Seeking Dual Listing in Paris, What Move is Coty Planning Next?

Today, Coty officially announced its plans for a dual listing on the Paris Stock Exchange. The beauty company, which owns brands such as Covergirl, Lancaster, and Kylie Cosmetics, Coty has made an official announcement regarding the initiation of a worldwide offering for 33 million shares of its existing Class A common stock. Under the leadership of its new CEO, Sue Y. Nabi, Coty has successfully turned around its performance in the past two years, achieving profitability in the fiscal years 2022-2023 after five consecutive years of losses from 2017 to 2021. With this dual listing in Paris, Coty aims to attract more European investors for further development.

By streamlining business, Coty achieved profitability for two consecutive fiscal years

Like other international beauty giants, Coty has been steadily growing through a series of acquisitions. Since 2010, Coty has embarked on a series of major acquisitions to expand its brand portfolio. In November 2010, Coty acquired beauty company Philosophy and nail care product manufacturer OPI Products from KKR. In January 2011, Coty purchased the Chinese domestic brand TJoy for 2.4 billion RMB. In 2014, Coty Group acquired Chanel’s Bourjois cosmetics brand.

In 2015, Coty made a significant investment by acquiring Procter & Gamble’s perfume, hair care, and cosmetics divisions, which included a total of 43 brands, for $12.5 billion. This transaction became the largest acquisition in the beauty industry in nearly 20 years. The acquisition granted Coty fragrance licenses for luxury brands such as Gucci, Hugo Boss, and Dolce & Gabbana. In terms of cosmetics, Coty added brands like Cover Girl and Max Factor to its portfolio. The acquisition was completed in October 2016, and the acquired brands were consolidated into Coty’s financial reports in 2017.

Among these acquisitions, Coty had high expectations for the acquisition of brands from Procter & Gamble. After completing the acquisition, Bart Becht, the then Chairman of Coty, expressed his hope that the substantial acquisition would double Coty’s performance and target net revenue of $10 billion, making it one of the world’s largest beauty companies.

For Coty, the acquisition of brands from Procter & Gamble had both positive and negative aspects. After incorporating the acquired Procter & Gamble brands into its financial reports in FY 2017, Coty’s net revenue reached $7.65 billion, a 75.9% increase compared to $4.35 billion in 2016, and it was a record high since going public. However, Coty incurred a significant loss of nearly $400 million in FY 2017, whereas it had a net income of $179 million in 2016.

Since 2017, the continuously increasing net debt resulting from the acquisitions, as well as supply chain disruptions in the face of a large brand portfolio, have contributed to Coty’s consecutive decline in net revenue. From FY 2017 to FY 2021, Coty’s net revenue declined for six consecutive years, with a staggering loss of $3.77 billion in 2019.

In 2020, the appointment of Sue Y. Nabi as CEO brought a turning point for Coty. Sue Y. Nabi began her career at L’Oréal in 1993, where she became the youngest-ever CEO of L’Oréal Paris. In 2009, she joined Lancôme and led the brand to achieve double-digit growth within three years, reaching a record turnover of €320 million.

Under the leadership of CEO Sue Y. Nabi, Coty underwent business adjustments and brand streamlining, resulting in the consolidation of its Luxury, Consumer, and Professional Beauty segments into two segments: the Consumer Beauty segment and the Prestige segment. In the fiscal year 2020 annual report, Coty disclosed ownership of over 75 brands, with 53 primary brands listed. However, in the fiscal year 2021 annual report, the number of primary brands had been reduced to 39. To further streamline its brand portfolio, Coty’s CFO, Laurent Mercier, announced plans to sell its stake in Wella by 2025.

After Sue Y. Nabi took over as CEO, Coty’s downward trend began to slow down in the fiscal year 2021. In FY 2021, Coty’s net revenue reached $4.63 billion, experiencing a minimal decline of only 1.86% compared to 2020, which was the lowest decline in the past five years. The loss also narrowed from $1 billion in FY 2020 to $205 million in FY 2021. In the fiscal year of 2022, Coty achieved its first net revenue growth in six years. The net revenue for FY 2022 reached $5.304 billion, marking a 14.57% increase compared to 2021. Moreover, FY 2022 was the first profitable year in six years, with an income of $268 million. In the latest fiscal year 2023 report, Coty continued its growth trend with a net revenue of $5.554 billion, representing a 4.71% increase compared to the previous year. The net income in FY 2023 significantly increased by 95.44% compared to the previous year, reaching $523 million, nearly doubling the $267.7 million reported in FY 2022.

Under the leadership of Sue Y. Nabi, Coty shifted its strategy from using acquisitions to expand its business and instead focused on streamlining its brand portfolio, concentrating resources on developing products and brands with greater market potential. This approach allowed Coty to turn its losses into profit in the past two fiscal years. The improved performance also played a role in Coty’s decision to pursue a dual listing in Paris.

Why choose a dual listing in Paris?

Regarding the reasons for choosing a dual listing in Paris, Sue Y. Nabi stated: “European investors want to buy Coty stock. It’s as simple as this,”. When Coty announced in early May this year that it would seek a listing in Paris, “Paris is the historic home of beauty, and the industry still holds a special attraction for investors there.”, said Peter Harf, Coty’s Chairman.

“This is the right moment to do so. Eleven quarters in line or ahead of expectation is a good moment to start this. I would say that on the Paris Stock Exchange half of the market cap is made with beauty and luxury companies, and we are a beauty and luxury company.” Sue Y. Nabi added.

Meanwhile, from the recent financial reports, approximately 45% of Coty’s annual net revenue comes from Europe, the Middle East, and Africa. Seeking a dual listing in Paris would also allow them to be closer to their main consumer markets.

Some large multinational companies seek dual listings in two different markets primarily due to their expansion plans and capital financing needs. For example, companies like Unilever have their stocks listed on both the London Stock Exchange and the New York Stock Exchange. European companies like Unilever aim to broaden their market reach and financing channels, and when choosing a location for dual listing, they typically opt for the United States. The reason is quite simple: the U.S. has a larger investor base, and it is a vast global financial market with liquidity and scale that are suitable for the financing needs of multinational corporations. However, it is less common for U.S. companies like Coty to seek listings on European stock exchanges.

Regarding the choice of dual listing in Paris, Coty stated that it is the historic birthplace of the beauty industry, and the beauty sector holds a dominant position among investors in Paris. Giants in the luxury and beauty industry such as LVMH, Kering Group, L’Oréal, and Hermès are all listed in Paris. As Sue Y. Nabi mentioned, “On the Paris Stock Exchange half of the market cap is made with beauty and luxury companies”.

During a previous investor conference call, Sue Y. Nabi mentioned that there is a growing interest among European investors in Coty’s stock. She noted that 30% of Coty’s investors are from Europe, representing a 10% year-on-year increase. Coty views the listing in Paris to access new capital and enhance liquidity for existing shareholders.

With the company’s improved performance over the past two years, Coty is actively seeking investors who possess specific attributes such as larger scale, greater proactiveness, and a focus on long-term investments. This is aimed at exploring new expansion opportunities in line with the recovery of the economic landscape.

Paris holds a strong appeal for luxury and beauty brands, and investors in the Paris Euronext Exchange play a significant role. These factors provide favorable conditions for Coty to seek additional capital in Paris and expand its business.

The rapid growth of Coty’s Prestige beauty business has positioned the company more towards the luxury segment, which aligns well with the positioning of the Paris market.

Launching proprietary fragrance brands and expanding the skincare business

Since Sue Y. Nabi became CEO of Coty in 2020, the net revenue of Coty’s Prestige segment has been growing year by year, with its share of total net revenue also increasing.

In fiscal year 2020, Coty’s Prestige segment achieved net revenue of $2.61 billion, accounting for 55.25% of total net revenue. In fiscal year 2021, the Prestige segment generated net revenue of $2.72 billion, a 4.2% increase compared to fiscal year 2020, and accounted for 58.77% of total net revenue. In fiscal year 2022, the Prestige segment achieved net revenue of $3.27 billion, a 20.22% increase compared to fiscal year 2021, and accounted for over 60% of total net revenue, reaching 61.61%. In fiscal year 2023, the Prestige segment generated net revenue of $3.421 billion, accounting for 61.58% of total net revenue.

On September 20th, Coty raised its performance guidance for fiscal year 2024, expecting core sales growth in the first half of 2024 to reach 10%-12% year-on-year, higher than the previous forecast of 8%-10% year-on-year growth. It also projected core sales growth of 8%-10% for fiscal year 2024, surpassing the previous expectation of 6%-8%. Coty stated that the improved performance outlook is mainly driven by strong beauty demand in key markets and categories, particularly in the high-end fragrance segment.

Since Coty began streamlining its business, the Prestige segment has become the primary growth driver. In fiscal years 2022 and 2023, the Prestige segment’s net revenue accounted for over 60% of total net revenue for two consecutive years. As of fiscal year 2023, sales of high-end fragrances accounted for 56% of the company’s total sales, while consumer beauty and body care accounted for 24% and 7% of total sales, respectively. Due to the positive outlook for the high-end fragrance business, Coty’s goal is to achieve a low single-digit growth rate of around 50% for the high-end fragrance segment by fiscal year 2026.

The issue with Coty lies in its overreliance on its Prestige beauty business, and most of its brands in the Prestige segment are not owned by Coty.

Based on the fiscal year 2023 financial report, Coty has a total of 33 major brands, out of which 17 are Prestige beauty brands. What’s more concerning is that out of these 17 Prestige brands, only 4 are owned by Coty, and the rest 13 brands are authorized brands by other companies. The key brands driving the performance growth of Coty’s Prestige segment, such as Burberry, Hugo Boss, and Gucci, are all licensed brands.

In recent years, luxury brands have placed increasing importance on high-end cosmetics, particularly fragrances. In February of this year, Kering Group established a beauty division and reportedly acquired fragrance brand Creed for €3.5 billion at the end of June. Additionally, in early September, another luxury goods company Richemont established the Laboratoire de Haute Parfumerie et Beauté to elevate the standards of its beauty business. This platform aims to expand the portfolio of fragrance brands. The perfume brands under Richemont include Cartier, Van Cleef & Arpels, Chloé, Dunhill, Alaïa, and Montblanc. These brands have licensing partnerships with Interparfums and Coty. This move is also seen as Richemont taking steps to regain control over the management of some of its brands. On the day of the announcement, the stock price of Interparfums, the main licensee for their fragrances, fell by 9.4%.

For Coty, which heavily relies on licensed brands for its Prestige beauty business, although Sue Y. Nabi has stated that none of Coty’s licenses will expire within the next five years, there have been recent discussions about some brands considering buying back the brands they previously sold to Coty. In July of this year, Kim Kardashian began negotiating with Coty to regain full control of her skincare brand, Skkn by Kim. It was reported in late August that Kylie Jenner has also initiated talks to repurchase a 51% stake in Kylie Cosmetics, which she founded, from Coty.

Given the strong growth in the luxury fragrance segment, the owners of these brands may consider reclaiming their operational rights. Estée Lauder, which has been struggling with performance in recent years, invested $2.25 billion to repurchase the beauty business of Tom Ford to reverse the decline. With the net revenue from Coty’s Prestige segment accounting for over 60% of the company’s total net revenue, the reacquisition of these brand rights will inevitably have an impact on Coty’s performance.

Considering the potential adverse effects of future brand rights reacquisitions, Coty has already taken steps to launch proprietary fragrance brands and expand its skincare business as a response.

On September 21st of last year, Coty unveiled a comprehensive update on its skincare category strategy during an investor day in Monaco. As one of Coty’s six strategic growth pillars, the focus is primarily on the group’s high-end skincare brands. Lancaster and Orveda will be the key brands for Coty’s efforts in the high-end skincare category, particularly in the Asia-Pacific market. Lancaster is one of the few self-owned skincare brands under Coty that has shown promising growth, especially in China.

In spring 2023, Coty launched its accelerated strategy for high-end skincare, introducing new products and conducting strong marketing activities for Lancaster and its other self-owned brand, philosophy. These initiatives have yielded very positive early results, with both Lancaster and philosophy experiencing double-digit net revenue growth in the fourth quarter. By the end of the previous year, Coty stated that Lancaster’s sales in Hainan multiplied by five year-on-year in the first quarter of the fiscal year 2023. Apart from Hainan, Lancaster’s sales at Sephora also ranked among the top. Coty Group projects to double its skincare net revenue from the fiscal year 2022 to the fiscal year 2025 and further accelerate growth in the fiscal year 2026 and beyond.

Coty introduced the Infiniment Coty Paris Fragrance project in May of this year for its proprietary perfume brand. The formulas and packaging of this collection are currently undergoing patent applications (Coty claims it to be the first of its kind), and it will ultimately include 14 different fragrances. Coty considers this project to be its most ambitious and highest-quality perfume venture to date.

Sue Y. Nabi said: “Infiniment Coty Paris, our most ambitious fragrance project to date, aims to usher in a new era for fragrances and perfumery, representing to fragrance what Orveda is to skincare.”

For Coty, overreliance on licensed brands can lead to unsustainable performance. Having learned from the lesson of the significant acquisition of beauty brands from Procter & Gamble, Coty is now leveraging its expertise in the fragrance business to launch proprietary perfume brands and focusing its resources on operating its self-owned high-end skincare brand, Lancaster, to find more sustainable growth drivers.



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