UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of September 2020
Commission File Number: 001-39169
Natura &Co Holding S.A.
(Exact name of registrant as specified in its charter)
Avenida Alexandre Colares, No. 1188, Sala A17-Bloco A
Parque Anhanguera
São Paulo, São Paulo 05106-000, Brazil
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Yes ☐ No ☒
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Yes ☐ No ☒
NATURA &CO HOLDING S.A.
TABLE OF CONTENTS
ITEM | ||
1. | Quarterly Information (ITR) at June 30, 2020 and report on review of quarterly information (Free translation of version filed by Natura &Co Holding S.A. with the Brazilian Securities Commission). |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NATURA &CO HOLDING S.A. | ||
By: | /s/ José Antonio de Almeida Filippo | |
Name: | José Antonio de Almeida Filippo | |
Title: | Principal Financial Officer | |
By: | /s/ Itamar Gaino Filho | |
Name: | Itamar Gaino Filho | |
Title: | Chief Legal and Compliance Officer |
Date: September 30, 2020
Natura &Co Holding S.A.
Quarterly Information (ITR)
at June 30, 2020 and report on
review of quarterly information
F-1
(A free translation of the original in Portuguese)
Report on review of quarterly information
To the Board of Directors and Shareholders
Natura &Co Holding S.A.
Introduction
We have reviewed the accompanying parent company and consolidated interim accounting information of Natura &Co Holding S.A. (“Company”), included in the Quarterly Information Form (ITR) for the quarter ended June 30, 2020, comprising the balance sheet at that date and the statements of operations and comprehensive income for the quarter and six-month period then ended, and the statements of changes in equity and cash flows for the six-month period 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 |
F-2
Natura &Co Holding S.A.
Emphasis of Matter
Reissuance of Quarterly Information Form (ITR) and review report
On August 13, 2020, we issued an unqualified review report on the Quarterly Information (ITR) for the quarter ended June 30, 2020. We call your attention to Note 2.1(b) of the Quarterly Information (ITR), which describes that the ITR originally issued by the Company on August 13, 2020 is being reissued to include a reconciliation in Note 25.3, consequently, the predecessor auditor reissued its unqualified previously issued report dated August 14, 2019. Our conclusion is not qualified in relation to this matter.
Other matters
Statements of value added
The quarterly information referred to above includes the parent company and consolidated statements of value added for the six-month period ended June 30, 2020. These statements are the responsibility of the Company’s management and are presented as supplementary information under IAS 34. These statements have been subjected to review procedures performed together with the review of the quarterly information for the purpose of concluding whether they are reconciled with the interim accounting information and accounting records, as applicable, and if their form and content are in accordance with the criteria defined in the accounting standard CPC 09—Statement of Value Added. Based on our review, nothing has come to our attention that causes us to believe that these statements of value added have not been properly prepared, in all material respects, in accordance with the criteria established in this accounting standard, and consistent with the parent company and consolidated interim accounting information taken as a whole.
Audit and review of the corresponding amounts
prior year and period
The Quarterly Information (ITR) mentioned in the first paragraph includes accounting information corresponding to the statements of operations, comprehensive income for the quarter and six-month period ended June 30, 2019, to changes in shareholders’ equity, cash flows and value added for the six-month period ended June 30, 2019, presented for comparison purposes. The corresponding accounting information of the Company, for the periods of three and six months ended June 30,2019, was prepared by management based on the procedures described in Note 2.1(a).
The review of the Quarterly Information (ITR) for the quarter ended June 30, 2019 of Natura Cosméticos S.A. (currently, a wholly owned subsidiary of the holding Natura &Co Holding S.A.) was conducted under the responsibility of other independent auditors, who issued an unqualified review report dated September 30, 2020.
F-3
Natura &Co Holding S.A.
The Quarterly Information (ITR) mentioned in the first paragraph also includes accounting information corresponding to the balance sheet as of December 31, 2019, obtained from the financial statements as of December 31, 2019, originally prepared before the reclassifications described in Note 25.3, which were performed in connection with the acquisition of Avon Products, Inc., and are presented for comparison purposes. The examination of the financial statements for the year ended December 31, 2019, as originally prepared, was conducted under the responsibility of other independent auditors, who issued unqualified audit opinion dated March 5, 2020.
As part of our review of the ITR for the quarter ended June 30, 2020, we reviewed the aforementioned reclassifications as they relate to assets and liabilities as of December 31, 2019, described in Note 25.3. Based on our review, nothing has come to our attention that such reclassifications are not appropriate or have not been correctly performed, in all material respects. We were not engaged to audit, review or apply any other procedures on the Company’s 2019 other financial information, and, therefore, we do not express an opinion or any form of assurance on the financial information for that year.
São Paulo, September 30, 2020
PricewaterhouseCoopers
Auditores Independentes
CRC 2SP000160/O-5
Leandro Mauro Ardito
Contador CRC 1SP188307/O-0
F-4
NATURA &CO HOLDING S.A.
BALANCE SHEET ON 30 JUNE 2020 AND 31 DECEMBER 2019
(All amounts in thousands of Brazilian reais - R$)
Explanatory note | Controlling Company | Consolidated | ||||||||||||||||
06/2020 | 12/2019 | 06/2020 | 12/2019 | |||||||||||||||
ASSETS | ||||||||||||||||||
CURRENT | ||||||||||||||||||
Cash and cash equivalents | 6 | 499,247 | 2,380,800 | 4,820,116 | 4,513,582 | |||||||||||||
Short-term investments | 7 | 1,583,045 | 669,769 | 2,570,204 | 1,025,845 | |||||||||||||
Trade receivables | 8 | — | — | 2,644,601 | 1,685,764 | |||||||||||||
Trade receivables - related parties | 31.1 | 506,876 | — | — | — | |||||||||||||
Inventories | 9 | — | — | 4,481,347 | 1,430,550 | |||||||||||||
Recoverable taxes | 10 | — | 5 | 1,045,201 | 395,640 | |||||||||||||
Income tax and social contribution | 2,196 | — | 328,974 | 113,478 | ||||||||||||||
Derivative financial instruments | 5.2 | — | — | 179,302 | — | |||||||||||||
Other current assets | 14 | — | — | 799,222 | 265,198 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
2,591,364 | 3,050,574 | 16,868,967 | 9,430,057 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Assets non-current available for sale | 13 | — | — | 195,557 | — | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total current assets | 2,591,364 | 3,050,574 | 17,064,524 | 9,430,057 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
NON-CURRENT | ||||||||||||||||||
Recoverable taxes | 10 | — | — | 893,406 | 409,214 | |||||||||||||
Income tax and social contribution | — | — | 333,983 | 334,671 | ||||||||||||||
Deferred income tax and social contribution | 11 | 71,868 | — | 975,892 | 374,448 | |||||||||||||
Judicial deposits | 12 | — | — | 600,340 | 337,255 | |||||||||||||
Derivative financial instruments | 5.2 | — | — | 2,019,871 | 737,378 | |||||||||||||
Short-term investments | 7 | — | — | 11,326 | 7,402 | |||||||||||||
Other non-current assets | 14 | — | — | 1,601,593 | 83,836 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total long-term assets | 71,868 | — | 6,436,411 | 2,284,204 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Investments | 15 | 21,686,515 | 3,392,677 | — | — | |||||||||||||
Property, plant and equipment | 16 | — | — | 5,350,765 | 1,773,889 | |||||||||||||
Intangible assets | 17 | — | — | 28,431,249 | 5,076,501 | |||||||||||||
Right of use | 18 | — | — | 3,809,973 | 2,619,861 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total non-current assets | 21,758,383 | 3,392,677 | 44,028,398 | 11,754,455 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
| ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
TOTAL ASSETS | 24,349,747 | 6,443,251 | 61,092,922 | 21,184,512 | ||||||||||||||
|
|
|
|
|
|
|
|
Explanatory note | Controlling Company | Consolidated | ||||||||||||||||
06/2020 | 12/2019 | 06/2020 | 12/2019 | |||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||
CURRENT | ||||||||||||||||||
Borrowings, financing and debentures | 19 | 1,073,162 | 2,883,382 | 2,631,068 | 3,354,355 | |||||||||||||
Lease | 18.b | — | — | 1,081,059 | 542,088 | |||||||||||||
Trade payables and reverse factoring | 20 | 13,799 | — | 5,709,969 | 1,829,756 | |||||||||||||
Trade payables - related parties | 31.1 | 330 | — | — | — | |||||||||||||
Payroll, profit sharing and social charges | 15,265 | — | 1,111,576 | 560,376 | ||||||||||||||
Tax liabilities | 21 | 504 | 1,050 | 614,839 | 320,890 | |||||||||||||
Income tax and social contribution | — | 196,474 | 189,748 | 388,238 | ||||||||||||||
Dividends and interest on shareholders’ equity payable | 28.b) | — | — | — | 95,873 | |||||||||||||
Derivative financial instruments | 5.2 | — | — | 75,247 | 11,806 | |||||||||||||
Provision for tax, civil and labor risks | 22 | — | — | 127,825 | 18,650 | |||||||||||||
Other current liabilities | 23 | — | — | 1,322,558 | 396,391 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total current liabilities | 1,103,060 | 3,080,906 | 12,863,889 | 7,518,423 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
NON-CURRENT | ||||||||||||||||||
Borrowings, financing and debentures | 19 | — | — | 18,035,031 | 7,432,019 | |||||||||||||
Lease | 18.b | — | — | 3,026,116 | 1,975,477 | |||||||||||||
Payroll, profit sharing and social charges | 1,082 | — | 20,904 | — | ||||||||||||||
Tax liabilities | 21 | — | — | 108,808 | 122,569 | |||||||||||||
Deferred income tax and social contribution | 11 | — | — | 1,413,471 | 450,561 | |||||||||||||
Provision for tax, civil and labor risks | 22 | — | — | 1,185,943 | 201,416 | |||||||||||||
Other non-current liabilities | 23 | — | — | 1,165,297 | 121,702 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total non-current liabilities | 1,082 | — | 24,955,570 | 10,303,744 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
TOTAL LIABILITIES | 1,104,142 | 3,080,906 | 37,819,459 | 17,822,167 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
SHAREHOLDERS’ EQUITY | ||||||||||||||||||
Capital stock | 6,917,037 | 1,485,436 | 6,917,037 | 1,485,436 | ||||||||||||||
Treasury shares | 24.2 | (13,955 | ) | — | (13,955 | ) | — | |||||||||||
Capital reserves | 10,945,096 | 1,210,924 | 10,945,096 | 1,210,924 | ||||||||||||||
Legal profit reserve | 24.4 | 2,364 | (149,020 | ) | 2,364 | (149,020 | ) | |||||||||||
Retained losses | (1,209,296 | ) | — | (1,209,296 | ) | — | ||||||||||||
Equity appraisal adjustment | 6,604,359 | 815,005 | 6,604,359 | 815,005 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Shareholders’ equity attributed to the Company’s controlling shareholders | 23,245,605 | 3,362,345 | 23,245,605 | 3,362,345 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Non-controlling interest in shareholders’ equity of subsidiaries | — | — | 27,858 | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total shareholders’ equity | 23,245,605 | 3,362,345 | 23,273,463 | 3,362,345 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 24,349,747 | 6,443,251 | 61,092,922 | 21,184,512 | ||||||||||||||
|
|
|
|
|
|
|
|
* | The explanatory notes are an integral part of the interim financial statements. |
F-5
NATURA &CO HOLDING S.A.
STATEMENT OF INCOME
FOR THE THREE - AND SIX-MONTH PERIODS ENDED ON 30 JUNE 2020 AND 2019
(All amounts in thousands of Brazilian reais - R$, except for earnings per share in the period)
Explanatory note | Controlling Company | Controlling Company | Consolidated | Consolidated | ||||||||||||||||||||||||||||||
01/04/2020 to 30/06/2020 | 01/04/2019 to 30/06/2019 | 01/01/2020 to 30/06/2020 | 01/01/2019 to 30/06/2019 | 01/04/2020 to 30/06/2020 | 01/04/2019 to 30/06/2019 | 01/01/2020 to 30/06/2020 | 01/01/2019 to 30/06/2019 | |||||||||||||||||||||||||||
CONTINUING OPERATIONS | ||||||||||||||||||||||||||||||||||
NET REVENUE | 26 | — | — | — | — | 6,987,180 | 3,403,709 | 14,505,174 | 6,318,859 | |||||||||||||||||||||||||
Cost of products sold | 27 | — | — | — | — | (2,375,507 | ) | (964,555 | ) | (5,254,229 | ) | (1,773,727 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
GROSS PROFIT | — | — | — | — | 4,611,673 | 2,439,154 | 9,250,945 | 4,545,132 | ||||||||||||||||||||||||||
OPERATING (EXPENSES) INCOME | ||||||||||||||||||||||||||||||||||
Selling, Marketing and Logistics expenses | 27 | — | — | — | — | (3,171,808 | ) | (1,552,309 | ) | (6,448,997 | ) | (2,875,375 | ) | |||||||||||||||||||||
Administrative, R&D, IT and Project expenses | 27 | (13,992 | ) | — | (23,970 | ) | — | (1,337,544 | ) | (567,221 | ) | (2,603,635 | ) | (1,104,252 | ) | |||||||||||||||||||
Impairment loss on trade receivables | — | — | — | — | (228,964 | ) | (42,609 | ) | (452,946 | ) | (118,037 | ) | ||||||||||||||||||||||
Shareholders’ equity in subsidiaries | 15 | (424,550 | ) | — | (1,136,652 | ) | — | — | — | — | — | |||||||||||||||||||||||
Other operating income (expenses), net | 30 | (30,024 | ) | — | (177,848 | ) | — | 74,676 | 8,087 | (277,874 | ) | 22,332 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
OPERATING (LOSS) PROFIT BEFORE FINANCIAL RESULT | (468,566 | ) | — | (1,338,470 | ) | — | (51,967 | ) | 285,102 | (532,507 | ) | 469,800 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Financial income | 29 | 14,802 | — | 65,884 | — | 665,538 | 414,057 | 2,225,722 | 792,159 | |||||||||||||||||||||||||
Financial expenses | 29 | (6,603 | ) | — | (8,578 | ) | — | (934,079 | ) | (618,459 | ) | (2,721,858 | ) | (1,161,816 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
(LOSS) PROFIT BEFORE INCOME TAX AND SOCIAL CONTRIBUTION | (460,367 | ) | — | (1,281,164 | ) | — | (320,508 | ) | 80,700 | (1,028,643 | ) | 100,143 | ||||||||||||||||||||||
Income tax and social contribution | 11 | 71,868 | — | 71,868 | — | (44,853 | ) | (24,777 | ) | (139,656 | ) | (30,746 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
NET (LOSS) INCOME FOR THE PERIOD | (388,499 | ) | — | (1,209,296 | ) | — | (365,361 | ) | 55,923 | (1,168,299 | ) | 69,397 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
DISCONTINUED OPERATIONS | ||||||||||||||||||||||||||||||||||
NET LOSS OF DISCONTINUED OPERATIONS | 23 | — | — | — | — | (26,722 | ) | — | (48,723 | ) | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
NET LOSS FOR THE PERIOD | (388,499 | ) | — | (1,209,296 | ) | — | (392,083 | ) | 55,923 | (1,217,022 | ) | 69,397 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
ATTRIBUTABLE TO | ||||||||||||||||||||||||||||||||||
The Company´s shareholders | (388,499 | ) | — | (1,209,296 | ) | — | (388,499 | ) | 55,923 | (1,209,296 | ) | 69,397 | ||||||||||||||||||||||
Non-controlling shareholders | — | — | — | — | (3,584 | ) | — | (7,726 | ) | — | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
(388,499 | ) | — | (1,209,296 | ) | — | (392,083 | ) | 55,923 | (1,217,022 | ) | 69,397 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
(LOSS) EARNINGS PER SHARE IN THE PERIOD - R$ | ||||||||||||||||||||||||||||||||||
Basic | (0.3211 | ) | — | (1.0190 | ) | — | (0.3211 | ) | 0.0649 | (1.0190 | ) | 0.0804 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Diluted | (0.3211 | ) | — | (1.0190 | ) | — | (0.3211 | ) | 0.0645 | (1.0190 | ) | 0.0800 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* | The explanatory notes are an integral part of the interim financial statements. |
F-6
NATURA &CO HOLDING S.A.
STATEMENT OF COMPREHENSIVE INCOME
FOR THE THREE- AND SIX-MONTH PERIODS ENDED ON 30 JUNE 2020 AND 2019
(All amounts in thousands of Brazilian reais - R$)
Explanatory note | Controlling Company | Controlling Company | Consolidated | Consolidated | ||||||||||||||||||||||||||||||
01/04/2020 to 30/06/2020 | 01/04/2019 to 30/06/2019 | 01/01/2020 to 30/06/2020 | 01/01/2019 to 30/06/2019 | 01/04/2020 to 30/06/2020 | 01/04/2019 to 30/06/2019 | 01/01/2020 to 30/06/2020 | 01/01/2019 to 30/06/2019 | |||||||||||||||||||||||||||
NET (LOSS) INCOME FOR THE PERIOD | (388,499 | ) | — | (1,209,296 | ) | — | (392,083 | ) | 55,923 | (1,217,022 | ) | 69,397 | ||||||||||||||||||||||
Other comprehensive income to be reclassified into income of the period in subsequent periods: | ||||||||||||||||||||||||||||||||||
Earnings in the conversion of interim financial statements of controlled companies abroad | 15 | 1,291,448 | — | 5,640,486 | — | 1,299,477 | (208,714 | ) | 5,648,515 | (147,351 | ) | |||||||||||||||||||||||
Exchange rate effect on the conversion from hyperinflationary economy | 15 | 104 | — | (4,247 | ) | — | 104 | (584 | ) | (4,247 | ) | 393 | ||||||||||||||||||||||
Earnings from cash flow hedge operations | 5.2 | — | — | — | — | (19,728 | ) | 70,475 | 228,956 | 159,698 | ||||||||||||||||||||||||
Tax effects on earnings from cash flow hedge operations | — | — | — | — | 7,960 | (22,773 | ) | (75,842 | ) | (53,701 | ) | |||||||||||||||||||||||
Equity in earnings from cash flow hedge operation | (19,728 | ) | — | 228,956 | — | — | — | — | — | |||||||||||||||||||||||||
Equity in tax effects on earnings from cash flow hedge operations | 7,960 | — | (75,842 | ) | — | — | — | — | — | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Comprehensive income for the period, net of tax effects | 891,285 | — | 4,580,057 | — | 895,730 | (105,673 | ) | 4,580,360 | 28,436 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
ATTRIBUTABLE TO | ||||||||||||||||||||||||||||||||||
The Company´s shareholders | 891,285 | — | 4,580,057 | — | 891,285 | (105,673 | ) | 4,580,057 | 28,436 | |||||||||||||||||||||||||
Noncontrolling shareholders | — | — | — | — | 4,445 | — | 303 | — | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
891,285 | — | 4,580,057 | — | 895,730 | (105,673 | ) | 4,580,360 | 28,436 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* | The explanatory notes are an integral part of the interim financial statements. |
F-7
NATURA &CO HOLDING S.A.
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE SIX-MONTH PERIODS ENDED ON 30 JUNE 2020 AND 2019
(All amounts in thousands of Brazilian reais - R$)
Capital reserves | Equity appraisal adjustment | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Surplus on | Additional | Income transaction with non- | Legal profit reserve | Retained | Other | Shareholders’ equity attributed | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Explanatory note | Capital stock | Treasury shares | issue/sale of shares | Special reserve | paid-in capital | controlling shareholders | Legal | Tax incentives | Retained earnings | (losses) earnings | comprehensive income | to controlling shareholders | Non-Controlling Shareholders | shareholders’ equity | ||||||||||||||||||||||||||||||||||||||||||||||
BALANCES ON 31 DECEMBER 2018 - Natura Cosméticos S.A. (Note 2.1(a)) | 427,073 | (19,408 | ) | 72,216 | — | 257,114 | (92,066 | ) | 18,650 | 82,072 | 1,336,293 | — | 492,158 | 2,574,102 | — | 2,574,102 | ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Net income for the period | — | — | — | — | — | — | — | — | — | 69,397 | — | 69,397 | — | 69,397 | ||||||||||||||||||||||||||||||||||||||||||||||
Exchange rate effect on the conversion from hyperinflationary economy | — | — | — | — | — | — | — | — | — | — | 393 | 393 | — | 393 | ||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | — | — | — | — | (41,354 | ) | (41,354 | ) | — | (41,354 | ) | |||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Total comprehensive income for the period | — | — | — | — | — | — | — | — | — | 69,397 | (40,961 | ) | 28,436 | — | 28,436 | |||||||||||||||||||||||||||||||||||||||||||||
Capital increase | 24,242 | — | — | — | — | — | — | — | — | 24,242 | — | 24,242 | ||||||||||||||||||||||||||||||||||||||||||||||||
Transactions in stock and restricted shares option plans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for stock and restricted shares option plans | — | — | — | — | 40,285 | — | — | — | — | — | — | 40,285 | — | 40,285 | ||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock and restricted shares option plans | — | 12,717 | 2,998 | — | (17,857 | ) | — | — | — | — | — | — | (2,142 | ) | — | (2,142 | ) | |||||||||||||||||||||||||||||||||||||||||||
Effect of Hyperinflationary economy adjustment | — | — | — | — | 34,145 | — | — | — | 71 | — | — | 34,216 | — | 34,216 | ||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
BALANCES ON 30 JUNE 2019 - Natura Cosméticos S.A. (Note 2.1(a)) | 451,315 | (6,691 | ) | 75,214 | — | 313,687 | (92,066 | ) | 18,650 | 82,072 | 1,336,364 | 69,397 | 451,197 | 2,699,139 | — | 2,699,139 | ||||||||||||||||||||||||||||||||||||||||||||
BALANCES ON 31 DECEMBER 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 | — | — | — | — | — | — | — | — | — | (1,209,296 | ) | — | (1,209,296 | ) | (7,726 | ) | (1,217,022 | ) | ||||||||||||||||||||||||||||||||||||||||||
Exchange rate effect on the conversion from hyperinflationary economy | — | — | — | — | — | — | — | — | — | — | (4,247 | ) | (4,247 | ) | — | (4,247 | ) | |||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | — | — | — | — | 5,793,600 | 5,793,600 | 8,029 | 5,801,629 | ||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Total comprehensive income for the period | — | — | — | — | — | — | — | — | — | (1,209,296 | ) | 5,789,353 | 4,580,057 | 303 | 4,580,360 | |||||||||||||||||||||||||||||||||||||||||||||
EGM 30 April 2020 | 24.3 | — | — | — | (147,592 | ) | — | — | 147,592 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Subscription of shares through the Board of Directors’ Meeting held on 3 January 2020 | 24.1 | 3,397,746 | — | 9,877,148 | — | — | — | — | — | — | 13,274,894 | 27,555 | 13,302,449 | |||||||||||||||||||||||||||||||||||||||||||||||
Subscription of shares through the Board of Directors’ Meeting held on 30 June 2020 | 24.1 | 1,995,107 | — | — | — | — | — | — | — | — | 1,995,107 | — | 1,995,107 | |||||||||||||||||||||||||||||||||||||||||||||||
Share repurchase | — | (54,936 | ) | — | — | — | — | — | — | — | (54,936 | ) | — | (54,936 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Transactions in stock and restricted shares option plans: | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for stock and restricted shares option plans | — | — | — | — | 33,944 | — | — | — | — | — | — | 33,944 | — | 33,944 | ||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock and restricted shares option plans | 38,748 | 40,981 | — | — | (56,007 | ) | — | — | — | — | — | — | 23,722 | — | 23,722 | |||||||||||||||||||||||||||||||||||||||||||||
Effect of Hyperinflationary economy adjustment | — | — | — | — | 26,679 | — | — | — | 3,792 | — | — | 30,471 | — | 30,471 | ||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
BALANCES ON 31 JUNE 2020 | 6,917,037 | (13,955 | ) | 10,973,546 | 59,000 | 4,616 | (92,066 | ) | — | — | 2,364 | (1,209,296 | ) | 6,604,359 | 23,245,605 | 27,858 | 23,273,463 | |||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* | The explanatory notes are an integral part of the interim financial statements. |
F-8
NATURA &CO HOLDING S.A.
STATEMENT OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED ON 30 JUNE 2020 AND 2019
(All amounts in thousands of Brazilian reais - R$)
Explanatory note | Controlling Company | Consolidated | ||||||||||||||||
06/2020 | 06/2019 | 06/2020 | 06/2019 | |||||||||||||||
CASH FLOW FROM OPERATING ACTIVITIES | ||||||||||||||||||
Net (loss) income for the period | (1,209,296 | ) | — | (1,217,022 | ) | 69,397 | ||||||||||||
Adjustments to reconciliate net income for the period with net cash generated by operating activities: | ||||||||||||||||||
Depreciation and amortization | 16, 17 e 18 | — | — | 1,329,717 | 536,700 | |||||||||||||
Interest on short-term investments | (12,350 | ) | — | (50,546 | ) | (37,445 | ) | |||||||||||
Provision (reversal of provision) from swap and forward derivative contracts | — | — | (1,254,269 | ) | 116,485 | |||||||||||||
Provision (reversal of provision) for tax, civil and labor risks | — | — | 97,703 | 10,450 | ||||||||||||||
Inflation adjustment of judicial deposits | — | — | (6,216 | ) | (7,447 | ) | ||||||||||||
Inflation adjustment of contingencies | 22 | — | — | 8,629 | 5,125 | |||||||||||||
Income tax and social contribution | 11 | (71,868 | ) | — | 139,656 | 30,746 | ||||||||||||
Income from sale and write-off of property, plant and equipment and intangible assets | 16 e 17 | — | — | 8,342 | 12,970 | |||||||||||||
Equity in subsidiaries | 15 | 1,136,652 | — | — | — | |||||||||||||
Interest and exchange rate variation on leases | 18.b | — | — | 121,425 | 64,137 | |||||||||||||
Interest and exchange rate variation on borrowings and financing | 19 | 38,363 | — | 1,658,428 | 166,350 | |||||||||||||
Restatement and exchange rate variation on other assets and liabilities | (130,263 | ) | — | 690,246 | 1,505 | |||||||||||||
Provision (reversal of provision) for losses from property, plant and equipment and intangible assets | 16 e 17 | — | — | 16,144 | (11,084 | ) | ||||||||||||
Provision (reversal of provision) for stock option plans | (16,796 | ) | — | (24,930 | ) | 26,903 | ||||||||||||
Actual losses and provision for losses with trade receivables, net of reversals | 8 | — | — | 397,409 | 118,037 | |||||||||||||
Provision (reversal of provision) for inventory losses, net | 9 | — | — | 190,763 | 72,980 | |||||||||||||
Provision (reversal of provision) for post-employment health care plan | 28.1 | — | — | (6,008 | ) | 3,971 | ||||||||||||
Effect from hyperinflationary economy | — | — | 26,468 | 29,423 | ||||||||||||||
Other provision (reversals) | — | — | (114,286 | ) | (129,469 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||
(265,558 | ) | — | 2,011,653 | 1,079,734 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
VARIANCES IN: | ||||||||||||||||||
Trade receivables | (5,802 | ) | — | 217,048 | 22,826 | |||||||||||||
Inventories | — | — | (445,220 | ) | (352,862 | ) | ||||||||||||
Recoverable taxes | — | — | (205,187 | ) | 5,993 | |||||||||||||
Other assets | — | — | 466,271 | (71,429 | ) | |||||||||||||
Domestic and foreign trade payables | 14,110 | — | (2,126,571 | ) | (64,499 | ) | ||||||||||||
Payroll, profit sharing and social charges, net | 16,347 | — | 385,026 | (24,366 | ) | |||||||||||||
Tax liabilities | (546 | ) | — | (75,973 | ) | (74,947 | ) | |||||||||||
Other liabilities | (60 | ) | — | (594,700 | ) | 139,536 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||
CASH (USED IN) GENERATED BY OPERATING ACTIVITIES | (241,509 | ) | — | (367,653 | ) | 659,986 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||
OTHER CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||||
Recovery (payment) of income tax and social contribution | (198,664 | ) | — | (411,768 | ) | (224,691 | ) | |||||||||||
Release (payments) of judicial deposits | — | — | 27,016 | 3,564 | ||||||||||||||
Payments related to tax, civil and labor lawsuits | 22 | — | — | (84,585 | ) | (12,911 | ) | |||||||||||
Payments due to settlement of derivative transactions | — | — | 4,040 | (33,308 | ) | |||||||||||||
Payment of interest on lease | 18.b | — | — | (133,695 | ) | (64,137 | ) | |||||||||||
Payment of interest on borrowings, financing and debentures | 19 | (21,678 | ) | — | (531,679 | ) | (257,284 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||||
CASH (USED IN) GENERATED BY OPERATING ACTIVITIES | (461,851 | ) | — | (1,498,324 | ) | 71,219 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||
CASH FLOW FROM INVESTING ACTIVITIES | ||||||||||||||||||
Cash from acquisition of subsidiary | 4 | — | — | 2,636,108 | — | |||||||||||||
Additions of property, plant and equipment and intangible assets | 16 e 17 | — | — | (308,576 | ) | (217,440 | ) | |||||||||||
Proceeds from sale of property, plant and equipment and intangible assets | — | — | 53,982 | 8,454 | ||||||||||||||
Short-term investments | (1,957,878 | ) | — | (5,972,283 | ) | (3,547,736 | ) | |||||||||||
Redemption of short-term investments | 1,048,283 | — | 4,548,629 | 4,038,578 | ||||||||||||||
Redemption of interest on short-term investments | 8,670 | — | 29,886 | 38,717 | ||||||||||||||
Investment in subsidiaries | 15 | (300,000 | ) | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||
CASH (USED IN) GENERATED BY INVESTING ACTIVITIES | (1,200,925 | ) | — | 987,746 | 320,573 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
CASH FLOW FROM FINANCING ACTIVITIES | ||||||||||||||||||
Amortization of lease - principal | 18 | — | — | (380,902 | ) | (284,803 | ) | |||||||||||
Amortization of borrowings, financing and debentures – principal | 19 | (2,326,905 | ) | — | (2,485,231 | ) | (594,912 | ) | ||||||||||
New borrowings, financing, lease and debentures | 18 e 19 | 500,000 | — | 1,341,538 | 294,842 | |||||||||||||
Acquisition of treasury shares, after receipt of option strike price | (54,936 | ) | — | (13,955 | ) | (2,142 | ) | |||||||||||
Payment of dividends and interest on equity for the previous year | 31.2 | — | — | (133,937 | ) | (152,979 | ) | |||||||||||
Receipt of funds due to settlement of derivative transactions | — | — | 82,194 | 1,874 | ||||||||||||||
Acquired company’s liability incurred by acquiror | (370,791 | ) | — | (370,791 | ) | — | ||||||||||||
Capital payment | — | — | — | 24,242 | ||||||||||||||
Capital increase | 2,033,855 | — | 2,033,855 | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
CASH (USED IN) GENERATED BY FINANCING ACTIVITIES | (218,777 | ) | — | 72,771 | (713,878 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Effect of exchange rate variation on cash and cash equivalents | — | — | 744,340 | (10,287 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
DECREASE IN CASH AND CASH EQUIVALENTS | (1,881,553 | ) | — | 306,534 | (332,373 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Opening balance of cash and cash equivalents | 6 | 2,380,800 | — | 4,513,582 | 1,215,048 | |||||||||||||
Closing balance of cash and cash equivalents | 6 | 499,247 | — | 4,820,116 | 882,675 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
DECREASE IN CASH AND CASH EQUIVALENTS | (1,881,553 | ) | — | 306,534 | (332,373 | ) | ||||||||||||
|
|
|
|
|
|
|
|
* | The explanatory notes are an integral part of the interim financial statements. |
F-9
STATEMENT OF VALUE ADDED
FOR THE THREE-MONTH PERIODS ENDED ON 30 JUNE 2019 AND 2018
(All amounts in thousands of Brazilian reais - R$)
Explanatory note | Controlling Company | Consolidated | ||||||||||||||||||||||||||||
06/2020 | 06/2019 | 06/2020 | 06/2019 | |||||||||||||||||||||||||||
INCOME | (177,848 | ) | — | 15,937,371 | 7,930,410 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Sale of goods, products and services | — | — | 16,414,006 | 8,019,386 | ||||||||||||||||||||||||||
Provision for doubtful accounts, net of reversals | 8 | — | — | (86,717 | ) | 20,550 | ||||||||||||||||||||||||
Other operating expenses, net | (177,848 | ) | — | (389,918 | ) | (109,526 | ) | |||||||||||||||||||||||
INPUTS ACQUIRED FROM THIRD PARTIES | (5,755 | ) | — | (11,064,226 | ) | (4,614,161 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Cost of products sold and services provided | — | — | (5,674,891 | ) | (2,608,360 | ) | ||||||||||||||||||||||||
Materials, electricity, outsourced services and others | (5,755 | ) | — | (5,389,335 | ) | (2,005,801 | ) | |||||||||||||||||||||||
GROSS VALUE ADDED | (183,603 | ) | — | 4,873,145 | 3,316,249 | |||||||||||||||||||||||||
RETENTIONS | — | — | (1,329,718 | ) | (536,700 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Depreciation and amortization | 16 and 17 | — | — | (1,329,718 | ) | (536,700 | ) | |||||||||||||||||||||||
VALUE ADDED PRODUCED BY THE COMPANY | (183,603 | ) | — | 3,543,427 | 2,779,549 | |||||||||||||||||||||||||
TRANSFERRED VALUE ADDED | (1,070,768 | ) | — | 2,225,722 | 792,159 | |||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Equity in subsidiaries | 15 | (1,136,652 | ) | — | — | — | ||||||||||||||||||||||||
Financial income - including inflation adjustments and exchange rate variations | 29 | 65,884 | — | 2,225,722 | 792,159 | |||||||||||||||||||||||||
TOTAL VALUE ADDED TO DISTRIBUTE | (1,254,371 | ) | — | 5,769,149 | 3,571,708 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
DISTRIBUTION OF VALUE ADDED | (1,254,371 | ) | 100 | % | — | 5,769,149 | 100 | % | 3,571,708 | 100 | % | |||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Payroll and social charges | 28 | 18,215 | -1 | % | — | 3,065,697 | 53 | % | 1,452,056 | 41 | % | |||||||||||||||||||
Taxes, fees and contributions | (71,868 | ) | 6 | % | — | 1,184,713 | 21 | % | 875,746 | 25 | % | |||||||||||||||||||
Financial expenses and rentals | 8,578 | -1 | % | — | 2,735,761 | 47 | % | 1,174,509 | 33 | % | ||||||||||||||||||||
Retained losses | (1,209,296 | ) | 96 | % | — | (1,209,296 | ) | -21 | % | 69,397 | 2 | % | ||||||||||||||||||
Minority holders’ share in the retained profit | — | — | — | (7,726 | ) | 0 | % | — | — |
* | The explanatory notes are an integral part of the interim financial statements. |
F-10
1. | GENERAL INFORMATION |
NATURA &CO HOLDING S.A. (“Natura &Co” or the “Company”) formerly referred to as Natura Holding S.A., was incorporated on 21 January 2019 with the purpose of holding interest in other companies, as a partner or shareholder, in Brazil or abroad (“holding company”). The purpose of the Company is to manage shareholding interest in companies that operate mainly in the cosmetics industry, fragrances and personal hygiene sector, through the development of manufacturing, distribution and commercialization of its products. The group’s main brand is “Natura”, followed by the brands “Avon”, “The Body Shop” and “Aesop”. In addition to using the retail market, e-commerce, business to business (“ B2B”) and franchises as sales channels for the products, the subsidiaries stand out for the work of the direct sales channel carried out mainly by Natura, The Body Shop and Avon Consultant(s).
The Company is a publicly-traded corporation, domiciled in São Paulo, registered in the special trading segment called “Novo Mercado” in the B3 S.A. – Brasil, Bolsa, Balcão (B3), under ticker “NTCO3.”
After several restructuring activities which took place for the process of acquiring Avon Products, Inc. (“Avon”), completed on 3 January 2020 (Note 4), the Company became the holding company for the Natura group. Additionally, in December 2019 it became the holder of 100% of shares of Natura Cosméticos S.A. (“Natura”), under ticker NATU3. Thus, since 18 December 2019, NATU3 shares have no longer been traded in B3 S.A. – Brasil, Bolsa, Balcão, and trading with NTCO3 shares has started in the “Novo Mercado” segment of B3. On 6 January 2020, the Company started to trade American Depositary Receipts on the New York Stock Exchange (“NYSE”), under the ticker “NTCO”.
2. | SUMMARY OF THE MAIN ACCOUNTING PRACTICES |
2.1 | Declaration of compliance and preparation basis |
The Company’s condensed interim accounting information, included in the Quarterly Information Form - ITR pertaining to the quarter ended 30 June 2020, encompasses the individual and consolidated interim accounting information prepared pursuant to Technical Pronouncement “CPC 21 - Interim Statements”, approved by the Brazilian Securities Commission (“CVM”) and the “International Accounting Standard (“IAS”) 34 - Interim Financial Reporting”, issued by the International Accounting Standards Board (IASB).
The Management confirms that all relevant information in the interim accounting statements, and only this information, is being disclosed, and it corresponds to the information used in the development of its business management activities. The interim accounting information was prepared based on the historical costs, except for certain financial instruments measured by their fair value, as described in the accounting practices.
The main accounting practices applied upon preparing this individual and consolidated interim accounting information are disclosed in explanatory note No. 2 of the Company’s financial statements, pertaining to the fiscal year ended 31 December 2019, issued on 5 March 2020, except (i) for the presentation of information on segments (Note 25), which was changed as a result of the acquisition of Avon (Note 4). The same policies apply for comparison of the six-month period ended 30 June 2019, and (ii) practical expedient application to rent concessions in lease contracts which occurred as a direct consequence of the Covid-19 pandemic.
The information on explanatory notes did not go through significant changes in comparison to 31 December 2019, which is why it is not fully presented in this interim accounting information and must, therefore, be read jointly with the last annual financial statement.
a) | Presentation basis for the Company’s consolidated accounting statements before the corporate restructuring presented in the Company’s annual financial statement in Note 1 |
As presented in the Company’s annual financial statements for the fiscal year ended 31 December 2019, the Company’s consolidated accounting information presented in this financial statement that is prior to the corporate restructuring for the acquisition of Avon was prepared pursuant to the accounting practices of the preceding costs. Thus, the comparative and consolidated historic information presented herein for the statements of income, comprehensive income statement, statement of changes in net equity, cash flow statement and added value statement for the comparative period ended on 30 June 2019, refer to the consolidated information of the entire subsidiary Natura Cosméticos S.A., and were obtained from the Quarterly Information - ITR pertaining to the second quarter of 2019, except for earnings per share and share-based payments that were restated as a result of the share bonus shown in note 24.1.
F-12
b) | Restatement of the interim financial statement – 30 June 2020 |
On 13 August 2020, the Company issued the Quarterly Information of 30 June 2020. On this date, the Company’s Management is reissuing the interim information originally issued due to the inclusion of segment reconciliation in Note 25.3, with the consequent reissue, by predecessor auditor, of his previously issued report.
2.2 | Hyperinflationary economy |
Information pertaining to the hyperinflationary economy was presented in the Company’s 2019 annual financial statements, in Note 3.2.1.a.
In the six-month period ended 30 June 2020, the application of CPC 42 / IAS 29 resulted in: (i) a negative impact on the financial results of Brazilian Real (“R$”) 5,556 (30 June 2019 R$ 5,864); and (ii) a negative impact on the net profit for the fiscal year of R$ 22,221 (30 June 2019 R$ 29,888), which includes the effect of the conversion of the income statement by the exchange rate on the year’s end date, instead of the average monthly exchange rate, positive impact in the sum of R$ 4,247 (30 June 2019 negative impact of R$ 393). The capital reserve and profit reserve also increased R$ 256,679 and R$ 151,384, respectively.
2.3 | Consolidation |
a) | Investments in subsidiaries |
Information pertaining to the consolidation was presented in the Company’s 2019 annual financial statements, in Note 3.3. a), except for the movement in the table below:
Interest - % | ||||||||
06/2020 | 12/2019 | |||||||
Direct interest: | ||||||||
Avon Products, Inc | 100.00 | — | ||||||
Natura Cosméticos S.A. | 100.00 | 100.00 | ||||||
Natura &Co International S.à r.l. | 100.00 | — |
The activities of the direct subsidiaries are as follows:
• | Natura Cosméticos S.A.: is a publicly held corporation organized in accordance with the laws of the Federative Republic of Brazil on 6 June 1993, with an indefinite term. Created in 1969 in São Paulo, Brazil, it is among the top ten direct sales companies in the world. Under the Natura brand, most of the products have a natural origin, developed with ingredients from the Brazilian biodiversity and mainly distributed by means of direct sales by independent beauty consultants. It also sells through e-commerce and an expanded own store chain, composed of 43 stores in Brazil and nine stores abroad (in the USA, France, Argentina and Chile), 256 franchise stores, as well as presence in approximately 3,500 drugstores on 30 June 2019. |
• | Avon Products, Inc.: Global manufacturer and trader of beauty products and other consumer products, with operations starting in 1886, and constituted pursuant to the laws of the State of New York on 27 January 1916. Its businesses are conducted in the beauty industry and other consumer goods. A direct sales company for the creation, manufacture and trade of beauty and other unrelated products. Its business is held mainly via the direct sales channel. |
• | Natura &Co International S.à.r.l.: a company organized in 2020 with the purpose of acquiring, managing and selling interests in national and foreign companies, other than raising and borrowing funds for other consolidated entities of the Company. |
2.4 | Presentation of information per segment |
Information per operating segment presented in note 25 is consistent with the internal report provided to the chief operating decision maker.
The main decision-making body of the Company, which is responsible for defining the allocation of resources and for the performance assessment of the operating segments, is Natura &Co Holding S.A.’s Board of Directors, which is assisted by the Group’s Operational Committee (“GOC”).
The GOC, which includes the Chief Executive Officers (“CEOs”) of Natura &CO, Natura, Avon, The Body Shop and Aesop, in addition to representatives of key business areas (Finance, Human Resources, Business Strategy and Development, Legal, Innovation and Sustainability, Operations and Corporate Governance), is responsible for, among other things, monitoring the implementation of short and long-term strategies and making recommendations to the Board of Directors regarding the management of the Group, from the perspective of results, allocation of resources among business units, cash flow and talent management.
F-13
3. | CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS |
The preparation of the individual and consolidated interim accounting information requires the Management to employ certain assumptions and accounting estimates based on experience and other factors considered relevant, which affect the value of assets and liabilities and may present results that differ from actual results. The effects resulting from accounting estimate reviews are recognized in the review period.
The significant judgments made by the Company are related to the recognition of revenue and lease.
The areas requiring a greater level of judgment and which are more complex, as well as the areas in which the premises and estimates are significant for the financial statements, are disclosed below.
There were no significant changes in the estimates and premises employed upon preparing the interim accounting information for the quarter ended 30 June 2020, or in the calculation methods used, in relation to the ones presented in explanatory note No. 3 of the Company’s financial statements pertaining to the fiscal year ended 31 December 2019, issued on 5 March 2020, except for the fair value estimates of the business combination (note 4), analyses of the potential impacts of Covid-19 (note 5.3) and impairment evaluations (note 17.a).
F-14
4. | BUSINESS COMBINATION |
Acquisition of Avon Products Inc. (“Transaction”)
On 3 January 2020, after fulfilling all conditions precedent, as disclosed in the Company’s 2019 annual financial statements, issued on 5 March 2020, explanatory note 1(a) and as a subsequent event to note 35, the Transaction was completed, and the effects of the merger of Nectarine Merger Sub II into Avon, with the latter being the surviving entity, came into force. Subsequently, Nectarine Merger Sub I was merged into Natura &Co, with the latter being the surviving entity. As a result of the mergers, on 3 January 2020, Avon became a full subsidiary of the Company, and Avon’s former shareholders became shareholders of the Company.
As a result, Natura &Co acquired control of Avon and the acquisition was accounted for under the acquisition method.
Transaction costs incurred by the Controlling Company until the completion of the transaction on 3 January 2020 amount to approximately R$ 112 million.
The following table summarizes the preliminary calculation of the fair value of the compensation transferred on 3 January 2020.
In millions of R$, except for the number of shares | ||||
Number of Avon outstanding common shares as of 3 January 2020 | 536,383,776 | |||
Multiplied by the exchange ratio of 0.600 Natura &Co Holding Shares per each Avon common share | 321,830,266 | |||
Multiplied by the market price of Natura &Co shares on 3 January 2020 | 41,00 | |||
|
| |||
Compensation in the issuance of shares | 13,195 | |||
Adjustment to the transferred compensation (a) | 171 | |||
|
| |||
Fair value of the compensation to be transferred | 13,366 | |||
|
|
(a) | Related to the effects of potential replacements and settlements of share-based payment plans, of which the amount of R$ 80 thousand refers to the share-based payment plans of Avon, in which it was substituted by Natura &Co, and R$ 91 thousand refers to the stock option plans liquidated as a result of the conclusion of the transaction. These are pre-combination installments that were regarded as transferred compensation. |
Natura &Co has yet to conclude the process of allocation of the transferred compensation among the identified assets and liabilities acquired for their fair value. The table below shows the preliminary allocation prepared by the Company and the goodwill resulting from the non-allocated part. Differences between the preliminary estimates and the final recognition of the acquisition may occur and they may be relevant. Accounting standard “CPC 15/ IFRS 3 - Business combination” allows the Company to finalize this process of allocation of the transferred compensation among identified assets and liabilities within up to 12 months counted from the acquisition date. Natura &Co is analyzing the allocation of the transferred compensation to the identified assets and liabilities acquired for their fair value.
F-15
In millions of R$ | ||||
Total estimated compensation to be transferred: | 13,366 | |||
(-) Fair value of acquired assets: | ||||
Cash and cash equivalent | 2,636 | |||
Accounts receivable(1) | 1,135 | |||
Inventories | 1,942 | |||
Other current assets and restricted cash | 1,056 | |||
Assets available for sale | 187 | |||
Property, plant and equipment | 2,886 | |||
Income tax and deferred social contribution | 667 | |||
Assets of right of use | 565 | |||
Other non-current assets | 475 | |||
Judicial deposits | 284 | |||
Recoverable taxes | 518 | |||
Employee benefit plan | 553 | |||
Intangible assets (2) | 5,710 | |||
(+) Fair value of liabilities assumed: | ||||
Current liabilities | 6,267 | |||
Provision for contingencies (3) | 724 | |||
Long-term debt | 7,078 | |||
Long-term lease | 588 | |||
Deferred income tax (5) | 728 | |||
Other liabilities | 809 | |||
|
| |||
(-) Net assets | 2,420 | |||
Interest of non-controlling shareholders | 28 | |||
|
| |||
Goodwill (4) | 10,974 | |||
|
|
(1) | On the acquisition date, the fair value of the accounts receivable is equal to their accounting value, net of provision for expected losses in the amount of R$ 270.2 million. |
(2) | The fair value of intangible assets includes intangible assets acquired and registered by Avon prior to the fair value allocation in the sum of R$ 291, added to the effects of allocation of the fair value of the following items: |
Nature | Estimated fair value (in millions of Reais) | Estimated useful life | ||||||||
Trade name “Avon” | Represents the fair value of trade name “Avon” | 1,893 | Indefinite | |||||||
Main brands | Represents the fair value of “Main brands” | 518 | 20 years | |||||||
Developed technologies | Represents the fair value of all technology required to develop Avon products, including product formulas, labeling data, manufacturing processes, regulatory approvals, packages of products and designs. | 1,132 | 7 years | |||||||
Sales representatives | Represents the fair value of Avon’s relationship with its sales representatives. | 1,876 | 14 years | |||||||
|
| |||||||||
Total | 5,419 | |||||||||
|
|
(3) | The provision for contingent risks demonstrated in the chart above by the sum corresponds to the historic value recorded by Avon, given that the Company is still assessing the fair value estimates, and also identifying additional contingencies which fit the recognition requirement established in paragraph 23 of CPC 15 (IFRS 3). That is, contingencies that: (i) represent a present obligation arising from past events, and (ii) can be reliably measured, regardless of the loss probability. |
(4) | Goodwill pertaining to the strong market position and geographic regions that will result in a more diversified and balanced global portfolio, as well as future expected profitability and operational synergies, such as supply, manufacturing, distribution and efficiency of the administrative structure and revenue growth. This goodwill arising from the transaction is not expected to result in a tax benefit or to be deductible for tax purposes. |
(5) | Consists of net operating loss deferred tax assets of approximately R$311 million and other net deferred tax liabilities of R$1,039 million. |
F-16
Since the acquisition date, Avon has contributed R$ 7,510.7 million of net revenues and R$ 1,041 million of losses in the consolidated results of Natura &Co.
Since the acquisition was concluded on 1 January 2020 and there was no significant transaction of the revenue results until 3 January 2020, the consolidated net profit and net revenue of the six-month period ended 6 June 2020 represents an impact on the Company’s net revenue and profit as if the acquisition had been made at the beginning of the year.
5. | FINANCIAL RISK MANAGEMENT |
5.1 | General considerations and policies |
The information pertaining to the general considerations and policies of the companies of the Natura group, TBS and Aesop is presented in the 2019 annual financial statements in Note 5.
The book and fair values of the Company’s financial instruments as of 30 June 2020 are presented in the table below:
Book Value | Fair Value | |||||||||||||||||||||||||
Controlling Company | Note | Classification by category | Fair value hierarchy | 06/2020 | 12/2019 | 06/2020 | 12/2019 | |||||||||||||||||||
Financial assets | ||||||||||||||||||||||||||
Cash and cash equivalents | 6 | Amortized cost | ||||||||||||||||||||||||
Cash and banks | 113 | 2,173,101 | 113 | 2,173,101 | ||||||||||||||||||||||
Certificate of bank deposits | 499,134 | 207,699 | 499,134 | 207,699 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
499,247 | 2,380,800 | 499,247 | 2,380,800 | |||||||||||||||||||||||
Short-term investments | ||||||||||||||||||||||||||
Exclusive investment funds | 7 | Fair value through results | Level 2 | 1,583,045 | 669,769 | 1,583,045 | 669,769 | |||||||||||||||||||
Trade receivables - related parties | 32.1 | Amortized cost | 506,876 | — | 506,876 | — | ||||||||||||||||||||
Financial liabilities | ||||||||||||||||||||||||||
Borrowings in domestic currency | 19 | Amortized cost | (1,073,162 | ) | (2,883,382 | ) | (1,073,162 | ) | (2,883,382 | ) | ||||||||||||||||
Trade payables, reverse factoring and related parties | 20 | Amortized cost | (14,129 | ) | — | (14,129 | ) | — |
Book Value | Fair Value | |||||||||||||||||||||||||
Consolidated | Note | Classification by category | Fair value hierarchy | 06/2020 | 12/2019 | 06/2020 | 12/2019 | |||||||||||||||||||
Financial assets | ||||||||||||||||||||||||||
Cash and cash equivalents | 6 | |||||||||||||||||||||||||
Cash and banks | Amortized cost | 2,872,297 | 3,110,220 | 2,872,297 | 3,110,220 | |||||||||||||||||||||
Certificate of bank deposits | Amortized cost | 766,703 | 211,261 | 766,703 | 211,261 | |||||||||||||||||||||
Repurchase operations | Fair value through results | Level 2 | 1,181,116 | 1,192,101 | 1,181,116 | 1,192,101 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
4,820,116 | 4,513,582 | 4,820,116 | 4,513,582 | |||||||||||||||||||||||
Short-term investments | 7 | |||||||||||||||||||||||||
Government securities | Fair value through results | Level 2 | 1,486,999 | 221,900 | 1,486,999 | 221,900 | ||||||||||||||||||||
Restricted cash | Fair value through results | Level 2 | 58,764 | — | 58,764 | — | ||||||||||||||||||||
Financial letter | Fair value through results | Level 2 | 377,033 | 374,690 | 377,033 | 374,690 | ||||||||||||||||||||
Mutual investment fund | Fair value through results | Level 2 | 376,538 | 407,928 | 376,538 | 407,928 | ||||||||||||||||||||
Dynamo Beauty Ventures Ltd Fund | Fair value through results | Level 2 | 11,326 | 7,402 | 11,326 | 7,402 | ||||||||||||||||||||
Certificate of bank deposits | Fair value through results | Level 2 | 270,870 | 21,327 | 270,870 | 21,327 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
2,581,530 | 1,033,247 | 2,581,530 | 1,033,247 | |||||||||||||||||||||||
Trade receivables | 8 | Amortized cost | 2,644,601 | 1,685,764 | 2,644,601 | 1,685,764 | ||||||||||||||||||||
Court deposit | 12 | Amortized cost | 600,340 | 337,255 | 600,340 | 337,255 |
F-17
“Financial” and “Operating” derivatives | Fair value – Hedge instruments | Level 2 | 2,163,255 | 737,378 | 2,163,255 | 737,378 | ||||||||||||||||||
“Financial” and “Operating” derivatives | Fair value through results | Level 2 | 35,918 | — | 35,918 | — | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
2,199,173 | 737,378 | 2,199,173 | 737,378 | |||||||||||||||||||||
Financial liabilities | ||||||||||||||||||||||||
Borrowings, financing and debentures | 19 | |||||||||||||||||||||||
Borrowings in domestic currency | Amortized cost | (16,097,706 | ) | (7,412,443 | ) | (15,981,649 | ) | (7,445,672 | ) | |||||||||||||||
Borrowings in foreign currency | Amortized cost | (4,568,393 | ) | (3,373,931 | ) | (4,420,002 | ) | (3,541,541 | ) | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
(20,666,099 | ) | (10,786,374 | ) | (20,401,651 | ) | (10,987,213 | ) | |||||||||||||||||
“Financial” and “Operating” derivatives | Fair value – Hedge instruments | Level 2 | — | (10,158 | ) | — | (10,158 | ) | ||||||||||||||||
“Financial” and “Operating” derivatives | Fair value through results | Level 2 | (75,247 | ) | (1,648 | ) | (75,247 | ) | (1,648 | ) | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
(75,247 | ) | (11,806 | ) | (75,247 | ) | (11,806 | ) | |||||||||||||||||
Lease | 18 | Amortized Cost | (4,107,175 | ) | (2,517,565 | ) | (4,107,175 | ) | (2,517,565 | ) | ||||||||||||||
Trade payables and reverse factoring operations | 20 | Amortized cost | (5,709,969 | ) | (1,829,756 | ) | (5,709,969 | ) | (1,829,756 | ) |
5.2 | Financial risk factors |
Information pertaining to the financial risk factors is presented in the Company’s 2019 annual financial statements in Note 5.2.
a) | Market risks |
To hedge the current positions of the Balance Sheet of the Company and its subsidiaries against market risk, the following derivative financial instruments were used and consist of the following balances as of 30 June 2020 and 31 December 2019:
Description | Fair Value (Level 2) | |||||||
Consolidated | ||||||||
06/2020 | 12/2019 | |||||||
“Financial” derivatives | 2,121,287 | 725,060 | ||||||
“Operating” derivatives | 2,639 | 512 | ||||||
|
|
|
| |||||
Total | 2,123,926 | 725,572 | ||||||
|
|
|
|
b) | Foreign exchange risk |
As of 30 June 2020 and 31 December 2019, the Company and its subsidiaries are primarily exposed to the risk of fluctuation of the US dollar, euro, pound sterling and emerging market currencies. In order to hedge foreign exchange exposures in relation to foreign currency, the Company and its subsidiaries enter into transactions with derivative financial instruments of the “swap” type and forward purchase of currency named Non-Deliverable Forwards (“NDFs”).
As of 30 June 2020, borrowings, financing and debentures in the consolidated balance sheet include accounts in foreign currency which expose the subsidiaries of the Company to foreign exchange risk, representing, in the aggregate, total liabilities of R$ 4,568,393 (R$ 3,381,959 as of 31 December 2019).
i) | Derivatives to hedge foreign exchange risk |
The outstanding derivative agreements present maturity flows between January 2020 and February 2023. The derivative agreements in The Body Shop were entered into with represented counterparties and mature within up to 12 months.
The Company and its subsidiaries classify derivatives into: “Financial” and “Operating”. The “Financial” ones are “swap” or “forward” derivatives, contracted to hedge the foreign exchange risk of borrowings, financing, debt instruments and loans in foreign currency. The “Operating” ones are derivatives contracted to hedge the foreign exchange risk of operating cash flows of the business.
F-18
As of 30 June 2020, the balances of derivatives are as follows:
“Financial” derivatives
Consolidated | Principal (Notional) amount | Curve value | Fair value | Gain (loss) of adjustment at fair value | ||||||||||||||||||||||||||||
Description | 06/2020 | 12/2019 | 06/2020 | 12/2019 | 06/2020 | 12/2019 | 06/2020 | 12/2019 | ||||||||||||||||||||||||
Swap agreements: | ||||||||||||||||||||||||||||||||
Asset portion: | ||||||||||||||||||||||||||||||||
Dollar purchased position | 2,661,494 | 2,664,001 | 4,603,592 | 3,416,707 | 5,102,622 | 3,729,691 | 499,030 | 312,984 | ||||||||||||||||||||||||
Liability portion: | ||||||||||||||||||||||||||||||||
Post-fixed CDI Rate: | ||||||||||||||||||||||||||||||||
Position sold in CDI | 2,661,494 | 2,664,001 | 2,729,070 | 2,754,595 | 2,942,841 | 3,002,623 | 213,770 | 248,028 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
NDFs Forward Agreements: | ||||||||||||||||||||||||||||||||
Liability portion: | ||||||||||||||||||||||||||||||||
Post-fixed CDI Rate: | ||||||||||||||||||||||||||||||||
Position sold at the interbank rate | 5,442,792 | 200,896 | 1,882 | (1,848 | ) | (38,494 | ) | (2,008 | ) | (40,376 | ) | (160 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total net derivative financial instruments: | 5,442,792 | 200,896 | 1,876,404 | 660,264 | 2,121,287 | 725,060 | 244,884 | 64,796 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For financial derivatives maintained by the Company and its subsidiaries as of 31 December 2019 and 30 June 2020, due to the fact that the agreements are directly entered into with the financial institutions and not through stock markets, there are no margin calls deposited as guarantee of these transactions.
“Operating” derivatives - Consolidated
As of 30 June 2020, the Company and its subsidiaries maintain derivative financial instruments of the “forward” type, with the purpose of hedging the foreign exchange risk of operating cash flows (such as import and export transactions):
Description | Principal (Notional) amount | Fair value | ||||||||||||||
06/2020 | 12/2019 | 06/2020 | 12/2019 | |||||||||||||
Net position - GBP and USD | 1,093,241 | 5,898 | — | |||||||||||||
Forward agreements | 119,851 | 1,302,869 | (3,259 | ) | 512 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Derivative Financial Instruments, net | 1,213,092 | 1,302,869 | 2,639 | 512 | ||||||||||||
|
|
|
|
|
|
|
|
Sensitivity analysis
For the sensitivity analysis of the foreign exchange exposure risk, the Management of the Company and its subsidiaries understands it is necessary to consider, in addition to the assets and liabilities with exposure to the fluctuation of exchange rates recorded in the balance sheet, the fair value of the financial instruments contracted by the Company to hedge certain exposures as of 30 June 2020, as shown in the following table:
Consolidated | ||||||||
06/2020 | 12/2019 | |||||||
Loans and financing in Brazil in foreign currency (a) | (4,587,578 | ) | (3,381,959 | ) | ||||
Accounts receivable registered in Brazil in foreign currency | 11,727 | 10,007 | ||||||
Accounts payable registered in Brazil in foreign currency | (11,686 | ) | (10,543 | ) | ||||
Fair value of the “financial” derivatives | 5,102,622 | 3,729,691 | ||||||
|
|
|
| |||||
Net asset exposure | 515,085 | 347,196 | ||||||
|
|
|
|
(a) Excluding transaction costs.
This analysis considers only financial assets and liabilities registered in Brazil in foreign currency, since foreign exchange exposure in other countries is close to zero due to the strength of currencies and the effectiveness of their derivatives, and considers that all other variables, especially interest rates, remain constant and ignore any impact from purchase and sale forecasts.
The tables below show the projection for incremental loss that would have been recognized in the subsequent period, assuming that the current net foreign exchange exposure remains static and based on the following scenarios:
Consolidated | ||||||||||||||||
Description | Company’s Risk | Probable scenario | Scenario II | Scenario III | ||||||||||||
Net exposure | Dollar decrease | (2,481 | ) | 101,032 | 170,041 |
F-19
The probable scenario considers future US dollar rates for 90 days, as of 30 June 2020. According to quotations obtained at B3 on the expected maturity dates of financial instruments with foreign exchange exposure, it is R$ 5.45 / USD 1.00. Scenarios II and III consider a drop in the US dollar of 25% (R$ 4.09 / USD 1.00) and 50% (R$ 2.72 / USD 1.00), respectively. Probable scenarios II and III are being presented in compliance with CVM Ruling No. 475/08. The Management uses the probable scenario in the assessment of possible changes in the exchange rate and presents this scenario in compliance with IFRS 7/CPC 40 - Financial Instruments: Disclosures.
The Company and its subsidiaries do not use derivative financial instruments for speculative purposes.
Derivative instruments designated for hedge accounting
The positions of derivative financial instruments designated as outstanding cash flow hedge on 30 June 2020 are set out below:
Cash flow hedge instrument - Consolidated
Other comprehensive income | ||||||||||||||||||||||||||||
Hedged Item | Notional currency | Notional value | Curve Value | Fair value | Retained Earnings (Loss) of the agreement | Earnings in the 12-month period | ||||||||||||||||||||||
Currency Swap – USD/R$ | Currency | BRL | 2,659,360 | 1,872,141 | 2,157,449 | 285,308 | 223,672 | |||||||||||||||||||||
Forward Agreements (The Body Shop) | Currency | BRL | 883,167 | 4,339 | 5,613 | 5,613 | (198 | ) | ||||||||||||||||||||
Forward Agreements (Natura Indústria) | Currency | BRL | 39,713 | — | 193 | 193 | 5,482 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total | 3,582,240 | 1,876,480 | 2,163,255 | 291,114 | 228,956 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Movements in cash flow hedge reserve recorded under other comprehensive income are shown below:
Consolidated | ||||
Cash flow hedge balance as of 31 December 2018 | (27,706 | ) | ||
Change in the fair value of hedge instrument recognized in other comprehensive income | 159,698 | |||
Tax effects on the fair value of hedge instrument | (53,701 | ) | ||
|
| |||
Cash flow hedge balance as of 30 June 2019 | 78,291 | |||
|
| |||
Cash flow hedge balance as of 31 December 2019 | 42,729 | |||
|
| |||
Change in the fair value of hedge instrument recognized in other comprehensive income | 228,956 | |||
Tax effects on the fair value of hedge instrument | (75,842 | ) | ||
|
| |||
Cash flow hedge balance as of 30 June 2020 | 195,843 | |||
|
|
c) | Interest rate risk |
Sensitivity analysis
On 30 June 2020, there were borrowings, financing and debenture agreements in foreign currency attached to swap agreements, changing the indexation over the liability to the variation of the Certificate of Interbank Deposit (“CDI”). Therefore, the risk of the Company and its subsidiaries becomes the CDI variation exposure. The exposure to interest rate risk of transactions bound to CDI variation, including derivative transactions is set out in the table below (borrowings, financing and debentures were considered at their full amounts, since 98.42% of their sum is linked to CDI):
Controlling Company | Consolidated | |||||||
Total loans and financing - in local currency (note No. 19) | (1,073,162 | ) | (16,097,706 | ) | ||||
Operations in foreign currency with derivatives bound to CDI | — | (4,568,393 | ) | |||||
Financial investments (explanatory notes 6 and 7) | 2,082,179 | 4,459,259 | ||||||
|
|
|
| |||||
Net exposure | 1,009,017 | (16,206,840 | ) | |||||
|
|
|
|
The tables below show the projection for incremental loss that would have been recognized in the subsequent period, assuming that the current net liability exposure remains static and based on the following scenarios:
Consolidated | ||||||||||||||||
Description | Company’s Risk | Probable scenario | Scenario II | Scenario III | ||||||||||||
Net liability | Rate increase | 4,574 | (29,406 | ) | (63,386 | ) |
The probable scenario considers the future interest rates according to quotations obtained at B3 on the expected maturity dates of financial instruments with exposure to interest rates appraised on 30 June 2020. Scenarios II and III consider an increase of 25% (2.6% p.a.) and 50% (3.1% p.a.) on the interest rate, respectively, based on a CDI of 2.1%. p.a.
F-20
d) Credit risk
The result of the credit risk management is reflected in line item “Provision for doubtful accounts” under “Trade receivables”, as demonstrated in explanatory note 8.
The Company and its subsidiaries consider the credit risk for transactions with financial institutions to be low, as these are considered by the Management as first-rate.
e) Liquidity risk
The Management monitors the consolidated liquidity level for the Company and its subsidiaries considering the expected cash flows against unused credit facilities, as shown in the following table:
Controlling Company | Consolidated | |||||||||||||||
06/2020 | 12/2019 | 06/2020 | 12/2019 | |||||||||||||
Total current assets | 2,591,364 | 3,050,574 | 17,064,524 | 9,430,057 | ||||||||||||
Total current liabilities | (1,103,060 | ) | (3,080,906 | ) | (12,863,889 | ) | (7,518,423 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total net working capital | 1,488,304 | (30,332 | ) | 4,200,635 | 1,911,634 | |||||||||||
|
|
|
|
|
|
|
|
As of 30 June 2020, the book value of financial liabilities on the date of the balance sheet, measured at amortized cost, considering interest payments at a post-fixed rate and the value of debt securities reflecting the forward market interest rates, may be changed as post-fixed interest rates change. Their corresponding maturities, considering that the Company and its subsidiaries are in compliance with contractual restrictive clauses, are set out below:
Controlling Company | Less than one year | One to five years | Over five years | Total expected cash flow | Interest to be accrued | Book value | ||||||||||||||||||
Borrowings, financing and debentures | 1,115,106 | — | — | 1,115,106 | (41,944 | ) | 1,073,162 | |||||||||||||||||
Lease | ||||||||||||||||||||||||
Trade payables, reverse factoring and related-party trade payables | 13,799 | — | — | 13,799 | — | 13,799 |
Consolidated | Less than one year | One to five years | Over five years | Total expected cash flow | Interest to be accrued | Book value | ||||||||||||||||||
Borrowings, financing and debentures | 2,554,860 | 19,329,476 | — | 21,884,336 | (1,218,237 | ) | 20,666,099 | |||||||||||||||||
Lease | 1,272,171 | 2,883,814 | 1,014,375 | 5,170,360 | (1,063,185 | ) | 4,107,175 | |||||||||||||||||
Trade payables and reverse factoring operations | 5,709,969 | — | — | 5,709,969 | — | 5,709,969 |
As of 31 December 2019, the Company and its subsidiaries had two credit facilities:
• | Up to seventy million pounds sterling (GBP 70 million), with no guarantee, that could be withdrawn in installments to meet short-term financing needs of The Body Shop International Limited. This facility was used by the indirect subsidiary during the first quarter of 2020 to reinforce working capital and liquidity. |
• | Up to one hundred and fifty million Reais (R$ 150,000), with no guarantee, which was terminated during the first semester of 2020. |
5.3 | Impacts of Covid-19 |
Despite the level of uncertainty, the Company is closely monitoring the evolution of the pandemic caused by Covid-19 worldwide. To this end, Crisis Committees were created on several fronts, with the participation of key people in the organization, with the function of monitoring, analyzing and deciding on actions to minimize impacts, ensure the continuity of operations and promote the safety and health of all people involved.
Since the beginning of the virus spread and the consequent restrictive measures imposed by governments, such as closing non-essential trade and restricting the movement of people across borders, the Company has implemented some measures in all its operations, in line with the official measures:
a. | Incentive to work remotely and adoption of essentiality criteria to limit industrial and logistical operations; |
F-21
b. | Adoption of new safety measures for operational workers, such as the use of masks and procedures to distance people between processes; |
c. | Closure of stores, where required by the authorities; |
d. | Re-planning of sales cycles, prioritizing personal care items; |
e. | Speeding up the digitization of sales channels; |
f. | Wide dissemination of the digital magazine; |
g. | Change in the minimum order criteria, start kit and increased deadline for payment of consultants; and |
h. | Daily monitoring of suppliers to ensure supply. |
In addition to these measures, there is a Crisis Committee focused on finance which monitors the Company’s financial health, with a focus on cash, covenants and results, proposing actions to minimize the inevitable reduction in sales. Among these actions, we find:
• | Reduction of discretionary expenses (consultancies, events, etc.); |
• | Freezing of contracts and salary increases; |
• | Reduction in marketing expenses; |
• | Reductions in travel expenses; |
• | Investment reduction (Capex); |
• | Negotiation with suppliers to increase payment terms; and |
• | Adherence to stimulus plans announced by the governments of some of the countries in which the Company operates. |
During the period ended 30 June 2020, the impacts on the Company’s business were as follows:
• | Closing of stores: the Company and its subsidiaries have own stores and franchised stores distributed across its different brands and geographies that were impacted by lockdowns throughout the second quarter of 2020. At The Body Shop, lockdown restrictions led to the closure of 87% of retail stores at the end of April 2020, progressing to 16% of stores closed at the end of June 2020 with the restrictions flexibility. The Company and its subsidiaries were able to offset approximately 90% of the Covid-19 impact on sales through significant growth in online and At-Home channels and the gradual reopening of stores. At Aesop, during most of the second quarter of 2020, up to 90% of stores were closed across most markets. Nearly all of the Covid-19 impact on sales was offset with remarkable growth in digital sales and progressive reopening of stores. At Natura, all shopping mall stores were closed during most of the second quarter of 2020, and by the end of June, approximately 60% of all retail stores, including franchisee stores, were reopened, mostly with restrictions. |
• | Production: In the beginning of the second quarter of 2020, Natura &Co quickly retooled operations across brands to step up production of essential products (such as soap and hand sanitizer) by over 30% of essential products capacity, by optimizing available capacity at Avon plants. |
• | Cash and liquidity: the Company took steps to address liquidity concerns. R$2 billion was raised in a private placement, subscribed by Company’s controlling shareholders, selected investors and non-controlling shareholders. Also, R$750 million in new financing was raised, with maturity in May 2020, to increase liquidity with no impact on net debt. Strict cost discipline was adopted, including over capex and discretionary spending. The Company ended the second quarter of 2020 with a very strong cash position of R$4,820, resulting in further deleveraging and ensuring compliance with the financial covenants. |
It is worth mentioning that the actions, decisions and the impacts mentioned in the financial statement are under constant review, according to the evolution of the global scenario.
5.4 | Cyber incident |
In June 2020, the Company became aware that it was exposed to a cyber incident in its Information Technology environment which interrupted some systems and partially affected operations. We engaged leading external cyber security and IT general controls specialists, launched a comprehensive containment and remediation effort and started a forensic investigation. As of the date of this report, the Company has re-established all of its core business processes and resumed operations in all of its markets, including all of its distribution centers. The Company continues to investigate and evaluate the extent of the cyber incident, while working diligently to mitigate its impacts and re-evaluate our IT general controls.
F-22
The cyber incident had a significant impact on our revenue performance for the second quarter of 2020, with the majority of the impact being shifted to the third quarter of 2020 as the company fulfills the order backlog created. The incremental expense incurred as a result of the cyber incident in the second quarter of 2020 was not material.
6. | CASH AND CASH EQUIVALENTS |
Information pertaining to cash and cash equivalents is presented in the Company’s 2019 annual financial statements in Note 6.
Controlling Company | Consolidated | |||||||||||||||
06/2020 | 12/2019 | 06/2020 | 12/2019 | |||||||||||||
Cash and banks | 113 | 2,173,101 | 2,872,297 | 3,110,220 | ||||||||||||
Certificate of Bank Deposits (a) | 499,134 | 207,699 | 766,703 | 211,261 | ||||||||||||
Repurchase operations (b) | — | — | 1,181,116 | 1,192,101 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
499,247 | 2,380,800 | 4,820,116 | 4,513,582 | |||||||||||||
|
|
|
|
|
|
|
|
(a) | As of 30 June 2020, investments in Certificate of Bank Deposits (“CDBs”) are remunerated at an average rate of 102.7% of CDI with daily maturities redeemable with the issuer itself, without significant loss of value. |
(b) | Repurchase operations are securities issued by banks with a commitment by the bank to repurchase them, and by the client to resell them, at defined rates and within a predetermined term, backed by public or private securities, depending on bank availabilities and registered with the Central for the Custody and Financial Settlement of Securities (“CETIP”). On 30 June 2020, repurchase operations are remunerated at an average rate of 103.8% of CDI (106.9% of the CDI on 31 December 2019). |
7. | SHORT-TERM INVESTMENTS |
Information pertaining to short-term investments was presented in the Company’s 2019 annual financial statements in Note 7.
Controlling Company | Consolidated | |||||||||||||||
06/2020 | 12/2019 | 06/2020 | 12/2019 | |||||||||||||
Exclusive investment funds | 1,583,045 | 669,769 | — | — | ||||||||||||
Loan investment funds | — | — | 376,538 | 407,928 | ||||||||||||
Certificate of Bank Deposits (a) | — | — | 270,870 | 21,327 | ||||||||||||
Financial letters | — | — | 377,033 | 374,690 | ||||||||||||
Government securities (LFT) | — | — | 1,486,999 | 221,900 | ||||||||||||
Dynamo Beauty Ventures Ltd. Fund | — | — | 11,326 | 7,402 | ||||||||||||
Restricted cash | — | — | 58,764 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
1,583,045 | 669,769 | 2,581,530 | 1,033,247 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Current | 1,583,045 | 669,769 | 2,570,204 | 1,025,845 | ||||||||||||
Non-Current | — | — | 11,326 | 7,402 |
(a) | As of June 30, 2020 the CDBs classified as short-term investments are remunerated at an average rate of 103.8% of CDI (106.9% of CDI as of 31 December 2019). The balance on 30 June 2020 related to the “Crer para Ver” line within the exclusive fund is R$ 35,423 (R$ 38,018 on 31 December 2019). |
The breakdown of securities constituting the Essential Investment Fund portfolio on 30 June 2020 and 31 December 2019 is as follows:
06/2020 | 12/2019 | |||||||
Certificate of term deposits | 270,870 | 21,327 | ||||||
Repurchase operations | 1,181,116 | 1,192,101 | ||||||
Financial letters | 377,033 | 374,690 | ||||||
Government securities (LFT) | 1,486,999 | 221,900 | ||||||
|
|
|
| |||||
3,316,018 | 1,810,018 | |||||||
|
|
|
|
8. | TRADE RECEIVABLES |
Information pertaining to trade receivables was presented in the Company’s 2019 annual financial statements in Note 8.
Consolidated | ||||||||
06/2020 | 12/2019 | |||||||
Trade receivables | 3,109,500 | 1,793,759 | ||||||
Provision for doubtful accounts | (464,899 | ) | (107,995 | ) | ||||
|
|
|
| |||||
2,644,601 | 1,685,764 | |||||||
|
|
|
|
F-23
Maximum exposure to credit risk on the date of the financial statements is the book value of each maturity date range, net of the provision for doubtful accounts, as shown in the chart of receivable balances per maturity date:
Consolidated | ||||||||
06/2020 | 12/2019 | |||||||
To become due | 1,632,884 | 1,501,958 | ||||||
Past due: | ||||||||
Up to 30 days | 928,674 | 142,069 | ||||||
31 to 60 days | 182,119 | 36,466 | ||||||
61 to 90 days | 83,788 | 27,789 | ||||||
91 to 180 days | 282,035 | 85,477 | ||||||
Provision for doubtful accounts | (464,899 | ) | (107,995 | ) | ||||
|
|
|
| |||||
2,644,601 | 1,685,764 | |||||||
|
|
|
|
Movements in the provision for doubtful accounts for the period ended 30 June 2020 are as follows:
Consolidated | ||||
Balance on 31 December 2018 | (129,242 | ) | ||
Additions | (118,037 | ) | ||
Write-offs | 138,116 | |||
Exchange variation | 471 | |||
|
| |||
Balance on 30 June 2019 | (108,692 | ) | ||
|
| |||
Balance on 31 December 2019 | (107,995 | ) | ||
Control acquisition | (270,187 | ) | ||
Additions | (397,409 | ) | ||
Write-offs | 371,004 | |||
Exchange variation | (60,312 | ) | ||
|
| |||
Balance on 30 June 2020 | (464,899 | ) | ||
|
|
The balances of trade receivables per exposure to the risk of doubtful accounts on 30 June 2020 are set out below:
Consolidated | ||||||||
Trade receivables | Provision for doubtful accounts | |||||||
To become due | 1,632,883 | (46,358 | ) | |||||
Past due: | ||||||||
Up to 30 days | 928,674 | (63,254 | ) | |||||
31 to 60 days | 182,119 | (67,201 | ) | |||||
61 to 90 days | 83,788 | (53,795 | ) | |||||
91 to 180 days | 282,026 | (234,291 | ) | |||||
|
|
|
| |||||
3,109,500 | (464,899 | ) | ||||||
|
|
|
|
9. | INVENTORIES |
Information pertaining to inventories was presented in the Company’s 2019 annual financial statements in Note 9.
Consolidated | ||||||||
06/2020 | 12/2019 | |||||||
Finished products | 3,847,372 | 1,253,145 | ||||||
Raw materials and packaging | 1,030,020 | 253,063 | ||||||
Auxiliary materials | 211,372 | 82,228 | ||||||
Products in progress | 34,690 | 27,346 | ||||||
Provision for losses | (642,107 | ) | (185,232 | ) | ||||
|
|
|
| |||||
4,481,347 | 1,430,550 | |||||||
|
|
|
|
F-24
Movements in the provision for inventory losses for the period ended 30 June 2020 are as follows:
Consolidated | ||||
Balance on 31 December 2018 | (178,268 | ) | ||
|
| |||
Net additions | (72,980 | ) | ||
Write-offs | 60,743 | |||
Exchange variation | 2,139 | |||
|
| |||
Balance on 30 June 2019 | (188,366 | ) | ||
|
| |||
Balance on 31 December 2019 | (185,232 | ) | ||
|
| |||
Control acquisition | (332,350 | ) | ||
Net additions | (190,763 | ) | ||
Write-offs | 166,520 | |||
Exchange variation | (100,282 | ) | ||
|
| |||
Balance on 30 June 2020 | (642,107 | ) | ||
|
|
10. | RECOVERABLE TAXES |
Information pertaining to the Company’s recoverable taxes was presented in the 2019 annual financial statements in Note 10.
Consolidated | ||||||||
06/2020 | 12/2019 | |||||||
ICMS on purchase of inputs (a) | 671,227 | 434,832 | ||||||
Taxes on purchase of inputs - subsidiaries abroad | 214,702 | 39,475 | ||||||
ICMS on purchase of property, plant and equipment | 10,024 | 10,628 | ||||||
PIS and COFINS on purchase of property, plant and equipment (b) | 179 | 3,826 | ||||||
PIS and COFINS on purchase of inputs | 802,466 | 280,087 | ||||||
PIS, COFINS and CSLL - withheld at source | 3,779 | 2,378 | ||||||
IPI (Tax on Manufactured Products) | 83,828 | 30,190 | ||||||
Others | 152,402 | 3,438 | ||||||
|
|
|
| |||||
1,938,607 | 804,854 | |||||||
|
|
|
| |||||
Current | 1,045,201 | 395,640 | ||||||
Non-Current | 893,406 | 409,214 |
a) | Accumulated Brazilian tax on the circulation of goods, interstate and intercity transportations and communication services (“ICMS”) tax credits. |
b) | Brazilian tax for the Integration Program Tax on Revenue (“PIS”) and Social Security Funding Tax on Revenue (COFINS). |
11. | INCOME TAX AND SOCIAL CONTRIBUTION |
The effective tax rate calculated by the Company for the period ended June 30, 2020 was negative 13.0%. This percentage is based on the loss before taxes of R$ 1,077.4 million and the resulting income tax expense of R$ 139.7 million. The main components causing the effective tax rate to differ from the statutory income tax rate of 34% are the losses of certain jurisdictions which cannot be benefited, permanent effects related to income tax withheld at source arising from transactions among companies of the group which cannot be applied as an income tax credit and the additional recognition of deferred tax liability due to the announcement by the British government that the statutory income tax rate will not be reduced from 19% to 17%. Excluding the adverse effects primarily caused by these noted components, the Company’s effective tax rate would be approximately 31.1%.
The effective rate calculated by the Company in the period ended June 30, 2019 was 30.7%. This percentage is based on the profit before taxes of R$ 100.1 million and the resulting income tax expenses of R$ 30.7 million. The main components causing the effective rate to differ from the statutory income tax rate of 34% are the tax incentives and the subvention of investments.
F-25
Movements in deferred asset and liability income tax and social contribution for the period ended 30 June 2020 are as follows:
Controlling Company | Assets | Liabilities | ||||||||||
Consolidated | Consolidated | |||||||||||
Balance on 31 December 2018 | — | 398,400 | (431,534 | ) | ||||||||
Effect on results | — | 44,859 | 3,298 | |||||||||
Reserve for grant of options and restricted stock | — | 13,380 | — | |||||||||
Effect on other comprehensive income | — | (53,701 | ) | — | ||||||||
Exchange variation on other comprehensive income | — | 4,615 | 13,649 | |||||||||
|
|
|
|
|
| |||||||
Balance on 30 June 2019 | — | 407,553 | (414,587 | ) | ||||||||
|
|
|
|
|
| |||||||
Balance on 31 December 2019 | — | 374,448 | (450,561 | ) | ||||||||
|
|
|
|
|
| |||||||
Effect on results | 71,868 | (22,022 | ) | (28,630 | ) | |||||||
Control acquisition | — | 667,034 | (713,199 | ) | ||||||||
Reserve for grant of options and restricted stock | — | 2,865 | — | |||||||||
Effect on other comprehensive income | — | (75,842 | ) | — | ||||||||
Exchange variation on other comprehensive income | — | 29,409 | (221,081 | ) | ||||||||
|
|
|
|
|
| |||||||
Balance on 30 June 2020 | 71,868 | 975,892 | (1,413,471 | ) | ||||||||
|
|
|
|
|
|
12. | JUDICIAL DEPOSITS |
Information pertaining to the Company’s judicial deposits was presented in the 2019 annual financial statements in Note 12.
Consolidated | ||||||||
06/2020 | 12/2019 | |||||||
Unprovisioned tax proceedings (a) | 296,529 | 203,403 | ||||||
Provisioned tax proceedings (b) (notes 21 and 22) | 249,576 | 116,415 | ||||||
Unprovisioned civil proceedings | 6,570 | 2,541 | ||||||
Provisioned civil proceedings (note 22) | 2,505 | 426 | ||||||
Unprovisioned labor proceedings | 14,330 | 8,683 | ||||||
Provisioned labor proceedings (note 22) | 30,830 | 5,787 | ||||||
|
|
|
| |||||
Total judicial deposits | 600,340 | 337,255 | ||||||
|
|
|
|
c) | The tax proceedings related to these judicial deposits are mainly related to ICMS-ST, highlighted in note 20 (a) - contingent liabilities - possible risk of loss. |
d) | The tax proceedings related to these judicial deposits are mainly related to the sum of amounts disclosed in explanatory note 21, item (a) and the amounts provisioned pursuant to explanatory note 20. |
Find below the movements in the balances of judicial deposits for the periods ended 30 June 2020 and 2019:
Consolidated | ||||
Balance on 31 December 2018 | 333,577 | |||
|
| |||
New deposits | 1,367 | |||
Redemptions | (1,362 | ) | ||
Monetary adjustment | 7,447 | |||
Write-offs for expenses | (3,569 | ) | ||
|
| |||
Balance on 30 June 2019 | 337,460 | |||
|
|
Balance on 31 December 2019 | 337,255 | |||
|
| |||
Control acquisition | 283,885 | |||
New deposits | 7,911 | |||
Redemptions | (21,186 | ) | ||
Monetary adjustment | 6,216 | |||
Payments | (10,070 | ) | ||
Write-offs for expenses | (3,671 | ) | ||
|
| |||
Balance on 30 June 2020 | 600,340 | |||
|
|
In addition to judicial deposits, the Company and its subsidiaries have contracted guarantee insurance policies for some proceedings. Details of these insurance policies are presented in explanatory note No. 3.2.
F-26
13. | ASSETS AVAILABLE FOR SALE |
Assets classified as available for sale were acquired by Avon (Note 4). The following table shows the changes in the balance for the period ended 30 June 2020:
Consolidated | ||||
Acquisition by Avon on 3 January 2020 | 186,518 | |||
Transfer to property, plant and equipment(a) | (39,186 | ) | ||
Transfer from property, plant and equipment(b) | 16,210 | |||
Sale | (22,287 | ) | ||
Exchange variation | 54,302 | |||
|
| |||
Balance on 30 June 2020 | 195,557 | |||
|
|
a) | Avon has identified new circumstances which arose which were previously considered as unlikely and, as a result, Avon decided not to carry on with the sale of two properties. As a result, the subsidiary reclassified the properties available for sale into property, plant and equipment. During the reclassification, a real depreciation, resulting in a non-property impact to the consolidated financial statements, was recorded. |
b) | Decision to sell one more property, which was previously classified as property, plant and equipment. |
On 30 June 2020, the assets available for sale include two Avon properties at the sum of R$ 195,557.
14. | OTHER CURRENT AND NON-CURRENT ASSETS |
Consolidated | ||||||||
06/2020 | 12/2019 | |||||||
Marketing and advertising advances | 99,545 | 28,669 | ||||||
Supplier advances | 224,335 | 102,225 | ||||||
Employee advances | 79,882 | 13,983 | ||||||
Rent advances and guarantee deposit (a) | 133,448 | 96,202 | ||||||
Advance insurance expenses | 170,277 | 29,647 | ||||||
Overfunded pension plan( b) | 711,526 | — | ||||||
Customs broker advances - Import taxes | 38,592 | 34,932 | ||||||
Subleasing receivables (c) | 395,605 | — | ||||||
Carbon credit | 3,799 | 3,508 | ||||||
Others | 543,806 | 39,868 | ||||||
|
|
|
| |||||
2,400,815 | 349,034 | |||||||
|
|
|
| |||||
Current | 799,222 | 265,198 | ||||||
Non-Current | 1,601,593 | 83,836 |
a) | This substantially refers to (i) advance payments for rental agreements that were not included in the initial measurement of lease liabilities/right-of-use of the subsidiary The Body Shop International Limited, in accordance with the exceptions permitted under CPC 06(R2) / IFRS 16; and (ii) guarantees for renting properties of certain stores of subsidiaries The Body Shop International Limited and Emeis Holdings Pty Ltd., which will be returned by the lessor at the end of the rental agreements. |
b) | Pension plan arising from the Avon’s acquisition on 3 January 2020 (Note 4) |
c) | This pertains to the sublease receivables from the office Avon had in New York. |
15. | INVESTMENTS |
Controlling Company | ||||||||
06/2020 | 12/2019 | |||||||
Investments in subsidiaries, net of losses | 10,713,042 | 3,392,677 | ||||||
Goodwill Avon (Note 4) | 10,973,473 | — | ||||||
|
|
|
| |||||
Total | 21,686,515 | 3,392,677 | ||||||
|
|
|
|
Information and movements of balances for the period ended 30 June 2020 and for the fiscal year ended 31 December 2019:
F-27
Natura Cosméticos S.A. (1) | Avon Products, Inc. | Natura &Co International S.à r.l. | Total | |||||||||||||
Percentage Interest | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||
Shareholders’ equity of the subsidiaries | 5,740,749 | (4,911,624 | ) | (214 | ) | 828,91, | ||||||||||
Shareholders’ equity interest | 5,740,749 | (4,911,624 | ) | (214 | ) | 828,911 | ||||||||||
Fair value adjustment of acquired assets and liabilities | — | 9,884,131 | — | 9,884,131 | ||||||||||||
Goodwill | — | 10,973,473 | — | 10,973,473 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 5,740,749 | 15,945,980 | (214 | ) | 21,686,515 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Profit/(Losses) for the period of the subsidiaries | 182,712 | (1,319,077 | ) | (287 | ) | (1,136,652 | ) | |||||||||
Balances on 31 December 2019 | 3,392,677 | — | — | 3,392,677 | ||||||||||||
Equity in subsidiaries | 182,712 | (1,319,077 | ) | (287 | ) | (1,136,652 | ) | |||||||||
Exchange variation and other adjustments in the conversion of investments of the subsidiaries abroad | 1,646,060 | 3,980,018 | 16 | 5,626,094 | ||||||||||||
Effect of Hyperinflationary economy adjustment | 30,470 | 10,145 | — | 40,615 | ||||||||||||
Contribution by the controlling company for stock option plans granted to executive officers of the subsidiaries and other reserves net of tax effects | 35,713 | — | — | 35,713 | ||||||||||||
Hedge accounting, net of tax effects | 153,117 | — | — | 153,117 | ||||||||||||
Capital increase | 300,000 | — | — | 300,000 | ||||||||||||
Acquisition price | — | 13,274,894 | 57 | 13,274,951 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balances on 30 June 2020 | 5,740,749 | 15,945,980 | (214 | ) | 21,686,515 | |||||||||||
|
|
|
|
|
|
|
|
(1) | The investment balance in the direct subsidiary Natura Cosméticos S.A. includes goodwill arising from the acquisitions of indirect subsidiaries TBS (R$ 1,832,248) and Aesop (R$ 133,601). |
F-28
16. | PROPERTY, PLANT AND EQUIPMENT |
Information pertaining to the Company’s property, plant and equipment was presented in the 2019 annual financial statements in Note 15.
Consolidated | ||||||||||||||||||||||||||||||||||||
Useful life range (years) | 12/2019 | Control acquisition | Additions | Write-offs | Impairment | Transfers | Exchange variation | 06/2020 | ||||||||||||||||||||||||||||
Cost value: | ||||||||||||||||||||||||||||||||||||
Vehicles | 2 to 5 | 45,578 | 25,789 | 128 | (4,519 | ) | — | 2,171 | 12,042 | 81,189 | ||||||||||||||||||||||||||
Templates | 3 | 192,556 | — | 8 | (19,713 | ) | — | 4,690 | 8,065 | 185,606 | ||||||||||||||||||||||||||
Tools and accessories | 3 to 20 | 11,974 | 52,410 | 4,362 | (158 | ) | — | (876 | ) | 12,721 | 80,433 | |||||||||||||||||||||||||
Facilities | 3 to 60 | 309,772 | 1,431 | 23 | (3,428 | ) | — | 3,298 | 10,922 | 322,018 | ||||||||||||||||||||||||||
Machinery and accessories | 3 to 15 | 866,451 | 746,734 | 7,352 | (925 | ) | — | 45,638 | 171,314 | 1,836,564 | ||||||||||||||||||||||||||
Improvements in third-party real properties (a) | 2 to 20 | 615,103 | 58,548 | 11,653 | (1,177 | ) | (8,650 | ) | 5,618 | 177,970 | 859,065 | |||||||||||||||||||||||||
Buildings | | 14 to 60 | | 386,957 | 1,168,837 | 3,484 | 1,590 | 324 | 20,246 | 293,891 | 1,875,329 | |||||||||||||||||||||||||
Furniture and utensils | 2 to 25 | 397,727 | 32,566 | 10,622 | (1,012 | ) | (8,883 | ) | 7,545 | 95,387 | 533,952 | |||||||||||||||||||||||||
Lands | — | 35,157 | 568,470 | — | 73 | — | 4,060 | 191,749 | 799,509 | |||||||||||||||||||||||||||
IT equipment | 3 to 15 | 297,228 | 112,369 | 4,691 | (494 | ) | — | 12,550 | 85,224 | 511,568 | ||||||||||||||||||||||||||
Other assets | — | — | 40,090 | — | — | — | — | 14,086 | 54,176 | |||||||||||||||||||||||||||
Projects in progress | — | 156,011 | 78,965 | 104,602 | (526 | ) | — | (89,486 | ) | 11,155 | 260,721 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total cost | 3,314,514 | 2,886,209 | 146,925 | (30,289 | ) | (17,209 | ) | 15,454 | 1,084,526 | 7,400,130 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Depreciation value: | ||||||||||||||||||||||||||||||||||||
Vehicles | (16,924 | ) | — | (12,932 | ) | 2,174 | — | (2,093 | ) | (3,524 | ) | (33,299 | ) | |||||||||||||||||||||||
Templates | (175,938 | ) | — | (4,824 | ) | 19,684 | — | — | (172 | ) | (161,250 | ) | ||||||||||||||||||||||||
Tools and accessories | (3,255 | ) | — | (20,769 | ) | — | — | 10 | (2,451 | ) | (26,465 | ) | ||||||||||||||||||||||||
Facilities | (167,362 | ) | — | (11,582 | ) | 282 | — | 900 | (3,269 | ) | (181,031 | ) | ||||||||||||||||||||||||
Machinery and accessories | (416,736 | ) | — | (95,836 | ) | 157 | — | (1,072 | ) | (16,382 | ) | (529,869 | ) | |||||||||||||||||||||||
Improvement in third-party property | (267,371 | ) | — | (60,425 | ) | 450 | — | 25 | (68,175 | ) | (395,496 | ) | ||||||||||||||||||||||||
Buildings | (101,785 | ) | — | (51,515 | ) | — | — | — | (4,847 | ) | (158,147 | ) | ||||||||||||||||||||||||
Furniture and utensils | (193,973 | ) | — | (44,342 | ) | 612 | — | (26 | ) | (43,546 | ) | (281,275 | ) | |||||||||||||||||||||||
IT equipment | (197,281 | ) | — | (47,588 | ) | 37 | — | — | (30,091 | ) | (274,923 | ) | ||||||||||||||||||||||||
Other assets | — | — | (6,841 | ) | — | — | — | (769 | ) | (7,610 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total depreciation | (1,540,625 | ) | — | (356,654 | ) | 23,396 | — | (2,256 | ) | (173,226 | ) | (2,049,365 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Overall Total | 1,773,889 | 2,886,209 | (209,729 | ) | (6,893 | ) | (17,209 | ) | 13,198 | 911,300 | 5,350,765 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
17. | INTANGIBLE ASSETS |
Information pertaining to the Company’s intangible assets was presented in the 2019 annual financial statements in Note 16.
Consolidated | ||||||||||||||||||||||||||||||||||||
Useful life range (years) | 12/2019 | Control acquisition | Additions | Write-offs | Reversal (provision) of impairment | Transfers | Exchange variation | 06/2020 | ||||||||||||||||||||||||||||
Cost value: | ||||||||||||||||||||||||||||||||||||
Software | 2.5 to 10 | 1,313,090 | 291,239 | 65,382 | (1,492 | ) | — | 112,649 | 153,649 | 1,934,517 | ||||||||||||||||||||||||||
Trademarks and patents (Defined useful life) | 24 to 25 | 116,805 | 517,592 | — | — | — | — | 220,524 | 854,921 | |||||||||||||||||||||||||||
Trademarks and patents (Indefinite useful life) | — | 2,171,585 | 1,893,224 | — | — | — | — | 1,255,816 | 5,320,625 | |||||||||||||||||||||||||||
Goodwill Avon (Note 4) | — | — | 10,973,474 | — | — | — | — | 3,855,691 | 14,829,165 | |||||||||||||||||||||||||||
Goodwill Emeis Brazil Pty Ltd. | — | 100,237 | — | — | — | — | — | 33,364 | 133,601 | |||||||||||||||||||||||||||
Goodwill The Body Shop International Limited | — | 1,434,369 | — | 8,039 | — | — | — | 388,384 | 1,830,792 | |||||||||||||||||||||||||||
Goodwill acquisition of The Body Shop stores | — | 1,456 | — | — | 1,456 | |||||||||||||||||||||||||||||||
Relationship with retail clients | 10 | 1,987 | — | — | — | — | — | 656 | 2,643 | |||||||||||||||||||||||||||
Goodwill (Indefinite useful life) | — | 17,801 | — | — | — | — | 6,996 | 2,697 | 27,494 | |||||||||||||||||||||||||||
Goodwill (Defined useful life) | 3 to 18 | 12,447 | — | — | — | 1,065 | (3,414 | ) | (1,043 | ) | 9,055 | |||||||||||||||||||||||||
Relationship with franchisees and sub franchisees | 14 to 15 | 602,958 | 1,876,169 | — | — | — | — | 822,215 | 3,301,342 | |||||||||||||||||||||||||||
Developed technology (by acquired subsidiary) | — | — | 1,131,573 | — | — | — | — | 397,595 | 1,529,168 | |||||||||||||||||||||||||||
Other intangible assets | 2 to 10 | 110,288 | — | 41,452 | — | — | (100,153 | ) | 18,071 | 69,658 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total cost | 5,883,023 | 16,683,271 | 114,873 | (1,492 | ) | 1,065 | 16,078 | 7,147,619 | 29,844,437 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Amortization value: | ||||||||||||||||||||||||||||||||||||
Software | (649,347 | ) | — | (179,508 | ) | 43 | — | (3,634 | ) | (39,399 | ) | (871,845 | ) | |||||||||||||||||||||||
Trademarks and patents | (44,108 | ) | — | (18,303 | ) | — | — | — | (12,810 | ) | (75,221 | ) | ||||||||||||||||||||||||
Goodwill | (2,197 | ) | — | (242 | ) | — | — | (4,634 | ) | 1,213 | (5,860 | ) | ||||||||||||||||||||||||
Relationship with retail clients | (1,939 | ) | — | (114 | ) | — | — | — | (531 | ) | (2,584 | ) | ||||||||||||||||||||||||
Relationship with franchisees and sub franchisees | (95,772 | ) | — | (147,980 | ) | — | — | — | (41,555 | ) | (285,307 | ) | ||||||||||||||||||||||||
Developed technology (by acquired subsidiary) | — | — | (137,361 | ) | — | — | — | (15,419 | ) | (152,780 | ) | |||||||||||||||||||||||||
Other intangible assets | (13,159 | ) | (1,042 | ) | — | — | — | (5,390 | ) | (19,591 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total accrued amortization | (806,522 | ) | — | (484,550 | ) | 43 | — | (8,268 | ) | (113,891 | ) | (1,413,188 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net total | 5,076,501 | 16,683,271 | (369,677 | ) | (1,449 | ) | 1,065 | 7,810 | 7,033,728 | 28,431,249 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
18. | RIGHT OF USE AND LEASE |
Information pertaining to the Company’s right of use and lease is presented in the 2019 annual financial statements in Note 17.
a) | Right of use |
Consolidated | ||||||||||||||||||||||||||||||||
Useful life range (years) (i) | 12/2019 | Control acquisition | Additions | Write-offs | Transfers (a) | Exchange variation | 06/2020 | |||||||||||||||||||||||||
Cost value: | ||||||||||||||||||||||||||||||||
Vehicles | 3 | 40,018 | 42,467 | 46,577 | (219 | ) | — | 11,435 | 140,278 | |||||||||||||||||||||||
Machinery and equipment | 3 to 10 | 15,578 | 14,034 | 610 | — | — | 8,958 | 39,180 | ||||||||||||||||||||||||
Buildings | 3 to 10 | 784,900 | 489,739 | 90,560 | (4,380 | ) | — | 211,050 | 1,571,869 | |||||||||||||||||||||||
IT equipment | 10 | 283 | 18,429 | 1,447 | — | — | 5,751 | 25,910 | ||||||||||||||||||||||||
Retail stores | 3 to 10 | 2,350,377 | — | 180,059 | (8,309 | ) | (3,582 | ) | 767,063 | 3,285,608 | ||||||||||||||||||||||
Tools and accessories | 3 | 2,803 | — | — | — | — | 761 | 3,564 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total cost | 3,193,959 | 564,669 | 319,253 | (12,908 | ) | (3,582 | ) | 1,005,018 | 5,066,409 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Depreciation value: | ||||||||||||||||||||||||||||||||
Vehicles | (8,109 | ) | — | (25,316 | ) | 150 | — | (2,236 | ) | (35,511 | ) | |||||||||||||||||||||
Machinery and equipment | (4,317 | ) | — | (7,142 | ) | — | — | (2,036 | ) | (13,495 | ) | |||||||||||||||||||||
Buildings | (97,190 | ) | — | (144,715 | ) | 2,852 | — | (27,349 | ) | (266,402 | ) | |||||||||||||||||||||
IT equipment | (214 | ) | — | (10,320 | ) | — | — | (1,100 | ) | (11,634 | ) | |||||||||||||||||||||
Retail stores | (463,332 | ) | — | (300,558 | ) | 4,016 | 4,634 | (172,458 | ) | (927,698 | ) | |||||||||||||||||||||
Tools and accessories | (936 | ) | (462 | ) | — | — | (298 | ) | (1,696 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total accrued depreciation | (574,098 | ) | — | (488,513 | ) | 7,018 | 4,634 | (205,477 | ) | (1,256,436 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Net total | 2,619,861 | 564,669 | (169,260 | ) | (5,890 | ) | 1,052 | 799,541 | 3,809,973 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a. | Regarding the goodwill paid in store rentals, this transferred to intangible assets when a new commercial agreement with the lessor is signed. |
F-31
Consolidated | ||||||||
06/2020 | 06/2019 | |||||||
Values recognized in the income statement during the periods ended 30 June 2020 and 30 June 2019 | ||||||||
Financial expense on lease | 119,398 | 64,137 | ||||||
Amortization of right of use | 488,513 | 271,591 | ||||||
Appropriation in the result of variable lease installments not included in the measurement of lease liabilities | 15,013 | 14,023 | ||||||
Sublease revenue | (16,033 | ) | (1,331 | ) | ||||
Short-term lease expenses and low-value assets | 38,274 | 78,774 | ||||||
Advantages granted by lessor related to Covid-19 | (12,685 | ) | — | |||||
Other expenses related to leases | 17,497 | 9,933 | ||||||
|
|
|
| |||||
Total | 649,977 | 437,127 | ||||||
|
|
|
| |||||
Values recognized in the financing cash flow statement | ||||||||
Payment of lease (principal amount) | 426,154 | 273,681 | ||||||
Values recognized in the operating cash flow statement | ||||||||
Payment of lease (interest) | 88,443 | 75,259 | ||||||
Variable lease payments not included in the measurement of lease liabilities | 4,448 | 8,100 | ||||||
Short-term lease payments and low-value assets | 30,699 | 978 | ||||||
Other lease-related payments | 20,174 | 15,985 | ||||||
|
|
|
| |||||
Total | 569,918 | 374,003 | ||||||
|
|
|
|
b) | Lease |
Consolidated | ||||||||
06/2020 | 12/2019 | |||||||
Current | 1,081,059 | 542,088 | ||||||
Non-Current | 3,026,116 | 1,975,477 | ||||||
|
|
|
| |||||
Total | 4,107,175 | 2,517,565 | ||||||
|
|
|
|
The following table shows the changes in the balance of lease for the period ended 30 June 2020:
Consolidated | ||||
Balance on 31 December 2019 | 2,517,565 | |||
New agreements | 324,878 | |||
Control acquisition | 777,200 | |||
Payments - principal amount | (380,902 | ) | ||
Payments - interest | (133,695 | ) | ||
Financial charges appropriated | 119,398 | |||
Write-offs (i) | (3,863 | ) | ||
Exchange variation | 886,594 | |||
|
| |||
Balance on 30 June 2020 | 4,107,175 | |||
|
|
i) | Mainly related to termination of agreements related to lease of stores. |
The maturities of the balance of non-current lease liabilities are shown below:
Consolidated | ||||||||
06/2020 | 12/2019 | |||||||
2021 | 441,760 | 374,746 | ||||||
2022 | 428,033 | 361,688 | ||||||
2023 | 422,877 | 358,274 | ||||||
2024 onwards | 1,733,446 | 880,769 | ||||||
|
|
|
| |||||
Total | 3,026,116 | 1,975,477 | ||||||
|
|
|
|
F-32
19. | BORROWINGS, FINANCING AND DEBENTURES |
Information pertaining to the Company’s borrowings, financing and debentures was presented in the 2019 annual financial statements in Note 18.
Controlling Company | Consolidated | |||||||||||||||
06/2020 | 12/2019 | 06/2020 | 12/2019 | |||||||||||||
Local Currency | ||||||||||||||||
Financing Agency for Studies and Projects (FINEP) | — | — | 87,617 | 101,988 | ||||||||||||
Debentures | — | — | 4,171,432 | 4.251,231 | ||||||||||||
BNDES | — | — | 17,451 | 35,390 | ||||||||||||
BNDES – FINAME | — | — | 46 | 183 | ||||||||||||
Promissory Notes | 1,073,162 | 2,883,382 | 1,322,889 | 2,883,382 | ||||||||||||
Working capital – Operation Mexico | — | — | 24,219 | 31,802 | ||||||||||||
Working capital – Operation Peru | — | — | 23,271 | |||||||||||||
Working capital – Operation Aesop | — | — | 98,559 | 100,438 | ||||||||||||
Working capital – Operation The Body Shop | — | — | 477,770 | — | ||||||||||||
Working capital – Operation Avon | — | — | 154,198 | — | ||||||||||||
Notes – Avon (1) | — | — | 9,720,254 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total in local currency | 1,073,162 | 2,883,382 | 16,097,706 | 7,404,414 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Foreign Currency | ||||||||||||||||
BNDES | — | — | 4,721 | 8,029 | ||||||||||||
Export Credit note (NCE) | — | — | 110,148 | 81,210 | ||||||||||||
Notes (1) | — | — | 4.179,182 | 3,090,490 | ||||||||||||
Resolution No. 4131/62 | — | — | 274,342 | 202,231 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total in foreign currency | — | — | 4,568,393 | 3,381,960 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Overall total | 1,073,162 | 2,883,382 | 20,666,099 | 10,786,374 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Current | 1,073,162 | 2,883,382 | 2,631,068 | 3,354,355 | ||||||||||||
Non-Current | — | — | 18,035,031 | 7,432,019 | ||||||||||||
(a) Debentures | ||||||||||||||||
Current | — | — | 164,555 | 246,017 | ||||||||||||
Non-Current | — | — | 4,006,877 | 4,005,214 |
(1) | Balances recorded for their estimated fair value resulting from business combination with Avon (Note 4). |
Changes in the balances of borrowings, financing and debentures for the periods ended 30 June 2020 and 2019 are presented below:
Controlling Company | Consolidated | |||||||
Balance on 31 December 2018 | — | 7,994,145 | ||||||
|
|
|
| |||||
Funding | — | 294,842 | ||||||
Amortizations | (594,912 | ) | ||||||
Financial charges appropriated | — | 253,304 | ||||||
Payment of financial charges | — | (260,098 | ) | |||||
Exchange variation (unrealized) | — | (86,954 | ) | |||||
Exchange variation (realized) | — | 2,814 | ||||||
Effects of the conversion (other comprehensive income) | — | 583 | ||||||
|
|
|
| |||||
Balance on 30 June 2019 | — | 7,603,724 | ||||||
|
|
|
| |||||
Balance on 31 December 2019 | 2,883,382 | 10,786,374 | ||||||
|
|
|
| |||||
Control acquisition | — | 7,250,735 | ||||||
Funding | 500,000 | 1,341,538 | ||||||
Amortizations | (2,326,905 | ) | (2.485,231 | ) | ||||
Financial charges appropriated | 38,363 | 557,122 | ||||||
Payment of financial charges | (21,678 | ) | (535,568 | ) | ||||
Exchange variation (unrealized) | — | 1,101,306 | ||||||
Exchange variation (realized) | — | 3,889 | ||||||
Effects of the conversion (other comprehensive income) | — | 2,645,934 | ||||||
|
|
|
| |||||
Balance on 30 June 2020 | 1,073,162 | 20,666,099 | ||||||
|
|
|
|
F-33
Maturities of the registered installment of non-current borrowings, financing and debentures liabilities are as follows:
Controlling Company | Consolidated | |||||||||||||||
06/2020 | 12/2019 | 06/2020 | 12/2019 | |||||||||||||
2021 | — | — | 2,253,221 | — | ||||||||||||
2022 | — | — | 5,450,177 | 2,279,759 | ||||||||||||
2023 | — | — | 6,644,547 | 527,596 | ||||||||||||
2024 onwards | — | — | 3,687,086 | 4,624,664 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | — | — | 18,035,031 | 7,432,019 | ||||||||||||
|
|
|
|
|
|
|
|
A description of the main bank borrowings and financing agreements in the period ended 30 June 2020 is as follows:
19.1 | Description of the main movements of bank borrowings and financing |
i) Promissory notes
On 14 January 2020, there was a partial optional early redemption of the Commercial Notes related to the first series in the amount of R$ 1,830 million.
On 29 April 2020, there was the 2nd issue of Commercial Promissory Notes by Natura Holding, in a single series in the amount of R$ 500 million, and the 4th issue of Commercial Promissory Notes, in a single series in the amount of R$ 250 million. The Commercial Notes were publicly distributed with restricted placement efforts, pursuant to CVM Ruling No. 476 of 16 January 2009. The allocation of funds went to the reinforcement of cash and liquidity.
On 29 June 2020, there was the total optional early redemption of the 1st issue of Commercial Notes by Natura Holding of the first series in the amount of R$ 370 million and the partial optional early redemption of the 1st issue of Commercial Notes of the second series in the amount of R$ 140 million.
The appropriation of costs related to the issuance of promissory notes during the period ended 30 June 2020 was R$ 19,461 (R$ 11,135 as of 31 December 2019), recorded monthly in the financial expenses, in accordance with the effective interest rate method. Issuance costs to appropriate totaled R$ 7,866 as of 30 June 2020 (R$ 20,962 as of 31 December 2019).
ii) Working capital – The Body Shop
As presented in the note of financial liquidity risk management (5.2.e), The Body Shop had, on 31 December 2019, a credit facility of up to seventy million pounds sterling (GBP 70 million), with no guarantee, that could be withdrawn in installments to meet short-term financing needs of The Body Shop International Limited. This facility was used by the indirect subsidiary during the second quarter of 2020, to reinforce working capital and liquidity, with annual interest payment of Libor + 2%.
iii) Working capital – Operation Peru
On 5 June 2020, the Company’s subsidiary raised, for reinforcement of working capital and liquidity, an amount of Peruvian soles 15 million, approximately R$ 22 million, with annual interest rate of 4.24% and maturity on 2 December 2020.
iv) Notes - Avon
Avon has issued the following notes:
Notes – Avon | Principal (USD) | Principal (R$) | Annual interest rate | Maturity | ||||||||||||
No guarantee | 461,883 | 2,529,271 | 5.00 | % | 15 March 2023 | |||||||||||
No guarantee | 243,847 | 1,335,306 | 6.95 | % | 15 March 2043 | |||||||||||
With guarantee | 500,000 | 2,738,000 | 7.88 | % | 15 August 2022 | |||||||||||
With guarantee | 400,000 | 2,190,400 | 6.50 | % | 15 August 2022 |
To the Notes issued by Avon, add the effects of allocation of fair values from the business combination (Note 4), which amounted to R$ 779,497 as of 30 June 2020.
19.2 | Restriction clauses of agreements |
The contractual restriction clauses establish financial indexes arising from the quotient of the net treasury debt division by the earnings before interest, taxes, depreciation and amortization (“EBITDA”) of the last 12 months, which should be equal to or lower than what was established. The Company and its subsidiaries comply with such clauses as of the base date.
F-34
20. | TRADE PAYABLES AND REVERSE FACTORING OPERATIONS |
Information pertaining to the Company’s trade payables and reverse factoring operations was presented in the 2019 annual financial statements in Note 19.
Controlling Company | Consolidated | |||||||||||||||
06/2020 | 12/2019 | 06/2020 | 12/2019 | |||||||||||||
Domestic trade payables | 1,875 | — | 4,593,288 | 1,581,759 | ||||||||||||
Foreign trade payables | 11,924 | — | 861,849 | 105,073 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
13,799 | — | 5,455,137 | 1,686,832 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Reverse factoring operations | — | — | 254,832 | 142,924 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
13,799 | — | 5,709,969 | 1,829,756 |
21. | TAX OBLIGATIONS |
Controlling Company | Consolidated | |||||||||||||||
06/2020 | 12/2019 | 06/2020 | 12/2019 | |||||||||||||
Ordinary ICMS | — | 120,393 | 120,300 | |||||||||||||
ICMS-ST (a) | — | 61,926 | 72,423 | |||||||||||||
Taxes on sales result – subsidiaries abroad | — | 296,430 | 145,992 | |||||||||||||
Social Security Tax (INSS) - suspension of the enforceability | — | — | 50,147 | |||||||||||||
Taxes withheld at the source | 403 | 987 | 110,084 | 48,593 | ||||||||||||
Other taxes - subsidiaries abroad | — | 2,987 | 1,180 | |||||||||||||
Income Tax (IR) | 101 | 63 | 101 | 1,207 | ||||||||||||
INSS and ISS | — | 54,371 | 3,218 | |||||||||||||
Others | — | 77,355 | 399 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
504 | 1,050 | 723,647 | 443,459 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Judicial deposits | — | (54,909 | ) | (62,356 | ) | |||||||||||
|
|
|
|
|
| |||||||||||
Current | 504 | 1,050 | 614,839 | 320,890 | ||||||||||||
Non-Current | — | — | 108,808 | 122,569 |
(a) | The Company’s subsidiaries have been discussing the illegality of changes in the state legislation for the payment of ICMS - ST. Part of the unpaid amount has been discussed in court by the Company and, in certain cases, the amounts have been deposited with the courts, as mentioned in explanatory note 12. |
22. | PROVISION FOR TAX, CIVIL AND LABOR RISKS |
Information pertaining to provision for the Company’s tax, civil and labor risks was presented in the Company’s 2019 annual financial statements in Note 21.
This provision is broken down as follows:
Consolidated | ||||||||
06/2020 | 12/2019 | |||||||
Tax | 876,036 | 127,842 | ||||||
Civil | 180,491 | 30,653 | ||||||
Labor | 257,241 | 61,571 | ||||||
|
|
|
| |||||
Total | 1,313,768 | 220,066 | ||||||
|
|
|
| |||||
Judicial deposits | (228,002 | ) | (60,272 | ) | ||||
|
|
|
| |||||
Current | 127,825 | 18,650 | ||||||
Non-Current | 1,185,943 | 201,416 |
F-35
22.1 | Contingencies with probable losses |
The movement of the provision for tax, civil and labor risks and contingent liabilities is presented below:
Consolidated | ||||||||||||||||||||||||
Tax | Civil | Labor | ||||||||||||||||||||||
Provision | Deposits | Provision | Deposits | Provision | Deposits | |||||||||||||||||||
Balance at beginning of year | 127,842 | (54,059 | ) | 30,653 | (426 | ) | 61,571 | (5,787 | ) | |||||||||||||||
Control acquisition (1) | 657,647 | (155,219 | ) | 51,263 | (4,898 | ) | 164,091 | (27,329 | ) | |||||||||||||||
Additions | 78,727 | (198 | ) | 99,774 | (2,648 | ) | 21,388 | (5,362 | ) | |||||||||||||||
Reversals | (29,946 | ) | 10,208 | (24,371 | ) | 1,022 | 1,105 | 2,546 | ||||||||||||||||
Payments | (52,412 | ) | — | (10,703 | ) | 3,549 | (21,470 | ) | 5,244 | |||||||||||||||
Monetary adjustment | 2,274 | (2,516 | ) | 2,802 | (10 | ) | 3,553 | (92 | ) | |||||||||||||||
Exchange variation | 92,145 | 2,533 | 31,103 | 344 | 26,166 | 263 | ||||||||||||||||||
Other movements | (241 | ) | 4,584 | (30 | ) | 562 | 837 | (313 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balance on 30 June 2020 | 876,036 | (194,667 | ) | 180,491 | (2,505 | ) | 257,241 | (30,830 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Balances recorded for their estimated fair value resulting from business combination with Avon (Note 4). |
22.2 | Contingencies with possible losses |
The Company and its subsidiaries have contingencies of a labor and social security, civil and tax nature, which expectation of loss assessed by the Management and supported by the legal advisers is classified as possible and, therefore, no provision has been constituted. The total sum under discussion rated as possible, due to the nature of the claims, is evidenced below:
Consolidated | ||||||||
06/2020 | 12/2019 | |||||||
Tax | 8,715,657 | 3,503,392 | ||||||
Civil | 144,151 | 61,532 | ||||||
Labor | 208,062 | 77,295 | ||||||
|
|
|
| |||||
Total contingent liabilities | 9,067,870 | 3,642,219 | ||||||
|
|
|
| |||||
Judicial deposits | (242,817 | ) | (136,258 | ) | ||||
|
|
|
|
The main tax cases are the following:
(i) | Infraction notices in which the Brazilian Federal Revenue Office collects IPI tax debts for the supposed lack of compliance with the minimum calculation basis set forth in the legislation, upon the sales transactions directed to interdependent wholesale establishments. Currently, judgment of the proceedings is awaited at the administrative level. On 30 June 2020, the total amount under discussion classified as possible loss is of R$1,951,431. |
(ii) | Court decisions which discuss the equivalence to industrial set forth in Decree No. 8,393/2015, which started requiring IPI in exit operations carried out by interdependent wholesale establishments of the products mentioned in said legal provision. On 30 June 2020, the amount under discussion is R$ 1,533,078 (R$ 389,017 as of 31 December 2019). |
(iii) | Administrative and court proceedings discussing the illegality of changes in the state legislation for the payment of ICMS and ICMS—ST. On 30 June 2020, the total amount under discussion is R$ 1,458,918 (R$ 406,002 as of 31 December 2019). |
(iv) | Infraction notices where the Brazilian Federal Revenue Office collects IRPJ and CSLL tax debts, in order to question the tax deductibility of goodwill amortization in the context of a corporate reorganization among related parties. Currently, there is discussion in the Judiciary Branch regarding the lawfulness of administrative decisions which rejected the motion to clarify, submitted to question the dismissed special appeals. On 30 June 2020, the total amount under discussion classified as possible loss is R$ 1,390,597 (R$ 1,379,189 as of 31 December 2019). |
(v) | Infraction Notice in which the State of São Paulo Treasury Office enforces the ICMS-ST collection, fully paid by the destination of the goods, the distributing establishment. Judgment of the proceedings is awaited at the administrative level. On 30 June 2020, the total amount under discussion classified as possible loss is R$ 526,933 (R$ 521,903 as of 31 December 2019). |
(vi) | Infraction notices in which the Brazilian Federal Revenue Service collects IPI tax debts due to disagreement with the tax classification adopted for some products. Judgment of the proceedings is awaited at the administrative level. On 30 June 2020, the total amount under discussion is R$ 296,898 (R$ 218,204 as of 31 December 2019). |
The main civil cases are the following:
i) | Avon was named defendant in several proceedings for personal damages filed in US courts, claiming that certain powder products that Avon sold in the past were contaminated with asbestos. Many such actions involve several co-defendants from a range of different industries, including cosmetics manufacturers and |
F-36
manufacturers of other products that, unlike the Company’s products, were designed to include asbestos. On 30 June 2020, there were 139 individual proceedings pending against the subsidiary. During the six-month period ended 30 June 2020, 11 new proceedings were shelved and 20 others were shelved, settled or otherwise concluded. The amount of our records in this area so far has not been significant, whether individually or jointly. Similar additional cases deriving from the use of the subsidiary’s powder products are reasonably predicted. |
We believe that the claims against us in such cases have no grounds. We are defending ourselves against these claims and to date, the subsidiary has not been sued in any case filed against it and there have been no findings of enforceable liability against the subsidiary. However, the results of testing throughout the country in similar cases filed against other manufacturers of cosmetic powder products vary from direct employment terminations to very large jury-led indemnifications for compensatory and punitive damages. Due to the uncertainties inherent to litigation, we cannot predict the results of all individual cases pending against the subsidiary, and we may only make a reasonable estimate for a small number of individual cases that have progressed to the later stages of court proceedings. For the remaining cases, we supply an aggregate and continuous exposure estimate, which considers the historic results of all cases we have settled so far. Any additions currently recorded in the subsidiary’s balance sheet in relation to these cases are not relevant. Other than those, currently, we may not estimate our reasonably possible or probable losses. However, any adverse results, whether in an individual case or jointly, may be relevant. The future costs to litigate such cases, which we fund when incurred, are unknown, but may be significant, although some costs are covered by insurance.
ii) | On 14 February 2019, an alleged class action complaint of the shareholder (Bevinal v. Avon Products, Inc., et al., No. 19-cv-1420) was filed in the Southern District of New York against the Company and some of its former officers. On 3 June 2019, the court appointed a main plaintiff and a class attorney. The complaint was subsequently changed on 28 June 2019, retitled “In re Avon Products, Inc. Litigation over Securities” on 8 July 2019. On 24 July 2019, the plaintiffs presented a new changed complaint. The changed complaint was submitted on behalf of a new class, supposedly comprised of all purchasers or acquirers of Avon common shares between 21 January 2016 and 1 November 2017, including the latter date. The charge claims violations of Sections 10 (b) and 20 (a) of the 1934 Securities Exchange Act, based on supposedly fake or misleading statements and supposed market manipulation with relation to, among other things, changes made in Avon’s credit terms for Brazilian Representatives. On 26 July 2019, Avon and the individual defendants submitted a motion to dismiss. On 18 November 2019, the court denied this motion. Subsequently, on 16 December 2019, Avon and the individual defendants submitted an answer to the changed complaint. On 14 February 2020, the plaintiffs submitted a motion for class certification. The parties reached a settlement on the solution of this class action. The terms of the settlement include releases from class members of the complaints against the Company and the individual defendants and payment of USD 14.5 million (approximately R$ 79 million). Approximately USD 3 million (R$ 16 million), of the settlement shall be paid by the Company (that represents the remaining franchise under the applicable insurance policies of the Company) and the remainder of the settlement shall be paid by the Company’s insurers. Some documents related to the settlement still have not been finalized and the settlement is subject to court approval. If the settlement is not approved by the court, that is, it is rescinded before it is finalized, the Company will not be able to predict the result of this case. In addition, in this case, it is reasonably possible that the Company will incur in a loss related to this matter, which the Company cannot reasonably estimate. |
22.3 | Contingent assets |
The updated amounts involved in the restitution requests of the PIS and COFINS installments paid with the inclusion of ICMS in their tax bases, not registered until 30 June 2020, amount to R$ 132,653 (R$ 26,933 as of 31 December 2019).
F-37
23. | OTHER LIABILITIES |
Information pertaining to other liabilities was presented in the Company’s 2019 annual financial statements in Note 22.
Consolidated | ||||||||
06/2020 | 12/2019 | |||||||
Post-employment medical assistance plan (a) | 777,228 | 98,792 | ||||||
Carbon credit | 6,386 | 4,519 | ||||||
Exclusivity contract | 4,200 | 5,400 | ||||||
Crer para Ver | 52,427 | 51,543 | ||||||
Deferred revenue from performance obligations with customers | 349,470 | 76,250 | ||||||
Provision for sundry expenses | 275,147 | 156,895 | ||||||
Provision for rentals | 40,363 | 26,568 | ||||||
Provision for apportionment of benefits and partnerships payable | 5,426 | 7,860 | ||||||
Long-term incentive | 286,595 | 3,022 | ||||||
Provision for restructuring | 101,212 | 3,401 | ||||||
Provision for store renovation | 85,469 | 15,997 | ||||||
Other provision | 313,310 | 67,846 | ||||||
Discontinued operations (b) | 94,840 | — | ||||||
Professional fees | 95,782 | — | ||||||
|
|
|
| |||||
Total | 2,487,855 | 518,093 | ||||||
|
|
|
| |||||
Current | 1,322,558 | 396,391 | ||||||
Non-Current | 1,165,297 | 121,702 |
(a) | As of 30 June 2020, there is R$674.514 related to pension plans assumed in the Avon’s acquisition on 3 January 2020 and R$102.714 related to Natura’s pension plan (R$98.792on 31 December 2019). |
(b) | On 17 December 2015, Avon entered into agreements resulting in the splitting of operations in the US, Canada and Puerto Rico. These transactions were terminated on 1 March 2016. From this date, the contingent liabilities prior to this transaction and related to the operations in the US, Canada and Puerto Rico are treated as discontinued operations. During the period ended 30 June 2020, Avon registered R$ 48,723 in administrative expenses pertaining to this provision. |
24. | SHAREHOLDERS’ EQUITY |
Information pertaining to the shareholder’s equity of the Company was presented in the 2019 annual financial statements in Note 23.
24.1 | Capital stock |
As of 30 June 2020, the Company’s capital stock is R$ 6,917,037, composed of 1,251,239,759 registered common shares without par value.
The composition of this capital is set out in the table below:
Date | Description | Number of shares | Value in R$ | |||||||
31/12/2019 | Total paid-up capital stock | 865.659.942 | 1,485,436,464 | |||||||
03/01/2020 | Capital increase | 321,830,266 | 3,397,745,864 | |||||||
15/03/2020 | Issue of new stock for stock option plans and restricted stock | 780,808 | 21,936,005 | |||||||
05/05/2020 to 30/06/2020 | Issue of new stock for stock option plans and restricted stock | 621,653 | 16,811,439 | |||||||
01/06/2020 to 30/06/2020 | Capital increase | 62,347,090 | 1,995,106,880 | |||||||
|
|
|
| |||||||
30/06/2020 | Total paid-up capital stock | 1,251,239,759 | 6,917,036,652 | |||||||
|
|
|
|
On January 3, 2020, 321,830,266 common shares were issued at an average price of 32.24 totaling R$ 3,397,746. On June 30, 62,347,090 common shares were issued at an average price of R$32.00 totaling R $ 1,995,107.
The Extraordinary Shareholders Meeting held on September 17, 2019 unanimously approved an increase in the Company’s capital by R$1,242,165, from R$468,973 to R$1,711,138, through a bonus share issue by capitalizing a portion of the balance in the earnings reserve, in accordance with article 169 of the Brazilian Corporations Law, with the issue of four hundred thirty-two million, five hundred seventy-one thousand, two hundred twenty-eight
F-38
(432,571,228) book-entry, registered common shares with no par value, distributed to the shareholders of the Company as bonus shares in the proportion of one (1) new share for one (1) common share held. Thus, the number of shares increased from 432,571,228 to 865,142,456, all book-entry, registered common shares with no par value. This change in the proportion of Natura Cosméticos common shares changed the comparative information on earnings per share and share-based payments in this Company’s interim financial information.
24.2 | Treasury shares |
On 30 June 2020, the item “Treasury shares” had the following composition:
Number of shares | R$ (in thousands) | Average price per share—R$ | ||||||||||
Balance on 31 December 2019 | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Used | (740,697 | ) | (40,981 | ) | 55.33 | |||||||
|
|
|
|
|
| |||||||
Acquisition | 1,114,460 | 54,936 | 49.29 | |||||||||
|
|
|
|
|
| |||||||
Balance on 30 June 2020 | 373,763 | 13,955 | 37.34 | |||||||||
|
|
|
|
|
|
The minimum and maximum treasury share balance on 30 June 2020 is R$ 29.75 and R$ 49.71, respectively.
24.3 | Capital reserve |
Completion of the Avon acquisition resulted in the issue of Natura &Co shares for the total subscription price of R$ 13,274,894. Of this total, the amount of R$ 3,397,746 was allocated to the capital stock account and the rest, in the amount of R$ 9,877,148, was allocated to the Company’s capital reserve. This share merger was approved at a meeting of the Board of Directors on 3 January 2020.
The capital reserve also decreased due to the allocation of the special reserve to the profit reserve (R$ 147,592), an increase of R$ 26,679, due to the effects of CPC 42/IAS 29—Financial Reporting in Hyperinflationary Economies and decrease of R$ 22,063 regarding the movement of stock option and restricted stock plans.
The capital reserve amounts to R$ 11,037,162 as of 30 June 2020 (R$ 1,302,990 as of 31 December 2019).
24.4 | Profit reserve |
On 30 June 2020, the profit reserve increased R$ 151,384 due to: (i) the effects of “CPC 42/IAS 29—Financial Reporting in Hyperinflationary Economies” applied to the balances up to 30 June 2020, and (ii) R$ 147,592 regarding the reclassification arising from the special reserve.
25. | BUSINESS SEGMENT INFORMATION |
The setup of the Company’s operating segments is based on its Corporate Governance structure, which splits the business for the purposes of decision-making and management analysis.
Since 3 January 2020, as a result of acquiring Avon (Note 4), the Management has the following Corporate Governance structure:
• | Operation Natura &Co Latam – all operations of Natura, Avon, Aesop and TBS located in Brazil and Latin America; |
• | Avon International – all Avon operations, except those located in Brazil and Latin America; |
• | TBS International – all The Body Shop operations, except those located in Brazil and Latin America; and |
• | Aesop International – all Aesop operations, except those located in Brazil and Latin America. |
In addition to the analysis per segment, the Company’s Management also assesses its revenues at several levels, mainly through sales channels: direct sales, operations in the retail market, e-commerce, B2B and franchises. However, segregation by this type of operation is not yet considered significant for disclosures by Management.
Net revenue by segment is as follows in the six-month period ended 30 June 2020:
• | Natura &Co Latam – 56% |
• | Avon International – 26% |
• | TBS International – 13% |
• | Aesop International – 5% |
F-39
The accounting practices for each segment are described in explanatory note 3 of these financial statements of the Company for the year ended 31 December 2019.
The tables below present summarized financial information for the segments and the geographic distribution of commercial operations of the Company as of 30 June 2020, 31 December 2019 and 30 June 2019. In addition, as described above, because of the Avon acquisition in 2020, the Company changed the corporate governance structure, and consequently the segment disclosures. Thus, the comparative figures originally disclosed in the 2019 financial statements are being presented to reflect the current corporate governance structure.
25.1 | Operating segments |
06/2020 | ||||||||||||||||||||||||||||
Reconciliation to net profit (loss) for the period | ||||||||||||||||||||||||||||
Net Income | Performance assessed by the Company | Depreciation and Amortization | Financial income | Financial Expenses | Income tax | Net Profit (Loss) | ||||||||||||||||||||||
Natura &Co Latam | 8,138,082 | 680,802 | (458,872 | ) | 1,749,654 | (1,932,291 | ) | (207,473 | ) | (168,179 | ) | |||||||||||||||||
Avon International | 3,771,535 | 40,361 | (390,836 | ) | 356,290 | (676,915 | ) | (12,223 | ) | (683,323 | ) | |||||||||||||||||
TBS International | 1,872,436 | 278,581 | (356,197 | ) | 43,491 | (75,346 | ) | (57,290 | ) | (166,761 | ) | |||||||||||||||||
Aesop International | 723,121 | 180,574 | (123,813 | ) | 10,403 | (28,729 | ) | (10,018 | ) | 28,416 | ||||||||||||||||||
Corporate expenses | — | (431,830 | ) | — | 65,884 | (8,577 | ) | 147,348 | (227,175 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Consolidated | 14,505,174 | 748,488 | (1,329,718 | ) | 2,225,772 | (2,721,858 | ) | (139,656 | ) | (1,217,022 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/2019 | ||||||||||||||||||||||||||||
Reconciliation to net profit (loss) for the period | ||||||||||||||||||||||||||||
Net Income | Performance assessed by the Company | Depreciation and Amortization | Financial income | Financial Expenses | Income tax | Net Profit (Loss) | ||||||||||||||||||||||
Natura &Co Latam | 4,048,390 | 728,909 | (167,260 | ) | 769,227 | (1,102,304 | ) | (79,148 | ) | 149,425 | ||||||||||||||||||
TBS International | 1,717,823 | 286,527 | (286,141 | ) | 18,140 | (46,057 | ) | 12,983 | (14,548 | ) | ||||||||||||||||||
Aesop International | 552,646 | 118,183 | (83,299 | ) | 4,792 | (13,455 | ) | (7,802 | ) | 18,419 | ||||||||||||||||||
Corporate expenses | — | (127,120 | ) | — | — | — | 43,221 | (83,899 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Consolidated | 6,318,859 | 1,006,499 | (536,700 | ) | 792,159 | (1,161,816 | ) | (30,746 | ) | 69,397 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/2020 | 12/2019 | |||||||||||||||||||||||||||||||
Non-current assets | Total assets | Current liabilities | Non-current liabilities | Non-current assets | Total assets | Current liabilities | Non-current liabilities | |||||||||||||||||||||||||
Natura &Co Latam | 9,204,837 | 17,876,818 | 5,937,239 | 10,281,619 | 4,574,087 | 9,328,858 | 3,116,454 | 8,235,679 | ||||||||||||||||||||||||
Avon International | 25,758,269 | 29,338,889 | 3,415,813 | 12,056,797 | — | — | — | — | ||||||||||||||||||||||||
TBS International | 7,726,417 | 9,828,551 | 1,989,604 | 1,885,255 | 6,146,960 | 7,369,250 | 1,065,447 | 1,477,148 | ||||||||||||||||||||||||
Aesop International | 1,338,875 | 1,954,858 | 418,223 | 730,817 | 1,033,408 | 1,435,830 | 255,616 | 590,917 | ||||||||||||||||||||||||
Corporate balance | — | 2,093,806 | 1,103,010 | 1,082 | — | 3,050,574 | 3,080,906 | — | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Consolidated | 44,028,398 | 61,092,922 | 12,863,889 | 24,955,570 | 11,754,455 | 21,184,512 | 7,518,423 | 10,303,744 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
25.2 | Net income and non-current assets by geographic region |
06/2020 | 06/2019 | |||||||||||||||||||||||||||
Net income | Natura &Co Latam | Avon International | TBS International | Aesop International | Natura &Co Latam | TBS International | Aesop International | |||||||||||||||||||||
Asia | — | 653,102 | 101,024 | 356,245 | — | 137,196 | 225,245 | |||||||||||||||||||||
North America | 1,650,053 | — | 269,200 | 113,706 | 345,507 | 305,852 | 88,129 | |||||||||||||||||||||
Mexico | 1,328,100 | 343,888 | — | — | ||||||||||||||||||||||||
Other | 321,953 | 269,200 | 113,706 | 1,619 | 305,852 | 88,129 | ||||||||||||||||||||||
South America | 6,485,785 | — | — | — | 3,700,224 | — | — | |||||||||||||||||||||
Brazil | 4,533,315 | — | — | — | 2,776,153 | — | — | |||||||||||||||||||||
Argentina | 690,221 | 355,098 | — | — | ||||||||||||||||||||||||
Others | 1,262,249 | — | — | — | 568,973 | — | — | |||||||||||||||||||||
Europe, Middle East and Africa (EMEA) | 2,244 | 3,118,433 | 1,351,971 | 154,393 | 2,659 | 1,157,888 | 100,838 | |||||||||||||||||||||
United Kingdom | — | 371,923 | 1,083,032 | 82,005 | — | 881,543 | 48,801 | |||||||||||||||||||||
Others | 2,244 | 2,746,510 | 268,939 | 72,388 | 2,659 | 276,345 | 52,037 | |||||||||||||||||||||
Oceania | — | — | 150,241 | 98,777 | — | 116,887 | 138,434 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Consolidated | 8,138,082 | 3,771,535 | 1,872,436 | 723,121 | 4,048,390 | 1,717,823 | 552,646 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/2020 | 12/2019 | |||||||||||||||||||||||||||
Non-current assets | Natura &Co Latam | Avon International | TBS International | Aesop International | Natura &Co Latam | TBS International | Aesop International | |||||||||||||||||||||
Asia | — | 245,854 | 170,999 | 298,185 | — | 140,760 | 227,670 | |||||||||||||||||||||
North America | 699,318 | — | 626,188 | 365,465 | 185,646 | 523,351 | 272,676 | |||||||||||||||||||||
Mexico | 602,043 | 183,250 | ||||||||||||||||||||||||||
Others | 97,275 | 626,188 | 365,465 | 2,396 | 523,351 | 272,676 | ||||||||||||||||||||||
South America | 8,495,351 | — | — | — | 4,378,676 | — | — | |||||||||||||||||||||
Brazil | 6,985,784 | — | — | — | 4,197,259 | — | — | |||||||||||||||||||||
Argentina | 355,420 | 63,050 | ||||||||||||||||||||||||||
Others | 1,154,147 | — | — | — | 118,367 | — | — | |||||||||||||||||||||
EMEA | 10,168 | 25,512,415 | 6,452,367 | 234,424 | 9,765 | 5,105,903 | 190,442 | |||||||||||||||||||||
United Kingdom | — | 23,781,822 | 5,780,380 | 97,827 | — | 4,602,066 | 76,073 | |||||||||||||||||||||
Others | 10,168 | 1,730,593 | 671,987 | 136,597 | 9,765 | 503,837 | 114,369 | |||||||||||||||||||||
Oceania | — | — | 476,863 | 440,801 | — | 376,946 | 342,620 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Consolidated | 9,204,837 | 25,758,269 | 7,726,417 | 1,338,875 | 4,574,087 | 6,146,960 | 1,033,408 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No individual or aggregate customer (economic group) represents more than 10% of the Company’s net income.
F-41
25.3 | Reconciliation for recast segments |
Because of the new segment information as a result of the Avon acquisition in 2020, described above, the changes in the recast segment information previously disclosed is according to the following:
Presented in the financial statement for the year ended 31 December 2019 | ||||||||||||||||
31 December 2019 | Non-current assets | Total assets | Current liabilities | Non-current liabilities | ||||||||||||
Natura Brasil (a) | 4,181,261 | 7,618,551 | 2,207,944 | 8,119,890 | ||||||||||||
Natura LATAM (a) | 349,698 | 1,592,912 | 774,521 | 105,423 | ||||||||||||
Natura others (a) | 12,161 | 18,126 | 8,591 | 1,558 | ||||||||||||
Aesop (b) | 1,035,432 | 1,442,214 | 274,539 | 592,531 | ||||||||||||
The Body Shop (c) | 6,175,903 | 7,462,135 | 1,171,922 | 1,484,342 | ||||||||||||
Corporate | — | 3,050,574 | 3,080,906 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Consolidated | 11,754,455 | 21,184,512 | 7,518,423 | 10,303,744 | ||||||||||||
|
|
|
|
|
|
|
|
(a) | Amounts included in the new segment information Natura &Co Latam. |
(b) | Amounts related to the Aesop’s operations located in Brazil and Latins America, representing non-current asset (R$ 2.024), total assets (R$ 6.384), current liabilities (R$ 18.923) and non current liabilities (R$1.614) included in the recast segment Natura &Co Latam. |
(c) | Amount related to The Body Shop’s operations located in Brazil and Latins America, representing non-current asset (R$ 28.943), total assets (R$92.885), current liabilities (R$106.475) and non current liabilities (R$7.193) included in the recast segment Natura &Co Latam. |
Presented in the financial statement for the period ended 30 June 2019 | ||||||||||||||||||||||||||||
30 June 2019 | Net revenue | Performance assessed by the Company | Depreciation and amortization | Financial income | Financial expenses | Income tax | Net income (loss) | |||||||||||||||||||||
Natura Brasil (a) | 2,750,169 | 588,399 | (130,112 | ) | 749,538 | (1,071,733 | ) | (54,149 | ) | 81,943 | ||||||||||||||||||
Natura LATAM (a) | 1,253,535 | 162,932 | (28,027 | ) | 19,689 | (27,504 | ) | (24,900 | ) | 102,190 | ||||||||||||||||||
Natura outros (a) | 4,292 | (15,780 | ) | (1,093 | ) | — | (121 | ) | — | (16,994 | ) | |||||||||||||||||
Aesop (b) | 554,090 | 117,590 | (83,761 | ) | 4,792 | (13,520 | ) | (7,802 | ) | 17,299 | ||||||||||||||||||
The Body Shop (c) | 1,756,773 | 280,479 | (293,707 | ) | 18,140 | (48,938 | ) | 12,884 | (31,142 | ) | ||||||||||||||||||
Corporate | — | (127,120 | ) | — | — | — | 43,221 | (83,899 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Consolidated | 6,318,859 | 1,006,500 | (536,700 | ) | 792,159 | (1,161,816 | ) | (30,746 | ) | 69,397 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Amounts included in the new segment information Natura &Co Latam. |
(b) | Amounts related to the Aesop’s operations located in Brazil and Latins America, representing net revenue (R$ 1.444), performance assessed by Company (R$ 593), depreciation and amortization (R$ 462), financial expense (R$65), and net income (loss) (R$1.120) included in the recast segment Natura &Co Latam. |
(c) | Amount related to The Body Shop’s operations located in Brazil and Latins America, representing net revenue (R$ 38.950), performance assessed by Company (R$ 6.048), depreciation and amortization (R$ 7.566), financial expense (R$2.881), income tax (R$99) and net income (loss) (R$16.594) included in the recast segment Natura &Co Latam. |
F-42
26. | NET REVENUE |
Consolidated | ||||||||
Gross income: | 06/2020 | 06/2019 | ||||||
Domestic market | 6,317,607 | 3,927,472 | ||||||
Foreign market | 12,274,126 | 4,616,739 | ||||||
Other sales | 242,336 | 26,306 | ||||||
18,834,069 | 8,570,517 | |||||||
Returns and cancellations (a) | (270,994 | ) | (31,947 | ) | ||||
Commercial discounts and rebates (a) | (409,895 | ) | (507,871 | ) | ||||
Taxes on sales (a) | (3,648,006 | ) | (1,711,841 | ) | ||||
|
|
|
| |||||
(4,328,895 | ) | (2,251,658 | ) | |||||
|
|
|
| |||||
Net revenue | 14,505,174 | 6,318,859 | ||||||
|
|
|
|
Substantially, the income from brands Natura and Avon refers to direct sales, whereas the income from the brands The Body Shop and Aesop refers to retail sales.
(a) | The comparative amounts for the period ended 30 June 2019, presented in the interim financial statement 30 June 2020, previously issued in 13 August 2020, were reclassified to ensure consistency with the information originally disclosed in the interim financial statement of 30 June 2019. The reclassifications were made between lines with no modification in the subtotals and totals. |
27. | OPERATING EXPENSES AND COST OF PRODUCTS SOLD |
Breakdown by function | Controlling Company | Consolidated | ||||||||||||||
06/2020 | 06/2019 | 06/2020 | 06/2019 | |||||||||||||
Cost of products sold | — | 5,254,229 | 1,773,727 | |||||||||||||
Expenses with sales, marketing and logistics | — | 6,448,997 | 2,875,375 | |||||||||||||
Administrative, R&D, IT and Project Expenses | 23,970 | — | 2,603,635 | 1,104,252 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 23,970 | — | 14,306,861 | 5,753,354 | ||||||||||||
|
|
|
|
|
|
|
|
Breakdown by nature | Controlling Company | Consolidated | ||||||||||||||
06/2020 | 06/2019 | 06/2020 | 06/2019 | |||||||||||||
Cost of products sold | — | 5,254,229 | 1,773,727 | |||||||||||||
|
|
|
|
|
| |||||||||||
Raw material/packaging material/resale | — | 4,365,991 | 1,485,379 | |||||||||||||
Personnel expenses (explanatory note 28) | — | 285,508 | 145,572 | |||||||||||||
Depreciation and amortization | — | 98,639 | 28,028 | |||||||||||||
Others | — | 504,091 | 114,748 | |||||||||||||
|
|
|
|
|
| |||||||||||
Expenses with sales, marketing and logistics | — | 6,448,997 | 2,875,375 | |||||||||||||
|
|
|
|
|
| |||||||||||
Logistics costs | — | 1,063,015 | 344,782 | |||||||||||||
Personnel expenses (explanatory note 28) | — | 1,839,299 | 805,518 | |||||||||||||
Marketing, sales force and other sale expenses | — | 2,884,442 | 1,367,657 | |||||||||||||
Depreciation and amortization | — | 662,241 | 357,418 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Administrative, R&D, IT and Project Expenses | 23,970 | — | 2,603,635 | 1,104,252 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Expenses in innovation | — | 115,977 | 33,277 | |||||||||||||
Personnel expenses (explanatory note 28) | 20,908 | — | 1,031,894 | 585,142 | ||||||||||||
Other administrative expenses | 3,062 | — | 886,926 | 334,579 | ||||||||||||
Depreciation and amortization | — | 568,838 | 151,254 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 23,970 | — | 14,306,861 | 5,753,354 | ||||||||||||
|
|
|
|
|
|
|
|
28. | EMPLOYEE BENEFITS |
Information pertaining to employee benefits was presented in the Company’s 2019 annual financial statements in Note 27.
Controlling Company | Consolidated | |||||||||||||||
06/2020 | 06/2019 | 06/2020 | 06/2019 | |||||||||||||
Payroll, profit sharing and bonuses | 11,629 | — | 2,312,050 | 1,146,868 | ||||||||||||
Supplementary Pension Plan | — | — | 89,581 | 43,605 | ||||||||||||
Share-based payments (note 32.3) | 4,131 | — | 76,387 | 26,903 | ||||||||||||
Charges on restricted stock (note 32.1) | 2,381 | — | 11,475 | 15,670 | ||||||||||||
Medical care, food, and other benefits | — | — | 291,956 | 120,311 | ||||||||||||
Charges, taxes and social contributions | 74 | — | 284,248 | 98,699 | ||||||||||||
INSS - Brazilian Social Security Institute | 2,693 | — | 91,004 | 84,176 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 20,908 | — | 3,156,701 | 1,536,232 | ||||||||||||
|
|
|
|
|
|
|
|
F-43
28.1 | Share-based payments |
Options granted in 2020
On 27 March 2020, the Company’s Board of Directors approved the new long-term stock-based incentive plans of the Company named the “Co-investment Plan” and “Long-term Incentive Plan” for 2020.
The “Co-Investment Plan” consists of the grant of common shares of the Company to a group of employees that may invest part of their profit participation (up to 50%) in the purchase of shares so that the Company will assign the same number of shares for the amount invested by the beneficiary. The rights of the participants regarding the “Co-Investment Plan” shall only be fully acquired, to the extent that the participant remains continuously linked as an employee of the Company and its subsidiaries up to the third anniversary of the date of the grant.
The “Long-Term Incentive Plan” consists of granting common shares of the Company to a group of employees and, unless otherwise determined by the Company’s Board of Directors, participants’ rights regarding the Performance Shares shall only be fully acquired, to the extent that: (i) the participant remains an employee of the Company and its subsidiaries until the 3rd anniversary of the grant date; and (ii) certain performance conditions are met. For certain participants, there is a special condition for item (i) above, in which 50% of the Performance Shares granted will be acquired on the 3rd anniversary of the grant date and the remaining 50% on the 4th anniversary of the grant date.
The variations in the number of outstanding stock options and their related weighted-average prices, as well as variations in the number of restricted stock, are as follows:
Stock Option Plan and Strategy Acceleration Plan | ||||||||
Average exercise price per option - R$ | Options (thousands) | |||||||
Balance on 31 December 2019 | 16.51 | 17,568 | ||||||
Related to Avon subsidiary – Business Combination (Note 4) | 0.01 | 1,994 | ||||||
Expired | 21.35 | (72 | ) | |||||
Exercised | 26.35 | (727 | ) | |||||
|
|
|
| |||||
Balance on 30 June 2020 | 16.29 | 18,763 | ||||||
|
|
|
|
Restricted stock (thousands) | Performance shares (thousands) | |||||||
Balance on 31 December 2019 | 3,092 | 688 | ||||||
Granted | 862 | — | ||||||
Cancelled | (22 | ) | — | |||||
Exercised | (1,046 | ) | (40 | ) | ||||
|
|
|
| |||||
Balance on 30 June 2020 | 2,886 | 648 | ||||||
|
|
|
|
Out of the 18,763 thousand options existing as of 30 June 2020 (17,568 thousand options as of 31 December 2019) 2,312 thousand options (604 thousand options as of 31 December 2019) can be exercised.
The expense related to the fair value of the options and restricted stock, including the charges related to restricted shares, recognized in the six-month period ended 30 June 2020, according to the period elapsed for the acquisition of the right to exercise of options and restricted shares, was R$ 81,350 in the consolidated.
The options to purchase outstanding stock and restricted stock at the end of the period have the following maturity dates and exercise prices:
F-44
As of 30 June 2020 - Stock option plan
Grant date | Conditions for acquisition of a right as from the grant date | Exercise price (R$) | Fair value (R$) | Existing options (thousands)¹ | Remaining contractual life (years) | Exercisable options (thousands) | ||||||||||||||
18 March 2013 | 4 years of service | 37.60 | 6.05 | 386 | 0.2 | 386 | ||||||||||||||
17 March 2014 | 4 years of service | 25.16 | 4.27 | 102 | 1.7 | 102 | ||||||||||||||
16 March 2015 | 2 to 4 years of service | 13.60 | 4.85 to 5.29 | 210 | 2.7 | 210 | ||||||||||||||
28 July 2015 (Strategy acceleration) | 4 to 5 years of service | 12.90 | 6.20 to 6.23 | 1,296 | 3.1 | 196 | ||||||||||||||
15 March 2016 | 2 to 4 years of service | 12.84 | 7.16 to 7.43 | 286 | 3.8 | 284 | ||||||||||||||
11 July 2016 (Strategy acceleration) | 4 to 5 years of service | 11.41 | 6.84 to 6.89 | 2,640 | 4.1 | — | ||||||||||||||
10 March 2017 | 2 to 4 years of service | 12.59 | 6.65 to 6.68 | 696 | 4.8 | 372 | ||||||||||||||
10 March 2017 (Strategy acceleration) | 4 to 5 years of service | 12.59 | 6.87 to 6.89 | 2,210 | 4.8 | — | ||||||||||||||
12 March 2018 | 2 to 4 years of service | 16.96 | 7.96 to 8.21 | 1,998 | 5.8 | 642 | ||||||||||||||
12 March 2018 (Strategy acceleration) | 3 to 5 years of service | | 12.16 to 16.96 | | 8.21 to 9.67 | 3,800 | 5.8 | — | ||||||||||||
12 April 2019 | 3 to 4 years of service | 23.54 | 11.71 to 11.82 | 1,636 | 6.8 | — | ||||||||||||||
12 April 2019 (Strategy acceleration) | 4 to 5 years of service | 23.54 | 11.51 to 11.71 | 1,900 | 6.8 | — | ||||||||||||||
From 31 December 2020 to 9 May 2017 | 1 year of service | 0.01 | 19.80 | 65 | — | 65 | ||||||||||||||
From 14 March 2018 to 17 December 2018 | 1 to 3 years of service | 0.01 | 19.70 | 334 | 1.2 | 55 | ||||||||||||||
From 13 March 2019 to 16 December 2019 | 1 to 3 years of service | 0.01 | 19.58 | 1,204 | | 0.4 a 2.2 | | — | ||||||||||||
|
|
|
| |||||||||||||||||
18,763 | 2,312 | |||||||||||||||||||
|
|
|
|
As of 30 June 2020 - Restricted stock
Grant date | Conditions for acquisition of a right as from the grant date | Existing shares (thousands)2 | Fair value (R$) | Remaining contractual life (years) | ||||||||||||
10 March 2017 | 2 to 4 years of service | 206 | 11.69 to 12.51 | 0.7 | ||||||||||||
12 March 2018 – Plan I | 2 to 4 years of service | 470 | 15.18 to 15.9 | 0.7 | ||||||||||||
12 March 2018 – Plan II | 0.4 to 2.4 years of service | 90 | 15.76 to 16.49 | 0.1 | ||||||||||||
12 March 2018 – Plan III | 1 to 3 years of service | 74 | 15.54 to 16.27 | 0.8 | ||||||||||||
12 March 2018 – Extraordinary Plan I | 1 to 3 years of service | 4 | 15.54 to 16.28 | 0.7 | ||||||||||||
13 August 2018 – Extraordinary Plan VI | 1.6 to 3.6 years of service | 50 | 12.24 to 13.13 | 0.7 to 1.7 | ||||||||||||
12 April 2019 – Plan I | 2 to 4 years of service | 814 | 21.62 to 22.53 | 0.7 to 2.8 | ||||||||||||
12 April 2019 – Plan II | 1 to 3 years of service | 312 | 22.14 to 22.85 | 0.7 to 1.7 | ||||||||||||
27 March 2020 – Co-Investment Plan | 1 to 3 years of service | 866 | 29.00 | 3 | ||||||||||||
|
| |||||||||||||||
2,886 | ||||||||||||||||
|
|
As of 30 June 2020 – Performance shares
Grant date | Right acquisition conditions | Existing shares (thousands) | Fair value (R$) | Remaining | Shares not (thousands) | |||||
21 May 2019 | From 3 to 4 years of service as from the grant date and if the performance conditions are met | 648 | 23.10 to 45.70 | 3.0 to 4.0 | — | |||||
|
| |||||||||
648 | — | |||||||||
|
|
F-45
As of 30 June 2020, the market price was R$ 39.90 (R$ 38.67 as of 31 December 2019) per share.
29. | FINANCIAL INCOME (EXPENSES) |
Controlling Company | Consolidated | |||||||||||||||
06/2020 | 06/2019 | 06/2020 | 06/2019 | |||||||||||||
FINANCIAL INCOME: | ||||||||||||||||
Interest on financial applications | 13,450 | — | 74,306 | 37,445 | ||||||||||||
Earnings on monetary and exchange rate variations (a) | — | — | 394,807 | 410,393 | ||||||||||||
Earnings on swap and forward transactions (c) | — | — | 1,634,968 | 318,873 | ||||||||||||
Earnings on market value adjustment of swap and forward derivatives | — | — | 3,020 | 1,003 | ||||||||||||
Reversal of the monetary adjustment of the provision for tax risks and tax obligations | — | — | 42,378 | — | ||||||||||||
Debt structuring revenues for acquisition of Avon | 52,434 | — | 52,434 | — | ||||||||||||
Other financial income | — | — | 23,809 | 24,445 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
65,884 | — | 2,225,722 | 792,159 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
FINANCIAL EXPENSES: | ||||||||||||||||
Interest on financing | (4,757 | ) | — | (539,671 | ) | (257,764 | ) | |||||||||
Interest on lease | — | — | (119,398 | ) | (64,137 | ) | ||||||||||
Losses on monetary and exchange rate variations (b) | — | — | (1,529,458 | ) | (311,015 | ) | ||||||||||
Losses on swap and forward transactions (d) | — | — | (431,567 | ) | (455,352 | ) | ||||||||||
Losses on market value adjustment of swap and forward derivatives | — | — | (5,170 | ) | (786 | ) | ||||||||||
Adjustment of provision for tax, civil and labor risks and tax liabilities | — | — | (6,410 | ) | (8,080 | ) | ||||||||||
Appropriation of funding costs (Debentures/Notes) | — | — | (5,653 | ) | (6,452 | ) | ||||||||||
Pension plan interest | — | — | (15,512 | ) | — | |||||||||||
Adjustment for hyperinflationary economy (Argentina) | — | — | (5,556 | ) | (5,864 | ) | ||||||||||
Debt structuring expenses for acquisition of Avon | (29,360 | ) | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other financial expenses | (3,821 | ) | — | (63,463 | ) | (23,006 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
(8,578 | ) | — | (2,721,858 | ) | (1,161,816 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net financial income (expenses) | 57,306 | — | (496,136 | ) | (369,657 | ) | ||||||||||
|
|
|
|
|
|
|
|
The objective of the breakdowns below is to explain more clearly the foreign exchange hedging transactions contracted by the Company and the related balancing items in the income statement shown in the previous table:
Controlling Company | Consolidated | |||||||||||||||
06/2020 | 06/2019 | 06/2020 | 06/2019 | |||||||||||||
(a) Earnings on monetary and exchange rate variations | — | — | 394,807 | 410,393 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Earnings on exchange rate variation on borrowings | — | — | (393 | ) | 313,365 | |||||||||||
Exchange rate variation on imports | — | — | 15,746 | 6,541 | ||||||||||||
Exchange rate variation on export receivables | — | — | 46,580 | 7,322 | ||||||||||||
Exchange rate variation on accounts payable to subsidiaries abroad | — | — | 183,468 | 83,165 | ||||||||||||
Exchange variations of bank accounts in foreign currency | — | — | 149,406 | — | ||||||||||||
(b) Losses on monetary and exchange rate variations | — | — | (1,529,458 | ) | (311,015 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Losses on exchange rate variation on borrowings | — | (1,089,680 | ) | (228,287 | ) | |||||||||||
Exchange rate variation on imports | — | (43,774 | ) | (9,791 | ) | |||||||||||
Exchange rate variation on export receivables | — | (7,901 | ) | (8,483 | ) | |||||||||||
Exchange rate variation on accounts payable to subsidiaries abroad | — | (192,414 | ) | (64,220 | ) | |||||||||||
Monetary variations on financing | — | (195,689 | ) | (234 | ) | |||||||||||
(c) Earnings on swap and forward transactions | — | 1,634,968 | 318,873 | |||||||||||||
|
|
|
|
|
| |||||||||||
Income from swap exchange coupons | — | 112,090 | 86,811 | |||||||||||||
Earnings from exchange variations on swap instruments | — | 1,522,878 | 232,062 | |||||||||||||
(d) Losses on swap and forward transactions | — | (431.567 | ) | (455,352 | ) | |||||||||||
|
|
|
|
|
| |||||||||||
Losses on exchange rate variation on swap instruments | — | (5,892 | ) | (314,136 | ) | |||||||||||
Financial costs of swap instruments | — | (425,585 | ) | (141,216 | ) |
F-46
30. | OTHER OPERATING INCOME (EXPENSES), NET |
Information pertaining to other operating income (expenses) was presented in the Company’s 2019 annual financial statements in Note 29.
Controlling Company | Consolidated | |||||||||||||||
06/2020 | 06/2019 | 06/2020 | 06/2019 | |||||||||||||
Other operating income, net | ||||||||||||||||
Result of write-off of property, plant and equipment | — | — | 8,620 | 142 | ||||||||||||
ICMS-ST | — | — | 14,345 | 39,722 | ||||||||||||
Income from the sale of clients’ portfolio | — | — | — | 10,125 | ||||||||||||
Tax credits | — | — | 101,473 | 96,062 | ||||||||||||
Other operating income | — | — | 7,764 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other operating income | — | — | 132,202 | 146,051 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other operating expenses, net | ||||||||||||||||
Crer para Ver | — | — | (19,720 | ) | (16,771 | ) | ||||||||||
Expenses from the sale of clients’ portfolio | — | — | (2,967 | ) | — | |||||||||||
Expenses related to the acquisition of Avon(a) | (166,416 | ) | — | (304,057 | ) | (67,497 | ) | |||||||||
Transformation Plan | — | — | (79,558 | ) | (26,374 | ) | ||||||||||
Tax contingencies | — | — | (3,774 | ) | (3,926 | ) | ||||||||||
Other operating expenses | (11,432 | ) | — | — | (9,151 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other operating expenses | (177,848 | ) | — | (410,076 | ) | (123,719 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Other operating income (expenses), net | (177,848 | ) | — | (277,874 | ) | 22,332 | ||||||||||
|
|
|
|
|
|
|
|
(a) | Related to expenses associated with the Avon acquisition process, which include: financial structuring expenses (R$ 115,696), legal expenses (R$ 17,281), regulatory expenses (R$ 18,030) and executive plans (R$ 152,909). |
31. | TRANSACTIONS WITH RELATED PARTIES |
Information pertaining to transactions with related parties was presented in the Company’s 2019 annual financial statements in Note 31.
31.1 | The balances receivable and payable per transaction with related parties are set out below: |
Controlling Company | ||||||||
06/2020 | 12/2019 | |||||||
Current Assets: | ||||||||
Avon Products, Inc. (a) | 501,074 | — | ||||||
Natura Cosméticos S.A. – Argentina (b) | 1,798 | — | ||||||
Natura Cosméticos S.A. – Mexico (b) | 527 | — | ||||||
Natura Cosméticos S.A. – Peru (b) | 454 | — | ||||||
Natura Cosméticos Ltda. – Colombia (b) | 338 | — | ||||||
Natura Cosméticos Ltda – Chile (b) | 290 | �� | — | |||||
The Body Shop International | 2,395 | |||||||
|
|
|
| |||||
Total Current Assets (*) | 506,876 | — | ||||||
|
|
|
| |||||
Current Liabilities: | ||||||||
Natura Cosméticos S.A. – Brazil (a) | 330 | — | ||||||
|
|
|
| |||||
Total current liabilities | 330 | — | ||||||
|
|
|
|
(a) | Pertains to the allocation of expenses related to the merger process. |
(b) | Pertains to the allocation of expenses related to the stock option and restricted stock plans. |
In the period ended 30 June 2020, Natura &Co reimbursed the amount of R$ 147,486 related to the transaction costs of the Avon acquisition paid by its controlled company Natura Cosméticos. This reimbursement impacted the result under “Other income (expenses)”.
The Natura Institute holds shares in the Essential Investment Fund, and on 30 June 2020 its balance was R$ 3,395 (R$ 3,766 as of 31 December 2019).
On 5 June 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 lease of processing, storage and distribution of merchandise (HUB) in the city of Itupeva/SP. In 2019, Bres Itupeva granted its credits to BRC Securitizadora S/A, to which Natura makes monthly payments. Mr. Antônio Luiz da Cunha Seabra, Mr. Guilherme Peirão Leal and Mr. Pedro Luiz Barreiros Passos, members of the group of controlling shareholders of Natura Cosméticos S.A., indirectly hold a controlling interest in Bres Itupeva. The amount involved in the registered transaction is recorded under “Right of Use” of Buildings in the amount of R$ 41,809 (R$ 44,244 under “Buildings” of Property, Plant and Equipment as of 31 December 2019).
In the period ended 30 June 2020, the Company and its subsidiaries transferred to the Natura Institute, in the form of a donation associated with maintenance, the amount of R$ 692 corresponding to 0.5% of net income for the prior fiscal year, and a donation associated with the net sales of products of the Natura Crer Para Ver line in the amount of R$ 21,000 (R$ 12,500 as of 30 June 2019).
F-47
31.2 | Compensation of the Management’s key personnel |
The total compensation of the key personnel of the Company’s Management is as follows:
06/2020 | 06/2019 | |||||||||||||||||||||||
Compensation | Compensation | |||||||||||||||||||||||
Fixed | Variable | Total | Fixed | Variable | Total | |||||||||||||||||||
(a) | (b) | (a) | (b) | |||||||||||||||||||||
Board of Directors | 7,591 | 20,619 | 28,210 | 10,230 | 15,782 | 26,012 | ||||||||||||||||||
Executive Office | 22,661 | 39,574 | 62,235 | 19,963 | 30,153 | 50,116 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
30,252 | 60,193 | 90,445 | 30,193 | 45,935 | 76,128 |
a) | The item “Executive Office” includes the amount of R$ 510 pertaining to the amortization of the six-month period ended 30 June 2020 (R$ 29 in the six-month period ended 30 June 2019), of the Confidentiality and Non-Compete Agreement (“Agreement”). |
b) | This refers to profit sharing, the Restricted Stock Plan and Strategy Acceleration Program, including charges, as applicable, to be determined in the period. The amounts include additions to and/or reversals of provisions made in the previous year, due to final assessment of the targets established for statutory and non-statutory board members and officers in relation to profit sharing. |
31.2.1 | Share-based payments |
Breakdown of the compensation of the Company’s executives:
Grant of options | ||||||||||||||||||||||||
06/2020 | 06/2019 | |||||||||||||||||||||||
Balance of the Options (quantity)1 (a) | Average fair value of the options1 -R$ | Average exercise price1 - R$ (b) | Balance of the Options (quantity)1 (a) | Average fair value of the options1 -R$ | Average exercise price1 - R$ (b) | |||||||||||||||||||
Executive Office | 13,723,236 | 8.39 | 16.29 | 14,203,364 | 8.24 | 16.43 |
Restricted stock | ||||||||||||||||
06/2020 | 06/2019 | |||||||||||||||
Balance of the shares (quantity)2 (a) | Average fair value2 - R$ | Balance of the shares (quantity)2 (a) | Average fair value2 - R$ | |||||||||||||
Executive Office | 1,564,143 | �� | 25.15 | 1,069,642 | 19.05 |
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 17 September 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 Shareholders’ Meeting held on 17 September 2019. |
(a) | This refers to the balance of the vested options and restricted stock and non-vested options and restricted stock, not exercised, at the balance sheet dates. |
(b) | This refers to the weighted average exercise price of the option at the time of the grant plans, adjusted for inflation based on the Extended Consumer Price Index (IPCA) until the balance sheet dates. The new Stock Option Program implemented in 2015 includes no monetary adjustment. |
32. | COMMITMENTS |
32.1 | Contracts related to supply of inputs |
Subsidiary Indústria e Comércio de Cosméticos Natura Ltda. has commitments arising from electric power supply agreements, with effective physical delivery, for its manufacturing activities, as described below:
• | Agreements that started in 2018 and are effective up to 2020, with the value of Megawatts/h between R$ 265 and R$ 363. |
• | Agreements that started in 2019 and are effective up to 2022, with the value of Megawatts/h between R$ 155 and R$ 305. |
F-48
• | Agreements that started in 2020 and are effective up to 2022, with the value of Megawatts/h between R$ 204 and R$ 238. |
The amounts are shown based on electric power consumption estimates in accordance with the contractual period, the prices of which are based on volumes, also estimated, resulting from the subsidiary’s continuous operations.
The total minimum supply payments, measured at nominal value, according to the contract, are:
06/2020 | 12/2019 | |||||||
Up to one year | 10,206 | 17,918 | ||||||
One to five years | 2,552,017 | 13,160 | ||||||
|
|
|
| |||||
Total | 2,562,223 | 31,078 | ||||||
|
|
|
|
33. | INSURANCE COVERAGE |
The Company and its subsidiaries adopt an insurance policy that mainly considers risk concentration and its relevance, taking into consideration the nature of their activities and the opinion of their insurance advisors. As of 30 June 2020, insurance coverage is as follows:
Item | Type of coverage | Amount insured | ||||||||
06/2020 | 12/2019 | |||||||||
Industrial complex and administrative sites | Any material damage to buildings, facilities, inventories, and machinery and equipment | 5,511,760 | 2,322,801 | |||||||
Vehicles | Fire, theft and collision for 347 vehicles (818 in 2019) | 259,004 | 212,027 | |||||||
Loss of profits | Loss of profits due to material damage to facilities, buildings and production machinery and equipment | 1,582,000 | 1,582,000 | |||||||
Transport | Damage to products in transit. | 97,086 | 32,309 | |||||||
Civil liability | Protection against errors or complaints in the exercise of professional activity that affect third parties | 1,392,756 | 532,510 | |||||||
Environmental liability | Protection against environmental accidents that may result in environmental lawsuits | 30,000 | 30,000 |
34. | ADDITIONAL INFORMATION TO THE CASH FLOW STATEMENTS |
The following table presents additional information on transactions related to the cash flow statement:
Controlling Company | Consolidated | |||||||||||||||
06/2020 | 06/2019 | 06/2020 | 06/2019 | |||||||||||||
Non-cash items: | ||||||||||||||||
Hedge accounting, net of tax effects | — | 153,114 | 105,997 | |||||||||||||
Net effect of the additions to the property, plant and equipment/intangible assets still not paid | — | 46,778 | 31,638 | |||||||||||||
Consideration per acquisition of the subsidiary* | 13,366 | — | — |
* | in millions of Reais |
35. | SUBSEQUENT EVENTS |
Entity acquisition
At 30 June 2020 The Body Shop International Limited signed a purchase and sale agreement to acquire Aeon Forest Co., Ltd for the amount of R$133.275 (¥2,623,000). Until the date of this financial statement issuance, The Body Shop have not acquired control over the purchased entity, which will occur after the issuance of this financial statement.
Resource remittance to subsidiary
On 2 July 2020, the Company remitted to its subsidiary Natura &Co International S.à r.l. the amount of R$ 252,334 (USD47,000), aligned with the purpose of the subsidiary, which is raise and borrow funds by the Company to other consolidated companies (Note 2.3).
F-49