Important disclosures appear on the last page of this report.

Krause Fund Research Fall 2017

Consumer Staples

Recommendation: BUY

Analysts

Yuchen Gao Macy Lanser yuchen-gao@uiowa.edu macy-lanser@uiowa.edu

Mingfeng Huang Emily Phelps mingfeng-huang@uiowa.edu emily-phelps@uiowa.edu

Company Overview Coty Inc. (COTY) is a multifaceted business that focuses on Luxury, Consumer, and Professional Beauty. There are 75 brands in Coty’s portfolio, including Covergirl, Rimmel, Sally Hansen, Clairol, Gucci, Calvin Klein Fragrances, and OPI. Consumer Beauty focuses on color cosmetics, retail hair coloring, and styling products, body care and mass fragrances that are affordable to the everyday citizen. Luxury beauty focuses on high quality fragrances, premium skincare, and premium cosmetics. Professional beauty focuses on hair and nail care for salon owners and salon professionals.

Stock Performance Highlights 52 week High $20.88 52 week Low $14.24 Beta Value 0.800 Average Daily Volume 7.02 m

Share Highlights Market Capitalization $12.22 b Shares Outstanding 749.40 m Book Value per share $12.45 EPS 2017 $(0.59) Dividend Yield 3.07% Dividend Payout Ratio -8.25%

Company Performance Highlights ROA -1.87%ROE -4.28%Sales $7.65 b

Financial Ratios Current Ratio 0.94 Debt to Equity 1.28

Coty Inc (NYSE: COTY)

November 10, 2017

Current Price $16.31 Target Price $20-22

Key Investment Highlights

• High Five-Year Sales Growth: The acquisition of P&GBeauty and exclusive long-term license rights of BurberryLimit have generated a more diversified product portfolio,which will enrich the growth of Coty’s revenue stream.The stock price will be affected by this high five-year salesgrowth of approximately 13%, when the synergies of costare realized.• High Invested Capital: Coty has a high continuing valuegrowth due to the large invested capital the companyacquired from the P&G merge. The premium between22.6% - 34.9% over its market price is the directed resultof prolonged value the high invested capital could bring.• Men and Women are Using More Personal Products:The average female uses approximately 27 products inher daily beauty routine, a number that has doubled inthe past decade. Men are also using more products in thepast several years which has created a large growthopportunity. This increase in the use of products shows agrowing industry that Coty is taking advantage of entirely.• Potential Arbitrage Opportunity: The market Cap ofCoty is 12.546B is significantly smaller than the other industry leader, (EL)’s 46.55B. This makes Coty an “underdog” company with a high growth prospective.

One Year Stock Performance

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Executive Summary Our team recommends to BUY Coty Inc. for the Krause Fund. Coty is a growing business with many new product lines and opportunities. We believe that they are going to do very well these next couple years due to the new trends and growing consumer demand. The growing economy is also a reason that we believe buying Coty is a good idea because of the businesses discretionary nature.

Economic Outlook Gross Domestic Product Real GDP represents all the goods and services a country produces within a specific period. The growth and decline of this economic driver could well reflect the production level of a country. In addition, it directly reflects the health condition of the economy in the particular region. If the real GDP growth rate remains steady or exceeds expectations, consumers normally increase their consumption. In other words, the Consumer Staples sector would be rewarded if GDP Growth increases because they can .

Source: St. Louis Fed @ 2017

The above graph shows that U.S. GDP growth has leveled off in the past few years after it fell in 2008. Historical evidence suggests that the Consumer Staples sector has been benefiting from this consistency. According to “The Conference Board Economic Forecast for the U.S. Economy,” the U.S. GDP is expected to have a 2.6% growth in the second half of 20171. In addition, the Economist Intelligence Unit (EIU) forecasts a 2.1% and 2.2% growth in 2018 and 20192. Business investment gained momentum last quarter, which brings investment growth in line with higher levels of business confidence that have prevailed since the end of 2016. Equipment spending signals upward momentum for industrial

production over the next few quarters. Rapid employment growth and a high level of consumer confidence will continue to contribute to the GDP growth. The Conference Board’s Global Leading Economic Index suggests that the emerging economies are picking up some speed. All major global economies are expected to perform well in the next couple of years.

Interest Rates The Interest Rates are an important tool for the Fed to achieve its monetary policy goal, due to an inverse relationship between interest rates and the unemployment rate. In addition, the lower interest rates encourage people to borrow money to stimulate the economy, which would bring up the inflation level. Investors in Consumer Staples would like to see lower interest rates for this reason.

We believe in a short term (6-month period), the Fed will not raise the interest rates. According to the 2017 Economic Calendar on Bloomberg, the PMI Manufacturing Index was down five tenths from July, which results in the weakest reading since June 20163. Specifically, new orders reflected more domestic demand, while the export orders were flat. The Economic Calendar on Bloomberg also shows that the unemployment rate increased one tenth, which is higher than expected.

If the Federal Reserve decides to have a rate hike in the next 6 months, the unemployment and inflation level are going to deviate from its monetary policy goals. In the long run, the majority of the Federal Open Market Committee (FOMC) participants are expecting to see an increasing trend of the Federal Funds Rate of 2.2% and 3.0% at the midpoints of 2018 and 20194.

Inflation The Federal Reserve’s objective in conducting monetary policy is to achieve the inflation target of 2%. This is an important economic factor because the Fed is constantly monitoring the price level of consumer spending. The FOMC Committee judges the inflation level by measuring the Personal Consumption Expenditure (PCE) index. Higher inflation rates could be beneficial for the Consumer Staples Sector. A higher price level would bring more revenue to the companies in this sector. Historical data shows that the consumption level for Coty’s sales did not get affected by higher inflation.

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According to the Economist Intelligence Unit (EIU), the U.S. is expected to achieve an overall inflation level of 1.9% in 2017. In 2018 and 2019, the U.S. are predicted to reach an inflation rate of 2.0% and 2.2%, respectively5. EIU agrees with the expectation of the FOMC in which the inflation would rise in the medium term of 2017. In 2018, the consumer price inflation is expected to continue an upward trend but at a slowing pace.

Source: Bloomberg @ 2017

Unemployment and Labor Force Participation Rate The unemployment rate is a measure of how many eligible people are not working in the U.S. The labor force participation rate (LFPR) is a measure of how many persons are working or looking for work in the U.S. Both of these measures are used by economists to judge the state of the American job market, but LFPR is preferred. As seen by in the graph below, Consumer Staples performance is negatively correlated to LFPR. We generally think that people fall back on Consumer Staples in times of hardships because they can’t afford as much discretionary spending (cooking at home vs. eating out).

Source: Bureau of Labor Statistice @ 2017

S&P Dow Jones Indices @ 2017 We are predicting an unemployment rate of 4.5% for the next six months, but we think it will rise to 5% in the next three years. Unemployment usually increases under Republican held presidencies and we expect this trend to continue in the current administration43. Another factor

that will raise unemployment rate is pressure to increase wages, which could strain the number of employees a business can keep on. The labor force participation rate is expected to drop, we are forecasting a 62.7% labor force participation rate in the next 6 months and 61.9% by 2020. High skill sets and use of automation in manufacturing jobs are pushing people out of the labor force, whereas before workers could find plenty of jobs without the need of higher education. Capital Market Outlook We think right now is a good time to invest in this area. According to the forecast, the U.S. GDP is going to grow in an increasing trend, which leads to a stimulation in the U.S. consumer market. In the short term (6 months), the Fed will most likely not raise the interest rate due to the economic outlook that it is not affordable to have such a rate hike. If they don't raise the interest rate, the unemployment rate should decrease and inflation level should climb back up. These consequences would benefit the Consumer Staples sector due to the potential increase in revenue. After looking at current and historical data we have concluded that the consumer staples market will outperform the rest of the market. Historically over the past 10 years, the consumer staples sector has outperformed the market by 35%. As we discussed above, the outlook for consumer staples is great due to the current conditions but we feel that there could be growth above what we expect because of consumer demand, which is hard to predict. In the short term, we feel that the consumer staples industry will outperform the market by 3.5%. We feel that the short-term outlook is going to outperform because people have lots of extra income to spend on food and beverages. In the long term, we feel that the consumer staples industry will continue to outperform the market by around 10%. We chose this percent due to the historic performance of the consumer staples industry to the market.

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Industry Analysis Industry Description The Personal Products or cosmetics industry can be described as an industry that supplies personal hygiene items and make-up13. Every single day every household around the world uses some sort of personal product. Most consumers have demand for these products no matter what the economic outlook might be at the time. The only fluctuations you find are demand for products in a certain price range. Over the past couple years the personal product industry has added 237 billion to the US GDP and created approximately 180,000 jobs17. This industry continues to grow as the typical target consumer changes from just women to also include men. Recent Developments and Industry Trends The demand for men’s care products has grown very quickly in the past couple years with the acceptance of the use of products for men. There has been a shift to where men are now expected to be clean and put together just as much as women are. Men shave, on average, around 5 times a week and every time a man shaves he uses personal care products. They are also much more conscious about their appearance and have started using products that are typically aimed towards females to improve appearance or skin health. The market for men’s personal care products will reach 46.3 billion by 2020 due to many market drivers19. Skincare has always had a pretty steady demand but for a couple years there has been an increase in the awareness of ingredients that are not good for your skin. There has been an increase of sales of products that are made of natural ingredients that will increase the health of your skin and not clog pores. The average beauty regimen consists of around 27 products, a number that has doubled over the last decade22. Consumers are no longer satisfied with a single “one-size-fits-all” product. They now need a cleanser, toner, face mask, essential oil, age regenerator, skin-specific moisturizer, dark spot corrector, etc. This market continues to grow and is being fed by the beauty blogger craze that is happening on social media and YouTube channels.

Markets and Competition The personal product industry currently consists of roughly 750 companies. These companies generate annual revenue of more than $40 billion every year with consistent growth. The 50 biggest companies in this industry contribute 70% of the total revenue14. However, there are some small companies competing with the big ones that specifically focus on a minor part of the market or on specialized products. There are several industry leaders like Kimberly-Clark, Johnson & Johnson, Estee Lauder, Coty, Alberto-Culver, Avon and L'Oreal. These companies contribute the major growth to the market every year21. The following products generate the revenue of the entire personal product industry. The first type is makeup, deodorant and nail products, which generates 33% of industry revenue. The second type is hair care products, which generates 25% of the revenue42. The next type of personal products is hand cream and lotions which contributes 21%42. The remaining part of revenue is generated by perfumes, mouthwashes, shaving preparations and other products.

Source: business.com @ 2017

According to Porter’s 5-Forces Analysis, the two major forces affecting the industry are competitive rivalry and threat of substitution. The cosmetic industry is filled with several major competitors, which hold the most of the market share. Every single of them is competitive and provide variety of products and services at a similar quality. On the other hand, because of the existence of similar products in cosmetic industry, it is easier for customers to find a different product with the similar function. There is no cost for customers to switch from to the others, thus the threat of substitutes is another factor to shift the industry21.

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Personal Product Types

Makeup, deodorant, andnail products

Hair care products

Hand cream and lotions

Perfumes, mouthwashes,shaving preparations, andother products

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Financial and Operating Market The Personal Products industry has a fairly spread market concentration - where Estee Lauder has the largest share in the market at 13.4%. Since several of the major cosmetic firms own more than one brand, we think that there are opportunities for changes in leaders in the market. Companies like L’Oreal and Coty could very well overtake Estee Lauder in market share.

Source: IBISWorld @ 2017

There has been an upward trend of sales in the cosmetic industry in the past three years. While Estee Lauder, L’Oreal, and Revlon both showed positive sales growth in the last year, Coty surpassed them with a 75% increase in sales between 2016 and 2017. A large portion of this growth was due to the acquisition of P&G Beauty in 2016, but we are predicting that sales will continue to rise.

Source: Yahoo Finance @ 2017

Personal products firms have had a great year of stock returns - better than the market as a whole. Estee Lauder showed a very large return at 61.77%, but Coty and, even more so Revlon both had majorly negative returns.

Source: Yahoo Finance @ 2017

Key Factors Driving the Industry Per Capita Disposable Income Personal Products are considered to be discretionary, and people tend to increase their consumption for this category when per capita disposable incomes are high; and vice versa. Despite the upward pressure for wage growth throughout 2017, the lower unemployment rate and federal funds rate could potentially increase the disposable income level. According to IBIS World, per capita disposable income is expected to grow 2.20% this year21. Number of Adults Aged 20 to 64 The number of millennial women plays an indispensable role in the cosmetic industry, because this particular group has contributed the most share of revenue in the past. An expansion of the ages 20 to 64 group would boost the revenue of this industry. According to IBIS World, this age group has started to slow by an annualized rate of 0.2% from 2012 to 2017. However, over the next five years, the number of adults aged 20 to 64 is anticipated to increase21. Key Investment Positives and Negatives Positives There are several expanding opportunities in the industry. For example, while the traditional cosmetic product market is becoming saturated, eco-friendly cosmetic products are becoming more popular as more people are more concerned with environmental issues. This could be a potential growth driver for Coty. Per capita disposable income is on an increasing trend. In addition, with the possibility of the inflation level increase in the not too distant future, the cosmetic industry could benefit from the overall price level increase in the consumer staples industry.

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Cosmetic & Beauty Products Manufacturing Market ShareEstee Lauder Inc.

L'Oreal USA Inc.

Mary Kay Inc.

Coty Inc.

Unilever

Revlon Inc.

Other (including Procter & GambleCompany)

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Negatives As many people have become more health conscious, and most of the makeup and beauty items have been proven to be harmful to the human body. Consumers might be more sensitive about what products they use. According to IBIS World, while many manufactures have the incentive to expand into natural products, there is no Food and Drug Administration (FDA) regulations that control the use of the word “organic” on product labels. Standardization needs to be done to overcome this issue21.

Company Specific Analysis Overview and Business Description Coty Inc. is a multifaceted business that focuses on Luxury, Consumer, and Professional Beauty. There are 75 brands in Coty’s portfolio and these brands include Covergirl, Rimmel, Sally Hansen, Clairol, Gucci, Calvin Klein Fragrances, and OPI26. Consumer Beauty focuses on color cosmetics, retail hair coloring and styling products, body care and mass fragrances that are affordable to the everyday citizen. Luxury beauty focuses on high-quality fragrances, premium skincare and premium cosmetics. Professional beauty focuses on hair and nail care for salon owners and salon professionals.

Source: Coty 10-K @ 2017

Corporate Strategy Coty’s corporate strategy is to celebrate and liberate the diversity of consumers’ beauty by providing products that are at all price ranges and qualities. They have a global distribution network that allows for easy accessibility and convenience. They also focus on innovation through research and development of new top of the line products26.

Life Cycle The life cycle that Coty is currently in is growth due to the fact that they are still acquiring other companies and increasing in size. The cosmetic industry is at a mature stage but because of the movement of consumer demand new opportunities present themselves constantly29. Financial Summary In Q4 2017, Coty’s revenues more than doubled from Q4 2016. However, net income showed a significant loss at -$304.8 million. The 2017 fiscal year data is also showing a net loss at -$422.2 million. Their consumer beauty segment brought in the most revenue in 2017, at $3688.2 million (a 63% increase from last year). Much of this can be explained by the acquisition of P&G Beauty in late 2016. P&G owns a lot of consumer beauty brands, like Head & Shoulders, Secret, and Covergirl, but they also own Gucci and Dolce & Gabbana beauty. The acquisition was a big driver behind the debt that Coty accumulated in the last year, which is a very expensive way to drive the massive sales increase. Product Line and New Products Coty has released many new products this year showing that they are true to their promise of product innovation. Among the new products was a clear brow gel, waterproof mascara, liquid gel eyeliner, anti-fatigue foundation and concealer, setting spray, and a contour palette all from Rimmel. They are clearly moving on the trend of women spending more time on their makeup. Market for the Company’s Products The market for Coty’s products is very wide due to the various facets that they have. For their consumer beauty products the market is middle to lower-income males and females between the ages of 20-35. This is due to the price range and store availability where these products are found. They are priced affordably for someone who doesn’t have a lot of disposable income or a steady job. Their Luxury items are in the market of upper-income males and females between the ages of 35-45. The price range and store availability of these products is directed toward adults with steady paying jobs and extra disposable income. The Professional Beauty product lines are in the market of professional beauty stylists and businesses.

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Marketing Strategy and Customer Support The marketing strategy of Coty is to create an individual trusted brand for each product line. All 75 brands have their own packaging, image, and personality to create a unique experience for each one to target a specific consumer. Every brand's advertising strategy is different to fit the needs of the products and consumers. Significant Customers The most significant customer for Coty is Wal-Mart accounting for 7% of their total sales. Other than that their biggest customers sales do not amount to a large number. Their consumer beauty products are sold to drug stores, mid-level department stores, and supermarkets. Perfumeries, upscale retailers, and duty free shops buy their Luxury products. As for their Professional products, they go straight to salons and nail and hair care professionals. Also, all of their products are available for online purchase through various websites made for each separate brand. Manufacturing Process 82% of Coty’s products were manufactured by the company, mostly in the U.S., Europe, and Brazil. Animal testing, unless required by law, is not implemented in the manufacturing of any Coty product. Cruelty-free beauty is a growing concern among consumers and can affect which brands a buyer will support. 72% of Americans believe that testing beauty products on animals is inhumane. Distribution The global distribution network is constantly changing to meet customer demand and match expected service levels. Coty products are sold in over 130 countries. Consumer beauty products are sold mostly in supermarkets, drugstores, mid-level department stores, and the like. Placing Coty’s more affordable brands in retailers like Target, Walgreens, and Ulta make the products really accessible to the demographic they are trying to reach. Luxury products are sold in upscale retailers like perfumeries, department stores, and duty-free shops. The professional division sells directly to nail and hair salons and professionals. All segments utilize e-commerce distribution as well. Wal-Mart is the top retailer of Coty products, with 7% of net revenues coming from Wal-Mart.

Suppliers and Raw Materials Raw materials consist mainly of essential oils (sourced from fragrance houses). Alcohols and specialty chemicals are also raw material components for Coty. All raw materials come from third parties, and no party supplies more than 10% of the total raw material input - which means that Coty is not reliant on any one supplier. That being said, materials costs are relatively small compared to the costs associated with shipping and marketing. Competition Coty Inc. is a leading beauty and cosmetics company that has competitors such as Estée Lauder, L’Oréal, and Avon. According to According to an Ernst & Young report, the long-term expected performance for beauty industry remains positive. More specifically, the globalization makes the potential global market available in the near future. Also, the report states that the global population from emerging markets is expected to increase the global market size by 50%. The competition remains intense because of the large number of substitutes and constant changes of consumers’ preferences. Sales Compound Annual Growth Sales Compound Annual Growth (CAGR) is calculated by taking the geometric mean of the growth in sales, specifically for five years in the graph below. Revenue is the very first line item on the income statement because it drives net income and the stock price.

Source: Company 10-Ks @ 2017

Coty and Revlon have seen very similar, positive sales growth (both close to 13%), although Coty’s growth is partially explained by the acquisition of P&G beauty which is an expensive way to obtain growth. Inventory Turnover The number of times a company can turnover its inventory is especially important in the cosmetic and beauty industry because of the constant change in

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trends. Since trends are always coming in and going out (with the push of social media), “old news” products need to move off the shelves as soon as possible. Makeup and skincare also have a shelf-life, so it’s important that products sell before they expire.

Source: Company 10-Ks @ 2017

Avon sells off their inventory almost four times a period and Coty’s inventory management is not far behind with an inventory turnover of 2.61. Avon’s high inventory turnover is partially due to comparatively low inventory. Gross Margin Gross margin is equal to gross profit as a percentage of sales and it shows us how well the company is managing its operating costs compared to the sales level it maintains. It can explain a lot about whether a company is a price-maker or price-taker because a high gross margin means sales were high and COGS were low.

Source: Company 10-Ks @ 2017

The chart would suggest that Coty, Estee Lauder, and Revlon have similar ways to effectively manage their costs and that they have similar pricing power. The beauty industry is able to price their products with huge profit margins because they are not only a “nece ssary” good, but are also extremely valued by consumers. Avon makes less of a gross margin because their products are not only sold in retailers, but they also

employ representatives to sell within their individual communities. Porter’s Five Forces Analysis Threat of competitors: Moderate-High Coty operates in an intense competitive market so that long-term profitability is harmed by the competitive pricing mechanisms. Besides, Coty has to face the competition with Estée Lauder, L’Oréal, and Avon all over the world. Also, these competitors will offer specific products priced similarly targeting Coty globally. Threat of New Entrants: Medium New Entrants are always a big threat for Personal Products industry. The new entrants which carry out newly innovated products can easily take a part of market share. Unless the new company featured new technology introduce something truly innovative and differentiated, it is hard for the new entrants to exist in the market21. Threat of Substitutes: Moderate-High For personal product industry specifically, there is a variety choices of products with similar functions and prices. However, a well-branded product is hard to be replaced unless that replacement includes new technology that offers improved results. More specifically, the technology makes it easier to reverse some of the cosmetics and fragrances, thus cheaper personal product’s demand is therefore increased13. Bargaining power of suppliers: Medium Coty purchases raw material from several of suppliers, though it has to purchase specific chemicals for fragrances from specific suppliers. The overall impact of higher supplier bargaining power is that it lowers the overall profitability of Personal Products14. Bargaining power of buyers: High The sale of Coty is mostly relied on the large retail buyers. Therefore, any changes of the customer base in the department stores can seriously affect the profitability of Coty. Moreover, the buyers will always seek for better deals and offers. Considering the various substitutes in the market, Coty has to settle with the discounted deals from customers21. Other Topics The globalization of the entire Personal Products is developing in a rapid pace. Also, according to the report,

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Coty should face a significant growth in global market in the near future. However, this will bring more competition to Coty with the major competitors in the emerging markets globally17. Furthermore, Coty is using the multi-segment manufacturing in various location all over the world. Besides, Coty sells its products through a multichannel distribution strategy across several price points in prestige and mass market channels of distribution. The company sells its products through a variety of retailers. According to Cohen, “the FDA governs the laws and regulations relating to the manufacturing, labeling and marketing of products”. Because of the close contact between personal products and human bodies, the health concerns and sensitivity from customers drive the government regulations to a possibly more serious and strict level in the near future21. This industry is regulated by the Research Institute for Fragrance Materials (RIFM), which is aimed to ensure the safety level of materials of perfume and fragrance. The RIFM conducts toxicity tests, and allergy and photo toxicity testing of raw materials that are selected by the Scientific Advisory Board. There are further tests for the results to ensure that it follow the rules of International Fragrance Association (IFRA)28. Catalysts for Growth and Change The catalysts for growth and change for Coty are shifts in consumer demand, economic state, trends, perceived value, and new products for other companies. Consumer demand is always changing with the trends that are made by beauty bloggers and influencers like celebrities. Coty must come up with new products constantly to keep up with these changes. The economic state changes the tier of makeup that consumers buy from, a healthy economy means more people will buy luxury and a poor economy more people might buy consumer beauty. The higher the perceived value of a product the more likely it will be purchased by the consumer so Coty must find a way to make their products with the highest possible value. When other companies come out with new products then Coty must be competitive and come out with something similar so that the consumers feel that their favorite brand is keeping up with the latest trends.

SWOT Analysis Strengths Organizational Structure: Coty constantly monitor how, where and why customers shop for a specific products. After its acquisition with P&G Beauty Business, the business is reorganized to three divisions: Luxury Consumer Beauty and Professional beauty. Each division is set up a full end-to-end responsibility to ensure the quality of customers’ beauty experience. The company is consistently optimizing product categories and channel to better satisfy customers. Business Strategy: Coty continues to enhance the portfolio and better the company brand. Starting from October 2017, Coty will be partnering with Burberry to develop its luxury division. In addition, the company would consistently in response to competitors’ new products. Integrating with P&G Beauty Business is going to diversify the company’s product portfolio. In fact, company beat the expected earning in Q3 of 2017, $0.10/share vs $0.07/share consensus, which signals a recovery of major losses occurred last year. Weaknesses Operating struggles: The company experienced an operating loss of $279 million in 2016. The Main struggle comes from the Consumer Beauty segment. The reduction of brands show on shelf space, and decline in distribution have a negative impact on this business segment. Additionally, the company disclose a significant high actual trade inventory compare to the expected trade inventory. Opportunities Economic Environment: With the fact that cosmetics is considered to be discretionary, people tend to increase their consumption for this category when per capita disposable incomes are high; and vice versa. The low unemployment rate and interest rate will encourage the increased of consumption. We expect a 2.20% increase of per capita disposable income this year. As Coty acquires long-term global license right from Burberry and P&G, and diversifying its product, the company will benefit from the current economic environment.

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Sustainability: There are several expanding opportunities in the industry. For example, while the traditional cosmetic product market is becoming saturated, eco-friendly cosmetic products are becoming more popular as more people are more concerned with environmental issues. On August 12, 2017, P&G announced the company plans to use eco-friendly sugarcane-derived plastic to package select beauty products. With the fact that Coty is integrating with the P&G Beauty Business, eco-friendly cosmetic products might evolve within Coty’s portfolio.

Threats Industry Competition: The Perfume and Fragrance Manufacturing industry is highly competitive due to the entry barrier is moderate. Industry competitors are competing base of price, quality, product innovation and customer services. Price is one of the most important factor because downstream customers could choose one over the other due to the price difference. And yet, Coty does not have any leverage to compete with the middle-low tier brands, because of the operating struggles it currently experiences. Conclusion Paragraph With the organizational structure, acquisition of major luxury consumer beauty brands, and showing positive operating earnings, Coty has overcome the major operating losses that occurred last year. Going forward, Coty is going to utilize the advantage of owning some major premium brands, and thereafter make the firm become more competitive in the industry.

Valuation Analysis Overview Our group is issuing a BUY recommendation on Coty’s stock. According to the result of our valuation models, alongside with several key assumptions, the targeted stock price should be $20.00 to $22.00. This price range comes from a partially adjusted present value of the stock as $21.47/share through our DCF/EP model. Coty has been able to weather the competitive nature of the industry. The firm continues to enhance the business portfolio by acquiring P&G Beauty Business and partnering with Burberry. Although some of the

aggressive business activities resulted an operating loss in 2016, these effort make Coty a strong player in the industry. Coty resulted in positive earnings so far in 2017. The key assumptions we used in our financial models are revenue forecasts, synergies achieved through the acquisition of P&G Beauty Business, dividends per share payouts, WACC estimation, and our continuing value (CV) growth assumption. Discounted Cash Flow (DCF) and Economic Profit (EP) Model The intrinsic value of Coty Inc. calculated in the DCF and EP model is $21.47. With the current price of the stock at $16.31 in compared to our valuation range $20 - $22, results in a premium between 22.6% - 34.9% over its market price. This premium mainly comes from the the CV growth of the company, which results a high value of operating assets. The DCF Model and EP Model are superior for Coty than the DDM and Relative PE valuation model because both models reflect the continuing values that the invested capital could bring to the firm in the future. Dividend Discount Model (DDM) Coty has decreased its dividend payout since 2016 and the company strategically searched potential acquisitions and partnership to grow its revenue and business. We believe investors who invested in the company are interested in the potential profit at this early stage of investment and the potential for the future. We believe that Coty will remain a growing company status and would continue to pay a low dividend in the next five years, until it reaches the CV in the year of 2022. In all, DDM is not a very good representation of Coty’s intrinsic value because it is only considering the dividend payout. Relative Price to Earnings (P/E) Coty had a significant net loss of 422.2 million in 2016 and the loss exceeds the combination of the net income the firm has generated in 2014 and 2015. The company is expected to have a positive net income from the benefit of last years acquisition of 53.09 million. The net loss is the directed outcome of the recent acquisition, and the earning per share data from 2017 is not an accurate representation of Coty’s profitability, in which resulted the P/E model is not an authentic model for our valuation.

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Company Name Share Price P/E 18 P/E 19

Estee Lauder $ 124.61 31.23 28.07 International Flavours and Fragrances $ 146.77 25.53 23.52

Avon $ 1.92 16.00 6.86

Coty Inc. $ 16.31 319.90 38.50 Source: Yahoo Finance @ 2017

Forecast Summary We thoughtfully consider Coty could overcome the operating loss occurred last year. Coty will achieve an average of 3.75% in the next four years through the acquisition of P&G Beauty and exclusive long-term license rights for Burberry Limit, before it reached the its continuing value year in 2022, with a constant growth of 2.00%. We concluded a 2.00% CV Growth Rate assumption from our expectation toward several of the economic factors. As a part of the nature of in the consumer staple company, the CV of Coty tend to align with the future inflation level and GDP growth. An important note to our evaluation model is that Restricted Cash remains constant. In November 2016, the FASB amended the classification and presentation of restricted cash on the statement of cash flows: the amounts generally described as restricted cash should be included with cash and cash equivalents. The company adopted this guidance in Q2 of 2017, and did not expect to make changes to the restricted cash account. Key Assumptions Revenue Forecasts Coty’s revenue stream can be broken down into three main segments: Luxury, Consumer Beauty, Professional Beauty. The largest revenue source is Consumer Beauty. In the past, these segments perform in a consistent manner, in which they tend to increase and decrease together. With the acquisition of P&G Beauty and long-term license rights for Burberry Limit, Coty could further increase its Consumer Beauty and Luxury segments’ revenue. Synergies through Acquisition of P&G Beauty Business Coty finished its acquisition with P&G Beauty Business on October 1, 2016 to further strengthen the Company’s position in the global beauty industry. The purchase price was $11,570.4 millions and consisted of $9628.6 millions of total equity and $1941.8 of assumed debt. The market reacted positively with a 1.23% increase on Coty’s stock and 0.87% increase on The Procter & Gamble Company. Coty continues to

implement its plan through realizing approximately $750 millions of synergies driven by cost, procurement, supply chain and selling, general, and administrative savings through fiscal 2020. The cumulative synergies of approximately 20% in fiscal 2017, approximately 50% in fiscal 2018, and approximately 80% through fiscal 2019. Weighted Average Cost of Capital Cost of Equity In the calculation of cost of equity, we used 2.79% risk-free rate which is the yield of 30-year treasury traded on November 10, 2017. market premium because we felt that the best value is the difference of the geometric historical average for both the S&P 500 return and the Treasury bond rate between 1928 and 2016. Lastly. after examined the risk factors that is used to calculate the beta and comparing the Coty to other major firms in the industry, we decided to uses a 0.80 beta instead of a 0.16 beta suggested by Bloomberg. Cost of Debt Cost of debt is calculated using pre-tax cost of debt and the marginal tax rate. We used 5.00% for our pre-tax cost of debt as it is the yield for a Esate bond maturing on 3/15/2047. Our marginal tax rate of 29.18% was found by adding the federal income tax rate, state income taxes, and foreign rate differences and valuation rate allowances and then took a 5 year average of these rates. Using these two inputs we concluded that our cost of debt is 3.54%. WACC After calculating the value of equity by multiplying the share price by the shares outstanding and finding the value of debt by adding the book value of short and long-term debt to the present value of operating leases we found the weights of equity and debt. We then took each weight and multiplied it by the corresponding cost and then added them together. This gave us a value of 5.24% for our WACC.

Sensitivity Analysis Beta vs. Risk Premium Changing the Beta and Risk Premium, the main components in the calculation of WACC, shows us just how sensitive the stock price is to the Cost of Capital. While keeping the other variables we used to calculate WACC constant, a 0.1% increase in the risk premium

11

changes our stock price from $21.47 to $20.83 while a 0.5 increase in Beta changes our stock price from $21.47 to $19.67. A small change in the assumptions that we made have a large affect in the Intrinsic Stock Price that we calculate. WACC vs. CV NOPLAT By evaluating the WACC and the CV NOPLAT we are showing the sensitivity of our stock price to changes in the cost of capital and revenue growth. We assume our CV NOPLAT to be the same as our CV growth of revenue and therefore increasing this increases revenues. Increasing WACC decreases our stock price because if the cost of capital increases, the amount of money it takes to take on new projects also increases. A .05% increase in WACC takes our intrinsic price from $21.47 to $20.77, while a .25% increase of CV NOPLAT growth takes our price from $21.47 to $23.76. COGS (% of Sales) vs. SG&A (% of Sales) The largest expenses that Coty pays are Cost of goods sold (COGS) and selling, general and administrative (SG&A) and by increasing these as a percent of sales directly affects operating income. Coty has just acquired P&G Beauty and they are going to realize synergies in the several years to come. A .05% increase in COGS takes our intrinsic price from $21.47 to $20.02, while a 1% increase of SG&A takes our price from $21.47 to $17.55. Pre-Tax Cost of Debt vs. Marginal Tax Rate Tax rates are projected to decrease with the new presidency and we were interested to find out how sensitive our stock price is to the marginal tax rate and the pre-tax cost of debt. A .5% decrease in the marginal tax rate takes our intrinsic price from $21.47 to $20.02, while a .5% decrease of Pre-Tax Cost of Debt takes our price from $21.47 to $17.55. Risk-Free Rate vs. CV ROIC Growth Interest rates affects the WACC and therefore affect the CV ROIC Growth. Testing the sensitivity of these two assumptions shows us how our price might be affected by a predicted increase in the Risk-Free Rate. A .01% increase in the risk-free rate takes our intrinsic price from $21.47 to $21.39, while a .5% increase of the CV ROIC Growth takes our price from $21.47 to $22.89.

Important Disclaimer This report was created by students enrolled in the Applied Equity Valuation (FIN:4250) class at the University of Iowa. The report was originally created to offer an internal investment recommendation for the University of Iowa Krause Fund and its advisory board. The report also provides potential employers and other interested parties an example of the students’ skills, knowledge and abilities. Members of the Krause Fund are not registered investment advisors, brokers or officially licensed financial professionals. The investment advice contained in this report does not represent an offer or solicitation to buy or sell any of the securities mentioned. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Krause Fund may hold a financial interest in the companies mentioned in this report.

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Coty Inc.Key Assumptions of Valuation Model

Ticker Symbol COTYCurrent Share Price $16.31Current Model Date 11/10/2017FY End (month/day) 6/30/2017

Beta 0.8Risk-Free Rate 2.79%Equity Risk Premium 4.65%CV Growth of NOPLAT 2.00%CV Growth of EPS -4.05%CV ROIC Growth 12.71%Current Dividend Yield 0.00%Marginal Tax Rate 29.18%Effective Tax Rate 39.40%

Coty Inc.Revenue Decomposition(In Millions)Fiscal Years Ending 06/30/2017 2015 2016 2017 2018E 2019E 2020E 2021E CV 2022Net Revenues by SegmentLuxury 1938.3 1836.6 2566.6 2677.6 2811.5 2881.8 2953.8 3012.9 Year-Over-Year Growth -5.2% 39.7% 4.3% 5.0% 2.5% 2.5% 2.0%Consumer Beauty 2185.4 2262.5 3688.2 3855.8 4048.5 4149.8 4253.5 4338.6 Year-Over-Year Growth 3.5% 63.0% 4.5% 5.0% 2.5% 2.5% 2.0%Professional Beauty 271.5 250.0 1395.5 1499.5 1574.4 1613.8 1654.1 1687.2 Year-Over-Year Growth -7.9% 458.2% 7.4% 5.0% 2.5% 2.5% 2.0%Total Sales 4395.2 4349.1 7650.3 8032.8 8434.5 8645.3 8861.5 9038.7 Year-Over-Year Growth -3.4% -1.0% 75.9% 5.0% 5.0% 2.5% 2.5% 2.0%

Net Revenues by Geographic RegionsNorth America 1499.7 1413.0 2506.9 2570.5 2699.0 2766.5 2835.7 2892.4 Year-Over-Year Growth -5.8% 77.4% 2.5% 5.0% 2.5% 2.5% 2.0%Europe 1961.6 1924.6 3325.7 3494.3 3669.0 3760.7 3854.7 3931.8 Year-Over-Year Growth -1.9% 72.8% 5.1% 5.0% 2.5% 2.5% 2.0%ALMEA 933.9 1011.5 1817.7 1968.0 2066.4 2118.1 2171.1 2214.5 Year-Over-Year Growth 8.3% 79.7% 8.3% 5.0% 2.5% 2.5% 2.0%Total 4395.2 4349.1 7650.3 8032.8 8434.5 8645.3 8861.5 9038.7 Year-Over-Year Growth -3.4% -1.0% 75.9% 5.0% 5.0% 2.5% 2.5% 2.0%

Coty Inc.Income Statement(In Millions)Fiscal Years Ending 06/30/2017 2015 2016 2017 2018E 2019E 2020E 2021E CV 2022Net revenues 4395.20 4349.10 7650.30 8032.82 8434.46 8645.32 8861.45 9038.68Cost of sales 1600.80 1593.50 2748.50 2886.19 3030.50 3106.26 3183.92 3247.60Depreciation 156.20 152.50 280.00 293.14 321.24 347.59 372.73 397.08 Gross profit 2638.20 2603.10 4621.80 4853.48 5082.72 5191.46 5304.80 5394.00Selling, general and administrative expenses 2066.10 2027.80 4060.00 3938.20 3741.29 3479.40 3479.40 3479.40Amortization expense 74.70 79.50 275.10 328.85 316.02 303.68 291.83 280.44Restructuring costs 75.40 86.90 372.20 32.00 32.00 32.00 32.00 32.00Acquisition-related costs 34.10 174.00 355.40Asset impairment charges 5.50 Gain on sale of assets (7.20) (24.80) (3.10) Operating (loss) income 395.10 254.20 (437.80) 554.43 993.41 1376.38 1501.58 1602.16Interest expense, net 73.00 81.90 218.60 465.19 495.74 495.73 492.50 606.10Loss on early extinguishment of debt 88.80 3.10 Other expense, net 30.40 1.60 3.46 73.63 77.31 79.25 81.23(Loss) income before income taxes 233.30 138.80 (658.00) 85.78 424.04 803.34 929.83 914.83Benefit for income taxes (26.10) (40.40) (259.50) 25.03 123.73 234.41 271.32 266.94 Net (loss) income 259.40 179.20 (398.50) 60.75 300.31 568.93 658.52 647.89Net income attributable to noncontrolling Interests 15.10 7.60 15.40 14.32 14.32 14.32 14.32 14.32Net income attributable to redeemable noncontrolling interests 11.80 14.70 8.30 13.68 13.68 13.68 13.68 13.68 Net (loss) income attributable to Coty Inc. 232.50 156.90 (422.20) 32.75 272.31 540.93 630.52 619.89Net (loss) income attributable to Coty Inc. per common share: 0.66 0.45 (0.66) 0.05 0.42 0.84 0.98 0.96Weighted-average common shares outstanding: 353.30 345.50 642.80 641.83 642.95 644.20 645.45 646.71

Coty Inc.Balance Sheet(In Millions)Fiscal Years Ending 06/30/2017 2015 2016 2017 2018E 2019E 2020E 2021E CV 2022AssetsCurrent assets: Cash and Cash Equivalents 341.30 372.40 535.40 (129.90) 103.89 591.27 3378.49 2811.80 Restricted Cash 35.30 35.30 35.30 35.30 35.30 35.30 Trade Receivables 679.60 682.90 1470.30 1402.57 1472.70 1509.51 1547.25 1578.20 Inventories 557.80 565.80 1052.60 1062.04 1115.14 1143.02 1171.59 1195.03 Prepaid Expenses and Other Current Assets 191.00 206.80 487.90 512.30 537.91 551.36 565.14 576.44 Deferred Income Taxes 86.70 110.50 Total Current Assets 1856.40 1938.40 3581.50 2882.30 3264.93 3830.46 6697.77 6196.77Property and Equipment, Net 500.20 638.60 1632.10 1788.55 1935.28 2075.21 2210.82 2344.26Goodwill 1530.70 2212.70 8555.50 8555.50 8555.50 8555.50 8555.50 8555.50Other Intangible Assets, Net 1913.60 2050.10 8425.20 8096.35 7780.33 7476.65 7184.82 6904.39Deferred Income Taxes 10.40 15.70 72.60 3.13 15.47 29.30 33.91 33.37Other Noncurrent Assets 207.60 180.10 281.30 286.93 292.66 298.52 304.49 310.58 Total Assets 6018.90 7035.60 22548.20 21612.75 21844.18 22265.64 24987.32 24344.86

Liabilities and Shareholder's EquityCurrent Liabilities: Accounts Payable 748.40 921.40 1732.10 2430.88 2427.02 2410.84 2396.45 2381.08 Accrued Expenses and Other Current Liabilities 719.20 748.40 1796.40 1403.91 1474.10 1510.95 1548.73 1579.70 Short-Term Debt and Current Portion of Long-Term Debt 28.80 161.80 209.10 204.40 218.80 218.80 2439.50 1550.20 Income and Other Taxes Payable 22.40 18.70 66.00 7.46 36.86 69.84 80.84 79.53 Deferred Income Taxes 7.40 4.90 Total Current Liabilities 1526.20 1855.20 3803.60 4046.64 4156.78 4210.43 6465.52 5590.52Long-Term Debt, Net 2605.90 3936.40 6928.30 6816.75 6805.92 6760.55 6720.21 6677.11Pension and Other Post-Employment Benefits 206.50 230.60 549.20 549.20 549.20 549.20 549.20 549.20Deferred Income Taxes 352.60 339.20 924.90 36.94 182.62 345.98 400.46 394.00Other Noncurrent Liabilities 256.70 233.80 473.40 553.65 557.22 555.96 668.35 621.59 Total Liabilities 4947.90 6595.20 12679.40 12003.20 12251.75 12422.12 14803.73 13832.42Shareholders' EquityPreferred Stock 86.30 73.30 551.10 551.10 551.10 551.10 551.10 551.10Common Equity 2048.30 2042.40 11211.30 11230.07 11248.85 11267.62 11286.40 11305.17Retained Earnings (Accumulated Deficit) and Other Comprehensive Income (Loss) (467.90) (276.70) (454.80) (730.59) (766.36) (534.05) (212.75) 97.33Treasury Stock (610.60) (1405.50) (1441.80) (1444.03) (1444.15) (1444.16) (1444.16) (1444.16) Total Coty Inc. Shareholders' Equity 969.80 360.20 9865.80 9606.56 9589.43 9840.52 10180.59 10509.44Noncontrolling Interests 14.90 6.90 3.00 3.00 3.00 3.00 3.00 3.00 Total Shareholders' Equity 984.70 367.10 9868.80 9609.56 9592.43 9843.52 10183.59 10512.44 Total Liabilities and Shareholders' Equity 6018.90 7035.60 22548.20 21612.75 21844.18 22265.64 24987.32 24344.86

Coty Inc.Cash Flow Statement(In Millions)Fiscal Years Ending 06/30/2017 2015 2016 2017 Cash Flows from Operating ActivitiesNet Income 259.40 179.20 (398.50)Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: Depreciation and amortization 230.90 232.00 555.10 Asset impairment charges 5.50 Deferred income taxes (87.20) (139.20) (390.00) Provision for bad debts 4.50 21.90 23.40 Provision for pension and other post-employment benefits 16.20 9.20 53.60 Share-based compensation 30.60 22.20 24.60 Gain on sale of assets (7.20) (24.80) (3.10) Loss on extinguishment of debt 88.80 3.10 Other 20.50 12.80 25.90 Change in operating assets and liabilities, net of effects from purchase of acquired companies: Trade Receivables (43.50) (44.50) (279.80) Inventories 29.40 27.20 162.30 Prepaid expenses and other current assets 6.00 6.70 (105.70) Accounts payable 7.00 148.20 540.90 Accrued expenses and other current liabilities 16.10 23.30 479.20 Income and other taxes payable 127.70 15.70 85.00 Other noncurrent assets (136.70) 9.00 23.40 Other noncurrent liabilities (36.20) (6.10) (38.80)Net cash provided by operating activities 526.30 501.40 757.50Cash Flows from Investing ActivitiesCapital expenditures (170.90) (150.10) (432.30)Payments for business combinations, net of cash acquired 11.70 (908.70) (742.60)Additions of goodwill (30.00)Proceeds from sale of assets 14.80 29.20 11.30Payments related to loss on foreign currency contracts (29.60)Other 3.20Net cash used in investing activities (171.20) (1059.20) (1163.60)Cash Flows from Financing ActivitiesProceeds from short-term debt, original maturity more than three months 652.20 19.10 9.50Repayments of short-term debt, original maturity more than three months (655.00) (28.30) (10.20)Net (repayments of) proceeds from short-term debt, original maturity less than three months 11.60 25.40 (49.20)Proceeds from revolving loan facilities 853.00 1940.00 2244.40Repayments of revolving loan facilities (1616.00) (1430.00) (2074.40)Proceeds from term loans and other longterm debt 800.90 3506.20 1075.00Repayments of term loans and other long term debt (784.60) (2499.40) (136.10)Dividend payment (71.00) (89.00) (372.60)Net proceeds from issuance of Class A Common Stock and Series A Preferred Stock and related tax benefits 48.50 44.70 22.80

Net proceeds from issuance of Class A CommonStock to former CEO 12.50Purchase of Class A Common Stock from former CEO (42.00)Payments for purchases of related party

Payments for purchases of Class A CommonStock held as Treasury Stock (263.10) (36.30)Net (payments for) proceeds from foreign currency contracts (37.90) (1.20)Payment for business combinations - Contingent consideration (0.80)

Proceeds from mandatorily redeemable noncontrolling interestsProceeds from noncontrolling interests 1.80Distributions to noncontrolling interests (12.20)Purchase of additional noncontrolling interestsDistributions to redeemable noncontrolling interests (9.10)Purchase of additional redeemable noncontrolling interests (15.80)Payment of deferred financing fees (11.20)Net cash (used in) provided by financing activities (1138.20) 1488.70 721.60

Coty Inc.Cash Flow Statement (Forecasted)(In Millions)Fiscal Years Ending 06/30/2017 2018E 2019E 2020E 2021E CV 2022Cash from Operating ActivitiesNet Income 32.8 272.3 540.9 630.5 619.9Adjustments to Reconcile Net Income Provided by Operating Activities Depreciation 293.1 321.2 347.6 372.7 397.1 Amoritization 328.9 316.0 303.7 291.8 280.4 Change in Deferred Income Taxes (818.5) 133.3 149.5 49.9 (5.9)Change in Working Capital Accounts Change in Trade Receivables 67.7 (70.1) (36.8) (37.7) (30.9) Change in Inventories (9.4) (53.1) (27.9) (28.6) (23.4) Change in Prepaid Expenses and Other Current Assets (24.4) (25.6) (13.4) (13.8) (11.3) Change in Accounts Payable 698.8 (3.9) (16.2) (14.4) (15.4) Change in Income Taxes Payable (58.5) 29.4 33.0 11.0 (1.3) Change in Accrued Expenses and Other Current Liabilities (392.5) 70.2 36.9 37.8 31.0 Change in Other Noncurrent Liabilities 80.3 3.6 (1.3) 112.4 (46.8) Net Cash Provided by Operating Activities 198.2 993.4 1316.0 1411.6 1193.4Cash from Investing Activities Net Capital Expenditures (449.6) (468.0) (487.5) (508.3) (530.5) Increase (Decrease) in Other Noncurrent Assets (5.6) (5.7) (5.9) (6.0) (6.1) Net Cash Used for Investing Activities (455.2) (473.7) (493.4) (514.3) (536.6)Cash from Financing Activities Changes in Current Portion of Long-Term Debt (4.7) 14.4 0.0 2220.7 (889.3) Proceeds from Issuance (Payment) of Long-Term Debt (111.5) (10.8) (45.4) (40.3) (43.1) Payments of Dividends (308.5) (308.1) (308.6) (309.2) (309.8) Proceeds from Issuance of Common Stock 18.8 18.8 18.8 18.8 18.8 Repurchases of Common Stock (2.2) (0.1) (0.0) (0.0) (0.0) Net Cash Provided by Financing Activities (408.2) (285.9) (335.2) 1889.9 (1223.4)

Change in Cash (665.3) 233.8 487.4 2787.2 (566.7)Cash from the Beginning of the Year 535.4 (129.9) 103.9 591.3 3378.5Cash at the End of the Year (129.9) 103.9 591.3 3378.5 2811.8

Coty Inc.Common Size Income Statement(% of Sales)Fiscal Years Ending 06/30/2017 2015 2016 2017 2018E 2019E 2020E 2021E CV 2022Net revenues 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%Cost of sales 36.42% 36.64% 35.93% 35.93% 35.93% 35.93% 35.93% 35.93%Depreciation 3.55% 3.51% 3.66% 3.65% 3.81% 4.02% 4.21% 4.39% Gross profit 60.02% 59.85% 60.41% 60.42% 60.26% 60.05% 59.86% 59.68%Selling, general and administrative expenses 47.01% 46.63% 53.07% 38.49% 44.36% 40.25% 39.26% 38.49%Amortization expense 1.70% 1.83% 3.60% 4.09% 3.75% 3.51% 3.29% 3.10%Restructuring costs 1.72% 2.00% 4.87% 0.40% 0.38% 0.37% 0.36% 0.35%Acquisition-related costs 0.78% 4.00% 4.65% 0.00% 0.00% 0.00% 0.00% 0.00%Asset impairment charges 0.00% 0.13% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Gain on sale of assets -0.16% -0.57% -0.04% 0.00% 0.00% 0.00% 0.00% 0.00% Operating (loss) income 8.99% 5.84% -5.72% 6.90% 11.78% 15.92% 16.95% 17.73%Interest expense, net 1.66% 1.88% 2.86% 5.79% 5.88% 5.73% 5.56% 6.71%Loss on early extinguishment of debt 2.02% 0.07% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Other expense, net 0.00% 0.70% 0.02% 0.04% 0.87% 0.89% 0.89% 0.90%(Loss) income before income taxes 5.31% 3.19% -8.60% 1.07% 5.03% 9.29% 10.49% 10.12%Benefit for income taxes -0.59% -0.93% -3.39% 0.31% 1.47% 2.71% 3.06% 2.95% Net (loss) income 5.90% 4.12% -5.21% 0.76% 3.56% 6.58% 7.43% 7.17%Net income attributable to noncontrolling Interests 0.34% 0.17% 0.20% 0.18% 0.17% 0.17% 0.16% 0.16%Net income attributable to redeemable noncontrolling inter 0.27% 0.34% 0.11% 0.17% 0.16% 0.16% 0.15% 0.15% Net (loss) income attributable to Coty Inc. 5.29% 3.61% -5.52% 0.41% 3.23% 6.26% 7.12% 6.86%

Coty Inc.Common Size Balance Sheet(% of Sales)Fiscal Years Ending 06/30/2017 2015 2016 2017 2018E 2019E 2020E 2021E CV 2022AssetsCurrent assets: Cash and Cash Equivalents 7.77% 8.56% 7.00% -1.62% 1.23% 6.84% 38.13% 31.11% Restricted Cash 0.00% 0.00% 0.46% 0.44% 0.42% 0.41% 0.40% 0.39% Trade Receivables 15.46% 15.70% 19.22% 17.46% 17.46% 17.46% 17.46% 17.46% Inventories 12.69% 13.01% 13.76% 13.22% 13.22% 13.22% 13.22% 13.22% Prepaid Expenses and Other Current Assets 4.35% 4.76% 6.38% 6.38% 6.38% 6.38% 6.38% 6.38% Deferred Income Taxes 1.97% 2.54% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Total Current Assets 42.24% 44.57% 46.82% 35.88% 38.71% 44.31% 75.58% 68.56%Property and Equipment, Net 11.38% 14.68% 21.33% 22.27% 22.94% 24.00% 24.95% 25.94%Goodwill 34.83% 50.88% 111.83% 106.51% 101.44% 98.96% 96.55% 94.65%Other Intangible Assets, Net 43.54% 47.14% 110.13% 100.79% 92.24% 86.48% 81.08% 76.39%Deferred Income Taxes 0.24% 0.36% 0.95% 0.04% 0.18% 0.34% 0.38% 0.37%Other Noncurrent Assets 4.72% 4.14% 3.68% 3.57% 3.47% 3.45% 3.44% 3.44% Total Assets 136.94% 161.77% 294.74% 269.06% 258.99% 257.55% 281.98% 269.34%

Liabilities and Shareholder's EquityCurrent Liabilities: Accounts Payable 17.03% 21.19% 22.64% 30.26% 28.78% 27.89% 27.04% 26.34% Accrued Expenses and Other Current Liabilities 16.36% 17.21% 23.48% 17.48% 17.48% 17.48% 17.48% 17.48% Short-Term Debt and Current Portion of Long-Term Debt 0.66% 3.72% 2.73% 2.54% 2.59% 2.53% 27.53% 17.15% Income and Other Taxes Payable 0.51% 0.43% 0.86% 0.09% 0.44% 0.81% 0.91% 0.88% Deferred Income Taxes 0.17% 0.11% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Total Current Liabilities 34.72% 42.66% 49.72% 50.38% 49.28% 48.70% 72.96% 61.85%Long-Term Debt, Net 59.29% 90.51% 90.56% 84.86% 80.69% 78.20% 75.84% 73.87%Pension and Other Post-Employment Benefits 4.70% 5.30% 7.18% 6.84% 6.51% 6.35% 6.20% 6.08%Deferred Income Taxes 8.02% 7.80% 12.09% 0.46% 2.17% 4.00% 4.52% 4.36%Other Noncurrent Liabilities 5.84% 5.38% 6.19% 6.89% 6.61% 6.43% 7.54% 6.88% Total Liabilities 112.58% 151.65% 165.74% 149.43% 145.26% 143.69% 167.06% 153.04%Shareholders' EquityPreferred Stock 1.96% 1.69% 7.20% 6.86% 6.53% 6.37% 6.22% 6.10%Common Equity 46.60% 46.96% 146.55% 139.80% 133.37% 130.33% 127.37% 125.08%Retained Earnings (Accumulated Deficit) and Other Comprehensive Income (Loss) -10.65% -6.36% -5.94% -9.10% -9.09% -6.18% -2.40% 1.08%Treasury Stock -13.89% -32.32% -18.85% -17.98% -17.12% -16.70% -16.30% -15.98% Total Coty Inc. Shareholders' Equity 22.06% 8.28% 128.96% 119.59% 113.69% 113.82% 114.89% 116.27%Noncontrolling Interests 0.34% 0.16% 0.04% 0.04% 0.04% 0.03% 0.03% 0.03% Total Shareholders' Equity 22.40% 8.44% 129.00% 119.63% 113.73% 113.86% 114.92% 116.31% Total Liabilities and Shareholders' Equity 136.94% 161.77% 294.74% 269.06% 258.99% 257.55% 281.98% 269.34%

Coty Inc.Value Driver Estimation

Fiscal Years Ending 06/30/2017 2015 2016 2017 2018E 2019E 2020E 2021E CV 2022NOPLATEBITA Net Revenues 4395.2 4349.1 7650.3 8032.8 8434.5 8645.3 8861.5 9038.7 -Cost of Sales 1600.8 1593.5 2748.5 2886.2 3030.5 3106.3 3183.9 3247.6 -Depreciation 156.2 152.5 280.0 293.1 321.2 347.6 372.7 397.1 -Selling, general and administrative expenses 2066.1 2027.8 4060.0 3938.2 3741.3 3479.4 3479.4 3479.4 -Amoritization Expense 74.7 79.5 275.1 328.9 316.0 303.7 291.8 280.4 +Implied Interest on Operating Leases 18.7 16.7 20.2 31.8 34.9 37.7 40.4 43.1 EBITA 516.1 512.5 306.9 618.2 1060.3 1446.1 1574.0 1677.2

Less: Adjusted Taxes: Benefit for income taxes (26.1) (40.4) (259.5) 25.0 123.7 234.4 271.3 266.9 +Tax Shield on Interest Expense 21.3 23.9 63.8 135.7 144.7 144.6 143.7 176.9 +Tax Shield on Other Expense 0.0 8.9 0.5 1.0 21.5 22.6 23.1 23.7 +Tax Shield on Implied Lease Interest Expense 5.5 4.9 5.9 9.3 10.2 11.0 11.8 12.6 +Tax Shield on Loss on Early Extinguishment of Debt 25.9 0.9 0.0 +Tax Shield on Restructuring Costs 22.0 25.4 108.6 +Tax Shield on Acquisition-Related Costs 10.0 50.8 103.7 +Tax Shield on Asset Impaiment Charges 0.0 1.6 0.0 -Tax on Gain of Sale of Assets 2.1 7.2 0.9 Adjusted Taxes 56.4 68.6 22.0 171.1 300.0 412.6 449.9 480.1

Plus: Change in Deferred Tax (DT) Liabilities: DT Liabilities 7.4 4.9 0.0 0.0 0.0 0.0 0.0 0.0 +DT Long Term Liabilities 352.6 339.2 924.9 36.9 182.6 346.0 400.5 394.0 -DT Current Assets 86.7 110.5 0.0 0.0 0.0 0.0 0.0 0.0 -DT Long-Term Asset 10.4 15.7 72.6 3.1 15.5 29.3 33.9 33.4 Net DT Liabilities 262.9 217.9 852.3 33.8 167.2 316.7 366.5 360.6 Year-Over-Year Change in DT Liabilities 63.7 (45.0) 634.4 (818.5) 133.3 149.5 49.9 (5.9)

NOPLAT 523.4 398.9 919.2 (371.3) 893.6 1183.0 1173.9 1191.3

Invested Capital (IC)Operating Current Assets: Normal Cash 23.9 26.1 37.5 (9.1) 7.3 41.4 236.5 196.8 Trade Receivables 679.6 682.9 1470.3 1402.6 1472.7 1509.5 1547.3 1578.2 Inventories 557.8 565.8 1052.6 1062.0 1115.1 1143.0 1171.6 1195.0 Prepaid Expenses and Other Current Assets 191.0 206.8 487.9 512.3 537.9 551.4 565.1 576.4 Operating Currrent Assets 1452.3 1481.6 3048.3 2967.8 3133.0 3245.3 3520.5 3546.5

Operating Current Liabilities: Accounts Payable 748.4 921.4 1732.1 2430.9 2427.0 2410.8 2396.5 2381.1 Accrued Expenses and Other Current Liabilities 719.2 748.4 1796.4 1403.9 1474.1 1511.0 1548.7 1579.7 Income and Other Taxes Payable 22.4 18.7 66.0 7.5 36.9 69.8 80.8 79.5 Operating Currrent Liabilities 1490.0 1688.5 3594.5 3842.2 3938.0 3991.6 4026.0 4040.3

Net Operating Working Capital (37.7) (206.9) (546.2) (874.4) (805.0) (746.4) (505.5) (493.8)

Plus: NET PPE 500.2 638.6 1632.1 1788.6 1935.3 2075.2 2210.8 2344.3

Plus: PV of Operating Leases 334.2 403.1 636.0 697.0 754.2 808.7 861.6 913.6

Plus: Other Operating Assets Other Intangible Assets, Net 1913.6 2050.1 8425.2 8096.3 7780.3 7476.7 7184.8 6904.4 Other Noncurrent Assets 207.6 180.1 281.3 286.9 292.7 298.5 304.5 310.6Less: Other Operating Liabilities Other Noncurrent Liabilities 256.7 233.8 473.4 553.7 557.2 556.0 668.3 621.6

Invested Capital 2661.20 2831.21 9955.03 9440.76 9400.30 9356.80 9387.84 9357.40

Return on Invested Capital (ROIC) CalculationNOPLAT 523.4 398.9 919.2 (371.3) 893.6 1183.0 1173.9 1191.3/Beginning Invested Capital 2605.7 2661.2 2831.2 9955.0 9440.8 9400.3 9356.8 9387.8ROIC 20.09% 14.99% 32.47% -3.73% 9.46% 12.58% 12.55% 12.69%

Economic Profit (EP) CalculationBeginning Invested Capital 2605.7 2661.2 2831.2 9955.0 9440.8 9400.3 9356.8 9387.8*(ROIC-WACC) 0.1 0.1 0.3 (0.1) 0.0 0.1 0.1 0.1EP 386.72 259.29 770.73 (893.43) 398.42 689.97 683.19 698.89

Free Cash Flow (FCF) CalculationNOPLAT 523.4 398.9 919.2 (371.3) 893.6 1183.0 1173.9 1191.3 -(Invested Capital - Beginning Invested Capital) 55.5 170.0 7123.8 (514.3) (40.5) (43.5) 31.0 (30.4)FCF 467.89 228.85 (6204.59) 142.96 934.02 1226.49 1142.90 1221.70

Coty Inc.Weighted Average Cost of Capital (WACC) Estimation

Cost of EquityRisk-Free Rate 2.79%Equity Risk Premium 4.65%Beta 0.80Cost of Equity 6.51%

Cost of DebtPre-Tax Cost of Debt 5.00%Marginal Tax Rate 29.18%After-Tax Cast of Debt 3.54%

Value of EquityShare Price $16.31Shares Outstanding 641.83Value of Equity $10,468.21

Value of DebtBV of Short-Term Debt 209.10BV of Long-Term Debt 6928.30PV of Operating Leases 636.05Value of Debt 7773.45

WeightsEquity 57.39%Debt 42.61%

WACC CalculationCost of Equity 6.51%* Weight of Equity 57.39%After-Tax Cost of Debt 3.54%*Weight of Debt 42.61%WACC 5.24%

Coty Inc.Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth 2.00% CV ROIC 12.69% WACC 5.24% Cost of Equity 6.51%

Fiscal Years Ending 06/30/2017 2017 2018E 2019E 2020E 2021E CV 2022

Discounted Cash Flow ModelFree Cash Flow 143 934 1226 1143Continuting Value 30926Future Cash Flows 143 934 1226 1143 30926Discount Periods 1 2 3 4 4Discounted Cash Flows 136 843 1052 932 25207

Value of Operating Assets 28170Current Debt (209)

Long-Term Debt (6928)Other Current Liabilities (3595)Other Liabilities (1948)Pension and Other Post-Employment Benefits (549)Preferred Stock (551)PV of Operating Leases (636)PV of ESOP (46)Value of Equity 13708Shares Outstanding 647Intristic Stock Price 21.20$ Adjusted Stock Price 21.47$

Economic Profit ModelEconomic Profit -893.4 398.4 690.0 683.2Continuing Value 21539Future Cash Flows -893.4 398.4 690.0 683.2 21538.6Discount Periods 1 2 3 4 4PV of Cash Flows -849 360 592 557 17556

PV of Economic Profit 18215Plus: Beginning IC 9955.0Value of Operating Assets 28170Current Debt (209)

Long-Term Debt (6928)Other Current Liabilities (3595)Other Liabilities (1948)Pension and Other Post-Employment Benefits (549)Preferred Stock (551)PV of Operating Leases (636)PV of ESOP (46)Value of Equity 13708Shares Outstanding 647Intristic Stock Price 21.20$ Adjusted Stock Price 21.47$

Coty Inc.Sensitivity Analysis

Share Price Share Price21.47$ 0.65 0.7 0.75 0.8 0.85 0.9 0.95 21.47$ 4.25% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75%4.35% 29.87$ 27.55$ 25.42$ 23.46$ 21.65$ 19.97$ 18.42$ 27.68% 24.43$ 23.24$ 22.11$ 21.03$ 20.00$ 19.01$ 18.07$ 4.45% 29.15$ 26.84$ 24.72$ 22.78$ 20.98$ 19.31$ 17.77$ 28.18% 24.58$ 23.39$ 22.25$ 21.17$ 20.14$ 19.16$ 18.22$ 4.55% 28.46$ 26.16$ 24.05$ 22.11$ 20.33$ 18.68$ 17.14$ 28.68% 24.72$ 23.53$ 22.40$ 21.32$ 20.29$ 19.31$ 18.37$ 4.65% 27.78$ 25.49$ 23.39$ 21.47$ 19.70$ 18.06$ 16.54$ 29.18% 24.87$ 23.68$ 22.55$ 21.47$ 20.44$ 19.46$ 18.52$ 4.75% 27.12$ 24.84$ 22.75$ 20.84$ 19.08$ 17.45$ 15.95$ 29.68% 25.01$ 23.83$ 22.70$ 21.62$ 20.59$ 19.61$ 18.67$ 4.85% 26.47$ 24.20$ 22.13$ 20.23$ 18.48$ 16.87$ 15.37$ 30.18% 25.16$ 23.98$ 22.85$ 21.77$ 20.74$ 19.76$ 18.82$ 4.95% 25.84$ 23.59$ 21.53$ 19.64$ 17.90$ 16.30$ 14.82$ 30.68% 25.31$ 24.13$ 23.00$ 21.92$ 20.89$ 19.91$ 18.97$

Share Price Share Price21.47$ 5.09% 5.14% 5.19% 5.24% 5.29% 5.34% 5.39% 21.47$ 2.76% 2.77% 2.78% 2.79% 2.80% 2.81% 2.82%1.25% 17.89$ 17.35$ 16.82$ 16.31$ 15.81$ 15.32$ 14.84$ 11.19% 17.27$ 17.20$ 17.12$ 17.05$ 16.98$ 16.91$ 16.83$ 1.50% 19.55$ 18.95$ 18.37$ 17.80$ 17.25$ 16.71$ 16.18$ 11.69% 18.78$ 18.70$ 18.63$ 18.55$ 18.48$ 18.40$ 18.33$ 1.75% 21.45$ 20.78$ 20.13$ 19.50$ 18.89$ 18.29$ 17.71$ 12.19% 20.26$ 20.18$ 20.10$ 20.02$ 19.95$ 19.87$ 19.79$ 2.00% 23.67$ 22.91$ 22.18$ 21.47$ 20.78$ 20.11$ 19.47$ 12.69% 21.71$ 21.63$ 21.55$ 21.47$ 21.39$ 21.31$ 21.23$ 2.25% 26.27$ 25.40$ 24.57$ 23.76$ 22.98$ 22.23$ 21.50$ 13.19% 23.14$ 23.05$ 22.97$ 22.89$ 22.81$ 22.73$ 22.65$ 2.50% 29.37$ 28.37$ 27.41$ 26.48$ 25.58$ 24.72$ 23.89$ 13.69% 24.55$ 24.46$ 24.38$ 24.29$ 24.21$ 24.13$ 24.04$ 2.75% 33.14$ 31.95$ 30.82$ 29.73$ 28.69$ 27.69$ 26.72$ 14.19% 25.93$ 25.85$ 25.76$ 25.68$ 25.59$ 25.51$ 25.42$

Share Price21.47$ 34.43% 34.93% 35.43% 35.93% 36.43% 36.93% 37.43%

35.49% 25.56$ 25.07$ 24.59$ 24.10$ 23.61$ 23.13$ 22.64$ 36.49% 24.68$ 24.20$ 23.71$ 23.22$ 22.74$ 22.25$ 21.76$ 37.49% 23.81$ 23.32$ 22.83$ 22.35$ 21.86$ 21.37$ 20.89$ 38.49% 22.93$ 22.44$ 21.96$ 21.47$ 20.98$ 20.50$ 20.01$ 39.49% 22.05$ 21.57$ 21.08$ 20.59$ 20.11$ 19.62$ 19.13$ 40.49% 21.18$ 20.69$ 20.20$ 19.72$ 19.23$ 18.74$ 18.25$ 41.49% 20.30$ 19.81$ 19.33$ 18.84$ 18.35$ 17.86$ 17.38$

Risk Premium

Beta

SG&A (% of Sales in CV

Year)

COGS (% of Sales)

Pre-Tax Cost of Debt

Marginal Tax Rate

Risk-Free Rate

CV ROIC Growth

WACC

CV NOPLAT Growth

Coty Inc.Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

Key Assumptions CV growth 2.00% CV ROE 5.90% Cost of Equity 6.51%Fiscal Years Ending 06/30/2017 2017 2018E 2019E 2020E 2021E CV 2022EPS 0.05 0.42 0.84 0.98 0.96Future Cash Flows P/E Multiple (CV Year) 14.65 EPS (CV Year) 0.96 Future Stock Price 14.05 Dividends Per Share 0.48$ 0.48$ 0.48$ 0.48$ Future Cash Flows 0.48$ 0.48$ 0.48$ 0.48$ 14.05$ Discount Periods 1 2 3 4 4 Discounted Cash Flows 0.45$ 0.42$ 0.40$ 0.37$ 10.91$

Intrinsic Value 12.56$ Adjusted Stock Price 12.72$

Coty Inc.Relative Valuation Model

EPS EPSTicker Company Price 2018E 2019E P/E 18 P/E 19EL Estee Lauder $124.61 $3.99 $4.44 31.23 28.07 IFF International Flavours and Fragrances $146.77 $5.75 $6.24 25.53 23.52 AVP Avon $1.92 $0.12 $0.28 16.00 6.86

Average 24.25 19.48

COTY Coty Inc. $16.31 $0.05 $0.42 319.9 38.5

Implied Relative Value: P/E (EPS17) $ 1.24 P/E (EPS18) 8.26$

Coty Inc.Key Management Ratios

Fiscal Years Ending 06/30/2017 2015 2016 2017 2018E 2019E 2020E 2021E CV 2022

Liquidity RatiosCurrent Ratio (Total Current Assets/Total Current Liabilities) 1.22 1.04 0.94 0.71 0.79 0.91 1.04 1.11Quick Ratio ((Cash + Trade Receivables)/ Total CL) 0.67 0.57 0.53 0.31 0.38 0.50 0.76 0.79Cash Ratio (Cash/CL) 0.22 0.20 0.14 -0.03 0.02 0.14 0.52 0.50

Activity or Asset-Management Ratios

Receivables Turnover Ratio (Net Revenue/ Trade Receivables) 6.47 6.37 5.20 5.73 5.73 5.73 5.73 5.73Day's Receivables (365/Receivables Turnover Ratio) 56.44 57.31 70.15 63.73 63.73 63.73 63.73 63.73Inventory Turnover Ratio (COGS/Inventories) 2.87 2.82 2.61 2.72 2.72 2.72 2.72 2.72Fixed Asset Turnover Ratio (Net Revenues/Net PPE) 8.79 6.81 4.69 4.49 4.36 4.17 4.01 3.86

Financial Leverage RatiosDebt Ratio (Total Liabilities/Total Assets) 0.82 0.94 0.56 0.56 0.56 0.56 0.59 0.57Debt-Equity Ratio (Total Liabilities/Total Shareholders Equity) 5.02 17.97 1.28 1.25 1.28 1.26 1.45 1.32Cash Flow-Debt Ratio (Net Cash Provided by Operating Activities/(LT Debt+ST Debt and Current Portion of LT Debt)) 0.20 0.12 0.11 0.03 0.14 0.19 0.15 0.15Interest Coverage Ratio (Operating Income/Interest Expense) 5.41 3.10 -2.00 1.19 2.00 2.78 3.05 2.64

Profitability RatiosROA (Net Income/ Total Assets) 3.86% 2.23% -1.87% 0.15% 1.25% 2.43% 2.52% 2.55%ROE (Net Income/Shareholder's Equity) 23.61% 42.74% -4.28% 0.34% 2.84% 5.50% 6.19% 5.90%Gross Profit Margin (Gross Profit/Net Revenue) 60.02% 59.85% 60.41% 60.42% 60.26% 60.05% 59.86% 59.68%Net Profit Margin (Net Income/Net Revenue) 5.29% 3.61% -5.52% 0.41% 3.23% 6.26% 7.12% 6.86%

Payout Policy RatiosDividend Payout Ratio (Dividends Per Share/EPS) 30.54% 56.72% -88.25% 942.07% 113.14% 57.05% 49.04% 49.98%

Total Payout Ratio ((Dividend + Stock Repurchase)/ Net Revenue) 143.70% 56.72% -96.85% 948.86% 113.18% 57.05% 49.04% 49.98%

Present Value of Operating Lease Obligations (2017) Present Value of Operating Lease Obligations (2016) Present Value of Operating Lease Obligations (2015) Present Value of Operating Lease Obligations (2014) Present Value of Operating Lease Obligations (2013)

Operating Operating Operating Operating OperatingFiscal Years Ending 42916 Leases Fiscal Years Ending Leases Fiscal Years Ending Leases Fiscal Years Ending Leases Fiscal Years Ending Leases2018 126.1 2017 70.2 2016 59.0 2015 67.6 2014 62.62019 114.3 2018 67.3 2017 49.5 2016 54.7 2015 59.42020 98.3 2019 59.9 2018 43.2 2017 44 2016 382021 82.2 2020 50.4 2019 37.7 2018 40.6 2017 30.92022 73.7 2021 45.5 2020 35.7 2019 37.4 2018 30.6Thereafter 290.4 Thereafter 214.3 Thereafter 205.2 Thereafter 243.2 Thereafter 236.9Total Minimum Payments 785 Total Minimum Payments 507.6 Total Minimum Payments 430.3 Total Minimum Payments 487.5 Total Minimum Payments 458.4Less: Interest 149 Less: Interest 104 Less: Interest 96 Less: Interest 113 Less: Interest 112PV of Minimum Payments 636 PV of Minimum Payments 403 PV of Minimum Payments 334 PV of Minimum Payments 374 PV of Minimum Payments 347

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre-Tax Cost of Debt 5.00% Pre-Tax Cost of Debt 5.00% Pre-Tax Cost of Debt 5.00% Pre-Tax Cost of Debt 5.00% Pre-Tax Cost of Debt 5.00%Number Years Implied by Year 6 Payment 3.9 Number Years Implied by Year 6 Payment 4.7 Number Years Implied by Year 6 Payment 5.7 Number Years Implied by Year 6 Payment 6.5 Number Years Implied by Year 6 Payment 7.7

Lease PV Lease Lease PV Lease Lease PV Lease Lease PV Lease Lease PV LeaseYear Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment1 126.1 120.1 1 70.2 66.9 1 59 56.2 1 67.6 64.4 1 62.6 59.62 114.3 103.7 2 67.3 61.0 2 49.5 44.9 2 54.7 49.6 2 59.4 53.93 98.3 84.9 3 59.9 51.7 3 43.2 37.3 3 44 38.0 3 38 32.84 82.2 67.6 4 50.4 41.5 4 37.7 31.0 4 40.6 33.4 4 30.9 25.45 73.7 57.7 5 45.5 35.7 5 35.7 28.0 5 37.4 29.3 5 30.6 24.06 & beyond 73.7 202.0 6 & beyond 45.5 146.4 6 & beyond 35.7 136.8 6 & beyond 37.4 159.3 6 & beyond 30.6 150.8PV of Minimum Payments 636.0 PV of Minimum Payments 403.1 PV of Minimum Payments 334.2 PV of Minimum Payments 374.0 PV of Minimum Payments 346.6

Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 9,400,000Average Time to Maturity (years): 7.50Expected Annual Number of Options Exercised: 1,253,333

Current Average Strike Price: 14.98$ Cost of Equity: 6.51%Current Stock Price: $16.31

2018E 2019E 2020E 2021E CV 2022Increase in Shares Outstanding: 1,253,333 1,253,333 1,253,333 1,253,333 1,253,333Average Strike Price: 14.98$ 14.98$ 14.98$ 14.98$ 14.98$ Increase in Common Stock Account: 18,774,933 18,774,933 18,774,933 18,774,933 18,774,933

Change in Treasury Stock 36,300,000 2,225,628 128,117 6,924 351Expected Price of Repurchased Shares: 16.31$ 17.37$ 18.50$ 19.71$ 20.99$ Number of Shares Repurchased: 2,225,628 128,117 6,924 351 17

Shares Outstanding (beginning of the year) 642,800,000 641,827,705 642,952,921 644,199,330 645,452,312Plus: Shares Issued Through ESOP 1,253,333 1,253,333 1,253,333 1,253,333 1,253,333Less: Shares Repurchased in Treasury 2,225,628 128,117 6,924 351 17 Shares Outstanding (end of the year) 641,827,705 642,952,921 644,199,330 645,452,312 646,705,628

VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol COTYCurrent Stock Price $16.31Risk Free Rate 2.79%Current Dividend Yield 2.95%Annualized St. Dev. of Stock Returns 33.21%

Average Average B-S ValueRange of Number Exercise Remaining Option of OptionsOutstanding Options of Shares Price Life (yrs) Price GrantedRange 1 9,400,000 14.98 7.50 4.90$ 46,048,787$ Total 9,400,000 14.98$ 7.50 7.18$ 46,048,787$