Coty Inc.
Q4 2013 Earnings Call Transcript

Published: 17 Sep 2013

[Operator:]

Good morning. My name is Shaquana and I will be your conference operator for today. At this time, I would like to welcome everyone to Coty’s Fourth Quarter and Full Year Fiscal 2013 Results conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. As a reminder, this conference is being recorded today, September 17. Thank you. I would now like to turn the call over to Kevin Monaco, Coty’s Senior Vice President, Treasurer and Investor Relations. Mr. Monaco, you may proceed.

[Kevin Monaco:]

Good morning and thank you for joining us. On today’s call are Michele Scannavini, Chief Executive Officer, and Sergio Perdreiro, Chief Financial Officer. Before we begin, I would like to remind you that many of our comments may contain forward-looking statements. Please refer to our press release and our reports filed with the SEC where you will find factors that could cause actual results to differ materially from these forward-looking statements. Except where noted, the discussion of our financial results and our expectations do not reflect certain non-recurring and other charges and therefore constitute non-GAAP measures. You can find a reconciliation between GAAP and non-GAAP figures in our press release and on the Investor Relations section of our website. I will now turn the call over to Michele.

[Michele Scannavini:]

Thank you, Kevin, and good morning everyone. I’m pleased to welcome all of you to our first financial results conference call as a public company following the listing of our shares on the New York Stock Exchange this past June. We enjoyed meeting with many of you throughout the IPO process and we look forward to updating you on our performance as well as how we are progressing with our business strategy. Since there may be some of you who are new to the Coty story, I’ll provide a brief overview of who we are, highlights of our unique attributes, and applying our strategic priorities for driving profitable growth. Coty is a new emerging leader in beauty. We have delivered sustained revenue growth and margin expansion over the last 10 years thanks to our ability to build and develop a brand, proposing and changing innovation to the market, coupled with strong discipline in controlling our operating costs. We have a portfolio of well-known and successful brands that hold leading positions in three segments

[Sergio Perdreiro:]

Thank you, Michele, and good morning everyone. First, I’d like to remind all of you that my commentary today on our results and outlook includes a discussion of adjusted results, which exclude the impact of non-recurring items, private company share-based compensation, and restructuring costs. When applicable, I will also discuss our adjusted results at constant currency. This presentation is consistent with how we plan to report results and provide our outlook in future quarters. You can find the bridge from reported to adjusted results, including foreign exchange translation impact, in the reconciliation tables in the earnings release. For full fiscal year 2013, net revenues increased 2% on a like-for-like basis. This improvement was due to a good performance in color and fragrance, and from a geographic point of view growth in all three regions and stronger growth in Asia Pacific and the Americas. In the fourth quarter, net revenues increased 4% on a like-for-like basis. We are pleased with this performance as it was achieved in spite of challenging market conditions, in particular in the mass channel, as Michele just explained. Growth was driven by strong performance in Asia Pacific with double-digit growth at constant currency. We also achieved remarkable mid single-digit growth in EMEA despite a recessive market situation in western Europe. This was driven by strong performance in the emerging markets of Russia and the Middle East and solid growth in (indiscernible). In the Americas, revenues were in line with prior year thanks to strong growth in Latin America offset by a slight decline in North American business. This was due to the first impact of retailers’ inventory reduction as a reaction to traffic and consumption slowdowns, particularly in the mass channel. For 2013, gross margin decreased 40 basis points to 60% versus 60.4% in the previous year. We continue to benefit from our efficiency program in supply chain, mainly driven by factors of productivity and worldwide procurement. The savings coming from supply chain were more than offset by increased discounting activity needed to compete in the highly promotional European market. Adjusted net income in 2013 increased 7% to $323.2 million versus $300.7 million in 2012, primarily driven by higher operating income. This resulted in adjusted diluted earnings per share of $0.82. For the fourth quarter, adjusted net income was $9.9 million versus a loss of $2.3 million in the comparable 2012 period. Adjusted diluted earnings per share in the fourth quarter were $0.03. On a reported basis, net income for 2013 increased to $168 million versus a loss of $324.4 million in 2012. This increase was primarily driven by higher operating income along with lower interest expense, partially offset by higher tax expenses due to the mix of business. Our adjusted operating income increased 8% on a constant currency basis to $576.3 million in 2013 compared $535.9 million in 2012. Adjusted operating margin increased 70 basis points to 12.3% of net revenue as compared to 11.6% last year. The increase was primarily the result of lower selling, general and administrative expenses which as a percent of net revenue declined by 110 basis points to 45.7%. The decrease in SG&A was primarily driven by 60 basis points lower fixed costs, including lower variable compensation. Spending on advertising and consumer promotion was flat year-over-year on a constant currency basis and decreased by 1% on actual rates. As a percentage of net revenues, A&CP was 23.1% compared to 23.5% in the previous year. This 40 basis point decrease includes approximately a 20 basis point reduction resulting from savings realized in vendor negotiations. The balance of the decrease in advertising and consumer promotion reflects a shift in promotional expense towards customer discounts and allowances, driven by our mass retail business especially in southern Europe and the U.K. Reported operating income increased to $394.4 million in 2013 from an operating loss of $209.5 million in fiscal 2012. This increase of $603.9 million was due primarily to lower asset impairment charges of $1.5 million compared to $575.9 million in fiscal 2012. In addition, the increase in reported operating income was driven by lower SG&A, the gain on sale of assets, and lower amortization expense. This improvement was slightly offset by higher cost of sales and restructuring expenses. For the fourth quarter of fiscal 2013, adjusted operating income was $45.4 million, up approximately $30 million versus $11.6 million in the comparable 2012 period. On a reported basis, we had an operating loss of $23.9 million in the quarter due to $26.3 million of restructuring expenses versus a loss of $485.4 million in the last quarter of 2012, driven by asset impairment charges of $473.9 million. By segment, our fiscal year ’13 adjusted operating margin in fragrance improved by 90 basis points to 14.8%, and color cosmetics operating margins were also up 20 basis points to 14.2%. Our skin and body care business is approximately break-even with an adjusted operating margin of minus 0.8% in 2013. As you know, skin and body care is our smallest segment, accounting for 15% of our net revenues, and we anticipate gradual operating margin improvement in this segment in the years to come as we progressively grow scale. During the fourth quarter, we completed the transition phase to our new logistics service provider covering the prestige business in Europe and Asia. In the fourth quarter, shipments were completely normalized and we ended the fiscal year with no orders on backlog. Also during the fourth quarter, we approved and launched a new productivity plan, including a number of initiatives designed to enhance our long-term operating margins. The productivity plan includes actions to gain efficiencies in our operating model in skin and body care along with certain commercial organization redesign activities primarily in Europe, productivity programs across our supply chain, and optimization of selected support functions. As part of this program, Philosophy’s commercial marketing and R&D teams are currently being relocated to New York and integrated into our Coty U.S. team. The total charge associated with the program is expected to be approximately $70 million to $75 million in the course of the next 24 to 36 months. We recorded charges of $25.3 million in fiscal 2013. Savings associated with the program are expected to gradually increase to an annualized level of $40 million to $45 million once the program is completed by fiscal 2016. Our adjusted effective tax rate was 28.2% in fiscal 2013 compared to 27.7% in the prior year. This increase in effective tax rate was driven by a change in jurisdictional mix with higher profits in countries with higher tax rates. Going forward, we continue to expect our adjusted effective tax rate to remain in the range of 28% plus or minus 3%. On a cash tax basis, we expect to continue to benefit from historical net operating losses in the U.S. and Germany, as well as from the tax deductibility of goodwill amortization for OPI and Philosophy, resulting in a long-term sustainable cash tax rate in the range of 18% plus or minus 3%. In fiscal year 2013, cash paid for income taxes was 16.9% of adjusted income before income taxes. Fiscal 2013 was another year of strong cash flow generation. Net cash provided by operating activities, excluding cash used for private company stock option exercises, was $618.4 million in 2013 compared to $593.3 million in 2012. This was equivalent to a cash conversion ratio of 108%. We continue to generate significant cash from operations through improved operating performance and a continued focus on working capital. In 2013, our free cash flow, excluding cash used for private company stock option exercises, was $394.5 million or 8.5% of net revenues, which represents approximately 6.3% free cash flow yield and compares very favorably with the industry average. I am also pleased to communicate that we have raised our dividends to $0.20 per share. This reflects strong earnings and cash flow in fiscal 2013 and in the absence of any imminent acquisitions, we are raising our dividend per share by 33%. Going forward as we evaluate future dividends, we will always consider our financial condition and result of operations as well as availability of funds and capital requirements, including potential acquisitions. As we enter fiscal 2014, we are facing the impact of trade destocking in the U.S. and increasing promotional activity in Europe. As Michele explained, these recent market developments are impacting our mass business and total net revenues for the first quarter of fiscal 2014. Also, we are currently facing FX headwinds and based on most recent exchange rates, the full-year impact in earnings would be in the range of 3 to 4%. This FX impact is driven primarily by double-digit depreciation of some currencies like the Australian dollar and the Russian ruble, as well as by depreciation of the British pound vis-à-vis the euro. As the back-to-school and the holiday seasons unfold, we will consolidate our outlook for the total fiscal year. Cash flow continues to be a strong focus for our organization. As we continue to gain efficiencies on working capital, we are creating the basis for another year of strong cash flow generation in fiscal 2014. We would now like to turn it back to the operator for questions. Operator?

[Operator:]

Thank you. [Operator instructions] Your first question comes from the line of Olivia Tong, representing Bank of America Merrill Lynch. Please proceed.

[Olivia Tong:]

Thank you, good morning. I wanted to talk a little bit about your category growth expectations for mass versus prestige, and then for your business specifically, where do you expect to source most of your market share gains as the year progresses? Do you think it’s going to come more in mass or prestige? Thanks.

[Michele Scannavini:]

Okay, so good morning first of all, Olivia. Thanks for the question. Let me say that what we are seeing now is clearly a trend on the market that shows slower development in Mass versus Prestige. This is true in the U.S., and this is also true in Europe. Now, this is not something that we can anticipate is going to be a long-term trend. We have seen in the past that trend changing depending on the different years or season, mass having advantage versus prestige and prestige having advantage versus mass. So the situations like now, it happened sometimes in the past that in a certain market situation, people with lower income are more cautious in spending than people with higher income, but it’s also true that for instance in 2009, in the big crisis, mass was pretty much resilient and in fact prestige had the much serious hit. So looking forward, I should say I don’t see a change in the current trend in the next few months, but longer term I don’t think there is anything that can say that prestige is going to grow faster than mass. As far as our market share, clearly we are working and developing plans to defend and increase our market share in all the different segments where we compete, being in the prestige channel or the mass channel, so we are not really defining a priority between the two but we try to maximize our competitiveness in both.

[Olivia Tong:]

Got it, thanks. And then can you parse out how much of the deceleration that you see in Q1, how much of that is destocking versus the underlying category deceleration in the U.S. and Europe?

[Michele Scannavini:]

Look, those two are phenomena that is a bit difficult to separate one from the other. Now, obviously everything started with the deceleration of the market growth. When we talk of U.S., for instance, that is where we see the most important destocking activity. We have clearly seen a deceleration of the market growth in the three categories where we compete – fragrance prestige, fragrance mass, and color, particularly in the nail segment. This happened in the last quarter of last year and in the first couple months of this year. Now, this is the trigger event for the trader to readjust the stock levels on the consumption level and growth, so I must say that when we look at the first two months of our quarter, that destocking has impacted quite significantly. We calculated within the first month a destocking impact of around $23 million to $25 million on our net revenues in the U.S., clearly progressively we expect the selling to get more in line with the consumption; in other words, to see the adjustment of the inventory to have an end once the inventories are more realigned with growth trend of the different categories.

[Operator:]

Your next question comes from the line of Bill Schmitz, representing Deutsche Bank. Please proceed.

[Bill Schmitz:]

Hi, good morning. Can you just talk about first the margin trends in the quarter, both growth and operating margin—or SG&A rather, because the 230 basis points decline in gross margin, kind of what drove that, and what the outlook is going forward. And then it looks like SG&A came down significantly in the quarter – it was down over 500 basis points year-over-year, maybe some of the drivers there and how sustainable some of those reductions are. And then I have a follow-up, please.

[Sergio Perdreiro:]

Hi Bill. You’re right – the gross margin came down 230 basis points. This was a combination of two effects. There is about 50 basis points that is fiscal year 2012 reclassification of an expense that was actually catching up for the full year, so it amounted for 50 basis points for that quarter but was actually adjusting adjusted for the full year. The balance of 180 basis points was the impact of higher discounts and allowances, as we discussed. Now when you look at the SG&A, it came down significantly reflecting two developments. One is on the marketing expense that came down 250 basis points, a little bit less than half of the decrease in SG&A. I just want to call your attention to the fact that it’s coming down from a very high base. It was actually 28.2% of net sales in the last quarter of previous year, and even after these reductions it’s still at a very good level of 25.7%. The balance came from the other SG&A, including a reduction of 160 basis points that is equivalent to lower variable compensation. As you know, our compensation is very geared and is driven through results, and therefore with the performance you have a reflection in the size of the variable compensation which amounted, as I said, to 160 basis points in the last quarter.

[Bill Schmitz:]

Great, thanks very much. And then the follow-up – how are you guys viewing the holiday? How are retailers getting ready for the season, because I know you said there’s a bunch of destocking that kind of started and that went through this summer, but typically now is when you start thinking about and shipping products for the holiday season, so is it your customers’ view that it’s going to be a good Christmas, a bad Christmas, an average Christmas, and how are they allocating inventory accordingly?

[Michele Scannavini:]

Well generally speaking, the retailers are cautious. They are still projecting Christmas to be up versus last year. So far, we didn’t see any reduction in orders for what was planned for Christmas; rather, some retailers are postponing the shipments because I believe they want to have a bit more visibility on the back-to-school season. But so far, we have not been announced any significant material reduction of orders for the Christmas season.

[Operator:]

Your next question comes from the line of Joe Lesches, representing Wells Fargo Securities. Please proceed.

[Joe Lesches:]

Hi, thanks. So in the U.S. mass channel, is the destocking concentrated at the biggest retailer, or has the trend spread to other U.S. mass retailers?

[Michele Scannavini:]

It is concentrated on the top retailers. This is where we see the most important destocking activity. It is also what is impacting more our business in the first quarter.

[Joe Lesches:]

Okay, and then the follow-up – it sounds like you are expecting trade inventory to normalize at some point in fiscal year 2014. I guess I just want to clarify that – are you expecting—are you baking into your estimates some sort of a restocking boost, or is it essentially just an adjustment where sell-in meets sell-through, and when do you expect that to occur? I guess you’re not expecting it in the first quarter. What gives you confidence that that essentially restocking will materialize?

[Michele Scannavini:]

Look, obviously everything depends on the consumption development, so at the moment what’s happening is that the retailers are adjusting their inventory to a lower consumption than expected. So as such, unless the consumption picks up faster, there’s going to be an adjustment on the low side, but we are not anticipating any restocking. What remains to be assessed when these adjustments will be over, we have reason to believe that within the first half, inventory should be readjusted in the United States and in some European countries. Unless the consumption suffers a further slowdown, they should be at a normal level. Obviously, as I said, we need to have a little bit—I think the retailers and we need to have a little bit more visibility on back-to-school and Christmas to confirm that these inventory adjustments are over by the end of the half.

[Operator:]

Your next question comes from the line of John Faucher, representing JP Morgan. Please proceed.

[John Faucher:]

Thank you. I guess this sort of flows into the last question. In terms of thinking about the sequential improvement from Q1 where you’re guiding to down, to the back half where you’re guiding to more in line with the long term algorithm, how should we think about that improvement? Are there underlying factors where even if the destocking continued, that you can expect some sort of sequential improvement from Q1 to Q2? And I guess this seems fairly obvious, but you only have a couple of weeks left in Q1, so I would assume you’re feeling pretty comfortable in terms of the Q1 guidance, and there doesn’t seem to be much that could sort of cause any consternation from that standpoint there. Is that the case? Thank you.

[Michele Scannavini:]

Okay, so first part of your question, what makes us confident to progressively cover a better growth rate? So first of all, as I said before, with the visibility we have today, we estimate the destocking, at least the most important part of it, should be over in this first half. But apart from this and even though the destocking will be more severe than we anticipate, it will go longer than we anticipate, clearly we expect some impact on our growth by all the activities that we are doing to accelerate our development in emerging markets, and this is not only related to the latest two new ventures that we did in Brazil and in southeast Asia, that we start showing the benefit between the end of this fiscal but more material—sorry, this first half, but more materially in the second half of the year, but also in the other emerging markets due to specific innovation plan, product line, and investments that we’re going to do there to boost our business, and one example could be the Middle East, for instance. So even though the situation in the consolidated market will be even gloomier than we see now, we have the boost of activity in emerging markets that progressively will bring our growth rate much more in line with our long-term targets.

[Operator:]

Your next question comes from the line of Neely Tamminga, representing Piper Jaffray. Please proceed.

[Neely Tamminga:]

Good morning. Just two related questions – Michele, could you give us a little bit more of a contextualization of the destocking issue in terms of sell-in versus sell-through? Kind of what the delta is there between those two different line items would be helpful to help contextualize this issue. And then relatedly into next year, in your fiscal 2014, we know we’ve got the Downtown launch here in the first fiscal half for you. Will there be any other Calvin Klein or Marc Jacobs launches that we can look for in the back half, either on the male side of it, of the fragrance? That’d be helpful, thanks.

[Michele Scannavini:]

Okay, so coming back to the destocking phenomena, as I said before, we have calculated the impact on our revenues by the destocking in the first two months of quarter one to be around $23 million to $25 million. This is impacting particularly our color and nail businesses, so the brands that will be more impacted by this is Sally Hansen. On this, I can maybe help to understand what is going on, mentioning a couple of market data that I think is very telling. When we talk in the nail category, as you know, the nail category had fantastic growth over the last two fiscal years, growth between 15 to 20%. In quarter three of this fiscal year, growth was still 11%, April plus-10.8%, May plus-11.7%, and then all of a sudden June plus 0.8%, July minus-2.5%. So you can easily picture the situation – we and the retailers, we were planning some back-to-school season on the wings of high double-digit growth, so this was the way we were planning the business, and all of a sudden June and July, the market dropped and the growth dropped to flat or even negative. That explained the very, very quick and material readjustment of stock by the mass retailers to have inventory more tuned with growth that is different from the double digits. Now, I was not obviously expecting that nail would keep on growing 20% for many years to come. Obviously the huge growth for the last year, due to the increased penetration and increased uses for capital in the nail category was bound to slow down and to come back more in line with the growth of the total makeup category, but I think nobody was expecting such a drastic drop from double digit to flat or decline in two months. So that has triggered this very quick and very significant destocking activity of the mass retailers, and as I said, we see the impact particularly on our Sally Hansen brand. Now the second part of the question was on the launches. So yes, in the second half of the year, we have launches and innovation on Calvin Klein and Marc Jacobs. It will not be on the male category; it will be on the women’s category, but we are going to have spring initiatives on both brands.

[Neely Tamminga:]

Thank you, good luck.

[Operator:]

Your next question comes from the line of Wendy Nicholson, representing Citi Research. Please proceed.

[Wendy Nicholson:]

Hi, good morning. My two questions are first one the productivity program, the sort of $40 million to $45 million of savings over the next few years. Do you expect that all of that is going to drop to the bottom line, or do you think some is going to be reinvested, and how are you thinking about that? And my second question is can you talk a little bi more about the expansion plan in Brazil and how you are sort of balancing the direct sales partnership you have with Jequiti and then which brands you’re putting in O Boticario – you know, how do you manage the conflict there?

[Michele Scannavini:]

Okay Sergio, will you answer the first part and I’ll take the second one?

[Sergio Perdreiro:]

Sure, yes. When we look at the program and the expected savings, let me just mention first that so far, we see we’re trending a little bit better than expected, so the 40 to 45, we’re definitely going to be on the high end of that range; we may even exceed it slightly. Now, the savings are used to support our growth. This means we invest behind the brands and also to support our emerging market expansion.

[Michele Scannavini:]

As far as Brazil, so the way we are managing our business there between the two channels, we will have different products for the different channels. It doesn’t mean necessarily different brands, but if the brand is sold in both channels, the product under the brand will be different. I make an example with Adidas, for instance. Adidas will be one of the key brands for our joint venture with Frajo, part of the O Boticario group, and we will sell through this joint venture, let me say, our mainstream line of products. With Jequiti door-to-door, we are going to sell a special edition, specifically developed for Brazil, or a series of fragrances that will be connected to the upcoming soccer world championship that is going to happen in Brazil next year. So both channels will have Adidas, but different products so that we are not going to create competition between the two channels.

[Wendy Nicholson:]

Okay, got it. And if I can just go back to the cost savings question, if I look at fiscal 2014 specifically, it seems like there is just a tremendous amount of competition both at the mass and prestige level in fragrances, and what with the destocking you’re seeing at the beginning of the year in a seasonally important period and kind of, I assume, some of the cost savings coming a couple of years out, are you confident that in 2014 your earnings growth is in fact going to be higher than your revenue growth?

[Michele Scannavini:]

First of all, let me say that we are always looking at our competitive position in the market, so if we are going to see increased investment and competitive activity in fragrances, we will keep our level of activity investment such as to defend or to increase our market share anyway. So for us, obviously, it is a priority not to lose position in the market. Now while we are looking at that, we are also working on several efficiency programs in our company, so it is clearly our target to keep expanding our margins with activity that allows us to work in a more efficient way at the same time without putting prejudice on the money that we invest behind the brand.

[Operator:]

Your next question comes from the line of Lauren Lieberman, representing Barclays. Please proceed.

[Lauren Lieberman:]

Thanks, good morning. I just wanted to talk a little bit about the destocking again, but really more granular. So just given commentary that we’ve heard earlier this year from Elizabeth Arden, I’m going to assume the bulk of the destocking you’re seeing in North America has more been in fragrance so far, less so in color. So one, is that correct? Two, if you can talk a little bit about the lack of growth in OPI and what sounds like a decline in Sally. I mean, nail is still a super-hot category. It seems like there are a lot of upstart brands out there, and with nail being 40% of the color business, just love to hear a little bit about that business, if you’re seeing destocking or if you’re just seeing a slowdown in the market, or greater competition. And then finally in Europe, in just broad comments about promotional activity in Europe, what category – is it primarily skin and body, so affecting Adidas mostly, or is it also in the facial color cosmetics, so Rimmel and—well really primarily Rimmel and Manhattan? Thanks.

[Michele Scannavini:]

Okay, so let’s start with the first one where we see more the impact of destocking. So as I said in my script, we see it across categories but the category that’s been hit the most for us is nail. And then, this is explainable based on what I described before in terms of how sudden was the consumption drop. Again, we are talking about the market that until May was growing double digits, and then June and July was flat to negative, and that we have with Sally Hansen more than one-third of share of the total nail market in the United States. So when you have such a sudden market drop and you are such a strong leader, obviously you are the one that pays the most in terms of destocking. So what I expect to see, I expect to see impact in the different categories where we operated from the destocking, but we know that the biggest impact will be in nail and particularly in Sally Hansen. The second question was on the overall trend of nail. Now, I still believe the nail is a category that is bound to grow in the long run. Clearly as I said before, I don’t expect nail, particularly in the U.S., to keep sustained double-digit growth for the future. The big gain in terms of penetration and consumer per capita has been obtained over the last two years, particularly thanks to the outstanding fashion innovation that brought a lot of people that was not interested or not using nail to approach the category. I believe that looking to the future, we can estimate for the category growth that could be more or less in line with the total makeup growth that is 3 to 4%. Obviously it’s a category where we have seen the number of players over the last three to four years multiplying, the investment skyrocketing, so clearly it has become a much, much more competitive industry than it used to be before. Now because of this, obviously we are focusing even more our attention to bring innovation that can put us again a step ahead from the other. I was mentioning that in Q2 with Sally Hansen, we are going to launch a new formula that gives an ultimate shining effect on the nail, that we know that is the most desired benefit that women look on the nail, and we will keep on try to strengthen our position in a category where we have the leadership, where we have very strong know-how, and where we have shown in the past to be always ahead of the others in terms of innovation. Now in terms of the promotional activity in Europe, this is something that was very strong, particularly in south Europe. It has been strong in the last few quarters because the market there is recessive. The market is declining in other European countries, including France now, so these promotional activities are across all the different products. We have seen now also that U.K. Germany, that are traditionally price-driven countries, given the softer trend of the market, also are playing stronger in that arena. Now, we have a very strong position in Europe and when there is a strong fight to keep promotion with the trade space in the store, we need to fight. Clearly going forward, we will be very selective in identifying the activity and the promotions that really can make the difference, because obviously we don’t want to keep seeing going forward all the effort that we do to improve our cost of goods and to deliver savings with our supply chain offset by this kind of activity. Also, hopefully we will see the measures that the government in Europe is progressively taking to stimulate growth sooner or later will impact on the consumer spending power and improving the market trend, but until the market trend is recessive in Europe, is very difficult that we see a relief in the promotional pressure of the brands. Now obviously the more the categories are value for money in terms of perception of consumers, the more the price war or the discount war can harm, and when you were mentioning different product categories, clearly toiletry is suffering more than makeup.

[Operator:]

We will now take the final question from the line of Linda Bolton Weiser, representing B. Riley. Please proceed.

[Linda Bolton Weiser:]

Hi. I was just wondering, on the profitability of your segments, you did note the good improvement in the operating margin in fragrance in FY13, and I’m wondering if you think the improvement can be as big in FY14 or the other segments will kind of post better margin improvement? And do you think in skin and body, it will be profitable in FY14 or that it will take more than one year to get there? And secondly, I was just curious if you had specific numbers on price versus volume in the quarter and for the fiscal year, because you did report some of those numbers in your filing documents. So if you had specific numbers, that would be helpful, thanks.

[Sergio Perdreiro:]

Okay, so let me start with the profitability. We did see an improvement in the margin. It’s important to look at the overall margin because the drivers of the improvement in our margins, starting with the gross margin, they really cut across all the categories. So the competitive manufacturing in our plants, the worldwide procurement program, the streamlining of our logistics and distribution services, they all cut across the categories and therefore we should see improvement in all of the categories. The larger categories of fragrance and color are already benefiting from the scale and therefore performing at margins that are at par with the best players in the industry, and therefore we should continue to see this improvement as we go forward to be more marginal. When you get to the skin and body care, because of the smaller scale that we have in the business, we should see over the years the benefit of the building up the scale and a build-up of the margins that can also be fatter and more pronounced. We expect that in the course of the years with the footprint that we have today, therefore in the absence of acquisitions, that that segment can move to the mid single-digit margins. To get to margins that are similar to what we see today in our fragrance and color business, it would naturally go through an acquisition that would increase the scale and also increase the mix in terms of what is body care and skin care, given that we are today much more indexed to the body care that has lower margins. So in terms of the volume price, for the total year we had a 2% like-for-like increase. That 2% was 2% volume with zero impact of price mix. When you look at the quarter, it was more driven by volume, so the 4% growth on a like-for-like basis was the result of a 9% increase in volume and a 5% decrease in terms of price mix.

[Operator:]

This concludes the question and answer portion of today’s call. I would now like to turn the call back over to Mr. Monaco. Please proceed.

[Kevin Monaco:]

Thank you all for joining us today. We appreciate your questions. Please feel free to reach out to us in the Investor Relations department if we can assist you in any way. Thank you.

[Sergio Perdreiro:]

Thank you.

[Michele Scannavini:]

Thank you.

[Operator:]

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a great day.