S-1 1 d39510ds1.htm S-1 S-1
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As filed with the Securities and Exchange Commission on July 12, 2021

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Knowlton Development Corporation, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

British Columbia   2844   N/A
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

375 Roland-Therrien Boulevard

Suite 210

Longueuil, Québec J4H 4A6

Canada

(450) 243-2000

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

Nicholas Whitley

250 Pehle Avenue

Suite 1000

Saddle Brook, New Jersey 07663

(201) 688-2300

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

 

 

Copies to:

 

Roshni Banker Cariello

Pedro J. Bermeo

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, New York 10017

(212) 450-4000

 

Nicolas Beugnot

Chief Legal Officer and Corporate Secretary

375 Roland-Therrien Boulevard
Suite 210

Longueuil, Québec J4H 4A6

Canada

(450) 243-2000

 

Robert DeLaMater

Jared Fishman

Sullivan & Cromwell LLP

125 Broad Street

New York, New York 10004

(212) 558-4000

 

Warren Silversmith

David Tardif

Stikeman Elliott LLP

1155 René-Lévesque Boulevard West
41st Floor

Montréal, Québec H3B 3V2, Canada

(514) 397-3000

 

 

François Paradis
Jeremy Brisset

Osler, Hoskin & Harcourt LLP

1000 De La Gauchetière Street West, Suite 2100

Montréal, Québec H3B 4W5, Canada

(514) 904-8100

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.  ☐

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
Emerging growth company       

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

CALCULATION OF REGISTRATION FEE

 

 

Title Of Each Class Of
Securities To Be Registered
  Proposed
Maximum
Offering Price(1)(2)
  Amount Of
Registration Fee

Common shares, no par value per share

  $100,000,000   $10,910

 

 

(1)

Includes additional common shares which the underwriters have the option to purchase to cover over-allotments.

(2)

Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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EXPLANATORY NOTE

On July 1, 2021, Knowlton Development Corporation Inc., the operating company and the indirect wholly owned subsidiary of Knowlton Development Parent, Inc., changed its name to kdc/one Development Corporation, Inc. On the same day, Knowlton Development Parent, Inc., and Knowlton Development Holdco, Inc., a wholly-owned subsidiary of Knowlton Development Parent, Inc., amalgamated under the laws of British Columbia and continued as one corporation named Knowlton Development Corporation, Inc., which became the direct parent of kdc/one Development Corporation, Inc. These changes occurred after the end of the fiscal year ended April 30, 2021, such that the financial statements included herein refer to Knowlton Development Parent, Inc. and Knowlton Development Corporation Inc. for the Successor Period and Predecessor Period (each as defined herein), respectively. See “Financial Statement Presentation” for further explanation of the presentation of financials in this registration statement.


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, dated July 12, 2021

Preliminary Prospectus

                Shares

 

 

LOGO

Knowlton Development Corporation, Inc.

Common Shares

 

 

Knowlton Development Corporation, Inc. is offering                common shares. This is our initial public offering and no public market exists for our common shares. We anticipate that the initial public offering price of our common shares will be between $        and $        per share. We have applied to list our common shares on the New York Stock Exchange (the “NYSE”) and the Toronto Stock Exchange (the “TSX”) under the symbol “KDC.” Listing will be subject to us fulfilling all the listing requirements of the NYSE and the TSX.

 

 

Investing in our common shares involves risk. See “Risk Factors” beginning on page 24.

 

 

Neither the Securities and Exchange Commission, or the SEC, nor any state securities commission or Canadian securities regulatory authority has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

     Per
Share
     Total  

Initial public offering price

   $                    $                

Underwriting discounts and commissions(1)

   $        $    

Proceeds to us before expenses

   $        $    

 

(1)

See “Underwriting (Conflicts of Interest)” for a description of compensation to be paid to the underwriters.

At our request, the underwriters have reserved up to                  common shares, or 5% of the common shares to be offered by this prospectus, for sale at the initial public offering price through a directed share program for certain persons designated by the Company. See “Underwriting (Conflicts of Interest)—Directed Share Program.”

The underwriters have the option to purchase up to an additional                common shares from us at the initial public offering price less the underwriting discounts and commissions.

The underwriters expect to deliver the shares against payment in New York, New York on or about                , 2021 through the book-entry facilities of The Depository Trust Company.

 

 

 

Goldman Sachs & Co. LLC   J.P. Morgan   UBS Investment Bank    BMO Capital Markets

 

BofA Securities    Guggenheim Securities    Jefferies   Morgan Stanley   RBC Capital Markets

The date of this prospectus is                    , 2021.


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LOGO

Beauty, Personal Care, and Home Care Uniquely Imagined and Expertly Delivered


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LOGO

kdc/one Is a Diïerentiated and Compelling Consumer Opportunity Diversified, Scaled and Vertically Integrated Global Growth Platform Aligned to Attractive Consumer Markets and Growth Trends Strong Competitive Advantage Built on Innovative and Trust Strong Financial Profile With Highly Attractive Recent Growth and Margins


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LOGO

We create products that consumers use every day — morning to night When they When catering start their day to their well being When relaxing When out at home and about When they When they start to get ready to go out wind down


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LOGO

Global, Vertically Integrated End-to-End Solutions Ideation Formulation Design Packaging & devices Manufacturing


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LOGO

One Network, Infinite Possibilities Innovation Hub Manufacturing: 3 Innovation Hub R&D Labs: 5 Manufacturing: 8 Manufacturing: 4 R&D Labs: 8 R&D Lab Innovation Hub Manufacturing: 4 Manufacturing: 2 R&D Labs: 2 R&D Labs: 4 Manufacturing Manufacturing: 2 Manufacturing R&D Labs: 2 Innovation Hub 25 ~15,000 22 Manufacturing facilities Dedicated team members creative R&D, Design facilities and 14 6mm 4 Countries kdc/one operations with Total square footage Innovation hubs


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LOGO

1,000+ 700+ brands supported customers 9,000+ products co-developed in last 3 years 30+ years average relationship with our top 10 customers 18 out of 20 largest CPG companies are customers $650bn+ TAM at retail 1 16 ~70% companies of revenue from acquired products we co-develop 1. Company estimate from Euromonitor International Limited. Beauty & Personal Care 2021. Fixed 2020 Exchange Rate. Home Care 2021 Fixed 2020 Exchange Rate. Retail Value RSP. Current Prices. Data extracted April 2021.


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TABLE OF CONTENTS

 

 

 

     Page  

Prospectus Summary

     1  

The Offering

     16  

Summary Consolidated Financial and Other Data

     18  

Risk Factor Summary

     22  

Risk Factors

     24  

Cautionary Note Regarding Forward-Looking Statements

     59  

Use of Proceeds

     62  

Dividend Policy

     63  

Capitalization

     64  

Dilution

     65  

Selected Consolidated Financial Data

     67  

Supplemental Financial Information

     69  

Management’s Discussion and Analysis of Financial Condition and  Results of Operations

     72  

Business

     113  

Management

     144  

Executive and Director Compensation

     155  

Certain Relationships and Related Party Transactions

     175  

Principal Shareholders

     180  

Description of Certain Indebtedness

     182  

Description of Share Capital

     185  

Material Tax Considerations

     204  

Shares Eligible for Future Sale

     209  

Underwriting (Conflicts of Interest)

     211  

Legal Matters

     219  

Experts

     219  

Where You Can Find More Information

     220  

Index to Consolidated Financial Statements

     F-1  

 

 

In this prospectus, unless the context otherwise requires, “Knowlton Development Corporation, Inc.,” the “Company,” “kdc/one,” “we,” “us” and “our” refer to Knowlton Development Corporation, Inc. and its subsidiaries. All currency amounts in this prospectus are expressed in United States (“U.S.”) dollars, unless otherwise indicated.

Neither we nor any of the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may provide you. We are offering to sell, and seeking offers to buy, common shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common shares. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.

Market and Industry Data

This prospectus includes industry and market data that we obtained from periodic industry publications, third-party studies and surveys, including from Euromonitor, as well as from filings of public companies in our

 

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industry and internal company surveys. These sources include government and industry sources. Industry publications and surveys generally state that the information contained therein has been obtained from sources believed to be reliable. Although we believe the industry and market data to be reliable as of the date of this prospectus, this information could prove to be inaccurate. Industry and market data could be wrong because of the method by which sources obtained their data and because information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties. Each publication, study and report speaks as of its original publication date (and not as of the date of this prospectus). Certain of these publications, studies and reports were published before the COVID-19 pandemic and therefore do not reflect any impact of COVID-19 on any specific market or globally. In addition, we do not know all of the assumptions regarding general economic conditions or growth that were used in preparing the forecasts from the sources relied upon or cited herein.

Trademarks and Service Marks

This prospectus contains references to a number of trademarks and service marks which are our registered trademarks or service marks, such as “kdc/one,” “HCT,” “Kolmar” and “Zobele,” as well as the “kdc/one” logo, or trademarks or service marks for which we have pending applications or common law rights. Trade names, trademarks and service marks of third parties appearing in this prospectus are the property of their respective holders. Solely for convenience, the trademarks, service marks and trade names are referred to in this prospectus without the ®, SM and TM symbols, but such references are not intended to indicate, in any way, that the owner thereof will not assert, to the fullest extent under applicable law, such owner’s rights to their trademarks, service marks and trade names.

Non-GAAP Financial Measures

We refer in this prospectus to the following non-GAAP financial measures:

 

   

Adjusted EBITDA;

 

   

Adjusted EBITDA Margin; and

 

   

Value-Added Contribution Margin (“VACM”).

These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States. They are supplemental financial measures of our performance only, and should not be considered substitutes for net income or loss, revenue or any other measure derived in accordance with GAAP.

As used in this prospectus, these non-GAAP financial measures have the following meanings:

 

   

Adjusted EBITDA is net income or loss before interest expense, other expense (income), net, income tax benefit, depreciation and amortization, share-based compensation, acquisition-related costs, costs associated with becoming a public company, certain incremental costs associated with COVID-19 that are not expected to continue once the pandemic has significantly subsided globally and operations return to pre-COVID-19 levels, plant start-up costs incurred at our new facility in Columbus, Ohio (the “Columbus II facility”) before significant operations begin (expected to begin during the second quarter of fiscal year 2022), including payroll and rent, sponsor fees (including the Sponsor Fees (as defined below) which are terminating in connection with this offering), impairment loss on assets and other intangibles and certain other adjustment items;

 

   

Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by revenue; and

 

   

VACM is calculated by dividing Adjusted EBITDA by revenue from value added contributions (as defined elsewhere in this prospectus).

 

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Management utilizes Adjusted EBITDA and Adjusted EBITDA Margin as measures of operating performance and the operating leverage in the Company’s business. Management believes that these non-GAAP financial measures are useful to investors for period-to-period comparisons of the Company’s business and in understanding and evaluating the Company’s operating results for the following reasons:

 

   

Adjusted EBITDA and Adjusted EBITDA Margin are widely used by investors and securities analysts to measure a company’s operating performance without regard to items such as share-based compensation expense, depreciation and amortization expense, impairment loss on assets, interest expense, other expense (income), net, and income taxes expense (benefit) that can vary substantially from company to company depending upon their financing, capital structures and the method by which assets were acquired; and

 

   

Adjusted EBITDA and Adjusted EBITDA Margin provide consistency and comparability with the Company’s past financial performance, facilitate period-to-period comparisons of the Company’s primary operating results, and also facilitate comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results.

Management utilizes VACM as a measure of operating performance and believes that VACM is an important measure in analyzing the results of the business for the following reasons:

 

   

our business is focused on innovation, product development and operational excellence, and, as a result, VACM reflects the way customers interact with us and the value embedded in the Company’s product delivery that we provide to them;

 

   

a significant portion of revenue from raw materials is generated through arrangements with mechanisms that pass through raw material costs, and accordingly the associated revenue is recorded as revenue from pass-through raw materials (as defined elsewhere in this prospectus) and is excluded from the calculation of VACM; and

 

   

we utilize revenue from value added contributions to assess growth between fiscal periods and to analyze the resulting margins without the revenue from pass-through raw materials (VACM will fluctuate between periods depending upon the Company’s ability to drive sales of higher margin solutions (i.e., favorable product mix, integrated sales) and to generate operating efficiencies across our network, including the ability to scale operations, as well as changes to the product portfolio and by the nature of the Company’s acquisitions from time to time).

As a result, we believe that VACM is the best way to measure our business in a consistent manner, taking into account that customers have the flexibility to do business with us in more than one way, with some choosing a customer-supplied materials framework (which would not result in revenue to us) while others choose a kdc/one-supplied materials framework (which would result in revenue to us equal to the pass-through cost of such materials). If VACM is not used to measure performance, the transaction with the customer that chooses a kdc/one-supplied materials framework would appear to be lower margin than the transaction with the customer that chooses a customer-supplied materials framework when the profitability to us of both transactions would be the same.

For a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, see “Prospectus Summary—Summary Consolidated Financial and Other Data.” The most directly comparable GAAP measure to Adjusted EBITDA Margin and VACM is net income margin. In this prospectus we have excluded a presentation of net income margin because we have experienced a net loss for all the relevant periods and therefore the net income margin would be less than zero and consequently we believe not helpful to investors. However, wherever we present Adjusted EBITDA Margin and VACM we present net loss. For a description of the revenue from value added contributions, see “Management’s Discussion and Analysis—Components of Revenue.”

The non-GAAP financial measures used in this prospectus have not been reviewed or audited by our auditors or any independent registered public accounting firm.

 

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Adjusted EBITDA and Adjusted EBITDA Margin have important limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of our financial results as reported under GAAP. For example, Adjusted EBITDA and Adjusted EBITDA Margin:

 

   

do not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;

 

   

do not reflect changes in, or cash requirements for, our working capital needs;

 

   

do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our primary operations;

 

   

do not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;

 

   

do not reflect share-based compensation expense and other non-cash charges including asset impairments;

 

   

exclude certain tax payments that may represent a reduction in cash available to us; and

 

   

do not reflect transaction-related expenses associated with acquisitions, certain incremental costs associated with COVID-19 that are not expected to continue once the pandemic has significantly subsided globally and operations return to pre-COVID-19 levels, plant start-up costs incurred at our Columbus II facility and costs associated with becoming a public company.

Because of these limitations, Adjusted EBITDA and Adjusted EBITDA Margin should be considered along with other operating and financial performance measures presented in accordance with GAAP.

VACM has important limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our financial results as reported under GAAP. For example, VACM:

 

   

excludes revenue from pass-through raw materials;

 

   

includes revenue from raw materials from our packaging design and production business where variations in raw material prices are not passed through to the customer due to customer order management practices unique to the packaging business, which are typically based on high frequency, recurrent orders, where prices are determined at project onset and there may be limited ability to renegotiate to account for fluctuations in raw material prices; and

 

   

VACM in comparison to Adjusted EBITDA Margin will be higher as the former is calculated based on revenue from value added contributions only whereas the latter is calculated based on total revenue, which includes revenue from pass-through raw materials.

Because of these limitations, VACM should be considered along with other operating and financial performance measures presented in accordance with GAAP.

Our use of the terms Adjusted EBITDA, Adjusted EBITDA Margin and VACM may vary from the use of similar terms by other companies in our industry and accordingly may not be comparable to similarly titled measures used by other companies.

Financial Statement Presentation

This prospectus includes historical consolidated financial and other data for the Company and the Company’s operating subsidiary, kdc/one Development Corporation, Inc. (previously named Knowlton Development Corporation Inc.), a company existing under the laws of British Columbia (“KDC Opco”).

The Purchase Agreement was entered into on October 26, 2018 among KDC Opco, the holders of all its issued and outstanding common shares and the Purchaser named therein, which was formed by Cornell Capital

 

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LLC for the purpose of consummating the transactions under the Purchase Agreement. On December 21, 2018 (the “Closing Date”), Cornell Capital LLC transferred its ownership of the Purchaser to Knowlton Development Corporation, Inc. (previously named Knowlton Development Parent, Inc.), which was incorporated by a group of investors led by Cornell Capital LLC in British Columbia on November 30, 2018 originally as a holding company with no assets or operations of its own. The Purchaser was subsequently amalgamated with KDC Opco immediately following the acquisition of the outstanding common shares of KDC Opco by Knowlton Development Corporation, Inc. through the Purchaser. This is referred to herein as the Acquisition. Prior to the Acquisition, Knowlton Development Corporation, Inc. efforts were limited to organizational activities directly related to the Acquisition and for which it incurred acquisition-related costs. The 21-day overlap between Knowlton Development Corporation, Inc.’s incorporation and the Closing Date is not presented as a separate financial statement as there were no operations by Knowlton Development Corporation, Inc. between the date of its incorporation and the Closing Date except for the organizational activities mentioned above. Knowlton Development Corporation, Inc. currently owns no significant assets nor has any operations other than the ownership of all the common shares of kdc/one Development Corporation, Inc.

As a result of the Acquisition, Knowlton Development Corporation, Inc. was identified as the acquirer for accounting purposes, and kdc/one Development Corporation, Inc. as the acquiree and accounting predecessor. The Company’s financial statement presentation distinguishes (i) a Predecessor Period for the 234-day period ended December 20, 2018 (i.e., the 234 days of the fiscal year prior to the Closing Date), which reflects the financial statements for kdc/one Development Corporation, Inc. (under the name Knowlton Development Corporation Inc.) for the period prior to the Closing Date and (ii) a Successor Period for the years ended April 30, 2021 and 2020 and the 152-day period ended April 30, 2019 (i.e., the 152 days following Knowlton Development Corporation, Inc.’s incorporation (under the name Knowlton Development Parent, Inc.)) which reflects the financial statements of the Company for the period after the Closing Date. The Acquisition was accounted for as a business combination using the acquisition method of accounting, and the Successor’s financial statements reflect a basis of accounting that is based on the fair value of the assets acquired and the liabilities assumed. As a result of the application of the acquisition method of accounting as of the Closing Date, the financial statements for the Predecessor Period and for the Successor Period are presented on a different basis and, therefore, are not comparable. The Company utilizes a fiscal year from May 1 to April 30. The combination of Predecessor and Successor Periods is referred to as the “Combined 2019 Financial Information.” On July 1, 2021, Knowlton Development Corporation Inc. changed its name to kdc/one Development Corporation, Inc. On the same day, Knowlton Development Parent, Inc., and Knowlton Development Holdco, Inc., a wholly-owned subsidiary of Knowlton Development Parent, Inc., amalgamated under the laws of British Columbia and continued as one corporation named Knowlton Development Corporation, Inc. These changes occurred after the end of the fiscal year ended April 30, 2021, such that the financial statements included herein refer to Knowlton Development Parent, Inc. and Knowlton Development Corporation Inc. for the Successor Period and Predecessor Period, respectively.

The financial statements and the related notes thereto included elsewhere in this prospectus, including the share and per share information therein, are presented on a historical basis and therefore do not reflect the Share Capital Amendments. See “Description of Share Capital—Share Capital Amendments.”

Commonly Used Defined Terms

As used in this prospectus, unless the context otherwise requires:

 

   

“2020 Transactions” refers, collectively, to the seven acquisitions completed across the Company’s operating segments in the fiscal year ended April 30, 2020, comprising the acquisitions of Alkos, Swallowfield, Benchmark, HCT, Paristy, CLA and Zobele (each as defined herein).

 

   

“2021 Revolver Increase” refers to the Company’s January 27, 2021 $170.0 million increase to its commitments under the Revolving Facility.

 

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“2021 Term Loan Increase” refers to the Company’s January 27, 2021 €100.0 million increase to the available Euro Term Loan.

 

   

“Acquisition” refers to the acquisition of all issued and outstanding common shares of KDC Opco by the Purchaser and the subsequent amalgamation of the Purchaser and KDC Opco completed on December 21, 2018, resulting from a series of transactions through which Knowlton Development Corporation, Inc. became the ultimate parent company of KDC Opco.

 

   

“Acupac” refers to Acupac Packaging, Inc.

 

   

“Alkos” refers to Aaxen SAS.

 

   

“Aromair” refers to Aromair Fine Fragrance Company.

 

   

“Benchmark” refers to Benchmark Cosmetic Laboratories.

 

   

“CDPQ” refers to Caisse de dépôt et placement du Québec.

 

   

“Chemaid” refers to Chemaid Laboratories.

 

   

“CLA” refers to Cosmetic Laboratories of America.

 

   

“Combined 2019 Financial Information” refers to the unaudited supplemental financial information for the fiscal year ended April 30, 2019, which combines the Predecessor Period and the Successor Period.

 

   

“compound annual growth rate” refers to the average rate of growth per year over multiple-year periods that assumes compounding at each interval within that time span, calculated by factoring each year’s absolute growth into the calculation of the succeeding year’s percentage growth.

 

   

“Cornell” refers to Cornell Capital LLC.

 

   

“Credit Agreement” refers to the credit agreement dated as of December 21, 2018 by and among the Purchaser, KDC US Holdings, Inc., Holdings, UBS Securities LLC, Guggenheim Securities, LLC and Jefferies Finance LLC, as Joint Lead Arrangers and Joint Bookrunners, and Sumitomo Mitsui Banking Corporation, as Documentation Agent, and the Lenders party thereto, as amended, supplemented or otherwise modified from time to time.

 

   

“DGCL” refers to the Delaware General Corporation Law.

 

   

“Disaggregated 2020 Financial Information” refers to the unaudited supplemental disaggregated financial information for the fiscal year ended April 30, 2020, which excludes the impact of the 2020 Transactions.

 

   

“Disaggregated 2021 Financial Information” refers to the unaudited supplemental disaggregated financial information for the fiscal year ended April 30, 2021, which excludes the impact of the 2020 Transactions.

 

   

“Distribution Financing Transactions” refers to, collectively, (i) the returns of capital the Company effected on or about February 3, 2021 in the amount of $232.70 per Class A and Class B common share of the Company, totaling $318.5 million in the aggregate, which were distributed to the Company’s shareholders and funded, along with cash, by the 2021 Term Loan Increase, the 2021 Revolver Increase and Incremental Amendment No. 9, and (ii) the adjustments made in accordance with the equitable adjustment provision of the Stock Option Plan composed of a reduction in the exercise price of options and adjustment payments in cash.

 

   

“Euro Term Loan” refers to the Company’s euro-denominated term loan tranche under the Credit Agreement obtained on July 28, 2020 in an aggregate amount of €460.0 million, maturing on December 21, 2025, and which was incrementally increased by the 2021 Term Loan Increase.

 

   

“First Lien Term Loan” refers to the term loan entered into by the Company under the Credit Agreement on December 21, 2018 in an aggregate principal amount equal to $525.0 million, maturing

 

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on December 21, 2025, and which was subsequently increased on each of August 22, 2019, January 23, 2020 and April 30, 2020 by $105.0 million, $300.0 million and $500.0 million, respectively.

 

   

“GAAP” refers to generally accepted accounting principles in the United States.

 

   

“HCT” refers to Clover Park 2 (BVI) Limited, a subsidiary acquired by the Company in fiscal year ended April 30, 2020.

 

   

“Incremental Amendment No. 9” refers to the incremental amendment (Amendment No. 9 to the Credit Agreement) dated as of January 27, 2021, which amended the Credit Agreement in connection with the 2021 Term Loan Increase and the 2021 Revolver Increase.

 

   

“Kolmar” refers to Kolmar Laboratories, Inc.

 

   

“Northern Labs” refers to Northern Labs, Inc.

 

   

“Omnibus Plan” refers to the new equity compensation plan, in the form of an omnibus incentive plan, intended to be adopted by the Company’s board of directors, and submitted for approval of the Company’s pre-offering shareholders, prior to the completion of this offering.

 

   

“Paristy” refers to, collectively, Mei Shual Cosmetics Co., Pte Ltd and Mei Shual Cosmetics Co., Ltd.

 

   

“Predecessor Period” refers to the period from May 1, 2018 through December 20, 2018.

 

   

“Purchase Agreement” refers to the share purchase agreement entered into on October 26, 2018 among KDC Opco, the holders of all its issued and outstanding common shares and the Purchaser.

 

   

“Purchaser” refers to the purchaser named in the Purchase Agreement, which was formed by Cornell for the purpose of entering into the transactions contemplated in the Purchase Agreement.

 

   

“Registration Rights Agreement” refers to the registration rights agreement to be entered into in connection with this offering between the Company and certain shareholders of the Company.

 

   

“Revolving Facility” refers to the revolving credit facility provided for in the Credit Agreement in an aggregate principal amount of $75.0 million, maturing on December 21, 2023, and which was subsequently increased on January 23, 2020, July 28, 2020, December 4, 2020, January 27, 2021 and February 24, 2021 by $50.0 million, $25.0 million, $25.0 million, $170.0 million and $10.0 million, respectively.

 

   

“Services Agreement” refers to the services agreement, as amended, dated as of December 21, 2018, between the Company and Cornell, entered into in connection with the Acquisition and pursuant to which the Company pays Cornell the Sponsor Fees for financial and management consulting services, as well as quarterly reimbursements of customary expenses, which agreement will be terminated concurrently with the closing of this offering.

 

   

“Share Capital Amendments” has the meaning ascribed thereto under “Description of Share Capital—Share Capital Amendments.”

 

   

“Shareholders’ Agreement” refers to the shareholders’ agreement to be entered into in connection with this offering between the Company and certain shareholders of the Company.

 

   

“Sponsor Acquisition Fees” refers to the cash fees we pay to Cornell, pursuant to the Services Agreement, upon consummation of an acquisition by us of any company, business or entity, equal to 1% of the total enterprise value of such company, business or entity.

 

   

“Sponsor Fees” refers to, collectively, the Sponsor Acquisition Fees and the Sponsor Management Fees.

 

   

“Sponsor Management Fees” refers to an annual cash fee we pay to Cornell, pursuant to the Services Agreement, equal to 2.5% of consolidated adjusted EBITDA, as defined in the Services Agreement.

 

   

“Stock Option Plan” refers to the Knowlton Development Corporation, Inc. Stock Option Plan under which the Company has granted equity awards in the form of stock options to certain employees and

 

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other persons, including its named executive officers.

 

   

“Successor Period” refers to the period from November 30, 2018 through April 30, 2019.

 

   

“Swallowfield” refers to Curzon Supplies Ltd.

 

   

“TAM” refers to the total addressable market.

 

   

“Term Loans” refers, collectively, to the First Lien Term Loan and the Euro Term Loan.

 

   

“Thibiant” refers to Thibiant International, Inc.

 

   

“Zobele” refers to Z Gamma B.V.

 

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Letter from Nicholas Whitley, President and Chief Executive Officer

Dear Prospective Shareholder,

Trust is a formidable proposition, often taking years to establish.

It is this powerful foundation of trust with our beauty, personal care and home care customers combined with our differentiated, value-added solutions that has allowed kdc/one to reach the scale it enjoys today. Every time a customer turns to us to help ideate, innovate and create new products or provide solutions, it presents an opportunity for kdc/one to enhance a trusted relationship or forge anew. This is what drives our global organization of approximately 15,000 talented team members.

Our focus on innovation, problem solving and partnerships has allowed us to cultivate a customer base in excess of 700 companies. These world-class consumer products businesses include iconic industry leaders and some of the fastest growing independent and emerging brands. Many of our most important customer relationships have extended for well beyond a decade.

While few end consumers may know of kdc/one, many likely use a product that we ideate, formulate, design, package or manufacture on a daily basis. Products we help develop are available in more than 70 countries worldwide and across a range of distribution platforms, meeting the end consumer’s rapidly evolving shopping preferences. In fact, over the past three years, kdc/one co-developed more than 9,000 unique beauty, personal care and home care products across a broad spectrum of price-points from mass to prestige.

When I joined the company in 2013, it was a different business than the integrated global solutions provider I am proud to lead today. At the time, the company had approximately 50 customers and was primarily focused on North American personal care. It was the fantastic set of core competencies and shared values, upon which we could build, that inspired me to move my family across the world for the opportunity to lead this organization. The company’s long-standing trusted customer relationships, industry-leading innovation capabilities and deep commitment to operational excellence are fueled by our entrepreneurial spirit.

I have been fortunate that my entire tenure at kdc/one has been enhanced by partnerships with a terrific management team and supportive investors. Our shared objective of building a unique, growth-oriented company drives our actions. In December 2018, after our acquisition by Cornell and concurrent reinvestment by CDPQ (a preeminent Canadian investment fund), we developed and executed an ambitious strategy. Originally envisioned as a five-year plan, we more than doubled the business in just two. This dramatically expanded our suite of capabilities and drove global expansion into the most attractive end markets.

Our growth plan allowed kdc/one to benefit from structural shifts in the beauty, personal care and home care markets. Consumers have greater access to information and influence around their brand choices than ever before. They seek out brands that better reflect their own values and lifestyles, which, in turn, drives demand for product innovation and new brand introductions at an ever-increasing pace. These shifts, paired with our customers’ specific needs, crystallized a strategy, comprised of both organic expansion and acquisitions, that would quickly allow kdc/one to (i) obtain a global innovation and manufacturing footprint, (ii) deliver turn-key solutions incorporating ideation, formulation, design, packaging and manufacturing, and (iii) develop the breadth of expertise to seamlessly service both large and small customers alike. Following significant investments in both existing and new facilities, and a series of highly strategic acquisitions since December 2018, we are now uniquely positioned to build from these foundations, disrupt the industry and empower our brand partners across the globe.

As a result of our growth strategy, we believe the TAM for the value-added solutions we provide has expanded from approximately $135 billion to approximately $654 billion of retail sales for 2020.1 This nearly five-fold increase is a direct result of our deliberate evolution from a North America focused personal care business to a global enterprise spanning beauty, personal care and home care. kdc/one has been disciplined in targeting our

 

1 

Company estimate from Euromonitor International Limited, Beauty & Personal Care 2021 Fixed 2020 Exchange Rate, Home Care 2021 Fixed 2020 Exchange Rate, Retail Value RSP, Current Prices. Data extracted April 2021.

 

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growth investments into the most attractive, fastest growing and resilient subsectors of the broader consumer market. We will continue to utilize this compass to inform our future organic expansion and M&A activity.

While the past two and a half years have certainly been exciting, there is much more to come. We are in the early stages of harnessing and optimizing the cross-selling potential across this exceptional network of assets.

Our categories are demonstrating strong growth across our global footprint in the United States and Canada; Europe, the Middle East and Africa; and the Asia Pacific region. The Chinese beauty market, in particular, is experiencing exceptional growth and is poised to become the world’s largest by 2022, according to Euromonitor.2 We fully intend to grow with this dynamic market by providing solutions not just to international brands but also to the many rapidly growing domestic brands. We are making additional investments in our people and capabilities in China, alongside the unique China market insights we receive from C2 Capital, a current investor. Alibaba Group, the leading e-commerce platform in China, is an anchor investor in C2 Capital.

Another key area of focus for kdc/one is environmental sustainability, which encompasses cleaner formulations, sustainable packaging solutions as well as sustainable manufacturing processes. Our unique vantage point across the industry landscape provides access to a vast amount of market intelligence and data insight, which allows us to stay ahead in the emergence of conscious beauty and home care products. This is enabled by scouting sustainable eco-friendly ingredients, leading in clean breakthrough formulations and more sustainable packaging solutions, designed without compromise of performance. To continue building on this momentum, kdc/one recently created a new role, appointing a senior executive to lead our sustainability initiatives.

While all these developments have been taking place across the organization, we have been careful not to lose sight of our culture, which is predicated on seven key values:

 

   

Innovation that inspires our customers

 

   

Passion that fuels our dedication

 

   

Accountability that anchors our teams

 

   

Excellence that propels our growth

 

   

Inclusion that drives our diversity

 

   

Wellbeing that sustains our energy

 

   

Compassion that serves our environment and employees

It is important for me to see these values extend across the global organization. As a result, we have made significant investments to enhance our internal communications capabilities, increased the frequency of town-halls, and commenced the roll-out of employee surveys, all with the goal of forging a stronger personal link between kdc/one and its employees.

The resiliency of our organization and strength of our relationships with customers and key stakeholders has never been more evident than during the COVID-19 pandemic. Our teamwork and entrepreneurial spirit allowed us to take care of our kdc/one family, support our customers while continuing to expand our business capabilities and build towards the future.

kdc/one provides an attractive way for prospective investors to access the excitement and innovation across the most compelling and fast-growing consumer product segments without single brand or channel risk. I hope you will join us on our continuing journey, built on trust and differentiated value, as kdc/one continues to define beauty, personal care and home care, uniquely imagined and expertly delivered.

Nicholas Whitley

President and Chief Executive Officer

 

2 

Euromonitor International Limited. Beauty & Personal Care 2021, Fixed 2020 Exchange Rate, Retail Value RSP, Current Prices. Data extracted April 2021.

 

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PROSPECTUS SUMMARY

This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common shares. You should read this entire prospectus carefully, including the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus, before deciding whether to purchase our common shares.

Company Overview

Beauty, Personal Care and Home Care, Uniquely Imagined and Expertly Delivered

We are a trusted global provider of value-added solutions to many of the world’s leading brands in the beauty, personal care and home care categories. We partner closely with both industry-leading consumer products companies and fast-growing independent brands as a critical enabler of their success through ideation, formulation, design, packaging and manufacturing of products sold under more than 1,000 different brand names. Over the past three years, we have been responsible for co-developing over 9,000 products across growing categories that include skin care, body and hair care, soaps and sanitizers, cosmetics, deodorants, sun care, fragrances, air care, fabric care, pest control and surface care products. The innovative products that we have helped to develop are sold by our brand partners in more than 70 countries worldwide.

Revenue by Category

 

LOGO

The pace of innovation and new brand and product introduction is accelerating across the beauty, personal care and home care categories. This, in turn, has underscored the importance of rapid strategic product development partnerships with companies such as ours to accelerate the speed to market. Against that backdrop, we have benefited by building a leading suite of end-to-end, value added solutions across a global platform. We believe the vertical integration of product solutions, coupled with the ability to service both established and emerging brands worldwide, provides us with a significant competitive advantage.

We provide our value-added solutions to more than 700 customers worldwide as of April 30, 2021, across 13 different product categories. Our customers include many of the most recognizable and rapidly emerging


 

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companies in beauty, personal care and home care. Our customer base encompasses 18 of the 20 largest beauty, personal care and home care companies worldwide, when ranked by retail sales in 2020, according to Euromonitor.3 In total, these 18 customers had a 52% share of the beauty, personal care, and home care categories in 2020, according to Euromonitor.3 As of April 30, 2021, our portfolio also included more than 200 independent and emerging customers, who we have selectively targeted as being among the fastest growing and most noteworthy brands.

Diverse Customer Base Underpinned by Long-Term Relationships

 

LOGO

Our relationships with our largest customers are often multifaceted and can extend across their business portfolio to encompass multiple brands, products and geographies, creating a diversified portfolio approach aligned to multifaceted growth with resilience. We partner in the development of brands and products across the retail pricing spectrum, from mass to masstige to prestige. Products incorporating our value-added solutions are distributed across a broad array of channels from mass to specialty retail to e-commerce. We leverage our diverse suite of leading capabilities to support our customers across the product development and production cycle. Through our global footprint, we expect to be able to deliver our expertise wherever our customers choose to operate.

 

3 

Euromonitor International Limited. Beauty & Personal Care 2021, Retail Value RSP Fixed 2020 Exchange Rate, Home Care 2021 Retail Value RSP Fixed 2020 Exchange Rate. Data extracted April 2021.


 

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Global End-to-End Solutions:

Vertical Integration from Beaker to Box Enables Speed to Market

 

LOGO

Since fiscal year 2016, we have delivered significant growth through a combination of organic expansion and strategic acquisitions, increasing our revenue, net income (loss) (as we grew our business) and Adjusted EBITDA from $516.2 million to $2,143.8 million, $7.5 million to $(125.8) million and $61.5 million to $238.5 million, respectively, for fiscal year 2016 (with fiscal 2016 numbers derived from unaudited financial information not included in this prospectus) and fiscal year 2021, respectively. Adjusted EBITDA is a non-GAAP measure; for a reconciliation of Adjusted EBITDA to the most directly comparable financial measure in accordance with GAAP, see the section titled “Prospectus Summary—Summary Consolidated Financial and Other Data.”

Innovation is at the heart of both our culture and our value proposition. We have approximately 400 employees focused on research and development (“R&D”) as of April 30, 2021, including chemists, formulators, engineers and designers. Our R&D personnel operate across 22 R&D, design and creative facilities and four innovation hubs globally, connecting locally with our customers wherever they are located. For the year ended April 30, 2021, approximately 73% of our total revenue was attributable to products we helped ideate, design or develop. We believe our R&D capabilities position us as a driving force for growth in our categories. For example, teams at our four innovation hubs, which are located in North America, Europe and the Asia Pacific region, focus on identifying emerging consumer trends and developing new technologies to leverage them. Our current and prospective customers are able to utilize the technologies we develop in the customization of their own branded products.

Our track record of innovation speaks for itself. We developed or co-developed over 3,500 formulations and 7,500 packaging designs during the year ended April 30, 2021. We also own an extensive library of proprietary formulations and packaging designs to which our customers have access. Over the last three years, on average, we have played a role in the launch of more than 3,000 new products annually. Products that we have co-developed are highly regarded and have won numerous industry awards.


 

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Select Recent Awards Enabled Through our Industry-leading Innovation Network

 

LOGO

In addition to our focus on innovation through ideation and formulation, we have expansive capabilities in product delivery systems, design and packaging. We believe that we are the leader in customized delivery and packaging solutions, making us a “go-to” partner for brands seeking to differentiate themselves in terms of performance, look and feel. Customized packaging is an increasingly important way for brands to stand out from their competition in a crowded marketplace. In partnership with our customers, our expertise has led to the creation of many of the most distinctive beauty, personal care and home care products in consumers’ homes today.

We also have a sizeable and flexible global manufacturing footprint, operating to the most rigorous standards in the industry and allowing us to seamlessly deliver solutions for the complex production requirements of our customers. Our manufacturing platform includes 25 facilities across North America, Europe, Latin America and the Asia Pacific region, 11 of which are over-the-counter (“OTC”) registered. At these facilities, we are able to engineer and manufacture products both at scale and in shorter runs. Our global infrastructure and integrated supply chain enable us to develop and deliver complex products while also maintaining the flexibility to respond to the needs of our customers as they arise. This, in turn, allows us to seamlessly support global brand launches across our customer base. We believe the stringent standards by which we operate provide our customers with confidence in the quality of our products and in our adherence to strict regulatory standards.


 

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Well-Invested Network to Support Our Customers Globally

 

LOGO

We have grown significantly over the past two decades, systematically expanding our product capabilities, category reach and geographic footprint to better serve the needs of our customers globally. We have done this both organically and through acquisitions.

At our Knowlton, Québec, facility, for example, we recently completed a multi-step investment to expand and enhance our capabilities in the antiperspirant and deodorant category. We added a dedicated and flexible automated production line to support the growth of our on-trend natural deodorant products. We are currently undertaking a number of large-scale organic growth initiatives. We expect that operations at our new facility in Columbus, Ohio will commence in the second quarter of fiscal year 2022, adding capabilities across a range of products, including foaming soap, hand soap, shower gel, hand sanitizer and body cream. We are expanding the footprint of our facility in Mexico, which is expected to increase by more than 70% and allow us, for the first time, to serve beauty and personal care customers, in addition to home care customers, through this location. We also expect to double capacity in Texas through our investment in our highly automated manufacturing facility. Each of these projects has been undertaken on the basis of supporting organic growth.

Acquisitions have also been, and we expect will continue to be, an important part of our growth. In 2020, we added industry-leading expertise in the field of complex packaging design and production through the acquisition of HCT, enabling us to better service the premium beauty category. HCT, through its global platform, increased our exposure to many of the most innovative and fast-growing emerging brands worldwide, while further expanding our relationship with many multinational leaders in prestige beauty. We believe the vertically integrated solutions that we now provide are a differentiated and important value proposition for brands, allowing them to accelerate speed to market.

In addition, in 2020, we added advanced capabilities in device design for the global home care category through the acquisition of Zobele, providing us with greater access to a large and growing market. Our acquisition of Paristy the same year provided us with the capability to offer leading, China-based capabilities in product formulation and manufacturing to both international beauty companies as well as leading domestic beauty brands in that region. We have developed a rich pipeline of acquisition opportunities, and we will


 

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continue to take a disciplined approach focused only on assets that we believe enable us to better serve our customers through expansive, end-to-end capabilities.

As we have extended our reach in terms of capabilities and geographies, the TAM for the value-added solutions we provide has meaningfully increased. Adding expansive capabilities in the home care category through acquisitions, and the extension of our geographic reach beyond our North American origins into Europe, Latin America and the Asia Pacific region, have enabled us to expand the size of our addressable market by a factor of five from approximately $135 billion to over $654 billion, based on 2020 retail sales, according to industry information from Euromonitor.4

We generated total revenue of approximately $2.1 billion for the year ended April 30, 2021. Over the same period, we incurred net losses of $125.8 million and recognized Adjusted EBITDA of $238.5 million.

Many of our customer contracts allow us to effectively pass through raw material costs, providing us with a hedge against fluctuations in commodity prices. As a result, we evaluate the performance of our business on the basis of Value-Added Contribution Margin (“VACM”), which we define as Adjusted EBITDA divided by revenue from value added contributions.

Our business is focused on innovation, product development and operational excellence. As a result, we believe VACM best reflects the profitable solutions we provide to our customers. We delivered VACM of 22.0% for the year ended April 30, 2021.

Since fiscal year 2016, revenue (derived from unaudited financial information not included in this prospectus) from our Knowlton, Lynchburg, Columbus, Chemaid and Toronto facilities, which were our only facilities in existence at the beginning of fiscal year 2016, grew at a compounded annual growth rate of 5.6%. Although these facilities (including revenue attributable to the Toronto facility, which closed in fiscal year 2017 and had its business transferred to our Knowlton and Lynchburg facilities) generated 26% of the Company’s total fiscal year 2021 revenue, we believe this metric is meaningful as it demonstrates the growth, over an extended period of time, for a core portion of the Company’s operations. The financial information for the year ended April 30, 2016 has been derived from unaudited books and records of the Company, which are prepared on the same basis and using the same accounting principles as the audited consolidated financial statements of the Company included elsewhere in this prospectus.

Favorable Industry Dynamics

We operate in many of the largest, fastest growing, most resilient and most valuable product categories within beauty, personal care and home care. Product categories served by our Beauty and Personal Care segment represented retail sales value of $487 billion globally for 2020, according to Euromonitor.5 On a weighted-average basis, they are expected to deliver a compound annual growth rate of 5.2% through 2025. Product categories served by our Home Care segment represented retail sales value of $167 billion globally for 2020, according to Euromonitor.6 On a weighted-average basis, they are expected to deliver a compound annual growth rate of 6.4% through 2025.6

Within these product categories, a number of structural shifts are taking place that favor a value-added, integrated solutions partner such as kdc/one. Through digitization, consumers have more immediate access than ever before to information around their purchasing choices, giving the consumer increasingly direct influence over the nature of the products that are brought to market. This has resulted in a faster pace of innovation across the beauty, personal care and home care categories, both for existing products and through a significant increase in the rate at which new brands are introduced.

 

4 

Company estimate from Euromonitor International Limited. Beauty & Personal Care 2021, Fixed 2020 Exchange Rate, Home Care 2021 Fixed 2020 Exchange Rate, Retail Value RSP, Current Prices. Data extracted April 2021.

5 

Euromonitor International Limited. Beauty & Personal Care 2021, Fixed 2020 Exchange Rate, Retail Value RSP, Current Prices. Data extracted April 2021.

6 

Euromonitor International Limited. Home Care 2021, Fixed 2020 Exchange Rate, Retail Value RSP, Current Prices. Data extracted April 2021.


 

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As established brands adapt to this faster-paced consumer environment, they are increasingly reliant on outsourced strategic partnerships to help drive product innovation and speed to market. Likewise, owners of emerging brands often favor an asset-lite approach, freeing up time and resources to focus on consumer connectivity.

We believe the following capabilities, in particular, make kdc/one well-suited to benefit from these structural shifts:

 

   

Innovation: We have developed comprehensive innovation capabilities, from ideation to formulation to design and packaging, allowing us to partner with our customers in addressing increasing consumer demand for new products and brands.

 

   

End-to-end solutions: As consumer demand for “newness” accelerates, brands are increasingly partnering with kdc/one across all facets of the strategic product planning process. We believe that our ability to offer integrated, end-to-end solutions on a global basis makes us a preferred partner across the categories we serve.

 

   

Speed to market: Our end-to-end capabilities reduce lead times for new products, meaning we are often able to shorten time to market compared with others in our industry, essential in a “fast beauty” environment.

 

   

Agile production capabilities: As the pace of innovation has increased, brands have shifted towards shorter product runs and more frequent innovation. Our manufacturing platform is flexible and agile, meaning that we are able to accommodate shorter runs for our customers across multiple geographies. At the same time, we are also able to scale production rapidly as brands grow.

 

   

Unique global network: We believe that partnering with kdc/one provides our customers with access to a unique network of capabilities across formulation, packaging and manufacturing; this allows them to focus investment of time and capital in meeting the needs of the consumer in a dynamic market.

 

   

Regulatory compliance and quality control: Customers rely on our expertise in complex global regulatory requirements enabling them to satisfy demand from an increasingly global consumer base.

The structural industry shifts that favor reliance on outsourced capabilities are also creating pockets of demand from consumers, and, in turn, our direct customers, that far outpace category averages. Our deep industry expertise, coupled with constant, close communication with our customer base allows us to identify those opportunities and to focus our efforts appropriately.

We closely monitor the emerging brand landscape, and now count more than 200 customers that are independent and emerging among our customer base. The pace of growth for brands that are marketed and sold in a digital environment has been particularly strong in recent years. Industry estimates suggest that e-commerce growth in beauty and personal care, for example, has outpaced brick-and-mortar distribution by a factor of thirteen over the period from 2018 through 2020.7 We have partnered with our customers to ideate, formulate, design and package products that are specifically positioned for success in a digital marketing environment.

Consumers are increasingly seeking brands and products that better reflect their own values and lifestyles. This manifests itself in many ways, including more environmentally friendly ingredients, cleaner formulations, sustainable packaging, and the way in which a company treats its employees or gives back to its community. We believe that the services and solutions we offer enable our brand partners to deliver cutting-edge products that are consistent with these values without compromising performance. Our broad suite of capabilities helps us partner with our customers to satisfy rapidly growing consumer demand and to help them achieve their own sustainability goals.

 

7 

Euromonitor International Limited. Retailing 2021, Fixed 2020 Exchange Rate, Retail Value RSP excluding sales tax, Current prices. Data extracted April 2021.


 

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From a geographic perspective, industry estimates suggest that growth will continue across each of the major regions in which we operate, including the United States and Canada; Europe, the Middle East and Africa; and the Asia Pacific region. On a weighted-average basis, the markets for beauty, personal care and home care are expected to grow at a compound annual rate of 2.3%, 4.9% and 7.0% in the United States and Canada; Europe, the Middle East and Africa; and the Asia Pacific region, respectively, from 2019 through 2025, according to Euromonitor.8 China, in particular, is experiencing a period of elevated growth and is expected to grow at a compound annual rate of 10.2% over the period from 2019 through 2025.9 We have expanded our capabilities in the region through the acquisitions of industry-leading and well-respected companies, including Paristy, HCT and Zobele. We also benefit from China market insights provided by C2 Capital, a current investor. Alibaba Group, the leading e-commerce platform in China, is an anchor investor in C2 Capital.

Key Strengths

We are focused on driving deep and lasting relationships with our customers by leveraging the following competitive strengths:

We provide value-added solutions in some of the fastest growing, most resilient and most valuable categories across the consumer landscape, underpinned by an ongoing shift towards outsourced product development and innovation

The categories in which we operate represent, in aggregate, retail sales of approximately $654 billion globally for 2020, according to Euromonitor.10 On a weighted-average basis, these categories are expected to deliver a compound annual growth rate of 5.5% from 2019 through 2025.10 Across these categories, growth is underpinned by increasing consumer demand for product innovation and new brands, which in turn favors increasing reliance by consumer products companies on outsourced support for strategic product development. Our deep industry knowledge and insights also allow us to focus on areas of growth that are higher than the category average. Examples include: our focus on partnering with fast-growing, independent and emerging brands; our ability to service the fast-paced innovation requirements of brands focused on digital marketing and distribution (who often run asset-lite business models); and our increased focus on the rapidly-growing market for clean and sustainable product and packaging solutions.

We expect to deliver significant category growth across each major region in which we operate, including the United States and Canada; Europe, the Middle East and Africa; and the Asia Pacific region. China, in particular, is experiencing a period of elevated growth and its beauty, personal care and home care markets are expected to grow at a weighted-average compound annual rate of 10.2% from 2019 through 2025, according to Euromonitor.10 We have recently expanded our capabilities in the region through the acquisitions of Paristy, HCT and Zobele.

Trusted, long-term partnerships with the industry’s leading consumer products companies and fast-growing independent and emerging brands

The breadth of our capabilities, coupled with our extensive geographic reach, allows us to develop long-term, trusted, strategic partnerships with our 700 customers, encompassing over 1,000 brands across categories and geographies. As of April 30, 2021, our customers included more than 200 independent and emerging customers, who we have selectively targeted as owning many of the fastest growing and most noteworthy brands.

 

8 

Company estimate from Euromonitor International Limited, Beauty & Personal Care 2021 Fixed 2020 Exchange Rate, Home Care 2021 Fixed 2020 Exchange Rate, Retail Value RSP, Current Prices. Data extracted April 2021.

9 

Euromonitor International Limited. Beauty & Personal Care 2021 Retail Value RSP Fixed 2020 Exchange Rate, Home Care 2021 Retail Value RSP Fixed 2020 Exchange Rate. Data extracted April 2021.

10 

Company estimate from Euromonitor International Limited. Beauty & Personal Care 2021 Fixed 2020 Exchange Rate, Home Care 2021 Fixed 2020 Exchange Rate, Retail Value RSP, Current Prices. Data extracted April 2021.


 

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We enjoy close connectivity with our customers, reflecting the important role we play across the value chain. We have the ability to coordinate with our customers at every stage of the strategic product planning process. We have often been told that our ability to provide integrated solutions across the value chain makes us the first call for our customers when they seek to partner on new products or develop new solutions. The trust that our customers place in our capabilities leads to long-tenured relationships. For the year ended April 30, 2021, with our top 10 customers by revenue, we have an average relationship tenure of more than 30 years. We also have a track record of growing our revenue opportunities with customers over the duration of our partnership.

Differentiated Customer Solutions—Selected Case Studies

 

 

LOGO

We offer a comprehensive, integrated and global portfolio of value-added solutions, including ideation, formulation, design and packaging and manufacturing

We have developed a comprehensive, integrated suite of value-added customer solutions and product capabilities. Our integrated approach allows us to offer services to our customers across every aspect of product development. We believe this is a significant competitive advantage, as we are able to partner with our customers to offer end-to-end solutions. Through our global footprint we are also able to deliver value-added solutions to customers worldwide. The comprehensive nature of our offering has allowed us both to add new customers and to increase share of spend with our existing customers.

We support our comprehensive suite of solutions and capabilities with a sizeable and flexible manufacturing footprint, operating to stringent quality standards from our customers and adhering to strict regulatory standards. Our manufacturing platform includes 25 facilities across North America, Europe, Latin America and the Asia Pacific region. At these facilities, we are able to engineer and manufacture products both at scale and in shorter product runs for our customers. Our global infrastructure and integrated supply chain enable us to develop and deliver highly complex products while also maintaining the flexibility to respond to the needs of our customers as they arise. We believe the stringent standards by which we operate provide our customers with confidence as to product quality and adherence to complex regulatory standards.


 

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We enjoy leading capabilities in product innovation and design, enabling us to partner with our customers to meet increasing consumer demand for new products and brands

We believe we have the industry’s leading capabilities in product innovation. Teams at our four innovation hubs, located in the United States, Europe and Asia, focus on identifying emerging consumer trends and developing new technologies to leverage them. Our R&D personnel operate across 22 R&D, design and creative facilities as well as four innovation hubs globally, connecting locally with our customers wherever they are located. For the year ended April 30, 2021, approximately 73% of our total revenue was attributable to products we helped ideate, design or develop.

Our track record of innovation speaks for itself. We developed or co-developed over 3,500 formulations and 7,500 packaging designs during the year ended April 30, 2021. We also own an extensive library of proprietary formulations and packaging designs to which our customers have access. Over the last three years, on average, we have played a role in the launch of more than 3,000 new products annually.

We have a successful track record of enhancing our product capabilities, category reach and geographic footprint through both organic expansion as well as highly selective and strategic acquisitions

We have grown significantly over the past two decades, systematically expanding our product capabilities, category reach and geographic footprint to better serve the needs of our customers. We have done this both organically and through acquisitions.

Our organic growth encompasses a range of initiatives including (i) upgrading and enhancing existing facilities; (ii) expanding capacity or building out new capabilities across the kdc/one network; and (iii) the construction of brand new facilities. kdc/one has a history of consistent execution success across all these forms of organic growth, and is currently in the process of completing several significant organic growth projects across the network. Importantly, these organic investments are supported by specific customer contracts.

At our Knowlton facility, we recently expanded and enhanced our antiperspirant and deodorant capabilities through the installation of new high speed production lines, supporting the growth of our on-trend natural deodorant products. We are currently in the process of a substantial expansion of our Home Care facility in Mexico (70% increase in square footage), transforming it into a facility capable of servicing Beauty & Personal Care customers as well. Upon completion of the project, this facility will also mark the introduction of wipes technology into the kdc/one network.

Following the successful construction of our Columbus facility in 2012 and subsequent fragrance build-out in 2016, the forthcoming 570,000 square-foot Columbus II facility will add a modern, flexible and highly automated facility to the kdc/one portfolio. While the Columbus II facility will be initially focused on the Beauty and Personal Care segment, the facility will also contain 180,000 square feet of unutilized space underroof targeted to be used to support growth for our Home Care segment. We will continue to make disciplined investments in partnering with our global customers.

We have a successful track record of acquisitions. Over our 30-year history, we have completed 16 transactions. Our current management team has completed seven of those transactions over the past two years.

We have been systematic and disciplined in our approach to acquisitions. Our deep knowledge of the beauty, personal care and home care markets has allowed us to anticipate both significant industry shifts and the demands of our customers, and to identify acquisition targets that allow us to meet those demands. For example, the acquisition of HCT in 2020 added leading capabilities in design and packaging, which in combination with


 

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our existing platform has allowed us to provide both existing and new customers with a differentiated solution, and enhanced speed to market, from a truly integrated capability encompassing ideation to final product. The acquisition of Zobele in 2020 provided us with access to advanced device development and manufacturing capabilities in the large and growing global home care market. Similarly, our acquisitions of Zobele and Paristy, in particular, have enabled us to extend our geographic reach beyond North America to serve customers in Europe, Latin America and the Asia Pacific region. kdc/one is today a highly differentiated, vertically integrated brand enabler with global reach.

As a market leader in a fragmented industry, we believe we will benefit from ongoing opportunities to extend our reach through our buy and build strategy. We have developed a pipeline of opportunities that we will continue to monitor on a go forward basis. We will continue to be highly selective in our approach to acquisitions, focusing only on opportunities where we can add both leading capabilities and talent. We will continue to be careful and disciplined stewards of capital.

We have a diversified and resilient business model driving strong financial performance

Since fiscal year 2016, we have delivered significant growth through a combination of organic expansion and strategic acquisitions, increasing our revenue, net income (loss) (as we grew our business) and Adjusted EBITDA from $516.2 million to $2,143.8 million, $7.5 million to $(125.8) million and $61.5 million to $238.5 million, respectively, for fiscal year 2016 (with fiscal 2016 numbers derived from unaudited financial information not included in this prospectus) and fiscal year 2021, respectively. Adjusted EBITDA is a non-GAAP measure; for a reconciliation of Adjusted EBITDA to the most directly comparable financial measure in accordance with GAAP, see the section titled “Prospectus Summary—Summary Consolidated Financial and Other Data.”

Over the same period, revenue (derived from unaudited financial information not included in this prospectus) from our Knowlton, Lynchburg, Columbus, Chemaid and Toronto facilities, which were our only facilities in existence at the beginning of fiscal year 2016, grew at a compounded annual growth rate of 5.6%. Although these facilities (including revenue attributable to the Toronto facility, which closed in fiscal year 2017 and had its business transferred to our Knowlton and Lynchburg facilities) generated 26% of the Company’s total fiscal year 2021 revenue, we believe this metric is meaningful as it demonstrates the growth, over an extended period of time, for a core portion of the Company’s operations. The financial information for the year ended April 30, 2016 has been derived from unaudited books and records of the Company, which are prepared on the same basis and using the same accounting principles as the audited consolidated financial statements of the Company included elsewhere in this prospectus.

In many cases, we are able to pass through raw material costs to our customers by generating revenues through (i) contracts in which raw materials are either provided by or on behalf of the customer, or costs are partially or totally passed through to the customer, and (ii) purchase orders that sometimes serve as a de facto pass-through mechanism for variations in raw material price changes, providing us with an effective hedge against fluctuations in commodity prices. As a result, we evaluate the performance of our business on the basis of VACM, which we define as Adjusted EBITDA divided by revenue from value added contributions. Our business is focused on innovation, product development and operational excellence. As a result, revenue from value added contributions reflects the way customers interact with kdc/one and the value embedded in our product delivery that we provide to them. We have recognized a net loss of $125.8 million and Adjusted EBITDA of $238.5 million for the year ended April 30, 2021. Over the same period, we delivered a VACM of 22.0%.

The diversification of our customer base and our product offerings also enables our business to be resilient through economic downturns. The categories on which we focus have also been resilient. For example, over the period 2007 to 2010, the beauty and personal care market grew at a compound annual growth rate of 3.7% and


 

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the home care market grew at a compound annual growth rate of 3.0%,11 while global gross domestic product grew at a compound annual growth rate of just 1.5%.

Highly experienced management team committed to supporting and enhancing kdc/one’s strong culture

Under the leadership of our President and Chief Executive Officer, Nicholas Whitley, we have built a talented and experienced multi-disciplinary and global management team to help drive growth.

We remain extremely focused on recruiting and retaining leading talent. As part of this effort, we have fostered a culture within the organization that emphasizes diversity, inclusion and respect. We have also sought to recruit individuals with a broad set of experiences to bring fresh perspectives to our business.

As part of this effort, we have made significant investments in our internal communications capabilities, increased the frequency of town-halls and conducted employee surveys all with the goal of forging stronger personal links between our team members. We believe that our corporate culture is one in which our talented managers and employees can thrive.

Drivers of Growth

We benefit from multiple drivers of future growth for our business, both organic and inorganic. Together, they enable us to capture market share and grow at a faster rate than average for the categories in which we participate.

Ability to offer our customers integrated, end-to-end solutions leveraging our global footprint

Through a combination of organic expansion and strategic acquisitions, we have built a comprehensive suite of solutions and capabilities to serve the beauty, personal care and home care categories, from ideation and formulation to design, packaging and manufacturing. This enables us to provide integrated, value-added solutions to our customers at every stage of the strategic product development process. In conjunction with our global footprint, we believe this provides us with a unique opportunity to serve the needs of our customers worldwide.

For example, we recently developed a sustainable product line for a customer, covering all aspects of the process from formulation to design and packaging, leveraging both the capabilities of our legacy kdc/one business as well as packaging solutions developed through HCT. We also have a strong track record of working with emerging brands whose founders have strong creative vision but rely on kdc/one’s experience in product ideation, formulation, design, delivery and packaging.

Significant opportunity to cross-sell our comprehensive suite of value-added solutions to both new and existing customers

We have trusted relationships with over 700 customers globally. Many of our customer relationships were initiated through the provision of category-specific solutions. As we have extended our reach with respect to capabilities, categories and geographies, we have given our customers access to a broader suite of value-added solutions. As our customer relationships expand in this way, our reputation for innovation, reliability and quality assurance has a multiplier effect on the breadth of solutions our customers ask us to deliver. We have been successful in the early stages of leveraging our network to optimize cross-selling opportunities. As illustrated below, cross-selling opportunities arise across geographies, categories, capabilities and brands.

 

11 

Euromonitor International Limited. Beauty & Personal Care 2021 Retail Value RSP Fixed 2020 Exchange Rate, Home Care 2021 Retail Value RSP Fixed 2020 Exchange Rate. Data extracted April 2021.


 

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Cross-selling Opportunities

 

LOGO

In addition to cross-selling to our existing customers, we are highly active in targeting and acquiring new customers. Over the twelve months ended March 31, 2021, we built relationships with over 100 new customers, many of which are high-growth emerging names. We believe that the opportunity to offer those new customers access to solutions across our broader footprint also represents a compelling growth opportunity.

Continue to target the fastest growing areas of demand within the categories and markets we serve

We believe that the breadth of both our customer relationships and our global footprint provide us with unique insights into the end markets we serve. This, in turn, allows us to anticipate the needs and demands of our customers and to focus on the areas which are demonstrating the most rapid growth. For example, we have been able to identify and establish relationships with more than 200 independent and emerging customers, who we have selectively targeted as owning many of the fastest growing and most noteworthy brands. Many of these brand owners operate asset-lite business models and rely heavily on kdc/one to provide innovative product solutions. Similarly, we have developed capabilities that are well-placed to service brands focused on digital distribution, delivering rapid innovation and shorter product runs. We have also recognized growing consumer demand for cleaner and more sustainable product formulations and packaging, and have developed industry leading solutions to help us capture an outsized share of that market.

Continue to expand our geographic reach, including in China and the Asia Pacific region more broadly

We have built a global platform that positions us well for future growth across markets including North America, Europe, Latin America and Asia. On a weighted-average basis, the markets for beauty, personal care and home care are expected to grow at a compound annual rate of 2.3%, 4.9% and 7.0% in the United States and Canada; Europe, the Middle East and Africa; and the Asia Pacific region, respectively, from 2019 through 2025, according to Euromonitor.12 We have more recently focused on establishing a strong foothold in China, in particular, through the acquisitions of Paristy, HCT and Zobele in 2020. According to Euromonitor, by 2022, the size of the beauty market in China is projected to surpass that of the United States in terms of retail sales to become the largest in the world. Our capabilities in China now include formulation, design and packaging and

 

12 

Company estimate from Euromonitor International Limited. Beauty & Personal Care 2021 Retail Value RSP Fixed 2020 Exchange Rate, Home Care 2021 Retail Value RSP Fixed 2020 Exchange Rate. Data extracted April 2021.


 

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manufacturing.13 We can now offer value-added solutions not only to multi-national consumer products companies, but also to leading domestic companies who are increasingly capturing market share. We are making additional investments in our people and capabilities in China, alongside the unique China market insights we receive from C2 Capital, a current investor. Alibaba Group, the leading e-commerce platform in China, is an anchor investor in C2 Capital.

Expand our category, capability and geographic reach through highly selective and strategic acquisitions

We have a successful track record of expansion through acquisitions. We have developed a strong pipeline of potential acquisition opportunities which we believe will help us to further broaden our reach and grow our relationships with both existing and new customers. Our management team includes executives with significant acquisition experience, both at kdc/one and from prior roles within the corporate, investment banking and legal fields. We will continue to focus on assets that are truly best-in-class with respect to their respective capabilities and leadership teams, which are additive to our ability to service the demands of our customers. We will continue to be careful and disciplined stewards of capital as we contemplate acquisition activity going forward. We take a disciplined approach to reinvestment in our business, and approved investment projects typically have payback periods of two years or less, or up to three to four years where we deliver significant infrastructure expansion.

Continue to grow profitability margins with several levers to drive future margin expansion

We have a demonstrated track record of growing our profit margins and believe we have a path to future margin expansion. There are several levers we intend to utilize to expand our margins over time. As we grow, we believe our business mix across our two primary business segments should naturally drive margin accretion over time given the relative margin and growth profile of the two segments. Additionally, we plan to continue to effectively leverage our end-to-end, vertically-integrated business model to promote cross-selling across our business segments, geographies, and product categories. For example, in our beauty and personal care business, we can utilize our newer end-to-end capabilities, like packaging innovation, that we gained through our acquisition of HCT to cross-sell additional services to existing customers. We believe there is significant opportunity to drive further cross-sell penetration across multiple kdc/one sites within our existing customer base as well as with new customers, which we believe will increase our consolidated margin profile over time. In both our beauty and personal care business and our home care business, we believe we will benefit from incremental leverage of our fixed cost base as well as our continuous improvement initiatives across the kdc/one network, particularly through achieving efficiency improvements in our labor programs. Additionally, our Columbus II facility is expected to increase production automation and create new capacity and volume that will allow for greater operating leverage.

Corporate Information

kdc/one Development Corporation, Inc. was initially incorporated on December 17, 1990. In connection with the Acquisition, the Company was incorporated under the Business Corporations Act (British Columbia) (“BCBCA”) in November 2018 to become the indirect parent company of kdc/one Development Corporation, Inc. On July 1, 2021, Knowlton Development Corporation Inc., the operating company and the indirect wholly owned subsidiary of Knowlton Development Parent, Inc., changed its name to kdc/one Development Corporation, Inc. On the same day, Knowlton Development Parent, Inc. and Knowlton Development Holdco, Inc., a wholly-owned subsidiary of the Knowlton Development Parent, Inc., amalgamated under the laws of British Columbia and continued as one corporation named Knowlton Development Corporation, Inc., which became the direct parent of kdc/one Development Corporation, Inc. The Company owns no significant assets nor has any operations other than the ownership of all the common shares of kdc/one Development Corporation, Inc.

 

13 

Euromonitor International Limited. Beauty & Personal Care 2021, Fixed 2020 Exchange Rate, Retail Value RSP, Current Prices. Data extracted April 2021.


 

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Our principal executive office is in Canada, located at 375 Roland-Therrien Boulevard, Suite 210, Longueuil, Québec, Canada, J4H 4A6, and our telephone number is (450) 243-2000. Our registered office is located at Suite 1700, Park Place, 666 Burrard Street, Vancouver, British Columbia, Canada, V6C 2X8. We also maintain a principal executive office in the United States, located at 250 Pehle Avenue, Suite 1000, Saddle Brook, New Jersey 07663 and our telephone number is (201) 688-2300. Our website is www.kdc-one.com. Our website and the information contained therein or connected thereto is not incorporated into this prospectus or the registration statement of which it forms a part.

Shareholders’ Agreement

In connection with this offering, we intend to enter into the Shareholders’ Agreement with certain of our shareholders, namely CC KDC Co-Invest LP (Cayman) (an affiliate of Cornell) (“CC KDC”), CDP Investissements Inc. (“CDP,” and together with CC KDC, the “Principal Shareholders”) and Upper Invest Ltd. (a Guernsey company) (“Upper Invest”). The Shareholders’ Agreement will require us to nominate a number of individuals designated by each of the Principal Shareholders, subject to such Principal Shareholders meeting certain shareholding thresholds. The Shareholders’ Agreement will also provide that, for so long as CC KDC is entitled to nominate a director, it will be entitled, but not obligated, subject to applicable securities laws, the rules of the NYSE and the BCBCA, to designate at least one director to each of the board committees other than the Audit Committee and for so long as CDP, together with its affiliates, continues to beneficially own at least 10% of our common shares, CDP will have the right to designate one individual as a non-voting observer to the board of directors. In addition, until the earlier of five years following the closing of this offering or CDP, together with its affiliates, ceasing to beneficially own at least 10% of our common shares, CDP will also have certain consultation rights with respect to any material change in the operations at the Québec-based facilities of the Company and its subsidiaries, and certain approval rights relating to the maintenance of the Company’s global headquarters in Québec. See “Risk Factors—Risks Related to Our Common Shares and this Offering—Certain of our major shareholders will continue to have significant influence over us after this offering and may have interests that are different from the interests of our other shareholders” and “Certain Relationships and Related Party Transactions—Shareholders’ Agreement.”


 

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THE OFFERING

Share information presented below reflects the Share Capital Amendments, including a    -for-one subdivision of our common shares, to occur after the effectiveness of the registration statement of which this prospectus forms a part and prior to the closing of this offering. See “Description of Share Capital.”

 

Common shares offered by us

                common shares.

 

Option to purchase additional common shares from us

                common shares.

 

Common shares to be outstanding after this offering

                common shares (or                 common shares if the underwriters exercise their option to purchase additional common shares from us in full).

 

Use of proceeds

We estimate that our net proceeds from this offering will be approximately $         million (or approximately $         million if the underwriters exercise their option to purchase additional common shares from us in full), after deducting underwriting discounts and commissions of approximately $         million (or approximately $         million if the underwriters exercise their option to purchase additional common shares from us in full).

 

  We intend to use the net proceeds that we receive from this offering to repay all of our outstanding borrowings under the Revolving Facility and the remaining net proceeds from this offering (including net proceeds if the underwriters exercise their option to purchase additional common shares from us) to repay a portion of our outstanding borrowings under the Euro Term Loan.

 

  We estimate that the offering expenses (other than the underwriting discounts and commissions) will be approximately $         million. See “Use of Proceeds.”

 

Dividend policy

The declaration and payment by us of any future dividends to holders of our common shares will be at the sole discretion of our board of directors.

 

  We do not anticipate paying any dividends in the foreseeable future. We currently intend to retain future earnings, if any, to finance operations and expand our business. See “Dividend Policy,” “Risk Factors” and “Description of Share Capital.”

 

Directed share program

At our request, the underwriters have reserved up to         common shares, or 5% of the common shares to be offered by this prospectus, for sale at the initial public offering price through a directed share program for certain persons designated by the Company. Shares purchased through the directed share program will not be subject to a lock-up restriction, except in the case of shares purchased by any of our directors or officers and certain of our employees. The number of common shares available for sale to the general public will be


 

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reduced to the extent these individuals purchase such reserved shares. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. See “Certain Relationships and Related Party Transactions,” “Shares Eligible for Future Sales” and “Underwriting (Conflicts of Interest)—Directed Share Program.”

 

Conflicts of interest

An affiliate of UBS Securities LLC is the lender under the Euro Term Loan. Because we plan to use a portion of the proceeds to repay the Euro Term Loan, the affiliate of UBS Securities LLC will receive more than 5% of the proceeds from this offering, and, as a result, UBS Securities LLC is deemed to have a “conflict of interest” within the meaning of U.S. Financial Industry Regulatory Authority (“FINRA”) Rule 5121. Accordingly, this offering is being conducted in compliance with the applicable provisions of FINRA Rule 5121. FINRA Rule 5121 prohibits UBS Securities LLC from making sales to discretionary accounts without the prior written approval of the account holder and requires that a “qualified independent underwriter,” as defined in FINRA Rule 5121, participate in the preparation of the registration statement of which this prospectus forms a part, and exercise its usual standards of due diligence with respect thereto. Goldman Sachs & Co. LLC is acting as the “qualified independent underwriter” for this offering. See “Underwriting (Conflicts of Interest).”

 

NYSE and TSX Trading Symbol

KDC.

Unless we indicate otherwise throughout this prospectus, the number of our common shares outstanding after this offering gives effect to the Share Capital Amendments and includes the common shares to be issued in this offering and excludes:

 

   

up to                 common shares reserved for issuance under our Omnibus Plan, which will become effective immediately prior to or upon the consummation of this offering;

 

   

                common shares issuable if the underwriters exercise their option to purchase additional common shares from us;

 

   

up to                 common shares issuable upon the exercise of equity share option awards previously issued to certain employees and other persons, including our executive officers under our Stock Option Plan; and

 

   

up to                common shares issuable as deferred consideration and contingent consideration in connection with the Paristy acquisition.

Unless we indicate otherwise throughout this prospectus, all information in this prospectus reflects:

 

   

an initial public offering price of $                 per share (the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus);

 

   

the completion of the Distribution Financing Transactions; and

 

   

the completion of the Share Capital Amendments.

The share and per share information in the financial statements and the related notes thereto included elsewhere in this prospectus are presented on a historical basis and therefore do not reflect the Share Capital Amendments.


 

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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables present the summary historical and combined consolidated financial and other data for the Company.

The statements of operations data for the years ended April 30, 2021 and 2020 and for the periods from November 30, 2018 through April 30, 2019 and from May 1 through December 20, 2018, and balance sheet data as of April 30, 2021 and 2020 have been derived from the consolidated audited financial statements of the Company included elsewhere in this prospectus.

The Combined 2019 Financial Information has been derived from the unaudited combined year ended April 30, 2019 presented herein, which combines the Successor Period from November 30, 2018 through April 30, 2019 and the Predecessor Period from May 1, 2018 through December 20, 2018. See “Supplemental Financial Information.” These unaudited combined results of operations disclosures are not impacted by, nor adjusted for, the impact from the completion of this offering, the issuance of common shares in this offering, and the use of the proceeds from this offering as described in the section entitled “Use of Proceeds.”

The summary consolidated financial and other data presented below do not purport to be indicative of the results that can be expected for any future period and should be read together with “Financial Statement Presentation,” “Capitalization,” “Selected Consolidated Financial Data,” “Supplemental Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes thereto included elsewhere in this prospectus.

 

     Successor Period     Predecessor
Period
   

 

       
     Year Ended
April 30,
2021
    Year Ended
April 30,
2020
    November 30,
2018 through
April 30,
2019
          May 1, 2018
through
December 20,
2018
   

 

    Combined
2019 Financial
Information(1)
 
     (in millions, except shares and per share amounts)  

Statements of Operations Data

              

Revenue

   $ 2,143.8     $ 1,093.4     $ 369.8         $  632.8       $   1,002.6  

Cost of revenue

     1,817.7       944.6       320.4         546.4         872.5  
  

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 

Gross profit

     326.1       148.8       49.4         86.4         130.1  

Operating expenses

              

Selling, general and administrative expenses

     286.8       135.3       34.9         69.7         110.1  

Acquisition-related costs and other expenses

     40.1       59.7       9.4         25.9         35.3  

Impairment loss on goodwill and other intangibles

     48.2       —         —           —           —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (49.0     (46.2     5.1         (9.2       (15.3

Interest expense

     78.2       47.4       14.4         13.3         43.2  

Other expense (income), net

     11.7       2.4       0.5         1.1         1.6  
  

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (138.9     (96.0     (9.8       (23.6       (60.1

Income tax benefit

     (13.1     (14.1     (0.5       (0.9       (8.8
  

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 

Net loss

   $ (125.8   $ (81.9   $ (9.3     $ (22.7     $ (51.3
  

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding—basic and diluted

     1,324,110       857,883       641,424         309,344,128      
  

 

 

   

 

 

   

 

 

     

 

 

     

Net loss per share—basic and diluted

   $ (95.01   $ (95.47   $ (14.50     $ (0.07    
  

 

 

   

 

 

   

 

 

     

 

 

     

 

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(1)

See “Supplemental Financial Information” for an explanation as to how the Combined 2019 Financial Information is calculated.

 

     Successor Period  
     As of April 30,
2021
     As of April 30,
2020
 
     (in millions)  

Balance Sheet Data

     

Total assets

   $ 3,574.1      $ 3,592.4  

Total liabilities

   $ 2,638.7      $ 2,372.7  

Total shareholders’ equity

   $ 935.4      $ 1,219.7  

Other Financial Information

 

    Successor Period     Predecessor
Period
       
    Year
Ended
April 30,
2021
    Year
Ended
April 30,
2020
    November
30, 2018
through
April 30,
2019
          May 1, 2018
through
December 20,
2018
    Combined
2019
Financial
Information(1)
    Year ended
April 30,
2016(2)
 
    (in millions except percentages)  

Net loss

  $ (125.8   $ (81.9   $ (9.3     $ (22.7   $ (51.3  

Adjusted EBITDA(3)

  $ 238.5     $ 92.2     $ 39.1       $ 63.2     $ 102.3     $ 61.5  

Adjusted EBITDA Margin(3)

    11.1     8.4     10.6       10.0     10.2           

VACM(4)

    22.0     17.6     24.0       22.7     23.2  

 

(1)

See “Supplemental Financial Information” for an explanation as to how the Combined 2019 Financial Information is calculated.

(2)

The financial information for the year ended April 30, 2016 has been derived from unaudited books and records of the Company, which are prepared on the same basis and using the same accounting principles as the audited consolidated financial statements of the Company included elsewhere in this prospectus.

(3)

Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. See “Non-GAAP Financial Measures” for a definition of Adjusted EBITDA and Adjusted EBITDA Margin, a description of how management uses such measures to manage our business and material limitations on their usefulness. The table below shows a reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure. The most directly comparable GAAP measure to Adjusted EBITDA Margin is net income margin. In this prospectus we have excluded a presentation of net income margin because we have experienced a net loss for all the relevant periods and therefore the net income margin would be less than zero and consequently we believe not helpful to investors. However, wherever we present Adjusted EBITDA Margin we present net loss.

(4)

VACM is a non-GAAP financial measure. See “Non-GAAP Financial Measures” for a definition of VACM and a description of how management uses such measures to manage our business and material limitations on its usefulness. The most directly comparable GAAP measure to VACM is net income margin. In this prospectus we have excluded a presentation of net income margin because we have experienced a net loss for all the relevant periods and therefore the net income margin would be less than zero and consequently we believe not helpful to investors. However, wherever we present VACM we present net loss. For a description of the revenue from value added contributions, see “Management’s Discussion and Analysis—Components of Revenue.”


 

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    Successor Period     Predecessor
Period
             
    Year Ended
April 30,
2021
    Year Ended
April 30,
2020
    November 30,
2018 through
April 30,
2019
    May 1, 2018
through
December 20,
2018
    Combined
2019
Financial
Information(a)
    Year Ended
April 30,
2016(b)
 
    (in millions except percentages)  

Net income (loss)

  $ (125.8   $   (81.9   $ (9.3   $   (22.7   $   (51.3   $ 7.5  

Adjusted for the following:

           

Interest expense and other expense (income), net

    89.9       49.8       14.9       14.4       44.8       11.9  

Income tax expense (benefit)

    (13.1     (14.1     (0.5     (0.9     (8.8     0.6  

Depreciation and amortization

    151.3       70.2       20.5       26.2       57.9       26.4  

Share-based compensation(c)

    8.5       1.7       —         16.5       16.5       —    

Acquisition-related costs(d)

    8.1       56.9       9.3       25.3       34.6       3.1  

Initial public offering preparation-related costs(e)

    10.8       0.1       —         —         —         0.9  

COVID-19-related costs(f)

    28.6       1.5       —         —         —         —    

Plant start-up costs(g)

    0.5       —         —         —         —         —    

Sponsor fees(h)

    7.9       4.6       1.3       1.0       2.3       0.9  

Impairment loss on assets(i)

    54.3       —         —         —         —         —    

Other adjustment items(j)

    17.5       3.4       2.9       3.4       6.3       10.2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $   238.5     $ 92.2     $ 39.1     $ 63.2     $ 102.3     $ 61.5  

Adjusted EBITDA Margin

    11.1     8.4     10.6     10.0     10.2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA by Segment:

           

Beauty and Personal Care

  $ 132.3     $ 76.4     $   33.8     $ 46.2     $ 80.0    

Home Care

  $ 124.6     $ 26.3     $ 9.3     $ 19.2     $ 28.5    

Corporate

  $ (18.4   $ (10.5   $ (4.0   $ (2.2   $ (6.2  

 

  (a)

See “Supplemental Financial Information” for an explanation as to how the Combined 2019 Financial Information is calculated.

  (b)

The financial information for the year ended April 30, 2016 has been derived from unaudited books and records of the Company, which are prepared on the same basis and using the same accounting principles as the audited consolidated financial statements of the Company included elsewhere in this prospectus.

  (c)

Adjustments for share-based compensation represents the grant date fair value of share-based stock options granted to employees under the Stock Option Plan and the plan in place during the Predecessor Period and recognized as an expense in the consolidated statement of operations over the applicable vesting period of the awards. During the fourth quarter of fiscal year 2021, the adjustment for share-based compensation includes an expense of $5.5 million related to the adjustments made to the Stock Option Plan on February 7, 2021, in connection with the Distribution Financing Transactions. See Note 15, Employee Benefits, to our audited consolidated financial statements included elsewhere in this prospectus for further discussion of the adjustments made to the Stock Option Plan.

  (d)

Adjustments for acquisition-related costs include professional, due diligence and advisory fees related to acquisitions, which include the Sponsor Acquisition Fees, which are terminating in connection with this offering. These costs also include the write-off of certain indemnification assets.

  (e)

Adjustments for initial public offering preparation-related costs include incremental and non-recurring professional and advisory fees incurred in connection with this offering.

  (f)

Adjustments for COVID-19-related costs primarily related to temporary enhanced compensation for factory-based employees (hazard pay), as well as incremental supplies and services to support social distancing and otherwise mitigate the spread of COVID-19; we do not expect to continue to incur such costs once COVID-19 has significantly subsided globally and operations return to pre-COVID-19 levels. During the fourth quarter of fiscal year 2021, the COVID-19-related costs include a $7.0 million charge primarily for inventory and receivables that were impaired as a result of goods that could not be imported into the United States from Mexico due to regulatory restrictions.


 

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  (g)

Adjustments for plant start-up costs include direct and incremental costs for our new facility in Columbus before significant operations begin, including payroll and rent. Operations are expected to begin during the second quarter of fiscal year 2022 and we do not expect to continue to incur such costs substantially past that time.

  (h)

Adjustments for sponsor fees include the Sponsor Management Fees, which are terminating in connection with this offering, as well as fees paid to a prior sponsor during the Predecessor Period. See “Certain Relationships and Party Transactions—Services Agreement.”

  (i)

Adjustments includes a non-cash impairment charge of $48.2 million to reduce the carrying amount of goodwill and trade name intangible assets to fair value. The impairment recorded was driven in large part by the impacts of the COVID-19 pandemic on our color cosmetics business. The adjustments also include an impairment loss of $6.1 million on right-of-use assets representing the non-cash write-down for an office building lease that the Company no longer plans to use as it was initially intended.

  (j)

Other adjustment items costs include incremental reorganization and restructuring costs, including severance related payments; litigation and related legal fees; start-up costs related to one laboratory from May 1, 2018 through December 20, 2018 and November 30, 2018 through April 30, 2019; and other incremental non-recurring expenses.


 

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RISK FACTOR SUMMARY

An investment in our common shares involves substantial risks and uncertainties that may adversely affect our business, financial condition and results of operations and cash flows. Some of the more significant challenges and risks relating to an investment in our common shares include those associated with the following:

 

   

our business is highly competitive, and if we are unable to compete effectively our revenues and results of operations will suffer;

 

   

we may not successfully develop, innovate, introduce or acquire new technologies, products and solutions that meet our customers’ needs, which may cause us to fail to attract new customers or sell new products to existing customers, which may in turn adversely affect our results of operations;

 

   

rapid changes in market trends and consumer preferences could adversely affect our financial results;

 

   

we rely on our customers’ desire for outsourcing the ideation, formulation, design, packaging and manufacturing processes, and if our customers were to reduce their dependence on such outsourcing or if we are not able to otherwise successfully maintain our customer relationships, our revenues and results of operations would be adversely affected;

 

   

we may not be able to pursue our growth strategy through acquisitions, and the failure to successfully complete and integrate acquisitions could adversely affect our growth;

 

   

failure to realize anticipated synergies of recent and future acquisitions or restructurings may adversely affect our revenues and results of operations;

 

   

a significant portion of our revenue comes from a limited number of customers, the loss of which would have a material adverse effect on our business, financial condition and results of operations;

 

   

we have a history of net losses and there is no guarantee that we will achieve profitability in the short-term;

 

   

we are subject to risks related to our international operations;

 

   

as we expand our business in the Asia Pacific region, and in particular in China, the economic, political and social conditions, as well as changes in any government policies, laws and regulations, could adversely affect our business;

 

   

interruptions and delays in manufacturing operations, including volatility and increases in the price of raw materials and energy and transportation, could adversely affect our business, revenues and reputation;

 

   

our revenue and operating income fluctuate on a seasonal basis;

 

   

we rely on complex machinery for our operations, and production involves a significant degree of risk and uncertainty in terms of operational performance and costs;

 

   

product reliability, safety and effectiveness concerns can have significant negative impacts on sales and results of operations, lead to litigation and cause reputational damage;

 

   

we are subject to risks associated with leasing and occupying real property and the inability to extend, renew or continue to lease real property in key locations could harm our business, profitability and results of operations;

 

   

natural disasters, public health crises (such as the ongoing COVID-19 outbreak), international conflicts, terrorist acts, labor strikes, political crisis, accidents and other events could adversely affect our business and financial results by disrupting development, manufacturing or sale of our products;


 

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our success depends on attracting and retaining talented people; significant shortfalls in recruitment or retention could adversely affect our ability to compete and achieve our strategic goals;

 

   

we rely on third-party suppliers in procuring materials for our customers and otherwise conducting our business and operations, and their failure to perform to our standards or in a timely manner could adversely affect our reputation, business, and financial results;

 

   

if we are unable to comply with regulatory requirements and industry standards, including those regarding product safety, quality, efficacy and environmental impact, we could incur significant costs and suffer reputational harm which could adversely affect results of operations;

 

   

we incur substantial costs to comply with environmental protection and health and safety laws, and failure to comply with these laws may cause us to close, relocate or operate one or more of our plants at reduced production levels, and expose us to civil or criminal liability or other costs, which could adversely affect our operating results and future growth; changes to environmental laws could increase our costs of doing business;

 

   

our collection, use, storage, disclosure, transfer and other processing of personal information could give rise to significant costs and liabilities, including as a result of governmental regulation, conflicting legal requirements or differing views of personal privacy rights;

 

   

breaches or failures of our information technology systems or website security, the theft, unauthorized access, acquisition, use, disclosure, modification or misappropriation of personal information, the occurrence of fraudulent activity, or other cybersecurity or data security-related incidents may have an adverse impact on our business, financial condition, results of operations and prospects;

 

   

we do not own the intellectual property of all of the formulas or technical specifications of products that we manufacture, and if we are unable to protect the confidentiality of customer trade secrets, know-how and other proprietary and internally developed information, we may not be able to maintain customer relationships and our business may be adversely affected;

 

   

third parties may initiate legal proceedings alleging that we are infringing, misappropriating or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on our business, financial condition and results of operations;

 

   

insiders will continue to have substantial control over us after this offering and could limit your ability to influence the outcome of key transactions, including a change of control; and

 

   

we are governed by the corporate laws of British Columbia, Canada, which in some cases have a different effect on the rights of shareholders than the corporate laws of the United States.

Before you invest in our common shares, you should carefully consider all the information in this prospectus, including matters set forth under the heading “Risk Factors.”


 

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RISK FACTORS

An investment in our common shares involves a high degree of risk. You should carefully consider the risks and uncertainties described below as well as the other information included in this prospectus, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes thereto included elsewhere in this prospectus, before making an investment decision. Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. The trading price of our common shares could decline due to any of these risks, and, as a result, you may lose all or part of your investment. See also “Cautionary Note Regarding Forward-Looking Statements.”

Risks Related to Our Business and Industry

Our business is highly competitive, and if we are unable to compete effectively our revenues and results of operations may suffer.

We operate in a fragmented industry. We face vigorous competition from companies throughout the world, including multi-national and specialized global beauty, personal care and home care manufacturers, independent and emerging beauty and personal care brands, packaging companies, as well as consumer product companies that develop their own global beauty, personal care and home care products. In many of our product lines, we may face competition from some of our customers who have retained development and manufacturing capabilities, which could be used to compete with our own capabilities and solutions. Some of our competitors specialize in one or more of our product sub-segments, while others participate in many of our product sub-segments. Certain of our competitors compete regionally, such as in the Asian or European markets. Such segment and regional specialization may allow such competitors to develop competitive advantages over us in those segments or regions. In addition, some of our global competitors or customers may have more resources than we do or may have proprietary products that could permit them to respond to changing business and economic conditions or market and customer demands more effectively than we can. Consolidation of our competitors may exacerbate these risks.

Competition in our business is based, among other things, on innovation, value-added capabilities, speed to market, integration of solutions to provide turn-key or “one-stop” solutions, product quality, regulatory compliance, pricing, quality of customer service and understanding of end-market dynamics and trends. It is difficult for us to predict the timing, scale and success of our competitors’ actions in these areas. Some of our proprietary manufacturing processes, know-how and design and development expertise could be replicated by competitors or be replaced with competitor solutions. In particular, the discovery and development of new global beauty, personal care and home care formulations and product design, the protection of our trade secrets and intellectual property and the development and retention of key employees are critical to our ability to effectively compete in our business. Significant investment in R&D by competitors or advancements or sudden breakthroughs in technologies could enhance the ability of our competitors to develop substitutable alternatives to our manufacturing processes and expertise. Additionally, as we seek to expand globally, we may face regional price sensitivities or contractual standards that will impact our success in those regions. Further, various customers manage their supply chains by limiting the number of their suppliers through the establishment of preferred or select supplier lists, giving such suppliers the first opportunity or priority for development and production of their new or modified products. Accordingly, we must ensure we provide effective service and meet other requirements and expectations from our customers to maintain inclusion on such preferred or select supplier lists. Increased competition by existing or future competitors, including aggressive price competition, or loss of preferred or select supplier status could result in the loss of sales, reduced pricing and margin pressure and could have a material adverse effect on our business and results of operations.

Additionally, our customers are likewise in competitive industries and face many similar competition risks. If our customers are adversely affected by any of these risks, that in turn could have a material adverse effect on our business and results of operations.

 

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We may not successfully develop, innovate, introduce or acquire new technologies, products and solutions that meet our customers’ needs, which may cause us to fail to attract new customers or sell new products to existing customers, which may in turn adversely affect our results of operations.

Our ability to differentiate ourselves and deliver growth in line with our strategy largely depends on our ability to successfully develop and introduce new products and manufacturing, design and packaging solutions that meet our customers’ needs and, ultimately, appeal to consumers, allowing us to deepen our relationship with our existing customers and strengthen customer loyalty, attract new customers and sell new products to existing customers. Innovation is an important element of our ability to develop and introduce new products and manufacturing, design and packaging solutions, and our turn-key or “one-stop” solutions approach to meeting our customers’ goals requires that we deliver integrated global end-to-end solutions from ideation through manufacturing and packaging. We cannot be certain that we will be successful in achieving our innovation goals, such as the development of new product ideas, formulas, designs or efficient and attractive packaging. In addition, we have in the past and may in the future make substantial investments to acquire new technologies and capabilities, such as our acquisitions of HCT and Zobele during the fiscal year ended April 30, 2020. Our investments may only generate future revenues to the extent that we are able to integrate, develop or acquire solutions that meet our customers’ requirements and specifications, are at an acceptable cost and achieve acceptance by the consumer markets targeted by our customers. There can be no assurance that our investments will result in additional or continued business from existing customers, new customers or increased revenue. Furthermore, there may be significant lag times from the time we invest in new technologies to the time these investments result in increased revenue. Consequently, our ability to generate revenues as a result of these investments is subject to numerous customer, economic, operational and other risks that are outside of our control, including delays by our customers in the launch of new products, the level of promotional support from our customers, anticipated sales by our customers not being realized or changes in market preferences or demands, or disruptive innovations by competitors or innovation being limited by existing third-party intellectual property rights.

To attract new customers and to retain and expand existing customer relationships, we must continually anticipate and react, in a timely and cost-effective manner, to changes in consumer preferences and demands, including, for example, increased focus on health, wellness and sustainability and calls for transparency with respect to product ingredients by consumers and regulators. Consumers of certain of our products, especially in developed economies such as the United States, Canada and Western Europe, are shifting away from products containing artificial ingredients to all-natural, cleaner alternatives, with a demand for sustainable product packaging. In addition, there has been a growing demand by consumers, non-governmental organizations and governmental agencies to provide more transparency in product labeling and our customers have been taking steps to address this demand, including by voluntarily providing product-specific ingredients disclosure. These two trends could affect the types and volumes of our ingredients and compounds that our customers include in their consumer product offerings and, therefore, affect the demand for our solutions. If we are unable to react to or anticipate these trends in a timely and cost-effective manner, it could have a material adverse effect on our business and future growth.

Rapid changes in market trends and consumer preferences could adversely affect our financial results.

Our continued success depends on our ability to anticipate, gauge and react in a timely and cost-effective manner, to industry trends and changes in consumer preferences for global beauty, personal care and home care products, consumer attitudes towards our industries and where and how consumers shop for those products. For example, as a result of the COVID-19 pandemic, demand for color cosmetics has decreased, while demand for personal care and home care products has increased. If we fail to meet such increased demand, our competitors are more successful at scaling production for such increased demand or if we fail to innovate quickly or develop new products to meet such increased demand, our business and financial condition could be adversely affected. Likewise, if there is a decrease in consumer demand for our personal care and home care products and consumer demand in the color cosmetics market does not increase to the extent necessary to compensate for such decrease,

 

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our financial results could be adversely affected. In addition, net revenues and margins could suffer if we do not successfully and continuously develop relationships with customers for new products in the beauty, personal care and home care industries. Many beauty and personal care products have short life cycles, and our failure to rapidly improve existing products or develop new products may negatively affect our operations. Consumer tastes cannot be predicted with certainty and can change rapidly. Additionally, due to the increasing use of social and digital media by consumers and the speed with which information (and, in some cases, misinformation) and opinions are shared, trends and tastes may continue to change even more quickly, particularly in beauty and personal care as product influencers drive a rapid cycle of certain fashion trends. If we are unable to anticipate and respond to trends in the market for global beauty, personal care and home care products and changing consumer demands, it could have an adverse material effect on our business and results of operations.

We rely on our customers’ desire for outsourcing the ideation, formulation, design, packaging and manufacturing processes, and if our customers were to reduce their dependence on such outsourcing or if we are not able to otherwise successfully maintain our customer relationships, our revenues and results of operations would be adversely affected.

Our primary service offering is formulating, designing, packaging and manufacturing products for our customers, utilizing proprietary formulas and ingredients from customers, or proprietary formulas that we develop and sometimes sell in return for manufacturing exclusivities. Our customers outsource various aspects of the product development and manufacturing process to us to leverage our know-how and expertise, as well as benefit from the cost efficiency of our operations. However, if our customers were to reverse this trend and choose to in-source certain activities and processes currently outsourced to us, either as a result of developing their own internal know-how or a change in their view of the cost efficiency of outsourcing or otherwise determine not to continue their relationship with us, it could have a material adverse effect on our business and results of operations.

We may not be able to pursue our growth strategy through acquisitions, and the failure to successfully complete and integrate acquisitions could adversely affect our growth.

Historically, we have grown significantly through acquisitions. Notable acquisitions include Chemaid during the fiscal year ended April 30, 2015, followed by Kolmar and Acupac during the fiscal year ended April 30, 2016, Thibiant during the fiscal year ended April 30, 2017 and Aromair and Northern Labs during the fiscal year ended April 30, 2018. During the fiscal year ended April 30, 2020, we completed seven acquisitions comprised of Alkos, Swallowfield, Benchmark, HCT, CLA, Paristy and Zobele. Our future growth may depend on additional acquisitions of global beauty, personal care and home care products businesses and other strategic businesses or assets meeting our acquisition criteria. We may not be able to locate or acquire other suitable acquisition candidates consistent with our strategy, and we may not be able to fund future acquisitions because of limitations under our indebtedness or otherwise, including due to the limited availability of funds.

If we are unable to successfully integrate and develop acquired businesses and operations, we could fail to achieve anticipated synergies and cost savings, including any expected increase in revenues and operating results, which could have a material adverse effect on our financial results. We may also incur asset impairment charges related to acquisitions that reduce our earnings. See “—Failure to realize anticipated synergies of recent and future acquisitions or restructurings may adversely affect our revenues and results of operations.”

In addition, from time to time, we may provide earnouts for the former owners. We may also acquire only a majority interest in companies and provide the ability, at our option, or obligation, at the former owners’ option, to purchase the minority interests at a future date at an established price. These investments may have additional risks and may not be as efficient as other operations as we may have fiduciary or contractual obligations to the minority investors and may rely on former owners for the continuing operation of the acquired business. If we are unable to successfully establish and manage these collaborative relationships and majority investments, it could adversely affect our future growth.

 

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Failure to realize anticipated synergies of recent and future acquisitions or restructurings may adversely affect our revenues and results of operations.

The combination of independent businesses is complex, costly and time-consuming, and combining practices and operations may divert significant management attention and resources and disrupt our business. The failure to meet the challenges involved in integrating acquired businesses and to realize the anticipated benefits of the transactions could cause an interruption of, or a loss of momentum in, our business activities and could adversely affect our results of operations. The process of combining businesses may also result in material unanticipated problems, expenses, liabilities, disputes, competitive responses, and loss of customer and other business relationships. The difficulties of integration include, among others:

 

   

the diversion of management and key personnel attention to integration matters;

 

   

integrating operations and systems, including communications systems, administrative and information technology infrastructure, sales efforts, financial reporting and internal control systems, and intellectual property related to any of the foregoing, some of which may prove to be incompatible, resulting in less effective decision-making based on the information provided by these systems;

 

   

conforming standards, controls, procedures and accounting and other policies, business cultures and compensation structures between the businesses;

 

   

integrating employees and attracting and retaining key personnel;

 

   

retaining existing and obtaining new customers and suppliers;

 

   

managing the expanded operations of a significantly larger and more complex company with broader geographic scope and exposure to different business risks;

 

   

failure to manage internal communications within the organization;

 

   

contingent liabilities that are larger than expected; and

 

   

potential unknown liabilities, adverse consequences and unforeseen increased expenses associated with transactions.

Many of these factors are outside of our control and/or will be outside the control of the acquired businesses, and any one of them could result in lower revenues, higher costs and diversion of management and key personnel time and energy, which could have a material adverse effect on our business, financial condition and results of operations.

In addition, even if the operations of our business and the acquired businesses are integrated successfully, the full benefits of the transaction may not be realized, including, among others, the synergies, cost savings or sales or growth opportunities that are expected. These benefits may not be achieved within the anticipated time frame or at all. Further, additional unanticipated costs may be incurred in the integration of our business and the acquired businesses. All of these factors could cause dilution to our earnings per common share, decrease or delay the projected accretive effect of the acquisitions in question, and negatively impact the price of our common shares following the transactions.

From time to time, we may restructure operations within the Company to achieve efficiencies. For example, we are currently restructuring our European and West Coast operations. In Europe, we expect that our recent acquisitions in France, the United Kingdom and the Czech Republic will allow us to transfer manufacturing of certain products, including pencils, soap and deodorant sticks, to other sites within our global footprint, and may involve investing in production lines. The acquisitions of Benchmark and CLA and the merger with HCT allow for the Company to maintain a regional hub, through our various California facilities, for West Coast customers in the United States, providing opportunities for collaboration, future investment and increased scale for growth. As with the integration of newly acquired businesses, restructuring of existing operations may reduce our available talent, assets and other resources, slow improvements in our products and services, adversely affect our

 

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ability to respond to customers, limit our ability to increase production quickly if demand for our products increases and draw adverse public attention. Realizing the anticipated benefits from planned restructuring initiatives, if any benefits are achieved at all, may take several years, and we may be unable to achieve our targeted cost efficiencies and gross margin improvements. Any of the circumstances described above could adversely impact our business and financial statements.

We do not typically have long-term contracts with our customers.

We do not typically have long-term contracts with our customers. The majority of our contracts are relatively short term and vary from three- to five-year terms. As a result, our relationships with our customers may change on short notice. Future agreements with respect to volume, pricing or new products and services, among other things, are subject to periodic negotiation with each customer. No assurance can be given that our customers will continue to do business with us, and the loss of product lines from any of our significant customers could have a material adverse effect on our business, results of operations, financial condition and liquidity. See “—Economic uncertainty may adversely affect consumer demand and customer needs, which may have a negative impact on our operating results and future growth” and “—We rely on our customers’ desire for outsourcing the ideation, formulation, design, packaging and manufacturing processes, and if our customers were to reduce their dependence on such outsourcing or if we are not able to otherwise successfully maintain our customer relationships, our revenues and results of operations would be adversely affected.”

Customers may cancel, reduce or delay their orders for various reasons, including changes in their inventory levels, storage capacity and changes in market trends and consumer preferences. Order cancellations, reductions or delays, or attempts to modify the terms of an order or delay delivery, by a significant customer or by a group of customers could harm our operating results and cash flows. In addition, we make significant decisions, including determinations regarding the level of business we will seek and accept, production schedules, component procurement commitments, personnel needs and other resource requirements, based on our estimates of customer requirements. The short-term nature of certain of our customers’ commitments, the absence of contractual volume commitments and the likelihood of rapid changes in demand for their products impair our ability to estimate our future customer requirements and allocate our resources accurately. As a consequence of the above factors, many of which are beyond our control and difficult to predict, our ability to plan is limited and our operating results and cash flows may vary significantly from our expectations.

In addition, as a part of our growth strategy, we regularly make capital investments in equipment necessary to meet our customers’ needs. In particular, we have one long-term contract with a key customer that could require capital expenditures to meet their growth requirements. To create product lines our work extends from formulation of products or invention of concept for devices through manufacturing and packaging, requiring meaningful investment of capital on a cyclical basis. These expenditures have, and will continue to, put pressure on our managerial, technical, financial, operational and other resources. Due to the short-term nature of the contracts with most of our customers and the likelihood of rapid changes in demand for their products, we may be unable to recoup our capital expenditures over the course of a customer’s contract. Our financial results and liquidity could be negatively impacted if we do not experience payback periods and returns on investment consistent with historical benchmarks.

A significant portion of our revenue comes from a limited number of customers, the loss of which would have a material adverse effect on our business, financial condition and results of operations.

Historically, we have relied on a limited number of customers for a substantial portion of our total revenue. For the fiscal years ended April 30, 2021 and April 30, 2020 and Combined 2019 Financial Information for the year ended April 30, 2019, our two largest customers represented 20.3% and 14.4%, 23.0% and 13.3%, and 20.8% and 15.0%, respectively, of our total revenue.

We may not be successful in continuing to reduce customer concentration due to a number of factors, including lower revenue growth, loss of a key customer or product line and relative growth of one customer’s

 

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business with us relative to the rest of our business. In particular, we may not succeed in attracting new smaller, fast-growing independent brand owners, which may adversely affect our revenues and results of operations. Additionally, a concentration among a limited number of our customers, and in particular our customers that are large corporations, could increase the negotiating power of these customers, leading to pricing pressure, which may have an adverse effect on our profitability.

Many of our customers are large and operate across several industries for which we ideate, formulate, develop, manufacture and package their products. Certain of our customers may only utilize us for a subset of their end-markets or in a single geography or may utilize only certain of our services. We rely on the strength of our relationships with these customers to expand our relationship with those customers into other industries, applications and regions. Because many of our customers operate in the global market and in several industries, a negative outcome in one sector or region could impact a global relationship.

We also rely on our reputation in order to promote our ideation, formulation, design, packaging and manufacturing solutions to potential new customers. The loss of any of our key customers, or a failure of some of them to renew or expand their relationships with us, could have a significant impact on our revenue, our reputation and our ability to obtain new business from existing customers or attract new customers.

We have a history of net losses and there is no guarantee that we will achieve profitability in the short-term.

We incurred net losses of $125.8 million for the fiscal year ended April 30, 2021, $81.9 million for the fiscal year ended April 30, 2020, $9.3 million for the period from November 30, 2018 through April 30, 2019, and $22.7 million for the period from May 1, 2018 through December 20, 2018. As of April 30, 2021, we had an accumulated deficit of $217.0 million. These losses and accumulated deficit are a result of the substantial investments we made to grow our business and we expect to make significant investments to expand our business in the future. For example, in order to support the continued growth of our business and to comply with continuously changing operational requirements, we plan to continue investing in both existing and new facilities and to continue to selectively pursue acquisition opportunities, which require that we incur various expenses, as well as the recognition of incremental depreciation and amortization. These expenditures may make it harder for us to achieve profitability in the short-term.

We may make decisions that would reduce our short-term operating results if we believe those decisions will improve our business prospects and financial performance over the long-term. These decisions may not be consistent with the expectations of investors and may not produce the long-term benefits that we expect, in which case our business, results of operations or financial condition may be materially and adversely affected.

We are subject to risks related to our international operations.

We maintain sites in 14 countries and have key R&D, design and creative facilities and innovation hubs located outside the United States and Canada that ideate, formulate, develop, manufacture and package goods. As of April 30, 2021, approximately 27% of our revenues and approximately 36% of our long-lived assets were attributable to our operations outside the United States and Canada. Our operations outside the United States and Canada are subject to many risks and uncertainties, including:

 

   

fluctuations in foreign currency exchange rates, which have affected and may in the future affect our results of operations, reported earnings, the value of our foreign assets, the relative prices at which we and foreign competitors offer solutions in the same markets and the cost of certain inventory and non-inventory items required by our operations;

 

   

changes in foreign laws, regulations and policies, including restrictions on foreign investment, trade, import and export license requirements, quotas, trade barriers and other protection measures imposed by foreign countries, as well as changes in U.S. and Canadian laws and regulations relating to tariffs and taxes, foreign trade and investment;

 

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difficulties and costs associated with complying with, and enforcing remedies under, a wide variety of complex, and potentially conflicting, domestic and international laws, treaties and regulations, including the European Union’s General Data Protection Regulation (“GDPR”), the U.S. Foreign Corrupt Practices Act (“FCPA”), Canada’s Corruption of Foreign Public Officials Act and different regulatory structures and changes in regulatory environments;

 

   

potentially reduced protection for, and difficulty enforcing, intellectual property rights, especially in jurisdictions that do not respect and protect intellectual property rights to the same extent as the United States or Canada;

 

   

failure to effectively and immediately implement processes and policies across our diverse operations and employee base;

 

   

adverse weather conditions, social, economic and geopolitical conditions, such as political instability, environmental hazards, natural disasters, terrorist attacks, war or other military action or violent revolution;

 

   

significant health hazards or pandemics, which could result in closed factories, reduced workforces, scarcity of raw materials, and scrutiny or embargoing of goods produced in infected areas;

 

   

industry and contractual standards that are specific by region and which may generate different or additional business risk to operate;

 

   

disruption due to labor disputes; and

 

   

impact of the global pandemic caused by COVID-19 or new variants and mutations thereof.

For example, the ongoing outbreak of COVID-19 has led to global work and travel restrictions or limitations. These restrictions and limitations have made and may continue to make it difficult for our suppliers and our customers to source raw materials and for us to manufacture finished goods and create limitations on or difficulties related to the export of our products internationally and in the United States and Canada. There have been significant and material disruptions to our global supply chain and operations, and delays in the manufacture of products, which may have a material adverse effect on our results of operations. Our future performance will depend upon these and the other factors listed above, which are beyond our control, and the occurrence or deepening impact of one or more of these events could have a material adverse effect on our results of operations, financial condition and cash flows.

We are also subject to the interpretation and enforcement by governmental agencies of foreign laws, rules, regulations or policies, including any changes thereto, such as restrictions on trade, import and export license requirements, privacy and data protection laws, and tariffs and taxes, which may require us to adjust our operations in certain markets where we do business. We face legal and regulatory risks in all jurisdictions in which we operate, in particular, cannot predict with certainty the outcome of various contingencies or the impact that pending or future legislative and regulatory changes may have on our business. In connection with our international expansion, an increasing portion of our activities may be located in emerging markets, such as China, India and Brazil, and we may face additional legal and regulatory risks in new target markets, including markets with political and economic structures which may lack the political and economic stability characteristic of jurisdictions such as the United States, Canada and Western European countries. As a result, we may be vulnerable to the geopolitical and legal and regulatory conditions affecting those markets, which may create more onerous or potentially conflicting compliance requirements. These risks could have a material adverse effect on our business, prospects, financial condition and results of operations.

As we expand our business in the Asia Pacific region, and in particular in China, the economic, political and social conditions, as well as changes in any government policies, laws and regulations, could adversely affect our business.

We have made and plan to continue to make significant investments in expanding our presence in the Asian market, including through our recent acquisitions of Paristy, HCT and Zobele, to (i) drive customer and

 

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consumer awareness of the products we ideate, formulate, manufacture and package with existing customers in the Asian market and (ii) persuade potential Asian domestic customers to contract with us to ideate, formulate, manufacture and package their products. Our ability to penetrate and succeed in the Asian market will depend on, among other things, market acceptance of the products we ideate, formulate, manufacture and package with existing customers as well as potential Asian domestic customers, our ability to adapt to the requirements and barriers to entry specific to this market, and our ability to generate revenues and compete effectively with other formulating and manufacturing businesses operating in Asia, in particular in China and areas in Southeast Asia. We cannot assure you that a new market for the products we ideate, formulate, manufacture and package will become viable in the Asia Pacific region, and our investments may not be successful.

As we expand our operations in the Asia Pacific region, and in particular in China, our business in the region may be subject to economic, political and legal developments in China. China’s economy differs from the economies of most developed countries in many respects, including the amount of government involvement in directing business activity, level of development, growth rate, control of foreign exchange and allocation of resources, and the use or control of business activity in pursuit of foreign-policy objectives. While the Chinese economy has experienced significant growth in the past three decades, growth has been uneven, both geographically and among various sectors of the economy, and concerns exist as to whether expansion will continue and whether contraction could occur. Demand in China for Western services and products depends, in large part, on economic conditions in China, as well as on creation of and demand for similar Chinese domestic products. This demand may also be impacted by political considerations or events, including regarding the existing social policy of Hong Kong and its relationship with mainland China. Any slowdown in China’s economic growth or its desire or government directives to purchase Chinese domestic products rather than Western products may cause our potential Asian domestic customers to delay or cancel their plans to purchase our services and products, which in turn could reduce our revenues. We also may face competition from existing manufacturers in the Asia Pacific region. These competitors may serve established customers and have other regional and cost-saving advantages with which we may struggle to compete.

Although China’s economy has transitioned from a planned economy to a more market oriented economy since the late 1970s, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies, in some cases in pursuit of foreign policy objectives. The Chinese government also exercises significant control over China’s economic growth through allocating resources, controlling the incurrence and payment of foreign currency-denominated obligations, setting monetary policy, directing the lending activity of banks and providing preferential treatment to particular industries or companies. Changes in any of these policies, laws and regulations could impact our business or adversely affect the economy in China and thus have a material adverse effect on our business.

The Chinese government has implemented various measures to encourage foreign investment and sustainable economic growth and to guide the allocation of financial and other resources. However, we cannot assure you that the Chinese government will not repeal or alter these measures or introduce new measures that will have a negative effect on us. China’s social and political conditions may change and become unstable. Any sudden changes to China’s political system or the occurrence of widespread social unrest, including within Hong Kong, or the implementation of additional national-security measures by China could have a material adverse effect on our business and results of operations. Additionally, international trade policies with China remain in flux, and changes to such policies may impact our strategy of expanding in China.

The U.S. government could expand, and the Canadian or other governments could expand or impose, economic sanctions on China for various reasons. Any such actions, or countermeasures taken by China, could materially impact our business.

 

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Interruptions and delays in manufacturing operations, including volatility and increases in the price of raw materials and energy and transportation, could adversely affect our business, revenues and reputation.

Our manufacturing solutions require the timely delivery of sufficient amounts of complex, high-quality components and materials. As of the date of this prospectus, we operate 25 manufacturing facilities, which are supported by a complex supply-chain operation sourcing from hundreds of suppliers locally and around the world. We have in the past faced, and may in the future face, unanticipated interruptions and delays in manufacturing through our internal or external supply chain, including transportation of materials. We are subject to risks related to manufacturing on a global scale, including industrial accidents, environmental events, strikes and other labor disputes (including ongoing discussions of unionization), disruptions in supply chain or information systems, disruption or loss of key research or manufacturing sites, political instability, rapid changes in trade regulations or enforcement, product quality control, safety and environmental compliance issues, licensing requirements and other regulatory issues, as well as natural disasters, global or local health crisis (including COVID-19, as discussed below), international conflicts, terrorist acts and other external factors over which we have no control. Such delays and difficulties in manufacturing can result in manufacturing shortages, declines in sales and reputational impact as well as significant remediation and related costs associated with addressing the shortages. In particular, if we are not able to provide the manufacturing capacity needed to meet our customers’ demands, we may see a negative effect on our business, revenues and reputation.

In addition, we and our customers use many different raw materials for our businesses, which has exposed, and may in the future expose, our customers, and in certain circumstances us, to price volatility with respect to raw materials.

Because we and our customers often rely on a limited number of suppliers for certain products’ components, the risk of price volatility for raw materials may be exacerbated. If our customers are impacted by raw material and other input cost increases and are unable to pass these to consumers through price increases, they may attempt to negotiate lower prices or otherwise transfer the risk to us as a means of preserving their margins and results of operations. In that case, we could fail to meet our revenue expectations, which could have a material adverse effect on our profitability and results of operations. Increases in prices of our solutions to customers or failure to decrease prices as customers may request may lead to declines in sales volumes, and we may not be able to accurately predict the volume impact of price increases, which could have a material adverse effect on our financial condition and results of operations. Further, the limited number of suppliers for certain products’ components exposes us to additional risks in the event of unavailability or delivery delays of those components, which would adversely affect our ability to manufacture the related products in a timely manner. While we seek to mitigate the risk of any potential supply interruptions, including by identifying alternative suppliers, sourcing components from different supplier locations and taking other actions to ensure our supply, such mitigation measures have limitations and may not be effective in all instances.

Similarly, commodities and energy prices are subject to significant volatility. If the cost of certain commodities or energy, shipping or transportation increases and we are unable to pass along these costs to our customers, our profit margins would be adversely affected. Furthermore, increasing our prices to our customers could result in long-term sales declines or loss of market share if our customers find alternative suppliers or choose to reformulate their consumer products to use fewer ingredients, which could have a material adverse effect on our results of operations.

Our revenue and operating income fluctuate on a seasonal basis.

Our revenue and operating income experience moderate fluctuations in connection with the corresponding seasonality of our customers’ respective businesses. Fluctuations may occur in connection with the year-end of our major customers when customary inventory assessments may occur, which may in turn affect future orders to us from such customers. We generally record our strongest results in our second fiscal quarter. Any decrease in revenue or margins during this period could have a material adverse effect on our results of operations, financial

 

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condition and cash flows. Seasonal fluctuations also affect our cash and inventory levels, since we usually manufacture and produce products for our customers in advance of their peak selling periods. We must manufacture a significant amount of inventory, especially before the holiday season selling period. If our customers are not successful in selling inventory, they may have to sell the inventory at significantly reduced prices or may not be able to sell the inventory at all, which could negatively impact the operations of our customers and which in turn could reduce future orders or the Company may incur excess storage costs, either of which could have a material adverse effect on our results of operations, financial condition and cash flows.

We rely on complex machinery for our operations, and production involves a significant degree of risk and uncertainty in terms of operational performance and costs.

We rely on complex machinery for our operations, and our production involves a significant degree of uncertainty and risk in terms of operational performance and costs. Our manufacturing facilities contain large-scale machinery combining many components. These components may suffer unexpected malfunctions from time to time and may require repairs and spare parts to resume operations, which may not be available when needed. Major rebuilds, annual maintenance, refurbishments and upgrades of our machinery are performed by third-party service suppliers from time to time. Although we also rely on internal capabilities, operational efficiency may be affected if we are not able to outsource such maintenance operations in a timely manner or in case of disruptions affecting our service suppliers. Unexpected malfunctions of the manufacturing plant components may significantly affect the intended operational efficiency. Operational performance and costs can be difficult to predict and are often influenced by factors outside of our control, such as, but not limited to, scarcity of natural resources, environmental hazards and remediation, costs associated with decommissioning of machines, labor disputes and strikes, difficulty or delays in obtaining governmental permits, damages or defects in electronic systems, industrial accidents, pandemics, fire and seismic activity and natural disasters. Additionally, due to the complex nature of our machinery, there may be limited flexibility to enable plants built for certain high-speed, high-volume and specific products to adjust for new products, which could impact our ability to quickly respond to shifts in customer demand. If any of our manufacturing facilities experienced unexpected downtime due to these risks or otherwise, there could be a material adverse effect on our business, results of operation, cash flows, financial condition, reputation or prospectus.

Should operational risks materialize, they may result in serious personal injury to or death of workers, the loss of production equipment, damage to manufacturing facilities, monetary losses, delays and unanticipated fluctuations in production, environmental damage, administrative fines, increased insurance costs and potential legal liabilities, all of which could have a material adverse effect on our business, results of operations, cash flows, financial condition, reputation or prospects.

Product reliability, safety and effectiveness concerns can have significant negative impacts on sales and results of operations, lead to litigation and cause reputational damage.

Concerns about product safety, whether raised internally or by litigants, regulators or consumer advocates, and whether or not based on scientific evidence, can result in safety alerts, product recalls, governmental investigations, regulatory action on the part of the U.S. Food and Drug Administration (“FDA”), Health Canada or other regulatory agencies (or their respective counterparts in other countries), private claims and lawsuits, payment of fines and settlements, declining sales and reputational damage.

Product safety or quality failures, actual or perceived, or allegations of product contamination, even when false or unfounded, could tarnish the image of our solutions, harm our relationship with our customers, and could cause customers to choose other partners. Allegations of contamination or other adverse effects on product safety or suitability for use by a particular customer, even if untrue, may require the recall of the product from all of the markets in which the affected production was distributed. Product recalls have occurred in the past and could occur in the future. Such recalls could prompt government investigations and inspections, the shutdown of manufacturing facilities, continued product shortages and related sales declines, significant remediation costs,

 

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reputational damage, civil penalties and criminal prosecution. Any of these circumstances can also result in damage to brand image, brand equity and customer trust in our solutions.

If the products we manufacture are perceived to be defective or unsafe, or if they otherwise fail to meet our customers’ or consumers’ standards, our relationships with customers could suffer and we could lose sales or become subject to liability claims. Any of these outcomes could result in a material adverse effect on our business, financial condition and results of operations.

We are subject to risks associated with leasing and occupying real property and the inability to extend, renew or continue to lease real property in key locations, could harm our business, profitability and results of operations.

While some of our properties are owned, most of them are leased with leases set to expire at various times through 2038, subject to renewal options in most instances. Accordingly, we are subject to the risks associated with leasing, occupying and making tenant improvements to real property, including, among others, changes in availability of, and contractual terms for, leasable manufacturing space, as well as potential liability for environmental conditions or various other claims. As each of our leases expire, we may be unable to negotiate renewals, either on commercially acceptable terms or at all, which could impact our ability to manufacture our products or deliver them to the market, which in turn could harm our business, profitability and results of operations.

Natural disasters, public health crises (such as the ongoing COVID-19 outbreak), international conflicts, terrorist acts, labor strikes, political crisis, accidents and other events could adversely affect our business and financial results by disrupting development, manufacturing or sale of our products.

As a company engaged in the global development, manufacture and distribution of consumer products, we are subject to the risks inherent in such activities, including industrial accidents, environmental events, strikes and other labor disputes, product quality control issues, safety, licensing requirements and other regulatory issues, as well as natural disasters, public health crises, such as pandemics or epidemics, international conflicts, terrorist acts and other external factors over which we have no control.

While we operate R&D and manufacturing facilities throughout the world, many of these facilities are specialized and certain of our R&D, design and creative facilities and innovation hubs are uniquely situated to support our R&D efforts while certain of our manufacturing facilities are the sole location where a specific ingredient or product is produced. If our R&D activities or the manufacturing of ingredients or products were disrupted, the cost of relocating or replacing these activities or reformulating these ingredients or products may be substantial, which could result in production or development delays or otherwise have an adverse effect on our margins, operating results and future growth.

The global spread of COVID-19, which originated in late 2019 and was declared a pandemic by the World Health Organization in March 2020, has negatively impacted the global economy, disrupted supply chains and created significant volatility in global financial markets. Although there has been an easing of restrictions in certain jurisdictions, some or all of those restrictions could be reinstated to manage a resurgence or new outbreak of the COVID-19 pandemic, including in connection with new variants and mutations thereof. These new variants and mutations and the logistics of vaccine distribution may lead to other restrictions being implemented in response to efforts to reduce the spread of COVID-19. The impact of COVID-19 has resulted in payment deferrals by certain of our customers, which to date has not had an adverse effect on our financial results. Further payment deferral may occur in the event of a resurgence of the outbreak, which may have an adverse effect on our financial results. Various jurisdictions, notably certain European countries and Canada, began to initiate new governmental restrictions, including travel restrictions, in response to renewed pandemic impacts and concerns, which may adversely impact future results of operations and cash flows. Although we have taken actions to enhance our financial flexibility and minimize the impact on our business, the ultimate impact to our business continues to remain uncertain.

 

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Furthermore, if a large number of our employees and/or a subset of our key employees and executives are impacted by COVID-19, our ability to continue to operate effectively may also be negatively impacted. While we have taken comprehensive measures intended to help minimize the risk of the virus to our employees, including the adoption of numerous safety measures such as mask-wearing, hand-washing, social-distancing protocols, health screening protocols and the reorganization of production lines and shifts, allowing all employees capable of working remotely to do so, suspending all non-essential travel worldwide for our employees and, other than in emergency situations with authorization of senior executives, prohibiting employee attendance at industry events and in-person work-related meetings, which could negatively affect our business, we cannot presently predict the scope and severity of the planned and potential shutdowns, furloughs or disruptions of businesses and government agencies.

In response to the spread of COVID-19 and the resulting economic uncertainty, we have taken, and may continue to take, other measures that might negatively impact our business, including suspending all facilities build-outs, significantly reducing non-essential capital expenditures and significantly reducing our contingent workforce. Additionally, as COVID-19 vaccines are becoming available and being distributed, and all of our operations resume and/or return to pre-pandemic status, new potential legal liabilities could arise in connection with workplace safety and employee rights.

With the sustained impact of COVID-19, we have seen a decrease in customer demand for certain of our products like color cosmetics, likely due in part to work-from-home policies and increased mask-wearing. We have also seen an increase in cancelled and deferred customer orders alongside increased costs in ensuring laboratory work safety. These and other factors arising from the COVID-19 pandemic could worsen. Any of these factors and other factors related to any such disruptions that are unforeseen, could have a material adverse effect on our business, results of operations and financial condition. Further, uncertainty around these and related issues could lead to adverse effects on the economy and capital markets of the United States, Canada, Europe and other economies, which could impact our ability to access capital needed to grow our business. Furthermore, the COVID-19 pandemic could exacerbate the other risks described in this section.

Economic uncertainty may adversely affect consumer demand and customer needs, which may have a negative impact on our operating results and future growth.

Our manufacturing, design and packaging solutions are used in a wide assortment of global consumer products throughout the world. Historically, demand for consumer products using our solutions was stimulated and broadened by changing social habits and consumer needs, population growth, an expanding global middle-class and general economic growth, especially in emerging markets. The global economy has recently experienced significant recessionary pressures and declines in consumer confidence and economic growth as a result of the COVID-19 pandemic. While some segments of the global economy appear to be recovering, the surrounding global economic uncertainty in the United States, Canada and Europe has increased, and may in the near future increase, unemployment and underemployment, and could also decrease salaries and wage rates, increase inflation or result in other market-wide cost pressures that will adversely affect demand for consumer products in both developed and emerging markets. In addition, growth rates in the emerging markets have moderated from previous levels. Reduced consumer spending may cause changes in our customer orders including reduced demand for our beauty, personal care or home care solutions, or order cancellations. The timing of placing of orders and the amounts of these orders differ by contract. The majority of our key contracts are relatively short term and vary from three- to five-year terms. Our purchase orders are generally at our customers’ discretion and customers may cancel, reduce or postpone orders with us on relatively short notice. Significant cancellations, reductions or delays in orders by customers could have a material adverse effect on our financial condition and results of operations. See “—We do not typically have long-term contracts with our customers.”

 

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Our success depends on attracting and retaining talented people. Significant shortfalls in recruitment or retention could adversely affect our ability to compete and achieve our strategic goals.

Attracting, developing, and retaining talented employees, including our scientists, engineers, package designers, manufacturing operators and key executives, is essential to the successful delivery of our customer solutions and success in the marketplace. Furthermore, as we continue to focus on innovation, we expect that our need for scientists and other professionals will increase. The ability to attract and retain talented employees is critical in the development of new products and technologies which is an integral component of our growth strategy. Attracting and retaining factory labor is also essential to our ability to continue to meet our customers’ requirements. In certain markets, we face intense competition for factory labor, which may limit our ability to attract and retain employees. We use third-party employment agencies to source temporary factory labor, in particular to respond to fluctuations in customer demand. Our inability to attract and retain factory labor, or to do so at a reasonable cost, or to enter into satisfactory arrangements with third-party providers of temporary labor may negatively impact our manufacturing operations and, in turn, our revenues.

Competition for employees and executives can be intense and if we are unable to successfully integrate, motivate and reward the acquired company employees and executives or our current employees and executives in our combined company, we may not be able to retain them. If we are unable to retain these employees and executives or attract new employees and executives in the future, our ability to effectively compete with our competitors and to grow our business could be adversely affected.

Wage increases and pressure in certain geographies may prevent us from sustaining our competitive advantage and may reduce our profit margin.

Both domestically in United States and Canada and globally, measures are being taken to increase minimum wages, and there is a shortage of skilled labor in certain locations leading to increased wage pressure. Similarly, with an increased global focus on environmental, social and corporate-governance concerns and sustainability, input costs have been steadily rising. Accordingly, we may need to increase the levels of labor compensation more rapidly than in the past to remain competitive in attracting and retaining the quality and amount of labor that our business requires. To the extent that we are not able to control or share wage increases, wage increases may reduce our margins and cash flows, which could adversely affect our business.

If we are not able to maintain, enhance and protect our reputation and recognition as a strong partner, particularly as a result of our acquisitions, our business and results of operations will be harmed.

We believe that maintaining and enhancing our reputation and recognition as a strong partner is critical. The promotion, marketing or cross-selling of our turn-key approach to product innovation, manufacturing and packaging may require us to make substantial investments and we anticipate that these promotion, marketing or cross-selling initiatives may become increasingly difficult and expensive. Our promotional, marketing and cross-selling activities may not be successful or yield increased revenue, and to the extent that these activities yield increased revenue, the increased revenue may not offset the expenses we incur and our results of operations could be harmed. In addition, any factor that diminishes our reputation or that of our management, or any adverse publicity or litigation involving or surrounding us or our management, could make it substantially more difficult for us to attract customers. For example, if we fail to maintain confidentiality of our customers’ information, including formulas and details of upcoming product launches, whether due to human or technological error or to a malicious event, this may lead to a loss of trust among our customers and damage our reputation. In addition, if any of our recent or potential acquisitions do not live up to or enhance our reputation, our business and results of operations may be harmed as our customers may choose to find a new manufacturer and it becomes more difficult to attract new customers.

 

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Our business could be negatively impacted by a failure to maintain good corporate citizenship or diversity and by environmental, social and sustainability concerns.

There is an increased focus from certain investors, customers, consumers, employees, and other stakeholders concerning corporate citizenship, diversity and sustainability matters. These concerns include concerns about lack of diversity in senior leadership positions, as well as the impact of our operations on climate change, the use of plastic, energy, waste and worker safety. Our reputation could be damaged if we do not (or are perceived not to) act responsibly with respect to these matters, which could adversely affect our business, financial condition, profitability, and cash flows. We could fail, or be perceived to fail: (i) to adequately promote diversity within the Company, particularly among our senior leadership positions, and (ii) with respect to the initiatives and goals we have adopted to address sustainability matters, to accurately report our progress on such initiatives and goals. Moreover, the standards by which citizenship and sustainability efforts and related matters are measured are developing and evolving and could change over time. We could be criticized for the seeming lack of diversity in our current management team, as well as the scope of citizenship and sustainability initiatives or goals or perceived as not acting responsibly in connection with any of these matters. Any such matters, or related corporate citizenship, diversity and sustainability matters, could have a material adverse effect on our business.

Our comparable revenues and quarterly financial performance may fluctuate for a variety of reasons, which could result in a decline in the price of our common shares.

Our comparable revenues and quarterly results of operations have fluctuated in the past, and we expect them to continue to fluctuate in the future. A variety of factors affect our comparable revenues and quarterly financial performance, including:

 

   

general U.S. and Canadian economic conditions or economic conditions in any of our global markets;

 

   

performance of our customers and the retail markets;

 

   

the effectiveness of our inventory management as well as the inventory management of our customers;

 

   

timing and success of integrating new acquisitions, including additional human resource requirements and other integration costs;

 

   

actions by our existing or new competitors and the competitors of our customers; and

 

   

hurricanes, tornadoes, wildfires, earthquakes, mudslides, other natural disasters, and epidemics or pandemics.

Accordingly, our results for any one fiscal quarter are not necessarily indicative of the results to be expected for any other quarter, and comparable revenues for any particular future period may decrease. In that event, the price of our common shares may decline. For more information on our quarterly results of operations, see “Prospectus Summary—Summary Consolidated Financial and Other Data,” “Selected Consolidated Financial Data,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Risks Related to Litigation and Regulatory Issues

Our results of operations may be negatively impacted by the outcome of uncertainties related to litigation or product recalls.

From time to time we are involved in a number of legal claims, regulatory investigations and litigation, including claims related to intellectual property, product liability, human resource matters, environmental matters and indirect taxes, as well as in litigation involving our customers. Our manufacturing and other facilities have in the past, and may in the future, expose us to environmental claims and regulatory investigations. The cost of defending these claims or our obligations for direct damages and indemnification if we were found liable could adversely affect our results of operations. In addition, such proceedings could distract our management and other

 

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employees or result in disclosure of our confidential information or of confidential information of a customer when required by law. Further, if securities analysts or investors perceive the developments relating to, or results of, such investigations or litigation matters to be negative, it could have an adverse effect on the price of our common shares.

Our insurance may not be adequate to protect us from all material expenses related to pending and future claims and our current levels of insurance may not be available in the future at commercially reasonable prices. Any of these factors could adversely affect our profitability and results of operations.

We rely on third-party suppliers in procuring materials for our customers and otherwise conducting our business and operations, and their failure to perform to our standards or in a timely manner could adversely affect our reputation, business, and financial results.

Third-party suppliers are key to the procurement of materials for our customers and otherwise conducting our business and operations. We have not implemented a supplier risk analysis program and do not have a centralized set of procurement or purchasing guidelines. We do not control our suppliers, their actions or their businesses. No assurance can be provided that suppliers will perform to our or our customers’ standards, comply with applicable law, appropriately manage their own risks, remain financially or operationally viable, or continue to provide us with the products that we require. In such a circumstance, our ability to deliver products and services to customers, to satisfy customer expectations and to otherwise successfully conduct our business and operations could be adversely affected. In addition, we may need to incur substantial expenses to address issues of concern with a supplier, and even if the issues cannot be acceptably resolved, we may not be able to timely or effectively replace the supplier due to contractual restrictions, the unavailability of acceptable alternative suppliers or other reasons. Further, regardless of how much we can influence our suppliers, actions of third-party suppliers could result in regulatory actions against us, which could damage our reputation and, in turn, adversely affect our business, financial condition and results of operations.

If we are unable to comply with regulatory requirements and industry standards, including those regarding product safety, quality, efficacy and environmental impact, we could incur significant costs and suffer reputational harm which could adversely affect results of operations.

Our ideation, formulation, design, packaging and manufacturing solutions are subject to various regulatory requirements in each of the countries in which we operate. See “Business—Regulatory Matters.” In addition, we are subject to product safety and compliance requirements established by governments, industry or similar oversight bodies, or contractually by our customers, including requirements concerning product safety, quality and efficacy, environmental impacts (including packaging, energy and water use and waste management) and other sustainability or similar issues. Regulatory issues regarding compliance with Current Good Manufacturing Practices (“cGMP”) (and comparable quality regulations in foreign countries) by manufacturers of drugs, devices and consumer products can lead to fines and penalties, product recalls, product shortages, interruptions in production, delays in new product approvals and litigation. As concerns regarding safety, quality and environmental impact become more pressing, we may see new, more restrictive regulations adopted that impact the products we manufacture or our manufacturing processes. For example, the European Chemicals Agency has proposed that the European Commission adopt a ban on microplastics, including those found in personal care items, detergents and cosmetics, to reduce plastics pollution. If this ban is adopted, we may be required to modify and/or innovate new solutions to replace microplastics. If we are unable to adapt to these new regulations or standards in a cost effective and timely manner, we may lose business to competitors who are able to provide compliant products.

Gaps in our operational processes or those of our suppliers or customers can result in products that do not meet our quality control or industry standards or fail to comply with the relevant regulatory requirements, which in turn can result in finished consumer goods that do not comply with applicable standards and requirements. Products that are mislabeled, contaminated or damaged could result in a regulatory noncompliance event or even

 

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a product recall by the FDA, Health Canada or a similar foreign agency. In some cases, our contracts require us to indemnify our customers for the costs associated with a product noncompliance event, including penalties, costs and settlements arising from litigation, remediation costs or loss of sales. As our global beauty, personal care and home care products are intended for human use, these consequences would be exacerbated if we or our customer did not identify the defect before the product reaches the consumer and there was a resulting impact at the consumer level. Such a result could lead to potentially large scale adverse publicity, negative effects on consumer’s health, recalls and potential litigation, fines, penalties, sanctions or other regulatory actions. In addition, if we do not have adequate insurance or contractual indemnification from suppliers or other third parties, or if insurance or indemnification is not available, the liability relating to product or possible third-party claims arising from mislabeled, contaminated or damaged products could materially adversely affect our business, financial condition or results of operations. Furthermore, adverse publicity about our solutions, or our customers’ products that we ideate, formulate, manufacture or package, including concerns about product safety or similar issues, whether real or perceived, could harm our reputation and result in an immediate adverse effect on our revenues and customer relationships, as well as require us to utilize significant resources to rebuild our reputation.

Furthermore, because of our extensive international operations, we could be adversely affected by violations, or allegations of violations, of the FCPA, the Corruption of Foreign Public Officials Act (Canada) and similar international anti-bribery laws. The FCPA, the Corruption of Foreign Public Officials Act (Canada) and similar international anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to government officials or other third parties for the purpose of obtaining or retaining business. We cannot provide assurance that our internal controls policies and procedures that mandate compliance with these anti-bribery and other laws will protect us from reckless, intentional or unintentional criminal or non-permitted acts committed by our employees, joint-venture partners or agents. Violations of these laws by our employees or other agents, or allegations of such violations, could result in severe penalties, and could disrupt our business and adversely affect our reputation and our business, financial condition and results of operations.

We incur substantial costs to comply with environmental protection and health and safety laws, and failure to comply with these laws may cause us to close, relocate or operate one or more of our plants at reduced production levels, and expose us to civil or criminal liability or other costs, which could adversely affect our operating results and future growth. Changes to environmental laws could increase our costs of doing business.

Our business operations and properties procure, make use of and manufacture substances that are sometimes considered hazardous and are therefore subject to extensive and increasingly stringent federal, state, provincial, local and foreign laws and regulations pertaining to protection of the environment, and worker health and safety, including climate change, air and greenhouse gas emissions, wastewater discharges, the generation, handling and use of hazardous materials (including in consumer products), waste disposal practices and clean-up of existing environmental contamination. Failure to comply with these laws and regulations may result in significant consequences to us, including the need to close or relocate one or more of our production facilities, administrative, civil and criminal penalties, fines, sanctions, litigation, costly capital expenditures, remediation, abatement and mitigation measures, liability for damages and negative publicity. If we are unable to meet production requirements, as a result of restrictions associated with these laws and regulations or proceedings arising from our failure to comply, we can lose customer orders, which can adversely affect our future growth or require us to make incremental capital investments to ensure supply.

Under certain laws and regulations, such as the U.S. federal Superfund law or its state equivalents, or the Environment Quality Act (Québec) or its equivalent in other Canadian provinces, the obligation to investigate, remediate, monitor and clean up contamination at a property may be imposed on current and former owners, lessees or operators or on persons who may have sent waste to that facility for disposal. Liability under these laws and regulations may be imposed without regard to fault or to the legality of the activities giving rise to the

 

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contamination. Moreover, we may incur liabilities in connection with environmental conditions currently unknown to us relating to our prior, existing or future owned or leased sites or operations or those of predecessor companies whose liabilities we may have assumed or acquired.

Climate change poses a number of potential risks and impacts which remain uncertain today and which may increase over time. We are exposed to the effects of climate change. We cannot predict the prospective impact of climate change, or the development of laws or regulations addressing climate change, on our operations, suppliers or customers, which could have an adverse impact on our results of operations and financial condition.

We may incur liabilities for noncompliance, or substantial expenditures to achieve compliance, with environmental and other laws or changes thereto in the future or as a result of the application of additional laws and regulations to our business, including those limiting greenhouse gas emissions, those requiring compliance with the European Commission’s procedures under its regulation for the registration, evaluation and authorization of chemicals (“REACH”) or other laws and regulations concerning any potential health hazards associated with our products, and those imposing changes that would have the effect of increasing the cost of producing or would otherwise adversely affect the demand for plastic products. We have seen an increase in registration and reporting requirements concerning the use of certain chemicals, such as those subject to REACH, in a number of countries. In addition, stricter regulations, or stricter interpretations of existing laws or regulations, may impose new liabilities on us, and we may become obligated in the future to incur costs associated with the investigation and/or remediation of contamination at our facilities or other locations. Changes in or additional health and safety laws and regulations in connection with our products may also impose new requirements and costs on us. For example, there has been a recent increase in scrutiny on the presence of per- and polyfluoroalkyl substances, known collectively as PFAS, in soil and groundwater as well as their use as an ingredient in consumer products. Laws and regulations establishing cleanup standards with respect to PFAS or restricting their use are at various stages of consideration or implementation, including proposed or enacted U.S. federal and state legislation that would prohibit the intentional use of PFAS in cosmetics and other consumer products as well as similar initiatives in the European Union. In Canada, the federal government has also published a notice of intent to move forward with activities to address PFAS as a class. Certain of these laws and regulations may require us to reformulate or otherwise change certain of our products. Such requirements, liabilities and costs could have a material adverse effect on our capital expenditures, results of operations, financial condition or competitive position.

Changes in tax rules and regulations, or in interpretations thereof, may materially adversely affect our effective tax rates, and we are subject to income tax audits by various authorities.

We have operations in many jurisdictions and we are therefore subject to taxation in many jurisdictions with increasingly complex tax laws, the application of which can be uncertain. Changes in our tax rates could affect our future results of operation or financial condition. Our future effective tax rates could be unfavorably affected by changes in the tax rates in jurisdictions where our income is earned and taxed, by changes in tax rules and regulations, or in interpretations thereof, in the jurisdictions in which we do business, by increases in expenses not deductible for tax purposes including impairments of goodwill, by changes in U.S. GAAP or by changes in the valuation of our deferred tax assets and liabilities.

In addition, we are subject to the continual examination of our income tax returns by various tax authorities. Tax authorities in various jurisdictions may disagree with and subsequently challenge the amount of profits taxed in their state or country, which may result in increased tax liability. Accrued interest and penalties may also be levied on any such tax liability, which could affect our results of operation or financial condition. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and, where we have judged it appropriate, have reserved for potential adjustments that may result. We cannot be certain that the final determination of any of these examinations will not have a material adverse effect on our results of operations or financial condition.

Pending and future tax changes may result in significant additional taxes to us. For example, the Organization for Economic Cooperation and Development published a “Programme of Work,” which was

 

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divided into two pillars. Pillar One focused on the allocation of group profits among taxing jurisdictions based on a market-based concept, rather than the historical “permanent establishment” concept. Pillar Two, among other things, introduced a global minimum tax. More recently, on June 5, 2021, the finance ministers of the G7 agreed to (1) reach an equitable solution with respect to Pillar One and (2) a global minimum tax rate of at least 15% under Pillar Two. The foregoing proposals (in the event international consensus is achieved and implementing laws are adopted) and other possible future tax changes may have an adverse impact on us.

Our collection, use, storage, disclosure, transfer and other processing of personal information could give rise to significant costs and liabilities, including as a result of governmental regulation, conflicting legal requirements or differing views of personal privacy rights.

Although we currently carry on business-to-business operations, in the course of our operations, we collect, use, store, disclose, transfer and otherwise process personal information, including from employees and third parties with whom we conduct business. The collection, use, storage, disclosure, transfer and other processing of personal information is increasingly subject to a wide array of U.S. and Canadian federal, state and provincial and foreign laws and regulations regarding data privacy and security that are intended to protect the privacy of personal information that is collected, used, stored, disclosed, transferred and otherwise processed in or from the governing jurisdiction.

In the United States, various federal and state regulators have adopted, or are considering adopting, laws and regulations concerning personal information and data security. This patchwork of legislation and regulation may give rise to conflicts or differing views of personal privacy rights, thereby complicating compliance efforts. For example, the California Consumer Privacy Act (“CCPA”), which increases privacy rights for California residents and imposes obligations on companies that process their personal information, came into effect on January 1, 2020. Among other things, the CCPA requires covered companies to provide new disclosures to California consumers and provide such consumers new data protection and privacy rights, including the ability to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. In addition, on November 3, 2020, California voters approved a new privacy law, the California Privacy Rights Act (“CPRA”), which significantly modifies the CCPA, including by expanding consumers’ rights with respect to certain personal information and creating a new state agency to oversee implementation and enforcement efforts. Many of the CPRA’s provisions will become effective on January 1, 2023.

In Canada, collection, use and disclosure of personal information by private organizations is subject to the Personal Information Protection and Electronic Documents Act and substantially similar provincial legislation. Generally, such legislation requires the organization to obtain the consent of an individual prior to any collection, use or disclosure of personal information about that individual and imposes certain requirements with respect to protecting the information from unauthorized access and use, keeping the information up to date and destroying the information when no longer needed for the purpose(s) for which it was collected. The federal government and several provincial governments are considering modernizing laws and regulations concerning personal information and data security. For example, the federal government released a Bill on November 17, 2020 short-titled the Digital Charter Implementation Act (“DICA”) that, if passed in its current form, will push the Canadian federal privacy framework closer towards that seen in California. DICA proposes to provide individuals with more control over their personal information, including the right to transfer their data from one organization to another, demand that an organization dispose of personal information under its possession, and to demand that a business explain how its algorithms utilize personal information. Furthermore, DICA proposes to provide greater enforcement powers by establishing a Personal Information and Data Protection Tribunal that would have increased administrative penalties and an expanded range of offences at its disposal. All of these evolving compliance and operational requirements impose significant costs that are likely to increase over time, may require us to modify our data processing practices and policies, divert resources from other initiatives and projects, and could restrict the way products and services involving data are offered, all of which may have a material and adverse impact on our business, financial condition and results of operations.

In the European Union, the GDPR which became effective in May 2018, greatly increased the European Commission’s jurisdictional reach of its laws and added a broad array of requirements for handling personal data.

 

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European Union member states are tasked under the GDPR to enact, and have enacted, certain implementing legislation that adds to and/or further interprets the GDPR requirements and potentially extends our obligations and potential liability for failing to meet such obligations. The GDPR, together with national legislation, regulations and guidelines of the European Union member states governing the processing of personal data, impose strict obligations and restrictions on the ability to collect, use, retain, protect, disclose, transfer and otherwise process personal data. In particular, the GDPR includes obligations and restrictions concerning the consent and rights of individuals to whom the personal data relates, the transfer of personal data out of the European Economic Area, security breach notifications and the security and confidentiality of personal data. The GDPR authorizes fines for certain violations of up to 4% of global annual revenue or €20 million, whichever is greater. Such fines are in addition to any civil litigation claims by customers and data subjects. Much remains unknown with respect to how to interpret and implement the GDPR, and guidance on implementation and compliance practices is often updated or otherwise revised. Given the breadth and depth of changes in data protection obligations, including classification of data and our commitment to a range of administrative, technical and physical controls to protect data and enable data transfers outside of the European Union, our compliance with the GDPR’s requirements will continue to require time, resources and review of the technology and systems we use to satisfy the GDPR’s requirements, including as European Union member states enact their legislation.

In the United Kingdom, many of the GDPR’s requirements were implemented by the Data Protection Act 2018. Further, following the end of the implementation period for the United Kingdom’s withdrawal from the European Union on December 31, 2020, the GDPR was directly incorporated into United Kingdom law as retained European Union legislation. The Trade and Cooperation Agreement, which governs the terms of the future trading relationship between the United Kingdom and European Union, provides for a transitional period during which the United Kingdom will be treated like an European Union member state in relation to processing and transfers of personal data for four months from January 1, 2021. This period may be extended by a further two months, after which the United Kingdom will be a “third country” under the GDPR unless the European Commission adopts an adequacy decision in respect of transfers of personal data to the United Kingdom. The United Kingdom government has already determined that it considers all European Union and European Economic Area member states to be adequate for the purposes of data protection, ensuring that data flows from the United Kingdom to the European Union / European Economic Area remain unaffected. As a consequence of the United Kingdom’s withdrawal from the European Union, we will have to comply with the GDPR and the GDPR as incorporated into United Kingdom national law, which may over time have differing requirements.

Many statutory requirements, in the United States, Canada and elsewhere, include obligations for companies to notify individuals of security breaches involving certain personal information, which could result from breaches experienced by us or our external service providers. Any actual or perceived security breach could harm our reputation and brand, expose us to potential liability or require us to expend significant resources on data security and in responding to any such actual or perceived breach. Any contractual protections we may have from our external service providers and insurance coverage may not be sufficient to adequately protect us from any such liabilities and losses, and we may be unable to enforce any such contractual protections or obtain the benefits under our insurance coverage.

Because the interpretation and application of laws, regulations, standards and other obligations relating to data privacy and security are still uncertain, it is possible that these laws, regulations, standards and other obligations may be interpreted and applied in a manner that is inconsistent with our data processing practices and policies. If our practices are not consistent, or are viewed as not consistent, with changes in laws, regulations and standards or new interpretations or applications of existing laws, regulations and standards, we may also become subject to fines, audits, inquiries, whistleblower complaints, adverse media coverage, investigations, lawsuits, loss of export privileges, severe criminal or civil sanction or other penalties. We could also be affected if legislation or regulations are expanded to require changes in our data processing practices and policies. We may be unable to make such changes and modifications in a commercially reasonable manner, or at all.

Although we endeavor to comply with our public statements and documentation, we may at times fail to do so or be alleged to have failed to do so. The publication of our privacy policies and other statements that provide

 

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promises and assurances about data privacy and security can subject us to potential government or legal action if they are found to be deceptive, unfair or misrepresentative of our actual practices. Any concerns about our data privacy and security practices, even if unfounded, could damage the reputation of our businesses and discourage potential users from our products and services. Any of the foregoing could have an adverse effect on our business, financial condition, results of operations and prospects.

Risks Related to Our Intellectual Property and Information Technology

Breaches or failures of our information technology systems or website security, the theft, unauthorized access, acquisition, use, disclosure, modification or misappropriation of personal information, the occurrence of fraudulent activity, or other cybersecurity or data security-related incidents may have an adverse impact on our business, financial condition, results of operations and prospects.

In the course of operating our business, we collect, use, store, disclose, transfer and otherwise process personal information and other confidential, proprietary and sensitive data. Breaches or failures of security involving our systems or website or those of any of our external service providers may occur, and could result in the theft, unauthorized access, acquisition, use, disclosure, modification or misappropriation of personal information of our customers, consumers, employees or third parties with whom we conduct business, or other confidential, proprietary and sensitive data, fraudulent activity, or system disruptions or shutdowns. The occurrence of any actual or attempted breach, failure of security or fraudulent activity, the reporting of such an incident, whether accurate or not, or our failure to make adequate or timely disclosures to the public or law enforcement agencies following any such event, whether due to delayed discovery or a failure to follow existing protocols, could result in claims made against us or our external service providers, which could result in state, federal and/or international litigation and related financial liabilities, as well as criminal penalties or civil liabilities, regulatory actions from state, federal and/or international governmental authorities, and significant fines, orders, sanctions, litigation and claims against us by customers or consumers or other third parties and related indemnification obligations. Actual or perceived security breaches or failures could also cause financial losses, increased costs, interruptions in the operations of our businesses, misappropriation of assets, significant damage to our brand and reputation with customers and third parties with whom we do business, and result in adverse publicity, loss of customer confidence, distraction to our management, and reduced sales and profits.

Such breaches, failures and fraudulent activity may take many forms, including check fraud, fraudulent inducement, electronic fraud, wire fraud, computer viruses, phishing, social engineering, denial or degradation of service attacks, malware, ransomware or other cyberattacks, and other dishonest acts, any of which could be the result of a circumvention or failure of our data security processes, procedures, tools, and controls. Our systems are also subject to compromise from internal threats, such as theft, misuse, unauthorized access or other improper actions by employees, external service providers and other third parties with otherwise legitimate access to our systems and website. Data security-related incidents and fraudulent activity are increasing in frequency and evolving in nature and may be exacerbated during the current work-from-home environment. We rely on a framework of security, processes, procedures, tools, training and controls designed to protect our information and assets but, given the unpredictability of the timing, nature and scope of data security-related incidents and fraudulent activity, there can be no assurance that any security procedures and controls that we or our external service providers have implemented will be sufficient to prevent data security-related incidents or other fraudulent activity from occurring. Furthermore, because the methods of attack and deception change frequently, are increasingly complex and sophisticated, and can originate from a wide variety of sources, including third parties such as external service providers and even nation-state actors, despite our reasonable efforts to ensure the integrity of our systems and website, it is possible that we may not be able to anticipate, detect, appropriately react and respond to, or implement effective preventative measures against, all security breaches and failures and fraudulent activity.

We have been, and may in the future be, required to expend significant capital and other resources to protect against, respond to, and recover from any potential, attempted, or existing security breaches or failures and their

 

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consequences. As data security-related threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. In addition, our remediation efforts may not be successful and we could be unable to implement, maintain and upgrade adequate safeguards. Moreover, there could be public announcements regarding any data security-related incidents and any steps we take to respond to or remediate such incidents, and if securities analysts or investors perceive these announcements to be negative, it could, among other things, have a substantial adverse effect on the price of our common shares. Customers and consumers are generally concerned with cybersecurity and data privacy, and any publicized security problems affecting our businesses or those of third parties with whom we are affiliated or otherwise conduct business may discourage customers from doing business with us.

While we currently maintain cybersecurity insurance, such insurance may not be sufficient in type or amount to cover us against claims related to breaches, failures or other data security-related incidents, and we cannot be certain that cyber insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material and adverse effect on our business, financial condition and results of operations. Any of the foregoing could have an adverse effect on our business, financial condition, results of operations and prospects.

If we are unable to obtain, maintain, protect and enforce our intellectual property rights for the products we develop, or if the scope of our intellectual property protection is not sufficiently broad, others may be able to develop and commercialize products substantially similar to ours, and our ability to successfully commercialize our products may be adversely affected.

A significant part of our business depends on internally developed products and formulas for our innovation strategy and on trade secrets and know-how behind our manufacturing capabilities, the protection of which is crucial to the success of our business. We rely on a combination of patent, trademark and trade secret laws and confidentiality procedures and contractual provisions to protect our intellectual property rights. We may, over time, increase our investment in protecting our intellectual property through additional patent, trademark and other intellectual property filings that could be expensive and time consuming. Effective patent, trademark, trade secret, copyright and other intellectual property protection is expensive to develop and maintain, both in terms of initial and ongoing registration requirements and the costs of defending our rights. These measures, however, may not be sufficient to offer us meaningful protection.

Any patents that may issue in the future from our pending or future patent applications may not provide us with competitive advantages, may be of limited territorial reach and may be held invalid or unenforceable if successfully challenged by third parties. Our lack of patent protection may restrict our ability to protect our technologies and processes from competition. It is also possible that third parties, including our competitors, may obtain patents relating to technologies that overlap or compete with our technology. If third parties obtain patent protection with respect to such technologies, they may assert that our technology infringes their patents and seek to charge us a licensing fee or otherwise preclude the use of our technology. Additionally, our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented, diluted, declared generic, lapsed or determined to be infringing on, depreciate the goodwill in or be dilutive of other marks. Any of the foregoing could have an adverse effect on our business, financial condition, results of operations and prospects.

We may not be able to effectively prosecute and enforce our intellectual property and proprietary rights throughout the world.

The laws of some foreign jurisdictions do not protect intellectual property rights to the same extent as laws in the United States and Canada. If we are unable to protect our intellectual property and other proprietary rights, our competitive position and our business could be harmed, as third parties may be able to commercialize and

 

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use products that are substantially the same as ours. Any of our intellectual property rights, or any such rights of our customers, could be challenged, invalidated, circumvented, infringed, misappropriated or otherwise violated, our trade secrets and other confidential information could be disclosed in an unauthorized manner to third parties, or our intellectual property rights may not be sufficient to permit us to take advantage of current market trends or otherwise to provide us with competitive advantages, which could result in costly redesign efforts, discontinuance of certain products or other competitive harm.

Monitoring unauthorized use of our intellectual property is difficult and costly. From time to time, we seek to analyze our competitors’ services, and may in the future seek to enforce our rights against potential infringement, misappropriation or other violation. However, the steps we have taken to protect our intellectual property rights may not be adequate to prevent infringement, misappropriation or other violation of our intellectual property. We may not be able to detect unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Any inability to meaningfully protect our intellectual property rights could result in harm to our ability to compete and reduce demand for our products. Moreover, our failure to develop and properly manage new intellectual property could adversely affect our market positions and business opportunities.

Uncertainty may result from changes to intellectual property legislation and from interpretations or applications of intellectual property laws by applicable courts and agencies. Accordingly, despite our efforts, we may be unable to obtain, maintain, protect and enforce the intellectual property rights necessary to provide us with a competitive advantage. Any of the foregoing could have an adverse effect on our business, financial condition, results of operations and prospects.

We do not own the intellectual property of all of the formulas or technical specifications of products that we manufacture, and if we are unable to protect the confidentiality of customer trade secrets, know-how and other proprietary and internally developed information, we may not be able to maintain customer relationships and our business may be adversely affected.

We do not own the intellectual property of all of the formulas or technical specifications for the products that we manufacture. Rather, we often depend on our customers to provide the formulas or technical specifications for the products, or, alternatively, we develop new formulations and solutions that are sold to customers in return for certain manufacturing exclusivities. We contribute our internally developed proprietary know-how to the manufacturing process; these processes are considered trade secrets and are not typically shared with customers. Therefore, it is possible that our customers may approach another manufacturer to produce products using their formulas. We may not be able to adequately protect their trade secrets, know-how and other internally developed proprietary information or our customers may perceive that we are not able to adequately protect their trade secrets, know-how and other internally developed proprietary information. Although we use reasonable efforts to protect this information and technology, our employees, consultants and other parties (including independent contractors and companies with which we conduct business) may unintentionally or willfully disclose our or our customers’ trade secrets or other proprietary formulas or other information to competitors or other third parties. Enforcing a claim that a third party illegally disclosed or obtained and is using any of our internally developed information or formulas is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States and Canada are sometimes less willing to protect trade secrets, know-how and other proprietary information. We rely, in part, on non-disclosure, confidentiality and assignment-of-invention agreements with our employees, independent contractors, consultants and companies with which we conduct business to protect our and our customers’ trade secrets, know-how and other confidential or proprietary information. We may fail to enter into such agreements with all applicable parties, and such agreements may not be self-executing, or they may be breached and we may not have adequate remedies for such breach. Moreover, third parties may independently develop similar or equivalent proprietary information or reverse-engineer or otherwise gain access to our trade secrets, know-how and other internally developed information. Any of the foregoing could have an adverse effect on our business, financial condition, results of operations and prospects.

 

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Third parties may initiate legal proceedings alleging that we are infringing, misappropriating or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on our business, financial condition and results of operations.

Our commercial success depends on our ability to develop and commercialize our products and use our internally developed formulas without infringing the intellectual property or proprietary rights of third parties. Intellectual property disputes can be costly to defend and may cause our business, operating results and financial condition to suffer. Whether merited or not, we may face allegations that we or parties indemnified by us have infringed, misappropriated or otherwise violated the patents, trademarks, copyrights, trade secrets or other intellectual property rights of third parties. Such claims may be made by competitors seeking to obtain a competitive advantage or by other parties. Some third parties may be able to sustain the costs of complex litigation more effectively than we can because they have substantially greater resources. We may also face allegations that our employees have misappropriated the trade secrets or other intellectual property or proprietary rights of their former employers or other third parties. It may be necessary for us to initiate litigation to defend ourselves in order to determine the scope, enforceability, validity or ownership of third-party intellectual property or proprietary rights, or to establish our respective rights.

We may not be able to successfully settle or otherwise resolve such adversarial proceedings or litigation. If we are unable to successfully settle future claims on terms acceptable to us we may be required to engage in or to continue claims, regardless of whether such claims have merit, that can be time consuming, divert management’s attention and financial resources and be costly to evaluate and defend. Results of any such litigation are difficult to predict and may require us to stop commercializing or using our products or formulas, obtain licenses, modify our products and formulas while we develop non-infringing substitutes or incur substantial damages, settlement costs or face a temporary or permanent injunction prohibiting us from marketing or providing the affected products. If we require a third-party license, it may not be available on reasonable terms or at all, and we may have to pay substantial royalties and upfront or ongoing fees, or grant cross-licenses to our own intellectual property rights. Such licenses may also be non-exclusive, which could allow competitors and other parties to use the subject intellectual property in competition with us. We may also have to redesign our products so they do not infringe, misappropriate or otherwise violate third-party intellectual property rights, which may not be possible or may require substantial monetary expenditures and time, during which our products may not be available for commercialization or use. Even if we have an agreement to indemnify us against such costs, the indemnifying party may be unable or unwilling to uphold its contractual obligations. If we cannot or do not obtain a third-party license to the infringed intellectual property at all or on reasonable terms, our business, financial condition and results of operations could be adversely impacted.

In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common shares. Moreover, any uncertainties resulting from the initiation and continuation of any legal proceedings could have a material adverse effect on our ability to raise the funds necessary to continue our operations. Any of the foregoing could have an adverse effect on our business, financial condition, results of operations and prospects.

Risks Related to Our Indebtedness

Our existing and any future indebtedness could adversely affect our ability to operate our business.

As of April 30, 2021, we had $1,719.8 million of outstanding borrowings consisting of $177.0 million under our Revolving Facility, $1,531.0 million under our existing Term Loans and $11.8 million in finance leases and other borrowings. Indebtedness under our Revolving Facility and our outstanding Term Loans are secured by liens on our and certain of our subsidiaries’ assets, which are senior to any lien otherwise secured against our assets.

 

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Our existing indebtedness has had, and any future indebtedness could have, important consequences, including:

 

   

requiring us to dedicate a substantial portion of our cash flow to payments on our indebtedness, which would reduce the amount of cash flow available to fund working capital, capital expenditures or other corporate purposes;

 

   

increasing our vulnerability to general adverse economic, industry, and market conditions;

 

   

requiring the pledge of substantially all of our assets as collateral and subjecting us to restrictive covenants, including restrictions on our ability to pay dividends, each of which may reduce our ability to take certain corporate actions or obtain further debt or equity financing;

 

   

limiting our ability to plan for and respond to business opportunities or changes in our business or industry; and

 

   

placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options.

In addition, our indebtedness under the Revolving Facility and Term Loans bears interest at a variable rate, making us vulnerable to increases in the market rate of interest. If the market rate of interest increases substantially, we will have to pay additional interest on this indebtedness, which would reduce cash available for our other business needs.

On or about February 3, 2021, we completed the Distribution Financing Transactions and, accordingly, did not retain any of the proceeds from the borrowings under the 2021 Term Loan Increase, the 2021 Revolver Increase and Incremental Amendment No. 9. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Term Loans and Revolving Facility” and “Description of Certain Indebtedness.”

We may not have sufficient funds, and may be unable to generate sufficient cash flows from operations, to pay the amounts due under our existing debt instruments. Failure to make payments or comply with other covenants under our existing or future debt instruments could result in an event of default. If an event of default occurs and the lender accelerates the amounts due, we may need to seek additional financing, which may not be available on acceptable terms, in a timely manner or at all. In such event, we may not be able to make accelerated payments, and the lender could seek to enforce security interests, if any, in the collateral securing such indebtedness, which includes or could include substantially all of our assets. In addition, the covenants under our existing or future debt instruments, any pledge of our assets as collateral and any negative pledge with respect to our intellectual property could limit our ability to obtain additional debt financing. Any of these events could have a material and adverse effect on our business, financial condition, operating results, cash flows, and prospects.

Certain of our long-term indebtedness bears interest at variable interest rates, primarily based on LIBOR, which may be subject to regulatory guidance and/or reform that could cause interest rates under our current or future debt agreements to fluctuate or cause other unanticipated consequences.

The U.K. Financial Conduct Authority, which regulates the London Inter-bank Offered Rate (“LIBOR”), has announced that all LIBOR settings will either cease to be provided by the administrator of LIBOR after June 30, 2023, in the case of the most commonly used U.S. dollar LIBOR settings, and after December 31, 2021, in the case of all other LIBOR settings, or no longer be representative following such dates. It is not possible to predict what rate or rates may become acceptable alternatives to LIBOR, or what effect these changes in views or alternatives may have on financial markets for LIBOR-linked financial instruments. When representative LIBOR rates cease to exist, interest rates on our current or future indebtedness may be adversely affected or we may need to renegotiate the terms of our debt agreements that utilize LIBOR as a factor in determining the applicable interest rate to replace LIBOR with the new standard that is established, if any, or to otherwise agree with the trustees or agents under such facilities or instruments on a new means of calculating interest.

 

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Risks Related to Our Common Shares and this Offering

We do not know whether an active trading market will develop or be sustained for our common shares or what the market price of our common shares will be, and, as a result, it may be difficult for you to sell your common shares.

Prior to this offering, there has been no public market for our common shares. The initial public offering price for our common shares will be determined through negotiations with the underwriters and may not bear any relationship to the market price at which our common shares will trade after this offering or to any other established criteria of the value of our business. Although we have applied to list our common shares on the NYSE and the TSX, an active trading market for our common shares may never develop or be sustained following this offering. If an active market for our common shares does not develop or is not sustained, it may be difficult for you to sell common shares you purchase in this offering without depressing the market price for the shares or at all.

If you purchase common shares in this offering, you will suffer immediate and substantial dilution of your investment.

The initial public offering price of our common shares will be substantially higher than the as further adjusted net tangible book value per common share immediately after this offering. Therefore, if you purchase our common shares in this offering, you will pay a price per common share that substantially exceeds our as further adjusted net tangible book value per common share after this offering. In addition, you will pay more for your common shares than the amounts paid by our existing owners. Based on an assumed initial public offering price of $            per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $            per common share, representing the difference between our as further adjusted net tangible book value per common share after giving effect to this offering and the initial public offering price.

We also have a number of outstanding options to purchase common shares with exercise prices that are below the estimated initial public offering price of our common shares. To the extent outstanding options are exercised, you will incur further dilution. See “Dilution” for more details.

If securities analysts do not commence to publish or cease publishing research or reports or publish misleading, inaccurate or unfavorable research about us, our business or our market, or if they publish negative evaluations of our common shares, the price and trading volume of our common shares could decline.

The trading market for our common shares is expected to be influenced, in part, by the research and reports that industry or financial analysts publish about us, our business, our market and our competitors. We do not currently have research coverage by industry or financial analysts. If no, or few, analysts commence coverage of us, the trading price of our common shares would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluations of our common shares or publish inaccurate or unfavorable research about our business, or provide more favorable relative recommendations about our competitors, the price of our common shares could decline. If one or more industry or financial analysts fail to regularly publish reports on us or if one or more of these analysts cease to cover our business, we could lose visibility in the market, which in turn could cause the price or trading volume of our common shares to decline.

The market price of our common shares may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common shares in this offering.

The market price of our common shares could be subject to significant fluctuations after this offering, and may decline below the initial public offering price. In addition, securities markets worldwide have experienced,

 

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and are likely to continue to experience, extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your common shares at or above the initial public offering price. The market price for our common shares may be influenced by many factors, including:

 

   

our success in developing innovative manufacturing, design and packaging solutions for our target sectors;

 

   

the success of competitive solutions or technologies;

 

   

our entry into new markets;

 

   

regulatory or legal developments in the United States, Canada and other countries;

 

   

developments or disputes concerning intellectual property or proprietary rights;

 

   

the recruitment or departure of key personnel;

 

   

strategic actions by us or our competitors, such as acquisitions or restructurings;

 

   

the level of expenses related to any solutions we may develop;

 

   

the results of our efforts to discover, develop, acquire or in-license solutions or technologies and the costs of development of any such solutions or technologies;

 

   

actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

 

   

effectiveness of our internal controls over financial reporting;

 

   

variations in our financial results or the financial results of companies that are perceived to be similar to us;

 

   

sales of common shares by us, our executive officers, directors or principal shareholders, or others;

 

   

market conditions in the consumer goods sectors;

 

   

general economic, industry, political and market conditions; and

 

   

the other factors described in this “Risk Factors” section.

In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted against that company. Any lawsuit to which we are a party, with or without merit, may result in an unfavorable judgment. We also may decide to settle lawsuits on unfavorable terms. Any such negative outcome could result in payments of substantial damages or fines, damage to our reputation or adverse changes to our offerings or business practices. Such litigation may also cause us to incur other substantial costs to defend such claims and divert management’s attention and resources.

An inability to raise additional capital when needed on acceptable terms, or at all, could impact our growth strategy, financial performance and share price.

If the current equity and credit markets deteriorate, our results of operations are adversely affected or our credit ratings decline, it may make any necessary debt or equity financing more difficult, more costly or more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and share price and could require us to delay or abandon our business plans and opportunities. Moreover, the issuance of additional securities by us, whether equity or debt, or the market perception that such issuances are likely to occur, could cause the market price of our common shares to decline.

 

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Insiders will continue to have substantial control over us after this offering and could limit your ability to influence the outcome of key transactions, including a change of control.

Our principal shareholders, directors and executive officers and entities affiliated with them will own approximately     % of our outstanding common shares after this offering. As a result, these shareholders, if acting together, would be able to influence or control matters requiring approval by our shareholders, including the election of directors and the approval of change of control transactions, amalgamations, arrangements or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. The concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our shareholders of an opportunity to receive a premium for their common shares as part of a sale of our company and might ultimately affect the market price of our common shares.

Certain of our major shareholders will continue to have significant influence over us after this offering and may have interests that are different from the interests of our other shareholders.

Certain of our major shareholders may have interests that are different from, or are in addition to, the interests of our other shareholders. In particular, Cornell and certain of its affiliates may be deemed to beneficially own approximately      % of our issued and outstanding common shares after giving effect to this offering, and CDPQ and certain of its affiliates may be deemed to beneficially own approximately      % of our issued and outstanding common shares after giving effect to this offering. There may be real or apparent conflicts of interest with respect to matters affecting such shareholders and their affiliates whose interests in some circumstances may be adverse to our interests.

For so long as such shareholders continue to own a significant percentage of our common shares, they will be able to significantly influence the composition of our board of directors and the approval of actions requiring shareholder approval through their voting rights. Accordingly, for such period of time, they will have significant influence with respect to our management, business plans and policies, including the appointment and removal of our officers. In particular, for so long as such shareholders continue to own a significant percentage of our common shares, they may be able to cause or prevent a change of control of our company or a change in the composition of our board of directors and could preclude any unsolicited acquisition of our company. In addition, for so long as certain shareholders continue to own a significant percentage of our common shares, they will have certain approval or consultation rights, as applicable, under the Shareholders’ Agreement with respect to any action on, including an increase or decrease in, the number of directors serving on the board of directors, material changes in the operations at the Québec-based facilities of the Company and the maintenance of the Company’s global headquarters in Québec. See “Certain Relationships and Related Party Transactions—Shareholders’ Agreement.” The concentration of ownership could deprive you of an opportunity to receive a premium for your common shares as part of a sale of our company and ultimately might affect the market price of our common shares.

Such shareholders and their affiliates engage in a broad spectrum of activities. In the ordinary course of their business activities, they may engage in activities where their interests conflict with our interests or those of our shareholders. For example, they may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. In addition, they may have an interest in our pursuing acquisitions, divestitures and other transactions that, in their judgment, could enhance their investment, even though such transactions might involve risks to us and our shareholders. Such potential conflicts may delay or limit the opportunities available to us, and it is possible that conflicts may be resolved in a manner adverse to us or result in agreements that are less favorable to us than terms that would be obtained in arm’s-length negotiations with unaffiliated third parties. See “Certain Relationships and Related Party Transactions.”

Because we do not anticipate paying any cash dividends on our common shares in the foreseeable future, capital appreciation, if any, will be your sole source of gain.

We currently intend to retain any future earnings to fund the development and expansion of our business, including further acquisitions, and, therefore, we do not anticipate paying cash dividends on our common shares

 

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in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors, subject to applicable laws, and will depend on our results of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant by our board of directors. Our future ability to pay cash dividends on our common shares is currently limited by the terms of our Credit Agreement and may be limited by the terms of any future debt or preferred securities. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. As a result, capital appreciation, if any, of our common shares will be your sole source of gain for the foreseeable future. See “Dividend Policy.”

A significant portion of our issued and outstanding common shares is restricted from immediate resale but may be sold into the market in the near future, which could cause the market price of our common shares to drop significantly, even if our business is doing well.

Sales of a substantial number of our common shares in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common shares and could impair our ability to raise capital through the sale of additional equity securities. After this offering, we will have                common shares outstanding based on the number of common shares outstanding as of                 , 2021. This includes the common shares that we are selling in this offering, which may be resold in the public market immediately without restriction, unless purchased by persons otherwise restricted from selling. The remaining                common shares are currently restricted as a result of securities laws or lock-up agreements but will become eligible to be sold at various times after the offering as described in “Shares Eligible for Future Sale.” The lock-up agreements include customary exceptions, and the representatives of the underwriters may release some or all of the common shares subject to lock-up agreements at any time and without notice, which would allow for earlier sales of shares in the public market.

Moreover, beginning 180 days after the completion of this offering (or such earlier time as permitted by the terms of the lock-up agreements executed in connection with this offering), holders of an aggregate of                 common shares will have rights, subject to specified conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other shareholders. We also intend to register all common shares that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described in “Underwriting (Conflicts of Interest).”

We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements, rules, regulations and policies of the NYSE and the TSX, and other applicable securities rules and regulations, including applicable Canadian securities laws, impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs, particularly as we hire additional financial and accounting employees to meet public company internal control and financial reporting requirements and will make some activities more time consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified members of our board of directors.

We are evaluating these rules and regulations and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty

 

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regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. If we fail to comply with new laws, regulations and standards, regulatory authorities could initiate legal proceedings against us, and our business could be harmed.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we will be required to furnish a report by our management on our internal control over financial reporting and our independent registered public accounting firm will be required to audit our internal control over financial reporting. To achieve compliance with Section 404 and other applicable requirements within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, including through hiring additional financial and accounting personnel, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed time frame or at all, that our internal control over financial reporting is effective as required by Section 404 and other applicable requirements. In addition to the material weaknesses in internal control over financial reporting identified in the preparation of our financial statements to be filed with the SEC and the Canadian securities regulatory authorities, if we identify one or more additional material weaknesses in our internal control over financial reporting, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

We identified certain material weaknesses in our internal control over financial reporting in the preparation of our financial statements to be filed with the SEC and the Canadian securities regulatory authorities, and we may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we fail to remediate any material weaknesses or if we otherwise fail to establish and maintain effective internal control over financial reporting, our ability to accurately and timely report our financial results could be adversely affected.

As a private company, we are not currently required to comply with the rules of the SEC implementing Section 404 of the Sarbanes-Oxley Act of 2002 and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act of 2002 in the United States and National Instrument 52-109—Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-109”) in Canada, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of control over financial reporting. Though we will be required to disclose changes made in our internal controls and procedures on a quarterly basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until the year following our first annual report required to be filed with the SEC and the Canadian securities regulatory authorities. If our internal control over financial reporting is not effective, our independent registered public accounting firm may issue an adverse report.

In connection with the preparation of our financial statements to be filed with the SEC and the Canadian securities regulatory authorities, we and our independent registered public accounting firm identified certain control deficiencies in the design and operation of our internal control over financial reporting that in aggregate constituted material weaknesses. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. These material weaknesses relate to the financial reporting close process and information technology general controls, more specifically insufficient review of manual journal entries, lack of formalization of the reconciliations and analysis of certain key accounts and insufficient controls around system user access (including potential consequential segregation of duties issues) and change management.

As part of our plan to remediate these material weaknesses, we (i) have strengthened our compliance and accounting functions with additional experienced hires to assist in our design and implementation of controls; (ii) are developing and enhancing our company-wide policies and procedures, including those related to access management,

 

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change management, journal entries and account review controls and documentation requirements; (iii) are supporting our financial reporting teams in the implementation of such policies and procedures, including delivering additional training to our team members on internal controls over financial reporting; and (iv) are engaging our external advisor to assist us with further evaluating the design of our internal controls and assisting with remediation. We cannot assure you that the measures that we have taken, and that will be taken, to remediate these material weaknesses will, in fact, remedy such material weaknesses or will be sufficient to prevent future material weaknesses from occurring. We also cannot assure you that we have identified all of our existing material weaknesses.

In light of the control deficiencies and the resulting material weaknesses that were identified, we believe that it is possible that, had we and our independent registered public accounting firm performed an assessment or audit, respectively, of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act of 2002, additional material weaknesses may have been identified.

When evaluating our internal control over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404. If we are unable to remediate our existing material weaknesses or identify additional material weaknesses and are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm expresses an adverse opinion on the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common shares could be negatively affected, and we could become subject to investigations by the stock exchanges on which our securities are listed, the SEC or other regulatory authorities, including Canadian regulatory authorities, which could require additional financial and management resources.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common shares.

Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, is designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition to the material weaknesses in internal control over financial reporting identified in connection with the preparation of our financial statements to be filed with the SEC and the Canadian securities regulatory authorities, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002 and other applicable requirements, or any subsequent testing by our independent registered public accounting firm, may reveal additional deficiencies in our internal control over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could harm our business and have a negative effect on the trading price of our common shares. Failure to accurately report our financial performance on a timely basis could also jeopardize our continued listing on the NYSE, the TSX or any other exchange on which our common shares may be listed. Delisting of our common shares on any exchange would reduce the liquidity of the market for our common shares, which would reduce the price of and increase the volatility of the market price of our common shares.

We will be required to disclose changes made in our internal controls and procedures on a quarterly basis and our management will be required to assess the effectiveness of these controls annually. An independent assessment of the effectiveness of our internal control over financial reporting could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation, which could have a negative effect on the trading price of our common shares.

 

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Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

Upon completion of this offering, we will become subject to certain reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as well as of applicable Canadian securities laws. Our disclosure controls and procedures will be designed to reasonably assure that information required to be disclosed by us in reports we file or submit in accordance with U.S. and Canadian securities laws is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms of the SEC and Canadian securities regulatory authorities. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosures due to error or fraud may occur and not be detected.

If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.” The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities, and the amount of revenue and expenses that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to the determination of the fair value of intangible assets that arise as a result of business combinations, as well as the determination of useful lives and the subsequent testing of goodwill and intangible assets for impairment. As of April 30, 2021, the net carrying value of our goodwill and other intangibles totaled approximately $1.0 billion and $1.2 billion, respectively. In accordance with GAAP, we periodically assess these assets to determine if they are impaired. At the end of the second quarter of fiscal year 2021, we determined that a reduction in projected net operating cash flows primarily attributable to the COVID-19 pandemic and its impact on our color cosmetic business resulted in a reduction in the fair value of the HCT reporting unit requiring an impairment charge of $47.3 million and $0.9 million for goodwill and other intangibles, respectively. Significant negative industry or economic trends, disruptions to our business, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of our assets, changes in the structure of our business, market capitalization declines, or increases in associated discount rates may impair our goodwill and other intangible assets in the future. Any charges relating to such impairments would adversely affect our results of operations in the periods recognized.

Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in the price of our common shares.

We are governed by the corporate laws of British Columbia, Canada, which in some cases have a different effect on the rights of shareholders than the corporate laws of the United States.

We are governed by the BCBCA and other relevant laws, which may affect the rights of shareholders differently than those of a company governed by the laws of a U.S. jurisdiction, and may, together with our articles, have the effect of delaying, deferring or discouraging another party from acquiring control of our company by means of a tender offer, a proxy contest or otherwise, or may affect the price an acquiring party would be willing to pay for our common shares. The material differences between the BCBCA and Delaware

 

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General Corporation Law, or DGCL, that may have the greatest such effect include, but are not limited to, the following: (i) for certain corporate transactions (such as amalgamations, arrangements or amendments to our articles) the BCBCA generally requires the voting threshold to be a special resolution approved by 66 2/3% of shareholders, or as set out in the articles, as applicable, whereas DGCL generally only requires a majority vote; and (ii) under the BCBCA holders of an aggregate of 5% or more of our common shares can requisition a special meeting of shareholders, whereas such right does not exist under the DGCL. We cannot predict whether investors will find our company and our common shares less attractive because of these material differences or because we are governed by the BCBCA. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile. See “Description of Share Capital—Comparison of British Columbia Law and Delaware Law.”

Because we are a corporation incorporated in British Columbia and some of our directors and officers are resident in Canada, it may be difficult for investors in the United States to enforce civil liabilities against us based solely upon the federal securities laws of the United States. Similarly, it may be difficult for Canadian investors to enforce civil liabilities against our directors and officers residing outside Canada.

We are a corporation incorporated under the laws of British Columbia with our principal executive office in Québec, Canada. We also maintain a principal executive office in the United States, located in Saddle Brook, New Jersey. Some of our directors and officers and the auditors or other experts named herein are residents of Canada and all or a substantial portion of our assets and those of such persons are located outside the United States. Consequently, it may be difficult for U.S. investors to effect service of process within the United States upon us or our directors or officers or such auditors who are not residents of the United States, or to realize in the United States upon judgments of courts of the United States predicated upon civil liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Investors should not assume that Canadian courts: (i) would enforce judgments of U.S. courts obtained in actions against us or such persons predicated upon the civil liability provisions of the U.S. federal securities laws or the securities or blue sky laws of any state within the United States or (ii) would enforce, in original actions, liabilities against us or such persons predicated upon the U.S. federal securities laws or any such state securities or blue sky laws.

Similarly, some of our directors and officers are residents of countries other than Canada and all or a substantial portion of the assets of such persons are located outside Canada. As a result, it may be difficult for Canadian investors to initiate a lawsuit within Canada against these non-Canadian residents. In addition, it may not be possible for Canadian investors to collect from these non-Canadian residents judgments obtained in courts in Canada predicated on the civil liability provisions of securities legislation of certain of the provinces and territories of Canada. It may also be difficult for Canadian investors to succeed in a lawsuit in the United States, based solely on violations of Canadian securities laws.

Provisions in our articles, Canadian law and certain restrictive covenants applicable to us could make an acquisition of us, which may be beneficial to our shareholders, more difficult and may prevent attempts by our shareholders to replace or remove our current management and/or limit the market price of our common shares.

Provisions in our articles that will become effective immediately prior to consummation of this offering, as well as certain provisions under the BCBCA and applicable Canadian laws may discourage, delay or prevent a merger, acquisition or other change in control of us that shareholders may consider favorable, including transactions in which they might otherwise receive a premium for their common shares.

For instance, our articles contain provisions that establish certain advance notice procedures for nomination of candidates for election as directors at shareholders’ meetings. See “Description of Share Capital—Certain Important Provisions of our Articles and the BCBCA.” In addition, certain approval or consultation rights will exist under the Shareholders’ Agreement with respect to material changes in the operations at the Québec-based facilities of the Company and the maintenance of the Company’s global headquarters in Québec. See “Certain Relationships and Related Party Transactions—Shareholders’ Agreement.”

 

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Limitations on the ability to acquire and hold our common shares may also be imposed by the Competition Act (Canada). This legislation permits the Commissioner of Competition, or Commissioner, to review any acquisition or establishment, directly or indirectly, including through the acquisition of shares, of control over or of a significant interest in us. Moreover, a non-Canadian must file an application for review with the Minister responsible for the Investment Canada Act and obtain approval of the Minister prior to acquiring control of a “Canadian business” within the meaning of the Investment Canada Act, where prescribed financial thresholds are exceeded. As a condition to the Acquisition, certain undertakings were given in respect of KDC Opco’s Canadian operations to Innovation, Science and Economic Development Canada, which undertakings expire on December 21, 2021. If such undertakings are not fulfilled, the Minister Responsible for the Investment Canada Act may apply to the court for an order directing compliance with such undertakings. See “Description of Share Capital—Ownership and Exchange Controls.”

Any of these provisions could limit the price that investors might be willing to pay in the future for our common shares, thereby depressing the market price of our common shares.

Knowlton Development Corporation, Inc. is a holding company with no operations of its own and, as such, it depends on its subsidiaries for cash to fund its expenses, including future dividend payments, if any.

As a holding company, our principal source of cash flow will be distributions from our operating subsidiaries, Therefore, our ability to fund and conduct our business, service our debt and pay dividends, if any, in the future will depend on the ability of our subsidiaries to generate sufficient cash flow to make upstream cash distributions to us. Our subsidiaries are separate legal entities, and although they are wholly owned and controlled by us, they have no obligation to make any funds available to us, whether in the form of loans, dividends or otherwise. The ability of our subsidiaries to distribute cash to us will also be subject to, among other things, restrictions that are contained in agreements, availability of sufficient funds in such subsidiaries and applicable laws and regulatory restrictions. Claims of any creditors of our subsidiaries generally will have priority as to the assets of such subsidiaries over our claims and claims of our creditors and shareholders. To the extent the ability of our subsidiaries to distribute dividends or other payments to us is limited in any way, our ability to fund and conduct our business, service our debt and pay dividends, if any, could be harmed.

Our articles will provide that any derivative actions, actions relating to breach of fiduciary duties and other matters relating to our internal affairs will be required to be litigated in Canada, and will contain an exclusive federal forum provision for certain claims under the Securities Act, which could limit your ability to obtain a favorable judicial forum for disputes with us.

Our articles that will become effective immediately prior to consummation of this offering will include a forum selection provision that provides that, unless we consent in writing to the selection of an alternative forum, the Supreme Court of British Columbia, Canada and the appellate courts therefrom, will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf; (ii) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees to us; (iii) any action or proceeding asserting a claim arising pursuant to any provision of the BCBCA or our articles (as either may be amended from time to time); or (iv) any action or proceeding asserting a claim otherwise related to the relationships among us, our affiliates and their respective shareholders, directors and/or officers, but excluding claims related to our business or such affiliates. The forum selection provision also provides that our securityholders are deemed to have consented to personal jurisdiction in the Province of British Columbia and to service of process on their counsel in any foreign action initiated in violation of the foregoing provisions. See “Description of Share Capital—Certain Important Provisions of our Articles and the BCBCA—Forum Selection.” The forum selection provision may impose additional litigation costs on shareholders in pursuing any such claims. Additionally, the forum selection provision may limit our shareholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers or employees, which may discourage the filing of lawsuits against us and our directors, officers and employees, even though an action, if

 

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successful, might benefit our shareholders. The courts of the Province of British Columbia may also reach different judgments or results than would other courts, including courts where a shareholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than to our shareholders.

For claims brought under the Securities Act, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all claims brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder and our articles will provide that the federal district courts of the United States of America will, to the fullest extent permitted by law, be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act (the “Federal Forum Provision”). Application of our Federal Forum Provision means that suits brought by our shareholders to enforce any duty or liability created by the Securities Act must be brought in federal court and cannot be brought in state court. This provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act, or the rules and regulations thereunder.

Section 27 of the Exchange Act creates exclusive federal jurisdiction over all claims brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Accordingly, actions by our shareholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder must be brought in federal court. Our shareholders will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder.

The Federal Forum Provision is intended to apply to the fullest extent permitted by law. However, the enforceability of forum selection provisions in the governing documents of other companies has been challenged in legal proceedings, and it is possible that a court could find the Federal Forum Provision to be inapplicable or unenforceable with respect to actions arising under the Securities Act.

Any person or entity purchasing or otherwise acquiring or holding any interest in any of our common shares shall be deemed to have notice of and consented to our forum selection provisions, including the Federal Forum Provision. Additionally, our shareholders cannot waive compliance with the federal securities laws and the rules and regulations thereunder. These provisions may limit our shareholders’ ability to bring a claim in a judicial forum they find favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. Alternatively, if a court were to find the choice of forum provision contained in our articles to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition. See “Description of Share Capital—Certain Important Provisions of our Articles and the BCBCA—Forum Selection.”

Our articles will permit us to issue an unlimited number of common shares and preferred shares without seeking approval of the holders of common shares.

Our articles permit us to issue an unlimited number of common shares. We anticipate that we will, from time to time, issue additional common shares in the future. Subject to the requirements of the BCBCA, the NYSE and the TSX, we will not be required to obtain the approval of shareholders for the issuance of additional common shares. Any further issuances of common shares will result in immediate dilution to existing shareholders and may have an adverse effect on the value of their shareholdings.

Our articles that will become effective immediately prior to consummation of this offering will also permit us to issue an unlimited number of preferred shares, issuable in series and, subject to the requirements of the BCBCA, having such designations, rights, privileges, restrictions and conditions, including dividend and voting rights, as our board of directors may determine and which may be superior to those of the common shares. The issuance of preferred shares could, among other things, have the effect of delaying, deferring or preventing a change in control of the Company and might adversely affect the market price of our common shares. We have

 

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no current or immediate plans to issue any preferred shares following the consummation of this offering. Subject to the provisions of the BCBCA and the rules of the NYSE and the TSX, we will not be required to obtain the approval of the holders of common shares for the issuance of preferred shares or to determine the maximum number of shares of each series of preferred shares, create an identifying name for each series and attach such special rights or restrictions as our board of directors may determine. See “Description of Share Capital—Authorized Share Capital—Preferred Shares.”

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made statements under the captions “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and in other sections of this prospectus that are forward-looking statements. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, and other future conditions. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. Forward-looking statements contained in this prospectus include, among other things, statements relating to:

 

   

strategy, outlook and growth prospects, including plans for potential acquisitions and expansion to new markets and new products;

 

   

the economic, operational and financial impacts of the COVID-19 pandemic;

 

   

expectations for industry trends and the size and growth rates of addressable markets;

 

   

changes in consumer preferences;

 

   

operational and financial targets;

 

   

impact of government regulations and judicial decisions affecting products we produce or the products contained in the products we produce; and

 

   

the competitive environment in which we operate.

These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled “Risk Factors.” In addition, even if results, level of activity, performance or achievements are consistent with the forward-looking statements contained in this prospectus, those results, level of activity, performance or achievements may not be indicative of results or developments in subsequent periods. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Certain assumptions made in preparing the forward-looking statements contained in this prospectus include:

 

   

our ability to implement our growth strategies;

 

   

our ability to maintain good business relationships with our suppliers and distributors;

 

   

the timing for recovery from the COVID-19 pandemic;

 

   

our ability to keep pace with changing consumer preferences;

 

   

our ability to protect our intellectual property; and

 

   

the absence of material adverse changes in our industry or the global economy.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, the factors discussed under the caption entitled “Risk Factors,” which include, but are not limited to, the following risks:

 

   

our business is highly competitive, and if we are unable to compete effectively our revenues and results of operations will suffer;

 

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we may not successfully develop, innovate, introduce or acquire new technologies, products and solutions that meet our customers’ needs, which may cause us to fail to attract new customers or sell new products to existing customers, which may in turn adversely affect our results of operations;

 

   

rapid changes in market trends and consumer preferences could adversely affect our financial results;

 

   

we rely on our customers’ desire for outsourcing the ideation, formulation, design, packaging and manufacturing processes, and if our customers were to reduce their dependence on such outsourcing or if we are not able to otherwise successfully maintain our customer relationships, our revenues and results of operations would be adversely affected;

 

   

we may not be able to pursue our growth strategy through acquisitions, and the failure to successfully complete and integrate acquisitions could adversely affect our growth;

 

   

failure to realize anticipated synergies of recent and future acquisitions or restructurings may adversely affect our revenues and results of operations;

 

   

a significant portion of our revenue comes from a limited number of customers, the loss of which would have a material adverse effect on our business, financial condition and results of operations;

 

   

we have a history of net losses and there is no guarantee that we will achieve profitability in the short-term;

 

   

we are subject to risks related to our international operations;

 

   

as we expand our business in the Asia Pacific region, and in particular in China, the economic, political and social conditions, as well as changes in any government policies, laws and regulations, could adversely affect our business;

 

   

interruptions and delays in manufacturing operations, including volatility and increases in the price of raw materials and energy and transportation, could adversely affect our business, revenues and reputation;

 

   

our revenue and operating income fluctuate on a seasonal basis;

 

   

we rely on complex machinery for our operations, and production involves a significant degree of risk and uncertainty in terms of operational performance and costs;

 

   

product reliability, safety and effectiveness concerns can have significant negative impacts on sales and results of operations, lead to litigation and cause reputational damage;

 

   

we are subject to risks associated with leasing and occupying real property and the inability to extend, renew or continue to lease real property in key locations, could harm our business, profitability and results of operations;

 

   

natural disasters, public health crises (such as the ongoing COVID-19 outbreak), international conflicts, terrorist acts, labor strikes, political crisis, accidents and other events could adversely affect our business and financial results by disrupting development, manufacturing or sale of our products;

 

   

our success depends on attracting and retaining talented people; significant shortfalls in recruitment or retention could adversely affect our ability to compete and achieve our strategic goals;

 

   

we rely on third-party suppliers in procuring materials for our customers and otherwise conducting our business and operations, and their failure to perform to our standards or in a timely manner could adversely affect our reputation, business, and financial results;

 

   

if we are unable to comply with regulatory requirements and industry standards, including those regarding product safety, quality, efficacy and environmental impact, we could incur significant costs and suffer reputational harm which could adversely affect results of operations;

 

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we incur substantial costs to comply with environmental protection and health and safety laws, and failure to comply with these laws may cause us to close, relocate or operate one or more of our plants at reduced production levels, and expose us to civil or criminal liability or other costs, which could adversely affect our operating results and future growth; changes to environmental laws could increase our costs of doing business;

 

   

our collection, use, storage, disclosure, transfer and other processing of personal information could give rise to significant costs and liabilities, including as a result of governmental regulation, conflicting legal requirements or differing views of personal privacy rights;

 

   

breaches or failures of our information technology systems or website security, the theft, unauthorized access, acquisition, use, disclosure, modification or misappropriation of personal information, the occurrence of fraudulent activity, or other cybersecurity or data security-related incidents may have an adverse impact on our business, financial condition, results of operations and prospects;

 

   

we do not own the intellectual property of all of the formulas or technical specifications of products that we manufacture, and if we are unable to protect the confidentiality of customer trade secrets, know-how and other proprietary and internally developed information, we may not be able to maintain customer relationships and our business may be adversely affected;

 

   

third parties may initiate legal proceedings alleging that we are infringing, misappropriating or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on our business, financial condition and results of operations;

 

   

insiders will continue to have substantial control over us after this offering and could limit your ability to influence the outcome of key transactions, including a change of control; and

 

   

we are governed by the corporate laws of British Columbia, Canada, which in some cases have a different effect on the rights of shareholders than the corporate laws of the United States.

These factors should not be construed as exhaustive and should be read with the other cautionary statements in this prospectus. Although we have attempted to identify important risk factors, there may be other risk factors not presently known to us or that we presently believe are not material that could also cause actual results, level of activity, performance or achievements to differ materially from those made in or suggested by the forward-looking statements contained in this prospectus. If any of these risks materialize, or if any of the above assumptions underlying forward-looking statements prove incorrect, actual results, level of activity, performance or achievements may differ materially from those made in or suggested by the forward-looking statements contained in this prospectus.

Given these risks and uncertainties, you are cautioned not to place substantial weight or undue reliance on these forward-looking statements when making an investment decision. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Except as required by law, we are under no duty to update any of these forward-looking statements after the date of this prospectus to conform our prior statements to actual results or revised expectations. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC and the Canadian securities regulatory authorities, after the date of this prospectus. See “Where You Can Find More Information.”

Any references to forward-looking statements in this prospectus include forward-looking information within the meaning of applicable Canadian securities laws.

 

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USE OF PROCEEDS

We estimate that our net proceeds from this offering will be approximately $        million, after deducting underwriting discounts and commissions of approximately $        million. This estimate is based on an assumed initial offering price of $        per share (the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus) and assumes that the underwriters’ option to purchase additional shares from us is not exercised. If the underwriters exercise their option to purchase additional shares from us in full, we expect to receive approximately $        million of net proceeds based on an assumed initial offering price of $        per share (the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus).

We estimate that the offering expenses (other than the underwriting discount and commissions) will be approximately $        million.

We will use $             of the net proceeds from this offering to repay all of our outstanding borrowings under the Revolving Facility and the remaining net proceeds from this offering (including net proceeds received if the underwriters exercise their option to purchase additional common shares from us) to repay a portion of outstanding borrowings under the Euro Term Loan.

The Revolving Facility and the Euro Term Loan mature on December 21, 2023 and December 21, 2025, respectively. The Revolving Facility was drawn upon, including in connection with the 2021 Revolver Increase, to finance the Distribution Financing Transactions and related fees, as well as for ordinary course working capital purposes and other general corporate purposes. The Euro Term Loan, including the 2021 Term Loan Increase, was entered into to finance the Distribution Financing Transactions and to pay fees and expenses incurred in connection therewith, to fund the acquisition of Zobele and a portion of the acquisition of HCT Metals and to repay outstanding indebtedness. Borrowings under the Revolving Facility are based on a fluctuating rate of interest determined with reference to the applicable base rate plus applicable margin. Borrowings under the Euro Term Loan bear interest at a rate equal to Euribor for the relevant interest period plus 5%. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Distribution Financing Transactions” and “Description of Certain Indebtedness.”

A $1.00 increase (decrease) in the assumed initial public offering price of $        per share (the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus) would increase (decrease) the amount of proceeds to us from this offering available by approximately $        million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions.

 

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DIVIDEND POLICY

Following the consummation of this offering, we do not currently intend to pay dividends on our common shares. We currently intend to retain any future earnings to fund the development and expansion of our business, including further acquisitions, and, therefore, we do not anticipate paying dividends on our common shares in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors, subject to applicable laws, and will depend on our results of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant by our board of directors. Our future ability to pay dividends on our common shares is currently limited by the terms of our Credit Agreement and may be limited by the terms of any future debt or preferred securities. Other than in connection with the Distribution Financing Transactions, which involved a return of capital of $232.70 per Class A and Class B common shares of the Company, totaling $318.5 million, paid out on February 3, 2021, we did not declare or pay any cash dividends or distributions during the three most recently completed fiscal years and the current fiscal year. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Distribution Financing Transactions” and “Description of Certain Indebtedness.”

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of April 30, 2021:

 

   

on an actual basis;

 

   

on an as adjusted basis to reflect the Share Capital Amendments; and

 

   

on an as further adjusted basis to reflect the sale by us of            common shares in this offering and the application of the net proceeds from this offering as described in “Use of Proceeds” and based on an assumed initial public offering price of $        per share (the midpoint of the range set forth on the cover page of this prospectus).

This table should be read in conjunction with “Use of Proceeds,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Share Capital” and the financial statements and notes thereto appearing elsewhere in this prospectus.

 

    April 30, 2021  
    Actual     As Adjusted     As Further
Adjusted
 

Cash and cash equivalents

  $ 118.0     $                   $                
 

 

 

   

 

 

   

 

 

 

Long-term debt(1)

  $ 1,719.8     $                   $                

Revolving Facility(2)

    177.0      

Term Loans

    1531.0      

USD Term Loans

    884.4      

Euro Term Loans

    646.6      

Finance leases and other borrowings

    11.8      

Class A common shares, no par value; unlimited shares authorized, 1,353,183 shares outstanding at April 30, 2021, actual; 0 shares outstanding, as adjusted; 0 shares outstanding, 0 as further adjusted

    1,129.2       —         —    

Class B common shares, no par value; unlimited shares authorized, 16,541 shares outstanding at April 30, 2021, actual; 0 shares outstanding, as adjusted; 0 shares outstanding, as further adjusted

    13.9       —         —    

Common shares, no par value; unlimited shares authorized, 0 shares outstanding at April 30, 2021, actual;                 shares outstanding, as adjusted;                 shares outstanding, as further adjusted

    —        

Shares to be issued(3)

    1.1      

Treasury Shares

    —        

Additional paid-in capital

    5.2      

Accumulated deficit

    (217.0    

Accumulated other comprehensive income

    3.0      
 

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

  $ 935.4     $       $    
 

 

 

   

 

 

   

 

 

 

Total capitalization

  $ 2,655.2     $       $    
 

 

 

   

 

 

   

 

 

 

 

(1)

Long-term debt includes the current and long-term portions. Operating lease liabilities are excluded from the Company’s long-term debt.

(2)

As of the date of this prospectus, we had $         of unused capacity under our Revolving Facility.

(3)

Shares to be issued include consideration in the form of 703 Class B common shares (or                  common shares, as a result of completion of the Share Capital Amendments) the Company has the obligation to pay in connection with the acquisition of Paristy.

 

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DILUTION

If you invest in our common shares, you will experience dilution to the extent of the difference between the initial public offering price per common share and the as further adjusted net tangible book value per common share after this offering. Dilution results from the fact that the per share initial public offering price of our common shares is substantially in excess of the as further adjusted net tangible book value per share attributable to the existing shareholders for our presently outstanding common shares.

Our as adjusted net tangible book value as of April 30, 2021 would have been approximately $        million, or $        per common share. As adjusted net tangible book value represents the amount of total tangible assets less total liabilities, and as adjusted net tangible book value per share represents as adjusted net tangible book value divided by the number of common shares outstanding as of April 30, 2021, both after giving effect to the Share Capital Amendments.

After giving effect to the sale of            common shares by us in this offering at the assumed initial public offering price of $            per share (the midpoint of the estimated initial price range on the cover page of this prospectus) and the use of the net proceeds from this offering, our as further adjusted net tangible book value would have been approximately $        million, or $            per share, representing an immediate increase in as further adjusted net tangible book value of $            per share to existing shareholders and an immediate dilution in as further adjusted net tangible book value of $            per share to new investors.

The following table illustrates the per share dilution:

 

Assumed initial public offering price per common share

   $                

As adjusted net tangible book value per common share as of April 30, 2021

  

Increase in as adjusted net tangible book value per common share attributable to new investors

  

As further adjusted net tangible book value per common share after this offering

  

Dilution in as further adjusted net tangible book value per common share to new investors

   $                

Dilution is determined by subtracting as further adjusted net tangible book value per common share after this offering from the initial public offering price per common share.

A $1.00 increase (decrease) in the assumed initial public offering price of $        per share would increase (decrease) the dilution per share to new investors by $        , in each case assuming the number of shares offered, as set forth on the cover page of this prospectus, remains the same.

To the extent the underwriters’ option to purchase additional common shares from us is exercised, there will be further dilution to new investors.

The following table illustrates, as of April 30, 2021, after giving effect to the sale by us of our common shares in this offering at the initial public offering price of $        per share (the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus), the difference between the existing shareholders, and the investors purchasing common shares in this offering with respect to the number of our common shares purchased from us, the total consideration paid or to be paid to us, and the average price per share paid or to be paid to us, before deducting underwriting discounts and commissions and the estimated offering expenses payable by us:

 

     Shares purchased     Total consideration     Average price  
     Number      Percent     Amount      Percent     Per share  

Existing shareholders(1)

                                    $                                 $                

Investors purchasing common shares in this offering

            
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

                   $                                 $                
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(1)

Does not give effect to the returns of capital, totaling $318.5 million in the aggregate, that were effected pursuant to the Distribution Financing Transactions.

 

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To the extent any of the outstanding options described below are exercised, investors will experience further dilution. Assuming the exercise of all of our outstanding options as of April 30, 2021, the number of common shares held by the existing shareholders would be increased to             total common shares and     % of the total number of common shares to be outstanding after this offering, and the number of common shares held by investors participating in this offering remain unchanged and would be reduced to     % of the total number of common shares to be outstanding after this offering. Additionally, the cash consideration paid to us by existing shareholders would be $         million, or approximately     % of the total cash consideration, and the cash consideration paid to us by new investors purchasing shares in this offering would remain $         million, or approximately     % of the total cash consideration. The average price per share paid to us by existing shareholders would be $         and the average price per share paid to us by new investors would remain unchanged.

We may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to holders of our common shares.

Unless otherwise noted, the information above is based on                 common shares outstanding as of April 30, 2021, after giving effect to the Share Capital Amendments and includes the common shares to be issued in this offering and excludes:

 

   

up to                 common shares reserved for issuance under our Omnibus Plan, which will become effective immediately prior to or upon the consummation of this offering;

 

   

                common shares issuable if the underwriters exercise their option to purchase additional common shares from us;

 

   

up to                 common shares issuable upon the exercise of equity share option awards previously issued to certain of our executive officers under our Stock Option Plan; and

 

   

up to                common shares issuable as deferred consideration and contingent consideration in connection with the Paristy acquisition.

To the extent that any outstanding options are exercised or new options are issued under our stock option plan, there will be further dilution to investors participating in this offering.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The following tables present the summary historical and combined consolidated financial data for the Company.

The statements of operations data for the fiscal years ended April 30, 2021 and 2020 and for the periods from November 30, 2018 through April 30, 2019 and from May 1, 2018 through December 20, 2018, and balance sheet data as of April 30, 2021 and 2020 have been derived from the consolidated audited financial statements of the Company included elsewhere in this prospectus.

The Combined 2019 Financial Information has been derived from the unaudited combined year ended April 30, 2019 presented herein, which combines the Successor Period from November 30, 2018 through April 30, 2019 and the Predecessor Period from May 1, 2018 through December 20, 2018. These unaudited combined results of operations disclosures are not impacted by, nor adjusted for, the impact from the completion of this offering, the issuance of common shares in this offering, and the use of the proceeds from this offering as described in the section entitled “Use of Proceeds.”

The selected consolidated financial presented below do not purport to be indicative of the results that can be expected for any future period and should be read together with “Financial Statement Presentation,” “Capitalization,” “Prospectus Summary—Summary Consolidated Financial and Other Data,” “Supplemental Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes thereto included elsewhere in this prospectus.

 

    Successor Period     Predecessor
Period
    Combined
2019 Financial
Information(1)
 
    Year Ended
April 30,
2021
    Year Ended
April 30,
2020
    November 30,
2018 through
April 30,
2019
    May 1, 2018
through
December 20,
2018
 
    (in millions, except shares and per share amounts)  

Statements of Operations Data

         

Revenue

  $   2,143.8     $   1,093.4     $   369.8     $   632.8     $   1,002.6  

Cost of revenue

    1,817.7       944.6       320.4       546.4       872.5  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    326.1       148.8       49.4       86.4       130.1  

Operating expenses

         

Selling, general and administrative expenses

    286.8       135.3       34.9       69.7       110.1  

Acquisition-related costs and other expenses

    40.1       59.7       9.4       25.9       35.3  

Impairment loss on goodwill and other intangible

   
48.2
 
    —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (49.0     (46.2     5.1       (9.2     (15.3

Interest expense

    78.2       47.4       14.4       13.3       43.2  

Other expense (income), net

    11.7       2.4       0.5       1.1       1.6  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (138.9     (96.0     (9.8     (23.6     (60.1

Income tax benefit

    (13.1     (14.1     (0.5     (0.9     (8.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (125.8   $ (81.9   $ (9.3   $   (22.7   $   (51.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding—basic and diluted

    1,324,110       857,883       641,424       309,344,128    
 

 

 

   

 

 

   

 

 

   

 

 

   

Net loss per share—basic and diluted

  $ (95.01   $ (95.47   $ (14.50   $ (0.07  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

(1)

See “Supplemental Financial Information” for an explanation as to how the Combined 2019 Financial Information is calculated.

 

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     Successor Period  
     As of April
30, 2021
     As of April
30, 2020
 
     (in millions)  

Balance Sheet Data

     

Total assets

   $ 3,574.1      $ 3,592.4  

Total liabilities

   $ 2,638.7      $ 2,372.7  

Total shareholders’ equity

   $ 935.4      $   1,219.7  

 

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SUPPLEMENTAL FINANCIAL INFORMATION

We believe this section provides additional information relevant to investors about our financial performance in a manner consistent with how management views our performance, which is to assess our results across periods in a comparable manner. The presentation of unaudited supplemental financial information is for informational purposes only, and the unaudited supplemental financial information does not constitute Article 11 pro forma financial information.

The unaudited supplemental combined financial information for the fiscal year ended April 30, 2019 (the “Combined 2019 Financial Information”) presented herein combines the period from November 30, 2018 through April 30, 2019 (“Successor Period”) and the period from May 1, 2018 through December 20, 2018 (“Predecessor Period”). The unaudited supplemental combined financial information gives effect to the Acquisition in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”), as if it had occurred on May 1, 2018.

The unaudited supplemental disaggregated financial information for the fiscal years ended April 30, 2021 (the “Disaggregated 2021 Financial Information”) and April 30, 2020 (the “Disaggregated 2020 Financial Information”) presented herein exclude the impact of the 2020 Transactions, rather than giving effect to these acquisitions as if they had occurred at a certain date for the annual periods. We do so by subtracting the results of operations of the acquired businesses (based on their standalone books and records) for all periods since the applicable dates of acquisition.

These unaudited supplemental results of operations disclosures are not impacted by, nor adjusted for, the impact from the completion of this offering, the issuance of common shares, and the use of the proceeds from this offering as described in the section entitled “Use of Proceeds.”

We believe that providing only the discussion of the actual financial information comparing these periods is not sufficient for investors. Reviewing our operating results for the fiscal year ended April 30, 2019 through the use of the FASB ASC 805 pro forma adjustments related to the Acquisition provides useful information in discussing our overall operating performance compared to the results of the years ended April 30, 2021 and 2020. Reviewing our operating results for the fiscal year ended April 30, 2020 through the use of adjustments to exclude the impact of the 2020 Transactions also provides useful information in discussing our overall operating performance compared to the results of the year ended April 30, 2019. The unaudited disaggregated financial information excludes the results of operations of the businesses acquired through the 2020 Transactions, giving effect to the adjustments described in the tables below.

The unaudited supplemental financial information set forth below is based upon available information and assumptions that we believe are reasonable. The historical financial information has been adjusted to give effect to supplemental events that are: (1) directly attributable to the transactions described therein; and (2) factually supportable. The unaudited supplemental financial information is for illustrative and informational purposes only and is not intended to represent or be indicative of our financial condition or results of operations had the above transactions occurred on their actual dates or as of any other date within the periods covered by this financial information. The unaudited supplemental financial information also should not be considered representative of our future financial condition or results of operations.

 

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Unaudited Supplemental Combined Financial Information

 

     Successor Period     Predecessor Period           Combined  
     November 30, 2018
through
April 30, 2019
    May 1, 2018
through
December 20, 2018
    Adjustments     May 1, 2018
through
April 30, 2019
 
     (in millions)  

Revenue

   $   369.8     $   632.8     $ —       $   1,002.6  

Cost of revenue

     320.4       546.4       5.7 (a)      872.5  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     49.4       86.4       (5.7     130.1  

Operating expenses

        

Selling, general and administrative expenses

     34.9       69.7             5.5 (b)      110.1  

Acquisition-related costs and other expenses

     9.4       25.9       —         35.3  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     5.1       (9.2     (11.2     (15.3

Interest expense

     14.4       13.3       15.5 (c)      43.2  

Other expense (income), net

     0.5       1.1       —         1.6  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (9.8     (23.6     (26.7     (60.1

Income tax benefit

     (0.5     (0.9     (7.4 )(d)      (8.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (9.3   $ (22.7   $ (19.3   $ (51.3
  

 

 

   

 

 

   

 

 

   

 

 

 

 

The adjustments presented herein give effect to the Acquisition as if it had occurred on May 1, 2018. These adjustments can be explained as follows:

 

(a)

incremental depreciation expense included in cost of revenue that is related to the fair value adjustments associated with the property, plant and equipment acquired, and incremental amortization expense related to the fair value adjustments associated with the intangible assets acquired;

(b)

incremental depreciation expense included in selling, general and administrative expenses that is related to the fair value adjustments associated with the property, plant and equipment acquired, and incremental amortization expense related to the fair value adjustments associated with the intangible assets acquired;

(c)

additional interest expense associated with the issuance of debt to finance the Acquisition; and

(d)

the consequential income tax adjustments.

 

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Unaudited Supplemental Disaggregated Financial Information

 

     Successor  
     Year
Ended
April 30,
2021
    Less: 2020
Transactions
    Disaggregated
2021
Financial
Information
     Year
Ended
April 30,
2020
    Less: 2020
Transactions
    Disaggregated
2020
Financial
Information
 
     (in millions)  

Revenue

   $   2,143.8     $ (1,147.9 )(a)    $   995.9      $   1,093.4     $ (149.2 )(a)    $   944.2  

Cost of revenue

     1,817.7       (961.4 )(b)      856.3        944.6       (125.4 )(b)      819.2  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Gross profit

     326.1       (186.5     139.6        148.8       (23.8     125.0  

Operating expenses

             

Selling, general and administrative expenses

     286.8       (169.7 )(c)      117.1        135.3       (34.4 )(c)      100.9  

Acquisition-related costs and other expenses

     40.1       (17.9 )(d)      22.2        59.7       (3.5 )(d)      56.2  

Impairment loss on goodwill and other intangibles

     48.2       (48.2 )(e)      —          —         (e)      —    
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ (49.0   $       49.3     $ 0.3      $ (46.2   $       14.1     $ (32.1
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

The disaggregated information is presented for the fiscal years ended April 30, 2021 and 2020. The adjustments presented represent the impact of the 2020 Transactions to arrive at disaggregated amounts, which are our results of operations excluding the amounts recorded for the seven businesses acquired through the 2020 Transactions. These adjustments can be explained as follows and include the purchase price adjustments related to the acquisitions, the transaction costs and other expenses incurred by the acquired businesses, and exclude all Knowlton Development Corporation, Inc. corporate costs as they are not allocated to operational entities:

 

(a)

revenue of the seven acquired businesses since the applicable dates of acquisition;

(b)

cost of revenue of the seven acquired businesses since the applicable dates of acquisition;

(c)

selling, general and administrative expenses of the seven acquired businesses since the applicable dates of acquisition;

(d)

acquisition-related costs and other expenses incurred by the seven acquired businesses since their applicable dates of acquisition. This adjustment does not include acquisition-related costs and other expenses incurred by the Company (as the acquirer) in relation to the 2020 Transactions; and

(e)

impairment loss on goodwill and other intangibles of the seven acquired businesses since the applicable dates of acquisition.

We believe the presentation of disaggregated information below the operating income (loss) line is not meaningful in discussing our performance and therefore is not presented. The analysis of interest expense, other expense (income), net and income tax benefit is more meaningful on an actual basis because most of these items are driven at the corporate level rather than the subsidiaries level.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations (“MD&A”) should be read in conjunction with the “Selected Consolidated Financial Data” and “Supplemental Financial Information” sections of this prospectus and our consolidated financial statements and related notes thereto included elsewhere in this prospectus. We utilize a fiscal year from May 1 to April 30. Our fiscal quarters end on July 31, October 31, January 31 and April 30. In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations or other forward-looking statements. Factors that could cause such differences are discussed under “Cautionary Note Regarding Forward-Looking Statements,” “Risk Factors” and elsewhere in this prospectus.

Overview

We are a trusted global provider of value-added solutions to many of the world’s leading brands in the beauty, personal care and home care categories. We partner closely with both industry-leading consumer products companies and fast-growing independent brands as a critical enabler of their success through ideation, formulation, design, packaging and manufacturing of products sold under more than 1,000 different brand names. Over the past three years, we have been responsible for co-developing over 9,000 products across growing categories that include skin care, body and hair care, soaps and sanitizers, cosmetics, deodorants, sun care, fragrances, air care, fabric care, pest control and surface care products. The innovative products that we have helped to develop are sold by our brand partners in more than 70 countries worldwide.

The pace of innovation and new brand and product introduction is accelerating across the beauty, personal care and home care categories. This, in turn, has underscored the importance of rapid strategic product development partnerships with companies such as ours to accelerate the speed to market. Against that backdrop, we have benefited by building a leading suite of end-to-end value added solutions across a global platform. We believe the vertical integration of product solutions, coupled with the ability to service both established and emerging brands worldwide, provides us with a significant competitive advantage.

We provide our value-added solutions to more than 700 customers worldwide as of April 30, 2021, across 13 different product categories. Our customers include many of the most recognizable and emerging companies in the beauty, personal care and home care categories. Our customer base encompasses 18 of the 20 largest beauty, personal care and home care companies worldwide, when ranked by retail sales in 2020, according to Euromonitor.1 In total, these 18 customers had a 52% share of the beauty, personal care and home care categories in 2020, according to Euromonitor.1 As of April 30, 2021, our portfolio also included more than 200 independent and emerging customers, who we have selectively targeted as owning many of the fastest growing and most noteworthy brands.

Our operating results prior to the Acquisition for the period from May 1, 2018 through December 20, 2018 are presented as the “Predecessor Period” and our operating results following the Acquisition for the period from November 30, 2018 through April 30, 2019, along with the fiscal years ended April 30, 2021 and 2020, are presented as the “Successor Period.” In addition, in this prospectus, we present operating results for the Combined 2019 Financial Information on an unaudited basis to combine both the 2019 Predecessor and the 2019 Successor periods, giving effect to the Acquisition in accordance with the FASB ASC 805, as if it had occurred on May 1, 2018. We also present operating results for the Disaggregated 2021 Financial Information and the Disaggregated 2020 Financial Information to exclude the impact of the 2020 Transactions, by subtracting the results of operations of businesses acquired through the 2020 Transactions since the applicable dates of acquisition, giving effect to the adjustments described in “Supplemental Financial Information.”

 

1 

Euromonitor International Limited. Beauty & Personal Care 2021 Retail Value RSP Fixed 2020 Exchange Rate, Home Care 2021 Retail Value RSP Fixed 2020 Exchange Rate. Data extracted April 2021.

 

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Key Factors Impacting Our Performance

Our financial condition and results of operations have been, and will continue to be, affected by a number of factors, including the following:

Shifting Consumer Preferences and Behavior

Within the categories in which we operate, a number of structural shifts are taking place that favor a value-added, integrated solutions partner like us. Through digitization, consumers have more immediate access than ever before to information and influence around their purchasing choices. This has resulted in a faster pace of innovation across the beauty, personal care and home care categories, both for existing products and through a significant increase in the pace at which new brands are introduced to the market.

Ability to Offer End-to-End Solutions to our Customers

As consumer demand for newness accelerates, brand owners are increasingly partnering with us across all facets of the strategic product planning process. We believe our ability to offer integrated, end-to-end solutions across our global footprint will be a key driver of future growth.

Increasing Reliance on Outsourced Innovation

As established brands adapt to this faster-paced consumer environment, they are increasingly reliant on outsourced strategic partnerships to help drive product innovation and speed to market. Likewise, owners of emerging brands often favor an asset-lite approach, freeing up time and resources to focus on consumer connectivity. We expect that our future growth will come in part from continued outsourcing trends at larger, established brands. We believe our ability to be a trusted innovation partner for these companies, deliver flexible production capacity and support their ability to bring new and innovative products to market is key to our future performance.

Accelerating Growth Across International Markets

Industry estimates suggest that growth across our categories will continue to be delivered across each of the major regions in which we operate, including the United States and Canada; Europe, the Middle East and Africa; and the Asia Pacific region, among others. On a weighted-average basis, the markets for beauty, personal care and home care are expected to grow at a compound annual rate of 2.3%, 4.9% and 7.0% in the United States and Canada; Europe, the Middle East and Africa; and the Asia Pacific region, respectively, from 2019 through 2025, according to Euromonitor.2 China, in particular, is experiencing a period of elevated growth and is expected to grow at a compound annual growth rate of 10.2% through 2025.2 The Asia Pacific region, and in particular China, is expected to continue to be a key pillar of our international expansion strategy.

Existing Customer Dependence & Retention

Organic growth will depend on our ability to extend our existing customer relationships into the future and support these businesses as they continue to grow, including both established and emerging brands. It has become increasingly important to invest in key relationships by providing a full-service suite of integrated solutions across the value chain. This benefits scaled business that both invest in end-to-end capabilities and serve customers at each step of the value chain. We have invested in a value chain that starts with ideation and assists our customers through formulation, design, packaging and manufacturing of products.

Business Development and Acquisitions

We seek to accelerate our sales growth by expanding and further diversifying our product capabilities, category reach and geographic footprint. We do this both through organic growth initiatives and through

 

2 

Company estimate from Euromonitor International Limited, Beauty & Personal Care 2021 Fixed 2020 Exchange Rate, Home Care 2021 Fixed 2020 Exchange Rate, Retail Value RSP, Current Prices. Data extracted April 2021.

 

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acquisitions. At our Knowlton, Québec facility, for example, we recently completed a multi-step investment to expand and enhance our capabilities in the antiperspirant and deodorant category. Similarly, we expect that operations at our new facility in Columbus, Ohio will commence in the second quarter of fiscal 2022, adding capabilities across a range of products, including foaming soap, hand soap, shower gel and body cream. With respect to acquisitions, we have successfully expanded our footprint in Europe and the Asia Pacific region through the purchase of Alkos, Swallowfield and Paristy. Additionally, the acquisition of Zobele extended our product portfolio and reach into the home care, fabric care and pest control categories, including highly technical dispensing devices, while the acquisition of HCT added industry leading expertise in the field of complex packaging design and production, enabling us to better service the premium beauty category. Zobele and HCT also extend our global footprint.

Strategic acquisitions to complement and expand our business have been, and are expected to continue to be, an important part of our growth strategy. Our acquisitions may impact our future financial results due to factors such as the amortization of acquired intangible assets, impairment charges or other potential charges arising from integration activities and synergy-capturing initiatives such as restructuring costs. These types of costs may affect comparability of results across periods prepared in accordance with GAAP.

As a result of our business development and acquisition activities, we recently realigned our organizational priorities to better serve our customers and be more responsive to changes in market dynamics. We believe these changes will allow us to more effectively manage our business and improve our operating results in the future.

COVID-19

The COVID-19 pandemic has negatively impacted the global economy, disrupted supply chains and created significant volatility in global financial markets. Many countries in which we operate initiated governmental restrictions in response to the COVID-19 pandemic and these actions have impacted and will continue to impact our results of operations and cash flows. Several vaccines have received regulatory approval across the world in late 2020 and early 2021 and are being distributed in our primary areas of operation, including North America and Europe. As COVID-19 vaccine adoption rates increase, certain countries have started facilitating gradual reopening of business and public settings while maintaining health and safety precautions. Uncertainty surrounding the effectiveness of the vaccines, public perception and local laws, and regulations enacted to combat the spread of COVID-19, will play a key role on any future impact of the COVID-19 pandemic in our operations.

Although we have experienced certain negative impacts on sales and incurred additional costs, the economic effects of the COVID-19 pandemic were offset by our diversified personal care product offerings (including skin, body and hair care), as well as the results of our 2020 Transactions, which resulted in an overall favorable impact to our consolidated sales, net loss, Adjusted EBITDA and cash flows for the fiscal year ended April 30, 2021 in comparison to the year ended April 30, 2020. Factors that contributed to this overall favorable result are rooted in the nature of the products we sell, as many of our products are essential to the daily lives of consumers and, as a result, continued to experience demand during the pandemic. Our global and flexible manufacturing network enabled us to meet increased demand from our customers for these essential products. Furthermore, we have a diversified product portfolio, with varying sale prices and margins, (our “sales mix”), and sales volumes. As a result of our diversified product portfolio, although some products, such as color cosmetics, experienced declining sales during the fourth quarter of fiscal year 2020 and into fiscal year 2021, other products, such as personal care and home care, experienced increased demand, which ultimately resulted in an overall positive impact on our consolidated sales, net loss, Adjusted EBITDA and cash flows. For instance, through our strategic approach to mergers and acquisitions (unrelated to the COVID-19 pandemic), we acquired Zobele on April 30, 2020. This acquisition diversified our product portfolio to offer air care, fabric care, pest control and surface care products in the home care sector that resulted in an overall positive impact on our consolidated sales, net loss, Adjusted EBITDA and cash flows despite the COVID-19 pandemic.

Conversely, some products, such as color cosmetics, experienced declining sales during the fourth quarter of fiscal year 2020 and into fiscal year 2021. These types of products saw a decline in demand during the COVID-19

 

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pandemic and had a negative effect on our revenue. Specifically, we concluded that the estimated fair value of the HCT reporting unit was less than its carrying value as of the end of the second quarter of fiscal year 2021, reflecting a more gradual recovery from the COVID-19 pandemic than expected, delayed into fiscal year 2022. Accordingly, an impairment charge of $47.3 million and $0.9 million for goodwill and indefinite life intangibles, respectively, was recorded. Additionally, during the third quarter of fiscal year 2021, we identified a right-of-use asset impairment trigger on one of HCT’s leases for office space. Due to the COVID-19 pandemic, HCT delayed taking possession and control of the office space until the latest possible commencement date which was January 1, 2021. Due to confinement rules and new working habits, HCT no longer plans to use the space as it was initially intended. We performed an impairment test and concluded that the asset was impaired and recorded an impairment loss of $6.1 million on the right-of-use asset within acquisition-related costs and other expenses. Refer to “Consolidated Results of Operations” section below for further discussion on the impact of the COVID-19 pandemic on our consolidated operations and by segment for the current periods as compared to historical results and “Critical Accounting Policies and Estimates” for further discussion of the impairment charges recorded during the second quarter of fiscal year 2021.

Over the course of the COVID-19 pandemic, we have continued to generate positive operating cash flows to meet our short-term liquidity needs. In the instances where we have drawn down on our Revolving Facility (as defined below), it has been subsequently repaid soon after using our operating cash flows and additional capital contributions. We expect to maintain access to the capital markets as a result of our satisfactory credit ratings. See the “—Liquidity and Capital Resources” and “—Quantitative and Qualitative Disclosures about Market Risk” sections below on our extended credit and most recent goodwill impairment analysis as well as the Distribution Financing Transactions.

In response to the COVID-19 pandemic and the resulting economic uncertainty, we enhanced ongoing cost alignment initiatives and ultimately made a number of changes to improve the strength of our business. Specifically, we made the following changes, most of which are short term or temporary in nature:

 

   

Reduced full-time employee headcount;

 

   

Significantly reduced our contingent workforce;

 

   

Significantly lowered all discretionary spending, including travel budgets for employees;

 

   

Temporarily decreased or froze employee compensation and retirement contributions, as well as implemented furloughs;

 

   

Restricted non-essential capital expenditures; and

 

   

Implemented sanitary and social distancing measures, including mandatory masks, temperature checks and daily health questionnaires, setting up barriers/shields on-site, allowing telework for all office employees and instituting COVID-19 compliance monitoring.

At this time, we are unable to predict with any certainty the nature, timing or magnitude of any changes in future sales, earnings, and working capital attributable to the spread of COVID-19, including supply chain disruptions and increased costs of inbound and outbound freight, although we do anticipate a gradual recovery in color cosmetics in fiscal year 2022. See “Risk Factors—Natural disasters, public health crises (such as the ongoing COVID-19 pandemic), international conflicts, terrorist acts, labor strikes, political crisis, accidents and other events could adversely affect our business and financial results by disrupting development, manufacturing, distribution or sale of our products.”

General Economic Outlook

Economic activity for recent quarters was affected by uncertainties surrounding the recent U.S. Presidential and congressional elections and their potential effects on economic, trade, regulatory and tax policies. We believe such uncertainties affected consumer sentiment generally and, among other factors, resulted in an underwhelming

 

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holiday selling season. In the United States, certain questions remain around the legislative priorities of the new administration and its approach toward economic and tax reform, as these factors could have an impact on consumer and business sentiment into fiscal year 2022. On June 5, 2021, the G7 Finance Ministers announced an agreement in which the participating countries committed to new taxing rights as well as a global minimum tax rate of at least 15%. We note that only preliminary details are available at this time and that implementation of the global minimum tax is unlikely within the next year. We do not expect a material impact as a result of the agreement but will continue to assess as more details become available. We will continue to evaluate and adjust our operating strategies, foreign currency and cost management opportunities to help mitigate any impacts on our results of operations resulting from broader macroeconomic conditions and policy changes, while remaining focused on the long-term growth of our business.

Competitive Environment

We operate in a fragmented market including outsourced manufacturers focusing on a limited range of products as well as service providers serving local or regional markets. Current trends among our customers, and in particular large companies, include increased demand for innovative products, requiring suppliers to maintain or reduce product prices and to deliver products within shorter lead times. We also face the threat of competition from customer insourcing as well as from existing competitors, including those overseas who may have lower production costs. As we further expand globally, we expect to face increased local competition, especially in the Asian market where established beauty and personal care manufacturers, formulators and packaging producers currently participate and emerging service providers have gained scale. While we have long-term relationships with many of our customers, the underlying contracts may be re-bid or renegotiated from time to time, and we may not be successful in renewing on favorable terms or at all, as pricing and other competitive pressures may result in the loss of a customer relationship. To compete successfully, we must make continued investments in customer relationships and tailor our R&D efforts to anticipate customers’ and consumers’ needs. The loss of business from our larger customers, or the renewal of business on less favorable terms, may have a significant impact on our operating results. See “Business—Competition.”

Foreign Currency Exchange Rate Environment

Although our revenue and expenses have been predominantly denominated in U.S. dollars, we earn revenues, pay expenses, hold assets and incur liabilities in currencies other than the U.S. dollar, mostly due to our acquisitions denominated in other currencies. We also have a significant portion of our debt denominated in euros. As of April 30, 2021, the nominal amount of the debt denominated in euros was $671.8 million on a translated basis. Accordingly, fluctuations in foreign currency exchange rates can affect our results of operations from period to period. In particular, fluctuations in exchange rates for non-U.S. dollar currencies may reduce the U.S. dollar value of revenues, earnings and cash flows we receive from non-U.S. markets, increase our operating expenses (as measured in U.S. dollars) in those markets, negatively impact our competitiveness in those markets or otherwise adversely impact our results of operations or financial condition. Future fluctuations of foreign currency exchange rates and their impact on our results of operations and financial condition are inherently uncertain. As we continue to grow the size of our global operations, these fluctuations may be material. See “—Quantitative and Qualitative Disclosures About Market Risk—Foreign Currency Risk.”

Sustainability

Interest in environmental sustainability has increased over the past decade, and we expect that sustainability will play an increasing role in customer and consumer purchasing decisions going forward. In particular, concerns have been raised over the environmental impact of certain products we manufacture, including single-use products and products made from plastic. Governmental authorities in the United States and abroad continue to implement legislation aimed at reducing the amount of plastic and other wastes incapable of being recycled. Such legislation, as well as voluntary initiatives similarly aimed at reducing the level of single-use packaging waste, could reduce demand for certain of our products.

 

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Some consumer products companies, including some of our customers, have responded to these governmental initiatives and to the perceived environmental or sustainability concerns of consumers by using only recyclable containers. As our customers may shift towards purchasing more sustainable products, we have focused certain of our innovation efforts around sustainability. Across our business, we believe we are well-positioned to benefit from growth in recycled and recyclable packaging. We continue to produce new sustainable product innovations, scout sustainable eco-friendly ingredients, lead in breakthrough clean formulations and create more sustainable packaging solutions.

We intend to continue sustainability innovation and aim to be at the leading edge of recyclability and renewability in order to offer our customers environmentally sustainable choices.

We expect to incur incremental R&D costs as a result of developing these products and/or increasing manufacturing of existing sustainable products.

Investment in Our Operations and Infrastructure

To grow our customer base and enhance our product offering, we will incur additional expenses. We intend to leverage our deep insights in the industries and markets we serve, as well as close connectivity with our customers (and understanding of their future demands) to inform investments in operations, equipment and infrastructure. We anticipate that our expenses will increase as we continue to hire additional personnel and further expand our R&D capabilities. Moreover, we intend to make capital investments in our manufacturing facilities and supply chain infrastructure. We expect to increase our spending on these investments in the future and cannot be certain that these efforts will grow our customer base or be cost-effective. However, we believe these strategies will yield long-term positive returns.

Sales Mix

We ideate, formulate, manufacture and package a wide variety of products across numerous product lines within our Beauty and Personal Care and Home Care segments, and these products are sold at different prices, are composed of different materials and involve varying levels of manufacturing complexity. In any particular period, changes in the volume of particular products sold and the prices of those products relative to other products will impact our average selling price and our cost of revenue. In addition to the impacts attributable to sales mix between the Beauty and Personal Care and Home Care segments, our results of operations are impacted by the relative margins associated with individual products within our Beauty and Personal Care and Home Care segments, which vary among products. As we continue to manufacture products at varying price points to be competitive across a wide range of prices, our overall gross margins may vary from period to period as a result of changes in the product mix.

Wage and Input Cost Inflation

In an increasingly competitive margin environment, we will continue to closely monitor rising operating costs. Both domestically in North America and globally, measures are being taken to increase minimum wages. There is a shortage of skilled labor in certain locations leading to increased wage pressure. Similarly, with an increased global focus on environmental, social and corporate-governance concerns and sustainability, input costs have been steadily rising. We believe we can continue to effectively attract and retain employees while delivering environmentally friendly products for the end consumers without impacting long-term performance.

Public Company Costs

Following the completion of this offering, we expect to incur additional costs associated with operating as a public company when compared to historical reporting periods. The Sarbanes-Oxley Act of 2002, as well as rules adopted by the SEC, Canadian securities laws and the rules and requirements of the TSX and the NYSE, require

 

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public companies to implement specified corporate governance practices that are currently inapplicable to us as a private company. These additional rules and regulations will increase our legal, regulatory, financial and insurance compliance costs and will make some activities more time consuming and costly. We expect that these costs will include additional personnel, legal, consulting, regulatory, insurance, accounting/audit, investor relations and other expenses that we did not incur as a private company.

Factors Affecting the Comparability of Our Results of Operations

As a result of a number of factors, our historical results of operations may not be comparable from period to period or going forward. Set forth below is a brief discussion of the key factors impacting the comparability of our results of operations.

The Acquisition

A purchase agreement (the “Purchase Agreement”) was entered into on October 26, 2018 among KDC Opco, the holders of all its issued and outstanding common shares and the purchaser named therein (the “Purchaser”), which was formed by Cornell Capital LLC (“Cornell”) for the purpose of consummating the transactions under the Purchase Agreement. On December 21, 2018 (the “Closing Date”), Cornell transferred its ownership of the Purchaser to Knowlton Development Corporation, Inc., (previously known as Knowlton Development Parent, Inc.), which was incorporated by a group of investors led by Cornell in British Columbia on November 30, 2018 originally as a holding company with no assets or operations of its own. The Purchaser was subsequently amalgamated with KDC Opco immediately following the acquisition of the outstanding common shares of KDC Opco by Knowlton Development Corporation, Inc. through the Purchaser. This is referred to herein as the Acquisition. On July 1, 2021, KDC Opco changed its name to kdc/one Development Corporation, Inc. On the same day, Knowlton Development Parent, Inc., and Knowlton Development Holdco, Inc., a wholly-owned subsidiary of Knowlton Development Parent, Inc., amalgamated under the laws of British Columbia and continued as one corporation named Knowlton Development Corporation, Inc., which became the direct parent of kdc/one Development Corporation, Inc. Prior to the Acquisition, Knowlton Development Corporation, Inc.’s efforts were limited to organizational activities directly related to the Acquisition and for which it incurred acquisition-related costs. The 21-day overlap between Knowlton Development Corporation, Inc.’s incorporation and the Closing Date is not presented as a separate financial statement as there were no operations by Knowlton Development Corporation, Inc. between the date of its incorporation and the Closing Date except for the organizational activities mentioned above. Knowlton Development Corporation, Inc. currently owns no significant assets nor has any operations other than the ownership of all the common shares of KDC Opco. For additional information, see “Financial Statement Presentation.”

The Acquisition was accounted for as a business combination under the FASB ASC 805. The purchase consideration was allocated to the identifiable assets and liabilities of KDC Opco measured at their fair value as of the effective date of the Acquisition. Any excess of the purchase consideration over the fair value of the identifiable assets and liabilities of KDC Opco was recognized as goodwill in our consolidated financial statements included elsewhere in this prospectus.

 

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Acquisitions

Since the Acquisition and as of April 30, 2021, we completed seven acquisitions across our operating segments, all in the fiscal year 2020 (the “2020 Transactions”). The comparability of our results of operations has been materially impacted by the 2020 Transactions listed in the table below. As a result, we are presenting supplemental information in this prospectus to facilitate the review of our operating performance on a comparable basis. See “Supplemental Financial Information.”

 

Acquired Company

 

Acquisition Date

  

Acquisition Type

Aaxen SAS

  July 1, 2019    100% of issued and outstanding share capital

Curzon Supplies Ltd.

  August 23, 2019    100% of issued and outstanding share capital

Benchmark Cosmetic Laboratories, Inc.

  November 1, 2019    100% of issued and outstanding share capital

Clover Park 2 (BVI) Limited

 

January 23, 2020

   100% of issued and outstanding share capital

Mei Shual Cosmetics Co., Pte Ltd and Mei Shual Cosmetics Co., Ltd

 

March 2, 2020

 

  

 

100% of issued and outstanding share capital of Mei Shual Cosmetics Co., Pte Ltd and substantially all of the assets of Mei Shual Cosmetics Co., Ltd

Cosmetic Laboratories of America, Inc.

  March 2, 2020    Substantially all of the assets and assumed certain current liabilities

Zobele Holding SpA

  April 30, 2020    100% of issued and outstanding share capital

See Note 4, Business Combinations, to our audited consolidated financial statements for further detail.

Components of Results of Operations

Revenue

Our principal sources of revenue are derived from providing value embedded in our product delivery to the beauty, personal care and home care categories, for brands which cover the full spectrum of distribution channels (from mass to specialty retail to direct to consumer) and price points (from mass to prestige). The transaction price typically consists of a fixed consideration based on unit price and quantity ordered.

For the sale of finished goods, we recognize revenue at a point in time when control of the finished good transfers to the customer, which is, generally, at shipping point. For certain contracts in which the finished goods inventory is warehoused and until the customer requests shipment at a later date, we recognize revenue at the completion of production as control of the finished goods has transferred to the customer. Revenue is recognized at the fair value of the amount received or expected to be received, less discounts, rebates and returns. Payment terms are short-term in nature and are generally less than six months.

Cost of revenue

Cost of revenue includes all costs directly related to the manufacturing of products, including the cost of raw materials, direct labor, packaging, direct production costs, factory overhead, depreciation expense related to manufacturing and corresponding right-of-use assets and amortization of intellectual property. Cost of revenue also includes the costs relating to warehousing, maintenance, inspection activities, freight and inventory write-downs. Additionally, cost of revenue includes a portion of costs related to employee benefits and plant start-up costs. We expect that the cost of revenue will increase on an absolute dollar basis as our business grows and as

 

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we continue to invest and support the growth of our business. As a result, we expect that cost of revenue as a percentage of revenue will vary from period to period over the short term and decrease over the long term as we achieve greater scale and operational efficiency.

Selling, general and administrative expenses

Selling, general and administrative expenses include selling and administrative personnel costs, sales and marketing expenses, professional fees, depreciation expense related to non-manufacturing and corresponding finance lease right-of-use assets, operating lease rent expense, non-manufacturing overhead, gains and losses on the sale of property, plant and equipment, and other general and administrative expenses. Additionally, selling, general and administrative expenses include a portion of costs related to employee benefits, share-based compensation expense and amortization of customer relationships and other intangibles, as well as R&D costs, which are expensed as incurred. These costs also include the 2.5% annual cash fee payable to Cornell under the Services Agreement (as defined elsewhere in this prospectus), referred to as the “Sponsor Management Fees.” The Sponsor Management Fees are terminating in connection with this offering. See “Certain Relationships and Related Party Transactions—Services Agreement.” These costs vary based on current innovation or restructuring initiatives (unrelated to acquisitions) and cost reduction initiatives to offset impacts from the COVID-19 pandemic. We expect that our selling, general and administrative expenses will increase in absolute dollars as we grow our business and operate as a public company; however, we expect these expenses to decrease as a percentage of our revenue over time as we scale our operations.

Acquisition-related costs and other expenses

Acquisition-related costs represent costs we incur in relation to business acquisitions and include professional, due diligence and advisory fees related to each business acquisition. These costs also include the 1% fee of the enterprise value of the business acquired that forms part of the fee payable to Cornell under the Services Agreement, referred to as the “Sponsor Acquisition Fees.” The Sponsor Acquisition Fees are terminating in connection with this offering. See “Certain Relationships and Related Party Transactions—Services Agreement.” In connection with our various acquisitions, we recognize costs which are expensed as incurred, primarily relating to acquisition-specific restructuring. Other expenses also include initial public offering preparation-related costs and impairment on right-of-use assets. We expect these costs to vary from period to period depending on the size, complexity and number of future acquisitions.

Impairment loss on goodwill and other intangibles

Impairment loss on goodwill and other intangibles includes impairment charges to reduce the carrying amount of goodwill and trade name intangible assets to fair value.

Interest expense

Interest expense consists of interest associated with finance lease liabilities and our debt financing arrangements, including our Term Loans and Revolving Facility, amortization of debt transaction costs and issuance discounts.

Other expense (income), net

Other expense (income), net consists primarily of gains and losses from foreign currency transactions. This includes foreign exchange gains and losses from foreign exchange forward contracts and monetary items denominated in currencies other than the functional currency, such as intercompany loans, which are not part of the net investment in foreign operations. Other expense (income), net also consists of costs related to trade accounts receivable sold to third-party financial institutions under factoring arrangements. Factoring arrangements are only entered into for the sale of trade receivables at a single subsidiary of the Company. In

 

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addition, other expense (income), net includes changes in fair value of contingent consideration arising from the 2020 Transactions that are subsequently re-measured at fair value.

Income taxes (benefit) expense

The expense for, or benefit from, income taxes consists primarily of income taxes related to Canada, U.S. and foreign jurisdictions in which we conduct business. We regularly review deferred income tax asset for realizability and establish valuation allowances based on available evidence, including historical operating losses, projected future taxable income, expected timing of the reversals of existing temporary differences, and appropriate tax planning strategies. The valuation allowance is recognized when, in the opinion of management, it is more likely than not that some portion or all of the deferred income tax asset will not be realized. Deferred income tax is provided on temporary differences arising on investments in subsidiaries except where the timing of the reversal is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.

Our Operating Segments

We operate in two product-centric reporting segments: (i) Beauty and Personal Care and (ii) Home Care. Beauty and Personal Care includes skin care products, body and hair care products, soaps and sanitizers, cosmetics, deodorants, sun care products and fragrances. Home Care includes air care, fabric care, pest control solutions, surface care products and auto care solutions. Further below, we set forth a discussion of our operating costs by segment. See Note 3, Revenue, to our audited consolidated financial statements included elsewhere in this prospectus for an overview of the Company’s revenue process and recognition method.

Consolidated Results of Operations

The following tables set forth our consolidated results of operations for the periods presented. This information is derived from our accompanying consolidated financial statements included elsewhere in this prospectus prepared in accordance with GAAP except as described in “Supplemental Financial Information” and “—Key Performance and Operational Metrics.” The period-to-period comparisons of our historical results are not necessarily indicative of the results that may be expected in the future including for the reasons described above under “—Factors Affecting the Comparability of Our Results of Operations.” Detailed comparisons of revenue and results are presented in the discussions of the operating segments, which follow our consolidated results discussion.

Our operating results prior to the Acquisition for the period from May 1, 2018 through December 20, 2018 are presented as the “Predecessor Period” and our operating results for the period from November 30, 2018 through April 30, 2019, along with the fiscal years ended April 30, 2021 and 2020, are presented as the “Successor Period.” In addition, in this prospectus we present operating results for the Combined 2019 Financial Information on an unaudited pro forma basis to combine the 2019 Predecessor and Successor periods, giving effect to the Acquisition in accordance with the FASB ASC 805, as if it had occurred on May 1, 2018. We also present operating results for the Disaggregated 2021 Financial Information and the Disaggregated 2020 Financial Information to exclude the impact of the 2020 Transactions, excluding the results of operations of the businesses acquired through the 2020 Transactions, giving effect to adjustments described in “Supplemental Financial Information.”

 

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    Successor Period     Predecessor
Period
       
    Year
Ended
April 30,
2021

(Actual)
    Disaggregated
2021 Financial

Information(1)
    Year
Ended
April 30,
2020
(Actual)
    Disaggregated
2020 Financial
Information(1)
    November 30,
2018 through
April 30, 2019
(Actual)
    May 1, 2018
through
December 20,
2018
(Actual)
    Combined
2019
Financial
Information(1)
 
    (in millions except percentages)  

Revenue

  $   2,143.8     $   995.9     $   1,093.4     $   944.2     $   369.8     $   632.8     $   1,002.6  

Cost of revenue

    1,817.7       856.3       944.6       819.2       320.4       546.4       872.5  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    326.1       139.6       148.8       125.0       49.4       86.4       130.1  

Gross margin

    15.2     14.0     13.6     13.2     13.4     13.7     13.0

Selling, general and administrative expenses

    286.8       117.1       135.3       100.9       34.9       69.7       110.1  

As a percentage of revenue

    13.4     11.8     12.4     10.7     9.4     11.0     11.0

Acquisition-related costs and other expenses

    40.1       22.2       59.7       56.2       9.4       25.9       35.3  

Impairment loss on goodwill and other intangibles

    48.2       —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (49.0     0.3       (46.2     (32.1     5.1       (9.2     (15.3

As a percentage of revenue

    (2.3 )%          (4.2 )%      (3.4 )%      1.4     (1.5 )%      (1.5 )% 

Interest expense

    78.2         47.4         14.4       13.3       43.2  

Other expense (income), net

    11.7         2.4         0.5       1.1       1.6  
 

 

 

     

 

 

     

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (138.9       (96.0       (9.8     (23.6     (60.1

Income tax benefit

    (13.1       (14.1       (0.5     (0.9     (8.8

As a percentage of pre-tax loss

    9.4       14.7       5.1     3.8     14.6
 

 

 

     

 

 

     

 

 

   

 

 

   

 

 

 

Net loss

  $ (125.8     $ (81.9     $ (9.3   $ (22.7   $ (51.3
 

 

 

     

 

 

     

 

 

   

 

 

   

 

 

 

 

(1)

See “Supplemental Financial Information” for an explanation as to how the Disaggregated 2021 Financial Information, the Disaggregated 2020 Financial Information and Combined 2019 Financial Information are calculated.

Comparison of the Year Ended April 30, 2021 (Successor), the Year Ended April 30, 2020 (Successor) and the Year Ended April 30, 2019 (Using Combined 2019 Financial Information)

The following summarizes information comparing the components of our consolidated statements of operations for the periods presented. The following discussion presents revenue, cost of revenue, gross margin, selling, general and administrative expenses and acquisition-related costs and other expenses on a disaggregated basis to improve comparability of these items over the relevant periods due to the impact of the 2020 Transactions. Interest expense, other expense (income), net and income tax benefit are only presented on an actual basis because most of these items are driven at the corporate level rather than the subsidiaries level.

Revenue

Fiscal Year Ended April 30, 2021 (Successor) vs Fiscal Year Ended April 30, 2020 (Successor)

Revenue increased 96.1%, or $1,050.4 million, to $2,143.8 million for the year ended April 30, 2021 as compared to $1,093.4 million for the year ended April 30, 2020. The 2020 Transactions contributed $998.7 million of the increase in revenues, mostly attributable to the strong performance of Zobele, mainly driven by increased demand, some of which is attributable to the COVID-19 pandemic, in the home care category led by air care, fabric care and pest control. The remaining acquisitions included in our Beauty and Personal Care segment have been negatively impacted by decreased demand, mainly in color cosmetics, partially offset by the increased demand for personal care products.

On a disaggregated basis to exclude the impact of the 2020 Transactions, revenue increased 5.5%, or $51.7 million, to $995.9 million for the year ended April 30, 2021, as compared to $944.2 million for the year ended April 30, 2020. The $51.7 million increase in revenue, on a disaggregated basis, resulted from:

 

   

favorable sales volume of $66.2 million compared to sales volumes in the prior year, reflecting higher shipments of personal care and home care products, in particular in the fourth quarter of fiscal year 2021 as compared to the fourth quarter of fiscal year 2020, which was unfavorably impacted by the COVID-19 pandemic, offset in part by lower shipments of color cosmetics;

 

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partly offset by

 

   

an unfavorable sales mix change of $14.5 million, primarily attributable to lower sales volume of higher priced color cosmetics, combined with higher shipments of lower priced personal care and home care products.

See further discussion below in “—Segment Results for the Fiscal Year Ended April 30, 2021 (Successor), the Fiscal Year Ended April 30, 2020 (Successor) and the Fiscal Year Ended April 30, 2019 (Using Combined 2019 Financial Information).”

Fiscal Year Ended April 30, 2020 (Successor) vs Fiscal Year Ended April 30, 2019 (Using Combined 2019 Financial Information)

Revenue increased 9.1%, or $90.8 million, to $1,093.4 million for the year ended April 30, 2020 as compared to $1,002.6 million for the year ended April 30, 2019 (using Combined 2019 Financial Information). The 2020 Transactions contributed $149.2 million of revenue in the year ended April 30, 2020, mainly driven by our acquisitions of Alkos and Swallowfield earlier in the fiscal year 2020, and HCT, acquired late in the fiscal third quarter, which were all unfavorably impacted by the COVID-19 pandemic.

On a disaggregated basis to exclude the impact of the 2020 Transactions, revenue decreased 5.8%, or $58.4 million, to $944.2 million for the year ended April 30, 2020, as compared to $1,002.6 million for the year ended April 30, 2019 (using Combined 2019 Financial Information). The $58.4 million decrease in revenue, on a disaggregated basis, resulted from:

 

   

$45.7 million decrease due to unfavorable sales volume compared to the prior year, mainly reflecting lower shipments of color cosmetics, stemming from the impacts of the COVID-19 pandemic, including supply chain disruptions and temporary plant closures; and

 

   

$12.7 million decrease due to an unfavorable sales mix attributable to lower sales volume, mainly of color cosmetics, combined with increased shipments of lower priced personal care and home care products.

See further discussion below in “—Segment Results for the Fiscal Year Ended April 30, 2021 (Successor), the Fiscal Year Ended April 30, 2020 (Successor) and the Fiscal Year Ended April 30, 2019 (Using Combined 2019 Financial Information).”

Cost of revenue

Fiscal Year Ended April 30, 2021 (Successor) vs Fiscal Year Ended April 30, 2020 (Successor)

Cost of revenue increased 92.4%, or $873.1 million, to $1,817.7 million for the year ended April 30, 2021 as compared to $944.6 million for the year ended April 30, 2020. The 2020 Transactions contributed $836.0 million of the increase in cost of revenue, mostly attributable to the strong performance of Zobele and the costs associated with fulfilling the increased demand, some of which is attributable to the COVID-19 pandemic, in the air care, fabric care and pest control categories. The remaining acquisitions included in our Beauty and Personal Care segment experienced volume related cost performance in line with the performance of the associated product category as well as increase in direct labor costs driven by overtime and other incentives driven in part by the COVID-19 pandemic.

On a disaggregated basis to exclude the impact of the 2020 Transactions, cost of revenue increased 4.5%, or $37.1 million, to $856.3 million for the year ended April 30, 2021, as compared to $819.2 million for the year ended April 30, 2020. The $37.1 million increase in cost of revenue, on a disaggregated basis, primarily resulted from:

 

   

$22.0 million increase due to higher input costs attributable to a rise in sales volume due to the effects of the COVID-19 pandemic, namely higher shipments of personal care and home care products as described

 

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above, in particular in the fourth quarter of fiscal year 2021 as compared to the fourth quarter of fiscal year 2020, offset in part by a favorable sales mix and initiatives undertaken to improve labor efficiency and continuous improvement projects;

 

   

$7.9 million increase related to higher overhead costs primarily resulting from higher compensation and warehouse expenses due to higher sales volume in the fourth quarter of fiscal year 2021; and

 

   

$7.8 million of incremental costs incurred in the current fiscal year as a result of the COVID-19 pandemic including higher direct labor costs attributable to increases in overtime and other wage incentives.

Fiscal Year Ended April 30, 2020 (Successor) vs Fiscal Year Ended April 30, 2019 (Using Combined 2019 Financial Information)

Cost of revenue increased 8.3%, or $72.1 million, to $944.6 million for the year ended April 30, 2020 as compared to $872.5 million for the year ended April 30, 2019 (using Combined 2019 Financial Information). The 2020 Transactions contributed $125.4 million of cost of revenue, mainly driven by our acquisitions of Alkos and Swallowfield earlier in the fiscal year 2020, and HCT, acquired late in the fiscal third quarter, as described above.

On a disaggregated basis to exclude the impact of the 2020 Transactions, cost of revenue decreased 6.1%, or $53.3 million, to $819.2 million for the year ended April 30, 2020, as compared to $872.5 million for the year ended April 30, 2019 (using Combined 2019 Financial Information). The $53.3 million decrease in cost of revenue, on a disaggregated basis, primarily resulted from:

 

   

$50.1 million decrease due to lower input costs attributable to the lower sales volume due to the effects of the COVID-19 pandemic combined with a favorable sales mix and labor efficiency; and

 

   

$3.1 million decrease due to a decrease in overhead costs primarily resulting from lower compensation and warehouse expenses due to lower sales volume stemming from the impacts of the COVID-19 pandemic;

partly offset by

 

   

$2.0 million increase due to higher depreciation and amortization expense resulting from increases in our property, plant and equipment.

Gross margin

Fiscal Year Ended April 30, 2021 (Successor) vs Fiscal Year Ended April 30, 2020 (Successor)

Gross margin increased 160 basis points, to 15.2% for the year ended April 30, 2021 as compared to 13.6% for the year ended April 30, 2020. The contribution to gross margin of the businesses acquired as part of the 2020 Transactions was primarily due to Zobele (increases in air care, fabric care and pest control, some of which is attributable to the COVID-19 pandemic, as described above) as well as the net contribution to gross margin from the remaining acquisitions included in our Beauty and Personal Care segment (generally mixed performance with a decreased contribution, mainly from color cosmetics, and an increased contribution from personal care products).

On a disaggregated basis to exclude the impact of the 2020 Transactions, gross margin increased 80 basis points, to 14.0% for the year ended April 30, 2021, as compared to 13.2% for the year ended April 30, 2020. The 80 basis points increase in gross margin, on a disaggregated basis, primarily resulted from:

 

   

favorable sales mix driven from higher sales of certain personal care and home care products;

partly offset by

 

   

COVID-19 pandemic incremental costs including higher direct labor costs attributable to increases related to incremental cleaning and disinfecting combined with wage incentives.

 

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Fiscal Year Ended April 30, 2020 (Successor) vs Fiscal Year Ended April 30, 2019 (Using Combined 2019

Financial Information)

Gross margin increased 60 basis points, to 13.6% for the year ended April 30, 2020 as compared to 13.0% for the year ended April 30, 2019 (using Combined 2019 Financial Information). The gross margin contribution from the 2020 Transactions was mainly driven by our acquisitions of Alkos and Swallowfield earlier in the year, and HCT, acquired late in the fiscal third quarter, which were unfavorably impacted by the COVID-19 pandemic.

On a disaggregated basis to exclude the impact of the 2020 Transactions, gross margin increased 20 basis points, to 13.2% for the year ended April 30, 2020, as compared to 13.0% for the year ended April 30, 2019 (using Combined 2019 Financial Information). The 20 basis points increase in gross margin, on a disaggregated basis, primarily resulted from:

 

   

favorable sales mix driven from higher sales of certain personal care and home care products;

mostly offset by

 

   

higher depreciation and amortization.

Selling, general and administrative expenses

Fiscal Year Ended April 30, 2021 (Successor) vs Fiscal Year Ended April 30, 2020 (Successor)

Selling, general and administrative expenses increased 112.0%, or $151.5 million, to $286.8 million for the year ended April 30, 2021 as compared to $135.3 million for the year ended April 30, 2020. The 2020 Transactions contributed $135.3 million of the increase in selling, general and administrative expense, primarily attributable to the acquisition of Zobele at the end of fiscal year 2020.

On a disaggregated basis to exclude the impact of the 2020 Transactions, selling, general and administrative expenses increased 16.1%, or $16.2 million, to $117.1 million for the year ended April 30, 2021, as compared to $100.9 million for the year ended April 30, 2020. The $16.2 million increase in selling, general and administrative expenses, on a disaggregated basis, primarily resulted from:

 

   

$7.3 million increase attributable to added corporate headcount, professional fees and information technology costs to support our growth strategy, net of lower travel expenses, and the favorable impact of restructuring initiatives;

 

   

$3.5 million increase in share-based compensation following adjustments made in accordance with the equitable adjustment provision of the Stock Option Plan; and

 

   

$3.3 million increase in Sponsor Management Fees, which are determined based on consolidated Adjusted EBITDA (as defined in the Services Agreement).

Fiscal Year Ended April 30, 2020 (Successor) vs Fiscal Year Ended April 30, 2019 (Using Combined 2019 Financial Information)

Selling, general and administrative expenses increased 22.9%, or $25.2 million, to $135.3 million for the year ended April 30, 2020 as compared to $110.1 million for the year ended April 30, 2019 (using Combined 2019 Financial Information). The 2020 Transactions contributed $34.4 million of selling, general and administrative expenses, mainly driven by our acquisitions of Alkos and Swallowfield earlier in the year, and HCT, acquired late in the fiscal third quarter.

 

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On a disaggregated basis to exclude the impact of the 2020 Transactions, selling, general and administrative expenses decreased 8.4%, or $9.2 million, to $100.9 million for the year ended April 30, 2020, as compared to $110.1 million for the year ended April 30, 2019 (using Combined 2019 Financial Information). The $9.2 million decrease in selling, general and administrative expenses, on a disaggregated basis, primarily resulted from:

 

   

$14.8 million decrease due to lower share-based compensation under the Stock Option Plan following the Acquisition;

partly offset by

 

   

$4.6 million increase due to higher expenses excluding depreciation and amortization, as well as items reflecting additional compensation, professional fees, and information technology costs, to support our growth strategy; and

 

   

$2.3 million increase in sponsor fees primarily resulting from the transition between the fees paid to a prior sponsor during the Predecessor Period to the Sponsor Management Fees in the Successor Period following the Acquisition.

Acquisition-related costs and other expenses

Fiscal Year Ended April 30, 2021 (Successor) vs Fiscal Year Ended April 30, 2020 (Successor)

Acquisition-related costs and other expenses decreased 32.8%, or $19.6 million, to $40.1 million for the year ended April 30, 2021 as compared to $59.7 million for the year ended April 30, 2020. Acquisition-related costs and other expenses relating to the 2020 Transactions, excluding acquisition-related costs incurred in the consummation of each of the 2020 Transactions, increased by $14.4 million, which is mostly attributable to restructuring activities of $8.5 million in Europe and California and to an impairment loss of $6.1 million on a right-of-use asset related to an office building space that we no longer plan to use as we initially intended due to quarantine restrictions and new working habits.

On a disaggregated basis to exclude the impact of the 2020 Transactions, acquisition-related costs and other expenses decreased 60.5%, or $34.0 million, to $22.2 million for the year ended April 30, 2021, as compared to $56.2 million for the year ended April 30, 2020. The $34.0 million decrease in acquisition-related costs and other expenses, on a disaggregated basis, primarily resulted from:

 

   

acquisition-related costs of $48.7 million in the year ended April 30, 2020 incurred by corporate in connection with the 2020 Transactions;

partly offset by

 

   

$10.8 million incurred for initial public offering preparation-related costs; and

 

   

reorganization costs of $3.0 million in the year ended April 30, 2021 related to the strategic reorganization to enable acquisition synergies and streamline the organization.

Fiscal Year Ended April 30, 2020 (Successor) vs Fiscal Year Ended April 30, 2019 (Using Combined 2019

Financial Information)

Acquisition-related costs and other expenses increased 69.1%, or $24.4 million, to $59.7 million for the year ended April 30, 2020 as compared to $35.3 million for the year ended April 30, 2019 (using Combined 2019 Financial Information). The 2020 Transactions contributed $3.5 million of acquisition-related costs and other expenses, mostly attributable to the write-off of an indemnification asset recorded within the purchase price allocation of the acquisition of Alkos.

 

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On a disaggregated basis to exclude the impact of the 2020 Transactions, acquisition-related costs and other expenses increased 59.2%, or $20.9 million, to $56.2 million for the year ended April 30, 2020, as compared to $35.3 million for the year ended April 30, 2019 (using Combined 2019 Financial Information). The $20.9 million increase in acquisition-related costs and other expenses, on a disaggregated basis, primarily resulted from:

 

   

$13.4 million increase in our acquisition-related costs due to higher volume and more complex transactions entered into than the prior period; and

 

   

a write-off expense of $2.2 million related to indemnification assets recorded within the purchase price allocation of certain business acquisitions completed prior to the Acquisition.

Impairment loss on goodwill and other intangibles

Impairment loss on goodwill and other intangibles was $48.2 million, for the year ended April 30, 2021 as compared to no charge for the year ended April 30, 2020. At the end of the second quarter of fiscal year 2021, we underwent a strategic reorganization to realign the business into two operating and reportable segments. Such assessment requires an evaluation of our reporting units prior to the reorganization. Accordingly, we performed a qualitative assessment and determined it was not more likely than not that goodwill was not impaired and proceeded to a quantitative assessment of the HCT reporting unit reported in the Beauty and Personal Care segment. We determined that a reduction in the projected net operating cash flows primarily attributable to the COVID-19 pandemic resulted in a reduction in the fair value of the HCT reporting unit requiring an impairment charge of $47.3 million and $0.9 million for goodwill and other intangibles, respectively.

Interest expense

Fiscal Year Ended April 30, 2021 (Successor) vs Fiscal Year Ended April 30, 2020 (Successor)

Interest expense increased 65.0%, or $30.8 million, to $78.2 million for the year ended April 30, 2021 as compared to $47.4 million for the year ended April 30, 2020. The $30.8 million increase in interest expense, on an actual basis, resulted from:

 

   

$43.3 million increase related to additional interest expense from incremental term loans obtained during fiscal years 2021 and 2020, as described in Note 13, Debt, to our audited consolidated financial statements, to finance the growth of the business, including the 2020 Transactions and the Distribution Financing Transactions; and

 

   

$5.5 million increase related to higher amortization of discount and financing costs related to long-term debt;

partly offset by

 

   

$19.7 million decrease due to a lower effective rate, which was 4.9% for the year ended April 30, 2021 as compared to 7.4% for the year ended April 30, 2020. The decrease in the effective interest rate is primarily due to the decrease in LIBOR over the two periods and the decrease in the applicable rate from 4.25% to 3.75% as described in Note 13, Debt, to our audited consolidated financial statements.

Fiscal Year Ended April 30, 2020 (Successor) vs Fiscal Year Ended April 30, 2019 (Using Combined 2019 Financial Information)

Interest expense increased 9.7%, or $4.2 million, to $47.4 million for the year ended April 30, 2020 as compared to $43.2 million for the year ended April 30, 2019 (using Combined 2019 Financial Information). The $4.2 million increase in interest expense, on an actual basis, resulted from higher long-term borrowings to finance the 2020 Transactions (incremental term loans of $105.0 million and $300.0 million entered into on August 22, 2019 and January 23, 2020, respectively). The effective interest rates were comparable year over year.

 

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Other expense (income), net

Fiscal Year Ended April 30, 2021 (Successor) vs Fiscal Year Ended April 30, 2020 (Successor)

Other expense (income), net increased 387.5%, or $9.3 million, to $11.7 million for the year ended April 30, 2021 as compared to $2.4 million for the year ended April 30, 2020. The $9.3 million increase in other expense (income), net, on an actual basis, primarily resulted from:

 

   

$17.2 million increase attributable to an unfavorable change in fair value of derivative instruments, primarily driven by a loss on a foreign exchange forward contract entered into in connection with the incremental Euro Term Loan (as defined herein) of €460.0 million entered into during the first quarter of fiscal year 2021 and used to prepay the incremental term loans of $500.0 million entered into on April 30, 2020;

largely offset by

 

   

$11.5 million unrealized foreign exchange gain primarily driven by intercompany loans receivable, which are not included under the net investment in foreign operations.

Income tax benefit

Fiscal Year Ended April 30, 2021 (Successor) vs Fiscal Year Ended April 30, 2020 (Successor)

Income tax benefit decreased 7.1%, or $1.0 million, to $13.1 million for the year ended April 30, 2021 as compared to $14.1 million for the year ended April 30, 2020. The $1.0 million decrease in income tax benefit, on an actual basis, primarily resulted from:

 

   

$10.8 million decrease stemming from the effect of differences in tax rates in other jurisdictions;

 

   

$3.2 million decrease due to additional valuation allowance;

 

   

$2.0 million decrease related to additional non-deductible expenses; and

 

   

$1.7 million decrease related to prior year adjustments;

partly offset by

 

   

$11.4 million increase due to an increase of $42.9 million of loss before income taxes;

 

   

$3.5 million increase stemming from decreases related to unrecognized tax benefits; and

 

   

$2.3 million increase stemming from the effect of change in enacted tax rates.

Fiscal Year Ended April 30, 2020 (Successor) vs Fiscal Year Ended April 30, 2019 (Using Combined 2019 Financial Information)

Income tax benefit increased 60.2%, or $5.3 million, to $14.1 million for the year ended April 30, 2020 as compared to $8.8 million for the year ended April 30, 2019 (using Combined 2019 Financial Information). The $5.3 million increase in income tax benefit, on an actual basis, primarily resulted from:

 

   

$9.2 million increase due to an increase of $35.9 million of loss before income taxes; and

 

   

$1.6 million increase related to prior year adjustments;

partly offset by

 

   

$2.8 million decrease stemming from the effect of change in enacted tax rates;

 

   

$1.5 million decrease stemming from the effect of differences in tax rates in other jurisdictions; and

 

   

$0.7 million decrease related to additional non-deductible expenses.

 

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Segment Results for the Year Ended April 30, 2021 (Successor), the Year Ended April 30, 2020 (Successor) and the Year Ended April 30, 2019 (Using Combined 2019 Financial Information)

The following summarizes information comparing certain financial information for our two operating segments, Beauty and Personal Care and Home Care for the periods presented.

Revenue Change Drivers by Segment

 

     Successor Period     Predecessor
Period
       
     Year
Ended

April 30,
2021
(Actual)
    Disaggregated
2021
Financial
Information(1)
    Year
Ended
April 30,
2020
(Actual)
        Disaggregated 
2020
Financial
Information(1)
    November
30, 2018
through
April 30,
2019
(Actual)
    May 1, 2018
through
December
20, 2018
(Actual)
    Combined
2019
Financial
Information(1)
 
     (in millions except percentages)  

Revenue:

              

Beauty and Personal Care

   $   1,314.2     $   827.5     $   949.7     $   800.5     $   318.9     $   536.2     $   855.1  

Home Care

     829.6       168.4       143.7       143.7       50.9       96.6       147.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

   $ 2,143.8     $ 995.9     $ 1,093.4     $ 944.2     $ 369.8     $ 632.8     $ 1,002.6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Percentage of total revenue:

              

Beauty and Personal Care

     61.3     83.1     86.9     84.8     86.2     84.7     85.3

Home Care

     38.7       16.9       13.1       15.2       13.8       15.3       14.7  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     100.0     100.0     100.0     100.0     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

See “Supplemental Financial Information” for an explanation as to how the Disaggregated 2021 Financial Information, Disaggregated 2020 Financial Information and the Combined 2019 Financial Information are calculated.

Beauty and Personal Care

 

    Successor Period     Predecessor
Period
       
    Year Ended
April 30,

2021
(Actual)
    Year Ended
April 30,

2020
(Actual)
    November 30,
2018 through
April 30,

2019 (Actual)
    May 1, 2018
through
December 20,

2018 (Actual)
    Combined
2019

Financial
Information(1)
 
    (in millions except percentages)  

Adjusted EBITDA

  $ 132.3     $ 76.4     $ 33.8     $ 46.2     $ 80.0  

Adjusted EBITDA Margin

    10.1     8.0     10.6     8.6     9.4

VACM(2)

    17.8     16.8     24.0     19.5     21.2

 

(1)

See “Supplemental Financial Information” for an explanation as to how the Combined 2019 Financial Information is calculated.

(2)

This is a non-GAAP financial measure. For more information regarding our use of this measure and its usefulness to investors, see the section titled “Non-GAAP Financial Measures” below.

Revenue

Fiscal Year Ended April 30, 2021 (Successor) vs Fiscal Year Ended April 30, 2020 (Successor)

Revenue for the Beauty and Personal Care segment increased 38.4%, or $364.5 million, to $1,314.2 million for the year ended April 30, 2021 as compared to $949.7 million for the year ended April 30, 2020. The 2020

 

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Transactions contributed $337.5 million of revenue with those acquired businesses unfavorably impacted by decreased demand, mainly in color cosmetics, while favorably impacted by the increased demand for personal care products.

On a disaggregated basis to exclude the impact of the 2020 Transactions, revenue for the Beauty and Personal Care segment increased 3.4%, or $27.0 million, to $827.5 million for the year ended April 30, 2021, as compared to $800.5 million for the year ended April 30, 2020. The $27.0 million increase in revenue for the Beauty and Personal Care segment, on a disaggregated basis, resulted from:

 

   

$34.5 million increase due to higher overall sales volume, primarily reflecting an increase in personal care product volume in particular in the fourth quarter of fiscal year 2021 compared to the fourth quarter of fiscal year 2020 impacted by the COVID-19 pandemic, net of lower shipments of color cosmetics;

partly offset by

 

   

$7.5 million decrease related to an unfavorable sales mix change, primarily due to lower sales volume of higher priced color cosmetics combined with higher sales volume of lower priced personal care products.

Fiscal Year Ended April 30, 2020 (Successor) vs Fiscal Year Ended April 30, 2019 (Using Combined 2019 Financial Information)

Revenue for the Beauty and Personal Care segment increased 11.1%, or $94.6 million, to $949.7 million for the year ended April 30, 2020 as compared to $855.1 million for the year ended April 30, 2019 (using Combined 2019 Financial Information). The 2020 Transactions contributed $149.2 million of revenue, mainly driven by our acquisitions of Alkos and Swallowfield earlier in the year, and HCT, acquired late in the fiscal third quarter, which were all unfavorably impacted by the COVID-19 pandemic.

On a disaggregated basis to exclude the impact of the 2020 Transactions, revenue for the Beauty and Personal Care segment decreased 6.4%, or $54.6 million, to $800.5 million for the year ended April 30, 2020, as compared to $855.1 million for the year ended April 30, 2019 (using Combined 2019 Financial Information). The $54.6 million decrease in revenue for the Beauty and Personal Care segment, on a disaggregated basis, resulted from:

 

   

$56.0 million decrease due to lower sales volume compared to the prior year, primarily reflecting lower shipments of color cosmetics stemming from the impacts of the COVID-19 pandemic, which negatively impacted the color cosmetics market;

partly offset by

 

   

$1.4 million increase due to a favorable revenue sales mix attributable to a decline in sales of lower priced single-use application products, combined with increases in favorable margins from shipments of certain personal care products.

Adjusted EBITDA

Fiscal Year Ended April 30, 2021 (Successor) vs Fiscal Year Ended April 30, 2020 (Successor)

Adjusted EBITDA for the Beauty and Personal Care segment increased 73.2%, or $55.9 million, to $132.3 million for the year ended April 30, 2021 as compared to $76.4 million for the year ended April 30, 2020. The $55.9 million increase in Adjusted EBITDA for the Beauty and Personal Care segment, on an actual basis, primarily resulted from:

 

   

$41.8 million increase driven by our acquisitions of Swallowfield earlier in the fiscal year 2020, HCT, acquired late in the third quarter of fiscal year 2020 and CLA, acquired in the fourth quarter of fiscal year 2020; and

 

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$34.5 million increase related to higher overall sales volume, primarily reflecting an increase in personal care product volume, net of unfavorable color cosmetics shipments;

partly offset by

 

   

$8.8 million decrease due to higher compensation, professional fees and overhead costs to support our growth strategy;

 

   

$7.5 million decrease related to an unfavorable sales mix change, primarily due to lower sales volume of higher priced color cosmetics combined with higher sales volume of personal care products; and

 

   

$7.0 million decrease due to higher input costs, related to higher sales volume in the fourth quarter of fiscal year 2021 compared to the fourth quarter of fiscal year 2020 impacted by the COVID-19 pandemic.

Fiscal Year Ended April 30, 2020 (Successor) vs Fiscal Year Ended April 30, 2019 (Using Combined 2019 Financial Information)

Adjusted EBITDA for the Beauty and Personal Care segment decreased 4.5%, or $3.6 million, to $76.4 million for the year ended April 30, 2020 as compared to $80.0 million for the year ended April 30, 2019 (using Combined 2019 Financial Information). The $3.6 million decrease in Adjusted EBITDA for the Beauty and Personal Care segment, on an actual basis, primarily resulted from:

 

   

$56.0 million decrease due to lower sales volume compared to the prior year, reflecting lower shipments of color cosmetics stemming from the impacts of the COVID-19 pandemic;

largely offset by

 

   

$45.9 million increase due to lower input costs, related to lower sales volume stemming from the impacts of the COVID-19 pandemic;

 

   

$6.0 million increase due to lower compensation and overhead costs primarily resulting from lower sales volume stemming from the impacts of the COVID-19 pandemic; and

 

   

$2.8 million increase driven by our acquisitions of Swallowfield earlier in the fiscal year 2020, HCT, acquired late in the third quarter of fiscal year 2020 and CLA, acquired in the fourth quarter of fiscal year 2020.

VACM

Fiscal Year Ended April 30, 2021 (Successor) vs Fiscal Year Ended April 30, 2020 (Successor)

VACM for the Beauty and Personal Care segment increased to 17.8% for the year ended April 30, 2021 as compared to 16.8% for the year ended April 30, 2020, primarily as a result of:

 

   

a favorable sales mix of higher volume of personal care products with a higher VACM combined with lower volume of color cosmetics with a lower VACM;

partially offset by

 

   

the mix impact attributable to the acquisition of our newly acquired packaging and design business; and

 

   

higher compensation, professional fees, and overhead costs to support our growth strategy.

 

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Fiscal Year Ended April 30, 2020 (Successor) vs Fiscal Year Ended April 30, 2019 (Using Combined 2019 Financial Information)

VACM for the Beauty and Personal Care segment decreased to 16.8% for the year ended April 30, 2020 as compared to 21.2% for the year ended April 30, 2019, primarily as a result of the mix impact attributable to the acquisition of our newly acquired packaging and design business.

Home Care

 

     Successor Period     Predecessor
Period
       
     Year Ended
April 30,
2021
(Actual)
    Year Ended
April 30,
2020
(Actual)
    November 30,
2018 through
April 30,
2019
(Actual)
    May 1, 2018
through
December 20,
2018
(Actual)
    Combined
2019 Financial
Information(1)
 
     (in millions except percentages)  

Adjusted EBITDA

   $ 124.6     $ 26.3     $ 9.3     $ 19.2     $ 28.5  

Adjusted EBITDA Margin

     15.0     18.3     18.3     19.9     19.3

VACM(2)

     36.7     39.4     42.1     46.2     44.7

 

(1)

See “Supplemental Financial Information” for an explanation as to how the Combined 2019 Financial Information is calculated.

(2)

This is a non-GAAP financial measure. For more information regarding our use of this measure and its usefulness to investors, see the section titled “Non-GAAP Financial Measures” below.

Revenue

Fiscal Year Ended April 30, 2021 (Successor) vs Fiscal Year Ended April 30, 2020 (Successor)

Revenue for the Home Care segment increased 477.3%, or $685.9 million, to $829.6 million for the year ended April 30, 2021 as compared to $143.7 million for the year ended April 30, 2020. The 2020 Transactions contributed $661.2 million of revenue, attributable to the strong performance of Zobele, mainly driven by increased demand, some of which was attributable to the COVID-19 pandemic, in the home care category led by air care, fabric care and pest control.

On a disaggregated basis to exclude the impact of the 2020 Transactions, revenue for the Home Care segment increased 17.2%, or $24.7 million, to $168.4 million for the year ended April 30, 2021, as compared to $143.7 million for the year ended April 30, 2020. The $24.7 million increase in revenue for the Home Care segment, on a disaggregated basis, resulted from:

 

   

$27.5 million increase due to higher sales volume primarily reflecting an increase in both household and air care product volume in particular in the fourth quarter of fiscal year 2021 as compared to the fourth quarter of fiscal year 2020 as a result of the COVID-19 pandemic;

partly offset by

 

   

an unfavorable sales mix of $2.8 million, primarily attributable to higher sales volume of lower priced air care products.

As the only acquisition in the Home Care segment (Zobele) was completed on April 30, 2020, the Disaggregated 2020 Financial Information is equal to the actual results for the year ended April 30, 2020.

 

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Fiscal Year Ended April 30, 2020 (Successor) vs Fiscal Year Ended April 30, 2019 (Using Combined 2019 Financial Information)

Revenue for the Home Care segment decreased 2.6%, or $3.8 million, to $143.7 million for the year ended April 30, 2020 as compared to $147.5 million for the year ended April 30, 2019 (using Combined 2019 Financial Information), on an actual basis, resulting from:

 

   

$11.9 million decrease due to unfavorable sales mix attributable to higher sales volume of lower priced air care products combined with lower shipments of higher priced household care products;

partly offset by

 

   

$8.1 million increase due to higher sales volume compared to the prior period, primarily for air care products, despite disruption in the retail distribution channel and temporary manufacturing facility closures in the fourth quarter in connection with the COVID-19 pandemic.

As the only acquisition in the Home Care segment (Zobele) was completed on April 30, 2020, the Disaggregated 2020 Financial Information is equal to the actual results.

Adjusted EBITDA

Fiscal Year Ended April 30, 2021 (Successor) vs Fiscal Year Ended April 30, 2020 (Successor)

Adjusted EBITDA for the Home Care segment increased 373.8%, or $98.3 million, to $124.6 million for the year ended April 30, 2021 as compared to $26.3 million for the year ended April 30, 2020. The $98.3 million increase in Adjusted EBITDA for the Home Care segment, on an actual basis, primarily resulted from:

 

   

$90.0 million increase due to the acquisition of Zobele on April 30, 2020; and

 

   

$27.5 million increase related to higher sales volume driven by increased demand in the home care category as discussed above;

partly offset by

 

   

$15.0 million decrease due to higher input costs due to higher sales volume; and

 

   

$2.4 million decrease due to higher compensation, professional fees and overhead costs to support our growth strategy.

Fiscal Year Ended April 30, 2020 (Successor) vs Fiscal Year Ended April 30, 2019 (Using Combined 2019 Financial Information)

Adjusted EBITDA for the Home Care segment decreased 7.7%, or $2.2 million, to $26.3 million for the year ended April 30, 2020 as compared to $28.5 million for the year ended April 30, 2019 (using Combined 2019 Financial Information). The $2.2 million decrease in Adjusted EBITDA for the Home Care segment, on an actual basis, primarily resulted from:

 

   

$11.9 million decrease due to unfavorable sales mix attributable to higher sales volume of lower priced products, as discussed above; and

 

   

$2.0 million decrease due to higher compensation, travel expenses and overhead costs to support our growth strategy;

largely offset by

 

   

$8.1 million increase due to higher sales volume compared to the year-ago period, primarily for air care products, as discussed above; and

 

   

$4.2 million increase, due to lower cost of revenue related to a decrease in input costs primarily a result of higher sales for home care products with a favorable cost mix.

 

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VACM

Fiscal Year Ended April 30, 2021 (Successor) vs Fiscal Year Ended April 30, 2020 (Successor)

VACM for the Home Care segment decreased to 36.7% for the year ended April 30, 2021 as compared to 39.4% for the year ended April 30, 2020, primarily as a result of:

 

   

an unfavorable mix, primarily attributable to higher volume of certain home care products with a lower VACM;

 

   

the mix impact attributable to the acquisition of Zobele on April 30, 2020; and

 

   

higher direct labor costs.

Fiscal Year Ended April 30, 2020 (Successor) vs Fiscal Year Ended April 30, 2019 (Using Combined 2019 Financial Information)

VACM for the Home Care segment decreased to 39.4% for the year ended April 30, 2021 as compared to 44.7% for the year ended April 30, 2020, primarily as a result of:

 

   

an unfavorable mix primarily attributable to higher volume of certain home care products with a lower VACM; and

 

   

higher compensation, travel expenses and overhead costs to support our growth strategy.

Key Performance and Operational Metrics

In addition to the measures presented in our consolidated financial statements included elsewhere in this prospectus, we use Adjusted EBITDA, Adjusted EBITDA Margin and VACM as key performance and operational metrics to evaluate our business, measure our performance, develop financial forecasts, and make strategic decisions.

 

     Successor Period     Predecessor
Period
       
     Year Ended
April 30,
2021
    Year Ended
April 30,
2020
    November 30,
2018 through
April 30,
2019
    May 1, 2018
through
December 20,
2018
    Combined
2019
Financial
Information(1)
 
     (in millions except percentages)  

Net loss

   $ (125.8   $ (81.9   $ (9.3   $ (22.7   $ (51.3

Adjusted EBITDA(2)

   $ 238.5     $ 92.2     $ 39.1     $ 63.2     $ 102.3  

Adjusted EBITDA Margin(2)

     11.1     8.4     10.6     10.0     10.2

VACM(2)

     22.0     17.6     24.0     22.7     23.2

 

(1)

See “Supplemental Financial Information” for an explanation as to how the Combined 2019 Financial Information is calculated.

(2)

These are non-GAAP financial measures. For more information regarding our use of these measures and their usefulness to investors, see the section titled “Non-GAAP Financial Measures” below.

Non-GAAP Financial Measures

To supplement our financial results presented in accordance with GAAP, we use the following key performance and operational metrics to evaluate our business, measure and analyze our performance period-over-period, develop financial forecasts, and make strategic decisions: Value-Added Contribution Margin (“VACM”), Adjusted EBITDA, and Adjusted EBITDA Margin. We believe users of the consolidated financial statements included elsewhere in this prospectus will find the non-GAAP information helpful in understanding the ongoing performance of operations separate from items that may have a disproportionate positive or negative impact on our financial results in any particular period.

 

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These non-GAAP financial measures are not prepared in accordance with GAAP. They are supplemental financial measures of our operating performance only and should not be considered in isolation nor as a substitute for GAAP financial measures, including net loss (for Adjusted EBITDA, Adjusted EBITDA Margin and VACM), which we consider to be the most directly comparable GAAP financial measures. All of these non-GAAP financial measures have limitations as analytical tools, and when assessing our operating performance, you should not consider these in isolation or as substitutes for net loss or other statement of operations data prepared in accordance with GAAP. Our non-GAAP measures do not have any standardized meaning prescribed by GAAP and therefore other companies may calculate any or all of these non-GAAP measures differently than we do, limiting their usefulness as a comparative tool. Where appropriate, to better understand the relationship of non-GAAP financial measures to the financial information calculated in accordance with GAAP, we have provided a quantitative reconciliation of the non-GAAP financial measures to the most directly comparable financial measures calculated and reported in accordance with GAAP. For more information on the use of non-GAAP financial information, including other non-GAAP financial measures presented in this prospectus, see “Prospectus Summary—Summary Consolidated Financial and Other Data.”

Value-Added Contribution Margin

Value-Added Contribution Margin (“VACM”) is calculated by dividing Adjusted EBITDA by revenue from value added contributions. Management believes that VACM is an important measure in analyzing the results of the business for the following reasons:

 

   

our business is focused on innovation, product development and operational excellence, and, as a result, VACM reflects the way customers interact with us and the value embedded in the Company’s product delivery that we provide to them;

 

   

a significant portion of revenue from raw materials is generated through arrangements with mechanisms that pass through raw material costs, and accordingly the associated revenue is recorded as revenue from pass-through raw materials (as defined elsewhere in this prospectus) and is excluded from the calculation of VACM; and

 

   

we utilize revenue from value added contributions to assess growth between fiscal periods and to analyze the resulting margins apart from revenue from pass-through raw materials (VACM will fluctuate between periods depending upon the Company’s ability to drive sales of higher margin solutions (i.e., favorable product mix, integrated sales) and to generate operating efficiencies across our network, including the ability to scale operations, as well as changes to the product portfolio and by the nature of the Company’s acquisitions from time to time).

As a result, we believe that VACM is the best way to measure our business in a consistent manner, taking into account that customers have the flexibility to do business with us in more than one way, with some choosing a customer-supplied materials framework (which would not result in revenue to us) while others choose a kdc/one-supplied materials framework (which would result in revenue to us equal to the pass-through cost of such materials). If VACM is not used to measure performance, the transaction with the customer that chooses a kdc/one-supplied materials framework would appear to be lower margin than the transaction with the customer that chooses a customer-supplied materials framework when the profitability to us of both transactions would be the same.

For a reconciliation of Adjusted EBITDA, see “Prospectus Summary—Summary Consolidated Financial and Other Data.” The most directly comparable GAAP measure to Adjusted EBITDA Margin and VACM is net income margin. In this prospectus we have excluded a presentation of net income margin because we have experienced a net loss for all the relevant periods and therefore the net income margin would be less than zero and consequently we believe not helpful to investors. However, wherever we present Adjusted EBITDA Margin and VACM we present net loss. For a description of the revenue from value added contributions, see “—Components of Revenue.”

 

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Table of Contents

Adjusted EBITDA and Adjusted EBITDA Margin

To supplement our financial results presented in accordance with GAAP, we disclose Adjusted EBITDA, which represents net income or loss before interest expense, other expense (income), net, income tax benefit, depreciation and amortization, share-based compensation, acquisition-related costs, costs associated with becoming a public company, certain incremental costs associated with the COVID-19 pandemic that we do not expect to continue to incur once COVID-19 has significantly subsided globally and operations return to pre-COVID-19 levels, plant start-up costs incurred for our new facility in Columbus before significant operations begin (expected to begin during the second quarter of fiscal year 2022), including payroll and rent, sponsor fees (including the Sponsor Fees which are terminating in connection with this offering), impairment loss on assets and other intangibles and certain other adjustment items. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by revenue.

We use Adjusted EBITDA and Adjusted EBITDA Margin as measures of operating performance and the operating leverage in our business. We believe that these non-GAAP financial measures are useful to investors for period-to-period comparisons of our business and in understanding and evaluating our operating results for the following reasons:

 

   

Adjusted EBITDA and Adjusted EBITDA Margin are widely used by investors and securities analysts to measure a company’s operating performance without regard to items such as share-based compensation expense, depreciation and amortization expense, interest expense, other expense (income), net and income taxes expense (benefit) that can vary substantially from company to company depending upon their financing, capital structures, and the method by which assets were acquired; and

 

   

Adjusted EBITDA and Adjusted EBITDA Margin provide consistency and comparability with our past financial performance, facilitate period-to-period comparisons of our primary operating results, and also facilitate comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results.

For a reconciliation of Adjusted EBITDA, see “Prospectus Summary—Summary Consolidated Financial and Other Data.”

Components of Revenue

The unaudited supplemental revenue information for the fiscal years ended April 30, 2021 and April 30, 2020 and for the periods from November 30, 2018 through April 30, 2019 and May 1, 2018 through December 20, 2018 and the 2019 Combined Financial Information presents the components of our consolidated and segment revenue in two categories: revenue from pass-through raw materials and revenue from value added contributions.

Our business is focused on innovation, product development and operational excellence, and, as a result, revenue from value added contribution reflects the way customers interact with us and the value embedded in the Company’s product delivery that we provide to them. Revenue from pass-through raw materials includes the portion of revenue generated from the raw materials and the related inbound and outbound freight included in manufactured finished goods sold through arrangements with mechanisms that pass through raw material costs.

Revenue from valued added contributions includes all other revenue earned from selling manufactured finished goods. Also included in revenue from value added contributions is revenue from raw materials from our packaging design and production business where variations in raw material prices are not passed through to the customer. See Note 3, Revenue, to our audited consolidated financial statements included elsewhere in this prospectus. The following tables set forth components of revenue for the consolidated Company and for our two operating segments, Beauty and Personal Care and Home Care, for the periods presented.

 

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Consolidated Unaudited Supplemental Revenue Information

 

     Successor Period      Predecessor
Period
        
     Year Ended
April 30, 2021
     Year Ended
April 30, 2020
     November 30,
2018 through
April 30,
2019
     May 1, 2018
through
December 20,
2018
     Combined
2019
Financial
Information(1)
 
     (in millions)  

Revenue from pass-through raw materials

   $ 1,060.6      $ 570.8      $ 207.0      $ 354.8      $ 561.8  

Revenue from value added contributions

     1,083.2        522.6        162.8        278.0        440.8  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 2,143.8      $ 1,093.4      $ 369.8      $ 632.8      $ 1,002.6  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

See “Supplemental Financial Information” for an explanation as to how the Combined 2019 Financial Information is calculated.

Unaudited Supplemental Financial Information by Segment

Beauty and Personal Care

 

     Successor Period      Predecessor
Period
        
     Year Ended
April 30, 2021
     Year Ended
April 30, 2020
     November 30,
2018 through
April 30, 2019
     May 1, 2018
through
December 20,
2018
     Combined
2019
Financial
Information(1)
 
     (in millions)  

Revenue from pass-through raw materials

   $ 570.6      $ 493.8      $ 178.2      $ 299.8      $ 478.0  

Revenue from value added contributions

     743.6        455.9        140.7        236.4        377.1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Revenue

   $ 1,314.2      $ 949.7    $ 318.9    $ 536.2    $ 855.1
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

See “Supplemental Financial Information” for an explanation as to how the Combined 2019 Financial Information is calculated.

Home Care

 

     Successor Period      Predecessor
Period
        
     Year Ended
April 30, 2021
     Year Ended
April 30, 2020
     November 30,
2018 through
April 30, 2019
     May 1, 2018
through
December 20,
2018
     Combined
2019
Financial
Information(1)
 
     (in millions)  

Revenue from pass-through raw materials

   $ 490.0      $ 77.0      $ 28.8      $ 55.0      $ 83.8  

Revenue from value added contributions

     339.6        66.7