L'Oréal SA

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L'Oréal SA

founded: 1909

Contact Information:

headquarters: 41, rue martre
clichy, 92117 france phone: 33147567000 fax: 33147568002 url: http://www.loreal.com

OVERVIEW

L'Oréal SA may be the world's largest cosmetic company, but it is hardly content to rest on its laurels. The international cosmetics giant has more than 2,500 scientists hard at work in laboratories at the company's Paris headquarters, constantly searching for new products to help beautify and enhance the physical appearance of L'Oréal's millions of customers around the world. Each year these researchers file for hundreds of patents on their latest discoveries and concoctions.

Although the name L'Oréal is instantly recognizable to most consumers on the strength of the popular cosmetics products marketed under the company's name, there are a number of other equally well-known brand names that are part of L'Oréal's product line. These include the cosmetic products of Biotherm, Laboratoires Garnier, Redken, Maybelline, Lancome, Helen Rubin-stein, and Vichy, as well as the designer perfume lines of Ralph Lauren and Giorgio Armani. L'Oréal also owns a number of specialty cosmetic companies, including Matrix Essentials, which produces beauty salon products; Soft Sheen/Carson Products, a manufacturer of cosmetic products for ethnic markets; and Kiehl's Since 1851, which produces natural cosmetic products.

L'Oréal's products fall into one of the company's four divisions: Active Cosmetics, skin care and related cosmetic products); Luxury (fragrances and other beauty products); Professional (hair care products for beauty salons); and Consumer (makeup and hair and skin care products).

L'Oréal's largest stockholder is Liliane Bettencourt, one of the richest women in the world and the daughter of L'Oréal's founder, Eugene Schueller. Bettencourt and her family own 51 percent of Gesperal, the holding company that owns 54 percent of L'Oréal. The remaining shares of Gesperal are owned by Nestle SA.

COMPANY FINANCES

Through good times and bad, the demand for products to enhance our physical appearance seems to remain strong. This fact of life has given L'Oréal, the world's largest cosmetic company, one of the most enviable financial records around. The Paris-based company had no more than posted its 16th consecutive year of double-digit profits for 2001 when it announced that it expected to do it once again in 2002. For 2001 L'Oréal reported a profit of almost $1.1 billion on revenue of about $12.2 billion. This compared with net income of almost $968 million on sales of slightly more than $11.9 billion in 2000. In 1999 L'Oréal posted a profit of almost $702 million on revenue of $10.8 billion.

In 2001, 54 percent of L'Oréal's sales were generated by the company's Consumer division. The Luxury division accounted for 27 percent of total sales in 2001, while the Professional division brought in 14 percent of total revenue. Bringing up the rear with 5 percent of total sales was L'Oréal's Active Cosmetics division. Geographically, European markets accounted for 49 percent of total 2001 sales, followed by North America with 23 percent and other markets with 19 percent.

For L'Oréal, the year 2002 got off to a promising start. The company in early April 2002 posted a first quarter sales increase of 8.5 percent, excluding acquisitions and currency effects. This was substantially above the 7 percent estimate for first-quarter sales growth. In announcing the first-quarter results, Lindsay Own-Jones, L'Oréal's chairman and CEO, said: "The first-quarter results deepen our confidence for 2002. . . .After 17 years of growth, another is starting to emerge. What can we say? In the short term, it isn't looking bad at all."

ANALYSTS' OPINIONS

Given its glittering record of profitability over more than a decade and a half, it's difficult to find a security analyst anywhere with an unkind word to say about L'Oréal SA. After all, it's tough to argue with success. L'Oréal's 7.1 percent increase in sales during 2001, despite a worldwide economic slowdown, slightly exceeded the predictions of a JCF Group poll of 25 analysts that had predicted the company would post a 7 percent increase in sales in 2001. Of the company's 2001 performance, one Paris analyst observed: "Their weak point is luxury in the United States, but that is compensated for by a very good performance in the younger markets."

Analysts were equally positive about L'Oréal's prospects for 2002. After the company announced a jump of 8.5 percent-excluding currency effects and acquisitions-in its sales for the first quarter of 2001, Aurel Leven analyst Marina Boutry-Cuypers said that "everything leads us to expect that internal growth will largely exceed that [L'Oréal's 7.1 percent sales growth in 2001] this year." Boutry-Cuypers said she was encouraged by the outlook for improved economic conditions in the second half of 2002.

FAST FACTS: About L'Oréal SA

Ownership: L'Oréal SA is a publicly-owned company traded over the counter.

Ticker Symbol: LORLY

Officers: Lindsay Owen-Jones, Chmn. and CEO; Jean-Pierre Meyers, VChmn.

Employees: 49,150

Principal Subsidiary Companies: L'Oréal SA owns a number of subsidiaries worldwide. One of its largest subsidiaries is L'Oréal USA, Inc., formerly known as Cosmair. Some of the best-known cosmetic product lines in the United States and around the world are produced under the banner of L'Oréal USA. These include Biotherm, Redken, Maybelline, Lan-come, L'Oréal, Helena Rubenstein, as well as the designer cosmetics lines of Ralph Lauren and Giorgio Armani. Also owned by L'Oréal USA are Kiehl's Since 1851, which produces natural cosmetic products; Soft Sheen/Carson Products, a producer of ethnic beauty products; and Matrix Essentials, the manufacturers of a wide range of beauty salon products. Other L'Oréal subsidiaries include Sanofi-Synthelabo, a pharmaceuticals company in which L'Oréal holds a stake of about 20 percent, and Galderma, a manufacturer of skin products.

Chief Competitors: The world's largest cosmetics company, L'Oréal SA faces competition from Revlon, Estee Lauder, and Procter & Gamble. Other competitors include Chanel, Bath & Beauty Works, Mary Kay, Clarins, Alberto-Culver, Unilever, Merle Norman, and Body Shop.

Analysts also seemed to look positively on the growing rumors in early 2002 that L'Oréal wold soon make a bid for Germany's Beiersdorf, which produces the popular Nivea brand of cosmetics and skin care products. Observed Andy Smith, Citigroup's consumer products analyst: "There is a fantastic fit between L'Oréal and Beiersdorf. By buying the German group, L'Oréal would be inheriting a brand it could do a lot with. It could give Nivea a huge exposure to the North American market."

HISTORY

L'Oréal traces its roots to French chemist Eugene Schueller's 1907 invention of the first synthetic hair dye. After Schueller had developed a market—largely among the hair salons of Paris—for his product, he founded a company he called Societe Francaise des Teintures Inoffensives pour Cheveux. Not long thereafter Schueller's company changed its name to L'Oréal. After it had firmly established its hold on the market for hair dye, L'Oréal added soaps and shampoos. Within only a few years of the company's founding, L'Oréal had expanded its sales outside France. By 1912 its products were being sold in Austria, Holland, and Italy. Eight years later, L'Oréal products were available in 17 countries, including Bolivia, Brazil, Chile, Ecuador, the Far East, Peru, the Soviet Union, and the United States, as well as the European countries in which L'Oréal had begun selling earlier. The company, still headquartered in Paris, had a staff of 10 sales representatives and three research chemists. In the 1920s L'Oréal was the first major French cosmetics maker to begin advertising on radio.

After World War II the demand for L'Oréal's products grew rapidly. To serve its ever-growing market in the United States, the company in 1953 established a U.S. subsidiary called Cosmair (renamed L'Oréal USA in 2000) to oversee the distribution of L'Oréal's hair products to U.S. hairdressing salons. Before long, Cosmair added L'Oréal's makeup and perfume to its product offerings in the United States. Francois Dalle, a close associate of Eugene Schueller, took over the direction of the company after the death of the L'Oréal founder in1957. Dalle in 1963 took the company public, although Schueller's daughter, Liliane Bettencourt, held on to a majority interest in her father's company. An important step in the company's diversification came in 1965 when L'Oréal acquired Lancome. In the early 1970s L'Oréal gained a foothold in the pharmaceuticals industry with its purchase of Synthelabo.

The 1980s saw L'Oréal emerge from the shadows of the international cosmetic business to become the industry's biggest manufacturer. This was accomplished largely through strategic acquisitions, including the 1984 purchase of Warner Communications' cosmetics operations, including the Gloria Vanderbilt and Ralph Lauren brand names; Helena Rubinstein and Laboratoires Pharmaeutiques Goupil in 1988; and an investment in Lanvin in 1989. In 1994 L'Oréal purchased control of its Cosmair U.S. licensee from Nestle SA and the Betten-court family. In 1995, L'Oréal purchased Maybelline for $508 million, thus becoming the second largest U.S. cosmetics producer, trailing only Procter & Gamble, which manufactures Cover Girl and Max Factor brand-name products. In 1997 the company purchased the sun protection brand Ombrelle; the following year it acquired Soft Sheen Products, a manufacturer of ethnic hair care products. In 2000 L'Oréal added another ethnic beauty products producer, Carson, which has since been combined with L'Oréal's Soft Sheen and renamed Soft Sheen/Carson Products. The company in 2000 also acquired Kiehl's Since 1851, a family-owned producer of natural cosmetic products, and Matrix Essentials, which produces products for use in beauty salons.

STRATEGY

Key elements in L'Oréal's strategy for 2002 and the short-term future include (1) dedication to a profession of enduring relevance; (2) staking its success on innovation and quality; (3) focus on a limited number of worldwide brands with diverse origins; (4) development of promising new reservoirs of growth; (5) organic growth as a core priority; (6) full involvement of company personnel; (7) respect for fundamental values; and (8) sustainable growth.

CHRONOLOGY: Key Dates for L'Oréal

1907:: Eugene Schueller invents first synthetic hair dye
1909:: Schueller founds Societe Francaise des Teintures Inoffensives pour Cheveux, which is soon renamed L'Oréal
1953:: L'Oréal sets up U.S. licensee, Cosmair, to distribute its products in the United States
1963:: L'Oréal goes public
1984:: L'Oréal acquires Ralph Lauren and Gloria Vanderbilt brands

Writing of the corporation's dedication to its core profession in L'Oréal's 2001 annual report, Chairman Lindsay Owen-Jones observed that "our profession, which has existed since the earliest societies, is constantly changing and reinventing itself, enabling us to anticipate the future with confidence." As to the importance L'Oréal attaches to innovation and quality, its chairman wrote that "by producing ourselves over 94 percent of the product ranges we sell, we recognize the part played by our own manufacturing sites in delivering overall quality."

To avoid spreading itself too thin, L'Oréal has resolved to focus on a limited number of worldwide brands. In recent years, the company's core products of French heritage have been joined by a second group of products of American origin. The company has recognized the emergence of New York as a second center of global creativity in the cosmetics business. Some of the more influential L'Oréal brands of American origin are Redken, Maybelline, Ralph Lauren, Matrix, and Kiehl's. Although L'Oréal's principal business will continue to be cosmetics, dermatology has emerged as a market offering significant potential for the company.

Central to the success of L'Oréal's blueprint for the future is the full involvement of all company employees. Explaining this aspect of the company's strategy in its 2001 Annual Report, Chairman Owen-Jones wrote: "L'Oréal has a clear aim to enable company staff to benefit from the company's economic success. For example, a manual worker in France on an average salary of 23,400 euros received a profit sharing bonus of 3,950 euros in 2001." And L'Oréal has not forgotten the important contributions made by the communities in which the company operates. To help repay those communities for their support, the company has undertaken a number of initiatives in cultural, humanitarian, and scientific fields.

INFLUENCES

One of the more significant adverse factor facing L'Oréal in 2001 was the weakness in the U.S. cosmetics market, particularly for luxury-type products. The company managed, however, to make up for the softness in U.S. sales by concentrating more of its marketing efforts in emerging markets. The success of this strategy was reflected in L'Oréal's 7.1 percent in sales growth during 2001, this despite an economic slowdown worldwide.

CURRENT TRENDS

A significant trend for L'Oréal over the last two or more decades has been its expansion through strategic acquisition. In 2001 the company purchased Colorama, Revlon's makeup and hair care brand in Brazil, and CosMedic Concepts' line of 60 BioMedic products, which are distributed to dermatologists in 60 countries. In early 2002, rumors circulated that L'Oréal was planning to make a bid for Germany's Beiersdorf consumer care group, producer of Nivea skin care products. L'Oréal executives declined to disclose whether such an acquisition was planned.

To stay abreast of changing tastes and styles, L'Oréal maintains an extensive research and development operation. The company has research centers on three continents: Europe, North America, and Asia. These centers are staffed by some 2,700 employees who originate from 26 different countries and work in 30 different areas of specialization.

PRODUCTS

L'Oréal's product line is spread out over four different divisions: Active Cosmetics, Consumer Products, Luxury Products, and Professional. Within the Active Cosmetics division, the major brand names are La RochePosay and Vichy. Brand names marketed by the Consumer Products division include Gemey, Laboratoires Garnier, L'Oréal, Plenitude, and Maybelline. Luxury Products brand names include Biotherm, Cacharel, Lan-come, Lanvin, Guy Laroche, Giorgio Armani, Helena Rubinstein, Ralph Lauren, and Paloma Picasso. The Professional division offers such brand names as Kerastase, Inne, Redken, and L'Oréal Professional. L'Oréal also offers pharmaceuticals, luxury goods, and dermatological products through its Galderma, Lanvin, and Vich Laboratoires subsidiaries.

CORPORATE CITIZENSHIP

L'Oréal feels strongly that if its growth is to be sustained, it must be based on both a winning strategy and an awareness of the company's responsibility to everyone who plays a part in the company and in the wider environment in which L'Oréal operates. More than a decade ago, the company set ambitious targets to limit the impact of its operations on the environment, this in an industry that consumes only small amounts of natural resources. In a portion of its corporate Web site devoted to environmental policy, L'Oréal offers these views on its responsibility to the environment: "Respecting the environment is a civic responsibility and a duty for the company. For years, the L'Oréal Group has been made acutely aware of these issues and has made significant efforts to master the environmental impact of its activities, as well as those of its suppliers and contractors." In 2001 nearly 8 percent of the company's industrial investments were for the environment and security.

As part of its perceived responsibilities to the communities in which it operates, L'Oréal has taken a number of initiatives in cultural, humanitarian, and scientific fields. Additionally, the company has formed a partnership with UNESCO that is targeted specifically at helping bring more women into scientific careers worldwide and promoting the role played by women in scientific research.

GLOBAL PRESENCE

L'Oréal operates in 130 different countries. In recent years the growth of cosmetic markets in developed countries has stabilized at about 5 percent annually. The growth rates in emerging markets, however, are far more vigorous. Major growth areas for L'Oréal have been Latin America, where the cosmetics market grew 14 percent in 2001; Asia outside Japan with 2001 growth of 17 percent; and Eastern Europe with a growth rate of 21 percent.

L'ORÉAL'S R&D TEAM GETS DOWN TO BASICS

L'Oréal each year allocates one-third of its research and development resources, including staff, to fundamental research projects. These include intensive study of hair structure to learn more about how and why hair changes, turns grey, or falls out. Such research into the characteristics of hair has turned up some interesting findings about the fragility of hair of African origin, which will form the basis of innovative products for L'Oréal's ethnic hair products. To improve its understanding of skin, L'Oréal researchers have been exploring the phenomenon of pigmentation through studying the characteristics of the melanocyte cells responsible for skin color. Researchers' findings about the workings of melanocyte have been passed along to L'Oréal chemists, and it is hoped that in time these research studies will enable chemists to develop more effective products to correct blemishes and dull skin.

EMPLOYMENT

At the end of 2001, L'Oréal SA had a workforce of 49,150 people worldwide. L'Oréal feels that it has a responsibility to enable its workers to benefit from the company's success. Its Worldwide Profit Sharing program is gradually extending these benefits to all company employees worldwide. For those already in the program, the company's 2001 results were expected to yield a bonus payment equivalent to one week's salary. Providing the company is able to meet its profit targets, it hopes to increase the size of such profit-sharing bonuses to the equivalent of one month's salary or even more. In addition the company's stock option plan, as of early 2002, was available to more than 2,500 of L'Oréal's managers, about one-quarter of its global management staff.