Kylie is one of the world’s most admired personalities with over 270 million followers across her personal and brand social media channels, as well as being one of the most influential voices among beauty consumers globally. Both of her brands, Kylie Cosmetics and Kylie Skin, are two of the fastest-growing and most-engaged beauty brands on social media.

The transaction is also a key milestone in Coty’s ongoing transformation into a more focused and agile company. Coty will have overall responsibility for the portfolio’s development, leveraging its global knowledge and capabilities in R&D, manufacturing, distribution, commercial and go-to-market expertise, as well as its deep understanding of the fragrances, cosmetics and skincare categories. In addition to its responsibilities within the partnership, Coty will act as a licensee for skincare, fragrances, and nail products.

Through the partnership each party will leverage its unique strengths to further build a high growth, digitally native beauty brand.

Pierre Laubies, Coty Chief Executive Officer, added, “We are pleased to welcome Kylie into our organization and family. Combining Kylie’s creative vision and unparalleled consumer interest with Coty’s expertise and leadership in prestige beauty products is an exciting next step in our transformation and will leverage our core strengths around fragrances, cosmetics and skincare, allowing Kylie’s brands to reach their full potential.”

Kylie Jenner commented: “I’m excited to partner with Coty to continue to reach even more fans of Kylie Cosmetics and Kylie Skin around the world. I look forward to continuing the creativity and ingenuity for each collection that consumers have come to expect and engaging with my fans across social media. This partnership will allow me and my team to stay focused on the creation and development of each product while building the brand into an international beauty powerhouse.”

Peter Harf, Chairman of the Board, said, “This new partnership between Kylie and Coty is an exciting step in Coty’s renewed emphasis on its beauty business. Kylie is a modern-day icon, with an incredible sense of the beauty consumer, and we believe in the high potential of building a global beauty brand together.”

Under the terms of the agreement, Coty will acquire a 51% ownership in the partnership for $600M. Coty expects the transaction will be accretive to the net revenue growth of its core fragrance, cosmetics and skin care portfolio by more than 1% p.a. over the next three years. The transaction is expected to be neutral to Coty’s earnings per share (EPS) in year one, and accretive thereafter. The ROIC of the transaction is expected to exceed Coty’s cost of capital by Fiscal 2023. Kylie Cosmetics realized an estimated $177M net revenues for the trailing twelve months (TTM).

The acquisition is expected to close in the third quarter of fiscal year 2020. All beauty categories within the new partnership will continue to be sold through leading luxury beauty retailers as well as owned digital channels.

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The new organization design is expected to take effect by January 1, 2020, with the full structure, including consolidation and relocation of management in Amsterdam, due by July 1, 2020.

The plan is broken down into three pillars:

1. Rediscover growth

• Focusing brand-building efforts behind priority brand-country combinations and investing behind them at scale
• Optimizing assortment and simplifying product ranges and brands architecture;
• Improved portfolio structure, optimized promotional tactics and support of higher-margin pillars
• Building an innovation pipeline to support expansion of category coverage, up-trading and margin accretion

2. Regain operational leadership

• Improving cost of goods sold through the value-engineering of product ranges and optimizing Coty’s supply chain utilizing its existing manufacturing footprint
• Rationalizing SKUs and sub-ranges to reduce product range complexity and lower inventory
• Reducing fixed costs by reducing organiza­tional layers and positioning all key markets closer to the executive committee
• Splitting commercial and marketing responsi­bilities to enable greater focus on portfolio strategies; as part of this move, Coty will transition the current organiza­tional structure into regional commercial teams in Europe, Middle East & Africa, Americas and Asia Pacific, and brand marketing units for Luxury and Consumer Beauty. Professional Beauty will remain as a separate distinct business unit “due to its unique salon channel focus”

3. Build a culture of pride and performance

• Centralizing management headquarters in Amsterdam, which the company considers is a “cost-efficient and tax stable location”

New Appointments

The appointments related to this announcement are as follow:

• Edgar Huber, president of Americas and Asia Pacific
• Gianni Pieraccioni, president of EMEA
• Fiona Hughes, president of Consumer Beauty Brands
• Simona Cattaneo, president of Luxury Brands

The executive committee will remain in its current roles.

2019 Outlook

Coty anticipates an impairment of its intangible assets of approximately $3 billion for 2019. Coty has agreed with its banks an amendment to its credit agreement to align with the turnaround plan. According to the company, “Coty has ample liquidity and available credit lines for a total of more than $2 billion.”

2020 Forecast

Coty expects the 2020 fiscal year to feature a decline in net revenues, with constant currency adjusted operating income up 5-10%.

2023 Forecast

For 2023, Coty is assuming net revenues will remain similar in total to that of fiscal year 2019, with operating margin of 14-16%, free cash flow of about $1 billion and net debt to EBITDA of less than 4x.

Coty expects to incur one-time cash costs of approximately $600 million spread over fiscal years 2020 through to 2023, in addition to approximately $160 million connected to previous programs.

Pierre Laubies, Coty’s CEO, said, “Over the past few months, we have focused on both stabilizing our operations and identifying a path towards turning around the company. Our Turnaround Plan will enable us to build a better business in the coming four years, while we gradually prepare for growth. We are fortunate to have a strong brand portfolio and talented and engaged people around the world, and we will provide the right framework to enable their success. We will focus our strategic effort and investments on fewer brands globally while simplifying our operations and organization. At the same time, we will make our cultural transfor­mation agenda a key building block of our plan.”

Laubes added, “Our financial priorities are clear as well – to improve profitability and deleverage – and we are intent on setting realistic targets and delivering them. Today starts our new agenda – we will progress it as a team, with the right balance of discipline and creativity.”

Pierre-André Terisse, CFO, said, “We have built a realistic four-year plan, focused on restoring our profitability and deleveraging our balance sheet. We will recover competit­iveness by strengthening our brands, expanding our gross margins and methodically reducing our costs. Together this will give us the flexibility to step up our commercial investments while simultan­eously driving significant operating margin expansion and enable Coty to achieve a leverage ratio of net debt to EBITDA below 4x by Fiscal 2023. Our new company-wide incentive system will be aligned to these financial objectives and in Fiscal 2020 will be focused on three key performance indicators: gross margin; operating income; and free cash-flow. We are confident in this plan and the results of our actions to date support our belief that we can deliver our objectives.”

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Laubies has a wealth of operational and financial experience in the consumer packaged goods industry gained from his time at both Mars and JDE –a leading player in the global coffee category. At JDE, he successfully integrated the ex Mondelez coffee business fully realizing the associated synergies and reducing the debt burden of the JDE company.

Additionally, Peter Harf is taking over the Chairman’s role from Bart Becht, effective immediately.

“A tremendous amount of progress has been made under Camillo’s leadership over the last two years in establishing the new Coty, a distinctive purpose, a strong portfolio of iconic brands, core capabilities, great talent and a global footprint. stated, Edgar Huber, President, Coty Luxury. “Following the merger with P&G Beauty brands – the most important ever in our industry – Camillo also built a much stronger management team and delivered on the synergy commitments associated with the transaction. While much progress has been made in this area, there are still some challenges as we work towards the full transformation of Coty.”

“Pierre is uniquely suited to succeed in this role as an experienced former CEO, with strong leadership qualities, proven experience of successfully integrating and turning around businesses in the consumer sector, as well as delivering financial results and improved cash flows,” Huber continued. “He has a strong track record of operational, commercial and financial turnaround gained from his time at both Mars and JDE, as well as extensive commercial experience internationally, having worked in senior leadership roles in numerous markets. Pierre then has the right combination of skills and experience to lead the company into this next phase.”

 In parallel, the Board is commencing a renewal process to bring new perspectives to the company and strengthen independent director representation. Specifically, the Board has started a process to add two new independent Board members with deep commercial and financial experience,” Huber said.

 The Board has also decided to appoint Erhard Schoewel as its Lead Independent Director.

Coty is one of the world’s largest beauty companies with over $9 billion in revenue, an iconic portfolio of brands and a purpose to celebrate and liberate the diversity of consumers’ beauty. We believe the beauty of humanity lies in the individuality of its people; beauty is at its best when authentic; and beauty should make you feel happy, never sad. As the global leader in fragrance, a strong number two in professional salon hair color & styling, and number three in color cosmetics, Coty operates three divisions: Consumer Beauty, which is focused on mass color cosmetics, mass retail hair coloring and styling products, body care and mass fragrances with brands such as COVERGIRL, Max Factor, Bourjois and Rimmel; Luxury, which is focused on prestige fragrances and skincare with brands such as Calvin Klein, Marc Jacobs, Hugo Boss, Gucci and philosophy; and Professional Beauty, which is focused on servicing salon owners and professionals in both hair and nail, with brands such as Wella Professionals, Sebastian Professional, OPI and ghd. Coty has 20,000 colleagues globally and its products are sold in over 150 countries. Coty and its brands are committed to a range of social causes as well as seeking to minimize its impact on the environment.

For additional information about Coty Inc., please visit www.coty.com.

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