Coty Inc. Class A

My name is Brittany and I will be your conference operator today. I would like to remind you that many of the comments today may contain forward-looking statements. please refer to Cody's earnings release and 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 where noted, the discussion of Cody's financial results and Cody's expectations reflect certain adjustments as specified in the non-GAAP financial measures section of the company's release. I will now turn the call over to Ms. Navi.

Ladies and gentlemen, with the conclusion of our fiscal 21 year, I'm very pleased by the progress we have made over the last 12 months and even more excited about the opportunities and momentum still ahead. This has truly been a transformational year for Coty. Over the last 12 months, we have built a leadership team of beauty and transformation experts, unveiled and began executing on our multi-year strategy, completed the divestiture of Vela, significantly improved our leverage profile and over-delivered on our savings, revenue and profit objectives. It's clear that Coty is emerging as a much stronger and more nimble organization. At the same time, Coty has clearly stepped up its beauty expertise and willing to take risks to shape the future of the beauty industry. There are a number of key points that I want to highlight today. First, our fourth quarter revenue growth was ahead of expectations, fueled by double to triple digit growth in each region and triple digit growth in our prestige brands as we continued to see robust prestige fragrance demand in the U.S. and China, coupled with continued expansion of our prestige cosmetics footprint. At the same time, our consumer beauty brands grew close to 40%, driven in part by the turnaround in CoverGirl and the renewed consumer migration towards trusted brands, a trend that are underpinning the rebuilding of our consumer beauty portfolio. As a result, our fiscal 21 revenues of $4.63 billion ended above the high end of our guidance range. Second, by accelerating our savings delivery in fiscal 21, ending at over $330 million or over $100 million higher than our original target, we were able to fuel both profit delivery and reinvestment in our business to accelerate our growth. In fact, we ended fiscal 21 with adjusted EBITDA of 760 million or 10 million above our guidance and above expectations. And with an EBITDA margin of 16.4% in fiscal 21, 300 basis points higher than pre-COVID levels, despite a lower sales base, it's clear that we are well advanced in making Coty into a leaner organization. Third, we continue to make broad-based strategic progress across each of our six strategic pillars, and I will cover some of the milestones on today's call. Finally, as we are now two months into our first quarter of fiscal 22, it's quite clear that momentum is building in the business, propelled by a combination of strong COTI initiatives across fragrance and cosmetics, coupled with an improving industry backdrop. Let me now take a few minutes to review our revenue trend in Q4 and in fiscal 21 before I hand it over to Laurent to take you through our financials. Then I will wrap it up with an update on our strategic progress and, of course, outlook for the coming year. Our fourth quarter revenues nearly doubled year-on-year as we lapped the peak of COVID impact in the prior year. While all regions returned to year-on-year growth in Q4, the U.S. and China markets were standouts. The Americas region grew 67% in Q4 and 6% in fiscal 21, with a full year performance driven by double digit growth in U.S. prestige products and growth in Brazil and Canada. The momentum we have seen in the U.S. over the past year and continuing today confirms our view that the U.S. will remain a key growth market for COTI and reinforces our investment strategy. Asia-Pacific grew 59% in Q4, with China growing double digits on a quarterly and full-year basis, both year-on-year and also versus fiscal 19, as we focus on building China into another powerhouse market for COTI. EMEA sales more than doubled in Q4, even as many European markets remained under restrictions through most of the quarter. In fact, in Q4, our consumer beauty brands recorded stable market share in EMEA for the first time in over five years, even though our key brand initiatives only started going live at the end of the quarter. Moving on to sales by channel. Our prestige sales more than doubled in Q4. and were nearly flat like for like in fiscal 21, even as we continue to reduce sales in low quality channels, which represented a low teens negative impact to prestige brand sales in Q4, and a high single digit negative impact in fiscal 21, related to fiscal 19. Nearly all prestige brands were up double to triple digits in Q4, with standout performance from Gucci, Marc Jacobs, Burberry, Calvin Klein and Chloé, supplemented with expansion in Coty's new growth and jeans, prestige cosmetics and skincare. In fact, looking at the second half of our fiscal year, our prestige brands grew 43% like for like versus last year, compared to prestige beauty market growth in the 20% range. Our mass beauty revenues increased 38% like for like in Q4, with growth across each region, even as the mass channel was the least impacted by last year's COVID-related store closures. Growth was led by CoverGirl, Rimmel, and Max Factor as the mass beauty category returned to year-over-year growth. Having unveiled the new brand positioning behind each of these key cosmetic brands, we are now also turning our focus to the body care part of our consumer beauty portfolio. Here we intend to leverage the know-how and capabilities of our key Brazilian brands like Monange and Pytro to accelerate our global body care brands, including Adidas. On a six-month basis, our consumer beauty brands grew for like 7%, slightly ahead of the underlying mass beauty market. Having concluded the year, and as we are now in the process of putting our new organizational structure in place, we have decided to transition to new segment reporting beginning during the first quarter of 22, based on two segments, prestige and consumer beauty. This will align with how we plan to run our business internally with dedicated chief brand and commercial officers for each of these businesses. We will be publishing recast historical financials reflecting these segments a few weeks before our next earnings call. I will now hand over the call over to Laurent to take you through our financial results.

Thank you, Sue. Our fourth quarter maintained our pace of strong profit delivery, allowing us to exceed our full year adjusted EBITDA target. I am pleased to say that this queue for profit was driven by both gross margin and cost reduction, allowing us to meaningfully step up marketing investments behind our brands. Starting with our gross margin performance. Our Q4 adjusted gross margin of 60.9% improved by over 20 percentage points from last year, which was significantly depressed due to the COVID crisis. This marks our second consecutive quarter of gross margins above 60% as we delivered on our strategic framework. For fiscal 21, our gross margin reached 60%, an increase of 190 basis points from fiscal 20, and in line with the gross margin of the Remainco business in fiscal 19, despite a lower sales base. Our fiscal 21 gross margin benefited from a positive mix shift towards prestige brands, e-commerce, and skincare. as well as material cost savings enhanced by supply chain productivity and improved excess and obsolescence we remain laser focused on further driving gross margin expansion in fiscal 22 and beyond we have a multi-pronged multi-year gross margin attack plan in place while we also expect to benefit from positive channel category and regional mix shifts This will in turn allow us to continue reinvesting behind our brands and simultaneously deliver strong profit expansion. As we mentioned during our last earnings call, we continue to step up our marketing investment during Q4. ANCP was approximately 26% of sales in the quarter, which is a sequential acceleration from Q3, as well as the first half of fiscal 21, with working media increasing more than 30% from Q4 19 levels. I want to emphasize that while we are investing behind our brands, Our philosophy remains fewer, bigger, and better, which also means that we are very focused on the return on investment of these marketing investments. Sue will soon be giving you a lot of details on the successes we have had across our growth pillars. However, I will just highlight some of the areas where we are directing media investments. First, we continue to invest behind brands and launches with proven success and market share momentum, including Marc Jacobs Perfect, CoverGirl, and Sally Hansen. We also fueled our expansion into new categories, particularly Gucci makeup in China, which is winning both online and offline. And finally, we are investing in our key fragrance icons, such as Boss Bottle, Chloe Signature, Marc Jacobs Daisy, and Gucci Guilty. This is driving strong ROI in the US, for example, where our icons market share grew plus 0.6 percentage point in Q4. The ability to accelerate our marketing investments and deliver profit growth continues to be enabled by our strong cost reductions. During Q4, our fixed cost declined 15% year over year, and we're down 16% for fiscal 21. We achieved approximately 70 million of cost savings during the quarter, bringing our total fiscal 21 cost savings to over 330 million. This is significantly ahead of our initial expectations for the year. The largest contributor of fiscal 21 savings were fixed cost reductions, including headcount and business services. The other buckets that made up the $340 million of savings included cost of goods sold, structural ANCP reduction, and trade investments. Given the accelerated savings we achieved this year, we now anticipate fiscal 2022 savings of over $90 million, which are net of cost inflation, reinstating bonuses, structural organizational reinvestment behind our growth pillars, though it's important to note that this does not include our intended reinvestment in ANCP. We remain on track to reach our fiscal 23 target of a total of $600 million of savings, and at the same time, we are identifying savings projects beyond fiscal 23. Equally importantly, we have been managing the one-time cash cost associated with the savings program very tightly. In fiscal 21, the cash outlay related to this one-time cost was below $200 million, and we expect another 200 million of cash outlay over the next two years bringing the total budget to approximately 400 million or 100 million below our initial target this is a true testament to how we have been able to transform the culture to a much more cash-centric culture which will in turn enable us to actively drive down our leverage moving to our profit delivery Adjusted EBITDA came in ahead of expectations for Q4, allowing us to exceed our full-year adjusted EBITDA guidance. Our adjusted EBITDA was 127 million, or 12% of sales in the quarter, and for the year, this was 760 million, or 16.4%. While this marks a very significant improvement from last year, which was heavily impacted by the COVID crisis, our fiscal 21 EBITDA margin was actually 300 basis points higher than our fiscal 19 Remain co-levels, despite sales being lower. Our strong profit performance this year was driven by strong gross margin expansion, as I previously mentioned, focused marketing investments, and fixed cost savings. In summary, the robust profit delivery should be the evidence that fiscal 21 was the year we started the virtuous cycle. We do not see a trade-off between sales growth and profit improvement, but see the simultaneous achievement of both as very attainable goals. Turning now to our EPS, which included the following drivers. Adjusted EBITDA for the quarter of $127 million, income tax of $9 million despite the negative pre-tax income, which reflected the true-up to bring the full-year adjusted effective tax rate to 21% in line with our previous comments. Nearly $40 million of other items, which primarily includes 24 million of preferred dividends, as well as 10 million of deferred financing write-offs related to the April and June refinancing. As a result, our Q4 diluted adjusted EPS ended at negative 9 cents. For the fiscal 21 EPS, based on 760 million of adjusted EBITDA, An effective tax rate of around 21%, we ended the year with diluted adjusted EPS at 1 cent. While not included in our adjusted EPS, during the quarter, the last fair market value rose by 10 million, continuing the trend of value expansion in the last two quarters. Looking to fiscal 22, I would like to provide some context on the different drivers for our adjusted EPS. First, as of Q1 22, we will be excluding non-cash stock compensation from our adjusted results, including adjusted EPS. Second, we would expect interest expense in the mid $200 million. a bit higher than the fiscal 21 expense of $245 million. On the continuing OPS basis, reflecting a lower net debt balance offset by someone higher cost of debt post refinancing. Third, on the tax side, we are anticipating an adjusted effective tax rate for fiscal 22, in the high 20s percentage as our global principal jurisdiction are now in Amsterdam and the US. However, we note there is a high degree of uncertainty with effective tax rate projections in the current environment. Finally, the convertible preferred shares on our balance sheet do introduce a number of complexities to the calculations of COTI's adjusted diluted EPS. To help investors and analysts model our EPS correctly, we have posted on the Coty Investor Relations website a short overview of the accounting treatments that you need to keep in mind. Now moving to free cash flow for the quarter, which came in roughly even despite Q4 typically being a seasonally weaker cash flow quarter. We continued our strict management of capex and one-time cost during the quarter with one-time cash cost for fiscal 21 coming in below 200 million. As a result for fiscal 21, we generated free cash flow of 145 million, which is in line with our expectations. Cash generation remains a very important priority for us going forward. We have identified the number of opportunities across 11 key streams, which we believe should further bolster our cash flow in fiscal 22 and beyond and drive a steady reduction in our net debt. Turning now to our capital structure. We ended Q4 with a financial net debt balance of approximately 5.2 billion, which is a slight increase from Q3. This is largely the result of a negative Forex impact, the 24 million cash payment of the convertible dividend, as well as costs related to the two refinancing transactions completed in the quarter. Factoring in our 40% stake of Vela, valued at approximately 1.26 billion, we ended the year with economic net debt of around 4 billion. During Q4, we successfully completed the issuance of €700 million, 3.875 senior secure notes due in 2026, and $900 million of 5% senior secure notes due in 2026, with a strong demand for both issuance, allowing us to upsize both transactions. These transactions extended the maturity profile of our debt portfolio and significantly reduced refinancing risk. Fiscal 21 was a pivotal year in the improvement of our capital structure through the sale of a 60% stake in Vela, and we remain on track to end calendar 21 with a net leverage ratio moving towards five times, and end calendar 22 with leverage of approximately four times. As a reminder, we continue to view our retained 40% stake in Vela as a financial stake with further valuation upside, and we will continue to be active and tactical in identifying opportunities to monetize this non-strategic Vela asset and further reduce our leverage. Building on this point, considering the dynamism of the beauty market, Coty is always on the lookout for opportunities to leverage its assets to create value and fuel growth. In order to support the growth of the Brazil business and Coty's personal care brands, Coty confirms that it's pursuing a partial IPO of its Brazil business. Earlier today, Coty completed its first filing at CVM, the securities commission which regulates capital markets, in Brazil to commence this partial IPO process. This will also help advance Coty's deleveraging agenda. Coty intends to remain a controlling shareholder of the Brazil affiliate. Due to local Brazilian regulations, following its first filing, Coty cannot offer further details at this time, but will provide updates in due course. Additional information about the partial IPO of the Brazil business can be accessed on the CVM website. I will now hand the call back to Sue for a discussion of our operational milestones and outlook.