Our commitment to all of our stakeholders is daily reaffirmed in the manufacture of products that take Well-Being Well to our consumers. We estimate that we have, in Brazil, approximately 42 million consumers. Our relationship with this Natura Community is based on a broad offer of products backed up by our services. We work with a dynamic portfolio. We always seek to develop it in an appealing way, with adequate choice for all types of customers.

Not only do our products aim to meet the functional needs of our consumers, but we also want them to awaken the senses and develop people’s awareness of themselves, of others, and of the world.

In 2008, our business structure, which was then based on areas, evolved to the business and regional units model. As a result, Natura will move closer to the final consumer. We will have a portfolio of products and promotions that will arrive faster at people’s houses and will meet local Brazilian characteristics and needs.

Guided by the strategic goal of “Less is more,” we decided to select the most important products in our portfolio. We must recognize, however, that the reduction from 930 items to 739 caused some discomfort to our consumers, who had grown used to some products that we discontinued. We believe that this perception will be overtaken by the offer of products that are more in line with our value proposal.

The indicators show that this change did not affect our level of acceptance by consumers. Natura maintained its high preference rate. In the Top of Mind category (first brand that comes to consumers’ minds) of the Brand Essence survey, we moved to 32%, compared with 27% in the previous year.

In 2008, we chose not to conduct the consumer satisfaction survey. Due to the slight variation seen in the data from one year to the next, the frequency of the survey will now be biennial instead of annual.

Driven by the growth in the number of consultants and by the increase in Brazilian family incomes, the rate of penetration of Natura’s products has been consistently increasing over the past few years. Between 2007 and 2008, this rate grew 4.4 percentage points to 45.6%. The social classes that contributed the most to this increase were classes D and E (using the Brazil Economic Classification Criteria of the Brazilian Association of Research Companies – ABEP ¹), with 2.4%, that is, more than half of total growth.

1 More information on www.abep.org.



We had some major launches last year, which are fully in line with our value proposal. The most impacting ones were the Naturé line for children, the Chronos Soy Polytensor anti-wrinkle cream and the Amor América perfumes. The Amor América perfume line is innovative and took us closer to Latin America by using ingredients from the local biodiversity such as Palo Santo and Paramela to develop products that value the identity and culture of the region. The Naturé line for children, on the other hand, speaks of the discovery of the world to children between three and seven years old and awakes, by means of games and stories about water, the first notions of environmental awareness in a playful and fun way. The relationship of children with the world inspired the creation of a complete line of shower and body products and perfumes.

Communication with Consumers

The Natura Customer Service (NCS) is one of our main channels of communications with consumers. Via this channel, we receive complaints, criticisms, suggestions, and compliments, in addition to questions. Due to the large investment we made in 2008 in the training of NCS employees, we had positive results from this service. The quality score increased from 91.5% in 2007 to 95.9%.

This result comes from the score the consumer confers upon the service after using it, via the Customer Satisfaction Instantaneous Survey. In 2007, we served 76% of the calls within 20 seconds and, in 2008, this rate increased to 87%. We also managed to reduce the percentage of the non-answered calls from 6.6% to 3.9% and the average waiting time from 18 seconds to 8 seconds. Most of the NCS services refer to complaints related to the exchange of products. On average, we change 70,000 products per month; in 2007 the figure was 49,000.



As of December 31, 2008, 155 complaints about Natura had been registered with the Consumer Protection and Advisory Program (Procon), a foundation established by the public authorities to protect consumer interests.. Most referred to dissatisfaction with a product (scent, incompatibility of the refill and adverse reactions), agreed-upon delivery, exchange or refund, and lack of understanding of the literature on the packaging. All complaints are addressed at Procon, and Natura makes agreements when the complaints refer to exchange or refund of products.

Another important communication channel, Natura Magazine, went through changes that significantly reduced its impact on the environment. With the new editorial graphic design, the number of pages was reduced, and the paper, which was recycled before, was replaced by couche paper (a paper with a satin finish) with the FSC (Forest Stewardship Council) seal, which certifies sustainable handling from the extraction in the forest to the final transformation of the raw material into a printed publication. As a result, we ceased using 1,000 metric tons of paper and emitting around 4,500 metric tons of carbon dioxide into the atmosphere in 2008. In this and other ways, we seek to set examples related to sustainable development in our communication.

We strictly follow the rules of the Advertising Self-Regulation Council and the codes of conduct of the Brazilian Association of Advertisers and Brazilian Association of Consumer Protection.

To reaffirm our commitment to transparency and respect to our customers, we sought the main means of communication to apologize when, in 2008, we were surprised by the demand for the Chronos Soy Polytensor anti-wrinkle cream upon its launch. The volume of orders was three times larger than expected, causing, on one hand, a sales record and, on the other, a temporary shortage. We guaranteed the maintenance of the promotional sales conditions for the product to the consultants who filed the intention to buy them at the time but were not able to do so.

In order to ease the access of the final consumer to Natura’s products, we reviewed the prices of our products meant for daily use so as to establish a habit of frequent use. Our objective was for consumers not to have to wait for a promotion to buy their favorite product. We also increased our investment in advertising by 129% from 2007.

Finally, we published a book that helps children learn in a playful way about the importance of water. With a print run of 550,000 copies, it was given as a gift to the consumers who bought colognes from the Naturé line, which is aimed at children from three to seven years old.

Innovation

Innovation is an essential aspect to ensure Natura’s sustainability and, as we outlined in our action plan, our innovation rate recovered strongly from 58.3% in 2006 to 56.8% in 2007. In 2008, this rate spiked to 67.5%.



In this context, Natura’s open innovation program, which seeks the development and acquisition of new technologies by means of partnerships with universities and research centers in Brazil and abroad, has an essential role. In 2006, the initiatives were reviewed and enhanced with the launch of the Technological Innovation Natura Campus Program and the Natura Campus Portal (www.natura.net/campus) in 2007. The Internet page facilitates the relationship with Brazilian science and technology institutions and allows for the registration of research groups and the submission of project proposals. Currently, 50% of our project portfolio comes from the open innovation model, which reinforces the importance of these initiatives to Natura innovation.

The Natura Campus Project is supported by programs that promote the research and technological development of the National Council of Scientific and Technological Development (CNPq), the Research Support Foundation of the State of São Paulo (FAPESP) and the Financial Sponsor of Studies and Projects (FINEP), which make possible and/or co-finance equipment, scientific scholarships and research materials for participating universities.

The Program also includes the Technological Innovation Natura Award. This award recognizes the best research project conducted in partnership with Natura. This award was granted for the first time in December 2008. The event took place at Natura House in Campinas, state of São Paulo, and gathered representatives from universities from across Brazil, research institutions and the main bodies that support research in Brazil. The award winner received a cash prize in the amount of R$40,000.

In 2008, the Natura Campus Portal received, on average, 6,500 visitors per month and 228 research groups from all over Brazil have voluntarily registered on its database. The Portal was responsible for the receipt of 79 cooperation offers and 19% of these offers, from research groups from 10 different Brazilian universities, were approved.

Innovation is also expressed on the packaging of our products. In addition to a description of all ingredients used, which is required by law, we have included in our launches since 2007 the environmental table, which explains the origin and destination of the materials used, as a way to raise consumer awareness to their environmental impacts. Our labels are in accordance with the legislation in effect and respect all resolutions related to cosmetics determined by the National Agency of Sanitary Vigilance (Anvisa).

The slight drop in the percentage of materials of renewable plant origin in 2008 may be explained, among other factors, by the increase in the share of sales of product categories that are below average in this index, such as liquid soaps, deodorants and photoprotection products.



Privacy

We ensure the privacy and confidentiality of the information about people registered on our Internet page. To assure this right, the processes and information technology systems of the www.natura.net website are built and executed strictly in accordance with this policy. Also, we did not record any legal or administrative cases related to violation of privacy or loss of data of consumers.

Consumer Health and Safety

The safety of our consumers guides all of our product development processes. Under the supervision of the Product Safety Committee, made up of professionals from different areas, we take special care with all new ingredients and formulas, which are carefully tested by dermatologists or multidisciplinary teams and analyzed by specialists in product safety. We also maintain the Cosmetic Vigilance System, which monitors possible adverse effects of the products, as a reference for the innovation process.

This care meant that, like in previous years, in 2008 there were no convictions, questioning by regulatory agencies (such as the National Agency of Sanitary Vigilance and the National Institute of Metrology, Standardization, and Industrial Quality) or fines related to our products with respect to labeling or health and safety impacts.

Following the trend previous years, we did not record any cases of non-compliance with regulations or voluntary communication and marketing codes in any of our operations, including advertising, privacy of information on our customers, promotion and sponsorship.

Innovation is also expressed on the packaging of our products. In addition to a description of all ingredients used, which is required by law, we have included in our launches since 2007 the environmental table, which explains the origin and destination of the materials used, as a way to raise consumer awareness with respect to the environmental impacts.

Controversial Ingredients

Reaffirming our commitment of transparency, in 2008 we published on our website our position on controversial ingredients, about which there is no consensus by the scientific community with respect to their possible harmful effects to human beings.

Parabens

Parabens are a group of preservatives made up of short-chain and long-chain compounds. The long-chain parabens are claimed to be harmful to human health, although there is no scientific consensus on the topic. Although Natura does use the short-chain parabens, which are not harmful to health, in some of its products, it chose to replace them in its new creations, eliminating them from its entire portfolio by December 1, 2010.

Triclosan

The greatest concern about triclosan, refers to the fact that is widely used in the world, increasing its concentration in nature with possible impacts on the environment, as the substance affects water microorganisms because it is a synthetic antimicrobe that acts against the proliferation and growth of microorganisms. Consistently with Natura’s sustainable stand, we have since July 2008 replaced the use of this ingredient in new products with plant origin alternatives and constantly seek to develop new less harmful antimicrobes.

Phthalates

Phthalates are a family of compounds used for many different purposes, including as additives in the manufacture of plastics and in the cosmetic industry. There is controversy involving using phthalates in PVC packaging. For this reason, we will ban the use of PVC packaging that is in contact with our products from January 2009. Natura also used a compound from this family, diethyl phthalate, as a solubilizer of fragrances, bittering agent, and alcohol denaturizer. When used in low concentration, there are no indications that diethyl phthalate can damage health. Nevertheless, this ingredient may be mistaken for the controversial versions of phthalates and so we have eliminated this substance from our new products since June 2008.

To see all Natura products, please visit www.natura.net