Good morning, ladies and gentlemen. My name is Maria, and I will be your conference operator today. At this time, I would like to welcome everyone to Coty's Fiscal Second Quarter 2019 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. As a reminder, this conference call is being recorded today, February 8th, 2019. On today's call are Pierre Laubies, Chief Executive Officer; Pierre-André Terisse, Chief Financial Officer and Ayesha Zafar, Group Controller. 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. All commentary on organic net revenue reflect a comparison of the business at constant currency, in the current and prior year period, excluding the impact of acquisitions and divestitures. In addition, except where noted, the discussion of our financial results and our expectations reflect certain adjustments, as specified in the non-GAAP financial measures section of our earnings release. 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 Mr. Laubies.

Thank you, Maria and welcome everybody to Coty's fiscal 2019 second quarter conference call. I'm very happy to be participating on my first earnings call since joining Coty. Actually, it's my first ever earnings call since I've been working private businesses all my life. I'm also very pleased to have Pierre-André Terisse here with us as our newly appointed Chief Financial Officer and Pierre-André and I will walk you through the second quarter financials and we would together take questions. We also have with us on the call, Ayesha Zafar, who has served us as our Interim CFO over the past five months. Before diving into the details of our business, let me just acknowledge that I've been with Coty for fewer than 3 months and Pierre-André has been with us for one week. So therefore, we are very much still in the learning phase about our business. We will do our best to answer all of your questions on the call today and will expect to do so on the future ones. Today's clearly a bit of an unusual situation and there may be questions that we will need the Investor Relations team to get back to you as appropriate. Since I joined the company, I've been discovering each part of our business, aiming to assess what is and what is not working and where the opportunities lie in. As a result, I have not yet had the chance to speak to many of you directly, but I look forward to do doing so as we conclude our assessment and finalize our strategic plan. Before we get into the substance of our last quarter, I thought that it would be appropriate for me to share a bit of my background as well as some introductory remarks and initial observations…

[Operator Instructions] Our first question comes from the line of Nik Modi of RBC Capital Markets.

Pierre, maybe you can just, I know it's still early, but as you've come in and looked at the businesses, just wanted to get your assessment on the consumer insights capabilities at Coty today, and maybe on a scale of 1 to 10, where would you rank it. Obviously, 10 being the best. And just from the CoverGirl perspective, obviously, it was relaunched, it looked like it had some early success, just wanted to get the state of the union on how that relaunch is progressing?

Nik, thank you very much for this question. So when it comes to consumer insight capabilities, I think that we have, based on my superficial assessment and I will be very cautious about what I say, I think our assessment of where the market is going, where - what are the consumer trends and that is it that we need to do is probably reasonably good. So I'll give it 6 or 7, I mean if I wanted to rank it. I do happen to believe that where all opportunities lie is how to transform this insight into a consistent marketing strategy, a disciplined opportunity to brand building, a discipline opportunity to portfolio management and I would say, yeah, and a disciplined media approach overall. So that's kind of what I think of new opportunities, not [indiscernible] but how we transform them into concrete action. When it comes to CoverGirl, I have to say I think this is an amazing brand and this has had a lot of scale, a lot of opportunities, not only in the US market, but I'm talking from intuition here and so I accept that this is sort of answer first answer. I think that brand, as we hear, a lot of potential, it is very distinctive. It has really strong international expansion capabilities. So I think that we have a very strong asset here. When it comes to the re-launch, I think - I would say that the assessment is a bit less clear at this stage. We are not happy with the development of the brand. I know distribution plays into that, but I think that there are also some issues the way we market that brand from a structural standpoint. Again, you come back to the same conversation we had, maybe our choices, building on not a distinctive asset of the brand and velocity of our sales and complexity of our branch. So we are taking stock of that, but again, I think the team is quite conscious of some of the trajectory that we have with that brand. We really believe it deserves better and we will work strongly to turn it on.

Our next question comes from the line of Shannon Coyne of BMO Capital Markets.

Pierre, you talked about introducing playbooks in a more standardized, disciplined approach to the business. Can you give more details on what that means and maybe talk about how that marries up with being in beauty, which is often a changing and a dynamic industry?

Actually thank you, Shannon for this very good question. Playbooks talks of the way on how we do business, not - nothing else. Beauty is a pretty world and so is music, all right and nobody can play into a [indiscernible] without mastering music, right, or the feeling of music and learning music. This is a bit of the same analogy. What we need to do is to have strong standout ways of doing things, organization everything which matters, the why, the how and the what, the why is it very clear, why we are in the business, why does the company exist and in general, it's relatively easy to answer this question. The what is what makes the difference, if I want to sell more CoverGirl, I need to do something with range, we need to do something with the pies, we need to do something with the distribution, we need to do something with recipes, that's the what and that's where we spend most of all, we must spend most of our time. Large organizations face complexity, complexity is the ransom of success and with complexity comes complexity of businesses, complexity of processes and complexity of organization. And that's what the how operates. What we don't want is to have people who disclose on how they have to perform their job, we want them to really master that by giving them a marketing philosophy, a selling philosophy, a manufacturing philosophy or finance philosophy or whatever it counts, all right. And so that's what we are going to do in this company. We need to invest a bit at the initial phase, but it will free up a lot of time and a lot of energy, so we can focus on selling more beauty.

And just real quick, can you give us some sense of how, based on the guidance you gave today, how Q3 and Q4 plays out? Pierre-André Terisse: I'll take that. It's going to be skewed towards Q4 clearly, there are different reasons for that, one of them being the supply chain resolution, which is obviously going to improve. There will be some impact as well as revenue recognition due to the change of norm, there is going to have different impacts throughout the quarter, as we normalizing it. And some cost saving as well. Yeah.

Our next question comes from the line of Lauren Lieberman of Barclays.

Pierre-André, I know you've been there only a week as you pointed out, but a couple of questions for you. First, just thoughts on capital allocation, sort of where does the dividend fit in on your priority list. Also, I noticed in the release the net debt to EBITDA target that's been there, in the past was not mentioned, so is there any change to that? And then also just that you were willing to step up and kind of - you adjusted the full year guidance a little bit lower, but like you said, there is this implied significant acceleration, so why do that at this point, you're very new, you don't have to. So maybe just offer up your level of conviction, the drivers that really kind of get you to be comfortable, giving an outlook at this point in time. Thanks. Pierre-André Terisse: So I'll start - it's a competent question actually. I'll start with the last one. It's true I've been here for a week, but the company has not started working for a week on me. And Pierre by the way joined 3 months ago and for that 3 months, there's been a lot of things happening, in particular in reassessing the short term performance of the business, gaining a more realistic view of what's beyond delivering and putting in place plans to support the profitability and the profit delivery and to support as well the delivery of cash. So for the last one week and I must say a bit more than one week to be pretty frank, I've been wrapping on that work, meeting many people and getting to the conclusion that they're very solid plans and this is a reason why we feel comfortable in saying what we have been saying about…

Our next question comes from the line of Wendy Nicholson of Citi.

Could you talk about your initial sense for the portfolio of brands? Do you have a feel for whether you just have too many brands to manage, too many different lines of business and I'm particularly curious if you have an initial take on the hair coloring business because that seems to be particularly challenge and maybe particularly a competitive category where it might be difficult to regain some momentum?

Thank you, Wendy for this question. I think it is, we - indeed as you have said, we don't suffer from a lack of brands at Coty. But probably, we do suffer from the lack of portfolio structure, right. So I think this is what we are going to assess during this strategic plan. I believe that if you want to manage or to achieve a solid market share at any given market, yes, you do need to have brands, but you do need to have the well-structured portfolio of brands aligning with the price tiering of the marketplaces and unfortunately, I think that over the year, this has not been the strategy that Coty has followed, some of competitors have not followed this strategy, because it is a good one. All right. So, I think that this is something that we need to work on. We will definitely come back to you when we evaluate our strategy and the share of strategy with that way of looking at the market and I do happen to believe that in that case, Coty is very well placed. We have a few hidden gems into the organization or into the business that we can capitalize on and to build, I would call it, structured portfolio, which has the capability to become global, providing we give it the focus that it deserves. That is my answer first with your question. And I understand also that there are settled brands that we have, which are probably non-strategic. In this type of situation, I think you have to be pragmatic, all right. You can't - this brand generic cash flow, so we need that cash flow, so we will continue to manage them. Some of these might also going to be off storm, but are…

Our next question comes from the line of [indiscernible].

Earlier, you chose not to talk about a medium term leverage target, maybe you could talk even longer term than that. Philosophically, where do you believe that this company should be levered? And then I guess if I could just get an update on the P&G integration, we were expecting 225 million of savings in '19, do you know what was achieved in the first half and therefore what we might expect to see in the second half? That's all. Thank you. Pierre-André Terisse: Just on the first part of your question and I'll let Ayesha answer the second part about synergy. I have no philosophy. I mean, it basically depends on the business and its ability to deliver cash flow. So entering the problem or the question with theoretical conviction, to me doesn't make sense. I want first to go through what is reality of this business to deliver cash flow, what is a need for investment, what is the ability to deliver sustainable earnings and growth and then depending on the outcome, we need to define what is the right level of leverage we want to put in place and what is one we can put in place from a realistic standpoint. So that's why I am not willing to go much further than that and we'll discuss that once we have numbers. Ayesha, do you want to answer on?

Yes. So just the answer on synergies, we were expecting about 225 for the year and we are on track0. So I would say roughly half, but that's just to give you a sense, that's how we were expecting it to work out.

Our next question comes from the line of Mark Astrachan of Stifel.

Wanted to ask about the gross margin focus, so that suggests perhaps freeing some funds up for flexibility in the business, including reinvestment, whether it's incremental or just a continuation. I guess I'm curious if that's reasonable, if that's kind of how you view, the business and if so or even if not, how do you think about the EBIT margin longer term, as I think your predecessors seem to have what I think in the industry was viewed as a bit of unrealistic expectations about high single digit EBIT margins, do you think that that is still the right number, sort of directional, not looking for specifics, but what is the right level of margin for the business, what's the right level of reinvestment for the business, that would be helpful? Pierre-André Terisse: I'll take the first part of the question and then I'll let Pierre elaborate on gross margin and the engine, but again I don't want to make the answer before we have entered the exact size, but what we are all clear about is that we think there is meaningful - there is room for meaningful improvement of the operating margin and this is ours actually. We want to take this company at the level of EBIT margin, which is going to be meaningfully higher than the one we have today and a substantial part of that is going to come from gross margin, another part of that is going to come from the simplification of the costs basically and from fixed costs and from fixed costs leverage by the way as well. For gross margin, my only comment and Pierre will elaborate more is that if we want to be the business of quality, we need to have the ability to invest behind this and if we want to have the ability to invest behind this, we want to have available gross margin, which is higher and that is simple as that. So the question is already answered, we're just second.

Exactly Pierre-André and Mark, thanks for the question. It's almost a point, a strong point of view that I've developed over the years is that and reinforce into this category, looking at this category in detail, beauty is an expensive business from an NCP standpoint, you need to be able to compete in to this area. You don't mean that you need to waste and we don't need to, we don't intend to, but clearly, we need to strengthen our ability to talk to our consumers or to build our brand with our consumers. And in that respect, deliver earnings, sustain gross margin and ever improving gross margin, I mean, it is, we need to make a step and that will go to a strategy of continuous improvement through many levers being strategic quality management, costing, simplification of our ACPs, simplification of formulation, prediction of our cost, I mean, we have to, in a strategy like that, you don't leave any stone unturned and we will just do that. But clearly, we are in the business of brand building and as Pierre-André said, that takes money and at the same time, we also want to deleverage our company, pay dividends and improve our profitability. So again, I see that as the place to go to and we will do that in the not-too-distant future.

Our next question comes from the line of Robert Ottenstein of Evercore.

Great. Thank you very much and you kind of touched on my question just now, but maybe let me try to ask it again and knowing it's early days. So, again philosophically speaking, you made a couple of key big picture comments before the Q&A section. One, you want to earn the right to grow in consumer business. Two, you're not obsessed with market share and three, you are obsessed with gross margin. And I guess what I'm struggling with a little bit and again you touched on it here is what do you mean in terms of right to grow in consumer business, does it mean that you have the brands that the consumers want or does it mean that you have the profitability first, there's kind of a chicken and egg situation there and if you stand back and look at some of those comments, you're not obsessed with market share, but you are obsessed with gross margin, does that mean that you want to be more aggressive, perhaps in terms of pricing. So again, I know you touched on it a little bit before, but if you could just kind of help us think through those various objectives, particularly in the short term. I understand long term, you want to drive the gross margin long term, but over the next 12 months, how are those different priorities fitting together please?

Thank you very much, Robert for this question. When I say I'm not obsessed with market share is, I mean by that that I'm obsessed with quality business, all right. And the good business, we all know that they are good business and they are in bad business. Well, we all need to do, we all need to focus on doing good business and we are going to forfeit very, very bad business and we are going to limit that business. So, I think we need to be pragmatic on this dimension, but it's really physically the guidance that we give to our people. I actually don't see any compatibility between doing that and having gross margin. Actually, I think it is the lifeblood of gross margin too and gross margin is in turn the lifeblood of building plants. All right, or building portfolios. So I see that philosophically, sort of 2 times if I may say so or 3 times, 3 times strategy. Clearly spend the next 6 months assessing all points of difficulty, market by market, assessing our portfolio, market by market, where is the space to go, where are the opportunities. Immediately, at the same time, but that would take another couple of years I would say, focus on the quality of the business with the portfolio that we have today and optimizing its performance in terms of quality market share and not only in terms of total market share, I mean mostly in that case, I mean the market share of the base business and versus the incremental one. And at the same time, once we have done all these, really build an innovation program or a transformation program from a portfolio standpoint that we will be able to deploy in a period of time, starting from I would say 18 months to the next - to the rest of our life or 18 months to 2 years. You need to extract it and see and consistency over that. We have too many markets where we only have one brand and we can find competitors, we have 2 or 3 brands, with only one brand, that's not going to work. And so we need to be to the opposition in the marketplace and again, you don't move - CoverGirl is a brand which has 17% penetration in the US market. It was launched 78 years ago, if I do remember when, all right. So I think that takes time, right, and of course I do not intend to wait that long and to see success, but clearly, I do see that series of events and we all - which all work concomitantly with different parts of the organization working on each specific agenda item.

Our next question comes from the line of Faiza Alwy of Deutsche Bank.

So Pierre, we seem to be hearing two things. So on the one hand, it seems that you want to invest to help build a better company and some of that can likely be sourced by lean initiatives, but given where you stand now versus competition, especially in consumer beauty, it also seems that that would require a good deal of upfront investment and I think that's implied by the lower operating profit outlook today. So I guess the first question is do you agree with that assessment. And the second question is, how do you balance that desire to improve and the potential need to invest against your de-leveraging priorities and to what expand is elevated that sort of constraining, what you would otherwise like to do and how do you sort of break through those constraints?

Yeah. Maybe Pierre-André will take the question first. Pierre-André Terisse: I don't see the investment as anything to do with the profitability as you mentioned. The profitability incorporates a very important factor, which is the supply chain issue. So I think that's the main reason for the profitability of this year rather than profitability of last year. On the constraints, that's basically what we have on the agenda. We have strong commitments on the leveraging standpoint. We have ambition from the profitability of this company and we know that we need to find ways to, at the same time, invest and deliver and do it in a balanced manner. So this is very much what we are going to try and work in the coming weeks and we are going to try and incorporate in the strategic review, we are doing that usual constraint business and you cannot invest everything upfront and because that would be taking too much risk, you need to do it in a gradual manner and have the delivery coming at the same time. So maybe Pierre, you want to complement on that.

Faiza, good question. I think that I alluded to what I've said earlier in my initial statement, we have space to improve the performance of our business by working differently, all right. In our ANCP budget, yes, we are not short of ANCP, yes, we could have more, I mean, that's not a problem. But our balance between working media and non-working media has to be improved, our balance between reach and frequency has to be improved, our balance between the different type of media can be improved. So we have space in our P&L and we have space in our execution. We will see that space, those spaces and I think it will free up not only cash to be honest with you or money to be spent, but also it will save us from a lot of waste, all right. And I think with waste comes fatigue and with fatigues comes lower performance and our objective is actually to fundamentally eliminate waste and hence refocusing our organization and our people to really what makes the difference.

Okay. With that, we thank you all and we will see you on the road. Thank you. Bye, bye. Pierre-André Terisse: Thank you so much all for your time.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect and have a wonderful day.