CoVeR

NATURA

The Company of The year

In the middle of the largest crisis in recent decades, natura has the courage to reinvent itself. Since then, it has not stopped growing.

A YeAR foR The hisToRY Books

Natura overcame its greatest crisis in recent times and most important its own limitations. Thus, it became the Company of the Year of BesT AND BiGGesT CrISTIane mano and melIna CoSTa
here are many ways to test the popularity of an executive. one of the most extreme and feared is to mingle them with their subordinates in an informal environment. outside the office, the kinship (or the discomfort) with the boss in general becomes very clear. By this criterion, one can say that alessandro Carlucci, Ceo of natura, the largest cosmetics company in Brazil, is almost a corporate popstar. an event on June 18 proved his aura of celebrity. That night, the company brought together 100 relationship managers from different parts of Brazil in So paulo, where they received a prize for their good performance in 2008. Given the proportions, the atmosphere was akin to an oscar Ceremony, with women wearing long gowns, high heels and (obviously) a lot of makeup. The managers, responsible for the contact with the 742,000 saleswomen of natura, won a trophy and a topaz pendant. however, many of them showed more enthusiasm when they were welcomed by Carlucci, a 43-year old gentleman, than with the prize. he greeted them one by one while the employees waited patiently in line for the opportunity to hug and kiss him. Before the prize ceremony, al as everyone calls him made the rounds among the women in an environment that was pure celebrity worship. Some of the women raised questions about daily matters, such as how to combine work with family life. others only wanted to take home a photograph with the Ceo. We admire him, said elizabeth Cristina Bizzo, a relationship manager with natura for 14 years and responsible for coordinating the work of 860 consultants in So Gonalo, a city in the metropolitan region of rio de Janeiro. he is very kind and appreciates our work because he himself has worked his way up through the company. The festive climate can be largely explained by the good times that natura is enjoying. The company has managed to distance itself from the global crisis in a sign of resistance of the Brazilian consumer market at the same time that it shows that it has overcome one of the most critical phases in its 40-year history. The financial results achieved in 2008, its spectacular performance in the first quarter of 2009 and its history of overcoming its own limitations led to natura being chosen by eXame magazine the Company of the year of 2009 maIoreS anD melhoreS. The largest cosmetics manufacturer in Brazil, natura really accelerated its growth in the second half of 2008, when the crisis spread throughout the world. Including the sales inside and outside Brazil, billings reached 4.9 billion Brazilian reais last year, a growth of 14% in relation to 2007. Income reached 542 million reais. almost 70% of revenues came from products launched over the last two years evidence of naturas capacity for innovation, supported, above all, by its sustainability appeal. The figures become even more expressive in a historical series. according to data from maIoreS e melhoreS, naturas billings grew 49% in five years, discounting the variation in the IGp-m price index. This expansion was reflected on the So paulo Stock exchange (Bovespa). naturas shares reached a peak on may 18 up 390% since the Ipo in may 2004. natura is the consumer goods company that has increased in value the most over the past 12 months on the Bovespa (see box on the next page). The company is experiencing the best phase in its history as a publicly traded company, said market analyst andrea Teixeira of Jpmorgan, in her most recent report.

The eXPANsioN iN NUMBeRs

naturas billings and income practically doubled over the last five years...
GROSS REVENUES (in billions of reais) GROSS REVENUES (in billions of reais) NET INCOME (in millions of reais) NET INCOME (in millions of reais)

4.9 4.9 3.9 3.9 3.2 3.2 2.5 2.5 4.3 4.3

GROWTH ABROAD The company intends to GROWTHsales in Latin America by 2012 to quadruple ABROAD The company intends quadruple sales in Latin America by 2012

500 500
millions millions of dollars of dollars

. . . ensuring its leadership in the market of hygiene and beauty products in Brazil. See the market share of the leading manufacturers in 2008

Colgate-Palmolive 6% Colgate-Palmolive 6% Natura 12.8% Natura 12.8% Procter&Gamble 6.8% Procter&Gamble 6.8%

135 135
millions millions of dollars of dollars
Billing in 2008 Billing in 2008 Goal for 2012 Goal for 2012

Avon 9% Avon 9%

Unilever 9.9% Unilever 9.9%

siZe of NATURA ToDAY

4,386

employees in Brazil and 1,312 in latin america and france

742,000

direct sales consultants across the country

118

new products launched in 2008

of sales come from products launched over the past two years
2

67.5%

NATURA oN The sToCk eXChANGe

The performance of the companys shares since it went public in 2004 (in reais)
The partners Antonio Luiz Seabra, Guilherme Leal and Pedro Passos move to the Board of Directors and Alessandro Carlucci, who was the Business Vice President, becomes the companys CEO For the rst time in its history, Natura overtakes its competitor Avon in billings and business volume in Brazil The company releases the 2007 results, the worst year since the initial public offering. On the same day, Carlucci presents a recovery plan Sales increase 17% in the last quarter of 2008, the period in which Brazil was most affected by the global nancial crisis

is the appreciation of Naturas shares since the initial public offering

340%

25.86 24.12 20.30 16.44

The rst results of the restructuring are presented. Sales increased 18% in the third quarter of 2008 Naturas net income grows 77% in the rst quarter of 2009 and sales increase 25%

18.47 15.75 12.42

5.87

May 25, 2004

February 25, 2005

December 26, 2006

February 27, 2008

October 22, 2008

February 18, 2009

April 22, 2009

June 30, 2009

SoUrCe: economtica

iN A BRoADeR PeRsPeCTiVe, naturas performance helps make up the scenario in which Brazil resists the worldwide crisis. Since 94% of its revenues come from the domestic market, the figures directly reflect the increase in consumption in Brazil. over the past four years, some 23 million Brazilians entered the C Class social classification. These people have started to consume more, buy a wider range of products and see brands as a symbol of higher social status. according to data from Tendncias consultants, the volume of retail sales grew 9% in 2008 and should increase another 2% by the end of this year (while the estimate is that GDp will drop 0.6%). at the same time, natura benefits from another phenomenon. In situations of difficulty and insecurity about the future a scenario that is typical of crises consumers may put off burdensome dreams, such as a new car, but tend to buy more cheaper items that somehow help increase their self-esteem. This compensation mechanism is very clear in the case of cosmetics that inspired the creation of the lipstick Index. Developed by the U.S. manufacturer este lauder during the 2001 crisis, this indicator relates recessions to the increase in the consumption of beauty products. The recent performance of the cosmetics sector in Brazil shows that the logic of such an index applies here as well. The Brazilian market is the one that has grown the most among the ten largest in the world. It handled 28.7 billion U.S. dollars in 2008, 27% more than the previous year. The euromonitor consulting company forecasts that Brazil will become the worlds second largest consumer of cosmetics and personal hygiene products in 2011, behind the United States.

BRAZILIANS KEEP ON BUYING MORE

Even in the midst of the world crisis, consumption has continued to grow. See the performance of some of the leading sectors1 (in %)
14.8 16.6 14.2 12.2 11.2 7.5 3.5
January 2007 July 2007 Furniture and white goods Food, beverages and tobacco2 Perfumes and cosmetics3

15

12.4 12.7 10.3 5.4 6 1.74 6.1

9.9 7.2 5.7 6.7 5.9

January 2008

July 2008

January 2009

May 2009

July 2009

December 2009

(1): Measured by the increase in sales growth rates (in volume). (2): Including hypermarkets and supermarkets. Note 2: Including hypermarkets and supermarkets. (3): Includes pharmaceutical, medical and orthopedic supplies. SOURCES: Brazilian Institute of Geography and Statistics (IBGE) and MB Associates

-9.6

AMoNG The LARGesT Brazil is the third largest consumer of cosmetics in the world (in billions of U.S. dollars)
CoUNTRY sALes GRowTh

1o United States 2o Japan 3o Brazil 4o China 5o Germany

SoUrCe: euromonitor, 2008 data

52,14 33,75 28,77 17,73 16,86

-0,1% 12% 27,5% 22% 8%

The projections indicate that Brazil will become the worlds second largest market in 2011

The TRiUMPh of DooR-To-DooR for the cosmetics segment, the direct sales channel grows faster than traditional retail Participation of direct sales in the sales in the sector Participation of frequent buyers in door-to-door4

10% 2007

14% 2008

18% 2007

23% 2008

(4): people who bought more than five times per year SoUrCe: nielsen

But natura would not have gone unscathed by the crisis without having previously resolved a personal matter. In 2007, the year of the greatest euphoria in consumption in Brazil in the last decade, the company one of the most successful examples of the new Brazilian capitalism lost profitability and market share. In the fourth quarter of that year, the net revenues of its main Brazilian competitor, U.S. company avon, grew 40%. naturas, only 9%. Investors reacted quickly. on the day the companys annual results were disclosed, in february 2008, the shares were worth 42% less than in January 2007. accustomed to being an inexhaustible source of good news, natura experienced its first major setback since going public. at the time, the company was dedicated to a bold international expansion plan, the target of which was england, russia and the United States. With the shock, everything was suspended. We didnt only frustrate the analysts and investors. We were below our own expectations, said Carlucci. for the first time since its creation in august 1969, natura felt obliged to embark on a major and painful restructuring process. The accelerated expansion had a side effect its structure had swollen and grown sluggish. Growing pains exist in any large company. and this happened to natura, said Guilherme leal, one of the three controlling shareholders of the company, together with antonio luiz Seabra and pedro passos. Carlucci was in charge of driving the changes that ranged from the organization of saleswomen to the vice president executives. he himself is a product of natura a condition that usually makes the identification of problems and their solutions an even more complex task. his approach, the manner in which he treats employees and customers, the politically correct words and the civilized competitiveness were forged during the 19 years he worked for the company, which he joined after graduating in Business administration from the Getlio Vargas foundation in So paulo. We were under a great deal of pressure inside and outside the company, said Carlucci. This process resulted in a leap. But, it wasnt pleasant. The process of change required more dedication also from Seabra, leal and passos, who have shared the Chair of the Board of Directors since february 2005, when they named Carlucci Ceo. They stated that last year they were forced to leave the office of the holding company Janos, that controls other investments of the partners (such as interests in Droga raia and Ideal Invest) more often to participate in meetings at the headquarters of natura, a modern building in Cajamar, in Greater So paulo. The height of the restructuring process, in July last year, coincided with the return of Seabra from a stay of three years in london. our participation in the process was to convey our conviction that the change would bring the company closer to its fundamentals with more rapid decision-making, he said. The extent of the restructuring process became clear with the replacement of the entire senior management (with the exception of Carlucci, of course).Today, the longest serving member of the executive Committee, the main operational decision-making body of the company, has been with the company for one and a half year. he is Jos Vicente marino,

who left the Chairmanship of Johnson & Johnson in Brazil to become the Business Vice president of natura in february 2008. a month later, marcelo Cardoso, former Ceo of the human resources consulting company DBm, assumed the newly created position of organizational Development and Sustainability Vice president. In January this year, roberto pedote, from finances, arrived from nokia. among the criteria for the choice of these three men, according to Carlucci, was the disposition towards decisions by consensus one of the fundamentals of natura and their capacity to discuss business in all its dimensions, regardless of the positions they occupy. Carlucci and the three new Vice presidents share the same office.The company is seeking another two Vice presidents one for logistics and one to lead the innovation area. part of these replacements can be explained, according to him, by the need for a new profile. (for the position of Innovation Vice president, for example, held by eduardo luppi until last year, the company is looking, together with the U.S. consultants Spencer Stuart, for a professional with international experience.) another reason for the changes at the top, according to the controlling shareholders, is almost symbolic to enable Carlucci to choose his own team.The previous officers were inherited from the controlling shareholders. We perceived that this was important so he could develop a fine tuning with his own team, said leal. In october, after almost six months of a comprehensive study undertaken with the help of Gradus consultants, natura announced the elimination of 200 positions. In almost all departments, an entire hierarchical level has disappeared. an example is the finance Department, which coordinated areas such as the Controllers office and Treasury. With the elimination of the position, the subordinated functions started to report directly to Vice president pedote. In this same period, 75 positions were created. a good part of them in the new structure of five regional offices that now have professional teams, from sales to marketing. The goal is to bring decision-making closer to the business end, said marino. We hope, in the next five years, to be able to launch products in accordance with local tastes. The drop in productivity rates among saleswomen led the company to create a new position: the natura Consultant adviser (like almost everything referred to in naturas vocabulary, this position has a pompous name). Subordinated to the relationship managers (company employees), they are now in charge of the 742,000 independent saleswomen spread across Brazil. Today, each of the 8,000 nCas, as they are now known, manages between 80 to 100 consultants. Without the new coordinators, the managers couldnt even manage to call the saleswomen on their birthdays, said Cardoso. In any other company, this issue would not have the same importance, but natura believes that a personal relationship with the sales force makes a difference. even today, the founder, Seabra, participates in the award ceremonies for employees he was at the event with the relationship managers held in June, for example. he also keeps the habit of calling on the birthdays of some of the saleswomen with the longest history with the company.To further strengthen the relationship with the consultants, the company opened three natura houses in Greater So paulo a few weeks ago and is preparing to open another two in the same region this year. The space is intended, above all, for training personnel. iN A CoMPANY whose hisToRY is characterized by accelerated growth and few setbacks, cost cutting may seem a less noble mission. During the restructuring process, however, it became clear that the less than glamorous task of reducing expenses had become inevitable. In 2008, natura saved 94 million reais with simple initiatives, such as the change of paper and the reduction in the number of pages in the companys sales catalogue from 140 to 122. With this, it gained room to reinforce its advertising investments. Between 2008 and 2010, natura should invest an additional 400 million reais in marketing.The drive will be critical to go head-to-head with competitors such as avon, which increased its investments in advertising by 40% in Brazil between 2005 and 2008. The results of naturas action plans are expected to continue to drive the sales growth for the next two years, said marianna Waltz, an analyst at Banco do Brasil. at the center of the companys attention now is also the expansion into latin america, which is considered crucial for future growth. The operation in Chile, for example, was established 27 years ago, but today naturas share in the market for cosmetics sold door-to-door in that country is no higher than 2.6%. To become relevant, we know that we need to have local products, said Carlucci. Today, natura takes the same products sold in Brazil to these countries. at times, the labels are not even translated, such as in the case of the mame and Beb product line, whose packaging keeps the name in portuguese in Chile and argentina. The lack of local appeal affects competitiveness when faced with established competitors. one of them is Belcorp, owner of the lBel paris brand, headquartered in peru. With a premium price position, similar to that of natura, lBel paris is among the leaders in Chile, Colombia and Venezuela three targets of natura. The major rival, both inside and outside the country, however, is avon. latin america is the only region in the world where this multinational has grown at a two-digit rate in the first quarter of this year. for avon, Brazil is the second largest market in sales and the first in growth and profitability and, therefore, it is a priority for its parent company. The U.S. company este lauder, which already sells brands such as mac and Clinique in the Brazilian retail market, is considering the door-to-door model. frances loral opened its first laboratory in Brazil in 2008. The goal is to meet the local preferences to become the leader in low-cost cosmetics. Thanks to the growth of the Brazilian market, there have been recurrent rumors about a possible acquisition of natura by foreign companies. The purchase of natura today is very unlikely and expensive, said analyst Daniela Bretthauer from
5

raymond James bank. however, this situation may change. on July 2, the company advised that it was considering changing its strict protection against hostile offers. Until now, the By-laws state that if a shareholder or a group acquires 15% of the shares, it must offer to buy the shares of the remaining investors. for the analysts interviewed by eXame, the measure may be related to a new stock issue by the company.The old rule could drive away investors interested in the shares. Currently, the controlling shareholders hold 73% of the company, whose market value is 11 billion reais. It is speculated that a second issue, still with no set date , would raise between 1.6 and 1.8 billion reais. In this case, Seabra, leal and passos would continue to be majority shareholders with 58% of the shares. By determination of the Brazilian Securities Commission (CVm), they are not commenting on the decision.They only state their intention to maintain the control. We have never had, nor do we now have any interest in selling natura, said Seabra, who intends to include the meeting with the relationship managers on his agenda next year.
image p18/19 CarlUCCI, The Ceo, WITh proDUCTIon employeeS: natura was the consumer goods company that increased the most in value over the past 12 months on the Bovespa image p. 22/23 The ConTrollInG ShareholDerS peDro paSSoS, GUIlherme leal anD anTonIo lUIZ SeaBra (from lefT To rIGhT): more dedication to the company during the restructuring period image 1 p.20 The pop STar Ceo reCeIVeS The
CompanyS manaGerS In a parTy In JUne:

atmosphere of pure celebrity worship image p.25 naTUra hoUSe, In The SoUThern reGIon of So paUlo: meeting place and training center for saleswomen

image 2 p.20 peDoTe, marIno anD CarDoSo: Carluccis new team image p.26 eXTraCTIon of BraZIl nUTS In The amaZon: the sustainable appeal is one of the pillars of its competiveness

aDVerTorIal

PRess ReLeAse
natura Cosmticos S.a. (Company), pursuant to the material fact published by the Company on July 2, 2009, advises that it has made a request for the registration of a secondary public offering of shares (offering) by means of the Simplified procedure on July 2, 2009. The offering was previously submitted for the analysis of the national association of Investment Banks - anBID (anBID) and the Brazilian Securities Commission - CVm (CVm), by means of an agreement signed by CVm and anBID, and is subject to prior approval and registration by CVm. accordingly, the preliminary prospectus filed with anBID and available on the websites of both the Company and anBID, should be the only document to be considered by potential investors for decision-making on investment in the Companys shares, and it contains relevant information on the Company for the purposes of the offering. a reading of the preliminary prospectus provides a detailed analysis of the terms and conditions of the offering and the risks inherent to it. The journalistic matter published in this issue is the sole responsibility of the editors of eXame magazine. naTUra CoSmTICoS S. a.

BaCk CoVer

To RefLeCT iN The showeR

human beings will only be able to have a harmonious relationship with themselves if they have a harmonious relationship with the whole. This is the vision that inspires the work of natura. The natura ekos line of Triphasic oils uses ingredients from rich Brazilian biodiversity that are extracted in a sustainable way by native communities from the forests. Valuing this wisdom preserves natural resources for future generations and awakens the awareness that man and nature are one and the same. naturawell being well