What changed in this filing

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Item 1. Business

2022-08-25 compared with 2021-08-26 · 89 added, 60 removed, 117 unchanged (56% of the section changed)

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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.

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 Transformation Plan.

Over the past few years we have been implementing a comprehensive transformation agenda (the “Transformation Plan”), focusing on our core go-to-market competencies, simplifying our capital structure and deleveraging our balance sheet.

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 direct-to-consumer (“DTC”) capabilities, expanding our presence in China through prestige products and select consumer beauty brands, and establishing Coty as an industry leader in sustainability.

In fiscal 2021, we completed 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 of June 30, 2022, Coty owns a 25.9% stake in Rainbow JVCO LTD and subsidiaries (together, “Wella” or the “Wella Company”).

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

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

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.

During the first quarter of fiscal 2022, the CODM finalized the Company's organizational structure and how performance will be assessed, and the Company realigned its reportable segments to a principally product category-based structure, comprised of a Prestige business segment and a Consumer Beauty business segment beginning in the first quarter of fiscal 2022.

The Company recast its results for fiscal years 2021 and 2020 to reflect the changes in its segments.

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 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

Consumer Beauty Prestige

Adidas Burberry

Beckham Bottega Veneta

Biocolor* Calvin Klein

Bozzano* Cavalli

Bourjois* Chloe

Bruno Banani Davidoff

CoverGirl* Escada*

Max Factor* Hugo Boss

Mexx Jil Sander

Monange* Joop!*

Nautica Kylie Jenner

Paixao* Lacoste

Rimmel* Lancaster*

Risque* Marc Jacobs

Sally Hansen* Miu Miu

007 James Bond Orveda

Tiffany & Co.

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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 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.

We continue to concentrate working media resources on

select products, channels and markets, 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

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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 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.

During fiscal year 2022, we continued to manufacture and package approximately 80% of our products, primarily in facilities located in the United States, Brazil, China 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.

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To capitalize on innovation and other supply chain benefits, we continue to utilize a network of third-party manufacturers on a global basis who produce approximately 20% of our finished products.

As part of our ongoing Transformation Plan, we are exploring options to further optimize our supply chain operations.

As part of our ongoing transformation, we continue to explore options to further optimize our supply chain operations.

The principal raw materials used in the manufacture of our products are primarily essential oils, alcohols and specialty chemicals.

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We believe that we currently have adequate sources of supply for all our products.

We have experienced disruptions in our supply chain from time to time, including in connection with our past restructuring efforts, and we work to anticipate and respond to actual and potential disruptions.

We have experienced disruptions in our supply chain from time to time, including in connection with our past restructuring efforts and, more recently due to global supply disruptions, and we work to anticipate and respond to actual and potential disruptions.

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

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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.

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.

None of our brand licenses are up for renewal during fiscal 2023.

None of our top eight licenses is up for renewal before the end of calendar 2026, with the majority running longer than that and providing for renewal without licensor consent.

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 ”.

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

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.

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 strategic priorities, including through outsourcing initiatives and strategic transactions.

Our employees in the U.S.

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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.

Environmental, Social and Governance

Coty’s sustainability commitment, Beauty That Lasts, is a multi-pillared strategy which aims to contribute to a more sustainable and inclusive future.

With a focus on products, planet and people we see sustainability as the ultimate driver of innovation.

We report annually on our progress towards our sustainability targets through a separate sustainability report.

Our sustainability reports and other information on our sustainability initiatives and achievements are available on our website.

Changing circumstances, including evolving expectations for sustainability, or changes in standards and the way progress is measured, may lead to adjustments in, or the discontinuation of, our pursuit of certain goals, commitments, or initiatives (see additional discussion in “Forward-looking Statements— Cautionary Note Regarding Sustainability Information ”).

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.

On March 31, 2022, the SEC issued a proposed rule on climate-related disclosures by U.S.

public companies.

While the proposed rule is not yet final, it is expected to be effective for Coty starting with its fiscal year 2024 annual report based on the effective date as set forth in the proposed rule.

Certain audit requirements are expected to phase in during fiscal year 2024.

We are refining our controls to address the specific requirements of the proposed rule and reporting requirements.

The Beauty of Our Product

Our products have an important role to play in building a sustainable future for the beauty sector.

To respond to evolving social and environmental challenges, sustainability is at the heart of our product creation, from design and development through to sourcing of materials.

We are changing the way we design, formulate and manufacture in order to minimize our environmental impact and create innovative products.

Since 2020, we have an operational Beauty That Lasts Index in place, which is a qualitative tool for evaluating the social and environmental profile of new product developments.

We have ambition to reduce our packaging consumption with a focus on virgin plastic, glass and carton while sourcing from more sustainable sources.

In addition, our Green Science program aims to minimize the pressure of our products on natural resources.

In fiscal 2022, we began production of our first globally distributed fragrances using carbon-captured ethanol and have plans to integrate this ethanol into our wider fragrance portfolio.

We recognized that sustainability efforts require collaboration which goes beyond our own organization.

To that end we are members of several industry initiatives, including the Responsible Beauty Initiative, focused on sustainable sourcing for the industry, or Sustainable Packaging Initiative for Cosmetics, focused on creating common guidelines and tool for eco-design packaging.

We also joined the EcoBeautyScore Consortium – a breakthrough initiative which aims to develop an industry-wide environmental scoring system for cosmetics products, with the aim of empowering consumers to make sustainable beauty choices.

We continue to evaluate and modify our processes and activities to further limit our impact on the environment as we implement our sustainability strategy.

The Beauty of Our Planet

We recognize that conserving and protecting the natural environment is a vital part of our responsibility as a business.

We are committed to minimizing the environmental impact of our operations and preserving resources for generations to come.

In fiscal 2022, we made considerable progress towards our environmental impact goals.

All of our factories and distribution centers now use renewable electricity (including through buying of renewable energy certificates), and we have made strong progress on energy reduction.

We continue to invest in additional energy optimization methods, including bringing two sites to carbon neutrality for scope 1 and 2 emissions.

We have achieved this through optimization, use of renewable electricity, and where necessary, by offsetting any remaining Scope 1 and 2 emissions.

In our efforts to reduce our impacts on the environment, none of the waste from our factories and distribution centers was sent to landfill, while most was reused, recycled, or composted.

We have implemented several measures to reduce water consumption across our plants and distribution centers.

During fiscal year 2021, we conducted a footprint study assessing our impact on Climate, Water and Biodiversity.

From this work, in fiscal year 2022 we have focused on our impact on climate and have identified key actions to reduce our carbon footprint and develop science-based climate targets for reducing greenhouse gases.

We have submitted these proposed carbon targets to the Science Based Target initiative (“SBTi”) for validation and plan to communicate our targets by the end of fiscal 2023.

Implementation of plans to operationalize our proposed targets are in progress.

While certain projects are already in execution phase, other projects are in the early stages as we identify specific courses of action and validate the feasibility of

such projects to achieve our proposed targets.

We continue to evaluate and modify our processes and activities to further limit our impact on the environment and to enable the deployment of our climate-related initiatives to meet our proposed targets.

The Beauty of Our People

We are committed to playing our part in creating a more inclusive business and society.

We want to create a culture in which our associates bring their true selves to work, in turn making Coty stronger for it.

We are committed to creating opportunities for our associates to develop skills, advance their careers and nurture their long-term employability.

We offer our employees a range of development activities, from learning formally through e-learning courses and trainings, to learning through special projects and assignments and on the job.

In fiscal 2022, we have made steady progress on pay equity for similar roles and performance, regardless of gender.

We celebrate diversity in all its forms and continue to work towards building a more inclusive business.

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

Our Executive Committee is majority female and our Board of Directors was evenly gender-split during fiscal 2022.

For all associates, we have launched a global diversity, equity, and inclusion (DE&I) training curricula and introduced employee resource groups to drive DE&I action by associates to enable employees to raise awareness and educate on DE&I topics they are passionate about.

We also strive to reflect the communities we serve through our brands, which champion the diversity of beauty and beauty of diversity.

Our global compliance program, “Behave Beautifully”, is designed to detect and prevent unlawful behavior and promote a culture of ethical business practice.

“Behave Beautifully” sets out our standards across a number of areas, including, but not limited to, anti-bribery and corruption, competition law, data privacy, preventing workplace harassment and discrimination.

Our global Health and Safety Policy governs the management of work-related health and safety risks across all our manufacturing and distribution sites, including corporate offices.

The policy, which is complemented by our Code of Conduct, sets out the principles that guide our approach to Health and Safety, as well as outlining responsibilities within the business.

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.

Government Regulation

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Financial performance, working capital requirements, sales, cash flows and borrowings generally experience variability during the three to six months preceding the holiday season.

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

Product innovations, new product launches

and the size and timing of orders from the Company’s customers may also result in variability.

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.

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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.

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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