Natura Cosméticos S.A.

Transcription

1 CORPORATE FINANCE Natura Cosméticos S.A.. (Free translation ti from the original i issued in Portuguese in February 3, 2014) Advisory February 4, 2014

2 ABCD To The Board of Directors of Natura Cosméticos S.A. São Paulo, SP, Brazil February 4, 2014 KPMG Corporate Finance Ltda. Av. Nove de Julho, º andar São Paulo, SP - Brasil Caixa Postal São Paulo, SP - Brasil Central Tel 55 (11) Fax 55 (11) Internet Attention: Directors of Natura Cosméticos S.A. Dear Sirs: Under the terms of our proposal for the provision of services dated January 23, 2013 and subsequent discussions, we have carried out the procedures specifically related to the Purchase Price Allocation in respect of., in accordance with CPC-15/IFRS 3 and on the base date of February 28, 2013, whose report is attached hereto. We consider that within the delivery of this report, the service, which is the subject of our proposal, is fully concluded. We remain at your disposal for any further clarification and appreciate this opportunity to provide services to you. Yours Sincerely, Luis Augusto Motta Partner Marcos de Oliveira R. Coelho Director KPMG Corporate Finance Ltda., uma sociedade simples brasileira, de responsabilidade limitada, e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative ( KPMG International ), uma entidade suíça. KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

3 Contents 1. Introduction 3 2. Description of the Company 3. PPA Analysis Framework 4. Identification of intangible assets 5. Valuation of intangibles assets 6. Valuation of tangible assets 7. Discount Rate 8. Results and conclusions Appendices I. Summary of values and WARA II. Valuation of the trade-mark III. Valuation of the client portfolio - wholesalers IV. Assembled Workforce V. Contributory assets VI. Proportional PPA Page 2

4 1. Introduction Introduction (Source: Client and Company) On February 28, 2013, Natura Cosméticos S.A. ( Natura or Client ) acquired 65% of Emeis Holdings Pty Ltd. ( Aesop or Company ). The amount paid by Natura was AU$ 71,1 million (R$ 143,7 million). Aesop was founded in Australia in 1987, focusing on the manufacture of personal care products aimed at the retail market (high level). On the date of the acquisition, Aesop operated in over 60 points of sale in 11 countries. The products include care of skin, body and hair. The Company s products are available online and in over 50 stores in some of the world s main cities including Paris, Tokyo and New York and are also present in some of the world s major department stores. As a result of this transaction ( Transaction ), the Management of Natura ( Management ) requested KPMG Corporate Finance Ltda. ( KPMG ) to carry out a job entailing procedures specifically related to a Purchase Price Allocation ( PPA ) relative to the acquisition of Aesop in accordance with CPC-15/IFRS 3 and on the base date of February 28, Objective The objective of our job was to carry out the specific procedures described in the scope of the job in respect of the PPA of Aesop, in accordance with CPC- 15/IFRS 3 and on the base date of February 28, Basis of the information We list, below, the bases of information used in the execution of our job: Purchase and Sale Agreement dated December 20, 2012; The Company s Audited Financial Statements as at June 30, 2010, 2011 and 2012; Balance Sheet as at February 28, 2013 made available by Natura; Internal documents made available by the Management of Natura in the context of the Transaction; Economic/Financial valuation of Aesop prepared by KPMG; Financial and tax due diligence report prepared by KPMG Financial Advisory Services (Australia) Pty Ltd; Information obtained through interviews with the Management of Natura and Aesop; and Market data and information regarding the sector of the market in which the Company operates. Scope Our job included the following principal procedures: Analysis of the asset and liability accounts shown in the company s accounting statements on the base-date (excluding inventories, fixed assets and contingencies); Identification of tangible assets and liabilities for which it is expected that there is a difference between fair value and book value (excluding inventories, fixed assets and contingencies); An estimate of the fair value of these tangible assets and liabilities (excluding inventories, fixed assets and contingencies); Analysis and identification of the Company s relevant intangible assets and liabilities; Valuation of intangible assets and estimate of the remaining useful life; and Estimated calculation of the initial value of goodwill. In order to estimate the fair value of the intangible assets, we used generally accepted valuation methods (described in the report). Important information and scope limitations Our work was substantially based on assumptions and information provided by the Client s Management, which were discussed with KPMG. 3

5 1. Introduction (cont.) We must emphasize that the determination of the economic value of eventual contingencies as well as inventories and fixed assets are not within the scope of this job. Thus, in respect of such items, we based ourselves on the information and analyses which were placed at our disposal by the Client s Management and/or its respective auditors, lawyers and/or other advisors. During the course of our job, we carried out analysis procedures which we deemed appropriate within its context. However, KPMG is not responsible for the information it has been provided and will not be made responsible under any circumstance, nor will bear losses or damages resulting or arising from the omission of any data or information by the Client s Management. We would further stress that this job did not constitute an audit according to generally accepted auditing procedures and must not be interpreted as such. In this same sense, on carrying out the job, KPMG does not express any formal opinion or any other form of guarantee in relation to the financial statements. The processing of information by KPMG does not imply any type of affirmation that these are true and also must not be interpreted as proof of authenticity of the information collected and consequently does not correspond to an opinion or any other form of assurance as to their in entirety. The scope of the job now carried out does not contemplate the specific and determined obligation on the part of KMPG of detecting any fraud in the operations, processes, records and documents of the Company. We do not give the Client any assurance of success is respect of implementation of any proposed operation, neither do we give any assurance that this may occur at any given time, neither do we answer for any eventual opportunities which may not have been identified, presented or explored, independently of the motives or reasons for such occurrences. The work was carried out by KPMG under technical guidance and in an independent manner. However, the analysis of the various data to be considered for the purpose of valuation, due to their nature, demand a subjective approach so that the work may be effectively carried out, which also makes it possible that ifthesameanalyses weretobecarriedoutby other professionals, these could express points of view which differ from those expressed by KPMG. KPMG does not issue any opinion regarding the probability of the assumptions to be used in the work materializing. Any counseling, opinion or recommendation made by us in respect of the services covered by this report must not be taken as a guarantee of the establishment or forecasting of future events and circumstances. We must stress that it is the nature of financial valuation models that every or any assumption alters the value obtained for the Company which is being valued. Such possibilities do not constitute errors of valuation and are recognized by the market as part of the nature of the valuation process of a company. Thus, it is impossible for KPMG to be responsible or to be made responsible for eventual differences between the projected future results and those which are later effectively obtained, due to changes in market conditions or in the business of the company which is being valued. Furthermore, the market knows that every valuation contains a significant level of subjectivity since it is based on expectations regarding the future which may or may not be confirmed. Therefore, it is recognized that there are no guarantees that any or all of the assumptions, estimates, projections, results or conclusions used or presented in our report will be effectively reached or may come to be totally or partially achieved. The final actual results may be different from the projections and these differences can be significant. 4

6 1. Introduction (cont.) The services provided are based on legal norms and regulations and, in this context, we stress that our legislation is complex and often the same legal provision can have more than one interpretation. KPMG seeks to be up to date with all the various lines of interpretation so that it may be possible to evaluate the alternatives and risks involved. Consequently it is certain that there may be interpretations of the law which differ from ours. Under such circumstances, neither KPMG nor any other firm can give the client total assurance that it will not be questioned by third parties, including tax inspectors. We wish to point out that we cannot guarantee a that the restructuring of the proposed transaction, including its taxation aspects, will be fully accepted by the corresponding authorities in Brazil or overseas. Therefore our work has the sole and exclusive objective of attending to a specific request made by the Client s Management. The services informed and/or backed by legal norms and regulations were rendered based on laws and regulations in force at the time the services were performed. The scope of this job does not include updating the services and/or resulting reports in the event of changes in legislation or regulations which took effect after the conclusion of the job. Use and disclosure of the report This report was prepared to be used exclusively by the Management of Aesop and therefore must not be disclosed to third parties, that is, legal entities or individuals who are not members, employees or shareholders of the Company. Nevertheless, this report may be disclosed to the independent auditors of Aesop and tax authorities when requested. Subsequent events The current study used as a basis the net equity position as at February 28, We would point out that relevant facts which may have occurred between the base-date of the valuation and the date of issue of this report were not taken into account considering the nature and objective of this job. KPMG was not responsible for updating this report following its date of issue. Free translation This summary report is a free translation ti into English (requested by Natura) of the report issued in Portuguese. If there are any discrepancies or differences between the versions, the version in Portuguese, dated February,3 2014, will prevail. 5

7 Contents Page 1. Introduction 2. Description of the Company 3. PPA Analysis Framework 4. Identification of intangible assets 5. Valuation of intangibles assets 6. Valuation of tangible assets 7. Discount Rate 8. Results and conclusions Appendices I. Summary of values and WARA II. Valuation of the trade-mark III. Valuation of the client portfolio - wholesalers IV. Assembled Workforce V. Contributory assets VI. Proportional PPA 7 6

8 2. Description of the Company Source: Aesop and Natura Description of the Company Aesop is an Australian company that operates in the cosmetics segment, with products in Skin Care, Body Care and Hair Care lines amount others, including products for men, for the household and domestic animals. The Aesop brand is recognized in the market for its high quality as well as its use botanical natural ingredients. The Company was founded in 1987 in the city of Melbourne - Australia, initially offering only products for hair treatment. Over the years Aesop has expanded its presence into new markets; launching in United States in 1990, followed by its arrival in Europe and Asia. Currently, its products are sold in over 50 signature stores in major cities around the world including Paris, Tokyo and New York. The Company also has a strong presence in department stores. This business model, with department stores and its signature stores has been achieving success in various countries in which Aesop operates. It is also worth highlighting that Aesop s products are manufactured by third parties and it does not carry out its own manufacture. Principal historical events of the Company Aesop was founded by Dennis Paphitis in Melbourne, Australia. Launch in EUA. Launch of the Body Care e Skin Care lines. Launch in the UK, Japan, Malaysia, France and Hong Kong. Launch in the EU, first signature stores inaugurated, UK subsidiary was established. Signature stores opened in Hong Kong, Sydney, Taiwan, Singapore, Paris and Canberra French and Japanese subsidiary established, three signature stores opened in Australia Singapore subsidiary established, signature stores opened in London and Australia Four signature stores opened in Australia Hong Kong and US subsidiarys established, signature stores opened in Tokyo, Paris, Melbourne and Singapore New signature stores opened in the US and departament stores point of sale expansion. 7

9 2. Description of the Company (cont.) Source: Aesop and Natura (cont.) Regional Distribution Europe Regional Hub in London Participation in revenue: 13,9% Responsible for management, marketing, retail operations and p in Europe p development APAC (excl. Australia) Regional Hub in Hong Kong Participation in revenue: 39,3% Responsible for management, marketing, retail operations and p in Asia and Pacific development Americas Regional Hub in New York Participation in revenue: 3,7% Responsible for management, marketing, retail operations and development in the United States Australia Global Head Office Participation in revenue: 40,6% Responsible for the trade-mark, marketing and distribution strategies, finance and treasury and R&D Note: The participations in revenue by Region are based of management data from July 2011 to June 2012 (12 months). 8

10 2. Description of the Company (cont.) Source: Aesop and Natura (cont.) Product Portfolio The Company s product portfolio is made up of the following segments: Participation of product ranges in total revenues (July 2011 June 2012): Others 15% Skin Care: Aesop s Skin Care products are formulated with high concentrations of scientifically tested botanical ingredients. They also contain antioxidants, vitamins and vegetable extracts of the highest quality. Hair Care 5% Skin Care 50% Body Care: This segment is made up of soaps, gel soaps, ointments and oils all of which are delicate but highly effective for the skin. Body Care 30% Hair Care: The products in this segment were developed to attend to the needs for all types of hair. Others: Segment of complementary products which includes deodorants, fragrances, shaving products, travel and gift packs, domestic animal care and household items. 9

11 2. Description of the Company (cont.) Source: Aesop and Natura (cont.) Distribution channels Below, a description of the Company s distribution channels: Signature stores: Present in the four continents, continents they focus on offering a uniform, high standard of customer attention so as to maximize the brand s experience. Architecturally planned for speedy launching and low cost, the size of the store varies from 25m2 to 80m2 both at street level and inside shopping malls. Number of stores: 54 (June/2012) Department stores: For over ten years, Aesop has had a strong presence in the principal department stores in Europe, Australia and Asia. The main partners are: Liberty, Lane Crawford,, Isetan,, David Jones,, Mitsukoshi, Lotte and Le Bom Marchè. The spaces are planned so as to combine especially designed counters with a more basic finish, both optimized for local conditions. The design is unique and clearly differentiates the brand from its competitors as the aesthetics reflect, on a reduced scale, the structure of its signature stores with water, music and oil burners. This appeals to consumers who are open to new ideas. With the exception of only two department stores located in Australia, Aesop does not sell directly to these stores but only uses their structure as a distribution channel treating them as partners. The relationship with these stores is not exclusive and so competing brands also operate alongside. Number of stores: 63 (June/2012) Wholesale: Aesop has always defended a firm, premium position in the wholesale segment so as to enhance the recognition of its brand by the target public. The main wholesalers selected by Aesop are: drugstores, apothecaries or perfumeries, premium multi-brand stores with similar brands inside art galleries, wine cellars and bookstores, hotels, restaurants and airline companies. Number of stores: 355 (June/2012) Digital: This segment has been recently introduced by the Company (2012). It permits expanding global presence, providing a simple introduction to new clients. clients 10

12 2. Description of the Company (cont.) Source: Aesop and Natura (cont.) Distribution channels (cont.) Shown, below, the participation in total revenue by distribution channel in 2012: Department Stores 23,5% Wholesalers 9,4% Retail/signature stores (*) 67,1% (*) Includes Distributors. 11

13 2. Description of the Company (cont.) Source: Aesop and Natura (cont.) Consolidated Balance Sheet We show, below, the Net Equity position of the Company on the base-date of the acquisition, as informed by the Management of Natura: Consolidated Balance Sheet (in 02/28/2013) Emeis Holdings Pty Ltd. (AU$ mil) Current Assets Current Liabilities Cash and equivalents Short-Term Debt Clients Taxes Payable 136 Other receivables Payroll Expense 575 Inventory Provisions 686 Other payables Fixed Assets Long term Liabilities 437 Deferred Tax Accrued Expenses 356 Others Accrued Taxes 81 Fixed Assets Equity Total Asset Total Liabilities + Equity Note 1: This Consolidated balance sheet management is a pro-forma that includes no debts of Aesop, as indicated in the purchase agreement. Note 2: The exchange rate on February 28, R$/AU$ was 2,

14 Contents Page 1. Introduction 2. Description of the Company 3. PPA Analysis Framework 4. Identification of intangible assets 5. Valuation of intangibles assets 6. Valuation of tangible assets 7. Discount Rate 8. Results and conclusions Appendices I. Summary of values and WARA II. Valuation of the trade-mark III. Valuation of the client portfolio - wholesalers IV. Assembled Workforce V. Contributory assets VI. Proportional PPA 14 13

15 3. PPA Analysis Framework Basic procedures We present, below, the basic procedures used in the valuation of intangible assets: Identification Analysis and calculation Reporting Analyze industry sector and business model. Collect and review historical i information. Identify potential intangible assets. Select valuation approach: Market approach Income approach Cost approach Estimate intangibles value. Analyze and project life and amortization profile for intangible assets. Analyze consistency with the information provided. Review the results with client. Finalize report and analysis. 14

16 3. PPA Analysis Framework (cont.) Criteria for recognition The criteria for recognition are summarized in the flowchart below: Analysis Business model Business Planning Definition of Intangible Assets Existing Licenses and Rights Value Drivers Are there future economic benefits? Yes Are the economic benefits achieved contractually or legally? No Can they be separated? Yes Yes Is there sufficient control over the resources? Yes Can the future economic benefits be recognized separately and reliably? Yes Estimate the value of the intangible assets No No No Is the economic useful life indefinite? Sim No Goodwill Do not amortize Amortize over the economic useful life 15

17 3. PPA Analysis Framework (cont.) Criteria for recognition (cont.) To value intangible assets, the first step was to identify acquired company s potential intangible assets. Therefore, the Company s business model was analyzed, as well as long-term planning and value elements comprising it. This information was made available to and discussed with Management and analyzed in light of our experience in similar projects and of market practices. An intangible asset is recognized separately from goodwill if it meets intangible assets definition and its fair value may be reasonably measured. The definition of intangible assets determines that it needs to be clearly differentiated from goodwill and that it is controlled by the company that is the object of analysis. A company controls an asset if it has the power to obtain future economic benefits flowing from this asset or from underlining resources and may restrict access of other entities to these benefits. A company s capacity to control future economic benefits from an intangible asset would normally derive from legal rights that are enforceable by courts. In the absence of legal rights, it is more difficult to demonstrate such control. However, legal enforceability of the right is not a sine qua non condition for control, as the company may be able to control corresponding future economic benefits in some other manner. Intangible assets that meet recognition criterion are measured at fair value on acquisition date. Fair value is the amount for which this asset could be exchanged between knowledgeable, willing parties in an arm s length transaction. Recognition criteria should be verified for intangible assets that are already separately accounted for and those that have not been accounted apart from goodwill. For PPA purposes, assembled workforce should not be recognized as intangible assets apart from goodwill, as a company normally does not have sufficient control on future economic benefits deriving from a team of qualified staff. 16

18 3. PPA Analysis Framework (cont.) Application of approaches and criteria The flowchart below presents a summary of the various approaches and criteria for a valuation which are explained in more detail in the following pages: HIERARQUY OF VALUATION CRITERIA Similar operations available on the market NO Cash Generation of the Intagible Assets NO Cost approach YES YES Market approach Income approach Approach Market-oriented t approach Income-oriented approach Cost-oriented t approach Market prices in an active market Relief from royalties Replacement Cost Methods Comparable transactions Incremental cash flow Reproduction Cost Multi-period excess earnings 17

19 3. PPA Analysis Framework (cont.) Methods of Valuation - Fundamentals Method of Valuation Description Market approach The market approach estimates the fair value by comparing recent sales of similar assets. The available information is adjusted based on factors like age, condition or type of sale, to reflect the specific characteristics of the intangible asset. In the market approach, a variety of factors is considered by the market. However, the market does not necessarily value the contribution of the specific intangible ibl asset to the value of an ongoing enterprise. The market approach reflects current market perceptions, conditions and transactions. ti However, sales or market prices of intangible assets are seldom available. This is due to the fact that intangible assets typically are transferred only as part of a business, and not in a single transaction. A comparison between intangible assets is difficult and thus a market approach is seldom feasible, because intangible assets are rather unique to each enterprise. Income approach The income approach estimates the fair value from the future cash flows which the intangible asset will generate over its remaining useful life. The application of this approach involves projecting the cash flows which the intangible assets are generating, based on current expectations and assumptions about future states. It should be noted though, that synergistic or strategic benefits in excess of those to be realized by regular market participants p have to be removed from the projected cash flows. Then, these cash flows generated by the asset have to be converted to a present value by discounting them with the appropriate discount rate. The discount rate reflects the time value of money and the relevant risk associated with the cash flows and the intangible asset. The income approach can be further distinguished according to the way the cash flows generated by the intangible asset are calculated. The most important methods are: Multi-period excess earnings method; Relief from royalty method; and Incremental cash flow method. Multi-period excess earnings method The multi-period excess earnings method calculates the cash flows based on a detailed forecast of cash inflows, cash outflows and pro forma charges for economic returns of and on the tangible and intangible assets employed. The cash inflows and outflows are in general derived from projected financial information provided by management. Since intangible assets normally only generate cash flows in combination with other tangible or intangible assets, notional payments for these contributory assets are taken into consideration for the determination of the relevant cash flows. The charges for the economic returns are computed based on the assets utilized by the intangible asset. The resulting net cash flows are also termed multi-period excess earnings. It is presumed that the contributory assets were leased from a third party in the scope necessary for the generation of cash flows. All considerations refer to the attributable fair value of the relevant contributory asset. The applied contributory asset charges take into account the return of the asset (wear and tear) and the return on the asset (a reasonable interest on the capital invested). Asset charges have to be calculated for the value of the assembled workforce, although the workforce itself cannot be recognized as an independent asset apart from goodwill. 18

20 3. PPA Analysis Framework (cont.) Methods of Valuation - Fundamentals (cont.) Method of Valuation Income approach (continuation) Description Relief from royalty method The relief from royalty method assumes that the intangible asset has a fair value based on royalty income attributable to it. This royalty income represents the cost savings of the owner of the asset the owner does not have to pay royalties to a third party for the license to use the intangible asset. The derivation of the royalty income is comprised of two basic steps: the estimation of revenues attributable to the asset; and the estimation of the appropriate royalty rate. Incremental cash flow method (or with and without ) The incremental cash flow method compares the future estimated cash flows from the enterprise including the intangible asset being valued with the cash flows from a fictitious comparable company excluding the asset. The difference in the cash flows per period between the two companies is reflected in the incremental cash flow attributable to the intangible asset to be valued. To calculate the fair value of the asset, these additional cash flows are discounted to the valuation date using the weighted cost of capital rate specific to the asset (post-tax calculation). These additional cash flows may arise if additional cash receipts are generated by the intangible asset concerned or cash payments are saved. The application of the incremental cash flow method presupposes that the future cash flows of the theoretical comparable enterprise can be reliably estimated t without t this asset. Another alternative ti thatt can be applied is the calculation l of incremental cash flow generated directly by a particular asset (or group of assets), and compare this flow with that of another asset (or group of assets) to serve as a reference. Cost approach The cost approach estimates the value of an asset based on the current cost to purchase or replace that asset. The cost approach reflects the idea that the fair value of an asset should not exceed the cost to obtain a substitute asset of comparable features and functionality. However, there may be little correlation between the cost incurred and the fair value created by an intangible asset. 19

21 Contents Page 1. Introduction 2. Description of the Company 3. PPA Analysis Framework 4. Identification of intangible assets 5. Valuation of intangibles assets 6. Valuation of tangible assets 7. Discount Rate 8. Results and conclusions Appendices I. Summary of values and WARA II. Valuation of the trade-mark III. Valuation of the client portfolio - wholesalers IV. Assembled Workforce V. Contributory assets VI. Proportional PPA 21 20

22 4. Identification of intangible assets The lists below show categories and examples of possible intangible assets: Related to the market Related to clients Related to contracts Related to technology Related to art Trade-marks Certifications Backlog of orders from clients Domains on the internet Contracts and contractual relationships with clients Non-compete agreements Non-contractual relationships with clients Rental contracts Software licenses Compositions, Building permits Own software advertisements, jingles Agreements and franchises Business secrets (formulas, Paintings, photographs processes and recipes) Operating and transmission licenses Contracts with employees Publicity, construction, management, service or supply contracts Operational contracts Patented technology Non-patented technology Visual and audio-visual material In the following chapter we comment on the intangible assets identified/valued. Expansion/Development Projects in Progress 21

23 Contents Page 1. Introduction 2. Description of the Company 3. PPA Analysis Framework 4. Identification of intangible assets 5. Valuation of intangibles assets Valuation of tangible assets 7. Discount Rate 8. Results and conclusions Appendices I. Summary of values and WARA II. Valuation of the trade-mark III. Valuation of the client portfolio - wholesalers IV. Assembled Workforce V. Contributory assets VI. Proportional PPA 22

24 5. Valuation of intangible assets General considerations The intangible assets considered and discussed with the Managements of Natura and Aesop were as follows: Potential Intangible Asset Identified To be Valued Discussion/Rationale Probable Method of Valuation Softwares, Technologies and Licenses X Due to the nature of its business, the Company does not detain any software and/or any specific technology and/or licenses which could be considered potential intangible assets. In addition, as we were informed by the Company Management, Aesop does not have any ingredients or exclusive methods for the preparation of its products which could create a differential in relation to any other market participant. n/a Client Portfolio Wholesalers The Company operates through three distribution channels: (i) signature stores ( retail ), (ii) department stores, and (iii) wholesalers: (i) In its signature stores, the principal i distribution ib ti channel of Aesop, sales are made directly to the public at large, mostly made up of individual people. The Management of Aesop does not have an identification and recurrence control of its customers, due to the nature of the business. (ii) In relation to department stores, with the exception of two department stores located in Australia, these are only one distribution channel for Aesop (partners) in which the Company uses the structure of the department store to promote and sell its products. In this case Aesop sells its products inside the department store through its own employees, running the risk of stocks and paying a percentage on sales. Its end clients are also the general public made up of individual persons. Furthermore, Aesop does not have any advantage and/or benefit in these stores in relation to its competitors in most cases the competitors products aredisplayed d alongside. The two department t stores in Australia are end clients (they purchase from Aesop) however, the Company does not have any exclusive relationship with them and they also sell the competitors products and for this reason this client relationship was not considered a potential intangible asset. (iii) On the other hand, with respect to wholesalers, there are historic and recurrent relationships. These relationships provide Aesop with new sales orders generating revenue and profitability. In the period 2011/2012 wholesalers represented about 10% of total sales. In this context and taking into account the characteristics of the Company s business, the client portfolio associated exclusively l with thewholesalers l was valued as an intangible ibl asset. Income Approach: Excess Earnings Method Backlog of orders from clients X According to the Management on the base-date there was no relevant backlog of clients orders which needed to be valued. n/a Trade-mark The right of use of the Aesop trade-mark is guaranteed by law and this mark was acquired as part of the process of acquiring the company. The trade-mark was valued since it has been present on the market for over 25 years and is a strong and recognized name, also internationally, in the market in which the Company operates. According to the Management of Natura the strength of the mark was one of the principal drivers behind the acquisition. Income Approach: Relief from Royalty Method 23

25 5. Valuation of intangible assets (cont.) General considerations (cont.) Potential Intangible Asset Identified To be Valued Discussion/Rationale Probable Method of Valuation Rental contracts X According to the Management of Aesop, the rental contracts existing on the date of the acquisition are at market value. The vast majority of contracts is of short duration (approx. 5 years) and have been signed recently. Furthermore, when negotiating a new rental contract, it is the Company practice to contract a consultancy specialized in real estate to analyze if the value being asked is consistent with the values being charged in that particular region. Finally, new contracts are submitted to approval and internal analysis. n/a Non-compete agreements X According to the Management of Natura although the purchase and sale agreement contains a non-compete clause in respect of the sellers, the strong entry barriers to the business (among them the trademark and the extensive chain of streetlevel stores around the world) in themselves hinder any threat of competition. Replicating such a business would be very difficult. Furthermore, the sellers will continue to have a participation in the company, in the Management and on the Board of Directors. n/a Key money payments X On the base-date of the transaction there were only 5 contracts in which there was key money, amounting to a net book value of AU$ 180 thousand. (The grossvalue was AU$ 430 thousand). According to the Management of Aesop, these payments are unusual, the payments were small and were made recently (of the 5 payments, 4 were made in the last 2 years). In addition, due to their location and the scenario of a world economic crisis, the Management of Aesop does not believe that there would be any market adjustment to these payments. n/a Assembled workforce Although this asset cannot be separated from goodwill, according to IFRS 3/CPC-15, the value of this asset was estimated so that this amount may be taken into account in the calculation of the value of other intangible assets valued using the excess earnings method. Cost Approach 24

26 5. Valuation of intangible assets (cont.) Trade-mark Recognition The right to use a trademark is considered an intangible asset related to marketing, which is classified as an asset used in the advertising and identification of products and services The Aesop brand is recognized in the market in which it operates, having been present since 1987 in addition to being a highly consolidated brand in the world market for cosmetics. The right to use the Aesop brand is guaranteed by law and this brand was acquired as part of the process of acquiring the Company. Since Aesop markets 100% of their products with the Aesop brand name, the royalties were calculated over the Company s total business range. Royalty Rate The Royalty Rate used was estimated based on information obtained from RoyaltySource, which h publishes the royalty rates used in licensingi agreements in the market. The percentage of royalty fee defined was based on an independent research of transactions involving comparable companies in the industry in which the Company operates and on discussions with the Management regarding the contribution which the trade-mark makes to the Company s total business. In order to select information comparable with the Company ssector, we used information from companies in the sector of cosmetics and beauty products. As a result of the survey, we obtained an average rate of 5% of net income for licensing a trade-mark. Discount rate Approach used in the valuation In order to value the right of use of the trade-mark we used the Income Approach and the Relief from Royalties Method due to the possibility of calculating the value of the royalties which would theoretically be paid if this trade-mark were to be licensed. Assumptions made In order to discount the resulting cash flows we used a rate of 12,71% which In order to measure this intangible asset we researched royalties in the corresponds to our discount rate (detailed in the next chapter), plus a spread of cosmetics and beauty products market, in other words, an average percentage 0,5% to cover the additional risk specific to this asset, thus totaling 13,21%. rate of net income charged by comparable companies on licensing the use of Useful life their trade-marks. Having established this benchmark, we calculated the value Considering that the brand has been in the market since 1987, the useful life of of the royalty to be paid on the basis of projected revenues net of income tax. this intangible asset was considered at around 25 years, that is, until December Since these values were based on the flow of receipts of future royalties, it was necessary to adjust the value in question by applying a previously calculated discount rate. The financial projections used to value the Aesop trade-mark were prepared in Australian Dollars (AU$) in nominal terms, that is, taking inflation into account. The valuation of this intangible asset was based on Aesop s projected revenues in accordance with the assumptions in the economic-financial i valuation of the Company prepared by KPMG in order to justify the price paid. Estimated value As a result of the above calculations, the value of the Aesop trade-mark was estimated at AU$ 39,4 million. Details of the projections regarding the valuation of this intangible asset can be found in Appendix II of this report. 25

27 5. Valuation of intangible assets (cont.) Client portfolio - Wholesalers Recognition According to CPC-15, the relationships which a company maintains with its clients through a formal contract or recurrent relationships, are considered an intangible asset since they generate an economic benefit for the company and they can be controlled by legal or contractual means. CPC 15 requires that these intangible assets be recognized separately from goodwill even if contractual confidentiality provisions or other provisions prohibit the sale or transfer of these contracts and/or relationships separately from the entity acquired. A relationship between an entity and its clients exists if (a) the entity has information about the client and has regular contact with the client; and (b) the client is capable of making direct contact with the entity. Relationships with clients can result from contracts (such as supply agreements and service contracts) or through other non-contractual means such as regular contacts with the client made by salesmen or service representatives or through regular purchases. Aesop has historic and recurrent relationships with various clients (wholesalers). On account of this, we carried out a valuation of Aesop s wholesaler client portfolio. Approach used in the valuation In order to value client relationships, we used the Income Approach under the Multi-period Excess Earnings Method due to the possibility of attributing the cash flow generated directly to the asset identified. The approach used to value the client portfolio foresees that the income from products supplied under the terms of agreements in force, as from the valuation date, are projected throughout the useful life of the contract deducting the corresponding costs and expenses incurred to finalize their delivery. Considering that, since the company does not retain 100% of its client portfolio for a lengthy period of time, the projected cash flows must be multiplied by an attrition factor to reflect that the net revenue attributed to the existing client portfolio will reduce as a percentage of the businesses total income over time. The client portfolio was projected based on an attrition factor which reflects the retention of clients (wholesalers) l over time. Assumptions made Projected revenues and Operating Cash Flows The Company s revenue derives from three distribution channels: retail, department stores and wholesalers and for the calculation of the client portfolio only the revenues from the wholesaler channel were used (as previously described, the other channels sell directly to individuals). The 2012 sales mix was used to project the revenues from wholesalers. It was considered that sales through wholesalers represent about 10% of total sales. For the existing client portfolio (wholesalers), we analyzed the rates of retention and the behavioural characteristics in order to determine the attrition rate. In order to estimate the attrition rate, we used historical retention data for wholesalers over the last 3 years. Based on our calculations and information provided by the Management of Aesop, the annual loss of clients was estimated at approximately 11,5%. After applying the attrition factor we took into account the cost of goods sold and operating expenses consistent with the business projections. We then took into account the taxes applicable to operating profit.. 26

28 5. Valuation of intangible assets (cont.) Client portfolio Wholesalers (cont.) Cost of contributing assets When calculating the value of each intangible, the contributing assets or Contributory Capital Asset Charges are deducted as applicable. This is done so as to calculate the opportunity cost of acquiring and maintaining certain assets which contribute towards the intangible assets having a value. The costs of these assets were calculated jointly since these assets contribute towards the company s activities as a whole. In the case of valuing the intangible asset Client portfolio - Wholesalers the following contributing assets and their respective opportunity costs were taken into account: Net Working Capital: 5,6% p.a. (US Corporate Retail BB+ p/ Australian AAA rate + 1% p.a. spread, after-tax); Fixed Assets: 5,2% p.a. (US Corporate Retail BB+ p/ Australian AAA rate + 0,5% p.a. spread, after-tax); Trade-mark: 3,5% of net income (Royalty Rate after-tax); and Assembled Workforce: 13,21% p.a. (Company s WACC, plus 0,5% p.a. spread, after-tax). Details of the projections relative to contributing assets can be seen in Appendix VI of this report. Discount Rate In order to discount the resulting cash flows, we used a rate of 12,71% which in its composition was increased by a spread of 0,5% as a premium for the additional risk specifically associated with this intangible asset. Useful life We estimated the useful life of the client portfolio at approximately 9 years. Estimated value As a result of the above calculation, the value of Aesop s client portfolio was estimated at AUD$ 0,6 million. Details of the projections regarding this intangible asset are shown in Appendix IV of this report. 27

29 5. Valuation of intangible assets (cont.) Assembled workforce Summary Although the workforce has been identified and valued in order to estimate the value of the asset which contributes towards the other intangible assets, IAS 38 does not permit that it be separated from goodwill. Therefore, it was segregated for the purpose of allocation and only used as a contributing asset in the valuation of other intangibles, when applicable. Its value is estimated based on how much a purchasing entity would save if it had to form a new workforce. This estimate can be found in Appendix V of this report. The client provided us with data about the workforce which was attributed to the Company. Approach used in the valuation We used the Cost Approach to value the workforce. In this approach the value of the existing workforce is calculated based on the costs which have been avoided by the buyer in respect of the acquisition of an efficient and already trained team, as opposed to training and forming a new team. The calculationof income tax took into account an averagerate of 30%. Recruitment and Training costs avoided Aesop avoided the costs of having to identify, recruit and train an adequate team, by having already purchased one with these requisites. Based on discussions with the client, we identified the costs related to recruitment and training of new employees. These rates were applied to thenumber of employees acquired in order to estimate the value of the net-of-tax costs avoided by Aesop. Loss of productivity avoided New employees require a certain amount of adaptation time before becoming fully productive and therefore they are not as efficient as more experienced employees. This period represents an implicit cost of training a workforce. We considered d thatt on average, employees reach maximum productivity it 4 months after entering the Company. Conclusion Based on the information provided and our own analysis, the fair value of the Company s workforce is estimated at AU$ 0,8 million. Details of the projections relative to the valuation of this intangible asset can be found in Appendix V of this report. 28

30 Contents Page 1. Introduction 2. Description of the Company 3. PPA Analysis Framework 4. Identification of intangible assets 5. Valuation of intangibles assets 6. Valuation of tangible assets 7. Discount Rate 8. Results and conclusions Appendices I. Summary of values and WARA II. Valuation of the trade-mark III. Valuation of the client portfolio - wholesalers IV. Assembled Workforce V. Contributory assets VI. Proportional PPA 30 29

31 6. Valuation of tangible assets Tangible assets Based on our analysis of the Company s assets and liabilities on the base-date of the job, excluding fixed assets, inventories and contingencies, and on discussions with the Managements of Natura and Aesop, we concluded that due to their nature and balances, eventual adjustments to the value would be nil or immaterial. i 30

32 Contents Page 1. Introduction 2. Description of the Company 3. PPA Analysis Framework 4. Identification of intangible assets 5. Valuation of intangibles assets 6. Valuation of tangible assets 7. Discount Rate 8. Results and conclusions Appendices I. Summary of values and WARA II. Valuation of the trade-mark III. Valuation of the client portfolio - wholesalers IV. Assembled Workforce V. Contributory assets VI. Proportional PPA 32 31

33 7. Discount rate Method of calculating the discount rate The calculation of the discount rate is a fundamental step in the valuation process. This factor reflects aspects of a subjective and variable nature which vary from investor to investor, such as the opportunity cost and the particular perception of the risk of the investment. Cost of capital Cost of capital (Ke) We used the Weighted Average Cost of Capital (WACC) which is The cost of capital can be calculated using the Capital Assets Pricing an appropriate parameter to determine the discount rate to be Model (CAPM). Considering that the company being valued is located applied on the Company's free cash flows. The WACC considers in Australia, the cost of capital is calculated using the following the several types of financing, including debt and equity, which are formula: used by companies to meet their funding needs, and is calculated through the following formula: Ke Cost of Capital WACC = Weighted Average Cost of Capital Rf = + ß x (E[Rm] Rf) D / (D+E) x Kd x (1-t) + Rs Where: E / (D+E) + x Ke D = Total third party capital E = Total own capital t = Rate of Income Tax and Social Contribution Kd = Cost of third party capital Ke = Cost of capital Where: Rf = Average risk-free return based on the return on 15 year fixed income bonds of the Australian a Government e β = Beta (coefficient of risk specific to the company being valued) E[Rm] = Average long-term return obtained on the North-American stock market E[Rm] - Rf = Market risk premium Rs = Risk Premium associated to the size of the Company 32

34 7. Discount rate (cont.) Cost of capital Risk-free rate In order to quantify the average risk-free return (Rf) we considered the return on the base-date (31st January 2013) for 15-year fixed income bonds of the Australian Government, which was 3,35% (Source: Bloomberg). Calculation of Beta Beta is the specific risk coefficient of the shares of a company compared to a market index, representing the stock market as a whole. In the case of valuations of companies that are listed and have significant negotiations on the stock exchange, the share Beta is calculated by the correlation of weekly returns of their own stocks compared to the selected market index during a certain period prior to the valuation date. In the case of companies that are not listed on the stock exchange, or which do not have significant trading volumes, the company s Beta can be represented using the average beta for the sector in which the company operates. Thus, the average Beta for the sector is calculated based on the average correlations of weekly returns of several companies from the same sector, in relation to the weekly returns of the market index during a certain period. In order to estimate the Company s Beta, the average Beta of comparable companies from the cosmetics sector was used. This Beta was obtained by averaging the unlevered Betas of comparable companies shown in the following table, with the value of 0,73. Comparables Beta Debt to Effective Beta levered Equity tax rate unlevered TUPPERWARE BRANDS CORP 1,34 72,8% 30,5% 0,89 NU SKIN ENTERPRISES INC - A 1,10 34,5% 34,5% 0,90 BEIERSDORF AG 0,41 62,2% 62,2% 0,33 ORIFLAME COSMETICS SA-SDR 0,82 17,3% 17,3% 0,72 L'OREAL 0,52 1,3% 28,5% 0,51 ESTEE LAUDER COMPANIES-CL A 1,04 7,2% 30,2% 0,99 ELIZABETH ARDEN INC 1,40 63,1% 23,9% 0,94 REVLON INC-CLASS A 1,18 18,7% 38,3% 1,06 Beta unlevered Debt to Equity Effective tax rate Beta relevered 0,73 35% 30% 0,99 Source: Bloomberg Market risk premium For the long term stock market risk premium (E[Rm] Rf), we used the average return above the Treasury Bond rate provided by investing in the Australian stock market, which was of 5,80% (Source: Prof Aswath Damodaran website). Size premium For the premium for company size (Rs) was considered the rate of 6,36%, according to information released by Ibbotson Associates, for comparablesized companies (Source: Ibbotson Associates). This Beta was then re-leveraged according to the capital structure of the Company and at the current basic rate of income tax and social contribution incurred on the Company's operations. As a result the beta utilized was 0,99. 33

35 7. Discount rate (cont.) We present, below, the calculation of the cost of the Company s capital: Cost of capital - Ke Risk-free rate 3,5% Re-leveraged Beta 0,985 Market risk premium 5,80% Risk for size of Company 6,36% Cost of capital (Nominal in AU$) - Ke 15,42% Cost of third party capital For purposes of the cost of third party capital, was considered the nominal cost of an American corporate bond in the retail segment rated BB + of 7,0%. After the effect of taxes (we used the rate of Aesop) the cost of debt is 4,90%. Cost of third party capital (Nominal in AU$) Cost of third party capital 7,00% Effective long term rate of tax 30% Cost of third party capital after tax (Nominal in AU$) - Kd 4,90% Capital structure The capital structure used was defined based on the target capital structure observed in comparable companies. Based on this criteria, the capital structure used was of 74,3% of own capital and 25,7% of third party capital. Calculation of the discount rate Based on the capital structure used and the costs of capital and third party capital, the discount rate was calculated cu ated at 12,71% per annum. 34

36 Contents Page 1. Introduction 2. Description of the Company 3. PPA Analysis Framework 4. Identification of intangible assets 5. Valuation of intangibles assets 6. Valuation of tangible assets 7. Discount Rate 8. Results and conclusions Appendices I. Summary of values and WARA II. Valuation of the trade-mark III. Valuation of the client portfolio - wholesalers IV. Assembled Workforce V. Contributory assets VI. Proportional PPA 36 35

37 8. Results and conclusion The acquisition value of 65% of Aesop was AU$ 71,1 million (see Appendix I). The trade-mark and the client portfolio (wholesalers) were valued as relevant intangibles for the purposes of this study. Thus, considering an acquisition of 100%, we estimate the value of the trade-mark at approximately AU$ 39,4 AU$ '000 million and that of the client portfolio (wholesalers) at approximately AU$ 0,6 million, as shown below: Fair Value Deferred Tax Net Fair Value Trade-mark - 100% value (11.822) Clients - Wholesalers % value 636 (191) 445 The detailed calculations carried out can be found in Appendices II and III respectively. Regarding g the relevant assets and liabilities existing on the base-date, excluding fixed assets, inventories and contingenvies, we did not find the need to make any adjustment to fair value. The adjustment to market value of the fixed assets, inventories and contingencies was not within the scope of this job Concerning to the balances of fixed assets, inventories and contingencies, we took the Management s assumption that there was no need to make eventual adjustments to market value of these accounts on the base-date. On February 28, 2013, according to the procedures applied and the scope limitations already described, the value of goodwill considering an acquisition of 100% was estimated initially at AU$ 60,2 million (See Appendix I). We wish to stress that the present valuation is substantially based on assumptions provided by the Managements of Natura and Aesop. Therefore we cannot, as the Management of Aesop also cannot, guarantee that the Company s results after February 2013 were or will be effectively achieved ed in accordance ce with the projected results, since the events e foreseen may not occur due to various exogenous conjunctional and operational factors resulting therefore in relevant variations. KPMG was not requested to update this valuation following its date of issue. During the course of our work we carried out analysis procedures which we considered appropriate p in the context of the valuation. However, KPMG is not responsible for the information it has been provided and will not be made responsible under any circumstance, nor will bear losses or damages resulting or arising from the omission of any data or information by the Client s Management. We would further stress that this job did not constitute an audit according to generally accepted auditing procedures and must not be interpreted as such. 36

38 Contents 1. Introduction 2. Description of the Company 3. PPA Analysis Framework 4. Identification of intangible assets 5. Valuation of intangibles assets 6. Valuation of tangible assets 7. Discount Rate 8. Results and conclusions Appendices I. Summary of values and WARA II. Valuation of the trade-mark III. Valuation of the client portfolio - wholesalers IV. Assembled Workforce V. Contributory assets VI. Proportional PPA 37

39 Appendix I Summary of values and WARA Emeis Holdings Pty Ltd. WARA - Weighted Average Return on Assets Base Date: 2/28/2013 in AUD 000 Values and WARA Calculations Average tax rate BEV Deferred tax Fair Value % Purchase Price Expected return before taxes Expected return after taxes WARA Purchase price (65%) Minority interests (35%) BEV PPA Working Capital 30% ,5% 8,0% 5,6% (*) 0,53% Long term assets and liabilities 30% ,8% 8,0% 5,6% (*) 0,15% Fixed Assets 30% ,1% 7,5% 5,2% (**) 0,37% Intangible - Trade-mark 30% (11.822) ,2% 13,21% (***) 3,33% Intangible - Customer relationship - Wholesalers 30% 636 (191) 445 0,4% 13,21% (***) 0,05% 05% Estimated Goodwill (including workforce) ,1% 15,11% 8,32% Total ,0% 12,71% WARA 12,71% WACC 12,71% (*) US Corporate Retail BB+ p/ Australian AAA rate + spread 1,0 % (**) US Corporate Retail BB+ p/ Australian AAA rate + spread 0,5 % (***) WACC + spread 0,5 % 38

40 Appendix II Valuation of the Trade-mark Emeis Holdings Pty Ltd Trade mark Base Date: 2/28/2013 in AUD 000 Emeis Holdings Pty Ltd. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Trade-mark Net Revenues % of growth 30,7% 34,2% 23,9% 9,2% 9,6% 9,7% 9,5% 3,6% 3,6% 3,6% 3,6% 3,6% Royalty rate 5,0% 5,0% 5,0% 5,0% 5,0% 5,0% 5,0% 5,0% 5,0% 5,0% 5,0% 5,0% Relief-from-royalties (pre taxes) % tax rate 29,4% 29,9% 30,0% 30,0% 30,1% 30,2% 30,3% 30,3% 30,3% 30,3% 30,3% 30,3% Relief-from-royalties (post taxes) WACC 12,71% Spread 0,5% Adopted WACC - Brand 13,21% Discount Period 0, Period 0,17 1,17 2,17 3,17 4,17 5,17 6,17 7,17 8,17 9,17 10,17 11,17 Discount factor 1,02 1,16 1,31 1,48 1,68 1,90 2,15 2,43 2,75 3,12 3,53 4,00 DCF

41 Appendix II Valuation of the Trade-mark (cont.) Emeis Holdings Pty Ltd Trade mark Base Date: 2/28/2013 in AUD 000 Emeis Holdings Pty Ltd. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Trade-mark Net Revenues % of growth 3,6% 3,6% 3,6% 3,6% 3,6% 3,6% 3,6% 3,6% 3,6% 3,6% 3,6% 3,6% 3,6% Royalty rate 50% 5,0% 50% 5,0% 50% 5,0% 50% 5,0% 50% 5,0% 50% 5,0% 50% 5,0% 50% 5,0% 50% 5,0% 50% 5,0% 50% 5,0% 50% 5,0% 50% 5,0% Relief-from-royalties (pre taxes) % tax rate 30,3% 30,3% 30,3% 30,3% 30,3% 30,3% 30,3% 30,3% 30,3% 30,3% 30,3% 30,3% 30,3% Relief-from-royalties (post taxes) WACC 12,71% Spread 0,5% Adopted WACC - Brand 13,71% Discount Period Period 12,17 13,17 14,17 15,17 16,17 17,17 18,17 19,17 20,17 21,17 22,17 23,17 24,17 Discount factor 4,52 5,12 5,80 6,56 7,43 8,41 9,53 10,78 12,21 13,82 15,65 17,71 20,05 DCF Ʃ of DCF's

42 Appendix III Valuation of the Client Portfolio - Wholesalers Emeis Holdings Pty Ltd. Customer relationship - wholesalers Base Date: 2/28/2013 in AUD Emeis Holdings Pty Ltd. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Customer Relationship - Wholesalers Net Revenues % growth 30,7% 34,2% 23,9% 9,2% 9,6% 9,7% 9,5% 3,6% 3,6% Retail % of total revenues Department stores % of total revenues Wholesalers % of total revenues Net Revenues - Client Accounts - Wholesalers % of net revenues 9,4% 9,4% 9,4% 9,4% 9,4% 9,4% 9,4% 9,4% 9,4% % growth 30,7% 34,2% 23,9% 9,2% 9,6% 9,7% 9,5% 3,6% 3,6% Churn rate 11,50% 88,5% 77,0% 65,5% 54,0% 42,5% 31,0% 19,5% 8,0% 0,0% Average 94,3% 82,8% 71,3% 59,8% 48,3% 36,8% 25,3% 13,8% 4,0% 41

43 Appendix III Valuation of the Client Portfolio Wholesalers (cont.) Emeis Holdings Pty Ltd. Customer relationship - wholesalers Base Date: 2/28/2013 in AUD 000 Emeis Holdings Pty Ltd. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Customer Relationship - Wholesalers Adjusted income from Customer Relationship - Wholesalers (-)COGS (922) (1.076) (1.144) 144) (1.038) (909) (759) (560) (316) (95) % of income from Customer Relationship - Wholesalers 16,2% 16,1% 16,0% 15,9% 15,7% 15,7% 15,4% 15,4% 15,4% Gross Margin ( - ) Operating expenses (4.076) (4.723) (4.862) (4.448) (3.924) (3.277) (2.461) (1.388) (418) % of income from Customer Relationship - Wholesalers 71,7% 70,5% 68,1% 68,0% 67,8% 67,8% 67,6% 67,6% 67,6% ( - ) Depreciation (341) (408) (400) (259) (236) (156) (87) (34) (10) % of income from Customer Relationship - Wholesalers 6,0% 6,1% 5,6% 4,0% 4,1% 3,2% 2,4% 1,6% 1,6% EBT ( - ) Taxes (101) (146) (221) (240) (217) (195) (161) (95) (29) % of EBT 29,4% 29,9% 9% 30,0% 0% 30,0% 0% 30,1% 30,2% 30,3% 3% 30,3% 3% 30,3% 3% NOPAT

44 Appendix III Valuation of the Client Portfolio Wholesalers (cont.) Emeis Holdings Pty Ltd. Customer relationship - wholesalers Base Date: 2/28/2013 in AUD 000 Emeis Holdings Pty Ltd. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Customer Relationship - Wholesalers (cont'd) NOPAT Contributory Assets Expenses (305) (344) (358) (322) (274) (223) (166) (94) (28) Working Capital (56) (58) (59) (55) (47) (38) (28) (17) (5) % of income from Customer Relationship - Wholesalers 0,98% 0,87% 0,83% 0,84% 0,82% 0,78% 0,76% 0,81% 0,81% Fixed Assets (42) (46) (45) (36) (24) (16) (11) (5) (2) % of income from Customer Relationship - Wholesalers 0,74% 0,68% 0,63% 0,55% 0,41% 0,33% 0,29% 0,27% 0,27% Trade mark (199) (234) (250) (229) (203) (169) (127) (72) (22) % of income from Customer Relationship - Wholesalers 3,50% 3,50% 3,50% 3,50% 3,50% 3,50% 3,50% 3,50% 3,50% Work Force (9) (6) (4) (2) (0) % of income from Customer Relationship - Wholesalers 0,15% 0,09% 0,05% 0,03% 0,01% 0,00% 0,00% 0,00% 0,00% Excess Earnings (Profit) (62) (1) Discount rate 12,71% Spread 0,50% Adopted Discount rate 13,21% Discount Period 0, Period 0,17 1,17 2,17 3,17 4,17 5,17 6,17 7,17 8,17 Discount Factor 1,02 1,16 1,31 1,48 1,68 1,90 2,15 2,43 2,75 DCF (61) (1) % of NPV -10% -10% 9% 35% 56% 75% 90% 98% 100% Ʃ of DCF's

45 Appendix IV Valuation of the Assembled workforce Emeis Holdings Pty Ltd. Assembled workforce Base Date: 2/28/2013 in AUD 000 Work force valuation Training cost per employee Opportuinity costs per employee Aggregated cost per employee Number of employees Total Cost Full time Employees Part Time Employees Total Total costs aggregated Taxes Cost after texes ( )

46 Appendix V Contributory asset charge Emeis Holdings Pty Ltd. Contributory asset charge Base Date: 2/28/2013 in AUD 000 Emeis Holdings Pty Ltd. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Cost of contributory assets TV Net Revenues Working Capital Inicial Balance sheet Change Ending Balance sheet Average Demanded Return on Contributory Assets 5,60% Fixed Assets Inicial Balance sheet ( + ) Investiments ( - ) Depreciation (3.843) (5.242) (5.966) (4.602) (5.196) (4.502) (3.677) (2.609) Ending Balance sheet Average Demanded Return on Contributory Assets 5,25% Work force Inicial Balance sheet Remaining useful life 5 (165) (165) (165) (165) (165) Ending Balance sheet Average Demanded Return on Contributory Assets 13,21% Demanded Return over Contributory Assets (% Net Revenue) Working Capital 0,98% 0,87% 0,83% 0,84% 0,82% 0,78% 0,76% 0,81% Fixed Assets 0,74% 0,68% 0,63% 0,55% 0,41% 0,33% 0,29% 0,27% Trade mark 3,50% 3,50% 3,50% 3,50% 3,50% 3,50% 3,50% 3,50% Work force 0,15% 0,09% 0,05% 0,03% 0,01% 0,00% 0,00% 0,00% 45

47 Appendix VI Proportional PPA Emeis Holdings Pty Ltd. Proporcional PPA Base Date: 2/28/2013 in AUD 000 Estimated PPA Total Value Deferred tax Net Fair Value (% of the purchased capital by Natura) Total Paid (65%) - (A) Allocation Working Capital Long term assets and liabilities Fixed Assets Net Assets Book Value - (B) Intangible trade-mark (11.822) Intangible - Customer relationship - Wholesalers 636 (191) 445 Intangible Assets Identified and Evaluated - (C) Identified Net Asset - Fair Value - (D) = (B) + (C) Minority interests - (E) = 35% * (D) (17.202) Intangible Assets Identified and Evaluated - Fair Value - (F) = (D) + (E) Estimated Goodwill (G) = (A) - (F)

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