Professionals have appreciated this dynamic

The end of a model L ' Oréal has long excellence in French capitalism. The number a global cosmetics thus announced, at the end of February for the nineteenth time, increased to two figures ( 13.5) of the operational net result for the year 2003. However, his scholarship course, which had multiplied by six since 1995, reaching more than 90 euros late 2000, surged since and currently sells around 60 euros.

This disaffection is certainly conjunctural factors, but perhaps also structural. The value first was penalized, the last year, by rotations of managers to the so-called "cyclic" or technological values portfolios, market anticipating then a resumption of the world's economies, after a vacuum. The so-called "defensive" actions, such as l ' Oréal, less dependent on economic cycles, suffered.

Another factor, technical this time, the new weighting of the shares in the CAC 40 since 1 December, which is calculated taking into account not more than the total market capitalization, but only of floating, i.e. securities held by the public. L ' Oréal lost here a certain rule, since it rose from third place on the tenth of forty headlights on the Paris stock exchange values, its weighting in drop index of approximately 6 only 3.5 per cent currently.

Limited external growth

Last stable factor of size, monetary impacts, which have been particularly severe last year, penalising 9 turnover of the group, after already a negative effect of 4.8 in 2002. The Group conducted last year 27 of its cosmetics sales in North America, compared with 53 in Western Europe and 20 in the rest of the world. He therefore took head-on the clear weakening of the greenback against the euro over the past two years. In the end, he announced, at current exchange rates, a decline of 1.8 of its sales to 14,03 billion euros in 2003. Comparable data, sales would have increased by 7.1.

But more structural reasons can explain the decline of the course. (First, the impact of the possible deconsolidation of its 19.5 stake in Sanofi-Synthelabo, following the attempt to take control of Aventis, which should heavily penalize the results of l ' Oréal (read below)).

Another grievance on the part of some professionals, the absence of major external growth operations in recent years. A strategy that contrasts with one of its major competitors, Procter & Gamble, this admittedly mostly in maintenance (Ariel, Dash, Tide, Mr. Propre...) and products of hygiene (Pampers, toilet paper), but also in cosmetics (Pantene, Head & Shoulders...) strongly. The American took control last year 81 of the capital of German Wella and attempted to resume, this time without success, another Germanic group, Beiersdorf, maker Nivea cream. Professionals have appreciated this dynamic.

"Analysts feel that l ' Oréal, which generates a lot of cash, is that the dusting in its acquisitions, that he fell a bit asleep for three or four years in its external growth policy." "According to them, l ' Oréal must strike a big blow, they are waiting for an event," said Claudine Bayle of Richelieu Finance, who believes however that historic organic group growth policy has always been proven.

On this specific point of acquisitions, Lindsay Owen-Jones, CEO, stands also always its strategy and belief: "internal priority to growth", because the cosmetics market is developing and that the targets "of significant size and good quality, are extremely rare."

Strong growth relay

In fact, this strategy has its fruits, even in times of crisis. Last year, the world market of cosmetics, according to l ' Oréal, grew by 3.6. But the organic growth of activity cosmetic French (it is also a small portion of its sales in dermatology) reached 7. This means that he has gained significant market share. "Since ten years, l ' Oréal has demonstrated that its internal growth was on average equal to 1.7 times the growth of the global cosmetics market." "The title could offer a potential for rehabilitation for restart of the growth of the market of cosmetics in North America, sold in large distribution," says Françoise Etienne to CIC Securities.

The Group has very many relay of growth. In developed markets, buyers of cosmetics appear more numerous daily: elderly, young attracted by colour, black and métis consumer products, male customers more follower of care products and gels.

Emerging markets are also promising growth relays. Last year, turnover has thus progressed, comparable data, 4.9 in Western Europe, 6 in America of the North, but to 14.6 in the rest of the world. In this last area, operating margin adjusted losses and foreign exchange gains, is finally passed over the bar 10, with a year in advance from the planned program. In addition, permanent focus on R & D and innovation should sell products with high added value, therefore more expensive.

Good possible surprise

Overall, the operating margin is also gaining ground. It rose from 11.3 to 14 in six years, with a good cost control. 15 Marks (l ' Oréal, Maybelline, Garnier, Lancôme, Biotherm...) represent more than 90 of production, thus enabling economies of scale: productivity on advertising, marketing...

Last positive point, the good financial structure of l ' Oréal, the ratio of net debt to equity ("gearing") reached 5.4 last year. Even with the new standards IFRS will apply soon (9,200,000 shares will then deducted from equity) and taking into account social commitments recorded in debts, the gearing passes to 33, a level still Honourable.

In the end, the strategy of the group, even called into question by some, could prove to be of good surprises. As highlighted in the Bank JP Morgan late February, after the announcement of the 2003 profits: "results us have confirmed that the"business model"of l ' Oréal is resistant to recession, while it offers a potential for considerable progress in a rising market."