1. GENERAL INFORMATION
Natura &Co Holding S.A. (“Natura &Co”) was incorporated on January 21, 2019, and has the purpose of holding interests in other companies, as partner or shareholder, whose main business is in the cosmetics, fragrance and personal hygiene segments, through the manufacturing, distribution, and sale of their products in Brazil, in the city of São Paulo, State of São Paulo, at Avenida Alexandre Colares, No. 1188, Vila Jaguará, CEP 05106-000. Natura &Co and its subsidiaries are hereinafter referred to as the “Company”. Additionally, Natura &Co used to trade American Depositary Receipts (“ADRs”) on the New York Stock Exchange (“NYSE”), under the ticker “NTCO”, however, on January 18, 2024, the Company's Management approved the delisting from the NYSE, which is in line with its long-term strategy of simplifying its operations.
Brands managed by the Company include “Natura” and “Avon”. In addition to using the retail market, e-commerce, business-to-business (B2B) and franchises as sales channels for the products, the subsidiaries highlight the performance of the direct sales channel carried out by the Consultant(s).
1.1 Sale of subsidiary Aesop
On August 30, 2023, the Company concluded the sale of the subsidiary Natura Brazil Pty Ltd. (hereinafter referred to as “Aesop”) to L’Oréal for a total amount of R$12,429,175, after obtaining all regulatory approvals. The total gain obtained on the derecognition of the subsidiary’s assets and liabilities and recognized as discontinued operations net of income tax and social contribution was R$7,377,768, which includes the reclassification of accumulated balance sheet conversion gains recognized in other comprehensive income amounting to R$115,168 and the write-off of goodwill in the amount of R$124,315.
Further details about this transaction, as well as the results of discontinued operations for the years ended December 31, 2023, and 2022, are presented in explanatory note no. 36.
1.2 Sale of subsidiary The Body Shop
On December 29, 2023, the Company concluded the sale of the subsidiary The Body Shop to Aurelius Investment Advisory Limited (“Aurelius”) for a total amount of R$829,496, after obtaining all regulatory approvals. When the sale became probable in October 2023, a loss was recognized due to the impairment of the recoverable amount of net assets held for sale in the amount of R$4,007,744, due to the measurement to the lower of fair value fewer selling costs (recognized in the discontinued operations).
A gain was realized upon the derecognition of the subsidiary’s assets and liabilities held for sale, substantially caused by the reclassification of accumulated balance sheet conversion gains recognized in other comprehensive income in the amount of R$1,622,436 and the write-off of goodwill in the amount of R$4,861,840 (recognized as part of discontinued operations).
The total consideration recognized as a result of discontinued operations considered: i) a fixed installment received on January 2, 2024, in the amount of R$22,915; ii) a fixed installment whose receipt is scheduled for December 29, 2028, in the amount of R$320,153; and iii) the fair value of two variable installments of contingent consideration ('earn-out'), in 2025 and 2026, tied to the achievement of certain performance targets, in the amount of R$486,429. The methodology used for calculating the fair value of these contingent considerations is presented in explanatory note no. 5.
Further details about this transaction, including the breakdown of contingent considerations to be received and the results of discontinued operations for the years ended December 31, 2023, and 2022, are presented in explanatory note no. 36.
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| NATURA &CO HOLDING S.A. |
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NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
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| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
The individual and consolidated financial statements (herein referred to as “financial statements”) have been prepared and are being presented in accordance with the accounting practices adopted in Brazil, which comprise the rules of the Brazilian Securities and Exchange Commission (“CVM”) and the standards, interpretations and guidelines of the Brazilian Accounting Standards Committee (“CPC”) and in accordance with the International Financial Reporting Standards (“IFRS”) (entitled by IFRS Foundation as “IFRS accounting rules” issued by the International Accounting Standards Board (“IASB”), and by the statements from the Brazilian Corporation Law.
The financial statements show all the relevant information specific to the financial statements, and only them which are consistent with those used by the Management in its activities.
The Company’s financial statements were approved by the Board of Directors and authorized for issuance at the meeting held on March 7, 2024.
The financial statements were prepared on a historical cost basis, except for items measured at fair value through profit or loss, which include (i) derivative instruments; (ii) contingent considerations arising from the disposal of the former subsidiary The Body Shop; (iii) other financial assets referred to in explanatory note no. 3.6.1; and (iv) financial liabilities designated as fair value hedging instruments (explanatory note no. 3.6.2).
The financial statements are expressed in thousands of Reais (“R$”), rounded to the nearest thousand, and the disclosures of amounts in other currencies, when necessary, were also made in thousands. The items disclosed in other currencies are duly identified, whenever applicable.
The material accounting policies applied in the preparation of these financial statements are defined below. These practices have been applied consistently in all the years presented, except for the accounting policies adopted for the first time in 2023, as described in note no. 3.28).
3.1 Current versus non-current classification
The Company presents assets and liabilities in the balance sheet based on the classification of current and non-current, according to the expectation for realization and/or expected consumption during the ordinary course of the operating cycle, as defined in CPC 26 (R2) - Presentation of Accounting Statements - (IAS 1).
Deferred tax assets and liabilities are classified as non-current assets and liabilities, as disclosed in note no. 3.17.
3.2 Foreign currency translation
Functional currency
The items included in the financial statements of the Company and each of the companies included in the consolidated financial statements are measured using the currency of the main economic environment in which each of the companies operates (“functional currency”). The financial statements are presented in the Company’s functional and presentation currency, the Brazilian Real.
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| NATURA &CO HOLDING S.A. |
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NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
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| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
3.2.1 Transactions and balances in a currency other than the functional currency
Transactions in foreign currency, that is, any currency other than the functional currency, are translated into the functional currency of the entities included in these consolidated financial statements using the exchange rates prevailing on the dates of the transactions.
Balance sheet account balances are translated using the exchange rates prevailing on the dates of the reporting period. Gains and losses from exchange rate variation arising from the settlement of such transactions and the translation of monetary assets and monetary liabilities denominated in foreign currency are recognized in the statement of profit or loss as “finance income” and “finance expenses”.
3.2.2 Subsidiaries with different functional currency
In preparing the consolidated financial statements, the statement of profit or loss and cash flow statement and all other changes of assets and liabilities of foreign subsidiaries, whose functional currency is not the Brazilian Real, are translated into Brazilian Reais at the monthly average exchange rates, which approximates the exchange rate in effect on the date of the transactions.
The balance sheet is translated into Brazilian Reais at the exchange rate prevailing at each reporting date. The effects of exchange rate variations resulting from these translations are presented under the item Other Comprehensive Income (“OCI”) in the statement of comprehensive income in shareholders’ equity.
The translation calculation is different for Natura Cosméticos S.A. – Argentina (“Natura Argentina”), Cosmeticos Avon Sociedad Anonima Comercial e Industrial (“Avon Argentina") and Avon Kozmetik Urunleri Sanayi ve Ticaret Anonim Siketi (“Avon Turkey”), which became hyperinflationary economies as of July 1, 2018 for Argentina and June 1, 2022 for Turkey, in which other than the balance sheet, the revenue and expenses are also translated into Reais at the exchange rates prevailing at each reporting date (note no. 3.2.4).
3.2.3 Hyperinflationary economy
On July 1, 2018 and June 1, 2022, Argentina and Turkey were considered hyperinflationary economies, respectively considering the rise in the official price indices of the respective countries accumulated on those dates (Consumer Price Index, or “IPC” for the Argentina and the Internal Wholesale Price Index, or “IPIM” for Turkey).
Accordingly, non-monetary assets and liabilities recorded at historical cost in these subsidiaries were restated based on the respective indices mentioned above, with the effects resulting from changes in general purchasing power being presented in the statement of income. The net effect of the inflation adjustment for the years ended December 31, 2023 and 2022 was presented in a specific account for the effect of hyperinflation in the financial result (see note no. 29).
For the purpose of converting the accounting balances of the respective subsidiaries into the presentation currency (reais R$) used in the Company's individual and consolidated financial statements, the following procedures were adopted:
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Assets and liabilities were translated at the exchange rate prevailing at the reporting date (0,0059 and 0.02955 Argentine peso for each Brazilian Real and 0,1639 and 0.2786 Turkish lira for each Brazilian Real on December 31, 2023 and 2022, respectively); and |
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Revenues and expenses of the year were translated at the exchange rate prevailing at the reporting date (the same as indicated above), instead of the average exchange rate of the year, which is used to translate currencies in non-hyperinflationary economies. |
The accumulated inflation for the year ended December 31, 2023 was 211.4% in Argentina and 64.8% in Turkey (94.8% in Argentina and 64.3% in Turkey as of December 31, 2022), as per IPC index.
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| NATURA &CO HOLDING S.A. |
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NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
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| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
3.3 Consolidation
The following procedures are applied in the preparation of the financial statements:
a) Investments in subsidiaries
The Company controls an entity when it is exposed to, or is entitled to, the variable returns arising from its involvement with the entity and can affect those returns by exercising its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date when the Company obtains control until the date when the control ceases to exist.
In the individual financial statements, the investments in subsidiaries are accounted for using the equity method. The financial statements of the subsidiaries are prepared at the same reporting date as the parent company. Whenever necessary, adjustments are made to suit subsidiaries’ accounting policies to those of the Company.
In accordance with the equity method, the portion attributable to the Company on the net income or loss for the year regarding these investments is recorded in the statement of profit or loss of the parent company under the item “share of profit (loss) of equity investees”. All intra-group balances, income and expenses and unrealized gains and losses arising from intra-group transactions are eliminated completely. The other comprehensive income (“OCI”) of subsidiaries is recorded directly in the Company’s shareholders’ equity under the item “OCI”.
Below is a list of the Company’s direct subsidiaries as of December 31, 2023 and 2022:
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Interest - %
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2023
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2022
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Direct interest:
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Avon Products, Inc.
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100.00
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100.00
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Natura Cosméticos S.A.
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100.00
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100.00
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Natura &Co International S.à r.l.
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100.00
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100.00
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The activities of the direct subsidiaries are described below:
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Avon Products, Inc. (“Avon Products”): a global manufacturer and marketer of beauty and related products, with operations started in 1886 and established under the laws of the State of New York in the United States of America on January 27, 1916. It conducts its business in the beauty sector and other consumer products through direct selling companies to create manufacture and market beauty and non-beauty products. Its business is carried out mainly through one channel: direct selling. |
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Natura Cosméticos S.A. (“Natura Cosméticos”): is a privately held corporation, established in accordance with the laws of the Federative Republic of Brazil on June 6, 1993, for an indefinite term and the main focus of which is the commercialization of cosmetics and fragrances in general. It also operates through e-commerce and has an expanded network of its own physical stores. The former subsidiaries The Body Shop International Limited (The Body Shop) and Emeis Holding Pty Ltd. (Aesop) were fully sold during the year ended December 31, 2023 (see explanatory notes no. 1.1, 1.2, and 36). |
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Natura &Co International S.à r.l. (“Natura &Co International”): a company established in Luxembourg on February 14, 2020 with the main purpose of operating as the finance arm of the Company (a “Finco”), centralizing the fundraising activities with external entities and providing funding for the other entities of the economic group on behalf of the parent company. Furthermore, the entity has also the purpose of managing and holding stakes in national and foreign companies. |
As of December 31, 2023 and 2022, there are no subsidiaries directly or indirectly controlled that have significant interests held by non-controlling shareholders.
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| NATURA &CO HOLDING S.A. |
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NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
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| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
3.4 Goodwill
Goodwill arising from a business combination is initially measured at cost, with the exceeding aggregate amount of: (i) the consideration transferred, measured at fair value; (ii) the amount of any non-controlling interest in the acquiree; and (iii) in a business combination achieved in stages, the fair value of the acquirer’s previously held equity interest in the acquiree at the acquisition date; over the net assets acquired (identifiable net assets acquired and assumed liabilities). When this aggregate amount is lower than the net amount of the identifiable assets acquired and the assumed liabilities, a gain on a bargain purchase is immediately recognized in the statement of profit or loss. Subsequently, goodwill is measured at cost less any accumulated impairment losses.
For impairment testing purposes, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the group of Cash-Generating Units (“CGU”) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units and annually tested, and whenever circumstances indicate that the carrying amount may present impairment losses.
3.5 Cash and cash equivalents
Cash and cash equivalents are maintained for the purpose of meeting short-term cash commitments, not for investment or other purposes. Cash and cash equivalents include cash, demand deposits and short-term investments realizable within 90 days of the original date of the security or considered to be highly liquid granted by the issuer or convertible into a known amount of cash and which are subject to an insignificant risk of changes in value. Instruments that are not eligible for the classification of cash and cash equivalents, due to their liquidity, maturity or even the risk of changes in value, are classified as short-term investments.
3.6 Financial instruments
3.6.1 Financial assets
Initial recognition and measurement
Upon initial recognition, a financial asset not measured at fair value through profit or loss, is measured at fair value plus or minus transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Subsequently, financial assets are measured at amortized cost, at fair value through other comprehensive income (“FVTOCI”), or at fair value through profit or loss (“FVTPL”).
The classification of financial assets at initial recognition depends on the characteristics of the contractual cash flows of the financial asset and the business model of the Company for the management of these financial assets. The business model of the Company for managing financial assets refers to how the Company manages its financial assets to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortized cost are “non-derivative” financial assets held within a business model with the objective to hold financial assets to collect contractual cash flows, while financial assets classified and measured at fair value through OCI are held within a business model with the objective of holding financial assets to collect contractual cash flows and selling them.
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| NATURA &CO HOLDING S.A. |
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NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
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| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
Subsequent measurement
Financial assets at amortized cost
Financial assets at amortized cost are subsequently measured using the effective interest method and are subject to impairment analysis. Gains or losses are recognized in the statement of profit or loss when the asset is written off, modified, or impaired.
The main financial assets of the Company classified as amortized cost include balances of trade accounts receivable, other current assets and non-current assets balances (see note 5.5).
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are presented in the balance sheet at fair value with net changes in fair value recognized in the statement of profit or loss. This category includes derivative instruments and short-term investments which the Company had not irrevocably elected to classify according to the fair value through OCI.
The financial assets measured at fair value through profit or loss are investment funds, government securities, restricted cash, treasury bills, investment fund Dynamo Beauty Ventures Ltd. fund (“DBV Fund”), Certificate of Bank Deposits (“CDB”), repurchase operations, derivatives financial and operational instruments and contingent considerations arising from the disposal of the former subsidiary The Body Shop, as presented in note no. 5.5.
Derecognition (write-off) of financial instruments
A financial asset (or, where applicable, part of a financial asset or part of a group of similar financial assets) is written off when the rights to receive cash flows from the asset have expired, when the Company transfers its rights or risk to receive cash flows from the asset or when the Company has assumed an obligation to pay the full amount of received cash flows, without significant delay, to a third party under an on-lending agreement and either (i) the Company has transferred substantially all risks and benefits of the asset, or (ii) the Company has neither transferred nor retained substantially all risks and benefits of the asset, but transferred the asset control.
When the Company transfers its rights to receive cash flows of an asset or executes an on-lending agreement, it assesses whether, and at which extent, it has retained the risks and benefits of ownership. When the Company has neither transferred nor retained substantially all risks and benefits of the asset, nor transferred control over the asset, the Company continues to recognize the asset transferred to the extent of its continued involvement. In this case, the Company also recognizes an associated liability. The transferred assets and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Impairment of financial assets
The Company recognizes an allowance for expected credit losses (“ECL”) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted by an approximation of the original effective interest rate.
ECLs are recognized in two stages: (i) for credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provisioned for credit losses that result from default events that are possible within the next 12 months (a 12-month ECL); (ii) for credit exposures for which there has been a significant increase in credit risk since initial recognition, an allowance for losses is required for credit losses expected over the remaining life of the exposure (a lifetime ECL), irrespective of the timing of the default.
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| NATURA &CO HOLDING S.A. |
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NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
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| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
For trade accounts receivable, the Company applies a simplified approach in calculating ECLs. Therefore, the Company does not track changes in credit risk, but instead recognizes an allowance for losses based on the ECL at each reporting date. The Company has recorded a provision that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. Further details are disclosed in note no. 4.6.
The Company considers a financial asset in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
3.6.2 Financial liabilities
Initial recognition and measurement
All financial liabilities are recognized initially at fair value and, in the case of borrowing, financing and debentures, net of directly attributable transaction costs. The Company’s main financial liabilities include borrowing in local and foreign currency, financing and debentures (note no. 19), derivative instruments (note no. 5), trade accounts payable and reverse factoring operations (note no. 20), trade accounts payable - related parties (note no. 32), lease liabilities (note no. 18), insurance payable (note no. 23) and dividends payable (note no. 24).
Subsequent measurement
For purposes of subsequent measurement, financial liabilities are classified in two categories: (i) financial liabilities at fair value through profit or loss; or (ii) financial liabilities at amortized cost.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities classified upon initial recognition at fair value through profit or loss. Due to the fair value hedge established to protect against interest rate variability associated with the issuance of real estate receivable certificates (“CRI”), the respective liabilities presented in borrowing, financing and debentures were designated at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the short term. This category also includes derivative instruments entered into by the Company that are not classified as hedging instruments in the hedge relationships defined by CPC 48 - Financial Instruments (IFRS 9). Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognized in the statement of profit or loss.
Financial liabilities designated on initial recognition at fair value through profit or loss are designated on the initial recognition date and only if the criteria of CPC 48 (IFRS 9) are met.
Financial liabilities at amortized cost
This is the most relevant category for the Company. After initial recognition, interest-bearing borrowings, financing and debentures are subsequently measured (except issuance of the aforementioned real estate receivables certificates) at amortized cost using the effective interest rate method. Gains and losses are recognized in profit or loss when the liabilities are written off as well as through the effective interest rate amortization process.
Any difference between raised and settled amounts is recognized in the statement of profit or loss, using the effective interest rate method during the year in which the borrowings, financing and debentures are outstanding.
Amortized cost is calculated by considering any premium or discount on acquisition and fees or costs that are an integral part of the effective interest rate method. The effective interest rate amortization is included as finance expenses in the statement of profit or loss.
This category generally applies to trade accounts payable and reverse factoring operations (see note no. 20), interest-bearing borrowing, financing and debentures (see note no. 19) and lease liabilities (see note no. 18).
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| NATURA &CO HOLDING S.A. |
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NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
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| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
Derecognition
Financial liability is written off when the obligation under the liability is discharged, canceled, or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as derecognition of the original liability and recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit or loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset, and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.
The offsetting of financial instruments is also applied to bank balances subject to the central treasury management system (“cash pooling”) instituted with the financial institution, in which the current account positions of the Company (including overdraft balances) are offset since the Company has a legally enforceable right to settle at the net amount and intends to settle the positions on a net basis.
3.6.3 Derivative financial instruments
Derivative financial instruments transactions contracted by the Company consist of swaps and non-deliverable forwards (“NDF”) intended exclusively to hedge against foreign exchange risks related to (i) exchange rate risks associated to balance sheet position, purchase of goods and property, plant and equipment, forecast exports in addition to and foreign-denominated cash flows for capital contributions in foreign subsidiaries; and (ii) variability in interest rates associated with contracted debt.
The derivative instruments are measured at fair value, and changes are recognized through profit or loss, except when they are designated as cash flow hedge accounting, in which changes in fair value are recorded in OCI.
The fair value of derivative instruments is measured by the treasury department of the Company based on information on each contracted transaction and related market inputs as of the reporting date of the financial statements, such as interest and exchange rates.
For the purpose of hedge accounting, hedges are classified as: (i) fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment; (ii) cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment; and that may affect the result. The Company does not have a hedge of a net investment in a foreign operation on the years presented.
At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which it wishes to apply hedge accounting, the risk management goal and strategy for hedging.
The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the Company will assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing and future basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Any imbalance between the hedge index of the object and the hedge instrument that is not in compliance with the hedge purpose is adjusted so that the index returns to the standards established in the protection strategy.
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| NATURA &CO HOLDING S.A. |
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NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
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| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
Fair value and cash flow hedges that meet all the qualifying criteria for hedge accounting are accounted for as described below.
Fair value Hedge
It consists in providing protection against variation at fair value of assets or liabilities recognized or firm commitments not recognized, or a component of any such items, that is attributed to a specific risk and that may affect the result.
Any gain or loss arising from variations at fair value of the derivative instruments designated as hedge instruments and the hedged assets or liabilities are recognized in the financial result.
In the years ending on December 31, 2023 and 2022, the Company used derivative instruments, and the hedge accounting was used at fair value, as disclosed in note no. 5.3, to hedge against the variation in the interest rates agreed upon as part of the issue of the real estate receivable certificates (“CRI”).
Cash flow hedges
It consists in providing a hedge against variation in cash flows attributable to a specific risk related to a known asset or liability or a highly probable forecast transaction and that may affect statement of profit or loss.
The effective portion of changes in fair value of derivative instruments that is designated and qualified as cash flow hedge is recognized in OCI and accumulated in the “gains (losses) from cash flow hedge operations” and “tax effect on gain (loss) from cash flow hedge operations”. In a cash flow hedge, the effective portion of gain or loss from the hedge instrument is recognized directly in OCI, in shareholders’ equity, while the ineffective portion of hedge is immediately recognized as finance income (expense).
For the years ended December 31, 2023 and 2022, the Company used derivative instruments, applying cash flow hedge accounting and, as disclosed in note 5.3, for hedge against the risk of change in exchange rates related to borrowings in foreign currency, purchase and sale transactions in foreign currency and intercompany borrowing operations that: (i) are highly related to the changes in the market value of the hedged item, both at the beginning as well as during contract term; (ii) have documentation of the transaction, hedged risk, risk management process and methodology used in assessing future effectiveness; and (iii) are considered effective in reducing the risk associated with the exposure to be hedged. It allows the application of the hedge accounting methodology, with the effect of the fair value measurement on the shareholders’ equity and the realization on the statement of profit or loss in the item related to the hedged item.
Discontinuing hedge accounting
Hedge accounting is discontinued when the Company terminates the hedge relationship, the hedge instrument matures or is sold, revoked, or executed, or no longer qualifies to hedge accounting. Any gains or losses recognized in OCI and accumulated in shareholders’ equity up to that date remain in shareholders’ equity related to cash flow hedge and are recognized when the forecast transaction is eventually recognized in the statement of profit or loss.
If a forecast transaction results in the subsequent recognition of a non-financial asset or liability, the cumulative gain or loss in OCI is recycled to profit or loss during the same year for which the non-financial asset acquired or non-financial liability assumed affects the profit or loss. For example, when the non-financial asset is depreciated or sold.
On the other hand, if a forecast transaction results in the subsequent recognition of a financial asset or liability, the cumulative gain or loss in OCI is recycled to profit or loss during the same period for which the financial asset acquired or financial liability assumed affects the profit or loss. For example, when financial income or expense is recognized.
When the forecast transaction is no longer expected, cumulative gains or losses and deferred in the statement of changes in shareholders' equity are immediately recognized in the statement of profit or loss.
The Company assesses, on a prospective basis, throughout the hedge term, the effectiveness of its derivative instruments, as well as changes in their fair value.
The fair values of derivative instruments are disclosed in note no. 5.5.
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| NATURA &CO HOLDING S.A. |
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NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
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| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
3.7 Trade accounts receivable
Trade accounts receivable correspond to amounts receivable for the sale of goods and services in the ordinary course of the activities of the Company and are recognized to the extent that the consideration, which is unconditional, is due by the customer (that is, only the passage of time is required before payment of the consideration is due) and are measured on initial recognition at cost for the consideration to which the Company expects to be entitled in exchange for the products promised to the client.
Subsequently, trade accounts receivable are measured at amortized cost by using the interest rate method and they are subject to an impairment test.
3.8 Inventories
Inventories are valued at their average cost and the net realizable value, whichever is lower. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
The Company considers the following items when determining its allowance for inventory losses: discontinued products, products with slow turnover, expired products or products nearing the expiration date and products that do not meet quality standards, recorded as “cost of sales”.
3.9 Carbon credits – carbon neutral program
In 2007, the Company assumed, with its associates, clients, suppliers and shareholders, a commitment to be a Carbon Neutral company, which is to neutralize its emissions of greenhouse gas (“GHG”), throughout its production chain, from extraction of raw materials to post- consumption.
This commitment, which presently refers to the operations of all Company and does not reflect a legal obligation to the extent in which the specific regulations still have not been promulgated by the legislative branch.
Thus, considering the practices historically applied by the Company and the specificity of the commitments assumed and disclosed to the market and society, this commitment is considered a non-formalized obligation, according to CPC 25 - Provisions, Contingent Liabilities and Contingent Assets (IAS 37).
The liability is estimated through audited carbon emission inventories carried out annually and valued based on the best estimate of the cash disbursement that will be required to settle the current obligation at the reporting date, considering the history of similar transactions carried out by the Company for such end. As of December 31, 2023 and 2022, the balance recorded as “Other non-current liabilities” refers to the total carbon emissions during the period of 2015 to 2023 that have not yet been neutralized by corresponding projects and therefore not granting of the carbon neutral certificate.
The Company elected to make purchases of carbon credits by investing in projects with environmental benefits arising from the voluntary market. Thus, the costs incurred will generate carbon credits after completion or maturation of these projects. Such expenses are recorded in the line item “other current assets” (see note 14) and are measured on initial recognition at cost based on the amounts invested and subsequently measured based on the estimated average value of certificates receivable from recent transactions between unrelated parties.
Upon effective delivery of the related carbon neutral certificates to the Company, and duly filed, the obligation of being carbon neutral is effectively fulfilled; therefore, the asset balances are offset against those of the liabilities.
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| NATURA &CO HOLDING S.A. |
|
NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
|
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
3.10 Property, plant and equipment
Property, plant and equipment is measured at cost of acquisition or construction, plus interest capitalized during construction period, in the case of qualifying assets, and reduced by accumulated depreciation and impairment losses, if applicable. Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted, if applicable.
Land is not depreciated. Depreciation of the other assets is calculated to reduce the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their useful lives and is recognized in the statement of profit or loss. The estimated useful lives of the assets are mentioned in note no. 16.
Gains and losses on disposals are calculated by comparing the proceeds from the sale with the carrying residual amount and are recognized in the statement of profit or loss as “other operating income (expenses), net”.
Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated with the expenditure will flow to the Company.
3.11 Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are reported at cost less any accumulated amortization and accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and the related expenditure is reflected in profit or loss in the year in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the method for an intangible asset with a finite useful life are reviewed at least at each reporting date. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense regarding intangible assets with finite lives is recognized in the statement of profit or loss in the expense category that is consistent with the function of the intangible assets.
Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, and when circumstances indicate that the carrying amount may be impaired, either individually or at the CGU level. The assessment of indefinite life is reviewed annually to determine whether indefinite life continues to be supportable. If not, the useful life is changed from indefinite to finite on a prospective basis.
An intangible asset is written off upon disposal (i.e., at the date the receiver of the asset obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising upon write-offs of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss in item “other operating income (expenses), net”.
The main classes of intangible assets and useful life are detailed below and described in note no. 17.
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| NATURA &CO HOLDING S.A. |
|
NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
|
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
3.11.1 Software
Licenses of software and enterprise management systems acquired are capitalized and amortized according to the useful lives, and maintenance costs are recognized as expenses when incurred.
Business management system acquisition and implementation costs are capitalized as intangible assets when the asset is identified, when there is evidence that future economic benefits will be generated and when the asset is controlled by the Company, taking into consideration its economic and technological viability. Contracts involving hosting and/or processing of information in the cloud (“cloud computing arrangements”) generate intangible assets to the extent that on the contract start date, the Company obtains control of the software. Contracts which only provide the right of access to the supplier's software during the term of the contract are treated as a service contract and, consequently, recognized as an expense in the statement of profit or loss as the service is provided (since the right of receiving access to the supplier's software does not give the Company, at the commencement date of the contract, the power to obtain the future economic benefits arising from the software itself and to restrict third parties' access to those benefits).
The amounts incurred on software development recognized as assets are amortized under the straight-line method over its estimated useful life. The expenditures related to software maintenance are recognized in profit or loss of the year when incurred.
3.11.2 Trademarks and patents
Separately acquired trademarks and patents are stated at their historical cost. Trademarks and patents acquired in a business combination are recognized at fair value on the date of acquisition. For trademarks and patents with a defined useful life, amortization is calculated using the straight-line method.
3.11.3 Relationship with agents
Relationships with agents acquired in business combinations are recognized at fair value on the date of acquisition and amortization is calculated using the straight-line method.
3.11.4 Technologies developed
Technologies developed include technology for product development (including formulas, labeling data, manufacturing processes, regulatory approvals, product packaging and designs) arising from business combination, and are recognized at fair value on the date of acquisition and its amortization is calculated using the straight-line method.
3.12 Impairment of non-financial assets
The Company reviews, on each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when the annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset or the CGU fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written off to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their current value using a pre-tax discount rate that reflects the subsidiary’s weighted average cost of capital in which the CGU operates, which reflects the risks specific to the CGU and is derived from its existing business and respective risks.
The Company bases its impairment calculation on most recent budgets and forecast calculations, which are prepared separately for each of the Company’s CGU (or groups of cash-generating units with respect to goodwill for future profitability) to which the individual assets are allocated and monitored for the purpose of its recoverability. These budgets and forecast calculations generally cover a period of ten years. A long-term growth rate is calculated and applied to project future cash flows after the tenth year.
Impairment losses are recognized in the statement of profit or loss in expense categories consistent with the function of the impaired asset.
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| NATURA &CO HOLDING S.A. |
|
NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
|
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
For non-financial assets, excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such an indication exists, the Company estimates the assets or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such a reversal is recognized in the statement of profit or loss.
Goodwill and other intangible assets with indefinite useful lives are tested for impairment annually as of December 31, and when circumstances indicate that the carrying amount may be impaired. Impairment losses relating to goodwill cannot be reversed in future periods.
3.13 Lease liability
The Company reviews, at the beginning of the contract, whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. The Company (as a lessee) applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Company recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the strike price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating the lease, if the lease term reflects the Company exercising the option to terminate.
Variable lease payments that do not depend on an index or a rate are recognized as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.
In calculating the current value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate that is implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (i.e., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
The Company's lease liabilities are disclosed in note no. 18.
3.13.1 Right-of-use assets
Right-of-use assets are recognized at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated using the straight-line method over the shorter of the lease term and the estimated useful lives of the assets, disclosed in note no. 18.
The right-of-use assets are also subject to impairment, as disclosed in note no. 3.12.
3.13.2 Short-term leases and leases of low-value assets
The Company applies the short-term lease recognition exemption to its short-term leases regardless of their nature (that is, those leases that have a lease term of 12 months or less from the start date and do not contain a call option). The Company also applied the lease of low-value assets recognition exemption, regardless of their nature. Lease payments in short-term and leases of low-value assets are recognized as an expense using the straight-line method over the lease term.
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| NATURA &CO HOLDING S.A. |
|
NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
|
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
3.13.3 Lease liability in a sale and leaseback transaction
The Company, as seller-lessee, measures the right-of-use asset resulting from a sale and leaseback transaction in proportion to the previous accounting balance of the asset relating to the right of use retained by the seller-lessee. Therefore, in a sale and leaseback transaction, the seller-lessee recognizes only the amount of any gain or loss related to the rights transferred to the buyer-lessor.
For subsequent measurement, the Company, as seller-lessee, determines “lease payments” or “revised lease payments” in a way that the seller-lessee would not recognize any amount of the gain or loss that relates to the right of use retained. The application of these does not prevent the seller-lessee from recognizing in profits or loss results any gain or loss relating to the partial or full termination of a lease.
3.14Discontinued operations
A group of assets comprising operations intended for disposal qualifies as a discontinued operation disposal group if it is a component of an entity that either has been disposed of, or is classified as held for sale, and: (i) represents a separate major line of business or geographical area of operations; (ii) is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or (iii) is a subsidiary acquired exclusively for the purpose of resale.
Discontinued operations are excluded from the results of continuing operations and are presented as a single amount in the statement of profit or loss as profit or loss after taxes in the statement of profit or loss.
On December 31, 2023, the discontinued operations refer to the results derived from the derecognition of assets, liabilities, and operations of the former subsidiaries Aesop and The Body Shop, arising from the conclusion of the sale of the entities on August 30, 2023, and December 29, 2023, respectively, and to costs incurred with the resolution of lawsuits associated with the operation that the subsidiary Avon kept in North America, which was sold prior to the acquisition of subsidiary Avon by the Company. The Company presents these effects as part of its discontinued operations since it considers the discontinued operations of the subsidiary Avon as an extension of the Company and for assessing that this presentation reliably represents the essence of the associated transaction.
3.15Trade accounts payables and reverse factoring operations
The Company is part of a reverse factoring operation (“supplier finance arrangement”) with a financial institution to facilitate administrative procedures for suppliers to advance receivables related to the routine purchases of the Company. In this operation, the financial institution separately offers to pay the supplier in advance in exchange for a discount and, when agreed between the bank and the supplier (the decision to join this transaction is solely and exclusively on the supplier), the Company pays the financial institution on the original payment date at the full-face value of the originating obligation.
This operation does not change the amounts, nature, and timing of the liability (including previously agreed-upon terms, prices and conditions) and it does not affect the Company with financial charges practiced by the financial institution, on performing a thorough analysis of suppliers by category. There is no guarantee given by the Company.
Additionally, the payments made by the Company represent purchases of goods and services, are directly related to invoices from trade accounts payable and do not change the Company’s cash flows. Thus, the Company continues to recognize the liability as a trade accounts payable and these transactions are presented as operating activities in the cash flow statement.
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| NATURA &CO HOLDING S.A. |
|
NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
|
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
3.16 Provisions for tax, civil and labor risks
Provisions are recognized when the Company has a legal or constructive obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation, and its value can be reliably estimated. Provisions are quantified at the current value of the expected outflow of resources to settle the obligations using the appropriate discount rate according to risks related to the liability.
The provisions for tax, civil and labor risks are monetarily adjusted through the end of the year to cover probable losses, based on the nature of the risk and the opinion of the Company’s legal advisors. The monetary adjustments are recorded in finance income (expenses), see note no. 29.
Contingent assets are not recognized by the Company and are only disclosed in case of probable receipt of economic benefits. If it is practically certain that economic benefits will be received, the assets and the corresponding gain are recorded in the financial statements of the year corresponding to the change in the estimate.
Contingent liability recognized in a business combination is initially measured at its fair value. Subsequently, it is measured at the higher of the amount that would be recognized in accordance with the requirements for provisions above or the amount initially recognized less (when appropriate) cumulative amortization recognized in accordance with the requirements for revenue recognition.
The Company has contracts that provide for the payment of success fees arising from tax, civil and labor proceedings in which it is a defendant, and based on its best estimate, calculated, and provisioned the amounts for which it understands that there is an expectation of future disbursement.
3.17 Current and deferred income tax and social contribution
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the tax authorities based on the tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Company operates and generates taxable income. The Company periodically assesses the tax treatment assumed in the determination of taxes on profit with respect to situations in which the applicable tax regulation gives rise to interpretations that may be different and considers whether it is likely that the tax authority would accept the uncertain tax treatment. The Company assesses these taxes balances based on the most probable or expected value, depending on which method is assessed as the one that provides the best forecast for resolving the uncertainty.
The Company has material uncertain tax positions, and which - in case of any unfavorable outcome under litigation - could result in a material adverse impact to the financial statements.
In Brazil, they include the corporate income tax (“IRPJ”) and the social contribution on net income (“CSLL”), which are calculated based on taxable income by applying the 15% rate plus additional of 10% on taxable income exceeding R$ 240 for IRPJ and 9% for CSLL and considers the offset of tax losses, limited to 30% of annual taxable income. Taxable income reflects profit before taxes adjusted by non-taxable and non-deductible items (both temporary and permanent items).
Deferred taxes represent tax debits and credits on temporary differences between tax base and accounting base of assets and liabilities on accrued tax losses. Deferred tax assets and liabilities are classified as non-current as required by CPC 32 - Income taxes (IAS 12).
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are re-assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. The estimate of future taxable income requires judgements, estimates and interpretation of tax laws.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted at the reporting date and reflect the uncertainties relating to these taxes, when applicable.
Deferred tax assets and liabilities are offset if there is a legal feasible right to offset tax liabilities against tax assets, and if they are related to taxes registered by the same tax authority under the same taxable entity. Thus, for presentation purposes, tax asset and liability balances are disclosed separately.
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| NATURA &CO HOLDING S.A. |
|
NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
|
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
3.18Employee benefits
3.18.1 Short-term benefits
The obligations of short-term benefits for employees are recognized as personnel expenses as the corresponding service is rendered. The liability is recognized at the amount of the expected payment if the Company has a legal or non-formalized obligation to pay the amount due to services rendered by the employee in the past and the obligation can be reliably estimated.
3.18.2 Profit sharing program
The Company recognizes a liability and an expense for its profit-sharing program based on criteria that considers the profit attributable to its shareholders and which is tied to the achievement of specific operational goals and objectives established and approved in the beginning of each year.
3.18.3 Defined contribution plans
Obligations to contribute to defined contribution plans are recognized in the statement of profit or loss as personnel expenses when the related services are rendered by employees. Contributions paid in advance are recognized as an asset to the extent that a cash refund or a reduction in future payments is possible.
3.18.4 Defined benefit plans
The Company’s net obligation for defined benefit plans (retirement and post-employment health care) is calculated for each plan based on the estimated amount of the future benefit that beneficiaries will receive in return for services rendered in previous years. This amount is discounted to its current value and is presented net of any plan asset’s fair value. The calculation of the defined benefit plan obligation is carried out annually by an external and independent actuary using the Projected Unit Credit Method. When the calculation results in a potential asset for the Company, the asset to be recognized is limited to the current value of economic benefits available in the form of future reimbursements or reductions in future contributions. To calculate the current value of economic benefits, any applicable minimum cost requirements are considered.
The current service cost and accrued interest on the present value of the liability are recognized in the statement of income and the actuarial gains and losses, generated by the remeasurement of the liability due to changes in actuarial assumptions, are recognized in “OCI”. In the event of changes or reductions in the plan, the effects of the cost of past services are recognized in the statement of profit or loss on its occurrence date.
3.19Share-based payments
The Company’s executive officers are granted the following purchase option plans, settled exclusively with its own shares.
|
i) |
Stock option plans; |
|
ii) |
Restricted share purchase program; |
|
iii) |
Stock option plan related to the strategy acceleration; and |
|
iv) |
Performance share purchase program. |
The plans are measured at fair value at the grant date. In determining the fair value, the Company uses an adequate valuation method, details of which are disclosed in note no. 28.1.
The cost of transactions settled with equity instruments is recognized, together with a corresponding increase in shareholders’ equity under “additional paid-in capital”, throughout the period in which the service conditions are fulfilled, ending on the date on which the employee is fully vested in the right to the award (vesting date). The cumulative expense recognized for equity instruments transactions settled on each base date up to the vesting date reflects the extent to which the vesting period has transpired and the Company’s best estimate of the number of equity instruments to be vested. The expense or credit of the year is recorded in the statement of profit or loss under “selling or administrative expenses”, depending on the internal department where the eligible employee is allocated.
For the stock options plan and the strategy-acceleration program, even after expiration of the term for exercise, the recognized expense is not reversed since the right has been vested in executive officers.
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| NATURA &CO HOLDING S.A. |
|
NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
|
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
When an award of equity instruments settlement is canceled (except when the cancellation occurs due to loss of right over the equity instrument for not fulfilling the grant conditions), it is treated as if it had been acquired on the date of cancellation, and any expense not recognized is registered immediately. This includes any award for which the Company or the counterparty have the option of not fulfilling the non-vesting obligation. All cancellations of transactions settled with equity instruments are treated in the same way.
The dilution effect of options granted is reflected as additional share dilution in the calculation of diluted earnings per share.
3.20 Dividends and interest on net equity
The proposed payment of dividends and interest on net equity made by the Management that is within the portion equivalent to the minimum mandatory dividend is recorded in the line item “dividends and interest on net equity” in current liabilities, as it is considered a legal obligation provided for by the Company’s bylaws; However, the portion of dividends exceeding minimum mandatory dividends, as declared by the Management after the reporting date, referred to in the financial statements, but before the authorization date for the issuing of the financial statements, is recognized in the line item “additional proposed dividend”, in shareholders’ equity.
For corporate and accounting purposes, interest on net equity is stated as allocation of income directly in shareholders’ equity.
3.21 Treasury shares
The Company’s own equity instruments which are reacquired (treasury shares) are recognized at acquisition cost and deducted from shareholders’ equity. No gain or loss is recognized in the statement of profit or loss regarding the purchase, sale, issue or cancellation of the Company’s own equity instruments.
Upon disposal or transfer of treasury shares to beneficiaries of share-based payment plans (settled in shares), the amount of the consideration received is recognized as an increase in shareholders’ equity, and any gain or loss resulting from the transaction is recorded as a capital reserve.
3.22 Operating segments
The information per business segment is presented in note 25 in a manner consistent with the internal report provided to the chief operating decision maker. With the sale of the operations of the former subsidiaries The Body Shop and Aesop (which substantially represented their respective homonymous operating segments), as of December 31, 2023, the operating segments consist of the operations of Avon International and Natura &Co Latin America.
The main decision-making body of the Company, which is responsible for defining the allocation of funds and for the performance assessment of the operating segments, is the Board of Directors, which is supported by five thematic advisory committees: The Audit, Risk Management, and Finance Committee, responsible for operationalizing internal and external audit processes, mechanisms, and controls related to risk management, as well as ensuring the coherence of financial policies with strategic guidelines and the business risk profile; The Strategic Committee, responsible for supporting the monitoring and direction of corporate strategy; The Corporate Governance Committee, responsible for overseeing the functioning of our corporate governance system; The Organizational Development and People Committee, responsible for providing support to the Board of Directors in making decisions related to Human Resources, Organizational Development, and Management Systems strategies, policies, and norms; and the Sustainability Committee, responsible for monitoring the Group's and its Business Units' strategies on issues associated with achieving the objectives established in the Commitment to Life, assumed by the Company in 2020, and strategies related to Sustainability in the corporate and Business Unit contexts.
3.23Revenue from contracts with customers
Revenue from contracts with customer is recognized when control of the goods or services is transferred to the customer at an amount that reflects the fair value of the consideration the Company expects to be entitled in exchange for those goods or services. The Company has concluded that it is the principal in its revenue arrangements.
The Company considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price, the effects of variable consideration, existence of a significant financing component, non-cash consideration, and consideration payable to the customer (if any) are considered.
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| NATURA &CO HOLDING S.A. |
|
NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
|
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
The nature and other considerations on the transaction price and the moment in which the performance obligation is fulfilled for each of the main revenue streams are shown below.
3.23.1 Direct sales
Revenue from direct sales is generated by sales to the Company’s consultants (our customers) based on the fair value of consideration received/receivable, excluding discounts, rebates and taxes or charges on sales. Revenue from sales is recognized when the performance obligation is fulfilled, i.e., when the promised product is physically delivered, and the Consultant obtains control over the product.
3.23.2 Direct sales – Additional charges and penalties for late payments
The Company charges their customers (Consultants) additional charges and penalties for late payments in the settlement of sales receivables. Due to the level of uncertainty in collecting these amounts (variable consideration), the subsidiaries recognize revenue from additional charges and penalties based on the consideration that Company expects to be entitled given its history of collection from customers.
3.23.3 Retail sales
The Company, which operates in the retail market, measures sales revenues based on the fair value of the consideration received/receivable, excluding discounts, rebates and taxes or charges on sales. These revenues are recognized when the performance obligation is fulfilled, i.e., when the promised product is physically delivered, and the consumer obtains control over the product.
3.23.4 Other performance obligation
3.23.4.1 Loyalty program (points campaign)
The Company offers points campaign (loyalty program), in which customers accumulate points - while buying the Company’s products - to be exchanged (redeemed) for products in the future. Measurement of points is based on their expected cost, plus a margin. The amount allocated to the loyalty program is deferred and the revenue is recognized upon redemption of the points accumulated by consultants for retail and direct sales, or when they expire or are no longer considered redeemable. The loyalty program points are valid for up to approximately five months (six cycles).
3.23.4.2 Program for recognition of Natura and Avon beauty consultants’ performance
The Company has performance recognition programs, in which the beauty consultants are awarded based on different indicators, for example, volume of purchases, length of service, among others. The Company believes that this performance recognition program has an added value and hence is considered a commitment to our network. Measurement of performance recognition programs is based on their expected cost, plus a margin. The amount allocated to performance recognition programs is deferred and revenue is recognized when awards are delivered to the Company’s Consultants.
3.23.4.3 Events
The Company organizes events to encourage and recognize the best Consultants. The Company believes that these events have added value for the Consultants, in addition to generating in them an expectation to participate in these events. Thus, the Company has determined that these events are a performance obligation. Measurement of events is based on their expected cost, plus a margin. The amount allocated to events is deferred and the revenue is recognized when the event is held.
3.23.4.4 Franchises (courses, training and consulting/outfit and opening)
Upon execution of the agreement, the Company charges from franchisees a fixed amount, part of which is allocated to courses, training and consultancy to train and instruct the franchisee to sell “Natura” and “The Body Shop” brand products. In addition, the other part of the charged amounts refers to outfit (specific products to be used at the franchisee store) and inauguration (franchisee’s store opening event). The Company believes that these items represent a material right and, for such, they are considered a performance obligation. Measurement is based on the market value of these items, being initially recognized as deferred revenue. When the franchisee’s store is opened, this deferred revenue is allocated to the statement of profit or loss.
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| NATURA &CO HOLDING S.A. |
|
NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
|
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
3.23.4.5 Franchises (brand right of use)
Upon the execution of the agreement, the Company charges from franchisees a fixed amount, part of which is for the use of the “Natura” brand. The Company believes that this item represents a material right and, for such, it was considered a performance obligation. Measurement is based on residual value, i.e., the remaining value after excluding the market value of courses, training and consultancy services, outfit and inauguration, and the advertising fund. This amount is initially recognized as deferred revenue. This deferred revenue is allocated to statement of profit or loss, on a straight-line basis, over the term of the franchise agreement.
3.23.4.6 Incentives related to “free-of-charge” products and promotional gifts
The Company grants incentives related to “free-of-charge” products and promotional gifts for its customers (Natura and Avon consultants and/or end consumers). Since it is considered a material right, the Company recognizes it as a performance obligation. Considering that the delivery of products and the fulfillment of the performance obligation to deliver “free-of-charge” products or promotional gifts occurs at the same time, the Company concluded that an allocation of prices and monitoring these two performance obligations separately are not applicable.
3.24 Sales taxes
Net revenues are recognized net of sales taxes, except (i) when sales taxes incurred on the purchase of goods or services are not recoverable from the tax authorities, in which case the sales tax is recognized as part of the acquisition cost of the asset or expense item, as the case may be; (ii) when the amounts receivable and payable are presented together with the sales taxes amount; and (iii) when the net amount of sales taxes, recoverable or payable, is included as a component of the amounts receivable or payable in the balance sheet.
Tax incentives related to taxes on sales for the current year are recognized in the Company's statement of profit or loss for the year and recorded in net sales.
3.24.1 Concept of supplies for calculating credits of PIS and COFINS contributions
The Company claims that PIS and COFINS credits are measured and calculated reliably and based on the best interpretation of current legislation and the country’s jurisprudential scenario, whose evolution is permanently assessed by the Company and its legal advisors.
3.25 Statement of added value
The purpose of this statement is to show the wealth created by the Company and its distribution during a certain period and it is presented by the Company, as required by Brazilian corporate law.
The statement of added value was prepared using information obtained in the same accounting records used to prepare the financial statements and pursuant to the provisions of the Brazilian accounting standard CPC 09 - Statement of Added Value.
3.26 Earnings per share
The basic earnings per share are calculated by dividing the profit (loss) attributable to the Company’s shareholders by the weighted average number of outstanding common shares, excluding common shares purchased by the Company and held as treasury shares.
Diluted earnings per share are calculated by adjusting the weighted average number of outstanding common shares, assuming the conversion of all potential common shares that would cause dilution. The Company has stock options, restricted shares, strategy acceleration and performance shares that would have a dilutive effect on any earnings per share.
The Company chose to present the basic and diluted amounts per share resulting from discontinued operations together with the information on earnings per share of continuing operations in note 31, presenting the information for continuing operations in the statement of profit or loss. Such information is presented based on consolidated statement of profit or loss.
|
| NATURA &CO HOLDING S.A. |
|
NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
|
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
3.27 New standards, amendments and interpretations issued but not yet effective
The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issue of the Company’s financial statements are disclosed below, except for those which, in the Management’s assessment, cannot produce any effect on the financial statements. The Company intends to adopt these new and amended standards and interpretations, if applicable, when they become effective.
3.27.1 Amendments to IAS 1 (CPC 26 (R1)) - Noncurrent liabilities with covenants
IASB issued amendments to IAS 1 (CPC 26(R1)), so as to improve on the information provided by an entity when its right to avoid liquidation of a liability for at least twelve months is subject to satisfaction of covenants. In particular, amendments seek to clarify if such covenants affect whether this right will exist at the end of the reporting period, if an entity is obligated to satisfy theses covenants before or at the end of the reporting period and to require the disclosure of information that allow users of the financial statements to understand the risk that the liabilities will be advanced within twelve months of the reporting period, including the carrying amount and the nature of the covenants and when the entity is obligated to satisfy them, in addition to facts and circumstances (if any) that may indicate a difficulty by the entity of satisfying such covenants.
The amendments are effective for years beginning on or after January 1, 2024. and are not expected to have an impact on the Company's financial statements due to the history of the Company of satisfying covenants, as well as the consistency between the Company's classification policies for current and non-current liabilities and the clarifications established by the amendments."
3.27.2 Amendments to IFRS 16 (CPC 06 (R2)) - Lease liabilities and sale and leaseback
IASB changed the amendments issued for IFRS 16 (CPC 06 (R2)) to include the subsequent measurement requirements for sale and leaseback transactions to satisfy the requirements of IFRS 15 (CPC 47) for them to be counted as a sale. The amendments require that a seller-lessee subsequently measure the lease liabilities arising from relocation so as to not recognize any amount with gain or loss related to its right of use.
The amendments are effective for years beginning on or after January 1, 2024, and are not expected to have an impact on the Company's financial statements, as there is consistency between the Company's policies for sale and leaseback accounting and the clarifications established by the amendments (including the disclosure of leaseback recognition as disclosed in explanatory note no. 18)
3.27.3 Amendments to IFRS 7 and IAS 7 - Supplier Finance Arrangements ("reverse finance operation")
IASB issued amendments to IFRS 7 and IAS 7, which require additional disclosure of supplier finance arrangements in order to assist users of financial statements in understanding the effects of such arrangements on an entity’s liabilities, cash flows and exposure to liquidity risk.
These additional required disclosures will include: (a) the terms and conditions of the arrangements (for example, extended payment terms and security or guarantees provided); (b) as at the beginning and end of the reporting period: (i) the carrying amounts, and associated line items, of the financial liabilities that are part of a supplier finance arrangement; (ii) the carrying amounts, and associated line items, of the financial liabilities for which suppliers have already received payment from the finance providers; (iii) the range of payment due dates for both the financial liabilities disclosed under (i), as the comparable trade payables that are not part of a supplier finance arrangement; and (c) the type and effect of non-cash changes in the carrying amounts of the financial liabilities.
The amendments are applicable for years beginning on or after January 1, 2024, and do not affect the measurement and classification bases for such transactions in the financial statements. The Company will include such disclosures in its financial statements when these changes become effective.
|
| NATURA &CO HOLDING S.A. |
|
NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
|
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
3.28 New standards, amendments and interpretations of standards adopted for the first time for the year beginning on January 1, 2023
Standards and changes that came into force as of the years started on or after January 1, 2023, did not have any material impact on the Company’s financial statements. The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
As of January 1, 2023, amendments to CPC 23 - Accounting Policies, Change in Estimates and Error Correction (IAS 8) and CPC 26 (R1) (IAS 1 - Presentation of Financial Statements) came into force, along with amendments to IFRS Practice Statement 2, Making Materiality Judgments, educational document issued by the IASB and not published by the CPC in Brazil), where the concepts of accounting estimates and applying materiality judgments to accounting policy disclosures to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their “significant” accounting policies with a requirement to disclose their “material” accounting policies. In the preparation of financial statements, these concepts were considered, however, there were no material effects on the nature and detail of the information presented, since, in a manner consistent with the requirements of CPC 26 (R1), aspects of materiality were already applied in determining the accounting policies to be disclosed.
Additionally, in May 2023 IASB published amendments to IAS 12, Income taxes, determining the application of a mandatory exception in the recognition of deferred taxes on taxable profit arising from the application of the requirements of the “Pillar 2” legislation, an initiative by the Organization for Economic Cooperation and Development (OECD), through which it seeks to implement a new tax system that will consist of an "extra layer" to the domestic taxation of the countries involved, seeking to ensure the payment of a global minimum effective rate of 15% by taxpayers members of large multinational groups, regardless of their jurisdiction of residence.
During 2023, various Countries in which the Company operates have enacted or proposed legislation implementing the Pillar Two model rules published by the Organization for Economic Co-operation and Development (OECD). In addition, various Countries have either enacted or are intending to enact legislation implementing certain transition rules implementing the Country-by-Country reporting Safe Harbor (“CBCR-SH”). The Company applies the exception in IAS 12 Income Taxes to the requirement to recognize and disclose information about deferred tax assets and liabilities related to Pillar Two income taxes.
Based on the Company’s ongoing evaluation of the CBCR-SH rules published by the OECD and expected to be enacted as applied to the results, the Company does not expect that there would be any material significant exposure to incremental income taxes associated with Pillar II legislation. The Company’s analysis is currently indicating that substantially all countries in which the Natura Group operates will satisfy at least one or more of the three CBCR-SH requirements or will be subject to a Qualifying Domestic Minimum -Top-up Tax which is not expected to result in a material/significant impact to the Company’s exposure to income taxation.
The Group will continue to assess its exposure to Pillar II as further legislation is implemented for Pillar II as well as the CBCR-SH. Provided that further legislation is aligned with OECD guidance, the Group would not expect any change in our present assessment noted herein.
|
| NATURA &CO HOLDING S.A. |
|
NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
|
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
The preparation of the individual and consolidated financial statements requires management to make certain judgments and use assumptions and estimates based on experience and other factors considered relevant, which affect the values of assets and liabilities, and which may present results that differ from actual results.
The areas that require a higher level of judgment and have greater complexity, as well as the areas in which assumptions and estimates are material for the financial statements, are disclosed below.
4.1Income tax, social contribution, and other taxes
Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgement is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies and other sources of income.
The Company has R$12,254,435 of reportable unrecognized tax losses as of December 31, 2023 (R$ 12,735,337 on December 31, 2022). These losses relate to subsidiaries that have a history of losses, do not expire, and may not be used to offset taxable income in other subsidiaries. The subsidiaries neither have any taxable temporary difference nor any tax planning opportunities available that could partly support the recognition of these losses as deferred tax assets. Based on this, the Company determined that it cannot recognize deferred tax assets on these tax losses carried forward.
4.2Provision for tax, civil and labor risks
The Company is party to several legal and administrative procedures as described in note no. 22. Provisions are recorded for processes related to tax, civil and labor risks related to lawsuits that represent probable, except for those related to business combinations, and are estimated with a certain degree of certainty. The assessment of the likelihood of loss includes the assessment of the available evidence, the hierarchy of laws, the available jurisprudence, the most recent court decisions, and their relevance in the legal system, as well as the assessment of legal advisors.
4.3Post-employment health care plan
The cost of the post-employment health care plan is determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These are based on a series of financial and demographic assumptions, such as the discount rate, medical inflation, and percentage of adhesion to the plan, which are disclosed in note no. 23. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
|
| NATURA &CO HOLDING S.A. |
|
NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
|
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
4.4Stock option plan, restricted share plan, strategy-acceleration program and performance share program
Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which depends on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option or appreciation right, volatility and dividend yield and making assumptions about it.
The stock option plan, restricted share plan, strategy-acceleration program and performance share program are measured at fair value at the grant date and the expense is recognized in profit or loss during the vesting period and in “Additional paid-in capital” in shareholders’ equity. On the balance sheet dates, Management reviews the estimates as to the number of purchase options/restricted shares and, where applicable, recognizes the effect arising from this review in profit or loss for period against shareholders’ equity. The assumptions and models used to estimate the fair value of the stock option plan, restricted share plan and strategy-acceleration program are disclosed in note no. 28.1.
4.5Impairment of non-financial assets
An impairment loss exists when the carrying amount of an asset or CGU exceeds its recoverable amount, which is the higher of fair value less cost of disposal and value in use. Fair value less costs of disposal is calculated based on information available about similar assets sold or market prices less additional costs to dispose of the asset.
Value in use is calculated based on the discounted cash flow model. Cash flow derives from financial budgets approved by the Board of Directors for period of three years and complemented for a discretionary period of ten years estimated by Management, with a terminal value projected for the end of the period. The ten-year period was considered for better aligning and smoothing the effects projected between the discretionary period and the effects calculated in perpetuity. The cash flows are prepared following the operating segment’s, projections considering market’s expectations for operations, estimated investments and working capital, as well as other economic factors that are specific to the Company and the nature of its risks and operations. The value in use is sensitive to the discount rate used under the discounted cash flow method, as well as the operating margins considered, the growth rate and perpetuity used for extrapolation purposes.
4.6Allowance for trade accounts receivables expected losses
The allowance for expected losses on trade accounts receivable from customers is estimated based on the loss risk in an aging list model. The characteristics of the Company’s trade accounts receivable are (i) immaterial financial component; (ii) non-complex receivables portfolio; and (iii) low credit risk.
For trade accounts receivable, the Company applies the simplified approach in calculating expected credit losses (“ECL”) based on expected credit losses at each reporting date. The allowance determined based on (i) each of the subsidiaries credit losses historical experience, observed in each group of the trade accounts receivable aging list, and (ii) adjustments for specific forward-looking factors for defaulters and the economic environment. An estimated range is used based on the weighted average of the losses for the last 12 months. The calculation also considers the length of time of the relationship of the independent beauty consultant and a division between renegotiated and non-renegotiated overdue trade accounts receivable.
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
4.7Allowance for inventory losses
The allowance for inventory losses is estimated using a methodology to contemplate discontinued products, materials with slow turnover, materials with an expired expiration date or close to the expiration date, and materials outside the quality parameters.
4.8Leases - Incremental borrowing rate
The Company cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (“IBR”) to measure lease liabilities. The IBR is the interest rate that the Company would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Company “would have to pay”, which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when they need to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s functional currency).
The Company estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates.
4.9Measurement of the fair value of the receipt of profits from the sale of The Body Shop
As disclosed in explanatory notes 5.5 and 36, part of the agreed consideration, from the former subsidiary The Body Shope sale, involved in the future collection of installments are contingent on meeting performance targets : of the operation of The Body Shop.
The eventual achievement of these goals is assessed based on likehood studies associated with the specific results of The Body Shop as of the balance sheet date, applying the discounted cash flow method. Further details about premisses and measurement basis are included in explanatory note 5.5.
5.1General considerations and policies
Risks and financial instruments are managed through policies, the definition of strategies and implementation of control systems, defined by the risk management committees of the entities of the group, and approved by the Company’s Board of Directors. The compliance of treasury financial instruments positions, including derivatives, in relation to these policies, is presented and assessed on a monthly basis by the Company’s Treasury Committee and subsequently submitted to the analysis of the Audit and Risk Management and Finance Committees, the Executive Committee and, if necessary, the Board of Directors.
Risk management of the Company’s operations is performed by the Company’s Corporate Treasury, which is also responsible for approving short-term investments and borrowings transactions. Risk management of the subsidiaries Aesop, The Body Shop, Avon and Natura Cosméticos is conducted by local treasury teams, subject to monitoring and approval of the Company’s Corporate Treasury.
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
5.2Risks associated with the conflict between Russia and Ukraine
The Company's Management is continuously monitoring developments to assess any possible future impacts that may arise as a result of the ongoing crisis, including the impairment of financial and non-financial assets, which the Company’s Management assesses based on the best information available.
So far, the conflict resulted in the suspension of the operations of exports from the Russian manufacturing unit to other countries in the region, including Ukraine, which are now supplied by our unit in Poland. Avon, however, continues to provide a basic earning opportunity to its representatives through a simplified operating model. As of the date of these financial statements, the Company confirms that the facilities, as well as the goods and stocks held therein, have not been damaged and are in a suitable condition to be operated.
Regarding operations of the subsidiary Avon in Russia, as of the date of these financial statements, no significant impacts were identified that affect the business model for managing financial assets or the classification of these assets. Additionally, there are no indications of a significant increase in the expected credit loss associated with operations, considering the maintenance of receivables collection levels and the increase in cash transactions (considering the reduction in credit operations as a result of restrictions imposed locally and of credit card processing companies in the country).
Considering the maintenance of collection levels and sales operations for the local market in Russia, as well as the inexistence of significant restrictions that affect the Company's ability to carry out the management and cash changes necessary to maintain its operations, there is no significant risk of liquidity related to these events that affect this financial statement. Similarly, market risks associated with the transaction, including interest rate, currency and other price risks, including raw materials, did not significantly affect the Company's financial assets, considering the expectation of recoverability of the amounts in the ordinary course of business.
Regarding the operations in Ukraine, the impacts arising from the lower economic activity under the new simplified operating model are not relevant to the individual and consolidated financial statements.
As a result of the developments of the conflict in the year ended December 31, 2023, there were still no impacts resulting from possible breaches of covenants or losses related to derecognition and/or modification of financial instruments or reclassification of cash flow hedge reserve amounts as a result of loss of effectiveness of derivatives recognized by hedge accounting or by the loss of expectation that transactions evaluated as highly probable will actually occur.
5.3 Financial risk factors
The Company’s activities expose them to several financial risks: market risks (including foreign currency and interest rate risks), credit risk and liquidity risk. The Company’s overall risk management program is focused on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance, using financial instruments to hedge certain risk exposures. The Company does not operate derivative instruments with the purpose of speculation.
5.3.1Market risks
Market risks reflect the risks that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in market prices, including foreign exchange risk, interest rate risk and other price risks. The Company is exposed to market risks arising from their business activities. These market risks mainly comprise possible fluctuations in exchange and interest rates.
Other price risks include, among others, exposures to financial instruments due to changes in commodity and raw material prices. Climatic aspects, such as the availability of natural raw material used in the products and/or significant changes in the cost of these items may expose the Company to additional market risks that affect the entity's operations as well as the measurement and/or recoverability of financial instruments. As of December 31, 2023, the Company’s Management assessed these risks and concluded that they are not material.
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
5.3.1.1Derivative financial instruments used to manage market risks
The Company classifies derivative financial instruments as financial derivatives and operational derivatives. Financial derivatives include swaps or forwards used to hedge exchange rate or interest rate risks related to loans, financing, debt securities and loans between related parties. Operational derivatives include forward contracts used to hedge the exchange rate risk of the Company's operational activities (such as import and export transactions).
As of December 31, 2023 and 2022, derivative contracts are maintained directly with financial institutions and not through stock exchanges, and are not subject to margin deposits to guarantee these operations.
As of December 31, 2022 and 2021, the balances of derivative are presented as follows:
|
Consolidated
|
Fair value
|
Gains (losses) of fair value adjustment
|
|
Description
|
2023
|
2022
|
2023
|
2022
|
|
Swap agreements: (a)
|
|
|
|
|
|
Asset portion:
|
|
|
|
|
|
Dollar long position
|
876,664
|
6,108,505
|
19,457
|
34,867
|
|
|
|
|
|
|
|
Liability portion:
|
|
|
|
|
|
Post-fixed CDI Rate:
|
|
|
|
|
|
Short position in CDI
|
(824,344)
|
(6,874,285)
|
-
|
(697,678)
|
|
|
|
|
|
|
|
Forward contracts and NDF:
|
|
|
|
|
|
Liability portion:
|
|
|
|
|
|
Post-fixed CDI Rate:
|
|
|
|
|
|
Natura Cosméticos
|
(5,878)
|
(521)
|
(2,090)
|
(521)
|
|
Natura Indústria
|
(28,856)
|
(6,633)
|
(28,856)
|
(6,633)
|
|
Natura Mexico (Latam)
|
320
|
-
|
151
|
-
|
|
The Body Shop
|
-
|
16,789
|
-
|
(1,180)
|
|
Aesop
|
-
|
(1,350)
|
-
|
90
|
|
Avon Brasil
|
(3,702)
|
(1,183)
|
(3,702)
|
(1,183)
|
|
Avon Internacional
|
(43,248)
|
(19,203)
|
(28,633)
|
(6,925)
|
|
Natura Luxemburgo
|
(22,182)
|
(18,996)
|
180
|
2,293
|
|
|
|
|
|
|
|
Total derivative instruments, net:
|
(51,226)
|
(796,877)
|
(43,493)
|
(676,870)
|
|
a)
|
Swap transactions consist of swapping the exchange rate variation for a correction related to a percentage of the fluctuation of the Certificate of bank deposits (post-fixed CDI), in the case of Brazil. |
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
Below are the changes in net derivatives balances for the years ended on December 31, 2023 and 2022:
|
|
Consolidated
|
|
Balance as of December 31, 2021
|
516,637
|
|
Losses from swap and forward derivative contracts for the year (unrealized)
|
(992,813)
|
|
Payment of funds due to settlement of derivative transactions - operational activity
|
594,225
|
|
Receipt of funds due to settlements of derivative instruments - financing activity
|
(118,707)
|
|
Losses in cash flow hedge operations (other comprehensive income)
|
(790,479)
|
|
Other movements
|
(5,740)
|
|
Balance as of December 31, 2022
|
(796,877)
|
|
Losses from swap and forward derivative contracts for the year (unrealized)
|
(1,791,905)
|
|
Payment of funds due to settlement of derivative transactions - operational activity
|
1,487,092
|
|
Payment of funds due to settlements of derivative instruments - financing activity
|
310,870
|
|
Losses in cash flow hedge operations (other comprehensive income)
|
746,648
|
|
Other movements
|
(7,054)
|
|
Balance as of December 31, 2023
|
(51,226)
|
a) Foreign currency risk
The Company is exposed to foreign exchange risk resulting from financial instruments and operations in currencies other than their functional currencies, as well as to operating cash flows in foreign currencies. To reduce this exposure, policies were implemented to hedge the Company from foreign exchange risk, which establish exposure levels related to these risks. Pursuant to the Foreign Exchange Hedging Policy, the derivatives entered into by the Company should eliminate the foreign exchange risk of financial instruments in currencies other than their functional currencies and should also limit losses due to exchange rate variation on future cash flows.
The treasury procedures defined by the current policies include quarterly projection and assessment of the consolidated foreign exchange rate exposure of the Company, on which Management’s decision-making is based. The Company’s foreign exchange hedging policy considers the amounts of foreign currency of receivables and payables balances from commitments already assumed and recorded in the financial statements, as well as future cash flows associated with transactions predicted to be highly probable with an average term of up to twelve months.
During the year, the Company transferred its sustainability-linked debt (“Notes”, as described in explanatory note 19) from the subsidiary Natura Cosméticos S.A. to the subsidiary Natura &Co Luxembourg Holdings S.á.r.l. (“Natura &Co Luxembourg”), as part of the rebalancing and reorganization process of the Group's debt initiated when the sale of the former subsidiary Aesop.
The debt denominated in US dollars was included in a hedge accounting structure, aiming to protect the variability of payments arising from exchange rate and interest rate risks. Considering the transfer made to the subsidiary Natura &Co Luxembourg, whose functional currency is the US dollar, the protected risk was no longer eligible within the hedge accounting structure and, consequently, the Company proceeded with the derecognition of this structure. As a result, the amount of R$4,958,286, previously recognized in the liabilities of the subsidiary Natura Cosméticos S.A., was derecognized and recognized in the subsidiary Natura &Co Luxembourg. Losses recognized in other comprehensive income of R$700,810, before tax effects, were reclassified to the statement of profit and loss for the nine-month period ended September 30, 2023, as a financial expense. Additionally, the derivatives liability position of R$1,380,405 was settled with the corresponding financial institutions in September 2023.
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
Sensitivity analysis
For the foreign exchange risk sensitivity analysis, the Company’s Management believes that it is important to consider, in addition to the assets and liabilities with exposure to fluctuations in exchange rates recorded in the balance sheet, the fair value of the financial instruments entered into by the Company to hedge certain exposures as of December 31, 2023 and 2022, as set forth in the table below:
|
|
Consolidated
|
|
|
2023
|
2022
|
|
Borrowing and financing in foreign currency in Brazil (a)
|
-
|
(5,252,376)
|
|
Trade accounts receivable in foreign currency in Brazil
|
328,346
|
521,427
|
|
Trade accounts payable in foreign currencies in Brazil
|
(158,500)
|
(15,214)
|
|
Fair value of financial derivatives
|
(38,436)
|
6,101,350
|
|
Net asset exposure
|
131,410
|
1,355,187
|
a) Excluding transaction costs.
This analysis considers only financial assets and liabilities recorded in Brazil in foreign currency, since exposure to the foreign exchange rate variation in other countries is close to zero. The following table shows the projection of the incremental loss that would have been recognized in profit or loss for the subsequent year, if the current net foreign exchange exposure remains static, based on the following scenarios:
|
|
Consolidated
|
|
Parity - R$ vs US$
|
4.8413
|
4.8953
|
3.6715
|
2.4477
|
|
|
Scenario
|
Scenario
|
Scenario I
|
Scenario II
|
|
Operation/Instrument
|
Brazilian Real
|
Probable
|
Depreciation 25%
|
Depreciation 50%
|
|
Assets denominated in US$
|
|
|
|
|
|
Fair value of “financial” derivatives
|
(38,436)
|
(38,865)
|
(29,149)
|
(19,432)
|
|
Trade accounts receivable in foreign currency in Brazil
|
328,346
|
332,009
|
249,007
|
166,005
|
|
|
|
|
|
|
|
Liabilities denominated in US$
|
|
|
|
|
|
Trade accounts payable in foreign currencies in Brazil
|
(158,500)
|
(160,268)
|
(120,201)
|
(80,134)
|
|
Impact on net income and shareholders’ equity
|
131,410
|
1,466
|
(31,753)
|
(64,971)
|
The probable scenario considers future US dollar rates for a 90 days-term. According to quotations obtained at the Brazilian Stock Exchange (“B3”) as of December 31, 2023 and in line with the first maturities of financial instruments with exchange exposure, R$ 4.8953 / US$ 1.00. Scenarios I and II consider an increase/decrease in the US dollar of 25% (R$ 3.6715 / US$ 1.00) and 50% (R$ 2.4477 / US$1.00), respectively.
b) Interest rate risk
The interest rate risk arises from short and long-term investments, borrowing, financing and debentures. Financial instruments issued at variable rates expose the Company to cash flow risk associated with interest rate. Financial instruments issued at fixed rates expose the Company to the fair value risk associated with the interest rate.
The Company’s cash flow risk associated with interest rate arises from short-term and long-term investments, borrowing and financing issued at floating rates. The Company’s Management holds, for the most part, the indexes of its exposures to deposit and lending interest rates tied to floating rates. Short-term investments are adjusted by the Certificate interbank deposits (“CDI”) whereas borrowing and financing are adjusted by the CDI and fixed rates, according to the contracts entered into with financial institutions and through the negotiation of securities with investors in that market.
Additionally, the Company considered potential aspects related to sustainability and climate change commitments as part of the risks to which it is exposed in relation to the interest rate on financial instruments, except for the risks associated with the ESG notes (disclosed in item (f) below), there is no exposure to material risks which should be subject to specific disclosure.
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
Sensitivity analysis
As of December 31, 2023, there are borrowing, financing and debentures contracts denominated in foreign currency that are linked to interest swap agreements, changing the liability index rate to the CDI variation. Accordingly, the risk of the Company becomes the exposure to the variation of the CDI. The following table presents the exposure to interest rate risks of transactions related to CDI, including derivative transactions (borrowing, financing and debentures in Brazil were considered in full, given that 99.4% of the amount is related to the CDI):
|
|
Parent
|
Consolidated
|
|
Total borrowing, financing and debentures - in local currency (note 19)
|
-
|
(6,111,702)
|
|
Operations in foreign currency with derivatives related to CDI (a)
|
-
|
52,319
|
|
Short-term investments (notes 6 and 7)
|
1,579,899
|
5,661,434
|
|
Net exposure
|
1,579,899
|
(397,949)
|
(a) Refers to transactions involving derivatives related to CDI to hedge the borrowing, financing and debentures arrangements raised in foreign currency in Brazil.
The sensitivity analysis considers the exposure of borrowing, financing and debentures, net of short-term investments, linked to CDI (notes no. 6 and 7).
The following tables show the projection of incremental loss that would have been recognized in profit or loss for the following year, assuming that the current net liability exposure is static and the following scenarios:
|
|
Description
|
Company Risk
|
Probable scenario
|
Scenario II
|
Scenario III
|
|
Parent
|
Net asset
|
Rate increase
|
(5,530)
|
39,103
|
83,735
|
|
Consolidated
|
Net liability
|
Rate increase
|
(5,683)
|
40,184
|
86,050
|
The probable scenario considers future interest rates for 90 days-term, according to B3 quotations on the expected dates of the first maturities of financial instruments with exposure to interest rates, as of December 31, 2023. Scenarios II and III consider an increase interest rates by 25% (14.13% per year) and 50% (16.95% per year), respectively, over a CDI rate of 11.30% per year.
5.3.1.2 Derivative instruments designated for hedge accounting
a) Cashflow hedge
The Company formally designated its operations subject to hedge accounting for derivative instruments to hedge borrowings, financing and debentures denominated in foreign currency and other expenses of Company, for derivative instruments contracted to hedge the purchase of nationalized materials of indirect subsidiaries Avon Industrial and Natura Industria and for derivative instruments contracted to hedge the operating cash flows from subsidiary The Body Shop’s foreign currency purchase and sales transactions.
There is an economic relationship between the hedged items and the hedging instruments, as the terms of the contracts correspond to (i) the terms of anticipated and highly probable transactions (for example, the notional amount and expected payment date) to the case of derivative instruments contracted to protect highly probable purchases; and (ii) terms associated with debts contracted in foreign currency which are hedged by derivatives that aim to eliminate the variability of cash flows associated with dollar-denominated debt.
The Company established a hedge ratio of 1:1 for the hedge relationships, as the underlying risks of the contracts are identical to the protected risk components. To test the effectiveness of the hedge, the Company uses the hypothetical derivative method and compares the changes in the fair value of the hedging instruments with the changes in the fair value of the hedged items attributable to the hedged risks.
The sources of ineffectiveness, historically immaterial, may come from: (i) differences in the timing of cash flows from hedged items and hedging instruments; (ii) different indices (and, consequently, different curves) associated with the hedged risk of hedged items and hedging instruments; (iii) counterparty credit risk having a different impact on fair value movements of hedging instruments and hedged items; and (iv) changes in the expected amount of cash flows from hedged items and hedging instruments.
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
For years ending on December 31, 2023 and 2022, the Company designated for hedge accounting the derivative instruments (forward swap) contracted in May 2021, which aim at eliminating the variation in the payments of principal amount and interest in dollars associated with (“ESG Notes”), making the payments fixed at CDI plus spread. As previously mentioned, due to the transfer of this debt to Natura &Co Luxembourg, the protected risk was no longer eligible within the hedge accounting structure, and, consequently, the Company proceeded with the derecognition of the structure
As of December 31, 2023, the net position of derivative instruments designated as cash flow hedges consists exclusively of operational derivatives and is detailed below (consolidated financial statements):
|
|
|
|
|
Other comprehensive income
|
|
|
Hedged item
|
Notional currency
|
Fair value
|
Gain (loss) in the year
|
Gain (loss) in the year
|
|
Currency swap – US$/R$ - Natura Cosméticos
|
Currency and interest rate
|
BRL
|
(5,878)
|
(2,090)
|
763,197
|
|
Forward agreements (Avon Industria)
|
Currency
|
BRL
|
(3,702)
|
(3,702)
|
5,452
|
|
Forward agreements (Natura Dist. Mexico)
|
Currency
|
BRL
|
320
|
151
|
151
|
|
Forward agreements (Natura Industria)
|
Currency
|
BRL
|
(21,497)
|
(21,497)
|
(22,637)
|
|
Forward agreements (Natura Holding)
|
Currency
|
BRL
|
1,731
|
486
|
485
|
|
Total
|
|
|
(29,026)
|
(26,652)
|
746,648
|
The changes in cash flow hedge reserve recorded in OCI are shown below:
|
|
Consolidated
|
|
Cash flow hedge balance as of December 31, 2021
|
21,866
|
|
Change in the fair value of hedge instrument recognized in OCI
|
(790,479)
|
|
Tax effects on fair value of hedge instrument
|
270,035
|
|
Cash flow hedge balance as of December 31, 2022
|
(498,578)
|
|
Change in the fair value of hedge instrument recognized in OCI
|
746,648
|
|
Tax effects on fair value of hedge instrument
|
(251,950)
|
|
Cash flow hedge balance as of December 31, 2023
|
(3,880)
|
b) Fair value hedge
For the years ending December 31, 2023 and 2022, the designation (which only included financial derivatives) referred to derivative instruments (swap contracts) contracted in October 2022, which aim to eliminate the variation in interest rates associated with the 2nd and 3rd series of debentures from the 12th issue ("CRI debentures") contracted in IPCA for a flow in CDI plus spread, in accordance with the Group's risk management policy.
The type of hedge relationship applied to such instruments is fair value hedge, which is used to offset variations arising from changes in the fair value of the liability attributable to the specific risk.
There is an economic relationship between protected items and hedging instruments, as the terms of the contracts correspond to terms associated with the contracted debt. The Company established a hedge ratio of 1:1 for the hedge relationships, as the underlying risks of the contracts are identical to the protected risk components.
To test the effectiveness of the hedge, the Company uses the sensitivity test, measuring the variation using the offset method in US dollars. Sources of ineffectiveness, historically immaterial, may arise from: (i) reductions or modifications of the protected item (debt payment); (ii) changes in the credit risk of the Company or the counterparty to the contracts; (iii) changes in the spread over IPCA in the swap.
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
As of December 31, 2023, the net position of derivative instruments designated as fair value hedges consists exclusively of financial derivatives and is detailed below:
|
|
Protection object
|
Reference currency (Notional)
|
Fair value
|
|
Fair value
|
Interest Rate
|
BRL
|
52,319
|
|
Total
|
|
|
52,319
|
5.3.2 Credit risk
Credit risk refers to the risk of a counterparty not fulfilling its contractual obligations, causing the Company to incur financial losses. The Company's sales are made to a large number of Natura and Avon Consultants and this risk is managed through a credit granting process. The result of this management is reflected in the item “provision for expected credit losses” in “accounts receivable from customers”, as shown in explanatory note no. 8.
The Company is also subject to credit risks related to financial instruments contracted in the management of its business, mainly represented by cash and cash equivalents, financial investments and derivative financial instruments. The Company considers the credit risk of the operations it maintains in financial institutions with which it operates to be low, which are considered by Management to be first line.
The financial investment policy established by the Company's Management elects the financial institutions with which contracts can be concluded, in addition to defining limits regarding the percentages of resource allocation and absolute values to be applied to each of them.
5.3.3 Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash, short-term investments, funds available through credit facilities and the ability to settle market positions.
Management monitors the Company’s liquidity level considering the expected cash flows in exchange for unused credit facilities, as shown in the following table:
|
|
Parent
|
Consolidated
|
|
|
2023
|
2022
|
2023
|
2022
|
|
Total current assets
|
1,802,267
|
148,623
|
15,987,222
|
16,121,527
|
|
Total current liabilities
|
(794,348)
|
(158,269)
|
(10,413,499)
|
(13,337,868)
|
|
Total net working capital
|
1,007,919
|
(9,646)
|
5,573,723
|
2,783,659
|
As of December 31, 2023, the carrying amount of financial liabilities, measured using the amortized cost method, considering interest payments at a floating rate and the value of debt securities reflecting the forward market interest rates, may be changed due to the variation in floating interest rates. Their corresponding maturities, considering that the Company is in compliance with contractual covenants, are evidenced below:
|
Parent
|
Less than a year
|
One to five years
|
Total expected contractual cash flow
|
Interest to be accrued
|
Carrying amount
|
|
Trade accounts payables, related-parties’ and reverse factoring operations
|
364,149
|
-
|
364,149
|
-
|
364,149
|
|
Lease liability
|
681
|
264
|
945
|
(121)
|
824
|
|
Dividends payable
|
294,231
|
-
|
294,231
|
-
|
294,231
|
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
|
Consolidated
|
Less than a year
|
One to five years
|
More than five years
|
Total expected contractual cash flow
|
Interest to be accrued
|
Carrying amount
|
|
Borrowing, financing and debentures
|
357,568
|
4,194,476
|
4,078,504
|
8,630,548
|
(2,518,846)
|
6,111,702
|
|
Derivatives
|
140,679
|
71,134
|
(160,587)
|
51,226
|
-
|
51,226
|
|
Lease liability
|
401,217
|
912,529
|
135,207
|
1,448,953
|
-298,513
|
1,150,440
|
|
Trade accounts payables, related parties and reverse factoring operations
|
5,302,478
|
-
|
-
|
5,302,478
|
-
|
5,302,478
|
|
Dividends payable
|
294,231
|
-
|
-
|
294,231
|
-
|
294,231
|
New borrowing and financing in the year ended December 31, 2022 are disclosed on note no 19.
Matters related to climatic factors and other sustainability commitments assumed may expose the Company to possible risks related to its financial instruments, especially related to the potential variability of cash flows required to settle obligations with third parties on financing that involve such commitments. On May 4, 2021, subsidiary Natura Cosméticos concluded the offer of the notes linked to the sustainability goals subject to interest of 4.125% p.a. and with maturity date on May 3, 2028 (“ESG Notes”) subject to foreign exchange risk, in the total principal amount of US$1,000,000, and these are guaranteed by the Company.
The targets, to be met by 2026, include a reduction in greenhouse gas emissions by 13% and the use of recycled plastic in packaging by at least 25%. Any non-compliance with the sustainability goals set forth above and/or lack of report issued by an external verifier attesting to the fulfillment of these goals within 30 days before November 3, 2027 (in relation to the year to be ended December 31, 2026) may affect the Company's liquidity, as it would lead to a 65-basis point increase in the interest rate per year. On the date of preparation of these financial statements, the Company has no indication that these targets will not be met at the time of effective measurement.
5.4 Capital management
The Company's objectives when managing its capital are to safeguard the Company's ability to continue to provide returns to shareholders and benefits to other interested parties, in addition to maintaining an ideal capital structure to reduce this cost.
The Company monitors capital based on financial leverage ratios. This index corresponds to net debt divided by EBITDA (earnings before interest, taxes, depreciation and amortization - EBITDA). Net debt, in turn, corresponds to total loans and financing (including short- and long-term loans and financing, as shown in the consolidated balance sheet) subtracted from the amount of cash and cash equivalents and marketable securities (except resources of “Crer Para Ver” and the investment fund Dynamo Beauty Ventures Ltd (“DBV”).
5.5 Fair value measurement
Financial instruments that are measured at fair value on the balance sheet dates as determined by CPC 46 – Fair value measurement (IFRS 13) follow the following hierarchy:
➢
|
Level 1: Valuation based on quoted (unadjusted) prices in active markets for identical assets and liabilities at balance sheet dates. A market is viewed as active if quoted prices are readily and regularly available from a securities exchange, broker, industry group, pricing service or regulatory agency and those prices represent actual market transactions that occur regularly on a purely commercial basis; |
| ➢ |
Level 2: Used for financial instruments that are not traded in active markets (for example, over-the-counter derivatives), whose evaluation is based on techniques that, in addition to the quoted prices included in Level 1, use other information adopted by the market for the asset or passive directly (i.e. as prices) or indirectly (i.e. derived from prices); and |
| ➢ |
Level 3: Valuation techniques for which the lowest level of input that is significant for measuring fair value is not observable. |
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
Below, we present the carrying amount and fair values of the Company's financial instruments as of December 31, 2023 and 2022:
|
Parent
|
|
|
|
Carrying amount
|
Fair value
|
|
Note
|
Classification by category
|
Fair value hierarchy
|
2023
|
2022
|
2023
|
2022
|
|
Financial assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalent
|
6
|
|
|
|
|
|
|
|
Cash and banks
|
|
Amortized cost
|
Level 2
|
1,079
|
5,566
|
1,079
|
5,566
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
7
|
|
|
|
|
|
|
|
Exclusive investment funds
|
|
Fair value through profit or loss
|
Level 2
|
1,579,899
|
24,264
|
1,579,899
|
24,264
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivables – related parties
|
8 and 32.1
|
Amortized cost
|
Level 2
|
71,860
|
66,329
|
71,860
|
66,329
|
|
Dividends receivable
|
32
|
Amortized cost
|
Level 2
|
81,517
|
-
|
81,517
|
-
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
Financial and operating derivative instruments
|
|
Fair value through profit or loss
|
Level 2
|
-
|
-
|
-
|
-
|
|
Prepaid insurance
|
|
Amortized cost
|
Level 2
|
14,013
|
11,456
|
14,013
|
11,456
|
|
Lease liability
|
18
|
Amortized cost
|
Level 2
|
(824)
|
(545)
|
(824)
|
(545)
|
|
Trade accounts payables, related parties and reverse factoring operations
|
20 and
32.1
|
Amortized cost
|
Level 2
|
(364,149)
|
(71,027)
|
(364,149)
|
(71,027)
|
|
Insurance payable
|
|
Amortized cost
|
Level 2
|
(19,719)
|
(15,275)
|
(19,719)
|
(15,275)
|
|
Dividends payable
|
24
|
Amortized cost
|
Level 2
|
(294,231)
|
(260)
|
(294,231)
|
(260)
|
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
Consolidated
|
|
|
|
Carrying amount |
Fair value |
| Nota |
Classification by category |
Fair value hierarchy |
2023 |
2022 |
2023 |
2022 |
|
Financial assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalent
|
6
|
|
|
|
|
|
|
|
Cash and banks
|
|
Amortized cost
|
Level 2
|
2,113,566
|
2,904,808
|
2,113,566
|
2,904,808
|
|
Certificate of bank deposits
|
|
Fair value through profit or loss
|
Level 2
|
203,561
|
46,864
|
203,561
|
46,864
|
|
Repurchase operations
|
|
Fair value through profit or loss
|
Level 2
|
1,433,817
|
1,244,041
|
1,433,817
|
1,244,041
|
|
|
|
|
|
3,750,944
|
4,195,713
|
3,750,944
|
4,195,713
|
|
Short-term investments
|
7
|
|
|
|
|
|
|
|
Government securities
|
|
Fair value through profit or loss
|
Level 2
|
1,272,445
|
31,415
|
1,272,445
|
31,415
|
|
Restricted cash
|
|
Fair value through profit or loss
|
Level 2
|
30,240
|
1,481
|
30,240
|
1,481
|
|
Financial treasury bills
|
|
Fair value through profit or loss
|
Level 2
|
392,253
|
539,450
|
392,253
|
539,450
|
|
Loan investment fund
|
|
Fair value through profit or loss
|
Level 2
|
2,329,118
|
1,228,093
|
2,329,118
|
1,228,093
|
|
DBV fund
|
|
Fair value through profit or loss
|
Level 3
|
36,698
|
35,235
|
36,698
|
35,235
|
|
|
|
|
|
4,060,754
|
1,835,674
|
4,060,754
|
1,835,674
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivables - related parties
|
8 and 32.1
|
Amortized cost
|
Level 2
|
3,524,395
|
3,502,399
|
3,524,395
|
3,502,399
|
|
Judicial deposits
|
12
|
Amortized cost
|
Level 2
|
408,030
|
457,550
|
408,030
|
457,550
|
|
Sublease receivables
|
14
|
Amortized cost
|
Level 2
|
180,440
|
262,108
|
180,440
|
262,108
|
|
Receivables from service providers
|
14
|
Amortized cost
|
Level 1
|
109,639
|
110,214
|
109,639
|
110,214
|
|
Accounts receivable - sale of subsidiary
|
|
Amortized cost
|
|
|
|
|
|
|
Fixed consideration
|
34
|
Amortized cost
|
Level 2
|
343,068
|
-
|
343,068
|
-
|
|
Contingent consideration
|
34
|
Fair value through profit or loss
|
Level 3
|
486,429
|
-
|
486,429
|
-
|
|
|
|
|
|
5,052,001
|
4,332,271
|
5,052,001
|
4,332,271
|
|
|
|
|
|
|
|
|
|
|
Financial derivatives (hedge instrument)
|
|
Fair value through profit or loss
|
Level 2
|
23,293
|
-
|
23,293
|
-
|
|
Financial derivative instruments
|
|
Fair value through profit or loss
|
Level 2
|
255,157
|
1,008,365
|
255,157
|
1,008,365
|
|
|
|
|
|
278,450
|
1,008,365
|
278,450
|
1,008,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
Borrowing, financing and debentures
|
19
|
|
|
|
|
|
|
|
Borrowing in local currency
|
|
Amortized cost
|
Level 2
|
(6,111,702)
|
(8,419,320)
|
(6,111,702)
|
(8,419,320)
|
|
Foreign currency borrowings
|
|
Amortized cost
|
Level 2
|
-
|
(5,172,966)
|
-
|
(5,172,966)
|
|
|
|
|
|
(6,111,702)
|
(13,592,286)
|
(6,111,702)
|
(13,592,286)
|
|
|
|
|
|
|
|
|
|
|
Financial and operating derivative instruments
|
|
Fair value through profit or loss
|
Level 2
|
(329,676)
|
(1,805,242)
|
(329,676)
|
(1,805,242)
|
|
|
|
|
|
|
|
|
|
|
Lease liability
|
18
|
Amortized cost
|
Level 2
|
(1,150,440)
|
(3,270,737)
|
(1,150,440)
|
(3,270,737)
|
|
Prepaid insurance
|
|
Amortized cost
|
Level 2
|
14,013
|
-
|
14,013
|
-
|
|
Trade accounts payables, related-parties’ and reverse factoring
|
20 e 32.1
|
Amortized cost
|
Level 2
|
(5,302,478)
|
(6,375,930)
|
(5,302,478)
|
(6,375,930)
|
|
Insurance payables
|
23
|
Amortized cost
|
Level 2
|
(1.239)
|
(69,364)
|
(1.239)
|
(69,364)
|
|
Dividends payable
|
24
|
Amortized cost
|
Level 2
|
(294,231)
|
(260)
|
(294,231)
|
(260)
|
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
When measuring, the carrying value represents a reasonable approximation of the fair value, as described below:
| (i) |
the balances of cash and cash equivalents, trade accounts receivables, accounts payable to suppliers and other current liabilities are equivalent to their carrying amounts, mainly due to the short-term maturities of these instruments; |
| (ii) |
the balances of the short-term investments: a) measured at amortized cost approximate their fair values as a result of the transactions to be conducted at floating interest rates; and b) measured at fair value through profit or loss based on the rates agreed with the financial institutions considering the agreed rates among the parties, including market information that allows for such calculation; |
| (iii) |
except for the real estate receivables certificates, which are measured at fair value due to the designation as fair value hedge accounting, the carrying amounts of borrowing, financing and debentures are measured at their amortized cost and disclosed at fair value, which does not differ materially from the carrying amounts as the agreed interest rates are consistent with current market rates; and |
| (iv) |
the fair value of exchange rate derivatives (swap and forwards) is determined based on the future exchange rates at the dates of the balance sheets, with the resulting amount being discounted at present value. |
The fair value of the investment in the Fundo Dynamo Beauty Ventures Ltda. (“DBV Fund”), classified at level 3 of the fair value hierarchy is calculated based on information on the net value of the investment in the Fund (NAV) calculated by the Fund’s manager based on valuation assumptions consistent with the accounting practices adopted in Brazil and IFRS, adjusted to reflect the fair value assumptions applicable to the nature of the Company’s investment. The Company’s valuation considers inputs not observable in the model, to reflect the contractual restrictions on this investment for early redemption of the security in the market. The significant unobservable inputs used in the fair value estimate reflect a discount due to the lack of liquidity of the security, which represent the values that the Company determined that market agents would consider for these discounts when defining the investment price. An increase (reduction) of 1% in the discount applied (15.3%) would result in an increase (reduction) in the fair value of the investment of R$394 (R$402 in 2022).
As part of the sales agreement with the acquirer of the former subsidiary The Body Shop (as disclosed in explanatory note no. 36), a contingent consideration was agreed, stipulating additional cash payments to the Company of up to £30,000 in 2025 and £60,000 in 2026, if certain performance measures are achieved by The Body Shop's operation in each of the respective previous fiscal years. As of December 31, 2023, The Body Shop's key performance indicators indicate that the target is likely to be achieved and therefore the fair value of the contingent consideration reflects the achievement of anticipated results. Fair value is determined using the discounted cash flow method. The main significant unobservable assumptions used in measuring fair value include The Body Shop's probability-adjusted EBITDA and the discount rate. An increase (reduction) of 1% in the applied discount rate (4.5%) would result in an increase (reduction) in the fair value of the credit receivable of R$13,456. A 25% increase (decrease) in probability-adjusted EBITDA would not result in changes in the fair value of the credit receivable.
There were no transfers between measurement levels in the fair value hierarchy in the year ended December 31, 2023 and 2022 for these assets and liabilities.
Additionally, in the year ended December 31, 2023, there were no material effects on the fair value of financial assets and liabilities as a result of an increase in price volatility in markets affected by the conflict between Russia and Ukraine, counterparty risk in financial assets or market inactivity considered in the evaluation.
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
22.1 Contingencies assessed as probable risk of loss
The changes in the provision for tax, civil and labor risks and contingent liabilities are presented below:
|
|
Consolidated
|
|
|
Tax
|
Civil
|
Labor
|
Contingent liabilities (business combination)(3)
|
Total
|
|
|
2023(4)
|
2022
|
2023
|
2022
|
2023
|
2022
|
2023(2)
|
2022
|
2023
|
2022
|
|
Balance at the beginning of the years
|
187,052
|
181,694
|
557,675
|
305,690
|
186,118
|
233,472
|
406,428
|
597,585
|
1,337,273
|
1,318,441
|
|
Additions
|
42,055
|
78,410
|
446,554
|
425,398
|
122,846
|
91,694
|
4,204
|
-
|
615,659
|
595,502
|
|
Reversals (2)
|
(18,136)
|
(45,902)
|
(10,172)
|
(12,791)
|
(57,530)
|
(51,649)
|
(29,971)
|
(196,925)
|
(115,809)
|
(307,267)
|
|
Payments/utilization of judicial deposits (1)
|
(53,143)
|
(31,354)
|
(357,633)
|
(162,953)
|
(47,512)
|
(67,424)
|
-
|
-
|
(458,288)
|
(261,731)
|
|
Inflation adjustment
|
12,852
|
36,155
|
29,439
|
16,477
|
5,884
|
5,093
|
24,836
|
21,555
|
73,011
|
79,280
|
|
Exchange rate variation (OCI)
|
(3,958)
|
(31,951)
|
(38,836)
|
(14,146)
|
(21,799)
|
(25,068)
|
(19,516)
|
(15,787)
|
(84,109)
|
(86,952)
|
|
Disposal of The Body Shop
|
-
|
-
|
(445)
|
-
|
(700)
|
-
|
-
|
-
|
(1,145)
|
-
|
|
Balance at the end of the years
|
166,722
|
187,052
|
626,582
|
557,675
|
187,307
|
186,118
|
385,981
|
406,428
|
1,366,592
|
1,337,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
491,301
|
463,655
|
|
Non-current
|
|
|
|
|
|
|
|
|
875,291
|
873,618
|
| (1) |
Tax payments refer mainly to the completion of the administrative procedure with the State of Amazonas for the effective settlement of tax amnesties, using judicial deposits. |
| (2) |
Reversals of contingent liabilities (business combination) with Avon refer mainly to the change in estimates for tax, civil and labor lawsuits. |
| (3) |
The business combination amounts as of December 31, 2023, arising from the business combination with Avon are segregated between tax (R$381,447) and labor (R$4,533) lawsuits. |
| (4) |
In December 2023, the subsidiary Natura Cosmeticos recognized a provision for estimated costs in relation to litigation involving discussion about the collection of ICMS Tax Rate Differential (“DIFAL”) with several states in Brazil, in the amount of R$22,472. The recognition of the provision occurs as a result of an unfavorable decision to the taxpayer in judgment at the Federal Supreme Court (STF), leading to a change in the prognosis from loss to probable. |
a) Disputes related to talc (Civil)
The subsidiary Avon Products, Inc (“Avon”) has been named a defendant in numerous personal injury lawsuits filed in U.S. courts, alleging that certain talc products the company sold in the past were contaminated with asbestos. Many of these actions involve several co-defendants, including manufacturers of cosmetics and manufacturers of other products that, unlike the subsidiary Avon’s Products, were designed to contain asbestos. As of December 31, 2023, there were 372 individual cases pending against the subsidiary Avon (during the year ended December 31, 2023, 234 new cases were started and 90 were dismissed, settled, or otherwise resolved).
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
In December 2022, a case, titled Chapman, et al, v, Avon Products, Inc. et al., No, 22STCV05968, resulted in an adverse jury verdict after a trial, with the jury awarding the plaintiffs a total of US$36.0 million in compensatory damages and US$10.3 million in punitive damages against the subsidiary Avon. The Company believes it has strong grounds to seek the annulment of the judgment in this case and in January 2023 began the process of appealing the verdict seeking annulment in the trial court. On March 1, 2023, following post-trial arguments, the trial court issued a conditional order reducing the compensatory damages award against the subsidiary Avon to US$29.3 million. Plaintiffs have challenged the reduction of the award as to subsidiary Avon and have asserted that the reduction should only apply to subsidiary Avon’s co-defendant. The trial court has resolved this issue in the Plaintiffs’ favor and the case is on appeal.
22.2. Contingent liabilities assessed as possible risk of loss
The Company has administrative and judicial contingencies for which the expectation of loss, evaluated by Company Management and supported by its legal advisors, is classified as possible and, therefore, no provision has been recorded. As of December 31, 2023, the contingencies classified as possible loss totaled R$10,791,727 (R$8,806,953 as of December 31, 2022).
|
|
Consolidated
|
|
|
2023
|
2022
|
|
Tax
|
10,375,764
|
8,480,614
|
|
Civil
|
246,500
|
161,859
|
|
Labor
|
169,463
|
164,462
|
|
Total contingent liabilities
|
10,791,727
|
8,806,935
|
22.2.1 Tax
Below are the most relevant tax contingencies related to the following matters:
| a) |
Lawsuits in which the industrial establishment equivalence is discussed, as provided for in the Decree No. 8,393/2015, which now requires IPI taxation of products listed in the referred legal provision in outbound transactions carried out by interdependent wholesalers. On December 31, 2023, the amount under discussion is R$2,456,695 (R$2,218,971 on December 31, 2022). |
| b) |
Administrative and judicial processes that discuss the illegality of changes in Federal State laws regarding the collection of ICMS and ICMS-ST. As of December 31, 2023, the total amount under discussion is R$1,640,391 (R$1,374,933 as of December 31, 2022). |
| c) |
Infraction notices in which the Brazilian Federal Revenue Office requires IRPJ and CSLL tax debts to challenge the tax deductibility of the amortization of goodwill generated in the context of a corporate reorganization between related parties. Currently, the legality of the administrative decisions that rejected the motions for clarification presented to challenge the special appeals dismissed is being discussed in the courts. As of December 31, 2023, the total amount under discussion classified as possible loss is R$1,598,213 (R$1,509,890 as of December 31, 2022). |
| d) |
Infraction notices in which the Finance Department of the São Paulo Federal State requires the collection of ICMS-ST, which was fully collected by the recipient of the goods, the distributor. Currently, the process is pending judgment at the administrative court level. As of December 31, 2023, the total amount under discussion classified as possible loss is R$682,263 (R$633,671 as of December 31, 2022). |
| e) |
Infraction notices in which the Brazilian Federal Revenue Office requires IPI tax debts for disagreeing with the tax classification adopted by the Company for some products. The tax assessment notices are awaiting judgment at the administrative court level. As of December 31, 2023, the total amount under discussion is R$2,199,853 and includes the amount of R$1,245,438 relating to the receipt of three new infraction notices relating to the tax classification of some products (R$719,920 as of December 31, 2022). |
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
|
|
Parent
|
Consolidated
|
|
|
2023
|
2022
|
2023
|
2022
|
|
Pension and post-employment health care plans(a)
|
-
|
-
|
515,901
|
463,948
|
|
Deferred revenue from performance obligations with customers (b)
|
-
|
-
|
131,113
|
313,204
|
|
Provision for incentives to consultants
|
-
|
-
|
153,692
|
217,349
|
|
Provision for operating expenses (marketing / technology, etc.) (c)
|
-
|
-
|
482,287
|
604,064
|
|
Provision for store renovation
|
-
|
-
|
-
|
116,137
|
|
Crer Para Ver (d)
|
-
|
-
|
47,571
|
87,420
|
|
Provision for restructuring (e)
|
15,682
|
39,846
|
113,440
|
175,809
|
|
Insurance payables
|
19,719
|
-
|
84,032
|
69,364
|
|
Other liabilities(f)
|
660
|
1,017
|
87,518
|
203,331
|
|
Total
|
36,061
|
40,863
|
1,657,012
|
2,250,626
|
|
|
|
|
|
|
|
Current
|
31,984
|
23,113
|
970,479
|
1,499,060
|
|
Non-current
|
4,077
|
17,750
|
686,533
|
751,566
|
| a) |
As of December 31, 2023, there is R$253,606 (R$282,295 as of December 31, 2022) referring to pension plans, and R$567 referring to post-employment plans (R$28,456 as of December 31, 2022) of subsidiary Avon International, and R$209,288 (R$129,697 as of December 31, 2022) referring to post-employment healthcare plans of the subsidiary Natura Cosmeticos and R$52,441 (R$51,956 as of December 31, 2022) referring to post-employment healthcare plans of the subsidiary Natura &Co International. |
| b) |
Refers to the deferral of revenue from performance obligations related to loyalty programs based on points, sale of gift cards not yet converted into products and programs and events to honor direct sales consultants, of which R$88,017 (R$190,790 as of December 31, 2022) is referring to subsidiary Avon, R$31,089 (R$93,761 as of December 31, 2022) referring to the consolidated subsidiary Natura Cosmeticos and R$12,007 (R$28,653 as of December 31, 2022) referring to subsidiary Natura &Co International. |
| c) |
Refers to the Company's operating provisions arising mainly from expenses with the provision of technology, marketing, and advertising services. |
| d) |
Contribution of the social program to the development of the quality of education. |
| e) |
Provision for costs directly related to the integration plan and changes in the organizational structure of the subsidiary Avon and Group corporate structure review. |
| f) |
Refers to miscellaneous provisions such as indemnities and non-current contractual obligations. |
Post-employment health care and Pension plan
a) Defined benefit pension (Avon)
The subsidiary Avon has contributory and noncontributory defined benefit retirement plans for substantially all of its employees. Benefits under these plans are generally based on an employee’s length of service and average compensation near retirement, and certain plans have vesting requirements. The plans are funded based on legal requirements and cash flow.
The largest defined benefit pension plan of the subsidiary Avon outside the United States (“US”) is in the United Kingdom (“UK”). The UK defined benefit pension plan was frozen for future accruals as of April 1, 2013. The US defined benefit pension plan, the Avon Products, Inc. Personal Retirement Account Plan (the “PRA”), is closed to employees hired on or after January 1, 2015. Qualified retirement benefits for US-based employees hired on or after January 1, 2015 will be provided exclusively through Avon Personal Savings Account Plan (the “PSA”), as described in note no. 28.2.
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
The most recent actuarial valuation of plan assets and the present value of the defined benefit obligation was carried out on December 31, 2023. The present value of the defined benefit obligation and the respective cost of current services and cost of past services were measured at projected unit credit method.
The change in actuarial liabilities for the years ended December 31, 2023 and 2022 are shown below:
|
|
Pension plan
|
|
|
2023
|
2022
|
|
Balance at the beginning of the year
|
334,251
|
445,804
|
|
Cost of services – current
|
21,871
|
19,707
|
|
Interest cost – recognized in the statement of profit or loss
|
21,542
|
15,568
|
|
Administrative costs
|
4,046
|
2,698
|
|
Company contributions
|
(6,004)
|
(4,299)
|
|
Benefits paid
|
(30,896)
|
(22,262)
|
|
Actuarial loss in OCI (a)
|
(2,096)
|
(254,913)
|
|
Reclassifications
|
832
|
24,956
|
|
Other
|
7,082
|
88,474
|
|
Translation adjustment
|
(26,266)
|
18,518
|
|
Balance at end of year
|
324,362
|
334,251
|
| (a) |
The actuarial loss recorded throughout 2022 is directly related to the update of the mortality tables, as they were impacted by the effects of the Covid-19 pandemic. |
The significant actuarial assumptions for the determination of the actuarial liability are discount rate and rate of compensation increase. The details of the assumptions are as follows:
|
|
2023
|
2022
|
|
Discount rate
|
1.20% to 11.60%
|
1.30% to 12.00%
|
|
Rate of compensation increase
|
2.15% to 5.50%
|
2.55% to 7.40%
|
The fair values of each major class of pension plan assets are presented below:
|
|
Consolidated
|
|
|
2023
|
2022
|
|
Cash and cash equivalent
|
46,957
|
7,330
|
|
Equity instruments of other entities
|
486,511
|
520,799
|
|
Government bonds
|
1,481,317
|
1,013,584
|
|
Corporate bonds
|
1,219,908
|
1,317,122
|
|
Real estate
|
8,714
|
10,957
|
|
Other
|
(525,722)
|
(121,574)
|
|
Total
|
2,717,685
|
2,748,218
|
b) Post-employment health care plan (Natura Cosmeticos)
Post-employment health care plan as detailed in note no. 3.19.4. As of December 31, 2023 and 2022, the obligation weighted average duration is around 21.9 and 20.0 years, respectively, and its actuarial calculation base is as follows
➢
|
842 (2022: 866) active employees of the subsidiaries Natura Cosmeticos, Natura Indústria e Avon Industrial; |
| ➢ |
614 (2022: 406) retired and dependent on the subsidiaries Natura Cosmeticos, Natura Indústria e Avon Industrial.
|
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
The actuarial liability was calculated, as of December 31, 2023 and 2022, considering the following main assumptions:
|
|
2023
|
2022
|
|
Discount rate
|
9.69%
|
10.43%
|
|
Initial growth rate of medical cost
|
4.25%
|
4.25%
|
|
Inflation rate
|
4.00%
|
4.00%
|
|
Final growth rate of medical cost
|
8.42%
|
8.42%
|
|
Growth rate of medical costs due to aging - costs
|
Per age range
1.25% a 4.75% a.a.
|
Per age range
1.25% a 4.75% a.a.
|
|
Growth rate of medical costs by aging - contributions
|
0.00%
|
0.00%
|
|
Percentage of adherence to the plan in retirement
|
Bradesco Plan 58.00% / Unimed Plan 85.00%
|
Bradesco Plan 58.00% / Unimed Plan 85.00%
|
|
Schedule of disabled mortality
|
Mercer Disability
|
Mercer Disability
|
|
Schedule of mortality
|
AT-2000
|
AT-2000
|
|
Schedule of turnover
|
Proportional calculation at the time of service
|
Proportional calculation at the time of service
|
The reduction in the annual discount rate from 10.43% to 9.69% generated R$51,566 in gains in other comprehensive income.
The table below sets forth the medical inflation rate and the discount rate sensitivity analysis, and their respective effect on the balance (present value of the obligation, or “PVO”) accounted as on the actuarial liabilities (maintaining the other assumptions):
|
|
Rate
|
Chance
|
PVO
|
|
Discount rate
|
9.69%
|
1% increase
|
229,052
|
|
Discount rate
|
9.69%
|
1% decrease
|
173,673
|
|
Rate of compensation
|
8.42%
|
1% increase
|
174,202
|
|
Rate of compensation
|
8.42%
|
1% decrease
|
227,843
|
The changes of actuarial liabilities for the years ended December 31, 2023 and 2022, is set forth in the table below:
|
|
Consolidated
|
|
|
2023
|
2022
|
|
Balance at the beginning of the year
|
129,697
|
124,649
|
|
Cost of the current service of subsidiary Natura Cosmeticos
|
983
|
812
|
|
Cost of interest
|
13,314
|
11,078
|
|
Expenses paid
|
(4,021)
|
(3,398)
|
|
Actuarial gains in OCI
|
51,566
|
(3,444)
|
|
Balance as of the end of the year
|
191,539
|
129,697
|
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
24.1 Share capital
On December 31, 2023, the share capital of the Company is of R$ 12,484,515, composed of 1,386,848,066 registered common shares without par value (R$ 12,484,424 composed of 1,383,206,405 registered common shares without par value on December 31, 2022).
24.2 Dividends payment policy
The shareholders are entitled to receive every year a mandatory minimum dividend of 30% of net income, considering principally the following adjustments:
| ➢ |
Increase in the amounts resulting from the reversal, in the period, of previously recognized reserves for contingencies. |
| ➢ |
Decrease in the amounts intended for the recognition, in the period, of the legal reserve and reserve for contingencies. |
| ➢ |
Whenever the amount of the minimum mandatory dividend exceeds the realized portion of net income for the year, management may propose, and the General Meeting approves, allocate the excess to the constitution of the unrealized profit reserve (article 197 of Law No. 6404/76); accumulated losses and tax will be deducted from net income, prior to distribution (article 189 of Law No. 6.404/76). |
Based on the profit for the year 2023, dividends were proposed in the amount of R$293,986, without withholding income tax, equivalent to the remuneration of R$0.2129 per share, which will be settled throughout 2024.
The Board of Directors may pay or credit interest on equity, in accordance with applicable legislation.
24.3 Treasury shares
As of December 31, 2023 and 2022, item “Treasury shares” has the following composition:
|
|
Number of shares
|
R$ (in thousands)
|
Average price per share - R$
|
|
Balance as of December 31, 2021
|
4,899,540
|
151,342
|
30.89
|
|
Used
|
(377,585)
|
(9,282)
|
24.58
|
|
Acquired
|
5,391,900
|
120,300
|
22.31
|
|
Balance as of December 31, 2022
|
9,913,855
|
262,360
|
26.46
|
|
Used
|
(3,709,807)
|
(98,124)
|
26.45
|
|
Balance as of December 31, 2023
|
6,204,048
|
164,236
|
26.47
|
There was no minimum and maximum cost of the balance of treasury shares on December 31, 2023, considering that there were no movements.
24.4 Capital reverse
In the year ended December 31, 2023, there was an increase of R$634,156 (R$247,048 on December 31, 2022) related to changes in stock option plans and restricted shares.
The capital reserve as of December 31, 2023 amounted to R$11,175,041 (R$10,540,885 as of December 31, 2022).
24.5 Cumulative translation adjustment – Other comprehensive income
The Company recognizes in this equity item the exchange rate variation effect from investments in foreign subsidiaries, including exchange rate variations in a hyperinflationary economy, actuarial gains and losses arising from the employee benefit plan, and the effect from cash flow hedge operations. For exchange rate variation, the accumulated effect will be reversed to statement of profit or loss as a gain or loss only in the event of disposal or write-off of the investment. For actuarial losses and gains, the amounts will be recognized when the actuarial liability is remeasured. The cash flow hedge transactions are transferred to the statement of profit or loss in case an ineffective portion is identified or when the hedge relationship is terminated.
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
There was no change in the composition of the operating segments and information by geographic area in relation to that disclosed in the financial statements for the year ended December 31, 2022, except for the sale of the former subsidiaries Aesop and The Body Shop, where information relating to these segments was presented as discontinued operations.
Net revenue by segment is as follows for the year ended December 31, 2023:
Natura &Co Latam – 76.5% and 75.4%, respectively; and
Avon International – 23.5% and 24.6%.
The accounting policies for each segment are applied uniformly as described in note no. 3.
The following tables provide summarized financial information related to the segments and geographic distribution of the Company’s commercial operations for December 31, 2023 and 2022.
25.1 Operating segments
|
|
|
|
|
2023
|
|
|
|
|
|
|
Reconciliation to net income for the year
|
|
|
Net Revenue
|
Performance assessed by the company
|
Depreciation andamortization
|
Discontinued operations
|
Financial results
|
Income tax
|
Net income (loss) for the year
|
|
Natura &Co Latam
|
20,440,834
|
2,239,663
|
(921,510)
|
6,286,298
|
(2,249,167)
|
624,892
|
5,980,176
|
|
Avon International 1
|
6,286,771
|
(493,462)
|
(665,753)
|
(434,852)
|
(855,283)
|
(320,889)
|
(2,770,239)
|
|
The Body Shop 1
|
-
|
-
|
-
|
(302,529)
|
-
|
-
|
(302,529)
|
|
Aesop 1
|
-
|
-
|
-
|
(3,576)
|
-
|
-
|
(3,576)
|
|
Corporate expenses
|
9,672
|
(313,055)
|
(731)
|
11,116
|
590,951
|
(217,603)
|
70,678
|
|
Consolidated
|
26,737,277
|
1,433,146
|
(1,587,994)
|
5,556,457
|
(2,513,499)
|
86,400
|
2,974,510
|
|
|
2022
|
|
|
Reconciliation to net loss for the year
|
|
|
Net Revenue
|
Performance assessed by the company
|
Depreciation and amortization
|
Discontinued operations
|
Financial results
|
Income tax
|
Net loss for the year
|
|
Natura &Co Latam
|
22,027,337
|
1,912,651
|
(912,412)
|
-
|
(1,412,369)
|
98,712
|
(313,418)
|
|
Avon International 1
|
7,195,984
|
(74,655)
|
(683,845)
|
(380,416)
|
(665,653)
|
(200,474)
|
(2,005,043)
|
|
The Body Shop 1
|
-
|
-
|
-
|
(349,448)
|
-
|
-
|
(349,448)
|
|
Aesop 1
|
-
|
-
|
-
|
132,677
|
-
|
-
|
132,677
|
|
Corporative expenses
|
335
|
(615,103)
|
(10,273)
|
(468)
|
293,041
|
9,409
|
(323,394)
|
|
Consolidated
|
29,223,656
|
1,222,893
|
(1,606,530)
|
(597,655)
|
(1,784,981)
|
(92,353)
|
(2,858,626)
|
|
|
2023
|
2022
|
|
|
Non-current assets
|
Total assets
|
Current liabilities
|
Non-current liabilities
|
Non-current assets
|
Total assets
|
Current liabilities
|
Non-current liabilities
|
|
Natura &Co Latam
|
18,240,916
|
23,253,227
|
6,914,476
|
4,324,263
|
18,256,204
|
29,762,132
|
8,363,130
|
10,164,706
|
|
Avon International 1
|
8,008,108
|
10,608,234
|
2,792,255
|
977,003
|
11,197,014
|
14,259,571
|
1,894,856
|
1,838,328
|
|
The Body Shop 2
|
-
|
-
|
-
|
-
|
6,565,913
|
7,928,270
|
1,292,903
|
1,669,625
|
|
Aesop 2
|
-
|
-
|
-
|
-
|
1,621,126
|
2,735,417
|
731,018
|
776,512
|
|
Corporate expenses
|
510,769
|
8,885,554
|
706,768
|
3,911,785
|
923,606
|
-
|
1,055,961
|
4,547,167
|
|
Consolidated
|
26,759,793
|
42,747,015
|
10,413,499
|
9,213,051
|
38,563,863
|
54,685,390
|
13,337,868
|
18,996,338
|
1 The operations of these segments located in Latin American countries (Latam) are presented in the Natura &Co Latam segment.
2 The balances are at zero in 2023 due to the sale of the former subsidiaries Aesop and The Body Shop.
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
25.2 Net revenue and non-current assets, by geographical area of operations
|
|
Net revenue
|
Non-current asset
|
|
2023
|
2022
|
2023
|
2022
|
|
Asia
|
1,326,431
|
1,555,054
|
572,168
|
1,284,783
|
|
North America
|
3,919,414
|
4,472,169
|
3,956,986
|
6,261,545
|
|
Mexico
|
3,284,608
|
3,570,990
|
3,883,804
|
3,631,768
|
|
Other
|
634,806
|
901,180
|
73,182
|
2,629,777
|
|
South America
|
16,481,018
|
17,513,597
|
14,015,695
|
14,508,816
|
|
Brazil
|
12,004,994
|
11,280,690
|
10,933,917
|
12,656,298
|
|
Argentina
|
1,711,783
|
3,003,214
|
261,155
|
694,172
|
|
Other
|
2,764,241
|
3,229,693
|
2,820,623
|
1,158,346
|
|
Europe, Middle East and Africa (EMEA)
|
5,010,413
|
5,682,836
|
7,817,489
|
15,271,251
|
|
United Kingdom
|
257,944
|
577,544
|
4,734,651
|
10,894,799
|
|
Other
|
4,752,469
|
5,105,292
|
3,082,837
|
4,376,452
|
|
Oceania
|
-
|
-
|
397,455
|
1,237,468
|
|
Consolidated
|
26,737,277
|
29,223,656
|
26,759,793
|
38,563,863
|
No individual or aggregate customer (economic group) represents more than 10% of the Company’s net revenue.
|
|
Consolidated
|
|
Gross revenue:
|
2023
|
2022
|
|
Direct Selling
|
31,399,069
|
34,011,306
|
|
Retail
|
549,749
|
431,848
|
|
Online
|
1,461,888
|
1,737,356
|
|
Other sales
|
1,307,844
|
1,705,890
|
|
Subtotal
|
34,718,550
|
37,886,400
|
|
|
|
|
|
Returns and cancellations
|
(442,676)
|
(588,579)
|
|
Commercial discounts and rebates
|
(11,610)
|
(29)
|
|
Taxes on sales
|
(7,526,987)
|
(8,074,136)
|
|
Subtotal
|
(7,981,273)
|
(8,662,744)
|
|
Total net revenue
|
26,737,277
|
29,223,656
|
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
|
|
Parent
|
Consolidated
|
|
Classified by function
|
2023
|
2022
|
2023
|
2022
|
|
Cost of sales
|
-
|
-
|
9,675,435
|
11,770,762
|
|
Selling, marketing and logistics expenses
|
-
|
-
|
11,015,940
|
11,558,866
|
|
Administrative, R&D, IT and project expenses
|
188,615
|
383,514
|
4,225,027
|
5,023,626
|
|
Total
|
188,615
|
383,514
|
24,916,402
|
28,353,254
|
|
|
|
|
|
|
|
Classified by nature
|
|
|
|
|
|
Cost of sales
|
-
|
-
|
9,675,435
|
11,770,762
|
|
Raw material/packaging material/resale
|
-
|
-
|
8,541,488
|
10,587,972
|
|
Employee benefits expense (note 28)
|
-
|
-
|
516,046
|
565,431
|
|
Depreciation and amortization
|
-
|
-
|
170,288
|
168,713
|
|
Other
|
-
|
|
447,613
|
448,646
|
|
|
|
-
|
|
|
|
Selling, marketing and logistics expenses
|
-
|
-
|
11,015,940
|
11,558,866
|
|
Logistics costs
|
-
|
-
|
1,523,083
|
1,941,593
|
|
Personnel expenses (note 28)
|
-
|
-
|
2,804,788
|
2,734,895
|
|
Marketing, sales force and other selling expenses
|
-
|
-
|
6,224,588
|
6,357,494
|
|
Depreciation and amortization
|
-
|
-
|
463,481
|
484,614
|
|
Impairment
|
|
|
-
|
40,270
|
|
|
|
|
|
|
|
Administrative, R&D, IT and project expenses
|
188,615
|
383,514
|
4,225,027
|
5,023,626
|
|
Innovation expenses
|
-
|
-
|
161,477
|
262,646
|
|
Personnel expenses (note 28)
|
53,053
|
103,775
|
1,754,650
|
2,073,680
|
|
Restructuring expenses
|
730
|
122,744
|
730
|
(241,060)
|
|
Other administrative expenses
|
133,062
|
155,178
|
1,354,083
|
1,865,925
|
|
Depreciation and amortization
|
1,770
|
1,817
|
954,087
|
1,062,435
|
|
|
|
|
|
|
|
Total
|
188,615
|
383,514
|
24,916,402
|
28,353,254
|
|
|
Parent
|
Consolidated
|
|
|
2023
|
2022
|
2023
|
2022
|
|
Payroll, profit sharing and bonuses
|
28,448
|
80,969
|
3,553,374
|
3,848,557
|
|
Pension Plan
|
-
|
-
|
100,498
|
90,392
|
|
Share-based payments, net of charges
|
13,304
|
8,249
|
126,987
|
90,796
|
|
Health care, food and other benefits
|
1,667
|
2,890
|
579,116
|
704,449
|
|
Charges, taxes and social contributions
|
962
|
1,408
|
473,382
|
588,538
|
|
INSS
|
8,672
|
10,259
|
242,127
|
51,274
|
|
Total
|
53,053
|
103,775
|
5,075,484
|
5,374,006
|
28.1 Share-based payments
Natura &Co offers long-term incentives to senior executives and employees responsible for implementing its long-term strategy.
Overview of plans
The share-based payment programs granted before the corporate restructuring, on December 18, 2019, were originally granted considering the shares of Natura Cosmeticos that were traded on B3. SA - Brasil, Bolsa, Balcão (“B3”, Brazilian Stock Exchange). As a result of the corporate restructuring, the shares of Natura Cosmeticos originally granted were replaced by shares of the Company.
Awards outstanding as of December 31, 2023 relate to various share-based plans, the terms of which are summarized in the tables below.
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
In 2023, stock options, restricted shares and performance shares were granted in accordance with the “Co-investment Plan” or “Long-Term Incentive Plan”.
Under the “Co-Investment Plan”, eligible employees may invest part of their payout from the Profit Share Program in the purchase of Company’s shares. Company will grant awards ("Matching Awards”) to match such purchased shares on a 1:1 ratio. Matching shares vest in three equal installments over three years, subject to continued employment as an employee at the Company.
In the “Long-Term Incentive Plan”, Company shares are granted to eligible employees. Certain “Long-Term Incentive Plan” awards are only subject to a requirement to remain in employment at the Company over the vesting period. While the awards referred to as “Performance Shares” are subject to both a requirement to remain employed at the Company over the vesting period and meeting certain performance conditions.
For the outstanding awards presented in this note, there are generally no cash settlement alternatives (awards are settled with shares).
Changes in the number of awards based on shares outstanding are shown below:
|
Stock option plan and Strategy Acceleration Plan
|
|
|
Weighted average strike price per option – R$
|
Options (thousands)
|
|
Balance as of December 31, 2022
|
18.92
|
19,660
|
|
Granted
|
16.45
|
30
|
|
Expired/Cancelled
|
22.92
|
(758)
|
|
Exercised
|
13.02
|
(568)
|
|
TBS Awards – equity to cash settlement conversion
|
21.43
|
(1,334)
|
|
Balance as of December 31, 2023
|
18.74
|
17,030
|
|
|
Restricted shares (thousands)
|
Performance shares
(thousands)
|
|
Balance as of December 31, 2022
|
6,058
|
12,055
|
|
Granted
|
3,966
|
8,736
|
|
Expired/Cancelled
|
(360)
|
(2,921)
|
|
Stock adjustment based on acquisition performance
|
-
|
(990)
|
|
Released
|
(3,033)
|
(2,686)
|
|
Adjustments related to vesting in the sale of Aesop
|
-
|
(964)
|
|
Awards related to the sale of Aesop
|
(182)
|
(875)
|
|
Adjustments related to the acquisition of rights in the sale of TBS
|
(18)
|
(1,476)
|
|
TBS Awards – equity to cash settlement conversion
|
(129)
|
(383)
|
|
Balance as of December 31, 2023
|
6,302
|
10,496
|
The number of shares above and throughout this disclosure:
| (I) |
The plans are presented using B3 equivalents for awards that are to be exercised in ADRs to ensure consistency; and
|
| (II) |
The number of performance shares is disclosed considering achievement of the performance conditions target, whereas the expense recognized reflects the latest reassessment of the number of awards expected to vest.
|
The share-based payment expense recognized in the year ended December 31, 2023 was R$13,304 in the parent company and R$126,987 in the consolidated (R$8,249 and R$123,931, respectively for the year ended December 31, 2022), net of social charges.
The outstanding stock options, restricted shares and performance shares as of the end of the period have the following maturity dates, fair values and strike prices:
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
As of December 31, 2023 – Stock options
|
Grant date
|
Conditions for acquisition of right as of the grant date
|
Strike Price
(R$)
|
Fair value at grant date
(R$)
|
Existing shares
(thousands)
|
Maximum remaining contractual life (years)
|
Exercisable options
(thousands)
|
|
March 16,2015
|
2 to 4 years of service
|
12.71
|
7.16 to 7.43
|
85
|
0.2
|
85
|
|
July 11, 2016 (acceleration strategy)
|
4 to 5 years of service
|
11.28
|
6.84 to 6.89
|
1,540
|
0.5
|
1,540
|
|
March 10, 2017
|
2 to 4 years of service
|
12.46
|
6.65 to 6.68
|
350
|
1.2
|
350
|
|
March 10, 2017
(acceleration strategy)
|
4 to 5 years of service
|
12.46
|
6.87 to 6.89
|
1,890
|
1.5
|
1,890
|
|
March 12, 2018
|
2 to 4 years of service
|
16.83
|
7.96 to 8.21
|
1,501
|
2.2
|
1,501
|
|
March 12, 2018 (acceleration strategy)
|
3 to 5 years of service
|
12.04 to 16.83
|
8.21 to 9.67
|
3,800
|
2.2
|
3,800
|
|
April 12, 2019
|
2 to 4 years of service
|
23.41
|
11.71 to 11.82
|
1,421
|
3.2
|
1,421
|
|
April 12, 2019
(acceleration strategy)
|
4 to 5 years of service
|
23.41
|
11.51 to 11.71
|
1,900
|
3.2
|
950
|
|
December 17, 2021
|
3 to 4 years of service
|
27.28
|
13.85 to 18.16
|
3,703
|
8.0
|
-
|
|
September 14, 2022
|
3 to 4 years of service
|
16.45
|
8.39 to 10.32
|
840
|
8.7
|
600
|
|
|
|
|
|
17,030
|
|
12,137
|
As of December 31, 2023 – Restricted shares
|
Grant date
|
Conditions for acquisition of right as of the grant date
|
Existing shares
(thousands)
|
Fair value at grant date
(R$)
|
Maximum remaining contractual life (years)
|
|
March 31, 2021
|
1 to 3 years of service
|
737
|
48.13
|
0.3
|
|
April 14, 2022
|
1 to 3 years of service
|
1,138
|
24.91 to 24.99
|
1.3
|
|
March 31, 2021 (as modified in September 2022)*
|
4 to 5 years of service
|
1,100
|
7.41 to 24.77
|
2.3
|
|
May 5, 2023
|
1 to 3 years of service
|
3,327
|
11.2
|
2.3
|
|
|
|
6,302
|
|
|
* The original grant of March 31, 2021 was stock options, but became a restricted share award as a result of the September 2022 amendment.
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
As of December 31, 2023 – Performed shares
|
Grant date
|
Conditions for acquisition of right as of the grant date
|
Existing shares
(thousands)
|
Fair value at grant date
(R$)
|
Maximum remaining contractual life (years)
|
|
March 31, 2021
|
Achievement of performance conditions, 3 years of service plus an additional holding period of 1 year for certain awards
|
1,859
|
46.57 to 50.98
|
0.3 to 1.3
|
|
April 14, 2022
|
Achievement of performance conditions, 3 years of service plus an additional holding period of 1 year for certain awards.
|
3,545
|
18.66 a 24.99
|
1.3 to 2.3
|
|
May 5, 2023
|
Achievement of performance conditions, 3 years of service
|
5,092
|
11.20 a 11.55
|
2.3 a 3.3
|
|
|
|
10,496
|
|
|
Assumptions
Ranges of valuation assumptions for the new granting of restricted and performance shares in May 2023 are set out below. The valuation models used were Black-Scholes, Stochastic and Finnerty, depending on the type of award.
|
Assumptions
|
B3 shares
|
ADRs
|
|
Share price (also used as strike price on Finnerty)
|
R$ 11.21
|
USD 4.49
|
|
Strike price
|
R$ 0.01
|
USD 0.00403
|
|
Expected volatility
|
48.64% to 57.70%
|
55.20% to 63.11%
|
|
Expected term
|
1 to 3 years
|
1 to 3 years
|
|
Expected dividend yield
|
0.00%
|
0.00%
|
|
Risk-free interest rate
|
11.69% to 12.93%
|
3.68% to 4.82%
|
Volatility was calculated over the period consistent with the expected grant term (or over the remainder of the performance period, where applicable) immediately prior to the grant date. In the Finnerty model, volatility is calculated over the period proportional to the holding period immediately prior to the grant date.
As of December 31, 2023, the market price was R$16.89 (R$11.61 as of December 31, 2022) per share.
28.2 Employee benefit plans
The Company and some of its subsidiaries grant defined contribution retirement plans to eligible employees and, through some of their foreign subsidiaries, grant defined benefit plans to employees that are eligible.
Defined contribution plans
The Company, through its subsidiary Avon, offers a defined contribution plan for Avon employees in the United Kingdom (“UK”), which allows eligible participants to contribute eligible compensation through payroll deductions. The Company double employee contributions up to the first 5% of eligible compensation and therefore the maximum level provided by Avon is 10% of eligible compensation. In the year ended December 31, 2023, the subsidiary Avon made matching contributions to the contribution plan defined in the UK in the total amount of R$28,080 (R$33,915 in the year ended December 31, 2022), which follow the same investment allocation that the participant has selected for his or her own contributions.
|
| NATURA &CO HOLDING S.A. |
| NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED DECEMBER 31, 2023 |
| (Amounts in thousands of Reais - R$, except as mentioned otherwise) |
The Company offers a qualified defined contribution plan for U.S.-based employees, the Avon Personal Savings Account Plan (the “PSA”), which allows eligible participants to contribute up to 25% of eligible compensation through payroll deductions. The Company matches contributions dollar for dollar up to the first 3% of eligible compensation and covers 50% for contributions of 4% to 6% of eligible compensation. In 2023, the subsidiary Avon made matching contributions to the PSA in the amount of R$3,873 (R$4,174 in 2022), which follow the same investment allocation that the participant has selected for his or her own contributions.
For U.S.-based employees hired on or after January 1, 2015, the Company made additional contributions to a Retirement Savings Account (“RSA”) within the PSA. Such contributions will range from 3% to 6% of a participant’s eligible compensation depending on the sum of the participant’s age and length of service (as of December 31 of the prior year). Investment of such contributions will follow the same investment allocation that the participant has selected for his or her own contributions to the PSA. A participant will be vested in the RSA generally after three full years of applicable service.
Defined and post-retirement benefit plans
The Company, through its subsidiary Avon and certain subsidiaries, have contributory and noncontributory defined benefit retirement plans for substantially all employees of those subsidiaries. Benefits under these plans are generally based on an employee’s length of service and average compensation near retirement, and certain plans have vesting requirements.
The actuarial liability for the health care plan of the Company refers to a post-employment benefit plan for employees and former employees who made fixed contributions to the cost of the health plan until April 30, 2010, date when the design of the health plan was changed, and the employees’ fixed contributions were eliminated. For those who have contributed to the medical plan for ten years or more, the right to maintenance is guaranteed as an indefinite (lifetime) beneficiary, and for those who have contributed for less than ten years, the right to maintenance is guaranteed as beneficiary, at the rate of one year for each year of fixed contribution. This group of current employees, in case of termination, may choose to remain on the plan in accordance with applicable legislation, assuming the payment of the monthly fee charged by the health plan operators. However, this monthly fee does not necessarily represent the user’s total cost, which is assumed by the Company, based on the excess cost grant, as an of additional benefit form.
Avon’s largest defined benefit pension plan outside the United States (“US”) is in the UK, which has been frozen for future accruals as of April 1st, 2013. The U.S. defined benefit pension plan, the Personal Retirement Account Plan (the "PRA"), is closed to employees hired on or after January 1st, 2015, so that qualified retirement benefits for US-based employees hired on or after January 1st, 2015 will be provided solely through the PSA.