Q4 2020 Coty Inc Earnings Call
First name David allow Sam around.
And your company names.
IRA A.I.E.R.A.
[music].
Good morning, Ladies and gentlemen, my name is Maria and I'll be a conference operator today.
At this time I would like to welcome everyone to company's fourth quarter fiscal 2020 results conference call.
As a reminder, this conference is being recorded today August 27th 2020.
On today's call appear on the city's chief operating and Chief Financial Officer.
Peter hard hoodies, founder and executive Chairman.
Soon heavy Cadiz appointed CEO.
I would like to remind you that many of the comments today may contain forward looking statements.
Please refer to Cadiz earnings release, and the reports filed with the FCC when a company lifts 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 I specified in the non-GAAP financial measures section of our the release.
Later, we will conduct a question and answer session in order to ask a question at that time simply press Star then the number one on your telephone keypad.
If at any point. Your question has been answered and you wish to remove your cellphone look you press the pound key.
Lastly, should you require operator assistance, please press star zero.
Thank you it does not my pleasure to turn the call over disappear and that as studies to begin. Please go ahead.
Thank you Maria and and good morning, everyone. This is a indeed you won't be speaking.
And installed these are the school with a fun foods, and then I will hand to go to a over to Peter and into.
And then too soon.
To start to finish reviewed this time next I wouldn't get the scoop over reporting as they also on a meaningful changes as you know we have signed this out of 60% of Zillow being Oh professional beauty Division plus return here to get go on this as of June 2020.
With the sale not being subject to any substantial condition as of that date, they're not is considered a discontinued operation in you know gap I.
As a result, we have requested your accounts for fees grew 19 and fees grew 20, <unk> and we know prisons continuing operations being different could see less then I revenues and direct cost and Derek you attribute it will cost.
Gross borne by cookie on behalf of Zillow. Following the closing we infer about vereen voice from transition service agreements and we have therefore prepared to set of numbers schooled ongoing gutsy ongoing cookie, which better reflects what could see exhibit a is expected to be post closing.
Going for a while most members were referred to ongoing cookie and are we supposed CPP flag when I use other metrics.
You can find the bridges from two from Cookie to continuing operations and then two on green coffee in the recast Easter equal funding from proceed on or Investor Relations website.
That's where I think two there's an ingredient and into slide presentation.
In terms of numbers.
Coty adjusted operating income in fiscal 19 on the left was $950 million or 11% margin.
Then I Prophy X central coast was furniture, and $59 million or after including guesstimate, just the cost 407 million that off and as a result on green Cookie operating income was 543 regions at all for 8.7% Abridging machine and ongoing.
<unk> was 875 million that out.
Looking at fees grew 22.
So its own cookie adjusted operating income stands at 161 million to us or 2.4% of net revenue Villa stood at 271 million that off and on Green Cookie at the nigga teas hundred $10 million approaching I just see the British income we then.
Maybe view of 40 piece 226 million data.
[noise] equaled 20 variance. This is 19 reflected the impact of cookies and the closure during most of the full sponsor of most of all sales channels as well as some over prediction.
Sites.
So cookie fourth quarter was marked by extend the trucks because he'd 19 triggered a global reorder going to me and supply crises that led to tell employed in French buckets, indeed, he'd good t. harder than its competitors because the five reasons.
Pre crises the company was already experienced sees experiencing sorry, a weak demand situation.
Second cookies Korean category me ease skewed toward pressure.
Total kosmicki and professional beauty, which were the categories. Most affected by could be 19 within these categories cookie with see losing market share in some markets.
For the company ease underrepresented in China, which is the markets that buying back bonds back first and last because he is weaker than each major competitors. Indeed, you too.
Anyone else.
Against this backdrop ongoing cookie net revenues were down there for a big 60% in Q4.
Prestige being the most impacted it's minus 73% why you didn't mass was listening to tee that minus 48% as mosquitoes remained partially open.
April was the lowest point, but every month since then as shrewd progress across the portfolio in both masks and accessories as well as falls into any particular July and or let this expectation of the month of August showed significant progress.
Ladies and stand at approximately 2.5 times pro levels, reflecting the reopening of number of stores at between the low traffic than usual.
Why many things remain to be done through Q4 also reflected though a continuing improvements we the strong momentum and market share gains you need goodness.
A good performance of could go clean fresh and study Hanson, good gang pure and improving market share in Caracas metric in key markets and the U.S. and UK specifically.
In terms of profit total could T. Q4, net revenue drug was close to $1.2 billion. This is Lester led to an operating income drug of 526 million than us.
She's 44% for free as the fixed cost reductions initiated in the quarter were insufficient to upset the magnitude of the net revenue drops.
This was exacerbated by free elements were putting approximately $50 million bad debt provisions plant under utilization cost as well as excess and obsolescence provisions as we tried to take a prudent view, including the fees grew 20 accounts.
Why is there, including Tia Sea coast showed how many more or less for Q4 ongoing could see adjusted operating income was a loss of 323 million dollar house for the quarter.
As for nonrecurring events, the drip of all stock price led to an increase of all different rates, which was the primary driver over an impairment of crews to 400 million ton house for both brands and goodwill.
Turning to free cash flow.
For total proceeds time to negative adjusted operating income translated into a negative free guest who have.
316 million for the quarter, which was in line with or guidance of three to 500 medium that out negative as women age to strongly to meet capex when of cost as well as to balance the working capital. Thanks to good work from the procurement and to finance teams.
This negative free cash flow was more than have said by the first tranche of convertible preferred shares subscribed by kick it off for 750 million denials and net debt as a result decreased by 300 million. Then answer. This is the end of March to land at 7.8 billion, though despite crews 200 million denials near team for an exchange impact.
To be no TDE as the post closing event. We you I've received at the end of July the second tranche of convertible preferred for $250 million.
I will end up Weve some updates on this side of a villa.
With a closure or where the closure of most salons resulted in a drop of sales of 41% in Q4 things improved from the low small switch was again in April and July and August confirmed this phone progresses with underlying trends negative mid single digits.
While the business. He 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 good he will both considerably reduced seats that on leverage to level, which will be adequate to support our turnaround plan and at the same time could he will keep a 40% interest in the low risk business with a strong potential.
And with this I know handover to Peter Thank you very much pre Andre.
We start thinking.
Yeah.
The helped us they give the best to have the company.
The storm.
Worst economic and health crisis, but to seen last 80 years. So many people in many countries give all they had to make the demos for the company as small as possible I. Thank everybody for that very very much.
We had a very challenging quarter, that's challenging year.
When we Pvp Andre or what he said.
Also talked about degrees policies talks about the fact that we are seeing you know improved business in fiscal 21 in the first quarter.
I'm glad to report that we're making good money be making money in the first quarter of 21.
Significantly lowered old we even point, so the lower sales level and fiscal 19.
Two fiscal 20, well it will make a significant amount of operating income.
If you know CEO for three months before that I was working obviously very closely with the Cody equally management.
My focus has been all the way relentlessly.
During the company back on track to realize its underlying potential.
Hi, some from the side I was aware of the issues and their concerning all investors or shareholders and the company.
Specifically related to capital structure.
Operational underperformance, the product portfolio and the top management.
You have taken decisive action to check each and every one of these concerns head on his bold step changes in each of the areas of concern you're showing clear progress during the past few months, let me take stock.
Firstly, we recognize that call you leverage ratios high.
To lower caused that level and to strengthen our balance sheet. We entered into the agreement is KKR setting, 60% novella, because divest call to KKR, but maintaining yes.
We stress I mean, the 40%.
Very valuable and thing highly profitable assets you know for the company going forward you got for that too we will go to get for the 2.5 billion dollar net cash proceeds.
We expect is injection to close by the end of calendar 20.
Between Q4, 20 and look if you want 21 Pickier also injected nagel homebuilding cash in two main cool for convertible preferred stock.
Conversion this will give kinky or 72 cents stock share of Banco, but we will retain the absolute control over 50%.
Secondly was coli underperforming on operating margins and efficiencies you have said rigorous objectives for fiscal <unk> 2021.
We need to be profitable for the full year.
And significantly profitable for the full year.
You are striving for constant like for the debt.
Life like for like net debt excluding the proceeds.
Divestiture.
Even if the ongoing cobot 19 pandemic impact the beauty industry more strongly than many.
Anticipate.
Second make the balance sheet lighter and the business less complex smart disposals reduction in the number of sides outsourcing a more third party manufacturing.
We also reduce the party expenses people know people cost capex smoking advertising and consumer promotion to the absolute minimum.
Action plans and progress.
Let's give us confidence that will deliver over one third of the savings.
600 million fixed cost reduction program and physical 21.
We also realized that all portfolio exposure is lagging behind new consumer demands and trends if taken concrete steps to rebalance the strength of portfolio to be competitive in light of these changing consumer demands will platforms and just go to structural weakness in skin care well in Asia.
Ecommerce and D to C direct to consumer I acquiring the irrevocable rights to Kylie Jenner you can production best cosmetics.
We create also the space for additional brand building a brand investments although to date, we dynamite our existing portfolio and the soon obviously leadership.
Who after chemo Cody Coty entered into strategic transactions by 20% collection bus that by the way secure C.
Well if ever go lives that we have Cody going forward does it Kim Kardashian Brad.
And the the activities around the Brian.
Could you will be responsible for the portfolio development in skin care has a personal care products and also you know in fragrances.
And kindly give quoted platform to sell skin care I love beauty categories globally in particular in North Asia.
Yeah, we negotiation licenses that you know we have no procedure portfolio that do not provide sufficient profitability for quality.
Making progress on that front.
Next I realize that coal is cautious needs to be fit for the fast pace and the changes in our cosmetics industry.
But the initiatives. We companies is implementing need you know as to be very very light footed.
So we're bringing back diligent agility and the nimbleness that is part of codes DNA.
Yeah flattened the organizational structure.
Simplifies the decision making processes.
From the small group of leaders they can take a important actions fast.
So, we're making Cody ready.
For a good things to come in July we corrected the Kishore for.
Probably the worst issue.
The display Cody throughout the years, you have not had a beauty industry veteran at the helm, who truly understands the nuances of the beauty industry can drive the business cosmetics business forward effective.
We corrected this problem, but including Sue.
Sure Novvi approving successful beauty leader has been thus the ideal prerequisites to become the CEO of call. It.
It is 27 year veteran in the beauty space the breadth of experience across all the areas, which are most relevant to cause future.
She was lower yard for more than 20 years this leadership positions across the mass.
Actually segment in color cosmetics skincare fragrances.
And as well, though plugged into the key international.
Protective she has a deep knowledge of more than Asia.
She not only brings deep expertise and experience in the area. The Codell prison, but also in areas that we want to strengthen.
Skin care ecommerce direct to consumer and Asia.
In the long career in the beauty business.
Successfully navigated countless cycles and trends, it's velocities, including reinvigorating various established brands within certain markets an industry conditions ahead of us the pivotal changes, we will make as Cody a breadth and depth of experience will be especially crucial no latest van.
Sure.
The phone of either she was pool that she's also.
And then an eventual until we know who understand startups, there's understanding by having the same time strong corporate institutional backbone brings a much needed nimble into two new mines as Cody.
Not be more relevant for our current needs.
For two or two sue for comment want to leave you with a few key thought on the new Coty powerhouse that we will give you all the way of becoming first.
I highlighted code you have today is very different from the Cody even a few months back because we have taken proactively decisive and bold actions addressing the various key concerns identified head on and recruiting the business.
Can clearly see green shoots emerging despite this challenging environment as we gain market share with strong E. Commerce momentum successfully launched new product. It's kind of can scan 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 Cody is back.
Our investors, we have to make sure that SP block and tackle sustain all business. You have also look to future proof. The company was a new initiatives that will enable coli to operate more efficiently and give us the room to grow the business, the new or different quality has a more robust capital structure.
Improved operations.
Streamline and we've done I'm a diverse portfolio a complimentary stable of strong how it is France and direct to consumer brands is a diverse its diversified across categories and channels.
Has the best to play in both value and the premium has digitally and social media.
That will help US you know quote aggressively in these areas in the digital.
Space.
Gross potential both in the white spaces.
That we are trying to address and from reinvigorating existing brands has focused management team led by a proven successful beauty export.
And I've always said equally matched to over the role as CEO of a few months ago, but there's a lot of potentially coli today I'm, even more convinced that the new Cody has more potential than ever before to unlock and to create value.
Yeah, We writing code story.
These two beauty powerhouse with the rights to grow at the right to win.
To not be will lead us and was price I hand over to a whole now.
Thank you very much Peter ladies and gentleman.
For me there is no better moment to join curtain, Although my official first day, we'll be in five days I'm happy to share with you what I'm strongly convinced at a bright future ahead pocket.
First I'd like to thank you Peter.
Pivoting the company to then you could see and putting in place the necessary changes to set up a strong foundation.
For me to build on.
In another 25 years in this industry with many opportunities I have learned many lessons on what makes the beauty business or a brand successful.
As I took a step back to assess the potential of coaches.
I realize very quickly, but 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 stake holders want something meaningful but people love our 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 seats up the new modern Coty are in fact already in place.
We have two key and well positioned operating franchises mirroring the world the beauty and 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 must franchise.
What is the first and only company at this level that is exploring the potential at the new content of the direct to consumer business model through personality that beauty with strong social media James and followers.
The new car T will be driven by three key factors for me.
First the must franchise, which is a key one especially in the new norm that we are in characterized by uncertainty and of course economic difficulty.
Yes, its mission is essential and vital more than ever when the company 19 crisis, hopefully will and 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 experienced the diversity of all kinds.
The beauties and probably and this is very important the place where many will by 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 answer the world the Fred carpets in one word.
Luxury beauty will become the entry point for many to buy iconic local brands at affordable prices, even as luxury fashion is more severely impacted by the current endemic third the new continent opportunities the new continent of DTC personality that beauty I think.
Think about Kt and Kim Kardashian West of course is key as it is a continent fall off premises.
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 that average audience and it is probably the most profitable angry Lou Tiv of all return 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 lab for the whole group, where we'll test learn correct and expand our success to the rest of coffee brands.
This in mind this new continent will allow cookie to show to the World also and this is very important that our company our group our brands can and will formulate the top quality skin care with a mapping of the market that will be comprehensive in terms of positionings prices, but those are technologies and psychology.
Yeah.
Personally.
Having said that I do not see any other company that combines that these three key engines.
When it comes to brands.
She has also one of the most beautiful portfolio threats brands that stand for something universal.
Brands that are deeply rooted some of them being loved brands brands like cover girl demand our boys, who are our brands that are rooted in American British of French culture.
This is unique this is pressures this is powerful and this is a great basis to write new chapter for all these brands. These brands like all our brands at currency had a big responsibility though.
They need to act flawlessly, they need to be role models and that at the forefront everything.
The magic of a brand is not just about image. It starts at the product level always products that I, hopefully new better and different brand like covered girl invented modern long where non transfer technologies. It has also invented modern molded mascara brashers.
It has also invented clean beauty decades ago, and with covered girls clean fresh becoming number one foundation launched this spring the brand is once again, leading the way in a key area.
The luxury business as good she has one of the most amazing portfolios of the beauty industry.
With a trendy, yes, and most successful fashion brands such as good shape, our burberry that should become makeup leaders and also the most iconic leaders in the fagundes, Arizona.
All our brands needs to be the champion of something.
This will be one wed thread my philosophy cookies fillers.
All this region and these are the regions why I believe in could see.
And I believe strongly and it's a bright future.
French writer victory go said there is nothing more powerful than an idea whose time has come I would add the time for the new could see has come.
I look forward to starting a CEO and to sharing more specific plans with you at the next urging protection. Thank you very much.
Thank you when they're ready to take some questions.
As a reminder, ladies and gentlemen, if you wish to ask a question simply press Star then the number one on your telephone keypad.
Our first question comes from Anastasia Ali I'll touch a bank.
Yes.
So my question is first to.
Congratulations.
Great to hear you on the call.
Wanted to do hear more from you about what you think.
To do over the next.
Couple of.
To get to the please.
Okay.
And you mentioned skincare you mentioned a few other things you mentioned this transformation.
Can you talk about investment.
Just happened what would you like.
The next couple of years to get to the please.
Hello. Thank you for your warm welcome. Thank you for your question.
I think for the next years the work that has to be you know that's on my on my roadmap is.
First to really make everything to repair and correct what has been doing wrong recently with the you know.
Mega brands et cetera, and we've been working by the way quite hard during this July and August month, as even if I'm not yet in could you be we've been working with the teams to strengthen these brands to strengthen their brand equities. So first I would like to strengthen the make a 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 premise, saying.
Very profitable and dreamy business model of immuno direct to consumer led beauty brands. So these are the three simple ideas are having mine of course this acceleration will happen in all categories. You know repairing makeup brands, making sure makeup brands are in link and in sync with the.
He 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 you know.
Research and of course, the portfolio that will allow us to be visible from what I called a simple very very accessible skin care to probably the most high end.
Thank you.
Our next question comes from what I've, Olivia Tong of Bank of America.
Great. Thanks, Good morning, and should this question is part of my follow up to the first one great to hear your perspective on beauty and what you believe it's important that accompany passionate cody, but it sounds like you're mostly in line with decisions. The company has made already divestitures, the partnership and social media brand et cetera. So can you talk a little bit about a tougher.
View versus prior decisions and then here on trade 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 asking for fiscal 21. Thank you very much.
Yeah.
I'll take a I'll take the first.
The second the second part first.
Well he is very much the same as were what we had already what we had already shared in a in May and June.
And fundamentally what to do work, which has been done under summer summer sorry by the team under the leadership as Peter has been to work to start implementation or to make sure that all the action, we're embedded into the management and Weve, a very clear action plan. So we.
We know that the 600 million dollar plan touches many areas, including by the way supply chain.
But de mediate actions are very much linked to a.
Okay and project, which we have been discussing for for the past you a few potter and need for execution acceleration and amplification. So we are knowing the interconnection moved on that.
Secondly, the.
Already one of the known people cost.
With a new Golden rules within the group, which aim at.
Reducing very very meaningfully.
I T finance HR administrative cost I mean, all the cost which create complexity in the in the in the business.
And of course, we continue.
Continue working in many different axes, but the primary source of cost reduction for this oh for this year are going to be the two area as I mentioned, and we are talking or something which is going to be north of 200.
Million than us.
And then ideally too soon for the other part of question, which is the.
Which was the about the the difference in a point of view versus what has been done so far a India, yes, she she mentioned and where she brings new okay.
So thank you for the question. So the difference of point as you are we tried 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 had been lacking in the past. So I really would like this company to become a proud that driven product centric, but also new business models centric company and.
This is no my passion might expertise and this is my wish. So this is going to be a strong and driver because at the end of the day. What happens is that it's always in the bathroom in the emptiness you have a bathroom, that's a customer beat a male or female customer has a relationship with the product and if your product is not the best.
One of the market if it's not the one that delivers better than the others. If it's not a product. That's perfectly you know designed for four usage, but also for performance and last but not is 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.
Okay.
Thank you. Thank you. Yes next question. My next question comes from Atlanta, Steph Wissink of Jefferies.
Thank you good day, everyone. I also have a follow up question do for you just based on your comments about products that you could just help us think trail how the company has invested its R&D dollars and the changes that you would make two empathize that product development. You also mentioned in your prepared remarks, the idea formulating top quality skincare.
And then you gave an example of a cover girls clean clean fast product, which will be in color cosmetic maybe talk a little bit about skincare development R&D focus on skin care and how you see that happened to finance our perspective over the course of the next couple of here. Thank you.
Thank you for your question as you can imagine this is a bit early for me to to present, you know if with strategy to comment all the elements you're asking me to command. The only thing I can tell you is that they are key trends you know all around health in a way and these trends are key things be would like to implement through 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 a 360 degrees into our portfolio. So these are the two key things I'm working on health and digital.
Okay.
Our next question comes from the one I have yet as calendar of Evercore ISI.
Hello, everyone I have a question for T. air and one for sure.
So there are if you can revisit a lot a bit Q4, because it feels that de stocking was an issue.
At least in the U.S., we see that U.S. sales in track channels were down 20, you are reporting.
Twice as much so when I do understand you know date the gap between.
Retail sales on reorder and to what extent that imply that contributes to refilling the pipeline contributes to the screen in profitability in Q1.
And also if you could expand on the aus foreseen piece.
You have manufacturing plants. My understanding is you want to divest them and set up some sort of third party manufacturing and pursue I'm sorry for the long question.
Pursue.
I'm interested in what can you do we'd make up right now given the situation, where and I had been very impressed with what caring is doing with Cucci beauty, they're putting a lot of creative and investment behind it.
So with that in mine should NTSB something that T modeling, China would should work there and what is the impediments to two too.
Wrapping T mall. Thank you.
Yeah, So it's going well take the first part of the question and by the way about a T Mo and Gucci, we are working towards.
An opening before year end and talking calendar. So this is absolutely on the on the table.
We'll get but we've not use when we have when we have some somebody's going to say, but.
This is definitely something I'm going to.
We are going to proceed with.
On the performance of.
Well, maybe on the outsourcing first I mean.
When we said that we.
We would really because days, we said that we will basically read everything and in the everything there is obviously the the core process of accompanied the administration to finance there is as well a lot of things moving procurement and then they're easier.
The use of the give us each of the factories and the fact that we are not.
Using the give us enough and we need to find a solution or solutions, which will basically optimize the where we are.
The way, we use or supply supply network and we are looking at every possibilities to do that exploring it we are not yet in the project mode, but we are really in an exploratory mode and I think it's and it's on duty you know two to see what we can do.
Due.
To optimize our supply chain and within that particular issue.
To optimize the.
The use of our capacities and the use of were over existing over existing plan. So nothing else, who said this stage, but as part of Euro 600 million.
We are indeed, looking at least as well.
On the performance.
Of Q.
Of Q4.
April I mean, you know Maucher really was a was very difficult April was was definitely very very tough.
We basically had most of all.
Channels closed.
Talking about obviously travel retail and that remains true as of today, but also a 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 is poking at readers was Wes part of a part of the reason that I.
I think there was as well financially.
The reason of consumer and the testimony of that T. The impact of looks on luxury which I said in my speech was was there can you much higher than the when we have had on the on on on right.
Now the good thing is that.
We are recovering I mean April has been very low at minus.
67 May was better June was better and definitely July Energous show.
Very meaningful very meaningful improvement.
There is an element of the loading for sure.
In.
In Q4, and there is an element of reloading in Q1.
But in a way, which for me reflect the confidence.
Of the retail basically so.
The retail so no people weakening anymore and they were basically scared so they add to address their stocks and they are to manage our treasury and today. They are seeing consumer coming back I mean, it's not food, it's not from speed, but.
They basically more confident and rebuilding some level of.
Inventory, but the fundamental.
Thing is that consumer is coming back and that's true in mass that's true in luxury.
And that's where as well at a at Adela.
Well the adaptation of the Hairdressers to then you know more has been remarkable.
And he's today is to the helping so.
You know there are many reasons to be careful.
Because discovered crises noted that further developments.
But we're definitely seeing a good start of started the year.
And I leave it to sue.
To answer.
Yes, let me, let me maybe try to to understand but at the question. If they are de what's the program on our color cosmetics brands.
I would say that we are going to work on three parts of course re strengthening the sense of purpose of each brand, especially kind of girl.
Working on the products and working on anything Thats around you know retail D brick and motor or E commerce retail and when it comes to the products I think everyone knows this story as you know clean makeup which was the first Medicated Foundation and this is very modern this is exactly what people are looking for today.
That in a way, they're looking for mitigated products to put under faces and the success of clean fresh which was the latest launch becoming number one in the U.S. During the spring says a lot about what people are going to look for in the coming month is.
The movement of the communication US beauty is also a key one and our brand specialty cover girl can lead. This movement now also many other trends, but I will keep these between between the team and myself. So that we can surprise the world with new amazing launches into future. Thank you.
So long question long answer.
Thank you very much [laughter].
Our next question comes on line of channel lacking of Wells Fargo Securities.
Hi.
Thanks first congratulations to Sue welcome aboard.
Peer Andre I wanted to ask your question on leverage and obviously your leverage is extremely elevated exiting fiscal year 20, you know 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 while a transaction to pay down debt.
And then longer term do you still think you'll be able achieve your medium term leverage ratio of four times and how long does that take to get there. Thanks.
Yeah, I mean, I'm not going a as you said so I agree with you and never going to give any guidance on that the only thing I can say is that I mean, you do the dynamics of all that are the following the 1 billion from KKR eating the bank now.
We ended the quarter with 7.8, which is indeed.
Hi.
We've managed to deliver a pretty good performance I should say.
Given the level of net revenues, we add in terms of cash flow at minus 324, the for the quarter.
We are confident because we are very much paying attention on that and each one of a priority to to delever.
And even better performance so to stabilize the the cash flow for.
For fiscal 21 and disease before.
Taking into account taking into account values. So we are definitely on the on the right track. A then in terms of closing of the Veda transaction, we expect to cozy by the end of the can end up 20, so within the.
The coming becoming fume off.
You know the process. He is a is basically going well there are no substantial conditions, we keep working well and the business is doing well which is to me.
Very very important element Andrea reassuring elements.
The business of a of the.
The business as there are held by now by the way, which is which is definitely going doing very good.
And by hair altogether.
He is has been recovery.
Really fast compared to a compared to Q4.
So the dynamic of the debt is very simple you take the debt at the end of the debt at the end of Q4.
You take into account that kind of cash through I've. Given you a you take into account proceeds, which we ever and he said would be 2.5 billion.
The last.
We have.
Of course, the 250 coming from KKR, which are not in the 7.8.
At the same time, we have keen absolutely coming and that's basically it you have all the all the elements and that would be the akoti, which would be definitely much much sounder and so either in terms of balance sheet and financial position.
I hope it answers beat your question.
Even though I didn't guide.
Thank you like in dairy.
Thanks.
Our next question comes from the one as I'd have to shock of JP Morgan.
Hi, good morning, and that well I wanted to congratulate and welcome you as well I have a question for so on how the most recent M&A with Kylie and Kim catering to the brain atrophy.
You mentioned and also it's a question for PNM, there related to M&A or some Kylie if my math is called Black Friday on it contributed $2 million.
The first quarter and understanding is simply that like part of mining sector and also they quickly be.
With that.
And that perhaps you may want to talk to climb to find the right partner and also make the other part coated products and so was mentioning before I should we see this announcement by calendar year than your partner or should we still see delays in the tiny I'll kick it equally.
And in the secondary schools, Okay on down on the well appeal.
Thanks, Scott Swanson valuation given that the trends in professional he I became worse then it wasn't sprained aren't that valuation it back. Thank you so much.
Yeah, sorry can you repeat the last question.
Then be a little bit more precise about on your question about Cleveland carry and and what you call. The new partner, which is not very clear to me.
Yes, sorry, so two questions today is our first on Kelly, if my math correct and correct me if I'm wrong, you only contributed a steel million dollars in the fourth quarter I understand what the disruption in Europe I manufacturing and of course, you know to each of you know consumption itself. So when I understand like what isn't it.
Shapes, and Biomanufacturing, I'm, assuming you're getting architectures, which speak and should we see that announcement. So on any of that announcement also kind of take root door.
Presenting it to.
Actually.
Okay.
And then try answering the question.
I'm, sorry, and your question about that I was what.
Yes, the zale.
You know basically you on if there is anything given that the announcement was made back into spring and then obviously.
Colgate has become a worse than expected.
Thank you very anyway.
And.
Okay. So I take these two questions and then they will lead to suit to to.
Lease amendments.
About a about Canada documentary synergy so on that I first no. The answer is no I think when we.
The first part of the agreement was in May then the second part was at the beginning of June by that time, we knew already what what what the effect of 'cause it would be and in fact, we other he passed it was more which was April and we had already seen some some improvement and if any.
Additional distribution has been better than what we thought at that time.
With all the parameters, we had we had in mind so.
Absolutely no risk on that and and by the way we have we have an agreement with the price. So there's no question of adjusting to devaluation.
Neither.
On the wrong.
But certainly not no doubt.
So that's for Vera.
On on Kadien team, so just remind the exact parameters.
Kelly is 600 and allows for 51% we have already paid that that was in January 20.
So at the beginning of the second half 20.
It's you know recalled in fact, you a you have number on the guest restatements page four or five of the deck, which grew 66 and that's for the most to read the payment of 30 604, four Kelly and there is nothing else coming okay. No on Katie we have obviously too.
To work on a on on the situation I'm not willing to comment on the on potential disruption of partner.
Yes, as other businesses has been impacted by year by could read and by summer shutdown of factory.
But the important thing to have in mind is that Meanwhile, we have been working a lot on skin care. There was some element of skin care and in clearly when we when we to be.
This is take a 51% and we are developing it and developing eat rapidly we ever the expanded the range the distribution of the range with.
Distribution in a in Europe, we do glass, we are working as well on expanding the direct to consumers, which is going okay.
And then with respect to Kim we are talking of 200.
451%, 20% and that's a will be coming at the beginning of calendar Rtwenty. One. So we are two king of the just the third quarter of fiscal 21 for US a January February.
And again, it's very much going as planned and we already are working on on skin care on this on this particular fine.
So that's for me and Sue yes.
Yeah, if I if I understand why did the question is about the potential sustainability of.
And Influencer led beauty businesses et cetera, so I have to say that.
I'm very intrigued by the new possibilities offered by brands like Kaylee beauty and kitchen collection. Wes. These all these personality brands have as you know with hundreds of millions of followers on social media.
These sort of words 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 would should I should say that coty, we are focused on developing very strong.
Skincare ranges for both brands skincare products as you know its.
They see much stronger loyalty than other beauty products such as fragrances. For example, and in addition, both KD and Kim scheme will play one of the fastest growing areas of skin care, which is the midrange of course and the entry prestige areas. So as a summary, I would say that people will first by because they love.
And trust, Kim and Kylie and they would we purchase because they love our products.
Thank you and maybe we'll take one last.
One last question.
Our next question comes from the line and as Mark Atish Shah of Stifel.
Yeah, Thanks, and Hello, everyone.
I'm running I wanted just just to start kit the clarify so in looking at the July August commentary trying to triangulate on a.
Bar chart in in a presentation admittedly it looks like you kind of extrapolate shells average the July August would be down.
Something on order of kind of high single digits year on year. So just wanted to make sure that I.
I was looking at that were interpreting that.
Correctly and then.
I'm just just.
Bigger picture.
Perhaps for pursue so.
How do you think about.
What needs to be done to make cover girl Max factor some of the bigger brands relevant again, obviously, you've seen certainly for cover girl.
Multiple brand relaunch is in recent years.
So what would what could potentially get you to a different spot this time around.
And you know admitted the early but how do you think about.
EBIT margins for the business over time in terms of trying to.
<unk>.
Yes, hi to grow sales, but also invest appropriately in the business. Thank you.
Yeah I'll take the first the first question first I'm not sure you can read the chart. The way you a use the where you do among other reasons because you have to free but you don't have the quarters before.
What I will say is that so on the back of the minus Oh.
Close to 70, then 50, then 40 ish.
In a in the course of Q4, we have definitely changed the shape of the shape of the net revenues we are.
Around the minus 20 for July August, which is a real being improvement having in mind for instance that the travel retail which.
Used to account for about 9% of note on its revenues is you see it extremely.
Extremely penalized by the absence of trust. She can therefore, the rest and he I'm talking of Remainco knee and networking of Vera.
Yes.
It is progressing rapidly compared to what we're doing a in 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 ahead of the 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 the level of 19 and therefore.
We are really entering 21 with a new cost base, a new management of course, which allow us to protect the profitability and to protect the cash flow.
And if we continue senior some good news on the net revenue side to invest on to fuel the growth.
But if we don't we're protected.
And that's the most important elements.
Sure.
Can you just remind the.
So your question is about relevancy of a branch, which has come a girl Sally Hansen et cetera, correct and executing them.
Yes, exactly what it what it takes to refresh them to actually sustainable profitable growth.
We'd have to work for sure, but again I'm quite convinced about the potential of this brand, especially cover girl, which is as I Wonder if you know it but it's the most loved brands in America far ahead of many competitors. This is a key point. That's gotta go probably is is in need of a new sense of per.
It was to really strengthen its visibility and messaging to customer and to invest into the new generation Secondly, as I said it 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 will do a very strong scare you management also because this is the kind of things that can make your fabulous innovation invisible in stores. So this is also something that we're working on very very hard and of course, we 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 an 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're posing.
People women and whoever is looking for makeup the rights make at past pandemic and the rights make up versus the competition.
Okay, well thank you.
Thank you for this for these questions answered all your attention stuff now as as Peter said, we are.
Very excited of these new page working with Coty extremely focused because there is a lot of things to do that but very excited and we look forward to see new on the road. Thank you. Thank you.
Well. Thank you everyone right. This does conclude today's conference call you may now disconnect.
[noise].