Coty Inc. (COTY) Q1 2016 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. My name is Diane, and I will be your conference operator today. At this time, I would like to welcome everyone to Coty's First Quarter Financial 2016 Conference Call. All lines have been placed on mute to prevent any background noise. After speakers' remarks, there will be question-and-answer session. As a reminder, this conference call is being recorded today, Thursday, November 5. Thank you. I will now turn the conference call over to Kevin Monaco, Coty's Senior Vice President, Treasurer and Investor Relations. Mr. Monaco, please go ahead. Kevin Monaco - Treasurer, Senior VP & Head-Investor Relations: Good morning, and thank you for joining us. On today's call are Bart Becht, Chairman and Interim CEO; and Patrice de Talhouët, Executive Vice President and Chief Financial Officer. Before we begin, I would like to remind you that many of our comments may contain forward-looking statements. Please refer to our press release and our reports filed with the SEC where you will find factors that could cause actual results to differ materially from these forward-looking statements. All discussions of net revenues are on a like-for-like basis. In addition, except where noted, the discussion of our financial results and our expectations do not reflect certain non-recurring and other charges. You can find the bridge from GAAP to non-GAAP results in the reconciliation tables in the earnings release. I will now turn the call over to Bart. Bart Becht - Chairman & Interim Chief Executive Officer: Thank you, Kevin. This morning we'll provide you with a brief update on the planned merger with the P&G Specialty Beauty Business, our recent corporate developments, and Q1 results. Then Patrice and I will be pleased to take your questions. In July 2015, we announced the intended merger of Coty with the P&G Specialty Beauty Business to create a strong global leader and challenger in the beauty industry. Since that time, much has happened. Over the last few months, the financing structure for this transaction has been put in place. Extensive discussions with the 12 licensors have taken place. And to-date, I can confirm the 10 out of the 12 licenses will transfer to Coty upon regulatory approval and completion of the transaction. This has allowed us to make good progress on the regulatory clearance process with the authorities. We have also announced the new organizational structure for the merged entity. That structure will be all about servicing consumers, which we believe will strengthen the growth trajectory of the merged entity over time. The Coty business will be organized around three divisions, consisting of the Coty Luxury Division, the Coty Consumer Beauty Division and the Coty Professional Beauty Division. We will also form a new department focused on accelerating growth, by improving capabilities in areas such as innovation, traditional and digital communication, as well as sales execution and e-commerce. As a precursor to the formation of this department, we recently acquired Beamly, a cutting edge digital marketing firm. This week we announced the acquisition of the Beauty & Personal Care business of Hypermarcas. This acquisition will help increase Coty's exposure to higher growth emerging markets and provide a strong platform to absorb both the current Coty business as well as the future P&G Specialty Beauty business in Brazil. Finally, we have just announced the new Coty executive team, effective subject to the closing of our merger with the P&G Specialty Beauty Business. It is a team of highly experienced and proven executives. We believe the new consumer-centric and category-focused organizational structure has strong brand portfolio together with the new team will position Coty well to realize its ambition of becoming a true leader and challenger in the beauty industry and drive profitable growth and shareholder value over time. Touching briefly on Q1, results were mixed. The operating profit and margin continues showing very strong progress with EPS growth substantially higher, clearly helped by one-off tax benefit. This confirms that our Global Efficiency Programs continues to generate the benefits we've been targeting. On the other hand, revenue growth was not where we would like it to be. While Color Cosmetics growth continued to be very strong due to Sally Hansen and Rimmel, and Skin & Body Care trends are improving, Fragrance growth is lacking. Fragrance revenues continue to suffer from a very large number of unsustainable historical launches, not being compensated by current brand building efforts and launches. We'll be working hard to clean up past portfolio practices, while strengthening our innovation pipeline and improving our capabilities in the areas of innovation and sales and marketing execution. I'll now hand over the call to Patrice. Patrice de Talhouët - Executive Vice President & Chief Financial Officer: Thank you, Bart, and good morning everyone. Total Q1 net revenues declined 2% like-for-like. For the quarter, the adjusted gross margin increased 70 basis points to 60.3% reflecting our continuous effort in driving supply chain efficiencies. We keep on building a better business. We've adjusted operating income growing 4% with a much more substantial 12% increase at constant currency. The adjusted operating margin grew 150 basis points with improvement in each of the segments, including an increase of 110 basis points in Fragrances; 280 basis points in Color Cosmetics; and 120 basis point in Skin & Body Care. During the quarter, FX negatively impacted revenues and operating income by roughly 800 basis points. Our programs to build a better business have changed the mix of profit by geography, reducing the natural foreign exchange hedge in the quarter compared to prior periods. We expect this FX impact to continue into Q2, and then moderate in the second half of the year. Supported by the one-time tax benefit of $130 million, and our profit growth, our Q1 adjusted diluted EPS increased to $0.59 from $0.28 in the prior year. Turning now to the balance sheet and cash flow, we had another very strong quarter. We generated $116.7 million in operating cash flow and $74 million in free cash flow up to over $100 million versus the prior-year, driven primarily by an improvement in the earnings profile and working capital. Supported by this very strong cash flow, our $700 million share buyback program is progressing as planned, with over 60% of the program completed throughout November 4. We also increased our annual dividend by 25% this year from $0.20 to $0.25 per share. This dividend increase and ongoing share repurchase program demonstrate our confidence in Coty's ability to generate substantial cash flow as well as our commitment to return cash to our shareholders. We recently closed on a $4.5 billion credit facility to refinance existing Coty debts with new borrowings subject to longer maturities, which was a great success, and well oversubscribed. I would like to add that, despite volatile financial markets, we increased the size of the Coty financings by $500 million, reflecting strong market demand. In addition, certain lenders have committed to loan up to $4.5 billion to an affiliate of P&G, which is expected to become available to Coty in connection with the expected merger with the P&G Specialty Beauty business. Finally, I wanted to share some additional details on our announced acquisition of Hypermarcas' Beauty & Personal Care business. This acquisition offers several excellent benefits for Coty. First, it encompasses a portfolio of leading beauty brands in Brazil, which include leading retail position in skin care, nail polish, men's care, and men's hair color. Second, this acquisition brings a state-of-the-art manufacturing plant and distribution center. Third, it offers critical go-to-market capabilities including sales and merchandizing force of approximately 630 people. And finally, while we will not disclose the full financials for the business, I'd like to point out that it is highly profitable with operating margin above current Coty levels. Thank you. We will now open the call for questions.

Thank you. [Operating Instructions] And our first question comes from Bill Schmitz. Your line is open.

Hey. Can we just like drill down a little bit on the Hypermarcas deal? I know you don't want to give us the exact numbers. But you know, it seems like about $50 million of EBITDA, so it's $20 million – sorry 20 times EBITDA is like the rough math on the deal. I just want to know if that's like directionally, right? And are you buying it for the manufacturing and distribution center, are you buying it because you think there's still like a lot of legs left in the brand. And also, maybe how you think about the Brazilian beauty market, and kind of are we at the bottom, and do you think it's going to accelerate from here? Then I have a follow-up if I can. Bart Becht - Chairman & Interim Chief Executive Officer: Yeah. So first, clearly Brazil even in today's environment is a faster growing market than the markets that we're in, in North America and in Western Europe. Still in most of the categories, in which Hypermarcas operates. This business also has shown basically good share progression over the last years. Clearly, its brands are also well-positioned in the market, because they don't tend to fit in the kind of like premium end – the super premium end of the market. And therefore, certainly in the current environment, can be more be successful as a result of that. So we believe that this business has continued good growth potential, certainly ahead to where Coty is today, as you can imagine. So I would say that's point one. Point two; this is a very profitable business. It's a business which has higher profitability than Coty has today. In terms of its capabilities, it provides us with a strengthening of our capabilities really in two areas. First, it has a state-of-the-art supply-chain, both from a manufacturing and a distribution and warehousing point of view, which is one of the key things that we're lacking on both the Coty and the P&G side. And so this will be a very welcome platform for us from a supply point of view. From a go-to-market point of view, it is a very strong organization on the ground. Well supported by a proven management team, considering the market share results. And so, also this clearly will help us when we integrate the three businesses between P&G, Hypermarcas and Coty is to have a very, very strong team and go-to-market organization going forward.

Okay, great. And then can we just talk about the Fragrance category, so like what you think the big challenges are? How the holiday season is progressing? How far along are we on the inventory cleanup of some of the tail inventory? And then, just broadly speaking the health of the Calvin Klein brand, because I feel sometimes that you guys do more than your fair share of work trying to build the equity there, but if the brand owner is going to continue to divert it and over distribute it, it's almost like you're running against hurricane force winds, because the brand equity keeps getting diluted, so it's almost like a fool's errand, because it's kind of hard to control your destiny when the brand is diluted in another channels. I'd love to hear your thoughts there. And again, the difference between, kind of, sellout versus shipments relative to the inventory destocking you guys kind of referenced. Patrice de Talhouët - Executive Vice President & Chief Financial Officer: Yeah. There clearly – there have been a number of unsustainable efforts from a sales point of view, and there has also been a number of unsustainable lines of businesses, which were launched over the last couple of years, which are coming back to haunt us today, and are not being offset or more than offset by our current brand building efforts and launches. So I think you've already alluded to what the issue there is. So I don't need to elaborate on that, all I can say is that, there are – before everybody is seriously depressed about this business, there are some very nice successes also. We do have the Marc Jacobs Decadence, which is off to a very, very strong start. We have Miu Miu, which is off to a very strong start. But it is more than offset by a number of past launches and practices, which and quite frankly, we're going to have to go through and clean up. As a result of that, from a growth point of view, for the full year, I'm not looking for a material improvement against the Q1 trend as we have it today. Because we will need to continue to have a number of cleanup efforts over the balance of the year potentially going into next year, and they will impact, in particular, the Fragrance category.

And our next question comes from John Faucher from JPMorgan. Your line is open. Bart Becht - Chairman & Interim Chief Executive Officer: Hello? Patrice de Talhouët - Executive Vice President & Chief Financial Officer: Hello, John.

Yeah. You can't hear me? Bart Becht - Chairman & Interim Chief Executive Officer: Yeah. Patrice de Talhouët - Executive Vice President & Chief Financial Officer: Yeah. Now we can.

Okay. Sorry about that. So, as we look at the trend from the Procter businesses, obviously the trends have continued to be tough. How should we think about how you view those businesses and the performance before you get a hold of them? Because we get a lot of questions in terms of the trends and everything, and kind of – I guess what kind of shape are you expecting those businesses to be in when they get transferred? And then, secondly, I just want to follow-up on sort of – if we could get some thoughts in terms of the power brands, and how you feel about sort of the shift in spending that you've had on those, do you feel like you're beginning to see the underlying equities improve on the power brands, given your new strategy? Thanks. Bart Becht - Chairman & Interim Chief Executive Officer: So on the P&G trends, clearly, we cannot comment you know on that. What I can tell you from the e-market performance, which is publicly available is that, this business is performing at a better level than where Coty is performing. So – are all the trends positive? No, there are certain brands where there clearly are challenges. And you can look at the U.S. market data, I'm sure which you have access to, and clearly identify that. On a global basis, there are also pockets where they're doing very well. And I think that's probably all I can say about the P&G trend for the time being. So I do anticipate you know, that this business would come to us in a shape and a form, which is very much when we did the transaction. I don't think there will be substantial change from what we anticipated. On the power brands, improving brand's equity is one of the key things that we have and are starting to work on. If you ask me, you know, as you know, brand equity doesn't change overnight, doesn't even change in 12 months, no matter what you do. So this will take some time, but this is going to be a key focus. We need to move Coty much more from a, let's call it, sell-in type mentality to sell-out type of mentality, and that clearly means that, we need to do much more work in terms of building the brands from the ground up, through brand equity programs like communication programs and innovation programs.

Got it. Thank you.

And our next question comes from Dara Mohsenian. Your line is open – from Morgan Stanley. Dara W. Mohsenian - Morgan Stanley & Co. LLC: Good morning. Bart Becht - Chairman & Interim Chief Executive Officer: Hi, Dara. Dara W. Mohsenian - Morgan Stanley & Co. LLC: So, first just a couple of clarity questions, did two licensees under the P&G portfolio that you've not reached an agreement on, are those still up in the air or are you not expecting them to transfer and how big are they? And then second, are you expecting like-for-like revenue growth here for the full year, or is that no longer realistical with the Fragrance trends, I'm assuming it's not, but just want a clarity there. Bart Becht - Chairman & Interim Chief Executive Officer: Yeah. So 10 out of the 12 are confirmed to transfer. So that pretty much means they're signed-off, fully signed-off. The remaining two, one just in progress, and one basically is declined, but the one which has declined is very, very small. So we're talking a couple of percentage points of the total P&G net revenue, and therefore is not really a concern. And the last one is still being discussed. So there is no news on that. We do not disclose basically what the sizes of the ones which are being discussed. All I can tell you is that, the one which is being discussed is not immaterial, is a material one, and that's it. In terms of like-for-like growth, just to be crystal clear, I do not anticipate that, what we've seen in Q1 will materially change for the full year 2016. I think the Fragrance trends might improve from where we are today. Having said that, on the Color Cosmetics side, as you all know, we'll be lapsing a major launch which is the Miracle Gel. And so, I would expect that we would continue to see good momentum on Color, but probably not to the same extent as what we've seen so far. So I think, you will see offsetting trends with an overall situation where at this point in time, I do not anticipate a material improvement versus Q1. Dara W. Mohsenian - Morgan Stanley & Co. LLC: Okay. That's helpful. And then can you just talk a little bit about the balance between top line growth and margins, obviously strong profit performance here in Q1, revenues didn't come through to the extent you expected. So does that mean more investment going forward – any kind of tweaks in the way you view that or is it more kind of you look to innovation and other areas to drive growth going forward? Bart Becht - Chairman & Interim Chief Executive Officer: Yeah, we continue to anticipate that we will have a good improvement on operating margin also for the full year. Not to the same extent that we have in Q1. But we will have operating margin improvement for the full year, both at constant and actual rates. The efficiency programs will come through. We're not worried about that. We are tracking those very closely, and so they (20:14) bottom line, some of that will be reinvested back in the business. But you know, we are still building a better business from a margin point of view for the full year. Clearly on EPS, you know – and EPS will be good, because we have a huge return on one-off tax benefits. So that's not really up for discussion. But margin-wise we will continue to make progress. Clearly, as we've discussed before, we are working harder and harder in terms of improving this business structurally. And that means, moving this from a sell-in to a sell-out organization, and that will take some time. Dara W. Mohsenian - Morgan Stanley & Co. LLC: Thanks. That's helpful.

And our next question comes from Chris Ferrara from Wells Fargo. Your line is open.

Thanks. Can you guys talk maybe a little bit more specifically about – I guess maybe what the cleanup means in Fragrances for the overall size of the business. I'm just trying to dimensionalize it, I mean, is 5% of the Fragrance business perhaps unsustainable or is it 10% or 20%, like how big a deal is this for you guys? Bart Becht - Chairman & Interim Chief Executive Officer: Yeah, I'm not going to answer that, a) because it's work in progress. And so, I would say this is premature to have this discussion. It is very clear that we have a number of lines of business where – which are not sustainable, which we have to tackle. And we will tackle those over time. We will not be able to tackle all of those in one go. So – and at the same time, we need to push much harder in terms of structurally building our brands from a brand equity point of view and an innovation point of view. So I'm not going to give you any clarity on this point.

Okay. And then I guess two quick follow-ups; I guess one, how big an element of the Hypermarcas deal also is tax savings or duty avoidance in manufacturing locally for the whole business? And then the motivation behind moving to London, I get like proximity to Europe for a lot of the executives, but is there a tax element to that too, if you can just flesh that a little bit would be great? Thanks. Patrice de Talhouët - Executive Vice President & Chief Financial Officer: Yeah, so Chris on the first part of the question clearly the Hypermarcas deal is primarily a business reason. We wanted – as Bart said, we wanted to have a platform in Brazil with state-of-the-art go-to-market capabilities and manufacturing ability. So that's the main reason why we're acquiring this business. There are some tax benefits that Hypermarcas is enjoying, that will go with the transaction. So that's for sure. But that's not the primary reason. On the second question, which is the executive committee in London, actually the underlying reason why we're doing that is, first – that we want the headquarter not to be in the same location as one of the headquarter of the division. We just don't want the ExCom to overlook systematically the divisions. The divisions are fully empowered to drive the business, fully focused and dedicated management team. So that's really important. The second point is that, we wanted to be in an area where we can also attract talent for the headquarter, and that is really from an infrastructure standpoint. And so, clearly, London was an ideal location if you exclude Paris and Geneva where we have already a headquarter of a division.

Thank you. Patrice de Talhouët - Executive Vice President & Chief Financial Officer: So that's not really tax driven.

No.

And our next question comes from Olivia Tong from Bank of America. Your line is open.

Great. Thanks. First on Fragrance, how do you assess whether it's really the focus on cleaning up the portfolio versus just underlying challenges in that category that you've been facing for some time. And then, on the Hypermarcas deal, is there sufficient capacity already existing at their facility so that you can self-manufacture or should you want to want some of your own brands. And on the tax structure, is that going to – are the benefits that they get going to pass along to you, do you have a sort of sign-off on that? And then just lastly on the trends there, it looks like the sales trends have been relatively solid, but their margin trends have been less so, I know the absolute margin is better than yours, but the trajectory hasn't been great, so how do you think about plans to manage that business versus what prior management has done? Thanks so much. Bart Becht - Chairman & Interim Chief Executive Officer: Right. That was a bunch of questions. So let me make sure – so I think the first one was on Fragrance. So can you repeat that one more time, because I kind of lost track of your questions?

Sorry, I should've probably asked it in parts. But on Fragrance, it was just – how do you know that it's really what's driving that decline is the things that you're doing versus just underlying challenges in the category that you've been facing for some time? Bart Becht - Chairman & Interim Chief Executive Officer: Yeah, I would say, so as you know the Fragrance category overall is not a high growth basically category, so that doesn't – and clearly that doesn't help us. Having said that, within the category, you know there are certain brands from a portfolio point of view, yes, you're right, that we have a drag on the tail – from the tail, and particularly where it is, celebrity fragrances clearly, in terms of e-market performance. But we also have launched historically, on a number of key brands. New lines which clearly were not sustainable. And never basically had a chance of being sustainable for any medium or long-term. And so that clean up, that decay rate that you have on those lines and the cleanup associated with that is going to depress the net revenues going forward before we can put things in place or as we're putting things in place to really fundamentally drive the business from an equity and innovation point of view. On Hypermarcas, I'm going to handover to Patrice on the tax, but before we get there on the infrastructure, since I've been there, this is truly a state-of-the-art manufacturing facility, which can produce anything from nail care to skin care products, to deodorants and many other personal care items. It has a state-of-the-art warehousing facility site as well. So it is something – it also produces hair colorants, which will be clearly helpful as we absorb the P&G business. So it is something which we can build on, which, if we would have done this without it, in our wildest dreams, we wouldn't have gotten there until years from now. So from an infrastructure point of view, it is a true help. It's the same on the go-to-market side, because it has a very large sales force, which clearly will be very helpful when we absorb the other two business into it. Patrice de Talhouët - Executive Vice President & Chief Financial Officer: And so to complement the balance on Hypermarcas. So first of the tax line, so clearly we anticipate most of the tax benefits to transfer, and we will be working very closely with Hypermarcas towards this objective. But more broader, so in terms of capacity, so clearly there are some capacity that we'll be able to welcome our products. And if you think about the synergies and the accretion of the deal, I will not be very specific. But what I can tell you is that, we do expect this acquisition to provide some benefits on both the synergy side and the one-time CapEx side, which we have focused for the merger with a P&G Specialty Beauty Business. However, it's clearly premature to determine any precise amounts. And excluding any synergy with the anticipated merger with the P&G Specialty Beauty Business, we would expect this deal to be marginally EPS accretive in year two. So I think this acquisition is spot on our strategy, is facilitating the merger of P&G, and is creating a great platform in Brazil, as Bart said, and we are very excited and happy about it. Bart Becht - Chairman & Interim Chief Executive Officer: So – and just to answer your last question in terms of margin trend. The margin trend is not deteriorating on this business. As you know, this is a business which is, they have two fundamental businesses. One is their consumer business; the other one is their healthcare or pharmacy/OTC business. Within the consumer business you have two businesses. You have the paper business or a diaper business, and you have the business that we're buying. The margin trends on the business that we're buying has not deteriorated over the last years.

Got it. Thank you so much.

And our next question comes from Wendy Nicholson from Citi. Your line is open.

Hi. Good afternoon or good morning. Two quick questions for you, the follow-up on the deal in Brazil, does that change your strategy or your thoughts about your joint venture with Avon in Brazil, and will you continue to market their fragrances? And then my second question is, on the gross margin expansion in the quarter, you talked about that being a function of your productivity savings. But I'm wondering if there was also a component of favorable mix shift in there, and can you remind us kind of what the gross margin is for fragrance relative to color and skin? Thanks. Bart Becht - Chairman & Interim Chief Executive Officer: So, on Avon, no it doesn't really impact what we do with Avon. As you know, the business in Brazil, from a market point of view, is very much split between what happens door-to-door and what happens at retail. So the Hypermarcas business, the current Coty business and a big chunk of the P&G business is really – is a retail business. What we were doing with Avon is very much focused on different products in a different channel. So they don't really impact each other. They might at some point in time, but certainly not for the time being. On the gross margin... Patrice de Talhouët - Executive Vice President & Chief Financial Officer: On the margin, so on the margin, the vast majority of our margin is coming from the supply chain efficiency, and from the Productivity Program, which is part of the Global Efficiency Plan that I've referred to previously. Actually there is no mix, which is favorable, and we are not going to comment and give you any details on the gross margin by segment. I think what we're doing is, we're giving the operating margin, but we're not giving you any further details, and I want to stick to that.

And I know we'll see it once we get the Q. But can you comment directionally on just the A&P line, how much that changed year-over-year, and whether that was a timing issue, or how much that contributed, if you will, to the first quarter operating margin expansion. Bart Becht - Chairman & Interim Chief Executive Officer: Yeah. A good question. So on that one, we keep on going into our journey of shifting more money from non-strategic spend to strategy spend. In other words, the working media keeps on increasing quarter after quarter, which is what we have to do to build a sustainable business. So what you will see is that, in constant rates the overall NCP line will slightly decrease, but actually the working media is increasing, and it's the non-working media actually where we keep on making effort to generate some efficiency there.

Got it. Thank you.

And our next question comes from Nik Modi from RBC Capital Markets. Your line is open.

Yeah, thanks for the question. Hey, Bart, I was wondering maybe if you can comment on organizational stress, I mean, you guys have been very busy, a lot of big initiatives going on. Maybe if you could just – is there something you worry about and can you help us understand how you're kind of managing all these moving pieces and all these balls in the air. Thanks. Bart Becht - Chairman & Interim Chief Executive Officer: Yeah, so – and what you – it is a very good question. Clearly, what you're seeing is a company which is in reconstruction mode. And that clearly is also from an organizational and a staffing point of view. And as I alluded to, we need to shift in essence on two main levers; one is to move from a sell-in much more to a sell-out and brand building mode. And on the other side, clearly from a organizational point of view, and from a staffing point of view, we will continue to focus on upgrading the bench, and clearly most of those efforts need to be seen in the context of the merger. And I think you've seen the first step of that at the first level, the executive committee level, where we have purposely looked for the best of both worlds. And where we believe we need to complement that with an external candidate, and you've seen this already at the executive committee level happening is, we will go outside to make sure that we get a very strong team, which ultimately is going to build this business over the long-term. So a lot of efforts at the moment, even though it is somewhat painful on a quarterly basis are there to do the right thing and to build something which can become a true leader in the beauty industry.

Thanks.

And our next question comes from Steph Wissink from Piper Jaffray. Your line is open. Stephanie Schiller Wissink - Piper Jaffray & Co (Broker): Thank you. Good morning everyone. Just a couple of questions. First, guys, if you could just talk a little bit about the post-merger and the closure of Hypermarcas, how should we think about the pro forma split between domestic and international both on the sales and class basis? And then on the Fragrance side, I just want to follow-up on Wendy's earlier question that, how much of that maturation is tied to the contracts, and the commitment to a certain number of fragrance launches per contract, is some of the work done related to contract exits or ending? Thank you. Bart Becht - Chairman & Interim Chief Executive Officer: You're going to have to clarify the second question for a second, because I'm not sure I really understood. Are you implying that fragrance launches are tied to contractual obligations to our licensors? Stephanie Schiller Wissink - Piper Jaffray & Co (Broker): Yeah. If there is such a structure, if you have committed to multiple fragrances over a period of time, if those contracts actually need to expire in order to work down some of the inventory related to some of those earlier fragrances? Bart Becht - Chairman & Interim Chief Executive Officer: Okay. I'll answer the questions. So, first on Hypermarcas, so the entire business is in Brazil, there is no business outside of Brazil. So it's very, very clean. So that's question one. The second question about fragrance launches, the launches of fragrance are decided in between the licensor and Coty. And this is clearly – when you have a license brand, you have a clear positioning of a brand and there is a discussion with a licensor within that context in terms of what we should launch over time. And that's an ongoing discussion and this is not – that's not really a contractual discussion, it is a discussion how to best basically manage their brands in the cosmetics arena. And that involves not just launches, but clearly also involves how we execute basically in the market. It's not a contractual obligation discussion. Stephanie Schiller Wissink - Piper Jaffray & Co (Broker): Okay. That's helpful. And then just related to the other question related to the post-merger and closure of Hypermarcas, can you talk about Procter plus the Brazilian business, and your business, how we should think about the split domestic versus international both on a cost and sales basis. What I'm trying to understand, I think is, the centralization versus the localization of cost. How should we think about the FX hedging and some of your exposure on a global basis? Thanks. Bart Becht - Chairman & Interim Chief Executive Officer: Okay. I'm not going to disclose specific data, what I can tell you is that, between the three businesses, Hypermarcas is the largest business, P&G is a second largest business and Coty is a third largest business, and Coty has a relatively small business there today. So, then within that clearly, we have – and we have a Fragrance and Skin business. We will have, which we call a Luxury business. Then clearly we have a Consumer Beauty business, which is all everything, which is in Color Cosmetics, hair retailing and body care, which will be the biggest chunk of what's in Brazil, and then finally we have a salon business. So the biggest chunk will sit in the middle in the Coty Consumer Beauty business. The second biggest business will sit in salon, and the third largest business will sit in the Fragrance and Skin Care business. That gives you a rough idea. So, in terms of size, Hypermarcas is one, P&G is two, Coty is three. Patrice de Talhouët - Executive Vice President & Chief Financial Officer: Yeah. And to add on that, clearly, the reason why we acquired Hypermarcas is we need to have a platform in terms of manufacturing and go-to-market capabilities. So, in terms of localizing our costs, our cost of operating, it clearly gives you the answer there. Bart Becht - Chairman & Interim Chief Executive Officer: Yeah. Just to be clear, without the transaction to absorb the P&G business, we would have had substantial FX exposure. Patrice de Talhouët - Executive Vice President & Chief Financial Officer: And this is clearly another motivating reason why we did the transaction, because they don't have to tell you when you have to import into Brazil, you have a raft of issues well beyond even the FX. Stephanie Schiller Wissink - Piper Jaffray & Co (Broker): Very helpful. Thanks guys.

[Operator Instruction] And our next question comes from Jason Gere from KeyBanc. Your line is open.

Thanks. I just have two questions, and they're not about Brazil. So the first one, I guess, I just want to get your perspective on some of the channel disruptions in food, drug and mass, we've heard about Walmart, and some of the announcement, SKU rationalization, Walgreens and Rite Aid combining maybe some store closures. I recognize that in nine months you guys will be in a – I guess a better position of strength with P&G in the fall. But just wondering if I can get your perspective on just the food, drug and mass channel, what you see happening over the next year? And then just kind of tying in how e-commerce kind of maybe could come in and kind of serve as a little bit more of a panacea to that? And then I have a follow-up? Bart Becht - Chairman & Interim Chief Executive Officer: Yeah, so the last point is the major disruption. So the two disruptions which are happening in the consumer goods space is, one, is in terms of digital communication with the consumer and the other one is e-commerce those are the two disruptive factors. The other factors that you're highlighting, which is talking about inventory management at Walmart and Walgreens is a discussion which we've had for the last, probably 10 years. And that will continue to happen. Every single time that any of our retailer sees an increase in inventories, because they're ordering ahead, basically of the sell-out trend, they will immediately pare back from an inventory point of view. And that will happen from time-to-time. Normally that happens for us in the second quarter. It might happen again. So those types of things are you know more the ongoing normal discussion. In terms of – so, I would highlight, on your key discussions what's happening from an e-commerce point of view. And that could be e-commerce on your traditional retailers or new retailers because that's where the growth is of the entire market. There is very little growth in the bricks-and-mortar segment.

Okay. And then, I guess, just in terms of the context of just – with Walmart and the drugstores, how do you think about the tail brands kind of surviving through some of this. I know that you are kind of managing those more for cash. So just wondering, is that kind of built into your expectations for maybe the next two years like these brands could kind of get pushed aside, but hopefully the power brands will kind of sort of step-up and kind of overcompensate? Bart Becht - Chairman & Interim Chief Executive Officer: Yeah, so on the tail brands, some of them over time will not survive, some of them will survive. So that's kind of like building what we've said about this fiscal year. In terms of the longer-term, we are and we will be going through a full portfolio review on the margin entity, and then we will communicate to market in due time. But that's work in progress, that's not completed. And so that is really something which we'll be discussing with you some time next year.

Okay. And then just the question, when you guys announced the P&G merger, you gave kind of a pro forma number. So obviously, there's a lot of moving parts since that date. P&G's numbers, the change in your structure, acquisitions et cetera. When do you think you might be able to kind of provide us a little bit more clarity on what the kind of the go-forward pro forma number might look like or a little bit more context, so we can put into the numbers, into our modeling? Thank you. Bart Becht - Chairman & Interim Chief Executive Officer: Yeah. I could give you a very broad answer sometime next year. So, this is – you have to kind of understand how this process works. We have just appointed the executive committee, clearly we are working on the next level, and then we'll work on the levels below that. As you're working your way down into the organization, you are essentially, you know, also creating the cost structure associated with that. So the progress in terms of clarifying the specific synergy number and confirming the synergy numbers, which we've given to the market or providing any perspective around that is – happens as we are going through this process. So it will happen, hopefully it will happen sometime in the first half, but it's premature to give you a firm date on that.

And our next question comes from Mark Astrachan from Stifel. Your line is open. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc.: Yeah. Thanks, and hi everybody. I'm more curious – has your strategy evolved by managing luxury and the mass businesses? And if yes, sort of, what has changed? And sort of, related to that, how much overlap is there between managing luxury fragrances and other categories together? Bart Becht - Chairman & Interim Chief Executive Officer: So, I think you can see our thinking in this area on display in terms of what we've announced relative to the new structure of the organization. So we clearly have three divisions, and the first of the divisions are Fragrances and Skin Care is very much focused on that category, it's predominantly a prestige and license business. In terms of the mass fragrance, which sits in there, we will basically, they will manage that, because from a consumer point of view, there is very little difference. If they buy a mass fragrance or a prestige fragrance. Trust me, the consumer does not think about buying a mass fragrance or a prestige fragrance. So the fundamental thinking and should sit in that, basically in that division. And we will continue basically to leave that with them to manage from a consumer point of view. Both the mass as well as the luxury part of the fragrance. Having said that, going forward we have to be very clear, this is 80% plus is going to be a prestige license type business, in the fragrance area. So the mass will be part of that. But will be the smaller parts, so the thinking is going to be more towards the upper end and the bottom end of the market. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc.: Got it. Okay. And just a clarification, commentary on synergies, did something change there or are the expectations both organic as well as the acquired businesses the same as they were? Bart Becht - Chairman & Interim Chief Executive Officer: There is no change to our commentary, so far on the synergies, you know, with respect to the P&G merger. This was the question before when we get an update on that, and that will happen sometime next year, but for the time being, it is what it is. There's absolutely no reason to believe it should be higher or lower. It is what it is. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc.: Okay. And then just lastly, on personnel, do you anticipate any more major leadership changes at this point comings and goings or is what we see, what it will be plus whatever backfill to go behind those folks? Bart Becht - Chairman & Interim Chief Executive Officer: No. Like I said, for the merged entity, we are, very focused on getting the best and the most basically, and certainly the best of the two companies, and where needed. We will complement this with external candidates. But we've gone through this process as we speak. Right now, we're recruiting and we're working with both the P&G and Coty organization to get the best on level two. And that will be announced in due time.

And our next question comes from Javier Escalante with Consumer Edge Research. Your line is open.

Hi. Good morning, everyone. I have a follow-up with regards to earnings, and I understand perfectly that your progression for 2016 and 2017 remains work in progress because of the moving pieces. But could you ballpark the incremental overhead cost to manage the Procter brands. And with this, I mean, what is the ongoing SG&A – this is beyond one-time spendings and CapEx. This is point number one. And have you considered a slowing down or, perhaps, holding your pre-merger cost-cutting plan to harmonize it with these broader changes that you're making, given all these acquisitions. And I have a follow-up question. Bart Becht - Chairman & Interim Chief Executive Officer: No. In terms of the Global Efficiency Programs, they will continue, as we've outlined. There is absolutely zero reason to stop any of that, what we're doing in that area because of the P&G merger. The P&G merger will provide additional opportunities from an efficiency point of view, and there's no question about that. And they're very clearly identified in many pockets, be it in supply chain or in the SG&A area. So there is a very clear plan. Now, the question will be, is really, as we go through the process, is to update all the assumptions and to make sure that we are going to achieve the numbers that we've outlined. In terms of incremental overhead cost to manage the P&G brands, so clearly, we're not going to have the Coty SG&A to manage the larger organization. There will be incremental SG&A. That's not the question. The question is really the sum of the two basically will drive certain synergies. And we have clearly communicated what we believe the synergies are. And so for the time being, there's no update on that.

Thank you. And the second question is that, I noticed that your title remains Interim CEO. If there's a CEO search, could you just tell us what's going? Hello? Bart Becht - Chairman & Interim Chief Executive Officer: Yes.

Hello? Bart Becht - Chairman & Interim Chief Executive Officer: I can hear you. Yes.

Sorry for that. I was on the speaker. So basically, if there is a CEO search, and if you can you tell us whether you're considering to bring in someone with operating experience in beauty, if that is a requisite, and what is the timeframe for that search? Thank you. Bart Becht - Chairman & Interim Chief Executive Officer: So there is no search. So at some point in time, there might be a search, but there's no search. And the reason why there's no search is that, with the board we've decided at the time, which was like in June-July of this year, that I should stay in place and very much make sure that we are going to gradually transform the Coty business and make the merger a success. Once we get to a situation where we believe that – we have reason to believe that, that's going to be the case, we will come back to this. So that might mean that I'll become one of the longest-serving Interim CEOs, but so be it. So it is not really time-dependent. It's really KPI-dependent – the CEO situation.

And our next question comes from Dara Mohsenian from Morgan Stanley. Your line is open. Dara W. Mohsenian - Morgan Stanley & Co. LLC: I'm actually all set. Thanks. Bart Becht - Chairman & Interim Chief Executive Officer: Good. Considering no further questions, can I just thank all of you for your attendance on the call? And I'm sure we'll have another session like this in about three months. Thank you very much.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does end the conference call for today. You may now disconnect and have a great day.