Natura &Co Holding S.A.
Annual Report 2011

Plain-text annual report

1 natura report 11# FULL GRI VERSION natura report # 11 2 1. OUR ESSENCE 3 Reason for Being 3 Vision 3 Beliefs 4 Culture Drivers 2. WHERE WE ARE 4. WHO WE WORK WITH 5 Message from the Chairmen of the Board 7 Message from the Executive Committee 9 Natura 10 Highlights of the year 10 Awards and Recognitions 12 Our market 12 Progress in Our Commitments 14 Governance 14 Board of Directors 16 Executive Governance 19 Risk Management 19 Internal Audit 19 Senior Management Compensation 22 Natura Management System 3. WHAT WE AIM FOR 23 Strategy and Prospects 24 Infrastructure to support growth 24 Managing sustainability 25 Priority topics 25 Water 25 Education 26 Sustainable entrepreneurship 26 Climate change 27 Relationship quality 27 Solid waste 28 Sociobiodiversity 29 Innovating innovation 31 Relationship quality 33 Ombudsman’s Offi ce 35 Employees 47 Consultants and NCAs 53 Consumers 56 Suppliers 58 Suppliers’ communities 62 Surrounding communities 65 Shareholders 67 Government 5. WHAT FOOTPRINT WE LEAVE 74 Natura Value Chain 75 Generating Environmental Value 75 Carbon Neutral 82 Solid Waste management 83 Water and effl uents 86 Generating Social Value 86 Instituto Natura 87 Support and sponsorship 90 Generating Economic Value 93 Financial Statements 126 About this Report 127 Global Compact 128 Assurance Declaration 130 Remissive Index 134 Credits natura report # 11 3 1. our essence 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 and pleasant relationship of a person 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, identifi ed with the community of people who are committed to building a better world, based on better relationships with themselves, with others, with nature of which they are part, and with the whole. beliefs Life is a chain of relationships. Nothing in the universe exists alone. Everything is interdependent. We believe that valuing relationships is the foundation of an enormous human revolution in the search for peace, solidarity, and life in all of its manifestations. Continuously striving for improvement develops 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. natura report # 11 4 culture drivers THE CULTURE DRIVERS WERE CREATED BASED ON OUR ESSENCE AS A GUIDE FOR OUR CHOICES AND MINDSETS. THEY ARE LIKE TRACKS SHOWING WHAT WE NEED TO PAY SPECIAL ATTENTION TO IN OUR DAILY ROUTINES. THE CREATION OF THESE DRIVERS WAS THE RESULT OF A PROCESS THAT INVOLVED THE COMPANY FOUNDERS, MEMBERS OF THE EXECUTIVE COMMITTEE AND THE LEAD- ERSHIP TEAM. WE ALSO DREW ON REFLEC- TIONS FROM THE CULTURE DIALOGUES HELD WITH 150 EMPLOYEES FROM ALL LEV- ELS OF THE ADMINISTRATIVE, OPERATIONAL AND SALES FORCES IN 2009. THEY ARE: COMMITMENT TO THE TRUTH Being authentic and true, honoring our commitments with others and our owns. Defending what we believe in and doing what we say we will. CONTINUOUS IMPROVEMENT Improving always, evolving in every dimension: material, emotional, intellectual and spiritual. Striving continuously for self-knowledge, recognizing our talents and our limitations. Creating an environment that promotes learning, continuous improvement and recognition of high performance. DOING THINGS WELL Insisting on doing everything simply, but with beauty, quality and care of details. Discipline to honor what has been agreed upon. INNOVATION Be entrepreneurial, taking the lead, doing what has never been done and assuming the risks. Continuously scrutinize the ways things are done and striving to fi nd new ways to do them. SUSTAINABLE DEVELOPMENT Consistently deliver superior results and relevant value in the economic, social and environmental fi elds. Manage the short term, with a commitment to build the company’s future. CARING RELATIONS Working together is better. Being generous, open and empathetic with others, creating a climate of trust based on relationship quality. Recognize that others are different from us, listen without judging, respecting their opinions and incorporating differences to fi nd the best solution for the whole. PLEASURE AND JOY Face daily challenges with optimism, lightheartedly and in a good mood. Celebrate achievements, fueling the enthusiasm and energy that encourage us to grow and continue to do more and to do it better. Find satisfaction at work, affi nity with our purpose in life, giving meaning to everything we do. natura report # 11 5 2. where we are 2.1message from the chairmen 1.1; 1.2 THE ETHICAL CHALLENGE OF OUR TIMES In 2011, we witnessed the confi rmation that our world will be unsustainable, if current trends of production, global consumption and socio-environmental imbalances continue. The wave of events in recent years says a lot: in 2006, the awareness of global warming risks caused by man came into being; two years later, we lived through the hardships of an economic crisis, now deepening in the European Union. Lastly, since 2010, we have watched with bewilderment the social convulsions of the Arab Spring in their many forms, but which have one thing in common: the quest for a fairer and equalitarian society. We believe that only a deep transformation based on ethics of life, in which new development logics and revigorated global governance prevail over and above the interests of religions, countries, economic groups, will be a source of hope for future generations and for man to continue existing on Earth. If on the one hand this scenario is troubling, on the other hand it reasserts our determination to make our best emotional and intellectual efforts for Natura to act increasingly as agent of necessary social change, always managed in accordance with the principles of sustainability, in the search for the best results – in an integrated manner – in the economic, social and environmental dimensions. This corporate behavior which is in harmony with society’s aspirations, means we simply must take Natura and its proposed values to new heights and frontiers. natura report # 11 6 Today, Brazil and Latina America, our main operating markets, are in a privileged position. Though not immune to the effects of a tougher international environment, they are less likely to be adversely affected by global upheavals. The economic rise of an important section of the population – with women playing a particularly prominent role – seems to have a wingspan that will be able to foster a long and promising cycle of development, albeit far from a sustainable development, fostering full social inclusion, broadening distribution of wealth and mitigating environmental impacts. The signifi cant investments of large companies in products for grooming, perfumery and cosmetics in Latin America are evidence of this much more favorable scenario. In the near future, Brazil will be the world’s second largest market in this industry. We began our message with an excerpt from the recently-published book by Chris- topher Meyer, Harvard University professor, who inspiringly describes the way in which we seek to carry on our business. We are very grateful for his generous interpretation, which simultaneously highlights our distinctive traits and encour- ages us to take part in a new and more community-oriented, fair and inclusive capitalist project. We believe that our path to success lies in the historical search for continuous improvement and innovative solutions for current and future dilemmas, learning the “zeitgeist” and projecting it into the future. In this new frame of mind, our greatest challenge will be to put together the new technologies with hearts attuned to the same cause. Therefore, we envisage the possibility of expanding the transformation power of our relationship network. “Natura may be the most evolved example we’ve seen thus far of a company managing its world in full color and maximizing value added to its ecology.” The ever greater exercise of our raison d’être, which is to foster well-being, will lead us to improve and deepen the ties which unite us to our consultants, collaborators, business partners and consumers. Energized by the dreams and by the quest for professional and personal achievements, we are convinced that this group is determined to foster values such as solidarity, creativity and altruism, with respect and reverence to life. We therefore emphasize our historical commitment to stand by the side of all those who want to participate in this urgent collective construction of humanity. Friendly greetings from ANTONIO LUIZ DA CUNHA SEABRA PEDRO LUIZ BARREIROS PASSOS GUILHERME PEIRÃO LEAL Co-Chairmen of the Board of Directors Christopher Meyer, “Standing on the Sun: How explosion of capitalism abroad will change business everywhere.” natura report # 11 2.2 message from the executive committee 1.1; 1.2 7 THE BASIS FOR THE FUTURE OF NATURA In the last fi ve years we have spurted profound changes at Natura. The Company practically doubled in size between 2007 and 2011, and our results prove the consistency of our strategy: the number of Consultants increased from 718 thousand to 1.4 million, boosting product orders from 9 million to a telling 17 million a year; Ebitda rose from R$ 700 million to R$ 1.4 billion, with net revenue increasing from R$ 3 billion to R$ 5 billion. International operations increased their share from 4.4% to 9%. To support this growth, we completely reformulated our logistics model and attracted new leaders fully aligned with our business culture and conduct. We set up a management system based on Business Units and Regional Units, and we continued to invest in innovation, in the conception of our products, in managing our environmental impacts and in our commercial model. In 2011, we made our biggest investment ever, worth around R$ 350 million to expand production, develop our logistics model and improve information technology, that are essential for sustaining our growth. We worked on bringing about a step change in infrastructure to increasingly streamline delivery of our prod- ucts to consultants, at a reduced cost per order and lower greenhouse gases emissions. However the simultaneous set up of new capture of orders systems, changes in the logistics model and the opening of new DCs affected our operations, service quality and relations. In parallel, we saw a drop in commercial and market effi ciency. The combination of these two conditions impacted negatively on our results, which were below expectations, requiring planning adjustments during the year. We intend to increase the impact of our promotions, setting a better balance between central and regional promotions. We are convinced that the infrastructure modifi cations in progress will enable us to reach service levels capable of boosting our brand’s competitive differentials. The year also brought new opportunities. After a period of signifi cant expansion through growth in the sales channel that increased product penetration from 40% to 60% in Brazilian homes, we identifi ed an opportunity to modify our strategy. Our focus is now on boosting our Consultants’ productivity by per- suading consumers to buy a greater variety of products more frequently. After all, ours is the top brand in the market, and our Consultants connect with 100 million consumers. natura report # 11 8 We continue to be enthusiastic about the expansion of our international operations which is the result of a high performance leadership team, allying experience in Natura and knowledge of the local markets. In Argentina, Chile and Peru, countries in which our operations are at the consolidation stage, Natura grew at the rate of 36% in local weighted currency. The Company recorded a signifi cant increase in profi tability, with our brands positioned among the industry’s leaders. In 2011, we continued to implement local manu- facturing, with the start-up of production in Colombia and the duplication of our Distribution Center in Mexico. We also began to reap results from the “Red de Relaciones Sustentables” (Sustainable Relation- ship Network), an innovation in our commercial model developed especially for the Mexican market which encourages socio-environmental enterprise, a novelty in the direct selling industry. In fi nancial terms, our net revenues increased 8.9%, with Ebitda growing 13.4%. In the social area, we ex- panded wealth distribution among our main stakeholders. The changes throughout the year affected our organizational climate and our service instability bore an impact on consultants’ satisfaction levels. On the other hand, with regard to the environment, we achieved our targets, with reductions in emissions and in the use of natural resources such as water and energy. In parallel with the changes undertaken on multiple fronts, we advanced towards a new perspective for our business. We are particularly enthusiastic about the future of direct sales. We have always believed in the entrepreneurial and transformational capacity of people engaged in a common purpose. In an ever more digitally connected world, in which personal treatment of consumers becomes increasingly important, direct sales has great potential to drive continuous growth. We anticipate a future in which relations between consultants and consumers will be supported by cutting edge information technology and social networks, a fi eld in which services should expand greatly and drive increased value generation for all those involved. Inspired by our desire to see our brand occupy new spaces, we reaffi rm our desire to proceed with the entire Natura community, further reinforcing this unique relationship network. ALESSANDRO GIUSEPPE CARLUCCI Chief Executive Offi cer JOÃO PAULO FERREIRA Senior Vice-President of Supply Chain JOSÉ VICENTE MARINO Senior Vice-President of Sales and Marketing MARCELO CARDOSO Senior Vice-President, Organizational Development and Sustainability ROBERTO PEDOTE Senior Vice-President of Finance, Legal Affairs and Information Technology natura report # 11 9 2.1 - 2.9 2.3 natura Natura was born in 1969, the fruit of two passions: cosmetics and relationships. For 43 years, we have sought to promote well being well – an expression that embodies our reason for being: to make people feel good about themselves, about others and about the natural environment and the whole of which we are part. We operate in the Cosmetics Fragrances and Toilletries. Since 1974, we have used direct sales as our commercial model. This means our products reach our consumers through a network of 1.4 million consultants (NCs) in Brazil and abroad. To support this sales channel, we have almost 7 thousand employees working in Brazil, in our head offi ce in Cajamar, São Paulo (São Paulo State), in fi ve commercial offi ces – Salvador (Bahia), Campinas (São Paulo State), Alphaville (São Paulo State), Rio de Janeiro (Rio de Janeiro State) and Porto Alegre (Rio Grande do Sul State)–, in addition to our plants and research and technology centers in Cajamar and in Benevides (Pará State) and eight distribution centers spread nationwide (see fi gure). We also have a strong presence in Latin America. The regional head offi ce, located in Buenos Aires, Argentina, co- ordinates our operations in Chile, Colombia, Mexico and Peru. Our products are also marketed in Bolivia through local distributors. Additionally, Natura has an operation and an Advanced Technology Center in Paris, France, where the Company develops research into new technologies, trends and advances in the area of beauty and well-being. BRAZIL ARGENTINA CHILE PERU COLOMBIA MEXICO FRANCE MANUFACTURING INTERNATIONAL MANUFACTURE HUBS DISTRIBUTION CENTERS PRODUCT CIRCULATION natura report # 11 10 HIGHLIGHTS OF THE YEAR ECONOMIC _ Natura net revenues reached R$ 5,591 million, a growth of 8.9%. _ EBITDA was R$ 1,425 million, with an EBITDA margin of 25.5%, and net earnings of R$ 830 million, and margin of 14.9%. _ Our international operations showed vigorous growth, with 40% increase in net revenues in weighted local currency (35.4% in Reais); they now account for 9% of the business. _ We undertook our largest investment ever, with capital expenditure of R$ 350 million in produc- tion, logistics and technology. _ The Company’s growth was below projections due to operational instabilities caused by changes in the order capture systems and lower growth in the country and in the industry. ENVIRONMENTAL The following initiatives were taken: _ Launching of the Amazônia Program aimed at yielding business around R$ 136 million in the region in 2012. _ Performance of our fi rst water inventory using the Water Footprint methodology; this should en- able diagnosis and serve as the basis for a new water management policy. _ Implementation of a new supplier selection methodology which takes into account social and environmental impacts, in addition to price, quality and logistics. _ Reduction of our relative GHG emissions by 25.4% between 2006 and 2011. Our target is a 33% reduction by 2013. _ On the other hand, with regard to our water and solid waste generation program unfortunately we were unable to reach the set targets per unit invoiced, SOCIAL _ The quality of our relations with our main stakeholders was below the desired levels. There was a drop in organizational climate from 73% to 70%. The NC and NCA loyalty rates also decreased to 19% and 24%, respectively. _ On the other hand we created an innovative and enterprising commercial model in Mexico, ob- taining 50% growth in the fi rst six months. _ We initiated an important leadership development program for the 600 top Natura managers in Brazil and overseas. _ The Trilhas Program, a partnership with the Ministry of Education, became public policy and should benefi t more than 3 million students in 2012. _ We raised R$ 8.4 million with the Crer para Ver program, yet falling short of our target of R$ 13 million. AWARDS AND RECOGNITIONS In 2011, Natura was elected the second most sustainable company in the world by the Canadian Research Insti- tute Corporate Knights. This was the third time we were classifi ed in this ranking. We were also elected the 8th most innovative Company worldwide by Forbes magazine and were the subject of a Harvard Business School case study. The main recognitions in the year are presented below. 2.10 natura report # 11 11 MAIN NATURA AWARDS AND RECOGNITIONS IN 2011 FINANCE Recognition FT ArcelorMittal Boldnes in Business Awards INSTITUTIONAL INSTITUTIONAL Organization Category Financial Times and ArcelorMittal Natura was recognized as one of the 6 best companies in the Environment category. Recognition Organization Category The 10 Most Innovative Companies in the World Forbes Magazine The 100 Most Prestigious Companies Época Negócios Magazine The Most Admired Companies in Brazil Carta Capital Magazine DSN Global 100: The Top Direct Selling Companies in the World Direct Selling News The Most Innovative Companies in the World The Most Prestigious Companies Most prestigious brand in the Beauty category. The Most Admired Companies in Brazil The Most Admired Companies in the Cosmetics Fragrances and Toilletries. World Ranking of the Biggest Direct Selling Companies. Latin American Ranking of Biggest Direct Selling Companies. World’s Most Ethical Company EthiSphere Health and Beauty MARKETING PRODUCT AND PACKAGING MARKETING PRODUCT AND PACKAGING 2011 x 2011 8º 2º 1º 1º 1º 3º 1º 1º Recognition Organization Category 2011 Abre Award for Brazilian Packaging Abre – Brazilian Packaging Association Company of the year Cosmetics and Personal Care Products Packaging - New Line Ekos Hair Packaging of Family of Products - New Line Ekos Hair Sustainability - New Line Ekos Hair Structural Design – Functionality New Line Ekos Hair Marketing – Communication Strategy: New Line Ekos Hair INVESTORS’ RELATIONS Recognition Organization Category Best Annual Report CR Reporting Awards SUSTAINABILITY Recognition The 20 Most Prestigious Companies in Argentina 100 Most Sustainable Corporations in the World ABRASCA –Brazilian Association of Public Companies Public Company Ranking Corporate Register Best Integrated Report Organization Category Clarin Newspaper Environmental Commitment Ranking Corporate Knights Inc., Innovest Strategic Value Advisors, Asset 4 and Bloomberg. 100 Most Sustainable Corporations in the World. One of the 20 Corporate Role Models Exame Sustainability Guide. Best Practices: Community Relations Exame Sustainability Guide Exame Magazine Best Social Responsibility Practices - Mexico Centro Mexicano para la Filantropia Fundación Chile Ranking: Best Prepared Companies for Climate Change. Fundación Chile and Capital Magazine Companies best prepared for climate change. natura report # 11 1º 1º 1º 1º 1º 1º 2011 3º 1º 2011 2º 2º x 1º 1º 12 OUR MARKET According to the most recent data from the Brazilian CFT industry association Abihpec/Sipatesp2, the market in this country grew 7.7% in nominal terms in the fi rst ten months of the year, albeit below projections. Even with lower economic growth, increased competition, and higher overseas investment in Brazil, Natura maintained its market leadership, with 23.2% market share against 23.6% the previous year. We also retained high levels of consumer preference: 89% intend to buy our products and 68% actually acquired Natura brand products. In the Latin American countries in which we operate (Argentina, Chile, Peru, Colombia and Mexico), the most recent Euromonitor fi gures show a 7.5% average annual growth for the CFT industry. This rate has remained steady over the last four years. In the same period, Natura has grown on average 38% per year in these coun- tries, climbing from the 15th to the 9th position in the CFT company ranking for the region. The numbers for the direct selling market showed the same trend. According to the Associação Brasileira de Vendas Diretas (Brazilian Direct Selling Association), some 3 million consultants were involved in door to door sales last year, 3.2% up over 2010. The growth rate during the previous year was 12.2%. PROGRESS IN OUR COMMITMENTS Every year we assume commitments and targets to drive our socio-environmental performance. These targets are incorporated into our Socio-Environmental Budget and are monitored by the Natura Executive Committee. Our 2012 targets were adjusted in accordance with the operational market framework we encountered in 2011 and Natura made them challenging. The table below presents the results for the year: 2011 TARGET WATER 2011 PERFORMANCE 2012 TARGET Reduce total water consumption per unit invoiced by 3%. NOT ACHIEVED Water consumption increased by 14%. Maintain water consumption at 0.40 liters per unit produced in Brazil.1 EDUCATION EMPLOYEES Reach average of 100 hours training per employee in Brazil NOT ACHIEVED Natura had the same average as the previous year, 90 hours. Reach an average of 88 hours training per employee throughout Natura. NOT ACHIEVED 85 hours reached. CONSULTANTS AND NCAS Train 540 thousand consultants per subject2. Achieve R$ 13 million sales from Crer para Ver product line. Reach 134 thousand NCs engaged in Natu- ra Movement. ACHIEVED 566 thousand NCs trained. NOT ACHIEVED Sales were R$ 8.4 million. NOT ACHIEVED Almost 123 thousand NCs engaged in Natura Movement. None. The scope of the target was expan- ded to include international operations (see below). Reach an average of 80 hours training per employee throughout Natura. Train 1,005,000 consultants per subject.1 Achieve R$ 10.3 million sales from Crer para Ver product line in Brazil and R$ 2.5 million from international operations. Maintain 123 thousand NCs engaged in Natura Movement. Achieve 13% penetration among consultants with the Crer para Ver program in Brazil. NOT ACHIEVED Rate achieved was 9.5%. Achieve 11% penetration among consul- tants in the Crer program in Brazil and 17.7% in international operations. CLIMATE CHANGE Reduce relative greenhouse gases (GHG) emissions by 33% by 2013, against 2006 baseline inventory. Reduce scope 1 and 2 GHG Protocol emis- sions by 10% by 2012, against 2008 baseline. UNDERWAY Reduction of 25.4% up to 2011. UNDERWAY The accrued variation from 2008 to 2011 incre- ased 11%. Reduce relative greenhouse gases (GHG) emissions by 33% by 2013, against 2006 baseline inventory. Reduce scope 1 and 2 GHG Protocol emissions by 10% by 2012, against 2008 baseline. natura report # 11 13 RELATIONSHIP QUALITY EMPLOYEES Achieve 32% employee loyalty in Brazil. NOT ACHIEVED Achieve 30% employee loyalty in Brazil. Achieve 76% favorability in Natura climate survey. CONSULTANTS AND NCAS Achieve 22% loyalty among consultants in Brazil. Achieve 37% loyalty among Natura Consultant Advisors in Brazil.3 CONSUMER Reach 54% consumer loyalty in Brazil. SUPPLIERS The rate was 28%. NOT ACHIEVED The rate achieved was 70%. NOT ACHIEVED The rate achieved was 19%. NOT ACHIEVED The rate was 24%. NOT ACHIEVED The rate was 52%. Achieve 74% favorability in Natura climate survey. Achieve 21% loyalty among consultants in Brazil and 36% in international operations. Achieve 33% loyalty among Natura Consultant Advisors in Brazil. Reach 54% consumer loyalty in Brazil. Maintain 28% Natura supplier loyalty. NOT ACHIEVED Reach 29% Natura supplier loyalty. SUPPLIER COMMUNITIES Achieve 44% loyalty among suppliers’ communities. Achieve average score of 3.67 in assess- ment of BioQlicar community development program. SOLID WASTE Reduce total weight of solid waste genera- ted per unit invoiced by 3%. The rate was 27%. NOT COMPARABLE The rate was 28%, but it was not possible to compare it with the 2010 results because of changes in methodology. Achieve 30% loyalty among suppliers’ communities. UNDERWAY Achieve average score of 3.76. Results will be available in May 2012. NOT ACHIEVED Total weight of solid waste generated by unit sold grew 3%. Maintain quantity of solid waste generated per unit produced in Brazil at 20 grams.1 Sociobiodiversity AMAZON Did not exist. Did not exist. - - SUPPLIERS’ COMMUNITIES Increase funding for communities by 25%. NOT ACHIEVED Funding was increased by 15%. Generate R$ 136 million in business volume in the Amazon region, considering Natura and other partners. Achieve 12% share for Amazon raw materials in Natura’s raw material purchase volumes. Distribute R$ 12 million in wealth to sup- pliers’ communities. PRODUCT IMPACTS Eliminate the use of the preservative para- bens from the portfolio by July 1, 2011. ACHIEVED Natura excluded parabens from the formulation of all its products. No ingredient substitutions are scheduled for 2012 1. We replaced the unit sold metrics with the unit produced. In other words, we no longer do the calculation based on the units sold (invoiced), considering instead what is actually manufactured (produced) by Natura. According to the new calculation, water consumption and solid waste generation were reduced. (more on page 81). 2. Starting in 2012, we should have a new method of tracking this indicator, recording NC participation per subject and counting all the NC learning interactions. Training by subject refers to different actions with specifi c subjects and focuses. 3. Errata: the NCA loyalty target for 2011 was 37% and not 40%, as published in the 2010 report. natura report # 11 2.5 governance 14 4.1; 4.2; 4.3; 4.6 Natura aims for the best standards of corporate governance, and continually strives to for excellence in this area. We are listed on the BM&FBOVESPA New Market, a special segment of the Brazilian Stock Exchange with the most demanding levels of corporate governance. Even though it is not listed on the New York Stock Exchange, Natura was the fi rst Brazilian Company to voluntarily obtain SOx certifi cation in line with the Sarbanes-Oxley Act to guarantee the integrity of our systems and controls against fraud and corruption. Since 2007, we have been members of the Company Circle of Latin American Corporate Governance, after being selected by the World Bank’s International Finance Corporation. BOARD OF DIRECTORS 4.7 The Natura Board of Directors includes seven members who hold a one-year mandate, renewable by approval of the General Shareholders Meeting. Currently one chair is vacant, and two of the board members are independent. In 2011, the Board of Directors was renewed and two of its members replaced. Edson Vaz Musa and José Guimarães Monforte stepped down after helping in the growth and strengthening of Natura for 13 years. Marcos Lisboa and Adílson Primo were appointed to replace them in the Annual Shareholders Meeting held in April 2011. Well known in the market, they joined the Board as independent external members. However, Adilson Primo resigned in November and his position is still vacant. The same meeting confi rmed the return of Guilherme Leal, who had resigned the previous year to run in Brazil presidential elections. We believe renewing the Board is a healthy practice that helps bringing in new ideas and a differentiated vision for the company. In 2012, we intend to increase the number of chair members from seven to nine. This change and the new members will be voted in during the next Extraordinary and Annual Shareholders Meeting to be held on April 13, 2012. The three new names to be indicated for the Board are Plínio Musetti, who is already on the Strategy Committee, Raul Beer and Roberto Lima. This composition will give the Board three independent members. The choice of these nominees is based on executive experience, knowledge of sustainability and the lack of confl icts of interest. This increase in size is aligned with Natura’s plans for the future, which include signifi cant expansion in Brazil and Latin America, and will reinforce the team with professionals who have extensive and diverse corporate experience. The change will also enable us to broaden the composition and reinforce the capacity of the support committees. The six meetings of the Board of Directors in 2011 were held in São Paulo (São Paulo State). We were unable to fulfi ll our wish of holding meetings in the other cities in which the Company business units are located, alternating between Brazilian and international operations. There are four committees which meet at set intervals for discussions, to assess study proposals and make recommendations to the Board (see fi gure below). natura report # 11 15 COMPOSITION OF THE BOARD OF DIRECTORS* 4.1 PEDRO LUIZ BARREIROS PASSOS Board Member and CoChairman in offi ce ANTONIO LUIZ DA CUNHA SEABRA Board Member and CoChairman GUILHERME LEAL Board Member and CoChairman MARCOS LISBOA Board Member and Chairman of the Audit, Risk Management and Finance Committee JULIO MOURA NETO Board Member and Chairman of the Strategy Committee LUIZ ERNESTO GEMIGNANI Board Member and Chairman of the People and Organizational Development Committee BOARD OF DIRECTORS - SUPPORT COMMITTEES 4.1; 4.9 Audit, Risk Management and Finance This committee is responsible for reviewing issues associated with taxes, accounting, company structure and new investments. It provides information to the Board on fi nance, risks and relations with external auditors. Since the beginning of 2011, it has been composed exclusively of independent external members. With the stepping down of José Guimarães Monforte, Edson Vaz Musa and Adilson Primo from the Board of Directors, the current Committee members are Luiz Ernesto Gemignani and Marcos de Barros Lisboa. Although the Sox Act recommends that the committee should have three independent members, we believe our Audit Committee works well with the current number. The committee receives support from a technical group consisting of: the external specialists Gilberto Mifano and Taiki Hirashima; Roberto Pedote, Senior Vice-President, Finance, Legal Affairs and Information Technology; Moacir Salzstein, Director of Corporate Governance, and the Risk Management and Internal Audit Manager Mercedes Stinco. The committee meets quarterly. Strategy This committee monitors projects drawn in strategic planning and its purpose is to study long-term initiatives for the Company. Its composition changed last year with the entry of Plínio Musetti. Edson Vaz Musa was replaced by Adílson Antonio Primo, who held offi ce until the end of October. Other members are Pedro Luiz Barreiros Passos, Julio Moura Neto and the company CEO, Alessandro Carlucci. The Committee meets every month, except in January and June. Corporate Governance This Committee is responsible for discussing improvements in the governance process and business operations. It also coordinates assessments by the Board and Corporate Governance. The four current members are: Pedro Luiz Barreiros Passos, Antonio Luiz da Cunha Seabra, Guilherme Peirão Leal and Julio Moura Neto, and a Secretary, the Director of Corporate Governance, Moacir Salzstein. Meetings take place quarterly. People and Organizational Development With the departure of Edson Vaz Musa, the Committee was reduced to two Board members: Pedro Luiz Barreiros Passos and Luiz Ernesto Gemignani. The other members are: Fátima Raimondi, an external participant; Alessandro Carlucci, CEO; and Marcelo Cardoso, Senior Vice-President, Organizational Development and Sustainability. The committee addresses issues in connection with compensation, succession, projects and training, in addition to Human Resources, the Culture Program and Natura Management System. * On the date of publication of this report natura report # 11 16 SENIOR MANAGEMENT ASSESSMENT AND SELF-ASSESSMENT The most recent assessment process involving the Board of Directors took place at the end of 2010. This consisted of a self-assessment and a broad review conducted by external consultants which included issues such as the Board’s size, attributions and work fl ow. This analysis indicated opportunities for improvement that have been implemented over the last two years. Due to the two analyses conducted in 2010 and the renewal of the Board in 2011, the decision was taken not to repeat this process last year. It should be resumed in the fi rst half of 2012. 4.10 ORDINARY GENERAL SHAREHOLDERS’ MEETING For two years we have been making every effort to attract more shareholders to attend the Ordinary General Shareholders’ Meeting, in particular our individual investors. Accordingly, in 2011 we assembled around 250 investors in Cajamar, where they were able to accompany the meeting held in Itapecerica da Serra in real time. All the members of the Board of Directors and Executive Committee were present at the Cajamar event to answer shareholders’ questions. A public meeting by Association of Investment and Capital Market Analysts and Professionals (Associação dos Analistas e Profi ssionais de Investimento do Mercado de Capitais, Apimec - São Paulo State) was also organized and held along the same event. Due to the success of the encounter and the importance of this audience, the event is expected to be repeated in 2012. EXECUTIVE GOVERNANCE The Executive Committee (Comex) is Natura’s main executive body and is charged with overseeing development of the company’s strategic planning and strategic projects, overall business management and evaluation of results based on the triple bottom line. In 2011, the CEO Alessandro Carlucci accumulated the position of Vice President of Innovation. This vacancy should be fi lled out in 2012. Comex has eight supporting committees in which subjects in connection with the executive areas are discussed. COMPOSITION OF THE EXECUTIVE COMMITTEE (COMEX) ALESSANDRO GIUSEPPE CARLUCCI CEO JOÃO PAULO FERREIRA Senior Vice-President, Operations and Logistics JOSÉ VICENTE MARINO Senior Vice-President, Business MARCELO CARDOSO Senior Vice-President, Organizational Development and Sustainability ROBERTO PEDOTE Senior Vice-President, Finance, Legal Affairs and Information Technology natura report # 11 17 EXECUTIVE BOARD ALESSANDRO MENDES Product Development Director ALEXANDRE ALVES LEMOS Commercial Director ALEXANDRE CRESCENZI Commercial Director ANA LUIZA MACHADO ALVES Brand and Culture Director ANGEL MEDEIROS Logistics Innovation Director ARMANDO MARCHESAN NETO Operations and Logistics Director ARNO CORREIA DE ARAUJO Commercial Director, Mexico AXEL PABLO MORICZ DE TECSO General Manager, Chile DANIEL DE ALMEIDA GUSMAO ALVES SILVEIRA Commercial Director DANIEL LEVY Business Unit Director DANIEL MADUREIRA GONZAGA General Manager, Peru DENISE LYRA DE FIGUEIREDO Business Unit Director DENISE REGINA DE OLIVEIRA ALVES Sustainability Director DIEGO DE LEONE Business Unit Director International Operations ERASMO TOLEDO Business Director International Operations FABIO NOBRE DA COSTA BOUCINHAS Digital Media Director FLAVIO PESIGUELO International Organizational Development and Sustainability Director CECILIA GOYA MEADE General Manager, Mexico HERIOVALDO RAMOS DA SILVA Commercial Management Director International Operations JOAO AUGUSTO PEDREIRA General Business Director, Brazil JOAO CARLOS MOCELIN Industrial Director JORGE LUIS ROSOLINO commercial director JOSE THOMAZ DEVECZ PENTEADO DE LUCA Commercial Innovation Director JOSELENA PERESSINOTO ROMERO Product Availability Director LOREDANA SARCINELLA MARIOTTO Business Unit Director LUCILENE SILVA PRADO Legal Affairs Director LUIS RENATO COSTA BUENO Commercial Director LUIZ CARLOS DE LIMA Finance Director MARCEL GOYA Finance, IT and Legal Affairs Director International Operations MARCIA ANDREA DE MATOS LEAL Management Systems Director MARCUS OLIVER RISSEL Commercial Director MOACIR SALZSTEIN Corporate Governance Director MONICA GRANJA GREGORI Communication and Marketing Director NESTOR MARIANO FELPI Order Cycle Director NEY MAURO SIMONE DA SILVA People Management Director PEDRO CRUZ VILLARES President, Instituto Natura PEDRO ROBERTO GONZALES General Director RENATO ABRAMOVICH Business Unit Director RICARDO LOBATO FAUCON Customer Service Director ROBERT CLAUS CHATWIN Business Development Director RODOLFO WITZIG GUTTILLA Corporate Affairs and Government Relations Director TATIANA DE CARVALHO PICCOLI PIGNATARI Business Unit Director THIERRY AUBRY LECOMTE General Director International Operations VICTOR MUNIZ FERNANDES Research and Development Director natura report # 11 18 COMEX SUPPORT COMMITTEES 4.1 Customers Created in January 2011, the committee’s main attributions are the monitoring of the quality of service Natura provides to end consumers and consultants. It is led by João Paulo Ferreira, Vice President, Logistics Operations, with the participation of José Vicente Marino, Vice President, Business. Ethics Charged with ensuring the application of the Natura Relationship Principles and correcting potential deviations, it is led by Roberto Pedote, Senior Vice-President, Finance, Legal Affairs and Information Technology, with the participation of Marcelo Cardoso, Senior Vice-President, Organizational Development and Sustainability. Ideas and Concepts Initiated in March 2011 and led by the CEO Alessandro Carlucci, this committee has as members the co- chairmen Pedro Luiz Barreiros Passos and Antonio Luiz da Cunha Seabra and investigates innovative long-term ideas and concepts for Natura. Commercial Innovation The committee’s major function is to review projects that drive innovation. It is led by José Vicente Marino, Vice President, Business, with the participation of Roberto Pedote, Senior Vice-President Finance, Legal Affairs and Information Technology. Brand Responsible for managing the Natura brand, the committee addresses brand architecture, Natura language and movements. It is led by Alessandro Carlucci, CEO, with the participation of José Vicente Marino, Vice President, Business, and Marcelo Cardoso, Senior Vice-President, Organizational Development and Sustainability. Processes Led by Marcelo Cardoso, Senior Vice-President, Organizational Development and Sustainability, this committee is charged with overseeing the implementation of Management by Processes and defi ning action fronts and strategies. João Paulo Ferreira, Vice President, Operations and Logistics, is involved. Products Led by the Innovation area, the committee monitors approval processes for new Natura products. Alessandro Carlucci assumed temporarily the leadership of the committee, supported by José Vicente Marino, vice president, Business. Sustainability Led by Marcelo Cardoso, Senior Vice-President, Organizational Development and Sustainability; the other mem- bers are Roberto Pedote, Senior Vice-President, Finance, Legal Affairs and Information Technology, and João Paulo Ferreira, vice president, Operations and Logistics. This committee’s role is to defi ne and track the com- pany’s Socio-Environmental Budget and Materiality Matrix, and other matters linked to the Company’s strategic planning. Its attributions also include the defi nition of strategic sustainability-related projects such as Carbon Neutral and Solid Waste and the company’s positioning and strategies related to its vision of sustainability and relationship quality. natura report # 11 19 RISK MANAGEMENT Risk management at Natura is an instrument incorporated into the strategic planning cycle encompassing eco- nomic, social and environmental matters. These are divided into two main groups: strategic risks, that is, risks that could affect company ‘s continuity and operational risks, in which our internal processes are monitored and verifi ed periodically by the manager responsible and his/her team. Ongoing improvement of our sustainability risk assessment mechanisms is integral to our strategy. It is our understanding that the challenge of integrating sustainability into company’s management includes continually assessing socio-environmental risks in the business. Even though we do not have a specifi c analysis of effects associated with climate change in the risk management process, the company has important mitigation projects aimed at the impacts our business may generate, such as the Carbon Neutral Program (more on page 26) and water consumption reduction measures (more on page 25) We identify major risks and controls for all processes, including regulatory questions and opportunities to de- velop technologies or products to face the challenges posed by climate change. EC2 We have a strategic risk map which is monitored by all the committees supporting corporate and executive governance. Since 2009, we have been working on refi ning a crisis prevention system, studying the most relevant scenarios for the company within a broader contingency plan for all our operations. INTERNAL AUDIT The Natura internal audit team reports to the Audit, Risk Management and Finance Committee within a frame- work which guarantees the auditors’ freedom of action with no interference from other company’s functions. During the year, 29 audits were conducted in the company, encompassing all the countries in which we operate. A total of 36 processes were assessed, compared to 33 in 2010. Natura’s internal audits include tests and procedures that assess control environment, including measures to prevent fraud and corruption. In 2011, we received three reports from Brazilian and international operations. These were noticed via different channels, particularly worthy of note being the Ombudsman area. One case of irregularity was proven, resulting in the dismissal of an employee. All the operations are subject to the processes set forth in the Sarbanes-Oxley Act, including those involving corruption. We received SOx certifi cation at the beginning of 2011, and this was renewed in 2012. SO2; SO4 In 2012, we should integrate our fraud prevention controls with the involvement of internal controls, audit, the ombudsman and legal areas. This initiative is intended to further reinforce fraud prevention. To ensure an envi- ronment that is increasingly open and ethical, we will step up communication with all the stakeholders about the channels available for reporting breaches and suspected breaches such as the ombudsman, the investigation process and the role and responsibilities of the Ethics and Audit Committee. SENIOR MANAGEMENT COMPENSATION 4.5 Our compensation plan for senior management seeks to foster engagement, balance short, medium and long term gains and is linked with the company’s growth and share value. For a group of executives that includes the CEO, vice presidents, directors and senior managers, gains are linked with long-term commitment through a share option subscription or purchase plan. Since 2009 the plan has required that the executive invest at least 50% of his/her net earnings from the profi t share plan in the acquisition of Natura shares. 50% of these shares vest after three years, and 100% after four years. In both cases, the plan is valid for eight years and the shares may not be sold before the end of the third year. The model establishes an annual grant limit of 0.75%, and a maximum of 4%. In December 2011, the volume of share options owned by the company’s executives corresponded to around 1.71% of Natura’s stock, compared with 1.59% in 2010. The total number of Natura shares on December 31st, 2011 was 431,239,364. Since 2002, we have granted 21,191,529 options, 23% of which have been canceled due to employees leaving the company. Tables: Number of Options and Appreciation of Plans natura report # 11 20 NUMBER OF OPTIONS Plan 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total Granted Exercised Mature Balance Non-Mature Balance Cancelled 3.533.610 3.969.220 1.901.460 1.120.760 1.153.756 1.305.508 1.800.010 2.690.0641 2.112.352 1.604.789 2.712.645 3.404.495 1.606.063 651.354 230.007 150.985 0 0 0 0 0 0 0 0 320.062 470.274 347.838 0 0 0 21.191.529 9.042.940 1.138.174 0 0 0 0 0 0 498.823 2.249.793 2.001.021 1.470.940 6.220.577 820.965 564.725 295.397 469.406 536.687 614.843 802.364 440.271 111.331 133.849 4.789.838 23% 14% 16% 42% 47% 47% 45% 16% 5% 8% 23% The quantity of shares granted was altered due to contract changes with some employees (impacting 52,064 options). APPRECIATION OF PLANS* Restated amount of plan R$ 7,29 R$ 4,08 R$ 10,05 R$ 21,56 R$ 32,13 R$ 30,39 R$ 23,60 R$ 25,74 R$ 37,76 R$ 44,07 Actual Discount Obtained in year 42.412,4 66.917,3 26.152,8 8.531,0 3.421,0 3.139,9 2.670,4 0,0 0,0 0,0 153.244,8 Plan 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total Amounts in 000’s R$ Discount obtained in year Potential discount of mature balance Potential discount of non-mature balance 55.612,0 84.884,7 31.214,9 9.396,3 3.705,8 3.342,7 2.744,9 0,0 0,0 0,0 190.901,3 0,0 0,0 0,0 0,0 1.384,6 2.855,4 4.474,5 0,0 0,0 0,0 8.714,6 0,0 0,0 0,0 0,0 0,0 6.416,7 -24.125,5 -2.607,7 -11.196,1 30.542,2 Plan Status Vencido Vencido Vencido Vencido 100% maduro 100% maduro 50% maduro Não maduro Não maduro Não maduro * Accrued amounts, corrected by the IPCA index up to December 2011. NATU 3 on December 29th, 2011: R$ 36,46 50% MATURE April 10 – 05 April 10 – 06 April 10 - 07 March 16 – 08 March 29 - 09 April 25 – 10 April 22 – 11 April 22 - 12 March 19 – 13 March 23 – 14 100% MATURE April 10 – 06 April 10 – 07 April 10 – 08 March 16 – 09 March 29 – 10 April 25 – 11 April 22 - 12 April 22 – 13 March 19 – 14 March 23 - 15 VALIDITY April 10 – 08 April 10 – 09 April 10 – 10 March 16 – 11 March 29 – 12 April 25- 13 April 22 – 14 April 22 – 17 March 19 -18 March 23 – 19 natura report # 11 21 VARIABLE COMPENSATION Variable compensation is designed to recognize and reward Natura’s executives for their performance and results during the year. Because the Company did not achieve the social targets set for 2011, around 600 Company’s managers, Directors and Executive Committee’s members were not rewarded with any variable compensation. The Profi t Share System for management consists in the payment of monthly salary multiples in accordance with the executive’s position in the organizational structure and is linked to the effective achievement of targets and minimum growth levels established for the year. Payment is contingent on Natura’s performance reaching the stipulated minimum. The criteria refl ect performance in the triple bottom line dimensions: _ Economic – Consolidated Ebitda, covering Brazil and international operations; _ Social – Organizational climate survey for employees in the Brazilian and international operations and loyalty rate for Brazilian consultants; _ Environmental – Carbon emissions in Brazil and in the international operations; _ Others – Product shortage, the percentage of products not available when ordered by consultants. The total amount awarded in the profi t share scheme, based on the long-term incentive program, may not exceed 10% of net earnings. This limit provides Natura with a balanced and coherent system that prevents distortions between executive compensation and company performance. The variable component, both short and long-term, is proportionally larger for senior executives than for other employees. The table below shows the compensation of the main employee segments in the company: 2011 Board Executive Committee Senior Management and Directors Middle Management Administrative Sales Force Operational Total 2011 Average number of employees (number) Total salary (in millions)1 Total variable (in millions)2 2012 Stock Option Plan (in number of shares)3 7 5 102 405 1.488 875 2.436 5.317 3,13 5,86 36,40 60,63 92,85 49,09 52,21 1,30 5,49 19,90 20,79 9,20 49,67 12,77 300,17 119,11 - - - - - - - - 1. Total Salary: Takes into account annual average base salary over 12 months (without charges) and overtime (with remunerated weekly rest - DSR), 13th and 14th salaries, in millions. 2. Variable Total: Bonus, Profi t Share and Sales Bonus (with DSR) paid in year 3. Stock Options: 2012 plan not approved yet. 2010 Board Executive Committee Senior Management and Directors Middle Management Administrative Sales Force Operational Total 2010 Average number of employees (number) Total salary (in millions)1 Total variable (in millions)2 6 6 86 336 1.255 905 2.542 5.135 2,64 5,25 27,04 42,17 63,63 44,60 41,89 227,23 2,08 6, 28 17,83 18,14 6,29 43,19 10,33 104,13 2011 Stock Option Plan (in number of shares)3 - 346.476 1.258.313 - - - - 1.604.789,00 1. Total Salary: Takes into account annual average base salary over 12 months (without charges) and overtime (with remunerated weekly rest - DSR), in millions. 2. Variable Total: Bonus, Profi t Share and Sales Bonus (with DSR) paid in year 3. Stock Options: 2011 plan approved in March 2011. natura report # 11 2.6 natura management system 22 All our businesses and operations are run based on the Natura Management System – designed specifi cally to meet our needs and to transform Natura into a company that is fundamentally process driven. This system makes for greater alignment with the company’s Essence and organizational culture, establishing requirements that enable Natura to run the business more dynamically while simultaneously operating within well-defi ned processes. This is vital considering the decentralized structure we adopted in 2008. With our expansion in Brazil and Latin America, we needed an administration aligned with our value proposition, but fl exible enough to meet specifi c demands from each location and segment. The Natura Management System is based on three dimensions: the individual, the organization and the relationships. It functions through 12 priority interrelated components: leadership, strategic planning, relation- ships, sustainability, learning, individuals, processes, brand, culture, customers, innovation and triple bottom line results. As an ongoing process, the System generates learning and is constantly improved. In 2011, the Company refi ned the defi nitions of each of the components, progressed in the processes and conducted extensive training for the teams directly involved. We also started to align the system with the Fundação Nacional da Qualidade (National Quality Foundation) management excellence model, enabling us to measure our matu- rity and make comparisons with other process-driven companies. Our ongoing challenge is to ensure our employees to learn and appropriate the Natura Management System so that it is understood and executed seamlessly. In 2012, we will engage in an extensive effort to disseminate the system and train people accordingly. The system will increasingly align business management with our Essence, oriented to service quality and triple bottom line results. natura report # 11 3. what we faim for 23 3.1 strategy and prospects Brazil continues to be one of the major cosmetics, fragrances and hygiene products markets in the world. Al- though growth in 2011 was reduced as compared to previous years, it will continue to expand at a higher rate than the global industry. Now the third top market worldwide, coming after the United States and Japan, Brazil is expected to become number two in 2012. In this expansion framework, it is our intent to make sure that services for our consultants and end consumers reach a level of excellence that will boost our competitive edge. Given the high penetration of our products, found in the homes of some 100 million Brazilians, and consumer preference for the Natura brand, more than twice as high as the runner up, we can grow by selling consumers a wider variety of products more often. This will involve an increase in the productivity of our consultants. To do this we should modify our marketing mix and introduce innovations to occupy niches in which the brand is not yet present, among other initiatives. We are confi dent and optimistic about the expansion of our international operations, which have proved to be an important and profi table business platform. In the Latin American countries we are expanding our sales chan- nel and increasing local manufacturing, with a perspective of accelerated growth in a highly promising market. We have closely accompanied transformations in the business environment, with a more demanding consumer, the advance of digital technologies and social networks. We intend to use these tools to further expand our business, generating income for our consultants and providing the consumer with an enhanced purchase experi- ence. Confi dent about the innovative spirit of our team, we believe this moment of transformation will enable Natura to extend its value proposition to new regions, further expanding the Company’s relationship network and its potential to contribute toward the construction of the business model of the future. natura report # 11 24 INFRASTRUCTURE TO SUPPORT GROWTH Natura’s investments in infrastructure will underpin the Company’s new cycle of growth. Since 2009, our logis- tics infrastructure has undergone signifi cant transformation. We are striving to ensure that products get to our consultants more rapidly, at a lower cost per order and with fewer greenhouse gases emissions. In 2011, we inaugurated a new Distribution Center (DC) and expanded the capacity of three others. With high technology product picking, extensive automation and low energy consumption, they are prepared to handle a higher number of orders, including those with fewer items, enabling more split deliveries. Gains in productivity ensue while reducing order costs. This expansion will continue in 2012 with the inauguration of yet another distribution center and hub (cargo transshipment center) in São Paulo (São Paulo State). These investments have brought the remodeling of our logistics network forward by almost two years. Our overriding aim is to cut delivery times to consultants. We have also driven logistics effi ciency gains in our international operations with new distribution planning for Latin America, centralized in Colombia and Mexico. We consolidated the perfume bottling operation in Ar- gentina where we started in 2010 and have begun soap production in Colombia. This is expected to increase signifi cantly the proportion of products manufactured locally. MANAGING SUSTAINABILITY Innovation and the ongoing evolution of our business are underpinned by driving sustainability throughout our processes. To that effect our management of sustainability is cross-structured to defi ne socio-environmental positioning and guidelines for every organizational area. It is our understanding that the defi nition of targets and the ongoing monitoring of our socio-environmental performance provide the basis for transforming the organization and the decision-making processes. They also generate new business opportunities, transforming socio-environmental challenges into value for Natura and for our relationship network. This evolution is an integral part of our Strategic Planning and is tracked systematically by Senior Management. The main socio-environmental indicators, with short and long-term goals, are part of the company’s strategic targets and are refl ected in our public commitments (more on page 12). Priorities are defi ned in conjunction with our stakeholders. Through the discussion panels held in Brazil and abroad, we identifi ed a set of high impact subjects for the company which are represented in the materiality matrix. Reviewed every two years, these subjects operate as a guide for management, driving projects and operational initiatives. The Sustainability Committee reports on performance to Natura’s Senior Management. The matrix was reviewed in 2010 and fi nalized in 2011 helping to expand the scope of Natura’s operations in Latin America, and the identifi cation of the following priority subjects: water, education, sustainable entrepre- neurship, climate change, relationship quality, solid waste and sociobiodiversity (more on page 25 and 28). Due to their relevance and the stage of maturity Natura has reached in these areas, some of these priority subjects are now structured as company’s sub-processes. As steward of this process, the Sustainability function is incorporated into the Organizational Development and Sustainability process. Managing relations quality with stakeholders and meeting their demands also comes under sustainability, encompassing the employees’ instruction as to how to relate to and dialogue with strategic stakeholders (more on page 27 and 31). natura report # 11 3.2 priority topics 25 4.17 WATER The threat of drinking water shortage represents one of the major threats to life on our planet. Consequently, what was already a major focus in reducing our product impacts became a priority for Natura when it revised its materiality matrix in 2010 and 2011 (read more on About this Report). To identify the real impact our business has on water resources, two years ago Natura initiated a broad-based study throughout the production chain – from the extraction of raw materials used in manufacturing to fi nal product disposal. This enabled the Company to measure the business’ main impacts, both in terms of water consumption and pollution potential. This study became Natura’s fi rst water inventory. The methodology, also known as Water Footprint, was cre- ated by WFN, the fi rst international organization devoted to promoting the sustainable, equitable and effi cient use of water. Natura has partnered with WFN since 2009 and was the fi rst Company in the cosmetics industry worldwide to apply this technology. We are also the only company in the world to include consumers product use in the inventory. In parallel, we invested in a series of initiatives to rationalize, reuse and treat the water used in our operations. This resulted in a 4.7% reduction in consumption per unit produced in 2011 (more on page 83). EDUCATION We believe that improving the quality of education is key to developing awareness among individuals capable of promoting a fairer, more sustainable society. This is a collective challenge that goes beyond organizations and civil institutions. It is everyone’s responsibility. This is why in 2011 we set about building a new educational architecture for Natura, resulting in a matrix that will guide all our internal and external actions. Our measures aimed at education for sustainability seek to drive a transformational culture that will promote excellence in our business and enable us to infl uence the defi nition of a new economy. We intend to use the sustainability management structure we have, considered a benchmark in the industry, and our relationship network to raise the awareness of our employees, suppliers and other stakeholders. Another basic pillar of our education strategy is the Instituto Natura. A not-for-profi t organization created in 2010, it oversees our private social investments in Brazil with a focus on quality education. The major component in this commitment is the Crer para Ver program, which is funded by the sale of a special product line which proceeds are invested in public education improvement projects in Brazil and Latin America. Neither Natura nor the consultants make money from the sale of these products. The aim is to offer educational technologies that positively infl uence public policy on education as a means of expanding the reach of our initiatives. This is the case with the Trilhas Project to encourage reading and writing in infant education. In 2012, the initiative will be implemented in partnership with the Ministry of Education in two thousand municipalities, reaching three million students. natura report # 11 26 SUSTAINABLE ENTREPRENEURSHIP Sustainable entrepreneurship is not only a new priority subject for Natura, but also a relatively unexplored concept in the business world. It is relevant for our strategy, but we know we still have some way to go to learn how to promote it. We are convinced, however, that our commercial model based on direct selling provides us with an opportunity to foster socio-environmental actions and boost the entrepreneurial potential of our relationship network. In 2011, we held a discussion panel with employees to address this subject. A number of initiatives have already demonstrated this potential, such as the Acolher Program, which encourages and supports socio-environmental projects developed by NCs and NCAs. This is also the case with the Sustainable Relations Network the Com- pany created in Mexico. In this direct selling model launched in mid-2011, the consultants’ level of involvement with Natura increases not only as a function of their commercial performance, but also on account of their engagement in socio-environmental projects in the communities in which they live (more on page 48 and 51). CLIMATE CHANGE In 2007, Natura assumed one of its boldest and most important environmental commitments: the decision to be carbon neutral. This means that the Company compensates for all product manufacturing greenhouse gases emissions throughout the value chain by investing in reforestation programs, energy effi ciency and fuel substitution. Even so, we know that the best initiative to save the planet is to effectively reduce our emissions. In this con- nection we are committed to a 33% reduction in our relative emissions by 2013, against a 2006 baseline. By the end of 2011, we reached a relative reduction of 25.4%. A further goal is a 10% decrease in our absolute emissions (generated in the production process) between 2008 and 2012. By the end of 2011, absolute emis- sions had increased by 11%, as a result of diffi culties in implementing certain projects. This condition should be remediated in 2012. The Company’s commitments present some intense challenges which require serious learning. To achieve the targeted reductions we undertake constant analyses. In spite of our efforts, we are still dependent on external decisions such as the composition of Brazil’s energy matrix, defi ned by public policy. With the increased use of thermoelectric power plants, which pollute more than hydroelectric plants, the electricity grid emission factor is more signifi cant in calculating carbon emissions, impacting the emissions of companies plugged to the grid. Another vital point is getting our employees on board. We have presented our managers with the challenge of incorporating carbon into our business vision, driving the issue throughout the company. To compensate for our 2010 emissions, in 2011 we bought carbon credits in a compensation project in Colom- bia, the fi rst time we have done so outside Brazil. We also launched a tender to select projects to neutralize our 2011 and 2012 emissions (more on page 75). natura report # 11 27 RELATIONSHIP QUALITY Natura believes our development and that of our stakeholders depends on our capacity to seek broad collec- tive solutions to our current challenges and the relationships we establish with our diverse audiences. To turn this belief into action, the Company has been developing structured relationship management ini- tiatives since 2009, with permanent channels for interacting with and engaging our stakeholders. We have promoted discussion panels to receive inputs on strategic Company’s projects and initiatives, as well as to assess relationship quality. This has led to innovative thinking and differentiated solutions. We have increased the number of multistake- holder panels, noting that bringing together different visions and interests drives a creative tension that helps us see things from other people’s perspective. This exchange of ideas broadens the perspective of all involved, allowing people to understand and respect different standpoints. We organize activities to promote self-development and raise awareness on different subjects involving dif- ferent audiences. Our interactions also occur virtually through Natura Conecta (www.naturaconecta.com.br), a community dedicated to information exchange and discussion. Maintaining relationship quality is an increasingly strategic process for Natura and the perceptions captured in these discussions are vital inputs for our strategic planning (more on page 31). SOLID WASTE For the last two years, Natura has been developing its own solid waste management program involving partners, third-parties and consumers. The proposal is to use solid waste management to leverage new busi- nesses through continuous innovation, collective construction, adaptation and social inclusion. We developed a methodology which was applied to the fi rst Natura solid waste generation inventory cov- ering the full product life cycle. This enabled a broader diagnosis of solid waste generation throughout the production chain. The data will be used to guide Natura’s solid solid waste management planning for the coming years. However, we believe that effective solid waste management and a consequent reduction in impacts will only occur through a collective effort involving companies, public authorities, solid waste collection cooperatives, civil society and all the other links in the production and consumption chain. We also participate in a plan that is being led by the CFT segment association, Abihpec, to drive compliance with Brazil’s national solid waste policy regarding reverse logistics of post-consumption packaging (more on page 82). natura report # 11 28 SOCIOBIODIVERSITY Natura’s experience of more than ten years using Brazilian biodiversity assets in our products and distributing wealth based on traditional knowledge demonstrates the potential to use these resources to generate wealth for the country’s sustainability. Eleven years ago the Company developed a production model based on relations with suppliers’ communities organized as cooperatives and associations. These are located in diverse regions of Brazil, in particular in the Amazon. We created production chains with these communities based on fair prices, compensation for the use of biological resources and valuing traditional knowledge. These relations are governed by Natura’s Policy for the Sustainable Use of Biodiversity and Traditional Knowledge which in turn adopts the guidelines set forth by the United Nations Organization’s (UN) Convention for Biological Diversity. This production model provides a value proposition that generates income for hundreds of families, while driving regional development and environmental conservation. For this reason we seek to promote discussion about the sustainable use of sociobiodiversity products and services. We also advocate the establishment of a new legal framework for access to biodiversity that favors the sustainable use of the country’s biological resources and its traditional associated manifestations. We want this relationship to drive research, produc- tion and conservation of the biological diversity in these regions. This discussion is extremely timely. After making 2010 the Year of Biodiversity, the UN determined that the period from 2011 to 2020 would be the United Nations Biodiversity Decade, in which governments would be encouraged to disseminate the results of their national strategies for protecting biological diversity and the services provided (more on our practices on page 58). AMAZÔNIA PROGRAM By recognizing the importance of the Amazon region for the country and Natura’s history in this region, we intend to use our brand to create sustainable development proposals for the region that will benefi t its inhabitants and conserve the forest. Launched in 2011, the Amazônia program expands and reinforces this commitment with view at promoting new sustainable business based on science, innovation, production chains and local entrepreneurship. These initiatives will be focused on sociobiodiversity and valuing tradi- tional knowledge and regional culture. Already in its fi rst year, the region was impacted by R$ 64.8 millions. As such, we defi ned three interrelated action fronts: Science, Technology and Innovation – Following the open innovation model adopted by Natura more than fi ve years ago, we aim to develop knowledge “in” the Amazon, “about” the Amazon and “for” the Amazon. We want to foster new research and to help local researchers and scientists remain in their region of origin. In 2012, we are going to build the Natura Knowledge and Innovation Center in Manaus, bringing together local and Natura’s researchers. Our target is to connect a network of more than one thousand researchers from diverse institutions by 2020. Sustainable Production Chains – Natura should increase production in the Amazon in Benevides (Pará State), where a manufacturing plant exists since 2007. The set up of a new plant will begin in 2012 and will occupy a site area of 172 hectares. Our goal is to stimulate the formation of a network of local extrac- tivist communities, encouraging the development of local production and social entrepreneurship. The purchase of materials from the Amazon is projected to grow from 11% to 30%, engaging 10 thousand families by 2020. Institutional Reinforcement – Natura wishes to develop wide-range sustainable development plans and initiatives jointly with civil organizations, local governments, national and foreign companies, fi nancial agents and other partners. An example of this kind of articulation was the defi nition of priority subjects for the Amazônia Program, which involved the collaboration of around 100 people from diverse back- grounds with experience in the features of Pará, Amazônia and neighboring States. This effort helped refi ne the program strategy and defi ne our priorities: education; entrepreneurship; conservation, valuing and using biodiversity sustainability; social justice and citizenship; public policy and culture. natura report # 11 29 3.3 innovating innovation We understand innovation as a process that should cross permeate all our activities. It is at the core of our value creation and is expressed not only in our products, but also in our commercial model, management system and the relations we establish with our stakeholders and society as a whole. This dedication led us to be elected the 8th most innovative Company in the world by Forbes Magazine, in a survey published in July 2011. The only Brazilian Company ranked among the 50 most innovative companies, Natura was placed close to global icons in innovation such as Apple (5th place) and Google (7th place). After preparing our Vision 2030 (a document which projects the future and seeks to defi ne the Company’s role in this new world) and Natura’s vision of innovation in 2010, we are now consolidating governance of the innovation process and deciding on our courses of action. We refi ned the defi nition of our four innovation differentiators which, in alignment with strategic planning, guide the creative process and underpin research in science, technology and open innovation. These are strategic guidelines that include new competencies as well as classical science, resulting in a more integrated approach. In addition to traditional methods, they encompass state-of-the-art science and technology, reduced socio- environmental impact and our desire to create products that provide an ongoing fl ow of well being well experi- ences for our consumers. Natura Innovation Differentiators: _ Classical and Advanced Skin and Hair Sciences _ Sustainable Technologies _ Well-Being and Relationship Sciences _ Senses, Design and Experiences Some recent examples of our innovation capacity are to be found throughout this report, such as the measure- ment of our water footprint (more on page 25), the launch of the Amazônia Program (more on page 28) and the creation of the VôVó sub-brand, introducing the pioneering concept of celebrating the relationship between grandparents and grandchildren. To develop these and other innovations, the Company invested between 2.5% and 3% of its net annual revenue in science, technology and the construction of knowledge networks. Investments in 2011 totaled R$ 146.6 mil- lion. We also received tax incentives for innovation and promotion through partnerships with institutions such as FINEP, BNDES, NCPq and FAPs. In 2011, these incentives totaled more than R$ 11 million in reimbursable and non-reimbursable funding. We monitor our innovation closely. It is currently at a level the Company considers optimal - between 55% and 65%. The index indicates the proportional contribution of new products launches within the last 24 months to Natura’s revenues. INNOVATION INDICATORS Investment in innovation (R$ millions) Percentage of net revenue invested in innovation (%) Number of products launched (units) Innovation rate (%) 2009 111,8 2,6 103 67,6 2010 139,7 2,8 168 65,7 2011 146,6 2,7 164 64,8 natura report # 11 30 INNOVATION MANAGEMENT Natura has a governance model structured to manage innovation. It was upgraded in 2011 after the creation of the Ideas and Concepts Committee, which is focused on ideas for the long term (more on page 18). In our business routine, we work on four major fronts: Research and Technology; Product Development; Consumer Safety; and Partnerships and Promotion. Management of the product funnel, the process for introducing new projects and proposals, was also refi ned. We increased the level of detail and specifi cations required for initiating a project or to develop a product. With well defi ned criteria, we drove effi ciency, investing only in projects that truly add value to the brand. In this framework, value is understood in its broadest sense, including brand, environmental footprint and other benefi ts. This means that all new products must have attributes that strengthen our market presence, such as providing a new experi- ence for consumers and having an environmental impact which is the same or lower than that of a similar product. OPEN INNOVATION We continually seek creative, innovative solutions for our scientifi c and technological challenges. Natura believes that collaboration and collective construction are effective tools for generating innovation. This is why we have groomed and expanded our open innovation program. Through partnerships with scientifi c institutions Natura develops new products, processes and tools and has focused on creating a global science and knowledge network. In 2011, we revised the guidelines to align them with our innovation differentiators. Natura established a partnership with the laboratory LNBio (Laboratório Nacional de Biociências) to open the Com- pany’s Bio-Essay Laboratory in Campinas (São Paulo State). This facility enables high performance research through High- Throughput Screening (HTS) techniques, a rapid, automated screening method for natural and synthetic compounds. We expect results to come in the long term; however, partnerships play a fundamental role by facilitating the discovery of new compounds to be used in our products and new uses for existing ones. The laboratory is managed by a board comprising representatives from LNBio, Natura and two other bodies. The project received funding from the Ministry of Science and Technology. We have also strengthened relationship with the Massachusetts Institute of Technology (MIT), partnership which was announced in 2010. The projects to be developed are under discussion, and in 2012 we should sign the relevant agree- ments and start cooperative research. NATURA CAMPUS Our main communication and relationship platform with the scientifi c community is the Natura Campus portal (www.naturacampus.com.br). Reorganized last year, it is designed to encourage interaction among users, con- nectivity with the social networks and to diversify the means for building knowledge networks. Part of our open innovation strategy, the portal provides information on science, technology and innovation. It hosts blogs and interactive communication tools enabling researchers to contact Natura and the entire network. Users have access to the program’s relationship agenda, information on relevant activities and events organized by Natura and partners, and data from research and case studies we perform, reinforcing our commitment to share learning and driving new research. In 2011, we made presentations to more than 500 people and re- corded more than 4,400 accesses to the portal. More than 100 researchers have newly enrolled in the program. COMMERCIAL INNOVATION In tune with transformations in the business environment, the Company has also identifi ed opportunities to innovate our direct selling model in Brazil and abroad. E-commerce has transformed relations between companies and consumers, who are more and more willing to access their preferred products in different ways. We anticipate a huge potential in digital media. In the communication with our sales channel, we have noted growing interest in our digital media. The digital Revista Natura has grown around 30% in user numbers, reaching 300,000 single visitors in the last cycle. Three million accesses were counted throughout the year. In 2011 we launched the digital version for tablets (iPad and other models). We also integrated production of communication materials for the international operations, in a more effi cient manner, central- izing that production in Buenos Aires. This means that any advance in Brazil may be more rapidly incorporated in the other Latin American countries. The evolution of our commercial model has been continuous. Three years ago the Company created the Natura Con- sultant Advisor (NCA), and more recently the Sustainable Relationship Network, developed especially for the Mexican market (more on page 48). natura report # 11 31 4. who we work with 4.1 relationship quality 4.14; 4.16; 4.17; DMA HR In line with its Beliefs, Natura constantly strives to improve relations and dialogue with the persons who impact or are impacted by our business (more on page 25). In spite of our efforts, we experienced a drop in the quality of our relationship with our stakeholders in 2011, as captured in the loyalty and satisfaction surveys. This was felt most strongly among employees and consultants (more on pages 35 and 48). Since 2010, we have increased the number of multistakeholder discussion panels. These exchanges of ideas provide participants with more information, giving them the opportunity to compare different viewpoints on a subject. For Natura, it results in a new vision and valuable inputs for the innovation process and collective solutions. In 2011, more than 800 people took part in the 23 discussion panels promoted by Natura. We brought together representatives of employees, consultants, Natura Consultant Advisors, shareholders, consum- ers, suppliers, suppliers’ communities and surrounding communities, the press and the government. The subjects discussed included product innovation, CO2 emissions and the construction of the Company’s new factory in Benevides (Pará State). In addition to the round of discussions for the preparation of the new Natura materiality matrix (more on page 129), we promoted three panels involving more than 100 people with background and experience regard- ing Pará, the Amazon and neighboring States, the objective being to build a specifi c materiality matrix for the Amazônia Program, launched in May 2011. One of these meetings was reserved for specialists and opinion leaders familiar with the region, who contributed to Natura strategy (more on page 28). Natura also promoted activities centered on self-development, awareness, spirituality and sustainability. One of these was the “What you hunger for” program, a cycle of talks and meetings for employees and partners designed to stimulate discussions on issues related to Natura’s value proposition. Additionally, Natura sponsored the cycle of talks Frontiers of Thought (more on page 88). natura report # 11 32 2011 DISCUSSION PANELS Subject Stakeholders Attendees Date and place Objectives Multistakeholders 59 Feb. - Belém (Pará) Amazônia Materiality Matrix Amazônia Materiality Matrix Natura strategy for the Amazônia program Materiality Matrix - Chile Multistakeholders 40 Specialists and Opinion Leaders 40 Multistakeholders 38 Carbon Neutral Multistakeholders Sustainable Supply Chains Sustainable Supply Chains Public consultation - New Benevides plant Suppliers (third parties, fl eet, transport, fragrances, oleochemicals) Suppliers (plastics and graphics) Multistakeholder Multistakeholder Multistakeholder Multistakeholder Multistakeholder Product Innovation- Hair Category Product Innovation- Body Category Product Innovation- Shaving Category Product Innovation- Functional Deodorant Category Natura Culture 54 88 78 57 32 29 22 27 Feb. - Manaus (Amazonas State) Feb. - Manaus (Amazonas State) March – Casa Natura Santiago / Chile April - São Paulo (São Paulo State) May – São Paulo (São Paulo State) May - São Paulo (São Paulo State) July - Benevides (Pará State) August - Cajamar (São Paulo State) August - Cajamar (São Paulo State) August - Cajamar (São Paulo State) August - Cajamar (São Paulo State) Defi nition of priority subjects for Amazônia program materiality matrix. Defi nition of priority subjects for Amazônia program materiality matrix. Inputs for refi ning Natura’s strategy for the Amazônia program. Defi nition of priority subjects and preparation of Natura materiality matrix. Inputs for Carbon Neutral Program. Joint mapping of potential positive and negative operational impacts with supply chain. Joint mapping of potential positive and negative operational impacts with supply chain. Presentation of plans for new Benevides plant. Inputs for evolution and improvement. Mapping and minimizing possible economic, social and environmental impacts on region. Obtaining inputs for hair product innovation process. Obtaining inputs for body product innovation process. Obtaining inputs for body product innovation process. Obtaining inputs for functional deodorant product innovation process. Multistakeholder 49 August - Cajamar (São Paulo State) Understanding perceptions of Natura Culture and fi nding points of leverage. natura report # 11 33 2011 DISCUSSION PANELS Subject Stakeholders Attendees Date and place Objectives Results Communication Multistakeholder 32 Requirements for Hiring and Approving Suppliers - Production Requirements for Hiring and Approving Suppliers - Services Family involvement in agricultural extractivist chains Cajamar School Employees Employees Multistakeholders (suppliers’ communities, specialists, government and employees) Surrounding Community Itapecerica da Serra Surrounding Community Future Vision for Commercial Model Future Vision for Commercial Model Itapecerica da Serra Community Multistakeholder Employees 21 12 28 26 19 41 13 September – Cajamar (São Paulo State) September – Cajamar (São Paulo State) September – Cajamar (São Paulo State) October – Cajamar (São Paulo State) Obtain inputs to expand and innovate in Natura results communication process Examine current supplier hiring and approval requirements and get inputs for revising and improving them. Examine current supplier hiring and approval requirements and get inputs for revising and improving them. Promote understanding of subject, obtain inputs about risks, develop ideal future vision to identify actions May –Municipal Education Board – Cajamar (São Paulo State) May – Natura Itapecerica (São Paulo State) October – Cajamar (São Paulo State) December – Casa Natura Vergueiro - São Paulo (São Paulo State) Inputs for educational development actions in Cajamar and preparation for labor market. Communicate closure of Natura unit in district and present municipal selective collection program. Inputs for vision of Natura’s future commercial model. Reinforce importance of expression of Natura essence in commercial model and refl ect on how company will incorporate current societal challenges into model. Alignment of Natura initiatives, seeking synergies and paths for subject, building common agenda Sustainable Entrepreneur-ship Employees 17 December – Cajamar (São Paulo State) THE OMBUDSMAN’S OFFICE The Ombudsman’s Offi ce is a communication channel between Natura and employees and resident third parties at all our units in Brazil and abroad. Tasked with the due handling of criticisms, reports of deviations, suggestions, praise etc, the area has a broader role in driving closer relations with the internal audience. All contacts are recorded and reviewed by the Ombudsman team. We have never received any reports of discrimination; incidents involving possible deviations in conduct are forwarded to the Ethics Committee, in which senior management participates (read more on page 18). The Ombudsman area is also responsible for the Natura Relationship Principles. This is a set of guidelines based on our Beliefs and Essence designed to drive attitudes and actions to improve relations. In 2011, we reviewed the Relationship Principles, which are applied in all our operations. The new edition will be launched in 2012. 4.4 HR4 HR10 natura report # 11 Over the years, the area’s scope has been extended to include other audiences, such as suppliers, consultants and consumers. For consultants, the Ombudsman’s offi ce works with the Service Management area on more critical cases. This initiative is part of a movement to drive continuous service improvement and the results of the experience are being reviewed to check the feasibility of maintaining an ombudsman channel specifi cally for consultants. In 2011, 3,800 cases involving consultants were dealt with. With respect to consumers, the Ombudsman area responds to cases forwarded by the Natura Legal and Press Relations areas, of which there were 322 in 2011. NUMBER OF CONTACTS WITH THE OMBUDSMAN AREA Internal audience Brazil Internal audience international operations Suppliers Brazil Consultants Brazil1 Total 2009 1.096 13 13 34 1.156 2010 1.120 18 17 8 1.163 2011 1.025 7 4 0 1.036 1. Data from completed pilot project with NCs in Greater São Paulo. PERCENTAGE OF REQUESTS DEALT WITH AGAINST TOTAL RECEIVED % demands dealt with1 % demands forwarded2 2009 94% 6% 2010 52% 48% 2011 68% 32% 1. Cases dealt with by the Ombudsman’s offi ce and area responsible for the case. 2. Up until May 2011, contacts with the Ombudsman were forwarded to the area responsible for the resolution of technical issues. 34 PR5 SATISFACTION WITH OMBUDSMAN CHANNEL1 7 9 8 9 8 9 2010 2011 2009 1. Result derived from positive responses to the question: “Are you satisfi ed with this channel of discussion?” HR11 HR11 EMPLOYEES IN THE BRAZILIAN OPERATION After the experiment of fi ltering contacts and only acting as a last resort, in other words, cases not resolved via other relationship channels, in 2011 the Ombudsman’s offi ce once again started dealing with all sugges- tions, enquiries and incidents sent in by Natura employees. This two-year period confi rmed that the area’s positioning as a channel for information and communication was fully consolidated, which is precisely its dif- ferential. Indicators for the Ombudsman have remained stable over the last three years. There has been a continuous decrease in anonymous contacts, normally reports of breaches or complaints, down 15% in 2011. Technical questions relative to processes, policies, procedures and infrastructure accounted for 83% of the contacts, compared with behavioral issues (referring to people’s attitudes), at 17%. The most mentioned process in the Ombudsman’s offi ce was people management, corresponding to 63% of cases, the most common related to benefi ts, such as restaurant, transport, among others. EMPLOYEES FROM INTERNATIONAL OPERATIONS In September 2011, the Ombudsman service was extended to employees in the French operation, the only unit hitherto without access. There had been no contacts by the end of the year. There were seven contacts in the other countries in 2011. Different from Brazil, in these countries the channel is used mostly to report breaches and to make criticisms. SUPPLIERS Our suppliers are a fundamental part of our business chain. For this reason, the Ombudsman’s offi ce has been available to them since 2007. They may use this channel to report breaches and make criticisms. These contacts help to identify improvements in our practices. Four cases were recorded in 2011, com- pared with 17 the previous year. BREAKDOWN OF EMPLOYEE CONTACTS IN BRAZIL (%) 11 8 5 3 74 CRITICISMS PRAISE QUESTIONS SUGGESTIONS REPORTS OF BREACHES, ETHICAL DEVIATIONS TOTAL CONTACTS – 700 natura report # 11 4.2 employees 35 DMA LA; DMA HR As Natura expands its activities in Brazil and abroad, the challenge of building, maintaining and developing its teams grows. In addition to having the necessary functional competencies, we want our employees to be aligned with our value proposition, inspiring and caring for the relationships the Company establishes with all its stake- holders. For this reason we have been strengthening instruments to develop our people and disseminating our organizational culture, fundamental for our success and for the execution of our strategic planning. This challenge was even greater in 2011. We implemented a series of operational and technological changes, and a concentrated effort was required to manage the instability caused by this restructuring. This, together with budget adjustments, compromised achievement of part of our targets for the year. One factor that was affected was organizational climate. This challenging situation led to a drop in favorability from 73% to 70%, which was 3 percentage points below the 76% target for the year. The survey results in the Brazilian operation were the ones that most affected the index. The organizational cli- mate in the international operations – not affected by the operational problems – is improving. With the excep- tion of Chile and France, all the units grew. This is an indication of advances in management and the formation of dedicated and engaged teams in the newly created structures. Overall, we know we must improve the quality of our relations with our employees to drive higher levels of excellence. One focus will be to reinforce the role of leadership in managing people. EMPLOYEE LOYALTY1 0 3 1 3 8 2 2011 2010 2009 1. Equivalent to the percentage of employees selecting 5 (top 1 box) on a scale from 1 to 5 points. NUMBER OF NATURA EMPLOYEES1 Brazil Argentina Chile Mexico7 Peru Colombia France Total OTHER EMPLOYMENT CONTRACTS2 Apprentices3 Interns4 Temporary workers5 Third parties6 Total – other employment contracts 2009 4.807 331 264 335 296 168 45 6.246 10 47 340 1.310 1.707 2010 5.482 395 293 329 293 170 48 7.010 152 68 445 2.048 2.713 2011 5.483 449 293 113 301 191 55 6.885 157 141 255 2.094 2.647 LA1 1. The number of expatriates and the Board of Directors were excluded from the number of employees in Brazil. As such, the numbers for 2009 and 2010 were restated. 2. Includes the operations in Brazil, Argentina, Chile, Colombia, Peru, France and Mexico. 3. Apprentices are included among the Brazilian employees. 4. The growing number of interns is due to the emphasis on the Natura entry gate program. 5. Temporary workers are considered to be those contracted for a fi xed term via employment agency under Brazilian labor law. 6. Third parties are considered to be suppliers occupying work posts (fi xed or not) within company units for more than six months. 7. This decrease is mainly due to the implantation of the new commercial model in Mexico whereby relationship managers became consultants. natura report # 11 36 CLIMATE SURVEY – FAVORABILITY (%)1 Brazil Argentina Peru Chile Mexico France Colombia Natura 2009 72 77 78 77 84 75 88 74 2010 72 64 71 69 82 72 84 73 2011 70 72 73 66 85 64 86 70 1. Equivalent to the percentage of employees selecting 4and 5 (top 2 box) on a scale from 1 to 5 points. EDUCATION While it is challenging for a company, Natura believes that promoting education represents an enormous devel- opment opportunity for our employees and a chance to sensitize our other audiences with respect to values such as sustainable development and caring relationships. To develop a guideline that incorporates this vision and links all our educational platforms, in 2011 we formu- lated an educational architecture for Natura. This is a broad educational matrix setting forth the subjects to be worked on and proposals as to how this will be done. It will serve as a guide for our internal programs, as well as development measures for suppliers, consultants and surrounding communities. We maintained the same training rate as the previous year in Brazil, with an average of 90 hours per employee. Some educational actions scheduled for the year were postponed until 2012, meaning we did not reach our target of 100 hours training per employee during the year. Among the main educational and development actions, Natura invested in a leadership development program (read more on the next page), education for innovation, relationship management training, and a program for interns. Worthy of note is the fact that Human Rights has been included in the new employee induction programs and is also covered in leadership courses and in talks which are open to all employees. The total number of hours training given in the year was more than 7,400, an increase of almost 33% over 2010. Although there is no spe- cifi c training on corruption, all new employees are made aware of Natura’s Relationship Principles, in which we reject corruption and prohibit practices such as coercion and bribery. HR3; HR8; SO3 AVERAGE HOURS TRAINING PER EMPLOYEE, BROKEN DOWN BY EMPLOYMENT CATEGORY IN THE BRAZIL- IAN OPERATION12 Production Administrative Management Directors’ level Average Hours3 2009 89 79 62 90 82 2010 93 86 90 78 90 2011 97 86 88 60 90 1. The calculation was modifi ed in 2011 to drive greater adherence to the educational process. To ensure comparability, the numbers for 2009 and 2010 were restated. 2. This indicator includes sales force training (sales managers and relationship managers). 3. Considers total number of hours for all levels divided by the number of employees and interns in the corresponding year. HOURS TRAINING BY GENDER IN BRAZIL 1(%) Men Women 1. Monitoring of indicator began in 2011 2009 n.d n.d 2010 n.d n.d 2011 55% 45% In the international operations, internal training targets were exceeded in almost all the countries. In these recently opened units where employees are still new in the company, we concentrate more on our values and culture, brand, sustainability, the Natura Essence and the commercial model. To track the development of training activities in these countries, we created a specifi c indicator to record the number of hours of training (see below). LA10 LA10 natura report # 11 37 TRAINING PER YEAR, PER EMPLOYEE International Operations Natura 2009 n.d n.d 2010 n.d n.d 2011 66% 85% LA10 INVESTMENT IN EMPLOYEE’S EDUCATION AND TRAINING (IN 000’S OF R$)1 Operation Brazil² Argentina Chile Mexico Peru Colombia France Total 2009 20.221 103 165 526 223 22 51 21.311 2010 25.744 96 131 584 216 41 103 26.915 2011 26.415 115 260 245 241 214 380 27.870 1. To enable greater comparability, the investments were converted into reais at the exchange rate for the year. 2. The Brazilian investment numbers include training for the sales force (sales managers and relationship managers). IN THE BRAZILIAN OPERATION –NATURA EDUCATION PROGRAM¹ Scholarships granted Scholarships granted /enrollments (%) Amount invested in Natura Education programs (000’s of R$) 2009 611 48 841 2010 546 43 863 2011 510 69 1.014 1. Considering all employees enrolled and selected during the year. NATURA EDUCATION PROGRAM – COURSES TAKEN BY EMPLOYEES OR FAMILY MEMBERS FULLY OR PARTIALLY SUBSIDIZED BY NATURA (BRAZIL)¹ Technical /vocational Languages Pre-university entrance Degree programs MBA and postgraduate programs Total 1. Considering all employees enrolled and selected during the year. 2009 77 117 6 292 119 611 2010 47 134 5 259 101 546 2011 57 43 1 277 132 510 LEADERSHIP AND DEVELOPMENT We invest in continuous leadership development to ensure our managers share the company’s values and model of behavior we seek from our employees and other audiences, inspiring and mobilizing our relationship network. Due to the company’s growth and need to prepare successors, three years ago we started a program aimed at developing talents and preparing future leaders. Since then, we have invested in engagement initiatives, or- ganizational competency and leadership training, offering scholarships for MBAs and mentoring and coaching programs. This has had a direct impact on internal promotions, which increased from 62% to 68% in the leader- ship positions last year. In 2011, the Company launched the Cosmos Program, the main development front for Natura’s leaders. Com- prising four levels, it involves all the company’s 600 managers in Brazil and the international operations. The fi rst dimension is called “school” and consists of talks and workshops on management, organizational dynamics and sustainability. The classes were given by international specialists and were attended by 225 managers. An- other two Cosmos dimensions involve exchanging experiences (brotherhood) and connecting ideas and people (communities of interest). The fi nal stage or workshop, consists of applying what has been learned in business related projects. Cosmos was the result of a collaborative process in which more than 80 people were involved, including Natura staff, the Board of Directors, the Executive Committee, as well as external consultants. LA11 LA11 LA11 LA11 natura report # 11 38 In parallel, we have invested heavily in succession plans for all the company’s critical positions. This enabled us to end 2011 with short, medium and long term successors identifi ed for 62% of these positions, compared with 40% in 2010. Also in 2011 we undertook the fi rst international selection for the trainee program, including all the countries in which we operate. The medium to long-term objective is to develop global leaders and talents. Natura has also a Performance Management Program for all its employees and operations. The program enables all employees, regardless of gender, to effectively manage their performance through feedback and structured individual development plans. Moreover, employees receive full feedback on their performance, including self- assessment, the perceptions of managers, peers, partners and subordinates (should this be the case). This analy- sis is designed to assess employees’ adherence to Natura’s essence and organizational culture. LA12 ATTRACTION AND ENGAGEMENT All the investment in building a qualifi ed team aligned with our values would make no sense if we did not pay attention to attracting new employees. Our recruitment and selection criteria have been perfected over time to ensure we attract people who not only have the right technical qualifi cations, but also values aligned with the company’s. INTERNAL PROMOTIONS/ TRANSFERS IN BRAZIL (%) In 2011, this process was incremented with the development of a questionnaire to be fi lled out when candidates are interviewed. The questionnaire encourages candidates to refl ect on their personal history, values and objec- tives and what connects them with Natura. We also refi ned our internal promotion strategy, consolidating the My Choices program. We made the process more fl exible, increased the visibility of vacancies for employees and created a committee dedicated to assess- ing internal and external candidates and their alignment with Natura’s values and objectives. This has resulted in a series of learnings for the company: we now know more about gaps and areas in which internal promotion is more diffi cult. The intern program was also reformulated to retain candidates whose profi le is more closely aligned with the trainee program, increasing their chance of being hired permanently. The result of this effort was an increase from 36% to 70% in internal promotions and transfers in Brazil in 2011. In the international operations, we maintained our strategy of building teams that combine employees familiar with Natura and professionals with local market knowledge. An average of 82% of management positions are fi lled by local people. 1 6 6 3 0 7 2009 2010 2011 SENIOR MANAGEMENT MEMBERS DRAWN FROM LOCAL COMMUNITY1 (%) 2009 nd nd nd nd nd nd nd Argentina Chile Colombia France Mexico Peru Total 2010 nd nd nd nd nd nd nd 2011 86 87 71 91 88 81 82 1. The data for previous years were not disclosed because the indicator was reformulated in 2011. It now considers the percentage of local employees in the company. Previously, the indicator only took into account those employees hired during the year, which did not refl ect the real presence of local employees. SUPPORT AND SERVICES BENEFITING THE PUBLIC Number of volunteers¹ 2009 52 2010 57 2011 50 1.There was only one group of volunteers in 2011, organized during the second semester. The fi rst semester was dedicated to studying opportunities for improving the volunteer program EC7 EC9 natura report # 11 39 STAFF TURNOVER The company’s turnover rate dropped considerably in most Natura operations, most notably in Peru, Argentina and Mexico. We believe this is due mainly to the consolidation of these operations, in line with the strategy to in- crease production in Latin America. In Brazil, the indicator has remained practically stable for the last three years. EMPLOYEE TURNOVER (%)1 Brazil Argentina Chile México Perú Francia Colombia 2009 8 13 14 25 17 16 40 2010 8 12 16 12 27 13 21 1. Although we monitor these data by age group and gender, we do not consider these factors material for our business. TURNOVER BY GENDER (%) Men Women TURNOVER IN BRAZIL BY AGE GROUP (%) Below 18 years Between 18 and 25 years Between 26 and 30 years Between 31 and 40 years Between 41 and 50 years Above 50 years TOTAL DISCHARGES Brazil Argentina Chile Mexico1 Peru France Colombia Total 2009 12 6 2009 0 11 9 7 4 3 2009 551 38 36 81 49 11 31 797 2010 12 6 2010 0 15 12 7 2 4 2010 641 40 49 38 75 5 37 885 2011 8 7 17 8 8 14 21 2011 10 7 2011 0 10 9 9 6 5 2011 751 35 89 258 50 7 43 1.233 1. The number of discharges is due to the set up of the new commercial model in Mexico whereby relationship managers became consultants DIVERSITY In 2010, we committed to produce our fi rst refl ection on the subject of diversity. This led to the positioning Diversity, Essence of the Web of Life (box below), which was validated by the Ethics Committee and will now provide a basis for a widespread discussion in the company. In this document, we set forth Natura’s understanding of diversity, based on our Essence and world view, and we identifi ed three initial action fronts: social inclusion, women, and multiculturalism. LA2 LA2 LA2 LA2 natura report # 11 40 DIVERSITY, THE ESSENCE OF THE WEB OF LIFE We are all different and unique, from our genetic structure and physical traits, to the way we feel and perceive the world around us. This multiplicity of perspectives, ways of thinking and acting enriches mankind and is the driving force behind our existence in society. On the other hand, this diversity is only possible because it stems from a unity, an interdependent cosmos comprising an endless network of relationships, the wonderful web of life. In our beliefs we state: “The greater the diversity of the parts, the greater the wealth and vitality of the whole”. We understand that Natura is an ecosystem of relationships, and, driven by this conviction, we realize that cultivating these interactions is intrinsic to our culture. We understand that working together is better: being open, generous and empathetic to others, building trust and quality into the relationships. To listen without judging, to respect opinions and incorporate differences for the benefi t of the whole. We believe, therefore, that promoting diversity is the ultimate expression of our world view, which begins with the individual. This is an individual who is strong, mature, self-reliant, and aware, and who has the power to choose and to transform. However, this individual will only materialize in an open and inclusive society in which the expression of diversity is allowed, in which everyone is born free and equal and where people have dignity, rights and access to opportunities. And, while we respect people’s individuality, we also recognize the value of local cultures as the product of their history. In this framework, our position goes beyond compliance with regulatory requirements; it rises above transi- tory issues of ethnicity, gender, nationality, religion etc. We repudiate discrimination. However, what we want most of all is to create an environment in which we shall all be accepted, respected and loved for what we are. In accordance with this point in time Natura is passing by and in accordance with our strategy, which is predic- tive of a future of intense connectivity, geographical expansion and major transformations in the direct sales model; we have chosen three areas on which to focus: social inclusion, women and multiculturalism. We are a direct sales company and have helped drive the socio-economic inclusion of thousands of women in Brazil and, more recently, in other Latin American countries. We have chosen sustainable entrepreneurship as our priority subject in sustainability, underpinned by the understanding that our capacity for social transfor- mation will be even greater. We want to use the power of our sales channel to foster social inclusion, not only to generate income but also to improve education, a powerful driver of social transformation. Moreover, as a community consisting primarily of women, be it employees, consultants or consumers, we consider the feminine values in our Essence to be fundamental for the construction of a new society. And we are committed to nourishing this feminine energy more and more in our relationships. We believe in the power of cultural integration and in the interchange of perceptions, behavior and knowl- edge. As a company whose roots are in Brazil, we refl ect the country’s ethnic mix and actively promote multiculturalism. As we strive to extend our geographical reach, we are aware that this factor will be decisive for our future success. In addition to these three priorities, we have also detected an opportunity to promote the inclusion and development of the disabled as a result of the adoption of new production technologies. We believe we can offer the disabled a new level of professional accomplishment, promoting their development and perfor- mance as individuals. Last, we reaffi rm our vision in which the wealth represented by each human being, the signifi cance of others in our lives and our own signifi cance in the lives of others convince us that it is in the dynamics of our relation- ships that we will encounter the energy necessary to drive mankind’s evolution. MULTICULTURALISM1 2 2009 2010 2011 Total number of foreign leaders or leaders having international experience Percentage of foreign leaders or leaders having international experience against total leaders (%) 12 14 27 23 1. Considering global leaders and those managing processes and businesses. 2. We consider international experience to be current or past experience of over two years in Natura operations in a different country from the employee’s country of origin. 42 33 LA13 natura report # 11 41 DIVERSITY ¹ Total Employees Brazil 2009 4.807 2010 5.482 2011 5.483 Women (%) As a percentage of total employees In management positions as a percentage of total management positions In Director’s positions as a percentage of all Director positions Aged over 45 years (%) As a percentage of all employees In management positions as a percentage of all management positions In Director positions as a percentage of all Director positions Hiring and training of disabled people in Brazilian operation Number of disabled employees Number of disabled people as a percentage of total employees (%) Number of disabled people trained in Basic Professional Competencies program 61 53 21 10 9 31 236 5,0 67 61 55 25 11 9 22 249 4,5 217 61 57 24 12 11 22 258 4,7 258 1. We do not report the classifi cation by minorities due to a different understanding of diversity which involves broader concepts of social inclusion. LA13 NATURA EMPLOYEES BY GENDER (%)1 Men Women 1. Reporting of this indicator was initiated in 2011 NUMBER OF MATERNITY LEAVES AND RETURN RATE 2009 nd nd 2010 nd nd 2011 36 65 LA1; LA13 Number of employees requesting maternity leave during the year Percentage of employees who returned from maternity leave and remained in the company for at least 12 months upon return 155 90% 200 92% 190 96% LA15 2009 2010 2011 Since we have more women than men in the company, our maternity leave rate is high. Upon their return to work, the company offers mothers a nursery until the child is 2 years and 11 months old. All employees are entitled to this benefi t, irrespective of area or salary level. We also guarantee an adaptation period for mothers, enabling them to continue to breast feed during working hours. The company provides monitoring by doctors and social assistants during maternity leave to help mothers’ adaptation and has a pilot program offering fl exible working hours for mothers in the administrative area. Natura also voluntarily joined the government’s six month maternity leave program. COMPENSATION Our compensation practices follow the same corporate policy in all operations. In 2011, we reviewed compensa- tion in the international operations seeking to standardize it and increase competitiveness in those countries. The Company maintains a salary average in line with the market. Salaries are defi ned based on compara- tive surveys in the consumers’ goods segment involving Brazilian companies or Brazilian multinationals, listed companies or those that use similar compensation practices as Natura. The comparison is by scope and complexity of the function. natura report # 11 42 RATIO OF LOWEST SALARY TO MINIMUM SALARY, BY OPERATION1 Brazil Argentina Chile Peru Mexico Colombia France 2009 1,1 2,0 1,3 1,7 4,8 1,6 1,5 2010 1,4 1,7 1,3 1,0 4,6 1,1 1,1 2011 1,6 1,3 1,2 1,4 4,5 1,0 1.0 EC5 1. Calculation involves lowest salary in the operation divided by the minimum salary in force in December 2011 in each country. Coherent with our international expansion strategy, we have an expatriation program which provides employees with a differentiated package. In 2011, we had 29 expatriate employees. Our variable compensation model is adapted to the needs of each employee segment, with specifi c targets and forms and amounts of payment. The amount paid to non-executive employees is limited to 3% of operating earn- ings. In 2011, employees in the operational area received on average three additional monthly salaries. The collective agreements closed during the year granted our employees in the Brazilian operation with a salary increase of around 10%. Managers received a fi xed increase on their base salary. WOMEN’S SALARIES IN RELATION TO MEN’S (BY EMPLOYMENT CATEGORY) - % Operational Administrative Management Director 2009 -16 33 -6 -19 SALARY PROFILE – MONTHLY AVERAGE IN BRAZILIAN OPERATION 1 2 Women - total (R$) Average monthly salary in production positions Average monthly salary in administrative positions Average monthly salary in management positions Average monthly salary in Director’s positions Men - total (R$) Average monthly salary in production positions Average monthly salary in administrative positions Average monthly salary in management positions Average monthly salary in Director’s positions Above 45 years (R$) Average monthly salary in production positions Average monthly salary in administrative positions Average monthly salary in management positions Average monthly salary in director positions Up to 45 years (R$) Average monthly salary in production positions Average monthly salary in administrative positions Average monthly salary in management positions Average monthly salary in director positions 2009 4.755 1.150 6.137 13.105 34.310 3.574 1.362 4.621 13.886 42.163 8.068 1.713 8.961 17.438 38.243 3.850 1.241 5.266 13.068 41.571 2010 - 16 30 -4 -19 2010 4.944 1.202 6.190 13.351 37.196 3.852 1.428 4.746 13.972 45.919 8.089 1.770 9.166 18.344 44.090 4.095 1.293 5.305 13.144 43.638 2011 -21 34 -7 -17 2011 5.553 1.336 6.894 13.405 37.049 4.342 1.700 5.146 14.415 44.592 8.638 1.967 9.885 18.356 43.296 4.609 1.498 5.856 13.291 42.609 LA14 LA14 1. The calculation does not take into account short term incentive payment (Profi t Sharing). 2. The bonuses paid to sales managers and relationship manager were taken into account for purposes of this calculation. When distrib- uted throughout the categories, sales force employees reinforce the average women’s salaries due to the sales bonus, with the exception of production jobs. EC3 We also offer complementary pension plans, with employees deciding the percentage they wish to contribute, up to 12% of their salary. Natura covers 60% of this amount, up to 5% of the employee’s salary. The plan is optional and is open to all employees in Brazil, up to a salary ceiling of R$ 13,129.00. In 2011, Natura paid R$ 4.3 million into the plan (compared to R$ 2.5 in 2010). natura report # 11 43 EC3 NATURA CONTRIBUTIONS TO THE EMPLOYEES SUPPLEMENTARY BENEFIT PLAN IN BRAZIL (in millions of R$) 7 8 3 1 . 8 2 5 2 . 0 0 3 4 . 2009 2010 2011 With the exception of relationship managers and sales managers, who receive a bonus proportional to their results, all Natura employees are paid 14 monthly salaries a year. LA11 We do not have a formal plan to prepare employees for retirement. In 2011, however, we set up a pilot project with relationship managers and sales managers. Focused on individuals close to retirement, the Building the Future project is aimed at smoothing the emotional, physical and material aspects of this career transition. Sixty two employees participated voluntarily in the program in 2011. LA4 LA5 In all our operations we are fully compliant with local legislation governing collective bargaining. In Brazil, all employees are covered by union agreements. The Human Resources area manages relations with the unions representing our employees, conducting formal meetings with union representatives based on pre-established agendas. Even though prior notice of operational changes is not specifi ed in the collective bargaining agreements, the company seeks to communicate changes with advance notice and to provide explanations. An example is the negotiation of the transfer of workers from the Cajamar distribution center to São Paulo in 2012. The new DC employs high technology and is automated. It will have an inclusive policy and within fi ve years some 40% of job vacancies will be for people with some form of cognitive disability. Consequently, not all the current employees will be transferred to the new center. During 2011, these employees negotiated the transfers and arrangements necessary with Natura as a consequence of this move. HR5 Natura does not have processes to identify operations in which the right to exercise freedom of association and collective bargaining may be threatened. However, our employees have the Ombudsman’s offi ce through which they may voice any concerns (more on page 33). BENEFITS We have invested in a differentiated benefi ts package, which also focuses on promoting employee well-being. LA3 Benefi ts and facilities for all employees in the Brazilian Operation: _ Ergonomics program, designed to ensure comfort and productivity for workers, promoting any neces- sary adaptations. _ Social Service: a service to help employees discuss, understand and resolve social issues. _ Family Size Health Program. _ Workplace exercise program. _ Chronic disease management program for employees and dependents with chronic ailments. _ 40% discount on purchase of up to fi ve Natura products per month. _ Program for mothers: postnatal meeting and course for mothers-to-be. _ Nursery allowance and special educational allowance for disabled children. _ Life insurance. _ Vehicles for management level employees. _ Medication subsidy. _ Transport to and from the workplace. _ Private pension plan. _ Runners project: running and walking activities with dedicated supervision. _ Restaurant or meal vouchers _ Discounted school materials. _ Fitness services, swimming pool, dance classes, football tournaments and multipurpose sports court at Clube Natura and Well Being Space (Cajamar and Itapecerica da Serra). _ Services: seamstress, laundry, shoe repair, optician, insurance, mail, book and video rental (Cajamar and Itapecerica da Serra). natura report # 11 44 _ Natura Education: study scholarships for employees and family members. _ Building the Future program (preparing for retirement for sales management, with savings incentive). _ Nursery for children up to 2 years and 11 months of age. _ Support in child adoption process. _ Medical assistance plan. _ Dental assistance plan. _ Check-up for management level employees and above. _ Partial reimbursement for medication for the following: cardiovascular, diabetes, kidney disease, liver disease, oncology, neurological disorders and work-related osteomuscular diseases and psychiatric dis- orders. _ Telemedicine: emergency electrocardiograms by telephone. _ Health in Movement: physical fi tness program. Medical and nutritional assessment and guidance on physical activities. _ Gym allowance for relationship and sales managers. _ Five products free per month for management level employees and directors. _ Christmas hamper. _ Clinic: emergency medical service, physiotherapy, GPR, gynecology and obstetrics, acupuncture, ortho- pedics, nutrition and psychology. _ Well Being Program: integrating all specialties and professional areas, holistically addressing the physical, emotional, spiritual and social dimensions. We also offer special benefi ts to resident third parties providing services to Natura, with or without a fi xed work post, for periods of more than six months: Benefi ts for third party residents in the Brazilian Operation: _ Course for mothers-to-be. _ Clinic – emergency medical service. _ Runners Project. _ Restaurant. _ Workplace exercises. _ Toys. _ Christmas hamper. _ Transport to and from the workplace. _ Fitness services, swimming pool, dance classes, multipurpose sports court at Clube Natura and Well Being Space (Cajamar and Itapecerica da Serra). _ Services: seamstress, laundry, shoe repair, optician, insurance, mail, book and video rental (Cajamar and Itapecerica da Serra). _ Presents on Mother’s Day and Father’s Day.. natura report # 11 continua... 45 HEALTH AND SAFETY Company investments in accident prevention totaled R$ 794 per employee* in 2011. We continued to work with Natura service providers to increase prevention among third parties. New audits were held in 2011, and we progressed in involving managers in this process. A number of initiatives were postponed until 2012, such as new preventive measures in the distribution centers and international operations and the development of an occupational health and safety system focused on behavioral change. An external consultancy was contracted to analyze health and safety at our Cajamar plants and at the product picking center. Work posts and working conditions were surveyed, identifying the most critical lines and cells and implementing corrective and improvement projects. TYPICAL WORK-RELATED INJURIES, DAYS LOST AND ABSENTEEISM RATE (INCLUDING THIRD-PARTIES) IN THE BRAZILIAN OPERATION1 Employees - number of accidents with leave Employees - number of accidents without leave Number of work-related accidents per employee Third-parties - number of accidents with leave2 Third-parties - number of accidents without leave2 Total work hours programed3 Work days lost3 Days lost rate (TDP)8 Frequency rate - accidents with leave4 Frequency rate - accidents with/without leave5 Investment in accident prevention per employee (R$)6 Investment in disease prevention per employee (R$) Occupational disease frequency rate Number of cases of occupational disease reported to INSS - National Institute of Social Security - Cajamar Number of cases of occupational disease reported to INSS - National Institute of Social Security - Itapecerica da Serra Absenteeism rate7 2009 12 5 0,004 2010 7 10 0,004 2011 10 4 0,003 4 4 2016 84 9,1 1,3 1,9 852 707 1,1 10 0,0 Nd 4 2 2010 64 6,3 0,7 1,7 882 736 0,9 9 0,0 6,5% 6 0,0 2011 51 4,7 0,9 1,2 794 940 0,2 1 1,0 6,0% 1. Data in accordance with National Institute of Social Security regulations, collective agreements with Unions, and Ministry of Labor and Employment Ruling 3.214. Considering accidents recorded at the Cajamar, Itapecerica da Serra, Barueri, São Paulo and Benevides units and distribution centers. 2. Accidents with leave are those in which the employee does not return to work on the day after the incident. Accidents without leave are those in which the employee returns to work on the same day or the next working day. There were non occupation-related fatalities in the period covered by the report. 3. Refers to Natura employees. Total number of hours programmed calculated as 8 hours/day x no. of work days scheduled. 4. Equivalent to number of accidents with leave divided by million/man hours worked. 5. Equivalent to number of accidents or victims with or without leave divided by number of man hours worked. 6. Includes full budget of Work Safety Department, expenses or investment in the Engineering and Manufacturing areas to assure and/or improve work safety conditions. Does not include training expenses. 7. There was an error in the previously reported 2010 absenteeism rate. This was corrected. 8. Days lost rate: the factor 1 million was considered in accordance with NBR 14280, the standard used by Natura. Days lost are counted from the day following the accident. PERCENTAGE OF ACCIDENTS BY GENDER (WITH AND WITHOUT LEAVE) BRAZIL Men Women 2009 76 24 2010 76 24 2011 71 29 Formal Natura agreements with the Unions include work safety protection measures such as the use of personal protective equipment; machinery and equipment accident prevention practices; communication of occupation-related accidents; and the functioning of an Internal Accident Prevention Commissions (Cipa in the Portuguese acronym). All employees in the Brazilian operations are represented in the formal work safety and health committees and LA7 LA7 LA9 * In the 2010 Annual Report the amounts for safety and health investments were reported incorrectly in the text on this item. The correct data are: investment of R$ 882 per employee in accident prevention and R$ 737 per employee in health. The table contained the correct amounts. natura report # 11 46 the Cipas, consisting of different hierarchical levels and open to all. They are structured as follows: 50% of the representatives are indicated by Natura and the other 50% by the staff. LA6 Investments in health totaled R$ 940 per employee* in 2011. Based on a broad diagnosis of employee health conducted in 2010, in the second half of 2011 we implemented the Family Size Health program, which is focused on prevention. We organized campaigns around the promotion of healthfulness, the importance of consulting doctors and take exams, in addition to specifi c actions related to breast and prostate cancer, car- diovascular disease and risk factors. We also set up a monitoring system for employees and dependents with chronic diseases. This is a voluntary program in which employees are advised to seek medical help, to assess medical services received and receive advice on consultations and examinations. LA8 Employees are provided with internal treatment for occupational diseases. The multifunctional team comprises doctors, an ergonomics specialist, orthopedist, physiotherapist, psychologist and Global Postural Re-education (GPR) therapists. In parallel, we systematically monitor work posts. Our health team also started working with the innovation team to integrate ergonomics into new product creation and development. EMPLOYEE COMMUNICATION Building quality into employee’s relations also involves effi cient and adequate communication for each area. In 2011, we integrated the internal communication process into the Brand and Culture area, as part of our project to go beyond a mere organizational support and transform communication into a major channel for expressing company’s values. Our current challenge is to incorporate these assumptions into the form and content of routine employee communications. In addition to the change in structure, in 2011 we progressed with our formal communication systems, re- viewing existing processes and implementing new ones, as well as internal communication outlets aimed at our regional units and international operations. We also extended the reach of the Natura Channel – a TV system presenting news, statements and relevant information with 30 broadcasting points in our main units. Our challenge for 2012 will be to enable more active and dynamic employees’ interaction with the Company. [1] * In the 2010 Annual Report the amounts for safety and health investments were reported incorrectly in the text on this item. The correct data are: investment of R$ 882 per employee in accident prevention and R$ 737 per employee in health. The table contained the correct amounts. natura report # 11 4.3 consultants and NCAs 47 Our consultants (NCs) are an essential link in our relationship network. It is this immense contingent of more than 1.4 million people spread over seven countries that not only take our products, but also our value proposi- tion and our Essence to consumers. Our efforts are aimed at ensuring they have the best service quality, op- portunities to generate income, to be enterprising, and to engage in our socio-environmental platform. The main challenge in connection with Consultants in 2011 was the decrease in service quality to this channel, as a result of the instability caused by changes in the order capture and invoicing systems and logistics model. We intensifi ed our efforts to correct imbalances in product availability throughout the year and managed to stabilize the platform during the last four cycles of 2011, leading to a signifi cant improvement in service levels. During this period of instability, we sought to maintain sincere, open communication with the sales force. The Natura encounters held during each cycle were used to inform Consultants about the diffi culties and the mea- sures being taken to correct them. Consultants also received an explanatory letter from the CEO. We are confi dent that the investments undertaken are essential for our growth strategy and will have a very positive effect on the quality of service provided for NCs and Natura Consultant Advisors (NCAs). The ex- panded logistics infrastructure and the new order capture system should signifi cantly reduce delivery terms. The benefi ts should already be felt in 2012, with a structure much better prepared to serve the sales channel. Additionally, the ongoing vigor of our brand once again demonstrated its capacity to attract representatives, such is true that the number of NCs grew 16.3% in 2011. The number of Natura Consultant Advisors also grew to 13,200, 17% up on the previous year. Growth was even more striking in the international operations, reaching 27%. We currently have more than 245,000 Consultants in Argentina, Chile, Mexico, Peru, Colombia and France. In 2011, we initiated the expansion of the NCA model in Colombia and Peru. In 2012, it should be extended to Chile and Argentina. We believe that, similar to Brazil, the NCA model will leverage growth in our sales channel and Consultants retention in our international operations. In addition to consulting, the Natura Consultant Advisors support the activities of groups of up to 150 NCs, giving them advice and driving their development. Our sales structure is strengthened by the Relationship Managers and by the Sales Managers, Natura’s employ- ees who work closely with the NCs and NCAs, giving them support. NUMBER OF CONSULTANTS AVAILABLE¹ 2 Brazil Argentina Chile Mexico Peru Colombia France Total 2009 879,7 46,5 24,5 31,2 42,6 13,0 1,4 1.038,9 2010 1.028,7 53,2 31,0 41,2 45,5 19,0 2,5 1.221,1 2011 1.175,5 63,7 37,9 58,5 54,9 27,1 3,1 1.420,7 1. With regard to Brazil, the data refer to Consultants available by the end of the year. 2. In International Operations they refer to the clos- ing position in cycle 17. natura report # 11 48 NUMBER OF NATURA CONSULTANT ADVISORS IN BRAZIL1 3 8 0 9 . 6 7 2 1 1 . 0 3 2 3 1 . 20092 2010 2011 1. Refers to number of NCAs at the end of the year. 2. The increase in the number of NCAs is due to the expansion of the model in the City of São Paulo and in the Northern and Southern regions. Operational instability affected the Consultants satisfaction rate in 2011. In the Brazilian market loyalty rate dropped from 21% in 2010 to 19% in 2011. However, the most marked decrease occurred among the NCAs. Implemented two years ago, we have learned a great deal during this time and we are aware that this model requires further development. In the international operations, monitoring of satisfaction levels was initiated in 2010. Overall loyalty levels are high, but reductions in Colombia, Mexico and Peru were observed. We understand we are not where we want to be with our Consultants but we are optimistic that we will reach our objectives QUALITY OF RELATIONS WITH NCS (%) BRAZILIAN OPERATION Satisfaction1 Loyalty2 2009 88 17 2010 90 21 2011 87 19 1. Satisfi ed and completely satisfi ed NCs – Top Box. 2. Loyalty is the intersection of the Top Box referring to satisfaction, intention to continue and recommendation. QUALITY OF RELATIONS WITH NCAS (%) BRAZILIAN OPERATION Satisfaction1 Loyalty2 2009 95 37 2010 94 33 2011 87 24 ¹ Satisfi ed and completely satisfi ed NCAs– Top Box. ² Loyalty is the intersection of the Top Box referring to satisfaction, intention to continue and recommendation. QUALITY OF RELATIONS WITH NCS INTERNATIONAL OPERATIONS – LOYALTY RATE (%)1 Argentina Chile Colombia Mexico Peru 2009 n.a n.a n.a n.a n.a 2010 35 35 44 51 30 2011 38 36 37 40 23 1. Loyalty is the intersection of the Top Box referring to satisfaction, intention to continue and recommendation. PR5 PR5 PR5 SUSTAINABLE RELATIONS NETWORK Since 2010, we have been experimenting with a new way of working with our consultants in Mexico. Be- cause of local market characteristics, we sought to innovate to be more attractive and to engage consultants in our value proposition. This involved the creation of the Sustainable Relations Network which, after nine work cycles in 2011, produced encouraging results: growth in the channel in Mexico reached 52% during this period. While in Brazil we only have two levels in the sales chain (NCs and NCAs), in Mexico there are eight levels of progression for consultants: Natura Consultant, Natura Consultant Entrepreneur, Natura Trainer 1 and 2, Natura Transformer 1 and 2, Natura Inspirer and Natura Associate. To progress, consultants have to meet targets based on sales volume and the introduction of new consultants and – as a differential from other models in the country – personal development and social and environmental engagement in the community. To help them meet these requirements, Natura offers a series of general training programs aimed at driving sustainable entrepreneurship (more on page 26). We want to show Consultants their potential to transform social reality in their region, in addition to fostering the development of networks and entrepreneurial busi- ness opportunities. To this purpose we connected the NCs with partnering institutions such as Ashoka and the Fundação Educa. The margin on product sales increases as Consultants progress through the levels. The NCs also receive productivity bonuses to invest in their business and their well-being –the focus being medical assistance. We currently have leaders at Natura Transformer level 2 and expect to have our fi rst Natura Associate within two and a half years. This is the time necessary for a consultant to develop and achieve the required level of network engagement. We ended the year with 61,100 NCs, of whom 1,137 were Natura Trainers 1, 312 were Natura Trainers 2, 69 were Natura Transformers 1 and 4 were Natura Transformers 2. natura report # 11 49 TRAINING Our focus in preparing the NCs for consulting work led us to exceed our training targets for the pe- riod, reaching 566,000 Consultants trained, the highest number ever. The target was to train 540,000. This is the outcome of planning and improvements made in the program geared to obtain accelerated channel growth over recent years. Since 2010, we have been reinforcing training for less experienced NCs. In 2011, we gave priority to the par ticipation of new NCs in regular training courses – 75% of which are aimed at the newer consultants. It is during this period that we experience the highest NC dropout rate, due to lack of experience or the fact that the model does not meet their expectations. To counter this, the current materials used to recruit consultants now provide a more in-depth explanation of the challenges and oppor tunities involved and a specific meeting has been organized for newer NCs. For the Natura Consultant Advisors (NCAs), in addition to initial training, we offer courses on plan- ning and transformational attitudes, in which they are prompted to mobilize their group of consultants for social action. In 2012, we intend to segment NCA training according to their NCA seniority in Natura. Training in international operations presents the additional challenge of engaging the NCs in our value proposition, ensuring they become multipliers. For our relationship managers we continued the workshops on culture, brand and individual develop- ment and reflection, in addition to training on relationship management and Natura products. In tune with contemporary reality and the potential represented by digital tools, we intend to expand our online training. HR6; HR7; PR8 We are signatories of the Brazilian direct selling association ABEVD’s Direct Selling Code of Conduct, which mediates relations between salespersons and companies. We prepare NCs to act in accordance with the company’s ethical standards. As in previous years, there were no legal or administrative ac- tions involving the loss of NC data or privacy. Neither were there any legal actions related to child or forced labor or hazardous working conditions involving NCs. NC TRAINING – BRAZILIAN OPERATION (IN 000’S) Beginners NCs Initial training Participation in training1 NCs trained by subject2 1. Considers participation of the same NC even in repeated training. 2. Considers participation of the same NC in different training sessions. NC TRAINING - INTERNATIONAL OPERATIONS1 (IN 000’S) Argentina Chile Colombia France Mexico2 Peru Total 2009 430 354 583 527 2010 458 361 593 517 2011 505 358 640 566 2009 2.546 936 1.732 254 2.373 1.500 9.341 2010 3.501 1.671 2.160 500 3.856 3.261 14.949 2011 7.243 3.802 3.656 859 - 5.847 21.407 1. Covers number of NCs trained, mainly in Welcome, product line and business courses. 2. Monitoring of the indicator was discontinued due to the new commercial model. natura report # 11 INCOME AND PRODUCTIVITY The average annual income paid out to consultants showed a slight drop in 2011, from R$ 4,100 to R$ 3,900, the same occurring with NCAs. The channel’s accelerated growth in recent years is decisive in this indicator since consultants with less experience show lower productivity. Natura’s overall performance, which was below expectations, was also refl ected in the Consultants’ sales. Our strategy continues to be to train the newer consultants to drive higher productivity in the channel, and the increase in training efforts is a refl ex of such strategy. AVERAGE ANNUAL INCOME (R$) Consultants (NCs)1 Natura Consultant Advisors (NCAs)2 2009 3.987 9.841 2010 4.128 9.802 2011 3.904 9.521 EC9 1 Considering the NC’s 30% profi t on the product price published in the magazine. 2 The NCAs receive commissions based on performance, the number of consultants placing orders and order volumes. COMMUNICATION CHANNELS A series of communication channels support sales activities, and there has been increased use of digital tools. Currently almost all NC orders in Brazil are placed via the internet - 98% - a percentage that underscores the potential of the web in company relations with consultants. In the other countries, use of the internet to send in orders varies between 70% and 80%. In Colombia, it is 90%. This good result is due to campaigns and instructions on the use of the web. After investigations and tests to verify the ease of use by NCs, we launched a new site in 2011. To expand internet access, the Casas Natura (Natura´s space for product testing) has computers and internet connections for consultants to send in their orders. NCAs also provide guidance on Internet use. The internet facilitates and streamlines contacts with consultants and brings a much larger number of them within the Company’s reach. In 2011, we conducted our fi rst experiment with video service and service via social networks. We also provided an online chat, the use of which grew from 7% in the fi rst semester to 18% by the end of the year. Another channel is the Natura Call Center, or CAN in the Portuguese acronym, a toll free telephone line through which consultants may send in their orders, suggestions, criticisms, praise or clarify doubts. The blog (www.blogconsultoria.natura.net) and the magazine Consultoria are key communication channels. They provide information on the concepts and features of each product, news on the Natura Movement, as well as relevant business information. In 2011, access to the blog increased by more than 50%, reaching a peak of 96,000 in one month, and an average of 73,000 single accesses per month. Some 1.5 million copies of the magazine are sent to the NCs each cycle, offering Consultants exclusive promotions. The Natura Magazine is also a major point of contact with NCs and consumers. In addition to presenting products and features, it represents an important outlet for conveying our beliefs and values (more about digital channels on page 30). RECOGNITION AND INCENTIVES We conducted a series of activities during the course of the year to recognize the role played by NCs and NCAs, not only in sales, but also in disseminating our beliefs and values and transforming society. This recognition revolves around length of relationship, sales performance, sale of refi lls and Crer para Ver products – which income goes to the Instituto Natura. We modifi ed the criteria for length of relationship with Natura to make them more attractive and selective. Thus NCs now receive recognition upon completing 10, 20, 30 and 40 years of relationship. For the NCAs, a function set up more recently calls for recognition based on growth and performance. natura report # 11 50 NUMBER OF ORDERS PLACED VIA CONSULTORIA SITE (in 000’s)1 1 4 9 8 . 1 0 9 2 1 . 1 6 9 5 1 . 2011 2010 2009 1. Orders placed over the internet by the consultant, invoiced in the year. AVERAGE NUMBER OF CALLS ANSWERED DAILY (in 000’s)1 8 2 4 2 0 3 2010 2009 1. Calls for Brazilian Operation. 2011 51 RECOGNITION FOR NCS NCs recognized for length of relationship Special NC recognitions2 Quantity of prizes distributed in special recognitions Special recognition events 2009 64.030 10.572 473 43 2010 73.286 9.137 473 43 2011 13.7531 9.340 451 41 1. Data includes only NCs recognized for 10 and 15 years relationship. The recognitions for 20, 30 and 40 years were postponed until 2012. 2. Annual recognition of best NCs in the categories sales volume, refi ll sales and Crer para Ver product sales. RECOGNITION FOR NCAS NCAs recognized for growth1 Special NCA recognitions2 2009 nd nd 2010 2.248 3.018 2011 2.443 2.931 1. Recognition for business growth. 2. Annual recognition of NCAs with best performance in: growth of number of NCs in the group, order frequency and NC retention in network. NATURA MOVEMENT The aim of the Natura Movement is to raise consultants’ awareness and rally them to propagate our beliefs and vision of the world. We want to drive an individual and collective transformation process in our NCs and NCAs. We want them to become agents of transformation in the communities they live in. To do this, we encourage them to get involved in socio-environmental actions, on their own initiative or in partnership with other organizations. In 2011, almost 123,000 NCs were engaged in 11 Natura Movement projects nationwide. The numbers show an incredible capacity to involve consultants in the movement, almost double the 2009 result, when monitoring was initiated. Even so, this fi gure was below our target of involving 135,000 NCs in the projects in 2011. This shortfall, however, may be attributed to overall business performance during the year. The main Natura Movement initiatives during the year included the Acolher Program. This is a pioneering social entrepreneurship scheme that identifi es, recognizes and encourages Consultants engaged in socio- environmental actions nationwide. NCs participating in the program form a large network through which they exchange experience and are eligible for technical and fi nancial support for their activities. In 2011, 18 NCs from 16 cities were selected to receive this support from more than 1,500 applications. The initiatives undertaken include recycling cooperatives, the manufacture of disposable diapers for children and sick adults, community nurseries, reading initiatives, social inclusion of the disabled and support for needy children. These projects may be seen on the Natura Movement portal at (www.movimentonatura.com.br). The Acolher program is divided into two categories: “Seed” for incipient initiatives and “Growth” for more established ones. Consultants receive grants of R$ 5,000 and R$ 15,000 respectively, as well as technical sup- port to drive their development as social entrepreneurs. NCS ENGAGED IN NATURA MOVEMENT¹ The Natura Movement website (www.movimentonatura.com.br) provides support for this work. The site contains videos and information on social entrepreneurship and enables interaction among users. A total of 2,922 NCs are enrolled to participate in the Acolher network. We also invested in publicizing these initiatives with the set up of the category Natura Inspiring Consultant in the CLÁUDIA Award organized by the magazine CLÁUDIA. NCs recognized in the Acolher Program are eli- gible for this award. Moreover, Natura established a partnership with the Rede Record TV network program Hoje em Dia, which has a section that translates as Inspiring Women. The stories of consultants participating in the Acolher program are presented in this section. 7 6 4 5 4 . 8 1 1 3 1 1 . 3 5 9 2 2 1 . 2011 2010 2009 1. Equivalent to average absolute number of consultants/year. natura report # 11 52 COMMUNITIES PROGRAM Since 2007, Natura has been involved in social work in the Rio de Janeiro communities. Based on this ex- perience, the Company created the Communities project in 2011. Developed in the Cidade de Deus and Complexo do Alemão districts, the project is aimed at people wishing to become NCs and takes advantage of these new consultants’ interest to encourage them to get involved in social work that will transform their communities. The fi rst step was research in these districts. We realized that many people wishing to work as Consultants had questions that hampered them from getting started. Consequently, we made the rules for registration more fl exible, admitting persons with protested debts of up to R$ 500, thus increasing enrollment by 75%. We also established a partnership with the Banco Santander for the provision of microcredit and fi nancial education courses for the NCs. In 2012, we will expand the project to a further 20 communities where so-called police pacifi cation units or UPPs are in place. Part of the revenue generated will be reinvested in projects in these communities using the Acolher Program methodology. Natura also supplies free products for use in hairdressing and make up vocational courses offered by Faetec, as well as supporting actions designed to promote women’s self-esteem through dance and make- up sessions in partnership with the cultural group Afroreggae. The Natura Movement also engages NCs in educational support through sales of the Natura Crer para Ver product line. In 2011, approximately 71,000 NCs embraced this cause, selling these products with no personal gain (more on page 86). Another important cause is the Natura Products Recycling program through which we encourage NCs to collect empty product packs when visiting their clients (read more on page 82). OTHER PROJECTS SUPPORTED BY THE NATURA MOVEMENT* THIS IS THE ATLANTIC RAINFOREST (MATA ATLÂNTICA É AQUI) In 2011, 1,660 NCs were involved in this project in partnership with the NGO SOS Mata Atlântica. A mobile exhibition on the Atlantic Rainforest visited 23 cities in Brazil. The program was aimed at raising public awareness and promoting environmental education and was attended by 114,000 people. FORESTS MAKE A DIFFERENCE (FLORESTA FAZ A DIFERENÇA) The dissemination of this campaign via the sales channel led around 40 thousand NCs to sign a petition against the bill of law modifying the Brazilian Forestry Code. *In addition to these projects, in 2011 the Natura Movement supported the following initiatives: Água de Viver, Pracatum, Respeito SP, Canta Brasil and 10 Minutos Contra a Dengue. More information at www.movimentonatura.com.br natura report # 11 4.4 consumers 53 DMA PR We constantly strive to strengthen the ties we establish with our consumers and increase our understanding of their habits, expectations and needs. Since the creation of our Consumer Insight area in 2009 we have boosted investment in research, studies and analyses. In 2011, these investments grew 50% compared to 2010. OVERALL BRAND IMAGE ASSESSMENT IN BRAZIL (%)12 These efforts do not translate merely in numbers. The main development last year was the achievement of greater consistency in the analytical process. All the information we gather today, from the most diverse points of contact with the consumer – including social networks – is forwarded to a Center of Analysis. This intelligence management provides a more integrated view of the moment our consumers, our consultants and the market are experiencing and enables us to identify opportunities and trends. In 2011, as a result of operational diffi culties caused by changes in the infrastructure systems, we experienced an increase in product shortages and delivery times. These factors, together with heightened competition, led to a slight drop in consumer relationship quality indicators. Consumer loyalty decreased from 53% to 52%. In Overall Brand Assessment, there was a drop from 81% to 73%, but even so we increased our lead over the second most popular brand. QUALITY OF RELATIONS WITH CONSUMERS IN BRAZIL1 2 3 (%) Loyalty Preference 2009 46 47 2010 53 49 2011 52 47 1. Source: Brand Essence / Instituto Ipsos 2. Research based on quantitative sample of 1,800 personal and household interviews in fi ve markets. 3. Loyalty is the intersection of the Top Box referring to satisfaction, intention to continue and recommendation. Natura is the consumers’ preferred brand, more than twice as popular as the runner up. We increased our share in Brazilian households to 62%, which means that we reach around 100 million people. These numbers stand behind the development of our strategy to get consumers to buy a larger variety of products more frequently. This will enable us to better leverage the power of the Natura brand and increase consultant productivity. In Latin America, our brand is growing stronger year after year. In 2011, all the operations except Mexico showed an increase in spontaneous recall of the Natura brand (see table below). . SPONTANEOUS KNOWLEDGE - BRAND IMAGE ASSESSMENT IN INTERNATIONAL OPERATIONS1 Argentina Chile Colombia Mexico Peru 1. Source: Brand Essence / Instituto Ipsos 2009 10 7 3 4 26 2010 17 9 1 11 32 2011 24 16 9 5 43 1 8 1 8 3 7 2009 2010 2011 1. Source: Brand Essence. 2. The Top Box overall assessment measure considers respondents who gave the Natura brand the top score on a scale from 1 to 5. PR5 PENETRATION IN BRAZILIAN HOUSEHOLD¹ ² 3 (%) 1 5 4 5 2 6 2011 2010 2009 1. Penetration is the percen- tage of households in the universe represented in the survey that bought the brand in the specifi ed period. 2. Source: Kantor World Panel. 3. The panel represents 81% of the household population and 90% of the country’s consump- tion potential according to the Target index. Due to updates of the population profi le, Natu- ra data were adjusted and the numbers were reviewed. natura report # 11 54 INTERNET AND SOCIAL NETWORKS Intensive use of the web and social networks dovetails with our wish to innovate in the way we relate to our consumers. We have used the internet to support communication actions with great impact. For the relaunch of the hair product line Natura Plant, we invited customers buying cinema tickets via the website Ingresso.com to record a message as a tribute to a special woman and her relationship with her hair. The tribute was shown before the fi lm session, surprising the customers in the audience. With extensive repercussion in the social networks, the action was elected the best Brazilian campaign of the year by readers of the trade publication Meio&Mensagem. The video may be seen on our YouTube channel (www.youtube/naturabemestarbem). Another example of Natura communication with consumers is the “Adoro maquiagem” (I love makeup) portal (www.adoromaquiagem.com.br), which has become a meeting place for makeup afi cionados. Launched in 2010, the channel receives more than 150 thousand single users per month, and the average time spent in the chan- nel is above fi ve minutes. The portal is connected with other online communication tools such as Twitter and Youtube. ETHICAL COMMUNICATION We believe that in addition to promoting our products, Natura’s advertisements, commercials and other communications should provide clear information and raise consumer awareness. This is backed by the com- pany’s Ethical Communication Guidelines manual. The document is for employees and suppliers involved in Natura communication processes and sets forth the principles underlying all communication campaigns and actions. These include questions such as product environmental impact, conscious consumption, non-invasive communication, respect for children, promoting dialogue and co-creation, as well as valuing diversity, clarity, self-refl ection and the truth. We are compliant with the standards set forth by the Advertising Self-Regulatory body Conar and the codes of conduct of the Brazilian Advertisers Association, the Brazilian Consumer Defense Association and the Bra- zilian Direct Selling Association. These regulations are used as guidelines for all our communications. In 2011, we received no notices for breaches of regulations, laws and voluntary codes in connection with marketing communication, including advertising, promotion and sponsorship. PR6; PR7 CUSTOMER SERVICE Natura consumers have an exclusive channel through which they may place complaints, criticisms and sug- gestions, the Natura Customer Service or SNAC in the Portuguese acronym. The channel is toll free and received just over 780,000 calls in 2011, 24% down on 2010. SNAC –NATURA CUSTOMER SERVICE (000’S OF CALLS)1 Total Answered Unanswered 1 Calls related to Brazilian operation. 2009 1.484 1.375 109 2010 1.029 987 42 2011 783 770 13 The reduction in calls received by the SNAC service is part of the company strategy to boost use of digital channels, in particular our online chat. It is also due to changes made in 2010 to streamline the product ex- change process and improve fraud prevention. With more selective criteria, including the collection of prod- ucts for evaluation, the number of complaints decreased. We believe the drop is associated with non-genuine communications. In spite of these measures, consumer satisfaction with this service channel remained stable. Another highlight was the creation of a specialized service cell for the Chronos product line. Manned by a multifunctional team, we started offering consumers more detailed information about this high technology dermo-cosmetic. New specialized service cells organized by product line should be created in 2012. Attentive to our consumers’ right to privacy and confi dentiality, everyone communicating with Natura via the natura report # 11 55 internet or SNAC is protected by data security policies and systems. In 2011, there were no legal or adminis- trative cases involving breaches of consumer privacy or loss of data. In 2011, 697 complaints were fi led with the Procon (Consumer Protection and Advisory Program). Those complaints were mostly related to NC requests to renegotiate debts, third-parties inclusion in credit protec- tion agency listings, and consumer complaints in connection with request for product exchange or reimburse- ment. Complaints are reviewed by the appropriate functions and help identify potential improvements that could be made in the Company’s processes. CONSUMER SAFETY We have a permanent commitment with the health and safety of our consumers. We have rigorous internal pro- cesses to ensure safety, from product conception to packaging disposal, encompassing research, certifi cation, manu- facture, marketing and promotion, warehousing, distribution, supply, customer service and effective product use. PR1 For example, we honored our commitment to completely eliminate parabens from our product formulations in 2011. Although still allowed, the lack of consensus about the safety of these substances led Natura to decide for their removal from our products. Based on our experience in this case, we established a project that acts as a radar to detect controversial ingredients worldwide. We anticipate trends and act preventively. Additionally, our innovation and product development process adopts the precautionary principle. In other words, we closely monitor global scientifi c developments for possible adverse effects of any ingredient on health and re- place them if necessary. In the case of raw materials in which there are limitations on the permitted concentration, we always apply the standards of countries with the most restrictive legislation. 4.11 In Brazil the Company has set in place projects to improve the capture and analysis of reports of adverse events during 2011. We strive to obtain more detailed information about the safety of our products in the market as rapidly as possible. For this reason our service channels such as the Natura Customer Service are trained to obtain as many details as possible in case of adverse reactions. We are also structuring our processes to ensure alignment with the standards being established for the cosmetics industry under the new European regulations. It should be noted that international operations have a scientifi c management area responsible for regulatory, sur- veillance and quality processes, reporting to the Consumer Safety and Innovation function in Brazil. In 2011, no penalties nor administrative sanctions were imposed to Natura by the Brazilian National Health Surveil- lance Agency (Anvisa). Nor any fi nes were imposed in connection with product impact on consumers’ health and safety nor any signifi cant fi nes in connection with product labeling. PR2; PR4; PR9 natura report # 11 56 4.5 suppliers Natura maintains an open dialogue and relationship based on partnership with its suppliers. This relationship is driven by continuous development and the joint development of solutions and improvements, because we know that collectively we can multiply the generation of economic, social and environmental value. The Company’s supply network is divided into different types of partners. Those who provide us with fi nished products (third-party manufacturers) and production inputs (biodiversity assets, raw materials and packaging) account for 50% of our purchase volume. The remainder includes indirect service and material suppliers. In 2011, a total of 190 materials and fi nished product suppliers and more than 4,700 indirect input and service suppliers were listed in our base. With our expansion in Latin America, we have increased the participation of regional suppliers, through a new regional procurement structure for the international operations. The Company’s strategy is to increasingly work with local manufacturers (third-party suppliers). In addition to perfume bottling, initiated in Argentina in 2010, last year the Company began soap production in Colombia. The manufacture of shampoo in Mexico, perfumes in Colombia and moisturizers in Argentina and Colombia should begin in 2012. Among other advantages, local production improves service levels and reduces environmental impacts of product distribution. EC6 SUSTAINABLE SUPPLY CHAINS In 2011 Natura set up the Company’s Sustainable Supply Chain strategy. Based on innovative methodology, it enables Natura to take into account the real value of socio-environmental aspects in the selection of suppliers and in establishing development plans to ensure an increasingly effi cient and sustainable production chain. Initiated in 2010 in partnership with international specialists and the suppliers themselves, the initiative was sup- ported by the mapping of potential socio-environmental impacts caused by the chain and calculating the cost of preventing or mitigating these impacts. In 2011, the program was implemented: we included the following indicators in the purchasing criteria: environmental (carbon emissions, water consumption, solid waste genera- tion) and social (investment in education, training, the inclusion of disabled people and occupational safety) . Applied in the selection of new vendors and in the review of the existing packaging, third-party manufacture and logistics supplier base, the system brought gains in the three sustainability pillars: economic, social and environ- mental. The methodology was applied to 60% of our purchases measured by value. We closed supply contracts in which these partners committed to improving their socio-environmental performance during the next three years. This is expected to generate approximately R$ 2 million a year in socio-environmental improvements by 2014. Since these improvements will be multiplied throughout the suppliers’ operations, the impact for society will be worth approximately R$ 20 million during the period. We initiated the second phase of the program in 2011, extending the methodology to service and indirect in- put suppliers. As in the fi rst phase, this involved meeting with these partners to map their impacts. The process should be completed in 2012 and should include the suppliers in the international operations. We consider this initiative as a consistent evolution of the triple bottom line management system, leveraging the socio-environmental potential of our supply chain. Worthy of note is the engagement of our suppliers. The Company fi rmly believes in the multiplying effect of this measure, because any improvement implemented by our partners should boost their overall performance and should not be restricted to their dealings with Natura. natura report # 11 57 RELATIONSHIP We monitor the quality of our relationship with suppliers through satisfaction and loyalty indicators. In 2011, rates were stable compared with the previous year hence they did not reach the goals set for the year. The satisfaction rate was 81%, with loyalty at 27%, one percentile point below the 2010 results (within the survey margin of error). This result may be explained by operational shortfalls. We dealt with this situation by remaining close to our partners and keeping them informed of the measures being taken to normalize processes. After eight months, the main diffi culties had been overcome. Evidently, the company is aware that it is in everyone’s best interest to maintain a totally stable operation. SUPPLIER LOYALTY (%) It should be noted that in 2011 we also started to monitor two supplier-related issues raised in the discussion panels: internal control of payments and material receipt lag-time. With respect to payments, the Company improved contract management procedures and internal controls. Regarding material receipt diffi culties, opera- tional improvements were set up in the second semester. 5 2 8 2 7 2 2009 2010 2011 QLICAR PROGRAM Our supplier development program Qlicar (the Portuguese acronym for Quality, Logistics, Innovation, Competi- tiveness, Environment&Social and Relationship) was upgraded last year. In 2011, we reinforced critical service level indicators and included social parameters aligned with our sustainable supply chain strategy in the moni- toring. Where we previously monitored only water and energy consumption, CO2 emissions and solid waste generation, we now require data on investment in employees’ education, occupational safety, social inclusion and community investment. Rather than just reporting this information, our suppliers should now be assessed based on the progress in these indicators. The number of participants in Qlicar was also increased to 122 suppliers of inputs, fi nished products, logistics, brand-related services and services to consultants. In line with our proposal to increase transparency throughout the value chain, since 2010 we have supported the Global Reporting Initiative (GRI) GANTSCh (Global Action Network for Transparency in the Supply Chain) training program to encourage sustainability reporting in the supply chain. In Brazil, the program is administered by Aberje (the Brazilian Business Communication Association) and entails workshops and different activities. We invited some small and mid-sized suppliers to participate and seven accepted in 2011. At the end of the program, these partners will be prepared to publish a GRI standard sustainability report. It should be noted that 100% of the contracts we sign with suppliers contain human rights clauses, covering is- sues such as child, forced and slave labor. In 2011, we signed 36 new contracts worth some R$ 5 million. HR1; HR6; HR7 In 2011, 219 suppliers underwent self-assessment procedures and 82% of them were submitted to periodic audits covering aspects of quality, environment and social responsibility, including human rights. HR2 natura report # 11 4.6 supplier communities 58 The sociobiodiversity inputs used in our products originate from family smallholders and extractivist com- munities in diverse parts of Brazil – mostly in the Amazon region. We establish production chains with these communities based on fair prices, compensation for access to biological resources and traditional knowledge and support for sustainable local development projects. This model has proved effective in generating social, economic and environmental value for Natura and for the communities. In 2011, we worked with 32 suppliers’ communities representing 3,235 families, 40% more than in the previ- ous year. This increase is part of our strategy to strengthen business ties with the suppliers’ communities, amplifying the social benefi ts derived from this relationship and business model. SUPPLIERS’ COMMUNITIES1 Communities with which Natura maintains relations Families benefi ting in the suppliers’ communities 2009 25 2.012 2010 25 2.301 2011 32 3.235 EC9 The income of these communities reached R$ 10 million last year, 15% more than in 2010. Although propor- tionally higher than Company’s growth in the year, investment in the suppliers’ communities did not reach the established target of 25% increase for the year. The main factor behind this performance was the review of production inputs purchased during the year. Even considering only input purchases, the amount paid out to the communities was 50% higher than the previous year. The amount paid out per family decreased since the number of families grew more (40%) than spending (15%). FUNDING (000’S OF R$ ) Supply1 Compensation for access to biological resources and associated traditional knowledge2 Funds and support3 Use of image4 Training5 Certifi cation and management6 Studies and assistance7 TOTAL 2009 2.767 2010 4.374 1.056 1.088 15 152 28 435 5.540 1.480 1.552 77 185 212 828 8.706 2011 6.749 1.597 1.002 22 133 21 512 10.037 EC8 1. Amount paid by processors or the Benevides plant for raw materials used in Natura products. 2. Amount paid to communities for access to biological resources and/or associated to traditional knowledge related to Brazilian biodiversity. 3. Voluntary Natura sustainable development funds or agreements, disbursement of which is linked with infrastructure improvement projects or sponsorship. 4. Amounts paid for use of images of community members in institutional or marketing communication. 5. Workshops and courses funded by the company to improve sustainable production techniques. 6. Amounts invested in certifi cation and management plans for areas under cultivation. 7. Includes studies by anthropologists, lawyers, economists, NGOs and other Natura contractors for the suppliers’ communities. Also includes studies for structuring the production chain. natura report # 11 59 FUNDS ALLOCATED PER FAMILY (000’S R$) PER YEAR Direct funds1 Supply2 2009 2,5 1,5 2010 3,2 2,0 2011 2,9 2,2 EC9 1. Includes funds effectively received by the communities: supply of inputs, sharing of benefi ts, use of image, funds and support. 2. Sub-item of direct funds, itemizing funds received from supply. RELATIONSHIP GUIDELINES Natura’s relations with the suppliers’ communities are governed by the company’s Policy on the Sustainable Use of Biodiversity and Associated Traditional Knowledge which in turn is based on the United Nations Convention for Biological Diversity. To initiate a relationship with a community a number of factors are reviewed: existence of a legal organizational entity; administration and project management experience; re- lations with other local partners; participative management among members and sustainable environmental practices; prior experience in market relations; and production traceability. In addition to follow the policy, Natura also draws on the Suppliers’ Communities Relationship Principles, a document which guides the Company’s conduct and formalizes our commitment to understand and respect a community’s way of life and form of social organization. To do this, we always strive to establish a partici- pative, inclusive and transparent dialogue, which is conducted through a dedicated multidisciplinary team. Consolidated in 2011, the result of the suppliers’ community loyalty assessment was 28%. This is not com- parable with the previous year’s result – 43% - because we revised the methodology. Previously conducted by telephone, last year the survey was based on fi eld visits by surveyors with a background in social science. The change helped refi ne the result of the survey, providing complementary information about the qual- ity of the relationship and different associated community perspectives. The most positive points include: diversifi cation of sources of income, including sale of materials to new markets; formalization of the com- mercial relationship; crop planning; opportunities for discussion and new partnerships. It was also noted that the relationship with Natura goes beyond the fi nancial issues, with the extractivists and family smallholders feeling appreciated by their partners, customers and the society as a whole. We understand that there is room for our relations with the communities to evolve and we seek to con- tinuously improve the way we manage this development. The challenges include the need to improve com- munication and materials purchase processes, which includes planning, crop advances, joint monitoring of logistics and administrative processes. BIOQLICAR PROGRAM BioQlicar is a monitoring and development program similar to the one applied to our regular suppliers, but focused exclusively on the suppliers’ communities. It uses two groups of indicators: Bio, covering the human, social, environmental and economic resources the local society has at its disposal to drive development; and Qlicar (Quality, Logistics, Innovation, Competitiveness, Service and Relationship) – which addresses monitoring of production performance. By tracking performance and development, BioQlicar boosts the communities’ overall market relations. The program is evaluated annually by the processors and suppliers’ communities. The 2011 results will be ready in May 2012. The 2010 score was 3.6 (on a scale of 0 to 5). HR2 In 2011, a series of training programs were organized, including administration, community exchanges, oc- cupational health and safety, labor relations, as well as infrastructure improvements and local value genera- tion. We also invested in a management and agricultural training program, in structuring cost chains and formalizing contracts. natura report # 11 We organized a round of talks to discuss the involvement of children and teenagers in the production chains. The encounter was coordinated by anthropologists and Natura employees in the three supplier communi- ties where we carried out studies on the social division of labor. The objective of the meeting was to en- courage discussion and deepen the participants’ understanding of the subject. Our perception is that family participation in community activities is not only an economic matter, but also a social and cultural one. The challenge is to disseminate the debate among the different societal industries and increase understanding of the issue. It should be noted that all the benefi t sharing and supply contracts include human rights-related issues, in particular child and forced labor and degrading work conditions. In 2011, there were no incidents involving indigenous populations in the areas in which we operate. 60 HR1; HR6; HR7; HR9 SHARING BENEFITS AND CULTURAL HERITAGE Natura addresses the issue of sharing benefi ts based on its policy on the Sustainable Use of Biodiversity and As- sociated Traditional Knowledge. The Company’s approach is to share benefi ts whenever different forms of value in our access to biodiversity are perceived. As such, one of the practices defi ning how these resources will be shared is to associate payment with the number of raw materials produced from each plant and the commercial success of the products in which these raw materials are used. In 2011, we signed two new benefi t sharing contracts. One was for the traditional knowledge associated with the use of andiroba in the Médio Juruá, Amazon region. This is the fi rst commercial contract undertaken with a community located in an environmental conservation area. The second contract was for access to the biological resources of vanilla types bahiana and chamisonis, with the Cabruca cooperative (Bahia). We also entered various amendments to other agreements to expand the range of raw materials used in research within our innovation program. All are related to sharing the benefi ts from access to biological resources. They include two passion fruit contracts with the Aprocor Cooperative – Corumbataí do Sul Region Producers’ Asso- ciation (Paraná); fi ve cocoa contracts with the Cabruca Cooperative (Bahia); one capitiú contract in Capo Limpo (Pará); one guaçatonga contract and a passion fl ower contract in the Consórcio Terra Medicinal (CTM) commu- nity; jenipapo, guaraná and annatto contracts with the Onça Cooperative; three cupuaçu contracts with the Reca Project (Rondônia); and a macela contract with the Coopafl ora – Turvo Agroecological, Handicraft and Forestry Products Cooperative, in Turvo (Paraná). LOCAL DEVELOPMENT To stimulate the development of the suppliers’ communities and the areas around them, we have a specifi c company-funded promotion program. The funds are invested in projects that foster the social reinforcement of the communities, as well as environmental conservation, cultural reinforcement, the creation of alternative sources of income, food security, interaction with external bodies and leadership development. SO10 One of these initiatives was the creation of the Médio Juruá, Amazon region Fund in partnership with the Conselho Nacional de Populações Extrativistas (National Extractivist Populations Council), with support from the Instituto Chico Mendes de Conservação da Biodiversidade (Chico Medes Conservation and Biodiversity Institute - ICMBio) and the Centro Estadual de Unidades de Conservação do Estado do Amazonas (Ama- zonas State Conservation Unit Center). The fund selects projects proposed by organizations in the region based on four action fronts: building citizenship, education and health; food security and income generation; environmental conservation and preservation; associative reinforcement and market diversifi cation. The aim is to enable organizations such as the Médio Juruá Extractivist Reserve to seek alternative sources of income for workers and to obtain project fi nancing. The fund’s fi rst call to tender was issued in 2011. Natura also assisted the organizations by training them to prepare their applications in line with the required criteria. As a result of our institutional and technical reinforcement initiatives in the Médio Juruá, Amazon region com- munity, the quality of the materials gathered and andiroba and murumuru processing has improved. This in turn improves relations and increases family incomes. SO10 Another signifi cant initiative was the inauguration of an agro-industrial venture in the Cofruta community (Pará). This process is the result of a collective discussion involving several cooperatives in the Lower Tocan- tins region and other local partners (NGOs, agricultural unions). With this unit, the communities which previ- ously supplied Brazil nuts and seeds as production inputs now process the material and sell the oil to Natura and other customers. We have thus helped to add value to the production process, diversify the cooperative’s business and strengthen the region. For Natura, the process results in logistics gains. The project is manned by young people trained in management and cooperative administration in a program organized by Fase (the Social and Educational Assistance Federation), another measure supported by Natura. natura report # 11 natura Suppliers’ Communities Reca (Associação dos Pequenos Agrossilvicultores do Projeto de Refl orestamento Econômico Consorciado e Adensado) - Cupuaçu (theobroma grandifl orum) butter and pulp, Cumaru (Dipteryx odorata) seeds, Açaí (Euterpe precatoria) pulp and Brazil nut oil Comaru (Iratapuru Producers and Extractivists Cooperative) - Brazil Nut (Bertholletia excelsa) Oil and Breu Resin Oil (Protium pallidum) 61 Apobv (Boa Vista do Acará Producers’ Association) - Piri piri root Cyperus articulatus Belém Islands Women’s Movement - Piri piri root (Cyperus articulatus) Aprocam (Campo Limpo Producers’ Association) - Piri piri root (Cyperus articulatus) andestoraque leaves (Myroxilon Balsamun) Camta (Tomé-Açu Mixed Agricultural Cooperative) - Cupuaçu (theobroma grandifl orum) butter, Açaí(euterpe oleracta) pulp, Cocoa seed and passion fl ower oil (passifl ora edulis) Cofruta (Abaetetuba Fruit Producers’ Cooperative) - Andiroba (Carapa guianensis) and Murumuru (Astrocaryum murumuru) seeds Associação Ver-as-Ervas das Erveiras e Erveiros do Ver-o-Peso - Does not supply materials Igarapé-Miri Agricultural Cooperative - Andiroba (Carapa guianensis) and Murumuru (Astrocaryum murumuru) seeds Cart (Resistência de Cametá Agricultural Cooperative) - Murumuru (Astrocaryum murumuru )seeds Coomar (Mid Caeté and Gurupi Mixed Producers’ Cooperative) - Murumuru (Astrocaryum murumuru) seeds Copoam (Amazon Organic Producers’ Cooperative) - Cocoa seed (Theobroma cacao) Santo Antônio do Tauá Mixed Agro-Extactivist Cooperative - Murumuru (Astrocaryum murumuru) seeds Associação Jauari (Jauari – Caminhos com Cristo Residents’ and Producers’ Association) - Murumuru (Astrocaryum murumuru) seeds Coopcao (Organic Cocoa Producers’ Cooperative) - Cocoa seed (Theobroma cacao) Copops (Perpétuo Socorro Organic Products Cooperative) - Cocoa seed (Theobroma cacao) Copotran (Transamazônica Organic Producers’ Cooperative) - Cocoa seed Theobroma cacao Copoxim - Cocoa seed (Theobroma cacao) Copobom (Bom Jardim Organic Cocoa Producers’ Cooperative) - Cocoa seed (Theobroma cacao) Codaemj (Médio Juruá, Amazon region Energy Extractivist Development Cooperative) / Asproc (Carauri Rural Products Association) / Amaru (RDS Uacari Residents’ Association) - Andiroba (Carapa guianensis) and Murumuru(Astrocaryum murumuru) Equador 50 AC 50 Malvas - Palo Santo Leaf (Kielmeyera coriacea) RO 374 AP 32 34 17 AM 400 13 101 140 16 PA 6 127 120 11 7 8 118 11 91 64 Coopaesp (Esperantinópolis Smallholder and Extractrivist Cooperative) - Babassu fl our (Orbignya Phalerata) MA 68 PI 50 Buriticoop (Palmeira do Piauí) - Does not supply currently MT 400 BA 140 54 30 Chico Mendes Legal Reserve - Does not supply materials MG 176 Coopavam (Vale do Amanhecer Producers’ Cooperative) - Brazil nut oil SP 5 PR 364 96 Coaprocor (Corumbataí do Sul and region Agro-industrial Producers’ Cooperative) - Passion fruit seed (Passifl ora edulis Sims) Coopafl ora (Turvo Agro-ecological, Handicraft and Forestry Products Cooperative) - Chamomile fl ower (chamomilla recutita) Melissa (melissa offi cinalis), Macela (achyrocline satureiodes), Sage (Salvia offi cinalis) Rosemary (Rosemarinus offi cinalis); Lemon grass leaves (Cymbopogon citratus), Mint (mentha piperita) and CarquejaBacharis genisteloides y secas de hierba limón, menta y carqueja Cabruca (South Bahia Organic Producers’ Cooperative) - Cocoa seed(Theobroma cacao) Onça (Onça Project Agricultural Cooperative) - Research material Cooprocam (Camamu Agricultural Producers’ Cooperative) - Not supplying currently Grande Sertão Family Smallholder and Extractivist Cooperative - Buriti palm oil CTM (Terra Medicinal Consortium) - Passion fl ower leaves (Passifl ora edulis) XX number of families involved natura report # 11 62 4.7 surrounding community With the expansion of Natura’s operations, the challenges and responsibilities involved in establishing relationship quality with the communities surrounding our operations has grown. We are aware that the company’s presence causes impacts and we strive to ensure these are increasingly positive. Our main rationale regarding surrounding communities is to identify local partners with whom we may operate. We believe that strengthening existing actors and leaders leads to more consistent and sustainable results. A large part of our initiatives are focused on the Cajamar (São Paulo State), Itapecerica da Serra (São Paulo State) and Benevides (Pará State) communities, where our main operations are located. Investments in projects in these locations totaled R$ 822,000 in 2011, almost double the amount spent the previous year. INFRASTRUCTURE AND SERVICE INVESTMENTS FOR PUBLIC BENEFIT (000’S OF R$) Investments in communities surrounding Natura units - Natura funding1 Investments –Crer para Ver funding2 1 Investments refer to districts of Cajamar and Itapecerica da Serra. 2. Crer para Ver investments in Benevides. 2009 2010 2011 408 3 409 30 822 96 EC8 One of our commitments for 2011 was to extend our relationship strategy beyond the communities in which we already invest. The aim is to expand our local development programs to other regions, a strategy which continues to be a challenge for the company. In 2011, we directed 1% of Natura’s income tax due to the Children’s and Adolescents’ Municipal Councils in seven municipal districts. Among these, we established closer relations with the councils in three locations in which Na- tura has DCs: Jaboatão dos Guararapes (Pernambuco), Canoas (Rio Grande do Sul) and Castanhal (Pará). In these regions we organized meetings to learn about the local reality and child and adolescent-related issues in the region. With respect to employees resident in the areas around our main units, there was an increase in hiring in Cajamar, especially among operators and apprentices. All the 163 young people in the program were indicated by employ- ees. Worthy of note is the fact that a large number of temporary workers, third-parties and service providers working with Natura live in the surrounding communities. In Benevides, like in 2010, there was a decrease in this indicator due to the unit’s growth, meaning a number of employees from outside the region were hired. EMPLOYEES RESIDENT IN SURROUNDING COMMUNITIES (%)1 Cajamar Benevides 2009 17 98 2010 17 95 2011 21 60 1. Itapecerica da Serra is an administrative unit and does not count employees from the surrounding community. Business volume with suppliers from Cajamar, Itapecerica da Serra and Benevides accounted for 4% of Natura’s total purchases during the year. EC6 natura report # 11 63 PURCHASES FROM SUPPLIERS IN THE COMMUNITIES AROUND PLANTS1 (R$ MILLIONS) Cajamar Itapecerica da Serra Benevides Total 2009 70 1,2 45 116 2010 74 1,3 47 121 2011 62 3,0 64 129 EC6 1. The method for consolidating this indicator was changed. From 2011, the amounts net of taxes recoverable were considered. Conse- quently the 2011 data are not comparable with previous years. CAJAMAR Since 1998, we have focused on establishing partnerships with the community, public authorities and civil as- sociations in Cajamar with a view at contributing to local development. In 2011, we assisted in the set up of the targets and projects established in the Municipal Education plan funded by Natura the previous year. In partnership with the Municipal Education Board and with support from Ideca (Educational, Cultural and Community Action Development Institute), work began on building the municipal learning assessment system. This will be applied to students in municipal schools and will provide more accurate in-depth information on teaching quality and on the needs of each school. To provide local youngsters with new employment opportunities, we created the Cajamar School in 2011. This is an educational program to prepare them to participate in apprentice selection processes, not only at Natura but also in other companies in the region, and increase their chance of employment. A total of 65 adolescents took part in the program, and fi ve were recruited by Natura. We also developed our existing partnership with the NGO Mata Nativa. Since 2010, we have contracted Ipesa (Socio-environmental Projects Institute) to strengthen the organization in institutional and management terms. We supported the NGO in a project involving shared management of a municipal park in partnership with public authorities and community leaders. The aim is to set up an environmental education framework and reinforce management of the environmental protection areas in the region that includes Cajamar, Cabreúva and Jundiaí. ITAPECERICA DA SERRA After 20 years in which a key part of our operations have been located in Itapecerica da Serra, we should be leaving the district by the end of 2012. This decision is due to the fact that the site offers no room for expansion considering the company’s growth. We recognize that our leaving the district generates impacts, in particular with respect to tax revenues. Since the decision was made, every care has been taken to inform the community and discuss the best way to close this current cycle of work and partnerships. The decision was communicated offi cially to the local government with two years notice, giving it time to adjust to the resulting fi scal impact (more on page 68). The move was also discussed in a discussion panel with the surrounding community in 2011. SO1 The projects the company supports in the community will be maintained throughout 2012. The main action Na- tura supported was the set up of selective solid waste collection in the Potuverá district, which was concluded in 2011. The next challenge is to extend this service to other districts in the municipality. Natura has been involved in this project since 2007 in partnership with the Municipal Environment Department and Cris, the Itapecerica da Serra Recycling Collective. Our support entails contracting the NGO Ipesa, which has been training and as- sisting our partners in the project. In the community discussion panel we addressed the future of the project. In our view, the cooperative and the local government are now ready to run the service by themselves - the main objective of the partnership all along. We also supported the communication plan to spread the information on the collection program in the community. SO1 To drive knowledge generation Natura supported Ipesa in systematizing the methodology for setting up co- operatives based on the experience in Itapecerica da Serra. We believe this model may be replicated in other districts and could even contribute to the creation of a public policy on selective solid waste collection. Thus our participation in the project is being concluded with support for systematization of the knowledge acquired during this period. The Itapecerica da Serra operation will be transferred to a facility in the city of São Paulo (São Paulo State) which will house 2,500 administrative staff and a modern distribution center (DC). The new facility, which will be inaugurated in 2012, is projected to have a reduced environmental impact and to provide an inclusive workplace. natura report # 11 64 BENEVIDES Natura’s activities in the region around Benevides (Pará State), where we have a soap factory, increased signifi - cantly in 2011. As a result of the growing use of biodiversity assets in our products, the number of communities with whom we work increased from 12 to 15 in 2011. The number of families grew from 1,100 to 1,536, or more than 40%, last year. The disbursement generated from the acquisition of inputs increased 60%, from R$ 1.6 million in 2010 to R$ 2.6 million a year later. Natura has been around in the Benevides region since 2006. It has a local team dedicated to community rela- tions, which in this case covers a larger range, including several municipal districts in the state of Pará. With the construction of a new plant in Benevides and the increase in investment earmarked for the Amazônia Program, community relations should grow in the coming years (more on page 28). We organized a public consultation in the municipality to present the plans for the new unit and opened a discussion channel on the Natura Conecta portal (www.naturaconecta.com.br) through which the local com- munity is able to accompany the progress of the new plant. Another public consultation is planned for 2012. To promote qualifi cation of local manpower, we organized an initial training course for electromechanical opera- tors in partnership with Senai. Within 12 months, there will be 40 trained professionals who will be eligible to work in the new Natura plant should they want to. Finally, Natura initiated an education project in 10 municipalities in the Benevides and Castanhal region. This represents the beginning of an educational planning process in these districts in conjunction with the municipal education departments, with Cedac (Comunidade Educativa) as a partner (more about Benevides on page 60). SO9 SO1 natura report # 11 65 4.8 shareholders 2011 was a particularly challenging year for Natura, but one in which our investor relations strategy and trans- parency once again proved to be positive, generating value for the company. In a year in which Natura’s fi nancial and operational results were below expectations, the Company success- fully maintained communication with shareholders and the fi nancial market, putting the Company’s perfor- mance in perspective in 2011 and reaffi rming our commitments and our future prospects. Our communications with shareholders involved 553 encounters throughout 2011, quarterly teleconfer- ences, as well as private meetings in Brazil and abroad. Another key communication tool is our webpage (www.natura.net/investidor). For the fi rst time ever we also organized a meeting with Association of Investment and Capital Market Ana- lysts and Professionals (Associação dos Analistas e profi ssionais de Investimento do Mercado de Capitais, Apimec-São Paulo State) in conjunction with the Annual Shareholders Meeting (more on page 16). The third Natura’s Day was attended by around 100 market analysts and specialists from Brazil and abroad. Presented by the Executive Committee, the meeting revealed Natura’s future plans and helped forge closer relations between company leaders and the fi nancial market. The Company understands that it is still challenging to convince investors about the value of sustainability and the integrated management of fi nancial, environmental, social results and governance. To learn more and make headways with this kind of approach in the capital markets, Natura held meetings with Socially Re- sponsible Investors (SRI) in Canada and in the United States. The event was attended by 21 investors whose decisions are oriented to the triple bottom line. Natura intends to maintain this initiative. Natura CEO Alessandro Carlucci’s agenda includes annual visits to long-term shareholders and participation in periodic meetings with investors, of which there were nine in 2011. In an operation approved by the Board of Directors in July 2011, Natura bought back 4 million shares to sup- port the exercise of stock options, as a means of avoiding subscriptions. SHAREHOLDER PROFILE Individuals Brazilian legal entities Overseas legal entities Total BREAKDOWN OF SHAREHOLDERS SHAREHOLDERS Controlling shareholders Treasury shares Management shares Outstanding shares Total Shares 2009 7.699 560 668 8.927 2010 7.838 560 850 9.248 2011 8.722 659 867 10.248 STAKE 59,83% 0,70% 0,55% 38,91% 100,00% NUMBER OF SHARES 258.017.219 3.021.757 2.387.123 167.813.165 431.239.264 natura report # 11 66 CONTROLLING SHAREHOLDERS As it is listed on the BM&FBOVESPA New Market, Natura capital consists exclusively of ordinary shares. The table below shows the number of shares of our capital stock held by shareholders that own 5% or more of our capital stock or by members of the Board in 2011. DAILY SHARE VOLUME TRADED (R$ million) SHAREHOLDER NUMBER OF ORDINARY SHARES Lisis Participações S.A. Controlled by Antonio Luiz da Cunha Seabra Utopia Participações S.A. Controlled by Guilherme Peirão Leal Passos Participações S.A. Controlled by Pedro Luiz Barreiros Passos ANP Participações S.A. Controlled by Anizio Pinotti RM Futura Participações S.A. Controlled by Ronuel Macedo de Mattos Antonio Luiz da Cunha Seabra Guilherme Peirão Leal Pedro Luiz Barreiro Passos Anizio Pinotti Ronuel Macedo de Mattos 95.946.968 91.557.964 22.606.809 22.583.608 15.918.754 3.628.920 3.462.917 855.038 854.160 602.081 9 8 9 5 2 . 2 8 1 3 3 . 6 9 6 3 4 . 2010 2009 Source: Economática 2011 % 22,27 21,25 5,25 5,24 3,69 0,84 0,80 0,20 0,20 0,14 NATURA SHARE PERFORMANCE (NATU3) In 2011, Natura shares depreciated 20.4%, against a18.1% decrease in Ibovespa, the main BM&FBOVESPA (Stock Exchange) index. Since Natura went public in 2004, its shares have signifi cantly outperformed the index, as shown in the chart below: NATU3 Índice Bovespa Base 100 = 25/05/2004 NATU 3 25/05/2004 R$ 5,27 FOLLOW ON 31/07/2009 NATU 3 29/12/2011 R$ 36,21 588,0% 200,9% 2004 NATU3: +87.2% Ibov: +33.0% 2005 NATU3: +37.9% Ibov: +28.3% 2006 NATU3: +51.1% Ibov: +29.1% 2007 NATU3: – 41.4% Ibov: +47.4% 2008 NATU3: +18.0% Ibov: – 41.4% 2009 NATU3: +101.6% Ibov: +82.7% 2010 NATU3: +37.0% Ibov: +1.3% 2011 NATU3: -20.4% Ibov: -18.1% Natura is listed in the main indices in the Brazilian stock market: Ibovespa, IBrX-50 (which lists the most liquid shares on BM&FBOVESPA), ISE (Índice de Sustentabilidade Empresarial or Business Sustainability Index), Índice de Governança Corporativa (Corporate Sustainability Index), Tag Along Share Index, Morgan Stanley Compos- ite Index and ICO2 (BM&FBOVESPA Carbon Effi cient Index). In its second year of operation, the ICO2 only includes companies with emissions inventories and management. Natura was listed in the index once again. TOTAL VOLUME TRADED (R$ millions)1 2 9 3 6 . 5 2 3 8 . 0 8 8 0 1 . 2010 2009 1. Source: Economática. 2011 natura report # 11 67 PAYMENT OF DIVIDENDS On February 15, 2012, the Board of Directors approved a proposal to be submitted to the Annual Shareholders Meeting on April 13, 2012, for the payment of dividends and interest on own capital of R$ 762.6 million and R$ 61.1 million (R$ 51.9 million net of withholding tax) respectively, relative to 2011 results2. On July 20, 2011, dividends totaling R$ 295.3 million and interest on own capital totaling R$ 31.9 million (net of withholding tax) were paid out, pending approval by the Annual Shareholders Meeting. The balance to be paid out on April 18, 2012, upon approval of the Annual Shareholders Meeting, will be R$ 467.3 million in dividends and R$ 20.1 million in interest on own capital (net of withholding tax). The sum of these dividends and interest on own capital relative to the results of 2011 will represent a net com- pensation of R$ 1.89 per share (R$ 1.65 per share in 2010), corresponding to 99% of 2011 net profi t. 4.9 government Our government relations strategy is based on ethics and transparency. We believe that Natura’s interests ex- tend beyond business and that we should contribute to discussions and to the formulation of public policies that are relevant for the company and for social transformation. One subject Natura has been debating with the Brazilian government for almost a decade: improvements to the legislation regarding access to biodiversity and traditional knowledge as a means of combining innovation and the sustainable use of these resources. Together with a number of other companies, experts and civil or- ganizations, we advocate the creation of a new legal framework for research into biodiversity in Brazil and for biodiversity use. Currently access to biological resources is governed by an unsatisfactory temporary act which provides security neither for companies or researchers, nor for the environment. Natura argues that it is possible to generate competitiveness for the country through the responsible use of these resources and wishes to create a system to integrate production, consumption and, more importantly, conservation of the planet’s biodiversity. As a result of this impasse, in 2011 Natura received two violation notices from Brazilian Institute of Environment and Natural Resources (Instituto Brasileiro do Meio Ambiente de dos Recursos Naturais Renováveis, IBAMA) for alleged illegal access to biodiversity for purposes of research and product development. The fi nes, which total R$ 500 thousand, are being challenged administratively. In spite of the lack of solid results - we had expected a new bill of law to be forwarded to Congress by the Of- fi ce of the Chief of Staff in 2011- we believe there has been some progress. The subject has been discussed by the Agriculture, Environment and Development and Technology ministries and a consensus has been reached on the need to change the legislation. There has also been greater engagement on the part of civil society, under the leadership of organizations such as the Cosmetics Fragrances and Toilletries association Abihpec, of which Natura is a member. Another important step forward was the beginning of negotiations with the Federal Government about pay- ment for sharing access to biological resources on Federal land, in an attempt to break a stalemate and in spite of divergences as to the current legal framework. Through MEB (Business for the Conservation and Sustainable Use of Biodiversity), an organization which Natura helped found, we took part in the fi rst industry discussions promoted by the Brazilian government to defi ne Brazilian biodiversity targets for 2020. 2. These amounts already take into account the changes in treasury stock from the date of the Board meeting until the base date for the payment of dividends and interest on own capital on February 24, 2012, maintaining the amount to be paid per share decided in the meeting. natura report # 11 68 The vote on the new Brazilian Forestry Code was also on the Company’s agenda. We communicated the proposed changes in the legislation to our consultants, arguing that they are not conducive to environmental conservation. This generated some 40 thousand signatures for the Floresta Faz a Diferença (Forests Make a Dif- ference) internet campaign designed to involve the public in the Forestry Code reform. In 2011, we also established initial discussions on biodiversity with the SBPC or the Brazilian Society for the Progress of Science, our objective being to propose a joint academic and business agenda on this subject. We are paying close attention to Rio+20, which will take place in Rio de Janeiro in June 2012. We believe the conference could be a major opportunity to further the debate on the role of different nations in building a new economic model and applying the Convention for Biological Diversity. Through intensive use of the social networks, the Company wishes to engage the public in discussing the subjects involved regardless of the diplomatic outcomes. We also participate in the “Grupo de Mulheres Rumo à Rio+20 – Sustentabilidade no Feminino” (Women for Rio+20 - Feminine Sustainability), coordinated by the Environment Ministry, which intends to introduce its own agenda in the conference. The initiative proposes discussions on the participation of women, incentives for green entrepreneurship and promotion of responsible consumption. Also in the environmental area, we are on the Abihpec commission to build an industry agreement that meets the requirements of the National Solid Solid waste Policy, in force since 2010. The legislation requires the cre- ation of solid waste disposal systems throughout the value chain, including manufacturers, the government and consumers. Although we consider the law to be an advance, it is our understanding that there is still much to be done in terms of establishing targets and responsibilities. Natura is seeking to transform this socio-environmental challenge into business opportunities in its production chain (more on page 27). Natura addresses tax issues mainly through the ABEVD - the Brazilian Direct Selling Association. We advocate the establishment of a common methodology for determining added value margin in all Brazilian States. We believe that this measure is necessary to avoid even greater fi scal confl icts and distortions between the States. We established two important challenges for the government relations process in 2011: the extension of Natura’s relations with government in our international operations and the regionalization of our priority agenda. For this reason, we will expand our internal team, which should increase our capacity to act in adverse situations. Natura is not involved in any litigation related to anti-competitive laws and has received no signifi cant penalties or non-monetary sanctions for breaches of associated laws and regulations. In 2011, fi nancing from government fomenting agencies through tax incentives totaled R$ 37.3 million. Part of these funds were related to the 2005 Law 11.196, known as Lei do Bem, which provides incentives for com- panies that develop technological innovations. However, in 2011, the Brazilian tax authority, Receita Federal, established new rules for the use of the benefi ts provided for in the law. We believe that this change may block the granting of funding to many companies, including Natura. In conjunction with Fiesp (the Federation of In- dustry of the State of São Paulo), we are attempting to modify this ruling which could jeopardize the innovation potential of Brazilian companies. SO7; SO8 EC4 We also obtained R$ 71.2 million in fi nance from promotion agencies such as BNDES (Banco Nacional de De- senvolviomento Econômico e Social) and Finep (Financiadora de Estudos e Projetos) for innovation, industrial training, logistics and innovation technology. EC4 Another item on the Natura government relations agenda in 2011 was the transfer of the Company’s facilities in Itapecerica da Serra (São Paulo State) to a new area in the city of São Paulo (São Paulo State). The move will occur in 2012. The local government was given two years notice on the move so it would have time to prepare and minimize the fi nancial impact of our departure. The relations we have built with the local community over the years have ensured that this transition will take place smoothly. (more on page 63). natura report # 11 69 GOVERNMENT FUNDING (R$ MILLIONS) Tax Incentives for Support and Sponsorship1 Lei do Bem (Income tax (IR) and Social Contribution (CS)) deductions of up to double the expenditure in research and technological innovation)2 Sales Tax (ICMS) subvention in Itapecerica da Serra Others3 Total 2009 6 2010 9 2011 10 12 3 0,0 22 21 6 0,6 36 22 4 1,1 37 EC4 1. Corporate income tax (IRPJ)incentives related to the Rouanet law, Ancine, Children’s and Adolescents’ Fund, Worker’s meal program and Minas Gerais sales tax (ICMS) incentive, corresponding to the Natura Musical projects. 2. The tax benefi t related to Law 11.196, 2010, was changed due to the project revision/audits. 3. Incentive for the extension of maternity leave by two months instituted under Decree 7052/2009. The expense is non-deductible from actual profi t and the CSLL base calculation, but is fully deductible from corporate income tax (IRPJ). LOBBYING AND SOCIAL INFLUENCE Natura defends political lobbying on the condition that it observes the strictest standards of ethics and trans- parency. The Company does, however, believe that this requires specifi c legislation in Brazil and, although there were no advances on the part of the government in this area in 2011, we continue to participate in debates promoted by institutions such as the University of São Paulo (USP) and Aberje (Brazilian Business Communica- tion Association) about regulation of this activity in the country. SO5 To minimize risks caused by lack of regulation, in 2011 Natura published its policy for contracting lobbyists. The policy is restrictive and adopts the principle that lobbying should be carried out by individuals who are quali- fi ed and conversant in the matter at hand. The professionals representing Natura are all company’s employees: Rodolfo Guttilla, Lucilene Prado, Isabel Fujimori, Elizabete Vicentini, Luciene Soares, Carlos Henrique Silva, Kássia Reis and Luciano Pedregal. Our activities are also subject to the Policy on Corruption and Bribery, which sets forth standards of conduct for dealing with public authorities. It should be noted that Natura, in accordance with its Campaign Donations Policy, does not make any donations to candidates or political parties. S04; SO6 We believe that joining forces is the most effi cient way of achieving positive, transformational results and actively participate in trade and industry associations. In this area, the most signifi cant event was the election of Natura CEO Alessandro Carlucci as chairman of the World Federation of Direct Selling Associations. The fi rst Brazilian to hold the position, his main goals will be to promote and strengthen direct sales worldwide, underscoring its importance as an alternative for promoting entrepreneurship, income generation and social transformation. Carlucci’s mandate lasts until October 2014. Carlucci’s election should increase our importance in Latin American trade associations, in which we are step- ping up our activities. This participation will boost Natura’s international experience and expand our global re- lationship network. In addition our local general manager in Chile, Hans Werner, is the Chairperson of the local direct selling Association (Cámara de Venta Directa de Chile) We are active in the main industry bodies in Brazil and abroad such as Abihpec (CFT industry) and ABEVD (Direct selling industry).We seek to promote open, transparent dialogue with society. We believe that collective discussions associated with free competi- tion is one of the most effi cient ways of driving competitiveness, addressing critical issues and expanding the industry’s presence. natura report # 11 REPRESENTATION IN TRADE/INDUSTRY ASSOCIATIONS Organization/Association Natura Representative Position 70 4.12; 4.13 ABA - Associação Brasileira de Anunciantes (Brazilian Advertisers Association) José Vicente Marino Vanessa Giannotti Aberje- Associação Brasileira de Comunicação Empresarial (Brazilian Business Communication Association) (www.aberje.com.br) Rodolfo Guttilla Abevd – Associação Brasileira de Empresas de Vendas Diretas (Brazilian Direct Selling Association) Abifra - Associação Brasileira das Indústrias de Óleos Essenciais, Produtos Químicos Aromáticos, Fragrâncias, Aromas e Afi ns (Brazilian Essential Oils, Aromatic Chemicals, Fragrances and Aromas Industry Association) Guto Pedreira Rodolfo Guttilla Lucilene Prado Fernanda Airoldi Luciano Pedregal Sérgio Gallucci Abihpec - Associação Brasileira da Indústria de Higiene Pessoal, Perfumarias e Cosméticos (Brazilian Personal Hygiene, Perfumery and Cosmetics Industry Association) (www.abihpec.org.br) Rodolfo Guttilla Lucilene Prado Elizabete Vicentini Luciene Soares Kassia Reis Ricardo Bittencourt Luiz Felipe Carvalho de Moreira Elizabete Vicentini Member of National Board Member Best Communication Practices Committee Chairman Steering Committee Member Presidents’ Council VicePresident Coordinator Legal Affairs and Government Relations Committee Member Research Committee Member Ethics Council Representative 1st VicePresident Director Representative Technical and Regulatory Committee Representative Environment Group Representative Tributary Working Group Representative Overseas Trade Working Group Representative Labor Relations Group Representative ABNT - Associação Brasileira de Normas Técnicas (Brazilian Technical Standards Association) (www.abnt.org.br) ABPI - Associação Brasileira da Propriedade Intelectual (Brazilian Intellectual Property Association) (www.abpi.org.br) Abrasca - Associação Brasileira das Companhias Abertas (Brazilian Listed Companies Association) (www.abrasca.org.br) ABRH - Associação Brasileira de Recursos Humanos (Brazilian Human Resources Association) Agendis Aippi - Association Internationale pour la Protéction de la Propriété Intellectuelle (International Intellectual Property Protection Association) (www.aippi.org) Instituto Akatu pelo Consumo Consciente (Akatu Conscious Consumption Institute Lucilene Prado Representative Fabio Cefaly Ney Silva Rodolfo Guttilla Lucilene Prado Representative Representative Representative Representative José Vicente Marino Representative AMVD - Associación Mexicana de Ventas Directas (Mexican Direct Selling Association) Cecilia Riviello Anpei - Associação Nacional de Pesquisa, Desenvolvimento e Engenharia das Empresas Inovadoras (National Association of Research, Development and Engineering of Innovative Companies) (www.anpei.org.br) Asipi - Asociación Interamericana de la Propriedad Industrial (Inter- American Industrial Property Association) (www.asipi.org) Carolina Muñoz Luciana Hashiba Member of Steering Committee Representative Regulatory Affairs Committee Director Lucilene Prado Representative natura report # 11 Capa - Cámara Argentina de la Indústria de Cosmética y Perfumeria (Argentine Chamber of Cosmetics and Perfumery Industry) Heriovaldo Silva Casic - Consejo de Asociaciones de la Industria de Cosmeticos Latinoamericana (Council of Latin American Cosmetics Industry Associations) Cavedi - Cámara de Venta Directa de Argentina (Argentine Direct Sales Chamber) CEBDS – Conselho Empresarial Brasileiro para o Desenvolvimento Sustentável (Brazilian Business Council for Sustainable Development) Janice Casara Pedro González Representative Asociacion Civil Argentina de Empresas Brasileñas (Argentinean Association of Brazilian Companies) (www.grupobrasil.com.ar) Aspi - Associação Paulista de Propriedade Intelectual (São Paulo Intellectual Property Association) (www.aspi.org.br) Cámara de Comercio de Lima (Lima Chamber of Commerce) Cámara de Venta Directa de Chile (Chile Direct Selling Chamber) Cámara Peruana de Venta Directa (Peru Direct Selling Chamber) Cambras - Cámara de Comercio Argentino Brasileña (Argentine- Brazil Chamber of Commerce) (www.cambras.org.ar) Canipec - Camara Nacional de la Industria de Perfumeria, Cosmetica y Articulos de Tocador e Higiene (National Perfumery, Cosmetics, Toiletry and Hygiene Industries Association) Cemefi - Centro Mexicano para la Filantropía (Mexican Philanthropy Center) Ciesp - Centro das Indústrias do Estado de São Paulo (São Paulo Industries Center) (www.ciesp.org.br) Copecoh – Comité Peruano de Cosmética e Higiene Conar - Conselho Regional de Auto-regulamentação Publicitária(Regional Advertising Self-Regulatory Council) Ethos - Institutos Ethos de Empresas e Responsabilidade Social (Ethos Business and Social Responsibility Institute) (www.ethos.org.br) FNQ – Fundação Nacional da Qualidade (National Quality Foundation) (www.fnq.org.br) Funbio - Fundo Brasileiro para a Biodiversidade (Brazilian Biodiversity Fund) (www.funbio.org.br) Fundação SOS Mata Atlântica (SOS Atlantic Rainforest Foundation) Global Compact - Caring for Climate GRI - Global Reporting Initiative (www.globalreporting.org) 71 Heriovaldo Silva Treasurer Lucilene Prado Representative Daniel Gonzaga Hans Werner Daniel Gonzaga Representative President Representative Heriovaldo Silva Representative Carolina Muñoz Javier Herrero Rodolfo Guttilla Javier Herrero Rosana Bertozci Rodolfo Guttilla Luciano Pedregal Daniel Gonzaga Representative on Regulatory Affairs Committee Vice President Sustainable Development Commission Deputy Member - Account Review Committee Director Representative Representative Representative Director CIESP Councilor – Jundiaí Representative José Vicente Marino Member of Higher Council Guilherme Peirão Leal Marcelo Cardoso Pedro Luiz Passos Board Member Member of Ethos Management Council Vice President Curatorship Council Guilherme Peirão Leal Member of Consulting Council Pedro Luiz Passos Guto Pedreira Rodolfo Guttilla Member of Council Member of Steering Committee Member of Stakeholder Council and Co-chairman of Brazilian National Annex Representative IBGC - Instituto Brasileiro de Governança Corporativa (Brazilian Corporate Governance Institute) (www.ibgc.org.br) Moacir Salzstein Ibri - Instituto Brasileiro de Relações com Investidores (Brazilian Investor Relations Institute) (www.ibri.org.br) IEDI - Instituto de Estudos para o Desenvolvimento Industrial (Institute of Industrial Development Studies) (www.iedi.org.br) Fabio Cefaly Representative Pedro Luiz Passos Chairman of Board IIRC - International Integrated Reporting Committee Roberto Pedote Instituto Empreender Endeavor Brazil (www.endeavor.org.br) Instituto São Paulo Contra a Violência (Institute São Paulo Against Violence) (www.spcv.org.br) Pedro Luiz Passos Rodolfo Guttilla Member of Steering Committee Member of Board Representative natura report # 11 natura report # 11 72 Representative Member of Board Representative Representative Member of Board Chairman of Board of Sustainable São Paulo Institute INTA - International Trademark Association IPT - Instituto de Pesquisas Tecnológicas (Technological Research Institute) (www.ipt.br) LIDE - Grupo de Líderes Empresariais Business Leaders Group Alessandro Carlucci Lucilene Prado Pedro Luiz Passos MBC - Movimento Brasil Competitivo (Competitive Brazil Movement) (www.mbc.org.br) Movimento Nossa São Paulo (Our São Paulo Movement) (www.nossasaopaulo.org.br) PCPC Council - Personal Care Products Council (www. personalcarecouncil.org) SIPATESP - Sindicato da Indústria de Perfumaria e Artigos de Toucador do Estado de São Paulo (São Paulo State Perfumery and Toiletry Industry Association) The Arthur W. Page Society (www.awpagesociety.com) UEBT - Union For Ethical Biotrade WBCSD - World Business Council for Sustainable Development (www.wbcsd.org) WFDSA - World Federation of Direct Selling Associations Rodolfo Guttilla Pedro Luiz Passos Guilherme Peirão Leal Elizabete Vicentini Representative Rodolfo Guttilla Lucilene Prado Vice President Deputy Director Rodolfo Guttilla Representative Ricardo Faucon Alessandro Carlucci Vice Chairman Board Member Alessandro Carlucci Rodolfo Guttilla Moacir Salzstein President Advisory Council for Latin America, Member of Board of Directors and Member of Advocacy Committee Assistant Treasurer & Governance, Operating Group Member of the Consulting Council WWF Brasil (www.wwf.org.br) Guilherme Peirão Leal natura report # 11 73 5. what footprint we leave natura report # 11 74 5.1 natura value chain NATURA’S MAIN RESULTS IN 2011, FROM RAW MATERIAL EXTRACTION TO PACKAGING DISPOSAL STAGE 1: EXTRACTION AND TRANSPORTATION OF RAW MATERIALS AND PACKAGING (DIRECT AND INDIRECT SUPPLIERS). R$ 4,3 BILLION paid to suppliers for purchases of inputs and services 81% satisfaction among suppliers 81% satisfaction among suppliers 37 forestry ASSETS certifi ed 117.276 TONS dof greenhouse gases (GHG) emissions from extraction and transport of raw materials and packaging (44% of Natura’s total emissions) 21.299 TONS of GHG emissions by direct suppliers (processing and transport to Natura) (8% of total) STAGE 3: PRODUCT SALES (TRANSPORT AND DISTRIBUTION) 2,9 BILLION paid to Consultants for product sales, an increase of around 6% compared to 2011 1,4 MILLION Consultants in all operations, 16.3% growth in our Consultant base 19% Consultant loyalty rate, against 21% in 2010 24% NCA loyalty, against 33% in 2010 164 new products launched in 2011 EN29 38.279 TONS tons of GHG emissions in transport of products to consultants and consumers(14% of total Natura emissions) STAGE 2: INDUSTRIAL PROCESS AND INTERNAL PROCESSES R$ 634 MILLION distributed to employees in benefi ts and salaries, a 147 MILLION invested in innovation 0,40 LITERS of water consumed per unit produced, 4.7% down on 2010 20 GRAMS of solid waste generated per unit produced, 13% down 24.731 TONS of GHG emissions from internal processes (9% of total) STAGE 4: PRODUCT USE AND PACKAGING DISPOSAL EN26 17% refi lls among items invoiced in Brazil 123 MPT/KG, environmental impact of packaging per quantity of product1, 10% down on 2010 63.431 TONS of GHG emissions in disposal of products and packaging (24% of total Natura emissions) 1. Indicator also includes impact on extraction and transformation of packaging. CROSS INDICATORS 1,4 BILLION paid to government in direct and indirect taxes, the same level as the previous year 763 MILLION distributed to shareholders in dividends and interest on own capital, on a cash basis, an 18% increase R$ 830,9 MILLION in net earnings, up 11.7% R$ 5.591,4 MILLION in net revenues, up 8.9% EBITDA R$ 1.425,0 MILLION an increase of 13.4% EBITDA margin of 25,5% (against 24.5% in 2010) 70 MILLION in sustainability investments natura report # 11 5.2 generating environmental value 75 DMA EN Natura’s business expansion has been accompanied by an increase in environmental programs and practices aimed at reducing impacts. From the start, the programs developed to meet the complexity of the business incorporated a broader perspective involving the entire production chain. This approach has guided initiatives to reduce carbon emissions, water consumption and solid waste generation, subjects Natura considers to be priorities (more on page 26). To fully assess Natura’s environmental impact, we also monitor indicators from our main third-parties that supply raw materials and packaging. In addition to the Cajamar and Benevides plants, data includes the Ca- sas Natura (Natura´s space for product testing) and distribution centers located in different regions in the country. It was noted that in comparison with the more mature units, some newer ones still need to refi ne environmental management. To guide this process and identify improvement opportunities, last year we cre- ated an operational sustainability committee to integrate the different areas involved and improve manage- ment at the new sites. We also recognize that we need to further integrate environmental performance into the international op- erations, which have grown in importance since 2010. EN18 CARBON NEUTRAL The Carbon Neutral program was launched in 2007. Since then the climate change debate has grown in impor- tance. At Natura, our initiatives are centered on ongoing reduction of greenhouse gases (GHG) emissions and offsetting all emissions that cannot be avoided. The program’s initial target was a 33% reduction in relative emissions by 2011, against a 2006 baseline. However, as we learned and dealt with numerous challenges, the decision was taken to extend this target to 2013. In 2011, while our net revenue grew 8.9%, our absolute emissions totaled 265,015 metric tons of CO2e, an ap- proximate 5% increase in volume over 2010. However, our relative emissions decreased 5.3%. In this calculation, absolute emissions are divided by the kilograms of products sold. On an aggregate basis since 2006, relative emis- sions were reduced by 25.4%. EN16; EN17 TOTAL CO2 E EMISSIONS (in metric tons) 7 2 8 2 3 2 . 2 1 3 3 5 2 . 5 1 0 5 6 2 . 2009 2010 2011 natura report # 11 76 EN16; EN17 RELATIVE EMISSIONS (kg CO2 e/kg products produced) 5 5 3 , 0 3 3 , 2 1 3 , 2009 2010 2011 EN16; EN17 EN18 EN26 EMISSIONS INVENTORY Natura’s emissions calculation involves an inventory process that takes into account the total volume of direct and indirect emissions, ranging from raw material extraction to fi nal product disposal in accordance with the Greenhouse gases Protocol Initiative scopes 1,2 and 3. The inventory is also compliant with the ABNT NBR ISO 14064-1 standard and is audited by an independent consultancy, which, in 2011, was KPMG. Both establish rules for the conception, development, management and execution of GHG inven- tories. EN19; EN20 It should be noted that our operations do not emit or use substances harmful to the ozone layer. Par- ticulate material and NOx and SOx emissions are monitored in our chain and are not deemed signifi cant. TOTAL EMISSIONS (BY SCOPE) Direct GHG emissions (Scope 1) Indirect GHG and energy emissions (Scope 2) Other indirect GHG emissions (Scope 3) Total (tons) 2009 6.104 1.135 225.587 232.827 2010 7.969 2.249 243.094 253.312 2011 6.062 1.865 257.089 265.015 REDUCTION The 2010 decision to postpone our 33% reduction target until 2013 led to a diagnosis of our operations and business aimed at identifying new elimination opportunities. In 2010, the Less Carbon, More Produc- tivity program was implemented to build a project portfolio that simultaneously drives gains in effi ciency and reductions in emissions. The projects already underway include: _ 6% reduction in the size of the Natura magazine. _ Fuel credit cards for the sales force valid only for ethanol. _ Replacement of LPG with ethanol to fi re the Cajamar boiler. _ Use of smaller boxes (half-size) for product deliveries, resulting in more effi cient truck loading and reduced solid waste. _ Encouragement to use videoconferencing instead of live meetings. Programs in progress that will drive future gains: _ Decentralization of logistics network with the opening of new distribution centers, reducing fuel consump- tion in deliveries (more on page24). _ Expansion of overseas production, resulting in reduction of imports from Brazil _ Use of new pack sizes. _ Benevides: we have two projects for the next two years– use of a biomass-powered boiler and the set up of a new industrial unit scheduled for 2013. Both will be more energy effi cient. We are driving the discussion of emissions volumes throughout the company and have increased visibility of this issue among employees through training and engagement initiatives in the Less Carbon, More Pro- ductivity program. Since 2010, Natura’s product development process has used an emissions calculation methodology that enables the Company to measure product and packaging emissions before the product is created, allowing managers to give priority to reduced emissions. Product launches involving higher emissions have to be re-examined. In 2011 we began to develop emission reduction projects in our international operations and initiated training programs in the use of the emissions calculation tool. natura report # 11 77 COMPENSATION Every two years we hold a tender for the selection of environmental projects that allow the Company to offset unavoidable GHG emissions. The initiatives include the reclamation of degraded forest areas and the replacement of fossil fuels with more effi cient renewable alternatives. EN26 The project selection tender to neutralize 2011 and 2012 emissions is underway. We have shortlisted 10 initia- tives from 121 applications. Natura has also contracted the fi rst compensation project outside Brazil to complement its 2009/2010 projects. This involves the purchase of credits already generated by a reforestation project in the city of Cáceres, Colombia, offsetting 60,000 metric tons of CO2. We have monitored the results of previous compensation projects from 2007/2008 and 2009/2010, some of which are still underway. A few examples are shown below: 2009/2010 USE OF RENEWABLE BIOMASS – CONSULTORIA SUSTAINABLE CARBON This promotes the use of sawdust, woodchips and sugarcane bagasse instead of native Cerrado timber to generate energy for Cerâmica Santorini’s ovens in Ituiutaba (MG). We purchased 35,634 metric tons of CO2 already generated in three years and have agreed to offset a further 102,200 over seven years. Credits were issued for 21,272 metric tons in 2011. MORE EFFICIENT COOKERS IN THE RECÔNCAVO BAIANO II REGION – INSTITUTO PERENE This is an extension of a 2008 initiative to replace rudimentary cookers for more effi cient ones in rural house- holds in Bahia. Five thousand new appliances that use less timber will be installed, reducing GHG emissions. The project should offset 94,000 metric tons of CO2 over 8 years. 1,200 cookers were installed in 2011. CARBON PROJECT IN THE EMAS-TAQUARI BIODIVERSITY CORRIDOR – NGO ORÉADES NÚCLEO DE GEOPROCESSAMENTO Reclamation with native species of 200 hectares of a degraded area from a total area of 600 hectares around the Emas National Park and the Nascentes do Rio Taquari State Park (Goiás and Mato Grosso do Sul). The projected compensation is 70,000 metric tons over 30 years. Planting was concluded early in 2012. XINGU SOCIO-ENVIRONMENTAL CARBON – ASSOCIAÇÃO XINGU SUSTENTÁVEL, INSTITUTO SOCIOAMBIENTAL (ISA) AND INSTITUTO CENTRO DE VIDA (ICV) The objective is to reclaim 220 hectares of degraded permanent preservation area in the headwaters of the Xingu river in Mato Grosso. 75,000 metric tons of CO2 should be offset over 30 years. 2008 CARBON, BIODIVERSITY AND COMMUNITY IN THE PAU BRASIL - INSTITUTO BIO ATLÂNTICA (IBIO) ECOLOGICAL CORRIDOR Forestry rehabilitation in the Pau-Brasil and Monte Pascoal National Parks in Porto Seguro (Bahia).This proj- ect will offset 79,050 metric tons of CO2 for Natura over 30 years. A total of 56 out of 250 hectares were reclaimed and other areas will be prospected in 2012. The fi rst credits are scheduled to be due by 2015. XINGU SOCIO-ENVIRONMENTAL CARBON - INSTITUTO SOCIOAMBIENTAL (ISA) AND INSTITUTO CENTRO DE VIDA (ICV) Reclamation of 116 hectares of degraded riverside vegetation around the headwaters of the Xingu river in the State of Mato Grosso. The area has already been planted and will compensate 40,000 metric tons of CO2 in 30 years. The fi rst credits should be issued in 2014. EFFICIENT STOVES IN THE RECÔNCAVO BAIANO REGION - INSTITUTO PERENE The project involves the replacement of rudimentary wood stoves with effi cient ones for families in rural communities in the Recôncavo Baiano region. All the stoves have already been installed and the compensa- tion target is 18,880 metric tons of CO2 e over eight years. The fi rst credits should be issued in 2014. natura report # 11 78 2007 FOREST CARBON – RECLAMATION AND CONSERVATION OF NATURAL RESOURCES – INSTITUTO ECOLÓGICA The project is aimed at reclaiming around 150 hectares of degraded areas through the planting of native tree seedlings in permanent protection areas and legal reserve areas in two rural settlements in the Cantão region of Tocantins. The project is underway and will compensate 60,000 metric tons of CO2 in 20 years. LANDSCAPE AND AGROFORESTRY RECONSTITUTION - INSTITUTO DE PESQUISAS ECOLÓGICAS (IPÊ) The project reconstitutes the vegetation and conserves species diversity in a 55 hectare area and imple- ments 129 hectares of agroforestry systems for coffee production. The total compensation will be 60,000 metric tons of CO2e over 30 years. Planting took place between August 2008 and February 2009. The fi rst credits were generated in December 2011. SOCIOBIODIVERSITY Natura’s use of Brazilian sociobiodiversity assets is governed by the company’s Sustainable Use of Biodiversity and Traditional Knowledge policy. This policy was developed in full alignment with the United Nations Organiza- tion’s Convention for Biological Diversity guidelines. We acquire biodiversity inputs from suppliers’ communities, cooperatives and smallholders in different regions of Brazil, in particular in the Amazon (more on pages 28, 58 and 67). EN12; EN14 ENVIRONMENTAL CERTIFICATION RWe fully respect the ecological production limits of the biodiversity materials used in our products. The com- pany has a Vegetable Raw Material Certifi cation plan to ensure this process does not exceed the environmental carrying capacity. EN12 This process is carried out by independent certifi cation bodies and incorporates production traceability, requir- ing producers to document and account for the origin of their entire production. Certifi cation is extensive to family smallholders and traditional communities and is divided into three catego- ries: organic produce (Instituto Biodinâmico, Ecocert, Organização Internacional Agropecuária and Instituto de Mercado Ecológico), sustainable agriculture (Sustainable Agriculture Network) and forestry produce (Forest Stewardship Council). In 2011, fi ve new species were certifi ed, including rosemary, sage and guaraná, making for a total of 37 Natura production inputs that have some form of certifi cation. Natura does not use invasive plant species, avoids monoculture and gives priority to organic production. Neither does it promote activities that may subjugate natural environments to production interests (habitat conversion). Among the inputs used by Natura, three are based on assets on the list of species threatened with extinction published by the Ministry of the Environment and the National Union for the Conservation of Nature and Re- sources (União Internacional para a Conservação da Natureza e dos Recursos). These are: Brazil nut (Berthol- letia excelsa), considered vulnerable, yerba mate (Ilex paraguariensis), low risk, and Ucuúba (Virola surinamensis), which is threatened. Acquisition of these materials is governed by sustainable biodiversity usage principles; two of them are certifi ed (see table below). EN15 . natura report # 11 STATUS OF ASSET CERTIFICATION PROGRAM1 Species Production system Status (phase)2 III (fi nal) III (fi nal) II III (fi nal) III (fi nal) III (fi nal) Agroforestry system Agroforestry system Traditional stewardship Traditional stewardship Agroforestry system Cultivation Açaí berry Euterpe precatoria (Roraima State) Açaí berry Euterpe oleracea (Pará State) Andiroba Carapa guianensis (Amazonas State) Breu Protium pallidum (Amapá State) Cocoa Theobroma cacao (Bahia State) Lemon grass (F) Cymbopogon citratus (Paraná State/São Paulo State) Brazil nut Bertholletia excelsa (Amapá State) Cupuaçu Theobroma grandifl orum (Roraima State) Passion fruit Passifl ora edulis (Minas Gerais State) Yerba Mate Ilex paraguaiensis (Rio Grande do Sul State) Traditional stewardship Traditional stewardship Murumuru Astrocaryum murumuru (Amazonas State) Cultivationand organic Surinam cherry Eugenia unifl ora (Paraná State/São Paulo stewardship State) III (fi nal) Organic cultivation Piri piri root Cyperus articulatus (Pará State) III (fi nal) Organic cultivation Rosemary Rosmarinus offi cinalis L. (Paraná State) III (fi nal) Cultivation Arabian coffee Coffea arabica (Minas Gerais State) Chamomile(F) Chamomilla recutita (Paraná State) III (fi nal) Organic cultivation Candeia Eremanthus erythropappus (Minas Gerais State) Stewardship and cultivation III (fi nal) III (fi nal) Cinnamon (F) Cinnamomum zeylanicum Ness (Germany) Organic cultivation III (fi nal) Carnaúba Copernicea cerifera (Rio Grande do Norte State) Traditional stewardship Agroforestry system Cultivation III (fi nal) III (fi nal) I III (fi nal) II III (fi nal) Stewardship Species – Other lines Production system Carqueja (F) Bacharis genisteloides D.C. (Paraná State) Green Tea (F) Camelia sinensis (Paraná State) Copaiba Copaifera spp (Amapá State) Lemon Brazil Ocimum americanum (Pará State) Fennel (F) Foeniculum vulgare Miller (Paraná State) Guaraná Paullinia cupana (Bahia State) Mint (F) Mentha piperita L. (Paraná State) Spilanthes extract Spilanthes oleracea (São Paulo State) Organic cultivation Stewardship Stewardship Organic cultivation Organic cultivation Organic cultivation Organic cultivation Organic cultivation Fragrant granadilla Passifl ora alata (São Paulo State) Organic cultivation Lemon balm (F) Melissa offi cinalis (Paraná State) Organic cultivation Palo Santo Bursera graveolens (Ecuador) Stewardship Paramela Adesmia buronioides (Patagonia- Argentina) Stewardship Sage Salvia offi cinalis (Paraná State) Organic cultivation Status (phase) III (fi nal) III (fi nal) III (fi nal) III (fi nal) III (fi nal) III (fi nal) III (fi nal) III (fi nal) III (fi nal) III (fi nal) III (fi nal) III (fi nal) III (fi nal) Sapucainha Carpotroche brasiliensis (Bahia State) Agroforestry system II 79 Certifi cation IBD IMO Underway FSC – Imafl ora IBD ECOCERT FSC – Imafl ora IBD Underway FSC – Imafl ora Underway ECOCERT IBD ECOCERT SAN – Imafl ora Ecocert FSC – Imafl ora Imo Ibd Ecocert Ecocert Fsc – Imafl ora Ibd Ecocert Ibd Ecocert Ibd Ibd Ecocert Ecocert Oia Ecocert Ibd 1. Only species that have already been included as raw materials in marketed products are considered in this table. Raw materials marked with an (F) are part of the organic fruit tea product line. 2. Phase I: Internal process of identifying and selecting a potential supply area. This phase consists of producer typology, community organization and type of stewardship (agricultural or forestry). Phase II: Development of certifi cation strategies, entailing discussion of processes with producers, choice of certifi cation body and preliminary analysis of supplying area by this body (when necessary). Phase III: Certifi cation inspection in supplying areas, implementation of action plan for compliance with certifi cation requirements and certifi er report to obtain seal. natura report # 11 80 NUMBER OF CERTIFIED ASSETS¹ Total certifi ed assets (units) Percentage of total species certifi ed (%)2 2009 31 58 2010 36 61 2011 37 59 1. Only vegetable inputs in the form of waxes, oils, extracts, essential or natural oils (cosmetics and teas) are considered. Certifi cations con- sidered: organic (IBD, Ecocert, OIA, IMO), sustainable agriculture (SAN), forestry stewardship (FSC). In exceptional cases, additional volumes of raw materials may be acquired from non-certifi ed areas in function of: increased internal demand, decreases in productivity in certifi ed areas, stock shortages among certifi ed suppliers. 2. The percentage was adjusted to include inputs for the fruit based organic teas as well as cosmetics. ORIGIN OF MATERIAL AND PRODUCT CERTIFICATION % material of renewable vegetable origin % material of natural vegetable origin % material with certifi ed origin 2009 79% 5% 16% 2010 82% 7% 16% 2011 81% 9% 12% PR3 NATURAS FACILITIES Occupying 646 thousand square meters, Natura headquarters are located in a designated Environmental Protection Area on the Anhanguera highway bordering Cajamar, São Paulo. A stewardship plan undertaken by Natura includes the removal of alien species, forestry reconstitution and an increase in local biodiversity. In 2011, 5 thousand seedlings of different native Atlantic Rainforest species were planted to reclaim and enrich the area. The project encompasses control and monitoring of species of fl ora and fauna. The plan is scheduled to be completed in 2012. In Itapecerica da Serra, São Paulo, we occupy a 96,500 square meter area which is located within the Guarapi- ranga Water Basin Water Source Reclamation and Protection Area. The reclamation project for this area was completed in 2008, and the company has maintained it since then. Cajamar and Itapecerica are located in permanent preservation areas, and Natura’s operations in these loca- tions are fully compliant with all legal requirements. In Benevides (Pará State), we acquired land for the set up of a new Natura noodle (soap base) plant and ancillary facilities. The plot‘s size is 172,900 hectares and is part of the municipality’s industrial and commercial expansion zone. There are two permanent protection areas (APPs) on the property. The company works with suppliers of inputs based on biodiversity assets in several regions of the country. Some of these are located in areas protected under the National Conservation Units System: the Médio Juruá Extractivist Reserve in Amazonas, and the Iratapuru State Sustainable Development Reserve in Amapá. In the Médio Juruá, Amazon region, in which the protected area covers 253 thousand hectares, andiroba and murumuru extraction takes place in less than 1% of the total area of the reserve. We signed our fi rst contract for sharing the benefi t of traditional knowledge associated with andiroba with the suppliers’ community in 2011. This was an unprecedented commercial agreement with a community in an environmental protection area and was authorized by the federal government’s Biological resources Management Council (Conselho de Gestão do Patrimônio Genético). The sustainable extraction of Brazil nuts, copaiba and breu takes place in an area of approximately 4 thousand hectares, less than 0.5% of the 842,000 hectares occupied by the Iratapuru Reserve. The extraction is fully approved by the management of these conservation units. EN26 PRODUCT IMPACT We seek to reduce the environmental impact caused by Natura packaging by investing in the development of innovative technology and cutting edge ecodesign, including the continuous reduction of packaging mass and the use of lower impact raw materials, as well as recycled and recyclable materials. EN2 The investments made have led to a 10% reduction in impacts. Our performance is monitored using a life cycle assessment tool which quantifi es impacts from raw material extraction, through production and use to fi nal disposal. natura report # 11 EN11; EN13 EN26 PACKAGING ENVIRONMENTAL IMPACT BY PRODUCT QUANTITY (mpt/kg)1 7 3 1 3 2 1 ND 2011 2010 2009 1. There were changes in calculation of the indicator; the 2010 fi gure was recalculated to allow comparability with 2011. The 2009 fi gure was not recalculated. EN2; EN6 In 2011, one of the features of the relaunch of the Ekos line was the reformulation of product packaging, reduc- ing GHG emissions by around 45% and increasing the percentage of recycled post-consumption material used in the products. The changes included FSC certifi ed cartons produced with 40% recycled post-consumption paper. This material is 100% recyclable and results in GHG reductions of approximately 10% compared with the material used in the past. We also started to produce Ekos conditioner packs and refi lls using 100% green plastic and PET bottles with 50% recycled post-consumption material. The bar soap, previously packed in 3-unit cardboard packs, is now marketed individually in paper fl ow packs that are smaller and lighter. There was, however, a reduction in the percentage of recycled and recyclable materials used. This was mainly due to the increase in the number of pages of the Natura magazine (which is not printed on recycled paper) and reduced use of transport cartons containing a higher proportion of recycled material. In these cases, eco- effi ciency and a reduction in materials at source were given priority. PR3 Natura products come with an environmental table providing information on the origin, transformation and certifi cation percentage of raw materials, percentage of recycled and recyclable material used and number of product refi lls. They are fully compliant with legal requirements regarding information on ingredients. Product labeling is also compliant with legislation and meets all the cosmetic industry requirements determined by Anvisa, Brazil’s national health surveillance authority. 81 EN2 RECYCLED MATERIALS USED (%)1 0 1 0 1 9 2011 2010 2009 includes indicator 1. The % of packaging materials and % of support materials, such as magazines, shipping cartons and bags using post-consumption recycled material. PRODUCT Post-consumption recycled (%) Recyclable (%) TOTAL USE OF MATERIALS BY TYPE (EXCEPT WATER) Total direct materials (t) Total direct materials (m3) REFILLS AS PERCENTAGE OF ITEMS INVOICED (%) Brazil Argentina Chile Colombia France Mexico Peru EN2 EN1 EN26 2009 0,7 86 2009 27.991 10.814 2009 18 16 12 12 9 11 19 2010 0,8 86 2011 1,1 84 2010 22.475 11.017 2011 22.170 11.279 2010 17 18 14 13 10 11 19 2011 17 18 15 15 10 10 16 INDICATOR CALCULATION METHODOLOGY An important decision Natura took in 2011 was to change the methodology to calculate its effi ciency in water, energy and solid waste. The Company replaced the unit sold metrics by the unit produced. This means that instead of proceeding with the calculation by number of marketed units (invoiced) we now consider everything that Natura and its third-party suppliers actually produce). With this change, the water, energy and solid waste indicators, as well as our targets for the previous years were recalculated to allow comparability. The methodology for carbon emissions was maintained. This change in metrics allows a more accurate assessment of the impact of our operations and acceler- ates the identifi cation of opportunities for improvement. natura report # 11 82 SOLID WASTE Natura’s system of industrial solid waste management encompasses the stages of sorting, classifi cation, disposition, collection, transport and disposal. The company constantly seeks to reduce the volume of solid waste generated and to increase recycling. In 2011, solid waste generation was reduced from 23 to 20 grams per unit produced. EN26 TOTAL QUANTITY OF SOLID WASTE PER UNIT PRODUCED (GRAMS/UNIT)1 2009 19 Total weight of solid waste per unit produced (g/un) 2010 23 2011 20 EN22 1. The indicator was changed from unit sold to unit produced. The 2010 and 2009 data were recalculated accordingly. In 2011, there was an increase in hazardous solid waste sent for recycling. This was due to a higher loss rate from product discontinuation, expiry or scrappage. These products are used in co-processing, as is the case with solid solid waste from makeup, contaminated materials and raw materials. There was a reduction in non-hazardous solid waste, such as sludge and wood. Recycling of these items also decreased because physico-chemical sludge is no longer used in composting operations upon the recommendation of the regulatory body. We increased incinera- tion of non-hazardous solid waste due to an increase in damaged pallets in Benevides (Pará State), where we still do not have any disposal alternatives. NATURA DIRECT SOLID WASTE BY TYPE AND DESTINATION (TONS)1 Total hazardous solid waste (Class I)2 % Recycling3 % Incineration % Landfi ll Total non-hazardous solid waste (Class II - A and B) % Recycling3 % Incineration % Landfi ll Overall total Natura direct solid waste4 Natura indirect solid waste (tons) Waste from other Natura Spaces5 Waste from Natura third-party manufacturer6 Total indirect solid waste 2009 1.499 89 10,7 0 6.371 91 0,6 8 7.870 0 1.242 1.242 2010 2.163 95 5,4 0 6.254 91 0,2 9 8.416 1.149 1.347 2.496 2011 3.228 97 2,7 0 5.767 89 0,6 10 8.995 1.691 1.589 3.280 EN22 EN24 1. These indicators were reformulated and recalculated in accordance with the new G3.1 guidelines. 2. Natura does not import, export or transport solid waste overseas. 3. Solid waste used in composting, co-processing and transformation is considered to be recycled. 4. Refers to the spaces in Cajamar, Itapecerica da Serra, Alphaville and Benevides. Natura does not include the solid waste generated in civil construction works (rubble) on its premises in this indicator. 5. Refers to the Distribution Centers, Advanced Centers, Hub and Casas Natura (Natura´s space for product testing). Monitoring of solid solid waste from these units begun in 2010. 6. Refers to the 10 major third-party manufacturers, who account for approximately 95% of total outsourced production volume. To encourage recycling the Company has implemented two reverse logistics programs. In Brazil, we have been maintaining a Natura Movement program since 2009 whereby Consultants collect the packaging used by con- sumers. The program is active in only some cities, with 120 metric tons of packaging collected in 2011. In another initiative in place in Colombia since 2010, Consultants collect materials or create collection stations at their homes. A total of 235 metric tons of empty packaging were collected in the country last year. We recognize that these ef- forts are incipient considering the total solid waste generated by our products. For this reason, the new solid waste management strategy under development should reinforce reverse logistics (more about solid waste on page 27). BRAZIL RECYCLING PROJECT Penetration among consultant¹(%) Total collected (tons)² 2009 2,4 120 2010 1,2 184 EN27 2011 0,4 121 1. Percentage of Consultants participating (delivery of box with solid waste) divided by total consultants active in the cycle. 2. Natura post-consumption packaging and products. natura report # 11 WATER AND EFFLUENTS EN26 EN9; EN25 In addition to the drawing of the fi rst water inventory throughout the Natura production chain (more on page 25), the Company continued to manage operation consumption. The result was a 4.7% reduction in water volume consumed per unit produced in 2011. This was due to a range of improvements such as: adjustments in the water treatment system in one of the Cajamar plants, enabling more water to be reused; a new rentank (mobile tank) washing system, which will be replicated in other units as of 2012; replacement of drinking water with reused water in sub-processes in the effl uent treatment plant; identifi cation of rationalization opportunities at third-parties. Due to the lack of a public supply, the water used in the Cajamar and Itapecerica da Serra facilities comes from artesian wells. Our ground water is withdrawn from the Cristalino Aquifer water table and the withdrawal is compliant with the permits granted by the DAEE (Portuguese acronym fot State Water and Electrical Power Department). In 2011, a new well was drilled, but the water volume was insuffi cient for industrial use. A new well should be drilled in a different location to meet increased production demand. Our challenge is the trend towards an absolute increase in consumption due to the expansion of Natura’s activi- ties. However we continue to seek new ways to reuse water to attend ongoing effi ciencies. EN23 In 2011 there were no signifi cant spillages or accidents with products causing any kind of impact. 83 EN8 WATER CONSUMPTION PER UNIT PRODUCED (liters/unit produced)1 2 4 0 , 2 4 0 , 0 4 0 , 2011 2010 2009 1. There was a change in calculation of the indicator from unit sold to unit produced. For this reason, 2010 and 2009 data were recalculated. WATER CONSUMPTION BY SOURCE1 Main sites (m3)1 2 Other spaces (m3)2 Third-party manufacturers (m³) 3 Total water consumption (m3)4 2009 124.511 26.314 49.783 200.608 2010 117.861 31.622 51.507 200.991 2011 127.870 51.624 68.454 247.948 EN8 1. Takes into account the Cajamar and Itapecerica da Serra units. 2. In 2009 and 2010, consumption at Itapecerica da Serra was mistakenly accounted for in Other Spaces. The calculation was adjusted and the fi gures for the two years updated. 3. Third-parties are companies that manufacture fi nished products for Natura. Water consumption is measured at major third-parties ac- counting for 95% of outsourced production. 4. Considers withdrawal from wells, public supply and supply by truck. There was a decrease in reuse rates at Cajamar due to maintenance at the effl uent treatment plant, which tem- porarily limited its effi ciency. This was partially offset by a new treatment system which increased reuse. It should be noted that Natura’s effl uent treatment is fully compliant with legal requirements. VOLUME OF WATER RECYCLED AND REUSED Water recycled1and reused (m³)2 Percentage reuse over total water treated in effl uent treatment plant (%)3 Percentage reuse over total water withdraw4 2009 38.2675 35 34 2010 49.733 2011 41.630 38 47 29 36 EN10 1. From sanitary and industrial wastewater generated at the Cajamar site which after treatment is used in watering plants, toilets and urinals, road cleaning and decorative pools. 2. Water from the Cajamar production process that is reused in the drinking water system. 3. The percentage refers to the volume of reused water from effl uent treatment compared with the total amount of water treated in the Cajamar treatment plants. 4. The reuse and recycling data refer to the volume of water recycled and reused at Cajamar. The reuse percentages over the totals for 2009 and 2010 were reviewed because they mistakenly included data from Itapecerica da Serra, which does not reuse water. 5. Data reassessed and corrected. SIGNIFICANT DISCHARGES IN WATER BODIES (M³)1 Total volume of treated effl uent 2009 101.672 2010 102.903 2011 100.747 EN21 1. Refers to Cajamar and Itapecerica da Serra sites. At Benevides effl uent is treated externally. natura report # 11 84 TREATED EFFLUENT AT CAJAMAR Cajamar DBO1 (Mg/L) DQO2 (Mg/L) Oils and fats (Mg/L) Itapecerica da Serra DBO1 (Mg/L) DQO2 (Mg/L) Oils and fats (Mg/L) 1. BOD – Biological Oxygen Demand 2. COD– Chemical Oxygen Demand Legal parameter 60 150 120 Legal parameter 60 150 120 2009 6 43 7 2009 20 69 8 2010 7 45 15 2010 25 65 15 2011 46 145 45 2011 31 59 26 EN21 EN7 EN6; EN7 ENERGY In 2011, we recorded a 12% decrease in relative electricity consumption due to the efforts to improve manage- ment and effi ciency, in particular at third-party suppliers. Currently 50% of the power used at Cajamar is associated with temperature control and compressed air, con- stituting a natural focus for improvement projects. We managed to eliminate losses and increase air conditioning distribution effi ciency, reducing power consumption. We also completed a project to eliminate compressed air leakages in one of the plants and are replicating this initiative in other Company’s areas. EN4 ENERGY CONSUMPTION – ENERGY MATRIX PER UNIT PRODUCED (kjoules/unit)1 Absolute energy consumption grew due to the expansion of the distribution centers and administrative sup- port areas throughout the country. There was also an increase in diesel consumption due to greater use of emergency generators as a result of interruptions and oscillations in the energy supplied by power companies. 2 2 4 6 6 4 0 1 4 2011 2010 2009 1. There was a change in calculation of the indicator from unit sold to unit produced. For this reason, 2010 and 2009 data were recalculated. DIRECT ENERGY CONSUMPTION BY PRIMARY SOURCE (joules x 1012)1 Solar energy2 Diesel oil used in generators LPG consumption Electricity Ethanol consumptioN3 Bunker oil consumption EN4 2009 0,02 3 29 112 - 17 2010 0,02 3 30 128 - 18 2011 0,02 6 21 136 15 19 1. Until 2010, the Natura energy matrix only considered Cajamar and Itapecerica da Serra. In 2011, we incorporated into the indicators the distribution centers, administrative support centers and Casas Natura (Natura´s space for product testing) and the data for the previ- ous years were recalculated. 2. At the Cajamar unit we use solar energy to light the car park and heat water in the cloakrooms and kitchen. 3. We started using ethanol to fi re the boilers at Cajamar in 2011. 0,01 10 69 3 7 11 2011 ENERGY MATRIX (%) Electricity LPG Diesel Ethanol Bunker oil Solar energy EN3 TOTAL ENERGY CONSUMPTION (joules x 1012) Cajamar and Benevides sites Other Natura spaces in Brazil1 Natura third-party manufacturer energy consumptioN2 Total 2009 142 19 41 201 2010 150 30 41 220 2011 158 39 54 251 EN3; EN4 1. Refers to consumption at Alphaville, Itapecerica, Casas Natura (Natura´s space for product testing), distribution centers, advanced centers. In 2011, the DCs were expanded and the CSC Água Branca offi ces were included. 2. Companies manufacturing fi nished products for Natura. The third-parties that are monitored account for approximately 95% of the outsourced production. natura report # 11 85 ENERGY SPARED (joulesx109)1 Due to energy effi ciency projects2 Due to solar energy source 2009 2,0 20 2010 2,6 20 2011 1,8 20 EN5; EN6 1. Refers to projects implemented in Cajamar. 2. The reduction projects are accounted for only once upon implementation. Therefore, as we invest in energy effi ciency measures, there is a decrease in the pace of identifi cation of new improvements. THIRD-PARTY MANUFACTURERS Natura also monitors the environmental impact of its main suppliers. In 2011, data from 62 partners were re- viewed. The Company works with these suppliers to improve data collection. MAIN NATURA PACKAGING AND RAW MATERIALS SUPPLIERS1 Total suppliers measured Energy consumption (joules x 1012) Primary source electricity - electricity consumption Self-generated energy - diesel generator LPG consumption Others - natural gasl Total energy consumed Water consumption (m3) Total water consumption Solid waste generation by main Natura suppliers (t) Total solid waste generated 2009 62 2010 58 2011 62 216,8 4,2 4,8 140,4 366,2 146,2 0,1 4,9 207,1 358,3 96,2 20,4 6,2 119,5 243,3 166.528 135.500 179.740 2.947 3.419 2.005 1. Main Natura input suppliers in the following categories: accessories, packaging, design, fragrances, raw materials, printing services, chemi- cals and boxes. Suppliers inform their energy and water consumption and solid waste generation according to the percentage of their production dedicated to Natura. 2. To ensure greater reliability and consistency, we reorganized the data collection methodology for suppliers in 2011, improving the infor- mation received. Therefore it is not possible to compare current results with those of previous years. natura report # 11 5.3 generating social value 86 DMA SO INSTITUTO NATURA The Instituto Natura is a non-profi t organization created in 2010 to expand and strengthen our private social investment initiatives. The institute has enabled us to leverage our efforts and investments in measures that improve the quality of public education. The main achievement of the institute to date has been the partnership formalized with the Ministry of Edu- cation in 2011 to transform the Trilhas project into public policy. Executed by the Instituto Natura under the technical coordination of Cedac (Comunidade Educativa), Trilhas is a methodology to encourage 6 year-old children to read, write and speak. The initiative consists of teaching techniques, materials and practical support for teachers and principals in the participating schools, furthering the development of students beginning to acquire literacy skills. The partnership with the Ministry of Education should benefi t more than 3 million students in 3 thousand municipalities as of 2012. The Instituto Natura’s main source of funding is the Natura Crer para Ver (To Believe is to See) program – a special non-cosmetic product line which earnings go to the institute. Neither Natura nor the Consultants earn money from sales of this line. In 2011, sales from the Crer para Ver line were R$ 8.4 million, coming in below target. Although lower than the record sales in 2010, the volume was still twice that of 2009. This is due mainly to Natura’s overall sales performance in the year and the fact that the Crer para Ver product line did not have the expected consumer appeal. The program will be adjusted accordingly in 2012. (more about the Crer para Ver program and Trilhas project in the Instituto Natura Report). . CRER PARA VER PROGRAM IN BRAZIL (000’s of R$) Net income from Crer para Ver Program1 Crer para Ver penetration (% cycle)3 Total cost of projects developed and supported2 Municipalities served Schools served Participating teachers, coordinators and principals Students benefi ting 2009 3.768 7 4.076 nd nd nd nd 2010 10.099 10 3.877 370 5.690 22.861 427.685 2011 8.397 9,5 5.900 345 4.943 18.471 922.028 1. Refers to profi t before income tax dedicated to Crer para Ver Program Fund. Before 2009, net income referred to net profi t after income tax. 2. The costs of the projects refer to the total amount injected in the project during the year (withdrawn from the fund and invested in the projects). 3. Percentage of NCs involved with Crer para Ver (through purchase of products from product line), among the active NCs. EC8; EC9 CRER PARA VER PROGRAM IN THE INTERNATIONAL OPERATIONS (000’s of R$) Net income from Crer para Ver Program1 Crer para Ver penetration (% cycle)2 2009 627 nd 2010 1.366 15 2011 2.187 18 EC8 1. Refers to profi t before income tax dedicated to Crer para Ver Program Fund. Before 2009, net income referred to net profi t after income tax. 2. Percentage of NCs involved with Crer para Ver (through purchase of products from product line), among the active NCs. natura report # 11 87 DISTRIBUTION OF WEALTH Even in a year of less vigorous growth, Natura continued to increase value generation for some of its main stakeholders. DISTRIBUTION OF WEALTH (R$ millions) EC9 Shareholders1 Consultants Employees Suppliers Government Total 2009 552 2.303 643 3.088 1.147 7.732 2010 647 2.738 769 3.707 1.477 9.338 2011 763 2.906 634 4.363 1.472 10.138 EC1 1. The numbers for shareholder refer to dividends and interest on own capital during the period SUPPORT AND SPONSORSHIP Natura supported actions and initiatives aligned with its Beliefs, propagating well being well, culture, institutional reinforcement, increased awareness and sustainable development. In 2011, spending on support and sponsor- ships, including tax incentives, totaled R$ 24 million. NATURA FUNDS (000’s of R$) Sustainable Development Brazilian Culture with a focus on music Behavior and Attitude1 Support for civil organizations Total Natura funds Funding through incentives (000’s of R$) Sustainable Development Brazilian Culture with a focus on music Support for civil organizations Total funding through incentives Grand Total 2009 1.600 4.844 na 2.102 8.546 574 2.989 624 4.187 12.733 2010 1.702 10.721 na 6.280 18.703 350 4.722 530 5.602 24.305 2011 1.900 13.365 750 2.790 18.806 80 4.853 610 5.543 24.439 1. In 2011, we included “Behavior and Attitude” in support and sponsorship. This involved sponsorship of two initiatives: Frontiers of Thought and Fashion Mob. See a description of the main projects supported in 2011, by category: 1. BRAZILIAN CULTURE WITH A FOCUS ON MUSIC NATURA MUSICAL This is the Natura cultural program focused on music. Launched in 2005, it has supported some 170 music-related projects and processes, benefi ting 17 Brazilian States and more than 700 thousand people. The program operates on three fronts: music promotion, whereby sponsorship projects are selected directly or by public tender using tax incentives or direct funding; music festivals held in São Paulo and Minas Gerais; and an interactive digital music platform (www.naturamusical.com.br) for afi cionados of Brazilian music. In 2011, there was a national tender through which the program invested R$ 1.5 million in six projects via the Rouanet incentive law, as well as a tender in Minas Gerais awarding R$ 1 million to fi ve initia- tives via a State sales tax (ICMS) cultural incentive law. Natura Musical provided direct funding for four other projects. The projects sponsored included the digitalization of the Gilberto Gil music collection, the recuperation of the Chiquinha Gonzaga music collection, the launch of Karina Buhr’s second CD, a survey of traditional popular folk music entitled Mestres Navegantes and a book and CD by the instrumentalist Paulo Moura, in addition to a national tour for the launch of a Roberta Sá CD. natura report # 11 88 For the third year running, the company organized the Natura Nós Festival in São Paulo starring Brazilian and international artists which was attended by 28 thousand people. We also promoted the fi rst Natura Musical Minas Festival in Belo Horizonte, Minas Gerais, with local artists and performers from other parts of the country. This 12-hour event featured 16 attractions in free shows held in the city’s parks. The total audience was around 30 thousand. In partnership with the cultural group AfroReggae, Natura set up the Natura Musical Studio in Rio de Janeiro’s Vigário Geral community. With state-of-the-art equipment, the studio will be opened both to renowned artists and to local community talents. More information is available at www.naturamusical.com.br and in the program social networks. 2. SUSTAINABLE DEVELOPMENT / INSTITUTIONAL REINFORCEMENT TEEB BRASIL The TEEB (The Economics of Ecosystems and Biodiversity Brazil) Brazil initiative for the business industry, launched in October 2011, is aimed at assessing and adapting this extensive global program to the Brazilian reality. The objective of the program, which is scheduled to be concluded in 2013, is to map biodiversity and ecosystem services, calculating the risks from losses and the opportunities from the conservation and sustain- able use of these assets. The project is led by Conservation International (CI-Brasil), the United Nations Environment Program (UNEP) and the World Conservation Monitoring Center or (UNEP-WCMC). Natura is in the top TEEB Brazil sponsorship category. We accepted the invitation to support TEEB Brazil because, in addition to its potential for innovation, it is aligned with our strategies, in particular our Platform for the Sustainable Use of Biodiversity, and the Amazônia and Sustainable Production Chain programs. Active participation in TEEB Brazil provides the Company with the opportunity to learn more about the services provided by nature and attributing a monetary value to socio-environmental impacts. GRI G4 GUIDELINES Natura supports the development of guidelines for the fourth generation of GRI (Global Reporting Initia- tive) indicators. Together with other leading global corporations, we are members of the G4 Consortium, which is supporting the specialists, organizations and companies involved in reviewing economic, social and environmental performance indicators for sustainability reports. The GRI is an international organization dedicated to defi ning a model for sustainability reporting, indicating quantitative and qualitative information that is relevant for understanding an organization’s impact and the value it may generate for a specifi c region. NATIONAL GREEN ECONOMY DISCUSSIONS In 2011, Natura continued to support the National Green Economy Discussions – Road to Rio+20, part of the global Green Economy Coalition (GEC) initiative, which is led by the NGO Vitae Civilis in Brazil. The Company also supports the East Amazon regional seminar coordinated by Vitae Civilis and the Insti- tuto Peabiru. The objective of the meeting is to produce solid proposals to accelerate the transition to a green economy. Natura took part in the event and presented its Amazônia Program in public for the fi rst time. The event, which was attended by companies, NGOs and government offi cials, was aimed at develop- ing proposals for an Essential Green Economy Agenda for the United Nations Conference on Sustainable Development Rio+20. REFLORA PROJECT This project is aimed at repatriating information and images of the Brazilian fl ora collected by foreign researchers from the 18th to the 20th century. Distributed throughout different museums worldwide, this collection is being digitalized in a project coordinated by the Herbarium of the Rio de Janeiro Jardim Botânico. It is also supported by the National Scientifi c and Technological Development Council (Conselho Nacional de Desenvolvimento Científi co e Tecnológico, CNPq) MOVIMENTO EMPRESARIAL PELA BIODIVERSIDADE (BUSINESS MOVEMENT FOR BIODIVERSITY) EThe Business Movement for the Conservation and Sustainable Use of Biodiversity (MEB) has as its aim the mobilization of Brazilian business to conserve and use biodiversity sustainability. Developing a joint agenda with civil organizations, the movement promotes discussion between the government and the private industry with a view to improving the current legal and regulatory frameworks governing the area. Natura led the creation of MEB in 2010 and maintained its support for the initiative in 2011. natura report # 11 89 3. BEHAVIOR AND ATTITUDE FRONTIERS OF THOUGHT Held for the second year in São Paulo, Frontiers of Thought is an annual program of seminars on behavioral trends given by important contemporary intellectuals, personalities and scientists. Eight seminars were held in 2011 with key thinkers such as the sociologist Zygmunt Bauman, philosophers Luc Ferry, Edgard Morin and Alain de Botton and the former Brazil’s President Fernando Henrique Cardoso, among others. FASHION MOB In 2011, Natura sponsored the 3rd Fashion Mob in partnership with Casa de Criadores. The event objec- tive is to turn fashion popular, enabling professionals (both experienced or not), students and others to gain visibility for their work in the fi elds of fashion, art and video in São Paulo’s streets. The participants organized a parade, a show and a contest in downtown São Paulo. Their work was evaluated by personalities from the fashion world, stylists, journalists and make-up artists, among others. INVESTMENTS IN SUSTAINABILITY Natura’s sustainability-related investments totaled R$ 70.4 million in 2011. This amount includes the promotion of discussion panels with stakeholders, research into sustainable technologies, certifi cation of natural materials used in production, among others. In 2011, investments in research into sustainable technologies decreased because a few projects were concluded and their results were turned into programs. SUSTAINABILITY INVESTMENT MATRIX (000’s of R$)1 Socio-environmental projects and programs2 Organization of discussion channels Education and training Research into sustainable technologies Management expense3 Certifi cations4 Clean technologies5 Effl uent treatment and solid waste disposal Total 2009 5.376 1.312 18.572 312 22.103 103 1.090 4.465 53.333 2010 7.612 2.518 23.799 588 28.260 91 775 4.270 67.913 2011 8.378 2.023 21.301 159 32.616 61 640 5.270 70.448 EN30 1. The Sustainability Investment Matrix was reformulated and grouped by type of investment. The amounts were reviewed and recalculated from 2009. 2. Project and program spending related to priority subjects. 3. Spending related to team, studies and consultancies, additional benefi ts for employees and other general expenses. 4. Certifi cation expenses: forestry, organic production, management systems and sustainable construction. 5. Spending on clean technologies set up in Natura’s facilities, such as the fl exible boiler at Cajamar. natura report # 11 5.4 generating economic value Once again, Natura increased its revenues and profi t. In 2011, the Company posted net revenues in the amount of R$ 5,591.4 million, 8.9% up on the previous year. EBITDA reached R$ 1,425.0 million, an increase of 13.4% with a 25.5% margin (compared to 24.5% in 2010). Net profi t was up 11.7% at R$ 830.9 million. Net margin was 14.9%, against 14.5% in 2010. Noteworthy were our international operations, which now account for 9% of Natura consolidated net revenue. To prepare Natura for further growth, in 2011 we made the largest investment ever. Capital expenditure total- ing R$ 350 million was allocated to production, logistics and technology projects. In 2012 we intend to invest a further R$ 420 million in our information technology platform, in the fi nal stage of the new logistics model and in the expansion of the Company’s industrial capacity (more on page 24). COSTS AND EXPENSES Cost of Goods Sold (CGS) showed a 50 base point improvement, reaching 29.8% of net revenue. The benefi ts of the price increase and better cost management in 2011 were partially offset by promotions. Selling expenses accounted for 34.9% of net revenues, a slight increase compared with 33.2% posted in 2010, due to a reduced dilution of fi xed logistics and sales force costs. Investments in marketing in the international operations continued to increase in line with the expansion strategy for these units. Administrative and general expenses were 12.2%, against 11.8% the previous year. We continued to invest in commercial and product innovation and, at the end of the year, we intensifi ed our cost effi ciency efforts without compromising growth strategy. Employee profi t share was down by 57.1% compared with the previous year, due to the non-achievement of social targets (more on page 21). Other revenues and operating expenses were R$ 63.1 million. This includes the non-recurring effect of the rec- ognition of PIS and Cofi ns tax credits on services and the negotiation of added value margin in Paraná and the Distrito Federal. It also takes into account the non-recurring effect of recognition of a contingent PIS and Cofi ns tax asset, credit from taxes on fi nancial earnings and warehousing. SUMMARY OF CASH FLOW Internal cash generation in 2011 was R$ 940.8 million, 13% increase, in line with the 11.7% growth in net profi t. From this amount, R$ 207.2 million was invested in working capital and R$ 346.4 million in property, plant and equipment, resulting in free cash generation of R$ 410.6 million, 42.7% down on 2010. There was an ongoing increase in stock coverage, infl uenced mainly by a shortfall in sales. There was also an increase in taxes recoverable, due to the revision of PIS and Cofi ns tax credits on services, fi nancial earnings and freight, which will be converted into cash in the fi rst semester of 2012. We believe that the planning model adopted will enable us to reduce stock coverage in the course of the year. This plus the conversion of taxes recoverable into cash will permit signifi cantly improved working capital in 2012. 90 DMA EC CONSOLIDATED NET REVENUE (in million R$) , 1 2 4 2 4 . , 4 6 3 1 5 . , 4 1 9 5 5 . 2009 2010 2011 CONSOLIDATED EBITDA (R$ million) , 5 8 0 0 1 . , 8 6 5 2 1 . , 0 5 2 4 1 . Investment in property, plant and equipment reached $ 346.4 million at the end of the year, 15% higher than the initial forecast. We continue to invest in logistics, manufacturing and information technology. 2009 2010 2011 natura report # 11 91 SUMMARY OF CONSOLIDATED CASH FLOW1 (R$ million) Net earnings (+) Depreciation and amortization Internal cash generation (Increase) / Reduction in Working Capital Non-cash items (exchange variation) Operational cash generation Variations in intangible assets Free cash generatio3 2010 744,1 88,8 833,0 99,6 20,7 953,2 (236,9) 716,4 2011 830,9 109,9 940,8 (207,2) 23,3 756,9 (346,4) 410,6 Var % 11,7 23,7 13,0 na 12,6 (20,6) 46,2 (42,7) 1. (Internal cash generation) +/- (changes in working capital and long term assets and liabilities) – (acquisitions of property, plant and equipment). OPERATIONS RESULTS In the Brazilian operation, Natura net revenues were R$ 5,087.6 million, an increase of 6.8%. EBITDA margin was 29.0%, compared with 28.0% the previous year. The gross profi t from Brazilian exports to the international operations was subtracted from the Cost of Goods Sold of the relevant operations, demonstrating the real impact of these subsidiaries on the company’s consolidated results. Therefore, the pro forma Income Statement for Brazil only presents the result of sales to the internal market. PRO FORMA FINANCIAL HIGHLIGHTS BRAZIL Total number of consultants - end of year* (in 000’s) Product units for resale (in millions) Gross revenue Net revenue Gross profi t Gross margin (%) Sales expenses Administrative and general expenses Employee profi t share Management compensation Other net operating revenues / (expenses) Net operating revenues / (expenses) Income before income tax and charges (IR/CSLL) Net profi t Ebitda Ebitda margin (%) 2010 1.028,7 378,7 6.489,6 4.764,6 3.356,4 70,4 (1.487,4) (516,2) (70,4) (14,4) (15,7) (47,9) 1.204,4 836,0 1.335,2 28 2011 1.175,5 410,5 6.898,9 5.087,6 3.611,3 71,0 (1.686,5) (577,9) (30,2) (9,4) 65,7 (73,5) 1.299,4 901,1 1.476,1 29 Var % 14,3 8,4 6,3 6,8 7,6 0,5 13,4 12,0 (57,1) 34,5 n/d 53,3 7,9 7,8 10,5 1,0 1. Number of Consultants at end of the 18th sales cycle. The net revenue from the international operations during the year was R$ 503.8 million, a 40% increase in weighted local currency. EBITDA for the year (considering pro forma EBITDA) showed a loss of R$ 51.1 million, an improve- ment of R$ 27.3 million compared with the previous year (R$ 78.4 million). PRO FORMA EBITDA BY OPERATING BLOCK (R$ millions) Brazil Argentina, Chile e Peru Mexico e Colombia Other investments Total 2010 1.335,2 13,1 (32,5) (59,1) 1.254,8 2011 1.476,1 43,0 (24,2) (69,9) 1.425,0 Var % 23,0 47,8 (23,2) 34,1 24,6 Considering only the operations under consolidation (Argentina, Chile and Peru), net revenues were R$ 335.1 million, a 36.1% increase in weighted local currency (45.2% in reais). In these units, the number of Consultants increased by 20.5%, reaching 157,300 by the end of 2011. The EBITDA was favorable at R$ 43.0 million. The higher investment in marketing was offset by the dilution of the sales force and administrative expenses and greater logistics effi ciency. natura report # 11 92 The net revenue in the international operations under development (Mexico and Colombia) were R$ 149.2 million, 55.6% up in weighted local currency (51.8% in reais). Consultant numbers grew 42.1%, reaching 85,600 by the end of 2011. These operations continued to show an accrued negative EBITDA of R$ 24.2 million, the result of the investments underway. PRO FORMA FINANCIAL HIGHLIGHTS - OPERATIONS UNDER CONSOLIDATION (ARGENTINA, CHILE, PERU) - (R$ million) Total number of consultants - end of year* (in 000’s) Product units for resale (in millions) Gross revenue Net revenue Gross profi t Gross margin (%) Sales expenses Administrative and general expenses Financial effects Profi t / (loss) before income tax (IR/CSLL) Net profi t / (loss) Ebitda Ebitda margin (%) 2010 130,5 23,6 335,9 255,7 157,3 61,5 (124,4) (21,5) (0,8) 8,9 3,7 13,1 5,1 PRO FORMA FINANCIAL HIGHLIGHTS - OPERATIONS UNDER DEVELOPMENT (MEXICO E COLOMBIA)1 - (R$ million) Total number of consultants - end of year * (in 000’s) Product units for resale (in millions) Gross revenue Net revenue Gross profi t Gross margin (%) Sales expenses Administrative and general expenses Financial effects Profi t / (loss) before income tax (IR/CSLL ) Net profi t / (loss) Ebitda Ebitda margin (%) 2010 60,2 9,3 114,0 98,3 56,3 57,3 (76,0) (14,8) (1,0) (35,6) (36,0) (32,5) n/d 2011 157,3 32,9 441,5 335,1 212,5 63,4 (148,8) (23,2) (2,6) 36,6 31,9 43,0 12,8 2011 85,6 14,9 172,9 149,2 92,2 61,8 (99,8) (17,6) (1,2) (27,6) (31,0) (24,2) n/d Var % 20,5 39,3 31,5 31,0 35,1 1,9 19,7 7,9 211,8 n/d n/d 227,2 7,7 Var % 42,2 60,7 51,7 51,8 63,8 4,5 31,3 19,0 27,6 (22,4) (13,9) (25,6) - natura report # 11 93 NATURA COSMÉTICOS S.A. With reference to the fi scal year ending December 31, 2011 and to the opinion of the independent auditors and pursuant to the legal and statutory norms, we hereby submit, for your review, the balance sheet and the account statements covering the fi scal year ending on December 31, 2011. In addition to the information provided in the explanatory notes, Management remains fully available for any further clarifi cation the shareholders may require. fi nancial statements 11# natura report # 11 BALANCE SHEETS AS OF DECEMBER 31, 2011 (In thousands of Brazilian reais - R$) 94 ASSETS CURRENT ASSETS Cash and cash equivalents Trade receivables Inventories Recoverable taxes Related parties Derivatives Other receivables Total current assets NONCURRENT ASSETS Long-term assets: Recoverable taxes Deferred income tax and social contribution Escrow deposits Other noncurrent assets Investments Property, plant and equipment Intangible assets Total noncurrent assets TOTAL ASSETS LIABILITIES AND SHAREHOLDERS’ EQUITYS CURRENT LIABILITIES Borrowings and fi nancing Trade and other payables Suppliers - related parties Payroll, profi t sharing and related taxes Taxes payable Derivatives Other payables Total current liabilities NONCURRENT LIABILITIES Borrowings and fi nancing Taxes payable Provision for tax, civil and labor risks Others provisions Total noncurrent liabilities SHAREHOLDERS’ EQUITY Capital Capital reserves Earnings reserves Treasury shares Proposed additional dividend Other comprehensive losses Total equity attributable to owners of the Company Noncontrolling interests Total shareholders’ equity TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY The accompanying notes are an integral part of these fi nancial statements. Note Company (BR GAAP) 2010 2011 Consolidated (BR GAAP and IFRS) 2010 2011 5 6 7 8 27.1 4.2 11 8 9.a) 10 11 12 13 13 166,007 535,309 217,906 69,417 37,908 28,184 115,328 1,170,059 12,299 80,145 244,938 4,562 1,253,721 332,215 78,929 2,006,809 3,176,868 206,125 493,692 185,092 34,799 25,361 - 52,470 997,539 4,921 87,491 289,070 20,052 1,099,188 92,175 18,586 1,611,483 2,609,022 515,610 641,872 688,748 201,620 - 28,626 126,783 2,203,259 111,239 189,552 295,839 29,935 - 800,434 162,754 1,589,753 3,793,012 560,229 570,280 571,525 101,464 - - 66,399 1,869,897 109,264 180,259 337,007 44,904 - 560,467 120,073 1,351,974 3,221,871 Note Company (BR GAAP) 2010 2011 Consolidated (BR GAAP and IFRS) 2010 2011 14 15 27.1 16 4.2 14 16 17 18 19.a) 19.c) 19.b) 66,424 183,317 293,024 58,551 260,027 - 29,359 890,702 852,549 97,955 49,600 35,818 1,035,922 427,073 160,313 292,457 (102,849) 490,885 (17,635) 1,250,244 - 1,250,244 3,176,868 60,086 113,232 246,589 63,769 199,698 3,340 41,788 728,502 368,356 175,575 53,282 25,806 623,019 418,061 149,627 282,944 (14) 430,079 (23,196) 1,257,501 - 1,257,501 2,609,022 168,962 488,980 - 132,045 446,800 - 37,932 1,274,719 1,017,737 140,545 64,957 44,809 1,268,048 427,073 160,313 292,457 (102,849) 490,885 (17,635) 1,250,244 1 1,250,245 3,793,012 226,595 366,494 - 162,747 366,006 4,061 52,064 1,177,967 465,068 215,125 73,784 32,425 786,402 418,061 149,627 282,944 (14) 430,079 (23,196) 1,257,501 1 1,257,502 3,221,871 fi nancial statements # 11 INCOME STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2011 (In thousands of Brazilian reais - R$, except earnings per share) 95 Note NET REVENUE Cost of sales GROSS PROFIT OPERATING (EXPENSES) INCOME Selling expenses Administrative and general expenses Employee profi t sharing Management compensation Equity in investees Other operating income (expenses), net INCOME FROM OPERATIONS BEFORE FINANCIAL INCOME (EXPENSES) Financial income Financial expenses INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION Income tax and social contribution NET INCOME ATTRIBUTABLE TO Owners of the Company Noncontrolling interests EARNINGS PER SHARE - R$ Basic Diluted The accompanying notes are an integral part of these fi nancial statements. Company (BR GAAP) 2010 5,514,315 (2,283,926) 2011 5,848,777 (2,375,514) Consolidated (BR GAAP and IFRS) 2010 5,136,712 (1,556,806) 2011 5,591,374 (1,666,300) 3,473,263 3,230,389 3,925,074 3,579,906 (1,503,069) (816,818) (3,765) (9,443) 54,789 43,579 (1,292,365) (837,808) (18,174) (14,417) 25,764 456 (1,952,740) (680,730) (30,168) (9,443) - 63,077 (1,704,322) (605,442) (70,351) (14,417) - (17,468) 1,238,536 86,502 (163,247) 1,093,845 17,515 (58,237) 1,315,070 122,698 (200,038) 1,167,905 53,639 (103,375) 21 22 22 22 22 27 12 25 24 24 9.b) 1,161,791 (330,890) 1,053,123 (309,073) 1,237,730 (406,829) 1,118,169 (374,120) 830,901 744,050 830,901 744,050 830,901 - 744,050 - 830,901 - 744,050 - 26.1 26.2 1,9320 1,9279 1,7281 1,7219 1,9320 1,9279 1,7281 1,7219 STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2011 (In thousands of Brazilian reais - R$) Note NET INCOME Other comprehensive income (losses) - Gains (losses) arising on translating the fi nancial statements of foreign subsidiaries Company (BR GAAP) Consolidated (BR GAAP and IFRS) 2011 830,901 2010 744,050 2011 830,901 2010 744,050 12 5,561 (4,473) 5,561 (4,473) TOTAL COMPREHENSIVE INCOME 836,462 739,577 836,462 739,577 ATTRIBUTABLE TO Owners of the Company Noncontrolling interests The accompanying notes are an integral part of these fi nancial statements. 836,462 - 739,577 - 836,462 - 739,577 - fi nancial statements # 11 g n i l l o r t n o c n o N y t i u q E l a t o T s t s e r e t n i o t l e b a t u b i r t t a r e h t O l ’ s r e d o h e r a h s ’ s e i r a i d i s b u s n i e h t f o s r e n w o e v i s n e h e r p m o c y t i u q e y t i u q e y n a p m o C ) s e s s o l ( e m o c n i d e n i a t e R i s g n n r a e d e s o p o r P l a n o i t i d d a d n e d i v i d y r u s a e r T s e r a h s d e n i a t e R i s g n n r a e s e v r e s e r i s g n n r a E x a T s e v i t n e c n i l a g e L l a n o i t i d d A n i - d i a p l a t i p a c s e v r e s e r l a t i p a C e v i t n e c n i x a T e v r e s e r t n e m t s e v n I s t n a r g e r a h S i m u m e r p l a t i p a C e t o N ) e r a h s r e p s d n e d v d i i r o f t p e c x e , $ R - s i a e r n a i l i z a r B f o s d n a s u o h t n I ( 1 1 0 2 , 1 3 R E B M E C E D D E D N E R A E Y E H T R O F Y T U Q E I ’ S R E D L O H E R A H S N I S E G N A H C F O T N E M E T A T S , 2 2 8 9 3 1 1 , 0 5 0 4 4 7 , ) 3 7 4 4 ( , , 7 7 5 9 3 7 ) 1 1 6 7 5 3 ( , - - 0 0 8 3 1 , 8 8 2 1 1 , ) 4 7 3 9 8 2 ( , - - - , 2 0 5 7 5 2 1 , 1 0 9 0 3 8 , 1 6 5 5 , , 2 6 4 6 3 8 ) 9 7 0 0 3 4 ( , 2 1 0 9 , ) 2 5 4 4 0 1 ( , - - 0 4 2 1 , 9 6 3 3 1 , ) 9 0 8 2 3 3 ( , - - - , 5 4 2 0 5 2 1 , 1 - - - - - - - - - - - - 1 - - - - - - - - - - - - - - 1 , 1 2 8 9 3 1 1 , 0 5 0 4 4 7 , ) 3 7 4 4 ( , 7 7 5 9 3 7 , ) 1 1 6 7 5 3 ( , - - 0 0 8 3 1 , 8 8 2 1 1 , , ) 4 7 3 9 8 2 ( - - - , 1 0 5 7 5 2 1 , 1 0 9 0 3 8 , 1 6 5 5 , 2 6 4 6 3 8 , ) 9 7 0 0 3 4 ( , 2 1 0 9 , ) 2 5 4 4 0 1 ( , - - 0 4 2 1 , 9 6 3 3 1 , , ) 9 0 8 2 3 3 ( - - - ) 3 2 7 8 1 ( , - ) 3 7 4 4 ( , ) 3 7 4 4 ( , - - 0 5 0 4 4 7 , 0 5 0 4 4 7 , - - - - - - - - - - 1 6 5 5 , 1 6 5 5 , ) 6 9 1 3 2 ( , - - - - - - - - - - - - - - - ) 3 7 9 5 ( , ) 4 7 3 9 8 2 ( , ) 6 5 4 4 2 ( , ) 4 2 6 8 1 ( , - 1 0 9 0 3 8 , - 1 0 9 0 3 8 , - - - - - - ) 7 7 6 3 ( , ) 9 0 8 2 3 3 ( , - - - - - - - - ) 1 1 6 7 5 3 ( , - 6 5 4 4 2 , - - - - - - - - - - ) 9 7 0 0 3 4 ( , ) 3 2 6 5 0 4 ( , 3 2 6 5 0 4 , ) 1 6 2 7 6 4 ( , 1 6 2 7 6 4 , ) 4 2 6 3 2 ( , ) 0 3 5 3 ( , - 4 2 6 3 2 , 1 1 6 7 5 3 , ) 4 1 ( 2 8 0 0 3 2 , 1 6 9 4 , 0 5 6 8 1 , 5 9 9 1 2 , 8 7 3 7 1 , 0 2 6 3 0 1 , 1 6 2 4 0 4 , 9 0 0 2 , 1 3 R E B M E C E D F O S A E C N A L A B - - - - - - - - - - - - - - - - - - - - - - 4 5 6 4 , 4 2 6 8 1 , - - - - - - - - - - - 3 7 9 5 , - - - - - - - - - - - - - - - - - - - - - - 8 8 2 1 1 , ) 4 5 6 4 ( , - - - - - - - - - - - - - - - - - - - - - - - - - - - - 0 0 8 3 1 , - - - - - - - . ) a 9 1 . 2 3 2 . 2 3 2 0 1 0 2 , 6 l i r p A f o g n i t e e M l ’ s r e d o h e r a h S l a u n n A e h t t a d e v o r p p a n o i t p i r c s b u s h g u o r h t e s a e r c n i l a t i p a C s e r a h s f o e v r e s e r e v i t n e c n i x a t f o n o i t i n g o c e R : s n a p l n o i t p o k c o t s n i s e g n a h C s n o i t p o k c o t s f o e s i c r e x E s n o i t p o k c o t s f o t n a r G : e m o c n i t e n f o n o i t a c o l l A . ) b 9 1 l a t i p a c n o t s e r e t n i d n a s d n e d v d m i i i r e t n I . ) b 9 1 . ) b 9 1 ) f . 9 1 n o d e r a c e d l l a t i p a c n o t s e r e t n I 1 1 0 2 , 3 2 y r a u r b e F e v r e s e r i s g n n r a e i d e n a t e R 1 1 0 2 , 3 2 y r a u r b e F n o d e r a c e d l s d n e d v D i i l a t i p a c n o t s e r e t n i d n a s d n e d v d i i 9 0 0 2 e m o c n i e v i s n e h e r p m o c r e h t O e m o c n i e v i s n e h e r p m o c l a t o T e m o c n i t e N 9 7 0 0 3 4 , ) 4 1 ( 0 6 3 3 5 2 , 4 3 9 0 1 , 0 5 6 , 8 1 9 2 6 8 2 , 8 7 3 7 1 , 0 2 6 3 0 1 , 1 6 0 8 1 4 , 0 1 0 2 , 1 3 R E B M E C E D F O S A E C N A L A B - - - - - 7 1 6 1 , ) 2 5 4 4 0 1 ( , - - - - - - - - - - - - - - - 6 0 3 2 , - - - - 0 3 5 3 , - - - - - - - - - - - - - 7 7 6 3 , - - - - - - - - - - - - - - - - - - - - - - - - - - 9 6 3 3 1 , ) 6 0 3 2 ( , - - - - - - - - - - - - - - - - - - - - ) 7 7 3 ( - - - - - - - - - - - 2 1 0 9 , - - - - - - - - - 2 1 e m o c n i e v i s n e h e r p m o c r e h t O e m o c n i e v i s n e h e r p m o c l a t o T e m o c n i t e N . ) a 9 1 . ) c 9 1 . ) c 9 1 . 2 3 2 . 2 3 2 1 1 0 2 , 8 l i r p A f o g n i t e e M l ’ s r e d o h e r a h S l a u n n A e h t t a d e v o r p p a n o i t p i r c s b u s h g u o r h t e s a e r c n i l a t i p a C s e r a h s f o e s i c r e x e o t e u d s e r a h s y r u s a e r t f o l e a S s n o i t p o k c o t s f o : s n a p l n o i t p o k c o t s n i s e g n a h C s e r a h s y r u s a e r t f o n o i t i s i u q c A e v r e s e r e v i t n e c n i x a t f o n o i t i n g o c e R s n o i t p o k c o t s f o e s i c r e x E s n o i t p o k c o t s f o t n a r G : e m o c n i t e n f o n o i t a c o l l A . ) b 9 1 l a t i p a c n o t s e r e t n i d n a s d n e d v d m i i i r e t n I . ) b 9 1 . ) b 9 1 ) f . 9 1 n o d e r a c e d l l a t i p a c n o t s e r e t n I 2 1 0 2 , 4 1 y r a u r b e F 2 1 0 2 , 4 1 y r a u r b e F e v r e s e r i s g n n r a e i d e n a t e R n o d e r a c e d l s d n e d v D i i l a t i p a c n o t s e r e t n i d n a s d n e d v d i i 0 1 0 2 fi nancial statements # 11 , 4 4 2 0 5 2 1 , ) 5 3 6 7 1 ( , - 5 8 8 0 9 4 , ) 9 4 8 2 0 1 ( , 6 9 1 9 5 2 , 1 1 6 4 1 , 0 5 6 , 8 1 2 9 6 9 3 , 8 7 3 7 1 , 3 4 2 3 0 1 , 3 7 0 7 2 4 , 1 1 0 2 , 1 3 R E B M E C E D F O S A E C N A L A B 96 . s t n e m e t a t s l i a c n a n fi e s e h t f o t r a p l a r g e t n i n a e r a s e t o n i g n y n a p m o c c a e h T STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2011 (In thousands of Brazilian reais - R$) Note 2011 2010 2011 2010 Company (BR GAAP) Consolidated (BR GAAP and IFRS) 97 CASH FLOW FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Provision for losses on swap and forward transactions Provision for tax, civil and labor contingencies Interest and infl ation adjustment of escrow deposits Income tax and social contribution (Gain) loss on sale on property, plant and equipment and intangible assets Equity in investees Interest and exchange rate changes on borrowings and fi nancing and other liabilities Exchange rate changes on other assets and other liabilities Stock options plans expenses Provision for discount on assignment of ICMS credits Allowance for doubtful accounts Allowance for inventory losses Provision for healthcare plan and carbon credits Recognition of untimely used tax credits Recognition of tax credits related to lawsuit 13 17 9.a) 24 6 7 18 25 25 (INCREASE) DECREASE IN ASSETS Trade receivables Inventories Recoverable taxes Other receivables Subtotal INCREASE (DECREASE) IN LIABILITIES Domestic and foreign suppliers Payroll, profi t sharing and related taxes, net Taxes payable Other payables Provision for tax, civil and labor contingencies Subtotal CASH GENERATED BY OPERATING ACTIVITIES OTHER CASH FLOWS FROM OPERATING ACTIVITIES Payments of income tax and social contribution Payments of derivatives Payment of interest on borrowings and fi nancing NET CASH GENERATED BY OPERATING ACTIVITIES CASH FLOW FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment and intangible assets Proceeds from sale of property, plant and equipment and intangible assets Withdrawal (payment) of escrow deposits Dividends received from subsidiaries Investments in subsidiaries 830,901 744,050 830,901 744,050 27,565 (16,442) (2,866) (28,841) 330,890 1,559 (54,789) 94,985 22 6,359 - (492) 9,801 10,012 (11,887) (15,461) 1,181,316 (41,125) (42,615) (14,648) (171,952) (270,340) 69,443 (5,218) 28,692 34,006 (816) 126,107 15,305 5,477 106 (15,318) 309,073 (468) (25,764) (4,668) - 4,081 - 9,005 3,981 10,739 - - 1,055,598 (88,052) (77,360) 97,664 (43,394) (111,142) 28,761 7,019 74,726 62,565 (2,673) 170,398 109,921 (14,305) (7,998) (51,173) 406,829 13,457 - 121,674 (7,767) 13,369 323 (674) 19,725 12,384 (16,852) (40,378) 1,389,436 (70,918) (136,948) (45,224) (157,950) (411,040) 121,752 (30,702) 24,060 (14,132) (829) 100,149 88,848 8,787 3,545 (18,129) 374,120 32,620 - (5,137) - 11,288 465 9,149 30,132 10,400 - - 1,290,137 (126,561) (92,106) 45,134 (41,418) (214,951) 111,212 31,955 50,844 34,528 (2,658) 225,881 1,037,083 1.114,854 1,078,545 1,301,067 (255,182) (15,082) (57,812) (221,535) (9,006) (35,405) (319,623) (18,382) (76,700) (269,001) (13,378) (44,902) 709,007 848,908 663,840 973,785 13 (277,036) (66,870) (346,367) (236,876) 2,535 72,973 34,000 (121,173) 3,174 (86,096) 30,000 (117,486) 3,726 92,341 - - 9,864 (86,524) - - 12 NET CASH USED IN INVESTING ACTIVITIES (288,701) (237,278) (250,300) (313,536) fi nancial statements # 11 continúa... ...continuación CASH FLOW FROM FINANCING ACTIVITIES Repayments of borrowings and fi nancing - principal Proceeds from borrowings and fi nancing Payment of dividends and interest on capital Interim dividends and interest on capital Repurchase of treasury shares Sale of treasury shares due to exercise of stock options Capital increase through subscription of shares (353,289 common shares at average price of R$39.69) 19.b) (425,383) 822,047 (430,079) (332,809) (104,452) 1,240 (592,075) 565,293 (357,611) (289,375) - - (648,687) 1,045,702 (430,079) (332,809) (104,452) 1,240 98 (781,931) 819,275 (357,611) (289,375) - - 9,012 13,800 9,012 13,800 NET CASH USED IN FINANCING ACTIVITIES Gains (losses) arising on translating foreign currency cash and cash equivalents (460,424) - (659,968) - (460,073) 1,914 (595,841) (4,473) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (40,118) (48,338) (44,619) 59,935 Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 206,125 166,007 254,463 206,125 560,229 515,610 500,294 560,229 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS NON-CASH TRANSACTIONS: Capital lease of property, plant and equipment Offseting of tax liability and escrow deposit ADDITIONAL INFORMATION TO THE STATEMENTS OF CASH FLOWS Restricted cash Bank overdrafts - unused 13 17 11 The accompanying notes are an integral part of these fi nancial statements. (40,118) (48,338) (44,619) 59,935 56,694 114,345 - - 56,694 114,345 - - - 117,900 - 147,900 6,757 235,500 6,155 265,500 STATEMENTS OF VALUE ADDEDFOR THE YEAR ENDED DECEMBER 31, 2011 (In thousands of Brazilian reais - R$, except additional information) Company (BR GAAP) Note REVENUES Sales of goods and services Other operating income (expenses), net Allowance for doubtful accounts INPUTS PURCHASED FROM THIRD PARTIES Cost of sales and services Materials, electricity, outside services and other GROSS VALUE ADDED RETENTIONS Depreciation and amortization WEALTH CREATED BY THE COMPANY TRANSFERRED VALUE ADDED Equity in investees Financial income - includes infl ation adjustments and exchange differences TOTAL WEALTH FOR DISTRIBUTION 25 6 13 12 24 2011 6,847,933 6,887,213 43,580 (82,860) (4,538,955) (2,610,197) (1,928,758) 2,308,978 (27,565) (27,565) 2,281,413 141,291 54,789 86,502 2,422,704 2010 6,394,783 6,477,739 456 (83,412) 4,278,970) (2,488,991) (1,789,979) 2,115,813 (15,305) (15,305) Consolidated (BR GAAP and IFRS) 2010 2011 6,850,225 7,499,050 6,951,106 7,524,250 (17,468) 63,078 (88,278) (83,412) (3,707,385) (4,362,838) (2,355,631) (2,624,578) (1,351,754) (1,738,260) 3,136,212 3,142,841 (88,848) (109,921) (88,848) (109,921) 2,100,508 3,026,291 43,279 25,764 17,515 2,143,786 122,698 - 122,698 3,148,989 3,053,993 53,639 - 53,639 3,107,632 DISTRIBUTION OF WEALTH: Employees and payroll taxes Taxes and fees Financial expenses and rentals Dividends Interest on capital Retained earnings (2,422,704) 100% (250,870) 10% (1,182,449) 49% (158,485) 7% (762,563) 31% 3% (61,130) 0% (7,207) (2,143,786) 100% 10% 51% 4% 31% 3% 1% (222,957) (1,111,331) (65,448) (659,570) (59,883) (24,597) (3,148,989) 100% (634,261) 20% (1,472,345) 47% (211,483) 7% (762,563) 24% 2% (61,130) 0% (7,207) (3,107,632) 100% (769,245) 25% (1,476,512) 47% (117,825) 4% (659,570) 21% 2% (59,883) 1% (24,597) Additional information to the statements of value added R$442,063 and R$454,114 of the amounts recorded in line item ‘Taxes and fees’ in 2011 and 2010, respectively, refer to reverse charge State VAT (ICMS) levied on the estimated profi t margin set by the State Departments of Finance based on sales made by Natura consultants to fi nal customers. To analyze this tax impact on the statement of value added, these amounts should be deducted from those recorded in ‘Sales of goods and services’ and ‘Taxes and fees’ since sales revenue does not include the estimated profi t attributable to Natura consultants on the sale of products, in the amounts of R$2,906,137 and R$2,738,227 in 2011 and 2010, respectively, considering an estimated profi t margin of 30%. The accompanying notes are an integral part of these fi nancial statements. fi nancial statements # 11 99 Equity interest - % 2010 2011 NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2011 (Amounts in thousands of Brazilian reais - R$, unless otherwise stated) 1. GENERAL INFORMATION Natura Cosméticos S.A. (“Company”) is a publicly-traded company, re- gistered in the special trading segment called “Novo Mercado” in the São Paulo Stock Exchange (BM&FBOVESPA), under the ticker “NATU3”, and headquartered in Itapecerica da Serra, State of São Paulo. The Company’s and its subsidiaries’ activities (“Natura Group” or “Group”) include the development, production, distribution and sale of cosmetics, fragrances, and hygiene products, substantially through direct sales by Natura Beauty Consultants. The Company also holds equity interests in other companies in Brazil and abroad. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1. Statement of compliance and basis of preparation The Company’s fi nancial statements include: • The consolidated fi nancial statements prepared in accordance with the In- ternational Financial Reporting Standards (IFRSs), issued by the International Accounting Standards Board (IASB), and the accounting practices adopted in Brazil, identifi ed as Consolidated - IFRS and BR GAAP. • The Parent’s individual fi nancial statements prepared in accordance ac- counting practices adopted in Brazil, identifi ed as Company - BR GAAP. The accounting practices adopted in Brazil include those established in the Brazilian Corporate Law as well as the Pronouncements, Instructions and Interpretations issued by the Accounting Pronouncements Commit- tee (CPC) and approved by the Brazilian Securities and Exchange Com- mission (CVM). The individual fi nancial statements present the valuation of investments in subsidiaries, joint ventures and associates which are measured by the equity method, as required by legislation prevailing in Brazil. Therefore, these indi- vidual fi nancial statements are not fully compliant with IFRS, which requires that these investments be carried at fair value or acquisition cost. Since there is no difference between the consolidated shareholders’ equity and the consolidated net income attributable to owners of the Company recorded in the consolidated fi nancial statements prepared in accordance with IFRSs and accounting practices adopted in Brazil and the Company’s shareholders’ equity and net income disclosed in the individual fi nancial sta- tements prepared in accordance with accounting practices adopted in Brazil, the Company elected to present the individual and the consolidated fi nancial statements as a single set, placed side-by-side. The fi nancial statements have been prepared based on the historical cost basis except for certain fi nancial instruments that are measured at their fair values, as described in the accounting policies below. The historical cost is generally based on the fair value of the consideration paid in ex- change for an asset. The signifi cant accounting practices applied to the preparation of these consolidated fi nancial statements are presented below. These policies have been consistently applied in the previous annual reporting period presen- ted, except as otherwise indicated. 2.2. Consolidation a) Subsidiaries and joint-controlled entities Subsidiaries are all entities over which the Company has the power to govern the fi nancial and operating policies so as to obtain benefi ts from their activities and in which generally holds more than 50% of the equity interest. In the applicable cases, the existence and the effect of potential voting rights, currently exercisable or convertible, are taken into conside- ration to determine if the company control another entity. Subsidiaries are fully consolidated from the date in which control is transferred to the Company and cease to be consolidated, when applicable, when control no longer exists. In the cases control is jointly held, the consolidation of the fi nancial state- ments is made proportionately to the interest percentage. b) Companies include in the consolidated fi nancial statements 99.99 99.99 99.94 99.97 99.99 99.99 99.99 99.99 99.99 100.00 100.00 Direct interest: Indústria e Comércio de Cosméticos Natura Ltda. Natura Cosméticos S.A. - Chile Natura Cosméticos S.A. - Peru Natura Cosméticos S.A. - Argentina Natura Inovação e Tecnologia de Produtos Ltda. Natura Cosméticos y Servicios de México, S.A. de C.V. Natura Cosméticos de México, S.A. de C.V. Natura Distribuidora de México, S.A. de C.V. Natura Cosméticos Ltda. - Colombia Natura Cosméticos España S.L. - Spain Natura (Brasil) International B.V. - The Netherlands Indirect interest: Via Indústria e Comércio de Cosméticos Natura Ltda.: Natura Logística e Serviços Ltda. Via Natura Inovação e Tecnologia de Produtos Ltda.: Ybios S.A. (proportionate consolidation - joint control) 43.33 Natura Innovation et Technologie de Produits SAS - França Via Natura (Brasil) International B.V. - The Netherlands: Natura Brasil Inc. - USA - Delaware Natura International Inc. - USA - New York Natura Worldwide Trading Company - Costa Rica Natura Brasil SAS - France Natura Brasil Inc. - USA - Nevada Natura Europa SAS - France 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.99 99.99 99.99 99.94 99.97 99.99 99.99 99.99 99.99 99.99 100.00 100.00 99.99 42.11 100.00 100.00 100.00 100.00 100.00 100.00 100.00 The consolidated fi nancial statements have been prepared based on the fi - nancial statements as of the same date and consistent with the Company’s accounting policies. Investments in subsidiaries have been eliminated pro- portionately to the investor’s interests in the subsidiaries’ shareholders’ equity and net income or loss, intergroup balances and transactions and unrealized profi ts, net of taxes. 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. - Brasil, Natura Cosméticos S.A. - Chile, Natura Cosméticos S.A. - Peru, Natura Cosméticos S.A. - Argentina, Natura Cosméticos Ltda. - Colombia, Natura Europa SAS - France, and Natura Cosméticos de Mexico S.A. de C.V.. • Natura Cosméticos S.A. - Chile, Natura Cosméticos S.A. - Peru, Natura Cosméticos S.A. - Argentina, Natura Cosméticos Ltda. - Colombia and Na- tura Distribuidora de Mexico, S.A. de C.V.: their activities are an extension of the activities conducted by the parent company Natura Cosméticos S.A. - Brazil. • Natura Inovação e Tecnologia de Produtos Ltda.: it is engaged in product and technology development and market research. It is the only owner of Natura Innovation et Technologie de Products SAS - France, a research and technology satellite center opened in 2007 in Paris. • Natura Europa SAS - France: engaged in the purchase, sale, import, ex- port and distribution of cosmetics, fragrances in general, and hygiene pro- ducts. • Natura Cosméticos de Mexico, S.A. de C.V.: engaged in the import and sale of cosmetics, fragrances in general, and hygiene products to Natura Distribuidora de Mexico, S.A. de C.V. • Natura Cosméticos y Servicios de Mexico, S.A. de C.V.: engaged in the provision of administrative and logistics services to Natura Cosméticos de Mexico, S.A. de C.V. and Natura Distribuidora de Mexico, S.A. de C.V. • Natura Cosméticos España S.L.: company in start-up stage and its activi- ties will be an extension of the activities carried out by its parent company Natura Cosméticos S.A. - Brazil. fi nancial statements # 11 • Natura Logística e Serviços Ltda.: engaged in the provision of adminis- trative and logistics services to Natura Group companies based in Brazil. • Natura Innovation et Technologie de Produits SAS - France: engaged mainly in research activities developed for in vitro testing as an alternative to animals testing, for to the safety and effi ciency of test active compounds, skincare products and new packaging materials. • Ybios S.A.: engaged in biotechnology research, management and de- velopment of projects, products and services, and may also enter into agreements and/or partnerships with universities, foundations, companies, cooperatives, associations and other public and private entities, provide services in the biotechnology area, and holding of equity interest in other companies. As Ybios S.A. is a jointly controlled entity whose fi nancial statements were proportionately included in the Company’s consolidated fi nancial state- ments, the main assets, liabilities and income statement accounts, which were included in the consolidated fi nancial statements at the ratio of 43.33% of interest (42.11% as of December 31, 2010) after equity interest elimination adjustments, are stated below: Current assets Property, plant and equipment Current liabilities Net revenue for the year Loss for the year 2011 567 56 30 128 (1,086) 2010 630 98 87 1,098 (682) • Natura Europa SAS and Natura Cosmetics USA Co.: in January 2009 the shares of these subsidiaries were assigned as a capital contribution to the holding company Natura (Brasil) International B.V. - The Netherlands, and the Company became the indirect holder of such interests through this company headquartered in The Netherlands. c) Discontinuation of subsidiaries’ operations At the meetings held in July and October 2009, the Board of Directors approved the discontinuation of the operations of subsidiary Natura Cos- méticos C.A. - Venezuela, which resulted in the need to recognize an allo- wance for asset impairment losses. As of December 31, 2011, the net assets balance of Natura Cosméticos C.A. - Venezuela, recorded in the Company’s consolidated fi nancial state- ments, less allowances for asset impairment losses and collection of liabili- ties during the operation termination process, was R$306. 2.3. Segment reporting Information per operating segments is consistent with the internal report provided to the chief operating decision maker. The chief operating deci- sion maker, responsible for allocating resources to the operating segments and assessing their performance, is the Company’s Executive Committee. 2.4. Translation of foreign currency a) Functional currency Items included in the fi nancial statements of the Company and each one of the subsidiaries included in the consolidated fi nancial statements are measured using the currency of the main economic environment in which the companies operate (“functional currency”). b) Foreign currency transactions and balances Foreign currency-denominated transactions are translated into the Company’s functional currency - Brazilian reais - at the exchange rates prevailing on the dates of the transactions. Balance sheet accounts are translated at the exchange rates prevailing at the end of the reporting period. Foreign exchange gains and losses arising on the settlement of such transactions and the translation of monetary assets and monetary liabilities denominated in foreign currency are recognized in profi t or loss, in line items “Financial income” and “Financial expenses”. c) Presentation currency and translation of fi nancial statements The fi nancial statements are presented in Brazilian reais (R$), which cor- responds to the Group’s presentation currency. In preparing the consolidated fi nancial statements, the statements income statement and the statement of cash fl ows, and all other changes in foreign subsidiaries’ assets and liabilities, whose functional currency is the local cur- rency, are translated into Brazilian reais at the average monthly exchange rate, which approximates the exchange rate prevailing at the date of the underlying transactions. Balance sheets are translated into Brazilian reais at the exchange rates prevailing at yearend. 100 The effects of exchange differences resulting from these translations are presented in line item ‘Other comprehensive income’ and in shareholders’ equity. In case of disposal or partial disposal of interest in a Group com- pany, through sale or as a result of capital payment, the cumulative exchan- ge difference is recognized in the income statement as part of the gain or loss on the disposal of the investment. 2.5. Cash and cash equivalents Include cash, demand deposits and short-term investments redeemable within up to 90 days from the investment date, highly liquid or convertible to a known cash amount and subject to immaterial change in value, which are recorded at cost plus income earned through the end of the reporting period and do not exceed their fair or realizable values. 2.6. Financial instruments 2.6.1. Categories The category depends on the purpose for which fi nancial assets and fi nan- cial liabilities were acquired or contracted and is determined on the initial recognition of the fi nancial instruments. Financial assets held by the Company are classifi ed into the following ca- tegories: Financial assets measured at fair value through profi t or loss Consist of fi nancial assets held for trading, when acquired for such pur- pose, principally in the short term. These assets are measured at fair value at the end of the reporting period and any differences are recognized in profi t or loss. Derivative fi nancial instruments are also classifi ed in this ca- tegory. Assets in this category are classifi ed in current assets. In the case of the Company, this category includes only derivative fi nancial instruments. The balances of outstanding derivatives are measured at their fair values at the end of the reporting period and classifi ed in current as- sets or current liabilities, and changes in fair value are recorded in “Financial income” or “Financial expenses”, respectively. Held-to-maturity fi nancial assets Comprise investments in certain fi nancial assets classifi ed by treasury at their origination as held to maturity, and are measured at amortized cost using the effective interest method. Available-for-sale fi nancial assets When applicable, this category includes non-derivative fi nancial assets that either designated as available for sale or are not classifi ed into any of the other categories, such as (a) loans and receivables; (b) held-to-maturity investments; or (c) fi nancial assets at fair value through profi t and loss. As of December 31, 2011 and 2010, the Company did not have fi nancial assets recorded in its fi nancial statements under this classifi cation. Loans and receivables Include non-derivative fi nancial assets with fi xed or determinable pay- ments that are not quoted in an active market. They are recorded in cur- rent assets, except for maturities greater than 12 months after the end of the reporting period, when applicable, which are classifi ed as noncurrent assets. As of December 31, 2011 and 2010, in the case of the Company, comprise cash and cash equivalents (note 5) and the balances of trade receivables (note 6). Financial liabilities held by the Company are classifi ed into the following categories: Financial liabilities at fair value through profi t or loss They are classifi ed as fair value through profi t or loss when the fi nancial liability is either held for trading or it is designated as fair value through profi t or loss. Other fi nancial liabilities They are measured at the amortized cost using the effective interest me- thod. As of December 31, 2011 and 2010, in the case of the Company, comprise borrowings and fi nancing (note 14) and domestic and foreign trade payables. 2.6.2. Measurement Regular purchases and sales of fi nancial assets are recognized on the tran- saction date, i.e., on the date the Company agrees to buy or sell the asset. Loans and receivables and held-to-maturity financial assets are measured at amor tized cost. fi nancial statements # 11 Financial assets at fair value through profit or loss are initially recog- nized at their fair value and transaction costs are recognized in the income statement. Gains or losses resulting from changes in the fair value of financial assets at fair value through profit or loss are recog- nized in the income statement, in “Finance income” or “Finance costs”, respectively, for the period in which they occur. Changes in financial assets classified as “Available for sale”, when applicable, are recorded in “Other comprehensive income” and shareholders’ equity until the financial assets are settled, when they are ultimately reclassified to profit or loss for the year. 2.6.3. Offsetting financial instruments Financial assets and financial liabilities are offset and the net amount is presented in the balance sheet when there is a legally enforceable right to set off recognized amounts and the intent to either settle them on a net basis, or to recognize the asset and settle the liability simultaneously. 2.6.4. Derivative instruments and hedge accounting Derivative transactions contracted by the Group consist of swaps and non-deliverable forwards (NDFs) intended exclusively to hedge against the foreign exchange risks related to the positions in balance sheets and projected cash outflows in foreign currency for capital increases in foreign subsidiaries. They are measured at fair value, and changes in fair value are recog- nized through profit or loss, except when they are designated as cash flow hedges, to which changes in fair value are recorded in “Other comprehensive income” within shareholders’ equity. The fair value of derivatives are measured by the Company’s treasury depar tment based on information on each contracted transaction and related market inputs at the end of the repor ting period, such as interest rates and exchange coupon. When applicable, these inputs are compared with the positions repor ted by the trading desks of each involved financial institution. Even though the Group uses derivatives for hedging purposes, it does not apply hedge accounting. The fair values of derivatives are disclosed in note 4. 2.6.5. Effective interest method Used to calculate the amor tized cost of a debt instrument and allo- cate its interest income over the related period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral par t of the effective interest rate, transaction costs and other premiu- ms or discounts) through the expected life of the debt instrument or, where appropriate, a shor ter period, to the net carrying amount on initial recognition. Income is recognized on an effective interest basis for debt instru- ments other than those financial assets classified as fair value through profit or loss. 2.7. Trade receivables and allowance for doubtful debts Trade receivables are stated at their nominal amount, less the allo- wance for doubtful debts, which is recognized based on the history of losses using an aging list, in an amount considered sufficient by management to cover possible losses, as described in note 6. 2.8. Inventories Carried at the lower of average cost of purchase or production and net realizable value. Details are disclosed in note 7. 2.9. Investments in subsidiaries, associates and jointly controlled en- tities The Group holds interest in subsidiaries, associates and joint control- led entities (shared control). Subsidiaries are the companies over which the Company has control. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities, which in general consists of the ability to exercise the majority of the voting rights. Po- tential voting rights considered when assessing the control exercised by the Company over the other entity, when they can be exercised at the time of the assessment. An associate is an entity over which the Company has significant 101 influence and that does not qualify as a subsidiary or a joint venture. Significant influence is the power to par ticipate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The investees under shared control are jointly controlled entities where the venturers have a contractual agreement which establishes joint control on its economic activities. Investments in subsidiaries, associates and jointly controlled entities are accounted for by the equity method of accounting. The financial statements of subsidiaries, associates and jointly controlled entities are prepared for the same repor ting date of the Company. Adjust- ments are made, if necessary, to conform their accounting policies to those adopted by the Company. Under the equity method of accounting, the share attributable to the Company of the profit or loss for the period of such investments is accounted for in the income statement, in line item “Equity in inves- tees”. Unrealized gains and losses arising on transactions between the Company and the investees are eliminated based in the percen- tage interest held in such investees. The other comprehensive income of subsidiaries, associates and jointly controlled entities is recorded directly in the Company’s shareholders’ equity, in line item “Other comprehensive income”. 2.10. Proper ty, plant and equipment Stated at cost of purchase or construction, plus interest capitalized during construction period, when applicable, for the case of eligible assets, and reduced by accumulated depreciation and impairment los- ses, if applicable. Rights in tangible assets that are maintained or used in the operations of the Group, originated from finance leases, are recorded as purcha- se financing, and a fixed asset and a financing liability are recognized at the beginning of each transaction, where assets are also submitted to depreciation calculated based on the estimated useful lives of the assets. Land is not depreciated. Depreciation of the other assets is calcula- ted under the straight-line method to distribute their cost over their useful lives, as follows: Buildings Machinery and equipment Molds Facilities and leasehold improvements Furniture and fixtures Vehicles Years 25 13 3 5 - 13 14 3 The useful lives are reviewed annually. Gains and losses on disposals are calculated by comparing the pro- ceeds from the sale with the carrying amount, and are recognized in the income statement. 2.11. Intangible assets 2.11.1 Software Software and ERP systems licenses purchased are also capitalized and amor tized at the rates also described in note 13, and expenses on the software maintenance are recognized as expenses when incurred. The ERP system purchase and implementation costs are capitalized as intangible assets when there is evidence that future economic bene- fits will flow into the Company, taking into consideration its economic and technologic viability. Expenses on software development recog- nized as assets are amor tized under the straight-line method over its estimated useful life. The expenses related to software maintenance are expensed when incurred. 2.11.2 Trademarks and patents Separately purchased trademarks and patents are stated at their his- toric cost. Trademarks and patents acquired in a business combination are recognized at fair value on the acquisition date. Amor tization is calculated on a straight-line basis at the annual rates described in note 13. fi nancial statements # 11 2.11.3 Carbon credits - Carbon Neutral Program In 2007 the Company assumed to its employees, customers, suppliers and shareholders the commitment to become a Carbon Neutral com- pany, which consists of offsetting all the emissions of Greenhouse Gases (GHGs) by its entire production chain, from raw material extraction to post-consumption. Even though this commitment is not a legal obligation, since Brazil did not adopt the Kyoto Protocol requirements, it is consi- dered a constructive obligation, under CPC 25 - Provisions, Contingent Liabilities and Contingent Assets, which required the recognition of a provision in the fi nancial statements if it can result in a disbursement and be realizably measured. The liability is estimated using audited carbon emission inventories taken on an annual basis and valued based in the average price per ton of car- bon of outstanding contracts and the estimated prices of future carbon purchases. As of December 31, 2011, the liability’s balance recognized in line item “Other provisions” (see note 18) refers to total carbon emissions in 2007-2011 that were not fully offset through the related projects, thus preventing the awarding of a carbon neutral certifi cate. In line with its beliefs and principles, the Company elected not to directly purchase any carbon credits and invested, instead, in socio-environmental projects in communities. Accordingly, the expenses incurred will produce carbon credits as these projects are completed or mature. During this pe- riod, these expenses are recognized at cost as intangible assets (see note 13) as they represent a right for future use. As of December 31, 2011, the balance recognized in intangible assets refers to expenses incurred in socio-environmental projects that will result in future carbon neutral company certifi cates. The obligation to become a carbon neutral company will be met when the related carbon neutral company certifi cates are actually awarded to the Company, and thus these assets will be offset against said liabilities. The difference between the assets and liabilities as of December 31, 2011 refers to the cash amounts that the Company will still disburse on other socio-environmental projects to ensure the future issuance of carbon neu- tral company certifi cates. The accounting methodology was designed in accordance with IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors, which prescribes that in the absence of a standard, interpretation or guideline that specifi cally applies to a transaction, management shall use its judgment in developing and applying an accounting policy that results in informa- tion that is relevant to the economic decision-making needs of users and reliable, in that the fi nancial statements represent faithfully the fi nancial position, fi nancial performance and cash fl ows of the entity. 2.12. Research and product development expenses In view of the high level of innovation and the turnover rate of the pro- ducts in the Company’s sales portfolio, the Company adopts the accoun- ting policy of recognizing product research and development expenditure as expenses for the year, when incurred. Details are disclosed in note 22. 2.13. Leases Lease classifi cation is made at the inception of the lease. Leases where the lessor does not retain substantially all the risks and rewards incidental to ownership are classifi ed as operating leases. Lease payments under an operating lease are recognized as an expense on a straight-line basis over the lease term. Leases where the Group retains substantially all the risks and rewards incidental to ownership are classifi ed as fi nance leases. These leases are capitalized in balance sheet at the commencement of the lease term at the lower fair value of the leased asset and the present value of minimum lease payments. Each lease payment is apportioned between liabilities and the fi nance charges so as to permit obtaining a constant effective interest rate on the outstanding liability. The corresponding obligations, less the fi nance charge, are classifi ed in current liabilities and noncurrent liabilities, according to the lease term. Property, plant and equipment items purchased through fi nance leases are depreciated over their useful lives, as described in note 2.10, or over the lease term, when it is shorter. 2.14. Impairment assessment 102 Property, plant and equipment, intangible assets and, when applicable, other noncurrent assets are annually tested to identify evidences of impair- ment, or also signifi cant events or changes in circumstances that indicate the carrying value of an asset may not be recoverable. Where applicable, when there is a loss, arising from situations where the carrying amount of an asset exceeds its recoverable amount, defi ned as the higher of its value in use and its fair value less costs to sell, this loss is recognized in the income statement. For impairment assessment purposes, assets are grouped at the lowest le- vels for which there are separately identifi able cash fl ows (cash-generating units, or CGUs). 2.15. Trade payables These are initially recognized at their nominal amounts, plus interest, infl a- tion adjustments and exchange differences through the end of the repor- ting period, when applicable. 2.16. Borrowings and fi nancing Initially recognized at fair value of proceeds received less transaction costs, plus charges, interest, adjustments and exchange differences incurred through the end of the reporting period, as shown in note 14. 2.17. Provision for tax, civil, and labor contingencies The provisions for contingent liabilities are recognized when the Group has a legal or constructive obligation as a result of past events, and it is probable that disbursements will be required to settle the obligation, and its value can be reliably estimated. Provisions are quantifi ed at the present value of the expected disbursement to settle the obligation using the ap- propriate discount rate, according to related risks. Adjusted for infl ation through the end of the reporting period to cover probable losses, based on the nature of contingencies and the opinion of the Company’s legal counsel. The bases for and nature of the provisions for tax, civil, and labor contingencies are described in note 17. 2.18. Current and deferred income tax and social contribution Recognized in the income statement, except, when applicable, in the pro- portion related to items recognized directly in shareholders’ equity. In this case, taxes are recognized directly in shareholders’ equity, in line item “Other comprehensive income”. Except for the foreign subsidiaries, which apply the tax rates prevai- ling in each one of the countries where they are located, income tax and social contribution on the Company’s and its Brazilian subsidia- ries’ profits are calculated at the tax rates of 25% and 9%, respectively. Current income tax and social contribution expenses are calculated using the laws and regulations enacted by the end of the repor ting period, pursuant to Brazilian tax regulations. Management periodically measures the positions assumed in the income tax return regarding the situations where applicable tax law is subject to possibly different interpretations and, when appropriate, recognizes provisions based on the amounts it expects to pay tax authorities. Deferred income tax and social contribution are calculated on tem- porary differences between the tax base of assets and liabilities and their carrying amounts. Deferred income tax and social contribution are calculated using the tax rates enacted on the end of the repor ting period and that must be applied when the corresponding deferred income tax and social contribution assets are realized or deferred income tax and social contribution liabilities are settled. Deferred income tax and social contribution assets are recognized only to the extent that there is a reasonable cer tainty that future taxable income will be available and against which temporary diffe- rences can be offset. The amounts of deferred income tax and social contribution assets and liabilities are only utilized when there is a legally enforceable right to off- set current tax assets against tax liabilities and/or when current deferred income tax and social contribution assets and liabilities are related to the income tax and social contribution levied by the same tax authorities on the taxable entity or different taxable entities, where there is intention to settle the net balances. Details are disclosed in note 9. fi nancial statements # 11 2.19. Stock option plan The Company offers equity-settled share-based compensation plans to its executives. The stock option plan is measured at fair value on grant date and is expensed during the vesting period as a balancing item to “Additio- nal paid-in capital”, in shareholders’ equity. At the end of the repor- ting period, the Company’s management reviews its estimates on the number of options vesting based on the conditions fulfilled and, when applicable, recognizes in the income statement the effect arising from the revision of the initial estimates as a balancing item to sharehol- ders’ equity. The details are disclosed in note 23.2.. 2.20. Profit sharing The Company recognizes a profit sharing liability and an expense based on a formula that takes into consideration the net income attributable to the owners of the Company after cer tain adjustments, which is linked to the achievement of operational goals and specific objectives, established and approved at the beginning of each year. 2.21. Dividends and interest on capital The proposed distribution of dividends and interest on capital made by the Company’s management included in the por tion equivalent to the mandatory minimum dividends is recognized in line item “Other payables” in current liabilities, as it is considered as a legal obligation provided for by the Company’s bylaws; however, the por tion of divi- dends exceeding minimum dividends declared by management after the repor ting period but before the authorization date for issuance of these financial statements is recognized in line item “Proposed additional dividends” and their effects are disclosed in note 18.(b). For corporate and accounting purposes, interest on capital is stated as allocation of income directly in shareholders’ equity. 2.22. Actuarial gains and losses of healthcare plan and other costs related to employees’ benefit plans The costs related to the contributions made by the Group to defi ned- -contribution retirement plans are recognized on the accrual basis. Ac- tuarial gains and losses recorded in the retirees’ healthcare expansion plan are recorded in the income statement in accordance with IAS 19 and CPC 33 – Employee Benefi ts, based on the actuarial calculation prepared by an independent actuary, as detailed in note 18. 2.23. Revenue and expense recognition Revenue and expenses are recognized on an accrual basis. Sales re- venue is recognized when all risks and rewards of ownership of the product are transferred to the customers. Income from tax incentives, received in the form of a monetary asset, is recognized in the income statement when received as a balancing item to costs and investment already incurred by the Company in the jurisdiction where the tax incentive is granted. There are no es- tablished conditions to be met by the Company that might affect the recognition of tax incentives. 103 The statement of value added was prepared using information ob- tained in the same accounting records used to prepare the financial statements and pursuant to the provisions of CPC 09 - Statement of Value Added. The first par t of this statement includes the wealth cre- ated by the Company, represented by revenue (gross sales revenue, including taxes levied thereon, other income, and the effects of the allowance for doubtful accounts), inputs acquired from third par ties (cost of sales and purchase of materials, electricity, and services from third par ties, including taxes levied at the time of the acquisition, the effects of impairment losses, and depreciation and amor tization), and the value added received from third par ties (equity in investees, fi- nancial income, and other income). The second par t of the statement of value added presents the distribution of wealth among personnel, taxes, fees and contributions, lenders and lessors, and shareholders. 2.25. New and revised standards and interpretations a) Standards, interpretations and revised standards in effect on December 31, 2011 which did not have a material impact on the Company’s financial statements The following interpretations and revised standards were issued and were in effect on December 31, 2011. However, they did not have a material impact on the Company’s financial statements: Standard Main requirements Effective date Improvements to IFRSs - 2010 Amendments to several standards. Effective for annual periods beginning on or after January 1, 2011 Amendments to IFRS 1 Limited exemption from comparative IFRS 7 disclosures for fi rst-time adopters Effective for annual periods beginning on or after July 1, 2010 Amendments to IAS 24 Related-party disclosures Effective for annual periods beginning on or after January 1, 2011 Amendments to IFRIC 14 Prepayments of minimum funding requirements Effective for annual periods beginning on or after January 1, 2011 Amendments to IAS 32 Classifi cation of issue rights Effective for annual periods beginning on or after February 1, 2010 IFRIC 19 Extinguishing fi nancial liabilities with equity instruments Effective for annual periods beginning on or after July 1, 2010 b) Standards, interpretations and revised standards not yet effective and which were not early adopted by the Company The following standards and revised standards have been issued and are mandatory for the Company’s annual periods beginning on or after December 31, 2011. However, the Company did not early adopt these standards and revised standards. Standard Main requirements Effective date IFRS 9 (as amended in 2010) Financial instruments Effective for annual periods beginning on or after January 1, 2013 Amendments to IFRS 1 Removal of fi xed dates for fi rst-time adopters Effective for annual periods beginning on or after July 1, 2011 Amendments to IFRS 7 Disclosures - transfers of fi nancial assets Effective for annual periods beginning on or after July 1, 2011 The por tion of tax incentives recognized in the income statement is allocated to the tax incentive reserves, in the “Earnings reserves”, in shareholders’ equity. Amendments to IAS 12 Deferred taxes - recovery of the Effective for annual periods underlying assets when an asset is measured using the fair value model in IAS 40 beginning on or after January 1, 2012 2.24. Statement of value added The purpose of this statement is to disclose the wealth created by the Company and its distribution during a cer tain repor ting period, and is presented by the Company, as required by the Brazilian Corpo- rate Law, as an integral par t of its individual financial statements, and as additional disclosure of the consolidated financial statements, since this statement is not required by IFRSs. IAS 28 (Revised in 2011) Revision of IAS 28 Investments in Associates and Joint Ventures to include the changes changes introduced by IFRSs 10, 11 and 12. IAS 27 (Revised in 2011) IAS 27 requirements related Separate Financial Statements to consolidated fi nancial statements are replaced by IFRS 10. The requirements for separate fi nancial statements are maintained. Effective for annual periods beginning on or after January 1, 2013. Effective for annual periods beginning on or after January 1, 2013. fi nancial statements # 11 Effective for annual periods beginning on or after January 1, 2013. rates. The Company reviews regularly deferred tax assets in terms of possible recover y, considering the history of earnings generated and projected future taxable income, based on a technical feasibility study. 104 IFRS 10 - Consolidated Financial Statements IFRS 11 - Joint Arrangements IFRS 12 - Disclosure of Interests in Other Entities IFRS 13 - Fair Value Measurement Replaces the IAS 27 requirements applicable to consolidated fi nancial statements and SIC 12. IFRS 10 provides a single consolidation model that identifi es control as the basis for consolidation for all types of entities. Effective for annual periods beginning on or after January 1, 2013. Eliminated the proportionate consolidation model for jointly beginning on or after January 1, 2013. controlled entities and maintained equity method model only. It also eliminates the concept to ‘jointly controlled assets’ and maintains only ‘jointly controlled operations’ and ‘jointly controlled entities’. Expands the current disclosure Effective for annual periods requirements in respect of entities, whether or not consolidated where the entities have infl uence. Replaces and consolidates in a single standard all the guidance and requirements in respect of fair value measurement contained in other IFRSs. IFRS 13 defi nes fair value and provides guidance on how to measure fair value and requirements for disclosure relating to fair value measurement. However, it does not introduce any new requirement or amendment with respect to items to be measured at fair value, which remain as originally issued. Effective for annual periods beginning on or after January 1, 2013. Amendments to IAS 19 - Employee Benefi ts Effective for annual periods beginning on or after January 1, 2013. Eliminates the corridor approach and requires, recognition of actuarial gains and losses as other comprehensive income for pension plans and other long-term benefi ts in profi t or loss, when earned or incurred, among other changes. Amendments to IAS 1 - Presentation of Financial Statements Introduces the requirement that Effective for annual periods all items recognized in other comprehensive income be separated into and totaled as items that are and items that are no subsequently reclassifi ed to profi t or loss. beginning on or after January 1, 2013. Considering the current operations of the Group, management does not expect these new rules, interpretations and changes to have a material impact on the financial statements as from their adoption. The CPC has not yet issued the pronouncements and amendments related to the new and revised IFRSs presented above. Because of the CPC’s and the CVM’s commitment to keep the set of standards issued updated according to the changes made by the IASB, we ex- pect that such pronouncements and amendments be issued by the CPC and approved by the CVM by the date they become effective. 3. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS The preparation of fi nancial statements requires the use of certain critical accounting estimates and the exercise of judgment by the Company’s management in the process of application of accounting policies. The accounting estimates and underlying assumptions are reviewed on an ongoing basis and are based on historical experience and other factors that are considered to be relevant in the circumstances. Actual results may differ from those estimates. The effects resulting from the revision of accounting estimates are recognized in the revision period. These significant assumptions and accounting estimates are follows: a) Income tax, social contribution, and other taxes The Company recognizes deferred tax assets and liabilities based on differences between the carrying amount stated in the financial sta- tements and the tax base assets and liabilities using statutory tax b) Provision for tax, civil, and labor contingencies The Company is a par ty to several lawsuits and administrative pro- ceedings, as described in note 17. Provisions are recognized for all contingent liabilities arising from lawsuits that represent probable los- ses and can be reliably estimated. The probability assessment includes assessing available evidences, the hierarchy of laws, available previous decisions, most recent cour t decisions and their relevance within the legal system, and the assessment of the outside legal counsel. Mana- gement believes that these provisions for tax, civil and labor contin- gencies are fairly presented in the financial statements. c) Healthcare plan The current amount of the healthcare plan is contingent to a series of factors determined based on actuarial calculations that update a se- ries of assumptions, for example, the discount and other rates, which are disclosed in note 23.2. The change in one of these estimates could impact the results presented. 4. FINANCIAL RISK MANAGEMENT 4.1 General considerations and policies Risks and the financial instruments are managed through the defini- tion of policies and strategies and implementation of control systems, defined by the Company’s Treasury Committee and approved by the Board of Directors. The compliance of the treasury area’s positions in financial instruments, including derivatives, in relation to these po- licies, is presented and assessed on a monthly basis by the Treasury Committee and subsequently submitted to the analysis of the Audit Committee, the Executive Committee and the Board of Directors. Risk management is performed by the Company’s general treasury function, which is also responsible for approving the short-term invest- ments and loan transactions conducted by the Group’s subsidiaries. 4.2. Financial risk factors The Group’s activities expose them to several financial risks: market risk (including currency and interest risks), credit risk and liquidity risk. The Company’s overall risk management program is focused on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance, using derivatives to pro- tect cer tain risk exposures. a) Market risks The Group is exposed to market risks arising from their business activities. These risks mainly comprise possible changes in exchange and interest rates. i) Foreign exchange risk The Group is exposed to the foreign exchange risk arising from fi- nancial instruments denominated in currencies different from their functional currencies. To reduce this exposure, the Group implanted a policy to hedge against the foreign exchange risk that establishes exposure limits linked to this risk (Foreign Exchange Hedging Policy). The treasury area’s procedures defined by the current policy include monthly projection and assessment of the Company’s and its subsi- diaries’ foreign exchange exposure, on which management’s decision- -making is based. The Foreign Exchange Hedging Policy considers foreign currency- -denominated amounts from receivables and payables related to commitments already assumed and recorded in the interim financial information based on the Company’s operations. fi nancial statements # 11 As of December 31, 2011 and 2010, the Group is basically exposed to risks of fl uctuations in the U.S. dollar. To hedge against foreign exchange expo- sures, the Group contracts derivative (swaps) and non-deliverable forward (NDF) transactions. The Foreign Exchange Hedging Policy establishes that the derivatives contracted by the Group should limit loss due to exchange rate depreciation related to the net income estimated for the current year considering the expected depreciation of the Brazilian real against the U.S. dollar. This limit sets the cap on the maximum foreign exchange exposure that the Group can undertake in relation to the U.S. dollar. As of December 31, 2011, the Company’s and the consolidated balance sheets include accounts denominated in foreign currency which, in the ag- gregate, represent net liabilities of R$438,667 and R$444,894, respectively (R$52,567 and R$58,675 as of December 31, 2010, respectively). These accounts are substantially represented by borrowings and fi nancing which, as of December 31, 2011, are hedged by swap arrangements. Derivatives to hedge foreign exchange risk The Company classifi es derivatives into “fi nancial” and “operating”. “Finan- cial” derivatives include swaps or forwards contracted to hedge against the foreign exchange risk associated with foreign-currency-denominated bor- rowings and fi nancing. “Operating” derivatives (usually forwards) include derivatives contracted to hedge against the foreign exchange risk on the business’s operating cash fl ows. As of December 31, 2011, outstanding swap and forward contracts, with maturities between January 2013 and January 2018, were entered into the counterparties represented by the banks Bradesco (25%), Banco do Brasil (12%), Bank of America (62%) and HSBC (1%), broken down as follows: 105 Financial swaps - Company Type of transaction Swap contracts (1) Asset position: Long position - U.S. dollar Liability position: CDI fl oating rate: Short position in CDI Financial swaps - consolidated Type of transaction Swap contracts (1) Asset position: Long position - U.S. dollar Liability position: CDI fl oating rate: Short position in CDI Principal 2011 2010 Fair value Gain (loss) for the year 2010 2010 2011 2011 396,938 53,534 435,094 52,121 28,184 (2,110) 396,938 53,534 406,910 54,231 - - Principal 2011 2010 Fair value Gain (loss) for the year 2010 2010 2011 2011 404,662 59,817 442,574 57,367 28,626 (2,830) 404,662 59,817 413,947 60,197 - - Operating forwards - Company and consolidated Type of transaction Forward contracts (2): Asset position: Long position - U.S. dollar Principal 2011 2010 Fair value Gain (loss) for the year 2010 2010 2011 2011 - 34,542 - 34,555 - (1,231) Liability position: Fixed rates: Short position in fi xed rate - 34,542 - 35,786 - - (1) Swap transactions consist of swapping the exchange rate fl uctuation for a percentage of the fl oating rate Interbank Deposit Rate (CDI). (2) Forward transactions establish a future parity between the Brazilian real and the foreign currency based on their equivalence when contracted, adjusted by a fi xed interest rate. The notional amount represents the amounts of the contracted derivatives. Fair value refers to the value of outstanding contracted derivatives recognized in balance sheets. For derivatives maintained by the Group as of December 31, 2011 and 2010, due to the fact contracts are directly entered into with the financial institutions and not through a Mercantile and Futures Exchange, there are no margin calls deposited as guarantee of the related transactions. Total borrowings and fi nancing in foreign currency (*) Receivables in foreign currency Payables in foreign currency Company Consolidated 438,667 444,894 - 15,043 (5,231) 18,765 Notional amounts of fi nancial derivatives (435,543) (439,742) Net asset (liability) exposure 18,168 18,685 Sensitivity analysis For the sensitivity analysis of derivatives, the Company’s management understands it is necessary to take into consideration corresponding assets and liabilities with exposure to exchange rates recorded in the balance sheet, as follows: (*) The stated amount does not take into account the loan of the Company´s Peruvian subsidiary totaling R$36,483. Management understands that there is no foreign exchange exposure on this liability since it will be settled by the subsidiary with proceeds from transactions in this country, therefore in the same currency the debt was raised. fi nancial statements # 11 The tables below show the gain (loss) that would have been recognized in profi t or loss for the year ended December 31, 2011 based on the following scenarios: The tables below show the gain (loss) that would have been recognized in profit or loss for the year ended December 31, 2011 based on the following scenarios: Company Company’s Probable Scenario Scenario Description risk scenario II III Net liability exposure Us dollar appreciation (322) (4,542) (9,084) Consolidated Company’s Probable Scenario Scenario Description risk scenario II III Net liability exposure Us dollar appreciation (331) (4,671) (9,342) The probable scenario considers future U.S. dollar rates obtained at BM&FBOVESPA for the maturity dates of the fi nancial instruments exposed to foreign exchange risks. Scenarios II and III consider a 25% (R$2.34/US$1.00) and 50% (R$2.81/US$1.00) appreciation of U.S. dollar, respectively. Probable scenarios II and III are presented as required by CVM Instruction 475/08. In assessing possible changes in exchange rates, management uses the probable scenario, which is being presented for compliance with IFRS 7 – Financial Instruments: Disclosures. The Group does not use derivatives for speculative purposes. ii) Interest rate risk The interest rate risk arises from shor t-term investments and loans. Financial instruments issued at floating rates expose the Group to cash flow risks associated with the interest rate. Financial instruments issued at fixed rates expose the Group to fair value risks associated with the interest rate. The Company’s cash flow risk associated with the interest rate arises from shor t-term investments and shor t- and long-term loans and financing issued at floating rates. The Company’s management adopts the policy of maintaining its rates of exposure to asset and liability interest rates pegged to floating rates. Shor t-term investments are adjusted by the Interbank Deposit Rate (CDI) whereas borrowings and financing are adjusted based on the Long-term Interest Rate (TJLP), CDI and fixed rates, according to the contracts made with the related financial institutions, and trading securities with investors in this market. Management believes that the risk of significant changes in the CDI and TJLP in the next 12 months is low taking into consideration the stability achieved with the current monetary policy implemented by the Federal Government, in addition to the history of increases in Brazilian policy rate over the past years. For this reason, the Company has not conduct derivative transactions to hedge against this risk. The Group contracts swap transactions to mitigate risks on borrowing and financing transactions subject to an index other than CDI, TJLP or fixed rates. However, as of December 31, 2011 and 2010, the Group did not have this type of derivative as they assessed the related risk as very low, as described below. Sensitivity analysis As described in the foreign exchange risk section above, as of December 31, 2011 almost all foreign-currency-denominated borrowings and financing are hedged by swap arrangements that exchange the foreign-currency liability index for the CDI rate fluctuation, in light of the Company’s policy to hedge such risks. The Company is, therefore, exposed to CDI fluctuation. The table below presents the exposure to interest rate risks of transactions pegged to CDI and TJLP, including derivative transactions: 106 Company Consolidated Total borrowings and fi nancing - in local currency (note 14) (480,305) (705,322) Derivatives pegged to CDI/TJLP (438,667) (444,894) Short-term investments (note 5) 138,078 424,159 Net liability exposure (780,895) (726,057) The sensitivity analysis considers the exposure of borrowings and financing pegged to CDI and TJLP rates, net of shor t-term investments, also pegged to the CDI rate (note 5). The tables below show the loss (gain) that would have been recognized in profit or loss for the year ended December 31, 2011 based on the following scenarios: Company Company’s Probable Scenario Scenario Description risk scenario II III Net liabilities Interest rate increase 1,328 (19,561) (40,450) Consolidated Company’s Probable Scenario Scenario Description risk scenario II III Net liabilities Interest rate increase 1,234 (18,188) (37,610) The probable scenario considers future interest rates obtained at BM&FBOVESPA for the maturity dates of the financial instruments exposed to interest rate risks. Scenarios II and III consider an increase in the interest rate of 25% (13.4% per year) and 50% (16.1% per year), respectively. b) Credit risk Credit risk refers to risk of a counterpar ty not complying with its contract obligations, which would result in financial losses for the Company. Sales of the Group are made to a great number of sales representatives (Natura Beauty Consultants) and this risk is managed through a strict credit granting process. The result of this management is reflected in the ‘Allowance for doubtful accounts’, as explained in note 6. The Group is also subject to credit risks related to financial instruments contracted for the management of its business, primarily represented by cash and cash equivalents, shor t-term investments and derivative instruments. The Company believes that the credit risk of transactions with financial institutions is low, as these are considered by the market as prime banks. The Policy for Shor t-term Investments adopted by the Company’s management establishes the financial institutions with which the Group can do business and defines fund allocation limits and the amounts that may be invested in each of these financial institutions. c) Liquidity risk Effectively managing liquidity risk implies to maintain enough cash and marketable securities, funds available through credit facilities used and the ability to settle market positions. Management monitors the Company’s consolidated liquidity level considering the expected cash flows against unused credit facilities. The carrying amounts of financial liabilities is measured at amor tized cost, and their corresponding maturities are as follows: fi nancial statements # 11 Company as of December 31, 2011 Current: Borrowings and fi nancing Trade payables Derivatives Noncurrent: Less than one year One to two years Two to fi ve years More than Fair value Discount Carrying fi ve years 2011 effect amount 2011 107 118,949 148,805 29,555 - - - - - - - - - 118,949 148,805 29,555 (52,525) - (1,371) 66,424 148,805 28,184 Borrowings and fi nancing - 810,404 53,284 80,154 943,842 (91,293) 852,549 Consolidated as of December 31, 2011 Current: Borrowings and fi nancing Trade payables Derivatives Noncurrent: Less than one year One to two years Two to fi ve years More than Fair value Discount Carrying fi ve years 2011 effect amount 2011 199,515 454,093 29,948 - - - - - - - - - 199,515 454,093 29,948 (30,553) - (1,322) 168,962 454,093 28,626 Borrowings and fi nancing - 890,243 146,652 94,300 1,131,195 (113,458) 1,017,737 4.3. Capital management The Company’s objectives in managing its capital are to ensure that the Company is continuously capable of offering return to its shareholders and benefi ts to other stakeholders, and maintain an optimal capital structure to reduce this cost. The Company monitors capital based on the fi nancial leverage ratios. This ratio corresponds to the net debt divided by the total capital. The net debt corresponds to total borrowings and fi nancings (including short- and long- term borrowings, as shown in the consolidated balance sheet), deducted from cash and cash equivalents. The net debt shown below does not take into consideration the adjustments to derivatives contracted to mitigate the foreign exchange risk. The consolidated fi nancial leverage ratios as of December 31, 2011 and 2010 are as follows: Company 2010 Consolidated 2010 2011 2011 Short- and long-term borrowings and fi nancing Cash and cash equivalents Net debt 918,973 (166,007) 752,966 428,442 (206,125) 222,317 1,186,699 (515,610) 671,089 691,663 (560,229) 131,434 the repor ting period, with the resulting amount being discounted to present value. Fair value of fi nancial instruments at amortized cost Short-term investments The carrying amounts of the short-term investments approximate their fair values as transactions are conducted at fl oating interest rates and can be immediately redeemable. Borrowings and fi nancing The carrying amounts of borrowings and fi nancing, except those pegged to a fi xed rate, approximate their fair values as they are pegged to a fl oating rate, the CDI fl uctuation. The carrying amounts of fi nancing pegged to TJLP approximate their fair values as the TJLP is also pegged to CDI and is a fl oating rate. The fair value of borrowings and fi nancing contracted at fi xed interest rates does not have signifi cant variation related to the book value disclosed in note 14. Shareholders’ equity Financial leverage ratio 1.238,553 60,79% 1,257,501 17,68% 1,238,554 54,18% 1,257,502 10,45% Trade and other payables 4.4. Fair value estimate Financial instruments are measured at fair value at the end of the repor ting period as prescribed by CPC 40 – Financial Instruments: Disclosures and according to the following hierarchy: • Level 1: Prices quoted (unadjusted) in active markets for identical assets or liabilities. A market is considered active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s-length basis. • Level 2: Used for financial instruments that are not traded in active markets (for example, over-the-counter derivatives) and whose fair value is determined using valuation techniques that, in addition to the quoted prices, included in Level 1, use other inputs adopted by the market for assets or liabilities, whether directly (i.e., prices) or indirectly (i.e., derived from prices). • Level 3: Inputs for assets or liabilities that are not based on the data adopted by the market (i.e., unobservable inputs). As of December 31, 2011 and 2010, the measurement of all the Company’s and its subsidiaries’ derivatives falls under the Level 2 characteristics. The fair value of exchange rate derivatives (swap and forwards) is determined based on the exchange rate at the end of It is estimated that the carrying amounts of trade receivables and trade payables approximate their fair values in view of the short term of the transactions conducted. 5. CASH AND CASH EQUIVALENTS Cash and banks Floating rate Bank certifi cates of deposit (CDBs) Company 2010 9,688 Consolidated 2010 38,314 2011 98,208 2011 27,929 138,078 166,007 196,437 206,125 417,402 515,610 521,915 560,229 As of December 31, 2011, the CDBs yield interest ranging from 100.0% to 101.5% of CDI (100.0% to 101.5% as of December 31, 2010). 6. TRADE RECEIVABLES Trade receivables Allowance for doubtful accounts Company 2010 550,355 Consolidated 2010 635,944 2011 706,861 2011 591,480 (56,171) 535,309 (56,663) 493,692 (64,989) 641,872 (65,664) 570,280 The aging list of trade receivables is as follows: fi nancial statements # 11 Current Past due: Up to 30 days 31 to 60 days 61 to 90 days 91 to 180 days Company 2010 432,703 Consolidated 2010 492,947 2011 543,472 2011 452,392 102,107 14,029 9,950 13,002 591,480 79,136 10,897 8,072 19,547 550,355 117,560 16,254 13,306 16,269 706,861 93,967 16,777 9,406 22,847 635,944 The balance of trade receivables in consolidated is basically denominated in Brazilian reais, and approximately 89% of the outstanding balance as of December 31, 2011 refers to real-denominated transactions (91% as of December 31, 2010). The remaining balance is denominated in several currencies and refers to sales of foreign subsidiaries. The changes in the allowance for doubtful accounts for the period ended December 31, 2011 are as follows: Company Balance at 2010 Reversals (b) (56,663) (82,860) 83,352 Additions (a) Consolidated Balance at 2010 Reversals (b) (65,664) (88,277) 88,952 Additions (a) Balance at 2011 (56,171) Balance at 2011 (64,989) (a) Allowance recognized according to note 2.7.. (b) Refers to accounts that are over 180 days past due that were written off due to uncollectible amounts. The expense on the recognition of the allowance for doubtful accounts was recorded in ‘Selling expenses’ in the income statement. When recovery of additional cash is less than probable, the amounts credited to line item ‘Allowance for doubtful accounts’ are in general reversed against the defi nite write-off of the receivable and is recorded in net income or loss. Maximum exposure to credit risk at the reporting date is the carrying amount of each aging range, net of the allowance for doubtful accounts, as shown in the aging list above. The Group does not have any guarantee for past-due receivables. 7. INVENTORIES Finished products Raw materials and packaging Promotional material Work in progress Allowance for losses Company Consolidated 2011 2010 465,027 565,739 127,305 149,806 37,576 52,288 17,290 16,314 (95,399) (75,673) 688,748 571,525 2010 181,188 - 14,383 - (10,479) 185,092 2011 219,626 - 18,560 - (20,280) 217,906 The changes in the allowance for inventory losses for the year ended December 31, 2011 are as follows: Company Balance Reversals (b) at 2010 (10,479) (20,741) 10,940 Additions (a) Consolidated Balance at 2010 Reversals (b) (75,673) (66,900) 45,175 Additions (a) Balance at 2011 (20,280) Balance at 2011 (95,399) (a) Refer basically to the recognition of the allowance for losses due to discontinuation, expiration and quality, to cover expected losses on the realization of inventories, pursuant to the Group’s policy. (b) Consist of write-offs of products discarded by the Company. 8. RECOVERABLE TAXES 108 Company Consolidated 2011 2010 97,888 154,942 3,022 - 7,120 8,296 2011 - - 8,296 2010 - 3,022 7,120 ICMS on purchases of goods Refundable ICMS - ST on interstate sales, RS Refundable ICMS - ST on interstate sales, SP (a) Refundable ICMS - ST - voluntary reporting proceeding, SP (b) Taxes - foreign subsidiaries ICMS on purchases of fi xed assets PIS and COFINS on purchases of fi xed assets PIS and COFINS on purchase of goods PIS and COFINS resulting from win on a lawsuit (c) IRPJ and CSLL on freight PIS, COFINS and CSLL - withheld at source Other Provision for discount on sale of ICMS credits Current Noncurrent - - 15,428 - 45,012 11,887 728 - 365 - - 6,825 - 19,743 - 10 - 3,000 - 22,170 24,318 7,376 68,187 16,852 3,236 2,024 8,834 16,421 21,567 16,136 11,826 20,025 - 1,746 5,574 12,282 - - (3,376) (2,879) 81,716 39,720 312,859 210,728 69,417 34,799 201,620 101,464 12,299 4,921 111,239 109,264 (a) Refers to the State Reverse Charge System VAT (ICMS - ST) amount that has been separately disclosed and withheld on a monthly basis on the Company’s and its subsidiary Indústria e Comércio de Cosméticos Natura Ltda.’s products sold and shipped to customers located in the Federal District and States other than the State of São Paulo, pursuant to São Paulo State tax legislation in effect since February 2008. In 2010, São Paulo State Department of Finance (SeFaz - SP) granted the Company a special regime that allows it to offset the credits through the “Fast Track”, in which the credits are offset in the month following its computation, through a bank guarantee. (b) On September 24, 2008, the Tax Administration Coordinator of the SeFaz - SP accepted the voluntary reporting request fi led by the subsidiary Indústria e Comércio de Cosméticos Natura Ltda. where, after internal verifi cations made by its management, this company evidenced undue withholdings of ICMS - ST in the period February-May 2008 due to a different interpretation of the provisions of article 264, IV, 313-E and 313- G of ICMS Regulation (RICMS/2000). Said voluntary reporting request clarifi ed and permitted the application of the procedures necessary to regularize the transactions carried out by this subsidiary during the referred period. The requirements were met and the credit was fully offset in 2011. (c) The stated amount refers to the recognition of PIS and COFINS tax credits as a result of the favorable outcome in a lawsuit claiming the unconstitutionality and illegality of the PIS and COFINS taxable basis broadening established by Law 9718/98. See details on note 17 (a) (contingent assets). 9. INCOME TAX AND SOCIAL CONTRIBUTION a) Deferred Deferred Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL) result from temporary differences in the Company and in its subsidiaries. These credits are kept recorded in noncurrent assets, as prescribed by CPC 26 (R1) – Presentation of Financial Statements. The amounts are as follows: fi nancial statements # 11 109 9,533 82,379 110,771 73,980 110,678 Total temporary differences: Tax loss carryforwards: Argentina Chile Mexico Colombia France Tax credits on tax loss carryforwards generated by the subsidiaries can be carried forward indefi nitely, except for those of the subsidiaries in Argentina and Mexico, which expire as follows: 2012 2013 2014 2015 2016 and thereafter Argentina 3,060 4,564 - 1,909 - 9,533 Mexico - - 11 7,434 103,326 110,771 b) Reconciliation of income tax and social contribution Company Consolidated 2011 2010 2011 2010 Income before income tax and social contribution Income tax and social contribution at the rate of 34% Technological research and innovation benefi t - Law 11196/05 (*) Tax incentives - donations Equity in investees (note 12) Unrecognized deferred taxes on tax losses generated by foreign subsidiaries Tax Transition Regime (RTT) - Provisional Act 449/08 – Law 11,638/07 adjustments Write-off of goodwill – liquidation of Flora Medicinal Interest on capital tax benefi t Other permanent differences Income tax and social contribution expenses Income tax and social contribution - current Income tax and social contribution - deferred Effective rate - % 1,161,791 1,053,123 1,237,730 1,118,169 (395,009) (358,062) (420,828) (380,177) 22,386 6,582 18,628 19,035 5,820 8,760 22,386 9,668 - 19,035 8,296 - - - (28,915) (31,459) (774) 649 (3,242) (1,623) - 21,067 8,332 18,242 (3,770) (11,849) - 21,067 8,332 18,242 (6,965) (14,766) (330,890) (309,073) (406,829) (374,120) (323,543) (313,612) (416,123) (408,233) (7,347) 28.5 4,539 30.5 9,294 32.9 34,113 33.5 Allowance for doubtful accounts (note 6) Allowance for losses on inventories realization (note 7) Reserve for tax, civil and labor contingencies (note 17) Non-inclusion of ICMS in the PIS and COFINS basis (note 17) Actuarial liability - healthcare plan (note 23.2) Allowance for losses on swap and forward contracts (note 24) Provision for ICMS – ST, PR, DF, MS, MT and RJ States (note 16) Allowances for losses on advances to suppliers Accrued contractual obligations Provision for discount on assignment of ICMS credits Accrued benefi ts sharing and partnerships Temporary differences of foreign subsidiaries Provision for profi t sharing Depreciation rate adjustments to useful lives (RTT) Other temporary differences Company Consolidated 2011 2010 2011 2010 19,098 19,266 19,098 19,266 6,895 3,563 28,219 21,725 17,743 18,884 36,896 40,375 620 573 39,173 28,869 6,573 4,462 9,565 6,702 (9,583) 1,136 (9,733) 1,381 8,247 13,672 8,247 13,672 1,992 3,879 1,439 1,947 2,137 2,713 4,432 2,777 - - 1,148 979 6,178 6,874 6,178 6,874 - 3,955 - 9,681 - 10,947 6,562 - 1,420 - (6,989) - 15,568 13,235 32,272 26,645 80,145 87,491 189,552 180,259 Management, based on projections of future taxable income, estimates that the recorded tax credits will be fully realized within fi ve years. Tax credits will be realized as follows: 2012 2013 2014 2015 and thereafter Company 42,679 11,753 4,633 21,080 80,145 Consolidated 83,230 18,180 59,240 28,902 189,552 With respect to the Company’s foreign subsidiaries, except for the operation in Argentina which reports taxable income, the other subsidiaries do not record tax credits on tax loss carryforwards and temporary differences in their fi nancial statements due to the absence of a history of taxable income and taxable income projections for the coming fi scal years. As of December 31, 2011, tax credits calculated at the prevailing tax rates in the countries where the subsidiaries are located, are as follows: (*) Refers to the tax benefi t established by Law 11196/05, which allows for the direct deduction from the calculation of taxable income and the social contribution tax basis of the amount corresponding to 60% of the total expenses on technological research and innovation, observing the rules established in said Law. The changes in income tax and social contribution for the year were as follows: fi nancial statements # 11 Company Charged / (credit) Balance at 2010 to profi t or loss 87,491 Balance at 2011 7,346 80,145 Consolidated Balance Charged / (credit) at 2010 to profi t or loss at 2011 189,552 180,259 (9,293) Balance 10. ESCROW DEPOSITS Represent Group’s restricted assets related to amounts deposited and held by the courts until the litigation to which they are linked is resolved. The Group’s escrow deposits as of December 31, 2011 and 2010 are as follows: Company Consolidated 2011 80,304 2010 53,809 2011 2010 53,809 80,304 110 11. OTHER CURRENT AND NONCURRENT ASSETS Company Consolidated 2011 2010 2011 2010 Advances to advertisement services 111,690 64,886 112,666 66,246 Asset held for sale Insurance - - 17,752 17,752 1,829 1,565 2,464 2,224 Restricted cash - CDBs (*) - - 6,757 6,155 Others Current Noncurrent 6,371 6,071 17,079 18,926 119,890 72,522 156,718 111,303 115,328 52,470 126,783 66,399 4,562 20,052 29,935 44,904 (*) Refers to a blocked account pledged as guarantee related to the court collection of Federal VAT (IPI) for July 1989 when wholesale units were held equivalent to manufacturing establishments under Law 7798/89. The lawsuit is ICMS - ST (note 17.(a)) ICMS - ST suspended collection (*) (note 16 (b)) Other accrued tax obligations (note 16 (e) and (g)) Other suspended tax obligations (note 16 (c)) Unaccrued tax lawsuits Accrued tax lawsuits (note 17) Unaccrued civil lawsuits Accrued civil lawsuits (note 17) Unaccrued labor lawsuits Accrued labor lawsuits (note 17) 88,521 167,019 88,521 167,019 pending a decision on the appeal from the defendant at the Federal Regional 8,556 9,434 10,426 10,955 30,676 34,373 9,600 9,952 938 1,016 1,874 1,886 4,410 5,844 1,762 2,653 244,938 289,070 52,024 10,955 38,254 11,515 1,108 1,992 6,999 4,167 295,839 48,106 10,426 36,034 10,754 1,343 1,976 5,130 2,410 337,007 Court of the 3rd region (São Paulo). Based on the Company’s legal counsel assessment the likelihood of loss in this lawsuit is possible. 12. INVESTMENTS Investments in subsidiaries and jointly controlled entities Company 2011 2010 1,253,721 1,099,188 Information and changes in the balances for the year ended December 31, 2011 Indústria e Comércio de Cosméticos Natura Ltda. Natura Cosméticos S.A. - Chile Natura Cosméticos S.A. - Peru Natura Cosméticos S.A. - Argentina Natura Cosméticos C.A. - Natura Inovação e Tecnologia de Produtos Venezuela Ltda. Natura Cosméticos de Mexico S.A. (*) Natura Cosméticos Ltda. - Colombia Natura (Brasil) International B.V. - The Netherlands (*) Natura Cosméticos España S.L. Total Share capital Equity interest 526,155 101,336 13,903 106,116 6,609 99.99% 99.99% 99.94% 99.97% 99.99% Subsidiaries’ shareholders’ equity 1,060,440 20,385 1,486 72,847 Interest in shareholders’ equity 1,060,334 20,383 1,485 72,825 306 306 5,008 99.99% 28,812 28,809 192,975 72,948 85,847 73 1,110,970 99.99% 99.99% 100.00% 100,00% 47,601 13.435 47,596 13.434 8,444 8,444 106 1,253,861 106 1,253,721 Subsidiaries’ net income (loss) for the year Carrying amount of investments 124,882 (3,535) (4,728) 7,685 (1) 15,527 (46,023) (20.973) (18,052) - 54,782 Balance as of December 31, 2010 930,614 23,246 (891) 56,902 Equity in investees 124,881 (3,535) (4,725) 7,683 273 (1) 45,021 26,950 8.782 8,208 83 1,099,188 15,527 (46,019) (20.970) (18,052) - 54,789 Exchange rate change and other adjustments on the translation of investments in foreign subsidiaries Company’s contribution to the stock options plan of subsidiaries’ executives and other reserves Profi t distribution Capital increases - 672 357 2,431 34 89 (384) 1.893 468 - 5,561 4,839 - - - - - - - - - 2,171 (34,000) - - - - - - - - 7,010 (34,000) - - 6,744 5,809 - - 67,049 23.729 17,819 23 121,173 Balance as of December 31, 2011 1,060,334 20,383 1,485 72,825 306 28,809 47,596 13.434 8,444 106 1,253,721 (*) Consolidated information of the following companies: Natura Cosméticos de México S.A.: Natura Cosméticos y Servicios de México, S.A. de C.V., Natura Cosméticos de México, S.A. de C.V. and Natura Distribuidora de México, S.A. de C.V. Natura (Brasil) International B.V. - The Netherlands: Natura (Brasil) International B.V. (The Netherlands), Natura Brasil Inc. (USA - Delaware), Natura International Inc. (USA - New York), Natura International Inc. (USA - Nevada), Natura Worldwide Trading Company (Costa Rica), Natura Europa SAS (France) and Natura Brasil SAS (France) Natura Inovação e Tecnologia de Produtos Ltda.: Ybios S.A. and Natura Innovation et Technologie Produits S.A.S. - France fi nancial statements # 11 13. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS Company 111 PROPERTY, PLANT AND EQUIPMENT Vehicles Leasehold improvements (a) Machinery and equipment Buildings Furniture and fi xtures IT equipment Projects in progress Advances to suppliers Weighted average annual 2011 2010 depreciation Adjusted Accumulated Residual Adjusted Accumulated Residual rate - % cost depreciation amount 21 15 4 7 18 - - 39,010 35,419 114,844 56,694 11,633 50,867 67,843 2,191 378,501 (16,991) (11,844) (7,421) - (3,006) (7,024) - - (46,286) 22,019 23,575 107,423 56,694 8,627 43,843 67,843 2,191 332,215 34,234 23,486 27,668 - 6,264 6,614 11,699 cost depreciation amount 19,743 (14,491) 14,433 (9,053) 24,650 (3,018) - - 3,680 (2,584) 2,811 (3,803) 11,699 - 15,159 15,159 - 92,175 125,124 (32,949) Company INTANGIBLE ASSETS Software and other Carbon credits (c) Software and other Weighted average annual 2011 2010 amortization Adjusted Accumulated Residual Adjusted Accumulated Residual rate - % cost amortization amount 17 17 88,848 (17,356) 7,437 - 96,285 (17,356) 71,492 7,437 78,929 cost amortization amount 13,248 23,852 (10,604) 5,338 5,338 - 18,586 29,190 (10,604) Consolidated PROPERTY, PLANT AND EQUIPMENT Machinery and equipment Buildings Installations Land Molds Vehicles IT equipment Furniture and fi xtures Leasehold improvements (a) Projects in progress Advances to suppliers Other Weighted average annual 2011 2010 depreciation Adjusted Accumulated Residual Adjusted Accumulated Residual rate - % cost depreciation amount 6 4 9 - 30 21 19 11 15 - - 3 410,901 207,836 132,919 27,214 116,068 59,490 76,305 32,976 50,599 80,563 47,724 (145,342) (60,400) (73,512) - (87,966) (22,430) (23,933) (11,937) (18,581) - - 4,196 (2,256) 1,246,791 (446,357) 265,559 147,436 59,407 27,214 28,102 37,060 52,372 21,039 32,018 80,563 47,724 1,940 800,434 308,262 151,161 120,440 27,180 105,362 56,361 75,749 27,164 44,273 35,489 28,648 cost depreciation amount 183,947 (124,315) 96,856 (54,305) 55,374 (65,066) 27,180 - 25,441 (79,921) 35,180 (21,181) 29,780 (45,969) 15,238 (11,926) 25,548 (18,725) 35,489 - 28,648 - 1,786 3,897 (2,111) 560,467 983,986 (423,519) Consolidated Weighted average annual 2011 2010 amortization Adjusted Accumulated Residual Adjusted Accumulated Residual rate - % cost amortization amount INTANGIBLE ASSETS Software Carbon credits (c) Business lease - Natura Europa SAS – France (b) Trademarks and patents cost amortization amount 109,946 (73,376) 5,338 - 4,629 - 160 (1,413) (74,789) 120,073 183,322 5,338 4,629 1,573 194,862 18 - - 10 182,890 7,437 5,074 1,652 197,053 (32,676) - - (1,623) (34,299) 150,214 7,437 5,074 29 162,754 fi nancial statements # 11 (a) The amortization rates take into consideration the lease terms of leased properties, which range from three to fi ve years. (b) The business lease generated on the purchase of a commercial location where Natura Europa SAS - France operates is supported by an appraisal report issued by independent appraisers, attributable to the fact that it is an intangible, marketable asset, the value of which does not decrease over time. The change in the balance between December 31, 2011 and December 31, 2010 is basically due to the effects of the exchange fl uctuation for the period. (c) Carbon Neutral Program (note 2.11.3). The Company reviewed the remaining useful lives of the property, plant and equipment items and intangible assets and recorded the resulting effects beginning January 1, 2010. As a result of the revision of this accounting estimated, which had the purpose of aligning the remaining useful lives of the assets and, consequently, the remaining depreciation with the residual lives of the assets, the Company recorded an impact, credited to depreciation in 2011, as compared to depreciation recorded in the previous year, totaling R$11,482. Additional information on property, plant and equipment: a) Assets pledged as collateral As of December 30, 2011, the Group has property, plant and equipment items pledged as collateral of bank fi nancing and loan transactions, as well as items attached to the defense of lawsuits, as shown below: 4,229 3,477 3,171 10,877 Company Consolidated 4,229 4,063 3,171 11,463 Vehicles IT equipment Machinery and equipment Balances at yearend b) Leases In 2011 the Company entered into fi nance lease transactions to purchase property, plant and equipment totaling R$56,694, recognized in line item “Buildings” and “sale leaseback” transactions totaling R$24,537, recognized in line item “Machinery and equipment” . As of December 31, 2011, the balance of lease payables, classifi ed in line item “Borrowings and fi nancing” (note 14) totals R$79,673. c) Balance of capitalized interest Buildings Changes in property, plant and equipment Consolidated 2010 1,479 2011 1,427 Company Consolidated Balance at beginning of year Additions (less transfers from projects in progress - when terminated): Machinery and equipment Projects in progress/advances to suppliers Vehicles Molds Facilities IT equipment Furniture and fi xtures Other Leases Depreciation Transfers and disposals, net Balance at yearend 2011 92,175 2010 50,375 2011 2010 560,467 492,256 28,373 114,902 15,069 - - 40,611 4,176 8,884 32,389 13,498 - - 769 545 4,777 1,036 57,121 207,908 56,694 - (12,615) (20,814) (3,748) (2,706) 92,175 332,215 45,037 165,726 21,031 15,344 6,112 11,377 5,679 29,669 84,555 24,193 16,986 7,208 7,304 1,618 5,524 3,696 275,830 175,228 - 56,694 (69,412) (84,108) (8,449) (37,605) 800,434 560,467 112 Changes in intangible assets Company Consolidated 2011 2010 2011 2010 Balance at beginning of year 18,586 11,527 120,073 82,740 Additions: Software (includes implementation costs) 64,993 4,411 66,402 56,310 Carbon credits 4,135 5,338 4,135 5,338 69,128 9,749 70,537 61,648 Transfers and disposals, net (2,034) - (2,043) (4,879) Amortization (6,751) (2,690) (25,813) (19,436) Balance at year end 78,929 18,586 162,754 120,073 14. BORROWINGS AND FINANCING Company Consolidated 2011 2010 2011 2010 Reference Local currency BNDES - EXIM FINEP (Financing Agency for Studies and Projects) - - - 67,607 116,388 A - 27,106 27,633 B C D E F G H I J K L M N O Debentures 353,256 352,669 353,256 352,669 BNDES 21,708 23,206 141,689 110,996 Guaranteed account Working capital BNDES FINAME Banco do Brasil - FAT Fomentar (Workers’ Assistance Fund) - 48,613 - - Finance leases 56,729 - - - - - - 2,001 48,613 - 7,336 6,506 2,697 3,908 56,729 940 FINEP - grant - - 289 2,086 Total local currency 480,306 375,875 705,322 623,127 Foreign currency BNDES - EXIM - - - 1,229 BNDES 4,486 2,479 10,713 7,358 Resolution 4131/62 411,237 50,088 411,238 50,088 International operation - Peru - - 36,483 9,861 Machinery fi nancing 22,944 - 22,944 - Total foreign currency 438,667 52,567 481,377 68,536 Grand total 918,973 428,442 1,186,699 691,663 Current 66,424 60,086 168,962 226,595 Noncurrent 852,549 368,356 1,017,737 465,068 fi nancial statements # 11 113 Reference Currency Maturity Charges Collaterals A B C D E F G H I J K L Real Real Real Real Real Real Real Real Real Real Dollar Dollar March 2014 Interest of 2.5% p.a. + TJLP (462) Guarantee of Natura Cosméticos S.A. March 2013 and TJLP (b) for the installment maturing Guarantee of Natura Cosméticos S.A. May 2019 in 2013 and interest of 5% for the and bank guarantee installment maturing in May 2019 May 2013 January 2018 Interest of 108% of CDI (c) N/A TJLP (b) for the installment maturing Bank guarantee in March 2016 + interest of 0.7% to 2.8% p.a. April 2011 January 2012 123.9% of CDI (c) p.a. + IOF (b) Guarantee of Natura Cosméticos S.A. 105.5% of CDI (c) p.a. + IOF (b) Guarantee of Natura Cosméticos S.A. September 2016 Interest of 4.5% p.a. + TJLP Chattel mortgage, guarantee of Natura Cosméticos S.A. and promissory notes February 2014 Interest of 4.4% p.a. + TJLP Chattel mortgage, guarantee of Natura Cosméticos S.A. and promissory notes Through August 2026 Interest of 108.0% of DI - CETIP (c) Leases are collateralized by the December 2012 N/A underlying assets None February 2011 Exchange fl uctuation + 8.31% p.a. (a) Guarantee of Natura Cosméticos S.A. January 2018 Exchange fl uctuation + 1.8% p.a. + Guarantee of Natura Cosméticos S.A. Resolution nº 635 (a) eand bank guarantee M Dollar October 2013 Exchange fl uctuation + interest of Guarantee of subsidiary Indústria 1.87% to 3.89% p.a. (a) e Comércio de Cosméticos Ltda. N O Novo sol December 2012 Interest of 5.20% p.a. Bank guarantee Dollar December 2016 Exchange fl uctuation + interest of 3.87% p.a. (a) Leases are collateralized by the underlying assets (a) Loans and fi nancing for which swap contracts (CDI) were entered into. (b) IOF - Tax on Financial Transactions. (c) DI - CETIP - daily index calculated based on the average DI, disclosed by Cetip S.A. (Brazilian clearinghouse and over-the-counter market). Maturities of noncurrent liabilities are as follows: 3. Financing agreement with the FINEP 2012 2013 2014 2015 2016 and thereafter Company Consolidated 2011 2010 39,425 379,440 22,963 19,001 90,696 4,239 1,017,737 465,068 2010 6,530 355,820 4,450 1,539 61,650 17 852,549 368,356 2011 - 771,468 11,067 8,364 - 840,496 48,132 38,413 A description of the outstanding bank loan agreements is as follows: a) Description of bank loans 1. BNDES - EXIM Pré-Embarque and BNDES - EXIM Pré-Embarque Especial Programs The subsidiary Indústria e Comércio de Cosméticos Natura Ltda. benefi ts from BNDES fi nancing programs for the pre-shipment stage of goods and services exports. As a rule, the requirements for participation in said programs are: (i) to have credit approved by the fi nancial institution that will enter into the fi nancing agreement; and (ii) to manufacture products using at least 60% of locally sourced materials. 2. Financing agreements with the BNDES The Company and its subsidiaries Indústria e Comércio de Cosméticos Natura Ltda. and Natura Inovação e Tecnologia de Produtos Ltda. have credit facility agreements with the BNDES to facilitate direct investments in the Company and its subsidiaries in order to improve certain product lines, train research and development employees, optimize operation product separation lines in the Cajamar, SP industrial facilities, build new distribution centers, and restructure the administration of the Itapecerica da Serra, SP unit and purchase the equipment necessary for these purposes The subsidiary Natura Inovação e Tecnologia de Produtos Ltda. has innovation programs aimed at the development and acquisition of new technologies by means of partnerships with universities and research centers in Brazil and abroad. These innovation programs have the support of FINEP’s research and technological development incentive programs, which facilitates and/or co-fi nances equipment, scientifi c grants and research material for the participating universities. These funds were used to partially fund the investments made in the drafting of the “Technology Platforms for New Cosmetics and Nutritional Supplements” and the “Research and Innovation for the Development of New Cosmetics” projects. 4. Machinery and Equipment Financing - FINAME The Company benefi ts from a credit facility with the BNDES, related to FINAME onlendings, intended to fi nance the purchase of new machinery and equipment manufactured in Brazil. Said onlending is carried out by granting credit to subsidiary Indústria e Comércio de Cosméticos Natura Ltda., granting rights to receivables to the fi nancial institution accredited as a fi nancing agent, usually Banco Votorantim S.A., Banco Itaú Unibanco S.A., Banco do Brasil S.A., HSBC Bank Brasil S.A. or Banco Santander Brasil S.A., which enters into such said fi nancing with Indústria e Comércio de Cosméticos Natura Ltda. These agreements are collateralized by assigning the fi duciary ownership of the assets described in the related agreements. The subsidiary Indústria e Comércio de Cosméticos Natura Ltda. is the trustee and the Company is the guarantor of these assets. In addition, the Group is required to meet the Provisions Applicable to BNDES Agreements and the General Regulatory Terms and Conditions of FINAME-related Transactions. fi nancial statements # 11 5. Resolution 4131/62 Bank Credit Note - Onlending of funds raised abroad under Resolution 4131/62, through fi nancial institutions. 6. Debentures First issuance of simple debentures, nonconvertible into shares, totaling R$350,000, in single series, without guarantee and without fi nancial covenants, with face value of R$1,000, in conformity with CVM Instruction 476/09, issued on May 26, 2010 and subscribed and paid in May 28, with the payment of semiannual interest in May and November, and principal maturing on May 26, 2013. b) Finance lease obligations Financial obligations are broken down as follows: Consolidated 2010 2011 Gross fi nance lease obligations - minimum lease payments: Less than one year More than one year and less than fi ve years More than fi ve years Future fi nancing charges on fi nance leases Financial lease obligations - accounting balance 12,633 54,102 78,800 145,535 (65,862) 79,673 642 - 377 1,019 (79) 940 c) Restrictive covenants As of December 31, 2011 and 2010, most fi nancing and loan agreements entered into by the Group subsidiaries do not contain restrictive covenants establishing obligations regarding the maintenance of fi nancial ratios by the Company or its subsidiaries. Only the agreement entered into with BNDES contains restrictive covenants requiring maintenance of certain fi nancial ratios. As of December 31, 2011, the Company was in compliance with all the restrictive clauses. The agreement entered into with BNDES in July 2011 contains restrictive covenants requiring maintenance of the following fi nancial ratios: - EBITDA margin equal or higher than 15%; and - Net debt/EBITDA equal or lower than 2.5 (two wholes and fi ve tenths). As at December 31, 2011, the Company was fully compliant with such restrictive covenants. 15. TRADE AND OTHER PAYABLES Domestic trade payables Foreign trade payables (*) Freight payable Company Consolidated 2011 2010 435,328 326,945 4,964 34,887 34,585 488,980 366,494 2010 77,805 842 34,585 113,232 2011 133,762 15,043 34,512 183,317 18,765 (*) Refer mostly to US dollar-denominated amounts. 16. TAXES PAYABLE Company Consolidated 2011 2010 2010 2011 Taxes on revenue (PIS/COFINS) (injunction) (a) Ordinary ICMS Regular and reverse charge ICMS (b) IRPJ and CSLL IRPJ and CSLL (injunction) (c) IRPJ and CSLL (injunction - PAT) Withholding income tax (IRRF) IPI - exempt and zero-taxed products (d) UFIR adjustment to federal taxes (e) IPI credit on purchase of property, plant and equipment and supplies for own use and consumption (f) Action for annulment of INSS debt (g) Withholding PIS/COFINS/CSLL PIS/COFINS Taxes - foreign subsidiaries Service tax (ISS) 1,823 59,894 89,301 127,458 56,941 2,656 7,621 - 6,361 1,686 50,807 167,019 99,347 33,472 - 7,901 - 6,216 115,214 84,908 75,657 81,687 89,301 167,019 150,639 125,816 33,472 2,261 13,203 39,404 6,360 56,941 6,029 11,974 42,432 6,519 - 3,073 2,490 - - - 2,893 5,319 - - 364 613 - 3,073 3,324 1,110 17,888 3,768 2,893 7,554 6,663 9,354 1,214 2,799 114 Escrow deposits ((b) and (g)) (note 10) Current Noncurrent 357,982 375,273 (97,955) (175,575) 260,027 199,698 175,575 97,955 587,345 581,131 (140,545) (215,125) 446,800 366,006 140,545 215,125 (a) The Company and its subsidiary Indústria e Comércio de Cosméticos Natura Ltda. are challenging in court the inclusion of ICMS in the tax basis of Integration Program Tax on Revenue (PIS) and Social Security Funding Tax on Revenue (COFINS). In June 2007, the Company and its subsidiary were authorized by the court to pay PIS and COFINS without the inclusion of ICMS in their tax basis, starting April 2007. The balances recognized as of December 31, 2011 refer to the unpaid amounts of PIS and COFINS, from April 2007 to December 2011 adjusted using the SELIC (Central Bank’s policy rate), the collection of which is on hold. Part of the balance, in the adjusted amount of R$3,065, is deposited in escrow. (b) As of December 31, 2011, R$12,669, R$52,305, R$23,274, R$273 and R$780 of the total amount recognized refer to the ICMS - ST of State of Paraná, Federal District, State of Mato Grosso do Sul, State of Mato Grosso and State of Rio de Janeiro, respectively (R$119,371, R$34,969 and R$12,679 Federal District and State of Mato Grosso do Sul, respectively as of December 31, 2010), which is being challenged in court, as also mentioned in note 17 ‘Contingent tax liabilities - possible risk’, (a). The Company has made monthly escrow deposits for the unpaid amounts. On November 26, 2011, the Company entered into an arrangement, to be enforced after the end of the current reporting period, with the State of Paraná to set the Value Added Margin (MVA) applicable to the calculation of ICMS-ST due on transactions conducted by consultants. Accordingly, Natura Cosméticos recognized the MVA application (up to the cap determined by the technical study) for taxable events prior to November 2011 and dropped part of the lawsuits on this matter, resulting in (i) the transfer of R$114,345 to the State of Paraná as ICMS-ST and (ii) the withdrawal of the deposited R$16,930 excess because of the retrospective extension of the tax benefi t. The MVA applicable to taxable events prior to November 2011 is still being discussed in courts and is currently at court expert review stage. (c) On February 4, 2009, the Company was granted an injunction, subsequently confi rmed by court decision, that suspended the collection of income tax and social contribution on any amounts received as arrears interest, paid on late payment of contractual obligations receivables to the Natura Beauty Consultants. The appeal fi led by the Federal Government is awaiting judgment. (d) Refers to Federal VAT (IPI) on zero-taxed, untaxed or exempt raw materials and packaging materials. Subsidiary Indústria e Comércio de Cosméticos Natura Ltda. fi led a writ of mandamus and obtained an injunction granting the right to the credit. On September 25, 2006, the injunction was revoked by a decision that considered the request invalid. The Company fi led an appeal for reconsideration of merits and reinstatement of the injunction. To suspend the payment of tax, in October 2006, the Company made an escrow deposit in the amount offset under the injunction, whose adjusted balance totals R$42,432 as of December 31, 2011 (R$39,404 as of December 31, 2010). In the fourth quarter of 2009, in order to utilize the benefi ts granted under Provisional Act 470/09, which creates a program for the payment and payment in installments of tax debts, the subsidiary fi led a motion partially withdrawing the claims made in the injunction fi led that maintains only the claim of tax credits on tax-exempt products, thus dropping the lawsuits claiming IPI credits of zero-taxed and untaxed products (see details in topic ‘Tax installment plans created under Provisional Act 470/09). On this date, after having met the requirements to join the tax installment plan introduced by Provisional Act 470/09, the subsidiary awaits the tax authorities’ approval to write off the suspended collection amounts and the corresponding escrow deposits. Subsequently, in December de 2011, the subsidiary fi led a motion to also drop the lawsuit claiming tax credits on tax-exempt products, which are deposited in escrow. Thus, the subsidiary awaits the transfer to the State of the escrow deposits after a fi nal and unappealable decision is issued. fi nancial statements # 11 (e) Refers to the infl ation adjustment of 1991 federal taxes on income (IRPJ/CSLL/ILL) based on the UFIR (fi scal reference unit), discussed in a writ of mandamus. The amount involved is deposited in escrow. On February 26, 2010, the Company fi led a motion dropping this lawsuit to be able to utilize the benefi ts granted under Law 11941/09, which creates a program for the payment and payment in installments of tax debts and awaits the issue of a fi nal and unappealable decision. (f) Subsidiary Indústria e Comércio de Cosméticos Natura Ltda. discusses, through writs of mandamus, the right to IPI credit on the purchase of property, plant and equipment items and consumables. On February 26, 2010, this subsidiary fi led a motion for the withdrawal of this lawsuit to be able to utilize the benefi ts granted under Law 11941/09, which creates a program for the payment and payment in installments of tax debts. (g) Refers to the social security contribution required by tax assessments issued by the National Institute of Social Security as a result of an inspection, which claims that 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 being challenged in court through a tax debt annulment action and are deposited in escrow. The amounts required in the tax assessment notice cover the period from January 1990 to October 1999. In 2007, the Company reversed the amount of R$1,903, relating to the expiration of part of the amount involved in the lawsuit for the period from January 1990 to October 1994, as recently instructed under Case Law Decision 08 of the Federal Supreme Court (STF). On March 1, 2010, the Company fi led a motion dropping part of the claims made and partially waiving its right to utilize the benefi ts granted under Law 11941/09 regarding the social security contributions due by the companies that provided services to the Company (joint liability) during the period from November 1994 to December 1998. 115 Tax installment program established by Law 11941/09 On May 27, 2009, Federal Government enacted Law 11941, as a result of the conversion of Provisional Act 449/08, which, among other changes to tax law, established the possibility of a tax debt installment plan managed by the Federal Revenue Service, the National Social Security Institute and the National Treasury Attorney General (PGFN), including the remaining balance of consolidated debts in the REFIS (Law 9964/00), Special Installment Plan (PAES) (Law 10684/03) and the Exceptional Installment Plan (PAEX) (Provisional Act 303/06), in addition to the regular payments in installments provided for by article 38 of Law 8212/91 and article 10 of Law 10522/02. The entities that opted for paying or dividing into installments the debts under this Law, in the applicable cases, may settle the amounts corresponding to default and automatic fi nes and late-payment interest, including those related to legally enforceable debts to the Government, using tax loss carryforwards, and will benefi t from reduced fi nes, interest and legal charges whose reduction percentage depends on the installment plan chosen. Pursuant to the established rules, for compliance with the fi rst stage of installment payments, the Company and its subsidiaries, after having fi led motions at Court formalizing the withdrawal of lawsuits whose taxes would be paid in installments, applied for installment payments, choosing installment plans and indicating the generic nature of tax debts, paying the respective initial installments, pursuant to the provisions of Federal Revenue Service (SRF) and National Treasury Attorney General (PGFN) Joint Administrative Rule. The tax debts recorded for payment in installments by the Company and its subsidiaries, pursuant to Law 11941/09, are as follows: Action for annulment of INSS debt (a) 2,893 - - - IRPJ/CSLL/ILL debts (b) 6,216 186 (521) - 9,109 186 (521) - 180 480 660 3,073 6,361 9,434 2010 Additions Reversals Payments adjustment 2011 Company Infl ation INSS debt - action for annulment (a) IRPJ/CSLL/ILL debts (b) IPI on acquisition of property, plant and equipment and Consolidated Infl ation 2010 Additions Reversals Payments adjustment 2011 2,893 6,360 - 186 - (521) - - 180 494 3,073 6,519 materials for own use and consumption (c) 3,768 - (3,654) (223) 109 - 13,021 186 (4,175) (223) 783 9,592 (a) See item (g) on this note for details. (b) See item (e) on this note for details. (c) See item (f) on this note for details. Due to the lack of tax loss carryforwards, the Company will not offset them against the remaining balance of the interest on installments. In the second half of 2011, after the consolidation of the debts, the administrative proceedings were settled in one single payment, which led to a reversal of the provision. The next steps of the Company’s and its subsidiaries’ tax installment plans, which are being discussed in courts, depend on a decision about the consolidation of the related debts, which is expected in order to settle such debts by transferring existing escrow deposits to the Federal Government. Tax installment plans created under Provisional Act 470/09 On October 13, 2009, Provisional Act 470 was enacted introducing the tax debt payment and installment plans arising from the undue use of an industry tax incentive, introduced by Article 1 of Law Decree 491, of March 5, 1969, and the undue use of IPI credits, regulated by the Attorney General of the National Treasury (PGFN) and Federal Revenue Service (RFB). On November 3, 2009, the PGFN and the Federal Revenue Service published in the Federal Offi cial Gazette (DOU) Joint Administrative Rule 9, which establishes the debt payment and installment plan addressed in Article 3 of Provisional Act 470/09. The debts arising from the undue utilization of industry tax incentives introduced by Article 1 of Decree Law 491/69, and those arising from the undue utilization of IPI credits challenged by the PGFN and Federal Revenue Service may be exceptionally paid at sight or in installments to each agency by November 30, 2009. fi nancial statements # 11 As mentioned in item (d) above, subsidiary Indústria e Comércio de Cosméticos Natura Ltda. fi led a motion partially withdrawing from the injunction fi led related to IPI credits claimed on products purchased at zero tax rate or tax exempt. As of December 31, 2011, the Company awaits a decision of the 3rd Region Federal Court, based on the PGFN’s and Federal Revenue Service’s position, to complete the stage related to the consolidation of tax debts and write off the balances of suspended liabilities against escrow deposits made until this date at the infl ation adjusted amounts. As there are escrow deposits made in the past and in light of the option made by the subsidiary to pay tax debts at sight, no gain was recognized in profi t or loss from the reversal of late payment fi ne and interest. Tax contingencies The provision for tax contingencies is broken down as follows: Late payment fi nes on federal taxes paid in arrears (a) CSLL deductibility (Law 9316/96) (b) IRPJ and CSLL tax assessment - attorney fees (c) Tax assessment - 1990 IRPJ (d) Failure to include ICMS in PIS and COFINS tax bases - attorney fees (e) Attorney and other fees (g) Total provision for tax contingencies Escrow deposits (note 10) Late payment fi nes on federal taxes paid in arrears (a) CSLL deductibility (Law 9316/96) (b) IRPJ and CSLL tax assessment - attorney fees (c) Tax assessment annulment action - 1990 IRPJ (d) Failure to include ICMS in PIS and COFINS tax bases - attorney fees (e) Semiannual PIS - Decree Laws 2445/88 and 2449/88 (f) Attorney and other fees (g) Total provision for tax contingencies Escrow deposits (note 10) (a) Refer to fi ne for late payment of federal taxes. 116 17. PROVISION FOR TAX, CIVIL AND LABOR CONTINGENCIES The Company and its subsidiaries are parties to tax, labor and civil lawsuits and administrative tax proceedings. Management believes, based on the opinion and estimates of its legal counsel, that the provision for tax, civil, and labor contingencies are suffi cient to cover potential losses. This provision is broken down as follows: Tax Civil Labor Company Consolidated 2011 2010 42,970 14,137 14,219 16,677 65,055 73,784 2011 27,612 12,234 9,754 49,600 2010 29,867 9,284 14,131 53,282 33,850 16,986 Company Infl ation 2010 Additions Reversals Payments adjustment 2011 999 7,562 4,452 3,342 951 424 - - - - - - (666) - (635) 12,561 - (3,137) 29,867 424 (4,438) (683) - - - - - (683) 54 323 1,182 172 (316) 794 7,885 4,968 3,514 - 1,027 10,451 2,442 27,612 (9,600) - - - (352) (9,952) Consolidated Infl ation Additions Reversals Payments adjustment 2010 1,505 7,562 4,452 3,342 6,063 2,191 424 - - - - - (453) - (666) - (5,588) - 17,855 700 (6,571) 42,970 1,124 (13,278) (683) - - - - - - (683) 72 323 1,182 172 (475) 129 2,314 3,717 2011 865 7,885 4,968 3,514 - 2,320 14,298 33,850 (10,754) - - - (761) (11,515) (b) Refers to CSLL that was addressed by an injunction that questions the constitutionality of Law 9316/96, which prohibited the deduction of CSLL from its own tax basis and the IRPJ basis. A portion of this provision, in the adjusted amount of R$5,905 (R$5,559 as of December 31, 2010), is deposited in escrow. The lawsuit is stayed waiting a decision of the STF on the subject and will be decided under established case law. (c) Refers to attorney fees for the defense in the tax assessment notices issued against the Company in December 2006 and December 2007 by the Federal Revenue Service, claiming the payment of income tax and social contribution on the deductibility of the yield of debentures issued by the Company for fi scal years 2001 and 2002, respectively. The legal counsel’s opinion is that the likelihood of unfavorable outcome in these tax assessment notices is remote. A fi nal and unappealable administrative decision on the tax assessment notice issued against the Company in August 2003 challenging the deductibility, in fi scal year 1999, was issued on January 2010 that maintains part of the income tax assessed and the whole of the social contribution. After this decision, on April 7, 2010, the Company fi led a lawsuit to cancel the remaining installment of IRPJ and CSLL. The legal counsel considers that the likelihood of an unfavorable outcome is remote. (d) Refers to a tax assessment notice issued by the Federal Revenue Service claiming the payment of income tax on the earnings obtained on exports entitled to tax benefi ts carried out in fi scal year 1989, at the rate of 18% (Law 7988, of December 29, 1989) and not 3%, as set out in article 1 of Decree Law 2413/88, used by the Company at the time to pay its taxes. The Company has fi led a lawsuit to cancel the tax assessment. The lawsuit is stayed waiting a STF decision on the subject. fi nancial statements # 11 117 (e) Refers to attorney fees for fi ling and handling the lawsuits challenging the inclusion of ICMS in the PIS and COFINS tax basis in the period from February 1998 to December 2011. The provision for attorney fees was reversed in the second half of 2011 as the risk of loss assessed by the legal counsel was reviewed and changed from remote to possible loss, based on the progress of the leading case (ADC-18) which is with the Federal Supreme Court and the changes in this Court’s composition. (f) Refers to the offset of PIS paid as per Decree Laws 2445/88 and 2449/88, in the period from 1988 to 1995, against Federal taxes due in 2003 and 2004. The reversal made by the Company in 2007 in the amount of R$14,910 is due to the fi nal decision favorable to the Company, rendered in August 2007. The remaining reserve refers to the subsidiary Indústria e Comércio de Cosméticos Natura Ltda., which is awaiting the appreciation of the lawsuit by the Board of Tax Appeals. (g) The balance refers to lawyer fees to defend the Company’s and its subsidiaries’ interests in tax lawsuits. The amount of (i) R$4,000, accrued in 2009, refers to lawyers’ fees to prepare the defense against an IRPJ and CSLL infringement notifi cation against the Company, issued on June 30, 2009, which challenges the tax deductibility of goodwill amortization carried out resulting from the merger of Natura Participações S.A. It is the opinion of the Company’s legal counsel that, as structured, the transaction and its tax effects can be upheld in a court of law and thus the risk of loss is classifi ed as remote; (ii) R$700 refers to the lawyers’ fees to present the defense in the tax assessment by the SeFaz - RS which has identifi ed supposed differences on the ICMS-ST with respect to interstate shipments made to Company’s sites located in the Rio Grande do Sul (RS). According to the Company’s legal counsel opinion, the risk of an unfavorable outcome is remote. Civil contingencies Company Several civil lawsuits (a) Lawyer fees - environmental civil lawsuit (b) Civil lawsuits and lawyer fees - Nova Flora Participações Ltda 2,944 Total provision for civil contingencies Reversals (9,052) (64) (3) 9,284 10,925 (9,119) Additions 10,925 - - 2010 4,828 1,512 Payments (133) - - (133) Infl ation adjustment 219 87 971 1,277 2011 6,787 1,535 3,912 12,234 Escrow deposits (note 10) (1,874) - - - (12) (1,886) Several civil lawsuits (a) Lawyer fees - environmental civil lawsuit (b) Lawyer fees - IBAMA lawsuit (c) Consolidated Infl ation 2010 Additions Reversals Payments adjustment 2011 5,716 1,512 3,965 11,193 - - (9,291) (64) (301) (146) - - 250 87 152 7,723 1,535 3,816 Civil lawsuits and lawyer fees - Nova Flora Participações Ltda. 2,944 - (3) - 971 3,912 Total provision for civil contingencies 14,137 11,193 (9,659) (146) 1,460 16,986 Escrow deposits (note 10) (1,976) - - - (16) (1,992) (a) As of December 31, 2011, the Company and its subsidiaries are parties to 2,491 civil lawsuits and administrative proceedings (1,211 as of December 31, 2010), of which 2,382 were fi led with civil courts, special civil courts and the consumer protection agency (PROCON) by Natura Beauty Consultants, consumers, suppliers and former employees, most of which claiming compensation for damages. (b) The provision includes R$1,192 with respect to legal fees for the defense of the Company’s interests in the public lawsuit fi led by the Federal Public Prosecution Offi ce of Acre against the Company and other institutions for alleged access to the traditional knowledge associated to the asset (“murumuru”). Our legal counsel’s opinion is that the risk of losses is remote. (c) Refers to attorney fees for the defense in the tax assessment notice issued by Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis, or IBAMA (Brazilian environmental agency) against the Company in 2010 for alleged irregular access to biodiversity. Through December 2011, the Company had been imposed 70 fi nes by IBAMA, totaling R$21,955, and fi led administrative defenses for all of them. No decision on the merits has been rendered yet; therefore, such fi nes cannot be considered as a liability. The Company’s management and its legal counsel consider the risk of loss in these fi nes for the alleged non-sharing of benefi ts and the fi nes for the alleged irregular access to biodiversity as remote due to full compliance with all the principles established in the Convention on Biological Diversity (“CBD”), an international treaty signed during Rio-92 and of the illegality and unconstitutionality of the current legal framework, which incorporates the CBD in the Brazilian legal system. Except for inputs from Federal Government land - which refuses to negotiate - the Company shares benefi ts in 100% of the accesses in the use of biodiversity; it is the fi rst to share benefi ts with traditional communities and detains approximately 68% of the requests with the Regulatory Body for authorization to have access to biodiversity. Labor contingencies As of December 31, 2011, the Company and its subsidiaries are parties to 827 labor lawsuits fi led by former employees and third parties (766 as of December 31, 2010), claiming the payment of severance amounts, salary premiums, overtime and other amounts due, as a result of joint liability. The provision is periodically reviewed based on the progress of lawsuits and history of losses on labor claims to refl ect the best current estimate. Company Infl ation 2010 Additions Reversals adjustment 2011 14,131 4,439 (9,241) 425 9,754 Total provision for labor contingencies Escrow deposits (note 10) (1,762) (891) - - (2,653) Consolidated Infl ation 2010 Additions Reversals adjustment 2011 16,677 7,708 (11,096) 930 14,219 Total provision for labor contingencies Escrow deposits (note 10) (2,410) (1,757) - - (4,167) fi nancial statements # 11 Contingent liabilities - possible risk The Company and its subsidiaries are parties to tax, civil and labor lawsuits, for which there is no reserve for losses recorded, because the risk of loss is considered possible by management and their legal counsel. These lawsuits are as follows: Company Consolidated 2011 2010 2011 2010 Tax: Declaratory Action - ICMS - ST (a) Offset of 1/3 of COFINS - Law 9718/98 (b) Action for annulment of INSS debt (c) IPI assessment notice (d) Administrative proceeding - ICMS - ST assessment, DF (e) Administrative proceeding - ICMS - ST assessment, PA (e) Administrative proceeding - tax debt - ICMS - ST, RS (f) Tax assessment notice – Rio Grande do Sul State Department of Finance (g) Tax assessment notice - São Paulo State Department of Finance - ICMS audit (h) Tax assessment - transfer pricing on loan agreements with foreign related company (i) Other Civil Labor 80,304 5,357 4,910 5,451 53,809 5,121 4,567 5,178 80,304 5,357 4,910 5,451 53,809 5,121 4,567 5,178 8,815 25,077 8,815 25,077 3,423 - 3,423 - 9,066 15,919 9,066 15,919 30,184 - - - 30,184 - 9,837 9,837 1,779 1,856 55,870 36,837 186,203 167,320 3,315 2,953 61,547 42,792 231,948 232,182 1,856 1,779 43,828 54,355 203,031 175,642 4,133 73,856 85,899 265,674 279,963 3,076 (a) As of December 31, 2011, the balance recorded is broken down as follows: 1. ICMS – ST, PR - R$49,962 (R$46,768 as of December 31, 2010) - lawsuit fi led by the Company challenging the changes in ICMS - ST tax basis introduced by Paraná Decree 7018/06. The amount discussed in the lawsuit, related to the period from January 2007 to December 2011, is fully deposited in escrow, as mentioned in notes 10 and 16 (b), and its collection is suspended. 2. ICMS - ST, Federal District - R$15,401 (R$5,574 as of December 31, 2010) - declaratory action fi led by the Company to challenge its liability for the payment of ICMS - ST due to the lack of a statute on and statutory criteria for the determination of the tax base of this tax or, subsequently, the need to enter into an Agreement to set out the ICMS - ST tax basis. The amount under litigation, related to the period from February 2009 to December 2011, is fully deposited in escrow, as referred to in notes 10 and 16 (b), and its collection is suspended. 3. ICMS - ST, MS - R$9,734 (R$1,467 as of December 31, 2010) - declaratory action fi led by the Company to challenge its liability for the payment of ICMS - ST to the State of Mato Grosso do Sul due to the lack of a statute on and statutory criteria for the determination of the tax base of this tax or, subsequently, the need to enter into an Agreement to set out the ICMS - ST tax basis. The amount under litigation, related to the period from February 2010 to December 2011, is fully deposited in escrow, as referred to in notes 10 and 16 (b), and its collection is suspended. 4. ICMS - ST, MT - R$3,410 as of December 31, 2011 - declaratory action fi led by the Company to challenge its liability for the payment of ICMS - ST to the State of Mato Grosso do Sul due to the lack of a statute on and statutory criteria for the determination of the tax base of this tax or, subsequently, the need to enter into an Agreement to set out the ICMS - ST tax basis. The amount under litigation, related to the period from October 2009 to July 2011, is fully deposited in escrow, as referred to in notes 10 and 16 (b), and its collection is suspended. 5. ICMS - ST, SC - R$1,797 as of December 31, 2011 - declaratory action fi led by the Company to challenge its liability for the payment of ICMS - ST to the State of Santa Catarina due to the lack of a statute on and statutory criteria for the determination of the tax base of this tax or, subsequently, the need to enter into an Agreement to set out the ICMS - ST tax basis. The amount under litigation, related to the period from July 2011 to August 118 2011, is fully deposited in escrow, as referred to in notes 10 and 16 (b), and its collection is suspended. (b) Law 9718/98 increased the COFINS 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 fi led for an injunction and obtained authorization to suspend the payment of the tax credit (1% rate difference) and to pay COFINS based on Supplementary Law 70/91, prevailing at that time. In December 2000, considering former unfavorable court decisions, the Company and its subsidiaries enrolled in the Tax Debt Refi nancing 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 fi rst half of 2001. However, the Federal Revenue Service understands that the period for offset was restricted to base year 1999. On September 11, 2006, the Company was notifi ed that the offsets made were not approved, and timely fi led the applicable appeal. This proceeding is awaiting ruling at the lower administrative court. (c) Lawsuit fi led by the Company seeking the annulment of the tax demanded by the INSS through a tax assessment notice issued for purposes of collecting the social security contribution on the allowance for vehicle maintenance paid to sales promoters. The amounts are being challenged in court through a tax debt annulment action and are deposited in escrow. The amounts required in the tax assessment notice cover the period from January 1994 to October 1999. (d) Refers to a tax collection lawsuit intended to collect IPI due to alleged nonpayment and incorrect classifi cation of the goods sold. The Company has fi led a defense with courts and awaits a fi nal ruling on the matter. (e) Tax assessment notice collecting ICMS - ST, issued by the Federal District, as a result of an alleged underpayment of the Company’s own ICMS and ICMS - ST. The Company has fi led its defense at the administrative level and is awaiting the fi nal judgment. (f) Tax assessment notice issued by the Rio Grande do Sul State Department of Finance against the Company due to its condition of tax substitute, in order to charge allegedly due ICMS, due to the lack of a criterion to determine the correct tax basis, related to subsequent transactions conducted by independent resellers domiciled in the State of Rio Grande, do Sul. The Company fi led an annulment action to cancel this collection and awaits a fi nal court decision on the matter. (g) Tax assessment issued by the Rio Grande do Sul State Department of Finance claiming a tax credit related to ICMS for an alleged incorrect use of the tax basis reduction granted to intrastate transactions and reduction of the intrastate tax rate to calculate the tax rate differences. We have fi led administrative defense, which awaits a fi nal decision. (h) Tax assessment notice issued by São Paulo State Department of Finance for alleged credits claimed on the purchase of property, plant and equipment items which were transferred to other units on purchase date, and goods purchased that allegedly are not directly related to production and sales activities. The Company fi led an administrative defense, whereby it claims the possibility of claiming such tax credits, the expiration of tax debt, and illegality of charging interest equivalent to one-tenth percent per day, and awaits a fi nal decision thereon. (i) 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 fi led and is still being judged. In June 2008, the Company fi led a discretionary appeal against the unfavorable decision with the Board of Tax Appeals, which is awaiting judgment. fi nancial statements # 11 Contingent assets The Company and its subsidiaries material contingent assets are as follows: a) The Company and its subsidiary Indústria e Comércio de Cosméticos Natura Ltda. are challenging in cour t the unconstitutionality and illegality of the increase in the tax basis for PIS and COFINS established by Ar ticle 3, Paragraph 1, of Law 9718/98. The amounts involved in the lawsuits, updated to December 31, 2011, are R$21,935 (R$20,920 as of December 31, 2010). In the first quar ter of 2011, the 3rd Region Federal Cour t published a cour t decision, on a Motion for Clarification of Judgment filed by the companies, favorable to the Company and that allows the offset of the tax credits (i) against any federal taxes payable by Natura Cosméticos and (ii) limited to PIS and COFINS debts of Indústria e Comércio de Cosméticos Natura Ltda. As a result, the Company has recognized PIS and COFINS credits in the amount of R$16,852 in line item ‘Recoverable taxes’ related to undue payments made in the five years prior to the date the lawsuits were filed, as a balancing item to line item ‘Other operating income (expenses)’ for the period. b) The Company and its subsidiary Indústria e Comércio de Cosméticos Natura Ltda. have fi led special and extraordinary appeals with the Superior Court of Justice and the Federal Supreme Court claiming the recognition of their right to offset unduly paid taxes during the ten-year period prior to date both lawsuits were fi led and, with respect to Indústria e Comércio de Cosméticos Natura Ltda., the right to offset such credits against any federal taxes managed by the subsidiary. The Company has fi led a request for the recognition and awaits the approval of the related credits to be able to offset them against federal taxes. c) The Company and its subsidiaries Indústria e Comércio de Cosméticos Natura Ltda., Natura Inovação e Tecnologia de Produtos Ltda. and Natura Logística e Serviços Ltda. are requesting the refund of ICMS and ISS included in the PIS and COFINS tax basis and paid in the period from April 1999 to March 2007. The amounts of the refund requests as of December 31, 2011 are R$135,305 (R$120,808 as of December 31, 2010). The legal counsel believes that the likelihood of a favorable outcome is probable. 18. OTHER PROVISIONS Retirees’ healthcare plan Carbon credit (note 2.11.3) Other provisions Company Consolidated 2011 2010 19,713 12,683 29 2010 13,123 12,683 - 2011 19,332 16,486 - 28,132 16,486 191 35,818 25,806 44,809 32,425 The Group has a postemployment healthcare plan for a group of former employees and their spouses that is governed by specifi c rules. As of December 31, 2011, the plan had 1,073 (Company) and 2,144 (Consolidated) participants. As of December 31, 2011, the Group had a provision for the actuarial liability arising from this plan, totaling R$19,332 (Company) and R$28,132 (Consolidated) (R$13,123, Company and R$19,713, Consolidated as of December 31, 2010). During the year, the impact of this plan on profi t or loss is related to the service cost totaling R$1,192, interest expenses totaling R$2,823, and changes in actuarial assumptions totaling R$4,499. The carried liability was calculated by an independent actuary taking into consideration the following main assumptions: 119 Financial discount rate Increase in medical expenses (reduced by 0.5% p.a.) Long-term infl ation rate General mortality table Annual percentage (in nominal terms) 2011 10.5 10.5 a 5.5 4.5 RP2000 19. SHAREHOLDERS’ EQUITY a) Issued capital As of December 31, 2010, the Company’s capital was R$418,061. In the fi rst quarter of 2011, 153,230 common shares without par value were subscribed at the average price of R$24,78, totaling R$3,797, and, therefore, at March 31, 2011 the Company’s capital was represented by 431,034,646 subscribed and paid-in registered common shares without par value, totaling R$421,858. Authorized capital decreased from 10,428,709 to 10,275,479 registered common shares. In the second quarter of 2011, 200,059 common shares without par value were subscribed at the average price of R$25,51, totaling R$5,104, and, therefore, the Company’s capital at June 30, 2011 was represented by 431,234,705 subscribed and paid-in registered common shares without par value, totaling R$426,962. Authorized capital decreased from 10,275,479 to 10,075,420 registered common shares. In the third quarter of 2011, 4,559 common shares without par value were subscribed at the average price of R$24.71, totaling R$111, and, therefore, the Company’s capital was represented by 431,239,264 subscribed and paid-in registered common shares without par value, totaling R$427,073. Authorized capital decreased from 10,075,420 to 10,070,861 registered common shares In the fourth quarter of 2011 there was no change in capital. Therefore, the shareholders’ equity stated as of December 31, 2011 is equal to the capital detailed above. b) Dividend and interest on capital 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 of previously recognized reserves for contingencies. • Decrease in the amounts intended for the recognition 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. On April 14, 2011, dividends paid totaled R$405,623 (R$0.9414 per share) and gross interest on capital paid totaled R$24,456 (R$0.0567 gross per share), in accordance with the 2010 net income distribution approved by the Board of Directors on February 23, 2011 and confi rmed by the Annual Shareholders’ Meeting held on April 8, 2011, which added to the R$253,947 in dividends and the R$35,427 in interest on capital paid in August 2010, totals a distribution of approximately 95% of the net income for the year ended December 31, 2010. On July 20, 2011, the Board of Directors approved, for confi rmation at the Annual Shareholders’ Meeting that will resolve on the approval of the fi nancial statements for the year ending December 31, 2011, a proposal for the payment of interim dividends and interest on capital on income recorded in the fi rst half of 2011, in the amount of R$295,302 (R$0.68 per share) and R$37,507, gross of withholding income tax (R$0.087 gross per share), respectively. The total amount of interim dividends and interest on capital corresponds to 98% of net income recorded in the fi rst half of 2011. In addition, on February 15, 2012, the Board of Directors approved a proposal to be submitted to the Annual Shareholders’ Meeting to be held on April 13, 2012, for the payment of dividends and gross interest on capital totaling R$467,261 and R$23,624 (R$20,080, net of IRRF), respectively, related to income for 2011, which added to the R$295,302 in dividends and the R$37,506 in interest on capital paid in August 2010 correspond to a distribution of approximately 99% of net income for 2011. Dividends were calculated as follows: fi nancial statements # 11 Net income for the year Company 2011 2010 830,901 744,050 Tax incentive reserve - investment grant (3,677) (5,973) Calculation basis for minimum dividends 827,224 738,077 Mandatory minimum dividends Annual minimum dividend Proposed dividends Interest on capital IRRF on interest on capital 30% 30% 248,167 221,423 762,563 659,570 61,130 59,883 (9,170) (8,983) Total dividends and interest on capital, net of IRRF 814,523 710,470 Amount exceeding mandatory minimum dividend 566,356 489,047 Dividends per share - R$ 1.7760 1.5312 Interest on capital per share, net - R$ 0.1208 0.1182 Total dividends and interest on capital per share, net - R$ 1.8968 1.6494 As referred to in note 2.21, the portion of dividends exceeding minimum dividends, declared by management after the reporting period but before the authorization date for issuance of these fi nancial statements, is not be recorded as a liability in the related fi nancial statements and the effects of such supplementary dividends must be disclosed in a note. As a result, as of December 31, 2011 and 2010, the following portions of dividends exceeding mandatory minimum dividends were recorded in shareholders’ equity as ‘Proposed additional dividends’: Company 2011 2010 467,261 405,623 23,624 24,456 490,885 430,079 Dividends Interest on capital c) Treasury shares The Company repurchased during the period 3,066,300 common shares, at the average price of R$34.06, in order to meet the exercise of options granted to the Company’s and its direct and indirect subsidiaries’ management and employees. In addition to the repurchase of shares in the period, a total of R$895, at an average unit cost of R$32.92, was used in the exercise of options. As of December 31, 2011, line item ‘Treasury shares’ is broken down as follows: Balance at beginning of year Repurchased Used 2011 Number of Average price shares R$’000 per share - R$ 655 3,066,300 14 104,452 21.37 34.06 (45,198) (1,617) 26.58 Balance at yearend 3,021,757 102,849 34.04 120 d) Share premium Refers to the premium generated on the issuance of 3,299 common shares resulting from the capitalization of debentures totaling R$100,000, occurred on March 2, 2004. e) Legal reserve Since the balance of legal reserve plus capital reserves, addressed by article 182, paragraph 1, of Law 6404/76, exceeded 30% of the capital, the Company decided, in accordance with article 193 of the same Law, not to recognize a legal reserve on net income earned in fi scal years 2006, 2007, 2008, 2009, 2010 and 2011. f) Reserve for retained earnings As of December 31, 2011, the reserve for retained earnings was recognized pursuant to article 196 of Law 6404/76 for use in future investments, and amounts to R$3,530 (R$23,421 recognized as of December 31, 2010). The retention for 2011, prepared by management and approved by the Board of Directors on February 15, 2012, will be submitted to and approved by the Annual Shareholders’ Meeting on April 13, 2012. g) Other comprehensive income The Company records in this line item the effects of exchange differences arising on translating investments in foreign subsidiaries. The accumulated effect will be reversed to income as a gain or loss only in case of sale or write-off of the investment. 20. SEGMENT INFORMATION Segment reporting is consistent with management reports provided by the main operating decision-maker to assess the performance of each segment and the allocation of funds. Although the main decision-maker analyzes the information on revenue at its different levels, according to the reports used by management to make decisions, the Company’s business is mainly segmented based on the sales of cosmetics by geography, which are as follows: Brazil, Latin America (“LATAM”) and other countries. In addition, LATAM is divided into two groups for analysis: (i) Argentina, Chile and Peru (“Consolidating Operations”); and (ii) Mexico and Colombia (“ ”). The segments’ business features are similar and each segment offers similar products through the same consumer access method. Net revenue by geography is as follows in 2011: • Brazil: 91.0% • Consolidating Operations: 6.0% • Operations under Implementation: 2.7% • Other: (0.3%) Although the international segments do not represent more than 10% of the information required to aggregate a segment, pursuant to the aggregation criteria described in IFRS 8 - Operating Segments, management has substantial evidence that its foreign business share will increase considerably against consolidated fi nancial balances and, thus, management opted to report them separately. The accounting practices for each segment are the same as those described in note 2, description of Natura’s business and signifi cant accounting policies. The performance of the Company’s segments was assessed based on the net operating income, net income and noncurrent assets. This measurement basis excludes the effects of interest, income tax and social contribution, depreciation and amortization. fi nancial statements # 11 121 The fi nancial information related to the segments as of December 31, 2011 and 2010 is summarized in the tables below. The amounts provided to the Executive Committee related to net income and total assets are consistent with the balances recorded in the fi nancial statements and with the accounting policies applied. 2011 revenue income amortization expenses, net tax assets assets liabilities Net Net Depreciation and Financial Income Noncurrent Total Current Brazil Argentina, Chile and Peru Mexico and Colombia Other (*) Consolidated 5,089,533 916,148 (102,938) (73,470) (406,168) 1,535,676 3,482,649 1,142,356 355,058 149,166 17,617 (578) (66,996) (17,673) (4,226) (2,183) (2,625) (1,245) 379 (1,040) 25,282 11,857 187,016 96,070 90,915 34,730 (574) - - 16,938 27,277 6,718 5,591,374 830,901 (109,921) (77,340) 406,829 1,589,753 3,793,012 1,274,719 revenue income amortization expenses, net tax assets assets liabilities Net Net Depreciation and Financial Income Noncurrent Total Current Brazil Argentina, Chile and Peru Mexico and Colombia Other (*) Consolidated 4,767,741 835,484 (82,692) (47,918) (374,412) 1,305,450 2,970,381 1,074,101 255,702 98,275 14,994 (19,822) (45,992) (25,620) (3,405) (2,104) (842) (976) (1,027) 1,319 19,489 10,858 156,666 69,041 76,802 33,009 (647) - - 16,177 25,783 6,738 5,136,712 744,050 (88,848) (49,736) (374,120) 1,351,974 3,221,871 1,190,650 2010 (*) Includes operations in France and Corporate LATAM. The Company has only on class of products that is sold to Natura Beauty b) Breakdown of operating expenses and cost of sales by nature: Consultants which is classifi ed as “Cosmetics”. As such, disclosure of information by products and services is not applicable. The Company has a diversifi ed customer portfolio, with no concentration of revenue. The revenue from foreign related parties reported to the Executive Committee was measured in accordance with that presented in the income statement. 21. NET REVENUE Company Consolidated Company Consolidated 2011 2010 2011 2010 Variable costs and indirect costs of resale materials and products 2.375,514 2,283,926 1,385,624 1,319,106 Marketing and selling expenses 955,713 846,913 1,016,101 910,489 Freight expenses Services expenses 246,563 223,236 265,148 234,066 57,927 65,227 180,332 171,970 Employee benefi ts (note 23) 263,540 261,441 644,983 628,078 Depreciation and amortization charges 27,565 15,305 109,921 88,848 Compensation of key management Compensation of key management personnel (note 27.2.) Others expenses 9,443 14,417 9,443 14,417 103,275 141,083 727,830 584,364 Gross revenue: Domestic market Foreign market Other sales 2011 2010 2011 2010 Provision of administrative services (note 27.1) 433,192 328,183 - - 6,898,727 6,486,421 6,896,735 6,487,124 services (note 27.1.) - - 637,593 471,185 Total 235,877 266,959 - - 4,708,609 4,446,690 4,339,382 3,951,338 Provision of research and development - - 1,437 1,479 6,898,727 6,486,421 7,535,765 6,959,788 Returns and cancellations (11,514) (8,682) (12,212) (8,682) Taxes on sales Net revenue (1,038,436) (963,424) (1,932,179) (1,814,394) 5,848,777 5,514,315 5,591,374 5,136,712 23. EMPLOYEE BENEFITS Company Consolidated 22. OPERATING EXPENSES AND COST OF SALES Payroll and bonuses Employee profi t sharing a) Breakdown of operating expenses and cost of sales by function: Defi ned contribution de pension plan Company Consolidated (note 23.1.) 2011 2010 2011 2010 Executives’ compensation Cost of sales 2,375,514 2,283,926 1,666,300 1,556,806 Taxes payable Marketing and selling expenses 1,503,069 1,292,365 1,952,740 1,704,322 General and administrative expenses 816,818 837,808 680,731 605,442 23.1. Profi t sharing 2011 2010 2011 2010 183,741 177,326 439,684 414,167 3,765 18,174 30,168 70,351 2,553 6,359 2,167 4,081 4,300 2,528 13,369 11,288 67,122 59,693 157,462 129,744 263,540 261,441 644,983 628,078 Compensation of key management personnel (note 23.1.) Compensation of key management 3,765 18,174 30,168 70,351 The Company and its subsidiaries pay profi t sharing to their employees and personnel (note 27.2.) 9,443 14,417 9,443 14,417 Total 4,708,609 4,446,690 4,339,382 3,951,338 offi cers tied to the achievement of operating targets and specifi c goals, established and approved at the beginning of each year. As of December 31, 2011 and 2010, the amounts below were recorded as profi t sharing: fi nancial statements # 11 Employees Offi cers (*) Company Consolidated 2011 2010 70,351 30,168 - 6,018 30,168 76,369 2010 18,174 - 6,018 3,765 24,192 2011 3,765 As of December 31, 2010 Grant date Exercise price - R$ Remaining contractual life Existing Vested options (years) options 122 (*) Included in line item ‘Management compensation’. 23.2. Share-based payments Once a year the Board of Directors meets in order to choose the directors and managers who will receive the options and the total number to be distributed. Under the format prevailing until 2008, the programs had a four-year vesting period, after which 50% of the options could be exercised at the end of the third year and 50% at the end of the fourth year, and a maximum term of two years for the exercise of options after the end of the fourth year of the vesting period. In 2009, the plan was revised to establish the end of the fourth year as the vesting date of all the options granted, with the possibility of reducing the vesting period to three years through the cancelation of 50% of the options granted and setting the four years as the maximum term for the exercise of the options. On March 23, 2011, 1,491,780 options were granted under this new plan format, with the Exercise price of R$42.39. The changes in the number of outstanding stock options and their related weighted-average prices are as follows: 2011 2010 Options per share - R$ (thousands) per share - R$ (thousands) Options Average exercise price Average exercise price Balance at beginning of year Granted Cancelled Exercised 28.10 42.39 29.35 6,839 1,492 (563) 23.22 34.17 22.80 25.33 (405) 22.74 5,538 2,176 (268) (607) Balance at yearend 32.84 7,363 28.10 6,839 Out of the 7,363,000 outstanding options as of December 31, 2011 (6,839,000 outstanding options as of December 31, 2010), 1,214,000 outstanding options are vested (822,000 outstanding options as of December 31, 2010). The options exercised in 2011 resulted in the issuance of 405,000 shares (607,000 shares in for the year ended December 31, 2010) and in the use of 45,000 of the shares held in treasury. The expense related to the fair value of the options granted recognized in net income for the year ended December 31, 2011, according to the elapsed vesting period, was R$6,359 and R$13,369, Company and on a consolidated basis, respectively (R$4,081 and R$11,288, Company and on a consolidated basis, respectively, as of December 31, 2010). The stock options outstanding at the end of the year have the following vesting dates and exercise prices: As of December 31, 2011 Grant date Exercise price - R$ Remaining contractual life Existing Vested options (years) options March 29, 2006 April 24, 2007 April 22, 2008 April 22, 2009 March 19, 2010 March 21, 2011 31.97 30.24 23.48 319,317 470,274 848,250 25.61 2,249,793 0.21 1.33 2.34 5.39 319,317 470,274 424,125 - 37.58 2,004,244 6.31 - 43.85 1,470,940 7.31 - March 16, 2005 March 29, 2006 April 24, 2007 April 22, 2008 April 22, 2009 March 19, 2010 20.25 30.17 28.53 82,981 414,120 650,333 22.16 1,128,902 24.17 2,436,105 0.21 1.23 2.35 3.36 6.40 82,981 414,120 325,167 - - 35.46 2,126,372 7.32 - 6,838,813 822,268 As of December 31, 2011, market price per share was R$36.26 (R$47.69 as of December 31, 2010). The options were measured at their fair values on grant date, pursuant to IFRS 2 - Shared Based Payments. The weighted average fair value of the options as of December 31, 2011 was R$32.84. The options were priced using the binomial pricing model. The signifi cant data included in the fair value pricing model of the options granted in 2011 was as follows: • 36% volatility (37% as of December 31, 2010). • Dividend yield of 5.3% (5.3% as of December 31, 2010). • Expect option life of three and four years. • Risk-free annual interest rate of 10.98% (10.8% as of December 31, 2010). 23.3. Pension plan The Company and its subsidiaries sponsor two employees’ benefi t plans: a pension plan, through a private pension fund managed by Brasilprev Seguros e Previdência S.A., and an extension of healthcare plans to retired employees. The defi ned contribution pension plan was created on August 1, 2004 and all employees hired from that date are eligible to it. Under 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 monthly compensation. As of December 31, 2011, the Group did not have actuarial liabilities arising from the former employees’ pension plan. The contributions made by the Company and its subsidiaries totaled R$2,553 (Company) and R$4,300 (Consolidated) in the period ended December 31, 2011 (R$2,167, Company and R$2,528, Consolidated in the period ended December 31, 2010) and were recorded as expenses for the year. 24. FINANCIAL INCOME (EXPENSES) Company Consolidated 2011 2010 2011 2010 Financial income: Interest on short-term investments Infl ation adjustment and foreign exchange gains (a) Gains on swap and forward transactions Other fi nancial income Financial expenses: Interest on fi nancing Infl ation adjustment and foreign exchange losses (a) Losses on swap and forward transactions Gains (losses) on the mark-to-market of swap and forward derivatives Other fi nancial expenses 21,707 13,171 55,463 35,809 - - 2,403 1,941 17,515 40,438 24,357 86,502 3,218 39,469 34 3,901 24,548 13,895 122,698 53,639 (72,487) (39.896) (92,044) (58,457) (36,496) (26,359) (3,757) (9,491) (38,266) (27,688) (7,130) (12,218) (1,171) (26,735) (163,248) (76,746) 416 (5,509) (58,237) (40,722) (1,040) 142 (40,999) (25,712) (200,037) (103,375) (77,340) (49,736) 7,362,818 1,213,716 Financial expenses, net fi nancial statements # 11 The objective of the breakdowns below is to explain more clearly the foreign exchange hedging transactions contracted by the Company and the related balancing items in the income statement shown in the previous table: (a) Infl ation adjustment and foreign exchange gains Infl ation adjustment and foreign exchange losses (a) Breakdown: Exchange rate changes on borrowings and fi nancing Adjustment for infl ation on fi nancing Exchange rate changes on imports Exchange rate changes on accounts payable in foreign subsidiaries Exchange rate changes on export receivables Consolidated 2010 34 (7,130) (7,096) 2011 3,218 (38,266) (35,048) (32,104) (55) (2,256) (2,781) 34 (1,089) (3,852) (1,399) 3,218 (1,861) (35,048) (7,096) 25. OTHER OPERATING INCOME (EXPENSES), NET Company Consolidated 2011 2010 2011 2010 Gain (loss) on sale of property, plant and equipment PIS and COFINS credits (*) Untimely used PIS and COFINS credits 918 106 (1,125) (9,044) 11,887 15,461 - - 16,852 40,378 - - Other operating income (expenses) 15,313 350 6,973 (8,424) Other operating income (expenses), net 43,579 456 63,078 (17,468) (*) The stated amount includes the recognized PIS and COFINS tax credits arising from a favorable outcome in a lawsuit claiming the unconstitutionality and illegality of the PIS and COFINS taxable basis broadening established by Law 9718/98. For further details see note 17 (a), on contingent assets. 26. EARNINGS PER SHARE 26.1. Basic Basic earnings per share are calculated by dividing the net income attributable to the owners of the Company by the weighted average of common shares issued during the year, less common shares bought back by the Company and held as treasury shares. 2011 2010 Net income attributable to owners of the Company 830,901 744,050 Weighted average of common shares issued - thousands 431,129,772 430,548,910 Weighted average of treasury shares (1,059,330) (655) Weighted average of outstanding common shares Basic earnings per share - R$ 26.2. Diluted 430,070,442 430,548,255 1.9320 1.7281 Diluted earnings per share is calculated by adjusting the weighted average outstanding common shares supposing that all potential common shares that would cause dilution are converted. The Company has only one category of common shares that would potentially cause dilution: the stock options. Net income attributable to owners of the Company Weighted average of outstanding common shares Adjustment for stock options Weighted average number of common shares for diluted earnings per share calculation purposes Diluted earnings per share - R$ 123 2011 2010 830,901 744,050 430,070,442 430,548,255 1,564,844 930,348 431,000,790 432,113,098 1.7219 1.9279 27. RELATED-PARTY TRANSACTIONS 27.1. Intergroup balances and transactions Receivables from and payables to related parties are as follows: Current assets: Natura Inovação e Tecnologia de Produtos Ltda. (a) Natura Logística e Serviços Ltda. (b) Indústria e Comércio de Cosméticos Natura Ltda. (c) Current liabilities: Trade payables: Indústria e Comércio de Cosméticos Natura Ltda. (c) Natura Logística e Serviços Ltda. (d) Natura Inovação e Tecnologia de Produtos Ltda. (e) Company 2011 2010 12,531 20,809 4,568 37,908 13,143 12,218 - 25,361 163,146 114,737 15,141 293,024 153,597 47,356 45,636 246,589 Related-party transactions are as follows: Company Product sales Product purchases 2011 2010 2010 2011 Indústria e Comércio de Cosméticos Natura Ltda. Natura Cosméticos S.A. - Brasil Natura Cosméticos S.A. - Peru Natura Cosméticos S.A. - Argentina Natura Cosméticos S.A. - Chile Natura Cosméticos S.A. - Mexico Natura Cosméticos Ltda. - Colombia Natura Europa SAS - France Natura Inovação e Tecnologia de Produtos Ltda. 3,155,905 3,006,596 - - - - - - - - - - - - - - - - - - 2,972,918 2,837,687 35,382 49,852 33,211 38,715 19,989 5,365 431 34,104 42,693 32,971 35,533 18,514 4,672 388 Natura Logística e Serviços Ltda. - - 42 34 3,155,905 3,006,596 3,155,905 3,006,596 Service provided 2011 2010 Services received 2011 2010 Administrative structure: (f) Natura Logística e Serviços Ltda. Natura Cosméticos S.A. - Brasil Indústria e Comércio de Cosméticos Natura Ltda. Natura Inovação e Tecnologia de Produtos Ltda. 433,192 - - - 433,192 438,095 - - - 438,095 - 323,715 67,694 41,783 433,192 - 328,183 67,810 42,102 438,095 Product and technology research and development: (g) Natura Inovação e Tecnologia de Produtos Ltda. Natura Cosméticos S.A. - Brazil In vitro research and testing: (h) Natura Innovation et Technologie de Produits SAS - France Natura Inovação e Tecnologia de Produtos Ltda. 235,877 266,959 - - 266,959 235,877 - - 266,959 235,877 235,877 266,959 2,790 3,538 - - - 2,790 - 3,538 2,790 3,538 2,790 3,538 Lease of properties and shared charges: (i) Indústria e Comércio de Cosméticos Natura Ltda. Natura Logística e Serviços Ltda. Natura Inovação e Tecnologia de Produtos Ltda. Natura Cosméticos S.A. - Brasil Total of sales or purchases and services 6,728 7,296 - - - - - - 7,296 6,728 3,835,060 3,721,916 - 4,227 1,699 - 3.899 1,567 1,370 1,262 7,296 6,728 3,835,060 3,721,916 fi nancial statements # 11 (a) Advances granted for provision of product and technology development and market research services. (b) Advances granted for provision of logistics and general administrative services. (c) Payables for the purchase of products. (d) Payables for services described in item (f). (e) Payables for services described in item (g). (f) Logistics and general administrative services. (g) Product and technology development and market research services. (h) Provision of in vitro research and testing services. (i) Lease of part of the industrial complex located in Cajamar, SP and buildings located in the municipality of Itapecerica da Serra, SP. The main intergroup balances as of December 31, 2011 and 2010, as well as intergroup transactions that affected the years then ended, refer to transactions between the Company and its subsidiaries. Because of the Company’s and subsidiaries’ operational model, as well as the channel chosen to distribute products, direct sales via Natura Beauty Consultants, a substantial portion of sales is made by the subsidiary Indústria e Comércio de Cosméticos Natura Ltda. to the parent company Natura Cosméticos S.A. in Brazil and to its foreign subsidiaries. Sales to unrelated parties amounted to R$5,341 for the period ended December 31, 2011 (R$5,650 for the period ended December 31, 2010). No allowance for doubtful accounts was recognized for intragroup receivables as of December 31, 2011 and 2010 due to the absence of past- due receivables with risk of default. According to note 14, the Group companies usually grant each other pledges and collaterals to guarantee bank loans and fi nancing. 27.2. Key management personnel compensation. The total compensation of the Group’s key management personnel is broken down as follows: 2011 Compensation Fixed Variable Total Fixed (*) Board of Directors Offi cers 3,786 5,657 9,443 - 3,786 - 5,657 - 9,443 2010 Compensation Variable Total (*) 5,333 3,348 1,985 5,051 4,033 9,084 8,399 6,018 14,417 Executives 30,587 2,390 32,977 25,194 14,917 40,111 (*) Refers to profi t sharing recorded in the year. The amounts include any additions and/or reversals to the provision recorded in the previous year in view of the fi nal assessment of the targets established for directors, offi cers and executives. 124 28. COMMITMENTS 28.1. Inputs supply contracts The subsidiary Indústria e Comércio de Cosméticos Natura Ltda. entered into a contract for the supply of electric power to its manufacturing activities, in effect through 2015, which provides for the purchase of a minimum monthly volume of 3.6 Megawatts, equivalent to R$363. As of December 31, 2011, the subsidiary was compliant to the contract’s commitment. The amounts are carried based on electric power consumption estimates in accordance with the contract period, whose prices are based on volumes, also estimated, resulting from the subsidiary’s continuous operations. Total minimum supply payments, measured at nominal value, according to the contract, are: Less than a year More than one year and less than fi ve years More than fi ve years 2011 2010 3,983 3,899 9,842 9,591 - 2,578 13,825 16,068 28.2. Operating lease transactions The Company and its subsidiaries have commitments arising from operating leases of properties where some of its foreign subsidiaries, the head offi ce in Brazil and “Casas Natura” in Brazil and abroad are located. Contracts have lease terms of one to ten years and no purchase option clause when terminated; however, renewal is permitted under the market conditions where they are entered into, for an average of two years. As of December 31, 2011, the commitment made for future payments of these operating leases had the following maturities: 2012 2013 2014 and thereafter 1,217 1,119 Company Consolidated 6,011 4,940 2,687 6,618 5,023 17,569 29. INSURANCE AThe Group has an insurance policy that considers principally risk concentration and materiality, and insurance is obtained at amounts considered by management to be suffi cient, taking into consideration the nature of its activities and the opinion of its insurance advisors. As of December 31, 2011, insurance coverage is as follows: Insured amount 916,659 52,242 1,615,685 27.3. Share-based payments Breakdown of Company offi cers and executives’ compensation: Item Type of coverage Industrial complex/ inventories Any damages to buildings, facilities, and machinery and equipment balance (number) price R$ balance (number) 2011 Stock option grant Stock option Average exercise 2010 Stock option grant Stock option Average exercise price R$ (b) 28.10 28.10 (b) (a) 1,512,569 2,961,042 32.84 32.84 Offi cers Executives (a) 1,700,155 3,173,327 Vehicles Fire, theft and collision for 1,337 vehicles Loss of profi ts Loss of profi ts due to material damages to facilities, buildings and production machinery and equipment (a) Refers to the balance of unexercised vested and unvested options at the end of the reporting period. (b) Refers to the weighted-average exercise price of the option at the time of the stock option plans, adjusted for infl ation based on the Extended Consumer Price Index (IPCA) through the end of the reporting period. 30. APPROVAL OF FINANCIAL STATEMENTS The individual and consolidated fi nancial statements were approved by the Board of Directors and authorized for issue at the meeting held on February 15, 2012. fi nancial statements # 11 125 INDEPENDENT AUDITORS’ REPORT ON FINANCIAL STATEMENTS To the Shareholders, Board of Directors and Management of Natura Cosméticos S.A. Itapecerica da Serra - SP We have audited the accompanying individual and consolidated fi nancial statements of Natura Cosméticos S.A. (the “Company”), identifi ed as Parent and Consolidated, respectively, which comprise the balance sheet as of December 31, 2011, and the statements of income, comprehensive income, changes in equity and cash fl ows for the year then ended, and a summary of signifi cant accounting policies and other explanatory information. Management’s responsibility for the fi nancial statements Company’s Management is responsible for the preparation and fair presentation of the individual fi nancial statements in accordance with accounting practices adopted in Brazil and the consolidated fi nancial statements in accordance with International Financial Reporting Standards - IFRSs, issued by the International Accounting Standards Board - IASB, and in accordance with accounting practices adopted in Brazil, and for such internal control as Management determines is necessary to enable the preparation of fi nancial statements that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these fi nancial statements based on our audit. We conducted our audit in accordance with Brazilian and international standards on auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the fi nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the fi nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the fi nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the fi nancial statements. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion. Opinion on the individual fi nancial statements In our opinion, the individual fi nancial statements referred to above present fairly, in all material respects, the fi nancial position of Natura Cosméticos S.A. as of December 31, 2011 and its fi nancial performance and its cash fl ows for the year then ended in accordance with accounting practices adopted in Brazil. Opinion on the consolidated fi nancial statements In our opinion, the consolidated fi nancial statements statements referred to above present fairly, in all material respects, the consolidated fi nancial position of Natura Cosméticos S.A. as of December 31, 2011 and its consolidated fi nancial performance and its consolidated cash fl ows for the year then ended in accordance with IFRSs issued by IASB and accounting practices adopted in Brazil. Emphasis of matter We draw attention to note 2.1. to the fi nancial statements, which states that the individual fi nancial statements have been prepared in accordance with accounting practices adopted in Brazil. In the case of Natura Cosméticos S.A., these accounting practices differ from the IFRSs, applicable to separate fi nancial statements, only with respect to the measurement of investments in subsidiaries, associates and joint ventures by the equity method of accounting, which, for purposes of IFRSs, would be measured at cost or fair value. Our opinion is not qualifi ed in respect of this matter. Other matters Statements of value added We have also audited the individual and consolidated statements of value added (DVA) for the year ended December 31, 2011, prepared under the responsibility of the Company’s Management, the presentation of which is required by Brazilian Corporate Law for publicly- traded companies, and as supplemental information for IFRS that do not require the presentation of DVA. These statements were subject to the same auditing procedures described above and, in our opinion, are fairly presented, in all material respects, in relation to the fi nancial statements taken as a whole. The accompanying fi nancial statements have been translated into English for the convenience of readers outside Brazil. São Paulo, February 15, 2012 Auditores Independentes CRC nº 2 SP 011609/O-8 Edimar Facco Engagement Partner CRC nº 1 SP 138635/O-2 fi nancial statements # 11 ABOUT THIS REPORT We developed different forms of discussion with view at presenting Natura’s performance to stakeholders as completely as possible and enabling them to assess the Company’s progress. For this reason, for 12 years Natura has issued its annual sustainability repor t in accordance with the Global Repor ting Initiative (GRI) guidelines and for the last ten years the Company has published its sustainability repor t and annual (financial) repor t as a single document. Every year we seek to improve this process by providing complete data in perspective that is widely accessible to anyone interested in the Company. In this year’s Natura Repor t, we have refined both the format and the language of the publication (see box 1). In the discussion panels held in 2010 and 2011 our stakeholders expressed the wish for a more concise content and a lighter format. The information in the print version, for example, is more objective and was developed with the input of Natura stakeholders. The complete annual repor t with more detailed information is available for download in PDF format from our website. DIFFERENT FORMS OF COMMUNICATION _Natura Management Report – main performance data for the year published in the newspapers Valor Econômico, Brasil Econômico and Diário Ofi cial on February 16, 2012. _Natura Annual Report (printed version) – summarized format with room for company stakeholders to express their opinion on Natura’s performance and relationship practices. Available in Portuguese, English and Spanish. _Website – as with the print version, the portal www.natura.net/ relatorio presents the information in summarized report. Available in Portuguese, English and Spanish. _Natura Annual Report (full version) – available for download in PDF format also from the website www.natura.net/relatorio. This version presents the full content of the report with detailed information. Available in Portuguese, English and Spanish. _Ipad – the content of the Natura Report is available for iPads in Portuguese. The performance indicators are in accordance with GRI G3.1 guidelines at application level A+. The data refer to the period from January 1st to December 31st 2011. The socio-environmental information relates in great par t to the Company‘s activities in Brazil where our production is concentrated, as are most of our social and environmental impacts. The economic data encompasses all our operations, both in Brazil and abroad. Between 2010 and 2011, we included the Latin American countries in the construction of the materiality matrix (more below) and in a greater number of socio-environmental indicators. We are, however, aware that we need to increase monitoring of our international operations, which constitutes a challenge for the company. For our main environmental impacts - water and energy consumption and waste generation - the calculations also include data from third-party manufacturers who supply us with fi nished products in Brazil. This enables us to carry out a more accurate diagnosis of the impact generated by our operations. Signifi cant changes in the bases of calculations or indicator measurement techniques are indicated throughout the text and the tables. 126 3.1 - 3.11; 4.12; 4.14 - 4.17 The report also presents data on the people who are part of Natura’s daily routine: employees, consultants and Natura Consultant Advisors (NCAs), consumers, suppliers, suppliers’ communities, surrounding communities, shareholders and government. The fi nancial data were audited by the Consulting Company Deloitte Touche Tohmatsu Auditores Independentes, while the GRI indicators and AccountAbility AA1000 Standards were assured by Ernst & Young Terco Auditores Independentes S.S.. The consultancy KPMG also provided a limited assurance of the company’s greenhouse gas (GHG) emission data in the 2011 inventory. INTEGRATED REPORTING Since 2002, Natura has published its sustainability and fi nancial reports in a single document encompassing all dimensions of the business: economic and fi nancial, social, environmental and governance. The integrated report, a global trend, is aimed not only at combining fi nancial and non-fi nancial documents in the same publication but at refl ecting a business strategy that incorporates all dimensions of the business in its management and analysis of risks and opportunities. To learn and to grow in this area, Natura is involved in the main global forums discussing integrated reporting. It sponsors the development of the fourth generation of GRI indicators, designed to further integrate fi nancial and non-fi nancial information. The Company also participates in the International Integrated Reporting Council (IIRC), comprising global leaders of companies, investors, academic institutions, industry associations, regulatory and standardization bodies seeking to create a global standard for integrated reports. The IIRC global committee is engaged in defi ning global indicators and principles. Natura is one of the companies involved in the pilot project, and this report is aligned with the initial framework set forth by the IIRC. (see the table below). External External Factors Factors External External Factors Factors The information is gathered with the support of a sustainability communication consultant Company. It involves more than 50 interviews both with employees and a control, as well as the updating of indicators by diverse company areas. An additional 20 people representing external Natura stakeholders were interviewed for the printed version of the report. Quantitative indicators are gathered using an online tool which is fi lled out by the areas in charge. The content is also evaluated by an internal committee comprising managers responsible for the quality of relations with our different stakeholders and led by Natura senior management. natura report # 11 MOST RELEVANT SUBJECTS The materiality matrix is the graphical representation of Natura’s priority sustainability-related subjects (see chart). It not only underpins the report content, but also provides a diagnosis from which senior management makes plans for the Company, which are consequently refl ected in its report. Reviewed every two years, it is the result of the cross referencing of the socio-environmental subjects indicated as relevant by our stakeholders (external axis) and their importance for the company (internal axis) in accordance with its strategy, risks or opportunities and willingness to innovate. The matrix in this report was built from 2010 to 2011 based on discussion panels held with stakeholders from Brazil and, for the fi rst time ever, from our international operations. This enabled us to build a corporate matrix with a broader perspective that refl ects the needs of the locations in which we operate. The priority sustainability topics identifi ed were: water, education, sustainable entrepreneurship, climate change, relationship quality, waste and socio-biodiversity (more on page 25). For more information about this report, contact relatorionatura@natura.net. GLOBAL COMPACT Natura has been a signatory of the Global Compact since July 2000. This is a United Nations Organization (UN) initiative that unites companies, workers and civil society in pursuit of sustainable growth and citizenship. We are also members of the Global Compact Steering Committee and signatories of its Caring for Climate program. The Company is also on the Brazilian Global Compact Committee (CBPG in the Portuguese acronym), which foundation resulted from a partnership between the Instituto Ethos and the United Nations Development Program (UNDP) in 2003. The CBPG is a voluntary group comprising companies, United Nations agencies in Brazil, trade bodies, academics and civil organizations. It is dedicated to incorporating these principles into business. For further information on the initiative, please access www.pactoglobal.org.br 127 EXTERNAL Stakeholder interest Education Solid Waste Water Climate change Relationship quality Sociobiodiversity Sustainable entrepreneurship INTERNAL Importance for Natura THE GLOBAL COMPACT PRINCIPLES The following is a list of GRI indicators aligned with the Global Pact principles: . 1. Respect and protection of human rights 2. Prevention of human rights violations 3. Support of freedom of association at work 4. Abolishment of forced labor 5. Abolishment of child labor 6. Elimination of discrimination at work 7. Support of a preventive approach to environmental challenges 8. Promotion of environmental responsibility 9. Encouragement of environmentally friendly technologies 10. Combat corruption in all its forms, including extortion and bribery Natura supports the Global Reporting Initiative (GRI). As an organizational stakeholder, it contributes to the GRI mission of developing globally accepted sustainability reporting guidelines through the participation of stakeholders. natura report # 11 assurance declaration INDEPENDENT AUDITORS’ LIMITED ASSURANCE REPORT ON THE ANNUAL REPORT ON SUSTAINABILITY IN LINE OF GRI GUIDELINES (LEVEL A) AND OF ACCOUNTABILITY PRINCIPLES STANDARD AA1000APS – NATURA COSMÉTICOS S.A. 128 3.13 To the Board of Directors, Shareholders and Offi cers Natura Cosméticos S.A. 1. We have performed limited assurance procedures on certain in- formation contained in the Annual Report on Sustainability of Natu- ra Cosméticos S.A., GRI Level A for the year ended December 31, 2011, prepared under the responsibility of Company management. Our responsibility is to issue a limited assurance report on certain information disclosed in this report. 2. The work was carried out in accordance with Assurance Standards and Procedures - NBC TO 3000, issued by the Brazil’s National As- sociation of State Boards of Accountancy (CFC) on assurance work other than audit or review of historical information, and comprised: (a) planning of the work considering the materiality and volume of information; (b) inquiry of and discussion with the professionals of Natura Cosméticos S.A. to gain an understanding of the main criteria, assumptions and methodologies used when preparing the Annual Report on Sustainability; (c) check, on a sampling basis, of evidence which supports the report data; (d) comparison of the information contained in the sustainability report with the Global Reporting Ini- tiative (GRI) Guidelines – Level A and with Accountability Principles Standard AA1000APS; (e) discussion with Natura Cosméticos S.A. about the results obtained. 3. Our work aimed at checking whether the documentation of the Sustainability Report was in accordance with the GRI Level A indi- cators, which represent the global parameters for the preparation of sustainability reports and Accountability Principles Standard AA- 1000APS. The GRI indicators comprise three levels of information which guide the limited assurance procedures. Worth noting is that our checking procedures relied on the Level A indicators, which represent an advanced level with regards to the number of per- formance indicators reported at Economic, Social, Environmental, Human Rights, Labor Practices and Product Accountability levels, as well as to how the related indicators are managed. Also, the work considered the specifi c indicators of Profi le G3.1 (generation 3.1 of GRI parameters). With regards to Accountability Principles Standard AA1000APS, we checked the information contained in the report, based on its three key principles: inclusion, materiality and responsi- veness, as set forth in the standard. 4. The scope of our work did not include: (i) validation of his- torical information, market information, descriptive information, fi nancial data audited by other independent auditors, goals, pro- jections and opinions subject to subjective evaluations, Natura Institute and Inventory of Greenhouse Gas Emissions (GGE) effect; (ii) check of input data used to design the aforesaid GRI indicators, relying therefore on data provided by Natura Cosmé- ticos S.A. Accordingly, our report does not provide any limited or reasonable assurance on such information. 5. Based on our work described in this report, we are not aware of any signifi cant change which should be made to the informa- tion contained in the Natura Cosméticos S.A.’s Sustainability Re- port for the year ended December 31, 2011 for it to be in accor- dance with the GRI Guidelines – Level A and with Accountability Principles Standard AA1000APS. 6. The information contained in Natura Cosméticos S.A.’s Sus- tainability Report for periods before and after the year ended December 31, 2011 was not checked by us. São Paulo, April 3, 2012 Auditores Independentes S.S. CRC 2SP015199/O-6 Partner Luiz Carlos Passetti CRC 1SP144343/O-3 natura report # 11 129 natura report # 11 REMISSIVE INDEX G3.1 REMISSIVE INDEX 130 Description Message from the President and Chairman of the Board. Description of main impacts, risks and opportunities. Description Name of the Organization. Brands, products and / or services. Operating structure. Location of organizational head offi ce. Countries in which the organization operates. Nature of ownership and legal form. Markets served. Size of organization. Changes during the reporting period. Awards and certifi cations. 1 - Strategy and analysis Profi le 1.1 1.2 2 - Organizational profi le Profi le 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 3 - Report parameters Description Profi le Reporting period. 3.1 Previous report. 3.2 Reporting cycles. 3.3 Contact information. 3.4 Defi nition of content. 3.5 Boundary of report. 3.6 Scope of report. 3.7 Basis for preparation of the report. 3.8 Data measurement techniques and bases for calculations. 3.9 Consequences of restatement information. 3.10 Signifi cant changes. 3.11 GRI Summary. 3.12 3.13 External assurance. 4 - Governance, commitments and engagement Profi le 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 Profi le Description Governance structure. Indication of whether the President of the highest governance body is also an executive director. Number of independent or non executive members in the highest governance body. Mechanisms for nomination to government bodies. Relationship between compensation and economic and socio-environmental performance. Processes to avoid confl icts of interest. Qualifi cation of members. Internal values, conduct codes and principles. Board activities. Board self-assessment. Precautionary principle. Charters, principles and initiatives. Participation in associations. List of stakeholders. Identifi cation of stakeholders. Engagement of stakeholders. Main stakeholders' subjects and concerns. Description ECONOMIC PERFORMANCE INDICATORS DMA EC Aspectos Performance indicator Economic performance EC1 EC2 EC3 EC4 Market presence EC5 EC6 EC7 Indirect economic impacts EC8 EC9 Information on approach to economic management Economic performance Disclosure on Management Approach Indirect economic impacts Description Direct economic value generated and distributed, including revenue, operating costs, employee compensation, donations and other community investments, retained earnings and payments to providers of capital and governments. Financial implications and other risks and opportunities for the organization's activities due to climate change. Coverage of organization-defi ned pension benefi ts obligations. Signifi cant fi nancial assistance received from government. Ratio of lowest salary to local minimum wages in important operating units. Policies, practices and proportion of spending on local suppliers in important operating units. Procedures for local hiring and proportion of senior managers recruited from local community in important operating units. Development and impact of infrastructure investments and services provided primarily for public benefi t through commercial engagement, in kind donations or pro bono activities. Identifi cation and description of signifi cant indirect economic impacts, including extent of impacts. Details of part not reported Details of part not reported Details of part not reported Details of part not reported Details of part not reported Details of part not reported Global Pact Principles 7; 8 6 6 Report Total Total Report Total Total Total Total Total Total Total Total Total Total Report Total Total Total Total Total Total Total Total Total Total Total Total Total Report Total Total Total Total Total Total Total Total Total Total Total Total Total Total Total Total Total Report Total Total Total Total Report Total Total Total Total Total Total Total Total Total Pages 5 5 Páginas 9 9 9 9 9 9 9 9; 93 9 10 Páginas 126 126 126 126 126 126 126 126 126 126 126 130 128 Páginas 14 14 14 33 19 14 14 3 14; 15 16 55 70; 126 70 31; 126 31; 126 31; 126 25; 126 Páginas 10; 90; 93 10; 90; 93 9 38; 50; 58; 59; 62; 86; 87 Pages 87 19 42; 43 68; 69 42 56; 62; 63 38 58; 62; 86 38; 50; 58; 59; 86; 87 natura report # 11 131 Global Pact Principles 8 Details of part not reported “We reported the total materials used by weight and volume but did not classify them by non-renewable materials and direct materials used because the information is not available. We will measure this data in 2012 and report it in 2013. 8; 9 8 8 7; 8; 9 7; 8; 9 7; 8; 9 8 8 7; 8; 9 7; 8 7; 8 7; 8 7; 8 8 8 8 7; 8; 9 8 8 8 8 8 8 7; 8 7; 8; 9 7; 8; 9 We provide information about water bodies impacted by our discharges, but we do not report on the size and biodiversity value of the water body. Information not material to our business. “We reported on a number of initiatives to mitigate the environmental impacts of our products and services. Measures to mitigate noise-related impacts were not included in the report. The Natura materiality matrix prioritized environmental themes such as greenhouse gases, product impacts and in particular solid waste. Sound pollution was not included because it is not material for our business. “ Relatamos o peso total de produtos e embalagens recuperados, mas não a porcentagem em relação ao total faturado. A informação ainda não está disponível. Passaremos a fazer a gestão deste dado em 2012, desta forma, reportaremos seus resultados em 2013. O tema Resíduos é prioritário para a Natura, refl etido em nosso exercício de materialidade. Para nós, é importante atuar de forma a promover resultados para a sociedade, mais do que apenas para a Natura. Por isso, nossas ações contabilizarão também materiais além de nossos produtos. ENVIRONMENTAL PERFORMANCE INDICATORS DMA EN Aspectos Information on approach to environmental management Materials Energy Water Biodiversity Emissions, effl uents and waste Products and services Compliance Transport General Description Materials used by weight or volume. Performance indicator EN1 EN2 Energy EN3 EN4 EN5 EN6 EN7 Water EN8 EN9 EN10 Biodiversity EN11 EN12 EN13 EN14 EN15 Percentage of recycled materials used. Direct energy consumption discriminated by primary energy source. Indirect energy consumption discriminated by primary source. Energy saved due to conservation and effi ciency improvements. Initiatives to provide energy effi cient or renewable energy-based products and services, and reductions in energy requirements as a result of these initiatives. Initiatives to reduce indirect energy consumption and reductions achieved. Total water withdrawal by source. Water sources signifi cantly affected by water withdrawal. Percentage and total volume of water recycled and reused. Location and size of areas owned, leased or managed in or adjacent to protected areas and areas of high biodiversity value outside protected areas. Description of signifi cant impacts of activities, products and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas. Habitats protected or restored. Strategies, current measures and future plans to manage impacts on biodiversity. Number of IUCN Red List species and domestic species listed for conservation with habitats in areas affected by operations, discriminated by level of risk of extinction. Total direct and indirect greenhouse gas emissions by weight. Other relevant greenhouse gas emissions by weight. Initiatives to reduce greenhouse gas emissions and reductions obtained. Emissions of ozone depleting substances by weight. NOx, SOx and other signifi cant atmospheric emissions by weight and type. Total water discharge by quality and destination. Total weight of waste by type and disposal method. Number and total volume of signifi cant spillages. Weight of waste transported, imported, exported or treated deemed hazardous under the terms of the Basel Convention Appendices I, II, III and VIII, and percentage of waste shipped internationally . Identifi cation, size, protection status and biodiversity value of water bodies and their habitats signifi cantly affected by water discharge and runoff from reporting organization. Emissions, effl uents and waste EN16 EN17 EN18 EN19 EN20 EN21 EN22 EN23 EN24 EN25 Products and services EN26 Total Total Total Total Total Total Total Total Total Total Report Parcial Total Total Total Total Total Total Total Total Total Total Total Total Total Total Total Total Total Total Total Total Total Total Not 75 80 84 25; 83 28; 78 25 - 27; 75 - 85 80; 81 75 74; 75 75 Pages 81 80; 81 84 84 85 81; 85 84 83 83 83 80 78 80 78 78 75; 76 76 75; 76 76 76 83; 84 82 83 82 Partial 83 Initiatives to mitigate environmental impacts caused by products and services and extent of reduction of these impacts. Partial 74; 76; 77; 80 - 83 EN27 Percentage of products and packaging reclaimed by product category. Partial 82 natura report # 11 Compliance EN28 Transport EN29 General EN30 Monetary value of relevant fi nes and total number of non-monetary sanctions for non-compliance with environmental laws and regulations. Signifi cant environmental impacts from the transport of products and other goods and materials used in the organization’s operations, including the transport of workers. Total investment and spending on environmental protection by type. LABOR AND DECENT WORK PRACTICE PERFORMANCE INDICATORS Information on approach to managing labor practices Employment Relations between workers and management Occupational health and safety Training and education Diversity and equal opportunity Ratio of men's base salary to women's Description DMA LA Aspectos Performance indicator Emprego LA1 LA2 LA3 LA15 Relations between workers and management LA4 LA5 Total number of workers by employment type, employment contract and region. Total number and turnover rate of employees by age group, gender and region. Benefi ts provided to full-time employees that are not provided to temporary or part-time employees, broken down by major operation. Rate of return to work and retention after maternity/paternity leave, by gender. Percentage of employees covered by collective bargaining agreements. Minimum prior notice of operational changes and whether this procedure is specifi ed in collective bargaining agreements. Occupational health and safety LA6 LA7 LA8 LA9 Training and education LA10 LA11 LA12 Percentage of employees represented by formal health and safety committees comprising managers and workers and which help monitor and provide guidance on occupational health and safety programs. Rates of injuries, occupational diseases, days lost, absenteeism and total number of work-related fatalities by region. Education, training, counseling, prevention and risk control programs in place to assist employees, their families or community members regarding serious diseases. Health and safety topics covered by formal Union agreements. Average number of training hours per year, per employee, broken down by employee category. Competency management and ongoing training programs supporting continued employability and end of career management. Percentage of employees receiving regular performance and career development assessments. Diversity and equal opportunity LA13 Composition of governance bodies and breakdown of employees by category, gender, age group, minority groups and other diversity indicators. Ratio of men’s base salary to women’s LA14 Ratio of men’s basic salary to women’s by employment category. Total 42 HUMAN RIGHTS PERFORMANCE INDICATORS DMA HR Aspects HR2 HR3 Information on management approach to human rights Management and investment practices Non discrimination Freedom of association and collective bargaining Child labor Forced or slave labor Safety practices Indigenous rights Assessment Remediation Description Performance indicator Management and investment practices HR1 Percentage and total number of signifi cant investment contracts that contain human rights clauses or were submitted to human rights related assessments. Percentage of critical contractors and suppliers that were submitted to human rights related assessments and measures taken. Total hours training for employees in human rights related policies and procedures pertinent to the operations, included percentage of employees trained. Non discrimination HR4 Freedom of association and collective bargaining HR5 Total number of cases of discrimination and measures taken. Operations identifi ed in which the right to exercise freedom of association and collective bargaining may be at signifi cant risk and measures taken to support this right. Child labor HR6 Forced or slave labor HR7 Operations identifi ed in which there is signifi cant risk of use of child labor and measures taken to abolish child labor. Operations identifi ed in which there is signifi cant risk of use of forced or slave labor and measures taken to eradicate forced or slave labor. 132 8 8 7; 8; 9 Details of part not reported Global Pact Principles We give prior notifi cation of operational changes, but do not have a minimum notice period for this. This information is not material for our business. We report a number of occupational health and safety data, but not by region. This information is not material for our business. We report the breakdown of the work force in accordance with our view of diversity. We do not segment the data by gender and age group. This information is not material for our business. 6 1; 3 3 1; 6 1 Details of part not reported Global Pact Principles 1; 2; 4; 5; 6 1; 2; 4; 5; 6 1; 2; 4; 5 1; 6 1; 3 1; 4; 5 1; 4; 5 Total Total Total Total Total Total Total Total Total Total Report Total Total Total Total Total Partial Total Partial Total Total Total Total Total Partial 67 74 89 35 35; 39; 41 27; 33 45 36 36; 39 41 Pages 35; 41 39 43 41 43 43 46 45 46 45 36; 37 37; 43 38 40; 41 Total Total Total Total Total Total Total Total Total Total Report Total Total Total Total Total Total Total 31; 35 36; 57; 60 33 43 49; 57; 60 49; 57; 60 45 60 33; 34 33; 34 Pages 57; 60 57; 59 36 33 43 49; 57; 60 49; 57; 60 natura report # 11 Security practices HR8 Indigenous rights HR9 Assessment HR10 Remediation HR11 Percentage of security personnel submitted to training in human rights related policies or procedures as relevant to the operations Partial 36 Total number of cases of breaches of indigenous peoples' rights and measures taken. Percentage and total number of operations that have undergone human rights reviews and / or impact assessments. Total Total Number of human rights complaints fi led, addressed and resolved formally through complaint mechanisms Partial SOCIAL PERFORMANCE INDICATORS DMA SO Aspects Information about approach to social management Surrounding communities Corruption Public policies Anti-competitive practices Compliance Total Total Total Total Total Total 60 33 34 58; 62; 86 58; 62 36; 69 63 68 68 133 1; 2 We provide information on our safety practices, which include Human Rights training. However, we do not report on the percentage of security teams undergoing training and third parties participating in training as a proportion of the whole. These data are not available. 1 1 1 Performance indicator Description Report Pages Details of part not reported Global Pact Principles Surrounding communities SO1 SO9 SO10 Corruption SO2 SO3 SO4 Public policy SO5 SO6 Anti-competitive practices SO7 Compliance SO8 Nature, scope and effectiveness of any programs and practices to assess and manage the impacts of operations on the community, including startup, operation and closure. Operations having signifi cant potential or real negative impacts on local communities. Preventive and mitigating measures implemented in operations having signifi cant potential or real negative impacts on local communities. Percentage and total number of units submitted to risk assessments related to corruption. Percentage of employees trained in organization's anticorruption policies and procedures. Measures taken in response to cases of corruption. Positioning on public policy and participation in the drawing of public policy and lobbying. Total amount of fi nancial contributions and contributions in kind to political parties, politicians or related institutions discriminated by country. Total number of legal actions related to anti-competitive, market sharing or monopolistic practices and their outcomes.; Monetary value of relevant penalties and total number of non-monetary sanctions resulting from non-compliance with laws and regulations. PRODUCT AND SERVICE RESPONSIBILITY PERFORMANCE INDICATORS DMA PR Aspectos Performance indicator Customer health and safety PR1 PR2 Information about management approach to products and services Customer health and safety Product and service labeling Communication and marketing Customer privacy Compliance Description Product and service life cycle phases at which impacts on health and safety are assessed with view at improving and percentage of products and services subject to these procedures. Total number of cases of non-compliance with regulations and voluntary codes related to impacts caused by products and services on health and safety during their life cycle, discriminated by type of outcome. Product and service labeling PR3 Communication and marketing PR6 PR4 PR5 PR7 Customer privacy PR8 Compliance PR9 Type of product and service information required in labeling procedures, and percentage of products and services subject to such requirements. Total number of cases of non-compliance with regulations and voluntary codes related to product and service information and labeling, broken down by type of outcome. Practices related to customer satisfaction, including results of surveys measuring satisfaction. Adherence to laws, standards and voluntary codes related to marketing communication, including advertising, promotions and sponsorship. Total number of cases of non-compliance with laws, standards and voluntary codes related to marketing communication, including advertising, promotions and sponsorship, broken down by type of outcome. Total number of substantiated complaints regarding breaches of customer privacy and loss of customer data. Penalties in connection with the supply and use of products and services. 1 10 10 10 10 10 Details of part not reported Global Pact Principles 8 8 Total Total Total Total Total Total Total Total Total Total Total Total Total Total Total Total Report Total Total Total Total Total Total Total Total Total 63; 64 64 60 19 36 19; 69 69 69 68 68 53 55 55; 81 54 54 55 Pages 55 55 80; 81 55 34; 48; 53 54 54 49 55 natura report # 11 credits Corporate Affairs and Government Relations area Publisher Rodolfo Witzig Guttilla (Mtb 17.739/SP) Overall Coordination Leandro Machado and Rosangela Ferro Support Andressa Malcher and Renato Gyotoku Corporate Finance area Financial information Alexandre Nakamaru, José Wanderley and Bruno Ifanger Investor relations Helmut Bossert and Fabio Cefaly Sustainability area Socio-environmental information Denise Alves, Karina Aguilar and Ingrid Camilo Text and proofi ng Report Comunicação Editing Álvaro Almeida (Mtb 45.384/RS) and Michele Silva (Mtb 11.829/RS) Reports Carolina Kannebley, Giedre Moura and Mayara Luma Lobato Proofi ng Katia Shimabukuro Translation into english Raymond Maddock Art work and graphical design Modernsign Design e Inovação Art direction Wilson Spinardi Junior Art edition Ailton Augusto Silva, Daniela Giorgia and Marcelo Schulze-Blanck Production coordination Daniela Giorgia Layout Manoel Araújo and Marcelo Schulze-Blanck NATURA BRASIL ROD. 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SW-COC-003581 © 1996 Forest Stewardship Council Este impresso foi produzido pela MARGRAF, com papel oriundo de floresta certificada e outras fontes controladas, o que demonstra nossa preocupação e responsabilidade com o meio ambiente 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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