What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2021-08-26 compared with 2020-08-27 · 83 added, 63 removed, 94 unchanged (61% of the section changed)

is one of the world’s largest beauty companies with a rich entrepreneurial heritage and an iconic portfolio of brands across fragrance, color cosmetics, hair color and styling, and skin and body care.

Founded in 1904, Coty has grown into a multi-segment beauty company with market leading positions in both North America and Europe.

Through targeted strategic transactions, we have strengthened and diversified our presence across the countries, categories and channels in which we compete, building a strong beauty platform.

The recent King Kylie transaction and the pending transaction with Kim Kardashian West complement our existing portfolio.

As we continue to transform our Company, we are focused on the fragrance, color cosmetics and skin care categories, in both our prestige and mass beauty businesses.

Following a strategic review, we announced, on June 1, 2020, the entry into a definitive agreement with Rainbow UK Bidco Limited (“KKR Bidco”) (an affiliate of funds and/or separately managed accounts (“KKR Funds”) advised and/or managed by Kolberg Kravis Roberts & Co.

and its affiliates (“KKR”)), regarding a strategic transaction (the “Wella Transaction”) for the sale of Coty’s Professional and Retail Hair business, including the Wella, Clairol, OPI and ghd brands (together, “Wella Business”).

Pursuant to a related separation agreement (the “Separation Agreement”), the Wella Business will be separated from Coty as a stand-alone, separately managed business, of which KKR Funds will own approximately 60% and Coty will own the remaining approximately 40% .

As part of the separation, through a separate transitional service agreement and related agreements to be entered into at closing of the sale (the “Wella TSA”), Coty will provide ongoing financial, distribution, operations and other services for the Wella Business, in certain cases for up to 24 months following the closing of the sale, subject to an extension for a period of up to three months for certain transition services.

In addition, KKR Rainbow Aggregator L.P.

(“KKR Aggregator”) (an affiliate of KKR Funds) has in a separate transaction invested an aggregate of $1 billion directly into Coty through the issuance of convertible preferred stock.

Assuming full conversion of these shares of convertible preferred stock and no other changes in capitalization, JABC would remain Coty’s largest shareholder, with approximately 50% ownership in the Company.

KKR Aggregator would be the second largest shareholder, with an approximate 17% stake.

The Wella Business is presented in our financial statements as discontinued operations.

Unless otherwise noted, the discussion in this Annual Report only focuses on results of continuing operations.

Building on the multi-year turnaround plan launched in July 2019 (the “Turnaround Plan”), we are implementing a comprehensive transformation agenda (the “Transformation Plan”) which aims to stabilize and gradually accelerate revenue growth, improve our profitability through gross margin growth and cost control, optimize our operating model for speed and agility, accelerate e-commerce and digital growth, and deleverage our balance sheet.

In 2020, we made organizational changes to reduce geographic fragmentation and costs.

In response to the COVID-19 pandemic, in May 2020, we expanded the Turnaround Plan to implement a 25% reduction of our cost base, which does not vary with revenues, by the end of fiscal 2023, including reprioritizing projects providing larger cost reduction benefits, organizational restructuring, an adaptation of our supply network and organization as well as a reduction of certain discretionary expenses.

We are continually reviewing ways to accelerate and amplify the transformation of the Company, including through the implementation of additional initiatives in connection with our T ransformation Plan.

Founded in 1904, Coty Inc.

is one of the world’s largest beauty companies with an iconic portfolio of brands across fragrance, color cosmetics, and skin and body care.

Through targeted strategic transactions, the Company has strengthened and diversified its presence across the countries, categories and channels in which we compete, building a strong beauty platform.

The King Kylie and Kim Kardashian West transactions complement our existing portfolio as personality-led Direct-to-Consumer (“DTC”) business models with strong social media engines.

As we transform the Company, we continue to make progress on our strategic priorities, including stabilizing our consumer beauty brands through leading innovation and improved execution, accelerating our prestige fragrance brands and ongoing expansion into prestige cosmetics, building a comprehensive skincare portfolio leveraging existing brands, enhancing our e-commerce and DTC capabilities, expanding our presence in China through prestige products and select consumer beauty brands, and establishing Coty as an industry leader in sustainability.

On November 30, 2020, the Company completed the previously announced strategic transaction with Rainbow UK Bidco Limited (“KKR Bidco”) (an affiliate of funds and/or separately managed accounts (“KKR Funds”) advised and/or managed by Kolberg Kravis Roberts & Co.

and its affiliates (“KKR”)), for the sale of a majority stake in Coty’s Professional and Retail Hair business, including the Wella, Clairol, OPI and ghd brands, (together, the “Wella Business”).

As a result Coty owns a 40% stake in Rainbow JVCO LTD and subsidiaries (together, “Wella”).

As previously reported, we are implementing a comprehensive transformation agenda (the “Transformation Plan”) which aims to stabilize and accelerate revenue growth, improve our profitability through gross margin growth and cost control, optimize our operating model for speed and agility, accelerate e-commerce and digital growth, and deleverage our balance sheet.

This Transformation Plan is designed to adjust our cost base to allow us to exit the post-COVID recovery phase as a financially and operationally stronger, more nimble company, which is well positioned to capture growth opportunities.

All dollar amounts in the following discussion are in millions of United States (“U.S.”) dollars, unless otherwise indicated.

Operating and reportable segments (referred to as “segments”) reflect the way the Company is managed and for which separate financial information is available and evaluated regularly by the Company’s chief operating decision makers (“CODM”) in deciding how to allocate resources and assess performance.

Operating and reportable segments (referred to as “segments”) reflect the way the Company is managed and for which separate financial information is available and evaluated regularly by the Company’s chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance.

The Company has designated its Chief Executive Officer as the CODM.

In connection with our Turnaround Plan, the Company's CODM changed the reporting structure used to allocate resources from the previous category focused organizational structure that included three operating and reportable segments:

Luxury, Consumer Beauty and Professional Beauty, to a structure based on regional commercial business units.

These changes were implemented during the three months ended March 31, 2020.

The Company’s three segments for its continuing operations are:

Americas, EMEA, and Asia Pacific.

Americas, EMEA, and Asia Pacific include the businesses focused on prestige fragrances, prestige skin care, prestige cosmetics, mass color cosmetics, mass fragrance, mass skin care and body care, and are supported by central marketing teams.

As previously disclosed, the Company’s CODM is in the process of finalizing her organization structure and how she will assess performance, and the Company has concurrently evaluated the potential impact to its segment reporting.

Based on this evaluation, the Company has determined that it is appropriate to realign its reportable segments from the current regional structure to a principally product category-based structure, comprised of a prestige business segment and a consumer beauty business segment.

The Company is in the process of making corresponding changes, as needed, to its management structure and operating responsibilities as well as to its information systems to enable appropriate internal and external financial reporting reflecting such newly identified segments by the first quarter of its fiscal year 2022.

For segment financial information and information about our long-lived assets, see Note 5— Segment Reporting in the notes to our Consolidated Financial Statements, and for information about recent acquisitions or dispositions, see Note 4—Business Combinations, Asset Acquisitions and Divestitures in the notes to our Consolidated Financial Statements.

The following chart reflects our iconic brand po rtfolio:

Mass Beauty Prestige Professional Beauty

Adidas Alexander McQueen Clairol Professional*, **

Beckham Burberry ghd (good hair day)*, **

Biocolor* Bottega Veneta Kadus Professional*, **

Bozzano* Calvin Klein Londa Professional*, **

Bourjois* Cavalli Nioxin*, **

Bruno Banani Chloe O P I*, **

Clairol*, ** Davidoff Sassoon Professional, **

CoverGirl* Escada* Sebastian*, **

Enrique Gucci System Professional*, **

Jovan* Hugo Boss Wella Professional*, **

Max Factor* Jil Sander WeDo Professional*, **

Monange* Kylie Jenner

Nautica Lacoste

Paixao* Lancaster*

Rimmel* Marc Jacobs

Risque* Miu Miu

Sally Hansen* Nikos

Stetson philosophy*

Wella*, ** Tiffany & Co.

007 James Bond

The following chart reflects our iconic brand portfolio:

Mass Beauty Prestige

Adidas Alexander McQueen

Beckham Burberry

Biocolor* Bottega Veneta

Bozzano* Calvin Klein

Bourjois* Cavalli

Bruno Banani Chloe

CoverGirl* Davidoff

Jovan* Escada*

Max Factor* Gucci

Mexx Hugo Boss

Monange* Jil Sander

Nautica Joop!*

Paixao* Kylie Jenner

Rimmel* Lacoste

Risque* Lancaster*

Sally Hansen* Marc Jacobs

Stetson Miu Miu

007 James Bond Nikos

Kim Kardashian West

Tiffany & Co.

* Indicates an owned beauty brand.

** Indicates brand included in Wella Transaction

We have a diverse portfolio of over 75 brands (including brands associated with the Wella Business which will be transferred to the standalone entity in the Wella Transaction), some owned and some licensed, and we employ different models to create a distinct image and personality suited to each brand’s equity, distribution, product focus and consumer.

We have a diverse portfolio of brands, some owned and some licensed, and we employ different models to create a distinct image and personality suited to each brand’s equity, distribution, product focus and consumer.

For our licensed brands, we work with licensors to promote brand image.

1 unchanged sentence

We manage our creative marketing work through a combination of our in-house teams and external agencies that design and produce the sales materials, social media strategies, advertisements and packaging for products in each brand.

We promote our brands through various channels to reach and engage beauty consumers, through traditional media, through in-store and in-salon displays, on digital and social media, and through collaborations, product placements and events.

We promote our brands through various channels to reach and engage beauty consumers, through traditional media, through in-store displays, on digital and social media, and through collaborations, product placements and events.

In addition, we seek editorial coverage for products and brands in both traditional media and digital and social media to drive influencer amplification and to build brand equity.

4 unchanged sentences

We utilize in-depth brand and market data analytics to develop branding, merchandising and marketing execution strategies to maximize the consumer experience and build a better business.

We have begun to shift working media resources to a select number of brand/country combinations, which we believe represents a significant opportunity for revenue and gross margin improvement, and to implement a tactical, in-store strategy for the others.

We have begun to concentrate working media resources in a select number of brand/country combinations, which we believe represents a significant opportunity for revenue and gross margin improvement, and to implement a tactical, in-store strategy for the others.

Distribution Channels and Retail Sales

We market, sell and distribute our products in over 150 countries and territories, with dedicated local sales forces in most of our significant markets.

We market, sell and distribute our products in approximately 130 countries and territories, with dedicated local sales forces in most of our significant markets.

We have a balanced multi-channel distribution strategy which complements our product categories.

1 unchanged sentence

The prestige products are primarily sold through prestige retailers, including perfumeries, department stores, e-retailers, direct-to-consumer websites and duty-free shops.

The Professional Beauty division primarily sells products to nail and hair salons, nail and hair professionals and professionals’ stores, through both direct sales forces and e-commerce platforms.

Due to the impact of COVID-19, we have focused on expanding our e-commerce and direct-to-consumer channels.

Due to the impact of COVID-19 and as part of our strategic initiatives, we have focused on expanding our e-commerce and direct-to-consumer channels.

We also sell our products through third-party distributors.

15 unchanged sentences

Our principal research and development centers are located in the U.S.

See “\Item 2—.

We do not perform, nor do we commission any third parties on our behalf to perform, testing of our products or ingredients on animals except where required by law.

During fiscal year 2020, we continued to manufacture and package approximately 80% of our products (including the Wella Business products), primarily in facilities located in the United States, various countries in Europe including Russia, Brazil, China, Mexico and Thailand.

During fiscal year 2021, we continued to manufacture and package approximately 85% of our products, primarily in facilities located in the United States, Brazil, China, Mexico and various countries in Europe.

We recognize the importance of our employees at our manufacturing facilities and have in place programs designed to ensure operating safety.

11 unchanged sentences

There is significant competition within each market where our products are sold.

We compete against manufacturers and marketers of beauty products, hair care, salon professional and personal care products.

We compete against manufacturers and marketers of beauty products, salon professional nail products and personal care products.

In addition to the established multinational brands against which we compete, small targeted niche brands continue to enter the beauty market.

13 unchanged sentences

As of June 30, 2021, we maintained 25 brand licenses.

In addition, approximately 51% of our fiscal 2021 net revenues from continuing operations were attributable to prestige fragrance, of which approximately 80% was from our top six prestige fragrance brands.

Our licenses impose obligations and restrictions on us that we believe are common to many licensing relationships in the beauty industry, such as paying annual royalties on net sales of the licensed products, maintaining the quality of the licensed products and the image of the applicable trademarks, achievement of minimum sales levels, promotion of sales and qualifications and behavior of our suppliers, distributors and retailers.

2 unchanged sentences

Certain brand licenses provide for automatic extensions, so long as minimum annual royalty payments are made, while renewal of others is contingent upon attaining specified sales levels or upon agreement of the licensor.

Five of our brand licenses are up for renewal during fiscal 2021, of which only four license renewals require licensor approval and together accounted for less than 2% of fiscal 2020 revenues from continuing operations.

Additionally, none of our top 9 licenses expire within the next five years, other than one with an automatic renewal that is not contingent upon licensor consent nor specified sales levels..

For additional risks associated with our licensing arrangements, see “Risk Factors—Our brand licenses may be terminated if specified conditions are not met, and we may not be able to renew expiring licenses on favorable terms or at all” and “Risk Factors—Our failure to protect our reputation, or the failure of our partners or brand licensors to protect their reputations, could have a material adverse effect on our brand images”.

As of June 30, 2020, we had approximately 18,260 full-time employees in over 46 countries, including approximately 5,900 employees of the Wella Business.

Three of our brand licenses are up for renewal during fiscal 2022 and require licensor approval.

These three licenses together accounted for less than 1% of fiscal 2021 revenues from continuing operations.

None of our top eight licenses is up for renewal contingent on licensor consent within the next five years.

For additional risks associated with our licensing arrangements, see “Risk Factors—Our brand licenses may be terminated if specified conditions are not met, and we may not be able to renew expiring licenses on favorable terms or at all” and “Risk Factors—Our failure to protect our reputation, or the failure of our brand partners or licensors to protect their reputations, could have a material adverse effect on our brand images”.

Human Capital

As of June 30, 2021, we had approximately 11,430 full-time employees in over 36 countries.

In addition, we typically employ a large number of seasonal contractors during our peak manufacturing and promotional season.

During fiscal year 2020, we adjusted our workforce through furlough or other reduction as we implemented our response to COVID-19.

We expect our overall headcount, as well as the use of seasonal contractors, to decrease as we continue our efforts to restructure and rationalize our business in connection with our Transformation Plan.

During fiscal year 2020, and to a lesser extent in fiscal year 2021, we adjusted our workforce through furlough or other reduction as we implemented our response to COVID-19.

W e expect our overall headcount, as well as the use of seasonal contractors, to decrease as we continue our efforts to restructure and rationalize our business in connection with our Transformation Plan, including through outsourcing initiatives and strategic transactions.

Our employees in the U.S.

3 unchanged sentences

or any other country where we have a significant number of employees.

Our employees are a key source of competitive advantage and their actions, guided by our Code of Conduct and our global compliance program, Behave Beautifully , are critical to the long-term success of our business.

We recognize the importance of our employees to our business and believe our relationship with our employees is satisfactory.

Diversity, Equity and Inclusion.

As a beauty company, we believe that it is important for our workforce to reflect the diversity of our consumers and to be representative of society as a whole.

We firmly believe that an inclusive work environment is essential for a successful and thriving business, by enabling us to better understand our consumers and to drive innovation and creativity.

We recognize the importance of diversity at a leadership level and throughout our organization – including diversity of gender, ethnicity, ability, background, gender identity and sexual orientation.

Our diversity, equity and inclusion strategy is one of the three pillars of our dedicated sustainability strategy, Beauty that Lasts.

Launched in February 2020, this strategy includes time-bound targets to accelerate our progress on a number of issues including diversity, equal pay, advocacy and awareness, training and community outreach.

As part of our overall efforts to increase the diversity of our leadership team, we aspire to reach a 50:50 gender balance in our leadership positions and to reduce gender pay gaps across our organization by 2025.

We are progressing towards this goal;

since Sue Nabi joined as Chief Executive Officer in September 2020, we have a majority representation of women at the executive committee level.

The Remuneration and Nomination Committee of our Board of Directors provides oversight on certain human capital matters including diversity and inclusion strategy, executive compensation, retention and succession planning and human resources strategies in connection with talent management.

In addition, in connection with the Beauty that Lasts program, we established a Global Diversity, Equity and Inclusion project team responsible for developing and implementing a three-year roadmap with both global and local strategic objectives relating to our diversity, equity and inclusion initiatives.

Sustainability

We launched our dedicated sustainability strategy, Beauty That Lasts , in February 2020, which is guided by the United Nations Sustainable Development Goals (SDGs) to manage and reduce our environmental impact and accelerate positive change.

During fiscal 2021, we affirmed this commitment by including our goal of becoming a beauty leader in sustainability as one of the six strategic pillars driving our overall strategy.

We report annually on our progress towards our sustainability targets, and our sustainability reports and other information on our sustainability initiatives and achievements are available on our website.

The content of our sustainability reports and information on our website are not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC.

Government Regulation

14 unchanged sentences

Product innovations, new product launches and the size and timing of orders from the Company’s customers may also result in variability.

The Wella Business also generally experiences an increase in sales during its fourth fiscal quarter as a result of higher demand prior to the summer holiday season.

However, the mix of product sales can vary considerably as a result of changes in seasonal and geographic demand for particular types of products, as well as other macroeconomic, operating and logistics-related factors, as evidenced by the impact of the COVID-19 pandemic.

1 unchanged sentence

We make available financial information, news releases and other information on our website at www.coty.com.

There is a direct link from our website to our SEC filings via the EDGAR database at www.sec.gov, where our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge as soon as reasonably practicable after we file such reports and amendments with, or furnish them to, the SEC.

There is a direct link from our website to our SEC filings via the EDGAR database at www.sec.gov, where our annual reports on Form

10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge as soon as reasonably practicable after we file such reports and amendments with, or furnish them to, the SEC.

Stockholders may also contact Investor Relations at 350 Fifth Avenue, New York, New York 10118 or call 212-389-7300 to obtain hard copies of these filings without charge.

We use our website as a channel for routine distribution of important information, including news releases, presentations, and financial information.

We have also posted on our website our:

(i) Principles of Corporate Governance;

(ii) Code of Conduct (and any amendments or waivers);

(iii) Code of Conduct for Business Partners;

(iv) Charters for the Audit and Finance Committee and Remuneration and Nomination Committee;

and (vi) sustainability information, including information on our sustainability strategy, Beauty that Lasts , and our diversity, equity and inclusion strategy.

The information on our website is not, and will not be deemed to be, a part of this annual report on Form 10-K or incorporated into any of our other filings with the SEC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business