NTCO Natura and Co Holding SA

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.

Date: September 30, 2020

Item 1

Discussion of Natura &Co Holding S.A.’s Business and Operations as of June 30, 2020 and for the six months ended June 30, 2020 and 2019 and as of December 31, 2019 and 2018 and for each of the three years in the period ended December 31, 2019.

TABLE OF CONTENTS

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EXPLANATORY NOTE

The Company is furnishing this Form 6-K (i) 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, and (ii) to present a discussion of the Company’s business and operations as of June 30, 2020 and for the six months ended June 30, 2020 and 2019. The information in this Form 6-K is not an amendment to or restatement of the 2019 Form 20-F.

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CERTAIN DEFINED TERMS AND CONVENTIONS USED IN THIS FORM 6-K

All references in this Form 6-K to the “Company,” “we,” “us” and “our” refer to Natura &Co, as defined below, unless the context otherwise requires. All references herein to the “real,” “reais” or “R$” are to the Brazilian real, the official currency of Brazil. All references to “U.S. dollars,” “dollars” or “U.S.$” are to United States dollars, the official currency of the United States. All references to “pounds,” “pound sterling” or “£” are to the British pound sterling, the official currency of the United Kingdom.

In addition, as used in this Form 6-K, the following defined terms have the following respective meanings:

“ADSs” means American Depositary Shares, each representing two Natura &Co Holding Shares.

“Aesop” means Emeis Holding Pty Ltd and its consolidated subsidiaries.

“Avon” means Avon Products, Inc., a New York corporation, and its consolidated subsidiaries.

“B3” means the B3 S.A. – Brasil, Bolsa, Balcão, or São Paulo Stock Exchange.

“BNDES” means the Banco Nacional de Desenvolvimento Econômico e Social, or the Brazilian National Economic and Social Development Bank.

“Brazil” means the Federative Republic of Brazil and the phrase “Brazilian government” refers to the federal government of Brazil.

“Brazilian Central Bank” means the Central Bank of Brazil (Banco Central do Brasil).

“CDI,” or the Interbank Deposit Certificate (Certificado de Depósito Interbancário), means the “over extra group” daily average rate for interbank deposits, expressed as an annual percentage, based on 252 business days, calculated daily and published by B3, or any other index as may be further used in substitution thereof.

“CMN” means the Conselho Monetário Nacional, or the Brazilian Monetary Council.

“consultants” are independent sales representatives who, although they are not employed by Natura &Co, sell Natura &Co products to customers of Natura &Co.

“IFRS” means International Financial Reporting Standards as issued by the IASB.

“Natura” means Natura Cosméticos S.A., a corporation (sociedade anônima) incorporated under the laws of Brazil, and its consolidated subsidiaries (excluding Aesop, The Body Shop and their respective subsidiaries).

“Natura &Co” means (1) prior to the completion of the Transaction, Natura Cosméticos S.A. and its consolidated subsidiaries, and (2) after the completion of the Transaction, Natura &Co Holding S.A. and its consolidated subsidiaries, including Natura and Avon.

“Natura &Co Holding” means Natura &Co Holding S.A., a corporation (sociedade anônima) incorporated under the laws of Brazil, excluding its subsidiaries.

“Natura &Co Holding By-Laws” means the by-laws of Natura &Co Holding.

“Natura &Co Holding Shares” means common shares of Natura &Co Holding.

“Natura Cosméticos” means Natura Cosméticos S.A., a corporation (sociedade anônima) incorporated under the laws of Brazil.

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“Natura Cosméticos Shares” means common shares of Natura Cosméticos.

“Natura Indústria” means Indústria e Comércio de Cosméticos Natura Ltda.

“Merger Sub I” means Nectarine Merger Sub I, Inc., a Delaware corporation and a direct wholly owned subsidiary of Natura &Co Holding.

“Merger Sub II” means Nectarine Merger Sub II, Inc., a Delaware corporation and a direct wholly owned subsidiary of Merger Sub I.

“Merger Subs” means Merger Sub I and Merger Sub II, collectively.

“Sales representatives” or “representatives” means independent contractors who are not employees of Avon or any of its subsidiaries, but directly or indirectly purchase products or services from Avon or any of its subsidiaries.

“The Body Shop” means The Body Shop International Limited, a private limited company registered in England and Wales and its subsidiaries.

“Transaction” means the transaction effected by the Agreement and Plan of Mergers, dated May 22, 2019, as amended on October 3, 2019 and as may be further amended from time to time in accordance with its terms (the “Merger Agreement”) entered into by Avon Products, Natura Cosméticos, Natura &Co Holding and the Merger Subs pursuant to which (i) Natura &Co Holding, after the completion of certain restructuring steps, held all issued and outstanding shares of Natura Cosméticos, (ii) Merger Sub II merged with and into Avon, with Avon surviving the merger, and (iii) Merger Sub I merged with and into Natura &Co Holding, with Natura &Co Holding surviving the merger, and as a result of which each of Avon and Natura Cosméticos became a wholly owned direct subsidiary of Natura &Co Holding.

“United Kingdom” or “UK” means the United Kingdom of Great Britain and Northern Ireland.

“United States” or “U.S.” means the United States of America.

“U.S. GAAP” or “GAAP” means generally accepted accounting principles in the U.S.

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PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION

Financial Statements

Natura &Co Holding, formerly Natura Holding S.A., was incorporated on January 21, 2019 as part of a corporate restructuring process initiated by Natura Cosméticos on May 22, 2019, as described below under “—The Transaction.”

On November 13, 2019, the controlling shareholders of Natura Cosméticos contributed to Natura &Co Holding shares corresponding to approximately 57.3% of Natura Cosméticos’ capital. On November 13, 2019, all of the Natura Cosméticos shares held by the noncontrolling shareholders and not previously held by Natura &Co Holding were contributed to Natura &Co Holding in exchange for shares of Natura &Co Holding, and Natura Cosméticos became a wholly owned subsidiary of Natura &Co Holding (collectively referred to as the “Corporate Restructuring”). This contribution became effective on December 17, 2019.

Prior to the Corporate Restructuring, Natura &Co Holding had limited or no assets, operations or activities, or liabilities, and no material contingent liabilities or commitments.

The Corporate Restructuring was accounted for using the predecessor method of accounting, through which the historical operations of Natura &Co are deemed to be those of Natura &Co Holding. Accordingly, the consolidated financial statements included in this Form 6-K reflect:

The consolidated financial information presented in this Form 6-K has been derived from the following:

The consolidated financial statements of Natura &Co Holding and Natura &Co are prepared in accordance with IFRS as issued by the IASB and are presented in Brazilian reais. The unaudited condensed interim consolidated financial statements of Natura &Co Holding are prepared in accordance with IAS 34 – Interim Financial Reporting as issued by the IASB and are presented in Brazilian reais.

We maintain our books and records in Brazilian reais, which is the functional currency and presentation currency of the consolidated financial statements of Natura &Co Holding and Natura &Co. Unless otherwise noted, our financial information presented herein as of June 30, 2020, as of December 31, 2019 and 2018, for the six months ended June 30, 2020 and 2019, and for the years ended December 31, 2019, 2018 and 2017 is stated in Brazilian reais, our reporting currency.

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The Transaction

Avon Products, Natura Cosméticos, Natura &Co Holding and the Merger Subs entered into an Agreement and Plan of Mergers, dated May 22, 2019, as amended on October 3, 2019 and November 5, 2019, or the Merger Agreement, pursuant to which (i) Natura &Co Holding, after the completion of certain restructuring steps, held all issued and outstanding shares of Natura Cosméticos, (ii) Merger Sub II merged with and into Avon, with Avon surviving the merger, and (iii) Merger Sub I merged with and into Natura &Co Holding, with Natura &Co Holding surviving the merger, and as a result of which each of Avon and Natura Cosméticos became a wholly owned direct subsidiary of Natura &Co Holding.

The Transaction was consummated on January 3, 2020. Accordingly, our results of operations and financial condition for the historical periods discussed in this section prior to the Transaction do not reflect or include the results of operations or any assets or liabilities of Avon as well as certain critical accounting policies and estimates related to goodwill, intangible assets and purchase accounting related to the Transaction. We began consolidating Avon and its subsidiaries as from January 3, 2020, and, accordingly, our results of operations and financial condition of and for the six-months ended June 30, 2020 and future periods may not necessarily be comparable to our results of operations and financial condition for historical periods prior to the Transaction, including those discussed below.

Currency Conversions

On June 30, 2020, the exchange rate for reais into U.S. dollars was R$5.476 to U.S.$1.00, based on the selling rate as reported by the Brazilian Central Bank. The selling rate was R$5.476 to U.S.$1.00 as of June 30, 2020, R$4.031 to U.S.$1.00 as of December 31, 2019, R$3.875 to U.S.$1.00 as of December 31, 2018, R$3.308 to U.S.$1.00 as of December 29, 2017, R$3.259 to U.S.$1.00 as of December 30, 2016 and R$3.905 to U.S.$1.00 as of December 31, 2015, in each case, as reported by the Brazilian Central Bank. The real/U.S. dollar exchange rate fluctuates widely, and the selling rate as of June 30, 2020 may not be indicative of future exchange rates.

Solely for the convenience of the reader, we have translated certain amounts included in this Form 6-K from reais into U.S. dollars using the exchange rate as reported by the Brazilian Central Bank as of June 30, 2020 for reais into U.S. dollars of R$5.476 per U.S.$1.00. The U.S. dollar equivalent information presented in this Form 6-K is provided solely for the convenience of investors and should not be construed as implying that the amounts in reais represent, or could have been or could be converted into, U.S. dollars at such rates or any other rate.

Rounding

We have made rounding adjustments to reach some of the figures included in this Form 6-K. As a result, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that precede them.

Market Data

We obtained market and competitive position data, including market forecasts, used throughout this Form 6-K from market research, publicly available information and industry publications, as well as internal surveys. We include data from reports prepared by the Brazilian Central Bank, the B3, the IBGE, the BNDES and the FGV. We believe that all market data in this Form 6-K is reliable, accurate and complete.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF NATURA &CO

The following discussion of our consolidated financial condition and results of operations should be read together with Natura &Co’s audited consolidated financial statements as of and for the years ended December 31, 2019, 2018 and 2017 presented in accordance with IFRS, as issued by the International Accounting Standards Board (IASB) and our unaudited condensed consolidated financial statements as of and for the three and six-month periods ended June 30, 2020 and 2019 presented in accordance with IAS 34 – Interim Financial Reporting as issued by the IASB, included in this Form 6-K, and the corresponding notes thereto. In addition, unaudited pro forma condensed consolidated financial statements as of and for the six-month periods ended June 30, 2019 is being presented as supplemental information.

The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from those discussed in the forward-looking statements for several reasons.

The Transaction and Items Affecting Comparability

The Transaction was consummated on January 3, 2020. Accordingly, our results of operations and financial condition for the historical periods, prior to the transaction, discussed in this section do not reflect or include the results of operations or any assets or liabilities of Avon as well as other purchase accounting adjustments, including the recognition of separately identifiable intangible assets, other fair value adjustments and the residual goodwill. We began consolidating Avon and its subsidiaries as from January 3, 2020, and, accordingly, our results of operations and financial condition in future periods may not necessarily be comparable to our results of operations and financial condition for historical periods, including those discussed below.

To assist the discussion of our historical results of operations for the six-month periods ended June 30, 2020 and 2019, we have included an unaudited supplemental pro forma condensed consolidated statement of income information for the six-month period ended June 30, 2019. The unaudited supplemental pro forma condensed consolidated statement of income for the six-months ended June 30, 2019 includes our historical consolidated results of operations and the results of operations of Avon after giving pro forma effect to the Transaction as if it had been consummated on January 1, 2019. See “—Supplemental Information—Pro Forma Operating Results.”

Segment Information

Prior to the January 2020 announcement of the acquisition of Avon, our chief executive officer, who was our chief operating decision maker at the time, managed our operations based on five reportable segments: Natura Brasil, Natura Latam, The Body Shop, Aesop and others.

During the first quarter of 2020, and as a result of the acquisition of Avon, we began to manage our operations based on the following four reportable segments:

Previously reported segment information has been recast throughout the “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Natura & Co,” as applicable, for all periods presented to reflect the changes in the reportable segments. Refer to note 23, “Segment Information,” to our audited consolidated financial statements contained herein for more information.

See “Presentation of Financial and Certain Other Information—Financial Statements” and “Presentation of Financial and Certain Other Information—The Transaction.”

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Avon

Prior to the acquisition by Natura &Co, Avon reported four segments: Europe, Middle East and Africa, Asia Pacific, South Latin America and North Latin America. In order to align Avon’s reporting with how the business is operated and managed since the acquisition by Natura &Co, Avon has updated its reportable segments and two reportable segments were identified based on geographic operations: Avon International and Avon Latin America. For additional information please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Avon—Segment Review” in the current report on Form 6-K furnished to the SEC on September 30, 2020 including (i) the audited consolidated financial statements as of December 31, 2019 and 2018 and for each year of the three-year period ended December 31, 2019 and the related notes thereto of Avon, and (ii) certain additional information regarding Avon’s business and results of operations.

Critical Accounting Policies and Estimates

The preparation of our financial condition and results of operations in accordance with IFRS requires the use of certain critical accounting estimates and the exercise of judgment regarding matters that are inherently uncertain and that impact the reported value of our assets and liabilities.

The accounting estimates and underlying assumptions are assessed on an ongoing basis and are based on historical experience and other factors that are considered to be relevant to the circumstances. Our actual results may differ from those estimates.

In order to provide an understanding of how we apply our judgments and estimates about certain future events, including the assumptions underlying our estimates, and the sensitivity of those judgments to different variables and conditions, we describe below our critical accounting policies:

Deferred Income Tax and Social Contribution

We recognize deferred assets and liabilities based on temporary differences between the carrying amount presented in our financial statements and the tax base of our assets and liabilities, using the applicable tax rates in effect. We regularly revise our deferred tax assets as to possibility of recovery, considering historical profit generated and projected future taxable income based on a technical feasibility study, which includes uncertainties inherent to such study.

Provisions for Tax, Civil and Labor Risks

We are party to various administrative and judicial proceedings. We constitute provisions to cover tax, civil and labor risks related to judicial proceedings for which the risk of loss is deemed to be probable and for which we can make an estimate of the amount at risk. The evaluation of the probability of loss is based on an analysis of available evidence, applicable law (including available case law), recent court decisions and their relevance to the legal system, as well as evaluation by legal counsel.

Post-Employment Healthcare Plan

Costs related to our post-employment healthcare plan are contingent on a series of factors determined using actuarial calculations, which, in turn, are based on a series of financial and demographic assumptions, such as the discount rate, medical inflation and percentage adhesion to the plan.

Stock Option Plan, Program for Granting of Restricted Shares and Strategy Acceleration Program

Our stock option plan, our program for granting of restricted shares, and our strategy acceleration program are measured at fair value at the grant date, and the expense is recognized in the statement of income 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 the statement of income for the period against shareholders’ equity.

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Provision for Impairment Loss

An impairment loss is identified 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 are derived from a budget prepared for the following five to 10 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.

These estimates are most relevant to goodwill and indefinite lived intangible assets recognized by the Company.

Trade Receivables and Provision for Expected Credit Losses

The provision for expected credit losses on trade receivables from customers is estimated based on the weighted loss risk of each aging group. The characteristics of our trade receivables are:

We apply a simplified approach in calculating expected credit losses based on the lifetime credit loss at each reporting date. An estimated range was used using the weighted average of losses for the last six months. The calculation also considers the seniority of the consultant’s length of relationship, and a division between renegotiated and non-renegotiated past-due receivables. In addition, for the years ended December 31, 2018 and 2019, macroeconomic indicators did not have a significant impact in estimating the provision.

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 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.

Provision for Inventory Losses

The provision for inventory losses is calculated using a method that contemplates discontinued products, products with slow turnover, products expired and nearing expiration and products that do not meet quality standards.

Business Combination

We account for business combinations using the acquisition method. Such method requires recognizing and measuring the identifiable assets acquired and the liabilities assumed in the acquisition. Identifiable assets and liabilities assumed must be classified or designated on the basis of our own contractual terms, economic conditions, operating and accounting policies and other relevant conditions as at the acquisition date. Such assessment requires judgments on the methods used to determine the fair value of the assets acquired and liabilities assumed, including valuation techniques that may require prospective financial information inputs. For further information, see note 4 to our unaudited interim consolidated financial statements for the six-month period ended June 30, 2020.

COVID Impacts

Despite the level of uncertainty, we are closely monitoring the evolution of the pandemic caused by COVID-19 worldwide. Crisis committees were created on several fronts in order to monitor and analyze the impacts on preparation of cash flow estimates, the recoverability and impairment of assets, subsequent events and going-concern issues. Such assessment requires judgments on the methods used to determine the fair value of including

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valuation techniques that may require prospective financial information inputs. See also “Trade Receivables and Provision for Expected Credit Losses and Provision for Impairment Loss” above. For further information, see note 5.3 to our audited consolidated financial statements.

New Standards, Interpretations and Amendments Adopted in 2018

IFRS 15 – Revenue Recognition

IFRS 15 was issued in May 2014, and amended in April 2016. IFRS 15 affects any entity entering into contracts with customers, unless those contracts fall within the scope of certain other standards such as insurance contracts, financial instruments or lease contracts. IFRS 15 supersedes the revenue recognition requirements under IAS 18, Revenue, IFRIC 13, Customer Loyalty Programs, and the majority of other industry-specific guidance. The standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The standard provides a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and thresholds under the standard have been introduced, which may affect the amount or timing of revenue recognized.

We adopted IFRS 15 as of January 1, 2018 the using cumulative effect method. This adoption resulted in a recognition of deferred revenue related to our loyalty program (points campaign) and performance recognition of programs and events, as well as a reclassification of penalties and additional charges for late payments from operating expenses to net revenue, which were considered variable. These effects have positively impacted our net revenue, negatively impacted our operating expenses and positively impacted our financial results in the amount of R$171.4 million, R$177.8 million and R$6.5 million, respectively, in the fiscal year ended December 31, 2018.

IFRS 9 – Financial Instruments

In May 2014, the IASB issued IFRS 9 relating to the classification and measurement of financial instruments. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, and this approach replaces the previous requirements of IAS 39. The approach in IFRS 9 is based on how an entity manages its financial assets (i.e., its business model) and the contractual cash flow characteristics of those financial assets. IFRS 9 also amends the impairment criteria by introducing a new expected credit losses model for calculating impairment on financial assets and commitments to extend credit. Further, IFRS 9 includes new hedge accounting requirements that align hedge accounting more closely with risk management. These new requirements do not fundamentally change the types of hedging relationships or the requirement to measure and recognize ineffectiveness but do allow for more hedging strategies to be used for risk management to qualify for hedge accounting and for more judgment by management in assessing the effectiveness of those hedging relationships. Extended disclosures with respect to risk management activity for those choosing to apply the new hedge accounting requirements will also be required under the new standard.

We adopted IFRS 9 with the initial application date of January 1, 2018. The adoption of the expected credit loss requirements of IFRS 9 did not have a material impact on our consolidated financial statements.

The adoption of the classification and measurement of financial instruments requirements of IFRS 9 had an impact in the classification of cash and banks as fair value through profit or loss and of Certificates of Bank Deposits as amortized cost.

It should be noted that the consolidated financial information as of and for the fiscal year ended December 31, 2017 does not reflect the adoption of IFRS 15 – Revenue from Contracts with Customers and IFRS 9 – Financial Instruments beginning on January 1, 2018.

IAS 29 – Financial Reporting in Hyperinflationary Economies

Additionally, starting from July 2018, Argentina has been considered a hyperinflationary economy. We have a subsidiary based in Argentina, consequently, as required by IAS 29 – Financial Reporting in Hyperinflationary Economies; 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).

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In addition, non-monetary items and income statement balances were restated to reflect the terms of the measuring unit current at the end of the reporting exercise. The balances were calculated by applying the changes on the index from the initial recognition date to the reporting date.

The translation of the balance sheet and income statement balances into the reporting currency, Brazilian reais, were based on the closing rate of the reporting period.

In the fiscal year ended December 31, 2019, the application of IAS 29 resulted in (i) a negative impact on the financial income (expenses) of R$13.9 million (R$25.1 million at December 31, 2018); and (ii) a negative impact on net income for the year of R$68.9 million (R$64.3 million at December 31, 2018).

The conversion 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$17.7 million (R$19.1 million on December 31, 2018).

For further information, see note 3.3.1 to our audited consolidated financial statements included elsewhere in this Form 6-K.

New Standards, Interpretations and Amendments Adopted in 2019

IFRS 16 – Leases

The IASB issued IFRS 16 to replace IAS 17—Leases. This standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures by lessors.

We adopted IFRS 16 from its effective date on January 1, 2019. For lease agreements meeting the IFRS 16 recognition criteria, we recognized right-of-use assets and lease liabilities of R$1,949.7 million, as of January 1, 2019, using the modified retrospective transition method with cumulative effect on January 1, 2019. For further information, see note 3.29 to our audited consolidated financial statements included elsewhere in this Form 6-K.

IFRIC 23 – Uncertainty Over Income Tax Treatments

On June 7, 2017, the IFRS Interpretations Committee (IFRS IC) issued IFRIC 23, which clarifies how the recognition and measurement requirements of IAS 12—Income taxes, are applied when there is uncertainty over income tax treatments. In this situation, we recognize and measure our current or deferred tax assets or liabilities by applying IAS 12 based on our taxable profit or loss, the tax bases of assets and liabilities, unused tax losses and credits and tax rates. This interpretation became effective for annual periods beginning on January 1, 2019 and did not have a significant impact on our financial statements.

New Accounting Standards Issued but Not Yet Effective

The accounting policies adopted in the preparation of the unaudited interim condensed consolidated financial statements are consistent with those followed in the preparation of the Company’s annual consolidated financial statements as of and for the year ended 31 December 2019, except for the adoption of new standards effective as of 1 January 2020. The Company has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. Several amendments and interpretations apply for the first time in 2020, but do not have an impact on the unaudited interim condensed consolidated financial statements of the Company.

Amendments to IFRS 3: Definition of a Business

The amendment to IFRS 3 clarifies that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Furthermore, it clarified that a business can exist without including all of the inputs and processes needed to create outputs. These amendments had no impact on the consolidated financial statements of the Company but may impact future periods should the Company enter into any business combinations.

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Amendments to IFRS 7, IFRS 9 and IAS 39: Interest Rate Benchmark Reform

The amendments to IFRS 9 and IAS 39 Financial Instruments: Recognition and Measurement provide a number of reliefs, which apply to all hedging relationships that are directly affected by interest rate benchmark reform. A hedging relationship is affected if the reform gives rise to uncertainties about the timing and or amount of benchmark-based cash flows of the hedged item or the hedging instrument. These amendments had no impact on the consolidated financial statements of the Company as it does not have any interest rate hedge relationships.

Amendments to IAS 1 and IAS 8: Definition of Material

The amendments provide a new definition of material that states “information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.” The amendments clarify that materiality will depend on the nature or magnitude of information, either individually or in combination with other information, in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users. These amendments had no impact on the consolidated financial statements of, nor is there expected to be any future impact to the Company.

Conceptual Framework for Financial Reporting issued on 29 March 2018

The Conceptual Framework is not a standard, and none of the concepts contained therein override the concepts or requirements in any standard. The purpose of the Conceptual Framework is to assist the IASB in developing standards, to help preparers develop consistent accounting policies where there is no applicable standard in place and to assist all parties to understand and interpret the standards. The revised Conceptual Framework includes some new concepts, provides updated definitions and recognition criteria for assets and liabilities and clarifies some important concepts. These amendments had no impact on the consolidated financial statements of the Company.

Amendments to IFRS 16: Covid-19-Related Rent Concessions

In May 2020, the IASB issued Covid-19-Related Rent Concessions—Amendment to IFRS 16 Leases (the amendment). The Board amended the standard to provide an optional relief to lessees from applying IFRS 16’s guidance on lease modification accounting for rent concessions arising as a direct consequence of the covid-19 pandemic. The objective of the amendment is to provide lessees that have been granted covid-19 related rent concessions by lessors with practical relief, while still providing useful information about leases to users of the financial statements. The amendments do not apply to lessors. These amendments had impact on the consolidated financial statements of the Company, see note 17 to our consolidated financial statements included elsewhere in this Form 6-K.

Principal Factors Affecting Our Results of Operations

Macroeconomic Environment

Our results of operations are dependent, to a large extent, on the level of demand for our products in the countries in which we operate. Demand for our products in those countries is affected by the performance of their respective economies in terms of GDP, as well as prevailing levels of employment, inflation and interest rates. We conduct a substantial part of our operations in Latin America, especially in Brazil.

In addition, the recent COVID-19 outbreak is spreading quickly and had an effect on demand in 2020. Business operations across Asia, Europe and the United States are being affected by factory disruptions and closures, quarantined workers and shortages of components, with a direct impact on the availability of goods and services. These disruptions to global supply chains impacted businesses generally and weaken demand from consumers, leading to a global economic slowdown in 2020.

Brazil

The Brazilian economic environment has historically been characterized by significant variations in economic growth, inflation, interest and currency exchange rates. A significant portion of our operations are located in Brazil. As a result, our revenues and profitability are affected by political and economic developments in Brazil, and the effect that these factors have on the availability of credit, disposable income, employment rates and average wages in Brazil. Our operations, and the industry in general, may be affected by changes in economic conditions.

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Brazil is the largest economy in Latin America, as measured by GDP. The following table shows data for GDP, inflation and interest rates in Brazil and the U.S. dollar/real exchange rate at the dates and for the periods indicated.

Sources: IBGE, Brazilian Central Bank, B3 and FGV.

General economic stability in Brazil, following the onset of the global financial crisis in 2009, allowed the Brazilian Central Bank to continue its policy of reducing interest rates. Due to inflation and other general macroeconomics concerns, the Brazilian Central Bank began increasing interest rates, through the SELIC, a benchmark interest rate, which reached 10.00% at the end of December 31, 2013, 11.75% at the end of December 31, 2014 and 14.25% at the end of December 31, 2015. Following changes in economic and politic scenarios, the Brazilian Central Bank started to reduce interest rates since then, where the SELIC reached 13.75% as of December 31, 2016, 7.00% as of December 31, 2017, 6.50% as of December 31, 2018 and 4.50% as of December 31, 2019. As of the date of this Form 6-K, the SELIC rate was 2.00%.

In addition, various ongoing investigations into allegations of money laundering and corruption being conducted by the Office of the Brazilian Federal Prosecutor, including the largest such investigation known as “Lava Jato,” have negatively impacted the Brazilian economy and political environment.

The recent economic instability in Brazil has contributed to a decline in market confidence in the Brazilian economy as well as to a deteriorating political environment. Unfavorable macroeconomic conditions in Brazil are expected to continue throughout 2020.

GDP has declined in the first half and is expected to be followed by growth in the third and fourth quarters. The recovery in activity, which started in some sectors as early as May and which tends to spread to most other sectors in the coming months, is due in part to the adoption of a set of measures to preserve income, jobs and production implemented to mitigate the impacts of the crisis. The recovery path in the second half will continue and for 2021, is projected growth of 3.6%.

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We are not able to fully estimate the impact of global and Brazilian political and macroeconomic developments on our business. Recent economic and political instability has led to a negative perception of the Brazilian economy and increased volatility in the Brazilian securities markets, which also may adversely affect us and our securities. Any continued economic instability and political uncertainty may materially adversely affect our business and the trading prices of any of our securities. Furthermore, uncertainty over whether the Brazilian government will implement reforms and political uncertainty resulting from the presidential elections and the transition to a new government may have an adverse effect on our business, results of operations and financial condition.

Any deterioration in Brazil’s rate of economic growth, changes in interest rates, the unemployment rate or price levels generally may limit the availability of credit, income and purchasing power of our customers, thereby adversely affecting demand for our products.

Inflation

While minor variations in the rate of inflation can be passed on to our customers with no impact on the demand for our products and services, we believe that a significant increase in the rate of inflation may adversely affect demand for our products in that it may (i) adversely affect consumer confidence; and (ii) adversely affect consumers’ purchasing power.

In addition, a significant part of our costs and expenses are incurred in reais and adjusted when our suppliers or service providers increase their prices. In Brazil, our service providers in general use the IPCA index to adjust their prices, while our suppliers use the National Consumer Price Index (Índice Nacional de Preços ao Consumidor), disclosed by IBGE, or INPC, the National Consumer Price Index, disclosed by FGV, or IGP-M, or the variation in the price of certain commodities, in order to adjust their prices according to the inflation. For operations in the United Kingdom, we have experienced low inflation, driven largely by falling oil prices and the strength of the pound sterling keeping down the costs of imports. However, the sharp fall in the value of the pound sterling since the vote to leave the EU means that imports have become more expensive, and inflation has risen.

Our gross revenue is also indirectly affected by inflation, since in general we transfer part of our cost increases to our consumers through price increases.

Foreign Exchange

We operate globally, with manufacturing and distribution facilities in various countries around the world. The increase or decrease in value of the real against the U.S. dollar and the euro affected and will continue to affect the results of our operations, particularly with regards to (1) the changes in raw material costs and imported goods or those linked to U.S. dollars; (2) our loans in foreign currency; (3) Natura’s costs of products sold in reais to our companies operating in Argentina, Chile, Peru, Mexico and Colombia; (4) our operations in Australia, Asia, Europe and the United States through Aesop; (5) our operations through The Body Shop brand, primarily related and limited to the translation of financial information to real; and (6) our operations around the world through Avon for which we had net underlying foreign currency exchange rate exposures through the Argentine peso, Brazilian real, British pound, Chilean peso, Colombian peso, the euro, Mexican peso, Peruvian new sol, Philippine peso, Polish zloty, Romanian leu, Russian ruble, South African rand, Turkish lira and Ukrainian hryvnia. Certain of our receivables and financial obligations assumed are denominated in foreign currencies.

Natura &Co currently manages its foreign exchange risk exposure by individual business units.

Our Natura Cosméticos subsidiary follows a Foreign Exchange Protection Policy which establishes maximum risk limits. Natura Cosméticos subsidiary performs sensitivity analysis, on a quarterly basis, on its foreign exchange risk exposure, considering the balances of foreign currency denominated accounts receivable and payable recorded in the consolidated financial statements, as well as future cash flows commitments denominated in foreign currency, with an average term of six months. An exposure limit is determined based on a percentage of the forecasted net profit, and Natura Cosméticos subsidiary hedges, at minimum, its net exposure exceeding such limit. In order to do so, Natura Cosméticos subsidiary enters into derivative contracts such as “swap” and “forwards” (Non-Deliverable Forwards, or NDFs).

In addition, Natura Cosméticos subsidiary’s policy is to hedge its exposure arising from loans denominated in a currency different from the functional currency of the corresponding entity. In order to hedge this exposure, Natura Cosméticos subsidiary has historically entered into derivative contracts which are accounted for under hedge accounting.

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Due to its international sales and cost of sales denominated in different currencies, The Body Shop International is exposed to fluctuations of main currencies versus the pound sterling that can impact The Body Shop International’s results. In order to mitigate currency risk, The Body Shop International adopts a conservative approach of hedging, before the year-end, a significant portion of annual foreign exchange exposures for the following year, through forward purchases or sales contracts. Foreign exchange exposure is identified for the following year on the basis of the operating budgets of each subsidiary; however, a material proportion of our foreign exchange exposure is connected to The Body Shop International. These requirements are then reviewed regularly throughout the year in progress. The Body Shop International Limited is the finance company of The Body Shop International and provides working capital intercompany financing to all its subsidiaries in their local currencies. The Body Shop International hedges the foreign exchange risk arising on financing activity using foreign exchange swaps dealt with external financial counterparties.

Avon has a financial risk management program to reduce the potential negative effects from changes in foreign exchange and may reduce its exposure to fluctuations in fair value or cash flows associated with changes in foreign exchange rates by creating offsetting positions, including through the use of derivative financial instruments. Avon may use foreign currency rate-sensitive instruments to hedge a portion of our existing and forecasted transactions, and it expect that any loss in value for the hedge instruments generally would be offset by changes in the value of the underlying transaction. Avon does not enter into derivative financial instruments for trading or speculative purposes, nor is Avon a party to leveraged derivatives.

Interest Rates

We are exposed to interest rate risk as a result of certain financial investments, short- and long-term loans and financing. We normally maintain exposures to the interest rates on assets and liabilities linked to post-fixed rates. The financial investments, loans and financing, except for those contracted in TJLP, are adjusted by post-fixed CDI, according to the agreements executed with financial institutions and through trading of securities in the market.

We also contracted certain derivative financial instruments to mitigate exposure to interest rate other than CDI regarding our loans and financing agreements.

Other Factors

In addition, our results of operations have been influenced and will continue to be influenced by the following key factors:

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Historical Operating Results

The following discussion of our results of operations is based on the financial information derived from Natura &Co Holding’s audited consolidated financial statements prepared using the predecessor method of accounting and in accordance with IFRS as issued by the IASB. In the following discussion, references to increases or decreases in any period are made by comparison with the corresponding prior period, as applicable, except otherwise indicated.

Unless otherwise indicated, in the discussion that follows, references to 2019, 2018 and 2017 are to the years ended December 31, 2019, 2018 and 2017, respectively.

For the six-month period ended June 30, 2020, 56.1% (64.1% in the six-month period ended June 30, 2019) of our net revenue derived from our LATAM segment, primarily from the sale of products to our consultants. For the fiscal year ended December 31, 2019, 61.3% (63.7% in 2018) of our net revenue derived from our LATAM segment, primarily from the sale of products to our consultants. The number of our consultants and their productivity are the main drivers of our gross operating revenue.

We recorded net loss of R$1,217.0 million for the six-month period ended June 30, 2020, compared to net income of R$69.4 million for the six-month period ended June 30, 2019. The principal factors affecting our net income for the six-month period ended June 30, 2020 were the consolidation of a loss at Avon during 2020, the expenses related to Avon’s acquisition of R$304.1 million, transformation costs of R$79.6 million and the effects of purchase accounting allocation, net of deferred taxes related to the amortization and depreciation, in the amount of R$278.3 million, of intangible assets, fair value step up of fixed assets, debts and inventory and others.

We recorded net income of R$155.5 million for the fiscal year ended December 31, 2019, compared to net income of R$548.4 million for the fiscal year ended December 31, 2018. The principal factor affecting our net income for the fiscal year ended December 31,2019 was mainly the taxes imposed on the formation of Natura &Co Holding as a result of the Natura Cosméticos shares contribution by the controlling shareholders to Natura &Co Holding, transaction costs related to the Avon acquisition and a higher effective income tax rate.

We recorded net income of R$548.4 million for the fiscal year ended December 31, 2018 compared to net income of R$670.3 million for the fiscal year ended December 31, 2017. The principal factors affecting our net income in the fiscal year ended December 31, 2018 were (1) higher depreciation expenses (one full year of depreciation from The Body Shop in 2018, as opposed to four months in 2017), and (2) an increase in net financial expenses (as set forth under “—Results for the Fiscal Year Ended December 31, 2018 Compared to the Fiscal Year Ended December 31, 2017”), partially offset by the lower income tax expenses resulting from the lower effective income tax rate in 2018.

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Results for the Six-Month Period Ended June 30, 2020 Compared to the Results for the Six-Month Period Ended June 30, 2019

The following table sets forth our unaudited interim condensed consolidated financial information for the six months period ended June 30, 2020 and 2019.

Net Revenue

Our consolidated net revenue increased by 129.6%, to R$14,505.2 million for the six-month period ended June 30, 2020, from R$6,318.9 million for the six-month period ended June 30, 2019, mainly as a result of the acquisition of Avon, completed in January 2020, growth on beauty consultants performance of Natura &Co LATAM, The Body Shop International and Aesop International.

The following is a discussion of our main segments:

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In the six-month period ended June 30, 2020, the Natura brand in LATAM further consolidated its relationship selling model in the region, enhancing the digital capabilities of its consultants, whose productivity have been constantly growing. In the six-month period ended June 30, 2020, over 90% of consultants used the digital mobile platform, while 889,000 of these consultants had virtual consultant stores in Rede Natura, further increasing sales and their ability to reach customers.

During the six months end June 30, 2020, we had net closure of 86 stores (owned or franchised), which resulted in a total of 973 owned stores as of June 30, 2020 (compared to 991 as of June 30, 2019), and 1,724 franchised stores as of June 30, 2020 (compared to 1,792 as of June 30, 2019).

Cost of Sales

Cost of sales increased by 196.2%, to R$5,254.2 million for the six-month period ended June 30, 2020, from R$1,773.7 million for the six-month period ended June 30, 2019, and represented 36.2% and 28.1% of net revenue for the six-month periods ended June 30, 2020 and June 30, 2019, respectively.

The following table shows the cost components of sales for the periods indicated:

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For the six-month period ended June 30, 2020, Natura &Co Holding’s cost of sales increased by 196.2%, to R$5,254.2 million for the six-month period ended June 30, 2020, from R$1,773.7 million for the six-month period ended June 30, 2019. Cost of sales represented 36.2% of net revenue (the cost of sales of the Natura brand totaled R$1,899.1 million, representing 27.2% of net revenue for 2020) as compared to 28.1% for June 2019. This increase is primarily due to (1) the consolidation of Avon’s costs in the amount of R$3,355.1 million; and (2) the effect of the fair value step up adjustment on inventory of Avon as a result of the application of purchase accounting, which was sold during the period for an amount of R$115.1 million.

With respect to our main reporting segments:

Gross Profit

As a result of the foregoing, consolidated gross profit increased by 103.5%, to R$9,251.0 million for the six-month period ended June 30, 2020, from R$4,545.2 million for the six-month period ended June 30, 2019. Our consolidated gross margin, which we calculate as gross profit divided by net revenue, expressed as a percentage, came in at 63.8% for the six-month period ended June 30, 2020, compared to 71.9% for the six-month period ended June 30, 2019. Our margin decreased primarily due to the integration of Avon into the results, which has historically run lower gross margins than the predecessor company.

Operating Expenses

Consolidated operating expenses increased by 140.1%, to R$9,783.4 million for the six-month period ended June 30, 2020, compared to R$4,075.4 million for the six-month period ended June 30, 2019, primarily due to the factors listed below.

Selling, Marketing and Logistics Expenses

Consolidated selling, marketing and logistics expenses increased by 124.3%, to R$6,449.0 million for the six-month period ended June 30, 2020, compared to R$2,875.4 million for the six-month period ended June 30, 2019. This increase is aligned with the growth pattern of revenue and it is primarily due: (i) the consolidation of Avon since January 3, 2020, (ii) effects of purchase price allocation mainly in relation to intangible assets amortization during 2020, (iii) to measures to mitigate the impacts of COVID-19 – such as: extension of payment terms for beauty consultants, flexibility of credit conditions and increase in online sales commissions and (iv) an increase in

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exchange effects due to devaluation of the Brazilian real and expenses based on foreign currency. As a percentage of net revenue, selling, marketing and logistics expenses amounted to 44.5% for the six-month period ended June 30, 2020, compared to 45.5% for the six-month period ended June 30, 2019. This decrease is a result of continued investments in improving operational efficiency driven by measures implemented to minimize impacts of COVID-19, which enhanced our cost discipline across all businesses.

Administrative, Research and Development, Technology and Other Project Expenses

Administrative, research and development, technology and other project expenses increased by 135.8%, to R$2,603.6 million for the six-month period ended June 30, 2020 from R$1,104.3 million for the six-month period ended June 30, 2019. This increase of R$1,499.3 million was primarily due to the acquisition of Avon in January 2020, including the effects of purchase price allocation in relation to the amortization of intangible assets , which were partially offset by measures implemented to minimize the impacts of COVID-19. As a percentage of net revenue, administrative, research and development, technology and other project expenses at 18.0% for the six-month period ended June 30, 2020 compared to 17.5% for the six-month period ended June 30, 2019.

Other Operating Income (Expenses), Net

Other operating expenses, net increased to R$277.9 million for the six-month period ended June 30, 2020 from R$22.3 million for the six-month period ended June 30, 2019. This change was primarily due to (1) acquisition costs related to the acquisition of Avon, totaling R$304.1 million for the six-month period ended June 30, 2020 (R$67.5 million in June 2019) and; (2) expenses totaling R$79.6 million for related to the implementation of transformation plan for the six-month period ended June 30, 2020 (R$26.4 million for the six-month period ended June 30, 2019).

Net Financial Result

Net financial expenses totaled R$496.2 million for the six-month period ended June 30, 2020, compared to R$369.7 million for the six-month period ended June 30, 2019, primarily due to higher interest expenses from consolidating Avon debt, partially offset by a lower CDI rate in Brazil.

Income Tax and Social Contribution Expenses

Income tax and social contribution expenses increased to R$139.7 million for the six-month period ended June 30, 2020 from R$30.7 million for the six-month period ended June 30, 2019. Our adjusted effective tax rate is primarily impacted by our inability to recognize additional deferred tax assets in various jurisdictions related to our current-year operating results. In addition, the adjusted effective tax rate and the effective tax rate are also impacted by withholding taxes associated with certain intercompany payments and the additional recognition of deferred liability income tax, due to the announcement by the British government that its nominal tax rate would no longer be reduced from 19% to 17% as previously announced.

Net (loss) income for the period

For the reasons described above, we had a net loss of R$1,217.0 million (8.4% of net revenue) for the six-month period ended June 30, 2020, compared to a net income of R$69.4 million (1.1% of net revenue) for the six-month period ended June 30, 2019.

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Our consolidated net revenue increased by 7.8% to R$14,444.7 million for 2019, from R$13,397.4 million for 2018, as a result of accelerated growth in Aesop, as well as steady growth across the other brands.

The following is a discussion of our main segments:

Specifically regarding sales made in Brazil, the increase was supported by: (1) sales increases across all channels and categories; (2) one of the strongest fourth quarter sales in recent years due to a successful Christmas campaign; (3) an increase of 3.2% in the number of consultants, reaching 1.1 million in 2019, as well as an increase in consultant productivity (which is measured as gross sales divided by the average number of consultants for a given period, divided by the same metric for the comparable period); (4) an increase in the average price per unit sold to R$18.0 in 2019 compared to R$16.4 for 2018, which was partially offset by a decrease in units sold of 5.4% to 347.4 million in 2019, from 367.4 million units sold in 2018. In 2019, we further consolidated our relationship selling model in Brazil, enhancing the digital capabilities of our consultants. In 2019, over 900,000 consultants in Brazil used the digital mobile platform, while 700,000 of these consultants had virtual consultant stores in Rede Natura, further increasing sales and their ability to reach customers. Our operations in Brazil also continued the omnichannel growth, with the launch of 22 owned retail stores with the Natura brand in shopping malls, reaching 58 stores at the end of the 2019. In addition, approximately 200 new “Aqui tem Natura” franchise stores opened in Brazil in 2019, bringing the total number of stores to approximately 400 at the end of 2019, twice as many stores compared to December 31, 2018.

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Revenue growth in Argentina, Colombia and Mexico significantly contributed to LATAM’s segment performance. Additionally in 2018, inflation in Argentina reached 100% accumulated over three years, which triggered our adoption of the following accounting standards starting from the third quarter of 2018: (1) IAS 29 – Financial Reporting in Hyperinflationary Economies, which requires the restatement of the financial statements of an entity, whose functional currency is that of a hyperinflationary economy, in order to reflect the changes in the general pricing power of its currency and (2) IAS 21 – The Effects of Changes in Foreign Currency, whereby Argentina’s financial statements had to be translated from the Argentinean peso to the Brazilian real at the exchange rate at the end of the reporting period. From 2018 to 2019, the impact of hyperinflation and foreign currency translation adjustments totaled R$4.5 million.

Cost of Sales

Cost of sales increased by 6.6%, to R$4,033.5 million for 2019, from R$3,782.8 million for 2018, and represented 27.9% and 28.2% of net revenue for 2019 and 2018, respectively.

The following table shows the cost components of sales for the periods indicated:

With respect to our main reporting segments:

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Gross Profit

As a result of the foregoing, consolidated gross profit increased by 8.3%, to R$10,411.2 million for 2019, from R$9,614.6 million for 2018. Our consolidated gross margin, which we calculate as gross profit divided by net revenue, expressed as a percentage, remained broadly stable at 72.1% for 2019, and 71.8% for 2018. For Natura &Co LATAM, The Body Shop and Aesop, the gross margin for 2019 was 67. 3% (67.7% for 2018), 76. 8% (76.1% for 2018) and 90.6% (89.2 for 2018), respectively.

Operating Expenses

Consolidated operating expenses increased by 8.4%, to R$9,060.0 million for 2019, compared to R$8,357.8 million for 2018, primarily due to the factors listed below.

Selling, Marketing and Logistics Expenses

Consolidated selling, marketing and logistics expenses increased by 9.7%, to R$6,395.6 million for 2019, compared to R$5,828.7 million for 2018. As a percentage of net revenue, selling, marketing and logistics expenses amounted to 44.3% for 2019, compared to 43.5% for 2018. This increase of R$566.9 million was primarily due to an increase in selling, marketing and logistics expenses at Aesop as a result of the launch of 20 signature stores in that year and an increase in depreciation and amortization to R$766.5 million in 2019 compared to R$230.0 million in 2018, as a result of the adoption of a new lease standard (IFRS 16) and the opening of new stores during the year.

Administrative, Research and Development, Technology and Other Project Expenses

Administrative, research and development, technology and other project expenses increased by 6.9%, to R$2,405.6 million for 2019 from R$2,251.3 million for 2018. As a percentage of net revenue, administrative, research and development, technology and other project expenses remained stable at 16.7% for 2019 compared to 16.8% for 2018. This increase of R$154.3 million was primarily due to an increase of R$186.7 million in personnel expenses mainly related to the granting of new stock options and pension plan cost reversals during 2018.

Other Operating Income (Expenses), Net

Other operating expenses, net increased to R$49.3 million for 2019 from R$39.9 million for 2018. This change was primarily due to expenses arising from the acquisition of Avon, totaling R$141.3 million for 2019. These effects were partially offset by (1) the recognition of a tax credit of R$42.3 million for 2019; (2) the recognition of R$43.0 million from recovered tax credits related to changes in the tax position taken on PIS/COFINS for 2019; and (3) the reversal of provisions regarding the substitution of the ICMS tax totaling income of R$21.4 million for 2019.

Net Financial Result

Net financial expenses totaled R$840.1 million for 2019, compared to R$583.3 million for 2018, primarily due to (1) debt structuring expenses for the acquisition of Avon totaling R$115.8 million for 2019; and (2) additional expenses related to interest on leases of R$134.6 million arising mainly as a result of the adoption of IFRS 16.

Taxes on Natura &Co Holding Formation

Taxes on Natura &Co Holding formation refer to income taxes of R$206.6 million paid in relation to the contribution of Natura Cosméticos shares by controlling shareholders to Natura &Co Holding as part of the corporate restructuring that took place in order to effect the Avon acquisition. For further information, see note 11 to our audited consolidated financial statements included elsewhere in this Form 6-K.

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Income Tax and Social Contribution Expenses

Income tax and social contribution expenses increased to R$149.1 million for 2019 from R$125.0 million for 2018, primarily due to a higher effective tax rate of 29.2% for 2019 compared to 18.6% for 2018.

Net Income

For the reasons described above, net income decreased to R$155.5 million (1.1% of net revenue) for 2019, compared to R$548.4 million (4.1% of net revenue) for 2018.

Our consolidated net revenue increased by 36.0%, to R$13,397.4 million for 2018, from R$9,852.7 million for 2017, primarily due to (1) the consolidation of The Body Shop, starting from September 2017, which contributed to net revenue in the amount of R$3,795.7 million for 2018 and R$1,418.3 million for 2017 (a period of four months only, from September through December); (2) strong growth of Natura &Co LATAM; and (3) accelerated growth of our Aesop International operations.

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The following contains a discussion of our main segments:

Additionally in 2018, inflation in Argentina reached 100% accumulated over three years, which triggered our adoption of the following standards: (1) IAS 29 – Financial Reporting in Hyperinflationary Economies, which requires the restatement of the financial statements of an entity, whose functional currency is that of a hyperinflationary economy, in order to reflect the changes in the general pricing power of its currency and (2) IAS 21 – The Effects of Changes in Foreign Currency, whereby Argentina’s financial statements had to be translated from the Argentinean peso to the Brazilian real at the exchange rate at the end of the reporting period (December 31, 2018). The impact on net revenue of both standards for 2018 was a reduction of R$44.5 million.

Cost of Sales

Cost of sales increased by 29.9%, to R$3,782.8 million for 2018, from R$2,911.1 million for 2017, primarily due to (1) consolidation of 12 months of The Body Shop’s financial information for 2018, totaling R$908.5 million, compared to four months of consolidation for 2017, contributing R$353.7 million to cost of sales; and (2) an increase in volume sold. These effects were partially offset by reduced depreciation and amortization expenses relating to our existing asset base.

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Cost of sales represented 28.2% and 29.5% of net revenue for 2018 and 2017, respectively, mainly driven by lower discounts in our The Body Shop International segment and the effect of IFRS 15 at Natura &Co LATAM.

The following table shows the cost components of products sold for the periods indicated, as well as the annual variation of each component:

With respect to our main reporting segments:

Gross Profit

Consolidated gross profit increased by 38.5%, to R$9,614.6 million for 2018, from R$6,941.6 million for 2017, primarily due to the consolidation of 12 months at The Body Shop in 2018, as opposed to four months in 2017. The Body Shop International’s gross profit amounted to R$2,887.2 million for 2018, and R$1,064.6 million for 2017.

Consolidated gross margin, which we calculate as gross profit divided by net revenue, expressed as a percentage, increased to 71.8% for 2018, from 70.5% for 2017. For Natura &Co LATAM, The Body Shop International and Aesop International, the gross margin for 2018 was 67.7% (67.9% for 2017), 76.1% (75.1% for 2017) and 89.2% (88.8% for 2017), respectively.

Operating Expenses

Consolidated operating expenses increased by 49.7%, to R$8,357.8 million for 2018, compared to R$5,582.9 million for 2017, primarily as a result of the variations described below for (1) selling, marketing and logistics expenses; (2) administrative, research and development, IT and project expenses; and (3) other operating expenses.

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Selling, Marketing and Logistics Expenses

Consolidated selling, marketing and logistics expenses increased by 44.5%, to R$6,066.6 million for 2018, compared to R$4,198.7 million for 2017. This increase was primarily due to (1) the consolidation of twelve months of The Body Shop in 2018, as opposed to four months in 2017; and (2) the adoption of IFRS 15 in 2018, which accounts for charges and penalties for late payments by consultants as variable components received in exchange for the transfer of goods, while in 2017 such charges were recognized as a recovery of selling expenses at Natura &Co LATAM, thus increasing such expenses in 2018.

As a percentage of net revenue, selling, marketing and logistics expenses amounted to 45.3% for 2018, compared to 42.6% for 2017, mainly as a result of the acquisition of The Body Shop in 2017, which contributed a full year consolidated in 2018 as opposed to four months in 2017, from September through December when revenues are higher due to seasonality.

Administrative, Research and Development, Technology and Other Project Expenses

Administrative, research and development, technology and other project expenses increased by 46.6%, to R$2,251.3 million for 2018, from R$1,535.9 million for 2017. This increase was primarily due to (1) the consolidation of 12 months of The Body Shop in 2018, as opposed to four months in 2017; and (2) a higher retention plan provision at Aesop, reflecting its superior performance, as compared to 2017.

As a percentage of net revenue, administrative, research and development, technology and projects expenses increased to 16.8% for 2018 from 15.6% for 2017. This increase was primarily due to the consolidation of The Body Shop, which in 2018 had a full year of financial information consolidated as opposed to four months in 2017, from September through December, when revenues are higher due to seasonality.

Other Operating (Expenses) Income, Net

Consolidated other operating (expenses) income, net changed to expenses of R$39.9 million for 2018 from income of R$151.7 million for 2017. This change was primarily due to (1) expenses totaling R$98.5 million for 2018 related to the implementation of The Body Shop’s transformation plan, which includes initiatives such as brand rejuvenation, organization redesign, store footprint optimization, among others; (2) the reversal, in 2017, of a tax obligation to include ICMS in the calculation base of the PIS and COFINS excise taxes, resulting in a positive impact of R$197.2 million; (3) reversal of IPI tax provision in 2017 (the provision was imposed by Decree No. 8,393/2015), resulting in a positive impact of R$133.6 million, as a result of a lower risk of loss on a legal case, based on recent favorable jurisprudence and judicial decisions in our favor as supported by our legal advisers; and (4) R$30.0 million in BNDES, FINAME and FINEP subsidies recorded for 2017, as opposed to nil for 2018 (refers to the reclassification of the subsidized loans interest expense as a result of the financial accounting pronouncement IAS 20 – Accounting for Government Grants and Disclosure of Government Assistance). Such effects were partially offset by (1) R$87.1 million in expenses related to acquisition of The Body Shop in 2017 (nil in 2018) and (2) R$38.8 million in tax contingencies recorded for 2017, as opposed to R$0.7 million for 2018.

Net Financial Result

Net financial expenses totaled R$583.3 million for 2018, compared to R$387.4 million for 2017, primarily due to (1) higher interest on financing of R$631.5 million for 2018 compared to R$387.7 million for 2017; (2) recognition of R$70.3 million benefit stemming from a reduction in interest upon joining the Special Tax Regulation Program (PERT) established by Federal Law No. 13,496/17 in 2017; and (3) gain due to reversal of interest on the provision for tax risks and tax liabilities and recognition of a contingent asset of R$129.8 million for 2017 against a gain of R$89.2 million for 2018. This was offset by (1) a decrease in expenses with interest on the provision for tax, civil and labor risks and tax liabilities to R$22.0 million for 2018, from R$89.8 million for 2017; and (2) financial costs associated with The Body Shop’s acquisition in the amount of R$102.5 million for 2017.

Income Tax and Social Contribution Expense

Income tax and social contribution expenses decreased to R$125.0 million for 2018 from R$300.9 million for 2017, primarily due to the decrease in net income before taxes to R$673.4 million for 2018 from R$971.2 million for 2017, and a lower effective income tax rate of 18.6% for 2018, versus 31.0% for the fiscal year ended December 31, 2017. The lower tax rate resulted from tax recoveries in Brazil, recognition of deferred tax credits at Natura &Co LATAM and The Body Shop, and higher accrual of interest on equity.

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Net Income

For the reasons described above, net income decreased to R$548.4 million (4.1% of net revenue) for 2018, compared to R$670.3 million (6.8% of net revenue) for 2017.

Supplemental Information—Unaudited Pro Forma Operating Results

The following discussion is based on our financial information for the six-month period ended June 30, 2020 compared to our pro forma results of operations for the six-month period ended June 30, 2019, which is presented as supplementary information only for comparability purposes.

The unaudited pro forma statement of income gives effect to acquisition of Avon, as if it occurred as of January 1, 2019. We prepared that information for the convenience of investors and comparison purposes.

The unaudited pro forma information for the six month period ended June 30, 2019, has been presented for informational purposes only, and does not purport to represent what the actual per segment net revenue of Natura & Co Holding would have been if the Transaction had occurred on the dates assumed. This should be read in conjunction with the following: (i) unaudited supplemental condensed pro forma financial information and accompanying notes; (ii) historical unaudited interim condensed consolidated financial statements of Natura &Co as of and for the three and six months ended June 30, 2019; and (iii) historical unaudited consolidated financial statements of Avon for the three and six months ended June 30, 2019

These pro forma results should not be considered representative of our results of operations in accordance with IFRS therefore, these pro forma have certain limitations, and you should not consider them in isolation or as substitutes for analysis of our historical results of operations as reported under IFRS. See “—Unaudited Supplemental Condensed Pro Forma Financial Information” for further information regarding the pro forma for the six months ended June 30, 2019.

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Unaudited Pro forma net revenue and cost of sales by segment for the six months ended June 30, 2019.

The following unaudited pro forma net revenue and cost of sales financial information by segment related to our current four reportable segments. See “Segment Information” within this Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information related to changes in revenue by segment.

The unaudited pro forma net revenue and cost of sale financial information by segment for the six months ended June 30, 2019 is based on the combined historical consolidated financial information of Natura &Co Holding and the historical consolidated financial information of Avon adjusted for any pro-forma effect, if applicable, of the Transaction, as if it had occurred on January 1, 2019.

The following table shows our unaudited pro forma net revenue per segment for the periods indicated:

The following table shows our unaudited pro forma cost of sales per segment for the periods indicated:

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Our net revenue decreased by 5.7% , to consolidated net revenue of R$14,505.2 million for the six-month period ended June 30, 2020, from a pro forma net revenue of R$15,374.0 million for the six-month period ended June 30, 2019, mainly as a result of Avon’s performance, which was impacted by a decrease in sales volume as a result of a decrease in the average number of representatives during the first half of 2020, sales restrictions as a result of the COVID-19 pandemic and the impact of the Avon cyber incident.

The following is a discussion by segment:

In the six-month period ended June 30, 2020, the Natura brand further consolidated its relationship selling model in Brazil, enhancing the digital capabilities of its consultants, whose productivity has been constantly growing. In the six-month period ended June 30, 2020, over 900,000 consultants in Brazil used the digital mobile platform, while 889,000 of these consultants had virtual consultant stores in Rede Natura, further increasing sales and their ability to access customers.

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During 2020, we continued to optimize our store footprint, consistent with The Body Shop’s Transformation program, and reduced our number of stores by a net 43 (owned or franchised), which resulted in a total of 973 owned stores as of June 30, 2020 (compared to 991 as of June 30, 2019), and 1,724 franchised stores as of June 30, 2020 (compared to 1,792 as of June 30, 2019).

Cost of sales decreased by 6.9%, to R$5,254.2 million for the six-month period ended June 30, 2020, from a pro forma cost of sales of R$5,632.0 million for the six-month period ended June 30, 2019, and represented 36.2% and 36.6% of net revenue for the six-month periods ended June 30, 2020 and June 30, 2019, respectively.

The following is a discussion by segment:

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Gross Profit

As a result of the foregoing, consolidated gross profit decreased by 5.0%, to R$9,251.0 million for the six-month period ended June 30, 2020, from a pro forma gross profit of R$9,742.0 million for the six-month period ended June 30, 2019. Our consolidated gross margin, which we calculate as gross profit divided by net revenue, expressed as a percentage, remained broadly stable at 63.8% for the six-month period ended June 30, 2020, compared to 63.4% for the six-month period ended June 30, 2019. For Natura &Co LATAM, Avon International, The Body Shop International and Aesop International, the gross margin divided by net revenue for the six-month period ended June 30, 2020 was 60.4% (61.0% for the six-month period ended June 30, 2019), 58.6% (59.3% for the six-month period ended June 30, 2019), 78.6% (76.7% for the six-month period ended June 30, 2019) and 90.6% (91.0% for the six-month period ended June 30, 2019), respectively.

Operating Expenses

Operating expenses increased by 7.1%, to R$9,783.4 million for the six-month period ended June 30, 2020, compared to a pro forma operating expenses of R$9,139.0 million for the six-month period ended June 30, 2019, primarily due to the factors listed below.

Selling, Marketing and Logistics Expenses, Administrative, Research and Development, Technology and Other Project Expenses (SG&A)

SG&A increased by 5.8%, to R$9,052.6 million for the six-month period ended June 30, 2020, compared to a pro forma R$8,555.0 million for the six-month period ended June 30, 2019. As a percentage of net revenue, selling, marketing and logistics expenses amounted to 62.4% for the six-month period ended June 30, 2020, compared to 55.6% for the six-month period ended June 30, 2019. This increase is mainly explained by the decline in net revenue which resulted in operational deleveraging, as well as measures to mitigate the impacts of COVID-19, such as: extension of payment terms for beauty consultants, flexibility of credit conditions and increase in online sales commissions, which was partially offset by reduced overhead expenses in response to the reduced demand environment.

Impairment Losses on Trade Receivables

Impairment losses on trade receivables increased by 17.9%, to R$452.9 million for the six-month period ended June 30, 2020, compared to R$384.0 million for the six-month period ended June 30, 2019. As a percentage of net revenue, impairment losses on trade receivables represented 3.1% for the six-month period ended June 30, 2020, compared to 2.5% for the six-month period ended June 30, 2019. This increase is mainly related to unfavorable impact on bad debt reflecting the increased risk of recoverability of trade receivables due to COVID-19.

Other Operating Income (Expenses), Net

Other operating expenses, net increased to R$277.9 million for the six-month period ended June 30, 2020 from pro forma R$200.0 million for the six-month period ended June 30, 2019. As a percentage of net revenue, other operating income (expenses), net represented 1.9% for the six-month period ended June 30, 2020, compared to 1.3% for the six-month period ended June 30, 2019.

This increase was primarily mainly due to costs arising from the acquisition of Avon, totaling R$304.1 million for the six-month period ended June 30, 2020. This increase was partially offset by expenses related to integration of Avon to drive future synergies and the implementation of transformation plans for The Body Shop and Avon (Open Up), which were not as significant in the first half of 2020 as compared to 2019 (R$26.4 million related to transformation cost of The Body Shop and R$281.4 million of Open Up Avon in 2019 as compared to R$79.6 million, including R$37.8 million of open up Avon transformation costs in 2020).

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Net Financial Result

Net financial expenses totaled R$496.2 million for the six-month period ended June 30, 2020, compared to pro forma R$516.0 million for the six-month period ended June 30, 2019, a decrease of R$19.8 million, favorably impacted by the lower CDI interest rate in Brazil, which was partially offset by expenses related to Avon’s acquisition process.

Income Tax and Social Contribution Expenses

Income tax and social contribution expenses decreased to R$139.7 million for the six-month period ended June 30, 2020 from pro forma R$202.0 million for the six-month period ended June 30, 2019.

Net Income from continuing operations

For the reasons described above, net loss increased to R$1,168.3 million (8.1% of net revenue) for the six-month period ended June 30, 2020, compared to pro forma net loss of R$115.0 million (0.7% of net revenue) for the six-month period ended June 30, 2019 as lower revenue and non-recurring costs associated with the acquisition of Avon and the ongoing transformation programs negatively impacted our overall consolidated results.

Unaudited Supplemental Condensed Pro Forma Financial Information

The comparability of our results of operations for the six-month period ended June 30, 2020 with the six-month period ended June 30, 2019 is affected by the Transaction. To supplement the discussion of our historical results of operations for the six-month periods ended June 30, 2020 and 2019, we have included an unaudited supplemental pro forma condensed consolidated statement of income information for the six-month period ended June 30, 2019. The unaudited supplemental pro forma condensed consolidated statement of income for the six-month period ended June 30, 2019 includes our historical consolidated results of operations and the results of operations of Avon after giving pro forma effect to the Transaction as if it had been consummated on January 1, 2019.

The unaudited pro forma condensed statements of income for the six-month period ended June 30, 2019 is based on the individual historical consolidated statements of income of Natura &Co and Avon, and combine the results of operations of Natura &Co and Avon, giving effect to the Transaction as if it had occurred on January 1, 2019. The historical consolidated statements of income has been adjusted to give effect to the events that are directly attributable to the Transaction, factually supportable, and, with respect to the pro forma statements of income, expected to have a continuing impact on the pro forma results.

The unaudited pro forma condensed statements of income, as above, has been presented for informational purposes only. The unaudited pro forma condensed statements of income does not purport to represent what the actual consolidated results of operations of Natura &Co would have been if the proposed Transaction had occurred on the date assumed, nor is it necessarily indicative of future consolidated results of operations.

The unaudited pro forma condensed statements of income should be read in conjunction with the following:

The unaudited pro forma condensed statements of income has been prepared using the acquisition method of accounting under IFRS. Natura &Co has been treated as the acquirer in the Transaction for accounting purposes. The unaudited pro forma statements of income presented herein, including allocation of the purchase price, is based upon our preliminary estimates of the fair value of the assets acquired and liabilities assumed, available information as of the date of this Form 6-K and management assumptions, and will be revised upon final calculations during the one-year measurement period as from each acquisition date. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed statements of income.

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The accompanying notes are an integral part of the unaudited pro forma condensed financial information.

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Notes to the Unaudited Pro Forma Condensed Statement of Income

1. Description of the Transaction and Basis of Presentation

On May 22, 2019, Avon Products, Natura &Co Holding and the Merger Subs entered into the Merger Agreement, as amended on October 3, 2019 and November 5, 2019, pursuant to which Avon and Natura Cosméticos would become direct wholly owned subsidiaries of Natura &Co Holding. The transaction was completed on January 3, 2020, and as a result Avon become a direct wholly owned subsidiary of Natura &Co Holding.

Immediately following the completion of the Transaction, the former shareholders of Natura Cosméticos owned approximately 72.9% of Natura &Co Holding and former Avon common shareholders owned approximately 27.1% of Natura &Co Holding. As a result, Natura &Co Holding is the acquirer for financial reporting purposes.

The unaudited pro forma condensed statement of income was prepared using the acquisition method of accounting in accordance with the IFRS 3, Business Combinations, or IFRS 3. IFRS 3, requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. Fair value measurements can be highly subjective and it is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.

Acquisition-related transaction costs (i.e., advisory, legal, valuation and other professional fees) and certain transaction related restructuring charges are not included as a component of the consideration transferred but are accounted for as expenses in the periods in which the costs are incurred. Transaction costs incurred by Natura &Co and Avon for the six months ended June 30, 2019 amounted to R$68 million and R$65 million, respectively.

The unaudited pro forma condensed financial information does not reflect any cost savings, operating synergies or revenue enhancements that Natura &Co may achieve as a result of the Transaction or the costs to integrate the operations of Natura &Co and Avon or the costs necessary to achieve these cost savings, operating synergies, such as procurement, manufacturing, distribution and administrative structure efficiencies and revenue enhancements.

2. Historical Consolidated Financial Information of Avon

The historical consolidated financial information of Avon has been prepared under U.S. GAAP and presented in U.S.$. The amounts reported under the column “Avon U.S. GAAP (U.S.$ in millions)” derive from Avon’s historical consolidated financial statements that have been translated into reais, which is Natura &Co’s functional and presentation currency, using the exchange rates described below under column “Avon as adjusted U.S. GAAP (R$ in millions).”

Items from the statement of income derived from the historical unaudited consolidated financial statements of Avon for the six months ended June 30, 2019 have been translated to reais using the weighted-average exchange rate of R$3.834 per U.S.$1.00 (which represents the average of the exchange rates on the closing of each day during the year).

In addition, Avon’s accounts have been reclassified to Natura &Co’s accounts, as described in the table below.