Education
About Us
Working with TipRanks
Follow Us
Natura & Co Holding Sa (NTCOY)
OTHER OTC:NTCOY
Risk Overview Q4, 2023
Risk Distribution
39% Finance & Corporate
17% Legal & Regulatory
15% Production
14% Macro & Political
9% Ability to Sell
6% Tech & Innovation
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.
Risk Change Over Time
S&P500 Average
Sector Average
Risks removed
Risks added
Risks changed
Natura & Co Holding Risk Factors
New Risk (0)
Risk Changed (0)
Risk Removed (0)
No changes from previous report
The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
Risk Highlights Q4, 2023
Main Risk Category
Finance & Corporate
With 34 Risks
Finance & Corporate
With 34 Risks
Number of Disclosed Risks
87
+1
From last reportS&P 500 Average: 31
87
+1
From last reportS&P 500 Average: 31
Recent Changes
7Risks added
6Risks removed
11Risks changed
Since Dec 2023
7Risks added
6Risks removed
11Risks changed
Since Dec 2023
Number of Risk Changed
11
+10
From last reportS&P 500 Average: 3
11
+10
From last reportS&P 500 Average: 3
See the risk highlights of Natura & Co Holding in the last period.
Risk Word Cloud
The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.
Risk Factors Full Breakdown - Total Risks 87
Finance & Corporate
Total Risks: 34/87 (39%)Above Sector Average
Share Price & Shareholder Rights17 | 19.5%
Share Price & Shareholder Rights - Risk 1
No single shareholder or group of shareholders holds more than 50% of our capital stock, which may increase the opportunity for alliances between shareholders as well as conflicts between them.Added
Share Price & Shareholder Rights - Risk 2
The market price of the Natura &Co Holding Shares and ADSs may be volatile.Changed
The Natura?&Co Holding Shares are listed on the B3. We also have ADSs which are not listed on any stock exchange but are transferable, subject to applicable law. The market price of Natura?&Co Holding Shares and ADSs may be volatile. Broad general economic, political, market and industry factors may adversely affect the market price of Natura?&Co Holding Shares and ADSs, regardless of Natura?&Co Holding's actual operating performance. Factors that could cause fluctuations in the price of Natura?&Co Holding Shares and ADSs include:
actual or anticipated variations in quarterly operating results and the results of competitors; changes in financial projections by Natura?&Co, if any, or by any securities analysts that might cover ADSs; conditions or trends in the industry, including regulatory changes or changes in the securities marketplace; announcements by Natura?&Co Holding or its competitors of significant acquisitions, strategic partnerships or divestitures; announcements of investigations or regulatory scrutiny of Natura?&Co Holding's operations or lawsuits filed against it; additions or departures of key personnel; the ongoing Ukraine-Russia and Israel-Hamas conflicts, as well as the wider tensions in the Middle East, which may have repercussions on the world's geopolitical and economic scenarios; issuances or sales of Natura?&Co Holding Shares or ADSs, including sales of shares by its directors and officers or its key investors; and developments with respect to actual or potential epidemics, pandemics, outbreaks or other public health crises in Brazil and globally.
Share Price & Shareholder Rights - Risk 3
As a foreign private issuer, we have different disclosure and other requirements than U.S. domestic registrants.As a foreign private issuer under the Exchange Act, we may be subject to different disclosure and other requirements than U.S. domestic registrants. For example, as a foreign private issuer, in the United States, we are not subject to the same disclosure requirements as a U.S. domestic registrant under the Exchange Act, including the requirements to prepare and issue quarterly reports on Form 10-Q or to file current reports on Form 8-K upon the occurrence of specified significant events, the proxy rules applicable to U.S. domestic registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules applicable to U.S. domestic registrants under Section 16 of the Exchange Act. In addition, we rely on exemptions from certain U.S. rules which will permit us to follow Brazilian legal requirements rather than certain of the requirements that are applicable to U.S. domestic registrants.
Furthermore, foreign private issuers are required to file their annual report on Form 20-F within 120 days following the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days following the end of each fiscal year. In addition, our common shares and ADSs are not listed on any U.S. stock exchange and we are therefore not subject to the listing standards, rules and requirements of any U.S. stock exchange. As a result of the above, even though we are required to make submissions on Form 6-K disclosing the information that we have made or are required to make public pursuant to Brazilian law, or are required to distribute to shareholders generally, and that is material to us, you may not receive information of the same type or amount that is required to be disclosed to shareholders of a U.S. company.
Share Price & Shareholder Rights - Risk 4
Judgments of Brazilian courts with respect to our shares will be payable only in reais.If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of the Natura &Co Holding Shares, we will not be required to discharge our obligations in a currency other than reais. Under Brazilian exchange control limitations, an obligation in Brazil to pay amounts denominated in a currency other than reais may only be satisfied in Brazilian currency at the exchange rate, as determined by the Brazilian Central Bank, in effect on the date the judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then-prevailing exchange rate may not afford non-Brazilian investors with full compensation for any claim arising out of or related to our obligations under the ADSs.
Share Price & Shareholder Rights - Risk 5
The holders of the Natura &Co Holding Shares (including the Natura &Co Holding Shares underlying the ADSs) may not receive dividends or interest on own capitalAccording to our by-laws, our shareholders are entitled to receive a mandatory minimum annual dividend equal to 30% of our annual net profit, calculated and adjusted under the terms of the Brazilian Corporation Law. Our by-laws allow for the payment of intermediary dividends, to the retained earnings account or the existing earnings reserves in the last yearly or six-month balance, by means of the annual dividend. We may also pay interest on own capital, as described by Brazilian law. The intermediary dividends and the interest on own capital declared in each fiscal period may be imputed to the mandatory dividend that results from the fiscal period in which they are distributed. At the general shareholders' meeting, shareholders may decide on the capitalization, on the offset of our losses or on the net profit retention, as provided for in the Brazilian Corporation Law, with the aforementioned net profit not being made available for the payment of dividends or interest on own capital.
In addition, Brazilian Corporation Law allows publicly held companies, like Natura &Co Holding, to suspend the required minimum distribution of dividends. The payment of dividends may be suspended if Natura &Co Holding's management reports at an annual shareholders' meeting that such distribution would be inadvisable in view of Natura &Co Holding's financial condition and provided the shareholders at the annual general shareholders' meeting with an opinion to that effect, which has been reviewed by Natura &Co Holding's fiscal council, if installed. In addition, Natura &Co Holding's management must submit a report to the CVM within five days following said meeting clarifying the reasoning for any such nonpayment. If the abovementioned occurs, holders of the Natura &Co Holding Shares (including the Natura &Co Holding Shares underlying the ADSs) may not receive dividends or interest on own capital.
Share Price & Shareholder Rights - Risk 6
Our future issuances of new securities may result in a dilution of our shareholders' stake.We may seek to raise additional capital in the future through public or private issuances of shares or securities convertible into shares. According to Article 172 of the Brazilian Corporation Law, we may not be required to grant preemptive rights to our shareholders in the event of a capital increase through a public offering of shares or securities convertible into shares, which may result in a dilution of our current shareholders' stake in our company.
Share Price & Shareholder Rights - Risk 7
Holders of the ADSs may not be able to exercise the preemptive rights relating to the Natura &Co Holding Shares.Holders of the ADSs may not be able to exercise the preemptive rights relating to the Natura &Co Holding Shares underlying their ADSs unless a registration statement under the Securities Act is effective with respect to the rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares or other securities relating to these preemptive rights, and we cannot assure holders of the ADSs that we will file any such registration statement. Unless we file a registration statement or an exemption from registration applies, holders of the ADSs may receive only the net proceeds from the sale of their preemptive rights by the ADS Depositary or, if the preemptive rights cannot be sold, the rights will be allowed to lapse. For a more complete description of preemptive rights with respect to the common shares, see "Item 10. Additional information-B. Memorandum and articles of association-Preemptive Rights."
Share Price & Shareholder Rights - Risk 8
An exchange of ADSs for shares risks the loss of certain foreign currency remittance advantages.The ADSs benefit from the certificate of foreign capital registration, which permits the ADS Depositary to convert dividends and other distributions with respect to common shares into foreign currency, and to remit the proceeds abroad. Holders of ADSs who exchange their ADSs for Natura &Co Holding Shares will then be entitled to rely on the ADS Depositary's certificate of foreign capital registration for five business days from the date of exchange. Thereafter, they will not be able to remit non-Brazilian currency abroad unless they obtain their own certificate of foreign capital registration, or unless they qualify under CMN Resolution No. 4,373/14, as amended, or "CMN Resolution No. 4,373," which entitles certain investors to buy and sell shares on Brazilian stock exchanges without obtaining separate certificates of registration. There can be no assurance that the certificate of registration of the ADS Depositary, or any certificate of foreign capital registration obtained by holders of ADSs, will not be affected by future legislative or regulatory changes, or that additional Brazilian law restrictions applicable to their investment in the ADSs may not be imposed in the future.
Share Price & Shareholder Rights - Risk 9
Due to delays in notification to and by the ADS Depositary, the holders of the ADSs may not be able to give voting instructions to the ADS Depositary or to withdraw the Natura &Co Holding Shares underlying their ADSs to vote such shares in person or by proxy.The ADS Depositary may not receive voting materials for Natura &Co Holding Shares represented by ADSs in time to ensure that holders of such ADSs can either instruct the ADS Depositary to vote the Natura &Co Holding Shares underlying their ADSs or withdraw such shares to vote them in person or by proxy.
In addition, the ADS Depositary's liability to holders of ADSs for failing to execute voting instructions, or for the manner in which voting instructions are executed, will be limited by the deposit agreement for the ADSs. As a result, holders of ADSs may not be able to exercise their rights to give voting instructions, or to vote in person or by proxy, and may not have any recourse against the ADS Depositary or Natura &Co Holding if the Natura &Co Holding Shares underlying their ADSs are not voted as they have requested or if the Natura &Co Holding Shares underlying their ADSs cannot be voted.
Share Price & Shareholder Rights - Risk 10
Holders of the ADSs do not have the same voting rights as our shareholders.Holders of the ADSs do not have the same voting rights as holders of the Natura &Co Holding Shares. Holders of the ADSs are entitled to the contractual rights set forth for their benefit under the deposit agreement entered into by Natura &Co Holding and the ADS Depositary prior to completion of the Transaction, or the Natura &Co Holding Deposit Agreement. ADS holders exercise voting rights by providing instructions to the ADS Depositary, as opposed to attending shareholders' meetings or voting by other means available to shareholders. In practice, the ability of a holder of ADSs to instruct the ADS Depositary as to voting will depend on the timing and procedures for providing instructions to the ADS Depositary, either directly or through the holder's custodian and clearing system.
Under the Natura &Co Holding Deposit Agreement, if you do not provide instructions to the ADS Depositary to vote, the ADS Depositary may give us a discretionary proxy to vote the Natura &Co Holding Shares underlying the ADSs at shareholders' meetings if we have timely provided the ADS Depositary with notice of the meeting and related voting materials and (i) we have instructed the ADS Depositary that we wish a discretionary proxy to be given; (ii) we have informed the ADS Depositary that there is no substantial opposition as to a matter to be voted on at the meeting; and (iii) a matter to be voted on at the meeting would not have a material adverse impact on shareholders.
The effect of this discretionary proxy is that you cannot prevent the underlying Natura &Co Holding Shares represented by the ADSs from exercising voting rights, except under the circumstances described above. This may make it more difficult for holders to influence the management of the company. Holders of shares are not subject to this discretionary proxy.
Share Price & Shareholder Rights - Risk 11
Holders of the ADSs may face difficulties in protecting their interests because we are subject to different corporate rules and regulations than a U.S. company and holders of the ADSs may have fewer and less well-defined rights.Holders of the ADSs are not direct shareholders of Natura &Co Holding and may be unable to enforce the rights of shareholders under our by-laws and Brazilian law, and holders of Natura &Co Holding Shares are generally required under our by-laws to resolve any disputes with us through arbitration. Our corporate affairs are governed by our by-laws and Brazilian law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, or elsewhere outside Brazil. Although insider trading and price manipulation are crimes under Brazilian law, the Brazilian securities markets are not as highly regulated and supervised as the U.S. securities markets or the markets in some other jurisdictions. In addition, rules and policies against self-dealing or for preserving shareholder interests may also be less well-defined and enforced in Brazil than in the United States and certain other countries, which may put holders of the ADSs at a potential disadvantage.
Share Price & Shareholder Rights - Risk 12
The relative volatility and illiquidity of the Brazilian securities markets may adversely affect holders of the Natura &Co Holding Shares and ADSs.Investments in securities, such as our common shares or ADSs, of issuers from emerging market countries, including Brazil, involve a higher degree of risk than investments in securities of issuers from more developed countries. The Brazilian securities market is substantially smaller, less liquid, more concentrated and more volatile than major securities markets in the United States and other jurisdictions and may be regulated differently from the ways familiar to U.S. investors. There is also significantly greater concentration in the Brazilian securities market than in major securities markets in the United States. Although any of the outstanding shares of a listed company may trade on a Brazilian stock exchange, in most cases fewer than half of the listed shares are actually available for trading by the public, the remainder being held by small groups of controlling persons, governmental entities or one principal shareholder. These features may substantially limit the ability to sell the Natura &Co Holding Shares, including the Natura &Co Holding Shares underlying the ADSs, at a price and time at which holders wish to do so.
Our ADSs are not listed on any stock exchange. We cannot assure you that the market for ADSs will maintain sufficient levels of liquidity, which may undermine the selling of the shares and the shares underlying to the ADSs issued by our Company at the desired price or time.
Share Price & Shareholder Rights - Risk 13
Holders of the ADSs may face difficulties in serving process on or enforcing judgments against us and other persons.We are organized under and are subject to the laws of Brazil, and all our directors and executive officers and our independent registered public accounting firm reside or are based in Brazil. Substantially all of our assets and those of these other persons are located in Brazil. As a result, it may not be possible for holders of the ADSs to effect service of process upon us or these other persons within the United States or other jurisdictions outside Brazil or to enforce against us or these other persons judgments obtained in the United States or other jurisdictions outside Brazil. Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if certain conditions are met, our ADS holders may face greater difficulties in protecting their interests due to actions by us or our directors or executive officers than would shareholders of a U.S. corporation.
Share Price & Shareholder Rights - Risk 14
Shareholders could be diluted in the future, which could also adversely affect the market price of Natura &Co Holding Shares and the ADSs.It is possible that Natura &Co Holding may decide to offer additional Natura &Co Holding Shares or the ADSs in the future either to raise capital or for other purposes. If Natura &Co Holding shareholders do not take up such offer of Natura &Co Holding Shares or ADSs or are not eligible to participate in such offering, their proportionate ownership and voting interests in Natura &Co Holding would be reduced. An additional offering could have a material adverse effect on the market price of the Natura &Co Holding Shares and ADSs.
Share Price & Shareholder Rights - Risk 15
No shareholders or group of shareholders holds more than 50% of our voting capital.We do not have a controlling shareholder or a group of control bound by a voting agreement that holds more than 50% of our voting capital. The absence of a controlling shareholder or a controlling group bound by a voting agreement that owns more than 50% of the voting capital may make it difficult to conduct certain decision-making processes, to the extent certain minimum quorums established by law for certain resolutions may not be reached.
Share Price & Shareholder Rights - Risk 16
The interests of our controlling shareholders may conflict with the interests of our other shareholders.Our controlling shareholders have the power to, among other things, appoint the majority of the members of our board of directors and determine the outcome of certain resolutions requiring approval from shareholders, even though they do not hold more than 50% of our voting capital.
The controlling shareholders may also have an interest in making acquisitions, disposals, partnerships, obtaining financing or entering into similar transactions that may conflict with the interests of our other shareholders and, in such cases, the interests of the controlling shareholders may prevail. The exercise by controlling shareholders of voting power or other rights may conflict with the interests of other shareholders and have a material adverse impact on 'our financial condition and business. We cannot assure you that the interests of the controlling shareholders will be aligned with the interests of our other shareholders'. For further information on our controlling shareholders, please see "Item 7. Major Shareholders and Related Party Transactions-A. Major Shareholders."
Share Price & Shareholder Rights - Risk 17
Summary of Risks Relating to the Natura &Co Holding Shares and ADSsThe market price of the Natura &Co Holding Shares and ADSs may be volatile. Shareholders could be diluted in the future, which could also adversely affect the market price of Natura &Co Holding Shares and the ADSs. Holders of the ADSs may face difficulties in protecting their interests because we are subject to different corporate rules and regulations than a U.S. company and holders of the ADSs may have fewer and less well-defined rights. Furthermore, holders of the ADSs may face difficulties in serving process on or enforcing judgments against us and other persons. Judgments of Brazilian courts with respect to our shares will be payable only in reais. Holders of the ADSs may not be able to exercise the preemptive rights relating to the Natura &Co Holding Shares and may also not receive dividends or interest on own capital. As a foreign private issuer, we have different disclosure and other requirements than U.S. domestic registrants.
Holders of the ADSs do not have the same voting rights as our shareholders. Furthermore, due to delays in notification to and by the ADS Depositary, the holders of the ADSs may not be able to give voting instructions to the ADS Depositary or to withdraw the Natura &Co Holding Shares underlying their ADSs to vote such shares in person or by proxy. An exchange of ADSs for shares risks the loss of certain foreign currency remittance advantages. Furthermore, under Brazilian tax law, the disposition of Natura &Co Holding Shares will be subject to Brazilian tax and the disposition of ADSs may also be subject to Brazilian tax.
Accounting & Financial Operations5 | 5.7%
Accounting & Financial Operations - Risk 1
We may experience material weaknesses or significant deficiencies in our internal control over financial reporting in the future or otherwise fail to maintain an effective system of internal controls in the future, as a result of which, we may not be able to accurately report our financial condition or results of operations which may adversely affect investor confidence in us and, as a result, the value of our common stock. In addition, our disclosure controls and procedures over financial reporting may not prevent or detect all errors or acts of fraud.Accounting & Financial Operations - Risk 2
Changes in accounting standards could impact reported earnings.The accounting standard setters and other regulatory bodies periodically change the financial accounting and reporting standards that govern the preparation of our consolidated financial statements. These changes can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retrospectively, resulting in the recast of prior period financial statements.
Accounting & Financial Operations - Risk 3
Our holding company has no business operations of its own and is dependent on our subsidiaries to pay certain expenses and dividends.Our operations are conducted through our subsidiaries. As a result, our ability to make future dividend payments, if any, is dependent on the earnings of our subsidiaries and the payment of those earnings to us in the form of dividends, loans or advances and through repayment of loans or advances from us.
Moreover, our operating subsidiaries may not generate sufficient cash flow to pay dividends or distribute funds to us because, for example, our operating subsidiaries may not generate sufficient cash or net income; local laws may restrict or prohibit our operating subsidiaries from issuing dividends or making distributions unless our operating subsidiaries have sufficient surplus or net profits, which they may not have; or contractual restrictions may prohibit or limit such dividends or distributions.
Accounting & Financial Operations - Risk 4
There can be no assurance that Avon will be able to improve revenue, margins and net income or achieve profitable growth.Added
There can be no assurance that Avon will be able to improve revenue, margins and net income, or achieve profitable growth in the future, particularly in Avon's largest markets and developing and emerging markets. Improving revenue, margins and net income and achieving profitable growth will depend on Avon's ability to improve financial and operational performance and execute Avon's global business strategy, and there can be no assurance that Avon will be able to achieve these goals. Avon's ability to improve could be hindered by competing business priorities and projects.
To improve revenue, margins and net income and achieve profitable growth, Avon also needs to successfully implement certain initiatives, including Open Up & Grow and Avon Integration, and there can be no assurance that Avon will be able to do so. Avon's achievement of profitable growth is also subject to the strengths and weaknesses of Avon's individual international markets, which are or may be impacted by global economic conditions. We cannot assure that Avon's broad-based geographic portfolio will be able to withstand an economic downturn, recession, cost or wage inflation, commodity cost pressures, economic or political instability (including fluctuations in foreign exchange rates), competitive pressures or other market pressures in one or more particular regions.
Failure to improve revenue, margins and net income and to achieve profitable growth could have a material adverse effect on Avon's business, prospects, financial condition, liquidity, results of operations and cash flows, including its ability to continue as a going concern.
Accounting & Financial Operations - Risk 5
Our quarterly financial performance may fluctuate for a variety of reasons, which could have a material adverse effect on our financial performance.Changed
Our quarterly results of operation have fluctuated in the past, and we expect them to continue to fluctuate in the future. A variety of factors affect our quarterly financial performance, including:
global economic and political conditions, including the Russia-Ukraine and Israel-Hamas conflicts, as well as tensions in the Middle East; inflation and government measures to curb inflation, such as increases in interest rates; seasonality; changes in our merchandising strategy or mix; the effectiveness of our inventory management; timing and concentration of new store openings, including additional human resources; requirements and related pre-opening and other start-up costs; cannibalization of existing store sales by new store openings; levels of pre-opening expenses associated with new stores; timing and effectiveness of our marketing activities, such as new products, direct marketing; activity, television and magazine advertisements; actions by our existing or new competitors; general economic conditions and, in particular, the retail sales environment; and store employees' motivation and effectiveness.
Accordingly, our results for any one financial quarter are not necessarily indicative of the results to be expected for any other quarter. In that event, our results of operations may fluctuate significantly.
Debt & Financing5 | 5.7%
Debt & Financing - Risk 1
The relative volatility and the lack of liquidity of the Brazilian securities market may adversely affect you.Added
Debt & Financing - Risk 2
Our indebtedness and any future inability to meet any of our obligations under our indebtedness, could adversely affect us by reducing our flexibility to respond to changing business and economic conditions.As of December 31, 2023, we had R$7.3 billion of indebtedness outstanding (current and non-current borrowings, financing, debentures and leases). We rely on obtaining financing and refinancing of existing indebtedness in order to operate our business, implement our strategy and grow our business. Recent disruptions in the global credit markets and their effect on the global and Brazilian economies could materially adversely affect our ability to raise capital and materially and adversely affect our business. We may also incur additional long-term indebtedness and working capital lines of credit to meet future financing needs, subject to certain restrictions under our indebtedness, which would increase our total indebtedness. We may be unable to generate sufficient cash flow from operations and future borrowings, and other financing may be unavailable in an amount sufficient to enable us to fund our current and future financial obligations or our other liquidity needs, which would have a material adverse effect on our business, prospects, financial condition, liquidity and results of operations as well as reduce the availability of our cash flow to fund working capital, operations, capital expenditures, dividend payments, strategic acquisitions, expansion of our operations and other business activities. Our indebtedness could have material negative consequences on our business, prospects, financial condition, liquidity, results of operations and cash flows, including the following:
limitations on our ability to obtain additional debt financing sufficient to fund growth, such as working capital and capital expenditures requirements or to meet other cash requirements, in particular during periods in which credit markets are weak; a downgrade in our credit ratings; a limitation on our flexibility to plan for, or react to, competitive challenges in our business and the beauty industry; the possibility that we are put at a competitive disadvantage relative to competitors with less debt or debt with more favorable terms than us, and competitors that may be in a more favorable position to access additional capital resources and withstand economic downturns; limitations on our ability to execute business development activities to support our strategies or ability to execute restructuring as necessary; and limitations on our ability to invest in recruiting, retaining and servicing our consultants and representatives.
Natura &Co Holding, Natura Cosméticos and Avon may also need to refinance all or a portion of their respective debt on or before maturity and may not be able to do this on commercially reasonable terms or at all. Certain of our indebtedness contain customary covenants, including, among other things, limits on the ability of the company and any restricted subsidiary to, subject to certain exceptions, incur liens, incur debt, make restricted payments, make investments or, with respect to certain entities, merge, consolidate or dispose of all or substantially all of its assets. In addition, we could have difficulty undertaking other alternatives to avoid noncompliance, such as obtaining necessary waivers from compliance with, or necessary amendments to, the covenants contained in our notes or repurchasing certain debt, and we could have difficulty addressing the impact any noncompliance with these covenants may have on our ability to secure financing with favorable terms.
The global economy has experienced significant disruptions in supply chains and reductions in international trade and business activity over the last few years as a result of geopolitical, economic and social crises.?These factors have been compounded by ongoing conflicts around the world, such as the Russia-Ukraine and Israel-Hamas conflicts, as well as tensions in the Middle East. Substantial volatility in the global capital markets, unavailability of financing in the global capital markets at reasonable rates and credit market disruptions have had a significant negative impact on financial markets, as well as on the global and domestic economies. In particular, the cost of financing in the global debt markets has increased substantially, greatly restricting the availability of funds in such markets. Further, volatility in the markets has led to increased costs for obtaining financing in the credit markets, as many creditors have raised interest rates, adopted more rigorous loan policies, reduced volume and, in some cases, ceased offering financing on standard market terms. If we are unable to obtain new financing or to refinance existing loans when necessary or obtain or renew insurance guarantees on reasonable terms or at all, we may face difficulties in complying with our financial obligations or explore business opportunities. This possible scenario would have a material adverse effect on our business, financial condition and results of operations.
Debt & Financing - Risk 3
Achieving sustainability performance targets linked to certain of our indebtedness may require us to expend significant resources, while not meeting any such targets would result in increased interest payments on our debt and could expose us to reputational risks.Certain of our indebtedness is linked to sustainability performance targets. Achieving these targets will require us to reduce our greenhouse gas emissions and increase our use of post-consumer recycled plastic. Therefore, pursuing such sustainability performance targets or any similar sustainability performance targets we may choose to include in future financings or other arrangements will require us to expend significant resources. In addition, if we do not achieve our sustainability performance targets or any such similar sustainability performance targets we may choose to include in any future financings, it would not only result in increased interest payments under the relevant indebtedness, but could also harm our reputation, the consequences of which could, in each case, have a material adverse effect on us, our business prospects, our financial condition or our results of operations.
Debt & Financing - Risk 4
Any further downgrading of Brazil's credit rating could reduce the trading price of our securities.We may be adversely affected by investors' perceptions of risks related to Brazil's sovereign debt credit rating. Rating agencies regularly evaluate Brazil and its sovereign ratings, which are based on a number of factors including macroeconomic trends, fiscal and budgetary conditions, indebtedness metrics and the perspective of changes in any of these factors. Brazil's sovereign credit rating is currently rated below investment grade by the three main credit rating agencies. Consequently, the prices of securities issued by Brazilian companies have been negatively affected. A prolongation or worsening of the current Brazilian recession and continued political uncertainty, among other factors, could lead to further ratings downgrades. Any further downgrade of Brazil's sovereign credit ratings could heighten investors' perception of risk and, as a result, cause the trading price of our securities to decline.
Debt & Financing - Risk 5
Our proprietary financial services platform, "Natura &Co Pay", involves a number of risks.Changed
Our proprietary financial services platform, which is intended to improve the businesses of consultants and representatives, Natura &Co Pay, focuses on providing customized services to our consultants and representatives. Natura &Co Pay acquired a white label platform whose application and back-end programming interface integration depended on third parties for regulatory approvals and financial services. We are subject to the risks inherent in the design, implementation, expansion and support process, which could compromise the delivery of the expected benefits and results, such as, but not limited to:
reliance on certain strategic partners to operate part of our services; difficulties in integrating information technology, communications and other systems; changes in applicable laws and regulations; complexity of regulatory standards applicable to the different geographies in which we operate our business; failure to comply with applicable sectoral regulations, including data protection legislation in the countries where Natura &Co Pay operates; an adverse macroeconomic environment for the launch of new credit products; need for significant investments associated with the implementation, expansion, and ongoing updates to the platform; failure to design and implement an ideal group corporate structure; unforeseen expenses or delays, including delays to obtain applicable licenses and permits; difficulties in implementing internal controls over financial reporting consistently across all our businesses; lack of people with the necessary expertise to operate in a new and specific business segment; difficulties in establishing partnerships to expand the platform to new brands and regions; failure to create a corporate culture based on risk management and governance; cyberattacks and failures in information security controls that could result in improper access to sensitive data and noncompliance with Brazilian Central Bank regulations; increase in fraud due to an increase in the volume of financial transactions processed after obtaining the regulatory license to operate as a financial institution; delays in obtaining applicable licenses and authorizations; and other risks inherent to new business ventures.
The levels of satisfaction and engagement of our consultants and representatives may be adversely affected if the platform is not successfully implemented. Any such developments could adversely affect our ability to attract and retain our consultants and/or representatives. If we are unable to structure, implement, expand and sustain the initiative, our business, financial condition and results of operations may be adversely affected.
Corporate Activity and Growth7 | 8.0%
Corporate Activity and Growth - Risk 1
We may not be able to identify and acquire new acquisition targets, or realize the benefits of business divestitures, or otherwise meet our strategic and financial goals in connection with any business acquisitions and divestitures we seek to undertake, and difficulties in effectively integrating and managing a growing number of acquisitions, or separating from divested businesses, may adversely affect our strategic objectives.Corporate Activity and Growth - Risk 2
We may not be able to execute our long-term strategy, particularly with respect to sourcing a sufficient volume and variety of products at competitive prices or adequately managing our supply of inventory, which could have a material adverse effect on us.Achieving our long-term strategy will require investment in new capabilities, categories, distribution channels, supply chain facilities, technologies and emerging markets, including China. These investments may result in short-term costs without associated current sales and, therefore, may be dilutive to our earnings. In addition, we may dispose of or discontinue select products or streamline operations and incur costs or restructuring and other charges in doing so. Although we believe that our strategy will lead to long-term growth in sales and profitability, we may not realize the anticipated benefits. The failure to realize benefits, which may be due to our inability to execute plans, global or local economic conditions, competition, changes in the premium beauty and personal care industry and the other risks described herein, could adversely affect our business, financial condition and results of operations.
Furthermore, the operation of our business is dependent on our ability to strategically source a sufficient volume and variety of products at competitive prices. In addition, we may significantly overstock low-acceptance products and be forced to take significant markdowns. We cannot assure you that we will be able to identify the appropriate customer demand and take advantage of appropriate buying opportunities, which could have a material adverse effect on our business and financial results. In addition, overstocked goods in our distribution centers may become obsolete or their validity may expire during the time it takes to be sold to our clients. In addition, the improper handling of products may result in their breakage or malfunctioning. Further, if we or any third-party warehousing provider engaged by us fail to store our inventory at optimal conditions, such as at optimal temperatures and humidity levels, the quality and shelf life of our products may be adversely affected, and we may as a result suffer damage to our reputation, which may adversely affect our results of operation.
Corporate Activity and Growth - Risk 3
Our franchise business model, "Aqui tem Natura," is subject to a number of risks.Added
We offer consultants with an entrepreneurial profile and a high sales volume the opportunity to launch a Natura franchise store (under our "Aqui tem Natura"), thereby becoming Beauty Entrepreneurs.
Our success increasingly relies on the financial success and cooperation of franchisees, yet we have limited influence over their operations. Our margins from physical retail stores arise from two primary sources: fees from franchised stores (e.g., rent and royalties based on a percentage of sales, as well as the revenues from products we sell to our franchisees) and, to a lesser degree, sales from company-operated stores. Our franchisees manage their businesses independently, and therefore are responsible for the day-to-day operation of their stores. The revenues we realize from franchised stores are largely dependent on the ability of our franchisees to grow their sales. If our franchisees do not experience sales growth, our revenues and margins could be negatively affected as a result. Also, if sales trends worsen for franchisees, their financial results may deteriorate, which could result in, among other things, store closures or delayed increase bad debts from non-payment in markets seriously affected by the global pandemic, or reduced payments to us, or disruption to head franchisee ordering pattern. Our refranchising effort will increase that dependence and the effect of those factors.
Our success also increasingly depends on the willingness and ability of independent franchisees to implement major initiatives, which may include financial investment, and to remain aligned with us on operating, promotional and capital-intensive reinvestment plans. We may also be negatively impacted to the extent franchisees terminate their franchise contracts. Franchisees' ability to contribute to the achievement of our plans is dependent in large part on the availability to them of funding at reasonable interest rates and may be negatively impacted by the financial markets in general or by the creditworthiness of our franchisees or us. Our operating performance could also be negatively affected if our franchisees experience operational problems or project an image inconsistent with our brand and values, particularly if our contractual and other rights and remedies are limited, costly to exercise or subjected to litigation. If franchisees do not successfully operate stores in a manner consistent with our required standards, the image and reputation of our brands could be harmed, which in turn could materially adversely affect our business and operating results.
Corporate Activity and Growth - Risk 4
Avon may experience financial and strategic difficulties and delays or unexpected costs in completing Open Up & Grow and Avon Integration and any other restructuring and cost-saving initiatives, including achieving any anticipated savings and benefits of these initiatives.Changed
Subsequent to the merger of Natura &Co and Avon in January 2020, an integration plan (the "Avon Integration") was established to create the right global infrastructure to support the future ambitions of the Natura &Co Group while also identifying opportunities to leverage the combined strength, scale and reach of Natura &Co and Avon. In addition, since 2018, Avon has sought to take steps to improve its business, financial condition and results of operations through the "Open Up Avon" and, since 2020, the "Open Up & Grow" initiatives.
As of the date of this annual report, Avon has not realized the anticipated savings or benefits of these initiatives. In addition, Avon may not realize anticipated savings or benefits from one or more of the various restructuring and cost-saving initiatives it may undertake as part of these efforts in full or in part or within the time periods expected. Other events and circumstances, such as financial and strategic difficulties and delays or unexpected costs, including the impact of foreign currency and inflationary pressures, may occur which could result in Avon's not realizing its targets or in offsetting the financial benefits of reaching those targets. If Avon is unable to realize these savings or benefits, or otherwise fails to invest in the growth initiatives, Avon's business may be adversely affected. In addition, any plans to invest these savings and benefits ahead of future growth means that such costs will be incurred whether or not Avon realizes these savings and benefits. Avon is also subject to the risks of labor unrest, negative publicity and business disruption in connection with these initiatives, and the failure to realize anticipated savings or benefits from such initiatives could have a material adverse effect on Avon's business, prospects, financial condition, liquidity, results of operations and cash flows.
Corporate Activity and Growth - Risk 5
We may face challenges in developing our multichannel strategy and expanding our operations to e-commerce.Changed
The coordinated operation of our network of physical stores and e-commerce platforms across multiple brands is fundamental to the success of our multichannel strategy. We plan to continue our investments in digital growth to empower consultants to sell online, as well as enhance our digital tools to foster social media sales and welcoming new online customers. If we are unable to align and integrate the strategies of our multiple sales channels, or if our respective sales channels compete against each other, we may be unable to fully benefit from the advantages that an multichannel which may materially adversely affect us.
Also, consumers are increasingly embracing online shopping and mobile commerce applications. We expect a greater portion of total consumer expenditures with retailers and wholesalers to occur online and through mobile commerce applications. If we fail to maintain or grow our overall market position through the integration of our physical retail presence and e-commerce platform across our brands, including our efforts to replace our temporarily closed stores sales by online sales, our net revenue and financial performance could be adversely affected. In addition, a greater concentration of retail and wholesale sales in online and mobile commerce sales could result in a reduction in the amount of traffic we have in our physical stores, once those stores are reopened.
Conditions in the online sales market could also change rapidly and significantly as a result of technological advances. New start-up companies that innovate and large competitors that are making significant investments in e-commerce may create similar or superior e-commerce platforms and technologies that will be disruptive both to our e-commerce and the operations of our physical stores.
As we continue expanding our e-commerce operations across our brands, we will continue to face risks associated with online businesses. In addition, we may continue to pursue strategies within e-commerce that our brands have not utilized before, and we may expand into e-commerce in countries and jurisdictions in which we have less experience and in which our brands may be less well-known by customers. We may be unable to attract a sufficient number of customers and other participants, fail to anticipate competitive conditions or face difficulties in operating effectively across all of our channels and business formats, and could also be the target of illegal and fraudulent uses of our e-commerce platforms. Accordingly, any efforts to expand our e-commerce operations may not be successful, which could limit our ability to grow our revenue, net income and profitability, adversely affecting our results of operations. See "Item 4. Information on the Company-B. Business Overview-Our Distribution Processes."
Corporate Activity and Growth - Risk 6
The success of our brand management strategy depends on our ability to foresee, evaluate and react effectively to changes in the spending levels of consumers and their preferences regarding beauty and other products.Added
Our competitiveness depends in part on the successful creation of new products, as well as on consumer satisfaction and preferences in line with market trends. Consumer preferences and trends may change due to a variety of factors, such as changes in demographic trends, changes in the characteristics and ingredients of products, new market trends, climate, negative publicity from lawsuits against us or our peers, or a weak economy in one or more of the markets in which we operate. In addition, consumers may switch to our competitors' products, or the demand for products in our segment as a whole could decline. If we are unable to anticipate changes in consumer preferences and trends, our business, financial condition and results of operations could be materially adversely affected.
Corporate Activity and Growth - Risk 7
The expected benefits from operating as a combined enterprise with Avon may not be achieved and we may face challenges with integration.The success of the Transaction will depend, in part, on the ability of Natura &Co and Avon to realize the expected benefits from integrating their respective operations. No assurance can be given that Natura &Co and Avon will be able to integrate their respective operations without encountering difficulties, which may include, among other things, the loss of key employees, diversion of management attention, the disruption of our respective ongoing businesses or possible inconsistencies in standards, procedures and policies. Additionally, Natura &Co and Avon may be required to make unanticipated capital expenditures or investments in order to maintain, integrate, improve or sustain our operations. Integrating our respective operations may involve additional unanticipated costs and financial risks, such as the incurrence of unexpected write-offs, the effect of adverse tax and accounting treatments and unanticipated or unknown liabilities relating to Natura &Co or Avon.
The difficulties of combining the operations of the companies include, among others:
managing a significantly larger company; coordinating geographically separate organizations; the potential diversion of management focus and resources from other strategic opportunities and from operational matters; aligning and executing our strategy after the Transaction; retaining existing consultants and representatives and attracting new consultants and representatives; retaining existing customers and attracting new customers; maintaining employee morale and retaining key management and other employees; integrating two unique business cultures, which may prove to be incompatible;the possibility of faulty assumptions underlying expectations regarding the integration process; consolidating corporate and administrative infrastructures and eliminating duplicative operations; coordinating distribution and marketing efforts; integrating information technology, communications and other systems; changes in applicable laws and regulations; managing tax costs or inefficiencies associated with integrating our operations after the Transaction; unforeseen expenses or delays associated with the Transaction; and taking actions that may be required in connection with obtaining regulatory approvals.
All of these factors could decrease or delay the expected accretive effect of the Transaction. Even if Natura &Co and Avon's respective operations are successfully integrated, we may not realize the full benefits of the Transaction, including the estimated synergies, cost savings and growth opportunities, within the expected time frame of five years, if at all. Natura &Co and Avon continue to evaluate the estimates of synergies to be realized from the Transaction. However, the actual cost savings, the costs required to realize the cost savings and the source of the cost savings could differ materially from the estimates of Natura &Co and Avon.
In addition, as a result of global political and economic factors, such as the ongoing conflicts between Russia and Ukraine, and between Israel and Hamas, as well as tensions in the Middle East, have resulted in significant volatility, uncertainty and economic disruption, which may materially and adversely affect our plans to integrate with Avon and our results of operations, cash flows and financial position.
Legal & Regulatory
Total Risks: 15/87 (17%)Above Sector Average
Regulation5 | 5.7%
Regulation - Risk 1
Natura &Co Holding is a foreign private issuer and, as a result, we rely on certain home country governance practices from Brazil.Changed
Regulation - Risk 2
If we do not successfully comply with laws and regulations designed to prevent corruption in countries in which we operate, we could become subject to fines, penalties or other regulatory sanctions and our reputation, sales and profitability could suffer.Changed
Doing business on a worldwide basis requires us to comply with the laws and regulations of various jurisdictions. In particular, our international operations are subject to anti-corruption laws and regulations, such as, among others, the U.S. Foreign Corrupt Practices Act, or the FCPA, the UK Bribery Act, Law No. 12,846/2013, or the Brazilian Anti-Corruption Law, 12,846/2013, and economic and trade sanctions, including those administered by the United Nations, the EU, the Office of Foreign Assets Control of the U.S. Department of the Treasury and the U.S. Department of State.
The FCPA prohibits providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper business advantage. We may deal with both governments and state-owned business enterprises, the employees of which are considered foreign officials for purposes of the FCPA. The provisions of the UK Bribery Act extend beyond bribery of foreign public officials and are more onerous than the FCPA in a number of other respects, including jurisdiction, non-exemption of facilitation payments and penalties. Economic and trade sanctions restrict our transactions or dealings with certain sanctioned countries, territories and designated persons. Any breach thereof may have a material adverse effect on our business, including the acceleration of loans and financing.
As a result of doing business in foreign countries, including through partners and agents, we are exposed to a risk of violating anti-corruption laws and sanctions regulations. Some of the international locations in which we operate have developing legal systems and may have higher levels of corruption than more developed nations. Our continued expansion and worldwide operations, including in developing countries, its development of joint venture relationships worldwide and the employment of local agents in the countries in which we operate increases the risk of violations of anti-corruption laws and economic and trade sanctions. Violations of anti-corruption laws and economic and trade sanctions are punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts (and termination of existing contracts) and revocations or restrictions of licenses, as well as criminal fines and imprisonment. In addition, any major violations could have a significant impact on our reputation and consequently on our ability to win future business.
The Brazilian Anti-Corruption Law imposes strict liability, in both the administrative and civil spheres, on companies for acts of corruption (such as (i) promising, offering or giving, directly or indirectly, any improper advantage to a public official or related party, (ii) financing, sponsoring, funding or in any way subsidizing the commission of illicit acts against the public administration ; (iii) using of an intermediary to conceal or disguise the real interests or the identity of the beneficiaries of the illegal acts performed), (iv) fraud or manipulation of public tenders and government contracts; and (v) and interference with investigations or inspections by governmental authorities. Companies found liable under the Brazilian Anti-Corruption Law face fines of up to 20% of their gross revenue in the immediately preceding year or, if such annual gross revenue cannot be estimated, such fines may range from R$6 thousand to R$60 million.
Among other sanctions, the Brazilian Anti-Corruption Law also provides for the seizure of assets or benefits obtained illegally, the suspension or partial prohibition of operations, the compulsory dissolution of the entity and/or the prohibition to receive incentives, subsidies, donations or financing from the government or from government-controlled entities for up to five years. Other relevant laws applicable to corruption-related violations, such as the Brazilian Administrative Improbity Law (Law No. 8,429/1992, as recently amended by Law No. 14,230/2021), also provide for penalties that include the prohibition to enter into government contracts for up to 14 years. The company sanctioned under the Brazilian Anti-Corruption Law or the Administrative Improbity Law, among others, can also be included in a registry of sanctioned, suspended and impeded companies.
There can be no assurance that policies and procedures will be followed at all times or will effectively detect and prevent violations of our ethical principles and of the applicable laws by our employees, consultants and representatives, agents, partners or any third parties acting in name, interest or benefit of the combined company and, as a result, we could be subject to sanctions and material adverse consequences on our business, reputation, financial condition and/or results of operations.
Regulation - Risk 3
Restrictions on credit availability to consumers may adversely affect the sales volumes of certain of our subsidiaries.Sales in installments account for a portion of the results of operations of retail companies in a number of countries in which we operate. An increase in the unemployment rate, combined with high interest rates to consumers, may result in increased restrictions on the availability of credit to consumers generally. Our sales volumes and, consequently, the result of operations of certain of our subsidiaries may be adversely affected if credit availability to consumers decreases, or if government policies are introduced that further restrict the granting of credit to consumers.
Governments may introduce from time to time regulations designed to regulate the availability of credit in order to reduce or increase consumption and, consequently, to control the rate of inflation. We cannot assure you that in the future the governments in the countries in which we operate will not adopt new regulations that reduce the access of our customers to credit from financial institutions.
In addition to providing for sales in installments, we may also extend other forms of credit to customers. Any form of lending carries a risk that our customers may not repay the credit we extend to them. An increase in the unemployment rate, an increase in interest rates, or a protracted economic downturn may further reduce the likelihood of repayment by our customers, which could require us to suffer losses and raise the rates we charge in connection with certain products. Any increase in interest rates by us may decrease the likelihood that customers will be able to take on debt to purchase our products.
Reductions in credit availability and more stringent credit policies by us and credit card companies (as well as increased interest rates) may negatively affect sales of certain of our subsidiaries. Unfavorable economic conditions globally that impact the economy of the countries in which we operate, may significantly reduce available income and consumer expenditure, particularly in the lower income classes, who have relatively less credit access than higher income classes, more limited debt refinancing conditions and are more susceptible to increases in the unemployment rate. These conditions may cause a material adverse effect on our sales, our business and our results of operations.
Regulation - Risk 4
Changes in the legal status of consultants, business leader sales consultants and representatives could adversely affect our operating results.The consultants, business leader sales consultants and representatives who work with us are not our employees. However, governments in the countries in which we operate could enact laws or regulations or interpret existing laws or regulations in such a way that could characterize consultants, business leader sales advisers and representatives as employees or otherwise oblige us to make social security contributions or other employment-related contributions on their behalf. Any changes in law or unfavorable court decisions that find the existence of an employment relationship or result in our obligation to make social security contributions or other employment-related contributions for our consultants, business leader sales consultants and representatives would result in substantial additional costs that could result in a need for us to restructure our business and materially adversely affect our financial condition and operating results. For further information on the legal status of our consultants and representatives, please see "Item 4. Information on the Company-B. Business overview-Government Regulation-Legal status of our consultants and business leader sales consultants."
Regulation - Risk 5
Changes in existing laws and regulations and/or the imposition of new laws, regulations, restrictions and/or other entry barriers may cause us to incur additional costs to comply with the more stringent rules and/or limit our ability to expand, which could slow down our product development efforts, limit our growth and development and have an adverse impact on our financial position.We are subject to compliance with various laws and regulations relating to cosmetic products and general consumer protection and product safety in the jurisdictions in which we sell our products. These rules principally set out requirements for the composition, testing, labeling and packaging of our products. Failure to comply with these rules may result in the imposition of conditions on or the suspension of sales or seizure of our products, significant penalties or claims and, in some jurisdictions, criminal liability. In the event that the countries in which we sell our products increase the stringency of such laws and regulations, our production and distribution costs may increase, and we may be unable to pass these additional costs on to our customers. In the event that any such change in law or regulations requires that we obtain a license or permit for our operations, we may be unable to obtain or, if obtained, maintain such license or permit, which may result in a temporary or permanent suspension of some or all of our business activities, which could disrupt our operations and adversely affect our business. Further, in the event that any jurisdiction in which we operate or plan to operate imposes any new laws, regulations, restrictions and/or other barriers to entry, our ability to expand may be thereby limited and our growth and development may be adversely affected.
Litigation & Legal Liabilities3 | 3.4%
Litigation & Legal Liabilities - Risk 1
We are involved, and may become involved in the future, in legal proceedings that, if adversely adjudicated or settled, could adversely affect our financial resultsLitigation & Legal Liabilities - Risk 2
Government reviews, inquiries, investigations, and actions could harm our business or reputation. In addition, from time to time we may conduct other investigations and reviews, the consequences of which could negatively impact our business or reputation.As we operate in various locations around the world, our operations in certain countries are subject to significant governmental scrutiny and may be harmed by the results of such scrutiny. The regulatory environment with regard to direct selling in emerging and developing markets where we do business is evolving, and government officials in such locations often exercise broad discretion in deciding how to interpret and apply relevant regulations. From time to time, we may receive formal and informal inquiries from various government regulatory authorities about our business and compliance with local laws and regulations. In addition, from time to time, we may conduct investigations and reviews. The consequences of such government reviews, inquiries, investigations, and actions or such investigations and reviews may adversely impact our business, prospects, reputation, financial condition, liquidity, results of operations or cash flows.
Additionally, any determination that our operations or activities, or, where local law mandates, the activities of the representatives, including our licenses or permits, importing or exporting, or product testing or approvals are not, or were not, in compliance with existing laws or regulations could result in the imposition of substantial fines, civil and criminal penalties, interruptions of business, loss of supplier, vendor or other third-party relationship, termination of necessary licenses and permits, modification of business practices and compliance programs, equitable remedies, including disgorgement, injunctive relief and other sanctions that we may take against our personnel or that may be taken against us or our personnel. Other legal or regulatory proceedings, as well as government investigations, which often involve complex legal issues and are subject to uncertainties, may also follow as a consequence. Further, other countries in which we do business may initiate their own investigations and impose similar sanctions. These proceedings or investigations could be costly and burdensome to our management, and could adversely impact our business, prospects, reputation, financial condition, liquidity, results of operations or cash flows. Even if an inquiry or investigation does not result in any adverse determinations, it potentially could create negative publicity and give rise to third-party litigation or action.
Litigation & Legal Liabilities - Risk 3
We may be held liable for losses or damage caused by our products or services to consumers, which may adversely affect our results.We may be held liable under consumer protection and other laws applicable in the markets in which we operate for losses or damage caused by our products or services to consumers. Consumer protection laws typically favor consumers over suppliers or retailers. In Brazil, for example, consumer laws are strict and place the burden of proof on suppliers. Furthermore, in Brazil and in other markets in which we operate, consumer defense claims may be filed individually or as collective actions, and the latter can often be filed on behalf of consumers by consumer protection associations or governmental authorities (in Brazil for example such claims can be initiated by the Consumer Protection and Defense Foundation (Procuradoria de Proteção e Defesa do Consumidor) and the applicable Public Prosecutor's Office).
In the event that we are found to be liable in a lawsuit or administrative proceeding, and are forced to indemnify consumers, this could have a material adverse effect on our business, reputation, brand, operating condition and finances, cash flow and profitability.
Furthermore, our defense in these legal proceedings could lead to additional costs in time and substantial attention from our administrative and technical personnel. In addition, the negative publicity associated with our products or services, including defects, errors, failings (including accidents) and poor quality could adversely affect our reputation with current and future consumers and our corporate image and brands, which could have an adverse effect on our business and financial condition.
The consumer defense code also establishes joint and several liability for defects of quantity in a product and establishes that companies belonging to the same business group, as well as controlled companies have subsidiary liability for obligations within the scope of consumer law, which shows that the hypotheses of liability involving consumers are broad.
Taxation & Government Incentives3 | 3.4%
Taxation & Government Incentives - Risk 1
Under Brazilian tax law, the disposition of Natura &Co Holding Shares will be subject to Brazilian tax and the disposition of ADSs may also be subject to Brazilian tax.Taxation & Government Incentives - Risk 2
Changes in taxes and other assessments may adversely affect us.The legislatures and tax authorities in the tax jurisdictions in which we are subject to tax regularly enact reforms to the tax and other assessment regimes to which we, our consultants and representatives, and our customers are subject. Such reforms include changes in tax rates and, occasionally, enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes. In addition, the interpretation of tax laws by courts and taxation authorities is constantly evolving. The effects of these changes and any other changes that result from enactment of additional tax reforms or changes to the manner in which current tax laws are applied cannot be quantified and there can be no assurance that any such reforms or changes would not have an adverse effect upon our business directly or indirectly (e.g., by affecting the business of our consultants and representatives).
Brazil, where most of our operations are conducted, recently passed a major tax reform. The transition to the new Brazilian tax system will be gradual, with implementation scheduled to start in 2026 and end in 2033. The exact impact of this reform on us cannot yet be quantified because although the legislation already details changes to tax bases, rates and general obligations, some elements of it remain to be finalized. Nevertheless, everything indicates that the single-phase taxation of federal taxes will be abolished, resulting in an increase in the Brazilian federal tax burden. We cannot assure you that we will not suffer a material adverse effect on our business, financial condition and results of operations, whether directly or indirectly (for example, by affecting the business of our consultants and representatives). In addition, the legislation passed remains subject to potential amendments which may further increase the tax burden on us.
The Brazilian Congress has also been discussing proposals for change to the corporate income tax. These potential amendments to Brazilian tax laws and other potential changes to Brazilian tax laws may result in an increase of the tax burden and may directly or indirectly impact our business. These and any other possible future changes in tax policy laws in the countries where we are subject to tax may adversely affect our business, financial condition and results of operations.
Taxation & Government Incentives - Risk 3
Natura &Co Holding and its subsidiaries are subject to tax laws of numerous jurisdictions, and the interpretation of those laws is subject to challenge by the relevant governmental authorities.Natura &Co Holding and its subsidiaries are subject to tax laws and regulations in Brazil, the United States and the numerous other jurisdictions in which Natura &Co Holding and its subsidiaries operate. These laws and regulations are inherently complex, and Natura &Co Holding and its subsidiaries will be obligated to make judgments and interpretations about the application of these laws and regulations to Natura &Co Holding and its subsidiaries and their operations and businesses. The interpretation and application of these laws and regulations could be challenged by the relevant governmental authorities, which could result in administrative or judicial procedures, actions or sanctions, which could be material.
Environmental / Social4 | 4.6%
Environmental / Social - Risk 1
Our business could be negatively impacted by social impact and sustainability matters.Environmental / Social - Risk 2
Changes in environmental laws and regulations can adversely affect our business, including our capacity to develop new products.Our operations are subject to strict environmental laws at the national, sub-national and municipal levels, including regulations related to water consumption, solid waste, biodiversity protection and gas emissions, among others. In addition, we require permits and licenses to carry out certain of our activities. If we fail to comply with these laws and regulations or obtain the required permits and licenses, we could be subject to fines and other sanctions including the cancellation of our permits and licenses and we and our executive officers and directors could be subject to criminal sanctions. Certain environmental licenses and permits that we require to carry out some of our activities are in the process of being obtained or renewed, and we cannot assure you that we will be able to obtain or renew such licenses. We may have to incur in expenses related to remedial environmental measures or suspend certain of our operations until remedial measures are taken. Government agencies or other authorities may also enact new rules and regulations that are more restrictive or may interpret existing laws and regulations more restrictively, which could result in additional expenses related to compliance with environmental laws and regulations, which in turn, could adversely affect our business, financial condition and results of operations.
In particular, environmental rules and regulations could become more restrictive in areas related to our activities, including with regard to climate change (greenhouse gas emission standards), solid waste (targets for return of packaging to us and its recycling after use by consumers) and water resources (payments by companies for use of water), among other issues.
Our innovation strategy is mainly based on using the biodiversity of the Pan-Amazon region. This critical element of our strategy could be impaired if new laws or regulations, or different interpretations of existing laws, further restrict the use of Brazil's natural resources or the associated traditional knowledge, potentially increasing our research and development costs. The biodiversity protection rules set forth in the UN Convention on Biological Diversity, in the Nagoya Protocol (ratified in August 2020 in Brazil) on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits Arising from their Utilization and in applicable laws represents additional costs and challenges to our research and development initiatives. In the future, these rules could become stricter, increasing our innovation and product launch costs. These changes could adversely affect our business, financial condition and results of operations, as well as our image as a company that creates, among others, products developed from the natural resources found in Brazil's vast ecosystems.
See also "-Climate change can create transition risks, physical risks and other risks that could adversely affect us."
Environmental / Social - Risk 3
Our business is subject to several laws and regulations in various jurisdictions governing data privacy and security.We collect, use and store personal data from our employees, consultants or representatives, customers and other third parties in the ordinary course of business. We are required to comply with increasingly complex and changing data privacy and security laws and regulations governing the collection, storage, use, transmission and, generally, processing of personal information and other data, including in regard to the cross-border transfer of personal data between countries. In May 2018, the EU adopted robust data privacy regulations under the General Data Protection Regulation, or "GDPR." Further changes are likely to be introduced through a revised Regulation on Privacy and Electronic Communications, or the ePrivacy Regulation. The GDPR in particular has broad extraterritorial effect and imposes a robust data protection compliance regime with significant penalties for noncompliance. Other countries in which we operate are developing comparable regulations. Brazil has approved the Brazilian Federal Law No. 13,709/2018, known as the Brazilian General Data Protection Law (Lei Geral de Proteção de Dados Pessoais), or "LGPD," which is broadly equivalent to GDPR and came into force in September 2020, except for the applicability of the law's administrative sanctions, which came into force on August 1, 2021, as provided by Brazilian Federal Law No. 14,010/2020.
In general, data privacy rules, such as the GDPR, LGPD and other local privacy laws, require continuous adaptation of our technologies or practices to satisfy local privacy requirements and security standards. We may also face audits or investigations by one or more domestic or foreign government agencies relating to our compliance with these regulations. An adverse outcome under any such investigation or audit could result in the issuance of investigations, enforcement action, stop-processing orders, subjecting us to potential penalties, financial, litigation and reputational harm.
The LGPD applies to all operations related to any form of processing of personal data, with rare exceptions, all of which are provided for by law, and extends to individuals and public and private entities, regardless of the country where they are based or where the data are hosted. LGPD shall be applicable whenever (i) the data processing occurs in Brazil; (ii) the data processing activity is intended to offer or provide goods or services to or process data from individuals located in Brazil; or (iii) the data subjects are in Brazil at the time their personal data is collected.
'Also, the expanding regulatory landscape with respect artificial intelligence, or AI, could lead to additional compliance costs, regulatory complexity, restrictions on the development and implementation of AI technologies, potential legal disputes and damage to our' reputation in the event of noncompliance. We cannot assure you that we will be successful in mapping, measuring, and managing AI risks within our Company, or to adequately comply with any AI-related regulation.
Security incidents can also result in misappropriation of our information and/or our customers' information or affect our servers or operations, which can materially and adversely affect us. In the event of a security incident in our systems that results in leakage, misappropriation, loss or unauthorized access to personal data, deletion or modification of information about our customers, service blocking or other interruption of business operations, we may by subject to (i) the abovementioned regulatory penalties, (ii) damage to our reputation causing us to lose existing or potential customers and strategic partnerships, and (iii) adverse effects on our business, impacting our operating and financial results. Any loss of intellectual property, trade secrets or other sensitive business information or the interruption of our operations may additionally adversely affect our financial results and our reputation.
We may be exposed to cyberattacks, malicious software, crashes and other problems that may unexpectedly interfere with our operations and may result in interruptions, delays, loss of data or inability to operate, and failures in network security controls. Any interruption in our systems could have a material adverse effect on our business or generate financial losses.
The scope of data privacy and data protection regulations continues to evolve and to require more transparency and accountability from companies which collect, process and use data. Part of this development is a response to increasing regulatory and consumer concerns, and we believe it is likely to continue across the jurisdictions in which we operate. Compliance with data privacy and security restrictions could increase the cost and complexity of our operations and failure to comply with such restrictions could subject us to criminal and civil sanctions as well as other penalties.
Environmental / Social - Risk 4
Unauthorized disclosure of sensitive or confidential customer information or our failure or the perception by our customers that we failed to comply with privacy laws or properly address privacy concerns could materially harm our business and standing with our customers.We collect, store, process and use personal information and other customer data in our business. A significant risk associated with our business and communications in general is the secure transmission of confidential information over public networks. The perception of privacy concerns, whether or not valid, may adversely affect us. We also collect and process a considerable volume of employee, consultant/representative and customer related information, including health related, ethnicity, race, and biometric data and other categories of personal data. These data are considered, in Brazil as well as in international legislation on data protection, to be sensitive personal data and subject to a stricter legal regimen and regulation. We are required to ensure that any processing, collection, use, storage, dissemination, transfer and disposal of data for which we are responsible comply with relevant data protection and privacy laws. Furthermore, the protection of our customers', employees', business partners` and company's data is critical to us, as, for example, currently, a number of our customers authorize us to bill their credit card accounts directly. We rely on commercially available systems, software, tools and monitoring to provide secure processing, transmission and storage of confidential information, such as credit card and other personal information.
A significant risk associated with our business and communications in general is the secure transmission of confidential information over public networks. Our facilities and systems, either of our e-commerce platform or our physical stores, as well as those of our third-party service providers, may be vulnerable to security breaches, fraud, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors, or other similar events. Any security breach, or any perceived failure involving the misappropriation, loss or other unauthorized disclosure of confidential information, as well as any failure or perceived failure to comply with laws, policies, legal obligations or industry standards regarding data privacy and protection, whether by us or vendors in our online marketplace platform, could damage our reputation, expose us to litigation risk and liability, subject us to negative publicity, disrupt our operations and harm our business. We cannot provide assurance that our security measures will prevent security breaches or that failure to prevent them will not have a material adverse effect on us.
Recently, the progress of artificial intelligence, or AI, has resulted in a significant increase in data privacy challenges. As organizations adopt AI-based solutions to improve the efficiency and personalization of services, there is growing concern about the protection of users' personal data. Collecting, saving and processing large volumes of data to feed AI algorithms can expose organizations to significant privacy risks, including unauthorized access, misuse of sensitive information and violation of data protection regulations. We may not be able to apply effective control measures given the complexity involved.
Production
Total Risks: 13/87 (15%)Above Sector Average
Manufacturing2 | 2.3%
Manufacturing - Risk 1
Any interruption or delays in the construction or launch of our projects, or any increase in costs, could disrupt our business, decrease our expected revenues in our business plan, and adversely affect us.Added
Manufacturing - Risk 2
Our success depends, in part, on the quality, safety and efficacy of our products, and the risk of product contamination resulting in product liability may materially adversely affect our business.Our success depends, in part, on the quality, safety and efficacy of our products. As is the case with other consumer product manufacturers, we may be subject to product liability claims if our products are found to be unfit for human use or cause illness. Products may become unfit for human use if the ingredients used in our products that are contaminated during the transportation, production, distribution and sales processes due to reasons unknown to us or beyond our control, such as acts conducted by bad faith, sabotage or systemic failure whose causes are unknown. The occurrence of such problems may result in product recalls and regulatory sanctions which will cause serious damage to our reputation and brand, as well as loss of revenue. We cannot assure you that such incidents will not occur in the future. In addition, adverse publicity about these types of concerns relating to our brand or to the industry as a whole, whether or not legitimate, may discourage consumers from purchasing our products. If consumers lose confidence in our brand, we could experience long-term declines in our sales, resulting in losses which we may not be able to recover.
Employment / Personnel4 | 4.6%
Employment / Personnel - Risk 1
We may be liable for the labor and pension obligations of third-party suppliers.Employment / Personnel - Risk 2
Our inability to attract and retain our consultants and representatives may materially adversely affect our business, financial condition and operating results.Natura and Avon conduct their business in countries in which they operate mainly in the form of direct sales through our different channels of distribution and representatives, who sell products of these brands, and independent sales advisers (Natura business leader sales consultants), who, in addition to selling our products, are also responsible for sharing business information and guidelines to small groups of Natura consultants. These consultants and representatives are our main sales channel for our Natura- and Avon-branded products and our business expansion is linked to the growth of the resellers' network.
Natura consultants and Natura business leader sales consultants are consultants who buy products directly from us and sell to their clients. There is no exclusivity agreement between us and our consultants, nor do we require a minimum period of association with us. Similarly, Avon representatives are independent contractors and not our employees. As of December 31, 2023, we had approximately 3.5 million Natura &Co Latam consultants (including Natura and Avon brand) and approximately 2.3 million Avon International representatives. There is a high rate of turnover among consultants, business leader sales consultants and representatives, which is a common characteristic of the direct-selling business. Our success in attracting and retaining consultants and representatives depends on a series of factors, which include:
maintaining close and quality relationships with our consultants and representatives; continuing to create innovative and successful products, which is important to secure the interest of consultants in our company and the Natura brand, and of our representatives in the Avon brand; maintaining the average prices of products that enable our consultants and representatives to increase their profits; public perception of our Natura and Avon brands, their respective lines of products and the direct sales channels; competitiveness among consultants and representatives of other direct sales companies; the level of service provided to our consultants and representatives; macroeconomic conditions in Brazil and other countries in which we operate; our ability to successfully execute our digital strategy; our ability to successfully implement other initiatives in the direct-selling channel; our ability to improve our brochure and product offerings; the legal, administrative and other conditions imposed on consultants and representatives by the authorities of the countries in which we operate; and our ability to improve our marketing and advertising.
Employment / Personnel - Risk 3
The loss of members of our senior management, the weakening of our corporate culture and/or our inability to attract, retain and train key personnel may adversely affect our business, financial condition and operating results.Our success depends, in part, on our ability to retain our key personnel. The unexpected loss of or failure to retain one or more of our key employees could adversely affect our business. Our success also depends, in part, on our continuing ability to identify, hire, attract, train, develop and retain other highly qualified personnel. Competition for these employees can be intense and our ability to hire, attract and retain them depends on our ability to provide competitive compensation. If members of our senior management team resign, we may not be able to sustain our existing culture or replace them with individuals of the same experience and qualification. Key personnel may leave us for a variety of reasons and the impact of these departures is difficult to predict, which may hinder the implementation of our strategic plans and adversely affect us.
We may not be able to attract, assimilate, develop and retain qualified personnel in the future, and our failure to do so could adversely affect our business, including the execution of our global business strategy. Such turnover could create a risk of disruptions in our business processes if the turnover occurs with inadequate knowledge transfer. Competition for personnel is intense, and we may not be able to successfully attract, hire, train, retain, motivate and manage sufficiently qualified personnel, which may adversely affect our business. Any failure by our management team to perform as expected may have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows. This risk may be exacerbated by the uncertainties associated with the implementation of Open Up & Grow strategy of Avon and any other stabilization strategies and restructuring and cost-savings initiatives we undertake from time to time. For more information, see "Item 4. Information on the Company-B. Business Overview-Innovation and Product Development-Avon."
Employment / Personnel - Risk 4
A work stoppage or significant strike from our labor force could affect our operations.A number of our employees are represented by labor unions and covered by collective bargaining or similar labor agreements, which are subject to periodic renegotiation within the time frames established by law and the applicable agreements. Strikes and other work stoppages or other labor disruptions in any of our facilities or labor unrest disrupting any of our third-party suppliers of goods or services may have a material adverse effect on our business and results of operations.
Supply Chain5 | 5.7%
Supply Chain - Risk 1
We cannot guarantee that our suppliers do not engage in irregular practices.Supply Chain - Risk 2
Failure to partner with startups successfully could materially adversely affect us.Some of our innovation initiatives result from partnerships with startups. Partnerships with startups are different from partnerships with more mature companies and involve a number of risks, including the following:
risks to our reputation; our resources may be insufficient to support an open innovation model; our ability to adapt and transform our internal processes to sustain partnership relationships with startups; we may become dependent on technologies and solutions developed by third parties; startups are, by definition, new businesses, and therefore may have a less robust professional culture; our partnerships with startups may be adversely affected by disputes among the partners and founders of these companies, including disputes arising as a result of a lack of formal arrangements among such persons, such as shareholders' agreements; delays in obtaining licenses and permissions may jeopardize our and our partners' ability to meet deadlines, which could have a detrimental effect on our partners' cash flows; our partnerships with startup companies may be interrupted as a result of acquisitions of, and/or investments into, our partners, including by our competitors; partnerships with startups may involve the exchange of sensitive information regarding part of our plans and strategies, which may not be adequately protected; and changes may occur that adversely affect the innovative aspect of the partnership.
Any inability to form effective partnerships with startup companies may compromise our ability to innovate, which could have a material adverse effect on our business, financial condition and results of operations.
Supply Chain - Risk 3
We depend on third parties to manufacture our products.We have entered into agreements with third-party contractors to manufacture the products which we sell. The loss or expiration of these agreements with third-party contractors or our inability to renew these agreements or to negotiate new agreements with other providers at equivalent rates could adversely affect our business and financial performance. Contractors' negligence could compromise the quality and safety of our products and expose us to the risk of liability for product liability and environmental damage caused by such third parties. We expect that we will be dependent on such agreements for the foreseeable future.
Supply Chain - Risk 4
Our business depends on a supply chain and consequently we face inherent logistics-related risks.If operations at our distribution centers or the operations of our suppliers, as well as our service providers, are adversely affected by factors beyond our control, such as fire, natural disasters, disease outbreaks or pandemics, armed conflict, such as the Russia-Ukraine and Israel-Hamas conflicts, as well tensions in the Middle East, strikes and stoppages, power shortages, failures in the systems, forest fires and deforestation, among others, and in the event that no other supplier or distribution center is able to meet the demand of the region affected, the distribution of products to the regions supplied by the affected supplier and/or distribution center will be impaired, which may adversely affect us. Our operations may be materially adversely affected if we are not able to find new suppliers, open new distribution centers or expand our existing distribution centers in order to meet the supply needs of our clients. In particular with respect to our products manufactured using a process that involves the use of bioactive ingredients obtained from our suppliers in forest regions, any event that could destroy the respective biome and harm the sustainability of the economy of the affected region may have a material adverse effect on our supply chain and consequently cause important risks related to our manufacturing process of products which are identified with our brand, as well as the logistics of such products. See also "-Climate change can create transition risks, physical risks and other risks that could adversely affect us."
Additionally, any significant interruptions, failures or changes in the logistics infrastructure we or our suppliers use to deliver products in our distribution centers could prevent the timely or successful delivery of the products to our clients and adversely affect our operations.
Our distribution network is sensitive to fluctuation in oil prices, and any increases in the price, disruption of supply or shortage of fuel may result in increased shipping costs and adversely affect our business and results of operations. Furthermore, if stringent regulations to combat street traffic are enacted imposing further restrictions on the delivery of products to our clients within certain hours of the day in certain municipalities where we operate, our ability to distribute products in a timely manner to our clients may be affected. A general increase in street traffic can also impact our ability to distribute products to our clients in a timely manner. Also, our e-commerce business is subject to similar risks, and as we expand our e-commerce platform, these risks may affect our ability to deliver products to our end-consumers in a timely manner. Any inability to deliver the products promptly and successfully we sell to our customers through our e-commerce platform may result in the loss of their business and materially adversely affect our reputation, which may have an adverse impact on our sales.
Supply Chain - Risk 5
Third-party suppliers provide, among other things, the raw materials required for our products, and the loss of these suppliers, a supplier's inability to supply a raw material or a finished product or a disruption or interruption in the supply chain may adversely affect our business.We manufacture and package a number of our branded products. Raw materials, consisting chiefly of essential oils, chemicals, containers and packaging components, are purchased from various third-party suppliers for our products. The loss of multiple suppliers or a significant disruption or interruption in the supply chain could have a material adverse effect on the manufacturing and packaging of our products, or the production of our brochures. This risk may be exacerbated by our globally coordinated purchasing strategy, which leverages volume. Regulatory action, such as restrictions on importation, or use of certain products, due to changes in the legal framework applicable to biodiversity, or restrictions on the exploration of areas within the Amazon rainforest, for example, may also disrupt or interrupt our supply chain. In addition, we are subject to increases in the costs of raw materials or other commodities or, in a worst-case scenario, the impossibility of obtaining raw materials and packaging due to several factors over which we have no control, such as climate, agricultural production, legitimate access to genetic heritage and/or traditional associated knowledge, economic conditions, and transportation and processing costs, among others. Each of these may adversely affect our profit margins if we are unable to pass along any higher costs in the form of price increases or otherwise achieve cost efficiencies in manufacturing and distribution. Furthermore, if our suppliers fail to use ethical business practices and comply with applicable laws and regulations, such as any child labor laws, our reputation could be harmed due to negative publicity.
If we experience any material shortages or delay in delivery of packaging materials, our ability to package and deliver our finished goods to our points of sale may be materially adversely affected, and our reputation and sales may suffer material damage, which would adversely affect our results of operation.
Costs2 | 2.3%
Costs - Risk 1
Changes in the availability and costs of energy and other utilities could materially adversely affect us.Costs - Risk 2
We are not insured against all risks affecting our activities and our insurance coverage may not be sufficient to cover all losses and/or liabilities that may be incurred by our operations.We cannot provide assurance that our insurance coverage will always be available or will always be sufficient to cover any damages resulting from any kind of claims. In addition, there are certain types of risks that may not be covered by our policies, such as war, force majeure or certain business interruptions. In addition, we cannot provide assurance that when our current insurance policies expire, we will be able to renew them at sufficient and favorable terms. Claims that are not covered by our policies or the failure to renew our insurance policies may materially adversely affect us.
Macro & Political
Total Risks: 12/87 (14%)Above Sector Average
Economy & Political Environment5 | 5.7%
Economy & Political Environment - Risk 1
Ongoing conflicts, such as the Ukraine-Russia and the Israel-Hamas conflicts, as well as tensions in the Middle East, may have a material adverse effect on our business, financial condition and results of operations.Changed
Economy & Political Environment - Risk 2
Inflation and government measures to curb inflation may adversely affect the economies and capital markets in some of the countries in where we operate, and as a result, harm our business and the trading price of our common shares.In the past, high levels of inflation have adversely affected the economies and financial markets of some of the countries in which we operate, particularly Brazil and Argentina, and the ability of their governments to create conditions that stimulate or maintain economic growth. Moreover, governmental measures to curb inflation and speculation about possible future governmental measures have contributed to the negative economic impact of inflation and have created general economic uncertainty and heightened volatility in the capital markets.
In addition, certain countries in which we operate may be considered from time to time as highly inflationary under the IFRS Accounting Standards. We cannot assure you that this trend will continue. Inflationary pressures may lead governments to intervene in the economy, including through the implementation of government policies that may have an adverse effect on us and our clients, especially in a context of increased market volatility given global political and economic events, and any increase of such interest rates may negatively affect our profits and results of operations, thereby increasing the costs of financing our operations. In recent years, inflationary pressures have escalated in Brazil, including as a result of the ongoing Ukraine-Russia and Israel-Hamas conflicts, as well as tensions in the Middle East, supply chain issues, and increases in energy prices. On December 31, 2023, inflation (as measured by the Brazilian National Broad Consumer Price Index – IPCA) fell from 5.79% in 2022 to 4.62%, staying within the Brazilian Central Bank's target level, minimum limit of 1.75% and maximum of 4.75%, pursuant to the applicable law. Nevertheless, we cannot assure you that this trend will continue.
If the countries in which we operate experience high inflation rates, we may not be able to adjust the prices of our products to compensate for the effects of inflation in our costs structure, which may have an adverse effect on us. High interest rates may impact our cost of obtaining loans and also the cost of indebtedness, resulting in an increase in our financial expenses. This increase may adversely affect our ability to pay our financial obligations, as it reduces our cash availability. Mismatches between contracted indexes for assets versus liabilities and/or high volatilities in interest rates may result in financial losses for us. We also have operational lease agreements with adjustment directly linked to inflation which could be materially and adversely affected if governments in the countries in which we operate are unable to contain the rise in inflation rates.
Economy & Political Environment - Risk 3
Difficult market and geopolitical conditions can adversely affect our business in many ways, each of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition.We may be materially adversely affected by unfavorable political economic developments in any of the countries in which we operate. Our business, financial performance and results of operations may be adversely affected by changes in policy and regulations involving or affecting certain factors, such as:
inflation; interest rate and exchange rate fluctuations; exchange rate control policies; any downgrade of Brazil's credit rating; liquidity available in the domestic capital, credit and financial markets; banking or financial crises; expansion or contraction of the economies of the countries in which we operate, as measured by rates of growth in GDP; ports, customs and tax authorities' strikes; changes in transportation market regulations; supply chains and logistics; price increases of oil and other inputs;price instabilities; social and political instability, including allegations of corruption against political parties, civil servants and others; global economic and political events, such as the ongoing Ukraine-Russia and Israel-Hamas conflicts, as well as tensions in the Middle East; labor and social security regulation; energy and water shortages and rationing; fiscal policies, including the potential impacts of the novel tax regime recently approved by the Brazilian Congress; other economic, political, diplomatic and social developments in or affecting Brazil; and developments with respect to actual or potential epidemics, pandemics, outbreaks or other public health crises in Brazil and globally.
We conduct a substantial part of our operations in Latin America, especially in Brazil, Mexico and Argentina. Brazil's GDP, in real terms, decreased by 3.3% in 2020, followed by an increase of 5% in 2021, decreasing again by 3% in 2022 and increasing by 2.9% in 2023. Similarly, Mexico's GDP, which had decreased by 9.0% in 2020 and increased by 4.8% in 2021, decreased by 3% in 2022 and by 3.2% in 2023. Argentina's GDP decreased by 9.9% in 2020, increased by 10.7% in 2021, increased by 5.0% in 2022 and decreased by 1.6% in 2023.
Future developments in the Brazilian and Mexican economies may affect GDP growth rates and, consequently, the consumption of our products. As a result, these developments could impair our business strategies, results of operations and financial condition. For instance, the Brazilian economy has been characterized by frequent and occasionally extensive intervention by the Brazilian government and unstable economic cycles, which is expected to continue to occur in the future.
Latin American governments' modifications to laws and regulations according to political, social and economic interests have often involved, among other measures, increases or decreases in interest rates, changes in fiscal and tax policies, wage and price controls, foreign exchange rate controls, blocking access to bank accounts, currency devaluations, capital controls and import restrictions. We have no control over and cannot predict the measures or policies that the governments of the countries in which we operate may take in the future.
Instability resulting from any changes to policies or regulations that may affect these or other factors in the future may contribute to economic uncertainty in the countries in which we operate, particularly in Brazil, and intensify the volatility of Brazilian securities markets and securities issued abroad by Brazilian companies. Furthermore, Brazil elected a new president in October 2022, for a four-year term starting in 2023. The president of Brazil has the power to determine policies and issue governmental acts affecting the Brazilian economy and, consequently, affects the operations and financial performance of companies, including ours. We cannot predict which policies the newly elected president will adopt, much less whether such policies or changes in current policies may have an adverse effect on us or on the Brazilian economy. The uncertainties regarding the new government's ability to implement its agenda, considering that the majority of the elected federal legislature is from opposition parties, of changes related to monetary, fiscal and social security policies, as well as the political climate established after the elections, with significant demonstrations or strikes, can contribute to economic instability. These uncertainties and new measures may increase the volatility of the market for securities of Brazilian issuers.
Although we conduct a substantial part of our operations in Latin America, developments in the other markets in which we operate may also have a material adverse effect on us. Given our operations in Russia and Ukraine, the adverse effects-global or localized-of the ongoing Ukraine-Russia and Israel-Hamas conflicts, tensions in the Middle East, and/or economic sanctions and import and/or export controls to be imposed on the Russian government by the United States, the UK, the EU or others, and the adverse effect on the wider global economy and market conditions could, in turn, have a material adverse effect on our business, financial condition and results of operations. See also "-Ongoing conflicts, such as the Ukraine-Russia and the Israel-Hamas conflicts, as well as tensions in the Middle East, may have a material adverse effect on our business, financial condition and results of operations." Furthermore, continued uncertainty around the terms of the UK's relationship with the EU and the lack of a comprehensive trade agreement may negatively impact the economic growth of both regions, as well as the wider global economy, market conditions and investor confidence. This could, in turn, have a material adverse effect on our operations, financial condition and prospects. See "-The uncertainty surrounding the UK's decision to withdraw from the EU may adversely affect our business."
Economy & Political Environment - Risk 4
Infrastructure and workforce deficiency in Latin America may impact economic growth and have a material adverse effect on us.Our performance depends on the overall health and growth of the Latin American economy, especially in Brazil. Brazil's GDP, in real terms, decreased by 3.3% in 2020, followed by an increase of 5% in 2021, decreasing again by 3% in 2022 and increasing by 2.9% in 2023. Growth is limited by inadequate infrastructure, including potential energy shortages and deficient transportation, logistics and telecommunication sectors, the lack of a qualified labor force, and the lack of private and public investments in these areas, which limit productivity and efficiency. In addition, the growth and performance of the Brazilian economy may be impacted by other factors such as nationwide strikes, natural disasters or other disruptive events. Any of these factors could lead to labor market volatility and generally impact income, purchasing power and consumption levels, which could limit growth and ultimately have a material adverse effect on us.
Economy & Political Environment - Risk 5
Our business may be materially adversely impacted by unfavorable economic, political, social or other developments and risks in the countries in which we operate.We may be materially adversely affected by unfavorable economic developments in any of the countries where we have distribution networks, marketing companies or production facilities. In particular, our business is dependent on general economic conditions in our most important markets, including in Brazil, Mexico and Argentina. A significant deterioration in economic conditions in any of our important markets, including economic slowdowns or recessions, inflationary pressures, banking or financial crises and/or disruptions to credit and capital markets, could lead to decreased consumer confidence and consumer spending more generally, thus reducing demand for our products. Unfavorable economic conditions could also negatively impact our customers, suppliers and financial counterparties, who may experience cash flow problems, increased credit defaults or other financial issues. In addition, volatility in the credit and capital markets caused by unfavorable economic developments and uncertainties could result in a reduction in the availability of, or an increase in the cost of, our financing. Our business could also be affected by other economic developments such as fluctuations in currency exchange rates, the imposition of any import, investment or currency restrictions, including tariffs and import quotas, or any restrictions on the repatriation of earnings and capital. Any of these developments may have a material adverse effect on our business and financial results.
Our operations are also subject to a variety of other risks and uncertainties related to its global operations, including adverse political, social or other developments. Political and/or social unrest or uncertainties, potential health issues, natural disasters, disease outbreaks or pandemics, wars and conflicts, such as the ongoing Russia-Ukraine and Israel-Hamas conflicts, as well as tensions in the Middle East, politically motivated violence and terrorist threats and/or act may also occur in countries where we have operations. Any of the foregoing could have a material adverse effect on our business, financial condition and performance.
Many of the above risks are heightened, or occur more frequently, in emerging markets. A substantial portion of our operations is conducted in emerging markets, such as Latin America. In general, emerging markets are also exposed to relatively higher risks of liquidity constraints, inflation, devaluation, price volatility, currency convertibility, corruption, crime and lack of law enforcement, expropriation of assets, and sovereign default, as well as additional legal and regulatory risks and uncertainties. Developments in emerging markets can affect our ability to import or export products and to repatriate funds, as well as impact levels of consumer demand and therefore our levels of sales or profitability. Any of these factors may affect us disproportionately or in a different manner from our competitors, depending on our specific exposure to any particular emerging market, and could have a material adverse effect on our business and financial results.
See also "-Ongoing conflicts, such as the Ukraine-Russia and the Israel-Hamas conflicts, as well as tensions in the Middle East, may have a material adverse effect on our business, financial condition and results of operations."
International Operations3 | 3.4%
International Operations - Risk 1
Our ability to conduct business in markets in which we operate may be affected by political, legal, tax and regulatory risks.International Operations - Risk 2
Developments and the perception of risk in other countries, particularly in the United States, China, European countries and emerging countries, may adversely affect the economies of the countries in which we operate, our business and the market price of our securities.Changed
The market value of securities of Brazilian issuers is affected, to varying degrees, by economic and market conditions in other countries, including the United States, China, European countries, as well as in other Latin American and emerging market countries. Investors' reactions to developments in these countries may have an adverse effect on the market value of our securities, even though economic conditions in Europe and the United States may differ significantly from economic conditions in Brazil and the other countries in which we operate. Additionally, banking or financial crises and political instability in developed and emerging market countries may diminish investors' interest in our securities, as well as adversely affect the availability of credit to companies in the international markets. In particular, the availability and cost of credit and global capital markets have recently been affected by the cost of credit and political and economic factors, such as the ongoing Ukraine-Russia and Israel-Hamas conflicts, as well as the tensions in the Middle East, among others, including the turmoil in the banking industry caused by the closure of Silicon Valley Bank and other financial institutions in the United States, as well as financial issues faced by some European financial institutions. In addition, negative events in the financial and capital markets, any news or evidence of corruption in publicly traded companies and other issuers of securities, and the lack of rigorous application of investor protection rules or lack of transparency of information or eventual negative situations in the economy and in other economies may influence the capital markets and negatively impact the value of our securities. This could adversely affect the market price of our securities, restrict our access to capital markets and compromise our ability to finance our operations in the future on favorable terms, or at all.
Since 2017, there has been an increase in volatility in Brazilian markets due to, among other factors, uncertainties about how monetary policy adjustments in the United States would affect the international financial markets, the increasing risk aversion to emerging market countries, uncertainties regarding Latin American, particularly Brazilian macroeconomic and political conditions and, beginning in 2022, the ongoing Ukraine-Russia and Israel-Hamas conflicts, as well as the tensions in the Middle East. These uncertainties adversely affected us and the market value of our securities.
There have also been concerns over conflicts, unrest and terrorist threats in the Middle East, Europe and Africa, which have resulted in volatility in oil and other markets. The United States and Russia have been at odds over Ukraine and Eastern Europe. An escalation of the tensions between the United States and Russia could adversely affect the global economy. The United States and China have recently been involved in disputes regarding Taiwan (which tensions increased in 2022), rights to navigation in the South China Sea, alleged human rights abuses in China, as well as in a controversy over trade barriers in China that threatened a trade war between the countries. Sustained tension between the United States and China over these and other matters could significantly undermine the stability of the global economy. It is unclear whether these challenges and uncertainties will be contained or resolved, and what effects they may have on the global political and economic conditions in the long term. See also "-Ongoing conflicts, such as the Ukraine-Russia and the Israel-Hamas conflicts, as well as the tensions in the Middle East, may have a material adverse effect on our business, financial condition and results of operations."
Additionally, economic conditions in Brazil or the other countries in which we operate may also be affected by political developments in the United States. We cannot assure you that any developments in the United States or elsewhere will not materially and adversely affect us in the future.
International Operations - Risk 3
Summary of Risks Relating to the Countries in Which We OperateOur business may be materially adversely impacted by unfavorable economic, political, social or other developments and risks in the countries in which we operate. A significant deterioration in economic conditions in any of our important markets, including economic slowdowns or recessions, inflationary pressures, disruptions to credit and capital markets and/or wars and conflicts (such as the ongoing Russia-Ukraine and Israel-Hamas conflicts, as well as tensions in the Middle East), could lead to decreased consumer confidence and consumer spending more generally, thus reducing demand for our products. Our operations are also subject to a variety of other risks and uncertainties related to our global operations. Our ability to conduct business in markets in which we operate may be affected by political, legal, tax and regulatory risks. Changes in existing laws and regulations and/or the imposition of new laws, regulations, restrictions and/or other entry barriers may cause us to incur additional costs to comply with the more stringent rules and/or limit our ability to expand, which could slow down our product development efforts, limit our growth and development and have an adverse impact on our financial position. In addition, our business is subject to several laws and regulations in various jurisdictions governing data privacy and security. We are subject to inflation and exchange rate risks in the countries in which we operate. In 2023 and early 2024, elevated interest rates in Brazil have contained the rise of inflation, but uncertainty remains as to the continued inflationary pressures resulting from the indirect impacts of conflicts, such as the ongoing wars between Russian and Ukraine and between Israel and Hamas, as well as tensions in the Middle East, on global supply chains. Inflation and government measures to curb inflation may adversely affect the economies and capital markets in some of the countries in where we operate, and as a result, harm our business and the trading price of our common shares. Furthermore, exchange rate instability may have adverse effects on the economy of the countries in which we operate, us and the price of our securities. We are subject to tax laws of numerous jurisdictions, and the interpretation of those laws is subject to challenge by the relevant governmental authorities given inherent complexity, which could result in potentially material administrative and judicial proceedings. In addition, Brazil has recently approved a major tax reform. The exact impact of this reform on us cannot yet be quantified because although the legislation already details changes to tax basis, rates and general obligations, some elements of it remain to be finalized. Difficult market and geopolitical conditions can adversely affect our business and materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition. Developments and the perception of risk in other countries, particularly in the United States, China, European countries and emerging countries, may adversely affect the economies of the countries in which we operate, our business and the market price of our securities. Since 2017, there has been an increase in volatility in Brazilian markets due to, among other factors, uncertainties about how monetary policy adjustments in the United States would affect the international financial markets, the increasing risk aversion to emerging market countries, and uncertainties regarding Latin American, particularly Brazilian macroeconomic and political conditions. Future governmental policy and regulations may adversely affect our operations and profitability. Uncertainty over whether the Brazilian federal government will implement reforms or changes in policy or regulation may affect economic performance and contribute to economic uncertainty in Brazil, which could have a material adverse effect on our business, financial condition and results of operations, as well as on the price of our securities.
Natural and Human Disruptions2 | 2.3%
Natural and Human Disruptions - Risk 1
Public health emergencies or any future outbreaks of highly contagious diseases, could materially and adversely impact our business, financial condition, liquidity and results of operations.Added
Natural and Human Disruptions - Risk 2
Climate change can create transition risks, physical risks and other risks that could adversely affect us.Climate risk is as a transversal risk that can be an aggravating factor for the types of traditional risks that we manage in the ordinary course of business, including without limitation the risks described in this "Item 3. Key Information-D. Risk Factors" section. Based on the Task-Force on Climate-Related Financial Disclosures recommendations, we consider different possible future climate scenarios to assess the potential impacts of climate change.
The risks and opportunities to our business we have identified as a result of this analysis can be grouped into seven broad areas of impact:
Products that meet consumer preferences and behavior: to transform our business model in line with our climate commitments, it will be necessary to deliver solutions that are both environmentally and financially sustainable. We recognize that consumer-preference for more sustainable, lower climate impact products may be limited by expectations concerning price, aesthetics, functionality, and the ability and willingness to pay for product premiumization. Consumer preferences and behavior are evolving rapidly and the transition to more sustainable products. Direct and indirect regulatory impacts: regulation designed to support a low carbon transition is relevant, to our business, ranging from requirements for sourcing transparency, ingredients, and product labeling, to regulation of packaging and plastics that generate operational and innovation costs for compliance. In addition, new carbon markets and reporting regulations in different jurisdictions have and will continue to increase carbon compensation costs, as well as potential indirect impacts through increased regulation in our supply chain. See also "- Changes in environmental laws and regulations can adversely affect our business, including our capacity to develop new products." Supply chain, raw materials and biodiversity: Scope 3 emissions represent a significant portion of Natura &Co's greenhouse gases impact, and the largest proportion of emissions are derived from the extraction of raw materials and the distribution, use and disposal of products. Evaluating and incorporating sustainable alternative materials across our product portfolios will be key for reducing embodied product emissions in line with our climate commitments. However, the low carbon transition, in addition to physical climate trends and shocks, will also generate disruption and volatility within supply chains, with potential impacts on availability, quality, sustainability and pricing, that we will need to navigate. Infrastructure and partnerships to support low carbon transition: Reaching global Net Zero will require systemic change, including transformation of energy systems, infrastructure, financing, regulations, and consumer behavior. Our sustainability strategy sets out our commitment to actively supporting this transition. However, achieving our goals in a cost-effective way will require an operating environment that enables and empowers more sustainable business models and formats. Where gaps in regulation, technology and infrastructure are not addressed in line with the necessary pace of this transition, this may create additional barriers and costs for the company. There are concerns that there will be deficits in technology and infrastructure to enable significant emissions reductions in consumer goods. The transition also relies on national and local governments implementing the necessary regulation and developing the required infrastructure (e.g., recycling, renewable energy), fostering market adjustments to prevent the unfair competition and inflation of transition costs for the business. Increased collaboration at the industry and government level may contribute to advancing sustainable infrastructure, and agroforestry partnerships may be a route to improving resilience and reducing carbon impact. Physical damage and disruption in our operations and supply chain: In line with observation during recent years and established climate science, rising average global temperatures impact the nature, location, frequency, and severity of potentially extreme weather events. The impact of these changes will vary across the geographies in which we have direct operations, generating a need for adaptation actions, in addition to impacting our suppliers, partners, customers, and the infrastructure on which our operations rely. Operational processes, efficiency and resilience: Natura &Co Latam has committed to achieving Net Zero in its operations by 2030 and has advanced in improving efficiency and incorporating renewable energies in line with this. Nonetheless, achieving this target will require efficient capital allocation decisions, and the transition to a low carbon economy may create additional costs, for example, related to technology or competition for renewable resources. On the other hand, physical climate changes also create stress for facilities and logistics assets that will require investment in adaptation measures to ensure that operational continuity can be maintained and that our employees work in safe and comfortable conditions. Reputation, stakeholder and investor expectations: As climate change continues to rise up the political agenda and public consciousness, we can expect increasing scrutiny on the consistency and adequacy of companies' actions to reduce their impact and support the low carbon transition. This has already been seen in markets such as Europe, where regulatory action has sought to crack down on greenwashing. For many years, our strategy and brand image have been closely linked to sustainability and natural attributes, and safeguarding of our reputation among our shareholders, investors, consumers and business partners is critical.
Any such developments could have a material adverse effect on our business. In addition, if our practices do not meet our organizational needs or do not live up to our own sustainability values, then our brands, reputation and employee retention may be adversely affected.
Capital Markets2 | 2.3%
Capital Markets - Risk 1
Exchange rate instability may have adverse effects on the economy of the countries in which we operate, us and the price of our securities.Capital Markets - Risk 2
Exchange controls and restrictions on remittances abroad may adversely affect holders of the ADSs.Brazilian laws provide that whenever a serious imbalance in Brazil's balance of payments exists or is anticipated, the Brazilian federal government may impose temporary restrictions on the repatriation by foreign investors of the proceeds of their investment in Brazil and on the conversion of Brazilian currency into foreign currency. For example, for six months in 1989 and early 1990, the Brazilian federal government restricted all fund transfers that were owed to foreign equity investors and held by the Brazilian Central Bank, in order to preserve Brazil's foreign currency reserves. These amounts were subsequently released in accordance with Brazilian federal government directives. Although the Brazilian federal government has never exercised such a prerogative since, we cannot guarantee that the Brazilian federal government will not take similar actions in the future.
Holders of Natura &Co Holding Shares and ADSs may be adversely affected if the Brazilian federal government imposes restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil and, as it has done in the past, on the conversion of the real into foreign currencies. These restrictions could hinder or prevent the conversion of dividends, distributions or the proceeds from any sale of shares, as the case may be, into U.S. dollars and the remittance of U.S. dollars abroad. We cannot assure you that the government will not take this measure or similar measures in the future. Holders of the ADSs could be adversely affected by delays in, or a refusal to grant, any required governmental approval for conversion of real payments and remittances abroad in respect of the shares, including the shares underlying the ADSs. In such a case, The Bank of New York Mellon, or the "ADS Depositary," will distribute reais or hold the reais it cannot convert for the account of the ADS holders who have not been paid.
Ability to Sell
Total Risks: 8/87 (9%)Above Sector Average
Competition1 | 1.1%
Competition - Risk 1
Our industry is highly competitive, and strategic actions by our competitors may weaken our competitive position and negatively affect our profitability.Demand3 | 3.4%
Demand - Risk 1
Summary of Risks Relating to Our Business and Industries in Which We OperateDemand - Risk 2
Changes in consumer preferences may adversely affect our business, financial condition and operating results.We operate in an industry that is subject to rapid and unpredictable changes in consumer demand and trends. Changes in consumer preferences, including a move away from direct selling and shopping in physical stores toward online shopping, among other channels, and a potential decrease in demand, may adversely affect our operations and growth prospects.
In recent years, there has been an increase in e-commerce to the detriment of physical sales. As a result, we experienced an increase in e-commerce sales growth in 2021 as compared to 2020, with e-commerce sales remaining broadly stable as a percentage of revenues for all our business units through 2022 and 2023.
Demand - Risk 3
The cosmetics, fragrances and toiletries segment is susceptible to periodic slowdowns as a result of decreases in consumer purchasing power, economic downturns and unfavorable economic cycles.The success of operations in most of the business segments in which we operate depends on various factors related to consumer expenditures and consumers' income, including general business conditions, interest rates, inflation, consumer credit availability, taxation, consumer confidence in future economic conditions, and employment and salary levels.
Our results of operations and financial condition have been, and will continue to be, affected by the growth rate of the GDP of the countries in which we operate. We cannot ensure that the GDP of the countries in which we operate will increase or remain stable. Developments in the macroeconomic conditions of the countries in which we operate, including Brazil which has been experiencing an economic slowdown since 2012, may affect such countries' growth rates and, consequently, us. Any decrease or slowdown in such growth may materially adversely affect our sales and our results of operations. See "-Difficult market and geopolitical conditions can adversely affect our business in many ways, each of which could materially reduce our revenue, earnings and cash flow and adversely affect our financial prospects and condition."
Sales & Marketing2 | 2.3%
Sales & Marketing - Risk 1
Our dependence on credit card companies for sales and consumer financing is a growing trend.Sales & Marketing - Risk 2
Certain parts of our business are conducted primarily in one channel, direct selling.Certain parts of our business are conducted primarily in the direct-selling channel. Sales are made to the ultimate consumer principally through direct selling by Natura consultants and Avon representatives, who are independent contractors and not our employees. There is a high rate of turnover among representatives, which is a common characteristic of the direct-selling business. Our direct-selling model contains an inherent risk of bad debt associated with providing representatives with credit, which is exacerbated if the financial condition of the representatives deteriorates. Additionally, consumer purchasing habits, including reducing purchases of beauty and related products generally, or reducing purchases from representatives through direct selling by buying beauty and related products in other channels such as retail, could reduce our sales, impact our ability to execute our global business strategy or have a material adverse effect on our business, prospects, financial condition, liquidity, results of operations and cash flows.
Within the direct-selling channel, we often compete on country-by-country basis with our direct-selling competitors. There are a number of direct-selling companies that sell product lines similar to ours, some of which have worldwide operations and compete with us globally. Unlike a typical CPG company which operates within a broad-based consumer pool, direct sellers compete for representative or entrepreneurial talent by providing a more competitive earnings opportunity or "better deal" than that offered by the competition. Providing a compelling earnings opportunity for our Natura consultants and Avon representatives is as critical as developing and marketing new and innovative products. Therefore, in contrast to typical CPG companies, we must first compete for a limited pool of representatives before we reach the ultimate consumer.
Consultants and representatives are attracted to a direct seller by competitive earnings opportunities, often through what are commonly known as "field incentives" in the direct-selling industry. As a result, we are subject to significant competition for the recruitment of consultants and representatives from other direct-selling or network marketing organizations as well as significant competition from other non-direct selling earnings opportunities. Changes to our compensation models are sometimes necessary to be competitive but could have short-term negative impacts on our total number of consultants and representatives. It is therefore continually necessary to innovate and enhance our direct-selling and service model as well as to recruit and retain new consultants and representatives. If we are unable to do so, our business will be adversely affected.
Additionally, if we lose market share in the direct-selling channel, our business, prospects, financial condition, liquidity, results of operations and cash flows may be adversely affected. Furthermore, if any government or regulatory body such as Brazil or the EU bans or severely restricts our business methods or operational/commercial model of direct selling, our business, prospects, financial condition, liquidity, results of operations and cash flows may be materially adversely affected.
Brand / Reputation2 | 2.3%
Brand / Reputation - Risk 1
Our business depends on highly recognized brands. We may not be able to maintain, modernize or revitalize and enhance our brands, or we may receive unfavorable customers, vendors, consultants and representatives' complaints or negative publicity, which could adversely affect our brands.Changed
Brand / Reputation - Risk 2
Our business depends on our ability to maintain a strong community of engaged final customers, consultants and representatives including through social media. We may not be able to maintain and enhance our brand if we experience negative publicity related to our use of social media or otherwise fail to meet the expectations of our community of customers.Changed
We use third-party social media platforms to raise awareness of our brands and engage with our community of customers. In recent years, there has been a marked increase in the use of social media platforms, including blogs, chat platforms, social media websites, and other forms of internet-based communications that allow individuals to interact with us, which act as means to enhance brand awareness. As existing social media platforms evolve and new platforms develop, we must continue to maintain a presence on these platforms and establish a presence on emerging popular social media platforms. If we are unable to cost-effectively develop and continuously improve our consumer-facing technologies, such as social media platforms, our ability to expand our community of customers may suffer. This failure could adversely affect our ability to compete with other companies and result in diminished loyalty to our brands.
The use of social media by us and our brand partners has increased the risk that our image and reputation could be negatively impacted. In particular, our social media reputation could impact how our community of customers views our products and/or brands. We also do not prescribe what our brand partners, consumers or other organic brand endorsers post, and our brand partners and consumers could engage in behavior or use their platforms in a manner that reflects poorly on our brand or is in violation of applicable regulations or social media platform terms of service. All of these actions may be attributed to us, which could lead to negative publicity related to our products or negative publicity related to actions taken (or not taken) by us or our executives, employees, brand partners, representatives or other individuals or entities that may be perceived as being associated with us. Such negative publicity may relate to actions taken (or not taken) with respect to social, environmental, and community outreach issues and initiatives. The resulting harm may be immediate, without affording us an opportunity for redress or correction, and could have an adverse effect on our business, financial condition and results of operations.
Further, laws and regulations, including associated enforcement priorities, rapidly evolve to govern social media platforms and other internet-based communications. Any failure by us, our brand partners or other third parties acting at our direction or on our behalf to abide by applicable laws and regulations in the use of these platforms could subject us to regulatory investigations, class action lawsuits, liability, fines or other penalties. Other risks associated with the use of social media and internet-based communications include improper disclosure of proprietary information, exposure of personally identifiable information, fraud, hoaxes or malicious dissemination of false information. Damage to any of our brand's image and our reputation could have an adverse effect on our business, results of operations and financial condition.
Tech & Innovation
Total Risks: 5/87 (6%)Above Sector Average
Innovation / R&D2 | 2.3%
Innovation / R&D - Risk 1
Interruption of our research and development, production or distribution units may materially adversely affect our business, financial condition and results of operations.Innovation / R&D - Risk 2
If we fail to continuously update our product portfolio, we may be unable to maintain and expand our distribution channels.One critical element of our strategy is our capacity to grow our distribution channels by continuously updating our portfolio of innovative and attractive products. Our ability to continuously evolve our portfolio depends on a variety of factors, including our capacity to foresee market requirements and use new raw materials and technologies effectively. If we are unable to continuously update our product portfolio, our ability to maintain and expand our different channels of distribution and our base of representatives could be materially adversely affected.
Trade Secrets1 | 1.1%
Trade Secrets - Risk 1
We may not be able to protect our intellectual property rights. If we are unable to protect our intellectual property rights, specifically patents and trademarks, our ability to compete could be adversely affected.Cyber Security1 | 1.1%
Cyber Security - Risk 1
We could be the target of attempted cyber threats in the future, which could adversely affect our business.Technology1 | 1.1%
Technology - Risk 1
Interruption in our main information technology, or "IT" systems could adversely affect our business, financial conditions, operating results and reputation, and increase our costs.See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.
FAQ
What are “Risk Factors”?
Risk factors are any situations or occurrences that could make investing in a company risky.
The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.
They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.
It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.
How do companies disclose their risk factors?
Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.
Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.
Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.
According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.
How can I use TipRanks risk factors in my stock research?
Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.
You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.
Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.
A simplified analysis of risk factors is unique to TipRanks.
What are all the risk factor categories?
TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.
1. Financial & Corporate
- Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
- Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
- Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
- Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.
2. Legal & Regulatory
- Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
- Regulation – risks related to compliance, GDPR, and new legislation.
- Environmental / Social – risks related to environmental regulation and to data privacy.
- Taxation & Government Incentives – risks related to taxation and changes in government incentives.
3. Production
- Costs – risks related to costs of production including commodity prices, future contracts, inventory.
- Supply Chain – risks related to the company’s suppliers.
- Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
- Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.
4. Technology & Innovation
- Innovation / R&D – risks related to innovation and new product development.
- Technology – risks related to the company’s reliance on technology.
- Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
- Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.
5. Ability to Sell
- Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
- Competition – risks related to the company’s competition including substitutes.
- Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
- Brand & Reputation – risks related to the company’s brand and reputation.
6. Macro & Political
- Economy & Political Environment – risks related to changes in economic and political conditions.
- Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
- International Operations – risks related to the global nature of the company.
- Capital Markets – risks related to exchange rates and trade, cryptocurrency.