Coty Inc. (COTY) Q4 2020 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. My name is Maria and I’ll be your conference operator today. At this time, I would like to welcome everyone to Coty’s Fourth Quarter Fiscal 2020 Results Conference Call. As a reminder, this conference is being recorded today, August 27, 2020. On today's call are Pierre-André Terisse, Chief Operating and Chief Financial Officer; Peter Harf, Coty' Founder and Executive Chairman; and Sue Nabi, Coty's appointed CEO. I would like to remind you that many of the comments today may contain forward-looking statements. Please refer to Coty’s earnings release and the reports filed with the SEC where the company lists factors that could cause actual results to differ materially from these forward-looking statements. In addition, except 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 release. Later, we will conduct a question-and-answer session. [Operator Instructions] Thank you. It is now my pleasure to turn the call over to Pierre-André Terisse to begin. Please go ahead. Pierre-André Terisse: Thank you, Maria, and good morning, everyone. This is Pierre-André Terisse speaking. I'll start this call with the financials and then we'll hand the call over to Peter and then to Sue. To start the financial review this time, let's have a look at the scope of reporting as there are some meaningful changes as you know, we assigned the sale of 60% of Wella being our Professional Beauty division plus Retail Hair to KKR on the June 1, 2020, with a sale not being subject to any substantial condition as of that date. Wella is considered a discontinued operation in our GAAP. As a result, we have [indiscernible] accounts for fiscal '19 and fiscal '20. And we now present continuing operations being the former Coty less Wella revenues and direct costs and directly attributable costs. The costs borne by Coty on behalf of Wella following the closing will for about the invoice for transitional service agreements, and we have therefore prepared the set of numbers called ongoing Coty, which better reflect what Coty ex-Wella is expected to be post closing. Going forward most members will refer to ongoing Coty and I will specifically flag when I use other metrics. You can find the bridges from Total Coty to continuing operations and then to ongoing Coty. In the recast, [indiscernible] financial proceed on our Investor Relations Web site, as well as in today's earnings release and in the slide presentation. In terms of numbers, Coty adjusted operating income in fiscal '19 on the left was $950 million, 11% margin, Wella profit ex central cost was $459 million or after including the estimate GSA cost $407 million and as a result Ongoing Coty operating income was $543 million or 8.7% operating margin and ongoing Coty EBITDA as $875 million. Looking at fiscal '20, Total Coty adjusted operating income stands at $151 million, or 2.4% of net revenue, Wella stood at $271 million and Ongoing Coty at negative $110 million adjusted operating income with an EBITDA of productive $226 million. Fiscal '20 variance versus '19 reflected the impact of COVID and the pressure during most of the fourth quarter of most of our sales channels, as well as some of our production sites. And so Coty fourth quarter was marked by external shocks, COVID-19 triggered a global real economy and supply crisis that led to turmoil in financial markets. Indeed, Coty harder than its competitors because to five reasons. First pre-crisis, the company was already experiencing weak demonstration. Second, Coty's current category is skewed throughout [indiscernible] cosmetic and professional beauty, which were the categories most affected by COVID-19. Within these categories Coty was still losing market share in some markets. So the company is under represented in China, which is the market that bounced back first. And last, Coty is weaker than its major competitors in digital economy. Against these backdrop, ongoing Coty net revenues were down therefore, a big 50% in Q4, with Prestige being the most impacted at minus 73%. While Mass was less negative at minus 48% as most retailers remained partially open. April was the lowest point, but every month since then, as showed progress across the portfolio in both Mass and Luxury, as well as for Wella, and in particular July and our latest expectation of the month of August showed significant progresses and stand at approximately 2.5x April levels, reflecting the reopening of number of stores, albeit with a lot of traffic than usual. While many things remain to be done through Q4 also reflect either continuing improvements with a strong momentum and market share gains in ecommerce. A good performance of CoverGirl Clean Fresh and Sally Hansen's Good.Kind.Pure and improving market share in color cosmetic in key markets and the U.S. and the U.K., specifically. In terms of profit Total Coty Q4, net revenue dropped as close to $1.2 billion. This sure led to an operating income drop of $526 million, which is 44% [indiscernible] as the fixed cost reductions initiated in the quarter were insufficient to offset the magnitude of the natural new [indiscernible]. This was exacerbated by [indiscernible] totaling approximately $50 million but their provisions trends under utilization cost as well as excess and obsolescence provisions as we tried to take a prudent view, including the fiscal '20 accounts. While Wella including PSA cost showed a minimum less for Q4 Ongoing Coty adjusted operating income was a loss of $323 million for the quarter. As for non-recurring elements, the drop-off of stock price led to an increase of all these contracts which was the primary driver of an impairment of close to $400 million of our brands and goodwill. Turning to free cash flow, [indiscernible] the negative adjusted operating income translated into a negative free cash flow of $316 million for the quarter, which was inline with our guidance of $300 million to $500 million negative as we managed to strongly limit CapEx one-off cost as well as to balance the working capital thanks to good work from the procurement and the finance teams. This negative free cash flow was more than offset by the first tranche of convertible preferred shares subscribed by KKR for $750 million and net debt as a result decreased by $300 million. This is the end of March to land at 7.8 billion despite close to $100 million negative foreign exchange impact. To be noted as the post closing event, we have received at the end of July, the second tranche of convertible preferred for $250 million. I will end up with some data on the side of Wella with a closure, while the closure of most salons resulted in a drop of sales of 41% in Q4, things improved from the low to small which was again in April and July and August confirmed the strong progresses with underlying trends negative mid-single digits. While the business is recovering, we are obviously working on the closing of the transaction, which we expect to take place by the end of calendar '20. And following this Coty will both considerably reduce its debt and leverage to a level which will be adequate to support our turnaround plan. And at the same time, Coty will keep a 40% interest in a low risk business with a strong potential. And with this, I know hand over to Peter.

Thank you very much, Pierre-André. Let me start by thanking all of my colleagues. They helped us, they gave their best to have the company weather the storm of the worst economic and health crisis was seen in the last 80 years. So many people in many countries gave all they had to make the damage for the company as small as possible and thank everybody for that very, very much. We had a very challenging quarter and challenging year. I don't want to repeat what Pierre-André already said. But he also talked about the [indiscernible]. He talked about the fact that we are seeing improved business in fiscal '21 in the first quarter and I'm glad to report that we're going to making money in the first quarter of '21. We are significantly lower than return point, so the lower sales level in fiscal '19 to fiscal '20 will make a significant amount of operating income. I cannot see that for three months before that I was working obviously very closely with the Coty management. And my focus has been all the way relentlessly to bring the company back on track to realize its underlying potential. Right from the start, I was aware of the issues that were concerning our investors, our shareholders and the company. This specifically relates to capital structure, operational underperformance, the product portfolio, and the top management. We have taken decisive action to take each and every one of these concerns head-on as both step changes. In each of the areas of concern, you're showing clear progress during the past few months that we take stock. Firstly, we recognize that Coty's leverage ratio is high. To lower Coty's debt level and to strengthen our balance sheet we entered into the agreement with KKR selling 60% of Wella because the rest go to KKR by maintaining as Pierre-André stressed, I mean the 40%, which are very valuable and highly profitable assets for the company going forward, [indiscernible] $2.5 billion net cash proceed, we expect the transaction to close by the end of calendar '20. Between Q4 '20 and Q1 '21, KKR are also injected [indiscernible] cash into Remainco for convertible preferred stock. For conversion this will give KKR a 17% stock share of Remainco but we will retain the absolute control over 50%. Secondly, Coty underperforming on operating margin and efficiencies, we have set rigorous objectives for fiscal '20, '21. We need to be profitable for the full year and significantly profitable for the full year as we are striving for constant like-for-like net debt, excluding the proceeds from the divestiture, even if the ongoing COVID-19 pandemic will impact the beauty industry more strongly as many anticipate. Second, make the balance sheet lighter and the business less complex to smart disposals, the reduction in the number of sides outsourcing and more third-party manufacturing. We also reduced third-party expenses, people on people costs, CapEx non-working advertising and consumer promotion to the absolute minimum. Clear action plans and progress in these areas give us confidence and we'll deliver over one-third of the savings of our 600 million fixed cost reduction program in fiscal '21. We also realized that our portfolio exposure is lagging behind new consumer demands and trends. We've taken concrete steps to rebalance and strengthen our portfolio to be competitive in light of this changing consumer demands. We build platforms and the [indiscernible] is structural weakness in skincare, while in Asia, ecommerce and DTC direct to consumer by acquiring the irrevocable rights to Kylie Jenner's Kim Kardashian West Cosmetics. We create also the space for additional brand building and brand investments in order to redynamize our existing portfolio and [indiscernible] leadership. Coty entered into strategic transaction by 20% with Kim Kardashian West that by the way secures irrevocable life that we have in Coty going forward to the Kim Kardashian brand name and the activities around the brand. Coty will be responsible for the portfolio development and skincare, hair care, personal care, their products and also in fragrances. Kim and Kylie gave the Coty the platform to sell skincare and beauty categories globally, in particular, in northern Asia. We are renegotiation licenses that we have in our Prestige portfolio that do not provide sufficient profitability for Coty and we are making progress also in that front. Next, I realized that Coty's culture needs to be fit for the first phase and the changes in our cosmetics industry. And that the initiatives that companies is implementing need to know us to be very, very light footed. So we are bringing back the agility and the nimbleness that is part of Coty's DNA. We've flattened the organizational structure, simplified the decision-making processes from the small group of leaders that can take important actions fast. So we are making Coty ready for the good things to come. In July we corrected the key shortfall, causing the worst issue that distract Coty throughout the years. We also had a beauty industry veteran at the helm, who truly understands the nuances of the beauty industry that can drive the cosmetics business forward effectively. We corrected this problem by including Sue; Sue Nabi a proven successful beauty leader has been -- who has the ideal prerequisite to become the CEO of Coty. She is a 27-year veteran in the beauty space with the breadth of experience because all the areas which are most relevant to Coty's future. She was at L'Oreal for more than 20 years, leadership positions across the mass and luxury segment in color cosmetics, skincare and fragrances as well developed into the key international market, predictive, she has a deep knowledge of Northern Asia. She not only brings deep expertise and experience in the areas that Coty operates in, but also in areas that we want to strengthen including skincare, ecommerce, direct to consumer and Asia. In her long career in the beauty business, she has successfully navigated countless cycles and trends, adversities including reinvigorating various established brands, within certain markets and industry conditions ahead of us, the pivotal changes, we will make at Coty, her breadth and depth of experience will be especially crucial, the latest venture and the founder of Aveda, she has proven that she's also an adventurer entrepreneur who understands startups. This understanding by having at the same time, a strong corporate institutional background brings a much needed nimble entrepreneurial mindsets to Coty, that could not be more relevant for our current needs. I will turn it over to Sue for comment, I want to leave you with a few key thoughts on the new Coty powerhouse that we will be on the way of becoming, first, I highlight the Coty of today is very different from the Coty even a few months back because you have taken proactively, decisive and bold actions, addressing the various key concerns identified head-on as we were approaching the business. It's key to see green shoots emerging despite this challenging environment, as you gain market share with strong ecommerce momentum successfully launched new products, skin in particular is on track to expand. Like I said, we have seen a strong rebound in the last couple of months, which we expect to continue, Coty is back. For investors, they have been making sure that as we block and tackle to sustain our business, we have also looked to future proof the company with a new initiatives that will enable Coty to operate more efficiently and that give us the room to grow the business. The new and different Coty has a more robust capital structure, improved operations, a streamlined and redynamized portfolio, a complimentary stable of strong heritage brands and direct to consumer brands is diversified across categories and channels, has breadth to play in both value and in premium as digitally and social media capabilities that will help us grow aggressively in these areas in the digital space and close potential, both in the wide spaces that we are trying to address and from reinvigorating existing brands as a focus management team, led by a proven and successful beauty expert. I have always said, when Sue Nabi took over the role of CEO a few months ago, there's a lot of potential in Coty. Today, I'm even more convinced that the new Coty has more potential than ever before to unlock and to create value. We are rewriting the Coty story to elevate is to view the powerhouse with the rights to grow and the right to win. Sue Nabi will lead us and with pride, I hand over to her now.

Thank you very much, Peter, ladies and gentlemen. For me, there is no better moment to join Coty. Although my official first day will be in five days, I'm happy to share with you why I'm strongly convinced of a bright future ahead for Coty. First, I'd like to thank Peter, for pivoting the company to the new Coty and putting in place the necessary changes to set up a strong foundation for me to build on. In over 25 years in this industry with many opportunities, I have learned my lessons on what makes a beauty business or a brand successful. As I took a step back to assess the potential of Coty, I realized very quickly that this is a diamond in the rough. Coty is transforming. Now is the beginning of something new, something hopefully very exciting and something clearly modern. Today stakeholders wants something meaningful, but people love a great comebacks, success stories they can be part of. I want to create an inspiring, very nimble, successful new Coty with the whole Coty teams. The seeds of the new modern Coty are in fact already in place. We had two key and well positioned operating franchises mirroring the world of beauty and a new continent to be explored. All modern beauty groups are simplifying their organizations for more clarity, and they all end up having a luxury franchise and in mainstream mass franchise. Coty is the first and only company at this level that is exploring the potential of the new continent of the direct to consumer business model, through personality led beauty with strong social media engines and followers. The new Coty will be driven by three key factors to me. First, the Mass franchise, which is a key one, especially in the new norm that we are in characterized by uncertainty, and of course, economic difficulty, yet its submission is essential and vital more than ever. When the COVID-19 crisis hopefully will end, it will be the place where a large number of people around the world can access the latest trends and innovations, find the best quality at an affordable price, experience the diversity of all kinds of beauties and probably and this is very important the place where many will buy the first beauty products and fall in love with the beauty of tomorrow. Secondly, the luxury franchise is key as it allows everyone to access iconic fashion brands. It's still at an affordable price compared to fashion itself to enter the world of red carpets in one word, dream. Luxury beauty would become the entry point for many to buy iconic logo brands at affordable prices, even as luxury fashion is more severely impacted by the current pandemic. Third, the new continent of opportunities, the new continent of DTC personality led beauty and thinking about Kylie and Kim Kardashian West, of course, is key, as it is a continent full of promises. This has nothing, nothing to do with the business of celebrity fragrances. It has by essence, what every brand is dreaming of a large, very large, captive data rich audience, and it is probably the most profitable and relative of all retail models, it's nimble by essence. And it will allow us to adapt to trends and make corrections on a daily basis. It will not only be a new continent, but also a major luck for the whole group, where we will test, learn, correct and expand our success to the rest of Coty brands. This in mind, this new continent will allow Coty to show to the world also and this is very important that our company, our group, our brands can and will formulate top quality skincare with a mapping of the market that will be comprehensive in terms of positionings, prices, but also technologies and psychologies. Personally, having said that, I do not see any other company that combines that these three key engines, when it comes to brands, Coty has also one of the most beautiful portfolio of brands that stand for something universal, brands that are deeply rooted, some of them being loved brands. Brands like CoverGirl, Rimmel or Bourjois brands that are rooted in American, British or French culture. This is unique, this is precious, this is powerful. And this is a great basis to write a new chapter for all these brands. These brands, like all our brands at Coty have a big responsibility though. They need to act flawlessly. They need to be role models and are at the forefront of everything. The magic of a brand is not just about image, it starts at the product level, always, products that are hopefully new, better and different. A brand like CoverGirl invented modern Longwear non-transfer technologies. It has also invented modern molded mascara brushes. It has also invented clean beauty decades ago, and with CoverGirl's Clean Fresh becoming number one foundation launch this spring, the brand is once again leading the way in a key area. The luxury business of Coty has one of the most amazing portfolios of the beauty industry with the trendiest and most successful fashion brands, such as Gucci, or Burberry that should become makeup leaders and also the most iconic leaders in the fragrance arena. All our brands needs to be the champion of something. This will be one red thread of my philosophy of Coty philosophy. For all this reasons, and these are the reasons why I believe in Coty and I believe strongly in it's a bright future. French writer Victor Hugo said there is nothing more powerful than an idea whose time has come. I would add the time for the new Coty has come. I look forward to starting as CEO and to sharing more specific plans with you at the next earnings session. Thank you very much. Pierre-André Terisse: Thank you. We are now ready to take some questions.

[Operator Instructions] Our first question comes from Faiza Alwy of Deutsche Bank.

So my question is first -- first of all, congratulations. It's great to hear you on the call. I wanted to do hear more from you about what you think Coty needs to do over the next couple of years to get to the place that you want it to go. You mentioned skincare, you mentioned a few other things. You mentioned this transformation. Can you talk about investments or what needs to happen, what would you like to see over the next couple of years to get to the place that you want to be?

I think for the next years the work that has to be -- that's on my roadmap is first to really make everything to repair and correct what has been doing wrong recently with the makeup brands et cetera. And we've been working by the way quite hard during this July and August month, even if I'm not yet good to be been working with the teams to strengthen these brands to strengthen their brand equities. So, first I would like to strengthen the makeup portfolio and the consumer beauty portfolio. Second, I would like to accelerate the luxury division. And third, I would say it's really to take full advantage of the fabulous promising very profitable and dreamy business model of new direct to consumer led beauty brands. So these are the three simple ideas I have in mind. Of course, this acceleration will happen in all categories, repairing, makeup brands, making sure makeup brands are in link and in sync with the beauty needs of people today and tomorrow. In the fragrance industry, what is the new way to sell fragrances? How can we use online abilities to get to people's houses. And of course, in skincare, it's really to build an expertise in-house with the right talents, with the right research and of course, the portfolio that will allow us to be visible from what I call a simple, very, very accessible skincare to probably the most high end.

Our next question comes from line of Olivia Tong of Bank of America.

Sue, this question is sort of a bit of a follow-up to the first one. It's great to hear your perspective on beauty, and what you believe is important for the recovery path for Coty. But it sounds like you're mostly aligned with decisions the company has made already that's investitures, the partnership on social media brands, et cetera. So can you talk a little bit about very differ in view versus prior decisions? And then Pierre-André, just one quick one for you is, if you could just talk about the key drivers of that first 200 million of cost savings that you're expecting for fiscal '21. Thank you very much. Pierre-André: Yes. I will take the second part first. What is very much the same as what we had already shared in May and June. And fundamentally what the work which has been done in the summer is done by the team under the leadership of Peter has been to start the implementation to make sure that all the action were embedded into the management and with very clear action plan. So, we know that the $600 million plan touches many areas including by the way supply chain, but the immediate actions are very much linked to a the Oxygen project, which we have been discussing for the past few quarter and its execution, acceleration and amplification. So we are now in an action mode on that. Secondly, the reduction of the non-people cost with new golden rules within the group which aim at reducing very, very meaningfully the IT, finance, HR, and in fact, I mean all the costs which create complexity in the business. And of course, we continue working in many different axes. But the primary source of cost reduction for this year are going to be the two areas I mentioned and we are talking of something which is going to be north of $200 million. And then, I leave to Sue for the other part of the question, which was about the difference in point of view versus what has been done so far in the areas she mentioned and what she brings new.

So, the difference of point of view, I will try to summarize it as simply as possible. I think we need to work on products. We need to become the best experts in the world, when it comes to creating beauty products, as simple as this, and this is probably something that has been lacking in the past. So I really would like this company to become a product-driven, product-centric, but also new business model centric company. And this is now my passion, my expertise. And this is my wish. So this is going to be a strong driver because at the end of the day, what happens is that, it's always in the bathroom, in the intimacy of a bathroom, that's a customer, be it a male or female customer has a relationship with the product. And if your product is not the best one on the market, if it's not the one that delivers better than the others, if it's not a product that's perfectly designed for users, but also for performance. And last but not least, if it's not a product that you feel not guilty by using because it's sustainable, then you'd be happy to stick to this product. So it's all about products, beauty industry is all about products.

Our next question comes from the line of Steph Wissink of with Jefferies.

I also have a follow up question, Sue for you, just based on your comments about products, if you could just help us think through how the company has invested its R&D dollars and the changes that you would make to emphasize that product development. You also mentioned in your prepared remarks, the idea of formulating top quality skincare, and then you gave an example of CoverGirl's Clean Fresh products, which would be in color cosmetics. Maybe talk a little bit about skincare development, R&D focused on skincare, and how you see that from a financial perspective over the course of the next couple of years. Thank you.

As you can imagine, this is a bit early for me to present a full strategy to comment or the elements you're asking me to comment. But the only thing I can tell you is that there are key trends, all around health in a way. And these trends are key things we would like to implement to all our portfolio. And the second biggest trend that everyone has noticed is digital. And this one is also another key trend that we would like to implement 360 degrees into all our portfolio. So these are the two key things, I'm working on health and digital.

Our next question comes from the line of Javier Escalante at Evercore ISI.

I have a question for Pierre, and one for Sue. So Pierre, if you can revisit a little bit Q4 because it feels that destocking was an issue at least in the U.S., we see that U.S. sales in track channels were down 20, you're reporting twice us much. So we'd like to understand, the gap between retail sales and reorder and to what extent that imply -- that contributes to refilling the pipeline contributes to the swing in profitability in Q1. And also, if you could expand on the outsourcing piece, you have manufacturing plants, my understanding is, you want to divest them and set up some sort of third-party manufacturing. And for Sue, I'm sorry for the long question. For Sue, I'm interested in what can you do with makeup right now, given the situation we're in? I've been very impressed with what caring is doing with Gucci beauty. They're putting a lot of creative and investment behind it. So with that in mind, shouldn't this be something that [Timo] [ph] in China should work there and what is the impediments to open up a shopping [Timo] [ph]? Thank you. Pierre-André Terisse: Yes. So it's Pierre-André, to take the first part of the question and by the way about [Timo] [ph] and Gucci, we are working to another name before your end until June calendar. So this is absolutely on the table. We'll get back with more details when we have some more detail to say but this is definitely something having to -- we are going to proceed with. On the performance of -- well, maybe on the outsourcing first, I mean, when we said that we will really because days we said that we will basically read everything and indeed everything there is obviously the core process of the company, the administration, the finance, there is as well a lot of things within procurement and then there is the use of the capacity of the factories and the fact that we are not using the capacity enough and we need to find a solution or solutions which will basically optimize the way we use our supply network. And we are looking at every possibilities to do that experiment. We are not yet in the project mode, but we are really in an exploratory mode. And I think it's our duty to see what we can do to optimize our supply chain and within that particular issue to optimize the use of our capacities and the use of our existing trend, so nothing else to set the stage. But as part of the overall $600 million program, we are indeed looking at this as well. On the performance of Q4, well, April, I mean March already was very difficult. April was definitely very, very tough. We basically add most of our channels closed. Talking about, obviously travel retail and that remains true as of today, but also the department stores, the beauty stores. And as Peter said, we are under index. We are catching up now, but we are under indexing in ecommerce. And so we had a very, very large impact and of course, he's talking at retailers was part of the reason that I think there was -- as well finally, a reason of consumer and under testimony of that see the impact of luxury, which I said in my speech was definitely much higher than the one we have had on that. Now the good thing is that, we are recovering. And in April, I've been very low at minus 67. May was better, June was better. And definitely July and August show very meaningful improvement. There is an element of reloading for sure in Q4, and there is an element of reloading in Q1. But in a way, which for me reflects the confidence of the retail. So, the retail -- so no people coming anymore, and they were basically scared. So, they had to address their stocks and they had to manage the treasury. And today they are seeing consumer coming back. I mean, it's not full. It's not full speed, but they basically more confident and they're revealing some level of inventory. But the fundamental thing is that consumer is coming back and that's true in Mass. That's true. luxury. And that's as well as at Wella, where the adaptation of the hairdressers to the new normal has been remarkable and today is happening. So there are many reasons to be careful because these credit crisis is not over. That's where the developers, but we are definitely seeing a good start of the year. And I leave it to Sue to answer.

Yes. Let me maybe try to understand that the question is, what's the program on our color cosmetics brands? I would say that we are going to work on three parts, of course, restrengthening the sense of purpose of each brand, especially CoverGirl, working on the products and working on anything that's around retail, brick and motor or ecommerce retail. And when it comes to the products, I think everyone knows the story of clean makeup which was the first mitigated foundation. And this is very modern. This is exactly what people are looking for today, that in a way they're looking for medicated products to put on the faces and the success of Clean Fresh, which was the latest launch becoming number one in the U.S. during this spring, says a lot about what people are going to look for in the coming month. The movement of the clarification of beauty is also a key one and our brand specially CoverGirl can lead this movement. There are also many other trends that will keep these between the team and myself so that we can surprise the world with new amazing launches in the future. Thank you.

Our next question comes from the line of Joe Lachky of Wells Fargo Securities.

Congratulations to Sue. Welcome aboard. Pierre- André, I wanted to ask a question on leverage. And obviously, your leverage is extremely elevated exiting, fiscal year '20. Given the pressure on earnings, but I wanted to maybe get some perspective on how we should think of it evolving going forward. And I know you're not giving specific guidance, but I was hoping to get some thoughts on where you think your leverage will be this time next year? Do you expect to use all the proceeds from the Wella transaction to pay down debts? And then longer term, do you still think you'll be able to achieve your medium term leverage ratio of 4x and how long does it take to get there? Thanks. Pierre-André Terisse: Yes. I mean, I'm not going to -- as you said, so I agree with you. I'm not going to give any guidance on that. The only thing I can say is that I mean, the dynamics of all that or the following the 1 billion from KKR is in the bank now. We ended the quarter with 7.8, which is indeed too high. We've managed to deliver pretty good performance I should say given the level of net revenues we had in terms of cash flow at minus 320 for the quarter. We are confident because we are very much paying attention on that and it's one of our priority to deliver even better performance. So to stabilize the cash flow for fiscal '21 and this is before taking into account -- taking into account Wella. So, we are definitely on the right track. Then in terms of closing of the Wella transaction, we expect to close it by the end of the calendar '20. So within the coming few months. The process is basically going well there are no substantial conditions. We keep working well and the business is doing well which is to me a very, very important element and reassuring elements. The business of Wella nailed by the way which has definitely been doing very good. And by hair altogether is -- has been recovering pretty fast compared to Q4. So, the dynamic of the debt is very simple, you take the debt at the end of -- debt at the end of Q4. You take into account the kind of cash flow has given you, you take into account proceeds which we have already said will be $2.5 billion. We have of course the 250 coming from KKR which are not in the 7.8. At the same time we have seen absolutely coming and that [indiscernible] all the elements and that will be the Coty which will be definitely much, much stronger and solid in terms of balance sheet and financial position. I hope it answers a bit of your question even though I've give the guide.

Our next question comes from the line of Andrea Teixeira of JPMorgan.

And so I wanted to congratulate and welcome you as well. I have a question for Sue, on how the most recent M&A with Kylie and Kim speaking taking to the brand attributes and sustainability you mentioned? And also two questions for Pierre-André related to M&A. First one, if my math is correct, Kylie only contributed a few million dollars in the fourth quarter and understanding they uses only the third-party manufacturer and also the KKD as related to that? And that perhaps you may want to take your time to find the right partner, and also make another other coated products as mentioned before, should we see this announcement by [indiscernible] new partner? Or should we still see delays in the timing of KKD closure because of that? And just a clarification Pierre on the Wella deal, is there a potential change in valuation given that the trends in professional hair became worse than it was in spring or that valuation is back? Thank you so much. Pierre-André Terisse: Sorry. Can you repeat the last question and then be a little bit more precise about on your question about Kylie and Kim and what you called the new partner, which is not very clear to me.

So two questions. First one Kylie, if my message is correct and correct me if I'm wrong. They only contributed a few million dollars in the fourth quarter, I understand there was a disruption in your third-party manufacturing and of course, the issues with consumption itself. So when I'm understand, like, what is the negotiation with the third-party manufacturing? I'm assuming you're getting into partners will speak. And should we see that announcement soon. And if that announcement also kind of concludes or prevents you to actually execute or close to KKD? Pierre-André Terisse: And your question about Wella was what?

Yes, it's the Wella, basically you -- if there is anything given that the announcement was made back into spring and then obviously COVID had become worse than expected. So I think if there is any risk to that valuation. Pierre-André Terisse: Okay. So I will take these two questions and then I will leave it to Sue to give some minimums about [indiscernible] and sustainability. So Andrea, first, no, the answer is no. I think when we -- the first part of the agreement was in May, and then the second part was at the beginning of June. By that time, we knew already what the effect of it will be. And in fact, we had already passed the worst month, which was April and we had already seen some improvement and if any evaluation of the situation has been better than what we thought at that time, with all the parameters we had in mind. So absolutely no risk on that. And by the way, we have an agreement with the price, so there's no question of adjusting to the valuation neither up or down, but certainly not down. So that's for Wella. For Kylie and Kim, so just remind the exact parameters Kylie is $600 million or 51%. We have already paid that. That was in January '20. So at the beginning of the second half of 20, you had seen recall, in fact, you have a number on the cash flow statements page four, five of the deck, which show 66 and that followed most of the payment of the 600 for Kylie and there is nothing else coming. Now on Kylie, we have obviously to work on the situation, I'm not going to comment on potential description of partner [Technical Difficulty] as other businesses has been impacted by COVID and by some shutdown of factory. But the important thing to have in mind is that meanwhile we have been working a lot on skincare, there was so minimum of skincare in Kylie when we took the stake of 51% and we are developing it and developing it rapidly. We have already expanded the range, the distribution of the range with distribution in Europe, we do glass, we are working as well on extending the direct to consumers so it's going okay. And then, with respect to Kim, we are talking of 200, [indiscernible] 20%. And that's will be coming at the beginning of calendar '21. So we have to think of the third quarter of fiscal '21 for us, January, February. And again, it's very much going as planned and we already are working on skincare on this particular file. So that's for me and Sue.

Yes. If I understand what the question is about the potential sustainability of influencer led beauty businesses et cetera. So I have to say that I'm very intrigued by the new possibilities offered by brands like Kylie beauty and Kim Kardashian West. All these personality brands have, as you know, with hundreds of millions of followers on social media, these followers are consumers who are very engaged with the brands who offer the feedback, they are going to directly or indirectly provide a lot of data points which will allow us to strengthen, adjust and create the best products possible precisely for them. More importantly, I should say that at Coty we are focused on developing very strong skincare ranges for both brands. Skincare products, as you know it, they see much stronger loyalty than other beauty products such as fragrances, for example. And in addition, both Kylie and Kim skin will play one of the fastest growing areas of skincare, which is the mid range, of course and the entry Prestige areas. So as a summary, I would say that people will first buy because they love and trust Kim and Kylie and they will repurchase because they love our products.

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

I wanted just to start to clarify. So in looking at the July, August commentary trying to triangulate on a bar chart in your presentation, admittedly, it looks like if you kind of extrapolate the sales average, the July, August would be down something on the order of kind of high single digits year-on-year. So just wanted to make sure that I was looking at that we're interpreting that correctly. And then just bigger picture, perhaps, for Sue. So how do you think about what needs to be done to make CoverGirl, Max Factor some of the bigger brands relevant again, obviously, you've seen certainly for CoverGirl multiple brand relaunches in recent years. So what could potentially get you to a different spot this time around and admittedly early? But how do you think about EBIT margins for the business over time in terms of trying to grow sales but also invest appropriately in the business? Thank you. Pierre-André Terisse: Yes. I will take the first question, first. I'm not sure you can read the charts the way you do among the reasons because you have Q3 but you don't have the quarters before. What I will say is that, so on the back of the minus close to 70, then 50, then 40 in the course of Q4, we have definitely changed the shape of the net revenues we are around minus 20 for July, August, which is a real big improvement that in mind for instance, that the travel retail which used to account for about 9% of our net revenues is extremely penalized by the absence of traffic and therefore, the rest and here I'm talking of Remainco, I'm not talking of Wella is progressing rapidly compared to what we had in Q4. Now, the very important thing for us is not only that is the fact that as mentioned by Peter, we've been doing a hell of a work on the cost side, lowering the breakeven point and therefore creating the condition for this quarter to be profitable. Even though we are not back yet to the level of '19. And therefore we are really entering '21 with a new cost base, new management of course, which allows to protect the profitability and to protect the cash flow. And if we continue seeing some good news on the net revenue side, to invest and to fuel the growth, but if we don't, we are protected. And that's the most important element. Sue, can you just remind --

So your question is about relevancy of brands such as CoverGirl, Sally Hansen, et cetera, correct?

Yes. Exactly. What it takes to refresh them to get back with sustainable profitable growth?

We have to work for sure. But again, I'm quite convinced about the potential of this brand, especially CoverGirl, which is -- I don't know if you know it, but it's the most loved brand in America, far ahead of many competitors. This is a key point. The CoverGirl probably is in need of a new sense of purpose to really strengthen its visibility and messaging to its customer and to extend to the new generation. Secondly, as I said before, it's all about creating new better and different products that are better than what the competition is doing. And for this, we're going to work hard to make this happen. We're going to focus more on the key products that we feel are going to change the destiny of each brands. And of course, we'll do a very strong SKU management also because this is the kind of things that can make your fabulous innovation, invisible in store. So this is also something that we are working on very, very hard. And of course, we're going to focus very strongly on ways to convey this new brand equities and sense of purposes through digital media like social media, but also on our ecommerce platforms and probably see how we can take this brands into the DTC world. So these are really, for me, the three areas but the most important again, is to make sure we are proposing people, women, men, whoever is looking for makeup, the right makeup, post pandemic and the right makeup versus the competition. Pierre-André Terisse: Okay. Well, thank you for these questions and for your attention. As Peter said we are very excited of this new page working with Coty extremely focused because there is a lot of things to do but very excited and we look forward to seeing you on the road. Thank you.

Thank you.

Thank you, everyone. This does conclude today's conference call. You may now disconnect.