NATURA &CO HOLDING S.A.
Individual and Consolidated Interim Financial Information
For the period ended March 31, 2020 and Independent Auditor's Report
(A free translation of the original in Portuguese)
Report on review of quarterly information
To the Board of Directors and Shareholders
Natura &Co Holding S.A.
Introduction
We have reviewed the accompanying parent company and consolidated interim accounting information of Natura &Co Holding S.A. ("Company"), included in the Quarterly Information Form (ITR) for the quarter ended March 31, 2020, comprising the balance sheet at that date and the statements of operations, comprehensive income, changes in shareholders' equity and cash flows for the quarter then ended, and a summary of significant accounting policies and other explanatory information.
Management is responsible for the preparation of the parent company and consolidated interim accounting information in accordance with the accounting standard CPC 21, Interim Financial Reporting, of the Brazilian Accounting Pronouncements Committee (CPC) and International Accounting Standard (IAS) 34, Interim Financial Reporting issued by the International Accounting Standards Board (IASB), as well as the presentation of this information in accordance with the standards issued by the Brazilian Securities Commission (CVM), applicable to the preparation of the Quarterly Information (ITR). Our responsibility is to express a conclusion on this interim accounting information based on our review.
Scope of review
We conducted our review in accordance with Brazilian and International Standards on Reviews of Interim Financial Information (NBC TR 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Brazilian and International Standards on Auditing and consequently did not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion on the interim information
Based on our review, nothing has come to our attention that causes us to believe that the accompanying parent company and consolidated interim accounting information included in the quarterly information referred to above has not been prepared, in all material respects, in accordance with CPC 21 and IAS 34 applicable to the preparation of the Quarterly Information, and presented in accordance with the standards issued by the CVM.
2
Natura &Co Holding S.A.
Other matters
Statements of value added
The quarterly information referred to above includes the parent company and consolidated statements of value added for the quarter ended March 31, 2020. These statements are the responsibility of the Company's management and are presented as supplementary information under IAS 34. These statements have been subjected to review procedures performed together with the review of the quarterly information for the purpose of concluding whether they are reconciled with the interim accounting information and accounting records, as applicable, and if their form and content are in accordance with the criteria defined in the accounting standard CPC 09 - "Statement of Value Added". Based on our review, nothing has come to our attention that causes us to believe that these statements of value added have not been properly prepared, in all material respects, in accordance with the criteria established in this accounting standard, and consistent with the parent company and consolidated interim accounting information taken as a whole.
Audit and review of the corresponding amounts prior year and period
The quarterly information referred to above includes accounting information corresponding to the balance sheet as of December 31, 2019, and the related statements of operations, comprehensive income, changes in shareholders' equity, cash flows and value added for the three-month period ended March 31, 2019. The corresponding accounting information of the Company, for the three- month period ended March 31, 2019, was prepared by management based on the procedures described in Note 2.1(a).
The quarterly information for the three-month period ended March 31, 2019 of the wholly owned subsidiary Natura Cosméticos S.A. was reviewed and the financial statements of the Company as of December 31, 2019 were audited by other independent auditors, who issued unqualified review report and audit opinion dated May 2, 2019 and March 5, 2020, respectively.
São Paulo, May 7, 2020
PricewaterhouseCoopers
Auditores Independentes
CRC 2SP000160/O-5
Leandro Mauro Ardito
Contador CRC 1SP188307/O-0
3
NATURA &CO HOLDING S.A.
BALANCE SHEET AT MARCH 31, 2020 AND DECEMBER 31, 2019 (All amounts in thousands of Brazilian reais - R$)
Note | Company | Consolidated | |||||||
ASSETS | 03/2020 | 12/2019 | 03/2020 | 12/2019 | LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
CURRENT ASSETS | CURRENT | ||||||||
Cash and cash equivalents | 6 | 11,927 | 2,380,800 | 3,111,496 | 4,513,582 | Loans, financing and debentures | |||
Securities | 7 | 540,547 | 669,769 | 1,454,807 | 1,025,845 | Lease | |||
Trade receivables | 8 | - | - | 2,774,632 | 1,685,764 | Trade payables and forfait operations | |||
Trade receivables - related parties | 31.1 | 510,178 | - | - | - | Trade payables - related parties | |||
Inventories | 9 | - | - | 4,040,679 | 1,430,550 | Payroll, profit sharing and social charges | |||
Recoverable taxes | 10 | - | 5 | 959,222 | 395,640 | Tax liabilities | |||
Income tax and social contribution | 528 | - | 321,485 | 113,478 | Income tax and social contribution | ||||
Derivative financial instruments | 5.2 | - | - | 178,912 | - | Dividends and interest on shareholders' equity payable | |||
Assets available for sales | 13 | - | - | 186,518 | - | Derivative financial instruments | |||
Other current assets | 14 | - | - | 832,988 | 265,198 | Provision for tax, civil and labor risks | |||
Total current assets | 1,063,180 | 3,050,574 | 13,860,739 | 9,430,057 | Other current liabilities | ||||
Total current liabilities |
NON-CURRENT ASSETS
Note | Company | Consolidated | |||||
03/2020 | 12/2019 | 03/2020 | 12/2019 | ||||
19 | 1,079,905 | 2,883,382 | 1,942,527 | 3,354,355 | |||
18.b | - | - | 956,413 | 542,088 | |||
20 | 1,758 | - | 5,104,782 | 1,829,756 | |||
31.1 | 147,486 | - | - | - | |||
24,770 | - | 985,965 | 560,376 | ||||
21 | 1,435 | 1,050 | 488,620 | 320,890 | |||
- | 196,474 | 245,244 | 388,238 | ||||
28.b) | - | - | - | 95,873 | |||
5.2 | - | - | 32,205 | 11,806 | |||
22 | - | - | 47,046 | 18,650 | |||
23 | - | - | 1,730,782 | 396,391 | |||
1,255,354 | 3,080,906 | 11,533,584 | 7,518,423 |
Recoverable taxes
Income tax and social contribution Deferred income tax and social contribution Judicial deposits
Derivative financial instruments Securities
Other non-current assets
Total long-term assets
Investments
Property, plant and equipment
Intangible assets
Right of use
Total non-current assets
10 | - | - | 899,861 | 409,214 | NON-CURRENT | |||
- | - | 334,671 | 334,671 | Loans, financing and debentures | ||||
11 | - | - | 996,419 | 374,448 | Lease | |||
12 | - | - | 619,726 | 337,255 | Tax liabilities | |||
5.2 | - | - | 1,817,958 | 737,378 | Deferred income tax and social contribution | |||
7 | - | - | 8,938 | 7,402 | Provision for tax, civil and labor risks | |||
14 | - | - | 1,380,122 | 83,836 | ||||
- | - | 6,057,695 | 2,284,204 | Other non-current liabilities | ||||
Total non-current liabilities | ||||||||
15 | 20,458,274 | 3,392,677 | - | - | SHAREHOLDERS' EQUITY | |||
16 | - | - | 5,246,283 | 1,773,889 | Capital stock | |||
17 | - | - | 27,157,529 | 5,076,501 | Treasury shares | |||
18 | - | - | 3,736,495 | 2,619,861 | Capital reserves | |||
Retained earnings | ||||||||
20,458,274 | 3,392,677 | 42,198,002 | 11,754,455 | Accumulated loss | ||||
Losses on capital transaction | ||||||||
Equity valuation adjustment |
Shareholders' equity attributed to the Company's controlling shareholders Non-controlling interest in shareholders'
equity of subsidiaries Total shareholders' equity
19 | - | - | 17,390,539 | 7,432,019 | |||
18.b | - | - | 2,971,565 | 1,975,477 | |||
21 | - | - | 166,432 | 122,569 | |||
11 | - | - | 1,504,910 | 450,561 | |||
22 | - | - | 1,146,930 | 201,416 | |||
23 | - | - | 1,049,308 | 121,702 | |||
- | - | 24,229,684 | 10,303,744 | ||||
4,905,118 | 1,485,436 | 4,905,118 | 1,485,436 | ||||
28 | (16,004) | - | (16,004) | - | |||
11,112,156 | 1,302,990 | 11,112,156 | 1,302,990 | ||||
28 | (146,882) | (149,020) | (146,882) | (149,020) | |||
(820,797) | - | (820,797) | - | ||||
(92,066) | (92,066) | (92,066) | (92,066) | ||||
5,324,575 | 815,005 | 5,324,575 | 815,005 | ||||
20,266,100 | 3,362,345 | 20,266,100 | 3,362,345 | ||||
- | - | 29,373 | - | ||||
20,266,100 | 3,362,345 | 20,295,473 | 3,362,345 |
TOTAL ASSETS | 21,521,454 | 6,443,251 | 56,058,741 | 21,184,512 | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 21,521,454 | 6,443,251 | 56,058,741 | 21,184,512 |
4
NATURA &CO HOLDING S.A.
STATEMENT OF OPERATION
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2020 AND 2019
(All amounts in thousands of Brazilian reais - R$, except for earnings per share in the period)
Note | |
NET REVENUE | |
26 | |
Cost of products sold | 27 |
GROSS PROFIT | |
OPERATING (EXPENSES) INCOME | |
Selling, Marketing and Logistics expenses | 27 |
Administrative, R&D, IT and Project expenses | 27 |
Impairment losses on trade receivables | |
Equity in subsidiaries | 15 |
Other operating income (expenses), net | 30 |
OPERATING PROFIT BEFORE FINANCIAL RESULT | |
Financial income | 29 |
Financial expenses | 29 |
PROFIT BEFORE INCOME TAX AND
Company | Consolidated | |||||||||
03/2020 | 03/2019 | 03/2020 | 03/2019 | |||||||
- | - | 7,517,994 | 2,915,150 | |||||||
- | - | (2,878,722) | (809,172) | |||||||
- | - | 4,639,272 | 2,105,978 | |||||||
- | - | (3,299,190) | (1,323,066) | |||||||
(9,978) | - | (1,266,091) | (537,031) | |||||||
- | - | (223,982) | (75,428) | |||||||
(712,102) | - | - | - | |||||||
(147,824) | - | (352,550) | 14,245 | |||||||
(869,904) | - | (502,541) | 184,698 | |||||||
51,082 | - | 1,560,184 | 378,102 | |||||||
(1,975) | - | (1,787,779) | (543,357) |
SOCIAL CONTRIBUTION | (820,797) | - | (730,136) | 19,443 | ||||||
Income tax and social contribution | 11 | - | - | (94,803) | (5,969) | |||||
NET INCOME (LOSS) FOR THE PERIOD | (820,797) | - | (824,939) | 13,474 | ||||||
ATTRIBUTABLE TO | ||||||||||
The Company´s shareholders | ||||||||||
(820,797) | - | (820,797) | 13,474 | |||||||
Noncontrolling interests | - | - | (4,142) | - | ||||||
(820,797) | - | (824,939) | 13,474 | |||||||
EARNINGS PER SHARE IN THE PERIOD -R$ | ||||||||||
Basic | 28.1. | (0.6979) | - | (0.6979) | 0.0313 | |||||
Diluted | 28.2. | (0.6921) | - | (0.6921) | 0.0312 |
* The notes are an integral part of the interim financial statements
5
NATURA &CO HOLDING S.A.
STATEMENT OF COMPREHENSIVE INCOME
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2020 AND 2019 (All amounts in thousands of Brazilian reais - R$)
Note | Company | Consolidated | |||||||||||||||
03/2020 | 03/2019 | 03/2020 | 03/2019 | ||||||||||||||
NET INCOME (LOSS) FOR THE PERIOD | (820,797) | - | (824,939) | 13,474 | |||||||||||||
Other comprehensive income to be reclassified to profit or loss in subsequent periods: | |||||||||||||||||
Gain from translation of financial statements of subsidiaries abroad | 4,349,038 | - | 4,349,038 | 61,363 | |||||||||||||
Exchange rate effect on the translation from hyperinflationary economy | 2.2 | (4,351) | - | (4,351) | 977 | ||||||||||||
Gain from cash flow hedge operations | 5.2 | - | - | 248,684 | 89,223 | ||||||||||||
Tax effects on gain from cash flow hedge operations | - | - | (83,802) | (30,928) | |||||||||||||
Equity income from cash flow hedge operation | 248,684 | - | - | - | |||||||||||||
Equity in tax effects on gain from cash flow hedge operations | (83,802) | - | - | - | |||||||||||||
Comprehensive income for the year, net of tax effects | 3,688,772 | - | 3,684,630 | 134,109 | |||||||||||||
ATTRIBUTABLE TO | |||||||||||||||||
The Company´s shareholders | 3,688,772 | - | 3,688,772 | 134,109 | |||||||||||||
Noncontrolling interests | - | - | (4,142) | - | |||||||||||||
3,688,772 | - | 3,684,630 | 134,109 | ||||||||||||||
* The notes are an integral part of the interim financial statements
6
NATURA &CO HOLDING S.A.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2020 AND 2019 (All amounts in thousands of Brazilian reais - R$)
BALANCES AT DECEMBER 31, 2018 - Natura Cosméticos S.A. (Note 2.1(a))
Net income for the period
Exchange rate effect on the translation from hyperinflationary economy Other comprehensive income (loss)
Total comprehensive income (loss) for the year
Capital increase
Changes in stock option plans and restricted shares:
Provision for stock option plans and restricted shares
Exercise of stock option plans and restricted shares
Hyperinflationary economy adjustment effect
BALANCES AT MARCH 31, 2019 - Natura Cosméticos S.A. (Note 2.1(a))
BALANCES AT DECEMBER 31, 2019
Net income (loss) for the period
Exchange rate effect on the translation from hyperinflationary economy Other comprehensive income (loss)
Total comprehensive income (loss) for the year
Subscription of shares through the Board of Directors' Meeting held on January 3, 2020 Share repurchase
Changes in stock option plans and restricted shares:
Provision for stock option plans and restricted shares
Exercise of stock option plans and restricted shares
Hyperinflationary economy adjustment effect
BALANCES AT MARCH 31, 2020
* The notes are an integral part of the interim financial statements
Negative goodwill | Equity valuation | ||||||||||||||||||||||||
on capital | |||||||||||||||||||||||||
adjustments | |||||||||||||||||||||||||
Capital reserves | transactions | ||||||||||||||||||||||||
Surplus on | Profit reserves | Result from | Other | ||||||||||||||||||||||
Special | Additional paid-in | Retained | operations with non- | The Company´s | Noncontrolling | Total shareholders' | |||||||||||||||||||
Note | Capital stock | Treasury shares | issue/sale of | comprehensive | |||||||||||||||||||||
shares | reserve | capital | Profit retention | earnings | controlling | income | Sharesholders | interests | equity | ||||||||||||||||
shareholders | |||||||||||||||||||||||||
427,073 | (19,408) | 72,216 | - | 257,114 | 1,336,293 | - | (92,066) | 492,158 | 2,574,102 | - | 2,574,102 | ||||||||||||||
- | - | - | - | - | - | 13,474 | - | - | 13,474 | - | 13,474 | ||||||||||||||
- | - | - | - | - | - | - | - | 977 | 977 | - | 977 | ||||||||||||||
- | - | - | - | - | - | - | - | 119,658 | 119,658 | - | 119,658 | ||||||||||||||
- | - | - | - | - | - | 13,474 | - | 120,635 | 134,109 | - | 134,109 | ||||||||||||||
21.a) | 2,430 | - | - | - | - | - | - | - | - | 2,430 | - | 2,430 | |||||||||||||
25.1 | - | - | - | - | 8,398 | - | - | - | - | 8,398 | - | 8,398 | |||||||||||||
- | 11,311 | (1,930) | - | (11,278) | - | - | - | - | (1,897) | - | (1,897) | ||||||||||||||
- | - | - | - | 17,006 | (295) | - | - | - | 16,711 | - | 16,711 | ||||||||||||||
429,503 | (8,097) | 70,286 | - | 271,240 | 1,335,998 | 13,474 | (92,066) | 612,793 | 2,733,853 | - | 2,733,853 | ||||||||||||||
1,485,436 | - | 1,096,398 | 206,592 | - | (149,020) | - | (92,066) | 815,006 | 3,362,346 | - | 3,362,346 | ||||||||||||||
- | - | - | - | - | - | (820,797) | - | - | (820,797) | (4,142) | (824,939) | ||||||||||||||
- | - | - | - | - | - | - | - | (4,351) | (4,351) | - | (4,351) | ||||||||||||||
- | - | - | - | - | - | - | - | 4,513,920 | 4,513,920 | - | 4,513,920 | ||||||||||||||
- | - | - | - | - | - | (820,797) | - | 4,509,569 | 3,688,772 | (4,142) | 3,684,630 | ||||||||||||||
21.a) | 3,397,746 | - | 9,877,148 | - | - | - | - | - | 13,274,894 | 33,515 | 13,308,409 | ||||||||||||||
- | (54,936) | - | - | - | - | - | - | - | (54,936) | - | (54,936) | ||||||||||||||
25.1 | - | - | - | - | (34,887) | - | - | - | - | (34,887) | - | (34,887) | |||||||||||||
21,936 | 38,932 | - | - | (48,084) | - | - | - | - | 12,784 | - | 12,784 | ||||||||||||||
- | - | - | - | 14,989 | 2,138 | - | - | - | 17,127 | - | 17,127 | ||||||||||||||
4,905,118 | (16,004) | 10,973,546 | 206,592 | (67,982) | (146,882) | (820,797) | (92,066) | 5,324,575 | 20,266,100 | 29,373 | 20,295,473 | ||||||||||||||
7
NATURA &CO HOLDING S.A.
STATEMENT OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2020 AND 2019 (All amounts in thousands of Brazilian reais - R$)
Note | Company | Consolidated | ||||||
03/2020 | 03/2019 | 03/2020 | 03/2019 | |||||
CASH FLOW FROM OPERATING ACTIVITIES | ||||||||
Net income (loss) for the period | ||||||||
(820,797) | - | (824,939) | 13,474 | |||||
Adjustments to reconcile net income for the period with net cash generated by operating activities: | - | |||||||
Depreciation and amortization | 16 e 17 | - | - | 626,252 | 264,312 | |||
Interest on investments and securities | 26 | (7,058) | - | (23,455) | (22,961) | |||
Provision (reversal of provision) arising from swap and forward derivative contracts | - | - | (978,329) | 53,597 | ||||
Provision (reversal of provision) for tax, civil and labor risks | 22 | - | - | 54,366 | 3,379 | |||
Inflation adjustment of escrow deposits | - | - | (1,383) | (3,752) | ||||
Inflation adjustment of contingencies | - | - | 4,599 | 2,649 | ||||
Income tax and social contribution | 11 | - | - | 94,803 | 5,969 | |||
Result from sale and write-off of property, plan and equipment and intangible assets | 16 e 17 | - | - | 3,876 | 7,702 | |||
Equity in subsidiaries | 15 | 712,102 | - | - | - | |||
Interest and exchange variation on leases | 18 | - | - | 51,768 | 30,974 | |||
Interest and exchange rate variation on borrowings and financing | 19 | 20,283 | - | 1,195,934 | 79,221 | |||
Restatement and exchange rate variation on other assets and liabilities | (104,839) | - | (105,493) | 867 | ||||
Provision (reversal of provision) for losses from property, plant and equipment and intangible assets | 16 e 17 | - | - | (2,128) | (10,751) | |||
Provision (reversal of provision) for stock option plans and restricted shares | (20,150) | - | (4,606) | 10,874 | ||||
Effective losses and provision for losses with trade receivables, net of reversals | 8 | - | - | 209,933 | 75,428 | |||
Provision (reversal of provision) for inventory losses, net | 9 | - | - | 119,735 | 37,920 | |||
Provision (reversal of provision) for post-employment health care plan | 28.1 | 771 | - | (1,190) | 1,985 | |||
Effect from hyperinflationary economy | - | - | 10,670 | 12,267 | ||||
Other provisions (reversals) | - | - | (52,683) | (31,150) | ||||
(219,688) | - | 377,730 | 532,004 | |||||
(INCREASE) DECREASE IN ASSETS | ||||||||
Trade receivables | (34,478) | - | 346,096 | 177,412 | ||||
Inventories | - | - | (117,723) | (207,018) | ||||
Recoverable taxes | - | - | (184,800) | 2,143 | ||||
Other assets | - | - | 509,001 | (19,942) | ||||
Subtotal | (34,478) | - | 552,574 | (47,405) | ||||
(INCREASE) DECREASE IN LIABILITIES | ||||||||
Domestic and foreign trade payables | 149,176 | - | (1,872,941) | (216,563) | ||||
Payroll, profit sharing and social charges, net | 24,770 | - | 121,951 | (111,128) | ||||
Tax liabilities | 385 | - | 118,382 | (79,096) | ||||
Other liabilities | (771) | - | (326,399) | (5,640) | ||||
Subtotal | 173,560 | - | (1,959,007) | (412,427) | ||||
CASH GENERATED BY OPERATING ACTIVITIES | (80,606) | - | (1,028,703) | 72,172 | ||||
OTHER CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Recovery (payment) of income tax and social contribution | (196,996) | - | (269,512) | (116,456) | ||||
Accruals (payments) of judicial deposits | - | - | 2,797 | 1,288 | ||||
Payments related to tax, civil and labor lawsuits | 22 | - | - | (61,968) | (4,749) | |||
Payments due to settlement of derivative operations | - | - | 9,818 | (20,805) | ||||
Interest paid on lease | 18 | - | - | (53,611) | (30,974) | |||
Payment of interest on borrowings, financing and debentures | 19 | (6,860) | - | (498,585) | (254,675) | |||
NET CASH USED IN OPERATING ACTIVITIES | (284,462) | - | (1,899,764) | (354,199) | ||||
CASH FLOW FROM INVESTING ACTIVITIES | ||||||||
Cash from merger of subsidiary | 4 | - | - | 2,636,108 | - | |||
Additions of property, plant and equipment and intangible assets | 16 e 17 | - | - | (174,162) | (80,119) | |||
Proceeds from sale of property, plant and equipment and intangible assets | - | - | 11,782 | 3,254 | ||||
Investment in securities | (63,569) | - | (1,765,955) | (1,629,566) | ||||
Redemption of securities | 199,230 | - | 1,420,078 | 2,337,074 | ||||
Redemption of interest on investments and securities | 619 | - | 10,540 | 28,117 | ||||
Receipts of dividends from subsidiaries | - | - | - | - | ||||
Capital increase in subsidiaries | 15 | - | - | - | - | |||
NET CASH PROVIDED BY INVESTING ACTIVITIES | 136,280 | - | 2,138,391 | 658,760 | ||||
CASH FLOW FROM FINANCING ACTIVITIES | ||||||||
Amortization of lease - principal | 18 | - | - | (209,723) | (143,895) | |||
Amortization of loans, financing and debentures - principal | 19 | (1,816,900) | - | (1,923,345) | (510,542) | |||
New loans, financing and debentures | 18 e 19 | - | - | 451,127 | 90,507 | |||
Acquisition of treasury shares, net of option strike price received | (33,000) | - | (33,000) | (1,897) | ||||
Payment of dividends and interest on capital for the previous year | 32.2 | - | - | (133,937) | (96,277) | |||
Receipts (payments) to settle derivative operations | - | - | 222 | 898 | ||||
Receipt by exercised stock options | (370,791) | - | (370,791) | - | ||||
Capital increase | - | - | - | 2,430 | ||||
NET CASH USED IN FINANCING ACTIVITIES | (2,220,691) | - | (2,219,447) | (658,776) | ||||
Effect of exchange variation on cash and cash equivalents | - | - | 578,734 | 6,073 | ||||
DECREASE IN CASH AND CASH EQUIVALENTS | (2,368,873) | - | (1,402,086) | (348,142) | ||||
Opening balance of cash and cash equivalents | 6 | 2,380,800 | - | 4,513,582 | 1,215,048 | |||
Closing balance of cash and cash equivalents | 6 | 11,927 | - | 3,111,496 | 866,906 | |||
DECREASE IN CASH AND CASH EQUIVALENTS | (2,368,873) | - | (1,402,086) | (348,142) |
* The notes are an integral part of the interim financial statements
8
NATURA &CO HOLDING S.A.
STATEMENT OF VALUE ADDED
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2020 AND 2019 (All amounts in thousands of Brazilian reais - R$)
Note | Company | Consolidated | |||||||||||||
03/2020 | 03/2019 | 03/2020 | 03/2019 | ||||||||||||
INCOME | (147,824) | - | 7,992,626 | 3,649,913 | |||||||||||
Sale of goods, products and services | - | - | 8,378,540 | 3,666,232 | |||||||||||
Provision for doubtful accounts, net of reversals | 8 | - | - | (33,364) | (3,728) | ||||||||||
Other operating expenses, net | (147,824) | - | (352,550) | (12,591) | |||||||||||
INPUTS ACQUIRED FROM THIRD PARTIES | (5,571) | - | (6,878,588) | (2,108,330) | |||||||||||
Cost of products sold and services | |||||||||||||||
- | - | (3,175,479) | (1,191,069) | ||||||||||||
Materials, electricity, outsourced services and others | (5,571) | - | (2,778,253) | (917,261) | |||||||||||
GROSS VALUE ADDED | (153,395) | - | 2,038,894 | 1,541,583 | |||||||||||
RETENTIONS | - | - | (625,819) | (264,312) | |||||||||||
Depreciation and amortization | |||||||||||||||
16 e 17 | - | - | (625,819) | (264,312) | |||||||||||
VALUE ADDED PRODUCED BY THE COMPANY | (153,395) | - | 1,413,075 | 1,277,271 | |||||||||||
TRANSFERRED VALUE ADDED | (661,020) | - | 1,560,184 | 378,102 | |||||||||||
Equity in subsidiaries | |||||||||||||||
15 | (712,102) | - | - | - | |||||||||||
Financial income - including inflation adjustments and exchange rate variations | 29 | 51,082 | - | 1,560,184 | 378,102 | ||||||||||
TOTAL VALUE ADDED TO DISTRIBUTE | (814,415) | - | 2,973,259 | 1,655,373 | |||||||||||
DISTRIBUTION OF VALUE ADDED | (814,415) | 100% | - | 2,973,259 | 100% | 1,655,373 | 100% | ||||||||
Payroll and social charges | 28 | 4,407 | -1% | - | 1,462,402 | 49% | 695,357 | 42% | |||||||
Taxes, fees and contributions | - | 0% | - | 537,904 | 18% | 396,881 | 24% | ||||||||
Financial expenses and rentals | 1,975 | 1% | - | 1,797,892 | 60% | 549,661 | 33% | ||||||||
Accumulated losses | (820,797) | 101% | - | (820,797) | -28% | 13,474 | 1% | ||||||||
Noncontrolling interests | - | - | - | (4,142) | 0% | - | - |
* The notes are an integral part of the interim financial statements
9
1. GENERAL INFORMATION
NATURA &CO HOLDING S.A. ("Natura &Co" or "Company") formerly referred to as Natura Holding S.A., was incorporated on January 21, 2019 with the purpose of holding interest in other companies, as partner or shareholder, in the country or abroad ("holding company"). The purpose of the Company is to manage shareholding interest in companies that operate mainly in the cosmetics industry, fragrances and personal hygiene sector, through the development of manufacturing, distribution and commercialization of its products. The Company's main brand is "Natura", followed by brands "Avon", "The Body Shop" and "Aesop". In addition to using the retail market, e-commerce, B2B and franchises as sales channels for the products, the controlled companies stand out for the work of the direct sales channel carried out mainly by Natura, The Body Shop and Avon Consultant(s).
The Company is a publicly-traded corporation, domiciled in São Paulo, registered in the special trading segment called "Novo Mercado" in the B3 S.A. - Brasil, Bolsa, Balcão (B3), under ticker "NTCO3."
After several restructuring activities which took place in the process of acquiring Avon Products, Inc. ("Avon"), completed on January 3, 2020 (Note 4), the Company became the holding company for the Natura group. Additionally, in December 2019 it became the holder of 100% of shares of Natura Cosméticos S.A. ("Natura"). Thus, since December 18, 2019, the NATU3 shares have no longer been traded in B3 S.A. - Brasil, Bolsa, Balcão, and trading with NTCO3 shares have started in the "Novo Mercado" segment of B3. On January 6, 2020, the Company started to trade American Depositary Receipts on the New York Stock Exchange ("NYSE"), under ticker "NTCO".
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
2.1 Declaration of compliance and basis of preparation
The Company's condensed interim accounting information, included in the Quarterly Information Form - ITR pertaining to the quarter ending on March 31, 2020, encompasses the individual and consolidated interim accounting information prepared pursuant to Technical Pronouncement "CPC 21 - Interim Statements", approved by the Brazilian Securities Commission ("CVM") and the international accounting standard "IAS 34 - Interim Financial Reporting", issued by the International Accounting Standards Board (IASB).
The Management confirms that all relevant information in the interim accounting statements, and only it, are being disclosed, and it corresponds to the one used in the development of the Management's business management activities. The interim accounting information was prepared based on the historical costs, except for certain financial instruments measured by their fair value, as described in the accounting practices.
The main accounting practices applied upon preparing this individual and consolidated interim accounting information are disclosed on explanatory note No. 2 of the Company's financial statements, pertaining to the fiscal year ending on December 31, 2019, issued on March 05, 2020, except for the presentation of information on segments (Note 25), which was changed as a result of the acquisition of Avon (Note 4). The same policies apply to the comparative quarter period ending on March 31, 2019.
The information on explanatory notes that did not go through significant changes in comparison to December 31, 2019 is not fully presented in this interim accounting information and must be read jointly with the last annual financial statement.
- Presentation basis for the Company's consolidated accounting statements before the corporate restructuring presented in the Company's annual financial statement on Note 1
As presented in the Company's annual financial statements for the fiscal year ending on December 31, 2019, the Company's consolidated accounting information presented in this financial statement that is prior to the corporate restructuring for the acquisition of Avon were prepared pursuant to the accounting practices of the preceding costs. Thus, the comparative and consolidated historic information presented herein for the income statement, comprehensive income statement, statement of changes in net equity, cash flow statement and added value statement for the comparative period ended on March 31, 2019, refer to the consolidated information of Natura Cosméticos S.A., and were obtained from the Quarterly Information - ITR pertaining to the first quarter of 2019.
11
-
Hyperinflationary economy
Information pertaining to the hyperinflationary economy was presented in the Company's 2019 annual financial statements, on Note 3.2.1.a.
On the quarter period ending on March 31, 2019, the application of CPC 42 / IAS 29 resulted in: (i) a positive impact in the financial results of R$ 4,812 (March 31, 2019 R$ 2,639); and (ii) a negative impact in the net profit for the fiscal year of R$ 11,106 (March 31, 2019 R$ 13,244), which includes the effect of the conversion of the results' statement by the exchange rate of the year's termination date, instead of the average monthly exchange rate, positive impact in the sum of R$ 4,351 (March 31, 2019 negative impact of R$ 977). - Consolidation
- Investments in controlled companies
Information pertaining to the consolidation was presented in the Company's 2019 annual financial statements, on Note 3.3. A), except for the movement chart below:
Interest - % | ||
March 2020 | December 2019 | |
Direct interest: | ||
Avon Products, Inc.. | 100.00 | - |
Natura Cosméticos S.A. | 100.00 | 100.00 |
The activities of the directly controlled companies are as follows:
- Natura Cosméticos S.A.: is a publicly held corporation organized in accordance with the laws of the Federative Republic of Brazil on June 6, 1993, with an indefinite term. Created in 1969 in São Paulo, Brazil, it is among the top ten direct sales companies in the world. Under the Natura brand, most of our products have a natural origin, developed with ingredients from the Brazilian biodiversity and mainly distributed by means of direct sales by our independent beauty consultants. It also sells throughe-commerce and an expanded own store chain, composed of 43 stores in Brazil and 9 stores abroad (in the USA, France, Argentina and Chile), 256 franchise stores, as well as presence in approximately 3,500 drugstores on June 30, 2019.
- Avon Products, Inc.: Global manufacturer and trader of beauty products and the like, with operations starting in 1886 and constituted pursuant to the laws of the State of New York, on January 27, 1916. Its businesses are conducted in the beauty industry and other consumer goods. A direct sales company for the creation, manufacture and trade of beauty and other unrelated products. Its business is held mainly via the direct sales channel.
2.4 Segment reporting
Information per operating segment is consistent with the internal report provided to the chief operating decision maker.
The main decision-making body of the Company, which is responsible for defining the allocation of resources and for the performance assessment of the operating segments, is the Board of Directors.
The GOC, which includes the CEOs of Natura &CO, Natura, Avon, The Body Shop and Aesop, in addition to representatives of key business areas (Finance, Human Resources, Business Strategy and Development, Legal, Innovation and Sustainability, Operations and Corporate Governance), is responsible, among other things, for monitoring the implementation of short and long-term strategies and making recommendations to the Board of Directors regarding the management of the Group, from the perspective of results, allocation of resources among business units, cash flow and talent management.
3. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The preparation of the individual and consolidated financial statements requires the Management to employ certain assumptions and accounting estimates based on experience and other factors considered relevant, which affect the values of assets and liabilities and may present results that differ from actual results. The effects resulting from accounting estimate reviews are recognized in the review period.
The significant judgments made by the Company are related to the recognition of revenue and leasing.
The areas requiring a greater level of judgment and which are more complex, as well as the areas in which the premises and estimates are significant for the financial statements, are disclosed below.
There were no significant changes in the estimates and premises employed upon preparing the interim accounting information for the quarter ending on March 31, 2020, or in the calculation methods used, in relation to the ones presented in explanatory note No. 3 of the Company's financial statements pertaining to the fiscal year ending on December 31, 2019, issued on March 05, 2020, except for the fair value estimates of the business combination (note 4), analyses of the potential impacts of Covid-19 (note 5.3) and impairment evaluations (note 17.a).
4. BUSINESS COMBINATION
Acquisition of Avon Products Inc.
On January 3, 2020, after fulfillment of all conditions precedent, as disclosed in the Company's 2019 annual financial statements, issued on March 05, 2020, explanatory note 1(a) and as a subsequent event to note 35, the transaction was completed, and then the effects of the merger of Nectarine Merger Sub II into Avon, with the latter being the resulting entity, came into force. Subsequently, Nectarine Merger Sub I was merged into Natura &Co, with the latter being the resulting entity. As a result of the mergers, on January 3, 2020, Avon became a full subsidiary of the Company, and Avon's former shareholders became shareholders of the Company.
As a result, Natura &Co acquired control of Avon and the acquisition was accounted for under the acquisition method.
Transaction costs incurred by the Controlling Company until the completion of the transaction on January 3, 2020 amount to approximately R$ 112 million, which were accounted for as expenses in the period ending in March 2020.
The following table summarizes the preliminary calculation of the fair value of the compensation transferred on January 3, 2020.
In millions of R$, except | ||
for the number of shares | ||
Number of Avon outstanding common shares as of January 3, 2020 | 536,383,776 | |
Multiplied by the exchange ratio of 0.600 Natura &Co Holding Shares per each Avon | ||
common share | 321,830,266 | |
Multiplied by the market price of Natura &Co shares on January 3, 2020 | 41,00 | |
Consideration in the issuance of shares | 13,195 | |
Adjustment to the transferred compensation (a) | 171 | |
Fair value of the Compensation to be transferred | 13,366 | |
- Related to the effects of potentially replacements and settlements ofshare-based payment plans, of which the amount of R$ 80 thousand refers to the share-based payment plans of Avon, in which it was substituted by Natura &Co, and R$ 91 thousand refers to the stock option plans liquidated as a result of the conclusion of the transaction. These are pre-combination installments that were regarded as a transferred consideration.
Natura &Co is yet to conclude the process of allocation of the transferred compensation among identified assets and liabilities acquired for their fair value. The table below shows the preliminary allocation prepared by the Company and the resulting goodwill. Differences between the preliminary estimates and the final recognition of the acquisition may occur and they may be relevant. Accounting standard "CPC 15/ IFRS 3 - Business combination" allows the Company to finalize this process of allocation of the transferred compensation among identified assets and liabilities up to 12 months counted from the acquisition date. Natura &Co is analyzing the allocation of the transferred compensation to the identified assets and liabilities acquired for their fair value. The table below shows the preliminary allocation prepared by the Company and the resulting goodwill.
The following table summarizes the preliminary allocation of the consideration transferred on January 3, 2020:
In millions of R$ | ||
Total estimated consideration to be transferred: | 13,366 | |
(-) Fair value of acquired assets: | ||
Cash and cash equivalent | 2,636 | |
Accounts receivable (1) | 1,135 | |
Inventories | 1,942 | |
Other current assets and restricted cash | 1,056 | |
Assets held for sale | 187 | |
Fixed Assets | 2,886 | |
Income tax and deferred social contribution | 667 | |
Assets of right of use | 565 | |
13 |
In millions of R$ | ||
Other non-current assets | 475 | |
Court deposits | 284 | |
Recoverable taxes | 518 | |
Employee benefit plan | 553 | |
Intangible assets (2) | 5,710 | |
(+) Fair value of liabilities assumed: | ||
Current liabilities | 6,267 | |
Provision for contingencies (3) | 724 | |
Long-term debt | 7,078 | |
Long-term commercial leasing | 588 | |
Deferred income tax | 728 | |
Other liabilities | 809 | |
(-) Net assets | 2,420 | |
Interest of non-controlling shareholders | 28 | |
Goodwill (4) | 10,974 |
- On the acquisition date, the fair value of the accounts receivable is equal to their accounting value, net of a provision for expected losses in the amount of R$ 270.2 million.
- The fair value of intangible assets includes intangible assets acquired and registered by Avon prior to the fair value allocation, in the sum of R$ 291 million, added by the effects of allocation of fair values of the following items:
Estimated fair | |||||||||
Nature | value (in | Estimated | |||||||
millions of | useful life | ||||||||
Reais) |
Trade name "Avon" Main brands
Developed technologies
Sales representatives
Total
Represents the fair value of trade name "Avon" Represents the fair value of "Main brands" Represents the fair value of all technology required to develop Avon products, including product formulas, labeling data, manufacture processes, regulatory approvals, packages of products and designs. Represents the fair value of Avon's relationship with its sales representatives.
1,893Indefinite
51820 years
1,132 | 7 years |
1,876 | 14 years |
5,419 | |
- The provisions for contingent risks demonstrated in the chart above by the sum corresponds to the historic value recorded by Avon, given that the Company is still assessing the fair value estimates, and also identifying additional contingencies which fit the recognition requirement established on paragraph 23 of CPC 15 (IFRS3). That is, contingencies that: (i) represent a present obligation arising from past events and (ii) can be reliably measured, regardless of the loss probability.
- Goodwill pertaining to the strong market position and geographic regions that will result in a more diversified and balanced global portfolio, as well as future expected profitability and operational synergies, such as supply, manufacturing, distribution and efficiency of the administrative structure and revenue growth. This goodwill arising from the transaction is not expected to result in a tax benefit or to be deductible for tax purposes.
Since the acquisition date, Avon contributed with R$ 4,246.2 million of net revenues and impacted in R$ 540.3 million of losses in the consolidated results of Natura &Co.
Since the acquisition was concluded on January 1st, 2020 and there was no significant transaction of the revenue results until January 3, 2020, the consolidated net revenues and the net revenues of the three months. In this same period, a provision for the transaction cost incurred by Avon, in the sum of R$ 172.3 million, was recorded, which is part of the acquired identified liabilities.
5. FINANCIAL RISK MANAGEMENT
5.1 General considerations and policies
The information pertaining to the general considerations and policies of the companies of the Natura group, TBS and Aesop was presented in the 2019 annual financial statements, on Note 5.
Find below the book and fair values of the Company's financial instruments as of March 31, 2020:
Book Value | Fair Value | |||||||||||||||||
Controlling Company | Note | Classification by | Fair value | March 2020 | December | March 2020 | December | |||||||||||
category | hierarchy | 2019 | 2019 | |||||||||||||||
Financial assets | ||||||||||||||||||
Cash and cash equivalents | 6 | Amortized cost | ||||||||||||||||
Cash and banks | Level 2 | 271 | 2,173,101 | 271 | 2,173,101 | |||||||||||||
Certificate of bank deposits | Level 2 | 11,656 | 207,699 | 11,656 | 207,699 | |||||||||||||
11,927 | 2,380,800 | 11,927 | 2,380,800 | |||||||||||||||
Bonds and securities | ||||||||||||||||||
Exclusive investment funds | 7 | Fair value through results | Level 2 | 540,547 | 669,769 | 540,547 | 669,769 | |||||||||||
Accounts receivable from clients - | ||||||||||||||||||
related parties | 32.1 | Amortized cost | Level 2 | 510,178 | - | 510,178 | - | |||||||||||
Financial liabilities | ||||||||||||||||||
Issue of debts in domestic currency | 19 | Amortized cost | Level 2 | (1,079,905) | (2,883,382) | (1,859,997) | (2,883,382) | |||||||||||
Suppliers and "drawn risk" | ||||||||||||||||||
transactions | 20 | Amortized cost | Level 2 | (1,758) | - | (1,758) | - | |||||||||||
Book Value | Fair Value | |||||||||||||||||
Consolidated | Note | Classification by | Fair value | March 2020 | December | March 2020 | December | |||||||||||
category | hierarchy | 2019 | 2019 | |||||||||||||||
Financial assets | ||||||||||||||||||
Cash and cash equivalents | 6 | |||||||||||||||||
Cash and banks | Amortized cost | Level 2 | 2,705,479 | 3,110,220 | 2,705,479 | 3,110,220 | ||||||||||||
Certificate of bank deposits | Amortized cost | Level 2 | 60,353 | 211,261 | 60,353 | 211,261 | ||||||||||||
Repurchase operations | Fair value through results | Level 2 | 345,664 | 1,192,101 | 345,664 | 1,192,101 | ||||||||||||
3,111,496 | 4,513,582 | 3,111,496 | 4,513,582 | |||||||||||||||
Bonds and securities | 7 | |||||||||||||||||
Government bonds | Fair value through results | Level 2 | 284,212 | 221,900 | 284,212 | 221,900 | ||||||||||||
Restricted cash | Fair value through results | Level 2 | 38,580 | - | 38,580 | - | ||||||||||||
Financial letter | Fair value through results | Level 2 | 417,355 | 374,690 | 417,355 | 374,690 | ||||||||||||
Loan investment fund | Fair value through results | Level 2 | 468,527 | 407,928 | 468,527 | 407,928 | ||||||||||||
Dynamo Beauty Ventures Ltd Fund | Fair value through results | Level 2 | 8,938 | 7,402 | 8,938 | 7,402 | ||||||||||||
Certificate of bank deposits | Fair value through results | Level 2 | 246,133 | 21,327 | 246,133 | 21,327 | ||||||||||||
1,463,745 | 1,033,247 | 1,463,745 | 1,033,247 | |||||||||||||||
Accounts receivable from clients | 8 | Amortized cost | Level 2 | 2,774,632 | 1,685,764 | 2,774,632 | 1,685,764 | |||||||||||
Court deposit | 12 | Amortized cost | Level 2 | 619,726 | 337,255 | 619,726 | 337,255 | |||||||||||
"Financial" and "Operating" | Fair value - Hedge | Level 2 | ||||||||||||||||
derivatives | instruments | 1,932,110 | 737,378 | 1,932,110 | 737,378 | |||||||||||||
"Financial" and "Operating" | Level 2 | |||||||||||||||||
derivatives | Fair value through results | 64,760 | - | 64,760 | - | |||||||||||||
1,996,870 | 737,378 | 1,996,870 | 737,378 | |||||||||||||||
Financial liabilities | ||||||||||||||||||
Loans, financing and debentures | 19 | |||||||||||||||||
Issue of debts in domestic currency | Amortized cost | Level 2 | (14,924,077) | (7,266,853) | (13,008,056) | (7,300,082) | ||||||||||||
BNDES/Finep loans | Amortized cost | Level 2 | (128,508) | (145,590) | (128,508) | (145,590) | ||||||||||||
Issue of debts in foreign currency | Amortized cost | Level 2 | (4,280,481) | (3,373,931) | (3,735,130) | (3,541,541) | ||||||||||||
(19,333,066) | (10,786,374) | (16,871,694) | (10,987,213) | |||||||||||||||
"Financial" and "Operating" | Fair value - Hedge | Level 2 | ||||||||||||||||
derivatives | instruments | - | (10,158) | - | (10,158) | |||||||||||||
"Financial" and "Operating" | Level 2 | |||||||||||||||||
derivatives | Fair value through results | (32,205) | (1,648) | (32,205) | (1,648) | |||||||||||||
(32,205) | (11,806) | (32,205) | (11,806) | |||||||||||||||
Commercial Leasing | 18 | Amortized Cost | Level 2 | (3,927,978) | (2,517,565) | (3,927,978) | (2,517,565) |
15
Suppliers and "drawn risk" | Level 2 | ||||||
transactions | 20 | Amortized cost | (5,104,782) | (1,829,756) | (5,104,782) | (1,829,756) | |
5.2 Financial risk factors
Information pertaining to the financial risk factors was presented in the Company's 2019 annual financial statements, on Note 5.2.
- Market risk
To hedge the current positions of the Balance Sheet of the Company and its subsidiaries against market risks, the following derivative financial instruments were used and consist of the balances as follows, as of March 31, 2020 and December 31, 2019:
Fair Value (Level 2) | ||
Description | Consolidated | |
March 2020 | December 2019 | |
"Financial" derivatives | 1,955,145 | 725,060 |
"Operating" derivatives | 9,520 | 512 |
Total | 1,964,665 | 725,572 |
b) Foreign exchange risk
As of March 31, 2020, and December 31, 2019, the Company and its controlled companies are primarily exposed to the risk of fluctuation of the US dollar, euro and pound sterling and emerging market currencies. In order to hedge foreign exchange exposures in relation to foreign currency, the Company and its controlled companies enter into transactions with derivative financial instruments of the "swap" type and forward purchase of currency named Non-Deliverable Forwards - NDF.
As of March 31, 2020, loans, financing and debentures in the consolidated balance sheet include accounts in foreign currency which expose the controlled companies of the Company to foreign exchange risks, representing, in the aggregate, total liabilities of R$ 4,309,492 (R$ 3,381,959 as of December 31, 2019).
-
Derivatives to hedge foreign exchange risk
The outstanding Derivative agreements present maturity flows between January 2020 and February 2023. The Derivative agreements in The Body Shop were entered into with represented counterparties and mature within up to 12 months.
The Company and its controlled companies classify the derivatives in: "Financial" and "Operating". The "Financial" ones are "swap" or "forward" derivatives, contracted to hedge the foreign exchange risk of borrowings, financing, debt instruments and loans in foreign currency. The "Operating" ones are derivatives contracted to hedge the foreign exchange risk of operating cash flows of the business.
As of March 31, 2020, the balances of derivatives are as follows:
"Financial" derivatives
Principal (Notional) | Gain (loss) of | |||||||||||||||||||||
Consolidated | Curve value | Fair value | adjustment at fair | |||||||||||||||||||
amount | ||||||||||||||||||||||
value | ||||||||||||||||||||||
Description | March | December | March | December | March | December | March | December | ||||||||||||||
2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||
Swap agreements: | ||||||||||||||||||||||
Asset portion: | ||||||||||||||||||||||
Dollar purchased position | 2,662,726 | 2,664,001 | 4,313,910 | 3,416,707 | 4,850,442 | 3,729,691 | 536,532 | 312,984 | ||||||||||||||
Liability portion: | ||||||||||||||||||||||
Post-fixed CDI Rate: | ||||||||||||||||||||||
Position sold in CDI | 2,662,726 | 2,664,001 | 2,695,215 | 2,754,595 | 2,926,682 | 3,002,623 | 231,467 | 248,028 | ||||||||||||||
NDFs Forward Agreements: | ||||||||||||||||||||||
Liability portion: | ||||||||||||||||||||||
Post-fixed CDI Rate: | ||||||||||||||||||||||
Position sold in the | ||||||||||||||||||||||
interbank rate | 4,086,866 | 200,896 | (2,997) | (1,848) | 31,385 | (2,008) | 34,381 | (160) |
Total net derivative financial | ||||||||
instruments: | 4,086,866 | 200,896 | 1,615,698 | 660,264 | 1,955,145 | 725,060 | 339,446 | 64,796 |
For financial derivatives maintained by the Company and its controlled companies as of December 31, 2019 and March 31, 2020, due to the fact agreements are directly entered into with the financial institutions and not through stock markets, there are no margin calls deposited as guarantee of said transactions.
"Operating" derivatives - Consolidated
As of March 31, 2020, the Company and its controlled companies maintain derivative financial instruments of the "forward" type, with the purpose of hedging the foreign exchange risk of operating cash flows (such as import and export transactions):
Description | Principal (Notional) amount | Fair value | |||||||||
March 2020 | December 2019 | March 2020 | December 2019 | ||||||||
Net position - GBP and USD | 1,243,084 | - | 9,598 | - | |||||||
Forward agreements | 12,699 | 1,302,869 | (78) | 512 | |||||||
Total Derivative Financial Instruments, net | 1,255,783 | 1,302,869 | 9,520 | 512 |
Sensitivity analysis
For the sensitivity analysis of the foreign exchange exposure risk, the Management of the Company and its controlled companies understands it is necessary to consider, in addition to the assets and liabilities with exposure to the fluctuation of exchange rates recorded in the balance sheet, the fair value of the financial instruments contracted by the Company to hedge certain exposures as of March 31, 2020, as shown in the following chart:
Loans and financing in Brazil in foreign currency (a)Accounts receivables registered in Brazil in foreign currency Accounts payable registered in Brazil in foreign currencies Fair value of the "financial" derivatives
Net asset exposure
(a) Excluding transaction costs.
Consolidated
March 2020 | December 2019 |
(4,309,492) | (3,381,959) |
18,178 | 10,007 |
(15,736) | (10,543) |
4,850,442 | 3,729,691 |
543,392 | 347,196 |
This analysis considers only financial assets and liabilities registered in Brazil in foreign currency, since foreign exchange exposure in other countries is close to zero due to the strength of currencies and the effectiveness of their derivatives, and considers that all other variables, especially interest rates, remain constant and ignore any impact from purchase and sale forecasts.
The tables below show the projection for incremental loss that would have been recognized in the subsequent period, assuming that the current net foreign exchange exposure remains static and based on the following scenarios:
Consolidated | ||||
Description | Company's Risk | Probable scenario | Scenario II | Scenario III |
Net exposure | Dollar decrease | 1,900 | (179,360) | (541,879) |
The probable scenario considers future US dollar rates for 90 days, as of March 31, 2020. According to quotations obtained at B3 on the expected maturity dates of financial instruments with foreign exchange exposure, it is R$
5.20 / USD 1.00. Scenarios II and III consider a drop in the US dollar of 25% (R$ 3.91 / USD 1.00) and 50% (R$ 2.61 / USD 1.00), respectively. Probable scenarios II and III are being presented in compliance with CVM Ruling No. 475/08. The Management uses the probable scenario in the assessment of possible changes in the exchange rate and presents said scenario in compliance with IFRS 7/CPC 40 - Financial Instruments: Disclosures.
The Company and its controlled companies does not use derivative financial instruments for speculative purposes.
Derivative instruments designated for hedge accounting
The positions of derivative financial instruments designated as outstanding cash flow hedge on March 31, 2020 are indicated below:
17
Cash flow hedge instrument
Others comprehensive | ||||||||||||||
results | ||||||||||||||
Accrued | Gain in the | |||||||||||||
Hedged | Notional | Notional | Curve | Gain (Loss) | ||||||||||
Fair value | 12-month | |||||||||||||
Item | currency | value | Value | of the | ||||||||||
period | ||||||||||||||
agreement | ||||||||||||||
Currency Swap - USD/BRL R$ | Currency | BRL |
Forward Agreements (The Body Shop) | Currency | BRL |
Forward Agreements (Natura | Currency | BRL |
Indústria) | ||
Total |
2,659,360 | 1,614,924 | 1,920,032 | 305,108 | 239,523 |
1,108,091 | 11,019 | 10,889 | 10,889 | 7,567 |
25,928 | 1,283 | 1,189 | 1,189 | 1,594 |
3,793,379 | 1,627,226 | 1,932,110 | 317,186 | 248,684 |
Movements in cash flow hedge reserve booked under other comprehensive results are shown below:
Consolidated | |
Cash flow hedge balance as of December 31, 2018 | (27,706) |
Change in the fair value of hedge instrument recognized in other comprehensive results | 89,223 |
Tax effects on the fair value of hedge instrument | (30,928) |
Cash flow hedge balance as of March 31, 2019 | 30,589 |
Cash flow hedge balance as of December 31, 2019 | 42,729 |
Change in the fair value of hedge instrument recognized in other comprehensive results | 248,684 |
Tax effects on the fair value of hedge instrument | (83,802) |
Cash flow hedge balance as of March 31, 2020 | 207,611 |
- Interest rate riskSensitivity analysis
On March 31, 2020, there are loans, financing and debenture agreements in foreign currency attached to swap agreements, changing the indexation over the liability to the variation of the Certificate of Interbank Deposit (CDI). Therefore, the risk of the Company and its controlled companies becomes the CDI variation exposure. Find below the exposure to interest rate risks of transactions bound to CDI variation, including derivative transactions (loans, financing and debentures were considered at their full amounts, since 98.5% of their sum is linked to CDI):
Total loans and financing - in local currency (note No. 19) Operations in foreign currency with derivatives bound to CDI Financial investments (explanatory notes no. 6 and 7)
Net exposure
Company Consolidated
(1,079,905) (15,045,222)
-
(4,287,844)
552,203 1,822,244
(527,702) 17,510,822
The tables below show the projection for incremental loss that would have been recognized in the subsequent period, assuming that the current net liability exposure remains static and based on the following scenarios:
Consolidated
Company's Risk | Probable | Scenario II | Scenario III | ||||||||
Description | scenario | ||||||||||
Net liability | Rate increase | 22,371 | (44,941) | (112,253) |
The probable scenario considers future interest rates pursuant to quotations from B3 in the predicted maturity dates of the financial instruments exposed to interest rate, as of March 31, 2020. Scenarios II and III consider an increase in the interest rate of 25% (4.2% per year) and 50% (5.1% per year), respectively, over the CDI rate of 3.4% per year.
d) Credit risk
The result of the credit risk management is reflected in the "Provision for expected credit losses" tab under "Accounts receivable from clients", as demonstrated in explanatory note 8.
The Company and its controlled companies consider the credit risk for transactions with financial institutions to be low, as these are considered by the Management as first-rate.
e) Liquidity risk
The Management monitors the consolidated liquidity level for the Company and its controlled companies considering the expected cash flows against unused credit facilities, as shown in the following chart:
Company | Consolidated | |||
March 2020 | December 2019 | March 2020 | December 2019 | |
Total current assets | 1,063,180 | 3,050,574 | 13,860,739 | 9,430,057 |
Total current liabilities | (1,255,354) | (3,080,906) | (11,533,584) | (7,518,423) |
Total net current assets | (192,174) | (30,332) | 2,327,155 | 1,911,634 |
As of March 31, 2020, the book value of financial liabilities, on the date of the balance sheet, measured at amortized cost, considering interest payments at a post-fixed rate and the value of debt securities reflecting the forward market interest rates, may be changed as post-fixed interest rates change. Their corresponding maturities, considering that the Company and its subsidiaries are in compliance with contractual covenants, are evidenced below:
Less than | One to | Over five | Total expected | Interest to | ||
Company | one year | five years | years | cash flow | be accrued | Book value |
Loans, financing and | ||||||
debentures | 1,087,766 | - | - | 1,087,766 | (7,861) | 1,079,905 |
Commercial leasing | - | - | - | - | - | - |
Related-party suppliers, | ||||||
suppliers and "drawn risk" | ||||||
transactions | - | - | - | 149,244 | - | 149,244 |
Less than | One to five | Over five | Total expected | Interest to | ||
Consolidated | one year | years | years | cash flow | be accrued | Book value |
Loans, financing and | ||||||
debentures | 2,261,818 | 18,462,318 | - | 20,724,136 | (1,391,070) | 19,333,066 |
Commercial leasing | 3,927,978 | - | - | 3,927,978 | - | 3,927,978 |
Suppliers and "drawn risk" | ||||||
transactions | 828,516 | 4,117,467 | 797,907 | 5,743,890 | (639,108) | 5,104,782 |
As of December 31, 2019, the Company and its subsidiaries had two credit facilities:
- Up to seventy million pound sterlings (GBP 70 million), with no guarantee, that could be withdrawn in installments to meetshort-term financing needs of The Body Shop International Limited. This facility was used by your in directed subsidiaries during the first quarter of 2020, to reinforce working capital and liquidity.
- Up to one hundred and fifty Reais (R$ 150,000), with no guarantee, which was terminated during the first semester of 2020.
5.3 Impacts of Covid-19
As of the date of this consolidated financial statement, the Company's Management cannot predict the extent and duration of the measures adopted by governments in the countries where the Company and its subsidiaries have operations and, therefore, cannot predict the direct and indirect impacts of Covid-19 on its business, operating results and financial condition, including:
- the impact ofCovid-19 in the financial conditions and operating results, including general economic trends and perspectives, financial and capital resources or liquidity position;
- how future operations could be impacted;
- the impact on costs or access to capital and financing resources and on ability to meet the covenants of credit agreements;
- if the Company and its subsidiaries could incur any materialCovid-19-related contingencies;
- howCovid-19 could affect assets on the balance sheet and the ability to timely record those assets;
- the advance of any material losses, increases in provisions for credit losses, restructuring charges or other expenses;
- any changes in accounting judgment which had or are reasonably expected to have a relevant impact in this financial statement;
- the impact on the demand for the Company and its subsidiaries products;
- the impact on the Company and its subsidiaries supply chain;
- the impact on the relationship between costs and revenues; and
- other unforeseen impacts and consequences.
19
However, based on the uncertainties described above, the Company and its subsidiaries are closely monitoring how the pandemic caused by Covid-19 progresses and created crisis committees in several areas, including with the main employees, in order to monitor, analyze and decide on actions to minimize impacts, assuring continuity of operations and promoting health and safety for all people involved in its operations.
As of the date of the approval to issue the Company's financial statements, and also since the beginning of the virus spread and the consequent restrictive measures imposed by governments, such as closing non-essential businesses and restricting the movement of people at borders, the Company has implemented some measures in all its operations, aligned with the government's measures:
- Incentive to the Company and its subsidiaries employees to work remotely and adoption of essential criteria to limit industrial and logistical operations;
- Adoption of new safety measures for operational workers, such as masks and procedures to leave people in a safe distance from each other;
- Closing of stores, where and when required by the authorities;
- Replanning sales cycles, prioritizing personal care items;
- Speeding up the digitization of sales channels;
- Wide disclosure of the digital magazine;
- Change of the minimum criteria for orders, initial kits and extended term for payment of consultants;
- Daily monitoring of suppliers to ensure supply.
In addition to these measures, a crisis committee was created, focused on financial impacts and which monitors the Company and its subsidiaries financial health, focusing on cash, covenants and results, proposing actions to minimize the inevitable reduction in sales. Those actions include the following:
- Cutting discretionary expenses, such as consultancies and events;
- Freezing the hires and wage increases;
- Marketing expenses reduction;
- Consumer discounts reduction;
- Travel expenses reduction;
- Capital expenditures reduction; and
- Negotiation with suppliers to extend payment terms.
The promissory notes issued by Natura &Co Holding on December 20, 2019 include an obligation that demands that the Company maintain a certain indebtedness index that must be verified in June 2020, however, as a result of the impacts of COVID-19, the creditors of such notes agreed to not calculate this indebtedness index in June 2020.
The effects of the incentive plan that some governments are announcing are also being monitored and included in the management's projections.
The actions and decisions above are constantly under review by the management and the committees, according to the development of global scenarios. As a response to the possible impacts of Covid-19, the company carried out an impairment assessment on the base date of March 31, 2020 for the cash-generating units ("CGU") that include the business combination goodwill (Note 17.a)
6. CASH AND CASH EQUIVALENTS
Information pertaining to cash and cash equivalents was presented in the Company's 2019 annual financial statements, on Note 6.
Company | Consolidated | |||
March 2020 | December 2019 | March 2020 | December2019 | |
Cash and banks | 271 | 2,173,101 | 2,705,479 | 3,110,220 |
Certificate of Bank Deposits (a) | 11,656 | 207,699 | 60,353 | 211,261 |
Repurchase operations (b) | - | - | 345,664 | 1,192,101 |
11,927 | 2,380,800 | 3,111,496 | 4,513,582 |
- As of March 31, 2020, investments in Certificate of Bank Deposits (CDB) are remunerated at an average rate of 103.1% of CDI (106.9% of CDI as of December 31, 2019) with daily maturities redeemable with the issuer itself, without significant loss of value.
- Repurchase operations are securities issued by banks with a commitment by the bank to repurchase them, and by the client to resell them, at defined rates and within a predetermined term, backed by public or private securities, depending on bank availabilities and registered with the CETIP. On March 31, 2020, repurchase operations are remunerated at an average rate of 100.0% of CDI (99.9% of the CDI on December 31, 2019).
7. SHORT-TERM INVESTMENTS
Information pertaining to bonds and securities was presented in the Company's 2019 annual financial statements, on Note 7.
Exclusive investment funds Loan investment funds Certificate of Bank Deposits (a)Financial letters Government bonds (LFT)
Dynamo Beauty Ventures Ltd. Fund (b)Restricted cash
Current
Non-Current
Company | Consolidated | ||
March 2020 | December 2019 | March 2020 | December 2019 |
540,547 | 669,769 | - | - |
- | - | 468,527 | 407,928 |
- | - | 246,133 | 21,327 |
- | - | 417,355 | 374,690 |
- | - | 284,212 | 221,900 |
- | - | 8,938 | 7,402 |
- | - | 38,580 | - |
540,547 | 669,769 | 1,463,745 | 1,033,247 |
540,547 | 669,769 | 1,454,807 | 1,025,845 |
- | - | 8,938 | 7,402 |
- The balance on March 31, 2020, related to the "Crer para Ver" line within the exclusive fund is R$ 44,961. (R$ 38,018 on December 31, 2019).
Breakdown of securities constituting the Essential Investment Fund portfolio on March 31, 2020 and December 31, 2019 is as follows:
March 2020 | December 2019 | |
Certificate of time deposits | 136,551 | 21,327 |
Repurchase operations | 147,812 | 1,192,101 |
Financial letters | 231,543 | 374,690 |
Government bonds (LFT) | 157,677 | 221,900 |
673,583 | 1,810,018 |
8. TRADE RECEIVABLES
Information pertaining to accounts receivable from clients was presented in the Company's 2019 annual financial statements, on Note 8.
Consolidated | ||
March 2020 | December 2019 | |
Accounts receivable from clients | 3,222,987 | 1,793,759 |
Provision for expected credit losses | (448,355) | (107,995) |
2,774,632 | 1,685,764 |
Maximum exposure to credit risk on the date of the financial statements is the book value of each maturity date range, net of the provision for expected credit losses, as shown in the chart of receivable balances per maturity date:
Consolidated | ||
March 2020 | December 2019 | |
To become due | 1,428,211 | 1,501,958 |
Past due: | ||
Up to 30 days | 1,273,869 | 142,069 |
31 to 60 days | 163,147 | 36,466 |
61 to 90 days | 95,199 | 27,789 |
91 to 180 days | 262,561 | 85,477 |
Provision for expected credit losses | (448,355) | (107,995) |
2,774,632 | 1,685,764 | |
Movements in the provision for expected credit losses for the period ending on March 31, 2020 are as follows:
Consolidated | |
Balance on December 31, 2018 | (129,242) |
Additions | (75,428) |
Write-offs | 72,073 |
Exchange variation | (373) |
Balance on March 31, 2019 | (132,970) |
Balance on December 31, 2019 | (107,995) |
21
Control acquisition | (270,187) |
Additions | (209,933) |
Write-offs | 182,333 |
Exchange variation | (42,573) |
Balance on March 31, 2020 | (448,355) |
Find below the balances of accounts receivable from clients per exposure to expected credit losses risk on March 31, 2020:
Consolidated | ||
Accounts receivable | Provision for expected | |
from clients | credit losses | |
To become due | 1,428,211 | (50,296) |
Past due: | ||
Up to 30 days | 1,273,869 | (70,636) |
31 to 60 days | 163,147 | (60,951) |
61 to 90 days | 95,199 | (50,138) |
91 to 180 days | 262,561 | (216,334) |
3,222,987 | (448,355) | |
9. INVENTORIES
Information pertaining to inventories was presented in the Company's 2019 annual financial statements, on Note 9
Consolidated | ||
March 2020 | December 2019 | |
Finished products | 3,556,809 | 1,253,145 |
Raw materials and packaging | 871,012 | 253,063 |
Auxiliary materials | 197,798 | 82,228 |
Products in progress | 40,674 | 27,346 |
Provision for losses | (625,614) | (185,232) |
4,040,679 | 1,430,550 |
Movements in the provision for inventory losses for the period ending on March 31, 2020 are as follows:
Consolidated | |
Balance on December 31, 2018 | (178,268) |
Net additions | (37,920) |
Write-offs | 38,374 |
Exchange variation | 726 |
Balance on March 31, 2019 | (177,088) |
Balance on December 31, 2019 | (185,232) |
Control acquisition | (332,350) |
Net additions | (119,735) |
Write-offs | 92,296 |
Exchange variation | (80,593) |
Balance on March 31, 2020 | (625,614) |
10. RECOVERABLE TAXES
Information pertaining to recoverable taxes was presented in the Company's 2019 annual financial statements, on Note 10
Consolidated | ||
March 2020 | December 2019 | |
ICMS on purchase of inputs | 621,998 | 434,832 |
Taxes on purchase of inputs - controlled companies abroad | 208,910 | 39,475 |
ICMS on purchase of fixed assets | 10,373 | 10,628 |
PIS and COFINS on purchase of fixed assets | 2,728 | 3,826 |
PIS and COFINS on purchase of inputs | 769,919 | 280,087 |
PIS, COFINS and CSLL - withheld at source | 3,908 | 2,378 |
IPI | 79,265 | 30,190 |
Other | 161,982 | 3,438 |
1,859,083 | 804,854 | |
Current | 959,222 | 395,640 |
Non-Current | 899,861 | 409,214 |
11. INCOME TAX AND SOCIAL CONTRIBUTION
The effective rate calculated by the Company in the period of March 31, 2020 was negative in 13%. This percentage is based on the losses before taxes of R$ 730.1 million and in the income tax expenses of R$ 94.8 million. The main components causing the effective rate to be distant from the nominal income tax rate of 34% are the tax losses of certain jurisdictions which may not benefit from deferred asset income tax, permanent effects related to income tax withheld at source arising from transactions among companies of the group which may not be used and the additional recognition of deferred liability income tax due to the announcement by the British government that the nominal rate will not be reduced from 19% to 17%. Excluding the adverse effects caused especially by jurisdictions with tax losses that may not benefit from deferred asset income tax, the Company's effective rate would be approximately 32.6%.
The effective rate calculated by the Company in the period of March 31, 2019 was 30.7%. This percentage is based on the profits before taxes of R$ 19.4 million and in the income tax expenses of R$ 6 million. The main components causing the effective rate to be distant from the nominal income tax rate of 34% are the tax incentives and the subvention of investments.
Movements in deferred asset and liability income tax and social contribution, for the period ending on March 31,
2020 and 2019, are as follows:
Assets | Liabilities | ||
Consolidated | Consolidated | ||
Balance on December 31, 2018 | 398,400 | (431,534) | |
Effect on results | 23,291 | 3,850 | |
Reserve for grant of options and restricted shares | (2,547) | - | |
Effect on other comprehensive results | (30,928) | - | |
Exchange variation on other comprehensive results | 6,425 | (3,150) | |
Balance on March 31, 2019 | 394,641 | (430,834) | |
Balance on December 31, 2019 | 374,448 | (450,561) | |
Effect on results | (30,857) | (33,472) | |
Control acquisition | 667,034 | (728,274) | |
Reserve for grant of options and restricted shares | (39,435) | - | |
Effect on other comprehensive results | (83,802) | - | |
Exchange variation on other comprehensive results | 109,031 | (292,603) | |
Balance on March 31, 2020 | 996,419 | (1,504,910) |
23
12. JUDICIAL DEPOSITS
Information pertaining to judicial deposits was presented in the Company's 2019 annual financial statements, on Note 12.
Consolidated | |||
March 2020 | December 2019 | ||
Unprovisioned tax proceedings (a) | 293,469 | 203,403 | |
Provisioned tax proceedings (b)(notes 21 and 22) | 267,896 | 116,415 | |
Unprovisioned civil proceedings | 7,739 | 2,541 | |
Provisioned civil proceedings (note 22) | 3,364 | 426 | |
Unprovisioned labor proceedings | 13,664 | 8,683 | |
Provisioned labor proceedings (note 22) | 33,594 | 5,787 | |
Total judicial deposits | 619,726 | 337,255 |
- The tax proceedings related to these judicial deposits are mainly related toICMS-ST, highlighted on note 20 (a) - contingent liabilities - possible risk of loss.
- The tax proceedings related to these judicial deposits are mainly related to the sum of amounts disclosed in explanatory note 21b, item (a) and the amounts provisioned pursuant to explanatory note 20.
Find below the movements in the balances of judicial deposits for the periods ending on March 31, 2020 and 2019:
Consolidated | |
Balance on December 31, 2018 | 333,577 |
New deposits | 904 |
Redemptions | (376) |
Monetary adjustment | 3,752 |
Write-offs for expenses | (1,816) |
Balance on March 31, 2019 | 336,041 |
Balance on December 31, 2019 | 337,255 |
Control acquisition | 283,885 |
New deposits | 4,867 |
Redemptions | (1,519) |
Monetary adjustment | 1,383 |
Accounts Payable | (5,344) |
Write-offs for expenses | (801) |
Balance on March 31, 2020 | 619,726 |
In addition to judicial deposits, the Company and its controlled companies have contracted guarantee insurance policies for some proceedings. Details on these insurance policies are presented in explanatory note No. 34.
13. ASSETS AVAILABLE FOR SALE
On the acquisition date of Avon (Note 4) on January 3, 2020, there was a balance of long-term assets held for sale with acquired fair value of R$ 186,518 (USD 46,036). During such period, circumstances arose which were previously considered as unlikely and, as a result, Avon decided not to carry on with the sale of two properties with total value of USD9.1MM. As a result, it controlled reclassified such properties held for sale in the property, plant and equipment assets. During the reclassification, we recorded a real depreciation, resulting in a non- property impact to our consolidated financial statements. On March 31, 2020, the assets available for sale include three Avon properties at the sum of R$ 186,518 (USD 35,900).
14. OTHER CURRENT AND NON-CURRENT ASSETS
Consolidated | |||
March 2020 | December 2019 | ||
Marketing and advertising advances | 111,112 | 28,669 | |
Supplier advances | 200,766 | 102,225 | |
Employee advances | 38,963 | 13,983 | |
Rent advances and guarantee deposit (a) | 147,058 | 96,202 | |
Prepaid insurance expenses | 186,491 | 29,647 | |
Life insurance in advance | 687,415 | - | |
Customs broker advances - Import taxes | 39,707 | 34,932 | |
Subleasing receivables | 382,584 | - | |
Carbon credit | 3,651 | 3,508 | |
Other | 415,363 | 39,868 | |
2,213,110 | 349,034 | ||
Current | 832,988 | 265,198 | |
Non-Current | 1,380,122 | 83,836 |
- Mainly refers to (i) the advance of rent agreements not included in the initial measurement of commercial lease /right-of- use liabilities of controlled company The Body Shop International Limited, in accordance with the exemptions set forth on CPC 06(R2) / IFRS 16; and (ii) guarantee deposits for the real estate rental of certain stores of controlled companies The Body Shop International Limited and Emeis Holdings Pty Ltd. which will be returned by the lessor at the end of the rent agreements.
15. INVESTMENTS
Company | ||
March 2020 | December 2019 | |
Investments in controlled companies, net of losses | 9,484,801 | 3,392,677 |
Goodwill Avon (Note 4) | 10,973,473 | - |
Total | 20,458,274 | 3,392,677 |
Information and movements of balances for the period ending on March 31, 2020 and for the fiscal year ending on December 31, 2019:
Natura Cosméticos | Avon Products, Inc. | Total | |||||
S.A. (1) | |||||||
Interest percentage | 100,00% | 100,00% | |||||
Net equity of the controlled companies | 4,757,910 | (4,156,091) | 601,819 | ||||
Interest on net equity | 4,757,910 | (4,156,091) | 601,819 | ||||
Fair value adjustment of acquired assets and | |||||||
liabilities | - | 8,882,982 | 8,882,982 | ||||
Goodwill | - | 10,973,473 | 10,973,473 | ||||
Total | 4,757,910 | 15,700,364 | 20,458,274 | ||||
Net losses for the period of the controlled | |||||||
companies | (213) | (711,889) | (712,102) | ||||
Balance on December 31, 2019 | |||||||
3,392,677 | - | 3,392,677 | |||||
Equity accounting results | |||||||
(213) | (711,889) | (712,102) | |||||
Exchange variation and other adjustments in | 3,140,511 | 4,344,687 | |||||
the conversion of investments of the | |||||||
controlled companies abroad | 1,204,176 | ||||||
Effect of a hyperinflationary economy | 17,127 | - | 17,127 | ||||
Contribution of the controlled company for | |||||||
share option plans granted to its executives | |||||||
and other reserves, net of tax effects | (23,890) | - | (23,890) | ||||
Hedge accounting, net of tax effects | 168,033 | (3,152) | 164,881 | ||||
Acquisition price | - | 13,274,894 | 13,274,894 | ||||
Balance on March 31, 2020 | 4,757,910 | 15,700,364 | 20,458,274 | ||||
- The investment balance in the direct subsidiary Natura Cosméticos S.A. includes goodwill arising from the acquisitions of indirect subsidiaries TBS (R$ 1,751,529) and Aesop (R$ 112,977).
25
16. PROPERTY, PLANT AND EQUIPMENT
Information pertaining to fixed assets was presented in the Company's 2019 annual financial statements, on Note 15.
Consolidated | ||||||||||||||||||||||
Other | ||||||||||||||||||||||
Useful | December | Control | movements | |||||||||||||||||||
life in | Additions | Write-offs | Impairment | Transfers | including | March 2020 | ||||||||||||||||
2019 | acquisition | |||||||||||||||||||||
years | exchange | |||||||||||||||||||||
variation | ||||||||||||||||||||||
Cost value: | ||||||||||||||||||||||
Vehicles | 2 to 5 | 45,578 | 25,789 | 260 | (2,711) | - | 2,163 | 11,302 | 82,381 | |||||||||||||
Templates | 3 | 192,556 | - | - | (27) | - | 4,322 | 25 | 196,876 | |||||||||||||
Tools and accessories | 3 to 20 | 11,974 | 52,410 | 3,271 | (283) | - | (1,034) | 9,897 | 76,235 | |||||||||||||
Facilities | 3 a 60 | 309,772 | 1,431 | 5 | (3,212) | - | 2,359 | 9,347 | 319,702 | |||||||||||||
Machinery and accessories | 3 to 15 | 866,451 | 746,734 | 5,556 | (726) | - | 10,757 | 124,366 | 1,753,138 | |||||||||||||
Improvements in third-party real | 2 to 20 | |||||||||||||||||||||
properties (a) | 615,103 | 58,548 | 6,844 | (651) | 385 | 14,830 | 90,324 | 785,383 | ||||||||||||||
Buildings | 14 a 60 | 386,957 | 1,168,837 | 2,781 | 3,070 | - | 27,616 | 226,178 | 1,815,439 | |||||||||||||
Furniture and utensils | 2 to 25 | 397,727 | 32,566 | 4,658 | (686) | 1,823 | 6,543 | 71,943 | 514,574 | |||||||||||||
Land | - | 35,157 | 568,470 | - | - | - | 4,772 | 152,410 | 760,809 | |||||||||||||
IT equipment | 3 to 15 | 297,228 | 112,369 | 2,300 | (402) | - | 9,536 | 52,303 | 473,334 | |||||||||||||
Other assets | - | - | 40,090 | - | - | - | - | 11,343 | 51,433 | |||||||||||||
Projects in progress | - | 156,011 | 78,965 | 53,621 | (402) | - | (53,107) | 22,132 | 257,220 | |||||||||||||
Total cost | 3,314,514 | 2,886,209 | 79,296 | (6,030) | 2,208 | 28,757 | 781,570 | 7,086,524 | ||||||||||||||
Depreciation value: | ||||||||||||||||||||||
Vehicles | (16,924) | - | (6,712) | 1,231 | - | (2,093) | (2,945) | (27,443) | ||||||||||||||
Templates | (175,938) | - | (1,975) | - | - | - | (77) | (177,990) | ||||||||||||||
Tools and accessories | (3,255) | - | (11,346) | - | - | - | (1,748) | (16,349) | ||||||||||||||
Facilities | (167,362) | - | (7,125) | 282 | - | - | (2,351) | (176,556) | ||||||||||||||
Machinery and accessories | (416,736) | - | (49,636) | 154 | - | (161) | (11,782) | (478,161) | ||||||||||||||
Improvements in third-party real | ||||||||||||||||||||||
properties | (267,371) | - | (28,910) | - | - | 25 | (40,355) | (336,611) | ||||||||||||||
Buildings | (101,785) | - | (26,380) | - | - | - | (3,089) | (131,254) | ||||||||||||||
Furniture and utensils | (193,973) | - | (22,270) | 465 | - | (25) | (37,787) | (253,590) | ||||||||||||||
IT equipment | (197,281) | - | (23,927) | 10 | - | - | (17,477) | (238,675) | ||||||||||||||
Other assets | - | - | (3,097) | - | - | - | (515) | (3,612) | ||||||||||||||
Total depreciation | (1,540,625) | - | (181,378) | 2,142 | - | (2,254) | (118,126) | (1,840,241) | ||||||||||||||
Overall Total | 1,773,889 | 2,886,209 | (102,082) | (3,888) | 2,208 | 26,503 | 663,444 | 5,246,283 | ||||||||||||||
17. INTANGIBLES
Information pertaining to intangible assets deposits was presented in the Company's 2019 annual financial statements, on Note 16.
Consolidated | |||||||||||||||||||||
Reversal | Other | ||||||||||||||||||||
Control | movements | ||||||||||||||||||||
Useful life | December | (provision) | March | ||||||||||||||||||
Additions | Write-offs | Transfers | including | ||||||||||||||||||
in years | 2019 | acquisition | of | 2020 | |||||||||||||||||
exchange | |||||||||||||||||||||
impairment | |||||||||||||||||||||
variation | |||||||||||||||||||||
Cost value: | |||||||||||||||||||||
Software | 2.5 to 10 | 1,313,090 | 291,239 | 27,299 | (31) | - | 72,445 | 116,469 | 1,820,511 | ||||||||||||
Trademarks and patents (Defined useful life) | 24 a 25 | 116,805 | 517,592 | - | - | - | - | 161,815 | 796,212 | ||||||||||||
Trademarks and patents (Indefinite useful life) | - | 2,171,585 | 1,893,224 | - | - | - | - | 1,002,860 | 5,067,669 | ||||||||||||
Goodwill Avon (Note 4) | - | - | 10,973,474 | - | - | - | - | 3,039,790 | 14,013,264 | ||||||||||||
Goodwill Emeis Brazil Pty Ltd. | - | 100,237 | - | - | - | - | - | 12,740 | 112,977 | ||||||||||||
Goodwill The Body Shop International Limited | - | 1,434,369 | - | 7,824 | - | - | - | 307,880 | 1,750,073 | ||||||||||||
Goodwill acquisition of The Body Shop stores | - | 1,456 | - | - | 1,456 | ||||||||||||||||
Relationship with retail clients | 10 | 1,987 | - | - | - | - | - | 282 | 2,269 | ||||||||||||
Goodwill (indefinite useful life) | - | 17,801 | - | - | - | - | 5,595 | 2,191 | 25,587 | ||||||||||||
Goodwill (Defined useful life) | 3 to 18 | 12,447 | - | - | - | (80) | (3,145) | 4,829 | 14,051 | ||||||||||||
Relationship with franchisees and sub-franchisees | 14 a 15 | 602,958 | 1,876,169 | - | - | - | - | 659,983 | 3,139,110 | ||||||||||||
Developed technology (by acquired controlled | - | ||||||||||||||||||||
company) | - | 1,131,573 | - | - | - | - | 320,159 | 1,451,732 | |||||||||||||
Other intangible assets | 2 to 10 | 110,288 | - | 14,665 | - | - | (63,534) | 10,801 | 72,220 | ||||||||||||
Total cost | 5,883,023 | 16,683,271 | 49,788 | (31) | (80) | 11,361 | 5,639,799 | 28,267,131 | |||||||||||||
Amortization value: | |||||||||||||||||||||
Software | (649,347) | - | (81,653) | 43 | - | (3,634) | (28,471) | (763,062) | |||||||||||||
Trademarks and patents | (44,108) | - | (8,285) | - | - | - | (5,578) | (57,971) | |||||||||||||
Goodwill | (2,197) | - | (97) | - | - | 178 | (3,489) | (5,605) | |||||||||||||
Relationship with retail clients | (1,939) | - | (52) | - | - | - | (232) | (2,223) | |||||||||||||
Relationship with franchisees and sub franchisees | (95,772) | - | (67,166) | - | - | - | (30,938) | (193,876) | |||||||||||||
Developed technology (by acquired controlled | |||||||||||||||||||||
company) | - | - | (62,191) | - | - | - | (10,331) | (72,522) | |||||||||||||
Other intangible assets | (13,159) | 1,390 | - | - | - | (2,574) | (14,343) | ||||||||||||||
Total accrued amortization | (806,522) | - | (218,054) | 43 | - | (3,456) | (81,613) | (1,109,602) | |||||||||||||
Net total | 5,076,501 | 16,683,271 | (168,266) | 12 | (80) | 7,905 | 5,558,186 | 27,157,529 |
27
a) Impairment testing of intangible assets with indefinite useful life
Goodwill from the expected future profitability of acquired companies and intangibles assets with indefinite useful life were allocated to the Company's CGU groups. In accordance with CPC 01 - Redução ao Valor Recuperável de Ativos(IAS 36 - Impairment of Assets), when a CGU or a group of CGUs have an intangible asset with indefinite useful life allocated, the Company must test its book value for impairment annually, or whenever there is evidence of such. During the period ending on March 31, 2020, the management considers that the impacts of COVID 19 in its operations (note 5.3) is an indication of requirement of impairment testing of intangible assets with indefinite useful life. CGU groups with intangible assets in such situation as of March 31, 2020 are presented bellow:
2020
Consolidated
CGUs Groups / | Trademarks | Goodwill | Total | |||||||
Operating Segment | and patents | |||||||||
Avon | 3,092,915 | 14,013,264 | 17,106,179 | |||||||
Aesop | - | 112,977 | 112,977 | |||||||
The Body Shop | 1,971,032 | 1,750,073 | 3,721,105 | |||||||
Other | 3,722 | 1,456 | 5,178 | |||||||
Total | 5,067,669 | 15,877,770 | 20,945,439 | |||||||
The main updated premises used to calculate the fair value minus sales cost on March 31, 2020 are presented below:
Aesop | The Body Shop | Avon | ||
Measurement of impairment | ||||
value (fair value minus sales | Discounted cash flow. | |||
cost) | ||||
Projected cash flow | Operating business cycle (approximately 5 years) with perpetuity. | |||
Budgeted gross margin | Average gross margin based on history and projections for the following 5 years, | |||
adjusted with the results of potential impacts of Covid-19. | ||||
Costs based on historical data and market trends, optimization of retail operations | ||||
Estimated costs | (renewal of the geographic presence of stores, revitalization of the franchise | |||
network) and physical expansion with growth in market share. | ||||
Growth rate in perpetuity (*) | Constant growth of 2.5%. | Constant growth of 2.0%. | Constant growth of 2.0%. | |
These cash flows were discounted using a discount rate before taxes of 11.52% | ||||
Discount rate | p.a. for The Body Shop, 12.34% p.a. for Aesop and 13.21% p.a. for Avon, in real | |||
terms. The discount rate was based on the weighted average cost of capital that | ||||
reflects the specific risk of each segment. | ||||
- Based on the inflation applicable to the host country of each segment, based on public information released by the International Monetary Fund.
The Company carried out a sensitivity analysis of the following variables: (i) discount rate and (ii) growth rate in perpetuity, due to their potential impacts on cash flows. A 1 p.p. increase in the discount rate or a 1 p.p. decrease in the growth rate in perpetuity of the cash flow of each CGU group would not result in the need to recognize a loss. Based on the analyses conducted by the Management, there was no need to record impairment losses for the balances of these assets in the year ending on March 31, 2020.
In addition, as the accounting for the acquisition of Avon that took place on January 3, 2020 was still preliminarily presented in accordance with Note 4, the allocation of goodwill at UGC, for the purposes of this specific test, was also performed on a preliminary basis.
18. RIGHT OF USE AND LEASE
Information pertaining to right of use and commercial lease was presented in the Company's 2019 annual financial statements, on Note 17.
a) Right to use
Consolidated | |||||||||||||||||||
Useful life | December | Control | Additions | Write-offs | Transfers (i) | Others | March 2020 | ||||||||||||
Cost value: | in years | 2019 | acquisition | movements | |||||||||||||||
Vehicles | 3 | 40,018 | 42,467 | 38,836 | (202) | - | 10,382 | 131,501 | |||||||||||
Machinery and equipment | 3 to 10 | 15,578 | 14,034 | 517 | - | - | 6,831 | 36,960 | |||||||||||
Buildings | 3 to 10 | 784,900 | 489,740 | 74,070 | (4,380) | - | 152,815 | 1,497,145 | |||||||||||
IT equipment | 10 | 283 | 18,429 | 827 | - | - | 4,575 | 24,114 | |||||||||||
Retail stores | 3 to 10 | 2,350,377 | - | 102,663 | (6,272) | (2,451) | 530,027 | 2,974,344 | |||||||||||
Tools and accessories | 3 | 2,803 | - | - | - | - | 603 | 3,406 | |||||||||||
Total cost | 3,193,959 | 564,669 | 216,913 | (10,854) | (2,451) | 705,233 | 4,667,469 | ||||||||||||
- | - | - | - | ||||||||||||||||
Depreciation value: | |||||||||||||||||||
Vehicles | (8,109) | - | (11,450) | 138 | - | (1,274) | (20,695) | ||||||||||||
Machinery and equipment | (4,317) | - | (3,391) | - | - | (1,427) | (9,135) | ||||||||||||
Buildings | (97,190) | - | (68,396) | 2,852 | - | (21,247) | (183,982) | ||||||||||||
IT equipment | (214) | - | (4,857) | - | - | (648) | (5,719) | ||||||||||||
Retail stores | (463,332) | - | (138,496) | 5,066 | (178) | (113,105) | (710,045) | ||||||||||||
Tools and accessories | (936) | (230) | - | - | (233) | (1,399) | |||||||||||||
Total accrued depreciation | (574,098) | - | (226,820) | 8,056 | (178) | (137,935) | (930,974) | ||||||||||||
Net total | 2,619,861 | 564,669 | (9,906) | (2,798) | (2,629) | 567,298 | 3,736,495 | ||||||||||||
- Pertaining to the goodwill paid on store rental, transferred to the intangible assets until a new commercial agreement with the lessor is executed, when the amount will return to the right to use in the initial calculation of this new lease agreement.
29
Consolidated | ||||
March 2020 | March 2019 | |||
Values recognized in the income statement during the periods ending on | ||||
March 31, 2020 and March 31, 2019 | ||||
Financial expense on lease | 53,611 | 30,974 | ||
Amortization of right of use | 226,820 | 129,079 | ||
Appropriation in the result of variable lease installments not included in the | 8,229 | 6,303 | ||
measurement of lease liabilities | ||||
Sublease revenue | 6,143 | (654) | ||
Short-term lease expenses and low-value assets | 20,505 | 26,010 | ||
Other expenses related to leases | 9,290 | 841 | ||
Total | 324,597 | 192,553 | ||
Values recognized in the financing cash flow statement | ||||
Commercial lease payment (principal) | 227,506 | 143,895 | ||
Values recognized in the operating cash flow statement | ||||
Commercial lease payment (interest) | 35,829 | 30,974 | ||
Variable lease payments not included in the measurement of lease liabilities | 2,813 | 4,890 | ||
Short-term lease payments and low-value assets | 15,393 | 320 | ||
Other lease-related payments | 9,816 | 8,729 | ||
Total | 291,356 | 188,808 | ||
b) Commercial leasing | ||||
Consolidated | ||||
March 2020 | December 2019 | |||
Current | 956,413 | 542,088 | ||
Non-Current | 2,971,565 | 1,975,477 | ||
Total | 3,927,978 | 2,517,565 | ||
Find below the movements in the balance of commercial lease for the period ending on March 31, 2020:
Consolidated | |
Balance on December 31, 2019 | 2,517,565 |
New agreements | 280,818 |
Control acquisition | 777,200 |
Reclassification assets x liabilities | 12,322 |
Payments - principal | (209,723) |
Payments - interest | (53,611) |
Financial charges accrued | 53,611 |
Write-offs (i) | (4,641) |
Conversion effects (other comprehensive results) | 554,437 |
Balance on March 31, 2020 | 3,927,978 |
- Mainly related to termination of agreements related to lease of stores.
Maturities of the non-current balance of lease are shown below:
Consolidated | ||
March 2020 | December 2019 | |
2021 | 568,977 | 374,746 |
2022 | 554,951 | 361,688 |
2023 | 546,895 | 358,274 |
2024 onwards | 1,300,742 | 880,769 |
Total | 2,971,565 | 1,975,477 |
19. BORROWINGS, FINANCING AND DEBENTURES
Information pertaining to loans, financing and debentures was presented in the Company's 2019 annual financial
statements, on Note 18.
Company | Consolidated | ||||||
March 2020 | December 2019 | March 2020 | December 2019 | ||||
Issued in local currency | |||||||
Financing Agency for Studies and Projects | - | - | 94,714 | 101,988 | |||
(FINEP) | |||||||
Debentures | - | - | 4,126,836 | 4,251,231 | |||
BNDES | - | - | 26,321 | 35,390 | |||
BNDES - FINAME | - | - | 110 | 183 | |||
Working capital - Operation Mexico | - | - | 30,752 | 31,802 | |||
Working capital - Operation Aesop | - | - | 110,711 | 100,438 | |||
Working capital - Operation The Body Shop | - | - | 453,138 | - | |||
Working capital - Operation Avon | - | - | 18,539 | - | |||
Promissory Notes | 1,079,905 | 2,883,382 | 1,079,905 | 2,883,382 | |||
Notes | - | - | 9,104,376 | - | |||
Total in local currency | 1,079,905 | 2,883,382 | 15,045,222 | 7,404,414 | |||
Foreign Currency | |||||||
BNDES | - | - | 7,363 | 8,029 | |||
Export Credit note (NCE) | - | - | 104,688 | 81,210 | |||
Notes (1) | - | - | 3,912,971 | 3,090,490 | |||
Resolution No. 4131/62 | - | - | 262,822 | 202,231 | |||
Total in foreign currency | - | - | 4,287,844 | 3,381,960 | |||
Overall total | 1,079,905 | 2,883,382 | 19,333,066 | 10,786,374 | |||
Current | 1,079,905 | 2,883,382 | 1,942,527 | 3,354,355 | |||
Non-Current | - | - | 17,390,539 | 7,432,019 | |||
(a) Debentures | - | - | |||||
Current | - | - | 120,791 | 246,017 | |||
Non-Current | - | - | 4,006,045 | 4,005,214 |
- Balances recorded for their estimated fair value resulting from business combination with Avon (Note 4).
Find below the movements in the balances of loans, financings and debentures for the periods ending on March 31, 2020 and 2019:
Company | Consolidated | |
Balance on December 31, 2018 | - | 7,994,145 |
Capital raising | - | 90,507 |
Amortizations | (510,542) | |
Financial charges accrued | - | 126,195 |
Payment of financial charges | - | (256,034) |
Exchange variation (unrealized) | - | (46,974) |
Exchange variation (realized) | - | 1,359 |
Conversion effects (other comprehensive results) | - | 710 |
Balance on March 31, 2019 | - | 7,399,366 |
Balance on December 31, 2019 | 2,883,382 | 10,786,374 |
Control acquisition | - | 7,250,735 |
Capital raising | - | 451,127 |
Amortizations | (1,816,900) | (1,923,345) |
Financial charges accrued | 20,283 | 281,534 |
Payment of financial charges | (6,860) | (498,585) |
Exchange variation (unrealized) | - | 914,400 |
Exchange variation (realized) | - | - |
Conversion effects (other comprehensive results) | - | 2,070,826 |
Balance on March 31, 2020 | 1,079,905 | 19,333,066 |
31 |
Maturities of non-current loans, financing and debentures liabilities are as follows:
Company | Consolidated | ||||
March 2020 | December 2019 | March 2020 | December 2019 | ||
2021 | - | - | 3,059,162 | - | |
2022 | - | - | 5,263,905 | 2,279,759 | |
2023 | - | - | 6,308,180 | 527,596 | |
2024 onwards | - | - | 2,759,292 | 4,624,664 | |
Total | - | - | 17,390,539 | 7,432,019 | |
The main movements in bank loans and financing for the period ending on March 31, 2020 are as follows:
19.1 Description of main movements in bank loans and financing
i) Debentures
The appropriation of costs related to the issuance of debentures in the period ending on March 31, 2020 was R$ 1,033 (R$ 4,760 on December 31, 2019), recorded on a monthly basis under financial expenses, in accordance with the effective interest rate method. Issuance costs to appropriate totaled R$ 12,322 as of March 31, 2020 (R$ 13,354 as of December 31, 2019).
ii) Notes
The appropriation of costs related to the issuance of Notes in the period ending on March 31, 2020 was R$ 1,798 (R$ 6,737 on December 31, 2019), recorded on a monthly basis under financial expenses, in accordance with the effective interest rate method. Issuance costs to appropriate totaled R$ 20,983 as of March 31, 2020 (R$ 22,782 as of December 31, 2019).
iii) Promissory Notes
On January 14, 2020, the partial optional early redemption of first-rate Commercial Notes occurred, in the amount of R$ 1,830 million.
The appropriation of costs related to the issuance of promissory notes in the period ending on March 31, 2020 was R$ 13,101 (R$ 11,135 on December 31, 2019), recorded monthly under the financial expenses item according to the effective interest rate method. Issuance costs to appropriate totaled R$ 7,862 as of March 31, 2020 (R$ 20,962 as of December 31, 2019).
iv) Working capital- The Body Shop
As presented in the liquidity risk management note (5.2.e), The Body Shop had, on December 31, 2019, a credit facility of up to seventy million pound sterlings (GBP 70 million), with no guarantee, that could be withdrawn in installments to meet short-term financing needs of The Body Shop International Limited. This facility was used by the Company during the first quarter of 2020, to reinforce working capital and liquidity, with interest pursuant to the Libor rate + 2% per year.
iv) Notes - Avon
Avon has issued the following notes:
Annual | ||||
Notes - Avon | Principal (USD) | Principal (R$) | interest rate | Maturity |
No guarantee | 461,883 | 2,401,191 | 5.00% | March 15, 2023 |
No guarantee | 243,847 | 1,267,687 | 6.95% | March 15, 2043 |
With guarantee | 500,000 | 2,599,350 | 7.88% | August 15, 2022 |
With guarantee | 400,000 | 2,079,480 | 6.50% | August 15, 2022 |
To the Notes issued by Avon, add the effects of allocation of fair values from the business combination (Note 4), which amounted to R$ 780,093 as of March 31, 2019.
19.2 Contract Covenants
The contractual covenants which establish financial indexes arising from the quotient of the net treasury debt division by EBITDA of the last 12 months, which should be equal to or lower than that established. The Company and its controlled companies comply with such clauses as of the base date.
20. TRADE PAYABLES AND FORFAIT OPERATIONS
Information pertaining to suppliers and "drawn risk" transactions was presented in the Company's 2019 annual
financial statements, on Note 19.
Company | Consolidated | |||
March 2020 | December 2019 | March 2020 | December 2019 | |
Local suppliers | 136 | - | 4,037,334 | 1,581,759 |
Foreign suppliers | 1,622 | - | 858,369 | 105,073 |
1,758 | - | 4,895,703 | 1,686,832 | |
"Drawn risk" transactions | - | - | 209,079 | 142,924 |
1,758 | - | 5,104,782 | 1,829,756 |
21. TAX PAYABLES
Controlling Company | Consolidated | |||
March 2020 | December 2019 | March 2020 | December 2019 | |
Ordinary ICMS | - | - | 79,905 | 120,300 |
ICMS-ST (a) | - | - | 70,124 | 72,423 |
Taxes on invoicing - controlled companies | ||||
abroad | - | - | 212,099 | 145,992 |
INSS - Enforceability suspended | - | - | 52,853 | 50,147 |
Tax withheld at source | 1,435 | 987 | 144,316 | 48,593 |
Other taxes - controlled companies abroad | - | - | 1,577 | 1,180 |
Income Tax (IR): | - | 63 | 6,673 | 1207 |
INSS and ISS | - | - | 30,335 | 3,218 |
Other | - | - | 57,170 | 399 |
1,435 | 1,050 | 655,052 | 443,459 | |
Judicial deposits (explanatory note 12) | - | - | (62,956) | (62,356) |
Current | 1,435 | 1,050 | 488,620 | 320,890 |
Non-Current | - | - | 166,432 | 122,569 |
- The Company's controlled companies have been discussing the illegality of changes in the state legislation for the payment of ICMS - ST. Part of the unpaid amount has been discussed in court by the Company and, in certain cases, the amounts have been deposited with the courts, as mentioned in explanatory note 12.
22. PROVISIONS FOR TAX, CIVIL AND LABOR RISKS
The Company's Management believes that, based on the elements existing on the base date of these financial statements, the provision for tax, civil, commercial and other risks, as well as labor risks, constituted pursuant to CPC 25 / IAS 37, suffices to cover any losses with administrative and court proceedings, as presented below:
Consolidated | ||
March 2020 | December 2019 | |
Tax | 837,042 | 127,842 |
Civil | 108,432 | 30,653 |
Labor | 248,502 | 61,571 |
Total | 1,193,976 | 220,066 |
Judicial deposits (explanatory note 12) | (341,641) | (60,272) |
Current | 47,046 | 18,650 |
Non-Current | 1,146,930 | 201,416 |
33
22.1 Contingencies with probable losses
Movement of the provision for tax, civil and labor risks and contingent liabilities is presented below:
Consolidated | |||||||||
Tax | Civil | Labor | |||||||
Provisions | Deposits | Provisions | Deposits | Provisions | Deposits | ||||
Balance at beginning of year | 127,842 | (54,059) | 30,653 | (426) | 61,571 | (5,787) | |||
Control acquisition (1) | 657,647 | (152,427) | 51,263 | (2,897) | 164,091 | (28,819) | |||
Additions | 41,221 | (4,031) | 24,979 | (314) | 11,804 | (751) | |||
Reversals | (16,373) | 961 | (4,192) | 176 | (3,073) | 818 | |||
Payments | (44,836) | 4,424 | (5,600) | 84 | (11,532) | 836 | |||
Monetary adjustment | 1,466 | (1,509) | 1,246 | (20) | 1,887 | (213) | |||
Exchange variation | 69,726 | 1,701 | 10,256 | 33 | 20,924 | 322 | |||
Other movements | 349 | - | (173) | - | 2,830 | - | |||
Balance on March 31, 2020 | 837,042 | (204,940) | 108,432 | (3,364) | 248,502 | (33,594) |
- Balances recorded for their estimated fair value resulting from business combination with Avon (Note 4).
22.2 Contingencies with possible losses
The Company and its controlled companies have labor and social security, civil and tax contingencies, which loss prediction as assessed by the Management and supported by the legal counsel is classified as possible and, thus, no provision was constituted. The total sum in discussion rated as possible, due to the nature of the claims, is evidenced below:
Consolidated | ||
March 2020 | December 2019 | |
Tax | 8,599,300 | 3,503,392 |
Civil | 126,815 | 61,532 |
Labor | 207,457 | 77,295 |
Total contingent liabilities | 8,933,572 | 3,642,219 |
Judicial Deposits | (314,872) | (136,258) |
The main tax cases are the following:
- Infraction notices in which the Brazilian Federal Revenue Office collects IPI tax debts, for the supposed lack of compliance with the minimum calculation basis, set forth in the legislation, upon the sales transactions directed to interdependent wholesale establishments. Currently, judgment of the proceedings is awaited at the administrative level. On March 31, 2020, the total amount in discussion classified as possible loss is of R$1,942,078.
- Court decisions which discuss the equivalence to industrial set forth in Decree No. 8,393/2015, which started requiring IPI in exit operations carried out by interdependent wholesale establishments of the products mentioned in said legal provision. On March 31, 2020, the amount in discussion is R$ 1,484,352 (R$ 389,017 on December 31, 2019).
- Administrative and court proceedings discussing the illegality of changes in the state legislation for the payment of ICMS and ICMS - ST. On March 31, 2020, the total amount in discussion is R$1,469,903 (R$ 406,002 on December 31, 2019).
- Infraction notices where the Brazilian Federal Revenue Office collects IRPJ and CSLL tax debts, in order to question the tax deductibility of goodwill amortization in the context of a corporate reorganization among related parties. Currently, there is a discussion in the Judiciary Branch of the lawfulness of administrative decisions which rejected the motion to clarify, submitted to question the dismissed special appeals. On March 31, 2020, the total amount in discussion classified as possible loss is of R$1,385,434 (R$ 1,336,927 on December 31, 2019).
- Infraction Notice in which the State of São Paulo Treasury Office enforces theICMS-ST collection, fully paid by the destination of the goods, the distributing establishment. Judgment of the proceedings is awaited at the administrative level. On March 31, 2020, the total amount in discussion classified as possible loss is of R$ 524,657 (R$ 521,903 on December 31, 2019).
- Infraction notices in which the Brazilian Federal Revenue Service collects IPI tax debts due to disagreement with the tax classification adopted for some products. Judgment of the proceedings is awaited at the administrative level. On March 31, 2020, the total amount in discussion is R$ 295,144 (R$ 218,204 on December 31, 2019).
The main civil cases are the following:
-
Avon was named defendant in several proceedings for personal damages filed in USA courts, claiming that certain powder products that Avon sold in the past were contaminated with asbestos. Many such actions involve severalco-defendants of a range of different industries, including cosmetics manufacturers and manufacturers of other products that, unlike the Company's products, were designed to include asbestos.
On March 31, 2020, there were 128 individual proceedings pending against the Company. During the quarter ending on March 31, 2020, 18 new proceedings were shelved and twenty others were shelved, settled or otherwise concluded. The amount of our records in this area so far has not been significant, whether individually or jointly. Similar additional cases deriving from the use of the Company's powder products are reasonably predicted.
We believe that the claims against us in such cases have no grounds. We are strongly defending ourselves against such claims and will continue doing so. Until this date, the Company has not been sued in any case filed against it and there were no findings of enforceable liability against the Company. However, the results of testing throughout the country in similar cases filed against other manufacturers of cosmetic powder products vary from direct employment terminations to very large jury-led indemnifications for compensatory and punitive damages. Due to the uncertainties inherent to litigation, we cannot predict the results of all individual cases pending against the Company, and we may only make a reasonable estimate for a small number of individual cases that have progressed to the later stages of court proceedings. For the remaining cases, we supply an aggregate and continuous exposure estimate, which considers the historic results of all cases we have settled so far. Any additions currently recorded in the Company's balance sheet in relation to these cases are not relevant. Other than those, currently, we may not estimate our reasonably possible or probable losses. However, any adverse results, whether in an individual case or jointly, may be relevant. The future costs to litigate such cases, which we fund when incurred, are unknown, but may be significant, although some costs are covered by insurance. - On February 14, 2019, an alleged class action complaint of the shareholder (Bevinal v. Avon Products, Inc., et al., No.19-cv-1420) was filed in the USDC for the South District of New York against the company and some of its former officers. On June 3, 2019, the court appointed a main plaintiff and a class attorney. The complaint was subsequently changed on June 28, 2019, retitled "In re Avon Products, Inc. Litigation over Securities" on July 8, 2019. On July 24, 2019, the plaintiffs presented a new changed complaint. The changed complaint is submitted on behalf of a new class, supposedly comprised of all purchasers or acquirers of Avon common shares between January 21, 2016 and November 1st, 2017, including such latter date. The charge claims violations to Sections 10 (b) and 20 (a) of the 1934 Securities Exchange Act, based on supposedly fake or misleading statements and supposed market manipulation with relation to, among other things, changes made in the Avon's credit terms for Brazilian Representatives. On July 26, 2019, Avon and the individual defendants submitted a motion to dismiss. On November 18, 2019, the court denied such motion. Subsequently, on December 16, 2019, Avon and the individual defendants submitted an answer to the changed complaint. On February 14, 2020, the plaintiffs submitted a motion for class certification. The parties are currently under the discovery stage. Avon notified this subject to the Company's insurers. In light of the initial stage of the litigation, we may not predict the result of this matter and may not assess the loss probability or make a reasonable estimate of the amount or range of loss that could arise from an adverse result.
22.3 Contingent assets
The adjusted amounts involved in the requests for restitution of PIS and COFINS installments collected with ICMS included in their calculation bases, in the period of March 2004 to March 2007, not recorded until March 31, 2020, total R$ 145,025 (R$ 26,993 on December 31, 2019).
35
23. OTHER LIABILITIES
Information pertaining to other liabilities was presented in the Company's 2019 annual financial statements, on
Note 22.
Consolidated | ||
March 2020 | December 2019 | |
Post-employment health care plan | 765,007 | 98,792 |
Carbon credit | 5,187 | 4,519 |
Exclusivity agreement | 4,800 | 5,400 |
Crer para Ver | 45,523 | 51,543 |
Deferred revenue from performance obligations with customers | 294,742 | 76,250 |
Provisions for sundry expenses | 649,267 | 156,895 |
Provisions for rental | 41,824 | 26,568 |
Provisions for apportionment of benefits and partnerships payable | 8,983 | 7,860 |
Long-term incentive | 252,464 | 3,022 |
Provision for restructuring | 124,980 | 3,401 |
Provision for store renovation | 94,067 | 15,997 |
Other provisions | 346,963 | 67,846 |
Provision for expenses reimbursements related to assets disposed (a) | 72,599 | - |
Professional fees | 73,684 | - |
Total | 2,780,090 | 518,093 |
Current | 1,730,782 | 396,391 |
Non-Current | 1,049,308 | 121,702 |
- On December 17, 2015, Avon entered into agreements resulting on the splitting of operations in the United Stated, Canada and Puerto Rico. These transactions were terminated on March 1st, 2016. From such date, the contingent liabilities prior to this transaction and related to the operations in the United States, Canada and Puerto Rico are treated as a provision for expenses reimbursements related to assets disposed. During the period ending on March 30, 2019, Avon registered R$ 22 million in administrative expenses pertaining to such provisions.
24. SHAREHOLDER'S EQUITY
Information pertaining to judicial deposits was presented in the Company's 2019 annual financial statements, on
Note 23.
24.1 Share capital
As of March 31, 2020, the Company's share capital is R$ 4,905,118, composed of 1,188,271,016 registered common shares, with no par value.
The composition of this capital is demonstrated in the chart below:
Date | Description | Number of shares | Value in R$ | |||
December | Total paid-up share capital | 865,660,042 | 1,485,436,564 | |||
31, 2019 | ||||||
January 03, | Capital increase | 321,830,266 | 3,397,745,864 | |||
2020 | ||||||
March 15, | Issue of new shares for share purchase option plans and | |||||
2020 | restricted shares | 780,808 | 21,936,005 | |||
March 31, | Total paid-up share capital | 1,188,271,116 | 4,905,118,433 | |||
2020 |
24.2 Treasury shares
On March 31, 2019, item "Treasury shares" has the following composition:
Number of shares | R$ (in thousands) | Average price per | ||||||
share - R$ | ||||||||
Balance on December 31, 2019 | - | - | - | |||||
Used | (686,322) | (38,932) | (49.29) | |||||
Acquisition | 1,114,460 | 54,936 | 45.58 | |||||
Balance on March 31, 2020 | 428,138 | 16,004 | (3,71) | |||||
The minimum and maximum treasury share balance on March 31, 2020 is R$ 29.75 and R$ 49.71, respectively.
24.3 Capital reserve
Completion of the Avon acquisition resulted in the issue of Natura &Co shares for the total subscription price of R$ 13,274,894. Of this total, the amount of R$ 3,397,746 was allocated to the share capital account and the rest, in the amount of R$ 9,877,148 was allocated to the Company's capital reserve. This share merger was approved at a meeting of the Board of Directors on January 3, 2020.
The capital reserve totals R$ 11,112,156 as of March 31, 2020 (R$ 1,302,990 as of December 31, 2019).
25. SEGMENT INFORMATION
The setup of the Company's operating segments is based on its Corporate Governance structure, which splits the business for purposes of decision-making and management analysis.
Since January 3, 2020, as a result of acquiring Avon (Note 4), the management has had the following Corporate Governance structure:
- Operation Natura &Co Latam - all operations of Natura, Avon, Aesop and TBS located in Brazil and Latin America;
- Avon International - all Avon operations, except those located in Brazil and Latin America;
- TBS International - all The Body Shop operations, except those located in Brazil and Latin America; and
- Aesop International - all Aesop operations, except those located in Brazil and Latin America.
In addition to the analysis per segment, the Company's Management also assesses its revenues in several levels, mainly through sales channels: direct sales, operations in the retail market, e-commerce, B2B and franchises. However, the segregation by this kind of operation is not yet considered as significant for disclosures from the Management.
Net revenue by segment is as follows in the quarter ending on March 31, 2020:
- Natura &Co Latam; 55%
- Avon International; 28%
- TBS International; 12%
- Aesop International: 5%
The accounting practices for each segment are described in explanatory note 3 of the Company's annual financial statements for the fiscal year ending on December 31, 2019.
The tables below present summarized financial information for the segments and the geographic distribution of commercial operations of the Company as of March 31, 2020, December 31, 2019 and March 31, 2019.
25.1 Operating segments
March 2020 | |||||||
Reconciliation to net profit (loss) for the period | |||||||
Performance | Depreciation | Net profit | |||||
Net | assessed by the | and | Financial | Financial | (loss) | ||
Revenue | Company | Amortization | revenue | expenses | Income tax | ||
Natura &Co Latam | 4,162,335 | 339,848 | (221,863) | 1,292,228 | (1,376,898) | (155,439) | (122,124) |
Avon International | 2,121,517 | (41,618) | (183,887) | 176,177 | (361,617) | 15,122 | (395,823) |
TBS International | 893,243 | 133,550 | (164,390) | 30,117 | (41,035) | (59,393) | (101,151) |
Aesop International | 340,899 | 77,966 | (55,679) | 10,580 | (6,255) | (6,842) | 19,770 |
Corporate expenses | - | (386,467) | - | 51,082 | (1,974) | 111,749 | (225,611) |
Consolidated | 7,517,994 | 123,279 | (625,819) | 1,560,184 | (1,787,779) | (94,803) | (824,939) |
37
March 2019 | |||||||||||||||||||||||||||
Reconciliation to profit (loss) for the year | |||||||||||||||||||||||||||
Performance | Depreciation | ||||||||||||||||||||||||||
Net | assessed by the | and | Financial | Financial | Net profit | ||||||||||||||||||||||
Revenue | Company | Amortization | revenue | expenses | Income tax | (loss) | |||||||||||||||||||||
Natura &Co Latam | 1,775,725 | 262,855 | (79,449) | 352,144 | (495,399) | (16,733) | 23,418 | ||||||||||||||||||||
TBS International | 870,232 | 164,107 | (144,766) | 25,875 | (39,101) | 1,089 | 7,205 | ||||||||||||||||||||
Aesop International | 269,194 | 60,684 | (40,097) | 82 | (8,857) | (3,461) | 8,351 | ||||||||||||||||||||
Corporate expenses | - | (38,636) | - | - | - | 13,136 | (25,500) | ||||||||||||||||||||
Consolidated | 2,915,150 | 449,010 | (264,312) | 378,102 | (543,357) | (5,969) | 13,474 | ||||||||||||||||||||
March 2020 | December 2019 | ||||||||||||||||||||||||||
Non-current | Total assets | Current | Non-current | Non-current | Total assets | Current | Non-current | ||||||||||||||||||||
assets | liabilities | liabilities | assets | liabilities | liabilities | ||||||||||||||||||||||
Avon International | 10,591,187 | 17,400,808 | 4,610,861 | 10,086,188 | 4,574,087 | 9,317,834 | 3,139,123 | 8,219,955 | |||||||||||||||||||
Natura &Co Latam | 22,937,294 | 26,513,012 | 3,544,007 | 11,596,668 | - | - | - | - | |||||||||||||||||||
TBS International | 7,459,623 | 9,374,616 | 1,794,328 | 1,853,143 | 6,146,960 | 7,380,274 | 1,042,778 | 1,492,871 | |||||||||||||||||||
Aesop International | 1,209,898 | 1,707,126 | 329,035 | 693,685 | 1,033,408 | 1,435,830 | 255,616 | 590,917 | |||||||||||||||||||
Corporate balance | - | 1,063,180 | 1,255,354 | - | - | 3,050,574 | 3,080,906 | - | |||||||||||||||||||
Consolidated | 42,198,002 | 56,058,741 | 11,533,584 | 24,229,684 | 11,754,455 | 21,184,512 | 7,518,423 | 10,303,744 | |||||||||||||||||||
25.2 Net revenue and non-current assets by geographic region
March 2020 | March 2019 | ||||||
Avon | TBS | Aesop | TBS | Aesop | |||
Net revenue | Natura &Co | International | International | International | Natura &Co | International | International |
Asia | - | 403,606 | 51,775 | 161,889 | - | 68,447 | 110,153 |
North America | 206,619 | - | 140,545 | 58,984 | 157,659 | 143,771 | 40,848 |
South America | 3,954,870 | - | - | - | 1,616,588 | - | - |
Brazil | 2,163,994 | - | - | - | 1,201,321 | - | - |
Other | 1,790,876 | - | - | - | 415,267 | - | - |
Europe | 845 | 1,717,911 | 635,508 | 67,801 | 1,477 | 603,785 | 48,558 |
United Kingdom | - | 361,942 | 502,021 | 35,470 | - | 469,606 | 23,592 |
Other | 845 | 1,355,969 | 133,487 | 32,331 | 1,477 | 134,179 | 24,966 |
Oceania | - | - | 65,414 | 52,225 | - | 54,229 | 69,635 |
Consolidated | 4,162,335 | 2,121,517 | 893,243 | 340,899 | 1,775,724 | 870,232 | 269,194 |
March 2020 | March 2019 | ||||||
Natura & Co | Avon | TBS | Aesop | Natura & Co | TBS | Aesop | |
Non-current Assets | Latam | International | International | International | Latam | International | International |
Asia | - | 251,844 | 176,344 | 363,412 | - | 140,760 | 294,428 |
North America | 185,331 | - | 630,192 | 336,272 | 185,646 | 523,351 | 272,676 |
South America | 10,396,188 | - | - | - | 4,378,676 | - | - |
Brazil | 7,835,239 | - | - | - | 4,197,259 | - | - |
Other | 2,560,949 | - | - | - | 181,417 | - | - |
Europe | 9,668 | 22,685,451 | 6,237,413 | 228,143 | 9,765 | 5,105,903 | 190,442 |
United Kingdom | - | 21,214,569 | 5,608,884 | 89,923 | - | 4,602,066 | 76,073 |
Other | 9,668 | 1,470,882 | 628,529 | 138,221 | 9,765 | 503,837 | 114,369 |
Oceania | - | - | 415,674 | 282,071 | - | 376,946 | 275,862 |
Consolidated | 10,591,187 | 22,937,294 | 7,459,623 | 1,209,898 | 4,574,087 | 6,146,960 | 1,033,408 |
No individual or aggregate customer represents more than 10% of the Company's net revenues.
26. NET REVENUE
Gross revenue:
Domestic market
Foreign market
Other sales
Returns and cancellations Commercial discounts and rebates Taxes on sales
Net revenue
Consolidated
March 2020 | March 2019 |
3,013,326 | 1,694,216 |
6,581,207 | 2,231,902 |
124,455 | 14,457 |
9,718,988 | 3,940,575 |
(122,517) | (26,071) |
(238,585) | (250,390) |
(1,839,892) | (748,964) |
7,517,994 | 2,915,150 |
Substantially, revenue from brands Natura and Avon refers to direct sales, whereas from brands The Body Shop and Aesop it refers to retail sales
27. OPERATING EXPENSES AND COST OF SALES
Breakdown by function | Company | Consolidated | |||||
March 2020 | March 2019 | March 2020 | March 2019 | ||||
Cost of sold products | - | - | 2,878,722 | 809,172 | |||
Expenses with Sales, Marketing and Logistics | - | - | 3,299,190 | 1,323,066 | |||
Administrative, R&D, IT and Project Expenses | 9,978 | - | 1,266,091 | 537,031 | |||
Total | 9,978 | - | 7,444,003 | 2,669,269 | |||
Breakdown by nature | Company | Consolidated | |||||
March 2020 | March 2019 | March 2020 | March 2019 | ||||
Cost of sold products | - | - | 2,878,722 | 809,172 | |||
Raw material/packaging material/resale | - | - | 2,621,813 | 672,066 | |||
Personnel expenses (explanatory note 28) | - | - | 111,295 | 71,007 | |||
Depreciation and amortization | - | - | 37,860 | 13,832 | |||
Other | - | - | 107,754 | 52,267 | |||
Expenses with sales, marketing and logistics | - | - | 3,299,190 | 1,323,066 | |||
Logistics costs | - | - | 566,346 | 172,398 | |||
Personnel expenses (explanatory note 28) | - | - | 942,218 | 388,459 | |||
Marketing, sales force and other sales expenses | - | - | 1,483,106 | 583,663 | |||
Depreciation and amortization | - | - | 307,520 | 178,546 | |||
Administrative, R&D, IT and Project Expenses | 9,978 | - | 1,266,091 | 537,031 | |||
Investments in innovation | - | 167,210 | 16,880 | ||||
Personnel expenses (explanatory note 28) | 5,042 | - | 458,124 | 277,967 | |||
Other administrative expenses | 2,646 | - | 360,318 | 170,250 | |||
Depreciation and amortization | 2,290 | - | 280,439 | 71,934 | |||
Total | 9,978 | - | 7,444,003 | 2,669,269 | |||
28. EMPLOYEE BENEFITS
Information pertaining to employee benefits was presented in the Company's 2019 annual financial statements, on Note 27.
Payroll, profit sharing and bonuses Supplementary pension plan Share-based payments (note 32.3) Charges on restricted shares (note 32.1) Health care, food and other benefits Charges, taxes and social contributions INSS - Brazilian Social Security Institute Total
Company | Consolidated | |||
March 2020 | March 2019 | March 2020 | March 2019 | |
4,156 | - | 1,141,927 | 553,748 | |
- | - | 44,113 | 20,774 | |
- | - | 34,887 | 10,874 | |
- | - | (42,695) | 5,634 | |
(2) | - | 147,151 | 57,180 | |
27 | - | 136,792 | 47,147 | |
861 | - | 49,462 | 42,076 | |
5,042 | - | 1,511,637 | 737,433 | |
39
28.1 Share-based payments Options granted in 2020
On March 27, 2020, the Company's Board of Directors approved the new share-basedlong-term incentive plans, named 'Co-Investment Plan" and "Long-Term Incentive Plan" for 2020.
The "Co-Investment Plan" is comprised of the grant of the Company's common shares for a group of workers that may invest part of their share in the profits (up to the limit of 50%) to purchase shares, such that the Company shall grant the same number of shares of the amount invested by the beneficiary. The rights of participants in relation to the "Co-Investment Plan" will only be fully acquired to the extent the participant remains continuously employed by the Company and its controlled companies until the 3rd anniversary of the grant date.
The "Long-Term Incentive Plan" consists of granting common shares of the Company to a group of workers and, unless otherwise determined by the Company's Board of Directors, the rights of participants in relation to the Performance Shares will only be fully acquired to the extent that: (i) the participant remains continuously employed by the Company and its controlled companies until the 3rd anniversary of the grant date; and (ii) the performance conditions are met. For certain participants, there is a special condition for item (i) above, in which 50% of the granted Performance Shares will be acquired on the 3rd anniversary of the grant date and the remaining 50% on the 4th anniversary of the grant date.
The changes in the number of purchase options for outstanding shares and their corresponding weighted average prices, as well as variations in the number of restricted shares, are as follows:
Share purchase options and Strategy Acceleration Plan
Average exercise price
per share - R$
Options (thousands)
Balance on December 31, 2019 | 16.51 | 17,568 | |||
Related to Avon's acquisition - Business | 0.01 | 1,994 | |||
Combination (Note 4) | |||||
Expired | 19.32 | (58) | |||
Exercised | 30.32 | (627) | |||
Balance on March 31, 2020 | 16.28 | 18,877 | |||
Shares per | |||||
Restricted shares | performance | ||||
(thousands) | (thousands) | ||||
Balance on December 31, 2019 | 3,092 | 688 | |||
Expired | (14) | - | |||
Exercised | (974) | - | |||
Balance on March 31, 2020 | 2,104 | 688 |
Of the 18877 thousand options existing as of March 31, 2020 (17,568 thousand options as of December 31, 2019) 1,250 thousand options (604 thousand options as of December 31, 2019) may be exercised.
The expenses related to the fair value of options and restricted shares, including the charges related to restricted shares, recognized in the quarter ending on March 31, 2020, according to the period elapsed for the acquisition of the right to exercise options and restricted shares, was R$ 12,650 and R$ 31,966, respectively, in the controlling company and in the consolidated financial statements.
The purchase options for outstanding shares and the restricted shares at the end of the period have the following vesting dates and exercise prices:
As of March 31, 2020 -Share purchase option
Right acquisition | Exercise | Existing | Remaining | Options to be | ||||||
Grant date | conditions from the grant | price | Fair value | options | contractual life | exercised | ||||
date | (R$) | (R$) | (thousands)¹ | (years) | (thousands) | |||||
March 18, 2013 | 4 years of service | 37.60 | 6,05 | 386 | 0,2 | 386 | ||||
March 17, 2014 | 4 years of service | 25.16 | 4,27 | 102 | 2,2 | 102 | ||||
March 16, 2015 | 2 to 4 years of service | 13.60 | 4.85 to 5.29 | 210 | 3,0 | 210 | ||||
July 28, 2015 (Strategy | 4 to 5 years of service | 12.90 | 6.20 to 6.23 | 1,296 | 3,4 | 196 | ||||
acceleration) | ||||||||||
March 15, 2016 | 2 to 4 years of service | 12.84 | 7.16 to 7.43 | 300 | 4,0 | 298 | ||||
July 11, 2016 (Strategy | 4 to 5 years of service | 11.41 | 6.84 to 6.89 | 2,640 | 4,3 | - | ||||
acceleration) | ||||||||||
March 10, 2017 | 2 to 4 years of service | 12.59 | 6.65 to 6.68 | 730 | 5,0 | 400 |
March 10, 2017 (Strategy acceleration)
March 12, 2018
March 12, 2018 (Strategy acceleration)
April 12, 2019
April 12, 2019 (Strategy acceleration)
From December 31, 2020 to May 9, 2017
From March 14, 2018 to December 17, 2018 From March 13, 2019 to December 16, 2019
4 to 5 years of service | 12.59 | 6.87 to 6.89 | 2,210 | 5,0 | - |
2 to 4 years of service | 16.96 | 7.96 to 8.21 | 2,052 | 6,0 | 684 |
3 to 5 years of service | 12.16 to | 8.21 to 9.67 | 3,800 | 6,0 | - |
16.96 | |||||
3 to 4 years of service | 23.54 | 11.71 to 11.82 | 1,648 | 7.1 | - |
4 to 5 years of service | 23.54 | 11.51 to 11.71 | 1,900 | 7.1 | - |
1 year of service | 0.01 | 19.80 | 65 | - | 65 |
1 to 3 years of service | 0.01 | 19.70 | 334 | 1,2 | 55 |
1 to 3 years of service | 0.01 | 19.58 | 1,205 | 0,4 a 2,2 | - |
18,878 | 2,396 |
As of March 31, 2020 - restricted shares
Remaining | ||||||||||
Grant date | Right acquisition conditions | Existing shares | Fair value | contractual life | ||||||
from the grant date | (thousands)² | (R$) | (years) | |||||||
March 10, 2017 | 2 to 4 years of service | 208 | 11.69 to 12.51 | 1 | ||||||
March 12, 2018 - Plan I | 2 to 4 years of service | 472 | 15.18 to 15.9 | 1 | ||||||
March 12, 2018 - Plan II | 0.4 to 2.4 years of service | 90 | 15.76 to 16.49 | - | ||||||
March 12, 2018 - Plan III | 1 to 3 years of service | 74 | 15.54 to 16.27 | 0,.3 | ||||||
March 12, 2018 - Extraordinary | 1 to 3 years of service | 4 | 15.54 to 16.28 | 1 | ||||||
Plan I | ||||||||||
August 13, 2018 - Extraordinary | 0.7 to 1.7 years of service | 50 | 13.08 to 13.38 | 0.2 | ||||||
Plan III | ||||||||||
August 13, 2018 - Extraordinary | 0.8 to 1.8 year of service | 26 | 13.06 to 13.36 | 1 | ||||||
Plan IV | ||||||||||
August 13, 2018 - Extraordinary | 1.6 to 3.6 years of service | 50 | 12.24 to 13.13 | 1 to 2 | ||||||
Plan VI | ||||||||||
April 12, 2019 - Plan I | 2 to 4 years | 818 | 21.62 to 22.53 | 1 to 3 | ||||||
April 12, 2019 - Plan II | 1 to 3 years of service | 312 | 22.14 to 22.85 | 1 to 2 | ||||||
2,104 |
On March 31, 2020 - Performance shares
Remaining | ||||||||||||
Grant date | Right acquisition conditions | Existing shares | Fair value | contractual life | Vested stock | |||||||
(thousands) | (R$) | (years) | (thousands) | |||||||||
From 3 to 4 years of service from | ||||||||||||
May 21, 2019 | the grant date and if the | 688 | 23.10 to 45.70 | 3.0 a 4.0 | - | |||||||
performance conditions are met | ||||||||||||
688 | - | |||||||||||
As of March 31, 2020, the market price was R$ 25.74 (R$ 38.67 as of December 31, 2019) per share.
Significant data included in the models to price the fair value of options, restricted shares and performance shares granted in the period ending on March 31, 2020 was:
Share purchase options | |||
April 12, 2019 (Strategy | |||
April 12, 2019 | Acceleration Program) | ||
Volatility | 37.77% | 37.77% | |
Dividend yield | 1.17% to 1.63% | 1.63% to 1.89% | |
Expected life for vesting | 2 to 4 years | 4 to 5 years | |
Risk-free annual interest rate | 6.88% to 7.95% | 7.95% to 8.18% | |
Restricted shares | Performance shares | ||
April 12, 2019 - Plan | April 12, 2019 - | ||
I | Plan II | May 21, 2019 | |
Volatility | 37.77% | 37.77% | 37.10% |
Dividend yield | 1.17% to 1.63% | 0.92% to 1.38% | - |
Expected life for vesting | 2 to 4 years | 1 to 3 years | 3 to 4 years |
Risk-free annual interest rate | 6.88% to 7.95% | 6.21% to 7.52% | 8.08% to 8.40% |
41
29. FINANCIAL INCOME (EXPENSES)
Company | Consolidated | ||||
March 2020 | March 2019 | March 2020 | March 2019 | ||
FINANCIAL REVENUES: | |||||
Interest on financial investments | 6,088 | - | 35,418 | 22,961 | |
Gains on monetary and exchange rate variations (a) | 18,666 | - | 237,027 | 189,086 | |
Gains on swap and forward transactions (c) | - | - | 1,075,198 | 151,125 | |
Gains on fair value adjustment of swap and forward | |||||
derivatives | - | - | 139,440 | 347 | |
Reversal of the monetary update of provision for tax | |||||
risks and tax obligations | - | - | 42,378 | - | |
Debt structuring revenues for acquisition of Avon | 26,328 | - | 26,328 | - | |
Other financial revenues | - | - | 4,395 | 14,583 | |
51,082 | - | 1,560,184 | 378,102 | ||
FINANCIAL EXPENSES: | |||||
Interest on financing | - | - | (253,094) | (128,692) | |
Interest on commercial leasing | - | - | (54,363) | (30,974) | |
Losses on monetary and exchange rate variations (b) | - | - | (1,198,575) | (151,374) | |
Losses on swap and forward transactions (d) | - | - | (148,150) | (211,788) | |
Loss on fair value adjustment of swap and forward | |||||
derivatives | - | - | (84,407) | (477) | |
Adjustment of provision for tax, civil and labor risks | |||||
and tax liabilities | - | - | (3,746) | (4,235) | |
Appropriation of funding costs (Debentures/Notes) | - | - | (2,831) | (3,248) | |
Pension plan interest | - | - | (7,308) | - | |
Adjustment for hyperinflationary economy | |||||
(Argentina) | - | - | 4,812 | (2,639) | |
Other financial expenses | (1,975) | - | (40,117) | (9,930) | |
(1,975) | - | (1,787,779) | (543,357) | ||
Net financial revenues (expenses) | 49,107 | - | (227,595) | (165,255) |
The purpose 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 chart:
- Gains on monetary and exchange rate variationsGains on exchange rate variation on loans Exchange rate variation on imports
Exchange rate variation on export receivables Exchange rate variation on accounts payable to controlled companies abroad
Exchange variations of bank accounts in foreign currency - Losses on monetary and exchange rate variationsLosses on exchange rate variation on loans Exchange rate variation on imports
Exchange rate variation on export receivables Exchange rate variation on accounts payable to controlled companies abroad
Exchange rate variation on financing - Gains on swap and forward transactions Revenue from swap exchange coupons Gains from exchange variations on swap instruments
Company | Company | |||
March 2020 | March 2019 | March 2020 | March 2019 | |
18,666 | - | 237,027 | 189,086 | |
- | - | 13,998 | 152,899 | |
18,666 | - | 29,327 | 4,035 | |
- | - | 29,776 | 6,737 | |
- | - | 74,349 | 25,415 | |
- | - | 89,577 | - | |
- | - | (954,897) | (151,374) | |
- | - | (1,198,575) | (107,842) | |
- | - | (937,885) | (5,827) | |
- | - | (19,034) | (5,548) | |
- | - | (2,044) | (31,996) | |
- | - | (161,863) | (161) | |
- | - | 1,075,198 | 151,125 | |
- | - | 47,167 | 41,293 | |
- | - | 1,028,031 | 109,832 | |
- | - | - |
(d) Losses on swap and forward transactions | - | - | (148,150) | (211,788) |
Losses on exchange rate variation on swap | - | - | - | (153,662) |
instruments | ||||
Financial costs of swap instruments | - | - | (148,150) | (58,126) |
30. OTHER OPERATING INCOME (EXPENSES), NET
Information pertaining to other operating revenues (expenses), net, was presented in the Company's 2019 annual financial statements, on Note 29.
Company | Company | ||||
March 2020 | March 2019 | March 2020 | March 2019 | ||
Other operating revenues, net | |||||
Result on write-off of fixed assets | - | - | 1,491 | 724 | |
ICMS-ST | - | - | 7,294 | 36,096 | |
Tax contingencies | - | - | 1,281 | 1,084 | |
Other operating revenues | - | - | 543 | 3,492 | |
Total other operating revenues | - | - | 10,609 | 41,396 | |
Other operating expenses, net | |||||
Crer para Ver | - | - | (8,360) | (8,631) | |
Expenses related to the acquisition of Avon | (147,824) | - | (297,110) | ||
Transformation Plan | - | - | (25,072) | (6,831) | |
Other operating revenues (expenses) | - | - | (32,617) | (11,689) | |
Total other operating expenses | (147,824) | - | (363,159) | (27,151) | |
Other operating revenues (expenses), net | (147,824) | - | (352,550) | 14,245 |
31. RELATED-PARTY TRANSACTIONS
Information pertaining to transactions with related parties was presented in the Company's 2019 annual financial statements, on Note 31.
31.1 The payable and receivable balances for transactions with related parties are indicated below:Company
March 2020 | December 2019 | |
Current assets: | ||
Avon Products, Inc.(a) | 475,700 | - |
Natura Cosméticos S.A. - Brazil (b) | 30,155 | - |
Natura Cosméticos S.A. - Argentina (b) | 1,789 | - |
Indústria e Comércio de Cosméticos Natura Ltda (b) | 924 | - |
Natura Cosméticos S.A. - Mexico (b) | 527 | - |
Natura Cosméticos S.A. - Peru (b) | 454 | - |
Natura Cosméticos Ltda - Colombia (b) | 338 | - |
Natura Cosméticos Ltda - Chile (b) | 291 | - |
Total current assets (*) | 510,178 | - |
Current liabilities | ||
Natura Cosméticos S.A. - Brazil (a) | 147,486 | - |
Total current liabilities | 147,486 | - |
- Pertains to the allocation of expenses related to the merger process.
- Pertains to the allocation of expenses related to the share purchase option plans and restricted shares.
The Natura Institute is one of the quotaholders of the Essential Investment Fund, and on March 31, 2020, the balance was R$ 4,923 (R$ 3,766 on December 31, 2019).
On June 5, 2012, an agreement was entered into between Indústria e Comércio de Cosméticos Natura Ltda. and Bres Itupeva Empreendimentos Imobiliários Ltda., ("Bres Itupeva"), for the construction and lease of a processing, storage and distribution center (HUB), in the city of Itupeva/SP. In 2019, Bres Itupeva granted its credits to BRC Securitizadora S/A, to which Natura makes monthly payments. Mr. Guilherme Peirão Leal and Mr. Pedro Luiz Barreiros Passos, members of the group of controlling shareholders of Natura Cosméticos S.A., indirectly hold controlling interests in Bres Itupeva. The amount involved in the transaction is recorded under "Right of Use" of "Buildings" in the amount of R$ 43,026 (R$ 44,244 under "Buildings" of Fixed Assets as of December 31, 2019).
In the period ending on March 31, 2020, the Company and its controlled companies transferred to the Natura Institute, in the form of a donation associated with maintenance, the sum of R$ 692, corresponding to 0.5% of net profits for the prior fiscal year, and a donation associated with the net sales of products in the Natura Crer Para Ver line, in the amount of R$ 15,000 (R$ 5,000 on March 31, 2019).
43
31.2 Management's key personnel compensation
The total compensation of the Company's Management key personnel is as follows:
March 2020 | March 2019 | |||||||||||||
Compensation | Compensation | |||||||||||||
Fixed | Variable | Total | Fixed | Variable | Total | |||||||||
(a) | (b) | (a) | (b) | |||||||||||
Board of Directors | 5,345 | 5,855 | 11,200 | 5,050 | 5,916 | 10,966 | ||||||||
Executive Office | 13,504 | 8,442 | 21,946 | 9,172 | 17,585 | 26,757 | ||||||||
18,849 | 14,297 | 33,146 | 14,222 | 23,501 | 37,723 |
-
The item "Executive Office" includes the amount of R$ 255 pertaining to the amortization of the quarter ending on March 31, 2020 (R$ 14 in the quarter ending on March 31, 2019), of the Confidentiality andNon-Compete Agreement
("Confidentiality Agreement") - Refers to profit sharing, the Restricted Stock Program and the Strategy Acceleration Program, including charges, as applicable, appraised in the period. The amounts include any additions to and/or reversals of provisions made in the previous year, due to final assessment of the targets established for board members and officers, statutory and non- statutory, in relation to profit sharing.
31.3 Share-based payments
Breakdown of the Company officers and executives' compensation:
Grant of options | ||||||||||||||||||||||
March 2020 | March 2019 | |||||||||||||||||||||
Balance of | Balance of | |||||||||||||||||||||
the | Average fair | Average price | Average fair | Average price | ||||||||||||||||||
the | ||||||||||||||||||||||
Options | value of the | of the year1 | value of the | of the year1- | ||||||||||||||||||
Options | ||||||||||||||||||||||
(quantity)¹ | options1- R$ | - | R$(b) | options1 | - R$ | R$ (b) | ||||||||||||||||
(quantity)¹ (a) | ||||||||||||||||||||||
(a) | ||||||||||||||||||||||
Executive office | 13,535,439 | 8.39 | 16.28 | 10,745,826 | 7.44 | 15.10 | ||||||||||||||||
Restricted shares | ||||||||||||||||||||||
March 2020 | March 2019 | |||||||||||||||||||||
Stock option | ||||||||||||||||||||||
Share balance | Average fair value2 | balance (number)1 | Average fair value2 | |||||||||||||||||||
(quantity)² (a) | - R$ | (a) | - R$ | |||||||||||||||||||
EXECUTIVE OFFICE | 752,133 | 19.47 | 603,580 | 14.88 |
- The number of stock options granted, expired and exercised and their respective fair values is shown already considering the
splitting of stock approved at the Extraordinary Shareholders Meeting held on September 17, 2019.
- The number of restricted shares and performance shares granted, expired and exercised is shown already considering the splitting of stock approved at the Extraordinary Shareholders Meeting held on September 17, 2019.
- Refers to the balance of the matured options and restricted shares ("vested") and not mature ("unvested"), not exercised, at the balance sheet dates.
- Refers to theweighted-average exercise price of the option at the time of the stock option plans, adjusted for inflation based on the Extended Consumer Price Index (IPCA) through the end of the reporting period. The new Share Option Plan implemented in 2015, includes no other type of monetary adjustment.
32. COMMITMENTS
32.1 Contracts related to supply of inputs
Controlled company Indústria e Comércio de Cosméticos Natura Ltda., has commitments arising from electric power supply agreements for its manufacturing activities, as described below:
- Agreements that started in 2018 and effective up to 2020, with the value of Megawatts/h between R$ 265 and R$ 363.
- Agreements that started in 2019 and effective up to 2022, with the value of Megawatts/h between R$ 155 and R$ 305.
- Agreements that started in 2020 and effective up to 2022, with the value of Megawatts/h between R$ 204 and R$ 238
The amounts are presented based on electric power consumption estimates in accordance with the contractual period, which prices are based on estimated volumes, arising from the controlled company's continuous operations.
The total minimum supply payments, measured at nominal value, according to the contract, are:
March 2020 | December 2019 | |
Up to one year | 11,263 | 17,918 |
Between one and five years | 11,451 | 13,160 |
Total | 22,714 | 31,078 |
33. INSURANCE
The Group has an insurance policy that considers principally risk concentration and materiality, taking into consideration the nature of its activities and the opinion of its insurance advisors. As of March 31, 2020, insurance coverage is as follows:
Item | Type of coverage | Amount insured | ||||||||
March 2020 | December 2019 | |||||||||
Industrial complex and | Any damages to buildings, facilities, inventories, and | 5,290,800 | 2,322,801 | |||||||
administrative sites | machinery and equipment | |||||||||
Vehicles | Fire, theft and collision for 347 vehicles (818 in 2019) | 258,704 | 212,027 | |||||||
No loss of profits due to material damages to | ||||||||||
Loss of profits | facilities buildings and production machinery and | 1,582,000 | 1,582,000 | |||||||
equipment |
Transport Civil liability Environmental liability
Damages to products in transit
Protection against error or complaints in the exercise of professional activity that affect third parties Protection against environmental accidents that may result in environmental lawsuits
95,653 32,309
2,044,996 532,510
30,000 30,000
34. ADDITIONAL STATEMENTS OF CASH FLOWS
The following table presents additional information on transactions related to the cash flow statement:
Company | Consolidated | ||||
March 2020 | March 2019 | March 2020 | March 2019 | ||
Non-cash items | |||||
Hedge accounting, net of tax effects | - | - | 164,882 | 58,296 | |
Net effect of acquisition of property, plant and | |||||
equipment and intangible assets not yet paid | - | - | 45,078 | 43,801 | |
Consideration per acquisition of the controlled | |||||
company* | 13,366 | - | - | - | |
*in millions of Reais |
45
35. SUBSEQUENT EVENTS
Issuance of promissory notes
The Company, as approved by the Board of Directors on April 29, 2020, issued on May 4, 2020, a single series of Promissory Notes in a total amount of R$ 500 million, with an interest rate of 100% of the CDI variation plus a spread of 3.25% p.a. and maturity date on date on May 4, 2021. At the same date, Natura Cosméticos S.A. issued a Promissory Notes in a total amount of R$ 250 million, with an interest rate of 100% of the CDI variation plus a spread of 3.25% p.a. and maturity date on date on May 4, 2021.
Capital increase
The Company's Borad of Directors approved, in a meeting held on May 5, 2020, a capital increase in the amount of R$ 15,566, through the issuance of 536,755 new nominative common shares, with no par value at the issue price of R$ 29.00, which will participate in the same conditions of the current issued shares in all regards and benefits, including dividends and eventual remuneration to be distributed by the Company. After this increase, the Company's capital is R$ 4,920,684, composed by 1,188,807,871 registered common shares, with no par value.
36. APPROVAL OF FINANCIAL STATEMENTS
These interim financial statements of the Company were approved for disclosure by the Board of Directors at the meeting held on May 07, 2020.
São Paulo, May 7, 2020.
Q1-201: Revenue growth even with Covid-19, strong digital ramp-up
Avon integration acceleration, synergies raised by an additional US$100 million
Strengthened balance sheet with fresh capital increase led by Natura controlling shareholders
•Consolidated net revenue growth: R$7.5 billion in Q1, up 1.9%, or -C growth at Natura in Brazil and Hispanic Latam and Aesop, as well as an increase in digital sales across all brands. Group e- commerce accelerated significantly since mid-March.
- Natura &Co Latam: With the addition of Avon, Natura &Co became the number 1 CFT2company in Latin America,
with 11.8% market share (source: Euromonitor). Net revenue rose by +2.4% in BRL (-1.3% at CC). Naturaincreased by 14.9% in BRL (+12.4% at CC), supported by strong sales growth in Brazil (+9.8%), where productivity per
consultant grew for the 14thconsecutive quarter by +7.6%, and Hispanic Latam (+25.8%, or +19.7% at CC) despite Covid-19 impacts toward the end of the quarter, attesting to the resilience of the direct sales channel and fast
adoption of existing and new digital social selling tools. Avondeclined 7.1% in BRL, or -11.9% at CC, on a reduction in Representatives across all markets in Latin America and a Covid-19 impact later in the quarter, partially offset by an improved price/mix combination. Brazil declined 4.3%, half the rate of Q4-19(-8.3%), showing significant sequential improvement largely on a higher price/mix, while Hispanic Latam declined 8.9% (-16.8% at CC).
- Avon International: Net revenue declined 2.4% in BRL in Q1 (-15.0% at CC), on a reduction in Representatives and a Covid-19 impact later in the quarter, partially offset by an improved price/mix combination across most markets. Adoption of social selling tools by Representatives also accelerated, as they were equipped with new digital capabilities, such as the instant messaging digital brochure, including new order-management features, and direct- to-consumer shipping in 25 markets.
- The Body Shop:Net revenue increased 2.6% in BRL in Q1 (-10.5% at CC). Covid-19 lockdown restrictions impacted
retailStrong shift of consumers to e-commerce, which grew almost 300% over the last few weeks, coupled with a 61.0% growth in At- Home (direct sales) in the quarter, partially offsetting lost retail sales.
- Aesop:Strong double-digit net revenue growth of 26.6% in BRL in Q1 (+10.5% at CC), with retail growth despite the gradual lockdown in most markets. This was partially offset by strong acceleration in e-commerce sales, which has grown over 500% over the last couple of weeks.
- Strong acceleration in digital social selling ande-commerce since lockdown restrictions: Total groupe-commercesales grew nearly 250% in recent weeks vs prior year. At the Body Shop, growth was 300% and at Aesop, growth was over 500%. At Natura and Avon combined,e-commercegrew 150%, fueled by growth in consultants sharing their online stores. At Avon International, Representatives increased adoption of digital assets from a low single digit in 2019 to over 37% in recent weeks. Sales via Representatives sharinge-brochuresgrew 85% at Avon globally in recent weeks, and in the UK it was upfive-foldversus last year. At Natura, over 90% of consultants already use digital assets while content sharing grew by 64% and the number of orders doubled in the 700,000+ online consultant stores.
- Adjusted3EBITDAreached R$571.5 million, with adjusted margin of 7.6%, excluding non-recurringAvon-related
acquisition costs of R$298.3 million, and a non-cash, non- | of R$102.9 |
million resulting from the fair market value assessment of Avon. Reported EBITDA was R$145.3 million. |
- Natura &Co Latamadjusted EBITDA margin was 6.9% (+50 bps), supported by higher margin at both Natura Brazil and Hispanic Latam, driven by higher sales and operational leverage, while Avon had lower sales in Brazil and more significantly in Hispanic Latam
•Avon International | margin stood at 4.8% (-760 bps), due to lower revenue from strong negative |
Covid-19 impacts in March. In January and February, EBITDA margin was higher than same period last year. | |
•The Body Shop | -460 bps), due to lower revenue from Covid-19-related store |
closures in most markets, mainly in March. In January and February, EBITDA margin was higher than same period last year.
1For comparison purposes, Q1-20 and Q1-19 results and analyses include: i) Q1-19 pro forma figures including Avon Products, Inc. results in IFRS and Latin America results of The Body Shop and Aesop in the Natura &Co Latam reporting segment, and ii) Q1-20 results and analyses including the effects of the fair market value
assessment as a result of the business combination with Avon as per the Purchase Price Allocation PPA. 2Cosmetics, Fragrances and Toiletries
3Excluding effects that are not considered recurring nor comparable between the periods under analysis.
•Aesop30 bps), thanks mainly to strong top line growth despite Covid-19 effects mainly in March. In January and February, EBITDA margin was higher than in the same period last year.
- Annual recurring target synergies from Avon integration raised to between US$300 million and US$400 million, an increase of US$100 million,including new top line synergies at Natura &Co Latam and cost synergies at Avon International, to be achieved over a period of four years.Non-recurringcosts to achieve higher synergies increased to US$190 million, up from US$125 million, to be incurred over four years.
- Strong cash position of R$4.6 billionat quarter-end, in line with projections and above our minimum thresholds. Further deleveraging at Natura Cosméticos: Netdebt-to-EBITDAratio reduced to 2.70x inQ1-20,from 2.95x inQ1-19. At Natura &Co Holding, consolidated net debt-to-EBITDA stood as 4.91x. Excluding non-recurring transaction costs and PPA impact on EBITDA, adjusted net debt-to-EBITDA would have been 3.84x.The indebtedness ratio at the Holding Company level will not be considered for financial covenant purposes in June 2020.
- Enhanced capital structure, strong cash position and increased liquidity
- New equity raising of R$1 billion to R$2 billion, through a private placementshareholders, selected investors and minority shareholders, of which R$1 billion has been secured through the commitment from the controlling shareholders and selected investors. This will improve capital structure, reduce leverage and strengthen the balance sheet
- Newone-year financing of R$750 million to increase liquidity, with no impact on net-debt
1.Management commentary:
Roberto Marques, Executive Chairman, and CEO of Natura &Co, declared:
which makes Natura &Co the number one player in the CFT market in Latin America. We are very pleased by the rapid progress that has been made in integrating the company, leading us to raise our targeted synergies by an additional US$100 million. This is more notable in that we have achieved this in the midst of the unprecedented global health crisis caused by the spread of the Covid-19 pandemic, which impacted our Q1 performance.
In the face of the pandemic, the Group took quick action to adapt to this crisis, with three key priorities: Care for our people, care for our communities and care for our company.
Even before lockdown measures were implemented, Natura &Co took steps to protect the health and safety of our employees, Consultants and Representatives, and suppliers. We imposed strict social distancing measures, provided job security, extended credit flexibility to Consultants and Representatives, and offered supporting services like telemedicine.
At the same time, as a producer of such essential products as soap and hand sanitizer, Natura &Co quickly retooled its operations across its brands to step up their production, increasing by over 30% our essential products capacity. Sales of hand sanitizer increased by over 500% both at The Body Shop and Aesop, and Natura used under-utilized capacity at Avon plants to produce 16 million units of alcohol gel and 1 million liters of alcohol with partners, principally directed at donations.
The Group also implemented measures to protect cash and liquidity, including reducing operating expenses, limiting capital expenditure to essential projects, implementing a hiring freeze and reducing executive pay on a voluntary basis. We have a solid cash position and no immediate debt maturities. We have also strengthened our balance sheet and enhanced our liquidity through an infusion of fresh equity led by our founding shareholders, improving our capital structure, and through additional financing lines that do not impact our net debt. This gives us additional financial flexibility to navigate the current turbulence.
These actions are a clear demonstration that Natura &Co walks the talk when it comes to showing it is a purpose-driven group, in line with its ambition of building the best beauty company forthe world. I would like to express my heartfelt gratitude to our teams for the exceptional commitment they have shown during this trying time to allow us to meet essential, and even vital, needs.
e and the strength of its multi-channel model. Across our brands and businesses, digital sales helped offset the impact of store closures at The Body Shop and Aesop, and we have strengthened social selling as a response to social distancing at Natura and Avon. We launched, for instance, a digital and interactive essential items sales catalogue that can be shared over instant messaging tools and social media, and our Consultants and Representatives showed remarkable adaptability.
This strong growth in digital and online sales across our brands and the resilience of our direct sales channel at Natura, allowed us to post 1.9% growth in consolidated revenue (-6.2% at CC, slightly ahead of the global CFT market, expected to be around -8%) while EBITDA continued to reflect one-off costs related to the acquisition of Avon and the impacts of the Covid-19 pandemic. In this changing environment, social distancing and lockdown measures will continue to have a
2
significant impact on the CFT market and in our business in the second quarter, but markets in which measures were eased have shown a fast rebound.
The integration of Avon is making great strides and the company continues to see progress in its Open Up strategy to s are working closely together, and we used unutilized capacity at an Avon plant to produce first-necessity items for Natura.
The rapid progress in integration leads us to raise our total synergy target, including topline synergies, to US$300 millionto US$400 millionover the next four years.
At our Investor Day on May 08th, we will have the opportunity to share our strategy to keep building a distinctive purpose- driven, multi-channel, multi brand Group with unparalleled reach to consumers
2. Synergies and guidance
O May 7, Natura &Co raised the projected synergy gains from the business combination with Avon Products, Inc by another
US$100 million, bringingtotal expected synergies to between US$300 and US$400 million on a recurring annual basis,
including new revenue synergies at Natura &Co Latam and cost synergies at Avon International. These amounts are | ||||
calculated using the current exchange rate of US$1/R$5, | ||||
which reflects a significant depreciation from the earlier | Sinergy range in US$ million | |||
synergy calculations. The earlier calculation was done at | Sourcing: | 85 | - | 115 |
US$1/R$3.87 and would be equivalent to between US$390 | Manufacturing and distribution: | 50 | - | 75 |
million and US$520 million, up from between US$200 | ||||
million to US$300 million. These synergies are expected to be | Administrative: | 75 | - | 90 |
captured by 2024. | Revenue Natura &Co Latam: | 90 | - | 120 |
Total synergy | 300 | 400 |
The estimatedone-time costs to achieve synergies will be
US$190 million to be incurred over this period, up from US$125 million.
On January 6, the Company had already raised its projected synergy gains to between US$200 million and US$300 million on a recurring annual basis (pre-tax), to be captured in three years. These synergies will be derived mainly from procurement, manufacturing/distribution and administrative. The expected costs to achieve these synergies were estimated at approximately US$125 million over the next three years. The US$/R$ FX rate used for the estimates above was US$1.00 = R$3.87 (same rate of when we first announced synergies in May 23,2019).
In Q1-20, we have captured US$5.2 million in cost synergies, already securing the equivalent of approximately US$30 million on an annualized basis, primarily related to procurement and corporate expenses from Avon International, incurring US$2.3 million in costs to achieve.
The Natura Cosméticos guidance for compound annual growth rates for revenue and EBITDA is being suspended following the consolidation of Avon Products, Inc., which has resulted in a different business structure, as well as the Covid-19 pandemic, given the insufficient visibility of its effects. New Natura &Co guidance may be provided in due course.
3. Covid-19 update
On March 11, 2020, the Coronavirus outbreak was officially designated a global pandemic by the World Health Organization (WHO). As a result, governments began implementing lockdown measures in China in January, in Western Europe beginning in late February and in North and Latin America in late March. These measures progressively impacted our operations, but also attested to the strength of our multi-brand,multi-channel business model, highlighting the resilience of our direct sales channel and acceleration of our digital platforms.
Consultants and Representatives, our employees and our network of suppliers. We have taken a number of measures to protect our people and our business and we have taken action to support the communities in which we operate around the globe.
Key measures implemented to protect our people:
- All employees were assured job security for 60 days
- Consultants and Representatives were offered credit flexibility and Sales Leaders were offered guaranteed income
- Emergency funds were earmarked for Consultants directly or indirectly impacted by the virus
- A subsidy for medication and telemedicine services for Sales Leaders was provided in Latin America
- Mental health andwell-being support tools were made available, along with education content guides on topics such as self-isolation, the public health system, children at home and financial planning
3
- Across all of our operations, preventive measures were taken such as reducing staff and adapting workflow to provide social distance
•
closed, in compliance with government authorities
- Retail staff were offered paid leave and holiday pay while retail locations were closed
- Office staff were transitioned to work from home
Key measures implemented to protect our business:
- Our business model proved its resilience and we have strengthened our social selling in response to social distancing through the acceleration of digital. Thanks to our digital transformation, our Consultants and Representatives were able to maintain activity through the use of digital tools and platforms and flexible delivery options. We launched a digital and interactive essential items sales catalogue that can be shared over messaging (Whatsapp) and social media, in addition to our completee-catalogue
- We optimized production and reoriented part of our production toward essential products (primarily soap and hand sanitizer), increasing by 30% our essential products capacity to meet consumer needs and contribute to providing necessary items. This allowed us to keep our manufacturing, distribution and sales operations running despite restrictions put in place by various authorities. In March, Avon started to produce essential items for Natura, optimizing available capacity
- We have strengthened financial discipline to protect cash and improve liquidity, including:
- freezes on hiring, promotions, salary increases and travel
- capital expenditure limited to what is required for business continuity, infrastructure or acceleration of digital
- active management and oversight of variable costs and reduced discretionary spending
- renegotiation of leases and reduced staff hours
- voluntary executive pay pledge
Social Responsibility:
- In the midst of the coronavirus pandemic, women and children already at risk of domestic violence have become increasingly vulnerable, an unintended consequence of isolation measures that leave survivors at home with their abusers. Natura &Co announced it will donate US$1million through the Avon Foundation to domestic violence support groups around the world that focus on direct impact and grassroots initiatives
- We have made significant donations in our communities across the world, with over 10 million units of essential items, in partnership with other companies who supplied raw materials in Latam
- Natura &Co was among the Top 10 companies most active in the crisis according to Exame, a Brazilian business publication
4
4. Results analysis
For comparison purposes, Q1-20 and Q1-19 results and analysis include the following:
- The effects of IFRS 16 in both periods
- Q1-19pro-forma including Avon results in IFRS and Latin America results of The Body Shop and Aesop in the Natura &Co Latam segment
- The new Group segmentation composed of:
- Natura &Co Latam, which comprises all the brands in this geography: Natura, Avon, The Body Shop and Aesop
- Avon international, which includes all marketsex-Latam
- The Body Shopex-Latam, and
- Aesopex-Latam.
In addition, Q1-20 results and analysis include the effects of the fair market value assessment as a result of the business combination with Avon as per the Purchase Price Allocation PPA.
Pró-Forma | Profit and Loss by Business | ||||||||||||||||||||||||
Consolidated | a | Natura &Co Latam | b | Avon International | The Body Shop | Aesop | |||||||||||||||||||
R$ million | |||||||||||||||||||||||||
Q1-20 | c | Q1-19 | d | Ch. % | Q1-20 | c | Q1-19 | d | Ch. % | Q1-20 | c | Q1-19 | d | Ch. % | Q1-20 | Q1-19 | Ch. % | Q1-20 | Q1-19 | Ch. % | |||||
Gross Revenue | 9,719.2 | 9,657.1 | 0.6 | 5,593.2 | 5,463.4 | 2.4 | 2,531.4 | 2,690.5 | (5.9) | 1,213.4 | 1,192.5 | 1.7 | 381.1 | 310.7 | 22.7 | ||||||||||
Net Revenue | 7,518.0 | 7,375.5 | 1.9 | 4,162.3 | 4,063.3 | 2.4 | 2,121.5 | 2,172.7 | (2.4) | 893.2 | 870.2 | 2.6 | 340.9 | 269.2 | 26.6 | ||||||||||
COGS | (2,878.7) | (2,683.0) | 7.3 | (1,718.1) | (1,587.6) | 8.2 | (927.2) | (868.3) | 6.8 | (201.2) | (203.4) | (1.0) | (32.2) | (23.7) | 36.0 | ||||||||||
Gross Profit | 4,639.3 | 4,692.4 | (1.1) | 2,444.2 | 2,475.7 | (1.3) | 1,194.3 | 1,304.4 | (8.4) | 692.0 | 666.9 | 3.8 | 308.7 | 245.5 | 25.7 | ||||||||||
Selling, Marketing and Logistics Expenses | (3,523.2) | (3,103.7) | 13.5 | (1,852.4) | (1,659.2) | 11.6 | (935.3) | (810.6) | 15.4 | (540.3) | (491.4) | 9.9 | (195.2) | (142.4) | 37.1 | ||||||||||
Administrative, R&D, IT and Projects Expenses | (1,228.0) | (1,071.9) | 14.6 | (571.1) | (579.3) | (1.4) | (388.7) | (264.4) | 47.0 | (176.7) | (145.9) | 21.1 | (91.5) | (82.2) | 11.3 | ||||||||||
Corporate Expenses | e | (30.2) | (72.4) | (58.3) | - | (17.3) | - | - | (16.5) | - | - | - | - | - | - | - | |||||||||
Other Operating Income/ (Expenses), Net | (15.1) | (11.0) | 36.9 | 2.7 | (55.2) | - | (12.0) | 47.8 | - | (5.9) | (3.3) | 76.0 | 0.1 | (0.3) | - | ||||||||||
Acquisition Related Expenses | f | (298.3) | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||
Transformation/Integration costs | (25.1) | (202.5) | (87.6) | (10.5) | (76.1) | (86.2) | (14.5) | (119.5) | (87.8) | - | (6.8) | - | - | - | - | ||||||||||
Depreciation | 625.8 | 362.6 | 72.6 | 221.9 | 130.1 | 70.5 | 183.9 | 47.6 | 286.5 | 164.4 | 144.8 | 13.6 | 55.7 | 40.1 | 38.9 | ||||||||||
EBITDA | 145.3 | 593.5 | (75.5) | 234.7 | 218.6 | 7.4 | 27.7 | 188.7 | (85.3) | 133.6 | 164.1 | (18.6) | 77.8 | 60.7 | 28.1 | ||||||||||
Depreciation | (625.8) | (362.6) | 72.6 | ||||||||||||||||||||||
Financial Income/(Expenses), Net | (227.6) | (228.1) | (0.2) | ||||||||||||||||||||||
Earnings Before Taxes | (708.1) | 2.8 | - | ||||||||||||||||||||||
Non-controlling Interest and other operation | g | (17.9) | - | - | |||||||||||||||||||||
Income Tax and Social Contribution | (94.8) | (84.8) | 11.8 | ||||||||||||||||||||||
Consolidated Net Income | (820.8) | (82.0) | 901.0 | ||||||||||||||||||||||
Gross Margin | 61.7% | 63.6% | -190 bps | 58.7% | 60.9% | -220 bps | 56.3% | 60.0% | -370 bps | 77.5% | 76.6% | 90 bps | 90.6% | 91.2% | -60 bps | ||||||||||
Selling, Marketing and Logistics Exp./Net Revenue | 46.9% | 42.1% | 480 bps | 44.5% | 40.8% | 370 bps | 44.1% | 37.3% | 680 bps | 60.5% | 56.5% | 400 bps | 57.3% | 52.9% | 440 bps | ||||||||||
Admin., R&D, IT, and Projects Exp./Net Revenue | 16.3% | 14.5% | 180 bps | 13.7% | 14.3% | -60 bps | 18.3% | 12.2% | 610 bps | 19.8% | 16.8% | 300 bps | 26.9% | 30.5% | -360 bps | ||||||||||
EBITDA Margin | 1.9% | 8.0% | -610 bps | 5.6% | 5.4% | 20 bps | 1.3% | 8.7% | -740 bps | 15.0% | 18.9% | -390 bps | 22.8% | 22.5% | 30 bps | ||||||||||
Net Margin | (10.9)% | (1.1)% | -980 bps | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||
a | |||||||||||||||||||||||||
Consolidated results include Natura &Co Latam, Avon International, The Body Shop and Aesop, as well as the Natura subsidiaries in the U.S., France and the Netherlands. | |||||||||||||||||||||||||
b | |||||||||||||||||||||||||
Natura &Co Latam: includes Natura, Avon, TBS and Aesop - Brazil and Hispanic Latam | |||||||||||||||||||||||||
c | |||||||||||||||||||||||||
d | |||||||||||||||||||||||||
Q1-19: Does not include PPA effects | |||||||||||||||||||||||||
e | |||||||||||||||||||||||||
Expenses related to the management and integration of the Natura &Co Group |
- Avon-acquisition-relatedexpenses
- Related tonon-controlling interest and business separation at Avon North America
Consolidated net revenue growth in Q1-20
Q1-20 consolidated net revenue in BRL grew by 1.9% year-on-year, driven by growth at Natura &Co Latam and Aesop.
- Natura &Co Latam(Natura, Avon, The Body Shop and Aesop Brazil): Net revenue rose by +2.4% in BRL (-1.3% at CC).
- Avon International: Net revenue declined 2.4% in BRL in Q1 (-15.0% at CC).
- The Body Shop:Net revenue increased 2.6% in BRL in Q1 (-10.5% at CC).
- Aesop:Strong double-digit net revenue growth of 26.6% in BRL in Q1 (+10.5% at CC).
Gross margin
R$ million | Consolidated | Natura &Co Latam | Avon International | The Body Shop | Aesop | ||||||||||
Q1-20a | Q1-19b | Ch. % | Q1-20a | Q1-19 | Ch. % | Q1-20a | Q1-19 | Ch. % | Q1-20 | Q1-19 | Ch. % | Q1-20 | Q1-19 | Ch. % | |
Net Revenue | 7,518.0 | 7,375.5 | 1.9 | 4,162.3 | 4,063.3 | 2.4 | 2,121.5 | 2,172.7 | (2.4) | 893.2 | 870.2 | 2.6 | 340.9 | 269.2 | 26.6 |
COGS | (2,878.7) | (2,683.0) | 7.3 | (1,718.1) | (1,587.6) | 8.2 | (927.2) | (868.3) | 6.8 | (201.2) | (203.4) | (1.0) | (32.2) | (23.7) | 36.0 |
Gross Profit | 4,639.3 | 4,692.4 | (1.1) | 2,444.2 | 2,475.7 | (1.3) | 1,194.3 | 1,304.4 | (8.4) | 692.0 | 666.9 | 3.8 | 308.7 | 245.5 | 25.7 |
Gross Margin | 61.7% | 63.6% | -190 bps | 58.7% | 60.9% | -220 bps | 56.3% | 60.0% | -370 bps | 77.5% | 76.6% | 90 bps | 90.6% | 91.2% | -60 bps |
a
b
Consolidated gross margin reached 61.7% (-190 bps). Excluding PPA effects on COGS of R$105.9 million (R$54.7 million in Natura &Co Latam; R$51.2 million in Avon International), adjusted consolidated gross margin reached 63.1% in Q1-20(-50 bps), as shown below:
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Without PPA effects in both periods | |||||||||||||||
R$ million | Consolidated | Natura &Co Latam | Avon International | The Body Shop | Aesop | ||||||||||
Q1-20 | Q1-19 | Ch. % | Q1-20 | Q1-19 | Ch. % | Q1-20 | Q1-19 | Ch. % | Q1-20 | Q1-19 | Ch. % | Q1-20 | Q1-19 | Ch. % | |
Net Revenue | 7,518.0 | 7,375.5 | 1.9 | 4,162.3 | 4,063.3 | 2.4 | 2,121.5 | 2,172.7 | (2.4) | 893.2 | 870.2 | 2.6 | 340.9 | 269.2 | 26.6 |
COGS | (2,772.8) | (2,683.0) | 3.3 | (1,663.4) | (1,587.6) | 4.8 | (876.0) | (868.3) | 0.9 | (201.2) | (203.4) | (1.0) | (32.2) | (23.7) | 36.0 |
Gross Profit | 4,745.2 | 4,692.4 | 1.1 | 2,499.0 | 2,475.7 | 0.9 | 1,245.5 | 1,304.4 | (4.5) | 692.0 | 666.9 | 3.8 | 308.7 | 245.5 | 25.7 |
Gross Margin | 63.1% | 63.6% | -50 bps | 60.0% | 60.9% | -90 bps | 58.7% | 60.0% | -130 bps | 77.5% | 76.6% | 90 bps | 90.6% | 91.2% | -60 bps |
-
Natura &Co Latams adjusted gross margin was 60.0% in Q1-20(-90 bps), mainly impacted by increased supply chain costs and higher obsolescence in Home and Fashion items at Avon.
combined gross margin (Brazil and Hispanic Latam) was up by 10 bps. - Avon Internationalgross margin was 58.7% in Q1-20(-130 bps), due to higher supply chain costs and inventory obsolescence in non-beauty items, partially offset by improved price/mix.
- The Body Shopstood at 77.5% in Q1-20 (+90 bps), due to discount
improvement.
•Aesop | was 90.6% in Q1-20(-60 bps). | |
Adjusted gross margin | a | |
90.6% 91.2%
77.5% 76.6%
63.1% | 63.6% | 60.0% | 60.9% | 58.7% | 60.0% |
Consolidated | Natura &Co | Avon | The Body | Aesop | |
Latam | International | Shop | |||
Q1-20 | Q1-19 | ||||
a) Without PPA effects |
Consolidated EBITDA
Q1 adjusted EBITDA in BRL was R$571.5 million with margin of 7.6% (-220 bps), excluding non- recurring Avon-related acquisition costs of R$298.3 million, and a non-cash,non-recurring purchase
Avon, resulting from a step-up in inventory value (in the cost of goods sold), and transformation costs at Natura &Co Latam and Avon International. Reported EBITDA was R$145.3 million. See reconciliation below:
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Consolidated EBITDA | |||
R$ million | Q1-20 | Q1-19 | Ch. % |
Consolidated EBITDA | 145.3 | 593.5 | (75.5) |
Avon acquisition-related expenses (1) | 298.3 | - | - |
Transformation costs (2) | 25.1 | 202.5 | (87.6) |
Non-recurring PPA impacts on COGS (3) | 102.9 | - | - |
ICMS provision reversal (4) | - | (34.5) | - |
Assets sales at Avon International (5) | - | (38.8) | - |
Adjusted EBITDA | 571.5 | 722.6 | (20.9) |
Adjusted EBITDA Margin | 7.6% | 9.8% | -220 bps |
Adjusted Gross Margin | 63.1% | 63.6% | -50 bps |
Adjusted Selling, Marketing and Logistics Exp./ Net Revenue | 46.0% | 42.1% | 390 bps |
Adjusted Admin., R&D, IT, and Projects Exp./ Net Revenue | 15.4% | 14.5% | 90 bps |
Adjusted EBITDA Margin | 7.6% | 9.8% | -220 bps |
- Avonacquisition-related expenses: Non-recurring costs associated with Avon acquisition, mainly related to
professional fees and planning costs
(2) International both in Q1-20 and Q1-19, and The Body Shop in Q1-19
- Non-cash,non-recurring inventory PPA impact, resulting from a step up in inventory value (in the cost of goods sold), at both Natura &Co Latam and Avon International
- ICMS provision reversal: Reversal of an ICMS provision at Natura Brazil inQ1-19, resulting from a revised estimate of the outcome of a legal action
- Assets sales at Avon International refer to a gain on the sale of a manufacturing facility in China in 2019
- Natura &Co Latams adjusted EBITDA margin was 6.9% (+50 bps).
- Avon Internationaladjusted EBITDA margin stood at 4.8% (-760 bps).
- The Body Shopadjusted EBITDA margin was 15.0% (-460 bps).
•Aesop | . |
Financial income and expenses
Net financial expenses were R$227.6 million in Q1-20, stable vs. Q1-19, favorably impacted by the lower CDI interest rate in Brazil, which offset higher interest expenses from debt at Avon.
The following chart details the main changes in our financial income and expenses:
R$ million | Q1-20 | Q1-19Ch. % | |
Financial Income and Expenses, Net | (227.6) | (228.1) | (0.2) |
1. Borrowings/Financing (B/F), Short-Term Investments (STI) and Operational FX Gains/(Losses | (189.1) | (165.4) | 14.4 |
2. Judicial Contingencies | 38.6 | (4.2) | - |
3. Other Financial Income and Expenses | (77.1) | (58.5) | 31.8 |
Lease Interest Expenses | (54.4) | (45.6) | 19.2 |
Other | (22.7) | (12.9) | 76.3 |
Underlying Net Income (UNI)
Underlying Net Income, which excludes non-recurring and/or non-cash effects, was (R$284.8) million in Q1, before Avon-acquisition related effects of R$536.0 million, which are comprised of i) R$298.3 million in acquisition expenses; ii) R$171.6 million from non-cash PPA impacts; iii) R$41.0 million in IOF taxes from the issuance of shares for the exchange for Avon shares, in the all-stock acquisition; iv) transformation costs of R$25.1 million. Reported net loss was R$820.8 million, and was impacted by a higher effective income tax rate due to non-deductibleacquisition-related expenses
7
and PPA effects at The Body Shop, related to deferred tax liabilities in the UK (reversal of nominal income tax rate from 17% to 19%).
Q1-20 Underlying Net Income - UNI (R$ million)
(82,0) | (22,0) | 7,2 | ||||
(118,4) | ||||||
(17,9) | (51.7) | (284.8) | ||||
(510.9) | (25,1) | (820.8) | ||||||
Q1-19 Net | EBITDA | Depreciation | Financial | Non-controlling Income Tax | Q1-20 | Avon | Transformation | Net income |
income | results | Interest | Underlying Net | acquisition | costs | |||
Income | related effects |
Free cash flow and cash position
We ended the quarter with a strong cash position of R$4.6 billion (R$3.6 billion in cash, and R$1.0 billion in short-term deposits), in line with projections and above our minimum thresholds.
Cash outflow in Q1-20 of R$1,695.9 million, as expected, consistent with our Q1 historical seasonality and further impacted by Covid-19 effects. On an estimated and non-audited basis, pro forma Q1-19 would have had a cash outflow of R$765.0 million. Consumption in Q1-20 includes Avon and is mainly related to non-recurring acquisition costs of R$501.0 million, COVID-19 impacts on sales and FX effects due to the devaluation of the BRL in working capital for Avon International, The Body Shop and Aesop. Working capital was also impacted by extended terms to Consultants and Representatives at Natura and Avon.
R$ million | Q1-20 | ||
Net Income (loss) Reported | a | (820.8) | |
Depreciation and Amortization | 625.8 | ||
Non-Cash/Others | b | (253.0) | |
Internal Cash Outflow | (448.0) | ||
Working Capital (Increase)/Decrease | (1,127.6) | ||
Cash Outflow Before Capex | (1,575.6) | ||
Capex | (120.3) | ||
Free Cash Flow | (1,695.9) |
- Attributable to the owners of the company
- Includes the effects of deferred income tax, fixed and intangible assetswrite-offs, FX on translation of working capital, fixed assets, etc.
Capital structure and liquidity
As a precautionary step to improve its capital structure, the Group announced on May 7 a capital raising of R$1 billion to R$2 billion, in the form of a private placement to be subscribed by the controlling shareholders, investors and minority shareholders. The transaction is expected to be closed in Q2-20.
Furthermore, on top of the strong cash position at the end of Q1 and to increase liquidity, the Group raised financing of R$750.0 million on May 4, 2020, for up to one year, as follows: R$500.0 million at
8
Natura &Co Holding S.A. and R$250.0 million at Natura Cosméticos S.A.. The use of proceeds is to strengthen the liquidity of the companies and therefore this new financing does not increase net debt.
Deleveraging at Natura Cosméticos: Net debt-to-EBITDA of 2.70x in Q1-20, from 2.95x in Q1-19 and 3.32x in Q1-18
At Natura &Co Holding, consolidated net debt-to-EBITDA stood as 4.91x. Excluding non-recurring transaction costs and PPA impact on EBITDA, adjusted net debt-to-EBITDA would have been 3.84x.The indebtedness ratio at the Holding Company level will not be considered for financial covenant purposes in June 2020.
The Company continues to work towards the target of reducingleverage to the pre-The Body Shop acquisition level of 1.4 times by 2021. This measure is comparable to previous periods.
Natura Cosméticos S.A. | Natura &Co Holding S.A. | |||||||
R$ million | Q1-20 | Q1-19 | Q1-20 | Q1-19 | a | |||
Short-Term | 787.2 | 748.1 | 1,942.5 | 2,405.7 | ||||
Long-Term | 8,343.2 | 6,651.3 | 16,610.4 | 11,313.3 | ||||
Gross Debt (without leases) | 9,130.4 | 7,399.4 | 18,553.0 | 13,719.0 | ||||
Foreign currency hedging (Swaps) | b | (1,618.7) | (522.5) | (1,618.7) | (522.5) | |||
Total Gross Debt | 7,511.7 | 6,876.9 | 16,934.3 | 13,196.5 | ||||
(-) Cash, Cash Equivalents and Short-Term Investment | (2,447.1) | (1,369.1) | (4,566.3) | (2,952.8) | ||||
(=) Net Debt | 5,064.6 | 5,507.7 | 12,368.0 | 10,243.8 | ||||
Net Debt/EBITDA | c | 2.70x | 2.95x | 4.91x | n/a | |||
Total Debt/EBITDA | c | 4.00x | 3.69x | 6.72x | n/a | |||
- Q1-19is presented on a proforma basis
- Foreign currency debt hedging instruments, excluding themark-to-market effects
- EBITDAexcludes-IFRS 16
In the quarter, the holders of Avon preferred shares C series opted to convert their shares into Natura &Co ordinary shares. The promissory notes previously issued by Natura &Co Holding S.A. specifically to pay these holders were therefore prepaid, in the amount of approximately R$1.8 billion.
As of March 31, 2020, 89.5% of the companydebt is long-term, with an average maturity of 3.9 years.
5. Performance by segment
Natura &Co Latam: Net revenue growth in BRL on a very challenging background
Natura &Co Latam is a new reporting segment comprising the Latin American operations of all the brands: Natura, Avon, The Body Shop and Aesop. For comparison purposes, 2019 results
were adjusted on a pro forma basis to reflect this new segment.
Natura &Co Latam is the leader in direct sales and in Cosmetics, Fragrances and Toiletries (CFT) in Latin America, with 11.8% market share in the region in 2019. It holds the number 1 position in key markets such as Brazil, Argentina and Colombia (source: Euromonitor).
Our extensive portfolio of essential products allowed us to keep our manufacturing, distribution and sales running despite restrictions put in place by local authorities. The second half of March was significantly impacted by strict lockdowns due to Covid-19 in Central America, Argentina, Peru, Colombia and Ecuador. Production of soaps, hand sanitizers and other essential items increased by about 30% to meet the shift in demand, which also enabled us to make significant donations (close
9
to 6.0 million units) in our communities, in partnership with other companies that provided raw materials. This shift in demand for essentials has a mix effect which put pressure on profitability, partially offset by cost discipline measures. This mix effect will be more evident in coming quarters.
Stores in the region began progressively closing due to Covid-19 as of March 14, ahead of the official mandatory date, as Natura &Co took measures throughout the Group to ensure the health and safety of its employees, Consultants, franchisees and customers.
Net revenue in Latin America grew by 2.4% in Q1-20 in BRL (-1.3% at CC), driven by strong growth of 14.9% at Natura (+9.8% Brazil, +25.8% Latam), while Avon was down -7.1%(-4.3% in Brazil, -8.9% in Latam).
The Natura brand in Brazil maintained leadership in CFT for the third consecutive year, ending 2019 with 11.9% market share (source: Euromonitor). Net revenue grew 9.8% in Q1-20, with a record-
high January and February, up in double digits
over 2019, while March sales reflected the impact of Covid-19 in the last two weeks. Price/mix was up 9.7%, supported by double-digit growth in fragrances and body care, with stable volumes (+0.1%). Productivity per Consultant grew for the 14thconsecutive quarter, by +7.6% in Q1-20. The
average Consultant base was up by 1.6% vs. Q1-19, reaching 1.03 million Consultants. We saw continued progression toward the top tier segments (Silver, Gold and Diamond).
Another important part of Natura &Co Latam is the Natura brand in the Hispanic Latam countries, which posted revenue growth of 25.8% in BRL. In constant currency, revenue grew by a robust 19.7%. Price/mix was up 1.5%, while units sold increased by 18.2%. The average number of Consultants grew by a strong 12.1% vs. Q1-19, to 713.9 million. Argentina maintained its strong sales momentum, with top line growth above inflation, despite a challenging macro-economic environment, while Mexico and Chile also grew strongly. The second half of March was impacted by harsher lockdowns due to Covid-19 in Argentina, Peru and Colombia.
Net revenue from the Avon brand in Brazil declined 4.3% in Q1-20, on a 3.7% reduction in average number of Representatives and -13.2% in units sold, while price/mix increased by 9.8%. The Avon brand in the Hispanic Latam countries posted revenue decline of 8.9% in Q1-20 in BRL (-16.8% at CC), due to a -13.6% reduction in average number of Representatives, -0.4% price/mix and -18.3% in units sold.
Our digital platforms proved their relevance, allowing our Consultant and Representatives network to maintain activity through the use of digital tools, with flexible delivery options, attesting to the resilience of our direct sales channel.
The adoption of our digital tools by Consultants doubled in the weeks following the spread of Covid- 19 impact, as well as the number of orders in our online Consultant stores. As a response to social distancing, we implemented a digital and interactive brochure focused on essential items that can be shared over instant messaging (Whatsapp) and social media, in addition to our complete e- catalogue. At Natura, over 90% of Consultants in Brazil use digital platforms (app + web) and approximately 700,000 Consultants have virtual stores in Rede Natura, a 40% increase versus last year. In the last few weeks, since lockdown measures began, Rede Natura sales grew over 200%. We saw an increase of over 40% in Consultants sharing digital content, such as offers, brand messages
10
and campaign materials, and the number of online training sessions doubled. digital brochure have increased five times since January 1st, and e-commerce sales grew 85% in Brazil and in Hispanic Latam countries combined.
In the retail channels, own-store performance remained strong until lockdown in mid- March, with increased traffic and higher conversion, resulting in a strong double-digit growth in net revenue. Franchise stores Aqui Tem Naturaaccelerated sell-out sales in Q1-20, on the back of new stores vs. last year and double-digitlike-for-like growth. The total number of franchise stores stood at over 400, double the same period last year.
Product launches in the period included iconic female fragrance Luna Fascinante and the new premium male fragrance Natura Essencial, in Brazil. Avon launched important skin care products such as Anew Hyaluronic Acid, and in color cosmetics the Euphoric Mascara (featuring Brazilian singer Ludmilla on the cover of the brochure), both significantly outperforming estimates. In Hispanic Latam countries, launches included Avonfragrances such as Herstory Eau de Parfum, supported by full activation campaign with a press event, TV merchandising, digital activation and sampling, and Musk Freeze, both outperforming expectations.
Natura &Co Latam: Financial analysis
Natura &Co LatamEBITDA was R$234.7 million in Q1-20 and adjusted EBITDA was R$287.5 million (+10.5%). EBITDA margin was 5.6% (-20 bps) and adjusted EBITDA margin was 6.9% (+50 bps).
A reconciliation between EBITDA and adjusted EBITDA is presented below:
R$ million | Q1-20 | Q1-19 | Ch. % |
EBITDA | 234.7 | 218.6 | 7.4 |
ICMS provision reversal | - | (34.5) | - |
Transformation costs | 10.5 | 76.1 | (86.2) |
Non-recurring PPA impact on COGS | 42.3 | - | - |
Adjusted EBITDA | 287.5 | 260.2 | 10.5 |
Adjusted EBITDA Margin | 6.9% | 6.4% | 50 bps |
Excluding PPA effects, selling, marketing & logistics expenses increased 290 bps, to 43.7% of net revenue, mainly driven by commercial measures to mitigate Covid-19 impacts such as extended payment terms for Consultants, more flexible credit conditions and higher online sales commissions.
Excluding PPA effects, administrative, R&D, IT and project expenses reached 13.5% of net revenue (- 80 bps) in the quarter, on the back of cost control initiatives adopted by both Natura and Avon to offset Covid-19 impacts, which included freezes in hiring, pay raises, promotions and travel, as well as a reduction in executive remuneration and discretionary spending.
Natura &Co Latam | |||||
R$ million | PPA | Q1-20 | Ch. % | ||
Q1-20 | Q1-19 | ||||
impacts | ex-PPA | ex-PPA | |||
Selling, Marketing and Logistics Expenses | (1,852.4) | (32.0) | (1,820.5) | (1,659.2) | 9.7 |
Administrative, R&D, IT and Projects Expenses | (571.1) | (10.4) | (560.7) | (579.3) | (3.2) |
SG&A Expenses | (2,423.6) | (42.4) | (2,381.2) | (2,238.6) | 6.4 |
Selling, Marketing and Logistics Exp./ Net Revenue | 44.5% | - | 43.7% | 40.8% | 290 bps |
Admin., R&D, IT, and Projects Exp./ Net Revenue | 13.7% | - | 13.5% | 14.3% | -80 bps |
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Avon International: Improved digital and direct-to-consumer capabilities
Avon International operates in 50 markets, including distributor partnerships throughout Europe, Asia, Africa and the Middle East, with 3.7 million Representatives. The transformation of Avon began in Q3-18, supported by its comprehensive Open Up Avon plan. Q1-20 saw continuing signs of recovery, including another quarter of stabilization in the Representative count compared to Q4-19 and increased digital conversion compared to Q1-19. In the three months since completing the acquisition of Avon, there has been a continued focus on stabilizing the core business, which will continue throughout 2020, while adjustments are made based on learnings and knowledge transfer from Natura &Co.
Net revenue declined 2.4% in Q1-20(-15.0% at CC), mainly impacted by a 6.3% reduction in average number of Representatives, partially offset by improved price/mix of 2.6% across most markets. Units sold declined 17.4%.
Representatives increased adoption of digital assets from a low single digit in 2019 to over 37% in recent weeks. They were equipped with new digital capabilities, including new order-management features in the instant messaging digital brochure and direct-to-consumer shipping, available in 25 markets. Sales via the digital brochure have increased nearly five-fold since January 1st. Avon also focused on driving the e-commerce channel, which grew over 200% in the recent weeks versus the same period last year. E-commerce sales in the UK alone have grown over five-fold in the last few weeks.
Important launches in the quarter included the Herstory fragrance in Central Europe, supported by a full activation campaign including local celebrity endorsement, digital activation and sampling, and Anew Skin Reset Shots with patented Protinol technology in Europe, both of which outperformed sales estimates.
The company made significant contributions to fight Covid-19 in its markets, donating 411,000 essential items to countries such as Romania, Italy, the UK and Philippines, among others.
Net revenue of the Avon brand, including Latin America and Avon International, declined 4.8%, vs. Q1-19.
Avon International: Financial analysis
EBITDA was R$27.7 million in Q1-20 and adjusted EBITDA was R$102.9 million (- 61.8%). EBITDA margin was 1.3% and adjusted EBITDA margin was 4.8% (-760bps).
A reconciliation between EBITDA and adjusted EBITDA is presented below:
R$ million | Q1-20 | Q1-19 | Ch. % |
EBITDA | 27.7 | 188.7 | (85.3) |
Transformation costs | 14.5 | 119.5 | (87.8) |
Assets sales | - | (38.8) | - |
Non-recurring PPA impact on COGS | 60.6 | - | - |
Adjusted EBITDA | 102.9 | 269.5 | (61.8) |
Adjusted EBITDA Margin | 4.8% | 12.4% | -760 bps |
Excluding PPA effects, selling, marketing & logistics reached 42.6% of net revenue (+530 bps), largely due to the impact of revenue reduction causing deleverage of fixed expenses as well as commercial measures to mitigate Covid-19 effects.
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Excluding PPA effects, administrative, R&D, IT and project expenses reached 15.3% of net revenue (+310 bps) in the quarter, also largely due to revenue reduction, partially offset by spending cuts to mitigate Covid-19 impacts.
Avon International | |||||
R$ million | PPA | Q1-20 | Ch. % | ||
Q1-20 | Q1-19 | ||||
impacts | ex-PPA | ex-PPA | |||
Selling, Marketing and Logistics Expenses | (935.3) | (31.7) | (903.6) | (810.6) | 11.5 |
Administrative, R&D, IT and Projects Expenses | (388.7) | (63.2) | (325.5) | (264.4) | 23.1 |
SG&A Expenses | (1,323.9) | (94.9) | (1,229.1) | (1,075.1) | 14.3 |
Selling, Marketing and Logistics Exp./ Net Revenue | 44.1% | - | 42.6% | 37.3% | 530 bps |
Admin., R&D, IT, and Projects Exp./ Net Revenue | 18.3% | - | 15.3% | 12.2% | 310 bps |
The Body Shop: Strong e-commerce and At-Home sales increase
In Q1, The Body Shop posted net revenue of R$893.2 million, up by 2.6% in BRL (-10.5% at CC). The drop in constant currency was primarily due to lockdown restrictions, combined with the net closing of 21 own stores in the last twelve months (as part of the store footprint optimization plan). Retail in January reported positive like-for-like sales growth, turning negative in February when Covid-19 started to spread, first in APAC, then in European markets and in North America in March, leaving only about only 25% of stores open in all company markets by quarter-end. In this context, digital sales and direct sales stood out, attesting to their resilience amid the pandemic. Since closure of most of the stores due to lockdown restrictions, e-commerce grew 300%, recovering 40% of lost retail sales, with 61.0% growth in At-Home (direct sales) in the quarter vs. last year, largely driven by UK.
The Body Shop benefitted from having about 35% of its sales comprised of essential items. In the period, the Company donated 200,000 products to first responder services across 9 countries, including the Asylum Seeker Resource in Australia, womenshelters and senior communities in North America and hospitals across the UK.
Two new concept stores were launched in the period, in Toronto and in Hong Kong. These followed the successful launch of the iconic Bond Street store in London, in September last year, which marked
EBITDA in Q1-20 reached R$133.6 million, with EBITDA margin of 15.0% (-390 bps; adjusted: -460 bps). The margin decline was due to revenue reduction from store closures and lockdown measures and the phasing of cost measures taken in Q1 that will benefit coming quarters.
SG&A expenses increased in BRL due to FX effect. At constant currency, these expenses decreased by 2.5%.
A reconciliation between EBITDA and adjusted EBITDA is presented below:
R$ million | Q1-20 | Q1-19 | Ch. % |
EBITDA | 133.6 | 164.1 | (18.6) |
Transformation/integration costs | 0.0 | 6.8 | - |
Adjusted EBITDA | 133.6 | 170.9 | (21.9) |
Adjusted (comparable) EBITDA Margin | 15.0% | 19.6% | -460 bps |
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The quarter ended with 977 own stores and 1,728 franchise stores, with 33 net store closures (own and franchise) since Q1-19 and 32 since Q4-19. The chart below shows the store count evolution:
The Body Shop store count | |||||
Store | Q4-19 | Q1-19 | Change | Change | |
Q1-20 | vs. Q4-19 | vs. Q1-19 | |||
Own | 977 | 984 | 998 | (7) | (21) |
Franchise | 1,728 | 1,753 | 1,740 | (25) | (12) |
Total | 2,705 | 2,737 | 2,738 | (32) | (33) |
Aesop: Strong revenue and EBITDA growth despite Covid-19 impacts
Aesop posted 26.6% growth in Q1-20 in BRL and +10.5% In constant currency, despite physical store closures progressing across circa 90% of markets by the end of Q1. Retail revenue still grew in the quarter, although at a lower rate, supported by key markets in Asia, while online sales were the highlight. Since closure of most of the stores due to lockdown restrictions, e-commerce grew over 500% in recent weeks over same period last year, recovering 50% of lost retail sales. Market highlights included the Americas, Asia and Europe, which posted double-digit sales growth, offsetting sales declines in Australia and New Zealand, heavily exposed to Covid-19 lockdowns.
Q1-20 EBITDA stood at R$77.8 million, up 28.1%, with EBITDA margin of 22.8% (+30 bps), supported by sales growth and cost reduction initiatives, including discretionary spending cuts, hiring and travel freeze and furloughing of staff.
Signature stores totalled 247 in the quarter, up 17 since Q1-19 and flat vs. Q4-19. There were 91 department stores in Q1-20, stable vs Q1-19 and down 8 stores since Q4-19. A store count table is provided below:
Aesop door count | |||||
Doors | Q1-20 | Q4-19 | Q1-19 | Change | Change |
vs. Q4-19 | vs. Q1-19 | ||||
Signature stores | 247 | 247 | 230 | - | 17.0 |
Department | 91 | 99 | 91 | (8.0) | - |
Total | 338 | 346 | 321 | (8.0) | 17.0 |
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6. Social and environmental performance
Natura: After launching the Natura Innovation Challenge Zero Waste Packaging last year, to seek innovative solutions to reduce packaging waste, Natura held a Pitch Day to select projects will move on to the proof of concept stage. More than 570 solutions from 37 countries were received.
Natura was recognized by HSR Specialist Research as one of the 3 most transformational companies in Brazil during the crisis. Natura was recognized as one of the most ethical companies in the world, by Ethisphere, and also as one of the most sustainable corporations in the world by Corporate Knights.
Natura and Avon made R$31 million in donation of products (5.5+ million units) such as hand sanitizers, 70% alcohol and soaps to governments, NGOs, hospitals, our sales force, our truck drivers, employees and our communities.
Avon united with Natura &Co sister brands to support domestic violence victims during the coronavirus pandemic Our campaign, #IsolatedNotAlone, raises awareness of the issue, signposts help for those who need it, and calls on governments around the world to expand funding and resources to deal with the increased incidence of violence.
The Group also launched a campaign focusing on the increase in domestic violence associated with social distancing, and the Avon Foundation donated US$1 million in support of organizations in 50 countries caring for survivors.
Avon made significant donations to several entities across Europe, such as 1.7 tons of soap and shower gels to quarantine centers in Bucharest, 3.5 tons of hygiene products to home carers and oncology centers in the Czech Republic and Slovakia, and 7 tons of hygiene products along with 120 liters of hand creams to hospitals and public services in Poland. Other similar initiatives were carried out in Italy, the UK and the Philippines.
The Body Shop donated 200,000 products to first responder services across 9 countries, including
and hospitals across the UK.
The Body Shop was awarded the Most Sustainable Brand at Marie Claire HairAwards 2020, on January 23. The award recognized the Plastics for Change initiative, rolled out in 2019.
Aesop donated over US$2 million in products globally, to support both frontline health workers and victims of family violence. The Company also used social media and marketing platforms to drive awareness around #isolatedNotAlone.
Below are the sustainability KPIs for the Natura brand as part of its 2020 Sustainability Vision Index:
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Scope | Indicator | Unit | 2020 ambition | Results | ||
Q1-20 | Q1-19 | Highlights | ||||
% | Results lower than Q1-19 due to the effects of | |||||
Natura | (R$ Amazon Inputs | |||||
Consumption of Amazon Inputs | 30 | 13.3 | 17.7 | inflation and exchange rates on total purchases of | ||
Brazil | /R$ total inputs | |||||
raw materials sourced from the Amazon | ||||||
purchased) | ||||||
The 2020 commitment has been exceeded. Q1-20 up | ||||||
Natura | Accumulated Amazon business volume¹ | R$ billion | 1 | 1.86 | 1.60 | by 16% in volume vs. Q1-19, thanks to higher |
Brazil | consumption of Amazonian inputs and higher | |||||
allocation of resources for the communities. | ||||||
Natura: | Positive results from the increase in sales of refills in | |||||
Brazil + | kg CO2e/kg billed | |||||
Relative Carbon Emissions (Scopes 1, 2 and 3) | 2.15 | 3.31 | 3.33 | Latam (+ 24%) and the relaunch of the Tododia line in | ||
Hispanic | products | |||||
Brazil, both with eco-efficient packaging. | ||||||
Latam | ||||||
% | ||||||
Latam increased by 8% its sales of products with eco- | ||||||
Natura | (eco-efficient | |||||
Eco-Efficient Packaging ² | 40 | 20 | 22 | efficient packaging, partially offsetting a lower | ||
Brazil | packaging units | |||||
performance in Brazil from lower sales in refills. | ||||||
billed/total units | ||||||
Natura | % | 50 | 50 | 39 | |
Brazil | |||||
Packaging equivalent collected | (in ton eq. of | ||||
Natura: | |||||
(Reverse Logistics) | generated | ||||
Hispanic | - | 15 | 0 | ||
packaging) | |||||
Latam | |||||
Natura | - | 8.7 | 8.2 | ||
Brazil | |||||
Natura: Crer Para Ver revenues | R$MM | ||||
Hispanic | - | 3.8 | 4.2 | ||
Latam |
The 2020 target has already been achieved due to specific programs implemented in Brazil. The reverse logistics program has just been implemented in Hispanic Latam with encouraging results
In this quarter we raised R$12.5MM which will be invested in public education projects through the Natura Institute.
Natura: | |||||
Brazil + | Women In Leadership Positions Index (Director | % | 50 | 43 | 37 |
Hispanic | Level and Above) | ||||
Latam | |||||
Natura: | |||||
Brazil + | Sustainability Vision Index 2020 | % | 100 | 71 | 66 |
Hispanic | |||||
Latam |
Our strategy to guarantee gender equality of finalist candidates in recruiting processes has been effective, and results are fast approaching the target
The Sustainability Vision Index considers the results achieved in 30 qualitative and quantitative commitments of the 2050 Sustainability Vision. Over the past year we progressed in all these commitments, given our focus on global reverse logistics and the incorporation of recycled material in our packaging
- Accumulated Amazon business volume since 2010
- Ecoefficient packagings are those with at least 50% less weight compared to the regular / similar packaging, or comprising 50%post-consumer recycled material and/or renewable non-cellulosic source material, that do not increase mass.
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7. Stock performance (NTCO3)
On January 3, 2020, the Company issued 321,820,266 of common shares, for the consummation of the all-stock Avon acquisition.
was comprised of 1,188,271,016 common shares (March 31, 2019:
431,234,356).
NTCO3 shares traded at R$25.7 at the end of Q1-20 on the B3 stock exchange, -33.4% in the quarter. The , with average Daily Trading Volume (ADTV) in the quarter of R$398.9 million (+437.8% vs. Q1-19). NTCO traded at US$9.8 at the end of Q1-20 on NYSE, -49.4%
since January 6, 2020. Below is the performance of NTCO3 and NTCO:
Q1-20 Performance | ||||||
S&P 500 | ||||||
80.0 | ||||||
Dow Jones | ||||||
76.8 | ||||||
NTCO3 | ||||||
66.6 | ||||||
ICON | ||||||
63.9 | ||||||
552.9 | IBOV | |||||
63.3 | ||||||
366.8 | NTCO | |||||
50.6 | ||||||
276.8 | ||||||
Jan-20 | Feb-20 | Mar-20 | ||||
ADTV (R$ million) | NTCO3 | NTCO | IBOV | ICON | S&P 500 | Dow Jones |
17
8. Appendices
Consolidated Balance Sheet | Including the effects of IFRS 16 | ||||
ASSETS | March-20 | December-19 | LIABILITIES AND SHAREHOLDER'S EQUITY | March-20 | December-19 |
CURRENT ASSETS | CURRENT LIABILITIES | ||||
Cash and cash equivalents | 3,150.1 | 4,513.6 | Loans, financing and debentures | 1,942.5 | 3,354.4 |
Securities | 1,416.2 | 1,025.8 | Leasing | 956.4 | 542.1 |
Trade receivables | 2,774.6 | 1,685.8 | Trade payables and forfait operations | 5,104.8 | 1,829.8 |
Inventories | 4,040.7 | 1,430.6 | Payroll, profit sharing and social changes | 986.0 | 560.4 |
Recoverable taxes | 959.2 | 395.6 | Tax liabilities | 488.6 | 320.9 |
Income tax and social contribution | 321.5 | 113.5 | Income tax and social contribution | 245.2 | 388.2 |
Derivatives | 178.9 | - | Dividends and interest on shareholders' equity payable | 0.0 | 95.9 |
Other current assets | 897.9 | 265.2 | Derivative financial instruments | 32.2 | 11.8 |
Total current assets | 13,739.1 | 9,430.1 | Provision for tax, civil and labor risks | 47.0 | 18.7 |
Other current liabilities | 1,730.8 | 396.4 | |||
NON CURRENT ASSETS | Total current liabilities | 11,533.6 | 7,518.4 | ||
Recoverable taxes | 899.9 | 409.2 | |||
Income tax and social contribution | 334.7 | 334.7 | NON CURRENT LIABILITIES | ||
Deferred income tax and social contribution | 996.4 | 374.4 | Loans, financing and debentures | 17,390.5 | 7,432.0 |
Judicial deposits | 619.7 | 337.3 | Leasing | 2,971.6 | 1,975.5 |
Financial derivatives instruments | 1,818.0 | 737.4 | Tax liabilities | 166.4 | 122.6 |
Securities | 8.9 | 7.4 | Deferred income tax and social contribution | 1,504.9 | 450.6 |
Other non-current assets | 1,501.8 | 83.8 | Provision for tax, civil and labor risks | 1,146.9 | 201.4 |
Total long term assets | 6,179.3 | 2,284.2 | Other non-current liabilities | 1,049.3 | 121.7 |
Total non-current liabilities | 24,229.7 | 10,303.7 | |||
Property, plant and equipment | 5,246.3 | 1,773.9 | |||
Intangible assets | 27,157.5 | 5,076.5 | SHAREHOLDERS' EQUITY | 20,295.5 | 3,362.3 |
Right of Use | 3,736.5 | 2,619.9 | Capital stock | 4,905.1 | 1,485.4 |
Total non-current assets | 42,319.7 | 11,754.5 | Treasury shares | (16.0) | 0.0 |
Capital reserves | 11,112.2 | 1,303.0 | |||
Retained earnings | (146.9) | (149.0) | |||
Losses on capital transactions | (820.8) | (92.1) | |||
Equity valuation adjustment | (92.1) | 815.0 | |||
Equity attributable to owners of the Company | 5,324.6 | 3,362.3 | |||
Non-controlling interest on subsidiaries' equity | 29.4 | - | |||
TOTAL ASSETS | 56,058.7 | 21,184.5 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 56,058.7 | 21,184.5 |
18
Consolidated Income Statement- Including the effects of IFRS 16
R$ million | Q1-20 | Q1-19 | Ch. % |
GROSS SALES | |||
Internal Market | 6,096.0 | 1,694.2 | 259.8 |
External Market | 2,514.7 | 2,231.9 | 12.7 |
Other Sales | 1.7 | 1.4 | 20.0 |
GROSS REVENUE | 8,612.4 | 3,927.6 | 119.3 |
Taxes, Returns and Rebates | (1,110.1) | (1,025.4) | 8.3 |
NET REVENUE | 7,518.0 | 2,915.2 | 157.9 |
Cost of Products Sold | (2,878.7) | (809.2) | 255.8 |
GROSS PROFIT | 4,639.3 | 2,106.0 | 120.3 |
OPERATING (EXPENSES) INCOME | |||
Selling, Marketing and Logistics Expenses | (3,299.2) | (1,323.1) | 149.4 |
Administrative, R&D, IT and Project Expenses | (1,266.1) | (537.0) | 135.8 |
Impairment losses on trade receivables | (224.0) | (75.4) | 196.9 |
Other Operating Income (Expenses), Net | (352.6) | 14.2 | - |
INCOME FROM OPERATIONS BEFORE FINANCIAL RESULT | (502.5) | 184.7 | - |
Financial Income | 1,646.8 | 378.1 | 335.5 |
Financial Expenses | (1,874.4) | (543.4) | 245.0 |
INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION | (730.1) | 19.4 | - |
Income Tax and Social Contribution | (94.8) | (6.0) | 1,488.3 |
Non-controlling interest | 4.1 | 0 | |
NET INCOME FOR THE PERIOD | (820.8) | 13.5 | - |
19
Consolidated Statements of Cash Flow Including the effects of IFRS 16
R$ million | Q1-20 | Q1-19 |
CASH GENERATED BY (USED IN) OPERATING ACTIVITIES | (1,028.7) | 72.2 |
OTHER CASH FLOWS FROM OPERATING ACTIVITIES | ||
Recovery (payment) of income tax and social contribution | (269.5) | (116.5) |
Accruals (payments) of judicial deposits | 2.8 | 1.3 |
Payments related to tax, civil and labor lawsuits | (62.0) | (4.7) |
Payments due to settlement of derivative operations | 9.8 | (20.8) |
Interest paid on lease | (53.6) | (31.0) |
Payment of interest on borrowings, financing and debentures | (498.6) | (254.7) |
NET CASH GENERATED BY (USED IN) OPERATING ACTIVITIES | (1,899.8) | (354.2) |
CASH FLOW FROM INVESTING ACTIVITIES | ||
Cash from merger of subsidiary | 2,636.1 | 0.0 |
Additions of property, plant and equipment and intangible assets | (174.2) | (80.1) |
Proceeds from sale of property, plant and equipment and intangible assets | 11.8 | 3.3 |
Investment in securities | (1,766.0) | (1,629.6) |
Redemption of securities | 1,420.1 | 2,337.1 |
Redemption of interest on investments and securities | 10.5 | 28.1 |
NET CASH GENERATED BY (USED IN) BY INVESTING ACTIVITIES | 2,138.4 | 658.8 |
CASH FLOW FROM FINANCING ACTIVITIES | ||
Amortization of lease - principal | (209.7) | (143.9) |
(1,923.3) | (510.5) | |
New loans, financing and debentures | 451.1 | 90.5 |
Acquisition of treasury shares, net of option strike price received | (33.0) | (1.9) |
Payment of dividends and interest on capital for the previous year | (133.9) | (96.3) |
Receipts (payments) to settle derivative operations | 0.2 | 0.9 |
Obligation of the acquiree incurred by the acquirer | (370.8) | - |
Capital increase | 0.0 | 2.43 |
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | (2,219.4) | (658.8) |
Effect of exchange variation on cash and cash equivalents | 578.7 | 6.1 |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (1,402.1) | (348.1) |
Opening balance of cash and cash equivalents | 4,513.6 | 1,215.0 |
Closing balance of cash and cash equivalents | 3,111.5 | 866.9 |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (1,402.1) | (348.1) |
*The notes are an integral part of financial statements
- The CAPEX information contained in the cash flow table on page 8 contains additions to the property, plant and equipment / intangible assets paid within the year and payable in the following periods
20
9. Conference call and webcast
Live webcast:Q1-20earnings webcast
21
10. Glossary
Adjusted EBITDA:Excludes effects that are not considered usual, recurring or not-comparable between the periods under analysis
APAC:Asia and Pacific
ARS: Argentine Pesos
AUD:Australian Dolars
B3:Brazilian Stock Exchange
Benefit Sharing:
Associated Traditional Knowledge, benefits are shared whenever we perceive various forms of value in the access gained. Therefore, one of the practices that defines the way in which these resources are divided is to associate payments with the number of raw materials produced from each plant as well as the commercial success of the products in which these raw materials are used BPS:Basis Points one percentage point * 100
BRL:Brazilian Reais
CDI:The overnight rate for interbank deposits
CFT:Cosmetics, Fragrances and Toiletries Market (CFT = Fragrances, Body Care and Oil Moisture, Make- Grooming (without Razors) and Sun Protection
COGS: Costs of Goods Sold
Constant currency or constant exchange rates:when exchange rates used to convert financial figures into a reporting currency are the same for the years under comparison, excluding fluctuation effects
EBITDA:Earnings Before Interests, Tax, Depreciation and Amortization
EMEA:Europe, Middle East and Africa
EP&L
Foreign currency translation: conversion of figures from a foreign currency into the currency of the reporting entity
GBP:Sterling Pounds
G&A: general and administrative expenses
GHG: Greenhouse gases
Hyperinflation:indications of when hyperinflation exists include a cumulative inflation rate over three years of approaching or exceeding 100%; when interest rates, prices and wages are linked to an index, among others
ICON:Consumer Stock Index of the B3 stock exchange, designed to track changes in the prices of the more actively traded and better Representative cyclical and non-cyclical consumer stocks Innovation Index:Share in the last 12 months of the sale of products launched in the last 24 months IBOV:Ibovespa Index is the main performance indicator of the stocks traded in B3 and lists major companies in the Brazilian capital market
IFRSInternational Financial Reporting Standards
Latam:often used to refer to the countries where Natura has operations: Argentina, Chile, Colômbia, México and Peru
LFL:Like-for-Like, applicable to measure comparable growth
Natura Consultant: Self-employed resellers who do not have a formal labor relationship with Natura.
Natura Crer Para Ver Program (CPV): Special line of non-cosmetic products whose profits are transferred to the Natura Institute, in Brazil, and invested by Natura in social initiatives in the other countries where we operate. Our Consultants promote these sales to benefit society and do not obtain any gains.
22
Natura Institute: Is a nonprofit organization created in 2010 to strengthen and expand our Private Social Investment initiatives. The institute has enabled us to leverage our efforts and investments in actions that contribute to the quality of public education
NYSE: New York Stock Exchange
PCRC:Post-Consumer Recycled Content
P&L:Profit and loss
PPA:Purchase Price Allocation - effects of the fair market value assessment as a result of a business combination.
Profit Sharing: The share of profit allocated to employees under the profit-sharing program.
SG&A:Selling, general and administrative expenses
SM&L:Selling, marketing and logistics expenses
- Same-Store-Sales
Supplier Communities: The communities of people involved in small scale farming and extraction activities in a variety of locations in Brazil, especially in the Amazon Region, who extract the inputs used in our products from the social and biodiversity. We form production chains with these communities that are based on fair prices, the sharing of benefits gained from access to the genetic heritage and associated traditional knowledge and support for local sustainable development projects. This business model has proven effective in generating social, economic and environmental value for Natura and for the communities.
Sustainable Relations Network: Sales model adopted in Mexico that features eight stages in a
Developer 1 and 2, Natura Transformer 1 and 2, Natura Inspirer and Natura Associate. To rise up through the various stages, consultants must fulfill certain based on sales volume, attracting new Consultants and (unlike the models adopted in other countries) personal development and social and environmental relationships in the community.
Target Market:Refers to the market share data published by SIPATESP/ABIHPEC. Considers only the segments in which Natura operates. Excludes diapers, oral hygiene products, hair dyes, nail polish, feminine hygiene products as well as other products.
TBS: The Body Shop.
UOI:Underlying Operating Income.
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9. Disclaimer
EBITDA is not a measure under BR GAAP and does not represent cash flow for the periods presented. EBITDA should not be considered an alternative to net income as an indicator of operating performance or an alternative to cash flow as an indicator of liquidity. EBITDA does not have a standardized meaning and the definition of EBITDA used by Natura may not be comparable with that used by other companies. Although EBITDA does not provide under BR GAAP a measure of cash flow, Management has adopted its use to Natura also believes that certain investors and financial analysts use EBITDA as an indicator of performance of its operations and/or its cash flow.
This report contains forward-looking statements. These forward-looking statements are not
as "anticipate," "wish," "expect," "foresee," "intend," "plan," "predict," "project," "desire" and similar terms identify statements that necessarily involve known and unknown risks. Known risks include uncertainties that are not limited to the impact of price and product competitiveness, the f its competitors, regulatory approval, currency fluctuations, supply and production difficulties and
changes in product sales, among other risks. This report also contains certain pro forma data, which are prepared by the Company exclusively for informational and reference purposes and as such are unaudited. This report is updated up to the present date and Natura does not undertake to update it in the event of new information and/or future events.
Investor Relations Team
Tel.: +55 (11) 4389-7881
ri@natura.net
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Natura & Co Holding SA published this content on 08 May 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 08 May 2020 08:13:05 UTC