Coty Announces Consolidation of Fragrance Manufacturing Operations with Intended Closure of Site in Cologne, Germany

Rhea-AI Summary

Coty Inc. (NYSE: COTY) announced the planned closure of its manufacturing site in Cologne, Germany, as part of a consolidation of global fragrance operations. Approximately 300 employees will be affected, with the closure expected by Summer 2022. The decision aims to enhance operational efficiency and reduce overcapacity, which has been exacerbated by COVID-19. Coty targets $600 million in cost reductions, with $80 million already achieved in Q1 FY2021. The closure is a step towards a more competitive and streamlined business model.

Positive

• Expected annual net savings from closing Cologne manufacturing site.
• Progress towards $600 million cost reduction target with $80 million saved in Q1 FY2021.

Negative

• Closure will affect approximately 300 employees in Cologne.
• Consolidation due to overcapacity may indicate underlying operational weaknesses.

Coty Inc. (NYSE: COTY), one of the world’s leading beauty companies today announced the planned closure of its manufacturing site in Cologne, Germany. The move comes as Coty consolidates global fragrance operations.

The Cologne site currently employs approximately 300 people and produces a range of fragrance products. The closure, which will occur in stages, will be preceded by the completion of all appropriate legal processes and is expected to be completed by Summer 2022.

Richard Jones, Chief Global Supply Chain and R&D Officer at Coty, said:

“We have taken this difficult decision to consolidate our fragrance manufacturing capacity in order to increase the efficiency of our operations. Coty is the world’s leader in fragrance, but our network has been operating over-capacity in recent years and the considerable impact of COVID-19 has accelerated the need to take action. This move will address the imbalance to increase our competitiveness and ensure we fully leverage our scale and remaining manufacturing sites. This is a hard but necessary part of the transformation of Coty: building a stronger, leaner and more focused business that’s well-positioned for the long-term.”

Wolfgang Reissner, Coty VP Operations EMEA & General Manager HFC Prestige Manufacturing Cologne Germany GmbH, added: “We appreciate that this will be a very challenging time for our affected employees in Cologne. Our priority now is to work closely with employee representatives on a detailed timeline and process for the employees and the site closure.”

Coty will adapt its other fragrance manufacturing sites as part of its evolving operational approach. In addition to addressing overcapacity, the changes are expected to deliver annual net savings for the company.

Last year, Coty announced a wide-ranging strategy to return the company to profitable growth, reduce net debt, streamline operations and address long-term financial challenges. This approach includes targeting a net reduction in costs of $600 million by the end of FY2023 and delivering more cost-effective and integrated operations. With supply chain optimization across manufacturing, distribution and demand planning expected to contribute over 20% of the targeted $600 million cost savings, today’s announcement presents a necessary step in reaching the company’s goals.

Coty reported strong progress towards the cost reduction targets during its Q1 earnings: delivering approximately $80 million of savings in the first quarter against a target of over $200 million by end of FY2021.

About Coty Inc.

Coty is one of the world’s largest beauty companies with an iconic portfolio of brands across fragrance, color cosmetics, and skin and body care. Coty is the global leader in fragrance and number three in color cosmetics. Coty’s products are sold in over 150 countries around the world. Coty and its brands are committed to a range of social causes as well as seeking to minimize its impact on the environment. For additional information about Coty Inc., please visit www.coty.com.

Forward Looking Statements

Certain statements in this release are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the Company’s current views with respect to, among other things, the Company’s future operations and strategy (including the expected implementation and related impact of its strategic priorities), and ongoing and future cost efficiency, optimization and restructuring initiatives and programs (including their expected timing, implementation, cost and related impact). These forward-looking statements are generally identified by words or phrases, such as “anticipate”, “are going to”, “estimate”, “plan”, “project”, “expect”, “believe”, “intend”, “foresee”, “forecast”, “will”, “may”, “should”, “outlook”, “continue”, “temporary”, “target”, “aim”, “potential”, “goal” and similar words or phrases. These statements are based on certain assumptions and estimates that we consider reasonable, but are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause actual events or results (including our financial condition, results of operations, cash flows and prospects) to differ materially from such statements, including risks and uncertainties relating to:

• the Company’s ability to successfully implement its multi-year Transformation Plan, including the consolidation of its global fragrance manufacturing operations and supply chain optimization plans, as well as its initiatives to further reduce the Company's cost base, and to develop and achieve its global business strategies (including mix management, select price increases, more disciplined promotions, and foregoing low value sales), compete effectively in the beauty industry, achieve the benefits contemplated by its strategic initiatives (including revenue growth, cost control, gross margin growth and debt deleveraging) and successfully implement its strategic priorities (including innovation performance in prestige and mass channels, strengthening its positions in core markets, accelerating its digital and e-commerce capabilities, building on its skincare portfolio, and expanding its presence in China) in each case within the expected time frame or at all;
• the impact of COVID-19 (or future similar events), including demand for the Company’s products, illness, quarantines, government actions, facility closures, store closures or other restrictions in connection with the COVID-19 pandemic, and the extent and duration thereof, related impact on the Company’s ability to meet customer needs and on the ability of third parties on which the Company relies, including its suppliers, customers, contract manufacturers, distributors, contractors, commercial banks and joint-venture partners, to meet their obligations to the Company, in particular, collections from customers, the extent that government funding and reimbursement programs in connection with COVID-19 are available to the Company, and the ability to successfully implement measures to respond to such impacts;
• managerial, transformational, operational, regulatory, legal and financial risks, including diversion of management attention to and management of cash flows, expenses and costs associated with the Company’s response to COVID-19, its multi-year Transformation Plan, the transition services related to the Wella Business, the integration of acquisitions (including the strategic partnerships with Kylie Jenner and Kim Kardashian West), and future strategic initiatives, and, in particular, the Company’s ability to manage and execute many initiatives simultaneously including any resulting complexity, employee attrition or diversion of resources;
• global political and/or economic uncertainties, disruptions or major regulatory or policy changes, and/or the enforcement thereof that affect the Company’s business, financial performance, operations or products, including the impact of Brexit (and related business or market disruption), the current U.S. administration and recent election, changes in the U.S. tax code, and recent changes and future changes in tariffs, retaliatory or trade protection measures, trade policies and other international trade regulations in the U.S., the European Union and Asia and in other regions where the Company operates;
• disruptions in operations, sales and in other areas, including due to disruptions in the Company’s supply chain, restructurings and other business alignment activities, the completion of the Wella Transaction and related carve-out and transition activities, manufacturing or information technology systems, labor disputes, extreme weather and natural disasters, impact from COVID-19 or similar global public health events and the impact of such disruptions on the Company’s ability to generate profits, stabilize or grow revenues or cash flows, comply with their contractual obligations and accurately forecast demand and supply needs and/or future results;
• restrictions imposed on the Company through its license agreements, credit facilities and senior unsecured bonds or other material contracts, its ability to generate cash flow to repay, refinance or recapitalize debt and otherwise comply with its debt instruments, and changes in the manner in which the Company finances its debt and future capital needs;
• the number, type, outcomes (by judgment, order or settlement) and costs of current or future legal, compliance, tax, regulatory or administrative proceedings, investigations and/or litigation, including litigation relating to the tender offer by Cottage Holdco B.V. (the “Cottage Tender Offer”), and product liability cases (including asbestos); and
• other factors described elsewhere in this document and in documents that the Company files with the SEC from time to time.

When used herein, the term “includes” and “including” means, unless the context otherwise indicates, “including without limitation”. More information about potential risks and uncertainties that could affect the Company’s business and financial results is included under the heading “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended June 30, 2020 and other periodic reports the Company has filed and may file with the SEC from time to time.

All forward-looking statements made in this release are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this release, and the Company does not undertake any obligation, other than as may be required by applicable law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise.

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FAQ

What is the reason for Coty Inc.'s closure of its Cologne manufacturing site?

Coty is consolidating its global fragrance operations to improve efficiency and address overcapacity.

How many employees will be affected by Coty Inc.'s Cologne site closure?

Approximately 300 employees will be affected by the closure.

When is the closure of Coty Inc.'s Cologne site expected to be completed?

The site closure is expected to be completed by Summer 2022.

What are Coty Inc.'s cost reduction targets?

Coty aims for a net reduction in costs of $600 million by the end of FY2023.

How much progress has Coty Inc. made on its cost reduction targets?

Coty reported approximately $80 million in savings during Q1 FY2021 towards its cost reduction goals.