Natura &Co Holding S.A.
Annual Report 2012

Plain-text annual report

natura report 2012 FULL GRI VERSION natura report 2012 content OUR ESSENCE 2 Reason for Being . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Vision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Beliefs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Culture Drivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 WHERE WE ARE Message from Chairmen of the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Message from the Executive Committee . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Natura . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Highlights for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Awards and Recognitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Our market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Progress in Our Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Executive Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Internal Audit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Senior Management Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Natura Management System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 WHAT WE AIM FOR Strategy and Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Sustainability Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Priority Sustainability Topics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Relationship Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Climate Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Social Biodiversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Solid Waste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Sustainable Entrepreneurship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Education. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 WHO WE WORK WITH Consumers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Quality of relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Ombudsman’s Offi ce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Consultants and NCAs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Supplier communities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Surrounding communities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 OUR FOOTPRINT Natura Value Chain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Creation of Social Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 Instituto Natura . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 Support and sponsorship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 Creation of Environmental Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 Carbon Neutral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 Water and Effl uents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 Waste Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 Creation of Economic Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 About this Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 Global Compact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 Assurance Declaration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 GRI Declaration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 Editorial Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 natura report 2012 our essence international brand, Because of its corporate behavior, the quality of its relationships, and the quality of its products and services, Natura is bound to become an identifi ed with the community of people who are committed to building a better world, based on better relationships with themselves, with other people, with the nature they are part of, and with the whole. 3 GRI 4.8 GRI 4.8 Our Reason for Being is to create and sell products and services that promote well-being/being well. WELL BEING is the harmonious, pleasant relationship of the individual with himself, with his own body. BEING WELL is the empathetic, successful, and pleasurable relationship of an individual with other people, with nature, and with the whole Life is a chain of relationships. Nothing in the universe stands alone. Everything is interdependent. Natura believes that valuing relationships is the foundation of the great 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 enhance quality of relationships. The greater the individual diversity, the greater the wealth and vitality of the whole system. The search for beauty, a genuine aspiration of every human being, should 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 towards the evolution of society and its sustainable development. natura report 2012 GRI 4.8 4 culture drivers COMMITMENT TO THE TRUTH Being authentic and true, honoring our own commitments and commitments to others. Standing for what we believe in and doing what we say we will. CARING FOR RELATIONSHIPS Working together is better. Being generous, open and empathetic with others, creating a climate of trust based on quality ties. Recognizing that others are different from us, listening without judging, respecting their opinions and accepting differences to fi nd the best solution for the whole. CONTINUOUS IMPROVEMENT Improving always, evolving in every dimension: material, emotional, intellectual and spiritual. Continuously seeking self-knowledge, recognizing our talents and 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 about details. Insisting on doing everything simply, but with beauty, quality and care about the details. Having Being disciplined to honor what has been agreed upon. INNOVATION Being entrepreneurial, taking a lead role, doing what has never been done before and taking the risks accordingly. Continuously challenging the ways things are done and fi nding encouragement through the search. SUSTAINABLE DEVELOPMENT Consistently delivering superior results and relevant value in the economic, social and environmental areas. Managing the short term, with a commitment to build the company’s future. PLEASURE AND JOY Facing daily challenges with optimism, lightheartedly and in a good mood. Celebrating achievements, fueling the enthusiasm and energy that encourage us to grow and continue to do more and better. Finding satisfaction at work and affi nity with our own purpose in life, conveying meaning to everything we do. natura report 2012 MESSAGE FROM THE CHAIRMEN OF THE BOARD The future we dream of 5 GRI 1.1 e 1.2 Some 72 years ago, the book Brazil, Land of the Future was released in six languages, depicting a country with great po- tential to the world. Its author, Austrian writer and journalist Stefan Zweig, tormented by the Second World War and the unbounded senselessness of that historical moment, saw the right geographic and cultural conditions in Brazil for the development of fairer, happier and more tolerant society. The book had such a great impact that its title practically became an epithet. And for many, it was a prophecy. The highly unusual conditions of this early 21st century again form a scenario of global crisis, of complex interac- tion between economic, social and environmental phe- nomena. In this context, while the economies of the so- called developed world oscillate between slow recovery and the agony of recessive policies, we follow the emer- gence of countries such as China, India, Mexico and even Brazil. Has the future envisioned by Zweig fi nally left utopia and become a reality? We do not believe it has yet. We have made progress, it’s true. In Brazil, in the past 25 years, from the enact- ment of the new Constitution, consolidation of demo- cratic institutions and stabilization of the economy, new and multiple instruments have allowed advances in individual and collective rights, access to educa- tion, jobs and income, and environmental protec- tion. At the same time, we must care for these achievements and consolidate them so that other challenges can be solved and our society continues to evolve. We are proud to have reached in 2012 the highest level in our history in terms of quality of service we provide to more than 1.5 million Natura’s con- sultants, with whom we share wealth and dreams, anticipating in each one of them a huge entrepreneurial capability, which can produce innovative solutions for the whole society. We are excited about the transfor- mation potential of our relationship network, which expands into new geographical areas and that can be boosted and accelerated by new digital technologies. After all, what drives this company is the eagerness to transform so- cial and environmental challenges into innovative business; to consolidate a corporate culture that is more supportive and committed to the gen- eration of shared prosperity; to produce wealth for individuals and society; to relate to more con- scientious consumers; to build civic awareness and enhance quality of life. We understand that as society we still have a long way to go until the awareness that we are all inter- dependent and that our individual and collective deci- sions have a material impact on our habitat is dissemi- nated. Such disseminated awareness is, in our opinion, the key for making it possible to use our creativity, knowledge and technologies to redesign our way of life. Therefore, we believe that the qualities cherished by so many and that gave rise to Zweig’s apology for Brazil de- serve a new interpretation, a broadened understanding of what the Fundamentals of a new global society should be. For this reason, at the moment we thank all who contribut- ed to the positive results for 2012, we reaffi rm our commit- ment to work alongside our relationship network to move forward in the development of this future. Latin America, the region where our main mar- kets are located, experiences a period of steady growth, although heterogeneity, and social in- equalities persist. Meanwhile, at a global level, the current crisis may give the company the opportunity to establish the foundations of a new capitalism that fosters a sustainable, fair, and inclusive model of development. The future, therefore, is under construc- tion, and this effort is the responsibility of all citizens, governments, civil society or- ganizations and companies. The vision of undertaking a collective project around common purposes has driven Natura over time. Our fundamentals, which are based on the pursuit of quality relationships, have been shared by a growing number of people. Friendly greetings from ANTONIO LUIZ DA CUNHA SEABRA GUILHERME PEIRÃO LEAL PEDRO LUIZ BARREIROS PASSOS Co-Chairmen of the Board of Directors natura report 2012 6 GRI 1.1 e 1.2 MESSAGE FROM THE EXECUTIVE COMMITTEE The beginning of a new cycle In 2012, we experienced, with great enthusiasm, the beginning of a new cycle for Natura. We achieved the the highest level in our history in terms of the quality of the service we provide to our consultants, to such an extent that we cut the average order delivery time from 6 to 4.5 days in the second half of the year. This and other initiatives helped increase productivity of our network by 2.9% in the fourth quarter of the year. Our International Operations, meanwhile, already represent around 11.6% of Natura’s total revenue and continue to expand at a brisk pace, accompanied by profi tability gains, which reaffi rms Latin America’s position as a highly relevant business platform. At the same time, we confi rmed our belief in the directions set for the future: We took our fi rst steps towards signifi cantly improving the buying experience by means of the use of tech- nology and we added to our portfolio another international brand, which shares our vision, is present in other geographical regions and, like us, prizes the quality of relationship. The acquisition of the control, in December, of Australia’s Ae- sop brand accrues to a sequence of record investments we have made in recent years that represent the bases of a new cycle of growth for Natura. Changes that enabled our future logistics model, and should now help the company use digi- tal technology as in novation vectors applied to the quality of relationships rather than just as a support to our trans- actions. This volume of resources is the outcome of our consistent economic results over time. In 2012, Natura’s consolidated net revenue totaled R$ 6,346 billion, EBITDA reached R$ 1,511 billion, and net profi t was R$ 861 million. The positive results refl ect the effi cient conduction of our strategy to increase consumer’s buying frequency and the variety of products purchased in Brazil. They also refl ect successful launches of products that fi lled in gaps in segment where we were not yet present, particularly perfumery, revealing the strength of our innovation process. We sought inspiration in our history of expansion in Brazil to mold the strategy of growth in other Latin American countries, which includes: signifi cant at- traction and retention of consultants, who already total 300,000 in the region; increase of consumer awareness of and preference for our brand; and progress in local production by means of suppliers, which allows for greater fl exibility in distribution and better eco- nomic, social and environmental results. And the more we evolve in our social and environmental practices, the more we no- tice the opportunities for innovation and the challenges ahead of us. If, on one side, we maintain our efforts to reduce our im- pact, on the other side, we recognize that there is still much to do, for example, in the management of our waste, in order to turn this and other social and environmental is- sues into value drivers for the business. With the opening of Núcleo de Inovação Natura Amazônia (Natura’s Amazon Innovation Cen- ter) in Manaus, State of Amazonas, we strength- ened our commitment to acting as one of the agents that drive the potential future develop- ment of Pan-Amazonian social biodiversity. In times when a “like” on the Internet may be more infl uential than an advertisement, we decid- ed to strengthen the technological platform in our business strategy in order to bring our 1.5 million consultants even closer to the nearly 100 million consumers, improving the quality of service and the buying experience. Our commitment to placing the quality of relationships as a top priority in our way of doing business remains strong so that it can be reaf- fi rmed as a distinguishing element of our corporate behavior. We are a dynamic organization in a net- work-linked world in continous transformation, and, for this reason, we must strengthen ties through com- mon values. In this scenario, we see the opportunity to be increasingly connected to people’s needs, using our innovative capability to meet these emerging demands and, therefore, boosting our future strategy, which fos- ters the materialization of our Reason for Being, the well being well, atllowing the expansion of the Natura relationship network by offering new brands, products, services and business. Alessandro Giuseppe Carlucci Agenor Leão de Almeida Junior João Paulo Ferreira José Vicente Marino Marcelo Cardoso Roberto Pedote Enjoy the reading! NATURA EXECUTIVE COMMITTEE natura report 2012 7 GRI 2.1-2.9 natura Born out of a cosmetics and relationships passion, Natura has built its trajectory committed to sustainable development, quality of relationships and promotion of the Well Being Well. A leading player in the segment of personal care products, fragrances and cosmetics in Brazil, Natura operates through direct sales and currently rallies 1.5 million Natura consultants (NCs). In order to support its relationship network, Natura employs 6,700 staff in Brazil, spread between its head offi ce in Cajamar (SP), and four commercial offi ces - Salvador (State of Bahia), Alphaville (State of São Paulo), Rio de Janeiro (State of Rio de Janeiro) and Porto Alegre (State of Rio Grande do Sul). The company also has plants, and research and technology centers in Cajamar and in Benevides (State of Pará), and eight distribution centers spread nationwide that handle an average volume of 70,000 daily orders, and deliver one order per second to the consultants. Natura also has a strong presence in Latin America, where it deploys nearly 304,400 con- sultants. The company’s regional head offi ce located in Buenos Aires, Argentina, coordinates operations in that country. Regional head offi ces are also located in Chile, Colombia, Mexico, Peru and France. Each of these countries also has a distribution center. Our products are also marketed in Bolivia through local distributors. Natura’s own operation in Paris (France) is in line with the goal to become a global brand and, in addition to selling products, we carry out research in partnership with local laboratories that closely follow the trends and progresses in the fi eld of beauty and well-being. In December 2012, Natura purchased a 65% interest in Aesop, an Australian premium cosmet- ics manufacturer that operates in Oceania, Asia, Europe and North America. The two compa- nies will continue to operate independently. Since 2004, Natura has been a publicly-held company with shares listed on the São Paulo Stock Exchange (BM&FBovespa). natura report 2012 8 HIGHLIGHTS FOR THE YEAR ECONOMICS _Natura’s net revenue increased 13.5% totaling 6,346 billion, and net income was R$ 861 million, 3.7% higher than in the previous year; _Natura’s international operations accounted for a record rate of 11.6% of the company’s net revenue, with enhanced profi tability; _We reduced average order delivery time from 6 to 4.5 days in the second half of the year; _The strategy to increase the productivity of consultants in Brazil interrupted the drop trend and, at the end of 2012, it was practically unchanged from 2011. Among Natura Consultant Advisers (NCAs), average earnings soared 21%; _Natura purchased a 65% interest in Australian Aesop, a global brand that operates in Oceania, Asia, Europe and North America; We made signifi cant investments in infrastructure and technology in 2012, totaling R$ 437 million. ENVIRONMENTAL _Natura reduced its absolute Greenhouse gas emissions by 7.4% from 2008 to 2012. However, this reduction was not enough to meet the target of 10%. As to relative emissions, they have been reduced by 28.4% since 2006; _The company’s hydric footprint inventory became an international case study at the Planet Under Pressure conference held by UNESCO; _Solid waste generation rate grew from 20.01 grams per unit produced to 25.56, but did not meet the target to increase effi ciency; _Natura’s innovative research proved the feasibility of producing palm oil in an agroforestry system, that is, combining the cultivation of palm with other plant species and ensuring a more sustainable production of palm; _ Natura Amazon Innovation Center (NINA) was set up with the mission to stimulate the creation of a scientifi c and technological network in the region. Four research institutions have already become Natura’s partners in this project. _Our business volume in the Amazon region grew 88%, totaling R$ 122 million. SOCIAL _The company increased the loyalty of NCs and NCAs to 24% and 40%, respectively, which represented a signifi cant improvement in terms of the quality of our relationship with the consultants. _There was a 2 basis point increase in Natura’s organizational climate survey after two years of drop, reaching a 72% favorable response rate. _The quality of relationships with suppliers and with supplier communities dropped in the year, reaching 22.6% and 23%, respectively; _The Programa Crer Para Ver (Believing is Seeing) raised the record amounts of R$ 13 million in Brazil and R$ 4.5 million in Latin America International Operations. The resources obtained from the sales of the exclusive Crer para Ver product line are transferred to the Natura Institute in Brazil and invested in the other countries. natura report 2012 9 GRI 2.10 OUR MARKET In 2012, we were once again able to attest the strength of our market and of the Natura brand. The Personal Hygiene, Fragrances and Cosmetics market in Brazil showed a strong growth of 17.9% in the fi rst ten months of 2012, according to data published by the Perfumery and Beauty Products Industry Union of the State of Sâo Paulo (Sipatesp)/Brazilian Association of the Cos- metics, Fragrances and Toiletries Industry (Abihpec). These data show that this market is less sensitive to economic oscillations and more related to the available income of consumers. The Personal Hygiene category showed stronger growth, particularly due to the launching of hair and deodorant products. During this period, Natura’s market share in the Personal Hygiene category dropped 90 basis points while market share in the Cosmetics and Fragrances categories increased. In 2013, the company’s innovation plan should enable us to increase competitiveness in the Personal Hy- giene category. AWARDS AND RECOGNITIONS Natura’s sustainability initiatives and practices and business improvement actions were recog- nized through 88 awards and national and international rankings in 2012. The company ranked for the second consecutive year as the second most sustainable company in the world by the Canadian organization Corporate Knights and by Bloomberg. In Brazil, Natura was elected the Company of the Year by the “Anuário Época Negócios 360o” (360o Época Business Yearbook), in a review that includes fi nancial performance, corporate governance, social and environmental responsibility, human resources policies, innovation ca- pacity and vision of the future. Natura was also included in the ranking of the 50 most valuable Latin brands organized by Brandz, WPP and Millward Brown; and was considered the second company in the world with the best social, environmental and corporate governance practices according to the World’s Most Ethical Companies Award organized by the Ethisphere Institute. Natura’s innovative capacity was recognized at The Long-Term Capitalism Challenge (The Har- vard Review / McKinsey M-Prize), where Natura won an award with the case study “Innovation in Well-Being - the Creation of Sustainable Value at Natura”, which presents the company’s model of innovation focused on sustainability and social change. We were second at the Prêmio Finep de inovação (Finep Innovation Award), in the Large Companies category, which is the most important innovation award in Brazil. Please see below Natura’s main recognitions in the year 2012. natura report 2012 10 GRI 2.10 2012 4th 2nd 2012 AWARDS AND RECOGNITIONS IN 2012 CUSTOMER SERVICE Recognition The 25 Best Companies in Customer Service in Brazil COMMUNICATION COMMUNICATION Recognition Companies that Communicate Best with Journalists Organization IBRC (Ibero-Brazilian Customer Relationship Institute / Exame Magazine Category Best Companies in the Customer Service in Brazil Cosmetics Sector Ranking Organization Category Negócios da Comunicação Magazine Hygiene/Cleaning/Cosmetics x Aberje Award Aberje – Brazilian Association of Corporate Communication FINANCE FINANCE Recognition Organization Best of Dinheiro IstoÉ/Dinheiro Magazine Digital Media - Natura Campus Portal – National winner Communication and Marketing Campaign with the case study “Natura Plant no Cinema” (“Natura Plant at the Movie Theater”) – National winner Print Media with the 2011 Annual Report – Southeastern Region Winner 1st 1st 1st Category Best Company in the Pharmaceutical, Hygiene and Cleaning industry 2012 1st Annual Report – Best of the Largest Commercial Association of the State of São Paulo General ranking Stock Index with Special Corporate Governance – New Market (IGC-NM) BM&FBovespa General industry Natura was among the fi rst 10 of the 100 companies listed at BM&FBovespa to be included in the New Market segment 37th 2nd x State Value-Added Tax (ICMS) Top Taxpayers – State of Paraná The 1000 Top Selling Companies - Argentina Agência Estado Companies Ranking Valor 1000 Commerce Federation of the State of Paraná – Fecomércio and Indústria & Comércio newspaper General ranking 89th Mercado magazine General ranking 739th Agência Estado (Estado Group) and Economática Valor Econômico newspaper General ranking of the 10 Best Companies listed at Bovespa Best Pharmaceutical and Cosmetics Company General ranking 5th 2nd 67th natura report 2012 11 INSTITUCIONAL INSTITUCIONAL Recognition The 50 Best CEOs in Latin America Organization Harvard Business Review Category General ranking The 100 Most Innovative Companies in IT Information Week Brazil and IT Mídia The 100 Most Prestigious Companies Época Negócios magazine The Most Admired Companies in Brazil Carta Capital magazine Pharmaceutical, Hygiene and Cosmetics Industry General ranking The Most Prestigious Companies The Most Prestigious Brand in the Beauty category Brazil’s Most Admired Company in Latin America Most Admired Company in Brazil Most Admired Company in the Comestics, Fragrances and Toiletries Industry Beautycare Brazil Featured Company Beautycare Brazil Internalization DCI – Companies of the Year DCI – Diário do Comércio newspaper Most admired company in the Cosmetics, Hygiene and Cleaning category 2012 44th 1st 37th 2nd 1st 4th 2nd 1st 1st 1st DSN Global 100: The Top Direct Selling Companies in the World Direct Selling News World Ranking of the Largest Direct Selling Companies 4th Valuable Executive Valor Econômico newspaper Forum of Corporate Leaders Forum of Leaders Leaders of Brazil LIDE - Grupo Líderes Empresariais Alessandro Carlucci, Chief Executive Offi cer of Natura, was elected valuable executive in the Hygiene and Cleaning category Alessandro Carlucci, Chief Executive Offi cer of Natura, was recognized as a leading executive in the Hygiene, Cleaning and Cosmetics industry Beauty and Well-Being Industry category 1st x 1st natura report 2012 12 Best Company in the Consumer Goods sector Best company in the Pharmaceutical, Hygiene and Cosmetics industry Best and Largest – General Ranking 100 largest publicly-traded companies in market value 50 largest companies in sales volume Company of the Year Largest Groups Largest Groups in Latin America Largest Publicly-Traded Companies in Latin America Best Reputation in the Cosmetics, Hygiene and Personal Care industry Company with the Best Reputation appointed by the NGOs General Corporate Reputation Ranking Most Responsible Companies 5th 66th 26th 33rd 61st 115th 57th 3rd 4th 33th 31st Best and Largest Exame magazine Corporate Reputation Monitor - Chile Merco Chile LIDE Corporate Marketing Award LIDE - Grupo Líderes Empresariais Internationalization Marketing 1st Tijera de Plata Award - Argentina Cámara Argentina de La Moda (CAM) Veronica Mendoza, offi cial makeup artist from Natura Argentina, was recognized for the best makeup in fashion show Finep Innovation Award Image Ranking – Top 100 Best - Argentina Corporate Reputation Index (IRCA) - Peru The 100 Companies with the Best Reputation in Argentina Financial Sponsor of Studies and Projects (Finep) Large Company Apertura magazine General ranking Centrum Pontifi cia Universidad Católica del Perú y Arellano Marketing iEco de Clarín Companies with the Best Reputation in Peru Elected by NGOs General ranking Multilatinas Ranking Reputation Index América Economia magazine DOM Strategy Partners General ranking Multilatinas general ranking 1st 2nd x x 5th 35th 61st 9th natura report 2012 13 2012 x 1st 22nd 1st 2012 1st 1st 2nd 2nd 6th 6th 6th 1st 1st 1st 1st 15th 1st 2º 1st 1st x 1st INSTITUCIONAL INSTITUCIONAL (CONT.) (CONT.) Recognition The Bizz World’s Most Ethical Companies Organization World Confederation of Business Category Corporate Excellence EthiSphere Health and Beauty Brazilian Transnational Companies Ranking Fundação Dom Cabral (Dom Cabral Foundation) BRAND BRAND Recognition “As Marcas Cariocas” (The preferred brands by the people from the city of Rio de Janeiro) Organization Editora O Globo The Most Valuable Brands Interbrand The Most Valuable Brands in Brazil BrandAnalytics, Millward Brown and IstoÉ Dinheiro magazine Reliable Brands Seleções magazine Brands for Decision Makers Jornal do Comércio newspaper (State of Rio Grande do Sul) Raking of the 50 Most Valuable Latin Brands Brandz, WPP and Millward Brown Ranking by transnationality index Distinction for its geographic dispersion Category Cosmetics Respect for the Environment Children’s Hygiene Sunscreen Lotion The 10 Most Valuable Brands in Brazil The Most Valuable Brands The Strongest Brands Moisturizers Social Responsibility Leading Brand in the Hygiene and Beauty Industry Leading Brand in Environmental Preservation 15th - Natura (Brazil) - US$ 3.3 billion IMPAR Award - Preferred Brands and Regional Affi nity Index IMPAR Award - Preferred Brands and Regional Affi nity Index Impar magazine (State of Santa Catarina) Cosmetics – Perfumes/ Cosmetics Impar magazine (State of Paraná) Cosmetic – Perfumes/ Cosmetics Brazil’s Intangible Assets Awards -GDP Padrão Group and Consumidor Moderno magazine Brands & Leaders Award – Canoas (State of Rio Grande do Sul) Brand Recall Award Chamber of Industry, Commerce and Services of Canoas, Diário de Canoas newspaper and Ulbra (Lutheran University of Brazil) Jornal do Commercio newspaper (Recife, State of Pernambuco) – Harrop Institute of Market Research Talent Asset Special Category The 5 Best Companies in the Non-Durable Consumer Goods sector The 50 Best Companies in the Management of Intangible Assets What Brand Makes You Think of Environmental Preservation / Recycling / Sustainability? Perfumes/Cosmetics store 2nd Green Recall Award 1st natura report 2012 14 BRAND BRAND (CONT.) (CONT.) Recognition Ranking of the 100 Most Valuable Brands in Brazil Ranking of the Most Prestigious Brands - Argentina Corporate Reputation Top of Mind Top of Mind – The Brands of the State of Rio Grande do Sul Organization The Brander/IAM magazine Prensa Económica magazine Amanhã magazine and Grupo Troiano de Branding Datafolha and Folha de São Paulo newspaper Amanhã magazine Successful Top of Mind Brands – State of Minas Gerais Mercado Comum magazine – State of Minas Gerais Top Vale Vale Paraibano newspaper MARKETING, PRODUCT AND PACKAGING MARKETING, PRODUCT AND PACKAGING Recognition Organization Socially Responsible Packaging - Colombia Pack Andina IF Design Award IF Design MaxiMídia RBS Group ABRE Award of Brazilian Packaging ABRE – Brazilian Packaging Association Elle Beauty Award - Mexico Elle magazine – Expansión Group Category General ranking General ranking Cosmetics Manufacturer segment Most Remembered Brand in the Environment Category Category: Perfumes Category: Concern for the Environment The Kaiak perfume won in the categories Top Man, Top Junior and Filão da Classe C (Lower Middle Class Favorite) Leadership Category: Cosmetics and Beauty Products Leadership Category: Environment 2012 40th 9th 1st 1st 2nd 1st 1st 1st 1st Social Responsibility 2nd Category 2012 Packaging: Ekos Máscara Hidratante and Ekos Creme para Pentear Packaging, in the sale packaging category “Best Use of the Movie Theater” with the Plant advertising campaign Grand Prix Perfume Packaging: Colônia Ekos Mate Verde Packaging of Product Family: Vôvó Graphic Design in Cosmetics: Humor Refresh Packaging of Product Family: Ekos Line Green Tea Best Product by Price and Quality: Natura Ekos Nuts Hands Moisturizer 1st 1st 1st 1st 1st 1st 2nd 3rd 1st natura report 2012 15 MARKETING, PRODUTO E EMBALAGEM MARKETING, PRODUTO E EMBALAGEM (CONT.) (CONT.) Organization Recognition Nova Beauty Award Nova magazine Mercúrio Award WorldStar Packaging HUMAN RESOURCES HUMAN RESOURCES Recognition Marketing Association of Argentina Organization 50 HRs Most Admired in Brazil Gestão e RH The 150 Best Companies in People Management Practices Company of the Dreams of Youngsters Company of the Dreams of Executives Gestão e RH DMRH and Cia de Talentos DMRH and Nextview People Great Place to Work – Latin America Great Place To Work Institute Great Place to Work - Colombia Supercompanies, the Places Where Everyone Wants to Work Great Place To Work Institute and Dinero magazine Expansión Group Merca 2.0 Magazine Merca 2.0 Top of Mind Estadão HR O Estado de São Paulo newspaper Category Oily Hair: Shampoo and Conditioner – Ekos Pitanga Body: Bath Oil – Amó Xodó Makeup: Nude Lipstick – UNA line Category: Large Companies’ Sustainable Marketing Humor Category Company of the Year Homage to Natura as one of the 20 Most Admired Companies by HR professionals Homage to Ney Silva, People Manager Offi cer, as one of the Most Admired HR professionals Featured in the Leadership category Company of the dreams of youngsters General ranking General ranking – The Best Companies to Work for in Latin America – from 50 to 500 employees General ranking Category: less than 500 employees Lorena Carrasco, Marketing Offi cer at Natura Mexico, was recognized as one of the 50 Marketing leaders in Mexico Best Practices in Social Responsibility 2012 1st 1st 1st 1st 1st 2012 1st x x x 8th 4th 39th 17th 8th x 1st natura report 2012 INVESTOR RELATIONS INVESTOR RELATIONS Recognition IR Magazine Brazil Awards Transparency Trophy SUSTAINABILITY SUSTAINABILITY Recognition The 20 Most Reputable Companies in Argentina CAF’S First Productive Transformation Award Socially Responsible Company Badge (ESR) - Mexico Organization IR Magazine, PR Newswire, RI magazine and IBRI - Brazilian Institute of Investor Relations National Association of Financial, Administrative and Accounting Executives (Anefac), Accounting, Actuarial and Financial Research Institute Foundation (Fipecafe) and Serasa Category Consumer Goods and Services Sector Best Social and Environmental Sustainability Best Corporate Governance Natura was recognized as one of the 5 most transparent publicly-traded companies with sales of up to R$ 8 billion Organization Clarín newspaper Category Ranking of Environmental Commitment CAF, Development Bank Of Latin America TOP 10 Ranking Cemefi and Aliarse Green Companies Época Época Negócios magazine 360o Época Negócios Yearbook Época Negócios magazine, Dom Cabral Foundation, Brazilian Association of Corporate Communication (Aberje) and Economática GreenBest Greenvana Global 100 Most Sustainable Corporations in the World Corporate Knights Inc., Innovest Strategic Value Advisors, Asset 4 and Bloomberg Exame Sustainability Guide Exame magazine Natura Mexico was recognized for its socially responsible management as part of the company’s culture and business strategy Green Companies Distinction - Industrial Sector Natura was recognized as one of the 20 companies with Best Environmental Practices Company of the Year Hygiene and Beauty Industry Distinction in the Human Resources Category Distinction in the Innovation Category The Natura Ekos Açaí Safra line won in the Beauty and Personal Care Category by popular vote and by the decision of the Greenbest Committee 10 TOP Personalities of the Year: Guilherme Leal, Co- Chairman of Natura, was among the top 10 100 Most Sustainable Corporations in the World One of the 20 benchmark companies in sustainability natura report 2012 16 2012 1st 1st 1st 7th 2012 2nd 1st x 1st x 1st 1st 1st 1st 1st x 2nd x 17 2012 x 1st 4th 8th 2nd 1st 1st 1st 1st SUSTENTABILIDAD SUSTENTABILIDAD (CONT.) (CONT.) Recognition Best Practices in Social Responsibility - Mexico Organization Mexican Center for Philanthropy M&E LatinFinance Sustainability Stars Index (Brazil) Management & Excellence Corporate Civic Awareness Award Amcham -Argentina Global Top Nine AmCham - American Chamber of Commerce in Argentina Ökovision Sustainability Leadership Award Ranking of the 100 Most Sustainable Companies according to the Media Mídia B and Portal Imprensa Category One of the 20 benchmark companies in sustainability Best Practice in Corporate Social Responsibility in the Community Relations category with the program "Believing is seeing: boosting Education from the heart of the company" The best in effi ciency of social investments of the most sustainable companies in the Ibovespa Expenditures with social investments in 2011 in millions of Brazilian reais Sustainability-Oriented Corporate Management Global Top Nine General ranking Fundación Chile Ranking: The Most Well-Prepared Companies for Climate Change National Ranking of Corporate Social Responsibility - The Socially Responsible Chilean Companies The 50 Best case studies in Corporate Social Responsibility - Argentina Redefi ning the Future of Growth: The New Sustainability Champions The Harvard Business Review/McKinsey M-Prize for Management Innovation: Long-Term Capitalism Challenge Consumers TOP - Excellence in Consumer Relations and Respect for the Environment – State of Rio Grande do Sul Consumers TOP - Excellence in Consumer Relations and Respect for the Environment – State of Rio Grande do Sul Fundación Chile y Capital magazine Pharmaceutical, Hygiene, Cosmetics and Cleaning Industry Prohumana Foundation and Qué Pasa magazine The Most Well-Prepared Companies for Climate Change Apertura magazine Honors - Socially Responsible Chilean Companies 13th World Economic Forum / The Boston Consulting Group General ranking Harvard Business Review and McKinsey &Group Case study National Institute of education of Consumers and Citizens (INEC) and Consumidor Teste Natura was among the 10 fi nalists with the case study Innovation in Well-Being - the Creation of Sustainable Value at Natura National Institute of education of Consumers and Citizens (INEC) and Consumidor Teste General ranking (among 40 companies) – Certifi ed company as 2012 CONSUMERS TOP natura report 2012 x 9th x x 18 PROGRESS IN OUR COMMITMENTS Learn more about Natura’s sustainability commitments and targets that are regularly moni- tored by our senior management. They are an integral part of the company's Environmental Budget and guide all activities and relationships throughout the year. 2012 TARGET: 2012 PERFORMANCE 2013 TARGET: QUALITY OF RELATIONSHIPS Employees Achieve a 30% employee loyalty rate in Brazil. NOT ACHIEVED The rate was up 10 basis points to 29%. Achieve a 31% employee loyalty rate in Brazil. Achieve a 74% favorability rate in the Natura climate survey. Consultants and NCAs Achieve a 21% loyalty rate among consultants in Brazil and 36% in international operations. NOT ACHIEVED The favorability rate was up 20 basis points to 72%. Achieve a 73% favorability rate in the Natura climate survey. ACHIEVED The loyalty rate reached 24% among NCs in Brazil and 38% in international operations. Achieve a 25% loyalty rate among consultants in Brazil and 39,2% in international operations. Achieve a 33% loyalty rate among Natura Consultant Advisors in Brazil. ACHIEVED The loyalty rate grew to 40%. Achieve a 39% loyalty rate among Natura Consultant Advisors in Brazil and 49,1% in international operations. Consumer Achieve a 54% consumer loyalty rate in Brazil. NOT ACHIEVED The loyalty rate dropped to 51%. Achieve a 54% consumer loyalty rate in Brazil. Suppliers Achieve a 29% loyalty rate among suppliers. NOT ACHIEVED The loyalty rate achieved was 23%. Achieve a 28% loyalty rate among suppliers. Supplier Communities Achieve a 30% loyalty rate among the supplier communities. Achieve an average score of 3.76 in the assessment of the BioQlicar community development program. CLIMATE CHANGE NOT ACHIEVED The loyalty rate reached 23% ACHIEVED The score achieved was 3.80. Achieve a 28% loyalty rate among the supplier communities. Achieve an average score of 3.89 in the assessment of the BioQlicar community development program. Reduce relative greenhouse gas (GHG) emissions by 33% by 2013 in relation to the 2006 baseline inventory. UNDERWAY By 2012, our emissions had been reduced by 28.4%. Reduce relative greenhouse gas (GHG) emissions by 33% by 2013 in relation to the 2006 baseline inventory. Reduce scope 1 and 2 emissions under the GHG Protocol by 10% by 2012 in relation to the 2008 baseline. SOCIAL BIODIVERSITY Amazon NOT ACHIEVED The reduction rate achieved was 7.4%. Reach 5.511 metric tons of CO2e, reducing absolute emissions by 12.4% Generate R$ 136 million in business volume in the Amazon region, considering Natura and other partners. NOT ACHIEVED We generated R$ 121.8 million in the period. Generate R$ 190 million in business volume in the Amazon region, considering Natura and other partners. Achieve a 12% share of raw materials from the Amazon region in Natura’s raw material purchase volume. NOT ACHIEVED The share of raw materials from the Amazon region was 11.4%. Achieve a 13.2% share of raw materials from the Amazon region in Natura’s raw material purchase volumes. Supplier Communities Distribute R$ 12 million in wealth to the supplier communities. ACHIEVED We distributed R$ 12.07 million. Distribute R$ 13.6 million in resources to supplier communities. natura report 2012 19 2012 TARGET: WASTE 2012 PERFORMANCE 2013 TARGET: Maintain the quantity of waste generated per unit produced in Brazil at 20 grams. NOT ACHIEVED We generated 25.56 grams of waste per unit produced. Maintain the quantity of waste generated per unit produced in Brazil at 24.7 grams. WATER Maintain water consumption at 0.40 liters per unit produced in Brazil. EDUCATION Employees ACHIEVED Water consumption remained at the same level as in the previous year. Consume 0.39 liters of water per unit produced in Brazil. Reach an average of 80 hours of training per employee in Brazil ACHIEVED Natura reached 87.6 hours. Reach an average of 83.2 hours of training per employee in Brazil throughout Natura Consultants and NCAs Train 1,005,000 consultants per topic in Brazil. LACHIEVED We trained 1,152,000 NCs. Train 1.152 consultants per topic in Brazil. Revenue of R$ 10.3 million from the sales of the Crer para Ver product line in Brazil and R$ 2.5 million in international operations. ACHIEVED Record revenue of R$ 12.8 million in Brazil and R$ 4.5 million in other operations. Revenue of R$ 14 million from the sales of the Crer para Ver product line in Brazil and R$ 5.06 million in international operations. Maintain 123,000 NCs engaged in the Natura Movement. ACHIEVED We engaged more than 176,000 NCs engaged in the Natura Movement. Engage 14% NCs in the Natura Movement. Achieve an 11% penetration rate among consultants in the Programa Crer para Ver (Believe is Seeing Program) in Brazil and 17.7% in international operations. ACHIEVED We reached a penetration rate of 12% in Brazil and 18.2% in international operations. Achieve a 14% penetration rate among consultants in the Programa Crer para Ver (Believing is Seeing Program) in Brazil and 18.9% in international operations. natura report 2012 corporate governance Our ambition is to build an increasingly representative and transparent corporate governance system that is aligned with the best market practices. A publicly-traded company since 2004, Natura is listed on the BM&FBovespa’s New Market, a special segment of the Brazilian Stock Exchange with the most advanced level of corporate governance. Since 2007, Natura has also been a member of the Company Circle of Latin American Corpo- rate Governance, a group of Latin American companies selected by the International Finance Corporation of the World Bank for their governance practices. In 2012, we gathered a record number of 350 participants in Cajamar (State of São Paulo) at an event for shareholders that took place concomitantly with the Annual and Extraordinary Shareholders’ Meeting. Non-controlling shareholders and representatives of major investment funds were able to watch the broadcast of the meetings that were held at Natura’s offi ce in Itapecerica da Serra and ask questions and talk to the company’s founding partners and senior management. We also held a joint public meeting with the Association of Market Analysts and Professionals of Capital Markets of the State of São Paulo (Apimec-SP) with the presence of invited guests and market analysts. In the same event, we confi rmed the increase in the number of the members of the Board of Directors, which went from six to nine. Raul Gabriel Beer Roth, Roberto Oliveira de Lima and Plínio Villares Musetti joined the Board. This change strengthens our company’s Board with professionals of different backgrounds and with varied qualifi cations in the corporate environ- ment. Accordingly, the Board now has three independent members. The term of offi ce of all Board members is one year and it may be renewed at the end of the period if it is approved at a Shareholders’ Meeting. Throughout the year, we held six Board meetings. As part of the strategy to bring the compa- ny’s Board members closer to each other, we held two meetings outside Sao Paulo, one being in Salvador (State of Bahia) and one in Buenos Aires (Argentina). These meetings are important to promote the integration of teams, enabling Board members to become more familiar with each operation and keeping our leaders engaged and motivated. 20 GRI 4.1; 4.2; 4.3; 4.6; 4.7 natura report 2012 21 GRI 4.1 COMPOSITION OF THE BOARD OF DIRECTORS ANTONIO LUIZ DA CUNHA SEABRA Co-Chairman of the Board of Directors and founding partner GUILHERME PEIRÃO LEAL Co-Chairmen of the Board of Directors PEDRO LUIZ BARREIROS PASSOS Co-Chairmen of the Board of Directors MARCOS DE BARROS LISBOA - Board Member JULIO MOURA NETO - Board Member LUIZ ERNESTO GEMIGNANI - Board Member RAUL GABRIEL BEER ROTH - Board Member ROBERTO OLIVEIRA DE LIMA - Board Member PLÍNIO VILLARES MUSETTI - Board Member SUPPORTING COMMITTEES GRI 4.1 The Board is supported by four committees that meet periodically to discuss and analyze proposals and make recommendations to the Board (see the table below). The increase in the number of Board members enabled the adoption of another good governance practice, which is to have the committees exclusively made up of Board members or external partici- pants. The members of the Executive Committee are no longer offi cially part of the groups and participate in their meetings only when invited. The number of meetings of each committee was also increased in 2012. The Audit, Risk Man- agement and Finance Committee met eight times in the period and the other committees met tem times each THE COMMITTEES AND THEIR ROLES GRI 4.1 e 4.9 Audit, Risk Management and Finance Committee: its mission is to ensure the operation of the internal and external audit processes and mechanisms and controls related to risk man- agement, and the consistency of the fi nancial policies with the strategic guidelines and risk profi le of the business. Our internal audit management also reports to this committee and it is responsible for recommending the external auditors to be hired. The group is supported by two external consultants who are specialists in risks and accounting. Members: Marcos de Barros Lisboa (president), Luiz Ernesto Gemignani and Roberto Oliveira de Lima Frequency of meetings: monthly (eight meetings in 2012) natura report 2012 22 People and Organizational Development Committee: it is responsible for helping the Board of Directors make decisions related to Human Resources strategies, policies and rules for organizational and people development, planning, compensation and benefi ts of executives, as well as for monitoring and directing questions related to Natura’s Management System. Members: Luiz Ernesto Gemignani (president), Pedro Luiz Barreiros Passos, Fátima Raimon- di, Roberto Oliveira de Lima and Raul Gabriel BeerRoth Frequency of meetings: monthly (ten meetings in 2012) Strategic Committee: it is also responsible for the dissemination of concepts, values and beliefs and supporting the perpetuity of the company. Members: Julio Moura Neto (president), Pedro Luiz Barreiros Passos, Roberto Oliveira da Lima and Plínio Villares Musetti Frequency of meetings: monthly (ten meetings in 2012) Corporate Governance Committee: it is responsible for monitoring the operation of the entire corporate governance system of the company based on international best practices and for suggesting adjustments and improvements in Natura’s governance system when- ever necessary. Members: Pedro Luiz Barreiros Passos (president), Antonio Luiz da Cunha Seabra, Guil- herme Peirão Leal and Plínio Villares Musetti Frequency of meetings: semimonthly (ten meetings in 2012) SENIOR MANAGEMENT ASSESSMENT AND SELF-ASSESSMENT GRI 4.10 In order to monitor the quality of our governance, we periodically perform a self assessment. In 2012, the assessments were made by six of our nine Board members. Since they have been in the Board for a short period of time, the new members did not participate in this process, which included topics such as dynamics of meetings, fl ow of information and the size of the Board. Some conclusions generated immediate actions, such as increasing the number of meetings of the Corporate Governance Committee, a need which was expressed by the interviewees. Our future goal is to expand this assessment process to also include the opinion of execu- tives. In addition to the self-assessment, the Board members also periodically analyze the work of the CEO and the Executive Committee. natura report 2012 23 GRI 4.1 EXECUTIVE GOVERNANCE The Executive Committee (Comex) is Natura’s main executive body and is in charge of monitor- ing the development of the company’s strategic planning and important projects. It is composed of Natura’s CEO and Senior Vice Presidents and it is responsible for managing the business, as- sessing results and making decisions based on economic, social and environmental aspects. Our recent expansion and the new challenges we will face in the future increased the complex- ity of the operation and motivated us to revise our senior management structure in 2012. In order to dedicate more time to the work focused on the future and innovation without losing sight of the operations, we created two new levels of support to Comex: the Executive Vice President Offi ce and the Operations Committee (Comop). Therefore, Comex takes up a po- sition that is more focused on more strategic topics and transforming projects, in addition to topics related to Natura’s Essence, such as brand, culture, sustainability and leadership. And the new vice president offi ce and Comop – which includes all senior vice presidents and executive directors from Brazilian and international operations - guarantee the management of the busi- ness and the proper execution of the strategy. The need to establish a more robust information technology and digital media structure was part of this reassessment. We want the technology platforms to enable the evolution of Na- tura’s current business and future vision. To this end, we created the vice president offi ce of Information Technology and Digital Media. In March 2013, Gerson Valencia Pinto took offi ce as the vice president of Innovation, a position that was vacant between 2011 and 2012. With the redesign of Natura’s processes, we reconfi gured the number of committees that sup- port Comex and Comop from eight to three: Customers, Ethics and Products. EXECUTIVE COMMITTEE T (COMEX) ALESSANDRO GIUSEPPE CARLUCCI CEO AGENOR LEÃO DE ALMEIDA JUNIOR Senior Vice President of Digital Technology GERSON VALENÇA PINTO* Senior Vice President of Innovation JOÃO PAULO FERREIRA Senior Vice President of Operations and Logistics JOSÉ VICENTE MARINO Executive Vice President MARCELO CARDOSO** Senior Vice President of Organizational Development and Sustainability ROBERTO PEDOTE Senior Vice President of Finance, Investor Relations and Legal Affairs * He took offi ce in March, 2013. ** He left Natura in February, 2013 natura report 2012 EXECUTIVE BOARD ALESSANDRO MENDES Product Development Director ALEXANDRE CRESCENZI Commercial Director ALEXANDRE ALVES LEMOS Commercial Director ALEXANDRE SHOZO NAKAMARU Finance Director ANA LUIZA MACHADO ALVES Brand Director ANGEL MANUEL L ROD DE MEDEIROS Logistics Director AXEL PABLO MORICZ DE TECSO General Manager ARNO CORREIA DE ARAUJO International Operations Commercial Director CECILIA GOYA MEADE General Manager DANIEL DE ALMEIDA GUSMAO ALVES SILVEIRA Commercial Director DANIEL CAMPOS Business Unit Director DANIEL LEVY Business Unit Director DANIEL MADUREIRA GONZAGA General Manager DANIEL MONTEIRO PAGANO Strategic Planning Director DENISE REGINA DE OLIVEIRA ALVES Sustainability Director DENISE DA SILVA MOREIRA ASNIS Human Resources Director DENISE LYRA DE FIGUEIREDO Business Unit Director DIEGO DE LEONE International Operations Business Unit Director ELIZABETE FERNANDES VICENTINI Consumer Safety Director ERASMO TOLEDO International Operations General Business Manager FABIO NOBRE DA COSTA BOUCINHAS Digital Media Director FLAVIO PESIGUELO Human Resources Director JOAO AUGUSTO PEDREIRA Business Executive Director - Brazil JOAO CARLOS MOCELIN Industrial Director 24 JORGE LUIS ROSOLINO Commercial Director JOSE THOMAZ DEVECZ PENTEADO DE LUCA Commercial Innovation Director JOSELENA PERESSINOTO ROMERO Product Availability 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 MURILLO FEITOSA BOCCIA Customer Relations Director NESTOR MARIANO FELPI Order Cycle Director - International Operations NEY MAURO SIMONE DA SILVA People Management Director PEDRO CRUZ VILLARES Instituto Natura Director PEDRO ROBERTO GONZALES General Director - International Operations RENATO ABRAMOVICH Business Unit Director RICARDO LOBATO FAUCON Customer Service Director ROBERT CLAUS CHATWIN Business Development Director RODRIGO OLIVEIRA BREA Supply Director TATIANA DE CARVALHO PICCOLI PIGNATARI Business Unit Director - International Operations THIERRY AUBRY LECOMTE General Manager – Natura France VICTOR MUNIZ FERNANDES R&D Director natura report 2012 25 GRI 4.1 GRI EC2 SUPPORTING COMMITTEES CUSTOMERS Created in January 2011, the committee’s main duties are the monitoring of the quality of the services Natura provides to end consumers and consultants. It is led by João Paulo Ferreira, Se- nior Vice President of Operations and Logistics, Agenor Leon, Senior Vice President of Digital Technology and has the participation of José Vicente Marino, Executive Vice President. ETHICS It is in charge of ensuring the application of the Natura Relationship Principles and resolving upon deviations. It is led by Roberto Pedote, Senior Vice President of Finance, Investor Rela- tions and Legal Affairs and has the participation of Marcelo Cardoso, Senior Vice President of Organizational Development and Sustainability. PRODUCTS Led by the Executive Vice President, José Vicente Marino, this committee is responsible for approving stages of the innovation processes of Natura’s products. RISK MANAGEMENT Risk management at Natura is an instrument incorporated into the strategic planning cycle and takes into consideration the economic, social and environmental aspects divided into two groups: strategic risks, that is, risks that could affect the company‘s ambition and continuity, and operational risks, under which our internal processes are assessed and checked periodically by the manager responsible and their team. The strategic risk map is monitored by the corporate and executive governance supporting committees. Even though we do not have shares traded on the Stock Exchange of New York, we have voluntarily adjusted the company, for the third consecutive year, to the SOx certifi cation stan- dards, which are based on the U.S. Sarbanes-Oxley Act. This system provides for the strength- ening of audit and security mechanisms through which we seek to qualify our control processes and systems for protection against fraud and corruption, providing a more reliable process for our shareholders. We understand that, in order to integrate sustainability to Natura’s management, we must continuously assess the social and environmental risks of the business. Accordingly, our risk assessment includes the main sustainability and regulatory topics. Even though we do not have a specifi c analysis of the effects associated with climate change in the risk management pro- cess, the company has important mitigation projects aimed at the impacts our business may generate that have become formal sub-processes in the company, such as the Carbon Neutral Program (learn more on page 33) and our practices of sustainable use of social biodiversity and associated traditional knowledge (learn more on page 34). natura report 2012 26 GRI S04 GRI S04 GRI S04 GRI S02 GRI 4.5 INTERNAL AUDIT Natura’s internal audit team reports to the Audit, Risk Management and Finance Committee within a framework that ensures the auditors’ independence to work with no interference from any other departments of the company. Natura’s internal audit process includes tests and procedures that assess the control environ- ment, including measures to prevent fraud and corruption. In 2012, there was an increase in the number of reports received, a total of fi fteen, compared to three in the previous year. Among these, eight were confi rmed, resulting in the dismissal of four employees. The reports mainly addressed issues such as confl ict of interest (four recorded), irregularities in procurement pro- cesses and payments (four recorded), misuse of resources (fi ve recorded) and other external frauds (two recorded). Throughout the year, we also carried out 30 audit exams at Natura, including all countries in which we operate, one more than in 2011. In 2012, we concentrated our efforts mainly in meeting and investigating the demands, and we provided internal controls with prevention tools. Therefore, the integration of our controls - which was expected to occur in the period – will be implemented in 2013. Our goal is to integrate our fraud prevention controls with the involvement of the departments of internal controls, audit and legal and the Ombudsman’s Offi ce. In this period, we will also start to use the continuous audit tool, a quicker alternative for identifying process failures. This initiative aims to maintain environments increasingly transparent and ethical, improving our prevention process. We will also enhance communication about the Ombudsman’s Offi ce, the investiga- tion process and the roles and responsibilities of the Ethics and Audit Committee. SENIOR MANAGEMENT COMPENSATION Our compensation plan for senior management seeks to balance short, medium and long term gains and foster the entrepreneurship and commitment of our executives to the company’s growth and value increase. For a group of executives that includes the CEO, vice presidents, directors and senior managers, consistent gains are tied to the commitment to our long-term project through the Stock Sub- scription or Purchase Option Plan. Since 2009, this Subscription Plan requires the granting of the option to be tied to the executive’s decision to invest at least 50% of the net amount received as profi t sharing in the acquisition of Natura shares. The shares can only be exercised after a vesting period of three years for 50% of the shares, and of four years for 100% of the shares. 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 2012, the volume of options held by the company’s executives corresponded to around 1.39% of the Natura shares, compared to 1.71% in 2011.The total number of Natura shares on December 31, 2012 was 431,239,364. Since 2002, we have granted 20,730,622 options and 22% of these options were cancelled be- cause the executives left the company. natura report 2012 Number of Options PlanPlan Granted Granted 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total 3,533,610 3,969,220 1,901,460 1,120,760 981,660 1,269,955 1,800,010 2,419,791 2,112,352 1,621,780 No options were granted 20.730.622 Maturity and validity of plans Plan 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Exercised Mature Balance Exercised Non-Mature Mature Balance Non-Mature Balance Balance 0 0 0 0 0 0 0 1,124,897 1,766,059 1,496,752 - 0 0 0 0 0 163,099 454,686 979,937 0 0 - 2,712,645 3,404,495 1,606,063 651,354 604,754 528,594 541,371 72,478 0 0 - 27 Cancelled Cancelled 820,965 564,725 295,397 469,406 376,906 578,262 803,953 242,479 346,317 125,028 - 23% 14% 16% 42% 38% 46% 45% 10% 16% 8% - 10,121,754 1,597,722 4,387,708 4,623,438 22% 50% Mature April 10, 2005 April 10, 2006 April 10, 2007 March 16, 2008 March 29, 2009 April 25, 2010 April 22, 2011 April 22, 2012 March 19, 2013 March 23, 2014 - 100% Mature April 10, 2006 April 10, 2007 April 10, 2008 March 16, 2009 March 29, 2010 April 25, 2011 April 22, 2012 April 22, 2013 March 19, 2014 March 23, 2015 - Validity April 10, 2008 April 10, 2009 April 10, 2010 March 16, 2011 March 29, 2012 April 25, 2013 April 22, 2014 April 22, 2017 March 19, 2018 March 23, 2019 - natura report 2012 28 GRI 4.5 VARIABLE COMPENSATION Variable Compensation is intended to recognize and reward Natura’s executives for their per- formance and results over the year. The Profi t Share System for management consists of the payment of monthly salary multiples in accordance with the executive’s position in the organi- zational structure and it is tied to the effective achievement of targets and minimum growth levels established by management for the year. Therefore, payment is contingent on Natura’s performance reaching the stipulated minimum. The criteria for determining their achievement takes into consideration performance indicators arising from the Strategic Plan distributed into the triple bottom line dimensions: Economic – consolidated EBITDA for Brazil and international operations; Social – Organizational climate survey for employees in the Brazilian and international op- erations and loyalty rate for Brazilian consultants; Environmental – Carbon emissions in Brazil and in the international operations; Others – Non-Service Rate (NSR), which is the percentage of products unavailable for sale upon the placement of orders by consultants in Brazil and international operations. The total annual amount paid under profi t sharing, based on the long-term incentive program, may not exceed 10% of net income. This limit provides Natura with a consistent and well- controlled system that prevents distortions between compensation and performance of the company. 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 groups of employees: 2012 Board Executive committee Senior management and directors Middle management Administrative Sales force Operational Total 2012 Average number of employees Total Salary (in millions)1 Total variable (in millions)2 8 7 105 441 1,523 848 2,386 5,317 4.33 6.13 33.33 60.26 88.95 52.83 43.63 289.46 - - - 2.36 9.38 43.78 11.37 66.89 2013 Stock Option Plan (in number of options)3 - - - - - - - - 1. Total salary: takes into account annual average base salary over 12 months (without charges) and overtime. 2. Total variable: Profi t sharing and sales bonus (with Remunerated Weekly Rest - DSR) paid in year. 3. Stock options: 2013 plan underway. natura report 2012 29 2011 Board Executive committee Senior management and directors Middle management Administrative Sales force Operational Total 2011 Average number of employees Total Salary (in millions)1 Total variable (in millions)2 7 5 102 405 1,488 875 2,436 5,317 3.13 5.86 36.40 60.63 92.85 49.09 52.21 300.17 1.30 5.49 19.90 20.79 9.20 49.67 12.77 119.11 2012 Stock Option Plan (in number of options)3 - - - - - - - - 1. Total salary: takes into account annual average base salary over 12 months (without charges) and overtime (with Remunerated Weekly Rest - DSR), and 13th and 14th salaries in millions. 2. Total variable: Bonus, profi t sharing and sales bonus (with DSR) paid in the year. Variable compensation paid in 2011 for base year of 2010. 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 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 options)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. Total variable: total salary plus bonuses, profi t sharing and sales bonus (with DSR). 3. Stock options: 2011 plan approved in March 2011. natura report 2012 30 natura management system Our Essence and Organizational Culture determine the way we work. Our brand, value of relationships and sustainable development are the most distinguishing elements of our business and must always be present in it. The driving force that ensures that this way of work is present in all of our processes is the Natura Management System (SGN). The system establishes the requirements that enable us to run the business on a more dynamic basis and supports our local growth and global expansion, in addition to ensuring the strengthening of our Essence. At the same time, it must ensure the fl exibility to meet specifi c the demands of each operation. The Natura Management System gathers the priority elements that differentiate our company and should be refl ected in all processes, namely: brand, innovation, sustainability, relationships, leadership, individual, strategy development and execution with excellence and learning. These drivers were revised in 2012 as part of our mission of continuous evolution for the purpose of simplifying the system and strengthen our differentiating characteristics to make them more evident in our operations. As we evolved in the management by process model in 2012, we worked to enable effi ciency and productivity gains focused on the implementation of processes that had been revised based on the new chain. In the International Operations, the challenge is to consolidate global processes enhancing the synergy and the characteristics of each operation so as to include the growth plan of these units and their operational and cultural peculiarities. Despite all advances, we still face the challenge of institutionalizing the Natura Management System, and it is necessary to consolidate the model and ensure that the system is appropri- ate and that it is adopted by all employees. The goals established are important to increasingly strengthen the operation and its processes and become differentiators in our strategic agenda. natura report 2012 31 strategy and prospects Natura started a new growth cycle in 2012 and the results obtained were a consequence of the investments made in the past two years. We made a signifi cant progress in the level of our service: we reduced the delivery time to consultants, doubled the number of orders delivered within 48 hours and reached the lowest product unavailability rate in the past ten years. Our logistics infrastructure is prepared to meet the future expansion, which, in Brazil, will be driven by the initiatives aimed at increasing the productivity of consultants, a network of more than 1.2 million people who has already reached the homes of nearly 100 million consumers. We will keep on working to increase the frequency of purchases and the variety of products purchased. For this reason, we have been investing in the development of our marketing, making progress in the training of our consultants and in the combined offer of products from different categories to our consumer (learn more on page 69, Consultants and NCAs). This change is supported by our innovation process, which generated major launches in 2012: the fi rst fragrance of the UNA line, a deo parfum created for the premium segment, and the Natura Tododia sprays, created to establish a habit of after shower body perfuming. With sales that exceeded expectations, these products show the strength of our brand in different segments. We will continue to innovate in concepts and products to charm our customers and take spaces where the Natura brand can offer products that are aligned with our value proposal and is not present yet (learn more on page 41, Innovation). Meanwhile, our International Operations reached a level of development and profi tability that confi rms their position as a relevant business platform. Our strategy for Latin America includes an accelerated growth of our network of consultants, expansion of production supported by local partners and increase in brand prestige and institutional recognition. We are already among the three brands preferred by consumers in Argentina and Peru and we signifi cantly increased the awareness of our brand in Mexico and Colombia, where our operations started more recently. We still have room to increase our market share in the region. In 2012, we also began to explore, in practice, the opportunities that new digital technologies and social networks offer for the direct sales model. We identifi ed a large potential to bring our consultants even closer to their customers by understanding their buying habits and fueling our network of NCs with information that increase their productivity and improve the shop- ping experience for our customers. This action will be supported by the planned investments in digital technology. In this scenario, we see the opportunity of being increasingly connected to people’s needs, al- lowing the expansion of our relationship network by offering new brands, products, services and business. natura report 2012 sustainability management 32 Natura’s strategy is to make sustainability one of the main vectors of innovation and genera- tion of new business by means of solutions that create shared value for all of its relationship network. Natura seeks an approach that allows us to reach the entire organization with the introduction of guidelines in all processes. The topic today is a relevant component of the company’s strategic planning, from the defi nition of indicators and targets, support of educa- tional activities for employees and other stakeholders, and is also tied to performance reviews and senior management compensation. This entire process is monitored by senior manage- ment and communicated regularly. In a cycle that evolves and is retro fed, Natura’s sustainability strategy is the result of a process of relationship and engagement of stakeholders, which helps it identify the most relevant social and environmental topics relating to its business choices (learn more on page 143, About this Report). The so-called Priority Topics are taken into consideration in Natura’s planning for determining work projects, programs and initiatives and monitored by their respective indicators and targets (which the company calls Social and Environmental Budget). Natura wants to have a broadened view of its impacts on its entire value chain, which includes suppliers, the logistics network, the work of the NCs and fi nal product disposal. Due to their rel- evance and Natura’s own experience in these aspects, some of these priority topics, such as social biodiversity and climate change, are now structured as sub-processes of the company. Meanwhile, other topics are still structured as projects or programs, such as Water, Waste and Sustainable Entrepreneurship. Another important stage of Natura’s sustainability strategy is mobilization and education. The company believes it is possible, through its efforts, to encourage self-development and broaden the awareness of its network, which is formed by employees, consultants, customers, suppliers and supplier communities, shareholders, in addition to the media, civil society organizations and public agencies. The cycle is closed with the communication of the company’s practices and economic, social and environmental results which is periodically carried out through quarterly performance reports and the annual report, including data audited by independent auditors and in accordance with the Global Reporting Initiave (GRI) guidelines (learn more on page 143, About this Report). natura report 2012 33 GRI 4.15 priority topics QUALITY OF RELATIONSHIPS Driven by the conviction that everything is interdependent, Natura believes it is essential to truly care for all of its relationships. To this end, Natura has the challenge of strengthening the care, the connection with and the trust in these relationships, intensifying ties that are increasingly signifi cant and based on common purposes. It believes that this change is only possible when listening, dialoguing and a collective creation become part of the company’s culture in order to generate innovation and build an environment that enables the development of the individuals and of their actual relationships. Therefore, in 2012, the company revised its matrix of stakeholders, prioritizing those to whom its attention should be enhanced due to their ties with the company. As a result, Natura’s task today is primarily focused on interactions with consultants (NCs), Natura Consultants Advisors (NCAs), consumers, employees and suppliers. However, Natura is aware that there is still much to be done for it to reach the level of excel- lence it desires in this issue. In 2012, it recorded important developments in the quality of the relationships with NCs and NCAs (learn more on page 69) and employees (learn more on page 53) and maintained high consumer satisfaction with products and services (learn more on page 82). On the other hand, there is room for improvement in the relationship with suppliers, whose loyalty rate dropped 40 basis points, and supplier communities, whose rate dropped 50 basis points, both reaching a loyalty rate of 23% in 2012 (learn more on pages 88 and 92). Natura is reinforcing its practices to increase the coverage and depth of the exchanges with stakeholders and the company’s strategic goal is to increase the indicators relating to quality of relationships with these stakeholders by 2014. (Learn more on page 45, Quality of Relationships) CLIMATE CHANGE In view of the challenge of climate change, Natura structured a program in 2007 to reduce carbon emissions that is focused on the search for effi ciency and innovative solutions across the entire production chain and on education and public awareness of the matter. Since that year, the Carbon Neutral Program has been promoting actions in many areas of the company. The program is divided into quantifying (inventory), reducing and offsetting emissions that cannot be avoided in accordance with an integrated view of the entire value chain. natura report 2012 34 Natura has also taken public commitments to reduce greenhouse gases (GHG) in its internal processes and related emissions in the entire chain (kg of CO2 per product sold). In the fi rst item, it has reduced absolute emissions by 7.4% since 2008, in the plants in Cajamar (State of São Paulo) and Benevides (State of Pará) and in the administrative facilities. However, this reduction was not enough for Natura to achieve the target to reduce 10% of its absolute emis- sions (scope 1 and 2 of the GHG Protocol). The second target is to reduce relative emissions in the entire chain by 33% between 2006 and 2013. To date, Natura has reduced them by 28.4%. The emissions that cannot be avoided are offset by means of the purchase of carbon credits from reforestation, energy effi ciency and fuel replacement programs. In 2012, the company contracted projects to offset the emissions generated in the 2011-2012 biennium. Natura’s Carbon Neutral Program is comprehensive and reaches the entire company. There- fore, the company is able to identify new opportunities for improvement. One of the latest conclusions is that the impact of solid waste exerts great synergy with carbon emissions. Thus, Natura believes that its strategy for solid waste management can leverage a new cycle of re- duction of greenhouse gas emissions. Since the beginning of the Carbon Neutral Program in 2007, Natura has established a pillar of education and engagement of employees and other stakeholders so as to increase awareness and multiply gains. Today, structured as a sub-process of the company, the Program is a bench- mark for other Natura projects and inspires its strategies for managing the generation of waste (learn more on page 38) and water (learn more on page 38). (Learn more about Climate Change on page 118, Creation of Environmental Value) SOCIAL BIODIVERSITY With a focus on the use of resources from Brazilian social biodiversity and recovery of tradi- tional knowledge of the forest people, the company desires to establish new business models that generate regional development and positive impact across its value chain. To this end, in 2011, Natura launched the Amazônia (Amazon) Program, which reinforces its commitment with the entire Amazon region in Brazil and neighboring countries. Natura wants to expand its presence and seek new models of sustainable development with the addition of local value, foster science and technology and strengthen the region institutionally. Accordingly, the program established three fronts: Science, technology and innovation; sustainable produc- tion chains; and institutional strengthening. In 2011, Natura determined the six major topics for investment in the region in a materiality matrix built with the participation of local institutions and representatives of the Amazon com- munity: education, entrepreneurship, social justice and civic awareness, public policies, conser- vation, appreciation and sustainable use of biodiversity, and culture. Its initial investment will focus on education, entrepreneurship, and social justice and civic awareness. natura report 2012 35 In 2012, fi ve priority action territories were established in Brazil and Natura is also considering operations in a territory in Latin America (see map on next page). The option for a territorial management is aimed at facilitating the development of local centers for sustainable business de- velopment and innovation, establishing replicable and scalable models to favor the new economy that we want to stimulate. The defi nition of these locations took ten months and we considered more than 30 criteria, such as the offer of social biodiversity and potential for expansion, envi- ronmental conditions, mapping of institutional partners and government strategies, economic conditions and current and future infrastructure and logistics, among others. The implementation of the actions in these priority territories will take place gradually, starting in 2013. Natura has established bold targets for the development of its business in the Amazon over the coming years. By 2020, we expect to increase the consumption of raw materials originated in the region from 11% to 30% (in R$ million), including 10,000 agroextractive families in the program and use company’s own resources of R$ 1 billion. In 2012, the number of families involved was 3,500 and the business volume grew 88%, totaling R$ 122 million (learn more on page 91, Supplier Communities). PRIORITY TERRITORIES Juruá River Acre-Perus Northeast Pará Northern and Southern Manaus Xingu-Tapajós FRONTS OF THE AMAZÔNIA PROGRAM _Science, technology and innovation _Sustainable production chains _Institutional strengthening natura report 2012 36 See below the main action of the Amazônia Program in 2012: SCIENCE, TECHNOLOGY AND INNOVATION In August 2012, the Natura Amazon Innovation Center (Nina) was opened in Manaus (State of Amazonas); this is a knowledge center with the mission of stimulating the formation of a research network involving local, national and international science and technology institutions. We also determined the topics of interest of Nina’s actions: Culture and Society; Conservation and biodiversity, Forests and agriculture, and Product design and processes. In order to identify, support and conduct research that develop knowledge “in” the Amazon, “about” the Amazon, and “for” the Amazon, Natura executed letters of intent with the Federal University of Amazonas (UFAM), Brazilian Company of Agriculture and Cattle Raising (Em- brapa), the National Research Institute of the Amazon (INPA) and the Amazon Biotechnology Center (CBA). By means of the Natura Campus Program – which develops open innovation actions - the com- pany launched a specifi c invitation to bid for institutions headquartered in the region in order to stimulate the creation of projects in collaboration with the company. To encourage the par- ticipation and interest in submitting proposals, we held meetings at many institutions. We also offered a coaching program on technology-based entrepreneurship for the fi nalists. As a result, we selected six research projects on the Amazon fauna and fl ora, community agroforests and population ecology, which are currently being contracted. SUSTAINABLE PRODUCTION CHAINS. To help Natura’s signifi cant growth plans in the Amazon region and to become even closer to the supplier communities, the company created in 2012 the Biodiversity Supply Center. In addition to planning future demand, the Center will ensure that this growth occurs with good management practices and production tracking. The Center is in charge of improving the process chain ensuring the complete mapping of the supply cycle, from the extraction of raw materials to their processing. The Center will also help prepare communities for the anticipated increase in supply and to seek new extractive organizations in the region. The Center’s work will add to that performed by the Community Relations Management (GRC), which supervises an interdisciplinary team of professionals, including anthropologists, social scientists, psycholo- gists, economists and agronomists in the management of community relations (learn more on page 91, Supplier Communities). In 2012, Natura also began the construction works of Ecoparque in Benevides (State of Pará), an industrial park expected to be inaugurated in the second half of 2013. Covering an area of 175 hectares, the project was inspired by the concepts of symbiosis and industrial ecology, which connects companies with the additional needs in one area and which can generate synergy and greater effi ciency in the use of resources. Therefore, the disposal material of one company can be the raw material for production of another company or for Natura’s own experience in the sustainable use of inputs from the Amazon region may become a service to be offered to other local entrepreneurs. The fi rst step of the Ecoparque is the construction of Natura’s new plant, where the company will start to produce all soaps. Currently, the Benevides unit prepares just the soap noodles, which are sent to Cajamar for the completion of the production process. natura report 2012 37 INSTITUTIONAL STRENGTHENING In 2012, we offi cialized the establishment of the External Advisory Board of the Amazônia Pro- gram, a group composed of representatives from different segments, experts and institutions with experience in the region. Their role is to guide the company in its plans, programs and targets (see complete list in the table below). Also, in 2012, we determined the focus of this group’s work a) elementary, middle and high school and technical education adjusted to the reality of farms and forests; b) entrepreneurship, including leadership training and community management training, in addition to fostering local businesses based on social biodiversity and/or businesses that can meet the demands generated by the Ecoparque; and c) conservation and appreciation of social biodiversity focused on technical skills of the agroextractive communities and creating local value, for example, through projects for effi ciency gains and competitiveness of production chains and offset projects for environ- mental services that value and benefi t the communities EXTERNAL ADVISORY BOARD OF THE AMAZÔNIA PROGRAM Chairman: Marcelo Cardoso, Senior Vice President of Organizational Development and Sustainability of Natura* Members of the Board: Cláudio Pádua – Vice President of Ipê (Ecological Research Institute) Bertha Becker - geologist and professor at the Federal University of Rio de Janeiro (UFRJ) Pedro Leitão – Superintendent of Instituto Arapayu Adalberto Veríssimo – Senior Researcher at the Institute of Man and the Environment of the Amazon (Imazon) Paulo Roberto Moutinho – Director of the Environmental Research Institute of the Amazon (Ipam) Carlos Nobre - Secretary of Research and Development Policies and Programs, Ministry of Science and Technology Fernando Reinach – Partner at Fundo Pitanga Adalberto Luis Val – Director of the National Research Institute of the Amazon (Inpa) Adriana Ramos – Assistant Executive Secretary of the Social and Environmental Institute (ISA) Rubens Gomes – Executive Director of the Amazonian Work Group (GTA) Francisco Costa – Professor and Researcher at the Center of Higher Amazonian Studies (Naea) * Mr. Cardoso withdrew from Natura at the end of 2012 natura report 2012 38 In addition to these priorities, Natura should continue to seek opportunities to infl uence the major players involved so that Brazil can have a new legal framework that regulates access to biodiversity and the sharing of benefi ts, fostering an environment that is more favorable to the development of science and technology, with less bureaucracy and greater legal security. We expect new legislation to contribute to Brazil’s innovation agenda, allowing for the sharing of benefi ts in a fair and equitable way with the supplier communities, implementation of actions with the use of social technologies that promote sustainable development, thus complying with the principles of the Convention on Biological Diversity (learn more on page 107, Government). SOLID WASTE Since 2010, the company has been working on a solid waste management strategy with a view to lifecycle. The goal is to reduce the generation of solid waste and waste in general in the company’s value chain and expand the use of recycled material by structuring effi cient and inclusive supply chains, including cooperatives of recyclable material collectors, establishment of fair price and trace- ability. It is also part of Natura’s strategy to raise stakeholders’ awareness and engage them in the proper management of solid waste and challenge internal projects to consider eco-effi ciency in their conception. To support this strategy, Natura developed a methodology of an inventory of solid waste genera- tion in the value chain with a lifecycle approach. However, this study does not address the fi rst link in this process, which is made of direct and indirect suppliers of raw materials and packaging materials, due to their complexity and the assumption of shared responsibility described in the National Solid Waste Policy. In this case, the waste generated is quantifi ed and managed by these suppliers and reported to Natura since the indicator is part of the supplier development program (learn more on page 87, Suppliers). In the industry sphere, Natura supports actions promoted by the Brazilian Association of the Cosmetics, Fragrances and Toiletries Industry (Abihpec) to encourage compliance with the Na- tional Solid Waste Policy. The organization develops a model for the collection and recycling of post-consumer packaging that is already in use in the following states: Paraná, Rio de Janeiro, Santa Catarina and São Paulo. Abihpec also represents Natura at the Corporate Coalition, which negoti- ates with the Ministry of the Environment a sector agreement on this waste. (Learn more on page 127, Creation of Environmental Value) WATER Although water is a renewable resource, the lack of water supply is still a reality for at least 780 mil- lion people worldwide according to the report “Progress on drinking water and sanitation 2012” of the World Health Organization and UNICEF (United Nations Children’s Fund). And, although the target of the Millennium Development Goals to halve the proportion of people without ac- cess to drinking water has been achieved, the scenario remains worrisome, especially due to the challenge of sanitation. It is therefore even more important for Natura to understand how its business impacts water re- sources through consumption and potential water pollution. Two years ago, we began to develop a water management strategy based on the entire lifecycle of the business. The fi rst step was to calculate the company’s water footprint, a methodology developed by the WaterFootprint Net- work (WFN). Natura mapped the impact of the supply of raw materials and packaging materials, natura report 2012 39 GRI EC8 from the stage of production and distribution of products to their use and disposal by consumers. Natura was the fi rst cosmetics company in the world to include this fi nal stage of the lifecycle when calculating the water footprint. This calculation, made in 2010, showed the stages of disposal of products by consumers (45.9%) and supply of raw materials and packaging materials (36.9%) as the most relevant in terms of the impact of Natura’s chain. Meanwhile, the stage of use of the product represented a percentage of 13.8% of the total. The results were presented at the seminar “Solving the Water Crisis: common action toward a sustainable water footprint”, organized by UNESCO in March 2012 during the Planet Under Pressure conference. The survey data is still preliminary but, based on it, the need for additional methodologies that address all the complexity of the company’s process was identifi ed: expand the study applying methodologies that include the evaluation of biodegradability and toxicity of products, thus considering both consumption and potential for water pollution. Additionally, Natura needs a model that considers the characteristics of Brazil, with unequal distribution of water - the most populous regions are distant from areas with greater supply of the resource – and incipient basic sanitation conditions. Therefore, the company assessed four methodologies in 2012 and one of them was chosen to be used in a new inventory in 2013 with two product categories. The goal is to test the sensitiv- ity of the methodologies and assess whether they can be replicated in the different categories and products of Natura’s brands. (Learn more about water consumption on page 129, Creation of Environmental Value) SUSTAINABLE ENTREPRENEURSHIP We live in an increasingly complex world with fi nancial, social and environmental crises. This sce- nario imposes new business formats and solutions that promote inclusion, development, quality of life and preservation of the natural resources available on the planet. We know that entre- preneurship is one of the new vectors of economic expansion worldwide, including Brazil, and has the potential to create innovative products and services that meet these emerging demands. Although sustainable entrepreneurship is little disseminated and studied, it may bring together the tools of traditional business management, social entrepreneurs’ transformative ideal and con- cern about environmental impact. This more comprehensive and complete approach has the potential to multiply opportunities for income generation with social and environmental benefi ts. Natura identifi ed room for contributing to the search for new forms of business and creation of value through its network of consultants. With major infl uence, the company sees the invaluable opportunity to encourage its NCs to take social and environmental entrepreneurial actions in their communities. As one of the ways of expanding the company’s knowledge, we decided to sponsor the organiza- tion of a global network of laboratories that research new business at the base of the pyramid (the lower classes). The project is led by Professor Stuart Hart, from Cornell University, U.S., one of the world’s leading experts in this type of entrepreneurial activity. natura report 2012 40 A few own initiatives have also made Natura learn about the potential of its network of consul- tants to create value. We support NCs who participate in social and environmental initiatives in their communities throughout Brazil by means of the Acolher (Welcome) Program (learn more on page 79, Consultants and NCAs) and we also developed a business model in Mexico with a multilevel system, in which the consultants’ level of involvement with Natura increases as they establish their own network of NCs and promote social and environmental activities (learn more on page 78, Consultants and NCAs). In another initiative in São Paulo (State of São Paulo), we promoted training in business, management, fi nance and other topics for NCs who are beauty professionals, including owners and employees of beauty parlors. EDUCATION Natura believes that the continuous search for improvement promotes the development of individuals, organizations and society. Based on the company’s efforts and on the relationships nurtured, the company aims to create a learning model that not only generates results for Na- tura but is also strong enough towards contributing to the transformation of our society. Internally, Natura sponsors the Cosmos program, a leadership development program that offers comprehensive training, involving lectures and workshops, time for exchanging experiences and practical application of knowledge; and the Meu Caminho (My Way) program, which is intended for the operational employees and includes training and development during and off working hours, as well as the distribution of certifi cates of knowledge, which give employees the oppor- tunity to ascend the career ladder. To increase sustainability awareness, we organized nine workshops with the company’s manag- ers in 2012. Since this is essential knowledge for Natura, we intend to expand these initiatives in 2013. Generally, the topic is covered in the Employee Integration Program (CIP) and in the functional training courses, whether by means of a more comprehensive approach or through specifi c topics, such as ecodesign. The company’s goal is to make employees consider sustainabil- ity as part of their everyday life, including it throughout their activities (learn more about corporate education on page 54, Employee). As for Natura’s sales force, we want to take advantage of their potential and of the diversity of this network of 1.5 million NCs in Brazil and in International Operations to expand the value created by the consultants. For these stakeholders, the company’s intention is to promote educa- tion as a business leverage, increasing actions of social transformation, sustainable entrepreneur- ship, technology and leadership platforms (learn more on page 39,Sustainable Entrepreneurship). In 2012, company also extended the training program to youngsters of the municipality of Caja- mar, where the main offi ces are located for the purpose of increasing their employability (learn more on page 100, Surrounding Community). The Company’s education strategy also includes the activities of the Natura Institute, a nonprofi t organization created in 2010 to strengthen social initiatives through projects that can positively impact the quality of education in public schools. In 2012, the Trilhas (Trail) Project, to encourage reading and writing in early education, became a public policy in a partnership with the Ministry of Education, and reached 3,300 municipalities and 3 million students (learn more about the Na- tura Institute on page 133, Creation of Social Value). natura report 2012 41 INNOVATION Innovation is the basis of our creation of value and permeates our entire business. Our under- standing of innovation goes beyond product development, in a multidisciplinary vision that is present in the creation of new concepts, our business strategy, search for new business, and even in our logistics operations. Our emphases on innovation seek to express this integral approach, with four main strategic guidelines that, in addition to traditional methods, encompass state of the art science and tech- nology, concern about the reduction of the social and environmental impact and our desire to create products that cause a fl ow of Well Being Well experiences for our consumers (see table). BROADER VIEW Our research fronts _ Classical and advanced skin and hair sciences: studies biological and physicoche- mical mechanisms that affect skin and hair to develop new products and services with unprecedented benefi ts _ Sustainable Technologies: develops concepts and technologies to promote the sus- tainable use of products and services from social biodiversity, including ecological production systems, packaging materials and social technologies _ Senses, Design and Experiences: seeks to understand the operation of the physio- logical mechanisms of the production of sensations, perceptions and emotions to bring the best experience to consumers _ Well-Being and Relationship Sciences: integrates different fi elds of science to un- derstand and create value from the well-being concept and its correlations across all dimensions (physical, emotional, social, cultural and spiritual) Based on this understanding, we have, for example, developed a system for the sustainable production of palm oil (learn more on page 94); organized researchers to bring innovation to the daily lives of local communities in the Amazon (learn more on page 36); been developing an experience with our consultants, who are using digital media in their relationships with customers (learn more on page 69); and created a virtual library of gestures based on body therapies to inspire people to recover and value human relationships (learn more about Natura Gestos (Natura Gestures) at http://tinyurl.com/ctgf5fb). In 2012, we made internal improvements in our processes so as to further integrate all innova- tion initiatives to accelerate their pace. Among the new measures, we created the Innovation Center, whose main purpose is to reduce the time between the emergence of an idea and the creation of a concept of a product or service and facilitate the identifi cation of opportunities in any area of the company. To support and foster innovation, we annually invest between 2.5% and 3% of our net revenue in science, technology and creation of knowledge networks. In 2012, this investment totaled R$ 154 million, an increase of 5% in relation to the previous year. natura report 2012 42 We also received tax incentives for innovation and development by means of partnerships with institutions such as the Financial Sponsor of Studies and Projects (FINEP), National Bank for Economic and Social Development (BNDES) and National Council of Scientifi c and Technologi- cal Development (CNPq). In 2012, R$ 49 million, related to a refundable loan to support the company’s research and development activities, was released by Finep. Additionally, we signed an economic subsidy agreement in the amount of R$ 3.3 million to fi nance the research on new ingredients for anti-aging products. With CNPq, we signed the protocol of adherence to the Programa Ciência sem Fronteiras (Sci- ence without Borders Program), a joint effort of the Ministry of Education and Culture and the Ministry of Science, Technology and Innovation aimed at internationalizing the Brazilian science, technology and innovation through the grant of scholarships. Until 2014, Natura and CNPq will work together to enable 100 scholarships to researchers in strategic topics in well-known institutions of excellence abroad. Our innovation rate was 67.2% last year, which shows how important product innovation is to Natura’s commercial performance and to ensure our leadership in the cosmetics, fragrances and personal hygiene market. Innovation Indicators Investment in innovation1 Percentage of net revenue invested in innovation1 Number of products launched2 Innovation rate (%)2 Unidad R$ million % unit % 2010 140 2.8 191 65.7 2011 147 2.7 168 64.8 2012 154 2.6 104 67.2 1. The information does not include the development actions in International Operations and only takes into consideration the expenditures made in Brazil. 2. The number of products launched in 2012 and 2011 has been revised and corrected. This revision also caused changes in the innovation rate for 2010, which was recalculated. In order to maintain our level of excellence and continue to play the lead role in innovation in our fi eld, we have four centers of science, technology and development of products and processes. The most recent one was inaugurated in August 2012. It is the Natura Amazon Innovation Center (Nina), a knowledge center with the mission of stimulating the formation of a research network involving local, national and international science and technology institutions. In the fi rst months after its launch, we signed partnership contracts with the Federal University of Amazonas (UFAM), Brazilian Company of Agriculture and Cattle Raising (Embrapa), National Research Institute of the Amazon (INPA) and the Amazon Biotechnology Center (CBA). We also launched an invitation to bid for the Natura Campus Program specifi c for the Amazon region (learn more on page 36, Social Biodiversity). Our other research centers are: Cajamar (State of São Paulo), the most complete and ad- vanced technology research center in cosmetics in South America, and Benevides (State of Pará), which is focused on innovation based on the sustainable use of social biodiversity. In France, we reorganized our actions in science and technology, expanding the open innovation experiences in Paris, and replaced studies conducted in our own laboratory by collaborative research initiatives in partnership with distinguished laboratories. Our presence in France al- lows us to keep up with trends and new technologies in the area of beauty and well being. natura report 2012 43 OPEN INNOVATION After identifying the potential of our networks and addition of knowledge, seven years ago we adopted the open innovation model, which proposes the organization of the scientifi c com- munity, bringing together many researchers and science and research institutions and business partners. We believe networking expands our access to new ideas and knowledge and allows us to interact with the best talented people from the scientifi c community and the industry. The result is the generation of new and more relevant knowledge, built on a collaborative basis and shared, which not only adds value to Natura but to society as a whole. Therefore, in addition to scientists and internal research (more than 250 employees are directly involved in Research and Development), our business is strongly linked to the partnerships we have with scientifi c institutions in Brazil and in the world to develop new concepts, methodolo- gies, products and processes. The relationship with this network is developed mainly through the Natura Campus Program (www.naturacampus.com.br), a program through which we con- nect and activate a network of researchers, receive partnership and research proposals, pro- pose challenges and generate and disseminate knowledge. In addition to information about our vision of innovation and our research fronts, we keep scientifi c blogs signed by experts who promote the exchange of ideas, mediate discussions, disclose relevant information and encour- age interaction among the participants of our network. In 2012, we joined the research laboratory of digital technologies - Media Lab - of the Massa- chusetts Institute of Technology (MIT) in Boston, USA, as the Brazilian representative. We also worked together with the Massachusetts General Hospital, a benchmark in skin studies, which is also located in Boston. Also, we have resources dedicated to the expansion of our open in- novation model in the region. We have kept the partnership with the National Laboratory of Biosciences (LNBio), in the Biological Assay Lab in Campinas (State of São Paulo), a research center with an automated system that enables large-scale assays and screening of natural and synthetic compounds with speed and high performance. Among other actions, we encouraged the construction of an innovation network with our partners, including our suppliers, with the launch of IQlicar, a ramifi cation of our supplier de- velopment program Qlicar (Quality, Logistics, Innovation, Social and Environmental Competi- tiveness and Relationship), focused on innovation. With this initiative, we want to promote the interaction between these suppliers and universities, research centers, entities, scientists and development agencies that collaborate with Natura. In addition to encouraging the production of knowledge in open innovation, we are also con- cerned about encouraging research and generation of knowledge within Natura itself. We re-launched the Carreira Científi ca, a research incentive program designed for our employees with new selection parameters. In addition to master’s and doctorate degrees, we started to praise knowledge from experience, and we extended the program to participants from all areas of the Innovation department. This is an opportunity for our employees to develop a career as a science specialist or manager in science parallely to their company manager career. natura report 2012 44 GRI PR3 WHAT WE INNOVATED Perfumers Veronica Kato, from Natura and Yves Cassar, from International Flavors and Fra- grances (IFF), developed the Natura Una deo parfum, a new fragrance from the homonymous makeup line that was launched last year. The colors of the makeup line have infl uenced the choice of perfume ingredients, which is composed of notes of Damascus rose, lily of the valley and magnolia, and fruits like tangerine, plum, Surinam cherry, and cassis and pink pepper. After two years of work, the perfume, designed for the premium segment, was largely accepted by consumers, selling 600,000 units in its launch cycle. Another innovation from perfumery was the Tododia line body spray, which proposes a new, fresh after-shower perfuming experience. In the lower price range, more than 3.5 million units of the item were sold in the launch cycle. With sales that exceeded our expectations, these products show the strength of our brand in different segments. Our goal is to continue to innovate in concepts and products to charm our customers and take spaces where the Natura brand can offer products that are in line with our value proposal and is not yet present. We are also innovating in terms of level of transparency about the ingredients in our products. We implemented the traceability of the chain of inputs and established a dialogue with our stakeholders on environmental and social impact, and health and safety. We are also concerned about anticipating positions on controversial topics and we are working on the implementation of a new form of open, collaborative and transparent communication with our stakeholders (learn more on page 85, Consumer Safety). OTHER LAUNCHES IN THE YEAR _In order to make parents’ lives more practical, the packaging of the Mamãe e Bebê (Mother & Baby) line now has valves that make its application easier at bath time, in addition to having softer fragrances. _Jumping ahead Brazilian legislation, which will increase the UVA protection factor, we adapted all of our products before the publication of the law. _In France, Natura products will have more complete labeling in 2013, including in- formation on all raw materials and ingredients. This change is in compliance with a new European regulation and will also be gradually applied to the brand portfolio in Brazil and in the rest of Latin America. _Our innovations also resulted in the launch of two products of the Chronos line: the ultra light fl uid for face protection - a non greasy and non shinny SPF 60 sunscreen –, and Chronos Tinted sunscreen with a foundation effect, which ensures sun pro- tection and complements the daily makeup. natura report 2012 stakeholders 45 GRI 4.14; 4.16; 4.17 QUALITY OF RELATIONSHIPS Relationships are the core of our way of doing business and for this reason one of our priorities is to continuously improve the quality of the relationships we have with all of our stakeholders. We learned that the dialogue with our stakeholders and their opinion are important in the search for solutions to the challenges of our business and, for this reason, we increased their participation in strategic projects for Natura. Based on the understanding that the company is part of a network in which many stakeholders connect, we have already collected examples of this collaborative process. The Programa Amazônia (Amazon Program), for example, carried out dialogues with the people from the Amazon region and established an external advisory board, with organizations local experts, to help determine its priorities and direct investments (learn more on page 34, Social Biodiversity). The strategy of sustain- able supply chains, which created a methodology for the assessment and management of suppliers’ social and environmental investments as criteria for selecting and maintaining the relationship, was also developed together with commercial partners (learn more on page 87, Suppliers). In order to hear the opinion of our stakeholders on topics of interest in our decision-making process, we organized dialogue panels. In 2012, for example, we carried out an engagement initiative with the stakeholders from the areas surrounding the new Natura’s unit to be inaugurated in Vila Jaguará, in São Paulo (State of São Paulo). At the time, we talked to government representatives, companies from the region, suppliers, employees and representatives of the local community to discuss our impacts and identify key opportunities in the region (learn more on page 101, Surrounding Community). We also organized a dialogue panel on conscious consumption in which we brought together ex- perts, government offi cials, representatives of higher education institutions, civil society members, Natura consultants and consumers. The dialogue involved a discussion about the values that lead society to consume and a glance at conscious consumption in the future. For the purpose of increasing the number of people involved in our engagement initiatives, since 2009, we have been seeking virtual tools to involve our stakeholders in building better relationships and solutions mainly through the Natura Conecta (Natura Connects) virtual community. In 2012, we decided to end the activities of this network and focus more on the potentials of the existing digital networks to work on the engagement of our stakeholders through virtual workshops, webcasts, and by using other interfaces. In the 15 face-to-face meetings held in 2012, we gathered more than 400 people, which is less than the number of participants in 2011, when we had approximately 800 people involved in 23 dialogue panels. This result refl ects the need to deepen the discussions in smaller groups and focus more on the topics that have already been addressed (see table on the next page). We also consider the promotion of the development of individuals essential to the development of relationships. In this aspect, we gave continuity to the program Você tem fome de quê? (What do you want?), which is a cycle of lectures and meetings for employees and their partners with the participa- tion of experts and professionals specialized in the topics of interest for Natura and its stakeholders. In 2012, we organized six meetings to discuss the results of the United Nations Conference on Sus- natura report 2012 46 tainable Development, Rio +20, held in June. The discussions were attended by specialists, such as the Indian physicist and environmentalist Vandana Shiva, Brazilian businessman and councilman Richard Young, president of the Instituto Akatu para o Consumo Consciente (Akatu Institute for Conscious Consumption) Helio Mattar, coordinator of Instituto Vitae Civilis (Vitae Civilis Institute) Aron Belinky, coordinator of Greenpeace campaigns Sérgio Leitão, among others. In 2012, we also supported the cycle of conferences called Fronteiras do Pensamento (Thinking Frontiers), an initiative that gathers today’s major experts and scientists to discuss important matters for today’s world. In return for our support, some of our stakeholders participated in these events. 2012 Face-to-Face engagement initiatives Topic Stakeholders Involved Participants Date and place Topics NASP (Natura São Paulo) Dialogue Multistakeholders 82 Entrepreneurship Multistakeholders 51 Action Learning Ombudsman’s Offi ce Employees 10 Action Learning Ombudsman’s Offi ce –non-managers Employees Action Learning Ombudsman’s Offi ce - operational Employees Action Learning Ombudsman’s Offi ce - managers Action Learning Ombudsman’s Offi ce – Relationship Managers (GRs) Employees Employees 8 13 11 4 Ecosystemic Services Employees 23 Feb / Natura São Paulo (State of São Paulo) Impacts of Natura’s new facility in Vila Jaguará, in São Paulo (State of São Paulo), and focus of work with the surrounding community. Apr / São Paulo (State of São Paulo) May / Natura Cajamar (State of São Paulo) Natura’s potential to encourage entrepreneurship in its business. Relationship of employees with Natura Ombudsman’s Offi ce and focuses of improvement of this dialogue channel’s process. Jul / Natura Cajamar (State of São Paulo) Relationship of employees with Natura Ombudsman’s Offi ce and focuses of improvement of this dialogue channel’s process. Jul / Natura Cajamar (State of São Paulo) Relationship of employees with Natura Ombudsman’s Offi ce and focuses of improvement of this dialogue channel’s process. Jul / Natura Cajamar (State of São Paulo) Relationship of employees with Natura Ombudsman’s Offi ce and focuses of improvement of this dialogue channel’s process. Jul / Natura Cajamar State of São Paulo Relationship of employees with Natura Ombudsman’s Offi ce and focuses of improvement of this dialogue channel’s process. Aug / São Paulo (State of São Paulo) Dialogue between employees from different areas who elected, among the projects developed by Natura, the one that they will apply, as pilot, two methodologies of assessment and valuation of ecosystemic services: TEEB and ESSP. natura report 2012 47 N Ciclos (N Cycles) Employees N Ciclos Employees N Ciclos Employees 22 21 21 N Ciclos Employees 25 Annual Report Employees 40 Conscious Consumption Multistakeholders 47 Aug / Santo André (State of São Paulo) Impacts of the implementation of the N Ciclos project for the sales force – increase in the number of sales cycles per year. Aug / Brasília (Federal District) Impacts of the implementation of the N Ciclos project for the sales force. Aug / Salvador (State of Bahia) Aug / Porto Alegre (State of Rio Grande do Sul) Sept / Natura Cajamar (State of São Paulo) Impacts of the implementation of the N Ciclos project for the sales force. Impacts of the implementation of the N Ciclos project for the sales force. The process of development of Natura’s Annual Report. Oct / Natura Cajamar (State of São Paulo) Función de la empresa en la discusión y estrategia de transformación sistémica en torno del tema consumo. The role of the company in the discussion and systemic transformation strategy on the consumption topic. 18 Out / Natura Cajamar Construcción de la visión de futuro del Movimiento Natura. Natura Movement Employees 18 Surrounding Community – Cajamar (State of São Paulo) Multistakeholders 22 Feminine Values Employees 12 TOTAL 430 Oct / Natura Cajamar (State of São Paulo) Construction of Natura Movement’s vision of the future. Dec / Cajamar (State of São Paulo) Identifi cation of opportunities of work in the Cajamar area through the collection of perceptions of stakeholders from the region. Dec / Natura Cajamar (State of São Paulo) Bringing back topics relating to this issue that have already been addressed by Natura and discussing the development of the next steps. natura report 2012 48 DIVERSITY In 2011, we made our understanding of diversity publicly known and we expressed the desire that our practices go beyond the compliance with regulatory requirements or isolated actions around issues such as ethnicity, gender, nationality and religion. Based on our strategy and on the character- istics of our company, we determined three areas on which to focus: social inclusion, women and multiculturalism. We are have a strong relationship with women, who represent the majority in our network of employees, NCs and consumers. Institutionally, we integrated important discussion forums on the participation and political and economic empowerment of women. Through the Brazilian Associa- tion of Direct Selling Companies (ABVED), we are part of the Rede Mulheres Brasileiras Líderes pela Sustentabilidade (Network of Brazilian Women in Leadership Positions for Sustainability), which was created by the Ministry of the Environment and mobilizes women in leadership positions to discuss new sustainable solutions. As members of this network, we undertook to encourage dia- logues about conscious consumption with our NCs. We also participate in the advisory board of the Mulheres 360 (Women 360) program. The initiative proposes discussions about the presence of women in the Brazilian corporate environment and stimulates their participation in leadership positions in companies. Internally, we have created a space for debates, integrating men and women, for the purpose of collaboratively building actions to increasingly strengthen feminine values in our environment and relationships. This initiative is part of our strategy of training people to promote the individual de- velopment of our stakeholders through lectures, courses and conferences. In 2012, we invited 30 employees to a meeting with the Argentinean therapist Laura Gutman about her book “Maternity, coming face to face with our own shadow”. We also offered a course on Cultural Biology with the neurologist Humberto Maturana and Professor Ximena D’Ávila, both from Chile. Ten employees took part in this course, which addressed the need to recover some values such as love and col- laboration. Finally, we held a meeting with the spiritual guide Diane Hamilton and 16 employees to elicit a refl ection on the motives for the lack of discussions about Feminine Values in society and in Natura’s own corporate environment. This series of activities led us to include the topic in our dialogue panels. In December 2012, the face-to-face dialogue brought back topics that have already been addressed by Natura relating to Feminine Values and discussed the next steps for approaching the theme with our stakeholders. In 2012, we did not make much progress in the sphere of multiculturalism, which expresses the need to have people with global experience and regional knowledge in our operations, although we did implement some actions such as the increase in the participation of employees from Latin America, Europe and the United States in our MBA program (learn more on page 61, Employees). Due to the adoption of innovative technologies in our production environment, we identifi ed an opportunity to promote the inclusion and development of disabled people. In 2012, even though number the diversity actions was not at the level we would like, we started discussions and actions that will allow us to take on tangible commitments in relation to the priority topics in the future. One of these actions is the distribution center in São Paulo (State of São Paulo) to be inaugurated in 2013 in which we invested in high technology and which will allow us to offer job opportunities to people with different disabilities, including cognitive. In order to promote a welcoming and inclu- sive environment, we worked throughout 2012 on the structuring of a number of awareness-raising, education and development actions (learn more about diversity on page 61, Employees). natura report 2012 THE OMBUDSMAN’S OFFICE The Ombudsman’s Offi ce is a channel for dialogue and serves as a change facilitator through listening, dialoguing and transforming practices and relationships. With care and discretion, it confi dentially forwards questions, criticisms or compliments to the management areas and monitors the resolution of cases, assessing the possibility of evolution in our processes, policies and relationships. All contacts are recorded and reviewed by the Ombudsman’s Offi ce team together with the parties involved. The Ombudsman’s Offi ce is available to employees and in-house outsourced workers in Brazil and to all of our international operations personnel, in addition to suppliers and supplier com- munities in Brazil. Natura consultants (NCs) and end consumers are served by Natura Call Centers (CAN) and by Natura Customer Service (SNAC). In the case of these stakeholders, the Ombudsman’s Offi ce only deals with cases involving the conduct of consultants (behavioral issues) that are referred by the centers and with consumer issues that are referred by the Press Relations and Consumer Safety internal departments. In 2012, 2,500 cases regarding consul- tants and 199 cases of consumers were reviewed. All contacts involving ethical misconducts are reported to the Ethics Committee composed of the senior vice presidents of Organizational Development and Sustainability, Finance, Investor Relations and Legal Affairs, by the People and Organization Director, and by the Ombudsman’s Offi ce. The CEO is a guest member and, when necessary, the departments of Internal Audit and Legal Affairs are also involved. In Natura’s history, we have never had a proven discrimination complaint, but if we do, the proper measures will be taken. In 2012, we received a complaint from an employee that could not be properly investigated because the perpetrator of the alleged discrimination had already been terminated at the time of the investigation. Therefore, the case was closed. Historically, the channel is used by these stakeholders not only to place complaints about behav- ioral and ethical misconducts but also to seek answers to more technical demands (concerning processes, policies, procedures and infrastructure). These technical issues did not use to be ad- dressed by the Ombudsman’s Offi ce, which advised the addresser to refer to the proper man- aging department. In 2012, we increased the communication about the Ombudsman’s Offi ce, clarifying the role of the channel, its stakeholders, type of cases it addresses and how they are handled. As a result, there was a decrease in the number of contacts received and an increase in the percentage of cases solved. We reached a rate of 93% compared to 68% in 2011. We held dialogue panels with different addressers for the purpose of bringing this channel closer to the stakeholders served. We also revised our processes in order to improve the quality of the service. As a consequence of the actions that were carried out in 2012, the 2012 climate survey record- ed a 10% increase in this channel’s credibility regarding the confi dence in the Ombudsman’s Offi ce as an appropriate dialogue channel for criticisms, complaints or suggestions (learn more on page 61, Employees). The Ombudsman’s Offi ce is also responsible for addressing issues related to the Natura Rela- tionship Principles, which are guidelines based on our Beliefs and Essence that inspire and guide our everyday actions to improve our relationships. The Natura Relationship Principles apply to all our operations and are under revision. A new edition is expected to be published in 2013. The release of the new edition was initially expected in 2012 but the revision deadline was extended so as to involve our stakeholders in the development of the material. . natura report 2012 49 GRI 4.4 GRI HR4 GRI HR10 50 HR11. Total number of contacts received by the Ombudsman’s Offi ce1 Employees and In-house outsourced workers - Brazil Employees and In-house outsourced workers – International Operations1 Suppliers – Brazil Supplying Communities2 Total 2010 1,120 18 17 8 1,163 1. Desde 2011, los datos incluyen a colaboradores de Francia. 2. Público atendido a partir de junio de 2012. 2011 1,025 7 4 0 1,036 2012 687 11 10 0 708 Percentage of requests addressed compared to total received (%) % requests addressed1 % requests forwarded 2010 2011 2012 52 48 68 32 93 7 1. Cases addressed by the Ombudsman’s Offi ce together with the managing department involved. 2. Until May 2011, the addresser was advised to contact the managing department to solve technical issues EMPLOYEES AND IN-HOUSE OUTSOURCED WORKERS - BRAZIL We consider the Ombudsman’s Offi ce a consolidated additional dialogue channel for employees and in-house outsourced workers of the Brazilian operations. In 2012, we identifi ed a change in the profi le of contacts from these stakeholders. We recorded an increase of 500 basis points in anonymous contacts - 25% in 2012 compared to 20% in 2011.The contacts related to behavioral misconducts grew 1100 basis points - totaling 28% in 2012 compared to 17% in 2011. Profi le of the contacts – Internal Stakeholders - Brazil People management was the most mentioned process, totaling 44% of the contacts. The cases referred mainly to benefi ts such as restaurant, transportation and medical care. PR5. Satisfaction with the Ombudsman’s Offi ce channel1 Internal stakeholders – Brazil Unit 2010 2011 2012 % 97 98 92 1. In 2012, the Satisfaction Survey for Employees - Brazil was revised. Until September 2012, positive answers to the question: “Are you satisfi ed with this dialogue channel?” were considered. From this date onwards, the answers rated 4 and 5 as satisfaction with the channel were considered. EMPLOYEES AND IN-HOUSE OUTSOURCED WORKERS – INTERNATIONAL OPERATIONS In International Operations, the number of contacts with the channel remained stable. However, we still consider the use of the Ombudsman’s Offi ce by the stakeholders and in-house out- sourced workers as being low, corresponding to 2% of the contacts. In 2012, 11 contacts were recorded and most of them were complaints related to misconduct. We still face the challenge of disseminating this channel among these stakeholders for the purpose of increasing the level of use. criticisms compliments compliments suggestions complaints/ethi- cal misconducts Total contacts: 687 natura report 2012 51 EMPLOYEES AND IN-HOUSE OUTSOURCED WORKERS – INTERNATIONAL OPERATIONS In International Operations, the number of contacts with the channel remained stable. How- ever, we still consider the use of the Ombudsman’s Offi ce by the stakeholders and in-house outsourced workers as being low, corresponding to 2% of the contacts. In 2012, 11 contacts were recorded and most of them were complaints related to misconduct. We still face the challenge of disseminating this channel among these stakeholders for the purpose of increasing the level of use. SUPPLIERS AND SUPPLIER COMMUNITIES IN BRAZIL The Ombudsman’s Offi ce has been available to the company’s suppliers in Brazil for fi ve years and, in 2012, the channel was opened to our supplier communities. The channel receives criti- cisms, compliments, suggestions or questions, information that help us identify opportunities for improvement and enhance our processes and practices. In 2012, we recorded 10 contacts from our suppliers and supplying communities. Most of them were related to misconduct and payment processes. We also face the challenge of disseminating this channel among these stakeholders for the purpose of increasing the level of use. natura report 2012 52 employees As our organization grows and expands its relationships, the need to train high-potential leaders and attract professionals with skills that are still lacking in the company also grows. Therefore, we have been working to accelerate professional development and improve what we call the company’s entrance gate, which are the areas that attract more people, such as the trainee and internship programs (learn more on page 40, Education). In 2012, we took an important step to ensure the implementation of our future strategy. The cycle of review of the strategic planning included the task of explaining, more clearly, to em- ployees, the company’s short, medium and long-term goals, which were also disseminated in a large number of meetings and actions. We wanted to convey to the teams a more realistic vision of the future of the business to guide the work of the employees. LA1 - Number of Natura employees by region/country Brazil Argentina Chile Mexico1 Peru Colombia France Total Other employment contracts2 Apprentices3 Interns4 Temporary workers5 In-house outsourced workers6 Total - other employment contracts Unit 2010 2011 2012 Unit Unit 5,482 395 293 329 293 170 48 7,010 152 68 445 2,048 2,713 5,483 449 293 113 301 191 55 6,885 157 141 255 2,094 2,647 5,354 394 268 119 283 213 52 6,683 164 80 337 2,505 3,086 1. The decrease from 2010 to 2011 is mainly due to the implementation of a new commercial model in Mexico, in which the relationship managers who were employees became consultants. 2. Include the operations in Brazil, Argentina, Chile, Colombia, Peru, France and Mexico. 3. The 162 youngsters in the group of young apprentices were hired by a third party and, therefore, they are also accounted for in this category. Only two of the apprentices are included in the number of employees - Brazil. 4. The reduced number of interns is due to the end of the 2010 internship program, which will be replaced in January 2013, totaling 165 interns. 5. Temporary workers are those hired for a pre-determined period of time and registered in accordance with labor legislation by an em- ployment agency and under subordination. 6. In-house outsourced workers are suppliers who have had work posts (fi xed or not) in the company’s units for more than six months. natura report 2012 53 GRI PR5 In 2012, our workforce was practically stable, in line with recent years. The slight decrease in the number of employees in the Brazilian operations is due to a change in the employment contract for young apprentices who were previously included in the employee’s database and, as of last year, they have been hired by a third party. The increase in the number of temporary and outsourced workers is due to the construction of an administrative and distribution center in São Paulo (State of São Paulo) and the construction works for the expansion of the plants in Cajamar (State of São Paulo) and Benevides (State of Pará). We also hired temporary workers to meet the increased demand for logistics in the Christmas period. In the International Operations we also experienced changes in our employment contracts. In Argentina, Chile and Peru we outsourced order picking activities to partner companies and, in the transition process, we tried to ensure that our former employees were incorporated into the new companies in charge of that task. In Argentina and Chile, we also expanded the services provided by Natura Call Centers (CAN), which are carried out by third parties, so as to better serve our rapidly growing group of consultants. CLIMATE SURVEY Our main indicator of the quality of our relationship with employees is the climate survey. After a two years drop of the indicator, the 2012 survey showed an increase of 200 basis points in the level of favorability to Natura, reaching 72%. However, it is still below the stipulated 74% target. The most signifi cant improvements were identifi ed in the communication channels – especially the Ombudsman’s Offi ce -, stimuli to innovation and performance management. On one hand, there was an improvement in the perception of the relationship factor, especially regarding the feeling of recognition and internal cooperation but, on the other hand, the relationship with the other areas as well as the quality of the decision-making process remain as issues that still need attention. None of the factors showed a decrease, but issues such as support, resources and working conditions in general remain critical. In Brazil, the survey showed progress for all stakeholders, repositioning the company in the third quartile of the market (MQ3), the highest position in an analysis that ranks the best companies in terms of organizational climate. As strengths, we can point out employees’ acknowledge- ment of Natura’s commitment to sustainable development and consumers’ positive perception of the company’s credibility. The employee loyalty rate (which takes into consideration only the highest scores for questions about satisfaction, recommendation and intention to stay in the company), which is only measured in Brazil at this time, also rose from 28% to 29%. The most signifi cant increase in favorability rates occurred in France, Argentina and Chile. How- ever, in Mexico, there was a decrease in the organizational climate rate. We believe that this negative result is related to the instabilities in the technology systems due to the implementa- tion of a new commercial model, which adversely affected the level of service provided to the consultants in that country and the results for the period. We understand that we need to improve the quality of relationships and we reaffi rm this com- mitment for 2013 by establishing a new target for the favorability rate: of 73%. natura report 2012 54 Climate Survey – Favorability 1 Brazil Argentina2 Peru Chile Mexico France Colombia Natura Unit % 2010 72 64 71 69 82 72 84 73 2011 70 72 73 66 85 64 86 70 2012 72 77 73 72 73 73 85 72 1. Equivalent to the percentage of employees who rated 4 and 5 (top 2 box) for the items surveyed on a 1 to 5 scale. 2. The data does not include the International Business offi ce, which is the Buenos Aires offi ce that coordinates the activities of all Interna- tional Operations PR5. Employee Loyalty – Brazilian Operations Unidad % 2010 31 2011 28 2012 29 1. Percentage of employees who selected the highest score (top 1 box) on a 1 to 5 scale for three aspects: satisfaction, intention to main- tain their relationship with Natura and recommendation. EDUCATION Natura believes that education is an essential tool to help achieve the company’s vision of fu- ture and be in line with our Essence. The actions follow, in accordance with Natura education architecture, a large matrix built year after year that indicates the topics and proposals on which people should work in that period. In general, we were more effi cient in using the resources, especially if we consider that the portion allocated to education and development was reduced in 2012. This was due to the implementation of the matrix budget in Natura’s planning, which allowed the optimization of resources throughout the company. In this connection, we sought to optimize training budgets, class sizes and formats and exceeded our corporate target by 8%, reaching a total of 88 average training hours per employee. Operational employees, with the Meu Caminho (My Way) program, were the highlight. This program includes Professional training during working hours, development courses during non- working hours and learning certifi cates that give the employee the opportunity to climb the career ladder. We offered more than 13,000 hours of training to these stakeholders in the workplace. They also went through 19,000 hours of professional training and 31,000 hours of training required by the legislation in force. The company also revised the Natura Educação (Natura Education) program, which provides grants for undergraduate and graduate technical courses, programs, to encourage our employ- ees to pursue top ranked programs and institutions according to the Ministry of Education. We trained a smaller number of employees last year, but we increased by 75% the grants amount. In addition, the Company included another project to the Natura Educação program called Na- tura Estudar (Natura Study), whose purpose is to accelerate the development of high-potential employees who have excellent academic performance by offering scholarships in fi rst-class institutions. natura report 2012 55 GRI HR3 e HR8 GRI S03 In the International Operations, Natura offered a total of 58 hours training per employee, exceeding by 31% the 44 hours target. We worked with important topics such as sustainability, brand, product and commercial model, always seeking to strengthen the key aspects of our Essence and of our values and culture, which are Natura’s differentials. In 2012, the Human Rights topic was discussed in training courses held during the integration of new employees, in leadership courses and in open lectures, which, together totaled 9457 hours (compared to 7,444 hours in 2011). Although there is no specifi c training on issues related to corruption, all new employees were made aware of Natura’s Relationship Principles, which also describe the company’s repudiation to activities that may be viewed as corruption and bribery. LA10. Average training hours per employee, broken down by employment category, Brazilian operations1 Production Administrative Management Executives Average training hours2 Average training hours per employee International Operations Natura3 Unit 2010 2011 2012 93 86 90 78 90 2010 NA NA 97 86 88 60 90 2011 66 85 128 68 71 34 95 2012 58 88 hours hours 1. This indicator includes the training of the sales force (sales managers and relationship managers). 2. This includes total hours for all levels divided by total employees and interns for the respective year. 3. Consolidated average for all Natura operations, in Brazil and in International Operations. LA10. Training hours per gender – Brazil1 Male Female Unit % 2010 NA NA 2011 55 45 2012 52 48 1. This indicator started to be monitored in 2011. Unit LA11. Investment in employee’s education and training1 Operation Brazil² Argentina Chile Mexico Peru Colombia France Total R$ thousand 2010 25,744 96 131 584 216 41 103 26,915 2011 26,415 115 260 245 241 214 380 27,869 2012 19,634 138 215 395 121 339 166 21,008 1. In order to allow a better comparison, investments were translated into Brazilian reais at the exchange rate for the year. 2. Investments in Brazil also include the sales force training (sales managers and relationship managers). natura report 2012 56 LA11. Brazilian Operations – Natura Educação Program¹ Scholarships granted Scholarships granted/number of applications Amount invested in the Natura Educação program Unit 2010 2011 2012 Unit % R$ thousand 546 43 863 510 69 1,014 376 46 1,218 1. All employees enrolled and awarded with the scholarships in the year are considered to have been served by the program. LA11. Courses attended by employees or their family members that were fully or par- tially sponsored by Natura (Brazil) Technical/vocational Languages Preparatory course for the College Entrance Examination (Vestibular) Undergraduate programs MBA and other graduate programs Total Unit 2010 2011 2012 Unit 47 134 5 259 101 546 57 43 1 277 132 510 44 6 0 247 79 376 LEADERSHIP AND DEVELOPMENT As part of our goals for 2013, we will continue to invest strongly in the strengthening of our leadership. To this end, we are focusing on accelerating the completion of our leaders’ succes- sion pipeline, intensifying the programs of talented professionals attraction for training future leaders, creating conditions for our employees to learn new skills and expanding internal educa- tion actions. Launched in 2011, the Cosmos leadership development program completed its fi rst cycle in March 2012.Between 2011 and 2012, 386 leaders participated in the activities and the expecta- tion is that, in three years, the entire leadership team - composed of 600 managers - will have gone through all the training stages. The program comprises four dimensions. The fi rst of them is the “school” and consists of face- to-face classes taught by well known Brazilian and international leadership professionals about topics such as management, organizational dynamics and sustainability and relationships. In one of the activities carried out last year, for example, we started a discussion with leaders to understand how we could expand the analyses of our customers’ purchasing patterns and turn this learning experience into actions for increasing sales. In the “brotherhoods”, another dimension of the Cosmos, we have meetings to exchange in- formation and promote discussions related to work, for interactions that facilitate the sharing of experiences and lessons learned and mobilization for the construction of a better future. The meetings are open to all managers, regardless of whether or not they are formally en- rolled in the program. In 2012, there were four of these meetings with lecturers such as the Indian physicist Vandana Shiva, who spoke about sustainability and social justice; Mozambican biologist and writer Mia Couto, who discussed the issue of cultural differences and similarities; historian Dante Marcello Claramonte Gallian, who presented his concept of humanity, and the specialist in occupational psychology Sigmar Malvezi, who spoke about how cinema can help in people management. natura report 2012 The “communities of interest” dimension is aimed at expanding the learning environment through social networks. The networks operate as instruments that allow the dissemination - through texts, videos, stories and conversations – of the intellectual output generated in other environments of the Cosmos and, consequently, strengthen the interaction of leaders and the discussion of matters of general interest. At the end of 2012, 14 communities were already in place. Finally, the “workshops”, scheduled to be launched in 2013, are the practical application of what has been learned. They give leaders the opportunity to develop projects of personal interest that are somehow related to Natura’s business. Working in teams divided by business units, processes and related areas, the idea is to involve everyone in the pursuit of innovation and collective learning. The Cosmos, as well as the attraction and engagement activities contribute to the occupation of vacant posts in the succession plans. Today, 54% of our strategic leadership positions already have short, medium and long-term identifi ed successors. ATTRACTION AND ENGAGEMENT For the purpose of attracting new employees who are in line with our values and have the skills we are looking for, we reactivated the Leadership Offi ce. The initiative, which was car- ried out between 2009 and 2011 for the development of the leadership training program, provides for the development of new leaders and trainees, attraction of students from re- nowned international courses and search, in the market, for people who have new skills and high potential for Natura. In the International Operations, where the rapid growth of our business increases the demand for leaders with global experience and regional knowledge, we launched the Inspirando Camin- hos (Inspiring Paths) program. The purpose of this program is to attract and train people in the region so that they can be in line with our value proposal and strategy. For nine months, these new employees will job shadow other leaders and follow the development of strategic projects and, at the end of that period, they will take leadership positions in our international operations. Three people were in the program in 2012 – all from Latin American countries, except Brazil. Although small, this program will provide the Company with signifi cant lessons and it is in line with the idea of promoting multiculturalism, one of the company’s diversity pillars (learn more about diversity on page 61). Natura’s trainee program has also a global approach, with 35 members from Brazil and other Latin American countries, and a plan that provides for exchange opportunities among these countries. As a result of this training and talent development effort, the company maintained a high inter- nal promotion rate, which reached 71% in Brazil and 48% in International Operations. Taking into consideration the leadership aspect only, the internal promotion rate was 71% compared to 68% in the previous year, including all operations. In the International Operations, the pres- ence of local professionals in management positions increased 32%. The company’s strategy for managers is to focus on internal promotions, giving opportunities of growth to current employees and not restricting or privileging those who live in the communi- ties surrounding these operations. In general, we use external recruitment when there is the need to search for a candidate with specifi c skills and, in these cases, we do not make restric- tions regarding the candidate’s place of origin. natura report 2012 57 GRI EC7 58 GRI LA12 Internal promotions for positions offered to/taken by employees Brazil International Operations Total Natura Unit 2010 2011 2012 % 36 33 N/A 70 42 64 71 48 67 EC7. Senior management members from local community 1 2 Total number of senior management members Cajamar Itapecerica da Serra Benevides Unit 2010 2011 2012 Unit % NA NA NA NA 168 3,6 4,2 0,6 179 6,1 4,5 0,6 1. Senior management members are those in positions from Senior Manager up. 2. Surrounding communities of Cajamar: Cajamar, Campo Limpo, Santana de Parnaíba and Várzea Paulista; Surrounding communities of Benevides: Benevides, Barcarena, Belém, Ananindeua and Marituba; surrounding communities of Itapecerica da Serra: Itapecerica da Serra, Embu and Cotia. EC7. Senior management members from local community1 2 Argentina Chile Colombia France Mexico Peru Total Unit 2010 2011 2012 % NA NA NA NA NA NA NA 86 87 71 91 88 81 82 62 0 33 100 67 20 53 1. Senior management members are those in positions from Senior Manager up. Locals are considered those members from the country in question. The data for previous years was not disclosed because the indicator was reformulated in 2011 and started to consider the percentage of local members in the company. Before, the indicator only took into account those employees hired during the year, which did not refl ect the real presence of local members. 2. The variations in the percentages from one year to another are not signifi cant. Since these are smaller units, any internal change, even if small, affects the percentage. PERFORMANCE AND COMPENSATION A challenge to any company, the performance assessment processes and bonus compensation for achieving performance targets and executives’ goals are quite complex. Natura has been reviewing this process so that the performance program and variable compensation serve as an encouragement for the performance of the company’s strategy and not just as an employee reward system for achieving targets. Today, the organization has different performance assessment instruments in place. An exam- ple is the all-round assessment, which includes employees’ self-assessment and the perception of the work of multiple stakeholders (managers, company’s departments, partners and sub- ordinates (if any)). The purpose of this analysis is to assess employees’ adherence to Natura’s Essence and Culture. In addition to this behavioral assessment, the company also assesses performance by monitoring the achievement of individual targets set every year. Natura’s as- sessments rely on objective (numerical) and subjective (performance agreement) variables. natura report 2012 59 GRI LA12 It is also important to note that the Performance Management Program (PGD) covers all stakeholders and operations. The PGD ensures all eligible professionals, regardless of gender, the effective management of their performance through structured feedback and individual development plans. With respect to compensation, Natura considers its average salary appropriate to the mar- ket. Salaries are determined based on comparative surveys in the general market, in Brazilian national or multinational companies and in listed companies or companies that implement Human Resources practices that are similar to Natura’s. The comparison considers the scope and the complexity of the functions. In 2012, collective bargaining agreements granted 8% salary increase for employees in the operational and administrative areas. Meanwhile, managers received a fi xed increase in their base salary. Salary variations between male and female employees are exclusively due to the distribution of wages within Natura’s structure. When we compare each salary group, we do not identify signifi cant differences between the salaries of men and women, which is in accordance with Natura’s Compensation Policy: when men and women have the same position, they receive the same salary. What we see is that, today, we have more men than women in positions within the highest salary groups. EC5. Proportion of the lowest salary in relation to the local minimum wage, per Operation1 Brazil Argentina Chile Peru Mexico Colombia France 2010 2011 2012 1.4 1.7 1.3 1.0 4.6 1.1 1.1 1.6 1.3 1.2 1.4 4.5 1.0 1.0 1,4 1.4 1.2 1.3 4.4 1.0 1.1 1. Calculation based on the lowest salary in the operation divided by the minimum wage in each country. LA14.Proportion of women’s salary in relation to men’s salary (per Professional category) Operational Administrative Management Executive Unit 2010 2011 2012 % -16 30 -4 -19 -21 34 -7 -17 -22 16 -7 -14 natura report 2012 60 LA14.Salary profi le – average monthly salary in Brazilian Operations 1 2 Women - total Average monthly salary in production positions Average monthly salary in administrative positions Average monthly salary in management positions Average monthly salary in executive positions Men – total Average monthly salary in production positions Average monthly salary in administrative positions Average monthly salary in management positions Average monthly salary in executive positions Over 45 years of age Average monthly salary in production positions Average monthly salary in administrative positions Average monthly salary in management positions Average monthly salary in executive positions Up to 45 years of age Average monthly salary in production positions Average monthly salary in administrative positions Average monthly salary in management positions Average monthly salary in executive positions ` Unit 2010 2011 2012 R$ R$ R$ R$ 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 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 5,610 1,506 6,350 13,703 38,965 4,831 1,921 5,494 14,780 45,114 8,128 2,142 8,407 17,553 48,212 4,893 1,699 5,728 13,738 40,928 1. The calculation does not take into consideration the payment of the short-term incentive (Profi t Sharing). 2. For the purpose of the calculation of this indicator, the bonuses paid to sales managers and relationship managers were taken into account. When the sales force employees are placed in their categories, this improves the average women’s salaries due to the bonuses, excluding production jobs. Natura offers pension plans to which the employees can determine what percentage of their salary they wish to contribute with (0% to 12%). Natura contributes with 60% of this amount, up to 5% of the employee’s salary. The plan is offered in the Brazilian operations and it is limited to the ceiling of R$ 13,129.00. In 2012, Natura paid around R$ 4.8 million into the plan (com- pared to 4.3 million in 2011). EC3.. NATURA’S CONTRIBUTIONS TO THE EMPLOYEES’ PENSION PLAN IN BRAZIL (R$ MILLION) 2,528 4,300 4,849 Natura does not have a formal program to prepare employees for retirement. However, since 2011, the Construindo o Futuro (Building the Future) project has been proposing a number of refl ections on the emotional, physical and material aspects inherent to this career transition period. The program is offered to our sales force, composed of relationship and sales managers and, in 2012, 28 people were enrolled. 0 1 0 2 1 1 0 2 2 1 0 2 natura report 2012 61 GRI LA4 e LA5 GRI HR5 Collective bargaining is coordinated by the Human Resources department and it covers all employees and follows the standards and limits set by local legislation. Natura promotes formal meetings with unions in connection to its business to discuss agreed upon topics with union representatives. Whenever these meetings take place, we notify about collective bargaining agreements preferably in advance in order to allow for an open discussion about the topics. Natura does not have formal processes in place to identify operations in which the right to exercise freedom of association and collective bargaining may be at risk. DIVERSITY Caring for our relationships is part of our culture and mission as a company. In 2012, Natura introduced some actions to enhance opportunities for diversity and create a more welcoming environment and evolve in the three aspects that it considers priorities: social inclusion, women and multiculturalism. In 2012, however, our diversity indicators were adversely affected by an increase in Natura’s overall turnover. The opening of the company’s new distribution center in São Paulo (State of São Paulo) will provide an opportunity for the inclusion of people with disabilities, especially cognitive disabili- ties, in our order picking lines. Since the operation is expected to start in 2013, we have already started to hire the fi rst employees with the support of a specialized consulting company. The development of the company’s managers so that they can act as sponsors and role models for these employees at Natura is part of the project. We believe this work may also positively refl ect on our indicator of contracting disabled people, which, in 2012, dropped from 4.7% to 4.1% in relation to the total number of people contracted. We also need to make progress with respect to the participation of women within our current staff. If, on one hand, we have a smaller participation of women in the senior managers group, on the other hand, when we analyze the succession pipeline, the gender of the leaders is pri- marily female, which means a vision of the future that is more in line with our diversity strategy. With a staff composed primarily of women (64%), we have worked to establish a suitable envi- ronment that supports, particularly, the employees who have just given birth. Natura provides a nursery for infants up to two years and 11 months old, has created fl exible work hours for nursing mothers, and has made available a program through which doctors and social work- ers assist new mothers during their maternity leave (since 2010, Natura has been offering a six-month maternity leave). In 2012, the percentage of female employees who returned from maternity leave showed a slight decrease when compared to 2011, but the rate is still high. The multiculturalism indicator is part of a broader strategy for the future and refl ects the grow- ing interest of the company in having people with different experience, but always in line with our values and Essence. In 2012, Natura promoted some actions that favor multiculturalism within the company such as expanding the participation of Latin American employees in the MBA program, but the topic has not evolved at the desired speed and there was a 9% decrease in the indicator (learn more about diversity on page 48, Quality of Relationships). natura report 2012 62 LA1.Natura employees by gender1 Male Female 1. This indicator started to be monitored in 2011. LA13. Diversity1 Total employees in Brazil Women As a percentage of total employees In management positions as a percentage of total management positions In executive positions as a percentage of total executive positions Over 45 years of age As a percentage of total employees In management positions as a percentage of total management positions In executive positions as a percentage of total executive positions Multiculturalism Total number of foreign leaders or leaders with international experience2 Percentage of foreign leaders or leaders with international experience in relation to total leaders3 Disabled employees Number of disabled employees As a percentage of total employees Number of disabled people trained in the Basic Professional Skills program Unit % Unit Unit % % Unit % Unit % Unit 2010 NA NA 2011 36 64 2012 36 64 2010 5,482 2011 5,483 2012 5,354 61 55 25 11 9 22 27 23 61 57 24 12 11 22 42 33 60 59 26 13 11 35 38 30 249 4.5 217 258 4.7 258 219 4.1 244 1. We do not report a classifi cation by minorities due to a different understanding of diversity, which involves broader concepts of social inclusion. 2. This considers global leaders and those managing processes and business. 3. Natura considers current or past international experience with Natura but in operations in markets that are different from those of the employee’s nationality and for a minimum period of two years. LA1.Employees by professional level1 Operational Administrative Management Executive Total 1. This indicator started to be monitored in 2012 Unit Unit 2010 NA NA NA NA NA 2011 NA NA NA NA NA 2012 2.476 3.474 679 54 6.683 natura report 2012 63 LA15. Number of maternity leave granted and return rate1 Number of employees on maternity leave during the period Percentage of employees who returned from maternity leave and stayed with the company for at least 12 months after their return Unit 2010 2011 2012 Unit % 155 86 156 90 158 84 1. Due to the new method for calculating the indicator, the fi gures for 2010 and 2011 have been changed. TURNOVER In 2012, the Company recorded an increase in turnover rates for management, administrative and operational employees and, consequently, the overall turnover rate increased from 8% to 9%. GRI LA2 Among the employees who left the company, 71% were terminated by Natura due to lower-than- expected performance for the job. This result is related to the improvements in the performance management process, which pays closer attention to low-performance employees, who have a six-month development plan to recover performance and, if they do not, they are terminated. Additionally, the absenteeism management program and greater proximity of leadership resulted in more effective management, with a consequent increase in the number of terminations by the company. As for resignations, they were mostly due to the expansion of the job market, particularly in the administrative area and in more technical areas such as engineering. In order to reduce these cases, since the second half of 2012, we have been enhancing training, career and development initiatives for these stakeholders. In the International Operations, we noted the opposite trend, with a reduction in the turnover rate to 8% compared to 12% in the previous year. This result is related to the consolidation of the teams in these units after intense turnover at the beginning of operations. LA2. Total employees hired1 Brazil Argentina Chile Mexico Peru France Colombia Total Unit Unit 2010 1.328 NA NA NA NA NA NA 1.328 2011 758 NA NA NA NA NA NA 758 2012 708 21 16 20 16 3 20 804 1. The indicator of International Operations started to be monitored in 2012. natura report 2012 64 LA2.Total employees’ lay-offs Brazil Argentina Chile Mexico Peru France Colombia Total LA2.Turnover by gender Male Female LA2.Turnover by age group - Brazil Under 18 years of age Between 18 and 25 years of age Between 26 and 30 years of age Between 31 and 40 years of age Between 41 and 50 years of age Over 50 years of age Unit unid Unit % Unit % 2010 641 40 49 38 75 5 37 885 2010 12 6 2010 0 15 12 7 2 4 2011 751 35 89 258 50 7 43 1.233 2011 10 7 2011 0 10 9 9 6 5 2012 832 103 53 18 60 17 29 1.112 2012 12 8 2012 4 12 11 9,5 6 7 1. Turnover defi nition: the number of terminations by the company (with or without cause) or resignation by the employee and subsequent fi lling of the position. Calculation method: dismissals of employees who have been replaced / effective headcount of the company. natura report 2012 65 GRI LA3 BENEFITS Benefi ts and allowances to all employees in the Brazilian Operations: _Ergonomics program: seeks a comfortable and productive adjustment of workers to their work place and working conditions making the necessary adjustments. _Social Work: a service to help employees discuss, understand and resolve their social issues. _Saúde Tamanho Família (Family Size Health) Program _Workplace exercise program. _Chronic Disease Management Program: for employees and family members with chronic illnesses. _40% discount on the purchase of up to fi ve Natura products per month. _ Cuidando de Quem Cuida (Taking Care of Those Who Take Care) Program: postnatal meeting and courses for pregnant women. _Daycare allowance and special allowance: for fi nancing expenses with the education of disabled children. _Life insurance. _Vehicles for senior management level employees _Medication allowance. _Chartered transportation. _Pension plan. -Runners project: jogging and walking activities with specialized supervision. _Restaurant or meal vouchers. _Sale of school materials with discounts. _Fitness services, swimming pool, dance classes, soccer tournaments and multipurpose sports court at Clube Natura (Natura Sports Club) and Espaço Bem Estar (Well Being Space) (Cajamar and Itapecerica da Serra). _Services: seamstress, laundry, shoe repair, eyewear shop, insurance, post offi ce and book and movie rental (Cajamar and Itapecerica da Serra). _Natura Education: scholarships for employees and family members. _Construindo o Futuro (Building the Future) program (preparation for retirement for sales management, including subsidized savings account). _Nursery for children up to 2 years and 11 months of age. _Support in child adoption processes. _Health care plan. _Dental care plan. _Check-up for management or higher level employees. _Partial reimbursement of expenses with medications for cardiovascular conditions, diabetes, renal failure, oncology, liver diseases, neurological disorders, occupational musculoskeletal disorders, and psychiatric disorders. _Telemedicine: electrocardiogram (EKG) via telephone in emergency cases. _Saúde em Movimento (Health in Movement) Program: incentive to physical exercise. Medical, nutritional and physical check-up before starting activities. _Gym allowance for relationship and sales managers. _Five free products available for management-level employees and executives. natura report 2012 66 GRI LA8 GRI LA8 _Christmas gift basket. _Clinic: emergency medical care, physiotherapy, GPR, gynecology and obstetrics, acupuncture, orthopedics, nutrition and psychology. _Quero Estar Bem (I Want to Be Well) Program: integration of all specialties and professionals of the Clinic, holistically addressing the four dimensions of the human being: physical, emotional, spiritual and social. Brazilian Operations: _Course for pregnant women. _Clinic: medical emergency. _Runners Project. _Restaurant. _Workplace exercises. _Toys. _Christmas gift basket. _Chartered transportation. _Fitness services, swimming pool, dance classes and multipurpose sports court at Clube Natura and Espaço Bem Estar (Cajamar and Itapecerica da Serra). _Services: seamstress, laundry, shoe repair, eyewear shop, insurance, post offi ce and book and video rental (Cajamar and Itapecerica da Serra). _Presents on Mother’s Day and Father’s Day. HEALTH AND SAFETY Natura has a number of programs to promote a healthier lifestyle for its employees and their families. In relation to the previous year, the Company increased the number of preventive medi- cal tests for its employees and their dependents, such as breast, cervical and prostate cancer tests, as well as diagnostic studies for the control of diabetes and cardiovascular diseases. In 2012, health investments amounted to R$ 942 per employee, an amount similar to last year’s. Under the umbrella of the Quero Estar Bem Program, Natura developed activities focused on health prevention, encouraging exercise and promoting quality of life. In 2013, the company should organize the 2nd Health Week - the fi rst one took place in 2010 - with health risk assess- ments and specifi c actions aimed at the most frequently diagnosed diseases, such as cardiovas- cular diseases, high blood pressure and high cholesterol and/or blood sugar. The company also offers vaccines that are not available in public healthcare centers. Natura offers in-house workout three times a week to administrative employees and daily to operational employees. There are also fi tness and sports themed events (running and soccer, for example), in addition to the gym allowance. The Cuidando de Quem Cuida Program includes actions to support activities related to the health of employees, especially women, with prenatal and postnatal courses for pregnant women, nursery, daycare allowance, special education allow- ance for disabled children and maternity leave extension. Natura also provides access to medica- tion, funeral allowance and life insurance, and support in medical and dental care plans. natura report 2012 In order to promote a safe environment, the company invested the equivalent to R$ 582 per employee in accident prevention activities in 2012. The volume was lower than in the previous year, when the company invested R$ 794 per employee, mainly due to engineering works that involved higher costs. Additionally, Natura reassessed its safety practices and structure of all Natura’s facilities to deter- mine how the company could improve what was being done. The results showed that it should be closer to the workers and respond faster and, in view of such answers, the company reallo- cated teams so as to serve more signifi cant areas and processes, where there are more risks or demands for safety management. Natura wants safety to be a crosscutting issue because in order for it to be able to change behaviors, it needs to keep the matter present in the company’s daily routine, so that employees understand its value and importance to the business. Last year, Natura promoted specifi c and general training programs for its in-house outsourced employees, which reduced the number of accidents among these stakeholders by 16%. On the other hand, the number of accidents among Natura employees remained stable (see table below). It is worth noting, however, that all incidents reported were mild and included a be- havioral component, which reinforces the need to work with safety and prevention conduct among employees. The employees from Cajamar and Benevides units are represented in health and safety formal committees by means of the Internal Accident Prevention Commission (Cipa), which is open to all employees (from these units) and is composed of different hierarchical levels. They are structured as follows: 50% of the representatives are indicated by Natura and the other 50% by employees by means of elections. The existence of Cipa is provided for in formal agreements between Natura and the Unions and they also include work protection measures such as the use of individual protection equipment; machinery and equipment accident prevention practices and communication of occupational accidents. 67 GRI LA6 GRI LA9 natura report 2012 68 Unit 2010 2011 2012 7 10 0,004 10 4 0,003 8 6 0,003 LA7. Typical occupational injuries and lost days and absenteeism rate (including outsourced employees) in Brazilian operations1 Employees – number of accidents with leave Employees - number of accidents without leave Number of occupational accidents per employee Outsourced employees – number of accidents with leave2 Outsourced employees - number of accidents without leave2 Total working hours planned3 Workdays lost3 Rate of lost days (TDP)4 Frequency rate of accidents with leave5 Investment in the prevention of illnesses per employee (R$)6 Investment in the prevention of accidents per employee (R$)7 Investment in the prevention of illnesses per employee (R$) Frequency rate of occupational diseases Number of cases reported to the National Institute of Social Security on occupational illnesses – Cajamar Absenteeism rate8 (%) Unit 4 2 Hrs/year unit % 2.010 64 6,3 0,7 1,7 882 736 0,9 9 % R$ % unit % 6 0 2.011 51 4,7 0,9 1,2 794 940 0,2 1 5 0 2.016 73 6,70 0,8 1,3 582 942 0,3 3 3,9 6,5 5,8 1. The data is in accordance with the National Institute of Social Security regulations, collective bargaining agreements with Unions, and Directive No. 3,214 of the Ministry of Labor and Employment. This considers accidents recorded at the Cajamar, Itapecerica da Serra, and Barueri, São Paulo units, distribution centers and Benevides, excluding small injuries. 2. Accidents with leave are those in which employees do not return to work after the incident. Accidents without leave are those in which the employee returns to work on the same day of the accident or on the fi rst working day after the incident. There were no work-related fatalities in the period covered by the report. 3. For Natura employees, the total number of working hours planned include 8 hours/day times planned working days. 4. Rate of lost days: the factor 1 million was considered for calculation in accordance with NBR No. 14280 of the Brazilian Association of Technical Standards (ABNT), which is the standard used by Natura. Lost days are counted from the day after the accident. 5. Equivalent to the number of accidents with leave divided by a million man-hours worked. 6. Equivalent to the number of accidents or injured employees with/without leave divided by a million man-hours worked. 7. Includes the whole budget of the Work Safety Department, expenses and the investments made by the Engineering and Manufacturing area to ensure and/or improve work safety conditions. Expenditures with training are not included. 8. In 2012, we identifi ed opportunities for improvement in the computer hour record system, which started to consider different workloads for different days of the week and shifts. For this reason, we revised the rate for 2011. LA7.Percentage of accidents by gender (with and without leave) - Brazil Male Female Unit 2010 2011 2012 % 76 24 71 29 71 29 natura report 2012 consultants and CNOs 69 Natura is a direct selling company and its main link with consumers is the Natura Consultants (NCs). Natura’s network comprises more than 1.5 million NCs who deliver much more than just products and services to the company’s stakeholders, they also take our values and our Beliefs in seven Latin American countries and France. This structure is composed of two other groups: Natura Consultant Advisors (NCAs) and Rela- tionship Managers. Whereas the NCAs, besides working as consultants themselves, work on the expansion of the network and on the relationship with other consultants, the Relationship Manag- ers are Natura’s employees who work closely with the NCs and NCAs in order to understand their needs and expand the value of their entrepreneurial activity. The year 2012 was very positive for this network. The delivery of products within 48 hours already benefi ts 25% of the NCs in Brazil, compared with 5% in 2011. When considering just the large state capitals, this rate reaches 60%. The average delivery time dropped from 6.8 days to 5.1 days in the period. The company makes faster and more precise deliveries, since, in 2012, it also recorded the lowest backorder rate in the past seven years. Over the past years, Natura has made large investments in the review and expansion of its logistics network in Brazil and in the development of technologies and systems for the receipt of orders. These are progresses that refl ect in the satisfaction of Natura’s network today. NCs and NCAs loyalty showed a signifi cant growth last year, reaching the highest level since the beginning of loy- alty monitoring in 2010. The rate, which only takes into consideration the highest score given to the items satisfaction, recommendation and intention to continue their relationship with Natura, reached 24% among consultants, higher than the 18.6% score in the previous year and even higher than the target of 21% for the period. Among NCAs, the growth was even more expressive, going from 24% to 40%. In International Operations, the loyalty rates remained high, in line with the previous years’ re- sponses. Natura recorded a decrease only in Mexico, where systems instability in a specifi c period of the year adversely affected the quality of the service In order to continue adding excellence to direct sales, the company invested in surveys on the ex- perience in digital media and identifi ed a large potential to bring consultants closer to their custom- ers. The purpose of this move is to try to understand customers’ buying habits and provide the NCs network with information that can increase their productivity and improve their service. A group of NCs already uses mobile technology and the web to relate with their customers, an experience that is helping the company learn more about the potential of such mechanisms in direct sales. natura report 2012 70 Natura also intends to create a CRM (Customer Relationship Management) system, which should help manage information on consumers and NCs and will also provide consultants with informa- tion on consumption profi le that will be useful to increase their sales and rate the relationship with their customers (learn more on page 31, Strategy and Prospects). PR5.Quality of Relationship with NCs – Brazilian Operations Satisfaction1 Loyalty2 Unit 2010 2011 2012 % 90 21 87 19 90 24 1. NCs satisfi ed and completely satisfi ed – Top 2 boxes. 2. Percentage of NCs who attributed the highest score (top 1 box) on a scale of 1 to 5 for three aspects: satisfaction, intention to maintain their relationship with Natura and recommendation. PR5.Quality of relationships with NCs - International Operations – Loyalty Rate (%)1 Argentina Chile Colombia Mexico Peru Total International Operations PR5.Quality of relationships with NCs - International Operations – Satisfaction Rate (%)2 3 Argentina Chile Colombia Mexico Peru Unit 2010 2011 2012 % Unit % 35 35 44 51 30 na 2010 93.3 91.3 93.8 93.8 92.7 38 36 37 40 23 na 2011 94.0 95.5 95.5 91.5 92.5 45.4 39.0 42.8 38.4 25.9 38 2012 96.5 94.0 95.3 90.0 91.0 1. Percentage of NCs who attributed the highest score (top 1 box) on a scale of 1 to 5 for three aspects: satisfaction, intention to main- tain their relationship with Natura and recommendation. 2. This indicator started to be monitored in 2012. 2. The data is presented by country since they may vary depending on the size of the network in each place. 3. NCs satisfi ed and completely satisfi ed – Top 2 boxes. PR5.Quality of relationships with NCAs – Brazilian Operations2 Satisfaction1 Loyalty2 Unidad 2010 2011 2012 % 94 33 87 24 96 40 1. NCAs satisfi ed and completely satisfi ed – Top 2 boxes. 2. Percentage of NCAs who attributed the highest score (top 1 box) on a 1 to 5 scale for three aspects: satisfaction, intention to maintain their relationship with Natura and recommendation. natura report 2012 71 PR5. Quality of relationship with NCAs – International Operations – Loyalty 1 2 Argentina Chile Colombia Mexico Peru PR5. Quality of relationships with NCAs – International Operations – Satisfaction 2 3 Argentina Chile Colombia Mexico Peru Unit % Unit % 2012 na 46 58 52 50 2012 na 95,8 99,0 93,1 97,0 1. Percentage of NCAs who attributed the highest score (top 1 box) on a scale of 1 to 5 for three aspects: satisfaction, intention to maintain their relationship with Natura and recommendation. 2. This indicator started to be monitored in 2012. The data is presented by country because the size and weight of each country may be changed since this is a new model. Argentina does not have an NCA model yet. 3. NCAs satisfi ed and completely satisfi ed – Top 2 boxes. THE SIZE OF NATURA’S NETWORK In 2012, the total number of consultants exceeded 1.5 million, an increase of 10.7% over the previous year. In Brazil, the network grew 8%, totaling 1.2 million consultants. Among the NCAs, there was a slight decrease in the total number in Brazil due to adjustments made to the model: the company optimized geographical operations and increased the number of NCs served by each NCA, focusing on actions to increase the individual compensation of these stakeholders. The International Operations, which is in a different stage of implementation, and with the es- tablishment of the NCA model in Chile, Colombia and Peru, and of the differentiated commer- cial model in Mexico, the network grew more than 25% in relation to 2011 and reached 304,000 NCs. The exception is France, where the network was slightly reduced, which prompted us to review new measures to increase the attractiveness of the model in that country. Number of consultants available 1 2 Brazil Argentina Chile Mexico Peru Colombia France Total Unit thousands 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 2012 1,268.5 74.9 52.1 74.3 63.6 37.0 2.6 1,572.9 1. In Brazil, this refers to the number of consultants available at the end of the year. 2. In International Operations, these refer to the closing position of cycle 17. natura report 2012 Number of Natura Consultant Advisers in Brazil1 1. Number of NCAs at the end of the year. Number of NCAs available in International Operations1 Chile Mexico Peru Colombia France Total International Operations 72 Unit 2010 2011 2012 Unit 11,276 13,230 12,125 Unidad Mil 2012 728 na 760 388 na 1876 1. Number of NCAs at the end of the year. First year that this indicator is monitored. MORE PRODUCTIVITY, MORE INCOME The smaller growth of the network in Brazil is in line with the company’s strategy to focus on increasing NCs and NCAs’ productivity. After years of expansion in the number of consultants, Na- tura realized the need to intensify training actions and tools to help Natura’s network improve its sales performance, and increase consumers’ purchase frequency and variety of products purchased. CONSULTANTS (NCS)1 (R$) 4,128 3,904 3,912 Accordingly, the initiatives implemented last year allowed the average productivity of NCs to grow in the second half of the year (1.4% in the third quarter and 2.9% in the fourth quarter). The pro- ductivity of the NCs for the year was almost equal to the previous year, interrupting the downward trend. In the case of the NCAs, the result was more consistent and productivity increased 21%. Among the actions, the company launched the Mais Natura (More Natura) program, which casts a new view on the business, and revised the relationship strategy and compensation rules for NCs and NCAs. Natura also invested in marketing development and in the combined offer of different categories of products (cross category strategy) according to consumers’ profi les. Another initiative that helped increase productivity was the change in the presentation of promotions on Natura Magazine in 2011. Before, promotions were packed at the end of the magazine, and now they are distributed across the publication as an incentive for the end user to browse along the entire portfolio. TRAINING The strategy to increase productivity is also associated with the increase in the effectiveness of the company’s training courses. In 2012, Natura invested primarily in the use of the Internet as a tool for publicizing content that improves the network operation. The Company recorded 1.1 million NCs who participated in training courses in Brazil, exceeding last year’s target of 1,005,000 participants. 0 1 0 2 1 1 0 2 2 1 0 2 1. This takes into ac- count a NC’s profi t of 30% over the price of the products shown in the magazine. NATURA CONSUL- TANT ADVISERS (NCAS)2 (R$) 9,802 9,521 11,515 0 1 0 2 1 1 0 2 2 1 0 2 2. The NCAs receive a commission according to their performance based on the number of consul- tants who place orders and volume of orders. natura report 2012 73 On the Internet, the Portal do Conhecimento (Knowledge Portal) - a website linked to the In- ternet’s ordering platform and which provides information and training courses to consultants - had over 360,000 accesses in 2012. Out of these, 180,000 consultants completed at least one virtual training course, which represents an optimal performance for the platform, because it is a recent initiative. To encourage the use of this new resource, the company carried out campaigns through key communication channels such as the magazine and the Consultoria (Consulting) blog, and the Natura Meetings at every sales cycle. In order to promote learning and enchant through concepts of and experiences with its prod- ucts, Natura invested in new training actions, among which are the Vivências de Maquiagem e Perfumaria (Makeup and Fragrances Experiences) that took place in many cities in Brazil and that were conducted by specialists. Natura also developed and sent to the NCs a magazine with sales information and tips about the main product categories. Natura has also been investing in face-to-face training courses and the initial training course was attended by 343,000 NCs. To those who lived in distant cities from the training locations, Natura sent 121,000 kits with tips and guidelines, resulting in 92% of the beginner consultants trained. Training actions – Brazilian Operations1 2 Total number of NCs trained in training actions Unit thou- sands 2010 - 2011 - 2012 1,152 1. This takes into account the participation of the same NC in a training action, either through Relationship Managers, Virtual Training Courses and/or other corporate initiatives. 2. This indicator started to be monitored in 2012. NCs Training – Brazilian Operation Beginner NCs Initial training Unit thou- sands 2010 458 361 2011 505 358 2012 506 343 Also in 2012, the company discontinued the activities of the Natura Houses in Brazil, hitherto used to host the Natura Meetings, which were regular meetings with the consultants for the presentation of the sales cycles, information on launches and other strategies. Although the Houses enjoyed a good approval rate among NCs, the company noticed that they were not fulfi lling the task of increasing the participation of consultants in the meetings at each cycle nor bringing them any closer to Natura. In the International Operations, the training courses expanded at the same fast pace of the growth in the number of Natura consultants. In some cases, such as in Chile and Argentina, the participation of the NCs more than doubled in relation to the previous year. Natura has been renewing the offer of trainning courses that meet the needs of each country, offering a seg- mented strategy to each consultant, which not only allows them to obtain technical knowledge about the products, but it also gives them tools for their business, promoting entrepreneurship. natura report 2012 74 NCs Training – International Operations1 2 Argentina Chile Colombia France Peru Total Unit Unit 2010 3,501 1,671 2,160 500 3,261 11,093 2011 7,243 3,802 3,656 859 5,847 21,407 2012 10.973 7.450 5.161 648 10.383 34,615 1.Number of NCs trained mainly in the Boas-Vindas (Welcome), product line and business courses. 2. This indicator is no longer monitored in Mexico due to the implementation of the new commercial model. A PERFECT SERVICE In the search for continuous improvement, the company reduced the average delivery time to 5.1 days in the year, and to 4.5 days when considering only the second half of 2012. After es- tablishing a proper basis for the entire network, Natura believes that it is necessary to improve its understanding of the service to its different stakeholders, particularly the NCs, NCAs and consumers. Established in 2011, the Comitê de Clientes (Customers’’ Committee) is the Center of this strategy to search for quality and serves as a forum, bringing together the areas that affect the service level. This is the case, for example, of the information technology, commercial, logistics and distribution areas, in addition to the relationship managers, who work daily with the NCs and can bring an additional perspective from the end of the chain to ensure the effi ciency of Natura’s service. At each sales cycle, Natura monitors in an integrated manner around 70 indicators that af- fect the quality of service and speed up the identifi cation of points for improvement directly with those who are responsible for the processes. The Committee reviews all steps, from the registration of the NC, through the receipt of the order and availability of the product to the delivery at the consultant’s home. This basket of indicators makes up the so-called Perfect Service, whose purpose is to ensure the delivery of orders within the shortest possible time and with quality. The results of this investment are shown in the fi gures: in 2012, between 60% and 70% of the indicators showed an improvement of approximately 50% in the level of excellence, whereas in 2011, only 40% of the indicators followed this pattern. The company’s target is to be able to offer the Perfect Service to 90% of the NCs in Brazil. In 2012, Natura also started conducting the satisfaction survey with the NCs at each sales cycle to measure, more frequently, their opinion about the company’s services and processes, improving quality control. In the past, satisfaction was assessed once a year. For the time being, the operation of the Customers’ Committee is restricted to Brazil. How- ever, some experiences have already been made in Chile, with a pilot project in 2012, and the company anticipates expanding the strategy of all operations. In Natura’s regional units in Brazil, a regional Customer Service made up of managers supported by a sales team, was created to identify opportunities for development in each region. natura report 2012 75 RELATIONSHIP WITH NCS AND NCAS To improve the quality of the relationships with the sales force, the company created a new relationship policy for these stakeholders based on fi ve principles: connecting; caring; generat- ing learning; promoting opportunities and creating shared value (see table below). Based on these guidelines, Natura wants to transform the purchasing experience of our consul- tants and consumers, reinforcing the central role of the relationship as a business differentiator, in addition to strengthening the loyalty of Natura’s stakeholders, particularly the NCs and NCAs. The new relationship policy should infl uence all contacts with Natura’s network and, to this end, Natura is reviewing all of its procedures in the search for opportunities for improvement in the service channels (learn more in Communication Channels), in the policies for the incentive and recognition of consultants (learn more in Recognition and Incentives) and in the training programs offered (learn more in Training). Among the actions that have already been carried out is the creation of a center focused on attraction and initial development of new NCs and on the reduction of turnover by monitoring these stakeholders to understand their needs and diffi culties so as to make their stay at Natura viable. The company continues to hold dialogue panels to hear consultants and identify collaborative solutions for sales, customer relationship and customer service challenges, and other issues that may have direct consequences for the NCs. Natura believes it is necessary to look at others, valuing the opinion of all its stakeholders. Principles Connecting Caring Generating learning Promoting opportunities Creating shared value Meaning The relationships are established among individuals and their multiple roles in an ecosystem where they identify themselves with one another and connect around common purposes. Caring is the central element of any and all interaction. Simplicity, serving with love and empathy express this caring and build relationships based on trust and loyalty. A dynamic ecosystem of relationships that acts, interacts and collaborates, learns together, reconnects, rebuilds itself and evolves. Entrepreneurial actions are praised, without imposition. The opportunities are accessible to all and allow the potential of each individual to show up. The search for continuous improvement leads to the creation of shared value for the entire ecosystem. COMMUNICATION CHANNELS There are several communication channels to support the work of Natura’s consultants and the company is improving online tools in particular so as to make their services more agile and improve them. Currently, almost all of the orders from the NCs have already placed through the website Consultoria (Consulting) - 94% in Brazil and 80% in International Operations - and the company wants to encourage the use of this channel also in communication. natura report 2012 76 Consultants can contact the Natura Call Centers (CAN) through the online chat, e-mail or telephone. Additionally, last year, the company started to monitor social networks to ensure that all consultants’ contacts made via Natura’s pages on Facebook, Twitter and on its blogs are addressed. Last year, the contacts with CAN totaled 0.39 contacts per order billed compared to 0.85 in 2011. This decrease is the result of the improvement in the company’s processes, particularly in the availability of products, credit and collection systems and order delivery. Overall, CAN received 20 million requests, compared to 30 million in the previous year, considering all Na- tura operations. To ensure a prompt service, specifi c channels were established to serve the more experienced NCs and those who were more productive in 2012. In order to gain effi ciency and make processes in the International Operations consistent, the company is centralizing the contacts of the Center in Peru and Colombia, instead of having separate centers in each country. In addition to bringing effi ciency gains, this change should also help monitor and maintain the quality of the service provided. Natura is working to unify its online communication channels and, consequently, make it easier for both consumers and consultants to surf on the websites and profi les of the Natura brand and its products on social networks, which are virtual addresses that are accessed by a large number of stakeholders. At the end of 2012, the company launched the new format of Na- tura Digital Magazine (www.revistanatura.com.br), which now has a more interactive website, identifying the profi les of consumers and consultants, allowing for a better experience with Natura’s portfolio. Among the new features, there is a search system that facilitates the search by type of product and sub-brand and visitors can also see the presentation of the portfolio according to their profi le and use a virtual makeup artist tool. The company’s purpose is to create a culture of consultation to Natura’s portfolio on the digital magazine and develop a relationship tool on the Internet, where the number of users is increasingly higher. In 2012, Natura Digital Magazine had an average 500,000 accesses per cycle. Natura also issues the Consultoria blog (blogconsultoria.natura.net), which teaches about the con- cepts and features of Natura’s products and discloses information on topics such as entrepreneur- ship and sustainability. In 2012, the blog reached an average of 300,000 single accesses per cycle. However, the major communication channels are still the company’s printed magazines - Na- tura Magazine, Consultoria Magazine and other brochures. The average print run of Natura Magazine was 3.5 million copies per cycle, and the average print run of Consultoria Magazine (which is also edited every cycle and provides information to the consultant on the activity, special promotions and relationship actions) was 1.5 million. In 2013, the company expects to launch the Consultoria Magazine in a more effi cient format so that it can work as a training tool for consultants. In 2012, the production process of these materials was redesigned to adjust the focus of each publication to its target audience. The increase in the number of pages or print run is also closely monitored, which is consistent with our environmental impact control efforts. In this connection, the company wishes to increasingly encourage the use of the online Natura Maga- zine and of other channels on the web. natura report 2012 77 Number of orders placed on the Consultoria website1 Brazilian Operations International Operations Unit 2010 2011 2012 thou- sands 12,901 611 15,961 2,111 17,616 2,801 1.Orders placed by consultants via the Internet that were billed in the relevant years. Natura Call Center - CAN1 Average number of daily calls answered Unit thou- sands 2010 24 2011 30 2012 20 1. Calls related to the Brazilian Operations via telephone, online chat and e-mail. RECOGNITION Natura values the important role of the NCs and NCAs by means of many actions that ac- knowledge their performance in the sales channel, in the dissemination of our beliefs and values and in the development of sustainable initiatives aimed at the construction of a better world. Every year, the company honors the most productive consultants, the ones who sell more products in refi ll packages and products of the Crer para Ver (Believing is Seeing) line – which revenue is donated to the Natura Institute. Natura also honors its consultants for the length of service with the their company seniority, who have been in the activity for after 10, 20, 30 and 40 years of activity , and the NCAs, for their progress and performance. NCs Recognition - Brazil NCs recognized for length of service1 Events of recognition for length of service NCs recognized for their performance2 Number of awards distributed to NCs recognized for their performance Events of recognition for performance Unit Unit 2010 73,286 56 9,137 473 2011 13,753 44 9,340 451 2012 28,277 91 9,510 457 43 41 41 1.Annual regional recognition of NCs who have been in activity for 10, 20, 30 and 40 years. 2.Recognition of NCs for their performance in the categories of sales volume, sales of refi lls and products of the Crer para Ver line. NCAs Recognition - Brazil NCAs recognized for their growth1 NCAs recognized for their performance2 Unit Unit 2010 2,248 3,018 2011 2,443 2,931 2012 2,730 2,931 1. Recognition for their growth in the activity. 2. Performance recognition: growth in the number of NCs in the group, frequency of orders and retention of NCs in their network. natura report 2012 78 ENTREPRENEURIAL MODEL IN MEXICO Approximately two years ago, Natura implemented the Sustainable Relationship Network, a multi-level direct sales model that encourages entrepreneurship among the company’s con- sultants in Mexico. Under this model, the consultants evolve in their relationship with Natura as they add more NCs to their group and develop leaders in their networks. They must also participate in education modules on topics related to sustainable entrepreneurship, direct sales business skills and personal fi nance. The consultant’s career under this model comprises many steps that they climb as they increase their level of relationship with Natura and become leaders of their business, managing their own consulting network on an entrepreneurial basis. There are many examples of leaders who have their own network of more than 3,000 consultants, transforming their operation into a relevant entrepreneurial business. In 2012, the Módulo de Aprendizagem Essencial (Essential Learning Module) - MAE, which re- corded almost 15,000 participants, offered to consultants courses on personal fi nances, how to improve customer relationship, business ethics, makeup, fragrances, web business, among other subjects that help improve professional performance of the NCs. A total of 575 NCs participated in the Vivência de Desenvolvimento Sustentável (Sustainable Development Experi- ence) - VDS, which cover topics that guide and encourage the network to develop social and environmental initiatives. Natura also provided business guidance in the Módulo de Orientação ao Momento (Moment Guidance), which had almost 11,000 participants. The fi gures show that the model has contributed to the establishment of social capital and economic inclusion in Mexico. The education modules are offered in face-to-face classes or via e-learning. In 2012, the network grew 35% in Mexico, reaching a total of 74,275 consultants. The company is experiencing a time of learning and development of the model that has so far proved to be differentiated and attractive. This is a unique system even within Natura, different from the standards the company adopts in the other regions and, as part of the growing process, the infrastructure and processes were adapted. The period of adjustments to the operating sys- tems adversely affected the quality of the service, with an increase in the local non-service rate. Natura is working to adapt systems and processes to reach the level of quality that has already been achieved in other Natura operations. As an inclusive business, in 2012, the Rede de Relações Sustentáveis (Sustainable Relations Network) became part of the network of Business Call to Action, an international organiza- tion supported by the UN, which promotes actions to accelerate the achievement of the eight Millennium Development Goals. The organization works with companies with innovative and inclusive business vision that offer the opportunity to combine commercial success with the generation of positive impact for local development. The model Natura developed in Mexico contributes to the achievement of two of the Millennium Development Goals: eradicate ex- treme poverty and hunger, and promote gender equality and empower women. The partner- ship with Natura was consolidated during the Rio+20 conference (learn more about Natura’s participation at Rio+20 on page 107, Government). natura report 2012 79 NATURA MOVEMENT Natura Movement was created eight years ago with the purpose of encouraging the mobiliza- tion and engagement of the sales force, NCs and NCAs in social and environmental initiatives undertaken and supported by Natura. Over the years, the company realized that this move- ment would become more legitimate if it embraced and recognized actions that had already been undertaken by the consultants to transform their own local conditions, promoting the entrepreneurial potential of the network. And this is how the Acolher (Welcome) Program was created in 2010. Last year, the Acolher Program received 680 stories of initiatives taken by NCs from all over Brazil. All NCs who share their stories in the Acolher Program receive feedback about their actions after their project is reviewed by an experts’ committee. The nine consultants who were recog- nized by the program have access to technical support, which comprises guidelines sessions with specialists who monitor their development as well as the development of their initiatives for a period of up to 12 months. In order to foster the development of the NCs at different levels of social participation, acknowledgement is divided into two categories: Semente (Seed) – for incipient projects - and Crescente (Growth) - for more well-established actions. Each category receives fi nancial support in the amount of R$ 5,000 and R$ 15,000, respectively. More than just offering technical and fi nancial support, the purpose of the Acolher Program is to encourage the creation of a network of consultants who develop sustainable entrepreneur- ship actions in all regions of Brazil. Natura intends to increase the opportunities for interaction among these stakeholders and help make these actions even more transforming and accessible to the entire network. In September 2012, Natura connected 26 NCs who participated in the program in a three-day event in Sao Paulo. Its purpose was to encourage the exchange of expe- riences and knowledge within the group through lectures and workshops on entrepreneurship. In order to motivate other consultants to get involved and disseminate the topic, Natura in- vested in giving visibility to the actions it supports. Stories on social and environmental entre- preneurship developed by the NCs are presented in the short TV show Aqui Tem Natura (Natura is Here), which is broadcasted on Record television channel in the commercial breaks of the Hoje em Dia show (learn more on page 81, Consumers). Until November 2012, these sto- ries were broadcasted in the Mulheres que Inspiram (Inspiring Women) segment of the same program of this TV channel, which was created for the purpose of disseminating the initiatives. NCs recognized in the Acolher Program also run for the Claudia Award, organized by Claudia Magazine, in the category Consultora Natura Inspiradora (Natura Inspiring Consultant). In June 2012, ten consultants were given the opportunity to closely watch the dialogues and activities of the Rio +20 conference, held in Rio de Janeiro. Participants were selected based on the work they carry out in their communities and that are related to the topics discussed at the conference. The consultants attended the Forum on Social Entrepreneurship in the New Economy, the UN’s Sustainable Development Dialogues and visited the Greenpeace vessel. Additionally, they visited the Espaço Natura (Natura Unit) in Complexo do Alemão district – where the company has expanded the network of consultants and carried out our work with the help of the Peacekeeping Police Units (UPPs)- and exchanged experiences on the work in their communities (learn more about Natura’s participation in Rio+20 on page 107, Government). natura report 2012 80 Also last year, the Natura Movement encouraged the channel to think about the development of cities. Urged to express their opinion about the future they dream of, the NCs expressed their ideas about how to improve living conditions in urban centers on the initiative’s hot site. The action was carried out in partnership with the Cidades Sustentáveis (Sustainable Cities) program, a platform of civil society organizations, in view of the 2012 municipal elections, took the opportunity to instigate the candidates to consider sustainability in their proposals. At the end of the campaign, the program prepared materials that can support mayors: a set of indica- tors, guidelines and benchmark examples for sustainable development in cities. These initiatives increased by 43% the number of NCs involved in the Natura Movement last year, totaling more than 176,000 people. This result is also much larger than the target set for the period, which was to maintain the same percentage of 2011 (123,000). NCs engaged in the Natura Movement1 Unit Unit 2010 113,118 2011 122,953 2012 176,331 Equivalent to the sum of the average number of active NCs in the sale of products of the Crer para Ver line per cycle with the NCs who are participating in other initiatives of the Natura Movement, such as the Acolher Program. natura report 2012 81 CONSUMERS Natura faces the constant challenge of promoting Well-Being Well experiences and infusing the company’s Essence into each new product or contact it establishes with its consum- ers. These guidelines are present in everything Natura does and they become even more challenging in a time when relationships are intensely changing due to, above all, the social networks. Understanding the needs of these new times and delivering to consumers a valuable experi- ence is the company’s primary mission. Natura intends to use the new information and mobil- ity technologies to bring all stakeholders closer, particularly end consumers and consultants and, consequently, Natura itself. Within this sense of proximity, in 2012, Natura created the Espaço Conceito (Concept Space), in São Paulo (State of São Paulo). The place was specially designed to help consumers strengthen their relationship with Natura’s brand, integrating conceptual, sensory and com- mercial perceptions so as to offer a multiple sense experience. During the whole year, the space was open to the public at Rua Oscar Freire, which is an iconic address for Natura because it was there that Luiz Seabra, one of the Company’s founders, opened the fi rst store of the brand in 1970.The success of the experience, which ended in early 2013, encouraged the company to replicate the initiative in other parts of Brazil in 2013. At Espaço Conceito, visitors had at their disposal hair, skin and makeup consultants, as well as perfumers and, at the end of the “immersion”, they could also purchase the products. It was not just a shop, but a brand communication and relationship space that gave us important lessons. The strategy was important for Natura to understand how cohesive and attractive the brand is to different stakeholders. In 2012, 72,000 people visited the place, each one pur- chasing, on average, R$ 82.00 in products. Some 10% of the visitors were foreigners, which is a positive response to the dissemination of the brand abroad. For the purpose of broadening the experience of the end consumer with the Natura brand, the company has itinerant spaces in 15 Brazilian capital cities. These spaces are kiosks where the company’s fragrances portfolio is exhibited and they were visited by some 100,000 people in 2012. In 2012, Natura also launched the weekly TV show Aqui tem Natura (Natura is Here), broadcasted on Record TV channel, in which the company directly speaks to consumers and consultants. The program works as a content channel about well-being, health, beauty, sus- tainability and social entrepreneurship in which Natura has the opportunity to tell inspiring stories that add value to its products and services. This is an innovative strategy for commu- nicating the company’s value proposition that reaches all Natura’s stakeholders. At the tv.natura.net web portal, the company makes available the videos of the show, with talks with specialists on odd and important topics, makeup tips by Marcos Costa - Natura’s offi cial makeup artist -, information on products and sustainable entrepreneurship actions developed by our consultants. The Aqui tem Natura show is broadcasted during the Hoje em Dia show on Wednesdays. Natura understands that the digital media provides relevant tools that help continuing to add excellence to the relationship with its customers. In 2012, Natura launched a Facebook application also called Aqui tem Natura, which allows people who are registered Facebook users to fi nd Natura consultants among the contacts of their friends. natura report 2012 82 Natura’s offi cial Facebook page has 1.7 million fans that access information on products, social and environmental actions undertaken by consultants and also on the company’s fi eld work with supplier communities. The page for Latin America also has over 1 million fans. In 2012, Natura started using the Internet as a means for the NCs to relate with their cus- tomers, which is serving to generate lessons and help the company understand the potential of the digital media for direct sales. This experience includes the creation of a CRM (Cus- tomer Relationship Management) system, which will help manage information on consumers and NCs and better know and serve the people who use Natura’s brand (learn more on pages 32 and 69, Consultants and NCAs). QUALITY OF RELATIONSHIPS The Natura brand continues to be positively evaluated by consumers. According to the Brand Essence image survey conducted by the consulting company Ipsos, the percentage of consumers who attributed the highest score to Natura grew from 73% to 79% in 2012. Natura also maintained its position as the preferred brand in the Cosmetics, Fragrances and Toiletries market, with 46.5%, 50 basis points lower than in the previous year. The consumer loyalty indicator also decreased, from 66% to 51% in the period, a result that confi rms the harshening of competition in the industry. Signifi cant investments in advertising in the cosmet- ics industry in recent years have been positively refl ecting in the evaluation of brands in general. Overall evaluation of the brand image survey in Brazil12 Unit 2010 2011 2012 % 81 73 79 1. Source: Brand Essence / Ipsos Institute. 2. The overall top box measure evaluation considers the respondents who attributed the highest score to the Natura brand on a scale of 1 to 5. PR5. Quality of relationships with Consumers in Brazil123 Loyalty4 Preference Unit 2010 2011 2012 % 53 49 66 47 51 46.5 1. Source: Brand Essence / Ipsos Institute. 2. Survey based on a quantitative sample of 2,900 personal interviews and home visits in fi ve cities. 3. Percentage of consumers who attributed the highest score (top 1 box) on a scale of 1 to 5 for three aspects: satisfaction, intention to maintain a relationship with Natura and recommendation. 4. The data for previous years was changed due to the new calculation methodology. 2. Penetration in Brazilian homes123 Unit % 2010 55 2011 62 2012 60 1. Source: Kantor World Panel. 2.Penetration is the percentage of homes represented in the survey that bought the brand in the specifi ed period. 3. The survey represents 81% of the domiciled population and 90% of the potential consumption in Brazil (according to the Target Index). Due to updates in the population profi le, the information from Natura was adjusted and the numbers for the previous years were revised. natura report 2012 83 Spontaneous knowledge of the brand image survey in International Operations1 Argentina Chile Colombia Mexico Peru Overall evaluation – Latin America 1. Source: Brand Essence / Ipsos Institute. Unit 2010 2011 2012 % 17 9 1 11 32 16.8 24 16 9 5 43 20.8 32.8 25.6 5.8 7.0 27.0 20.7 With the expansion of the company’s operations in Latin America, the investments in advertis- ing in the countries in which Natura operates were also increased. Focused on the main con- cepts of the Natura brand and more relevant sub-brands, communication has been refl ecting in image gain. The awareness of the Natura brand increased in Argentina, Chile and Mexico last year. The recognitions that the company received also show that the brand is growing in Latin America. In 2012, Natura was selected as the fourth most reputable company by non- governmental organizations in Chile, and was also included in the ranking of the most presti- gious brands in Argentina, and of cosmetics in Mexico and Peru (see the complete list of awards on page 9, Profi le). COMMUNICATION AND MARKETING Natura’s commercials and advertising and marketing campaigns publicize more than just the products and their features. The company follows the basic guideline of using these commercial spaces to convey its vision of the world and help increase the awareness of the end consumer on topics such as the quality of relationships, well-being and sustainability. The spontaneous spreading of special actions that we carry out in social media is evidence that people are touched by the concepts of the Natura brand. Natura Amó, which is a line that celebrates love between couples, promoted one of the most widely-known actions on social networks last year. In June, the Saint Valentine’s month in Brazil, Natura prepared a surprise for couples who have to live distant from each other. In partnership with the airline company Gol Linhas Aéreas, the company promoted a contest on its Facebook page. To participate, people only needed to record a love declaration to run for a free airline ticket. The love messages were played during the fl ight of the winners and their reactions were recorded on video. In another initiative, the company invited people who were waiting for their fl ights at the air- port in Guarulhos (State of São Paulo) to use the break to exercise. The bicycles that were installed in that area reproduced musical instruments when they were used and, when all were in use at the same time, they played a song. The action promoted the perfume Kaiak for men, which has a concept aimed at men who enjoy physical activities and contact with nature. There was also an action to publicize the fall/winter collection of the Natura UNA makeup line that consisted of a virtual makeup mirror displayed in the restroom of a restaurant in São Paulo (State of São Paulo). The makeup simulator worked as an interactive mirror and had a sensory application mechanism with a differentiated level of reality. The action was an invitation for women to take care of themselves and recognize their own beauty, regardless of the time of the day. natura report 2012 84 GRI PR6 e PR7 All the initiatives can be seen on YouTube (www.youtube.com/user/naturabemestarbem) on the Natura Bem Estar Bem (Natura Well-Being Well) channel. The Um Voo Inesquecível (An Unforgettable Flight) (Amó) video reached around 2.5 million views in two weeks. Another one million views were recorded for the Espera Surpreendente (Surprising Waiting) (Kaiak) video in the fi rst ten days it was online. Meanwhile, the Espelho Virtual (Virtual Mirror) (UNA) (Kaiak) was viewed a million times in two weeks and 125,000 people became fans of the brand on Facebook in that period. Natura continues to invest in merchandising initiatives, focusing on the best explanation of the concepts of its brand and telling inspirational stories. In 2013, in Salve Jorge, a soap opera of the Rede Globo TV channel, there will be actions showing the work of our NCs and NCAs in the communities of Rio de Janeiro, particularly in Complexo do Alemão, a district of the city of Rio de Janeiro, focusing on initiatives that Natura has been developing there for many years. It is worth noting that all our communication initiatives follow the Natura Ethical Communica- tion Guidelines. The document is intended for all employees and suppliers involved in these processes and determines the main assumptions that support campaigns and communication actions, such as the environmental impact of products, conscious consumption, respect for children and valuing diversity. Natura also works in accordance with the rules of the Advertising Self-Regulation Council (CO- NAR), and the codes of conduct of the Brazilian Association of Advertisers, Brazilian Associa- tion of Consumer Protection, and Brazilian Association of Direct Selling Companies (ABEVD). In 2012, the company did not receive any notices for breaches of regulations, laws and voluntary codes related to marketing communication, including advertising, promotion and sponsorship. CUSTOMER SERVICE Natura Customer Service (SNAC) is toll-free and received 667,000 calls in 2012, compared to 783 in 2011, a reduction of 15%. Natura signifi cantly reduced the number of requests for the exchange of products in the past three years and gave more speed to the replacement process. This result refl ects the revision of the company’s return policy, which improved the process of fraud prevention. The system now cross-references the data and uses specifi c fi lters, identifying the level of risk for a more careful analysis, and releasing the other cases so that the replacement can occur automatically. Another improvement that increased the service speed was the simultaneous exchange service. Upon delivery of the new product, the unwanted item is collected. Before, the consumer had to send the faulty product to Natura in advance for an analysis. Only 5% to 10% of the replacements are still made by mail in regions where Natura does not yet perform reverse logistics. Natura Customer Service (SNAC)1 Answered Unanswered Total Unit Calls thousands 2010 987 42 1,029 2011 770 13 783 2012 654 13 667 1. Calls related to the Brazilian Operations via telephone, online chat and e-mail. natura report 2012 Natura continues to encourage the use of its virtual service channels and set an analysis service on its pages and profi les on Facebook, Twitter and blogs. The company replies to all questions and complaints received via these channels. The experience of one year of specialized service for the Chronos line brought important re- sults. Natura maintained the consulting services by specialists for the line to consumers, answer- ing questions and monitoring cases of adverse reactions. Currently, the company is working on a development project of this model of service. In respect to consumers’ privacy and confi dentiality of information, all consumers who contact the company via the Internet or through SNAC are protected by policies and systems that ensure data security. In 2012, we did not record any legal or administrative cases related to violation of privacy or loss of data of our consumers. The improvements in the company’s processes resulted in a reduction of complaints fi led with the Consumer Protection and Advisory Program (Procon). There were 413 complaints in 2012, compared to 697 in 2011, a decrease of almost 60%. The company’s investment in the quality of the service provided to consumers is recognized by the Instituto Brasileiro de Hospitalidade (Brazilian Institute of Hospitality) - IBHE, which chose Natura as the second company in hospitality because it meets the expectations of consumers due to its approach to customers, the respect in its relationships and the good service it pro- vides. The Reclame Aqui (Complain Here) web portal recognized Natura as the company that best addresses complaints and the most agile in responding to them. The company was also acknowledged as the fourth company in Brazil with the best service by the Instituto Brasileiro de Relacionamento com o Cliente (Brazilian Institute of Customer Relations). CONSUMER SAFETY Natura has a permanent commitment to the health and safety of its consumers. It maintains strict internal processes, from the conceptual development of products to their manufactur- ing and monitoring of their use in the market. These processes include tests and evaluation of products and raw materials safety and effi ciency, stability tests, microbiology and quality con- trol, thus ensuring the approval and compliance with the requirements of the health authorities and a differentiated stand aimed at the commitment to the truth, ethics and transparency. Natura’s cosmetovigilance process monitors products on the market and evaluates the profi le of complaints about possible adverse reactions. The purpose is to identify any risk to consum- ers associated with the use of Natura’s products and to generate guidelines for the improve- ment of its internal processes. To ensure alignment with the rigorous standards that the company adopts in Brazil, a technical and scientifi c management was established for the International Operations, which is respon- sible for the regulatory, cosmetovigilance and quality processes and integrated with the Offi ce of Consumer Safety in Innovation in Brazil. The company’s work has as one of its assumptions the precautionary principle. Natura follows the evolution of science worldwide and develops a robust process of monitoring trends in controversial issues and ingredients, working on replacements whenever necessary. The com- pany’s actions have already resulted, for example, in the elimination of a few substances from its products, such as paraben, in 2011, and phthalate, in 2008. natura report 2012 85 GRI PR8 GRI PR1 GRI 4.11 In 2012, Natura improved the international monitoring methodology, defi ning more clearly the concept of controversial ingredients, also taking into consideration the consumer’s perception about the risk and the international scientifi c, technical and digital media mapping on the issue. The company does not test products on animals and has matured its alternative processes and methodologies to deliver increasingly safe products. It also participates in discussions on safe cosmetics in the relevant reference centers. Since Natura uses a signifi cant amount of raw materials of plant origin, knowledge of safety and monitoring predictive methods and their natural modifi cations has been developed that ensure that these changes do not affect the safety and effi ciency standards of Natura’s products. In order to be increasingly transparent about the source of the ingredients, Natura has been publishing for seven years the environmental table in all of its products, informing the origin of raw materials that compose them. After the issue of the new European regulation, the infor- mation about the ingredients that make up these raw materials will be described as clearly as possible. First, the portfolio of Natura France will be adapted to meet the legal requirement for new products launched in that country as of June 2013. Additionally, in order to evaluate cosmetovigilance data, the company follows the guidelines of Colipa (Colipa Guidelines on the Management and Reporting of Undesirable Event Reports, 2008) for establishing the causality and severity of adverse events. In addition, the company meets all legal requirements for the supply of information about the ingredients used, warnings, use directions, claimed benefi ts and outsourced production. The labels on all products are in accordance with the legislation in effect and respect all resolutions related to cosmetics determined by the Brazilian Health Surveillance Agency (ANVISA) and health agencies in the other countries where Natura operates, as well as metrological bodies. The main relationship channels of the company, such as Natura Customer Service (SNAC), are prepared to obtain all required details in case of reports on adverse events. The company has a specialized service cell for the Chronos line, which has been providing opportunities for the obtainment of important knowledge regarding the use of the product by consumers. 86 GRI PR3 In 2012, no sanctions or administrative penalties were imposed to Natura by the Brazilian Health Surveillance Agency (Anvisa) nor were any signifi cant fi nes imposed in connection with product labeling. GRI PR2, PR9 e PR4 natura report 2012 suppliers 87 Natura focuses its relationship on the creation of partnerships to build a chain with higher added value. Based on its operations and relationships, Natura knows that it can infl uence its commercial partners and it has been working to make this infl uence increasingly positive. In 2012, the company expanded its Sustainable Supply Chain strategy, which uses a methodol- ogy for the assessment of the social and environmental aspects, converting them into mon- etary values, as a basis for selecting and developing its suppliers. In 2011, Natura revised 80% of its production inputs supplier base and, last year, it expanded the program to 87% of its suppliers. Through the methodology developed with the help of international specialists and with the participation of suppliers, the company determined the potential impacts of its supply chain and set up development plans in which partners establish the management of key social and environmental indicators and undertake to continue to invest in employees’ education, occupational safety and private social investment. In order to reinforce the company’s principles and to qualify partners to evolve in their social and environmental management, Natura promoted qualifi cation and specifi c training actions. In 2012, there were two training initiatives on Natura’s relationship strategy with suppliers and two workshops to enhance the knowledge of the methodology. Additionally, Natura monitors eight quarterly performance indicators of these partners: CO2 emissions, water consumption, waste generation, investment in education, training of employ- ees, number of occupational accidents, social inclusion and private social investment. Natura believes that the commitment of suppliers to these social and environmental factors will make a difference in the future. Natura’s target is to generate R$ 16 million in social and environmental gains in fi ve years through the investments from the company’s entire chain. In 2011, the fi rst year of the program, benefi ts of around R$ 1 million were generated and, in 2012, more R$ 1.8 million was obtained. The data from the fi rst two years of the program helped identify developments, improve- ments and consolidate the methodology for monitoring indicators and it is already possible to observe points of improvement in the suppliers operations and, therefore, generate a more sustainable, effi cient and productive value chain. natura report 2012 88 RELATIONSHIP Natura relates with different groups of suppliers. The company has 190 suppliers of fi nished products (third parties) and production inputs (supplying ingredients from biodiversity, raw materials and packaging materials), and these groups represent 50% of the company’s purchase volume. The other suppliers of materials and of indirect services add up to more than 4,700. Natura pays close attention to the quality of the relationship it establishes with its suppliers and implements improvements. This work is assessed by means of satisfaction and loyalty indicators, which are annually monitored. In 2012, supplier loyalty dropped 400 basis points (from 26.5% to 22.6% in 2012), mainly infl u- enced by the SAIN stakeholders (active and indirect service suppliers). A combination of factors explains the scenario of complexity in the relationship with these partners, including problems caused by the instability in the operation in 2011 and commercial negotiations (including costs and payment terms) infl uenced by exchange rate volatility and increase of infl ation. The loyalty of the suppliers is an essential part of the company’s strategy of sustainable supplies. In 2013, the causes for this drop will be analyzed in detail so that corrective actions can be developed together with these partners. PR5. Quality of relationships with suppliers Satisfaction1 Loyalty² Unit % 2010 81 28 2011 81 27 2012 79 23 1. Percentage of satisfi ed and totally satisfi ed suppliers (top 2 boxes). 2. Percentage of suppliers who attributed the highest score (top 1 box) on a scale of 1 to 5 for three aspects: satisfaction, intention to maintain the relationship with Natura and recommendation. QLICAR PROGRAM Qlicar (acronym for Quality, Logistics, Innovation, Competitiveness, Service, and Relationship in Portuguese) is a supplier development program that assesses critical indicators of service level, in addition to social and environmental issues, as part of the sustainable supply chain strategy. Accordingly, suppliers are assessed based on their investments and long-term social and envi- ronmental impact, in addition to more traditional criteria such as quality and price. In 2012, 95 suppliers of inputs, fi nished products, brand-related services, logistics and service to NCs participated in the program, representing almost the same number of suppliers as in the previous year. The program also recognizes the evolution of commercial partners through the annual Qlicar Award. In 2012, this award recognized 12 suppliers in the categories of Packaging, Fragrance, Raw Material, Third Parties - Brazil and Latin America, Natura Magazine, Customer Service, Logistics Operator, Carrier, Social and Environmental Evolution and Supplier Communities - the last two were included for the fi rst time. Due to the development of its sustainable supply strategy, Natura recognized, for the fi rst time, the supplier with the best social and environ- mental evolution, a category in which the winner was Box Print, from Campo Bom (State of Rio Grande do Sul), which produces packaging cartons for Natura. This company developed a new packaging for the Ekos Mate-Verde perfumes with 40% of post-consumption recycled natura report 2012 89 GRI HR1; HR2; HR6 e HR7 GRI S04 cardboard. The packaging was also innovative for adopting a new format in which the corru- gated cardboard eliminates the need to use a cradle to protect the product, which also gener- ated a positive impact by reducing the generation of waste. In addition to the Qlicar Award, the company was also awarded by the Associação Brasileira de Embalagens (Brazilian Packaging Association) - Abre. Among the supplier communities, partners that are increasingly relevant in Natura’s value chain, two were awarded: Camta (Mixed Agricultural Cooperative of Tomé-Açu - State of Pará), sup- plier of cupuaçu butter, açaí berry pulp, cacao seed and passion fruit oil, with which Natura de- veloped research on sustainable production of palm oil; and Camtauá (Mixed Agroextractive Cooperative of Santo Antônio do Tauá - State of Pará), which supplies andiroba and murumuru palm seeds (learn more on pages 94 and 95, Supplier Communities). It is worth noting that 100% of the contracts signed with suppliers have clauses related to hu- man rights, such as risks involving child labor and forced labor or similar. Signifi cant investment contracts that include clauses related to human rights are those involving amounts equal to or higher than R$ 5 million. Last year, 240 suppliers (productive and unproductive) underwent monitoring audit processes and approximately 80% of the eligible productive suppliers were subject to regular audits, which can be annual, biennial or triennial, depending on the level of risk and profi le of each company and market. The audits assessed quality, environment and so- cial responsibility issues, including human rights aspects. In 2012, there were no cases in which contracts with business partners were terminated due to violations related to corruption. HR2 – Investment and procurement practices – Brazilian Operations Audited productive suppliers1 Audited Qlicar suppliers1 Unit 2010 2011 2012 % % 53 100 82 100 80 81 1. The percentages refer to productive suppliers (suppliers of inputs that make up Natura’s products) and third parties (companies that manufacture Natura’s fi nished products). INTERNATIONAL OPERATIONS The bonds established with suppliers are particularly relevant for Natura’s expansion plans for Latin America in the coming years. Natura’s goal is to have, in three years, 30% of the products sold abroad in this region (except Brazil) produced locally by third party suppliers (manufactur- ers of fi nished products on behalf of Natura). Currently, the company already produces in Argentina (perfumes, moisturizers and makeup), Mexico (shampoo and perfumes) and Colombia (perfumes, soaps and moisturizers). In 2012, Natura had more than three million units produced in the three countries and distributed to other operations in the region. natura report 2012 90 It was thanks to a close and aligned relationship with local suppliers that the company was able to quickly reverse an adverse scenario in Argentina. Due to changes in import rules, many of the Natura’s products were retained at customs and were unavailable for Argentinean consum- ers in the fi rst half of 2012.To resolve the situation, Natura accelerated the production expan- sion plan in that country, and was able to manufacture 30% of total products marketed locally at the end of the year. The successful experience was a result of the agility and partnership with suppliers in the region. It taught new lessons to the company and proved the success of the manufacturing strategy. To keep up with the progress of International Operations, Natura also adjusted the governance structure, organizing the Operations and Logistics area in the countries, allocating procurement managers to each one of them. The company also implemented a loyalty survey for suppliers in Latin America, which should be of help, as is the case in Brazil, to measure and improve the quality of the relationship. The fi rst results should be available in 2013. natura report 2012 91 GRI S01, SO9 e SO10 supplier communities Natura works with inputs from Brazilian social biodiversity as ingredients in the formulation of its products. The company encourages the extraction of these inputs through sustainable stewardship by cooperatives of family farmers with whom it establishes more than just a commercial relationship. Natura seeks to foster a relationship based on fair price and on the sharing of the benefi ts received from the use of the genetic heritage and associated tradition- al knowledge, thus helping create conditions for these communities to structure themselves, diversify their business and promote sustainable development in their region. Last year, Natura maintained a relationship with 36 communities in different regions in Brazil, involving 3,500 families. The transfer of funds rose 20% in relation to the previous year, totaling R$ 12.1 million thus reaching the company’s business expansion target and the social benefi t generated therefrom. Most of the supplier communities are located in the Amazon region. A large portion of this increase was in the sharing of benefi ts from traditional knowledge, training in the communities, and funds and support. Funds from supply were lower because there was a reduction in demand for some inputs due to the sales planning for these prod- ucts. But the creation of value will continue to increase in the years to come according to the business expansion strategy under the Amazônia (Amazon) Program. Natura intends to increase the purchases of inputs from the region from the current 11% to 30% of all raw ma- terials used in its products and that should involve more than 10,000 families by 2020 (learn more on page 34, in Social Biodiversity). EC9. Supplier Communities Communities with which Natura relates1 Benefi ted families from the supplier communities Unit Unit 2010 27 2011 35 2012 36 2.301 3.235 3.571 1. The number of communities was revised in 2011 and the data was adjusted. natura report 2012 92 GRI SO9 e SO10 EC8. Funds Allocated Supply1 Sharing of benefi ts from the access to genetic heritage or associated traditional knowledge2 Funds and support3 Use of Image4 Training5 Certifi cation and stewardship6 Studies and advisory services7 TOTAL Unit R$ thousands 2010 4.374 1.480 1.552 77 185 212 828 8.706 2011 6.749 1.597 1.002 22 133 21 512 10.037 2012 6.303 3.099 1.524 69 301 29 749 12.074 1. Amount paid by processors or by the Benevides plant for raw materials used in Natura’s products. 2. Amounts paid to communities as benefi t sharing from the access to genetic heritage and/or associated traditional knowledge associ- ated to a species from Brazilian biodiversity. 3. Natura’s voluntary sustainable development funds and agreements, which can be used in projects or sponsorship for improving infrastructure. 4. Amounts paid for the use of images of community members in institutional or marketing materials. 5. Workshops and courses paid by the company to improve sustainable production techniques. 6. Amounts invested in certifi cation and stewardship plans for areas under cultivation. 7. These include studies conducted by anthropologists, lawyers, economists, NGOs and other professionals contracted by Natura to work in the supplier communities. They also include studies for structuring production chains. EC8 and EC9. Funds allocated per family, per year Direct funds1 Supply2 Unit 2010 2011 2012 R$ thousands 3,2 2,0 2,9 2,2 3,1 1,8 1. These include funds actually received by the communities: supply of inputs, sharing of benefi ts, use of image, funds and support. 2. Subitem of direct funds, itemizing funds received per supply. IMPROVING THE PRODUCTION PROCESS In 2012, the satisfaction survey showed a loyalty rate of 23% among supplier communities, com- pared to 28% in the previous year, showing that this matter is still a challenge to be overcome. Since the supplier communities are essential stakeholders for the company’s social biodiversity strategy, Natura is attentive to the needs and opportunities for improving this relationship. Natura concluded that this result was mainly the consequence of the commercial relationship with the communities as well as of the readjustments of prices. As an action plan, the Núcleo de Abastecimento da Biodiversidade (Biodiversity Provision Center), which has been recently cre- ated within the strategy of the Amazônia Program, should focus on these issues in 2013 (learn more on page 34). PR5. Loyalty – Supplier Communities1 2 Loyalty Unit % 2010 43 2011 28 2012 23 1. The loyalty rate is the percentage of interviewees who attributed the highest score for three aspects: satisfaction, intention to maintain their relationship with Natura and recommendation. In 2012, interviews were conducted on the fi eld by anthropologists - 17 communities and 352 people were interviewed. 2. Due to the difference in methodology, the 2010 data is not comparable with the other data. natura report 2012 93 The Community Relations area promotes development actions in supplier communities, pre- serving the cultural identity of each one of them, and helps create opportunities to keep the population in their traditional locations. Among training courses and meetings, since 2009, Natura has been carrying out continuous leadership training, strengthening of interpersonal relationships, skills development and improvement of the management practices of the groups. To improve the production process, the company promoted in 2012 the 8th Natura Supplier Community Exchange Program. The company brought together eight communities from the states of Amazonas, Pará and Rondônia to improve practices for the processing of raw materi- als from social biodiversity used in Natura’s products. It was a rich exchange of knowledge that contributed to the strengthening of these social organizations. Another area deeply involved in social biodiversity at Natura is the Management of Sustainable Technologies. This team has the specifi c skills to establish, together with rural supplier partners, good technical alternatives for determining the models and methods of production (extrac- tion and cultivation) of raw materials from biodiversity that will be used in Natura’s products. Promoting synergy between academic knowledge and local knowledge is one of the main challenges of this group. As part of the relationship with the rural supplier partners, technical training courses on topics such as organic farming, seed collection, forest seedling production, permaculture and forest inventory methods are organized. The team also creates and disseminates educational materi- als of technical content, such as the rural crop calendar of social biodiversity raw materials, and promotes exchanges between partners in order to multiply knowledge and allow the exchange of experiences with the best practices. Another example of partnership work was the implementation of an agroindustry at Cofruta (Cooperative of Fruit Farmers of Abaetetuba – State of Pará), a supplier of murumuru palm and açaí berry seeds. The implementation took place in 2011 and has evolved ever since by adding more value to the productive process and diversifi ed the business of the cooperative. With this system, the cooperative currently extracts oil from nuts and seeds, which were previously supplied in their unprocessed state only, and sells them for a higher price. Using as example the partnership with Cofruta, Natura should promote actions in 2013 to increase the effi ciency of the supply chains of its six cooperatives that supply organic cacao in the Trans- Amazonian Highway region and support the installation of an agroindustry for oil extraction. For all these actions, Natura has the support of consulting companies and governmental and non-governmental organizations that collaborate in the projects developed with the com- munities. Natura develops projects in partnership with Criar, a consulting company on human development that supports the training of community leaders; Fase (Federation of Bodies for Social and Educational Welfare), an NGO that has been working in Brazil for 50 years, organiz- ing and strengthening social initiatives; GIZ, a German agency for international cooperation for development, and CNS (National Council of Extractive Populations), a national organization that represents agroextractive workers. natura report 2012 94 INNOVATIVE RESEARCH FOR THE PRODUCTION OF PALM OIL Traditionally associated with the deforestation of tropical forests for being a monoculture, the palm oil - or dendê as it is known in Brazil - is one of the most consumed oils, accoun- ting for one third of the sale of oils in the world. In addition to deforestation, particularly in Asian countries, its production is also associated with impacts such as loss of biodiversity and emission of greenhouse gases. The sustainable production of palm oil, which is the subject of an unprecedented research in the world, and which has been conducted since 2006 by Natura’s science and technology investigations, is showing its fi rst results. In the search for a form of sustainable cultivation of the species in the Amazon, Natura’s bioagriculture researchers have been developing resear- ch on the cultivation of African oil palm (Elaeis guineensis) in agroforestry systems (AFSs) in family farms, totaling 18 hectares distributed over three rural properties. The agroforestry systems are characterized by the presence of different plant species in a single production unit. In the study, the palm oil was produced together with the açaí berry, cacao, cassava, pepper, passion fruit, different wood species and plants for composting, among others, seeking high functional diversity. The research also had the partnership of institutions such as the Brazilian Company of Agriculture and Cattle Raising (Embrapa) - Western Ama- zon (CPAA) and Embrapa - Eastern Amazon (CPATU) and technical consultants. In order to broaden the experience, Natura has been working on the adoption of this sys- tem since 2007 with farmers from Camta (Mixed Agricultural Cooperative of Tomé-Açu). The farmers are mixing palm oil and other plant species and, in four years, the production of palm oil equaled that of a conventional plantation system, harvesting between 5 to 10 metric tons a year. In addition to producing the raw material for the production of palm oil, the research has shown that this production system contributes to the diversifi cation of farmers’ income and minimizes phytosanitary risks (pests and diseases) for the cultivated species. In addition to a low-impact production, the system developed by researchers and local farmers contributed to the generation of ecosystem services, including, biodiversity conservation, improvements in food safety and adoption of biological control, important benefi ts for the ecological ba- lance, since they help in the regulation of natural resources such as water, soil and mitigation of greenhouse gas emissions. There is no previous mention of the production of palm in agroforestry systems in the world and this makes Natura a pioneer in this research that can signifi cantly contribute to the global discussion on sustainable production systems. Natura also believes that its research positively contributes to the Amazon’s production models because it associates production to the environmental and social aspects of the region, an association which is essential for the maintenance of the biome. This project was also chosen to apply, since last year, two innovative methodologies related to the ecosystem services: one of them is the Business Program for Ecosystem Services (PESE) in partnership with the World Resources Institute (WRI); the Center for Sustainability Studies (GVCES), of the Getulio Vargas Foundation; and the Brazilian Business Council for Sustainable Development (CEBDS), which aims at evaluating the impacts and consequences of ecosystem services. The other is the TEEB Brazil (The Economy of Ecosystems and Biodi- versity), coordinated by Conservation International - Brazil, which aims at recognizing social and environmental external aspects. Both methodologies are complementary and Natura is the only company that is applying both in an integrated way. natura report 2012 95 GRI SO9 e SO10 GRI HR2 HOW WE RELATE The company’s conduct of relationship with communities is expressed in Natura’s Policy of Sustainable Use of Social Biodiversity and Traditional Knowledge. This policy comprises guidelines inspired by the assumptions of the Convention on Biological Diversity of the Unit- ed Nations, the fi rst global agreement that recognizes the conservation of biological diversity as an integral part of sustainable development. To supplement Natura’s Policy, the company is also supported by the Principles of Relationship with Supplier Communities. They guide the company’s conducts of respect for the communi- ties’ culture and understanding of their way of life and social organization. For the purpose of understanding more and more the life and specifi cities of these families, Natura promotes par- ticipatory, inclusive and transparent dialogues. The company’s program also includes maintain- ing its own multidisciplinary team that is responsible for practicing these principles. BIOQLICAR PROGRAM The BioQlicar is part of the supplier community training and development program and monitors two groups of indicators: the Bio, which cover the resources on which the local society counts to foster its development, such as human, social, environmental, physical and economic resources; and those aimed at the productive performance, the Qlicar (Quality, Logistics, Innovation, Competitiveness, Service, and Relationship). By monitoring develop- ment and performance actions, the BioQlicar helps prepare the communities for their rela- tionship with the market in general. The program is annually assessed by the processing companies and supplier communities and, in 2012, it was attributed a score of 3.80 (on a scale of 1 to 5), a result similar to that of the previous year, when it was attributed the average score of 3.77. Since the beginning of the program, in 2009, the score increased 16%. The indicators that increased the most were relationship, contracts and costs. On the other hand, issues such as employment relation- ships, productive modules and technical specifi cations were down in the perception of the respondents. In recognition of the growing importance of the supplier communities in our business, Natura included them in the Qlicar award as a new category, program for the development of Na- tura’s suppliers in general. For the fi rst time, the communities participated in the award and two of them were recognized based on the work they develop: Camta (Mixed Agricultural Cooperative of Tomé-Açu - State of Pará), supplier of cu- puaçu butter, açaí berry pulp, cacao seed and passion fruit oil, received the community award as the best performance in the year. Camtauá (Mixed Agroextractive Cooperative of Santo Antônio do Tauá - State of Pará) was the community with the best performance in 2012 in the items assessed (quality, logistics, innovation, competitiveness and service). A Natura supplier of muru- muru palm and andiroba seeds since 2007, the organization participated in a number of workshops and courses on cooperativism that contributed to improve the structure of the community which, in 2009, stopped being an association to adopt the coopera- tive system. Since then, Camtauá has multiplied its production and its business with Natura and other companies in the region. natura report 2012 96 GRI HR1; HR6; HR7 e HR9 GRI SO9 e SO10 Natura also works with the communities to encourage high human rights standards. The company encourages suppliers with whom it has a direct commercial relationship to use fair working conditions and it demands, through contracts, the same practice with the upstream supply chain. In 2012, Natura surveyed all supplier communities in order to identify the broad practice of fair work, as well as regular and alternate audits, and it should continue with such practice in 2013. These diagnoses also assess any potential involvement of children and adolescents in the production chains. Natura works to ensure that any involvement of children or ado- lescents in the production chain – which traditionally occurs for cultural reasons in some communities – does not impair their formal education and leisure and does not pose risks to health and safety, and that the child or adolescent can develop by means of family activities for educational/cultural purposes and not economic so that these traditional ways of family organization are recognized by the entire society. It is worth noting that all of Natura’s 44 contracts for the sharing of benefi ts and supply in- clude a requirement of respect to human rights, particularly regarding the involvement of chil- dren and adolescents, forced work or work in degrading conditions. In 2012, the company did not record any critical incident related to any involvement of children and adolescents in the places where it operates. It did not record any incident involving indigenous peoples either. SHARING OF BENEFITS AND GENETIC HERITAGE The benefi ts are shared in accordance with the guidelines of Natura’s Biodiversity Policy. Natura uses the genetic heritage of native species of the Brazilian biomes and the associ- ated traditional knowledge in the company’s products, generating monetary benefi ts. The company shares these benefi ts with the communities to promote their development, the preservation and sustainable use of biodiversity, recognition of the genetic heritage and as- sociated traditional knowledge. In 2012, Natura recorded two new accesses to traditional knowledge: the capitiu plant, pro- duced by the Association of Family Farmers of the São Jerônimo Community, in the region of the Baixada Cuiabana (Cuiabá’s lowland), State of Mato Grosso, and the ucuuba plant, culti- vated by the Movement of Women of the Belém Islands, in the island of Cotijuba, State of Pará. Early in 2013, the company also completed the access to the buriti palm through the Grande Sertão Cooperative of Family Farmers and Agroextractivists, in the State of Minas Gerais. A signifi cant portion of the benefi ts shared was allocated to the communities of RECA (Asso- ciation of Small Agroforestry Farmers of the Syndicated and Compacted Economic Refores- tation Project – State of Roraima), where Natura works with 374 families. The funds will be invested in the readaptation and expansion of the local industrial complex. Natura also sup- ports the Escola Família Agrícola (Agricultural Family School), an educational institution that provides services to the families of the association of alternating education, a methodology that combines formal education and entrepreneurship, encouraging initiatives and stimulating the ideas of students to promote the sustainable development of the region. natura report 2012 97 GRI EC9 SO1 DEVELOPMENT OF THE SUPPLIER COMMUNITIES In order to encourage the development of supplier communities and of their surround- ing areas, Natura allocated its own fi nancial resources for investments in projects of social strengthening of the groups and making viable environmental preservation, cultural recogni- tion, creation of alternative sources of income, food safety, intersector actions and training of leaders. In the scope of this purpose, Natura created the Middle Juruá River Fund in partnership with the National Council of Extractive People and with the support of the Chico Mendes Insti- tute of Preservation of Biodiversity (ICMBio) and the State center of Preservation Units of the State of Amazonas. We selected projects of organization from the State of Amazonas, region of the Middle Juruá river, in four action fronts: Strengthening of Civic Awareness, Edu- cation and Health; Food Safety and Generation of Income; Environmental Conservation and Preservation; and Strengthening of Associativism and Diversifi cation of Markets. Natura wants to enable organizations to raise alternative sources of income for their work- ers and obtain fi nancing for their actions. The company improved the monitoring process of projects after it was transferred from the Executive Department of the Middle Juruá River Fund to the National Council of the Extractive People. This reorganization will allow the Council to search for funds from new partners, benefi ting the region from a collaborative investment. In 2012, six local organizations benefi ted from the R$ 200,000 allocated to this year’s bidding process, which was the second of the program. natura report 2012 NATURA’S SUPPLIER AND RELATIONSHIP COMMUNITIES 98 seeds of murumuru palm and andiroba piri piri roots and leaves of the balsam-of-Peru tree cupuaçu butter and pulp, cumaru seeds, açaí berry pulp and Brazil nut oil C O D A M J , A S P R O C A E P A R C A T A M O E P A A C P I R I N R A M U M C A C O C O M P P O X O B O M I M U Á C O P O T R A N C O O P C A O C O P O P S / / / / / 1 7 2 1 1 9 / / / / / / / / / / 4 1 / 2 0 2 0 4 0 2 3 / / U R A M O C 5 2 / / 4 6 1 / / A T U R F O C 4 4 1 / / R A M O O C R A C - / / 1 I P Ã A W J M A O P O C palo santo leaves B A T I N / / 4 S 1 0 2 0 4 3 N I W / / - A 1 // - R E C 7 4 M A //3 ALVAS //6 DES 9 //50 CHIC EXTRACTIVE RESERVE O MEN cocoa seeds Brazil nut oil and white pitch resin oil murumuru palm seeds piri piri roots Cupuaçu butter, açaí berry pulp, cacao seeds and passion fruit oil 1 RI //8 A U 3 B 3 0 2 O JA 8 A //2 Ã 5 Ç T //1 CIA V //2 MTA //1 TIJU O B S APO O S A C A C VER AS ERVAS //101 O PAESP //6 8 C O Babassu mesocarp flour 0 P // 5 O O R I T I C U B / / 5 4 O N Ç A C O O P RO C A M / / 3 0 CABRUCA //140 cocoa seeds GRAN DE SERTÃO //176 C T M / / 3 buriti palm oil ( T U R C O O V O P A F / L / 9 O R 6 A ) dry leaves of passion flower 0 4 O //1 NIM SÃO JERÔ 0 0 4 / / M A V A P O O C C O A P R O C O R / / 3 6 4 brazil nut oil dry chamomile flowers, lemon balm, macela, sage and rosemary, fresh and dry leaves of lemon grass, peppermint and carqueja passion fruit seeds natura report 2012 99 GRI SO1 e SO9 GRI SO1 e SO9 surrounding communities Natura’s challenge is to contribute in an innovative and signifi cant way to the local communities where it operates. With the expansion of the company’s business, its responsibility for establish- ing quality relationships with these stakeholders also grows. In 2012, Natura reviewed its work strategy in the surrounding communities and prepared a plan to strengthen its contribution to the local development in three municipalities: Cajamar (State of São Paulo), São Paulo (State of São Paulo) and Benevides (State of Pará) (see table below). Natura’s main operations are located in those municipalities and, consequently, these are the regions where the company generates impact and where it is are able to provide direct and indirect benefi ts. Local development actions are supported by: _The creation of bonds of trust _The identifi cation and recognition of leaderships _The establishment of a positive agenda with public authorities _The identifi cation and strengthening of platforms for democratic social participation and the collective development of actions _In the development of the identity of every individual with this action At the same time, Natura implements actions focused on the other municipalities where it is present. The company’s relationship in these cases is via the Municipal Councils for the Rights of Children and Adolescents (CMDCA), with the allocation of 1% of the income tax payable and the monitoring of the investment of these funds. Natura’s intention is to strengthen the activity of these councils as they are a legitimate representation space of the community that includes public managers from different areas and representatives of civil society. The munici- palities that receive these funds in addition to Cajamar, São Paulo and Benevides are: Jaboatão dos Guararapes (State of Pernambuco), Castanhal (State of Pará); Jundiaí (State of São Paulo); Matias Barbosa (State of Minas Gerais); and Cotia (State of São Paulo). Natura’s activities with the surrounding communities do not include, for the time being, inter- national operations. Unit EC8. Investment in infrastructure and services for public benefi t Investments in the communities surrounding Natura’s units – Funds from Natura1 Investments – Funds from Crer para Ver2 1. The investments refer to the municipalities of Cajamar and Itapecerica da Serra. 2. Investment of funds from Crer para Ver in the municipality of Benevides. R$ thousands 2010 2011 2012 409 822 30 96 729 130 natura report 2012 100 GRI SO10 Employees from surrounding communities Cajamar Benevides Itapecerica Unit % 2010 17 95 na 2011 21 60 na 2012 22 91 4 EC6. Purchases from suppliers from the communities surrounding the plants1 2 Cajamar Itapecerica da Serra Benevides Total Percentage of expenditures with suppliers from the surrounding communities in relation to the total expenditures with suppliers Unit 2010 2011 2012 R$ millions % 74 1.3 47 121 nd 62 3.0 64 129 3,8 57 1.4 81 139 4,0 1. The consolidation method for this indicator was changed and, since 2011, the amounts net of recoverable taxes have been taken into consideration. Therefore, data for 2011 e 2012 are not comparable to those of 2010. 2. The 2012 basis considers all the purchases from suppliers located at the municipalities of Cajamar and Itapecerica da Serra and suppliers from the State of Pará that supply to any Natura unit. CAJAMAR The investments in the local development of Cajamar (State of São Paulo), where the com- pany’s head offi ce is located, are mainly geared to public education. In 2012, Natura maintained the support for the development of a methodology to assess the quality of the municipal educa- tion so as to identify the progresses and opportunities for improvement. The municipality had already been working in the assessment and review of the course syllabus and the support to this methodology should add to this work and will be a reference for this process. Last year, the pilot project involved nine schools in Cajamar, and the students of the 5th and 9th elementary grades. The results are still under review and will serve as a basis for the adjustments required in the educational planning of the school system in 2013. Another initiative in the region is the Rede Escola Cajamar (Cajamar School Network), a proj- ect launched in 2012 in partnership with the government and the private sector of the munici- pality that offers training courses to youngsters who live in the communities and guidelines in the search for a job position. More than 300 youngsters attended the training courses last year. After this phase, they are referred to the recruitment processes at Natura and other compa- nies in the region. During that period, 14 institutions became partners in this process and 29 companies offered their facilities and material for the classes and included these youngsters in their recruitment processes. Even though the number of participants in the training courses increased, Natura still faces the challenge of increasing the employability of these youngsters – 250 youngsters were referred to recruitment processes last year and 47 were contracted. Other 55 youngsters got their fi rst job without the intervention of the Rede Escola Cajamar. natura report 2012 Since the municipality of Cajamar is located in an environmental protection area, environ- mental management is a relevant component in its development. Accordingly, the topic is also an important focus of Natura’s efforts in the region. In 2012, we maintained the partnership with the NGO Mata Nativa and the Environmental Board of Cajamar to determine a shared management of the Natural Municipal Park, involving the organization, the city government and community leaders. Created in 2007, the park has a managing council elected last year and determined the invitation to bid for the selection of proposals for the local stewardship plan. SÃO PAULO In São Paulo, the Vila Jaguará region, in the West Zone of the capital city of the State of São Paulo, where a new administrative offi ce and a Distribution Center were set up in 2010, is con- sidered our surrounding area. In 2012, in order to establish a relationship, the fi rst step was to identify the local community leaders and make a diagnosis of the region to understand its needs. The company conducted a multistakeholder dialogue with the neighboring community and the public authorities. One of the topics that was relevant in this work was public transportation, a major factor for the development of the region. Subsequently, Natura began to study a mobil- ity plan, which will be one of the projects that the company will develop in the region in the coming years. This new Natura’s unit was expected to start operations in 2012, but its implementation was delayed on account of the granting of the necessary permits and it is now expected to be inaugurated in 2013. The administrative offi ce will receive the employees who are currently al- located in Itapecerica da Serra (State of São Paulo), after the shutdown of these facilities. Also in 2013, the São Paulo Distribution Center will start its operations and will be responsible for the selection and preparation of the products (orders) for the consultants in the State of São Paulo. As a result, the operations of the Distribution Center in Cajamar will be discontinued. ITAPECERICA DA SERRA Because of the transfer of the administrative offi ce from Itapecerica da Serra to the new build- ing in São Paulo in 2013, we ended our local activities in 2012, after a process that began in 2011. In addition to notifying in advance the municipal agencies of Natura’s exit from the municipality, Natura made arrangements so as to ensure that the social projects be autonomous. One ex- ample was the technical support to the Municipal Program of Selective Garbage Collection, in partnership with the Municipal Green and Environmental Department and the Cooperative of Recyclers of Itapecerica da Serra. Natura had been working in this project since 2007, support- ing the technical training of the cooperative staff and concluded that the city administration of- fi ce and the organization are now prepared to manage the service in the city, which had always been the main purpose of the partnership. BENEVIDES In 2012, the training of 40 electromechanical professionals was completed; this is a project that began in 2011 for the purpose of qualifying workers in Benevides (State of Pará). The training course was organized in partnership with Senai (National Service of Industrial Training) and part of these workers is expected to be hired to work in Natura’s new plant that will be inaugu- rated in 2013 in the municipality (learn more about our relationship with the supplier communities on page 91). natura report 2012 101 GRI SO10 GRI SO10 GRI SO10 102 Upon the review of the company’s strategy for the surrounding communities, Natura also identifi ed the need to create a work agenda in Benevides, adapted to its new context in the town. The progress of the Amazônia (Amazon Program) and the construction of the new plant allow for the strengthening of the company’s relationship and of the bonds of trust with the local people. Until now, Natura’s approach in the region was associated with the strategy of relationship with the communities that supply inputs from biodiversity and covered a wider area, including many neighboring municipalities. Under the new strategy, Natura’s action will be focused on the mu- nicipality of Benevides and, beginning in 2013, it will develop a specifi c action plan for this region. natura report 2012 103 shareholders As part of the constant challenge to improve everything the company does, Natura works to strengthen its brand and Essence also in communications to the market. We want to convey Natura’s differentiating values and provide an increasingly clearer and more accessible lan- guage. Natura is working to achieve this goal, guiding its relationship with investors based on a consistent, honest and open dialogue. Natura maintains an open channel with the market to contextualize its performance and re- affi rm its commitments and future prospects in a process led by its Senior Vice President of Finance, Investors Relations and Legal Affairs, Roberto Pedote, and supervised by Fábio Cefaly and Tatiana Bravin. An important dialogue time is the Natura Day, held annually, when the company’s executives present the plans for the future and answer the questions and receive suggestions and which, in 2012, was attended by approximately 150 analysts and investors. In addition to contextualizing Natura’s strategy and results, this event is considered an op- portunity to be closer to these stakeholders and disclose more information on Natura’s value proposal. For this reason, the event includes an exhibition of Natura’s products and the disclo- sure of the main initiatives in sustainability and innovation. In 2012, the event was attended by Natura relationship managers – employees who work directly with the consultants – to talk with shareholders about their work. Natura seeks to maintain the same level of dialogue in the Annual Shareholders’ Meeting (ASM) which, in the past few years, attracted an ever more signifi cant number of investors, particularly individual investors. In 2012, the Annual Shareholders’ Meeting (ASM) gathered 350 people in April, in Cajamar (State of São Paulo), and once again it included a meeting with the Association of Investment Analysts and Professionals of Capital Markets (Apimec - State of São Paulo) (learn more on page 20, Corporate Governance). Additionally, Natura held approximately 600 meetings in the year, including face-to-face meet- ings and teleconferences in Brazil and abroad. Another important communication tool is the company’s Page on the Internet (www.natura.net/investidor). As sustainability is an essential value to the company, Natura seeks to convey to the market its importance and the care taken by the company in its business when it takes into consider- ation the management principles in the economic, social and environmental aspects. It is also a way to encourage the market to follow a similar path, creating a transformation agenda for the future. In 2011, Natura carried out the fi rst road show for investors of companies that invest in a triple bottom line management (known as SRI, Socially Responsible Investors). In 2012, we used the United Nations Conference on Sustainable Development, Rio+20, and the presence of many investors in Brazil to gather a group with the Natura’s sustainability team. Three meet- ings were held at Natura’s headquarters, in Cajamar, and very positive feedback was received from participants, who were interested in learning more about our management in this area. natura report 2012 104 The company annually monitors its performance in communication by means of the Percep- tion Study survey that assesses the quality of its relationship with shareholders and the mar- ket, collecting opinions from these stakeholders. The survey includes questions about the IR routine, the company’s management and Natura’s strategy. The fi ndings show that the market recognizes the company’s experience and active participation in its relations with investors and analysts, and indicate some points for improvement. Natura uses these fi ndings to further develop its work. Natura was recognized at the IR Magazine Brazil Awards, organized by the IR magazine, as the best company in the Social and Environmental Sustainability, Corporate Governance, and Consumer Goods and Service categories. Additionally, it received honors in the Annual Re- port, Meeting with the Analyst Community and IR with Individual Investors categories. SHAREHOLDERS’ PROFILE No signifi cant changes in the profi le of shareholders and in the composition of Natura’s capital stock in 2012 was observed. Shareholders’ Profi le Individuals Brazilian legal entities Foreign legal entities Total Shareholding structure Shareholders Controlling shareholders Treasury shares Management shares Outstanding shares Total de Acciones 2010 7,838 560 850 9,248 2011 8,722 659 867 10,248 2012 7,821 714 926 9,461 Participación 59.83% 0.45% 0.56% 39.16% 100.00% Cantidad de acciones 258,017,219 1,941,345 2,404,388 168,876,312 431,239,264 CONTROLLING SHAREHOLDERS Natura’s capital stock only comprises common shares, in accordance with the determination of BM&FBovespa’s New Market. The table below shows the number of shares of Natura’s capital stock held by shareholders that own 5% or more of its capital stock or by the members of the Board in 2012. natura report 2012 105 Shareholder 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 Barreiros Passos Anizio Pinotti Ronuel Macedo de Mattos Number of common shares 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 % 22.25 21.23 5.24 5.24 3.69 0.84 0.80 0.20 0.20 0.14 STOCK PERFORMANCE In 2012, Natura shares appreciated 67.8%, whereas the Ibovespa, the main BM&FBovespa index, appreciated 7.2%.Since Natura went public in 2004, its shares have signifi cantly outperformed the index, as shown in the chart below: : Bovespa Index 100 basis = 05/25/2004 05/25/2004 28/12/2009 31/07/2009 natura report 2012 106 17. Table: Average daily volume of shares traded (R$ thousands)1 2010 33,182 1. Source: Economática 2011 43,696 2012 54,337 Since Natura is listed on the BM&FBovespa New Market, it is part of the main indexes of the Bra- zilian stock market: Ibovespa, IBrX-50 (which lists the most liquid shares on the BM&FBovespa), ISE (Corporate Sustainability Index), Corporate Governance Index, Tag Along Share Index, Morgan Stanley Composite Index and ICO2 (BM&FBovespa Carbon Effi cient Index). Total volume traded (R$ million)1 2010 8,325 1. Source: Economática 2011 10,880 2012 13,394 PAYMENT OF DIVIDENDS On February 6, 2013, the proposal for the payment, on April 17, 2013, of R$ 469.5 million in dividends and R$ 21.8 million as interest on capital for the period (R$ 18.6 million net of income tax) related to the results for 2012, was approved by Natura’s Board of Directors and will be submitted to the Annual Shareholders’ Meeting (ASM) to be held on April 12, 2013. On August 15, 2012, interim dividends totaling R$ 327.0 million and interest on capital totaling R$ 31.0 million (net of withholding tax) were paid. The sum of these dividends and interest on capital relative to the results for 2012 will represent net earnings of R$ 1.97 per share (R$ 1.89 per share in 2011), corresponding to 100% of net income1 for 2012. natura report 2012 107 government Natura’s belief in the strength of relationships and collectively developed solutions guides its work with social and governmental organizations. Natura actively participates in these institutions seeking to positively contribute to the development of public policies and infl uence social and environmental transforming actions. In 2012, the United Nations Conference on Sustainable Development (Rio+20) held in Brazil, gave Natura the opportunity to prove the transforming power of social mobilization and its importance in the defi nition of actions to develop a fairer world. Even if this event did not make history as a time when the world’s major nations came to a consensus on the development model that should be able to eradicate poverty and ensure natural resources for the future, the major legacy of the conference was the dialogue and mobilization environment. The interactions between civil society organizations, the corporate segment, local governments and other play- ers were translated into initiatives and partnerships there and then. Natura believes that this mobilizing drive is a powerful asset and can be the milestone for a new engagement model. The companies, in turn, assumed an important role by creating platforms of mobilization of individuals and, together with civil society, they will be the leading players in the formulation of the agenda towards the future we want. In addition to supporting the offi cial event, Natura actively participated in the parallel dialogue initiative. Natura was represented by 22 executives who participated in 18 events, discussing different topics, such as entrepreneurship, green economy, biodiversity, sustainable business and innovation, which generated many commitments. Among them, are the Commitment to Natural Capital, of Cambridge University; Caring for Climate Commitment, of the Global Compact; Commitments and Demands for Building the Future We Want, of the Ethos Institute; Commitment Letter of CEOs for Rio+20, of the Brazilian Global Compact and a commitment to the conscious consumption and promotion of women’s participation in direct sales, in partnership with ABEVD (Brazilian Association of Direct Selling Companies) (learn more about diversity on page 48, Quality of Relationships). With the motto “Esta conversa é com todos nós” (“This talk is with all of us”), Natura also in- vested in the involvement of its stakeholders so that they could know and refl ect about the topics discussed. In order to engage consultants, ten NCs were invited to participate in the conference (learn more on page 79, Consultants and NCOs). The company also supported the participation of its employees with special publications and a series of six meetings at Natura’s facilities with specialists held to cause refl ection on Rio+20 (learn more on page 48, Quality of Relationships). Additionally, Natura launched a special campaign in the major means of communication, regional newspapers and online media not only to inform, but to foster refl ection. Another topic that guided this work during the period was the legislation on the access to biodiversity and associated traditional knowledge. More than ten years ago, Natura requested the creation of a new legal framework for the research and use of inputs from Brazilian social biodiversity. It defended a system that integrates production, consumption and, above all, favors the conservation of the planet’s biological diversity. In 2012, Natura was invited by Farma Brasil, a trade association from the Brazilian pharmaceutical industry, to take part of an initiative aimed at expanding the discussion on current legislation. This initiative led to the development of a new proposed text, submitted by businessmen to the Ministry of Environment last November. natura report 2012 108 Natura believes that this proposal avoids restraints in the process of accessing the genetic heri- tage and considers the critical topics for fostering research and innovation based on the genetic heritage, and that it may trigger development from the sustainable use of these resources. Natura believes that the law will evolve signifi cantly with these changes, particularly in terms of benefi t sharing. The proposal, with more technical accuracy, avoids ambiguities and pro- vides increased legal certainty. It is up to the government to analyze Natura’s proposal and carry on with the process of review of current legislation. Recognition of the genetic heritage to generate potential wealth, regional development and social and environmental conservation have been guiding Natura’s work strategy in the Ama- zon. In 2012, with this program progress, the company launched Nina (Natura Amazon In- novation Center), an innovative model that proposes the networked production of scien- tifi c knowledge, connecting local and large international institutions’ researchers. By means of Natura’s government relations team, the company opened a dialogue channel with many representatives of the Ministry of Science and Technology to assist them to defi ne the best scope for the technological complexes in the Northern region (learn more about the Amazônia (Amazon) Program on page 34, Social biodiversity). OTHER TOPICS In the tax scenario, the direct selling companies experienced a tax increase last year in São Paulo. The impact was due to an adjustment of the methodology used for the calculation of the Value-Added Margin (VAM), resulting in a signifi cant increase in Natura’s disbursement. We are discussing with Cotepe (Permanent Technical Commission of the State Value-Added Tax (ICMS)), a Confaz (National Council of Fiscal Policy) subunit, so that Brazil can adopt a single national methodology for the calculation of the VAM, thus avoiding wide (tirar a palavra wide da frase) differences in tax calculations between the different states. INTERNATIONAL OPERATIONS Natura has been working together with the governments of our International Operations in order to make its business feasible, particularly in the company’s recent expansion in Latin America. The International Operations are undergoing a restructuring phase as they have just started to operate and Natura is trying to become familiar with the peculiarities of each country, working locally and with support from Brazil, when necessary. In 2012, Natura was a party in the discussion on the access to the genetic heritage in Colombia, based on the experi- ence obtained from more than a decade of discussions on the topic in Brazil. In Argentina, the company had an intense political dialogue with representatives of the Ministry of Domestic Trade due to the changes in the import rules in that country (learn more on page 87, Suppliers). REPRESENTATION AND SOCIAL INFLUENCE Natura actively participates in cosmetics and direct sale industry organizations in Brazil and abroad so that it can contribute to the discussions relevant to its business, the industry and the entire society. natura report 2012 109 GRI SO7 e SO8 GRI EN28 GRI EC4 Natura’s CEO, Alessandro Carlucci, is in charge of WFDSA (World Federation of Direct Sell- ing Associations), voted into offi ce for the period from 2011 to 2014. Natura created a work- group to support the different fronts and committees of the organization. As the company contributes to the development of the industry’s actions at global level, this experience has enabled Natura to learn a lot about the direct sales market around the world. In Brasil, Natura is represented by the Senior Vice Chairman of Abihpec (Brazilian Association of the Cosmetics, Fragrances and Toiletries Industry) and by the Chairman of ABEVD (Brazil- ian Association of Direct Selling Companies). By means of Abihpec, Natura is a party to the Corporate Commitment for Recycling (Cempre) – an industry’s agreement aimed at meeting the requirements of the National Solid Waste Policy, creating processes for the proper desti- nation of waste involving the whole chain. At the same time, Natura developed a proprietary project to work on innovative and sustainable solutions integrated with the business and rec- ognized the company’s impact on solid waste (learn more on page 38, Solid waste). Natura is not a party in any litigation involving matters of competition law nor does it have a history of signifi cant penalties or non-monetary sanctions arising from non-compliance with laws and regulations. Accordingly, Natura did not record any fi nes or sanctions arising from non-compliance with environmental laws and regulations. INVESTMENTS In 2012, Natura received fi nancial assistance from the government by means of tax incentives and from government development agencies totaling R$ 38 million. Part of these funds originates from the Lei do Bem (Good Law) which provides tax benefi ts to companies that develop techno- logical innovations. Meanwhile, the fi nancial assistance for innovation, training, logistics and infor- mation technology totaled R$ 106,1 million and was granted by BNDES (Brazilian National Bank for Social and Economic Development) and Finep (Financial Sponsor of Studies and Projects). Part of the work of the government relations function is to ensure tax benefi ts from important investments. In 2012, Natura’s main investments were the construction of the new distribution center and administrative offi ce in São Paulo (State of São Paulo), the Ecoparque in Benevides (State of Paraná) and the expansion of the plant in Cajamar (State of São Paulo). Natura works with the government of the State of Pará to obtain the necessary permits and follow the sched- ule and planning of the plant aimed at creating an industrial symbiosis in the Amazon (learn more on page 34, Social biodiversity). The company is also making progress in the construction works in São Paulo. The new center is expected to be inaugurated in 2013. TableEC4. Government’s resources Tax incentives for support and sponsorships1 Lei do Bem (income tax deductions on up to twice the spending on technological Research and Innovation)2 x ICMS value-added tax subsidy in Itapecerica da Serra Other3 Total Unit R$ millions 2010 9 21 6 0,6 36 2011 10 24 4 1,1 39 2012 9 22 5 2,0 38 1. Corporate income tax (IRPJ) incentives granted through the Rouanet Law, Sports Law, the Children and Adolescents’ Rights Fund, the Workers’ Meal Program and ICMS Value-Added Tax incentives through the Natura Musical (Musical Natura) projects. 2. The tax benefi t related to the Lei do Bem, of 2011, was changed due to the review/audit of projects. 3. Incentive related to the extension of maternity leave by two months, established by Decree No. 7052/2009. The expense is undeductible from Taxable Income and Social Contribution calculation basis, but is fully deductible from corporate income tax. natura report 2012 POLITICAL LOBBYING Natura applies its principles of ethics and transparency to political lobbying, a practice that the company considers relevant to the business, and supports its role based on the strictest ethical standards. Since there is no legislation regulating the activity in Brazil, Natura follows its own guidelines, such as the Integrity Policy against Corruption and Bribery, created in 2011, which sets forth rules of conduct for relating with public authorities. Natura has also the Campaign Donation Policy that prohibits any donations to candidates or political parties in election peri- ods or not. Natura works with academic and industry entities in order to promote the need for specifi c legislation on political lobbying in Brazil. It participates in debates on the matter and seeks to mobilize the government in this aspect. The following personnel is authorized to represent the company: Lucilene Prado, Elizabete Vicentini, Luciene Soares, Silene Moneta, Carlos Henrique Silva, Kássia Reis and Luciano Pedregal. 110 GRI SO6 natura report 2012 Sérgio Gallucci Representative in the Committee of Legal Affairs and Government Relations Representation in trade organizations and associations Organization/Association Natura Representative José Vicente Marino ABA - Associação Brasileira de Anunciantes (Brazilian Advertisers Association) ABERJE – Associação Brasileira de Comunicação Empresarial (Brazilian Association of Corporate Communication) (www.aberje.com. br) ABEVD – Associação Brasileira de Empresas de Vendas Diretas (Brazilian Association of Direct Selling Companies) (www.abevd. org.br) ABIFRA – Associação Brasileira das Indústrias de Óleos Essenciais, Produtos Químicos Aromáticos, Fragrâncias, Aromas e Afi ns (Brazilian Association of Essential Oils, Aromatic Chemical Products, Fragrances, Aromas and Similar Industries) ABIHPEC - Associação Brasileira da Indústria de Higiene Pessoal, Perfumarias e Cosméticos (Brazilian Association of the Cosmetics, Fragrances and Toiletries Industry) (www. abihpec.org.br) Vanessa Giannotti Rodolfo Guttilla* Rodolfo Guttilla* Lucilene Prado Pablo Montanes Luciano Pedregal Kassia Reis Rodolfo Guttilla* Lucilene Prado Elizabete Vicentini Luciene Soares Kassia Reis Ricardo Bittencourt Isabel Fujimori Abipla – Associação Brasileira das Indústrias de Produtos de Limpeza e Afi ns (Brazilian Association of the Cleaning Products and Similar Industries) (www.abipla.org.br) ABPI - Associação Brasileira da Propriedade Intelectual (Brazilian Association of Intellectual Property) (www.abpi.org.br) Representation in trade organizations and associations Organization/Association Lucilene Prado Natura Representative natura report 2012 111 GRI 4.12 e 4.13 Type of Representation Member of the National Board Vice Chairman of the Media Committee Chairman of the Decision-Making Council Chairman Coordinator of the Committee of Legal Affairs and Government Relations Member of the Research Committee Member of the Ethics Council Representative in the Committee of Legal Affairs and Government Relations Vice Chairman Effective Member of the Fiscal Council Representative of the Technical and Regulatory Committee Representative in the Environment Group Representative in the Taxation and Foreign Trade Workgroup Representative in the Foreign Trade Workgroup Representative in the Regulatory Committee Representative Type of Representation 112 ABRASCA – Associação Brasileira das Companhias Abertas (Brazilian Association of Listed Companies) (www.abrasca.org.br) ABRH - Associação Brasileira de Recursos Humanos (Brazilian Association of Human Resources) American Chamber of Commerce - Amcham Brazil AMVD – Asociación Mexicana de Ventas Directas (Mexican Direct Selling Association) 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) Anvisa - Agência Nacional de Vigilância Sanitária (National Agency of Sanitary Vigilance) Asociacion Civil Argentina de Empresas Brasileñas (Argentine Civil Association of Brazilian Companies) (www.grupobrasil.com.ar) ASPI - Associação Paulista da Propriedade Intelectual (São Paulo Association of Intelectual Property) (www.aspi.org.br) Roberto Pedote Representative Ney Silva Ney Silva Representative Vice Chairman of the Strategic People Management Committee Cecilia Riviello Member of the Steering Board Luciana Hashiba Director Elisabete Vicentini Responsible for Legal Affairs Member Partner Lucilene Prado Representative Cámara de Comercio de Lima (Chamber of Commerce of Lima) Daniel Gonzaga Dejan Joksimovic Representative Member of the Cosmetics and Hygiene Committee Cámara de Venta Directa de Chile (Direct Sales Chamber of Chile) CANIPEC – Cámara Nacional de la Industria de Perfumaria, Cosmetica y Articulos de Tocador e Higiene (Mexican National Chamber of the Perfumery, Cosmetics and Toiletry and Hygiene Products Industry) CAPA – Cámara Argentina de la Indústria de Cosmética y Perfumería (Argentine Chamber of the Cosmetics and Perfumery Industry) Capevedi - Cámara Peruana de Venta Directa (Peruvian Chamber of Direct Sales) CASIC - Consejo de Asociaciones de la Industria de Cosmeticos Latinoamericana (Council of the Latin American Cosmetics Industry Associations) Hans Werner Director Carolina Muñoz Representative Javier Herrero Chairman of the Sustainable Development Commission Alternate Member of the Account Review Committee Representative Member of the Communication Committee Representative Representative in the Trade Facilitation Committee Pedro Gonzalez Daniel Gonzaga Dejan Joksimovic Rodolfo Guttilla* Kassia Reis natura report 2012 Natura Representative Silene Moneta Pedro Gonzalez Representation in trade organizations and associations Organization/Association CAVEDI – Cámara de Venta Directa de Argentina (Direct Sales Chamber of Argentina) CEBDS - Conselho Empresarial Brasileiro para o Desenvolvimento Sustentável (Brazilian Business Council for Sustainable Development) CEMEFI – Centro Mexicano para la Filantropía (Mexican Center for Philanthropy) CIESP - Centro das Indústrias do Estado de São Paulo (Center of Industries of the State of São Paulo) (www.ciesp.org.br) Conar - Conselho Nacional de Autorregulamentação Publicitária (National Council of Advertising Self- Regulation) Gabriela Ocampo Luciano Pedregal Rodolfo Guttilla* José Vicente Marino Conservation International Karina Aguilar 113 Type of Representation Secretary of the Steering Board Representative in the CTBIO - Câmara Temática de Biodiversidade (Thematic Biodiversity Chamber) Member of the Corporate Social Responsibility Committee Director CIESP Advisor – Jundiaí (State of São Paulo) Member of the Higher Council Natura’s focal point at TEEB (The Economics of Ecosystems and Biodiversity) Brazil Representative Copecoh – Comité Peruano de Cosmética e Higiene (Peruvian Cosmetics and Hygiene Committee) ETHOS - Instituto Ethos de Empresas e Responsabilidade Social (Ethos Institute of Companies and Social Responsibility) (www.ethos. org.br) FNQ – Fundação Nacional da Qualidade (National Quality Foundation) (www.fnq.org.br) FUNBIO – Fundo Brasileiro para a Biodiversidade (Brazilian Fund for Biodiversity) (www.funbio.org.br) Fundação Dom Cabral (Dom Cabral Foundation) Fundação SOS Mata Atlântica (SOS Atlantic Forest Foundation) Daniel Gonzaga Dejan Joksimovic Member of the Executive Board Guilherme Peirão Leal Marcelo Cardoso* Lucilene Prado Silene Moneta Pedro Passos Member of the Decision-Making Council Member of the Ethos 10 Years Management Council Alternate Member of the Advisory Board of the Ethos Platform Representative in the MEBB - Movimento Empresarial pela Biodiversidade (Corporate Initiative for Biodiversity) Vice Chairman of the Board of Trustees Guilherme Peirão Leal Member of the Advisory Board Pedro Passos Member of the Board Pedro Passos Member of the Board Global Compact - Caring for Climate Denise Alves Keyvan Macedo GRI - Global Reporting Initiative (www.globalreporting.org) Rodolfo Guttilla* Member of the Steering Committee Representative Member of the Stakeholder Council and Co-chair of the Brazilian National Annex natura report 2012 114 Representation in trade organizations and associations Natura Representative Organization/Association Type of Representation IBGC - Instituto Brasileiro de Governança Corporativa (Brazilian Institute of Corporate Governance) (www.ibgc.org.br) IBRI – Instituto Brasileiro de Relações com Investidores (Brazilian Institute of Investor Relations) (www.ibri.org.br) IEDI – Instituto de Estudos para o Desenvolvimento Industrial (Institute of Studies for Industrial Development) (www.iedi.org.br) Moacir Salztein Representative in the Human Resources Committee Fabio Cefaly Representative Pedro Passos Presidente del Consejo IIRC – International Integrated Reporting Committee Roberto Pedote Alexandre Nakamaru Member of the Steering Committee Member of the Technical Task Force Instituto Akatu pelo Consumo Consciente (Akatu Institute for Conscious Consumption) Instituto Empreender Endeavor Brasil (Endeavor Brazil Entrepreneur Institute) (www.endeavor.org.br) INTA – International Trademark Association IPT - Instituto de Pesquisas Tecnológicas (Institute of Technological Research) (www.ipt. br) ISA - Instituto Socioambiental (Social and Environmental Institute) LIDE - Grupo de Líderes Empresariais (Business Leaders Group) MBC – Movimento Brasil Competitivo (Competitive Brazil Initiative) (www.mbc.org.br) MEI - Mobilização Empresarial pela Inovação (Corporate Mobilization for Innovation) (CNI) Ministry of Science, Technology and Innovation Movimento Empresarial pelo Desenvolvimento Econômico da Mulher + Mulher 360 (Corporate Initiative for Women’s Economic Development + Mulher 360) Movimento Nossa São Paulo (Our São Paulo Movement)(www. nossasaopaulo.org.br) José Vicente Marino Representative Pedro Passos Member of the Board Lucilene Prado Representative Pedro Passos Renata Puchala Alessandro Carlucci Vice Chairman of the Advisory Board Representative in the Sustainable Amazon Forum Representative Rodolfo Guttilla* Representative Pedro Passos Representative Pedro Passos Representative Pedro Passos Member of the National Council of Science and Technology Lucilene Prado Member of the Board Guilherme Peirão Leal Chairman of the Decision-Making Council of the Sustainable São Paulo Institute natura report 2012 115 Representation in trade organizations and associations Natura Representative Organization/Association Type of Representation NEF - Núcleo de Estudos Fiscais da Escola de Direito da FGV (Center of Fiscal Studies of the Law School of Getulio Vargas Foundation) PCPC Council - Personal Care Products Council (www.personalcarecouncil.org) Lucilene Prado Member of the Board Elizabete Vicentini Representative United Nations Development Programme (UNDP) Karina Aguilar Isabel Ferreira Luara Maranhão Rodolfo Guttilla* Rede América (America Network) Lucilene Prado SIPATESP - Sindicato da Indústria de Perfumaria e Artigos de Toucador no Estado de São Paulo (Perfumery and Beauty Products Industry Union of the State of São Paulo) The Arthur W. Page Society (www.awpagesociety.com) UEBT – Union For Ethical Biotrade Ricardo Faucon Water Footprint Network WBCSD - World Business Council for Sustainable Development (www.wbcsd.org) Keyvan Macedo Rodolfo Guttilla* Ines Francke Alessandro Carlucci Representative in the Brazilian Global Compact Committee (Comitê Brasileiro Pacto Global – CBPG) Representative Representative Vice-Presidente Director Representative Chairman of the Board Representative Member of the Board Liaison Delegate WFDSA – World Foundation for Direct Selling Associations WWF Brasil (www.wwf.org.br) Alessandro Carlucci Rodolfo Guttilla* Moacir Salztein Guilherme Peirão Leal Chairman Member of the Advisory Board Deputy Treasurer Member of the Advisory Board * Have withdrawn from the company. natura report 2012 Natura value chain Natura’s main results in 2012, from the extraction of raw material to the disposal of packaging. Stage 1: Extraction and transportation of raw materials and packaging (direct and indirect suppliers) R$ 4.8 billion paid to suppliers for the purchase of inputs and services 22.6% loyalty rate among suppliers in Brazil, a drop of 400 basis points 123,792 metric tons of Greenhouse Gas (GHG) emissions related to the extraction and transportation of raw materials and packaging (44% of Natura’s total emission) 22,482 metric tons of GHG emissions per direct supplier (processing and transporting to Natura) (8% of total) Stage 2: Industrial internal processes R$ 803 million paid to employees in benefi ts and salaries, 26.5% higher than in 2011 R$ 437 million invested in infrastructure and logistics 0.40 liter of water consumed per unit produced, same as in the previous year 25.56 grams of waste generated by unit produced compared to 20.01 grams/unit in 2011 20,545 metric tons of GHG emissions in internal processes (7.5% of total) Stage 3: Sale of products (transportation and distribution) 3.2 billion paid to consultants for gains related to the sale of products, an increase of around 10.5% from 2011 1.5 million consultants in all operations, a 10.7% growth in our consultant base 24% loyalty rate among consultants in Brazil (compared to 19% in 2011) 40% loyalty rate among NCAs in Brazil (compared to 24% in 2011) 104 new products launched 46,041 metric tons of GHG emissions related to transportation of products to consultants and consumers (16.5% of Natura’s total emissions) natura report 2012 116 GRI EN29 117 EN26 (parte) Stage 4: Use of products and packaging disposal 14% of refi lls on items billed in Brazil 125 mPt/kg is the environmental impact of packaging per number of products¹ compared to 123 mPt/kg in 2011 67,349 metric tons of GHG emissions related to the fi nal disposal of products and packaging (24% of Natura’s total emissions) 1. The indicator also includes effects on the extraction and transformation of packaging. Cross-sectional indicators R$ 1.7 billion paid to the government in direct and indirect taxes, the same as in the previous year R$ 846 million distributed to shareholders in dividends and interest on capital that were actu- ally paid to shareholders, that is, calculated on a cash basis (an increase of 11%). R$ 861 million in net income, an increase of 3.7% R$ 6.345,7 million in net revenue, an increase of 13.5% R$ 1.510,7 million in EBITDA EBTIDA margin of 23.8% R$ 73.2 million invested in sustainability natura report 2012 118 creation of environmental value Natura’s management of the business impact on the environment is based on an integrated view of its chain while always seeking to reduce the negative impacts and maximize the positive impacts by means of solutions that create shared value to the entire relationship network. In accordance with the company’s materiality matrix, the priority environmental topics for the company are water, climate change, social biodiversity and solid waste. All these aspects are regularly monitored through many forums of the company, including the commitments assumed and the progresses made in each topic (see table on page 18). Natura’s indicators cover at least all of its commercial and industrial units, offi ces and distribution centers in Brazil. Additionally, the company also reviews the impact of its main suppliers, including third parties (that manufacture fi nished products for Natura), as well as raw material and packaging suppli- ers. The company has been working to expand its management in the International Operations, with a progressive increase in the number of indicators monitored in those locations (learn more on page 148, About this Report). CARBON NEUTRAL Natura has been a carbon neutral company since 2007, which means that its greenhouse gas (GHG) emissions generated in the production process, including the company’s value chain, which cannot be avoided, are offset through carbon credits obtained from investments in reforestation, energy effi ciency and replacement of fossil fuel programs. Currently, as a subprocess of the organization, the topic provided a number of lessons after its inclusion in the discussion agenda in many decision forums and in profi t sharing. In 2012, Natura achieved a reduction of 7.4% in its absolute GHG emissions in relation to 2008. This data includes the company’s plants in Cajamar (State of São Paulo) and Benevides (State of Pará), and the administrative offi ces. However, this reduction was not enough for Natura to achieve its commit- ment to reduce absolute emissions by 10% (scope 1 and 2 of the GHG Protocol) during the period. The company’s reduction planning was adversely affected by the increase in the share of thermoelec- tric plants in the supply of electric energy to the Brazilian electric energy network at the end of 2012 in order to compensate the low level of the hydropower reservoirs. The inclusion of a more polluting energy source in the network is a government necessity and increases the emission factor of this component in the calculation of the company’s GHG inventory. Accordingly, although Natura managed to implement all the projects that had been planned, including the reduction in the consumption of power by its direct production processes, it was still vulnerable to a factor that is the responsibility of the national energy network. natura report 2012 It is important to highlight that if we consider only the emission factor of the electricity network in 2008, we would have achieved a 21% reduction in absolute emissions in four years. We seek to encourage the use of energy from renewable sources and less envi- ronmental impact, acquiring energy from Small Hydropower Plants (SHP). But as we do not have electricity network distribution from the power generation site to our spaces, we need to account this emission using the emission factor of the national energy system, regardless of the source of energy gained, to follow the GHG Protocol methodology. Additionally, in 2012, Natura’s emissions followed the trend of the past years, with an increase that is proportionally lower than the growth of the company’s business. Natura achieved a relative reduction of 4% in relation to the previous year and of 28% since 2006, in line with its commitment to achieve a 33% reduction by the end of 2013 (learn more on page 33, Climate Change). It is worth noting that the company’s operations do not emit or use substances that deplete the ozone layer. The emissions of particulate materials and NOx and SOx gases in Natura’s chain are monitored and are not signifi cant. 119 GRI EN 19/ EN20 INVENTORY OF EMISSIONS Natura draws an inventory on a yearly basis to map the total volume of direct and indirect emissions of greenhouse gases, taking into consideration scopes 1, 2 and 3 of the Greenhouse Gas Protocol Initiative (GHG Protocol) and the ABNT NBR ISO 14064-1 standards. In 2012, the inventory was audited by Ernst & Young Terco. RELATIVE EMISSIONS (KG OF CO2E/ KG OF PRO- DUCT BILLED) 3.30 3.12 3.00 0 1 0 2 1 1 0 2 2 1 0 2 EN16/17. GHG emissions (by scope of the GHG Protocol) Direct GHG emissions (Scope 1) Indirect GHG emissions and power (Scope 2) Other indirect GHG emissions (Scope 3) Total Unit 2010 2011 2012 metric ton 7,969 2,249 243,094 253,312 6,062 1,865 257,089 265,015 3,435 3,576 273,198 280,209 EN16/EN17. Emissions in the value chain Extraction and transportation of raw materials and packaging (to direct suppliers) Direct suppliers (processing and transportation to Natura) Industrial and internal process1 Sale of products (transporting and distribution) Use of products and packaging disposal Grand total Unit 2010 106,144 2011 117,276 2012 123,792 24,775 21,299 22,482 metric ton 25,611 38,275 24,731 38,279 20,545 46,041 58,509 253,314 63,431 265,015 67,349 280,209 1. Internal processes refer to fi xed sources, exports, business trips, treatment of effl uents, international operations. natura report 2012 120 GRI EN18 e EN26 EN29. CO2 EMISSIONS WITH TRANSPORTATION IN 2012 (METRIC TONS OF CO2E): _Transportation of products: 46,041 _Export of products: 6,957 _Vehicles of the sales force: 733 _Vehicles of executives: 612 _Chartered transportation: 2,330 _Waste transportation: 162 REDUCTION In order to reduce emissions, many improvement actions are in place, such as the installation of a biomass-powered boiler in Natura’s plant in Benevides (State of Pará). Instead of diesel, the equipment is powered by certifi ed wood briquettes. This new boiler is also prepared to operate using plant waste, such as fruits and seeds. The company extended the use of the fuel card to executives, senior management and sales managers, restricting its use to ethanol in fl ex-fuel vehicles. As from 2013, Natura will also be the fi rst company to have an ethanol-powered executive bus in its chartered fl eet, which currently is found only in public transportation. The ethanol-powered bus produces 88% less emissions when compared to the traditional vehicle. In the future, the company wants to ex- tend this measure to other vehicles of the fl eet, including the product delivery trucks. Natura’s logistics system continues to obtain positive returns with the progress of local produc- tions in Argentina and Colombia, reducing its exports from Brazil and, consequently, reducing emissions in transportation. In Brazil, the implementation of distribution centers in different regions in the past years allowed for the optimization of the distribution logistics network and also contributed to reduce CO2 emissions. In the coming years, other projects to reduce the greenhouse gases should be implemented, such as the creation of new box sizes for the delivery of the orders to consultants. OFFSETTING Emissions that cannot be avoided are offset through the acquisition of carbon credits from forest projects (promoting forest recovery in unreclaimed areas), energy projects (aiming at replacing fossil fuels with renewable and/or more effi cient sources) and waste treatment. The submittal of applications to the invitation to bid for the 2011/2012 biennium fi nished in May 2011 and, in 2012, Natura signed contracts with seven of these initiatives, ensuring the offset of 452,857 tCO2e out of the 545,224 tCO2e generated in 2011 and 2012. Other projects of this invitation to bid are under review and negotiation to offset the remaining emissions in the period. A new selection of projects is expected for 2013. Natura also seeks offsetting projects in other countries in Latin America and has projects implemented in the region. It purchased credits in Colombia once again and is at the fi nal stage of negotiation with an initiative in Peru. Learn about the projects support by Natura in the table below: natura report 2012 121 2011/2012 Carbon Project in the Emas-Taquari Biodiversity Corridor – NGO Oréades Núcleo de Geoprocessamento (States of Goiás and Mato Grosso do Sul) The project was renewed after the positive results achieved in the previous cycle, which started in 2009. In this new cycle, reclamation of more than 164 hectares in the same region around the Emas National Park and the Nascentes do Rio Taquari State Park was contracted, which should result in the offsetting of 58,000 metric tons of CO2e in 30 years. Reforestation of Degraded Areas – ASORPAR Ltda. and Consultoria Sou- th Pole (Colombia) Project developed in the region of Cáceres and Cravo Norte, in Colombia, which pro- vides for the neutralization of emissions in other Latin American operations. Upon the 2011/2012 invitation to bid, Natura purchased more 29,000 metric tons of CO2e. Replacement of fuel in ceramic manufacturing companies – Consultoria Sustainable Carbon Among the actions supported, there are four projects for the replacement of non- -renewable fuel with biomass to be used in the ceramic manufacturing companies ovens in many regions of Brazil. The replacement of wood and fi rewood with renewable sour- ces reduces gas emissions, avoids deforestation and improves work conditions. The list below shows where Natura supports these replacements: _ Cerâmicas Arrozal, GGP and Sul América (State of Rio de Janeiro), with the offset of 60,680 metric tons of CO2e. _Cerâmica Velotex (State of Sergipe), with the offset of 133,800 metric tons of CO2e. _Cerâmicas Barbosa and Kamiranga (State of Pará), with the offset of 128,000 metric tons of CO2e. _Cerâmica Gomes de Matos (State of Ceará), with the offset of 120,200 metric tons of CO2e. _Cerâmica JL Silva (State of Pernambuco), with a new purchase of 34,500,000 metric tons of CO2e. 2009/2010 Use of renewable biomass – Consultoria Sustainable Carbon (State of Mi- nas Gerais) This project also promotes the replacement of non-renewable fuels (native fi rewood from the Cerrado savannah region) with biomass (sawdust, woodchips and sugarcane bagasse) in Cerâmica Santorini’s ovens in Ituiutaba (State of Minas Gerais). In 2011 and 2012, Natura received 38,617 additional metric tons of CO2e, and the remai- ning 63,000 metric tons of CO2e will be delivered within the next fi ve years. Effi cient stoves in the Recôncavo Baiano II – Instituto Perene (State of Bahia) This is an extension of the 2008 initiative to replace rudimentary stoves with more effi - cient ones in rural households in Bahia. Five thousand new stoves that use less fi rewood will be installed, reducing GHG emissions. The project will offset 94,000 metric tons of CO2e in 8 years. Of this total, more than 50% of the stoves have been installed to date. Carbon Project in the Emas-Taquari Biodiversity Corridor – NGO Oréades Núcleo de Geoprocessamento (States of Mato Grosso do Sul and Goiás) Reclamation, with native species, of 200 hectares of degraded areas, of a total area of 600 hectares around the Emas National Park and the Nascentes do Rio Taquari State Park (States of Goiás and Mato Grosso do Sul). The project is expected to offset 70,000 metric tons of CO2e in 30 years. Planting was completed in 2012. natura report 2012 122 Social and Environmental Carbon of Xingu – Associação Xingu Susten- tável, Instituto Socioambiental (ISA) and Instituto Centro de Vida (ICV) (State of Mato Grosso) The purpose is to reclaim 220 hectares of degraded permanent preservation areas of the watercourses that form the Xingu river. The target is to offset 75,000 metric tons of CO2e in 30 years. 2008 Carbon, Biodiversity and Community in the Pau-Brasil Ecological Corri- dor (Ibio) (State of Bahia) Forest recovery project that is carried out in the Pau-Brasil National Park and at the Monte Pascoal National Park in Porto Seguro (State of Bahia). This project will offset 79,000 metric tons of CO2e in 30 years. A total of 56 out of 250 hectares was recovered and other areas will be prospected for completing the planting. Xingu Social and Environmental Carbon – Instituto Socioambiental (ISA) and Instituto Centro de Vida (ICV) (State of Mato Grosso) Recovery of 116 hectares of degraded riverbank forests and springs that form the Xingu river. The planting has already been completed and the project will offset 40,000 metric tons of CO2e in 30 years. The fi rst issue of credits is expected for 2014. Effi cient stoves in the Recôncavo Baiano – Instituto Perene (State of Bahia) The project provides for the replacement of rudimentary wood stoves of the families that live in rural communities in the Recôncavo Baiano with more effi cient stoves. All the stoves have already been installed and the target is to offset 18,880 metric tons of CO2e in eight years. Of this total, more than 70% of the stoves have been installed to date. SOCIAL BIODIVERSITY GRI EN12/ EN14 Considering the experience accumulated in more than ten years of work and research, Natura believes it is possible to use the resources from social biodiversity in harmony with men and nature within a sustainable model. In this period, the company established a direct relationship with the supplier communities for the development of business with sustainable stewardship of natural inputs, process traceability and sharing of the benefi ts generated by these resources, always in line with Natura Policy of Sustainable Use of Biodiversity and Associated Traditional Knowledge (Social Biodiversity Policy). This document is also in line with the guidelines of the Convention on Biological Diversity established by the United Nations and governs Natura’s potential impacts on biodiversity. For the coming years, Natura should increase its investments in inputs from biodiversity in the Pan-Amazonian region by means of the Amazônia (Amazon) Program. ENVIRONMENTAL CERTIFICATION GRI EN12/ EN14 In order to ensure that the extraction of the inputs from social biodiversity is carried out within the capacity of the environment, Natura has set in place a plan for the certifi cation of plant raw materials. This process is carried out by independent certifying entities and one of the require- ments is production traceability, in which the producer documents and accounts for the origin of all the materials produced. natura report 2012 123 During the year, Natura monitored the certifi cations, together with certifying audits in the com- munities or groups of producers. In specifi c cases, Natura also provides technical assistance to groups to meet their needs in terms of documents required by the standards, validity of the certifi cates of the supplier companies involved in the chain and constant attention to the up- dates or amendments to laws related to certifi cations in effect for fi eld production. Although certifi cation for organic cosmetics is not covered in the Brazilian legislation, Natura always seeks to participate in technical discussion groups to assess and contribute to the development of regulations for this purpose. The certifi cations include family farmers and traditional communities and is divided into two cat- egories: organic (Instituto Biodinâmico, Ecocert, Organização Internacional Agropecuária and Instituto de Mercado Ecológico) and forest (Forest Stewardship Council). In 2012, the indicator of certifi cation of ingredients dropped from 59% to 47% of total species, due to the discontinua- tion of the Frutífera organic tea line, which resulted in the removal of ten certifi ed raw materials from the list. Additionally, Natura does not use invasive plant species, avoids monoculture and prefers organic production. Neither does it promote activities that may transform a natural environment in order to meet production interests (habitat conversion). EN26. Certifi ed ingredients ¹ 2 Certifi ed ingredients Percentage of certifi ed species Unit Unit % 2010 36 61 2011 37 59 2012 27 47 1. Only plant inputs in the form of waxes, oils, extracts, essential or unprocessed oils (cosmetics and teas) are considered. Certifi cations considered: organic (IBD, Ecocert, OIA, IMO) and forest stewardship (FSC). 2. In exceptional cases, additional volumes of raw materials may be acquired from uncertifi ed areas due to: increase in internal demand, decreases in the production of certifi ed areas, lack of inventories at certifi ed suppliers PR3. Origin of material and product certifi cation Renewable plant material Natural plant material Material with origin certifi cation Unit 2010 2011 2012 % % % 82 7 16 81 9 12 82 8 15 Among the inputs used, three are developed from species included in the list of threatened species, according to the Ministry of the Environment and the International Union for the Con- servation of Nature (IUCN). They are: Brazil nut (Bertholletia excelsa), in vulnerable status, yerba maté (Ilex paraguariensis), low risk, and ucuúba (Virola surinamensis), which is threatened. The acquisition of these raw materials follows the principle of the sustainable use of biodiversity and two of these raw materials are certifi ed (see table below). GRI EN15 natura report 2012 Number of certifi ed ingredients and status of the certifi cation program 1 2 3 Status (phase) Especie – Línea Ekos Production system 124 GRI EN26 Certifi ca- tion Açaí berry (State of Roraima) Euterpe precatória Açaí berry (State of Pará) Euterpe oleracea Andiroba (States of Amazonas and Pará) Carapa guianensis White pitch (State of Amazonas) Protium pallidum Cacao (States of Bahia and Pará) Theobroma cacao Lemongrass (States of Paraná and São Paulo) Cymbopogon citratus Brazil nut (States of Amazonas, Mato Grosso and Roraima) Bertholletia excelsa Cupuaçu (State of Roraima) Theobroma grandifl orum Passion fruit (States of Minas Gerais and Paraná Passifl ora edulis Yerba mate (State of Rio Grande do Sul) Ilex paraguaiensis Murumuru palm (States of Amazonas and Pará) Astrocaryum murumuru Surinam cherry (States of Paraná and São Paulo) Eugenia unifl ora Piri piri (State of Paraná) Cyperus articulatus Agroforestry III (fi nal) IBD Agroforestry III (fi nal) IMO Traditional I Traditional III (fi nal) Agroforestry III (fi nal) FSC IBD Organic III (fi nal) ECOCERT Traditional III (fi nal) FSC Agroforestry III (fi nal) IBD Cultivation I Traditional III (fi nal) FSC Traditional I Organic cultivation and stewardship III (fi nal) ECOCERT Organic cultivation III (fi nal) IBD Species – Other lines Production system Status (phase) Certifi ca- tion Rosemary (State of Paraná) Rosmarinus offi cinalis L. Babassu (State of Maranhão) Orbgnya speciosa Buriti palm (State of Minas Gerais) Mauritia fl exuosa Arabian coffee (State of Minas Gerais) Coffea arábica Candeia (State of Minas Gerais) Eremanthus erythropappus Carnauba (State of Ceará) Copernicea cerifera Copaiba (State of Amazonas) Copaifera spp Organic cultivation III (fi nal) ECOCERT Stewardship Stewardship I I Organic cultivation III (fi nal) Stewardship and or- ganic cultivation III (fi nal) Stewardship III (fi nal) IBD FSC IBD Stewardship III (fi nal) ECOCERT natura report 2012 125 Balsam-of-Peru (State of Pará) Ocimum americanum Guarana (State of Bahia) Paullinia cupana Para cress (State of São Paulo) Spilanthes oleracea Palo Santo (Ecuador) Bursera graveolens Paramela (Patagonia-Argentina) Adesmia buronioides Poejo (State of Rio Grande do Sul) Cunilla gallioides Sage (State of Paraná) Salvia offi cinalis Sapucainha (State of Bahia) Carpotroche brasiliensis Organic cultivation III (fi nal) Organic cultivation III (fi nal) Organic cultivation III (fi nal) IBD IBD IBD Stewardship III (fi nal) ECOCERT Stewardship III (fi nal) OIA Organic cultivation III (fi nal) ECOCERT Organic cultivation III (fi nal) ECOCERT Agroforestry II IBD 1. Ten ingredients cannot be disclosed in the table because they are under research and the related products have not yet been launched. Five of these ingredients are certifi ed. 2. Ten raw materials used in the Frutífera line were withdrawn from the list due to the discontinuation of the products. 3. Phase I: Internal process of identifi cation and selection of a potential supplier area. This phase is characterized by the typology of pro- ducers, the organization of the community and the existing type of stewardship (agricultural or forest); Phase II: Preparation of certifi cation strategies, with discussion of the processes with plant product suppliers, selection of the certifying body and preliminary analysis of the supplier area by this body (when necessary); Phase III: Certifi cation inspection in the supplier areas, implementation of the action plan to comply with the requirements of the certifying bodies and opinion of the certifying body to obtain the seal. WORK IN PROTECTED AREAS GRI EN11, EN13 Natura’s main operational units in Brazil are located in land owned by the company, which invests in the reclamation and conservation of these areas, in accordance with the provisions in the environmental licenses granted. The company’s headquarters in Cajamar (State of São Paulo) are located in an area of 646,000 sq. m in an Environmental Protection Area on the Anhanguera Highway. The unit consists of the administrative offi ce, the company’s main industrial unit and a distribution center. In 2012, Natura completed the local stewardship plan, which included the removal of exotic species, recovery of the native forest and increase of local biodiversity and, from then onwards, it will continue to invest in the maintenance of the area. It is worth noting that the environmental agency confi rmed that the stewardship plan was appropriately implemented by Natura. In Itapecerica da Serra (State of São Paulo), the company is located on the side of Régis Bit- tencourt Highway in an area of 96,500 sq. m within the Protection and Recovery Area of the Springs of the Guarapiranga Water Basin. The recovery of this area was completed in 2008, when Natura started to work on the maintenance of vegetation area. In Benevides (State of Pará), Natura is building a new industrial unit on a 172,900 hectare plot of land, which is part of the Industrial and Commercial Expansion Zone of the municipality. There are two permanent protection areas on the property and the preservation actions are provided for in the environmental licenses of the development. The construction meets the applicable environmental criteria and is covered by an environmental license. Additionally, the company works with suppliers of inputs of species from social biodiversity in many regions in Brazil. Among them communities of two areas protected by the National Sys- tem of Conservation Units: the Extractive Reserve of Middle Juruá, in the State of Amazonas, and the Sustainable Development State Reserve of Iratapuru, in the State of Amapá. natura report 2012 126 EN26. ENVIRON- MENTAL IMPACT OF PACKAGING BY QUANTITY OF PRODUCTS11 (MPT/KG) 137 123 125 0 1 0 2 1 1 0 2 2 1 0 2 1. Packaging of products and supporting materials, such as shipping boxes and Natura Magazine are considered.. In the Middle Juruá, which covers 253,000 hectares of protected area, the stewardship of andiroba and murumuru palm takes place in an area of less than 1% of the total area. In 2011, Natura obtained access to the traditional knowledge associated with the andiroba through an unprecedented commercial agreement with a community in an environmental conserva- tion area. The benefi t sharing contract was monitored by ICMBio (Chico Medes Institute of Preservation of Biodiversity) and authorized by the federal government’s Genetic Heritage Management Council (CGen). The sustainable stewardship of the Brazil nut, copaiba and white pitch takes place in an area of approximately 4,000 hectares of the Iratapuru Reserve, less than 0.5% of its total area, which covers a surface of 842,000 hectares. All the activities are approved by these preservation units. IMPACT OF PRODUCTS Natura invests in the development of innovative technology to reduce the environmental im- pact of its products and packaging. In the case of packaging, Natura periodically monitors the Life Cycle Assessment (LCA), a system that quantifi es the impact, from the extraction of raw material, production and use, through fi nal disposal. In 2012, the company recorded a slight increase in the total LCA impact, from 123 mPt/kg to 125mPt/kg, due to the increase in the print run of the Natura Magazine and supporting materials for the NCs, in line with the expansion of Natura’s sales network. Considering only the packaging of products in the analysis, the environmental impact dropped in relation to the previous year. Natura uses cutting edge ecodesign concepts in its packaging, and the guidelines with respect to this commitment include the continuous reduction of packaging mass, the use of lower impact raw materials, in addition to the use of recycled and recyclable materials. One example was the Ekos line, which was relaunched in 2011 and increased its social and environmental differentials by increasing the use of post-consumption recycled materials in its packaging, resulting, last year, in a higher rate of recycled materials use, from 9% to 11%. On the other hand, the company recorded a small negative variation in the use of recyclable materials due to the increase in the sales of makeup products, which have a low recyclability rate. We were unable to meet the desired performance in the sales of refi lls, whose representative- ness in total sales in Brazil and other operations decreased. Among the associated factors are the increase in the sales of makeup products and perfumes, categories with little refi lling options; the mix of promotions that increased the sales of other products; and restrictions in the supply of refi lls of the body products category in the period. To better understand its impact, this indicator was included in the Social and Environmental Budget, which gathers the most strategic indicators for the company that are monitored by senior management on a quarterly basis. Natura’s products are monitored based on an environmental table that presents data on origin, transformation and percentage of certifi cation of raw material, percentages of use of recycled and recyclable material, and number of product refi lling. We comply with all legal requirements concerning information release on the ingredients used. Natura’s labels are in accordance with the laws in effect and comply with all resolutions related to cosmetics determined by the Brazil- ian Health Surveillance Agency (Anvisa). natura report 2012 127 EN2. RECYCLABLE PRODUCT (%) 86 84 84 0 1 0 2 1 1 0 2 2 1 0 2 EN2. Post-consumption recycled material 1 Post-consumption recycled material included in packaging of fi nished products and support- ing materials¹ Post-consumption recycled material included in packaging of fi nished products Unit 2010 2011 2012 % 10.4 0.8 9.4 1.1 10.8 1.6 1. The indicator considers the % of packaging materials and % of supporting materials, such as magazines, boxes for the distribution of products and bags, arising from post-consumption recycling.. EN1. Total use of materials by type (except water) Direct materials Direct materials EN26 and EN1. Percentage of refi lls on billed items 1 Brazil Argentina Chile Colombia France Mexico Peru Unit 2010 2011 2012 Metric tons Cubic meters 22,475 22,170 22,540 11,017 11,279 10,832 Unit 2010 2011 2012 % 17 18 14 13 10 11 19 17 18 15 15 10 10 16 14 13 13 15 11 10 15 1. From 2013 we will replace this indicator for the percentage of eco-effi cient packaging to also consider products that offer a choice of packaging with lower environmental impact in its category. SOLID WASTE Natura monitors the generation of waste in the company’s units and facilities of outsourced sup- pliers (companies that manufacture products on behalf of Natura) in Brazil. Due to the relevance of this information, Natura has been disclosing it to the public as of last year in its quarterly perfor- mance reports. In 2012, the company did not reach the desired effi ciency. The waste generation rate increased from 20.01 grams per unit produced to 25.56 grams. This result is higher than the target of 20 gram/unit produced in the period and refl ected mainly the losses on discontinued inventories of materials (fi nished products and raw materials). Natura also recorded an increase in the generation of sediments due to changes in the effl uent treatment process to improve the effi ciency of the Effl uent Treatment Station and experienced some delay in the implementation of a few projects regarding cardboard boxes. EN22. Waste per unit produced 1 Total waste per unit produced 1.. The waste/unit produced indicator is the sum, in grams, of total direct and indirect waste divided by total units directly and indirectly units produced by Natura Unit g/unit 2010 23 2011 20 2012 26 natura report 2012 In addition to the new waste management strategy, Natura invested in a project to establish a process with guidelines for the donation of fi nished products in order to minimize losses. Since 2011, Natura has issued a guidebook for the development of products that stimulate new proj- ects that take into consideration the strategic objectives of the reduction of waste generation, such as the increase of post-consumption recycled materials, easy-open packaging, and types of fi nishing to increase recyclability, among others. Aiming at engaging employees, Natura also promotes guiding and awareness raising training courses. EN22. Natura’s direct waste by type and destination Total hazardous waste (Class I) 1 2 For recycling 3 Incinerated Disposed in landfi lls Total non-hazardous waste (Class II - A and B)4 For recycling 3 Incinerated Disposed in landfi lls Grand total Natura’s direct waste 5 Natura’s indirect waste (metric tons) Waste related to the other Natura’s units 6 Waste in Natura’s outsourced manufacturers 7 Total indirect waste Unit 2010 2011 2012 Metric tons % % % Metric tons % % % Metric tons Metric tons 2,163 3,228 4,969 95 5.4 0 97 2.7 0 98 1.7 0 6,254 5,767 6,964 91 0.2 9 89 0.6 10 87 0.3 12 8,416 8,995 11,933 2010 1,149 1,347 2,496 2011 1,691 1,589 3,280 2012 2,230 1,498 3,728 1. Natura does not import, export or transport this waste internationally. 2. The increase in this indicator is mainly due to the increase in losses on products. 3. Waste for recycling is considered the waste sent for composting, co-processing and transformation. 4. The growth is mainly due to the increase in the generation of sediments arising from changes in the treatment of effl uents to improve the effi ciency of the Effl uent Treatment Station. 5. This refers to the units in Cajamar, Itapecerica da Serra, Alphaville and Benevides. Natura does not include in this indicator the waste generated in civil construction works (rubble) carried out in its units. 6. This refers to the Distribution Centers, Advanced Centers, Hub, Shared Service Center and Natura Houses. The waste from these units started being monitored in 2010. 7. This refers to the ten largest outsourced manufacturers of Natura’s products, which represent approximately 95% of the total produced by these partners. In order to stimulate recycling, since 2010, Natura has been making an experiment in Colombia in which the consultants collect material or create collection stations at their houses or build- ings. In Colombia, 322 metric tons of empty packaging were collected last year, a signifi cant increase in relation to 2011, when the packaging collected totaled 235 metric tons. In Brazil, a similar action was carried out between 2009 and 2012, in which the Natura Move- ment mobilized consultants to collect the packaging used by their consumers. The company noted, however, the unfeasibility of this action in the required scale and the initiative is being reassessed. In 2012, by means of this action, 12 metric tons of empty packaging were collected, and, between 2009 and 2012, the project collected a total of 438 metric tons. natura report 2012 128 GRI EN24 GRI EN27 GRI EN27 We know that this experience is still incipient in relation to the total waste generated by the company’s products. For this reason, the new waste management strategy, under develop- ment, will also involve the strengthening of reverse logistics (learn more about waste on page 38). In the industry sphere, Natura supports actions implemented by the Brazilian Association of the Cosmetics, Fragrances and Toiletries Industry (Abihpec) supporting compliance with the National Solid Waste Policy. WATER AND EFFLUENTS Another priority topic for Natura is water management. In addition to the development of a specifi c water resources management strategy, which takes into consideration our value chain (learn more on page 38, Water), Natura monitors the performance of water consumption in its operations in Brazil (including offi ces, distribution centers and own and third-parties’ plants). This management is monitored by the technical area on a monthly basis, presented to the Executive Committee on a quarterly basis and also disclosed in the quarterly performance reports. In 2012, the company’s main challenge was to keep the relative consumption at the same level as in previous years, in view of the increase in production and operation in recent years (with new or expanded Distribution Centers, and construction works such as the implementation of a new administrative offi ce, and a Distribution Center in São Paulo, etc). The company achieved its target, maintaining the consumption at 0.40 liters per unit produced. To this end, Natura delivered improvements in bathrooms, in the Effl uent Treatment Station, in the boiler and at the Natura club, located in Cajamar, among many other improvements. Also in Cajamar, Natura implemented a project for the electronic monitoring of consumption that en- abled the instant identifi cation of deviations, reducing the response time to contain water losses. Due to the lack of a public water supply system, the water resources used in the facilities in Cajamar and Itapecerica da Serra come from semi-artesian wells. Natura’s underground water source is the Guarani Aquifer water table and the extraction of water meets the regulations of the permits granted by the State Department of Water and Electric Power (Daee). In 2012, a new well was drilled to supply the growing production and Natura is waiting for Daee’s approval to start its operation. In 2012, there were no signifi cant spills of substances or accidents with products that caused any environmental impact. A signifi cant spill is that which requires specialized treatment of affected areas (removal of soil for treatment, neutralizations, etc.). In case of a spill, the Natura Emergency Service Plan is in place to restrain and mitigate the impact. There was an increase in the water reuse rate, which was 67% higher in relation to the previous year. Until 2011, recycled water was used only in the irrigation system and bathrooms. Beginning 2012, one more stage was included in the treatment, improving quality of water and making it possible to use it for other purposes, such as in the boilers to generate steam, for cooling or heating equipment, and for cooling the air conditioning system. In Cajamar, the effl uents are discharged into the Juqueri river. Natura is constantly monitoring the conditions of the water body to ensure that its discharges do not harm the characteristics of this river. In Itapecerica da Serra, the effl uent is discharged into a sinkhole, as mentioned in the company’s environmental licenses. Meanwhile, in the Benevides unit, the effl uent is totally reused for road cleaning and irrigation. 129 GRI EN27 EN8. WATER CONSUMPTION PER UNIT PRODUCED (LITERS/UNIT PRODUCED)1 0.42 0.40 0.40 0 1 0 2 1 1 0 2 2 1 0 2 1. The methodology for measuring the indicator was changed and started to take into consideration the unit produced instead of the unit billed. As a re- sult, the data for 2010 and 2009 was recalculated GRI EN9 GRI EN23 GRI EN10 GRI EN25 natura report 2012 130 Unit EN8. Water consumption by source Natura’s units1 Other units Natura’s outsourced manufacturers2 Total water consumption3 1. It takes into consideration the units of Cajamar, Itapecerica da Serra and Benevides, which are only supplied by artesian wells. 2. Companies that manufacture fi nished products on behalf of Natura. The water consumption is controlled at the main third parties’, which account for 94% of the total contribution. 3. It takes into consideration the extraction from wells, public system and supply by trucks. 2010 117.861 31.622 51.507 200.991 2011 127.870 51.624 68.454 247.948 2012 132.572 55.780 61.825 250.177 Cubic meters EN10. Volume of water recycled and reused Recycled1 and reused2 water Percentage of recycled water on total water treated at the effl uent treatment station3 Total reuse percentage on total water extracted4 Unit Cubic meters % 2010 49,733 2011 41,630 2012 69,465 38 47 29 36 45 57 1. From sanitary and industrial effl uents generated in the Cajamar unit which, after treatment, is used in plant watering, toilets and urinals, road cleaning and refl ecting pools. 2. The water from the production process in Cajamar is reused in the drinking water system. 3. The percentage refers to the volume of recycled water from effl uent treatment compared to total volume of water treated in the Caja- mar treatment station. 4. The reuse and recycling data refers to the volume of water recycled and reused at Cajamar. Previously, this calculation included data from Itapecerica da Serra and Cajamar. The historical data was recalculated based on the same assumption. EN21. Signifi cant discharges into water 1 Total volume of treated effl uents 2010 2011 102,903 100,747 2012 134,568 Unidad Cubic meters 1. This refers to the Cajamar and Itapecerica da Serra units. In Benevides, until 2011, the industrial effl uent was delivered for external treatment (the total volume disclosed for 2010 and 2011 does not take Benevides into consideration), whereas the sanitary effl uent was discharged into a septic tank and was not controlled. In 2012, every effl uent started to be treated at Natura’s own station, which is why the volume treated increased considerably. EN21. Effl uent treated at Cajamar Unit BOD1 COD2 Oils and grease EN21 Effl uent treated in Itape- cerica da Serra BOD1 COD2 Oils and grease EN21 Effl uent treated in Benevi- des BOD1 COD2 Oils and grease Mg/L Mg/L Mg/L Legal pa- rameter 60 150 120 Legal pa- rameter 60 150 120 Legal pa- rameter 60 150 120 2010 2011 2012 7 45 15 46 145 45 53 137 28 2010 2011 2012 25 65 15 31 59 26 34 86 25 2010 2011 2012 NA NA NA NA NA NA 19 70 2 1. BOD – Biological Oxygen Demand 2. COD – Chemical Oxygen Demand 3. In Benevides, until 2011, the industrial effl uent was delivered for external treatment, whereas the sanitary effl uent was discharged into a septic tank and was not controlled. In 2012, every effl uent started to be treated at the actual Natura’s station. natura report 2012 EN21. Total disposal of water by quality and destination Treated Volume - Cajamar Treated Volume – Itapecerica da Serra Treated Volume - Benevides Unit 2010 2011 2012 Cubic meters 95,954 6,949 334 96,635 4,112 367 117,223 6,446 10,8991 1. In Benevides, until 2011, the industrial effl uent was delivered for external treatment (the total volume disclosed for 2010 and 2011 does not take Benevides into consideration), whereas the sanitary effl uent was discharged into a septic tank and was not controlled. In 2012, every effl uent started to be treated at Natura’s own station, which is why the volume treated increased considerably. ENERGY In 2012, Natura’s relative energy consumption was slightly higher than in the previous year. Just like with water management, the company’s major challenge in the period was to absorb the growth of its logistics network in recent years, including the new distribution centers in the calculation. These units represent a relevant fi xed energy consumption for the company, accounting for 16% of the total amount (except for the Cajamar Distribution Center, which is accounted for in the total energy consumption of this Natura unit). Natura’s main improvement in the period was the start up of operations of the biomass-pow- ered boiler at the Benevides industrial unit (State of Pará), which is fed with wood briquettes (waste from certifi ed wood used in other activities), which also reduced CO2 emissions. The energy saved with these improvement projects was 0.9 joules, a reduction lower than in the past two years. The slower reduction pace in relation to the previous years is due to the increase in accumulated ecoeffi ciency and to the fact that the projects are accounted for only once. Among the continuous actions carried out in all the units is the search for compressed air leakages, the installation of LED or high-performance lamps, the installation of a protection fi lm on the windows of the administrative offi ces and photoelectric sensors, among others. The company is also attentive to the performance of outsourced suppliers (that manufacture fi nished products for Natura) in order to monitor their consumption and encouraging im- provement actions, which resulted in 18% reduction in the consumption of the energy matrix. Forums are held on a monthly basis with these suppliers in order to monitor performance. EN3 and EN4. Direct and indirect energy consumption by primary source 1 Solar energy2 Diesel oil used in generators Consumption of LPG Electricity Consumption of ethanol2 Consumption of bunker fuel oil Consumption of briquettes3 Unit 2010 2011 2012 joules x 1012 0.02 3 30 128 - 18 - 0.02 6 21 136 15 19 - 0.02 5 7 153 34 18 9 1. Consumption related to Natura’s units (Cajamar, Benevides, Distribution Centers, administrative support and Natura Houses). 2. In 2011, the company started to use ethanol to fi re the boilers in Cajamar. 3. Replacement of the bunker fuel oil-powered boiler with a biomass-powered boiler in Benevides, fed with wood briquettes (waste from certifi ed wood used in other activities). natura report 2012 131 GRI EN5 GRI EN7 GRI EN3 and EN4 EN3 AND EN4. ENERGY CONSUMP- TION BY UNIT PRODUCED (JOULES/1012)1 466 410 436 0 1 0 2 1 1 0 2 2 1 0 2 1. . Calculation formula: sum of Natura’s energy sources (Cajamar, Be- nevides, other units and outsourced suppliers that manufacture fi nished products on behalf of Natura) divided by all units produced. 132 EN3 and EN4. 2012 energy matrix (%) 8 4 68 15 0 2 3 Electricity LPG Diesel Consumption of ethanol Consumption of bunker fuel oil Briquettes Solar energy EN3 and EN4. Total energy consumption Cajamar and Benevides units1 Other Natura’s units in Brazil2 Energy consumption of Natura’s outsourced manufacturers3 Total Unit joules x 1012 2010 150 30 41 220 2011 158 39 54 251 2012 173 53 44 270 1. The energy consumption in Cajamar and Benevides corresponds to 76% of the total energy matrix of all Natura’s units. 2. This refers to the Alphaville and Itapecerica da Serra units, Natura Houses, Distribution Centers and Advanced Stations. 3. These are manufacturers of fi nished products for Natura. They are monitored and represent approximately 94% of the total units purchased by Natura. EN5.Energy saved 1 Due to energy effi ciency projects Due to consumption of solar energy Unit joules x 1012 2010 2.6 0.02 2011 1.8 0.02 2012 0.9 0.02 1. Amounts related to projects implemented in Cajamar (theoretical amounts). ENVIRONMENTAL IMPACT OF SUPPLIERS Natura also monitors the environmental impact caused by its main suppliers. Natura monitored the performance of water and energy consumption and waste generation of input suppliers in the following categories: accessories, packaging, graphic materials, fragrances, raw materials, printing services, chemicals and Natura boxes. The information on outsourced suppliers (com- panies that manufacture products on behalf of Natura) is accounted for in Natura’s general indicators (whenever it is reported on the footnotes of tables and charts). In 2012, data of 66 partners was reviewed. Natura has been working closely with these suppli- ers in order to improve the data collected. Main suppliers of packaging and raw materials for Natura Number of suppliers assessed Unit 2010 2011 2012 Unit 58 62 66 Energy consumption Primary electricity source – consumption of electric energy (J) Self-generated electricity – diesel-powered generator (J) Consumption of LPG (J) Other – natural gas (J) Total energy consumed (J) Water consumption Total consumption of water joules 1.5x10¹4 9.7x1013 9.3x1013 1.0x10¹¹ 2.0x1013 2.7x1013 4.9x10¹² 2.1x10¹4 3.6x10¹4 6.2x1012 1.2x1014 2.4x1014 5.7x1012 9.7x1013 2.2x1014 Cubic meters 135,500 179,740 184,049 Generation of waste by the main suppliers of Natura Total waste generated1 Metric tons NA 577 622 1. The methodology was changed in 2012 and the volume calculated considers only the volume discharged, that is, all the waste sent to recycling is excluded from the calculation. Since the company realized the importance of measuring also recycled waste, as of 2013, it will disclose this information separately. Due to this change, the 2011 data was recalculated to be comparable. This was not possible in the case of the 2010 data. natura report 2012 133 creation of social value Every company and organization has a social function. Natura believes that, in addition to dis- tributing value to its stakeholders, its main contribution to society may be delivered by means of education. Natura believes that quality education expands horizons, increases awareness and generates opportunities, supporting the construction of a better world. Based on this inspiration, which is also a mission, the company created the Natura Institute. The Natura Institute was created in 2010 as an independently headquartered and managed, non-profi t organization. Its objective is to expand and strengthen Natura’s social initiatives, which have already been in place since the 90s, through projects that can positively impact education quality in public schools in Brazil and Latin America. The projects of the Natura Institute are funded through the sales of the Natura Crer para Ver product line, the earnings from which are fully transferred to the organization. The Institute also receives the equivalent to 0.5% of Natura’s net income for its operations. In order to make its projects feasible, the Natura Institute establishes public-private partner- ships and encourages third-parties’ initiatives, focused on three operation pillars: Support to public education management (include the best practices in the Brazilian systems and support the redesign of the public educational management system); Innovation in educational tech- nologies (propose innovation in educational practices, bringing together new teaching methods, information and communication technology); Educational and social transformation (support projects that foster social transformation based on education, incorporating the principles of learning communities). The guidelines of the Institute include the involvement of Natura con- sultants in its actions, raising the awareness of its relationship network with respect to educa- tion. In 2012, the funds raised from the sales of the Crer para Ver product line was record and exceeded the targets set for the period. In Brazil, R$ 12.8 million was raised, 53% more than in 2011. In the other Latin American countries, the program yielded R$ 4.5 million, more than twice the amount received in the previous year. In these operations, the amounts are invested in the countries where the funds originated, in many activities, particularly in education initia- tives for sustainability. As important allies of Natura in raising these funds, the consultants promote and sell the product of this line and do not make any profi t. Through the Natura Movement, the company encourages the participation of the NCs in this activity to increase investments in education actions. In 2012, the penetration of the Crer para Ver Program – percentage of consultants that sold items of this line among all active NCs – increased to 12% (compared to 9.5% in 2011) in Brazil. In International Operations, the rate remained at 18%. The indicators of funds raised within the program and of the engagement of the NCs in this activity are part of Natura’s strategic sustainability topics, under education heading, and are monitored on a monthly basis by the company’s Executive Committee (learn more about the Natura Institute in the organization’s annual report). natura report 2012 134 EC8 and EC9. Crer para Ver Program in Brazil Net funds raised from the Crer para Ver Program1 Penetration of the Crer para Ver Program2 Total amount from the projects developed and supported3 Municipalities served Schools served Participating teachers, coordinators and principals Students benefi ted Unidad 2010 2011 2012 R$ thousands (% cycle) R$ thousands 10,099 8,397 12,835 10 3,877 370 5,690 22,861 9,5 5,838 345 4,943 18,471 12 15,361 3,300 72,000 140,000 427,685 922,028 3,000,000 1. Refers to income before income tax allocated to the Crer para Ver Program Fund. 2. Percentage of NCs involved in the Crer para Ver Program (through the purchase of products of the line) among the active NCs. 3. The total amounts from the projects refer to the total actually invested in the year (withdrawn from the fund and used in the projects and their execution). EC8 e EC9. EC8 and EC9. Crer para Ver Program in International Operations Net funds raised from the Crer para Ver Pro- gram1 Penetration of the Crer para Ver Program2 Total amount from the projects developed and supported Schools/organizations served Participating teachers, coordinators and principals Students benefi ted Unidad 2010 2011 2012 R$ thousands (% cycle) R$ thousands 1,369 2,146 4.497 15 NA NA NA NA 18 NA NA NA NA 18 3,243 606 405 35,933 1. Refers to income before income tax allocated to the Crer para Ver Program Fund. Previous years data was reviewed to correct inconsistencies. 2. Percentage of NCs involved in the Crer para Ver Program (through the purchase of products of the line) among the active NCs. DISTRIBUTION OF WEALTH In a year of vigorous growth, Natura continued to expand the creation of value for its main stakeholders, as shown in the table below: EC1. Distribution of wealth¹ Shareholders2 Consultants Employees Suppliers Government Total Unit R$ million 2010 647 2,738 769 3,707 1,477 9,338 2011 763 2,906 634 4,363 1,472 10,138 2012 846 3,211 803 4,837 1,743 11,440 1. Other information on the statements of value added is included in the Financial Statements. 2. The amounts for shareholders refer to dividends and interest on own capital during the period natura report 2012 135 SUPPORT AND SPONSORSHIP Natura promotes the Bem Estar Bem (Well-Being Well) by supporting initiatives related to its beliefs, which recognize the Brazilian culture and the social and environmental entrepreneur- ship and deliver sustainable development. In 2012, Natura restructured the management of support and sponsorship, focusing investments on the following segments: recognition of the Brazilian culture with a focus on music; sustainable development; strengthening os civil society organizations; behavior and attitude and sports. With respect to the latter, Natura structured for the fi rst time a support and sponsorship pillar for sports activities. Last year, the company’s support and sponsorship totaled R$ 33.5 million, including funds from incentives, a volume 38% higher than in the previous year. Funds from Natura Sustainable development Recognition of the Brazilian culture with a focus on music Behavior and attitude Strengthening of civil society organizations Sports Total funds from Natura Unit 2010 1,702 10,721 2011 1,900 13,365 2012 12,282 11,982 R$ N/A 750 900 thousand 6,280 NA 18,703 2,790 NA 18,806 2,311 603 28,078 2012 NA 4,617 400 455 5,472 33,550 Funds from incentives Sustainable development Recognition of the Brazilian culture with a focus on music Strengthening of civil society organizations Sports Total funds from incentives Total funds from Natura and incentives Unit 2010 350 4,722 2011 80 4,853 R$ 530 610 thousand NA 5,602 24,305 NA 5,543 24,349 natura report 2012 See the description of the main projects supported, by focus of investment, in the table below: 136 RECOGNITION OF THE BRAZILIAN CULTURE WITH A FOCUS ON MUSIC Natura believes in music as an expression of the Well-Being Well and recognizes the Brazilian culture in its multiple and exclusive manifestations. For seven years, the Natura Musical (Musical Natura) program has been the major platform of cultural sponsorship and development and has already benefi ted more than 200 projects in 18 states in Bra- zil, involving more than 800,000 people. In 2012, Natura expanded its platform of invitations to bid, increasing the amount inves- ted in projects and also the scope of the selection processes, totaling fi ve invitations to bid for sponsorship: two national invitations by means of the Federal Cultural Incentive Law (Rouanet Law), and three regional invitations using state cultural incentive laws, in the states of Minas Gerais, Bahia and Pará. Natura allocated R$ 3 million to the national invitations to bid for 11 projects. For the selections in the states, each one totaled R$ 1 million to support projects: four projects were selected in the State of Minas Gerais, fi ve in the State of Bahia, and eight in the State of Pará. Last year, other nine projects were directly selected to receive the support of Natura Musical. Among the projects sponsored are the tours of Milton Nascimento, Roberta Sá and Tu- lipa Ruiz. Natura also supported the recording of the new albums release and the release shows of Otto and Tom Zé. The fi lm “A música segundo Tom Jobim” (Music According to Tom Jobim), of Nelson Pereira dos Santos, also sponsored by Natura, was exhibited in movie theaters and attracted more than 50,000 people. Natura’s regional actions have also started to generate results: the singer Luê, one of the new names from the State of Pará, will release her fi rst album in 2013, sponsored by Natura. The singer Marcia Castro, from the State of Bahia, released her second album last year and will begin a tour of this new work in 2013. Additionally, Natura promoted the Natura Musical Festival in Belo Horizonte (State of Minas Gerais) to provide visibility to the projects it sponsors, gathering more than 21 attractions and 45,000 people in the two events. The musical productions of the artists supported are available for download on the www.naturamusical.com.br portal. SUSTAINABLE DEVELOPMENT In addition to developing sustainable practices in its processes and engaging its consultants in social and environmental causes, Natura invested in other actions to promote sustainability. In 2012, the movie “Xingu”, of director Cao Hamburger, the production of which was su- pported by Natura with its own funds, was released. The movie is about the story of the Villas Bôas brothers who went in an expedition through the Xingu river in the 40’s and be- came the main advocates of the preservation of the environment and indigenous culture. Additionally, the company made an important investment for its participation in the United Nations Conference on Sustainable Development, Rio+20. Natura was one of the suppor- ters of the offi cial event, enabled the participation of its executives in a number of debates, and promoted activities to include employees and consultants in the events that were held at the same time as the conference (learn more on pages 79 and 107, Government and Consultants and NCAs). natura report 2012 137 STRENGTHENING OF CIVIL SOCIETY ORGANIZATIONS We continue to support the development of a new generation of indicators for the disclosure of integrated reports under the Global Reporting Initiative (GRI), to be launched in 2013. Known as G4, the initiative involves specialists, organizations, companies, institutions and civil society from many regions of the world. The fl exibility of the current model will enable organi- zations to lay out a path for the continuous improvement of their sustainability reports. Still in line with the G4, Natura infl uenced the mobilization of the main institutions that lead the Climate Change topic in Brazil (GVCes, CDP, Ethos Institute, CEBDS and IBGC) to hold a dialogue and a collective assessment on the Climate Change Supplement, open to public consultation by the GRI last year. This event resulted in the involvement of more than 28 or- ganizations that established a position containing many notes and improvements to the G4 on the topic. In order to recognize the importance of culture, Natura sponsored the third construction phase of the Brasiliana USP library, a project of the President of the University of São Paulo (USP) with the institutional support of the “Instituto de Altos Estudos Brasileiros” (Brazilian Institute of Higher Studies) (IEB-USP) and the Guita and José Mindlin Library (BBM-USP). Brasiliana brings together one of the most valuable collections in the world, which is available for research to the academic community and students in general. Natura also sponsored the Women’s Forum, a regional edition of the international Wom- en’s Forum for the Economy & Society, which was held in Brazil for the fi rst time. The event was held in June and gathered more than 400 people, men and women, important opinion makers from the government, industry, academic community and civil society. They shared their views and perspectives for Brazil about economy, education, politics, sustainability and social responsibility. BEHAVIOR AND ATTITUDE Natura supports the access to information to contribute to refl ections that allow for a better understanding of the changes in contemporary society. Accordingly, it supports the Frontiers of Thought, a cycle of lectures aimed at presenting behavioral trends and attended by important thinkers, personalities and scientists. In 2012, the third year of the project, the Frontiers of Thought sponsored the participation of philosophers Tzvetan Todorov and Michel Onfray, economist Amartya Sen, fi lmmaker Peter Greenaway, and researcher Michael Shermer, among others. More than 15,000 people attended the lectures. As a consideration to our support, part of our stakeholders was able to attend these events. Natura understands that fashion is on the streets, in cars and at people’s homes and it is the best expression of people’s identity. For this reason, Natura supported, for the second year, the Fashion Mob project, of Casa de Criadores, which brings together the work of professionals, students and audiovisual artists. Some 80 people registered for the event and around 1,500 participants organized a parade in downtown São Paulo (State of São Paulo). INVESTMENTS IN SPORTS In 2012, Natura began a few projects focused on sports, using incentive funds, among others. The company intends to enhance its knowledge of this topic in order to im- prove its support strategy. In total, three initiatives were sponsored, totaling R$ 591,000, through on the Federal Sports Incentive Law. natura report 2012 138 INVESTMENT IN SUSTAINABILITY Natura’s sustainability-related investments and expenses totaled more than R$ 73.2 million in 2012, a volume higher than in the previous year, when the total was R$ 70.9 million. This amount includes investments and expenses in environmental programs, such as the prepara- tion of strategies for solid waste and water, activities for the reduction of CO2 emissions, the Amazônia (Amazon) Program, the development of clean technologies and relationship activities with our stakeholders. Unit R$ million EN30. Sustainability Investment Matrix1 Social and environmental projects and pro- grams2 Promotion of dialogue channels3 Education and training4 Research in sustainable technologies Management expenses5 Certifi cations6 Clean technologies7 Effl uent treatment and disposal of solid waste8 Total 2010 7.8 2.5 23.8 0.6 28.4 0.1 0.8 5.1 69.0 2011 8.2 2.0 21.3 0.4 32.6 0.1 0.6 5.7 70.9 2012 9.2 1.5 19.1 0.6 37.6 0.2 0.1 5.0 73.2 1. Some amounts were recalculated due to the expansion of the scope of expenses in the International Operations and to adjustments and corrections of retroactive data. 2. This refers to expenses and investments in projects and programs related to the priority topics: Social biodiversity, Climate Change, Water and Solid Waste. The increase was mainly due to higher investments in the new strategy for solid waste. 3. Drop in the amounts invested in the engagement of stakeholders due to an internal reshuffl ing of expenses. 4. The drop in the amounts was due to specifi c training actions with suppliers completed in 2011 and to the reduction in the budget for training employees. 5. This refers to expenses related to teams, studies and consulting services, additional benefi ts to employees and other general expenses. The increased amounts are due to the inclusion, as from 2012, of the expenses of the International Operations and to the increase in the amount of employees’ benefi ts. 6. This refers to expenses with forest, organic, management system (ISO) and sustainable construction certifi cations. The higher amount in 2012 is due to the long-term audit contract for management systems. 7. This refers to expenses with clean technologies implemented in Natura’s units. 8. The drop in the amounts was mainly due to savings and effi ciency in expenses with waste management and to the replacement with lower cost suppliers. natura report 2012 creation of economic value 139 2012 was characterized by important progress in the company’s results, such as the recovery of the production of the company’s consultants in Brazil and the progress of its International Opera- tions, which exhibit growing profi tability and are becoming a relevant business platform. CONSOLIDATED NET REVENUE (IN MILLION R$) 5,136.7 5,591.4 6,345.7 2010 2011 2012 CONSOLIDATED EBITDA (R$ MILLION) 1,256.8 1,425.0 1,510.7 2010 2011 2012 In the period, Natura’s net revenue increased 13.5%, reaching R$ 6.345.7 million last year. The EBITDA totaled R$ 1.510.7 million, with a 23.8% margin, and net income amounted to R$ 861.2 million, representing a 3.7% increase. At the end of the year, Natura’s International Operations had an 11.6% share of the company’s revenue, a record since the beginning of the acceleration of the expansion in Latin America in 2010. The net revenue of the units under consolidation (Argentina, Chile and Peru) grew 28% in local currency and, for the units under implementation (Mexico and Colombia), the consolidated net revenue grew 25.2%. In Brazil, net revenue totaled R$ 5.611 million, an increase of 10.3% from 2011. The fi gures do not include Natura’s operation in France, which is classifi ed as “other investments”. In December, the acquisition of Australia’s Aesop brand, which is present in 11 countries, rep- resented one more consistent investment in our long-term strategy, enabling the access to an expressive and global brand, with excellent products offered by means of a unique purchase ex- perience in concept stores. This investment should increase Natura’s exposure in markets outside Latin America, also allowing the sharing of relevant skills between both companies. SELLING, ADMINISTRATIVE AND GENERAL EXPENSES In 2012, Natura’s expenses totaled R$ 11.6 million compared with an income of R$ 63.1 million in the previous year. The positive result of this indicator in 2011 is due to the impact of non- recurring effects of the untimely recognition of PIS and COFINS tax credits. In Brazil, the relative increase in selling expenses in 2012 (32.7% in 2012 compared to 33.1% in 2011) was mainly motivated by the adjustments in incentives to Natura Consultant Advisors (NCAs) related to the production program and to the increase in marketing investments. As for Natura’s administrative expenses, if the reversal of employee profi t sharing, which favored the result for 2011 – in that year the variable compensation was not paid to management due to non-achievement of social targets– is excluded, the indicator appears stable. In the International Operations, selling expenses also increased in relation to the previous year (44.6% in 2012 compared to 45.0% in 2011), due to investments in marketing and higher ex- penses in the initial phase of the implementation of the NCA model in Argentina, Chile and Co- lombia. Administrative expenses also increased as a result of an infl ationary pressure in Argentina and due to a smaller base in 2011 on account of the reversal of profi t sharing that year. Other operating income and expenses represented R$11.6 million in 2012 and income of R$ 63.1 million in 2011. In 2011, other income was the result of the impact of the non-recurring effect of the recognition of PIS and Cofi ns tax credits. natura report 2012 140 CASH FLOWS In 2012, the 115.4% increase in free cash generation was the result of the reduction by R$ 281.1 million in investments in working capital due to the progress in inventory management, recov- ery of taxes, and accounts payable that were positively impacted by the 2012 calendar and by the concentration of capital expenditures in the last months of the year. In order to support the company’s strategy for robust growth in the coming years, in 2012, Na- tura maintained signifi cant investments in property, plant and equipment, and intangible assets in the amount of R$ 437 million (capital expenditures), higher than in 2011, when investments reached R$ 350 million. The funds were invested in the expansion of our production capacity, information technology and logistics. Natura will continue to invest signifi cantly in 2013, allocat- ing around R$ 450 million to the inauguration of its new soap plant in Benevides (State of Pará) and of the new distribution Center in São Paulo, to the expansion of the Cajamar production capacity, and to the acquisition of systems that should allow for a signifi cant improvement in the purchase experience of its consumers by means of digital technologies (learn more on page 31, Strategy and Perspectives). Summary of consolidated cash fl ow 1 (R$ million) Net income for the year (+) Depreciation and amortization Non-cash items (foreign exchange variation) Internal cash generation (Increase) decrease in working capital Cash generated by operating activities Acquisition of intangible assets Free cash generation1 2011 2012 Var % 830.9 109.9 23.3 964.1 (207.2) 756.9 (346.4) 410.6 861.2 141.2 38.3 1.040.7 281.1 1.321.8 (437.4) 884.3 3.7 28.4 64.2 7.9 235.7 74.6 26.3 115.4 1. (Internal cash generation) +/- (changes in working capital and long-term receivables and liabilities) – (acquisitions of property, plant and equipment). RESULTS OF OPERATIONS In Brazilian operations, Natura’s net revenue totaled R$ 5.611,2 million, a 10.3% increase. The EBITDA margin was 27.1%, compared to 29.0% in the previous year. The increase in revenue showed a better balance between the increase in the consultant base and productivity. In 2012, the number of NCs increased 8% in Brazil to 1.2 million consultants, whereas their production remained stable, interrupting the downward trajectory. Among NCAs, the result was more consistent and productivity increased 21% (learn more on page 72, Consultants and NCAs). The profi t margin accrued from the exports from Brazil to International Operations was de- ducted from the cost of sales of the relevant operations, showing the real impact of these subsidiaries on the company’s consolidated result. Accordingly, the pro forma Statement of Income Brazil shows only total sales in the domestic market. natura report 2012 141 GRI 2.8 Pro forma fi nancial highlights - Brazil Total number of consultants – end of the period* (in thousand) Product units for resale (in million ) Gross revenue Net revenue Gross profi t Gross margin (%) Selling expenses Administrative and general expenses Employee profi t sharing Management compensation Other operating income (expenses), net Operating income (expenses), net Income before income tax and social contri- bution Net income Ebitda Ebitda margin (%) 1. Number of consultants at the end of the sales cycle 18. 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 2012 1,269.4 445.8 7,629.4 5,611.2 3,971.7 70.8 (1,835.3) (645.6) (74.4) (20.7) (5.9) (90.9) 1,298.9 896.8 1,522.6 27.1 Var % 7.9 8.6 10.6 10.3 10.0 (20) b.p. 8.8 11.7 NA NA NA 23.6 0.0 (0.5) 3.2 (190) b.p. In Natura’s International Operations, which already represent 11.6% of Natura’s total net rev- enue, the profi tability of the Operations under Consolidation (Argentina, Chile, Peru) totaled R$ 78.4 million, with an EBITDA margin of 16.1%, and in the Operations under Implementation (Mexico and Colombia), Natura got close to the breakeven point. This refl ects the important progresses achieved in the region, such as the continuous increase in the local production volume to around 10% of the needs for December 2012 and the stabi- lization of the NCA model in Colombia, Chile and Peru, in addition to adjustments in the Sus- tainable Relationship Network in Mexico. Natura is particularly confi dent and excited about its activities in International Operations, and expects to become one of the most relevant players in the market in the countries in which it operates. This scenario allowed for a 27.4% increase in local currency in the Operations under Consolida- tion and of 32.6% in the Operations under Implementation in the year accrual. Pro forma Ebitda per operation block (R$ million ) Brazil Argentina, Chile and Peru Mexico and Colombia Other investments Ebitda 2011 1,476.1 43.0 (24.2) (69.9) 1,425.0 2012 Variation % GRI 2.8 1,522.6 78.4 (8.2) (82.0) 1,510.7 3.2 82.3 n/d 17.3 6.0 natura report 2012 142 GRI 2.8 Pro forma fi nancial highlights - operations under consolidation (Argentina, Chile, Peru) - (R$ million) Total number of consultants – end of the period (in thousand )* Product units for resale (in million ) Gross revenue Net revenue Gross profi t Gross margin (%) Selling expenses Administrative and general expenses Financial income (expenses) Income (loss) before income tax and social contribution Net income (loss) for the year Ebitda Ebitda margin (%) Pro forma fi nancial highlights - operations under implementation (Mexico and Colombia)1 - (R$ million) Total number of consultants – end of the period (in thousand) Product units for resale (in million) Gross revenue Net revenue Gross profi t Gross margin (%) Selling expenses Administrative and general expenses Financial income expenses) Income (loss) before income tax and social contribution Net income (loss) for the year Ebitda Ebitda margin (%) 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) (16.2) 2012 Variation % 190.6 21.1 35.2 649.7 487.2 340.2 69.8 (224.2) (31.0) (2.2) 71.7 60.0 78.4 16.1 7.1 47.1 45.4 60.1 640 b.p. 50.6 33.5 NA 95.7 88.1 82.3 330 b.p. 2012 Changes % 111.2 30.0 17.3 263.5 226.7 153.4 67.7 (137.5) (23.4) (0.3) (11.4) (12.4) (8.2) (3.6) 15.9 52.4 52.0 66.4 580 b.p. 37.7 32.8 NA NA NA 66.0 NA natura report 2012 143 GRI 3.1-3.11 about this report Natura’s purpose is to present to its relationship network complete information about its perfor- mance, offering each of its stakeholders the best conditions to assess the company’s progress. For this reason, during 13 years Natura has been preparing its annual sustainability report following the Global Reporting Initiative (GRI) guidelines and, for 11 years, it has been pub- lishing its sustainability and annual (fi nancial) reports as a single document. Its strategy for the disclosure of results also includes other communication material that seek the same language and a comprehensive approach to performance, including the eco- nomic, social and environmental aspects (see table below). In addition to the improvements to make this communication increasingly important, the company made some progresses in the pub- lication of the printed report and launched a website with more interactive content. The structure of the content in both formats gives priority to relevant topics. The presentation of the content is concise, favoring the reading in- terest of Natura’s stakeholders. In order not to lose the consistency of the report, Natura continues to publish the com- plete version, with detailed information on the more than 100 indicators regularly moni- tored. This report is available in PDF format on Natura’s website (learn more in Technical Information below). BROAD COMMUNICATION Natura Management Report – main performance data for the year published in the Valor Econômico newspaper and Diário Ofi cial (Offi cial Gazette) on February 7, 2013. Availa- ble in Portuguese and in English. Natura Annual Report (printed version) – summarized format, objective information and more accessible and simpler language, with room for company stakeholders to express their opinion about Natura’s performance and relationship practices. Available in Portu- guese, English and Spanish. Website – reformulated this year, the website is now more interactive and includes more resources than the printed version, such as video fi lms and links to other company’s documents and publications, taking advantage of the information connectivity principle. Available in Portuguese and in English at www.natura.net/relatorio. The website is also adapted for tablets and smartphones. 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 and comprehensive information. Available in Portuguese, English and Spanish. Quarterly Information – this is the quarterly information to the market, mandatory for listed companies, and repeats the same integrated approach, providing information on Natura’s performance with respect to the main social and environmental indicators. natura report 2012 144 GRI 4.14 e 4.15 GRI 3.13 GRI 3.9 INTEGRATED REPORT The improvements in our reporting process are intended to be as close as possible to an integrat- ed report, which is a global trend and is aimed not only at combining fi nancial and non-fi nancial documents in the same publication but at refl ect- ing a corporate strategy that effectively includes all dimensions of the business in its management and in the analysis of risks and opportunities. To learn more about this topic, Natura partici- pated in the main global forums that discuss this matter: The company sponsored the develop- ment of the fourth generation of GRI indicators, which are expected to take into consideration an enhanced integration between fi nancial and non-fi nancial information. The company is also a member of the International Integrated Report- ing Council (IIRC), which gathers global leaders of companies, investors, academic institutions, industry associations, regulatory and standardiza- tion bodies seeking to create a global standard for integrated reports. The global committee of the IIRC works on the defi nition of global indicators and principles, and the fi rst version of which is expected to be is- sued in 2013. Together with other important global companies, Natura is in the group of companies that partici- pate in the pilot project. One of the adaptations of our report this year helped, for example, high- lighting the relevant topics in the printed material and I n the website. TECHNICAL INFORMATION The performance indicators are in accor- dance with the GRI G3.1 guidelines and meet the A+ application level. The data re- fers to the period from January 01 to De- cember 31, 2012. The scope of social and environmental information is mainly related to the activities in Brazil, where our pro- duction is concentrated and, consequently, where most of our social and environmen- tal impacts occur. In contrast, the economic data includes all of our operations, in Bra- zil and abroad. Every year, Natura seeks to include a larger number of indicators from the International Operations. However, the company is aware that it needs to increase the monitoring of the International Opera- tions, which constitutes a challenge. In the main environmental impacts – water and energy consumption and waste genera- tion – the fi gures also include data from out- sourced suppliers in Brazil (companies that manufacture fi nished products on behalf of Natura). This enables Natura to produce a more accurate diagnosis of the impact gen- erated by its operations. Possible signifi cant changes in relation to the pre- vious years, as well as changes in the calculation basis or measurement techniques, are presented throughout the report and in the tables. The re- port also presents data on the relationship with the stakeholders that are part of Natura’s daily routine: employees, Natura consultants, Natura Consultant Advisors (NCAs), consumers, suppli- ers, supplier communities, surrounding commu- nities, shareholders and government. The annual report was assued by Ernst & Young Terco Auditores Independentes S.S. The process of collecting the information is supported by a communication consultancy fi rm for sustainability and includes over 50 interviews with representatives of both the internal audience and management, in addi- tion to the updating of indicators by many departments of the company. For the printed version of this report, over 20 people from outside Natura, representing our stakehold- ers, were interviewed. The quantitative indi- cators are collected using an online tool that is fi lled out by the departments in charge. GRI 3.1; 3.6 e 3.7 GRI 3.9-11 natura report 2012 APPLICATION LEVEL The Natura Annual Report meets the requirements of the GRI A+ application level in accordance with the parameters presented in the table below: 145 C C+ B B+ A A+ t r o p e r e h t f o t n e t n o C Report on: 1.1; G3 Profi le 2.1 – 2.10; 3.1 – 3.8; 3.10 – 3.12; 4.1 – 4.4; 4.14 – 4.15 G3 management approach Not required G3 performance indicators & sector supplement performance indicators Minimum of any 10 performance indicators (core or additional), including at least one from each dimension: economic, environ- mental, and social. If they are available, sector indicators may be reported on, as long as seven of them are not sector indicators All profi le and gov- ernance indicators: 1.1 – 4.17 All profi le and gover- nance indicators: 1.1 – 4.17 d e r u s s A y l l a n r e t x E t r o p e R d e r u s s A y l l a n r e t x E t r o p e R Management ap- proach disclosures for each indicator category Minimum of any 20 performance indicators (core or additional), including at least one from each dimension. In they are available, sector indicators may be reported, as long as 14 of them are not sector indicators d e r u s s A y l l a n r e t x E t r o p e R Management approach disclosures for each indicator category Mandatory report on sector indicators one year after the launch of the fi nal version of the supplement natura report 2012 MATERIALITY MATRIX The materiality matrix is the graphical repre- sentation of Natura’s priority sustainability- related topics (see chart). It is not only at the base of the report content, but it also pro- vides a diagnosis on which senior manage- ment can make plans for the company, which are consequently refl ected in its report. Reviewed every two years, the matrix is the result of cross-reference of the social and en- vironmental topics indicated as being relevant by our stakeholders (external axis) with their importance to the company (internal axis), in accordance with its strategy, its risks or op- portunities and its pioneering spirit. The matrix presented in this report was de- veloped between 2010 and 2011 based on the dialogue panels with stakeholders from Brazil and, for the fi rst time ever, from the Interna- tional Operations. This enabled Natura to de- velop a corporate matrix with a broader per- spective that refl ects the needs of the locations in which it operates. The priority sustainability topics identifi ed are: water, education, sustain- able entrepreneurship, climate change, quality of relationships, waste and social biodiversity (learn more on pages 35 and 40). For further information on this report, please contact the team in charge for its preparation via e-mail: relatorioanual@natura.net. 146 GRI 3.5; 4.14 e 4.15 GRI 3.4 EXTERNAL Stakeholders’ interests Education Waste Water Climate Change Quality of relationships Social biodiversity Sustainable entrepreneurship INTERNAL Importance to Natura natura report 2012 147 GLOBAL COMPACT Since 2000, Natura has been a signatory of the Global Compact, a UN initiative that brings together companies, workers, and civil soci- ety to promote sustainable growth and civic awareness. The company is also a member of the Global Compact Steering Committee and signatory of its Caring for Climate program. Natura is also part of the Global Compact Brazilian Committee (CBPG), created from the par tnership between Ethos Institute and the UN Development Programme (UNDP) in 2003. The CBPG is a voluntary group made up of companies, UN agencies in Brazil, legal enti- ties, academia and civil organizations that promote the adoption and inclusion of the principles of business management. For fur- ther information on this initiative, please visit www.pactoglobal.org.br THE GLOBAL COMPACT PRINCIPLES See on page 149 the list of the GRI indicators that meet the Global Compact principles: 1. Respect the protection of human rights 2. Prevent human rights violations 3. Uphold freedom of association at work 4. Eliminate forced labor 5. Abolish child labor 6. Eliminate discrimination at work 7. Support a precautionary approach to en- vironmental challenges 8. Promote environmental responsibility 9. Encourage environmentally friendly tech- nologies 10. Work against corruption in all its forms, including extortion and bribery Natura supports the Global Reporting Initia- tive (GRI). As an organizational stakeholder, it contributes to the GRI mission to develop globally accepted sustainability reporting guide- lines through the participation of stakeholders. natura report 2012 148 G3.1 INDEX 1 - Strategy and analysis Profi le Description Report Pages Details on part not reported 1.1 1.2 Message from the CEO and Chairman of the Board. Description of key impacts, risks and opportunities. Total 5; 6 Total 5; 6 2 - Organizational profi le Profi le Description Report Pages Details on part not reported 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 Name of the organization. Brands, products and/or services. Operational structure. Location of organization’s headquarters. Countries where the organization operates. Legal form. Markets served. Scale of the organization. Changes during the reporting period. Awards and certifi cations. Total Total Total Total Total Total Total Total Total Total 7 7 7 7 7 7 7 7; 141; 142 7 9- 17 - - - - - - - - - - 3 – Report parameters Profi le Description Report Pages Details on part not reported 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12 3.13 Reporting period. Previous report. Reporting cycle. Contact point. Defi nition of content. Boundary of the report. Scope of the report. Basis for preparing the report. Data measurement techniques and the bases of calculations. Consequences of restatement of information. Signifi cant changes. GRI summary. External assurance. Total Total Total Total Total Total Total Total Total Total Total Total Total 144 143 143 146 146 144 144 144 144 144 144 148-158 185 e 186 - - - - - - - - - - - - - 4 - Governance, commitments and engagement Profi le Description Report Pages Details on part not reported 4.1 4.2 4.3 4.4 4.5 4.6 4.7 Governance structure. Indication of whether the Chair of the highest governance body is also an executive offi cer. Number of members of the highest governance body that are independent and/ or non-executive members. Mechanisms for recommendations to governance bodies. Linkage between compensation and economic, social and environmental performance. Processes to ensure confl icts of interest are avoided. Qualifi cation of members. Total 20; 21; 23; 25 Total 20 Total 20 Total 49; 50 Total 26- 29 Total Total 20 20 natura report 2012 - - - - - - - 149 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 Internally-developed values, codes of conduct and principles. Procedures of the Board of Directors. Self-assessment of the Board of Directors. Precautionary principle. Charters, principles and initiatives. Memberships in associations. List of stakeholders. Identifi cation of stakeholders. Total Total Total Total Total Total Total Total 3 21 22 85 111-115 111-115 45; 46, 143,146 33; 143; 146 Engagement of stakeholders. Total 45; 46 Key topics and concerns raised by stakeholders. Total 45; 46 - - - - - - - - - - G3.1 DMA Description Report Page Details on part not reported ECONOMIC PERFORMANCE INDICATORS DMA EC Information on economic management approach Aspects Economic performance Market presence Indirect economic impacts Total Total Total Total 139 31 9;31 31;39;72 - - - Performance indicator Description Economic performance Report Pages Details on part not reported Global Compact Principles EC1 EC2 EC3 EC4 Direct economic value generated and distributed, including revenue, operating costs, employee compensation, donations and other community investments, retained earnings, and payments to capital providers and governments. Total 134 Financial implications and other risks and opportunities for the organization’s activities due to climate change. Partial 25 Coverage of the organization’s defi ned benefi t plan obligations. Total 60 Signifi cant fi nancial assistance received from government. Partial 109 7 There is no specifi c analy- sis of the effects associated with climate change in the risk management process. Important mitigation proj- ects are focused on the im- pacts that Natura’s business may generate and they have become formal subprocess- es of the company. Carbon Credit is a voluntary initia- tive of Natura, non-compul- sory, and does not refl ect the fi nancial implication of risks of climate change, such as adaptation. Not applicable because Na- tura does not work with Ex- port Credit Agencies. natura report 2012 150 Market presence EC5 EC6 EC7 Range of ratios of standard entry-level salary by gender to local minimum salary at signifi cant locations of operation. Partial 59 There are no differences in salaries by gender. Al- though this data is moni- tored accordingly, it is not considered relevant to the business due to a different understanding of the diver- sity issue. 1; 6 Policies, practices and proportion of spending on locally-based suppliers at signifi cant locations of operation. Procedures for local hiring and proportion of senior management hired from the local community at signifi cant locations of operation. Total 100 Total 57; 58 6 Indirect economic impacts EC8 EC9 Development and impact of infrastructure investments and services provided primarily for public benefi t through commercial, in- kind or pro bono engagement. Understanding and describing signifi cant indirect economic impacts, including the extent of impacts. Total Total 92; 99; 134 72; 91; 92; 97; 134 G3.1 DMA Description Report Page Details on part not reported ENVIRONMENTAL PERFORMANCE INDICATORS DMA EN Information on environmental management approach Aspectos Materials Energy Water Biodiversity Emissions, effl uents and waste Products and services Compliance Transport Overall Description Performance indicator Materials Total Total Total Total Total Total Total Total Total Total 118 122 33;131 38;129 34 38;118; 127 126 122 120 18; 32; 118 - - - - - - - - - - Report Pages Details on part not reported Global Compact Principles reported Natura total direct materials used by weight and volume, but did not classify them as non-re- newable materials because the information is not avail- able.. Natura will start to mea- sure this data in 2012 and, accordingly, to report it in the 2015 results. 8 8; 9 EN1 Materials used by weight or volume. Partial 127 EN2 Percentage of materials used that are recycled input materials. Total 127 natura report 2012 151 8 8 8; 9 8; 9 8; 9 8;9 8 8; 9 8 8 7,8 7,8 7,8 8 8 7;8;9 Direct energy consumption by primary source. Indirect energy consumption by primary source. Energy saved due to conservation and effi ciency improvements. Total 135-136 Total 135-136 Total 135-136 Initiatives to provide energy-effi cient or renewable energy-based products and services, and reductions in energy requirements as a result of these initiatives. No Initiatives to reduce indirect energy consumption and reductions achieved. Total 135 Total water withdrawal by source. Total 129- 130 Natura’s does not have di- rect energy-based products its portfolio. However, in based on a more systemic view, some of Natura’s prod- ucts may be considered indi- rect energy-based products (such as shower products), but there are no clear and recognized methodologies to quantify their energy con- sumption. Energy EN3 EN4 EN5 EN6 EN7 Water EN8 EN9 EN10 Biodiversity EN11 EN12 EN13 EN14 EN15 Water sources signifi cantly affected by withdrawal of water. Percentage and total volume of water recycled and reused. Location and size of land 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 actions and future plans for managing impacts on biodiversity. Number of IUCN Red List species and national conservation list species with habitats in areas affected by operations, by level of extinction risk. Emissions, effl uents and waste EN16 EN17 EN18 Total direct and indirect greenhouse gas emissions by weight. Other relevant indirect greenhouse gas emissions by weight. Initiatives to reduce greenhouse gas emissions and reductions achieved. Total 129 Total Total Total Total Total 129- 130 125- 126 122- 123 125- 126 122- 123 Total 123 Total 119 Total 119 Total 120 natura report 2012 152 8 8 8 8,9 8 8 7; 8 7;8;9 8; 9 EN19 EN20 EN21 Emissions of ozone-depleting substances by weight. Total 119 NOx, SOx and other signifi cant air emissions by type and weight. Total water discharge by quality and destination. Total 119 Total 130-131 EN22 Total weight of waste by type and disposal method. Partial 127-128 Natura does not take into consideration the concept of waste reuse, only recycling. In this case, there may be waste that can be reused (for exam- ple: plastic drums), but these processes are controlled by the companies that receive the waste. Additionally, Na- tura does not use the under- ground injection process as destination and does not have a waste inventory because the waste department temporar- ily stores the waste for proper lawful destination. Total number and volume of signifi cant spills. Total 129 Weight of transported, imported, exported or treated waste deemed hazardous under the terms of the Basel Convention Annex I, II, III and VIII, and percentage of waste shipped internationally. Total 128 Natura does not export waste. EN23 EN24 EN25 Identity, size, protected status, and biodiversity value of water bodies and related habitats signifi cantly affected by the reporting organization’s discharges of water and runoff. Partial 129 Products and services EN26 Initiatives to mitigate environmental impacts of products and services, and extent of impact mitigation. Partial 120- 121; 123- 124; 126- 131 EN27 Percentage of products sold and their packaging materials that are reclaimed by category. Partial 129-130 natura report 2012 Natura provides information about water bodies impacted by its discharges, but it does not report on the size and value of the biodiversity of the water body. This informa- tion not relevant to the com- pany’s business. Natura reports on a num- ber of initiatives to mitigate environmental impacts of products and services. The company does not in- clude initiatives to mitigate noise-related impacts in the report. Natura’s material- ity matrix prioritized envi- ronmental topics such as greenhouse gases, impact of products with a special attention to solid waste. Noise pollution was not included because it is not relevant to our business. Natura will begin a new proj- ect to meet its eagerness to use reverse logistics of post-consumption packag- ing. With this project, Na- tura aims to comply with the National Solid Waste Policy and it also believes that this is a more proper social, eco- nomic and environmental way. The recycling initiative is still in place in some loca- tions, but the percentage fi gures are immaterial due to the complexity of Na- tura’s business model, which is based on direct sales and does not provide for col- lection stations. Natura will soon review this initiative in order to fi t it in a broader context, together with the reverse logistics project and the national industry agree- ment for post-consumption packaging. The information is not yet available. Natura will report on the results in 2015. Monetary value of signifi cant fi nes and total number of non-monetary sanctions for non-compliance with environmental laws and regulations. Total 109 Signifi cant environmental impacts of transporting products and other goods and materials used for the organization’s operations, and transporting members of the workforce. Total 120; 123; 124 153 8 8 Total environmental protection expenditures by type. Total 138 7;8;9; Compliance EN28 Transport EN29 Overall EN30 G3.1 DMA Description Report Page Details on part not reported LABOR PRACTICES AND DECENT WORK PERFORMANCE INDICATORS DMA LA Information on labor practices management approach Aspects Employment Labor/ management relations Occupational health and safety Training and education Diversity and equal opportunity Equal compensation for women and men Total Total Total Total Total Total Total 52-54; 56-59;66 52; 53 52; 53 66 40; 54; 56 48 59 Performance indicator Employment LA1 LA2 LA3 LA15 Description Report Pages Details on part not reported Global Compact Principles Total workforce by employment type, employment contract, and region. Total 52; 54; 62 Total number and rate of employee turnover by age group, gender and region. Parcial 63; 64 Benefi ts provided to full-time employees that are not provided to temporary or part-time employees, by signifi cant location of operation. Total 65; 66 Return to work and retention rates after parental leave, by gender. Total 63 Natura does not segment by gender and age group. Although this data is moni- tored accordingly, it is not considered relevant to the business due to a different understanding of the diver- sity issue. 6 natura report 2012 Labor/ management relations LA4 LA5 Percentage of employees covered by collective bargaining agreements. Minimum notice period(s) regarding operational changes, including whether it is specifi ed in collective agreements. Total Total 61 61 Occupational health and safety 154 1; 2; 3 Percentage of total workforce represented in formal joint management-worker health and safety committees that help monitor and advise on occupational health and safety programs. Total 67 1;2;3 1 1 1 1; 6 1; 6 LA6 LA7 LA8 LA9 Natura reports on different data on health and safety at the workplace, but it does not report on the segmentation of this information by region. This information is not relevant to the company’s business. Rates of injuries, occupational diseases, lost days, and absenteeism, and total number of work-related fatalities, by region. Partial 68 Education, training, counseling, prevention, and risk control programs in place to assist workforce members, their families, or community members regarding serious diseases. Total 66 Health and safety topics covered in formal agreements with trade unions. Total 67 Training and education LA10 LA11 LA12 Average hours of training per year per employee by employee category. Partial 55 Programs for skills management and lifelong learning that support the continued employability of employees and assist them in managing the fi nal part of their career. Percentage of employees receiving regular performance and career development reviews. Total 55; 56 Total 58; 59 Diversity and equal opportunity LA13 Composition of governance bodies and breakdown of employees per employee category according to gender, age group, minority group membership, and other indicators of diversity. Partial 62 Equal compensation for women and men LA14 Ratio of basic salary and compensation of women to men by employee category. Total 59; 60 its Natura breaks down employees’ report in accor- dance with its view of diver- sity but does not segment the data by gender and age group. This information is not relevant to the com- pany’s business. natura report 2012 G3.1 DMA Description Report Page Details on part not reported 155 HUMAN RIGHTS PERFORMANCE INDICATORS DMA HR Information on human rights management approach Aspects Management and investment practices Non-discrimination Freedom of association and collective bargaining Child labor Forced and compulsory labor Security practices Indigenous rights Assessment Remediation 49; 55; 61; 89; 91-92; 96 89; 91;92 49 61 89;96 89;96 55 96 49 49 Total Total Total Total Total Total Total Total Total Total Performance indicator Description Management and investment practices Report Pages Details on part not reported Global Compact Principles 1,2,3,4,5 1,2,3,4,6 1; 6 1; 3 1; 5 1; 5 HR1 HR2 HR3 Percentage and total number of signifi cant investment agreements and contracts that include human rights concerns, or that have undergone human rights screening. Percentage of signifi cant suppliers and contractors that have undergone human rights screening, and actions taken. Total hours of employee training on policies and procedures concerning aspects of human rights that are relevant to operations, including the percentage of employees trained. Total 89; 96 Total 89; 95 Total 55 Non-discrimination HR4 Total number of incidents of discrimination and corrective actions taken. Total 49 Freedom of association and collective bargaining HR5 Child labor HR6 Operations identifi ed in which the right to exercise freedom of association and collective bargaining may be at signifi cant risk, and actions taken to support these rights. Total 61 Operations identifi ed as having signifi cant risk for incidents of child labor, and measures taken to contribute to the abolition of child labor. Total 89; 96 Forced and compulsory labor HR7 Operations identifi ed as having signifi cant risk for incidents of forced or compulsory labor, and measures taken to contribute to the elimination of forced or compulsory labor. Total 89; 96 natura report 2012 156 Natura provides informa- tion on its security prac- tices, which include training in Human Rights, but it does not report on the percent- age of security teams sub- ject to training and out- sourced employees that participated in the training program in relation to the total number. This data is not available. Security practices HR8 Percentage of security personnel trained in the organization’s policies or procedures concerning aspects of human rights that are relevant to the operations. Partial 55 HR9 Assessment HR10 Remediation HR11 Total number of incidents of violations involving rights of indigenous peoples and actions taken. Total 96 Percentage and total number of operations that have been subject to human rights reviews and / or impact assessments. Total 49 Number of grievances related to human rights fi led, addressed and resolved through formal grievance mechanisms. Total 50 G3.1 DMA Description Report Page Details on part not reported 1 1 1 SOCIAL PERFORMANCE INDICATORS DMA SO Information on social management approach Aspects Surrounding communities Corruption Public policy Anti-competitive behavior Performance indicator Compliance Description Surrounding communities 21;26 91; 98; 108-110 99 21;26;110 108;109 108;110 110 Total Total Total Total Total Total Report Pages Details on part not reported Global Compact Principles SO1 SO9 SO10 Nature, scope and effectiveness of any programs and practices to assess and manage the impacts of operations on communities, including entering, operating and leaving. Operations with signifi cant potential or actual negative impacts on local communities. Prevention and mitigation measures implemented in operations with signifi cant potential or actual negative impacts on local communities. Total Total Total 91; 97; 99 91- 93; 95; 96; 99 91- 93; 95; 96; 100- 102 natura report 2012 157 10 10 10 10 10 Corruption SO2 SO3 SO4 Public policy SO5 SO6 Percentage and total number of business units reviewed for risks related to corruption. Percentage of employees trained in organizations’ anti-corruption policies and procedures. Actions taken in response to corruption incidents Total 26 Total 55 Total 26; 89 Public policy positions and participation in public policy development and lobbying. Total amount of fi nancial and in-kind contributions to political parties, politicians and related institutions by country. Total 110 Total 114 Anti-competitive behavior SO7 Compliance SO8 Total number of legal actions for anti- competitive behavior, anti-trust, and monopoly practices and their outcome. Total 109 Monetary value of signifi cant fi nes and total number of non-monetary sanctions for non-compliance with laws and regulations. Total 109 G3.1 DMA Description Report Page Details on part not reported PRODUCT AND SERVICE RESPONSIBILITY PERFORMANCE INDICATORS DMA PR Information on products and services management approach Total 83-86 Aspects Customer health and safety Product and service labeling Marketing communications Customer privacy Compliance Description Performance indicator Customer health and safety Total Total Total Total Total 85 86 83 84 86 Report Pages Details on part not reported Global Compact Principles PR1 PR2 Lifecycle stages in which health and safety impacts of products and services are assessed for improvement, and percentage of products and services subject to such procedures. Total number of incidents of non- compliance with regulations and voluntary codes concerning health and safety impacts of products and services during their lifecycle, by type of outcome. Total 85 Total 86 natura report 2012 158 8 Product and service labeling PR3 PR4 PR5 Type of product and service information required by procedures, and percentage of products and services subject to such information requirements. Total number of incidents of non- compliance with regulations and voluntary codes concerning product and service information and labeling, by type of outcome. Total 44; 86; 127 Total 86 Practices related to customer satisfaction, including results of surveys measuring customer satisfaction. Total 50; 70; 71; 82; 88; 92 Marketing communications PR6 PR7 Programs for adherence to laws, standards and voluntary codes related to marketing communication, including advertising, promotion, and sponsorship. Total number of incidents of non-compliance with regulations and voluntary codes concerning marketing communication, including advertising, promotion, and sponsorship, by type of outcome. Total 84 Total 84 Customer privacy PR8 Compliance PR9 Total number of substantiated complaints regarding breaches of customer privacy and losses of customer data. Total 85 Penalties related to the supply and use of products and services. Total 86 The indicator is reported in full, however, as Natura does not sell banned products, it considers that the company is in full compliance. natura report 2012 159 fi nancial statements natura report 2012 fi nancial statements BALANCE SHEETS AS OF DECEMBER 31, 2012 AND 2011 (In thousands of Brazilian reais - R$) For the Year Ended December 31, 2012 and Independent Auditors’ Report ASSETS CURRENT ASSETS Cash and cash equivalents Short-term investments 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’ EQUITY CURRENT LIABILITIES Borrowings and fi nancing Trade and other payables Suppliers - related parties Payroll, profi t sharing and related taxes Taxes payable 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 Treasury shares Capital reserves Earnings reserves Proposed additional dividend Other comprehensive losses Total equity attributable to owners of the Company Noncontrolling interests Total shareholders’ equity Note Company (BR GAAP) Consolidated (BR GAAP and IFRS) 2011 2012 2011 2012 5 6 7 8 9 28.1. 4.2. 12 9 10.a) 11 12 13 14 14 72,767 1,168,487 530,033 158,003 23,417 25,908 80,271 130,532 2,189,418 12,952 94,813 267,598 23,187 1,311,364 357,443 206,036 2,273,393 4,462,811 166,007 - 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 1,144,390 498,672 651,416 700,665 144,459 - 80,928 157,787 3,378,317 151,350 214,246 349,537 41,295 - 1,012,089 228,545 1,997,062 5,375,379 515,610 - 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 Note Company (BR GAAP) Consolidated (BR GAAP and IFRS) 2011 2012 2011 2012 15 16 28.1. 17 15 17 18 19 20.a) 20.c) 20.b) 844,261 252,318 254,535 98,351 303,833 44,820 1,798,118 1,144,421 106,928 38,488 68,760 1,358,597 427,073 (66,105) 155,905 308,079 491,343 (10,199) 1,306,096 - 1,306,096 4,462,811 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 (102,849) 160,313 292,457 490,885 (17,635) 1,250,244 - 1,250,244 3,176,868 999,462 649,887 - 211,814 501,509 52,040 2,414,712 1,325,057 177,259 63,293 88,961 1,654,570 427,073 (66,105) 155,905 308,079 491,343 (10,199) 1,306,096 1 1,306,097 5,375,379 168,962 488,980 - 132,045 446,800 37,932 1,274,719 1,017,737 140,545 64,957 44,809 1,268,048 427,073 (102,849) 160,313 292,457 490,885 (17,635) 1,250,244 1 1,250,245 3,793,012 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY The accompanying notes are an integral part of these fi nancial statements. STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2012 AND 2011 (In thousands of Brazilian reais - R$) NET INCOME Other comprehensive losses- Gains from translation of fi nancial statements of foreign subsidiaries TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO Owners of the Company The accompanying notes are an integral part of these fi nancial statements. Note Company (BR GAAP) Consolidated (BR GAAP and IFRS) 2011 830,901 2012 861,222 2011 830,901 2012 861,222 13 7,436 868,658 5,561 836,462 7,436 868,658 5,561 836,462 868,658 836,462 868,658 836,462 STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2012 AND 2011 (In thousands of Brazilian reais - R$) Note Company (BR GAAP) Consolidated (BR GAAP and IFRS) 2011 2012 2011 2012 861,222 830,901 861,222 830,901 14 18 10.b) 25 7 8 19 26 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 (reversal) 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 (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 Short-term investments Redemption of short-term investments Dividends received from subsidiaries Dividends received from subsidiaries 14 13 NET CASH USED IN INVESTING ACTIVITIES CASH FLOW FROM FINANCING ACTIVITIES Repayments of borrowings and fi nancing - principal Proceeds from borrowings and fi nancing Sale of treasury shares due to exercise of stock options Payment of dividends and interest on capital Interim dividends and interest on capital Acquisition of treasury shares Capital increase through subscription of shares (353,289 common shares at average price of R$39.69) NET CASH GENERATED (USED) IN FINANCING ACTIVITIES Gains (losses) arising on translating foreign currency cash and cash equivalents INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 63,594 (52,087) (5,176) (17,371) 344,907 (2,098) (59,380) 145,660 691 2,712 - 2,776 (1,460) 32,942 (7,311) (715) 1,308,906 2,500 61,363 53,373 (13,068) 104,168 68,310 39,800 1,623 (23,028) (5,936) 80,769 1,493,843 (293,751) (23,428) (87,480) 1,089,184 (215,929) 2,098 (5,289) (3,015,724) 1,847,237 66,148 (48,843) (1,370,302) (462,885) 1,474,413 30,834 (490,951) (363,533) - - 187,878 - (93,240) 166,007 72,767 27,565 (16,442) (2,866) (28,841) 330,890 1,559 (54,789) 94,985 22 6,359 - (492) 9,801 10,012 (15,461) (11,887) 1,181,316 (41,125) (42,615) (14,648) (171,952) (270,340) 69,443 (5,218) 28,692 34,006 (816) 126,107 1,037,083 (255,182) (15,082) (57,812) 709,007 (277,036) 2,535 72,973 - - 34,000 (121,173) (288,701) (425,383) 822,047 1,240 (430,079) (332,809) (104,452) 9,012 (460,424) - (40,118) 206,125 166,007 141,178 (52,302) 4,623 (21,049) 414,878 15,692 - 163,228 9,101 10,844 807 7,942 (23,842) 44,152 (11,617) (1,665) 1,563,192 (17,486) 11,925 29,525 (48,570) (24,606) 162,102 79,769 (2,650) 14,108 (6,287) 247,042 1,785,628 (320,805) (18,488) (104,332) 1,342,003 (437,451) 3,135 (32,649) (4,213,731) 3,715,059 - - (965,637) (629,650) 1,708,574 30,834 (490,951) (363,533) - - 255,274 (2,860) 628,780 515,610 1,144,390 109,921 (14,305) (7,998) (51,173) 406,829 13,457 - 121,674 (7,767) 13,369 323 (675) 19,726 12,384 (40,378) (16,852) 1,389,436 (70,918) (136,948) (45,224) (157,950) (411,040) 121,752 (30,702) 24,060 (14,132) (829) 100,149 1,078,545 (319,623) (18,382) (76,700) 663,840 (346,367) 3,726 92,341 - - - - (250,300) (648,687) 1,045,702 1,240 (430,079) (332,809) (104,452) 9,012 (460,073) 1,914 - (44,619) 560,229 515,610 - (44,619) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (93,240) (40,118) 628,780 ADDITIONAL INFORMATION TO THE STATEMENTS OF CASH FLOWS Restricted cash Bank overdrafts - unused The accompanying notes are an integral part of these fi nancial statements. 12 - 299,500 - 117,900 - 343,600 6,757 235,500 INCOME STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2012 AND 2011 (In thousands of Brazilian reais - R$, except earnings per share) 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 EARNINGS PER SHARE - R$ Basic Diluted Note Company (BR GAAP) Consolidated (BR GAAP and IFRS) 2011 5,591,374 (1,666,300) 3,925,074 2012 6,345,669 (1,868,045) 4,477,624 2011 5,848,777 (2,375,514) 3,473,263 2012 6,249,086 (2,438,873) 3,810,213 22 23 23 23 24.1 28.2 13 26 25 25 10.b) (1,642,380) (899,128) (29,555) (20,739) 59,380 15,472 1,293,263 129,831 (216,965) 1,206,129 (344,907) 861,222 (1,503,069) (816,818) (3,765) (9,443) 54,789 43,579 1,238,536 86,502 (163,247) 1,161,791 (330,890) 830,901 (2,212,205) (772,688) (90,799) (20,739) - (11,643) 1,369,550 161,808 (255,258) 1,276,100 (414,878) 861,222 (1,952,740) (680,730) (30,168) (9,443) - 63,077 1,315,070 122,698 (200,038) 1,237,730 (406,829) 830,901 861,222 830,901 861,222 830,901 27.1. 27.2. 2,0081 1,9980 1,9320 1,9278 2,0081 1,9980 1,9320 1,9278 The accompanying notes are an integral part of these fi nancial statements. STATEMENTS OF VALUE ADDED FOR THE YEAR ENDED DECEMBER 31, 2012 AND 2011 (In thousands of Brazilian reais - R$, except additional information) REVENUES Sales of products and services Allowance for doubtful accounts Other operating (expenses) income, net 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 DISTRIBUTION OF WEALTH: Employees and payroll taxes Taxes and fees Financial expenses and rentals Dividends Interest on capital Retained earnings Note 7 26 Company (BR GAAP) Consolidated (BR GAAP and IFRS) 2011 7,499,050 7,524,250 (88,277) 63,077 (4,362,838) (2,624,578) (1,738,260) 3,136,212 (109,921) (109,921) 3,026,291 122,698 - 2012 7,501,382 7,608,134 (122,224) 15,472 (4,823,121) (2,846,755) (1,976,366) 2,678,261 (63,594) (63,594) 2,614,667 189,211 59,380 2011 6,847,932 6,887,213 (82,860) 43,579 (4,538,954) (2,610,197) (1,928,757) 2,308,978 (27,565) (27,565) 2,281,413 141,291 54,789 2012 8,515,446 8,665,145 (138,056) (11,643) (4,836,794) (3,025,657) (1,811,137) 3,678,652 (141,178) (141,178) 3,537,474 161,805 - 14 13 25 129,831 2,803,878 (2,803,878) (333,466) (1,369,813) (239,377) (796,531) (58,347) (6,344) 86,502 2,422,704 (2,422,704) (250,870) (1,182,449) (158,485) (762,563) (61,130) (7,207) 161,805 3.699,280 (3,699,280) (802,966) (1,743,401) (291,691) (796,531) (58,347) (6,344) 122,698 3,148,989 (3,148,989) (634,261) (1,472,345) (211,483) (762,563) (61,130) (7,207) Additional information to the statements of value added R$541,669 and R$442,063 of the amounts recorded in line item ‘Taxes and fees’ in 2012 and 2011, 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$3,210,727 and R$2,906,137 in 2012 and 2011, respectively, considering an estimated profi t margin of 30%. The accompanying notes are an integral part of these fi nancial statements. l a t o T g n g n g n 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 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 s t s e r e t n i i l l o r t n o c n o N o t y t i u q E l e b a t u b i r t t a r e h t O 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 d e n i a t e R i s g n n r a e i s g n n r a E s e v r e s e r x a T s e v i t n e c n I l a g e L s e v r e s e r i g n n r a E l a n o i t i d d A n i - d i a p 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 y r u s a e r T s e r a h s l a t i p a C e t o N i l l i l l o r t n o c n o N o r t n o c n o N s e v r e s e r l a t i p a C ) 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 ( I Y T U Q E ’ S R E D L O H E R A H S N I S E G N A H C F O S T N E M E T A T S 1 1 0 2 D N A 2 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 , 2 0 5 7 5 2 1 , 1 0 9 0 3 8 , 1 6 5 5 , 2 6 4 6 3 8 , 2 1 0 9 , ) 9 7 0 0 3 4 ( , ) 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 , , 2 2 2 1 6 8 6 3 4 7 , , 8 5 6 8 6 8 ) 1 5 9 0 9 4 ( , 4 3 8 0 3 , 4 - 4 8 0 1 , - - ) - - 3 3 5 3 6 3 ( , , 7 9 0 6 0 3 1 , 1 - - - - - - - - - - - - - - 1 - - - - - - - - - - - - 1 , 1 0 5 7 5 2 1 , ) 6 9 1 3 2 ( , 9 7 0 0 3 4 , - 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 . ) 4 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 , 1 0 9 0 3 8 1 6 5 5 , , 2 6 4 6 3 8 2 1 0 9 , ) 9 7 0 0 3 4 ( , ) 2 5 4 4 0 1 ( , 0 4 2 1 , 9 6 3 3 1 , - - ) 9 0 8 2 3 3 ( , - - - , 4 4 2 0 5 2 1 , , 2 2 2 1 6 8 6 3 4 7 , , 8 5 6 8 6 8 ) 1 5 9 0 9 4 ( , 4 3 8 0 3 , 4 4 8 0 1 , - - ) 3 3 5 3 6 3 ( , - - - , 6 9 0 6 0 3 1 , - 1 6 5 5 , 1 6 5 5 , - - - 1 0 9 0 3 8 , - , 1 0 9 0 3 8 - - - - - - - - - - - - - - - - - - , 1 6 2 7 6 4 - 4 2 6 3 2 , ) 9 7 0 0 3 4 ( , - - - - - - ) 7 7 6 3 ( , ) 9 0 8 2 3 3 ( , ) 1 6 2 7 6 4 ( , ) 4 2 6 3 2 ( , ) 0 3 5 3 ( , ) 5 3 6 7 1 ( , 5 8 8 0 9 4 , - - 6 3 4 7 , 6 3 4 7 , - - - 2 2 2 1 6 8 , - 2 2 2 1 6 8 , - - - - - - - - - ) 5 8 8 0 9 4 ( , - - - - - , 2 1 5 9 6 4 - 1 3 8 1 2 , ) 9 9 1 0 1 ( , 3 4 3 1 9 4 , - - - - - - ) 6 4 3 6 ( , ) 3 3 5 3 6 3 ( , ) 2 1 5 9 6 4 ( , ) 1 3 8 1 2 ( , - - - - - - - - - - - - 6 0 3 2 , - - - - - ) 6 6 ( 2 4 3 9 , 0 3 5 3 , 6 9 1 9 5 2 , - - - - - - - - - - - - - - - - - - 7 7 6 3 , - - - - - - - - - - - - - - - - - - - - - - - - - - 9 6 3 3 1 , ) 6 0 3 2 ( , - - - - - - - - - - - - - - - - - - - - - - - - - ) 2 5 4 4 0 1 ( , ) 7 7 3 ( 7 1 6 1 , - - - - - - - - - - - - - - - - - - 2 1 0 9 , - - - - - - - - - 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 s e r a h s f o 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 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 d e v o r p p a 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 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 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 2 1 0 2 , 4 1 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 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 n o 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 6 4 1 , 0 5 6 8 1 , 2 9 6 9 3 , 8 7 3 7 1 , 3 4 2 3 0 1 , , ) 9 4 8 2 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 - - - - - - - - - - - 6 4 3 6 , - - - - - - - - - - - - - - - - - - - - - - 4 4 8 0 1 , ) 2 4 3 9 ( , - - - - - - - - - - - - - - - - - - - - ) 0 1 9 5 ( , 4 4 7 6 3 , - - - - - - - - - - - - - - - - - - - - - - - - - - 3 1 . ) c 0 2 . . 2 4 2 . . 2 4 2 2 1 0 2 , 3 1 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 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 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 d e v o r p p a 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 1 1 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 3 1 0 2 , 6 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 m i i i r e t n I 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 3 1 0 2 , 3 1 y r a u r b e F n o e v r e s e r i s g n n r a e i d e n a t e R 2 7 4 8 6 2 , 7 5 9 0 2 , 0 5 6 8 1 , 4 9 1 1 4 , 8 7 3 7 1 , 3 3 3 7 9 , ) 5 0 1 6 6 ( , 3 7 0 7 2 4 , 2 1 0 2 , 1 3 R E B M E C E D F O S A E C N A L A B . 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 NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2012 (Amounts in thousands of Brazilian reais - R$, unless otherwise stated) 1. GENERAL INFORMATION Natura Cosméticos S.A. (“Company”) is a publicly-traded company, registered 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 Ser- ra, 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 pro- ducts, substantially through direct sales by Natura Beauty Consultants. The Company also holds equity interests in other companies in Brazil and abroad. On December 20, 2012, Natura Cosméticos S.A. entered into a purchase and sale agre- ement, subject to certain conditions precedent, for the acquisition of 65% of Emeis Holdings Pty Ltd., an Australian manufacturer of premium cosmetics and beauty products that operates under the brand name “Aesop” in Australia, Asia, Europe and North Ame- rica. The price of the acquisition agreed by the parties was AU$68.25 million, subject to certain adjustments. The Company expects that the acquisition will be closed by April 30, 2013, and that the acquisition price will be paid from the Company’s cash fl ow. 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES 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 Interna- tional 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 accounting practices adopted in Brazil, identifi ed as Company - BR GAAP. The accounting practices adopted in Brazil include those established in the Brazi- lian Corporate Law as well as the Pronouncements, Instructions and Interpreta- tions issued by the Accounting Pronouncements Committee (CPC) and approved by the Brazilian Securities and Exchange Commission (CVM). The individual fi nancial statements present the valuation of investments in subsi- diaries, joint ventures and associates which are measured by the equity method, as required by legislation prevailing in Brazil. Therefore, these individual 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 IFRS and accoun- ting practices adopted in Brazil and the Company’s shareholders’ equity and net in- come disclosed in the individual fi nancial statements prepared in accordance with accounting practices adopted in Brazil, the Company elected to present the indivi- dual 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 exchange for an asset. The signifi cant accounting practices applied to the preparation of these consolida- ted fi nancial statements are presented below. These policies have been consisten- tly applied in the previous annual reporting period presented, except as otherwise indicated. New or revised pronouncements applied for the fi rst time in 2012 The accounting policies adopted in 2012 are consistent with those adopted in the fi nancial statements of the previous year, except for the following revisions to IFRS in force from January 1, 2012: IAS 12 Income Taxes (review)-deferred taxes – Underlying asset recovery. The revision clarifi es the determination of deferred tax calculation on investment property measured at fair value. Introduces a rebuttable presumption that the deferred tax on investment proper ty measured at fair value model in IAS 40 (CPC 31) must be set based on the fact that its carrying amount will be recovered through sale. Additionally, introduces the requirement that deferred tax assets not subject to the depreciation that are measured using the revaluation model in IAS 16 (CPC 27) always be measured based on the sale of the asset. This review will have validity for annual periods beginning on or after January 1, 2012. This review did not generate an impact on the fi nancial position, performance, or disclosures of society. IFRS 1 initial adoption of IFRS (revised)-Hyperinfl ation and removal of fi xed dates for First Adoption (review). The IASB has provided guidance on how an entity should resume the presentation of fi nancial statements based on IFRS as their functional currency is no longer sub- ject to hyperinfl ation. The revision will be effective for annual periods beginning on or after July 1, 2011. This review did not generate any impact on society. IFRS 7 fi nancial instruments-Disclosure — Major Requirements for disclosure of derecognitions. The revision requires additional disclosure on fi nancial assets transferred but not derecognized assets to allow the user of the fi nancial statements of the company understand the relationship between the assets that were not derecognized assets and corresponding liabilities. Additionally, the review requires disclosure about the continuous involvement of the entity with the assets derecognized assets, to allow users to evaluate the nature of the involvement and the related risks. The revised standard will have validity for annual periods beginning on or after July 1, 2011. The company has no assets with these characteristics, so there was no impact on its fi nancial statements. 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 consideration 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 statements is made proportionately to the interest percentage. b) Companies include in the consolidated fi nancial statements Direct interest: Indústria e Comércio de Cosméticos Natura Ltda. Natura Biosphera Comércio de Cosméticos e Serviços 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 Mexico, S.A. de C.V. Natura Cosméticos de Mexico, S.A. de C.V. Natura Distribuidora de Mexico, S.A. de C.V. Natura Cosméticos Ltda. - Colombia Natura Cosméticos España S.L. - Spain Natura (Brazil) 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) Natura Innovation et Technologie de Produits SAS - France Via Natura (Brazil) International B.V. - The Netherlands: Natura Brasil Inc. - USA – Delaware Natura Brasil Inc. - USA – Nevada Natura Brasil SAS – France Natura Europa SAS – France Equity interest - % 2011 2012 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 - 99.99 99.94 99.97 99.99 99.99 99.99 99.99 99.99 100.00 100.00 Equity interest - % 2011 2012 99.99 99.99 - 100.00 100.00 100.00 100.00 100.00 43.33 100.00 100.00 100.00 100.00 100.00 The consolidated fi nancial statements have been prepared based on the fi nancial sta- tements as of the same date and consistent with the Company’s accounting policies. Investments in subsidiaries have been eliminated proportionately to the investor’s in- terests 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 pro- duction and sale of Natura products to Natura Cosméticos S.A. - Brazil, Natura Cos- méticos S.A. - Chile, Natura Cosméticos S.A. - Peru, Natura Cosméticos S.A. - Argen- tina, Natura Cosméticos Ltda. - Colombia, Natura Europa SAS - France, and Natura Cosméticos de Mexico S.A. de C.V.. • Natura Biosphera Comércio de Cosméticos e Serviços Ltda.: engaged in trading, including by electronic means, of products from Natura brand. • Natura Cosméticos S.A. - Chile, Natura Cosméticos S.A. - Peru, Natura Cosméticos S.A. - Argentina, Natura Cosméticos Ltda. - Colombia and Natura Distribuidora de Mexico, S.A. de C.V.: their activities are an extension of the activities conducted by the parent company Natura Cosméticos S.A. - Brazil. • Natura Inovação e Tecnologia de Produtos Ltda.: it is engaged in product and tech- nology 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, export and distribution of cosmetics, fragrances in general, and hygiene products. • 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 activities will be an extension of the activities carried out by its parent company Natura Cosméticos S.A. - Brazil. • Natura Logística e Serviços Ltda.: engaged in the provision of administrative 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.: On June 29, 2012, the company sold its share and no longer had equity interest in Ybios. The effects of this sale were not relevant. Engaging in biotechnology research, management and development 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. • Natura Europa SAS – France, Natura Brazil Inc. e Natura International Inc.: in Ja- nuary 2009 the shares of these subsidiaries were assigned as a capital contribution to the holding company Natura (Brazil) International B.V. - The Netherlands, and the Company became the indirect holder of such interests through this company headquar tered in The Netherlands. 2.3. Segment reporting Information per operating segments is consistent with the internal report pro- vided to the chief operating decision maker. The chief operating decision 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 func- tional currency – Brazilian reais (R$) - 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 corresponds 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 currency, 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. The effects of exchange differences resulting from these translations are presented in line item ‘Other comprehensive income’ and in shareholders’ equity. 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 nancial liabili- ties 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 categories: Financial assets measured at fair value through profi t or loss Consist of fi nancial assets held for trading, when acquired for such purpose, principally in the short term. These assets are measured at fair value at the end of the repor- ting period and any differences are recognized in profi t or loss. Derivative fi nancial instruments are also classifi ed in this category. 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 assets 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, less losses due to reduction of the recoverable amount. The Society does not have investments held to maturity during the years ended December 31, 2011 and 2012. Available-for-sale fi nancial assets When applicable, this category includes non-derivative fi nancial assets that either desig- nated 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. These fi nancial assets include shares of investment funds and government debt securities. In this category are registered instruments which are held for an indefi nite period and may be sold to meet liquidity needs or changes in market conditions. Loans and receivables Include non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market. They are recorded in current assets, except for maturities greater than 12 months after the end of the reporting period, when applicable, which are classifi ed as noncurrent assets. After initial measurement, these fi nancial assets are accoun- ted for at amortized cost, using the effective interest method (effective interest rate), less loss by decrease in recoverable value. Amortized cost is calculated taking into account any discount or premium on acquisition and fees or costs incurred. In December 31, 2012 and 2011 include trade accounts receivable (note 7). 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 method. As of De- cember 31, 2012 and 2011, in the case of the Company, comprise borrowings and fi nan- cing (note 15) and domestic and foreign trade payables. 2.6.2. Measurement Regular purchases and sales of fi nancial assets are recognized on the transaction date, i.e., on the date the Company agrees to buy or sell the asset. Loans and receivables and held-to-maturity fi nancial assets are measured at amortized cost. Financial assets at fair value through profi t or loss are initially recognized at their fair value and transaction costs are recognized in the income statement. Gains or losses resulting from changes in the fair value of fi nancial assets at fair value through profi t or loss are recognized in the income statement, in “Finance income” or “Finance costs”, respectively, for the period in which they occur. Changes in fi nancial assets classifi ed as “Available for sale”, when applicable, are recorded in “Other comprehensive income” and shareholders’ equity until the fi nancial assets are settled, when they are ultimately reclassifi ed to profi t or loss for the year. 2.6.3. Offsetting fi nancial instruments Financial assets and fi nancial 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. Derecognition of fi nancial instruments UA fi nancial asset (or, where applicable, a part of a fi nancial asset or part of a group of similar fi nancial assets) is downloaded when: The rights to receive cash fl ows from the asset have expired; The company transferred its rights or risk receiving the cash fl ows of the asset or has assumed an obligation to pay the received cash fl ows in full. 2.6.5. 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 rela- ted to the positions in balance sheets and projected cash outfl ows in foreign currency for capital increases in foreign subsidiaries. They are measured at fair value, and changes in fair value are recognized through profi t or loss, except when they are designated as cash fl ow 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 department based on information on each contracted transaction and related market inputs at the end of the reporting period, such as interest rates and exchange coupon. When applicable, these inputs are compared with the positions reported by the trading desks of each involved fi nancial 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. 2.6.6. Effective interest method Used to calculate the amortized cost of a debt instrument and allocate 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 part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Income is recognized on an effective interest basis for debt instruments other than those fi nancial assets classifi ed as fair value through profi t or loss. 2.7. Trade receivables and allowance for doubtful debts Trade receivables are stated at their nominal amount, less the allowance for doubtful debts, which is recognized based on the history of losses using an aging list, in an amount considered suffi cient by management to cover possible losses, as described in note 7. 2.8. Inventories Carried at the lower of average cost of purchase or production and net realizable value. Details are disclosed in note 8. The Company considers the following when determining its provision for inventory losses: discontinued products, products with slow turnover, products with expired validity and pro- ducts that do not meet quality standards. 2.9. Investments in subsidiaries, associates and jointly controlled entities The Company holds interest only in subsidiaries. Subsidiaries are entities in which the Company, directly or through other subsidia- ries, has ownership rights that provide it with the ability to direct the subsidiaries’ activities and to elect the majority of the subsidiaries’ management members on a permanent basis. Subsidiaries are the companies over which the Company has con- trol. Control is the power to govern the fi nancial and operating policies of an entity so as to obtain benefi ts from its activities, which in general consists of the ability to exercise the majority of the voting rights. Potential 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. Investments in subsidiaries are accounted for by the equity method of accounting. The fi nancial statements of subsidiaries are prepared for the same reporting date of the Company. Adjustments 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 profi t or loss for the period of such investments is accounted for in the income statement, in line item “Equity in investees”. Unrealized gains and losses arising on transactions between the Company and the investees are eliminated based in the percentage interest held in such investees. The other comprehensive income of subsi- diaries, associates and jointly controlled entities is recorded directly in the Company’s shareholders’ equity, in line item “Other comprehensive income”. 2.10. Property, 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 de- preciation and impairment losses, if applicable. Rights in tangible assets that are maintained or used in the operations of the Group, ori- ginated from fi nance leases, are recorded as purchase fi nancing, and a fi xed asset and a fi - nancing 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 calculated under the straight- -line method to distribute their cost over their useful lives, as follows: Years 25 13 3 5 - 13 14 3 Buildings Machinery and equipment Molds Facilities and leasehold improvements Furniture and fi xtures Vehicles The useful lives are reviewed annually. Gains and losses on disposals are calculated by comparing the proceeds 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 amortized at the rates also described in note 14, 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 benefi ts will fl ow into the Company, taking into consideration its economic and technologic viability. Expenses on software development recognized as assets are amortized 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 historic cost. Trade- marks and patents acquired in a business combination are recognized at fair value on the acquisition date. Amortization is calculated on a straight-line basis at the annual rates described in note 14. 2.11.3. Carbon credits - Carbon Neutral Program In 2007 the Company assumed to its employees, customers, suppliers and sharehol- ders the commitment to become a Carbon Neutral company, which consists of off- setting 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 considered 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 carbon of outstanding contracts and the estimated prices of future carbon purchases. As of December 31, 2012, the liability’s balance recognized in line item “Other provisions” (see note 19) refers to total carbon emissions in 2007-2012 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 period, these expenses are recognized at cost as intangible assets (see note 14) as they represent a right for future use. As of December 31, 2012, the balance recognized in intangible assets refers to expenses incurred in socio-environmental projects that will result in future carbon neutral company cer- tifi 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, 2012 refers to the cash amounts that the Company will still disburse on other socio-environmental projects to ensure the future issuance of carbon neutral company certifi cates. 2.12. Research and product development expenses In view of the high level of innovation and the turnover rate of the products in the Company’s sales portfolio, the Company adopts the accounting policy of recognizing product research and development expenditure as expenses for the year, when in- curred. 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 ow- nership 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 corres- ponding obligations, less the fi nance charge, are classifi ed in current liabilities and noncur- rent 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 Property, plant and equipment, intangible assets and, when applicable, other noncur- rent assets are annually tested to identify evidences of impairment, 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 levels for which there are separately identifi able cash fl ows (cash-generating units, or CGUs). The recoverable amount of an asset or cash-generating unit is determined defi ned as being the larger of the value in use and the net selling value. In the estimation of the value in use of the asset, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects the weighted average cost of capital for the industry in which it operates the cash-generating unit. The net selling value is determined, whenever possible, on the basis of the contract of sale fi rm in a transaction in commutative bases, between knowledgeable and interested parties, ad- justed for expenses attributable to the sale of the asset, or, where there is no contract of sale fi rm, based on the market price of an active market, or in the price of the most recent transaction with similar assets. 2.15. Trade payables These are initially recognized at their nominal amounts, plus interest, infl ation adjust- ments and exchange differences through the end of the reporting period, when ap- plicable. 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 repor- ting period, as shown in note 15. 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 disbur- sement to settle the obligation using the appropriate 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 18. 2.18. Current and deferred income tax and social contribution Recognized in the income statement, except, when applicable, in the proportion rela- ted to items recognized directly in shareholders’ equity. In this case, taxes are recogni- zed directly in shareholders’ equity, in line item “Other comprehensive income”. Except for the foreign subsidiaries, which apply the tax rates prevailing in each one of the countries where they are located, income tax and social contribution on the Company’s and its Brazilian subsidiaries’ profi ts 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 reporting period, pursuant to Brazilian tax re- gulations. 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 temporary 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 reporting period and that must be applied when the corresponding defer- red 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 certainty that future taxable income will be available and against which temporary differences 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 offset 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 inten- tion to settle the net balances. Details are disclosed in note 10. 2.19. Stock option plan The Company offers equity-settled share-based compensation plans to its execu- tives. The stock option plan is measured at fair value on grant date and is expensed during the vesting period as a balancing item to “Additional paid-in capital”, in shareholders’ equity. At the end of the reporting period, the Company’s management reviews its estimates on the number of options vesting based on the conditions fulfi lled and, when applicable, recognizes in the income statement the effect arising from the revision of the initial estimates as a balancing item to shareholders’ equity. The details are disclosed in note 24.2. The cost of transactions settled with equity securities is recognized, together with a corresponding increase in equity under the heading “additional paid-in Capital”, throughout the period in which the performance and/or service conditions are fulfi l- led, ending on the date on which the employee acquires the full right to prize (date of acquisition). The cumulative expense recognized for equity instruments transac- tions settled on each base date up to the date of acquisition refl ects the extent to which the vesting period has expired and the best estimate of the number of equity securities Company to be acquired. The expense or credit in the statement of inco- me of the period is recorded under the heading “administrative expenses”. When an award of equity instruments settlement is cancelled, it is treated as if it had been acquired on the date of cancellation, and any expense not recognized award is registered immediately. This includes any award where non-vesting conditions within the control of the company or the counterparty were not met. All cancellations of transactions settled with equity securities are treated in the same way. The dilution effect of options open is refl ected as additional share dilution in the calculation of diluted earnings per share (Note 27.2). 2.20. Profi t sharing The Company recognizes a profi t sharing liability and an expense based on a formula that takes into consideration the net income attributable to the owners of the Com- pany after certain adjustments, which is linked to the achievement of operational goals and specifi c 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 portion 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 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 recognized in line item “Proposed additional dividends” and their effects are disclosed in note 20.(b). For corporate and accounting purposes, interest on capital is stated as allocation of income directly in shareholders’ equity. 2.22. Treasury shares Own equity instruments which are reacquired (Treasury shares) and recognized at ac- quisition cost and deducted from shareholders ‘ equity. No gain or loss is recognized in the income statement on the purchase, sale, issue or cancellation of the company’s own equity instruments. Any difference between the book value and the consideration is recognized in other capital reserves. 2.23. Actuarial gains and losses of healthcare plan and other costs related to em- ployees’ benefi t plans The company has defi ned contribution retirement plans, which require that con- tributions are made to the funds administered separately from the equity of the Company. The company also provides certain benefi ts of extension of medical assis- tance to retired employees. The costs associated with the contributions made by the company and its subsidiaries to the plans are recognized on the accrual basis. The costing of the benefi ts granted by the defi ned benefi t plans is established separately for each plan using the projected unit credit method. Actuarial gains and losses recorded in the retirees’ healthcare expansion plan are re- corded 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 19. 2.24. Revenue and expense recognition Sales revenue is recognized when all risks and rewards of ownership of the product are transferred to the customers and there are recognized on an accrual basis. Revenues are recognized to the extent in which it is probable that the economic benefi ts associated with the transaction will accrue to the Company, and when such benefi ts can be reliably measured. Sales revenues are primarily generated through sales made by the Natura Beauty Consultants (our clients), measured based on the fair value of the consideration received (or to be received), excluding any discounts, rebates and taxes or charges with respect to such sales. Sales revenue is recognized when the signifi cant risks and rewards of title to products have been transferred to the client, which generally occurs upon delivery thereof to the Natura Beauty Consultants. Sales revenue is generated and accumulates initially in the subsidiary sales ledger of the Company, as of the moment in which the proof of shipping is issued in the name of our clients. However, as our revenues are recorded for accounting purposes only when the fi nal delivery of products has occurred, the Company makes a provision to eliminate the amount of revenues with respect to products shipped but not yet received by the Natura Beauty Consultants as of the closing date of the fi nancial statements for each period. 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 gran- ted. There are no established conditions to be met by the Company that might affect the recognition of tax incentives. The portion of tax incentives recognized in the income statement is allocated to the tax incentive reserves, in the “Earnings reserves”, in shareholders’ equity. 2.25. Statement of value added The purpose of this statement is to disclose the wealth created by the Company and its distribution during a certain reporting period, and is presented by the Company, as required by the Brazilian Corporate Law, as an integral part of its individual fi nancial statements, and as additional disclosure of the consolidated fi nancial statements, since this statement is not required by IFRSs. The statement of value added was prepared using information obtained in the same accounting records used to prepare the fi nancial statements and pursuant to the pro- visions of CPC 09 - Statement of Value Added. The fi rst part of this statement includes the wealth created 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 parties (cost of sales and purchase of materials, electricity, and services from third parties, including taxes levied at the time of the acquisition, the effects of impairment losses, and depreciation and amortization), and the value added received from third parties (equity in investees, fi nancial income, and other income). The second part of the statement of value added presents the distribution of wealth among personnel, taxes, fees and contributions, lenders and lessors, and shareholders. 2.26. New and revised standards and interpretations a) Standards, interpretations and revised standards not yet effective and which were not early adopted by the Company Standard Main requirements IFRS 9 Financial instruments IFRS 10 - Consolidated Financial Statements IFRS 11 - Joint Arrangements IFRS 12 - Disclosure of Interests in Other Entities IFRS 13 - Fair Value Measurement IAS 27 Demonstrações Classifi cation and Measurement end the fi rst part of the project to supersede “IAS 39 Financial Instruments: Recognition and Measurement”. This new standard adopts a simple approach to determine whether a fi nancial asset is measured at amortized cost or fair value, based on the way an entity manages its fi nancial instruments (its business model) and contractual cash fl ow typical of fi nancial assets. IFRS 9 also requires only one method to be adopted to determine impairment losses. IFRS 10, establishes principles for the presentation and preparation of the consolidated fi nancial statements when an entity controls one or more entities. The IFRS 10 overrides the requirements of SIC-12 Consolidation special purpose entities and IAS 27 consolida- ted fi nancial statements and separate. IFRS 11 provides for a more realistic refl ection of agreements together, focusing on the rights and obligations of the agreement, rather than its legal form. The standard addresses inconsistencies in the treatment of an agreement together, requiring a single method to treat in controlled entities jointly through the equity method. The IFRS 13 replaces IAS 31 and SIC jointly Controlled Enterprises-13 jointly controlled entities-non-monetary Contributions by Shareholders. Early application is permitted. The main effects of the adoption of IFRS 11 will be the end of proportionate consolidation, which will not affect the consolidated information of the company. Effective date Effective for annual periods beginning on or after January 1, 2013 Effective for annual periods on or after January 1, 2013 Effective for annual periods beginning on or after January 1, 2013. IFRS 12 is a new and comprehensive standard on disclosure requirements for all forms of investments in other entities, including subsidiaries, joint ventures, associates and unconsolidated structured entities. Early application is permitted. Effective for annual periods beginning on or after January 1, 2013. 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. As a result of the recent IFRS and IFRS 12 10, what remains in the IAS 27 restricted to accounting for subsidiaries, joint control and entities associated in separate fi nancial statements. Effective for annual periods beginning on or after January 1, 2013. Effective for annual periods beginning on or after January 1, 2013. IAS 28 (Revised in 2011) - Investments in Associates and Joint Ventures As a result of the recent IFRS and IFRS 12 11, IAS 28 become IAS 28 investments in associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures, in addition to the investment in associates. Effective for annual periods beginning on or after January 1, 2013. Amendments to IAS 19 - Employee Benefi ts Amendments to IAS 1 - Presentation of Financial Statements IAS 12 Income Taxes (review)-deferred taxes – Underlying asset recovery 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. Effective for annual periods beginning on or after January 1, 2013. Introduces the requirement that all items recognized in other comprehensive income be separated into and totaled as items that are and items that are no subsequently reclassi- fi ed to profi t or loss. Effective for annual periods beginning on or after January 1, 2013. The revision clarifi es the determination of deferred tax calculation on investment property measured at fair value. Introduces a rebuttable presumption that the deferred tax on investment property measured at fair value model in IAS 40 (CPC 31) must be set based on the fact that its carrying amount will be recovered through sale. Additionally, introduces the requirement that deferred tax assets not subject to the depreciation that are measured using the revaluation model in IAS 16 (CPC 27) always be measured based on the sale of the asset. This review will have validity for annual periods beginning on or after January 1, 2012. IFRS 1 initial adoption of IFRS (revised)- Hyperinfl ation and removal of fi xed dates for First Adoption (review) The IASB has provided guidance on how an entity should resume the presentation of fi nancial statements based on IFRS as their functional currency is no longer subject to hyperinfl ation. The revision will be effective for annual periods beginning on or after July 1, 2011. IFRS 7 fi nancial instruments- Disclosure — Major Requirements for disclosure of derecognition The revision requires additional disclosure on fi nancial assets transferred but not dere- cognized assets to allow the user of the fi nancial statements of Company the relationship between the assets that were not derecognized assets and corresponding liabilities. Additionally, the review requires disclosure about the continuous involvement of the entity with the assets derecognized assets, to allow users to evaluate the nature of the involvement and the related risks. The revised standard will have validity for annual periods beginning on or after July 1, 2011. Effective for annual periods beginning on or after January 1, 2013. Effective for annual periods beginning on or after January 1, 2013. Effective for annual periods beginning on or after January 1, 2013. IAS 1 presentation of fi nancial statements This clarifi es the difference between voluntary and additional comparative information comparative information required minimum. Effective for annual periods beginning on or after January 1, 2013. IAS 16 property, plant and equipment This explains that the main spare parts and equipment to provide services that meet the defi nition of fi xed assets are not a part of inventory. Effective for annual periods beginning on or after January 1, 2013. IAS 32 Instrumentos This clarifi es that income taxes resulting from distributions to shareholders are accounted for in accordance with IAS 12 Income Taxes. Effective for annual periods beginning on or after January 1, 2013. IAS 34 Intermediate fi nancial statements The review presents an alignment of disclosure requirements for total assets total liabilities with segment in the segment in the fi nancial statements. This clarifi cation also ensures that the intermediary disclosures are aligned with the annual disclosures. Effective for annual periods beginning on or after January 1, 2013. The Company intends to adopt such standards when they go into effect. 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 expect that such pronouncements and amen- dments be issued by the CPC and approved by the CVM by the date they become effective. There are not fur ther standards and interpretations issued but not yet adopted which may, in the management’s view, have a significant impact on P&L or equity disclosed by the Company. 3. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS The preparation of fi nancial statements requires the use of certain critical accoun- ting 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 signifi cant 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 fi nancial statements and the tax base assets and liabilities using statutory tax rates. The Company reviews regularly de- ferred tax assets in terms of possible recovery, considering the history of earnings generated and projected future taxable income, based on a technical feasibility study. b) Provision for tax, civil, and labor contingencies The Company is a party to several lawsuits and administrative proceedings, as described in note 18. Provisions are recognized for all contingent liabilities ari- sing from lawsuits that represent probable losses and can be reliably estimated. The probability assessment includes assessing available evidences, the hierarchy of laws, available previous decisions, most recent court decisions and their relevance within the legal system, and the assessment of the outside legal counsel. Manage- ment believes that these provisions for tax, civil and labor contingencies are fairly presented in the fi nancial statements. c) Retirees’ healthcare plan The current amount of the retirees’ healthcare plan is contingent to a series of factors determined based on actuarial calculations that update a series of assump- tions, for example, the discount and other rates, which are disclosed in note 19. The change in one of these estimates could impact the results presented. d) Stock option plan The stock option plan is measured at fair value on grant date and is expensed during the vesting period as a balancing item to “Additional paid-in capital”, in sha- reholders’ equity. At the end of the reporting period, the Company’s management reviews its estimates on the number of options vesting based on the conditions fulfi lled and, when applicable, recognizes in the income statement the effect arising from the revision of the initial estimates as a balancing item to shareholders’ equity. The details are disclosed in note 24.2. 4. FINANCIAL RISK MANAGEMENT 4.1. General considerations and policies Risks and the fi nancial instruments are managed through the defi nition of policies and strategies and implementation of control systems, defi ned by the Company’s Treasury Committee and approved by the Board of Directors. The compliance of the treasury area’s positions in fi nancial instruments, including derivatives, in relation to these policies, 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 investments and loan transactions conducted by the Group’s subsidiaries. 4.2. Financial risk factors The Group’s activities expose them to several fi nancial 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 fi nancial markets and seeks to minimize potential adverse effects on the fi nancial performance, using deri- vatives to protect certain 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 defi ned based on the current policy include monthly projection and assessment of the Company’s and its subsidiaries’ foreign exchange exposure, on which management’s decision-making is based. Exchange rate Protection Policy considers the values of foreign currency receivables and Payables balances of commitments already made and recorded in the fi nancial statements from the operations of the Company and its subsidiaries, as well as future cash fl ows, with an average of six months, still not recorded in the balance sheet. As of December 31, 2012 and 2011, the Group is basically exposed to risks of fl uc- tuations in the U.S. dollar and particularly as of December 31, 2012, the Company’s is basically exposed to risks of fl uctuations in the Australian dollar. To hedge against foreign exchange exposures, the Group contracts derivative (swaps) and non-delive- rable 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, 2012, the Company’s and the consolidated balance sheets inclu- de accounts denominated in foreign currency which, in the aggregate, represent net liabilities of R$1,510,721 and R$1,515,328, respectively (R$438,667 and R$444,894 as of December 31, 2011, respectively). These accounts are substantially represented by borrowings and fi nancing which, as of December 31, 2012 and December 31, 2011, are hedged by swap arrangements. As of December 31, 2012, the Company has future fi nancial obligations denominated in Australian dollars, as described in the Material News Release (“Fato Relevante”) published on December 20, 2012, in an amount equivalent to R$144,670. This amount is the future disbursement for the acquisition, subject to certain conditions precedent, of 65% of Emeis Holdings Pty Ltd., and is hedged with forward contracts. Derivatives to hedge foreign exchange risk The Company classifi es derivatives into “fi nancial” and “operating”. “Financial” derivati- ves include swaps or forwards contracted to hedge against the foreign exchange risk associated with foreign-currency-denominated borrowings and fi nancing. “Operating” derivatives (usually forwards) include derivatives contracted to hedge against the fo- reign exchange risk on the business’s operating cash fl ows. As of December 31, 2012, outstanding swap and forward contracts, with maturities be- tween January 2013 and July 2020, were entered into the counterparties represented by the banks Bank of America (43%), HSBC (23%), Bradesco (19%), Citibank (6%), Itaú (6%) and Brasil (3%), broken down as follows: 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 1,411,816 1,411,816 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 1,418,092 1,418,092 Principal 2012 2011 Fair value Gain for the year 2011 2012 2011 2012 396,938 1,531,596 435,094 80,624 28,184 396,938 1,450,972 406,910 - - Principal 2012 2011 Fair value Gain for the year 2011 2012 2011 2012 404,662 1,538,307 442,574 81,281 28,626 404,662 1,457,026 413,947 - - Operating forwards - Company and consolidated Notional amount Type of transaction Contratos de “forward” (2): Asset position: Long position - Australian dollar 147,522 2012 2011 - Fair value Gain (loss) for the year 2011 2012 2011 2012 147,522 - (353) - Liability position Fixed rates: Short position in Australian dollar 147,522 - 147,875 - - - (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, 2012 and December 31,2011, due to the fact contracts are directly entered into with the fi nancial institutions and not through São Paulo Stock Exchange (BM&FBOVESPA), there are no margin calls deposited as guarantee of the related transactions. 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. Loans and fi nancing in foreign currency (*) Receivables in foreign currency Accounts payable in foreign currencies Value of the “fi nancial” derivatives Net passive exposure Company Consolidated 1,536,507 (5,752) 15,686 (1,649,894) (103,453) 1,510,721 - 10,308 (1,646,856) (125,827) The tables below show the gain (loss) that would have been recognized in profi t or loss for the year ended December 31, 2012 based on the following scenarios: Description Net liability exposure Company’s risk Us dollar appreciation Description Net liability exposure Company’s risk Us dollar appreciation Company Scenario III Probable Scenario scenario II 1,170 31,457 62,914 Consolidated Scenario II III Probable Scenario scenario 962 25,863 51,727 During the year ended December 31, 2012, there were no changes in any of the levels of the fair value estimates. The probable scenario (R$ 2.04/US$1.00) considers future U.S. dollar rates obtai- ned at BM&FBOVESPA for the maturity dates of the fi nancial instruments exposed to foreign exchange risks. Scenarios II and III consider a 25% (R$ 2.55/US$1.00) and 50% (R$3.07/US$1.00) appreciation of U.S. dollar, respectively. Probable sce- narios 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 short-term investments and loans. Financial ins- truments issued at fl oating rates expose the Group to cash fl ow risks associated with the interest rate. Financial instruments issued at fi xed rates expose the Group to fair value risks associated with the interest rate. The Company’s cash fl ow risk associated with the interest rate arises from short- -term investments and short- and long-term loans and fi nancing issued at fl oating rates. The Company’s management adopts the policy of maintaining its rates of ex- posure to asset and liability interest rates pegged to fl oating rates. Short-term in- vestments are adjusted by the Interbank Deposit Rate (CDI) whereas borrowings and fi nancing are adjusted based on the Long-term Interest Rate (TJLP), CDI and fi xed rates, according to the contracts made with the related fi nancial institutions, and trading securities with investors in this market. Management believes that the risk of signifi cant changes in the CDI and TJLP in the next 12 months is low taking into consideration the stability achieved with the cur- rent monetary policy implemented by the Federal Government, in addition to the history of adjustments 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 fi nan- cing transactions subject to an index other than CDI, TJLP or fi xed rates. However, as of December 31, 2012 and December 31, 2011, the Group did not have this type of derivative as they assessed the related risk as very low, as described above. Sensitivity analysis As described in the foreign exchange risk section above, as of December 31, 2012 al- most all foreign-currency-denominated borrowings and fi nancing are hedged by swap arrangements that exchange the foreign-currency liability index for the CDI rate fl uc- tuation, in light of the Company’s policy to hedge such risks. The Company is, therefore, exposed to CDI fl uctuation. The table below presents the exposure to interest rate risks of transactions pegged to CDI and TJLP, including derivative transactions: Company Consolidated Total borrowings and fi nancing - in local currency (note 15) Derivatives pegged to CDI/TJLP Short-term investments (notes 5, 6 and 12) Net liability exposure (477,961) (1,510,721) 1,189,521 (799,161) (788,011) (1,536,507) 1,499,052 (825,466) The sensitivity analysis considers the exposure of borrowings and fi nancing pegged to CDI and TJLP rates, net of short-term investments, also pegged to the CDI rate (notes 5 and 6). The tables below show the loss (gain) that would have been recognized in profi t or loss for the year ended December 31, 2012 based on the following scenarios: Description Net liabilities Company’s risk Interest rate increase Description Net liabilities Company’s risk Interest rate increase Company Scenario III Probable Scenario scenario II (799) (13,786) (27,571) Consolidated Scenario II III Probable Scenario scenario (825) (14,239) (28,479) The probable scenario (6.9% per year) considers future interest rates obtained at BM&FBOVESPA for the maturity dates of the fi nancial instruments exposed to interest rate risks. Scenarios II and III consider an increase in the interest rate of 25% (8.6% per year) and 50% (10.4% per year) , respectively. b) Credit risk Credit risk refers to risk of a counterparty not complying with its contract obligations, which would result in fi nancial 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 refl ected in the ‘Allowance for doubtful accounts’, as explained in note 7. The Group is also subject to credit risks related to fi nancial instruments contracted for the management of its business, primarily represented by cash and cash equivalents, short-term investments and derivative instruments. The Company believes that the credit risk of transactions with fi nancial institutions is low, as these are considered by the market as prime banks. The Policy for Short-term Investments adopted by the Company’s management establishes the fi nancial institutions with which the Group can do business and de- fi nes fund allocation limits and the amounts that may be invested in each of these fi nancial institutions. c) Liquidity risk Effectively managing liquidity risk implies to maintain enough cash and marketable se- curities, funds available through credit facilities used and the ability to settle market positions. Management monitors the Company’s consolidated liquidity level considering the ex- pected cash fl ows against unused credit facilities. The carrying amounts of fi nancial liabilities are measured at amortized cost, and their corresponding maturities are as follows: Less than Carrying amount Company as of December 31, 2012 one year two years fi ve years fi ve years 2012 effect 2012 Current: Borrowings and fi nancing Trade payables Financial instruments Noncurrent: Borrowings and fi nancing (48,941) - 11,332 893,202 252,318 68,939 893,202 252,318 68,939 844,261 252,318 80,271 More than 1,127,258 1,257,600 Fair value Discount (113,179) Two to 1,144,421 One to 65,606 64,736 - - - - - - - - - - Less than Carrying Company as of amount December 31, 2012 one year two years fi ve years fi ve years 2012 effect 2012 Current: Borrowings and fi nancing Trade payables Financial instruments Noncurrent: Borrowings and fi nancing 1,057,712 649,887 69,402 1,057,712 649,887 69,402 (58,250) - 11,526 999,462 649,887 80,928 More than 1,261,619 1,458,171 Fair value (133,114) Discount 1,325,057 121,712 Two to One to 74,840 - - - - - - - - - - 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 corres- ponds 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 consolidated fi nancial leverage ratios as of December 31, 2012 and December 31, 2011 are as follows: Company 2011 2012 Consolidated 2011 2012 • Level 2: Used for fi nancial 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, 2012 and December 31, 2011, 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 the reporting period, with the resulting amount being discounted to present value. 1,988,682 Short- and long-term borrowings and fi nancing Derivative fi nancial instruments Cash and cash equivalents and Short-term investments (1,241,254) 667,157 Net debt 1,306,096 Shareholders’ equity 51.08% Financial leverage ratio (80,271) 918,973 2,324,519 1,186,699 (28,184) (80,928) (28,626) (166,007) 724,782 1,250,244 57.97% (1,643,062) 600,529 1,306,097 45.98% (515,610) 642,463 1,250,245 51.39% 4.4. Fair value estimate Financial instruments are measured at fair value at the end of the reporting 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. 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 redee- mable. 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 uc- tuation. 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 15. Trade and other payables It is estimated that the carrying amounts of trade receivables and trade payables ap- proximate their fair values in view of the short term of the transactions conducted. 5. CASH AND CASH EQUIVALENTS Consolidated Cash and banks Floating rate Bank certifi cates of deposit (CDBs) (a) Repurchase agreements (b) Company Consolidated 2011 98,208 2011 144,011 2012 27,929 2012 51,732 21,035 - 72,767 965,777 138,078 - 34,602 166,007 1,144,390 417,402 - 515,610 (a) Investments in Bank Deposit Certifi cates are restated with yield interest ranging from 99.60% to 103.75% of CDI. (b) Repurchase agreements are securities issued by banks with a commitment by the bank to repurchase the security, and by the client to resell the security, at a fi xed price (rate of interest) and within a predetermined term, which are backed by public or private securities (depending on the bank) and are registered with the CETIP. 6. SHORT-TERM INVESTMENTS Exclusives investments funds Government security 2012 1,168,487 Company Consolidated 2011 2012 - - 498,672 - 498,672 - 2011 - - - 1,168,487 - From April 2012, the Company concentrated most of its short-term investments in an investment fund. At December 31, 2012, the amount referring to the exclusive investment fund is stated at fair value through profi t or loss. Under CVM Rule No. 408/04, short-term investments in funds, which the Company has exclusive participation were consolidated. The exclusive funds are as follows: The Fundo de Investimento Sintonia (Sintonia Investment Fund) is a fi xed income private credit fund under the management, administration and custody of BTG Pactual. The assets eligible for inclusion in the portfolio are repurchase operations, CDBs and public debt issu- ances used to guarantee repurchase operations. There is no grace period for the redemp- tion of shares, which may be redeemed with accrued returns at any time. The Fundo de Investimento Essencial (Essential Investment Fund) is a fi xed income private credit fund under the management, administration and custody of Itaú Unibanco. The assets eligible for inclusion in the portfolio are public debt issuances, CDBs and repurchase ope- rations. There is no grace period for the redemption of shares, which may be redeemed with accrued returns at any time. Breakdown of the exclusive fund portfolio at December 31, 2012 is as follows: Floating rate Bank certifi cates of deposit (CDBs) Repurchase agreements Government security (LFT) 7. TRADE RECEIVABLES Trade receivables Allowance for doubtful accounts Sintonia Essencial Total 249,516 31,069 - 280,585 683,563 - 498,672 1,182,235 933,079 31,069 498,672 1,462,820 Company Consolidated 2011 706,861 2011 591,480 724,347 2012 2012 588,980 (58,947) (56,171) 530,033 535,309 (72,931) (64,989) 651,416 641,872 The aging list of trade receivables is as follows: Current Past due: Up to 30 days 31 to 60 days 61 to 90 days 91 to 180 days Allowance for doubtful accounts Company Consolidated 2011 543,472 2011 452,392 567,207 2012 2012 463,023 54,489 23,020 14,448 102,107 14,029 9,950 34,000 13,002 588,980 591,480 72,145 26,481 17,708 117,560 16,254 13,306 40,806 16,269 724,347 706,861 (58,947) (56,171) 530,033 535,309 (72,931) (64,989) 651,416 641,872 The balance of trade receivables in consolidated is basically denominated in Brazilian re- ais, and approximately 84% of the outstanding balance as of December 31, 2012 refers to real-denominated transactions (89% as of December 31, 2011). 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: Balance at 2010 (56,663) Balance at 2010 (65,664) Company Balance at Additions (a) (82,860) Reversals (b) 2011 (56,171) 83,352 Consolidated Additions (a) (88,277) Reversals (b) 2011 (64,989) 88,952 Balance at A movimentação da provisão para créditos de liquidação duvidosa para o exercício fi ndo em 31 de dezembro de 2012 está assim representada: Balance at 2011 (64,989) Additions (a) (138,056) Reversals (b) 2012 (72,931) 130,114 Balance at (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 re- corded in ‘Selling expenses’ in the income statement. When recovery of additional cash is less than probable, the amounts credited to line item ‘Allowance for doub- tful 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. 8. INVENTORIES Finished products Raw materials and packaging Promotional material Work in progress Allowance for losses 2012 2011 Company Consolidated 2011 565.739 149,806 52,288 16,314 (71,557) (95,399) 700,665 688,748 2012 219,626 162,952 - - 18,560 13,871 - - (18,820) (20,280) 158,003 217,906 549,697 150,167 52,273 20,085 The changes in the allowance for inventory losses for the year ended December 31, 2011 are as follows: Balance at 2010 (10,479) Balance at 2010 (75,673) Company Balance at Additions (a) (20,741) Reversals (b) 2011 (20,280) 10,940 Consolidated Additions (a) (66,900) Reversals (b) 2011 (95,399) 47,174 Balance at The changes in the allowance for inventory losses for the year ended December 31, 2012 are as follows: Balance at 2011 (20,280) Balance at 2011 (95,399) Company Balance at Additions (a) (11,803) Reversals (b) 2012 (18,820) 13,263 Consolidated Additions (a) (86,894) Reversals (b) 2012 (71,557) 110,736 Balance at (a) Refer basically to the recognition of the allowance for losses due to discon- tinuation, 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. 9. RECOVERABLE TAXES ICMS on purchases of goods Refundable ICMS - ST on interstate sales, SP (a) 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 (b) IRPJ and CSLL on freight PIS, COFINS and CSLL - withheld at source Other Provision for discount on sale of ICMS credits (c) 2012 Company Consolidated 2011 154.942 2011 - 208.907 2012 - 3.693 - 8.296 - 3.693 26.315 8.296 22.170 12.812 15.428 21.992 24.318 - - 44 7.376 18.512 45.012 21.394 68.187 - 970 - 382 11.887 728 7.881 16.852 3.236 1.362 - 365 3.221 5.184 2.024 8.834 - - 36.369 81.716 23.417 69.417 12.952 12.299 (4.184) (3.376) 295.809 312.859 144.459 201.620 151.350 111.239 Balance at 2011 (56,171) Company Balance at Additions (a) (122,224) Reversals (b) 2012 (58,947) 119,448 Current Noncurrent (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 of 1.5 times the credit amount. (b) 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 illega- lity of the PIS and COFINS taxable basis broadening established by Law 9718/98. The Company received authorization from the Brazilian Internal Revenue Service (“Receita Federal do Brazil”), to offset the credits of the Company following the defi nitive judg- ment of the claim. In December 2012, the judicial proceeding was decided in favor of the Company, and as a result, the Brazilian IRS granted the authorization of credits requested by the Company. (c) The negative goodwill is a result of the desire of the Company to realize its ICMS credits from exports in a prompt and cost-effective manner. As a result, it used a legal provision that permits the sale of such credits. However, the realization of the sale is subject to approval of the Secretaria de Fazenda do Estado de São Paulo – SEFAZ/ SP (Finance Department of the State of São Paulo), and as a result, the sale has not yet been completed. 10. 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: Company Consolidated 2011 2011 2012 2012 Allowance for doubtful accounts (note 7) Allowance for losses on inventories realization (note 8) Reserve for tax, civil and labor contingencies (note 18) Non-inclusion of ICMS in the PIS and COFINS basis (note 18) Actuarial liability - Retirees’ healthcare plan (note 19) Allowance for losses on swap and forward contracts (note 25) Provision for ICMS – ST, PR, DF, MS, MT and RJ States (note 17) 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 22,316 19,098 22,316 19,098 6,399 6,895 20,039 28,219 14,168 17,743 36,273 36,896 656 620 49,342 39,173 14,181 6,573 18,661 9,565 (27,292) (9,583) (27,516) (9,733) 13,856 8,247 13,856 8,247 2,011 7,809 1,992 1,439 2,614 10,310 2,137 2,713 - - 1,422 1,148 8,510 6,178 8,510 6,178 - 15,412 - 3,955 10,019 31,016 9,681 10,947 1,241 1,420 15,546 15,568 94,813 80,145 (9,605) 26,989 214,246 (6,989) 32,272 189,552 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: 2013 2014 2015 2016 and thereafter Company Consolidated 121,423 6,616 49,189 37,018 214,246 57,432 4,514 5,916 26,951 94,813 With respect to the Company’s foreign subsidiaries, except for the operation in Argentina and Peru 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, 2012, tax credits calculated at the prevailing tax rates in the countries where the subsidiaries are located, are as follows: Tax loss carryforwards: Chile Mexico Colombia France 100,146 158,930 95,738 122,578 Tax credits on tax loss carryforwards generated by the subsidiaries can be carried forward indefi nitely, except for the subsidiary in Mexico, which expire as follows: 2014 2015 2016 2017 and thereafter b) Reconciliation of income tax and social contribution México 15 8,524 13,216 137,176 158,931 Company Consolidated 2011 2011 2012 2012 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 13) Unrecognized deferred taxes on tax losses generated by foreign subsidiaries Tax Transition Regime (RTT) - Provisional Act 449/08 – Law 11,638/07 adjustments 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 1,206,129 1,161,791 1,276,100 1,237,730 (410,084) (395,009) (433,874) (420,828) 22,008 6,242 20,189 22,386 6,582 18,628 22,008 8,487 - 22,386 9,668 - - - (11,345) (28,915) 1,352 20,447 (774) 21,067 (5,060) (3,770) (1,413) 20,447 (19,187) (3,242) 21,067 (6,965) (344,907) (330,890) (414,878) (406,829) (359,575) (323,544) (439,572) (416,122) 14,668 (7,346) 24,694 9,293 Effective rate - % 28,6 28,5 32,5 32,9 (*) 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 of 2011 were as follows: Company Charged / (credit) to Balance at 2010 87,491 Balance at profi t or loss 2011 7,346 80,145 Consolidated Charged / (credit) to Balance at 2010 180,259 Balance at profi t or loss 2011 (9,293) 189,552 The changes in income tax and social contribution for the year of 2012 were as follows: Company Charged / (credit) to Balance at Balance at 2011 profi t or loss 2012 80,145 (14,668) 94,813 Balance at 2011 189,552 Balance at profi t or loss 2012 (24,694) 214,246 Consolidated Charged / (credit) to 11. 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, 2012 and December 31, 2011 are as follows: Company Consolidated 2011 80,304 2011 2012 88,475 80,304 2012 88,475 96,898 88,521 96,898 88,521 10,030 9,434 80,361 52,024 11,351 36,576 9,913 1,027 2,056 8,241 10,955 34,373 9,952 1,016 1,886 5,844 11,351 42,337 11,554 1,118 2,167 10,123 10,955 38,254 11,515 1,108 1,992 6,999 ICMS - ST (note 18.(a)) ICMS - ST suspended collection (note 17 (b)) Other accrued tax obligations (note 17 (e) and (f)) Other suspended tax obligations (noteº 18.(c)) Unaccrued tax lawsuits Accrued tax lawsuits (note 18) Unaccrued civil lawsuits Accrued civil lawsuits (note 18) Unaccrued labor lawsuits Accrued labor lawsuits (note 18) 12. OTHER CURRENT AND NONCURRENT ASSETS Company Consolidated 2011 2011 2012 2012 Advances to advertisement services Asset held for sale (a) Advances to employee Advances to trade payables Insurance Restricted cash - CDBs (b) Others Current Non-current 138,149 4,327 3,666 2,548 2,123 - 111,690 - 3,867 2,504 1,829 - 2,906 - 153,719 119,890 130,532 115,328 23,187 4,562 139,149 22,079 5,479 5,096 2,699 - 24,580 199,082 157,787 41,295 112,666 17,752 5,750 3,643 2,464 6,757 7,686 156,718 126,783 29,935 (a) This balance refers to assets which the company intends to sell one of the next 12 months as CPC 31-non-current assets held for sale (IFRS 5). These assets are measu- red at the lower value between the carrying amount and fair value less costs to sell. The company classifi es these assets under this heading by considering selling highly probable and the assets are available for immediate sale in its present condition. Once classifi ed as intended for sale, the assets are not depreciated or amortized. (b) 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 ma- nufacturing establishments under Law 7798/89. The lawsuit is pending a decision on the appeal from the defendant at the Federal Regional Court of the 3rd region (São Paulo). Based on the Company’s legal counsel assessment the likelihood of loss in this lawsuit is possible. On December 17, 2012, this value was released in exchange for a letter of guarantee. 13. INVESTMENTS Company 2011 2012 1,311,364 1,253,721 3,031 2,653 267,598 244,938 5,153 4,167 349,537 295,839 Investments in subsidiaries and jointly controlled entities Information and changes in the balances for the year ended December 31, 2012 and 2011 Indústria e Comércio de Cosméticos Natura Ltda. S.A. - Chile S.A. - Peru Argentina Venezuela Ltda. Natura Cosméticos C.A. - Natura Cosméticos S.A. - Natura Cosméticos Natura Cosméticos Natura Cosméticos de México S.A. Natura Inovação e Tecnologia de Produtos Natura Cosméticos Ltda. - Natura (Brazil) International B.V. - The Natura Biosphera Comércio de Cosméticos e Serviços Natura Cosméticos (*) Colômbia Netherlands (*) España S.L. Ltda. Total 526,155 99,99% 124,846 99,99% 30,181 99,94% 101,248 99,97% 7,200 99,99% 5,008 99,99% 225,054 99,99% 102,843 99,99% (5,784) 100,00% 73 100,00% 100 1,116,924 99,99% 1,105,729 1,105,618 36,537 36,533 5,469 5,466 80,562 80,538 334 334 31,290 31,287 30,215 30,212 10,863 10,862 10,283 10,283 142 142 89 1,311,513 89 1,311,364 89,528 11,758 (9,995) 12,222 - 16,080 (23,678) (21,758) (14,772) - (11) 59,374 930,614 124,881 23,246 (3,535) (891) (4,725) 56,902 7,683 273 (1) 45,021 15,527 26,950 (46,019) 8,782 (20,970) 8,208 (18,052) 83 - - 1,099,188 54,789 - - 672 357 2,431 34 89 (384) 1,893 469 - - 5,561 4,839 - 7,010 (34,000) - - 6,744 5,809 - - 67,049 23,729 17,819 23 - 121,173 2,171 (34,000) - - - - - - - - - - - - - - - - - - 1,060,334 20,383 1,485 72,825 306 28,808 47,596 13,434 8,444 106 - - (14,771) (21,756) (23,676) 12,218 (9,989) 11,756 16,080 89,529 - 1,253,721 59,380 (11) - 4,394 (675) (4,505) 28 170 6,292 1,988 (256) 5,755 (50,000) 2,377 - (16,148) - - - 14,645 - - - - - - - - - - - - - - - - 17,196 16,866 36 1,105,618 36,533 5,466 80,538 334 31,287 30,212 10,862 10,283 142 89 1,311,364 - - - - 7,436 - - 8,132 (66,148) 100 48,843 Share capital Equity interest Subsidiaries’ shareholders’ equity Interest in shareholders’ equity Subsidiaries’ net income (loss) for the year Carrying amount of investments Balance as of December 31, 2010 Equity in investees 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 Balance as of December 31, 2011 Equity in investees 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 Balance as of December 31, 2012 (*) 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 (Brazil) International B.V. (The Netherlands), Natura Brazil Inc. (USA - Delaware), Natura International Inc. (USA - New York), Natura Europa SAS (France) and Natura Brasil SAS (France). Natura Inovação e Tecnologia de Produtos Ltda.: Ybios S.A (until June 29, 2012) and Natura Innovation et Technologie Produits S.A.S. - France 14. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS Weighted Company average annual depreciation Adjusted Accumulated PROPERTY, PLANT AND EQUIPMENT Vehicles Leasehold improvements (a) Machinery and equipment Buildings Furniture and fi xtures IT equipment Projects in progress INTANGIBLE ASSETS Software and other Carbon credits (c) PROPERTY, PLANT AND EQUIPMENT Machinery and equipment Buildings Installations Land Molds Vehicles IT equipment Furniture and fi xtures Leasehold improvements (a) Projects in progress Other average annual depreciation Adjusted Accumulated average annual depreciation Adjusted Accumulated rate - % cost 39,872 41,108 123,467 56,694 16,039 66,832 100,187 444,199 21 15 4 15 7 18 - Weighted rate - % cost 238,840 9,664 248,504 17 - Weighted rate - % cost 439,844 207,836 144,090 27,484 137,492 64,766 93,910 39,446 57,395 341,884 4,688 1,558,835 6 4 9 - 30 21 19 11 15 - 3 Weighted 2012 Residual Adjusted Accumulated 2011 Residual depreciation amount cost depreciation amount 22,019 23,575 107,423 56,694 8,627 43,843 70,034 332,215 (21,270) (24,247) (16,251) - (5,131) (19,857) - (86,756) 18,602 16,861 107,216 56,694 10,908 46,975 100,187 357,443 39,010 35,419 114,844 56,694 11,633 50,867 70,034 378,501 (16,991) (11,844) (7,421) - (3,006) (7,024) - (46,286) Company 2012 Residual 2011 Residual depreciation amount cost depreciation amount 71,492 7,437 78,929 (42,468) - (42,468) (17,356) - (17,356) 88,848 7,437 96,285 196,372 9,664 206,036 Adjusted Accumulated Consolidated 2012 Residual Adjusted Accumulated 2011 Residual depreciation amount cost depreciation amount 265,559 147,436 59,407 27,214 28,102 37,060 52,372 21,039 32,018 128,287 1,940 800,434 (174,839) (66,028) (81,451) - (105,197) (27,228) (40,001) (15,738) (34,012) - (2,252) (546,746) (145,342) (60,400) (73,512) - (87,966) (22,430) (23,933) (11,937) (18,581) - (2,256) (446,357) 410,901 207,836 132,919 27,214 116,068 59,490 76,305 32,976 50,599 128,287 4,196 1,246,791 265,005 141,808 62,639 27,484 32,295 37,538 53,909 23,708 23,383 341,884 2,436 1,012,089 Consolidated 2012 Residual Adjusted Accumulated 2011 Residual depreciation amount cost depreciation amount 150,214 5,074 7,437 29 162,754 (63,596) - - (883) (64,479) (32,676) - - (1,623) (34,299) 182,890 5,074 7,437 1,652 197,053 213,228 5,600 9,664 53 228,545 average annual depreciation Adjusted Accumulated INTANGIBLE ASSETS Software Business lease - Natura Europa SAS – France (b) Carbon credits (c) Trademarks and patents rate - % cost 276,824 5,600 9,664 936 293,024 18 - - 10 (a) The amortization rates take into consideration the lease terms of leased properties, which range from three to seven 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 indepen- dent 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, 2012 and December 31, 2011 is basically due to the effects of the exchange fl uctuation for the period. (c) Carbon Neutral Program (note 2.11.3). Additional information on property, plant and equipment: a) Assets pledged as collateral As of December 31, 2012, the Group has property, plant and equipment items pled- ged as collateral of bank fi nancing and loan transactions, as well as items attached to the defense of lawsuits, as shown below: 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, 2012, the balance of lease payables, classifi ed in line item “Borrowings and fi nancing” (note 15) totals R$69,263 (R$79,673 as of December 31, 2011). IT equipment Vehicles Total Company Consolidated 1,074 100 1,174 487 100 587 c) Balance of capitalized interest Buildings Consolidated 2011 1,479 2012 1,453 The Company did not capitalize interest during the year ended December 31, 2012 and 2011. Changes in property, plant and equipment Balance at beginning of year Additions (less transfers from projects in progress - when terminated): Machinery and equipment Projects in progress Vehicles Molds Facilities IT equipment Furniture and fi xtures Other Company Consolidated 2011 560,467 2011 800,434 2012 92,175 2012 332,215 4,967 44,134 11,379 - - 11,507 3,975 28,373 114,902 15,069 - - 40,611 4,176 2,351 4,777 207,908 78,313 22,487 235,376 20,386 13,904 3,059 12,805 5,181 45,037 165,726 21,031 15,344 6,112 11,377 5,679 3,443 5,524 275,830 316,641 Leases Depreciation Acquisitions of subsidiaries Transfers and disposals, net Balance at yearend - (38,483) 461 56,694 (20,814) - (15,063) (3,748) 357,443 332,215 56,694 - (84,108) (100,016) - - (4,970) (8,449) 1,012,089 800,434 Changes in intangible assets Balance at beginning of year Additions: Software (includes implementation costs) Carbon credits Transfers and disposals, net Acquisitions of subsidiaries Amortization Balance at yearend Company Consolidated 2011 120,073 2011 162,754 2012 18,586 2012 78,929 95,427 64,993 9,729 4,135 69,128 (2,034) - (25,111) (6,751) 206,036 78,929 105,156 (5,063) 52,125 111,081 66,402 9,729 4,135 70,537 120,810 (2,043) (13,857) - - (41,162) (25,813) 228,545 162,754 15. BORROWINGS AND FINANCING Company 2011 2012 Consolidated 2012 2011 Reference Local currency BNDES – EXIM FINEP (Financing Agency for Studies and Projects) Debentures BNDES Working capital / NCE BNDES FINAME Banco do Brasil - FAT Fomentar (Workers’ Assistance Fund) Finance leases FINEP – grant Total local currency Foreign currency BNDES Resolution 4131/62 International operation – Peru International operation – Mexico ACE Machinery fi nancing Total foreign currency Grand total Current Noncurrent - - - 67,607 A - 352,240 77,918 - - - 353,256 21,708 48,613 - 75,178 352,240 203,258 72,448 5,660 27,106 353,256 141,689 48,613 7,336 - 47,803 - 477,961 - 56,729 - 480,306 1,324 47,803 2,697 56,729 705 289 705,322 758,616 14,545 1,474,716 4,486 411,237 19,152 1,474,716 10,713 411,237 - - - - - - 27,278 36,483 2,117 21,180 - - 21,460 22,944 21,460 22,944 1,510,721 1,988,682 844,261 1,144,421 438,667 918,973 66,424 852,549 1,565,903 2,324,519 999,462 1,325,057 481,377 1,186,699 168,962 1,017,737 B C D E F G H I J K L M N O Reference Currency Maturity Charges Collaterals Real Real Real Real Real Real Real Real Real Dollar USD A B C D E F G H I J K L M N O March 2014 March 2013 and May 2019 May 2013 Through May 2020 Interest of 2.5% p.y. + TJLP. Early settlement agreement. TJLP (b) for the installment maturing in 2013 and interest of 5% for the installment maturing in May 2019 Interest of 108% of CDI maturing in May 2013 TJLP + Interest of 0,7% to 2,8% p.y. for the installment maturing in March 2016 to 3.3% for the installment maturing in 2020. April 2013 105,9% do CDI a.a. Through March 2017 Interest of 4.5% p.y. + TJLP February 2014 Interest of 4.4% p.y. + TJLP Through August 2026 Interest of 108% of DI - CETIP (c) Guarantee of Natura Cosméticos S.A. Guarantee of Natura Cosméticos S.A. and bank guarantee None Bank guarantee Guarantee of Natura Cosméticos S.A. Chattel mortgage, guarantee of Natura Cosméticos S.A. and promissory notes Chattel mortgage, guarantee of Natura Cosméticos S.A. and promissory notes Leases are collateralized by the underlying assets July 2015 July 2020 Dollar USD Through July 2015 N/A None Exchange fl uctuation + 2.3% p.y. + Resolutionº 635 (a) Exchange fl uctuation + interest of 1.87% to 3.89% p.y. (a) Guarantee of Natura Cosméticos S.A. and bank guarantee Guarantee of subsidiary Indústria e Comércio de Cosméticos Ltda. Novo sol December 2013 Interest of 5.2% p.y. Bank guarantee Peso an Peso June 2014 Interest of 5.7% p.y. Guarantee of Natura Cosméticos S.A. Dollar USD Dollar USD April 2013 December 2016 Exchange fl uctuation + interest of 1,15% p.y Guarantee of Natura Cosméticos S.A. Exchange fl uctuation + interest of 3.87% p.y. (a) Chattel mortgage of immovable object of contracts (a) Loans and fi nancing for which swap contracts (CDI) were entered into. (b) 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: 2014 2015 2016 2017 and thereafter 2012 2011 2012 253,617 806,435 26,513 Company Consolidated 2011 840,496 48,132 38,413 97,950 90,696 1,017,737 1,325,057 771,468 11,067 8,364 57,856 61,650 1,144,421 852,549 315,314 864,748 47,045 A description of the outstanding bank loan agreements is as follows: a) Description of bank loans 1. 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 Ser- ra, SP unit and purchase the equipment necessary for these purposes. 2. Financing agreement with the FINEP The subsidiary Natura Inovação e Tecnologia de Produtos Ltda. has innovation pro- grams aimed at the development and acquisition of new technologies by means of partnerships with universities and research centers in Brazil and abroad. These innova- tion 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 “Re- search and Innovation for the Development of New Cosmetics” projects. 3. 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 manu- factured 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 Itaú Unibanco S.A. and Banco do 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 Cos- méticos Natura Ltda. is the trustee and the Company is the guarantor of these as- sets. 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. 4. Resolution nº 4.131/62 Bank Credit Note - Onlending of funds raised abroad under law 4131/62, through fi nancial institutions. 5. 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. 6. NCE Export Note (“Nota de Crédito à Exportação”) – Funds for use as working capital for export purposes, with interest payable on a monthly basis and principal maturing on April 15, 2013. b) Finance lease obligations Financial obligations are broken down as follows: Consolidated 2011 2012 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 14,561 49,592 70,718 134,871 (65,608) 69,263 12,633 54,102 78,800 145,535 (65,862) 79,673 Future fi nancing charges on fi nance leases Financial lease obligations - accounting balance Accounting balance of property, plant and equipment: leasing and ‘sale leaseback’ c) Restrictive covenants As of December 31, 2012 and December 31, 2011, 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. The agreement entered into with BNDES in July 2011 contains restrictive covenants requi- ring maintenance of the following fi nancial ratios: 77,924 80,378 - 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 30, 2012, the Company was fully compliant with such restrictive covenants. 16. TRADE AND OTHER PAYABLES Domestic trade payables Foreign trade payables (*) Freight payable 2011 2012 223,433 10,308 Company Consolidated 2011 435,328 18,765 19,012 34,887 649,887 488,980 133,762 15,043 18,577 34,512 252,318 183,317 615,189 15,686 2012 (*) Refer mostly to US dollar-denominated amounts. 17. TAXES PAYABLE 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) Action for annulment of INSS debt (f) Withholding PIS/COFINS/CSLL PIS/COFINS Taxes - foreign subsidiaries Service tax (ISS) Escrow deposits ((b), (e) and (f)) (note 11) Current Noncurrent Company Consolidated 2011 2011 2012 2012 1,929 100,696 1,823 59,894 145,124 100,184 115,214 81,687 96,898 93,446 88,105 4,630 8,844 89,301 127,458 56,941 2,656 7,621 96,898 132,548 88,105 8,693 13,403 89,301 150,639 56,941 6,029 11,974 - - 44,766 42,432 6,809 6,361 6,973 6,519 3,222 3,073 5,652 2,490 - - - - 530 364 410,761 357,982 3,222 6,092 - 30,709 3,073 3,324 1,110 17,888 2,051 1,214 678,768 587,345 (106,928) (97,955) 303,833 260,027 106,928 97,955 (177,259) (140,545) 501,509 446,800 177,259 140,545 (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 ba- lances recognized as of December 31, 2012 refer to the unpaid amounts of PIS and COFINS, from April 2007 to December 2012 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$28,653, is deposited in escrow. (b) As of December 31, 2012, R$14,083, R$74,037, R$308 and R$8.470 of the total amount recognized refer to the ICMS - ST of State of Paraná, Federal District, State of Mato Grosso and State of Rio de Janeiro, respectively. 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. This unpaid ICMS- -ST amount is being questioned in court by the Company and is the subject matter of a monthly judicial deposit, as also mentioned in note 18 ‘Contingent tax liabilities - possible risk’, (a). 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 of the State of Paraná. Accordingly, Natura Cosméticos recognized the MVA application (up to the cap de- termined 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 (reduction in the basis of calculation of ICMS for HPPC products). The MVA applicable to taxable events prior to November 2011. (c) On February 4, 2009, the Company was granted an injunction, subsequently confi r- med by court decision, that suspended the collection of income tax and social contri- bution on any amounts received as arrears interest, paid on late payment of contrac- tual 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 and 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 reinstate- ment 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$44,766 as of December 31, 2012 (R$42,432 as of December 31, 2011). 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 did not have any amount involved. Thus, the subsidiary awaits the transfer to the State of the escrow deposits after a fi nal and non-appealable decision is issued regarding the credits on products acquired at IPI rate reduced to zero. (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 dro- pping 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 non-appealable decision. (f) 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. Tax installment program established by Law 11941/09 On May 27, 2009, Federal Government enacted Law 11941, as a result of the conver- sion 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), Spe- cial 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 pay- ments, 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 install- ment 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) IRPJ/CSLL/ILL debts (b) Action for annulment of INSS debt (a) IRPJ/CSLL/ILL debts (b) (a) See item (f) on this note for details. (b) See item (e) on this note for details. 2011 Additions Reversals - - - - - - 3.073 6,361 9,434 Company Infl ation 2012 3,222 6,809 10,031 Payments adjustment 149 448 597 - - - 2011 Additions Reversals - - - - - - 3,073 6,519 9,592 Consolidated Infl ation 2012 3,222 6,973 10.195 Payments adjustment 149 454 603 - - - Due to the lack of tax loss carryforwards, the Company will not offset them against the remaining balance of the interest on installments. 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. As mentioned in item (d) above, subsidiary Indústria e Comércio de Cosméticos Na- tura 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, 2012, 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. 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. Tax contingencies The provision for tax contingencies is broken down as follows: 18. PROVISION FOR TAX, CIVIL AND LABOR CONTINGENCIES The Company and its subsidiaries are parties to tax, labor and civil lawsuits and admi- nistrative tax proceedings and an arbitration proceeding. 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 2011 2012 23,903 12,141 Company Consolidated 2011 33,850 16,986 10,844 14,121 63,293 64,957 27,612 12,234 2,444 9,754 38,488 49,600 36,211 16,238 2012 2011 Additions Reversals Company Infl ation 2012 Payments adjustment 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) Attorney and other fees (f) Total provision for tax contingencies Escrow deposits (note 11) 794 7,885 4,968 3,514 10,451 27,612 (9,952) - - 608 - 2,707 3,315 - - (7,006) - - (481) (7,487) 395 - - - - - - - 27 (879) 121 134 1,060 463 (356) 821 - 5,697 3,648 13,737 23,903 (9,913) 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) Semiannual PIS - Decree Laws 2445/88 and 2449/88 (e) Attorney and other fees (f) Total provision for tax contingencies Escrow deposits (note 11) (a) Refers to fi ne for late payment of Federal taxes. 2011 Additions Reversals - (7,006) - - (2,420) (481) (9,907) 420 865 7,885 4,968 3,514 2,320 14,298 33,850 (11,515) 10,865 11,473 - - - 608 - - Consolidated Infl ation 2012 893 - 5,697 3,648 - 25,973 36,211 (11,554) Payments adjustment 28 (879) 121 134 100 1,291 795 (459) - - - - - - - - (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. During the year, due to judgments in similar cases, the chances of loss were reclassifi ed from remote to possible, in accordance with the evaluation of the Company’s legal advisors. (c) Refers to attorney fees for the defense in the tax assessment notices issued against the Company in August 2003, 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 1999, 2001 and 2002, respectively. The tax assessment notices referring to 2001 and 2002 are pending from a fi nal and non-appealable decision from the Board of Tax Appeals (CARF) ruling. The legal counsel’s opinion is that the likelihood of unfavorable outcome in these tax assessment notices is remote. A fi nal and non-appealable 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. (e) 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 consideration of the lawsuit by the Board of Tax Appeals, and the provision has been reversed because the Company’s legal advisors consider the chances of loss to be remote. (f) The balance refers to lawyer fees to defend the Company’s and its subsidiaries’ interests in tax lawsuits. The amount of (i) R$4,994, accrued in 2009, refers to lawyers’ fees to prTepare 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 amor- tization carried out resulting from the merger of Natura Participações S.A. which has goodwill related to its investment in the then subsidiary Natura Empreendimentos S.A. In December 2012, the proceeding was decided by the Board of Tax Appeals, which rendered a judgment partially in favor of the Company to reduce the fi ne. On the merits, the decision was unfavorable for the Company, and the Company is awaiting the formal issuance of the administrative decision to appeal to the Higher Administrative Board of Tax Appeals (“Câmara Superior de Recursos Fiscais” -CSRF). In April 2012, a favorable ruling was rendered by CARF on a case involving internal goodwill, thus representing important case law for the Company. In the opinion of the Company’s legal advisors, the operation as it was structured and its tax effects are defensible, reason why the case is assessed as involving remote loss; and (ii) R$760 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 2011 Additions Reversals Company Infl ation 2012 Payments adjustment Several civil lawsuits (a) Lawyer fees - environmental civil lawsuit (b) Civil lawsuits and lawyer fees - Nova Flora Participações Ltda, (c) Total provision for civil contingencies Escrow deposits (note 11) 6,787 1,535 3,912 12,234 (1,886) 6,783 250 176 7,209 (1,251) (5,936) - - 148 82 (681) - 336 (1,932) (5,936) 566 (170) - - - 6,531 1,867 3,743 12,141 (2,056) 2011 Additions Reversals Consolidated Infl ation 2012 Payments adjustment Several civil lawsuits (a) Lawyer fees - environmental civil lawsuit (b) Lawyer fees - IBAMA (c) 7,723 1,535 3,816 7,148 475 522 (1,262) (6,204) - (1,629) (83) - 235 136 7,640 2,063 83 2,792 Civil lawsuits and lawyer fees - Nova Flora Participações Ltda (c) 3,912 176 (681) - 336 3,743 Total provision for civil contingencies Escrow deposits (note 11) 16,986 8,321 (3,572) (6,287) 790 16,238 (1,992) (175) - - - (2,167) (a) As of December 31, 2012, the Company and its subsidiaries are parties to 2,247 civil lawsuits and administrative proceedings (2,491 as of December 31, 2011), of which 2,123 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$1,256 with respect to legal fees, ad exitum, for the defense of the Company’s interests in the public lawsuit fi led by the Federal Public Prose- cution 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 and 2011 for alleged irregular access to biodiversity. Through December 2012, the Company had been imposed 70 fi nes by IBAMA, totaling approximately R$21,805, and fi led administrative defenses for all of them, two of the administrative proceedings were subsequently cancelled. In the remaining cases, there was no defi nitive decision issued by IBAMA, which is why such fi nes do not represent eligible credits. 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 – despite having recently established the Negotiation Committees, 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 the most of the requests with the Regulatory Body for authorization to have access to biodiversity as well as in relation to the authorizations already issued to private companies. Labor contingencies As of December 31, 2012, the Company and its subsidiaries are parties to 589 labor lawsuits fi led by former employees and third parties (827 as of December 31, 2011), clai- ming 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 pro- gress of lawsuits and history of losses on labor claims to refl ect the best current estimate. Company 2011 Additions Reversals adjustment 2012 Infl ation Total provision for labor contingencies Escrow deposits (note 11) Total provision for labor contingencies Escrow deposits (note 11) 9,754 4,629 (13,463) 1,524 2,444 (2,653) (378) - - (3,031) Consolidated Infl ation 2011 Additions Reversals adjustment 2012 14,121 9,217 (18,134) 5,640 10,844 (4,167) (986) - - (5.153) 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 2011 2012 2012 Tax: Declaratory Action - ICMS - ST (a) IPI assessment notice (b) Administrative proceeding - ICMS - ST assessment, DF (c) Administrative proceeding - ICMS - ST assessment, PA (c) Administrative proceeding - tax debt - ICMS - ST, RS (d) Tax assessment notice – Rio Grande do Sul State Department of Finance (e) Tax assessment notice - São Paulo State Department of Finance - ICMS audit (f) Tax assessment - transfer pricing on loan agreements with foreign related company (g) Administrative proceeding - ICMS - ST assessment, PR (h) Administrative proceeding – Offset - COFINS / Freight (i) Administrative proceeding - tax debt - ICMS - ST -DF (j) Others Civil Labor 88,475 2,929 80,304 5,451 88,475 2,929 80,304 5,451 9,652 8,815 571 3,423 9,950 9,066 9,652 571 9,950 8,815 3,423 9,066 34,815 30,184 34,815 30,184 - - 10,719 9,837 1,915 1,856 1,915 1,856 145,351 34,576 - - 145,351 34,576 - - 101,383 131,027 - 47,104 560,644 186,203 2,953 80,031 42,792 679,636 231,948 38,961 101,383 147,116 587,452 39,334 135,952 762,738 - 54,095 203,031 3,076 73,856 279,963 (a) As of December 31, 2012, the balance recorded is broken down as follows: 1. ICMS - ST - PR - R$46,670 (R$49.962 as of December 31, 2011) - 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 November 2011, is fully deposited in escrow, as mentioned in notes 11 and 17 (b), and its collection is suspended. 2. ICMS - ST - DF - R$23,904 (R$15.401 as of December 31, 2011) - 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 2012, is fully deposited in escrow, as referred to in notes 11 and 17 (b), and its collection is suspended. 3. ICMS - ST - MS R$9,734 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 February 2010 to December 2011, was fully deposited in escrow, as referred to in notes 11 and 17 (b). In October of 2012 was signed an agreement between the parties and this paid off with the capabilities of the escrow. 4. ICMS - ST - MT – R$3,674 (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 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 11 and 17 (b), and its collection is suspended. 5. ICMS - ST - SC – R$14,227 (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 2011 and February 2012 to December 2012, is fully deposited in escrow, as referred to in notes 11 and 17 (b), and its collection is suspended. (b) Refers to a tax collection lawsuit intended to collect IPI relating to equal tre- atment of wholesale commercial establishments and industrial establishments. The appeal fi led by the Company awaiting the fi nal judgment. (c) Tax assessment notice collecting ICMS - ST, issued by the Federal District and State of Pará, 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. (d) Tax assessment notice issued by the Rio Grande do Sul State Depar tment 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. (e) 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. (f) Tax assessment notice issued by São Paulo State Department of Finance to subsidiary Indústria e Comércio de Cosméticos Natura 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 de- fense having obtained a favorable ruling, against which a special appeal was lodged by the tax authorities. This appeal is waiting judgment. (g) Refers to a tax assessment notice whereby the Federal Revenue Service is de- manding the payment of IRPJ and CSLL on the difference of interest on loan agre- ements 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 (CARF), which is awaiting judgment. (h) Tax assessment notices issued by the Parana state authorities due to alleged incorrect calculation of VAT ICMS ST payable to the state in the period from Fe- bruary to December 2007, January to April 2008, October 2008 to January 2009, March 2009 to September 2010, November 2010, and April to August 2011.. ICMS ST charged mentioned above is being paid by as a judicial deposit in connection with a lawsuit fi led by the Company questioning lawfulness of the changes in the tax calculation base introduced by Paraná State Decree No. 7018/06, as mentio- ned in Notes 11 and 17 (b). The tax assessment notices are pending of judgment by the administrative authorities. (i) Refers to the denial of the request for restitution related to the credit right (COFINS), established (extemporaneously) with respect to freight charges incur- red in sales of products subject to concentrated taxation (taxation concentrated on a single stage of the production chain) during the period from May 2004 to October 2007, and, consequently, the declared tax offset was not approved. The Company presented its defense in the administrative proceeding, which is pending fi nal judgment. (j) Tax assessment notice issued by the Federal District, relating to the allegedly incorrect calculation of ICMS – ST due to the state during the period from January 2007 to December 2011. The ICMS ST claimed by the state has been paid as a judicial deposit in the lawsuit brought by the Company in which it denies responsi- bility for the collection of ICMS ST, due to the absence of a legal provision and of criteria for the measurement of the basis for calculating the tax, or, consequently, the necessity of entering into an agreement setting the basis for the calculation of ICMS-ST, as discussed in notes 11 and 17(b). The tax assessment notice is pending judgment by administrative authorities. (k) As of April 9, 2012, Natura Cosméticos S.A. submitted to arbitration matters of Particular Instrument of Atypical and other lease Covenants, signed in December 21, 2010 with RB Capital Anhanguera property investment fund-IFI and Marcacel Holdings, arising from delay in delivery of the enterprise, as well as construction spending overruns in much higher values and that Natura recognizes as “scope’s additional requests” and riding $ 11.78 million (as mentioned in Notes 14 and 15). The amount in dispute is in nominal values, approximately $ 46 million in addition to fi nes and indemnities in minimum nominal values of r $ 16 million that Natura snake in his favor. The term of Arbitration was signed by the parties on September 19, 2012 and in November 5, 2012 the Natura Cosméticos S.A. (“applicant”) has submitted its Initial Claims. In December 18, 2012, RB Capital presented his replica and your request opposed and in January 21, 2013, Natura presented his fi nal ma- nifestation. The legal advisors assess the possibility of loss as possible, considering the still very early stage of the dispute arbitration. Tax assessment with the possibility of loss as remote The subsidiary Natura cosmetics industry and Commerce Ltda. was assessed in December 20, 2012 by the internal revenue service of Brazil – RFB in the total amount of R$627,876, being two violation notices the fi rst referring to the IPC re- presenting R$297,130 and the second to PIS and COFINS representing R$330,746 the value plus fi nes and interest totals R$1,367,072. Violation notices in both the main challenge of the tax authorities is that the subsidiary would have practiced incorrect prices on sales operations for Natura Cosméticos S.A. and, therefore, the basis for calculation of taxes (IPI, PIS and Cofi ns) would be less than due. To reach this conclusion, the tax authorities criticize Natura’s organizational structure, sepa- ration of the operational activities of industrialization and distribution in different legal entities, as well as the profi t margin adopted by the subsidiary for the purpose of selling price in transactions intended for Natura, its interdependent pursuant to current legislation for IPI. The internal and external lawyers ‘ opinion is that the ar- guments brought by the tax authorities are not considering the legislation in force at the time of the facts, the legal system in which it is inserted this legislation, as well as the current administrative jurisprudence with several favorable precedent, and therefore the chances of both violation notices are considered remote. Contingent assets 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 court the unconstitutionality and illegality of the increase in the tax basis for PIS and COFINS established by Article 3, Paragraph 1, of Law 9718/98. The amounts involved in the lawsuits, updated to December 31, 2012, are R$22,718 (R$21.935 as of December 31, 2011). In the fi rst quarter of 2011, the 3rd Region Federal Court publi- shed a court decision, on a Motion for Clarifi cation of Judgment fi led 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 recog- nized PIS and COFINS credits in the amount of R$21,915 in line item ‘Recoverable taxes’ related to undue payments made in the fi ve years prior to the date the lawsuits were fi led, as a balancing item to line item ‘Other operating income (expenses)’ for the period. Considering that there was a decision issued by the Federal Regional Court – TRF of 3rd region in favor of the Company, this credit is no longer classifi ed as contingent asset, as mentioned in Note 9. b) 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 March 2004 to March 2007. The amounts of the refund requests as of December 31, 2012 are R$108,618(R$135.305 as of December 31, 2011). The legal counsel believes that the likelihood of a favorable outcome is probable. The Company and its subsidiaries do not recognize the above mentioned contingent assets in the fi nancial statements, in accordance with CPC 25 - Provisions, Contingent liabilities and Contingent Assets. 19. OTHER PROVISIONS Retirees’ healthcare plan Carbon credit Other provisions 2011 2012 41,709 13,686 Company Consolidated 2011 28,132 16,486 20,389 191 88,961 44,809 19,332 16,486 13,365 - 68,760 35,818 54,886 13,686 2012 The Group has a postemployment healthcare plan for a group of former employees and their spouses that is governed by specifi c rules. The recognition of actuarial gains and losses is immediate by result as mentioned in notes 2.23. As of December 31, 2011, the plan had 1,073 (Company) and 2,144 (Consolidated) participants. As of December 31, 2012, the Group had a provision for the actuarial liability arising from this plan, totaling R$41,709 (Company) and R$54,886 (Consolidated) (R$19,332, Com- pany and R$28,132, Consolidated as of December 31, 2011). During this period the effects from this plan are recorded in the income statement as a cost of service representing an amount of R$1,985 – Company and R$2,737 – Consolidated, and interest cost, as a result of decreased returns during the year due to reductions in the Selic tax by the Committee of Monetary Policy (Copom), amounting to R$20,392 – Com- pany and R$24,017 – Consolidated. The carried liability was calculated by an independent actuary taking into consideration the following main assumptions: Financial discount rate Increase in medical expenses Long-term infl ation rate Final rate of medical infl ation – after 10 years Rate of growth of medical costs for ageing costss Rate of growth of medical costs for aging contributions Invalidity table General mortality table Turnover table 2012 9.50 11.2 a 6.2 5.2 6.20 3.50 1.50 Annual percentage (in nominal terms) 2011 10.5 10.5 a 5.5 4.5 5.50 3.50 1.50 Wyatt 85 Wyatt 85 Class 1 RP2000 T-9 service table Class 1 RP2000 T-9 service table The changes in the actuarial liability for the year ended December 31, 2012 are as follows: 20. SHAREHOLDERS’ EQUITY a) Issued capital As of December 31, 2012, the Company’s capital was R$427.073. In the year of 2012 there was no change in capital, which is made up of 431,239,264 subscribed and paid-up common registered shares. The Company is authorized to incre- ase its capital, irrespective of an amendment to the articles of incorporation, up to the limit of 441,310,125 (for hundred and forty-one million, three hundred and ten thousand, one hundred and twenty-fi ve) common shares with no par value by resolution by the Board of Directors, which will lay down the issuance conditions, including price and deadline for payment. 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, in the period, of previously recog- nized reserves for contingencies. • Decrease in the amounts intended for the recognition, in the period, of the legal reser- ve and reserve for contingencies. • Whenever the amount of the minimum mandatory dividend exceeds the portion of the net income realized for the year, management may propose, and the General Assem- bly approve, to allocate the excess to the earnings reserve. 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 18, 2012 dividends were paid in the amount of R$467,324 (R$1.09117684 per share) and interest on capital in the amount of R$23,627, before taxes (R$0.05516776 per share, before taxes), in accordance with the distribution of net income for the year ended December 31, 2011, approved by the Board of Directors on February 15, 2012 and confi rmed by the Annual Shareholders’ Meeting held on April 13, 2012. Such amount plus the dividends in the amount of R$295,302 and interest on capital in the amount of R$37,506 which were paid in August 2011 totals a distribution of approximately 99% of the net income for the year ended December 31, 2011. On July 25, 2012, the Board of Directors approved the payment of interim dividends and interest on equity, referring to the results earned in this quarter 2012, in the amount of R$327,018 (R$0.76223929 per share) and R$36,515, before taxes (R$0.08511173 gross per share), respectively. The total amount of interim dividends and interest on equity corresponds to 99% of consolidated net income recorded the fi rst semester of 2012. On August 15, 2012 interim dividends and interest on equity were paid. In addition, on February 6, 2013, the Board of Directors approved a proposal to be submitted to the Annual Shareholders’ Meeting to be held on April 12, 2013, for the payment of dividends and gross interest on capital totaling R$469,512 and R$21,831 (R$18,557, net of IRRF), respectively, related to income for 2012, which added to the R$327,018 in dividends and the R$36,515 in interest on capital paid in August 2012 correspond to a distribution of approximately 100% of net income for 2012 Dividends were calculated as follows: Net income for the year Tax incentive reserve - investment grant Calculation basis for minimum dividends Mandatory minimum dividends Annual minimum dividend Proposed dividends Interest on capital IRRF on interest on capital Total dividends and interest on capital, net of IRRF Amount exceeding mandatory minimum dividend Dividends per share - R$ Interest on capital per share, net - R$ Total dividends and interest on capital per share, net - R$ Company 2012 861.222 (6.346) 854.876 30% 256.463 796.531 58.347 (8.752) 2011 830.901 (3.677) 827.224 30% 248.167 762.563 61.130 (9.170) 846.126 814.523 589.663 1,8559 0,1156 566.356 1,7760 0,1208 1,9715 1,8968 Company current service cost Cost of interest Recognition of actuarial Losses/(Gains) 2012 1,588 2,915 22,251 26,754 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, 2012 and 2011, the following portions of dividends exceeding mandatory minimum dividends were recorded in shareholders’ equity as ‘Proposed additional dividends’: 2011 1,423 2,497 4,499 8,419 Dividends Interest on capital Company 2011 467,261 23,624 490,885 2012 469,512 21,831 491,343 c) Treasury shares The Company repurchased during the period of 2011 3,066,300 common shares, at the average price of R$34.06, in order to meet the exercise of options granted to the Company’s and its direct and indirect subsidiaries’ management and employees. As of December 31, 2012 and 2011, line item ‘Treasury shares’ is broken down as follows: 2011 Balance at beginning of year Repurchased Used Balance at yearend Balance at beginning of year Used Balance at yearend Number Average price per of shares R$’000 share - R$ 21,37 34,06 26,58 34,04 655 3.066.300 (45.198) 3.021.757 14 104.452 (1.617) 102.849 2012 Number Average price per of shares R$’000 share - R$ 34,04 34,01 34,05 3.021.757 (1.080.412) 1.941.345 102.849 (36.744) 66.105 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. During the period ended on December 31, 2012, the use of 1,080,412 treasury shares in connection with the stock option plan involved premium of R$5,910. 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 the years from 2006. f) Retained earnings reserve As of December 31, 2012, the company did not record retained earnings reserves pursu- ant to article 196 of the law No. 6,404/76 (R$3,530 as of December 31, 2011). The reten- tion of the reservation for the 2011 fi nancial year is based on capital budget, prepared by the administration which took place at the annual general meeting held on April 12, 2013. g) Other comprehensive income The Company records in this line item the effects of exchange differences arising on trans- lating 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. 21. 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. Al- though 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: (a) Argentina, Chile and Peru (“Consolidating Operations”); and (b) Mexico and Colombia (“Operations in Implementation”). 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 2012: • Brazil: 88,5% • Consolidating Operations: 7,7% 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 segments of The Company has been evaluated on the basis of the information described in the table 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. • Operations under Implementation: 3.6% • Other: 0.2% Brazil Argentina, Chile and Peru Mexico and Colombia Other (*) Consolidated Net revenue income 907,359 13,985 Net 5,614,178 487,171 226,713 17,607 6,345,669 (45,436) (14,686) 861,222 (132,712) (5,074) (2,913) (479) (141,178) Depreciation and Financial 2012 Income Noncurre Total Current amortization expenses, net (90,920) (2,239) (291) (402,117) (11,771) (990) tax nt assets assets liabilities 2,202,910 151,104 54,177 6,521 2,414,712 4,968,316 277,465 97,875 31,723 5,375,379 1,938,162 25,586 14,271 19,043 1,997,062 - - (93,450) (414,878) Brazil Argentina, Chile and Peru Mexico and Colombia Other (*) Consolidated Net Net revenue income 916,148 (578) (66,996) (17,673) 830,901 5,089,533 335,058 149,166 17,617 5,591,374 Depreciation and Financial 2012 Income Noncurre Total Current amortization expenses, net (102,938) (4,226) (2,183) (574) (109,921) (73,470) (2,625) (1,245) - (77,340) (406,168) 379 (1,040) tax nt assets assets liabilities 1,142,356 90,915 34,730 6,718 1,274,719 1,535,676 25,282 11,857 - 16,938 1,589,753 (406,829) 3,482,649 187,016 96,070 27,277 3,793,012 (*) Includes operations in France and Corporate LATAM The Company has only on class of products that is sold to Natura Beauty 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. 22. NET REVENUE Gross revenue: Domestic market Foreign market Other sales Returns and cancellations Taxes on sales Net revenue Company Consolidated 2011 2011 2012 2012 7,627,373 - 6,898,727 - - - 7,627,373 6,898,727 (11,514) (1,359,142) (1,038,436) 6,249,086 5,848,777 (19,145) 7,626,061 6,896,735 637,593 938,623 1,409 1,437 8,566,093 7,535,765 (12,212) (2,194,277) (1,932,179) 6,345,669 5,591,374 (26,147) 23. OPERATING EXPENSES AND COST OF SALES a) Breakdown of operating expenses and cost of sales by function: Cost of sales Marketing and selling expenses General and administrative expenses Employee profi t sharing Management compensation (note 28.2) Total Company Consolidated 2011 1,666,300 1,952,740 1,868,045 2,212,205 2,375,514 1,503,069 2012 2,438,873 1,642,380 2011 2012 899,128 29,555 816,818 3,765 772,688 90,799 680,730 30,168 20,739 9,443 5,030,675 4,708,609 20,739 9,443 4,964,476 4,339,381 b) Breakdown of operating expenses and cost of sales by nature: Cost of sales Raw material/ packaging Material Workforce Depreciation Others Marketing and selling expenses Freight Marketing, sales force Depreciation General and administrative expenses Research and development Other administrative expenditure Depreciation Employee profi t sharing Management compensation (note 28,2) Total Company Consolidated 2011 1,868,045 1,666,300 2012 2,438,873 2,375,514 2011 2012 2,438,873 - - - 2,375,514 - - - 1,642,380 1,503,069 242,744 1,363,747 1,246,072 14,253 259,176 19,457 1,548,593 170,334 48,849 100,269 1,387,027 156,658 38,600 84,015 2,212,205 1,952,740 248,954 1,926,051 1,684,100 19,686 263,301 22,853 949,422 830,026 - - 884,226 158,870 720,341 146,696 854,991 44,137 29,555 803,507 13,311 3,765 544,340 69,478 90,799 482,398 51,636 30,168 20,739 9,443 5,030,675 4,708,609 20,739 9,443 4,964,476 4,339,381 24. EMPLOYEE BENEFITS Payroll and bonuses Employee profi t sharing (note 24,1) Pension plan (note 24,3) Executives’ compensation Taxes payable Company Consolidated 2011 439,684 2011 183,741 521,149 2012 2012 230,801 37,709 3,368 2,711 3,765 2,553 6,359 84,265 67,122 358,854 263,540 90,799 4,849 10,844 30,168 4,300 13,369 175,882 157,462 644,983 803,523 24.1. Profi t sharing The Company and its subsidiaries pay profi t sharing to their employees and 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, 2012 and 2011, the amounts below were recorded as profi t sharing: Employees Offi cers (*) 2012 Company Consolidated 2011 30,168 8,154 - 98,953 30,168 2011 3,765 8,154 - 37,709 3,765 2012 29,555 90,799 (*) Included in line item ‘Management compensation’. 24.2. Executives’ compensation The Board of Directors, upon granting of options, meets annually in order to establish the option granting plan for the current year, on the basis approved by the General Meeting, indicating the directors and managers who will receive the options and the total number to be distributed. Under the program format valid until 2008, the options granted had maturity term of four years. Under this format, 50% of the options matured at the end of the third year and the remaining 50% matured at the end of the fourth year. The maximum option exercise term is of 6 years as from March 30 of the year in which the related plan was approved. In 2009, the program format was changed so that 100% of the options were conside- red to have matured at the end of the fourth year, with the possibility of early maturity at the end of the third year, under the condition of cancelation of 50% of the options granted in the plans. The maximum option exercise term started to be of 8 years as from the Board of Directors Meeting that approved the plan. The changes in the number of outstanding stock options and their related weighted- -average prices are as follows: 2012 2011 Average exercise price per Options Average exercise price per Options share - R$ (thousands) share - R$ (thousands) Balance at beginning of year Granted Cancelled Exercised Balance at yearend 28,10 42,39 29,35 25,33 7,363 - (298) (1,080) 32.84 - 34.34 28.58 6,839 1,492 (563) (405) 35.52 32,84 5,985 7,363 Out of the 5,985,000 outstanding options as of December 31, 2012 (7,363,000 outs- tanding options as of December 31, 2011), 1,670,000 outstanding options are vested (1,214,000 outstanding options as of December 31, 2011). The options exercised in 2012 did not result on the issuance of shares (405,000 shares in for the year ended December 31, 2011) and in the use of 1,080,000 of the shares held in treasury instead (45,000 shares held in treasury as of December 31, 2011). The expense related to the fair value of the options granted during the year en- ded December 31, 2012, according to the elapsed vesting period, was R$2,711 and R$10,844, Company and on a consolidated basis, respectively (R$6,359 and R$13,369 Company and on a consolidated basis, respectively, as of December 31, 2011). The stock options outstanding at the end of the year have the following vesting dates and exercise prices: As of December 31, 2012 Exercise Existing Remaining contractual Vested Grant date price - R$ options life (years) options 163,099 April 25, 2007 454,686 April 22, 2008 1,052,417 April 22, 2009 March 19, 2010 - 6.29 - March 23, 2011 1,670,202 163,099 454,686 2,104,834 1,766,059 1,496,752 5,985,430 31.90 24.77 27.02 39.65 46.27 0.32 1.33 4.37 5.29 As of December 31, 2011 Exercise Existing Remaining contractual Vested Grant date price - R$ options life (years) options 319,317 March 16, 2005 470,274 March 29, 2006 424,125 April 24, 2007 - April 22, 2008 - April 22, 2009 7.31 - March 19, 2010 1,213,716 319,317 470,274 848,250 2,249,793 2,004,244 1,470,940 7,362,818 31.97 30.24 23.48 25.61 37.58 43.85 0.21 1.33 2.34 5.39 6.31 As of December 31, 2012, market price per share was R$58.64 (R$36.26 as of December 31, 2011). 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, 2012 was R$35.52. Signifi cant data included in the fair value pricing model of the options granted in 2011: • Volatility of 36% (37% as of December 31, 2010). • Dividend yield of 5.3% (5.3% as of December 31, 2010). • Expected option life of three and four years. • Risk-free annual interest rate of 10.9% (10.8% as of December 31, 2010). In 2012 no stock options were granted. 24.3. 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, 2012, 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$3,368 (Company) and R$4,849 (Consolidated) in the period ended December 31, 2012 (R$2,553, Company and R$4,300, Consolidated in the in the period ended December 31, 2011) and were recorded as expenses in the period. 25. FINANCIAL INCOME (EXPENSES) Company Consolidated 2011 2011 2012 2012 Financial income: Interest on short-term investments Infl ation adjustment and foreign exchange gains (a) Gains on swap and forward transactions (b) Other fi nancial income 41.895 21,707 60,462 55,463 - - 5,361 3,218 71,961 40,438 15,975 24,357 129,831 86,502 72,224 39,468 23,761 24,549 161,808 122,698 Financial expenses: Interest on fi nancing Infl ation adjustment and foreign exchange losses (a) Losses on swap and forward transactions (b) Gains (losses) on the mark- to-market of swap and forward derivatives Other fi nancial expenses Financial expenses, net (85,307) (72,487) (100,963) (92,044) (51,150) (36,496) (52,664) (38,266) (56,458) (26,359) (56,759) (27,688) 12,706 (1,171) (36,756) (26,734) (216,965) (163,247) (87,134) (76,745) 12,854 (1,040) (57,726) (41,000) (255,258) (200,038) (93,450) (77,340) 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 and exchange gains Infl ation and exchange losses (a) Breakdown Exchange rate changes on loans 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 (b) Gains on swap and forward transactions Losses on swap and forward transactions (b) Breakdown Exchange rate changes on swaps Gains (losses) on the mark-to-market of swap and forward derivatives Income from foreign exchange coupon swaps Financial costs of swaps Consolidated 2011 2012 5,361 (52,664) (47,303) (50,133) 41 1,655 (2,531) 3,665 (47,303) 72,224 (43,904) 28,320 3,218 (38,266) (35,048) (32,103) (55) (2,256) (3,852) 3,218 (35,048) 39,468 (28,728) 10,740 49,959 32,943 12,854 22,265 (56,758) 28,320 (1,040) 6,525 (27,688) 10,740 26. OTHER OPERATING INCOME (EXPENSES), NET Company Consolidated 2011 2011 2012 2012 1,460 715 894 1,665 918 11,887 Gain (loss) on sale of property, plant and equipment PIS and COFINS credits (*) Untimely used PIS and COFINS credits Other operating income (expenses) Other operating 63,077 income (expenses), net (*) 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. (1,125) 16,852 15,313 15,472 5,986 43,579 (25,819) (11,643) 6,972 15,461 11,617 40,378 7,311 27. EARNINGS PER SHARE 27.1. 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. Net income attributable to owners of the Company Weighted average of common shares issued - thousands Weighted average of treasury shares Weighted average of outstanding common shares Basic earnings per share - R$ 2012 861.222 2011 830.901 431.239.264 (2.362.295) 431.129.772 (1.059.330) 428.876.969 2,0081 430.070.442 1,9320 27.2. Diluted 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$ 2012 861.222 428.876.969 2.159.288 2011 830.901 430.070.442 930.348 431.036.257 1,9980 431.000.790 1,9278 28. RELATED-PARTY TRANSACTIONS 28.1. 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) Dividends and interest on capital payable Related-party transactions are as follows: Product Company 2011 2012 10.419 8.597 6.892 25.908 159.460 38.024 57.051 254.535 515 12.531 20.809 4.568 37.908 163.146 114.737 15.141 293.024 217 Indústria e Comércio de Cosméticos Natura Ltda. Natura Cosméticos S.A. - Brazil 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. Natura Logística e Serviços Ltda. sales 2011 2012 Product purchases 2011 2012 3.042.587 3.155.905 - - - - - - - - - - 2.815.267 2.972.918 35.382 - 49.852 - 33.211 - 38.715 - 19.989 - 5.365 - 37.841 73.032 50.211 41.440 20.100 3.463 431 - - 42 3.042.587 3.155.905 3.042.587 3.155.905 - - 1.217 16 Product sales 2011 2012 Product purchases 2011 2012 Administrative structure: (f) Natura Logística e Serviços Ltda. Natura Cosméticos S.A. - Brazil Indústria e Comércio de Cosméticos Natura Ltda, Natura Inovação e Tecnologia de Produtos Ltda, Product and technology research and development: (g) Natura Inovação e Tecnologia de Produtos Ltda, Natura Cosméticos S.A. - Brazil Research and “in vitro” testing: (h) Natura Innovation et Technologie de Produits SAS - France Natura Inovação e Tecnologia de Produtos Ltda, 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. - Brazil Total of sales or purchases and services 267,095 - 433,192 - - 209,876 - 323,715 - - 36,804 67,694 - 267,095 - 433,192 20,415 267,095 41,783 433,192 256,910 - 256,910 235,877 - 235,877 - 256,910 256,910 - 235,877 235,877 2,923 2,790 - - - 2,923 - 2,790 2,923 2,923 2,790 2,790 7,618 - 7,296 - - 4,414 - 4,227 - - 7,618 - - 7,296 1,774 1,430 7,618 1,699 1,370 7,296 3,577,133 3,835,060 3,577,133 3,835,060 (a) Advances granted for provision of product and technology development and ma- rket 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 intercompany balances as of December 31, 2012 and December 31, 2011, as well as the intercompany 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 Na- tura Ltda. to the parent company Natura Cosméticos S.A. in Brazil and to its foreign subsidiaries. Sales to unrelated parties amounted to R$7,851 for the period ended December 31, 2012 (R$5,341 for the period ended December 31, 2011). There is no allowance for doubtful accounts recognized for intercompany receivables on December 31, 2012 and December 31, 2011 since there are no past-due receiva- bles with risk of default. According to note 15, the Group companies usually grant each other pledges and collaterals to guarantee bank loans and fi nancing. On March 26, 2012, Radar Cinema e Televisão Ltda. signed a contract with advertising agency that provides services to Natura Cosméticos S.A. for the production and use of intellectual property rights related to the programme “Natura TV”, which resulted in costs incurred by Natura Cosméticos S.A., in the quarter and half in the amount of R $ 1,579. Messrs. Antonio Luiz da Cunha Seabra, Guilherme Peirão Leal and Pedro Luiz Barreiros Passos, who are part of the controlling block of Natura Cosméticos S.A., are the indirect holders of the controlling interest in Radar Cinema e Televisão Ltda.. On June 5, 2012, an agreement was signed between Indústria e Comércio de Cos- méticos Natura Ltda. and Bres Itupeva Empreendimentos Imobiliários Ltda., (“Bres Itupeva”), for the construction and lease of a distribution center (HUB), in the city of Itupeva/SP. Messrs. Antonio Luiz da Cunha Seabra, Guilherme Peirão Leal and Pedro Luiz Barreiros Passos, members of the group of controlling shareholders of Natura Cosméticos S.A., indirectly hold controlling interest in Bres Itupeva. 28.2. Key management personnel compensation 2012 Compensation 2011 Compensation Board of Directors Offi cers (statutory) Total Executives (not statutory) Variable Fixed 5,654 6,931 12,585 (*) Total Fixed 7,998 2,344 12,741 5,810 20,739 8,154 3,786 5,657 9,443 (*) Total 3,786 5,657 9,443 - - - 28,964 20,345 49,309 30,587 2,390 32,977 (*) 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. 28.3. Share-based payments Breakdown of Company offi cers and executives’ compensation: 2012 Stock option grant 2011 Stock option grant Offi cers Executives Stock option balance Average exercise Stock option balance Average exercise (number) (a) price R$ (b) (number) (a) price R$ (b) 32,84 32,84 1.564.890 2.666.136 1.700.155 3.173.327 35,52 35,52 (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. 29. COMMITMENTS 29.1. Inputs supply contracts The subsidiary Indústria e Comércio de Cosméticos Natura Ltda. entered into a con- tract 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 Mega- watts, equivalent to R$363. As of December 31, 2012, the subsidiary was compliant to the contract’s commitment. The amounts are carried based on electric power consumption estimates in accor- dance 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: 29.2. 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, 2012, the commitment made for future payments of these operating leases had the following maturities: Less than a year More than one year and less than fi ve years More than fi ve years Company Consolidated 15,555 25,592 973 42,120 11,122 19,606 507 31,235 30. INSURANCE The 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, 2012, insurance coverage is as follows: Insured Item Type of coverage amount Any damages to buildings, facilities, and Industrial complex/ machinery and equipment inventories Fire, theft and collision for 1,286 vehicles Vehicles Loss of profi ts due to material damages Loss of profi ts to facilities, buildings and production machinery and equipment 965.529 55.159 1.765.099 Less than a year More than one year and less than fi ve years 2012 3.983 6.929 10.912 2011 3.983 9.842 13.825 31. 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 6, 2013. INDEPENDENT AUDITORS’ REPORT ON FINANCIAL STATEMENTS Independent Auditors’ Limited Assurance Report on the Sustainability Report as of 2012 Introduction We were engaged by Natura Cosméticos S/A to present our limited assurance report on the information contained in the Sustainability Report in accordance with the GRI Level A version 3.1. guidelines for the twelve-month period ended December 31, 2012. Company management’s responsibilities Natura Cosméticos S/A management is responsible for a more appropriate prepara- tion and presentation of the Sustainability Report information for the twelve-month period ended December 31, 2012, in accordance with its own criteria, assumptions and methodologies and internal control it determines is necessary to enable the preparation of information that is free of material misstatement, whether caused by fraud or error. Independent auditors’ responsibility Our responsibility is to express a conclusion on the Natura Cosméticos S/A’s Sustain- ability Report information for the twelve-month period ended December 31, 2012, based on the limited assurance work conducted in accordance with Technical Release nº 07/2012, approved by the Brazil’s National Association of State Boards of Accoun- tancy (CFC) in light of NBC TO 3000 (Assurance Work Other Than Audit or Review), issued by the CFC, which is equivalent to international standard ISAE 3000, issued by the International Federation of Accountants, applicable to non-historical information. These standards call for compliance with ethic requirements, including independence and work carried out to obtain limited assurance that the Natura Cosméticos S/A’s Sustainability Report for the twelve-month period ended December 31, 2012 is free of material misstatement. A limited assurance work conducted in accordance with NBC TO 3000 (ISAE 3000) consists mainly of inquires of management and other Company professionals involved in the preparation of the Sustainability Report, as well as of the application of addi- tional procedures deemed necessary to obtain evidence which enables us to conclude on the limited assurance on the Sustainability Report. A limited assurance work also requires additional procedures, as the independent auditor becomes aware of mat- ters which lead him to believe that the Sustainability Report information may contain material misstatement. The selected procedures relied on our understanding of the aspects concerning the compilation and presentation of the Sustainability Report information and other cir- cumstances of the work and our consideration on the areas where material misstate- ments might occur. The procedures comprised: (a) the planning of the work, considering the materiality, the volume of quantitative and qualitative information and the operating and internal control systems which sup- ported the preparation of Natura Cosméticos S/A’s Sustainability Report information; (b) the understanding of the calculation methodology and the procedures for prepara- tion and compilation of indicators through interviews with management in charge of preparing the information; (c) the application of analytical procedures on quantitative information and inquires about qualitative information and its relation with the indicators disclosed in the Sustainability Report; (d) comparison of the fi nancial indicators with the fi nancial statements and/or ac- counting records. The limited assurance work also comprised the adherence to GRI 3.1 level A report- ing framework guidelines and criteria applicable to the preparation of the Sustainability Report information. We believe that the evidence obtained in our work was suffi cient and appropriate to provide a basis for our limited conclusion. Scope and limitations The procedures applied in a limited assurance work are substantially less in scope than those applied in an assurance work aimed at issuing an opinion on the Sustainability Report information. As a consequence, we are not in a position to obtain assurance that we are aware of all matters which would be identifi ed in an assurance work aimed at issuing an opinion. Had we carried out a work to issue an opinion, we could have identifi ed other matters or misstatements in the Sustainability Report information. Ac- cordingly, we did not express an opinion on this information. The non-fi nancial data is subject to further inherent limitations than fi nancial data, given the nature and diversity of methods used to determine, calculate or estimate such data. Qualitative interpretations of materiality, signifi cance and accuracy of data are subject the individual assumptions and judgments. Also, we did not carry out any work on data reported for prior periods nor in relation to future projections and goals. Conclusion Based on the procedures performed and herein described, nothing came to our at- tention that makes us believe that Natura Cosméticos S/A’s Sustainability Report in- formation was not compiled, in all material respects, in accordance with the GRI 3.1 level A guidelines and with Natura Cosméticos S/A’s own criteria, assumptions and methodologies. São Paulo, april 1, 2013 Auditores Independentes S.S. CRC 2SP015199/O-6 Fernando A. S. Magalhães Contador CRC – 1SP 133169/O-0 2 0 1 3 185 assurance declaration INDEPENDENT AUDITORS’ LIMITED ASSURANCE REPORT ON THE SUSTAINABILITY REPORT AS OF 2012 Introduction We were engaged by Natura Cosméticos S/A to present our limited assurance report on the information contained in the Sustainability Report in accordance with the GRI Level A version 3.1. guidelines for the twelve-month period ended December 31, 2012. Company management’s responsibilities Natura Cosméticos S/A management is responsible for a more appropriate preparation and presentation of the Sustainability Report information for the twelve-month period ended Decem- ber 31, 2012, in accordance with its own criteria, assumptions and methodologies and internal control it determines is neces- sary to enable the preparation of information that is free of material misstatement, whether caused by fraud or error. Independent auditors’ responsibility Our responsibility is to express a conclusion on the Natura Cos- méticos S/A’s Sustainability Report information for the twelve- month period ended December 31, 2012, based on the limited assurance work conducted in accordance with Technical Re- lease nº 07/2012, approved by the Brazil’s National Association of State Boards of Accountancy (CFC) in light of NBC TO 3000 (Assurance Work Other Than Audit or Review), issued by the CFC, which is equivalent to international standard ISAE 3000, is- sued by the International Federation of Accountants, applicable to non-historical information. These standards call for compli- ance with ethic requirements, including independence and work carried out to obtain limited assurance that the Natura Cosmé- ticos S/A’s Sustainability Report for the twelve-month period ended December 31, 2012 is free of material misstatement. A limited assurance work conducted in accordance with NBC TO 3000 (ISAE 3000) consists mainly of inquires of manage- ment and other Company professionals involved in the prepara- tion of the Sustainability Report, as well as of the application of additional procedures deemed necessary to obtain evidence which enables us to conclude on the limited assurance on the Sustainability Report. A limited assurance work also requires ad- ditional procedures, as the independent auditor becomes aware of matters which lead him to believe that the Sustainability Re- port information may contain material misstatement. The selected procedures relied on our understanding of the aspects concerning the compilation and presentation of the Sus- tainability Report information and other circumstances of the work and our consideration on the areas where material mis- statements might occur. The procedures comprised: (a) the planning of the work, considering the materiality, the volume of quantitative and qualitative information and the oper- ating and internal control systems which supported the prepara- tion of Natura Cosméticos S/A’s Sustainability Report informa- tion; (b) the understanding of the calculation methodology and the procedures for preparation and compilation of indicators through interviews with management in charge of preparing the information; (c) the application of analytical procedures on quantitative information and inquires about qualitative information and its relation with the indicators disclosed in the Sustainability Report; (d) comparison of the fi nancial indicators with the fi nancial statements and/or accounting records. The limited assurance work also comprised the adherence to GRI 3.1 level A reporting framework guidelines and criteria applicable to the preparation of the Sustainability Report in- formation. We believe that the evidence obtained in our work was suf- fi cient and appropriate to provide a basis for our limited con- clusion. Scope and limitations The procedures applied in a limited assurance work are sub- stantially less in scope than those applied in an assurance work aimed at issuing an opinion on the Sustainability Re- port information. As a consequence, we are not in a position to obtain assurance that we are aware of all matters which would be identifi ed in an assurance work aimed at issuing an opinion. Had we carried out a work to issue an opinion, we could have identifi ed other matters or misstatements in the Sustainability Report information. Accordingly, we did not express an opinion on this information. The non-fi nancial data is subject to further inherent limita- tions than fi nancial data, given the nature and diversity of methods used to determine, calculate or estimate such data. Qualitative interpretations of materiality, signifi cance and accuracy of data are subject the individual assumptions and judgments. Also, we did not carry out any work on data re- ported for prior periods nor in relation to future projections and goals. Conclusion Based on the procedures performed and herein described, nothing came to our attention that makes us believe that Na- tura Cosméticos S/A’s Sustainability Report information was not compiled, in all material respects, in accordance with the GRI 3.1 level A guidelines and with Natura Cosméticos S/A’s own criteria, assumptions and methodologies. São Paulo, april 1, 2013 Auditores Independentes S.S. CRC 2SP015199/O-6 Fernando A. S. Magalhães Contador CRC – 1SP 133169/O-0 natura report 2012 186 natura report 2012 187 editorial team Corporate Affairs and Government Relations Offi ce Publisher Leandro Machado General Coordination Cristina Amadio Molini and Jaqueline Nichi Support Renato Gyotoku Corporate Finance Offi ce Financial Information Alexandre Nakamaru, José Wanderley and Mauro Moraes Market Relation Fabio Cefaly and Tatiana Bravin Sustainability Offi ce Social and Environmental Information Denise Alves, Luciana Villa Nova, Karina Aguilar and Giuliana Bellegarde Art Direction Wilson Spinardi Junior Graphic Design and Art Editor Modernsign Design e Inovação Graphic Production Coordination Daniela Giorgia Layout and Art Edition Daniela Giorgia, Manoel Araújo and Marcelo Schulze-Blanck Writing and proofreading Report Sustentabilidade Edition Álvaro Almeida (Mtb 45.384/RS) and Michele Silva (Mtb 11.829/RS) Report Andressa Malcher and Gabriela Scheinberg Translation Maria Emilia Guttilla Revision Transbureau Traduções 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. natura report 2012 

Continue reading text version or see original annual report in PDF format above