COTY ICONIC BRAND BUILDER MORGAN STANLEY CONFERENCE December 4, 2019
WE HAVE A strong asset base and a phased roadmap to unlock significant value 2
COTY’S ROADMAP 3: Accelerate 1: Turnaround 2: Refocus • Amplify growth potential • • Detailed 4-year Launched strategic of the portfolio roadmap to return review of the Coty to revenue Professional Beauty • With Kylie partnership: growth, expand division, associated hair • Step-changing margins to 14-16%, and brands, and Brazil delever to <4x growth profile of • Announced intention Coty through to focus on core partnership with fragrances, cosmetics, high-growth, digitally and skincare native beauty brand businesses • Expanding presence in premium cosmetics and skincare 3
TURNAROUND
LUXURY BUSINESS COTY IS THE GLOBAL LEADER IN FRAGRANCES #1 Global Fragrance Maker 3 out of Top 10 Luxury Fragrance Brands Average remaining license life ~8 years 5
LUXURY BUSINESS Coty luxury net revenues growing in-line to ahead of global luxury fragrance market 6.0% 5.2% Steadily improving margins, with room 4.7% for further expansion 4.1% 1.9% -1.1% FY17 FY18 FY19 Global Luxury Coty Luxury Operating Fragrances YoY Net Revenue YoY Margin 6 Source: NPD, Euromonitor, Coty estimates Global Luxury fragrance category trends for FY17/FY18 correspond to CY16/CY17 data, respectively.
MASS BEAUTY SEGMENT IN MODERATE DECLINE Opportunity for value creation through better execution Mainstream Value Coty US Premium Mass Mass Mass LFL ▪ Context : Measured mass beauty 11% segment declining -1-2% annually in the last 3 years 5% ▪ Drivers : Growing penetration of indie brands in unmeasured Total Mass Beauty: channels -7% -1% to -2% ▪ Our goal : Moderate revenue -10% decline through better execution and increased support to be in line with the market of -1-2% by US Color Cosmetics CAGR (‘16 - ’18) FY23 Coty US Consumer Beauty LFL CAGR (FY17-FY19) 7 *Coty US Consumer Beauty excludes Younique Source: Nielsen, Coty Inc
INCREASE AT-SCALE ADVERTISING AND REVERSE PRICE EROSION Number of priority brands in key markets Coty sample brand price index relative supported through advertising at-scale to direct competitor brand Coty higher priced Coty price index vs. competition = 100% 3x Coty lower priced From To Past Yesterday Going Forward 8
INITIAL EUROPE DEMAND ELASTICITY RESULTS CONFIRM OPPORTUNITIES FOR VALUE EXPANSION Max Factor – Key EU Retailer Rimmel – Key EU Retailer AUP Trend Unit Trend +11% -9% AUP Trend Unit Trend +8% -5% Baseline Trend Recent Trend Baseline Trend Recent Trend Pricing changes and results: • Initial pricing actions delivering results in line with expectations, with limited volume elasticity on SKUs with double-digit list price increases • Average unit price increases driven by combination of list price, mix and promos • Net positive impact on sell-out and gross margin 9 Source: Nielsen, Coty Inc
INITIAL POSITIVE SIGNALS – EUROPE & U.S. DRIVEN BY MEDIA SUPPORT AND IN-STORE EXECUTION Rimmel – U.K. Drivers of Improvement: • Ramp-up of TV media support U.K. Color Cosmetics Market Rimmel Cosmetics • Strong performance of new innovations, launched at premium pricing (Wonderluxe mascara, Lasting Matte foundation) -3.9% -4.6% • Early indicators support limited demand elasticity -6.3% -6.7% from pricing actions Last 52-wks Last 12-wks Last 4-wks Sally Hansen – U.S. Drivers of Improvement: U.S. Nail Color & Sally Hansen Nail • Digital media support behind Miracle Gel Treatment Market Sally Hansen Nail Color Treatment 4.0% 3.6% • Nail Treatment packaging refresh 0.4% 0.0% • Seasonally relevant collections and -0.6% displays in core sub-brands -3.7% Last 52-wks Last 12-wks Last 4-wks 10 Source: Nielsen
REFOCUS 11
STRATEGIC REVIEW NEXT STEP IN ONGOING TRANSFORMATION ▪ Announced Strategic Review of the Professional Beauty business and associated hair brands, as well as the Brazilian operations aimed at: ▪ Unlocking shareholder value ▪ Sharpening focus on fragrance, color cosmetics, and skincare core businesses ▪ Reducing complexity ▪ Deleveraging the remaining business with a target pro forma leverage of ~3x
OVERVIEW OF BUSINESS UNDER REVIEW ▪ ~$2.7B of annual revenues ➢ ~$1.8B Professional Beauty division (steady growth, high loyalty market) ➢ ~$900M across retail hair and Brazil ▪ Operating margin profile similar to Professional Beauty ➢ Margin further elevated by removal of some allocated overhead costs ▪ Strong incoming interest from strategic and financial buyers 13
ACCELERATE 14
NEW BEAUTY PARTNERSHIP WITH KYLIE JENNER • Coty + Kylie strategic partnership sets foundation for a global beauty business • Partnership combines: ➢ Kylie’s strong brand equity and unparalleled social media reach, particularly amongst Gen Z ➢ Coty’s global R&D, manufacturing, distribution knowledge and capabilities, and multi-category expertise • Expected to be growth accretive and exceed cost of capital by Year 3
KYLIE BEAUTY BUSINESS OVERVIEW REVENUES • ~$177M TTM¹ (>40% Growth vs CY18) • Growth fueled by: • Steady quarterly sales run-rate on DTC • Positive contribution from launching in Ulta (Nov 2018) • Skincare intro in May 2019 EBITDA Margin • >25% 16 ¹ TTM sales estimate through September 30, 2019
LUXURY BUSINESS Opportunity to leverage brands into adjacent categories Market Size ($Bn) ▪ License agreements allow expansion into cosmetics and skincare COTY #1 Share ▪ Major growth opportunities in the ~$24B luxury cosmetics and ~$35B luxury skincare segments $40 Luxury ▪ Gucci make-up relaunch off to a very strong Skincare Segment start Luxury Fragrance $30 Segment Luxury Cosmetics Segment $20 $10 6% 3% 4% 7% 8% 5% Estimated Next 5Y CAGR 17 Source: NPD, Euromonitor, Coty estimates
SIGNIFICANT UNTAPPED POTENTIAL IN SKINCARE <$100M in ~$200M in Revenues Revenues #6 skincare brand in #6 Skincare brand the U.S. in China Sephora 18
SIGNIFICANT UNTAPPED POTENTIAL IN COSMETICS 19
FINANCIAL OUTLOOK 20
FY20 OUTLOOK Targets Confirmed LFL NET REVENUES Stable to slightly down YoY ADJUSTED OI +5-10% YoY (At Constant Scope Strong A&CP reinvestment and Currency) ADJUSTED EPS Mid-single digit growth YoY FREE CASH FLOW Moderate improvement YoY
COTY ICONIC BRAND BUILDER Q&A
APPENDIX
GRADUALLY RATIONALIZE OUR SKUS Simplify our business and drive gross margin expansion SKU Mapping of Top Cosmetics Brand in Key Market High Accelerate Growth Value SKU Relevance / productivity Engineer ~15% of ~38% of SKUs SKUs ~70% of revenues ~10% of revenues Rationalize Reduce Complexity ~22% of SKUs ~25% of SKUs ~10% of revenues ~10% of revenues Low High SKU Gross Margin 24
PROFITS - BUILDING SUSTAINABLE INCOME GROWTH Assortment Promotion Mix / Value Innovation ~40% of gross margin expansion Productivity COGS Net Revenues SKU Reduction ~60% of gross margin expansion Gross Margin (>5%) Fixed Cost Advertising Organization delayering Working Media Mutualizing Digital & Traditional support functions Operating Income (Margin +3-5%) EPS FCF Net Debt 25 Note: Based on current scope of the business
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