What changed in this filing

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Item 1. Business

2023-08-22 compared with 2022-08-25 · 67 added, 62 removed, 144 unchanged (47% of the section changed)

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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.

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.

As we transform the Company, we continue to make progress on our strategic priorities, including stabilizing and growing 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 and travel retail 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”).

As of June 30, 2023, Coty owned a 25.9% stake in

Rainbow JVCO LTD and subsidiaries (together, “Wella” or the “Wella Company”).

On July 18, 2023 we announced that we entered into a binding letter of intent to sell a 3.6% stake in Wella to investment firm IGF Wealth Management for $150.0.

The closing of the transaction is subject to, among other things, completion of due diligence and the satisfaction of certain closing conditions, including the approval of the transaction by KKR.

Assuming the transaction closes, we would retain 22.3% of 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.

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.

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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

Beckham Calvin Klein

Biocolor* Chloe

Bozzano* Davidoff

Bourjois* Escada*

Bruno Banani Gucci

CoverGirl* Hugo Boss

Jovan* Jil Sander

Max Factor* Joop!*

Mexx Kylie Jenner

Monange* Lancaster*

Nautica Marc Jacobs

Paixao* Miu Miu

Rimmel* Orveda

Risque* philosophy*

Sally Hansen* SKKN BY KIM

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 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.

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

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 continue to focus on expanding our e-commerce and direct-to-consumer channels.

We also sell our products through third-party distributors.

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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.

In the few jurisdictions requiring animal testing, we actively apply for exemptions and work with local authorities and organizations to authorize alternative methods of product testing.

During fiscal year 2023, we continued to manufacture and package approximately 79% 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.

In addition, we implement programs designed to ensure that our manufacturing and distribution facilities comply with applicable environmental rules and regulations.

In addition, we implement programs designed to ensure that our manufacturing and distribution facilities comply with applicable environmental rules and regulations, as well as initiatives to support our sustainability goals.

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 21% of our finished products.

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 review our supplier base periodically with the specific objectives of improving quality, increasing innovation and speed-to-market, ensuring supply sufficiency and reducing costs.

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.

In light of these challenges, we are continually benchmarking the performance of our supply chain, and we augment our supply base, adjust our distribution networks and manufacturing footprint, enhance our forecasting and planning capabilities and adjust our inventory strategy based upon the changing needs of the business.

We continue to explore options to further optimize our supply chain operations.

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

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As of June 30, 2023, we maintained 22 brand licenses.

In addition, approximately 53% of our fiscal 2022 net revenues from continuing operations were attributable to prestige fragrance, of which approximately 82% was from our top six prestige fragrance brands.

In addition, approximately 54% of our fiscal 2023 net revenues from continuing operations were attributable to prestige fragrance, of which approximately 88% was from our top seven 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.

We believe that we are currently in material compliance with the terms of our material brand license agreements.

Our license agreements have an average duration of over 25 years.

Most brand licenses have renewal options for one or more terms, which can range from two to ten years.

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.

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.

None of our top seven licenses, which account for approximately 88% of our prestige fragrance sales, are up for non-automatic renewal before 2028, with an average remaining duration of 13 years.

We are currently in the process of renewing a smaller license which is up for renewal during fiscal 2024.

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.

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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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 proposed rule is not yet final.

We are unable to predict if or when the rule will be finalized and the extent to which a final rule will apply or deviate from the proposal.

The Beauty of Our Product

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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 have ambition to reduce the amount of packaging we use across our portfolio, while sourcing from more sustainable sources.

In fiscal 2023, we introduced refillable packaging solutions into our global portfolio, including Chloé Rose Naturelle Intense Eau de Parfum and Adidas Active Skin and Mind range of shower gels which delivered a packaging weight reduction compared to the original baseline body care range.

In addition, we work to reduce the environmental impact of our product formulas and our new products, for example integrating carbon captured alcohol into our fragrances.

In fiscal 2023, we launched Gucci, The Alchemist’s Garden, Where My Heart Beats Eau de Parfum, which was the first globally distributed fragrance manufactured using 100% carbon captured alcohol.

We recognize 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 and Responsible Mica Initiative, focused on responsible sourcing, and the Sustainable Packaging Initiative for Cosmetics, focused on creating common guidelines and tools for eco-design of packaging.

We are also part of 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.

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.

During fiscal year 2023, our greenhouse gas emissions targets were approved by the Science Based Target initiative.

The targets cover our Greenhouse gas emissions for scopes 1 and 2, renewable electricity commitment and our greenhouse gas reduction for scope 3.

We continue to focus on the implementation of these targets with the development of operational plans.

We are currently implementing our climate strategy focusing on three focus areas:

our product impact, our transportation and the impact of our own operations.

In fiscal 2023, we have extended existing efforts made on our supply chain sites (factories and distribution centers) to our R&D centers and Corporate Offices.

Accordingly, our offices and R&D centers are developing energy reduction and transition plans.

For example, our Paris Headquarter has now transitioned to renewable electricity and we have completed an extensive energy audit in our Amsterdam Headquarter with very positive results.

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.

While certain projects are already in execution phase, other projects are in the early stages as we validate their feasibility and explore new ones 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.

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

Our Executive Committee and our Board of Directors are majority female.

For associates, we rolled out a new training to broaden knowledge of our sustainability framework, Beauty That Lasts.

This training introduced the three-pillared framework and included short modules on climate change and DE&I topics such as bias and microaggressions.

In July 2022, we implemented a sustainability objective for all employees eligible to the bonus plans, as part of their annual goals.

This applies for employees’ fiscal 2023 bonuses.

The accomplishment of these objectives is considered when assessing eligibility for annual bonuses.

As of October 2022, we were proud to achieve our commitment to pay equity for similar roles and performance, regardless of gender by reducing the gap in every level of our global management categories.

To further gender equality within our business, we also launched a gender-neutral Parental Leave Policy.

From November 2022, all employees, regardless of gender, have access to the same number of fully paid weeks of parental leave offered in their local region when starting or extending a family.

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.

In fiscal 2023, Sally Hansen & CoverGirl continued their multi-year partnership with LGBTQ advocacy organization GLAAD.

Marc Jacobs Fragrance celebrates the third year of its partnerships with US-based NGO The Lesbian, Gay, Bisexual & Transgender Community Center (The Center) and second year with UK-based charity, akt.

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

Our associates undergo an annual performance review process, and work with their manager to build customized development plans.

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

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.

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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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