Independent auditor s report on financial statements

Transcription

1 (A free translation from Portuguese into English of Financial Statements prepared in Brazilian currency in accordance with accounting practices adopted in Brazil, and of Consolidated Financial Statements prepared in Brazilian currency in accordance with International Financial Reporting Standards (IFRS), issued by International Accounting Standards Board IASB and accounting practices adopted in Brazil) Independent auditor s report on financial statements The Board of Directors and Shareholders Natura Cosméticos S.A. São Paulo - SP Introduction We have audited the accompanying individual and consolidated balance sheet of Natura Cosméticos S. A. (Company) as of December 31, 2013, and the related consolidated statements of income, of comprehensive income, shareholders' equity, and cash flows for the year then ended, including the summary of main accounting practices and explanatory notes. Management's responsibility for the financial statements Management is responsible for the preparation and fair presentation of the individual financial statements in accordance with accounting practices adopted in Brazil, and of the consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board IASB, and in accordance with accounting practices adopted in Brazil, and for such internal control as management determines is necessary to enable the preparation of these financial statements that are free from material misstatement, whether due to fraud or error. Independent Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit, which was conducted in accordance with Brazilian and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement in the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the preparation and fair presentation of the Company s financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal controls. An audit also includes evaluating the appropriateness of accounting practices used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion on the individual financial statements In our opinion, the individual financial statements referred to above present fairly, in all material respects, the financial position of Natura Cosméticos S.A. as of December 31, 2013, and the

2 performance of its operations and its cash flows for the year then ended, in accordance with the accounting practices adopted in Brazil. Opinion on the consolidated financial statements In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Natura Cosméticos S.A. as of December 31, 2013, and the consolidated performance of its operations and its consolidated cash flows for the year then ended, in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board IASB and the accounting practices adopted in Brazil. Emphasis of matter Measurement of investments in subsidiaries, associates and joint ventures by the equity method As described in Note 2.1., the individual financial statements were prepared in accordance with accounting practices adopted in Brazil. In the case of Natura Cosméticos S.A., these accounting practices differ from the IFRS, applicable to the separate financial statements, only with respect to the measurement of investments in subsidiaries, associates and joint ventures by the equity method of accounting, which, for purposes of IFRS, would be measured at cost or fair value. Our opinion is not qualified in respect of this matter. Restatement of corresponding amounts for the year ended December 31, 2012 As mentioned in Note 2.29, as a result of the change in accounting policy adopted by the Company in 2013, the corresponding amounts for the year ended December 31, 2012, presented for comparison purposes, were adjusted and are being restated as provided for in NBC TG23, or in the Technical Pronouncements CPC 23 Accounting Practices, Changes in Accounting Estimates and Errors. Our opinion is not qualified in respect of this matter. Other matters Statements of value added We have also audited the individual and consolidated statement of value added (SVA) for the year ended December 31, 2013, prepared under the responsibility of the Company s management, the presentation of which is required by the Brazilian Corporation Law for publicly-held companies, and as supplementary information under IFRS, whereby no statement of value added presentation is required. These statements have been subject to the same auditing procedures previously described and, in our opinion, are presented fairly, in all material respects, in relation to the overall financial statements. São Paulo, February ERNST & YOUNG Auditores Independentes S.S. CRC-2SP015199/O-6 Drayton Teixeira de Melo Accountant CRC-1SP236947/O-3 Alessandra Aur Raso Accountant CRC-1SP248878/O-7

3 NATURA COSMÉTICOS S.A. 'BALANCE SHEETS AS OF DECEMBER 31, 2013 AND DECEMBER 31, 2012 AND JANUARY 1, 2012 (In thousands of Brazilian reais - R$) Company (BR GAAP) Consolidated (BR GAAP and IFRS) Company ( BR GAAP) Consolidated (BR GAAP and IFRS) ASSETS Note /01/ /01/2012 LIABILITIES AND SHAREHOLDERS' EQUITY Note /01/ /01/2012 (Restated) (Restated) (Restated) (Restated) CURRENT ASSETS CURRENT LIABILITIES Cash and cash equivalents Borrowings and financing Short-term investments Trade and other payables Trade receivables Suppliers - related parties Inventories Payroll, profit sharing and related taxes Recoverable taxes Taxes payable Related parties Other payables Derivatives Total current liabilities Other receivables Total current assets NONCURRENT LIABILITIES Borrowings and financing NONCURRENT ASSETS Taxes payable Long-term assets: Provision for tax, civil and labor risks Recoverable taxes Others provisions Deferred income tax and social contribution 10.a) Total noncurrent liabilities Escrow deposits Other noncurrent assets SHAREHOLDERS' EQUITY Investments Capital 20.a) Property, plant and equipment Treasury shares 20.c) (83.984) (66.105) (83.984) (66.105) Intangible assets Capital reserves Total noncurrent assets Earnings reserves ( ) ( ) Proposed additional dividend 20.b) Other comprehensive losses (6.899) (32.450) (17.635) (6.899) (32.450) (17.635) Total equity attributable to owners of the Company Noncontrolling interests Total shareholders' equity TOTAL ASSETS TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

4 (Convenience Translation into English from the Original Previously Issued in Portuguese) NATURA COSMÉTICOS S.A. STATEMENTS OF COMPREHENSIVE INCOME AS OF DECEMBER 31, 2013 AND DECEMBER 31, 2012 (In thousands of Brazilian reais - R$) Note Company ( BR GAAP) Consolidated (BR GAAP and IFRS) Adjust (Restated) (Restated) NET REVENUE 22 6,342,870 6,249,086 6,249,086 7,010,311 6,345,669 Cost of sales 23 (2,379,802) (2,438,873) (2,438,873) (2,089,785) (1,868,045) GROSS PROFIT 3,963,068 3,810,213 3,810,213 4,920,526 4,477,624 OPERATING (EXPENSES) INCOME Selling expenses 23 (1,479,892) (1,642,380) (1,642,380) (2,470,730) (2,212,205) Administrative and general expenses 23 (1,221,500) (898,082) 1,046 (899,128) (962,154) (771,538) Participação dos colaboradores nos resultados 24.1 (26,083) (29,555) (29,555) (61,943) (90,799) Management compensation 28.2 (18,554) (20,739) (20,739) (18,554) (20,739) Equity in subsidiaries 13 99,537 59, , Other operating (expenses) income, net 26 (17,168) 15,472 15,472 8,851 (11,643) INCOME FROM OPERATIONS BEFORE FINANCIAL INCOME (EXPENSES) 1,299,408 1,294,841 1,293,263 1,415,996 1,370,700 Financial income , , , , ,808 Financial expenses 25 (435,194) (197,781) 19,184 (216,965) (522,472) (234,157) INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION 1,173,488-1,226,891 1,206,129-1,257,746 1,298,351 Income tax and social contribution 10.b) (330,880) (352,515) (7,608) (344,907) (409,940) (423,975) Noncontrolling (5,198) - NET INCOME 842, , , , ,376 ATTRIBUTABLE TO Owners of the Company 842, , , , ,376 Noncontrolling , , , , , ,376 EARNINGS PER SHARE - R$ Basic Diluted The notes are an integral part of these statements. 10

5 (Convenience Translation into English from the Original Previously Issued in Portuguese) NATURA COSMÉTICOS S.A. STATEMENTS OF COMPREHENSIVE INCOME AS OF DECEMBER 31, 2013 AND DECEMBER 31, 2012 (In thousands of Brazilian reais - R$) Note Company ( BR GAAP) Consolidated (BR GAAP and IFRS) (Restated) (Restated) NET INCOME 842, , , ,376 Other comprehensive income to be reclassified to profit or loss in subsequent periods: Gains from translation of financial statements of foreign subsidiaries 13 (333) (10,199) (333) (10,199) Other comprehensive income not reclassified to profit or loss in subsequent periods: Gain/Loss Actuarial 19 25,883 (22,251) 25,883 (22,251) Total comprehensive income 868, , , ,926 ATTRIBUTABLE TO Owners of the Company 868, , , ,926 Noncontrolling - - (5,198) - 868, , , ,926 The notes are an integral part of these statements. 11

6 (Convenience Translation into English from the Original Previously Issued in Portuguese) NATURA COSMÉTICOS S.A. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AS OF DECEMBER 31, 2013 AND DECEMBER 31, 2012 (In thousands of Brazilian reais - R$, except dividends per share) Capital reserves Earnings reserves Tax incentive Reserve for Equity Noncontrolling reserve Additional acquisition of Proposed Other attributable to interests Total Treasury Share Investment paid-in Incentivos minority Retained Retained additional comprehensive owners of the in subsidiaries' shareholders' Note Capital shares premium grants capital Legal fiscais interest earnings earnings dividend losses Company equity equity BALANCES AS OF DECEMBER 31, ,073 (102,849) 103,243 17,378 39,692 18,650 14, , ,885 (17,635) 1,240, ,240,681 Net income , , ,376 Other comprehensive income 20.g) ,437 7,437-7,437 Total comprehensive income ,376-7, , , Dividends and interest on capital approved at the Annual Shareholders' Meeting of Ap (66) - (490,885) - (490,951) - (490,951) Sale of treasury shares by exercise of options to purchase shares 20.c) - 36,744 (5,910) ,834-30,834 Changes in stock option plans of actions: - Grant of stock options , ,844-10,844 Exercício de opções de compra (9,342) , Allocation of net income: - Reserve tax incentive Constitution , (6,346) Anticipation of dividends and interest on working capital (363,533) - - (363,533) - (363,533) Dividends declared on February 6, (469,512) 469, Interest on equity declared on February 6, (21,831) 21, Retained earnings of subsidiaries Book (2,021) (2,021) (2,021) Retained profit booking ,154 (13,154) - (20,230) (20,230) - (20,230) BALANCES AS OF DECEMBER 31, ,073 (66,105) 97,333 17,378 41,194 18,650 20, , ,343 (32,449) 1,287, ,287,437 Net income for the year , , ,608 Other comprehensive income 20.g) ,550 25,550-25,550 Total comprehensive income for the year ,608-25, , ,158 Dividends and interest on shareholders' equity for the period 2012 approved at the AGM of (491,343) - (491,343) - (491,343) Interim dividends and interest on capital (364,833) - - (364,833) - (364,833) Acquisition of treasury shares - (60,172) (60,172) - (60,172) Sale of treasury shares for the period of options to purchase shares 20.d) - 42,293 (6,753) ,540-35,540 Changes in stock option plans of actions: - Grant of stock options , ,491-12,491 Exercise of stock options (9,624) , Reserve for acquisition of minority interest 19.b) (141,640) (141,640) (141,640) Health care plan Dividends declared on February 12, 2014 (474,004) 474,004 - Interest on equity declared on February 12, (22,389) 22,389 - Retained Earnings Reserve (18,618) 18,618 - Minority interest in shareholders' equity of subsidiaries ,612 22,612 BALANCES AS OF DECEMBER 31, ,073 (83,984) 90,580 17,378 44,061 18,650 20,957 (141,640) 263, ,393 (6,899) 1,145,637 22,613 1,168,250 - The notes are an integral part of these statements

7 (Convenience Translation into English from the Original Previously Issued in Portuguese) NATURA COSMÉTICOS S.A. AS OF DECEMBER 31, 2013 AND DECEMBER 31, 2012 STATEMENTS OF CASH FLOWS Company Consolidated Note (Restated) (Restated) CASH FLOW FROM OPERATING ACTIVITIES Net income 842, , , ,376 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14 99,415 63, , ,178 Provision (reversal ) for losses on transactions with derivative contracts " swap " and "forward " (73,210) (52,087) (100,474) (52,302) Provision (reversal ) for tax, civil and labor contingencies 18 19,385 (5,176) 18,006 4,623 Monetary restatement of escrow deposits (14,614) (17,371) (21,264) (21,049) Income tax and social contribution 10.a) 330, , , ,975 Loss on sale and disposal of fixed and intangible assets 9,406 (2,098) (2,554) 15,692 Equity income (99,537) (59,912) - - Interest and exchange variation on loans and financing , , , ,228 Exchange variation on other assets and liabilities 1, ,267 9,101 Expenses related to the grant of options to purchase shares 7,331 2,712 12,491 10,844 Provision (reversal ) discount on sale of ICMS credits - - (3,323) 807 Provision ( reversal) for doubtful accounts 7 20,676 2,776 26,986 7,942 Provision (reversal ) for losses on inventories (1,460) 27,556 (23,842) Provision of health care plan and carbon credits 19 24,981 10,691 29,859 21,901 Net income attributable to non-controlling - - (5,198) - Belated recognition of tax credit (2,736) (7,311) (6,769) (11,617) Recognition of tax credit lawsuit - (715) - (1,665) 1,448,133 1,306,885 1,740,935 1,563,192 (INCREASE) DECREASE IN ASSETS Trade receivables (159,546) 2,500 (182,571) (17,486) Inventories (4,751) 61,363 (126,412) 11,925 Recoverable taxes (9,355) 55,394 (50,265) 29,525 Other receivables (32,982) (13,068) (100,449) (48,570) Subtotal (206,634) 106,189 (459,697) (24,606) INCREASE (DECREASE) IN LIABILITIES Domestic and foreign suppliers 17,894 68,310 54, ,102 Payroll, profit sharing and related taxes, net ,800 (34,178) 79,769 Taxes payable 709 1,623 28,018 (2,650) Other payables (2,168) (23,028) 7,200 14,108 Payments of provision for tax, civil and labor contingencies (7,014) (5,936) (7,470) (6,287) Subtotal 10,317 80,769 48, ,042 CASH GENERATED BY OPERATING ACTIVITIES 1,251,816 1,493,843 1,329,667 1,785,628 OTHER CASH FLOWS FROM OPERATING ACTIVITIES Payments of income tax and social contribution (178,703) (293,751) (239,951) (320,805) Withdrawal (payment) of escrow deposits (39,302) (5,289) (41,603) (32,649) Payments of derivatives (10,251) (23,428) 27,768 (18,488) Payment of interest on borrowings and financing (74,290) (87,480) (96,866) (104,332) NET CASH GENERATED BY OPERATING ACTIVITIES 949,270 1,083, ,015 1,309,354 CASH FLOW FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment and intangible assets 14 (216,965) (215,929) (553,854) (437,451) Proceeds from sale of property, plant and equipment and intangible assets 1,913 2,098 21,166 3,135 Short-term investments (3,387,585) (3,015,724) (4,698,796) (4,213,731) Redemption of short-term investments 3,628,870 1,847,237 4,904,453 3,715,059 Dividends received from subsidiaries 96,080 66, Capital increase in subsidiaries 13 (202,874) (48,843) - - Noncontrolling interest - - (128,972) - NET CASH USED IN INVESTING ACTIVITIES (80,561) (1,365,013) (456,003) (932,988) CASH FLOW FROM INVESTING ACTIVITIES Repayments of borrowings and financing - principal (898,279) (462,885) (1,029,434) (629,650) Proceeds from borrowings and financing 937,147 1,474,413 1,257,569 1,708,574 Sale of treasury shares due to exercise of stock options 35,540 30,834 35,540 30,834 Repurchase of treasury shares (60,172) - (60,172) - Payment of dividends and interest on capital of the prior year (491,343) (490,951) (491,343) (490,951) Anticipation of dividends and interest on working capital of the current year (364,833) (363,533) (364,833) (363,533) NET CASH GENERATED (USED) IN FINANCING ACTIVITIES (841,940) 187,878 (652,673) 255,274 Gains (losses) arising on translating foreign currency cash and cash equivalents - - 1,564 (2,860) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 26,769 (93,240) (128,097) 628,780 Cash and cash equivalents at the beginning of the year/period 72, ,007 1,144, ,610 Cash and cash equivalents at the end of the year/period 99,535 72,767 1,016,293 1,144,390 DECREASE IN CASH AND CASH EQUIVALENTS 26,768 (93,240) (128,097) 628,780 ADDITIONAL STATEMENTS OF CASH FLOWS INFORMATION: Restricted cash ,059 Bank overdrafts - unused 117, , , ,600 Non cash itens Reserve for acquisition of non - controlling 141, ,640 - Capitalization of financial leasing 185, ,851 - The notes are an integral part of these statements. 13

8 (Convenience Translation into English from the Original Previously Issued in Portuguese) NATURA COSMÉTICOS S.A. STATEMENTS OF VALUE ADDED AS OF DECEMBER 31, 2013 AND DECEMBER 31, 2012 (In thousands of Brazilian reais - R$) Company ( BR GAAP) Consolidated (BR GAAP) Note (Restated) (Restated) REVENUES 7,890,473 7,501,382 9,392,024 8,515,446 Sales of products and services 8,021,958 7,608,134 9,518,828 8,665,145 Allowance for doubtful accounts 7 (114,317) (122,224) (135,655) (138,056) Other operating (expenses) income, net 26 (17,168) 15,472 8,851 (11,643) INPUTS PURCHASED FROM THIRD PARTIES (4,806,849) (4,823,121) (5,424,798) (4,836,794) Cost of sales and services (2,770,923) (2,846,755) (2,931,519) (3,025,657) Materials, electricity, services and others (2,035,926) (1,976,366) (2,493,279) (1,811,137) GROSS VALUE ADDED 3,083,624 2,678,261 3,967,226 3,678,652 RETENTIONS (99,415) (63,594) (192,555) (141,178) Depreciation and amortization 14 (99,415) (63,594) (192,555) (141,178) VALUE ADDED GENERATED BY THE COMPANY 2,984,209 2,614,667 3,774,671 3,537,474 TRANSFERRED VALUE ADDED 408, , , ,805 Equity in subsidiaries 13 99,537 59, Financial income - includes inflation and exchange rate variations , , , ,805 TOTAL VALUE ADDED TO BE DISTRIBUTED 3,393,020 2,803,878 4,138,893 3,699,279 - DISTRIBUTION OF VALUE ADDED: (3,393,020) 100% (2,803,878) 100% (4,138,893) 100% (3,699,279) 100% Employees and social charges (401,323) 12% (333,466) 12% (916,865) 22% (802,966) 22% Taxes and contributions (1,688,420) 50% (1,369,813) 49% (1,803,781) 44% (1,743,400) 46% Financial expenses and rentals (460,669) 14% (239,377) 9% (570,442) 14% (291,691) 8% dividends (811,309) 24% (796,531) 28% (811,309) 20% (796,531) 22% Interest on capital (49,917) 1% (58,347) 2% (49,917) 1% (58,347) 2% Net income atrtributable to Noncontrolling - - 0% (5,198) - 0% Retained earnings 18,618-1% (6,344) 0% 18,619 0% (6,344) 0% Supplemental statement of value added information The amounts recorded under "Taxes and contributions" in December 2013 and 2012, the amounts of R $ 697,526 and R $ 541,669, respectively, refer to the Tax on Circulation of Goods and Services - Replacement Tax - ICMS - ST levied on the presumed profit margin defined by the State Finance Secretariats obtained from sales made by (the) Consultants (the) Natura for the end consumer. For the analysis of this tax impact on value added statements, such amounts shall be deducted from those recorded under "Sales of goods, products and services" and the heading itself "Taxes and contributions", since the revenue figures of sales do not include the estimated profit of (the) Consultants (the) Natura sale of the products in the amounts of R $ 3,390,338 and R $ 3,210,727, in December 2013 and 2012, respectively, considering the estimated profit margin 30%. The notes are an integral part of these statements. 14

9 (A free translation from Portuguese into English of Individual Financial Information prepared in Brazilian currency in accordance with accounting practices adopted in Brazil, and of Consolidated Financial Information prepared in Brazilian currency in accordance with International Financial Reporting Standards (IFRS), issued by International Accounting Standards Board IASB and accounting practices adopted in Brazil) NATURA COSMÉTICOS S.A. NOTES TO THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2013 (Amounts in thousands of Brazilian reais - R$, unless otherwise stated) 1. GENERAL INFORMATION Natura Cosméticos S.A. ( Company ) is a publicly-traded company, registered in the special trading segment called Novo Mercado in the São Paulo Stock Exchange (BM&FBOVESPA), under the ticker NATU3, and headquartered in São Paulo, Alexandre Colares Avenue, 1188, Vila Jaguara, Postal Code , State of São Paulo. The Company s and its subsidiaries activities ( Natura Group or Group ) include the development, production, distribution and sale of cosmetics, fragrances, and hygiene products, substantially through direct sales by Natura Beauty Consultants. The Company also holds equity interests in other companies in Brazil and abroad. On February 28, 2013, Natura Cosméticos S.A. entered into a purchase and sale agreement, subject to certain conditions precedent, for the acquisition of 65% of Emeis Holdings Pty Ltd., an Australian manufacturer of premium cosmetics and beauty products that operates under the brand name Aesop in Australia, Asia, Europe and North America. The price of the acquisition agreed by the parties was AU$ thousand, subject to certain adjustments. 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES 2.1. Statement of compliance and basis of preparation The Company s financial statements include: The consolidated financial statements prepared in accordance with the International Financial Reporting Standards (IFRSs), issued by the International Accounting Standards Board (IASB), and the accounting practices adopted in Brazil, identified as Consolidated - IFRS and BR GAAP. The Parent s individual financial statements prepared in accordance accounting practices adopted in Brazil, identified as Company - BR GAAP. The accounting practices adopted in Brazil include those established in the Brazilian Corporate Law as well as the Pronouncements, Instructions and Interpretations issued by the Accounting Pronouncements Committee (CPC) and approved by the Brazilian Securities and Exchange Commission (CVM). 1

10 Natura Cosméticos S.A. The individual financial statements present the valuation of investments in subsidiaries, joint ventures and associates which are measured by the equity method, as required by legislation prevailing in Brazil. Therefore, these individual financial statements are not fully compliant with IFRS, which requires that these investments be carried at fair value or acquisition cost. Since there is no difference between the consolidated shareholders equity and the consolidated net income attributable to owners of the Company recorded in the consolidated financial statements prepared in accordance with IFRS and accounting practices adopted in Brazil and the Company s shareholders equity and net income disclosed in the individual financial statements prepared in accordance with accounting practices adopted in Brazil, the Company elected to present the individual and the consolidated financial statements as a single set, placed side-by-side. The financial statements have been prepared based on the historical cost basis except for certain financial instruments that are measured at their fair values, as described in the accounting policies below. The historical cost is generally based on the fair value of the consideration paid in exchange for an asset. The significant accounting practices applied to the preparation of these consolidated financial statements are presented below. These policies have been consistently applied in the previous annual reporting period presented, except as otherwise indicated Consolidation a) Subsidiaries and joint-controlled entities Subsidiaries are all entities in which the company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee and in which there is usually a shareholding exceeding 50%. Where applicable, the existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company and cease to be consolidated, where applicable, from the date that control ceases. b) Companies include in the consolidated financial statements Equity interest - % Direct interest: Indústria e Comércio de Cosméticos Natura Ltda Natura Biosphera Comércio de Cosméticos e Serviços Ltda Natura Cosméticos S.A. - Chile Natura Cosméticos S.A. - Peru

11 Equity interest - % Natura Cosméticos S.A. - Argentina Natura Inovação e Tecnologia de Produtos Ltda Natura Cosméticos y Servicios de Mexico, S.A. de C.V Natura Cosméticos de Mexico, S.A. de C.V Natura Distribuidora de Mexico, S.A. de C.V Natura Cosméticos Ltda. - Colombia Natura Cosméticos España S.L. - Spain Natura (Brazil) International B.V. - The Netherlands Natura Brazil PTY Ltd - Australia Sintonia Investment Fund Essencial Investment Fund Indirect interest: Via Indústria e Comércio de Cosméticos Natura Ltda.- Natura Logística e Serviços Ltda Via Natura Inovação e Tecnologia de Produtos Ltda.: Natura Innovation et Technologie de Produits SAS - France Via Natura (Brazil) International B.V. - The Netherlands: Natura Brasil Inc. - USA Delaware Natura Europa SAS France Via Brasil Inc.- EUA - Delaware Natura International Inc. EUA Nova York Via Natura Brazil Pty Ltda - Natura Cosmetics Australia Pty Ltd. Australia Via Natura Cosmetics Australia Pty Ltd.- Australia Emeis Holdings Pty Lty - Australia The consolidated financial statements have been prepared based on the financial statements as of the same date and consistent with the Company s accounting policies. Investments in subsidiaries have been eliminated proportionately to the investor s interests in the subsidiaries shareholders equity and net income or loss, intergroup balances and transactions and unrealized profits, net of taxes. The operations of the direct and indirect subsidiaries are as follows: Indústria e Comércio de Cosméticos Natura Ltda.: engaged principally in the 3

12 Natura Cosméticos S.A. production and sale of Natura products to Natura Cosméticos S.A. - Brazil, Natura Cosméticos S.A. - Chile, Natura Cosméticos S.A. - Peru, Natura Cosméticos S.A. - Argentina, Natura Cosméticos Ltda. - Colombia, Natura Europa SAS - France, and Natura Cosméticos de Mexico S.A. de C.V.. Natura Biosphera Comércio de Cosméticos e Serviços Ltda.: engaged in trading, including by electronic means, of products from Natura brand. Natura Cosméticos S.A. - Chile, Natura Cosméticos S.A. - Peru, Natura Cosméticos S.A. - Argentina, Natura Cosméticos Ltda. - Colombia and Natura Distribuidora de Mexico, S.A. de C.V.: their activities are an extension of the activities conducted by the parent company Natura Cosméticos S.A. - Brazil. Natura Inovação e Tecnologia de Produtos Ltda.: it is engaged in product and technology development and market research. It is the only owner of Natura Innovation et Technologie de Products SAS - France, a research and technology satellite center opened in 2007 in Paris. Natura Cosméticos de Mexico, S.A. de C.V.: engaged in the import and sale of cosmetics, fragrances in general, and hygiene products to Natura Distribuidora de Mexico, S.A. de C.V.. Natura Cosméticos España S.L.: company in start-up stage and its activities will be an extension of the activities carried out by its parent company Natura Cosméticos S.A. - Brazil. Natura (Brazil) International B.V - Netherlands.: holding controller of the Natura Europe SAS France, Natura Brazil Inc. and Natura International Inc. Natura Logística e Serviços Ltda.: engaged in the provision of administrative and logistics services to Natura Group companies based in Brazil. Natura Innovation et Technologie de Produits SAS - France: engaged mainly in research activities developed for in vitro testing as an alternative to animals testing, for to the safety and efficiency of test active compounds, skincare products and new packaging materials. Natura Brazil Inc.: Holding controller of Natura International Inc. Natura International Inc: Holding controller of Natura Europe SAS. Natura Europa SAS France, Natura Brazil Inc. e Natura International Inc.: in January 2009 the shares of these subsidiaries were assigned as a capital contribution to the holding company Natura (Brazil) International B.V. - The Netherlands, and the Company became the indirect holder of such interests through this company headquartered in The Netherlands. Natura Brazil Pty Ltd Holding controller of Natura Cosmetics Australia Pty Ltd operations. Natura Cosmetics Australia Pty Ltd Holding controller of Emeis Holdings Pty Ltd. Emeis Holdings Pty Ltda: Activities focused on developing manufacturing and marketing of premium cosmetics, which operates under the brand of Aesop. 4

13 Sintonia and Essencial Investiment Fund: refer to fixed income funds of private credit Segment reporting Information per operating segments is consistent with the internal report provided to the chief operating decision maker. The chief operating decision maker, responsible for allocating resources to the operating segments and assessing their performance, is the Company s Executive Committee Translation of foreign currency a) Functional currency Items included in the financial statements of the Company and each one of the subsidiaries included in the consolidated financial statements is measured using the currency of the main economic environment in which the companies operate ( functional currency ). b) Foreign currency transactions and balances Foreign currency-denominated transactions are translated into the Company s functional currency Brazilian reais (R$) - at the exchange rates prevailing on the dates of the transactions. Balance sheet accounts are translated at the exchange rates prevailing at the end of the reporting period. Foreign exchange gains and losses arising on the settlement of such transactions and the translation of monetary assets and monetary liabilities denominated in foreign currency are recognized in profit or loss, in line items Financial income and Financial expenses. c) Presentation currency and translation of financial statements The financial statements are presented in Brazilian reais (R$), which corresponds to the Group s presentation currency. In preparing the consolidated financial statements, the statements income statement and the statement of cash flows, and all other changes in foreign subsidiaries assets and liabilities, whose functional currency is the local currency, are translated into Brazilian reais at the average monthly exchange rate, which approximates the exchange rate prevailing at the date of the underlying transactions. Balance sheets are translated into Brazilian reais at the exchange rates prevailing at yearend. The effects of exchange differences resulting from these translations are presented in line item Other comprehensive income and in shareholders equity Cash and cash equivalents Cash equivalents are held for the purpose of meeting short term commitments box, rather than for investment or other purposes. Include cash, demand deposits and shortterm investments redeemable within up to 90 days from the investment date, highly liquid or convertible to a known cash amount and subject to immaterial change in value, which are recorded at cost plus income earned through the end of the reporting 5

14 Natura Cosméticos S.A. period and do not exceed their fair or realizable values Financial instruments Categories The category depends on the purpose for which financial assets and financial liabilities were acquired or contracted and is determined on the initial recognition of the financial instruments. Financial assets held by the Company are classified into the following categories: Financial assets measured at fair value through profit or loss Consist of financial assets held for trading, when acquired for such purpose, principally in the short term. These assets are measured at fair value at the end of the reporting period and any differences are recognized in profit or loss. Derivative financial instruments are also classified in this category. Assets in this category are classified in current assets. In the case of the Company, this category includes only derivative financial instruments. The balances of outstanding derivatives are measured at their fair values at the end of the reporting period and classified in current assets or current liabilities, and changes in fair value are recorded in Financial income or Financial expenses, respectively. Held-to-maturity financial assets Comprise investments in certain financial assets classified by treasury at their origination as held to maturity, and are measured at amortized cost using the effective interest method, less losses due to reduction of the recoverable amount. The Society does not have investments held to maturity during the years ended December 31, 2013 and Available-for-sale financial assets When applicable, this category includes non-derivative financial assets that either designated as available for sale or are not classified into any of the other categories, such as (a) loans and receivables; (b) held-to-maturity investments; or (c) financial assets at fair value through profit and loss. These financial assets include shares of investment funds and government debt securities. In this category are registered instruments which are held for an indefinite period and may be sold to meet liquidity needs or changes in market conditions. Loans and receivables Include non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are recorded in current assets, 6

15 except for maturities greater than 12 months after the end of the reporting period, when applicable, which are classified as noncurrent assets. After initial measurement, these financial assets are accounted for at amortized cost, using the effective interest method (effective interest rate), less loss by decrease in recoverable value. Amortized cost is calculated taking into account any discount or premium on acquisition and fees or costs incurred. In December 31, 2013 and 2012 include trade accounts receivable (note 7). Financial liabilities held by the Company are classified into the following categories: Financial liabilities at fair value through profit or loss They are classified as fair value through profit or loss when the financial liability is either held for trading or it is designated as fair value through profit or loss. Other financial liabilities They are measured at the amortized cost using the effective interest method. As of December 31, 2013 and 2012, in the case of the Company, comprise borrowings and financing (note 15) and domestic and foreign trade payables Measurement Regular purchases and sales of financial assets are recognized on the transaction date, i.e., on the date the Company agrees to buy or sell the asset. Loans and receivables and held-to-maturity financial assets are measured at amortized cost. Financial assets at fair value through profit or loss are initially recognized at their fair value and transaction costs are recognized in the income statement. Gains or losses resulting from changes in the fair value of financial assets at fair value through profit or loss are recognized in the income statement, in Finance income or Finance costs, respectively, for the period in which they occur. Changes in financial assets classified as Available for sale, when applicable, are recorded in Other comprehensive income and shareholders equity until the financial assets are settled, when they are ultimately reclassified to profit or loss for the year Offsetting financial instruments Financial assets and financial liabilities are offset and the net amount is presented in the balance sheet when there is a legally enforceable right to set off recognized amounts and the intent to either settle them on a net basis, or to recognize the asset and settle the liability simultaneously Derecognition of financial instruments A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is downloaded when: 7

16 Natura Cosméticos S.A. The rights to receive cash flows from the asset have expired; The company transferred its rights or risk receiving the cash flows of the asset or has assumed an obligation to pay the received cash flows in full Derivative instruments and hedge accounting Derivative transactions contracted by the Group consist of swaps and nondeliverable forwards (NDFs) intended exclusively to hedge against the foreign exchange risks related to the positions in balance sheets and projected cash outflows in foreign currency for capital increases in foreign subsidiaries. They are measured at fair value, and changes in fair value are recognized through profit or loss, except when they are designated as cash flow hedges, to which changes in fair value are recorded in Other comprehensive income within shareholders' equity. The fair value of derivatives are measured by the Company s treasury department based on information on each contracted transaction and related market inputs at the end of the reporting period, such as interest rates and exchange coupon. When applicable, these inputs are compared with the positions reported by the trading desks of each involved financial institution. Even though the Group uses derivatives for hedging purposes, it does not apply hedge accounting. On December 9, 2013 was approved by the Board of Directors of Natura the practice of accounting "hedge accounting" for derivative financial instruments contracted protection: (i) loans contracted in foreign currency, subject to variable interest rate, or (ii) the loans contracted in the functional currency (Real), subject to interest fixed rate. Protected risks are, respectively, (i) risk of changes in future cash flows resulting from changes in exchange rates, accounting "hedge" cash flow and (ii) risk of interest rate being applicable, and applicable accounting the "hedge" fair value. From January 1, 2014, Natura intends to adopt the new accounting practice for new lending and the related hedging instruments, having to date of approval of these financial statements no name "hedge" was performed. The fair values of derivatives are disclosed in note Effective interest method Used to calculate the amortized cost of a debt instrument and allocate its interest income over the related period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, 8

17 transaction costs and other premiums or discounts) through the expected life of the debt instrument or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Income is recognized on an effective interest basis for debt instruments other than those financial assets classified as fair value through profit or loss Trade receivables and allowance for doubtful debts Trade receivables are stated at their nominal amount, less the allowance for doubtful debts, which is recognized based on the history of losses using an aging list, in an amount considered sufficient by management to cover possible losses, as described in note Inventories Carried at the lower of average cost of purchase or production and net realizable value. Details are disclosed in note 8. The Company considers the following when determining its provision for inventory losses: discontinued products, products with slow turnover, products with expired validity and products that do not meet quality standards Carbon Credits Carbon Neutral Program In 2007, the Company assumed with its employees, customers, suppliers and shareholders committed to be a Carbon Neutral company, which is to neutralize their emissions of Greenhouse Gas - GHG, in its complete production chain, from extraction of raw materials to post- consumption. This commitment, though not a legal obligation, since Brazil despite being a signatory to the Kyoto Protocol has no reduction target, is considered a constructive obligation under IAS 37 - Provisions, Contingent Liabilities and Contingent Assets, which requires the recognition of a provision in the financial statements if it is subject to disbursement and measurable. The liability is estimated audited through the inventories of carbon held annually and valued based on the market price for the acquisition of licenses for neutralization. On December 31, 2013, the balance recorded in the caption " Other provisions " (see note 12), refers to the total carbon emissions in the period 2007 to 2013 that have not yet been offset by corresponding projects therefore no execution of the certificate of carbon. In line with their beliefs and principles, the Company elected to make some purchases carbon credits by investing in projects with environmental benefits arising from the voluntary market. Thus, the costs will generate carbon credits after completion or maturation of these projects. During these exercises, these expenses were recorded at fair value as other assets (see note 12). At the moment their carbon certificates are effectively delivered to the Company, the obligation to be Carbon Neutral is effectively enforced, therefore the balances of assets are offset against the liability balances. 9

18 Natura Cosméticos S.A. The difference between the carrying amounts of assets and liabilities at December 31, 2013 refers to the amount of cash that the Company also will pay for future generation or acquisition of certificates Investments in subsidiaries, associates and jointly controlled entities The Company holds interest only in subsidiaries. Subsidiaries are entities in which the Company, directly or through other subsidiaries, has ownership rights that provide it with the ability to direct the subsidiaries activities and to elect the majority of the subsidiaries management members on a permanent basis. Subsidiaries are the companies over which the Company has control. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities, which in general consists of the ability to exercise the majority of the voting rights. Potential voting rights considered when assessing the control exercised by the Company over the other entity, when they can be exercised at the time of the assessment. Investments in subsidiaries are accounted for by the equity method of accounting. The financial statements of subsidiaries are prepared for the same reporting date of the Company. Adjustments are made, if necessary, to conform their accounting policies to those adopted by the Company. Under the equity method of accounting, the share attributable to the Company of the profit or loss for the period of such investments is accounted for in the income statement, in line item Equity in investees. Unrealized gains and losses arising on transactions between the Company and the investees are eliminated based in the percentage interest held in such investees. The other comprehensive income of subsidiaries, associates and jointly controlled entities is recorded directly in the Company s shareholders equity, in line item Other comprehensive income Property, plant and equipment Stated at cost of purchase or construction, plus interest capitalized during construction period, when applicable, for the case of eligible assets, and reduced by accumulated depreciation and impairment losses, if applicable. Rights in tangible assets that are maintained or used in the operations of the Group, originated from finance leases, are recorded as purchase financing, and a fixed asset and a financing liability are recognized at the beginning of each transaction, where assets are also submitted to depreciation calculated based on the estimated useful lives of the assets. Land is not depreciated. Depreciation of the other assets is calculated under the straight-line method to distribute their cost over their useful lives, as follows: 10

19 Years Buildings 25 Machinery and equipment 13 Molds 3 Facilities and leasehold improvements 5-13 Furniture and fixtures 14 Vehicles 3 The useful lives are reviewed annually. Gains and losses on disposals are calculated by comparing the proceeds from the sale with the carrying amount, and are recognized in the income statement Intangible assets Software Software and ERP systems licenses purchased are also capitalized and amortized at the rates also described in note 14, and expenses on the software maintenance are recognized as expenses when incurred. The ERP system purchase and implementation costs are capitalized as intangible assets when there is evidence that future economic benefits will flow into the Company, taking into consideration its economic and technologic viability. Expenses on software development recognized as assets are amortized under the straight-line method over its estimated useful life. The expenses related to software maintenance are expensed when incurred Trademarks and patents Separately purchased trademarks and patents are stated at their historic cost. Trademarks and patents acquired in a business combination are recognized at fair value on the acquisition date. Amortization is calculated on a straight-line basis at the annual rates described in note Intangible assets with indefinite useful lives Are not amortized but are tested annually for losses due to impairment either individually or at the level of the cash generating unit. The assessment of indefinite life is reviewed annually to determine whether this assessment continues to be supportable. Otherwise, the change in useful life from indefinite to finite is made on a prospective basis. Gains and losses arising from derecognition of an intangible asset are measured as the difference between the net from the sale and the carrying amount of the asset and are recognized in the income statement upon disposal of the asset. 11

20 Natura Cosméticos S.A Research and product development expenses In view of the high level of innovation and the turnover rate of the products in the Company s sales portfolio, the Company adopts the accounting policy of recognizing product research and development expenditure as expenses for the year, when incurred Leases Lease classification is made at the inception of the lease. Leases where the lessor does not retain substantially all the risks and rewards incidental to ownership are classified as operating leases. Lease payments under an operating lease are recognized as an expense on a straight-line basis over the lease term. Leases where the Group retains substantially all the risks and rewards incidental to ownership are classified as finance leases. These leases are capitalized in balance sheet at the commencement of the lease term at the lower fair value of the leased asset and the present value of minimum lease payments. Each lease payment is apportioned between liabilities and the finance charges so as to permit obtaining a constant effective interest rate on the outstanding liability. The corresponding obligations, less the finance charge, are classified in current liabilities and noncurrent liabilities, according to the lease term. Property, plant and equipment items purchased through finance leases are depreciated over their useful lives, as described in note 2.11, or over the lease term, when it is shorter Capitalization of Interest Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily requires a significant effort to be ready for its intended use or sale are capitalized as part of the cost of the corresponding asset. All other borrowing costs are expensed in the period they are incurred. Borrowing costs consist of interest and other costs incurred by an entity related to the loan Impairment assessment Property, plant and equipment, intangible assets and, when applicable, other noncurrent assets are annually tested to identify evidences of impairment, or also significant events or changes in circumstances that indicate the carrying value of an asset may not be recoverable. Where applicable, when there is a loss, arising from situations where the carrying amount of an asset exceeds its recoverable amount, defined as the higher of its value in use and its fair value less costs to sell, this loss is recognized in the income statement. For impairment assessment purposes, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units, or CGUs). The recoverable amount of an asset or cash-generating unit is determined defined as being the larger of the value in use and the net selling value. In the estimation of the value in use of the asset, the estimated future cash flows are discounted to their present

21 value using a pre-tax discount rate that reflects the weighted average cost of capital for the industry in which it operates the cash-generating unit. The net selling value is determined, whenever possible, on the basis of the contract of sale firm in a transaction in commutative bases, between knowledgeable and interested parties, adjusted for expenses attributable to the sale of the asset, or, where there is no contract of sale firm, based on the market price of an active market, or in the price of the most recent transaction with similar assets Trade payables These are initially recognized at their nominal amounts, plus interest, inflation adjustments and exchange differences through the end of the reporting period, when applicable Borrowings and financing Initially recognized at fair value of proceeds received less transaction costs, plus charges, interest, adjustments and exchange differences incurred through the end of the reporting period, as shown in note Provision for tax, civil, and labor contingencies The provisions for contingent liabilities are recognized when the Group has a legal or constructive obligation as a result of past events, and it is probable that disbursements will be required to settle the obligation, and its value can be reliably estimated. Provisions are quantified at the present value of the expected disbursement to settle the obligation using the appropriate discount rate, according to related risks. Adjusted for inflation through the end of the reporting period to cover probable losses, based on the nature of contingencies and the opinion of the Company s legal counsel. The bases for and nature of the provisions for tax, civil, and labor contingencies are described in note Current and deferred income tax and social contribution Recognized in the income statement, except, when applicable, in the proportion related to items recognized directly in shareholders equity. In this case, taxes are recognized directly in shareholders equity, in line item Other comprehensive income. Except for the foreign subsidiaries, which apply the tax rates prevailing in each one of the countries where they are located, income tax and social contribution on the Company s and its Brazilian subsidiaries profits are calculated at the tax rates of 25% and 9%, respectively. Current income tax and social contribution expenses are calculated using the laws and regulations enacted by the end of the reporting period, pursuant to Brazilian tax regulations. Management periodically measures the positions assumed in the income tax return regarding the situations where applicable tax law is subject to possibly 13

22 Natura Cosméticos S.A. different interpretations and, when appropriate, recognizes provisions based on the amounts it expects to pay tax authorities. Deferred income tax and social contribution are calculated on temporary differences between the tax base of assets and liabilities and their carrying amounts. Deferred income tax and social contribution are calculated using the tax rates enacted on the end of the reporting period and that must be applied when the corresponding deferred income tax and social contribution assets are realized or deferred income tax and social contribution liabilities are settled. Deferred income tax and social contribution assets are recognized only to the extent that there is a reasonable certainty that future taxable income will be available and against which temporary differences can be offset. The amounts of deferred income tax and social contribution assets and liabilities are only utilized when there is a legally enforceable right to offset current tax assets against tax liabilities and/or when current deferred income tax and social contribution assets and liabilities are related to the income tax and social contribution levied by the same tax authorities on the taxable entity or different taxable entities, where there is intention to settle the net balances. Details are disclosed in note Stock option plan The Company offers equity-settled share-based compensation plans to its executives. The stock option plan is measured at fair value on grant date and is expensed during the vesting period as a balancing item to Additional paid-in capital, in shareholders equity. At the end of the reporting period, the Company s management reviews its estimates on the number of options vesting based on the conditions fulfilled and, when applicable, recognizes in the income statement the effect arising from the revision of the initial estimates as a balancing item to shareholders equity. The details are disclosed in note The cost of transactions settled with equity securities is recognized, together with a corresponding increase in equity under the heading "additional paid-in Capital", throughout the period in which the performance and/or service conditions are fulfilled, ending on the date on which the employee acquires the full right to prize (date of acquisition). The cumulative expense recognized for equity instruments transactions settled on each base date up to the date of acquisition reflects the extent to which the vesting period has expired and the best estimate of the number of equity securities Company to be acquired. The expense or credit in the statement of income of the period is recorded under the heading "administrative expenses". When an award of equity instruments settlement is cancelled, it is treated as if it had been acquired on the date of cancellation, and any expense not recognized award is registered immediately. This includes any award where non-vesting conditions within the control of the company or the counterparty were not met. All cancellations of transactions settled with equity securities are treated in the same way. 14

23 The dilution effect of options open is reflected as additional share dilution in the calculation of diluted earnings per share (Note 27.2) Profit sharing The Company recognizes a profit sharing liability and an expense based on a formula that takes into consideration the net income attributable to the owners of the Company after certain adjustments, which is linked to the achievement of operational goals and specific objectives, established and approved at the beginning of each year Dividends and interest on capital The proposed distribution of dividends and interest on capital made by the Company s management included in the portion equivalent to the mandatory minimum dividends is recognized in line item Other payables in current liabilities, as it is considered as a legal obligation provided for by the Company s bylaws; however, the portion of dividends exceeding minimum dividends declared by management after the reporting period but before the authorization date for issuance of these financial statements is recognized in line item Proposed additional dividends and their effects are disclosed in note 20.(b). For corporate and accounting purposes, interest on capital is stated as allocation of income directly in shareholders equity Treasury shares Own equity instruments which are reacquired (Treasury shares) and recognized at acquisition cost and deducted from shareholders ' equity. No gain or loss is recognized in the income statement on the purchase, sale, issue or cancellation of the company's own equity instruments. Any difference between the book value and the consideration is recognized in other capital reserves Actuarial gains and losses of healthcare plan and other costs related to employees benefit plans The Company also provides certain benefits to extend medical assistance to retired employees who had acquired the money by April Costs relating to contributions made by the Company and its subsidiaries to the plans are recognized on an accrual basis. The cost of benefits under the defined benefit plans is established separately for each plan using the projected unit credit method Revenue and expense recognition Sales revenue is recognized when all risks and rewards of ownership of the product are transferred to the customers and there are recognized on an accrual basis. Revenues are recognized to the extent in which it is probable that the economic benefits associated with the transaction will accrue to the Company, and when such benefits can be reliably measured. Sales revenues are primarily generated through sales 15

24 Natura Cosméticos S.A. made by the Natura Beauty Consultants (our clients), measured based on the fair value of the consideration received (or to be received), excluding any discounts, rebates and taxes or charges with respect to such sales. Sales revenue is recognized when the significant risks and rewards of title to products have been transferred to the client, which generally occurs upon delivery thereof to the Natura Beauty Consultants. Sales revenue is generated and accumulates initially in the subsidiary sales ledger of the Company, as of the moment in which the proof of shipping is issued in the name of our clients. However, as our revenues are recorded for accounting purposes only when the final delivery of products has occurred, the Company makes a provision to eliminate the amount of revenues with respect to products shipped but not yet received by the Natura Beauty Consultants as of the closing date of the financial statements for each period. Income from tax incentives, received in the form of a monetary asset, is recognized in the income statement when received as a balancing item to costs and investment already incurred by the Company in the jurisdiction where the tax incentive is granted. There are no established conditions to be met by the Company that might affect the recognition of tax incentives. The portion of tax incentives recognized in the income statement is allocated to the tax incentive reserves, in the Earnings reserves, in shareholders equity Business Combination Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured based on the fair value at the acquisition date, and the value of any noncontrolling interest in the acquiree. For each business combination, the acquirer shall measure a non-controlling interest in the acquiree at fair value or based on its interest in the acquiree's identifiable net assets. Costs directly attributable to the acquisition must be expensed when incurred. When acquiring a business, the Company assesses the financial assets and liabilities assumed in order to classify them and allocate them according to the contractual terms, economic circumstances and pertinent conditions as at the acquisition date, which includes segregation, by the acquiree, on existing contracts acquired in embedded derivatives. Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Subsequent changes in fair value of contingent consideration as an asset or a liability should be recognized in accordance with CPC 38 in the income statement or other comprehensive income. When there is excess of the consideration paid for the net assets acquired, this value is recorded as goodwill, and otherwise the value is recognized as a gain in the income statement. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. 16

25 2.28 Statement of value added The purpose of this statement is to disclose the wealth created by the Company and its distribution during a certain reporting period, and is presented by the Company, as required by the Brazilian Corporate Law, as an integral part of its individual financial statements, and as additional disclosure of the consolidated financial statements, since this statement is not required by IFRSs. The statement of value added was prepared using information obtained in the same accounting records used to prepare the financial statements and pursuant to the provisions of CPC 09 - Statement of Value Added. The first part of this statement includes the wealth created by the Company, represented by revenue (gross sales revenue, including taxes levied thereon, other income, and the effects of the allowance for doubtful accounts), inputs acquired from third parties (cost of sales and purchase of materials, electricity, and services from third parties, including taxes levied at the time of the acquisition, the effects of impairment losses, and depreciation and amortization), and the value added received from third parties (equity in investees, financial income, and other income). The second part of the statement of value added presents the distribution of wealth among personnel, taxes, fees and contributions, lenders and lessors, and shareholders New and revised standards and interpretations The Company has applied for the first time, the changes of IAS 19 - Employee Benefits which required the restatement of previous financial statements. Additionally other changes apply for the first time in 2013, but did not affect the individual and consolidated financial statements of the Company. These changes include IFRS10 - Consolidated Financial Statements, IFRS 11 - Business Set, IFRS 12 - Disclosure of Interests in Other Entities, IFRS 13 - Fair Value Measurement, IAS 27 - Consolidated and Separate Financial Statements (Revised in 2011), IAS 28 - Investments in Associates and Joint Control (Revised 2011), Amendments to IAS 1 - Presentation of Financial Statements and Amendments to IAS 16 - Property, plant. The impacts of each of the new standards and amendments are outlined below: From January 1, 2013 came into force the amendments to IAS 19 that brought the elimination of the corridor approach, with that actuarial gains or losses are now recognized as other comprehensive income (previously recognized in income) for the plans pension and results for other long-term benefits when incurred, among other changes, based on an actuarial calculation prepared by an independent actuary, as detailed in note 19. Early on 1 January 2012 and comparative information for the year ended December 31, 2012 balances have been restated in the consolidated financial statements. The impacts are restated in the boxes below: 17

26 Natura Cosméticos S.A. Balance Sheet: Company (BR GAAP) Consolidated (BR GAAP e IFRS) 12/ /2012 ASSETS 12/2012 Adjusts (Restated) 12/2012 Adjusts (Restated) Total of current assets 2,189,418-2,189,418 3,378,317-3,378,317 Income tax and social contributions 94,813 (14,181) 80, ,246 (18,661) 195,585 Other noncurrent assets 303, , , ,182 Investments 1,311,364 (4,480) 1,306, Fixed Assets 357, ,443 1,012,089-1,012,089 Intangible 206, , , ,545 Total of noncurrent assets 2,273,393 (18,661) 2,254,732 1,997,062 (18,661) 1,978,401 TOTAL OF ASSETS 4,462,811 (18,661) 4,444,150 5,375,379 (18,661) 5,356,718 LIABILITIES AND EQUITY Total of current liabilities 1,798,118 1,798,118 2,414,712 2,414,712 Total of noncurrent liabilities 1,358,597 1,358,597 1,654,570 1,654,570 EQUITY Capital 427, , , ,073 Treasury shares (66,105) - (66,105) (66,105) (66,105) Capital reserves 155, , , ,905 Earnings reserve 308,079 3, , ,079 3, ,669 Proposed additional dividends 491, , , ,343 Other comprehensive losses (10,199) (22,251) (32,450) (10,199) (22,251) (32,450) Total Equity 1,306,096 (18,661) 1,287,435 1,306,096 (18,661) 1,287,435 Total equity attributable to owners of the company Equity of the company TOTAL OF LIABILITIES AND EQUITY 4,462,811 (18,661) 4,444,150 5,375,379 (18,661) 5,356,718 18

27 Impact on Income Statement: Company (BR GAAP) Consolidated (BR GAAP e IFRS) 2012 Adjusts Adjusts 2012 Restated Restated GROSS PROFIT 3,810,213 3,810,213 4,477,624 4,477,624 OPERATING (EXPENSE) INCOME Selling expenses (1,642,380) (1,642,380) (2,212,205) (2,212,205) Administrative and general expenses (928,683) 1,046 (927,637) (863,487) 1,150 (862,337) Employee profit sharing (20,739) (20,739) (20,739) (20,739) Equity in investments 59, , Other operating income (expense)s, net 15,472 15,472 (11,643) (11,643) INCOME FROM OPERATIONS BEFORE FINANCIAL INCOME (EXPENSES) 1,293,263 1,294,841 1,369,550 1,370,700 Financial Income 129, , , ,808 Financial Expenses (216,965) 19,184 (197,781) (255,258) 21,101 (234,157) INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION 1,206,129 1,226,891 1,276,100 1,298,351 Income tax and social contribution (344,907) (7,608) (352,515) (414,878) (9,097) (423,975) Non company Net income 861,222 13, , ,222 13, ,376 Earnings per share R$ Basic Diluted

28 Natura Cosméticos S.A. Impacts on cash flow statement: Company Consolidated 12/2012 Adjusts 12/ /2012 Adjusts 12/2012 (Restated) (Restated) CASH FLOW FROM OPERATING ACTIVITIES Net Income 861,222 13, , ,222 13, ,376 Income tax and social contribution 344,907 7, , ,878 9, ,975 Equity in investee (59,380) (532) (59,912) - - Interest and exchange rate changes on borrowings and financing and other liabilities 145,660 (19,184) 126, ,228 (21,101) 142,127 Provision for healthcare plan and carbon credits 32,942 (1,046) 31,896 44,152 (1,150) 43,002 Other adjusts to net income (16,445) - (16,445) 79,712-79,712 1,308,906 1,308,906 1,563,192 1,563,192 (INCREASE)DECREASE OF ASSETS 104, ,168 (24,608) (24,606) INCREASE (DECREASE) OF LIABILITIES 80,769 80, , ,042 CASH GENERATED BY OPERATING ACTIVITIES 1,493,843 1,493,843 1,785,628 1,785,628 OTHER CASH FLOWS FROM OPERATING ACTIVITIES (404,659) (404,659) (443,625) (443,625) NET CASH GENERATED BY OPERATING ACTIVITIES 1,089,184 1,089,184 1,342,003 1,342,003 NET CASH USED IN INVESTING ACTIVITIES CASH FLOW FROM FINANCING ACTIVITIES (1,370,302) (1,370,302) (965,637) (965,637) 187, , , ,274 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (93,240) (93,240) 628, ,780 Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 166, , , ,610 72,767 72,767 1,144,390 1,144,390 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (93,240) (93,240) 628, , New standards, amendments and interpretations to existing standards The standards and interpretations that have been issued by the IASB but were not in force until the date of issuance of the financial statements of the Company are disclosed below. IFRS 9 Financial Instruments IFRS 9 as issued reflects the first phase of the work of the IASB to replace IAS 39 and applies to classification and measurement of financial assets and liabilities as defined in IAS 20

29 39. The announcement was initially applied to fiscal years beginning on or after January 1, 2013, but the pronouncement Amendments to IFRS 9 Mandatory Effective Date of IFRS 9 and Transition Disclosures, issued in December 2011, has postponed its term to January 1, In subsequent phases, the IASB will address issues such as accounting hedges and provision for losses of financial assets. The adoption of the first phase of IFRS 9 will have an impact on the classification and valuation of the Company's financial assets, but will not impact on the classification and measurement of financial liabilities. The Company will quantify the effect in conjunction with the effects of the remaining phases of the IASB's project, once the final rule is issued consolidated. Investment Entities (Revisions of IFRS 10 IFRS 12 and IAS 27) The revisions will be effective for periods beginning on or after January 1, 2014 and provide an exception to the consolidation requirements for entities that meet the definition of investment entity in accordance with IFRS 10. This exception requires entities to record the investment of investments in subsidiaries at fair value in earnings. The Company does not expect these reviews to be relevant to its financial statements, since none of its entities qualify as investment entity. IAS 32 Offsetting Financial Assets and Financial Liabilities - Revised IAS 32 These revisions clarify the meaning of currently has a legally enforceable right off the recognized amounts and the criteria that would make the settlement mechanisms not simultaneous clearing houses to qualify for compensation. Such revisions shall be effective for fiscal years beginning on or after January 1, The Company does not expect these reviews to be relevant in its financial statements. IFRIC 21 Tributes. IFRIC 21 clarifies when an entity should recognize a liability for a tax when the event that triggers payment occurs. For a tax that requires your payment originates due to the achievement of some metric, the interpretation indicates that no liability shall be recognized until the metric is achieved. IFRIC 21 is effective for financial years ending on or after January 1, The Company does not expect IFRIC 21 to have a material impact on its financial statements. Replacement of IAS 39 Derivatives and Hedge Accounting Continued - Revised IAS 39 This review eases the discontinuation of hedge accounting when the renewal of a derivative designated as a hedge meets certain criteria. These revisions are effective for annual periods beginning on or after January 1, The Company did not renew its derivatives during the current year. However, this review will be implemented in future renewals of derivatives. The Company intends to adopt those standards when they come into force by disseminating and recognizing the impact on the Financial information that may occur when the application of such adoptions. 21

30 Natura Cosméticos S.A. 22 There are no other standards and interpretations issued but not yet adopted that, in management's opinion, have a significant impact on the income or equity issued by the Company. 3. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS The preparation of financial statements requires the use of certain critical accounting estimates and the exercise of judgment by the Company s management in the process of application of accounting policies. The accounting estimates and underlying assumptions are reviewed on an ongoing basis and are based on historical experience and other factors that are considered to be relevant in the circumstances. Actual results may differ from those estimates. The effects resulting from the revision of accounting estimates are recognized in the revision period. These significant assumptions and accounting estimates are follows: a) Income tax, social contribution, and other taxes The Company recognizes deferred tax assets and liabilities based on differences between the carrying amount stated in the financial statements and the tax base assets and liabilities using statutory tax rates. The Company reviews regularly deferred tax assets in terms of possible recovery, considering the history of earnings generated and projected future taxable income, based on a technical feasibility study. b) Provision for tax, civil, and labor contingencies The Company is a party to several lawsuits and administrative proceedings, as described in note 18. Provisions are recognized for all contingent liabilities arising from lawsuits that represent probable losses and can be reliably estimated. The probability assessment includes assessing available evidences, the hierarchy of laws, available previous decisions, most recent court decisions and their relevance within the legal system, and the assessment of the outside legal counsel. Management believes that these provisions for tax, civil and labor contingencies are fairly presented in the financial statements. c) Retirees healthcare plan The current amount of the retirees healthcare plan is contingent to a series of factors determined based on actuarial calculations that update a series of assumptions, for example, the discount and other rates, which are disclosed in note 19. The change in one of these estimates could impact the results presented. d) Stock option plan The stock option plan is measured at fair value on grant date and is expensed during the vesting period as a balancing item to Additional paid-in capital, in shareholders equity. At the end of the reporting period, the Company s management reviews its estimates on the number of options vesting based on the conditions fulfilled and, when applicable, recognizes in the income statement the effect arising from the revision of the

31 initial estimates as a balancing item to shareholders equity. The details are disclosed in note e) Fair Value measurement of contingent consideration Contingent, from a business combination is measured at fair value at the acquisition date as part of the business combination. If the contingent consideration is classified a financial liability shall be subsequently remeasured to fair value at the balance sheet date. The fair value is based on discounted cash flow. The main assumptions consider the probability of achieving each objective and the discount factor. 4. FINANCIAL RISK MANAGEMENT 4.1 General considerations and policies Risks and the financial instruments are managed through the definition of policies and strategies and implementation of control systems, defined by the Company s Treasury Committee and approved by the Board of Directors. The compliance of the treasury area s positions in financial instruments, including derivatives, in relation to these policies, is presented and assessed on a monthly basis by the Treasury Committee and subsequently submitted to the analysis of the Audit Committee, the Executive Committee and the Board of Directors. Risk management is performed by the Company s general treasury function, which is also responsible for approving the short-term investments and loan transactions conducted by the Group s subsidiaries Financial risk factors The Group s activities expose them to several financial risks: market risk (including currency and interest risks), credit risk and liquidity risk. The Company s overall risk management program is focused on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance, using derivatives to protect certain risk exposures. a) Market risks The Group is exposed to market risks arising from their business activities. These risks mainly comprise possible changes in exchange and interest rates. i) Foreign exchange risk The Group is exposed to the foreign exchange risk arising from financial instruments denominated in currencies different from their functional currencies. To reduce this exposure, the Group implanted a policy to hedge against the foreign exchange risk that establishes exposure limits linked to this risk (Foreign Exchange Hedging Policy). The treasury area s procedures defined based on the current policy include 23

32 Natura Cosméticos S.A. monthly projection and assessment of the Company s and its subsidiaries foreign exchange exposure, on which management s decision-making is based. Exchange rate Protection Policy considers the values of foreign currency receivables and Payables balances of commitments already made and recorded in the financial statements from the operations of the Company and its subsidiaries, as well as future cash flows, with an average of six months, still not recorded in the balance sheet. As of December 31, 2013 and 2012, the Group is basically exposed to risks of fluctuations in the U.S. dollar and particularly as of December 31, 2012, the Company s is basically exposed to risks of fluctuations in the Australian dollar. To hedge against foreign exchange exposures, the Group contracts derivative (swaps) and non-deliverable forward (NDF) transactions. The Foreign Exchange Hedging Policy establishes that the derivatives contracted by the Group should limit loss due to exchange rate depreciation related to the net income estimated for the current year considering the expected depreciation of the Brazilian real against the U.S. dollar. This limit sets the cap on the maximum foreign exchange exposure that the Group can undertake in relation to the U.S. dollar. As of December 31, 2013, the Company s and the consolidated balance sheets include accounts denominated in foreign currency which, in the aggregate, represent net liabilities of R$2,096,564 and R$2,106,255, respectively (R$1,510,721 and R$1,515,328 as of December 31, 2012, respectively). These accounts are substantially represented by borrowings and financing which, as of December 31, 2013 and December 31, 2012, are hedged by swap arrangements. Derivatives to hedge foreign exchange risk The Company classifies derivatives into financial and operating. Financial derivatives include swaps or forwards contracted to hedge against the foreign exchange risk associated with foreign-currency-denominated borrowings and financing. Operating derivatives (usually forwards) include derivatives contracted to hedge against the foreign exchange risk on the business s operating cash flows. As of December 31, 2013, outstanding swap and forward contracts, with maturities between April 2013 and July 2020, were entered into the counterparties represented by the banks Bank of America (34%), HSBC (21%), Itaú (19%), Bradesco (9%), Citibank (9%), and Tokyo Bank (8%), broken down as follows: 24

33 Financial swaps Company Principal Fair value Gain for the year Type of transaction Swap contracts (1) Asset position: Long position U.S. dollar 1,897,430 1,411, Liability position: CDI floating rate: Short position in CDI 1,897,430 1,411, Financial swaps Consolidated Principal Fair value Gain for the year Type of transaction Swap contracts (1) Asset position: Long position U.S. dollar Liability position: CDI floating rate: Short position in CDI 1,907,095 1,418,092 2,127,095 1,538, ,569 81,281 1,907,095 1,418,092 1,961,526 1,457, Operating forwards - Company and consolidated Notional amount Fair value Gain (loss) for the year Type of transaction Forward contracts (2): Asset position: Long position - Australian dollar - 147, , Real position of purchase 7,500-6,346 - (1,154) - Liability position Fixed rates: Short position in Australian dollar - 147, ,875 - (353) Real position of purchase 7,500-7, (1) Swap transactions consist of swapping the exchange rate fluctuation for a percentage of the floating rate Interbank Deposit Rate (CDI). (2) Forward transactions establish a future parity between the Brazilian real and the foreign currency based on their equivalence when contracted, adjusted by a fixed interest rate. 25

34 Natura Cosméticos S.A. The notional amount represents the amounts of the contracted derivatives. Fair value refers to the value of outstanding contracted derivatives recognized in balance sheets. For derivatives maintained by the Group as of December 31, 2012 and December 31, 2011, due to the fact contracts are directly entered into with the financial institutions and not through São Paulo Stock Exchange (BM&FBOVESPA), there are no margin calls deposited as guarantee of the related transactions. Sensitivity analysis For the sensitivity analysis of derivatives, the Company s management understands it is necessary to take into consideration corresponding assets and liabilities with exposure to exchange rates recorded in the balance sheet. Company Consolidated Loans and financing in foreign currency (*) 2,096,565 2,106,255 Receivables in foreign currency - (5,034) Accounts payable in foreign currencies 6,429 11,396 Value of the "financial" derivatives (2,081,609) (2,086,609) Net passive exposure 21,385 26,008 The tables below show the gain (loss) that would have been recognized in profit or loss for the year ended December 31, 2012 based on the following scenarios: Company Description Company s risk Probable scenario Scenario II Scenario III Net liability exposure Us dollar appreciation (328) (5,346) (10,692) Description Net liability exposure Consolidated Company s Probable Scenario Scenario risk scenario II III Us dollar appreciation (648) (6,502) (13,004) During the year ended December 31, 2013, there were no changes in any of the levels of the fair value estimates. The probable scenario considers future U.S. dollar rates obtained at BM&FBOVESPA for the maturity dates of the financial instruments exposed to foreign exchange risks. Scenarios II and III consider a 25% (R$ 2.93/US$1.00) and 50% (R$3.51/US$1.00) appreciation of U.S. dollar, 26

35 respectively. Probable scenarios II and III are presented as required by CVM Instruction 475/08. In assessing possible changes in exchange rates, management uses the probable scenario, which is being presented for compliance with IFRS 7 Financial Instruments: Disclosures. The Group does not use derivatives for speculative purposes. ii) Interest rate risk The interest rate risk arises from short-term investments and loans. Financial instruments issued at floating rates expose the Group to cash flow risks associated with the interest rate. Financial instruments issued at fixed rates expose the Group to fair value risks associated with the interest rate. The Company s cash flow risk associated with the interest rate arises from short-term investments and short- and long-term loans and financing issued at floating rates. The Company s management adopts the policy of maintaining its rates of exposure to asset and liability interest rates pegged to floating rates. Short-term investments are adjusted by the Interbank Deposit Rate (CDI) whereas borrowings and financing are adjusted based on the Long-term Interest Rate (TJLP), CDI and fixed rates, according to the contracts made with the related financial institutions, and trading securities with investors in this market. Management believes that the risk of significant changes in the CDI and TJLP in the next 12 months is low taking into consideration the stability achieved with the current monetary policy implemented by the Federal Government, in addition to the history of adjustments in Brazilian policy rate over the past years. For this reason, the Company has not conduct derivative transactions to hedge against this risk. The Group contracts swap transactions to mitigate risks on borrowing and financing transactions subject to an index other than CDI, TJLP or fixed rates. However, as of December 31, 2013 and December 31, 2012, the Group did not have this type of derivative as they assessed the related risk as very low, as described above. On December 31, 2013, consolidated balance sheet includes loans issued at higher fixed rates level TJLP represent a liability of R$206,131 (December 31, 2012, there were loans issued at higher fixed rates TJLP). Such funding submitted in December 31, 2013, is protected derivative of the "swap". Derivative instruments to hedge the risk of interest rate On December 31, 2013, outstanding contracts "swap" mature between February 2016 and March 2016, were entered into with counterparties represented by Itaú (63%) and HSBC (37%) and are as follows. 27

36 Natura Cosméticos S.A. Derivative "swap" Consolidated Notional amount Fair value Gain (loss) for the year Description swap contracts (3): Asset position: Long position Fixed rate 202, , Liabilities position: CDI rate post fixed: Short position in CDI 202, ,888 - (10,781) - (3) The operations of financial "swap" involving the exchange of an interest rate pre-set by a related to a percentage of the variation of the Interbank Deposit Correction - postfix CDI. Sensitivity analysis As described in the foreign exchange risk section above, as of December 31, 2013 almost all foreign-currency-denominated borrowings and financing are hedged by swap arrangements that exchange the foreign-currency liability index for the CDI rate fluctuation, in light of the Company s policy to hedge such risks. The Company is, therefore, exposed to CDI fluctuation. The table below presents the exposure to interest rate risks of transactions pegged to CDI and TJLP, including derivative transactions: Company Consolidated Total borrowings and financing - in local currency (note 15) (308,628) (787,651) Derivatives pegged to CDI/TJLP (2,096,564) (2,106,255) Short-term investments (notes 5, 6 and 12) 941,327 1,068,918 Net liability exposure (1,463,865) (1,824,988) The sensitivity analysis considers the exposure of borrowings and financing pegged to CDI and TJLP rates, net of short-term investments, also pegged to the CDI rate (notes 5 and 6). The tables below show the loss (gain) that would have been recognized in profit or loss for the year ended December 31, 2013 based on the following scenarios: 28

37 Description Company s risk Company Probable scenario Scenario II Scenario III Net liabilities Description Net liabilities Interest rate increase (4,099) (35,755) (71,510) Consolidated Company s Probable Scenario Scenario risk scenario II III Interest rate increase (5,110) (44,575) (89,151) b) Credit risk The probable scenario considers future interest rates obtained at BM&FBOVESPA for the maturity dates of the financial instruments exposed to interest rate risks. Scenarios II and III consider an increase in the interest rate of 25% (12.2% per year) and 50% (14.7% per year), respectively. Credit risk refers to risk of a counterparty not complying with its contract obligations, which would result in financial losses for the Company. Sales of the Group are made to a great number of sales representatives (Natura Beauty Consultants) and this risk is managed through a strict credit granting process. The result of this management is reflected in the Allowance for doubtful accounts, as explained in note 7. The Group is also subject to credit risks related to financial instruments contracted for the management of its business, primarily represented by cash and cash equivalents, short-term investments and derivative instruments. The Company believes that the credit risk of transactions with financial institutions is low, as these are considered by the market as prime banks. The Policy for Short-term Investments adopted by the Company s management establishes the financial institutions with which the Group can do business and defines fund allocation limits and the amounts that may be invested in each of these financial institutions. c) Liquidity risk Effectively managing liquidity risk implies to maintain enough cash and marketable securities, funds available through credit facilities used and the ability to settle market positions. Management monitors the Company s consolidated liquidity level considering the expected cash flows against unused credit facilities the carrying amounts of financial liabilities are measured at amortized cost, and their corresponding maturities are as 29

38 Natura Cosméticos S.A. follows: Company as of December 31, 2013 Less than one year One to two years Two to five years More than five years Fair value 2012 Discount effect Carrying amount 2012 Current: Borrowings and financing 650, ,397 (73,556) 576,841 Trade payables 548, , ,256 Financial instruments 160, ,799 2, ,732 Noncurrent: Borrowings and financing (1,175,546) 624, ,729 2,096,354 (268,003) 1,828,351 Consolidated as of December 31, 2013 Less than one year One to two years Two to five years More than five years Fair value 2012 Discount effect Carrying amount 2012 Current: Borrowings and financing 791, ,216 (98,099) 693,117 Trade payables 735, , ,466 Financial instruments 161, ,641 (8,007) 153,634 Noncurrent: Borrowings and financing - 1,288, , ,870 2,510,054 (309,265) 2,200, Capital management The Company s objectives in managing its capital are to ensure that the Company is continuously capable of offering return to its shareholders and benefits to other stakeholders, and maintain an optimal capital structure to reduce this cost. The Company monitors capital based on the financial leverage ratios. This ratio corresponds to the net debt divided by the total capital. The net debt corresponds to total borrowings and financings (including short- and long-term borrowings, as shown in the consolidated balance sheet), deducted from cash and cash equivalents. The consolidated financial leverage ratios as of December 31, 2013 and December 31, 2012 are as follows: Company Consolidated Short- and long-term borrowings and financing 2,405,192 1,987,756 2,893,906 2,308,639 Derivative financial instruments (163,732) (80,271) (153,634) (80,928) Cash and cash equivalents and Short-term (1,026,737) (1,241,254) (1,309,308) (1,643,062) 30

39 investments Net debt 1,214, ,231 1,430, ,649 Shareholders equity 1,145,637 1,287,435 1,168,250 1,287,436 Financial leverage ratio % 51.75% % 45.41% Loans and financing of short and long term are reflected in the values of government grant in December 31, 2013, R$15,495 and R$59,341, consolidated, and December 31, 2012, to R$926 the Parent Company and R$15,880, consolidated, in accordance with CPC 07 Grants and Government Assistance and IAS Fair value estimate Financial instruments are measured at fair value at the end of the reporting period as prescribed by CPC 40 Financial Instruments: Disclosures and according to the following hierarchy: Level 1: Prices quoted (unadjusted) in active markets for identical assets or liabilities. A market is considered active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm s-length basis. Level 2: Used for financial instruments that are not traded in active markets (for example, over-the-counter derivatives) and whose fair value is determined using valuation techniques that, in addition to the quoted prices, included in Level 1, use other inputs adopted by the market for assets or liabilities, whether directly (i.e., prices) or indirectly (i.e., derived from prices). Level 3: Inputs for assets or liabilities that are not based on the data adopted by the market (i.e., unobservable inputs). As of December 31, 2013 and December 31, 2012, the measurement of all the Company s and its subsidiaries derivatives falls under the Level 2 characteristics. The fair value of exchange rate derivatives (swap and forwards) is determined based on the exchange rate at the end of the reporting period, with the resulting amount being discounted to present value. Short-term investments The carrying amounts of the short-term investments approximate their fair values as transactions are conducted at floating interest rates and can be immediately redeemable. Borrowings and financing The carrying amounts of borrowings and financing, except those pegged to a fixed rate, approximate their fair values as they are pegged to a floating rate, the CDI fluctuation. The carrying amounts of financing pegged to TJLP approximate their fair 31

40 Natura Cosméticos S.A. values as the TJLP is also pegged to CDI and is a floating rate. The fair value of borrowings and financing contracted at fixed interest rates does not have significant variation related to the book value disclosed in note 15. Trade and other payables It is estimated that the carrying amounts of trade receivables and trade payables approximate their fair values in view of the short term of the transactions conducted. Societies do not have any guarantee for the bonds in arrears. 5. CASH AND CASH EQUIVALENTS 2013 Company 2012 Restated 1/1/ Consolidated 2012 Restated 1/1/2012 Cash and banks 85,410 51,732 27, , ,011 98,208 Certificates of deposits CDB (a) 14,125 21, , , , ,402 Repurchase agreements (b) ,061 34,602-99,535 72, ,007 1,016,293 1,144, ,610 (a) Investments in Bank Deposit Certificates are restated with yield interest ranging from 95.0% to 112.4% of CDI. (b) Repurchase agreements are securities issued by banks with a commitment by the bank to repurchase the security, and by the client to resell the security, at a fixed price (rate of interest) and within a predetermined term, which are backed by public or private securities (depending on the bank) and are registered with the CETIP. 6. SHORT-TERM INVESTMENTS Exclusives investments funds 2013 Company 2012 Restated 1/1/ Consolidated 2012 Restated 1/1/ ,202 1,168, Investments funds 25,254 Financial letters , Government security , , ,202 1,168, , ,672 - The Company focuses most of its investments in exclusive investment funds. On December 31, 2013 and December 31, 2012, the amount related to the exclusive investment fund is valued at fair value through profit or loss. According to CVM Instruction n. 408/04, the financial investments in Investment Funds in which the Company has an exclusive interest were consolidated. The exclusive funds are as follows: 32

41 The Essential Investment Fund is a fund fixed income credit under private management, administration and custody of Itaú Unibanco. Eligible assets in the portfolio are: government securities, time deposits, financial bills and repurchase agreements. There is no grace period for redemption of shares that may be redeemed at any time yield. The tuning Investment Fund is a private fund fixed income credit under management, administration and custody of BTG Pactual. There on December 31, 2013 the amount of R$104 in CDs. There is no grace period for redemption of shares that may be redeemed at any time yield. Breakdown of the exclusive fund portfolio at December 31, 2013 is as follows: Sintonia Essencial Total Floating rate bank certificates of deposits (CDBs) , ,598 Repurchase agreements , ,062 Financial letters - 141, ,514 Government security (LFT) - 126, , TRADE RECEIVABLES 104 1,045,317 1,045, Company 2012 Restated 1/1/ Consolidated 2012 Restated 1/1/2012 Trade receivables 748, , , , , ,861 Allowance for doubtful accounts (79,623) (58,947) (56,171) (99,917) (72,931) (64,989) 668, , , , , ,872 The aging list of trade receivables is as follows: 2013 Company 2012 Restated 1/1/ Consolidated 2012 Restated 1/1/2012 Current 599, , , , , ,472 Past due: Up to 30 days 66,117 54, , ,037 72, , to 60 days 22,726 23,020 14,029 27,654 26,481 16, to 90 days 16,526 14,448 9,950 20,585 17,708 13, to 180 days 43,508 34,000 13,002 61,802 40,806 16,269 Allowance for doubtful accounts (79,623) (58,947) (56,171) (99,917) (72,931) (64,989) 668, , , , ,872 The balance of trade receivables in Consolidated is basically denominated in Brazilian reais, and approximately 83% of the outstanding balance as of December 31, 2013 refers to realdenominated transactions (84% as of December 31, 2012). The remaining balance is denominated in several currencies and refers to sales of foreign subsidiaries. 33

42 Natura Cosméticos S.A. The changes in the allowance for doubtful accounts for the period ended December 31, 2013 and 2012 are as follows: Company Balance at 2012 Additions (a) Reversals (b) Balance at 2013 Consolidated Balance at 2012 Additions (a) Reversals (b) Balance at 2013 (58,947) (114,317) 93,641 (79,623) (72,931) (135,655) 108,669 (99,917) Company Balance at 2011 Additions (a) Reversals (b) Balance at 2012 Consolidated Balance at 2011 Additions (a) Reversals (b) Balance at 2012 (56,171) (122,224) 119,448 (58,947) (64,989) (138,056) 130,114 (72,931) (a) Allowance recognized according to note 2.7. (b) Refers to accounts that are over 180 days past due that were written off due to uncollectible amounts. The expense on the recognition of the allowance for doubtful accounts was recorded in Selling expenses in the income statement. When recovery of additional cash is less than probable, the amounts credited to line item Allowance for doubtful accounts are in general reversed against the definite write-off of the receivable and is recorded in net income or loss. Maximum exposure to credit risk at the reporting date is the carrying amount of each aging range, net of the allowance for doubtful accounts, as shown in the aging list above. The Group does not have any guarantee for past-due receivables. 8. INVENTORIES 2013 Company 2012 Restated 1/1/ Consolidated 2012 Restated 1/1/2012 Finished products 164, , , , , ,739 Raw materials and packaging , , ,806 Promotional material 16,739 13,871 18,560 62,883 52,273 52,288 Work in progress ,576 20,085 16,314 Allowance for losses (19,284) (18,820) (20,280) (99,113) (71,557) (95,399) 162, , , , , ,748 The changes in the allowance for inventory losses for the year ended December 31, 2013 and 2012 are as follows: Company Balance at 2012 Additions (a) Reversals (b) Balance at 2013 Consolidated Balance at 2012 Additions (a) Reversals (b) Balance at 2013 (18,820) (22,254) 21,790, (19,284) (71,557) (111,164) 83,608 (99,113) 34

43 Company Balance at 2011 Additions (a) Reversals (b) Balance at 2012 Consolidated Balance at 2011 Additions (a) Reversals (b) Balance at 2012 (a) (b) (20,280) (11,803) 13,263 (18,820) (95,399) (86,894) 110,736 (71,557) Refer basically to the recognition of the allowance for losses due to discontinuation, expiration and quality, to cover expected losses on the realization of inventories, pursuant to the Group s policy. Consist of write-offs of products discarded by the Company. 9. RECOVERABLE TAXES 2013 Company 2012 Restated 1/1/ Consolidated /1/2012 Restated ICMS on purchases of goods , , ,942 Refundable ICMS - ST on interstate sales, SP 4,395 3,693 8,296 4,395 3,693 8,296 Taxes - foreign subsidiaries ,187 23,676 22,170 ICMS on purchases of fixed assets 6,353 12,812 15,428 27,497 21,992 24,318 PIS and COFINS on purchases of fixed assets 18, , ,376 PIS and COFINS on purchase of goods 17,678 18,512 45,012 24,027 21,394 68,187 PIS and COFINS resulting from win on a ,887 7,881 lawsuit (a) 7,881 16,852 IRPJ and CSLL on freight 1, ,442 1,362 3,236 PIS, COFINS and CSLL - withheld at source ,596 3,221 2,024 Other ,510 7,823 8,834 Provision for discount on sale of ICMS credits (593) (4,184) (3,376) 48,460 36,369 81, , , ,859 Current 23,800 23,417 69, , , ,620 Noncurrent 24,660 12,952 12, , , ,239 (a) The amount shown relates to the recognition of tax credits of Social Integration Program - PIS and Contribution to Social Security Financing - COFINS the lawsuit challenging the constitutionality and legality of the tax base for calculating contributions cited, established by Law No /98. As the Company obtained authorization from the Federal Revenue of Brazil to offset credits of the parent after the transit and trial of the case in 2012, the accounting recognition of credit in the subsidiary remained for the year (B Letter in 2012) 10. INCOME TAX AND SOCIAL CONTRIBUTION a) Deferred Deferred Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL) result from temporary differences in the Company and in its subsidiaries. These credits are kept recorded in noncurrent assets, as prescribed by CPC 26 (R1) Presentation of Financial Statements. The amounts are as follows: 35

44 Natura Cosméticos S.A Company 2012 Restated 1/1/ Consolidated 2012 Restated 1/1/2012 Tax loss carryfowards , Allowance for doubtful accounts (note 7) 27,072 22,316 19,098 27,072 22,316 19,098 Allowance for losses on inventories realization (note 8) 6,556 6,399 6,895 28,512 20,039 28,219 Reserve for tax, civil and labor contingencies (note 18) 17,164 14,168 17,743 39,699 36,273 36,896 Non-inclusion of ICMS in the PIS and COFINS basis (note 18) ,116 49,342 39,173 Allowance for losses on swap and forward contracts (note 25) (55,669) (27,292) (9,583) (52,628) (27,516) (9,733) Provision for ICMS ST, PR, DF, MS, MT and RJ States (note 17) 20,195 13,856 8,247 20,195 13,856 8,247 Allowances for losses on advances to suppliers 1,982 2,011 1,992 2,703 2,614 2,137 Accrued contractual obligations 5,459 7,809 1,439 8,069 10,310 2,713 Provision for discount on assignment of ICMS credits ,422 1,148 Accrued benefits sharing and partnerships 8,133 8,510 6,178 8,133 8,510 6,178 Temporary differences of foreign subsidiaries ,482 10,019 9,681 Provision for profit sharing 10,598 15,412 3,955 15,666 31,016 10,947 Depreciation rate adjustments to useful lives (RTT) (287) 1,241 (13,653) (9,605) Other temporary differences 6,315 5,959 1,420 6,315 6,187 (6,989) Allowance for doubtful accounts (note 7) 7,831 9,587 15,568 21,454 20,802 32,272 56,038 80,632 73, , , ,987 Management, based on projections of future taxable income, estimates that the recorded tax credits will be fully realized within five years. Tax credits will be realized as follows: Company Consolidated and thereafter With respect to the Company s foreign subsidiaries, except for the operation in Argentina 36

45 and Peru which reports taxable income, the other subsidiaries do not record tax credits on tax loss carry forwards and temporary differences in their financial statements due to the absence of a history of taxable income and taxable income projections for the coming fiscal years. As of December 31, 2013, tax credits calculated at the prevailing tax rates in the countries where the subsidiaries are located, are as follows: Tax loss carry forwards: Mexico 207,731 Colombia 110,722 France 165,598 Tax credits on tax loss carry forwards generated by the subsidiaries can be carried forward indefinitely, except for the subsidiary in Mexico, which expire the tax loss carry forwards as follows: Mexico , , to , b) Reconciliation of income tax and social contribution 2013 Company 2012 Restated 1/1/ Consolidated 2012 Restated 1/1/2012 Income before income tax and social contribution 1,173,487 1,226,891 1,161,791 1,257,746 1,298,351 1,237,730 Income tax and social contribution at the rate of 34% (398,986) (417,143) (395,009) (427,634) (441,439) (420,828) Technological research and innovation benefit - Law 11196/05 (*) 20,451 22,008 22,386 20,451 22,008 22,386 Tax incentives donations 8,218 6,242 6,582 9,932 8,487 9,668 Equity in investees (note 13) 33,842 20,189 18, Unrecognized deferred taxes on tax losses generated by foreign subsidiaries ,862 (11,345) (28,915) Tax Transition Regime (RTT) - Provisional (2,521) 1,352 (779) (4,275) (1,413) (3,242) Act 449/08 Law 11,638/07 adjustments Other permanent differences (8,667) (12,668) 21,067 (33,058) (28,284) 21,067 Income tax and social contribution expenses 16,783 27,505 (3,765) 16,783 28,011 (6,965) Income tax and social contribution - current Income tax and social contribution - (330,880) (352,515) (330,890) (409,939) (423,975) (406,829) 37

46 Natura Cosméticos S.A. deferred Effective rate - % (306,286) (359,575) (323,544) (408,121) (439,573) (416,122) Income before income tax and social contribution (24,594) 7,060 (7,346) (1,818) 15,598 9,293 Income tax and social contribution at the rate of 34% (*) Refers to the tax benefit established by Law 11196/05, which allows for the direct deduction from the calculation of taxable income and the social contribution tax basis of the amount corresponding to 60% of the total expenses on technological research and innovation, observing the rules established in said Law. The changes in income tax and social contribution for the year of 2013 were as follows: Balance at 2012 Company Charged / (credit) to profit or loss Balance at 2013 Balance at 2012 Consolidated Charged / (credit) to profit or loss Balance at ,632 (24,594) 56, ,585 (1,818) 193,767 The changes in income tax and social contribution for the year of 2012 were as follows: Balance at 2011 Company Charged / (credit) to profit or loss Balance at 2012 Balance at 2011 Consolidated Charged / (credit) to profit or loss Balance at ,572 7,060 80, ,987 15, , ESCROW DEPOSITS Represent Group s restricted assets related to amounts deposited and held by the courts until the litigation to which they are linked is resolved. The Group s escrow deposits as of December 31, 2013 and December 31, 2012 are as follows: 2013 Company 2012 Restated 1/1/ Consolidated 2012 Restated 1/1/2012 ICMS - ST (note 18.(a)) 105,996 88,475 80, ,996 88,475 80,304 ICMS - ST suspended collection (note 17 (b)) 134,941 96,898 88, ,941 96,898 88,521 Other accrued tax obligations (note 17 (e) and (f)) 6,469 10,030 9,434 80,706 80,361 52,024 Other suspended tax obligations (noteº 18.(c)) 11,704 11,351 10,955 11,704 11,351 10,955 Unaccrued tax lawsuits 43,479 36,576 34,373 54,322 42,337 38,254 Accrued tax lawsuits (note 18) 7,356 9,913 9,952 7,949 11,554 11,515 Unaccrued civil lawsuits 32 1,027 1, ,118 1,108 Accrued civil lawsuits (note 18) 2,078 2,056 1,886 2,194 2,167 1,992 Unaccrued labor lawsuits 4,750 8,241 5,844 7,456 10,123 6,999 Accrued labor lawsuits (note 18) 4,709 3,031 2,653 7,014 5,153 4, , , , , , , OTHER CURRENT AND NONCURRENT ASSETS 38

47 2013 Company 2012 Restated 1/1/ Consolidated 2012 Restated 1/1/2012 Advances to advertisement services 151, , , , , ,666 Advances to trade payables 23,347 2,548 2,504 49,532 7,872 3,643 Advances to employee 6,043 3,666 3,867 8,559 5,479 5,750 Insurance 2,867 2,123 1,829 3,661 2,699 2,464 Import taxes 781 1,652-8,699 4,289 - Asset held for sale (a) 4,413 4,327-22,165 22,079 17,752 Carbon Credit (b) 9, , Contingence Liability , Others 4,561 1,254-16,677 20,291 14, , , , , , ,718 Current 184, , , , , ,783 Non-current 19,057 23,187 4,562 37,165 41,295 29,935 (a) This balance refers to assets which the company intends to sell one of the next 12 months as CPC 31-non-current assets held for sale (IFRS 5). These assets are measured at the lower value between the carrying amount and fair value less costs to sell. The company classifies these assets under this heading by considering selling highly probable and the assets are available for immediate sale in its present condition. Once classified as intended for sale, the assets are not depreciated or amortized. (b) Carbon Neutral program (see note 2.10) 13. INVESTMENTS 2013 Company 2012 Restated 1/1/2012 Investments in subsidiaries and jointly controlled entities 1,522,921 1,306,884 1,250,729 39

48 Natura Cosméticos S.A. Information and changes in the balances for the year ended December 31, 2013 and 2012 Indústria e Comércio de Cosméticos Natura Ltda. (*) Natura Cosméticos S.A. - Chile Natura Cosméticos S.A. - Peru Natura Cosméticos S.A. - Argentina Natura Cosméticos Ltda. - Venezuela Natura Inovação e Tecnologia de Produtos Ltda. (*) Natura Cosméticos de México S.A. (*) Natura Cosméticos Ltda. - Colômbia Natura (Brasil) International B.V. - Holanda (*) Natura Cosméticos España S.L. Natura Biosphera Comércio de Cosméticos e Serviços Ltda. Natura Brasil Pty Ltd (*) Total Share capital 526, ,574 50,419 89,586 5,634 5, , ,327 38, ,931 1,374,137 Equity interest 99,99% 99,99% 99,94% 99,97% 99,99% 99,99% 99,99% 99,99% 100,00% 100,00% 99,99% 100,00% Subsidiaries' shareholders equity 1,140,859 62,543 15,577 99, ,993 8,227 7,050 15, ,849 1,543,273 Interest in shareholders equity 1,120,557 62,537 15,568 99, ,990 8,226 7,049 15, ,849 1,522,921 Subsidiaries' net income (loss) for the year 90,892 24,889 (8,765) 30,558-17,458 (25,727) (15,387) (18,199) - (63) 3,893 99,549 Carrying amount of investments Balance as of January 01, ,057,677 20,383 1,485 72, ,473 47,596 13,434 8, ,250,729 Equity in investees 89,872 11,756 (9,989) 12,218-16,269 (23,676) (21,756) (14,771) - (11) - 59,912 Exchange rate change and other adjustments on the translation of - 4,394 (675) (4,505) ,293 1,988 (256) - - 7,437 investments in foreign subsidiaries Company s contribution to the stock options plan of subsidiaries executives and other reserves 5, , ,132 Gain/Losses actuarial (1,681) (340) (2,021) Profit distribution (50,000) (16,148) (66,148) Capital increases , ,196 16, ,843 Balance as of December 31, ,101,623 36,533 5,466 80, ,801 30,213 10,862 10, ,306,884 Equity in investees 90,883 24,887 (8,760) 30,549-17,456 (25,724) (15,385) (18,199) - (63) 3,893 99,537 Exchange rate change and other adjustments on the translation of investments in foreign subsidiaries 49 1,117 (144) (13,723) (72) 776 3, , ,391 (333) Company s contribution to the stock options plan of subsidiaries executives and other reserves 3, , ,160 Gain/Losses actuarial 4, ,879 Profit distribution (80,000) (16,080) (96,080) Capital increases ,006 2, ,210 21, , ,874 Balance as of December 31, ,120,557 62,537 15,568 99, ,990 8,226 7,049 15, ,849 1,522,921 (*) Consolidated information of the following companies: Natura Cosméticos de México S.A.: Natura Cosméticos y Servicios de México, S.A. de C.V., Natura Cosméticos de México, S.A. de C.V. and Natura Distribuidora de México, S.A. de C.V. Natura (Brasil) International B.V. - The Netherlands: Natura (Brazil) International B.V. (The Netherlands), Natura Brazil Inc. (USA - Delaware), Natura International Inc. (USA - New York), Natura Europa SAS (France) and Natura Brasil SAS (France). Natura Inovação e Tecnologia de Produtos Ltda.: Ybios S.A (until June 29, 2012) and Natura Innovation et Technologie Produits S.A.S. - France 40

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50 Natura Cosméticos S.A. 14. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS Cost Value: Weighted average annual depreciation rate - % January, 1 of 2012 December, 31 of 2012 Restated Addiction Derecogn ition Company Reclassification/ca pitalization and Exchange variation Bussiness combination / whitout cash effects December, 31 of 2013 Vehicles 39,010 39,872 16,160-12, ,489 Machinery and equipment 114, ,467 8,038 (1,434) 61, ,012 improvements in third party properties 35,419 41, (7,957) 28,048-61,672 Buildings 56,694 56, , ,817 Furniture and fixtures 11,633 16,039 2,098 (3,922) (64) - 14,151 IT equipment 50,867 66,832 4,112 (42) 8,776-79,678 Projects in progress 70, , ,439 - (191,685) - 28, , , ,592 (25,713) 93, ,760 depreciation Vehicles 33 (16,991) (21,270) (9,499) 7,111 5,596 - (18,062) Machinery and equipment 4 (7,421) (16,250) (14,663) 995 (1,063) - (30,981) improvements in third party (11,844) (24,247) (4,332) 7, (21,210) properties 15 Buildings (2,537) (2,537) Furniture and fixtures 7 (3,006) (5,131) (1,067) 2, (3,711) IT equipment 18 (7,024) (19,857) (16,028) (35,562) Projects in progress (46,286) (86,755) (48,126) 17,824 4,994 - (112,063) Total 332, , ,466 (7,889) ,696 42

51 Natura Cosméticos S.A. Consolidated Weighted average annual depreciation rate - % January,1 of 2012 December, 31 of 2012 Restated Addiction Derecogniti on Reclassification/capitali zation and Exchange variation Business combination / without cash effects December, 31 of 2013 Cost Value: Vehicles 59,490 64,766 28,974 (21,796) (1,273) ,815 Templates 116, ,492 38,572 (1,167) 3, ,393 Tools and accessories 4,196 4,687 11, ,137-42,449 Facilities 132, ,089 7,758 (1,639) 5, ,346 Machinery and equipment 410, ,845 59,822 (2,122) 71,439 1, ,340 Improvements in third parties 50,599 57,396 6,624 (9,168) 6,419 22,022 83,293 Buildings 207, , (8,443) 185, ,060 Furniture and fixture 32,976 39,445 5,115 (4,506) (2,581) 3,159 40,632 Properties 27,214 27,484 - (1,372) ,112 IT Equipment 76,305 93,910 6,556 (1,443) 7,226 2, ,412 Projects in progress 128, , ,921 - (195,633) - 448,175 Total 1,246,791 1,558, ,491 (51,285) 106,140 28,844 2,110,027 Depreciation Vehicles 33 (22,430) (27,228) (15,901) 12,969 4,615 (148) (25,693) Templates 30 (87,966) (105,197) (24,619) 1,167 2,992 - (125,657) Tools and accessories 3 (2,256) (2,253) (892) 140 (15,612) - (18,617) Facilities 9 (73,512) (81,451) (10,268) 664 (717) - (91,772) Machinery and equipment 6 (145,342) (174,839) (36,240) 1,590 (216) (832) (210,537) Improvements in third parties 15 (18,581) (34,011) (10,548) 8,578 (8,837) (8,895) (53,713) Buildings 4 (60,400) (66,028) (8,274) 4,419 (468) - (70,351) Furniture and fixture 11 (11,937) (15,738) (4,323) 2,980 1,826 (1,567) (16,822) Properties 19 (23,933) (40,001) (20,177) 1,734 2,479 (1,196) (57,161) (446,357) (546,746) (131,242) 34,241 (13,938) (12,638) (670,323) Total 800,434 1,012, ,251 (17,044) 92,202 16,206 1,439,704 43

52 Natura Cosméticos S.A. Cost Value: Weighted average annual depreciation rate - % January,1 of 2012 December, 31 of 2012 Restated Company Addiction derecognition Reclassification / capitalization and Exchange variation Business combination / without cash effects December, 31 of 2013 Software and others (320) Carbon credits (9.664) - Amortization: (9.984) Software and others 17 (17.356) (42.468) (51.289) (91.209) Carbon credits (17.356) (42.468) (51.289) (91.209) Total (9.741) Cost value: Weighted average annual depreciation rate - % January,1 of 2012 December, 31 of 2012 Restated Addiction derecognition Consolidated Reclassification / capitalization and Exchange variation Business combination / without cash effects Software and others (444) Carbon credits (9.664) Trademarks and patents Goodwill Emeis (Brazil PTY) Relationship with clients Business lease Natura Europa SAS - France (2.661) Total (10.108) Amortization: Software and others 18 (32.676) (63.596) (59.887) (250) ( ) Trademarks and patents 4 (1.623) (883) (1.789) - (1.040) - (3.712) Relationship with clients (80) (80) Cost value: (34.299) (64.479) (61.756) (250) ( ) Software and others (9.815) December, 31 of 2013 (a) The amortization rates take into consideration the lease terms of leased properties, which range from three to seven years. (b) The business lease generated on the purchase of a commercial location where Natura Europa SAS - France operates is supported by an appraisal report issued by independent appraisers, attributable to the fact that it is an intangible, marketable asset, the value of which does not decrease over time. The change in the balance between December 31, 2013 and December 31, 2012 is basically due to the effects of the exchange fluctuation for the period. 44

53 Natura Cosméticos S.A. (c) Carbon Neutral Program (note ). Additional information on property, plant and equipment: a) Assets pledged as collateral As of December 31, 2013, the Group has property, plant and equipment items pledged as collateral of bank financing and loan transactions, as well as items attached to the defense of lawsuits, as shown below: Company Consolidated Vehicles IT Equipment Machinery and equipment 1 11 Buildings - 2 Properties - 5 Total b) Leases In 2013 the Company entered into finance lease transactions to purchase property, plant and equipment totaling R$185,851. As of December 31, 2013, the balance of lease payables, classified in line item Borrowings and financing (note 15) totals R$240,008 (R$69,263 as of December 31, 2012). c) Balance of capitalized interest Consolidated Financial expenses recorded under Buildings Balance at beginning of year 1,453 1,453 Capitalized interest 4,135 - Balance at year end 5,588 1,453 45

54 Natura Cosméticos S.A. 15. BORROWINGS AND FINANCING Local Currency 2013 Company 2012 Restated 1/1/ Consolidated 2012 Restated 1/1/2012 Reference BNDES EXIM ,607 FINEP (Financing Agency for Studies and Projects) ,421 65,347 27,106 A Debentures - 352, , , ,256 B BNDES 59,002 76,992 21, , , ,689 C Working capital / NCE , ,131 72,448 48,613 D BNDES FINAME ,253 5,220 7,336 E Banco do Brasil - FAT "Fomentar" (Workers Assistance Fund) ,324 2,697 F BNDES EXIM 249,625 47,803 56, ,625 47,803 56,729 G FINEP (Financing Agency for Studies and Projects) , H Total in local currency 308, , , , , ,322 Foreign currency BNDES 20,057 14,545 4,486 29,747 19,152 10,713 I Resolution 4131/62 2,076,508 1,474, ,237 2,076,508 1,474, ,237 J International operation Peru ,981 27,278 36,483 K International operation Mexico ,007 2,117 - L ACE 11,995 - M Machinery financing ,180 - International operation Peru - 21,460 22,944-21,460 22,944 Total in foreign currency 2,096,565 1,510, ,667 2,169,238 1,565, ,377 Grand total 2,405,192 1,987, ,973 2,893,906 2,308,639 1,186,699 Current 576, ,261 66, , , ,962 Noncurrent 1,828,351 1,143, ,549 2,200,789 1,309,177 1,017,737 46

55 Natura Cosméticos S.A. Referência Moeda Vencimento Encargos Garantias A Real March 2013 and TJLP (b) for the installment maturing in 2013 and interest of 5% May 2019 for the installment maturing in May 2019 Guarantee of Natura Cosméticos S,A, and bank guarantee B Real May 2013 Interest of 108% of CDI maturing in May 2013 None Through TJLP + interest of 0,5% p.y. a 3,96% p.y. and contractos of 3,5% Real C September 2021 p.y. a 5% p.y. (PSI) (d) Bank guarantee D Real Through August 2016 Interest of 8,0% p.y. (c) Guarantee of Natura Cosméticos S,A E Real Through Interest of 4,5% p.y. + TJLP for contracts up to 2012 and for September 2018 contracts from 2013 to 3% p.y. (PSI) (d) Leases are collateralized by the underlying assets F Real February 2014 Chattel mortgage, guarantee of Natura Cosméticos S,A, and Interest of 4,4% p.y. + TJLP promissory notes G Real Through August 2021 Interest of 108,0% of DI - CETIP (b) Leases are collateralized by the underlying assets H Real July 2015 none none I Dólar October 2020 Exchange fluctuation + interest of 1,8% to 2,3% p.y. + Resolutionº 635 (a) Leases are collateralized by the underlying assets J Dólar Through August Exchange fluctuation + Libor + Over Libor of 1,32% p.y. a 3,80% 2021 p.y. (a) Guarantee of Indústria e Comércio de Cosméticos Natura Ltda. K Novo sol January 2014 Interest of 4,9% p.y. Bank guarantee L Peso Mexicano June 2014 Interest of 0,98% p.y. + TIIE (e) Guarantee of Natura Cosméticos S,A M Dolar February 2016 Australiano Interest of 7% p.y Bank guarantee (a) (b) (c) (d) (e) Loans and financing for which swap contracts (CDI) were entered into. DI - CETIP - daily index calculated based on the average DI, disclosed by Cetip S.A. (Brazilian clearinghouse and over-the-counter market). Loans for which the financial instruments of the type "swap" with the exchange of fixed rate for CDI were hired. PSI-Investment Support Program. TIIE-interest rate of interbank equilibrium Mexico 47

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57 Natura Cosméticos S.A. Maturities of noncurrent liabilities are as follows: Company Consolidated , , ,111, ,435 1,201, , ,100 26, ,664 47, ,192 12,966 58,074 28, and thereafter 198,701 44, ,709 69,176 1,828,351 1,143,495 2,200,789 1,309,177 A description of the outstanding bank loan agreements is as follows: a) Description of bank loans 1. Financing agreements with the BNDES The Company and its subsidiaries Indústria e Comércio de Cosméticos Natura Ltda. and Natura Inovação e Tecnologia de Produtos Ltda. have credit facility agreements with the BNDES to facilitate direct investments in the Company and its subsidiaries in order to improve certain product lines, train research and development employees, optimize operation product separation lines in the Cajamar, SP industrial facilities, build new distribution centers an recently the deployment of an industrial plant in Benevides, Para and investments at a distribution center in Parque Anhanguera in São Paulo, and projects related to digital accessibility. 2. Financing agreement with the FINEP The subsidiary Natura Inovação e Tecnologia de Produtos Ltda. has innovation programs aimed at the development and acquisition of new technologies by means of partnerships with universities and research centers in Brazil and abroad. These innovation programs have the support of FINEP s research and technological development incentive programs, which facilitates and/or co-finances equipment, scientific grants and research material for the participating universities. These funds were used to partially fund the investments made in the drafting of the Technology Platforms for New Cosmetics and Nutritional Supplements and the Research and Innovation for the Development of New Cosmetics projects. 3. Machinery and Equipment Financing - FINAME The Company benefits from a credit facility with the BNDES, related to FINAME onlendings, intended to finance the purchase of new machinery and equipment manufactured in Brazil. Said onlending is carried out by granting credit to subsidiary Indústria e Comércio de Cosméticos Natura Ltda., granting rights to receivables to the financial institution accredited as a financing agent, usually Banco Itaú Unibanco S.A. and Banco do Brasil S.A., which enters into such said financing with Indústria e Comércio de Cosméticos Natura Ltda. 49

58 Natura Cosméticos S.A. These agreements are collateralized by assigning the fiduciary ownership of the assets described in the related agreements. The subsidiary Indústria e Comércio de Cosméticos Natura Ltda. is the trustee and the Company is the guarantor of these assets. In addition, the Group is required to meet the Provisions Applicable to BNDES Agreements and the General Regulatory Terms and Conditions of FINAME-related Transactions. 4. Resolution nº 4.131/62 Bank Credit Note - Onlending of funds raised abroad under law nº 4.131/62, through financial institutions. 5. NCE Export Note ( Nota de Crédito à Exportação ) Funds for use as working capital for export purposes. 6. Debentures First issuance of simple debentures, nonconvertible into shares, totaling R$350,000, in single series, without guarantee and without financial covenants, with face value of R$1,000, in conformity with CVM Instruction 476/09, issued on May 26, 2010 and subscribed and paid in May 28, with the payment of semiannual interest in May and November, and principal maturing on May 26, b) Finance lease obligations Financial obligations are broken down as follows: Consolidated Gross finance lease obligations - minimum lease payments: Less than one year 29,012 14,561 More than one year and less than five years 126,223 49,592 More than five years , ,871 Future financing charges on finance leases ( ) (65,608) Financial lease obligations - accounting balance ,263 Accounting balance of property, plant and equipment: leasing and sale leaseback 240,008 77, c) Capitalized Interest The following table presents summary financial charges and capitalized in fixed assets under "Buildings" plot.

59 Natura Cosméticos S.A. Company Consolidated Total financial charges for the year 67,423 85, , ,416 Capitalized interest - - (4,135) (1,453) Financial expenses (Note 25) 67,423 85,307 99, ,963 Financial expenses are capitalized based on the rate of the loan to which the qualifying asset is directly connected. d) Contract Covenants On December 31, 2013 and December 31, 2012, the majority of loans and financing held by the Company and its subsidiaries contract does not contain restrictive covenants that establish obligations regarding the maintenance of financial ratios by the Company and its subsidiaries. Contracts with BNDES from July 2011 have restrictive covenants establishing the following financial indicators: -EBITDA margin exceeding 15%; and - Net debt / EBITDA less than or equal to 2.5 (two point five). On December 31, 2013, the Company had fully complied with all such covenants. 16. TRADE AND OTHER PAYABLES 2013 Company Consolidated Restated 1/1/ Restated 1/1/2012 Domestic trade payables 242, , , , , ,328 Foreign trade payables (*) 6,428 10,308 15,043 11,396 15,686 18,765 Freight payable 23,005 18,577 34,512 23,429 19,012 34, , , , , , ,980 (*) Refer mostly to US dollar-denominated amounts. 51

60 Natura Cosméticos S.A. 17. TAXES PAYABLE 2013 Company 2012 Restated 1/1/ Consolidated 2012 Restated 1/1/2012 Taxes on revenue (PIS/COFINS) (injunction) (a) 2,025 1,929 1, , , ,214 Ordinary ICMS 114, ,696 59, , ,184 81,687 Regular and reverse charge ICMS (b) 134,941 96,898 89, ,941 96,898 89,301 IRPJ and CSLL 131,736 93, , , , ,639 IRPJ and CSLL (injunction) (c) 133,594 88,105 56, ,594 88,105 56,941 IRPJ and CSLL (injunction - PAT) - 4,630 2,656-8,693 6,029 INSS suspension of the enforceability 2,290-7,621 9,233-11,974 Withholding income tax (IRRF) ,870 44,766 42,432 IPI - exempt and zero-taxed products (d) 3,110 6,809 6,361 3,170 6,973 6,519 UFIR adjustment to federal taxes (e) 3,361 3,222 3,073 3,361 3,222 3,073 Action for annulment of INSS debt (f) 11,413 8,844 15,823 13,403 3,324 Withholding PIS/COFINS/CSLL 1,589 5,652 2,490 7,706 6,092 1,110 PIS/COFINS Taxes - foreign subsidiaries ,467 30,709 17,888 Service tax (ISS) ,485 2,051 1, , , , , , ,345 Escrow deposits ((b), (e) and (f)) (note nº11) (141,411) (106,928) (97,955) (215,647) (177,259) (140,545) Current 397, , , , , ,800 Noncurrent 141, ,928 97, , , ,545 (a) The Company and its subsidiary Indústria e Comércio de Cosméticos Natura Ltda. are challenging in court the inclusion of ICMS in the tax basis of Integration Program Tax on Revenue (PIS) and Social Security Funding Tax on Revenue (COFINS). In June 2007, the Company and its subsidiary were authorized by the court to pay PIS and COFINS without the inclusion of ICMS in their tax basis, starting April The balances recognized as of December 31, 2013 refer to the unpaid amounts of PIS and COFINS, from April 2007 to December 2013 adjusted using the SELIC (Central Bank s policy rate), the collection of which is on hold. Part of the balance, in the adjusted amount of R$27,304, is deposited in escrow. (b) As of December 31, 2013, R$15,282, R$98,195, R$329 and R$21,135 of the total amount recognized refer to the ICMS - ST of State of Paraná, Federal District, State of Mato Grosso and State of Rio de Janeiro, respectively. As of December 31, 2012, R$14,083, R$74,037, R$308,and R$8,470 of the total amount recognized refer to the ICMS - ST of State of Paraná, Federal District, State of Mato Grosso do Sul, State of Mato Grosso and State of Rio de Janeiro, respectively. This unpaid ICMS-ST amount is being questioned in court by the Company and is the subject matter of a monthly judicial deposit, as also mentioned in note 18 Contingent tax liabilities - possible risk, (a). On November 26, 2011, the Company entered into an arrangement, to be enforced after 52

61 Natura Cosméticos S.A. the end of the current reporting period, with the State of Paraná to set the Value Added Margin (MVA) applicable to the calculation of ICMS-ST due on transactions conducted by consultants of the State of Paraná. The MVA applicable to taxable events prior to November (c) On February 4, 2009, the Company was granted an injunction, subsequently confirmed by court decision, that suspended the collection of income tax and social contribution on any amounts received as arrears interest, paid on late payment of contractual obligations receivables to the Natura Beauty Consultants. The appeal filed by the Federal Government is awaiting judgment. (d) Refers to Federal VAT (IPI) on zero-taxed, untaxed and exempt raw materials and packaging materials. Subsidiary Indústria e Comércio de Cosméticos Natura Ltda. filed a writ of mandamus and obtained an injunction granting the right to the credit. On September 25, 2006, the injunction was revoked by a decision that considered the request invalid. The Company filed an appeal for reconsideration of merits and reinstatement of the injunction. To suspend the payment of tax, in October 2006, the Company made an escrow deposit in the amount offset under the injunction, whose adjusted balance totals R$46,870 as of December 31, 2013 (R$44,766 as of December 31, 2012). In the fourth quarter of 2009, in order to utilize the benefits granted under Provisional Act 470/09, which creates a program for the payment and payment in installments of tax debts, the subsidiary filed a motion partially withdrawing the claims made in the injunction filed that maintains only the claim of tax credits on tax-exempt products, thus dropping the lawsuits claiming IPI credits of zero-taxed and untaxed products (see details in topic Tax installment plans created under Provisional Act 470/09). On this date, after having met the requirements to join the tax installment plan introduced by Provisional Act 470/09, the subsidiary awaits the tax authorities approval to write off the suspended collection amounts and the corresponding escrow deposits. Subsequently, in December de 2011, the subsidiary filed a motion to also drop the lawsuit claiming tax credits on tax-exempt products, which did not have any amount involved. Thus, the subsidiary awaits the transfer to the State of the escrow deposits after a final and non-appealable decision is issued regarding the credits on products acquired at IPI rate reduced to zero. (e) Refers to the inflation adjustment of 1991 federal taxes on income (IRPJ/CSLL/ILL) based on the UFIR (fiscal reference unit), discussed in a writ of mandamus. The amount involved is deposited in escrow. On February 26, 2010, the Company filed a motion dropping this lawsuit to be able to utilize the benefits granted under Law /09, which creates a program for the payment and payment in installments of tax debts and awaits the issue of a final and non-appealable decision. (f) Refers to the social security contributions required by tax assessments issued by the National Social Security Institute - INSS inspection process, which required the Company, acting as joint contributors, contribution amounts payable on services rendered by third parties. Values are discussed in a tax debt annulment action and are deposited in escrow. On 1 March 2010, the Company filed a motion partially withdrawing the action, partially waiving its right, for purposes of adherence to the benefits provided for in Law No /09. 53

62 Natura Cosméticos S.A. Tax installment program established by Law /09 On May 27, 2009, Federal Government enacted Law 11941, as a result of the conversion of Provisional Act 449/08, which, among other changes to tax law, established the possibility of a tax debt installment plan managed by the Federal Revenue Service, the National Social Security Institute and the National Treasury Attorney General (PGFN), including the remaining balance of Consolidated debts in the REFIS (Law 9.964/00), Special Installment Plan (PAES) (Law /03) and the Exceptional Installment Plan (PAEX) (Provisional Act 303/06), in addition to the regular payments in installments provided for by article 38 of Law 8.212/91 and article 10 of Law /02. The entities that opted for paying or dividing into installments the debts under this Law, in the applicable cases, may settle the amounts corresponding to default and automatic fines and late-payment interest, including those related to legally enforceable debts to the Government, using tax loss carry forwards, and will benefit from reduced fines, interest and legal charges whose reduction percentage depends on the installment plan chosen. Pursuant to the established rules, for compliance with the first stage of installment payments, the Company and its subsidiaries, after having filed motions at Court formalizing the withdrawal of lawsuits whose taxes would be paid in installments, applied for installment payments, choosing installment plans and indicating the generic nature of tax debts, paying the respective initial installments, pursuant to the provisions of Federal Revenue Service (SRF) and National Treasury Attorney General (PGFN) Joint Administrative Rule. The tax debts recorded for payment in installments by the Company and its subsidiaries, pursuant to Law /09, are as follows: Company 2012 Additions Reversals Payments Inflation adjustment 2013 Action for annulment of INSS debt (a) 3, ,361 IRPJ/CSLL/ILL debts (b) 6,809 - (4.064) ,110 10,031 - (4.064) ,471 Consolidated 2012 Additions Reversals Payments Inflation adjustment 2013 Action for annulment of INSS debt (a) 3,222 - (52) - - 3,170 IRPJ/CSLL/ILL debts (b) 6,973 - (3,968) ,361 10,195 - (4,020) ,531 (a) (b) See item (f) on this note for details. See item (e) on this note for details. Due to the lack of tax loss carry forwards, the Company will not offset them against the remaining balance of the interest on installments. 54

63 Natura Cosméticos S.A. The next steps of the Company s and its subsidiaries tax installment plans, which are being discussed in courts, depend on a decision about the consolidation of the related debts, which is expected in order to settle such debts by transferring existing escrow deposits to the Federal Government. Tax installment plans created under Provisional Act 470/09 On October 13, 2009, Provisional Act 470 was enacted introducing the tax debt payment and installment plans arising from the undue use of an industry tax incentive, introduced by Article 1 of Law Decree 491, of March 5, 1969, and the undue use of IPI credits, regulated by the Attorney General of the National Treasury (PGFN) and Federal Revenue Service (RFB). On November 3, 2009, the PGFN and the Federal Revenue Service published in the Federal Official Gazette (DOU) Joint Administrative Rule 9, which establishes the debt payment and installment plan addressed in Article 3 of Provisional Act 470/09. The debts arising from the undue utilization of industry tax incentives introduced by Article 1 of Decree Law 491/69, and those arising from the undue utilization of IPI credits challenged by the PGFN and Federal Revenue Service may be exceptionally paid at sight or in installments to each agency by November 30, As mentioned in item (d) above, subsidiary Indústria e Comércio de Cosméticos Natura Ltda. filed a motion partially withdrawing from the injunction filed related to IPI credits claimed on products purchased at zero tax rate or tax exempt. Pending the conversion of part of the judicial deposit and the final payment of the remaining balance survey, corresponding to low accounting records. 18. PROVISION FOR TAX, CIVIL AND LABOR CONTINGENCIES The Company and its subsidiaries are parties to tax, labor and civil lawsuits and administrative tax proceedings and an arbitration proceeding. Management believes, based on the opinion and estimates of its legal counsel, that the provision for tax, civil, and labor contingencies are sufficient to cover potential losses. This provision is broken down as follows: 2013 Company 2012 Restated 1/1/ Consolidated 2012 Restated 1/1/2012 Tax 33,657 23,903 27,612 43,857 36,211 33,850 Civil 11,906 12,141 12,234 16,310 16,238 16,986 Labor 5,296 2,444 9,754 13,662 10,844 14,121 50,859 38,488 49,600 73,829 63,293 64,957 55

64 Natura Cosméticos S.A. Tax contingencies The provision for tax contingencies is broken down as follows: Company 2012 Additions Reversals Inflation adjustment 2013 Late payment fines on federal taxes paid in arrears (a) IRPJ and CSLL tax assessment - attorney fees (c) 5, ,111 Tax assessment IRPJ (d) 3, ,775 Attorney and other fees (f) 13,737 5,691 (5,431) ,548 CSLL deductibility (Law 9316/96) (b) - 8, ,369 Total provision for tax contingencies 23,903 13,983 (5,431) 1,202 33,657 Escrow deposits (note 11) (9,913) (6,342) 9,049 (150) (7,356) Consolidated 2011 Additions Reversals Inflation adjustment 2012 Late payment fines on federal taxes paid in arrears (a) (39) 854 CSLL deductibility (Law 9316/96) (b) - 12,292 (4,000) 77 8,369 IRPJ and CSLL tax assessment - attorney fees (c) 5, ,111 Tax assessment IRPJ (d) 3, ,775 Attorney and other fees (f) 25,973 7,327 (9,563) 1,011 24,748 Total provision for tax contingencies 36,211 19,619 (13,563) 1,590 43,857 Escrow deposits (note 11) (11,554) (6,342) 10,118 (171) (7,949) (a) Refers to fine for late payment of Federal taxes. (b) Refers to CSLL that was addressed by an injunction that questions the constitutionality of Law 9.316/96, which prohibited the deduction of CSLL from its own tax basis and the IRPJ basis. During the year, due to judgments in similar cases, the chances of loss were reclassified from remote to possible, in accordance with the evaluation of the Company s legal advisors. (c) Refers to attorney fees for the defense in the tax assessment notices issued against the Company in August 2003, December 2006 and December 2007 by the Federal Revenue Service, claiming the payment of income tax and social contribution on the deductibility of the yield of debentures issued by the Company for fiscal years 1999, 2001 and 2002, respectively. The tax assessment notices referring to 2001 and 2002 are pending from a final and non-appealable decision from the Board of Tax Appeals (CARF) ruling. The legal counsel s opinion is that the likelihood of unfavorable outcome in these tax assessment notices is remote. A final and non-appealable administrative decision on the tax assessment notice issued against the Company in August 2003 challenging the deductibility, in fiscal year 1999, was issued on January 2010 that maintains part of the income tax assessed and the whole of the social contribution. After this decision, on April 7, 2010, the Company filed a lawsuit to cancel the remaining installment of IRPJ and CSLL. The legal counsel considers that the likelihood of an unfavorable outcome is remote. 56

65 Natura Cosméticos S.A. (d) The balance relates to legal fees for defending the interests of the Company and its subsidiaries in tax proceedings. The amounts provided: (i) R$8,419 refers to legal fees for preparation of defense in the infringement notices of income tax and social contribution against the Company, issued on June 30, 2009 and August 30, 2013, whose object questioning the deductibility of the amortization of goodwill arising from the merger of Natura Developments Natura Participações SA and subsequent merger of both companies by Natura Cosmetics SA. In December 2012, the case concerning the tax assessment of 2009 was dismissed by the Board of Tax Appeals (CARF) which ruled partially in favor of the Company to reduce the fine aggravated. On the merits, the decision was unfavorable, which is why the Company is awaiting the finalization of the judgment to appeal the Superior Chamber of Tax Appeals (CSRF). The related 2013 tax assessment process was the subject of defense and is awaiting trial. It is noteworthy that similar cases of goodwill were judged favorably in CARF, representing important precedents for the Company. In the opinion of the legal advisors of the Company, the transaction was structured as tax and its effects are defensible, why the risk of loss is classified as remote, (ii) R$7,309 refers to legal fees for defense in case of violation of IPI, PIS and COFINS issued against the subsidiary, in December 2012, in respect of events that occurred in calendar year The main question of the tax authorities is that the subsidiary would have practiced incorrectly priced sales for the Company. In May and June 2013, the cases were tried by the Federal Revenue of Brazil Trial in Ribeirão Preto / SP, decided that (a) for the subsidiary to cancel the tax credit charged in the assessment of PIS / COFINS and (b) contrary to the Controlled to keep the tax credit charged in the assessment of IPI. Both decisions will be reconsidered on appeal stage the 2nd administrative level (Board of Tax Appeals - CARF). In the opinion of the legal advisors of the Company, the transaction was structured as tax and its effects are defensible, why the risk of loss is classified as remote. Refers to the writ of mandamus challenging the constitutionality of Law No /96, which prohibited the deduction of social contribution of its own tax base and the base of the income tax calculation. In the opinion of the legal advisors of the Company, the likelihood of loss is probable, considering the current position of the STF. Civil contingencies Company 2012 Additions Reversals Payments Inflation adjustment 2013 Several civil lawsuits (a) 6,531 8,417 (2,541) (7,014) 117 5,510 Lawyer fees - environmental civil lawsuit (b) 1, ,290 Civil lawsuits and lawyer fees - Nova Flora Participações Ltda. 3, ,106 Total provision for civil contingencies 12,141 8,417 (2,541) (7,014) ,906 Escrow deposits (note 11) (2,056) (15) 4 - (11) (2,078) Consolidated 2012 Additions Reversals Payments Inflation adjustment

66 Natura Cosméticos S.A. Several civil lawsuits (a) 7,640 8,844 (2,534) (7,464) 273 6,759 Lawyer fees - environmental civil lawsuit (b) 2,063 - (6) (6) 443 2,494 Lawyer fees - IBAMA (c) 2, ,953 Civil lawsuits and lawyer fees - Nova Flora Participações Ltda 3, ,104 Total provision for civil contingencies 16,238 8,844 (2,540) (7,470) 1,238 16,310 Escrow deposits (note 11) (2,167) (15) 4 - (12) (2,190) (a) As of December 31, 2013, the Company and its subsidiaries are parties to 2,106 civil lawsuits and administrative proceedings (2,247 as of December 31, 2012), of which 1,980 were filed with civil courts, special civil courts and the consumer protection agency (PROCON) by Natura Beauty Consultants, consumers, suppliers and former employees, most of which claiming compensation for damages. (b) The provision includes R$1,646 with respect to legal fees, ad exitum, for the defense of the Company s interests in the public lawsuit filed by the Federal Public Prosecution Office of Acre against the Company and other institutions for alleged access to the traditional knowledge associated to the asset ( murumuru ). Our legal counsel s opinion is that the risk of losses is remote. (c) Refers to attorney fees for the defense in the tax assessment notice issued by "Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis", or IBAMA (Brazilian environmental agency) against the Company in 2010 and 2011 for alleged irregular access to biodiversity. Through December 2013, the Company had been imposed 70 fines by IBAMA, totaling approximately R$21,955, and filed administrative defenses for all of them, two of the administrative proceedings were subsequently cancelled. In the remaining cases, there was no definitive decision issued by IBAMA, which is why such fines do not represent eligible credits. The Company s management and its legal counsel consider the risk of loss in these fines for the alleged non-sharing of benefits and the fines for the alleged irregular access to biodiversity as remote due to full compliance with all the principles established in the Convention on Biological Diversity ( CBD ), an international treaty signed during Rio-92 and of the illegality and unconstitutionality of the current legal framework, which incorporates the CBD in the Brazilian legal system. Except for inputs from Federal Government land - which refuses to negotiate despite having recently established the Negotiation Committees, the Company shares benefits in 100% of the accesses in the use of biodiversity; it is the first to share benefits with traditional communities and detains the most of the requests with the Regulatory Body for authorization to have access to biodiversity as well as in relation to the authorizations already issued to private companies. Labor contingencies As of December 31, 2013, the Company and its subsidiaries are parties to 615 labor lawsuits filed by former employees and third parties (589 as of December 31, 2012), claiming the payment of severance amounts, salary premiums, overtime and other amounts due, as a result of joint liability. The provision is periodically reviewed based on the progress of lawsuits and history of losses on labor claims to reflect the best current estimate. 58

67 Natura Cosméticos S.A. Company 2012 Additions Reversals Inflation adjustment 2013 Total provision for labor contingencies (1.048) (3.031) (1.678) - - (4.709) Escrow deposits (note 11) Consolidated 2012 Additions Reversals Inflation adjustment 2013 Total provision for labor contingencies (7.043) 1,035 13,662 Escrow deposits (note 11) (5.153) (1.861) - - (7,014) Contingent liabilities - possible risk The Company and its subsidiaries are parties to tax, civil and labor lawsuits, for which there is no reserve for losses recorded, because the risk of loss is considered possible by management and their legal counsel. These lawsuits are as follows: Company Consolidated Tax: Declaratory Action - ICMS - ST (a) IPI assessment notice (b) Administrative proceeding - ICMS - ST assessment, DF (c) Administrative proceeding - ICMS - ST assessment, PA (c) Administrative proceeding - tax debt - ICMS - ST, RS (d) Tax assessment notice Rio Grande do Sul State Department of Finance (e) Tax assessment notice - São Paulo State Department of Finance ICMS audit (f) Tax assessment - transfer pricing on loan agreements with foreign related company (g) Administrative proceeding - ICMS - ST assessment, PR (h) Administrative proceeding Offset - COFINS / Freight (i) Administrative proceeding - tax debt - ICMS - ST -DF (j) Others Civil Labor (a) As of December 31, 2013, the balance recorded is broken down as follows: 1. ICMS - ST - PR - R$47,499 (R$46,670 as of December 31, 2012) - lawsuit filed by the Company challenging the changes in ICMS - ST tax basis introduced by Paraná Decree 7018/06. The amount discussed in the lawsuit, related to the period from January 2007 to November 2011, is fully deposited in escrow, as mentioned in notes 11 and 17 (b), and its collection is suspended. 59

68 Natura Cosméticos S.A ICMS - ST - DF - R$31,723 (R$23,904 as of December 31, 2012) - declaratory action filed by the Company to challenge its liability for the payment of ICMS - ST due to the lack of a statute on and statutory criteria for the determination of the tax base of this tax or, subsequently, the need to enter into an Agreement to set out the ICMS - ST tax basis. The amount under litigation, related to the period from February 2009 to December 2013, is fully deposited in escrow, as referred to in notes 11 and 17 (b), and its collection is suspended. 3. ICMS - ST - MT R$3,922 (R$3,674 as of December 31, 2012) - declaratory action filed by the Company to challenge its liability for the payment of ICMS - ST to the State of Mato Grosso due to the lack of a statute on and statutory criteria for the determination of the tax base of this tax or, subsequently, the need to enter into an Agreement to set out the ICMS - ST tax basis. The amount under litigation, related to the period from October 2009 to July 2011, is fully deposited in escrow, as referred to in notes 11 and 17 (b), and its collection is suspended. 4. ICMS - ST - SC R$22,852 (R$14,227 as of December 31, 2012) - declaratory action filed by the Company to challenge its liability for the payment of ICMS - ST to the State of Santa Catarina due to the lack of a statute on and statutory criteria for the determination of the tax base of this tax or, subsequently, the need to enter into an Agreement to set out the ICMS - ST tax basis. The amount under litigation, related to the period from July 2011 to August 2011 and February 2012 to March 2013, is fully deposited in escrow, as referred to in notes 11 and 17 (b), and its collection is suspended. (b) Tax assessment for ICMS - ST, required by the Federal District and the State of Pará, due to the alleged underpayment related to the difference required as ICMS - ST. The Company presented its defense at the administrative level and is awaiting the final judgment. (c) Assessment notice for ICMS - ST, required by the state of Rio Grande do Sul, by reason of their status as tax substitute, for the collection of ICMS allegedly, due to the alleged underpayment related to the difference required to as ICMS - ST. The Company proposed annulment action to remove this requirement and awaits its final judgment. (d) assessment notices issued by the State of Parana for alleged incorrectness of ICMS- ST due to the state in the period from February to December 2007, January-April 2008, October 2008 to January 2009, March 2009 to September 2010, November 2010 and April-August The ICMS-SP charged by the state is filed in a lawsuit filed by the Society for discussing the legality of the changes promoted by the calculation basis Paraná Decree 7.018/06, as mentioned in notes 11 and 17 (b). The tax assessments are awaiting trial at the administrative level. (e) Refers to the refusal of refund claimed the credit right order acknowledgment (COFINS), calculated (belatedly) on expenditure incurred on freight in sales of products subject to taxation concentrated (single-phase) in the period between May 2004 to October 2007, and therefore not approved the compensation declared. The Company filed a defense at the administrative level and is awaiting their final judgment. (f) Infraction notices by the Federal District for alleged incorrectness of ICMS-ST due to the State for the periods from January 2007 to December The tax is levied

69 Natura Cosméticos S.A. by the State filed the lawsuits filed by the Company for discussing the illegality of updates to base calculation promoted by the State, as mentioned in notes 11 and 17. The Company filed a defense at the administrative level and is awaiting his trial. (g) Annulment Action aiming cancel tax requirements object of automobiles Release No and No , which are demanded by the alleged differences in ICMS for the periods 01/01/2006 to 31/12/2006 and 01/01 / 2007 to 28/02/2008, to (I) use the benefit of reduced basis of ICMS-ST without a proportional reduction of their claims relating to the inputs of goods (condition for enjoyment) argument, and (II) undue reduction of the internal rate when performing the calculation of the tax payable by applying the percentage reduction benefit calculation base. On April 9, 2012, Natura Cosmetics SA submitted to arbitration controversial issues of the Private Rental Atypical and Other Covenants, entered into on December 21, 2010 with RB Capital Real Estate Investment Fund Anhanguera - IFI and Marcacel holdings resulting from delay in delivery of the Enterprise, as well as bursts in construction spending much higher values and that Natura recognizes as " additional requests for scope" and amounting to R$11,780 (see financial leasing fixed and intangible notes 14 and Borrowings 15. the total disputed amounts to nominal values, approximately R$50 million in addition to fines and indemnities in minimum nominal amounts of 16 million that Natura snake in his favor. 's Terms of Reference was signed by parties on 19 September 2012 and in November 5, 2012 Natura Cosmetics SA ("Applicant") filed its Initial claims. On December 18, 2012, RB Capital filed its reply and opposed his request and in 21 January 2013, Natura presented its final manifestation. On February 26, 2013, RB Capital to submit a rejoinder and September 2013 occurred instruction hearing. On November 26, 2013, the parties presented closing arguments. Waits up rendition of judgment by arbitral tribunal within 90 days from the submission of final arguments legal counsel evaluate the possibility of loss as possible. Contingent assets The Company and its subsidiaries material contingent assets are as follows: a) The Company and its subsidiaries Industry and Trade Cosmetics Natura Ltda., Natura Innovation and Technology Products Ltda. and Natura Logistics and Services Ltda. plead the refund of the ICMS and Service Tax - ISS included in the calculation basis of PIS and COFINS, collected from March 2004 to March The amounts of the refund claims, updated through December 31, 2013 amounted to R$147,220 (R$108,618 on December 31, 2012). The opinion of legal counsel is that the probability of loss is possible. The Company and its subsidiaries do not recognize as its assets contingent assets listed above, as the pronouncement CPC 25 - PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS. 19. OTHER PROVISIONS 61

70 Natura Cosméticos S.A Company 2012 Restated 1/1/ Consolidated 2012 Restated 1/1/2012 Retirees healthcare plan 26,420 41,709 19,332 36,606 54,886 28,132 Carbon credit 9,710 13,686 16,486 9,710 13,686 16,486 Provision for acquisition of noncontrolling interests (b) 141, , Other provisions 19,995 14,291-75,010 36, ,765 69,686 35, , ,841 44,809 The Company and its subsidiaries offer a group of paid staff who made inactive and fixed contributions to the health care plan, the right to stay in the health plan after retirement by paying the average premium. The recognition of actuarial gains and losses are recognized through other comprehensive income (OCI) as mentioned in Note On December 31, 2013, the weighted average life is 19 years and had 912 to 1,770 employees in the Company and Consolidated, respectively. On December 31, 2013, the Company and its subsidiaries had a provision for actuarial liabilities related to this plan in the amount of R$26,420 and R$36,608 in the parent company and Consolidated, respectively (R$41,709 and R$54,886, respectively, in the Company and Consolidated at December 31, 2012). During the year the consequences of this plan in income are related to the cost of service in the amount of R$1,790 and R$2,433 in the Company and Consolidated, respectively, and the interest cost of R$3,938 and R$5,183 in the company and Consolidated, respectively. The actuarial liability shown was calculated by an independent actuary considering the following main assumptions: Annual percentage (in nominal terms) Financial discount rate Increase in medical expenses to to 6.20 Long-term inflation rate Final rate of medical inflation after 10 years Rate of growth of medical costs for ageing costs Rate of growth of medical costs for aging contributions Invalidity table Wyatt 85 Class 1 Wyatt 85 Class 1 General mortality table RP2000 RP2000 Turnover table T-9 service table T-9 service table The changes in the actuarial liability for the year ended December 31, 2013 are as follows: 62

71 Natura Cosméticos S.A. Company Consolidated Company current service cost 1, ,433 1,588 Cost of interest 3,938 1,921 5,183 2,915 Recognition of actuarial Losses/(Gains) in OCI (21,015) 20,230 (25,893) 22,251 (15,287) 23,129 (18,277) 26,754 Liability recorded as obligation signed the purchase and sale of Emeis Holdings Pty Ltd contract, which defines the acquisition of non-controlling interest from 2015, with a maximum term in The payment will be made based on the performance of the Company on the date of exercise of the option. 20. SHAREHOLDERS EQUITY a) Issued capital As of December 31, 2013, the Company s capital was R$427,073. In the year of 2013 there was no change in capital, which is made up of 431,239,264 subscribed and paid-up common registered shares. The Company is authorized to increase its capital, irrespective of an amendment to the articles of incorporation, up to the limit of 441,310,125 (for hundred and forty-one million, three hundred and ten thousand, one hundred and twenty-five) common shares with no par value by resolution by the Board of Directors, which will lay down the issuance conditions, including price and deadline for payment. b) Dividend and interest on capital payment policy The shareholders are entitled to receive every year a mandatory minimum dividend of 30% of net income, considering principally the following adjustments: Increase in the amounts resulting from the reversal, in the period, of previously recognized reserves for contingencies. Decrease in the amounts intended for the recognition, in the period, of the legal reserve and reserve for contingencies. Whenever the amount of the minimum mandatory dividend exceeds the portion of the net income realized for the year, management may propose, and the General Assembly approve, to allocate the excess to the earnings reserve. The bylaws allow the Company to prepare balance sheets and, based on these balance sheets, authorize the payment of dividends upon approval by the Board of Directors. On April 17, 2013 the Company paid dividends totaling R$469,512 and interest on capital in the total gross amount of R$21,831 (R$18,557, net of withholding tax), as distribution recommended by the Board of Directors on February , and ratified at the Annual General Meeting held on April 12, 2013, relating to the net profit of the year 2012, which added to R$327,018 of dividends and R$36,515 of interest on equity paid in 63

72 Natura Cosméticos S.A. 64 August 2012 correspond to a distribution of approximately 100 % of net income in fiscal On July 24, 2013, the Board of Directors approved the payment of interim dividends and interest on own capital, referring to the income earned in the first half of 2013, amounting to R$337,305 (R$ per share) and R$27,528 gross of withholding tax (R$ gross per share), respectively. The total amount of interim dividends and interest on capital equals 100 % of Consolidated net income in the first half of The Company made the payment of such interim dividends and interest on own capital on August 14, Additionally, on February 12, 2014, the Board of Directors approved " ad referendum " of the Annual General Meeting to be held on April 11, 2014, the proposal for payment of dividends and interest on capital, amounts in R$474,004 and R$22,389 (R$19,031, net of withholding tax), respectively, relating to income of 2013, which added to R$337,305 of dividends and R$27,528 of interest on equity paid in August 2013 results correspond to a distribution of approximately 100 % of net income for the year In November 2013 was published the Provisional Measure nº. 627 establishing that the tax exemption for the payment of dividends only applies to profits calculated based on Brazilian accounting standards in accordance with the provisions of Law nº 6.404/76 force in December For income earned in 2013 measures the change in legislation to deal with Provisional Measure, Natura calculate the profit for dividend purposes were considered this changes. Dividends were calculated as follows: Company Net income for the year Tax incentive reserve - investment grant (6.346) Calculation basis for minimum dividends Mandatory minimum dividends 30% 30% Annual minimum dividend Proposed dividends Interest on capital IRRF on interest on capital (7.488) (8.752) Total dividends and interest on capital, net of IRRF Amount exceeding mandatory minimum dividend Dividends per share - R$ 1,8906 1,8559 Interest on capital per share, net - R$ 0,0989 0,1156 Total dividends and interest on capital per share, net - R$ 1,9895 1,9715

73 Natura Cosméticos S.A. As referred to in note 2.21, the portion of dividends exceeding minimum dividends, declared by management after the reporting period but before the authorization date for issuance of these financial statements, is not be recorded as a liability in the related financial statements and the effects of such supplementary dividends must be disclosed in a note. As a result, as of December 31, 2013 and 2012, the following portions of dividends exceeding mandatory minimum dividends were recorded in shareholders equity as Proposed additional dividends : Company Dividends 474, ,512 Interest on capital 22,389 21, , ,343 c) Treasury shares The Company repurchased during the period of ,375,500 common shares, at the average price of R$43, 74, in order to meet the exercise of options granted to the Company s and its direct and indirect subsidiaries management and employees. As of December 31, 2012, line item Treasury shares is broken down as follows: 2012 Number of Share R$ 000 Average price per share - R$ Balance at beginning of year 3,021, , Used (1,080,412) (36,744) Balance at yearend 1,941,345 66, As of December 31, 2013, line item Treasury shares is broken down as follows: 2013 Average Number of Share R$ 000 price per Share - R$ Balance at beginning of year 1,941,345 66, Repurchased 1,375,500 60, Used (1,196,386) (42,293) Balance at yearend 2,120,459 83, d) Share premium Refers to the premium generated on the issuance of 3,299 common shares resulting from the capitalization of debentures totaling R$100,000, occurred on March 2, During the period ended on December 31, 2013, the use of 1,196,386 treasury shares in connection with the stock option plan involved premium of R$6,753. e) Legal reserve 65

74 Natura Cosméticos S.A. 66 Since the balance of legal reserve plus capital reserves, addressed by article 182, paragraph 1, of Law 6404/76, exceeded 30% of the capital, the Company decided, in accordance with article 193 of the same Law, not to recognize a legal reserve on net income earned in the years from f) Retained earnings reserve On December 31, 2013 and 2012, the Company has not recognized a reserve for retained earnings in accordance with Article 196 of Law No /76. The Annual General Meeting to approve the financial statements also performs the necessary decisions in order to meet the legal requirements on the limit of the balance of profit booking. g) Other comprehensive income The Company recognizes in this account the effect of exchange rate fluctuations on investments in foreign subsidiaries and actuarial gains and losses arising from employee benefit plan, as outlined in note 24. To exchange differences accumulated effect will be reversed to the income statement as a gain or loss on the disposal or write-off of investment. For Actuarial gains and losses, the amounts will be recognized at the time of reassessment of actuarial liabilities. 21. SEGMENT INFORMATION Segment reporting is consistent with management reports provided by the main operating decision-maker to assess the performance of each segment and the allocation of funds. Although the main decision-maker analyzes the information on revenue at its different levels, according to the reports used by management to make decisions, the Company s business is mainly segmented based on the sales of cosmetics by geography, which are as follows: Brazil, Latin America ( LATAM ) and other countries. In addition, LATAM is divided into two groups for analysis: (a) Argentina, Chile and Peru ( Consolidating Operations ); and (b) Mexico and Colombia ( Operations in Implementation ). The segments business features are similar and each segment offers similar products through the same consumer access method. Net revenue by geography is as follows in 2013: Brazil: 84.0% Consolidating Operations: 9.4% Operations under Implementation: 4.5% Other: 2.2% The accounting practices for each segment are the same as those described in note 2, description of Natura s business and significant accounting policies. The performance of segments of The Company has been evaluated on the basis of the information described in the table below. The amounts provided to the Executive Committee related to net income and total assets are consistent with the balances recorded in the financial statements and with the accounting policies applied.

75 Natura Cosméticos S.A Net revenue Net income Depreciation and amortization Financial expenses net Income tax Brazil 5,886, ,110 (173,072) (148,372) (383,053) Argentina, Chile e Peru 659,037 46,680 (6,718) (11,744) (20,056) México, Venezuela e Colombia 312,191 (41,114) (4,108) (1,035) (4,731) Other (*) 158,859 (32,058) (8,657) 2,899 (1,590) Consolidated 7,010, ,618 (192,555) (158,252) (409,430) 2012 (Restated) Net revenue Net income Depreciation and amortization Financial expenses net Income tax Brazil 5,614, ,359 (132,712) (90,920) (402,117) Argentina, Chile e Peru 487,171 13,985 (5,074) (2,239) (11,771) México e Colombia 226,713 (45,436) (2,913) (291) (990) Other (*) 17,607 (14,686) (479) - - Consolidated 6,345, ,222 (141,178) (93,450) (414,878) (Restated) Noncurrent assets Current liabilities Total assets Noncurrent assets Current liabilities Total assets Brazil Argentina, Chile e Peru México, Venezuela e Colombia Other (*) Consolidated (*) Includes operations in France and Corporate LATAM and Aesop. The Company has only on class of products that is sold to Natura Beauty Consultants which is classified as Cosmetics. As such, disclosure of information by products and services is not applicable. The Company has a diversified customer portfolio, with no concentration of revenue. The revenue from foreign related parties reported to the Executive Committee was measured in accordance with that presented in the income statement. 22. NET REVENUE Company Consolidated 67

76 Natura Cosméticos S.A Gross revenue: Domestic market 8,039,201 7,627,373 8,037,618 7,626,061 Foreign market - - 1,412, ,623 Other sales 182-1,281 1,409 8,039,383 7,627,373 9,451,703 8,566,093 Returns and cancellations (17,755) (19,145) (27,632) (26,147) Taxes on sales (1,678,758) (1,359,142) (2,413,760) (2,194,277) Net revenue 6,342,870 6,249,086 7,010,311 6,345, OPERATING EXPENSES AND COST OF SALES a) Breakdown of operating expenses and cost of sales by function: Company Consolidated Restated 2013 Restated Cost of sales 2,379,802 2,438,873 2,089,785 1,868,045 Marketing and selling expenses 1,479,892 1,642,380 2,470,730 2,212,205 General and administrative expenses 1,221, , , ,538 Employee profit sharing 26,083 29,555 61,943 90,799 Management compensation (note 28.2) 18,554 20,739 18,554 20,739 Total 5,125,831 5,029,629 5,603,166 4,963,326 b) Breakdown of operating expenses and cost of sales by nature: Company Consolidated Restated 2013 Restated Cost of sales 2,379,802 2,438,873 2,089,785 1,868,045 Raw material/packaging Material 2,379,802 2,438,873 1,718,757 1,548,593 Workforce , ,355 Depreciation ,689 48,849 Others , ,248 Marketing and selling expenses 1,479,892 1,642,380 2,470,730 2,212,205 Freight 286, , , ,301 Marketing, sales force and other sales expenses 1,169,671 1,363,747 2,152,766 1,926,051 Depreciation 23,970 19,457 26,381 22,853 General and administrative expenses 1,221, , , ,538 Research and development , ,870 Other administrative expenditure 1,156, , , ,190 Depreciation 65,399 44,137 99,751 69,478 Employee profit sharing 26,083 29,555 61,943 90,799 Management compensation (note 28.2) 18,554 20,739 18,554 20,739 Total 5,125,831 5,029,629 5,603,166 4,963, EMPLOYEE BENEFITS Company Consolidated 68

77 Natura Cosméticos S.A Payroll and bonuses 277, , , ,149 Pension Plan (note 24.2) 3,338 3,368 5,012 4,849 Employee profit sharing (note 24.1) 30,433 37,709 66,293 90,799 Executives compensation (note 24.2) 7,331 2,711 12,491 10,844 Taxes payable 106,340 84, , , , , , , Profit Sharing The Company and its subsidiaries pay profit sharing to their employees and officers tied to the achievement of operating targets and specific goals, established and approved at the beginning of each year. As of December 31, 2013 and 2012, the amounts below were recorded as profit sharing: Company Consolidated Employees 26,083 29,555 61,943 82,645 Officers (*) 4,350 8,154 4,350 8,154 30,433 37,709 66,293 90,799 (*) Included in line item Management compensation Executives compensation The Board of Directors, upon granting of options, meets annually in order to establish the option granting plan for the current year, on the basis approved by the General Meeting, indicating the directors and managers who will receive the options and the total number to be distributed. Under the program format valid until 2008, the options granted had maturity term of four years. Under this format, 50% of the options matured at the end of the third year and the remaining 50% matured at the end of the fourth year. The maximum option exercise term is of 6 years as from March 30 of the year in which the related plan was approved. In 2009, the program format was changed so that 100% of the options were considered to have matured at the end of the fourth year, with the possibility of early maturity at the end of the third year, under the condition of cancelation of 50% of the options granted in the plans. The maximum option exercise term started to be of 8 years as from the Board of Directors Meeting that approved the plan. In ,387,703 options were granted at an exercise price of R$ The changes in the number of outstanding stock options and their related weightedaverage prices are as follows:

78 Natura Cosméticos S.A. Average exercise price per share - R$ Options (thousands) Average exercise price per share - R$ Options (thousands) Balance at beginning of year , ,363 Granted , Cancelled (716) (298) Exercised (1,196) (1,080) Balance at yearend , ,985 Out of the 6,461,000 outstanding options as of December 31, 2013 (5,985,000 outstanding options as of December 31, 2012), 2,374,000 outstanding options are vested (1,670,000 outstanding options as of December 31, 2012). The Options exercised in 2013 resulted in the use of 1,196,000 shares of outstanding treasury shares (1,080,000 shares for the year ended December 31, 2012). The expense related to the fair value of the options granted during the year ended December 31, 2013, according to the elapsed vesting period, was R$7,331 and R$12,491, Company and on a Consolidated basis, respectively (R$2,711 Company and on a Consolidated basis, respectively, as of December 31, 2012). The stock options outstanding at the end of the year have the following vesting dates and exercise prices: As of December 31, 2013 Grand date Exercise price - R$ Existing options Remaining contractual life (years) Vested options April 22, , ,856 April 22, ,355, ,355,815 March 19, ,480, ,086 March 23, ,251, March 18, ,095, ,461,108 2,373,757 As of December 31, 2012 Grant date Exercise price - R$ Existing options Remaining contractual life (years) Vested options April 25, , ,099 April 22, , ,686 April 22, ,104, ,052,417 March 19, ,766, March 23, ,496, ,985,430 1,670,202 As of December 31, 2013, market price per share was R$41.37 (R$58.62 as of December 31, 2012). The options were measured at their fair values on grant date, pursuant to IFRS 2-70

79 Natura Cosméticos S.A. Shared Based Payments. The weighted average fair value of the options as of December 31, 2013 was R$ Significant data included in the fair value pricing model of the options granted in 2013: Volatility of 30% (36% as of March 23, 2011). Dividend yield of 4% (5.3% as of March 23, 2011). Expected option life of three and four years. Risk-free annual interest rate of 8.7% (10.9% as of March 23, 2011) Pension plan The Company and its subsidiaries sponsor two employees benefit plans: a pension plan, through a private pension fund managed by Brasilprev Seguros e Previdência S.A., and an extension of healthcare plans to retired employees. The defined contribution pension plan was created on August 1, 2004 and all employees hired from that date are eligible to it. Under this plan, the cost is shared between the employer and the employees so that the Company s share is equivalent to 60% of the employee s contribution according to a contribution scale based on salary ranges from 1% to 5% of the employee s monthly compensation. As of December 31, 2013, the Group did not have actuarial liabilities arising from the former employees pension plan. The contributions made by the Company and its subsidiaries totaled R$3,338 (Company) and R$5,012 (Consolidated) in the period ended December 31, 2013 (R$2,489, Company and R$3,447, Consolidated in the in the period ended December 31, 2012) and were recorded as expenses in the period. 25. FINANCIAL INCOME (EXPENSES) Company Consolidated Financial income: Interest on short-term investments 52,521 41,895 71,002 60,462 Inflation adjustment and foreign exchange gains (a) ,257 5,361 Gains on swap and forward transactions (b) 240,647 71, ,351 72,224 Other financial income 15,647 15,975 20,612 23, , , , ,808 Financial expenses: Interest on financing (67,423) (85.307) (99,158) (100,963) Inflation adjustment and foreign exchange losses (a) (200,022) (51.150) (211,332) (52,664) Losses on swap and forward transactions (b) (138,536) (56.458) (151,381) (56,759) Gains (losses) on the mark-to-market of swap and forward derivatives (8,399) (18,379) 12,854 Other financial expenses (20,814) (17.572) (42.222) (36,625) 71

80 Natura Cosméticos S.A. (435,194) (197,781) (522,472) (234,157) Financial expenses, net (125,920) (67,950) (158,250) (72,349) 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: Consolidated Gains on monetary and exchange variations: Exchange rate changes on imports Exchange variation of receivables export Monetary variations of financing (a) Losses on monetary and exchange variations: Exchange differences on loans ( ) (50.134) Exchange rate changes in accounts payable in foreign subsidiaries (9.881) (2.530) (b) ( ) (52.664) Gains and forward swap transactions: Exchange differences on instrument swap Recipe of the swap exchange coupons Revenue from pre swap rate (c) Losses swap and forward: Financial costs swap instruments ( ) (56.759) Exchange variation forward (8.379) - (d) ( ) (56.759) 72

81 Natura Cosméticos S.A. 26. OTHER OPERATING INCOME (EXPENSES), NET Company Consolidated Gain (loss) on sale of property, plant and equipment ,460 13, PIS and COFINS credits (*) ,665 Untimely used PIS and COFINS credits ,311 7,299 11,617 Other operating income (expenses) (19.963) 5,986 (11,845) (25,819) Other operating income (expenses), net (17.168) 15,472 8,851 (11,643) (*) The stated amount includes the recognized PIS and COFINS tax credits arising from a favorable outcome in a lawsuit claiming the unconstitutionality and illegality of the PIS and COFINS taxable basis broadening established by Law 9718/ EARNINGS PER SHARE Basic Basic earnings per share are calculated by dividing the net income attributable to the owners of the Company by the weighted average of common shares issued during the year, less common shares bought back by the Company and held as treasury shares Net income attributable to owners of the Company 842, ,376 Weighted average of common shares issued - thousands 431,239, ,239,264 Weighted average of treasury shares (1,731,895) (2,362,295) Weighted average of outstanding common shares 429,507, ,876,969 Basic earnings per share - R$ 1,9618 2, Diluted Diluted earnings per share is calculated by adjusting the weighted average outstanding common shares supposing that all potential common shares that would cause dilution are converted. The Company has only one category of common shares that would potentially cause dilution: the stock options Net income attributable to owners of the Company ,376 Weighted average of outstanding common shares 429,507, ,876,969 Adjustment for stock options 712,302 2,159,288 Weighted average number of common shares for diluted earnings per share calculation purposes 430,219, ,036,257 Diluted earnings per share - R$ 1,9586 2,

82 Natura Cosméticos S.A. 28. RELATED-PARTY TRANSACTIONS Intergroup balances and transactions Receivables from and payables to related parties are as follows: Company Current assets: Natura Inovação e Tecnologia de Produtos Ltda. (a) 2,072 10,419 Natura Logística e Serviços Ltda. (b) 1,927 8,597 Indústria e Comércio de Cosméticos Natura Ltda. (c) 5,370 6,892 9,369 25,908 Current liabilities: Trade payables: Indústria e Comércio de Cosméticos Natura Ltda. (c) 249, ,460 Natura Logística e Serviços Ltda. (d) 12,886 38,024 Natura Inovação e Tecnologia de Produtos Ltda. (e) 13,789 57, , ,535 Dividends and interest on capital payable Related-party transactions are as follows: Company Product Sales Product purchases Indústria e Comércio de Cosméticos Natura Ltda. 3,096,630 3,042, Natura Cosméticos S.A. - Brasil - - 2,835,721 2,815,267 Natura Cosméticos S.A. - Peru ,424 37,841 Natura Cosméticos S.A. - Argentina ,748 73,032 Natura Cosméticos S.A. - Chile ,667 50,211 Natura Cosméticos S.A. - México ,956 41,440 Natura Cosméticos Ltda. - Colombia ,051 20,100 Natura Europa SAS - Franca - - 3,651 3,463 Natura Inovação e Tecnologia de Produtos Ltda ,114 1,217 Natura Logística e Serviços Ltda Natura Biosphera Comércio ,096,630 3,042,587 3,096,630 3,042,587 Service provided Services received Administrative structure: (f) Natura Logística e Serviços Ltda. 233, , Natura Cosméticos S.A. - Brasil , ,876 Indústria e Comércio de Cosméticos Natura Ltda ,247 36,804 Natura Inovação e Tecnologia de Produtos Ltda ,617 20, , , , ,095 74

83 Natura Cosméticos S.A. Products and technology research and development: (g) Natura Inovação e Tecnologia de Produtos Ltda. 210, , Natura Cosméticos S.A. Brasil , , , , , ,910 Research and testing in vitro : (h) Natura Innovation et Technologie de Produits 1,591 2, SAS - Franca Natura Inovação e Tecnologia de Produtos Ltda ,591 2,923 1,591 2,923 1,591 2,923 Lease of properties and shared charges: (i) Indústria e Comércio de Cosméticos Natura Ltda. 8,171 7, Natura Logística e Serviços Ltda ,734 4,414 Natura Inovação e Tecnologia de Produtos Ltda ,903 1,774 Natura Cosméticos S.A. - Brasil - - 1,534 1,430 8,171 7,618 8,171 7,618 Total of sales and purchases and services 3,549,945 3,577,133 3,549,945 3,577,133 (a) Advances granted for provision of product and technology development and market research services. (b) Advances granted for provision of logistics and general administrative services. (c) Payables for the purchase of products. (d) Payables for services described in item (f). (e) Payables for services described in item (g). (f) Logistics and general administrative services. (g) Product and technology development and market research services. (h) Provision of in vitro research and testing services. (i) Lease of part of the industrial complex located in Cajamar, SP and buildings located in the municipality of Itapecerica da Serra, SP. The main intercompany balances as of December 31, 2013 and December 31, 2012, as well as the intercompany transactions that affected the years then ended, refer to transactions between the Company and its subsidiaries. Because of the Company s and subsidiaries operational model, as well as the channel chosen to distribute products, direct sales via Natura Beauty Consultants, a substantial portion of sales is made by the subsidiary Indústria e Comércio de Cosméticos Natura Ltda. to the parent company Natura Cosméticos S.A. in Brazil and to its foreign subsidiaries. Sales to unrelated parties amounted to R$9,100 for the period ended December 31, 2013 (R$7,851 for the period ended December 31, 2012). There is no allowance for doubtful accounts recognized for intercompany receivables on December 31, 2013 and December 31, 2012 since there are no past-due receivables with risk of default. 75

84 Natura Cosméticos S.A. 76 According to note 14, the Group companies usually grant each other pledges and collaterals to guarantee bank loans and financing. On June 5, 2012, an agreement was signed between Indústria e Comércio de Cosméticos Natura Ltda. and Bres Itupeva Empreendimentos Imobiliários Ltda., ( Bres Itupeva ), for the construction and lease of a distribution center (HUB), in the city of Itupeva/SP. Messrs. Antonio Luiz da Cunha Seabra, Guilherme Peirão Leal and Pedro Luiz Barreiros Passos, members of the group of controlling shareholders of Natura Cosméticos S.A., indirectly hold controlling interest in Bres Itupeva. In May 2013, the company Eva Movies Audiovisual Ltda. ME, one of whose members is the son of Mr. Alessandro Carlucci, Natura Cosmetics SA president, started providing original video production for the Company, especially for the "Natura Meeting" and event services for the channel "Love Makeup "the estimated contract term is 24 months and the estimated value is R$ Key management personnel compensation The total compensation of the Company s and its subsidiaries Management is as follows: Compensation Compensation Variable Variable Fixed (*) Total Fixed (*) Total Board of Directors 6,541 1,357 7,898 5,654 2,344 7,998 Officers (statutory) 7,664 2,992 10,656 6,931 5,810 12,741 Total 14,205 4,349 18,554 12,585 8,154 20,739 Executives (not statutory) 35, ,554 28,964 20,345 49,309 (*) Refers to profit sharing recorded in the year. The amounts include any additions and/or reversals to the provision recorded in the previous year in view of the final assessment of the targets established for directors, officers and executives Share-based payments Breakdown of Company officers and executives compensation: Stock option grant Stock option grant Average Stock option exercise price balance R$ (b) (number) (a) Stock option balance (number) (a) Average exercise price R$ (b) Officers 1,697,035 43,97 1,564,890 35,52 Executives 2,458,019 43,97 2,666,136 35,52

85 Natura Cosméticos S.A. (a) Refers to the balance of unexercised vested and unvested options at the end of the reporting period. (b) Refers to the weighted-average exercise price of the option at the time of the stock option plans, adjusted for inflation based on the Extended Consumer Price Index (IPCA) through the end of the reporting period. 29. BUSSINESS COMBINATION a) Emeis Holdings Pty Ltd On February 28, 2013, the Company, through the holding company Natura Australia Pty Ltd ("Natura Australia"), completed the acquisition of 65% of the voting capital of Emeis Holdings Pty Ltd ("Emeis"), the final amount of AU $ 71,104. The Emeis is primarily engaged in the development and marketing of cosmetics and premium beauty and operates under the brand name "Aesop" in Australia, Asia, Europe and North America. The Company acquired Emeis to start operations in the retail market and expand its presence in the international market. Following the fair values of identifiable assets and liabilities at the date of acquisition Emeis translated at the exchange rate prevailing on February 28, 2013 are presented: Fair value at the recognition (R$) Assets availability customers stocks other assets Income Taxes and Contrib. social Deferred immobilized intangible Intangible assets identified: brands Relationships with retail customers Liabilities Providers (4.414) Tax Liabilities (275) Salaries and social security obligations (1.163) other Provisions (1.389) Income Taxes and Contrib. social Deferred (24.457) Other Payables (5.727) (37.425) 77

86 Natura Cosméticos S.A. Total net identifiable assets Non-controlling interest measured at fair value (34.786) Restricted deposits Contingent consideration (16.178) Goodwill on acquisition Total consideration The measurement of intangible assets was completed in December 2013 and resulted in the award of just the brand (" Aesop ") and relationships with retail customers value and indicated that the fair value at the acquisition date, converted by the exchange rate prevailing at 31 December 2013, was R$83,856, which was reduced by goodwill. Intangible assets acquired in a business combination have the following estimated useful lives: Years Brands 25 Relationships with retail customers 9 Goodwill on acquisition date converted by the exchange rate in effect on December 31, 2013 is R$74,132 and understands the value of deriving synergies from the acquisition of future economic benefits. The allocation of values to intangible assets identified on acquisition date promoted the realization of a liability for deferred taxes on the acquisition date and translated at the exchange rate prevailing on December 31, 2013, in the amount of R$16,353, to be recognized during the period of amortization of the intangible assets. The amount of goodwill allocated that will be deductible for tax purposes. Was recognized at the acquisition date relating to contingent consideration related to additional payment value based on certain performance indices of R$16,753, the original value in local currency was converted by the exchange rate in effect on December 31, The gross nominal value of receivables acquired on the acquisition date and converted into Reais, considered the fair value is $ 5,304 of short-term, and has no expectation of loss. Costs related to the acquisition of R$4,200 were recognized in the income statement as administrative expenses. The fair value of the consideration was R$143,908, paid fully in cash on hand. Since February 28, the date of its acquisition, Emeis contributed to the Company's net revenue of R$137,866 and net income of R$12,595, include minority interests. 78

87 Natura Cosméticos S.A. If the acquisition had occurred at the beginning of the current Emeis have contributed to the Company's net revenue of R$155,156 and net income of R$14,846 (unaudited) reporting. 30. COMMITMENTS Inputs supply contracts The subsidiary Indústria e Comércio de Cosméticos Natura Ltda. entered into a contract for the supply of electric power to its manufacturing activities, in effect through 2015, which provides for the purchase of a minimum monthly volume of 3.6 Megawatts, equivalent to R$373. As of December 31, 2013, the subsidiary was compliant to the contract s commitment. The amounts are carried based on electric power consumption estimates in accordance with the contract period, whose prices are based on volumes, also estimated, resulting from the subsidiary s continuous operations. Total minimum supply payments, measured at nominal value, according to the contract, are: Less than a year 3,583 3,983 More than one year and less than five years 3,205 6,929 6,788 10, Operating lease transactions The Company and its subsidiaries have commitments arising from operating leases of properties where some of its foreign subsidiaries, the head office in Brazil and Casas Natura in Brazil and abroad are located. Contracts have lease terms of one to ten years and no purchase option clause when terminated; however, renewal is permitted under the market conditions where they are entered into, for an average of two years. As of December 31, 2013, the commitment made for future payments of these operating leases had the following maturities: Company Consolidated Less than a year 9,900 29,656 More than one year and less than five years 13,480 25,549 More than five years - 1,226 23,380 56,431 79

88 Natura Cosméticos S.A. 31. INSURANCE The Group has an insurance policy that considers principally risk concentration and materiality, and insurance is obtained at amounts considered by management to be sufficient, taking into consideration the nature of its activities and the opinion of its insurance advisors. As of December 31, 2013, insurance coverage is as follows: Item Type of coverage Insured amount Industrial complex/ inventories Any damages to buildings, facilities, and machinery and equipment 1,147,604 Vehicles Fire, theft and collision for 1,395 vehicles 68,391 Loss of profits Loss of profits due to material damages to facilities, buildings and production machinery and equipment 1,841, APPROVAL OF FINANCIAL STATEMENTS The individual and Consolidated financial statements were approved by the Board of Directors and authorized for issue at the meeting held on February 12,

89 NATURA MANAGEMENT REPORT 2013 MESSAGE FROM THE FOUNDERS Commitment to the essential Neverthless, the growth of equality demands something more than economic growth, even though it presupposes it. It demands first of all a transcendent vision of the person I am convinced that from such an openness to the transcendent a new political and business mentality can take shape, one capable of guiding all economic and financial activity within the horizon of an ethical approach which is truly humane I ask you to ensure that humanity is served by wealth and not ruled by it. Excerpt from the address of Pope Francis to the World Economic Forum on January 17, 2014 In Brazil and the world, we live in times of uneasiness over change. Amidst a dearth of world leadership that offers effective alternatives when faced with the concerns of our society, the words and presence of Pope Francis are emblematic. Regardless of personal faith, the first Latin American pontiff soon won international attention for his strong stance guided by simplicity, the defense of essentiality and the pursuit of the common good. It is important to point out that, at this historic moment, it was a spiritual leader who addressed the heads of major global economies to explain that our civilization is intrinsically connected to a production model that is indifferent to fundamental issues that call on us to take responsibility. The unexpected and transforming force of Pope Francis reminds us of the famous quote by French thinker André Malraux: "The 21 st century will be spiritual or will not." Regardless of the interpretations that religiosity or spirituality inspire, it seems clear that his transcendent vision is fundamentally linked to the reclamation of ethical principles; an indispensable posture that, under the glow of altruism, guides all individual, social, business and government actions. And which certainly reinvigorates hope and the effective

90 pursuit of a new, more human and harmonious way of managing public and private activities. As an organization that has always been committed to life, Natura identifies with this longing for transformations that will allow us to build new development paths that are capable of confronting the economic, social and environmental challenges of our day. We have evolved our governance model to trace our future with greater confidence. Our contribution is translated not only through our corporate behavior, but also through the concepts expressed in our products. In this context, innovation is a key element in our strategy for yesterday, today and tomorrow. An expression of Natura s identity, it promotes progress on all fronts of our activities. Here I should mention the company s new research center in New York, which complements the centers that already exist in Cajamar, São Paulo, and in Amazonia. We are also celebrating the first year of integration with the Australian brand Aesop, which has proven to be in perfect harmony with our culture, bringing new creative approaches to the Natura universe and expanding our potential to reach out to different publics and regions. It is increasingly clear that we have an extraordinary opportunity to take our value proposition to other geographies. We are encouraged by our solid results and by the way our operations in Latin American have come to be recognized, but we know that our success depends directly on the development of new capabilities throughout this decade. In Brazil, we have made important investments that will empower Natura for another cycle of development with the opening of new facilities in São Paulo and Ecopark, which is an industrial park located in the state of Pará which aims to attract companies interested in developing sustainable businesses as well as encourage local entrepreneurship. In the light of the promising results and initiatives in 2013, we reaffirm our confidence that Natura will continue to seek answers to concerns, which mobilize us towards our commitment to the concept of well being well. Inspired by this feeling, we want to join forces with everyone who shares our ideals so that we can help build a world in which people are more conscious of the fact that quality of life is simply essential.

91 Antonio Luiz da Cunha Seabra Pedro Luiz Barreiros Passos Guilherme Peirão Leal Founders MESSAGE FROM THE EXECUTIVE COMMITTEE Ever more Natura The year 2013 reinforced our belief that Natura will expand its frontiers far beyond the boundaries of its current operations. Our value proposition, which is rooted in promoting the concept of well being well, sales made through relationships and corporate behavior in keeping with sustainable development, has the potential to reach new markets and consumers, whether in regions where we currently operate or in new regions. The solid results achieved by our International Operations in Latin America reaffirm this perception. By the end of 2013, these operations already accounted for 14% of our business and have maintained an annual growth rate in excess of 30% over the last few years, and now are accompanied by significant improvement in profitability. In Mexico, we reached the significant mark of 100,000 consultants in January, which reaffirms our brand s appeal in this market as well. In Brazil, it was a year of recovery that started relatively slow and began to gain strength in the second half of the year. Productivity gains in our network will be driven by increased buying frequency and a greater number of categories purchased by our consumers, supported by the series of initiatives implemented over the last few years: the redesign of our production and distribution capacity, marketing investments and our ability to innovate, among other factors. Despite the ever more competitive environment, we are confident that we have created the conditions for our consultants to do more and more business with Natura. A key element of this is the quality of services provided, which once again set new records for delivery time and order fill rate in As a result, we ended the year with total net revenue of R$ 7.01 billion, EBITDA of R$ 1.61 billion and net income of R$ million. These results were driven

92 by a cycle of strong investments in our operations and logistics model as well as growing investment in information technology. In this sense, 2013 will also be remembered as a milestone for the Natura Network, which leverages digital technologies and connectivity to boost direct sales. The network was successfully tested in the interior region of the São Paulo state and will be rolled out in other regions of Brazil over the course of It is one of the first outcomes of our future strategy. This strategy envisages a Natura that serves consumers through different mediums and categories. It is about a Natura that goes beyond cosmetics, fragrancies and toiletries products, transcends the borders of Latin America, manifests itself through brands that fill niches in distinct markets which is the case of Aesop, an Australian company we acquired in early 2013 that advocates a new take on urban beauty, while operating in market niches that we had yet to explore. Similarly, we seek to reaffirm sustainability as a driver of innovation and new business opportunities. We want to continue contributing to the construction of a sustainable development model based on relevant targets, like the one we established in 2007, when we decided to reduce our greenhouse gas emissions by 33%, which we achieved by December To capture new opportunities in the market and in our relationship network, we implemented a new organizational design and expanded the executive group, which are advances that were accomplished while we celebrated our best result ever in the survey of organizational climate conducted with our employees since we began measuring it in We also know that transformations in our society have an impact on business environments as well, which should accelerate the search for new types of relationship between people and companies, promoting much needed alignment between the zeitgeist and the concept of well being well. Despite this scenario in constant flux, which by nature poses a high degree of uncertainty, we believe that every day we acquire new knowledge and skills that make us more capable of realizing our dreams. We are therefore very excited to participate in the rise of a new development cycle in which, paradoxically, Natura will become

93 substantially different over the coming years in order to become, above all, even more Natura. Alessandro Carlucci Chief Executive Officer

94 Overview Established in 1969, Natura is Brazil s largest company in the cosmetics, fragrances and toiletries industry, with a strong presence in Latin America - Argentina, Chile, Mexico, Peru, Colombia and Bolivia - as well as in France. The company s passion for relationships led it to adopt direct sales as a business model, and today it is the leader in Brazil's direct sales industry. Our network has over 1.6 million consultants who disseminate the company s value proposition to its consumers. Market context Our industry remains competitive in Brazil, posting growth of 8.1% in the period from January to October 2013, according to data from the São Paulo State Perfumery and Toiletries Association (Sipatesp) and the Brazilian Cosmetics, Fragrances and Toiletries Industry Association (Abihpec). Less sensitive to economic fluctuations, the industry is more correlated to the level of household disposable income, which continues to grow, though at a slower pace than in prior periods. This year, although we lost 120 basis points of market share in Brazil, through October, the second half of the year started to show signs of recovery. Market share loss was concentrated mainly on cosmetics, while we managed to maintain in the toiletries category, supported especially by our launch of the sub-brand Sou. The result for the last two months of the year is still pending disclosure. In Latin America, the industry continued to grow at rates above the world average and Natura grew over 30% per annum, continuing to expand its market share and improve brand preference in all countries in which it operates. Results: Avg. annual change, % Number of NCs 1, , Total net revenue (R$ million) 4, , Net revenue Intl. Ops. (R$ million) , International Operations. Figures for 2013 include Aesop. Dividends (R$ per share) Relative CO2 emissions (kg of CO2e/kg of 3,55 2,79-6 product) Profile of shareholders 2013

95 Individuals 10,111 Legal persons in Brazil 594 Legal persons abroad 781 Total 11,486 Business model Natura's elements of value creation Our proposition of promoting the concept of well being well guides the way in which we operate, our business model, the development of our products and concepts and the way we relate with our stakeholders. Learn more about the main resources we use, the differentials of our operations and the value created. HOW WE OPERATE Our main resources: economic: public corporation listed on the BM&FBovespa, with 59.83% of its stock held by the controlling group, 39.10% forming the free-float and 1.07% held by the managers and in treasury. strong cash generation and low net debt, with the latter corresponding to 0.73 times EBITDA. net revenue of R$ 7.01 billion (+10.5% vs. 2012). investment (capex) of R$ million. infrastructure: Eight distribution centers in Brazil. Production facilities in Cajamar, São Paulo, and in Benevides, Pará, as well as outsourced production in Brazil, Argentina, Mexico and Colombia. We also own the Australian brand Aesop, with products in Oceania, Asia, Europe and North America. environmental resources: the social and biodiversity assets, which represent one of the brand's important advantages. water, which is used in production process and during the use and disposal of products by consumers. human capital: over 7,000 employees: Brazil (80%), Argentina, Chile, Peru, Mexico,

96 Colombia, France and New York*. intellectual capital: innovation index of 63% (share of products launched less than two years ago). investments in innovation of R$ 181 million (3% of net revenue). our relationships: network of over 1.6 million NCs in Brazil and other Latin American countries, as well as in France 100 million consumers** Nearly 5,000 suppliers 32 supplier communities and 3,100 families (who extract inputs from the social and biodiversity) Communities in the vicinity of our operations HOW WE ADD VALUE Corporate behavior Actions focused on Natura s priority sustainability topics: quality of relationships; climate change; social biodiversity; solid waste; water; sustainable entrepreneurship; education. Natura Management System, which structures Natura s main differentials in its routines and processes. Products and concepts A vision of innovation that encompasses all elements of the business: product and concept development, sales model and efforts to capture new business opportunities. An open innovation platform with a network of some 180 partners. Research and development centers in Cajamar, São Paulo, and Benevides, Pará, a knowledge center in Manaus, Amazonas, and an innovation center in New York (USA). Relationship Network A company policy that establishes relationships and benefit sharing with the communities who supply assets from social biodiversity. A leadership development program that has benefited 57% of today s leaders. A supplier development program that includes social and environmental criteria and features monitoring of indicators, such as CO2 emissions, water consumption and investment in employee education. Developments programs for Natura Consultants (NCs) and Natura Consultant Advisors

97 (NCA) that cover aspects ranging from digital inclusion to sustainable entrepreneurship in the company s relationship networks. *Does not include Aesop **The figure for Brazil is based on the indicator of penetration in Brazilian households. Value and impacts generated: Main results Indicator Economic (R$ million) Consolidated net revenue 5, , ,010.3 Consolidated EBITDA 1, , ,609.0 Consolidated net income Internal cash generation , ,102.3 Free cash flow Average daily trading volume in the stock 2 Funds destined to supplier communities Business volume in the Amazon n/a region 3 Percentage of revenue contributed by the Intl. Ops. (%) Environmental Relative GHG emissions (kg of CO2e/kg of product manufactured) 5 6 Absolute GHG emissions ( 000 t) Water consumption (liters/unit manufactured) Solid waste generation (grams/unit manufactured) Social Work climate survey Favorable ratings by Employees 7 Loyalty of NCs in Brazil Loyalty of NCAs in Brazil 8 n/a Loyalty of Suppliers in Brazil Loyalty of Consumers in Brazil Funds raised by the Believing is Seeing program in Brazil (R$ million) Other Number of NCs 1,421 1,573 1,657 Innovation Index Employee training (hours/employee) Overall rating of the brand image survey in Brazil

98 1. Represents operating cash generation before the effects of working capital variation and capex 2. Source: Bloomberg. 3. Includes Natura and other partners. 4. Including Aesop, the share of the International Operations in 2013 is 16.1%. 5. CO2 (or CO2 equivalent): measure used to express greenhouse gas emissions based on the global warming potential of each gas. The 2012 result was recalculated due to changes in the emission factor of Brazil's energy matrix. 6. Includes scopes 1, 2 and 3 of the GHG Protocol. 7. Climate Survey: Hay Group. 8. Loyalty Survey: Ipsos Institute. 9. Brand Essence Institute Survey: Ipsos, Wealth distribution (R$ million) Shareholders Consultants 2,906 3,211 3,390 Employees Suppliers 4,363 4,837 5,425 Government 1,472 1,743 1,804 Total 10,138 11,449 12,392 1 Figures correspond to the dividends and interest on equity effective paid to shareholders, i.e., cash basis of accounting. Distribution of dividends On February 12, 2014, the Board of Directors approved the proposal to be submitted to the Annual Shareholders Meeting to be held on April 11, 2014 for the payment, on April 16, 2014, of the balance dividends and interest on equity relative to fiscal year 2013, in the amounts of R$ million and R$ 22.4 million (R$ 19.0 million net of withholding tax), respectively. On August 15, 2013, interim dividends of R$337.3 million and interest on equity of R$23.4 million (net of withholding tax) were paid. These dividends and interest on equity relative to fiscal year 2013 represent a net payout of R$ 1.99 per share and correspond to 100% of net income [1] for [1] Net income calculated in accordance with Brazilian Corporation Law. Stock performance

99 Source: Bloomberg Strategy and outlook In 2013, we practically completed a cycle of training and investments in logistics infrastructure that led to a high level of quality in the services provided to NCs and shorter delivery times, down from 5.1 days to 4.5 days (35% of these orders are already being delivered in 48h). As a result, we were able to develop significant initiatives: the administrative and distribution center in São Paulo, and the industrial complex Ecopark in the state of Pará to be opened in March 2014, and the expansion in production capacity in Cajamar, Sao Paulo. These efforts prepare Natura to strengthen its business and meet the demands of the Brazilian market in the short term in light of the increasingly tougher competitive scenario. Starting this year, we will have a higher concentration of resources in digital technology, which will allow us to strengthen our current business and ensure our competitiveness, while building the foundations for Natura s future growth. In our International Operations, which are currently focused on Latin America, we have maintained robust growth over the last few years at annual rates above 30%. We expect to maintain these growth levels by expanding our consultant network, which is already 366,500 strong, while continuing our efforts to build our brand, continually improve service quality and improve profitability.

100 In Brazil, we expect to amplify our operations and maintain market share by increasing consultant productivity and the buying frequency of final consumers. This will be achieved through significant improvement in service level, product and concept innovation, and segmentation of our relationship with NCs and consumers, as well as through the continuous evolution of our commercial model. We are focused intensely on reaching out to final consumers through new ways, new product categories and new brands, and in this way continue to fulfill our purpose of promoting the concept of well being well. With more information and greater connectivity we will be able to maximize our greatest asset: sales through relationships. One of these initiatives is the Natura Network, which enables consultants to sell products online. Our corporate behavior has allowed us to evolve so that impacts on the environment and on society increasingly become important aspects of our decision-making process. This includes the sustainable use of resources from social biodiversity, relationships with supplier communities and other stakeholders with whom we dialogue, innovations to reduce greenhouse gas emissions and other fronts of our activities. This translates into innovative products like the Sou line, which accounted for a significant portion of our economic and environmental results already in the second half of We reaffirm our enthusiasm with the opportunity to expand our businesses, driven by our capacity to innovate and offer, to the Natura relationship network, increasingly more relevant products and concepts that are tuned to the spirit of our time. CORPORATE BEHAVIOR Governance and transparency Continuous evolution In April of last year, Plínio Villares Musetti was elected as chairman of Natura s Board of Directors, which ended the co-chairmen model exercised for years by the controlling shareholders. With this change, we took yet another step towards professionalizing and institutionalizing our company s governance and reaffirmed our long-standing commitment to good governance practices undertaken over 16 years ago when Natura voluntarily installed a Board of Directors six years prior to going public.

101 Luiz Seabra, Guilherme Peirão Leal and Pedro Passos, our founders and controlling shareholders, will remain on the Board, now even more focused on and engaged in driving the organization s progress by supporting the development of new executive leaders and the consolidation of a vibrant culture that seeks to perpetuate our beliefs and inspire the company's strategic vision. We have evolved our organization by increasing our focus on the company s strategy, aiming to achieve our results. The Executive Committee (Comex) was expanded in 2013, incorporating new roles and areas. We also revised our corporate structure based on three large areas. The first, focusing on management of Brands&Business, which is also responsible for innovating products and concepts. The second, a Network area, responsible for the relationship with our consultants and their clients in the multiple regions where we operate. And the third, formed by the company s corporate areas, such as Finances, People, Operations and IT. Organizational design Brands and Businesses Product Innovation Brand Architecture Marketing New Business (Brands and Categories) Product availability Corporate areas Networks Operations in Brazil's regional markets Operations in international markets Logistics CRM Innovation in the Commercial Model Natura Network Risk management Natura s risk management is an instrument integrated into the strategic planning cycle and considers the economic, social and environmental aspects of two main groups: strategic aspects, which can affect the company's ambition and continuity; and operational aspects, which evaluate our internal processes. We built a risk map based on assessments of our value chain and of our entire operations, which identified 62 risk categories. This process is monitored by one of the executives on the committee and linked to management action plans. The Board of Directors, through its various committees, also monitors all strategic risks inherent to the Company. The map includes aspects related to the commercial model, innovation capacity, taxation, biodiversity, product quality and employees, as well as many other aspects. Commitment to the Amazon With the launch of operations scheduled for the first quarter of 2014, Ecopark is an industrial complex that plans to generate sustainable business opportunities based on

102 the Amazon's social and biodiversity and fostering local entrepreneurship. Our new soap production facility will be the first unit installed at the site, which should attract other companies with needs complementary to those of Natura. Based on an innovative concept of industrial symbiosis, the idea is that each company installed in the Ecopark can use the sub-products generated by the others, while also sharing the space (172 hectares) and basic infrastructure. The initiative is part of the Amazonia Program launched by Natura in 2010 and was structured based on the knowledge and experience we have amassed from more than a decade of local operations. The Amazonia Program is structured on three fronts Science and Technology, Sustainable Production Chains and Institutional Strengthening and its goals for 2020 include: R$1 billion in business volume in the region; connecting one thousand researchers in a network for generating innovation and technology from social and biodiversity resources; increasing the number of families involved to 10,000 from the current 3,100; and increasing the consumption of inputs produced in the region to 30% from the current level of 13.4%. In 2013, we distributed R$ 11.1 million to supplier communities in supply funds, benefit sharing and other funds. The result fell short of the target for the period (R$ 13.6 million) and was below the amount distributed in the previous year (R$ 12 million). This performance was influenced by the reduction in raw material purchases due to the destocking of inventories formed in 2012, when sales were lower than projected. On the other hand, total investments made in the region amounted to R$ million, surpassing the target for the period of R$ 190 million, which mainly reflects the investments made in Ecopark. Climate change In 2013, we registered a reduction of 33.2% in our relative greenhouse gas emissions in relation to 2006, effectively fulfilling the commitment we signed in that year to pursue alternatives for reducing our impact on climate change by 33%. This reduction considers our entire production chain, from the extraction of raw materials to the use and disposal of products by consumers. We also reduced the absolute emissions of our production facilities by nearly 10% between 2008 and 2012.* The challenge of lowering our emissions led to many innovations and created innumerous learnings experiences for Natura. Launched in 2007 to structure these reduction initiatives, the Carbon Neutral Project resulted in the creation of a carbon management system in all stages of the production process, such as product development and manufacturing, the order cycle (the relationship with CNs, which includes the production of Natura catalogues, order registration and sorting for delivery) and transportation. This is an excellent example of how incorporating social and environmental challenges into the strategic planning and decision making process can lead to innovation and positive results for the company, while reducing impacts on society. As part of the evolution of these learning experiences, we continue to implement innovations and to test alternatives that can help increasingly reduce our impacts as our business grows. Last year, we became the first company to use cargo trucks and charter buses for employee transportation that are powered by ethanol. At the end of the year, we started testing nine electric vehicles in the logistics network for delivering orders to consultants. The alternatives include bicycles, tricycles and electric cars. Once

103 again, this is the first time a company has used electric vehicles for freight transportation in Brazil. This pioneering initiative will most likely provide us with valuable knowledge about this alternative means of transportation that could lead to future benefits, not only for reducing emissions, but also for mobility in urban centers. * In 2012, we reported a reduction of 7.4%, but the indicator was recalculated after the federal government made a correction in the electric power emissions factor. Valuing ecosystemic services Our commitment to a sustainable development model motivates us to conduct studies to measure the impact of our activities on social and environmental resources, which are also known as externalities. In 2013, we participated in the B-Team, a consortium of international companies and consultants whose objectives include developing a model for assessing the social and environmental impacts caused by these companies. Our plan is to have assessed all of Natura's externalities within the medium term, considering the social and environmental impacts. This will allow us to reach a point in the future when companies adequately value the services provided by ecosystems and biodiversity and investors begin considering the social and environmental gains or losses associated with an activity (externalities) in their risk and opportunity analyses. Products and concepts Our understanding of innovation is not limited to the development of new products and concepts, but permeates the entire organization in a multidisciplinary and transversal vision. It is incorporated into our sales strategy, our pursuit of new activities, our techniques for handling and extracting inputs from biodiversity and even our logistics operations. To accomplish our vision of the future and offer unique products and concepts that are relevant to consumers, we must adopt a broad view of innovation that is linked to trends and the pursuit of new opportunities, as a mean to express the beliefs and values of our company. Driven by this purpose, we entered into a cooperation agreement with the São Paulo State Research Support Foundation (FAPESP) for the creation of a Center for Applied Research into Human Well-being and Behavior. Launched in 2013, the center will build a solid base of knowledge on promoting well-being, cultural patterns and human behavior through research in neuroscience, positive psychology, social psychology, neuroimaging, neuropsychophysiology and psychometrics, among other fields. With investments of R$20 million over ten years, which will be shared equally by the two institutions, the research, in addition to generating innovative Natura products, will also be transferred to society, including the business, nongovernmental and public sectors. We also installed an international office in New York for the development of new concepts and products of international relevance. Our innovation structure also includes innovation and knowledge centers in Cajamar, SP and Manaus, AM as well as partnerships with institutions in Brazil, the United States, France and other countries. BOX

104 Sou: integrated results Sou, the new sub-brand launched in 2013, is a practical example of how we structure our products based on concepts that go way beyond sensorial and technical quality. Sou, which in Portuguese means "I am," has already made a significant contribution to our sales results and environmental impact in the second half of 2013 and should foster discussion on ethical consumerism. Launched in June, Sou has 27 hair and skin care products developed through a fully integrated process (idea, product development, marketing and advertising). The brand was created under an entirely new perspective, fully designed to consume the least possible amount of materials and ingredients, without using pigments, while offering high quality and uniqueness at affordable prices. The differentials of this line include: I'm essential What's important stays with you: moisturizing, captivating texture and wonderful fragrance. I'm a formula without excess Fewer ingredients. No dyes and only one olfactory signature. I'm a new packaging Modern and light. 70% less plastic and 60% less pollutant gases. Less transportation and less pollution. I'm an efficient process Less waste. Shorter production time. Lower energy consumption. I'm good to the last drop Flexible packaging so you can use all of the product. I'm about less waste in nature Once the product is finished, dispose of it along with other plastic waste for recycling. Contribution to the business incremental EBITDA growth with a significant share of sales already in Lower GHG emissions. The knowledge acquired was adopted company wide. Relationship Network In 2013, we continued the set of initiatives aimed at gradually expanding the shopping basket or our consumers and consequently increasing the productivity of our Natura Consultants in Brazil. Coupled with product and concept innovation, we adjusted sales team incentives to increase the focus on productivity, offered nine new payment means to consultants, maintained the trend of significantly improving service quality and invested even more in information technology. The initiatives led to an increase of 1.4% in average consultant productivity in 2013, 6.2% of which in the fourth quarter of the year.

105 These efforts will continue in 2014, with initiatives that include the development of mobile applications to help manage the business and the mapping of practices adopted by consultants with the highest productivity to disseminate them throughout the network. We are currently experiencing a transformation in our model based on digital technologies and connectivity as levers of direct sales. We believe that technology will facilitate the activities of the Natura Consultant network, foster social entrepreneurship and strengthen the relationships among consultants, their customers and Natura. Quality relationships We believe that establishing a dialogue with the stakeholders that form our value chain is critical to identifying solutions and challenges for our business. That is why we have made an integral part of our culture the participation of various stakeholders in strategic projects and regular monitoring of the quality of our relationships with key shareholders. As part of this effort, we regularly monitor this relation by considering satisfaction and loyalty indicators. In our 2013 work climate survey of employees, we achieved a 78% favorability rating, which represents an increase of 6 percentage points from the previous year and the best level ever since our first work climate survey was conducted in We also enjoyed significant improvement in supplier loyalty, which increased by 6.3 percentage points to 29.7%. Among Natura Consultants, the results were virtually stable, with NC loyalty of 23%, down from 24% in Among Natura Consultant Advisors (NCAs), the index was unchanged at 38%. We acknowledge that there is still room for progress and plan to further consolidate a network environment that is based on trust and transparency and capable of creating a more inclusive business management process that produces collaborative actions, solutions and innovations. Referral to the Market Arbitration Chamber The Company, its shareholders, officers, directors and members of the Audit Board agree to settle exclusively through binding arbitration, which shall be conducted in the Market Arbitration Chamber, any and all disputes or controversies that may arise between them that are related to or arise from, in particular, the application, validity, effectiveness, interpretation, violation and related effects of the provisions in Federal Law 6,404/76, the Company's bylaws, the rules published by the National Monetary Council (CMN), by the Central Bank of Brazil and by the Securities and Exchange Commission of Brazil (CVM), as well as those in the Novo Mercado Listing Regulations, the Regulations of the Market Arbitration Chamber, the Regulations for Application of Pecuniary Sanctions in the Novo Mercado and the Novo Mercado Participation Agreement.

106 Relationship with the independent auditors In compliance with Instruction 381/03 issued by the Securities and Exchange Commission of Brazil (CVM), we inform that the Company and its subsidiaries adopt as formal procedure consulting the independent auditors Ernst & Young Auditores Independentes S.S. to ensure than the rendering of these other services will not impair its independence and objectivity required to perform the independent audit services as well as obtaining due approval from its Audit Committee. The company's policy of not hiring the services of independent auditors ensures that there are no conflicts of interest or loss of independence or objectivity. To accurately and transparently portray our performance on the economic, environmental and social levels, we have adopted the Global Reporting Initiative (GRI- G4) guidelines, whose criteria will be extensively developed in our 2013 Annual Report. All social and environmental data contained in the GRI indicators are subjected to verification by Ernst & Young Auditores Independentes S.S., our independent auditor. In the case of the GHG emissions in 2013, a specific verification (limited assurance) was conducted of the inventory data, also by Ernst & Young.

107 Earnings Release 4Q13 São Paulo, February 12, 2014 Natura Cosméticos S.A. (BM&FBovespa: NATU3) announces today its results for the fourth quarter of 2013 (4Q13) and fiscal year Except where stated otherwise, the financial and operating information in this release is presented on a consolidated basis, in accordance with International Financial Reporting Standards (IFRS). 0

108 Earnings Release 4Q13 Sales in 4Q13 grow 9.3% in Brazil and 34.5% in Latin America Natura meets commitment to reduce its relative greenhouse gas emissions by 33% In the fourth quarter of 2013, Natura's consolidated net revenue grew 15.5% compared to 4Q12 (10.5% versus 2012), EBITDA 1 amounted to R$538.7 million (R$1,609.0 million in 2013) and net income was R$294.1 million (R$842.6 million in the year). After a slow start to the year in Brazil, these results confirm that we have achieved the objectives we proposed at the end of the first half of the year: gradual recovery in revenue growth and profitability, while making the investments required to support our medium-term strategy. In Brazil, we intensified our marketing investments, successfully launched the SOU line, obtained solid results from our sales strategies for commemorative dates 2, added new payment options for consultants and, in line with our strategy, recovered growth in sales and consultant productivity throughout the second half of the year. In 4Q13 in relation to the prior-year period, net revenue grew 9.3%, consultant productivity 3 increased 6.2% (1.4% in the year) and the consultant base expanded 2.3% (3.9% in the year). In 2013, the International Operations accounted for 14.4% of our sales (11.6% in 2012) and for 14.6% of sales in 4Q13 (12.3% in 4Q12); including Aesop, they accounted for 17.0%. Our good results in terms of revenue, profitability, service quality and brand preference in all countries reinforces our conviction that we continue to build a solid business platform in the region. In the year, net revenue from the Operations in Consolidation grew 34.3% in local currency (35.3% in Brazilian real), while the revenue from the Operations in Implementation grew 24.5% in local currency (37.7% in Brazilian real). The highlight was Mexico, where since 2011 we have implemented a multi-level model (Sustainable Relations Network) that fosters entrepreneurship and accelerated growth in our consultant base. After the learning phase and adjustments to the model, over the course of 2013 we reached high and sustainable levels of growth in the consultant base, surpassing, in January 2014, the symbolic mark of 100,000 consultants in Mexico. AESOP, the Australian cosmetics brand we acquired in February 2013, posted results in line with its growth plan. We opened 28 stores, including in three new countries. Today, AESOP has 80 stores and is present in 10 countries. 1 Based on pro-forma EBITDA. Figures for 2012 and 4Q12 were stated in accordance with item 6 herein. 2 Valentine's Day, Mother's Day, Father's Day and Christmas. 3 Productivity at retail prices = (gross revenue in the period/average number of consultants in the period)/(1 % consultants' profit). 1

109 Earnings Release 4Q13 (R$ million) 4Q13 4Q Brazil Gross Revenue 2, , , , International Gross Revenue , Consolidated Gross Revenue ex. Acquisition 2, , , , Brazil Net Revenue 1, , , , International Net Revenue* Consolidated Net Revenue ex. Acquisition 2, , , , % Share International Net Revenue 14.6% 12.3% 2.3 pp 14.4% 11.6% 2.9 pp Brazil pro-forma EBITDA , , % Brazil pro-forma EBITDA Margin 28.2% 27.5% 0.6 pp 26.5% 27.2% (0.7) pp International pro-forma EBITDA n/a 38.1 (11.8) n/a % International pro-forma EBITDA Margin 5.2% 4.3% 0.9 pp 3.8% (1.6)% 5.4 pp EBITDA ex. Acquisition , , % Consolidated EBITDA Margin ex. Acquisition 24.8% 24.7% 0.1 pp 23.2% 23.8% (0.6) pp *Growth in local currency of 33.9% in 4Q13 vs 4Q12 and 30.1% in 2013 vs 2012 In February 2013, we concluded the acquisition of the Australian company AESOP. To improve comparisons, the table does not include the effects from the consolidation of this acquisition or the associated costs. The table on the right presents consolidated data that includes the effects from the consolidation of AESOP and the costs associated with the acquisition, which was concluded in February (R$ million) 4Q13 4Q Consolidated Net Revenue 2, , , , Consolidated EBITDA , , % Consolidated EBITDA Margin 24.9% 24.7% 0.2 pp 23.0% 23.8% (0.9) pp Consolidated Net Income (3.6) % Consolidated Net Margin 13.6% 14.4% (0.9) pp 12.0% 13.8% (1.8) pp Internal cash generation , , Free Cash Generation (12.3) (57.0) Net Debt / EBITDA n/a n/a n/a In 2013, our EBITDA grew by 6.4%. While in the Latin America Operations EBITDA went from a loss in 2012 to positive territory in 2013, in Brazil, the higher investments in marketing and promotions, as well as the lower dilution of logistics fixed costs and the ongoing investments focused on the medium term, which was partially offset by efficiency gains, led to margin compression of 70 bps. We ended the year with consolidated EBITDA margin of 23.2% (23.8% in 2012), or 23.0% including the Aesop operation. This level of EBITDA enabled us to make the investments needed to improve our competitiveness in the near term and in projects for the medium term, such as the expansion of the Natura Network planned for In the year, consolidated net income 4 decreased 3.6% from 2012, due to the growth in depreciation, the increase in financial expenses and the marking to market. Excluding the non-cash impact from this marking to market of derivatives linked to foreign-denominated debt, which is a temporary effect that will be canceled upon the maturity of each operation, net income was stable in relation to In 2013, internal cash generation was R$1,102.4 million, increasing 8.2% from We invested R$170.5 million in working capital and R$553.9 million in capex. Despite the higher working capital needs at year-end in 2013 compared to 2012, specially due to the longer payment term granted to consultants, during the year we operated with an average working capital position better than the one 4 Consolidated net income including the result from Aesop. 2

110 Earnings Release 4Q13 in Capex was R$116.4 million higher than in 2012, which also explains the 57.0% reduction in free cash flow. This year, we invested R$553.9 million (R$437.5 million in 2012), mainly in consolidating our logistics model and expanding our production capacity in Cajamar and Pará (Ecoparque). These investments led to the achievement of high indicators for the quality of services rendered to consultants and to shorter order delivery times, as well as to a better balance between internal and outsourced production. We also started a new cycle of investments in information technology, with the highlight the Natura Network in Brazil. We estimate total capex in 2014 of R$500 million, with an increased share allocated to information technology to expand the Natura Network and to improve and integrate transaction systems in the International Operations. The production and logistics capacity built with the investments made over the last few years will allow us to reduce investments of this nature in the following years. We reaffirm our enthusiasm with the excellent results of our International Operations and the continued growth in Brazil during the second half of the year. Despite the scenario marked by increasingly higher competition in Brazil, we remain confident that our value proposition and the execution of our strategy will keep us in a relevant position in the countries where we operate. The year 2013 was also marked by the reaffirmation of our strategy for the medium term based on strengthening our relationship with consumers through other channels and brands, with Aesop serving as a concrete example of this path. We have made important advances in building the foundations for the execution of this strategy: we learned from and structured the Natura Network during the pilot phase in Campinas and São José dos Campos, invested in logistics and production capacity and redesigned our organizational structure to support the evolution planned for the business model and the incorporation of other brands and categories. 3

111 Earnings Release 4Q13 1. cosmetics, fragrance and toiletries (CFT) industry According to SIPATESP/ABHIPEC 5, and as we reported in 3Q13, our market share contracted by 180 bps during the first six months of As explained above, in the second half of 2013, our revenue growth in Brazil began to recovery gradually, which reduced our market share loss to 120 basis points (10M13), as shown in the following table: Brazil Market Size (R$ Million) Natura Market Share (%) 10M13 10M12 Change 10M13 10M12 Change Cosmetics and Fragrances 10,247 9, % 31.0% 33.4% (2.4) pp Toiletries 11,638 10, % 11.5% 11.4% 0.0 pp Total 21,885 20, % 20.6% 21.8% (1.2) pp Source: Sipatesp The recovery in our market share in the cosmetics and fragrances categories was due to solid results in perfumery, particularly in the Essencial, Homem, Sintonia and Tododia lines, while in the toiletries categories the highlight was our SOU line in the hair care and soap categories. 5 Sipatesp/Abihpec: São Paulo State Perfumery and Toiletries Association (Sipatesp)/Brazilian Cosmetics, Fragrances and Toiletries Industry Association (Abihpec). 4

112 Earnings Release 4Q13 2. social and environmental highlights In 2007, we undertook a commitment to reduce our relative greenhouse gas emissions by 33%. Since then, we have created a management system that contemplates our entire value chain, from the extraction of raw materials to the disposal of products after use. At the end of 2013, we registered a reduction of 33.2% in relation to Initiatives on multiple fronts have contributed to the fulfillment of this commitment. The main highlights of 2013 were the launch of SOU, which emits 60% lower GHG emissions, and the good sales performance of bar soaps in the Tododia and Ekos sub-brands, which have lower environmental impact due to their high percentage of plant-based ingredients and the use of biomass boilers in their production process. We were also the first company in Latin America to use ethanol-powered freight trucks and the first company in Brazil to use an ethanol-powered charter bus to transport employees. We also implemented a pilot program of nine electric vehicles, including tricycles and cars, to deliver orders to consultants. This is the first time ever that a company in Brazil has used electric vehicles to transport cargo. The social and environmental targets for 2013 and the respective results are presented below: Indicator Greenhouse gas (GHG) emissions 2012 Results 2013 Commitment 2013 Results Reduction of 28.4% Reduce relative greenhouse gas (GHG) emissions by Reduction of 33.2% over % over 2006 over 2006 Water consumption 0.40 liter/ unit produced Reduce to 0.39 liter/ unit produced in Brazil 0.40 liter / unit produced Solid Waste 25.6 grams / unit produced Maintain quantity of solid waste generated per unit produced in Brazil at grams 21.7 grams/unit produced Collections Crer para Ver* R$ 12.8 million Achieve R$14.0 million sales from Crer para Ver product line in Brazil R$ 17.1 million Funding to Supplier Communities ** R$ 12.1 million Distribute R$13.6 million in wealth to supplier communities R$ 11.2 million Business volume in the Amazon region*** R$ million 56.0% increase in business volume in the Amazon region to R$190 million in 2013 R$ million * Resources allocated to Natura Institute for investment in projects to support education in Brazil. ** Indicator refers to compensation and purchase of raw materials. *** Considers Natura and other partners. Water consumption: below-target due to the higher-than-expected production at one of our production facilities with higher relative consumption. Solid waste generation: this year's result is mainly due to the lower-than-expected generation and disposal of losses. Collections Crer para Ver: excellent result, with growth 33% higher than last year and 21% above target, driven by the good performance of product launches and sales team campaigns. Funding to supplier communities: Lower than expected for the period. The indicator was mainly impacted by lower purchases of raw materials in relation to the planning. Note that our planning did not take into account the inventories carried over from 2012 resulting from the lower-than-expected sales of lines using these inputs. Business volume in the Amazon region: Higher than expected for the period, mainly due to the investments in Ecoparque. 5

113 Earnings Release 4Q13 3. Economic financial performance 6 78 Quarter Pro-Forma (R$ million) Consolidated 7 Brazil Consolidation Implementation 4Q13 4Q12 Change% 4Q13 4Q12 Change% 4Q13 4Q12 Change% 4Q13 4Q12 Change% Total Consultants - end of period ('000) 8 1, , , , Total Consultants - average of period ('000) 1, , , , Units sold items for resale Gross Revenue 2, , , , Net Revenue 2, , , , Gross Profit 1, , , , Selling, Marketing and Logistics Expenses (725.7) (638.1) 13.7 (564.5) (533.7) 5.8 (89.0) (66.0) 34.9 (59.6) (33.7) 76.8 General and Administrative Expenses (273.7) (208.3) 31.4 (189.2) (169.0) 12.0 (12.7) (9.8) 29.6 (10.4) (7.3) 41.9 Employee profit sharing 6.3 (21.1) n/a 3.8 (17.0) n/a 0.9 (1.6) (154.2) 1.0 (0.9) (202.8) Management compensation (1.4) (5.2) (73.4) (1.4) (5.2) (73.4) Other Operating Income / (Expenses), net (5.5) (0.5) (2.9) 2.7 (207.0) (1.9) (2.2) n/a 0.2 (0.1) n/a Financial Income / (Expenses), net (24.1) (17.8) n/a (19.3) (11.7) n/a (6.4) (5.2) n/a (0.3) (0.9) n/a Income Tax and Social Contribution (164.6) (137.2) 20.0 (154.7) (129.2) 19.7 (5.6) (7.8) n/a (3.5) (0.2) 1,479.7 Noncontrolling (5.2) n/a Net Income (3.6) 3.6 (200.0) EBITDA* (71.3) Gross Margin 68.7% 69.3% (0.5) pp 67.8% 69.3% (1.5) pp 71.7% 69.8% 1.9 pp 69.4% 67.7% 1.7 pp Sales Expenses/Net Revenue 33.5% 34.0% (0.5) pp 31.4% 32.4% (1.0) pp 44.2% 42.7% 1.5 pp 59.8% 48.8% 11.0 pp General and Admin. Expenses/Net Revenue 12.6% 11.1% 1.5 pp 10.5% 10.3% 0.3 pp 6.3% 6.4% (0.0) pp 10.4% 10.6% (0.2) pp Net Margin 13.6% 14.4% (0.8) pp 16.2% 16.8% (0.7) pp 14.7% 9.9% 4.7 pp (3.6)% 5.2% n/a EBITDA Margin 24.9% 24.7% 0.2 pp 28.2% 27.5% 0.6 pp 22.2% 19.0% 3.2 pp 1.6% 8.2% n/a (*) EBITDA = Income from operations before financial effects + depreciation & amortization. Year to date Pro-Forma (R$ million) Consolidated 7 Brazil Consolidation Implementation Change% Change% Change% Change% Total Consultants - end of period ('000) 8 1, , , , Total Consultants - average of period ('000) 1, , , , Units sold items for resale Gross Revenue 9, , , , Net Revenue 7, , , , Gross Profit 4, , , , Selling, Marketing and Logistics Expenses (2,470.7) (2,212.2) 11.7 (1,968.1) (1,835.3) 7.2 (293.3) (224.2) 30.8 (177.0) (137.5) 28.8 General and Administrative Expenses (962.2) (771.5) 24.7 (693.9) (644.5) 7.7 (41.1) (31.0) 32.5 (31.9) (23.4) 36.6 Employee profit sharing (61.9) (90.8) n/a (50.3) (74.4) n/a (3.8) (6.5) n/a (2.1) (3.7) n/a Management compensation (18.6) (20.7) (10.5) (18.6) (20.7) (10.5) n/a n/a Other Operating Income / (Expenses), net 8.9 (11.6) n/a 11.6 (5.9) n/a (1.5) (4.6) n/a n/a Financial Income / (Expenses), net (158.3) (72.3) n/a (148.4) (69.8) (11.7) (2.2) n/a (1.0) (0.3) n/a Income Tax and Social Contribution (409.9) (424.0) (3.3) (383.6) (411.2) (6.7) (20.1) (11.8) n/a (4.7) (1.0) Noncontrolling (5.2) n/a Net Income (3.6) (6.4) (1.5) (12.4) n/a EBITDA* 1, , , , (8.2) (202.0) Gross Margin 70.2% 70.6% (0.4) pp 69.8% 70.8% (1.0) pp 71.6% 69.8% 1.8 pp 68.8% 67.7% 1.1 pp Sales Expenses/Net Revenue 35.2% 34.9% 0.4 pp 33.5% 32.7% 0.8 pp 44.5% 46.0% (1.5) pp 56.7% 60.6% (3.9) pp General and Admin. Expenses/Net Revenue 13.7% 12.2% 1.6 pp 11.8% 11.5% 0.3 pp 6.2% 6.4% (0.1) pp 10.2% 10.3% (0.1) pp Net Margin 12.0% 13.8% (1.8) pp 14.5% 16.2% (1.7) pp 15.2% 12.3% 2.9 pp (0.5)% (5.5)% n/a EBITDA Margin 23.0% 23.8% (0.9) pp 26.5% 27.2% (0.7) pp 21.1% 16.1% 5.0 pp 2.7% (3.6)% n/a (*) EBITDA = Income from operations before financial effects + depreciation & amortization. 6 In the pro-forma results, the profit margin obtained on exports from Brazil to the international operations was subtracted from the COGS of the respective operations in order to show the actual impact of these subsidiaries on the company s consolidated results. Accordingly, the pro-forma income statement for the Brazilian operations considers only the sales made in the domestic market. The result for 2012 was restated as described in section 6 of this document and note to the financial statements Consolidated figures include the Brazil Operations, the Operations in Consolidation, the Operations in Implementation and other International Investments and consider the impact from acquisitions. 8 Position at the end of Cycle 19 in Brazil and Cycle 17 in the International Operations, with Cycle 18 only in France. 6

114 Earnings Release 4Q net revenue Net Revenue Growth (R$ - % Year over Year) 45.5% 48.6% 48.9% 46.4% 36.7% 40.4% 34.6% 31.3% 15.4% 14.8% 11.3% 12.2% 12.0% 15.5% 5.9% 6.7% 12.5% 11.4% 8.9% 8.3% 9.3% 2.1% 1.1% 5.4% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Consolidated Brazil Consolidation and Implementation Operations and by 1.4% in 2013 in relation to the previous year. In Brazil, in line with our planning, 4Q13 maintained the recovery path in revenue observed already in the third quarter. During the second half of 2013, we intensified our investments in marketing, successfully launched the SOU line and enjoyed strong results from our sales strategies for commemorative dates 9. In keeping with our strategy, productivity followed a positive trend over the course of the year, increasing by 6.2% in 4Q13 (R$2,732 in 4Q13 vs R$2,573 in 4Q12), In 4Q13 and 2013, the average base of available consultants 10 in Brazil grew by 2.3% and 3.9%, respectively, compared to the year-ago periods. The slower growth in the second half of the year is explained by lower-than-expected consultant buying frequency. To increase this frequency, starting in 3Q13, we intensified our marketing and promotions to consultants and made other payment mean options available to them. For 2014, we are confident that, in addition to these initiatives implemented in 2013, new technology tools, improvements in sales team practices and channel segmentation plans will make important contributions to increasing the buying frequency of our consultants. Productivity (% Year over Year) Consultants - end of period 16.3% 16.2% 11.5% 10.7% 8.5% 4.6% 5.7% 5.3% 6.2% 2.9% 2.9% 1.4% -0.6% -2.6% -3.8% -5.7% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Brazil 1,435 1,506 1,518 1,573 1,557 1,575 1,604 1, ,179 1,226 1,227 1,268 1,258 1,249 1,258 1,290 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Brazil Consolidation Implementation YOY Consolidated Growth In 4Q13, the International Operations, excluding the impacts from acquisitions (Aesop), grew by 33.9% in local currency (33.7% in Brazilian real) to account for 14.6% of consolidated net revenue (14.4% in 2013). In 2013, these Operations grew by 30.1% in local currency (35.1% in Brazilian real). Unlike in previous quarters, revenue growth in Brazilian real was lower than in local currency, reflecting the depreciation in the basket 11 of Latin American currencies compared to the Brazilian real. Although all operations posted results consistent with our strategy, the highlight was Mexico, which, after adjustments to the Sustainable Relations Network in early 2013, posted a strong recovery in revenue growth over the course of the year. 9 Valentine's Day, Mother's Day, Father's Day and Christmas. 10 We consider as available all consultants who have placed at least one order in a period of four consecutive sales cycles. 11 Countries where we have operations: Argentina, Chile, Peru, Mexico and Colombia. 7

115 Earnings Release 4Q13 In Argentina, where we have been posting strong results in revenue, profitability and brand building, we are alert to the country s macroeconomic and institutional situation and are dedicating efforts to ensure our products remain available to our consultants and consumers. 3.2 innovation & products The innovation index 12 stood at 63.4% in December 2013, compared to 67.2% a year earlier, which is within the desired range and in line with previous quarters. The indicator benefitted from the SOU line that was launched in July and October The period was also marked by the relaunches of Plant, a line dedicated to hair care, and Aquarela, a make-up line inspired by the diversity of Brazilian women. Innovation (%NV) 67.0% 67.9% 67.3% 67.2% 65.0% 65.3% 63.8% 63.4% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q gross margin In 4Q13 and 2013, consolidated gross margin contracted from prior-year periods driven by margin expansion in the International Operations and margin compression in Brazil. In the International Operations, we maintained the trend of gross margin expansion observed in prior quarters, due to the more effective promotions, the still-favorable foreign exchange scenario and the incorporation of the high gross margin of AESOP. In Brazil, as planned and already observed in 3Q13, margin compression reflected the increased promotional efforts to reactivate our consultant base and the impact from the more adverse currency exchange scenario, which was worse than expected. The following table presents the main components of COGS: Gross Margin (%NR) 4Q13 4Q RM / PM / FP* Labor Depreciation Other Total % 71.9% 70.9% 71.5% 70.7% 71.3% 69.3% 70.5% 71.5% 71.0% 70.8% 69.3% 70.4% 71.4% 66.8% 69.4% 70.4% 69.2% 69.6% 70.7% 70.5% 70.9% 68.7% 67.8% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Consolidated Brazil Consolidation and Implementation Operations 12 Innovation Index: share in the last 12 months of the sale of products launched in the last 24 months. 8

116 Earnings Release 4Q operating expenses In 4Q13, selling, marketing and logistics expenses in Brazil as a ratio of net revenue decreased by 100 basis points, due to the excellent results in recovering receivables, while in the International Operations these expenses increased as a ratio of net revenue due to the higher investments in advertising, particularly in Mexico. In 2013, selling, marketing and logistics expenses as a ratio of net revenue increased by 80 basis points in relation to 2012 in Brazil, driven 32.4% 31.4% 32.7% 33.5% by higher marketing investments and lower dilution of logistic fixed costs. Meanwhile, in the International Operations, the reduction was due to the higher dilution of fixed expenses. Administrative, R&D, IT and Projects Expenses, Employee profit sharing and Management compensation (%NR) 11.6% 10.4% 13.2% 13.0% 8.8% 9.0% 7.1% Selling Expenses (%NR) 8.1% Quarter Year to Date Quarter Year to Date Brazil Consolidation and Implementation Operations Both in 4Q13 and in 2013, administrative, R&D, IT and Project expenses as a ratio of net revenue in Brazil decreased, since investments in strategic projects, such as those to expand the Natura Network in 2014, were funded by savings captured from efficiency projects and more robust matrix budget management, as well as the lower provisioning for profit sharing in 2013, since the results fell short of our expectations. In the International Operations, particularly the Operations under Implementation, the relative reduction in the period was driven by the higher dilution of these expenses in 2013 compared to the prior year. 44.6% 49.4% 50.7% 48.4% Quarter Year to Date Quarter Year to Date Brazil Consolidation and Implementation Operations 3.5 other operating income and expenses In 4Q13, considering Brazil and the International Operations, this line registered an expense of R$5.5 million, compared to the expense of R$0.5 million in 4Q12. In 2013, we recorded other operating income of R$8.9 million, compared to an expense of R$11.6 million in 2012, mainly due to the divestment of a property in Itapecerica da Serra, São Paulo. 3.6 other international investments Other international investments, which are related to the operation in France, the international corporate structure based in Buenos Aires and the AESOP operation, recorded EBITDA losses of R$13.7 million in 4Q13 (loss of R$25.1 million in 4Q12) and of R$95.5 million in 2013 (loss of R$82.0 million in 2012). In 4Q13, the lower loss in the quarter was due to the period of higher operational leverage at AESOP due to Christmas sales. In the year, the higher loss is explained by inflationary pressures on the cost base of the international corporate structure based in Buenos Aires. 9

117 Earnings Release 4Q EBITDA In 4Q13, consolidated EBITDA amounted to R$538.7 million, growing 16.3% from the same period of 2012 (EBITDA margin of 24.9% in 4Q13, versus 24.7% in 4Q12). In Brazil, EBITDA grew by 11.7% from the year-ago quarter, driven by efficiency gains in the collections process and lower profit sharing than in The Operations in Consolidation posted EBITDA margin expansion of 320 basis points from 4Q12, mainly due to gross margin expansion driven by the higher efficiency of promotions and the better exchange rate. Meanwhile, in the Operations in Implementation, in line with our planning, EBITDA margin contracted by 660 basis points due to the higher marketing investments, especially in our Mexico operation. In 2013, consolidated EBITDA was R$1,609.0 million (EBITDA margin of 23.0%), increasing 6.4% from 2012 (EBITDA margin of 23.8%). In Brazil, our EBITDA margin contracted by 70 basis points, explained by the higher investments in marketing and promotions, as well as the lower dilution of logistic fixed costs and the ongoing investment for the medium term, which was partially offset by efficiency gains and the lower profit sharing level. In the Operations in Consolidation and Implementation, EBITDA margin in 2013 increased by 500 basis points and 630 basis points, respectively, reflecting the gross margin gains, as explained for the quarterly result, and the higher dilution of selling expenses. EBITDA (R$ million) Figures include the operating result and transaction costs associated with Aesop 4Q13 4Q12 Change % Change % Net Revenue 2, , , , (-) Cost of Sales and Expenses 1, , , , EBIT , , (+) Depreciation/Amortization EBITDA , , The higher expenses with depreciation and amortization (34.6% in the quarter and 36.7% in 2013) reflect the investments in infrastructure (logistics and manufacturing) and in information technology. Pro-forma EBITDA by operational bloc (R$ million) Figures include the operating result and transaction costs associated with Aesop 4Q13 4Q12 Change % Change % Brazil , , Argentina, Chile and Peru Mexico and Colombia n/a 8.4 (8.2) n/a Other Investments (13.7) (25.1) n/a (95.5) (82.0) n/a EBITDA , ,

118 Earnings Release 4Q net income In 4Q13, excluding the impact from the marking to market of derivatives linked to foreign-denominated debt, consolidated net income grew by 6.4% from 4Q12, which lagged EBITDA growth in the period due to the higher depreciation and financial expenses driven by the growth in net debt. Net Margin (%NR) 15.0% 14.4% 13.4% 11.9% 9.2% 14.0% 10.3% 13.6% In 2013, excluding the noncash effects from mark-to-market adjustments, net income remained stable compared to 2012, given the higher financial and depreciation expenses. 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Our policy is to hedge all of our foreign-denominated debt and to hold both our debt and the associated hedge instrument to maturity. Accordingly, we contract swap 13 operations that offset the currency translation impacts on our debt and transform its cost into a fixed rate pegged to the overnight rate (CDI), which results in more competitive rates than those tapped in the Brazilian market. Under IFRS accounting, we mark to market only derivative instruments, and not the financial debt. This causes temporary noncash impacts every quarter that are offset upon the maturity of each transaction. These mark-to-market adjustments in the quarter amounted to positive R$15.9 million, compared to positive R$9.2 million in year-ago period. Note that marking to market is not the basis adopted for calculating the net income distributable via dividends, in accordance with Normative Instruction 1,397, or for income tax purposes. (R$ million) 4Q13 4Q12 Change Change R$ Financial Income/ (Expenses), net (24.1) (17.8) (6.3) (158.3) (72.3) (85.9) Mark-to-Market adjustment (18.4) 12.9 (31.2) Financial Income/ (Expenses) ex. Mark-to-Market, net (40.0) (27.0) (13.0) (139.9) (85.2) (54.7) Excluding the noncash effects from mark-to-market adjustments, the increase in financial expenses in 4Q13 was driven by the growth in average net debt in the period. In the year, in addition to the same impact on the quarter, the financial result was also adversely affected by the R$8.4 million in hedge expenses with the positions contracted to hedge the commitment related to the acquisition of the 65% interest in Emeis Holding (AESOP) for AU$69 million. The positions were contracted to offset the impact of foreign exchange variation on the agreed price between the commitment and the settlement date, in accordance with our foreign currency exposure policy. 13 Financial swap operations consist of exchanging foreign exchange variation for restatement corresponding to a percentage of the variation in the interbank overnight rate (CDI). 11

119 Earnings Release 4Q cash flow 14 In 2013, internal cash generation was R$1,102.4 million, increasing 8.2% from We invested R$170.5 million in working capital and R$553.9 million in capex. Meanwhile, working capital needs increased in December 2013 compared to December 2012, particularly due to an atypically favorable position at year-end 2012, as well as to the offering of new payment means, which increased the average receivables term by two days. The position in December 2012 received a positive impact of R$80 million from the higher concentration of media spending and capital expenditure in that period, as commented in previous quarters. In relation to the average monthly working capital requirements, in 2013 we operated at a more comfortable position compared to 2012, with improvements observed in average inventory coverage and trade payables. Capex was R$116.4 million higher than in 2012, which also explains the 57.0% reduction in free cash flow. R$ million 4Q13 4Q12 Change R$ Change % Change Net Income (31.8) (3.6) Depreciation and amortization Non-cash / Other* 42.3 (11.0) 53.4 n/a ,945.7 Internal cash generation , , Working Capital (Increase)/Decrease (180.3) n/a (170.5) (467.8) n/a Operating cash generation (90.3) (15.9) ,316.0 (384.1) (29.2) CAPEX (185.7) (235.0) 49.3 (21.0) (553.9) (437.5) (116.4) 26.6 Free cash flow** (41.0) (12.3) (500.5) (57.0) Favorable/ (unfavorable) (*) Some 2012 figures were adjusted for proper disclosure (**) (Internal cash generation) +/- (changes in working capital and long-term assets and liabilities) (acquisitions of property, plant, and equipment). R$ Change % This year, we invested R$553.9 million in property, plant and equipment and intangible assets (R$437.5 million in 2012), mainly to consolidate our logistics model, opening the new São Paulo distribution center, and expand our production capacity in Cajamar and Pará (Ecoparque). These investments led to the achievement of high indicators for the quality of services rendered to consultants and to shorter order delivery times, as well as to a better balance between internal and outsourced production. We also began a new cycle of investments in information technology, with the highlight the Natura Network in Brazil. We estimate investments in capex of R$500 million in 2014, with a higher portion invested in information technology for expanding the Natura Network and for improving and integrating transaction systems in the International Operations. The production and logistics capacity built with the investments made over the last few years will allow us to reduce investments of this nature in the following years. 14 Pro-forma cash flow. 12

120 Earnings Release 4Q indebtedness The increases in total debt and net debt reflect mainly the investments in property, plant and equipment and intangible assets and the acquisition of a 65% interest in AESOP. Debt (R$ million) Dec/13 Share (%) Dec/12 Share (%) Change (%) Short-Term (30.7) Long-Term 2, , Derivatives (153.6) (6.2) (80.9) (3.7) 89.8 Finance Leases (249.6) (10.0) (47.8) (2.2) Total Debt 2, , (-) Cash, cash equivalents and short-term investme 1, ,643.1 (20.3) (=) Net Debt - Net Cash 1, Net Debt / Ebitda Total Debt / Ebitda stock performance In 2013, the price of Natura stock declined by 26.6% from December 31, 2012, while the Bovespa Index fell 15.5%. Average daily trading volume in 4Q13 was R$44.4 million, compared to R$51.3 million in the prior-year period. This year, our average ranking in the Bovespa Liquidity Index was 29 th. The following chart shows the performance of Natura stock since its IPO: 1400 All prices expressed in ex dividend terms. NATU3 30/12/2013 R$ Bovespa Index NATU3 Base 100 = 25/05/2004 Follow On 31/07/2009 R$ % NATU3 26/05/2004 R$ 5, % NATU3: +87.3% Ibov: +38.9% +38.0% +27.7% +51.2% +32.9% -41.4% +43.7% +18.0% % +77.7% +63.9% +36.7% +1.1% -20.4% -18.1% +69.0% +7.3% -26.6% -15.5% 13

121 Earnings Release 4Q13 5. dividends and interest on equity On February 12, 2014, the Board of Directors approved the proposal to be submitted to the Annual Shareholders Meeting to be held on April 11, 2014, for the payment on April 16, 2014, of the balance dividends and interest on equity relative to fiscal year 2013, in the amounts of R$ million and R$ 22.4 million (R$ 19.0 million net of withholding tax), respectively. On August 15, 2013, interim dividends of R$337.3 million and interest on equity of R$23.4 million (net of withholding tax) were paid. These dividends and interest on equity relative to fiscal year 2013 represent a net payout of R$ 1.99 per share and correspond to 100% of net income 15 for restated figures for 2012 To enable comparison of the financial statements with periods prior to the adoption of accounting changes, the figures in this document relative to 2012 were fully restated in 4Q12 in accordance with IAS 19, which changes the accounting method for actuarial gains and losses, determining their recognition under other comprehensive income in the Comprehensive Income Statement and Balance Sheet, net of deferred income tax and social contribution. Accordingly, the differences in EBITDA and net income from the figures previously disclosed by the company were immaterial. The following table shows the items from the Income Statement that were adjusted for the 2012 restatement: Consolidated (R$ million) 2012 IAS Reported Adjustment Restated Administrative, R&D, IT and Projects Expenses (772.7) 1.2 (771.5) Financial Income / (Expensive), net (93.4) 21.1 (72.3) Income Tax (414.9) (9.1) (424.0) Net Income EBITDA 1, , Net income calculated in accordance with Brazilian Corporation Law. 14

122 Earnings Release 4Q13 conference call & webcast PORTUGUESE: Friday, February 14, :00 a.m. (Brasília time) ENGLISH: Friday, February 14, :00 p.m. (Brasília time) From Brazil: From the USA: Toll free From other countries: Code: Natura Live webcast: investor relations Tel: +55 (11) Fabio Cefaly, Tatiana Bravin, Francisco Petroni, Julia Villas Bôas, 15

123 Earnings Release 4Q13 balance sheets on December 2013 and December 2012 (in millions of Brazilian real - R$) ASSETS Dec/13 Dec/12 LIABILITIES AND SHAREHOLDERS' EQUITY Dec/13 Dec/12 CURRENT ASSETS CURRENT LIABILITIES Cash and cash equivalents 1, ,144.4 Borrowings and financing Short-term investments Trade and other payables Trade receivables Payroll, profit sharing and related taxes Inventories Taxes payable Recoverable taxes Other payables Derivatives Total current liabilities 2, ,414.7 Other receivables Total current assets 3, ,378.3 NONCURRENT ASSETS NONCURRENT LIABILITIES Long-term assets: Borrowings and financing 2, ,309.2 Recoverable taxes Taxes payable Deferred income tax and social contribution Provision for tax, civil and labor risks Escrow deposits Others provisions Other noncurrent assets Total noncurrent liabilities 2, ,654.6 Property, plant and equipment 1, ,012.1 Intangible assets SHAREHOLDERS' EQUITY Total noncurrent assets 2, ,978.4 Capital Capital reserves Earnings reserves Treasury shares (84.0) (66.1) Proposed additional dividend Other comprehensive losses (6.9) (32.5) Total equity attributable to owners of the Company 1, ,287.4 Non- controlling interests Total equity 1, ,287.4 TOTAL ASSETS 6, ,356.7 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 6, ,

124 Earnings Release 4Q13 statements of income for the periods ended December 31, 2013 and 2012 (R$ million) NET REVENUE 7, ,345.7 Cost of sales (2,089.8) (1,868.0) GROSS PROFIT 4, ,477.6 OPERATING (EXPENSES) INCOME Selling expenses (2,470.7) (2,212.2) General and administrative expenses (962.2) (771.5) Employee profit sharing (61.9) (90.8) Management compensation (18.6) (20.7) Other operating (expenses) income, net 8.9 (11.6) INCOME FROM OPERATIONS BEFORE FINANCIAL INCOME (EXPENSES) 1, ,370.7 Financial income Financial expenses (522.5) (234.2) INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION 1, ,298.4 Income tax and social contribution (409.9) (424.0) INCOME BEFORE NON-CONTROLLING INTEREST Noncontrolling (5.2) 0.0 NET INCOME ATTRIBUTABLE TO Owners of the Company Noncontrolling

125 Earnings Release 4Q13 statements of cash flow for the periods ended December 31, 2013 and 2012 (R$ million) CASH FLOW FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Provision for losses on swap and forward transactions (100.5) (52.3) Provision (reversal) for tax, civil and labor contingencies Interest and inflation adjustment of escrow deposits (21.3) (21.0) Income tax and social contribution (Gain) loss on sale on property, plant and equipment and intangible assets (2.6) 15.7 Interest and exchange rate changes on borrowings and financing and other liabilities Exchange rate changes on other assets and other liabilities Expenses with stock options plans Provision for discount on assignment of ICMS credits (3.3) 0.8 Allowance for doubtful accounts Allowance for inventory losses 27.6 (23.8) Net income attributable to non-controlling shareholders (5.2) 0.0 Provision for healthcare plan and carbon credits Recognition of untimely used tax credits (6.8) (11.6) Recognition of tax credits from legal claims 0.0 (1.7) (INCREASE) DECREASE IN ASSETS 1, ,563.1 Trade receivables (182.6) (17.5) Inventories (126.4) 11.9 Recoverable taxes (50.3) 29.5 Other receivables (100.4) (48.6) Subtotal (459.7) (24.6) INCREASE (DECREASE) IN LIABILITIES Domestic and foreign suppliers Payroll, profit sharing and related taxes, net (34.2) 79.8 Taxes payable 28.0 (2.7) Other payables Provision for tax, civil and labor contingencies (7.5) (6.3) Subtotal CASH GENERATED BY OPERATING ACTIVITIES 1, ,

126 Earnings Release 4Q13 OTHER CASH FLOWS FROM OPERATING ACTIVITIES Payments of income tax and social contribution (240.0) (320.8) Withdrawal (payment) of escrow deposits (41.6) (32.6) Payments of derivatives 27.8 (18.5) Payment of interest on borrowings and financing (96.9) (104.3) NET CASH GENERATED BY OPERATING ACTIVITIES ,309.4 CASH FLOW FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment and intangible assets (553.9) (437.5) Proceeds from sale of property, plant and equipment and intangible assets Short-term investments (4,698.8) (4,213.7) Redemption of short-term investments 4, ,715.1 Capital increase in subsidiaries Noncontrolling interest (129.0) 0.0 NET CASH USED IN INVESTING ACTIVITIES (456.0) (933.0) CASH FLOW FROM INVESTING ACTIVITIES Repayments of borrowings and financing - principal (1,029.4) (629.7) Proceeds from borrowings and financing 1, ,708.6 Sale of treasury shares due to exercise of stock options Payment of dividends and interest on capital of the prior year (491.3) (491.0) Anticipation of dividends and interest on capital of the year/period (364.8) (363.5) Repurchase of treasury shares (60.2) 0.0 NET CASH GENERATED (USED) IN FINANCING ACTIVITIES (652.7) Gains (losses) arising on translating foreign currency cash and cash equivalents 1.6 (2.9) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (128.1) Cash and cash equivalents at the beginning of the year/period 1, Cash and cash equivalents at the end of the year/period 1, ,144.4 DECREASE IN CASH AND CASH EQUIVALENTS (128.1) Additional Statements of Cash Flows Information: Restricted cash Bank overdrafts - unused Non-cash items Reserve for acquisition of non-controlling shareholders Capitalization of financial leasing

127 Earnings Release 4Q13 Glossary _CDI: the overnight rate for interbank deposits. _Natura Consultants (CN): self-employed resellers who do not have a formal labor relationship with Natura. _Natura Super Consultants (CNO): self-employed resellers who do not have a formal labor relationship with Natura and support the Relationship Managers in their activities, also called Super Consultants. _Supplier Communities: the communities of people involved in small scale farming and extraction activities in a variety of locations in Brazil, especially in the Amazon Region, who extract the inputs used in our products from the social and biodiversity. We form production chains with these communities that are based on fair prices, the sharing of benefits gained from access to the genetic heritage and associated traditional knowledge and support for local sustainable development projects. This business model has proven effective in generating social, economic and environmental value for Natura and for the communities. _GHG: Greenhouse gases. _Innovation Index: Share in the last 12 months of the sale of products launched in the last 24 months. _Natura Institute: is a non-profit organization created in 2010 to strengthen and expand our Private Social Investment initiatives. The institute has enabled us to leverage our efforts and investments in actions that contribute to the quality of public education. _Target Market: refers to the market share data published by SIPATESP/Abihpec. Considers only the segments in which Natura operates. Excludes diapers, oral hygiene products, hair dyes, nail polish, feminine hygiene products as well as other products. _Operations in Consolidation: Grouping of operations: Argentina, Chile and Peru _Operations in Implementation: Grouping of operations: Colombia and Mexico _Profit Sharing: the share of profit allocated to employees under the profit-sharing program. _Natura Believing is Seeing Program: special line of non-cosmetic products whose profits are transferred to the Natura Institute, in Brazil, and invested by Natura in social initiatives in the other countries where we operate. Our consultants promote these sales to benefit society and do not obtain any gains. _Sustainable Relations Network: sales model adopted in Mexico that features eight stages in a consultant s development: Natura Consultant, Entrepreneurial Natura Consultant, Natura Developer 1 and 2, Natura Transformer 1 and 2, Natura Inspirer and Natura Associate. To rise up through the various stages, consultants must fulfill certain criteria based on sales volume, attracting new consultants and (unlike the models adopted in other countries) personal development and social and environmental relationships in the community. _Benefit Sharing: in accordance with Natura s Policy for the Sustainable Use of Biodiversity and Associated Traditional Knowledge, benefits are shared whenever we perceive various forms of value in the access gained. Therefore, one of the practices that define the way in which these resources are divided is to associate payments with the number of raw materials produced from each plant as well as the commercial success of the products in which these raw materials are used. _Sipatesp/Abihpec: São Paulo State Perfumery and Toiletries Association / Brazilian Cosmetics, Fragrances and Toiletries Industry Association (Abihpec). restated figures _Non-cash items: restated figures for 4Q12, 2012 and 9M13 for comparison purposes. _Cost Breakdown: Restated figures for 4Q12 and 2012 in the chart between the lines Labor and Other. _Working Capital 4Q12 and 2012: Some of the balances in 2012 were reclassified to improve presentation and comparison with the accounting criteria adopted in 2013, which impacted working capital variation in the period. Please see note 4.3 of the financial statements. _2012 Statement of Income: To enable comparison of the financial statements with periods prior to the adoption of accounting changes, the figures in this document relative to 2012 were fully restated in 4Q12 in accordance with IAS 19, which changes the accounting method for actuarial gains and losses, determining their recognition under other comprehensive income in the Comprehensive Income Statement and Balance Sheet, net of deferred income tax and social contribution. Accordingly, the differences in EBITDA and net income from the figures previously disclosed by the company were immaterial. 20

128 Earnings Release 4Q13 EBITDA is not a measure under BR GAAP and does not represent cash flow for the periods presented. EBITDA should not be considered an alternative to net income as an indicator of operating performance or an alternative to cash flow as an indicator of liquidity. EBITDA does not have a standardized meaning and the definition of EBITDA used by Natura may not be comparable with that used by other companies. Although EBITDA does not provide under BR GAAP a measure of cash flow, Management has adopted its use to measure the Company s operating performance. Natura also believes that certain investors and financial analysts use EBITDA as an indicator of performance of its operations and/or its cash flow. This report contains forward-looking statements. These forward-looking statements are not historical fact, but rather reflect the wishes and expectations of Natura s management. Words such as "anticipate", "wish", "expect", "foresee", "intend", "plan", "predict", "project", "desire" and similar terms identify statements that necessarily involve known and unknown risks. Known risks include uncertainties that are not limited to the impact of price and product competitiveness, the acceptance of products by the market, the transitions of the Company s products and those of its competitors, regulatory approval, currency fluctuations, supply and production difficulties and changes in product sales, among other risks. This report also contains certain pro forma data, which are prepared by the Company exclusively for informational and reference purposes and as such are unaudited. This report is updated up to the present date and Natura does not undertake to update it in the event of new information and/or future events. 21