Coty Inc. (COTY)

COTY 
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Coty, Inc. (COTY)

Q4 2013 Earnings Call

September 17, 2013 9:30 am ET

Executives

Michele Scannavini – Chief Executive Officer

Sergio Perdreiro – Chief Financial Officer

Kevin Monaco – Senior Vice President, Treasurer, Investor Relations

Analysts

Olivia Tong – Bank of America Merrill Lynch

Bill Schmitz – Deutsche Bank

Joe Lesches – Wells Fargo Securities

John Faucher – JP Morgan

Neely Taminga – Piper Jaffray

Wendy Nicholson – Citi Research

Lauren Lieberman – Barclays

Linda Bolton Weiser – B. Riley

Presentation

Operator

Good morning. My name is Shaquana and I will be your conference operator for today. At this time, I would like to welcome everyone to Coty’s Fourth Quarter and Full Year Fiscal 2013 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 is being recorded today, September 17. Thank you.

I would now like to turn the call over to Kevin Monaco, Coty’s Senior Vice President, Treasurer and Investor Relations. Mr. Monaco, you may proceed.

Kevin Monaco

Good morning and thank you for joining us. On today’s call are Michele Scannavini, Chief Executive Officer, and Sergio Perdreiro, 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.

Except where noted, the discussion of our financial results and our expectations do not reflect certain non-recurring and other charges and therefore constitute non-GAAP measures. You can find a reconciliation between GAAP and non-GAAP figures in our press release and on the Investor Relations section of our website.

I will now turn the call over to Michele.

Michele Scannavini

Thank you, Kevin, and good morning everyone. I’m pleased to welcome all of you to our first financial results conference call as a public company following the listing of our shares on the New York Stock Exchange this past June. We enjoyed meeting with many of you throughout the IPO process and we look forward to updating you on our performance as well as how we are progressing with our business strategy. Since there may be some of you who are new to the Coty story, I’ll provide a brief overview of who we are, highlights of our unique attributes, and applying our strategic priorities for driving profitable growth.

Coty is a new emerging leader in beauty. We have delivered sustained revenue growth and margin expansion over the last 10 years thanks to our ability to build and develop a brand, proposing and changing innovation to the market, coupled with strong discipline in controlling our operating costs. We have a portfolio of well-known and successful brands that hold leading positions in three segments: fragrances, color cosmetic, and skin and body care. Our brands compete in most key distribution channels across the prestige and mass markets and in more than 130 countries and territories.

Our growth is driven predominantly by our power brands, which are our top 10 brands and represent approximately 70% of our net revenues. We have power brands in all the segments where we compete. Five power brands are in fragrances: Calvin Klein, Marc Jacobs, Davidoff, Playboy, and Chloe; three are in color cosmetics: Rimmel, Sally Hansen, and OPI; and two are in skin and body care: Adidas and Philosophy. They are spread our three segments, are globally recognized, and are important contributors to our results.

Our strategy of profitable growth revolves around six key drivers: first, maximizing the growth potential of our power brands with a focus on superior innovation. Our second key driver is further strengthening our position in our core fragrances and core cosmetic segments while expanding our presence in skin and body care. Third, we aim at increasing our global coverage by accelerating our growth in emerging markets. We are targeting to grow the share of our business in emerging markets from the current one quarter on the revenues to more than one third in five years’ time. Our fourth driver is leveraging our multi-channel distribution strategy to capture growth across all price points and reaching a vast and diverse spectrum of potential consumers. Fifth driver is continuing to expand our margin by further increasing our supply chain productivity and focusing on disciplined cost management; and finally, continuing to generate substantial amounts of cash through improved earnings and working capital reduction.

Leveraging the six drivers I just discussed, we expect to achieve our long-term financial targets, which are growing net revenues in line or faster than the markets and segments where we compete, growing earnings faster than revenues, keep expanding margins, continuing to generate strong cash flow, increasing working capital efficiency.

In addition to these six drivers for organic growth, we will continue to actively evaluate external opportunities to further increase our competitiveness. Historically, this has been a key contributor toward Coty’s strong development and an important generator of shareholder value.

Having laid out the structure of our long-term strategy, let me now provide you with an update on our quarterly and year-end financial results, which Sergio will review in more detail a bit later. Fiscal year ’13 was another positive year for Coty with solid financial results. Our adjusted operating income grew 7% thanks to growth in revenues and discipline in our operational costs. Adjusted operating margin increased 70 basis points to 12.3% of net revenues. Our adjusted net earnings also increased 7%, bringing our EPS to $0.82 from $0.78 last year.

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