Coty's assignment QRA

ERMC 5900 PS Section H02 Fall 2021 Capstone Case Package:

Company Overview and Simulated ERM Program for Coty, Inc.

Company Overview Coty, Inc. (COTY) is an American multinational beauty company headquartered in Amsterdam, Netherlands. Founded in 1904 by Francois Coty in Paris, the company is one of the world’s largest beauty companies with an iconic portfolio of brands across fragrance, color cosmetics, and skin and body care. Following its recent transactions – both acquisition and divestiture - Coty is now positioned as the global leader in fragrances, with the #2 position in prestige fragrances in the U.S. and U.K., and the leader in Germany. It is also now ranked fourth globally in color cosmetics, with the #2 position in mass cosmetics in the U.S., #4 position in Germany, and the top position in the U.K. Their current continuing operations are broken down into three geographical segments: Americas, Europe/Middle East/Africa (“EMEA”), and Asia Pacific. Businesses across all three segments are focused in on prestige fragrances, prestige skin care, prestige cosmetics, mass color cosmetics, mass fragrances, mass skin care and body care products. They are supported by central marketing teams. Coty boasts 18 mass beauty and 21 prestige brands. Household brand names include Adidas, CoverGirl, Max Factor, Nautica, Stetson, 007 James Bond, Calvin Klein, Chloe, Gucci, Hugo Boss, Kylie Jenner, Lacoste, Lancaster, philosophy, Kim Kardashian West, and Tiffany & Co. Brands are promoted using a variety of channels including traditional media, in-store displays, digital and social media, collaborations, product placements and events. The company also leverages celebrity relationships and social influencers for product endorsements, and collaborates with retailers in cooperative advertising which frequently utilizes in-store activities designed to engage consumers. The company owns the trademark rights to 14 brands and licenses trademark rights to 25 other brands from third parties. All licensing agreements are exclusive to Coty and run from 2 to 10 years in length. All licensing agreements are renewable, subject to either minimum royalty payment from Coty, minimum sales levels achieved, or the approval of the licensor. Coty sells its products in approximately 130 countries employing a multi-channel distribution strategy. Mass beauty brands are primarily sold through hypermarkets, supermarkets, drug stores and pharmacies, mid-tier department stores, traditional food and drug retailers, and dedicated e-commerce retailers. The prestige products are primarily sold through prestige retailers, including perfumeries, department stores, e-retailers, direct-to-consumer websites and duty-free shops. In addition, Coty sells products through third-party distributors and is expanding its e-commerce and direct to consumer platforms due to COVID-19.

Coty lost about $201 million on more than $4.6 billion of net sales revenue in fiscal year 2021 (Coty’s fiscal year runs from July 1 through June 30). However, this was a significant improvement over the 2019 and 2020 fiscal years, which showed Coty recording losses of $3.7 billion and $1.0 billion respectively. Coty produced a $2 million operating profit for 4Q21 due to increasing sales momentum and significant cost reductions from restructuring operations. The balance sheet at June 30, 2021 showed $3.1 billion in shareholder GAAP equity and $5.4 billion in long-term debt, resulting in a 1.76 financial leverage ratio. This ratio was 2.44 at June 30, 2020. Coty strengthened their balance sheet during fiscal year 2021 by selling a majority stake in its Professional and Retail Hair business to KKR. The sale generated about $2.5 billion in cash for Coty, most of which was used to redeem debt. S&P and Moody’s rate Coty’s debt at B- and Caa1 respectively, which are speculative grade ratings. S&P maintains a negative outlook on its rating due to ongoing restructuring costs and pandemic headwinds. Moody’s outlook is stable, although they express similar concerns. Coty’s stock price is currently about $9 - $10 per share, with a market capitalization of about $7.5 billion. Coty employs about 11,430 workers worldwide as of June 30, 2021, a 43% reduction from June 30, 2018. The company’s financial struggles in recent years have driven a series of restructurings and associated layoffs. Restructuring costs have totaled $227 million over the past three fiscal years. The company’s international business footprint is significant, with roughly 60% of net revenues derived from the EMEA and Asia Pacific segments. While the company’s strategy emphasizes leveraging its presence in existing key markets, they are prioritizing expansion in China on luxury and select consumer beauty brands. The company’s roots trace back to 1904 when Francois Coty “accidentally” broke a bottle of his first fragrance, La Rose Jacqueminot, on the sales floor of a Parisian department store while attempting to convince the manager to carry his brand. The intoxicating scent filled the room, attracting passing shoppers who quickly emptied him of his supply. Continued success with additional fragrances in the following years resulted in Coty establishing a "Perfume City" in the suburbs of Paris during the early 1910s to handle administration and fragrance production; the site was an early business supporter of female employees and offered benefits including child care. During that same period the company first expanded internationally to New York, Moscow and London. Coty’s attention to detail in all aspects of product design and manufacturing was revolutionary in consumer products at that time. Further success with additional beauty products including face and body powders led to expansion in the 1920’s into Germany, Spain, Italy, and Switzerland. Coty moved the company’s headquarters to New York and took the company public in 1925 as Coty, Inc. After Francois Coty passed away in 1934, his family maintained control of Coty, Inc. until the 1960’s. By that time, it had established itself as the largest player in fragrances and a key player in the lipstick market in the U.S. Revenues grew rapidly during most of that time although profitability was frequently low. Much of the bottom line struggles were attributed to high advertising costs and emerging

competitors such as Revlon. The top line and brand success led to Coty, Inc. being acquired by biopharmaceuticals giant Pfizer, Inc. in 1963 for $26 million. Pfizer’s initial stewardship of Coty resulted in a revitalization in product development. Between 1965 and 1974, Coty successfully introduced several new products to market including Imprevu perfume, Coty Originals and Dina Merrill makeup products, Bacchus men’s aftershave lotion and cologne, Styx, Sweet Earth, and Wild Musk fragrances, and Equatone beauty treatment line. The unit struggled for profitability during this time and Pfizer was gauging outside interest in selling the business. Coty’s results improved during the 1980’s despite continuing intense competition. Notable contributors were the introduction of the highly successful Stetson (1981) and Lady Stetson (1986) fragrance collections, and marketing innovation through the company’s point of purchase Image Awareness (1984) and Ingenious Solutions (1985) sales campaigns. Coty ranked first in mass-market men's fragrance sales in 1991, with a 22.6% share, and first in women's, with a 16.4% share, and total sales of about $280 million. In 1992, Coty was sold by Pfizer to Joh. A. Benckiser (now known as JAB Holding Company). The acquisition made strategic sense for JAB, which had another beauty subsidiary (Quintessence) and an international distribution network. The following year Peter Harf, chairman and CEO of JAB since 1988, was named Coty's CEO and the business was merged into Quintessence, which was famous for its Jovan brand musk oil. In 1996, Lancaster Group was made a division of Cody. Lancaster had been previously acquired by JAB in 1990 from SmithKlineBeecham and consisted of the cosmetics brand of that name and an Isabella Rossellini line, and a number of designer and prestige fragrances, including Davidoff, Jil Sander, and VivienneWestwood. The beefed up Coty portion of JAB boasted $1.5 billion in revenues. The remainder of the 1990’s saw the Lancaster division acquire Yue-Sai, the leading Chinese cosmetics brand and Rimmel, a London-based cosmetics brand, while Coty introduced The Healing Garden and Minitherapy for Feet herbal aromatherapy fragrance lines, Adidas Moves men’s fragrance, Jovan body splash, and Dulce Vanilla fragrance, and Isabella Rossellini launched a new cosmetics collection called Manifesto. During the 2000s, the company focused on marketing celebrity-endorsed fragrances, including David Beckham, Céline Dion, Jennifer Lopez, Mary-Kate and Ashley Olsen, Sarah Jessica Parker, and Shania Twain. Coty supplemented this strategy with purchasing additional licenses for Calvin Klein, Cerruti, Chloé, Lagerfeld, and Vera Wang from Unilever in 2005, entering into license agreements with Balenciaga in 2008 and Bottega Veneta in 2009, and adding the Sally Hansen and NYC New York Color brands through the acquisition of DLI Holding Corp. The last decade witnessed Coty once again becoming a publicly traded company. The 2013 initial public offering (IPO) raised $1 billion from investors, making it the largest consumer goods IPO at that time. The company has continued to grow primarily by acquisition. Transactions included the acquisition of nail polish maker OPI Products,

skin care brand philosophy, French cosmetics company Bourjois, Hypermarcas' beauty and personal care business, and digital marketing technology agency Beamly. The company also acquired 41 beauty brands called “Galleria” from Proctor and Gamble, which include Clairol, CoverGirl, Gucci, Hugo Boss, Max Factor, and Wella. Coty also acquired a majority stake in the peer to peer digital beauty company Younique. It is worth noting that a majority stake of Galleria was subsequently sold to KKR in November 2020 and the majority stake in Younique was subsequently sold back to the original owner in August 2019. More recent high profile transactions include Coty’s purchase of a $600 million stake in Kylie Cosmetics, owned by media personality and model Kylie Jenner, and a $200 million stake in KKW Beauty, owned by Kim Kardashian West, Kylie Jenner’s sister. The plethora of acquisitions has strained Coty’s financial resources; this has been exacerbated by the impacts of COVID-19. As a result, Coty announced in 2019 a restructuring plan which included targets for reducing the cost base. Efforts in FY21 resulted in savings of over $330 million, exceeding the Company's initial plan for the year by over $100 million. Coty remains on track to generate roughly $600 million of savings by FY23, and is in the process of identifying additional savings opportunities beyond that time frame. At the same time, Coty now expects one-time cash costs associated with the cost savings program to come in approximately $100 million less than the original target. Coty has also incorporated sustainable business practices into its corporate goals. The company entered into a long-term partnership with the international advocacy group Global Citizen to tackle prejudice and discrimination based on gender, sexual orientation, disability, or ethnicity, and to promote self-expression. Coty has also joined other beauty companies to launch the Responsible Beauty Initiative to encourage sustainability within the industry, and signed the United Nations Global Compact, a UN initiative to encourage businesses to adopt sustainable and socially responsible policies. During the past year, Coty announced its partnership with Lanzatech, becoming the first company in the fragrance industry to introduce sustainable ethanol into its fragrance products with the goal of having the majority of its fragrance portfolio using carbon-captured ethanol by 2023. On the cosmetics side, Coty has been leading with clean, vegan and cruelty-free formulations across brands such as CoverGirl, Sally Hansen, and Kylie Cosmetics. This has solidified Coty as the #2 player in clean cosmetics, as tracked by U.S. Nielsen. While Coty has a strong track record as a good corporate citizen, an impressive list of household names in beauty and positive brand recognition, it has also dealt with some public controversy. In summer 2020, then-CEO Pierre Laubies stepped down after Forbes disclosed that Kylie Jenner gave the magazine false financial information about her Kylie Cosmetics product line.

In a related matter, Seed Beauty co-founders John and Laura Nelson, which manufacture Kylie Cosmetics and KKW Beauty, filed lawsuits against Coty, Kylie Cosmetics, and KKW Beauty to prevent the misappropriation of trade secrets. The suits allege that Kylie Cosmetics knowingly shared Seed Beauty’s trade secrets and Coty knowingly accepted them. Seed Beauty won a temporary injunction against KKW Beauty. Both suits have since been settled out of court and the actions dropped. The company is also involved in multiple class action shareholder lawsuits alleging breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets by certain current and former officers and directors of the Company. The class actions allege violations of the U.S. securities laws in connection with the P&G beauty brands acquisition and the Kylie Brands transaction. The cases remain unresolved as of this date. Description of Simulated Enterprise Risk Management (ERM) Program Coty’s (fictional) ERM program was formally initiated in 2010 in response to the Securities and Exchange Commission (SEC) requirements that boards of public companies have oversight responsibility of companies’ ERM programs. While Coty’s Board oversees risk, management is responsible for assessing and managing risk on a day-to-day basis. Certain departments, such as treasury, legal and internal audit, compliance, and individuals within other departments, focus on specific risks associated with different aspects of the business, from regulatory, environmental and financial risks to commercial and strategic risks. Senior members of management responsible for risk management report regularly to the Board or its committees as appropriate. The company decided to build its ERM program by leveraging and combining three existing risk management programs already well established within the Finance function and reporting to the SVP of Finance. These programs are:

1) Traditional Risk Management – Charged with coordinating the management of many of the company’s operational risk exposures. Responsibilities include:

 Leading negotiations and managing all insurance programs including, but not limited to: Property & Casualty, Directors & Officers, Fiduciary, Employment Practices, Employed Lawyers, Cyber and Marine Transportation.

 Promoting collaboration through relationship building with external and internal partners globally including Legal, Finance, Human Resources, Operations, Procurement, Insurance Brokers, Consultants and Insurers.

 Coordinating and managing all loss control inspections for manufacturing sites and distribution centers globally.

 Supporting and approving all engineering/fire protection improvements.

 Analyzing and allocating worldwide risk management costs to business units; managing the risk management budget and all premium liability audits.

 Reviewing leases, licenses and other legal contracts in conjunction with the legal department; recommending acceptable insurance and liability language to eliminate or minimize risk.

 Identifying trends to prevent or mitigate potential future losses.

 Directing the administration of serious, complex litigated and non-litigated liability claims globally with legal, R&D and other business units.

 Quantifying reserves and providing settlement authority to claims managers.

 Governing all workers’ compensation and automobile liability staff in the mandatory administration of claim processing.

 Overseeing due diligence projects on mergers & acquisitions; managing the integration of acquired entities.

 Managing corporate travel risk policies and procedures.

 Serving as a consultative resource on insurance and loss prevention

2) Financial Risk Management – Led by the Corporate Treasurer, this program is charged with assessing financial risks and implementing risk mitigation tools and techniques. This covers:

 Foreign Currency Exchange Risk Management – Coty operates in multiple functional currencies and therefore has exposure to the impact of foreign currency fluctuations created by exposures that primarily relate to receivables, inventory purchases and sales, payables and intercompany loans. The Company uses derivatives to manage the earnings and cash flow volatility arising from foreign currency exchange rate fluctuations. In July 2021, the Company entered into foreign exchange forward contracts to hedge up to 80% of its euro denominated external debt as part of management's strategy to minimize the impact of currency movements on those debt instruments. Exchange gains or losses are also partially offset through the use of qualified derivatives under hedge accounting, for which accumulated gains or losses are recorded in Accumulated Other Comprehensive Income (AOCI) until the underlying transaction occurs at which time the gain or loss is reclassified into the respective account in the Consolidated Statements of Operations.

 Interest Rate Risk Management - Coty is exposed to interest rate risk primarily due to the Company’s debt, which is affected by changes in the general level of the interest rates in the U.S. and Europe. The Company periodically enters into interest rate swap agreements to manage this risk. These agreements are designated as cash flow hedges and, accordingly, results in the application of hedge accounting. The effective changes in fair value of these agreements are recorded in AOCI, net of tax, and ineffective portions are recorded in current- period earnings. Amounts in AOCI are subsequently reclassified to earnings as interest expense when the hedged transactions are settled. Management expects that both at the inception and on an ongoing basis, the hedging relationship between any designated interest rate hedges and underlying variable rate debt will be highly effective in achieving offsetting cash flows

attributable to the hedged risk during the term of the hedge. If it is determined that a derivative is not highly effective, or that it has ceased to be a highly effective hedge, the Company will discontinue hedge accounting with respect to that derivative prospectively. The corresponding gain or loss position of the ineffective hedge recorded to AOCI is then reclassified to current-period earnings.

 Derivatives Risk Management and Hedging Activities – Coty uses derivatives to manage foreign currency exchange fluctuations and interest rate volatility resulting from Coty’s global operations. Natural offsets are used to the fullest extent possible in order to identify net exposures. Established policies and procedures are employed to manage these net exposures using a variety of financial instruments. Derivative financial instruments are never used for trading or speculative purposes.

 Credit Risk Management - Coty minimizes credit exposure to counterparties by entering into derivative contracts with counterparties that have an “A” credit rating or higher. The counterparties to these contracts are major financial institutions. Exposure to credit risk in the event of nonperformance by any counterparty is limited to the fair value of contracts in net asset positions.

3) Financial Reporting Risk Management - Led by Coty’s Controller, this involves

the review of annual audited financial statements and quarterly financial statements. This includes, as needed, a review of analyses prepared setting forth significant issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements, and a review of the effect of regulatory and accounting initiatives, as well as off-balance sheet structures.

Includes review of the quality and adequacy of the Company’s internal controls, including any material weaknesses or significant deficiencies and significant changes. This includes (a) the reliability of financial reporting; (b) compliance with applicable codes, policies, laws, and regulations; and (c) preservation of the Company’s assets. This also includes any significant matters and regulatory concerns, including any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

In addition, the Traditional Risk Management team, under the purview of the SVP of Finance, receives quarterly risk updates from the following corporate areas of the company: a) Information Security and Privacy, b) Supply Chain Management, c) Legal and Compliance, d) Human Resources, e) Sustainability, and f) Transformation. Most reporting is customized to the nature of the activities, processes, and risks associated with each corporate area (this also applies to the three risk management programs in Finance described above).

However, in a modest attempt to capture some consistency across the company, a representative of each corporate area must also update a risk register template with that area’s list of risks and corresponding assessments. For each risk identified, the following information must be included:

 Risk identification number – If this is a new risk, Risk Management will assign one

 Risk description – Brief summary of the risk

 Process – What business process (e.g. supply chain) does the risk affect?

 Step – What step in the business process (e.g. product transport) does the risk affect?

 Impact description – What will happen if the risk is not mitigated or eliminated?

 Impact level – Rating from 0 (low) to 10 (high)

 Timing – When will the impact take place – Rating from 0 (many years into the future) to 10 (almost immediately)

 Priority level – Product of Impact and Timing ratings – ranges from 0 (lowest) to 100 (highest)

 Description of existing control(s) and mitigation(s)

 Description of possible addition control(s) and mitigation(s)

 Risk owner The results are compiled from all of the templates by the Traditional Risk Management team, who then produce heat map reports from the information at the total company level, with further breakouts by corporate area and business process. A risk priority ranking table is also constructed showing the company’s top 100 risks, including the migration of risk priorities over the past 5 quarterly updates. Traditional Risk Management also includes a summary of material changes in risk controls and mitigations in its reporting from the risk templates. All risk information is shared quarterly by the SVP of Finance with Coty’s Executive Leadership Team (ELT), which includes the following individuals:

 Chief Executive Officer

 Chief Legal Officer and General Counsel

 Chief Financial Officer

 Chief Transformation Officer

 Chief Corporate Affairs Officer

 President, Luxury Brands

 Chief Procurement Officer

 Chief Human Resources Officer

 Chief Digital Officer

 Chief Commercial Officer, Luxury

 Chief Brands Officer, Consumer Beauty

 Chief Commercial Officer, Consumer Beauty

 EVP, Americas and CEO Kylie Jenner Beauty Brands The SVP of Finance is allotted 30 minutes quarterly at the ELT meeting to present on the latest results and highlight any areas of concern or progress. The presentation and subsequent question and answer session do not usually result in any definitive actions by the ELT on Coty’s risk profile, but do informally influence strategic and operational decisions being contemplated by the team. The greatest influence of the risk information and analysis is on communication with investors as to earnings guidance and adjustments to the strategic plan. In addition, Coty’s Legal Team uses the information to update and modify the Company’s risk disclosures in the 10-K and 10-Q. Coty Inc. Board’s Role in Risk Oversight The Board of Coty, Inc. oversees, with management, the various risks faced by the Company. The Board and management consider risks in all facets of the Company, including strategy and all lines of business. The Board dedicates a portion of one meeting each year to evaluating and discussing risk, risk mitigation strategies and the Company’s internal control environment. At this meeting, the Board considers an enterprise risk management analysis. Topics examined in the enterprise risk management analysis include, but are not limited to, strategic, operational, financial and compliance risks. The Board’s risk oversight also includes a comprehensive annual review of the strategic plan. Because overseeing risk is an ongoing process and inherent in Coty’s strategic decisions, the Board also receives input from senior management and considers risk at other times in the context of specific proposed actions. In addition to the Board’s risk oversight responsibility, the Board’s committees are also charged with overseeing risks within their areas of responsibility and reviewing significant risks identified by management and management’s response to those risks. The Audit and Finance Committee (“AFC”) is responsible for oversight of accounting, auditing and financial-related risks, as well as the Company’s compliance program and its cybersecurity and privacy programs. The Remuneration and Nomination Committee (“RNC”) is responsible for overseeing the management of legal and regulatory risks as they relate to the Company’s corporate governance structure and processes, as well as risks related to employee compensation policies and practices. In fiscal year 2020, the RNC reviewed compensation policies and practices to determine whether they encouraged excessive or inappropriate risk taking. Following such evaluation, the RNC determined that such compensation policies and practices do not encourage excessive or inappropriate risk taking that could result in a material adverse effect on Coty. During the COVID-19 crisis, which began to impact the Company’s business in the third quarter of fiscal 2020, the Board has exercised oversight of the Company's response and risk management through periodic meetings and regular communications with

management on business performance, employee health and safety, risk mitigation efforts, and long-term planning. Audit and Finance Committee’s Role in Risk Management. Reviews and discusses the Company’s practices with respect to risk assessment and risk management, and oversees and evaluates the Company’s risk management policies in light of the Company’s business strategy and capital strength. The Committee also evaluates on a periodic basis the Company’s investment and derivatives risk management policies, including the internal system to review operational risks, procedures for derivatives investment and trading, and safeguards to ensure compliance with procedures. The Committee also evaluates on a periodic basis the Company’s cybersecurity and privacy programs and receives information on cybersecurity and privacy compliance as needed. Remuneration and Nomination Committee’s Role in Risk Management. Oversees the assessment of risks related to the Company’s remuneration plans, policies and practices applicable to officers and employees, and reviews the results of this assessment. Reviews management’s assessment of compliance with the laws and regulations, including NYSE corporate governance requirements, as they pertain to responsibilities under the Committee’s charter, and reports any material findings to the Board and recommends any appropriate changes. In addition to the ongoing COVID-19 crisis, the ERM program has played a contributing role in two recent company initiatives. The first was proving input into the decision to contract with Kinaxis to support Coty with its business transformation strategy by providing tools to streamline and shorten decision-making cycles, further enable collaboration, and more accurately predict demand and provide insights on the financial impact of trade-offs. Coty utilizes the Kinaxis RapidResponse platform to manage its sales and operations planning and demand planning, enhanced by Artificial Intelligence (AI)-based capabilities acquired by Kinaxis in their purchase of Rubikloud. In providing support for the transaction, the ERM analysis stated, “Consumer products companies face pressure to better understand and anticipate consumer demand. Simultaneously, they need to be efficient in the face of changing global regulations, cost fluctuations, rising distribution complexity, and pressure to be sustainable and profitable. To stay ahead of these changing market conditions, consumer products companies rely on systems like Kinaxis offers to provide digital supply chain planning and operations solutions. Kinaxis RapidResponse will provide Coty with a scalable solution for decision-making and collaboration. Kinaxis and Rubikloud's impressive track records serving the retail and Consumer Products Group supply chains evokes confidence in their ability to understand the needs of Coty and their customers.” The ERM program has also provided support for the Company’s Sustainability program, through analyzing the pros and cons of using the EcoVadis platform in evaluating the Corporate Social Responsibility (CSR) profiles of Coty’s numerous suppliers of goods and services. The ERM report stated, “COTY has decided to implement a simple

process, based on international CSR standards and providing CSR experts’ feedback. The EcoVadis platform is quickly emerging as a standard for supplier CSR performance monitoring, used in many different industry sectors. Moreover, using a collaborative solution allows suppliers to minimize the workload linked to CSR reporting, by sharing their results with multiple customers.” Coty’s Executive Chairman, Peter Harf, recently sat down with Coty’s CEO, CFO and SVP of Finance to discuss the state of the Company’s ERM program. While Peter appreciates how far the program has come and how well adapted it is to Coty’s unique business model, processes, and culture, he also believes there have been missed opportunities for the program to do more. He is particularly bothered about how ill-prepared the Company was for COVID-19 in terms of e-commerce capabaility; he believes ERM should have been pushing for accelerated investments in this area years ago to complement its traditional luxury store distribution. He also notes that ERM has been too passive – sometimes completely silent – about material merger and acquisition activity. Coty has been driven to be the biggest in its beauty markets of interest. This has resulted in decisions that did not best balance risks and rewards, such as the Galleria and Younique acquisitions, which in hindsight clearly did not align with Coty strategic objectives. And where was ERM to challenge the decisions to invest in the Kylie Jenner and Kim Kardashian West businesses? There is now significant Board alarm about whether those businesses can provide enough return to justify the legal and public relations headaches they have caused. He has also received critical feedback from some Board members that the information provided at enterprise risk presentations tends to be scattered and focused on the news of the day. The heat maps are somewhat useful but incomplete, particularly as to the financial impacts of the various risks discussed. And no one at Coty has stated what the Company’s risk appetite is. Without that, Harf argues, the Company will continue to “tolerate losing money”, and that is clearly unacceptable. Peter has retained your services on behalf of Coty’s Board to work with the SVP of Finance and his teams to evaluate the current ERM program and suggest possible enhancements to improve its impact on the Company based on your extensive knowledge of ERM best practices.