Coty Inc. (COTY) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to Coty's conference call announcing its definitive agreement with KKR and strategic transformation. As a reminder, this conference call is being recorded today, June 1, 2020. On today's call are Peter Harf, Chairman and CEO; and Pierre-André Terisse, Chief Operating and Chief Financial Officer. I would like to remind you that many of the comments today may contain forward-looking statements. Please refer to Coty's earnings release and the reports filed with SEC where the company lists factors that could cause actual results to differ materially from the forward-looking statements. In addition, except where noted, the discussion of the financial results or our expectations reflect certain adjustments as specified in the non-GAAP financial measures section of our release. I will now turn the call over to Peter. Please go ahead, sir.

Hi, everybody. I'm Peter Harf. I'm the new and the old CEO of Coty. I founded Coty in 1990, ran it until 2001, then turned it over when I was promoted up to the shareholders to my dear friend, Bernd Beetz, who then ran it for 10 years. So we had 2 leaders in 20 years with Coty. And we grew the company across that time by 15% a year. And even in the 2000s, we grew at 10% a year. So Coty was a $4.5 billion business when Bernd left in 2011. Then came a period of turmoil. We changed leadership quite a bit and also the culture of Coty suffered, the entrepreneurial spirit, the direct action-oriented approach all of a sudden disappeared. And frankly speaking, today, Coty is in a difficult situation. And we need to really do our best to regain the trust of our investors, but also of our people because our people need to be motivated and ready to fight for the company until -- as much as they can. So today, we want to update you on a transaction. It was already known to you from May 11 when we had a memorandum of understanding with KKR. Pierre-André, who's with me, signed the agreement a few minutes ago, and so it's definitive now. So the strategic transaction with KKR has been concluded exactly the way we had planned it. I'll now hand over to Pierre-André to take you through the high-level transaction summary. Pierre-André, over to you.

Thank you, Peter, and good morning to all of you. So before we get to the very important and meaningful management changes, let me talk to you about the KKR partnership, which we indeed finalized over the weekend in the past few hours, 3 weeks after the initial announcement on the 11th of May. As you know, this is made of 2 different transactions. The first one is a $1 billion convertible preferred shares issued by Coty and subscribed by KKR with coupon of 9% and a conversion price of $6.24 per share. We had closed the first part of that and received $750 million initially. We have now the complement of $250 million, which is going to close in the coming 2 months. So that's the first transaction, which has been -- which is being completing today. The second one is a very important one. Because this is the conclusion of a 60-40 partnership on a perimeter, which includes the professional business of Coty and the Retail Hair business as well with 4 important brands, among others, the Wella brands, Clairol, OPI and ghd. So this has been concluded alongside the parameters, which we had announced on the 11th of May, an enterprise value of $4.3 billion, $1 billion of debt at the JV level, which are going to result in the $2.5 billion in net proceeds to Coty, slightly different from what we had announced on the 11th of May as we have adjusted that for some liabilities. And we are going to retain 4% ownership valued at $1.3 billion and effectively an important exposure to value creation because we believe this business is going to grow and to create a lot of value within this new scope in the coming few years. We expect to close this in 6 to 9 months, so around the end of the calendar year 2020. Together with these 2 transactions, we also broadly have a partnership with KKR, which is important because they bring us the significant experience in driving consumer products turnaround. A very recent example of that is the Upfield business, to which, by the way, Gordon von Bretten participated. So he will be able to bring his experience. Yes. Gordon von Bretten, who, as you know, as you have seen probably, has become the Chief Transformation Officer of Coty, and Peter is going to come back on that. These 2 transactions have 2 important effects on us. The first one is about liquidity and flexibility. So it decreased our leverage substantially from 5.6x to 4.5x on the pro forma basis. They provide immediate liquidity of close -- of $1 billion through the convertible with an expected liquidity position of $1.8 billion to $2 billion at the exit of fiscal '20, and they provide us with the flexibility, which we need to face the current environment, which we all know is an environment with difficulties, but at the same time, opportunities, and we'll have the ability to catch these opportunities and to navigate through this period of time, thanks to an improved liquidity. The second effect is that it simplifies our portfolio, enabling us to focus the leadership of Coty on 2 important categories, being Prestige and Mass Beauty, which themselves are going to be transformed. And again, we'll come back on that. They allow us to focus on the simplified portfolio, and at the same time, to start a very important program of cost-cutting, to regain competitiveness and to regain as well the ability to invest for growth. So that's for the transaction summary. A couple of slides now, the following slide about the deleveraging for you to see numbers. So we had -- as you can see, we had at the end of '19 a net debt-to-EBITDA leverage of 5.6. If we take into account the Kylie transaction, if we take into account the Wella deal, we'll come to 4.5, which would even become 4.3, if we were to take into account the fact that we still have 40% of Wella, and obviously, access to the value of this stake. That's on the pro forma '19. If we have a look at the same number, taking into account the COVID, they are obviously higher. But you can see that they're rapidly converged towards the level of 5x. So again, that's deleveraging. And in both cases, in fact, it's a significant acceleration of deleveraging. As I said, it also reinforced our liquidity, and we are going to reach $1.8 billion to $2 billion upon the payment of the $250 million, sorry, additional preferred convertible, which will happen at the end of July. So that's for the deleveraging, which is obviously very important. If we go to the following page, the second effect is the refocus. So the new Coty is obviously -- it obviously remains obviously exposed to the upside and value potential of the Wella business, which is now going to become an associate business, accounting-wise, yet the new Coty is going to be considerably simpler. As you can see on the chart, we are going to be on a pro forma '19 basis, a $5.9 billion business, with a pro forma EBITDA of $1 billion, which becomes $840 million if you take into account the stranded costs, which we expect to get from lower fixed cost absorption. Geographically, Coty remains balanced between its 2 strong presence, which are the Americas, with slightly less than 40%; and Europe, Middle East and Africa with slightly less than 50%. And obviously, Asia Pacific remains a very meaningful opportunity for us at 13% of net revenues. In terms of category, Prestige Fragrances now represent half of our revenues. Cosmetic between Mass and Prestige account for 45% of our sales. And the last one is obviously Prestige Skin which represents close to 5% of our sales. So that's the base of Coty we have following these 2 transactions. And now I will leave it to Peter to tell you what we are going to do with that.

Yes. Let me start on the next slide with the mix structure of the business. On the right side, the Professional Beauty activity. I'm not talking about that. That's going to be part of the new entity that KKR is going to lead. We'll have 40%, but KKR will drive it. We're very optimistic because KKR, particularly Johannes Huth who leads KKR in Europe, has ample experience in this business, in this B2B business that I think under their guidance will flourish. Let me focus on our 2 sectors, Prestige Beauty and Mass Beauty. I won't take you through the key metrics because, I mean, you know them, the revenues and the growth profile. And you also know the brands. I mean what you see on the left side is an addition, which is the Kylie brand. And you'll see other social media phenomenon added to our portfolio because we feel this is a growing part of the market, a very attractive part of the market and a market that's going to stay. In contrast to some other people, commentators of the industry who kind of fear that the Internet-based, social media-based brands and endorses will basically turn out to be a fad, we strongly believe that they are here to stay. Kylie, in our opinion, can be a very, very strong business that we can take global. And we are broadly -- we focused at the beginning on skincare, you may have read in the newspaper that Kylie Skin was launched last week across Europe by Douglas. They sold, I mean, I think 3 million -- 2 million in 3 days, which is for a single customer, quite a high number. We can take Kylie global. And I think one of the big key activities will be to launch Kylie globally and leading this activity with skincare. In addition to that, we are in the process of creating a digital platform, both social media and e-commerce, across all the brand portfolio of Coty. It will be very good technology. I mean it's already well advanced with click-through possibilities. We obviously -- apart from other places, you click on the product and you can right away order it with one click. So all this is in the making. The same thing is also true for Mass Beauty, same kind of focus on the digital platform. But we also are in the process, and we are hiring somebody very, very powerful who will direct these efforts to reinvent mass color for not only current users, but also the millennials and Generation Z. But we are observing, and generally speaking, consumer goods is a trend back to traditional brands. People in the crisis return to what they know and cherish when they were younger. It's also a question of availability on a channel basis. It's also a question of, we feel, price. So we see, at the moment, the traditional brands in kind of Max, for example, gained market share. Sally Hansen is doing great. The COVERGIRL is stabilizing market share, and the other brands are doing well. So this is a -- we see lightning at the end of the tunnel, but we will invigorate that in order to [indiscernible] digital world. If we go to the next slide, another change we made. We reduced the executive committee to 3 people, and we want to do that because we think that in a crisis, but also both the crises, the health crisis, but also the crisis of Coty itself, we need to be very decisive, fast and disciplined. So we will have a team of 3 people in the executive committee under my leadership. As you shall see, I am a founding partner and a managing partner of JAB. I'm a Director of Keurig and of Egberts -- and of Jacobs Egberts, the company that was just taken to the public market in -- on Friday. And obviously, my track record is former CEO and Executive Chairman of Coty, which I built in 1990 -- from 1990, I was the CEO until 2001 and its Chairman afterwards. And had built Benckiser and formed Reckitt Benckiser through the merger, and actually was a reverse takeover of Reckitt & Colman through Benckiser. I'm also the ex-Chairman of Anheuser-Busch InBev. And with Coty, if you want, since the new Coty was invented and founded in 1990, I'm at the helm there since 1990. Pierre-André, do you want to take yourself, lead us through your credentials, you are the COO and CFO. Over to you.

Yes. So I've joined Coty, as probably most of you know, in February 2019, so it's about 16, 17 months ago. And before that, I had spent as a CFO and then thereon encompassing as well some responsibilities in the area of supply chain and procurement. Before that, I had been -- I have spent 30 years in public company. For the most part of it in finance, I've been the CFO of Danone. And have been as well leading the Africa division of Danone and setting up a business myself. That's all for me.

Okay. Last on the chart is our Chief Transformation Officer, Gordon von Bretten. Gordon actually joined us less than -- actually 8 days ago, and he was seconded by KKR to work with us. After about 5 days, he said, please, can I join you permanently because I see this opportunity is so promising that I would like to leave KKR and join you. I mean many people including me call him a rock star. Of course, he's one of the best people in terms of transformation management that is available in Europe. He had a number of positions, you see it on this slide, as well as experience. So he's done this work many, many times over, so very, very prominent opportunities. The last thing he did is work on Springer when KKR took that over and he helped with the Spreads business that was taken out of Unilever. So he's been around the block. He knows what he's doing. And I think you find it's a very nice endorsement that this seasoned executive has said, "Okay, you know what, I want to join permanently." The other thing he did, he said, "Please do me a favor, give me all compensation in shares." That was a very nice endorsement. Thank you very much, Gordon. Great. What we say about the Board is, I think, more of the same. The only difference is that Coty now has 2 KKR Board members. One of them is the leader of KKR in Europe and arguably one of the best investment bankers in the world -- I'm sorry, private equity managers in the world, Johannes Huth. I've known him for many years, and he's a very solid guy, completely reliable and very creative from a strategic standpoint. So a very strong addition to our Board. So we now have 4 representatives of JAB on the Board, 2 of KKR and 6 independents. On the Wella Board, this will be a private company, 60-40 KKR and Coty. There will be 5 Board members of which 3 are -- as of 6 Board members, 4 are coming from KKR and 2 from Coty. Now let's take you through the next slide, 6. And that's really very high level what Gordon and what he's charged to do. We call it end-to-end transformation, the project name is All-In To Win. It has a very strong revenue component. I touched on that already. So I'm not going to basically dwell on it again. The one point we added in the bottom is rebuilding portfolios by focusing on hero SKUs. In the past, Coty has, unfortunately, too often used promotions as a tool and has launched too many flankers that has weakened the core. What I want to do, as we take some time, use strategies that our competitors use. So for example, if you know J'adore, you see that the brand is the same since 1999. It's doing extremely well, over $500 million in sales. It's been tweaked a little here and there, they change the face every 2 or 3 years. But the brand itself has a massive presence across the trade and of course, duty free because it's managed in a very consistent, careful way. Recently, I mean, Dior, it's the same thing with relaunching Eau Sauvage, [ Oh, Sauvage ] and Sauvage. That's really kind of the role model that we are following. We take the best ideas and copy them without any shame. On the cost reduction side, again, we expand and accelerate the program that already was discussed by Pierre-André in the last earnings call. We are going to accelerate that, and we're starting actually tomorrow, 2nd of June. Also, there were a number of things that Pierre-André put into place because of the COVID crisis, and we try to hold on to these measures as much as we can. And lastly, we're going to massively simplify Coty across the network, the product lines and the organization. We already did that. We basically -- we're having our integrated sales leadership across the globe, we did away with the regionalization at the top. And we make this whole thing much, much easier. The marketing function going to report directly into me without any layer in between. So overall, I think it's a journey back to the entrepreneurial path, back to the entrepreneurial spirit of Coty. Now turning over here to Pierre-André.

Yes. So a couple of words on the efficiency program before we conclude and we move to Q&A. You have on this slide, the main block of the efficiency program we are going to -- in fact, we are -- we already started implementing. The total amount we are targeting is in excess of $600 million, so $600 million here on the perimeter, which is obviously the current one, i.e., excluding Wella. The costs we'll need for that is the same as the one we announced last time, $350 million which means that, including what we already had, it's a total of $500 million. So no change on that. And you can see the main blocks, which are for a part, the supply network, which we think can be very significantly simplified, flexibilized and step-up in terms of efficiency, and we have already started working to design this program of simplification. The second one is about the procurement for the most of these initiatives. These are the non-people and A&CP blocks. We believe -- and that was already part of the turnaround, but we can expand it. We believe we have massive opportunity there. Based on the standardization on the one hand, making sure that we don't reinvent the wheel every time, but we just leverage the size of Coty. And on the other hand, on the simplification of the group and the standardization again through business services, better controlling the cost and doing something which Peter often refers to, which is very important. We want to have discipline within the group. We want to have discipline, and this is going to deliver collective efficiency. And then the simplification is also going to touch the organization and the people block. So this plan is being put in place, it's going to be a key part, not the only part, but a key part of the transformation program of Coty, and we expect more than 1/3 to be delivered in year 1 as we already have some actions in place, in particular, on the non-people side. I'll turn to the following page, which is called value creation because at the end of the day, this is what we are targeting, what we are trying to build. Our announcement today strengthened Coty in a very meaningful way. It does it with an improved capital structure with a significant deleveraging, but also an improved liquidity, which enables the execution of our transformation, and that's obviously extremely key in the current period. It gives us or it helps us keep an exposure to the long-term value creation of a strong business, the Wella business, which we expect is going to be strongly performing in the context of the management within a private equity, within KKR. The meaningful change of leadership, we believe, is going to be a catalyst for change, as I think, Peter has evidenced. And after the trough in Q4, as we have been going through the lockdown in many, many markets in the world, in particular, in Europe, we expect to be well positioned to benefit from the rebound of our categories, and we are targeting strong medium-term improvements of our financials to create value, our operating margins, which we expect -- which we are going to drive to mid-teens and the leverage of Coty, which we are going to drive below 4. That's, I think, the summary of what we wanted to tell you. And now we'll go to questions.

[Operator Instructions] Your first question comes from the line of Nik Modi with RBC Capital Markets.

Yes. Just wanted to quickly ask, obviously, with Peter coming in as CEO, just what happened with Pierre Denis? If you can give us any context around that decision? And then just on the Kylie, I know there's been a lot of news out over the weekend. Just want to see how you guys think about the social media strategy and influencers, et cetera, and some of the risk involved and the volatility involved in that business model? Any thoughts on that would be helpful.

Okay. Yes. Very -- I mean, it's very straightforward, the answers to that. Pierre Denis was brought on board when we -- just before the crisis hit, and the crisis delayed the whole program. We were planning to spin-off the Wella business before he would join in the 1st of June. That didn't happen. And we felt and I think he agrees that he is not really the best person in the world to effect such a complicated spin-off. So I mean, KKR and I agreed that it was probably better to have somebody who's a seasoned entrepreneur run this process, and that's why I stepped in. I think there's a full agreement with KKR, they're very happy that I'm doing it. And Pierre Denis understands. He's sticking around as our senior adviser, and it's what -- who knows what the future will bring. I mean, we haven't committed to anything, but he remains not only a friend, but also senior adviser to us. Now to the other question, Kylie. Let me first say that, I mean, obviously, we don't want to comment on a running lawsuit because we see a very high chance that it's going to end up in a lawsuit. I also heard though that, I mean, they're going to bring, in their addition tomorrow, the numbers that were originally listed under Kylie. So they seem to be retracting from that position. All I can say, that I mean, we paid the amount that were published. And we know that for sure because it came from our bank account. And the allegation they didn't pay the taxes, the money only was transferred to the accounts in the second week of January. So I don't -- I mean, I'm not an American, but normally Americans file, like everybody else, their taxes at year-end. So where the allegation that she didn't pay her taxes comes from is a mystery to me. So these are the points. Does it have an impact? Obviously, we do a lot of social listening. And so the noise was very high. I mean Kylie made a statement online, very much a statement of a young mother. But highly sophisticated, not [ lot of degrees ]. So I mean, there was some negative responses, lot of support but also some negativities. So it does influence the standing. But see these are the risks we have with every business. I mean if you have a business, if something happens to your brand, look at [ Tylenol ] or something like that. When you need to respond, you need to do the right thing. And this is not a phenomenon that only affects social media brands. And by the way, in contrast to some other industry observers, I think that the brands, the social media brands are here to stay. Let me remind you that in the '40s and '30s, the leading brands in cosmetics were Revlon, Max Factor, Elizabeth Arden and the likes. There was a lady in, I think, it was in Queens, who mixed the fragrances in a bathtub, her name was Estée Lauder and she took over the American market. So I would be careful to say that the people who are now gaining in the market will have a large audience and different way of communicating and going to market that they are a short-term phenomenon, I don't have that certainty. I don't know where people take their conviction from. Thank you.

Your next question comes from the line of Faiza Alwy with Deutsche Bank.

Peter a couple of questions for you. One, I'm just curious sort of how your job changes? You were Chairman of Coty. You have a lot of other things on your plate. And I'm just wondering how your day-to-day role changes and sort of how -- just personally, operationally, how much time do you expect to spend on Coty? And then you made some comments around the culture at Coty and how that maybe needs to be revitalized. And I was wondering if you could expand a little bit on that and what your plans might be there?

Okay. Faiza, these are 2 very good questions. My role, very straightforward. I'm the founding father and founding partner of JAB. And I've really deemphasized my supervising role in the company. I'm working only with 2 companies and 2 Boards, and both of them outside Coty, I'm not Chairman. One is KDP, Keurig Dr. Pepper, I'm on the Board there, supporting Olivier; and I'm on the Board now of the newly formed Jacobs Egberts Peet's that was launched -- went public on Friday. These 2 boards I have and many, many CEOs have more than 2 boards. So I mean -- so rest assured on the other brands you have -- on the other boards you have, I'm not serving anymore. So that gives me a lot of time. Plus, I mean, we have, last year, strengthened our team, amazing. We have some of our partners who are world-class assets. Take for just an example, I mean, we have Ricardo Rittes, was, before he joined us, was the CFO of Ambev and he, as a 31-year old, provided and put together a $55 billion financing for InBev at the time when they took over Anheuser-Busch. That was in the height of the liquidity crisis. So there've been many other guys who've been around the block, are doing a very, very good job. So there's a lot of talent and a lot of support at the level. Plus, I mean, our CEO remains -- is and remains Olivier Goudet, arguably one of the best 3 or 4 investors in the world. So I mean, we're in very good shape. Culturewise, there is a very unique culture at JAB. That culture was specially formed in the '80s from a bunch of young guys that tried to basically do business differently from the kind of the more military operations that many companies in Germany and, of course, it was resembled. We are very nimble. We had new ideas. We came of the thoughts of the say '60s. We were protesters. By itself, we're going to the street, we went through the organizations. And so that culture was all the values, entrepreneurship, when in doubt act, speed, lack of bureaucracy, just get the job done was part and still part of the DNA of JAB. That's why we can operate $120 billion portfolio with 10 partners. So -- and this culture was also at the heart of Coty. We formed exactly the same culture within Coty for the first 10 years when I was running it, that was the spirit. And then Bernd Beetz came, who is now an investor, who came from Dior and came from Procter & Gamble. He continued that strategy. I was his Executive Chairman, he was the CEO. So Coty, the first 20 years was very nimble, had a can-do culture, non-bureaucratic, fast, fun place to work. That changed. I don't want to go to the reason why it changed. But in the last years -- 5 years, we had 5 CEOs. I mean that shows that we lost our way. And now that's why I'm stepping in. You could say, Peter, why now? Maybe I'm too late. Maybe I'm too late, but I'm doing it now, and there's a COVID crisis, there's a new fantastic partnership with KKR. Johannes Huth, who is one of the key players in KKR, is a good friend, and we're going to do this together. And Johannes will be our Vice Chairman. I'm going to be the Chairman; Johannes, Vice Chairman. So we are going to have a lot of fun, and we will get the job done. So much for culture.

Your next question comes from the line of Steph Wissink with Jefferies.

We just wanted to follow-up on the separation of the businesses. And what will be Coty's responsibility going forward in terms of post any sort of transfer service agreement? What core operations, or if any, will you be responsible for within the joint venture?

No, this is a very good question, but let me try to start the answer, and then I'll turn it over to Pierre-André. In principle, it's very simple. KKR runs Wella. We run, I run Coty. Obviously, there is some overlap, but in most cases, the factories are dedicated and the factories go over [indiscernible] is in the trade business. And we have in a number of countries. We have our brands like Clairol and Wella also are available in big boxes and in the trade. And there, I think, obviously, we have to do carve-outs. And I think my friend, Pierre-André, is very, very well-versed in this. And I turn it over to him.

Yes. So the separation is -- so we signed today. We expect to close at the end of the calendar year, so say around the end of December. By then, we need to continue what we have already started, which is the process of separation. The Professional Beauty division was already fairly autonomous. There are some functions which were mutualized, will need to stand them up, but that supply chain, in particular, with pretty autonomous factories altogether. Distribution center, which for a part of them are dedicated as well for a partner. The administration is -- has to be -- has to stand up as well. And the last piece is -- and the more complex piece obviously is Hair Retail. Because Hair Retail is currently operated by the Consumer Beauty division. So we'll need to carve it out. I don't have any particular concern because we have been working for the past few months on very detailed plans. We know how to do. We have a very clear time table to organize that and to make it happen by the end of December '20. Following which, we will obviously have a transitional service agreement because we are not going to carve out everything at the same time, that would be unreasonable. We are going to do it progressively, which is going to leave time to Wella to take over the business and to focus not only on the standard, but also on growth and on profitability. And the same is going to go for Coty, that's going to help us gaining time to absorb the stranded cost and to reconfigure the group in a way which is more competitive. So that's what we have in front of us. And then for the rest of it, as Peter said, Wella is going to run Wella, and Coty is going to run Coty. And we have very, very clear priorities on each side of the lake, if I may say.

Your next question comes from the line of Olivia Tong with Bank of America.

Peter, obviously, you've obviously been part of Coty for a long time and there's clearly been a significant amount of change that you alluded to, several CEOs now. So can you talk about your position? Do you view this as interim or more of a semi-permanent change? Should we expect to see more management changes with you as CEO? And then also, should we expect any changes to the targets or any incentive structure to get to those targets?

Yes. I think these are all very, very relevant questions. With regards to my tenure, I'm coming back, by the way, I mean, without any pay. I mean I'm shareholder, I've shares of Coty. So this is, I mean, good enough for me. I'm coming back because I really like the business. I'm passionate about cosmetics, and I'm passionate about the people at Coty. I mean I ran it for 10 years, I built it. And then I was next to the CEO for another 10 years. So this is a business very close to my heart, both the people and the brands and the whole aura that cosmetics has around it. So this is, I mean, one of the key things. So my role is going to last until the business is in good shape. I want to bring back the old Coty from a culture perspective, but also from a performance perspective. Now I mean, in terms of numbers and projections and plans, I think we have a track record of not delivering for quite a while, and I'm going to fall into the trap of not promising all kinds of stuff. What I'm saying to you is, we will come -- we will go for the low-hanging fruit. As you already heard, there are lots of initiatives running. Whenever there's a significant initiative, a significant new person coming on board, we'll let you know. So there will be a stream of information coming about Coty. So [ essential ] big bangs. And next earnings call, we're going to have 10 different initiatives. We're going to be talking to you and the market on a consistent, regular basis. And then I think we're going to look at the earnings. I mean, frankly speaking, after the corona crisis and depending how long it lasts, I don't think it's going to be very pretty. But I mean, we're going to face the full effects and tell you the truth. And then we also will come with the initiatives for the coming year. So we will be very transparent. I think we are all fearless, to be honest. We have 60% of the shares between KKR and us. So we have a long, long, I mean, perspective. So I'm not afraid somebody is trying to take us over because we have 60% in our hands. It's very difficult to take us over. I'm not planning to take the company private either. We're going to face -- fix this company in the public market because there are so many long-term -- long only investors that we disappointed in the past. And we wanted to give these people, and they're going to stick around the chance to benefit from the improvements. That's my view.

Your next question comes from the line of Joe Lachky with Wells Fargo.

Just real quick first a clarification on the cost savings. Obviously, you've outlined $600 million. I think that was a little bit lower than what you had outlined on the previous call, which was $700 million. So I just wanted to get the difference there. And then my main question for Peter. Peter, thank you for being on the call. The prior CEO announcement for Mr. Denis, it really had a clear mandate of a focus on growth. And obviously, a lot's changed over the past few months, but it now seems like there's a number of different priorities that you're trying to tackle all at once, right, growth, cost savings, deleveraging, et cetera. So does this change the priority and where -- the priorities? And where does growth fit within that rank, right?

Okay. The first of the questions dealt with by Pierre-André.

Yes. Well, it's pretty easy. We had said $700 million in the context of the group, which was the total group Coty previously, including Professional Beauty, including Hair Retail. So the $600 million relates to everything but Wella, and therefore, to the remaining group. So that's the vast majority of it. And obviously, we're working with you to not only achieve it, but to achieve more than that.

Thank you. Go back to Page 6. We talked about revenue generation there, and they are very strong, very strong initiatives. We will take Kylie global. And I personally think that this is a brand that could reach, I mean, hundreds of millions, could be very, very soon be the biggest brand we have. And then we are investing also in other social media phenomena. I could get more concrete, but this is not yet in the public domain. So this is a major focus for me to develop these properties. And I'll tell you, Kris Jenner and I are good friends, and we're working on Kylie for 1.5 years. I think we locked that in, and I think I'm very proud that the Jenner family is working with us and have access to them and to all other people who are big opinion leaders on social media. The other thing I said is digital platform for all Coty brands. We're investing heavily at the moment, that all this is running in the background, would have been part of Pierre Denis' program and my program, heavily in this digital platform across Coty. This is both social media platform, but also e-commerce platform. But as you know, e-commerce at the moment is going to rule. So we are going to have a very strong integrated capability. That's not going to be in 2 years. We're working on that already for quite a while. And to remind you actually, by the way, as the Chairman, I took it on myself to develop the Kylie business, took it on myself to develop the digital platform. In that sense, I was in the background already doing a lot of the work that I'm doing right now in an official function. The cost-saving structure, I mean, this is a project that Pierre-André outlined during the earnings call, that was, I mean, very solid cost-saving program. All we're adding is the transformation office, I mean, disciplined. I mean we are tracking the cost, we are tracking the performance of every team member of every workstream owner on a weekly basis. So more discipline but basically the same kind of idea, reduce the assets and reduce the cost base in the P&L. We're adding a revenue generation piece officially now that was before in the background.

Your next question comes from the line of Mark Astrachan with Stifel.

I have 2 questions. So Peter, building on a prior question, how involved were you in the setting of the long term, I guess, in particular, EBIT margin target? And why do you think at this point, that's something that's necessary to lay out at this point given all the moving parts? And then secondly, just more of a broader picture as somebody who's obviously been hugely involved in creating, running this business from behind the scenes without having interacted a whole lot with investors, I'm just really curious from your perspective, how you view Coty's positioning within the beauty category and competing with its competitors, the likes of L'Oreal, in particular, Lauder. And just how you think about this business in terms of its ability to compete because it certainly seems from the outside that the brands that you have are definitely some that need a lot more investment to compete and so it's kind of back to that first question, why stick to those targets when you might be better served to have flexibility?

I'm not sticking to any targets. I haven't mentioned any targets to anybody. I'm not -- I haven't laid out any operating margin targets. I'm involved -- I mean, my involvement is fairly recent because, frankly speaking, there were some people running Coty, who didn't want to listen to me, who didn't want me in the room. So I mean -- so I feel that the moment I had the opportunity to input, I did input, so point number one. Point number two is, I mean, at the end of the day, we are -- or we must be very humble. We have 2 phenomenal leaders in the business. One is called L'Oreal, the other one is called Estée Lauder. And then there are broader houses, broader fashion specialists, like Dior or Chanel. These are amazing companies. I would even mention Shiseido as a very strong competitor. And we have to get up very early in the morning and stay up very, very late to compete successfully at their level of performance. It's going to take us years to reach that level if we ever reach it. So my expectations in that regard are not that high. Is it still a good business? Yes, it is. Because it's a business with an underlying market growth. We have aging population, we have premiumization. We have more and more people investing heavily in themselves. The core and the future of the industry is skincare. We have little in skin care. Now with Kylie and the other companies we look at, we will focus on skin care, we're going to build the skin care portfolio. And over time, we will slowly and gradually try to improve the top line. And we're going to slowly and gradually improve the bottom line. As I said, whether we're going to catch up the other guys, we're not going to be asleep at the wheel, I don't know. But I know that it can be a good return business for us in this space for Coty in the future. That's -- I mean, my -- that's why I think it's a good business. That's why I think JAB should stay invested. That's why we are not trying to sell the business. We're trying to make it stronger gradually over time.

Your final question will come from the line of William Reuter with Bank of America.

You've received $750 million of proceeds at this point. And you're soon going to receive another $250 million after that and then the proceeds from the Wella sale. I guess if you could talk to us a little bit about the timing of debt reduction, whether all of these proceeds will be used for it. And if you know at this point, which of the debt you will be targeting?

It's Pierre-André speaking. They will be basically used to improve our liquidity within the frame of the existing agreement and within the frame, in particular, of the revolver. What we intend to do is to keep flexibility, as I said, navigate a period of time, which we have seen can be pretty volatile and demanding from a cash standpoint and give us the ability to navigate it while investing behind the brands and making sure that we take advantage of the crisis to be stronger, both, by the way, from a brand standpoint and from a cost standpoint. So put it very simply, that's going to be increasing the liquidity, and that's going to be put on the -- used on the revolver. And then we expect that as we move forward, that may be one of the elements which help us reduce the debt overall altogether, as you have seen in the pro forma and help reducing as well the leverage. Thank you very much. Thank you, and see you on the road. Bye-bye.

Thank you, everybody. Bye-bye.

Thank you. This concludes today's conference call. You may now disconnect.