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 November 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

X

  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

X

 

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

X

 

 

 

 
 

 

NATURA &CO HOLDING S.A.

 

TABLE OF CONTENTS

 

ITEM  
   
1. Individual and Consolidated Interim Financial Information of Natura &Co Holding S.A. for the period ended March 31, 2020.

 

 

 
 

 

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: November 13, 2020

 

 
 

 

Item 1

 

Individual and Consolidated Interim Financial Information of Natura &Co Holding S.A. for the period ended March 31, 2020.

 

 

 
 

 

 

 

Natura &Co Holding S.A.

Quarterly Information (ITR) at
March 31, 2020
and report on review of
quarterly information

 

 

 

 

 

 

 

 

 

 

(A free translation of the original in Portuguese) 

 

Report on review of quarterly information

 

To the Board of Directors and Shareholders

Natura &Co Holding S.A.

 

Introduction

 

We have reviewed the accompanying parent company and consolidated interim accounting information of Natura &Co Holding S.A. ("Company"), included in the Quarterly Information Form (ITR) for the quarter ended June 30, 2020, comprising the balance sheet at that date and the statements of operations and comprehensive income, the statements of changes in equity and cash flows for the quarter then ended, and a summary of significant accounting policies and other explanatory information.

 

Management is responsible for the preparation of the parent company and consolidated interim accounting information in accordance with the accounting standard CPC 21, Interim Financial Reporting, of the Brazilian Accounting Pronouncements Committee (CPC) and International Accounting Standard (IAS) 34, Interim Financial Reporting issued by the International Accounting Standards Board (IASB), as well as the presentation of this information in accordance with the standards issued by the Brazilian Securities Commission (CVM), applicable to the preparation of the Quarterly Information (ITR). Our responsibility is to express a conclusion on this interim accounting information based on our review.

 

Scope of review

 

We conducted our review in accordance with Brazilian and International Standards on Reviews of Interim Financial Information (NBC TR 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Brazilian and International Standards on Auditing and consequently did not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion on the interim information

 

Based on our review, nothing has come to our attention that causes us to believe that the accompanying parent company and consolidated interim accounting information included in the quarterly information referred to above has not been prepared, in all material respects, in accordance with CPC 21 and IAS 34 applicable to the preparation of the Quarterly Information, and presented in accordance with the standards issued by the CVM.

 

 

PricewaterhouseCoopers, Av. Francisco Matarazzo 1400, Torre Torino, São Paulo, SP, Brasil, 05001-903, Caixa Postal 60054,

T: +55 (11) 3674 2000, www.pwc.com.br

 

2 

 

 

 

 

Emphasis of Matter

 

Reissuance of Quarterly Information Form (ITR)
and review report

 

On May 7, 2020, we issued an unqualified review report on the Quarterly Information (ITR) for the quarter ended March 31, 2020. We call your attention to Note 2.1(b) of the Quarterly Information (ITR), which describes that the ITR originally issued by the Company on May 7, 2020 is being reissued to include a reconciliation in Note 25.3, consequently, the predecessor auditor reissued its unqualified previously issued report dated May 2, 2019. Our conclusion is not qualified in relation to this matter.

 

Other matters

 

Statements of value added

 

The quarterly information referred to above includes the parent company and consolidated statements of value added for the quarter ended March 31, 2020. These statements are the responsibility of the Company's management and are presented as supplementary information under IAS 34. These statements have been subjected to review procedures performed together with the review of the quarterly information for the purpose of concluding whether they are reconciled with the interim accounting information and accounting records, as applicable, and if their form and content are in accordance with the criteria defined in the accounting standard CPC 09 - Statement of Value Added. Based on our review, nothing has come to our attention that causes us to believe that these statements of value added have not been properly prepared, in all material respects, in accordance with the criteria established in this accounting standard, and consistent with the parent company and consolidated interim accounting information taken as a whole.

 

 

Audit and review of the corresponding amounts
prior year and period

 

The Quarterly Information (ITR) mentioned in the first paragraph includes accounting information corresponding to the statements of operations, comprehensive income, changes in shareholders’ equity, cash flows and value added for the quarter ended March 31, 2019, presented for comparison purposes. The corresponding accounting information of the Company, for the quarter ended March 31, was prepared by management based on the procedures described in Note 2.1(a).

 

The review of the Quarterly Information (ITR) for the quarter ended March 31, 2019 of Natura Cosméticos S.A. (currently, a wholly owned subsidiary of the holding Natura &Co Holding S.A.) was conducted under the responsibility of other independent auditors, who issued an unqualified review report dated November 12, 2020.

 

The Quarterly Information (ITR) mentioned in the first paragraph also includes accounting information corresponding to the balance sheet as of December 31, 2019, obtained from the financial statements as of December 31, 2019, originally prepared before the reclassifications described in Note 25.3, which were performed in connection with the acquisition of Avon Products, Inc., and are presented for comparison purposes. The examination of the financial statements for the year ended December 31, 2019, as originally prepared, was conducted under the responsibility of other independent auditors, who issued unqualified audit opinion dated March 5, 2020.

 

As part of our review of the ITR for the quarter ended March 31, 2020, we reviewed the aforementioned reclassifications as they relate to assets and liabilities as of December 31, 2019, described in Note 25.3. Based on our review, nothing has come to our attention that such reclassifications are not appropriate or have not been correctly performed, in all material respects. We were not engaged to audit, review or apply any other procedures on the Company’s 2019 other financial information, and, therefore, we do not express an opinion or any form of assurance on the financial information for that year.

 

São Paulo, November 12, 2020

 

PricewaterhouseCoopers

Auditores Independentes

CRC 2SP000160/O-5

 

Leandro Mauro Ardito

Contador CRC 1SP188307/O-0

 

3 

 

 

NATURA &CO HOLDING S.A.

 

BALANCE SHEET AT MARCH 31, 2020 AND DECEMBER 31, 2019

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

 

  Note   Company   Consolidated     Note   Company   Consolidated
ASSETS   03/2020   12/2019   03/2020   12/2019   LIABILITIES AND SHAREHOLDERS' EQUITY   03/2020   12/2019   03/2020   12/2019
                                         
CURRENT ASSETS                     CURRENT                  
Cash and cash equivalents 6   11,927   2,380,800   3,111,496   4,513,582   Loans, financing and debentures 19   1,079,905   2,883,382   1,942,527   3,354,355
Securities 7   540,547   669,769   1,454,807   1,025,845   Lease 18.b   -   -   956,413   542,088
Trade receivables 8   -   -   2,774,632   1,685,764   Trade payables and forfait operations 20   1,758   -   5,104,782   1,829,756
Trade receivables - related parties 31.1   510,178   -   -   -   Trade payables - related parties 31.1   147,486   -   -   -
Inventories 9   -   -   4,040,679   1,430,550   Payroll, profit sharing and social charges     24,770   -   985,965   560,376
Recoverable taxes 10   -   5   959,222   395,640   Tax liabilities 21   1,435   1,050   488,620   320,890
Income tax and social contribution     528   -   321,485   113,478   Income tax and social contribution     -   196,474   245,244   388,238
Derivative financial instruments 5.2   -   -   178,912   -   Dividends and interest on shareholders' equity payable 28.b)   -   -   -   95,873
Assets available for sales 13   -   -   186,518   -   Derivative financial instruments 5.2   -   -   32,205   11,806
Other current assets 14   -   -   832,988   265,198   Provision for tax, civil and labor risks 22   -   -   47,046   18,650
Total current assets     1,063,180   3,050,574   13,860,739   9,430,057   Other current liabilities 23   -   -   1,730,782   396,391
                      Total current liabilities     1,255,354   3,080,906   11,533,584   7,518,423
NON-CURRENT ASSETS                                        
Recoverable taxes 10   -   -   899,861   409,214   NON-CURRENT                  
Income tax and social contribution     -   -   334,671   334,671   Loans, financing and debentures 19   -   -   17,390,539   7,432,019
Deferred income tax and social contribution 11   -   -   996,419   374,448   Lease 18.b   -   -   2,971,565   1,975,477
Judicial deposits 12   -   -   619,726   337,255   Tax liabilities 21   -   -   166,432   122,569
Derivative financial instruments 5.2   -   -   1,817,958   737,378   Deferred income tax and social contribution 11   -   -   1,504,910   450,561
Securities 7   -   -   8,938   7,402   Provision for tax, civil and labor risks 22   -   -   1,146,930   201,416
Other non-current assets 14   -   -   1,380,122   83,836                      
Total long-term assets     -   -   6,057,695   2,284,204   Other non-current liabilities 23   -   -   1,049,308   121,702
                      Total non-current liabilities     -   -   24,229,684   10,303,744
                                         
Investments 15   20,458,274   3,392,677   -   -   SHAREHOLDERS' EQUITY                  
Property, plant and equipment 16   -   -   5,246,283   1,773,889   Capital stock     4,905,118   1,485,436   4,905,118   1,485,436
Intangible assets 17   -   -   27,157,529   5,076,501   Treasury shares 28   (16,004)   -   (16,004)   -
Right of use 18   -   -   3,736,495   2,619,861   Capital reserves     11,112,156   1,302,990   11,112,156   1,302,990
                      Retained earnings 28   (146,882)   (149,020)   (146,882)   (149,020)
Total non-current assets     20,458,274   3,392,677   42,198,002   11,754,455   Accumulated loss     (820,797)   -   (820,797)   -
                      Losses on capital transaction     (92,066)   (92,066)   (92,066)   (92,066)
                      Equity valuation adjustment     5,324,575   815,005   5,324,575   815,005
                      Shareholders' equity attributed to the Company's controlling shareholders     20,266,100   3,362,345   20,266,100   3,362,345
                      Non-controlling interest in shareholders'                  
                      equity of subsidiaries     -   -   29,373   -
                      Total shareholders' equity     20,266,100   3,362,345   20,295,473   3,362,345
                                         
TOTAL ASSETS    

21,521,454

  6,443,251   56,058,741   21,184,512   TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY     21,521,454  

6,443,251

  56,058,741   21,184,512

  

 

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

 

4 

 

 

NATURA &CO HOLDING S.A.

 

STATEMENT OF OPERATION

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2020 AND 2019

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

 

  Note   Company   Consolidated
    03/2020   03/2019   03/2020   03/2019
                   
NET REVENUE 26   -   -   7,517,994   2,915,150
Cost of products sold 27   -   -   (2,878,722)   (809,172)
                   
GROSS PROFIT     -   -   4,639,272   2,105,978
                   
OPERATING (EXPENSES) INCOME                  
Selling, Marketing and Logistics expenses 27   -   -   (3,299,190)   (1,323,066)
Administrative, R&D, IT and Project expenses 27   (9,978)   -   (1,266,091)   (537,031)
Impairment losses on trade receivables     -   -   (223,982)   (75,428)
Equity in subsidiaries 15   (712,102)   -   -   -
Other operating income (expenses), net 30   (147,824)   -   (352,550)   14,245
                   
OPERATING PROFIT BEFORE FINANCIAL RESULT     (869,904)   -   (502,541)   184,698
                   
Financial income 29   51,082   -   1,560,184   378,102
Financial expenses 29   (1,975)   -   (1,787,779)   (543,357)
                   
PROFIT BEFORE INCOME TAX AND                  
   SOCIAL CONTRIBUTION     (820,797)   -   (730,136)   19,443
   Income tax and social contribution 11   -   -   (94,803)   (5,969)
                   
NET INCOME (LOSS) FOR THE PERIOD     (820,797)   -   (824,939)   13,474
                   
ATTRIBUTABLE TO                
The Company´s shareholders     (820,797)   -   (820,797)   13,474
Noncontrolling interests     -   -   (4,142)   -
      (820,797)   -   (824,939)   13,474
                   
EARNINGS PER SHARE IN THE PERIOD -R$                  
Basic 28.1.   (0.6979)   -   (0.6979)   0.0157
Diluted 28.2.   (0.6921)   -   (0.6921)   0.0156

 

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

 

5 

 

 

NATURA &CO HOLDING S.A.

 

STATEMENT OF COMPREHENSIVE INCOME

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2020 AND 2019

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

 

  Note   Company       Consolidated    
      03/2020   03/2019   03/2020   03/2019
                   
NET INCOME (LOSS) FOR THE PERIOD     (820,797)   -   (824,939)   13,474
Other comprehensive income to be reclassified to profit or loss in subsequent periods:                  
Gain from translation of financial statements of subsidiaries abroad     4,349,038   -   4,349,038   61,363
Exchange rate effect on the translation from hyperinflationary economy 2.2   (4,351)   -   (4,351)   977
Gain from cash flow hedge operations 5.2   -   -   248,684   89,223
Tax effects on gain from cash flow hedge operations     -   -   (83,802)   (30,928)
Equity income from cash flow hedge operation     248,684   -   -   -
Equity in tax effects on gain from cash flow hedge operations     (83,802)   -   -   -
           
Comprehensive income for the year, net of tax effects     3,688,772   -   3,684,630   134,109
                   
ATTRIBUTABLE TO                  
The Company´s shareholders     3,688,772   -   3,688,772   134,109
Noncontrolling interests     -   -   (4,142)   -
      3,688,772   -    3,684,630  

134,109 

 

 

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

 

6 

 

 

NATURA &CO HOLDING S.A.

 

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2020 AND 2019

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

 

              Capital reserves           Negative goodwill on capital transactions   Equity valuation adjustments            
  Note   Capital stock   Treasury shares   Surplus on issue/sale of shares   Special reserve   Additional paid-in capital  

Profit reserves

Profit retention

 

  Retained earnings   Result from operations with non-controlling shareholders   Other comprehensive income   The Company´s Sharesholders  

Noncontrolling

interests

  Total shareholders' equity
                                                   
BALANCES AT DECEMBER 31, 2018 - Natura Cosméticos S.A. (Note 2.1(a))     427,073   (19,408)   72,216   -   257,114   1,336,293   -   (92,066)   492,158   2,574,102   -   2,574,102
                                                   
Net income for the period     -   -   -   -   -   -   13,474   -   -   13,474   -   13,474
Exchange rate effect on the translation from hyperinflationary economy     -   -   -   -   -   -   -   -   977   977   -   977
Other comprehensive income (loss)     -   -   -   -   -   -   -   -   119,658   119,658   -   119,658
Total comprehensive income (loss) for the year     -   -   -   -   -   -   13,474   -   120,635   134,109   -   134,109
Capital increase 21.a)   2,430   -   -   -   -   -   -   -   -   2,430   -   2,430
Changes in stock option plans and restricted shares:                                                  
     Provision for stock option plans and restricted shares 25.1   -   -   -   -   8,398   -   -   -   -   8,398   -   8,398
     Exercise of stock option plans and restricted shares     -   11,311   (1,930)   -   (11,278)   -   -   -   -   (1,897)   -   (1,897)
Hyperinflationary economy adjustment effect     -   -   -   -   17,006   (295)   -   -   -   16,711   -   16,711
                                                   
BALANCES AT MARCH 31, 2019 - Natura Cosméticos S.A. (Note 2.1(a))     429,503   (8,097)   70,286   -   271,240   1,335,998   13,474   (92,066)   612,793   2,733,853   -   2,733,853
                                                   
                                                   
BALANCES AT DECEMBER 31, 2019     1,485,436   -   1,096,398   206,592   -   (149,020)   -   (92,066)   815,006   3,362,346   -   3,362,346
                                                   
Net income (loss) for the period     -   -   -   -   -   -   (820,797)   -   -   (820,797)   (4,142)   (824,939)
Exchange rate effect on the translation from hyperinflationary economy     -   -   -   -   -   -   -   -   (4,351)   (4,351)   -   (4,351)
Other comprehensive income (loss)     -   -   -   -   -   -   -   -   4,513,920   4,513,920   -   4,513,920
Total comprehensive income (loss) for the year     -   -   -   -   -   -   (820,797)   -   4,509,569   3,688,772   (4,142)   3,684,630
Subscription of shares through the Board of Directors' Meeting held on January 3, 2020 21.a)   3,397,746   -   9,877,148   -       -   -   -   -   13,274,894   33,515   13,308,409
Share repurchase     -   (54,936)   -   -   -   -   -   -   -   (54,936)   -   (54,936)
Changes in stock option plans and restricted shares:                                                  
     Provision for stock option plans and restricted shares 25.1   -   -   -   -   (34,887)   -   -   -   -   (34,887)   -   (34,887)
     Exercise of stock option plans and restricted shares     21,936   38,932   -   -   (48,084)   -   -   -   -   12,784   -   12,784
Hyperinflationary economy adjustment effect     -   -   -   -   14,989   2,138   -   -   -   17,127   -   17,127
                                                   
BALANCES AT MARCH 31, 2020     4,905,118   (16,004)   10,973,546   206,592   (67,982)   (146,882)   (820,797)   (92,066)   5,324,575   20,266,100   29,373   20,295,473

 

 

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

 

7 

 

 

NATURA &CO HOLDING S.A.

 

STATEMENT OF CASH FLOWS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2020 AND 2019

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

 

  Note   Company   Consolidated
    03/2020   03/2019   03/2020   03/2019
                   
CASH FLOW FROM OPERATING ACTIVITIES                  
Net income (loss) for the period     (820,797)   -   (824,939)   13,474
Adjustments to reconcile net income for the period with net cash generated by operating activities:         -        
Depreciation and amortization 16 e 17   -   -   626,252   264,312
Interest on investments and securities 26   (7,058)   -   (23,455)   (22,961)
Provision (reversal of provision) arising from swap and forward derivative contracts     -   -   (978,329)   53,597
Provision (reversal of provision) for tax, civil and labor risks 22   -   -   54,366   3,379
Inflation adjustment of escrow deposits     -   -   (1,383)   (3,752)
Inflation adjustment of contingencies     -   -   4,599   2,649
Income tax and social contribution 11   -   -   94,803   5,969
Result from sale and write-off of property, plan and equipment and intangible assets 16 e 17   -   -   3,876   7,702
Equity in subsidiaries 15   712,102   -   -   -
Interest and exchange variation on leases 18   -   -   51,768   30,974
Interest and exchange rate variation on borrowings and financing 19   20,283   -   1,195,934   79,221
Restatement and exchange rate variation on other assets and liabilities     (104,839)   -   (105,493)   867
Provision (reversal of provision) for losses from property, plant and equipment and intangible assets 16 e 17   -   -   (2,128)   (10,751)
Provision (reversal of provision) for stock option plans and restricted shares     (20,150)   -   (4,606)   10,874
Effective losses and provision for losses with trade receivables, net of reversals 8   -   -   209,933   75,428
Provision (reversal of provision) for inventory losses, net 9   -   -   119,735   37,920
Provision (reversal of provision) for post-employment health care plan 28.1   771   -   (1,190)   1,985
Effect from hyperinflationary economy     -   -   10,670   12,267
Other provisions (reversals)     -   -   (52,683)   (31,150)
                   
      (219,688)   -   377,730   532,004
(INCREASE) DECREASE IN ASSETS                  
Trade receivables     (34,478)   -   346,096   177,412
Inventories     -   -   (117,723)   (207,018)
Recoverable taxes     -   -   (184,800)   2,143
Other assets     -   -   509,001   (19,942)
Subtotal     (34,478)   -   552,574   (47,405)
                   
(INCREASE) DECREASE IN LIABILITIES                  
Domestic and foreign trade payables     149,176   -   (1,872,941)   (216,563)
Payroll, profit sharing and social charges, net     24,770   -   121,951   (111,128)
Tax liabilities     385   -   118,382   (79,096)
Other liabilities     (771)   -   (326,399)   (5,640)
Subtotal     173,560   -   (1,959,007)   (412,427)
                   
CASH GENERATED BY OPERATING ACTIVITIES     (80,606)   -   (1,028,703)   72,172
                   
OTHER CASH FLOWS FROM OPERATING ACTIVITIES                  
Recovery (payment) of income tax and social contribution     (196,996)   -   (269,512)   (116,456)
Accruals (payments) of judicial deposits     -   -   2,797   1,288
Payments related to tax, civil and labor lawsuits 22   -   -   (61,968)   (4,749)
Payments due to settlement of derivative operations     -   -   9,818   (20,805)
Interest paid on lease 18   -   -   (53,611)   (30,974)
Payment of interest on borrowings, financing and debentures 19   (6,860)   -   (498,585)   (254,675)
                   
NET CASH USED IN OPERATING ACTIVITIES     (284,462)   -   (1,899,764)   (354,199)
                   
CASH FLOW FROM INVESTING ACTIVITIES                  
Cash from merger of subsidiary 4   -   -   2,636,108   -
Additions of property, plant and equipment and intangible assets 16 e 17   -   -   (174,162)   (80,119)
Proceeds from sale of property, plant and equipment and intangible assets     -   -   11,782   3,254
Investment in securities     (63,569)   -   (1,765,955)   (1,629,566)
Redemption of securities     199,230   -   1,420,078   2,337,074
Redemption of interest on investments and securities     619   -   10,540   28,117
Receipts of dividends from subsidiaries     -   -   -   -
Capital increase in subsidiaries 15   -   -   -   -
                   
NET CASH PROVIDED BY INVESTING ACTIVITIES     136,280   -   2,138,391   658,760
                   
CASH FLOW FROM FINANCING ACTIVITIES                  
Amortization of lease - principal 18   -   -   (209,723)   (143,895)
Amortization of loans, financing and debentures – principal 19   (1,816,900)   -   (1,923,345)   (510,542)
New loans, financing and debentures 18 e 19   -   -   451,127   90,507
Acquisition of treasury shares, net of option strike price received     (33,000)   -   (33,000)   (1,897)
Payment of dividends and interest on capital for the previous year 32.2   -   -   (133,937)   (96,277)
Receipts (payments) to settle derivative operations     -   -   222   898
Receipt by exercised stock options     (370,791)   -   (370,791)   -
Capital increase     -   -   -   2,430
                   
NET CASH USED IN FINANCING ACTIVITIES     (2,220,691)   -   (2,219,447)   (658,776)
             
Effect of exchange variation on cash and cash equivalents     -   -   578,734   6,073
                   
DECREASE IN CASH AND CASH EQUIVALENTS     (2,368,873)   -   (1,402,086)   (348,142)
                   
Opening balance of cash and cash equivalents 6   2,380,800   -   4,513,582   1,215,048
Closing balance of cash and cash equivalents 6   11,927   -   3,111,496   866,906
                   
DECREASE IN CASH AND CASH EQUIVALENTS     (2,368,873)   -   (1,402,086)   (348,142)

 

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

 

8 

 

 

NATURA &CO HOLDING S.A.  

 

STATEMENT OF VALUE ADDED  

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2020 AND 2019

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

 

  Note   Company     Consolidated  
    03/2020   03/2019     03/2020   03/2019  
                       
INCOME     (147,824)   -     7,992,626   3,649,913  
Sale of goods, products and services     -   -     8,378,540   3,666,232  
Provision for doubtful accounts, net of reversals 8   -   -     (33,364)   (3,728)  
Other operating expenses, net     (147,824)   -     (352,550)   (12,591)  
                       
INPUTS ACQUIRED FROM THIRD PARTIES     (5,571)   -     (5,953,732)   (2,108,330)  
Cost of products sold and services     -   -     (3,175,479)   (1,191,069)  
Materials, electricity, outsourced services and others     (5,571)   -     (2,778,253)   (917,261)  
                       
GROSS VALUE ADDED     (153,395)   -     2,038,894   1,541,583  
                       
RETENTIONS     -   -     (625,819)   (264,312)  
Depreciation and amortization 16 e 17   -   -     (625,819)   (264,312)  
                       
VALUE ADDED PRODUCED BY THE COMPANY     (153,395)   -     1,413,075   1,277,271  
                       
TRANSFERRED VALUE ADDED     (661,020)   -     1,560,184   378,102  
Equity in subsidiaries 15   (712,102)   -     -   -  
Financial income - including inflation adjustments and exchange rate variations 29   51,082   -     1,560,184   378,102  
                       
TOTAL VALUE ADDED TO DISTRIBUTE     (814,415)   -     2,973,259   1,655,373  
                       
DISTRIBUTION OF VALUE ADDED     (814,415) 100% -     2,973,259 100% 1,655,373 100%
Payroll and social charges 28   4,407 -1% -     1,462,402 49% 695,357 42%
Taxes, fees and contributions     - 0% -     537,904 18% 396,881 24%
Financial expenses and rentals     1,975 1% -     1,797,892 60% 549,661 33%
Accumulated losses     (820,797) 101% -     (820,797) -28% 13,474 1%
Noncontrolling interests     - - -     (4,142) 0% - -

 

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

 

9 

 

 

 

 

CONTENTS

 

1 GENERAL INFORMATION 12
2 SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES 12
3 CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS 14
4 BUSINESS COMBINATION 14
5 FINANCIAL RISK MANAGEMENT 17
6 CASH AND CASH EQUIVALENTS 23
7 SHORT-TERM INVESTMENTS 23
8 TRADE RECEIVABLES 24
9 INVENTORIES 25
10 RECOVERABLE TAXES 25
11 INCOME TAX AND SOCIAL CONTRIBUTION 26
12 JUDICIAL DEPOSITS 26
13 ASSETS AVAILABLE FOR SALE 27
14 OTHER CURRENT AND NON-CURRENT ASSETS 27
15 INVESTMENTS 28
16 PROPERTY, PLANT AND EQUIPMENT 29
17 INTANGIBLES 30
18 RIGHT OF USE AND LEASE 32
19 BORROWINGS, FINANCING AND DEBENTURES 33
20 TRADE PAYABLES AND FORFAIT OPERATIONS 35
21 TAX PAYABLES 36
22 PROVISIONS FOR TAX, CIVIL AND LABOR RISKS 36
23 OTHER LIABILITIES 39
24 SHAREHOLDER’S EQUITY 40
25 SEGMENT INFORMATION 40
26 NET REVENUE 43
27 OPERATING EXPENSES AND COST OF SALES 44
28 EMPLOYEE BENEFITS 44
29 FINANCIAL INCOME (EXPENSES) 47
30 OTHER OPERATING INCOME (EXPENSES), NET 49
31 RELATED-PARTY TRANSACTIONS 49
32 COMMITMENTS 50
33 INSURANCE 51
34 ADDITIONAL STATEMENTS OF CASH FLOWS 52
35 SUBSEQUENT EVENTS 52
36 APPROVAL OF FINANCIAL STATEMENTS 53

 

10 

 

 

1. GENERAL INFORMATION

 

NATURA &CO HOLDING S.A. (“Natura &Co” or “Company”) formerly referred to as Natura Holding S.A., was incorporated on January 21, 2019 with the purpose of holding interest in other companies, as partner or shareholder, in the country or abroad (“holding company”). The purpose of the Company is to manage shareholding interest in companies that operate mainly in the cosmetics industry, fragrances and personal hygiene sector, through the development of manufacturing, distribution and commercialization of its products. The Company's main brand is "Natura", followed by brands “Avon”, "The Body Shop" and "Aesop". In addition to using the retail market, e-commerce, B2B and franchises as sales channels for the products, the controlled companies stand out for the work of the direct sales channel carried out mainly by Natura, The Body Shop and Avon Consultant(s).

 

The Company is a publicly-traded corporation, domiciled in São Paulo, registered in the special trading segment called “Novo Mercado” in the B3 S.A. – Brasil, Bolsa, Balcão (B3), under ticker “NTCO3.”

 

After several restructuring activities which took place in the process of acquiring Avon Products, Inc. (“Avon”), completed on January 3, 2020 (Note 4), the Company became the holding company for the Natura group. Additionally, in December 2019 it became the holder of 100% of shares of Natura Cosméticos S.A. (“Natura”). Thus, since December 18, 2019, the NATU3 shares have no longer been traded in B3 S.A. – Brasil, Bolsa, Balcão, and trading with NTCO3 shares have started in the “Novo Mercado” segment of B3. On January 6, 2020, the Company started to trade American Depositary Receipts on the New York Stock Exchange (“NYSE”), under ticker “NTCO”.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES

 

2.1 Declaration of compliance and basis of preparation

 

The Company’s condensed interim accounting information, included in the Quarterly Information Form - ITR pertaining to the quarter ending on March 31, 2020, encompasses the individual and consolidated interim accounting information prepared pursuant to Technical Pronouncement “CPC 21 - Interim Statements”, approved by the Brazilian Securities Commission (“CVM”) and the international accounting standard “IAS 34 - Interim Financial Reporting”, issued by the International Accounting Standards Board (IASB).

 

The Management confirms that all relevant information in the interim accounting statements, and only it, are being disclosed, and it corresponds to the one used in the development of the Management’s business management activities. The interim accounting information was prepared based on the historical costs, except for certain financial instruments measured by their fair value, as described in the accounting practices.

 

The main accounting practices applied upon preparing this individual and consolidated interim accounting information are disclosed on explanatory note No. 2 of the Company’s financial statements, pertaining to the fiscal year ending on December 31, 2019, issued on March 05, 2020, except for the presentation of information on segments (Note 25), which was changed as a result of the acquisition of Avon (Note 4). The same policies apply to the comparative quarter period ending on March 31, 2019.

 

The information on explanatory notes that did not go through significant changes in comparison to December 31, 2019 is not fully presented in this interim accounting information and must be read jointly with the last annual financial statement.

 

a) Presentation basis for the Company’s consolidated accounting statements before the corporate restructuring presented in the Company’s annual financial statement on Note 1

 

As presented in the Company’s annual financial statements for the fiscal year ending on December 31, 2019, the Company’s consolidated accounting information presented in this financial statement that is prior to the corporate restructuring for the acquisition of Avon were prepared pursuant to the accounting practices of the preceding costs. Thus, the comparative and consolidated historic information presented herein for the income statement, comprehensive income statement, statement of changes in net equity, cash flow statement and added value statement for the comparative period ended on March 31, 2019, refer to the consolidated information of Natura Cosméticos S.A., and were obtained from the Quarterly Information - ITR pertaining to the first quarter of 2019.

 

11 

 

 

b) Restatement of the interim financial statement – 31 March 2020

 

On 7 May 2020, the Company issued the Quarterly Information of 31 March 2020. On this date, the Company's Management is reissuing the interim information originally issued due to the inclusion of segment reconciliation in Note 25.3, with the consequent reissue, by predecessor auditor, of his previously issued report.

 

2.2 Hyperinflationary economy

 

Information pertaining to the hyperinflationary economy was presented in the Company’s 2019 annual financial statements, on Note 3.2.1.a.

 

On the quarter period ending on March 31, 2019, the application of CPC 42 / IAS 29 resulted in: (i) a positive impact in the financial results of R$ 4,812 (March 31, 2019 R$ 2,639); and (ii) a negative impact in the net profit for the fiscal year of R$ 11,106 (March 31, 2019 R$ 13,244), which includes the effect of the conversion of the results’ statement by the exchange rate of the year’s termination date, instead of the average monthly exchange rate, positive impact in the sum of R$ 4,351 (March 31, 2019 negative impact of R$ 977).

 

2.3 Consolidation

 

a) Investments in controlled companies

 

Information pertaining to the consolidation was presented in the Company’s 2019 annual financial statements, on Note 3.3. A), except for the movement chart below:

 

  Interest - %
  March 2020 December 2019
Direct interest:    
     Avon Products, Inc.. 100.00 -
     Natura Cosméticos S.A. 100.00 100.00

 

The activities of the directly controlled companies are as follows:

 

Ø Natura Cosméticos S.A.: is a publicly held corporation organized in accordance with the laws of the Federative Republic of Brazil on June 6, 1993, with an indefinite term. Created in 1969 in São Paulo, Brazil, it is among the top ten direct sales companies in the world. Under the Natura brand, most of our products have a natural origin, developed with ingredients from the Brazilian biodiversity and mainly distributed by means of direct sales by our independent beauty consultants. It also sells 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.

 

Ø Avon Products, Inc.: Global manufacturer and trader of beauty products and the like, with operations starting in 1886 and constituted pursuant to the laws of the State of New York, on January 27, 1916. Its businesses are conducted in the beauty industry and other consumer goods. A direct sales company for the creation, manufacture and trade of beauty and other unrelated products. Its business is held mainly via the direct sales channel.

 

2.4 Segment reporting

 

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

 

The main decision-making body of the Company, which is responsible for defining the allocation of resources and for the performance assessment of the operating segments, is the Board of Directors.

 

The GOC, which includes the CEOs of Natura &CO, Natura, Avon, The Body Shop and Aesop, in addition to representatives of key business areas (Finance, Human Resources, Business Strategy and Development, Legal, Innovation and Sustainability, Operations and Corporate Governance), is responsible, among other things, for monitoring the implementation of short and long-term strategies and making recommendations to the Board of Directors regarding the management of the Group, from the perspective of results, allocation of resources among business units, cash flow and talent management.

 

12 

 

 

3. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

 

The preparation of the individual and consolidated financial statements requires the Management to employ certain assumptions and accounting estimates based on experience and other factors considered relevant, which affect the values of assets and liabilities and may present results that differ from actual results. The effects resulting from accounting estimate reviews are recognized in the review period.

 

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

 

The areas requiring a greater level of judgment and which are more complex, as well as the areas in which the premises and estimates are significant for the financial statements, are disclosed below.

 

There were no significant changes in the estimates and premises employed upon preparing the interim accounting information for the quarter ending on March 31, 2020, or in the calculation methods used, in relation to the ones presented in explanatory note No. 3 of the Company’s financial statements pertaining to the fiscal year ending on December 31, 2019, issued on March 05, 2020, except for the fair value estimates of the business combination (note 4), analyses of the potential impacts of Covid-19 (note 5.3) and impairment evaluations (note 17.a).

 

4. BUSINESS COMBINATION

 

Acquisition of Avon Products Inc.

 

On January 3, 2020, after fulfillment of all conditions precedent, as disclosed in the Company’s 2019 annual financial statements, issued on March 05, 2020, explanatory note 1(a) and as a subsequent event to note 35, the transaction was completed, and then the effects of the merger of Nectarine Merger Sub II into Avon, with the latter being the resulting entity, came into force. Subsequently, Nectarine Merger Sub I was merged into Natura &Co, with the latter being the resulting entity. As a result of the mergers, on January 3, 2020, Avon became a full subsidiary of the Company, and Avon’s former shareholders became shareholders of the Company.

 

As a result, Natura &Co acquired control of Avon and the acquisition was accounted for under the acquisition method.

 

Transaction costs incurred by the Controlling Company until the completion of the transaction on January 3, 2020 amount to approximately R$ 112 million, which were accounted for as expenses in the period ending in March 2020.

 

The following table summarizes the preliminary calculation of the fair value of the compensation transferred on January 3, 2020.

 

 

In millions of R$, except for the number of shares

Number of Avon outstanding common shares as of January 3, 2020 536,383,776
Multiplied by the exchange ratio of 0.600 Natura &Co Holding Shares per each Avon common share 321,830,266
Multiplied by the market price of Natura &Co shares on January 3, 2020

41,00

Consideration in the issuance of shares 13,195
Adjustment to the transferred compensation (a)

171

Fair value of the Compensation to be transferred

13,366

 

(a) Related to the effects of potentially replacements and settlements of share-based payment plans, of which the amount of R$ 80 thousand refers to the share-based payment plans of Avon, in which it was substituted by Natura &Co, and R$ 91 thousand refers to the stock option plans liquidated as a result of the conclusion of the transaction. These are pre-combination installments that were regarded as a transferred consideration.

 

Natura &Co is yet to conclude the process of allocation of the transferred compensation among identified assets and liabilities acquired for their fair value. The table below shows the preliminary allocation prepared by the Company and the resulting goodwill. Differences between the preliminary estimates and the final recognition of the acquisition may occur and they may be relevant. Accounting standard “CPC 15/ IFRS 3 - Business combination” allows the Company to finalize this process of allocation of the transferred compensation among identified assets and liabilities up to 12 months counted from the acquisition date. Natura &Co is analyzing the allocation of the transferred compensation to the identified assets and liabilities acquired for their fair value. The table below shows the preliminary allocation prepared by the Company and the resulting goodwill.

 

13 

 

 

The following table summarizes the preliminary allocation of the consideration transferred on January 3, 2020:

 

 

In millions of R$

Total estimated consideration to be transferred: 13,366
  (-) Fair value of acquired assets:  
Cash and cash equivalent 2,636
Accounts receivable (1) 1,135
Inventories 1,942
Other current assets and restricted cash 1,056
Assets held for sale 187
Fixed Assets 2,886
Income tax and deferred social contribution 667
Assets of right of use 565
Other non-current assets 475
Court deposits 284
Recoverable taxes 518
Employee benefit plan 553
Intangible assets (2) 5,710
   
  (+) Fair value of liabilities assumed:  
Current liabilities 6,267
Provision for contingencies (3) 724
Long-term debt 7,078
Long-term commercial leasing 588
Deferred income tax 728
Other liabilities 809
(-) Net assets 2,420
   
Interest of non-controlling shareholders 28
 
 
Goodwill (4)

10,974

 

(1) On the acquisition date, the fair value of the accounts receivable is equal to their accounting value, net of a provision for expected losses in the amount of R$ 270.2 million.

 

(2) The fair value of intangible assets includes intangible assets acquired and registered by Avon prior to the fair value allocation, in the sum of R$ 291 million, added by the effects of allocation of fair values of the following items:

 

  Nature Estimated fair value (in millions of Reais) Estimated useful life
Trade name “Avon” Represents the fair value of trade name “Avon” 1,893 Indefinite
Main brands Represents the fair value of “Main brands” 518 20 years
Developed technologies Represents the fair value of all technology required to develop Avon products, including product formulas, labeling data, manufacture processes, regulatory approvals, packages of products and designs. 1,132 7 years
Sales representatives Represents the fair value of Avon’s relationship with its sales representatives. 1,876 14 years
Total    5,419  

 

(3) The provisions for contingent risks demonstrated in the chart above by the sum corresponds to the historic value recorded by Avon, given that the Company is still assessing the fair value estimates, and also identifying additional contingencies which fit the recognition requirement established on paragraph 23 of CPC 15 (IFRS3). That is, contingencies that: (i) represent a present obligation arising from past events and (ii) can be reliably measured, regardless of the loss probability.

 

(4) Goodwill pertaining to the strong market position and geographic regions that will result in a more diversified and balanced global portfolio, as well as future expected profitability and operational synergies, such as supply, manufacturing, distribution and efficiency of the administrative structure and revenue growth. This goodwill arising from the transaction is not expected to result in a tax benefit or to be deductible for tax purposes.

 

Since the acquisition date, Avon contributed with R$ 4,246.2 million of net revenues and impacted in R$ 540.3 million of losses in the consolidated results of Natura &Co.

 

Since the acquisition was concluded on January 1st, 2020 and there was no significant transaction of the revenue results until January 3, 2020, the consolidated net revenues and the net revenues of the three months. In this same period, a provision for the transaction cost incurred by Avon, in the sum of R$ 172.3 million, was recorded, which is part of the acquired identified liabilities.

 

14 

 

 

5. FINANCIAL RISK MANAGEMENT

 

5.1 General considerations and policies

 

The information pertaining to the general considerations and policies of the companies of the Natura group, TBS and Aesop was presented in the 2019 annual financial statements, on Note 5.

 

Find below the book and fair values of the Company’s financial instruments as of March 31, 2020:

 

Controlling Company       Book Value Fair Value
Note Classification by category Fair value hierarchy March 2020 December 2019 March 2020 December 2019
Financial assets              
Cash and cash equivalents 6 Amortized cost          
Cash and banks     Level 2 271 2,173,101 271 2,173,101
Certificate of bank deposits     Level 2 11,656 207,699 11,656 207,699
        11,927 2,380,800 11,927 2,380,800
Bonds and securities              
Exclusive investment funds 7 Fair value through results Level 2 540,547 669,769 540,547 669,769
               
Accounts receivable from clients - related parties 32.1 Amortized cost Level 2 510,178 - 510,178 -
               
Financial liabilities              
Issue of debts in domestic currency 19 Amortized cost Level 2 (1,079,905) (2,883,382) (1,859,997) (2,883,382)
Suppliers and “drawn risk” transactions 20 Amortized cost Level 2 (1,758) - (1,758) -

 

Consolidated       Book Value Fair Value
Note Classification by category Fair value hierarchy March 2020 December 2019 March 2020 December 2019
Financial assets              
Cash and cash equivalents 6            
Cash and banks   Amortized cost Level 2 2,705,479 3,110,220 2,705,479 3,110,220
Certificate of bank deposits   Amortized cost Level 2 60,353 211,261 60,353 211,261
Repurchase operations   Fair value through results Level 2 345,664 1,192,101 345,664 1,192,101
        3,111,496 4,513,582 3,111,496 4,513,582
Bonds and securities 7            
Government bonds   Fair value through results Level 2 284,212 221,900 284,212 221,900
Restricted cash   Fair value through results Level 2 38,580 - 38,580 -
Financial letter   Fair value through results Level 2 417,355 374,690 417,355 374,690
Loan investment fund   Fair value through results Level 2 468,527 407,928 468,527 407,928
Dynamo Beauty Ventures Ltd Fund   Fair value through results Level 2 8,938 7,402 8,938 7,402
Certificate of bank deposits   Fair value through results Level 2 246,133 21,327 246,133 21,327
        1,463,745 1,033,247 1,463,745 1,033,247
               
               
Accounts receivable from clients 8 Amortized cost Level 2 2,774,632 1,685,764 2,774,632 1,685,764
               
Court deposit 12 Amortized cost Level 2 619,726 337,255 619,726 337,255
               
               
“Financial” and “Operating” derivatives   Fair value – Hedge instruments Level 2 1,932,110 737,378 1,932,110 737,378
“Financial” and “Operating” derivatives   Fair value through results Level 2                      64,760                           -     64,760 - 
        1,996,870 737,378 1,996,870 737,378
Financial liabilities              
Loans, financing and debentures 19            
Issue of debts in domestic currency   Amortized cost Level 2 (14,924,077) (7,266,853) (13,008,056) (7,300,082)
BNDES/Finep loans   Amortized cost Level 2 (128,508) (145,590) (128,508) (145,590)
Issue of debts in foreign currency   Amortized cost Level 2 (4,280,481) (3,373,931) (3,735,130) (3,541,541)
        (19,333,066) (10,786,374) (16,871,694) (10,987,213)
               
“Financial” and “Operating” derivatives   Fair value – Hedge instruments Level 2 - (10,158) - (10,158)
“Financial” and “Operating” derivatives   Fair value through results Level 2 (32,205) (1,648) (32,205) (1,648)
        (32,205) (11,806) (32,205) (11,806)
               
Commercial Leasing 18 Amortized Cost Level 2 (3,927,978) (2,517,565) (3,927,978) (2,517,565)
Suppliers and “drawn risk” transactions 20 Amortized cost Level 2 (5,104,782) (1,829,756) (5,104,782) (1,829,756)

 

15 

 

 

5.2 Financial risk factors

 

Information pertaining to the financial risk factors was presented in the Company’s 2019 annual financial statements, on Note 5.2.

 

a) Market risk

 

To hedge the current positions of the Balance Sheet of the Company and its subsidiaries against market risks, the following derivative financial instruments were used and consist of the balances as follows, as of March 31, 2020 and December 31, 2019:

 

Description Fair Value (Level 2)
Consolidated
March 2020 December 2019
“Financial” derivatives 1,955,145 725,060
“Operating” derivatives 9,520 512
Total 1,964,665 725,572

 

b) Foreign exchange risk

 

As of March 31, 2020, and December 31, 2019, the Company and its controlled companies are primarily exposed to the risk of fluctuation of the US dollar, euro and pound sterling and emerging market currencies. In order to hedge foreign exchange exposures in relation to foreign currency, the Company and its controlled companies enter into transactions with derivative financial instruments of the "swap” type and forward purchase of currency named Non-Deliverable Forwards - NDF.

 

As of March 31, 2020, loans, financing and debentures in the consolidated balance sheet include accounts in foreign currency which expose the controlled companies of the Company to foreign exchange risks, representing, in the aggregate, total liabilities of R$ 4,309,492 (R$ 3,381,959 as of December 31, 2019).

 

i) Derivatives to hedge foreign exchange risk

 

The outstanding Derivative agreements present maturity flows between January 2020 and February 2023. The Derivative agreements in The Body Shop were entered into with represented counterparties and mature within up to 12 months.

 

The Company and its controlled companies classify the derivatives in: “Financial” and “Operating”. The “Financial” ones are “swap” or “forward” derivatives, contracted to hedge the foreign exchange risk of borrowings, financing, debt instruments and loans in foreign currency. The “Operating” ones are derivatives contracted to hedge the foreign exchange risk of operating cash flows of the business.

 

As of March 31, 2020, the balances of derivatives are as follows:

 

“Financial” derivatives

 

Consolidated Principal (Notional) amount Curve value Fair value Gain (loss) of adjustment at fair value
Description March 2020 December 2019 March 2020 December 2019 March 2020 December 2019 March 2020 December 2019
Swap agreements:                
Asset portion:                
Dollar purchased position 2,662,726 2,664,001 4,313,910 3,416,707 4,850,442 3,729,691 536,532 312,984
                 
Liability portion:                
Post-fixed CDI Rate:                
Position sold in CDI 2,662,726 2,664,001 2,695,215 2,754,595 2,926,682 3,002,623 231,467 248,028
                 
NDFs Forward Agreements:                
Liability portion:                
Post-fixed CDI Rate:                
Position sold in the interbank rate 4,086,866 200,896 (2,997) (1,848) 31,385 (2,008) 34,381 (160)
Total net derivative financial instruments: 4,086,866 200,896 1,615,698 660,264 1,955,145 725,060 339,446 64,796

 

For financial derivatives maintained by the Company and its controlled companies as of December 31, 2019 and March 31, 2020, due to the fact agreements are directly entered into with the financial institutions and not through stock markets, there are no margin calls deposited as guarantee of said transactions.

 

16 

 

 

“Operating” derivatives - Consolidated

 

As of March 31, 2020, the Company and its controlled companies maintain derivative financial instruments of the “forward” type, with the purpose of hedging the foreign exchange risk of operating cash flows (such as import and export transactions):

 

Description Principal (Notional) amount Fair value
March 2020 December 2019 March 2020 December 2019
Net position - GBP and USD 1,243,084 - 9,598 -
Forward agreements 12,699 1,302,869 (78) 512
Total Derivative Financial Instruments, net 1,255,783 1,302,869 9,520 512

 

Sensitivity analysis

 

For the sensitivity analysis of the foreign exchange exposure risk, the Management of the Company and its controlled companies understands it is necessary to consider, in addition to the assets and liabilities with exposure to the fluctuation of exchange rates recorded in the balance sheet, the fair value of the financial instruments contracted by the Company to hedge certain exposures as of March 31, 2020, as shown in the following chart:

 

  Consolidated
  March 2020 December 2019
Loans and financing in Brazil in foreign currency (a) (4,309,492) (3,381,959)
Accounts receivables registered in Brazil in foreign currency 18,178 10,007
Accounts payable registered in Brazil in foreign currencies (15,736) (10,543)
Fair value of the “financial” derivatives 4,850,442 3,729,691
Net asset exposure 543,392 347,196

 

(a) Excluding transaction costs.

 

This analysis considers only financial assets and liabilities registered in Brazil in foreign currency, since foreign exchange exposure in other countries is close to zero due to the strength of currencies and the effectiveness of their derivatives, and considers that all other variables, especially interest rates, remain constant and ignore any impact from purchase and sale forecasts.

 

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

 

  Consolidated
Description Company’s Risk Probable scenario Scenario II Scenario III
Net exposure Dollar decrease 1,900 (179,360) (541,879)

 

The probable scenario considers future US dollar rates for 90 days, as of March 31, 2020. According to quotations obtained at B3 on the expected maturity dates of financial instruments with foreign exchange exposure, it is R$ 5.20 / USD 1.00. Scenarios II and III consider a drop in the US dollar of 25% (R$ 3.91 / USD 1.00) and 50% (R$ 2.61 / USD 1.00), respectively. Probable scenarios II and III are being presented in compliance with CVM Ruling No. 475/08. The Management uses the probable scenario in the assessment of possible changes in the exchange rate and presents said scenario in compliance with IFRS 7/CPC 40 - Financial Instruments: Disclosures.

 

The Company and its controlled companies does not use derivative financial instruments for speculative purposes.

 

Derivative instruments designated for hedge accounting

 

The positions of derivative financial instruments designated as outstanding cash flow hedge on March 31, 2020 are indicated below:

 

Cash flow hedge instrument

 

     Others comprehensive results
  Hedged Item Notional currency Notional value Curve Value Fair value

Accrued Gain (Loss)

of the agreement

 Gain in the 12-month period
Currency Swap – USD/BRL R$ Currency BRL 2,659,360 1,614,924 1,920,032 305,108 239,523
Forward Agreements (The Body Shop) Currency BRL 1,108,091 11,019 10,889 10,889 7,567
Forward Agreements (Natura Indústria) Currency BRL 25,928 1,283 1,189 1,189 1,594
Total     3,793,379 1,627,226 1,932,110 317,186 248,684

 

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Movements in cash flow hedge reserve booked under other comprehensive results are shown below:

 

  Consolidated
Cash flow hedge balance as of December 31, 2018 (27,706)
Change in the fair value of hedge instrument recognized in other comprehensive results 89,223
Tax effects on the fair value of hedge instrument (30,928)
Cash flow hedge balance as of March 31, 2019 30,589

 

Cash flow hedge balance as of December 31, 2019 42,729
Change in the fair value of hedge instrument recognized in other comprehensive results 248,684
Tax effects on the fair value of hedge instrument (83,802)
Cash flow hedge balance as of March 31, 2020 207,611

 

c) Interest rate risk

 

Sensitivity analysis

 

On March 31, 2020, there are loans, financing and debenture agreements in foreign currency attached to swap agreements, changing the indexation over the liability to the variation of the Certificate of Interbank Deposit (CDI). Therefore, the risk of the Company and its controlled companies becomes the CDI variation exposure. Find below the exposure to interest rate risks of transactions bound to CDI variation, including derivative transactions (loans, financing and debentures were considered at their full amounts, since 98.5% of their sum is linked to CDI):

 

  Company Consolidated
Total loans and financing - in local currency (note No. 19) (1,079,905) (15,045,222)
Operations in foreign currency with derivatives bound to CDI - (4,287,844)
Financial investments (explanatory notes no. 6 and 7) 552,203 1,822,244
Net exposure (527,702) 17,510,822

 

The tables below show the projection for incremental loss that would have been recognized in the subsequent period, assuming that the current net liability exposure remains static and based on the following scenarios:

 

Consolidated
Description Company’s Risk Probable scenario Scenario II Scenario III
Net liability Rate increase 22,371 (44,941) (112,253)

 

The probable scenario considers future interest rates pursuant to quotations from B3 in the predicted maturity dates of the financial instruments exposed to interest rate, as of March 31, 2020. Scenarios II and III consider an increase in the interest rate of 25% (4.2% per year) and 50% (5.1% per year), respectively, over the CDI rate of 3.4% per year.

 

d) Credit risk

 

The result of the credit risk management is reflected in the “Provision for expected credit losses” tab under “Accounts receivable from clients”, as demonstrated in explanatory note 8.

 

The Company and its controlled companies consider the credit risk for transactions with financial institutions to be low, as these are considered by the Management as first-rate.

 

e) Liquidity risk

 

The Management monitors the consolidated liquidity level for the Company and its controlled companies considering the expected cash flows against unused credit facilities, as shown in the following chart:

 

  Company Consolidated
  March 2020 December 2019 March 2020 December 2019
Total current assets 1,063,180 3,050,574 13,860,739 9,430,057
Total current liabilities (1,255,354) (3,080,906) (11,533,584) (7,518,423)
Total net current assets (192,174) (30,332) 2,327,155 1,911,634

 

 

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As of March 31, 2020, the book value of financial liabilities, on the date of the balance sheet, measured at amortized cost, considering interest payments at a post-fixed rate and the value of debt securities reflecting the forward market interest rates, may be changed as post-fixed interest rates change. Their corresponding maturities, considering that the Company and its subsidiaries are in compliance with contractual covenants, are evidenced below:

 

Company Less than one year One to five years Over five years Total expected cash flow Interest to be accrued Book value
Loans, financing and debentures 1,087,766 - - 1,087,766 (7,861) 1,079,905
Commercial leasing - - - - - -
Related-party suppliers, suppliers and “drawn risk” transactions - - - 149,244 - 149,244

  

Consolidated Less than one year One to five years Over five years Total expected cash flow Interest to be accrued Book value
Loans, financing and debentures 2,261,818 18,462,318 - 20,724,136 (1,391,070) 19,333,066
Commercial leasing 3,927,978 - - 3,927,978 - 3,927,978
Suppliers and “drawn risk” transactions 828,516 4,117,467 797,907 5,743,890 (639,108) 5,104,782

 

As of December 31, 2019, the Company and its subsidiaries had two credit facilities:

 

Ø Up to seventy million pound sterlings (GBP 70 million), with no guarantee, that could be withdrawn in installments to meet short-term financing needs of The Body Shop International Limited. This facility was used by your in directed subsidiaries during the first quarter of 2020, to reinforce working capital and liquidity.

 

Ø Up to one hundred and fifty Reais (R$ 150,000), with no guarantee, which was terminated during the first semester of 2020.

 

5.3 Impacts of Covid-19

 

As of the date of this consolidated financial statement, the Company’s Management cannot predict the extent and duration of the measures adopted by governments in the countries where the Company and its subsidiaries have operations and, therefore, cannot predict the direct and indirect impacts of Covid-19 on its business, operating results and financial condition, including:

 

Ø the impact of Covid-19 in the financial conditions and operating results, including general economic trends and perspectives, financial and capital resources or liquidity position;

 

Ø how future operations could be impacted;

 

Ø the impact on costs or access to capital and financing resources and on ability to meet the covenants of credit agreements;

 

Ø if the Company and its subsidiaries could incur any material Covid-19-related contingencies;

 

Ø how Covid-19 could affect assets on the balance sheet and the ability to timely record those assets;

 

Ø the advance of any material losses, increases in provisions for credit losses, restructuring charges or other expenses;

 

Ø any changes in accounting judgment which had or are reasonably expected to have a relevant impact in this financial statement;

 

Ø the impact on the demand for the Company and its subsidiaries products;

 

Ø the impact on the Company and its subsidiaries supply chain;

 

Ø the impact on the relationship between costs and revenues; and

 

Ø other unforeseen impacts and consequences.

 

However, based on the uncertainties described above, the Company and its subsidiaries are closely monitoring how the pandemic caused by Covid-19 progresses and created crisis committees in several areas, including with the main employees, in order to monitor, analyze and decide on actions to minimize impacts, assuring continuity of operations and promoting health and safety for all people involved in its operations.

 

As of the date of the approval to issue the Company’s financial statements, and also since the beginning of the virus spread and the consequent restrictive measures imposed by governments, such as closing non-essential businesses and restricting the movement of people at borders, the Company has implemented some measures in all its operations, aligned with the government’s measures:

 

Ø Incentive to the Company and its subsidiaries employees to work remotely and adoption of essential criteria to limit industrial and logistical operations;

 

Ø Adoption of new safety measures for operational workers, such as masks and procedures to leave people in a safe distance from each other;

 

19 

 

 

Ø Closing of stores, where and when required by the authorities;

 

Ø Replanning sales cycles, prioritizing personal care items;

 

Ø Speeding up the digitization of sales channels;

 

Ø Wide disclosure of the digital magazine;

 

Ø Change of the minimum criteria for orders, initial kits and extended term for payment of consultants;

 

Ø Daily monitoring of suppliers to ensure supply.

 

In addition to these measures, a crisis committee was created, focused on financial impacts and which monitors the Company and its subsidiaries financial health, focusing on cash, covenants and results, proposing actions to minimize the inevitable reduction in sales. Those actions include the following:

 

Ø Cutting discretionary expenses, such as consultancies and events;

 

Ø Freezing the hires and wage increases;

 

Ø Marketing expenses reduction;

 

Ø Consumer discounts reduction;

 

Ø Travel expenses reduction;

 

Ø Capital expenditures reduction; and

 

Ø Negotiation with suppliers to extend payment terms.

 

The promissory notes issued by Natura &Co Holding on December 20, 2019 include an obligation that demands that the Company maintain a certain indebtedness index that must be verified in June 2020, however, as a result of the impacts of COVID-19, the creditors of such notes agreed to not calculate this indebtedness index in June 2020.

 

The effects of the incentive plan that some governments are announcing are also being monitored and included in the management’s projections.

 

The actions and decisions above are constantly under review by the management and the committees, according to the development of global scenarios. As a response to the possible impacts of Covid-19, the company carried out an impairment assessment on the base date of March 31, 2020 for the cash-generating units (“CGU”) that include the business combination goodwill (Note 17.a)

 

20 

 

 

6. CASH AND CASH EQUIVALENTS

 

Information pertaining to cash and cash equivalents was presented in the Company’s 2019 annual financial statements, on Note 6.

 

  Company Consolidated
  March 2020 December 2019 March 2020 December2019
Cash and banks 271 2,173,101 2,705,479 3,110,220
Certificate of Bank Deposits (a) 11,656 207,699 60,353 211,261
Repurchase operations (b) - - 345,664 1,192,101
  11,927 2,380,800 3,111,496 4,513,582

 

(a)       As of March 31, 2020, investments in Certificate of Bank Deposits (CDB) are remunerated at an average rate of 103.1% of CDI (106.9% of CDI as of December 31, 2019) with daily maturities redeemable with the issuer itself, without significant loss of value.

 

(b)       Repurchase operations are securities issued by banks with a commitment by the bank to repurchase them, and by the client to resell them, at defined rates and within a predetermined term, backed by public or private securities, depending on bank availabilities and registered with the CETIP. On March 31, 2020, repurchase operations are remunerated at an average rate of 100.0% of CDI (99.9% of the CDI on December 31, 2019).

 

7. SHORT-TERM INVESTMENTS

 

Information pertaining to bonds and securities was presented in the Company’s 2019 annual financial statements, on Note 7.

 

  Company Consolidated
  March 2020 December 2019 March 2020 December 2019
Exclusive investment funds 540,547 669,769 - -
Loan investment funds - -  468,527 407,928
Certificate of Bank Deposits (a) - -  246,133 21,327
Financial letters - -  417,355 374,690
Government bonds (LFT) - -  284,212 221,900
Dynamo Beauty Ventures Ltd. Fund (b) - -  8,938 7,402
Restricted cash - - 38,580 -
  540,547 669,769 1,463,745 1,033,247
         
Current 540,547 669,769 1,454,807 1,025,845
Non-Current - - 8,938 7,402

 

(a)       The balance on March 31, 2020, related to the “Crer para Ver” line within the exclusive fund is R$ 44,961. (R$ 38,018 on December 31, 2019).

 

Breakdown of securities constituting the Essential Investment Fund portfolio on March 31, 2020 and December 31, 2019 is as follows:

 

  March 2020 December 2019
Certificate of time deposits 136,551 21,327
Repurchase operations 147,812 1,192,101
Financial letters 231,543 374,690
Government bonds (LFT) 157,677 221,900
  673,583 1,810,018

 

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8. TRADE RECEIVABLES

 

Information pertaining to accounts receivable from clients was presented in the Company’s 2019 annual financial statements, on Note 8.

 

  Consolidated
  March 2020 December 2019
Accounts receivable from clients 3,222,987 1,793,759
Provision for expected credit losses (448,355)  (107,995)
  2,774,632 1,685,764

 

Maximum exposure to credit risk on the date of the financial statements is the book value of each maturity date range, net of the provision for expected credit losses, as shown in the chart of receivable balances per maturity date:

 

  Consolidated
  March 2020 December 2019
To become due 1,428,211 1,501,958
 Past due:    
  Up to 30 days 1,273,869 142,069
  31 to 60 days 163,147 36,466
  61 to 90 days 95,199 27,789
  91 to 180 days 262,561 85,477
  Provision for expected credit losses (448,355)  (107,995)
  2,774,632 1,685,764

 

Movements in the provision for expected credit losses for the period ending on March 31, 2020 are as follows:

 

  Consolidated
Balance on December 31, 2018 (129,242)
  Additions (75,428)
  Write-offs 72,073
  Exchange variation (373)
Balance on March 31, 2019 (132,970)
   
Balance on December 31, 2019 (107,995)
  Control acquisition (270,187)
  Additions (209,933)
  Write-offs 182,333
  Exchange variation            (42,573)
Balance on March 31, 2020 (448,355)

 

Find below the balances of accounts receivable from clients per exposure to expected credit losses risk on March 31, 2020:

 

  Consolidated
  Accounts receivable from clients Provision for expected credit losses
To become due 1,428,211 (50,296)
 Past due:    
  Up to 30 days 1,273,869 (70,636)
  31 to 60 days 163,147 (60,951)
  61 to 90 days 95,199 (50,138)
  91 to 180 days 262,561 (216,334)
  3,222,987 (448,355)

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9. INVENTORIES

 

Information pertaining to inventories was presented in the Company’s 2019 annual financial statements, on Note 9

 

  Consolidated
  March 2020 December 2019
Finished products 3,556,809 1,253,145
Raw materials and packaging 871,012 253,063
Auxiliary materials 197,798 82,228
Products in progress 40,674 27,346
Provision for losses (625,614) (185,232)
  4,040,679 1,430,550

 

Movements in the provision for inventory losses for the period ending on March 31, 2020 are as follows:

 

  Consolidated
Balance on December 31, 2018 (178,268)
Net additions (37,920)
Write-offs 38,374
Exchange variation 726
Balance on March 31, 2019 (177,088)
   
Balance on December 31, 2019 (185,232)
Control acquisition (332,350)
Net additions (119,735)
Write-offs 92,296
Exchange variation (80,593)
Balance on March 31, 2020 (625,614)

 

10. RECOVERABLE TAXES

 

Information pertaining to recoverable taxes was presented in the Company’s 2019 annual financial statements, on Note 10

 

  Consolidated
  March 2020 December 2019
ICMS on purchase of inputs 621,998 434,832
Taxes on purchase of inputs - controlled companies abroad 208,910 39,475
ICMS on purchase of fixed assets 10,373 10,628
PIS and COFINS on purchase of fixed assets 2,728 3,826
PIS and COFINS on purchase of inputs 769,919 280,087
PIS, COFINS and CSLL - withheld at source 3,908 2,378
IPI 79,265 30,190
Other 161,982 3,438
  1,859,083 804,854
     
Current 959,222 395,640
Non-Current 899,861 409,214

 

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11. INCOME TAX AND SOCIAL CONTRIBUTION

 

The effective rate calculated by the Company in the period of March 31, 2020 was negative in 13%. This percentage is based on the losses before taxes of R$ 730.1 million and in the income tax expenses of R$ 94.8 million. The main components causing the effective rate to be distant from the nominal income tax rate of 34% are the tax losses of certain jurisdictions which may not benefit from deferred asset income tax, permanent effects related to income tax withheld at source arising from transactions among companies of the group which may not be used and the additional recognition of deferred liability income tax due to the announcement by the British government that the nominal rate will not be reduced from 19% to 17%. Excluding the adverse effects caused especially by jurisdictions with tax losses that may not benefit from deferred asset income tax, the Company’s effective rate would be approximately 32.6%.

 

The effective rate calculated by the Company in the period of March 31, 2019 was 30.7%. This percentage is based on the profits before taxes of R$ 19.4 million and in the income tax expenses of R$ 6 million. The main components causing the effective rate to be distant from the nominal income tax rate of 34% are the tax incentives and the subvention of investments.

 

Movements in deferred asset and liability income tax and social contribution, for the period ending on March 31, 2020 and 2019, are as follows:

 

  Assets   Liabilities
  Consolidated   Consolidated
Balance on December 31, 2018  398,400   (431,534)
  Effect on results  23,291    3,850
  Reserve for grant of options and restricted shares  (2,547)    -
  Effect on other comprehensive results  (30,928)    -
  Exchange variation on other comprehensive results  6,425    (3,150)
Balance on March 31, 2019  394,641   (430,834)
       
Balance on December 31, 2019 374,448   (450,561)
  Effect on results (30,857)   (33,472)
  Control acquisition 667,034   (728,274)
  Reserve for grant of options and restricted shares (39,435)   -
  Effect on other comprehensive results (83,802)   -
  Exchange variation on other comprehensive results 109,031   (292,603)
Balance on March 31, 2020 996,419   (1,504,910)

 

12. JUDICIAL DEPOSITS

 

Information pertaining to judicial deposits was presented in the Company’s 2019 annual financial statements, on Note 12.

 

  Consolidated
  March 2020 December 2019
Unprovisioned tax proceedings (a) 293,469 203,403
Provisioned tax proceedings (b) (notes 21 and 22) 267,896 116,415
Unprovisioned civil proceedings 7,739 2,541
Provisioned civil proceedings (note 22) 3,364 426
Unprovisioned labor proceedings 13,664 8,683
Provisioned labor proceedings (note 22) 33,594      5,787
Total judicial deposits 619,726 337,255

 

a) The tax proceedings related to these judicial deposits are mainly related to ICMS-ST, highlighted on note 20 (a) - contingent liabilities - possible risk of loss.

 

b) The tax proceedings related to these judicial deposits are mainly related to the sum of amounts disclosed in explanatory note 21b, item (a) and the amounts provisioned pursuant to explanatory note 20.

 

Find below the movements in the balances of judicial deposits for the periods ending on March 31, 2020 and 2019:

 

  Consolidated
Balance on December 31, 2018 333,577
New deposits 904
Redemptions (376)
Monetary adjustment 3,752
Write-offs for expenses     (1,816)
Balance on March 31, 2019 336,041

 

Balance on December 31, 2019 337,255
Control acquisition 283,885
New deposits 4,867
Redemptions (1,519)
Monetary adjustment 1,383
Accounts Payable (5,344)
Write-offs for expenses (801)
Balance on March 31, 2020 619,726

 

In addition to judicial deposits, the Company and its controlled companies have contracted guarantee insurance policies for some proceedings. Details on these insurance policies are presented in explanatory note No. 34.

 

24 

 

 

13. ASSETS AVAILABLE FOR SALE

 

On the acquisition date of Avon (Note 4) on January 3, 2020, there was a balance of long-term assets held for sale with acquired fair value of R$ 186,518 (USD 46,036). During such period, circumstances arose which were previously considered as unlikely and, as a result, Avon decided not to carry on with the sale of two properties with total value of USD9.1MM. As a result, it controlled reclassified such properties held for sale in the property, plant and equipment assets. During the reclassification, we recorded a real depreciation, resulting in a non-property impact to our consolidated financial statements. On March 31, 2020, the assets available for sale include three Avon properties at the sum of R$ 186,518 (USD 35,900).

 

14. OTHER CURRENT AND NON-CURRENT ASSETS

 

  Consolidated
  March 2020 December 2019
Marketing and advertising advances 111,112 28,669
Supplier advances 200,766 102,225
Employee advances 38,963 13,983
Rent advances and guarantee deposit (a) 147,058 96,202
Prepaid insurance expenses 186,491 29,647
Life insurance in advance 687,415 -
Customs broker advances - Import taxes 39,707 34,932
Subleasing receivables 382,584  -
Carbon credit 3,651 3,508
Other 415,363 39,868
  2,213,110 349,034
     
Current       832,988 265,198
Non-Current    1,380,122 83,836

 

a) Mainly refers to (i) the advance of rent agreements not included in the initial measurement of commercial lease / right-of-use liabilities of controlled company The Body Shop International Limited, in accordance with the exemptions set forth on CPC 06(R2) / IFRS 16; and (ii) guarantee deposits for the real estate rental of certain stores of controlled companies The Body Shop International Limited and Emeis Holdings Pty Ltd. which will be returned by the lessor at the end of the rent agreements.

 

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15. INVESTMENTS

 

  Company
  March 2020 December 2019
Investments in controlled companies, net of losses 9,484,801 3,392,677
Goodwill Avon (Note 4) 10,973,473 -
Total 20,458,274 3,392,677

 

Information and movements of balances for the period ending on March 31, 2020 and for the fiscal year ending on December 31, 2019:

 

  Natura Cosméticos S.A. (1) Avon Products, Inc. Total
Interest percentage 100,00% 100,00%  
Net equity of the controlled companies 4,757,910 (4,156,091) 601,819
Interest on net equity 4,757,910 (4,156,091) 601,819
Fair value adjustment of acquired assets and liabilities - 8,882,982 8,882,982
Goodwill - 10,973,473 10,973,473
Total 4,757,910 15,700,364 20,458,274
Net losses for the period of the controlled companies (213) (711,889) (712,102)
       
Balance on December 31, 2019 3,392,677 - 3,392,677
Equity accounting results (213) (711,889) (712,102)
Exchange variation and other adjustments in the conversion of investments of the controlled companies abroad 1,204,176 3,140,511  4,344,687
Effect of a hyperinflationary economy 17,126 - 17,126
Contribution of the controlled company for share option plans granted to its executives and other reserves, net of tax effects (23,890) - (23,890)
Hedge accounting, net of tax effects 168,033 (3,152) 164,882
Acquisition price - 13,274,894 13,274,894
Balance on March 31, 2020 4,757,910 15,700,364 20,458,274

 

(1) The investment balance in the direct subsidiary Natura Cosméticos S.A. includes goodwill arising from the acquisitions of indirect subsidiaries TBS (R$ 1,751,529) and Aesop (R$ 112,977).

 

26 

 

 

16. PROPERTY, PLANT AND EQUIPMENT

 

Information pertaining to fixed assets was presented in the Company’s 2019 annual financial statements, on Note 15.

 

  Consolidated
  Useful life in years December 2019 Control acquisition Additions Write-offs Impairment Transfers  Other movements including exchange variation March 2020
Cost value:                  
Vehicles 2 to 5  45,578  25,789  260  (2,711)  -     2,163  11,302  82,381
Templates 3  192,556  -     -     (27)  -     4,322  25  196,876
Tools and accessories 3 to 20  11,974  52,410  3,271  (283)  -     (1,034)  9,897  76,235
Facilities 3 to 60  309,772  1,431  5  (3,212)  -     2,359  9,347  319,702
Machinery and accessories 3 to 15  866,451  746,734  5,556  (726)  -     10,757  124,366  1,753,138
Improvements in third-party real properties (a) 2 to 20  615,103  58,548  6,844  (651)  385  14,830  90,324  785,383
Buildings 14 to 60  386,957  1,168,837  2,781  3,070  -    27,616  226,178  1,815,439
Furniture and utensils 2 to 25  397,727  32,566  4,658  (686)  1,823  6,543  71,943  514,574
Land -  35,157  568,470  -     -     -    4,772  152,410  760,809
IT equipment 3 to 15  297,228  112,369  2,300  (402)  -     9,536  52,303  473,334
Other assets -  -     40,090  -     -     -     -     11,343  51,433
Projects in progress -  156,011  78,965  53,621  (402)  -     (53,107)  22,132  257,220
Total cost    3,314,514  2,886,209  79,296  (6,030)  2,208 28,757  781,570  7,086,524
                   
Depreciation value:                  
Vehicles    (16,924)  -     (6,712)  1,231  -     (2,093)  (2,945)  (27,443)
Templates    (175,938)  -     (1,975)  -     -     -     (77)  (177,990)
Tools and accessories    (3,255)  -     (11,346)  -     -     -     (1,748)  (16,349)
Facilities    (167,362)  -     (7,125)  282  -     -     (2,351)  (176,556)
Machinery and accessories    (416,736)  -     (49,636)  154  -     (161)  (11,782)  (478,161)
Improvements in third-party real properties    (267,371)  -     (28,910)  -     -     25  (40,355)  (336,611)
Buildings    (101,785)  -     (26,380)  -     -     -     (3,089)  (131,254)
Furniture and utensils    (193,973)  -     (22,270)  465  -     (25)  (37,787)  (253,590)
IT equipment    (197,281)  -     (23,927)  10  -     -     (17,477)  (238,675)
Other assets    -     -     (3,097)  -     -     -     (515)  (3,612)
Total depreciation    (1,540,625)  -     (181,378)  2,142  -     (2,254)  (118,126)  (1,840,241)
Overall Total    1,773,889  2,886,209  (102,082)  (3,888)  2,208  26,503  663,444  5,246,283

 

27 

 

 

17. INTANGIBLES

 

Information pertaining to intangible assets deposits was presented in the Company’s 2019 annual financial statements, on Note 16.

 

  Consolidated
  Useful life in years December 2019 Control acquisition Additions Write-offs Reversal (provision) of impairment Transfers Other movements including exchange variation March 2020
Cost value:                  
Software 2.5 to 10  1,313,090  291,239  27,299  (31)  -     72,445  116,469  1,820,511
Trademarks and patents (Defined useful life) 24 to 25  116,805  517,592  -     -     -     -     161,815  796,212
Trademarks and patents (Indefinite useful life) -  2,171,585  1,893,224  -     -     -     -     1,002,860  5,067,669
Goodwill Avon (Note 4) -  -     10,973,474  -     -     -     -     3,039,790  14,013,264
Goodwill Emeis Brazil Pty Ltd. -  100,237  -     -     -     -     -     12,740  112,977
Goodwill The Body Shop International Limited -  1,434,369  -     7,824  -     -     -     307,880  1,750,073
Goodwill acquisition of The Body Shop stores -  1,456  -     -             1,456
Relationship with retail clients 10  1,987  -     -     -     -     -     282  2,269
Goodwill (indefinite useful life) -  17,801  -     -     -     -     5,595  2,191  25,587
Goodwill (Defined useful life) 3 to 18  12,447  -     -     -     (80)  (3,145)  4,829  14,051
Relationship with franchisees and sub-franchisees 14 to 15  602,958  1,876,169  -     -     -     -     659,983  3,139,110
Developed technology (by acquired controlled company) -  -     1,131,573  -     -     -     -     320,159  1,451,732
Other intangible assets 2 to 10  110,288  -     14,665  -     -     (63,534)  10,801  72,220
Total cost    5,883,023  16,683,271  49,788  (31)  (80)  11,361  5,639,799  28,267,131
                   
Amortization value:                  
Software    (649,347)  -     (81,653)  43  -     (3,634)  (28,471)  (763,062)
Trademarks and patents    (44,108)  -     (8,285)  -     -     -     (5,578)  (57,971)
Goodwill    (2,197)  -     (97)  -     -     178  (3,489)  (5,605)
Relationship with retail clients    (1,939)  -     (52)  -     -     -     (232)  (2,223)
Relationship with franchisees and sub franchisees    (95,772)  -     (67,166)  -     -     -     (30,938)  (193,876)
Developed technology (by acquired controlled company)    -     -     (62,191)  -     -     -     (10,331)  (72,522)
Other intangible assets    (13,159)    1,390  -     -     -     (2,574)  (14,343)
Total accrued amortization    (806,522)  -     (218,054)  43  -     (3,456)  (81,613)  (1,109,602)
Net total    5,076,501  16,683,271  (168,266)  12  (80)  7,905  5,558,186  27,157,529

 

28 

 

 

a) Impairment testing of intangible assets with indefinite useful life

 

Goodwill from the expected future profitability of acquired companies and intangibles assets with indefinite useful life were allocated to the Company’s CGU groups. In accordance with CPC 01 - Redução ao Valor Recuperável de Ativos (IAS 36 - Impairment of Assets), when a CGU or a group of CGUs have an intangible asset with indefinite useful life allocated, the Company must test its book value for impairment annually, or whenever there is evidence of such. During the period ending on March 31, 2020, the management considers that the impacts of COVID 19 in its operations (note 5.3) is an indication of requirement of impairment testing of intangible assets with indefinite useful life. CGU groups with intangible assets in such situation as of March 31, 2020 are presented bellow:

 

2020
Consolidated
 CGUs Groups /  Trademarks and patents  Goodwill  Total
 Operating Segment
 Avon 3,092,915 14,013,264 17,106,179
 Aesop - 112,977 112,977
 The Body Shop 1,971,032 1,750,073 3,721,105
 Other 3,722 1,456 5,178
 Total 5,067,669 15,877,770 20,945,439

 

The main updated premises used to calculate the fair value minus sales cost on March 31, 2020 are presented below:

 

  Aesop The Body Shop Avon
Measurement of impairment value (fair value minus sales cost) Discounted cash flow.
Projected cash flow Operating business cycle (approximately 5 years) with perpetuity.
Budgeted gross margin Average gross margin based on history and projections for the following 5 years, adjusted with the results of potential impacts of Covid-19.
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%. Constant growth of 2.0%.
Discount rate These cash flows were discounted using a discount rate before taxes of 11.52% p.a. for The Body Shop, 12.34% p.a. for Aesop and 13.21% p.a. for Avon, in real terms. The discount rate was based on the weighted average cost of capital that reflects the specific risk of each segment.

 

(*) Based on the inflation applicable to the host country of each segment, based on public information released by the International Monetary Fund.

 

The Company carried out a sensitivity analysis of the following variables: (i) discount rate and (ii) growth rate in perpetuity, due to their potential impacts on cash flows. A 1 p.p. increase in the discount rate or a 1 p.p. decrease in the growth rate in perpetuity of the cash flow of each CGU group would not result in the need to recognize a loss. Based on the analyses conducted by the Management, there was no need to record impairment losses for the balances of these assets in the year ending on March 31, 2020.

 

In addition, as the accounting for the acquisition of Avon that took place on January 3, 2020 was still preliminarily presented in accordance with Note 4, the allocation of goodwill at UGC, for the purposes of this specific test, was also performed on a preliminary basis.

 

29 

 

 

18. RIGHT OF USE AND LEASE

 

Information pertaining to right of use and commercial lease was presented in the Company’s 2019 annual financial statements, on Note 17.

 

a) Right to use

 

  Consolidated
  Useful life in years December 2019 Control acquisition Additions Write-offs Transfers (i) Others movements March 2020
Cost value:                
Vehicles 3  40,018  42,467  38,836  (202)  -     10,382  131,501
Machinery and equipment 3 to 10  15,578  14,034  517  -     -     6,831  36,960
Buildings 3 to 10  784,900  489,740  74,070  (4,380)  -     152,815  1,497,145
IT equipment 10  283  18,429  827  -     -     4,575  24,114
Retail stores 3 to 10  2,350,377  -     102,663  (6,272)  (2,451)  530,027  2,974,344
Tools and accessories 3  2,803  -     -     -     -     603  3,406
Total cost    3,193,959  564,669  216,913  (10,854)  (2,451)  705,233  4,667,469
    - - - -      
Depreciation value:                
Vehicles    (8,109)  -     (11,450)  138  -     (1,274)  (20,695)
Machinery and equipment    (4,317)  -     (3,391)  -     -     (1,427)  (9,135)
Buildings    (97,190)  -     (68,396)  2,852  -     (21,247)  (183,982)
IT equipment    (214)  -     (4,857)  -     -     (648)  (5,719)
Retail stores    (463,332)  -     (138,496)  5,066  (178)  (113,105)  (710,045)
Tools and accessories    (936)    (230)  -     -     (233)  (1,399)
Total accrued depreciation    (574,098)  -     (226,820)  8,056  (178)  (137,935)  (930,974)
Net total    2,619,861  564,669  (9,906)  (2,798)  (2,629)  567,298  3,736,495

 

i. Pertaining to the goodwill paid on store rental, transferred to the intangible assets until a new commercial agreement with the lessor is executed, when the amount will return to the right to use in the initial calculation of this new lease agreement.

 

 

30 

 

 

 

  Consolidated
  March 2020 March 2019
Values recognized in the income statement during the periods ending on March 31, 2020 and March 31, 2019    
Financial expense on lease 53,611 30,974
Amortization of right of use 226,820 129,079
Appropriation in the result of variable lease installments not included in the measurement of lease liabilities 8,229 6,303
Sublease revenue 6,143 (654)
Short-term lease expenses and low-value assets 20,505 26,010
Other expenses related to leases 9,290 841
Total 324,597 192,553
     
Values recognized in the financing cash flow statement    
Commercial lease payment (principal) 227,506 143,895
Values recognized in the operating cash flow statement    
Commercial lease payment (interest) 35,829 30,974
Variable lease payments not included in the measurement of lease liabilities 2,813 4,890
Short-term lease payments and low-value assets 15,393 320
Other lease-related payments 9,816 8,729
Total 291,356 188,808

 

b) Commercial leasing

 

  Consolidated
  March 2020 December 2019
Current 956,413 542,088
Non-Current 2,971,565 1,975,477
Total 3,927,978 2,517,565

 

Find below the movements in the balance of commercial lease for the period ending on March 31, 2020:

 

  Consolidated
Balance on December 31, 2019 2,517,565
New agreements 280,818
Control acquisition 777,200
Reclassification assets x liabilities 12,322
Payments – principal (209,723)
Payments – interest (53,611)
Financial charges accrued 53,611
Write-offs (i) (4,641)
Conversion effects (other comprehensive results) 554,437
Balance on March 31, 2020 3,927,978

 

i) Mainly related to termination of agreements related to lease of stores.

 

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

 

  Consolidated
  March 2020 December 2019
  2021 568,977 374,746
  2022 554,951 361,688
  2023 546,895 358,274
  2024 onwards 1,300,742 880,769
Total 2,971,565 1,975,477

 

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19. BORROWINGS, FINANCING AND DEBENTURES

 

Information pertaining to loans, financing and debentures was presented in the Company’s 2019 annual financial statements, on Note 18.

 

  Company Consolidated
  March 2020 December 2019 March 2020 December 2019
Issued in local currency        
Financing Agency for Studies and Projects (FINEP) - - 94,714 101,988
Debentures - - 4,126,836 4,251,231
BNDES - - 26,321 35,390
BNDES – FINAME - - 110 183
Working capital – Operation Mexico - - 30,752 31,802
Working capital – Operation Aesop - - 110,711 100,438
Working capital - Operation The Body Shop - - 453,138 -
Working capital – Operation Avon - - 18,539 -
Promissory Notes 1,079,905 2,883,382 1,079,905 2,883,382
Notes - - 9,104,376 -
Total in local currency 1,079,905 2,883,382 15,045,222 7,404,414
         
Foreign Currency        
  BNDES - - 7,363 8,029
  Export Credit note (NCE) - - 104,688 81,210
  Notes (1) - - 3,912,971 3,090,490
  Resolution No. 4131/62 - - 262,822 202,231
  Total in foreign currency - - 4,287,844 3,381,960
Overall total 1,079,905 2,883,382 19,333,066 10,786,374
         
Current 1,079,905 2,883,382 1,942,527 3,354,355
Non-Current - - 17,390,539 7,432,019
         
(a) Debentures - -    
 Current - - 120,791 246,017
 Non-Current - - 4,006,045 4,005,214

 

(1) Balances recorded for their estimated fair value resulting from business combination with Avon (Note 4).

 

Find below the movements in the balances of loans, financings and debentures for the periods ending on March 31, 2020 and 2019:

 

  Company Consolidated
Balance on December 31, 2018 - 7,994,145
  Capital raising - 90,507
  Amortizations   (510,542)
  Financial charges accrued - 126,195
  Payment of financial charges - (256,034)
  Exchange variation (unrealized) - (46,974)
  Exchange variation (realized) - 1,359
  Conversion effects (other comprehensive results) - 710
Balance on March 31, 2019 - 7,399,366
     
Balance on December 31, 2019 2,883,382 10,786,374
  Control acquisition -           7,250,735
  Capital raising -               451,127
  Amortizations (1,816,900)         (1,923,345)
  Financial charges accrued 20,283               281,534
  Payment of financial charges (6,860)            (498,585)
  Exchange variation (unrealized) -               914,400
  Exchange variation (realized) -                   -
  Conversion effects (other comprehensive results) -           2,070,826
Balance on March 31, 2020 1,079,905 19,333,066

 

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

 

  Company Consolidated
  March 2020 December 2019 March 2020 December 2019
2021 - - 3,059,162 -
2022 - - 5,263,905 2,279,759
2023 - - 6,308,180 527,596
2024 onwards - - 2,759,292 4,624,664
Total - - 17,390,539 7,432,019

 

 

32 

 

The main movements in bank loans and financing for the period ending on March 31, 2020 are as follows:

 

19.1 Description of main movements in bank loans and financing

 

i) Debentures

 

The appropriation of costs related to the issuance of debentures in the period ending on March 31, 2020 was R$ 1,033 (R$ 4,760 on December 31, 2019), recorded on a monthly basis under financial expenses, in accordance with the effective interest rate method. Issuance costs to appropriate totaled R$ 12,322 as of March 31, 2020 (R$ 13,354 as of December 31, 2019).

 

ii) Notes

 

The appropriation of costs related to the issuance of Notes in the period ending on March 31, 2020 was R$ 1,798 (R$ 6,737 on December 31, 2019), recorded on a monthly basis under financial expenses, in accordance with the effective interest rate method. Issuance costs to appropriate totaled R$ 20,983 as of March 31, 2020 (R$ 22,782 as of December 31, 2019).

 

iii) Promissory Notes

 

On January 14, 2020, the partial optional early redemption of first-rate Commercial Notes occurred, in the amount of R$ 1,830 million.

 

The appropriation of costs related to the issuance of promissory notes in the period ending on March 31, 2020 was R$ 13,101 (R$ 11,135 on December 31, 2019), recorded monthly under the financial expenses item according to the effective interest rate method. Issuance costs to appropriate totaled R$ 7,862 as of March 31, 2020 (R$ 20,962 as of December 31, 2019).

 

iv) Working capital– The Body Shop

 

As presented in the liquidity risk management note (5.2.e), The Body Shop had, on December 31, 2019, a credit facility of up to seventy million pound sterlings (GBP 70 million), with no guarantee, that could be withdrawn in installments to meet short-term financing needs of The Body Shop International Limited. This facility was used by the Company during the first quarter of 2020, to reinforce working capital and liquidity, with interest pursuant to the Libor rate + 2% per year.

 

iv) Notes - Avon

 

Avon has issued the following notes:

 

Notes – Avon Principal (USD) Principal (R$) Annual interest rate Maturity
No guarantee 461,883 2,401,191 5.00% March 15, 2023
No guarantee 243,847 1,267,687 6.95% March 15, 2043
With guarantee 500,000 2,599,350 7.88% August 15, 2022
With guarantee 400,000 2,079,480 6.50% August 15, 2022

 

To the Notes issued by Avon, add the effects of allocation of fair values from the business combination (Note 4), which amounted to R$ 780,093 as of March 31, 2019.

 

19.2 Contract Covenants

 

The contractual covenants which establish financial indexes arising from the quotient of the net treasury debt division by EBITDA of the last 12 months, which should be equal to or lower than that established. The Company and its controlled companies comply with such clauses as of the base date.

 

20. TRADE PAYABLES AND FORFAIT OPERATIONS

 

Information pertaining to suppliers and “drawn risk” transactions was presented in the Company’s 2019 annual financial statements, on Note 19.

 

  Company Consolidated
  March 2020 December 2019 March 2020 December 2019
Local suppliers 136 - 4,037,334 1,581,759
Foreign suppliers 1,622 - 858,369 105,073
  1,758 - 4,895,703 1,686,832
         
“Drawn risk” transactions - - 209,079 142,924
  1,758 - 5,104,782 1,829,756

 

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21. TAX PAYABLES

 

  Controlling Company Consolidated
  March 2020 December 2019 March 2020 December 2019
Ordinary ICMS - - 79,905 120,300
ICMS-ST (a) - - 70,124 72,423
Taxes on invoicing – controlled companies abroad - - 212,099 145,992
INSS - Enforceability suspended - - 52,853 50,147
Tax withheld at source 1,435 987 144,316 48,593
Other taxes - controlled companies abroad - - 1,577 1,180
Income Tax (IR): - 63 6,673 1207
INSS and ISS - - 30,335 3,218
Other - - 57,170 399
  1,435 1,050 655,052 443,459
         
Judicial deposits (explanatory note 12) - - (62,956) (62,356)
         
Current 1,435 1,050 488,620 320,890
Non-Current - - 166,432 122,569

 

(a) The Company’s controlled companies have been discussing the illegality of changes in the state legislation for the payment of ICMS - ST. Part of the unpaid amount has been discussed in court by the Company and, in certain cases, the amounts have been deposited with the courts, as mentioned in explanatory note 12.

 

22. PROVISIONS FOR TAX, CIVIL AND LABOR RISKS

 

The Company’s Management believes that, based on the elements existing on the base date of these financial statements, the provision for tax, civil, commercial and other risks, as well as labor risks, constituted pursuant to CPC 25 / IAS 37, suffices to cover any losses with administrative and court proceedings, as presented below:

 

  Consolidated
  March 2020 December 2019
Tax  837,042 127,842
Civil  108,432 30,653
Labor  248,502 61,571
Total  1,193,976 220,066
     
Judicial deposits (explanatory note 12) (341,641) (60,272)
     
Current         47,046 18,650
Non-Current   1,146,930 201,416

 

2.1 Contingencies with probable losses

 

Movement of the provision for tax, civil and labor risks and contingent liabilities is presented below:

 

  Consolidated
  Tax Civil Labor
  Provisions Deposits Provisions Deposits Provisions Deposits
Balance at beginning of year 127,842 (54,059) 30,653 (426) 61,571 (5,787)
Control acquisition (1) 657,647 (152,427) 51,263 (2,897) 164,091 (28,819)
Additions 41,221 (4,031) 24,979 (314) 11,804 (751)
Reversals (16,373) 961 (4,192) 176 (3,073) 818
Payments (44,836) 4,424 (5,600) 84 (11,532) 836
Monetary adjustment 1,466 (1,509) 1,246 (20) 1,887 (213)
Exchange variation 69,726 1,701 10,256 33 20,924 322
Other movements 349 - (173) - 2,830 -
Balance on March 31, 2020 837,042 (204,940) 108,432 (3,364) 248,502 (33,594)

 

(1) Balances recorded for their estimated fair value resulting from business combination with Avon (Note 4).

 

34 

 

 

22.2 Contingencies with possible losses

 

The Company and its controlled companies have labor and social security, civil and tax contingencies, which loss prediction as assessed by the Management and supported by the legal counsel is classified as possible and, thus, no provision was constituted. The total sum in discussion rated as possible, due to the nature of the claims, is evidenced below:

 

  Consolidated
  March 2020 December 2019
Tax 8,599,300 3,503,392
Civil 126,815 61,532
Labor 207,457 77,295
Total contingent liabilities 8,933,572 3,642,219
Judicial Deposits (314,872) (136,258)

 

The main tax cases are the following:

 

(i) Infraction notices in which the Brazilian Federal Revenue Office collects IPI tax debts, for the supposed lack of compliance with the minimum calculation basis, set forth in the legislation, upon the sales transactions directed to interdependent wholesale establishments. Currently, judgment of the proceedings is awaited at the administrative level. On March 31, 2020, the total amount in discussion classified as possible loss is of R$1,942,078. 

 

(ii) Court decisions which discuss the equivalence to industrial set forth in Decree No. 8,393/2015, which started requiring IPI in exit operations carried out by interdependent wholesale establishments of the products mentioned in said legal provision. On March 31, 2020, the amount in discussion is R$ 1,484,352 (R$ 389,017 on December 31, 2019).

 

(iii) Administrative and court proceedings discussing the illegality of changes in the state legislation for the payment of ICMS and ICMS - ST. On March 31, 2020, the total amount in discussion is R$1,469,903 (R$ 406,002 on December 31, 2019).

 

(iv) Infraction notices where the Brazilian Federal Revenue Office collects IRPJ and CSLL tax debts, in order to question the tax deductibility of goodwill amortization in the context of a corporate reorganization among related parties. Currently, there is a discussion in the Judiciary Branch of the lawfulness of administrative decisions which rejected the motion to clarify, submitted to question the dismissed special appeals. On March 31, 2020, the total amount in discussion classified as possible loss is of R$1,385,434 (R$ 1,336,927 on December 31, 2019). 

 

(v) Infraction Notice in which the State of São Paulo Treasury Office enforces the ICMS-ST collection, fully paid by the destination of the goods, the distributing establishment. Judgment of the proceedings is awaited at the administrative level. On March 31, 2020, the total amount in discussion classified as possible loss is of R$ 524,657 (R$ 521,903 on December 31, 2019).

 

(vi) Infraction notices in which the Brazilian Federal Revenue Service collects IPI tax debts due to disagreement with the tax classification adopted for some products. Judgment of the proceedings is awaited at the administrative level. On March 31, 2020, the total amount in discussion is R$ 295,144 (R$ 218,204 on December 31, 2019).

 

The main civil cases are the following:

 

i) Avon was named defendant in several proceedings for personal damages filed in USA courts, claiming that certain powder products that Avon sold in the past were contaminated with asbestos. Many such actions involve several co-defendants of a range of different industries, including cosmetics manufacturers and manufacturers of other products that, unlike the Company’s products, were designed to include asbestos. On March 31, 2020, there were 128 individual proceedings pending against the Company. During the quarter ending on March 31, 2020, 18 new proceedings were shelved and twenty others were shelved, settled or otherwise concluded. The amount of our records in this area so far has not been significant, whether individually or jointly. Similar additional cases deriving from the use of the Company’s powder products are reasonably predicted.

 

35 

 

 

We believe that the claims against us in such cases have no grounds. We are strongly defending ourselves against such claims and will continue doing so. Until this date, the Company has not been sued in any case filed against it and there were no findings of enforceable liability against the Company. However, the results of testing throughout the country in similar cases filed against other manufacturers of cosmetic powder products vary from direct employment terminations to very large jury-led indemnifications for compensatory and punitive damages. Due to the uncertainties inherent to litigation, we cannot predict the results of all individual cases pending against the Company, and we may only make a reasonable estimate for a small number of individual cases that have progressed to the later stages of court proceedings. For the remaining cases, we supply an aggregate and continuous exposure estimate, which considers the historic results of all cases we have settled so far. Any additions currently recorded in the Company’s balance sheet in relation to these cases are not relevant. Other than those, currently, we may not estimate our reasonably possible or probable losses. However, any adverse results, whether in an individual case or jointly, may be relevant. The future costs to litigate such cases, which we fund when incurred, are unknown, but may be significant, although some costs are covered by insurance.

 

ii) On February 14, 2019, an alleged class action complaint of the shareholder (Bevinal v. Avon Products, Inc., et al., No. 19-cv-1420) was filed in the USDC for the South District of New York against the company and some of its former officers. On June 3, 2019, the court appointed a main plaintiff and a class attorney. The complaint was subsequently changed on June 28, 2019, retitled "In re Avon Products, Inc. Litigation over Securities" on July 8, 2019. On July 24, 2019, the plaintiffs presented a new changed complaint. The changed complaint is submitted on behalf of a new class, supposedly comprised of all purchasers or acquirers of Avon common shares between January 21, 2016 and November 1st, 2017, including such latter date. The charge claims violations to Sections 10 (b) and 20 (a) of the 1934 Securities Exchange Act, based on supposedly fake or misleading statements and supposed market manipulation with relation to, among other things, changes made in the Avon’s credit terms for Brazilian Representatives. On July 26, 2019, Avon and the individual defendants submitted a motion to dismiss. On November 18, 2019, the court denied such motion. Subsequently, on December 16, 2019, Avon and the individual defendants submitted an answer to the changed complaint. On February 14, 2020, the plaintiffs submitted a motion for class certification. The parties are currently under the discovery stage. Avon notified this subject to the Company’s insurers. In light of the initial stage of the litigation, we may not predict the result of this matter and may not assess the loss probability or make a reasonable estimate of the amount or range of loss that could arise from an adverse result.

 

22.3 Contingent assets

 

The adjusted amounts involved in the requests for restitution of PIS and COFINS installments collected with ICMS included in their calculation bases, in the period of March 2004 to March 2007, not recorded until March 31, 2020, total R$ 145,025 (R$ 26,993 on December 31, 2019).

 

23. OTHER LIABILITIES

 

Information pertaining to other liabilities was presented in the Company’s 2019 annual financial statements, on Note 22.

 

  Consolidated
  March 2020 December 2019
Post-employment health care plan 765,007 98,792
Carbon credit 5,187  4,519
Exclusivity agreement 4,800  5,400
Crer para Ver 45,523  51,543
Deferred revenue from performance obligations with customers 294,742  76,250
Provisions for sundry expenses 649,267 156,895
Provisions for rental 41,824  26,568
Provisions for apportionment of benefits and partnerships payable 8,983  7,860
Long-term incentive 252,464  3,022
Provision for restructuring 124,980  3,401
Provision for store renovation 94,067  15,997
Other provisions 346,963  67,846
Provision for expenses reimbursements related to assets disposed (a) 72,599  -   
Professional fees 73,684  -   
Total 2,780,090  518,093
     
Current 1,730,782 396,391
Non-Current 1,049,308 121,702

 

(a) On December 17, 2015, Avon entered into agreements resulting on the splitting of operations in the United Stated, Canada and Puerto Rico. These transactions were terminated on March 1st, 2016. From such date, the contingent liabilities prior to this transaction and related to the operations in the United States, Canada and Puerto Rico are treated as a provision for expenses reimbursements related to assets disposed. During the period ending on March 30, 2019, Avon registered R$ 22 million in administrative expenses pertaining to such provisions.

 

36 

 

 

24. SHAREHOLDER’S EQUITY

 

Information pertaining to judicial deposits was presented in the Company’s 2019 annual financial statements, on Note 23.

 

24.1 Share capital

 

As of March 31, 2020, the Company's share capital is R$ 4,905,118, composed of 1,188,271,016 registered common shares, with no par value.

 

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

 

Date Description Number of shares Value in R$
December 31, 2019 Total paid-up share capital 865,660,042 1,485,436,564
January 03, 2020 Capital increase  321,830,266  3,397,745,864
March 15, 2020 Issue of new shares for share purchase option plans and restricted shares  780,808  21,936,005
March 31, 2020 Total paid-up share capital 1,188,271,116 4,905,118,433

 

On January 3, 2020, 321,830,266 common shares were issued at an average price of 32.24 totaling R$ 3,397,746. On June 30, 62,347,090 common shares were issued at an average price of R$32.00 totaling R $ 1,995,107.

 

The Extraordinary Shareholders Meeting held on September 17, 2019 unanimously approved an increase in the Company's capital by R$1,242,165, from R$468,973 to R$1,711,138, through a bonus share issue by capitalizing a portion of the balance in the earnings reserve, in accordance with article 169 of the Brazilian Corporations Law, with the issue of four hundred thirty-two million, five hundred seventy-one thousand, two hundred twenty-eight (432,571,228) book-entry, registered common shares with no par value, distributed to the shareholders of the Company as bonus shares in the proportion of one (1) new share for one (1) common share held. Thus, the number of shares increased from 432,571,228 to 865,142,456, all book-entry, registered common shares with no par value. This change in the proportion of Natura Cosméticos common shares changed the comparative information on earnings per share and share-based payments in this Company's interim financial information.

 

24.2 Treasury shares

 

On March 31, 2019, item “Treasury shares” has the following composition:

 

  Number of shares R$ (in thousands) Average price per share - R$
Balance on December 31, 2019 - - -
Used (686,322) (38,932) (49.29)
Acquisition 1,114,460 54,936 45.58
Balance on March 31, 2020 428,138 16,004 (3,71)

 

The minimum and maximum treasury share balance on March 31, 2020 is R$ 29.75 and R$ 49.71, respectively.

 

24.3 Capital reserve

 

Completion of the Avon acquisition resulted in the issue of Natura &Co shares for the total subscription price of R$ 13,274,894. Of this total, the amount of R$ 3,397,746 was allocated to the share capital account and the rest, in the amount of R$ 9,877,148 was allocated to the Company's capital reserve. This share merger was approved at a meeting of the Board of Directors on January 3, 2020.

 

The capital reserve totals R$ 11,112,156 as of March 31, 2020 (R$ 1,302,990 as of December 31, 2019).

 

37 

 

 

25. SEGMENT INFORMATION

 

The setup of the Company’s operating segments is based on its Corporate Governance structure, which splits the business for purposes of decision-making and management analysis.

 

Since January 3, 2020, as a result of acquiring Avon (Note 4), the management has had the following Corporate Governance structure:

 

Ø Operation Natura &Co Latam – all operations of Natura, Avon, Aesop and TBS located in Brazil and Latin America;

 

Ø Avon International – all Avon operations, except those located in Brazil and Latin America;

 

Ø TBS International – all The Body Shop operations, except those located in Brazil and Latin America; and

 

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

 

In addition to the analysis per segment, the Company’s Management also assesses its revenues in several levels, mainly through sales channels: direct sales, operations in the retail market, e-commerce, B2B and franchises. However, the segregation by this kind of operation is not yet considered as significant for disclosures from the Management.

 

Net revenue by segment is as follows in the quarter ending on March 31, 2020:

 

Ø Natura &Co Latam; 55%

 

Ø Avon International; 28%

 

Ø TBS International; 12%

 

Ø Aesop International: 5%

 

The accounting practices for each segment are described in explanatory note 3 of the Company’s annual financial statements for the fiscal year ending on December 31, 2019.

 

The tables below present summarized financial information for the segments and the geographic distribution of commercial operations of the Company as of March 31, 2020, December 31, 2019 and March 31, 2019.

 

25.1 Operating segments

 

  March 2020
  Reconciliation to net profit (loss) for the period
  Net Revenue Performance assessed by the Company Depreciation and Amortization Financial revenue Financial expenses Income tax

Net profit (loss)

 

Natura &Co Latam 4,162,335 339,848 (221,863) 1,292,228 (1,376,898) (155,439) (122,124)
Avon International 2,121,517 (41,618) (183,887) 176,177 (361,617) 15,122 (395,823)
TBS International 893,243 133,550 (164,390) 30,117 (41,035) (59,393) (101,151)
Aesop International 340,899 77,966 (55,679) 10,580 (6,255) (6,842) 19,770
Corporate expenses - (386,467) - 51,082 (1,974) 111,749 (225,611)
Consolidated 7,517,994 123,279 (625,819) 1,560,184 (1,787,779) (94,803) (824,939)

 

  March 2019
  Reconciliation to profit (loss) for the year
  Net Revenue Performance assessed by the Company Depreciation and Amortization Financial revenue Financial expenses Income tax Net profit (loss)
Natura &Co Latam 1,775,725 262,855 (79,449) 352,144 (495,399) (16,733) 23,418
TBS International 870,232 164,107 (144,766) 25,875 (39,101) 1,089 7,205
Aesop International 269,194 60,684 (40,097) 82 (8,857) (3,461) 8,351
Corporate expenses - (38,636) - - - 13,136 (25,500)
Consolidated 2,915,150 449,010 (264,312) 378,102 (543,357) (5,969) 13,474

 

  March 2020 December 2019
  Non-current assets Total assets Current liabilities Non-current liabilities Non-current assets Total assets Current liabilities Non-current liabilities
Avon International 10,591,187 17,400,808 4,610,861 10,086,188 4,574,087 9,317,834 3,139,123 8,219,955
Natura &Co Latam 22,937,294 26,513,012 3,544,007 11,596,668 - - - -
TBS International 7,459,623 9,374,616 1,794,328 1,853,143 6,146,960 7,380,274 1,042,778 1,492,871
Aesop International 1,209,898 1,707,126 329,035 693,685 1,033,408 1,435,830 255,616 590,917
Corporate balance - 1,063,180 1,255,354 - - 3,050,574 3,080,906 -
Consolidated 42,198,002 56,058,741 11,533,584 24,229,684 11,754,455 21,184,512 7,518,423 10,303,744

 

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25.2 Net revenue and non-current assets by geographic region

 

  March 2020 March 2019
Net revenue Natura &Co Avon International TBS International

Aesop

 

International

 

Natura &Co TBS International Aesop International
Asia - 403,606 51,775 161,889 - 68,447 110,153
North America 206,619 - 140,545 58,984 157,659 143,771 40,848
South America 3,954,870 -  -  - 1,616,588  - -
  Brazil 2,163,994 -  -  - 1,201,321  - -
  Other 1,790,876 -  -  - 415,267  - -
Europe 845 1,717,911 635,508 67,801 1,477 603,785 48,558
  United Kingdom -  361,942 502,021 35,470 - 469,606 23,592
  Other 845 1,355,969 133,487 32,331 1,477 134,179 24,966
Oceania - - 65,414 52,225 - 54,229 69,635
Consolidated 4,162,335 2,121,517 893,243 340,899 1,775,724 870,232 269,194

 

  March 2020 March 2019
Non-current Assets Natura & Co Latam Avon International TBS International Aesop International Natura & Co Latam TBS International Aesop International
Asia - 251,844 176,344 363,412 - 140,760 294,428
North America 185,331 - 630,192 336,272 185,646 523,351 272,676
South America 10,396,188 - - - 4,378,676 - -
  Brazil 7,835,239 - - - 4,197,259 - -
  Other 2,560,949 - - - 181,417 - -
Europe 9,668 22,685,451 6,237,413 228,143 9,765 5,105,903 190,442
  United Kingdom - 21,214,569 5,608,884 89,923 - 4,602,066 76,073
  Other 9,668 1,470,882 628,529 138,221 9,765 503,837 114,369
Oceania - - 415,674 282,071 - 376,946 275,862
Consolidated 10,591,187 22,937,294 7,459,623 1,209,898 4,574,087 6,146,960 1,033,408

 

No individual or aggregate customer represents more than 10% of the Company's net revenues.

 

25.3 Reconciliation for recast segments

 

Because of the new segment information as a result of the Avon acquisition in 2020, described above, the changes in the recast segment information previously disclosed is according to the following:

 

Presented in the financial statement for the year ended 31 December 2019
31 December 2019 Non-current assets Total assets Current liabilities Non-current liabilities
Natura Brasil (a) 4,181,261 7,618,551 2,207,944 8,119,890
Natura LATAM (a) 349,698 1,592,912 774,521 105,423
Natura others (a) 12,161 18,126 8,591 1,558
Aesop (b) 1,035,432 1,442,214 274,539 592,531
The Body Shop (c) 6,175,903 7,462,135 1,171,922 1,484,342
Corporate                        -             3,050,574          3,080,906                         -   
Consolidated      11,754,455         21,184,512         7,518,423      10,303,744

 

(a) Amounts included in the new segment information Natura &Co Latam.

 

(b) Amounts related to the Aesop’s operations located in Brazil and Latins America, representing non-current asset (R$ 2.024), total assets (R$ 6.384), current liabilities (R$ 18.923) and non current liabilities (R$1.614) included in the recast segment Natura &Co Latam.

 

(c) Amount related to The Body Shop’s operations located in Brazil and Latins America, representing non-current asset (R$ 28.943), total assets (R$92.885), current liabilities (R$106.475) and non current liabilities (R$7.193) included in the recast segment Natura &Co Latam.

 

39 

 

 

Presented in the financial statement for the period ended 31 march 2019
30 June 2019 Net revenue Performance assessed by the Company Depreciation and amortization Financial income Financial expenses Income tax Net income (loss)
Natura Brasil (a) 1,188,610 204,758 (62,780) 344,738 (483,695) 2,376 5,397
Natura LATAM (a) 565,427 71,244 (12,400) 8,659 (11,341) (19,109) 37,053
Natura outros (a) 1,957 (7,215) (89)  - -  - (7,304)
Aesop (b) 269,839 60,362 (40,444) 82 (8,871) (3,461) 7,668
The Body Shop (c) 889,317 158,497 (148,599) 24,623 (39,450) 1,089 (3,840)
Corporate  - (38,636)  -  -  - 13,136 (25,500)
Consolidated 2,915,150 449,010 (264,312) 378,102 (543,357) (5,969) 13,474

 

(a) Amounts included in the new segment information Natura &Co Latam.

 

(b) Amounts related to the Aesop’s operations located in Brazil and Latins America, representing net revenue (R$ 646), performance assessed by Company (R$ 320), depreciation and amortization (R$ 348), financial expense (R$14), and net income (loss) (R$682) included in the recast segment Natura &Co Latam.

 

(c) Amount related to The Body Shop’s operations located in Brazil and Latins America, representing net revenue (R$ 19,085), performance assessed by Company (R$ 5,611), depreciation and amortization (R$ 3,833), financial expense (R$ 1,602), income tax (R$99) and net income (loss) (R$11,046) included in the recast segment Natura &Co Latam.

 

26. NET REVENUE

 

  Consolidated
Gross revenue: March 2020 March 2019
  Domestic market 3,013,326 1,694,216
  Foreign market 6,581,207 2,231,902
  Other sales 124,455 14,457
  9,718,988 3,940,575
     
  Returns and cancellations (122,517) (26,071)
  Commercial discounts and rebates (238,585) (250,390)
  Taxes on sales (1,839,892) (748,964)
Net revenue 7,517,994 2,915,150

 

Substantially, revenue from brands Natura and Avon refers to direct sales, whereas from brands The Body Shop and Aesop it refers to retail sales

 

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27. OPERATING EXPENSES AND COST OF SALES

 

Breakdown by function Company Consolidated
  March 2020 March 2019 March 2020 March 2019
Cost of sold products - - 2,878,722 809,172
Expenses with Sales, Marketing and Logistics - - 3,299,190 1,323,066
Administrative, R&D, IT and Project Expenses 9,978 - 1,266,091 537,031
Total 9,978 - 7,444,003 2,669,269

 

Breakdown by nature Company Consolidated
  March 2020 March 2019 March 2020 March 2019
Cost of sold products - - 2,878,722 809,172
Raw material/packaging material/resale - - 2,621,813 672,066
Personnel expenses (explanatory note 28) - - 111,295 71,007
Depreciation and amortization - - 37,860 13,832
Other - - 107,754 52,267
         
Expenses with sales, marketing and logistics - - 3,299,190 1,323,066
Logistics costs - - 566,346 172,398
Personnel expenses (explanatory note 28) - - 942,218 388,459
Marketing, sales force and other sales expenses - - 1,483,106 583,663
Depreciation and amortization - - 307,520 178,546
         
Administrative, R&D, IT and Project Expenses 9,978 - 1,266,091 537,031
Investments in innovation   - 167,210 16,880
Personnel expenses (explanatory note 28) 5,042 - 458,124 277,967
Other administrative expenses 2,646 - 360,318 170,250
Depreciation and amortization 2,290 - 280,439 71,934
         
Total 9,978 - 7,444,003 2,669,269

 

28. EMPLOYEE BENEFITS

 

Information pertaining to employee benefits was presented in the Company’s 2019 annual financial statements, on Note 27.

 

  Company Consolidated
  March 2020 March 2019 March 2020 March 2019
Payroll, profit sharing and bonuses 4,156 -  1,141,927 553,748
Supplementary pension plan - -  44,113 20,774
Share-based payments (note 32.3) - -  34,887 10,874
Charges on restricted shares (note 32.1) - -  (42,695) 5,634
Health care, food and other benefits (2) -  147,151 57,180
Charges, taxes and social contributions 27 -  136,792 47,147
INSS - Brazilian Social Security Institute 861 -  49,462 42,076
Total 5,042 - 1,511,637 737,433

 

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28.1 Share-based payments

 

Options granted in 2020

 

On March 27, 2020, the Company’s Board of Directors approved the new share-based long-term incentive plans, named ‘Co-Investment Plan” and “Long-Term Incentive Plan” for 2020.

 

The “Co-Investment Plan” is comprised of the grant of the Company’s common shares for a group of workers that may invest part of their share in the profits (up to the limit of 50%) to purchase shares, such that the Company shall grant the same number of shares of the amount invested by the beneficiary. The rights of participants in relation to the “Co-Investment Plan” will only be fully acquired to the extent the participant remains continuously employed by the Company and its controlled companies until the 3rd anniversary of the grant date.

 

The “Long-Term Incentive Plan” consists of granting common shares of the Company to a group of workers and, unless otherwise determined by the Company’s Board of Directors, the rights of participants in relation to the Performance Shares will only be fully acquired to the extent that: (i) the participant remains continuously employed by the Company and its controlled companies until the 3rd anniversary of the grant date; and (ii) the performance conditions are met. For certain participants, there is a special condition for item (i) above, in which 50% of the granted Performance Shares will be acquired on the 3rd anniversary of the grant date and the remaining 50% on the 4th anniversary of the grant date.

 

The changes in the number of purchase options for outstanding shares and their corresponding weighted average prices, as well as variations in the number of restricted shares, are as follows:

 

Share purchase options and Strategy Acceleration Plan
  Average exercise price per share - R$ Options (thousands)
Balance on December 31, 2019 16.51 17,568
Related to Avon’s acquisition – Business Combination (Note 4) 0.01 1,994
Expired 19.32 (58)
Exercised 30.32 (627)
Balance on March 31, 2020 16.28 18,877
       
  Restricted shares (thousands)

Shares per performance 

(thousands)

Balance on December 31, 2019 3,092 688
Expired (14) -
Exercised (974) -
Balance on March 31, 2020 2,104 688

 

Of the 18877 thousand options existing as of March 31, 2020 (17,568 thousand options as of December 31, 2019) 1,250 thousand options (604 thousand options as of December 31, 2019) may be exercised.

 

The expenses related to the fair value of options and restricted shares, including the charges related to restricted shares, recognized in the quarter ending on March 31, 2020, according to the period elapsed for the acquisition of the right to exercise options and restricted shares, was R$ 12,650 and R$ 31,966, respectively, in the controlling company and in the consolidated financial statements.

 

The purchase options for outstanding shares and the restricted shares at the end of the period have the following vesting dates and exercise prices:

 

42 

 

 

As of March 31, 2020 -Share purchase option

 

Grant date Right acquisition conditions from the grant date

Exercise price

(R$)

Fair value

(R$)

Existing options

(thousands)¹

Remaining contractual life (years)

Options to be exercised

(thousands)

March 18, 2013 4 years of service 37.60 6,05 386 0,2 386
March 17, 2014 4 years of service 25.16 4,27 102 2,2 102
March 16, 2015 2 to 4 years of service 13.60 4.85 to 5.29 210 3,0 210
July 28, 2015 (Strategy acceleration) 4 to 5 years of service 12.90 6.20 to 6.23 1,296 3,4 196
March 15, 2016 2 to 4 years of service 12.84 7.16 to 7.43 300 4,0 298
July 11, 2016 (Strategy acceleration) 4 to 5 years of service 11.41 6.84 to 6.89 2,640 4,3 -
March 10, 2017 2 to 4 years of service 12.59 6.65 to 6.68 730 5,0 400
March 10, 2017 (Strategy acceleration) 4 to 5 years of service 12.59 6.87 to 6.89 2,210 5,0 -
March 12, 2018 2 to 4 years of service 16.96 7.96 to 8.21 2,052 6,0 684
March 12, 2018 (Strategy acceleration) 3 to 5 years of service 12.16 to 16.96 8.21 to 9.67 3,800 6,0 -
April 12, 2019 3 to 4 years of service 23.54 11.71 to 11.82 1,648 7.1 -
April 12, 2019 (Strategy acceleration) 4 to 5 years of service 23.54 11.51 to 11.71 1,900 7.1 -
From December 31, 2020 to May 9, 2017 1 year of service 0.01 19.80 65 - 65
From March 14, 2018 to December 17, 2018 1 to 3 years of service 0.01 19.70 334 1,2 55
From March 13, 2019 to December 16, 2019 1 to 3 years of service 0.01 19.58 1,205 0,4 a 2,2 -
             18,878              2,396

 

As of March 31, 2020 - restricted shares

 

Grant date Right acquisition conditions from the grant date

Existing shares

(thousands)²

Fair value

(R$)

Remaining contractual life (years)
March 10, 2017 2 to 4 years of service 208 11.69 to 12.51 1
March 12, 2018 – Plan I 2 to 4 years of service 472 15.18 to 15.9 1
March 12, 2018 – Plan II 0.4 to 2.4 years of service 90 15.76 to 16.49 -
March 12, 2018 – Plan III 1 to 3 years of service 74 15.54 to 16.27 0,.3
March 12, 2018 – Extraordinary Plan I 1 to 3 years of service 4 15.54 to 16.28 1
August 13, 2018 – Extraordinary Plan III 0.7 to 1.7 years of service 50 13.08 to 13.38 0.2
August 13, 2018 – Extraordinary Plan IV 0.8 to 1.8 year of service 26 13.06 to 13.36 1
August 13, 2018 – Extraordinary Plan VI 1.6 to 3.6 years of service 50 12.24 to 13.13 1 to 2
April 12, 2019 – Plan I 2 to 4 years 818 21.62 to 22.53 1 to 3
April 12, 2019 – Plan II 1 to 3 years of service 312 22.14 to 22.85 1 to 2
    2,104    

 

On March 31, 2020 – Performance shares

 

Grant date Right acquisition conditions

Existing shares

(thousands)

Fair value

(R$)

Remaining contractual life (years)

Vested stock

(thousands)

May 21, 2019 From 3 to 4 years of service from the grant date and if the performance conditions are met 688  23.10 to 45.70 3.0 a 4.0 -
    688     -

 

As of March 31, 2020, the market price was R$ 25.74 (R$ 38.67 as of December 31, 2019) per share.

 

Significant data included in the models to price the fair value of options, restricted shares and performance shares granted in the period ending on March 31, 2020 was:

 

  Share purchase options
  April 12, 2019 April 12, 2019 (Strategy Acceleration Program)
Volatility 37.77% 37.77%
Dividend yield 1.17% to 1.63% 1.63% to 1.89%
Expected life for vesting 2 to 4 years 4 to 5 years
Risk-free annual interest rate 6.88% to 7.95% 7.95% to 8.18%

 

  Restricted shares Performance shares
  April 12, 2019 – Plan 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%

 

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29. FINANCIAL INCOME (EXPENSES)

 

  Company Consolidated
  March 2020 March 2019 March 2020 March 2019
FINANCIAL REVENUES:        
Interest on financial investments 6,088 -  35,418 22,961
Gains on monetary and exchange rate variations (a) 18,666 -  237,027 189,086
Gains on swap and forward transactions (c) - -  1,075,198 151,125
Gains on fair value adjustment of swap and forward derivatives - -  139,440 347
Reversal of the monetary update of provision for tax risks and tax obligations - -  42,378  -   
Debt structuring revenues for acquisition of Avon 26,328 - 26,328 -
Other financial revenues - -  4,395 14,583
  51,082 - 1,560,184 378,102
FINANCIAL EXPENSES:        
Interest on financing - -  (253,094)  (128,692)
Interest on commercial leasing - -  (54,363)  (30,974)
Losses on monetary and exchange rate variations (b) - -  (1,198,575)  (151,374)
Losses on swap and forward transactions (d) - -  (148,150)  (211,788)
Loss on fair value adjustment of swap and forward derivatives - -  (84,407)  (477)
Adjustment of provision for tax, civil and labor risks and tax liabilities - -  (3,746)  (4,235)
Appropriation of funding costs (Debentures/Notes) - -  (2,831)  (3,248)
Pension plan interest - -  (7,308)  -   
Adjustment for hyperinflationary economy (Argentina) - - 4,812  (2,639)
Other financial expenses (1,975) -  (40,117)  (9,930)
  (1,975) - (1,787,779) (543,357)
         
Net financial revenues (expenses) 49,107 - (227,595) (165,255)

 

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

 

  Company Company
  March 2020 March 2019 March 2020 March 2019
(a) Gains on monetary and exchange rate variations 18,666 - 237,027 189,086
Gains on exchange rate variation on loans - -  13,998 152,899
Exchange rate variation on imports 18,666 -  29,327 4,035
Exchange rate variation on export receivables - -  29,776 6,737
Exchange rate variation on accounts payable to controlled companies abroad - -  74,349 25,415
Exchange variations of bank accounts in foreign currency - -  89,577  -   
         
(b) Losses on monetary and exchange rate variations - - (1,198,575) (151,374)
Losses on exchange rate variation on loans - -  (937,885) (107,842)
Exchange rate variation on imports - -  (19,034) (5,827)
Exchange rate variation on export receivables - - (2,044)    (5,548)
Exchange rate variation on accounts payable to controlled companies abroad - -  (161,863) (31,996)
Exchange rate variation on financing - -  (77,749) (161)
         
 (c) Gains on swap and forward transactions - - 1,075,198 151,125
Revenue from swap exchange coupons - -  47,167 41,293
Gains from exchange variations on swap instruments - -  1,028,031 109,832
  - -   -
(d) Losses on swap and forward transactions - - (148,150) (211,788)
Losses on exchange rate variation on swap instruments - -  -    (153,662)
Financial costs of swap instruments - -  (148,150) (58,126)

 

44 

 

 

30. OTHER OPERATING INCOME (EXPENSES), NET

 

Information pertaining to other operating revenues (expenses), net, was presented in the Company’s 2019 annual financial statements, on Note 29.

 

  Company Company
  March 2020 March 2019 March 2020 March 2019
Other operating revenues, net        
Result on write-off of fixed assets - - 1,491 724
ICMS-ST - - 7,294 36,096
Tax contingencies - - 1,281 1,084
Other operating revenues - - 543 3,492
Total other operating revenues - - 10,609 41,396
         
Other operating expenses, net        
Crer para Ver - -  (8,360) (8,631)
Expenses related to the acquisition of Avon (147,824) - (297,110)  
Transformation Plan - - (25,072) (6,831)
Other operating revenues (expenses) - - (32,617) (11,689)
Total other operating expenses (147,824) - (363,159) (27,151)
Other operating revenues (expenses), net (147,824) - (352,550) 14,245

 

31. RELATED-PARTY TRANSACTIONS

 

Information pertaining to transactions with related parties was presented in the Company’s 2019 annual financial statements, on Note 31.

 

31.1 The payable and receivable balances for transactions with related parties are indicated below:

 

  Company
  March 2020 December 2019
Current assets:    
Avon Products, Inc.(a) 475,700 -
Natura Cosméticos S.A. – Brazil (b) 30,155 -
Natura Cosméticos S.A. – Argentina (b) 1,789 -
Indústria e Comércio de Cosméticos Natura Ltda (b) 924 -
Natura Cosméticos S.A. – Mexico (b) 527 -
Natura Cosméticos S.A. – Peru (b) 454 -
Natura Cosméticos Ltda – Colombia (b) 338 -
Natura Cosméticos Ltda – Chile (b) 291 -
Total current assets (*) 510,178 -
Current liabilities    
Natura Cosméticos S.A. – Brazil (a) 147,486 -
Total current liabilities 147,486 -

 

(a) Pertains to the allocation of expenses related to the merger process.

 

(b) Pertains to the allocation of expenses related to the share purchase option plans and restricted shares.

 

The Natura Institute is one of the quotaholders of the Essential Investment Fund, and on March 31, 2020, the balance was R$ 4,923 (R$ 3,766 on December 31, 2019).

 

On June 5, 2012, an agreement was entered into between Indústria e Comércio de Cosméticos Natura Ltda. and Bres Itupeva Empreendimentos Imobiliários Ltda., (“Bres Itupeva”), for the construction and lease of a processing, storage and distribution center (HUB), in the city of Itupeva/SP. In 2019, Bres Itupeva granted its credits to BRC Securitizadora S/A, to which Natura makes monthly payments. Mr. Guilherme Peirão Leal and Mr. Pedro Luiz Barreiros Passos, members of the group of controlling shareholders of Natura Cosméticos S.A., indirectly hold controlling interests in Bres Itupeva. The amount involved in the transaction is recorded under “Right of Use” of "Buildings" in the amount of R$ 43,026 (R$ 44,244 under “Buildings” of Fixed Assets as of December 31, 2019).

 

In the period ending on March 31, 2020, the Company and its controlled companies transferred to the Natura Institute, in the form of a donation associated with maintenance, the sum of R$ 692, corresponding to 0.5% of net profits for the prior fiscal year, and a donation associated with the net sales of products in the Natura Crer Para Ver line, in the amount of R$ 15,000 (R$ 5,000 on March 31, 2019).

 

45 

 

 

31.2 Management’s key personnel compensation

 

The total compensation of the Company’s Management key personnel is as follows:

 

  March 2020 March 2019
  Compensation Compensation
  Fixed Variable Total Fixed Variable  Total
    (a)     (b)     (a)     (b)  
Board of Directors 5,345 5,855 11,200 5,050 5,916 10,966
Executive Office 13,504 8,442 21,946 9,172 17,585 26,757
  18,849 14,297 33,146 14,222 23,501 37,723

 

a) The item “Executive Office” includes the amount of R$ 255 pertaining to the amortization of the quarter ending on March 31, 2020 (R$ 14 in the quarter ending on March 31, 2019), of the Confidentiality and Non-Compete Agreement (“Confidentiality Agreement”)

 

b) Refers to profit sharing, the Restricted Stock Program and the Strategy Acceleration Program, including charges, as applicable, appraised in the period. The amounts include any additions to and/or reversals of provisions made in the previous year, due to final assessment of the targets established for board members and officers, statutory and non-statutory, in relation to profit sharing.

 

31.3 Share-based payments

 

Breakdown of the Company officers and executives’ compensation:

 

  Grant of options
  March 2020 March 2019
 

Balance of the

Options (quantity)¹ 

(a)

Average fair value of the options1 - R$

Average price of the year1

- R$(b) 

Balance of the

Options (quantity)¹ (a)

Average fair value of the options1 - R$ Average price of the year1 - R$ (b) 
Executive office 13,535,439 8.39 16.28 10,745,826 7.44 15.10

 

  Restricted shares
  March 2020 March 2019
  Share balance (quantity)² (a) Average fair value2 - R$ Stock option balance (number)1 (a) Average fair value2 - R$
EXECUTIVE OFFICE 752,133 19.47 603,580 14.88
         

 

¹ The number of stock options granted, expired and exercised and their respective fair values is shown already considering the splitting of stock approved at the Extraordinary Shareholders Meeting held on September 17, 2019.

 

² The number of restricted shares and performance shares granted, expired and exercised is shown already considering the splitting of stock approved at the Extraordinary Shareholders Meeting held on September 17, 2019.

 

(a) Refers to the balance of the matured options and restricted shares ("vested") and not mature ("unvested"), not exercised, 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 inflation based on the Extended Consumer Price Index (IPCA) through the end of the reporting period. The new Share Option Plan implemented in 2015, includes no other type of monetary adjustment.

 

46 

 

 

32. COMMITMENTS

 

32.1 Contracts related to supply of inputs

 

Controlled company Indústria e Comércio de Cosméticos Natura Ltda., has commitments arising from electric power supply agreements for its manufacturing activities, as described below:

 

Ø Agreements that started in 2018 and effective up to 2020, with the value of Megawatts/h between R$ 265 and R$ 363.

 

Ø Agreements that started in 2019 and effective up to 2022, with the value of Megawatts/h between R$ 155 and R$ 305.

 

Ø Agreements that started in 2020 and effective up to 2022, with the value of Megawatts/h between R$ 204 and R$ 238

 

The amounts are presented based on electric power consumption estimates in accordance with the contractual period, which prices are based on estimated volumes, arising from the controlled company’s continuous operations.

 

The total minimum supply payments, measured at nominal value, according to the contract, are:

 

  March 2020 December 2019
Up to one year 11,263 17,918
Between one and five years 11,451 13,160
Total 22,714 31,078

 

33. INSURANCE

 

The Group has an insurance policy that considers principally risk concentration and materiality, taking into consideration the nature of its activities and the opinion of its insurance advisors. As of March 31, 2020, insurance coverage is as follows:

 

Item Type of coverage Amount insured
March 2020 December 2019
Industrial complex and administrative sites Any damages to buildings, facilities, inventories, and machinery and equipment 5,290,800 2,322,801
Vehicles Fire, theft and collision for 347 vehicles (818 in 2019) 258,704 212,027
Loss of profits No loss of profits due to material damages to facilities buildings and production machinery and equipment 1,582,000 1,582,000
Transport Damages to products in transit 95,653 32,309
Civil liability Protection against error or complaints in the exercise of professional activity that affect third parties 2,044,996 532,510
Environmental liability Protection against environmental accidents that may result in environmental lawsuits 30,000 30,000

47 

 

 

34. ADDITIONAL STATEMENTS OF CASH FLOWS

 

The following table presents additional information on transactions related to the cash flow statement:

 

  Company Consolidated
  March 2020 March 2019 March 2020 March 2019
Non-cash items        
Hedge accounting, net of tax effects - - 164,882 58,296
Net effect of acquisition of property, plant and equipment and intangible assets not yet paid - - 45,078 43,801
Consideration per acquisition of the controlled company* 13,366 - - -
*in millions of Reais        

 

35. SUBSEQUENT EVENTS

 

Issuance of promissory notes

 

The Company, as approved by the Board of Directors on April 29, 2020, issued on May 4, 2020, a single series of Promissory Notes in a total amount of R$ 500 million, with an interest rate of 100% of the CDI variation plus a spread of 3.25% p.a. and maturity date on date on May 4, 2021. At the same date, Natura Cosméticos S.A. issued a Promissory Notes in a total amount of R$ 250 million, with an interest rate of 100% of the CDI variation plus a spread of 3.25% p.a. and maturity date on date on May 4, 2021.

 

Capital increase

 

The Company’s Borad of Directors approved, in a meeting held on May 5, 2020, a capital increase in the amount of R$ 15,566, through the issuance of 536,755 new nominative common shares, with no par value at the issue price of R$ 29.00, which will participate in the same conditions of the current issued shares in all regards and benefits, including dividends and eventual remuneration to be distributed by the Company. After this increase, the Company's capital is R$ 4,920,684, composed by 1,188,807,871 registered common shares, with no par value.

 

Acquisition of entity

 

On 30 June 2020, The Body Shop International Limited signed a purchase and sale agreement for the acquisition of Aeon Forest Co., Ltd in the amount of R$133,275 (¥2,632,000), and the operation was carried out on 1 October 2020 through bank settlement with subsequent acquisition of control.

 

Resource remittance to subsidiary

 

On 2 July 2020, the Company remitted to its subsidiary Natura &Co International S.à r.l. the amount of R$ 252,334 (USD47,000), aligned with the purpose of the subsidiary, which is raise and borrow funds by the Company to other consolidated companies (Note 2.3).

 

Global Offer

 

On 14 October 2020, the amount of R$ 5,614,750 of the Global Offer described in the material facts disclosed on 30 September and 8 October 2020 was received by the Company.

 

Within the scope of the Global Offer, the capital increase of the Company was approved by the Board of Directors within the limit of the authorized capital, upon subscription of new shares, under article 6 of the Company’s bylaws, through the issue of 121,400,000 new common shares, observing that 96,331,000 shares will be allocated in the Restricted Offer and 25,069,000 Shares under ADSs, represented by ADRs abroad, will be allocated in the International Offer.

 

On 21 October 2020, the company made a cash contribution to its subsidiary Natura &Co International S.à.r.l, in the amount of US$ 1,033,200 (R$5,786,540), and (ii) a cash contribution of a loan receivable (principal interest accrued and not paid by 22 October 2020) of the Company owed by Natura &Co Lux (“Loan Receivable”) to Natura &Co Lux, in the amount of USD 47,793 (R$267,669) as capital increase.

 

Transfer of funds to the subsidiary and repurchase of bonds

 

On 2 November 2020, Natura &Co International S.à r.l. entered into a loan agreement with Avon International Operations Inc, an affiliated entity of Avon Products Inc. in the amount of US$ 960,000 (R$ 5,540,928). The loan agreement will have interest at an annual rate of 3.13% and maturity on 2 November 2021.

 

In order to continue the financial remittance process mentioned above, subsidiary Avon Products Inc entered into repurchase of the remaining principal amount of its Bonds issued in 2016 with maturity on 15 August 2022 and the remaining principal amount of the 2019 Bonds with maturity on 15 August 2022. In relation to the 2016 notes, the aggregate repurchase price was equal to the remaining principal amount of US$ 500,000 (R$2,885,900), plus a premium of US$ 9,800 (R$ 56,564) and accrued interest of US$ 8,400 (R$ 48,483). In regard to the 2019 Notes, the aggregate repurchase price was equal to the remaining amount of US$ 400,000 (R$2,308,720), plus a premium of US$ 7,900 (R$ 45,597) and accumulated interest of US$ 5,600 (R$ 32,322).

 

36. APPROVAL OF FINANCIAL STATEMENTS

 

These interim financial statements of the Company were approved for disclosure by the Board of Directors at the meeting held on November 12, 2020.

 

48 

 

 

 

 

 

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