Sales up by +8.1%
- The Board of Directors of L'OrÃ©al met on February 13th 2008 under the chairmanship of Sir Lindsay Owen-Jones and in the presence of the Statutory Auditors. The Board closed the consolidated financial statements and the financial statements of the L'OrÃ©al parent company for 2007.
Substantial improvement in operating profit: +11.3%
Strong growth in net earnings per share (1): +13%
Exceptional rise in net profit after minority interests: +28.9%
Strong increase in dividend (2): +16.9%
Commenting on the annual results, Mr Jean-Paul Agon, Chief Executive Officer of L'OrÃ©al, said:
"The Group's sales growth accelerated significantly in 2007 to reach +8% like-for-like, clearly faster than the growth of the worldwide cosmetics market; all divisions gained market share and the Group improved its positions on all continents.
The Group's results have once again advanced substantially and are of a very high quality.
Based on a comparable structure(3), operating profit grew by 90 basis points, thanks to an improvement in gross profit and strict cost control.
All divisions and zones contributed to this achievement. The profitability of the Â“Rest of the WorldÂ” zone has increased considerably; in absolute value, it is at the same level as North America.
Despite the negative impact of currency fluctuations, which was more pronounced in the 4th quarter, net earnings per share growth was very strong at +13%. Based on identical exchange rates, this growth rate would have reached +15.9%.
As for 2008, we are optimistic despite the uncertainties of the economic environment. In fact, our business has always proven extremely resilient during periods of crisis, we intend to continue strengthening our positions and growing faster than the market, and the large proportion of our sales now made in new and very fast-growing markets is providing a powerful relay for our global growth. We are confident therefore about our ability in 2008 to once again achieve sales growth in our target range of +6% to +8 %, like-for-like."
- Furthermore, the Board of Directors has decided to propose to the Annual General Meeting on April 22nd 2008 the payment of a dividend of €1.38 per share, an increase of +16,9% compared with 2006.
At the end of the board meeting, Sir Lindsay Owen-Jones said: "2007 marks a further very strong increase in the Group's results, reflecting the quality of the management of Jean-Paul Agon and his teams.
The level of results achieved enables us to propose another substantial increase in dividend to the Annual General Meeting; in the space of five years, the dividend has more than doubled. This is further proof of the Group's confidence for the coming year".
(1) Diluted net earnings per share based on net profit excluding non-recurrent items after minority interests.
(2) Dividend to be proposed to the Annual General Meeting of Shareholders on April 22nd 2008.
(3) Comparable structure basis: excluding The Body Shop, and excluding professional distribution to the hair salons in the United States.
Sales up by +8.1%- L'OrÃ©al group sales at December 31st 2007 amounted to € 17.1 billion, up by +8.1% based on reported figures.
Like-for-like (i.e. based on a comparable structure and identical exchange rates), the increase in the group's sales amounted to +8.0%.
The net impact of changes in consolidation, as a result of the acquisitions of The Body Shop, Sanoflore, Beauty Alliance, PureOlogy and MalyÂ’s West amounted to +3.6%.
The negative impact of currency fluctuations amounted to -3.5% over the full-year 2007.
Growth excluding currency fluctuations amounted to +11.6%.
- The news release of January 24th 2008 sets out in detail the activity of the cosmetics divisions and the geographic zones for 2007. This news release is available on the site www.loreal-finance.com and can be downloaded.
- The table of sales by branch, division and geographic zone is provided in the appendix I.
Strong improvement in operating profit on a comparable structure basisThe group consolidated for the first time in 2007, over a full year, The Body Shop, together with the distributors of professional products to American hair salons.
In the interest of visibility and comparability of the performance of the group, the table below sets out the consolidated profit and loss account excluding The Body Shop and excluding professional product distributors. In fact, these two businesses have an operating account structure which is different from that of the L'OrÃ©al group.
Consolidated profit and loss account excluding The Body Shop and excluding professional distributors in the U.S.A.
Excluding The Body Shop and excluding professional distribution in the USA, sales amounted to € 16,110m.
The Body Shop
|As % of sales|| 12.31.2007
The Body Shop
& Excluding USA
|As % of sales|
|Sales||15,355||100 %||16,110||100 %|
|Cost of sales||- 4,414||28.7 %||-4,592||28.5 %|
|Gross profit||10,941||71.3 %||11,518||71.5 %||+ 20 basis points|
|Research and development expenses||- 531||3.5 %||-557||3.5 %|
|Advertising and promotion expenses||- 4,718||30.7 %||-4,950||30.7 %|
|Selling, general and administrative expenses||- 3,153||20.5 %||-3,259||20.2 %|
|Foreign exchange gains and losses||- 56||0.4%||10||0.1 %|
|Operating profit||2,483||16.2%||2,762||17.1 %||+ 90 basis points|
Gross profit represented 71.5% of sales, an increase of 20 basis points compared with 2006. This improvement becomes even more clearly visible if the corresponding proportion of exchange gains and losses is allocated to gross profit in 2007 and 2006, that is 78% of the total. Adjusted for this factor, gross margin advanced by 50 basis points compared with 2006, reflecting the continuous striving to enhance product value, constant efforts to improve plant productivity, and control of ingredient purchasing and packaging costs.
Research and development expenses remained stable as a percentage of sales at 3.5%.
Advertising and promotion expenses represented 30.7% of sales in 2007, a level equivalent to 2006. This stability reflects an increase in volumes invested, improved cost management and more favourable media purchasing conditions.
Selling, general and administrative expenses represented 20.2% of sales, compared with 20.5% in 2006. This further improvement has been achieved through determined efforts in organisation, cost reduction and purchasing optimisation.
Operating profit amounted to € 2,762m, an increase of 11.3%. This represents 17.1% of sales, reflecting a further strong improvement in profitability.
2007 consolidated profit and loss account
From sales to operating profit
(including The Body Shop in 2006 and 2007 and professional distribution in the USA in 2007).
Overall, the group's operating items, including The Body Shop and professional distribution in the USA can be summed up as follows:
|€M||12.31.2006||As % of sales|| 12.31.2007
||As % of sales||Change|
|Cost of sales||- 4,569||28.9%||-4,941||29.0%||+8.1%|
|Research and development expenses||- 533||3.4%||-560||3.3%||+5.1%|
|Advertising and promotion expenses||- 4,783||30.3%||-5,127||30.0%||+7.2%|
|Selling, general and administrative expenses||- 3,309||21.0%||-3,618||21.2%||+9.3%|
|Foreign exchange gains and losses||- 55||0.3%||+10||0.1%||ns|
- Sales amounted to €17,063m, up by +8.1%.
- Gross profit amounted to €12,122m, representing an increase of +8.0%.
- Operating profit, at 16.6% of sales in 2007, has increased by 11.3%, representing a strong improvement of 50 basis points.
Good contribution from all cosmetics divisions
Operating profit by branch and division
(1) Non-allocated = Central group expenses, fundamental research expenses, stock option expenses and miscellaneous items. As % of total sales.
|€M 2006||% of sales 2006||€M 2007||% of sales 2007|
|By operational division|
|Professional Products||443||20.8 %||502||21.0 %|
|Consumer Products||1,421||18.0 %||1,582||19.1 %|
|Luxury Products||776||20.6 %||844||21.5 %|
|Active Cosmetics||221||19.6 %||256||20.5 %|
|Cosmetics divisions total||2,860||19.1 %||3,180||20.0 %|
|Non-allocated(1)||- 437||2.9 %||-479||3.0 %|
|Cosmetics branch total||2,423||16.1 %||2,701||17.0 %|
|The Body Shop||58||13.4 %||64||8.1 %|
|Dermatology branch(2)||59||17.3 %||62||16.9 %|
|Group||2,541||16.1 %||2,827||16.6 %|
(2) Group share, i.e. 50%
The profitability of each cosmetic Division grew substantially in 2007:
The profitability of The Body Shop is not comparable year-on-year, because this business was only consolidated in the second half of 2006; and each year almost all the profit is made in the second half.
The profitability of the dermatology branch, Galderma, edged down slightly to 16.9% of sales, as a result of research investment decisions in the first half of 2007.
Strong increase in operating profitability in all geographic zones,
particularly in the Rest of the World
Cosmetics Branch: Operating profit of geographic zones
Profitability clearly increased in each geographic zone in 2007, particularly in the "Rest of the World" zone.
% of sales 2006
% of sales 2007
|Western Europe||1,527||21.8 %||1,633||22.5 %|
|North America||744||18.8 %||773||19.3 %|
|Rest of the world||589||14.5 %||774||16.6 %|
|Cosmetics zones total||2,860||19.1 %||3,180||20.0 %|
The contribution of this zone, in absolute value, reached the same level as North America.
Strong growth in net earnings per share: +13.0% Consolidated profit and loss account
From operating profit to net profit excluding non-recurrent items
(1) Net profit excluding non-recurrent items after minority interests does not include capital gains and losses on disposals of long-term assets, impairment of assets, restructuring costs, associated tax effects or minority interests.
|Operating profit||2,541||2,827||+11.3 %|
|Financial expense and income||- 120||- 182|
|Share in net profit (loss) of equity affiliates||- 1||-|
|Pre-tax profit excluding non-recurrent items||2,638||2,896||+9.8 %|
|Income tax excluding non-recurrent items||- 803||- 856|
|Minority interests||- 1||- 1|
|Net profit excluding non-recurrent items after minority interests (1)||1,833||2,039||+ 11.2 %|
|EPS (2) (in euros)||2.98||3.36||+13.0 %|
|Net profit after minority interests||2,061||2,656||+28.9 %|
|Diluted net profit per share (group share) (€)||3.35||4.38||+30.9%|
|Diluted average number of shares||615,723,220||606,012,471|
(2) Diluted net earnings per share excluding non-recurrent items, after minority interests. Finance costs increased from € 116m to € 174m in 2007. This reflects the cost of financing acquisitions, rising interest rates in the United States and Europe, and the continuation of the share buyback programme.
The dividends received from Sanofi-Aventis amounted to € 250m, an increase of 15% compared with 2006.
Tax amounted to € 856m.The tax rate in 2007 amounted to 29.5%, lower than in 2006 when the rate was 30.4%.
Overall, net profit excluding non-recurrent items after minority interests at € 2,039m, up by 11.2%.
After allowing for the positive effect of share buybacks, net earnings per share amounted to €3.36, up by +13.0%.
Exchange rate Impact : On an identical exchange rate translation basis, i.e. by applying the exchange rates recorded in 2007 to the 2006 figures, net earnings per share growth would have been +15.9%. This calculation shows the significant impact on the group's earnings of the strong currency fluctuations of 2007.
Exceptional growth in net profit after minority interests: +28.9% Consolidated profit and loss account
From net profit excluding non-recurrent items to net profit
After allowing for non-recurrent items, primarily the capital gain on the disposal of Sanofi-Aventis shares on November 14th 2007, net profit after minority interests amounted to € 2,656m, representing growth of approximately 29%.
|Net profit excluding non-recurrent items after minority interests||1,833||2,039||+11.2 %|
|Net profit after minority interests||2,061||2,656||+28.9 %|
|Diluted earnings per share (€)||3.35||4.38||+30.9 %|
Strong growth in cash flow : +12.9%Cash flow at December 31st 2007 amounted to € 2,720m, up by some 13%.
Working capital requirement remained well under control at € 76m.
Capital expenditure at € 776m decreased slightly as a percentage of sales to 4.5% compared with 4.7% in 2006.
Net debt, at December 31st 2007, amounted to € 2,373m, some € 1 billion lower than on December 31st 2006. Gearing has been reduced significantly and is now 17.4%.
(See Appendix III, Compared Consolidated Balance Sheets)
Proposed dividend increased by +16.9%The Board of Directors has decided to propose that the Annual General Meeting of Shareholders of April 22nd 2008 should approve a dividend of €1.38 per share, representing an increase of +16.9% compared with the dividend paid in 2007.
Important events during the periodDisposal of 1.8% stake in Sanofi-Aventis:
- On November 14th 2007, LÂ’OrÃ©al sold a stake of 1.8% in the capital of Sanofi-Aventis, representing approximately 25 million shares. The proceeds from this disposal, following which the group holds an 8.7% stake in Sanofi-Aventis, amounted to € 1.5 billion.
Acquisitions during the period:
- On April 12th 2007, the group subsidiary LÂ’OrÃ©al USA acquired 100% of Beauty Alliance, in which it had held a 30% minority share since July 2006. Beauty Alliance is one of the foremost American distributors of professional products to hair salons.
- On May 9th 2007, the group subsidiary LÂ’OrÃ©al USA acquired PureOlogy Research, a U.S. premium professional haircare brand.
- On July 11th 2007, the group subsidiary LÂ’OrÃ©al USA acquired 100% of MalyÂ’s West, the number three U.S. distributor of professional products to hair salons.
- On November 15th 2007, LÂ’OrÃ©al concluded an agreement for the acquisition of 100% of Canan, a Turkish haircare products company. (This acquisition was concluded on January 25th 2008).
- On December 12th 2007, LÂ’OrÃ©al signed a collaboration agreement with the U.S. company Light Bio Science, in order to develop photomodulation appliances for skincare applications.
Share buybacks in 2007:
Pursuant to the authorisations approved by the Annual General Meetings of April 25th 2006 and April 24th 2007, the group bought back, from January 1st to December 31st 2007, 15.4 million of its own shares for a total of € 1.34 billion.
"This news release does not constitute an offer to sell, or a solicitation of an offer to buy, LÂ’OrÃ©al shares. If you wish to obtain more comprehensive information about LÂ’OrÃ©al, please refer to the public documents registered in France with the AutoritÃ© des MarchÃ©s Financiers, which are also available in English on our Internet site www.loreal-finance.com.
This news release may contain some forward-looking statements. Although the Company considers that these statements are based on reasonable hypotheses at the date of publication of this release, they are by their nature subject to risks and uncertainties which could cause actual results to differ materially from those indicated or projected in these statements."
Contacts at L'OREALIndividual shareholders and market authorities
Mr Jean-RÃ©gis CAROF
Tel. : +188.8.131.52.83.02
Financial analysts and institutional investors
Mrs Caroline MILLOT
Tel. : +184.108.40.206.86.82
Mr Mike RUMSBY
Tel. : +220.127.116.11.76.71
For more information, please contact your bank, broker or financial institution (I.S.I.N. code: FR0000120321), and consult your usual newspapers, and the Internet site for shareholders and investors, http://www.loreal-finance.com, or its mobile version on your cell phone, http://mobile.loreal-finance.com, or its mobile version on your cell phone, http://mobile.loreal-finance.com; alternatively, call +18.104.22.168.80.50.