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NTCO Natura &Co Holding

Filed: 12 May 21, 8:00pm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of May 2021

 

 

Commission File Number: 001-39169

 

Natura &Co Holding S.A.

(Exact name of registrant as specified in its charter)

 

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

Parque Anhanguera

São Paulo, São Paulo 05106-000, Brazil

(Address of principal executive office)

 

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

 

Form 20-F

X

 Form 40-F 

 

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

 

Yes  No

X

 

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

 

Yes  No

X

 

 

 

 

 

 

NATURA &CO HOLDING S.A.

 

TABLE OF CONTENTS

 

ITEM 
  
1.Individual and Consolidated Interim Financial Information of Natura &Co Holding S.A. for the three-month period ended March 31, 2021.

 

 

 

 

 

SIGNATURE

 

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

 

 

NATURA &CO HOLDING S.A.

 

  
  
 By:

/s/ José Antonio de Almeida Filippo 

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

/s/ Itamar Gaino Filho 

 Name:Itamar Gaino Filho
 Title:Chief Legal and Compliance Officer

 

Date: May 12, 2021

 

 

 

 

Item 1

 

Individual and Consolidated Interim Financial Information of Natura &Co Holding S.A. for the three-month period ended March 31, 2021.

 

 

 

 

 

 

 

NATURA &CO HOLDING S.A.

Individual and Consolidated Interim Financial Information 

for the three-month period ended March 31, 2021 and Independent Auditor’s Report

 

 

 

 

www.pwc.com.br

 

 

 

Natura &Co Holding S.A.

Quarterly Information (ITR) at  

March 31, 2021

and report on review of  

quarterly information

 

 

 

 

 

 

 

 

 

 

Report on review of

quarterly information

 

To the Board of Directors and Stockholders 

Natura &Co Holding S.A.

 

Introduction

 

We have reviewed the accompanying parent company and consolidated interim accounting information of Natura &Co Holding S.A. ("Company"), included in the Quarterly Information Form (ITR) for the quarter ended March 31, 2021, comprising the statement of financial position at that date and the statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the quarter then ended, and a summary of significant accounting policies and other explanatory information.

 

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

 

Scope of review

 

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

 

Conclusion on the interim information

 

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

 

 

PricewaterhouseCoopers, Av. Francisco Matarazzo 1400, Torre Torino, São Paulo, SP, Brasil, 05001-903, Caixa Postal 60054, T: +55 (11) 3674 2000, www.pwc.com./br

 

 

 

 

Natura &Co Holding S.A.

 

Other matters

 

Statement of value added

 

The quarterly information referred to above includes the parent company and consolidated statements of value added for the quarter ended March 31, 2021. These statements are the responsibility of the Company's management and are presented as supplementary information under IAS 34. These statements have been subjected to review procedures performed together with the review of the quarterly information for the purpose of concluding whether they are reconciled with the interim accounting information and accounting records, as applicable, and if their form and content are in accordance with the criteria defined in the accounting standard CPC 09 - "Statement of Value Added". Based on our review, nothing has come to our attention that causes us to believe that these statements of value added have not been properly prepared, in all material respects, in accordance with the criteria established in this accounting standard, and consistent with the parent company and consolidated interim accounting information taken as a whole.

 

São Paulo, 12 May 2021

 

 

 

PricewaterhouseCoopers

Auditores Independentes 

CRC 2SP000160/O-5

 

 

 

Leandro Mauro Ardito

Contador CRC 1SP188307/O-0

 

 

NATURA &CO HOLDING S.A.

 

STATEMENT OF FINANCIAL POSITION AS AT MARCH 31, 2021 AND DECEMBER 31, 2020

(In thousands of Brazilian reais - R$)

 

   Company Consolidated
ASSETSNote March 31, 2021 December 31, 2020 March 31, 2021 December 31, 2020
          
CURRENT         
Cash and cash equivalents6 508,361 505,699 4,326,359 5,821,672
Short-term investments7 387,589 340,999 2,249,701 2,520,648
Trade accounts receivable8 - - 3,370,107 3,597,535
Trade accounts receivable - related parties31.1 200,425 115,952 - -
Inventories9 - - 5,342,723 4,544,270
Recoverable taxes10 20,353 23,637 1,176,299 1,071,349
Income tax and social contribution  4,510 - 200,447 242,091
Derivative financial instruments  - - 112,228 139,856
Other current assets14 321 1,979 800,631 616,120
   1,121,559 988,266 17,578,495 18,553,541
          
Assets held for sale13 - - 160,601 181,279
Total current assets  1,121,559 988,266 17,739,096 18,734,820
          
NON-CURRENT         
Recoverable taxes10 - - 938,632 932,212
Income tax and social contribution  - - 486,294 478,524
Deferred income tax and social contribution11 - - 1,270,696 1,339,725
Judicial deposits12 - - 557,960 566,190
Derivative financial instruments  - - 2,116,416 1,768,122
Short-term investments7 - - 28,487 16,104
Other non-current assets14 889 148 1,606,515 1,527,668
Total long-term assets  889 148 7,005,000 6,628,545
          
          
          
Investments15 28,142,137 26,944,279 - -
Property, plant and equipment16 - - 5,380,072 5,235,057
Intangible17 - - 28,306,024 26,917,128
Right of use18 - - 3,387,964 3,402,047
          
Total non-current assets  28,143,026 26,944,427 44,079,060 42,182,777
          
          
          
          
          
TOTAL ASSETS  29,264,585 27,932,693 61,818,156 60,917,597

   Company Consolidated
LIABILITIES AND SHAREHOLDERS' EQUITYNote March 31, 2021 December 31, 2020 March 31, 2021 December 31, 2020
          
CURRENT         
Borrowings, financing and debentures19 524,106 515,966 3,234,540 3,805,649
Lease18 - - 1,120,817 1,059,661
Trade accounts and supply chain finance20 5,057 9,693 6,555,155 6,774,205
Trade accounts payable - related parties31.1 564 7,194 - -
Payroll, profit sharing and social charges  41,286 20,153 1,242,475 1,340,683
Tax liabilities21 101 13,153 658,523 785,367
Income tax and social contribution  - - 372,475 441,253
Derivative financial instruments  - - 40,924 61,201
Provision for tax, civil and labor risks22 - - 59,389 58,756
Other current liabilities23 - 71 1,721,851 1,832,811
Total current liabilities  571,114 566,230 15,006,149 16,159,586
          
NON-CURRENT         
Borrowings, financing and debentures19 - - 10,776,351 10,017,264
Lease18 - - 2,799,796 2,798,794
Payroll, profit sharing and social charges  2,136 2,136 43,763 43,763
Tax liabilities21 - - 112,290 109,454
Deferred income tax and social contribution11 - - 1,186,850 1,288,045
Provision for tax, civil and labor risks22 - - 2,058,607 2,000,444
Other non-current liabilities23 - - 1,120,182 1,113,139
Total non-current liabilities  2,136 2,136 18,097,839 17,370,903
          
TOTAL LIABILITIES  573,250 568,366 33,103,988 33,530,489
          
SHAREHOLDERS' EQUITY         
Capital stock24.1 12,395,686 12,377,999 12,395,686 12,377,999
Treasury shares24.3 (9,716) (11,667) (9,716) (11,667)
Capital reserves24.4 11,066,148 11,052,135 11,066,148 11,052,135
Legal profit reserve  133,831 120,166 133,831 120,166
Retained losses  (915,106) (759,937) (915,106) (759,937)
Equity valuation adjustment  6,020,492 4,585,631 6,020,492 4,585,631
Shareholders' equity attributed to the Company's controlling shareholders 28,691,335 27,364,327 28,691,335 27,364,327
          
Non-controlling interest in shareholders' equity of subsidiaries  - - 22,833 22,781
Total shareholders' equity  28,691,335 27,364,327 28,714,168 27,387,108
          
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  29,264,585 27,932,693 61,818,156 60,917,597

       

*The accompanying notes are an integral part of the Interim Financial Statements.

 

NATURA &CO HOLDING S.A.

 

STATEMENT OF INCOME

FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021 AND 2020 

(In thousands of Brazilian reais - R$, except for earnings per share)

 

    Company Consolidated
 Note March 31, 2021 March 31, 2020 March 31, 2021 March 31, 2020
CONTINUING OPERATIONS         
Gross sales         
Domestic market  - - 6,949,592 -
Foreign market  - - 3,808,960 -
Other sales  - - 48,531 -
          
GROSS OPERATING INCOME  -   10,807,083  
Taxes on sales, returns and rebates  - - (1,352,010) -
          
NET REVENUE26 - - 9,455,073 7,517,994
Cost of Sales27 - - (3,322,467) (2,878,722)
          
GROSS PROFIT  - - 6,132,606 4,639,272
          
OPERATING (EXPENSES) INCOME         
Selling, marketing and logistics expenses27 - - (4,007,445) (3,299,190)
Administrative, R&D, IT and project expenses27 (24,616) (9,978) (1,627,686) (1,244,090)
Impairment loss on trade receivables  - - (239,345) (223,982)
Shareholders' equity15 (125,979) (712,102) - -
Other operating income (expenses), net30 - (147,824) (125,432) (352,550)
OPERATING (LOSS) PROFIT BEFORE FINANCIAL RESULT  (150,595) (869,904) 132,698 (480,540)
          
Financial income29 6,160 51,082 1,038,944 1,560,184
Financial expenses29 (10,734) (1,975) (1,266,850) (1,787,779)
          
(LOSS) PROFIT BEFORE INCOME TAX AND SOCIAL CONTRIBUTION  (155,169) (820,797) (95,208) (708,135)
 Income tax and social contribution  - - (90,093) (94,803)
          
NET (LOSS) INCOME FOR THE PERIOD FROM CONTINUING OPERATIONS  (155,169) (820,797) (185,301) (802,938)
          
DISCONTINUED OPERATIONS         
NET LOSS FROM DISCONTINUED OPERATIONS23 - - 28,749 (22,001)
          
NET LOSS FOR THE PERIOD  (155,169) (820,797) (156,552) (824,939)
          
ATTRIBUTABLE TO         
The Company´s shareholders  (155,169) (820,797) (155,169) (820,797)
Non-controlling shareholders  - - (1,383) (4,142)
   (155,169) (820,797) (156,552) (824,939)
          
(LOSS) EARNINGS PER SHARE IN THE PERIOD - R$         
Basic  (0.1129) (0.6979) (0.1129) (0.6979)
Diluted  (0.1120) (0.6921) (0.1120) (0.6921)

 

*The accompanying notes are an integral part of the Interim Financial Statements.

 

 

NATURA &CO HOLDING S.A.

 

STATEMENT OF COMPREHENSIVE INCOME

FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021 AND 2020 

(In thousands of Brazilian reais - R$)

 

    Company Consolidated
 Note March 31, 2021 March 31, 2020 March 31, 2021 March 31, 2020
          
NET (LOSS) INCOME FOR THE PERIOD  (155,169) (820,797) (156,552) (824,939)
Other comprehensive income to be reclassified to income statement in subsequent periods:         
Conversion of financial statements of subsidiaries abroad15 1,671,932 4,349,038 1,673,367 4,349,038
Unrealized losses on the revaluation of balances between companies15 (182,571) - (182,571) -
Exchange rate effect on the conversion from hyperinflationary economy15 (14,845) (4,351) (14,845) (4,351)
(Losses) Gains from cash flow hedge operations5.2 - - (59,500) 248,684
Equity on the tax effects of gains (losses) from cash flow hedge operations  - - 19,845 (83,802)
Equity on (losses) gains from cash flow hedge operations  (59,500) 248,684 - -
Equity on the tax effects of gains (losses) from cash flow hedge operations  19,845 (83,802) - -
          
          
Comprehensive income for the period, net of tax effects  1,279,692 3,688,772 1,279,744 3,684,630
          
          
ATTRIBUTABLE TO         
The Company´s shareholders  1,279,692 3,688,772 1,279,692 3,688,772
Noncontrolling shareholders  - - 52 (4,142)
   1,279,692 3,688,772 1,279,744 3,684,630

 

*The accompanying notes are an integral part of the Interim Financial Statements.

 

 

NATURA &CO HOLDING S.A.

 

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021 AND 2020 

(In thousands of Brazilian reais - R$)

 

                       Equity appraisal      
       Capital Reserves         adjustment      
   CapitalTreasurySurplus on issue/sale of  SpecialAdditional paid-inIncome from transactions with non-Profit reserve   Retained (losses)Other comprehensiveSharesholders' equity attributed toNon-ControllingTotal shareholders'
 Note stocksharessharesreservecapitalcontrollingLegalTax IncentivesRetained earningsearningsincomecontrollingShareholdersequity
                              
BALANCES AS OF DECEMBER 31, 2019  1,485,436 - 1,096,398 206,592 - (92,066) - - (149,020) - 815,006 3,362,346 - 3,362,346
                              
Net loss for the period  - - - - - - - - - (820,797) - (820,797) (4,142) (824,939)
Exchange differences on translation of foreign operations  - - - - - - - - - - (4,351) (4,351) - (4,351)
Other comprehensive income  - - - - - - - - - - 4,513,920 4,513,920 - 4,513,920
Total comprehensive income for the period  - - - - - - - - - (820,797) 4,509,569 3,688,772 (4,142) 3,684,630
Subscription of shares through the Board of Directors' Meeting held on January 3, 2020  3,397,746 - 9,877,148 - - - - - - - - 13,274,894 33,515 13,308,409
Share repurchase  - (54,936) - - - - - - - - - (54,936) - (54,936)
Transactions in stock and restricted shares option plans:                             
Provision for stock and restricted shares option plans  - - - - (34,887) - - - - - - (34,887) - (34,887)
Exercise of stock and restricted shares option plans  21,936 38,932 - - (48,084) - - - - - - 12,784 - 12,784
Effect of Hyperinflationary economy adjustment  - - - - 14,989 - - - 2,138 - - 17,127 - 17,127
                              
BALANCE AS OF MARCH 31, 2020  4,905,118 (16,004) 10,973,546 206,592 (67,982) (92,066) - - (146,882) (820,797) 5,324,575 20,266,100 29,373 20,295,473
                              
                              
BALANCES AS OF DECEMBER 31, 2020  12,377,999 (11,667) 10,974,664 59,000 110,537 (92,066) - 113,302 6,864 (759,937) 4,585,631 27,364,327 22,781 27,387,108
                              
Net loss for the period  - - - - - - - - - (155,169) - (155,169) (1,383) (156,552)
Exchange differences on translation of foreign operations  - - - - - - - - - - (14,845) (14,845) - (14,845)
Other comprehensive income  - - - - - - - - - - 1,449,706 1,449,706 1,435 1,451,141
Total comprehensive income for the period  - - - - - - - - - (155,169) 1,434,861 1,279,692 52 1,279,744
Share repurchase  - (32,091) - - - - - - - - - (32,091) - (32,091)
Expenses on the issue of equity values  - - - - - - - - - - - - - -
Transactions in stock and restricted shares option plans:                             
Provision for stock and restricted shares option plans  - - - - - - - - - - - - - -
Exercise of stock and restricted shares option plans  17,687 34,042 - - (13,386) - - - (2,188) - - 36,155 - 36,155
Constitution of tax incentive reserve  - - - - - - - - - - - - - -
Effect of Hyperinflationary economy adjustment  - - - - 27,399 - - - 15,853 - - 43,252 - 43,252
                              
BALANCE AS OF MARCH 31, 2021  12,395,686 (9,716) 10,974,664 59,000 124,550 (92,066) - 113,302 20,529 (915,106) 6,020,492 28,691,335 22,833 28,714,168

 

*The accompanying notes are an integral part of the Interim Financial Statements.

 

 

NATURA &CO HOLDING S.A.

 

STATEMENT OF CASH FLOWS

FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021 AND 2020 

(In thousands of Brazilian reais - R$)

 

    Company Consolidated
 Note March 31, 2021 March 31, 2020 March 31, 2021 March 31, 2020
          
CASH FLOW FROM OPERATING ACTIVITIES         
Net (loss) income for the period  (155,169) (820,797) (156,552) (824,939)

Adjustments to reconciliate net income for the period with net cash generated by operating activities:

        
Depreciation and amortization16, 17 and 18 - - 696,375 626,252
Interest on short-term investments  (46,590) (7,058) (74,934) (23,455)
Reversal from swap and forward derivative contracts  - - (343,211) (978,329)
Provision for tax, civil and labor risks  - - 23,535 54,366
Inflation adjustment of judicial deposits  - - (1,370) (1,383)
Inflation adjustment of contingencies22 - - 10,798 4,599
Income tax and social contribution  - - 90,093 94,803
Income from sale and write-off of property, plant and equipment and intangible16 and 17 - - 20,048 3,876
Equity in subsidiaries15 125,979 712,102 - -
Interest and exchange rate variation on leases  - - (174,487) 51,768
Interest and exchange rate variation on borrowings and financing19 8,140 20,283 580,211 1,195,934
Exchange differences on translation of foreign operations  (885) (104,839) 10,858 (105,493)
Provision (reversal of provision) for losses from property, plant and equipment and intangible16 and 17 - - (354) (2,128)
Provision (reversal of provision) for stock option plans  (16,525) (20,150) (7,625) (4,606)
Actual losses and provision for losses with trade accounts receivables, net of reversals8 - - 225,417 209,933
Provision (reversal of provision) for inventory losses, net9 - - 120,888 119,735
Provision (reversal of provision) for post-employment health care plan28 - 771 772 (1,190)
Effect from hyperinflationary economy  - - 4,987 10,670
Other provisions (reversals)  - - (1,201) (52,683)
   (85,050) (219,688) 1,024,248 377,730
          
INCREASE (DECREASE) IN:         
Trade accounts receivable  (83,553) (34,478) 312,379 346,096
Inventories  - - (599,479) (117,723)
Recoverable taxes  3,285 - (16,004) (184,800)
Other assets  3,105 - (121,052) 509,001
Domestic and foreign trade accounts payable  (11,301) 149,176 (445,135) (1,872,941)
Payroll, profit sharing and social charges, net  21,133 24,770 (168,153) 121,951
Tax liabilities  (13,052) 385 (34,570) 118,382
Other liabilities  (71) (771) (573,594) (326,399)
          
CASH GENERATED BY (USED IN) OPERATING ACTIVITIES  (165,504) (80,606) (621,360) (1,028,703)
          
OTHER CASH FLOWS FROM OPERATING ACTIVITIES         
Payment of income tax and social contribution  (4,510) (196,996) (177,085) (269,512)
Release of judicial deposits  - - 9,600 2,797
Payments related to tax, civil and labor lawsuits22 - - (12,756) (61,968)
Payments due to settlement of derivative transactions  - - (33,578) 9,818
Payment of interest on lease18 b - - (50,830) (53,611)
Payment of interest on borrowings, financing and debentures19 - (6,860) (324,814) (498,585)
          
CASH GENERATED BY (USED IN) OPERATING ACTIVITIES  (170,014) (284,462) (1,210,823) (1,899,764)
          
CASH FLOW FROM INVESTING ACTIVITIES         
Cash from acquisition of subsidiary  - - - 2,636,108
Additions of property, plant and equipment and intangible  - - (332,627) (174,162)
Proceeds from sale of property, plant and equipment and intangible  - - 39,838 11,782
Short-term investments  - (63,569) (1,688,400) (1,765,955)
Redemption of short-term investments  (940) 199,230 2,055,238 1,420,078
Redemption of interest on short-term investments  940 619 9,547 10,540
Receipt of dividends from subsidiaries15 168,612 - - -
CASH GENERATED BY (USED IN) INVESTING ACTIVITIES  168,612 136,280 83,596 2,138,391
          
CASH FLOW FROM FINANCING ACTIVITIES         
Repayment of lease - principal18 b - - (301,420) (209,723)
Repayment of borrowings, financing and debentures – principal19 - (1,816,900) (623,273) (1,923,345)
New borrowings, financing, and debentures19 - - 133,980 451,127
Acquisition of treasury shares, after receipt of option strike price  4,064 (33,000) 4,064 (33,000)
Payment of dividends and interest on equity for the previous period  - - - (133,937)
Receipt of funds due to settlement of derivative transactions  - - 52,684 222
Acquired company's liability incurred by acquiror  - (370,791) - (370,791)
CASH GENERATED BY (USED IN) FINANCING ACTIVITIES  4,064 (2,220,691) (733,965) (2,219,447)
          
Effect of exchange rate variation on cash and cash equivalents  - - 365,879 578,734
          
DECREASE IN CASH AND CASH EQUIVALENTS  2,662 (2,368,873) (1,495,313) (1,402,086)
          
Opening balance of cash and cash equivalents6 505,699 2,380,800 5,821,672 4,513,582
Closing balance of cash and cash equivalents6 508,361 11,927 4,326,359 3,111,496
          
DECREASE IN CASH AND CASH EQUIVALENTS  2,662 (2,368,873) (1,495,313) (1,402,086)

 

*The accompanying notes are an integral part of the Interim Financial Statements.

 

 

NATURA &CO HOLDING S.A.

 

STATEMENT OF VALUE ADDED

FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021 AND 2020 

(In thousands of Brazilian reais - R$)

 

   Company Consolidated
 Note March 31, 2021March 31, 2020 March 31, 2021March 31, 2020
            
INCOME  - (147,824)  10,455,465 7,992,626 
Sale of goods, products and services  - -  10,668,447 8,378,540 
Allowance for expected credit losses, net of reversals8 - -  (78,969) (33,364) 
Other operating expenses, net  - (147,824)  (134,013) (352,550) 
            
INPUTS ACQUIRED FROM THIRD PARTIES  (4,169) (5,571)  (7,661,141) (5,953,732) 
Cost of products sold and services rendered  - -  (3,889,945) (3,175,479) 
Materials, electricity, outsourced services and others  (4,169) (5,571)  (3,771,196) (2,778,253) 
            
GROSS VALUE ADDED  (4,169) (153,395)  2,794,324 2,038,894 
            
RETENTIONS  - -  (696,376) (625,819) 
Depreciation and amortization16, 17 and 18 - -  (696,376) (625,819) 
            
VALUE ADDED PRODUCED BY THE COMPANY  (4,169) (153,395)  2,097,948 1,413,075 
            
TRANSFERRED VALUE ADDED  (119,819) (661,020)  1,038,944 1,560,184 
Equity in subsidiaries15 (125,979) (712,102)  - - 
Financial income - including inflation adjustments and exchange rate variations29 6,160 51,082  1,038,944 1,560,184 
            
TOTAL VALUE ADDED TO DISTRIBUTE  (123,988) (814,415)  3,136,892 2,973,259 
            
DISTRIBUTION OF VALUE ADDED  (123,988) (814,415)  3,136,892 2,973,259 
Payroll and social charges28 20,447 4,407  1,934,066 1,462,402 
Taxes, fees and contributions  - -  96,692 537,904 
Financial expenses and rentals  10,734 1,975  1,262,686 1,797,892 
Retained losses  - (820,797)  - (820,797) 
Minority holders' share in retained profit  - -  - (4,142) 
Dividends and interest on equity declared and not distributed  - -  (1,383) - 
Retained earnings  (155,169) -  (155,169) - 

 

*The accompanying notes are an integral part of the Interim Financial Statements.

 

 

CONTENTS

 

1.GENERAL INFORMATION11
2.MANAGEMENT STATEMENT AND BASIS FOR PRESENTATION OF THE FINANCIAL STATEMENTS11
3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES11
4.CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS12
5.FINANCIAL RISK MANAGEMENT12
6.CASH AND CASH EQUIVALENTS19
7.SHORT-TERM INVESTMENTS19
8.TRADE ACCOUNTS RECEIVABLE20
9.INVENTORIES21
10.RECOVERABLE TAXES21
11.INCOME TAX AND SOCIAL CONTRIBUTION21
12.JUDICIAL DEPOSITS22
13.NON-CURRENT ASSETS HELD FOR SALE23
14.OTHER CURRENT AND NON-CURRENT ASSETS23
15.INVESTMENTS24
16.PROPERTY, PLANT AND EQUIPMENT25
17.INTANGIBLES27
18.LEASES29
19.BORROWINGS, FINANCING AND DEBENTURES32
20.TRADE ACCOUNTS PAYABLE AND SUPPLY CHAIN FINANCE34
21.TAX LIABILITIES34
22.PROVISION FOR TAX, CIVIL AND LABOR RISKS35
23.OTHER LIABILITIES37
24.SHAREHOLDER’S EQUITY38
25.OPERATING SEGMENTS39
26.REVENUES40
27.OPERATING EXPENSES AND COST OF SALES40
28.EMPLOYEE BENEFITS41
29.FINANCE INCOME (EXPENSES)44
30.OTHER OPERATING INCOME (EXPENSES), NET45
31.RELATED-PARTY TRANSACTIONS45
32.COMMITMENTS47
33.INSURANCE47
34.ADDITIONAL INFORMATION RELATING TO THE STATEMENTS OF CASH FLOWS47
35.SUBSEQUENT EVENTS48

 

10 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

A free translation from Portuguese into English of Individual and Consolidated Interim Financial Information prepared in Brazilian currency in accordance with accounting practices adopted in Brazil and in accordance with International Financial Reporting Standards (IFRS), issued by International Accounting Standards Board (IASB).

 

1.GENERAL INFORMATION

 

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

 

The brands under management by the Company include "Natura", “Avon”, "The Body Shop" and "Aesop". In addition to using the retail market, e-commerce, business-to-business (B2B) and franchises as product sales channels, its subsidiaries are engaged in the direct sales channel, carried out mainly by Consultants from Natura and Avon brands.

 

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

 

Statement of conformity

 

The Company's and its subsidiaries interim financial information, contained in the Quarterly Information Form (“ITR”) for the three-month period ended March 31, 2021, comprise the individual and consolidated interim financial information, prepared and presented according to Technical Standard CPC 21 (R1) – Interim Financial Statement/ IAS 34 - Interim Financial Reporting, the accounting practices adopted in Brazil, which comprise the rules of the Brazilian Securities and Exchange Commission (“CVM”) and the standards of the Brazilian Accounting Standards Committee (“CPC”). The Technical Standard CPC 21 (R1) – Interim Financial Statement, issued by the International Accounting Standards Board (“IASB”), as well as the accounting practices adopted in Brazil, which comprise the rules of the Brazilian Securities and Exchange Commission (“CVM”) and the standards of the Brazilian Accounting Standards Committee (“CPC”) and in accordance with the International Financial Reporting Standards (“IFRS”) and by the statements from the Brazilian Corporation Law “IAS 34 – Interim Financial Reporting”.

 

The interim financial information presents all the relevant information specific to the interim financial information, and only that, which is consistent with that used by Management.

 

Basis of presentation

 

The individual and consolidated interim financial information was prepared based on the historical cost, except for derivative financial instruments, financial investments and recognized in other current and non-current assets that were measured at fair value, and are expressed in thousands of Brazilian Reais (“R$”), rounded to the nearest thousand, as well as the disclosure of amounts in other currencies, when necessary, were also expressed in thousands. Items disclosed in other currencies are duly identified, whenever applicable.

 

The individual and consolidated interim financial information was approved by the Board of Directors and authorized for issuance on the meeting held on May 11, 2021.

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The main accounting policies applied in the preparation of this interim financial information are consistent with those applied and disclosed in note 3 to the Company's financial statements for the year ended December 31,2020, except for the rules and changes effective as of January 1st, 2021, which has not undergone any significant changes on the individual and consolidated financial information of the Company. Therefore, it should be read in conjunction with the last annual financial statement.

 

The same policies are applicable for the three-month comparative period ended March 31, 2020.

 

3.1Hyperinflationary economy

 

11 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

Information on the hyperinflationary economy was presented in the Company's 2020 annual financial statements in note 3.2.3.

 

In the three-month period ended March 31, 2021, as a result of the application of CPC 42 / IAS 29, the Company's subsidiaries had a negative impact on net income for the period in the amount of R$ 57,501 (R$ 11,106 on March 31, 2020), of which, it was partially offset by the effects of converting the income statement at the exchange rate on the period's end date, instead of the average monthly exchange rate, totaling a positive impact in the amount of R$ 14,845 (positive impact of R$ 4,351 on March 31, 2020). The capital reserve and the profit reserve were also impacted, thus generating an increase of R$ 27,399 and R$ 15,853, respectively (R$ 14,989 and R$ 2,138 on March 31, 2020, respectively).

 

3.2Consolidation

 

Investments in subsidiaries

 

Investments in subsidiaries did not change compared to December 31, 2020. The information regarding the consolidation was presented in the Company's 2020 annual financial statements in note 3.3.

 

4.CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

 

The preparation of the individual and consolidated interim financial information 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 effects arising from revisions to accounting estimates are recognized in the period of the revision.

 

The areas that require a higher level of judgment and have greater complexity, as well as the areas in which assumptions and estimates are significant for the interim financial information, was presented in note 5 of the Company's financial statements for the year ended December 31, 2020.

 

There were no significant changes in the estimates and assumptions used in the preparation of the interim financial information for the three-month period ended March 31, 2021, as well as in the calculation methods used, in relation to those presented in note 5 of the Company's financial statements for the year ended December 31, 2020, issued on March 4, 2021, except for the analysis of the potential impacts of Covid-19 (note 5.3).

 

5.FINANCIAL RISK MANAGEMENT

 

5.1.General considerations and policies

 

The information regarding the general considerations and polices was presented in note 6.1 of the Company’s financial statements for the year ended December 31, 2020.

 

5.2.Financial risk factors

 

The information regarding the financial risk factors was presented in note 6.2 of the financial statements for the year ended December 31, 2020.

 

a) Market risk

 

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

 

To hedge the current balance sheet positions of the Company and its subsidiaries from market risks, the following derivative financial instruments are used, which are comprised of the balances presented below, as of March 31, 2021 and December 31, 2020:

 

12 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

 Fair value (level 2)
DescriptionConsolidated
 

March 31,

2021

December 31,

2020

“Financial” derivatives2,200,1131,857,869
“Operating” derivatives(12,393)(11,092)
Total2,187,7201,846,777

 

b) Foreign currency risk

 

The information regarding the foreign currency risk factors was presented in note 6.2 (b) of the Company’s financial statements for the year ended December 31, 2020.

 

As of March 31, 2021, the company and the consolidated balance sheets include accounts denominated in foreign currency, which expose the Company and its subsidiaries to foreign exchange risks, which together represent a total liability of R$ 4,607,563 (R$ 4,261,151 as of December 31, 2020). These accounts, consisting of loans and financing in their entirety, are protected with swap type derivatives.

 

Derivatives instruments to hedge foreign currency risk

 

The information regarding the derivative instruments to hedge foreign exchange rate risk was presented in note 6.2 (c) of the Company’s financial statements for the year ended December 31, 2020.

 

As of March 31, 2021, and December 31, 2020, the derivative balances are composed as follows:

 

Financial derivatives

 

ConsolidatedPrincipal (notional) amountCurve ValueFair valueGain (loss)
DescriptionMarch 31, 2021December 31,2020March 31, 2021December 31,2020March 31, 2021December 31,2020March 31, 2021December 31,2020
Swap contracts: (a)        
Asset position:        
Long position - U.S. dollar2,576,5172,576,8904,605,5654,262,0044,950,2784,683,900344,712421,897
         
Liability position:        
CDI floating rate:        
Short position in CDI2,576,517(2,576,890)2,599,2882,630,9112,751,675(2,803,797)152,387(172,885)
         
Forward contracts (NDF):        
Liability position:        
Post-fixed CDI rate:        
Short position at interbank rate1,578,6061,409,102(3,520)(5,457)1,510(22,234)5,030(16,778)
Total net derivative financial instruments:1,578,6061,409,1022,002,7571,625,6362,200,1131,857,869197,355232,234

 

a)Swap transactions consist of swapping the exchange rate fluctuation for a correction related to a percentage of the fluctuation of the Interbank Deposit Rate (post-fixed CDI), in the case of Brazil.

 

For the derivatives held by the Company and its subsidiaries as of March 31, 2021 and December 31, 2020, as the contracts are directly with financial institutions and not through stock exchanges, there are no margin deposits to guarantee these operations.

 

Operating derivatives - Consolidated

 

As at March 31, 2021 and December 31, 2020, the subsidiaries held derivative financial instruments of the forward type with the objective of hedging from foreign currency risk of operating cash flows (such as import and export operations):

 

13 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

 Principal (notional) amountFair value
Description

March 31,

2021

December 31, 2020

March 31,

2021

December 31, 2020
Net position - GBP and USD1,152,1231,585,280(9,610)(7,670)
Forward contracts147,542165,830(2,783)(3,422)
Total derivative instruments, net1,299,6651,751,110(12,393)(11,092)

 

Sensitivity analysis

 

In the sensitivity analysis related to the foreign exchange exposure risk, Management of the Company and its subsidiaries 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 and its subsidiaries to hedge certain exposures on March 31, 2021 and December 31, 2020, as set forth in the table below:

 

 Consolidated
 

March 31,

2021

December 31,

2020

Borrowings and financing in foreign currency in Brazil (a)(4,598,561)(4,246,692)
Receivables in foreign currency in Brazil274,595236,782
Trade accounts payable in foreign currencies in Brazil(9,002)(14,459)
Fair value of financial derivatives4,947,4944,680,478
Net asset exposure614,526656,109

 

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 due to the strong currency and effectiveness of its derivatives, and it is considered that all other variables, especially interest rates, remain constant and do not consider any impact of the forecasted purchases and sales.

 

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$5.69735.66664.24992.8333
 ScenarioScenario IScenario IIScenario III
Operation/InstrumentRealProbableDepreciation 25%Depreciation 50%
Assets denominated in US$    
Fair value of “financial” derivatives4,947,4944,920,8233,690,6172,460,412
Trade accounts receivable recorded in Brazil in foreign currency274,595273,115204,836136,558
     
Liabilities denominated in US$    
Borrowings and financing in Brazil in foreign currency (a)(4,598,561)(4,573,771)(3,430,328)(2,286,886)
Accounts payable registered in Brazil in foreign currency(9,002)(8,954)(6,715)(4,477)
Impact on net income and equity (3,313)(156,116)(308,919)

 

The probable scenario considers future US dollar rates for a 90 days-term. According to quotations obtained at the Brazilian Stock Exchange (“B3”) on March 31, 2021 and in line with the first maturities of financial instruments with exchange exposure, R$5.67 / US$ 1.00. Scenarios I and II consider a decrease in the US dollar of 25% (R$4.25 / US$ 1.00) and 50% (R$2.83 / US$1.00), respectively. Management uses the probable scenario in the assessment of possible changes in the exchange rate and presents the referred scenario in compliance with IFRS 7- Financial Instruments: Disclosures (CPC 40 - Instrumentos Financeiros: Divulgações)

 

The Company and its subsidiaries do not use derivative financial instruments for speculative purposes.

 

Derivative instruments designated for hedge accounting

 

The information regarding the Derivative instruments designated for hedge accounting was presented in note 6.2 (c) of the Company’s financial statements for the year ended December 31, 2020.

 

The outstanding positions of derivative financial instruments designated as cash flow hedge on March 31, 2021 are set forth below.

 

14 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

Cash flow hedge instrument – Consolidated

 

      Other comprehensive income
 Hedge instrumentNotional currencyNotional value

Curve Value

 

Fair

 

value

 

Accumulated contract gain (loss)Gain in the 3-month period ended March 31, 2021
Currency Swap – US$/R$CurrencyBRL2,576,0202,005,7502,198,088192,338(56,684)
Forward contract (The Body Shop)CurrencyBRL1,008,552(9,140)(9,438)(9,438)(4,035)
Forward contract (Natura Indústria)CurrencyBRL11,865-5175171,219
Total  3,596,4371,996,6102,189,167183,417(59,500)

 

The changes in cash flow hedge reserve recorded in OCI are shown below:

 

 Consolidated
Cash flow hedge balance as at December 31, 201942,729
 Change in the fair value of hedge instrument recognized in OCI248,684
  Tax effects on fair value of hedge instrument(83,802)
Cash flow hedge balance as at March 31, 2020207,611
  
Cash flow hedge balance as at December 31, 2020159,077
 Change in the fair value of hedge instrument recognized in OCI(59,500)
 Tax effects on fair value of hedge instrument19,845
Cash flow hedge balance as at March 31, 2021119,422

 

The Company designates as cash flow hedge derivative financial instruments used to offset variations arising from foreign currency exposure in the market value of debts contracted in a currency other than the functional currency.

 

c) Interest rate risk

 

The information regarding the interest rate risk was presented in note 6.2 (d) of the Company’s financial statements for the year ended December 31, 2020.

 

Sensitivity analysis

 

On March 31, 2021, there are borrowings, financing and debentures contracts denominated in foreign currency that are linked to interest swap contracts, changing the liability index rate to the CDI variation. Accordingly, the risk of the Company and its subsidiaries 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 (borrowings, financing and debentures in Brazil were considered in full, given that 98.8% of the amount is related to the CDI):

 

 CompanyConsolidated
Total borrowings and financing - in local currency (note 19)(524,106)(9,426,119)
Operations in foreign currency with derivatives related to CDI (a)-(4,584,772)
Short-term investments (notes 6 and 7)389,2505,306,413
Net exposure(134,856)(8,704,478)

 

a)Refers to transactions involving derivatives related to CDI to hedge borrowings and financing arrangements raised in foreign currency in Brazil.

 

The sensitivity analysis considers the exposure of borrowings and financing, net of short-term investments, linked to CDI (notes 6 and 7).

 

The following tables show the projection of incremental loss that would have been recognized in profit or loss for the following period, assuming that the current net liability exposure is static and the following scenarios:

 

Company
DescriptionRiskProbable scenarioScenario IIScenario III
Net liabilityRate increase2,4065,4608,514

15 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

Consolidated
DescriptionRiskProbable scenarioScenario IIScenario III
Net liabilityRate increase(38,871)(88,207)(137,543)

 

The probable scenario considers future interest rates for 90 days-term, according to B3 quotations for the expected dates of the first maturities of financial instruments with exposure to interest rates, calculated on March 31, 2021. Scenarios II and III consider an increase in interest rates by 25% (4.13% per year) and 50% (4.95% per year), respectively, over a CDI rate of 3.30% per year.

 

d) Credit risk

 

The information regarding the credit risk was presented in note 6.2 (e) of the Company’s financial statements for the year ended December 31, 2020.

 

e) Liquidity risk

 

The information regarding the liquidity risk was presented in note 6.2 (f) of the Company’s financial statements for the year ended December 31, 2020.

 

Management monitors the Company’s and its subsidiaries liquidity level considering the expected cash flows in exchange for unused credit facilities, as shown in the following table:

 

 CompanyConsolidated
 

March 31,

2021

December 31, 2020

March 31,

2021

December 31, 2020
Total current assets1,121,559988,26617,739,09618,734,820
Total current liabilities(571,114)(566,230)(15,006,149)(16,159,586)
Total net working capital550,445422,0362,732,9472,575,234

 

As of March 31, 2021, 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 and its subsidiaries are in compliance with covenants, are shown below:

 

CompanyLess than one yearOne to five yearsOver five yearsTotal expected cash flowInterest to be accruedCarrying amount
Borrowings, financing and debentures526,956--526,956(2,850)524,106
Leases5,621--5,621-5,621

 

ConsolidatedLess than one yearOne to five yearsOver five yearsTotal expected cash flowInterest to be accruedCarrying amount
Borrowings, financing and debentures3,595,20010,637,1441,224,19615,456,540(1,445,649)14,010,891
Leases1,230,8132,654,332537,3044,422,449(501,836)3,920,613
Payables to related parties, trade accounts payable and supply chain finance6,555,155- 6,555,155-6,555,155

 

The Body Shop's up to £70 million (seventy million pounds) credit line, existing on December 31, 2020, was liquidated during the first quarter of 2021.

 

5.3Covid-19 Impacts

 

The Company monitors the evolution of the Covid-19 pandemic in the markets in which it operates, acting to minimize impacts on the operations and on the equity and financial position of the Company and its subsidiaries, and implementing appropriate measures to guarantee the continuity of operations, protect cash, improve liquidity, and promote the health and safety of all.

 

During the three-month period ended March 31, 2021, Management assessed the possible impacts of the main risks and uncertainties that could affect the interim information presented herein. In Brazil, the increase in the transmission rate and in the number of deaths in 2021 led to the adoption of more restrictive measures of circulation and operation of non-essential activities. In this scenario, the Company and its subsidiaries maintained

 

16 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

their focus on operating in a digital environment, allowing them to offset the impact of closing stores, by increasing sales through e-commerce and direct sales. However, gradual decreases in restrictions in markets in which the Company and its subsidiaries operate, mainly in Europe and Asia, have been permitted by local authorities, allowing physical stores to resume operating, even with some level of restriction, benefiting this segment of business.

 

In view of this scenario, the Company reviews the recoverability expectations of its financial and non-financial assets in the preparation of this interim information, considering the most recent information available and reflected in the Company's business plans. In the three-month period ended March 31, 2021, no deterioration was identified in the Company's liquidity, its cash position or leverage that could impact the compliance with financial covenants.

 

Additionally, Management has revised its projections of future results since the end of the year ended December 31, 2020, not identifying deviations from these projections or in the market assumptions associated with the impairment test carried out on December 31, 2020 that indicated the need to carry out an additional impairment test of goodwill and other long-lived intangible assets.

 

5.4Capital management

 

The Company’s capital management objectives are to ensure that the Company and its subsidiaries are continuously capable of offering return to its shareholders and benefits to other stakeholders, in addition to maintaining an ideal capital structure to reduce this capital cost.

 

The Company monitors capital based on the financial leverage ratios. This ratio corresponds to the net debt divided by equity. The net debt corresponds to total borrowings and financings (including short and long-term borrowings and financings, as shown in the consolidated statement of financial position), deducted from cash and cash equivalents and short-term investments (except for “Crer Para Ver” funds).

 

5.5Fair value estimate

 

The information regarding the general considerations and polices of the group companies (Natura, Avon, TBS and Aesop) was presented in note 6.1 of the financial statements for the year ended December 31, 2020.

 

The carrying amounts and fair values of the Company’s financial instruments as at March 31, 2021 and December 31, 2020 are presented below:

 

Company   Carrying amountFair value
 NoteClassification by categoryFair value hierarchyMarch 31, 2021December 31, 2020March 31, 2021December 31, 2020
Financial assets       
Cash and cash equivalent6      
Cash and banks Amortized costLevel 21,6611,5011,6611,501
Certificate of bank deposits Amortized costLevel 2506,700504,198506,700504,198
    508,361505,699508,361505,699
Short-term investments       
Exclusive investment funds7

Fair value through

profit or loss

Level 2387,589340,999387,589340,999
        
Accounts receivables – related parties31.1Amortized costLevel 2200,425115,952200,425115,952
        
Financial liabilities       
Borrowings in local currency19Amortized costLevel 2(524,106)(515,966)(524,106)(515,966)
Trade accounts payable, supply chain finance and related parties20/31.1Amortized costLevel 2(5,621)(16,887)(5,621)(16,887)

17 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

Consolidated   Carrying amountFair value
NoteClassification by categoryFair value hierarchyMarch 31, 2021December 31, 2020March 31, 2021December 31, 2020
Financial assets       
Cash and cash equivalent6      
Cash and banks Amortized costLevel 23,056,7124,436,1233,056,7124,436,123
Certificate of bank deposits Amortized costLevel 2792,759808,988792,759808,988
Repurchase transactions Fair value through profit or lossLevel 2476,888576,108476,888576,108
    4,326,3595,821,2194,326,3595,821,219
Short term investments7      
Government bonds Fair value through profit or lossLevel 1754,676864,940754,676864,940
Restricted cash Fair value through profit or lossLevel 2-40,425-40,425
Financial treasury bill Fair value through profit or lossLevel 2505,740505,152505,740505,152
Loan investment fund Fair value through profit or lossLevel 2970,345817,253970,345817,253
Dynamo Beauty Ventures Ltd fund Fair value through profit or lossLevel 328,48716,10428,48716,104
Certificate of bank deposits Fair value through profit or lossLevel 218,940292,87818,940292,878
    2,278,1882,536,7522,278,1882,536,752
        
Trade accounts receivable8Amortized costLevel 23,370,1073,597,5353,370,1073,597,535
Judicial deposits12Amortized costLevel 2557,960566,190557,960566,190
Carbon credits14Fair value through profit or lossLevel 24,3274,0974,3274,097
Sublease receivables14Amortized costLevel 2378,083357,538378,083357,538
Receivables from service providers14Amortized costLevel 1154,631135,030154,631135,030
    4,465,1084,660,3904,465,1084,660,390
        
        
“Financial” and “operating” derivatives Fair value through profit or loss - hedging instrumentLevel 22,189,1671,873,7642,189,1671,873,764
“Financial” and “operating” derivatives Fair value through profit or lossLevel 239,47734,21439,47734,214
    2,228,6441,907,9782,228,6441,907,978
Financial liabilities       
Borrowings, financing and debentures19      
Local currency borrowings Amortized costLevel 2(9,426,119)(9,591,809)(4,773,460)(9,466,921)
Foreign currency borrowings Amortized costLevel 2(4,584,772)(4,231,104)(4,796,000)(4,459,081)
    (14,010,891)(13,822,913)(9,569,460)(13,926,002)
        
Carbon credits23Fair value through profit or lossLevel 2(5,019)(5,560)(5,019)(5,560)
        
“Financial” and “operating” derivatives Fair value through profit or loss - hedging instrumentLevel 2-- -
“Financial” and “operating” derivatives Fair value through profit or lossLevel 2(40,924)(61,201)(40,924)(61,201)
    (40,924)(61,201)(40,924)(61,201)
        
Lease liabilities18Amortized costLevel 2(3,920,613)(3,858,455)(3,920,613)(3,856,699)
Trade payables and supply chain finance operations20Amortized costLevel 2(6,555,155)(6,774,205)(6,555,155)(6,774,205)

 

The information regarding the general and political considerations of the companies of the Company was presented in the annual financial statements of 2020, in note 6.1.

 

The Company assesses that the balances of cash and cash equivalents, trade accounts receivable, trade payable and other current liabilities are equivalent to their book values, mainly due to the short-term maturities of these instruments.

 

The book values of financial investments in Bank Deposit Certificates measured at amortized cost are close to their fair values due to the fact that the operations are carried out at floating interest rates.

 

The book values of borrowings, financing and debentures are measured at their amortized cost and disclosed at fair value, which does not differ materially from the book values as the agreed interest rates are consistent with current market rates.

 

The fair value of foreign exchange derivatives (swap and forward) is determined based on future exchange rates on the balance sheet dates, with the resulting value discounted to present value.

 

The fair value of the investment in the Dynamo Beauty Ventures Ltd. Fund, classified at level 3 of the fair value hierarchy, is calculated based on information about the net value of the investment in the Fund (NAV) calculated by the Fund manager based on valuation assumptions consistent with the accounting practices adopted in Brazil and the IFRS, adjusted to reflect the fair value assumptions applicable to the nature of the Company's investment. The Company's assessment takes into account inputs not observable in the model, in order to reflect the contractual restrictions on this investment for early redemption and trading of the security in the market. The significant unobservable inputs used in measuring fair value reflect a discount due to the lack of liquidity of the security, which represent the values that the Company determined that market agents would take into account for these discounts when defining the investment price. An increase of 1% in the applied discount (15.4%) would result in a reduction in the value of the investment by R$ 283.

 

18 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

There was no transfer between measurement levels in the fair value hierarchy in the three-month period ended March 31, 2021 for these assets and liabilities.

 

6.CASH AND CASH EQUIVALENTS

 

 CompanyConsolidated
 

March 31,

2021

December 31,

2020

March 31,

2021

December 31,

2020

Cash and banks1,6611,5013,056,7124,436,576
Certificate of Bank Deposits (a)506,700504,198792,759808,988
Repurchase transactions (b)--476,888576,108
 508,361505,6994,326,3595,821,672

 

a)As of March 31, 2021, Certificate of Bank Deposits (“CDB”) short-term investments are remunerated at an average rate of 102.8% of CDI (103.2% of CDI as of December 31, 20209) with daily maturities redeemable with the issuer itself, without significant loss of value.

 

b)Repurchase transactions are securities issued by banks with a commitment by the bank to repurchase the securities, and by the client to resell the security, at a defined interest rate and within a predetermined term, which are backed by public or private securities (depending on the financial institution) and are registered within the Central of Custody and Financial Settlement of Securities (“CETIP”). As of March 31, 2021, repurchase operations are remunerated at an average rate of 100.0% of CDI (100.0% of the CDI on December 31, 2020).

 

7.SHORT-TERM INVESTMENTS

 

 CompanyConsolidated
 

March 31,

2021

December 31,

2020

March 31,

2021

December 31,

2020

Exclusive investment funds (a)387,589340,999--
Loan investment funds(e)--970,345817,253
Certificate of Bank Deposits (b)--18,940292,878
Treasury bills (c)--505,740505,152
Government bonds (LFT) (d)--754,676864,940
Dynamo Beauty Ventures Ltd. Fund--28,48716,104
Restricted cash---40,425
 387,589340,9992,278,1882,536,752
     
Current387,589340,9992,249,7012,520,648
Non-current--28,48716,104

 

a)The Company and subsidiaries concentrate most of their investments in an exclusive investment fund, which holds interest in shares of the Essential Investment Fund.

 

The values of the quotas held by the Company are presented under the heading “Exclusive Investment Fund” at the Parent Company. The financial statements of the Exclusive Investment Fund, in which the group has exclusive participation (100% of the quotas), were consolidated, except for the quotas of the Natura Institute, and the amounts of its portfolio were segregated by type of investment and classified as cash and marketable securities, based on the accounting practices adopted by the Company. For the purposes of consolidated presentation, the fund balance, as well as the positions of the other subsidiaries are presented according to the financial component.

 

b)Investments in CDB classified as short-term investments are remunerated at an average rate of 113.0% of the CDI (100.0% of the CDI as at December 31, 2020). As at March 31, 2021, the “Crer Para Ver” line within the exclusive fund is R$ 63,665 R$ 57,609 as at December 31, 2020).

 

c)As of March 31, 2021, investments in Treasury bills are remunerated at an average rate of 132.8% of the CDI (136.61% as at December 31, 2020).

 

d)As of March 31, 2021, investments in Government Bonds (LFT) are remunerated at an average rate of 104.9% of the CDI (105.9% of the CDI on December 31, 2020).

 

e)Mutual investment funds refer to the investments of Natura América Hispânica entities concentrated in Argentina, Chile, Colombia and Mexico.

 

19 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

The composition of the securities that make up the portfolio of the Essential Investment Fund, in which the Company and its subsidiaries hold 100% interest, on March 31, 2021 and December 31, 2019, is as follows:

 

 Consolidated
 

March 31,

2021

December 31,

2020

Certificate of Bank Deposits (CDB)18,940292,878
Repurchase transactions (cash and cash equivalent)474,806576,108
Financial bills505,740505,152
Government bonds (LFT)754,676864,940
 1,754,1622,239,078

 

8.TRADE ACCOUNTS RECEIVABLE

 

 Consolidated
 

March 31,

2021

December 31,

2020

Trade accounts receivable  3,610,9984,029,643
Allowance for expected credit losses   (240,891)(432,108)
   3,370,1073,597,535

 

The maximum exposure to credit risk at the interim accounting information date is the carrying amount of each aging range, net of the allowance for expected credit losses, as shown in the aging list below:

 

 Consolidated
 

March 31,

2021

December 31,

2020

Current  2,226,8601,988,583
Past due:  
Up to 30 days   969,5721,506,460
31 to 60 days   132,712173,121
61 to 90 days   85,185111,735
91 to 180 days   196,669249,744
Allowance for expected credit losses   (240,891)(432,108)
   3,370,1073,597,535

 

The changes in the allowance for expected credit losses for the three-month period ended March 31, 2021 and 2020 are as follows:

 

 Consolidated
Balance as at December 31, 2019(107,995)
Acquisition of subsidiary(270,187)
Additions(209,933)
Write-offs (a)182,333
Exchange variation(42,573)
Balance as at March 31, 2020(448,355)
  
Balance as at December 31, 2020   (161,922)
Additions   (225,417)
Write-offs/reversals (a)   165,325
Exchange variation   (18,877)
Balance as at March 31, 2021   (240,891)

 

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

 

The following table shows trade accounts receivable by exposure to doubtful accounts on March 31, 2021:

 

 Consolidated
 Trade accounts receivableAllowance for expected credit losses
Current2,226,860(72,662)
Past due:  
Up to 30 days969,572(28,332)
31 to 60 days132,712(20,690)
61 to 90 days85,185(18,306)
91 to 180 days196,669(100,901)
 3,610,998(240,891)

20 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

9.INVENTORIES

 

 Consolidated
 

March 31,

2021

December 31,

2020

Finished products  4,295,6443,592,864
Raw materials and packaging  1,101,3281,015,156
Consumables 191,771170,188
Work in progress   39,23836,025
Allowance for losses  (285,258)(269,963)
   5,342,7234,544,270

 

The changes in the allowance for inventory losses for the three-month period ended March 31, 2021 and 2020 are as follows:

 

 Consolidated
Balance as at December 31, 2019(185,232)
Acquisition of subsidiary(332,350)
Additions (a)(119,735)
Write-offs (b)92,296
Exchange rate variation(80,593)
Balance as at March 31, 2020(625,614)
  
Balance as at December 31, 2020(269,963)
Additions (a)(120,888)
Write-offs (b)131,870
Exchange rate variation(26,277)
Balance as at March 31, 2021(285,258)

 

a)It refers to the recognition of net allowance for losses due to discontinuation, expiration and quality, to cover expected losses on the realization of inventories, pursuant to the policy of the Company and its subsidiaries.

 

b)Consist of write-offs of products discarded by the Company and its subsidiaries.

 

10.RECOVERABLE TAXES

 

 CompanyConsolidated
 

March 31,

2021

December 31, 2020

March 31,

2021

December 31, 2020
ICMS on purchase of goods (a)--718,837681,147
Taxes on purchase of goods – foreign subsidiaries--272,550230,260
ICMS on purchases of PP&E--9,5489,578
PIS and COFINS on purchase of goods (b)--772,916780,841
Withholding income tax20,35323,63720,35323,637
Withholding PIS, COFINS and CSLL--3,4511,669
Tax on Manufactured Products - IPI (c)--86,82477,096
Other--230,452199,333
 20,35323,6372,114,9312,003,561
     
Current20,35323,6371,176,2991,071,349
Non-current--938,632932,212

 

a)Tax credits related to the accumulated Brazilian tax on the circulation of goods, interstate and inter-municipal transport and communication services (“ICMS”) were generated mainly by purchases, whose tax rate is higher than the average sales and by the increase in exports. The recognition of these credits normally occurs through offsetting with sales operations in the domestic market.

 

b)The accumulated tax credits for PIS and COFINS basically arise from credits on purchases of raw materials used in production. The realization of these credits normally occurs through offsetting with sales operations in the domestic market.

 

c)The balance will be used to IPI payable in future operations of the Company's subsidiaries.

 

11.INCOME TAX AND SOCIAL CONTRIBUTION

 

The effective rate calculated by the Company and its subsidiaries for the three-month period ended March 31, 2021 was negative by 95% (13% on March 31, 2020). This percentage is based on the loss before tax of R$ 95,208 million (R$ 730,136 on March 31, 2020) and on the income tax expense of R$ 90,093 million (R$ 94,803 on March 31, 2020). The main components that cause the effective rate to deviate from the 34% nominal income tax rate are the tax losses of certain jurisdictions that cannot be benefited by the deferred income tax asset, permanent effects related to income tax withheld at source originated in transactions between group companies that cannot be used and the additional recognition of deferred income tax liabilities due to the announcement made by the Government of England that the nominal rate would not be reduced from 19% to 17%. Excluding the adverse effects of the

 

21 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

reconciliation of items that resulted mainly from tax jurisdictions in which the Company is currently unable to obtain an income tax benefit, the effective tax rate of the Company would be approximately 29.5%.

 

The changes in deferred asset and liability income tax and social contribution for the three-month period ended March 31, 2021 and 2020 were as follows:

 

 Consolidated
 AssetLiability
Balance as at December 31, 2019374,448(450,561)
Effect on profit or loss(30,857)(33,472)
Acquisition of subsidiary667,034(728,274)
Reserve for grant of options and restricted shares(39,435)-
Effect on other comprehensive income(83,802)-
Currency translation effect  109,031(292,603)
Balance as at March 31, 2020996,419(1,504,910)
   
Balance as at December 31, 20201,339,725(1,288,045)
Effect on profit or loss(22,222)(26,190)
Reclass form asset to liability(108,749)108,749
Reserve for grant of options and restricted shares5287,097
Effect on other comprehensive income1,051(19,273)
Currency translation effect  60,36330,812
Balance as at March 31, 20201,270,696(1,186,850)

 

12.JUDICIAL DEPOSITS

 

The judicial deposits held by the Company and its subsidiaries as at March 31, 2021 and December 31, 2020 are as follows:

 

 Consolidated
 

March 31,

2021

December 31,

2020

Unaccrued tax lawsuits (a)254,557262,654
Accrued tax lawsuits (b)255,385252,961
Unaccrued civil lawsuits7,3189,671
Accrued civil lawsuits2,3542,189
Unaccrued labor lawsuits13,60114,166
Accrued labor lawsuits24,74524,549
Total judicial deposits557,960566,190

 

a)The tax procedure related to these judicial deposits refer mainly to the ICMS-ST, disclosed in note 22.2.1, contingent liabilities - possible risk of loss.

 

b)The tax procedure related to these judicial deposits refer, substantially, to the sum of the amounts disclosed in note 22.1.1, and the amounts presented in note 21.

 

The changes in balance of judicial deposits for the three-month period ended March 31, 2021 and 2020 are as follows:

 

22 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

 Consolidated
Balance as at December 31, 2019337,255
Acquisition of subsidiary283,885
New deposits4,867
Redemptions(1,519)
Interests 1,383
Payments(5,344)
Write-offs for expenses(801)
Balance as at March 31, 2020619,726
  
Balance as at December 31, 2020566,190
New deposits6,479
Redemptions(14,609)
Interests1,370
Payments / Write-offs for expenses(1,048)
Exchange variance(422)
Balance as at March 31, 2021557,960

 

Besides to judicial deposits, the Company and its subsidiaries have insurance policies to guarantee certain lawsuits. Details of these insurances are presented in note 33.

 

13.NON-CURRENT ASSETS HELD FOR SALE

 

The assets classified as held for sale were acquired in the acquisition process of Avon. The change in the balance for the three-month period ended March 31, 2021 and 2020 is as follows:

 

 Consolidated
Balance as at December 31, 2019 - 
Avon acquisition (a)186,518
Balance as at March 31, 2020186,518
  
Balance as at December 31, 2020181,279
Transfer to fixed assets (a)(25,779)
Sale(49)
Exchange rate variation5,150
Balance as at March 31, 2021(b)160,601

 

a)During the first quarter of 2020, transfers occurred due to the resumption of activities in the Saudi Arabian unit.

 

b)The balance on March 31, 2021 is composed of assets located in Brazil and Spain (on December 31, 2020 it was composed of Saudi Arabia, Brazil and Spain).

 

14.OTHER CURRENT AND NON-CURRENT ASSETS

 

 CompanyConsolidated
 

March 31,

2021

December 31, 2020

March 31,

2021

December 31, 2020
Advance for advertising and marketing--122,19242,233
Advances to suppliers--326,252257,099
Advances to employees--67,29565,180
Advance and security deposit for rent (a)--212,311169,958
Prepaid insurance expenses--212,011200,074
Surplus pension plan (b)--752,230683,425
Advances to customs broker - Import taxes--42,64134,016
Sublease receivables (c)--378,083357,538
Carbon credits--4,3274,097
Receivables from service providers (d)--154,631135,030
Other1,2102,127135,173195,138
 1,2102,1272,407,1462,143,788
     
Current3211,979800,631616,120
Non-current8891481,606,5151,527,668

 

a)Mainly related to: (i) advances of rental agreements that were not included in the initial measurement of lease liabilities / right-of-use of the subsidiary The Body Shop, in accordance with the exemptions on IFRS 16 / CPC 06(R2); and (ii) security deposits for the rental of certain stores of the subsidiaries The Body Shop and Aesop, which will be returned by the landlord at the end of the rental agreements.

 

b)Pension plan arising from the acquisition of Avon (note 28.2).

 

c)Refers to the sublease receivable from the New York office owned by Avon.

 

d)Refers to receivables mainly arising from damage that occurred with carriers and insurance companies.

 

23 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

15.INVESTMENTS

 

 Company
 

March 31,

2021

December 31,

2020

Investments in subsidiaries, net of losses14,207,33915,433,251
Goodwill from the acquisition of subsidiaries13,934,79811,511,028
Total28,142,13726,944,279

 

Information and changes in the balances for the three-month period ended March 31, 2021 and 2020:

 

 Natura Cosméticos S.A.Avon Products, Inc.Natura &Co International S.à r.l.Total
Percentage of participation100.00%100.00%100.00% 
Equity of subsidiaries7,805,623(5,583,437)6,196,8858,419,071
Equity participation (capital deficit)7,805,623(5,583,437)6,196,8858,419,071
Fair value adjustment of acquired assets and liabilities-5,788,268-5,788,268
Goodwill-13,934,798-13,934,798
Total7,805,62314,139,6296,196,88528,142,137
Subsidiaries net income (loss) for the year229,228(396,539)41,332(125,979)
     
Balances as at December 31, 20206,929,07414,373,4485,641,75726,944,279
Share of the profit (loss) of equity investees229,228(396,539)41,332(125,979)
Exchange rate variation and other adjustments in the conversion of investments of foreign subsidiaries798,000345,291513,7961,657,087
Unrealized losses on the revaluation of balances between companies-(182,571)-(182,571)
Hyperinflationary economy adjustment effect41,064--41,064
Contribution of the Parent Company to stock option plans granted to subsidiaries executives and other reserves, net of tax effects16,524--16,524
Effect on hedge accounting, net of tax effects(39,655)--(39,655)
Distribution of dividends and interest on own equity(168,612)--(168,612)
Balances as at March 31, 20217,805,62314,139,6296,196,88528,142,137

.

 

24 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

16.PROPERTY, PLANT AND EQUIPMENT

 

 Consolidated
 

Useful life range

(in years)

December 31, 2020AdditionsWrite-offsimpairmentTransfersExchange rate variation

March 31,

2021

Cost:        
Vehicles2 to 579,227523(10,649)-6,9082,83578,844
Templates3187,852---2841187,921
Tools and accessories3 to 2085,6781,983(129)-707(24,709)63,530
Facilities3 to 60293,4713(402)-2,6853,196298,953
Machinery and accessories3 to 151,819,6932,442(17,971)-27,396(5,219)1,826,341
Leasehold improvements2 to 20963,9578,972(8,695)31027,92157,9331,050,398
Buildings14 to 601,899,176892(3)-(3,198)67,1241,963,991
Furniture and fixture2 to 25566,5482,936(1,590)3310,92229,581608,430
Land-661,613-(1,203)--12,855673,265
IT equipment3 to 15543,77215,603(4,882)-28,67924,103607,275
Other assets-36,687-(891)--47336,269
Projects in progress-408,38570,844(20,280)- (89,793) 18,953388,109
Total cost 7,546,059104,198(66,695)343 12,255 187,1667,783,326
         
Accumulated depreciation        
Vehicles (33,042)(5,869)10,028-(5,898)667(34,114)
Templates (166,536)(2,203)---(41)(168,780)
Tools and accessories (39,159)(9,501)129--26,285(22,246)
Facilities (176,726)(3,991)389-(2,951)(1,426)(184,705)
Machinery and accessories (578,762)(44,557)17,487-(1)54,094(551,739)
Leasehold improvements (480,554)(35,723)9,703-(5,639)(21,050)(533,263)
Buildings (179,729)(21,368)15--26,643(174,439)
Furniture and fixture (318,611)(22,955)3,542-(717)(14,464)(353,205)
IT equipment (311,856)(26,483)5,415-(8,239)(5,564)(346,727)
Other assets (26,027)(5,783)699--(2,925)(34,036)
Total accumulated depreciation (2,311,002)(178,433)47,407-(23,445)62,219(2,403,254)
Net total 5,235,057(74,235)(19,288)343 (11,190) 249,3855,380,072

25 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

 Consolidated
 

Useful life range

(in years)

December 31, 2019Company acquisitionAdditionsWrite-offsimpairmentTransfersExchange rate variation

March 31,

2020

Cost:         
Vehicles2 to 545,57825,789260(2,711)-2,16311,30282,381
Templates3192,556--(27)-4,32225196,876
Tools and accessories3 to2011,97452,4103,271(283)-(1,034)9,89776,235
Facilities3 to 60309,7721,4315(3,212)-2,3599,347319,702
Machinery and accessories3 to 15866,451746,7345,556(726)-10,757124,3661,753,138
Leasehold improvements2 to 20615,10358,5486,844(651)38514,83090,324785,383
Buildings14 to 60386,9571,168,8372,7813,070-27,616226,1781,815,439
Furniture and fixture2 to 25397,72732,5664,658(686)1,8236,54371,943514,574
Land-35,157568,470---4,772152,410760,809
IT equipment3 to 15297,228112,3692,300(402)-9,53652,303473,334
Other assets--40,090----11,34351,433
Projects in progress-156,01178,96553,621(402)-(53,107)22,132257,220
Total cost 3,314,5142,886,20979,296(6,030)2,20828,757781,5707,086,524
          
Accumulated depreciation         
Vehicles (16,924)-(6,712)1,231-(2,093)(2,945)(27,443)
Templates (175,938)-(1,975)---(77)(177,990)
Tools and accessories (3,255)-(11,346)---(1,748)(16,349)
Facilities (167,362)-(7,125)282--(2,351)(176,556)
Machinery and accessories (416,736)-(49,636)154-(161)(11,782)(478,161)
Leasehold improvements (267,371)-(28,910)--25(40,355)(336,611)
Buildings (101,785)-(26,380)---(3,089)(131,254)
Furniture and fixture (193,973)-(22,270)465-(25)(37,787)(253,590)
IT equipment (197,281)-(23,927)10--(17,477)(238,675)
Other assets --(3,097)---(515)(3,612)
Total accumulated depreciation (1,540,625)-(181,378)2,142-(2,254)(118,126)(1,840,241)
Net total 1,773,8892,886,209(102,082)(3,888)2,20826,503663,4445,246,283

26 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

17.INTANGIBLES

 

 Consolidated
 Useful life range (years)December 31, 2020AdditionsWrite-offsReversal (provision) of impairmentTransfersOther changes including exchange rate variationMarch 31, 2021
Cost        
Software2.5 to 102,059,1508,527(8,827)1164,66632,3952,155,922
Trademarks and patents (Defined useful life)20 to 25894,578----49,779944,357
Trademarks and patents (Indefinite useful life)-5,747,057----448,8336,195,890
Goodwill Avon-13,299,849----634,94913,934,798
Goodwill Emeis Brazil Pty Ltd,-142,090----11,452153,542
Goodwill The Body Shop-1,946,741800---203,4222,150,963
Goodwill acquisition of TBS stores-1,456-----1,456
Relationship with retail clients102,785----2353,020
Key money (indefinite useful life)-26,769----1,68928,458
Key money (Defined useful life)3 to 1810,8602,500--(5,555)(186)7,619
Relationship with franchisees and sub franchisees and sales representatives (e)14 to 152,959,519----180,8313,140,350
Technology developed (by acquired subsidiary)-1,595,041----78,4281,673,469
Other intangible assets-108,27528,754--(57,431)60,795140,393
Total cost 28,794,17040,581(8,827)111,6801,702,62230,530,237
         
Accumulated amortization        
Software (1,022,498)(89,404)8,061-3,95511,554(1,088,332)
Trademarks and patents (100,043)(13,882)---(3,409)(117,334)
Key money (8,871)(185)6-1,667(450)(7,833)
Relationship with retail clients (2,839)(75)---(210)(3,124)
Relationship with franchisees and sub franchisees and sales representatives (419,061)(75,493)---(31,903)(526,457)
Technology developed (319,009)(82,477)---(16,882)(418,368)
Other intangible assets (4,721)(309)---(57,735)(62,765)
Total accumulated amortization (1,877,042)(261,825)8,067-5,622(99,035)(2,224,213)
Net total 26,917,128(221,244)(760)117,3021,603,58728,306,024

27 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

 Consolidated
 Useful life range (years)December 31, 2019Acquisition of subsidiaryAdditionsWrite-offsReversal (provision) of impairmentTransfersOther changes including exchange rate variation

March 31,

2020

Cost         
Software2.5 to 101,313,090291,23927,299(31)-72,445116,4691,820,511
Trademarks and patents (Defined useful life)20 to 25116,805517,592----161,815796,212
Trademarks and patents (Indefinite useful life)-2,171,5851,893,224----1,002,8605,067,669
Goodwill Avon--10,973,474----3,039,79014,013,264
Goodwill Emeis Brazil Pty Ltd,-100,237-----12,740112,977
Goodwill The Body Shop-1,434,369-7,824---307,8801,750,073
Goodwill acquisition of TBS stores-1,456------1,456
Relationship with retail clients101,987-----2822,269
Key money (indefinite useful life)-17,801----5,5952,19125,587
Key money (Defined useful life)3 to 1812,447---(80)(3,145)4,82914,051
Relationship with franchisees and sub franchisees and sales representatives14 to 15602,9581,876,169----659,9833,139,110
Technology developed (by acquired subsidiary)--1,131,573----320,1591,451,732
Other intangible assets2 to 10110,288-14,665--(63,534)10,80172,220
Total cost 5,883,02316,683,27149,788(31)(80)11,3615,639,79928,267,131
          
Accumulated amortization         
Software (649,347)-(81,653)43-(3,634)(28,471)(763,062)
Trademarks and patents (44,108)-(8,285)---(5,578)(57,971)
Key money (2,197)-(97)--178(3,489)(5,605)
Relationship with retail clients (1,939)-(52)---(232)(2,223)
Relationship with franchisees and sub franchisees and sales representatives (95,772)-(67,166)---(30,938)(193,876)
Technology developed --(62,191)---(10,331)(72,522)
Other intangible assets (13,159)-1,390---(2,574)(14,343)
Total accumulated amortization (806,522)-(218,054)43-(3,456)(81,613)(1,109,602)
Net total 5,076,50116,683,271(168,266)12(80)7,9055,558,18627,157,529

28 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

18.LEASES

 

a)Right of use asset

 

 Consolidated
 Useful life in Years (a)December 31, 2020AdditionsWrite-offsTransfers (b)Exchange rate variation

March 31,

2021

Cost       
Vehicles3157,86713,860(7,386)-2,947167,288
Machinery and equipment3 to 1053,0482,011(17,431)-2,72940,357
Facilities3 to 101,616,83377,660(158,871)-(35,032)1,500,590
IT equipment1030,000181(790)-2,67132,062
Retail stores3 to 103,338,104120,586(251,695)3,888255,3743,466,257
Tools and accessories33,187---(1,079)2,108
Total cost 5,199,039214,298(436,173)3,888227,6105,208,662
        
Accumulated depreciation       
Vehicles (63,422)(14,360)6,231-(237)(71,788)
Machinery and equipment (21,045)(3,130)8,819-(804)(16,160)
Facilities (399,765)(66,538)51,278-(6,768)(421,793)
IT equipment (19,161)(1,467)787-(1,759)(21,600)
Retail stores (1,291,346)(170,393)263,647-(90,222)(1,288,314)
Tools and accessories (2,253)(230)1,626-(186)(1,043)
Total accumulated depreciation (1,796,992)(256,118)332,388-(99,976)(1,820,698)
Net total 3,402,047(41,820)(103,785)3,888127,6343,387,964

29 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

  Consolidated
 Useful life in Years (a)December 31, 2019Acquisition of subsidiaryAdditionsWrite-offsTransfers (b)Exchange rate variation

March 31,

 

2020

 

Cost        
Vehicles340,01842,46738,836(202)-10,382131,501
Machinery and equipment3 to 1015,57814,034517--6,83136,960
Facilities3 to 10784,900489,74074,070(4,380)-152,8151,497,145
IT equipment1028318,429827--4,57524,114
Retail stores3 to 102,350,377-102,663(6,272)(2,451)530,0272,974,344
Tools and accessories32,803----6033,406
Total cost 3,193,959564,669216,913(10,854)(2,451)705,2334,667,469
         
Accumulated depreciation        
Vehicles (8,109)-(11,450)138-(1,274)(20,695)
Machinery and equipment (4,317)-(3,391)--(1,427)(9,135)
Facilities (97,190)-(68,396)2,852-(21,248)(183,982)
IT equipment (214)-(4,857)--(648)(5,719)
Retail stores (463,332)-(138,496)5,066(178)(113,105)(710,045)
Tools and accessories (936)-(230)--(233)(1,399)
Total accumulated depreciation (574,098)-(226,820)8,056(178)(137,935)(930,974)
Net total 2,619,861564,669(9,906)(2,798)(2,629)567,2983,736,495

 

a)The useful lives applied refer to the term of the contracts in which the Company and its subsidiaries are sure that it will use the assets underlying the lease contracts according to the contractual terms.

 

b)Refers to key money related to store rentals. This amount is transferred from right of use to intangible assets when a new commercial agreement with the lessor is not yet signed.

 

30 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

 Consolidated
 

March 31,

2021

March 31,

2020

Amounts recognized in the statement of income for the three-month period ended March 31, 2021 and 2020:  
Financial expense on lease54,62153,611
Amortization of right of use256,118226,820
Appropriation in the result of variable lease installments not included in the measurement of rental liabilities15,1728,229
Sublease revenue (expense)(8,073)6,143
Short-term rental expenses and low-value assets27,48020,505
Benefits granted by lessor related to Covid-19(16,479)-
Other lease-related expenses11,4269,290
Total340,265324,597
   
Amounts recognized in the financing cash flow statement activities:  
Lease payments (principal)301,420227,506
Values recognized in the operating cash flow statement activities:  
Lease payments (interest)50,83035,829
Variable lease payments, not included in the measurement of rental liabilities3,5242,813
Short-term and low-value assets leases payments22,80315,393
Lease-related payments10,6729,816
Total389,249291,356

 

b)Lease liability

 

 Consolidated
 

March 31,

2021

December 31,

2020

Current1,120,8171,059,661
Non-current2,799,7962,798,794
Total3,920,6133,858,455

 

Below are the changes in lease liability balances for the three-month period ended March 31, 2021 and 2020:

 

 Consolidated
Balance as at December 31, 20192,517,565
New leases280,818
Acquisition of subsidiary777,200
Reclassification Assets vs, Liabilities12,322
Lease payments (principal)(209,723)
Lease payments (interest)(53,611)
Recognition of financial charges53,611
Write-offs (a)(4,641)
Exchange rate variation554,437
Balance as at March 31, 20203,927,978
  
Balance as at December 31, 20203,858,455
New leases225,690
Lease payments (principal)(301,420)
Lease payments (interest)(50,830)
Recognition of financial charges54,621
Remeasurement(68,265)
Write-offs (a)(332,893)
Exchange rate variation535,255
Balance as at March 31, 20213,920,613

 

a)Refers mainly to the termination of contracts related to store leases.

 

The maturity analysis of the lease liability non-current balance of are as follows:

 

 Consolidated
 

March 31,

2021

December 31,

2020

 2022646,011419,240
 2023580,123408,977
 2024536,775406,572
 2025 onwards1,036,8871,564,005
Total2,799,7962,798,794

31 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

19.BORROWINGS, FINANCING AND DEBENTURES

 

 Ref.CompanyConsolidated
 March 31, 2021December 31, 2020March 31, 2021December 31, 2020
Raised in local currency:     
Financing Agency for Studies and Projects FINEP --66,01673,076
DebenturesA--4,012,5214,042,515
BNDES --4,6757,789
BNDES – FINAME ---15
Promissory notesB524,106515,966786,159773,949
Working capital – Mexico Operation --12,25614,453
Working capital – The Body Shop OperationC---500,835
Working capital – Avon Operation --216,425145,495
Notes – Avon (1)D--4,328,0674,033,682
Total in local currency 524,106515,9669,426,1199,591,809
      
Raised in Foreign currency:     
BNDES --1,0251,639
Representative debt securities (“Notes”) (1)E--4,297,4653,969,226
Resolution No 4131/62F--286,282260,239
Total in foreign currency --4,584,7724,231,104
Grand total 524,106515,96614,010,89113,822,913
      
Current 524,106515,9663,234,5403,805,649
Non-current --10,776,35110,017,264
      
Debentures     
Current --2,139,1492,169,786
Non-current --1,873,3721,872,729

 

(1) Balances resulting from the business combinations with Avon recorded at the estimated fair value.

 


Reference
CurrencyMaturityChargesEffective interest rateGuarantees
ARealAugust, 2024Interest of 110.5% to 112% of CDI, and 1.75% + CDI, 1.00% + CDI and 1.15% + CDI, as maturing on September 2020; September 2021; September 2022 and August 2024,113.8% - 113.9%

CDI + 1.15% -
CDI + 1.79%
None
BRealUntil April, 2021Interest of 3.25% p.a. + CDICDI + 3.30%Approval of subsidiary Indústria e Comércio de Cosméticos Natura Ltda.
CBritish
Pounds
March, 2021Libor + interest of 2.00% p.a.Libor + interest of 2.00% p.a.Approval of subsidiary
Natura Cosméticos S.A.
DDollarMarch, 2023 and March 2043Interest of 7.00% p.a. and Interest of 8.95% p.a.Interest of 7.00% p.a. and Interest of 8.95% p.a.None

 

Changes in the balances of borrowings, financings and debentures for the three-month period ended March 31, 2021 and 2020 are as follows:

 

32 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

 CompanyConsolidated
Balance as at December 31, 20192,883,38210,786,374
Assumed in a business combination-7,250,735
New borrowings and financing-451,127
Repayment(1,816,900)(1,923,345)
Accrued finance costs20,283281,534
Finance costs payment(6,860)(498,585)
Exchange rate variation (unrealized)-914,400
Translation effects (OCI)-2,070,826
Balance as at March 31, 20201,079,90519,333,066
   
Balance as at December 31, 2020515,96613,822,913
New borrowings and financing-133,980
Repayment-(623,273)
Accrued finance costs8,140178,845
Finance costs payment-(324,814)
Exchange rate variation (unrealized)-401,366
Translation effects (OCI)-421,874
Balance as at March 31, 2021524,10614,010,891

 

The maturities of non-current portion of borrowings, financing and debentures liabilities are as follows:

 

 Consolidated
 

March 31,

2021

December 31,

2020

2022602,046586,002
20236,900,7126,306,782
20243,273,5933,124,480
Total10,776,35110,017,264

 

19.1 Main changes in borrowings and financing

 

i)  Debentures

 

The information regarding the Company’s debentures issued was presented in note 20.1.i) of the financial statements for the year ended December 31, 2020.

 

The appropriation of costs related to the issuance of debentures for the three-month period ended March 31, 2021 was R$ 832 (R$ 1,033 on March 31, 2020), recorded monthly under financial expenses, in accordance with the effective interest rate method. Issuance costs to appropriate amounted to R$ 8,634 as of March 31, 2021 (R$ 9,466 as of December 31, 2020).

 

ii) Promissory notes

 

The information regarding the Company’s promissory notes issued was presented in note 20.1.ii) of the financial statements for the year ended December 31, 2020.

 

Accrued costs related to the emission of the Promissory Notes for the three-month period ended March 31, 2021 amounted to R$ 1,591 (R$ 1,798 on March 31, 2020), recorded monthly in account of finance costs according to the effective interest rate method, As of March 31, 2021, the balance of issuance costs to be appropriated is R$ 530 (R$ 2,121 on December 31, 2020).

 

iii) Working capital - The Body Shop

 

On December 31, 2019, The Body Shop had a credit line of up to £ 70 million (seventy million pounds), corresponding to R$ 500,835 as at December 31, 2020, guaranteed by Natura, which could be withdrawn in installments to meet The Body Shop short-term financing needs. This credit line was used during the second quarter of 2020, for working capital and liquidity reinforcement with payment of annual interest of Libor + 2%, This credit line was settled during the first quarter of 2021.

 

iv)  Debt Securities Representative ("notes") - Avon

 

The subsidiary Avon has the following debt securities representative (“notes”) issued:

 

33 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

Notes - AvonMain US$Main R$Annual percentage interest rateMaturity
Unguaranteed461,883 2,400,2677.00%March 15, 2023
Unguaranteed216,085 1,122,9298.95%March 15, 2043

 

The effects of allocating fair values from the business combination were added to the notes issued by Avon, which at March 31, 2021 amounted to R$ 474,493 (R$ 449,712 on December 31, 2020).

 

19.2Covenants

 

The restrictive clauses associated with the debt contracts of the Company and its subsidiaries, establish the maintenance of minimum financial indicators resulting from the ratio of the division of the net treasury debt by the EBITDA of the last 12 months, as well as non-financial indicators according to each contract. As of March 31, 2021, and December 31, 2020, the Company and its subsidiaries are in compliance with such restrictive clauses.

 

20.TRADE ACCOUNTS PAYABLE AND SUPPLY CHAIN FINANCE

 

 CompanyConsolidated
 

March 31,

2021

December 31, 2020

March 31,

2021

December 31, 2020
Domestic trade accounts payables2,5014,7485,257,7615,462,377
Foreign trade accounts payables (a)2,5564,9451,013,1911,014,356
Subtotal5,0579,6936,270,9526,476,733
Supply chain finance (b)--284,203297,472
Total5,0579,6936,555,1556,774,205

 

a)Refers to imports mainly denominated in US dollars, Euros and British pounds.

 

b)The Company and its subsidiaries have contracts signed with Banco Itaú Unibanco S.A. to structure a “supply chain finance”, the operation with the Company’s main suppliers. Further details on these operations are included in note 3.16 of the financial statements for the year ended December 31, 2020.

 

21.TAX LIABILITIES

 

 CompanyConsolidated
 

March 31,

2021

December 31, 2020

March 31,

2021

December 31, 2020
ICMS (ordinary)--127,356134,165
ICMS-ST provision (a)--60,78361,521
Taxes on invoicing – foreign abroad--254,457364,291
Withholding tax (IRRF)-828144,911131,368
Other taxes payable - foreign subsidiaries--56,07848,365
Income tax on financial transactions-4687,00515,943
PIS and COFINS payable7811,8577811,857
INSS and service tax (ISS) payable--29,79132,954
Others23-90,35494,357
 10113,153770,813894,821
     
Current10113,153658,523785,367
Noncurrent--112,290109,454

 

a)The Company's subsidiaries have discussions about the illegality of changes in state laws to charge ICMS-ST. Part of the amount recorded as tax payable but not yet paid is being discussed in court by the Company’s subsidiaries, and in some cases, the amounts are deposited in court, as mentioned in note 12.

 

34 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

22.PROVISION FOR TAX, CIVIL AND LABOR RISKS

 

The Company's and its subsidiaries management believes that, based on the elements existing on the base date of this interim accounting information, the provision for tax, civil, labor, commercial and other risks is sufficient to cover possible losses on administrative and legal proceedings, as shown below:

 

22.1Contingencies assessed as probable risk of loss

 

The changes in the tax, civil and labor provision and contingent liabilities are presented below:

 

 Consolidated
 TaxCivilLaborBusiness CombinationTotal
Balance at the beginning of the period931,77178,397251,339797,6932,059,200
Additions48,37834,55216,903-99,833
Reversals(21,890)(29,541)(13,850)(11,017)(76,298)
Payments(2)(5,147)(7,607)-(12,756)
Inflation adjustment2,9262721,7985,80210,798
Exchange rate variation17,2083,96313,1344,28538,590
Transfers(383)-(988)-(1,371)
Balance as at March 31, 2021978,00882,496260,729796,7632,117,996
      
Current59,389---59,389
Non-current918,61982,496260,729796,7632,058,607

 

22.1.1 Tax

 

The consolidated tax contingencies and classified as probable loss, mainly involve: (i) discussions about the illegality of changes in state laws to collection of ICMS, and (ii) discussions related to the exclusion of IPI charges from the income tax calculation basis, withhold income tax, as well as several lawsuits related to income tax and social contribution taxation. Part of the amount not paid is being discussed in court, and in some cases, the amounts are deposited in court, as mentioned in note 12. The tax provision also includes attorneys' fees for the sponsorship of tax proceedings, when applicable.

 

22.1.2 Civil, commercial and other

 

On March 31, 2021, the Company and its subsidiaries are parties to commercial and other civil lawsuits and procedures, mainly related to indemnity claims. Provisions are periodically reviewed based on the evolution of processes and the evolution of jurisprudence to reflect the best estimate.

 

a) Talc-related disputes

 

The subsidiary Avon has been named a defendant in numerous personal injury lawsuits filed in U.S. courts, alleging that certain talc products the Avon sold in the past were contaminated with asbestos. Many of these actions involve a number of co-defendants from a variety of different industries, including manufacturers of cosmetics and manufacturers of other products that, unlike the Avon’s products, were designed to contain asbestos. On March 31, 2021, there were 109 individual cases pending against the Avon. During the three months ended March 31, 2021, 27 new cases were filed, and 82 cases were dismissed, settled or otherwise resolved. The value of the settlements was not material, either individually or in the aggregate, to the Avon’s results of operations for the three-month period ended March 31, 2021. Additional similar cases arising out of the use of the Avon’s talc products are reasonably anticipated.

 

We believe that the claims asserted against us in these cases are without merit. We are defending vigorously against these claims and will continue to do so. To date, the Avon has not proceeded to trial in any case filed against it and there have been no findings of liability enforceable against the Company. However, nationwide trial results in similar cases filed against other manufacturers of cosmetic talc products have ranged from outright dismissals to very large jury awards of both compensatory and punitive damages. Given the inherent uncertainties of litigation, we cannot predict the outcome of all individual cases pending against the Company, and we are only able to make a specific estimate for a small number of individual cases that have advanced to the later stages of legal proceedings. For the remaining cases, we provide an estimate of exposure on an aggregated and ongoing basis, which takes into account the historical outcomes of all cases we have resolved to

 

35 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

date. Any accruals currently recorded on the Avon’s balance sheet with respect to these cases are not material. However, any adverse outcomes, either in an individual case or in the aggregate, could be material. Future costs to litigate these cases, which we expense as incurred, are not known but may be significant, though some costs will be covered by insurance.

 

22.1.3 Labor

 

The Company and its subsidiaries as of March 31, 2021 are parties to labor claims filed by former employees and service providers, mainly related to the payment of severance pay, overtime, salary premiums and monies owed as a result of join liability and discussion about the recognition of any employment relationship. None of these processes is individually relevant. Provisions are periodically reviewed based on the progress of lawsuits and history of losses on labor claims to reflect the best estimate.

 

22.2 Contingencies assessed as possible risk of loss

 

The Company’s subsidiaries have contingencies whose expectation of loss assessed by the Company's Management and supported by the legal advisors is classified as possible and, therefore, no provision has been recorded. On March 31, 2021, the contingencies classified as possible loss probability totaled R$ 9,493,430 (R$ 9,559,550 on December 31, 2020), in which R$ 796,763 (R$ 797,693 on December 31, 2020) were logged at the estimated fair value resulting from the business combinations with Avon Products Inc., shown in the table above.

 

22.2.1 Tax

 

As of March 31, 2021, the tax cases with possible losses totaling R$ 9,117,114 (R$ 9,205,601 at December 31, 2020).

 

Below are the most relevant tax contingencies related to the following matters:

 

a)Infraction notices in which the Brazilian Federal Revenue Office requires IPI tax debts, due to the alleged non-observance of the minimum tax base, provided for in the legislation, when sales transactions destined to interdependent wholesalers. Currently, tax assessment notices are pending judgment at the administrative court level, As at March 31, 2021, the total amount under discussion is R$ 1,969,346 (R$ 1,963,984 as at December 31, 2020).

 

b)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. As of March 31, 2021, the total amount under discussion classified as a possible loss is R$ 1,710,595 (R$ 1,660,532 as at December 31, 2020).

 

c)Administrative and judicial processes that discuss the illegality of changes in Federal State laws regarding the collection of ICMS and ICMS-ST, As at March 31, 2021, the total amount under discussion is R$ 1,567,560 (R$ 1,503,657 as of December 31, 2020).

 

d)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 at March 31, 2021, the total amount under discussion classified as a possible loss is R$ 1,399,423 (R$ 1,396,782 as at December 31, 2020).

 

e)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 March 31, 2021, the total amount under discussion classified as a possible loss is R$ 530,825 (R$ 529,660 as at December 31, 2020).

 

f)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 at March 31, 2021, the total amount in discussion classified as a possible loss is R$ 555,367 (R$ 524,500 as at December 31, 2020).

 

22.2.2 Civil, commercial and other

 

As of March 31, 2021, civil, commercial and other lawsuits with possible losses total R$ 131,113 (R$ 133,302 on December 31, 2020).

 

Below are the most relevant contingencies related to the following matters:

 

a)Shareholder disputes

 

36 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

On February 14, 2019, a purported shareholder’s class action complaint (Bevinal v, Avon Products, Inc., et al., No. 19-cv-1420) was filed in the United States District Court for the Southern District of New York against the Avon and certain former officers of Avon. The complaint was subsequently amended and recaptioned "In re Avon Products, Inc, Securities Litigation". The amended complaint is brought on behalf of a purported class consisting of all purchasers or acquirers of Avon common stock between January 21, 2016 and November 1st, 2017, inclusive. The complaint asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") based on allegedly false or misleading statements and alleged market manipulation with respect to, among other things, changes made to Avon’s credit terms for Representatives in Brazil. Avon and the individual defendants filed a motion to dismiss which the court denied. During 2020, the parties reached an agreement on a settlement of this class action. The terms of settlement include releases by members of the class of claims against Avon and the individual defendants and payment of R$ 75,352 ($ 14,500). Approximately R$ 10,393 ($ 2,000) of the settlement was paid by the Avon (which represented the remaining deductible under the Avon’s applicable insurance policies) and the remainder of the settlement was paid by Avon’s insurers. On August 31, 2020, the court granted preliminary approval of the settlement, and on February 3rd, 2021, the court entered an order and judgment granting final approval of the settlement. This decision is final.

 

22.2.3 Labor

 

As of March 31, 2021, contingencies classified as possible loss, totaled R$ 245,203 (R$ 220,648 as of December 31, 2020). No lawsuit is individually significant.

 

22.3 Contingent assets

 

The updated amounts of PIS and COFINS installment refund requests calculated with the inclusion of ICMS in tax base, not recorded until March 31, 2021, amounts to R$ 133,769 (R$ 133,397 on December 31, 2020), which refers to lawsuits still under discussion. Until the approval of this interim financial information, individual and consolidated, the clarification motion with request for modulation of the effects of the decision opposed by the National Treasury Attorney's Office is still pending judgment by the Brazilian Supreme Court. Further information on the judicial measures dealing with this matter was disclosed in the Company's 2020 annual financial statements, in note 3.27.1.

 

23.OTHER LIABILITIES

 

 Consolidated
 

March 31,

2021

December 31,

2020

Pension and post-employment healthcare plans(a)824,687783,184
Deferred revenue from performance obligations with customers (b)381,680422,353
Provisions for incentives to consultants309,539292,034
Provisions for operating expenses (marketing / technology, etc.)  (c)501,170535,276
Discontinued operations (d)193,707153,140
Provision for store renovation28,76499,702
Crer Para Ver (e)68,21575,508
Provisions for rentals (f)77,15270,598
Provision for restructuring (g)86,69768,954
Long-term incentives (h)-52,745
Provisions for apportionment of benefits and partnerships payable11,75710,005
Other provisions (i)351,246373,891
Carbon credit5,0195,560
Exclusivity contract2,4003,000
Total2,842,0332,945,950
   
Current1,721,8511,832,811
Non-current1,120,1821,113,139

 

a)As of March 31, 2021, Avon's pension and post-retirement plans amounts to R$ 687,927 and Natura's post-employment healthcare plans amounts to R$ 136,760 (R$ 134,194 as of December 31, 2020).

 

b)Refers to the deferral of revenue related performance obligations of loyalty programs based on points, sale of gift cards not yet converted into products and programs and events to honor direct selling consultants, of which R$ 277,196 related Avon and R$ 104,484 related to Natura consolidated.

 

c)Refers to the Group's operating provisions mainly due to spending on provision of technology services, marketing and advertising, etc., to comply with the accrual basis.

 

d)As of December 17, 2015, Avon has contracts that resulted in the separation of operations in the United States, Canada and Puerto Rico. These transactions were closed on March 1st, 2016. From that date, contingent liabilities prior to this transaction and related operations in the United States, Canada and Puerto Rico, are treated as discontinued operations. During the three-month period ended March 31, 2021, Avon recorded R$ 28,748 as administrative expenses related to these provisions.

 

37 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

e)Refers to Social program contribution for developing the quality of education.

 

f)Refers to the (grace) period granted by lessors for the start of payment of rental of certain retail stores, for rental agreements that were not included in the initial measurement of lease liabilities / right-of-use of the subsidiary The Body Shop, in accordance with the exceptions permitted under IFRS 16 / (CPC 06 (R2)).

 

g)Provision for costs directly related to the plan for changes in the organizational structure, mainly of Avon and The Body Shop organizational structures.

 

h)Refers substantially to the variable remuneration plans for Avon executives.

 

i)Refers to provisions for insurance coverage, indemnities and long-term contractual obligations.

 

Post-employment health care and Pension plan

 

a)Defined benefit pension and postretirement plans (Avon)

 

b)The actuarial valuation of defined benefit pension and post-retirement plans is updated annually. The most recent valuation of the plan assets and the present value of the defined benefit obligation was performed on December 31, 2020. The significant information and assumptions used in the valuation including revenue were presented in note 24 of the Company’s 2020 annual financial statements.

 

c)Post-employment healthcare plan (Natura Cosméticos)

 

The actuarial valuation of the post-employment healthcare plan is updated on an annual basis. The information regarding the most recent evaluation of the post-employment healthcare plan, as well as its significant assumptions and sensitivity analysis, were detailed in the Company's 2020 annual financial statements, note 3.20.4.

 

24.SHAREHOLDER’S EQUITY

 

24.1 Capital Stock

 

As at March 31, 2021, the capital stock is R$ 12,395,686, consisting of 1,375,876,244 registered common shares, with no par value (R$ 12,377,999, composed by 1,375,158,636 on December 31, 2020).

 

24.2 Policy for dividends and interest on equity distribution

 

The information regarding the Company’s policy for the distribution of dividends and interest on shareholders' equity was presented in note 25.2 of the financial statements for the year ended December 31, 2020.

 

24.3 Treasury shares

 

As of March 31, 2021, the “Treasury shares” has the following composition:

 

 Number of sharesAmount R$ (thousands)Average price per share - R$
Balance as at December 31, 2020316,70111,66738.04
Used (729,736)  (34,042)  46.70
Acquisition  631,358  32,091  50.80
Balance as at March 31, 2021  218,3239,716   44.50

 

The minimum and maximum cost of the balance of treasury shares on March 31, 2021 are R$ 25.00 and R$ 52.44, respectively.

 

24.4 Capital reserve

 

The acquisition of the subsidiary Avon resulted in the issuance of Natura &Co shares for the total subscription amount of R$ 13,274,894. Of this amount, R$ 3,397,746 were allocated to the share capital account and the remainder amount of R$ 9,877,148 were allocated to the Company’s capital reserve. This incorporation of shares was approved at the Company’s Board of Directors meeting held on January 3, 2020.

 

The approval of the capital increase of R$ 2,000,000, approved on June 30, 2020, allocated the amount R$ 1,118 to the capital reserve.

 

The capital reserve had increased by R$ 27,399, due to the effects of IAS 29 - Accounting in Hyperinflationary Economics (CPC 42), and a decrease of R$ 13,386 referring to the changes of the stock option and restricted share plans.

 

The capital reserve as of March 31, 2021 amounted to R$ 11,066,148 (R$ 11,052,470 as at December 31, 2020).

 

24.5Profit reserve

 

As of March 31, 2021, the profit reserve increased by R$ 13,665, of which: (i) increase of R$ 15,853 were due to

 

38 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

effects of IAS 29 (CPC 42), applied to balances up to March 31, 2021, and (ii) decrease of R$ 2,188 due to the reclassification of capital reserve.

 

The profit reserve balance as of March 31, 2021 amounted to R$ 20,529 (R$ 6,864 on December 31, 2020).

 

24.6Other comprehensive income

 

The information regarding the Company’s other comprehensive income was presented in note 25,6 of the financial statements for the year ended December 31, 2020.

 

25.OPERATING SEGMENTS

 

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, 2020.

 

The revenue by segment is as follows for the three-month ended March 31, 2021:

 

ØNatura &Co Latam - 55%

ØAvon International - 25%

ØTBS International - 14%

ØAesop International - 6%

 

The following tables summarizes the financial information related to the periods ended March 31, 2021 and 2020 and the year ended December 31, 2021.

 

25.1 Operating segments

 

 March 31, 2021
 Reconciliation to net income (loss) for the year
 Net revenuesPerformance assessed by the CompanyDepreciation and amortizationFinancial incomeFinancial expensesIncome taxNet income (loss)
Natura &Co Latam5,185,945574,381(213,329)764,596(867,170)(82,272)176,205
Avon International2,363,4736,027(218,962)247,756(324,543)(19,145)(308,867)
TBS International1,319,731195,298(190,658)20,241(44,659)2,007(17,771)
Aesop International585,924156,487(73,246)49(18,960)(18,741)45,589
Corporate expenses-(74, 369)(181)6,302(11,518)28,058(51,708)
Consolidated9,455,073857,824(696,376)1,038,944(1,266,850)(90,093)(156,552)

 

 March 31, 2020
 Reconciliation to net income (loss) for the year
 Net revenuesPerformance assessed by the CompanyDepreciation and amortizationFinancial incomeFinancial expensesIncome taxNet income (loss)
Natura &Co LATAM4,162,335339,848(221,863)1,292,228(1,376,898)(155,439)(122,124)
Avon International2,121,517(41,618)(183,887)176,177(361,617)15,122(395,823)
TBS International893,243133,550(164,390)30,117(41,035)(59,393)(101,151)
Aesop International340,89977,966(55,679)10,580(6,255)(6,842)19,770
Corporate expenses-(386,467)-51,082(1,974)111,749(225,611)
Consolidated7,517,994123,279(625,819)1,560,184(1,787,779)(94,803)(824,939)

 

 March 31, 2021December 31, 2020
 Non-current assetsTotal assetsCurrent liabilitiesNon-current liabilitiesNon-current assetsTotal assetsCurrent liabilitiesNon-current liabilities
Natura &Co Latam18,943,25028,910,1768,895,1769,858,50420,228,01627,644,90712,410,5859,060,600
Avon International15,139,51618,608,0853,319,7235,663,63712,486,73319,097,959405,9755,625,774
TBS International8,527,76810,589,3691,718,5671,915,0927,821,88410,474,1912,291,4591,812,991
Aesop International1,467,6372,329,230496,420658,2741,395,6282,148,869488,662618,531
Corporate8891,381,296576,2632,332250,5161,551,671562,905253,007
Consolidated44,079,06061,818,15615,006,14918,097,83942,182,77760,917,59716,159,58617,370,903

39 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

25.2Revenue and non-current assets, by geographical area of operations

 

Non-current assetsNet revenuesNon – current assets

March 31,

2021

March 31,

2020

December 31,

2021

December 31,

2020

Asia972,133617,270812,185768,878
  North America1,509,2981,101,5456,858,6765,939,728
  Mexico975,921711,3333,813,5333,263,833
  Other533,377390,2123,045,1432,675,896
South America3,944,3913,259,47415,009,10914,810,020
  Brazil2,307,6652,163,99412,550,92812,159,245
  Argentina621,252404,6151,070,8231,041,392
  Other1,015,474690,8651,387,3581,609,383
Europe, Middle East and Africa (EMEA)2,850,1102,422,06620,301,30919,615,198
  United Kingdom1,017,744899,43317,844,74317,059,017
  Other1,832,3661,522,6332,456,5662,556,181
  Oceania179,141117,6391,097,7811,048,953
Consolidated9,455,0737,517,99444,079,06042,182,777

 

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

 

26.REVENUES

 

 Consolidated
Gross revenues:

March 31,

2021

March 31,

2020

  Domestic market3,171,0743,013,326
  Foreign market8,755,6026,581,207
  Other sales132,590124,455
Subtotal12,059,2669,718,988
   
  Returns and cancellations(137,910)(122,517)
  Commercial discounts and rebates(243,742)(238,585)
  Taxes on sales(2,222,541)(1,839,892)
Subtotal(2,604,193)(2,200,994)
Total revenue9,455,0737,517,994

 

27.OPERATING EXPENSES AND COST OF SALES

 

Classified by functionCompanyConsolidated
 

March 31,

2021

March 31,

2020

March 31,

2021

March 31,

2020

Cost of sales--3,322,4672,878,722
Selling, marketing and logistics expenses--4,007,4453,299,190
Administrative, R&D, IT and project expenses24,6169,9781,627,6861,266,091
Total24,6169,9788,957,5987,444,003
     
Classified by nature    
Cost of sales--3,322,4672,878,722
Raw material/packaging material/resale--3,008,0152,621,813
Employee benefits expense (note 28)--135,340111,295
Depreciation and amortization--54,41037,860
Other--124,702107,754
     
Selling, marketing and logistics expenses--4,007,4453,299,190
Logistics costs--653,055566,346
Employee benefits expense (note 28)--1,122,513942,218
Marketing, sales force and other selling expenses--1,895,6851,483,106
Depreciation and amortization--336,192307,520
     
Administrative, R&D, IT and project expenses24,6169,9781,627,6861,266,091
Innovation expenses--65,037167,210
Employee benefits expense (note 28)21,8335,042724,965458,124
Other administrative expenses2,7832,646531,910360,318
Depreciation and amortization-2,290305,774280,439
     
Total24,6169,9788,957,5987,444,003

40 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

28.EMPLOYEE BENEFITS

 

 CompanyConsolidated
 

March 31,

2021

March 31,

2020

March 31,

2021

March 31,

2020

Payroll, profit sharing and bonuses14,4094,1561,470,6001,141,927
Pension Plan--65,56844,113
Share-based payments (note 31.4)4,131-58,33734,887
Charges on restricted shares (note 31.4)1,045-(6,075)(42,695)
Health care, food and other benefits760(2)165,076147,151
Charges, taxes and social contributions10227180,560136,792
INSS1,38686148,75249,462
Total21,8335,0421,982,8181,511,637

 

28.1 Share-based payment

 

The information regarding the Company’s share-based payments was presented in note 29 of the financial statements for the year ended December 31, 2020.

 

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

 

 Stock Option Plan and Strategy Acceleration Plan
 Average exercise price per option1 - R$Options (thousands)1
Balance as at December 31, 202016.4917,245
Exercised24(718)
Balance as at March 31, 202115.5616,527

 

 

Restricted shares

(thousands)1

Performance shares

(thousands)2

Balance as at December 31, 20206,960637
Expired(5)-
Exercised(1,272)-
Balance as at March 31, 20215,683637

 

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

 

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

 

Out of the 16,527 thousand options existing as at March 31, 2021 (17,245 thousand options as at December 31, 2020), 7,437 thousand options (3,405 thousand options as of December 31, 2020) can be exercised.

 

The expense related to the fair value of the restricted options and shares, including the charges related to the restricted shares, recognized in the three-month period ended March 31, 2021, according to the elapsed period for the acquisition of the right to exercise the restricted options and shares, amounted to R$ 5,176 and R$ 52,262 on the company and consolidated (R$ 12,650 and R$ 31,966 as of March 31, 2020).

 

The outstanding stock options and the restricted stock as at the end of the period have the following maturity dates and exercise prices:

 

41 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

As of March 31, 2021 - restricted shares

 

Grant dateConditions for acquiring the rights from grant dateExercise price - R$Fair value – R$

Existing options

(thousands) ¹

Remaining contractual life (years)Vested options (thousands)
March 17, 20144 years of service26.254.27820.982
March 16, 2015From 2 to 4 years of service13.604.85 to 5.291601.9160

July 28, 2015

(Strategy acceleration)

From 4 to 5 years of service12.906.20 to 6.236052.3605
March 15, 2016From 2 to 4 years of service12.847.16 to 7.431643.0164

July 11, 2016

(Strategy acceleration)

From 4 to 5 years of service11.416.84 to 6.891,9253.31,925
March 10, 2017From 2 to 4 years of service12.596.65 to 6.685644.0564

March 10, 2017

(Strategy acceleration)

From 4 to 5 years of service12.596.87 to 6.892,2104.01,105
March 12, 2018From 2 to 4 years of service16.967.96 to 8.211,7595.01,080

March 12, 2018

(Strategy acceleration)

From 3 to 5 years of service12.16 to 16.968.21 to 9.673,8005.0950
April 12, 2019From 3 to 4 years of service23.5411.71 to 11.821,8116.0545

April 12, 2019

(Strategy acceleration)

From 4 to 5 years of service23.5411.51 to 11.711,9006.0-
Between December 31, 2002 to May 09, 20171 year of service0.0119.8065-65
Between March 14 to December 17, 2018From 1 to 3 years of service0.0119.703190.155
Between March 13 to December 16, 2019From 1 to 3 years of service0.0119.581,0461.133
June 8, 20201 year of service0.0116.861170.4104
    16,527 7,437

 

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

 

As of March 31, 2021 – Restricted shares

 

Grant dateConditions for acquiring the rights from grant date

Existing stock

(thousands) 1

Fair value (R$)Remaining contractual life (years)Vested options
March 12, 2018 – Plan IFrom 2 to 4 years of service23615.18 to 15.900.3 to 1.22
August 13, 2018 – Extraordinary Plan VIFrom 1,6 to 3,6 years of service2512.24 to 13.130.3 to 1.25
April 12, 2019 – Plan IFrom 2 to 4 years of service48521.62 to 22.530.3 to 1.26
April 12, 2019 – Plan IIFrom 1 to 3 years of service15622.14 to 22.850.3 to 1.27
March 27, 2020 – Co-Investment PlanFrom 1 to 3 years of service1,54229.002.38
September 29, 2020 – Long-term Incentive PlanFrom 3 to 4 years of service3,23973.462.7 to 3.79
  5,683  37

 

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

 

As of March 31, 2021 – Performance shares

 

Grant dateConditions for acquiring the rights from grant date

Existing shares

(thousands) ¹

Fair value (R$)Remaining contractual life (years)

Undelivered shares

(thousands)

May 21, 2019From 3 to 4 years of service as from the grant date and fulfilment of the performance conditions63723.10 to 45.701.5 to 2.5-
  637  -

 

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

 

As of March 31, 2021, the market price was R$ 48.14 per share, already considering the stock split (R$ 25.74 as of March 31, 2020).

 

42 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

28.2 Avon Products Inc, plans

 

Share-Based Compensation Plans

 

Prior to being acquired by the Company, Avon Products Inc, (“Avon”) had two share-based incentive plans, the 2013 Stock Incentive Plan (the “2013 Plan”) and the Omnibus Incentive Plan 2016 (the "2016 Plan"), both plans approved by the shareholders, which provided for various types of share-based incentive compensation awards, including stock options, restricted shares, restricted share units and performance restricted share units. After the approval of the shareholders of the 2016 Plan in May 2016, there were no further awards made in the 2013 Plan.

 

Stock options and restricted shares were issued in the 2016 Plan, and units of restricted shares and units of restricted performance were issued in the 2013 and 2016 Plans. There were also outstanding stock options under prior shareholder-approved plans.

 

On January 3rd, 2020, after the conclusion of the transaction with Natura &Co, equity compensation was either cancelled in exchange for the right to receive an amount in cash or was converted into an award denominated in Natura &Co Shares. Subsequent to the Transaction, Avon joined the Natura &Co Stock-Based Compensation Plan, so that the 2013 Plan and the 2016 Plan are no longer in effect.

 

Under the Natura &Co Stock-Based Compensation Plan, Avon issued nominal cost options and performance stock units, Nominal cost options were granted in exchange for Avon restricted stock units and performance restricted stock units and vested as a single tranche in line with the vesting date of the original Avon awards. Nominal cost options will automatically exercise on vest date. Performance stock units generally vest after three years, only upon the satisfaction of certain market and/or performance conditions.

 

Stock Options

 

Prior to being acquired by the Company, Avon granted premium-priced stock options, in which the exercise price was equal to a 25% premium for both, respectively, from the closing market price of Avon stock price at the date of grant. The premium-priced stock options vest on a three-year graded vesting schedule and the fair value of each premium-priced stock option was estimated on the date of grant using a Monte-Carlo simulation.

 

On January 3rd, 2020, upon the completion of the Transaction with Natura &Co, each outstanding stock option, whether or not then vested or exercisable, was automatically canceled in exchange for the right to receive an amount in cash, without interest, equal to the number of Avon Common Shares underlying such stock option immediately prior to the effective time of the Transaction multiplied by the excess, if any, of the per share cash-out price over the exercise price per share. The “per share cash-out price” was the closing price of an Avon Common Share on the NYSE on the Transaction’s closing date. No amount was payed upon cancellation of stock option with an exercise price per share that is greater than the per share cash-out price.

 

Restricted Stock Units (RSU) and Performance Restricted Stock Units (PRSU)

 

Prior to being acquired by the Company, during the years 2019, 2018, 2017 and 2016, Avon granted, performance restricted stock units that would vest and settle after three years based on the relative total shareholder return of Avon common stock against companies included in the S&P 400 index as of the date of grant over a three year performance period ("2019 PRSUs", "2018 PRSUs", "2017 PRSUs" and "2016 PRSUs", respectively). The fair value of the PRSUs was estimated on the date of grant using a Monte-Carlo simulation that estimates the fair value based on Avon's share price activity, expected term of the award, risk-free interest rate, expected dividends and the expected volatility of the stock.

 

On January 3, 2020, upon the completion of the Transaction with Natura &Co, each outstanding Restricted Stock Unit ("RSU") was converted into an award denominated in Natura &Co Holding shares equal to the number of Avon Common Shares subject to each RSU immediately prior to the Transaction multiplied by the Exchange Ratio of 0.30. In addition, each outstanding PRSU was converted into an award denominated in Natura &Co Holding Shares, that is subject only to time-based vesting, equal to the number of Avon Common Shares subject to each PRSU immediately prior to the Transaction, giving effect to market conditions that are deemed to be attained, multiplied by the Exchange Ratios of 0.30. The terms and conditions, including service conditions but excluding market conditions, applicable to each RSU and PRSU will continue in full force and effect with respect to the Company’s Nominal Cost Options.

 

43 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

29.FINANCE INCOME (EXPENSES)

 

 CompanyConsolidated
 

March 31,

2021

March 31,

2020

March 31,

2021

March 31,

2020

FINANCE INCOME:    
Interest on short-term investments4,0426,08841,43935,418
Gains on monetary and exchange rate variations (a)2,11818,666332,125237,027
Gains on swap and forward transactions (c)--662,3091,075,198
Gains on swap and forward derivatives mark to market--1,181139,440
Monetary adjustment reversal on provision for tax risks and tax obligations---42,378
Debt structuring revenue for Avon acquisition-26,328-26,328
Other financial income--1,8904,395
Subtotal6,16051,0821,038,9441,560,184
     
FINANCE EXPENSES:    
Interest on financing(8,140)-(178,845)(253,094)
Interest on leases--(54,621)(54,363)
Losses on monetary and exchange rate variations (b)--(676,879)(1,198,575)
Losses on swap and forward transactions (d)--(259,907)(148,150)
Losses on swap and forward derivatives mark to market--(1,763)(84,407)
Adjustment of provision for tax, civil and labor risks and tax liabilities--(4,226)(3,746)
Appropriation of funding costs (debentures and notes)--(2,630)(2,831)
Interest on pension plan--(3,079)(7,308)
Hyperinflationary economy adjustment (Argentina)--(36,585)4,812
Other financial expenses(2,594)(1,975)(48,315)(40,117)
Subtotal(10,734)(1,975)(1,266,850)(1,787,779)
     
Net finance income (expenses), net(4,574)49,107(227,906)(227,595)

 

The breakdown set forth below is intended to better explain the results of the foreign exchange rate hedging transactions entered into by the Company as well as its related items recorded in the financial income (expenses) and shown in the previous table:

 

 CompanyConsolidated
 

March 31,

2021

March 31,

2020

March 31,

2021

March 31,

2020

(a)  Gains on monetary and exchange rate variations2,11818,666332,125237,027
Gains on exchange rate variation on borrowings, financing and debentures--51,70513,998
Exchange rate variation on imports-18,66615,94729,327
Exchange rate variation on export receivables2,118-43,92929,776
Exchange rate variation on accounts payable from foreign subsidiaries--90,67974,349
Exchange variations of bank accounts in foreign currency--109,13989,577
Adjustment of hyperinflationary economy--20,726-
     
(b)  Losses on monetary and exchange rate variations--(676,879)(1,198,575)
Losses on exchange rate variation on borrowings, financing and debentures--(455,338)(937,885)
Exchange rate variation on imports--(10,920)(19,034)
Exchange rate variation on export receivables--(23,639)(2,044)
Exchange rate variation on accounts payable from foreign subsidiaries--(85,646)(161,863)
Exchange rate variation on financing--(101,336)(77,749)
     
 (c)  Gains on swap and forward transactions--662,3091,075,198
Revenue from swap exchange coupons--116,75747,167
Gains from exchange variations on swap instruments--545,5521,028,031
     
(d)  Losses on swap and forward transactions--(259,907)(148,150)
Losses on exchange rate variation on swap instruments----
Financial costs of swap instruments--(259,907)(148,150)

44 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

30.OTHER OPERATING INCOME (EXPENSES), NET

 

 CompanyConsolidated
 

March 31,

2021

March 1,

2020

March 31,

2021

March 31,

2020

Other operating income, net    
Result on write-off of property, plant and equipment--10,1351,491
ICMS-ST (a)---7,294
PIS/COFINS credits (b)--10,461-
Tax contingencies---1,281
Other operating income--6,974543
Total other operating income--27,57010,609
     
Other operating expenses, net    
Crer para Ver (c)--(8,795)(8,360)
Expense on the sale of customer portfolio--(3,964)-
Expenses related Avon acquisition-(147,824)-(297,110)
Transformation and integration plan (d)--(134,142)(25,072)
Taxes contingencies--(1,880)-
Other operating expenses--(4,221)(32,617)
Total other operating expenses-(147,824)(153,002)(363,159)
Other operating income (expenses), net-(147,824)(125,432)(352,550)

 

a)Refers to the requirement of ICMS tax substitution, for different Federal States (details in note 22), During 2020, provision reversals were made due to the change in the loss estimate for some Federal States.

 

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

 

c)Allocation to Natura Institute of operating profit from sales of the non-cosmetic product line “Crer Para Ver”, specifically allocated to social projects aimed at the development of education quality.

 

d)Expenses related to the implementation of the TBS transformation and integration Avon plan, which is based on five pillars, namely: (1) renewal of the brand; (2) optimization of retail operations; (3) improvement of omni-channel; (4) improvement of operating efficiency; and (5) organization redesign.

 

31.RELATED-PARTY TRANSACTIONS

 

In the course of the Company's operations, rights and obligations are generated between related parties, arising from administrative expenses and provision of services.

 

31.1 Receivables and payables with related parties

 

The Company had transactions with related parties recognized as presented below:

 

 Company
 

March 31,

2021

December 31,

2020

Current assets:  
Natura Cosméticos S.A. (a)191,154108,953
Natura Cosméticos S.A. – Argentina (b)2,0501,870
The Body Shop International (b)2,7292,490
Aesop HK (b)330300
Aesop UK (b)2,0981,913
Aesop USA (b)303276
Emeis cosmetics (b)165150
Indústria e Comércio de Cosméticos Natura Ltda (b)1,518-
Natura Biosphera78-
Total current assets200,425115,952
   
Current liabilities:  
Natura Cosméticos S.A. (b)5645,673
Indústria e Comércio de Cosméticos Natura Ltda, (b)-1,521
Total current liabilities5647,194

 

a)Refers to interest on equity.

 

b)Refers to the allocation of expenses related to the stock option and restricted stock plans.

 

45 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

31.2 Transactions with related parties

 

In the year ended December 31, 2020, Natura &Co reimbursed the amount of R$ 148,274 of expenses regarding the transaction costs for the acquisition of Avon paid by its subsidiary Natura Cosméticos. This reimbursement was registered in the profit or loss line item “Other revenues (expenses)”. For the other transactions, they were not carried forward as income statement, as they refer to the transfer of expenses related to stock option plans and restricted shares.

 

The Company and its subsidiaries have a structure of internal controls to support the identification, monitoring and approving of transactions between Related Parties.

 

31.3 Transactions with uncontrolled and unconsolidated related parties

 

Natura Institute holds shares in the investment fund “Fundo de Investimento Essencial”. As at March 31, 2021, the balance is R$ 8,850 (R$ 3,414 on December 31, 2020).

 

On June 5, 2012, an agreement was entered between Indústria e Comércio de Cosméticos Natura Ltda., and Bres Itupeva Empreendimentos Imobiliários Ltda., (“Bres Itupeva”), for the construction and leasing of processing center to distribution and warehousing of products (HUB), in Itupeva (SP), In 2019, the Bres Itupeva granted its credits to BRC Securitizadora S/A, to which Natura makes monthly payments. Messrs. Antônio Luiz da Cunha Seabra, Guilherme Peirão Leal and Pedro Luiz Barreiros Passos, members of the group of controlling shareholders of Natura Cosméticos S.A., indirectly hold controlling interests in Bres Itupeva. The amount involved in the registered transaction is recorded under “Right of Use” of "Buildings" in the amount of R$ 67,729 (R$ 39,346 under “Builds” of Property, Plant and Equipment as at December 31, 2019) and in the three-month period ended March 31, 2021, the total amount paid as rent was R$ 3,560 (R$ 13,086 for the year ended December 31, 2020).

 

The Company and Raia Drogasil S.A. entered into a purchase and sale agreement and other covenants for selling products in Raia and Drogasil. Mr. Guilherme Peirão Leal and Mr. Pedro Luiz Barreiros Passos, members of the Company, controlling group, indirectly hold shareholding interest in Raia Drogasil S.A. This contract was finalised during the financial year 2020.

 

In the three-month period ended March 31, 2021, the Company and its subsidiary transferred to the Natura Institute, a donation associated with the net sales of products in the Natura Crer Para Ver line, in the amount of R$ 10,000 (R$ 15,692 as at March 31, 2020).

 

The Company and its subsidiaries have a structure of internal controls to support the identification, monitoring and approving of transactions between Related Parties.

 

31.4Key management personnel compensation

 

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

 

 March 31, 2021March 31, 2020
 CompensationCompensation
 FixedVariableTotalFixedVariable Total
   (a)    (b)    (a)    (b)  
Board of Directors3,7152,7906,5055,3455,85511,200
Executive Board10,16914,55424,72313,5048,44221,946
 13,88417,34431,22818,84914,29733,146

 

a)The line item “Executive Board” includes the amount of R$ 255 referred to the amortization of the Confidentiality and Non-Compete Agreement during the three-month period ended March 31, 2021 (R$ 255 in the three-month period ended March 31, 2020).

 

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

 

31.5Share-based payments

 

Below is the breakdown of the Company officers and executives’ share-based payments compensation:

 

 Grant of options
 March 31, 2021March 31, 2020
 Stock option balance (number)1 (a)Average fair value of stock options1 – R$Average exercise price1 - R$ (b)Stock option balance (number) 1 (a)Average fair value of stock options1 – R$Average exercise price1 - R$ (b)
Officers13,849,18916.3215.5613,535,4398.3916.28

46 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

 Restricted shares 
 March 31, 2021March 31, 2020 
 Stock option balance (number)1 (a)Average exercise price1 - R$ (b)Stock option balance (number)1 (a)Average exercise price1 - R$ (b)
Officers531,63140.15752,13319.47

 

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

 

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

 

a)Refers to the balance of the options and restricted shares vested and non-vested, not exercised, at the reporting dates.

 

b)Refers to the weighted-average exercise price of the option at the time of the stock option plans, adjusted for interest based on the Extended Consumer Price Index (IPCA) through the end of the reporting period, The new Stock Option Plan implemented in 2015, include no monetary adjustment.

 

32.COMMITMENTS

 

32.1Contracts related to supply of inputs

 

In the normal course of their business, the Company's subsidiaries sign contracts with third parties for the acquisition of raw materials, production goods, transportation and storage services and electricity to supply their operating activities.

 

The commitments assumed as of March 31, 2021 and December 31, 2020, according to the signed contracts, are shown below:

 

 Consolidated
 

March 31,

2021

December 31,

2020

Less than one year1,337,3601,413,904
One to five years966,535872,767
Above five years12,89413,223
Total2,316,7892,299,894

 

33.INSURANCE

 

The Company and its subsidiaries have in place an insurance policy that considers principally risk concentration and materiality, taking into consideration the nature of its activities and the guidance of its insurance advisors. As at March 31, 2021, insurance coverage is as follows:

 

ItemType of coverageAmount insured
March 31, 2021December 31, 2020
Industrial complex and administrative sitesAny damages to buildings, facilities, inventories, and machinery and equipment.6,140,3945,658,558
VehiclesFire, theft and collision for the Company and subsidiaries vehicles.284,812258,416
Loss of profitsNo loss of profits due to material damages to facilities buildings and production machinery and equipment.1,894,8131,894,813
TransportDamages to products in transit.106,35397,934
Civil liabilityProtection against error or complaints in the exercise of professional activity that affect third parties.2,749,4151,390,061
Environmental liabilityProtection against environmental accidents that may result in environmental lawsuits30,00030,000

 

34.ADDITIONAL INFORMATION RELATING TO THE STATEMENTS OF CASH FLOWS

 

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

 

47 

 

 

 

NATURA &CO HOLDING S.A.

NOTES TO THE INDIVIDUAL AND CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

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

 

 CompanyConsolidated
 

March 31,

2021

March 31,

2020

March 31,

2021

March 31,

2020

Non-cash items    
Hedge accounting, net of tax effects--39,655164,882
Net effect of acquisition of property, plant and equipment and intangible assets not yet paid--187,84845,078
Consideration for acquisition of subsidiary-13,366--

 

35.SUBSEQUENT EVENTS

 

Promissory notes

 

On April 15, 2021, the Company and its subsidiary Natura Cosméticos redeemed the total principal amount due under their respective promissory notes, equivalent to R$ 500,000 of the Company and R$ 250,000 of Natura Cosméticos.

 

Absorption of losses for the fiscal year 2020 by the capital reserve

 

On April 16, 2021, the Extraordinary General Meeting approved the full absorption of the losses incurred on the year ended on December 31, 2020 in the amount of R$ 650,196, through the capital reserve account related to the goodwill on the issue / sale of the Company's shares, as permitted by article 200 of the Brazilian Corporation Law.

 

Credit opening agreement

 

On April 23, 2021, The Body Shop International Limited, a subsidiary of Natura Cosméticos, contracted a facility agreement with UK Export Finance and HSBC Bank PLC in the amount of GBP 100 million with guarantee from Natura &Co Holding and subsidiary Natura Cosméticos.

 

Notes 

 

On May 4, 2021, the subsidiary Natura Cosméticos completed the offer of sustainability-linked notes to sustainability targets of 4.125% due on May 3, 2028 (the "ESG Notes") in the total principal amount of US $ 1, 0 billion, these being guaranteed by Natura &Co. The Issuance will have the following main characteristics: (i) redemption: the Company may redeem all or part of the Notes, under the terms to be established in the documents related to the Issuance and the Offering of Notes; (ii) allocation of funds: the funds raised through the Issuance of Notes will be used to refinance certain debts of the Company in the short and medium term, which includes the redemption of the 5,375% senior notes due 2023 issued by the Company in 2018, according to the terms established in the deed dated February 1, 2028, between the Company and the US Bank National Association Notes; (iii) guarantee: Natura &Co Holding will grant a personal guarantee, irrevocably and unconditionally ("Guarantee") on the full and punctual payment (either on the maturity date, on the redemption, early maturity or otherwise established) of the principal, premium, if any, and interest and all other amounts due under the terms of each of the Notes.

 

Hedge Instrument Settlement

 

On May 10, 2021, the subsidiary Natura Cosméticos S.A. decided to settle the hedge instruments associated with the Bonds maturing in 2023, which will be redeemed in advance. This operation generated a gross positive result in the amount of R$ 1,741,835 for the subsidiary Natura Cosméticos.

  

48