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2023 ReportNatura Brasil Natura Cosméticos S.A. Rod. Régis Bittencourt, km 293 - s/nº CEP 06882 700 - Itapecerica da Serra - SP Tel. (55 11) 4147 8300 Fax (55 11) 4147 8636 Indústria e Comércio de Cosméticos Natura Ltda. Rod. Anhanguera, km 30,5 - s/nº CEP 07750 000 - Cajamar - SP Tel. (55 11) 4446 2000 Fax (55 11) 4446 2093 Centro de Distribuição - Matias Barbosa Rodovia BR 040, km 800, Lote 5 Bairro Empresarial Parque Sul CEP 36120 000 - Matias Barbosa - MG Tel./Fax (55 32) 3273 2766 Centro de Distribuição - Uberlândia Rua Ignês Favato, 301, Distrito Industrial CEP 38402 340 - Uberlândia - MG Tel. (55 34) 3222 8202 Fax (55 34) 3232 2126 Natura Argentina Av. del Libertador, 1295 - 1º piso Vicente López (1638) Capital Federal - Argentina Tel. (54 11) 4837 6100 Fax (54 11) 4837 6005 Natura Chile Ricardo Lyon, 222 of 201 Providencia - Santiago - Chile Tel. (56 2) 620 9200 Fax (56 2) 620 9230 Natura Mexico Homero 823 Col. Polanco - CP 11550 Del. Miguel Hidalgo Distrito Federal - Mexico Tel.: (52 55) 5250 9030 Fax: (52 55) 5203 3701 Natura Peru Av. Del Ejército, 801 Miraflores - Lima 18 - Peru Tel. (511) 440 1362 Fax (511) 440 1362 ex. 275 Natura Europa 2, carrefour de La Croix-Rouge Saint Germain de Prés 75006 - Paris - France Tel. 33 (0) 1 42 22 12 59 Fax 33 (0) 1 45 48 45 54 5 0 0 2 a r u t a n t r o p e r l a u n n a annualreport natura2005 reason for being 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. Vision Because of its corporate behavior, the quality of the relationships it establishes and the quality of its products and services, Natura will be an international brand, identified with the community of people who are committed to the construction of a better world, based on a better relationship with themselves, with others, with nature of which they are part, with the whole. Letter from the Board T he year 2005 gave reasons for enthusiastic celebration by all who root for Natura’s success. Once again we achieved superlative earnings as we continue to garner the results from our commitment to sustainable development and to our common future. For over a decade now, our strategy has been anchored to the belief that a business can be a powerful engine for social transformation and help create a much more just and egalitarian society, sharing the common knowledge and promoting the well-being. Well-being of people with themselves, the world around them and the nature we all partake. The permanent challenge is aligning these principles with our day-to-day business practices. This way of being and doing business constitutes Natura's distinguishing trait and helped our company and our brand to earn the recognition and admiration of the community, much to our pride. Natura's management style is characterized by a dauntless, visionary disposition to mobilize large social networks and manage, with discipline, the multiple processes that make up the business chain, all the way from research and development, production, distribution, to the marketing and communication of products and services, while responding to society’s needs and creating value. The continual exercise of this systemic approach, the enthusiastic allegiance of our staff and all those who interact with Natura add on to the consistent results we deliver and reinforce our optimistic vision of the future. Natura’s gross revenues grew 27.7% in 2005, or 129.5% in cumulative terms over the past three years. Earnings were up 32.2% from 2004, amounting to R$ 397 million. Our stock appreciated by 38%, above the 27.7% rise in the Bovespa index during the year, creating outstanding returns for our investors and shareholders, ratifying the trust bestowed by the market on our proposition. Besides holding on to the leadership in the Brazilian cosmetic industry, we are now the country’s largest direct selling company. It is also extremely gratifying to confirm that we made a significant social contribution, sharing wealth in the forms of taxes, wages, dividends and income. Our 519,000 Consultants in Brazil and Latin America, for example, shared some R$ 1.3 billion in income. Our Consultants are quickly becoming the leading agents of the changes in attitudes and behaviors that we work to promote, also spread – with much enthusiasm – our social and environmental causes, while marketing 220 million items to our 50 million consumers.Their involvement was a deciding factor, for example, in the Educational Campaign of Young and Adults program and in the dissemination of the use of refills as a way to reduce the environmental impact caused by products’ packaging. Moved by the prospects of spreading this Natura way of doing business to an even greater number of people and markets, we decided to boost investments in the company’s international expansion program. We opened the doors, in April 2005, to Maison Natura in Paris, France, the birthplace of modern cosmetics and later, in August, we started operating in Mexico, one of the world's largest and most competitive direct sales markets.The significant growth in operations in Argentina, Chile and Peru, which together achieved a 45.4% gross revenues growth over 2004 reinforces our confidence to expand the Natura community internationally. To prepare for this international expansion, we embraced a sweeping organizational realignment. New corporate structures were rolled into place while the existing ones were reinforced and energized, lending a new burst of support, efficiency and speed to operations in Brazil and abroad. We also took further steps in corporate governance, appointing a CEO who came from outside Natura’s controlling group. Under this renewed structure, the founding partners continue active in the formulation of the company’s strategy, sharing their expertise and entrepreneurial vision in their new roles in the Board of Directors, working side by side with the executive group. We are conscious that, by launching a new research platform, anchored in the sustainable use of Brazilian biodiversity and in the combination of traditional knowledge with scientific expertise and technology, we entered into a field where the desire to learn and dialogue must be permanently cultivated.This learning process gave rise, in 2005, to the unveiling of innovative products, such as the Chronos Spilol, which uses jambu, an endemic plant in Brazil’s Northern region, in its formula. Instead of posing a hurdle, this experience reinforces our commitment to dare, besides validating our confidence to tread new paths that open up new business potential. We believe in our potential because we can count on highly motivated staff to foster quality relationships in all our actions. For this reason we should develop, with even more commitment, our capacity to find, train and retain leaders who are aware of their role in the global community. We are conscious that our great challenge will be to face the changes and problems posed by the company’s accelerated growth, while continuing to nurture a working environment rich in motivation, joy, quality, coherent with our values – this is the determining condition for our future development. For all of this years’ great achievements, we wish to extend our deepest gratitude and sincere recognition to all those who are part of Natura’s largest community: our staff, Consultants, shareholders, consumers, suppliers, community partners and the public power. We also take this opportunity to extend an invitation to all those who also believe that it is possible to disseminate the Well Being Well and together help build a better, just and more harmonious common future. Antonio Luiz da Cunha Seabra Guilherme Peirão Leal Pedro Luiz Barreiros Passos Cochairmen of the Board Alessandro Giuseppe Carlucci Chief Executive Officer 6 Annual Report Natura 2005 2005 Annual Report Natura 7 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. 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 its sustainable development. Gláucia Salgado gives swimming lessons and sells Natura products. She helps Emily Von Oertzen with her diving skills as her Mom, Constance, looks on. Constance will not go a single day without her favorite buriti and andiroba exfoliating vegetable bars of soap from the Ekos line. As a friend and Consultant to Elisa Calfat, Gláucia keeps her up-to-date on new Natura products. When they get together they chat about what is new, about their lives. Elisa tells she loves her Architecture course and will devote time, this semester, to study the work of contemporary Brazilian architects. There is something new and special catching her attention: a distinctive building in Paris that cinches an important link between Brazilian and French cultures. The building of wide spaces and sensuous curves also fascinates Emmanuelle Mouquet, a Natura consumer who has lived in Paris since she was a child. Every time she meets her friend Marie Gillot… ...she walks by the building that entices her. The friends share the dream of visiting Brazil someday. Its vibrant and sensuous scents, colors and unusual textures that Emmanuelle got to know keep drawing her back to Maison Natura Paris. The experience is so enveloping that it transports Emmanuelle back to wide vistas… ...to trails and clear water streams surrounded by thick, exuberant foliage. Spaces, trails, streams and plants that inspire the innovative products... ...that captivate over 50 million Natura consumers. And transport them to the exotic forests… F r e s cas s Especia ri a atura N e d s a u g Á Just like Petra Schwartz and Flora Lopes, Natura consumers who celebrate a more diverse, more integrated world. They know that it is possible to use natural resources conscientiously, and they can influence this movement, which will also help their country. A country naturally rich also in cultural expressions that shine in a diversity of dialects and the enormous talent of its people. Expressions that Antonio Nóbrega, artist sponsored by the program Natura Musical, brings to the limelight… …carrying fun, joy and Well Being Well to thousands of people across this immense Brazil. Strategy and Outlook Our business strategy is rooted in four pillars: our commitment to sustainability, the quality of relations established with our various publics, the concepts and products we develop, and Natura’s brand strength, which all represent our essence. The prospects favor the materialization of this strategy, because there is room for further growth of the markets we operate in and for the company within these markets. the average for all economic sectors. In the direct sales segment, the numbers are even more impressive. While full-time positions job growth has been exceptionally small in recent years, direct sales created opportunities and income for more than 1.5 million people. In 2005, according to ABEVD (Brazilian Association of Direct Selling Companies), they turned over R$ 12.3 billion – up 20.4% and 51.8% from 2004 and 2003, respectively. The Brazilian cosmetics, fragrances and toiletries market recorded another excellent performance in 2005. According to Abihpec (the industry association), nominal growth for the target market, from January to October 2005 was 16.5% year-on-year. In real terms, discounting IPCA consumer inflation (6.4% for the period), the figure was still a solid 9.5%, much higher than Based on the industry growth coupled with the reported results last year, we intend to take advantage of every possible growth opportunity in the domestic market and invest in an international expansion process while reinforcing sustainable long-term business platforms, such as Research and Development, and securing value and consistent returns to shareholders. We intend to maintain our leadership in Brazil’s target market for Cosmetics industry, building and reinforcing our brand features in different country regions, by widening the number of Consultants and increasing business volume. In the international operations, our intention is to consolidate, in 2006, the planning process to broaden our presence in other countries. Perspectives are based on the continuous increase in sales and in the number of Consultants in every single market, with sales channel productivity growth and category orientation besides the geographical expansion of our operations. To ensure, in the upcoming years, a domestic and international expansion process, it will be essential, not only to grant an increasing volume of resources in investments dedicated to research and development and innovation, We will continue to seize all opportunities in the domestic market and to invest in international expansion but also to maintain its effective usage, focusing on our differentials. We will reinforce our choice to deepen our knowledge of the Brazilian biodiversity and its application to our formulas in a sustainable way. Simultaneously, we will intensify the number of our own research projects and associations with scientific and academic networks in Brazil and abroad. Another challenge is to develop and improve organizational structures, which in addition to supporting current expansion, also offer sustainability to future growth.These structures are shaped in order to broaden the concern, be it in planning or be it in the management of our activities, that we have towards the socioenvironmental performance, which is part of Natura’s essence. 38 Annual Report Natura 2005 2005 Annual Report Natura 39 Company profile Natura’s two passions – for cosmetics as a vehicle of self-knowledge and the exaltation of well-being and human connections as a way to express life – granted it a privileged spot in Brazil’s corporate landscape. We are one of the most admired companies in Brazil, also leader in the domestic industry of cosmetics, fragrance and personal hygiene and our brand is one of the most valuable brands in Brazil. Our product portfolio now consists of approximately 600 products, in the categories make-up, fragrances, solar protection, skin care and hair care, among others. Over the last years, we have achieved consistent rates of growth, much higher than the average gains by the domestic cosmetics and direct sales sectors which, in their turn, have already been surpassing the growth rate of Brazil’s economy. In 2005 gross revenues amounted to R$ 3,243.6 million, 27.7% more than in 2004. One of the cornerstones of this expansion is the constant search for excellence in our products and services, essential to establish and cement quality in our relationships with our publics. We are at the frontline of the Brazilian companies that invest the most in research and development. Currently, Natura houses a large and integrated research, manufacturing and logistics center at its headquarters in Cajamar, São Paulo. There are also commercial and distribution units in Itapecerica da Serra, in the state of São Paulo, and in Uberlândia and Matias Barbosa, in the state of Minas Gerais. In 2005 we produced more than 200 million items sold to our 50 million consumers in over 5,000 Brazilian cities through direct sales. We ended 2005 with 4,128 employees and 519,000 Consultants – independent professionals who purchase and resell our products – in Brazil and the other countries where we operate: Argentina, Chile, Peru and Bolivia. Since 2005, we are also present in Mexico and France. With our daily business fully integrated with our beliefs, we maintain and develop a socially and environmentally responsible management, rooted in two pillars. The first one is ethics, transparency and One of the foundations of our growth is the quest for excellence in our products and services open communication channels with all the publics who interact with the company. The other one is the establishment of targets compatible with the sustainable development. These are initiatives that belong to our dream of contributing to build a better world. Since 2004 Natura is a public company, with shares listed in the Novo Mercado at São Paulo’s Stock Exchange, Bovespa. 40 Annual Report Natura 2005 2005 Annual Report Natura 41 Products and concepts Our beliefs and world vision bring forth concepts that breathe life into the products we create.They are developed from a deep commitment to integrate all possible facets of individuals (physical, emotional, intellectual and spiritual) and their family, professional and social relationships as well as those with the environment. For us, a new product must be an instrument of information, consciousness and eagerness for perfection. In 2005 our product portfolio consisted of approximately 600 products, in the categories make-up, facial and body treatments, personal hygiene, fragrances, hair care, solar protection, children’s line, among others (to get acquainted with our complete portfolio, visit Natura’s website at www.natura.net). Three lines among them stand out for symbolizing with eloquence Natura's world vision and convey the values we hold dear: Chronos, Mamãe e Bebê, and Ekos. Not coincidentally, all these lines were created at significant moments of our corporate history and carry universal concepts. Natura Chronos was the first line to face head on the prevailing beauty standards and stereotypes. For the sake of coherence, Our products are also instruments for the broadening of individual awareness and of the desire for perfection we adopted a new concept for anti-signs skin care and established an innovative standard communication, in the early 1990s, by valuing the Truly Beautiful Woman, showing that it is possible to feel well and beautiful regardless of age. The mother-child bonding determines, to a large degree, how that baby will later relate to the self and the world.This bond inspired the Mamãe e Bebê line, in which all products were specially developed to stimulate this essential relationship through the five senses – touch, smell, vision, hearing, breast-feeding –, opening up a universe of feelings and sensations. The Natura Ekos line started a new cycle in the company’s history by proving that innovation can be delivered straight from nature. All products in this line lead to personal and collective well-being. Beginning with the use in their formulas of biodiversity elements, all of which Natura strives to extract in a sustainable manner. Their benefits, scientifically proven, rescue the values and experiences accumulated by traditional populations through the centuries. 2005 Annual Report Natura 43 History bemestarbemestarbemestarbemestarbemestarbemestarbemestarbemestar bemestarbemestarbemestarbemestarbemestarbemestarbemestarbemestar bemestarbemestarbemestarbemestarbemestarbemestarbemestarbemestarbemestarbemestarbemestarbemestarbemestarbemestarbemestarbe mestarbemestarbemestarbemestarbemestarbemestarbemestarbemestarbemestarbemestarbemestarbemestarbemestarbemestarbem 1969 Antonio Luiz da Cunha Seabra starts Natura, a store and a laboratory in São Paulo. 1974 The company chooses the direct sales model and gathers the first Natura’s Consultants. 1979 Natura launches its first men's line, named Sr. N. Sistema Natura is established due to the creation of new companies. 1981 The first lines of make-up and fragrances are launched. 1982 Natura sets foot abroad for the first time. Destination: Chile. 1983 In another pioneer move, in Brazil, Natura starts offering refillable products, among other Brazilian retailers. The Séve line opens up a new niche: bath oils. 1984 Launch of the Erva Doce line. 1986 Chronos launch marks the first generation of a line of anti-signs facial treatment. 1989 Merge of the companies that integrated the Sistema Natura. 1990 Natura defines and announces its Principles and Beliefs: the importance of relationships, commitment to truth, continual search for perfection, diversity as an engine of vitality, affirmation of a beauty that is free from stereotypes and manipulation, and the corporation as a promoter of social enrichment. 1992 Natura charges ahead with the adoption of corporate responsibility initiatives. The concept Mulher Bonita de Verdade shows that true female beauty is not a matter of age, but of self-esteem. 1994 The Mamãe e Bebê line is launched, advancing the parent-child bonding process. One of its innovations was the proposal of Integrated Massage Method, based on Shantala techniques, which fosters the mother-child closeness by touch from pregnancy through the early years of the child's life. Operations are launched in Argentina and Peru. 1995 Natura starts Crer para Ver program, the objective is to contribute to the improvement of public education in Brazil. 2000 Launch of the Ekos line, made from Brazilian biodiversity in sustainable ways. 1998 Establishment of The Board of Directors. 2001 The company opens Espaço Natura in Cajamar, within São Paulo metropolitan region. Natura establishes a relationship with Global Reporting Initiative (GRI) and is the first company in Latin America to follow its guidelines. In its Annual Report GRI develops models of voluntary reports on social and environmental impact caused by corporations. 2002 Establishment of Sustainability Committee. 2004 Natura's stock is listed with São Paulo Stock Exchange (Bovespa) Novo Mercado. Natura is issued an NBR ISO 14001 certificate. 2005 Maison Natura opens its doors to the public in Paris and operations begin in Mexico. Chronos Spilol is launched the flagship for the latest generation of anti-signs skin care. It uses the extract from a Brazilian native plant from Amazon, known as jambu (Spilanthes oleracea). Natura is issued an NBR ISO 9001 certificate. 2005 highlights Milestones • Instituto Nacional da Propriedade Industrial (Inpi) recognizes Natura's brand name value; the company obtains the NBR ISO 9001 certification. • Alessandro Carlucci is named Natura’s first CEO who came from outside the controlling group, crowning the professional process and the enhancement of corporate governance procedures. • Maison Natura opens its doors to the public in Paris, France, and the company launches operations in Mexico; the internationalization process gains momentum. • Consolidated gross income grows 27.7%, well above the growth of our target-market. Cumulative growth in the past three years soared to 129.5%. • Natura’s shares are selected to be part of the well-known domestic and international stock indices: IBrX 100, ISE, itag and MSCI. • Operations in Chile, Argentina and Peru show a consolidated growth of 45.4% in weighted local currency terms. • Chronos Spilol is launched; it is also the first anti-signs facial cream formulated from a Brazilian botanical source obtained by organic, sustainable methods, the jambu. • The entire line of Natura bars of soap turns vegetable, now produced from palm kernel oil instead of animal fat. • The Ministry for the Environment grants Natura the first ever license to a domestic cosmetics producer to access Brazil’s biodiversity genetic heritage, with the breu-branco extract. • Natura’s Consultants are mobilized to promote the Young and Adult Education, a Ministry of Education program. As a result 66,600 people over age 15 were sent back to primary schools, and, in another campaign, to accelerate the sale of refills. • Natura was elected, for the third consecutive year, the Best Place for Women to Work, according to Exame business magazine and Great Place to Work® Institute; and for the second consecutive year, the Most Highly Regarded Company in Brazil – from CartaCapital magazine and InterScience. Challenges • Manufacturing and logistic issues, resolved in the second semester, temporarily hampered production and order fulfillment routines in the first half of the year. • Difficulties to find suppliers, particularly in traditional Northern region and neighboring communities, which complied with the sustainability criteria demanded by Natura’s certification processes. • A slight drop in the favorable responses to the Organizational Climate Survey, to 70% in 2005 from 73% in 2004, signaled the need to improve personnel relations. • Difficulties to meet, in a manner coherent with our beliefs, the pledged ratio of disabled workers, due to the rapid increase in our personnel and the extended search for candidates with the necessary skills. 46 Annual Report Natura 2005 2005 Annual Report Natura 47 Methodology and key indicators For the fifth consecutive year, Natura reports its economic, social and environmental activity in an integrated format, in line with the permanent quest for the sustainable development of business. The information on our economic performance is in accordance with the guidelines from the Brazilian Security and Exchange Commission (CVM), and the Associação Brasileira das Companhias Abertas (Brazilian Association of Publicly Traded Companies – locally, Abrasca). For indicators of social and environmental performance, Natura follows the guidelines from Instituto Ethos de Empresas e Responsabilidade Social, and the Global Reporting Initiative’s (GRI) models. Instituto Ethos was formed in 1998 to mobilize, increase awareness and help companies manage their business in a socially responsible manner. GRI, created in 1997, is an independent international agency that develops protocols aimed at volunteer usage that permit gauging the economic, social and environmental impact of the companies’ activities, products and services. GRI is supported by foundations, institutes, companies and organizations throughout the world. It counts on the help of several sectors of the public interested in accurate and transparent information. Since 2004, Natura is an Organisational Stakeholder and cooperates with a working group responsible for developing the third issue of the GRI Guidelines. To facilitate the finding of GRI indicators related to several of our activities on the following chapters, its number will come in brackets right after the correspondent theme (see GRI Index on page 143). Besides following these entities’ guidelines to prepare its reports, Natura adopts transparency communication tenets issued by Associação Brasileira de Comunicação Empresarial (Brazilian Association of Corporate Communication – locally, Aberje) to which it is associated. Performance Key Indicators Consolidated Gross Revenue Growth (R$ million) CAGR (2001 - 2005) = 29.1% . 6 9 3 5 2 , . 2 0 1 9 1 , . 2 1 1 4 1 , . 0 8 6 1 1 , . 6 3 4 2 3 , +27.7% . 0 6 3 1 EBITDA Growth (R$ million) CAGR (2001- 2005) = 42.7% Net Revenue Growth (R$ million) CAGR (2001- 2005) = 27.1% EBITDA Margin Growth (%) . 4 4 6 5 . 7 1 3 4 +30.8% . 1 3 9 9 . 5 5 7 8 . 7 5 9 2 2 9 9 1 . . 9 8 2 3 1 , . 2 2 8 2 2 , . 4 4 2 . 7 4 2 . 2 2 2 . 1 0 2 . 6 6 1 . 7 9 6 7 1 , +29.0% +0.3pp 2001 2002 2003 2004 2005 2001(1) 2002 2003 2004 2005 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 Business Performance Consolidated business volume(2) (R$ million) Consolidated business volume per Consultant(3) (R$ per Consultants/year) 2001 1,644.0 2002 1,951.7 2003 2,652.5 2004 3,531.1 2005 4,496.2 8,349 8,875 10,283 11,277 11,984 Change 05/04 27.3% 6.3% 1. Natura Empreendimentos 2. Business volume is the estimated amount of orders by Natura’ s Consultants, based on the estimated profit margin of these Consultants, excluding revenues from the supporting material that is provided to them. It covers Brazil, Argentina, Chile and Peru. 3. Considers the average number of active Consultants - those who made at least one order during the sales cycle. Each cycle lasts three weeks. It covers Brazil, Argentina, Chile and Peru. 48 Annual Report Natura 2005 2005 Annual Report Natura 49 Financial Performance(1) (R$ million) Domestic gross sales International gross sales(2) Other sales Gross operating revenues Net operating revenues EBITDA(3) Operating income(4) Net income Investments Financial income Total assets Shareholders’ equity and profit-sharing debenture(5) Net indebtedness(6) 2001 1,140.3 27.7 – 1,168.0 875.5 120.3 72.3 9.5 7.1 (35.5) 599.9 208.8 205.0 2002 1,375.2 35.0 1.0 1,411.2 993.1 199.2 121.1 21.7 25.2 (44.3) 646.6 225.9 119.1 2003 1,860.3 47.9 2.0 1,910.2 1,328.9 295.7 230.4 63.9 23.9 (30.1) 723.9 354.2 (19.0) 2004 2,472.0 66.8 0.8 2,539.6 1,769.7 431.7 395.4 300.3 83.1 (2.8) 1,016.4 436.1 (91.1) 2005 3,149.7 92.6 1.3 3,243.6 2,282.2 564.4 532.9 396.9 111.6 11.3 1,368.9 521.4 (200.2) Change 05/04 27% 39% 63% 28% 29% 31% 35% 32% 34% -504% 35% 20% 120% 1. Operations in Brazil, Argentina, Chile, Peru, France (starting in 2005), Mexico (starting in 2005) and exports to Bolivia. 2. Operations in Argentina, Chile, Peru, France (starting in 2005), Mexico (starting in 2005) and exports to Bolivia. 3. Earnings before financial income, profit-sharing debentures, income tax, depreciation and amortization. 4. Operating income after financial income. 5. Total shareholders’ equity and profit-sharing debentures. 6. Excludes profit-sharing debentures. Water Consumption per Unit Sold(1) (liters/unit sold) Total Energy Consumption (Energy Matrix)(2) per Unit Sold (kjoules/unit sold)(3) Water Reuse (% of total water treated at the Effluent Treatment Station) Research and Development Number of Products Launched 5 6 1 . 2 2 1 . 7 8 0 . 7 6 0 . 3 6 0 . . ) 4 ( 1 2 5 2 1 , . 7 5 2 0 1 , . 2 5 8 7 . 7 3 0 6 . 8 1 5 5 . 5 9 3 . 0 9 2 . 0 6 1 . 0 5 5 5 6 1 3 1 2 2 8 1 7 1 1 1 9 . . D N 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 Waste Destination (%) Incinerated(5) Disposed of in landfill sites Recycled(6) 4 0 0 6 . 2 0 4 3 . 4 9 5 . 8 5 2 6 . . 1 9 1 3 2 5 5 . 0 2 9 6 . . 0 4 4 2 0 4 6 . 1 4 3 7 . 9 0 1 8 . 0 2 1 2 . 3 4 5 . . 9 0 6 1 2 8 2 . Generation of Waste per Unit Sold (grams/unit sold)(7) Investments in Innovation (R$ million) ) 8 ( 5 5 3 . . 9 9 2 . 2 9 2 . 6 5 2 . 7 7 2 . 1 7 6 . 4 7 4 . 5 5 3 +41.5% . 2 7 2 . 8 8 2 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 1. In 2005 there was 5.6% reduction in relative water consumption. Main reason was the gain in productivity derived from large-scale production of items for resale.We ended 2005 with 5.3% reduction over the forecast amount. 2. Energy Matrix is the total energy used by Natura, that comes from various sources (electricity, diesel and LPG). 3. In 2005, relative energy consumption decreased 8.5%.The main driver was the gain in productivity derived from large-scale production of items for resale, 5.3% reduction over the forecast amount. 4. Approximate value. In 2001 total unit was considered for the calculation. 5. Incineration decrease was due to actions, taken that gave priority to the recycling of solid waste. 6. Improvements were implemented in the segregation process of materials and the change in operational waste destination (equipments for tissue protection) contributed to 10.5% increase in the waste recycling index in 2005 compared to 2004. 7. Absolute volume of waste posted an increase of 34% in 2005, surpassing the growth in the number of units sold, which was 25% over that of the previous year. Greater volume in production and actions for cleansing of inventory were important drivers in the increase of the absolute volume of waste. 8. Approximate value. In 2001 calculation was made on the basis of units billed. Our businesses are based on establishing quality relations and defining goals compatible with sustainable development not related to the corporate law nor to the business, but exists to enhance the chain of relations and people’s quality of life. The matrix does not fully reflect Natura’s efforts to promote a socially responsible management. Instead, it reports the investments made in the pivotal facets of this management style.They are: • Monitoring the quality of Natura's relations with its publics about respect to ethics, transparency and the efficiency of the dialogue channel, including themes not directly linked with the business (Fundamentals line). • Promoting sustainable development – be it local or in a specific region, be it for fostering diversity, education, quality of life and culture (Socioeconomical line). • Protecting the environment (Environmental line). The declared values designate effective investments above the legal requirements (see the description of the considered actions at matrix in Highlights of Investments in Corporate Responsibility on page 108). Investment in Corporate Responsibility During the past decade Natura has intensified and refined its socioenvironmental management practices, rooted in the quality of its relations and the definition of corporate goals compatible with sustainable development. These principles now have become part of the company’s initiatives in all areas. Some results of this process were the choice of renewable compounds from Brazil’s biodiversity as its technological platform, the socioenvironmental assessment of suppliers and the development of packaging with the least possible impact on the environment. The Annual Report aims to discuss these actions. To focus attentions on the critical aspects of these strategies, Natura devised a supporting tool for managers to plan and visualize specific actions towards each sector of the public the company relates to: The Corporate Responsibility Matrix. This matrix, therefore, allows to highlight Natura’s investments on corporate responsibility matters, or, better said, on those groups of actions 50 Annual Report Natura 2005 2005 Annual Report Natura 51 Corporate Responsibility Investment Matrix (in R$ thousands) Natura’s Funds Fundamentals Socioeconomical Environmental Subtotals Management expenses Funds generated by Consultants Net funds raised by the Crer pra Ver Program Personnel, families and third parties 189.3 7,995.8 46.6 8,231.7 Consultants 214.0 - - 214.0 Supplier communities - 896.3 - 896.3 Natura stakeholders Cajamar and Itapecerica da Serra 17.0 410.4 - 427.4 Consumers 194.1 - - 194.1 Suppliers 98.7 60.0 - 158.7 Government and society 2,054.2 1,578.5 1,299.5 4,932.2 Shareholders - - - - TOTAL 2,767.3 10,941.1 1,346.1 15,054.5 All stakeholders 2,559.6 Total Natura’s funds % of net sales TOTAL 2,559.6 17,614.1 0.8 Personnel, families and third parties Consultants Supplier communities Natura stakeholders Cajamar and Itapecerica da Serra Suppliers Government and society Consumers Shareholders TOTAL N.A. N.A. N.A. N.A. N.A. N.A. 3,041.7 N.A. 3,041.7 Total funds generated by Consultants 3,041.7 Tax funds Tax incentives Personnel, families and third parties - Consultants - Supplier communities - Note: N.A. = Not applicable. Suppliers - Natura stakeholders Cajamar and Itapecerica da Serra - Total tax incentives GRAND TOTAL Consumers - Government and society 2,723.9 Shareholders - TOTAL 2,723.9 2,723.9 23,379.7 Key social indicators Destination of Funds per Type of Stakeholder (R$ million) Satisfaction (favorability %) Consumers(1)(2) Suppliers(1)(2) Consultants(1)(2) 5 9 5 9 6 9 8 9 3 9 8 7 3 8 2 8 2 8 9 8 9 8 1 9 Shareholders Personnel Government Consultants Suppliers 396.9 306.4 727.2 1,348.9 1,731.7 307.5 247.3 547.8 1,059.3 1,365.9 51.7 110.6 329.3 493.2 601.9 97.6 155.1 380.0 585.5 679.3 191.6 177.8 502.1 795.8 942.2 2001 2002 2003 2004 2005 Mar Mar Oct 2001 2002 2003 2005 Jan Jan May 2002 2004 2005 Jun Mar Oct Oct 2001(3) 2002(3) 2003(4) 2005 Jan Jan 2006 Consultants Number of Consultants(5) (in thousands) 9 1 5 3 3 4 5 7 3 9 9 2 2 2 3 Suppliers Personnel Environmental Classification of Suppliers (%)(6) Employees, In-house Outsourced Employees and Temporary Workers Suppliers evaluated as A(7) 1 4 9 1 Suppliers evaluated as A/B(8) Suppliers evaluated as B(9) 6 3 4 2 9 2 4 1 Temporary workers In-house outsourced contractors(10) Employees 201 285 3,293 259 1,051 88 769 230 802 2,884 2,986 3,555 679 1,209 4,128 2001 2002 2003 2004 2005 2004 2005 2004 2005 2004 2005 2001 2002 2003 2004 2005 1. From now on, the survey results will be published considering the period during which it was carried out. 2. Reported data refer to surveys conducted from January 2001. 3. Consultants surveys results from March 2001 and October 2002 are not comparable to the others due to methodology changes. 4. Consultants survey results of October 2003 were altered in this report to make them comparable to similar surveys conducted in other periods because they refer to the same methodology used in later periods. 5. Consultants in Brazil, Argentina, Chile and Peru. 6. The suppliers classification began in 2004. 7. Between 90% and 100% meet the requirements. 8. Between 80% and 89% meet the requirements. 9. Between 60% and 79% meet the requirements. 10. We are considering the in-house outsource employees at Companies units. 52 Annual Report Natura 2005 2005 Annual Report Natura 53 Competitive advantages Research and Development Our investments in this area grew 41.5% in 2005, to 2.9% of net revenues (GRI EC1). These figures place us among the Brazilian companies that invest the most in research, development and innovation.The end results, transformed into new products, were particularly rewarding in 2005. proved to be effective against signs of aging. The line also counts on another anti-signs compound, Elastinol, developed with the help of Professor Ladislas Robert at Paris 5 University. During 2005, studies for the launch of a fourth generation of Elastinol were concluded.The use of both these compounds lends further flexibility to the development of the Chronos line. We rolled out 213 new products and the innovation index, which measures the revenue share of products launched in the last 24 months, rose to 69.8% from 63.2% in 2004. Another highlight last year was the conversion of our entire line of soap to vegetable oils. Now all our bars of soap are made from palm-kernel oil instead of animal fat. The anti-signs Chronos skin-care line epitomizes Natura’s values. In 2005 the line included a new formulation with Spilol, extracted from a native plant, the jambu, from the Brazilian Northern region, obtained through techniques developed proprietarily by Natura’s researchers, which Equally important to the transmission of the company’s values, the Ekos line – which marked the start of the use of products from Brazil’s biodiversity as a platform for product development – incorporated some exclusive items for the inauguration of Maison Natura in Paris, in April 2005.These new products, currently exclusive to the French store, will soon be available in Brazil and other countries. Natura is already the unquestionable leader in the fragrances market. In 2005 we accelerated specific research projects to include more essential oils in our lines. This work required hiring scientists and researchers and will permit the addition of new extracts besides priprioca, breu-branco and pitanga, unique to our perfume lineup. Another important achievement, targeted for June 2006, is the bringing foward of the elimination of all animal testing in the product development process. We accelerated the reformulation of our internal process for safety assurance of products.Today Natura is one of the few Brazilian companies that develop and conduct in vitro testing in its own laboratories. In addition to these tests, As part of our continuous innovation process, we seek to establish partnerships with the scientific community we developed an evaluation model with a database and advice from external specialists, under the coordination of the Product Safety Committee.This model ensures the integrity and harmlessness of the products before they are sold for human consumption (GRI PR1). In our quest for innovation we have sought partnerships with research institutes and universities.The Natura Campus Program, in conjunction with Fundação de Amparo à Pesquisa do Estado de São Paulo (Fapesp) was especially active last year, with the development of various projects with six universities in the state of São Paulo. 54 Annual Report Natura 2005 2005 Annual Report Natura 55 AWARDS AND RECOGNITIONS Brand Relationships The Natura brand epitomizes the company’s essence and the contents of our Principles,Vision and Beliefs statements. As the company’s most valuable intangible asset, the Natura brand is crucial for our international expansion process and as such we devote special care to strengthen our brand and disseminate it to other markets. An important initiative in 2005 was the consolidation of the Brand Management System to manage the entire process involved in branding – language, training, contents development, advertising and secondary-brand management. The result was clear in the number of awards conferred to Natura as one of the most valuable brands in the country, according to different research institutes and other media (see the table “Awards and Recognitions”) (GRI SO4). Another significant recognition came from the Instituto Nacional da Propriedade Industrial, Inpi, acknowledging Natura as a highly renowned brand, a status shared by brands with undisputable authority and outstanding clout that stem from their tradition and the quality and trust they inspire. With it, the protection of our brand is no longer limited to the cosmetics industry but reaches out to all sectors of economic activity. Throughout its history Natura has been recognized for its ethical and transparent relations with its diverse publics groups. Among the most important awards and recognitions received in 2005 the following deserve mention (see the complete listing on page 117): Most Highly Regarded Company in Brazil – CartaCapital magazine and InterScience (second consecutive year). Best Place for Women to Work – Exame business magazine and Great Place to Work® Institute (third consecutive year). Model-Company in Social Responsibility – Guia Exame de Boa Cidadania Corporativa (sixth consecutive year). Social Report Award – Associação Brasileira de Companhias Abertas (Brazilian Association of Publicly Traded Companies); Associação dos Profissionais de Investimento do Mercado de Capitais (Analysts and Investment Professionals in Capital Markets Association); Instituto Ethos de Empresas e Responsabilidade Social (Ethos Institute of Companies and Social Responsibility); Fundação Instituto de Desenvolvimento Empresarial e Social (Corporate and Social Development Institute Foundation) and Instituto Brasileiro de Análises Sociais e Econômicas (Brazilian Institute of Social and Economic Analyses), fourth consecutive year. Abrasca Award – Best Annual Report, Listed Companies, fourth place. Aberje São Paulo Award in the categories Investor Relations, Media Diversity and External E-News – Associação Brasileira de Comunicação Empresarial (Brazilian Association of Corporate Communication). Aberje Brazil Award in the categories Media Diversity and External E-News – Associação Brasileira de Comunicação Empresarial (Brazilian Association of Corporate Communication). Top-of-Mind Award in the category Product and Beauty Cream – Folha de S. Paulo news daily. Empresa de Valor 2005 – Valor Econômico business daily. Fourth Most Valuable Brand in Brazil – ISTOÉ business magazine and Instituto Interbrand. Environmental Merit Award – Federação das Indústrias do Estado de São Paulo (second consecutive year). Guided by our belief in ethics, transparency and dialogue, in 2005 we continued to develop efforts to better define and refine the relationship with our various publics. Consultants and consumers Natura’s Consultants are a crucial part of our business. We therefore stimulate and value their role in generating income in these times marked by a dearth of formal jobs. In 2005 we distributed R$ 1.3 billion to our Consultants, 27.3% more than in 2004 (GRI EC13). We opened 2005 with 433,000 Consultants and added another 86,000 (10,000 of them in other countries), to close the year with 519,000. Consolidated business volume grew by 27.3% over 2004 and productivity per Consultant in Brazil increased to R$12,300 which represents a raise of 6.6% over that of the previous year. We invested strongly in training and strengthening contacts. As a result of a series of meetings, workshops and product launch events, we managed to reduce Consultant turnover. The Internet has been growing as a vehicle of interaction with the sales force: in 2005 approximately 100,000 Consultants in our roster had frequent access to our website, in comparison with 70,000 in 2004 (GRI EC13). Surveys conducted by our quality control areas had detected a few areas of dissatisfaction among Consultants, be they related to on-demand product availability or to irregularities at delivery. Changes in stock management policy were promptly conducted and reduced these issues. The conclusions of consumer satisfaction surveys have been taken to a multidisciplinary group for solutions (GRI PR8). Segmentation strategies helped improve our relations with specific customer groups. The first group addressed was our younger constituencies – Consultants as well as customers. Among efforts to better reach them, we launched the Natura Mov, a movement designed to inspire the creation of a better world. In addition to a magazine named after the program edited with specific language to young people, printed on recycled paper, Natura Mov has a website. We developed another program for the Mamãe e Bebê line, for Consultants and expectant mothers. Its main vehicle is a website with information on parenting and child care, with bulletin boards where young parents exchange tips and opinions. This website registered over 50,000 unique users in 2005. Personnel Natura’s staff plays the leading role in the construction of a socially responsible company and the establishment of substantive connections with our distinct publics.Their personal and professional well-being and their identification with our culture and guiding beliefs are issues we take seriously. Natura hired 573 new people in 2005 to back up the business international expansion process at home and abroad, increasing the work force by 16%. At year-end, we had a staff of 4,128, of which 3,575 in Brazil and 553 abroad (GRI LA1 and LA2). Expansion issues also led to profound changes in corporate structure to support business expansion and the internationalization process. The executive group grew to 292 professionals, 25.5% more than in 2004. At the same time, the new business challenges demanded more investment in training and skill development, which in 2005 totaled 365,264 hours, or 101 hours per employee, including trainees (GRI LA9). 56 Annual Report Natura 2005 2005 Annual Report Natura 57 The expansion of the company posed challenges that involved complementary actions.The satisfaction index tallied by our yearly Organization Environment survey, conducted by an independent specialized firm, slipped slightly to 70% from 73% in 2004 (GRI HR10). Although we are still a market reference, this was a sign that we need to redouble efforts on employee relations to be chased in 2006 by all company managers. Despite this fact, we maintained our capacity to attract and retain talents. Personnel turnover in 2005 fell to 7.64% from 7.81%, and we received 44,884 more applications for internships and trainee programs, 16.9% more than in 2004 (GRI LA1 and LA2). We were selected as the Best Place for Women to Work for the third consecutive year by Exame magazine and made it to the list of 100 best places to work in Latin America, by the same vehicle. Besides hiring aggressively in 2005 and establishing Human Resources processes at the international operations, we also sought to attract professionals at all levels, at all capacities, with skills compatible with the company’s expansion in other countries, even for positions in Brazil. International experience and adaptability to other cultures rank high among these requirements. We also started to offer summer internships, partnerships and exchanges with foreign universities. Another program, Natura Educação, which offers tuition reimbursements, grew significantly in value and range, to promote Improve relations with all our publics is a constant goal at all the company’s departments the development of a growing number of employees (GRI LA16). We had some difficulties in 2005 to fill all the positions available for people with disabilities, in a form consistent with our beliefs. Another important step forward was a partnership with Serviço Nacional de Aprendizagem Comercial (Senac), to train people with disabilities to work as administrative assistants (GRI LA10, HR4 and HR8). Suppliers We consider our suppliers as partners in corporate responsibility and not only as mere providers of products and services.They are also a special public in the role to disseminate our sustainable corporate practices. To strengthen our relations with suppliers, we expanded and improved our certification process in issues of quality, logistics, innovation, contract, service and responsiveness, traceability, to ensure and reward the efforts by suppliers (GRI EN33). The roster of certified suppliers grew 60% in 2005. At the same time, the number of certified suppliers to work with Natura tripled in 2005, after they reached enough punctuation in our scale to fulfill a number of requirements, including quality and social and environmental responsibility. 2005 Annual Report Natura 59 AN EXPERIMENT IN DEVELOPMENT Natura in 2000 started a pilot project with the community of São Francisco do Iratapuru to materialize the strategy of using Brazilian biodiversity elements as a technological platform for its products. in Amapá, at the Iratapuru River The Iratapuru community, Sustainable Development Reservation, is constituted by 32 families who, through a cooperative, supply Brazil nuts, copaíba and breu-branco. Natura purchases these products from a partner that buys the ready-to-use extracts from this cooperative, but monitors contracts and prices, paying the cooperative a percentage of the net income from the sale of the final products we manufacture with those materials. At the same time, we follow up with routine sustainability assessments to help establish a short- and long-term development plan for the community. One of the first steps, at the beginning of this project, was a physical, geographical and socioeconomic assessment of the community as a base for a local plan for sustainable development. We also conducted meetings to establish production processes that met Natura’s demands and to set fair prices. A fund with a percentage of the revenues from the net sale of finished goods produced with the community’s materials was constituted. This amount of money is to be used to finance local projects of sustainable development that require the approval of all parties involved: the community, Natura and other partners. Three materials cultivated by the Iratapuru community – Brazil nuts, breu-branco and copaíba – earned in 2004 a certification of sustainable forest management according to the criteria of Forest Stewardship Council, FSC. Producers of biodiversity elements Among these suppliers, there was one particular group with whom we maintained a special relationship – the communities who extract the Brazilian biodiversity components used in our products (GRI EN7). We endeavored to build a sustainable model based on a tighter relationship with the producing communities, counting on the support of Non-Governmental Organizations and local governments. As part of this learning process, in 2005 we observed the need for a more encompassing management plan to allow the Iratapuru community, at Amapá (Brazilian Northern region), to meet an increased demand.The plan includes governance requirements, such as more transparency, accountability and reliable performance benchmarks. There were also advances in other regions. Surveys and assessments of present and future local development needs for three communities surrounding Belém, constituted by 50 families (that supply priprioca, for the most part), were completed. Also of relevance was the establishment of dialogue channels with the communities of Médio Juruá, in the Amazon, that supply andiroba.This contact had posed challenges and relationship improvements, because the families that form this community, constituted by 378 families, are widely scattered through the area. But, still there is much to improve in the relationship with these communities. Each of these regions has peculiarities that hamper the establishment of a blanket- type relationship model. But some principles are essential regardless of local particularities: fair treatment to all communities, participation protocols for all decision processes, social capital investment (improvement gains with teaching and learning processes) and sustainable harvesting methods, with investments in the improvement of handling skills. Natura in 2005 was the recipient of the first-ever license granted by the Ministry of the Environment to a Brazilian cosmetics manufacturer to access the country’s biodiversity genetic heritage, related to breu-branco (GRI SO1). Despite all the milestones surpassed last year, we still have a long way to go, with the identification of needs from both parties and the definition of solutions to improve relations with suppliers communities and ways to foster significant improvements on their quality of life. Neighboring communities Natura is headquartered in Cajamar (home of the administrative headquarters, the laboratories, the manufacturing facilities and warehouses) and Itapecerica da Serra (commercial and marketing departments) in São Paulo. We consider ourselves part of these communities and feel partly responsible for their future (GRI SO1). In Cajamar, with approximately 55,000 people, a three-party group constituted by To help improve the quality of life at the communities that produce raw materials is a great challenge representatives from private entities, the City Hall and district government and civil groups had already signed an agreement, in 2004, to implement in the city the Agenda 21 (sustainable development action plan devised at the First UN Conference on the Environment, Eco-92). During 2005, the group rolled out Agenda 21 Escolar, which promoted student-teacher debates and educational workshops in the municipal districts. Moreover, the neighboring communities in Cajamar organized into groups, identified their social and environmental problems and elected representatives for a Town Hall Meeting, which took place in December. During the meeting the representatives presented the issues brought up by their respective neighborhoods and identified their differences and common concerns. During the first semester in 2006, a new meeting will discuss solutions for the problems detected. In Itapecerica da Serra, Natura undertakes community service at the Potuverá district, with approximately 10,000 people, where its offices are located. During 2005 we continued promoting activities to identify local leaderships and together they concluded an assessment of the community’s living conditions. 60 Annual Report Natura 2005 2005 Annual Report Natura 61 We regard the company as an important agent in the quest for solutions for the future of society Government, society and trade association We seek to establish a dialogue with all levels of government not to discuss subjects related to our industry but also participate in initiatives to improve social conditions in Brazil. During 2005 we joined Programa Oficial de Educação Previdenciária, through a partnership with the Brazilian Direct Selling Association, (ABEVD), aimed at inducing Consultants to pay in their social security contributions.This project involved training managers and sales promoters to collaborate with federal officials, work that is scheduled to proceed through 2006. Another important initiative is the Crer para Ver program, which channels the revenues from spontaneous sales of a specially developed product line to public education projects. In 2005 this program launched the Education of Young and Adults campaign, developed in partnership with the Education Ministry and Fundação Abrinq (see Responsible Management on page 64). We also have marked a presence in important national forums. During 2005, Natura was the Brazilian representative in the committee that discusses ISO 26000 norms, aimed at establishing standards to classify socially responsible companies.We also made official our support to the Conferência das Partes da Convenção sobre Diversidade Biológica (COP-8) in 2006, which takes place in Brazil for the first time. As for trade associations, we developed a joint project with Associação Brasileira de Higiene Pessoal, Perfumaria e Cosméticos (Abhipec), for the selective collection of used packaging (please refer to the Responsible Management section on page 64). We also renewed, with the Brazilian Direct Selling Association (ABEVD) our commitment to the Código de Conduta Diante dos Vendedores Diretos e entre Empresas (GRI PR6 and SO7). Shareholders A public company since May 2004, Natura lists its stock at Bovespa’s Novo Mercado, the segment that groups the companies committed to the highest level of corporate governance and regard for the shareholders in Brazil. Natura goes beyond this formal commitment and regards its shareholders not only as investors, but also partners in the constitution of its responsible management. In this respect, it works to extend to all of them a fair and egalitarian treatment, with absolute transparency (see Corporate Governance on page 66). Health professionals Growing investment in research and development and technological advances brought by scientists and physicians investigating new compounds gave cosmetics a therapeutic role.This is why we do our best to participate in medical circles. The release of Chronos Spilol in 2005 – with its main ingredient extracted from the jambu plant, which went through extensive scientific testing – brought us an opportunity to meet with many opinion makers in the field of dermatology.They also became acquainted with our Cosmetic Monitoring system – a set of practices and protocols to prevent the incidence of possible adverse effects from cosmetic products. 62 Annual Report Natura 2005 Glaúcia Aparecida Barichello, Ailma Dias dos Santos and Maria Aleluia Pereira Lima, employees of Natura. Responsible Management Keeping a transparent relationship with our clients and keeping management goals compatible with sustainable growth are essential to Natura’s socioenvironmental goals. We also implement specific measures to bring these objectives into our planning and administrative routines. In 2005, we integrated the environmental management process, corporate responsibility and community relationship which previously were spread within the company. Natura also has a Corporate Responsibility Management System that assesses the quality of the company’s relations on ethics, transparency and efficiency in its communication channels. Perceived weaknesses are subsequently addressed to, priorities are established and plans of actions put into effect. In 2005, further segmentation of the groups assessed facilitated the evaluations, promising much more precise results for 2006. The most crucial activities on socially responsible management are monitored through the Corporate Responsibility Investment Matrix (please refer to the chart in Highlights of Investments in Corporate Responsibility section on page 108). In the case of environmental goals and indicators, we use the Natura Environmental Management System based on the ISO 14001 norms.These two systems feed our planning cycle and our strategic map, on which socioenvironmental goals have the same importance as financial goals. During 2005 we have started implementing the Social Responsibility Management System in international operations, training team leaders in a first stage, then building up a foundation for corporate responsibility. Lastly, team members are trained. Simultaneously, the ISO 14001 norms were implemented in the French operation. Our French division, much like our operation in Mexico – both launched in 2005 – has sustainability as a core goal since its inception. Another highlighted initiative in 2005 was the mobilization of Consultants so that, besides divulging our products and concepts, they whould also disseminate our values in the economic-financial, social, and environmental fields. Also noteworthy is the Young and Adult Education, a Ministry of Education program supported by Natura. As a result, 66,600 individuals above the age of 15 re-enrolled to complete their primary schooling, nationwide. Consultants were also encouraged to persuade their clients to purchase product refills, which led to a growth in sales of refills to 17.4% of total products sold from 15.3% in 2004, reducing the average environmental impact of packaging in Brazil. We continue to conduct Life Cycle Analyses of our packaging to devise ways to reduce their environmental impact (GRI EN14 and EN15).The Research and Development Department started, in 2005, to study new refills for liquid products and new packaging for the orders sent to our Consultants. At the end of the fiscal year, these projects were nearing completion. We also launched a new research platform to develop alternative recycled materials to package new products. To further mitigate the environmental impact from our packaging, we signed up a recycled pilot-project organized by the Brazilian Association of Personal Hygiene, Perfumery and Cosmetics Industry, locally Abihpec, in Santa Catarina. We comply with strict ISO 14001 norms regarding the improvement of environmental manufacturing conditions within our facilities in Cajamar and Itapecerica da Serra, allocating investment and effort to these activities. We surpassed several of our environmental goals in 2005. The water usage per unit sold declined 5.6%.The average ratio of reusage of Our Consultants were organized to persuade thousands of people to re-enroll in schools across the country water rose to 55% from 39.5% in 2004 (GRI EN5, EN12, EN22 and EN32). The energy consumption per unit sold fell by 8.5% from that of 2004 (GRI EN3). The share of incinerated waste in the total fell to 2.8% from 5.4% in 2004, and the share of total waste sent to landfills dropped to 16.1% from 21.2% of the total.The share of total waste that was recycled climbed to 81.1% from 73.4% of the total.The amount of residue generated per unit sold, however, grew 8.2%, due to increased use in the Cajamar site and, specially, to the increase in scrap volume (GRI EN11 and EN13). Natura develops clean industrial processes that cause no air pollution. It is relatively more difficult to identify sources of pollution in the cosmetics industry. Since 2000, however, we decided to diagnose, plan and intervene in emissions from the fleet of suppliers that delivers Natura’s products in over 5,000 Brazilian cities (GRI EN8, EN19, EN30 and EN34). 64 Annual Report Natura 2005 2005 Annual Report Natura 65 Corporate governance Our corporate governance started to develop faster in the mid-1990s, when we hired professional executives to take over strategic positions. It was advanced by the establishment of the Board of Directors in 1998, followed by auxiliary committees, and the IPO in 2004. In May of 2004 Natura’s stock was listed at Novo Mercado, which is the highest corporate governance at Bovespa (São Paulo Stock Exchange), such as issuing strictly common stock, having a minimum of 25% float, and extending minority shareholders the privileges granted to controlling shareholders in the event of a transfer of control. A new page was turned in 2005 with the appointment of a new CEO not part of the controlling group completing the separation between management and ownership. However, the controlling group continues to share its knowledge and entrepreneurial vision at the Board of Directors level. Moreover, the whole management and governance structures were realigned to support plans of domestic and international expansion processes. The Board of Directors added two new committees: Strategy and Corporate Governance.The first is charged with making sure the Board’s directives are fully implemented; the second oversees the use of good governance practices and ensures that the Council’s forums are working smoothly. The existing committees had their scope widened.The Auditing and Risk Management Committee had its name changed to Auditing, Risk Management, and Financial Committee and started to address these issues more deeply. The Human Resources Committee was placed in charge of accompanying the development of the Natura Management Systems, in addition to being in charge of team member development strategies. Capital Market A public company since 2004, Natura’s shares are traded on the Novo Mercado, the highest in terms of corporate governance in the São Paulo Stock Exchange, Bovespa. In 2005, Natura’s stock appreciated 38%, while the Bovespa index grew 27.7%. Since the public offering in May 2004 up to December 2005, we have shown an appreciation of 182.1% compared to 77.4% in the Bovespa Index (Ibovespa) for the period. Appreciation Natura (Natu3) vs. Ibovespa Base 100 (05/25/2004) NATU3 IBOV +182.1% +77.4% 4 0 y a M 4 0 n u J 4 0 l u J 4 0 g u A 4 0 p e S 4 0 t c O 4 0 v o N 4 0 c e D 5 0 n a J 5 0 b e F 5 0 r a M 5 0 r p A 5 0 y a M 5 0 n u J 5 0 l u J 5 0 g u A 5 0 p e S 5 0 t c O 5 0 v o N 5 0 c e D Furthermore, in 2005, our stocks have been included in the IBrX100 portfolio in the Bovespa, an index comprised of 100 stocks with the highest market liquidity. Our stock was also included in three indices by Morgan Stanley Composite Index (MSCI), created to follow the performance of stock markets all over the world: MSCI Brazil, (0.53% weighting for Natura); MSCI Emerging Markets Latin America (0.27% weighting); and MSCI EM (0.05% weighting). Natura is also among the 28 companies that have their stocks chosen by the São Paulo Stock Exchange to compose the Corporate Sustainability Index. The Index was created with methods developed by the Getulio Vargas Business School in São Paulo (FGV-Eaesp) to identify the companies with the best performance in all facts of sustainability. 66 Annual Report Natura 2005 2005 Annual Report Natura 67 Shareholding Structure On December 31, 2005, Natura had social capital of 85.4 million stocks (including 432,000 shares kept in treasury), of which 26.3% as free float. Shareholders Number of shares Percentage Controllers Free float Total stock* * Does not include shares kept in treasury 62,637,886 22,368,710 73.7% 26.3% 85,006,596 100.0% Dividends and Interest In line with the Brazilian Corporate Law, mandatory minimum dividends were fixed by Natura’s by-laws at 30% of adjusted annual net income. However, the Board of Directors chose to pay dividends equivalent to at least 45% of adjusted net income. In 2004, we paid 106.5% of free cash generation(1) and 72.1% of consolidated net income. For 2005, the proposed pay-out, submitted to the Annual General Meeting represents 80.5% of net income and 95.2% of free cash generation. This is equivalent to a net amount of R$ 3.70 1. (net cash generated by operating activities) – (net cash used in investment activities) per share in dividends and interest on capital, a growth of 48% over the 2004 figure (GRI EC6). Investor Relations Our Investor Relations department attended 17 conferences held by Brazilian and foreign investment banks in 2005. It also promoted two road shows abroad and two within Brazil, besides attending two meetings held by the Analysts and Investment Professionals in the Capital Markets Association (Apimec) in São Paulo and Belo Horizonte. Furthermore, it also hosted five meetings with individuals. We also try to respond directly to questions from potential investors. With this goal in mind, we posted our Investor Relations website a vast amount of information and guidance on the company, our industry, on the market and all scheduled events. Below are the dates for release of operating results scheduled for 2006 (please refer to their respective dates below). Release Date First Quarter 2006 April 26, 2006 Second Quarter 2006 July 26, 2006 Third Quarter 2006 October 25, 2006 68 Annual Report Natura 2005 From left to right: Guilherme Peirão Leal, Cochairman of the Board; Alessandro Carlucci, Chief Executive Officer; Antonio Luiz da Cunha Seabra, Cochairman of the Board – Founder; Pedro Luiz Barreiros Passos, Cochairman of the Board. Edson Vaz Musa, Member of the Board and Coordinator of the Human Resources Committee Eduardo Zornoff, Executive Director, Commercial Modeling Eduardo Costa, Executive Director, Branding Denise Lyra de Figueiredo, Executive Director, Business Unit Paulo Lalli, Executive Vice-President, Operations and Logistics Eduardo Luppi Júnior, Executive Vice-President, Innovation José Guimarães Monforte, Member of the Board and Coordinator of the Auditing Committee Philippe Joseph Pommez, Executive Vice-President, Internationalization Antônio Siqueira, Executive Director, Legal Affairs Andrea Sanches, Executive Director, Business Unit Joel Ponte, Executive Director, Natura Europe Moacir Salzstein, Executive Director, Strategic Planning Rodolfo Witzig Guttilla, Executive Director, Corporate Affairs and Government Relations Pedro Villares, Executive Director, Marketing Latin America Itamar Correia da Silva, Executive Vice-President, Operations and International Logistics Fernando Pantaleão, Executive Director, Brazil Daniel Gonzaga, Executive Director, Research and Development Roberto Zardo, Executive Director, Client Services Fernando Mesquita, Corporate Governance Secretary José David Vilela Uba, Executive Vice-President, Finance and Information and Executive Director, Investor Relations Claudia Falcão, Executive Director, Human Resources and Organization Marcos Egydio Martins, Executive Director, Sustainability Renata Ribeiro, Executive Director, International New Business Moacir Zeitel, Executive Director, Sales Mauricio Bellora, Executive Vice-President, Latin America Angel Medeiros, Executive Director, Logistics Ítalo Flammia, Executive Director, Information and Technology Hélio Novais, Executive Director, Finance Mario de Oliveira, Executive Director, Manufacturing Risk management Natura has a risk management system comprising the following risks: financial, products, data security, environment, consistency between values and practices. This system is basically meant to identify and evaluate the impact of risks and take measures to mitigate them through an infrastructure of internal controls. According to the corporate governance model we adopted (see chapter Corporate Governance on page 66), questions related to auditing are managed by its respective committee. In 2005, studies were concluded concerning the implementation of a specific department focused on the company’s strategic risks. This restructuring was started at the end of the fiscal year and it is set to be finished by the first semester of 2006. The department will be coordinated by the Risk Management Committee, which is subordinated to the Board of Directors. In the case of other risks, we have started investments to perfect these operations, with the creation of a specific management system. Risks are grouped as financial, product, data security, environmental and consistency between values and pratices. Financial Debts in foreign currency are protected by exchange rate hedging. For this reason, variations in exchange rates do not have significant impact on the results. As for the effect of the exchange rate on raw materials, the prices of which are quoted in strong currency, as is the case for imported materials, we monitor trends and if necessary, contract the purchase of the foreign currency in the Future Markets (BM&F). However, we never undergo operations in the BM&F with any speculative motivation. Products We put a lot of effort into overseeing the quality of our products and count on the Product Safety Committee formed by the vice-president of Research and Development, scientists, doctors and specialized consultants. The committee establishes policies for product safety and supervises toxicological evaluations of all the ingredients used in our products (GRI PR1). Data security In 2005, we finished the process of outsourcing of our IT infrastructure and installed a contingency data processing center that covers 92% of the company’s processes, guaranteeing that business can go on as usual even in the case of an accident. This center is always online and in parallel to the main data processing system. We have built a risk management system that encompasses business strategic areas as well as sustainability related issues Environment Natura was recertified according to NBR ISO 14001 rules in 2005. With these rules in mind, we use the Natura Environmental Management System to monitor environmental risk. Consistency between values and practice The Corporate Responsibility Management System evaluates risks and ethical behavior, transparency, open dialogue with the public and adoption of company goals that are compatible with sustainable growth (see Responsible Management on page 64, and the Corporate Responsibility Matrix on page 108). 70 Annual Report Natura 2005 2005 Annual Report Natura 71 Communication Natura’s communication with its various publics – consumers, Consultants, team members, suppliers, communities supplying biodeversity elements and those surrounding its manufacturing installations, government at all levels and society in general – has a strategic value in policies and management practices. Guided by the first understanding that a company is a dynamic network of relationships, we aim to improve these relations, moving towards integration, transparency and ethics (GRI LA4). Far beyond the commercial aspect, ad campaigns, merchandising, public relations programs and commercial-institutional publications are seen as an opportunity to spread our vision of the world.This is why we not only communicate the attributes of our products, but also show the history and values behind them.The ad campaign for Perfume do Brasil, for example, exalts the fragrance and its qualities while showcasing the communities that produce the essential oils and discusses on the sustainable use of Brazil’s biodiversity. Actions like this one aim at the dissemination of Natura’s values and beliefs among its publics, strengthening the brand (GRI PR9). Among the activities developed in 2005, a TV merchandising campaign showing to thousands of viewers the importance of working towards sustainable growth stood out. Another merchandising theme was the professional and social role Consultants have and the fundamental bond between mothers and their infants. Equally important were the campaigns for Chronos, for the use of refills and for Natura’s bars of soap produced from vegetable oil (see Brand, Competitive Advantages section on page 56). Yet another initiative to be noted was Natura's support to the projects One Thousand Women for the Nobel Peace Prize, Biodiversidade Brasil and Natura Musical (see Highlights of Investments in Corporate Responsibility on page 108). Natura is popular in the local press, with a top-of-mind status in institutional terms, including stories and reports on management style and financial results. With the listing of the stock, we opened an additional channel with the specialized business media. All this added to our status in media vehicles devoted to fashion, beauty and behavior. In 2005 we also received extensive coverage in the international press, especially France and Mexico, where we inaugurated operations. We also revamped in 2005 the “Vitrine”, a magazine-catalogue that is also the main communication link with our Consultants, with Natura’s communication mission is to strengthen relationships within principles of transparency and ethics a circulation of about 1 million every 21 days. In addition to new products and pricing, Vitrine now consistently carries more institutional information about our values. We also created a new publication for younger Consultants, the Natura Mov>, focused on a younger universe, with the purpose of disseminating information on the company's values and culture (see Relationships in the Competitive Advantages section on page 57). 72 Annual Report Natura 2005 2005 Annual Report Natura 73 Key Results As we have in the past years, in 2005 we presented consistent financial results, without losing sight of our concern over advances in the social and environmental realms, as they form the tripod on which sustainability is maintained. Financial Results In 2005 gross revenues amounted to R$ 3,243.6 million, 27.7% more than in 2004, consolidating the strong growth recorded in the previous two years and once again, it was a larger growth than that for the cosmetics, fragrances and personal hygiene target market. This market grew 16.5% from January to October 2005 in comparison to the same period in 2004. Net profits reached R$ 396.9 million, an increase of 32.2% compared to R$ 300.3 million in 2004 (GRI EC7). We also increased our gross margin (gross profit in relation to net revenues) by half a percentile point, thanks to the reduction of costs resulting from the Real’s appreciation.The EBITDA totaled R$ 564.4 million, a growth of 30.8% compared to 2004. The EBITDA margin remained virtually flat – 24.7% in 2005 versus 24.4% in 2004. Natura closed 2005 with consolidated gross debt of R$ 187.5 million, versus R$ 134.4 million in 2004. In order to meet storage and logistics expansion needs, as well as those of working capital, we received additional financing from the BNDES (National Economic and Social Development Bank), raising that portion of the total debt pegged to the Long Term Interest Rate (TJLP) from 47%, in 2004, to 76%. The remainder is indexed to the Interbank Deposit Certificate (CDI). We also have financing from Finep (Studies and Projects Funding Agency), whose resources go for the Research and Development area. This is currently being amortized. Investments Investment totaled at R$ 111.6 million in 2005, below the forecast R$ 120 million, but higher than the R$ 83.1 million applied in 2004. Resources were allocated mainly on the third line of separation of products, in a second vertical warehouse, in manufacturing equipament, and in IT. In 2006, we will continue to invest into logistical processes, especially in the modernization of the existing lines of separation and production capacity, aiming to give the factory more flexibility, as well as in marketing activities. Sales channels The number of Natura Consultants reached a total of 519,000 (see Relationships, Competitive Advantages section on page 57) (GRI EC13). Research and Development In 2005, investments in Research and Development moved up 41.5% over 2004 to R$ 67.1 million, equivalent to 2.9% of net income (see Research and Development, Competitive Advantages section on page 54). Manufacturing and Logistics In 2005 we produced a record 209 million units in Cajamar’s assembly lines, a growth of 24.5% related to 2004. An equally positive fact was the solution of problems in the logistical area that occured in the first semester. With the third separation line operating, as well as investments made in equipment, the logistical processes were strengthened.The implementation of the total productivity management system TPM was also very important in the more efficient use of machinery. At the same time, a series of specific policies were applied to identify demand more precisely and thus better plan production and distribution.These measures led to a reduction in consumer requests that could not be attended to due to stock shortage. Another highlight was the issuance of the certificate of quality according to the NBR ISO 9001 rules. 74 Annual Report Natura 2005 2005 Annual Report Natura 75 International Expansion With a growing participation in Argentine, Chilean, and Peruvian markets – where activity has increased 45.4% in weighted local currency and the number of Consultants reached 36,000 at the end of the year – Natura’s international base has grown even more in 2005. In April, we started operations in France, center of the cosmetic world. In August, Natura entered the Mexican market.The results of both initiatives are in line with our expectations. We invested R$ 31.8 million in globalization, versus R$ 7.5 million in 2004.The increase was justified not only by the big upturn in business in the foreign markets in which Natura was already present, but particularly by the enormous growth potential in Latin America and other parts of the world, given that we are now experienced international operators and that our business model and values have met with great acceptance. In 2006, we shall begin operations in Venezuela and, in the following year, Colombia. A 2005 highlight was the issuance of the certificate of quality according to NBR ISO 9001 rules Social Indicators The year’s social highlight was the Consultants mobilization for the Young and Adult Education program and the sales of refills. Another important highlight was the official installation of the Cajamar Agenda 21 Permanent Forum following joint efforts by the company, the local community and representatives of municipal government (see Relationships and Responsible Management, Competitive Advantages section on pages 57 and 64, respectively). Environmental Indicators As holder of the NBR ISO 14001 Certificate, we channeled resources into improving environmental conditions in our production procedures, the reason why we exceeded several environmental targets in 2005 (see Responsible Management, Competitive Advantages section on page 64). 2005 Annual Report Natura 77 bemestarbemestarbemestarbe mestarbemestarbemestarbem Global Reporting Initiative Economic, environmental and social indicators Once again, Natura combines in a single document the analysis of its economic, financial, social and environmental data.This integrated model of information, proposed by the Global Reporting Initiative (GRI), provides a comprehensive perspective on the activities conducted by the company, and has proved a valuable tool to improve its commit- ment to sustainable development. Natura’s partnership with GRI began in 2000.We were the first Brazilian organization to follow GRI’s guidelines and participate in their feedback group. Three missions from GRI visited our headquarters (2001, 2004 and 2005), and we supported the work group that translated its guide- In 2004, Natura became an Organisational lines into Portuguese. Stakeholder, taking part of a group of volunteer institutions interested in permanent partnerships with GRI, and offering financial support and help for the continuous development of guidelines for sustainability reports. Additionally, Natura supports the Stakeholder Council and Technical Council for the new generation of indicators (G3). In this edition we restructured the section presenting Natura’s financial, social and environmental performance.The indicators were reorganized to clearly underscore the company’s responsible management while fol- lowing GRI’s guidelines. To Natura, responsible management can be described as: 1. Establishing high quality relations with all publics based on ethics, trans- parency and open communication channels; and 2. Defining business development. Indicators were thus organized as follows: targets compatible with sustainable Quality Relations Targets Compatible with Sustainable Development Ethics,Transparency and Communication Channels Personnel Consultants Consumers Suppliers and Suppliers Communities Neighboring Communities Government Society Governance Economic Environmental Social Direct Impact Biodiversity Investment Matrix Waste Water Energy Wealth Distribution Work and Revenue Generation CO2 Emission Social Inclusion Materials Human Rights Education Personnel Highlights of Investments in Corporate Responsibility “We are a registered Organisational Stakeholder of the Global Reporting Initiative (GRI) and support its mission to develop globally accepted sustainability reporting guidelines through a global multi-stakeholder process.” “This report has been prepared in accordance with the GRI 2002 Guidelines. It represents a balanced and accurate presentation of our organization’s economic, environmental and social performance” Alessandro Carlucci Chief Executive Officer These indicators integrate the process of ongoing corporate evalua- tion, in which information on social responsibility, partnership and environmental practices are presented in as many details as the com- pany’s financial data. This allows the company to conduct in-depth analyses and develop action plans not only to establish high quality relations, but also to assess the environmental and social impact caused by its activities – guarantee that Natura reaches its targets. The biggest challenge is still the evaluation of quality of relations from an ethical, transparency and efficiency of communication channels viewpoint, especially when we analyze our performance in ways that are indirectly connected to commercial activities. A second challenge is the definition of social indicators that express the actual impact of wealth distribution. Important milestones were achieved in 2005, such as the inclusion of social and environmental diagnosis into the corporate planning cycle, and the definition of environmental targets for the entire company. The analysis of correlation between economic, financial, environmental and social results still needs further refining in the compilation stage. All GRI indicators used by Natura in previous years are present in this new structure (see Global Reporting Initiative Index on page 143), allo- cated according to their respective themes. At the beginning of each section, we present codes, policies and general management systems, for that theme, followed by codes, poli- cies and specific management systems for each public. In brackets, the indicators’ statistics remitting to texts are highlighted to assist the sur- vey. This way, we hope to provide greater transparency on Natura’s management evaluation. The information presented here comprises activities in Brazil and the international operations (Argentina, Chile, Peru, Mexico and France), except where otherwise indicated. It should be noted that Natura has its industrial plant in Brazil. Quality of relations Since its foundation, Natura roots its activities in the belief that a company is a living organism, a dynamic set of relationships. Consequently, quality of relations has been a mark of Natura’s development. The company’s increasing commitment through responsible business practices in the past decades imparted a new dimension to this subject. New aspects were taken into account, just as Natura has grown and entered other countries to face the com- petition while relating to other cultures. The challenge of materializing or quantifying the ethical quality of relations, in all its aspects, in various cultures, drove Natura into action. In this respect, our communication channels with different publics have been analyzed and valued as an essential part of the way we do business. Our challenge is to have open channels to record all ques- tions raised, confidentially or not, ensuring that these questions are understood, followed-up and properly addressed, with the help of the various departments involved. We believe that these links provide better performance, while giving us an opportunity to forecast demands and build the future of our business. Important milestones occurred in 2005: the preparation of Carta de Princípios de Relacionamento Natura (the company’s charter on rela- tions with its various publics), the decision to structure an Ombuds Service, initially for the internal purposes, and, mostly, the preparation of a more specific diagnosis, introducing tools into the planning cycle of all departments to generate even more solid plans for 2006. Codes, policies and general management systems From the beginning Natura adopted a set of values and beliefs that influences its way of doing business.The direct sales model, for exam- ple, was chosen owing to the importance of close customer relation- ships for the company. To magnify and intertwine these values into routine business practices, we distribute for every single public we have contact with the documents Reason for Being, Our Beliefs and Our Vision. This set of beliefs led Natura to adopt the values of Social Responsibility, expressed in its Corporate Responsibility Management System – which polls the public on the quality of relations and imple- ments proactive solutions for detected critical points. The Management System enables all company departments to work in an integrated and structured way, aggregating strategic plans, objectives, actions and indicators to improve relations with Natura’s publics. Plans are followed by organized Committees that deal with these matters. To consolidate Natura’s values and beliefs and support its imple- mentation by its personnel on a daily basis, in 2005 we prepared the Carta de Princípios de Relacionamento (Letter on Relationship Principles) for our diverse publics, to be published in 2006. We also follow the guidelines established by regulatory agencies for our business (see Codes, Policies and Specific Management System for each public on the following pages). Target for 2006: Release the Carta de Princípios de Relacionamento Natura (the company’s charter on relations with its various publics). Personnel We try to keep a stimulating and creative workplace where employees feel respected as individuals, recognized for their contributions and motivated to give their best.This is a daily challenge that requires attention not only from human resources professionals, but also from all of Natura’s managers. As a result of its efforts in this respect, Natura has been elected by Exame magazine, over the last three years, the Best Company for Women to Work. Codes, policies and specific management systems In Brazil Quality controls in employee relations are performed by the follow-up of indicators from the organizational satisfaction survey, developed jointly with consultants from the Hay Group.The compa- ny compiles information on ethics, transparency and communication channels. From the analyzed results, action plans and guidance for specific aspects are prepared. In 2005 the organizational satisfaction survey extended to in-house outsourced contractors, a group of service providers with a long-standing relation with the company. The Human Resources department deals individually with enquiries from employees involving attitudes that do not comply with Natura’s values and beliefs. However, to further improve employee relations we intend to structure, in 2006, an Ombuds Service to handle the- It will be guided by the Carta de Princípios de ses issues. Relacionamento Natura (the company’s charter on relations with its various publics), due out in 2006 (GRI LA4, HR5 and HR10). Target for 2006: structure an Ombuds Service for Natura’s employees. See analysis of goals established in 2004 at the end of this chapter. Employee Satisfaction Employee satisfaction index (%) 2003 76 2004 73 2005 70 In other operations Since 2005, Natura adopted the organizational satisfaction survey in all countries where it operates and where there were more than ten survey respondents, to ensure anonymity. Argentina, Peru, Chile, Mexico and France were surveyed in 2005. framework from the Employee Satisfaction index (1) Argentina Chile Mexico Peru France 2004 58 N.A. N.A. N.A. N.A. 2005 60 58 76 59 68 See analysis of goals established in 2004 at the end of this chapter. 1. Since 2005 Natura conducts this survey in all its international operations. 80 Annual Report Natura 2005 2005 Annual Report Natura 81 Ethics Natura’s principle is to respect diverse opinions as the base of ethical relations with employees. It values citizens’ expression and the democratic process, therefore recognizing the right to organize unions (GRI HR5). In Brazil Relations with labor unions are conducted between Human Resources and union representatives, following guidelines previously agreed upon. Natura also offers unions the opportunity to post information of interest in the company’s premises. Currently, Natura maintains relations with three labor unions (GRI HR5). In other operations Contact with labor unions does not occur at prescheduled, regular intervals. Transparency In Brazil Organizational changes, work opportunities, benefits and other information pertaining to employees’ interest are published in internal communication vehicles – posters placed on highly visible intranet, monthly newsletter (Ser Natura Colaborador) and areas, e-mail.The company also holds meetings between employees and the CEO, where managers also participate. There are also Occasional Meetings with senior management and their teams (GRI LA4). There is a multitask team to identify, assess and implement cost-cutting opportunities and assure balanced results. Several working groups and committees deal with multi- departmental and strategic matters related to the company.They are organized at different levels, meeting regularly and allowing wide and frequent information exchange among directors, managers and employee representative groups, always looking for new joint solutions (GRI LA13). Employees participate in negotiations related to the Profit-Sharing Program (PSP) through two committees. One of them is constituted by managers, supervisors, administrative and operational experts, who discuss targets with the company’s representatives and unions and approve the Collective PSP. The other, formed by managers, approves the Individual PSP jointly with the company’s representatives and unions. Both commissions are elected by employees through a formal process conducted jointly with the union (GRI HR5). In other operations Information is accessed in a simplified way by small committees, owing to the lower number of employees in comparison with the headquarters in Brazil. Moreover, everyone has access to Brazil’s intranet, receiving the monthly internal newsletter (Ser Natura Colaborador) and also holding Occasional Meetings. Communication channels Natura has various channels available for its personnel to post suggestions or complaints. Employees are always encouraged to freely vent their opinions, suggestions, offer solutions and criticize. This may occur in Meetings with the CEO or Occasional Meetings. In Brazil Fale com Natura is a communication channel in which employees can open up to the company about their doubts, compliments, complaints, requests, critiques and suggestions, either via e-mail or intranet. Each department is responsible for addressing the issues raised. Another important communication channel is the GSCI – Gerenciamento de Satisfação do Cliente Interno (Internal Client Satisfaction Management), crea- ted to track the actions of the Organizational Climate Survey. Employees who participate in this group are elected by their coworkers and, in the GSCI meetings, present suggestions, critiques and proposals (GRI HR10). In other operations Communication between managers and their teams takes place through Occasional Meetings. There is no formal system to transmit personnel complaints. Sales Consultants Sales Consultants are the main link between Natura and final consumers.The option for the direct sale model allows a unique and very close connection with a huge resource of women and men who bring to the company Brazil’s diversity and, increasingly, Latin America’s. The consulting activity represents an opportunity to earn extra income, professional development and more. Through it, these professionals transform the sale of Natura’s products into moments of inspiration, self-knowledge, relationship and engagement into social and environmental causes. Codes, policies and specific management systems Natura is signatory to the Código de Conduta de Venda Direta Diante dos Vendedores Diretos e entre Empresas, a self-regulatory code of conduct for direct sales companies, from Brazil’s Direct Sales Association (ABEVD).The code was prepared in accordance with the model proposed by the World Federation of Selling Association, which defends the rights of direct salespeople, promotes loyal competition in a climate of free initiative, improves the public image of direct salespeople and the acceptability of direct sales as opportunities to create income (GRI PR6 and SO7). Ethics According to Código de Conduta de Venda Direta Diante dos Vendedores Diretos e entre Empresas, a self-regulatory code of conduct for direct sales companies, from Brazil’s Direct Sales Association (ABEVD), Natura pledges respect to the rights of its resellers, providing free educational and training programs to direct salespeople and offering further opportunities to improve their skills. To prepare the Consultants to comply with its ethical standards, Natura offers workshops and classes on the characteristics and benefits of its products, preparing them to offer adequate advice to each of their clients. launched at the end of 2004, In Brazil Movimento Natura, is a vehicle to encourage and recognize the importance of the sales force in the dissemination of Natura’s core values, by encouraging them to motivate their clients to adopt environmental-friendly habits at home and at work (see social goals established on page 103, for further information on Movimento Natura). Transparency From the recruitment stage onwards, Natura is transparent regarding the rights and obligations of its Consultants. They are informed, clearly and in detail, of product costs and sales margins, as well as credit and payment terms. At the time of accreditation, Consultants receive a copy of the Código de Conduta de Venda Direta Diante dos Vendedores Diretos e entre Empresas, a self-regulatory code of conduct for direct sales companies, from Brazil’s Direct Sales Association (ABEVD). They receive periodical printed materials with updated information on promotions and new products. Natura also provides them with advance information on products that are about to be discontinued, as well as price changes. Communication channels Relations between Natura and its Consultants are conducted through periodical meetings, the corporate website and a toll-free number. Their closest contacts are meetings with their area Sales Promoters. In these meetings, in addition to receiving handouts with information on products and sales programs, Consultants watch videos and participate in discussions on the company's practices and values. On the internet, Consultants count on the following services: on-line support to address their doubts and concerns, filing orders, sending and receiving e-mails with information and promotions, highlights on recent launches, sales tips and technical information on products. The Natura Support Center (CAN) manages Consultants satisfaction levels. A specially trained team provides information and registers complaints, suggestions and critiques, dealing with all requests and following up on these processes until they are resolved (GRI PR8). In Brazil We carry out an annual survey of Consultants satisfaction to monitor the relationship developments and come up with improvements: Annual Satisfaction Survey (1)(2) (Consultants satisfaction index %) 2 9 8 8 9 8 1 9 2 8 Mar 2001(3) Oct 2002(3) Oct 2003(4) Jan 2005 Jan 2006 1. From now on, the survey results will be published considering the period when it was carried out. 2. Reported data refer to surveys conducted from January 2001 onwards. 3. Consultants survey results from March 2001 and October 2002 are not comparable to the others owing to methodology changes. 4. Consultants survey results from October 2003 were altered in this report to make it comparable to similar surveys conducted in other periods and refer to the same methodology used in later periods. In addition to the annual survey, since 2005 Consultants are invited to post their opinion on services received from the company at any time through the corporate website, giving it a continuous stream of feedback to inform actions to improve our products and services. Consultants Evaluation of Natura Support Center Great/Very good (CAN) In other operations Natura does not carry out surveys with this public. 2005 79% Consumers Respect to consumers is one of Natura’s most relevant principles - the company invests in the Consultants education so that relations with consumers are ethical and clear, conveying Natura’s beliefs and values in addition to the best possible service. Codes, policies and specific management systems Texts on Natura products labels are in full compliance with Resolutions n° 211 of July 14th, 2005, n° 79 of August 28th, 2000 and n° 335 of July 22nd, 1999, issued by Agência Nacional de Vigilância Sanitária (Anvisa, the national health agency), and meet the guidelines of the Brazilian Consumer Defense Code. Rules sanctioned by Instituto Nacional de Metrologia (Inmetro, the national metrics agency) are also observed (GRI PR2). Natura has a Product Safety Committee charged with keeping current the company’s code of product safety and issuing mandatory reports on product development regarding adequacy for human use. Only after receiving this feedback, the department in charge of filing information with Agência Nacional de Vigilância Sanitária (Anvisa, the national health agency) requests formal authorizations. Natura’s code of product safety establishes the criteria for pre-clinical and clinical trials of all products from the research and development stages all the way through to their market launch (GRI PR1).The main safety procedure regarding the company’s products is the toxicological analysis of all raw materials employed in the formulas, according to international standards. To conduct these tests, we have a biochemistry lab with in-vitro reconstituted human skin cells, and state-of-the-art equipment to test cell cultures. These tests follow guidelines established by international agencies, such as the Food and Drug Administration, (FDA) in the United States and the European Union’s Seventh Directive. Natura also has a Consumer Center where it tests the effectiveness of existing products as well as carries out performance evaluations of new products. Natura keeps samples of each lot of marketed products. It also enforces cosmetics surveillance, that is, systematic evaluation of adverse effects of each product it markets. Consumers who have any type of reaction before the product expiration date are supported by a specialized team of dermatologists to establish clear cause-and- effect relations. This information is then transmitted to the pertinent departments to eliminate potential irritants when required, and also form the database that helps improve commercial messaging and future production (GRI PR1). Natura also has a specific policy for Animal Testing, in which it pledges to adopt other means of testing to ensure the safety of its products (see text in this chapter in Society on page 87). 82 Annual Report Natura 2005 2005 Annual Report Natura 83 In Brazil Natura bases its practices on the self-regulatory publicity norms jointly established with national associations of advertising agencies and consumer protection to comply with all norms of social It also has a nonintrusive responsibility in its advertising (GRI PR9). internet policy, ensuring privacy and confidentiality of information provided by website visitors (GRI PR3). The company is a signatory to Código de Conduta de Venda Direta Diante dos Vendedores Diretos e entre Empresas, a self-regulatory code of conduct for direct sales companies, from Brazil’s Direct Sales Association (ABEVD), aimed at safeguarding fair competition, respecting free initiative, protecting the public image of direct salespeople and consumer satisfaction, including the right to privacy (GRI PR6). In other operations We are developing a policy to ensure that all international operations follow our ethical principles regarding consumers. Until this policy is announced, international operations follow the same guidelines as Natura in Brazil, tailored to the reality of each country (GRI PR9). Ethics In Brazil To ensure consumers do not feel misled by deceitful messages and avoid trespassing on the prevailing cultural and moral social standards, in addition to the regulations mentioned above, we conduct surveys with consumers before launching each advertising campaign, so that our commercial messages are properly interpreted. Advertising agencies working with Natura are required to conduct business with ethics and corporate responsibility. Their practices are aligned to the Conselho Executivo das Normas-Padrão da Atividade Publicitária, Associação Brasileira de Agências de Publicidade and Conselho Nacional de Auto-Regulamentação Publicitária (the industry’s national self-regulatory committees and councils).They are required to work on pro-bono ad campaigns for nonprofit organizations and NGOs and seek high standards of lan- guage and content (GRI PR9). Target for 2006: Release and implement guidelines for Natura’s communication management rooted in aesthetics, ethics and transparency. Natura has no record of penalties or fines related to consumer health and security; it is in full compliance with the required regulations (GRI PR4). We also conform to the legislation regarding breach of advertising and marketing regulations. In 2004 Natura received a questionable fine and lodged an administrative appeal; there was no ruling on this appeal as far as year-end 2005 (GRI PR10). Numbers and types of breaches of advertising and marketing regulations Penalties/Fines 2003 0 2004 1 2005 0 In other operations We are developing a policy to ensure that all international operations follow our ethical principles regarding the consumer. Until this policy is made public, international operations follow the same guidelines as Natura in Brazil, tailored to the reality of each country (GRI PR9). Transparency The company uses product labels and sales brochures as information vehicles where consumers find detailed information on the products and their benefits as well as observations on issues related to concepts that led to their development (GRI PR2). Natura follows all legal requirements on product labeling. There is no record of penalties or fines in this respect (GRI PR7), nor has it received any fines or complaints on any breaches of consumers’ privacy (GRI PR11). Number of complaints received through regulatory or official organizations to inspect or normalize health and security guarantee for the use of products and services (GRI PR5). Complaints 2003 4 2004 1 2005 2 Note: There are no rulings on the complaints filed in 2003 or 2004; there is no record of any irregularity in the company’s products. Communication channels Natura pursues excellence in its services to assure client satisfaction.We are available to consumers through Natura Customer Service (Snac), which serves as liaison to improve client satisfaction.The service counts on a trained team to provide information, register complaints, suggestions and critiques, following the processes until resolution (GRI PR8). It also has a formal confidentiality policy with the outsourced contractors that provide this service (GRI PR3). In Brazil The consumer relations management system tracks the indicators extracted from the following evaluation forms: Annual satisfaction survey(1)(2) (Consumers Satisfaction Index %) 8 9 5 9 5 9 6 9 Mar 2001 Mar 2002 Oct 2003 Jan 2005 1. From now on, the survey results will be published considering the period when it was carried out. 2. Reported data refer to surveys conducted after January 2001. Besides the Annual Satisfaction Survey, we launched in 2005 the Instant Consumer Satisfaction Survey, conducted daily. Clients are invited, through random sampling, to give their opinion on the support they just received.This way, we have a continuous data stream to guide improvements to our products and services (GRI PR8). Consumers Evaluation about Natura Customer Service Great/Very good (Snac) Snac – Natura Customer Service 2005 80% Total of answered calls through Snac (thousands) Percent of complaints/ total calls to Snac Percent of complaints not answered (1) 2003 2004 2005 1,804 1,905 1,791 31% 32% 48% 7.0% 2.3% 5% 1. Ratio of complaint calls placed on hold and disconnected/total complaint calls. Total of active processes involving the Consumer Protection Code Administrative Processes (Procon) Legal Processes (civil and criminal) Active complaints involving consumer health and safety 2003 68 45 2004 23 72 2005 17 57 4 0 0 In other operations The consumer relation management system tracks information consolidated from Snac calls. Natura does not carry out satisfaction surveys with this public. Argentina Chile Peru Mexico(2) To ensure quality of all purchased consumables, products and outsourced services and to strengthen the relationship with its partners, Natura rewards suppliers who demonstrate excellence standards. In this respect, a follow-up and certification process, based on quality standards, logistics, innovation, cost, contractual conditions, support and reliability was created.The evaluation of potential suppliers is carried out by Natura through a punctuation system that identifies and recognizes partners who show better practices. With this certification program, Natura seeks to establish a clear, fair and equitable relationship between the parties. In 2005 this process evaluated 53 suppliers of consumables and finished products, which represent 80% of the volume of purchases by Natura Brazil (GRI EN33). Natura’s suppliers satisfaction is measured periodically through a survey carried out by an external institute. The results of this survey are used as a base to establish action plans to improve these relations. Snac – Natura Customer Service(1) 2005 Total of answered calls through Snac (thousands) 27 14 Percent of complaints/ total calls to Snac Percent of complaints not answered(3) 35% 0% 47% 0% Total of active processes involving the Consumer Protection Code(1) 2005 Administrative Processes (Procon) Legal Processes (civil and criminal) Active complaints involving 0 0 consumer health and safety 0 36 29% 0% 0.7 16% 0% Annual satisfaction survey(1)(2) (Suppliers satisfaction index %) 3 9 3 8 8 7 1. From now on, the survey results will be published considering the period when it was carried out. 2. Reported data refer to surveys conducted after January 2001. Argentina Chile Peru Mexico(2) May 2002 Jan 2004 Jun 2005 5 1 0 0 0 0 0 0 0 1. The values refer only to 2005. 2. The values refer to September and December. 3. Ratio of complaint calls placed on hold and disconnected/total complaint calls. Suppliers and Supplier Communities Suppliers are a critical part of Natura’s business network and are jointly responsible for the development of the company. Owing to this, Natura looks for suppliers that share its beliefs and values and are in line with its social responsibility and sustainability policies, committing themselves, among other things, to respect the Child and Adolescent Statute and environmental laws. Specific management systems, codes and policies General suppliers In 2005, Natura developed a policy with guidelines and responsibilities related to the purchase of materials processed in the company. In addition to defining criteria to be considered in the selection of this policy shows departments involved, minimum suppliers, requirements from potential suppliers and Natura’s responsibilities regarding its current suppliers. It also recommends to, whenever possible, select socioenvironmentally responsible suppliers from co- operative enterprises or income distribution projects in order to increase the social benefits of the business. The target for 2006 is to publish this policy to all current suppliers and make it available to potential ones. A specific document for suppliers and third parties, which details the company’s recommendations on the quality, health and safety at work, environmental and social responsibility, was also developed. Suppliers will be encouraged to comply with indispensable requirements that will be subject to auditing. See analysis of goals established in 2004 at the end of this chapter. its potential local development, its current situation and Asset supplying communities Natura applies selection criteria for supply areas that take into regarding account sustainable production, logistics, supply and institutional, regulatory and legal matters. This process also considers whether characteristics of area and local population are aligned with the marketing strategy for the product line that is being developed. In order to follow up the conditions of compliance with purchase contracts established with the supplying communities and the providers of raw materials for Natura, there is a relationship program that involves visits to these communities, whose quality is supervised by internal committees. In some cases, the program also promotes the development of local projects. In supply areas of botanical raw materials, one of the monitoring modes is a certification process that adopts socioenvironmental principles and criteria (GRI SO1). For the evaluation of quality of relationship and transparency of business conditions, anthropological reports are made according to requirements of the Genetic Patrimony Management Council (CGEN). Socioenvironmental projects are being elaborated with communities at Iratapuru, in Amapá, and the surroundings of Belém, in Pará (GRI SO1). See analysis of goals established in 2004 at the end of this chapter. Ethics Regarding the ethical principles that guide the relationship of Natura and its suppliers, in addition to the Values and Beliefs of the company, applied to its general public, Natura respects the Charter of Principles of the Ethos Institute on Companies and Social Responsibility, which presents guidelines for operating with integrity, fighting against com- mercial influence, offering or receiving bribes or tips from any public or private person or entity. In addition, the company adopts the prin- ciples of Global Compact, to avoid using services or products from companies that violate human rights, and benefit from advantages of states that violate them. The compliance of these guidelines is evaluated during the diagnosis phase of the Corporate Responsibility Management System. In previous years, the information provided about the percent of paid contracts in accordance with its terms, excluding those paid through 84 Annual Report Natura 2005 2005 Annual Report Natura 85 adjusted penalties, was not properly refined.The referred information is not liable for calculation, since there are no internal control mechanisms (GRI EC4). indexes that rate suppliers Transparency In Brazil All matters that influence Natura’s and its suppliers’ businesses are treated directly with them. Suppliers’ selection or invalidation criteria are noted in evaluation questionnaires and in quality, price and relationship in our certificate program for this public. Follow-up letters to main suppliers of consumables are prepared every three months, where all relevant information to the parties is reported, such as purchase evolution, consumables stock positions, as well as quality and corporate responsibility. Semiannually, departments that maintain relations with main suppliers carry out a formal self-evaluation, regarding accessibility, proactivity, ethics, transparency, quality of information and processes, innovation levels, conduct and negotiation aspects.These evaluations are discussed in meetings with the presence of the involved parties. Communication Channels In Brazil In 2005, Natura structured two additional communication channels – a toll-free number and an e-mail addres – that allow suppliers to convey doubts that they would rather not discuss directly with the company’s dealers.These will be made public in 2006. Neighboring Communities Natura has its headquartes located in the Municipal Districts of Cajamar and Itapecerica da Serra, in São Paulo, considers itself part of the local communities and concerned with their needs and future. Because of that, the company supports the implementation of a local Agenda 21, that is helping set up participative processes in these communities to define their future. Natura has also formed working groups composed of personnel to provide support for activities in the areas of education, work and income generation, environment and relations with local organizations and groups. Codes, policies and specific management systems In order to build responsible management, the company adopted as one of its strategic guidelines “to articulate and act as articulation and facilitation agent for processes of local sustainable development, cap- turing all opportunities to contribute to the improvement of these communities quality of life, so as to foster good practices.” Ethics and transparency in 2000, Natura began Even before its establishment in Cajamar, approaching the communities of this municipality, contributing towards strengthening local society with the development of leader- ships and dissemination of the culture of rights, especially among the younger population. The relationship established with the local gov- ernment and institutions led to the creation of the City Council of Child and Youth Rights and the City Fund of Child and Youth, which receives funds for children programs.The trust established among the parties also involve the participation of Natura’s employees, the mayor, secretaries, NGOs and social citizens in the establishment of a political agenda and in proposing sustainable planning initiatives f or the community. To learn more about the programs carried out in these communi- ties, please refer to description of projects Agenda 21 – Cajamar, Working Groups Natura-Cajamar and Natura-Itapecerica da Serra in chapter Highlights of Investments in Corporate Responsibility on page 109 (GRI SO1). See analysis of goals established for this public in 2004 at the end of this chapter. Communication channels Communication between the company and the neighboring communities occurs mainly through the connections established with local authorities, citizens and community leaders. Natura’s direct relationship channel with its neighboring communities is the toll-free number Fale com a Natura. Its objective is to circulate information on the company’s projects and induce locals to participate and address their concerns over these projects. The company counts on a channel for recording and answering commu- nications about by the environment, which also may be accessed by neighboring communities (GRI SO1). interested requests parties and Government As it believes that the company must be an agent of social change, Natura engages in a range of initiatives in the public sector through dialogue with all government spheres: Federal, State and Local, which refer not only to the nature of its business, but to society’s needs. Codes, policies and specific management systems The Governmental Relations department function is, mainly, to establish a partnership and create relationship opportunities for promotion and dissemination to society of the concepts of corporate responsi- bility and sustainable development. Participants in this department also accompany or represent senior executives of Natura at these events. In 2005, a Governmental Relation Management System was created, which defined the process of the department, as well as functions, key activities and sub-processes related to it. Although the code of relations with the civil service, as well as policies about campaign con- tributions, lobbying, corruption and bribing, still have not been formal ized (GRI SO2 and SO3) – the forecast is for them to become formal by the end of 2006. Natura bases its relation with the government on ethics and transparency, which result from its values and beliefs. See analysis of goals established in 2004 at the end of this chapter. Ethics and transparency Natura convenes regular debates on key issues related to the national political agenda. Sustainable use of biodiversity, industrial policy, foreign trade, regional development, regulatory matters, technological innovation are some of the issues discussed by the Congress, the government and its agencies to which Natura seeks to contribute. Communication channels Natura relates with the government in different ways and at diverse levels. Its particular contribution focus on issues of sustainable use of Brazilian biodiversity and sharing of income, such as the access to our heritage, fair trade and income sharing of.There are direct con- tacts with government officers and indirect ones, through business associations, such as the Direct Sales Association (ABEVD) and the Brazilian Association of Personal Hygiene, Perfumery and Cosmetics Industry (Abihpec). With these actions, the company tries to pro- mote change and contribute to industry and sector competitiveness integrating the production by eliminating productive bottleneck, chain and providing incentivies to promote its products and brand. Society Natura sponsors several organizations, on the belief that it can be an influencing factor for social change. In this sense, for ten years it has been involved in programs of public elementary education. In addition, it supports and sponsors neighboring communities, supplying communities and social organizations. Codes, policies and specific management systems Natura includes in this public civil society organizations and society as a whole. Due to the demands from a specific set of society about our manufacturing processes, Natura does everything in order to make public its position regarding animal testing, as follows. Animal testing of cosmetics products • Since 2003, Natura has totally banished the use of animals in laboratory testing for finished products. • For over six years, it has been searching for alternatives to reduce this testing procedure, ensuring the safety of its products. It still performs limited animal testing for reactions to some raw materials when there are no alternative methods that may enable the elimination of health risks for users. • The goal for 2004 – a 25% decrease in the number of raw material tests for cosmetics in animals – has been surpassed, reaching 78.5%. Owing to legal requirements, such as Anvisa´s (the National Health Agency), Natura performs safety and efficacy test- ing of phytotherapic categories in animals. • Natura also invests in alternative testing as part of the development of new assets and it keeps an in vitro laboratory for the evaluation of raw materials and products in artificially grown human or animal cells. It also invests about R$ 1.5 million annually in test development and in training of professionals who are dedicated to this issue. These ongoing efforts have enabled the gradual decrease of animal testing, aiming at the complete elimination of this practice by December 2006. • Natura follows the strictest technical and scientific international procedures based on a principle internationally known as 3R: Reduction, Refinement and Replacement. This principle is the guideline for the largest cosmetics industries in the world aiming at analyzing and developing alternative methods for animal essays. • The company has created the Natura Products Safety Committee that, among other functions, has the purpose of establishing the lowest number of essays requiring tests in animals specially bred for that purpose. In this scenario, performing animal testing is becoming less necessary and it represents an exception in the current reality of the company, which will do its utmost to eliminate it completely. In the strategic alternatives approved for the next years, we are committed to totally eliminating the tests by December 2006. Therefore, whenever Natura has an innovative launch the company has a commitment to release it in a transparent way to everyone. Natura is totally against any kind of unfaithful communication that accuses the company of indiscriminately using animals in laboratory testing.This kind of communication aims to mislead public opinion and does not add value to knowlegeable discussions about the subject. Tests in animals for phytotherapic products Natura, due to competent authorities’ requirements (Anvisa), needs to carry out tests in order to prove the security and efficiency of phytotherapic products in animals (GRI PR1). Number of tests in animals Tests in animals for cosmetics Tests in animals for phytotherapic products 2003 308 249 2004 66 200 2005 96 0 See analysis of goals established in 2004 at the end of this chapter. Ethics and Transparency Natura’s relations with several entities of society, from NGOs to busi- ness organizations, are transparent.The list of organizations which we are related with are annually published in our annual report (see “Commitment with Leadership and Social Influence” in the chapter Highlights of Investments in Corporate Responsibility on page 115). The company’s policies regarding matters of public interest, as well as its socioenvironmental strategic opinions, are considered public domain documents and made available upon request or when we deem appropriate. Communication channels Our relations with community organizations take place in different ways. From enquiries and specific forums promoted by the company for common interest issues, evaluation processes of our management with the participation of organizations and social leaders as observers, to attendance of representatives of the company in forums, committees, councils and conferences. Governance Natura has been improving its corporate governance since the mid- 1990s when it placed new executives in strategic positions, to foster professional management. This process developed further with the estabilishment of Management Committee in 1998 – followed by the Auditing and the Risk and Human Resource Management commit- tees. The highlight of this process was the company’s IPO on May 26th, 2004. Ethics No operation regarding ownership structure has been carried out in a way that it would constitute economic concentration (GRI SO6). (For further information on Governance, refer to specific chapter on page 66) 86 Annual Report Natura 2005 2005 Annual Report Natura 87 Goals Established in Natura’s 2004 Annual Report Initiative Committed Target Results GRI EN 33 a) Disseminate and practice quality control systems ☺ Target reached. During 2005, all of our suppliers considered strategic, key established with suppliers. b) Evaluate 100% of the documentation pertaining to all “environmentally critical” and new suppliers. and those deemed of critical importance were informed about the QLICAR program - 53 of them are under monthly monitoring for criteria of quality, socioenvironmental responsibility, costs and relationship. (cid:2) Target partially reached. Regarding productive items and finished products considered environmentally critical, we closed 2005 with 100% of the documentation evaluated for new suppliers and 95% for old suppliers. (cid:2) Target partially reached. 50% of the Providers of transportation services considered environmentally critical were evaluated in 2005. The share of nonevaluated suppliers refers to either new ones (contracts signed in 4Q05) or to those who have not sent completed documentation required for evaluation. c) Of the evaluated suppliers in 2004, increase those ☺ Target reached. Of total active suppliers in 2005, 41% were rated with an A rating to 30% of the total. in the A category. GRI HR10 a) Develop a relationship code. b) Structure an Ombuds Service at Natura. (cid:2) Target partially reached.The Carta de Princípios de Relacionamento was prepared but did not receive final approval. Its launch will occur in 2006. (cid:3) Target missed. Study comprising evaluation, analyses, model recommendations and of models and premises was completed. Implementation will occur in 2006. GRI SO1 a) Install a multipartite forum to define actions regarding the Cajamar development plan, following sustainability principles. ☺ Target reached. District and Town Hall forums were installed between October and December, after extensive discussion and preparation processes. b) Constitute a tripartite working group for implementation of Agenda 21 in Potuverá, Itapecerica da Serra. c) Perform assessment in Potuverá. d) Report socioenvironmental impact of Natura’s activities in more relevant supplier communities. (cid:3) (cid:2) (cid:2) Target missed.The group of leaders did not form a tripartite group to foster Agenda 21 in Potuverá. Target partially reached. Diagnostic assessment was addressed in the initial stages of the leadership course involving five associations of residents. To define their working targets, the associations had to start from a diagnostic assessment of the area. Target partially reached. Participative diagnostic assessment and local development planning in the communities surrounding Belém and in the community of Iratapuru were completed.These studies are yet to be performed in the communities of Médio Juruá. GRI SO2 Establish policies on and bribery. the issues of corruption (cid:3) Target missed.The policy was not prepared during 2005. We chose to wait for the completion of the Carta de Princípios de Relacionamento, to later define a policy fully compatible with the relationship principles. GRI SO3 Establish policy on political contributions. (cid:3) Target missed.The policy was not prepared during 2005. We chose to wait for the completion of the Carta de Princípios de Relacionamento, to later define a policy fully compatible with the relationship principles. GRI PR1 Keep below 170 the number of animals used in raw- material testing of cosmetic products (which represents a 32% reduction from the 2004 target). It would also mean a 158% improvement over 2004 levels, because some of the testing scheduled for 2004 was postponed to 2005. ☺ Target reached. A total of 96 animals were used in lab testing for safety of new raw materials during 2005.The value represents 56.5% of the stipulat- ed target, reflecting Natura’s policy to reduce testing in animals and use of in vitro testing of components safety. Again, it is important to point out that, just as in 2004, animals were not used for safety testing of finished products. 88 Annual Report Natura 2005 Goals compatible with sustainable development Natura acknowledges that, upon reaching its economic and financial goals, there are social and environmental impacts produced that must be regarded as part of the business.Therefore, the company began to consider impact details in its decision process. Among the main results in 2005, we highlight improvements in the assessment of the environmental impact of packaging and the inclusion of goals to reduce its consequences in the establishment of performance bonuses, as well as the increase in refill sales. We also introduced more specific methods to calculate carbon emissions and sinking. Intense discussions on the company’s role in the development of the communities surrounding its corporate facilities and its supplying communities on the short, medium and long term, as well as ques- tioning of proposed models, have led us to establish new goals. We began a critical evaluation of indicators for the social impact of the business and are in the middle of a redefinition process around the following focal points: wealth distribution, job creation and income generation, social inclusion and education. Natura’s planning cycle opened space to the social and environmental analysis of each area and included the theme in its 2006 goals definition in a more consistent way. Below are our financial, social and environmental results. We begin each block with the policies and management systems, followed by an explanation of performance indicators. Direct Impacts Performance indicators: Net sales (R$ thousands) (GRI EC1) 2003 2004 2005 Net sales 1,328,910 1,769,664 2,282,164 Natura does not disclose regional market analyses (GRI EC2). Cost of goods, materials and services purchased (R$ thousands) (GRI EC3) Cost of goods, materials and services purchased 942,240 1,365,906 1,731,670 2003 2004 2005 Total payroll and benefits (including wages, pensions, other benefits, and severance pay) broken down by country (R$ thousands) (GRI EC5) Brazil Argentina Chile Mexico Peru France Ybios 2003(1) 167,088 4,514 2,620 2004 233,194 5,066 4,343 3,561 4,688 N.A. N.A. 2005 277,078 8,500 5,727 5,413 6,589 3,121 (12) Total Natura 177,783 247,291 306,416 1. Payroll amounts for 2003 broken down for the various Natura operations were corrected in this report due to previously published figures being preliminary. Note that the total payroll amount for 2003 is unchanged. Economic Codes, policies and general management systems The individual and consolidated financial statements that serve as basis for the economic performance indicators were prepared in accordance with consolidation criteria from Brazil’s GAAP and regulatory instructions and decisions issued by the Brazilian Securities Commission (CVM). These financial statements include those of the company and its direct and indirect subsidiaries. We emphasize that these financial statements are audited quarterly and annually by an independent auditing firm and disclosed to the market through the CVM site, and Natura’s Investor Relations department, as well as published on a major newspaper, in case of annual financial statements. The financial statements of foreign subsidiaries were converted into Brazilian currency at exchange rates in effect on the balance sheet dates. Furthermore, Natura follows the Code of Ethics and Conduct Standards established by the Association of Capital Markets Investment Analysts and Professionals, Apimec, in order to establish conduct standards to these professionals. The various management processes and systems that are specific to each economic indicator are under the responsibility of the Vice-President of Finance. Payments to providers of capital, broken down by interest on debt and borrowings, and dividends on all classes of shares, with disclosure of any arrears on payment of dividends to preferred shares (R$ thousands) (GRI EC6) 2005 45,453 319,442 362,895 2003 Interest on debt and borrowings 64,439 Dividends and interest on capital(1) 60,331 124,770 Total 2004 33,834 216,352 250,186 1. Values for 2002 and 2003 refer to dividends and interest on capital of Natura Participações. Increase/decrease in retained earnings at the end of the period (R$ thousands) (GRI EC7) Net income 2003 63,884 2004 300,294 2005 396,881 Total sum of taxes of all types paid, broken down by country (R$ thousands) (GRI EC8) Brazil Argentina Chile Mexico Peru France Ybios Total Natura 2003 490,316 6,631 2,173 N.A. 2,964 N.A. N.A. 502,084 2004 531,346 9,200 3,156 N.A. 4,103 N.A. N.A. 547,805 2005 706,844 11,086 4,419 223 4,583 N.A. 26 727,181 2005 Annual Report Natura 89 In 2005, Natura was granted by the district council of Itapecerica da Serra, São Paulo, Brazil, a tax break in the amount of R$ 716,780. This amount will be allocated to investments (GRI EC9). Regarding the total amount spent on infrastructure development for operations other than the main one (GRI EC12), in 2005, R$ 9,415 million were invested in Brazil, as follows: In Cajamar: • Expansion of the Effluent Treatment Plant • Upgrade of the energy management system • Adaptation of the waste disposal area • Installation of monitoring equipment for the vacuum system • Complementation of parking lot solar-energy lighting • Acquisitions of furniture and facility improvements In Itapecerica da Serra: • Automation of the diesel system in generator • Reflective painting and thermal insulation of Administrative Center roof Investment Matrix The amount of donations to the communities, society and to other groups and the total amount spent on environmental concerns are included in the Investment Matrix in Corporate Responsibility (GRI EC10 and EC35) (see chapter Methodology and Key Indicators on page 48). Environmental Codes, policies and general management systems Natura’s socioenvironmental policy assumes that an environmentally responsible company should identify its impacts on the environment, minimize the negative ones and maximize those that are positive. Therefore, it should keep improving environmental conditions by minimizing potentially aggressive activities and disseminating knowledge regarding this management to other companies. This policy contem- plates responsibility towards future generations; environmental education; management of the environmental impact of its products and services and their life cycles; and minimization of material consumption and output. Regarding socioenvironmental issues, and as part of its social and environmental strategic options, Natura intends to: • Continue mitigating the environmental impacts from our processes, products and services, especially those related to the major issues in our future: the sustainable use of water, release of greenhouse gases, general reduction of waste products, and the efficient use of energy – as our main focuses from the operational, educational, and public policy influence standpoint. This makes us face the challenge of redesigning our business chain and acquiring specific technologies; • Continue investing in the sustainable use of biodiversity as a way to promote the conservation of native forests, creating new agroforestry models; • Considering that the current knowledge on the use of genetically- modified materials is insufficient to determine their impact on the environment and on health, we decided not to use genetically- modified materials in our products as a precaution. Natura also abides by the directives in Agenda 21, which signals a change in the development pattern of the 21st century towards sustainability. It also follows the guidelines of Global Compact, among which are the call for preventive action and the development of initiatives to promote increased environmental responsibility. In 2005, the company integrated the quality control and environmental management in Natura’s Integrated Regulatory System (SINN). This system helps team members engage in their daily activities with the company’s commitment to the environment in mind, alongside with the commitment to quality of products and services. The development of SINN includes elements from the cutting edge of corporate management – based on the standards NBR ISO 9001:2000 and NBR ISO 14001:2004 – the Criteria for Excellence of the National Quality Foundation (FNQ), the best market practices oriented towards Natura’s corporate culture. SINN is also oriented towards the Good Manufacturing Practices (GMP), systematic and necessary methods to ensure that our products comply with excellence requirements specified by the market. In 2005, Natura was certified for NBR ISO 9001. This certification is a result of Natura’s continual commitment with the quality of its processes, products and services, seeking to improve these aspects everyday. In relation to the environmental performance of its suppliers, Natura possesses clear standards and procedures for supplier selection and evaluation in accordance with ISO 14001. Suppliers are evaluated at least every two years through an analysis of their legal documentation and a self-applied environmental evaluation (see details in Suppliers and Supplier Communities in the chapter Quality of Relations on page 85). Natura has not been issued any penalties in 2005 for any legal infringement regarding the environment (GRI EN16).Through SINN, all legal requirements concerning the environment are monitored, allowing for constant interaction between operations and preventing any irregularity. Moreover, the company monitors the progress of leg- islative projects through the use of internal discussion forums. Internal environmental issues are followed up by means of reports showing goals and action plans established by the areas, the Sustainability Committee and the Executive Committee. Biodiversity Codes, policies and general management systems By signing the Biological Diversity Convention during ECO’92, Brazil and 155 other countries committed to implementing a series of policies regarding conservation and sustainable use of Brazilian biodiversity. The first challenge is getting to understand biodiversity itself, the second is to preserve this legacy and then there is the complex task of designing a development model that ensures sustainable use of the components of biological diversity as a whole. On May 24th, 1994, the BDC was adopted by the Brazilian Congress for use as a basis for the Brazilian Biodiversity Policy. Natura adopted a business strategy of investing in a new product platform based on the sustainable use of natural resources and respect for regional and local cultural traditions. With this new model, the company established partnerships with rural suppliers (traditional communities and family farm groups) in some regions of Brazil and crafted a network of excellence that promotes research and development, discovers new natural resources, and seeks to refine products and processes, adding value to Brazilian biodiversity. Natura encourages the organization and nurturing of rural suppliers and seeks to participate in the construction of supply chains to ensure fair pricing of raw materials, focusing on the promotion of the social and economic progress of these suppliers and the adoption of production processes with lower environmental impact. This activity follows the recommendations of the World Labor Organization, the Brazilian Statute of Children and Adolescents, environmental certification programs and current legislation. In its socioenvironmental strategic options, Natura proposes to continue investing steadily in the sustainable use of biodiversity, aiding its conservation. There are many specific management systems regarding Natura’s biodiversity project: selection of assets for research, regulation of this research, development of products and testing; development of suppliers of all sizes and identifying new supplying communities; environmental certification; and the processes concerning social and environmental impacts produced by the production activity on supplying communities, and others. Performance indicators 1. Natura’s real estate holdings: Natura owns no land properties other than those where its business units are located. Two of these are located in environmentally important regions, Itapecerica da Serra, a watershed protection area, and Cajamar, an environmental protection area, both within the Atlantic Forest biome. These operations comply with the applicable legal requirements (GRI EN6 and EN29). The company obtains its botanical raw materials from leased or rented areas managed by community or rural producers. Concerned that the resources of the land should be exploited responsibly, Natura strives to ensure a sustainable exploitation model and study the environmental importance of these areas. In 2005 Natura has acquired no new additional areas for its production activities (GRI EN23). In 2005 the company increased its built area slightly in the Cajamar site, which now totals 83,210 m2 as a result of the expansion of the Effluent Treatment Plant and of the product separation lines.The site’s impermeable surface now comprises 12.9% of the total land. In the Itapecerica da Serra site impermeable area remained unchanged at 15% of the land (14,366m2) (GRI EN24). 2. Impacts of Natura’s activities on earth’s biodiversity and ecosystems: To describe the main impacts on biodiversity linked to activities or products and services in the various environments (GRI EN7), we will start by explaining how we select our direct operation areas. In selecting the areas that can be sources of production inputs (botanical raw materials such as extracts, oils or compounds) developed with Brazilian species, or foreign species cultivated in Brazil, Natura’s main focus is traceability and sustainability, in order to ensure quality and a reduced impact on the environment. The company adopts two processes to ensure the sustainable use of natural resources: 1) Identification of the input sources; 2) Asset certification program for two kinds of management: a) Management of non wood forest products – The assumption is that this ensures a continuous supply of raw materials, minimizes environ- mental impact, and safeguards the capacity for sustainable production. Forestry certification is designed to assess the asset extraction process and evaluate adequacy of the management model, under principles and criteria established by the Forest Stewardship Council, FSC, which consider social, economic and environmental aspects. b) Agricultural management – This is done by emphasizing good production practices and includes agricultural and ecological concepts. The agricultural certification is designed to evaluate the agricultural production of assets, under the principles and criteria of the Sustainable Agriculture Network, SAN, and of the Instituto Biodinâmico, IBD. Natura’s assets certification process comprises three stages: Stage I – Internal process to identify and select a potential supply area. In this stage the company analyzes the types of producers, the community’s organization and identify the type of management (agricultural or forest based). Stage II – Certification design preparation, including discussion of processes are discussed with vegetable product suppliers; selection of certifying authority; with preliminary analysis of the supply area by the certifying authority, if required. Stage III – Inspection of the supply areas for certification; implementation of an action plan to conform with regulations from certifting authority; obtaining the certifying authority’s official opinion to obtain authorization. The company analyzes the environmental impacts of forest management, in their various aspects, such as: (GRI EN7) Biotic environment(1) – A positive impact since the harvest does not exceed the area’s capacity limit and may even favor the renewal of the species, and thus the forest’s dynamics of succession (2); contribution for conservation of genetic diversity maintained by traditional communities (on farm conservation)(3). Physical environment(4) – A positive impact on the soil, since mainte- nance of the forest man-made environment preserves this resource. Removal of forest biomass (frequent harvests) has a negative impact on nutrient cycling(5). Man-made environment(6) – Positive impact is positive, especially in preventing the exodus of rural workers to the cities, generating jobs and contributing to local development.The cultural aspect is benefited by the recognition of the value of the body of knowledge acquired through inherited traditions. 1. Biotic environment: flora (original vegetation, seed deposit on the soil, natural regeneration) fauna (vertebrates and insects) and microorganisms. 2. Forestry succession: it is a process of progressive change in the proportion and composition of individuals from a vegetal community until this community reaches a state of dynamic equilibrium with the environment 3. On farm preservation: it is a strategy that complements ex situ preservation and is characterized as one of the forms of genetic preservation of agrobiodiversity; its particularity is the fact that it involves genetic resources that are cultivated by the traditional populations, who have a great diversity of phytogenetic resources and a broad knowledge of them. 4. Physical environment: air, water resource and edaphic resource. 5. Cycling of nutrients: movement of elements and inorganic compounds from the environment to the organisms and from these organisms back to the environment, by way of biogeochemical cycles. 6. Man-made environment: settlement of rural workers in the countryside, jobs, regional development, landscaping. 90 Annual Report Natura 2005 2005 Annual Report Natura 91 Raw materials/Ekos State Phase I Phase II Phase III Notes Beginning End Beginning End Beginning End Andiroba Carapa guianensis Brazil nut Bertholletia excelsa Breu-branco Protium pallidum Buriti Mauritia flexuosa Chamomile Chamomilla recutita Copaíba Copaifera spp. Cumaru Dipteryx odorata Cupuaçu Theobroma grandiflorum Flatsedge Cyperus articulatus Guaraná Paullinia cupana Lemon grass Cymbopogon citratus Macela Achyrocline satureoides Maté tea herb Ilex paraguariensis Murumuru Astrocaryum murumuru Passion fruit Passiflora edulis Pitanga Eugenia uniflora Rosewood Aniba ferrea Raw materials/Other lines Açaí Euterpe oleracea Cacao Theobroma cacao Jambu Spilanthes oleracea Amazonas Amapá Amapá Under evaluation Paraná Amapá Under evaluation Rondônia Pará Bahia São Paulo Paraná Rio Grande do Sul Amazonas Minas Gerais São Paulo and Paraná Amazonas State Rondônia Bahia São Paulo/Paraná/ Rio de Janeiro Phase I Beginning End Phase II Beginning End Phase III Beginning End Traditional management Traditional management Traditional management Traditional management Cultivation Traditional management Traditional management Agroforestry system Cultivation Organic cultivation Cultivation Traditional management Traditional management Traditional management Cultivation Cultivation and traditional management Traditional management Notes Agroforestry system Agroforestry system Organic cultivation Target for 2006: To reach 21 certifications, including six more assets in Phase III of the certification process. Natura uses assets (oils and extracts) from 35 native and exotic species in Brazil. Therefore, with 21 certifications we will reach 60% of all certified species. See analysis of goals established in 2004 at the end of this chapter. In addition to the certification, conservation of biodiversity is encour- aged when it provides benefits and products that can generate economic resources. Regarding activities and operations impact over protected areas (GRI EN25), we started from the six categories of protected areas of the World Conservation Union. After analyzing these categories of protected areas, we conclude that two areas that have partnering agreements with Natura fit category VI: “Resources in protected areas managed to allow the sustainable use of natural ecosystem.”These areas are the Médio Juruá Extraction Reserve (located in the state of Amazonas) and the Iratapuru River Sustainable Development Reserve (located in the state of Amapá). Both areas were created by the federal and state governments for purposes of sustainable exploitation of resources found in them. They generate cash and jobs for the populations that have always lived in those areas. The company’s activities of buying resources in the aforementioned protected and sensitive areas are monitored by the responsible environmental bodies – the Brazilian Institute for the Environment and Renewable Natural Resources (Ibama), and the State Environment Department (Sema), and this monitoring is complemented by the certification program.The certification process requires the preparation of management plans and its main benefit is that the impact of traditional stewardship on the available resources is monitored. The result of these strategies helps mitigate negative impacts and potentialize positive ones. In 2005 Natura did not experience any environmental impacts in protected and sensitive areas (GRI EN25). The company uses the management plans as tools to monitor changes in natural habitats brought about by activities and operations, and to control what percentages of each area are protected or restored (GRI EN26).The preparation and execution of Management Plans for Sustainable Use of the species in the two protected areas (the Médio Juruá Extractivist Reserve and the Iratapuru River Sustainable Development Reserve) aid conservation of the local biodiversity. In 2005 Natura did not experience any changes to protected habitats as a consequence of its industrial activities. On the other hand, we did not account separately the parts of the habitat that we protected or restored as part of our activities. The company maintains programs and targets to restore and protect ecosystems and native species in degraded areas (GRI EN27), as some resources supplied to Natura are produced in such areas. Natura prioritizes the application of agroecological production mod- els for vegetable raw materials, and encourages others to do the same, resulting in a significant aid to conservation of natural resources such as soil and water, and helping in the recovery of the areas. The company also considers these models and other environmental parameters in the selection of new areas. The existence of an agroforestry production model, created as a solution for the recovery of degraded areas in the state of Rondônia’s Condensed Multispecies Economic Reforestation Project (RECA) was a significant factor for this area to be chosen for the supply of the fruit called cupuaçu. The company provides incentive for such projects to thrive by acquiring their raw materials and supporting their certification. In 2005, Natura provided support for the following initiatives that focused on the protection and restoration of ecosystems and native species in degraded areas: the Flora Brasiliensis Project, the Ilhabela Trails Project, the Rio de Janeiro Botanic Garden, the Fruit Grove Project, the Environmental Diagnosis Project in Cajamar, and the Second South America Regional Conference on Climate Changes. The company also proceeded with the planning of the Forest Recomposition Project in its Cajamar and Itapecerica da Serra sites, whose intent is to enrich the green areas of these sites and increase the diversity of native species and their ecologic relationships. The company’s goal is to start implementation of this project in 2006. In addition to that, Natura is a member of WWF’s Brazil Corporate Club, which develops several environmental protection projects. We also monitor the numbers of species in IUCN’s Red List that inhabit the areas affected by our company’s operations (GRI EN28). Two species used by Natura are in the IUCN’s Red List of Threatened Species: the maté tea herb (Ilex paraguariensis), classified as low risk, and the Brazil nut tree (Bertholletia excelsa), classified as vulnerable – the latter also included in the Official List of Threatened Plants published by the Brazilian Institute of the Environment and Renewable Natural Resources (Ibama). In 2005 Natura, in partner- ship with Embrapa Genetic Resources, designed a project to study and plan the conservation of these two species.The plan is scheduled to be carried out early in 2006. In addition to that, the areas that supply these products to Natura are certified by the Forest Stewardship Council, FSC, which ensures the application of good practices in forestry management. Performance indicators In Brazil Water consumption (GRI EN5) Water consumption (m3)(1) Water consumption by product unit sold (L/unit)(2) 2003 110,499 2004 116,367 2005 136,677 0.87 0.67 0.63 1 In 2005, due to a 35% growth in shampoo production (greatest water consumer) over 2004 and also to a 21% staff increase in the Cajamar site, there was a 17% increase in water consumption, in absolute terms. 2 In 2005 there was a 5.6% reduction in water consumption. The main reason was the economy of scale in resale items, which ended 2005 5.3% over the estimated figure. Target for 2006: To reach 138,540 m3 of water consumption in absolute terms. See analysis of goals established in 2004 at the end of this chapter. The water sources and habitats affected by the company’s water consumption are those surrounding the Cajamar and Itapecerica da Serra sites (GRI EN20). Since there is no public water supply system, all water consumed in Cajamar and Itapecerica da Serra comes from local artesian wells. The annual volume of water extraction respects criteria based on water table regeneration with a daily monitoring of consumption volumes as compared to authorized limits. In 2005, Natura exceeded its water reuse target, another good result of its actions for environmental sustainability. Surface and underground water extraction as a percentage of available renewable water (GRI EN21), in Cajamar Extraction 2003 58.2% 2004 70.1% 2005 83% Note: In 2005 the 18% increase in underground water extraction (Cajamar and Itapecerica) is mostly due to a growth of 35% in shampoo production (greatest water consumer) over 2004 and also to a 21% staff increase in the Cajamar site. In 2006, the extraction of drinking water will be extended geographically. Percentage of water not incorporated to the product (%) 2003 2004 2005 Target 2006 Water not incorporated 90.2 92.2 89.1 to the product 87.0 This percentage represents the relative water consumption by the company that was not used as an item in our products. It represents the water used for industrial and administrative purposes. It is also the percentage that can be reduced the most by reducing waste. Target for 2006: To reduce the percentage of water not incorporated to the product by 87.0%. Water Codes, policies and specific management systems Natura addresses the specific water issue both in its environmental policy and its social and environmental strategic options. In our operations, a series of initiatives are taken to reduce water consumption and to recycle water and treat its final effluent before it is returned to the environment. We have also developed several campaigns about this issue targeting our suppliers, Consultants and final consumers. Specific indicators are defined and monitored by company areas involved with the issue. Water recycling and total reuse (GRI EN22) Recycled and reused water (m3) Reusage percentage in relation to the total amount of water treated at the Effluent Treatment Plant 2003 20,233 2004 29,065 2005 48,760 29% 39.5% 55% Note: The treated water from its effluent treatment system is used in all Cajamar facilities for the cleaning of outer walls, fire fighting network, sanitation facilities and ornamental water mirrors. See analysis of goals established in 2004 at the end of this chapter Significant water discharges (GRI EN12) Total effluent treated volume (m3) 2003 2004 2005 79,580 82,786 93,402 92 Annual Report Natura 2005 2005 Annual Report Natura 93 Note: The 13% increase in water outflow in 2004 was due to increases in shampoo (35%) and cream (35 %) production lines, which generate large volumes of effluents, and also to the 21% staff increase in the Cajamar site, which contributed to increase the volume of waste water. Cajamar treated sewage Parameter mg/L DBO DQO OG Legal Standard 60 150 20 Average 2003 8.0 34.7 2.3 Itapecerica treated sewage Parameter mg/L DBO DQO OG Legal Standard 60 150 20 Average 2003 144.0 300.0 22.7 Average 2004 6.6 102.7 3.7 Average 2004 126.0 279.0 24.2 Average 2005 6.1 87.0 3.1 Average 2005 19.4 66.8 6.1 The water source (and related ecosystems or habitats) significantly affected by the water discharge and drainage (GRI EN32) is the Juqueri River in Cajamar. However, before discharging, our effluents are treated at the Effluent Treatment Plant.This plant fully meets all appli- cable legal requirements, such as Resolution No. 357, article 34, of the National Environment Council (Conama), and State Decree-Law No. 8468/76, articles 12 and 18. Because the Effluent Treatment Plant of Itapecerica da Serra is located in a watershed protection area, it adopts the system of infiltrating its effluents into the ground after treatment in a conventional treatment plant whose efficiency in removing organic contents reaches 97% on average. See analysis of goals established in 2004 at the end of this chapter. In other operations 2005 Water Chile Mexico(1) Argentina Peru consumption (m3) Water consumption by 12,037 product unit sold (L/unit) 3.8 549 0.53 N.D. N.D. N.D. N.D. 1. This operation began its activities in August 2005. Figures will be available only in 2006. Water consumption data have not been calculated for other sites as their volumes are not considered significant as compared to the production activity, which is carried out only in Brazil.The offices use water provided by public utilities. Since these operations have a commercial nature only, and are carried out in urban areas, no water sources are affected. Energy Codes, policies and specific management systems Performance indicators In Brazil Direct energy consumption, by primary source (joules) (GRI EN3) Joules Electricity from primary sources(1) Self-generated electricity 7.47 x 1013 2003 2004 2005 7.9 x 1013 896 x 1013 (diesel generator) Diesel fuel used in generators LPG consumption(2) 5.02 x 1011 2.88 x 1011 4.38 x 1011 17.3 x 1011 9.95 x 1011 15.1 X 1011 23.5 x 1012 24.65 x 1012 28.1 X 1012 Total energy consumption 2003 2004 2005 Energy matrix (joules)(3)(4) Energy consumption – energy matrix per product unit sold (kjoules/unity)(3)(5) 9.99 x 1013 10.47 x 1013 11.92 x 1013 785.2 603.7 551.8 1. Consolidated energy consumption from picking, vertical warehouse, and sewage treatment station was 98% higher than in 2004. The main drivers were start-up of the third production line, another vertical warehouse and upgrade of the sewage treatment station. 2 Caloric power: LPG = 11,100 kcal/kg; gasoline = 11,277 kcal/kg (1 kcal/kg = 4,186.8 joules/kg) 3. The energy matrix comprises total energy used by Natura through its various sources (electric, diesel, and LPG) 4. Energy consumption increased 13% over 2004, however, in a sustainable way, during this year the company posted a 20% production increase and also the 21% staff increase in the Cajamar site, in addition to the conclusion and start-up of several capacity projects (increase in installed capacity). 5. In 2005, relative energy consumption decreased 8.5%. The main driver was the reduction in the economy of scale in resale items, 5.3% over the estimated one. Energy Matrix - Natura Electricity (75.2%) LGP (23.6%) Self-generated energy (0.01%) Diesel (1.2%) Advanced station – Juiz de Fora/MG Direct energy consumption – breakdown by primary sources (joules) 2003 2004 2005 Direct energy consumption 1.77 x 1011 2.24 x 1011 2.72 x 1011 Natura addresses the specific energy issue both in its Environmental Policy and its Social and Environmental Strategic Options. In our operations, a series of initiatives are taken to reduce energy consumption, such as the installation of movement sensors and the best planning for the use of this resource. It should be kept in mind that the company’s plants are located in Brazil, where the energy matrix is mostly hydroelectric. However, in cases of energy shortages or consumption peaks diesel generators are used, monitored by the responsible employees due to their emissions of gases that can worsen the greenhouse effect. Specific indicators are defined and monitored by the related areas. Advanced station – Uberlândia/MG Direct energy consumption – breakdown by primary sources (joules) 2003 2004 2005 Direct energy consumption 1.28 x 1011 1.76 x 1011 2.30 x 1011 The indirect energy consumption, which refers to production by outside suppliers whose main customer is Natura, is not monitored by Natura (GRI EN4). The company has carried out several initiatives to increase energy efficiency (GRI EN17): • Complementation of the solar energy lighting in the Cajamar parking lot (for the full area of 650 slots); • Reflective painting and thermal insulation on the roof at Itapecerica da Serra Administrative Center (an area of 12,600 m2), to optimize air conditioning energy consumption; • Hiring of a multinational energy firm to assist with energy manage- ment actions and identify consumption reduction opportunities; • Approval of the review and complementation of the Green Building study, which calls for the sustainable consumption of natural resources, involving all company units; • Starting the implementation of the project for use of solar energy to heat water in cafeterias and dressing rooms; • Upgrade in the Energy Consumption Management System by installing energy meters, also in the generator groups. In other operations 2005 Total energy consumption(joules) 2.23 x 1011 5.11 x 1011 Energy consumption Argentina Chile Mexico(1) Peru N.D. N.D. per product unit sold (kj/unidade) 71.6 497.7 N.D. N.D. 1. This operation began its activities in August 2005. Figures will be available only in 2006. The amounts are not considered significant vis-à-vis production plants in Brazil. See analysis of goals established in 2004 at the end of this chapter. Greenhouse gas emissions Codes, policies and specific management systems Natura considers the emission of greenhouse gases one of its environmental impacts that most require monitoring. That is why, in 2005, the company discussed in its various forums, both internal and external, how it could effectively and systematically cooperate to reduce its emissions of carbon and greenhouse gases. Although it has some ongoing initiatives, the company intends to obtain a detailed diagnosis and a complete action plan in 2006. By doing this, Natura will consolidate its position on climate changes, identification of sources of greenhouse gas emissions, methods for cal- culating these emissions and potential mitigating actions, including pro- jects based on Clean Development Mechanisms of the Kyoto Protocol. Specific indicators are defined and monitored by company areas involved with the issue. Performance indicators Due to the new transportation strategy adopted in 2004, the company established and consolidated a process for calculating atmospheric emissions in 2005, and this allowed a better knowledge of CO2 emissions in the direct-sales distribution channel (GRI EN8). Natura has progressed both in the use of emission monitoring instru- ments and in its emission reduction projects. In 2006 we will monitor and disclose data on emissions throughout the distribution chain, and which should allow us to identify improvement opportunities anywhere in the chain in Brazil, by means of activities and projects such as the use of alternative fuels (natural gas and fuel alcohol), and logistical improve- ments (cargo consolidation). Due to the significant restructuring of international operations, in 2005 no progress in environmental aspects was feasible in these operations (GRI EN34). CO2 emissions(1)(2) (t) (GRI EN30) Gasoline Diesel Alcohol Emissions of other gases 2003 521.20 7,960.63 25.16 0 2004(3) N.D. N.D. N.D. N.D. 2005 632.93 11,280.74 209.25 25.81 1. Calculations for CO2 emissions were made with the following considerations: 1.76 kg of CO2 per liter of gasoline; 2.64 kg of CO2 per liter of diesel; and 0.85 kg of CO2 per liter of alcohol. 2. Natura understands that indirect gas emissions occur in product distribution carried out by an outsourced fleet. The data are obtained through information from transportation companies on fuel consumption for distribution of Natura products. 3. Due to the adoption of a new transportation strategy in 2004, some of the measures of fuel consumption and emissions need to be restructured, the reason why this information is not available. Natura does not perform such analyses for transportation companies in other countries. Natura does not monitor emissions from other indirect uses of energy (exploitation, production and sales) and their implications, such as business trips, management of product life cycles, and use of energy- intensive materials (GRI EN19). Due to its understanding that no significant volumes of NOx and SOx gases are emitted by its production chain, the company does not monitor these atmospheric releases (GRI EN10). Natura proceeded with the use of Isceon gas, which does not damage the ozone layer in its refrigeration systems. The company neither emits nor uses substances that are destructive to the ozone layer (GRI EN9). Target for 2006: To start mapping the sources of greenhouse gas emissions, based on the Green House Gas Protocol 2004: • Direct gas emissions – originate from own transportation and fuel usage for energy generation (hot boiler water and power generators). • Indirect gas emissions – originate from electric energy acquired. • Other indirect emissions – originate from product usage, outsourced processes, business trips and waste disposed off in landfill sites. Materials Codes, policies and specific management systems Regarding the materials used in production operations, in addition to adhering to its quality policy, Natura also selects those suppliers that are more appropriate from the social and environmental standpoints. The company has a system that records all production inputs and other materials coming into the plants.The company monitors these indicators and has made several improvements in the system. Performance indicators In Brazil Use of materials (other than water) (GRI EN1) Material consumption Kilograms Liters 2004 19,776,023 7,956,295 2003 16,107,163 6,159,544 2005 25,005,092 8,860,798 Note: in 2005 we reviewed all materials volumes and weights registered in the controlling system for materials consumption, aiming to improve the calculation of this indicator. This table already reflects the new reported numbers. 94 Annual Report Natura 2005 2005 Annual Report Natura 95 Part of the materials used (processed or unprocessed) is composed of waste from sources outside the organization (GRI EN2) Material – metric tons 2003 1,956 2004 2,547 2005 2,888 Note: This number was calculated considering the average rate of reusage of waste from suppliers. In other operations The volume of materials was considered irrelevant when compared to industrial volumes, which are carried out only in Brazil. Industrial Waste Codes, policies and specific management systems Natura has a well-structured policy for industrial waste reduction, and the areas involved with this issue monitor related indicators. Whenever feasible, waste is integrated into production processes of other companies.The purchase of waste products from other chains for internal use refers mostly to recycled paper and packaging items. Specific indicators are defined and monitored by company areas involved with the issue. Performance indicators In Brazil Total waste volumes by type and destination (t) (GRI EN11) Types of waste Waste Class I Waste Class II – A Waste Class II – B 2003 753.13 2,501.98 377.58 2004 909.09 3,225.53 832.98 2005 1,151.27 3,969.82 824.09 Note: According to the NBR 10004/2004: Waste Class I: dangerous waste (obsolete cos- metic products, laboratory and clinical wastes, and alcohol); Waste Class II - A : noninert chemicals (sludge from the Effluent Treatment Plant, paper, cardboard, floor sweeping wastes, organic wastes and household waste); Waste Class II - B: inert waste (glass, metal, plastic, and masonry debris). Destination Incinerated(1) Taken to a landfill area Recycled(2) 1. Incineration decrease was due to actions, which foccused on primarily on recycling solid waste. 2. Improvements were implemented in the segregation process of materials and the change in operational waste destination (equipment for tissue protection) contributed to a 10.5% increase in the waste recycling index in 2005 over 2004. 2003 6.40% 24.40% 69.20% 2004 5.43% 21.20% 73.41% 2005 2.82% 16.09% 81.09% Target for 2006: To increase recycled waste index to 85%. Volume of solid waste (grams) by item sold (1) (2) 2003 29.2 2004 25.6 2005 27.7 1. Previous releases of this report had some incorrect numbers due to problems in measure- ment, which have been corrected. 2. Absolute waste volume posted an increase of 34% in 2005, surpassing items sold growth, which reached a 25% increase in 2005 year-on-year. Major production volumes and stocks cleanse were important drivers to this absolute increase in waste volume. We had no occurrences of significant spills of any chemicals or other products in 2005 (GRI EN13). 2003 N.D. Percentage of solid material waste (%) 2004 N.D. 2005 Target 2006 Solid material waste 8.5 This percentage represents the relative amount of solid materials acquired by the company considered as waste materials at the end of the process.This indicator calculation began last year, the reason why we do not have 2003 and 2004 figures. Target for 2006: To reduce solid material waste to 8.5%. 9.5 In other operations There is no industrial waste and the volume of other kinds of waste was not considered significant in relation to the production activity, which is carried out only in Brazil. Postconsumption Waste Codes, policies and specific management systems In order to achieve sustainable growth, a company may have to change production and consumption patterns. Bearing in mind that packaging materials have a major impact on the life cycle of its products, in 2002, Natura concluded the first stage of packaging environmental impact analysis using the Life Cycle Analysis (LCA) Method(1). In 2003, LCA became a regular part of the company’s product launch process and, beginning in 2004, in compliance with a procedure in Natura’s Environmental Management System, no decisions on new packaging designs could be approved before a comparative assessment of the environmental impact of alternatives. In 2005, the company included in this assessment all promotional boxes for commemorative dates, thus increasing the scope and use of this method in the company. The managers in charge of the Environmental Impact Model, created in 2004, are conducting projects to determine and assess the major envi- ronmental impact of the products.They are also in charge of monitor- ing indicators related to these impacts. One of the studies conducted by this area, the Carbon Content Model, which discusses the determi- nation of sources (suppliers) of each carbon volume contained in raw materials used, as presented at an international scientific conference (Life Cycle Management 2005), will be applied to the whole product portfo- lio and included in the product development process beginning in 2006. The evolution of some environmental indicators of products, packaging items and gifts is monitored by the company on a monthly basis. impact 1. Natura uses the Life Cycle Thinking, which is rooted in the Life Cycle Assessment of prod- ucts and in the Design for Environmental concept, an integrated approach that considers concepts, techniques and procedures to access technological and social aspects from prod- ucts and organizations aiming to continuously improve quality of life. Ecodesign guidelines views the integration of environmental and procedures issues. Performance indicators The significant environmental impacts of the main products and services monitored in 2005 were (GRI EN14): • Percentage of products launched for which the Life Cycle Analysis was performed for the packaging: the 100% target was met in every month of the year. • Total impact: In its Life Cycle Analysis studies, Natura uses the available databases from the Eco-Indicator 99 methodology(1). As in 2004, in 2005 the target was to reduce the average environmental impact of packaging materials by reducing the weighted average per business unit, as well as the total amount, which should not exceed the total amount of 2004. The final analysis shows that: • The weighted average impact per unit sold decreased by 5%. • The total impact (absolute amount) increased 21%. • The increase in total impact was mainly owed to the 26% growth in the number of items sold. See analysis of goals established in 2004 for this issue at the end of this chapter. 1. Bibliographic reference: GOEDKOOP, Mark; SPRIENSMA, Renidle; The Eco-Indicator method for Life Cycle Impact Assessment, 2nd edition, Pré Consultants B.V.,2000. Percentage of products sold that are recoverable at the end of their life cycle, by weight(1) 2003 2004 2005 Target 2006: In Brazil, to increase the ratio of refill sales over total billed items from 17.4% to 18%. N.D. 38 40.4 In other operations 1. 97.5% of all packaging used in products sold by Natura, both in Brazil and abroad, is recycla- ble and should therefore be recovered.This amounts to 40% of the mass of Natura’s products (contents and packaging). Since the contents of Natura’s products are either washable materials or perfumes, they cannot be reused. A percentage of sold items is recovered but we still do not have a program to measure the exact recovered percentage (GRI EN15). See analysis of goals established in 2004 at the end of this chapter. We emphasize that Natura was a pioneer in the sale of refills for its products.The refill packaging is in average 54% lighter than the regular product packaging. With the sale of refills, Natura avoided placing 2.2 thousand metric tons of packaging in the market, reducing its environmental impact. In Brazil Refills sales campaign achieved good results. The percentage of total refills over total items climbed from 15.3% in 2004 to 17.4% in 2005, up 16% versus the established goal (for further information on Movimento Natura see Education on page 103). Percentage of refill sales over invoiced items (%) 2003 2004 2005 Target 2006 Refill sales over invoiced items 14.9 15.3 17.4 18.0 Goals Established in Natura Annual Report 2004 Initiative Committed Target GRI EN 3 Reduce relative energy consumption by 5.5%. GRI EN 5 Reduce water relative consumption by 1%. GRI EN 22 Increase treated water reutilization rate from 39.5% to 49%. Percentage of refill sales over billed items (%) 2005 14.8 4.4 5.8 12.5 8.2 Argentina Chile Mexico Peru France 2003 13.8 2.5 N.D. 6.5 N.D. 2004 14.3 2.2 N.D. 7.9 N.D. Target 2006 16.8 10.0 10.0 14.2 10.0 Note: Operations in Mexico and France started in 2005. Target 2006: In Argentina, increase to 16.8% the ratio of refill sales in total billed items. Target 2006: In Chile, increase to 10% the ratio of refill sales in total billed items. Target 2006: In Mexico, increase to 10% the ratio of refill sales in total billed items. Target 2006: In Peru, increase to 14.2% the ratio of refill sales in total billed items. Target 2006: In France, increase to 10% the ratio of refill sales in total billed items. Results ☺ Target reached.There was a reduction of 8.5% in relative energy consumption in comparison with 2004.The reduction came mostly from the economy of scale in resale items. ☺ Target reached.There was a reduction of 5.6% of the relative consumption accrued in 2005, in comparison to 2004.The main reason for this reduction was the economy of scale from resale items. ☺ Target reached.The average percentage of treated water reuse was 55%. Treated water was used in the entire site of Cajamar, for washing streets and external walls, fire fighting network, sanitation facilities and ornamental water mirrors. ☺ Target reached. In 2005, eight assets were included in the Phase III of the process certification. Four of those are already utilized in Natura products and another four are in study stages for future use.The botanicals already employed in Natura products are: - Jambu: organic certification - Macela: organic certification - Cupuaçu: socioenvironmental responsibility - Açaí: socioenvironmental responsibility Of a total of 35 native or exotic Brazilian botanicals species, which are used in Natura’s products (essential oils, fixative agents and extracts), in 2004, the certification process was completed for eight of them (23% of the total). In 2005 the target is to include five more in Phase III of the certification process, achieving a total of 13 certifications (37% of the total). GRI EN 7 GRI EN11 GRI EN12 Reduce residue generation per unit sold to 2.38 g in 2005 from 2.56 g in 2004. (cid:2) Target missed.The indicator was 16.3% over the established target; residue generation rose to 27.70 g per unit sold. Keep above 90% the monthly average efficiency in removal of organ- ic debris from discarded effluents in Itapecerica da Serra, vis-à-vis the minimum of 80% presently required by law. ☺ Target reached. We closed the year with a 95.5% average of efficiency in the removal of organic debris (DBO). a) Ensure that 100% of the new products launched during the year have their packaging analyzed by the Life Cycle Analysis (ACV) tool. ☺ Target reached. All regular products and kits promoted and sold during special holidays were analyzed through the ACV. b) Reduce by 2% (from 2004 levels) the weighted average of environmental impact from Natura’s product packaging. c) Define environmental performance indicators for products and include related information on their respective labels. GRI EN14 ☺ Target reached.The reduction was over 4%. (cid:3) Target partially reached.The indicators were defined; calculation of these indicators began, and during 2006 will be added to product labels. d) As there is no model available for Life Cycle Analysis of raw material in the cosmetic industry, Natura will develop a model in 2005. It will be applied to the shampoo line Ekos and submitted for international evaluation. ☺ Target reached.The Model of Intrinsic Carbon was developed and applied to the Andiroba Shampoo line.This work was presented at the congress of Life Cycle Management 2005, in Barcelona. 96 Annual Report Natura 2005 2005 Annual Report Natura 97 2003 2004 2005 1. France and Mexico operations started in 2005. 2.The operation was not able to calculate the ratio. Social Codes, policies and general management systems The company in 2005 held a series of discussions to define social and environmental plans for its various areas, devoting time devising ways to attain goals and indicators capable of conveying a clear picture of the business’s social impact. This business performance will be evaluated through five major dimensions: (I) wealth distribution and work and revenue generation, (II) social inclusion, (III) human rights, (IV) education and (V) Human Resources actions – complemented with a detailed description of our internal social impact. Natura adopts management practices consistent with the time-hon- ored principles of the Universal Declaration of Human Rights, such as freedom and equality without distinction as of race, color, gender, language, religion, nationality or social origin (GRI HR1). It is also one of the first Brazilian companies signatory to the Global Compact, a UN initiative to mobilize the international business pursuit of the fundamental values regarding human rights, work, environment and the fight against corruption. To further involve our personnel and Consultants, Natura used several communication vehicles.The brochures, videos, websites and other media adressed the following subjects: millennium development objectives; education campaign for youth and adults; reduction of the environmen- tal impact; Brazil’s biodiversity; women’s entrepreneurship and leadership; breast-feeding; and sustainable development, among others. However, these were not isolated actions. Many activities developed by Natura are contemplated in the Millennium Goals. Some examples are the programs Crer para Ver, Agenda 21 in Cajamar and project “One Thousand Women for the Nobel Peace Prize,” supported by Natura (see further information about these programs in chapter Highlights of Investments in Corporate Responsibility on page 108). To keep track of its social goals, Natura uses, in addition to depart- ment-specific procedures, a Corporate Responsibility Management System (SGRC). With it, the company conducts diagnosis and makes recommendations for action plans directed at improving relationships. These plans then become goals and benchmarks which are followed up by a committee in each department. The system works with the support from the Corporate Responsibility Network, constituted of employees from all departments. One of the network’s main roles is to act as facilitator in the diagnosis stage, which identifies key issues in Natura's relationships with all its different publics: personnel, Consultants, consumers, communities, suppliers, shareholders, government, society and the environment. In 2005, approximately 50 participants in the Corporate Responsibility Network disseminated the principles of responsible management throughout the company, to help their colleagues understand those principles and translate them into daily actions. Wealth distribution, work and revenue generation Codes, policies and specific management systems Natura’s main channel of wealth distribution is its Consultants (resale), a concrete opportunity to generate income.The company provides its Consultants, free of charge, with multiple training programs on subjects finance, beauty, health, such as product technical specifications, well-being, quality of life and sustainability principles, among others. Many departments devote time to these activities, monitoring related benchmarks and adopting specific policies when required. Natura has other initiatives and policies that create work and income generation opportunities for suppliers and neighboring communities (Cajamar and Itapecerica da Serra, both in São Paulo). The indicators are periodically tracked by the Sustainability Committee. Performance indicators Wealth distribution per public (R$ million) 307.5 247.3 547.8 396.9 306.4 727.2 1,059.3 1,348.9 1,365.9 1,731.7 191.6 177.8 502.1 795.8 942.2 Shareholders Personnel Government Natura Consultants (1)(2) Suppliers 2003 2004 2005 1. Estimated values at suggested retail prices. 2. Consultants in Brazil, Argentina, Chile and Peru. Work and revenue generation (GRI LA1) Brazil Personnel Temporary Third party(1) Trainees Argentina Personnel Third party(1) Trainees Chile Personnel Third party(1) Trainees Mexico(2) Personnel Third party(1) Trainees Peru Personnel Third party(1) Trainees France(2) Personnel Third party (1) Trainees 2,696 230 780 13 3,177 259 1,000 37 157 4 1 61 13 0 N.A. N.A. N.A. 72 5 0 N.A. N.A. N.A. 205 2 0 70 24 0 N.A. N.A. N.A. 103 25 2 N.A. N.A. N.A. 3,575 679 1,161 41 237 2 0 93 24 0 70 16 0 133 6 0 20 0 0 1. Residents allocated to company units are considered third party. 2. France and Mexico operations started in 2005. Jobs - Brazil (GRI LA2) 2005 Positions in Cajamar 2,281 Positions in Itapecerica (1) 1,294 3,575 Total 1. The sales force (sales promoters, sales managers, marketing managers, sales supervisors and field assistants) is fully accounted for in Itapecerica da Serra. 2004 2,044 1,133 3,177 2003 1,681 1,015 2,696 Job creation and employee retention 2003 2004 2005 Social Inclusion Brazil Jobs created in the period Turnover ratio (%) Argentina Jobs created in the period Turnover ratio (%) Chile Jobs created in the period Turnover ratio (%) Mexico(1) Jobs created in the period Turnover ratio (%) Peru Jobs created in the period Turnover ratio (%) France(1) Jobs created in the period Turnover ratio (%) 55 6.53 28 7.10 7 7.40 N.D. N.D. 12 16.00 N.D. N.D. 481 7.81 48 16.00 9 20.20 N.D. N.D. 31 15.53 N.D. N.D. 398 7.64 32 11.90 23 25.37 70 7.14 30 21.68 20 N.D.(2) Internal opportunities Percentage of new job positions filled by existing employees 2003 2004 2005 54% 38% 49% One of the most relevant indirect income opportunities created by Natura (GRI EC13) concerns its 519,000 independent Consultants, as shown on the chart below. Natura Consultants(1) (thousands) 2003 Brazil Argentina Chile Mexico Peru 355 10 3 N.D. 7 2004 407 13 5 N.D. 8 2005 483 18 6 N.D. 12 1. The figures refer to available Consultants - those who placed at least one order in the past sales cycles. Wealth Distribution – Consultants (1) (2) (R$ million) Brazil International operations Total 2003 776.0 19.7 795.8 2004 1,031.8 27.6 1,059.3 2005 1,311.6 37.2 1,348.9 1. Estimated values at suggested retail prices. 2. 2003 figures were changed to be in accordance with the Brazilian Association of Direct Sales, ABEVD. Codes, policies and specific management systems Natura focuses on issues of social inclusion regarding its personnel, with policies fostering egalitarian work opportunities. The compa- ny takes a clear stand on diversity and equality in its beliefs and val- ues and will spell out its position in a relationship code to be pu- blished in 2006. Performance indicators People with disabilities In Brazil Natura has long designed specific programs and policies to include people with disabilities in its work force. In a year of vigorous hiring keeping stable at 5% the ratio of people with disabilities in the staff became a challenge involving more departments (GRI LA10, HR8 and HR4). We have an agreement with the Public Prosecution Service (Conduct Agreement) through which we can consider Natura’s four companies as one unit in order to meet the quota. Despite a significant effort in 2005, we still found it difficult to hire people with appropriate education for the positions at administrative depart- ments. In the operational departments, the number of people with disabilities is rather significant. Yet, the most important action last year was the establishment of a partnership between Natura and the National Business Learning Service (Senac) to develop a training program for people with dis- abilities for functions of administrative assistance. The first course graduated 20 people. Natura is committed to hiring some of these graduates as administrative assistants.There is a plan to expand the scope of this training program to include other functions. After hiring, our focus moved to prepare the involved departments (and to prepare the manager who will work with him/her directly) to welcome and work efficiently with the new employee, even preparing inclusion activities. Whenever a specific department embraces its first employee with disability, everyone from the team is invited to participate in an activity in which they learn to help the new co-worker. We also adapted training materials so that people with disabilities have easy access to and comprehension of the contents. We use simultaneous translation for sign language in courses attended by hearing-impaired people, we make voice recognition software avail- able for visually-impaired people and invest in resources for sign translation in all departments to quicken the inclusion process of the hearing-impaired. Each of them also count on a mentor familiar with sign language, who helps with socializing issues. The company also carries, on a bimonthly basis, an awareness activity with employees and third parties in how to work with the disabled and provides sign language courses, the ‘Curso de Libras’ for those who need it to carry out their duties. To identify potential employees with disabilities we tap local community resources and institutions such as Laramara, for the visually-impaired, Derdic, for physical disabilities, among others. for the hearing-impaired and Semis/AACD, In the communities that supply assets from biodiversity, it should be noted that family income from the sale of industrial raw materials for companies that process them for Natura is demand-driven and therefore account for a share of the overall family income. Target for 2006: To reach 5% of employees with disability over the total number of employees. See analysis of goals established in 2004 at the end of this chapter. 98 Annual Report Natura 2005 2005 Annual Report Natura 99 In other operations Natura does not yet have programs for hiring people with disabilities similar to those described for Brazil. Women In Brazil Our operation is focused on valuing and supporting breast-feeding. The mother returning from maternity leave is provided with a special and welcoming space in the nursery for breast-feeding. The nursery team is oriented to call the mother at breast-feeding periods, wher- ever she is, so she can, calmly and appropriately, experience this important moment with her baby. The company even maintains a specific program for Woman Health, which has as its main purpose breast and cervical cancer prevention, In also covering topics such as menopause, PMT and pregnancy. addition to that, there is a gynecologist on duty in our clinic to meet the needs of our personnel. The table below shows numbers of employees and management body composition, the man/woman proportion and other indicators of appropriate cultural diversity (GRI LA11), as well as wage outline in Brazil and other operations(1). Total of personnel Total of personnel People with disabilities Percent against the total of personnel Percent of management positions against the total of management Percent of director‘s positions against the total of director‘s positions Women Percent against the total of personnel Percent of management positions against the total of management Percent of director‘s positions against the total of director‘s positions Black and pardo women Percent against the total of personnel Percent of management positions against the total of management Percent of director‘s positions against the total of director‘s positions Black and pardo men Percent against the total of personnel Percent of management positions against the total of management Percent of director‘s positions against the total of director‘s positions Over 45 years of age Percent against the total of personnel Percent of management positions against the total of management Percent of director‘s positions against the total of director‘s positions 2003 2,696 3.9% 0.0% 0.0% Brazil(1)(2) 2004 3,177 3.6% 0.0% 0.0% 2005 3,575 3.6% 0.0% 0.0% In other operations – 2005 Argentina Chile Mexico 237 93 70 0.0% 0.0% 0.0% 2.3% 0.0% 0.0% 0.0% 0.0% 0.0% Peru 33 0.8% 0.0% 0.0% 62.4% 62.2% 63.1% 81.0% 95.0% 84.0% 79.0% 56.4% 55.2% 50.9% 41.0% 5.38% 33.0% 16.7% 17.6% 16.7% 0.0% 0.0% 42.0% N.D. 20.3% 24.0% N.D.(3) 7.3%(3) 6.0%(3) N.D. 0.0% 0.0% N.D. 31.7% 29.4% N.D.(3) 5.1%(3) 4.4%(3) N.D. 0.0% 0.0% 9.2% 7.9% 11.0% 11.0% 12.0% 10.3% 25.0% 23.5% 20.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 19.0% 24.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 7.7% 0.0% 0.0% 2.0% 0.0% 1.5% 0.0% 0.0% 1.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 18.8% 25.0% 16.7% 0.0% 0.0% 1. The staff racial origin was informed by the individuals themselves, using the national statistics agency (IBGE) criteria, which is the only one officially available in the country: "race: white, yellow, indigenous, black or parda". The expression “black or pardo” denotes the sum of the number of personnel who marked the white, yellow or indigenous options. The company recognizes that this classification does not comply with the claims of reclassification of several social movements within the country. Race reclassification was conducted in December 2004. The records for 2003 were disregarded. 2. The total of personnel with disabilities increased to 128 from 114. The goal for 2005 was to achieve 5% of employees with disabilities as a percentage of the total. 3. The percent of employees who self-classified themselves as “black or pardo" at management level is very low. The company considers this as a matter that will require specific action plans. Wage Profile (R$ thousand) 2003 Brazil(1)(2)(3) 2004 2005 In other operations – 2005 Argentina Chile Mexico Peru Women – total Monthly average wage for plant workers Monthly average wage for office workers Monthly average wage for managers Monthly average wage for directors Men – total Monthly average wage for plant workers Monthly average wage for office workers Monthly average wage for managers Monthly average wage for directors Black and pardo women Monthly average wage for plant workers Monthly average wage for office workers Monthly average wage for managers Monthly average wage for directors Nonblack and nonpardo women Monthly average wage for plant workers Monthly average wage for office workers Monthly average wage for managers Monthly average wage for directors Black and pardo men Monthly average wage for plant workers Monthly average wage for office workers Monthly average wage for managers Monthly average wage for directors Nonblack and nonpardo men Monthly average wage for plant workers Monthly average wage for office workers Monthly average wage for managers(5) Monthly average wage for directors 860.64 (4) 870.35 (4) 903.88 (4) 660.51 618.46 N.A. N.A. 3,608.05 3,792.59 4,064.13 1,035.84 1,623.46 3,629.43 1,082.27 8,872.45 (5) 9,895.06 (5) 9,786.40 (5) 5,448.98 4,750.19 7,009.77 5,298.79 N.D. 22,722.94 25,677.50 N.A. N.A. 15,340.37 N.A. 1,088.90 (4) 1,084.34 (4) 1,114.57 (4) 697.50 1,239.19 N.A. N.A. 3,177.31 3,466.81 3,643.37 1,593.84 3,672.38 3,174.24 1,305.20 9,979.63 (5) 11,112.94 (5) 10,244.69 (5) 8,783.10 6,630.26 7,009.77 12,607.99 34,081.84 35,717.84 35,089.75 N.A. 17,012.20 26,981.00 N.A. N.D. N.D. 894.81 922.63 3,853.29 3,864.14 N.D. 10,946.30 10,135.38 N.D. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. 683.58 N.A. N.A. N.D. N.D. N.D. 859.58 893.39 660.51 618.46 N.A. N.A. 3,782.67 4,113.82 1,035.84 1,623.46 3,629.43 1,387.17 9,827.29 9,764.19 5,448.98 4,750.19 7,009.77 5,298.79 N.D. 22,722.94 25,677.50 N.A. N.A. 15,340.37 N.A. N.D. N.D. 1,072.10 1,091.70 3,039.28 3,073.38 N.D. (5) 10,153.27 (5) 7,817.69 (5) N.D. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. 854.48 N.A. N.A. N.D. N.D. 1,097.87 1,128.68 697.50 1,239.19 N.A. N.A. 3,571.55 3,747.42 1,593.84 3,672.38 3,174.24 1,348.12 N.D. (5) 11,164.56 (5) 10,357.05 (5) 8,783.10 6,630.26 7,009.77 12,607.99 N.D. 33,717.84 35,089.75 N.A. 17,012.20 26,981.00 N.A. 1. Race reclassification was conducted in December 2004.The records for 2003 were disregarded. 2. Human Resources department corrected 2004 figures due to final data compilation. Please consider the above-released numbers. 3. Bonuses paid to sales managers and sales promoters were included in this calculation. Sales force personnel, when divided into categories, reinforces women monthly average wage, excluding plant work category. 4. The production plants classify workers into seven wage levels, the average wage difference between men and women is a consequence of the fact that 97.9% of women are at wage levels 1, 2 and 3 (who earn lower wages), while 77.5% of men are at these baselines. Electricians, manipulators, mechanics, machine preparers and lathe operators, who earn higher wages, are mostly men. 5. Among office workers, comprising six wage levels, the average difference between men’s and women’s wages stem from the fact that 68.4% of women are at the three lower management levels while 58% of men are at these baselines. The difference between monthly average wage for black and mulatto men in managerial posts and men with no black ancestry is due to the first group classification as juniors wage group. 100 Annual Report Natura 2005 2005 Annual Report Natura 101 Human Rights Codes, policies and specific management systems Brazil is a signatory to the International Labor Organization (ILO) conventions, which determine the need of unions to represent employees in their interests and negotiations with their employers. Natura complies with the related laws (GRI LA3). The right of free association is respected by Natura, who recognizes the right to labor organization (GRI HR5). In Brazil, the relationship with unions is con- ducted through meetings between the Human Resources depart- ments and union representatives. The company is also affiliated to Fundação Abrinq, a nongovernmental organization whose mission is to promote human and citizenship rights of children and adolescents. As a member of this organization, Natura is committed to following the Child and Adolescent Statute (ECA), which ensures full compliance with systems to guarantee children and adolescents’ rights (GRI HR6). Moreover, as a holder of the seal Empresa Amiga da Criança, also granted by Fundação Abrinq, Natura must comply with requirements related to the eradication of child labor. Therefore, we enforce specific child and forced labor clauses in the contracts signed with suppliers (GRI HR6). Performance indicators Labor Organization In Brazil Workers are mandated by law to pay a trade union tax. As a result, the percentage of personnel represented by independent union organizations or other legal representatives is 100% (GRI LA3). In other operations Natura follows the established law of each country. In Argentina, 28.5% of employees are represented by the collective bargaining agreement of the Perfumers’ Union (norm: 157/91). Suppliers Human rights are part of our procurement decisions, including the selection of suppliers and contractors (GRI HR2). The company assesses human rights performance within the supply chain and contractors through surveys and monitoring systems (GRI HR3). In Brazil Natura included in its system of rules and procedures considerations about contractors and third parties, requiring that their contractor’s employees are legally registered in accordance with the Brazilian labor codes (Consolidação das Leis Trabalhistas, CLT); this process is moni- tored by our Legal Department. It has also adopted a qualification process for new general suppliers, who are evaluated on socioenvironmental responsibility issues. In 2006, Natura will issue a manual informing suppliers of their obliga- tions. Moreover, matters of child and forced labor are part of the standard contract between Natura and its suppliers, according to our policies of exclusion of child labor and in compliance with pro- visions of ILO’s convention 138 (GRI HR6) and forced and compul- sory labor (GRI HR7). Natura even requires that suppliers of botanical assets do not disturb their respective environmental balances, do not take advantage of child labor, comply with all labor laws and policies for the prevention of forced and compulsory labor and that they respect the communi- ties’ way of life as well as their traditions. Monitoring is carried out through management plans, projects with good agricultural practices and processes of asset certification. In other operations Natura does not have similar initiatives in other operations, which function in compliance with the respective laws and corporate regulations of each country. Personnel There is no specific training for employees on policies and practices concerning all aspects of human rights involved in our operations (GRI HR8). However, various discussions and initiatives covering these subjects are conducted. Examples are sustainability courses for managers, and discussions related to Natura’s Carta de Princípios de Relacionamento. In Brazil In 2005, Natura performed awareness activities with its personnel on topics related to human rights. The main focus was pregnancy and maternity support. In order to prepare expectant mothers, Natura offers orientation courses twice yearly. The topics addressed are pregnancy physiology, postural and emotional aspects of pregnancy, breast-feeding, baby care, legal benefits, healthcare and nursery. The course is aimed at employees and their spouses as well as outsourced employees. The company’s medical clinic is staffed with an Ob-Gyn physician and a nutritionist to assist pregnant workers and new mothers. In the security department, employees are partially trained on human rights issues (GRI HR11). All teams attend a 120-hour initial course, followed by biennial refreshers, on, among other subjects, ethics, discipline and criminal law matters; they also receive semiannual workshops to reinforce the commitment to these matters. Furthermore, Natura develops a series of activities (whether in or out of the company environment) regarding HIV/Aids (GRI LA8). Natura adopted a policy that ensures attendance and treatment of HIV-positive employees and their dependants, apart from establishing partnerships with public organizations. Prevention campaigns are carried out periodically, especially during Carnival, Labor Day,Valentine’s Day and World Aids Day. The company also holds an Aids Prevention Program to promote behavior changes and combat discrimination and segregation. Natura is part of the Conselho Empresarial Nacional para a Prevenção de HIV/Aids (National Business Council for HIV/Aids Prevention), constituted by 24 guest corporations, founded in 1998 by the Ministry of Health. Our company is recognized by the Joint United Nations Programme on HIV/Aids, UNAIDS, for its contribu- tion to the fight against HIV/Aids in Brazil. In other operations Natura does not have similar initiatives in other operations, which follow the established laws of each country and corporate guidelines. Indigenous communities Natura does not carry out activities with indigenous communities, but recognizes and respects the different cultures and the rights of the many sociocultural groups that live in Brazilian territory (GRI HR12). Education Codes, policies and specific management systems Natura invests in the education of its personnel and supports the return to school of Consultants and adults in Brazil.The company also develops national campaigns to improve public education. The departments responsible for corporate education and corporate responsibility run all educational activities. Indicators are tracked by the Education and Sustainability committees and by commercial department forums, which operate campaigns for the entire society. Performance indicators Policies and specific programs for skills management or learning for life (GRI LA17). In Brazil Natura’s policy is to provide employees with 100% of the technical education required to perform their duties, as well as to support their personal and professional development. We restructured Corporate Education programs in 2005, in a way to disseminate our Values and Beliefs for all new employees. Besides, we developed and improved the programs Integração do Colaborador, Integração Executiva, Negócio Natura, Meio Ambiente and Paixão por Produtos. Other focuses of Corporate Education were the programs Gestão de Pessoas, Oficina de Linguagem and Workshop do Modelo Comercial, important to managers’ development on Natura's essential issues: Brand, Products, Relationships and Sustainability. Corporate Education also trained all employees to ensure NBR ISO 9001 certification was obtained. During the year, some 5,784 training hours were held for this certification. The company also develops Natura Education and Executive Education programs, which offer scholarships (technical, graduation and postgraduation). Scholarships offered by the Natura Education Program(1) Courses Technical/professional Language University MBA and Postgraduation 2004 35 90 100 N.A. 2003 39 100 82 N.A. 2005 74 82 119 90 Enrollment in the program X granted scholarships Enrollments Granted Scholarships (2) % granted/enrollments 2003 468 228 48.7% 2004 365 230 63.0% 2005 644 377 58.5% 1. Data do not include scholarship renewal. 2. Data include scholarship renewal. Its objective is to increase access to formal education and prepare Natura’s personnel and their relatives to work. Approximately 2,000 staffers benefited from the program in its five years. In 2005, 68 scholarships were granted to employees’ children, in addition to another 74 technical, 119 university, 90 MBA and graduate school scholarships, plus 82 language courses. In other operations In 2005, Corporate Education programs were extended to disseminate our Values and Beliefs to employees across all levels. In Brazil Movimento Natura Movimento Natura was created in February 2005, in an effort to reach out to over 500,000 Consultants with educational programs on environmental awareness and practices. Movimento Natura is guided on the precept that small gestures lead to sweeping actions that can help society. This way, besides selling Natura products, the Consultants become agents of change in their communities, con- cerned with the socioenvironmental issues they share. The projects rolled out by Movimento Natura contemplate the company’s sustainability benchmark, the Triple Bottom-Line, or the three icons of the movement: Nosso Negócio, Nosso Planeta and Nossa Gente (Our Business, Our Planet and Our People). With respect to the first one, Our Business, Natura promotes a series of initiatives to recognize and elevate the role of its Consultants. The Our Planet pillar conveys the importance of preserving the environment and centers on incentives to the sales of refillable products. Natura also publishes tips and information on environ- mental matters on the sales catalogue issued every 21 days, with themes such as how each one of us can help preserve the environ- ment and incentives to waste recycling by participating in selective collection programs and practicing conscientious consumption. With Our People, Natura challenged Consultants to boost the number of enrollments and re-enrollments in public schools throughout the country with the Youth and Adult Education cam- paign. The goal is to have Consultants identify people of all ages who have not completed their elementary education and motivate them to go back to school. Another campaign was Crer para Ver (Believing is Seeing), in which Consultants volunteer to sell a spe- cially created line of products, among them T-shirts, cards and con- tainers, whose revenues are allocated to public education projects. Natura also conducts awareness campaigns for Consultants on issues such as the importance of breast-feeding, tips to help cut infant mortality, women's volunteerism and entrepreneurship, among others. With the creation of Movimento Natura, Consultants went on to earn recognition for their engagement in socioenvironmental issues in addition to their sales performance. As a result, the company established some performance benchmarks, such as the number of refill orders, the number of people re-enrolling in school and sales statistics on the Crer para Ver (Believing is Seeing) product line. Movimento Natura garnered encouraging results in its first year.The sales of refills as a ratio of total sales climbed to 17.4% from 15.3% in 2004, well above the 16% goal. Sales of Crer para Ver (Believing is Seeing) product totaled R$ 3.1 million, helping over 66,000 people in several states to return to school – the goal was 50,000. Crer para Ver Program The Crer para Ver program raises cash to improve public education through technical and financial support to teacher education projects. The program was launched in 1995 and counts on the support of Natura's Consultants who volunteer to sell products from the Crer para Ver line. In nine years, the program reached 911,000 children in 3,638 elementary public schools in 21 Brazilian states. In 2005, R$ 3,1 million were collected through the sale of such products, which financed Projeto Chapada (BA) and Projeto Cinema e Vídeo Brasileiro nas Escolas (SP), both focused on elementary education. See analysis of goals established in 2004 at the end of this chapter. 102 Annual Report Natura 2005 2005 Annual Report Natura 103 Project’s name Partner organization Municipalities reached No. of teachers gathered Project’s total amount (R$ thousand) Amount support by the program(1) (R$ thousand) Crer para Ver – Supported Projects 28 5,320 500.0 Primary education Projeto Chapada (BA) Cinema e Vídeo Brasileiro nas Escolas (SP) Escolas indígenas da floresta (AC) Janelas Cruzadas (RJ) Municipal Departments of Education and the Caeté Açu Association Municipal and State Departments of Education and Ação Educativa Municipal and State Department of Education and Comissão Pró-Índio (AC) Municipal Department of Education and Instituto Pé no Chão Youth and adult education Caapiá do Rio de Janeiro (RJ) Compartilhando Experiências (SP) Educadores de EJA em Ação (SP) Em Cada Saber um Jeito de Ser (BA) Roda Gaúcha (RS) Municipal Departments of Education, Latin American Research Association and Ação Cultural, Alpac/RJ Municipal Department of Education and Ação Educativa Municipal Department of Education, Instituto de Pesquisa e Estudos de Ribeirão Preto, Iperp, and Centro de Formação de Professores de Ribeirão Preto, Ceforp Municipal Department of Education and Instituto da Pequena Agricultura Apropriada, Irpa Municipal Departments of Education and Centro de Defesa dos Direitos da Criança e do Adolescente de Ijuí, Cededicai 1 7 1 4 1 49 3 6 630 40 226 490 64 311 195 235 245.0 800.0 600.0 99.9 1,611.5 2,071.7 203.1 180.8 120.0 170.0 263.1 378.0 180.8 119.6 92.0 115.0 120.0 1. These values refer to all past years, not only to 2005. Crer para Ver Program – Youth and Adult Education Campaign In 2004, Crer para Ver Program, in partnership with the Ministry of Education (MEC), increased its participation and launched, in 2004, a campaign for the education of youths and adults. According to the national statistics agency (IBGE) 2000 Census, there are 70 million people over the age of 15 who have not completed their elemen- tary education, of which 16 million are youths between 15 and 24 years of age. We registered the following results: 1) Financing four teacher graduation projects: Educadores EJA em Ação (SP), Caapiá do Rio de Janeiro (RJ), Em Cada Saber um Jeito de Ser (BA) and Roda Gaúcha (RS). 2) Crer para Ver – Inovando a Educação de Jovens e Adultos Award in partnership with MEC: seven prize winning projects from teachers and schools which work with EJA. 3) Mobilization of Natura Consultants to voluntarily identify and persuade potential students to return to school: more than 66,000 were registrared. 4) The campaign for the education of youths and adults is part of Movimento Natura. Registrations by Natura Consultants in 2005 Northeast São Paulo – Interior Midwest and North Rio de Janeiro, Minas Gerais and Espírito Santo South São Paulo – Capital Total No. of registered schools No. of schools where enrollments were done Municipalities with schools registered in the campaign Municipalities with schools where enrollments were done 26,885 12,473 11,930 7,056 6,642 1,674 66,660 13,328 2,791 3,372 1,057 Target for 2006: To reach 15,000 re-registrations in the Youth and Adult Education Campaign. Target for 2006: To reach 1,500 registered Consultants in Youth and Adult Education. Personnel Codes, policies and specific management systems Our Human Resources Policy contemplates the right to live, free- dom and personal security, condemns child labor and defends the freedom of association. It also establishes equitable work and wage conditions, such as social protections, which include support and special maternity and infant health care. The company tries to pro- vide conditions to meet universal educational rights, whether through scholarships or training staffers and their families. In its institutional documents, such as procedure manuals for human resources planning and development, management of organization- al conditions and personnel training, Natura shows its commitment to employees, highlighting, among other issues, diversity and respect to individuality; improvement of relations and ways of work; invest- ment in education and training for all; assurance of safe working conditions; creating conditions to fully develop individual potential, based on criteria of recognition and fair pay for everyone’s contri- bution (GRI HR1). Performance indicators Personnel benefits beyond those established by law (GRI LA12) In Brazil • Natura Education Program (please refer to section on chapter Highlights of Investments in RC, on page 108); • Building the Future Program; • Prosperity Program: financial education for staffers; • Savings Incentive; • Day care center for employees’ children up to 3 years and 11 months old; • Pediatric care provided in the day care center; • Support for staffers in adoption processes; • Health care plan; • Dental care plan; • Psychological support; • Check-up: full range of laboratory tests, preventive heart disease imaging diagnosis, nutritional education, reproductive testing, preventive testing, and specialist consultations; • In-company clinic care services for the prevention of metabolic conditions (diabetes, cholesterol and triglyceride) and cardiovascular conditions (hypertension); • Self-help, quit smoking program; • Telemedicine (ECG via telephone in emergency cases); • Pregnancy follow-up program: prenatal follow-up at in-company clinic and classes for pregnant employees and their spouses; • Physical check-up: carried out before beginning systematic physical activity in company's gym; • Clinical services: acupuncture, therapeutic massage, occupational gym, gynecology, hearing assessment, speech therapy, dermatology, all available in the company. disorders orthopedics, physiotherapy, global postural rehabilitation (GPR), brief psychotherapy and hearing assessments in the company; • Work-related prevention service: • Nutritional Rehabilitation Program assisted by a nutritionist in the company; • Natura Club (Cajamar and Itapecerica da Serra) with fitness services, swimming pool and multisports field; • Esthetics Center at Natura Club; manicure, pedicure, hairdresser, beautician, massage and waxing; • Convenience area with drugstore, seamstress, shoe store, opticians, insurance, post office and video rental store; In other operations Public health care conditions differ a lot among countries. Natura provides complementary assistance according to local needs; there- fore benefits are different from the ones offered in Brazil: • Argentina: food vouchers; corporate health care; group life insurance; Portuguese/Spanish classes; benefit program for regional businesses; • Chile: food vouchers; • Mexico: food vouchers; corporate health care; life insurance; savings fund; Prima Vacacional law (35% more than the legally required bonus paid at the time of vacations); Aguinaldo law (15 days more than legally required of working days to be paid); • Peru: corporate health care; dental insurance; personal accident insurance; loan program. Formal committees about health and safety, including administra- tion and workers representatives and part of the work force assisted by any of these committees (GRI LA6). In Brazil Each Natura unit has an Internal Accident Prevention Committee (CIPA) in compliance with the law – Regulatory Norm no. 5, Ordinance 3214/78 of the Ministry of Labor. Members of these committees serve for one year, and the number of participants is proportional to the company’s staff, according to risk level. Half the members are chosen by the company and the other half by the employees, through an election that can be monitored by the respective union. In other operations Information about this issue is not available. The activities in the international operations are exclusively administrative, therefore less critical than those in production sites. Practices on recording and notification of occupational accidents and disease and how they relate to the LO code of Practice on Recording and Notification of Occupational Accidents and Diseases (GRI LA5). In Brazil All accidents, with or without disability periods, are logged and analyzed to study the causes and implement corrective or preventive measures. Governmental organizations (Ministry of Social Security and Ministry of Labor) are notified, as well as the unions of the corresponding professional category, according to the law. The accident analyses, coordinated by the Labor Security depart- ment, are conducted by a group constituted of a safety expert or a work safety engineer, a labor physician, management, the injured (when possible), witnesses, maintenance people and employees representatives from the respective Commission. The conclusions are published in a report containing, in addition to the basic description of the occurrence, the correction and prevention actions prescribed, the party or parties responsible for their implementation as well as a deadline for implementation. Through the Programa Quase Acidente, records are made of events that did not cause injury but nevertheless constituted risk. These records are also analyzed for implementation of preventive actions. In 2005, when the TPM2 program – Total Performance Management – began, a new communication tool of risky situations was developed: the irregularity of labor security labels. They can be employed by any plant employee to indicate workplace risks which must be eliminated or neutralized, whether operational or maintenance-related. In other operations Personnel activities are exclusively commercial. Therefore, health and security matters are less critical than in production plants.There is no record of absence due to work-related conditions. Formal agreements with unions or other legal labor representa- tives regarding health and workplace safety; proportion of labor force supported by any of these agreements (GRI LA15). 104 Annual Report Natura 2005 2005 Annual Report Natura 105 See analysis of goals established in 2004 at the end of this chapter. • Funeral assistance. In Brazil Natura follows the guidelines related to health and safety governed by the labor code (Consolidação das Leis do Trabalho, CLT) and the collec- tive bargaining with the unions that represent employees. Some of these guidelines, supported by law or union agreements, include: short-term disability pay (first 15 days); complementary disability pay after that period; filing a work accident report (CAT) with the National Social Security Institute (INSS); adoption of protection meas- ures related to working conditions and workers’ security; implementa- tion of the CIPAs; medical and lab testing assurances as provided by law, among others. All employees are represented by unions. In other operations Natura complies with the respective labor laws of each country. In Brazil Typical injuries, lost days, absence rate and death number related to labor (including subcontracted workers) (GRI LA7) 2005 2004 2003 Number of accidents with employees (with absence) Number of accidents with personnel (without absence) Accidents average of labor/personnel Number of accidents with subcontracted (with absence)(1) Number of accidents with subcontracted (without absence)(1) Absence Lost working days Investment in prevention of diseases/personnel (R$) Investment in prevention of accidents/personnel (R$)(2) Number of communications to the National Social Security Institute regarding occupational disease – Cajamar Number of communications to the National Social Security Institute regarding occupational disease – Itapecerica da Serra 5 15 6 12 6 6 0.007 0.007 0.004 5 34 2.06 16 285.00 121.05 3 0 16 21 7 3.14 57 11 3.31 69 408.00 407.60 428.93 257.86 2 0 4 0 1. The figure refers to in-house outsourced contractors. 2. The difference in the value of “investment on accident prevention” between 2004 and 2005 owes to the fact that in 2004 we registered higher expenses with facilities upgrades, especially those required by law, such as: •Installation of sprinkler networks and fire hoses in compliance with the Fire Department contract (requirements); •Purchase of emergence respiratory equipment; •Bringing the generators’ diesel tanks up to insurance codes; •Installation of safety stairways in remote building and gallery locations and height-related safety equipment. The improvements in safety equipment in 2005 were not as high as in the preceeding year. In other operations 2005 Number of accidents with personnel (with absence) Number of accidents with personnel (without absence) Accidents average of labor/personnel Number of accidents with subcontracted (with absence)(1) Number of accidents with subcontracted (without absence)(1) Argentina Chile Mexico Peru 0 8 0 5 0.03 0.05 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1. The figure refers to in-house outsourced contractors. Description of programs to support continuous employability and retirement planning (GRI LA16). In Brazil Natura Education Program Approximately 2,000 employees and their families benefited from this program during its five years of existence. In 2005, 68 scholar- ships were granted to employees’ children, plus scholarships for another 74 technical, 119 university, 90 MBA and graduate work as well as 82 language courses. For technical courses we reimbursed 50% of the cost, up to the monthly limit of R$ 150.00; for University and Postgraduation we reimbursed 50%, up to the limit of R$ 300.00; and for languages 50% of the limit per stage of R$ 300.00. See the analysis of goals established in 2004 at the end of this chapter. Executive Education Program Provides social assistance up to 80% of the cost of MBA, postgraduation and language courses for personnel and executive graduation In 2005 the total amount of investments programs for directors. reached R$ 253,000. Building the Future The program helps employees to plan for longer-term life goals, involving good health, material comfort and activities capable of keeping them active after retirement.Their focuses are: • Quality of Life: comprises issues of health care, healthy habits and wellness. • Financial Planning: focuses on home budgeting skills through financial education, besides extolling the long-term benefits of regular savings through Natura Matched Savings. • Postcareer Activities: focus on personnel over 58 years old.The activities give them the opportunity to discover new skills and, consequentially, new ways after retirement. Of an educational nature, the program is carried out by means of lectures, courses, affinity groups and individual assistance, structured to help them with their personal needs. Natura also provides postcareers activities: • Commercial Training: working in the services industry, helping the launch of new products or mentoring new employees in the sales department. • Corporate Responsibility: organizations or NGOs. taking up work in non-profit Matched Savings The Natura Matched Savings Plan was created for all employees and promotes savings habits; the company matches 60% of employees’ savings up to 5% of their wages. Even when leaving Natura, the employee can choose to: • Remain in the program, keeping the savings consolidated by their contributions, at the same negotiated conditions in the Natura Plan; • Redeem the balance accrued; • Transfer the balance into another account. All Natura employees can join the pension plan, from a basic contri- bution of 1% to 5% of the monthly wage up to the R$ 10,700.00 limit. Support Centers In layoffs related to restructuring, Natura provides former employ- ees with support services, including counseling, job retraining, com- puter courses and CV-writing classes; orientation on relocation alter- natives; personal prospects after retirement; easy access to health care plans, unemployment insurance social security savings funds; orientation on financial planning for the family; career counseling and self-improvement tips. In other operations Natura does not promote similar programs abroad at this time. Training hours per year (GRI EC5) and Investments in education and training for personnel (GRI LA9). Goals established in Natura Annual Report 2004 In Brazil Average training hours per year, per employee and per category. 2003 33 36 Workers in industrial facilities Workers in office facilities Workers in management positions Workers in executive positions Total (average hours/ year/personnel) 66 40 37 2004(1) 78 61 86 68 70 2005 122 86 77 22 101 1. From 2004, this indicator came also to consider training for sales promoters and the Programa Natura Educação, not contemplated in 2002 or 2003. In other operations Information not available. In Brazil Investment in education and training for employees (R$ thousand) Investment(1) 2003 7,053 2004(1) 7,875 2005 12,674 1. In 2005, the amount of investments in education and training for employees incorporate the sales force (managers, promoters and Consultants) not included in previous years. In other operations Investment in education and training for personnel (R$ thousand) 2005 Investiment Argentina 10.4 Chile Mexico 81.9 10.9 Peru N.D. Committed Target Results Reach the target of 5% of people with disabilities in the total of the company’s personnel. (cid:2) Target missed. We closed 2005 with 3.6% of employees with disabilities and postponed the 5% target to October 2006. a) To maintain fund raising for social projects at current levels. b)To reach 50,000 registrations all over the country by Natura Consultants. Natura Educação a) To extend Natura Educação to outsourced employees who work in customer service. b) To include continuing education, postgraduation and MBA courses. ☺ Target reached. In 2005, the voluntary sale of Crer para Ver products raised R$ 3.1 million. ☺ Target reached. In 2005, there were more than 66,000 registrations in the Youth and Adult Education. (cid:2) Target missed.The extended program to outsourced employees was not conducted due to possible law implications. ☺ Target reached. In 2005, Natura Educação benefited 90 employees with scholarships in MBA and postgraduation courses. In 2006, the program will continue to offer scholarships. Initiative GRI LA11 Crer para Ver 106 Annual Report Natura 2005 2005 Annual Report Natura 107 Highlights of Investments in Corporate Responsibility This chapter highlights some of Natura’s most relevant projects included in the Investment Matrix in Corporate Responsibility (presented with respective values in Methodology and Key Indicators section on page 48). Below are listed projects in different categories. Some are detailed and appear in the matrix in bold. The choice was made based on examples and nature of action importance. Natura’s resources Fundamentals Socialeconomic Personnel, Relatives and Third Parties Consultants Supplier Communities • Satisfaction survey (see page 81) • Ombuds Service channel, • Annual satisfaction survey (see pages 53, 83) diagnosis • Internal communication materials focusing on corporate responsibility, environment and sustainability • Instant satisfaction survey (see page 83) • Ombuds Service channel, diagnosis Suppliers • Annual satisfaction survey (see pages 53, 85) • Ombuds Service channel, diagnosis Neighboring Communities • Natura Cajamar working groups (Relationship front) • Itapecerica da Serra working groups (Relationship front) Government and Society • Sponsorship and Patronage • Annual Report development Consumers • Annual satisfaction survey (see pages 53, 84) • Instant satisfaction survey (see page 84) • Ombuds Service channel, diagnosis • Crer para Ver Program and Young and Adults Education Program(1) • Natural or Botanical Assets Certification Program • Sustainable development program • Relationship with Ekos line supplier community • Events to discuss socioenvironmental issues • Natura Award to Suppliers (considering suppliers’ social and environmental behavior) • Suppliers’ socioenvironmental mobilization • Cajamar Agenda 21 • Potuverá Agenda 21 • Natura-Cajamar working group (other front) • Natura-Itapecerica da Serra working group (other front) • Natura’s sustainability week • Diversity program • Incentive program to hire disabled people (see page 99) • Natura Education Program • Sustainability training • Nursery, fitness center, medical services (see page 103) • Quality of Life Program • Mother’s Day event • Parties, toys and Christmas presents • Sponsorship and Patronage • Voluntary work program • Development of a legal framework for access and use of Brazilian biodiversity • Sustainability education project • Crer para Ver Program (Natura’s budget) • Instituto Criar (Movimento Natura) Environmental • Environmental consciousness • Refill Campaign to • Natural or • Suppliers’ stimulate the selling of refill, a product with low impact packaging (see page 96) Botanical Assets Certification Program socioenvironmental mobilization(2) • Cajamar Agenda 21 • Potuverá Agenda 21 • Sponsorship and Patronage • Forest re-composition project • Energy reduction initiative • Water reusage initiative • Packaging life cycle assessment Management expenses • Corporate Responsibility Management System • Environmental Management System • Teams: Corporate Responsibility, Environment and Social Service • Operating expenses: Corporate Responsibility, Environment and Social Service Natura Consultants generation of income Personnel, Relatives and Third Parties Net income obtained from Crer para Ver Program N.A. Consultants N.A. Supplier Communities N.A. Suppliers N.A. Neighboring Communities N.A. Government and Society Crer para Ver Program Fiscal resources Fiscal incentives Personnel, Relatives and Third Parties Consultants Supplier Communities Suppliers Neighboring Communities Government and Society Sponsorship and Patronage 1. Crer para Ver Program resources. 2. Resources nondeclared in the Investment Matrix in Corporate Responsibility, as they were declared in other trading activities. Note: N.A. = Not applicable. All the publics 1. Corporate Responsibility Management System See complete system description in the Social section, in Codes, Policies and General Management Systems, page 98, in the Economic, Social and Environmental Indicators chapter. Employees, families and outsourced employees 1. Education Program See complete program description in Education in the Economic, Social and Environmental Indicators chapter on page 103. Consultants 1. Crer para Ver Program – Education Campaign for Youth and Adults See complete program description in Education in the Economic, Social and Environmental Indicators chapter on page 103. Supplier Communities 1. Certification Program for Natural or Botanicals Assets Objective: Certify botanical assets to ensure the sustainable supply of raw materials considering environmental, social and economical aspects. Target Audience: The civil society and the scientific community. Partners: Instituto de Manejo e Certificação Florestal e Agrícola (Forestry and Agricultural Management and Certification Institute), Instituto Biodinâmico (Biodynamic Institute) and Ecocert. Results: For Natura, both forestry and agricultural management are the center of conservation of biodiversity . The proper use of botanical resources in Natura’s products is guaranteed by the Forest Stewardship Council (FSC), Sustainable Agriculture Network and the Organic Agriculture certifications granted by the Biodynamic Institute (IBD) and Ecocert.The certification process fosters preservation by complying with environmental and social guidelines, establishing a relationship of trust with consumers. Eight botanical assets were included on Phase III of the certification process in 2005. Four raw materials are already present in Natura’s products and four are in the research stage. The assets already used in Natura’s products are: - Jambu: organic certification - Macela (Camomile): organic certification - Cupuaçu: socioenvironmental responsibility - Açaí: socioenvironmental responsibility 2. Sustainable Development Program with Supplier Communities Objective: Promote sustainable development in areas where supplier communities live, aiming at local social and environmental reinforcement that surpasses trading activity. Place: Brazil’s Northern region. Target Audience: Communities that produce assets. Partners: Different according to each region, local communities, public entities, NGOs, private sector and universities. Results: In 2005 the Participative Local Diagnosis (Diagnóstico Local Participativo) and Iratapuru Sustainable Development Plan (Plano de Desenvolvimento Comunitário Iratapuru Sustentável – PDCI) were concluded. Both programs were jointly developed by Amapaz DS, with the community. The survey represents a balance of the present and a future vision for 2010 and 2015, an analysis of the current situation prepared by the community and its expectations for the upcoming years. PDCI presents crucial actions to be finished in the short and mid terms, as well as their respective implementation strategies. However, the community had some difficulty to assume such action as a concrete proposal of next steps for local development. An action plan for administrative improvements and ethics management was defined for 2006. On neighboring communities, such as Belém, a similar process was also concluded by the Peabiru Institute, with the elaboration of a diagnosis and a development plan for Boa Vista, Cotijuba and Campo Limpo communities. Neighboring Communities 1. Agenda 21 Cajamar Objective: Articulate community leaderships and the public sector to work on a plan for the city’s sustainable development (Agenda 21). Place: Cajamar, São Paulo. Target Audience: The Cajamar community. Partners: Cajamar’s Municipal Government, NGO Mata Nativa, neigh- boring associations, schools, trade associations, community leaderships. Results: Analysis results are displayed below, segmented by area of operation. 1.1 Tripartite Working Group The Tripartite Working Group formed by Natura, Cajamar’s Municipal Government and the NGO Mata Nativa focused their efforts on the organization and set-up of the Agenda 21 Permanent Forum in Cajamar, officially established at the end of 2005 after a series of educational, training and discussion activities in the city’s schools and neighborhoods. Preparatory seminars were held to discuss the meaning of the participatory planning (Agenda 21) and the importance of the community’s involvement in the process, with the objective of creating development opportunities in the city, respecting the environment and improving living conditions. The starting point was the diagnostic assessment conducted in 2004. Seminar table: Description/local seminars Natura Target audience Leadership from several sectors Natura – Municipal Councils Advisors/other Village Scorpios – Rotary Associates Date 7/19/2005 8/26/2005 8/30/2005 9/6/2005 9/19/2005 9/20/2005 9/12/2005 9/28/2005 Teachers Teachers Teachers Teachers and students Teachers Teachers and students 9/29/2005 Teachers, students and community Teachers Ministers Teachers Teachers Students attending the fourth grade of Elementary School 10/4/2005 10/11/2005 10/15/2005 10/19/2005 10/25/2005 10/26/2005 Numbers of Attendees 45 35 30 25 9 10 55 13 45 25 13 40 23 6 70 444 Suzana Dias State Public School Élcio Cotrin State Public School Tenente Marques State Public School Vera Zucchi School Ana Maria Garrido Orlandin State Public School School Jundiaí – Caxambu Agricultural Technical School Demétrio Pontes Municipal Public School Walter Ribas de Andrade State Public School Cajamar Evangelical Ministers São Luiz – Polvilho State Public School Antonio Pinto de Campos State School Odir Garcia State Public School Total As a second step, district forums were held to discuss the 2006 priorities for each Cajamar district.These priorities were presented at the Town Hall meeting on December 7th, 2005. 108 Annual Report Natura 2005 2005 Annual Report Natura 109 District forum priorities Description Ponunduva District Forum Target Audience The community at large Date 10/4/2005 Polvilho District Forum The community at large 11/11/2005 Cajamar – Center District Forum The community at large 11/25/2005 Jordanésia District Forum The community at large 12/2/2005 Coordinators and community at large 12/7/2005 Agenda 21 Cajamar Permanent Forum Total Number of Attendees 25 68 87 42 52 274 Description Enviromental degradation, infrastructure, unemployment Professional education, sanitation, leisure Sanitation, professional education health Sanitation, education, land issues In the next step the districts will define targets and indicators for the follow-up of every priority to be presented at the next Town Hall Meeting in June 2006.The action plans will be defined at that time. 1.2 Education and Public Management To help implement the Agenda, courses and discussions were held to provide the attendees with a theoretical basis. The first course taught a group of young citizens how to use the Spring software to compile a database for Cajamar, complementing and updating the information contained in the 2004 city’s diagnostics. The course on Pluriannual Planning and Annual Budgetary Law (LOA) aimed at assisting participants in the Pluriannual Planning execution for the 2006-2009 period, as well as preparing them to follow-up on the LOA application. In 2006, the LOA and Urban Master Plan courses will be resumed, considering the established deadline of October 2006 for the approval of the municipal Urban Master Plan. Courses held in 2005 Description/Local Spring – 4 modules Pluriannual Plan and the Annual Budgetary Law Audience Leadership from several sectors Leadership from several sectors Working 80 hours 10 hours Number of Attendees 60 39 1. 3 Projeto Comunidade Ativa (Active Community Project) To lead the community to identify and establish social and political interactive workshops were held in two participation channels, Cajamar districts: Gato Preto and Paraíso in partnership with the NGO Mata Nativa, attended by 95 and 76 people, respectively. With both conceptual and practical sections, field research and project creation, the workshops sought to establish embryonic democratic centers for discussions of environmental and social issues, besides the municipal budget. Targets for 2006: Consolidate district forums and Agenda 21 Cajamar Permanent Forum; disclose data collected in Cajamar to the commu- nity in public research centers and offices; extend the workshops to another two neighborhoods. 2.Working Groups Natura – Cajamar Objective: Improve Natura’s relationship with the Cajamar community, planning and implementing projects on jobs creation and income generation, education and professional training, environment and interrelations, in partnership with several of Natura’s divisions. Place: Cajamar, São Paulo. Target audience: The Cajamar community. Partners: Cajamar’s Municipal Government, Cajamar’s Department of Education and Culture, NGO Mata Nativa and other Cajamar- based NGOs; public schools, Caieiras’ Department of Education; NGO SOS Mata Atlântica. Results: The findings are displayed below, segmented by area of operation. 2.1 Jobs and Income Generation Initiative a) Training Cultural Agents Objective: Provide professional training and prepare community youth leaderships to work as cultural and social multiplying agents in Cajamar, promoting job creation and income generation. Results: The establishment of partnerships with different sectors for the inclusion of agents as cultural multipliers in the district: 10 agents hired by the Department of Culture; 6 agents hired by the Department of Social Services; 6 agents hired as monitors for a makeup show held by Natura in November and December 2005; partnerships with performing arts groups for a cultural agent internship program (Baque Bolado Group and Cia. de Dança Borelli). The objective of organizing a cooperative or association was not achieved in 2005. Fifty agents participated in cooperative management training held by the União e Solidariedade das Cooperativas e Empreendimentos de Economia Social do Brasil – Unisol/Brasil, and 15 also attended a Serviço Brasileiro de Apoio às Micro e Pequenas Empresas (Brazilian Support Service to Micro and Small Enterprises) training in cooperative management. 2.2 Frente Meio Ambiente (The Environment Initiative) a) Projeto Visita à Natura (Visit Natura Project) Objective: Promote environmental education through guided visits to Natura’s facilities, showing processes and programs implemented on-site to stimulate the development of environmental projects in Cajamar schools. Results: Involvement of Human Resources and Environmental and Engineering areas, coordinated by Natura’s Corporate Responsibility Department. Twenty visits were held with approxi- mately 700 students, all attending the 1st year of middle public state-run schools in Cajamar. b) Gincana Fazendo Eco – A Cajamar que temos e a Cajamar que queremos ("Fazendo Eco" Field Day – The Cajamar we have, the Cajamar we want). Objective: Encourage students and teachers to know and become interested in the city;encourage discussion and exchange of ideas in schools on subjects related to Agenda 21; promote the discussion of citizenship. Results: About 1,000 students were involved directly in the comple- tion of 18 challenges with several different activities such as the gathering of "green books" about the environment; tests about Cajamar history and statistics data; presentation of choreographies with the “cities in movement” theme, graffiti with “Cajamar: the man and his environment” theme; projects of environmental preservation in schools’ vicinities; exhibition of Fine Arts and models with “Garbage in its Place” theme; research with Cajamar citizens about their knowl- edge of medicinal plant properties; the challenge “Quem Sabe, Sabe” (“Who Knows, Knows”), performed by groups of students of all levels related to subjects such as the city’s diagnostics, the Budget Bill, the Pluriannual Plan, the Environmental Protection Area (APA - Área de Proteção Ambiental), the history of Cajamar, among others. The gathering challenge obtained 3,500 "green books" that will be available to all citizens at the city public libraries. Teachers and students of Cajamar state and city-run schools as well as those committed to Programa de Educação de Jovens e Adultos (Education of Youth and Adults Program) took part in the Field Day. 2.3 Frente Relacionamento (The Relationship Initiative) a) Support to Local Projects Objective: Deepen Natura’s relationship with the Cajamar community; support the development and implementation of local projects. Results: Continuous interaction with the Cajamar’s Department of Education and Culture through Natura’s infrastructure facilities (rooms and amphitheater) for the implementation of projects and activities; R$ 20,000 in financial support for Unicamp (University of Campinas in the state of São Paulo) to conduct an assessment of Cajamar’s educational program; donation of hygiene products to Sítio Agar (a shelter for HIV-positive children). b) Projeto 0800 – Comunidade Cajamar ( Project 0800 - A tol-free line for the Cajamar Community) Objective: Provide a channel of dialogue to identify and follow-up on community-specific issues. Result: In 2005, the toll-free line was available to the Cajamar Community. 3. Agenda 21 Potuverá Objective: Start the process of building up the local Agenda 21, training the first local social leaderships in support of a future Agenda 21 participatory assessment. Place: Itapecerica da Serra, São Paulo. Target Audience: The Potuverá community. Partners: Five Potuverá district neighborhood associations: Associação Aldeinha, Ferradura dos Manacás, Alto do Potuverá, Parque Santa Adélia and Sociedade Futura. Results: Training courses for leaders in all five Potuverá neighborhood associations (29 attended but only 12 reached the minimum 50% attendance record and went on to receive their certificates). Lasting a total of 33 hours, the training section addressed strategic planning, legal aspects; preparing projects; budget and cash flow; financial orientation and fund raising. 4. Natura Working Groups/Itapecerica da Serra Objective: Improve Natura’s relationship with the Potuverá community, planning and implementing projects related to educational and professional training, environment and interrelations, in partnership with several of Natura’s departments. Place: Itapecerica da Serra, São Paulo. Target Audience: Itapecerica da Serra community. Partners: Municipal Department of Education, Itapecerica’s regional Department of Education, Municipal Environment Agency, five neigh- borhood associations, two state-run schools and three city-run schools. Results: The results are displayed below, segmented by area of operation. 4.1 Frente Agenda 21 Escolar (Agenda 21 School Iniciative) Objective: Supervise the Agenda 21 for Schools project implementation in the Potuverá nucleus, under the coordination of the Regional Department of Education and Itapecerica da Serra Municipal Department of Education. Results: Participation in Agenda 21 monthly meetings at Potuverá nucleus with two state-run schools and five municipal schools that chose to hold professional workshops for teachers during 2006, besides supporting recycling programs in schools. 4.2 Frente Meio Ambiente (The Environment Initiative) a) Visit Natura Project Targets: Promote environmental education through guided visits to Natura’s facilities, demonstrating processes and programs that stimulate the development of environmental projects in Potuverá district schools. Results: Visits to the company facilities in Itapecerica da Serra and Cajamar and a lecture on the environment.The initial planned target of stimulating the creation of environmental projects in schools was not achieved due to lack of continuity. 4.3 Frente Educação e Capacitação (Education and Professional Training Initiative) a) Future Youth Project Objective: Help the development and social inclusion of the Potuverá community’s youths, offering a place for study, research and discussions on joining the labor market. Results: 16 weekly meetings and activities for 30 youths from Matilde Maria Cremm state public middle-school students, with the participation of seven Natura employees and two outsourced contractors. 4.4 Frente Relacionamento (Relationship Initiative) a) Support to Local Projects Objective: Deepen Natura’s relationship with the Itapecerica da Serra community; support the development and implementation of local projects, such as the information bulletin and reading spaces, assisted by the five neighborhood associations, promoting monthly lectures on various subjects. Results: Coordination between Potuverá leaderships and Itapecerica da Serra’s Department of Culture to implement "Reading Spaces" in neighborhood associations; and for five lectures for the Potuverá community addressing subjects such as the environment, employment and the role of neighborhood associations. b) Projeto 0800 – Comunidade de Potuverá (Project 0800 – A toll-free line for the Potuverá Community) Objective: Provide a channel of dialogue to identify and follow-up community-specific issues. Results: In 2005, the toll-free line was available to the Itapecerica da Serra community. c) Projeto Agente Jovem (Young Agent Project) Targets: Offer sports facilities for 15-17-year-old teenagers under supervision of Natura’s club volunteer professionals. Results: Bimonthly use of the Natura Club’s facilities in Itapecerica da Serra by 25 youths during the first half of 2005. Government and Society 1. Crer para Ver Program (Believing is Seeing Program) Complete program description is mentioned in Education (page 103). 2.Volunteering Promotion Program Objective: Strengthen the exercise of citizenship by Natura’s employees through volunteer activities. Results: The results are described below, segmented by project. 2.1 Novos Olhares – Oficinas de Automaquiagem (New Looks – Self Make-up Workshops) Objective: Improve Natura’s sales promoters and Consultants skills while offering make-up workshops to women with medical and/or emotional conditions to contribute to elevate their self-esteem and to improve their life quality. Place: São Paulo (SP); Rio de Janeiro (RJ); Porto Alegre, Santa Maria and Pelotas (RS); São Luiz (MA); Goiânia (GO); Belém (PA). Target Audience: Women suffering from medical and/or emotional conditions assisted by social organizations and hospitals. Partners: AC Camargo Hospital (SP); Instituto Brasileiro de Combate ao Câncer (SP); Hospital Estadual Mario Covas (SP); Instituto Nacional do Câncer (RJ); Hospital Femina (RS); Hospital da Universidade Federal de Santa Maria (RS); Hospital Escola da Universidade Federal de Pelotas Instituto Maranhense Aldenora Belo (MA); Hospital do Câncer (RS); Araújo Jorge (GO); Hospital Ofir Loyola (PA). Results: In 2005, the project was extended to three new locations in São Paulo (SP), Santa Maria (RS) and Pelotas (RS). 185 workshops and 2,733 appointments were carried out at the 10 institutions supported by the project and the number of project volunteers grew from 170 to 186. Target for 2006: Extend and consolidate the free participation of Consultants in the New Looks workshops at the existing locations. 2.2 Truly Beautiful People (Gente Bonita de Verdade) in the Community Objective: Allow Natura’s employees to get closer to the social reality of neighboring communities, by presenting projects and entities during working hours. Place: Cajamar, state of São Paulo. 110 Annual Report Natura 2005 2005 Annual Report Natura 111 Target Audience: Municipal and State Schools, Municipal Libraries, Neighboring communities and publics assisted by such entities. Partnership: Municipal school Professora Veneranda de Freitas de Pinto in Cajamar, state of São Paulo; Municipal Library in Jordanésia, state of São Paulo; State school Professor Élcio José Pereira Cotrim in Jordanésia, sate of São Paulo. Results: In 2005 two schools and a municipal library participated in the project and received Natura’s volunteers. On such spaces, volunteers developed activities related to culture and education, with workshops on reading and IT. 54 employees cooperated in 70 visiting periods, divided into two groups.With the reading activities, it was possible to work with approximately 750 children from Municipal school Professora Veneranda de Freitas de Pinto and with the community which attended the Municipal library in Jordanésia. IT classes benefited 40 students from state school Professor Elcio José Pereira Cotrim. 2.3 Collecting Campaign Objective: Bring to the employee the importance of active participation; material collection (glasses, books, magazines, newspapers and comic books) to be donated to institutes. Place: Cajamar and Itapecerica da Serra, state of São Paulo (SP). Partners: Municipal Library in Jordanésia (SP) and General Hospital in Itapecerica da Serra (SP). Results: During the campaign, 43 glass bottles were gathered and donated to Itapecerica da Serra General Hospital – Milk Bank. In the reading campaign (Trilha na Leitura), 223 newspapers, 13 children’s CDs, 219 comic books and 469 books, totaling 1,983 items, were donated to Jordanésia Municipal Library, aiming to increase the archive and community access to such information. 3. Supports & Sponsorships The guidelines for Corporate Support & Sponsorship seek to align investment allocations to the company’s strategic choices and to its corporate beliefs that lead its business behavior, always based on business ethics and the search for a fair and sustainable business model. This way Natura supports initiatives from communities, governmental organizations and the civil society to promote the best practices in sustainable development, entrepreneurship and women’s leadership. In addition to that, it supports the strengthening of community and government organizations thus advancing Brazil’s culture. 3.1 Sustainable Development Initiatives to promote job creation and the protection of endangered areas and species. Main initiatives supported in 2005: a) Biodiversidade Brasil (Brazilian Biodiversity Project) Objective: Stimulate discussion on topics related to Brazil’s biodiver- sity in partnership with Fundação Padre Anchieta – TV Cultura de São Paulo (public television). This partnership involves three public TV shows: Biodiversidade Debate (Biodiversity Debate); a documentary series called Biodiversidade Documento (Biodiversity Document); and the insert Biodiversidade (Biodiversity), which is part of the TV program Repórter Eco. Place: The TV shows are broadcast to all TV Cultura affiliates throughout the country. Target Audience: National and international botanic community, scientific community, academic community and society. Partners: TV Cultura and Fundação Padre Anchieta. Results: Production of 39 Biodiversity inserts. b) Flora Brasiliensis Project Coordination: Centro de Referência em Informação Ambiental (Center of Reference in Environmental Information). Objective: Scan the work Flora Brasiliensis by C.F.P. von Martius; publish the digital material online, free of charge; update the species nomenclature; build a website; integrate the work with data from European herbariums and the speciesLink network; integrate the work to other information systems. Place: Brazil. Target Audience: National and international scientific community, academic community and society. Results: They will be assessed after the project implementation, in 2006. 3.2 Entrepreneurship and Women’s Leadership Initiatives that promote entrepreneurship and leadership among women. Main initiatives supported in 2005: a) One Thousand Women for the Nobel Peace Prize Coordination: Geledés (Black Women Institute). Objective: Highlight the life work of 1,000 women appointed to com- pete for the Noble Peace Prize in 2005 due to their examples in pro- moting a culture of peace. Place: Brazil. Target Audience:The society. Results: Information about the One Thousand Women for the Noble Peace Prize initiative through an event involving the press, the business community; publication of a book to be released in March 2006 on the lives of the 52 Brazilian women selected for this initiative. 3.3 Strengthening of the Civil Society and Governmental Organizations Actions and initiatives of entities and associations aligned to Natura’s strategic options and/or representing and promoting the cosmetics sector. Main initiatives supported in 2005: Instituto Fernand Braudel de Economia Mundial a) Braudel Papers Coordination: (Fernand Braudel World Economy Institute). Objective: Develop research, publications and discussions offering analyses and effective proposals for Brazil’s social and economic issues through the publication of the Braudel Papers. Place: Brazil. Target Audience: Distribution to a group of 5,000 people comprised of international agencies, business representatives, government officials, academic community, press, and national and international NGOs. Results: Publication of two editions of the Braudel Papers. b) Human Rights Universal Conversation Coordination: Conectas Direitos Humanos (Human Rights Network Association). Objective: Promote dialogue, learning opportunities and cooperation among Southern hemisphere countries in support of the human rights concept. Place: Brazil. Target Audience: Academic community, UN staffers, international foundations, human rights activists. Results: Participation of 60 human rights activists from 29 African, Asian and Latin American countries and, for the first time, from Eastern Europe in discussions about the creation of an effective dialogue and strengthening of human rights activists. In addition to that, the discussions included the themes of access to fairness and justice, strategies to reduce violence and the cooperation of universities and international agencies in human rights issues. Workshops, visits to human rights organizations in São Paulo and a special conference was performed too. c) Fundo de Bolsas de Economia (Economy Funds Program) Coordination: Fundação Getulio Vargas. Objective: Offer scholarships in Economics. Place: São Paulo. Target Audience: Students graduating in Economics at Fundação Getulio Vargas (SP). Results: One student was granted full scholarship for the four-year undergraduate course. 3.4 Natura Musical (Brazilian Culture with focus in music) Artistic initiatives that improve international understanding and appreciation of Brazil’s musical heritage. Projects are selected through public tender and financial support originates from tax rebates (Rouanet Law and the Culture Incentive Program from the Minas Gerais State Government). In 2005, more than 20 projects benefited from Natura’s sponsorship, favoring projects from all over the country. For a list of all projects sponsored in 2005, visit www.natura.net/patrocinio. 2005 Sponsorship Investments Total Natura Resources Subjects Sustainable Development Women’s Entrepreneurship Strengthening community and governmental organizations Natura Musical Total Fiscal Incentive Resources Subjects Sustainable Development Natura Musical Rouanet Law Culture Incentive Program from Minas Gerais State Government(1) Others Total Total General 1. This amount refers only to the compensated values in 2005. Amount in 2005 797,199 178,000 982,481 756,357 2,714,037 Amount in 2005 525,000 2,043,671 1,401,230 642,441 155,250 2,723,921 5,437,958 Transparent Relations with Society and Dialogue with Interested Parties 2005 Lectures on Corporate Responsibility area Event Lectures Organization Lecturer Date Location Audience 4th Environmental Workshop – Senai/SP 2nd National Conference on State and Sector Quality Programs, Productivity and Competitiveness International Conference on Life Cycle (CILCA) Social Responsibility module – Inaugural class of International Executive MBA from Administration Institute – Foundation 2nd International Meeting – Fourth Open Seminar on Corporate Social Responsibility – Social Capital, Ethics and Sustainable Development Social Responsibility – University Extension Course Seminar on Communication and Corporate Responsibility 6th Week of Managerial Studies Postgraduation in Administration Social Responsibility – University Extension Course Corporate social responsibility practices course International Conference 2005 – Companies and Social Responsibility 8th Environmental Week – The Federation of Industries of the State of São Paulo 2nd Services National Fair and Legal Supply Espaço Natura Cajamar: from blueprint to sustainability Competitiveness and Sustainability National Service for Industrial Learning Movimento Brasil Competitivo Karina Aguilar Roberto Zardo 03/22/05 03/23/05 Case Study – The new Natura recycled paper bags Latin American Association for Life Cycle Assessment (LCA) Alessandro Mendes 04/27/05 Social Responsibility: Natura’s look Administration Institute – Foundation Pedro Passos 04/30/05 Panel "Partnerships for a Sustainable Society" The Federation of Industries of the State of Minas Gerais Pedro Passos 05/09/05 Selection, Evaluation, and Environmental Partnership with Suppliers The importance of Social Responsibility in economic development Espaço Natura Cajamar: from blueprint to sustainability Espaço Natura Cajamar: from blueprint to sustainability Selection, Evaluation, and Environmental Partnership with Suppliers Corporate social responsi- bility and sustainability Responsible Management Fundação Getulio Vargas Interrupcion Eliane Anjos Rodolfo Guttilla Managerial Faculty from Monsenhor Messias Educational Foundation Karina Aguilar Minas Gerais Ibmec Institute Fundação Getulio Vargas Fundação Getulio Vargas Ethos Institute of Companies and Social Responsibility Karina Aguilar Eliane Anjos Aline de Oliveira Guilherme Peirão Leal 05/19/05 05/19/05 05/23/05 05/24/05 05/30/05 06/01/05 06/08/05 Life Cycle Assessment The Federation of Industries of the State of São Paulo Alessandro Mendes 06/08/05 How social responsibility contributed to Natura’s image construction. Fenalaw Rodolfo Guttilla 06/16/05 São Paulo, state of São Paulo Brasília, Federal District San José, Costa Rica São Paulo, state of São Paulo Belo Horizonte, state of Minas Gerais São Paulo, state of São Paulo Buenos Aires, Argentina Sete Lagoas, state of Minas Gerais Belo Horizonte, state of Minas Gerais São Paulo, state of São Paulo São Paulo, state of São Paulo São Paulo, state of São Paulo São Paulo, state of São Paulo São Paulo, state of São Paulo Approx. 70 technicians and employees Approx. 300 attendees, executives and professionals related to the topics Approx. 1,000 attendees, NGOs and private companies representatives Approx. 30 International Executive MBA students, several corporate executives Approx. 250 attendees, representatives from companies, NGOs, guests Approx. 30 students from Social Responsibility course Approx. 300 attendees Approx. 600 college students Approx. 50 postgraduation students Approx. 30 students from Social Responsibility course Approx. 35 student from the Foundation extension course Approx. 1,000 attendees, among company directors and presidents and NGOs, academics, journalists and sectors specialists Approx. 200 people from industries, universities and research institutes Approx. 30 attendees Business Models in Corporate Responsibility International Seminar Business models examples Fundación PROhumana Sustainability report Local Pro-Agenda 21 GRI Index and Natura annual report Sustainability and competitiveness São Paulo University Polytechnic School Gaucho Program for Quality and Productivity 2nd Ideas Bandeirantes Forum Social Responsibility: Natura’s vision Bandeirantes Television Broadcasting, RS Rodolfo Guttilla Camila Fornazari Roberto Zardo Nelmara Arbex 06/22/05 Santiago, Chile Approx. 500 attendees 06/27/05 07/05/05 07/27/05 São Paulo, state of São Paulo Porto Alegre, state of Rio Grande do Sul Porto Alegre, state of Rio Grande do Sul Approx. 40 MBA students Approx. 500 attendees, executives, and professionals related to the area Approx. 100 people such as entrepreneurs and area specialists 112 Annual Report Natura 2005 2005 Annual Report Natura 113 2005 Lectures on Corporate Responsibility Area Event Sustainability Management Specialization Course – Magna Class Lecture Sustainable development challenges Organization Fundação Getulio Vargas Environmental Educational Courses Local Agenda 21 El Management Responsable 2nd Brazilian Environmental Communication Congress Assistants meeting How to design and achieve sustainable balance Annual Report Secretary of Environment of the State of São Paulo Valor Sustenible magazine Environmental Communication AG Corporate social responsibility II R Training – Development and Enterprise Performance Third Quality Seminar Social Responsibility Agenda 21 Local Agenda 21 Commerce and Industry Trading Association of Jaraguá do Sul (Southern region). Cajamar Rotary Club Intrinsic carbon model Life Cycle Management, LCM Lecturer Pedro Passos Isabel Ferreira Rodolfo Guttilla Aline de Oliveira Aline de Oliveira Aline de Oliveira Isabel Ferreira Alessandro Mendes Date 08/09/05 08/11/05 08/22/05 08/25/05 08/27/05 08/30/05 08/30/05 09/05/05 (continuation) Location São Paulo, state of São Paulo Audience Approx. 100 people, among students and Foundation teachers São Paulo, state of São Paulo Buenos Aires, Argentina São Paulo, state of São Paulo São Paulo, state of São Paulo Jaraguá do Sul, state of Rio Grande do Sul Cajamar, state of São Paulo Barcelona, Spain Approx. 100 people Approx. 150 participants Approx. 50 journalists and other professional focused on environmental issues Approx. 60 assistants Approx. 300 entrepreneurs, students and civil society representatives Approx. 30 professionals Approx. 1,000 researchers, NGOs and com- panies representatives Approx. 300 participants, among company’s directors and presidents and NGOs, students, journalists and sector’s specialists Approx. 100 participants, among corporate responsibility professionals and senior officers LCM 2005 – Innovation by Life Cycle Management – 2nd International Conference on Life Cycle Management 16th Annual Meeting of Latin American Entrepreneurs Second Marketing Seminar 5th Brazilian Association of Quality of Life Congress 1st Public Policies and Environmental Symposium Socioenvironmental responsibility: the sustain- ability and the investors Quality of Life Society and environment: Natura’s experience in selection, evaluation and environmental partnership with suppliers Natura and social responsibility Latin America Entrepreneurs Council Guilherme Peirão Leal 09/09/05 Santiago, Chile Febraban – Brazilian Banks Federation Marcos Egydio 09/13/05 São Paulo, state of São Paulo National Brazilian Association of Quality of Life Environmental Commission of the City of São Paulo Section of Attorney’s Association and Young Attorney Commission Nelmara Arbex Eliane Anjos 09/21/05 09/23/05 São Paulo, state of São Paulo São Paulo, state of São Paulo Approx. 100 entrepreneurs Approx. 400 participants, among authorities, entrepreneurs, students and Cruzeiro do Sul University representatives Ethics and Social responsibility: Commitment or Fashion Trend? Natura’s Corporate Responsibility State of Minas Gerais Educational Union Local Pro-Agenda 21 Local Agenda 21 Caxambu permanent Forum Marcos Botelho Isabel Ferreira Seminar: Impact of Life Cycle Assessment in Brazilian Industry Competitiveness First International Innova Quality Seminar Corporate Responsibility Environmental Corporate Law National Conference 2005 – Biodiversity: a preparation for COP8 Life Cycle Assessment stud- ies applied to cosmetics development Natura: biodiversity sustainable use Natura Corporate Responsibility Industrial practices in implementing Biological Diversity convention targets: sustainable business Brazilian Association of Research Institutions - ABIPTI Felipe Maranzato Innova Quality University of São Paulo Communications and Arts School Pinheiro Neto Attorney Office, Brazilian Environment Institute and Renewable Natural Resources. Sônia Tuccori Cristiane Samarra Eliane Anjos 09/27/05 09/29/05 10/04/05 10/05/05 10/10/05 10/27/05 Uberlândia, state of Minas Gerais Approx. 40 students Jundiaí, state of São Paulo Approx. 40 students from Jundiaí technical school São Paulo, state of São Paulo Approx. 200 industry professional university and research institutions São Paulo, state of São Paulo São Paulo, state of São Paulo Approx. 150 people, among entrepreneurs, marketing managers and sector’s professionals Approx. 50 students from the university’s public relations course Brasília, Federal District Approx. 50 professionals and students from environmental law Corporate Social Responsibility Seminar Oppening discussion: CSR as a management tool Interrupcion Maurício Bellora 11/01/05 Buenos Aires, Argentina Approx. 150 participants among several companies, NGOs and government representatives Business and the 2010 Biodiversity Challenge Meeting Institutional presentation Superior School of Advertising and Marketing - ESPM Partnership among companies, organizations and agencies Ministry of Environment and Brazilian Sustainable Development Enterprise Council, CEBDS Superior School of Advertising and Marketing - ESPM Eliane Anjos Aline de Oliveira 11/05/05 Cajamar, state of São Paulo 11/17/05 São Paulo, state of São Paulo Approx. 40 international representatives from governmental sectors, finance, students, industry and NGOs Approx. 40 students Annual Report Triple Bottom Line (GRI) Seminar Annual Report as a management tool Valor Sostenible magazine Environmental Engineering course Seminar: Life Cycle Assessment (LCA) impact on the CF&T industry Products Life Cycle Assessment LCA in Natura’s product development State University of Sorocaba Brazilian Association of Personal Hygiene, Perfumery and Cosmetics Industry It is on the Table - Tá na Mesa Business sustainability Municipal Workshop Environmental and hydrographic management The Federation of Commercial and Services Association of the state of Rio Grande do Sul - Federasul Municipal workshop Conal 2005 – National Convention "Let the Arrow Fly" Natura Corporate Responsibility Aiesec Mauricio Bellora Felipe Maranzato Felipe Maranzato 11/17/05 11/23/05 11/28/05 Alessandro Carlucci 11/30/05 Karina Aguilar Cristiane Samarra 12/12/05 12/16/05 Buenos Aires, Argentina Approx. 50 companies and NGOs representatives Sorocaba, state of São Paulo São Paulo, state of São Paulo Porto Alegre, state of Rio Grande do Sul São Paulo, state of São Paulo Santa Isabel. state of São Paulo Approx. 60 students from third year attending such course Approx. 100 participants among companies representatives related to the personal hygiene sector that were interested in learning about LCA and discussing the development of Brazilian inventory Approx. 250 Rio Grande do Sul entrepreneurs Approx. 20 municipal employees Approx. 50 students Commitment with Leadership and Social Influence Natura’s representation in Trade Associations and Associations in General Entity/Association Natura Representative Type of Representation ABC – The Brazilian Association of Cosmetology Aberje – The Brazilian Association of Corporate Communication (www.aberje.com.br) ABEVD – The Brazilian Association of Direct Selling Companies (www.abevd.org.br) Abia – The Brazilian Association of Food Industries (www.abia.org.br) Abihpec – The Brazilian Association of Personal Hygiene, Perfumery and Cosmetics Industry (www.abihpec.org.br) ABNT - The Brazilian Association of Technical Standards (www.abnt.org.br) ABPI - The Brazilian Association of Intellectual Property (www.abpi.org.br) ABPVS - The Brazilian Association of Sanitation Control Professionals (www.abpvs.com.br) ABQV – The Brazilian Association of Quality of Life (www.abqv.org.br) Abrasca – The Brazilian Association of Publicly Traded Companies (www.abrasca.org.br) Acelp – The Portuguese Language Corporate Communication Association Aippi – The International Association for the Protection of Intellectual Property (www.aippi.org) Amcham-SP –The American Chamber of Commerce of São Paulo (www.amcham.com.br) Amerco – The Association of Corporate Communication of the Mercosur Peruvian Civil Association of Companies Related to Brazil – Brazil Group Anpei – The Brazilian Association of R&D of Innovative Companies (www.anpei.org.br) Asipi – Interamerican Association of Industrial Property (www.asipi.org) Aspi – The São Paulo Association of Intellectual Property (www.aspi.org.br) Asug – The Association of the SAP Users in Brazil (www.asug.com.br) Audibra – Brazilian Institute of Internal Auditors (www.audibra.org.br) Bramex – The Mexican Industry,Trade and Tourism Chamber Trade Chamber of Lima (www.camaralima.org.pe) Direct Sales Association of Chile Peruvian Chamber of Direct Sales The Argentinian Chamber of Cosmetics and Perfumery Industry Cavedi – Argentinean Chamber of Direct Sales (www.cavedi.org.ar) Ceal – The Council of Latin American Businessmen (www.ceal-int.org) Cempre – Corporate Commitment to Recycling (www.cempre.org.br) CEN – National Business Council to HIV/AIDS Combat Fundação Getulio Vargas/ Center of Studies of Sustainability (www.ces.fgvsp.br) Ciesp – The Federation of Industries of the State of São Paulo (www.ciesp.org.br) CNI – The Brazilian Confederation of Industries (www.cni.org.br) Committee of the Upper Tietê Hydrographic Basin Ethos – The Ethos Institute of Companies and Social Responsibility (www.ethos.org.br) FNQ – National Quality Foundation (www.fnq.org.br) Mandate 2005-2008 1. 2004-2006 1, 2. Jun 2004-Jun 2007 Jul 2004-Jul 2008 1. 2004-2005 Jul 1999-Jul 2005 May 2002-May 2005 2000-indeterminate 2004-2005 Elizabete Vicentini Rodolfo Guttilla Representative Chairman of the Decision-Making Council 1. Rodolfo Guttilla 2. Moacir Salzstein 3. Karen Cavalcanti 4. Lucilene Prado 5. Bruno Antunes 6. Márcio Orlandi 7. Kássia Reis 1. Rodolfo Guttilla 2. Renata Novaes 1. Pedro Luiz Passos 2. Rodolfo Guttilla 3. Moacir Salzstein 4. Lucilene Prado 5. Elizabete Vicentini 6. Eliane Anjos Renato Wakimoto 1. Eneida Berbare 2. Luiz Marinello 3. Renata Franco 1. Chairman 2. Research Committee Chairman 3. Communication Committee Chairman 4.Taxation and Government Relations Committee Chairman 5. Research Committee Member 6. Information Technology Committee Member 7. Legal Affairs and Government Relations Committee Member 1. Director 2. Representative 1.Vice-President 2. Director 3. Foreign Trade Committee Member 4.Taxation Committee Member 5.Technical and Regulatory Committee Member 6. Environment Committee Member Representative 1. Copyright, Patents, Brands and Technology Committees Member 2.Copyright and Enforcement Committee Member 3.Brands Committee Member Elizabete Vicentini Representative Plinio Yasbek Helmut Bossert Rodolfo Guttilla Renata Franco 1. Pedro Luiz Passos 2. Antônio Siqueira 3. Eliane Anjos 4. Carla Pavão 5. Elizabete Vicentini 6. Eneida Berbare 7. Luiz Marinello Rodolfo Guttilla Erasmo Toledo Elizabete Vicentini Eneida Berbare 1. Eneida Berbare 2. Renata Franco Anna Sant'Anna Mercedes Stinco Rodolfo Guttilla Erasmo Toledo Mauricio Pinto Erasmo Toledo 1. Alejandro Díaz 2. Jelena Nadinic Alejandro Díaz Guilherme Peirão Leal Eliane Anjos 1. Guilherme Peirão Leal 2. Plínio Yasbek Nelmara Arbex 1. Guilherme Peirão Leal 2. Itamar Correia da Silva 3. Eliane Anjos 4. Rodolfo Guttilla Eliane Anjos Eliane Anjos 1. Guilherme Peirão Leal 2. Nelmara Arbex 3. Rodolfo Guttilla 1. Pedro Luiz Passos 2. Roberto Zardo 3. Sophia Segawa 4. Nelmara Arbex 5.Yara Rezende Representative – Founder Representative Chairman Representative 1. Administrative Council Representative 2. Member of the Strategic Group – Legal Directors and Vice-Presidents 3. Environment Committee Member 4. Secretaries Committee Member 5.Technical Subgroup Member 6. Industrial Property Task Force 7.Task Force to Combat Counterfeits Chairman Director Director Representative Representative Representative Representative Representative Vice-President Representative Director Treasure Executive Commission Member Technical Representative Executive Commission Member Representative Representative 1. Representative 2.Technical Representative Member of the Advisory Board 1. Director 2. Jundiaí Regional Council 3. Director 4. Member of the Center of Strategic and Advanced Studies Environment Thematic Council Coordinator Officer,Technical Chamber of the Underground Waters – CTAS 1. Member of the Decision-Making Council 2. Officer 3. Substitute 1 1. Advisory Council Chairman 2. Planning Director 3. Benchmarking and Processes Management Thematic Committees Member 4. Social Responsibility Committee Member 5. Intellectual Capital and Innovation Committee Member 1. Sep 2004-Sep 2007 Jan 2004-Dec 2005 1. Mai 2003-mai 2005 1. 2003-2005 114 Annual Report Natura 2005 2005 Annual Report Natura 115 Natura’s representation in Trade Associations and Association in General Entity/Association Natura Representative Type of Representation Funbio – The Brazilian Biodiversity Fund (www.funbio.org.br) The Abrinq Foundation for the Rights of the Children (www.fundacaoabrinq.org.br) G50 - Latin-American Businessmen Council GRI – Global Reporting Initiative (www.globalreporting.org) Ibef – The Brazilian Institute of Finance Executives (www.ibef.com.br) IBGC – The Brazilian Institute of Corporate Governance (www.ibgc.org.br) Ibri – The Brazilian Institute of Investor Relations (www.ibri.org.br) Iedi – Industrial Development Studies Institute (www.iedi.org.br) Akatu Institute (www.akatu.org.br) The Fernand Braudel Institute of World Economy (www.braudel.org.br) The São Paulo Institute Against Violence (www.spcv.org.br) Inta – International Trademark Association (www.inta.org) MBC – Competitive Brazil Movement (www.mbc.org.br) Sipatesp – Perfume and Beauty Products Industry Union in the State of São Paulo S.O.S. Mata Atlântica Uniethos – (www.uniethos.org.br) Guilherme Peirão Leal 1. Guilherme Peirão Leal 2. Nelmara Arbex 3. Pedro Villares 4. Susy Yoshimura Guilherme Peirão Leal 1. Rodolfo Guttilla 2. Nelmara Arbex Jorge Casmerides Lucilene Prado Helmut Bossert Pedro Luiz Passos Decision-Making Council Substitute Member 1. Decision-Making Council Member 2.Director Committee of the Crer para Ver Program Member 3.Director Committee of the Crer para Ver Program Member 4. Director Committee of the Crer para Ver Program Member Member Representative Stakeholders Council Members Representative Representative Representative Council Member Guilherme Peirão Leal Guilherme Peirão Leal Rodolfo Guttilla Renata Franco Roberto Zardo 1. Pedro Luiz Passos 2. Rodolfo Guttilla Pedro Luiz Passos Nelmara Arbex Steering Council Member Representative Representative Representative Representative 1. Delegate Representative 2. Director Council Member Technical Council Member (continuation) Mandate Nov 2001-Nov 2005 1. Since 1992 and since 1996 2, 3. Since 2003 4. Since 2004 2002-2005 Sep 2000- indeterminate 1, 2. Jun 2004-Jun 2007 WFDSA – World Federation of Direct Selling Associations (www.wfdsa.org) WWF-Brasil (www.wwf.org.br) Alessandro Carlucci Guilherme Peirão Leal CEO Council Member Steering Council Member Dec 2001-Mar 2006 Contact of Naturas’s Representatives to Associations Name Function e-mail Leandro Machado Governmental Relations Manager leandromachado@natura.net Contact (55 11) 4446 2544 Awards and certifications received for social, ethical and environmental performance (SO4) Award The Most Highly Regarded Companies in Brazil Promotion/Organization CartaCapital magazine and InterScience Objective The survey recognized organizations that stand out their business ethics, social commitment, environmental responsi- bility and civic responsibility awareness. The Best Companies according to ISTO É Dinheiro Magazine ISTOÉ Dinheiro Magazine and Delloite Recognize the best managed companies in Brazil based on financial sustainability, human resources, innovation, environ- ment and social responsibility indicators. Awarded category Most Highly Regarded Company in the sector One of the 10 most admired companies in Brazil Pharmaceutical, Hygiene and Health 2002 2003 2004 2005 2nd 3rd 1st 2nd 1st 1st 1st 1st 1st The Best Companies to Work in Latin America Great Place to Work® Institute The Best Places to Work in Argentina Modern Customer of Excellency in Services Great Place to Work® and Clarín daily paper business section Consumidor Moderno Magazine Election of the Brand that Respects Consumer the Most Companies that people most wish to work for Rádio Bandeirantes and Omni Marketing Forbes Brasil Magazine Identify companies that were benchmarks in the Best Companies to Work editions in the Latin American countries where the Great Place to Work Institute conducts this survey. Identify the 100 best companies to work for in Argentina through a research of organizational environment. Recognize the companies that stand out as reference in customer care in their industry and stimulate the companies to continually improve relations with the demanding Brazilian consumers. Elect the 10 most recognized brands in the opinion of the audience in the “respect for consumer” category. Business Leaders – Gazeta Mercantil Journal Exame Guide of Good Corporate Citizenship Balanço Anual Magazine, Gazeta Mercantil Exame Magazine – Editora Abril and Instituto Ethos Elect five leading national executives by business sector from readers’ voting. Recognize corporate citizenship practices based on criteria such as coverage, innovation, sustainability, establishment of partnerships and results of projects. Guia Exame – The Best Places to Work Exame Magazine and Great Place to Work® Institute In-depth assessment of the work environment and the practices and HR policies, taking employees’ opinions into consideration. IR Magazine Brazil Awards IR Magazine The Best 25 Companies to Work For in Peru Most valuable brands in Brazil – ISTOÉ Dinheiro magazine Best and largest by Exame Magazine Great Place to Work® Institute Peru and El Comercio Interbrand/ ISTOÉ Dinheiro magazine Exame Magazine Aberje Award Aberje – The Brazilian Association of Corporate Communication Evaluate the best performances in IR among public companies. In Brazil, the Investors’ Perception Study was performed through an independent research conducted by Fundação Getulio Vargas from a poll with 350 investment professionals – analysts and stock mar- ket administrators working on the stock market in Brazil. Identify the best 25 companies to work for in Peru by way of the organizational climate survey. Honor Brazil’s highest valued brands according to respected con- sulting firm Interbrand and published by Dinheiro Magazine. Show the most complete and comprehensive analysis of Corporate Brazil by way of data obtained by companies – growth, profitability, financial health, investments in property, plant and equipment, market share and productivity by employee. Distinguish magazines, newsletters, bulletins, videos and cor- porate communication projects that best met the compa- nies’ strategic demands during the year. Natura was one of the 100 Best Places to Work in Latin America 26th place among the 100 best places to work in Argentina Quality of relations. Distinct among the 38 companies that have excelled in customer care service in the Cosmetics category Socioenvironmental General ranking Sector ranking Leader of the Cosmetics, Hygiene and Health Sector (Guilherme Peirão Leal) Company of reference in Social Responsibility Values and transparency among the 150 Best Places to Work Best Place for Women to Work Grand Prix of Best Investors Relations Program (companies out- side IBovespa index) Best Performance in Investors Relationship on an Initial Public Offer One of the Best 25 Companies to Work For Pharmaceutical, Hygiene and Health Management Report Mural Newspaper (SP and Brazil) Company of the Year (SP) Relationship with the Investors (SP) Media Diversity (SP and Brazil) E-news External (SP and Brazil) Best Annual Report Abrasca Award Annual Report Award Abrasca – The Brazilian Association of Publicly Traded Companies Gazeta Mercantil newspaper Encourage improvement in the preparation of clearer and more transparent quality reports and a larger volume of information and innovative character, regarding both the information reported and graphic design. Identify the companies that create the most value for shareholders. Private Company Public Company Personal Hygiene sector 26th 1st 1st 4th 2nd 2nd 1st 1st 1st 1st 1st 1st 9th 1st 3rd 4th 1st 1st 1st 1st 1º1st 1º1st 1º4th 1º1st 1st 1st 116 Annual Report Natura 2005 2005 Annual Report Natura 117 Award Promotion/ Organization Objective Awarded category 2002 2003 2004 2005 (continuation) Social Report Award Bramex Award DCI Award Eco – Amcham Award The Brazilian Association of Analysts of Capital Market (Abamec); The Brazilian Association of Corporate Communication (Aberje); Fundação Instituto de Desenvolvimento Empresarial e Social (FIDES); Brazilian Institute of Social and Economic Analyses (IBASE) and Ethos Brazil Mexico Chamber of Industry,Trade and Tourism DCI Journal The American Chamber of Commerce (Amcham) Ecodesign Award Fiesp/Ciesp, IPT Executive of Value Award Valor Journal FGV Business Excellence Award The Brazilian Institute of Economy and Fundação Getulio Vargas Stimulate the compilation and publication of social reports by the companies; recognize and honor the best social reports, according to criteria established under this regula- tion; disseminate the relevance of social reports as an instrument of transparency. Overall National 1st São Paulo State Regional 1st Identify and recognize initiatives by public or private companies, individuals and the people who promote environmentally responsible economic, social and cultural development. Recognize the companies most highly-regarded by executives and businessmen. Identify, recognize and promote social initiative projects developed by private companies in the fields of culture, education, environment, health and participation in communities. Encourage the development of products with recycled mate- rial and which consume less energy. Select the executives that have distinguished themselves in each industry according to a survey conducted at the top headhunting firms in Brazil. Leadership, strategic vision and management style are some of the aspects considered by the selection committee. Identify and recognize the 12 companies classified in the survey of “The 500 Largest Companies in Brazil” by business efficiency. The selection process takes into consideration objective parameters of recent financial-economical companies performance, with emphasis on the results of the immediate precedent accounting period to the award. The top 500 largest companies were chosen by total assets and net income. Environmental Responsibility Most admired company in the Cosmetics, Hygiene and Health category Environmental and Social Responsibility – large companies Packing design 1st Executive of Value in the category Hygiene and Personal Care (Pedro Luiz Passos) Chemical sector 1st The following awards received by Natura involve quality seals that may be used: - Exame Guide of Good Civic Responsibility; - The Best Places to Work in Latin America; - The Exame Você S.A. Guide – The Best Companies to Work For; - Social Report Award; - Valor 100 Award. Natura is also recognized in Brazil with the titles: - Children-friendly Company, granted by the Abrinq Foundation for the Rights of Children and Adolescents; - Civically Responsible Company, granted by the Assembly of the City of São Paulo; - AACD Partnership Company Seal, granted by the Association of Assistance to the Disabled Child. Goals Established in Natura Annual Report 2004 Initiative Target Results Biodiversity Brazil a) Production of 48 Biodiversity TV shows; b) Production of documentary on theme to be defined; c) Search for a partner to produce a second documentary; (cid:1) Target partially reached. Production totaled 39 Biodiversity TV shows. (cid:2) Target missed.The documentary was not produced. (cid:2) Target missed. Search did not happen. d) Initial studies to distribute public television programs in (cid:2) Target missed. Studies were not conducted. Latin America. a) Expand the tripartite working group, involving other local (cid:2) Target missed. Participating companies joined the local forum and the corporate forum, Agenda 21 Cajamar businesses in the process; b) Publish the results from the diagnostic assessment to the community; c) Promote the installation of a Sustainable Development Forum; d) Carry out workshops in two additional city subdivisions. but did not yet join the tripartite working group. ☺ Target reached.The findings of the assessment were widely released, with hard copies and diskettes distributed to all public schools in Cajamar and other communities, local company officers and other community organizations. ☺ Target reached.The district forums and municipal forum were installed in November and December 2005, respectively, after a long discussion and preparation process. ☺ Target reached.Two more workshops were conducted during 2005, in the neighborhoods of Polvilho and Gato Preto, with high attendance. Environmental Merit FIESP Federation of Industries of the State of São Paulo Annually identify and honor manufacturers that distinguished themselves in the implementation of an environmental project with significant results for the affected area. Environmental Preservation Ford Motor Company Award PNBE Civic Responsibility Award Quality of Life Award Ford and Conservation International do Brasil Annually identify the most significant projects carried out in Brazil for the preservation of Nature. PNBE ABQV – Brazilian Association of Quality of Life Publicly recognize the initiatives of businessmen, entities and individuals who contributed to improve the quality of life of other Brazilian individuals. Stimulate the development and the implementation of quality of life programs in institutions, awarding organiza- tions that carry out specific and innovative initiatives in this work sphere and that are successfully improving the quality of life of their employees. Award professionals and companies for their contribution to corporate citizenship. The Iniative of the year in Environmental Preservation: Biodiversity Brazil Project “O empresário que queremos” (Guilherme Peirão Leal) Learning New Eating Habits Program Renato Castelo Branco Social Responsibility Award State Week for the Fight against Cancer Award ESPM – Escola Superior de Propaganda e Marketing Health Department of the State of São Paulo Value 1000 Award Social Value Award Viagem Award Transparency Trophy Valor Econômico newspaper Valor Econômico newspaper with support from the Ethos Institute and Akatu Institute Viagem e Turismo magazine Anefac – Fipecafi – Serasa Recognize the institutions that had the best projects against cigarette smoking. Program for the Prevention and Fight Against Cigarette Smoking Classify the 1,000 largest Brazilian companies by net income, based on their current financial statements.The 1,000 largest companies are classified into 27 industries. Recognize corporate social responsibility practices through programs developed by companies that serve as reference and inspire the multiplication of initiatives. “Empresa de Valor” (Value Company) Hygiene and Cosmetics sector. Responsible Management and Sustainable Development, Popular Jury Identify the best among many items related to tourism. Select the best financial statements posted during the year. Grand Award Ecological Merit Work with Brazilian biodiversity 1st place among Private Brazilian Companies 1st 1st 1st 1st 1st 1st Note: Numbers refer to the company’s position in the award recognition ranking, when applicable. 118 Annual Report Natura 2005 2005 Annual Report Natura 119 Financial Statements Natura Cosméticos S.A. Balance Sheets As of december 31, 2005 and 2004 (In thousands of Brazilian reais - R$) Assets CURRENT ASSETS Cash and banks Cash investments (Note 5) Trade accounts receivable (Note 6) Inventories (Note 7) Recoverable taxes (Note 8) Advances to employees Related parties (Note 10) Deferred income and social contribution taxes (Note 9.a) Other receivables Total current assets LONG-TERM ASSETS Receivables from shareholders (Notes 10.e and 19.c) Advance for future capital increase (Note 10.d) Recoverable taxes (Note 8) Deferred income and social contribution taxes (Note 9.a) Escrow deposits (Note 16) Other receivables Cash investments (Notes 5 and 16.i) Total long-term assets PERMANENT ASSETS Investments (Note 11) Property, plant and equipment (Note 12) Total permanent assets TOTAL ASSETS Company Consolidaded Liabilities and shareholders' equity 2005 2004 2005 2004 Company Consolidaded 2005 2004 2005 2004 38,882 237,084 302,688 835 508 3,312 4,850 16,404 8,160 612,723 130 1,007 1,432 17,680 23,590 - - 43,839 516,929 17,674 534,603 1,191,165 26,656 158,631 236,453 1,634 3,009 4,084 833 12,198 358 443,856 172 770 876 12,624 20,370 1,122 - 35,934 373,748 13,231 386,979 866,769 56,198 330,241 316,264 152,307 23,967 5,331 - 25,757 14,799 924,864 130 - 9,574 29,324 29,477 526 3,968 72,999 29,592 202,020 250,066 121,961 18,158 6,949 - 21,630 6,063 656,439 172 - 3,848 21,301 24,256 2,878 - 52,455 5,761 365,284 371,045 1,368,908 8,707 298,822 307,529 1,016,423 CURRENT LIABILITIES Loans and financing (Note 14) Domestic suppliers Foreign suppliers Suppliers - related parties (Note 10) Salaries, profit sharing and related charges, net (Note 17) Taxes payable (Note 15) Dividends (Notes 10 and 19.e) Interest on capital (Notes 10, 19.d and 19.e) Accrued freight Sundry accruals Related parties (Note 10) Other payables Allowance for losses on swap and forward contracts (Notes 22.b and 22.d) Total current liabilities LONG-TERM LIABILITIES Loans and financing (Note 14) Allowance for losses on subsidiaries (Note 11) Reserve for contingencies (Note 16) Other payables Total long-term liabilities MINORITY INTEREST SHAREHOLDERS' EQUITY (Note 19) Capital (Note 19.b) Capital reserves (Notes 19.b e 19.g) Profit reserves (Note 19.i) Treasury shares (Note 19.f) Total shareholders' equity TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 44,942 38,070 - 124,241 30,074 75,536 195,070 17,699 13,786 8,863 - 12,780 2,703 563,764 44,290 4,202 53,843 1,806 104,141 - 230,762 120,678 172,589 (769) 523,260 1,191,165 11,879 17,197 - 102,151 28,272 52,776 113,644 13,623 10,178 4,802 94 9,934 4,544 369,094 19,549 64 3,769 841 60,223 - 230,762 113,122 94,674 (1,106) 437,452 866,769 68,309 148,045 4,115 - 73,122 89,085 195,070 17,699 13,786 9,026 - 13,564 2,703 634,524 119,156 - 90,599 3,232 212,987 8 62,407 89,348 4,172 - 67,618 62,382 113,644 13,623 10,026 4,802 - 12,773 6,138 446,933 71,982 - 59,559 1,885 133,426 7 230,762 120,678 170,718 (769) 521,389 1,368,908 230,762 113,122 93,279 (1,106) 43,057 1,016,423 120 Annual Report Natura 2005 2005 Annual Report Natura 121 Statements Of Income For the years ended december 31, 2005 and 2004 (In thousands of Brazilian reais - R$, except for earnings per share) Statements of changes in shareholders' equity (company) For the years ended december 31, 2005 and 2004 (In thousands of Brazilian reais - R$) GROSS SALES Domestic market Foreign market Other sales GROSS OPERATING REVENUES Taxes on sales, returns and rebates NET OPERATING REVENUES Cost of sales GROSS PROFIT OPERATING (EXPENSES) INCOME Selling General and administrative Employee profit sharing (Note 17) Management compensation (Note 18) Equity in subsidiaries (Note 11) Other operating expenses, net INCOME FROM OPERATIONS BEFORE FINANCIAL EFFECTS Financial expenses Financial income INCOME FROM OPERATIONS Nonoperating (expenses) income, net INCOME BEFORE DEBENTURES PARTICIPATION AND TAXES Debentures participation INCOME BEFORE TAXES ON INCOME Income and social contribution taxes (Note 9.b) NET INCOME BEFORE MINORITY INTEREST Minority interest NET INCOME EARNINGS PER SHARE - R$ Company Consolidaded 2005 2004 2005 2004 3,127,462 - 1 2,457,891 - 5 3,149,654 92,616 1,341 2,472,046 66,782 829 3,127,463 (721,114) 2,457,896 (576,564) 3,243,611 (961,447) 2,539,657 (769,993) 2,406,349 (960,012) 1,881,332 (776,170) 2,282,164 (731,134) 1,769,664 (575,260) 1,446,337 1,105,162 1,551,030 1,194,404 (600,073) (323,203) (11,209) (7,467) (6,741) (3,640) 494,004 (11,800) 31,470 513,674 (212) 513,462 - (458,913) (249,223) (12,094) (7,084) 2,788 - 380,636 (18,301) 21,125 383,460 1,098 384,558 (7,178) 513,462 (116,105) 377,380 (76,969) 397,357 - 300,411 - (709,190) (276,144) (28,577) (12,289) - (3,220) 521,610 (43,453) 54,714 532,871 (1,242) 531,629 - 531,629 (134,747) 396,882 (1) (535,909) (216,900) (31,594) (11,818) - - 398,183 (38,156) 35,414 395,441 (868) 394,573 (7,178) 387,395 (87,102) 300,293 1 397,357 300,411 396,881 300,294 4.6745 3.5431 4.6689 3.5417 BALANCES AS OF DECEMBER 31, 2003 Capital increases: Capitalization of debentures (Notes 19.b and 19.g) Merger of Natura Empreendimentos S.A. (Notes 1, 19.a and 19.b) Subscription of shares (Note 19.b) Purchase of shares (Note 19.f) Sale of treasury shares by exercise of stock options (Note 19.f) Receivables from shareholders (Note 19.c) Payment of receivables from shareholders (Note 19.c) Absorption of excess liabilities through merger of Natura Empreendimentos S.A., after the elimination of the merged company's investment in the Company (Notes 1 and 19.a) Absorption of excess liabilities through merger of Natura Participações S.A., after the elimination of the merged company's investment in the Company (Notes 1 and 19.a) Absorption of reserve (Note 19.b) Net income Allocation of net income: Legal reserve (Note 19.h) Profit retention reserve (Note 19.i) Dividends - R$2.204 per outstanding share (Note 19.e) Interest on capital - R$0.347 per outstanding share (Note 19.e) BALANCES AS OF DECEMBER 31, 2004 Sale of treasury shares by exercise of stock options (Note 19.f) Payment of receivables from shareholders (Note 19.c) Tax incentives Net income Allocation of net income: Profit retention reserve (Note 19.i) Dividends - R$3.357 per outstanding share (Note 19.e) Interest on capital - R$0.403 per outstanding share (Note 19.e) BALANCES AS OF DECEMBER 31, 2005 Capital Treasury shares Capital reserves Share premium Investment grants Profit reserves Legal Retention Retained earnings Total 56,387 - - 9,998 10,687 45,544 - 122,616 138,569 - 100,000 1,415 34,391 - - - - - - - - - - - - - (1,415) 309 (3,029) - - - 5,177 - 480 496 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 238,569 1,415 34,391 (1,415) 5,486 (3,029) 976 - (23,367) - (23,367) - (7,058) - (29,235) 7,058 - 6,986 - 300,411 (22,249) - 300,411 15,021 - - 76,024 (15,021) (76,024) - - - - (186,910) (186,910) - 230,762 - (3,655) - 105,673 - 9,998 - 18,650 - 76,024 (29,442) - (29,442) 437,452 - - - - - - 337 4,537 2,053 - - - - 249 - - - - - - 717 - - - - - - - - - - - - - - 4,874 - - 397,357 2,302 717 397,357 77,915 (77,915) - - (285,237) (285,237) - 230,762 - (1,265) - 110,459 - 10,715 - 18,650 - 153,939 (34,205) - (34,205) 523,260 122 Annual Report Natura 2005 2005 Annual Report Natura 123 Statements of changes in financial position For the years ended december 31, 2005 and 2004 (In thousands of Brazilian reais - R$) SOURCES OF FUNDS From operations: Net income Items not affecting working capital: Depreciation and amortization (Notes 12 and 13) Monetary and exchange variations on long-term items, net Reserve for contingencies (Note 16) Sundry accruals Deferred income and social contribution taxes (Note 9.a) Equity in subsidiaries (Note 11) Proceeds from sale and disposal of permanent assets Minority interest From shareholders: Capitalization of debentures (Note 19.b) Capital increase through subscription of shares (Note 19.b) Sale of treasury shares by exercise of stock options (Note 19.f) Payment of receivables from shareholders (Note 19.c) From third parties: Transfer from long-term to current assets Increase in long-term liabilities Tax incentives Minority interest Total sources USES OF FUNDS Additions to property, plant and equipment (Note 12) Increase in investments (Note 11) Increase in long-term assets Decrease in long-term liabilities Transfer from long-term to current liabilities Dividends proposed and paid (Note 19.e) Interest on capital proposed and paid (Note 19.e) Total uses Merger of Natura Empreendimentos S.A. and Natura Participações S.A. net assets (Notes 1 and 19.a) Company Consolidaded 2005 2004 2005 2004 397,357 300,411 396,881 300,294 4,989 4,980 10,598 1,626 (5,056) 6,741 559 - 421,794 - - 4,887 2,288 - 25,007 717 - 454,693 9,991 149,425 1,639 - - 285,237 34,205 480,497 3,809 (5,601) 16,625 1,168 (4,233) (2,788) 1,333 - 310,724 107,913 34,391 630 - - - - - 453,658 7,629 34,975 9,070 18,656 11,809 186,910 29,442 298,491 44,035 9,234 21,638 4,255 (8,023) - 3,056 1 471,077 - - 4,887 2,288 - 121,712 717 - 600,681 111,636 - 9,987 - 78,783 285,237 34,205 519,848 34,340 175 31,570 1,420 (9,196) - 1,828 (1) 360,430 107,913 34,391 630 - 20,122 - - 37 523,523 76,886 6,179 15,289 - 24,740 186,910 29,442 339,446 - 23,393 - 3,383 (DECREASE) INCREASE IN WORKING CAPITAL (25,804) 131,774 80,833 180,694 REPRESENTED BY Increase in current assets Increase in current liabilities 168,867 194,671 170,771 38,997 268,425 187,592 218,908 38.214 (DECREASE) INCREASE IN WORKING CAPITAL (25,804) 131,774 80,833 180,694 Notes to the Financial Statements For the Years Ended December 31, 2005 and 2004 (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. The Extraordinary Shareholders’ Meeting held on March 5, 2004 approved the merger of the net assets of Natura Empreendimentos S.A. and Natura Participações S.A. into the Company.The merger was recorded based on an accounting valuation supported by a valuation report issued by independent experts.These mergers did not modify the activities described in the paragraph above. The net assets of Natura Empreendimentos S.A. and Natura Participações S.A. as of January 31, 2004, the accounting date of the mergers, were R$104,951 and R$75,716, respectively. After eliminations of intercompany receivables and payables and the investment balances, as required by Brazilian accounting practices, the Company recorded net liabilities of Natura Empreendimentos S.A. and Natura Participações S.A. amounting to R$23,367 and R$29,235, respectively. 2. PRESENTATION OF FINANCIAL STATEMENTS The accompanying financial statements have been prepared in accordance with Brazilian accounting practices and standards established by the Brazilian GAAP and Brazilian Securities Commission (CVM). Until December 31, 1995, the Brazilian GAAP 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. The terminology and grouping of certain accounts in the balance sheet and in the statements of income, changes in financial position and cash flows have been changed from the prior year for better classification and presentation. Such changes included fiscal year 2004, in order to allow comparability between years. Please note that such changes did not result in any change in the individual account balances and total balances. 3. SIGNIFICANT ACCOUNTING PRACTICES a) Results of operations Determined on the accrual basis of accounting. b) Cash investments Consists of highly liquid temporary investments stated at cost plus income earned through the balance sheet dates. c) Allowance for doubtful accounts Recognized based on an analysis of risks on realization of receivables, in an amount considered sufficient to cover possible losses. d) Inventories Stated at the average cost of acquisition or production, adjusted to market value and for possible losses, when applicable. e) Investments Investments in subsidiaries are accounted for under the equity method, plus goodwill on acquisition of investments, as shown in Note 11. f) Property, plant and equipment Recorded at acquisition cost, monetarily restated through December 31, 1995, plus interest capitalized during the construction period, if applicable. Depreciation is calculated under the straight-line method, based on the estimated economic useful lives of the assets, at the rates shown in Note 12. g) Deferred charges Represented by goodwill arising from the merger of shares of Natura Empreendimentos S.A., into Natura Participações S.A., less the provision for maintenance of dividend payment capacity, as described in Note 13. h) Current and long-term liabilities Stated at known or estimated amounts, plus, if applicable, interest and monetary and exchange variations incurred through the balance sheet dates. i) Income and social contribution taxes The provision for income tax was recorded at the rate of 15%, plus a 10% surtax on annual taxable income exceeding R$240. Social contribution tax was calculated at the rate of 9% of taxable income. Deferred income and social contribution taxes recorded in current and long-term assets result from expenses recorded in income, although temporarily nondeductible for tax purposes. Additionally, deferred income and social contribution taxes were recorded on tax loss carryforwards. Pursuant to CVM Resolution No. 273/98 and CVM Instruction No. 371/02, deferred taxes are recorded at their probable realizable values, as detailed in Note 9. j) Loans and financing Adjusted based on exchange and monetary variations and interest incurred through the balance sheet dates, as provided for by contract and mentioned in Note 14. k) Reserve for contingencies Adjusted through the balance sheet dates based on the probable loss amount, according to the nature of each contingency and supported by the opinion of the Company’s attorneys. The fundamentals and the nature of reserves are described in Note 16. 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. 124 Annual Report Natura 2005 2005 Annual Report Natura 125 m) Financial income and expenses Represented by interest and monetary and exchange variations on cash investments, escrow deposits and loans and financing. n) Interest on capital For corporate purposes, interest on capital is accounted for as allocation of income in shareholders’ equity. For tax purposes, interest on capital is treated as financial expense, reducing the income and social contribution tax basis. o) Earnings per share Calculated based on the number of shares at the balance sheet dates, excluding treasury shares. p) Supplementary information In order to permit additional analysis, the Company presents as supplementary information the individual and consolidated statements of cash flows (Attachment 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 reporting periods. Since management’s judgment involves estimates of the probability of future events, actual results may differ from the estimates. 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 - % 2005 2004 Direct: Indústria e Comércio de Cosméticos Natura Ltda. Natura Cosméticos S.A. - Chile Natura Cosméticos S.A. - Peru Natura Cosméticos S.A. - Argentina Natura Brasil Cosmética Ltda. - Portugal Commodities Trading S.A. - Uruguay Nova Flora Participações Ltda. Natura Inovação e Tecnologia de Produtos Ltda. Natura Europa SAS Natura Cosméticos S.A. - Mexico Natura Cosméticos C.A. - Venezuela 99.82 99.96 99.93 95.00 99.99 - 100.00 99.99 100.00 99.99 99.00 99.76 99.96 99.85 99.99 99.99 100.00 100.00 100.00 100.00 - - Indirect: Natura Logística e Serviços Ltda. Flora Medicinal J. Monteiro da Silva Ltda. Ybios S.A. (proportional consolidation - joint control) 99.99 100.00 99.99 100.00 33.33 31.93 The consolidated financial statements have been prepared based on the financial statements as of the same date and consistent with the accounting practices described in Note 3. Investments in subsidiaries were proportionally eliminated against shareholders’ equity and net income of the respective subsidiaries. Intercompany balances and transactions and unrealized profits were also eliminated. The minority interest in the Company’s subsidiaries was shown separately.The financial statements of foreign subsidiaries were translated into Brazilian reais at the exchange rates in effect on the date of the related financial statements. In 2005, the Company acquired equity interest, per nominal value, in Natura Cosméticos S.A. - Mexico, resumed operations of Natura Cosméticos C.A. - Venezuela, and discontinued operations of Commodities Trading S.A. - Uruguay. The shareholders’ equity balances as of December 31, 2005 and 2004, reported by the Company, differ by R$1,871 and R$1,395, respectively, from those recorded in the consolidated financial statements due to the elimination of unrealized profits of subsidiaries. For the same reason, net income balances reported by the Company as of December 31, 2005 and 2004 differ by R$476 and R$117, respectively, from the balances in the consolidated financial statements. Net income Shareholders’ equity 2005 397,357 2004 300,411 2005 523,260 2004 437,452 (476) (117) (1.871) (1.395) Company Elimination of unrealized profits of the subsidiary Indústria e Comércio de Cosméticos Natura Ltda. with other subsidiaries Consolidaded 396,881 300,294 521,389 436,057 The operations of the direct and indirect subsidiaries are as follows: • Indústria e Comércio de Cosméticos Natura Ltda.: engaged principally in the production and sale of Natura products to Natura Cosméticos S.A. - Brazil, Natura Cosméticos S.A. - Chile, Natura Cosméticos S.A. - Peru, Natura Cosméticos S.A. - Argentina, Natura Cosméticos S.A. - Mexico and Natura Europa SAS, whose amounts are mentioned in Note 10. • Natura Cosméticos S.A. - Chile, Natura Cosméticos S.A. - Peru, Natura Cosméticos S.A. - Argentina, Natura Cosméticos C.A. - Venezuela (currently in the preoperating stage), Natura Brasil Cosmética Ltda. - Portugal (this company has no activities currently) and Commodities Trading S.A. - Uruguay (this subsidiary ceased operations in May 2005): their activities are an extension of the activities conducted by the parent company Natura Cosméticos S.A. - Brazil. • Nova Flora Participações Ltda.: holds equity interest in the subsidiary Flora Medicinal J. Monteiro da Silva Ltda. • Natura Inovação e Tecnologia de Produtos Ltda.: its activities consist of product and technology development and market research. • Natura Europa SAS: engaged in the purchase, sale, import, export and distribution of cosmetics, fragrances in general, hygiene and health products. • Natura Cosméticos S.A. - Mexico: engaged in the purchase, sale, import, export, distribution and storage of cosmetics, fragrances in general, hygiene and health products. • Natura Logística e Serviços Ltda.: engaged in the provision of administrative and logistics services. • Flora Medicinal J. Monteiro da Silva Ltda.: engaged in the sale of phytotherapic and phytocosmetic products of its own brand. This company has no activities currently. • Ybios S.A.: engaged in research, management and development of projects, products and services in the biotechnology area, and may also enter into agreements and/or partnerships with universities, foundations, companies, cooperatives, associations, and other public and private entities; provision of services in the biotechnology area; and holding of equity interest in other companies. 5. CASH INVESTMENTS Company Consolidated ICMS credits on the acquisition of fixed assets are offset at the rate of 1/48, pursuant to prevailing legislation. 2005 2004 2005 2004 9. INCOME AND SOCIAL CONTRIBUTION TAXES Bank certificates of deposit (CDBs) Investment funds Long term (Note 16.i) Current 228,106 8,978 237,084 - 237,084 128,841 29,790 158,631 - 158,631 325,231 8,978 334,209 3,968 330,241 165,583 36,437 202,020 - 202,020 As of December 31, 2005, CDBs yield interest rates ranging from 100% to 102.5% (100% to 101.8% as of December 31, 2004) of the interbank deposit rate (CDI), and the share in the total investment portfolio is 97.31% (81.96% as of December 31, 2004). Investments funds yield interest rates ranging from 101.64% to 101.92% of the CDI (99.5% to 105.5% as of December 31, 2004). 6.TRADE ACCOUNTS RECEIVABLE Trade accounts receivable Allowance for doubtful accounts 7. INVENTORIES Finished products Raw materials and packaging Promotional material Work in process Allowance for losses Company Consolidated 2005 2004 2005 2004 322,228 250,246 337,104 265,048 (19,540) 302,688 (13,793) 236,453 (20,840) 316,264 (14,982) 250,066 Company Consolidated 2005 811 3 21 - - 835 2004 1,604 2 28 - - 1,634 2005 88,468 2004 57,105 66,165 7,976 6,037 (16,339) 152,307 62,327 9,308 7,617 (14,396) 121,961 8. RECOVERABLE TAXES ICMS (state VAT) on purchases of fixed assets ICMS (state VAT) Company Consolidated 2005 2004 2005 2004 1,918 1,182 11,581 5,194 on purchases of goods 22 2 6,946 935 IRPJ (corporate income tax) CSLL (social contribution tax) COFINS (tax on revenue) PIS/COFINS/CSLL - withheld at source PIS (tax on revenue) IRRF (withholding income tax) Other Long term Current - - - - - - - 1,940 1,432 508 2,701 3,580 8,984 - - - - - - 3,885 876 3,009 3,091 2,025 860 671 776 4,011 33,541 9,574 23,967 1,420 98 1,896 - - 3,479 22,006 3,848 18,158 a) Deferred Deferred income (IRPJ) and social contribution (CSLL) taxes recorded in the financial statements result from temporary differences (Company and subsidiaries) and tax loss carryforwards (subsidiaries).These credits are recorded in current and long-term assets, in view of their expected realization based on projections of taxable income, considering the limit of 30% for annual offset of tax loss carryforwards against taxable income, pursuant to applicable legislation.The amounts are as follows: Company Consolidated 2005 2004 2005 2004 Current: Tax loss carryforwards - - 1.089 691 Temporary differences: Allowance for doubtful accounts (Note 6) Allowance for inventory losses (Note 7) Allowance for losses on swap and forward transactions (Notes 22.b and 22.d) Other provisions Deferred income and social contribution taxes Long term: 6,952 4,829 6,952 4,829 - - 5,555 4,895 919 8,533 1,545 5,824 919 11,242 2,087 9,128 16,404 12,198 25,757 21,630 Tax loss carryforwards - - 375 2,032 Temporary differences: Reserve for contingencies (Note 16) 16,847 12,058 27,809 18,399 Other provisions 833 566 1,140 870 Deferred income and social contribution taxes 17,680 12,624 29,324 21,301 As required by CVM Resolution No. 273/98 and CVM Instruction No. 371/02, management, based on projections of results, estimates that the recorded tax credits will be fully realized within five years.The amounts recorded in long-term assets will be realized as follows: 2006 2007 2008 2009 2010 Consolidated 2005 19,850 2,146 5,571 1,757 29,324 2004 1,644 3,207 9,796 6,654 - 21,301 126 Annual Report Natura 2005 2005 Annual Report Natura 127 b) Current expense Reconciliation of income and social contribution taxes: Income before taxes on income Income and social contribution taxes at the rate of 34% Reversal of provision for maintenance of dividend payment capacity (Note 13) Interest on capital (Note 19.d) Tax incentives (donations) Equity in subsidiaries and exchange variation on translation of foreign investments (Note 11) Permanent differences Losses generated by subsidiaries (Note 11) Other Income and social contribution taxes: net expenses Income and social contribution taxes: current Income and social contribution taxes: deferred Income and social contribution taxes: net expenses Effective rate - % 10. RELATED PARTIES Receivables from and payables to related parties are as follows: Current assets: Related parties: Natura Logística e Serviços Ltda. (a) Natura Inovação e Tecnologia de Produtos Ltda.(b) Nova Flora Participações Ltda.(c) Advance for future capital increase- - Nova Flora Participações Ltda.(d) Receivables from shareholders(e) Current liabilities: Suppliers: Indústria e Comércio de Cosméticos Natura Ltda.(f) Natura Logística e Serviços Ltda.(g) Natura Inovação e Tecnologia de Produtos Ltda.(h) Related parties- Natura Inovação e Tecnologia de Produtos Ltda. Dividends payable - Shareholders Interest on capital payable - Shareholders Transactions with related parties are summarized as follows: Natura Cosméticos S.A. Indústria e Comércio de Cosméticos Natura Ltda. Natura Cosméticos S.A. - Argentina Natura Cosméticos S.A. - Peru Natura Cosméticos S.A. - Chile Natura Cosméticos S.A. - Mexico Natura Europa SAS Natura Inovação e Tecnologia de Produtos Ltda. Flora Medicinal J. Monteiro da Silva Ltda. Company Consolidated 2005 513,462 (174,576) 49,933 11,630 2,147 (3,530) (1,700) - (9) (116,105) (125,367) 9,262 (116,105) 22.6 2004 377,380 (128,309) 41,611 10,011 1,649 948 (2,831) - (48) (76,969) (81,497) 4,528 (76,969) 20.4 2005 531,629 (180,753) 49,933 11,630 2,268 - (1,932) (15,952) 59 (134,747) (146,897) 12,150 (134,747) 25.3 2004 387,395 (131,714) 41,611 10,011 2,089 - (3,203) (6,317) 421 (87,102) (96,736) 9,634 (87,102) 22.5 Administrative structure: (i) Natura Logística e Serviços Ltda. Natura Cosméticos S.A. Indústria e Comércio de Cosméticos Natura Ltda. Natura Inovação e Tecnologia de Produtos Ltda. Product and technology research and development:(j) Natura Inovação e Tecnologia de Produtos Ltda. Natura Cosméticos S.A. Ybios S.A. Lease of properties and common charges:(k) Indústria e Comércio de Cosméticos Natura Ltda. Natura Logística e Serviços Ltda. Natura Inovação e Tecnologia de Produtos Ltda. Natura Cosméticos S.A. Natura Empreendimentos S.A. Natura Participações S.A Service sales Service purchases 2005 2004 2005 2004 172,383 - - - 172,383 113,596 - - 113,596 8,575 - - - - - 8,575 118,749 - - - 118,749 71,914 - - 71,914 8,627 - - 136 - - 8,763 - 124,082 34,264 14,037 172,383 - 113,596 - 113,596 - 5,695 1,831 1,049 - - 8,575 - 84,297 24,355 10,097 118,749 - 71,865 49 71,914 116 5,804 1,753 1,049 27 14 8,763 Company Consolidated Total service sales and purchases 294,554 199,426 294,554 199,426 130 172 (f) Payables for the purchase of products. Prices and terms are within normal market conditions. 2005 2004 2005 2004 2,806 1,211 833 4,850 1,007 130 106,470 9,259 8,512 124,241 - 195,070 17,699 - - 833 833 770 172 85,874 8,028 8,249 102,151 94 113,644 13,623 - - - - - - - - - - - - - - - - - - - - 195,070 17,699 113,644 13,623 Product sales Product purchases 2005 - 1,144,178 - - - - - - 2004 1,111,577 949,674 - - - - - - 2005 924,649 - 13,403 9,623 6,112 1,865 923 675 - 2004 - 13,353 6,800 4,374 - 317 164 17 1,144,178 949,674 1,144,178 949,674 (a) Refers to advances granted for provision of logistics and general administrative services. (b) Refers to advances granted for provision of product and technology development and market research services. (c) Amount receivable due to the capital reduction made on January 30, 2004, approved by the shareholders’ meeting held on the same date. (d) Cash contributions to Nova Flora Participações Ltda. mainly for maintenance of working capital. (e) On September 29, 2000, April 30, 2002, December 30, 2002 and January 5, 2004, under a stock purchase and sale agreement, a financing in the total amount of R$6,174 was made to two directors of the Company, with interest rate of 3% per year and maturities between April 30, 2009 and September 30, 2010.This financing was granted to the directors in order for them to acquire common shares in Natura Empreendimentos S.A. and Natura Participações S.A. In the corporate restructuring completed in March 2004, these shares were exchanged for common shares issued by Natura Cosméticos S.A.The financing, in the amount of R$2,493 as of December 31, 2005 (R$4,823 as of December 31, 2004), is amortized with dividends and interest on capital paid by the Company to those directors. (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) 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, 2005 and 2004, 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. 11. INVESTMENTS Investments in subsidiaries Goodwill on acquisition of investment - Nova Flora Amortization of goodwill - Nova Flora Goodwill on acquisition of investment - Natura Europa Other Company Consolidated 2005 516,921 - - - 8 516,929 2004 373,748 - - - - 373,748 2005 - 8,015 (8,015) 5,753 8 5,761 2004 - 8,015 (5,487) 6,179 - 8,707 The goodwill on the acquisition made by the subsidiary Nova Flora Participações Ltda. was fully amortized in 2005, due to the low expectation of profitability from 2006 onwards. Liabilities related to this subsidiary are properly reflected in the consolidated financial statements. The goodwill generated on the purchase of a commercial location where Natura Europa SAS operates is supported by an appraisal report issued by independent appraisers, attributable to the fact that it is an intangible, marketable asset, which does not suffer any decrease in value over time. The balance variation between December 31, 2004 and 2005 is basically due to the effects of the exchange variation for the period. 128 Annual Report Natura 2005 2005 Annual Report Natura 129 Indústria e Comércio de Cosméticos Natura Ltda. 432,500 431,705 99.82 432,500 474,699 473,827 21,978 Natura Cosméticos S.A. - Chile 44,422 4,404 99.96 44,422 1,454 1,453 (2,819) Natura Cosméticos S.A. - Peru 2,286 2,284 99.93 2,286 948 947 (1,991) Natura Cosméticos S.A. - Argentina 64,486 61,262 95.00 64,486 89 84 (8,224) Natura Cosméticos C.A. - Venezuela 609 603 99.00 609 248 245 (361) Natura Inovação e Tecnologia de Produtos Ltda. 5,008 5,007 99.99 5,008 22,132 22,130 13,917 Natura Europa SAS 30,818 30,818 100.00 30,818 13,400 13,400 (14,620) Natura Cosméticos S.A. - Mexico 14,576 14,575 99.99 14,576 4,807 4,807 (9,754) Natura Brasil Cosmética Ltda. - Portugal 111 111 99.99 111 28 28 - Nova Flora Participações Ltda. 2,413 2,413 100.00 2,413 (4,202) (4,202) (5,230) 348,385 21,933 346 (2,819) 2,936 (1,991) 2,965 (7,810) - (337) 1,028 (5,230) 8,214 13,916 9,854 (14,620) - (9,754) - - 103,509 473,827 (352) - 4,278 1,453 (273) - 275 947 (610) - 5,538 83 1 - 581 245 - 4,202 - - - - - 22,130 (2,653) - 20,819 13,400 238 - 14,324 4,808 - - - 473,827 - - - 1,453 - - - 947 - - - 83 - - - 245 - (4,202) (4,202) (4,202) - - - 22,130 - - - 13,400 - - - 4,808 - (9) 9 (64) 92 28 (64) 64 - 28 Commodities Trading S.A. - Uruguai - - - - - - (20) Total - - - 597,229 513,603 512,719 (7,124) 20 (20) 373,748 (6,741) - - - - - - - - (3,640) 4,138 149,416 516,921 (64) (4,138) (4,202) 512,719 Shares of subsidiaries Number of shares (common shares) held Ownership interest - % Capital Shareholders’ equity of subsidiaries Share in shareholders’ equity Net income (loss) of subsidiaries Book value of Company’s investment: Balances as of December 31, 2004 Equity in subsidiaries Exchange variation on translation of foreign investments Recognition (reversal) of provision for losses Capital increase Balances as of December 31, 2005 Provision for losses: Balances as of December 31, 2004 (Recognition) reversal of provision for losses Balances as of December 31, 2005 Net balances as of December 31, 2005 12. PROPERTY, PLANT AND EQUIPMENT Vehicles Software IT equipment Furniture and fixtures Machinery and equipment Leasehold improvements Construction in progress Other Buildings Machinery and equipment Installations Vehicles Software Land Molds IT equipment Furniture and fixtures Leasehold improvements Advances to suppliers Construction in progress Other Annual depreciation rate - % 20 20 20 10 10 12 - 10 Cost 16,412 5,179 3,832 2,403 1,064 900 8 1 29,799 Annual depreciation rate - % 4 10 10 20 20 - 33 20 10 12 - - 10 Cost 144,140 131,819 67,884 24,694 24,885 15,910 36,521 28,772 13,789 1,028 16,813 8,569 6,420 521,244 Company Net book value 10,390 3,259 1,479 950 873 715 8 - 17,674 Cost 13,071 3,079 6,868 3,929 960 756 - 6 28,669 Company Net book value 119,522 90,008 40,844 16,369 16,314 15,910 14,093 13,722 8,780 824 16,813 8,569 3,516 365,284 Cost 126,990 76,549 64,486 19,953 12,477 15,910 26,879 31,910 12,809 774 19,742 21,478 9,856 439,813 2005 Accumulated depreciation 6,022 1,920 2,353 1,453 191 185 - 1 12,125 2005 Accumulated depreciation 24,618 41,811 27,040 8,325 8,571 - 22,428 15,050 5,009 204 - - 2,904 155,960 2004 Accumulated depreciation 4,788 1,226 5,624 3,031 610 157 - 2 15,438 2004 Accumulated depreciation 19,166 32,305 24,757 7,816 5,379 - 20,703 19,094 6,825 175 - - 4,771 140,991 Net book value 8,283 1,853 1,244 898 350 599 - 4 13,231 Net book value 107,824 44,244 39,729 12,137 7,098 15,910 6,176 12,816 5,984 599 19,742 21,478 5,085 298,822 13. DEFERRED CHARGES As mentioned in Note 1, on March 5, 2004, Natura Participações S.A. was merged into the Company. Natura Participações S.A. had recorded goodwill on the investment in Natura Empreendimentos S.A., amounting to R$1,028,041, and a corresponding provision for maintenance of future dividend payment capacity in the same amount.This goodwill arose from the merger of the shares of Natura Empreendimentos S.A. into Natura Participações S.A. on December 27, 2000. This merger was approved by the Extraordinary Shareholders’ Meeting held on that date, and the amounts are supported by a valuation report issued by independent experts.The amounts are as follows: Goodwill on investments Provision for maintenance of future dividend payment capacity 2005 758,792 (758,792) - Company 2004 905,655 (905,655) - 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. 14. LOANS AND FINANCING Company Consolidated Type 2005 2004 2005 2004 Maturity Charges Guarantees BNDES - PROGEREN (Support Program for Enhancing Employment and Income Capacity) BNDES (Brazilian Bank for Economic and Social Development) FINEP (Financing Agency for Studies and Projects) Export credit note (NCE) BNDES - FINAME (Government Agency for Machinery and Equipment Financing) Loans - Argentina Loans (onlending - International Finance Corporation - IFC) Resolution No. 2,770 and overdraft account BNDES - POC (***) Loans - Chile Loans - France Total Current Long term 69,890 - 69,890 - June 2007 Interest of 3.5% p.y. + TJLP (long-term interest rate) Bank guarantee and guarantee of Indústria e Comércio de Cosméticos Natura Ltda. 19,342 31,131 34,994 31,131 August 2007 to April 2010 - - - - - - - - - - - - - - - 297 - - 32,050 36,545 December 2008 31,641 - April 2008 Interest of 4.0% p.y. and 4.5% p.y. + UMBNDES (*) Interest of 3.0% p.y. + TJLP Interest of 104.7% of CDI (interbank deposit rate) 12,115 3,768 January 2006 to April 2010 Interest of 4.5% p.y. + TJLP 6,775 6,706 January 2006 - - - - - 26,654 December 2011 (paid in June 2005) 27,828 May 2005 297 February 2005 372 July 2005 1,088 May 2006 Interest of 9.5% p.y. + exchange variation (Argentinean pesos) Interest of 6.1% p.y. + semiannual LIBOR + exchange variation (U.S. dollar) Interest of 105% of CDI Interest of 4.5% p.y. + TJLP Interest of 5.0% p.y. + exchange variation (Chilean pesos) Interest of + 3.7% p.y. + exchange variation (euro) Mortgage (**) and guarantee of Natura Cosméticos S.A. Guarantee, promissory notes and receivables of Natura Cosméticos S.A. Promissory notes and guarantee of Natura Cosméticos S.A. Chattel mortgage and guarantee of Natura Cosméticos S.A. and promissory notes Guarantee of Natura Cosméticos S.A. Promissory notes and guarantee of Natura Cosméticos S.A. Promissory notes and guarantee of Natura Cosméticos S.A. Guarantee, promissory notes and receivables of Natura Cosméticos S.A. Guarantee of Natura Cosméticos S.A.. Guarantee of Natura Cosméticos S.A. 89,232 31,428 187,465 134,389 44,942 44,290 11,879 19,549 68,309 119,156 62,407 71,982 (*) UMBNDES - BNDES monetary unit. (**) Financing in local currency from the BNDES is guaranteed mainly by the Cajamar unit. (***) POC - Proposal of Credit Operation. 130 Annual Report Natura 2005 2005 Annual Report Natura 131 Maturities of long-term debt are as follows: The balances of contingencies are as follows: 2006 2007 2008 2009 2010 2011 Consolidated 2005 - 61,895 49,107 6,276 1,878 - 119,156 2004 25,359 21,714 13,470 3,847 3,790 3,802 71,982 15.TAXES PAYABLE Company Consolidated ICMS (state VAT) IRPJ (corporate income tax) CSLL (social 2005 58,163 10,438 contribution tax) 4,118 IRRF (withholding income tax) COFINS (tax on revenue) PIS/COFINS/CSLL (Law no. 10,833/03) PIS (tax on revenue) IPI (federal VAT) Other 1,570 74 1,093 17 - 63 75,536 2004 48,640 - - 2,873 382 770 84 - 27 52,776 2005 58,184 12,234 4,718 3,048 2,166 1,606 826 - 6,303 89,085 2004 48,650 159 - 4,084 4,424 1,095 960 431 2,579 62,382 16. RESERVE FOR CONTINGENCIES The Company and its subsidiaries are parties to certain tax, labor and civil lawsuits and to tax proceedings at the administrative level. Based on the opinion and judgments of its internal and external attorneys, management believes that the reserve for contingencies is sufficient to cover probable losses. Tax Labor Civil Company Consolidated 2005 45,837 3,929 4,077 53,843 2004 36,970 2,198 601 39,769 2005 76,789 5,118 8,692 90,599 2004 53,190 3,244 3,125 59,559 Tax contingencies Accrued tax contingencies are comprised of the following proceedings: Company Consolidated 2005 - 2004 - 2005 15,814 2004 13,604 12,740 11,039 14,267 12,370 5,901 8,057 5,901 8,057 4,926 - - - 5,859 5,717 - - 4,851 4,694 4,976 4,814 4,944 4,371 4,944 4,371 IPI - zero rate(a) PIS (tax on revenue) - semiannual - Decree-laws no. 2,445/88 and no. 2,449/88(b) Deductibility of CSLL (social contribution tax) (Law no. 9316/96)(c) Late payment fines on federal taxes paid in arrears(d) IPI tax assessment - attorneys’ fees(e) Monetary restatement of federal taxes (IRPJ/CSLL/ILL) according to the UFIR (fiscal reference unit)(f) Tax assessment - INSS (social security contribution)(g) IPI credit on purchases of fixed assets and consumption material(h) IPI (federal VAT) - tax collection lawsuit(i) Assessment notice - 1990 corporate income tax(j) - - 3,773 3,353 4,325 3,773 2,448 8,765 76,789 - 3,353 - 6,621 53,190 2,448 Attorneys’ fees and other 6,254 45,837 - 5,456 36,970 (a) Refers to IPI tax credits on raw materials and packing materials purchased at a zero tax rate and with tax exemption.The Company filed for a mandate and was granted an injunction for the right to the credit. (b) Refers to the offset of PIS paid as per Decree-laws No. 2,445/88 and No. 2,449/88, in the period from 1988 to 1995, against federal taxes due in 2003 and 2004.The appeal filed by the Company was judged favorably to it on September 12, 2005 by the 1st Panel of the 2nd Board of Tax Appeals that, by a majority of the votes, denied the alleged lapsing of the offset right and unanimously recognized the unconstitutionality of the Decree-laws determining that the calculation basis should be the billing of the sixth month prior to the occurrence of the taxable event, without monetary restatement.The Company is waiting publication and notification of the Decision. (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 (corporate income tax) basis. A portion of this contingency, in the amount of R$3,787 (R$3,245 as of December 31, 2004), is deposited in escrow. (d) Refers to the levy of a late payment fine on the payment of federal taxes in arrears, whose expectation of loss, according to the opinion of the attorneys, was changed to probable, due to a recent decision by the Superior Court of Justice. (e) Refers to attorneys’ fees for the defense in the tax assessment notice issued in November 2005 by the Federal Revenue Service, relating to the tax basis of the IPI (federal VAT) on intercompany transactions.The attorneys are of the opinion that the likelihood of loss is remote. (f) Refers to the monetary restatement of federal taxes (IRPJ/CSLL/ILL) related to 1991 based on the UFIR (fiscal reference unit), discussed in a mandate. An escrow deposit has been made for the amount involved in this contingency. (g) Refers to INSS (social security contribution) required by tax assessments issued by the National Institute of Social Security as a result of an inspection.The Company, as a taxpayer having joint liability for tax payment, is required to pay INSS on services provided by third parties.The amounts are discussed in court through a tax debt annulment action and are deposited in escrow. is discussing through injunctions the right to the IPI (federal VAT) credit on purchases of fixed assets and (h) The subsidiary Indústria e Comércio de Cosméticos Natura Ltda. consumption materials. In view of Federal Regional Courts’ former decisions, the attorneys believe that the risk of loss changed to probable. (i) Refers to a tax collection lawsuit seeking to collect the IPI (federal VAT) related to July 1989, when wholesale establishments began to be considered equivalent to industrial establishments under Law No. 7,798/89.The lawsuit is in the Federal Regional Court of 3rd Region (SP) for judgment of the appeal filed by the debtor.The amounts involved in this tax collection lawsuit are guaranteed by an affiliate’s cash investment in the amount of R$3,968 (R$3,337 as of December 31, 2004). (j) Refers to a tax assessment notice issued by the Federal Revenue Service requiring the payment of income tax on profit from incentive-based exports made in base year 1989, at the rate of 18% (Law No. 7,988, of December 29, 1989) and not 3%, as established by article 1 of Decree-law No. 2,413/88, which supported the Company in its tax payments at that time. Labor contingencies As of December 31, 2005, the Company and its subsidiaries are parties to 267 labor lawsuits filed by former employees and third parties (163 as of December 31, 2004), claiming the payment of severance amounts, salary premiums, overtime and other amounts due, as a result of joint liability. Civil contingencies Accrued civil contingencies are comprised of the following lawsuits: Several civil lawsuits(a) Civil lawsuits and attorney’s fees - Flora Medicinal(b) Company Consolidated 2005 1,811 2,266 4,077 2004 601 - 601 2005 2,043 6,649 8,692 2004 2,096 1,029 3,125 (a) As of December 31, 2005, the Company and its subsidiaries are parties to 760 lawsuits (571 as of December 31, 2004), at the civil court, special civil court and PROCON (Consumer Protection Agency), filed by beauty consultants, consumers, suppliers and former employees, mostly related to indemnity claims. (b) The Company is a party to civil lawsuits filed by a former shareholder of the indirect subsidiary Flora Medicinal, which seek the determination of any amounts and the satisfaction of alleged liabilities due to the former shareholder’s withdrawal. With the end of the expert investigation phase in four of the five civil lawsuits, it was possible to determine the amounts involved, although no decision, even by the lower court, has been issued. Escrow deposits Escrow deposits, which represent the Company’s restricted assets, refer to amounts deposited in court until litigation is resolved.The balance of these deposits as of December 31, 2005 was R$29,477 (R$24,256 as of December 31, 2004) - consolidated, and is classified under the heading “Escrow deposits”, in long-term assets. Possible losses The Company and its subsidiaries are parties to tax, civil and labor for which the risk of loss is considered possible by lawsuits, management and its attorneys.These lawsuits, for which the Company did not record any reserve, are as follows: Tax: INSS debt annulment action(a) Offset of 1/3 of COFINS - Law no. 9,718/98(b) Tax assessment - transfer pricing on loan agreements with foreign related company(c) Company Consolidated 2005 2004 2005 2004 4,750 4,199 4,750 4,199 3,902 - 3,902 - 1,239 1,707 1,239 1,707 IPI credit on purchases of fixed assets and consumption material(d) Other Civil Labor - 459 10,350 1,542 2,878 14,770 - 2,388 8,294 6,109 7,933 22,336 - 663 10,554 9,489 5,388 25,431 9,245 2,860 18,011 7,799 19,094 44,904 (c) Refers to a tax assessment notice whereby the Federal Revenue Service is demanding the payment of IRPJ and CSLL on the difference of interest on loan agreements with a foreign related party. On July 12, 2004, an administrative defense was filed and is still being judged. (d) In view of Federal Regional Courts’ former decisions, the attorneys reviewed the initial estimates and assessed part of this contingency as probable risk.Thus, a provision has been recorded to cover potential losses (see list of accrued tax contingencies). 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, 2005, the following amounts were recorded as profit sharing: R$13,506 (R$14,084 as of December 31, 2004) and R$35,171 (R$36,626 as of December 31, 2004), 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 statements of income for those years. 18. COMPENSATION OF MANAGAMENT AND EXECUTIVES a) The total compensation of the Board of Directors and Officers of the Company and its subsidiaries is as follows: 2005 Compensation Stock Options Program Fixed Board of Directors 3,608 2,592 Officers 6,200 Total Variable(*) - 1,267 1,267 Total 3,608 3,859 7,467 Stock Option Balance (Quantity)(**) - 37,788 37,788 Average exercise price (***) - 31.41 2004 Compensation Stock Options Program Stock Option Average exercise Fixed Board of Directors 2,364 3,396 Officers 5,760 Total Variable(*) - 1,324 1,324 Total 2,364 4,720 7,084 Balance (Quantity)(**) - 32,423 32,423 price (***) - 22.06 b) The compensation of the executives of the Company and its subsidiaries is as follows: 2005 Compensation Stock Options Program Executives Fixed 12,423 Total Variável(*) 4,562 16,985 Saldo das opçõesPreço médio de (Quantity)(**)price (***) 1,044,114 31.43 2004 Compensation Stock Options Programa Fixed 7,405 Total Variável(*) 3,097 10,502 Stock Option (Quantity)(**) 1,105,329 Average exercise price (***) 22.42 (a) Lawsuit filed by the Company seeking the annulment of the tax demanded by the INSS through a tax assessment notice issued for purposes of collecting the social security contribution on the allowance for vehicle maintenance paid to sales promoters. Executives (b) Law No. 9,718/98 increased the COFINS (tax on revenue) rate from 2% to 3%, and allowed this 1% difference to be offset in 1999 against the social contribution tax paid in the same year. However, in 1999 the Company and its subsidiaries filed for a mandate and obtained authorization to suspend the payment of the tax credit (1% rate difference) and to pay COFINS based on Supplementary Law No. 70/91, prevailing at that time. In December 2000, considering former unfavorable court decisions, the Company and its subsidiaries waived the lawsuit and enrolled in the tax debt refinancing program (REFIS), for payment in installments of the debt related to the COFINS not paid in the period. With the payment of the tax, the Company and its subsidiaries gained the right to offset 1% of COFINS against social contribution tax, which was made in the first half of 2001. However, the Federal Revenue Service understands that the period for offset was restricted to base year 1999.This lawsuit is awaiting ruling at the lower administrative court. (*) Refers to profit sharing. (**) Refers to the balance of unexercised vested and unvested options as of the bal- ance sheet date. (***) 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, 2005 and 2004, should Company 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, 2005 and the value of the option updated based on the IPC-A). 132 Annual Report Natura 2005 2005 Annual Report Natura 133 19. SHAREHOLDERS’ EQUITY a) Merger of companies At the Extraordinary Shareholders’ Meeting held on March 5, 2004, the Company’s shareholders approved the merger of Natura Empreendimentos S.A. and Natura Participações S.A. into the Company based on an accounting valuation supported by a valuation report issued by independent experts, as mentioned in Note 1. The net assets merged into the Company were R$104,951 for for Natura Natura Empreendimentos S.A. Participações S.A. based on the book values of these companies, as mentioned in Note 1. and R$75,716 b) Capital As of December 31, 2003, the Company’s capital was R$56,387, divided into 25,000 common shares without par value and 10,955 preferred shares without par value. On March 2, 2004, the shareholders decided at an Extraordinary Shareholders’ Meeting to: (i) capitalize the credits arising from the redemption of the subordinated debentures held by them and from the net yield of debentures through January 31, 2004; and (ii) split the shares issued by the Company in the proportion of 2,099 new shares for each existing share. The total amount of the capitalized credits was R$238,569, and was allocated to a capital reserve in the amount of R$100,000 and a capital increase in the amount of R$138,569, representing 3,299 new common shares at an issuance price of R$72,3 thousand per share. These shares were subsequently split in the proportion of 2,099 new shares for each existing share, resulting in capital of R$194,956, divided into 59,399,601 common shares and 22,994,545 preferred shares. In the Extraordinary Shareholders’ Meeting held on March 5, 2004, the shareholders approved, among other matters: b.1) Merging Natura Participações S.A. and Natura Empreendimentos S.A. into the Company. b.2) Canceling the Company’s shares held by the merged parent companies. b.3) Amending the bylaws to R$196,371, represented by 83,266,061 shares. In the first quarter of 2004, the amount of R$7,058 was deducted from the legal reserve, recognized in prior years, to absorb the net liabilities arising from the merger of the net assets of Natura Empreendimentos S.A. and Natura Participações S.A., which exceeded the reserve for profit retention. On May 24, 2004, the Board of Directors’ Meeting approved an increase in the Company’s capital within the limit of authorized capital, due to the exercise of the right to convert the debentures issued by the Company and fully subscribed by BNDES Participações S.A. into common shares of the Company, as allowed by the Private Indenture of Issuance of Registered Debentures Convertible into Common Shares, dated February 23, 2001. Consequently, 2,172,550 registered common shares without par value, totaling R$34,391, were subscribed, and the Company’s capital was changed from R$196,371, represented by 83,266,061 common shares, to R$230,762, represented by 85,438,611 common shares. As of December 31, 2005 and 2004, the Company’s capital is R$230,762. The subscribed and paid-up capital is represented by 85,438,611 common shares without par value.The Company is authorized to increase the capital up to the limit of 4,995,964 common shares without par value, of which 2,172,550 were subscribed on May 24, 2004 with a remaining balance of 2,823,414 common shares. c) Receivables from shareholders In 2004, the amount of R$3,029 was reclassified from the heading “Receivables from shareholders” to the heading “Treasury shares” until it is paid up. Details are disclosed in Note 10.e. d) Interest on capital At the Board of Directors’ meetings on April 28, July 27 and November 23, 2005, 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, 2005, the recorded gross amount of interest on capital is R$34,205 (R$29,442 as of December 31, 2004) and was calculated within legal including as to the mandatory minimum dividend of 30% limits, according to article 202 of Law No. 6,404/76 and the bylaws. Withholding income tax in the amount of R$5,131 (R$4,416 as of December 31, 2004) was withheld and paid by the Company. e) 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 2004, in the amounts of R$186,910 (R$2.204 per share) and R$29,442 (R$0.347 per share), respectively, were approved by Annual Shareholders’Meeting on March 29, 2005 and corresponded to 72.1% of the 2004 consolidated net income. On February 21, 2006, the Board of Directors’ Meetings approved a proposal, to be submitted to the Annual Shareholders’Meeting to be held on March 29, 2006, for the payment of dividends and interest on capital - gross, relating to income for 2005, in the total amounts of R$285,237 (R$3.357 per share) and R$34,205 (R$0.403 per share), respectively, corresponding to 80.5% of the 2005 consolidated net income. Of these amounts, the Company paid, on August 16, 2005, dividends and interest on capital - gross, related to income for the first half of 2005, in the amounts of R$90,434 and R$13,383 (R$11,390, net of withholding income tax), respectively. Dividends were calculated as follows: Net income Profit reserve - legal (h) Calculation basis for minimum dividends Mandatory minimum dividends Annual minimum dividend Proposed dividends Interest on capital-net of withholding income tax Withholding income tax Total dividends and interest on capital - gross Amount exceeding the mandatory minimum dividend Dividends per share - R$ Interest on capital per share - net - R$ Total dividends and interest on capital, per share - net - R$ Company 2005 397,357 - 397,357 30% 119,207 285,237 29,074 5,131 319,442 2004 300,411 (15,021) 285,390 30% 85,617 186,910 25,026 4,416 216,352 200,235 130,735 3.357 0.343 2.204 0.296 3.700 2.500 f) Treasury shares As of December 31, 2005, common shares in treasury, which have been used in the exercise of options in the Stock Option Programs for purchase or subscription of shares, totaled 432,015 (651,849 as of December 31, 2004), at a unit average cost of R$1.7801 (R$1.6970 as of December 31, 2004). g) 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, as further detailed in item b) above. h) Profit reserve - legal Since the balance of the legal reserve plus capital reserves exceeded 30% of the capital, the Company decided, in accordance with article 193 of corporate law, not to recognize a legal reserve on net income for 2005. i) Reserve for profit retention As of December 31, 2005 and 2004, this reserve was recorded in accordance with article 196 of Law No. 6,404/76 for future investments, in the amounts of R$77,915 and R$76,024, respectively, to the Company. The withholding referring to 2005 is based on a capital budget, which will be submitted for approval in the Annual Shareholders’ Meeting to be held on March 29, 2006. 20. STOCK OPTION PROGRAM In 1998, the former Natura Empreendimentos S.A. approved an incentive policy for certain directors and managers of the Group’s companies, whereby they could buy and subscribe shares. Subsequently, this Program was also assumed by the former Natura Participações S.A., and the terms of the Program remained unchanged. On March 5, 2004, the Shareholders’ Meeting of Natura Cosméticos S.A. approved the merger of Natura Empreendimentos S.A. and Natura into the Company, at which time the Company Participações S.A. assumed the Program.The Company completed an initial public offering in Brazil and modified the Program to remove the Company’s obligation to repurchase the shares subject to the plan and change the basis for determination of the stock option strike price. Subsequent to the Company’s initial public offering,in a meeting held on April 26,2004,the Company’s management changed these Programs,in which the Company no longer has the obligation to repurchase shares acquires within the Program. The Company’s management also modified the criteria for determining the exercise price of purchase or subscription of shares, the Company’s the average market price of which became common shares on the São Paulo Stock Exchange (BOVESPA) in the last ten trading sessions prior to the option grant date. The exercise price will continue being update based on the IPC-A (Extended Consumer Price Index). 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 Plan for 2001 had three years for exercising the options, i.e., the option holder had the right to exercise options at the rate of 1/3 per year. The Plans for 2002, 2003, 2004 and 2005 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, 2005 is 1,645,210 (1,795,620 as of December 31, 2004) and is composed by plan as follows: 2001 2002 2003 2004 2005 Number of call options (in shares) 12,294 407,260 680,899 329,433 215,324 1,645,210 Amount for the year updated according to the IPCA through December 31, 2005 19.56 27.15 15.21 37.43 80.31 As mentioned above, after its initial public offering, the Company is no longer required to repurchase the shares acquired under the Program and, since the recording of a provision for the Stock Option Program as CVM Official Circular No. 01/04 is no longer mandatory and is not a practice adopted by publicly-traded companies in Brazil, the amount of R$9,564 related to this provision was reversed as of June 30, 2004 in the amount of against the “Administrative expenses” account, R$2,578, and “Retained earnings”, in the amount of R$6,986. The amount of R$6,986 in the “Retained earnings” account is due to the fact that the provision was derived from Natura Participações S.A. and was received by Natura Cosméticos S.A. as part of the net assets in the merger process of March 2004, as disclosed in Note 1, and, therefore, it had no effect on the income of Natura Cosméticos S.A. As of December 31, 2005, 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, 2005 and the option value updated according to the IPCA) recorded over their related vesting period, the pro forma consolidated net income for the year ended December 31, 2005 would have been R$364,152 (R$242,981 as of December 31, 2004), as shown below: Net income Effect of programs considering vesting period Net income - pro forma Consolidated 2005 396,881 (32,729) 364,152 2004 300,294 (57,313) 242,981 The pro forma net income includes all estimated effects for the shareholders arising from the probable exercise of the options. As of December 31, 2005, the market price of the Company’s shares was R$102.98 (R$77.50 as of December 31, 2004). 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, 2005 totaled R$3,037 (R$1,313 as of December 31, 2004). 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 (only for 2004) transactions to hedge against exchange variation on its liabilities resulting from financing agreements and operating activities. According to the Company’s policy, swap transactions must be contracted for all debts that may expose the Company to exchange risks. These transactions consist of swaps between two variable rates: foreign currency and CDI (interbank deposit rate). 134 Annual Report Natura 2005 2005 Annual Report Natura 135 As of December 31, 2005 and 2004, the Company had swap and forward (only for 2004) transactions with financial institutions in the amounts of R$7,242 and R$74,007, respectively. These transactions generated liabilities of R$2,703 and R$6,138, respectively, recorded in consolidated current liabilities. The exchange exposure is substantially indexed to the U.S. dollar. The Company and its subsidiaries do not use derivative financial instruments for speculation purposes. c) Interest rate risk The Company and its subsidiaries are exposed to fluctuations in the long-term interest rate (TJLP) due to the financing agreements entered into with the BNDES and FINEP. d) Fair values As of December 31, 2005 and 2004, 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 (only for 2004) transactions the carrying and fair values are as follows: Consolidated 2005 Carrying value Fair value 2004 Carrying value Fair value 2,703 2,775 6,138 6,494 Swap and forward transactions 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. INSURANCE The Company and its subsidiaries contract insurance based principally on risk concentration and significance, at amounts considered by man- agement to be sufficient, taking into consideration the nature of its activities and the opinion of its insurance advisors. As of December 31, 2005, the insurance coverage was as follows: Items Coverage Industrial complex/ inventories Vehicles Loss of profits Any material damages to buildings, installations and machinery and equipment Fire, theft and collision for 954 vehicles Non-realization of profits arising from material damages to installations, buildings and production machinery and equipment Insured amount 434,862 25,171 604,241 24. SUBSEQUENT EVENTS On February 21, 2006, the Board of Directors approved a proposal to be approved at the Extraordinary Shareholders’ Meeting, which will be held on March 29, 2006, for the: • Issuance of 340,450 common shares (1,702,250 common shares, if the proposed stock split is approved as described below), without par value, by the Company, within the limit of authorized capital, to fulfill the exercise of 50% of the options granted to the Company’s Management and Employees, as well as to the direct or indirect subsidiaries’ Management and Employees, participants in the “Amendment to the Stock Option Plan of Purchase or Subscription of Common Shares Issued by the Company Related to Calendar Year 2003”, approved by the Company’s Board of Directors on May 17, 2004, excluding the right of preference for subscription by the Company’s other shareholders due to the specific purpose described above, pursuant to the last portion of the third paragraph of article 171 of Law No. 6,404/76.The price for payment of shares issued and to be subscribed, according to the conditions described above, established according to said “Amendment to the Stock Option Plan of Purchase or Subscription of Common Shares Issued by the Company Related to Calendar Year 2003”, currently corresponds to R$15.30, subject to monetary restatement based on the IPCA, calculated and disclosed by the Brazilian Institute of Geography and Statistics, through the effective sub- scription date, and must be paid in cash, upon subscription. • Split of common shares, without par value, issued by the Company, in the proportion of 5 shares after the split for each existing share. The purpose of this stock split is to adjust the Company’s shares price to increase individual investor access to the securities market, diversify the shareholder composition and increase liquidity of the Company’s shares. Due to this stock split, the number of shares will increase from 85,438,611 to 427,193,055. Likewise, the balance of authorized capital will increase from 2,823,414 to 14,117,070. In compliance with CVM Regulatory Instruction No. 358, of January 3, 2002, the Company disclosed on the CVM’s site (in the Periodic Eventual Information - IPE) significant event notice on February 21, 2006 related to the events described above. Statements of cash flows For the years ended december 31, 2005 and 2004 (In thousands of Brazilian reais - R$) CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operanting activities: Depreciation and amortization (Notes 12 and 13) Monetary and exchange variations, net Reserve for losses on swap and forward contracts (Notes 22.b and 22.d) Reserve for contingencies (Note 16) Allowance for inventory losses (Note 7) Sundry accruals Deferred income and social contribution taxes (Note 9.a) Proceeds from sale and disposal of permanent assets Equity in subsidiaries (Note 11) Debentures participation, net of taxes Minority interest (INCREASE) DECREASE IN ASSETS Current assets: Accounts receivable (Note 6) Inventories (Note 7) Other receivables Long-term assets: Escrow deposits (Note 16) Other receivables Subtotal INCREASE (DECREASE) IN LIABILITIES Current liabilities: Suppliers Salaries, profit sharing and related charges (Note 17) Taxes payable, net (Notes 8 and 15) Other payables Long-term liabilities: Other payables Subtotal NET CASH PROVIDED BY OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (Note 12) Investments (Note 11) NET CASH USED IN INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Decrease in short-term loans (Note 14) Fundings - long-term loans (Note 14) Payment of dividends (Note 19.e) Payment of interest on capital (Note 19.e) Other Sale of treasury shares by exercise of stock options (Note 19.f) Payment of receivables from shareholders (Note 19.c) NET CASH USED IN FINANCING ACTIVITIES Merger of Natura Empreendimentos S.A. and Natura Participações S.A. net assets (Notes 1 and 19.a) NET INCREASE IN CASH AND BANKS Cash and banks at beginning of year Cash and banks at end of year CHANGE IN CASH AND BANKS SUPPLEMENTARY CASH FLOW DISCLOSURE Income and social contribution taxes paid (Note 9) Interest paid on loans and financing (Note 14) Payments of swap and forward contracts (Notes 22.b and 22.d) ATTACHMENT I Company Consolidaded 2005 2004 2005 2004 397,357 300,411 396,881 300,294 4,989 5,550 1,231 10,598 - 5,726 (9,262) (204) 6,741 - - 422,726 (66,235) 800 (7,750) (888) (4,252) (78,325) 42,816 2,574 24,705 9,171 - 79,266 3,809 (1,143) 2,648 16,625 - 1,171 (4,528) 1,333 (2,788) 5,743 - 323,281 (63,193) (1,280) 26,193 (7,128) (654) (46,062) 96,455 5,981 (6,662) (4,236) (1,496) 90,042 44,035 3,920 12,064 21,638 1,943 11,794 (12,150) 2,242 - - 1 482,368 (66,198) (32,289) (212) (2,688) (1,615) (103,002) 51,216 7,122 14,068 (5,910) 1,346 67,842 34,340 8,835 4,243 31,570 7,007 1,420 (9,634) 1,828 - 5,743 (1) 385,645 (68,455) (49,715) 532 (9,073) 115 (126,596) 31,476 24,044 (20,705) (6,213) (1,448) 27,154 423,667 367,261 447,208 286,203 (9,991) (149,425) (159,416) (12,907) 65,342 (203,812) (30,129) 717 4,929 2,288 (7,629) (34,975) (42,604) (76,963) - (130,003) (11,403) - 630 - (111,636) - (111,636) (75,104) 120,366 (203,812) (30,129) 717 4,929 2,288 (76,886) (6,179) (83,065) (47,898) 38,768 (130,003) (11,403) - 630 - (173,572) (217,739) (180,745) (149,906) - 90,679 185,287 275,966 90,679 103,859 2,484 3,072 21,086 128,004 57,283 185,287 128,004 69,183 3,991 7,117 - 154,827 231,612 386,439 154,827 111,605 6,645 15,499 42,269 95,501 136,111 231,612 95,501 84,378 12,061 9,170 136 Annual Report Natura 2005 2005 Annual Report Natura 137 Statements of value added For the years ended december 31, 2005 and 2004 (In thousands of Brazilian reais - R$) REVENUES Sales of goods, products and services Allowance for doubtful accounts - recognition Nonoperating INPUTS PURCHASED FROM THIRD PARTIES Cost of sales and services Materials, energy, outside services and other GROSS VALUE ADDED RETENTIONS Depreciation and amortization (Notes 12 and 13) VALUE ADDED GENERATED BY THE COMPANY VALUE ADDED RECEIVED IN TRANSFER Equity in subsidiaries (Note 11) Financial income TOTAL VALUE ADDED TO BE DISTRIBUTED DISTRIBUTION OF VALUE ADDED Payroll and related charges Taxes and contributions Financial expenses and rents - includes exchange variation on translation of foreign investments (Note 11) Debenture participation Dividends (Note 19.e) Interest on capital (Note 19.e) Minority interest Retained earnings (*) (*) Unrealized profit from subsidiaries is eliminated. Additional information on the statements of value added: ATTACHMENT II Independent Auditors’ Report Company Consolidaded 2005 3,088,611 3,119,889 (31,066) (212) (1,860,261) (1,110,075) (750,186) 1,228,350 (4,989) (4,989) 1,223,361 24,729 (6,741) 31,470 1,248,090 2004 2,432,140 2,453,708 (22,666) 1,098 (1,485,412) (921,613) (563,799) 946,728 (3,809) (3,809) 942,919 23,913 2,788 21,125 966,832 2005 3,201,561 3,234,980 (32,177) (1,242) (1,731,670) (1,046,472) (685,198) 1,469,891 (44,035) (44,035) 1,425,856 54,714 - 54,714 2004 2,509,073 2,533,614 (23,673) (868) (1,365,906) (852,405) (513,501) 1,143,167 (34,340) (34,340) 1,108,827 35,414 - 35,414 1,480,570 1,144,241 (1,248,090) 100% 10% 57% (118,907) (714,503) (966,832) 100% 11% (106,100) 55% (532,934) (1,480,570) 100% 21% 49% (306,416) (727,181) (1,144,241) 100% 21% 48% (247,291) (547,804) (17,323) - (285,237) (34,205) - (77,915) 1% 0% 23% 3% 0% 6% (20,209) (7,178) (186,910) (29,442) - (84,059) 2% 1% 19% 3% 0% 9% (50,091) - (285,237) (34,205) (1) (77,439) 3% 0% 19% 2% 0% 5% (41,675) (7,178) (186,910) (29,442) 1 (83,942) 4% 1% 17% 2% 0% 7% 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, 2005 and 2004, 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 and consolidated financial positions of Natura Cosméticos S.A. and subsidiaries as of December 31, 2005 and 2004, 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) The supplementary information contained in Attachments I and II, referring to the statements of cash flows and value added, respectively, is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information was audited by us in accordance with the auditing procedures mentioned in paragraph 2 and, in our opinion, is fairly presented, in all material respects, in relation to the basic financial statements taken as a whole. 5) The accompanying financial statements have been translated into English for the convenience of readers outside Brazil. Of the amounts recorded under "Taxes and contributions" in 2005 and 2004, the amounts of R$412,131 and R$296,892, 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$1,311,672 and R$1,059,324 in 2005 and 2004, respectively, considering an estimated profit margin of 30%. São Paulo, February 21, 2006 DELOITTE TOUCHE TOHMATSU Auditores Independentes CRC 2 SP 011609/O-8 Edimar Facco Contador CRC 1 SP 138635/O-2 138 Annual Report Natura 2005 2005 Annual Report Natura 139 Index A ABC 115 Aberje 48 ABEVD 38, 83, 84, 87, 115 Abia 115 Abihpec 38, 65, 87, 114, 115 ABNT 115 ABPI 115 ABPVS 115 ABQV 114, 115 Abrasca 48, 115 Absence 106 Açaí 109 Acelp 115 Advertising 56, 84 AG Comunicação Ambiental 114 Agenda 21 86 Agenda 21 Cajamar 109, 119 Agenda 21 Permanent Forum in Cajamar 77, 109 Agenda 21 Potuverá 111 Agricultural stewardship 109 Agrobiodiversity 109 Aiesec 114 Aippi 115 Amerco 115 Animal testing 55, 87 Annual Budgetary Law. See LOA Anpei 115 Anthropic Medium 91 Anti-signs treatment 46, 54 Anvisa 83, 87 Apimec 68 Argentina 7, 41, 46, 77, 80 Asipi 115 Asociación Civil Peruana de Empresas Vinculadas al Brasil – Grupo Brasil 115 Asociación Interamericana de la Propiedad Industrial. See Asipi Aspi 115 Assets Açaí 92 Andiroba 92 Brazil nut 92 Breu-branco 92 Buriti 92 Cacao 92 Chamomile 92 Copaíba 92 Cumaru 92 Cupuaçu 92 Guaraná 92 Lemon grass 92 Jambu 92 Macela 92 Maté tea herb 92 Murumuru 92 Passion fruit 92 Pitanga 92 Priprioca 92 Rosewood 92 Association Internationale pour la Protection de la Propriété Intellectuelle. See Aippi Association of Corporate Communication of the Mercosur. See Amerco Association of the SAP Users in Brazil. See Asug Asug 115 Audibra 115 Auditing Committee 66 B Balance Sheet 120 Banco Nacional de Desenvolvimento Econômico e Social. See BNDES Baque Bolado (grupo teatral) 110 Beliefs 41, 43, 56, 72, 81, 85 Biblioteca Municipal de Jordanésia (SP) 112 Biodiversidade Brasil 119 Biodiversity 7, 39, 43, 46, 54, 90, 93 Biodiversity Conservation 109 Biodiversity National Policy 90 Biological Diversity Convention 90 Biotic Medium 91 BM&F 70 BNDES 74 Board of Directors 7, 66, 68, 70 Bolivia 41 Bovespa 66, 67 Bramex 115, 117 Brand 38, 56 Brand Management System 56 Brazilian Association of Corporate Communication. See Aberje Brazilian Association of Direct Selling Companies. See ABEVD Brazilian Association of Food Industries. See Abia Brazilian Association of Open Companies. See Abrasca Brazilian Association of Personal Hygiene, Perfumery and Cosmetics. See Abihpec Brazilian Association of Publicly Traded Companies. See Apimec Brazilian Association of Qualifty of Life. See ABQV Brazilian Association of R&D of Innovative Companies. See Anpei Brazilian Association of Sanitation Control Professionals. See ABPVS Brazilian Association of Technical Standards. See ABNT Brazilian Banks Federation. See Febraban 114 Brazilian Biodiversity Fund. See Funbio Brazilian Confederation of Industries. See CNI Brazilian Corporate Law 68 Brazilian Institute of Finance Executives. See Ibef Associação Paulista da Propriedade Intelectual. See Aspi Brazilian Institute for Corporate Governance. See IBGC Brazilian Institute for the Environment and Renewable Natural Resources. See Ibama. Brazilian Institute of Internal Auditors. See Audibra Brazilian Institute of Investor Relations. See Ibri Brazilian Sustainable Development Enterprise Council, CEBDS 114 Breu-branco 55, 60 Bribing 85 C Caieiras’ Department of Education 110 Cajamar (SP) 86, 90, 109 Cajamar’s Department of Education and Culture 110 Cajamar’s Department of Social Services 110 Cámara Argentina de Venta Directa. See Cavedi Cámara de Comercio de Lima 115 Cámara de la Industria Cosmética de Chile. See Cicc Cámara de Venta Directa de Chile 115 Cámara Peruana de Venta Directa 115 Campaign 6, 46, 98, 112 CAN 83 Cavedi 115 CDI 74 Ceal 115 Cempre 115 CEN 115 Center of Industries of the State of São Paulo. See Ciesp Certification 109. See ISO and NBR Chile 7, 41, 46, 77, 80, 81 Chronos 43, 54, 72 Chronos Spilol 7 Cia. de Dança Borelli 110 Ciesp 115 City Council of Child and Youth Rights 86 City Fund of Child and Youth 86 Clinic 105 CNI 115 Código de Conduta de Venda Direta Diante dos Consumidores 84 Código de Conduta de Venda Direta Diante dos Vendedores Diretos e entre Empresas 82, 83 Commercial training 107 Communication 6, 72 Communication channels 81, 83, 84, 86 Communication management 84 Congress 86 Conselho Empresarial Nacional para Prevenção ao HIV/Aids. See CEN Consolidated gross revenues 40 Consultants 6, 7, 39, 41,46, 57, 71, 72, 75, 83, 98, 111 Consumer 6, 7, 57, 71, 83, 84 Consumer Center 83 Consumer Protection Code 84 Consumer satisfaction 84 Contingency Data Processing Center 71 Controlling group 7, 66 Cooperative 85 Corporate Commitment to Recycling. See Cempre Corporate Governance 7, 66, 70 Corporate Responsibility Management System 71, 81, 85 Corporative Responsibility 52, 109 Corruption 85 Cosmetics 40, 56, 87 Cupuaçu 109 Current assets 120 Current liabilities 121 D Debts 70, 74 Dental care plan 105 Dermatologist 83 Direct sales 6, 38, 40 District forums 110 Diversity 51 Dividends 68 E EBITDA 49, 74 Ecocert Brasil 109 Economic and financial results 74 Economic indicators 80 Education 51 Education and Public Management 110 Education for Social Responsability and Sustainable Development. See Uniethos Education of youths and adults. See EJA Effluent Treatment Plant 90, 91 EJA 77 Ekos 43, 54 Elastinol 54 E-mails 83 Energetic Matrix – Natura Group 94 Energetic Matrix 50 Energy 94 Energy consumption 50, 94 Energy Management System 94 E-news Externa 56 Entrepreneurship and women’s leadership 112 Environment 71, 90 Environmental Commission of the City of São Paulo Section of Attorney’s Association 114 Environmental goals 80 Environmental impact 6, 80, 89, 91 Environmental indicators 80 Environmental management 80, 90 Escola de Administração de Empresas de São Paulo da Fundação Getulio Vargas, 114 Escola Estadual Professor Elcio José Hospital Pereira Cotrim 112 Esthetics Center at Natura Club 105 Ethics 41, 73, 80, 83, 85, 86 Ethos, Institute 48, 85, 115 Ethos Institute of Companies and Social Responsibility. See Ethos, Institute Exchange rate 70 Exchange rate hedging 70 F Fapesp 55 Fernand Braudel Institute of World Economy 116 FGV-Eaesp 67 Financial Committee 66 Financial planning 107 Financial Statements 120 Financing 74 Finep 74 Flora Brasiliensis (book) 112 Food and Drug Administration 83 Forced labor 102 Forest Stewardship Council 109 Formação de Agentes Culturais 110 Fórum Permanente Caxambu 114 Fragrances 40, 43, 55 France 6, 41, 46, 73, 80 Free cash generation 68 Frente Agenda 21 Escolar 111 Frente Educação e Capacitação 111 Frente Geração de Trabalho e Renda 110 Frente Meio Ambiente 110 Frente Relacionamento 110, 111 Funbio 116 Fund raising 112 Fundação de Amparo à Pesquisa do Estado de São Paulo. See Fapesp Fundação Getulio Vargas 114 Fundação Nacional da Qualidade 115 Future Market. See BM&F G Genetic Patrimony Management Council 85 Genetic resources 46 Gente Bonita de Verdade na Comunidade 111 Gincana Fazendo Eco: a Cajamar que Temos e a Cajamar que Queremos 110 Global Compact 85, 90 Global Reporting Initiative. See GRI Goals established in Natura Annual Report 2004 97, 107, 119 Government 86, 111 Government Relation Management System 86 Government relations 86 Graduate Scholarships in Business and Sustainable Development - Fundação Getulio Vargas. See FGV Greenhouse Gas Emissions 95 Greenhouse effect 95 GRI 48, 80, 116 Gross debt 74 Gross revenues 6, 40, 46, 74 GVces 115 H Hay Group 81 Health care plan 105, 107 Araújo Jorge (GO) 111 do Câncer AC Camargo (SP) 111 Escola da Universidade Federal de Pelotas (RS) 111 Estadual Mário Covas (SP) 111 Fêmina (RS) 111 Ophir Loyola (PA) 111 Universitário de Santa Maria (RS) 111 Human Resources Committee 66 Human Resources, department 81 I Ibama 92, 114 IBD 109 Ibef 116 IBGC 116 Ibri 116 Iedi 116 In vitro evaluation 55, 83 Index Bovespa 6 IBrX100 46, 67 ISE 46 itag 46 MSCI 46, 67 MSCI Brasil 46, 67 MSCI Emerging Markets Latin America 46, 67 Industrial Development Studies Institute. See Iedi Industrial Policy 86 Industrial waste 96 Information Technology 71, 75 Inmetro 83 Innovation index 54 Inpi 46, 56 Instituto Akatu 116 Instituto Biodinâmico. See IBD Instituto Brasileiro de Controle do Câncer (SP) 111 Instituto Maranhense de Oncologia Aldenora Belo (MA) 111 Instituto Nacional da Propriedade Industrial. See Inpi Instituto Nacional de Câncer (RJ) 111 Instituto Nacional de Metrologia. See Inmetro Inta 116 Interbank Deposit Certificate. See CDI Interests 68 International Trademark Association. See Inta Internationalization 46, 56, 59, 66 Internet 57, 83 Investiment 6, 39, 51, 52, 54, 62, 75, 107 Investiment in Corporate Responsability 108 Investment Matrix in Corporative Responsability 51 Investor 6, 68 Investors Relationship 68 IPO 66 Itapecerica da Serra (SP) 40, 86, 90 J Jambu 7, 46, 54, 109 Jordanésia (SP) 112 K Kyoto Protocol 95 L Labels 84 Labor Code (Consolidação das Leis do Trabalho) 106 Labor safety 105 Latin America 41 Latin America Businessmen Council 114 LCA 96 Lectures in the Corporate Responsibility area held in 2005 114 Letter of Relationship Principles 81 Letters of Principles of Ethos Institute of Companies and Social Responsibility 85 Life Cycle Analysis (methodology). See LCA Life Cycle Management, LCM 114 Line 0800 Talk to Natura 86 LOA 110 Lobbying 85 Logístics 40, 74, 85 Long-term Interest Rate 74 Long-term Assets 120 M Macela 109 Maison Natura Paris 6, 46, 54 Make-up 40 Mamãe e Bebê 43, 57 Management systems 70, 80 Marketing 75, 84 Mata Atlântica 91 Mata Nativa NGO 109, 110 Materials 95 Matias Barbosa (MG) 41 MBC 116 Merchandising 72 Mexico 6, 41, 46, 73, 80, 81 Millennium Goals 98 Ministério do Meio Ambiente 46, 114 Morgan Stanley Composite Index. See Índice MSCI Movimento Brasil Competitivo. See MBC Movimento Natura 82, 97, 103 Municipal Government 77 N National Health Surveillance Agency. See Anvisa Natura Cajamar 110 Natura Customer Service 84, 85 Natura Environmental Management System 71 Natura Itapecerica da Serra 111 Natura Mov (publication) 73 Natura Mov 57 Natura Support Center. See CAN Natura’s by-laws 68 NBR ISO 14001 71, 77 NBR ISO 9001 46, 77 Neighboring Communities 86, 109 Net amount 68 Net income 6, 50, 68, 122 Notes to the Financial Statements 125 Novo Mercado at São Paulo’s Stock Exchange 41 Novos Olhares – Oficinas de Automaquiagem 111 O Oficina Municipal 114 Ombusman 81 Operating Income 122 Oral hygiene 43 Organisational stakeholder 80 Organizational Satisfaction Survey 47 Outsourcing 71 P Perfume and Beauty Products Industry Union in the State of São Paulo. See Sipatesp Permanent assets 120 Personnel 6, 41, 47, 53, 66, 72, 81-82, 100, 105, 107 Peru 7, 41, 46, 77, 80, 81 Physical Medium 91 Pinheiro Neto Advogados 114 Pitanga 55 Pluriannual Planning 110 Portuguese Language Corporate Communication Association. See Acelp Postcareer activities 107 Postconsumption waste 96 Priprioca 55 Prizes 56, 117 Aberje 117 Abrasca 117 Annual Report 117 Social Report 117 Good Corporative Citizenship 117 Bramex 117 Modern Customer of Excellency in Services 117 Eco-Amcham 118 Children-friendly Company 119 Civically Responsible Company 119 Best companies 117 The Most Highly Regarded Companies in Brazil, 117 Executive of Value 118 FGV Business Excellence Award 118 Business Leaders Forum 117 IR Magazine Brazil Awards 117 Most valuable brands in Brazil 117 Marcas que Mais Respeitam o Consumidor, As 117 Best Place for Women to Work 81 Best Companies to Work in Latin America 117 Best Places to Work in Argentina 117 Best Place to Work 117 Environmental Merit 118 Renato Castelo Branco Social Responsibility 118 AACD Partnership Company Seal 119 Transparency Trophy – Anefac- Fipecafi-Serasa Award 118 Valor 1000 118 Valor Social 118 Product Safety 55, 87 Product Safety Committee 55, 71, 83, 87 Production 6, 40, 47, 75 Production planning 75 Productivity 39 Products Safety Policy 71, 83 Programs 1,000 Women for the Nobel Peace Prize 98 Agenda 21 Cajamar 98 Support Centers 107 Building the Future 106 Crer para Ver 98, 104 Crer para Ver – Young and Adult Education Campaign 109 Natural resources certification 109 Sustainable Development of Supplier Communities 109 Executive Education 106 Trainees 59 Volunteering Promotion 111 Corporate Education 103 Agricultural management 91 140 Annual Report Natura 2005 2005 Annual Report Natura 141 Forest management not based on wood production 91 Natura Campus 55 Natura Education 109 Natura Matched Savings 107 Quase Acidente 105 TPM2 105 Projects Agente Jovem 111 Biodiversidade Brasil 73 Caapiá do Rio de Janeiro (RJ) 104 Chapada (BA) 104 Cinema e Vídeo Brasileiro nas Escolas (SP) 104 Compartilhando Experiências (SP) 104 Comunidade Ativa 110 Educadores de EJA em Ação (SP) 104 Em Cada Saber um Jeito de Ser (BA) 104 Escolas indígenas da floresta (AC) 104 Janelas Cruzadas (RJ) 104 Juventude do Futuro 111 1,000 Women for the Nobel Peace Prize 73 Natura Musical 73 Roda Gaúcha (RS) 104 Visita à Natura 110, 111 0800 – Cajamar 111 0800 – Potuverá 111 Public education 87 Q Quality of life 51, 107 Quality of relations 81 R Reason for being (document) 81 Reduction, refinement and replacement. See 3R Refill 6, 46 Regional Development 86 Relationship programs 72 Reliability 85 Representation in professional organizations 115 Research 6, 40, 47, 84 Research and Development 38-39, 40, 54, 62, 71, 74, 75 Returns 39 Reused water 50 Risks 70 Risks impact 70 Risks management 70 Risks Management Committee 66, 70 Roadshows 68 S Sales channel 75 Sales promoters 111 São Paulo Institute Against Violence 116 São Paulo Stock Exchange. See Bovespa Satisfaction research 84 Secondary brand 56 Secretary of Environment of the State of São Paulo 114 Security Strategy 83 Self make-up 111 Shareholder Structure 68 Shareholders 6, 7, 68 Shareholders' Equity 121 Sipatesp 116 Social and environmental indicators 48 Social and environmental performance 39 Social capital 68 Social environmental responsible management 41 Social impact 80, 89 Social indicators 80 Social Responsability 80, 81 Solar protection 40, 43 SOS Mata Atlântica 110, 116 Spilanthes oleracea. See Jambu Spilol 46, 54 Spring (software) 110 Stakeholder Council 80 Statements of Changes in Financial Position 124 Statements of Changes in Shareholders' Equity 123 Statements of Income 122 Stocks 6, 39, 46, 68 Studies and Projects Funding Agency. See Finep Superior School of Advertising and Marketing, ESPM 114 Suppliers 7, 53, 85, 102 Supplier Communities 47, 60, 85, 109 Suppliers satisfaction 85 Support to Cajamar Local Projects 110 Sustainability 38, 47, 67, 74, 80 Sustainability Committee 98 Sustainable Agriculture Network 109 Sustainable Development 41, 51, 71, 80, 109 T Technology 7, 46 The Federation of Commercial and Services Association of the state of Rio Grande do Sul, Federasul 114 Third line of separation 75 Toll Free Line 83 Total Performance Management 105 Total productivity management 75 Toxicological analysis 71 TPM System 75 Training 99, 107 Transparency 73, 80, 83, 86 Tripartite Working Group 109 U Uberlândia (MG) 41 Unemployment insurance 107 União e Solidariedade das Cooperativas e Empreendimentos de Economia Social do Brasil. See Unisol Brasil União Educacional Minas Gerais 114 Uniethos 116 Unisol Brasil 110 Universidade Estadual Paulista de Sorocaba 114 Universal Declaration of Human Rights 98 University of São Paulo Communications and Arts School 114 Upper Tietê Hydrographic Basin 115 V Valor Sostenible (ma) 114 Values 6, 7, 41, 71, 72, 81, 85 Vegetable raw materials 109 Vertical warehouse 75 Vision 3 Vitrine (magazine) 73 W Waste 50, 96 Water 93-94 Water consumption 50, 93 Water recycling 93 Working capital 74 Workplace 81 World Federation of Direct Selling Associations 84, 116 World Wildlife Foundation-Brazil 116 Y Young Attorney Commission, 114 Youth and Adults Education. See EJA Global Reporting Initiative Index As it is fully adopting the guidelines of the Global Reporting Initiative, GRI, Natura is including the index in the 2005 Annual Report, in accordance with the recommendations of that organization.The objective of the index, in addition to making it easier to reference the information and indicators, is to evaluate the level of adherence of the company to the GRI guidelines. Further information on the GRI model can be obtained from the www.globalreporting.org website. Indicator Chapter EC1 EC2 EC3 EC4 EC5 EC6 EC7 EC8 EC9 EC10 EC12 EC13 EN1 EN2 EN3 EN4 EN5 EN6 EN7 EN8 EN9 EN10 EN11 EN12 EN13 EN14 EN15 EN16 EN17 EN19 EN20 EN21 EN22 EN23 EN24 EN25 EN26 EN27 EN28 EN29 EN30 EN32 EN33 EN34 EN35 Economic indicators Economic indicators Economic indicators Quality of relations Social indicators Economic indicators Economic indicators Economic indicators Economic indicators Economic indicators Economic indicators Social indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Environmental indicators Quality of relations Environmental indicators Economic indicators Page 89 89 89 86 89, 107 89 89 89 90 90 90 99 95 95 94 94 93 91 91 95 95 95 96 93 96 96 97 90 94 95 93 93 93 91 91 92 92, 93 93 93 91 95 94 85 95 90 Indicator Chapter LA1 LA2 LA3 LA4 LA5 LA6 LA7 LA8 LA9 LA10 LA11 LA12 LA13 LA15 LA16 LA17 HR1 HR2 HR3 HR4 HR5 HR6 HR7 HR8 HR10 HR11 HR12 SO1 SO2 SO3 SO4 SO6 SO7 SO8 PR1 PR2 PR3 PR4 PR5 PR6 PR7 PR8 PR9 PR10 PR11 Social indicators Social indicators Social indicators Quality of relations Social indicators Social indicators Social indicators Social indicators Social indicators Social indicators Social indicators Social indicators Quality of relations Social indicators Social indicators Social indicators Social indicators Social indicators Social indicators Social indicators Quality of relations Quality of relations Social indicators Social indicators Quality of relations Social indicators Social indicators Quality of relations Quality of relations Quality of relations Main texts Quality of relations Quality of relations Quality of relations Quality of relations Quality of relations Quality of relations Quality of relations Quality of relations Quality of relations Quality of relations Quality of relations Quality of relations Quality of relations Quality of relations Indicators not included in this report: EC11, EN18, EN31, LA14, HR9, HR13, HR14 and SO5 Page 98 98 102 81, 82 105 105 106 102 107 99 100 105 82 106 106 103 105 102 102 99 81, 82, 102 102 102 99, 102 81, 82 102 102 85, 86 86 86 56 87 82 84 83, 87 83 84 84 84 82, 84 84 83, 84 84 84 84 142 Annual Report Natura 2005 2005 Annual Report Natura 143 credits Editorial Council: Antonio Luiz da Cunha Seabra, Guilherme Peirão Leal, Pedro Luiz Barreiros Passos, Alessandro Giuseppe Carlucci, José David Vilela Uba and Rodolfo Witzig Guttilla Edition and Coordination: José David Vilela Uba, Executive Vice-President, Finance and Information, and Rodolfo Witzig Guttilla, Director, Corporate Affairs and Government Relations Editorial Coordination: Carmen Nascimento, Corporate Communication Department Copy: Ana Augusta Rocha, Antonio Felix, Carmen Nascimento, Célia Cassis, José Paulo Kupfer, Renato Modernell and Sonia Dias Survey, Determination of Indicators and Support for the Identification of Content: Nelmara Arbex, Corporate Responsibility Department English Version: Eliana Bryant English Proofreading: Regina Stocklen and Regina Berlim Art Director and Graphic Design: Wilson Spinardi Júnior, Modernsign Design e Inovação Image Director: Rafic Farah Art Assistants: Edna Junko Yokota, José Carlos Gonsalves Correa Júnior, Rogério de Stacchini Trezza, Modernsign Design e Inovação Ilustrations: Modernsign Design e Inovação over Joana Lira designs Printing: Litokromia Natura’s Team Responsible for the Determination and Provision of Indicators and Information in this Report: Alan Nascimento, Alejandra Ramos, Alejandro Diaz, Alexandre Zaparoli, Aline de Oliveira, Ana Luiza Nossar, Andrea Vernacci, André Battaglia, Angel Medeiros, Antonio Rigolo, Antonio Siqueira, Áureo de Almeida, Camila Fornazari, Camila Souto, Carlos Witte, Carmen Nascimento, Carolina Pulizzi, Claudia Falcão, Cláudio Souza, Claudio Eschecolla, Clayton Pedro, Cristiane Samarra, Cristiane Vieira, Cristiane de Moraes, Cristina Liberado, Damian Puerto, Daniel Gonzaga, David Guzman, David Uba, Denise Asnis, Ednalva Moreira, Eduardo Costa, Eduardo Luppi, Eduardo Zornoff, Elaine Lemes, Eliane Munford, Eliane Anjos, Elizabete Vicentini, Felipe Dias, Felipe Maranzato, Fernando Oliveira, Filipe Moura, Flavia Motta, Frederico Bandini, Georgia Bernardes, Gisela Bartolomé, Gladys Morales, Gloria López, Hélio Novaes, Hélio Ribeiro, Helmut Bossert, Ira Finkelstein, Isabel Ferreira, Itamar Correa da Silva, Janice Casara, Jean Gesztesi, Jelena Nadinic, Jorge Casmerides, Karen Cavalcanti, Karina Aguilar, Karine Boselli, Laura Gambeta, Leandro Machado, Lidia Pinto, Lourdes Rodriguez, Luciana Magalhães, Luciano Saporito, Lucilene Prado, Luiz Gomes, Maíra Vasconcellos, Marcel Szajubok, Marcelo Judzik, Marcos Bianchi, Marcos Egydio Martins, Marcos Josmar, Maria Amélia de Moraes, Mario de Oliveira, Moacir Salzstein Mônica Gregori, Natali Lima, Nelmara Arbex, Nivaldo Pizzinato, Olívia Ortiz, Patrícia Pessoa, Patrícia Peters, Patrícia Queijo, Paula Noschese, Paulo Lalli, Plínio Yasbek, Renata Paioli, Regina Rodrigues, Renata Sbardelini, Renzo Higginio Sanchez, Ricardo Capella, Ricardo Dessen, Ricardo Martello, Roberto Zardo, Rodolfo Guttilla, Rodrigo Roux, Romy Romero, Rosangela Brandão, Rosimara Lopes, Sandra Matsumoto, Sebastião Sampaio Alves, Sérgio Delarcina, Simoni Chitarra, Sônia Tuccori, Sophia Ribeiro, Susy Yoshimura, Wilson Ergonomista Photography: Cover and Fold: J. R. Duran; Pages 2 and 3: Arnaldo Pappalardo; Pages 4 and 5: Willy Biondani and Arnaldo Pappalardo; Pages 6 and 7: J. R. Duran; Page 8: J. R. Duran; Pages 9 and 10: Thelma Vilas Boas; Pages 11 to 15: Rafic Farah and Wilson Spinardi Junior; Pages 16 and 17: Rafic Farah; Pages 18 and 19: Wilson Spinardi Junior; Page 20: Rafic Farah; Page 21: Rafic Farah and Wilson Spinardi Junior; Page 22: Rafic Farah; Page 23: J. R. Duran; Page 24: Rafic Farah; Pages 25 to 32: J. R. Duran; Pages 33 to 35: Wilson Spinardi Junior; Pages 36 and 37: Rafic Farah; Pages 38 to 40: Wilson Spinardi Junior; Page 41: Danilo Borges; Page 42: J. R. Duran; Pages 44 to 46: J. R. Duran; Page 47: Rafael Quintino; Page 48: J. R. Duran; Page 49: Danilo Borges; Page 54: Wilson Spinardi Junior; Page 55: Danilo Borges; Page 58: J. R. Duran; Page 63: Willy Biondani and Arnaldo Pappalardo; Page 66: Wilson Spinardi Junior; Page 67: Danilo Borges; Pages 66 and 67 internal: Arnaldo Pappalardo (presidents) and Marcos Vilas Boas; Page 69: Willy Biondani and Arnaldo Pappalardo; Page 70: a) Thelma Vilas Boas; b) Wilson Spinardi Junior ; Page 71: Rafael Quintino; Page 72: Thelma Vilas Boas; Pages 73 and 74: Danilo Borges; Page 75: Willy Biondani and Arnaldo Pappalardo; Page 76: Rafic Farah; Pages 78 and 79: Arnaldo Pappalardo. 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. 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(511) 440 1362 Fax (511) 440 1362 ex. 275 Natura Europa 2, carrefour de La Croix-Rouge Saint Germain de Prés 75006 - Paris - France Tel. 33 (0) 1 42 22 12 59 Fax 33 (0) 1 45 48 45 54 5 0 0 2 a r u t a n t r o p e r l a u n n a annualreport natura2005
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