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NATURA report 2013


reason for being VISION

Our Reason for Being is to create and sell products and services that promote well-being/being well. Well-being is the harmonious and pleasant relationship of a person with one’s body. Being well is the empathetic, successful, and gratifying relationship of a person with others, with nature and with the whole.

Because of its corporate behavior, the quality of the relationships it establishes, and the quality of its products and services, Natura will be an international brand, identified with the community of people who are committed to building a better world, based on better relationships with themselves, with others, with nature of which they are part, and with the whole.

beliefs

Life is a chain of relationships. Nothing in the universe exists alone. Everything is interdependent. We believe that valuing relationships is the foundation of an enormous human revolution in the search for peace, solidarity, and life in all of its manifestations. Continuously striving for improvement develops individuals, organizations and society. Commitment to the truth is the route to perfecting the quality of relationships. The greater the diversity, the greater the wealth and vitality of the whole system. The search for beauty, which is the genuine aspiration of every human being, must be free of preconceived ideas and manipulation. The company, a living organism, is a dynamic set of relationships. Its value and longevity are connected to its ability to contribute to the evolution of society and its sustainable development.

EDITORIAL Integrated communication Natura has innovated in the way it presents the company in this report. In continuation of a change initiated in 2013, we have chosen the internet as the main channel for disclosure, both because of its reach and the reduced environmental impact it enables. On our webpage (www.natura.net/relatorio), you will find all Natura’s economic-financial, social and environmental results, as well as detailed descriptions of the ways in which the company relates to its different stakeholders. We have sought to show how we create value for these stakeholders in the short, medium and long-term.

index profile Who we are p. 04 How we operate p. 05 External context p. 06 International Operations p. 07 Message from the Founders p. 08 Message from the Executive Committee p. 09 Strategy Strategy p. 10 Sustainability Vision p. 12 business conduct Governance and transparency p. 14 Risk management p. 15 Valuation of impacts p. 15 People management p. 16 Products and concepts Innovation p. 17 Launches p. 18 Climate change p. 20 Socio Biodiversity p. 22 Water p. 24 Solid waste p. 25 relationship network Commercial model p. 26 Sustainability entrepreneurship p. 28 Quality of relationship p. 30

ONLINE

SMARTPHONE

Acess the website www.natura.net/relatorio

Download a QR code reader and photograph the code

From this edition, we have adopted the fourth generation (G4) of GRI (Global Reporting Initiative) guidelines, launched in 2013. Just as we were early adopters of the GRI guidelines in 2000, believing in the importance of an international model to report on sustainability, we are now on engaging in the new global communication standard proposed by the IIRC (International Integrated Reporting Council). We believe that the integrated reporting of financial and non-financial information represents an important advance in the communication of corporate performance. For the first time, we are also presenting the general lines of Natura’s Sustainability Vision. This expresses our ambition of generating a positive impact in all our areas of activity – a challenge that may only be met through the ongoing engagement and collaboration of our entire relationship network. I hope you enjoy it! Marcelo Bicalho Behar Director of Corporate Affairs and Government Relations


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profile who we are

how we operate

Natura believes in the potential of relationships and in the power of cosmetics to expand people’s consciousness, helping them connect with their own body, with the surrounding environment and with other people. This way of thinking and acting is expressed in business conduct aligned with sustainable development, with the creation of products and concepts that promote well being well and the strong connection Natura maintains with its relationship network.

how natura adds value

This network comprises approximately 7,000 employees, 1.6 million Natura Consultants (NCs) and almost 14,000 Natura Consultant Advisors (NCAs) – in addition to more than 5,000 suppliers and outsourced suppliers (companies manufacturing products on behalf of Natura) and 32 extractivist communities. This network reaches around 100 million consumers and is present in 58.5% of Brazilian homes at least once during the course of a year. Today, Natura is the largest company in the personal hygiene, perfumery and cosmetics sector in Brazil and also in the direct selling sector. Based in Cajamar (São Paulo), the company has a strong presence in Latin America, with operations in Argentina, Chile, Mexico, Peru, Colombia and France. Company products are commercialized in Bolivia through local distributors. The structure is completed by eight distribution centers in Brazil and six in the international operations, which handle around 62,300 NC orders per day. The brand is the leader in consumer preference in its segment, with a rate of 44%. In the International Operations, Natura is growing in awareness and preference in all the countries in which it operates. In the last five years, the company’s sales network has expanded, with net revenues growing on average 13% a year.

economic

>> a publicly-traded company listed on BM&FBo-

Natura’s objective of promoting well being well guides the way in which the company operates, its commercial model, product and concept development, and the way in which it relates to its stakeholders.There follows a description of the main resources used, operating differentials and value created.

Business conduct Sustainability topics determined in conjunction with stakeholder groups and incorporated into company processes by means of the Natura Management System: quality of relationships; climate change; social biodiversity; solid waste; water; sustainable entrepreneurship; and education. >>

Products and concepts

innovation process encompassing all aspects of the business: product and concept development, evolution of commercial model and quest for new businesses. >> open innovation platform with a network of around 180 partners. >> research and development centers in Cajamar (São Paulo) and Benevides (Pará), knowledge center in Manaus (Amazonas) and an innovation center in New York (USA). >>

Environmental 2011 2012 2013 Relative GHG gas emissions 3.12 2.99 2.79 (kg CO2e/kg product invoiced)1 2 Absolute GHG gas emissions (000’s of metric t)2 265 280 313 Water consumption (l/unit produced) 0.40 0.40 0.40 Waste generation (g/unit produced) 20 26 22

relationship network commercial model based on generating value in conjunction with consultants, involving incentives for personal and human development and sustainable entrepreneurship in network. >> leadership development program completed by 57% of company managers. >> company-developed relationship and benefit sharing policy with communities supplying socio biodiversity ingredients. >> supplier development program based on environmental, social and financial criteria with tracking of indicators such as CO2 emissions, water consumption and investments in employee education, among others.

>>

vespa, with 59.83% of company shares held by the controlling group, 39.10% outstanding and 1.07% held by managers and the treasury. >> strong cash generation and low net indebtedness, corresponding to 0.73 times Ebitda. >> net revenue of R$ 7.01 billion (+10.5% compared with 2012). >> Capex of R$ 553.9 million. >> Ebitda of R$1.61 billion (+6.4% compared with 2012).

value proposition

infrastructure

>> eight distribution centers in Brazil. >> factories in Cajamar (São Paulo) and

Benevides (Pará), as well as third-party production in Brazil, Argentina, Mexico and Colombia. >> the company also owns the Australian brand Aesop, commercialized in 11 countries in Oceania, Asia, Europe and North America.

main resources

essence

environmental resources >> biodiversity ingredients, a major brand differential. >> water used in the production process and in the use and disposal of products by consumers. human capital >> almost 7,000 employees*: Brazil,Argentina, Chile, Peru, Mexico, Colombia, France and New York (USA). intellectual capital >> innovation rate of 63% (share in sales of products launched within the last two years). >> R$ 181 million invested in innovation (3% of net revenue). our relationships >> network of more than 1.6 million NCs in Brazil, other Latin American countries and France, as well as 14,000 NCAs. >> 100 million consumers **. >> almost 5,000 suppliers. >> 32 extractivist communities. >> communities surrounding our operations.

value and impacts generated

business conduct oriented to sustainable development

relationship network through which we commercialize our products

products and CONCEpTS with innovation to promote well being well

Economic (R$ MM) 2011 2012 2013 Consolidated net revenue 5,591.4 6,345.7 7,010.3 Consolidated ebitda 1,425.0 1,511.9 1,609.0 Consolidated net profit 830.9 874.4 842.6 Internal cash generation3 964.0 1,018.9 1,102.3 Free cash generation 410.4 878.8 378.1 Average daily share trading volume4 43.7 54.3 61.1 Funding for extractivist communities 10.0 12.1 11.2 Business volume in Amazon region5 n/a 121.8 201.5 IO revenue as a percentage of total revenue (%)6 9.0 11.6 14.4 Wealth distribution (R$ million) Shareholders7 Consultants Employees Suppliers Government Total

763 855 856 2.906 3.211 3.390 634 803 917 4.363 4.837 5.425 1.472 1.743 1.804 10.138 11.449 12.392

Social (%) 2011 2012 2013 Climate survey – Employee Favorability8 70 72 78 NC Loyalty Brazil9 19 24 23 NCA Loyalty Brazil9 24 40 38 Supplier Loyalty Brazil9 27 23 30 Consumer Loyalty Brazil9 66 51 52 Believing is Seeing revenue Brazil (R$ MM) 8.4 12.8 17.1 Others Number of NCs Innovation Rate (%) Employee Training (hrs/emp.) Overall evaluation in brand image survey in Brazil10

2011 2012 2013 1,421 1,573 1,657 64.8 67.2 63.4 85.2 87.6 90.3

*Does not include Aesop. **Estimated for Brazil based on 73 79 78 Brazilian household penetration indicator. 1. CO2 e (or CO2 equivalent): measure used to express greenhouse gas emissions, based on each one’s global warming potential. The 2012 result was restated due to changes in the Brazilian electrical energy emission factor. 2. Includes GHG Protocol scopes 1, 2 and 3. 3. Represents operating cash generation before the effects of changes in working capital and Capex. 4. Source: Bloomberg 5. Considers Natura and partners. 6. Including Aesop, IO share in 2013 was 16.1% 7. The amounts represent the dividends and interest on own equity effectively paid out to shareholders. 8. Climate survey: Hay Group. 9. Loyalty survey: Ipsos Institute. 10. Brand Essence Survey: Ipsos Institute.


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Relative CO2 emissions

Dividends

Total net revenue

(kg of CO2e/kg of product)

(R$ per share)

(R$ MM)

2013 7,010.3

1.99

2013

2013

2.79

international operations

- 6%

+ 13%

+ 10%

Number of NCs

Net revenue IOs1

(in 000s)

(R$ MM per share)

2013 1,656.5

2013 1,130.1 2009 4,242.1

2009

+ 40%

2009

1.37

2009

+ 12%

292

3.55

Intensified in 2010, the acceleration of the company’s internationalization strategy is producing significant results. Since 2012, the operations under consolidation (Argentina, Colombia and Chile) have been profitable – meaning the company’s investments are beginning to produce positive returns. The operations being implanted (Peru and Mexico), have already reached breakeven.

2009 1,038.9

1. International Operations. The 2013 figure includes Aesop.

external context

With a more challenging environment in Brazil, Natura’s market share saw a retraction of 1.2 p.p. during the year.The loss in market share was concentrated in cosmetics and fragrances, while share in the personal hygiene market remained practically stable, driven mainly by the launch of the Sou sub-brand. In Latin America, the market continues to grow at rates above the global average.

growing in a competitive environment The cosmetics, personal hygiene and perfumery market grew 10% in 2013, according to Sipatesp (São Paulo Perfumery and Beauty Products Industry Association) and Abihpec (Brazilian Cosmetics, Fragrances and Toiletries Industry Association). Less sensitive to economic fluctuations, the sector is more associated with consumers’ disposable income, which continues to grow, but at a slower pace than in previous years.

accelerated, profitable growth

The direct selling segment in Brazil is the fourth largest worldwide, accounting for 9% of global door-to-door sales volume. According to ABEVD, the Brazilian direct sales association, the model grew 7.2% in the year. In the other countries in which Natura operates in Latin America, the direct sales model is at different levels of maturity, with the company’s NC network growing on average 24% per year since 2009. “This context reinforces our conviction that we have room and opportunities to expand our businesses, responding to the challenge of operating in an increasingly competitive marketplace”, says Alessandro Carlucci, Natura’s executive president.

“Our results in terms of revenue, profitability, service levels and increased brand preference are robust in all the countries in which we operate”, says Erasmo Toledo, vice president, International Businesses. The International Operations’ share of company revenues reached a record of 14.4% in 2013 – 17% if Aesop, the Australian company acquired in 2012, is taken into account. Average growth since 2009 has been 40% per year.

Ebitda (proforma) (R$ MM)

2011 2012 2013 1 Countries under consolidation 43.0 78.4 139.0 Countries under implantation2 (24.2) (8.2) 8.4 3 Total International Operations (51.1) (11.8) 38.1 Gross revenue (R$ MM)

Countries under consolidation1 441.5 649.7 886.8 Countries under implantation2 172.9 263.5 363.1 Total International Operations3 636.9 936.6 1,273.5 Shareholder profile

Share performance 1200

brazilian legal entities 5.2% 594 foreign legal entities 6.8% 781 private individuals 88% 10,111

NATU3 30/12/2013 R$ 41.37

BOVESPA INDEX

1000

NATU3

FOLLOW ON 31/07/2009 R$ 22.47

800

+638.1%

600 400

NATU3 25/05/2004 R$5.61

+173.3%

200

TOTAL 11,486

-

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

NATU3: +87.3% Ibov: +38.9%

+38.0% +27.7%

+51.2% +32.9%

41.4%+43.7%

+18.0% -41.2%

+77.7% +63.9%

+36.7% +1.1%

-20.4% -18.1%

+69.0% +7.3%

-26.6% -15.5%

Source: Bloomberg.

1. Group consisting of the operations in Argentina, Chile and Peru. 2. Group consisting of the operations in Colombia and Mexico. 3. Includes the operations under consolidation, being implanted and other international investments (the operation in France and the international corporate structure based in Buenos Aires).


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MESsAGE from the founders Commitment to what is essential “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 Pope Francis’ message to the World Economic Forum, January 17, 2014.

In Brazil and worldwide, we are experiencing a growing desire for change. Amidst the absence of global leaders capable of offering viable alternatives to address the uncertainties our society faces, the words and presence of Pope Francis are emblematic. Irrespective of creed, the stance adopted by the first Latin American pope rapidly attracted global attention with its simplicity, its advocacy of essential issues and a quest for common good. It is significant that his historical reminder to the leaders of the world’s major economies that our civilization is locked in a production model insensitive to fundamental societal questions demanding responsible solutions should have come from a spiritual leader. Pope Francis’ unexpected and transformational strength brings to mind the famous phrase of the French thinker André Malraux: “The 21st century will be spiritual or will not be”. Irrespective of the interpretations religiousness or spirituality may inspire, it seems clear that a transcendent vision of mankind is linked fundamentally with the renewal of ethical principles. A much needed mindset that guides individual, social, business and government actions in the light of altruism. And that revives hope, driving an effective quest for new, more humane and supportive forms of managing public and private activities.

As an organization that has always been committed to life, Natura identifies with this yearning for transformation, enabling forms of development capable of addressing our current economic, social and environmental challenges. Our governance model has evolved, enabling us to face the future with greater confidence. Our contribution is reflected not only in our business conduct, but also in the concepts behind our products. In this context, innovation has been, is and will continue to be key to our strategy. The expression of Natura’s identity, it drives evolution in every aspect of the company’s activities. This is evident in the company’s new research center in New York, complementing the existing centers in Cajamar (São Paulo) and in the Amazon region. Natura is also commemorating the first year of its integration of the Australian brand Aesop, which has blended perfectly into our culture, introducing new creative approaches to the Natura universe and boosting our potential to impact new audiences and geographies.

Executive Committee Standing, from left to right Roberto Pedote, vice president, Finance and Institutional Relations Josie Romero, vice president, Operations and Logistics Alessandro Carlucci, executive president Lilian Guimarães, vice president, People and Culture Robert Chatwin, vice president, New Businesses José Vicente Marino, vice president, Brands and Businesses

It has become increasingly evident that we have an enormous opportunity to take our value proposition to new frontiers. The significant results and the recognition our operations have gained in Latin America are encouraging, but we are aware that our continued success will depend on the development of new capabilities throughout the decade. In Brazil, we undertook major investments to prepare Natura for a further cycle of business evolution, with the inauguration of new facilities in São Paulo and the Ecoparque, an industrial park located in Pará, aimed at attracting companies interested in developing sustainable businesses, as well as fomenting local enterprise. Based on our results and our promising initiatives in 2013, we reaffirm our conviction that Natura will continue to seek responses to the concerns which drive our commitment to well being well. We wish to join forces with all those who share these same ideals so we may build a world in which quality of life is simply essential. Antonio Luiz da Cunha Seabra Guilherme Peirão Leal Pedro Luiz Barreiros Passos Founding Partners

executive committee ever more Natura Our results in 2013 strengthened our conviction that Natura should extend its frontiers far beyond its current operations. Our value proposition, based on promoting well being well, on relationship selling and on business conduct aligned with sustainable development, has more than shown its potential for conquering new markets and consumers, be it in the countries in which we already have a presence, be it in others. The robust results in our Latin American operations reinforce this perception. By the end of 2013, these accounted for 14% of our business, growing at over 30% annually in recent years, and now showing a significant increase in profitability. In Mexico, we reached the landmark of 100 thousand consultants in January 2014, proving the power of our brands in these markets. In Brazil, 2013 was a year of recovery, with a slow start and a resumption in growth from the second half. Increased productivity in our network will be driven by growth in purchase frequency and in the number of categories consumers acquire. This will be supported by a series of initiatives implanted in recent years: the redesign of the company’s production and distribution capacity and investments in marketing and innovation capacity, among other factors.

Board of Directors Standing, from left to right Julio Moura Neto Guilherme Peirão Leal Luiz Ernesto Gemignani Marcos Lisboa Pedro Luiz Barreiros Passos Antonio Luiz da Cunha Seabra Raul Gabriel Beer Roth Seated Plínio Villares Musetti and Roberto Oliveira de Lima

Faced with ever growing competition, we are confident we have laid the foundations upon which our consultants will increase their business volume with Natura. Here a fundamental element is the quality of the service Natura provides, with new records in order fulfillment and delivery times in 2013. We ended 2013 with net revenues of R$ 7.01 billion, R$ 1.61 billion in Ebitda, and a net profit of R$ 842.6 million – results which were obtained amidst a vigorous cycle of investment in our operations, in our logistics model and, increasingly, in information technology. In this respect, 2013 will also be remembered for the birth of the Natura Network, employing digital technologies and connectivity as levers for direct selling.Tested successfully in São Paulo state, the Network will

Seated, from left to right Agenor Leão, vice president Digital Technology João Paulo Ferreira, vice president, Commercial Gerson Pinto, vice president, Innovation Erasmo Toledo, vice president, International Operations

be expanded to other regions in Brazil throughout 2014. This is one of the first results of a strategy in which we envision a Natura that serves consumers through different media and categories. A Natura that extends beyond cosmetics, fragrances and hygiene products, beyond the borders of Latin America, with brands occupying spaces in distinct markets – as is the case with Aesop, an Australian company that we acquired at the beginning of 2013 which proposes a new dimension in urban beauty, operating in market spaces which are new for us. Similarly, Natura reaffirms the importance of sustainability as a driver of innovation and new business. The company retains its focus on a sustainable development model with key targets, initiated in 2007 with the decision to reduce greenhouse gas emissions by 33%, a landmark that was reached in December 2013. To capture new opportunities in the market and in its relationship network, Natura implanted a new organizational design and expanded the executive group, advances that coincided with the best result ever in the organizational climate survey since its inception in 1994. Natura also recognizes that the transformations occurring in society affect the world of work, accelerating the quest for new forms of relationship between people and companies and promoting an indispensable align ment between societal zeitgeist and well being well. Even against this backdrop of constant change, which by its very nature generates a high degree of uncertainty, we believe that every day the company is growing in the knowledge and in the competencies that that will help it achieve its ambitions. We look forward to being part of the germination of a new cycle of development in which, paradoxically, the company will be substantially different in the coming years in order that, above all, it may be ever more Natura.

Alessandro Carlucci Executive president


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strategy // 11

new cycle of expansion going beyond offsetting impacts

Natura is entering a new phase of business growth, further exploiting the potential of its relationship network and extending the reach of well being well with new product categories, brands and ways of relating to consumers

Natura’s Sustainability Vision expresses its desire to go beyond simply reducing or offsetting the effects of its activities and ensuring that the company generates a positive impact on society.This means actively promoting social, environmental and economic welfare, rather than just neutralizing the impacts caused by the business.“We believe that a company’s reason for being is to build a better planet and society”, says Natura’s president Alessandro Carlucci.

The strategy drafted in recent years to drive a new growth cycle is based on Natura’s major asset: its relationship network. The company’s ambition is to expand its reach, exploiting the potential of the relationship network built up over the years through the use of digital technologies and connectivity. The mainspring of this evolution will be promoting well being well through the expansion of the company’s value propositions for consultants and consumers. In the short term, this strategy is aimed at reinforcing the strengths of the current business. In Brazil, sales expansion will be driven by increased consultant productivity. Many initiatives already underway will support this objective, including the implantation of new relationship and segmentation tools, significant innovations driving the constant evolution of the commercial model, as well as higher service levels and reduced delivery times, resulting from recent investments in logistics infrastructure. In the International Operations, the focus will be on maintaining the accelerated growth rate through an expanded consultant network and brand building, with ever higher service and profitability levels.

The vision is based on internal analyses, the review of global trends in sustainability and numerous dialogs with Natura stakeholders over recent years. Organized in three pillars (Our Brands and Products, Our Network and Our Management and Organization), the vision sets forth guidelines for the construction of positive impacts in 2050. It also encompasses public ambitions for 2020, which will challenge the company and provide a roadmap for the journey (see table on next page).From the launch of this strategy in 2014, Natura will engage its relationship network in a process of ongoing, transparent dialog to drive constant improvement throughout the company, and to update its materiality matrix based on these strategic internal choices.

Natura is planning to expand the spaces in which its network acts through the introduction of new product categories and new brands, as well as new forms of relationship with customers. “We are about to enter a new era, with innovative models and ways of doing business which will help the network to increase sales. All company investments over the last five years have been aimed at this”, says Alessandro Carlucci, president of Natura. An example is the Natura Network, which enables NCs to sell products through their internet pages and gives consumers the flexibility to access company products through different purchase models. In 2013, Natura concluded an important cycle of preparation and investment in logistics infrastructure which resulted in an impressive improvement in service quality for NCs and the reduction of order delivery times from 5.1 to 4.5 days, with 35% of orders delivered in up to 48 hours. This effort includes the inauguration of a new administrative and distribution center in São Paulo, and the Ecoparque industrial complex in Benevides (Pará), opened in March 2014 – as well as increased production capacity at Cajamar (São Paulo). From 2014, investments will be concentrated more on information technology.

Based on the belief that the value and longevity of a company depend on its capacity to contribute to the development of society, Natura also reviewed the role sustainability plays as a business driver. “We have already done a great deal to ensure that company practices reflect the inspiration of working towards a better society and sustainable development, but there is still a lot for us to do”, explains Denise Alves, director of Sustainability. For this reason, Natura has developed a new Sustainability Vision for its businesses, defining where it wants to get to and which impacts it intends to generate over the coming decades.


12 // strategy

strategy // 13

sustainability Vision

ambitions for 2020

We will generate positive social, environmental and economic impacts, delivering value for our entire relationship network, through all our businesses and brands and in all the geographies in which we operate, by means of our products, services and sales channels The expression of our brands will drive the emergence of new values and the behaviors necessary to build a more sustainable world; the brands will be a reference in cutting edge innovation based on sustainable technologies. We will work through an eco-effective1 production and distribution model focused on local development and the generation of positive socio-environmental value throughout our value chain. We will make a positive contribution to the human development of our relationship network and will foment entrepreneurship through collaborative platforms. We will integrate Triple Bottom Line (TBL)2 management into all company processes, with innovative, leading edge business practices that inspire others, making Natura a role model in business conduct.

Consultants

>> increase NC and NCA real average income significantly. >> stimulate interest in lifetime learning and provide a broad educational offering that meets the needs of this stakeholder group. >> create an indicator to measure the human development of Natura consultants and build a strategy to improve this significantly.

employees

>> have women occupying 50% of leadership positions (29% in 2013). >> have a work force in which 8% have some kind of disability (4.3% in 2013). >> leverage employee potential for achievement and enterprise through engagement in company culture.

Community

>> grow community human development indices and build a plan to bring about significant improvements in this reality. >> develop a strategy for the socio biodiversity territories in the PanAmazonian region and the surrounding communities by means of dialog and collaborative construction in conjunction with local populations and actors.

suppliers

Formulation

>> 30% of Natura’s inputs in value will come from the Pan-Amazonian region (13.4% in 2013).

packaging

>> use at least 75% recyclable material in total mass of packaging (56% in 2013). >> use at least 10% post-consumption recycled material in the total mass of packaging (1.43% in 2013). >> 40% of the Natura units invoiced will have eco-efficient packs3 (21.5% in 2013).

Carbon

>> reduce relative carbon emissions by 33% (2020 x 2012) (33.2% reduction from 2006 to 2013).

>> ensure the traceability of 100% of the inputs produced by direct manufacturers (last link in the manufacturing chain) by 2015, and implement a traceability5 program for the remaining links in the chain by 2020.

relationship network

brands and products

management model

>> implement the valuation of socio-environmental externalities, considering the positive and negative impacts of our entire production chain to drive improvements in TBL management.

Stakeholder engagement

>> support public discussion and debate of questions that are important for the common good of society and its sustainable development, providing support for solutions and alternatives in the markets in which we operate.

organization and management

Communication, ethics and transparency

>> institutionalize a governance model with external engagement, ensuring stakeholders have a permanent voice in the evolution of company management and strategy. >> implement radical transparency in the supply of product information and in the implantation and evolution of the Sustainability Vision.

waste

>> implant a reverse logistics system that enables the collection of 50% of the waste generated by company packaging.

Socio biodiversity

>> reach 10,000 families in Pan-Amazonian production chains (2,188 families in 2013). >> reach a business volume4 of R$ 1 billion in the Amazon (from 2010 to 2020) (R$ 388 million in 2010-2013).

water

>> implement a strategy to reduce and neutralize impact based on measuring the company’s water footprint throughout Natura’s value chain.

Energy

>> implement a strategy to increase consumption of renewable energy.

1. Eco-effectiveness is an approach aimed not only at minimizing environmental impact but also seeking to reuse all the materials consumed in manufacturing a product in its own production process. This methodology addresses not only environmental, but also social and economic impacts linked with the value chain. 2.The Triple Bottom Line (TBL) concept was created by John Elkington in 1994. It represents the expansion of the traditional business model to a new one which takes a company’s environmental and social performance into account as well as its financial indicators. 3. Eco-efficient packs: for Natura, eco-efficient packs are those that represent a reduction of at least 50% in weight compared with a similar regular pack; or which consist of 50% post-consumption recycled material and/or renewable material, as long as there is no increase in mass. 4. Business volume in the Amazon region: funds distributed by Natura in the region 5. Traceability plan with scope to be defined.


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business conduct // 15

business governance and transparency

risk management

ongoing Evolution

on the lookout for opportunities

New model reaffirms commitment to good corporate practiceS In April last year, Plínio Villares Musetti was elected chairman of the Natura Board of Directors, putting an end to the co-chairmen model exercised historically by the controlling shareholders. Yet another step towards the professionalization and the institutionalization of governance in the company, the change reinforces Natura’s long-standing commitment to best practices, initiated 16 years ago when it voluntarily instituted a board six years before going public. The controlling shareholders and founders of the company Antônio Luiz Seabra, Guilherme Peirão Leal and Pedro Passos remain on the board. Their focus now, however, is on overseeing the evolution of the organization, with support for the development of new executive leaders, aimed at consolidating a vibrant corporate culture that will perpetuate the company’s values and inspire its strategic vision. “In addition to being good corporate practice, this change will guarantee the dedication necessary to drive our future growth”, says Natura’s director of Corporate Governance, Moacir Salzstein.

Comex expanded

remuneration policy

To ensure even greater focus on company strategy and achievement of its proposed targets, the Natura’s Executive Committee (Comex) was expanded in 2013, incorporating a larger number of company leaders. Today it comprises representatives of the fundamental functions (Finance and Institutional Relations, Innovation, People and Culture, Digital Technology, Operations and Logistics), and the businesses (Natura Brazil, International Operations and New Businesses).

Natura has a fixed and variable remuneration system designed to prevent distortions in company performance. The system is projected to balance short, medium and long-term earnings and engage executives in driving growth and value generation. The variable remuneration program offers senior management a share purchase option or stock subscription plan. This is linked with the executive’s decision to invest at least 50% of the net proceeds from the company’s profit share scheme in the acquisition of Natura shares. The profit share scheme is based on economic, social and environmental targets (see below), and total volume may not exceed 10% of Natura’s net profit.

Natura also reviewed its organizational structure, which is now based on three major pillars: Brands and Businesses: responsible for product development, innovation, marketing and new businesses; Networks: responsible for the commercial model, logistics, operations in Brazil and overseas; Corporate functions: activities permeating the whole business, including Finance, People, Operations and Digital Technology.

How risk management tracks critical questions and drives innovation at Natura When Natura reviewed its future vision, it identified an opportunity to develop its direct selling model, expanding the company’s reach and transformational power based on digital tools – this was the beginning of the Natura Network (read more on page 25). This is an example of how risk management links with new opportunities and drives innovation throughout Natura. The business model is part of the company’s risk matrix, which also periodically monitors capacity to generate innovation, develop new partnerships, questions related to taxes, product quality, as well as socio-environmental aspects, such as biodiversity. Integrated into strategic planning, risk management at Natura takes into account economic, social and environmental questions and is divided into two main groups: strategic risks, those which may affect business targets and continuity; and operational ones, related to internal processes. The entire process is linked with risk mitigation action plans and is tracked by Comex (Executive Committee). Through its diverse committees, the Board of Directors also accompanies the evolution of the company’s strategic risks.

Bonus criteria Economic: Consolidated ebitda Social: Organizational climate and NC loyalty rate (Brazil) Environmental: Carbon emissions Others: Non-Service Rate (products unavailable when consultant orders are received)

valuation of impacts

integrated management Project will measure the social and environmental impact generated by Natura and its value chain In 2010, Natura invested in developing a methodology to quantify its socio-environmental impacts, that is, to establish the monetary value of the positive and negative impacts caused by the company’s main suppliers in function of demand from Natura. This analysis generated indicators that were incorporated into the platform for selecting and managing these business partners. In 2013, the company also applied a valuation methodology to compare the more sustainable production of the Amazon palm (plant from which palm oil is derived) with the traditional production model. Based on experiences such as these, in 2014 Natura will initiate a new cycle to expand impact valuation. The intention is to assess the externalities generated by the company and its value chain, encompassing environmental and social questions, and driving progress in TBL (triple bottom line) management. Based on a systemic vision, this information will influence decision making and risk and opportunity assessment in the company, helping to define new strategic and business paths.

Sou business unit employees


16 // business conduct

// 17

products and

people management

Natura culture Challenges include ensuring employee engagement and integration in company processes and culture, as well as developing the competencies necessary to drive growth plans Natura revealed a growth plan with targets for the coming years that include new product categories, new brands and a commitment to developing the direct sales model, among others. To meet these challenges, the company needs to continually reinforce leadership and develop the skills and competencies required for this evolution. Over the last two years, Natura has made changes in management structure, such as the reformulation of the People and Culture area, previously part of the Sustainability structure, and the creation of a Digital Technology area to guarantee focus on technology investments.

Expanding the boundaries of innovation

To ensure continuous evolution, the People and Culture area will conclude a new planning process in 2014. “We want to ensure that company values are driven further and further into the whole team’s activities. We also want to streamline and integrate all company processes”, says Lilian Guimarães, vice president, People and Culture.

Fundamental for company’s strategy, the creation of new concepts and products requires a systemic view of the entire business

The changes already established include a review of performance and remuneration strategy (read more about compensation on page 15). “Today, employees value questions that go beyond money. Aspects such as flexibility, benefits and engagement need to be taken into account to offer the kind of environment and ways of working that people want”, Lilian concludes.

The Natura innovation model permeates the entire organization transversally. It is present in our commercial strategy, in the pursuit of new business opportunities, in biodiversity ingredients stewardship and extraction techniques and in our industrial and logistics operations.

Employee development is part of Natura’s Essence. In 2010, the company launched Cosmos, a program to drive the development of leadership competencies. So far, almost 800 leaders, 57% of the company’s managers, have completed the program.

To ensure an integrated vision, with agility and focus on innovation, in 2013 projects were focused on three major research and development fronts: Well-being and Relationships, Sustainable Technologies and Cosmetics Technologies.

The Natura trainee program is also an important gateway to and a development opportunity for employees (read the following interview).

In addition to using internal resources, to finance this strategy Natura receives support from foment agencies such as Finep (Empresa Financiadora de Estudos e Projetos – Study and Project Financing Company), which will provide R$ 205.8 million in funding for the company’s research and projects over the next two years. Denise Coutinho

Natura also formed a partnership with the foment institution Fapesp (Fundação de Amparo à Pesquisa do Estado de São Paulo – São Paulo State Research Support Foundation) for the creation of the Center of Applied Research in Well-Being and Human Behavior.

business unit director

Career path values experience in different company areas From trainee to director, Denise Coutinho’s successful career at Natura has been built based on broad -based experience in the company and alignment with its values.

It is important for trainees to assume responsibility for their career and believe that they are in an organization that will offer many opportunities.

What has your career path been like? I joined Natura in 1997, soon after graduating. I loved the company’s culture, beliefs and values, which helped make up my mind. I worked in marketing and spent 11 years in the perfumery category. To have a new kind of experience I moved to Human Resources, which was an extremely rich period, professionally. In August 2013, I was promoted to director of this business unit. Was starting as a trainee important for you? It is a privilege to join the company through the trainee program. These are people the company has selected at the beginning of their career in a very competitive recruitment process, and the focus is on developing them.

How did the change in area benefit your career? This broad view of the company, going beyond products and categories to encompass the sales network and other sectors, was very important in complementing my development as a business manager. Natura has a formal tool, which is its succession pipeline. The career paths of the employees who have the potential to occupy more senior positions are tracked by their managers. Additionally, the recruitment process is open, all vacancies are posted and employees are encouraged to apply for them if they are interested.

Improvement in organizational climate In 2013, the Natura favorability rate was 78%, the best ever result in the climate survey since it was initiated in 2006. The 6 p.p. increase in the indicator reflects the changes implemented in the people management area not only in 2013, but also in previous years

With a scheduled investment of R$ 20 million over a ten -year period, divided equally between the two organizations, the center will promote scientific and technological research aimed at assessing the benefits of well-being in different areas, such as neuroscience, positive psychology and psychometrics. “The aim is to understand cultural and social standards which will then be applied to new products, concepts and services”, says Luciana Hashiba, Innovation Management and Networks manager.

In general, the results were good in important survey items and among the administrative and operational staff, as well as the sales force. For the coming years, the intention is to further improve climate survey methodology to enable more in-depth, detailed analyses of employee satisfaction.

Climate survey Favorability level (%)1

2013 2012 2011

3% of revenues is Natura’s approximate annual investment in innovation. In 2013, investments totaled R$ 181 million

Currently, the Natura project and concept development network involves more then 200 partners, including institutions, companies and foment agencies. They interact through Natura Campus (www.naturacampus.com.br), the company’s collaborative open innovation program.

Staying abreast of trends

78

To capture worldwide trends, the company has an increasingly global innovation process. In 2013, Natura inaugurated the Innovation Hub in New York (USA) and since 2012 has been part of the Media Lab, a digital research laboratory at MIT (Massachusetts Institute of Technology) in Boston, USA. The company also has partnerships in France and in Australia, the latter the result of the Aesop acquisition.

72

70

1. Equivalent to the percentage of employees giving a score of 4 and 5 (Top2Box) for the items surveyed, on a scale from 1 to 5 points.

The center will select researchers from private and public institutions in the state of São Paulo through an open tender launched at the end of 2013.

Mariana de Melo Lima employee

In Brazil, Natura maintains its global research center in Cajamar, the largest in the cosmetics area in Latin America, and NINA (the Natura Amazon Innovation Center) in Manaus.


18 // products and concepts

products and concepts // 19

new products

SOU

integrated results New sub-brand highlights more conscious forms of consumption and proposes new production methods that are now being applied to other Natura product lines

“Why do you need what you don’t need?” For five years, this question was formulated and reformulated countless times by dozens of people in the different Natura areas involved in the development of a new sub-brand. The challenge was to launch a product line for daily use in which the company believed there was a great opportunity for products linked with Natura’s Essence and its commitment to sustainable development. This led to the launch of the sub-brand Sou in June 2013, which made a significant contribution to company sales and environmental results in the second half of the year. “It was very clear in company research that the consumer already understands the value of sustainable products, but still does not want to or can’t pay more for this. Conscious consumption is nothing more than focusing on what is truly necessary. So we started to ask: how can we make a product focused on what is essential from the consumer’s viewpoint?”, says Fabiana Pellicciari, business unit director.

This led to the development of a formula containing fewer ingredients and 80% vegetalized. The single pack for the 27 items in the line adopts a pouch format that uses 70% less plastic than conventional ones and permits consumers to use ever y last drop of the product. The new pack also generates gains during the distribution phase, permitting a greater number of products to be transpor ted per vehicle. Natura acquired exclusive manufacturing equipment for the line, enabling a reduction in energy consumption, greenhouse gas (GHG) emissions and waste generation at all stages of production. The development of the Sou line has already led to changes in other company sub-brands. In 2013, Natura launched new refills for the Natura Plant hair care line in pouch format.

Every last drop: the pack permits every last drop of the product to be used

No excess in formula: with vegetable ingredients and no coloring agents

The important things remain: moisturizing, involving texture and delicious fragrance

Efficient process: less waste, less time to manufacture and less energy

New pack: 70% less plastic and 60% fewer pollutant gas emissions


20 // products and concepts

products and concepts // 21

climate change

Natura reduces ghg emissions by a third In 2006, Natura generated the equivalent of 4.18 kg de CO2 for each kilogram of product invoiced. By 2013, this rate had been reduced by 33.2%, reaching 2.79 kg of CO2e/kilogram of product invoiced. With this reduction, the company honored the commitment assumed in 2007 to reduce its carbon emissions by one third throughout the product life cycle – from the extraction of raw materials through the disposal of packaging by consumers.

Relative CO2 emissions (kg of CO2e/kg of product invoiced)

This is an example of how an environmental challenge may be overcome when it is incorporated into a company’s strategic planning and decision making processes. The challenge of reducing emissions led to a series of innovations and generated a great deal of learning for Natura. Launched in 2007 as a framework for reduction initiatives, the Carbon Neutral program led to the creation of a management system for every stage in the product development, manufacture and commercialization process. “When we assumed this commitment, unheard of in Brazil, we initiated a transformation in business management. We conducted an emissions inventory throughout the value chain, working with the people involved at every stage and with suppliers, the aim being to identify potential reductions”, says Sustainability director Denise Alves. From 2010, product development was aided by the introduction of a carbon calculator, which provides an excellent example of how the challenge of reducing emissions can generate innovation. The Sou sub-brand launched in 2013 generates significant sales volume and represents Natura’s lowest relative carbon emissions.

learning curve Main emissions reduction innovations

2011

3.12

Emissions in the value chain (%) Extraction and transportation of raw materials and packaging (process and transportation to direct suppliers)

Direct suppliers (process and transportation to Natura)

11.0%

41.1%

Industrial and internal process

-33.2%

2012

2013

-21.2%

-25.4%

2007

2008

2009

2010

2011

Revision of relative emissions reduction target from 2011 to 2013. Launch of Less Carbon, More Productivity program. Carbon calculator helps managers to estimate emissions before producing new product. New guideline: launch decisions should prioritize lower or similar impact to equivalent products.

2.99

-28.4%

-15.1% New target set: 10% reduction in absolute emissions from 2008 to 2012. Construction of methodology to identify each product’s carbon footprint. Reduction in energy use with generators at Cajamar (São Paulo).

2012

Product sales (transportation and distribution)

-8.6% Natura becomes carbon neutral by offsetting all emissions that cannot be avoided in the production process through the purchase of carbon credits. Increase in use of organic alcohol in formulations. Incentives for maritime product transportation. Stimulus to use ethanol in company sales force vehicle fleet. Optimization of packaging and increased use of recycled materials.

2.79

“Natura is an example of how it is possible to produce at scale while controlling CO2 emissions, based on investment in alternatives that reduce carbon footprint and add value in sustainable production chains. We hope the company continues on this course”, states André Nahur, interim coordinator of WWF-Brazil’s Climate Change Program.

-3.9% Carbon Neutral program, based on a complete plan, with three action fronts: inventory, reduction and compensation, involving the complete production chain. Commitment to reduce relative emissions by 33% by 2011. Introduction of organic alcohol in perfumery.

2013

Relaunch of Ekos line with reformulation of cartons and packs to reduce environmental impact. GHG emissions from the line were reduced by 45% compared with previous years. Creation of method for valuation of environmental impacts in the company’s supply chain. Reduction of number of pages and change in format of Natura magazine.

Use of smaller boxes to optimize deliveries to NCs. Substitution of LPG with ethanol in Cajamar boiler. Consolidation of revision of logistics network, with expansion of distribution centers in Brazil and increase in overseas production, reducing international product transportation.

7.8% Product use and packaging disposal

16.5%

Replacement of diesel powered boiler with biomass model at Benevides (Pará).

23.6%

Launch of Sou line of skin and hair products with reduction of up to 60% in GHG emissions. Relaunch of Aquarela make up line, with reformulated pack. Use of ethanol-powered buses for employee transportation at Cajamar (São Paulo). Operation of first two ethanol-powered truck trailers in Latin America. Beginning of tests with electric vehicles, including cars, tricycles and bicycles, for logistics.


22 // products and concepts

products and concepts // 23

socio biodiversity

Commitment to the Amazon Natura’s relationship with the Amazon began 15 years ago when the company made a key strategic decision: to incorporate Brazilian biological ingredients, in great part from the Amazon region, into its products, combining science and traditional knowledge with the generation of work and income opportunities for hundreds of extractivist families. This led to the birth of the Ekos line, which encouraged the company to develop innovative concepts and oriented its research and development strategy in the region, resulting in a large number of ingredients and product technologies.

Sustainable Supply Chains The Ecoparque Inaugurated at the beginning of 2014, Natura’s new soap factory replaces the old one and provides other companies with the opportunity to operate in the area.The objective is to develop a cooperative network to share resources and articulate joint alternatives for fomenting the generation of sustainable businesses in the Amazon region, reinforcing the Amazônia Program launched in 2011. The complete Natura soap production process will be concentrated in the new factory.This will enable the company to triple soap production by 2015, increase the use of local ingredients, and reduce costs by having the industrial process installed near the supply chain.

differentials Filtering gardens to treat wastewater

Internal transportation

the plant roots decompose pollutants with no need for chemical products

electric bicycles and cars

Reuse of rainwater in building maintenance

The region will gain a higher added value operation, fomenting the development of the local economy and generating new business opportunities, as well as employment. In addition to Natura, the international fragrances and raw materials manufacturer Symrise has confirmed its participation in the Ecoparque.

Paving maintains soil permeability

Natural ventilation and illumination in the buildings geothermal chilling (air is captured by pipes located underground where the temperature is lower. This supplies cooler air to the air conditioning system, increasing energy efficiency).

Employment opportunities 240 direct work posts (the old Benevides plant employed 60 people) 98% of the work force and 70% of services contracted locally

economic data Investment of R$ 200 million in building the factory Production of 12 metric tons/month of oils and butters

500 million bars of soap annually by 2015 – 80% of the company’s soap production

Institutional reinforcement Transformation for new generations

totaL area:

172 hectares, equivalent to 240 soccer fields

Science, technology and innovation Innovation in the forest Inaugurated in 2012, NINA (the Natura Amazon Innovation Center) defined the first 17 projects it will provide direct support for, involving 134 scientists and entrepreneurs.To provide further incentives, the company launched the Natura Campus Amazônia call for proposals, selecting an additional six projects to be supported by the company. In addition to their environmental focus, the projects offer great economic potential via generation of increased demand for products from local extractivist activities. NINA was created to identify opportunities to increase the sustainable use of Amazon region biodiversity ingredients in Natura products (read more about innovation on page 17).

Investment in education is one of the main thrusts of the Institutional Reinforcement pillar of the Amazônia program. In 2013, Natura promoted a series of measures in the region in partnership with the Instituto Natura: Alternating schools: support for regularization of the Casas Familiares Rurais (CFRs or Rural Family Homes), whose teaching methodology alternates classroom and community learning.With provisional recognition from the Ministry of Education and the Pará State Education council, 24 schools are now qualified for funding to operate in 2014. The project involves a partnership with the NGO Gestão de Interesses Públicos. Rede de Apoio à Educação (Education Support Network or RAE in the Portuguese acronym): involving 30 municipalities in priority areas for Natura in the Amazon region, the network consists of specialists and municipal representatives who will implement and monitor the development of two Instituto Natura projects in these areas: Conviva Educação, a digital platform designed to enhance municipal education management, and Trilhas de Leitura (Reading Trails), focused on literacy.

investments Total investments in the region were R$ 201.5 million, beating the R$ 190 million target for the year ; this was due mainly to investment in the Ecoparque. During 2013, Natura spent R$ 11.1 million on the purchase of raw materials and on benefit sharing payments. The target for the year was R$ 13.6 million, but the result was affected by the use of stocks formed in 2012 when sales of products using these ingredients were lower than projected.


24 // products and concepts

products and concepts // 25

water

Initiatives to measure consumption New methodology will include assessment of product use impact Since 2010, Natura has intensified its effort to identify the real impacts its business causes on water consumption. As with greenhouse gas (GHG) emissions and solid waste generation, the goal is to quantify consumption throughout the value chain and develop an efficient water management strategy. In 2010, Natura calculated its water footprint using the Water Footprint Network (WFN) methodology which maps impacts at every stage of the production chain. This indicated that the most significant impact (45.9%) for Natura occurred during product use by the consumer.

Water consumption (liters/unit produced)

2013

0.40

2012

0.40

2011

0.40

From this point, the company focused on finding the most accurate methodology to identify its impacts on consumption and wastewater generation. “The existing methodologies, including water footprint, are based on international premises which frequently do not apply to the Brazilian reality, such as a lack of basic sanitation facilities and the unequal distribution of water (the most heavily populated regions are further away from water sources)”, explains Luciana Villa Nova, Sustainability manager.

solid waste

Doing our sums

In 2013, after assessing four methodologies, the company chose the most appropriate one for its purposes.This metric includes a more complete analysis of the potential product impact, evaluating biodegradability and ecotoxicity levels, that is the effects products discharged into the environment may cause on living organisms. In 2014, Natura will start to extend this mapping process to the entire product portfolio to determine its water footprint.

A tool that calculates waste and deject generation is one of the innovations in Natura’s initiatives to manage solid waste An environmental impact calculator is one of the allies the Natura innovation team relies on in the new product development phase. Used since 2010 to measure greenhouse gas emissions, the tool has evolved and now also provides key information on waste generation. By including information about the materials to be used in a product, it is possible to compare the impact of different technologies and raw materials, using this information for decision making in the product development process. “Waste management is a complex issue for all companies. Our challenge in the future will be literally to close the life cycle for all our products, ensuring that the waste generated returns to our chain or to one having similar or greater added value”, Gabriela Fleury, Sustainability manager, explains.

Waste generation (g/unit produced)

2013

22

2012

26

2011

20

The basis for building the strategy was the waste generation inventory developed by Natura to quantify the volume of waste generated in three of the main phases of its chain: manufacturing processes (internal and third party); product distribution; and use and disposal by consumers. With data collected from three consecutive years, it is now possible to identify the kind of waste generated at each stage of the value chain and how it is disposed of. The strategy is aligned with Brazil’s national solid waste policy. In addition to its own initiatives, Natura supports measures promoted by Abihpec, the Brazilian cosmetics, fragrances and toiletries industry association, to ensure compliance with the policy.


26 //

relationship network // 27

relationship

commercial model

Evolution in direct selling In a project that will be extended in 2014, Natura seeks tools to complement the work done by NCs with a view to boosting sales and finding new ways of interacting with consumers

A major transformation is underway in Natura’s commercial processes. The goal is to extend the concept of direct selling to new platforms, enabling consumers to choose how and when to experience the brand and to acquire company products, as well as to leverage relationships – one of the Natura brand’s key attributes – through the intensive use of technology. The Natura Network is the first experience in this strategy, with each consultant having her own internet page through which she may relate to consumers and sell products. “We are connecting the offline and online worlds. We maintain the fundamental role the consultant plays in the sale, based on the relationship she establishes with her customers, while offering consumers yet another alternative”, explains João Paulo Ferreira, Natura’s Commercial vice president. In 2013, a pilot program was run in Campinas and then extended to São José dos Campos in a second phase. Both are large cities in São Paulo state. In 2014, work will begin on extending the initiative nationwide. The example of Rosi Da Dalto illustrates the new tool’s potential. A Natura representative for more than 20

years in the Campinas region, she increased her customer base and income by 50% using the internet to complement her work. “The other day I asked a friend of mine who had bought a product via my virtual space to publicize the novelty among her contacts. Soon after, a friend of hers became my customer”, says Rosi. In São José dos Campos, the trial evolved to attract new NCs, with no prior Natura consulting experience. This led to the incorporation of younger consultants more at home in the digital universe into the sales network. With this model, the consultant no longer has to worry about logistics and charging her customers; she is free to focus all her attention on the relationship and is thus able to serve a larger number of customers in her network. In addition to being able to place the order whenever they like via the internet, consumers can now choose to receive the product via direct delivery from the company’s distribution centers. Expanded since 2010 and equipped with high technology, the Natura logistics system is prepared to receive this new order flow and speed up delivery times for consumers.

Greater productivity In 2013, average NC productivity grew by 1.4% and by 6.2% in the last quar ter.This increase was driven by investments in information technology, by a series of actions to gradually increase the range of products consumers buy, by product and concept innovation, as well as changes in sales force incentives, among other initiatives. This effor t will be maintained in 2014, with the development of new cellular telephone applications to assist in business management and to map the practices used by the most productive consultants and disseminate them to the rest of the network, among other measures.

Two-day delivery More than 35% of the orders placed in Brazil are now delivered to the NC in up to 48 hours. The average delivery time has decreased from 5.1 to 4.5 days. This rate is the result of investments that have been undertaken since 2010. In 2013, the new Natura administrative and distribution center was inaugurated in the city of São Paulo. The high technology used in the distribution center enabled the company to pick a record 4.5 million items in a single day.

Order delivery in 48 hours (%)

15% 2011

27% 2012

35% 2013

Sandra Hidaka relationship manager Erica Santos de Moura Natura employee and consultant


28 // relationship network

relationship network // 29

Sustainable entrepreneurship in Mexico Carolina Mojica Perzaval, 36 years old, lives in Veracruz, a Mexican port with just over 500 thousand inhabitants. She has been a Natura consultant since 2010 and already has more than 600 other consultants in her sales network. She is an excellent illustration of the Natura international operation that saw the highest growth in NC numbers in 2013: 32%, reaching the landmark number of 100,000 at the beginning of 2014. This performance is the result of the evolution of a differentiated commercial model that Natura designed exclusively for Mexico and started to deploy in 2011: the Sustainable Relationship Network. This is a multilevel direct selling model incorporating inclusion and sustainability-related concepts to promote actions that will generate positive local development impacts. “Our family income has practically doubled in this time. I became interested in Natura because I liked the products and I identified with the company’s philosophy, which extends beyond cosmetics to environment care and personal relationships”, Carolina explains. A presence in Mexico is strategic for Natura, because the cosmetics market is big– the second largest in Latin America after Brazil. It is worth US$ 9.9 billion a year, and 24% of the transactions are via direct sales. “It is a country that has a strong relationship selling culture, and Natura has a 1% share in this market. This illustrates our huge growth potential in the country”, says vice president of International Businesses, Erasmo Toledo. In the Natura system, the Mexican consultants may rise through eight hierarchical levels and are offered many training tools. In addition to attracting new members to their network, helping to develop the consultants in their group and training new leaders, consultants need to engage in socio-environmental causes and actions in their community to be promoted to the highest levels of the structure.

Number of NCs1 (000s)

  2011

  2012

  2013

Brazil 1,175.5 1,268.5 1,290.0 Argentina 63.7 74,9 94.6 Chile 37.9 52,1 59.6 Mexico 58.5 74,3 97.8 Peru 54.9 63,6 70.6 Colombia 27.1 37,0 42.3 France 3.1 2,6 1.7 Total 1,420.7 1,572.9 1,656.5 1. This refers to the number of consultants in activity at the end of the year.

Carolina Mojica Perzaval

Seeking a broader world view Why did you decide to work with Natura? I had never worked in sales and I saw an advertisement in a magazine. I was interested in Natura because I like the products and I really appreciate the company’s philosophy, which encompasses environmental care and personal relationships. How did you manage to form a group of 600 consultants? I attend every workshop the company gives and I have done all the internet programs. I want to be fully prepared to pass information on to the consultants in my network. I also organize workshops on motivation, sustainability, internet tools, finance, among others.

Natura Consultant Working with Natura, consultants discover new personal qualities. This is what I like most: helping others to discover things they did not know about themselves, to unleash their potential and help them develop a broader world view.That is what happened to me. What sustainability measures do you promote with your network? Water contamination is an area of concern, and we decided to collect cooking oil from homes and deliver it to a company that transforms it into biodiesel. This was the way we found to help mitigate the problem. Is being a consultant good for you in financial terms? My family income has practically doubled in this time, we have bought a car, remodeled our home and I help to pay for family trips.


30 // relationship network

// 31

quality of relationship

the interaction strenght In its Essence, Natura expresses the value of relationships by defining everything in the universe as interdependent. At a moment when the prevalence of virtual relationships over personal contact is the subject of debate, the company reaffirms its belief in the power of interaction and connection between people, be it employees, consultants, suppliers or society as a whole. The power of relationships is a fundamental element in Natura’s Sustainability Vision and will permeate its growth strategy for the coming years. The Natura Network model, established to connect consultants via the worldwide web and bring them closer to their consumers, is one of the key innovations in the company’s direct selling model. To nurture these relationships, Natura tracks satisfaction and loyalty indicators among its priority stakeholder groups. The 2013 results show important progress, with advances in the employee climate survey, which reached the highest rate since the survey began, as well as growth in supplier loyalty. The results also highlight the need for constant attention to these relationships. After growing significantly in 2012, NC and NCA loyalty remained practically stable during the year, falling short of company targets.

Finance and Institutional Relations Roberto Pedote Corporate Affairs and Government Relations Overall coordination Marcelo Bicalho Behar Cristina Amadio Molini and Jaqueline Nichi Support Mônica Frohlich e Francisco Higa (Valuepoint)

Natura believes it is part of a relationship ecosystem and that, in a network, it may expands its reach and its contribution to the evolution of society and to sustainable development. For this reason, Natura reaffirms its commitment to upholding the quality of relationships and to investing continually in its entire network, with a special focus on education and sustainable entrepreneurship.

Corporate Finance Financial information Alexandre Nakamaru, José Wanderley and Mauro Moraes Support Lígia Silveira

2011 2012 2013 1 70 72 78 Climate survey – Employee favorability 19 24 23 NC loyalty Brazil2 24 40 38 NCA loyalty Brazil2 2 27 23 30 Supplier loyalty Brazil 2 66 51 52 Consumer loyalty Brazil

Market relations Fabio Cefaly and Tatiana Bravin Sustainability Denise Alves, Luciana Villa Nova, Juliana Pasqualini and Thaís Ferraz

1. Climate Survey: Hay Group. 2. Loyalty Survey: Ipsos Institute.

Art direction and infographics Wilson Spinardi Junior Graphic design and layout Modernsign Design e Inovação Photography Wilson Spinardi Junior, Daniela Giorgia and Natura archive Copy and sustainability consulting Report Sustentabilidade Editing Álvaro Almeida (Mtb 45.384/RS) Michele Silva (Mtb 11.829/RS) and Talita Fusco (Mtb 11.615/MG) Reporting Gabriela Scheinberg and Otávio Nazareth Project and relationship management Ana Souza Materiality and indicator analysis Thaís Colpaert, Karina Simão and Fabíola Nascimento Revision Cesar Ribeiro Printing Stilgraf

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Natura Report 2013