Report of Foreign Issuer (6-k)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of September 2020

Commission File Number: 001-39169

Natura &Co Holding S.A.

(Exact name of registrant as specified in its charter)

Avenida Alexandre Colares, No. 1188, Sala A17-Bloco A

Parque Anhanguera

São Paulo, São Paulo 05106-000, Brazil

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes ☐ No ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes ☐ No ☒

Explanatory Note

The Company is furnishing this Form 6-K to give retrospective effect to certain changes in our operating segments that became effective in January, 2020 and present the resulting recast of financial information included in its Annual Report on Form 20-F for the year ended December 31, 2019 (the “2019 Form 20-F”), which was originally filed with the U.S. Securities and Exchange Commission (the “SEC”) on May 6, 2020. The information in this Form 6-K is not an amendment to or restatement of the 2019 Form 20-F.

NATURA &CO HOLDING S.A.

TABLE OF CONTENTS

ITEM

Audited consolidated financial statements as of December 31, 2019 and 2018 and for each of the three years in the period ended December 31, 2019 and the related notes thereto of Natura &Co Holding S.A.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


NATURA &CO HOLDING S.A.

By:		/s/ José Antonio de Almeida Filippo
		Name: José Antonio de Almeida Filippo
		Title: Principal Financial Officer

By:		/s/ Itamar Gaino Filho
		Name: Itamar Gaino Filho
		Title: Chief Legal and Compliance Officer

Date: September 30, 2020

Item 1

NATURA &CO HOLDING S.A.

Consolidated Financial Statements

As of December 31, 2019 and 2018 and for the three years in the period ended December 31, 2019 and

Independent Registered Public Accounting Firm Report

F-1

LOGO

KPMG Auditores Independentes

Rua Arquiteto Olavo Redig de Campos, 105, 6º andar - Torre A

04711-904 - São Paulo/SP - Brasil

Caixa Postal 79518 - CEP 04707-970 - São Paulo/SP - Brasil

Telefone +55 (11) 3940-1500

kpmg.com.br

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Natura &Co Holding S.A.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Natura &Co Holding S.A. and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of income, other comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Change in Accounting Principle

As discussed in Note 3.28 to the consolidated financial statements, the Company has changed its method of accounting for lease arrangements as of January 1, 2019 due to the adoption of IFRS 16 “Leases”.

Restatement of the consolidated financial statements – reportable segments

As discussed in Note 2, these consolidated financial statements are being restated to reflect the changes to the Company’s reportable segments.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

F-2

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2017.

/s/ KPMG Auditores Independentes

São Paulo, SP

May 6, 2020, except as to Note 2 which is as of September 30, 2020.

F-3

NATURA & CO HOLDING S.A.

CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2019 AND DECEMBER 31, 2018

(All amounts expressed in thousands of Brazilian reais - R$)


	Notes		2019		2018
ASSETS
CURRENT ASSETS
Cash and cash equivalents		6		4,513,582		1,215,048
Short-term investments		7		1,025,845		1,215,377
Trade receivables		8		1,685,764		1,691,581
Inventories		9		1,430,550		1,364,672
Recoverable taxes		10		395,640		379,253
Income tax and social contribution				113,478		326,803
Other current assets		13		265,198		263,025

				9,430,057		6,455,759

NON-CURRENT ASSETS
Recoverable taxes		10		409,214		368,640
Income tax and social contribution				334,671		—
Deferred income tax and social contribution		11.a)		374,448		398,400
Judicial deposits		12		337,255		333,577
Derivative financial instruments		4.2		737,378		584,308
Short-term investments		7		7,402		—
Other non-current assets		13		83,836		51,606
Property, plant and equipment		14		1,773,889		2,236,714
Intangible assets		15		5,076,501		4,950,545
Right of use		16		2,619,861		—

				11,754,455		8,923,790

TOTAL ASSETS				21,184,512		15,379,549


	Notes		2019			2018
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Borrowings, financing and debentures		17		3,354,355			1,113,095
Lease		16		542,088			68,764
Trade payables and reverse factoring		18		1,829,756			1,736,791
Trade payables - related parties		30.1		—			—
Payroll, profit sharing and social security charges				560,376			574,381
Tax liabilities		19		320,890			310,093
Income tax and social contribution				388,238			183,030
Dividends and interest on equity payable		22.b)		95,873			152,979
Derivative financial instruments		4.2		11,806			69,189
Provision for tax, civil and labor risks		20		18,650			20,389
Other current liabilities		21		396,391			338,170

				7,518,423			4,566,881

NON-CURRENT LIABILITIES
Borrowings, financing and debentures		17		7,432,019			6,881,050
Lease		16		1,975,477			377,471
Tax liabilities		19		122,569			165,326
Deferred income tax and social security contribution		11.a)		450,561			431,534
Provision for tax, civil and labor risks		20		201,416			241,418
Other non-current liabilities		21		121,702			141,767

				10,303,744			8,238,566

Total liabilities				17,822,167			12,805,447

SHAREHOLDERS’ EQUITY
Capital stock				1,485,436			427,073
Treasury shares		22.c)		—			(19,408	)
Capital reserves				999,931			329,330
Retained earnings		22.e)		154,039			1,437,015
Proposed additional dividend				—			—
Losses on capital transaction				(92,066	)		(92,066	)
Other comprehensive income				815,005			492,158

Total shareholders’ equity				3,362,345			2,574,102

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY				21,184,512			15,379,549

*	The notes are an integral part of the consolidated financial statements

F-4

NATURA & CO HOLDING S.A.

CONSOLIDATED STATEMENT OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017

(All amounts expressed in thousands of Brazilian reais - R$, except for earnings per share in the period)


	Notes	2019			2018			2017
Net revenue	25		14,444,690			13,397,419			9,852,708
Cost of sales	26		(4,033,454	)		(3,782,843	)		(2,911,077	)

GROSS PROFIT			10,411,236			9,614,576			6,941,631
OPERATING (EXPENSES) INCOME
Selling, Marketing and Logistics expenses	26		(6,395,586	)		(5,828,713	)		(3,965,019	)
Administrative, research and development, technology and other project expenses	26		(2,405,576	)		(2,251,341	)		(1,535,945	)
Impairment losses on trade receivables			(209,515	)		(237,884	)		(233,714	)
Other operating income (expenses), net	29		(49,311	)		(39,945	)		151,688

OPERATING INCOME BEFORE FINANCIAL RESULT			1,351,248			1,256,693			1,358,641

Financial income	28		1,955,784			2,056,421			604,392
Financial expenses	28		(2,795,874	)		(2,639,709	)		(991,841	)
Taxes on Company formation			(206,592	)		—			—

NET INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION			304,566			673,405			971,192
Income tax and social contribution	11.b)		(149,099	)		(125,026	)		(300,941	)

NET INCOME FOR THE YEAR			155,467			548,379			670,251

EARNINGS PER SHARE -R$
Basic	29.1		0.1796			0.6335			0.7743

Diluted	29.2		0.1779			0.6324			0.7731

*	The notes are an integral part of the consolidated financial statements

F-5

NATURA & CO HOLDING S.A.

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017

(All amounts expressed in thousands of Brazilian reais - R$)


	Note		2019			2018			2017
NET INCOME FOR THE YEAR				155,467			548,379			670,251
Other comprehensive income:
Itens that may be reclassified subsequently to the statement of income
Currency translation differences		14		244,100			483,212			221,287
Effect of translation of subsidiary in hyperinflationary economy		14		17,666			(19,074	)		—
Gain (loss) from cash flow hedge operations		4.2		107,337			(45,202	)		13,450
Tax effects on gain (loss) from cash flow hedge operations				(36,768	)		15,384			(4,278	)

Net other comprehensive income (loss) that may be reclassified subsequently to the statement of income				332,335			434,320			230,459

Itens that will not be reclassified to the statement of income
Remeasurement loss on defined benefit plans		22		(14,374	)		(7,030	)		(36,379	)
Tax effects on actuarial gain (loss)		22		4,887			11,532			—

Net other comprehensive income (loss) that will not be reclassified to the statement of income				(9,487	)		4,502			(36,379	)

Total other comprehensive income for the year				478,315			987,201			864,331

*	The notes are an integral part of the consolidated financial statements

F-6

NATURA & CO HOLDING S.A.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017

(All amounts expressed in thousands of Brazilian reais - R$)

Capital reserves

Other reserves

Other Comprehensive Income

Note

Capital
stock

Treasury
shares

Surplus
on
issue/
sale of
shares

Special
reserve

Tax
incentive
reserve

Additional
paid-in
capital

Legal

Tax
incentives

Retained
earnings

Appropria-
tion of
earnings

Currency
translation
differences

Effect of
translation
of
subsidiary
in hyper-
inflationary
economy

Cash
flow
hedge
operation

Remeasurement
gain (loss) on
defined benefit
plans

Dividends

Reserve for the
acquisition of
non-controlling
interests

Transaction
with
shareholders

Total
shareholders’
equity

BALANCE AS OF DECEMBER 31, 2016

427,073

(37,149

)

77,923

—

17,378

47,485

18,650

20,957

627,208

—

(123,908

)

—

(1,548

)

(15,288

)

29,670

—

(92,066

)

996,385

Profit the year

670,251

Other compreensive income

—

221,287

—

9,172

(36,379

)

—

194,080

Changes in stock option plans and restricted shares:

—

Provision for stock option plans and restricted shares

19,136

Exercise of stock option plans and restricted shares

4,605

(2,335

)

(3,866

)

(1,596

)

2016 Dividends subsequently approved at the annual shareholders meeting

(29,670

)

(29,670

)

Mandatory minimum dividends

(128,741

)

(128,741

)

Mandatory minimum interest on capital stock

(85,099

)

(85,099

)

Retained earnings reserve

—

456,411

(456,411

)

—

BALANCE AS OF DECEMBER 31, 2017

427,073

(32,544

)

75,588

—

17,378

62,755

18,650

20,957

1,083,619

—

97,379

—

7,624

(51,667

)

—

(92,066

)

1,634,746

Net income for the year

—

548,379

—

548,379

Other comprehensive income

—

483,212

(19,074

)

(29,818

)

4,502

—

438,822

Changes in stock option plans and restricted shares:

—

Provision for stock option plans and restricted shares

27.1

—

52,543

—

52,543

Exercise of stock option plans and restricted shares

—

13,136

(3,372

)

—

(8,697

)

—

1,067

Changes in tax incentive reserves

—

(17,378

)

—

17,378

—

Mandatory minimum dividends

23.b)

—

(56,661

)

—

(56,661

)

Mandatory minimum interest on capital stock

23.b)

—

(111,449

)

—

(111,449

)

Retained earnings reserve

23.b)

—

336,532

(336,532

)

—

Tax incentive reserve

23.b)

—

43,737

—

(43,737

)

—

Adjustment effect of hyperinflationary economy

—

150,513

—

(83,858

)

—

66,655

BALANCE AS OF DECEMBER 31, 2018

427,073

(19,408

)

72,216

—

257,114

18,650

82,072

1,336,293

—

580,591

(19,074

)

(22,194

)

(47,165

)

—

(92,066

)

2,574,102

Net income for the year

—

392,391

—

392,391

Other comprehensive income

—

244,100

17,666

70,569

(9,487

)

—

322,848

Capital increase

23.a)

52,673

—

52,673

Changes in stock option plans and restricted shares:

Provision for stock option plans and restricted shares

27.1

—

104,078

—

104,078

Exercise of stock option plans and restricted shares

—

15,615

16,156

—

(34,333

)

—

(2,562

)

Cancellation of shares - RCA 16.12.19 - Protocol and convention of incorporation

—

3,793

(3,793

)

—

Mandatory minimum interest on capital stock

23.b)

—

(110,671

)

—

(110,671

)

Retained earnings reserve

23.b)

—

206,268

(206,268

)

—

Tax incentive reserve

23.b)

—

75,452

—

(75,452

)

—

Adjustment effect of hyperinflationary economy

—

61,870

—

(2,052

)

—

59,818

AGE 17.09.2019 - Capitalization of part of the balance of the Profit Reserve account

1,242,165

—

(1,242,165

)

—

BALANCES AT DECEMBER 31, 2019 NATURA COSMÉTICOS S.A.

1,721,911

—

84,579

—

388,729

18,650

157,524

298,344

—

824,691

(1,408

)

48,375

(56,652

)

—

(92,066

)

3,392,677

Predecessor adjustments (Note 1)

(236,475

)

—

708,760

206,592

—

(388,729

)

(18,650

)

(157,524

)

(299,772

)

155,467

—

(30,331

)

BALANCES AT DECEMBER 31, 2019 NATURA HOLDING S.A.

1,485,436

—

793,339

206,592

—

(1,428

)

155,467

824,691

(1,408

)

48,375

(56,652

)

—

(92,066

)

3,362,345

*	The notes are an integral part of the consolidated financial statements

F-7

NATURA & CO HOLDING S.A.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017

(All amounts expressed in thousands of Brazilian reais - R$)


	Notes	2019			2018 F4			2017 F4
CASH FLOW FROM OPERATING ACTIVITIES
Net income for the year			155,467			548,379			670,251
Adjustments to reconcile net income to net cash flow:
Depreciation and amortization	16 e 17		1,117,416			589,911			383,352
Interest on investments and securities	26		(78,414	)		(129,296	)		(164,442	)
Provision (reversal of provision) arising from swap and forward derivative contracts			(38,703	)		(543,398	)		156,130
Provision (reversal of provision) for tax, civil and labor risks	21		(24,509	)		40,193			124,790
Inflation adjustment on escrow deposits			(13,352	)		(13,780	)		(19,307	)
Inflation adjustment of contingencies			9,758			4,346			12,655
Income tax and social contribution	11.b)		149,099			125,026			300,941
Taxes on Company formation			206,592			—			—
Result from sale and write-off of property, plan and equipment and intangible assets	15		34,518			24,573			40,624
Interest and exchange variation on finance leases	16		127,398			52,011			47,080
Interest and exchange rate variation on borrowings and financing	17		582,519			1,187,869			333,058
Restatement and exchange rate variation on other assets and liabilities			5,764			(3,535	)		20,881
Provision (reversal of provision) for losses from property, plant and equipment and intangible assets	15		3,541			—			19,136
Provision (reversal of provision) for stock option plans and restricted shares			59,232			40,505
Effective losses and provision for losses with trade receivables, net of reversals	8		209,505			237,884			233,714
Provision (reversal of provision) for inventory losses, net	9		147,140			22,743			30,558
Provision (reversal of provision) for post-employment health care plan and carbon credit	22 e 22.a)		19,969			(34,914	)		16,606
Effect from hyperinflationary economy			51,659			45,198			—
Other provisions (reversals)			(134,212	)		(26,145	)		(320,067	)

			2,590,386			2,167,570			1,885,960

DECREASE (INCREASE) IN ASSETS
Trade receivables			(212,812	)		(415,459	)		(496,942	)
Inventories			(194,698	)		(112,331	)		47,962
Recoverable taxes			(6,369	)		84,982			(172,136	)
Other assets			(56,440	)		(67,864	)		11,140
INCREASE (DECREASE) IN LIABILITIES
Domestic and foreign trade payables			117,080			158,978			436,996
Payroll, profit sharing and social charges, net			(15,855	)		215,412			73,247
Tax liabilities			91,520			(170,098	)		(425,292	)
Other liabilities			21,204			(52,247	)		112,600
Income tax and social contribution paid			(321,262	)		(269,966	)		(88,209	)
Accruals (payments) of judicial deposits			9,674			(364	)		2,948
Tax, civil and labor lawsuits paid	21		(27,179	)		(36,464	)		(17,553	)
Settlement of derivative financial instruments			(66,420	)		(30,967	)		(127,509	)
Payment of interest on leases	16		(134,579	)		(22,691	)		(20,952	)
Payment of interest on borrowings, financing and debentures	17		(493,895	)		(604,224	)		(231,522	)

NET CASH PROVIDED BY OPERATING ACTIVITIES			1,300,356			844,267			990,738

CASH FLOW FROM INVESTING ACTIVITIES
Acquisition The Body Shop PLC, net cash obtained			—			—			(3,880,858	)
Acquisition of property, plant and equipment and intangible assets	15		(586,395	)		(485,016	)		(364,372	)
Proceeds from sale of property, plant and equipment and intangible assets			22,682			6,641			8,244
Investment in securities			(7,161,530	)		(8,483,684	)		(7,411,261	)
Redemption of securities			7,345,389			9,187,748			6,350,630
Redemption of interest on investments and securities			65,504			163,407			455,226

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES			(314,350	)		389,096			(4,842,391	)

CASH FLOW FROM FINANCING ACTIVITIES
Payments of lease - principal	16		(497,905	)		(46,241	)		(45,914	)
Payments of loans, financing and debentures – principal	17		(2,643,575	)		(6,552,249	)		(1,679,371	)
New loans, financing and debentures	17		5,346,145			5,015,278			6,391,049
Use of treasury shares to setle exercised stock option			(2,562	)		1,067			4,605
Payment of dividends and interest on capital for the previous year	23.b)		(152,938	)		(201,652	)		(109,409	)
Receipts (payments) to settle derivative operations			3,992			32,401			(107,536	)
Receipt by exercised stock options	27.1		52,673			—			—
Capital increase	27.1		206,592			—			—

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES			2,312,422			(1,751,396	)		4,453,423

Effect of exchange variation on cash and cash equivalents			106			39,950			(110	)
Net (decrease) increase in cash and cash equivalents			3,298,534			(478,083	)		601,660
Cash and cash equivalents at the beginning of the year			1,215,048			1,693,131			1,091,470

Cash and cash equivalents at the end of the year			4,513,688			1,215,048			1,693,131

*	The notes are an integral part of the consolidated financial statements

F-8

LOGO

CONTENTS


1.		GENERAL INFORMATION
2.		MANAGEMENT STATEMENT AND BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS
3.		SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
4.		CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
5.		FINANCIAL RISK MANAGEMENT
6.		CASH AND CASH EQUIVALENT
7.		SHORT-TERM INVESTMENTS
8.		TRADE RECEIVABLES
9.		INVENTORIES
10.		RECOVERABLE TAXES
11.		INCOME TAX AND SOCIAL CONTRIBUTION
12.		JUDICIAL DEPOSITS
13.		OTHER CURRENT AND NON-CURRENT ASSETS
14.		PROPERTY, PLANT AND EQUIPMENT
15.		INTANGIBLES
16.		RIGHT OF USE AND LEASE
17.		BORROWINGS, FINANCING AND DEBENTURES
18.		TRADE PAYABLES AND REVERSE FACTORING OPERATIONS
19.		TAX LIABILITIES
20.		PROVISION FOR TAX, CIVIL AND LABOR RISKS
21.		OTHER LIABILITIES
22.		SHAREHOLDER’S EQUITY
23.		SEGMENT INFORMATION
24.		NET REVENUE
25.		OPERATING EXPENSES AND COST OF SALES
26.		EMPLOYEE BENEFITS
27.		FINANCIAL INCOME (EXPENSES)
28.		OTHER OPERATING INCOME (EXPENSES), NET
29.		EARNINGS PER SHARE
30.		RELATED-PARTY TRANSACTIONS
31.		COMMITMENTS
32.		INSURANCE
33.		ADDITIONAL STATEMENTS OF CASH FLOWS
34.		SUBSEQUENT EVENTS
35.		APPROVAL OF FINANCIAL STATEMENTS

F-9

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NATURA &CO HOLDING S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2019

(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)

1.	GENERAL INFORMATION

Natura &CO Holding S.A. (“Natura &Co”), previously Natura Holding S.A., was incorporated on January 21, 2019 under the laws of Brazil. The Company is engaged in holding investments in other entities, as partner or shareholder, in Brazil or abroad, engaged in the cosmetics, fragrances and personal hygiene business, through the development of manufacturing, distribution and sales related products. Natura &Co and its subsidiaries is referred to as the “Company”.

The Company’s main brand is “Natura”, followed by the English brand “The Body Shop”, the Australian brand “Aesop”, and starting January 2020 the “Avon” brand (see Note 34). In addition to using the retail market, e-commerce, B2B and franchises as product sales channels, its subsidiaries are engaged in the direct sales channel, through consultants that act as sales representatives of the Natura, The Body Shop and Avon brands.

Natura &Co 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 the ticker “NTCO3.”

In order to effect the acquisition Avon Products, Inc. (“Avon”), which was completed in January 2020 (see Note 34), the Natura &Co became the controlling shareholder of Natura Cosméticos S.A. (“Natura”) in December 2019, as a result of a corporate restructuring process that started in May 2019. On January 6, 2020, the Natura &Co started to trade its shares on the New York Stock Exchange (“NYSE”), under the ticker “NTCO”.

As further describe in Note 34, in January 2020, the merger transaction with Avon was completed and Avon became a wholly owned subsidiary of Natura &Co. The Company’s current organizational structure is as follows:

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a) Corporate restructuring to acquire control of Avon

On May 22, 2019, the Company announced its intention to merge with Avon, a public company in the United States of America, and signed a share swap agreement (the “Transaction”), with the purpose of creating the world’s fourth largest exclusive beauty group by uniting companies strongly committed to have a positive social impact.

Prior to the completion of the Transaction a corporate restructuring that involved a series of statutory steps (the “Corporate Restructuring”) took place which are escribed below:

Step 1 – Contribution from Founders

On November 13, 2019, the controlling shareholders and founders of Natura (the “Founders”), contributed to the Company the shares of Natura they owned corresponding to approximately 57.3% of Natura’s share capital at an amount of R$1,145,994, of which R$495,393 was recorded as share capital and R$650,601 as paid in capital.

In addition, the Founders made a cash contribution of R$206,592 for the purpose of paying corporate income taxes which payment was trigged by the contribution described above.

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Step 2 – Natura’s shares exchange its minority shareholders

On November 13, 2019, an extraordinary shareholders meeting of Natura approved the exchange of all Natura’s remaining shares not held by the Founders to be exchanged for Company’s shares. As a result, Natura became a wholly owned subsidiary of Natura &Co. The exchange was completed on December 17, 2019, for an amount of R$1,101,013, of which R$370,266 was recorded as share capital and R$730,747 as paid in capital. In addition, Natura’s shares ceased to be traded in the Brazilian stock exchange.

2.	MANAGEMENT STATEMENT AND BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS

The consolidated financial statements were prepared in accordance with the International Financial Reporting Standards (“IFRS”), issued by the International Accounting Standards Board” (“IASB”), and interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”).These financial statements have been revised in order to give retroactive effect to the presentation of segment information (note 23) for all prior periods reported, as required by the Securities and Exchange Commission (SEC). The presentation of segment information is the only change to the consolidated financial statements.

The Company’s consolidated financial statements are expressed in thousands of Brazilian reais (“R$”), and the amounts expressed in other currencies, whenever necessary, are also disclosed in thousands. The items disclosed in other currencies are duly identified, whenever applicable.

Management confirms that all relevant information in the financial statements, and only them, are being disclosed, and they correspond to those used in the development of its business management activities.

a) Basis of presentation of Company’s consolidated financial statements – Predecessor basis

The Company became Natura’s holding company through the Corporate Restructuring described above. The transaction was recorded at book value since it was a transaction under common control.

Under IFRS there is no specific guidance applicable to business combinations of entities under common control, as IFRS 3, Business Combinations, excludes from its scope business combinations between such entities.

Due to the lack of specific guidance the Company has stablished an accounting policy as required by IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors. In doing so, the Company considered guidance of other standards-setting bodies that use a similar conceptual framework to develop accounting standards as well as the accounting practices of entities subject to those standards such as the United States of America and the United Kingdom.

As a result, the Company accounted for the Corporate Restructuring using the predecessor method of accounting, and the consolidated financial statements are presented “as if” Natura is the predecessor of the Company. Under the predecessor method, the historical operations of Natura are deemed to be those of the Company. Thus, these consolidated financial statements reflect:

(i)

the historical operating results and financial position of Natura prior to the Corporate Restructuring;

(ii)

the consolidated results of the Natura &Co and Natura following the Corporate Restructuring;

(iii)

the assets and liabilities of Natura at their historical cost; and

(iv)

Natura &Co’s earnings per share for all periods presented. The number of ordinary shares issued by Natura &Co, as a result of the Corporate Structuring is reflected retroactively to January 1, 2017, for purposes of calculating earnings per share in all prior periods presented;

b) Reconciliation of the Company and Natura’s shareholders’ equity as of December 31, 2019


	Company			Natura		Predecessor adjustments
Capital stock (a)		1,485,435			1,721,911		(236,476	)
Surplus on issue/sale of shares (b)		793,339			84,579		708,760
Special reserve (a)		206,592			—		206,592
Additional paid-in capital (b)		—			388,729		(388,729	)
Profit reserves - Legal (b)		—			18,650		(18,650	)
Profit reserves – Tax incentives (b)		—			157,524		(157,524	)
Profit reserve - retention (c)		(1,428	)		298,344		(299,772	)
Accumulated losses (c)		155,467			—		155,467

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(a)

The acts for the Company formation acts resulted in a Share Capital of R$ 1,485,435 and a statutory reserve, called special reserve, of R$ 206,592. Considering that capital contributed by the controlling shareholders was measured based on the Natura’s equity on November 13, 2019, and later, by the other shareholders, on December 17, 2019, the mathematical calculation showed a difference of R$ 236,476 to adjust the Capital in December 31, 2019, reflected in the corresponding large social groups on December 31, 2019.

(b)

The balance of other comprehensive income reflects Natura figures, since there are recyclable items for the statement of income in the future, when applicable. The remaining Additional Paid-in Capital reserve, Legal Profit reserve and Tax Incentives are not applicable in the Company, so they were adjusted and added to the initial capital contribution balance. The adjustment of R$ 708,760 recorded in the “Surplus on issue/sale of shares” corresponds to the mathematical calculation to reflect this movement.

(c)	Accumulated losses – represents the Company results of operations during the year ended December 31, 2019.

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICES

3.1

Basis of preparation

The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

The consolidated financial statements have been prepared under the historical cost convention, except when otherwise indicated. The summary of significant accounting policies used in the preparation of these consolidated financial statements is set out in this note. The preparation of the financial statements requires the use of estimates and assumptions which may affect the application of accounting policies and reported amounts of assets, liabilities, revenues and expenses. Although management periodically reviews these assumptions and judgments, the actual results could differ from these estimates. For further information on accounting estimates see Note 3.

The significant accounting polices applied in the preparation of the consolidated financial statements are described below. These policies have been consistently applied in the previous years, except for the items mentioned in Note 3.28 related to the application of IFRS 16 – Lease Operations and IFRIC 23 – Uncertainty over Income Tax Treatments.

3.2 Consolidation

a) Basis of consolidation

The consolidated financial statements include the financial information of the Company and the entities it controls (subsidiaries). Control is achieved when the Company: i) has power over the investee; ii) is exposed, or has rights, to variable returns from involvement with the investee; and iii) has the ability to use its power to affect its returns. Subsidiaries are consolidated from the date on which control is obtained until the date that such control no longer exists, by using accounting policies consistent with those adopted by Natura &Co. The Company holds interests only in subsidiaries.

The consolidation procedures involve combining assets, liabilities, income and expenses, according to their function and eliminating all intracompany balances and transactions, including unrealized profits arising from intracompany transactions.

Under the equity method of accounting, the share attributable to the Company of the profit or loss for the period of such investments is accounted for in the statement of income, in line item “Equity in subsidiaries”. All intragroup balances, revenues, expenses and unrealized gains and losses arising from intragroup transactions are completely eliminated. The other comprehensive income of subsidiaries is recorded directly in the Company’s shareholders’ equity, in line item “Other comprehensive income”.

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Below is the list of Company’s subsidiaries on December 31, 2019,2018 and 2017:


	Interest in capital - %
	2019		2018		2017
Direct Interest:
Natura Cosméticos S.A.		100.00		—		—
Nectarine Merger Sub I, Inc. – United States		100.00		—		—
Via Nectarine Merger Sub I, Inc.
Nectarine Merger Sub II, Inc. – United States		100.00		—		—
Indirect Interest:
Indústria e Comércio de Cosméticos Natura Ltda. – Brazil		99.99		99.99		99.99
Natura Comercial Ltda. – Brazil		99.99		99.99		99.99
Natura Biosphera Franqueadora Ltda. – Brazil		99.99		99.99		99.99
Natura Cosméticos S.A. – Chile		99.99		99.99		99.99
Natura Cosméticos C.A. – Venezuela		99.99		99.99		99.99
Natura Cosméticos S.A. – Peru		99.99		99.99		99.99
Natura Cosméticos S.A. – Argentina		99.99		99.99		99.99
Natura Inovação e Tecnologia de Produtos Ltda - Brazil		—		—		99.99
Natura Cosméticos y Servicios de México, S.A. de C.V.		99.99		99.99		99.99
Natura Cosméticos de México, S.A. de C.V.		99.99		99.99		99.99
Natura Distribuidora de México, S.A. de C.V.		99.99		99.99		99.99
Natura Cosméticos Ltda. – Colombia		99.99		99.99		99.99
Natura Cosméticos España S.L. – Spain		100.00		100.00		100.00
Natura (Brasil) International B.V. – Netherlands		100.00		100.00		100.00
Natura Brazil Pty Ltd. – Australia		100.00		100.00		100.00
Natura Cosmetics Asia Pacific Pte. Ltd. - Singapore		100.00		—		—
Fundo de Investimento Essencial - Brazil		100.00		100.00		100.00
Via Indústria e Comércio de Cosméticos Natura Ltda.:
Natura Logística e Serviços Ltda. - Brazil		99.99		99.99		99.99
Via Natura (Brazil) International B.V. - Netherlands:
Natura Europa SAS – France		100.00		100.00		100.00
Natura Brasil Inc. - USA - Delaware		100.00		100.00		100.00
The Body Shop International Limited – United Kingdom		100.00		100.00		100.00
Via Brasil Inc. - USA - Delaware
Natura International Inc. - USA – New York		100.00		100.00		100.00
Via The Body Shop International Limited
G A Holdings (Guernsey) Limited - United Kingdom		100.00		100.00		100.00
G A Holdings (1979) Limited - United Kingdom		100.00		100.00		100.00
The Body Shop Worldwide Limited - United Kingdom		100.00		100.00		100.00
The Body Shop Global Travel Retail Limited - United Kingdom		100.00		100.00		100.00
The Millennium Luxembourg Sarl Administration Company Limited- United Kingdom		—		100.00		100.00
The Body Shop Queensile Limited - United Kingdom		—		—		100.00
The Body Shop Beteiligungs-Gmbh – Germany		100.00		100.00		100.00
The Body Shop Gmbh - Austria		100.00		100.00		100.00
The Body Shop Benelux B.V. – Netherlands		100.00		100.00		100.00
The Body Shop Service B.V. – Netherlands		100.00		100.00		100.00
The Body Shop Svenska Ab – Sweden		100.00		100.00		100.00
The Body Shop Luxembourg Sarl – Luxemburg		100.00		100.00		100.00
The Body Shop Monaco Sarl		100.00		100.00		100.00
The Body Shop Cosmetics Ireland Limited		100.00		—		—
The Body Shop S.A.U – Spain		100.00		100.00		100.00
The Body Shop Portugal, S.A.		100.00		100.00		100.00
The Body Shop (Singapore) Pte Limited - Singapore		100.00		100.00		100.00
The Body Shop International (Asia Pacific) Pte Limited		100.00		100.00		100.00
The Body Shop (Malaysia) Sdn.Bhd – Malaysia		100.00		100.00		100.00
The Body Shop Hong Kong Limited - Hong Kong		100.00		100.00		100.00
The Body Shop Australia Limited - Australia		100.00		100.00		100.00
Skin & Hair Care Preparations Inc		—		—		100.00
Buth-Na-Bodhaige Inc.		100.00		100.00		100.00
Bsi Usa Inc - USA		—		—		100.00
The Body Shop Canada Limited - Canada		100.00		100.00		99.99
The Body Shop Brasil Indústria E Comércio De Cosméticos Ltda.		99.99		99.99		99.99
The Body Shop Brasil Franquias Ltda. - Brazil		99.99		99.99		99.99
The Body Shop Chile – Chile		99.99		99.99		99.99
Via The Body Shop Worldwide Limited

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The Body Shop (France) Sarl	100.00	100.00	100.00
B.S. Danmark A/S – Denmark	100.00	100.00	100.00
Via The Body Shop Beteiligungs GmbH - Germany
The Body Shop Germany GmbH	100.00	100.00	100.00
Via The Body Shop Benelux B.V. - Netherlands
The Body Shop Belgium B.V (Netherlands Return) – Netherlands	100.00	99.99	99.99
The Body Shop Belgium B.V (Belgium Branch) – Netherlands	—	99.99	99.99
Via The Body Shop Hong Kong Limited - Hong Kong
Mighty Ocean Company Limited - Hong Kong	100.00	100.00	100.00
Via Mighty Ocean Company Limited - Hong Kong
Hsb Hair, Skin And Bath Products Company Limited - Macau	100.00	100.00	100.00
Via Buth-Na-Bodhaige Inc.
Aramara S. De R.L. De C.V. – Mexico	100.00	100.00	100.00
Cimarrones S.A. De C.V. – Mexico	99.99	99.99	99.99
TBS Air I, LLC – USA	—	74.00	74.00
TBS Air II, LLC – USA	—	85.00	85.00
TBS Air III, LLC - USA	70.00	70.00	70.00
Via Natura Brazil Pty Ltd.:
Natura Cosmetics Australia Pty Ltd. - Australia	100.00	100.00	100.00
Via Natura Cosmetics Australia Pty Ltd. - Australia:
Emeis Holdings Pty Ltd – Australia	100.00	100.00	100.00
Via Emeis Holdings Pty Ltd – Australia
Emeis Cosmetics Pty Ltd – Australia	100.00	100.00	100.00
Emeis Trading Pty Ltd – Australia	100.00	100.00	100.00
Aesop Retail Pty Ltd – Australia	100.00	100.00	100.00
Aesop Japan Kabushiki Kaisha - Japan	100.00	100.00	100.00
Aesop Singapore Pte. Ltd. - Singapore	100.00	100.00	100.00
Aesop Hong Kong Limited - Hong Kong	100.00	100.00	100.00
Aesop USA, Inc. - USA	100.00	100.00	100.00
Aesop UK Limited - United Kingdom	100.00	100.00	100.00
Aesop New Zeland Limited - New Zeland	100.00	100.00	100.00
Aesop Brasil Comercio de Cosmeticos Ltda. - Brazil	99.99	99.99	99.99
Aesop Foundation Limited - Australia	100.00	100.00	100.00
Via Emeis Cosmetics Pty Ltd – Australia
Emeis Cosmetics Pty Ltd (Korea Branch)	100.00	100.00	100.00
Via Aesop Hong Kong Limited - Hong Kong
Aesop Macau Sociedade Unipessoal Limitada (Macau)	100.00	100.00	100.00
Via Aesop Singapore Pte. Ltd. - Singapore
Aesop Taiwan Cosmetics Company Limited - Taiwan	100.00	100.00	100.00
Aesop Malaysia Sdn. Bhd. - Malaysia	100.00	100.00	100.00
Aesop Korea Yuhan Hoesa – Korea	100.00	100.00	100.00
Via Aesop USA, Inc. – USA
Aesop Canada, Inc. – Canada	100.00	99.00	99.00
Via Aesop UK Limited - United Kingdom
Aesop Switzerland AG – Switzerland	100.00	100.00	99.99
Aesop Germany GmbH - Germany	100.00	100.00	99.99
Aesop Sweden AB - Sweden	100.00	100.00	99.99
Aesop Norway AS - Norway	100.00	100.00	99.99
Aesop Italy SARL - Italy	100.00	100.00	99.99
Aesop Denmark ApS - Denmark	100.00	100.00	99.99
Aesop Austria GmbH - Austria	100.00	100.00	—
Aesop Belgium - Belgium	100.00	100.00	—
and Aesop France SARL - France	100.00	100.00	99.99
Aesop Netherlands B.V (Netherlands)	100.00	—	—

The consolidated financial statements have been prepared based on the financial statements as of the same date and consistent with the Company’ accounting practices. Investments in subsidiaries arising from intercompany operations have been eliminated proportionately to the investor’s interests in the subsidiaries’ shareholders’ equity and net income or loss, intergroup balances and transactions and unrealized profits, net of taxes.

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The operations of the direct and indirect subsidiaries are as follows:

•

Natura Cosméticos S.A.: it is a publicly-traded corporation, established under the laws of the Federative Republic of Brazil on June 6, 1993, for an indefinite term. Founded in 1969 in São Paulo, Brazil, it is one of the world’s ten largest direct selling companies. Under the Natura brand, most products are made of materials from natural sources, developed with ingredients extracted from Brazil’s biodiversity and mainly distributed through direct selling by independent Natura consultants. It also sells through e-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.

•

Indústria e Comércio de Cosméticos Natura Ltda.: engaged primarily in the production and sale of Natura products to Natura Cosméticos S.A. - Brazil, Natura Cosméticos S.A. - Chile, Natura Cosméticos S.A. - Peru, Natura Cosméticos S.A. - Argentina, Natura Cosméticos Ltda. - Colombia, Natura Europa SAS - France, and Natura Cosméticos de Mexico S.A. de C.V and Natura International Inc. - USA.

•

Natura Comercial Ltda.: engaged in the retail sale of cosmetics, fragrances in general and toiletries, through sales in the retail market.

•

Natura Biosphera Franqueadora Ltda. (previously Natura Cosmetics and Services Ltda.): engaged in trading, including by electronic means, of products from Natura brand.

•

Natura Cosméticos S.A. - Chile, Natura Cosméticos S.A. - Peru, Natura Cosméticos S.A. - Argentina, Natura Cosméticos Ltda. - Colombia and Natura Distribuidora de Mexico, S.A. de C.V.: their activities are an extension of the activities conducted by the parent company Natura Cosméticos S.A. - Brazil.

•

Natura Cosmetics Asia Pacific Pte. Ltd – Singapore: company established in 2019, not operational yet.

•

Natura Cosméticos CA. - Venezuela: the company is in the process of closing and there are no material investments, transactions or balances in its accounting records.

•

Natura Inovação e Tecnologia de Produtos Ltda.: engaged in product and technology development and market research. Merged with the Company and lawfully terminated on November 1, 2018, with its operations, rights and obligations taken over by the Company.

•

Natura Cosméticos y Servicios de Mexico, S.A. de C.V.: engaged in the provision of administrative and logistics services to companies Natura Cosméticos de Mexico, S.A. de C.V. e Natura Distribuidora de Mexico, S.A. de C.V.

•

Natura Cosméticos de Mexico, S.A. de C.V.: engaged in the import and sale of cosmetics, fragrances in general, and hygiene products to Natura Distribuidora de Mexico, S.A. de C.V.

•

Natura Cosméticos España S.L.: activities are suspended. In case activity is resumed, it will carry out the same activities as the Company.

•

Natura (Brazil) International B.V - Netherlands: holding of Natura Europe SAS – France, Natura Brazil Inc., Natura International Inc. and The Body Shop International Limited.

•

Natura Logística e Serviços Ltda.: engaged in picking, packing and mailing services, logistics consulting, human resources management and human resources training.

•

Natura Brasil Inc.: holding company of Natura International Inc.

•

Natura International Inc - USA: engaged in capturing trends in design, fashion and technology, transforming them into ideas, concepts and prototypes.

•

Natura Europa SAS - France: engaged primarily in the purchase, sale, import, export and distribution of cosmetics, fragrances, and toiletries

•

Natura Brazil Pty Ltd – holding of Natura Cosmetics Australia Pty Ltd operations.

•

Natura Cosmetics Australia Pty Ltd – holding of Emeis Holdings Pty Ltd.

•

Emeis Holdings Pty Ltda and its subsidiaries: engaged primarily in the manufacture and marketing of premium cosmetics, operating under the brand “Aesop,” with products sold in retail stores and own stores. During 2019, the subsidiary “Aesop Netherlands B.V (Netherlands)” was incorporated.

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•

The Body Shop International Limited and its subsidiaries: engaged primarily in the development, distribution and sale of cosmetics under the brand “The Body Shop,” with products sold through a chain of own stores, e-commerce, direct selling and franchises. During 2019, the subsidiary “The Body Shop Cosmetics Ireland Limited” was incorporated. In the same period, the following subsidiaries were closed: The Millennium Luxembourg Sarl Administration Company Limited-United Kingdom; The Body Shop Belgium B.V (Belgium Branch) – Netherlands; TBS Air I, LLC – USA; TBS Air II, LLC – USA.

•

Fundo de Investimento Essencial: refers to the private-credit fixed-income funds.

b) Business combinations

Business combinations with unrelated third parties are accounted for by applying the acquisition method when control is transferred to the Company. The consideration transferred is in general measured at fair value, as well as the identifiable net assets acquired. Any goodwill arising from the transaction is tested annually for impairment. Goodwill is measured as the excess of the aggregate amount of: (i) the consideration transferred; (ii) the amount of any non-controlling interest in the acquiree; and (iii) in a business combination achieved in stages, the fair value of the acquirer’s previously held equity interest in the acquiree at the acquisition-date; over the net of the amounts of the identifiable assets acquired and the liabilities assumed. When this aggregate amount is lower than the net of the amounts of the identifiable assets acquired and the liabilities assumed, a gain on a bargain purchase is recognized in the statement of income. Gains from a bargain purchase are recognized immediately in the statement of income. Acquisition-related costs are recorded in the statement of income. Gains from a bargain purchase are recognized immediately in profit or loss. Acquisition-related costs are recorded in profit or loss as incurred, except for costs related to the issue of debt or equity instruments.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in the statement of income for the year.

In a business combination involving entities or business under common control, in which all of the combining entities or business are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory, the Company applies the predecessor accounting method (Note 2a).

c) Ownership interest of non-controlling shareholders

The Company opted to measure any ownership interest of non-controlling shareholders initially by the proportionate interest held in the identifiable net assets of the acquired entity on the acquisition date.

Changes in the Company’s interest in a subsidiary that do not result in loss of control are recorded as “transactions with shareholders” in the statement of changes in shareholders’ equity.

3.3

Foreign currency translation

Functional currency

Items included in the financial statements of the Company and each of its subsidiaries included in the consolidated financial statements are measured using the currency of the main economic environment in which the companies operate (“functional currency”).

3.3.1 Transactions and balances using currency that differ from the functional currency

Foreign-denominated transactions are remeasured into the Company’ functional currency – Brazilian reais (R$)—at the exchange rates prevailing on the dates of the transactions. Balance sheet accounts are remeasured at the exchange rates prevailing at the end of the reporting period. Foreign exchange gains and losses arising on the settlement of such transactions and the remeasured of monetary assets and monetary liabilities denominated in foreign currency are recognized in profit or loss, in line items “Financial income” and “Financial expenses”.

The financial statements are presented in Brazilian reais (R$), which corresponds to the Company’s reporting currency.

In the preparation of the consolidated financial statements, the statements of income and of cash flows and all changes in assets and liabilities of foreign subsidiaries, whose functional currency is not Brazilian reais (R$), are translated into Brazilian real at the average monthly exchange rate nearest to the effective exchange rate on the date of the corresponding transactions. The balance sheet is translated into Brazilian real at the exchange rates at the reporting date. This translation calculation is different for Natura Cosméticos S.A. – Argentina, which became a hyperinflationary economy as of July 1, 2018 (Note 3.2.1.a) in which the balance sheet is translated into Brazilian real at the exchange rates at the date of the year reporting period.

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The effects from variations in the exchange rate arising from these translations are stated under “Other comprehensive income” in the statements of comprehensive income and in shareholders’ equity.

a) Hyperinflationary economy

Starting from July 2018, Argentina has been considered a hyperinflationary economy. As per IAS 29 – Financial Reporting in Hyperinflationary Economies, the non-monetary assets and liabilities, equity items and the statement of income of the subsidiary Natura Cosmetics S.A. – Argentina (“Natura Argentina”), whose functional currency is the Argentinean peso, are being adjusted so that the figures are reported in the monetary measurement unit at the end of the reporting period. This unit considers the effects measured by the Consumer Price Index (“IPC”) in Argentina starting January 1, 2017 and Argentina’s Domestic Retail Price Index (“IPIM”) up to December 31, 2016. Consequently, as required by IAS 29, the operating results of the subsidiary Natura Argentina must be disclosed as highly inflationary starting from July 1, 2018 (start of the period in which a hyperinflationary scenario was identified).

Non-monetary assets and liabilities booked at historical cost and equity items of Natura Argentina were adjusted for inflation based on the aforementioned indices. The effects of hyperinflation resulting from changes in the overall purchasing power (i) were presented in equity up to December 31, 2017; and (ii) are presented in the statement of income starting January 1, 2018. The statement of income is adjusted at the end of each reporting period based on the variation in the CPI. The net effect of inflation adjustment in 2019 on (i) non-monetary assets and liabilities; (ii) items in the statement of changes in shareholders’ equity; and (iii) statement of income was presented in a specific account for hyperinflation in the financial result (see note 27).

The following procedures were performed to translate the balances to the reporting currency:

•

the amounts related to assets, liabilities and equity items were translated at the exchange rate on the reporting date (0.06732 Argentinean peso for each Brazilian real in December 2019); and

•

revenues and expenses in the period were translated at the exchange rate on the reporting date (0.06732 Argentinean peso for each Brazilian real in December 2019), instead of the average exchange rate of the period, which is used to translate currencies in non-hyperinflationary economies;

•

the statement of income for 2017 and the first and second quarters of 2018 and the respective balance sheets of Natura Argentina were not restated. When translating to a currency of a non-hyperinflationary economy, comparison amounts must be those that would have been presented as amounts for the current year in the financial statements of the previous year (that is, not adjusted for subsequent changes in prices or exchange rates).

Cumulative inflation, as measured by the IPC index, for the fiscal year ended December 31, 2019 was 54.5% (47.99% at December 31, 2018).

In the fiscal year ended December 31, 2019, the application of IAS 29 resulted in: (i) a negative impact on the financial result of R$13,947 (R$25,066 at December 31, 2018); and (ii) a negative impact on net income for the year of R$68,940 (R$64,271 at December 31, 2018).

The translation of statement of income at the exchange rate on the reporting date, instead of average monthly exchange rate of the year, resulted in a positive impact on other comprehensive income for the fiscal year ended December 31, 2019 of R$17,666 (R$19,074 on December 31, 2018).

3.4

Cash and cash equivalents

Cash and cash equivalents are held for the purpose of meeting short term commitments, rather than for investment or other purposes. Cash and cash equivalents include cash, bank deposits and short-term investments that are redeemable within up to 90 days of the investment date. They are usually highly liquid or convertible to a known cash amount and subject to immaterial change in value and are recorded at cost plus income earned through the end of the reporting period and do not exceed their fair or realizable values. The instruments that are not eligible for the cash and cash equivalents classification, due to its liquidity, maturity or even its risk of changing in value, are classified as short-term investments.

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3.5

Financial Instruments

The Company adopted IFRS 9 – Financial Instruments in replacement to IAS 39 – Financial Instruments: Recognition and Measurement on January 1, 2018. The changes made in the Company’s accounting policies are described below, as well as their impacts on the financial statements.

3.5.1 Accounting practice in effect until December 31, 2017:

a) Classification

Classification depends on the purpose for which the financial assets and financial liabilities were acquired or contracted and is determined on the initial recognition of the financial instruments.

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Financial assets held by the Company are classified into the following categories:

Financial assets measured at fair value through profit or loss

A financial asset is classified as measured at fair value through profit or loss if it is classified as held for trading or designated as such upon initial recognition. Transaction costs are recognized in the statement of income as incurred. These assets are measured at fair value and changes in fair value, including gains from interest and dividends, are recognized in the statement of income for the fiscal year.

This category includes derivative financial instruments, quotas of investment funds and securities. The balances of outstanding derivative instruments are measured at their fair values at the end of the reporting period and classified in current assets or current liabilities, and changes in fair value are recorded in “Financial income” or “Financial expenses”, respectively.

Loans and receivables

Includes non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are recorded in current assets, except for maturities greater than 12 months after the end of the reporting period, when applicable, which are classified as non-current assets. Subsequent to initial measurement, these financial assets are accounted for at amortized cost, using the effective interest method (effective interest rate), less impairment losses. Amortized cost is calculated taking into account any discount or premium on acquisition and fees or costs incurred.

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Financial liabilities held by the Company are classified into the following categories:

Financial liabilities at fair value through profit or loss

They are classified as fair value through profit or loss when the financial liability is either held for trading or it is designated at fair value through profit or loss.

Other financial liabilities

They are measured at amortized cost using the effective interest rate method. As of December 31, 2019, and 2018 other financial liabilities comprise borrowings, financing and debentures (note 17) and trade payables and reverse factoring operations.

b) Measurement

Regular purchases and sales of financial assets are recognized on the transaction date, i.e., on the date the Company agrees to buy or sell the asset.

Financial assets at fair value through profit or loss are initially recognized at their fair value and transaction costs are recognized in the statement of income. Gains or losses resulting from changes in the fair value of financial assets at fair value through profit or loss are recognized in the statement of income, in “Finance income” or “Finance costs”, respectively, for the period in which they occur.

Loans and receivables and financial assets held to maturity are measured at amortized cost. The methodology used involves calculating the amortized cost of a debt instrument and allocating its interest income over the corresponding period. The effective interest rate discounts estimated future cash receipts (including all costs that are an integral part of the effective interest rate, transaction costs and other premiums or deductions) over the estimated life of the instrument. Revenue is recognized based on effective interest for debt instruments not characterized as financial assets at fair value through profit or loss.

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3.5.2 Accounting practice effective from January 1, 2018:

a) Classification of financial assets

IFRS 9 contains an approach to classify and measure financial assets with the three main classification categories: measured at amortized cost, at fair value through other comprehensive income (“FVOCI”) and at fair value through profit or loss (“FVPL”). The standard eliminates the following existing categories under IAS 39: held to maturity, held for trading, borrowings and receivables, and available for sale.

The classification of financial assets at initial recognition depends on the characteristics of the contractual cash flows of the financial asset and Company’s business model for the management of these financial assets. Except for trade receivables that do not contain a significant financing component or to which the Company has been applied the practical expedient, the Company initially measures a financial asset at its fair value plus transaction costs, in the case of financial asset not measured at fair value through profit or loss.

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated for measurement at fair value through profit or loss:

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It is held within a business model whose objective is to hold financial assets to receive contractual cash flows; and

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its contractual terms generate, on specific dates, cash flows that are relative only to the payment of principal and interest on the outstanding principal amount.

A financial asset is measured at fair value through other comprehensive income if it meets the following condition and is not designated for measurement at fair value through profit or loss:

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its contractual terms generate, on specific dates, cash flows that are not only the payment of principal and interest on the outstanding principal amount.

All financial assets not classified as measured at their amortized cost or at fair value through other comprehensive income are classified as at fair value through profit or loss.

Assessment of the business model

The Company evaluates the objective of the business model in which the financial asset is maintained in the portfolio, because it reflects the best way in which the business is managed, and information is provided to the Management. The information considered includes:

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the policies and objectives determined for the portfolio and how these policies actually work. These include the issue of knowing whether Management strategy focuses on obtaining contractual interest income, maintaining a certain interest rate profile, the correspondence between the duration of financial assets and the duration of the corresponding liabilities or expected cash disbursements, or realizations of the cash flows through the sale of assets;

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how the performance of the portfolio is assessed and reported to the Management of the Company;

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the risks that affect the performance of the business model (and the financial asset maintained in that business model) and how those risks are managed;

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how business managers are remunerated – for example, if the remuneration is based on the fair value of the assets managed or on the contractual cash flows obtained; and

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the frequency, volume and time of sale of financial assets in previous years, the reasons for such sale and their expectations of future sales.

Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not deemed sales, consistent with the continuous recognition of the Company’s assets.

Financial assets held for trading or managed with performance assessed based on their fair value are measured at fair value through profit or loss.

Assessment of whether contractual cash flows are only payments of principal and interest

To assess contractual cash flows, the “principal” is defined as the fair value of the financial asset upon initial recognition. “Interest” is defined as consideration for the value of money in time and for the credit risk associated with the principal outstanding over a certain period of time and for other risks and basic costs of loans (for example, liquidity risk and administrative costs), as well as profit margin.

The Company considers the contractual terms of the instrument to assess whether the contractual cash flows are only payments of principal and interest. This includes an assessment of whether the financial asset contains a contractual term that could change the moment or amount of contractual cash flows in such a way that it would not meet this condition. When conducting such assessment, the Company takes into account:

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contingent events that change the amount or timing of the cash flows;

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terms that could adjust the contractual rate, including variable rates;

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the prepayment and extension of terms; and

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terms that limit the access of the Company to cash flows from specific assets (for example, based on the performance of an asset).

The purchases or sales of financial assets requiring the delivery of assets within certain period established by regulation or market convention (regular negotiations) are recognized on the negotiation date, that is, the date in which the Company commits to purchase or sell the asset.

i) Subsequent measurement

For the purposes of subsequent measurement, financial assets are classified into four categories:

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Financial assets at amortized cost (debt instrument);

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Financial assets at fair value through other comprehensive income with reclassification of accumulated gains and losses (debt instruments);

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Financial assets at fair value through other comprehensive income, without reclassification of accumulated gains and losses upon their derecognition (equity instruments); and

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Financial assets at fair value through profit or loss.

Financial assets at amortized cost (debt instruments)

Financial assets at amortized cost are subsequently measured using the effective interest method and are subject to impairment loss. Gains or losses are recognized in profit or loss when the asset is written off, modified or presents impairment loss.

Financial assets at fair value through other comprehensive income (debt instruments)

For debt instruments at fair value through other comprehensive income, the interest revenue, exchange revaluation and losses or reversals of impairment loss are recognized in the statement of income and calculated at the same manner for financial assets measured at amortized cost. The remaining changes in fair value are recognized in other comprehensive income. Upon the derecognition, the accrued fair value change recognized in other comprehensive income is reclassified to profit or loss.

Financial assets at fair value through other comprehensive income (financial instruments)

Upon initial recognition, the Company may opt irrevocably to classify its equity instruments at fair value through other comprehensive income when they meet the definition of equity under IAS 32 – Financial instruments: Presentation and are not held for trading. The classification is determined by considering each instrument specifically. Gains and losses on these financial assets are never classified to profit or loss. Dividends are recognized with other revenues in the statement of income when the right to the payment is established, except when the Company benefits from these payments as recovery of part of the cost of the financial asset, if these gains are registered in other comprehensive income. Equity instruments at fair value through other comprehensive income are not subject to impairment test.

Financial assets at fair value through profit or loss.

Financial assets at fair value through profit or loss are presented in the statement of financial position through fair value, with net variations of fair value recognized in the statement of income. This category includes derivative instruments and listed equity investments, which the Company has not classified irrevocably at fair value through other comprehensive income. Dividends on listed equity investments are recognized as other revenue in the statement of income when the right to the payment is established.

ii) Offsetting financial instruments

Financial assets and financial liabilities are offset and the net amount is presented in the balance sheet when there is a legally enforceable right to set off recognized amounts and the intent to either settle them on a net basis, or to recognize the asset and settle the liability simultaneously.

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iii) Derecognition (write-off) of financial instruments

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when the rights to receive cash flows from the asset have expired; the Company transfers its rights or risk to receive cash flows of the asset or has assumed an obligation to pay the full amount of received cash flows, without significant delay to a third party under an on-lending agreement, and (i) the Company transfers substantially all risks and benefits of the asset, or (ii) the Company neither transferred nor retained substantially all risks and benefits of the asset, but transferred the control of asset.

When the Company transfer its rights to receive cash flows of an asset or execute an on-lending agreement, it evaluates if, and at which extent, it retained the risks and benefits of ownership. When the Company neither transfers or retains substantially all risks and benefits of the asset, nor transferred the control over the asset, the Company continues to recognize the asset transferred to the extent of its continued involvement. In this case, the Company also recognizes an associated liability. The asset transferred is measured at the lowest between: (i) the value of the asset; and (ii) the maximum amount of consideration received that the entity may be obliged to refund (guarantee amount).

The Company derecognizes a financial liability when its contractual obligation is withdrawn, canceled or expires.

3.5.3 Derivative instruments

Derivative instruments transactions contracted by the Group consist of swaps and non-deliverable forwards (NDF’s) intended exclusively to hedge against the foreign exchange risks related to balance sheet positions, acquisitions of inputs and property, plant and equipment, projected exports and projected foreign-denominated cash outflows for capital increases in foreign subsidiaries.

They are measured at fair value, and changes in fair value are recognized through profit or loss, except when they are designated as cash flow hedges, to which changes in fair value are recorded in “Other comprehensive income” within shareholders’ equity.

The fair value of derivative instruments is measured by the treasury departments of the Group based on information on each contracted transaction and related market inputs at the end of the reporting period, such as interest rates and exchange coupon.

Hedge accounting

After Management’s evaluation, the Company concluded that all existing hedge relationships are currently designated in effective hedge relationships and still qualify for hedge accounting under IFRS 9, because the new standard did not change the general principles of how an entity accounts for effective hedges.

When an entity applies IFRS 9 for the first time, it can determine whether its accounting policy will continue to apply the hedge accounting requirements of IAS 39 instead of the requirements of chapter 6 of IFRS 9.

Given the results of the analyses and the decision to not adopt IFRS 9 specifically for hedge accounting, the Company maintains its current accounting practices based on IAS 39, as mentioned in Note 3.4 above, being affected only by the new disclosure requirements starting January 1, 2018, as presented in Note 5.2.

Cash Flow hedge

Consists in providing hedge against variation in cash flows attributable to a specific risk related to a known asset or liability or a highly probable forecast transaction and that may affect profit or loss.

The effective portion of changes in fair value of derivative instruments that is designated and qualified as cash flow hedge is recognized in other comprehensive income and accumulated in “Gain (loss) from cash flow hedge operations” and “tax effect on gain (loss) from cash flow hedge operations.” In a “cash flow hedge”, the effective portion of gain or loss from the hedge instrument is recognized directly in equity in other comprehensive income, while the ineffective portion of hedge is immediately recognized in financial income (expenses).

For the years ended December 31, 2019 and 2018, the Company used derivative financial instruments, applying “cash flow hedge accounting” and, as disclosed in Note 5.2, for hedge against the risk of change in exchange rates related to loans in foreign currency and purchase and sale transactions in foreign currency and intercompany loan operations that: (i) are highly related to the changes in the market value of the hedged item, both at the beginning as well as during contract term (effectiveness between 80% and 125%); (ii) have documentation of the operation, hedged risk, risk management process and methodology used in assessing effectiveness; and (iii) are considered effective to reduce the risk related to the exposure to be hedged. It allows the application of the hedge accounting methodology, with effect from measurement of their fair value on shareholders’ equity and from their realization on profit or loss in the heading related to the hedged item.

Hedge accounting is discontinued when the Company terminates the hedge relationship, the hedge instrument matures or is sold, revoked or executed, or no longer qualifies to hedge accounting. Any gains or losses recognized in other comprehensive income and accumulated in shareholders’ equity as of a certain date remain in equity and are recognized when the forecast transaction is eventually recognized in profit or loss.

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If a planned transaction results in the subsequent recognition of a non-financial asset or liability, the cumulative gain or loss in other comprehensive income is reclassified to profit or loss during the same year for which the non-financial asset acquired or non-financial liability assumed affects the profit or loss. For example, when the non-financial asset is depreciated or sold.

Conversely, if a planned transaction results in the subsequent recognition of a financial asset or liability, the cumulative gain or loss in other comprehensive income is reclassified to profit or loss during the same period for which the financial asset acquired or financial liability assumed affects the profit or loss. For example, when financial income or expense is recognized.

When the forecast transaction is no longer expected, cumulative gains or losses deferred in equity are immediately recognized in profit or loss.

The Company assesses, along with the hedge term, the effectiveness of its derivative financial instruments, as well as changes in their fair value.

For the years ended December 31, 2019 and 2018, there were no losses related to the ineffective portion recognized in profit or loss for the year.

The fair values of derivative financial instruments are disclosed in note 5.2.

In addition, it should be mentioned that, during the years ended December 31, 2019 and 2018, the Company did not enter into transactions related to hedge of fair value or hedge of net investment.

3.5.4 Financial liabilities

Financial liabilities are classified, upon initial recognition, as financial liabilities at fair value through profit or loss, financial liabilities at amortized cost or as derivatives designated as hedge instruments in an effective hedge, as applicable.

All financial liabilities are initially measured at fair value, more or less, in the event of financial liability not designated at fair value through profit or loss, the transaction costs that are directly attributable to the issuance of financial liability.

The Company’s financial liabilities include borrowings, financing and debentures (note 17), derivative financial instruments (nota 5) and trade payables and reverse factoring operations (note 18).

Subsequent measurement

For the purposes of subsequent measurement, financial liabilities are classified into two categories:

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Financial liabilities at fair value through profit or loss; and

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Financial liabilities at amortized cost.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities for trading and financial liabilities designated upon initial recognition at fair value through profit or loss. They are classified as held for trading if incurred for purposes of repurchase in the short term. This category also includes derivative instruments contracted by the Company that are not designated as hedge instruments in hedge relations defined by IFRS 9. Separate embedded derivatives are also classified as held for trading, unless they are designated as effective hedging instruments.

Gains and losses on liabilities held for trading are recognized in the statement of income.

Financial liabilities designated upon initial recognition at fair value through profit or loss are designated on the initial recognition date, and only if the criteria provided for in IFRS 9 were met.

Financial liabilities at amortized cost (borrowings and financing)

After initial recognition, borrowings and financing contracted and granted subject to interest are subsequently measured at amortized cost, using the effective interest method. Gains and losses are recognized in profit or loss when liabilities are written off, as well as through the process of amortizing to effective interest rate.

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Amortized cost is calculated taking into consideration any negative goodwill or goodwill on acquisition and rates or costs that are integral part of the effective interest method. The amortization at the effective interest method is included as financial expense in the statement of income.

This category generally applies to borrowings and financing granted and contracted, subject to interest.

Derecognition

A financial liability is written off when the obligation over the liability is extinct, i.e., when the obligation set forth in the agreement is settled, cancelled or expires. When an existing financial liability is replaced for another liability of the same lender under substantially different terms, or the terms of an existing liability are substantially modified, this swap or modification is addressed as derecognition of the original liability and recognition of a new liability. The difference in respective accounting amounts is recognized in the statement of income.

3.6

Trade Receivables and provision for doubtful accounts

Trade receivables are accounted at their nominal amount, less the provision for doubtful accounts, which is estimated based on calculating the risk of loss in each aging list group, considering the different risks in accordance with the collection’s operation.

3.7

Inventories

Carried at the lower of average cost of purchase or production and net realizable value. Details are disclosed in note 9.

The Company considers the following when determining its provision for inventory losses: discontinued products, products with slow turnover, expired products or products nearing the expiration date and products that do not meet quality standards, recorded as “Cost of products sold”.

3.8

Carbon Credits – Carbon Neutral Program

In 2007, the Company assumed with its employees, customers, suppliers and shareholders a commitment to be a Carbon Neutral company, which is to neutralize their emissions of Greenhouse Gas - GHG, in its complete production chain, from extraction of raw materials to post-consumption. This commitment, which currently refers only to operations under the Natura brand, is not a legal obligation, since Brazil does not have a reduction target, despite being a signatory to the Kyoto Protocol. For this reason, it is considered a constructive obligation under IAS 37 - Provisions, Contingent Liabilities and Contingent Assets, which requires the recognition of a provision in the financial statements if it is subject to disbursement and measurable.

The liability is estimated through annually audited inventories of carbon emissions and measured based on the market price for the acquisition of licenses for neutralization. On December 31, 2019, the balance recorded in the caption “Other liabilities” (see note 21), refers to the total carbon emissions during the period of 2007 to 2019 that have not yet been offset by corresponding projects and therefore no execution of the certificate of carbon.

According to its beliefs and principles, the Company elected to make some purchases of carbon credits by investing in projects with environmental benefits arising from the voluntary market. Thus, the costs will generate carbon credits after completion or maturation of these projects.

During these years, these expenses were recorded at fair value as “other current assets” and “other non-current assets” (see note 13).

Upon effective delivery of the related carbon credit certificates to the Company, the obligation of being Carbon Neutral is effectively fulfilled; therefore, the balances of assets are offset against those of liabilities.

The difference between the carrying amounts of assets and liabilities at December 31, 2019 refers to the amount of cash disbursed in advance for investments in ongoing projects and, for this reason, not yet available for neutralization of emissions and offset of liability.

3.9

Property, plant and equipment

Property, plant and equipment is measured at cost of acquisition or construction, plus interest capitalized during construction period, in the case of qualifying assets, and reduced by accumulated depreciation and impairment losses, if applicable. Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. Additionally, the useful lives of the assets are reviewed annually.

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Until December 31, 2018, leased property, plant and equipment classified as finance leases according to IAS 17, and used in the Company’s activities were recorded in property, plant and equipment. These assets are also subject to depreciation calculated over the estimated useful lives of the respective assets or over the lease term, whichever is shorter.

Land is not depreciated. Depreciation of the other assets is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their useful lives and is generally recognized in the statement of income. The estimated useful lives of the assets are mentioned in Note 14.

Gains and losses on disposals are calculated by comparing the proceeds from the sale with the net carrying amount and are recognized in profit or loss under “Other Operating Income (Expenses), Net”.

Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated with the expenditure will flow to the Company.

3.10

Intangible assets

a) Software

Licenses of software and enterprise management systems acquired are capitalized and amortized according to the useful lives described in note 15 and maintenance costs are recognized as expenses when incurred.

System acquisition and implementation costs are capitalized as intangible assets when the asset is identified, when there is evidence that future economic benefits will flow into the entity and when the asset is controlled by the Company, taking into consideration its economic and technologic viability. The amounts incurred on software development recognized as assets are amortized under the straight-line method over its estimated useful life. The expenditures related to software maintenance are expensed when incurred.

b) Trademarks and patents

Separately acquired trademarks and patents are stated at their historic cost. Trademarks and patents acquired in a business combination are recognized at fair value on the acquisition date. For trademarks and patents with definite useful lives, amortization is calculated on a straight-line basis at the annual rates described in note 15.

c) Relationship with retail clients, franchisees and sub-franchisees

Relationships with retail clients, franchisees and sub-franchisees acquired in business combinations are recognized at fair value on the acquisition date and their amortization is calculated on a straight-line basis, based on rates shown in note 15.

d) Key money with defined useful life

Key money with defined useful life is recorded at the acquisition cost and amortized on a straight-line basis during the rental period, as shown in note 15.

e) Intangible assets with indefinite useful lives

Intangible assets with indefinite useful lives held by the Company refer mainly to trademarks and goodwill due to expectations of future economic benefits arising from transactions involving business transactions, and tradeable key money.

Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses.

These assets are not amortized but are tested annually for losses due to impairment either individually or at the level of the cash generating unit (or groups of cash generation units). The assessment of indefinite life is reviewed annually to determine whether this assessment continues to be supportable. Otherwise, the change in useful life from indefinite to finite is made on a prospective basis.

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Gains and losses arising from derecognition of an intangible asset are measured as the difference between the net from the sale and the carrying amount of the asset and are recognized in profit or loss upon disposal of the asset under “Other Operating Income (Expenses), Net”.

3.11

Impairment assessment

The assets’ carrying amount is annually evaluated to identify indicators of impairment, or also significant events or changes in circumstances that indicate the carrying value of an asset may not be recoverable. When applicable, an impairment loss is recognized if the carrying amount of an asset exceeds its recoverable amount

For impairment assessment purposes, assets are grouped at the lowest levels for which there are independent cash flows (cash-generating units, or CGUs).

The recoverable amount of an asset or cash-generating unit is determined as being the higher of the value in use of the asset and the fair value less costs of disposal. In the estimation of the value in use of the asset, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the weighted average cost of capital for the company in which it operates the cash-generating unit. The fair value net of costs of sale is measured based on the preparation of the discounted cash flow at its present value, using a discount rate before taxes that reflects the company’s weighted average cost of capital in which the generating cash unit operates, including assumptions for the stores expansion and investments, as well as the respective revenues that will be generated as a result of this expansion, considering the assumptions that other market participants would use when pricing the assets or liabilities.

3.12

Product research and development expenses

The Company’s accounting practice includes recording its product research and development costs, when incurred, as expenses for the period, since due to the high innovation index and product turnover in its sales portfolio, it is impracticable to meet all aspects required in IAS 38 – Intangible Assets for capitalizing the amounts.

3.13

Leases

Up to December 31, 2018, the Company assessed lease classification at the inception of the contract. Leases where substantially all the risks and rewards related to the asset remain with the lessor were classified as operating leases. Lease payments under an operating lease were recognized as an expense on a straight-line basis over the lease term. Leases where the Company retains substantially all the risks and rewards incidental to ownership were classified as finance leases. These leases were capitalized in balance sheet at the commencement of the lease term at the lower amount of the fair value of leased asset and the present value of minimum lease payments. Each lease installment was apportioned between liabilities and the finance charges so as to permit obtaining a constant effective interest rate on the outstanding liability. The corresponding obligations, less the finance charge, were classified in current liabilities and non-current liabilities, according to the lease term. Property, plant and equipment items acquired through finance leases were depreciated over their useful lives, or over the lease term, when it is shorter and has no purchase option.

On January 1, 2019, the Company applied IFRS 16, which introduced one sole lease model, replacing the concept of classifying between operating and finance lease, which was applied by the Company up to December 31, 2018. The impact of this new standard is detailed in Note 3.28.

3.14

Borrowing costs

Borrowing costs attributable to the acquisition, construction or production of a qualifying asset that necessarily requires a significant effort to be ready for its intended use or sale are capitalized as part of the cost of the corresponding asset. All other borrowing costs are expensed in the period they are incurred. Borrowing costs consist of interest and other costs incurred by an entity related to a loan.

3.15

Trade payables and reverse factoring operations

These are initially recognized at their nominal amounts, plus interest, inflation adjustments and exchange rate differences through the end of the reporting period, when applicable.

3.16

Borrowings, financing and debentures

Initially recognized at fair value of proceeds received less transaction costs in applicable cases, plus charges, interest, inflation adjustments and exchange rate differences as provided for in agreements, incurred through the end of the reporting period, as shown in note 17.

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3.17

Provisions, contingent liabilities and contingent assets

Provisions are recognized when the Company has a legal or constructive obligation as a result of past events, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and its value can be measured with sufficient reliability. Provisions are quantified at the present value of the expected outflow of resources embodying economic benefits to settle the obligations using the appropriate discount rate, according to related risks.

The provisions for tax, civil, and labor risks are adjusted for inflation through the end of the reporting period to cover probable losses, based on the nature of the risk and the opinion of the Company’s legal counsel.

Contingent assets are not recognized by the Company and are only disclosed, in case of probable receipt of economic benefits. If it is practically certain that economic benefits will be received, the asset and the corresponding gain are recorded in the Financial Statements of the year corresponding to the change in estimate.

3.18

Current and deferred income tax and social contribution

Except for subsidiaries abroad, which observe the tax rates valid in the respective jurisdictions in which they are located, in Brazil, they include the corporate income tax (“IRPJ”) and the social contribution on net income (“CSLL”), which are calculated based on taxable income, by applying the 15% rate plus additional of 10% on taxable income exceeding R$240 for IRPJ and 9% for CSLL and considers the offset of tax losses and tax loss carryforwards, limited to 30% of taxable income. Taxable income reflects profit before taxes adjusted by non-taxable and non-deductible items (both temporary and permanent items).

Deferred taxes represent tax debits and credits on temporary differences between tax base and accounting base of assets and liabilities on accrued tax losses. Deferred tax and contribution assets and liabilities are classified as “non-current” as required by IAS 12 – Income taxes. When the Company’s internal studies indicate that the future use of tax credits is not probable, a provision for loss is recorded.

Deferred tax assets and liabilities are offset if there is a legal feasible right to offset tax liabilities as tax assets, and if they are related to taxes registered by the same tax authority under the same taxable entity. Thus, for presentation purposes, tax asset and liability balances are disclosed separately.

Deferred tax assets and liabilities must be measured at current rates expected to be applicable in the period in which the asset is realized or the liability is settled, and reflect the uncertainty related to income tax, if any.

3.19

Employee benefits

3.19.1 Short-term benefits

The obligations of short-term benefits for employees are recognized as personnel expenses as the corresponding service is rendered. The liability is recognized at the amount of the expected payment if the Company has a legal or constructive obligation to pay the amount due to services rendered by an employee in the past and the obligation can be reliably estimated.

3.19.2 Profit sharing

The Company recognizes a liability and an expense for profit sharing based on criteria that it considers the profit attributable to its shareholders after certain adjustments and which is tied to the achievement of specific operational goals and objectives established and approved in the beginning of each fiscal year.

3.19.3 Long-term incentive program

The Company made available until June 2019 to eligible executives of its subsidiary Emeis Holdings Pty Ltd. a long-term incentive program, based on criteria linked to specific operational goals and objectives established at the beginning of the relationship between the parties, being such obligation recorded as a liability and remeasured with effect on profit or loss.

3.19.3 Post-employment healthcare defined benefit

The actuarial liability for the healthcare plan of the Company and its subsidiaries refers to a post-employment benefit plan to current and former employees who made fixed contributions for funding the healthcare plan up to April 30, 2010, when the healthcare plan design was changed and fixed contributions were eliminated. Those who contributed to the plan for ten years or more are ensured the right to remain as a beneficiary for an indefinite term (lifetime), and those who contributed for a period of less than ten years are ensured the right to remain as a beneficiary at the rate of one year for each year in which fixed contributions were made. This group of current employees, in the event of termination of employment relationship, may opt to remain in the plan in accordance

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with applicable legislation, thereby assuming the payment of the monthly plan fee charged by the healthcare plan operators. However, this monthly plan fee does not necessarily represent the total cost of the user, which is borne by the Company through payment of the excess cost, as an additional benefit.

The costs associated with this benefit are recognized under the accrual method of accounting as a defined-benefit post-employment benefit plan using the projected unit credit method.

The current service cost and accrued interest on the present value of the liability are recognized in the Income Statement and the actuarial gains and losses generated by the remeasurement of the liability due to changes in actuarial assumptions are recognized as Other Comprehensive Income. In case of changes or reductions in the plan, the effects of the cost of past services are recognized in the Income Statement on the date of occurrence.

3.20

Share-based payment

The Company’s executives are granted the following stock option plans, settled exclusively with its own shares:

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Stock option plan;

•

Restricted stock plan; and

•

Strategy acceleration program.

The plans are measured at fair value at the grant date. In determining the fair value, the Company uses an adequate valuation method, details of which are disclosed in Note 26.1.

The cost of transactions settled with equity instruments is recognized, together with a corresponding increase in shareholders’ equity under the heading “Additional paid-in capital”, throughout the period in which the service conditions are fulfilled, ending on the date on which the employee acquires the full right to the award (acquisition date). The cumulative expense recognized for equity instruments transactions settled on each base date up to the acquisition date reflects the extent to which the vesting period has transpired and the Company’ best estimate of the number of equity instruments to be acquired. The expense or credit in the statement of income of the period is recorded under the heading “Administrative expenses”.

For the stock option plan and the strategy-acceleration program, despite the expiration of the term for exercise, the recognized expense is not reversed since the right has been acquired by executives.

When an award of equity instruments settlement is cancelled (except when the cancellation occurs due to loss of right over the equity instrument for not fulfilling the grants conditions), it is treated as if it had been acquired on the date of cancellation, and any expense not recognized is registered immediately. This includes any award for which Company or the counterparty have the option not to fulfill the non-acquisition obligation. All cancellations of transactions settled with equity securities are treated in the same way.

The dilution effect of options granted is reflected as additional share dilution in the calculation of diluted earnings per share (Note 29.2).

3.21

Dividends and interest on equity

The proposed distribution of dividends and interest on capital made by Management included in the portion equivalent to the mandatory minimum dividends is recognized in line item “Other payables” in current liabilities, as it is considered as a legal obligation provided for by the Company’s bylaws; however, the portion of dividends exceeding minimum dividends declared by management after the reporting period but before the authorization date for issuance of these financial statements is recognized in line item “Proposed additional dividends.”

For corporate and accounting purposes, interest on capital is stated as allocation of income directly in shareholders’ equity.

3.22

Treasury shares

The Company’s own equity instruments which are reacquired (Treasury shares) are recognized at acquisition cost and deducted from shareholders ‘ equity. No gain or loss is recognized in profit or loss on the purchase, sale, issuance or cancellation of the Company’s own equity instruments.

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3.23

Government grants

Government subsidies and assistance for investments are recognized when there is reasonable assurance that the entity complied with the conditions established by the government agency granting the subsidy. They are recognized as income or expense deduction in profit or loss for the fruition period of the benefit and, subsequently, are allocated to tax incentive reserve under equity.

The subsidiary Indústria e Comércio de Cosméticos Natura Ltda. has projects located in areas under operation of the Amazonia Development Superintendence (“SUDAM”), whose activity is classified as priority economic activity, entitling to the tax benefit of reducing 75% of taxable income, calculated based on the profit from exploration of the respective region.

Natura has projects located in the states of Bahia and Minas Gerais. These Federative Units have internal legislation including decrees that authorize the granting of tax incentives, under the presumptive credit modality, to companies that invest in them. Natura has complied with the requirements and, through a Special regime, obtained authority to apply said tax incentives.

3.24

Reportable Segments

Information per operating segment is consistent with the internal report provided to the chief operating decision maker on operational matters.

The main decision-making body of the Company, which is responsible for defining the allocation of resources to the operating segments is the Board of Directors of the Company, which is advised by the Group’s Operations Committee (“GOC”), the Audit, Risk Management and Finances Committee, the People and Corporate Development Committee, the Strategic Committee and the Corporate Governance Committee (“Committees”).

The GOC , which includes the CEOs of Natura, 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 viewpoint of results, allocation of resources among business units, cash flow and talent management.

In the first quarter of 2020, the Company changed its reportable segments. As a result, segment information in these consolidated financial statements has been recast to conform it to the Company’s new segment presentation. See Note 23.

3.25

Revenue from contracts with customers

On January 1, 2018, the Company adopted IFRS 15, using the cumulative effect method (without practical expedients), which establishes a model of five steps applicable to revenue from a contract with a customer, irrespective of the type of revenue transaction or industry. As a result of the implementation of IFRS 15, the Company reviewed its accounting practices related to the identification of performance obligations, such as recognition for performance related to Natura Consultants, events and conventions aimed at encouraging and congratulating the best Natura Consultants, and other obligations, as shown below:

Performance obligation

Nature, fixation of transaction price and the moment
when performance obligation is fulfilled

Nature of changes in accounting practices

a) Direct sales

Revenue from sales is generated by sales to Natura Consultants (our customers) based on the fair value of consideration received/receivable, excluding discounts, rebates and taxes or charges on sales. Revenue from sales is recognized when the performance obligation is fulfilled, i.e., when the promised product is physically delivered and the Natura Consultant obtains control over this product.

Revenue from sales is generated and accrued initially in the sales subsidiary ledger of the Company from the moment when the dispatch slip is issued in the customers’ name. However, since revenues are recorded only when the final delivery of products effectively occurs, the Company registers a provision to eliminate the amount of revenue related to products dispatched and not received by Natura Consultants on each reporting date.

IFRS 15 did not have significant impacts

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b) Direct sales – Additional charges and penalties for late payments	The Company charges its customers (Natura Consultants) additional charges and penalties for late payments in the settlement of sales receivable. Due to the level of uncertainty in receiving these amounts (variable consideration), the Company recognizes revenue from additional charges and penalties for late payments only upon receipt of amounts.	Until December 31, 2017, the Company recognized these amounts as a recovery of selling expenses. With the adoption of IFRS 15, the Company concluded that amounts related to additional charges and penalties for late payments of Consultants correspond to variable components received in exchange for transfer of goods, that is, they are part of the transaction price

c) Retail sales	At Emeis Holding Pty Ltd, Natura Comercial Ltda., Natura Europa SAS – France, Natura International Inc. and The Body Shop International Limited, which operate in the retail market, net revenue is measured based on the fair value of consideration received/receivable, excluding discounts, rebates and taxes or charges on sales. This net revenue is recognized when the performance obligation is fulfilled, i.e., when the promised product is physically transferred and the consumer obtains control over this product.	IFRS 15 did not have significant impacts

d) Loyalty program (Points campaign)	The Company offers points campaign (loyalty program), in which customers accumulate points while buying the Company’s products to be exchanged (redeemed) for products in the future. Measurement of points is based on their expected cost, plus a margin. The amount allocated to the loyalty program is deferred and the revenue is recognized upon redemption of the points accumulated by Natura Consultants or when it is no longer probable that the points will be redeemed.	Until December 31, 2017, the revenue was allocated among the campaigns and the products based on cost. Upon adoption of IFRS 15, deferred revenue from the points campaign is now measured based on the expected cost, plus a margin.

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e) Program for recognition of Natura Consultants’ performance	The Company has performance recognition programs, in which it awards Natura Consultants based on achievement of targets and objectives. The Company believes that this performance recognition program has a high value and hence is considered a performance obligation. Measurement of performance recognition programs is based on their expected cost, plus a margin. The amount allocated to performance recognition programs is deferred and revenue is recognized when awards are delivered to Natura Consultants.	Until December 31, 2017, the Company did not characterize the performance recognition program as a performance obligation to be fulfilled. Upon adoption of IFRS 15, the Company concluded that the performance recognition program is a promise that creates a reasonable expectation for Natura Consultants and, therefore, it was considered a performance obligation.

f) Events	The Company organizes events to encourage and recognize the best Natura Consultants. The Company believes that these events are of high value for Natura Consultants and create expectations among them to participate in them. Thus, the Company believes that these events are characterized as performance obligations. Measurement of events is based on their expected cost, plus a margin. The amount allocated to events is deferred and the revenue is recognized when the event is held.	Until December 31, 2017, the Company did not characterize the events as a performance obligation to be fulfilled. Upon adoption of IFRS15, the Company concluded that events are a promise that creates a reasonable expectation for Natura Consultants and, therefore, they were considered a performance obligation.

g) Franchises (Courses, training and consulting / Outfit and inauguration)	Upon execution of the agreement, the Company charges from franchisees a fixed amount, part of which is allocated to courses, training and consulting to prepare the franchisees to sell products under Natura brand. The other part refers to outfit (specific products to be used at the franchisee store) and inauguration (opening event of franchisee’s store). The Company believes that these items represent a material right and, for such, they were considered performance obligations. Measurement is based on the market value of these items, which are initially recognized as deferred revenue. When the franchisee’s store is opened, this deferred revenue is allocated to profit or loss for the year.	IFRS 15 did not have significant impacts.

h) Franchisees (Advertisement program)	Upon the execution of the agreement, the Company charges from franchisees a fixed amount, a part of which is for the advertisement fund (monthly delivery of showcases). The Company believes that this item represents a material right and, for such, it was considered a performance obligation. Measurement is based on the market value of this item, which is initially recognized as deferred revenue. This revenue is deferred and allocated to profit or loss for the year upon the delivery of showcases to the franchisees.	IFRS 15 did not have significant impacts.

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i) Franchises (Brand use right)	Upon the execution of the agreement, the Company charges from franchisees a fixed amount, part of which is for the use of the “Natura” brand. The Company believes that this item represents a material right and, for such, it was considered a performance obligation. Measurement is based on residual value, i.e., the remaining value after excluding the market value of courses, training and consulting services, outfit and inauguration, and the Advertisement Fund. This amount is initially recognized as deferred revenue. This deferred revenue is allocated to profit or loss, on a straight-line basis, over the term of the franchise agreement.	IFRS 15 did not have significant impacts.

j) Incentives related to “free-of-charge” products and promotional gifts	The Company grants incentives related to “free-of-charge” products and promotional gifts for its customers (Natura Consultants and/or end consumers). Since it is considered a material right, the Company recognizes this item as a performance obligation. Considering that the delivery of products and the realization of performance obligation of delivering “free-of-charge” products or promotional gifts occur at the same time, the Company concluded that an allocation of prices and monitoring these two performance obligations separately are not applicable. Thus, revenue is recognized when the physical transfer of the product occurs and the customer obtains control over this product.	IFRS 15 did not have significant impacts.

3.26

Financial income and financial expenses

The Company’s financial income and expenses comprise:

•

Interest revenue and expenses;

•

Dividends revenue;

•

Dividends of preferred shares issued classified as financial liability;

•

Net gains/losses from financial assets measured at fair value through profit or loss;

•

Net gains/losses from exchange variation on financial assets and liabilities;

•

Net gains/losses from hedge instruments recognized in profit or loss; and

•

Reclassifications of net gains previously recognized in other comprehensive income.

Interest income and expenses are recognized as profit or loss through the effective interest rate method.

Revenue from dividends is recognized in profit or loss on the date the Company’s right to receive the payment is established.

The Company classifies interest received and dividends and interest on capital received as cash flows from investing activities.

3.27

New standards and interpretations and amendments to standards not yet adopted

The standards, amendments and interpretations issued, but not yet adopted, up to the date of issuance of the Company’s financial statements are presented below. The Company intends to adopt these standards, if applicable, when they become effective.

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•

IFRS 3 – Business Combinations – whenever applicable, the Company adopts this accounting standard, but the alterations in this standard, since they are not effective for the year ended, were not adopted;

•

IAS 8 – Accounting policies, changes in accounting estimates and errors and IAS 1 – Presentation of financial statements – the Company adopts these accounting standards for the fiscal year ended December 31, 2019, but the alterations in these standards, since they are not effective for the year ended, were not adopted; and

•

Alterations in references to the conceptual structure in IFRS – the Company adopts the IFRS conceptual standard. However, since these alterations are not effective yet, they were not adopted.

3.28 New standards, amendments and interpretations of standards adopted for the first time for the period starting on January 1, 2019

IFRS 16 – Lease Operations

On January 1, 2019, the Company adopted IFRS 16, which sets out the principles for the recognition, measurement, presentation and disclosure of leases. IFRS 16 introduces a single lease model, replacing the concept of classifying leases as operating and finance leases. Once a lease agreement is identified, a right-of-use asset and a lease liability are recorded at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

The lease is present in an agreement if it includes both the following conditions:

•

An identifiable asset explicitly or implicitly specified. In this case, the supplier does not have the practice of replacing the asset, or such replacement would not bring any economic benefit to the supplier.

•

The right to control the use of the asset over the duration of the agreement. In this case, the Company must have the authority to take decisions on the use of the asset and the capacity to obtain substantially all economic benefits for the use of the asset.

IFRS 16 includes two practical expedients from recognition for tenants that were applied by the Company and its subsidiaries upon the fist-time adoption at January 1, 2019: leases of low-value assets and short-term leases, i.e., lease terms of 12 months or less.

The Company and its subsidiaries opted for the simplified modified retrospective transition approach, without the restatement of comparison periods, adopting the following criteria for first-time recognition and measurement of assets and liabilities:

•

Recognition of lease liabilities on the first-time adoption date for leases previously classified as operating leases. Lease liabilities were measured at present value of the remaining lease payments, discounted based on the incremental interest rates on loans, grouped by nature of the asset, region and contractual period; and

•

Recognition of right-of-use assets on the first-time adoption date for leases previously classified as operating leases. The right-of-use asset is measured at the equivalent amount of the lease liability, adjusted by the value of any early or accrued lease payments related to the lease that has been recognized in the balance sheet immediately before the first-time adoption date.

The following charts show the impacts of first-time adoption of IFRS 16 on the financial statements as of January 1, 2019.

Right-of-use assets on January 1, 2019


Right of use the asset (classified as operating leasing as of December 31, 2018)	1,902,545
PIS and COFINS on lease agreements	47,194

(=) Total initial adoption	1,949,739
(+) Fair value adjustment of lease agreements identified in the business combination carried out in the acquisition of The Body Shop, as note 21)	(25,843	)
(=) Total initial adoption of the right-of-use asset (Note 16)	1,923,896
Transfer of fixed assets recognized through financial leasing	481,235
Intangible asset transfer (fair value recognized in business combination + key money)	150,374

(=) Total transfer	631,609

Right-of-use assets on January 1, 2019	2,555,505

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Lease liabilities on January 1, 2019


Present value of leases agreements classified as operational as of December 31, 2018	1,965,655
PIS and COFINS on lease agreements	47,194
Recognition practical expedients:
(-) Short-term lease and low-value assets	(63,110	)

(=) Total initial adoption	1,949,739

(+) Lease classified and recognized as finance lease as of December 31, 2018.	411,373

Lease liabilities on January 1, 2019	2,361,112

The Company evaluated whether there were indicators of impairment in its right-of-use assets at the transition date and there were no indicators of impairment.

All movements during the year ended 2019 related to IFRS 16 is presented in the note 16.

The following interpretation of standard was also adopted for the first-time starting January 1, 2019; however, it did not have significant effects on Company’s financial statements:

IFRIC 23 - Uncertainty over Income Tax Treatments

This interpretation clarifies how to apply the recognition and measurement requirements in IAS 12 – Income Taxes, when there is uncertainty over income tax treatment. In such a circumstance, an entity shall recognize and measure its current or deferred tax assets or liabilities, applying the requirements of IAS 12 based on taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, determined applying this interpretation.

4.	CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

The preparation of the consolidated financial statements requires management to make certain judgments and use assumptions and estimates based on experience and other factors considered relevant, which affect the values of assets and liabilities and which may present results that differ from actual results.

The significant judgments made by the Company are related to the recognition of revenue and leasing.

The areas that require a higher level of judgment and have greater complexity, as well as the areas in which assumptions and estimates are significant for the financial statements, are disclosed below.

4.1

Deferred Income tax and social contribution

The Company recognizes deferred assets and liabilities based on the differences between the carrying amount stated in financial statements and the tax base of assets and liabilities, using the statutory tax rates. The Company regularly reviews deferred tax assets in terms of the possibility of recovery, considering the historical profit generated and the projected future taxable income, based on technical feasibility study, reflecting the uncertainties related to its calculation, if any.

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4.2

Provision for tax, civil, and labor risks

The Company is a party to several lawsuits and administrative proceedings as described in note 20. Provisions are recorded for all contingent liabilities arising from lawsuits that represent probable and estimated losses and can be reliably estimated. The probably assessment includes the assessing available evidence, the hierarchy of laws, available previous decisions, most recent court decisions and their relevance within the legal system, and the assessment of the external legal counsel.

4.3

Post-employment healthcare plan

The current amount of the post-employment healthcare plan is contingent to a series of factors determined based on actuarial calculations, based on a series of financial and demographic assumptions, such as the discount rate, medical inflation and percentage of adhesion to the plan, which are disclosed in note 20.

4.4

Stock option plan, restricted share plan and strategy acceleration program

The stock option plan, restricted share plan and strategy acceleration program are measured at fair value at the grant date and the expense is recognized in profit or loss during the vesting period against “Additional paid-in capital” in shareholders’ equity. At the balance sheet dates, Management reviews the estimates as to the number of stock options/restricted shares and, where applicable, recognizes the effect arising from this review in profit or loss for period against shareholders’ equity. The assumptions and models used to estimate the fair value of the stock option plan, restricted share plan and strategy acceleration program are disclosed in Note 26.1.

4.5

Impairment loss

An impairment loss exists when the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, which is the higher of fair value less cost of disposal and value in use. Fair value less costs of disposal is calculated based on information available about similar assets sold or market prices less additional costs to dispose of the asset.

Value in use is calculated based on the discounted cash flow model. Cash flows derive from a budget prepared for the following five to ten years, according to the operating segment, and their projections consider the market’s expectations for operations, estimated investments and working capital, as well as other economic factors. The value in use is sensitive to the discount rate used under the discounted cash flow method, as well as the growth rate and perpetuity used for extrapolation purposes.

Details on this subject are presented in Note 15.

4.6

Trade receivables and provision for expected credit losses

The provision for expected losses on trade receivable from customers is estimated based on the weighting loss risk of each aging group. The characteristics of the Company’s trade receivable are:

•

Immaterial financial component;

•

Non-complex receivables portfolio; and

•

Low credit risk.

The Company adopted the simplified approach in calculating expected credit losses based on the lifetime credit loss at each reporting date. Prior to the adoption of IFRS 9 through December 31, 2017, we estimated an allowance for doubtful accounts based on an “aging list” model, under which the allowance was estimated based on the historical losses of each aging group. An estimated range was used using the weighted average of losses for the last 6 months. The calculation also considers the seniority of the independent beauty consultant’s length of relationship, and a division between renegotiated and non-renegotiated past due receivables.

Upon adoption of IFRS 9, starting January 1, 2018, we concluded that the methodology described above was in line with the expected credit losses model of IFRS 9, therefore, the initial adoption of IFRS 9 did not have a material impact in the estimation of the provision for expected credit losses on accounts receivable from customers that we currently apply.

4.7

Provision for inventory losses

The provision for inventory losses is estimated using methodology for including discontinued products, products with slow turnover, products expired or nearing expiration and products that do not meet quality standards. The results of provisions are stated in Note 9.

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5.	FINANCIAL RISK MANAGEMENT

5.1

General considerations and policies

Risks and financial instruments are managed through the definition of policies and strategies and implementation of control systems, defined by the Company’s Treasury Committee and approved by the Board of Directors. The compliance of the position in financial instruments, including derivatives, in relation to these policies, is presented and assessed on a monthly basis by the Company’s Treasury Committee and subsequently submitted to the analysis of the Audit Committee, the Executive Committee and the Board of Directors.

Risk management of Natura operations (Brazil, Latam, Netherlands, USA and France) is performed by the Company’s general treasury function, which is also responsible for approving the short-term investments and loan transactions. Risk management of the subsidiaries Aesop and The Body Shop is conducted by the local treasury departments, subject to monitoring and approval by the Company’s Central Treasury.

Below are presented the carrying amounts and fair values of the Company’s financial instruments as of December 31, 2019 and December 31, 2018:


						Carrying amount						Fair value
	Note		Classification by category	Fair value hierarchy		2019			2018			2019			2018
Financial assets
Cash and cash equivalent
Cash and banks		6	Fair value through profit or loss		Level 2		3,110,220			823,656			3,110,220			823,656
Certificate of bank deposits			Amortized cost		Level 2		211,261			1,274			211,261			1,274
Certificate of bank deposits			Fair value through profit or loss		Level 2		—			46,067			—			46,067

Repurchase operations			Fair value through profit or loss		Level 2		1,192,101			344,051			1,192,101			344,051

							4,513,582			1,215,048			4,513,582			1,125,048
Short term investments
Government bonds		7	Fair value through profit or loss		Level 2		221,900			402,895			221,900			402,895
Financial letter			Fair value through profit or loss		Level 2		374,690			574,310			374,690			574,310
Loan investment fund			Fair value through profit or loss		Level 2		407,928			210,971			407,928			210,971
Dynamo Beauty Ventures Ltd fund			Fair value through profit or loss		Level 2		7,402			—			7,402			—
Certificate of Bank deposits			Fair value through profit or loss		Level 2		21,327			27,201			21,327			27,201

							1,033,247			1,215,377			1,033,247			1,215,377
Trade receivables		8	Amortized cost		Level 2		1,685,764			1,691,581			1,685,764			1,691,581
“Financial” and “operating” derivatives “			Fair value – Hedge instrument		Level 2		737,378			578,289			737,378			578,289
“Financial” and “operating” derivatives “			Fair value through profit or loss		Level 2		—			6,019			—			6,019

							737,378			584,308			737,378			584,308
Financial liabilities
Issue of debts in domestic currency		17	Amortized cost		Level 2		(7,266,853	)		(4,771,511	)		(7,300,082	)		(4,962,723	)
BNDES/Finep loans			Amortized cost		Level 2		(145,590	)		(226,874	)		(145,590	)		(226,874	)
Issue of debts in foreign currency			Amortized cost		Level 2		(3,373,930	)		(2,995,760	)		(3,541,541	)		(3,277,738	)

							(10,786,373	)		(7,994,145	)		(10,987,213	)		(8,467,335	)
Lease liabilities			Amortized cost		Level 2		—			(446,235	)		—			(446,235	)
“Financial” and “operating” derivatives			Fair value – Hedge instrument		Level 2		(10,158	)		(69,189	)		(10,158	)		(69,189	)
“Financial” and “operating” derivatives			Fair value through profit or loss		Level 2		(1,648	)					(1,648	)

							(11,806	)		(69,189	)		(11,806	)		(69,189	)
Trade payables, reverse factoring operations and related parties		18	Amortized cost		Level 2		(1,829,756	)		(1,736,791	)		(1,829,756	)		(1,736,791	)

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5.2

Financial risk factors

The activities of the Group expose it to several financial risks: market risk (including currency and interest risks), credit risk and liquidity risk. The Company’s overall risk management program is focused on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance, using derivatives to protect certain risk exposures.

a) Market risk

The Company and the subsidiaries are exposed to market risks arising from their business activities. These risks mainly comprise possible fluctuations in exchange and interest rates.

One of the subjects currently in discussion in the international market, which could affect the operations of The Body Shop International Limited, is the withdrawal of the United Kingdom from the European Union, better known as Brexit. Despite many uncertainties on the outcome of the negotiations, the Management has been monitoring its impacts, as well as studying and taking measures to mitigate the negative effects that may arise from it. One of these measures was the installation of a new distribution center in Continental Europe, which aims to mitigate Brexit risks and help The Body Shop in implementing logistic improvements in order to reduce average days of store supply, in line with more comprehensive business transformation goals.

To hedge the current balance sheet positions of the Company and the subsidiaries against market risks, the following derivative instruments are used and consist of the balances in the following table, as of December 31, 2019 and December 31, 2018:


	Fair value (Level 2)
Description	2019			2018
Financial derivatives		727,068			512,365
Operational derivatives		(1,496	)		2,754

Total		725,572			515,119

The characteristics of these instruments and the risks which they are linked are described below.

b) Foreign exchange risk

The Company and the subsidiaries are exposed to the foreign exchange risk arising from financial instruments denominated in currencies different from their functional currencies. To reduce this exposure, Natura Cosméticos implemented policies to hedge against the foreign exchange risk that establish exposure limits linked to this risk.

The treasury area’s procedures defined based on the current policy include monthly projection and assessment of the Company and the subsidiaries foreign exchange exposure, on which management’s decision-making is based.

The Company’s exchange rate hedging policy considers the values of foreign currency receivables and payables balances of commitments already made and recorded in the financial information from the operations, as well as future cash flows, with an average of six months, still not recorded in the balance sheet.

The Body Shop has a specific foreign exchange hedging policy that covers foreign currency loans among the group companies, as well as future purchase and sale operations of goods, for a maximum period of 12 months.

As of December 31, 2019, and December 31, 2018, the Company and the subsidiaries are primarily exposed to the risk of fluctuation of the US dollar, euro and pound sterling. In order to hedge foreign exchange exposures in relation to foreign currency, the Company and the subsidiaries enter into transactions with derivative financial instruments such as “swap” and forward purchase of currency denominated (“Non-Deliverable Forwards - NDF”). Pursuant to the Foreign Exchange Protection Policy, the operating derivatives contracted by the Company must limit the loss related to the exchange devaluation in relation to the net income projected for the current year, given a certain estimate of exchange rate devaluation against the US dollar in cash flow projections exposed to this currency. This limitation defines the ceiling or maximum exchange exposure permitted to the Group in relation to the US dollar and Euro.

As of December 31, 2019, borrowings, financing and debentures balance sheets include accounts denominated in foreign currency which expose the Company to foreign exchange risks, in the aggregate, represent net liabilities of R$ 3,381,960 (R$3,012,897 as of December 31, 2018).

i) Derivatives to hedge foreign Exchange rate risk

The Company classifies derivatives into “financial” and “operational”. “Financial” derivatives include swaps or forwards contracted to hedge against the foreign exchange risk associated with foreign-currency-denominated borrowings, financing and intercompany loans, “operational” derivatives include derivatives contracted to hedge against the foreign exchange risk on the business’s operating cash flows.

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Outstanding swap contracts with maturities between January 2020 and February 2023 were entered into the counterparties represented by Bank of America (0.2%), HSBC (26.2%), Citibank (21.2%), Bradesco (26.2%) and Itaú BBA (26.2%). Currency forward contracts against the pound sterling mature within 12 months and were executed with counterparties represented by HSBC and Santander. Swap agreements in Mexican pesos and Chilean pesos have maturities of up to 6 months and were executed with the other party represented by HSBC. On December 31, 2019, the balances of financial derivatives were:

Financial derivatives


	Principal (notional) amount				Book value				Fair value				Gain (loss)
Description	2019		2018		2019		2018		2019		2018		2019		2018
Swap contracts (a):
Asset position:
Long position - U.S. dollar		2,664,001		2,381,918		3,416,707		3,038,908		3,729,691		3,295,032		312,984		256,124
Liability position:
CDI floating rate:
Short position in CDI		2,664,001		2,381,918		2,754,595		2,478,623		3,002,623		2,779,720		248,028		301,097

Swap contracts (a):
Asset position:
Long position - U.S. dollar		—		58,606		—		56,633		—		57,346		—		713
Liability position:
CDI floating rate:
Short position in CDI		—		58,606		—		59,525		—		60,293		—		768

Total net derivative financial instruments		—		—		662,112		557,393		727,068		512,365		64,956		(45,028	)

(a)	Swap transactions consist of swapping the exchange rate fluctuation for a percentage of the floating rate Interbank Deposit Rate - CDI.

The notional amount represents the amounts of the contracted derivatives. Fair value refers to the value of outstanding contracted derivatives recognized in balance sheets.

For derivatives maintained by the Company and the subsidiaries as of December 31, 2019 and December 31, 2018, due to the fact contracts are directly entered into with the financial institutions and not through B3, there are no margin calls deposited as guarantee of the related transactions.

Operational derivative

On December 31, 2019, the Company holds forward derivative instruments with HSBC and Santander in order to hedge against exchange rate risk on import and export operations of the subsidiary The Body Shop in foreign currencies against the pound sterling and U.S. dollar.

These derivatives are measured at fair value, with gains and losses recognized in the group of costs of products sold and are broken down as follows:


Description	Principal (notional) amount				Fair value
Description	2019		2018		2019			2018
Net position - GBP and USD		200,896		—		(2,008	)		—
Forward contracts		1,302,869		1,773,810		512			2,754

Total derivative instruments, net		1,503,765		1,773,810		(1,496	)		2,754

Sensitivity analysis

For the sensitivity analysis of the risk of foreign exchange rate exposure, the Company’s Management 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 value of the fair value of the financial instruments contracted by the Company for the protection of certain exposures as of December 31, 2019 and 2018, as shown in the following table:

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	2019			2018
Loans and financing registered in Brazil in foreign currency (*)		(3,381,959	)		(3,039,064	)
Receivables registered in Brazil in foreign currency		10,007			10,058
Accounts payable registered in Brazil in foreign currencies		(10,543	)		(11,006	)
Value of the financial derivatives		3,729,691			3,295,032

Net asset exposure		347,196			255,020

(*)

Excluding transaction costs.

This analysis considers only financial assets and liabilities registered in Brazil in foreign currency, since exposure to exchange variation 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 forecasted purchases and sales.

The tables below show the loss that would have been recognized in the subsequent period, assuming that the current net foreign exchange exposure remains static, based on the following scenarios:


Description	Risk		Probable scenario		Scenario II			Scenario III
Net exposure		Dollar decrease		158		(115,521	)		(346,880	)

The probable scenario considers future US dollar rates for 90 days. According to quotations obtained at B3 on the expected maturity dates of financial instruments with foreign exchange exposure, it is R $ 4.03 / US $ 1.00. Scenarios II and III consider a drop in the US dollar of 25% (R $ 3.02 / US $ 1.00) and 50% (R $ 2.02 / US $ 1.00), respectively. Probable scenarios II and III are being presented in compliance with CVM Instruction 475/08. Management uses the probable scenario in the assessment of possible changes in the exchange rate and presents the referred scenario in compliance with IFRS 7 - Financial Instruments: Disclosures.

The Group does not use derivative financial instruments for speculative purposes.

Derivative instruments designated for hedge accounting

The Company performed formal designation of its operations subject to hedge accounting for derivative financial instruments for hedging loans denominated in foreign currency of Natura Cosméticos S.A. and Natura Distribuidora de México, S.A. de C.V., and operating cash flows resulting from the purchase and sale denominated in foreign currency of The Body Shop, documenting:

•

The hedge relationship;

•

The Company’s objective and risk management strategy in taking out the hedge transaction;

•

Identification of the financial instrument;

•

The hedged item or hedge transaction;

•

The nature of the risk to be hedged;

•

Description of the hedge relationship;

•

The statement of correlation between hedge and hedged item, where applicable; and

•

The prospective statement of hedge effectiveness.

The positions of derivative financial instruments designated as outstanding cash flow hedge on December 31, 2019 as set out below:

Cash flow hedge instrument


											Others comprehensive income
	Hedged item		Notional currency		Notional value		Accrual value		Fair value (a)		Accumulated contract gain (loss)			Gain in the 9-month period
Currency Swap – US$/R$		Currency		BRL		2,664,001		662,112		727,068		64,956			109,523
Forward contract		Currency		GBP		1,038,538		625		152		(473	)		(2,245	)
Currency Swap - MXN/R$		Currency		MXN		—		—		—		—			59

(a)	The method used by the Company to determine fair value consists in calculating the future value based on the contracted conditions and determines present value based on market accrual extracted from B 3.

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The changes in cash flow hedge reserve booked under other comprehensive income are shown below:


Cash flow hedge balance as of December 31, 2018	(27,840	)
Change in the fair value of hedge instrument recognized in other comprehensive income	107,337
Tax effects on fair value of hedge instrument	(36,768	)

Cash flow hedge balance as of December 31, 2019	42,729

The Company designates as cash flow hedge derivative financial instruments used to offset variations from exposure to exchange rate, in the market value of contracted debts not in the functional currency.

On December 31, 2019, the consolidated position of instruments designated as cash flow hedge totaled R$ 3,702,539 (three billion, seven hundred and two million, five hundred and thirty nine thousand real) of notional amount, which R$ 2,664,001 is hedged against Real and £ 194,957 (R $1,038,538) is hedged against Pounds Sterling, as shown in the Cash Flow Hedge Instrument - Consolidated.

c) Interest rate risk

The interest rate risk arises from financial investments and short and long-term loans and financing. Financial instruments issued at variable rates expose the Company and its subsidiaries to the risk of cash flows associated with the interest rate. Financial instruments issued at the prefixed rates expose the Company and its subsidiaries to the fair value risk associated with the interest rate.

The Company’s cash flow risk associated with the interest rate arises from investments and short- and long-term loans and financing issued at floating rates. The Company’s Management adopts the policy of maintaining its rates of exposure to asset and liability interest rates pegged to floating rates. Short-term investments are adjusted by the Interbank Deposit Rate (CDI) whereas borrowings and financing are adjusted based on the Long-term Interest Rate (TJLP), CDI and fixed rates, according to the contracts made with the related financial institutions, and trading securities with investors in this market.

Sensitivity analysis

On December 31, 2019, there are loans and financing denominated in foreign currency and issued at fixed rates under contract “swap”, changing the interest over the liability to CDI fluctuation. The Company is, therefore, exposed to CDI fluctuation. The following table presents the exposure to interest rate risks of transactions pegged to CDI, including derivative transactions (loans and financing were considered at their full amounts, since 97% of them are linked to CDI rate):


Total borrowings and financing—in local currency (note 17)	(7,404,414	)
Operations in foreign currency with derivatives pegged to CDI (a)	(3,381,959	)
Short-term investments (notes 6 and 7)	2,429,207

Net exposure	(8,357,166	)

a)	This refers to transactions involving CDI-backed derivatives to hedge the loans and financing arrangements raised in foreign currency in Brazil.

The sensitivity analysis considers the exposure of borrowings and financing (Note 17), net of short-term investments, pegged to the CDI rate (notes 5 and 6).

The tables below set out projected incremental loss that will be recognized in income statement for the following year, assuming that the current net liability exposure will remain unaltered and the following scenarios:


Description	Risk	Probable scenario		Scenario II			Scenario III
Net liability	Rate increase		4,179		(86,706	)		(177,590	)

The probable scenario considers future interest rates obtained at B3 for the maturity dates of the financial instruments exposed to interest rate risks. Scenarios II and III consider an increase in the interest rate of 25% (5.4% per year) and 50% (6.5% per year), respectively, over the CDI rate of 4.35% per year (probably scenario).

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d) Credit risk

Credit risk refers to risk of a counterparty not complying with its contract obligations, which would result in financial losses for the Company. The Group’s sales are made to a high number of Natura’s Consultants and this risk is managed through a credit granting process. The result of this management is reflected in the ‘Provision for doubtful accounts’ under “Trade receivables”, as explained in note 8.

The Company is also subject to credit risks related to financial instruments contracted for the management of its business, primarily represented by cash and cash equivalents, short-term investments and derivative instruments.

The Company believes that the credit risk of transactions with financial institutions is low, as these are considered by the Management as prime banks.

The policy for Short-term Investments adopted by the Company’s Management establishes the financial institutions with which the Group can do business and defines fund allocation limits and the amounts that may be invested in each of these financial institutions.

e) Liquidity risk

Effectively managing liquidity risk implies to maintain enough cash and marketable securities, funds available through credit facilities used and the ability to settle market positions.

Management monitors the Group’s consolidated liquidity level considering the expected cash flows against unused credit facilities, as shown in the following table:


	2019			2018
Total current assets		9,430,057			6,455,759
Total current liabilities		(7,518,423	)		(4,566,881	)

Total net working capital		1,911,634			1,888,878

At December 31, 2019, the carrying amounts of financial liabilities, measured at amortized cost considering interest payments at a floating rate and the value of debt securities reflecting the forward market interest rates on the reporting date may be changed as floating interest rates change. Their respective original maturities, according to their original maturity and also that Company is in compliance with the contract’s covenants, are shown below:


	Less than one year		One to five years		Over five years		Total expected cash flow		Interest to be accrued			Carrying amount
Borrowings, financing and debentures		3,745,157		10,415,659		—		14,160,816		(3,374,443	)		10,786,373
Lease		657,483		1,988,671		443,492		3,089,646		(572,081	)		2,517,565
Payables to related parties, trade payables and reverse factoring operations		1,829,756		—		—		1,829,756		—			1,829,756

The Company also has the following credit line:

•

Up to seventy million British pounds (£70 million), with no guarantee, that can be withdrawn in installments to meet short-term financing needs of The Body Shop International Limited. This credit line is valid through March 2021 and is renewed automatically at the discretion of The Body Shop International Limited. Interest will be paid according to LIBOR or EURIBOR + 2.0% p.a.

•

Up to one hundred fifty million reais (R$150,000) in an unsecured credit line, which can be withdrawn in installments to meet the short-term financing needs of Natura Cosméticos S.A. This credit line is valid until January 2020. Interest would be paid at the CDI rate + 1.25% p.a.

As of December 31, 2019, the Company had not drawn down on these available credit lines.

5.3 Capital management

The Company’s objectives in managing its capital are to ensure that the Company is continuously capable of offering return to its shareholders and benefits to other stakeholders to maintain an optimal capital structure to reduce this capital cost. The Company monitors capital based on the financial leverage ratios. This ratio corresponds to the net debt divided by the total equity. The net debt corresponds to total borrowings and financings (including short- and long-term borrowings, as shown in the consolidated balance sheet), deducted from cash and cash equivalents and short-term investments (except for “Crer para Ver” funds).

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a) Fair Value Estimate

Financial instruments that are measured at fair value at the end of the reporting period as prescribed by IFRS 13 – Fair Value Measurement follow the hierarchy below:

•

Level 1: Evaluation based on prices quoted (unadjusted) in active markets for identical assets or liabilities. A market is considered active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s-length basis;

•

Level 2: Used for financial instruments that are not traded in active markets (for example, over-the-counter derivatives) and whose fair value is determined using valuation techniques that, in addition to the quoted prices, included in Level 1, use other inputs adopted by the market for assets or liabilities, whether directly (i.e. prices) or indirectly (i.e. derived from prices); and

•

Level 3: Inputs for assets or liabilities that are not based on the data adopted by the market (i.e. unobservable inputs).

As of December 31, 2019, and December 31, 2018, the measurement of Group’s derivatives falls under the Level 2 characteristics and there were no changes in levels in the period. The fair value of exchange rate derivatives (swap and forwards) is determined based on the exchange rate at the end of the reporting period, with the resulting amount being discounted to present value.

i) Fair values of financial instruments measured at amortized cost (Level 2)

Short-term investments

The carrying amounts of the short-term investments in Certificates of Bank Deposits measured at amortized cost approximate their fair values as transactions are conducted at floating interest rates.

Borrowings, financing and debentures

The carrying amounts of borrowings, financing and debentures are measured at their amortized cost and disclosed at fair value.

Trade receivables and payables

It is estimated that the carrying amounts of trade receivables and trade payables approximate their fair values in view of the short term of the transactions conducted.

The Group does not maintain any guarantees for past-due receivables and payables.

6.	CASH AND CASH EQUIVALENT


	2019		2018
Cash and banks		3,110,220		823,656
Certificate of Bank Deposits (a)		211,261		47,341
Repurchase agreements (b)		1,192,101		344,051

		4,513,582		1,215,048

(a)	As of December 31, 2019, investments in Certificate of Bank Deposits are remunerated at an average rate of 106.9% of CDI (101.0% of CDI as of December 31, 2018) with daily maturities redeemable with the issuer itself, without significant loss of value.

(b)

Repurchase agreements are securities issued by banks with a commitment by the bank to repurchase the securities, and by the client to resell the security, at a defined rate of interest and within a predetermined term, which are backed by public or private securities (depending on the bank) and are registered with the CETIP. On December 31, 2019, repurchase operations are remunerated at an average rate of 99.9% of CDI (100.0% of the CDI on December 31, 2018).

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7.	SHORT-TERM INVESTMENTS


	2019		2018
Loan investment funds		407,928		210,971
Certificate of Bank Deposits (a)		21,327		27,201
Treasury bills		374,690		574,310
Government bonds (LFT)		221,900		402,895
Dynamo Beauty Ventures Ltd. Fund (b)		7,402		—

		1,033,247		1,215,377

Current		1,025,845		1,215,377
Non-current		7,402		—

(a)	The balance on December 31, 2019, related to the “Crer para Ver” line within an Company’s exclusive fund is R$38,018 (R$26,829 on December 31, 2018).

(b)

Natura Cosméticos S.A. became member of a new venture capital vehicle—the Dynamo Beauty Ventures (DBV) fund - whose mission is to identify and invest in emerging brands in cosmetics and well-being segments, the focus on Europe and the USA, acquiring non-controlling interest in companies with tremendous growth potential and innovative business models in the long term.

The Company concentrates most of its investments in an exclusive investment fund. On December 31, 2019 the companies Natura &Co Holding S.A., Natura Cosméticos S.A., Natura Logística e Serviços Ltda, Indústria e Comércio de Cosméticos Natura Ltda., Natura Comercial Ltda., Natura Biosphera Franqueadora Ltda. and Instituto Natura have interest in shares of the Fund Essential Investment.

The value of the shares held by the Company is disclosed under “Investment Fund Exclusive” in the Company financial statements. The financial information of the Investment Fund, which the group has an exclusive interest (100 % of the shares), were consolidated, except for the shares of Instituto Natura, and the values of their portfolio were segregated by type of investment and classified as cash equivalents or short term investments, according to the accounting practices adopted by Natura Cosméticos.

The Essential is a Private Credit Multimarket Investment Fund managed, administrated and by custody of Itaú Unibanco Asset Management. Eligible assets in the portfolio are: government securities, CDBs, financial letters and repurchase agreements. There is no grace period for redemption of shares that may be redeemed at any time.

Breakdown of the exclusive fund portfolio on December 31, 2019 and December 31, 2018 is as follows:


	2019		2018
Certificates of deposit		21,327		73,268
Repurchase agreements		1,192,101		344,051
Treasury bills		374,690		574,310
Government bonds (LFT)		221,900		402,895

		1,810,018		1,394,524

8.	TRADE RECEIVABLES


	2019			2018
Trade receivables		1,793,759			1,820,823
Provision for doubtful accounts		(107,995	)		(129,242	)

		1,685,764			1,691,581

The balance of trade receivables in Consolidated is basically denominated in Brazilian reais, and approximately 68% of the outstanding balance as of December 31, 2019 (73% as of December 31, 2018), refers to real-denominated transactions. The remaining balance is denominated in several currencies and refers to sales by foreign subsidiaries.

Maximum exposure to credit risk at the reporting date is the carrying amount of each aging range, net of the provision for doubtful accounts, as shown in the aging list below:


	2019			2018
Current		1,501,958			1,491,773
Past due:
Up to 30 days		142,069			139,680
31 to 60 days		36,466			45,981
61 to 90 days		27,789			34,207
91 to 180 days		85,477			109,182
Provision for doubtful accounts		(107,995	)		(129,242	)

		1,685,764			1,691,581

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8.1

Changes in the provision for doubtful accounts

The changes in the provision for doubtful accounts for the period ended December 31, 2019 are as follows:


Balance at December 31, 2017	(117,553	)

Additions	(237,884	)
Write-offs (a)	228,495
Exchange variation	(2,300	)

Balance at December 31, 2018	(129,242	)

Additions	(209,515	)
Write-offs (a)	232,034
Exchange variation	(1,272	)

Balance at December 31, 2019	(107,995	)

(a)	Refers to accounts overdue for more than 180 days which are written off when the Company has no expectation of recovering the trade receivable and sales of customer portfolio.

8.2

Aging list of trade receivables and provision for doubtful accounts

The following table shows trade receivables by exposure to doubtful accounts on December 31, 2019 and 2018:


	2019					2018
	Trade receivables		Provision for doubtful accounts			Trade receivables		Provision for doubtful accounts
Current		1,501,958		(38,060	)		1,491,773		(13.035	)
Past due:
Up to 30 days		142,069		(14,311	)		139,680		(15.305	)
31 to 60 days		36,466		(6,663	)		45,981		(12.798	)
61 to 90 days		27,789		(6,333	)		34,207		(13.248	)
91 to 180 days		85,477		(42,628	)		109,182		(74.856	)

		1,793,759		(107,995	)		1,820,823		(129.242	)

9.	INVENTORIES


	2019			2018
Finished products		1,253,145			1,209,975
Raw materials and packaging		253,063			215,813
Promotional material		82,228			95,168
Work in progress		27,346			21,984
Provision for losses		(185,232	)		(178,268	)

		1,430,550			1,364,672

9.1 Changes in the provision for inventory losses

The changes in the provision for inventory losses for the year ended December 31, 2019 are as follows:


Balance at December 31, 2017	(160,010	)
Additions, net (a)	(180,084	)
Write-offs (b)	157,341
Exchange Variation	4,485

Balance at December 31, 2018	(178,268	)
Additions, net (a)	(147,140	)
Write-offs (b)	136,431
Exchange Variation	3,745

Balance at December 31, 2019	(185,232	)

(a)	Refer to the recognition of net provision for losses due to discontinuation, expiration and quality, to cover expected losses on the realization of inventories, pursuant to the Group’s policy.

(b)	Consist of write-offs of products discarded by the Group.

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10.

RECOVERABLE TAXES


	2019		2018
ICMS on purchase of goods (a)		434,832		420,835
Taxes on purchase of goods – subsidiaries abroad		39,475		42,198
Other taxes—foreign subsidiaries		1,825		112
ICMS on purchases of fixed assets		10,628		9,098
PIS and COFINS on purchases of fixed assets (b)		3,826		42,175
PIS and COFINS on purchase of goods(c)		280,087		194,382
Withholding PIS, COFINS and CSLL		2,378		2,085
IPI recoverable (d)		30,190		35,770
Others		1,613		1,238

		804,854		747,893

Current		395,640		379,253
Non-current		409,214		368,640

(a)	Accumulated Brazilian tax on the circulation of goods, interstate and intercity transportations and communication services (ICMS) tax credits were mainly generated from the purchases, which tax rate is higher than average sales rates and by increased exports.

(b)	Brazilian tax for the Integration Program Tax on Revenue (PIS) and Social Security Funding Tax on Revenue (COFINS)

(c)	Credits recognition related to the exclusion of the ICMS on the basis of calculation of PIS and COFINS, whose definition occurred during the financial year 2019 and credit arising from the calculation process for single-phase products.

(d)	Tax on Manufactured Products (IPI)

11.

INCOME TAX AND SOCIAL CONTRIBUTION

a)	Deferred

Deferred Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL) result from temporary differences in the Group. The balance of deferred taxes on tax losses and tax loss carryforwards was also recognized in certain subsidiaries and the Company.

The amounts are as follows:

i) Breakdown of deferred income tax and social contribution – Assets:


	2019			2018
Tax loss carryforwards and negative basis of social contribution tax		193,566			235,302
Allowance for doubtful accounts		51,151			28,215
Allowance for losses on inventories		50,593			47,509
Provision for tax, civil and labor contingencies (note 20)		53,377			68,305
Effect of changes in fair value of derivative instruments, including hedge accounting transactions (note 5.2.)		(247,163	)		(177,212	)
Provision for ICMS – ST (note 20)		24,659			41,129
Allowances for losses on advances to suppliers		898			2,789
Accrued benefits sharing and partnerships		17,483			14,590
Provision for profit sharing		54,427			77,912
Adjustment to useful life of assets		(118,632	)		(128,367	)
Provision carbon credits		8,297			4,208
Profit not realized in inventories		32,899			25,604
Provision for losses—property and intangible assets		(4,509	)		9,048
INSS with Suspended Liability (note 20)		17,757			14,250
Lease		22,268			14,325
Other temporary differences (a)		60,886			55,694
Post-employment healthcare plan		33,589			26,827
Fair value of identifiable net assets in business combinations of Emeis Holdings Pty Ltd		(24,516	)		(24,912	)
Stock option plan		112,095			39,950
Others expenses provision		35,323			23,234

Total		374,448			398,400

Deferred income tax and social contribution assets		769,268			728,892

Deferred income tax and social contribution liabilities		(394,820	)		(330,492	)

Income tax and social contribution		374,448			398,400

(a)	Refers to (i) the recognition of a provision to comply with accrual-basis accounting, reflecting the actual expenses incurred in the period, but without the issuance of invoices by suppliers, and (ii) deferred revenues

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Management assesses the possibility of offsetting deferred income tax assets and deferred income tax liabilities according to each jurisdiction. As a result, there is only one income tax liability position for The Body Shop International Limited.

ii) Breakdown of deferred income tax and social contribution –Liabilities:


	2019		2018
Fair value of identifiable net assets in business combination (a)		450,561		431,534

a)	The balance includes deferred income tax liability on the fair value of net identifiable assets in the acquisition of The Body Shop International Limited.

Management’s expectation is that tax credits will be realized as follows:


2020		444,258
2021		146,624
2022		83,635
2023		36,050
2024		14,963
2025 onwards		43,738

	769,268

With respect to tax credits on tax loss carryforwards and temporary differences, on the foreign subsidiaries listed below are not fully recorded due to the history of lack of taxable profit and taxable profit projections for the coming fiscal years.

As of December 31, 2019, and December 31, 2018, the amounts of tax losses on these subsidiaries are shown as follows:


Tax Loss	2019		2018
Natura (France e USA)		449,378		382,971
Aesop (Substantially by operations in the US, Germany and Brazil)		46,381		47,659
The Body Shop (Operations in the US, France and Brazil)		384,757		406,556

		880,516		837,186

b)	Reconciliation of income tax and social contribution:


	2019			2018
Income / (loss) After Taxes on Company formation		304,566			—
Taxes on Company formation(c)		206,592			—
Income / (loss) before income tax and social contribution excluding Taxes on Company formation		511,158			637,405
Income tax and social contribution at the rate of 34%		(173,794	)		(228,958	)
Benefit of expenses with research and technological innovation—Law nº 11.196 / 05 (a)		19,228			—
Tax incentives		12,457			10,794
Subsidy for investments (b)		24,864			12,505
Effect from differences of tax rates of entities abroad		26,907			14,077
Recognition of prior-year tax losses – USA and Mexico		—			70,065
Taxation of profits of subsidiaries abroad		(60,305	)		(12,694	)

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Unrecognized tax loss in the year	(8,893	)	(11,799	)
Tax Benefits of interest on equity (IOE)	37,628		40,208
Income tax contingency in international operations	(13,120	)	—
Post-employment healthcare plan	—		30,082
Exercise of stock options and restricted stock plans	9,697		—
Other permanent differences	(23,769	)	(49,306	)

Income tax and social contribution expenses	(149,099	)	(125,026	)

Income tax and social contribution—current	(94,781	)	(182,324	)
Income tax and social contribution—deferred	(54,318	)	57,298
Effective Rate- %	29,2		18,6

(a)	Refers to the tax benefit instituted by Law No. 11,196 / 05, which allows deduction directly in the calculation of income tax and the social contribution of the amount corresponding to 60% of the total expenses with research and technological innovation, observing the rules established in that Law.

(b)	The Company has ICMS tax incentives resulting from its regular operations (Investment subsidizing).

(c)

Tax on corporate formation resulted from the difference between the book value of Natura and the acquisition cost used for the purpose of contributing shares issued by Natura to the Company’s capital stock (Note 22c). Management believes that, although the amount of the referred special equity reserve formed part of the taxable income for tax purposes in Brazil the nature of this amount is different from the nature of other sources of taxable income in scope of IAS 12. The key differences are that (i) the Company has not generated any taxable profits and this tax is levied essentially on the equity increase that generates the special reserve for statutory purposes; (ii) the creation of the special reserve is, in substance, a reclassification matter; (iii) the tax is levied on the entity as a result of an additional equity increase from the contribution made in the Company; and (iv) future profits of the Company as well as future and historical profits of Natura will continue to be taxed in accordance with the tax legislation. The tax on the Company’s formation was recognized in the income statement and presented as “Taxes on Company formation”.

The changes in deferred asset and liability income tax and social contribution for the period ended December 31, 2019 were as follows:


	Asset			Liability
Balance at December 31, 2017		344,153			(422,369	)

Effect on profit or loss		52,384			4,914
Reserve for grant of options and restricted shares		12,167			—
Effect on other comprehensive income		26,916			—
Exchange variation on other comprehensive income		39			(51,338	)
Transfer between deferred income tax and social Contribution liability and asset		(37,259	)		37,259

Balance at December 31, 2018		398,400			(431,534	)

Effect on profit or loss		(67,136	)		12,817
Reserve for grant of options and restricted shares		44,844			—
Effect on other comprehensive income		(31,881	)		—
Exchange variation on other comprehensive income		30,221			(31,844	)

Balance at December 31, 2019		374,448			(450,561	)

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12.

JUDICIAL DEPOSITS

Represent the restricted assets of the Group related to amounts deposited and held by the courts until the litigation to which they are related is resolved.

The judicial deposits of the Group as of December 31, 2019 and December 31, 2018 are as follows:


	2019		2018
Unaccrued tax lawsuits (a)		203,403		173,027
Accrued tax lawsuits (b)		116,415		140,750
Unaccrued civil lawsuits		2,541		2,822
Accrued civil lawsuits (note 20)		426		649
Unaccrued labor lawsuits		8,683		6,991
Accrued labor lawsuits (note 20)		5,787		9,338

Total judicial deposits		337,255		333,577

(a)	The proceedings related to these judicial deposits are mainly related to ICMS - ST, highlighted on note 19 (a) - contingent liability - possible risk of loss.

(b)	The lawsuits related to these judicial deposits are mainly related to the sum of amounts disclosed in note 20, item (b) and the amount accrued as explained in the note 19.

Changes in the balances of escrow deposits for the period ended December 31, 2019 are presented below:


Balance at December 31, 2017	319,433

New deposits	19,691
Redemptions	(13,948	)
Interests	13,780
Write-offs for expenses	(5,379	)

Balance at December 31, 2018	333,577

New deposits	2,542
Redemptions	(7,556	)
Interests	13,352
Write-offs for expenses	(4,660	)

Balance at December 31, 2019	337,255

In addition to judicial deposits, the Company has contracted performance bonds for certain lawsuits. Details of these insurance policies are presented in note 32.

13.

OTHER CURRENT AND NON-CURRENT ASSETS


	2019		2018
Marketing and advertising advances		28,669		48,429
Supplier advances		102,225		76,707
Employee advances		13,983		12,965
Rent advances and guarantee deposits (a)		96,202		96,177
Prepaid insurance expenses		29,647		7,535
Customs broker advances—Import taxes		34,932		14,866
Assets held for sale		—		160
Carbon credits		3,508		10,317
Other		39,868		47,475

		349,034		314,631

Current		265,198		263,025
Non-current		83,836		51,606

(a)

Mainly related to: (i) advances of rental agreements that were not included in the initial measurement of lease liabilities / right-of-use of the subsidiary The Body Shop International Limited, in accordance with the exemptions on IFRS 16; and (ii) security deposits for the rental of certain stores of the subsidiaries The Body Shop International Limited and Emeis Holdings Pty Ltd. which will be returned by the lessor at the end of the rental agreements.

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14.

PROPERTY, PLANT AND EQUIPMENT


	Useful life range (in years)		2018			Additions			Write-offs			Reversal of impairment			Transfers			Other changes including exchange variation			2019
Cost Value:
Vehicles		2 to 5		78,072			12,463			(41,883	)		—			99			(3,173	)		45,578
Templates		3		203,814			1,499			(23,823	)		—			10,874			192			192,556
Tools and accessories		3 to 20		8,161			314			(445	)		—			3,910			34			11,974
Facilities		3 to 60		310,282			49			—			—			(1,534	)		975			309,772
Machinery and accessories		3 to 15		819,919			9,563			(1,259	)		—			54,336			(16,108	)		866,451
Leasehold improvements		2 to 20		577,217			46,869			(23,243	)		(1,958	)		20,645			(4,427	)		615,103
Buildings		14 a 60		940,002			2,245			—			(887	)		(555,221	)		818			386,957
Furniture and fixture		2 to 25		362,817			40,118			(3,031	)		(3,514	)		16,978			(15,641	)		397,727
Land		—		30,525			—			—			—			4,653			(21	)		35,157
IT equipment		3 to 15		263,524			21,976			(3,902	)		—			18,483			(2,853	)		297,228
Projects in progress		—		103,463			204,107			(2,247	)		—			(146,598	)		(2,714	)		156,011

Total cost				3,697,796			339,203			(99,833	)		(6,359	)		(573,375	)		(42,918	)		3,314,514

Depreciation value:
Vehicles				(31,784	)		(15,832	)		27,478			—			(7	)		3,221			(16,924	)
Templates				(191,501	)		(8,314	)		23,739			—			148			(10	)		(175,938	)
Tools and accessories				(2,954	)		(687	)		410			—			—			(24	)		(3,255	)
Facilities				(147,309	)		(20,703	)		—			—			1,234			(584	)		(167,362	)
Machinery and accessories				(379,050	)		(56,617	)		657			—			—			18,274			(416,736	)
Leasehold improvements				(217,167	)		(90,281	)		19,089			—			5,292			15,696			(267,371	)
Buildings				(191,422	)		(7,315	)		—			—			96,558			394			(101,785	)
Furniture and fixture				(138,078	)		(78,988	)		2,734			—			(184	)		20,543			(193,973	)
IT equipment				(161,817	)		(44,606	)		3,443			—			(936	)		6,635			(197,281	)

Total accrued depreciation				(1,461,082	)		(323,343	)		77,550			—			102,105			64,145			(1,540,625	)

Net total				2,236,714			15,860			(22,283	)		(6,359	)		(471,270	)		21,227			1,773,889

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	Useful life range (in years)		2017			Additions			Write-offs			Reversal of impairment			Transfers			Other changes including exchange variation			2018
Cost Value:
Vehicles		2 to 5		73,775			25,215			(20,835	)		—			320			(403	)		78,072
Templates		3		219,402			95			(23,925	)		—			7,930			312			203,814
Tools and accessories		3 to 20		6,404			57			—			—			1,499			201			8,161
Facilities		3 to 60		297,943			3,961			(223	)		—			2,108			6,493			310,282
Machinery and accessories		3 to 15		783,134			11,213			(433	)		—			4,807			21,198			819,919
Leasehold improvements		2 to 20		668,255			33,549			(9,477	)		(128	)		62,324			(177,306	)		577,217
Buildings		14 to 60		965,596			440			(94	)		57			9			(26,006	)		940,002
Furniture and fixture		2 to 25		797,929			34,887			(585	)		(2,896	)		11,373			(477,891	)		362,817
Land		—		30,525			—			—			—			—			—			30,525
IT equipment		3 to 15		294,401			24,488			(2,093	)		582			18,460			(72,314	)		263,524
Projects in progress		—		78,414			157,829			(3,214	)		—			(132,542	)		2,976			103,463

Total cost				4,215,778			291,734			(60,879	)		(2,385	)		(23,712	)		(722,740	)		3,697,796

Depreciation value:
Vehicles				(29,633	)		(16,524	)		14,065			—			10			298			(31,784	)
Templates				(201,313	)		(14,710	)		24,567			—			4			(49	)		(191,501	)
Tools and accessories				(2,393	)		(407	)		—			—			—			(154	)		(2,954	)
Facilities				(128,540	)		(17,333	)		—			—			(1	)		(1,435	)		(147,309	)
Machinery and accessories				(327,579	)		(56,399	)		257			—			—			4,671			(379,050	)
Leasehold improvements				(385,286	)		(82,950	)		7,867			—			529			242,673			(217,167	)
Buildings				(158,801	)		(43,092	)		—			—			—			10,471			(191,422	)
Furniture and fixture				(508,942	)		(89,478	)		458			—			269			459,615			(138,078	)
IT equipment				(196,617	)		(45,426	)		2,061			—			239			77,926			(161,817	)

Total accrued depreciation				(1,939,104	)		(366,319	)		49,275			—			1,050			794,016			(1,461,082	)

Net total				2,276,674			(74,585	)		(11,604	)		(2,385	)		(22,662	)		71,276			2,236,714

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15. INTANGIBLES


	Useful life range (years)		2018			Additions			Write-offs			Reversal (provision) of impairment			Transfers			Other changes including exchange variation (f)			2019
Cost value:
Software		2,5 to 10		1,089,900			83,064			(546	)		—			118,442			22,230			1,313,090
Trademarks and patents (Defined useful life)		25		111,801			—			—			—			(154	)		5,158			116,805
Trademarks and patents (Indefinite useful life)		—		2,040,067			—			—			—			—			131,518			2,171,585
Goodwill Emeis Brazil Pty Ltd. (a)		—		96,867			—			—			—			—			3,370			100,237
Goodwill The Body Shop International Limited (b)		—		1,348,670			—			—			—			—			85,699			1,434,369
Goodwill acquisition of The Body Shop stores		—		1,456			—												—			1,456
Relationship with retail clients		10		1,740			—			—			—			—			247			1,987
Key money (indefinite useful life) (c)		—		102,310			—			—			—			(101,001	)		16,492			17,801
Key money (Defined useful life) (d)		3 to 18		48,888			—			—			2,818			(39,283	)		24			12,447
Relationship with franchisees and sub franchisees (e)		15		590,588			—			(17,958	)		—			(371	)		30,699			602,958
Other intangible assets		2 to 10		121,697			145,483			(1,133	)		—			(146,364	)		(9,395	)		110,288

Total cost				5,553,984			228,547			(19,637	)		(2,818	)		(168,731	)		286,042			5,883,023

Amortization value:
Software				(483,666	)		(169,174	)		6,817			—			270			(3,594	)		(649,347	)
Trademarks and patents				(37,898	)		(4,330	)		—			—			154			(2,034	)		(44,108	)
Key money				(2,835	)		—			—			—			7,336			(6,698	)		(2,197	)
Relationship with retail clients				(1,149	)		(194	)		—			—			—			(596	)		(1,939	)
Relationship with franchisees and sub franchisees				(55,508	)		(43,150	)		—			—			371			2,515			(95,772	)
Other intangible assets				(22,383	)		(1,601	)		585			—			261			9,979			(13,159	)

Total accrued amortization				(603,439	)		(218,449	)		7,402			—			8,392			(428	)		(806,522	)

Net total				4,950,545			10,098			(12,235	)		2,818			(160,339	)		285,614			5,076,501

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	Useful life range (years)		2017			Additions			Write-offs			Reversal (provision) of impairment			Transfers			Other changes including exchange variation (f)			2018
Cost value:
Software		2,5 to 10		1,104,603			189,969			(3,702	)		90			8,299			(87,663	)		1,211,597
Trademarks and patents (Defined useful life)		25		103,076			610			—			—			—			8,115			111,801
Trademarks and patents (Indefinite useful life)		—		1,833,790			—			—			—			—			206,277			2,040,067
Goodwill Emeis Brazil Pty Ltd. (a)		—		91,302			—			—			—			—			5,565			96,867
Goodwill The Body Shop International Limited (b)		—		1,177,377			—			—			—			—			171,293			1,348,670
Goodwill acquisition of The Body Shop stores		—		—			1,434			—			—			—			22			1,456
Relationship with retail clients		10		1,638			—			—			—			—			102			1,740
Key money (indefinite useful life) (c)		—		57,863			3,357			(2,169	)		(4,236	)		17,175			30,320			102,310
Key money (Defined useful life) (d)		3 to 18		95,733			4,709			(419	)		(1,985	)		(1,171	)		(47,979	)		48,888
Relationship with franchisees and sub franchisees (e)		15		586,059			—			—			—			—			4,529			590,588

Total Cost				5,051,443			200,079			(6,290	)		(6,131	)		24,303			290,580			5,553,984

Amortization value:
Software				(476,269	)		(156,919	)		1,419			—			(1,713	)		127,430			(506,049	)
Trademarks and patents				(9,686	)		(13,403	)		—			—			—			(14,809	)		(37,898	)
Key money				(26,128	)		(10,089	)		418			—			72			32,892			(2,835	)
Relationship with retail clients				(503	)		(589	)		—			—			—			(57	)		(1,149	)
Relationship with franchisees and sub franchisees				(63,248	)-		(42,592	)		—			—			—			50,332			(55,508	)

Total accrued amortization				(575,834	)		(223,592	)		1,837			—			(1,641	)		195,791			(603,439	)

Net total				4,475,609			(23,513	)		(4,453	)		(6,131	)		22,662			486,371			4,950,545

a)	Goodwill on Emeis Holdings Pty Ltd. acquisition, classified as future economic benefits from synergies. It does not have defined useful life and it is subject to annual impairment tests;

b)	Goodwill arising from the acquisition of The Body Shop, classified as future economic benefits from synergies. It does not have defined useful life and it is subject to annual impairment tests;

Key money with an indefinite useful life refers to payments made to a former lessee for the right to rent the property in accordance with the lease agreement and which may be negotiated later with future lessees, in case the lease contract ends. This balance was considered as the scope of the lease standard (IFRS 16), applicable from January 1, 2019 (note 3.28). The balance not reclassified to the Right to Use the asset, refers to contracts that the standard exempts on the initial date as short-term contracts. The balance is not amortized and is subject to an annual impairment test;

Key money with definite useful life refers to payments made to a former lessee for the right to rent the property in accordance with the lease agreement and which may not be negotiated or recovered later. This balance was considered as the scope of the lease standard (IFRS 16), applicable from January 1, 2019 (note 3.28). The balance not reclassified to the Right to Use the asset, refers to contracts that the standard exempts on the initial date as short-term contracts. The balance is amortized over the term of the contracts;

The balance refers to identifiable intangible assets from relationship with The Body Shop franchisees and sub-franchisees (relationship where the franchisee owns all rights to operate within a territory) and sub-franchisees (relationship where a franchisee operate a single store within a market), with estimated useful life of 15 years; In 2019 there is a write-off related to agreements with sub-franchisees in Brazil.; and

f)	Includes inflation adjustment of Natura Argentina.

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a) Impairment testing of intangible assets as an indefinite useful life

Goodwill from the expected future profitability of acquired companies and intangibles assets with indefinite useful life was allocated to the CGU groups. In accordance with 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 it for impairment annually. CGU groups with intangible assets with indefinite useful life as of December 31, 2019 are presented bellows:


	2019
CGU Group / Operating Segment	Trademarks and patents		Goodwill		Total
Aesop		—		100,238		100,238
The Body Shop		2,169,019		1,434,369		3,603,388
Others		2,566		—		2,566

Total		2,171,585		1,534,607		3,706,192

The main assumptions used to calculate the fair value less cost to sell on December 31, 2019 are presented below:


	Aesop	The Body Shop
Measurement of impairment value (fair value less cost of disposal)	Discounted cash flow

Projected cash flow	Operating business cycle (approximately 5 years) with perpetuity.	Operating business cycle (approximately 5 years) with perpetuity.

Budgeted gross margin	Average of gross margin based on history and projections for the following 5 years.	Average of gross margin based on history and projections for the following 5 years.

Estimated costs	Costs based on historical data and market trends, optimization of retail operations (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%.

Discount rate	These cash flows were discounted using a discount rate after taxes of 11.52% p.a. for The Body Shop and 12.34% p.a. for Aesop 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 conducted a sensitivity analysis of (i) the discount rate and (ii) the 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 Management, there was no need to record impairment losses for the balances of these assets in the year ended December 31, 2019.

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16.

RIGHT OF USE AND LEASE

(a) Right of use


	Useful life in Years ⁽ⁱ⁾		First-time adoption (Note 3.28)		Additions			Write-offs			Transfers (ii)		Others changes			2019
Cost Value:
Vehicles		3		—		40,069			(146	)		—		95			40,018
Machinery and equipment		3 to 10		—		14,954			(40	)		—		664			15,578
Facilities		3 to 10		103,945		187,294			—			481,235		12,426			784,900
IT equipment		10		—		279			—			—		4			283
Retail stores		3 to 10		1,819,951		416,250			(76,022	)		150,374		39,824			2,350,377
Tools and accessories		3		—		2,650			—			—		153			2,803

Total cost				1,923,896		661,496			(76,208	)		631,609		53,166			3,193,959

Depreciation value:
Vehicles				—		(8,083	)		38			—		(64	)		(8,109	)
Machinery and equipment				—		(4,126	)		—			—		(191	)		(4,317	)
Facilities				—		(95,734	)		—			—		(1,456	)		(97,190	)
IT equipment				—		(209	)		—			—		(5	)		(214	)
Retail stores				—		(466,590	)		(2,968	)		—		6,226			(463,332	)
Tools and accessories				—		(882	)		—			—		(54	)		(936	)

Total accrued depreciation				—		(575,624	)		(2,930	)		—		4,456			(574,098	)

Net total				1,923,896		85,872			(79,138	)		631,609		57,622			2,619,861

The applied useful lives refer to agreements the Company is certain that it will use the underlying assets of the lease agreements in accordance with contractual conditions. On January 1, 2019, they corresponded to the remaining period of the agreements in force on the date of transition of the Lease standard.

ii)	Balances of Financial Lease recorded as Property, Plant and Equipment on December 31, 2018, of which R$481,235 at the consolidated, and balances of key money of retail stores, transferred from intangible assets, in the amount of R$150,374 at the consolidated.

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Values recognized in the income statement during 2019
Financial expense on lease	134,579
Amortization of right of use	575,624
Appropriation in the result of variable lease installments not included in the measurement of rental liabilities	31,023
Sublease revenue	(2,698	)
Short-term rental expenses and low-value assets	126,067
Expenses related to leases	22,214

Total	886,809

Values recognized in the financing cash flow statement Payment of leasing (principal)	497,905
Values recognized in the operating cash flow statement Payment of leasing (interest)	134,579
Variable lease payments not included in the measurement of rental liabilities	11,199
Short-term lease payments and low-value assets	69,162
lease-related payments	26,460

Total	739,305

b) Lease obligation


	2019		2018
Current		542,088		68,764
Non-current		1,975,477		377,471

The following table shows the changes in the balance of lease obligations for the year ended December 31, 2019:


Balance on December 31, 2018 (i)	446,235

First-time adoption of IFRS 16	1,949,739
New agreements	627,889
Payment of leasing (principal)	(497,905	)
Payment of leasing (interest)	(134,579	)
Recognition of financial charges	134,579
Write-offs (ii)	(86,319	)
Translation effects (other comprehensive income)	77,926

Balance on December 31, 2019	2,517,565

(i)	Refers to balances of Finance Lease, in accordance with standard IAS 17 – Leases, effective until December 31, 2018; and

(ii)	Mainly related to termination contracts related to lease of stores.

Maturities of the balance of non-current lease liabilities are shown below:


	2019		2018
2021		374,746		86,638
2022		361,688		57,942
2023		358,274		55,422
2024 onwards		880,769		177,469

		1,975,477		377,471

The table below shows the rates practiced, according to the deadlines:


Contracts maturity		Rate % p.a.
1 year		1.9 to 10.5
2 years		3.9 to 9.5
3 years		5.8 to 10.6
4 years		1.9 to 11.3

5 years		6.9 to 14.0

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6 years		1.9 to 10.2
9 years		8.2
10 years		13.6
15 years		9.0

17.

BORROWINGS, FINANCING AND DEBENTURES

2019

2018

Reference

Local Currency

Financing Agency for Studies and Projects (FINEP)

101,988

135,618

Debentures (a)

4,251,231

4,680,665

BNDES

35,390

73,384

BNDES – FINAME

183

735

Working capital – Operation Peru

—

20,979

Working capital – Operation Mexico

31,802

10,017

Working capital – Operation Aesop

100,438

59,850

Promissory Notes

2,883,382

—

Total in local currency

7,404,414

4,981,248

Foreign Currency

BNDES

8,030

17,137

Export Credit note (NCE)

81,210

—

Notes

3,090,490

2,995,760

Resolution n^o 4131/62

202,230

—

Total in foreign currency

3,381,960

3,012,897

Overall total

10,786,374

7,994,145

Current

3,354,355

1,113,095

Non-current

7,432,019

6,881,050

(a) Debentures

Current

246,017

934,359

Non-current

4,005,214

3,746,306


Reference	Currency	Maturity	Charges	Effective interest rate	Guarantees

A	Real	June 2023	Interest of 3.5% p.a. for the installment maturing in June 2023	3.5% p.a. for installments with expiration on June 2023	Guarantee of Natura Cosméticos S.A.

B	Real	August 2024	Interest of 109% to 112% of the CDI and 1.4% + CDI (Interbank Deposit Certificate), 1.75% + CDI, 1.00% + CDI and 1.15% + CDI, maturing in March 2020, September 2020, September 2021, September 2022 and August 2024.	109.5% - 113.1% CDI+1.15% - CDI+1.79%	None

C	Real	Through September 2021	Brazilian long-term interest rate (TJLP) + interest of 0.5% p.a. to 3.96% p.a. and fixed-rate contracts of 3.5% p.a. to 5% p.a. (PSI) (b)	TJLP + interest of 0.5% p.a. to 3.96% p.a. and fixed-rate contracts of 3.5% p.a. to 5% p.a. (PSI	Bank-issued guarantee letter

D	Real	Through March 2021	Interest of 4.5% p.a. + TJLP for contracts up to 2012 and for contracts executed as of 2013 fixed rate of 3% p.a. (PSI) (b); Contracts in August 2014 in May 2016 at fixed rate of 6% p.a. to 10.5% p.a.	Interest of 4.5% p.a. + TJLP for contracts up to 2012 and for contracts executed as of 2013 fixed rate of 3% p.a. (PSI) (b); Contracts in August 2014 in May 2016 at fixed rate of 6% p.a. to 10.5% p.a.	Fiduciary sale, guarantee of Natura Cosméticos S.A. and promissory notes

E	Peruvian Sol	July 2019	Interest of 3.99% p.a.	Interest of 3.99% p.a.	Guarantee of Natura Cosméticos S.A.

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F	Mexican peso	February 2021 and October 2020	Interest of 1.15% p.a. + TIIE (c)	Interest of 1.15% p.a. + TIIE (c)	Guarantee of Natura Cosméticos S.A.

G	Australian dollar	August 2021	USD Libor + interest of 0.92% p.a.	USD Libor + interest of 0.92% p.a.	Bank-issued guarantee letter

H	Real	December 2020	2.00% + CDI	CDI + 3,11%	Real guarantee of shares alienated from Natura Cosméticos S.A.

I	Dollar	October 2020	Interest of 1,8% p.a. a 2,3% p.a. + Resolucion n^o 635 (a)	Interest of 1,8% p.a. a 2,3% p.a. + Brazilian Resolution 635	Guarantee of Natura Cosméticos S.A. and bank-issued guarantee letter

J	Dollar	October 2020	Libor + interest 0.87% p.a. (a)	Libor + interest 0.87% p.a.	None

K	Dollar	February 2023	Interest of 5.375% p.a. (a)	6,1%	None

L	Dollar	May 2022	Libor +interest 1.1% p.a. (a)	Libor +interest 1.1% p.a. (a)	Guarantee of the subsidiary Indústria e Comércio de Cosméticos Natura Ltda.

(a)	Loans and financing for which swap contracts (CDI) were entered into. These loans and financing are not being shown net of their derivatives;

(b)	PSI-Investment Support Program; and

(c)	TIIE-interest rate of interbank equilibrium Mexico.

Changes in the balances of borrowings, financings and debentures for the year ended December 31, 2019 are presented below:


Balance at December 31, 2018	7,994,145

New borrowings and financing	5,346,145
Amortizations	(2,643,575	)
Financial charges accrued	494,422
Payment of financial charges	(499,798	)
Exchange variation (unrealized)	88,097
Exchange variation (realized)	5,903
Translation effects (other comprehensive income)	1,035

Balance at December 31, 2019	10,786,374

a)	Refers mainly reclassified leasing balances; and balances reclassified from government grants considering BNDES loans

Maturities of non-current borrowings, financing and debentures liabilities are as follows:


	2019		2018
2020		—		1,372,755
2021		2,279,759		2,226,402
2022		527,596		324,257
2023 onwards		4,624,664		2,957,636

		7,432,019		6,881,050

A description of the main bank loan and financing agreements as of December 31, 2019 is as follows:

a) Description on bank loans and financing

i) Debentures

On February 25, 2014, the Company conducted the 5th issuance of unsecured, registered debentures, not convertible into shares, amounting to R$ 600,000. A total of sixty thousand (60,000) debentures were issued, of which twenty thousand (20,000) debentures allotted in the 1st series, due on February 24, 2017, in the amount of R$ 214,385, twenty thousand (20,000) debentures allocated in the 2nd series, due on February 25, 2018, and twenty thousand (20,000) debentures allocated in the 3rd series, due on February 25, 2019, with remuneration corresponding to 107.00%, 107.5% and 108% of the accumulated variation of the average daily Interbank Deposits—DI, respectively.

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On March 16, 2015, the Company carried out the 6th issuance of registered, non-convertible and unsecured debentures of the Company, amounting to R$ 800,000. The issuance consisted of eighty thousand (80,000) debentures, of which forty thousand (40,000) were in the 1st series, maturing on March 16, 2018, twenty-five thousand (25,000) were in the 2nd series, maturing on March 16, 2019, and fifteen thousand (15,000) were in the 3rd series, maturing on March 16, 2020, remunerated at 107%, 108.25% and 109% respectively, of the accumulated variation of the average daily rate of Interbank Deposits (DI).

On September 28, 2017, the Company carried out the 7th issuance of registered, book-entry, non-convertible, unsecured debentures, in the total amount of R$ 2,600,000. A total of two hundred and sixty thousand (260,000) debentures were issued, of which seventy-seven thousand and two hundred seventy-three (77,273) were allocated in the 1st series, with maturity on September 25, 2020, and one hundred eighty-two thousand and seven hundred twenty-seven (182,727) allocated in the 2nd series, with maturity on September 25, 2021, remunerated at CDI rate + 1.4% p.a. and CDI rate + 1.75% p.a., respectively.

On February 16, 2018, the Company carried out the 8th issuance of non-convertible and unsecured debentures, with personal guarantee, in a single series, for public distribution with restricted placement efforts, in accordance with CVM Instruction 476 of January 16, 2009 (“Issuance”, “Restricted Offering”, “Debentures”, “CVM Instruction 476”, respectively), in the aggregate amount of R$ 1,400,000, whose proceeds will be used to settle the balance promissory notes. Compensatory interest was paid in three (3) installments, starting on the issuance date, with the first payment on August 14, 2018 and other payments on February 14, 2019 and maturity date on August 14, 2019. On September 28, 2018, there was partial amortization of one billion reais (R$ 1,000,000) due to early maturity, early optional redemption and optional extraordinary amortization, established in the indenture, and remuneration corresponding to 110% of accumulated variation of daily average rates of Interbank Deposits – DI. The debt balance of the 8th issuance amounting to R$ 400,000 was settled on maturity date, that is, August 14, 2019.

On September 21, 2018, the Company carried out the 9th issuance of non-convertible unsecured debentures, with personal guarantee, in three series, for public distribution with restricted placement efforts, in accordance with CVM Instruction 476 of January 16, 2009 (“Issuance”, “Restricted Offering”, “Debentures”, “CVM Instruction 476”, respectively), in the aggregate amount of R$ 1,000,000, used in the partial early amortization of R$ 1,000,000 related to the 8th issuance. The issuance consisted of one hundred thousand (100,000) debentures, of which thirty-eight thousand and nine hundred four (38,904) were in the 1st series, maturing on September 21, 2020, thirty thousand and eight hundred thirty-one (30,831) were in the 2nd series, maturing on September 21, 2021, and thirty thousand and two hundred sixty-five (30,265) were in the 3rd series, maturing on September 21, 2022, and paying remuneration corresponding to 109.5%, 110.5% and 112%, respectively, of the cumulative variation of the average daily rates of Interbank Deposits (DI).

On July 22, 2019, the Company carried out the 10th issuance of non-convertible unsecured debentures in four series, for public distribution with restricted placement efforts, in accordance with CVM Instruction 476 of January 16, 2009 (“Issuance”, “Restricted Offering”, “Debentures” and “CVM Instruction 476”, respectively), in the aggregate amount of R$ 1,576,450. A total of one hundred fifty-seven, six hundred forty-five (157,645) registered, book-entry, non-convertible and unsecured debentures were issued in four series, without the issuance of provisory or final certificates, at a nominal unit value of ten thousand reais (R$ 10,000), of which forty thousand (40,000) were in the 1st series, maturing on August 26, 2024, nine thousand, five hundred seventy (9,570) in the 2nd series, maturing on August 26, 2024, sixty-eight thousand, six hundred twenty-three (68,623) in the 3rd series, maturing on August 26, 2024, and thirty-nine thousand, four hundred fifty-two (39,452) in the 4th series, maturing on August 26, 2024, and paying remuneration corresponding to 100% of the cumulative variation of the average daily rates of Interbank Deposits (DI) plus 1% for the 1st series and 100% of the cumulative variation of the average daily rates of Interbank Deposits (DI) plus 1.15% for other series.

The funds from the 10th issuance were used: 1st grade: full amortization of the 8th issuance of debentures in the amount of R$ 400,000, 2nd grade: partial amortization of the 3rd grade of the 6th issuance in the amount of R$ 92,820, 3rd grade: partial amortization of the 1st grade of the 7th issuance in the amount of R$ 664,090, 4th grade: partial amortization of the 1st grade of the 9th issuance in the amount of R$ 382,960.

The appropriation of costs related to the issuance of debentures in the year ended December 31, 2019 was R$ 4,760 (R$ 19,307 as of December 31, 2018), recorded on a monthly basis under financial expenses, in accordance with the effective interest rate method. Issuance costs to appropriate totaled R$ 13,354 as of December 31, 2019 (R$ 8,986 as of December 31, 2018).

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ii) Notes

On February 1, 2018, a total of US$ 750 million was raised at a rate of 5.375% p.a. from maturing on February 1, 2023, with semiannual payments in February and August.

The proceeds from the Notes issued were fully used to pay part of the liabilities of the Company arising from the 3rd issuance of 74 commercial promissory notes, in a single series, in the amount R$ 3.7 billion, which were issued to finance the acquisition of The Body Shop International Limited.

Simultaneously to the issuance of the Notes in the international market, the Company contracted derivative instruments (“swaps”) to eliminate from profit or loss the exchange variations arising from the exposures of the principal contracted and interest owed in accordance with the contractual maturities of the respective issuance.

The appropriation of costs related to the issuance of Notes in the year ended December 31, 2019 was R$ 6,737 (R$ 5,364 on December 31, 2018), recorded on a monthly basis under financial expenses, in accordance with the effective interest rate method. Issuance costs to appropriate totaled R$ 22,782 on December 31, 2019 (R$ 26,167 on December 31, 2018).

iii) Export Credit nota (NCE)

On October 2, 2019, there was the funding of R$ 83.34 million, with the purpose of cash reinforcement, for working capital purposes, of Industria e Comércio de Cosméticos Natura Ltda. Said loan had been contracted for a period of one year, with maturity of interest quarterly and the principal at the end. The operation is linked to a perfect hedge at a cost of CDI + 0.60% p.a

Concomitant with the issuance of Export Credit Note (NCE) in the international market, the Company contracted derivative financial instruments (“swaps”) in order to eliminate exchange rate variations generated by the main interest due according to the contractual maturities of the respective issuance.

iv) Resolution n^o 4131/62

The Company takes out Letter of Credit– Transfer of Funds Raised Abroad in foreign currency via Resolution 4,131/62 with financial institutions due to favorable rates under certain circumstances. The funds raised in this operation will be allocated to finance the company’s working capital.

On May 20, 2019, a total of US$ 50 million was raised at Libor + 1.1% p.a. + the exchange rate variation, with semiannual interest payments in May and November, and maturing on May 20, 2022.

v) Promissory Notes

On December 20, 2019, the 1st issuance of Commercial Promissory Notes took place in two series, with R$ 2,200 million for the Commercial Notes of the first series, which were settled on January 14, 2020, and R$ 700 million for the Commercial Notes of the second series. The Commercial Notes were publicly distributed with restricted placement efforts, pursuant to CMV instruction No. 476 of January 16, 2009. The allocation of the resources of the first series was for the redemption of the Preferred Shares Series C, issued by the Avon. The allocation of the resources of the second series was for the payment of costs incurred in structuring the operation as well as cash reinforcement for eventual demands of the Company acquired.

The appropriation of costs related to the issuance of promissory notes in the year ended December 31, 2019 was R$ 11,135, recorded monthly under the financial expenses item according to the effective interest rate method. The balance of issuing costs to be settled as of December 31, 2019 is R$ 20,962.

b) Contract Covenants

Debentures

The Debentures clauses establish financial indicators 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 complies with such clauses.

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18.

TRADE PAYABLES AND REVERSE FACTORING OPERATIONS


	2019		2018
Domestic trade payables		1,581,759		1,511,576

Foreign trade payables (a)		105,073		80,714

		1,686,832		1,592,290
Reverse factoring operations (b)		142,924		144,501

		1,829,756		1,736,791

a)	Related to imports mainly denominated in US dollar, euro and pound sterling.

The Group has entered into contracts with Banco Itaú Unibanco S.A. for structuring, together with its major suppliers, the so-called “reverse factoring” operation, wherein suppliers transfer the right to receive their trade notes to the Bank, which, will become the creditor of the operation. This operation did not significantly change the previously agreed-upon terms, prices and conditions, and it does not affect the Company with financial charges practiced by the financial institution, on performing a thorough analysis of suppliers by category. As such, the Group discloses this operation under the heading Trade Payables and reverse factoring operations.

19.

TAX LIABILITIES


	Consolidated
	2019			2018
Ordinary ICMS		120,300			81,750
ICMS ST provision ^(a)		72,423			172,743
Taxes on invoicing – subsidiaries abroad		145,992			137,243
Social Security Tax (INSS) - suspension of the enforceability		50,147			40,541
Withholding tax (IRRF)		48,593			36,971
Other taxes payable - foreign subsidiaries		1,180			2,717
PIS and COFINS payable		1,207			—
INSS and service tax (ISS) payable		3,218			3,454
Others		399			—

		443,459			475,419

Judicial Deposits (note 12)		(62,356	)		(63,557	)

Current		320,890			310,093
Noncurrent		122,569			165,326

(a)	The Company has 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 Note 12.

20.

PROVISION FOR TAX, CIVIL AND LABOR RISKS

The Group is party to tax, labor and civil lawsuits. Management believes, based on the opinion of its legal counsel, that the provision for tax, civil and labor risks are sufficient to cover potential losses. This provision is broken down as follows:


	2019			2018
Tax		127,842			163,852
Civil		30,653			32,300
Labor		61,571			65,655

Total		220,066			261,807

Judicial deposits (note 12)		(60,272	)		(87,180	)

Current		18,650			20,389
Noncurrent		201,416			241,418

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a) Tax Risk

As of December 31, 2019, the Company is party to approximately 493 tax lawsuits (448 as of December 31, 2018). The balance deposited with the courts amounts to R$ 319,818 (R$ 313,777 as of December 31, 2018). Provisions are reviewed periodically based on the evolution of the lawsuits in order to reflect the best current estimate.

The following table presents the changes in balances in year ended December 31, 2019 and 2018:


	Provisions			Deposits
Balance on December, 31,2017		196,006			(24,943	)

Additions		81,435			(34,209	)
Reversals		(47,076	)		3,681
Payments		(16,659	)		—
Offset		(29,741	)		—
Transfer of tax liabilities		(20,056	)		(20,268	)
Inflation adjustment		(824	)		(1,454	)
Translation effects (other comprehensive income)		767			—

Balance on December 31, 2018		163,852			(77,193	)

Additions		14,497			(5,317	)
Reversals		(54,168	)		30,957
Payments		(1,150	)		—
Inflation adjustment		4,440			(2,506	)
Translation effects (other comprehensive income)		371			—

Balance on December 31, 2019		127,842			(54,059	)

b) Civil Risk

As of December 31, 2019, the Company is party to approximately 2,600 civil lawsuits (3,250 as of December 31, 2018), of which 2,387 were filed by Natura’s Consultants and consumers, most of which claiming compensation for damages. The balance deposited with the courts for the tax assessments notices above amounts to R$ 426 (R$649 as of December 31, 2018). Provisions are reviewed periodically based on the evolution of the lawsuits and the history of losses on civil claims in order to reflect the best current estimate.

The following table presents the changes in balances in year ended December 31, 2019 and 2018:


	Provisions			Deposits
Balance on December 31, 2017		27.153			(988	)

Additions		51.954			(276	)
Reversals		(39,071	)		640
Payments		(9,709	)		—
Inflation adjustment		397			(25	)
Translation effects (other comprehensive income)		1.576			—

Balance on December 31, 2018		32,300			(649	)
Additions		14,072			(357	)
Reversals		(4,766	)		579
Payments		(11,418	)		—
Inflation adjustment		309			1
Translation effects (other comprehensive income)		156			—

Balance on December 31, 2019		30,653			(426	)

c) Labor risks

As of December 31, 2019, the Company is party to approximately 1,500 labor lawsuits filed by former employees and service providers (approximately 1,850 as of December 31, 2018), claiming the payment of severance amounts, possible occupational disease, salary premiums, overtime and other amounts due, as a result of joint liability, and discussion about the recognition of possible employment relationship. The provision is periodically reviewed based on the progress of lawsuits and history of losses on labor claims to reflect the best current estimate

The following table presents the changes in balances in year ended December 31, 2019 and 2018:

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	Provisions			Deposits
Balance on December 31, 2017		58,887			(7,925	)

Additions		44,172			(7,002	)
Reversals		(31,300	)		5,862
Payments		(10,096	)		—
Inflation adjustment		4,773			(273	)
Translation effects (other comprehensive income)		(781	)		—

Balance on December 31, 2018		65,655			(9,338	)
Additions		45,983			(2,411	)
Reversals		(40,127	)		6,282
Payments		(14,611	)		—
Inflation adjustment		5,009			(320	)
Translation effects (other comprehensive income)		(338	)		—

Balance on December 31, 2019		61,571			(5,787	)

d) Contingent liabilities - possible losses

The Company is party to tax, civil and labor proceedings for which no provision has been set up because they involve possible risk of loss as assessed by management and its legal advisors.

As of December 31, 2019, contingent liabilities with possible risk of loss comprise 544 cases (498 at December 31, 2018), the amounts of which are presented below:


	2019			2018
Tax		3,503,392			3,265,543
Civil		61,532			63,910
Labor		77,295			115,240

Total contingent liabilities		3,642,219			3,444,693

Judicial deposits (note 12)		(136,258	)		(100,754	)

The main tax cases are the following:

The Company is party to administrative and judicial proceedings questioning lawfulness of amendments to state legislation related to ICMS-ST collection. On December 31, 2019, the amount being disputed was R$406,002 (R$321,772 on December 31, 2018) and R$114,819 was deposited with the courts (R$80,816 on December 31, 2018).

ii)

Notices served by the Brazilian IRS claiming IPI debts arising from the tariff classification adopted by the subsidiary Indústria e Comércio de Cosméticos Natura Ltda. for certain products. A decision is expected at the administrative level. The total amount under dispute on December 31, 2019 is R$218,204 (R$209,714 as of December 31, 2018).

iii)

Tax assessment issued by the São Paulo State Finance Department against the business unit branch of subsidiary Indústria e Comércio de Cosméticos Natura Ltda., seeking collection of State VAT (ICMS) under the tax substitution (ST), which was fully collected by the recipient of the goods, his distributor establishment, Natura Cosméticos S.A. It is awaiting a decision. The total amount in dispute as of December 31, 2019 is R$521,903 (R$506,258 as of December 31, 2018).

iv)

The Company and its subsidiary, Indústria e Comércio de Cosméticos Natura Ltda, in the operations in which it operates exclusively as a distributor, discuss judicially the condition brought by Decree No. 8.393/2015, which equated the industrial, for the purposes of incidence of the Tax on Industrialized Products—IPI, the interdependent wholesale establishments that sell products provided for in the said legal provision. The total amount under discussion on December 31, 2019 is R$ 389,017 (R$ 309,611 on December 31,2018). Infringement notice related to IRPJ and CSLL, transcript on September 30, 2009 and August 30, 2013, which are intended to question the tax deductibility of the amortization of goodwill resulting from the incorporation of shares of Natura Empreendimentos by Natura Participações S.A, and subsequent incorporation of both companies by Natura Cosméticos S.A. The Company is judicially discussing the legality of decisions that inferred injunction the embargoes of declarations submitted to discuss points crucial of the judgments which, by a majority of votes, denied provision to special appeals, maintaining the tax requirement. The total amount under discussion on 31 December 2019, which the Company considers as not probable of disbursement, is R$ 1,854,369. Of this amount, R$ 1,379,189 is classified as possible loss, and R$ 475,180 as remote loss, (R$ 1,336,927 as of December 31, 2018 with possibility of loss and R$ 459,686 with a remote probability of loss).

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The Company seeks to legally ensure the right to fruition of tax incentives related to research activities and development of technological innovation, without observance of the restrictions imposed by the regulation of the matter, in 2011, in apparent contrary to the law that disciplines the benefit. The amount under discussion on December 31, 2019 is R$ 170,320.

e) Contingent assets

The Company has outstanding lawsuits whose expectation of gain is probable according to the assessment of their legal advisors, but they are not registered in its Financial Statements until a favorable outcome is practically certain.

The Company and its subsidiary Indústria e Comércio de Cosméticos Natura Ltda. claim the refund of the PIS and COFINS installments collected with the inclusion of ICMS in its calculation bases from March 2004 to March 2007. The amounts adjusted for inflation involved in reclamation claims not registered as of December 31, 2019, totaled R$ 26,933 (R$ 93,321 on December 31, 2018).

The Company, based on the opinion of their legal advisors, observes IAS 37 and CIRCULAR/CVM/SNC/SEP/n^o 01/2019.

21. OTHER LIABILITIES


	2019		2018
Post-employment healthcare plan		98,792		78,904
Carbon credit		4,519		3,222
Exclusivity contract (a)		5,400		5,400
Crer para Ver (b)		51,543		28,368
Deferred revenue from performance obligations with customers (c)		76,250		63,662
Provisions for sundry expenses (d)		156,895		170,294
Provisions for rentals (e)		26,568		28,966
Provisions for apportionment of benefits and partnerships payable		7,860		11,542
Long-term incentives (f)		3,022		8,855
Fair value of operating lease (g)		—		25,843
Provision for restructuring (h)		3,401		2,004
Provision for store renovation		15,997		6,107
Other provisions		67,846		46,770

Total		518,093		479,937

Current		396,391		338,170
Noncurrent		121,702		141,767

a)	Exclusivity contract with a financial agent for a bank settlement services related to employee’s payroll. Recognized in the statement of income on a straight-line basis over the contractual terms which expires in March 2022;

b)	Social program contribution for developing the quality of education;

c)	Refers to deferral of revenue from performance obligations related to points-based loyalty programs, sale of gift cards not yet converted into products, and programs and events to honor direct selling consultants;

d)	Refers to provisions for sundry expenses to comply with the accrual method;

Refers to the (grace) period granted by lessors for the start of payment of rental of certain retail stores, for rental agreements that were not included in the initial measurement of lease liabilities / right-of-use of the subsidiary The Body Shop International Limited, in accordance with the exceptions permitted under IFRS 16;

f)	Refers to the variable compensation plans of the executives of the subsidiary Aesop;

g)	Refers to fair value adjustment of lease agreements identified in the business combination carried out in the acquisition of The Body Shop. These balances were eliminated as of January 1, 2019 with the implementation of IFRS 16; and

h)	It is a provision for costs directly related to the plan for changes in organizational structure of The Body Shop, which is approved by the Management and was already implemented and announced to those affected by the restructuring.

Post-employment healthcare plan

Post-employment healthcare plan as detailed in explanatory note No. 3.20 d). The medical plan when the employee leaves the Company is closed for new inclusion of active employees. . On December 31, 2019 and 2018 respectively, the weighted average duration of the obligation is 20.8 and 16 years, and its actuarial calculation base assessed:

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•

1,175 (2018: 1,247) active employees of the companies;

•

477 (2018: 264) retired and dependent on companies.

The actuarial liabilities were calculated as of December 31, 2019 and 2018 considering the main assumptions below:


	2019	2018
Discount rate	7.39%	9.17%
Initial rate of medical cost growth	7.17%	10.76%
Inflation rate	3.80%	4.00%
Final rate of medical cost growth	7.17%	5.04%
Growth rate of medical costs due to aging - costs	Per age range 1.54% to 4.5% p.a.	3.50%
Growth rate of medical costs by aging -contributions	0.00%	0.00%
Percentage of adherence to the plan in retirement	87.00%	89.00%
Invalidity entry board	Mercer Disability	Wyatt 85 Class 1
General mortality board	AT-2000	RP2000
Turnover board	Formula proportional to service time	T-9 service table

The Maintenance of the initial level of growth in medical cost at 3.25% real and the reduction of the discount rate from 9.17% p.a to 7.54% p.a, generated R$ 29,660 loss.

Below we present the sensitivity analysis of the Medical Inflation Rate and the Discount Rate, if the behavior of such a rate increased or reduced by 1% and its respective effect on the balance (Present Value of the Obligation) calculated on actuarial liabilities (keeping the other premises):


	Rate		Chance		VPO
Discount rate		7.39%		1% increase		81,091
Discount rate		7.39%		1% decrease		122,270
Medical inflation		7.17%		1% increase		121,259
Medical inflation		7.17%		1% decrease		81,493

Below we present the movements of actuarial liabilities for the years ended December 31, 2019 and 2018:


	2019			2018
Balance at the beginning of the year ended		(78,904	)		(109,126	)
Cost of the Company´s current service		(816	)		(1,915	)
Cost of interest		(7,125	)		(9,100	)
Cost of past services – change in plan		—			45,965
Expenses paid		2,427			2,302
Actuarial Gains (Losses) in other comprehensive results		(14,374	)		(7,030	)

Balance at the end of the year ended		(98,792	)		(78,904	)

22.

SHAREHOLDER’S EQUITY

a) Issued Capital

As of December 31, 2019, the Company’s share capital is R$ 1,485,436, composed of 865,660 nominal common shares, with no nominal value.

The composition of this capital is demonstrated in the table below:

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Date	Description	Number of shares		Value in R$
January 21, 2019	Initial share capital		100		10
May 14, 2019	Payment of capital		—		90
November 13, 2019	Contribution of controlling shareholders in shares - exchange of shares of Natura Cosméticos for the Company		495,393,460		1,115,169,982
December 16, 2019	Contribution of cash controlling shareholders - purchase of shares of minority shareholders of Natura Cosméticos S.A.		370,266,482		370,266,482

December 31, 2019	Total shares capital subscribed and paid-up				1,485,436,564

b) Dividend and interest on equity payment policy

The shareholders are entitled to receive every year a mandatory minimum dividend of 30% of net income, considering principally the following adjustments:

•

Increase in the amounts resulting from the reversal, in the period, of previously recognized reserves for contingencies.

•

Decrease in the amounts intended for the recognition, in the period, of the legal reserve and reserve for contingencies.

•

Whenever the amount of the minimum mandatory dividend exceeds the realized portion of net income for the year, management may propose, and the General Meeting approves, allocate the excess to the constitution of the unrealized profit reserve (article 197 of Law 6,404/76).

The management board may pay or credit interest on equity in accordance with applicable law.

c) Capital reserve

The Incorporation of Shares resulted in the issuance of Natura &Co shares by the total subscription price of R$ 1,101,013,735 corresponding to the amount attributed to Natura Cosmetics shares incorporated by Natura &Co. Of this total, the amount of R$ 370,266,482 was allocated to the share capital account and the rest, in the amount of R$ 730,478,428 was allocated to the Company’s capital reserve. This incorporation of shares was approved at Natura &Co’s by the Extraordinary Shareholders Meeting on November 13, 2019.

Based on the Extraordinary General Meeting held on November 13, 2019, the controlling shareholders of Natura contributed shares issued by the Company of their own, corresponding to 57.3% of the capital of Natura for investment in the Company with the same corresponding interest of Natura, as well as an additional cash amount of R$ 206,592, sufficient for the Company to pay the income tax due to the difference between the book value of Natura and the acquisition cost used for the purpose of contributing shares issued by Natura to the Company’s capital stock. The recognition of this additional cash received was recorded as a special equity reserve.

The capital reserve at December 31, 2019 is R$ 1,302,990.

d) Equity valuation adjustment - Other comprehensive income

The Company records in this account the effect of exchange rate variation on investments in foreign subsidiaries, including exchange variations in hyperinflationary economy, actuarial gains and losses from the retirees’ healthcare plan result from cash flow hedge. For exchange rate variation, the accumulated effect will be reversed into profit or loss for the year as gain or loss only in the case of investment disposal or write-off. For actuarial gains and losses, the amounts will be recognized upon actuarial liability revaluation. The cash flow hedge transactions will be transferred to profit or loss for the year when an ineffective portion is identified and/or upon termination of the relationship.

23.

SEGMENT INFORMATION

Prior to the January 2020 announcement of the acquisition of Avon, our chief executive officer, who is our chief operating decision maker, managed our operations as five reportable business segments: Natura Brasil, Natura Latam, The Body Shop, AESOP and others.

During the first quarter of 2020, the Company’s management, including the chief executive officer, who is the chief operating decision maker, changed the way it monitors performance, aligns strategies, and allocates resources, which resulted in a change in the Company’s reportable segments, as follows:

•

Natura &Co Latam Operation – 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

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•

Aesop International – all Aesop operations, except those located in Brazil and Latin America.

IFRS 8, requires restatement of corresponding information for earlier periods If an entity changes the structure of its internal organization in a manner that causes the composition of its reportable segments to change.

Following the guidance of IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, segment information for all periods presented in these consolidated financial statements have been recast to conform it to the Company’s new segment presentation.

The accounting practices applied for each segment are the same as those described in Note 3.

The following table shows our net revenue, net income (loss) by segment for the years indicated:

a) Segment Information


	December 31, 2019 (as restated)
	Reconciliation to profit (loss) for the year
	Net revenue		Performance assessed by the Company			Depreciation and amortization			Financial income		Financial expenses			Income tax			Net income (loss)
Natura & Co Latam		9,113,856		1,372,172			(370,953	)		1,893,333		(2,613,294	)		41,623			322,880
Aesop International		1,302,174		351,944			(186,542	)		9,337		(34,204	)		(47,768	)		92,768
TBS International		4,028,660		806,357			(559,921	)		44,953		(99,765	)		(37,736	)		153,888
Corporate expenses (a)		—		(61,809	)		—			8,161		(48,611	)		(311,810	)*		(414,069	)

		14,444,690		2,468,664			(1,117,416	)		1,955,784		(2,795,874	)		(355,691	)		155,467

*	include the corporate income tax (“IRPJ”) an amount of R$206,592 related to formation of the Company


	December 31, 2018 (as restated)
	Reconciliation to profit (loss) for the year
	Net revenue		Performance assessed by the Company			Depreciation and amortization			Financial income		Financial expenses			Income tax			Net income (loss)
Natura & Co Latam		8,540,167		1,442,041			(318,506	)		1,925,524		(2,501,451	)		(149,709	)		397,900
Aesop International		1,061,531		165,084			(65,401	)		4,608		(2,239	)		(36,004	)		66,047
TBS International		3,795,721		341,518			(206,004	)		126,289		(136,019	)		25,994			151,778
Corporate expenses (a)		—		(102,039	)		—			—		—			34,693			(67,346	)

		13,397,419		1,846,604			(589,911	)		2,056,421		(2,639,709	)		(125,026	)		548,379


	December 31, 2017 (as restated)
	Reconciliation to profit (loss) for the year
	Net revenue		Performance assessed by the Company			Depreciation and amortization			Financial income		Financial expenses			Income tax			Net income (loss)
Natura & Co Latam		7,730,307		1,497,215			(276,237	)		587,153		(984,757	)		(236,348	)		587,026
Aesop International		704,142		112,403			(46,113	)		11		(1,828	)		(47,240	)		17,234
TBS International		1,418,259		232,248			(61,002	)		17,228		(5,256	)		(51,494	)		131,723
Corporate expenses (a)		—		(99,873	)		—			—		—			34,141			(65,732	)

		9,852,708		1,741,993			(383,352	)		604,392		(991,841	)		(300,941	)		670,251

(a)

Corporate expenses refer substantially to the expenses related to (i) the process of acquiring the control of Avon and the corporate restructuring of the Company during the fiscal year 2019; (ii) some administrative departments that provide services to all group companies; and (iii) the Group’s Operational Committee (COG), which was established to support the Company’s operations, to determine and allocate funds and to identify synergies among companies controlled by the Company. These expenses were not allocated to any segment.


	December 31, 2019 (as restated)
	Non-current assets		Total assets		Current liabilities		Non-current liabilities
Natura & CoLatam		4,574,087		9,328,858		3,116,454		8,235,678
TBS International		6,146,960		7,369,250		1,065,447		1,477,149
Aesop International		1,033,408		1,435,830		255,616		590,917
Corporate		—		3,050,574		3,080,906		—

	11,754,455		21,184,512		7,518,423		10,303,744

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	December 31, 2018 (as restated)
	Non-current assets		Total assets		Current liabilities		Non-current liabilities
Natura & CoLatam		3,992,000		8,904,065		3,650,203		7,652,955
TBS International		4,518,655		5,709,760		681,660		504,592
Aesop International		413,136		765,724		235,018		81,019

		8,923,790		15,379,549		4,566,881		8,238,566


	December 31, 2017 (as restated)
	Non-current assets		Total assets		Current liabilities		Non-current liabilities
Natura & CoLatam		3,468,885		9,284,786		6,160,736		5,784,386
TBS International		4,051,392		5,022,279		642,754		461,336
Aesop International		380,876		650,397		108,515		164,989

		7,901,153		14,957,462		6,912,005		6,410,711

b) Net revenue and Non-current assets by geographic region


	Net revenue		Net revenue		Net revenue		Non-current assets		Non-current assets
	2019		2018		2017		2019		2018
Asia		782,940		666,154		316,475		368,430		115,709
North America		1,750,957		919,826		857,361		981,673		272,296
Mexico		767,361		616,883		419,170		183,250		125,266
Other		983,596		302,943		438,191		798,423		147,030
South America		8,340,025		8,534,263		7,308,229		4,378,675		3,964,645
Brazil		6,324,227		6,082,896		5,624,295		4,197,258		3,704,613
Argentina		794,749		711,425		817,880		63,050		48,005
Other		1,221,049		1,739,942		866,054		118,367		212,027
Europe		2,909,968		2,660,243		1,000,843		5,306,111		4,110,794
United Kingdom		2,115,385		1,877,475		664,858		4,678,139		3,885,666
Other		794,583		782,768		335,985		627,972		225,128
Oceania		660,800		616,933		369,800		719,566		460,346

Consolidated		14,444,690		13,397,419		9,852,708		11,754,455		8,923,790

The Company has predominantly a class of products denominated as “Cosmetics”.

No individual or aggregate customer (economic group) represents more than 10% of the Company’s net revenues.

24.

NET REVENUE


	2019			2018			2017
Gross revenue:
Domestic market		8,907,766			8,575,971			7,963,375
Foreign market		10,739,036			9,936,334			5,773,637
Other sales		61,302			49,657			13,864

		19,708,104			18,561,962			13,750,876

Returns and cancellations		(73,183	)		(54,522	)		(50,477	)
Commercial discounts and rebates		(1,292,134	)		(1,421,251	)		(608,168	)
Taxes on sales		(3,898,097	)		(3,688,770	)		(3,239,523	)

Net revenue		14,444,690			13,397,419			9,852,708

Substantially, Natura’s revenue refers to direct sales and TBS and AESOP retail sales.

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25.

OPERATING EXPENSES AND COST OF SALES


	2019		2018		2017
Breakdown by function
Cost of sales		4,033,454		3,782,843		2,911,077
Selling, marketing and logistics expenses		6,395,586		5,828,713		3,965,019
Administrative, R&D, IT and Project expenses		2,405,576		2,251,341		1,535,945

Total		12,834,616		11,862,897		8,412,041


Breakdown by nature


	2019		2018		2017
Cost of sales		4,033,454		3,782,843		2,911,077

Raw material/packaging material/resale		3,457,481		3,223,446		2,402,340
Personnel expenses (Note 26)		293,374		276,848		261,859
Depreciation and amortization		57,443		65,157		69,433
Others		225,156		217,392		177,445
Selling, marketing and logistics expenses		6,395,586		5,828,713		3,965,019

Logistics costs		797,055		750,238		669,657
Personnel expenses (Note 26)		1,667,202		1,656,611		1,027,690
Marketing, sales force and other selling expenses		3,164,875		3,191,895		2,142,220
Depreciation and amortization		766,454		229,969		125,452
Administrative, R&D, IT and project expenses		2,405,576		2,251,341		1,535,945

Investments in innovation		89,675		102,436		80,027
Personnel expenses (Note 26)		1,223,586		1,036,866		692,242
Other administrative expenses		798,796		817,254		575,209
Depreciation and amortization		293,519		294,785		188,467
Total		12,834,616		11,862,897		8,412,041

26.

EMPLOYEE BENEFITS


	2019		2018		2017
Payroll, profit sharing and bonuses		2,315,517		2,350,182		1,510,175
Pension Plan		93,528		41,923		7,099
Share-based payments (note 30.1)		58,855		40,505		19,136
Charges on restricted shares (note 30.1)		59,753		22,428		7,801
Health medical care, food, transportation and other benefits		253,510		177,135		197,524
Charges, taxes and social contributions		231,384		181,240		93,910
INSS		171,615		156,912		146,146

Total		3,184,162		2,970,325		1,981,791

26.1

Share-based Payment

The Board of Directors meets annually in order to establish the share-based payment plans, as approved by the Shareholders Meeting, indicating the Managers and employees who may receive stock options to purchase or subscribe to shares of the Company and the total number to be distributed.

Stock-based payment plans were originally awarded considering Natura’s shares that were traded at B3. However, as part of the Corporate Restructuring (Note 1), on December 18, 2019, the Company began trading its own shares and Natura’s shares ceased to be traded. As a result, Natura’s shares originally granted were exchanged for Natura &Co’s shares. Such a modification did not impact the executives and their shares under the respective plans.

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Options granted in 2019

On April 12, 2019, the Board of Directors of Natura approved the Stock Option plan, the Restricted Stock plans and the Strategy Acceleration Stock Option plans for 2019.

On May 21, 2019, the Board of Directors approved the 2019 Share-Based Compensation Plan, based on performance indicators for 2019. This plan consists of granting common shares of the Natura to eligible employees and, unless otherwise determined by the Board of Directors, participants will fully receive the shares under the Share-Based Compensation Plan if: (i) the participant remains an employee of Natura and its subsidiaries until the 3^rd anniversary of the grant date; and (ii) certain performance conditions are met. For certain participants, there is a special condition for item (i) above, in which 50% of shares under the Share-Based Compensation Plan will be acquired on the 3^rd anniversary of the grant date and the remaining 50% on the 4^th anniversary of the grant date.

The changes in the number of outstanding stock options and their related weighted-average prices, as well as variations in the amount of restricted shares are as follows:

Stock Option Plan and Strategy Acceleration Plan


	Average exercise price per option¹ - R$			Options (thousands)¹
Balance on December 31, 2018		15.96			18,342
Granted		23.54			3,636
Expired		29.42			(1,132	)
Exercised		14.61			(3,278	)

Balance on December 31, 2019		16.51			17,568


	Restricted shares (thousands)¹			Performance shares (thousands)²
Balance on December 31, 2018		2,884			—
Granted		1,328			688
Expired		(122	)		—
Exercised		(998	)		—

Balance on December 31, 2019		3,092			688

¹	The number of restricted shares and performance shares granted, expired and exercised are shown already considering the stock split approved at the Extraordinary Shareholders Meeting held on September 17, 2019.

²	The number of Restricted Shares and Shares per performance granted, expired and exercised are shown considering the split of shares approved at the General Meeting on September 17, 2019.

Of the 17,568 thousands ¹ options existing as of December 31, 2019 (18,342,000 options as of December 31, 2018) 604¹,000 options (3,344,000 options as of December 31, 2018) were exercised.

The options exercised in the year ended December 31, 2019, resulted in the use of 3,339,000 new shares issued and the use of 1,148,000 shares in the treasury stock balance (use of 98,000 treasury stock balance shares in the year ended December 31, 2018).

The expense related to the fair value of the options and restricted shares, including the charges related to restricted shares, recognized in the year ended December 31, 2019, according to the period elapsed for the acquisition of the right to exercise of options and restricted shares, was R$ 119,659 in the consolidated financial statements. In the year ended December 31, 2018 and 2017, the expense recognized was R$ 62,933 and R$ 26,937 in the consolidated financial statements, respectively.

Options for buying outstanding shares and restricted shares at the end of the year have the following due dates and fiscal year prices:

As of December 31, 2019 -Stock option plan


Grant date	Right acquisition conditions	Exercise price - R$	Fair value¹	Existing options	Remaining contractual life (years)		Vested options (thousands)
March 18, 2013	4 years of service as from the grant date	37.60	6.05	565		1.2		—
March 17, 2014	4 years of service as from the grant date	25.16	4.27	133		2.2		133
March 16, 2015	From 2 to 4 years of service as from the grant date	13.60	4.85 to 5.29	226		3.3		225
July 28, 2015 (Strategy acceleration)	From 4 to 5 years of service as from the grant date	12.90	6.20 to 6.23	1,295		3.6		—

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March 15, 2016	From 2 to 4 years of service as from the grant date	12.84	7.16 to 7.43	344	4.3	143
July 11, 2016 (Strategy acceleration)	From 4 to 5 years of service as from the grant date	11.41	6.84 to 6.89	2,640	4.6	—
March 10, 2017	From 2 to 4 years of service as from the grant date	12.59	6.65 to 6.68	741	5.3	103
March 10, 2017 (Strategy acceleration)	From 4 to 5 years of service as from the grant date	12.59	6.87 to 6.89	2,210	5.3	—
March 12, 2018	From 2 to 4 years of service as from the grant date	16.96	7.96 to 8.21	2,059	6.3	—
March 12, 2018 (Strategy acceleration)	From 3 to 5 years of service as from the grant date	12.16 a 16.96	8.21 to 9.67	3,800	6.3	—
April 12, 2019	From 3 to 4 years of service as from the grant date	23.54	11.71 to 11.82	1,655	7.3	—
April 12, 2019 (Strategy acceleration)	From 4 to 5 years of service as from the grant date	23.54	11.51 to 11.71	1,900	7.3	—

				17,568		604

¹	The number of restricted shares and performance shares granted, expired and exercised are shown already considering the stock split approved at the Extraordinary Shareholders Meeting held on September 17, 2019.

As of December 31, 2019 - restricted shares

Grant date

Right acquisition conditions

Existing stock¹

Fair value (R$)

Remaining
contractual life
(years)

Vested stock
(thousands)²

March 15, 2016

From 2 to 4 years of service as from the grant date

227

11.98 to 12.85

0.5

March 10, 2017

From 2 to 4 years of service as from the grant date

465

11.69 to 12.51

0.2 to 1.2

March 12, 2018 – Plan I

From 2 to 4 years of service as from the grant date

716

15.18 to 15.9

0.2 to 2.5

—

March 12, 2018 – Plan II

From 0.4 to 2.4 years of service as from the grant date

15.76 to 16.49

0.8

—

March 12, 2018 – Plan III

From 1 to 3 years of service as from the grant date

148

15.54 to 16.27

0.2 to 1.2

—

March 12, 2018 – Extraordinary Plan I

From 1 to 3 years of service as from the grant date

15.54 to 16.28

0.2 to 1.2

—

August 13, 2018 – Extraordinary Plan III

From 0.7 to 1.7 year of service as from the grant date

13.08 to 13.38

0.4

—

August 13, 2018 – Extraordinary Plan IV

From 0.8 to 1.8 v year of service as from the grant date

13.06 to 13.36

0.5

—

August 13, 2018 – Extraordinary Plan VI

From 1.6 to 3.6 years of service as from the grant date

12.24 to 13.13

0.2 to 2.2

—

April 12, 2019 – Plan I

From 2 to 4 years of service as from the grant date

821

21.62 to 22.53

1.2 to 3.3

—

April 12, 2019 – Plan II

From 1 to 3 years of service as from the grant date

468

22.14 to 22.85

0.2 to 2.3

—

3,092

¹	The number of restricted shares and performance shares granted, expired and exercised are shown already considering the stock split approved at the Extraordinary Shareholders Meeting held on September 17, 2019.

On December 31, 2019 – Performance shares


Grant date	Right acquisition conditions	Existing stock (thousands)	Fair value (R$)	Remaining contractual life (years)	Vested stock (thousands)
May 21, 2019	From 3 to 4 years of service as from the grant date and if the performance conditions are met	688	23.10 to 45.70	3.0 to 4.0	—

		688			—

¹	The number of restricted shares and performance shares granted, expired and exercised are shown already considering the stock split approved at the Extraordinary Shareholders Meeting held on September 17, 2019.

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As of December 31, 2019, the market price was R$ 38.67 already considering the stock split (R$45.00 as of December 31, 2018) per share.

Options and restricted shares were priced based on the Binomial model and performance shares were priced based on a combination of Black-Scholes-Merton and Monte Carlo models. Significant data included in the models to price the fair value of options, restricted shares and performance shares granted in the period ended December 31, 2019 was:


	Stock options
	April 12, 2019	April 12, 2019
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		Share-based performance
	April 12, 2019 – Plan I	April 12, 2019 – 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%

Grants made in 2018

On March 12, 2018, the Company’s Board of Directors approved the Stock Option, or Stock Subscription plan, the Restricted Share plans and 2018 Stock Option or Subscription for Strategy Acceleration plans.

On August 13, 2018, the Board of Directors of the Company approved the new extraordinary plan for the granting of restricted shares for 2018.

The changes in the number of outstanding stock options and their related weighted-average prices, as well as variations in the number of restricted shares are as follows:


	Stock Option Plan and Strategy Acceleration Plan
	2018					2017
	Average exercise price per share - R$		Options (thousands)			Average exercise price per share - R$		Options (thousands)
Balance at beginning of year		33.15		7,204			36.17		6,381
Granted		31.55		3,057			26.07		1,699
Expired		40.37		(992	)		44.81		(866	)
Exercised		27.31		(98	)		28.09		(10	)

Balance at end of year		31.92		9,171			33.15		7,204


	Restricted shares (thousands)
	2018			2017			2016
Balance at beginning of year		1,059			875			510
Granted		809			453			512
Expired		(118	)		(134	)		(120	)
Exercised		(308	)		(135	)		(18	)

Balance at end of year		1,442			1,059			884

From the 9,171 outstanding options as of December 31, 2018 (7,204 outstanding options as of December 31, 2017 and 6,381 outstanding options as of December 31, 2016), 1,672 options (1,376 outstanding options as of December 31, 2017 and 1,692 outstanding options as of December 31, 2016) are vested. The options exercised during the year ended December 31, 2018 resulted in the use of 98,000 treasury shares (10,000 options exercised during the year ended December 31, 2017 and no options exercised during the year ended December 31, 2016).

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The expense related to the fair value of stock options and restricted shares, including social security and related expenses calculated over restricted shares, recognized in the year ended December 31, 2018, according to the period elapsed for entitlement to exercise the options and restricted shares, was of R$ 62,933 (expenses totaled R$ 26,937 as of December, 2017 and R$ 11,367 for December 31, 2016)

The stock options outstanding and the restricted shares at the end of the year have the following vesting dates and exercise prices:

As of December 31, 2018 - Stock option plan


Grant date	Right acquisition conditions	Exercise price - R$	Fair value	Existing options	Remaining contractual life (years)	Vested options (thousands)
March 23, 2011	4 years of service as from the grant date	65.88	16.45	351	0.5		351
March 18, 2013	4 years of service as from the grant date	71.99	12.10	364	2.5		364
March 17, 2014	4 years of service as from the grant date	48.17	8.54	455	3.5		455
March 16, 2015	From 2 to 4 years of service as from the grant date	27.59	9.70 to 10.57	617	4.3		392
July 28, 2015 (Strategy acceleration)	From 4 to 5 years of service as from the grant date	26.18	12.40 to 12.46	1,100	4.6		—
March 15, 2016	From 2 to 4 years of service as from the grant date	26.06	14.31 to 14.85	327	5.3		109
July 11, 2016 (Strategy acceleration)	From 4 to 5 years of service as from the grant date	23.21	13.67 to 13.78	1,320	5.6		—
March 10, 2017	From 2 to 4 years of service as from the grant date	25.57	13.31 to 13.35	536	6.3		—
March 10, 2017 (Strategy acceleration)	From 4 to 5 years of service as from the grant date	25.57	13.73 to 13.78	1,105	6.3		—
March 12, 2018	From 2 to 4 years of service as from the grant date	34.32	15.92 to 16.41	1,096	7.3		—
March 12, 2018 (Strategy acceleration)	From 3 to 5 years of service as from the grant date	25.57 to 34.32	16.41 to 19.34	1,900	7.3		—

				9,171			1,671

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As of December 31, 2018 - restricted shares

Grant date

Right acquisition conditions

Existing
stock

Fair value

Remaining
contractual life
(years)

Vested
stock
(thousands)

March 16, 2015

From 2 to 4 years of service as from the grant date

122

20.42 to 22.27

0.2

March 15, 2016

From 2 to 4 years of service as from the grant date

232

23.97 to 25.70

0.2 to 1.2

March 10, 2017

From 2 to 4 years of service as from the grant date

365

23.39 to 25.02

0.2 to 2.2

—

March 12, 2018 – Plan I

From 2 to 4 years of service as from the grant date

373

30.37 to 31.80

1.2 to 3.2

—

March 12, 2018 – Plan II

From 0.4 to 2.4 years of service as from the grant date

31.52 to 32.99

0.6 to 1.6

—

March 12, 2018 – Plan III

From 1 to 3 years of service as from the grant date

111

31.08 to 32.55

0.2 to 2.2

—

March 12, 2018 – Extraordinary Plan I

From 1 to 3 years of service as from the grant date

31.09 to 32.56

0.2 to 2.2

—

March 12, 2018 – Extraordinary Plan II

From 0.5 to 1.5 year of service as from the grant date

32.14 to 32.87

0.7

—

August 13, 2018 – Extraordinary Plan III

From 0.7 to 1.7 year of service as from the grant date

26.17 to 26.76

0.4 to 1.4

—

August 13, 2018 – Extraordinary Plan IV

From 0.8 to 1.8 v year of service as from the grant date

26.13 to 26.72

0.5 to 1.5

—

August 13, 2018 – Extraordinary Plan V

From 1 to 2 years of service as from the grant date

26.04 to 26.65

0.6 to 1.6

—

August 13, 2018 – Extraordinary Plan VI

From 1.6 to 3.6 years of service as from the grant date

24.49 to 26.26

1.2 to 3.2

—

1,442

As of December 31, 2017 - Stock option plan


Grant date	Right acquisition conditions	Exercise price - R$		Fair value	Existing options		Remaining contractual life (years)		Vested options (thousands)
March 19, 2010	4 years of service as from the grant date		54.49	10.82		287		0.2		287
March 23, 2011	4 years of service as from the grant date		63.60	16.45		422		1.2		422
March 18, 2013	4 years of service as from the grant date		69.49	12.10		401		3.3		401
March 17, 2014	4 years of service as from the grant date		46.50	8.54		531		4.3		266
March 16, 2015	From 2 to 4 years of service as from the grant date		28.09	9.70 to 10.57		710		5.3		236
July 28, 2015 (Strategy acceleration)	From 4 to 5 years of service as from the grant date		26.68	12.40 to 12.46		1,266		5.7		—
March 15, 2016	From 2 to 4 years of service as from the grant date		26.55	14.31 to 14.85		359		6.3		—
July 11, 2016 (Strategy acceleration)	From 4 to 5 years of service as from the grant date		23.70	26.96		1,540		6.6		—
March 10, 2017	From 2 to 4 years of service as from the grant date		26.07	13.31 to 13.35		583		7.3		—
March 10, 2017 (Strategy acceleration)	From 4 to 5 years of service as from the grant date		26.07	13.73 to 13.78		1,105		7.3		—

						7,204				1,612

As of December 31, 2017 - restricted shares

Grant date

Right acquisition conditions

Existing
stock

Fair value

Remaining
contractual life
(years)

Vested stock
(thousands)

March 16, 2015

From 2 to 4 years of service as from the grant date

267

20.42 to 22.27

0 to 5.3

—

March 15, 2016

From 2 to 4 years of service as from the grant date

374

23.97 to 25.70

6.3

—

March 10, 2017

From 2 to 4 years of service as from the grant date

419

23.39 to 25.02

7.3

—

1,060

—

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27.

FINANCIAL INCOME (EXPENSES)


	2019			2018			2017
FINANCIAL INCOME:
Interest on short-term investments		83,115			129,296			164,442
Gains on monetary and exchange rate variations (a)		854,025			477,297			176,450
Gains on swap and forward transactions (c)		961,185			1,323,470			34,055
Gains on fair value adjustment of swap and forward derivatives		1,709			2,760			606
Effect of joining the Special Program for Tax Regularization (PERT) - law 13.496/ 17		—			—			70,348
Reversal of the monetary update of provision for tax risks and tax obligations		25,469			89,151			129,770
Other financial income		30,281			34,447			28,721

		1,955,784			2,056,421			604,392

Financial expenses:
Interest on financing		(503,040	)		(631,475	)		(387,658	)
Interest on leases		(134,579	)		—			—
Losses on monetary and exchange rate variations (b)		(937,925	)		(1,073,549	)		(141,499	)
Losses on swap and forward transactions (d)		(964,116	)		(794,504	)		(161,802	)
Loss on fair value adjustment of swap and forward derivatives		(1,452	)		(2,197	)		—
Inflation adjustment of provision for tax, civil and labor risks and tax liabilities		(13,822	)		(22,026	)		(89,792	)
Fair value adjustment to Derivatives		—			—			(27,400	)
Taxes on remittance of funds abroad for the acquisition of The Body Shop		—			—			(14,218	)
Debt structuring expense for acquisition of The Body Shop (e)		—			—			(60,919	)
Effect of reclassification of governmental grant		—			—			(29,976	)
Appropriation of funding costs (debentures and notes)		(22,671	)		(37,400	)		—
Adjustment for hyperinflationary economy (Argentina)		(13,947	)		(25,066	)		—
Debt structuring expenses for acquisition of Avon		(115,781	)		—			—
Other financial expenses		(88,541	)		(53,492	)		(78,577	)

		(2,795,874	)		(2,639,709	)		(991,841	)



Financial income (expenses)		(840,090	)		(583,288	)		(387,449	)

The objective of the breakdowns below is to explain more clearly the foreign exchange hedging transactions contracted by the Company and the related balancing items in the income statement shown in the previous table:


	2019			2018			2017
(a) Gains on monetary and exchange rate variations		854,025			477,297			176,450

Gains on exchange rate variation on loans, financing and debentures		677,462			402,345			159,952
Exchange rate variation on imports		11,221			6,385			—
Exchange rate variation on export receivables		26,144			42,901			2,746
Exchange rate variation on accounts payable to subsidiaries abroad		132,397			25,666			13,752
Exchange variations of Demand Deposits in foreign currency		6,801			—			—
(b) Losses on monetary and exchange rate variations		(937,925	)		(1,073,549	)		(141,499	)

Losses on exchange rate variation on loans, financing and debentures		(768,939	)		(996,034	)		(124,753	)
Exchange rate variation on imports		(33,718	)		(40,140	)		(27	)
Exchange rate variation on export receivables		(23,393	)		(18,323	)		—
Exchange rate variation on accounts payable to subsidiaries abroad		(86,764	)		(13,075	)		—
Exchange rate variation on financing		(297	)		(5,977	)		(16,719	)
Exchange variations of Demand Deposits in foreign currency		(24,814	)		—			—
(c) Gains on swap and forward transactions		961,185			1,323,470			34,055

Revenue from swap exchange coupons		182,897			170,555			29,091
Gains from exchange variations on swap instruments		778,288			1,152,915			4,964
(d) Losses on swap and forward transactions		(964,116	)		(794,504	)		(161,802	)

Losses on exchange rate variation on swap instruments		(690,409	)		(402,708	)		(39,287	)

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Financial costs of swap instruments	(273,707	)	(391,796	)	(122,420	)
Loss on interest rate swap	—		—		(95	)
(e) Other financial expenses	—		—		(60,919	)
Expenses with debt structuring for acquisition of The Body Shop, resulting from the change of loan facility agent	—		—		(60,919	)

28.

OTHER OPERATING INCOME (EXPENSES), NET


	2019			2018			2017
Others operating income, net
Result on write-off of property, plant and equipment		6,098			1,188			(25,623	)
ICMS-ST (b)		42,336			(27,126	)		(33,784	)
BNDES, FINAME and FINEP subsidy		—			—			29,976
Exclusion of ICMS from PIS/COFINS base (g)		52,631			57,242			197,230
PIS/COFINS credit (e)		42,983			—			—
Reversal of IPI – equal commercial rights		—			—			133,595
Sale of customer portfolio (c)		23,092			16,254			28,701
Tax contingencies		21,402			(706	)		(38,765	)
ICMS credit		—			2,290			7,785
Tax credits - taxation change (e)		—			23,677			—
Reintrega credits		—			3,058			—

Total Other operating income		188,542			75,877			299,115

Others expenses operating income, net
Crer para Ver (a)		(36,156	)		(29,686	)		(22,771	)
Initial costs of acquisition of The Body Shop		—			—			(87,106	)
Initial costs of acquisition of Avon (f)		(141,348	)		—			—
Transformation Plan (d)		(51,520	)		(98,465	)		—
Other operating expenses		(8,829	)		12,329			(37,550	)

Total other operating expenses		(237,853	)		(115,822	)		(147,427	)

Other operating income (expenses), net		(49,311	)		(39,945	)		151,688

a)	Allocation of operating profit from sales of “Crer para Ver” line of non-cosmetic products to Natura Institute, specifically directed to social projects for developing the quality of education.

b)	Refers to the requirement of ICMS tax substitution, for different states, see details in note 20. During 2019 fiscal year, provisions were reversed due to the revision of the likelihood of loss of certain States.

Refers to the revenue from the sale of securities portfolio of customers past due over 180 days, net of legal costs with lawsuits filed by debtors against the company acquiring the portfolio. Proceeds from the sale of portfolio, as well as reimbursement of legal costs, are received after write-off of overdue securities.

Expenses related to the implementation of the transformation plan of The Body Shop, which is supported by five pillars, namely: (1) renewal of the brand; (2) optimization of retail operations; (3) improvement of omni-channel; (4) improvement of operating efficiency; and (5) redesign of the organization.

e)	Tax credits from prior periods related to the change in PIS and COFINS taxation in 2019.

f)	Refers to expenses related to the acquisition process of Avon, of which stand out: expenses with financial structuring (R$108,266), legal expenses (R$63,138) and regulatory expenses (R$40,891).

The Company and its subsidiary Indústria e Comércio de Cosméticos Natura Ltda. are currently litigating the non-inclusion of ICMS in the PIS and COFINS contributions calculation base. Since 2007, the Company is legally authorized to pay contributions excluding ICMS, but the balance ICMS has been provisioned for as Taxes Payable. On September 30, 2017, based on the conclusion from the judgment made by the Plenary Session of the Federal Supreme Court on the Extraordinary Appeal, with general repercussion in society, which ruled unconstitutional the inclusion of ICMS in the PIS and COFINS calculation base, the Company reverted the tax obligation. On December 31, 2019, the Company recognized principal credit of R$52,631, which is no longer a contingent asset, arising from the final and unappealable decision (see note 10).

29. EARNINGS PER SHARE

29.1. Basic

Basic earnings per share are presented based on the predecessor accounting method as described in Note 2a. The number of shares issued by Natura &Co as a result of the Corporate Structuring is reflected retroactively to January 1, 2017 for the purpose of calculating earnings per share in all periods presented.

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	2019		2018		2017
Net income attributable to owners of the Company		155,467		548,379		670,251
Number of existing shares at the end of restructuring		865,660,042		865,660,042		865,660,042
Basic earnings per share - R$		0.1796		0.6335		0.7743

29.2. Diluted

Diluted earnings per share are calculated by adjusting the number of shares at the end of the restructuring, using the predecessor cost accounting practice, supposing that all potential common shares that would cause dilution are converted. The Company has only one category of common shares that would potentially cause dilution: the stock options, restricted actions and strategy acceleration.


	2019		2018		2017
Net income attributable to owners of the Group		155,467		548,379		670,251
Number of existing shares at the end of restructuring		865,660,042		865,660,042		865,660,042
Adjustment for stock options and restricted shares (a)		8,124,575		1,529,528		1,282,312

Weighted average number of common shares for diluted earnings per share calculation purposes		873,784,617		867,189,570		866,942,354

Diluted earnings per share - R$		0.1779		0.6324		0.7731

(a)	The number of shares and earnings per share already consider the stock split on September 17, 2019 and their retrospective effects.

On December 13, 2019, after consummation of the Corporate Structuring accordance with its terms, to approve the relationship of participants and the quantities of grantees of restricted shares and/or purchase options to participants under each of the Plans, under the same terms and conditions as the grants currently having in Natura, respecting the necessary adaptations and adjustments in order to enable the migration of such grants to the Company, including with respect to the status of compliance with the conditions for full acquisition of such rights(vesting),as if the grants within the Company had been made on the same date on which they were made at Natura and were a continuation of the grants originally made at Natura as provided for in the respective grants contracts originally signed between each of these participants and Natura, which are already migrated and transferred to the Company, in order to continue the grants previously held by such participants in Natura.

At December 31, 2019, a total of 865,660 existing options, were not considered in the calculation of diluted earnings per share due to the fact that the exercise price is higher than average market price of the common shares during the year ended on those dates, therefore there was no dilution effect.

30.

RELATED-PARTY TRANSACTIONS

The Natura Institute holds shares in the investment fund Fundo de Investimento Essencial, and on December 31, 2019 the balance was R$ 3,766 (R$ 2,228 on December 31, 2018).

On June 5, 2012, an agreement was entered into, still present, between Indústria e Comércio de Cosméticos Natura Ltda. and Bres Itupeva Empreendimentos Imobiliários Ltda., (“Bres Itupeva”), for the construction and lease of processing, distribution, storage (HUB), in the city of Itupeva / SP a 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 registered transaction is recorded under “Right of Use” of “Buildings” in the amount of R$ 44,244 (R$ 49,136 under “Builds” of Property, Plant and Equipment as of December 31, 2018).

Natura Cosméticos S.A. and Raia Drogasil S.A. entered into a purchase and sale agreement and other covenants for selling products in Raia and Drogasil. Mr. Guilherme Peirão Leal and Mr. Pedro Luiz Barreiros Passos, members of the Natura Cosméticos S.A. control block, indirectly hold shareholding interest in Raia Drogasil S.A.

In the period ended September 30, 2019, Natura Cosméticos S.A. and its subsidiary transferred to the Natura Institute, in the form of a donation associated with maintenance, the amount of R$ 1,500 corresponding to 0.5% of net income 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$ 23,000 (R$ 25,289 on December 31, 2018).

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30.1. Key management personnel compensation

The total compensation of the Company’s Management is as follows:

2019

2018

2017

Compensation

Fixed

Variable

Total

Fixed

Variable

Total

Fixed

Variable

Total

(a)

(b)

(a)

(b)

(a)

(b)

Board of Directors

22,056

30,919

52,975

13,141

24,860

38,001

8,700

7,300

16,000

Officers

32,963

42,142

75,105

32,739

68,540

101,279

24,681

46,729

71,410

55,019

73,061

128,080

45,880

93,400

139,280

33,381

54,029

87,410

a)	The item “Officers” includes the amount of R$536 referred to the amortization of the Confidentiality and Non-Compete Agreement during the fiscal year ended December 31, 2019 (R$1,946 in the fiscal year ended December 31, 2018).

Refers to profit sharing, on an accrual basis, net of reversals, regarding the Restricted Stock Plan and Strategy Acceleration Program, including charges, as applicable, to be determined in the year. The amounts include 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.

30.2. Share-based payments

Breakdown of the Company officers and executives’ compensation:

Grant of options

2019

2018

2017

Stock
option
balance
(number)¹ ^(a)

Average
fair value
of stock
options¹
– R$

Average
exercise
price¹ -
R$ ^(b)

Stock
option
balance
(number)¹ ^(a)

Average
fair value
of stock
options¹
– R$

Average
exercise
price¹ -
R$ ^(b)

Stock option
balance (number)¹ ^(a)

Average
fair value
of stock
options¹
– R$

Average
exercise
price¹ -
R$ ^(b)

Officers

13,059,677

8.40

16.51

11,156,406

7.47

15.96

9,835,148

6.22

16.58


	Restricted shares
	2019				2018				2017
	Stock option balance (number)¹ ^(a)		Average exercise price¹ - R$ ^(b)		Stock option balance (number)¹ ^(a)		Average exercise price¹ - R$ ^(b)		Stock option balance (number)¹ ^(a)		Average exercise price¹ - R$ ^(b)
Officers		1,012,641		19.23		751,794		14.81		562,390		11,68

¹	The number of stock options granted, expired and exercised and their respective fair values are shown already considering the stock split approved at the Extraordinary Shareholders Meeting held on September 17, 2019.

a)	Refers to the balance of the options and restricted shares ripe (“vested”) and mature (“unvested”), not carried out, at the balance sheet dates.

b)	Refers to the weighted-average exercise price of the option at the time of the stock option plans, adjusted for interest based on the Extended Consumer Price Index (IPCA) through the end of the reporting period. The new Stock Option Plan implemented in 2015, include no monetary adjustment.

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31. COMMITMENTS

31.1. Contracts related to supply of inputs

The subsidiary Indústria e Comércio de Cosméticos:

•

Agreements that started in 2017 and effective up to 2019, with the value of Megawatts/h between R$ 177 and R$ 302.

•

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 carried based on electric power consumption estimates in accordance with the contract period, whose prices are based on volumes, also estimated, resulting from the subsidiary’s continuous operations.

Total minimum supply payments, measured at nominal value, according to the contract, are:


	2019		2018		2017
Less than one year		17,918		1,268		1,406
Between one and five years		13,160		4,940		—

Total		31,078		6,208		1,406

32. 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 December 31, 2019, insurance coverage is as follows:


		Amount insured
Item	Type of coverage	2019		2018
Industrial complex and administrative sites	Any damages to buildings, facilities, inventories, and machinery and equipment		2,322,801		2,269,660
Vehicles	Fire, theft and collision for 818 vehicles (936 in 2018)		212,027		204,329
Loss of profits	No loss of profits due to material damages to facilities buildings and production machinery and equipment		1,582,000		1,409,278
Transport	Damages to products in transit		32,309		31,193
Civil liability	Protection against error or complaints in the exercise of professional activity that affect third parties		532,510		514,430
Environmental liability	Protection against environmental accidents that may result in environmental lawsuits		30,000		30,000

33. ADDITIONAL STATEMENTS OF CASH FLOWS

The following table presents additional information on transactions related to the cash flow statement:


	2019			2018		2017
Non-cash items
Hedge accounting, net of tax effects		70,569			51,165		9,172
Finance lease of new administrative building		—			—		8,739
Dividends and interest on equity declared and not yet paid		110,671			111,449		213,840
Net effect of acquisition of property, plant and equipment and intangible assets not yet paid		(18,645	)		6,797		1,875

34. SUBSEQUENT EVENTS

34.1. Acquisition of Avon

In continuity of the steps 1 and 2 (described in Note 1a), on January 3, 2020 all the conditions for the conclusion of the Transaction occurred. Nectarine Merger Sub II merged with and into Avon, with Avon surviving the merger. Subsequently, Nectarine Merger Sub I merged with and into Natura &Co Holding S.A., with Natura &Co Holding S.A. surviving the merger. Following the mergers, on the same date, Avon became a wholly owned direct subsidiary of the Company, and the former Avon shareholders became shareholders of the Company.

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As a result, the Company acquired control of Avon and the acquisition will be accounted for under the acquisition method of accounting.

Transaction costs incurred by Natura through the completion of the transaction on January 3, 2020, are amounted to proximately R$ 112 million, which were expensed as incurred.

The following table summarizes the preliminary fair value calculation of the consideration transferred on January 3, 2020.


	In millions of R$, except for the number of shares
Number of Avon common shares outstanding as of January 3, 2020		536,383,776
Multiplied by the Exchange Ratio of 0.600 Natura &Co 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
Consideration transferred adjustment (*)		171

Fair value of estimated consideration to be transferred		13,366

(*)	Related to the effects of eventual replacement and settlement of share-based payment plans of Avon.

The Company is in the process of allocating the fair value of the consideration transferred to the identifiable assets and liabilities acquired also at fair value. The table below shows the Company’s preliminary allocation of the consideration transferred and the resulting goodwill. Differences between these preliminary estimates and the final acquisition accounting may occur and these differences may be material.

The provision for contingencies amount shown in the table below corresponds to the historical amount recorded by Avon, since the Company is still in the process of estimating their fair value as well as identifying additional contingencies that may be required to be recorded in accordance with the provisions of paragraph 23 of IFRS 3 , i.e., contingencies that: (i) represent a present obligation arising from past events and (ii) can be reliably measured.

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		1,135
Inventories		1,942
Other current assets		1,055
Assets held for sale		185
Property, plant and equipment		2,884
Income tax and deferred social contribution		667
Assets of right of use		580
Other non-current assets		475
Judicial deposits		284
Recoverable taxes		516
Employee benefit plan		553
Intangible		5,709
(+) Fair value of liabilities assumed:
Current Liabilities		6,094
Provision for contingencies		651
Long-term debt		7,082
Leasing		586
Deferred taxes		672
Other liabilities		809

(-) Net Assets		2,727
Non-controlling interest		28

Estimated preliminary goodwill		10,667

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Goodwill represents the stronger 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.

34.2 Impacts of Convid-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 in which the Company has operations and, therefore, cannot predict the direct and indirect impacts of COVID-19 on its business, results of operations and financial condition, including:

•

the impact of COVID-19 on our financial condition and results of operations, including trends and the overall economic outlook, capital and financial resources or liquidity position;

•

how future operations could be impacted;

•

the impact on costs or access to capital and funding resources and on ability to meet the covenants of credit agreements;

•

if the Company could incur any material COVID-19-related contingencies;

•

how COVID-19 could affect assets on the balance sheet and the ability to timely record those assets;

•

the anticipation of any material impairments, increases in allowances for credit losses, restructuring charges or other expenses;

•

any changes in accounting judgements that have had or are reasonably likely to have a material impact on this financial statement;

•

the impact on the demand for the Company’s products;

•

the impact on the Company’s supply chain;

•

the impact on the relationship between costs and revenues; and

•

other unforeseen impacts and consequences.

However, based on the uncertainties described above, the Company is closely monitoring the evolution of the pandemic caused by COVID-19. The Company created a Crisis Committees on several areas, including key Company’s employees to monitor, analyze and decide the actions to minimize impacts, ensuring the continuity of operations and promote health and safety for all people involved in the Company’s operations.

As of the date of the approval to issue this Company’s financial statement, since the beginning of the virus spread, and the consequent restrictive measures imposed by governments, such as closing non-essential trade 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’s employees to work remotely and adoption of essential criteria to limit industrial and logistical operations;

•

Adoption of new security measures for operational workers, such as wear masks and procedures to leave people in a security distance between each other;

•

Stores closure, where and when required by the authorities;

•

Replanning sales cycles, prioritizing personal care items;

•

Speeding up the digitization of sales channels;

•

Wide dissemination of the digital magazine;

•

Change the minimum order criteria, initial kits and increased deadline for consultants’ payments; and

•

Daily monitoring of suppliers to ensure supply.

In addition to these measures, there is a Crisis Committee focused on finance impacts, which monitors the Company’s financial health, focusing on cash, covenants and results, proposing actions to minimize the inevitable reduction in sales. Among these actions, there are:

•

Cut discretionary expenses, such as consultancies and events;

•

Freezing the hires and salary increases;

•

Marketing expenses reduction;

•

Consumer discounts reduction;

•

Reductions in travel expenses;

•

Capital expenditures reduction; and

•

Negotiation with suppliers to extend payment terms.

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LOGO

The promissory notes issued by Natura &Co Holding on December 20, 2019 contain a covenant requiring the Company to maintain a certain indebtedness leverage ratio that required measurement in June 2020, however, as a result of COVID-19 impacts, the creditors of such notes have waived the requirement to measure such indebtedness ratio 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 global scenarios’ evolution.

34.3 Promissory notes issuance

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.

35.

APPROVAL OF FINANCIAL STATEMENTS

The Company’s financial statements were approved by the Board of Directors and authorized for issue at the meeting held on May 6, 2020.

The accompanying revised consolidated financial statements were approved and authorized for issue by the Company’s Board of Directors on September 30, 2020 solely to give retroactive effect to the presentation of segment information, and not to reflect any other subsequent events since May 6, 2020.

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