaries
56,782
(5,038)
52 (10,997) (6,520)
(5,762)
14,238 (16,255) (17,966)
-
(1,666)
(7,185)
(317)
Exchange variation and other
adjustments on translation of
foreign investments
-
166
(192)
(3,289)
(667)
-
-
(956)
(3,305)
-
(84)
(36)
(8,363)
Recognition of provision for losses
-
-
-
-
-
5,518
-
-
-
-
-
(23)
5,495
Dividend payment
-
-
-
-
-
- (30,156)
-
-
-
-
- (30,156)
Capital increase / (decrease)
-
7,993
-
20,290
9,318
245
-
16,609
27,326
-
2,276
8,626
92,683
Balances as of
December 31, 2007
692,323
5,835
1,206
14,193
3,552
1
19,934
12,074
15,738
-
526
1,382 766,764
Provision for losses:
Balances as of
December 31, 2006
-
-
-
-
-
(4,541)
-
-
-
(1)
-
(23)
(4,565)
Recognition of
provision for losses
-
-
-
-
-
(5,518)
-
-
-
-
-
23
(5,495)
Balances as of
December 31, 2007
-
-
-
-
- (10,059)
-
-
-
(1)
-
- (10,060)
Net balances
as of December 30, 2007
692,323
5,835
1,206
14,193
3,552 (10,058)
19,934
12,074
15,738
(1)
526
1,382 756,704
(*)Consolidated information on the following companies:
Natura Cosmeticos y Servicios de Mexico, S.A. de C.V.
Natura Cosmeticos de Mexico, S.A. de C.V.
Natura Distribuidora de Mexico, S.A. de C.V.
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12. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS
Company
2007
2006
Annual
Accumulated Net book
Accumulated Net book
PROPERTY, PLANT AND EQUIPMENT
depreciation rate -%
Cost
depreciation
value
Cost
depreciation
value
Vehicles
20 to 33
22,716
9,493
13,223
19,598
8,357
11,241
Leasehold improvements
20 to 33
9,263
2,115
7,148
7,874
558
7,316
Machinery and equipment
10
4,136
677
3,459
1,646
311
1,335
Furniture and fixtures
10
4,011
1,889
2,122
3,087
1,633
1,454
IT equipment
20
5,064
3,190
1,874
4,810
2,792
2,018
Construction in progress
-
40
-
40
2,371
-
2,371
Advances to suppliers
-
-
-
-
455
-
455
45,230
17,364
27,866
39,841
13,651
26,190
Annual
Accumulated Net book
Accumulated Net book
IINTANGIBLE ASSETS
depreciation rate -%
Cost
amortization
value
Cost
amortization
value
Software
20
7,952
4,308
3,644
6,702
3,152
3,550
Construction in progress
-
2,904
-
2,904
-
-
-
10,856
4,308
6,548
6,702
3,152
3,550
Consolidated
2007
2006
Annual
Accumulated Net book
Accumulated Net book
PROPERTY, PLANT AND EQUIPMENT
depreciation rate -%
Cost
depreciation
value
Cost
depreciation
value
Machinery and equipment
10
221,679
74,967
146,712
181,046
56,563
124,483
Buildings
4
144,685
36,018
108,667
144,684
30,309
114,375
Installations
10 to 33
92,721
42,238
50,483
79,547
33,065
46,482
Lands
-
33,662
-
33,662
33,662
-
33,662
Molds
33
67,269
40,626
26,643
47,868
30,637
17,231
Vehicles
20 to 33
35,560
13,315
22,245
30,196
11,124
19,072
IT equipment
20
46,700
24,975
21,725
38,763
19,516
19,247
Advances to suppliers
-
21,263
-
21,263
26,764
-
26,764
Furniture and fixtures
10
23,187
8,115
15,072
18,876
6,313
12,563
Leasehold improvements
20 to 33
15,625
4,173
11,452
12,694
1,380
11,314
Construction in progress
-
9,824
-
9,824
16,297
-
16,297
Other
10
6,066
2,851
3,215
6,463
2,407
4,056
718,241
247,278
470,963
636,860
191,314
445,546
Annual
Accumulated Net book
Accumulated Net book
INTANGIBLE ASSETS
depreciation rate -%
Cost
amortization
value
Cost
amortization
value
Software
20
73,183
25,231
47,952
32,735
13,561
19,174
Construction in progress
-
9,710
-
9,710
26,355
-
26,355
Business lease - Natura Europa (a)
-
5,420
-
5,420
5,860
-
5,860
Patents
10 to 25
1,967
1,232
735
941
941
-
Goodwill on acquisition of investment - Nova Flora (b)
10
-
-
-
8,015
8,015
-
90,280
26,463
63,817
73,906
22,517
51,389
(a)The business lease 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 December 31, 2006 and 2007 is basically due to the effects
of the exchange variation for the period.
(b)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.
13. DEFERRED CHARGES
On March 5, 2004, Natura Par ticipações S.A. was merged into the
Company. Natura Par ticipações 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 Par ticipações S.A. on December 27, 2000. This merger was
approved by the Extraordinar y Shareholders' Meeting held on that
date, and the amounts are suppor ted by a valuation repor t issued by
independent exper ts.
The amounts are as follows:
Company
2007
2006
Goodwill on investments
465,066
611,929
Provision for maintenance of
future dividend payment capacity
(465,066) (611,929)
-
-
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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14. LOANS AND FINANCING
Company
Consolidated
Type
2007
2006
2007
2006
Maturity
Charges
Guarantees
BNDES ­ EXIM (1)
-
- 110,175
53,070
April 2008 and
Guarantee of Natura
February 2009
Cosméticos S.A.
Compror (buyer financing) 118,482
- 137,677
January 2008
Interest of 102.8% of CDI (3)
Guarantee of Natura
Cosméticos S.A.
Resolution 2,770 (1)
88,484
-
88,484
-
January 2010
Exchange variation (YEN) + 2.11% p.y.
Guarantee of Indústria
Comércio de Cosméticos
Natura Ltda.
FINEP (Financing Agency
-
-
51,915
39,370
for Studies and Projects)
Agribusiness -
-
48,787
-
Credit Note (1)
BNDES (1)
30,666
7,939
45,543
20,258
(Brazilian Bank for
Economic and
Social Development) (1)
NCE (Export
-
-
41,190
36,635
April 2008
Interest of 104.7% of CDI (3)
Credit Note)
BNDES - FINAME
-
-
14,246
12,938
January 2012
Interest of 4.5% p.y. + TJLP(2)
(Government Agency for
Machinery and Equipment Financing)
FAT Fomentar
-
-
6,682
2,568
February 2014
Interest of 4.4% p.y. + TJLP (2)
(Employee Shelter Fund)
BNDES - PROGEREN
-
37,141
-
37,140
Settled in
Interest of 3.5% p.y. + TJLP(2)
Bank guarantee
(Support Program for Enhancing
June 2007
Employment and Income Capacity)
ACE (Advances on
Export Contracts)
-
-
-
986
Total 237,632
45,080 544,699 202,965
Current
120,785
45,052 284,707
75,888
Noncurrent
116,847
28 259,992 127,077
Interest of 2.62% p.y. + TJLP(2) for 80% of the
financing and interest of 10.23% p.y. + exchange
variation for 20% of the financing for the maturity
in April 2008.
Interest of 2.57% p.y. + TJLP(2) for 80% of the
financing and interest of 9.76% p.y. + exchange
variation for 20% of the financing for the maturity
in February 2009.
TJLP(2) for 71.5% of the financing for the matu-
rity in March 2013, and interest of 3% p.y. +
TJLP(2) for 28.5% of the financing, for the matu-
rity in December 2008.
December 2008
and March 2013
Guarantee, promissory notes
and receivables of Natura
Cosméticos S.A.
April 2010
and July 2014
April and
June 2009
Interest of 100.6% of CDI (3) + IOF (4)
and TR (5) + 8.66% p.y. + IOF (4)
Guarantee of Natura
Cosméticos S.A.
Interest of 4.5% p.y. + TJLP(2) + UMBNDES(6)
for the maturity in April 2010.
For the financing for the maturity in July 2014:
(i) TJLP(2) + interest of 2.8% p.y. for 85% of the
financing (ii) exchange variation (dollar) +
interest of 8.54% p.y. for 9% of the financing,
and (iii) TJLP(2) + interest of 2.3% p.y. for 6%
of the financing.
Mortgage (7)
Bank guarantee
Guarantee of Natura Cosméticos
S.A. and promissory notes
Chattel mortgage, guarantee of
Natura Cosméticos S.A. and
promissory notes
Chattel mortgage, guarantee of
Natura Cosméticos S.A. and
promissory notes
Guarantee for exports
Interest of 5.4% p.y. + exchange variation
Settled in
January 2007
(1) Loans and financing for which swap transactions for CDI were contracted
(2) TJLP - Long-term interest rate
(3) CDI - Interbank certificate of deposit
(4) IOF - Tax on financial transactions
(5) TR - Managed prime rate
(6) UMBNDES - BNDES monetary unit
(7) Financing in local currency from the BNDES is guaranteed mainly
by the Cajamar unit
Maturities of noncurrent debt are as follows:
Consolidated
2007
2006
2008
-
55,534
2009
100,831
53,120
2010
109,583
7,409
2011
18,541
4,824
2012
17,543
4,743
2013
9,754
1,447
2014
3,740
-
259,992
127,077
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67
15. TAXES PAYABLE
Company
Consolidated
2007
2006
2007
2006
ICMS (State VAT) Company
and tax substitution
109,959
65,151
109,892
64,789
PIS/COFINS (Liminar) (*)
2,061
-
14,060
-
IRPJ (income tax)
8,439
7,374
10,478
8,916
IRRF (withholding income tax)
3,863
2,074
7,335
4,266
PIS/COFINS/CSLL (Law No. 10,833/03) 3,696
2,085
4,784
3,011
CSLL (social contribution tax)
3,794
3,082
4,534
3,662
COFINS (tax on revenue)
119
517
4,458
3,740
IVA - value-added tax
(Foreign Operations)
-
-
2,786
1,970
Income Taxes
(Foreign Operations)
2,527
2,415
IPI
-
-
2,285
-
ISS
214
94
983
1,162
PIS
26
113
947
779
Other
-
-
472
962
132,171
80,490
165,541
95,672
(-) Escrow deposits (**)
(47,030)
-
(47,030)
-
Total taxes payable,
net of escrow deposits
85,141
80,490
118,511
95,672
(*)The Company and its subsidiary Indústria e Comercio de Cosméticos Ltda. are challenging
in court the non-inclusion of the ICMS in the PIS and COFINS tax basis. In June 2007, the
Company and its subsidiary obtained authorization to pay PIS and COFINS without including
ICMS in the tax basis, from April 2007. The provision for December 2007 refers to unpaid
amounts due to the non-inclusion of ICMS in the PIS and COFINS basis between April and
December 2007.
(**) Refers to the ICMS tax substitution in the Santa Catarina and Paraná State, for May to
December 2007 and February to December 2007, respectively, which are not being
challenged in court but are being deposited in escrow while there is no established agreement
between the parties involved, as detailed in note 16, items (a) and (b) of the item "Contingent
liabilities". The same amount is recorded under the caption "ICMS - Company and tax
substitution", for which reason there was a significant variation in the balances between
December 2006 and December 2007.
16. RESERVES FOR TAX, CIVIL AND LABOR 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 reserves for tax, civil and labor contingencies are sufficient to cover probable
losses. These reserves, net of the escrow deposits, are presented as follows:
Company Consolidated
2007
2006
2007
2006
Tax
23,054
35,365
40,312
49,086
Civil
5,429
5,130
17,903
7,316
Labor
4,787
4,599
6,226
5,808
33,270
45,094
64,441
62,210
Current
-
-
13,420
-
Noncurrent
33,270
45,094
51,021
62,210
Tax Contingencies
The changes in the reserves for tax contingencies for the year ended
December 31, 2007 are presented as follows:
Company
Write-
Monetary
2006
Additions
Reversals
offs
restatement 2007
Deductibility of CSLL (social contribution tax) (Law No. 9,316/96) (c)
6,338
-
-
-
332
6,670
Late payment fines on Federal taxes paid in arrears (b)
5,572
-
-
-
493
6,065
Monetary restatement of Federal taxes (IRPJ/CSLL/ILL) according to the UFIR
(fiscal reference unit) (d)
4,930
-
-
-
71
5,001
IPI (Federal VAT) - tax collection lawsuit (g)
4,143
-
-
-
280
4,423
Tax assessment - INSS (social security contribution) (h)
5,421
-
(1,903)
-
344
3,862
Assessment notice - 1990 (corporate income tax) (j)
2,683
-
-
-
179
2,862
IRPJ and CSLL tax assessment - attorneys' fees (i)
1,469
1,796
-
(425)
20
2,860
PIS (tax on revenue) - semiannual - Decree-laws No. 2,445/88 and No. 2,449/88 (l)
14,228
-
(14,910)
-
682
-
Attorneys' fees and other
6,849
222
(1,325)
-
861
6,607
Total reserve for tax contingencies
51,633
2,018
(18,138)
(425)
3,262
38,350
Escrow deposits for tax contingencies
(16,268)
-
1,905
-
(933)
(15,296)
Total reserve for tax contingencies, net of escrow deposits
35,365
2,018
(16,233)
(425)
2,329
23,054
Consolidated
Write-
Monetary
2006
Additions
Reversals
offs
restatement 2007
IPI - zero rate (a)
27,914
-
-
-
3,120
31,034
Late payment fines on Federal taxes paid in arrears (b)
6,625
-
-
-
582
7,207
Deductibility of CSLL (social contribution tax) (Law No. 9,316/96) (c)
6,338
-
-
-
332
6,670
Monetary restatement of Federal taxes (IRPJ/CSLL/ILL) according to the UFIR
(fiscal reference unit) (d)
5,056
-
-
-
71
5,127
IPI tax assessment - attorneys' fees (e)
4,616
-
(9)
-
185
4,792
IPI (Federal VAT) credit on purchases of fixed assets and consumption material (f)
4,437
-
(279)
-
275
4,433
IPI (Federal VAT) - tax collection lawsuit (g)
4,143
-
-
-
280
4,423
Tax assessment - INSS (social security contribution) (h)
5,421
-
(1,903)
-
344
3,862
IRPJ and CSLL tax assessment - attorneys' fees (i)
1,469
1,796
(425)
26
2,866
Assessment notice - 1990 IRPJ (corporate income tax) (j)
2,683
-
-
-
179
2,862
Non-inclusion of the ICMS in the PIS and COFINS tax basis - attorneys' fees (k)
-
2,234
-
-
57
2,291
PIS (tax on revenue) - semiannual - Decree-laws No. 2,445/88 and No. 2,449/88 (l)
15,930
-
(14,910)
-
816
1,836
Attorneys' fees and other
9,840
472
(1,395)
-
1,600
10,517
Total reserve for tax contingencies
94,472
4,502
(18,496)
(425)
7,867
87,920
Escrow deposits for tax contingencies
(45,386)
-
1,905
-
(4,127)
(47,608)
Total reserve for tax contingencies, net of escrow deposits
49,086
4,502
(16,591)
(425)
3,740
40,312
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(a) Refers to IPI tax credits on raw materials and packing materials purchased at a zero tax rate
and with tax exemption. The subsidiary Indústria e Comércio de Cosméticos Natura Ltda. filed
for and obtained an injunction granting entitlement to the credit. On September 25, 2006, a
sentence was rendered dismissing the injunction, judging the Company's request invalid. The
Company filed an appeal for review of the merit and reestablishment of the injunction's
effects. To suspend payments of the tax credit the Company performs escrow deposits from
October 2006. The total amount deposited in escrow, adjusted by December 31, 2007 is
R$ 31,034 (R$ 27,914 as of December 31, 2006).
(b)Refers to fine for late payment of federal taxes.
(c)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 (income tax) basis. A por tion of this
reser ve, in the amount of R$ 4,601 (R$ 4,245 as of December 31, 2006), is
deposited in escrow.
(d)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. The amount involved is deposited
in escrow.
(e)Refers to attorneys' fees for the defense in the tax assessment notice issued in
November 2005 by the Federal Revenue Ser vice, relating to the tax basis of the IPI
(Federal VAT) on intercompany transactions. In June 2006, the subsidiar y was notified
of the decisions rendered by the 2nd Panel of the Federal Revenue Ser vice Judgment
Office in Ribeirão Preto, which cancelled, by unanimous vote, the tax requirements
related to IPI on these transactions. On August 15, 2007, the appeal filed by the
federal tax authority was unanimously denied and the lower cour t decision cancelling
the tax payable was upheld. The decision has yet to be formalized and published. On
December 18, 2007, the subsidiar y Indústria e Comércio de Cosméticos Natura Ltda.
was notified of the denial of the appeal relating to one of the tax assessment notices
that was then concluded.
(f) 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.
(g)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
3rd Region (SP) for judgment of the appeal filed by the debtor. The amounts involved in
this tax collection lawsuit are guaranteed by a subsidiary's (Natura Inovação e Tecnologia
de Produtos Ltda.) cash investment in the updated amount of R$ 4,848 (R$ 4,336 as of
December 31, 2006).
(h)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 ser vices provided by third par ties. The amounts are discussed in cour t
through a tax debt annulment action and are deposited in escrow. The amounts
required in the tax assessment notice cover the period from Januar y 1990 to
October 1999. The reversal made in the quar ter refers to the expiration of par t of
the amount involved in the lawsuit for the period from Januar y 1990 to October
1994, as recently instructed by the Federal Supreme Cour t (STF) and Superior
Cour t of Justice (STJ).
(i) Refers to attorneys' fees for defense against the tax deficiency notices issued against the
Company in August 2003, December 2006 and December 2007 by the Federal
Revenue Service, in which income and social contribution taxes (IRPJ and CSLL) are
demanded related to the deductibility of the yield of the debentures issued by the
Company in 1999, 2001 and 2002. The attorneys' opinion is that the likelihood of
unfavorable outcome is remote.
(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.
(k)Refers to attorneys' fees for filing and dealing with the administrative proceeding for requesting
a refund of the ICMS included in the PIS and Cofins basis in the period from April 2002 to
March 2007. The attorneys assessed the risk of loss as remote.
(l) 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 reversal
made in the year is due to the final decision favorable to the Company, rendered in
August 2007. The remaining reserve refers to the subsidiary Indústria e Comércio de
Cosméticos Natura Ltda., which is awaiting the appreciation of the lawsuit by the Board
of Tax Appeals.
Civil contingencies
The changes in the reserves for civil contingencies for the year ended December 31, 2007 are presented as follows:
Company
Monetary
2006
Additions Reversals
Payments
restatement
2007
Several civil lawsuits (a)
2,944
3,861
(1,866)
(363)
570
5,146
Civil lawsuits and attorney's fees - Flora Medicinal (b)
2,334
-
(1,984)
-
135
485
Total reserve for civil lawsuits
5,278
3,861
(3,850)
(363)
705
5,631
Escrow deposits for civil contingencies
(148)
(52)
1
-
(3)
(202)
Total reserve for civil contingencies, net of escrow deposits
5,130 3,809
(3,849)
(363)
702
5,429
Consolidated
Monetary
2006
Additions
Reversals
Payments restatement 2007
Several civil lawsuits (a)
3,157
3,993
(1,961)
(376)
643
5,456
Civil lawsuits and attorney's fees - Flora Medicinal (b)
7,004
8,109
-
-
536
15,649
Total reserve for civil lawsuits
10,161
12,102
(1,961)
(376)
1,179
21,105
Escrow deposits for civil contingencies
(2,845)
(52)
88
-
(393)
(3,202)
Total reserve for civil contingencies, net of escrow deposits
7,316 12,050
(1,873)
(376)
786
17,903
Current
13,420
Noncurrent
4,483
(a) As of December 31, 2007, the Company and its subsidiaries are parties to 1,587 lawsuits
(1,164 as of December 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. In November 2007, the
Rio de Janeiro Court of Justice judged the appeals filed against the lower court decision that
determined the amounts. Appeals were filed requesting clarification of the decision
rendered by the Rio de Janeiro Court of Justice and were denied in January 2008, when
the Company filed a special appeal. The addition that occurred in the year was due to the
revision of the reserve for the main lawsuit and attorneys' fees according to the progress
of the lawsuit. Of the total amount, R$ 13,420 was reclassified to current liabilities based
on expected outcome in 2008.
The Company is a party to other 3 civil lawsuits filed by the former shareholder Flora
Medicinal, the nature and likelihood of success of which are described below:
- Arbitration of return on capital: the former shareholder alleges that it has the right to
receivables resulting from its withdrawal from the Company. In January 2008, the former
shareholder filed with the Superior Court of Justice an appeal against the decision rendered
by the Rio de Janeiro Court of Justice that, upholding the lower court decision, denied the
former shareholder's request. The amounts involved could not yet been measured reliably.
The attorneys believe that the risk of loss is remote.
- Business plan-related matter: the former shareholder alleges it has the right to receivables
resulting from its withdrawal from the Company. The start of the work of the court-
appointed expert is expected since December 2007. The lawsuit is in progress in the São
Paulo Judicial District. The amounts involved could not yet been measured reliably. The
attorneys believe that the risk of loss is remote.
- Payment into court: refers to ICMS credits deposited by the former shareholder for
installment payment contracted by Flora Medicinal. Since September 2007 the former
shareholder is expecting the judgment of the bill of review filed against the decision that
denied the special appeal it filed. The Rio de Janeiro Court of Justice, reversing the lower
court decision, denied the former shareholder's request. The attorneys believe that the risk
of loss is possible.
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Labor contingencies
As of December 31, 2007, the Company and its subsidiaries are parties to 588 labor lawsuits filed by former employees and third parties (414 as of December
31, 2006), claiming the payment of severance amounts, salary premiums, overtime and other amounts due, as a result of joint liability. Reserves are periodically
reviewed based on the progress of lawsuits and history of losses on labor claims to reflect the best current estimate.
The changes in the reserves for labor contingencies for the year ended December 31, 2007 are presented as follows:
Company
Monetary
2006
Additions Reversals
Payments
restatement
2007
Total reserve for labor contingencies
4,895
537
(940)
(64)
1,176
5,604
Escrow deposits for labor contingencies
(296)
(521)
-
-
-
(817)
Total reserve for labor contingencies, net of escrow deposits
4,599
16
(940)
(64)
1,176
4,787
Consolidated
Monetary
2006
Additions Reversals
Payments
restatement
2007
Total reserve for labor contingencies
6,339
563
(1,077)
(64)
1,562
7,323
Escrow deposits for labor contingencies
(531)
(566)
-
-
-
(1,097)
Total reserve for labor contingencies, net of escrow deposits
5,808 (3)
(1,077)
(64)
1,562
6,226
Escrow deposits
Escrow deposits, which represent the Company's restricted assets, refer to amounts deposited in court until litigation is resolved. The balance of escrow deposits
for which there is no recognized reserve for contingencies, as of December 31, 2007, totals R$ 38,603 - consolidated (R$ 13,367 as of December 31, 2006)
and is classified under the heading "Escrow deposits", in noncurrent assets. The increase in the escrow deposits balance between December 31, 2006 and
December 31, 2007 arises mainly from the contingency related to ICMS Tax Substitution of the Paraná and Santa Catarina States, as mentioned in item (a) and
(b) of the following topic.
Possible losses
The Company and its subsidiaries are parties to tax, civil and labor lawsuits, for which there is no reserve for losses recorded, because the risk of loss is considered
possible by management and its attorneys. These lawsuits are presented as follows:
Company
Consolidated
2007
2006
2007
2006
Tax:
Declaratory Action - ICMS Tax Substitution of Paraná State (a)
10,715
-
10,715
-
Declaratory Action - ICMS Tax Substitution of Santa Catarina State (b)
9,965
-
9,965
-
Offset of 1/3 of COFINS - Law No. 9,718/98 (c)
4,466
4,223
4,466
4,223
INSS debt annulment action (d)
3,976
5,209
3,976
5,209
Tax assessment - transfer pricing on loan agreements with foreign related company (e)
1,047
1,342
1,047
1,342
Tax debt notification - GFIP (FGTS payment and social security information form) (f)
718
673
718
673
ICMS Tax Substitution deficiency notice (g)
593
608
593
608
Request for offset of taxes of the same type - IRPJ (income tax) and IRRF (withholding income tax) (h)
450
406
450
406
Other
2,602
1,310
4,797
1,500
34,532
13,771
36,727
13,961
Civil
6,077
4,496
18,283
15,235
Labor
30,927
15,249
46,115
20,551
71,536
33,516
101,125
49,747
(a)Lawsuit filed by the Company challenging the changes in ICMS tax basis introduced by
Paraná Decree No. 7,018/2006. The total amount of the matter in controversy is being
deposited in escrow.
(b)Lawsuit filed by the Company challenging the changes in ICMS tax basis introduced by
Administrative Act No. 107/2006 of DIAT (Santa Catarina State tax administration office). The
total amount of the matter in controversy is being deposited in escrow.
(c)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.
On September 11, 2006 the Company was notified that the offsets made were not
approved, and timely filed the applicable appeal. This lawsuit is awaiting ruling at the lower
administrative court.
(d)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. The
amounts are discussed in the tax debt annulment action and are deposited in escrow.
The amounts required in the assessment notice cover the period from January 1990
to October 1999. The reversal made in the quar ter refers to the expiration of par t of
the amount involved in the lawsuit for the period from January 1990 to October 1994,
as recently instructed by the Federal Supreme Cour t (STF) and Superior Cour t of
Justice (STJ).
(e)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.
(f) Demand of fine for failure to complete the GFIP (FGTS payment and social security
information form), an accessory social security obligation, for independent contractors' social
security contributions and indemnities. The Company is discussing the collection at the
administrative level.
(g) Tax deficiency notice for ICMS Tax Substitution, demanded by Goiás State, due to supposed
underpayment by the Company. The Company has presented its defense at the administrative
level and is awaiting the final judgment.
(h)Refers to the nonapproval of the offset of IRPJ credits related to the 3rd quarter of 1999 against
IRRF debts for the 2nd quarter of 2000. The Company has presented its defense at the
administrative level, for which a partially favorable judgment has been rendered. On July 12, 2006,
an annulment action was filed, and an escrow deposit was made, to challenge collection of the
balance of offset not approved by the Federal Revenue Service.
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Contingent Assets
Significant contingent assets of the Company and its subsidiaries are as follows:
(a)
The Company and its subsidiary Indústria e Comércio de Cosméticos
Natura Ltda. are challenging in cour t the constitutionality and
legality of the increase in the tax basis for the PIS and COFINS
contributions established by Law No. 9,718/98. The amounts involved
in the lawsuits, updated as of December 31, 2007, total R$ 18,111
(R$ 12,171 as of December 31, 2006). The lawsuits are awaiting
judgment. The attorneys' opinion is that the likelihood of favorable
outcome is probable.
(b)
The Company and its subsidiaries Indústria e Comércio de
Cosméticos Natura Ltda., Natura Inovação e Tecnologia de Produtos
Ltda. and Natura Logística e Ser viços Ltda. are requesting at
administrative level the refund of the ICMS included in the PIS and
COFINS basis and paid in the period from April 2002 to March 2007.
The amounts of the refund request as of December 31, 2007 are
R$ 103,025. The attorneys believe that the chance of a favorable
outcome is probable.
As a final and unappealable decision has not been rendered, the Company
and its subsidiary have not recorded the contingent assets, as established
by CVM Resolution No. 489/05.
17. MANAGEMENT AND EMPLOYEE PROFIT SHARING
The Company and its subsidiaries pay profit sharing to its employees and
managers, tied to the achievement of operational targets and specific
objectives established and approved at the beginning of each year. As of
December 31, 2007, the following amounts were recorded as profit
sharing: R$ 12,556 (R$ 13,850 as of December 31, 2006) and R$ 35,827
(R$ 39,260 as of December 31, 2006), Company and consolidated,
respectively, under the heading "Salaries, profit sharing and related
charges" in current liabilities, with contra entry to "Employee profit
sharing" and "Management compensation" in the statement of income for
those years.
18. COMPENSATION OF MANAGEMENT AND EXECUTIVES
a) The total compensation of the Board of Directors and Officers of the
Company and its subsidiaries is as follows:
2007
Stock Options Program
Compensation
Stock option
Average
Variable
balance
exercise
Fixed
(*)
Total
(quantity) (**) price (***)
Board of Directors
2,498 (1,049)
1,449
-
-
Officers
3,598
1,367
4,965
532,654
21.57
Total
6,096
318 6,414
532,654
2006
Stock Options Program
Compensation
Stock option
Average
Variable
balance
exercise
Fixed
(*)
Total
(quantity) (**) price (***)
Board of Directors
2,572
1,049
3,621
-
-
Officers
3,070
1,878
4,948
528,326
12.81
Total
5,642
2,927 8,569
528,326
b) The compensation of the Executives of the Company and its subsidiaries
is as follows:
2007
Stock Options Program
Compensation
Stock option
Average
Variable
balance
exercise
Fixed
(*)
Total
(quantity) (**) price (***)
Executives
14,873
4,034 18,907 2,702,650
16.78
2006
Stock Options Program
Compensation
Stock option
Average
Variable
balance
exercise
Fixed
(*)
Total
(quantity) (**) price (***)
Executives
12,711
4,594 17,305 3,120,859
10.02
(
*
)
Refers to the profit sharing recorded in the statement of income for the years. The amounts
include any additions and/or reversals to the provision recorded in the prior year in view
of the final assessment of the targets established by the Board Members and Directors
appointed pursuant to bylaws or not.
(
**
)
Refers to the balance of unexercised vested and unvested options as of the balance
sheet dates.
(
***
)
Refers to the weighted-average exercise price of the option at the time of the Stock Option
Grant, updated by the inflation calculated based on the IPC-A (extended consumer price
index) through the balance sheet date. Note 20 presents the pro forma net income as of
December 31, 2007 and 2006, should Company's management opt for recognizing the
effects of the plans in the accounting records, considering the vesting period and using the
intrinsic value method (difference between the market price obtained on December 31,
2007 and 2006 and the value of the option updated based on the IPC-A, for the years
then ended).
19. SHAREHOLDERS' EQUITY
a) Capital
On December 31, 2006, the Company's capital was R$ 233,862. In March 2007,
22,667 common shares without par value were subscribed for R$ 3.17. The
total amount subscribed was R$ 72 and the authorized capital was 13,116,665
common shares.
As of April, 2007, there was capitalization from the profit reserves, in the
amount of R$ 153,939, according to details described in item (h) of this
explanatory note.
As of May and June 2007, 700,839 common shares were subscribed due to
the option periods referring to the Stock Option Plans of 2003 and 2004,
with average contribution prices at R$ 3.19 and R$ 7.86, respectively. The
total amount subscribed was R$ 2,706.
As of August and September 2007, 12,085 common shares were subscribed
due to the option periods referring to the Stock Option Plans of 2003, with
average contribution prices at R$ 3.22. The total amount subscribed was R$ 39.
Due to the events mentioned previously, the amount of subscribed and
paid-up common shares increased from 428,193,460 on December 31, 2006
to 428,929,051 on December 31, 2007.
As of December 31, 2007, the Company's capital is R$ 390,618 and the
authorized capital is 12,381,074 common shares.
b) Amortization on receivables from shareholders
Refers to the amor tization of receivables from shareholders granted to
two Company directors, on September 29, 2000, April 30, 2002,
December 30, 2002 and Januar y 5, 2004, by purchase and sale
agreement of shares, at the rate of 3% per year, with maturities
scheduled for April 30, 2009 and September 30, 2010, so that they could
acquire Natura Empreendimentos S.A. and Natura Par ticipações S.A.'s
common shares. In the corporate restructuring occurred in March 2004,
such shares were exchanged with Natura Cosméticos S.A.'s common
shares. The amor tization of loans is performed with all of its dividends
and interest on capital, distributed by the Company to such directors,
based on the charged shares acquired. The financing was fully settled in
the year of 2007.
c) Interest on capital
At the Board of Directors' Meeting on July 25, 2007, the Company's
management proposed the payment of interest on capital, according to the
terms of the bylaws, CVM Resolution No. 207/96 and Law No. 9,249/95. As
of December 31, 2007, the recorded gross amount of interest on capital is
R$ 39,247 (R$ 33,569 as of December 31, 2006) and was calculated within
legal limits, including as to the mandatory minimum dividend of 30% according
to article 202 of Law No. 6,404/76 and the bylaws.
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Withholding income tax in the amount of R$ 5,887 (R$ 5,035 as of
December 31, 2006) was withheld and paid by the Company.
d) 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.
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.
Dividends and interest on capital - gross, relating to income for 2006, in the
amounts of R$ 325,866 (R$ 0.7630 per share) and R$ 33,569 (R$ 0.0787 per
share), respectively, were approved by Annual Shareholders' Meeting on April
02, 2007 and corresponded to 78.0% of the 2006 consolidated net income.
On February 27, 2008, the Board of Directors' Meetings approved a proposal,
to be submitted to the Annual Shareholders' Meeting to be held on March
31, 2008, for the payment of dividends and interest on capital - gross, relating
to income for 2007, in the total amounts of R$ 375,890 (R$ 0.8767 per share)
and R$ 39,247 (R$ 0.0915 per share), respectively, corresponding to 89.8%
of the 2007 consolidated net income. Of these amounts, the Company paid,
on August 10, 2007, dividends and interest on capital - gross in the amounts
of R$ 138,138 (R$ 0.3222 per share) and R$ 39,247 (R$ 0.0915 per share),
respectively, as approved by the Board of Directors' Meeting on July 25, 2007.
Dividends were calculated as follows:
Company
2007
2006
Net income
456,914
469,326
Profit reserve - legal (item g. of this Note)
-
-
Calculation basis for minimum dividends
456,914
469,326
Mandatory minimum dividends
30%
30%
Annual minimum dividend
137,074
140,798
Proposed dividends
375,890
325,866
Interest on capital - net of withholding income tax
33,360
28,534
Withholding income tax
5,887
5,035
Total dividends and interest on capital - gross
415,137
359,435
Amount exceeding the mandatory
minimum dividend
278,063
218,637
Dividends per share - R$
0.877
0.763
Interest on capital per share - net - R$
0.078
0.067
Total dividends and interest on capital,
per share - net - R$
0.95
0.83
e) Treasury shares
In the first quarter of 2007, 1,000,000 common shares were bought at the
average price of R$ 22.70 by exercising the options granted to the
Company's officers and employees and the indirect and direct subsidiaries'
officers and employees participating in the "Amendments to the Common
Stock Option Plan for 2003, 2004 and 2005" and "Common Stock Option
Plan for 2006", according to the Extraordinary Shareholders' Meeting held
on April 2, 2007.
As of December 31, 2007, treasury shares, which have been used in the
exercise of options under the Stock Option Plans, were 161,303 (679,317 in
2006), with an average unit cost of R$13.6705 (R$0.3447 in 2006).
f) 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,
occurred on March 2, 2004.
g) 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 2006 and 2007.
h) Reserve for profit retention
As of December 31, 2007 and 2006, the profit retention reserve was
recognized pursuant to article 196 of Law No. 6,404/76 for use in future
investments, in the amounts of R$41,777 and R$109,891, respectively. The
retention referring to 2007 is based on the capital budget, which will be
submitted for approval in the Annual Shareholders' Meeting to be held on
March 31, 2008.
As mentioned in article 199 of Law No. 6,404/76, the balance of profit
reserves, except for the reserve for contingencies and unrealized profit
reserve, may not exceed capital. Therefore, at the Extraordinary Shareholders'
Meeting held on April 2, 2007, the capitalization in the amount of R$153,939,
referring to the profit reserves recognized in the years ended December 31,
2004 and 2005, which were fully utilized for investments in property, plant and
equipment and working capital, in 2005 and 2006, was approved.
20. STOCK OPTION PROGRAM
The Board of Directors meets once a year for the purpose of, pursuant to
the terms of the Program, establishing the Plan, indicating the directors and
managers who will receive the options and the total amount to be paid.
The Plans have a four-year time span for exercising the options, and the
exercise rights are 50% at the end of the third year and 50% at the end of
the fourth year. The deadline for exercising options was two years after the
end of the fourth year.
The balance of options as of December 31, 2007 is 5,456,845 (6,701,732 as
of December 31, 2006) and is composed by plan as follows:
Number of
Amount for the year
call options or
updated according to
subscription
the IPC-A (extended
(in shares)
consumer price index)
through December 31,
2007
2002
238,940
5.85
2003
1,016,810
3.28
2004
1,117,810
8.06
2005
831,670
17.31
2006
981,660
25.79
2007
1,269,955
24.33
5,456,845
As of December 31, 2007, had the Company's management opted to record
the effects of the plans based on the intrinsic value of the options (difference
between market price as of December 31, 2007 and the value updated based
on the IPC-A) recorded over their related vesting period, the pro forma
consolidated net income for the year ended December 31, 2007 would have
been R$ 500,001 (R$ 382,358 as of December 31, 2006), as shown below:
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Consolidated
2007
2006
Net income
462,255
460,773
Effect of programs considering
vesting period
37,746
(78,415)
Net income - considering the
exercise of the options
500,001
382,358
As of December 31, 2007, the market price of the Company's shares was
R$ 7.00 (R$ 30.15 as of December 31, 2006).
21. 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 year ended December 31, 2007 totaled R$ 3,808
(R$ 3,397 as of December 31, 2006).
22. 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.
b) Exchange risk
The Company has entered into swap and forward transactions to
hedge its liabilities against fluctuations in the exchange rate and TR (a
managed prime rate) arising from financing agreements and operating
activities (impor t of equipment, purchase of inputs linked to exchange
variation, and investments in international operations). These
transactions consist in swapping the liability in foreign currency or
cer tain index for a liability adjusted by a percentage of the
CDI (interbank deposit rate), and are composed as follows as of
December 31, 2007 and December 31, 2006:
Consolidated
Balance of
Type of transaction
Contracted amount
current liabilities
2007
2006
2007
2006
Finance (*)
133,452
13,759
8,210
1,938
Operating
46,682
16,651
304
247
180,134
30,410
8,514
2,185
(*)The effects of these transactions are directly related to the monetary and exchange
variations on loans and financing, as stated in note 14.
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 TJLP due
to the financing agreements entered into with the BNDES, FAT Fomentar
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 the carrying and fair values are
as follows:
Consolidated
2007
2006
Carrying
Fair
Carrying
Fair
value
value
value
value
Swap and forward transactions
8,514
6,351
2,185
2,860
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.
23. FINANCIAL INCOME, NET
Company
Consolidated
2007
2006
2007
2006
Financial income:
Interest on cash investments
7,911
21,989
27,330
33,722
Gains on monetary and
exchange variations
17,009
3,008
22,180
5,835
Gains on swap and
forward transactions
304
37
348
91
Interest earned
30
23
120
825
Other financial income
441
1,650
1,061
2,918
25,695
26,707 51,039
43,391
Financial expenses:
Losses on swap and
forward transactions
(25,140) (1,622)
(28,913)
(4,114)
Interest on financing
(5,731) (7,114)
(26,454)
(18,677)
Losses on monetary and
exchange variations
(57) (3,424)
(2,695)
(7,541)
Other financial expenses
(948) (1,079)
(2,318)
(3,121)
(31,876) (13,239)
(60,380)
(33,453)
Total financial income, net
(6,181)
13,468
(9,341)
9,938
24. 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 December 31, 2007, the insurance coverage
was as follows:
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Items
Coverage
Insured amount
Industrial
Any material damages to
739,379
complex/inventories
buildings, installations and
machinery and equipment
Vehicles
Fire, theft and collision
45,718
for 1,444 vehicles
Loss of profits
Nonrealization of profits arising
815,705
from material damages to
installations, buildings and production
machinery and equipment
25. AMENDMENT TO BRAZILIAN CORPORATE LAW
On December 28, 2007, Law No. 11,638 was enacted, that alters, revokes and adds
new provisions to the Brazilian Corporate Law, especially with respect to chapter XV,
Fiscal Year and Financial Statements. The changes and requirements introduced by the
Law are effective for fiscal years beginning on or after January 1, 2008 and may be fully
applied until the end of December 31, 2008. Law No. 11,638/07 was designed primarily
to update accounting practices as contemplated in Brazilian Corporate Law, so as to
enable the convergence of Brazilian accounting practices with accounting standards
generally accepted in the international capital markets, and contemplates broad changes
to accounting practices generally accepted in Brazil, as they relate to statutory
accounting practices and procedures. The Law also allows the Brazilian Securities
Commission (CVM) to issue new accounting standards and procedures, applicable to
public companies in Brazil, in conformity with such international accounting standards.
The financial statement provisions of the Brazilian Corporate Law are applicable
to all companies incorporated as corporations ("Sociedades Anônimas"), including
public companies ("companhias de capital aberto") registered with the CVM. The
Law, however, introduces a new requirement for certain other large companies
not incorporated as "Sociedades Anônimas" (large companies) to prepare annual
financial statements in accordance with the financial statement provisions of
Brazilian Corporate Law, including those new provisions introduced by the Law,
and requires that these financial statements be audited by an independent auditor
registered with the CVM.
The main changes that may affect the Company and its subsidiaries can be
summarized as follows:
(a)
Elimination of the requirement to present a statement of changes in financial
position and a new requirement to present a statement of cash flows. This
statement of cash flows has already been presented by the Company since
December 31, 2004 as supplementary information (Appendix I).
(b)
A new requirement for the presentation of a statement of value added that
presents the additional value created by the Company, as well as the composition
of the sources of such value and the amount of undistributed value. This statement
of value added has already been presented by the Company since December 31,
2004 as supplementary information (Appendix II).
(c)
The ability to maintain separate or auxiliary accounting ledgers and records for
purposes of reflecting necessary adjustments to financial statements prepared
for income tax or other regulatory requirements in order to prepare the
required financial statements in conformity with Brazilian Corporate Law.
(d)
Creation of a new account group, intangible assets, for purposes of balance
sheet presentation, which encompass rights in intangible assets maintained or
used in the operation of the Company's business. This practice has already been
adopted by the Company and its subsidiaries since December 31, 2006. See
note 12 for disclosure as of December 31, 2007
.
(e)
Modification of the definition of those assets to be recorded under the
caption property, plant and equipment in the balance sheet, to be those rights
in tangible assets that are maintained or used in the operations of the
Company's business, including those rights received as a result of transactions
that transfer the benefits, risks and control of such assets to the Company
(e.g., capital leases). This practice is already adopted by the Company.
(f)
Requirement that periodic review and analysis of the recoverability of amounts
recorded in property, plant and equipment, intangible assets and deferred
charges be performed to ensure that: (i) impairment losses are recorded as a
result of decisions to discontinue activities related to such assets or when there
is evidence that future operating results will not be sufficient to ensure their
realization; and (ii) the criteria used to determine the estimated remaining
useful life of such assets for purposes of recording depreciation, amortization
and depletion expense are reviewed and adjusted. This change will be adopted
by the Company and its subsidiaries beginning 2008.
(g)
Requirement that investments in financial instruments, including derivatives, be
accounted for: (i) at fair value or equivalent value for trading securities or
securities available for sale; or (ii) at the lower of historical cost, adjusted for
contractual interest and other contractual provisions, and realizable value for
other investments. Additional fair value concepts and considerations have also
been defined for such financial instruments. This practice is already adopted
by the Company. The Company reports fair value for financial reporting
purposes only, as shown in note 22.
(h)
Creation of a new account group, valuation adjustments to shareholders' equity,
for purposes of balance sheet presentation, to be used to record certain
valuation adjustments not recorded in earnings for certain assets and liabilities.
Such adjustments may include, among others, fair value adjustments for certain
qualifying financial instruments, foreign currency exchange rate variations on
foreign investments accounted for under the equity method of accounting
(through December 31, 2007, such adjustments used to be recorded in profit
and loss account), and certain fair value adjustments related to assets and
liabilities as a result of a merger between unrelated parties that results in the
transfer of control. The Company and its subsidiaries will evaluate the impacts
of the changes introduced by the Law and any effects will be recorded in 2008.
(i)
Requirement that certain long-term assets and liabilities be recorded at present
value, and, if material, for certain other short-term assets and liabilities. The
Company and its subsidiaries will evaluate the impacts of the changes
introduced by the Law and any effects will be recorded in 2008.
(j)
Elimination of the ability to record donations and government investment
grants (including tax incentives) directly as capital reserves in shareholders'
equity. Such items are now required to be recorded as part of earnings in the
income statement. Donations and government grants (including tax
incentives) may be required to be allocated, after being recorded in earnings,
to the tax incentive reserve in equity. The Company and its subsidiaries will
evaluate the impacts of the changes introduced by the Law and any effects
will be recorded in 2008.
(k)
Requirement that for transactions involving the merger or spin-off between
unrelated parties that result in the effective transfer of control, the related
assets and liabilities of the entity being merged or spun-off should be
recorded at fair market value.
(l)
Elimination of the materiality parameter in determining the applicability of the
equity method of accounting for investments in affiliates and subsidiaries and a
new requirement that the equity method of accounting for such investments is
required when management has significant influence over the investee or when
the Company's direct and indirect interest in the voting capital of the investee
is greater than 20% of the outstanding voting capital of the investee. This is not
applicable to the Company and its subsidiaries since all interests are greater than
those set forth by the new legislation, as stated in note 11.
Management is currently evaluating the impacts of the changes introduced by the
Law. However, as the changes have only been introduced recently, and many of
them still are and will be subject to further interpretation and regulation by
applicable regulatory agencies and accounting standards bodies, Management has
not yet been able to assess and/or quantify the effects of all of the changes that
are reasonably likely to have a significant impact on its financial statements, financial
position and results of operations.
26. SUBSEQUENT EVENT
On February 27, 2008, the Board of Directors approved a proposal to be submitted
to the Extraordinary Shareholders' Meeting to be held on March 31, 2008, for
merger of the wholly-owned subsidiary Nova Flora Participações Ltda. ("Nova
Flora") into the Company. The merger is intended to rationalize the existing
corporate structure, with consequent cost reduction and simplification of internal
routines for maintenance of companies without any business activities or prospect
of resumption of activities.
According to the proposal, the absorption of the net assets of Nova Flora will
occur on March 31, 2008 based on the balance sheet as of December 31, 2007,
prepared in accordance with Brazilian accounting practices, provisions of Law
No. 6,404/76 and standards of the Brazilian Securities Commission ("CVM").
In compliance with CVM (Brazilian Securities Commission) Regulatory
Instructions No. 319 and 358, of December 3, 1999 and January 3, 2002, the
Company disclosed on the CVM's site (in the Periodic and Special Financial
Statements - IPE), on February 27, 2008, a significant event notice with further
details related to the above event.
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Independent Auditors' Report
To the Board of Directors and Shareholders of
Natura Cosméticos S.A.
São Paulo - SP
1) We have audited the accompanying individual (Company) and consolidated balance sheets of Natura Cosméticos S.A. and subsidiaries
as of December 31, 2007 and 2006, and the related statements of income, changes in shareholders' equity (Company), and changes
in financial position for the years then ended, all expressed in Brazilian reais and prepared under the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements.
2) Our audits were conducted in accordance with auditing standards in Brazil and comprised: (a) planning of the work, taking into
consideration the significance of the balances, volume of transactions, and the accounting and internal control systems of the Company
and its subsidiaries, (b) checking, on a test basis, the evidence and records that support the amounts and accounting information
disclosed, and (c) evaluating the significant accounting practices and estimates adopted by management, as well as the presentation of
the financial statements taken as a whole.
3) In our opinion, the financial statements referred to in paragraph 1 present fairly, in all material respects, the individual (Company) and
consolidated financial positions of Natura Cosméticos S.A. and subsidiaries as of December 31, 2007 and 2006, and the results of
their operations, the changes in shareholders' equity (Company), and the changes in their financial position for the years then ended,
in conformity with Brazilian accounting practices.
4) Our audits were conducted for the purpose of forming an opinion on the basic financial statements referred to in paragraph 1 taken
as a whole. The accompanying statements of cash flows and value added, individual (Company) and consolidated, for the years ended
December 31, 2007 and 2006, are being presented in Appendixes I and II, respectively, for purposes of additional analysis and are not
a required part of the basic financial statements in conformity with Brazilian accounting practices. Such information has been subjected
to the auditing procedures described in paragraph 2 and, in our opinion, is fairly stated in all material respects in relation to the basic
financial statements for the years ended December 31, 2007 and 2006 taken as a whole.
5) The accompanying financial statements have been translated into English for the convenience of readers outside Brazil.
São Paulo, February 27, 2008
DELOITTE TOUCHE TOHMATSU
Independent Auditors
CRC nº 2 SP 011609/O-8
Altair Tadeu Rossato
Accountant ­ CRC nº 1 SP 182515/O-5
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and recurring issues associated with the Natura Integrated
Normative System communication base. Based on this
cross-referencing of information, we created a matrix for
orienting the content of the different publications.
The new instrument for materiality was the Stakeholder
Engagement Panel, which we conducted especially to collect
opinions on the 2006 Annual Report and suggestions for
improving these reports. In October 2007, we gathered at
our head office in Cajamar some 60 representatives from
the stakeholders with which we relate. The meeting was run
by an external consulting firm and documented by photos,
audio and videos.
The stakeholders shared their opinions on topics they considered
important and on those that would make a difference in their
relationship with Natura if covered in the report. We have already
incorporated certain changes here to follow their suggestions.
Stakeholders Inclusiviness
In 2006 we began to dedicate chapters of our Annual Report
to covering the quality of the relationships with some of our
important stakeholders: those that we define as brand builders ­
employees, consultants, suppliers and consumers ­ as well as
three that we consider to be directly interested in this publication:
investors, governments and surrounding communities. We
maintained this organization for the current report, as we
understand that engagement with Natura occurs continually.
Based on the requests received through our different channels
of communication, we describe opportunities for improving
business management and plans of action based on the priorities
defined in strategic planning.
Sustainability Context
Our business conduct, our products and our business model
are designed to promote sustainable development, following
the orientation that comes from our Essence, expressed in our
Reason for Being, Vision and Beliefs. This report makes the quality
of relationships the central issue for the success of our strategy.
This position is constantly being challenged and re-oriented by
external events such as changes in the business environment,
social demands of the countries in which we operate and
environmental issues affecting us directly, such as climate change
and the preservation of biodiversity.
Completeness
The most important impacts of our activities are in Brazil, where
most of our industrial production takes place. Yet we have sought
to provide detail on the social and environmental performance
indicators in the international operations. Therefore, all of the G3
indicators in this report refer to Brazil and in some cases offer
About the Report
Our involvement in sustainability prompted us to quickly develop
a close relationship with Global Reporting Initiative (GRI). We
used their guidelines as early as our 2000 report, a pioneering
move then in Latin America. Thus, this is the eighth publication
that we present to our stakeholders based on the GRI guidelines.
Our experiences in gathering the data for 2007 allow us to
affirm that sustainability reporting is a live process in constant
evolution at Natura.
We achieved some of our goals in this edition: by adopting
the G3 version of GRI guidelines for the second year, we are
gaining an in-depth understanding of the process of defining
the materiality of the topics to be reported with the
implementation of the Stakeholder Engagement Panel including
employee, consultant, supplier and consumer representatives.
As a result of this process, we selected information that resulted
in more focused and concise content and the complementary
use of other vehicles of communication such as the Internet,
a special edition to be sent to all consultants in Brazil and the
"Being a Natura Employee" newspaper.
For detailed information on the GRI
application level, please see the complete version
of this report at:
www.natura.net/relatorio
The following is a detailed description of the criteria that we
adopted based on certain principles suggested by GRI for the
elaboration of the sustainability report:
Materiality
The definition of content for this report sought to reconcile
different types of interests: those important for Natura and those
important to our main stakeholders. We understand that the
topics important to Natura are those associated with its strategic
operations platforms in the area of sustainability, such as the
reduction of greenhouse gas emissions and generated waste,
education and the quality of relationships, among others. There
are also the strategic topics concerning our risk management. It is
important to point out that this report complies with the norms
of the Securities and Exchange Commission (SEC), the Brazilian
Association of Publicly Listed Companies and the principles of
transparent communication of the Brazilian Association of
Business Communication.
On the other hand, we seek to identify issues of interest to
our stakeholders as revealed in our channels of communication
such as the Stakeholder Engagement Panel for the Annual Report,
the Ombudsman, the response letter to the 2006 publication
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information from other countries. We identify the scope of this
information in the text or the explanatory notes of the tables.
The economic information covers all the operations in detail.
Balance
The definition of materiality helps us identify the real interest of
our stakeholders in critical topics. We work closely with the
leaders responsible for the relationships with these stakeholders to
transparently present our positions. This includes difficulties, learning
and plans of action. We also clearly present our goals and
commitments, even when we do not achieve the desired results.
Comparability
In order to facilitate comparability, we seek to always present an
historical three-year series of social and environmental indicators
and five-year series for the economic indicators, unless we do not
have the information from previous years. In this case, we explain
the situation.
We offer data from the markets in which we operate, be they
cosmetics, perfumery and personal hygiene industries or direct
sales companies.
Accuracy
The verification and checking of the data contained in this
report is undertaken by a team dedicated to this purpose
through a direct survey with those responsible for the indicators
and cross-referencing with information from different sources.
All of our tables contain explanatory notes that present the
adopted parameters and describe any changes in the
methodology used to calculate the performance indicators.
Timeliness
For the past eight years, we have published our performance in
accordance with the Securities and Exchange Commission, which
requires that the publication of the Management Report occur
at least 30 days before the Extraordinary Shareholders Meeting ­
set this year for March 31.
Clarity
To make our communication more objective, we hired consulting
firms that specialize in sustainability reports and in communicating
with the market, in addition to involving the internal
communication areas of the sales channel and employees.
Reliability
For the first time this year, Natura's Sustainability Report was
externally verified by independent auditors from the company
Det Norske Veritas, increasing the transparency and credibility
of the information reported herein. The same external verification
extended to the greenhouse gas inventory. The economic and
financial information is audited by the company Deloitte Touche
Tohmatsu Auditores Independentes. This document includes the
external verification reports.
WE ARE AN ORGANIZATIONAL
STAKEHOLDER OF THE GLOBAL REPORTING
INITIATIVE (GRI) AND WE SUPPORT ITS
MISSION OF DEVELOPING GLOBALLY
ACCEPTED GUIDELINES FOR SUSTAINABILITY
REPORTS THROUGH A PARTICIPATIVE
STAKEHOLDER PROCESS.
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GRI Reference List
To locate our GRI-G3 Performance Indicators more quickly, please consult the following table. To locate the General Indicators, please visit
the online version at: www.natura.net/relatorio. More information on the GRI model can be obtained at: www.globalreporting.org.
Economic Performance
Page
Economic Management Approach
39 and 47
EC1
Direct economic value generated and distributed
9, 31, 39, 22 and
41
EC2
Financial implications, risks and opportunities resulting from climate changes
42
EC3
Coverage of the benefit pension plan obligations
25
EC4
Significant financial aid received from the government
66
Market Presence
EC5
Lowest salary compared to the local minimum salary
22
EC6
Policies, practices and expenses with local suppliers
34
EC7
Procedures for local contracting and proportion of
top management members recruited in the local community
23
Indirect Economic Impacts
EC8
Investments in infrastructure and services
31, 34, 40 and 41
EC9
Description of indirect economic impacts
9, 31 and 39
Environmental Performance
Environmental Management Approach
42 to 46
Materials
EN1 Materials used
Online
EN2 Percentage of materials used from recycling
44
Energy
EN3 Direct energy use
9 and 45
EN4 Indirect energy use
Online
EN5 Energy saved through efficiency
46
EN6 Initiatives for suppliers of energy efficient products
47
EN7 Reduction of indirect energy use
Online
Water
EN8 Total water removal
9 and 45
EN9 Water sources affected by water removal
Online
EN10 Water recycled and reused
Online
Biodiversity
EN11 Area within the protected areas or those adjacent to protected areas, as
well as areas with a high level of biodiversity outside the protected areas
Online
EN12 Description of significant impacts on biodiversity
43
EN13 Protected or restored habitats
Online
EN14 Management of impacts on biodiversity
43
EN15 Species threatened with extinction
Online
Emissions, Effluents and Waste
EN16 Total direct and indirect emissions of greenhouse gases
9 and 42
EN17 Other relevant indirect emissions of greenhouse gases
42
EN18 Initiatives to reduce greenhouse gas emissions
42
EN19 Emissions of substances that destroy the ozone layer
Online
EN20 NOx, SOx and other significant atmospheric emissions
Online
EN21 Total disposal of water by quality and destination
Online
EN22 Total waste weight by type and disposal method
9 and 46
EN23 Number and total volume of significant spills
Online
EN24 Transported, imported or exported wastes
Online
EN25 Bodies of water and habitats affected by water disposal
Online
Products and Services
EN26 Initiatives to mitigate the environmental impacts of
products and services
9 and 44
EN27 Percentage of products and their packaging that are recovered
in relation to the total amount of products sold
Online
Conformity
EN28 Significant fines and the total number of non-monetary sanctions resulting
from the non-conformity with laws and environmental regulations
Online
Transportation
EN29 Impacts of the transportation of products and workers
Online
General
EN30 Investments and expenses with environmental protection
41
Social Performance ­ Labor Practices and Dignified Work
Management Approach to Labor Practices
21 a 25
Employment
LA1
Total number of workers by type of job, employment contract and region
9 and 22
LA2
Total number of employees and turnover rate
23
LA3
Full-time vs. temporary benefits
25
Relations between Workers and the Government
LA4
Percentage of workers covered by collective bargaining agreements
21
LA5
Minimum deadline for notifying operating changes
21
Safety and Health in the Workplace
LA6
Employees represented on health and safety committees
25
LA7
Injury rates, occupation diseases, days lost,
absenteeism and deaths
25
LA8
Education, training, counseling, prevention and risk control
programs for employees, their family members or members
Online
of the community associated with serious diseases
LA9
Health and safety topics covered in labor union agreements
Online
Social Performance ­ Labor Practices and Dignified Work
Page
Training and Education
LA10 Average hours of training
25
LA11 Programs for employability
Online
LA12 Performance analysis and career development
Online
Diversity and Equal Opportunities
LA13 Composition of groups responsible for corporate
governance and the other employees
22
LA14 Base salary proportion between men and women
23
Social Performance ­ Human Rights
Management Approach to Human Rights
19
Investment and Purchase Process Practices
HR1 Significant investment contracts with clauses
on human rights
31
HR2 Companies contracted and critical suppliers submitted
to evaluations on human rights
30
HR3 Training in human rights
Online
Non-Discrimination
HR4 Total number of discrimination cases
Online
Freedom of Association and Collective Bargaining
HR5 Operations in which the right to exercise the freedom of
association and collective bargaining may be at risk
Online
Child Labor
HR6 Operations with a risk for child labor
30 and 31
Forced or Slave Labor
HR7 Operations with a risk for forced or slave labor
30 and 31
Safety Practices
HR8 Security personnel submitted to training in human rights
25
Indigenous Rights
HR9 Cases of indigenous rights violations
Online
Social Performance ­ Society
Social Management Approach
39 and 40
Community
SO1 Programs and practices to evaluate and manage the impacts
of the operations in the communities
Online
Corruption
SO2 Units submitted to evaluations of corruption risks
17
SO3 Employees trained in anti-corruption policies and procedures
25
SO4 Measures taken in response to cases of corruption
17
Public Policies
SO5 Participation in the elaboration of public policies and lobbies
37
SO6 Financial contributions to political parties
37
Unfair Competition
SO7 Lawsuits due to unfair competition
37
Conformity
SO8 Fines and non-monetary sanctions resulting
from non-conformity with laws and regulations
17
Social Performance ­ Responsibility for the Product
Management Approach to Responsibility for the Product
33
Customer Health and Safety
PR1
Evaluation of the impacts on health and safety during
the lifecycle of products and services
33 and 34
PR2
Cases of non-conformity with health and safety regulations
Online
Product and Service Labeling
PR3
Labeling procedures
Online
PR4
Cases of non-conformity with regulations on labeling
Online
PR5
Practices related to customer satisfaction
33
Communication and Marketing
PR6
Compliance with laws, norms and voluntary marketing codes,
including publicity, promotion and sponsorship
Online
PR7
Cases of non-conformity with regulations
Online
Conformity
PR8
Proven complaints on the violation of privacy
Online
Compliance
PR9
Fines due to non-conformity with laws and regulations
associated with the supply and use of products and services
Online
View the indicator or complement by visiting:
www.natura.net/relatorio
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Editorial Staff
Art Direction: Wilson Spinardi Junior
Graphic Design: Modernsign Design e Inovação
Text: Report Comunicação
Proofreading: Clara Ywata e Ruth Cordeiro
Translation: Lionbridge
Pre-press: Arizona
Printing: Margraf
Photography:
Arnaldo Pappalardo, JR. Duran, Willy Biondani and Wilson Spinardi Jr.
Research and Verification of Indicators and Support with
Content Identification: Sustainability Management Area and
Vice Presidency of Finances and Information
General Coordination: Corporate Affairs and
Government Relations Board
This report was elaborated in GillSans, with the cover printed on
Reciclato 240 g/m2 paper and the body printed in 120 g/m2. A total of
4,000 copies of this edition were printed in Portuguese, 1,000 in English
and 1,500 in Spanish.
THE USE OF MORGAN STANLEY CAPITAL INTERNATIONAL INC.'S ("MSCI") TRADEMARKS AND INDEX NAMES
DOES NOT CONSTITUTE A SPONSORSHIP, ENDORSEMENT OR PROMOTION BY MSCI, ANY OF ITS AFFILIATES, ANY
OF ITS INFORMATION PROVIDERS OR ANY OTHER THIRD PARTY INVOLVED IN, OR RELATED TO, COMPILING,
COMPUTING OR CREATING ANY MSCI INDEX. THE MSCI INDEXES ARE THE EXCLUSIVE PROPERTY OF MSCI. MSCI
AND THE MSCI INDEX NAMES ARE TRADEMARKS OF MSCI OR ITS AFFILIATES AND HAVE BEEN LICENSED FOR USE
FOR CERTAIN PURPOSES BY NATURA.
The 2007 Natura Annual Report was printed on 100% recycled paper.
Its composition consists of 75% pre-consumer fibers (material recycled inside
the paper factory) and 25% post-consumer paper.
The option to use recycled paper with a lower environmental impact is part of
Natura's commitment to environmentally-friendly practices.
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Natura Brazil
Rod. Anhangüera - Km 30,5
07750-000 Cajamar - SP
Tel.: +55 (11) 4446 2000
Natura Argentina
Av. del Libertador, 1295 - 1º piso
Vicente López
C1112ABC Capital Federal
Tel.: +54 (11) 4837 6100
Natura Chile
Cordiller 321 - B5
Quilicura Santiago
Tel.: +56 (2) 620 9200
Natura Colombia
Calle 76 Nº 9 - 66
Bogotá D.C.
Tel.: +57 (1) 326 8787
Natura France
55, Av. Victor Hugo
75116 Paris
Tel.: +33 (11) 5346 2100
Natura Mexico
Homero, 823
Col. Polanco
C.P. 11550 - Del. Miguel Hidalgo
Mexico D. F.
Tel.: +52 (55) 5250 9030
Natura Peru
Av. del Ejército, 801
Miraflores - Lima 18
Tel.: +51 (1) 440 1362
Natura Venezuela
Multicentro Empresarial del Este
Nucleo A - Torre Libertador,
piso 10, Oficina 103 A,
Chacao 1060 - Caracas
Tel.: +58 (212) 610 1111
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