COTY - NYSE

[Technical Difficulty] portion of Coty’s Fourth Quarter Fiscal 2024 Earnings. On Wednesday, August 21, 2024, at approximately 8.15 a.m. Eastern Time or 2.15 p.m. Central European Time, we will hold a separate live Q&A session on our results, which you can access via our Investor Relations website. Joining me for our presentation are Sue Nabi, Coty’s CEO, and Laurent Mercier, Coty’s CFO. Before I hand the call over to Sue, I would like to remind you that many of the comments today may contain forward-looking statements. Please refer to Coty’s earnings release and the reports filed with the SEC, where the company lists factors that could cause actual results to differ materially from these forward-looking statements. In addition, except we're noted, the discussion of Coty’s financial results and Coty’s expectations reflect certain adjustments as specified in the non-GAAP financial measures section of the company's release. Thank you. I will now turn it over to our CEO, Sue Nabi.

Welcome everyone. [Technical Difficulty] its privileged position. Beauty is neither a consumer goods industry nor a luxury goods industry. Instead, beauty is at the sweet-spot of desire, well-being, self-confidence, affordability, ritual, indulgence, and many new things that we and our consumers will continue to invent. This is what fuels the strong global beauty growth that we continue to see to this day and which we expect to continue for the quarters and years to come. In fact, beauty is a fundamental desire that has sustained over the millennia, and this desire has only accelerated in the recent years, with growing sophistication and premiumization, and is here to stay and to amplify. At Coty, having transformed our organization and strategic path several years ago, we are now performing as a beauty leader and more and more as a beauty trendsetter, which we believe is an opening for a new era for Coty as a beauty powerhouse. Importantly, a key element of this outperformance has been our unwavering strong investment into our marketing, regardless of the macroeconomic volatility, because we believe that this is what will create value for our brands for the long term. Since we began our transformation, we have maintained our A&CP levels in the high 20s percentage, and going forward we will make use of the levers at our disposal to allow us to maintain this level of support at a minimum, even as we expand our profitability. In a year filled with many milestones for Coty, let me summarize the four key achievements of fiscal ’24. First, we once again grew ahead of the underlying beauty market, fueled by our leadership in fragrances, strengthened performance in our core cosmetics business, and overdriving our growth channels, markets, and categories. Second, we are building unique and hopefully best-in-class expertise in each of our core categories. For example, our unrivaled expertise in fragrances was exemplified by the blockbuster launch of Burberry Goddess, which was not only the biggest fragrance launch in Coty’s history, but also the number one female fragrance launch for the industry. Third, we are becoming an advocacy-led company, reaching our consumers through the platforms where they discover newness and build connections with brands. With the earned media value for both Rimmel and CoverGirl over 400% higher than a year ago and closing the gap with leading peers, we are seeing the strong results from this transformation. The next step is co-creating the trends that will shape the global beauty industry in the coming quarters and years. And fourth, we have once again delivered double digit growth in our like-for-like sales, adjusted EBITDA and adjusted EPS, excluding the swap impact. This marks the third consecutive year of double-digit growth in like-for-like sales and EPS. The power of our financial algorithm has been on full display in recent years and reflected in our outlook, anchored on 6% to 8% like-for-like revenue growth, 9% to 11% adjusted EBITDA growth, and close to 20% adjusted EPS growth. And this is building on the exceptional delivery in FY ‘24 of 11% like-for-like revenue growth, 12% adjusted EBITDA growth, and 26% adjusted EPS growth excluding the equity swap. We grew our fiscal ‘24 like-for-like revenues by 11%, once again outperforming the beauty market which grew approximately 9%. Our fiscal ‘24 sales were also at the high end of guidance, reinforcing Coty’s balanced growth agenda. In eight out of the last 12 quarters, we have delivered like-for-like growth which is ahead of or in line with the leading global beauty companies, including L’Oreal, Estee Lauder, Shiseido, and LVMH’s Perfumes & Cosmetics division. Our best-in-class performance is evident on the slide shown here. While each of our peers have their own strengths and weaknesses when it comes to category, geographic and channel exposure, Coty’s consistent outperformance confirms that our top-notch growth is a result of our strategic vision, strong execution and our ability to not only seize but create big and fundamental beauty trends that are here to stay. As we compete in an offer-driven industry, it is our responsibility to create beauty products which surprise and delight our consumers, which help them look and feel better, shaping the beauty of tomorrow. Let me now hand the call over to Laurent to take you through our financial results and of course fiscal ‘25 guidance.

Thank you, Sue. Our fiscal year ‘24 net revenue grew a very strong 11% like-for-like, coming at the upper end of our fiscal 2024 guidance of 9% to 11%. This growth included approximately 1% contribution from the hyperinflationary environment in Argentina. In the second half, which largely balances out the difficult comparisons in Q4, our like-for-like revenue grew 8%. And in Q4, our like-for-like revenue grew 5%, which was at the upper end of our expectations of low-to-mid single-digit percentage growth and as anticipated, included several points of headwind from prior year comparisons when our revenues grew 17% like-for-like. These Q4 results reflect a like-for-like CAGR of approximately 10% versus fiscal ‘22, largely consistent with the like-for-like CAGR level in Q3, and re-affirming that our underlying sales growth trends remain steady. We have also continued to deliver strong and consistent margin expansion. Our fiscal ‘24 adjusted gross margin grew strongly by 50 basis points to 64.4%, ahead of our guidance of modest expansion in fiscal year ‘24, and included 140 basis points of adjusted gross margin expansion in Q4. Our fiscal ‘24 and Q4 adjusted gross margin improvement was driven by ongoing premiumization of the portfolio coupled with the benefit from pricing and continuous supply chain productivity, partially offset by COGS inflations and excess & obsolescence impact at the start of the year In fact, with our fiscal year ‘24 adjusted gross margins reaching 64.4%, we have reached the mid 60s gross margin target we had set at our 2021 Investor Day a full year ahead of schedule. The strong gross margin expansion allowed us to sustain our strong investment behind our brands, with our A&CP investments remaining at 27% for the year. In total, we expanded our fiscal year 24 adjusted operating margin by 80 basis points to 14.1% and our adjusted EBITDA margin by 30 basis points to 17.8%, which was also at the upper end of our fiscal year ‘24 guidance of 10 basis points to 30 basis points of margin growth. Our strong and consistent margin expansion has been fueled by growing profitability in both of our divisions. The adjusted operating margin in Prestige reached 19% in fiscal year '24, up 40 basis points year-on-year but also close to 600 basis points higher than in fiscal '21. And in Consumer Beauty, our adjusted operating margin reached 5.7% in fiscal '24, up 80 basis points year-on-year and 170 basis points higher than in fiscal '21. In the coming years, as we overdrive our Consumer Beauty profit pools, including mass fragrances and nail, we expect a bigger step change in the profitability of the division. Our fiscal '24 adjusted EBITDA grew 12% year-over-year to $1,091 million, even as we absorbed the profit loss from the divestiture of Lacoste. Importantly, we outperformed the midpoint of the fiscal '24 adjusted EBITDA guidance we gave at the start of the fiscal year by over $20 million at the midpoint and also exceeded our recently raised EBITDA guidance of the high end of $1,080 million to 1,090 million. Our fiscal ‘24 adjusted EPS excluding the swap totaled $0.48, growing a very strong 26% year-over-year, and ahead of guidance for EPS to be at the high end of $0.44 to $0.47. The upside in EPS in fiscal '24 was driven by upside in EBITDA and operating income, as well as a $38 million discrete tax benefit in Q4 related to Swiss income tax credits, which more than offset the $24 million discrete tax hurt we incurred in Q1, from a change in the Swiss statutory tax rate. These discrete tax impacts benefitted our fiscal year '24 adjusted EPS by about $0.02 on a net basis. Looking ahead to fiscal '25, I would like to outline certain drivers of our adjusted EPS. First, we expect depreciation to be in the mid $200 million level. Second, we anticipate net interest expense for the year to be in the low $200 million. Third, we anticipate the adjusted effective tax rate for fiscal ‘24 to be in the 28% to 29% range and above the fiscal year '24 effective tax rate which benefitted from a $14 million net discrete tax benefit. Finally on share count, we remain committed to reducing our share count toward 800 million by fiscal year 27. While we have two equity swaps in place to lock in attractive pricing for future share buybacks, deleveraging towards our targeted levels remains a key priority for our organic cash flow generation. Of course, the eventual divestiture of Wella will provide flexibility for more active share buyback activity, which will be further amplified in the medium term, once we reach our target leverage, by our ongoing cash flow generation. We ended fiscal '24 with net debt of approximately $3.6 billion and leverage of 3.3 times, down 0.8 turns from fiscal year ‘23, all of which excludes our Wella stake valued at approximately $1.1 billion. In the last four years, since this leadership team has been in place, Coty has reduced our net debt by over $4 billion fueled by organic cash generation and asset sales. Our fiscal '24 debt reduction included approximately $370 million in free cash flow for the year. This was a modest decrease versus the prior year primarily due to the payment of income taxes for prior years, which totaled nearly $90 million in fiscal '24, plus an increase in CapEx of over $20 million primarily related to the company’s transition to S/4HANA at the end of the year. Relative to our initial expectations, the fiscal '24 free cash flow was approximately $30 million lower than expected due to this SAP S/4HANA transition. This transition was a major milestone, representing the first major SAP transition across the full company in over a decade. Importantly, with this transition, over 90% of Coty is now running on one single instance of SAP S/4HANA, including commercial, supply chain, finance and master data core activities. Importantly, the S/4HANA transition went off without a hitch and we were up and running in a matter of days, confirming the strength of our planning and execution. Specific to the impact on our free cash flow, while our transition to S/4HANA was planned for some time, it was difficult to quantify in advance how much inventory would be needed as an extra build up to enable a seamless transition. Therefore, the approximately $30 million buffer inventory build required for our migration to SAP S/4HANA was not included in our free cash flow guidance for fiscal '24. Of course, this inventory impact should reverse in fiscal '25. Therefore, in fiscal '25, we expect free cash flow to grow strongly to the low to mid $400 million on stronger profit and lower cash tax payments. In support of our profit expansion and our reinvestment in our growth initiatives, we continue to identify and deliver savings in the business. We generated savings of over $115 million in fiscal '24 and continue to target $75 million of savings in fiscal '25. And that brings me to our outlook for fiscal ‘25. We expect fiscal ‘25 like-for-like revenues to grow in line with our medium-term target range of 6% to 8% like-for-like, with outperformance by Prestige. Fiscal ‘25 reported revenues are expected to include a low single-digit headwind from FX and a 1% scope headwind in the first half from the divestiture of the Lacoste license. We target another year of gross margin expansion in fiscal '25. Consistent with our medium-term algorithm, we are targeting 9% to 11% growth in our fiscal '25 adjusted EBITDA to $1,186 million to $1,208 million, ahead of consensus expectations, which includes the expected headwind from FX and the profit headwind in the first half from the divestiture of the Lacoste license. This translates to adjusted EBITDA margin expansion of 10 basis points to 30 basis points in fiscal '25, as we continue our steady track record of ongoing margin expansion. We are estimating total fiscal '25 adjusted EPS, excluding equity swap, of $0.54 to $0.57, implying strong plus 15% to 20% growth year-on-year. This translates to a 19% to 22% CAGR on a two-year basis, which removes the comparison impact of fiscal '24, which includes $0.02 of net discrete tax benefits. We are targeting fiscal '25 free cash flow in the low to mid $400 million, driven by the combination of higher profit and lower cash taxes, partially offset by certain cash benefits recognized in fiscal ‘24 which will not re-occur. While in the near-term, the close management of cash and inventory by retailers is contributing to some fluctuation in our estimated cash flow in the first half, we expect to end calendar year ‘24 with leverage close to 2.5 times. And we continue to target further reduction in leverage toward approximately 2 times exiting calendar ‘25. Let me also share some context on our first quarter and first half fiscal ‘25 outlook. While in the short term, we see retailers placing orders with caution and in Q1 we also faced the elevated prior year comparisons related to the strong innovation pipe fill last year, our growth outlook remains strong. Our outlook is supported by the continued solid end demand, geographic expansion of our fiscal '24 innovations, and a very strong fiscal '25 innovation calendar. We expect Q1 like-for-like sales growth to be around 6%, which contemplates the elevated prior year comparisons, when our revenues grew 18% like-for-like. At the same time, this Q1 outlook reflects a sequential acceleration from Q4, in line with our previous guidance, and also implies a strong like-for-like CAGR of approximately 10% versus fiscal ’22, which removes the supply chain distortions of the last two years and implies that CAGR trends remain consistent with the last few quarters. For the first half of fiscal ‘25, we anticipate like-for-like revenue growth of 6% to 8%, consistent with our full year outlook. For reported revenues, we expect a low single-digit ForEx headwind to revenues and a 1% scope headwind in the first half from the divestiture of the Lacoste license. On the profit side, we expect continued gross margin expansion in the quarter and first half. We anticipate adjusted EBITDA growth of 7% to 9% in the first half, well ahead of the implied reported revenue growth and slightly above consensus expectations, resulting in adjusted EBITDA margin expansion of 10 basis points to 30 basis points. With the expected revenue growth in Q1 a little lower than in Q2 due to the elevated prior year comparisons, we expect Q1 EBITDA growth and EBITDA margin expansion to also be at the lower end of the range. Looking to the second half, however, with no impact from the Lacoste divestiture and what looks to be a more neutral FX backdrop at current rates, we expect even stronger EBITDA growth, supporting our outlook for 9% to 11% EBITDA growth for the year. Finally, we expect adjusted EPS in the first half of $0.41 to $0.44, in line with expectations. Let me turn it back to Sue to discuss Coty’s competitive advantages and growth outlook.

Thank you very much, Laurent. So, in today’s complex and fast paced macro and beauty environment, Coty’s competitive advantages position us to continue to both grow and outperform regardless of fluctuations in the market. First, we have a balanced portfolio, allowing us to capture demand growth across price points, channels, categories and markets, further reinforced by our global manufacturing and distribution footprint. Number two, we have unrivaled fragrance expertise, which we will continue to infuse across our full range of brands. Third, we are re-igniting our iconic brands with a robust growth playbook across advocacy marketing and fast and agile innovation. And finally, we have significant growth opportunities in front of us, as we capture our fair share across many parts of the beauty market where we are currently under-indexed. Let me now share more details about our truly differentiated balanced portfolio and balanced growth model. We’re pursuing sustainable and balanced growth. As you can see here, our strong 11% like-for-like growth in fiscal '24 was generated in a very healthy and balanced way. We delivered momentum across our Prestige and Consumer Beauty businesses, across each of our regions, and also with expansion in volume, price and mix. We also delivered strong growth across channels. Brick & mortar, which accounts for approximately 80% of our sales, grew solidly by approximately 9%. And e-comm grew at double this rate at approximately 20%. Complementing our growth channels are our growth engine markets, which include Brazil, Mexico, the rest of LATAM, India, China, Southeast Asia, Africa, and Saudi Arabia. Together, these growth engine markets now account for 22% of our sales and are growing rapidly, with approximately 17% like-for-like growth in fiscal '24. Even excluding the contribution from the hyperinflationary environment in Argentina, our sales in growth engine markets grew 13%. And in addition to these growth engine markets, we also have our rapidly growing Travel Retail channel, which grew 21% like-for-like in fiscal '24. Our sales in mature markets grew 8% like-for-like. Our broad portfolio spanning all price points is also allowing us to capture the diverging growth trends across all consumer income levels. As high income consumers upgrade to more concentrated and sophisticated beauty, we are capturing this growth with our ultra premium fragrance collections like Chloe Atelier des Fleurs, niche collections like Infiniment Coty Paris, and ultra premium skincare with Orveda. And for lower to middle income consumers who want to indulge in the beauty trends at a more affordable price point, we are overdriving our entry prestige fragrance brands like Calvin Klein and Davidoff, cool mass brands like adidas, and entry prestige skincare like philosophy. Our diverse geographic footprint also limits our exposure to geopolitical risk. First, our revenues are broad-based across markets and regions, and our small presence in China has protected our performance given the current pressure in the market. At the same time, our global manufacturing base is also an asset. Our plant in China has been designed to produce for local consumption only, and our supplier base is also quite diversified including a small portion sourced from China. Our second competitive advantage is our unrivaled fragrance expertise, all anchored on our own internal development, our understanding of consumers and even more, our ability now to create new trends. Over the last several years we have put in place a best-in-class ecosystem that has enabled us to launch one blockbuster after another, while at the same time, assuring that each new launch is incremental and lays the foundation for long-standing iconic franchises. We have been consistently growing each of our major brands and importantly, the success of our fragrance brand [Technical Difficulty] on the fashion side. This not only assures that we are able to consistently build out our fragrance business irrespective of the more pressured luxury market, but also that we can grow scaled beauty businesses under brands where the fashion side is relatively small. This is a key reason why we are excited about the size of the opportunity for our recently signed new luxury licenses, and other discussions underway. At the start of the year, we launched Burberry Goddess, the biggest female fragrance launch for the industry in fiscal '24. Burberry Goddess ranked as the Number 1 or Top 3 female fragrance launch across all major markets in North America and Europe. And with its recent launch in the Middle East, it is performing exceptionally well in that region as well. Goddess is a perfect example of Coty spearheading an industry trend, in this case an exclusive-quality vanilla-based fragrance, which has now rippled into many more vanilla- based fragrance launches first across Coty, including recent mega hits like the ambery-vanilla Cosmic Kylie Jenner and then also across the broader industry. Importantly, the strength of Goddess and the halo it is providing to the broader Burberry fragrance portfolio, including the Hero and Her franchises, have propelled the overall Burberry fragrance brand rankings to increase by four to 11 ranks across the major markets. In the second half of the year, we followed the success of Goddess with two key launches. Marc Jacobs Daisy Wild now ranks as the Number 1 female fragrance launch in the US in value, building on the iconic Daisy franchise. Daisy Wild has resonated with consumers through its craveable packaging and its exclusive gourmand juice, which is another trend spearheaded by Coty, first with our exclusive-quality vanilla-based scents and then with the banana flower scent at the heart of Daisy Wild. At the same time, the first ever Kylie fragrance, Cosmic Kylie Jenner, is also performing exceptionally well. In the US, Cosmic Kylie Jenner with its ambery-vanilla juice, has become the Number 4 female fragrance launch by value and the Number 1 launch by volume. Similarly in the UK, where the fragrance launched only recently through select retailer exclusivities, Cosmic Kylie Jenner has just become the Number 2 female fragrance launch by value and the Number 1 launch by volume. While we will continue to support these key fiscal ’24 launches in the coming year, we have an equally exciting launch plan for fiscal ‘25. In the last couple of months, we have launched Gucci Flora Gorgeous Orchid, the 4th fragrance under the Gucci Flora collection. The launch of this exclusive-quality vanilla-based fragrance is off to a fantastic start, already becoming the Number 1 female fragrance at Sephora worldwide, which is an unprecedented accomplishment. Finally, we are leveraging our best-in-class fragrance expertise and our position as the global leader in mass fragrances, to launch a game-changing fragrance collection under adidas. Adidas Vibes, which is coming to market soon, is the first mass fragrance line designed and scientifically proven to enhance one's mood, once again highlighting Coty’s leading fragrance R&D. And in fact, the Vibes collection of six fragrances includes two different interpretations of vanilla scents. This will be a major step in our ambition to accelerate our mass fragrance business, further diversifying and strengthening the margins of our Consumer Beauty business. Our third competitive advantage is our portfolio of iconic brands, particularly in Consumer Beauty, which we are accelerating through a proven growth playbook. These brands have also closed the penetration gap with Gen