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L’Oreal Sets Growth Plan as ’05 Profits Leap 37%

L'Oreal reported its 21st year of double-digit profit increases and told analysts its income spiked 37 percent to $2.46 billion in 2005.

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PARIS — L’Oréal said Thursday it would seek annual growth of 6 to 8 percent, with part of that coming from acquisitions.

Reporting its 21st year of double-digit increases in profits, the French beauty giant also told analysts that its income spiked 37 percent to 1.97 billion euros, or $2.46 billion at average exchange rates, in the year ending Dec. 31 over 2004.

As reported, L’Oréal increased its 2005 sales 6.5 percent to 14.53 billion euros, or $18.1 billion, versus 2004.

The firm’s financial analyst meeting Thurs­day marked the debut of incoming chief executive Jean-Paul Agon, who takes on the role in April — and ended with a standing ovation for outgoing ceo Lindsay Owen-Jones, who will remain as non-executive chairman and president of L’Oréal’s board.

The gathering was full of nostalgia, as Owen-Jones presided over the event for the last time. Owen-Jones, who has had one of the most storied careers in the beauty industry’s history, was lauded by financial analysts. They reminisced with anecdotes of his 21-year tenure at the helm of the world’s biggest beauty company.

For his part, Owen-Jones showed a video and picture presentation of financial analysts’ meetings from years past and gave a running commentary about some of their main themes. In 1991, for instance, analysts focused on Unilever’s acquisition of Elizabeth Arden, and how that would impact L’Oréal’s business. In 1993, they showed concern that mass market brands would cannibalize prestige brands. In 2000, the Internet was a key topic of discussion.

On Thursday, the company’s future strategy was highlighted, alongside its 2005 financial results.

During the meeting, Agon spoke to financial analysts for the first time, and was very pointed about strategy looking ahead. “L’Oréal has always been a growth business and will remain so,” he said. “Our ambition is to return to a comparative growth target of 6 percent to 8 percent per year. Pursuing this growth will always be our number-one priority.”

He added internal growth will remain a mainstay for L’Oréal, but that acquisitions are also important.

Analysts were impressed by the new ceo. “Agon made a very strong first presentation,” said Eva Quiroga, an analyst at UBS. “It was good to see that top-line growth, which will ultimately drive valuations, is at the very top of his priority list.”

This story first appeared in the February 17, 2006 issue of WWD.  Subscribe Today.

Another analyst, who requested anonymity, said of Agon, “He is a credible guy with a strong track record in the group. I think Jean-Paul Agon has made a good impression.”

In regard to 2005, Owen-Jones said that he had achieved both of his main goals. “I had two major objectives for 2005 — the first was to lay the foundations for, announce and then implement the change of generation at the top of the company without any destabilizing of either the markets or our 50,000 employees,” he said. “In my view, this aim has been fully achieved. The second objective was to achieve yet another year of double-digit profits growth. I would suggest that, not only has this target been attained, but that the quality of our results is excellent.

“Once again, new and emerging markets proved to be growth drivers, confirming the success of the gamble we took a few years ago to open subsidiaries simultaneously in all the emerging markets, and particularly in countries such as China and Russia,” continued Owen-Jones.

By geographic zone, L’Oréal’s sales in Western Europe were up only 0.1 percent to 6.74 billion euros, or $8.39 billion; in North America, they rose 8.3 percent to 3.87 billion euros, or $4.82 billion, and in the “rest of the world,” they spiked 18.4 percent to 3.61 billion euros, or $4.49 billion. The latter category includes Asia, where L’Oréal’s business rose 10.6 percent to 1.38 billion euros, or $1.71 billion; Latin America, where it grew 23.5 percent to 861 million euros, or $1.07 billion; Eastern Europe, where it increased 34.3 percent to 682 million euros, or $849.3 million, and “other countries,” where it rose 15 percent to 687 million euros, or $855.6 million.

Operating profits before foreign exchange gains and losses came in at 2.31 billion euros, or $2.88 billion, a rise of 12.7 percent in the period. The company said the increase was due to improvement in operating profitability before exchange gains and losses at 15.9 percent versus 15 percent in 2004.

After excluding foreign currency gains and losses, operating profits gained 8.5 percent to 2.27 billion euros, or $2.82 billion.

Sales at L’Oréal’s cosmetics arm increased 6.5 percent to 14.22 billion euros, or $17.7 billion, last year over 2004. Within that division, professional products’ sales grew 7.3 percent to 2.06 billion euros, or $2.57 billion. Consumer products’ sales rose 6.4 percent to 7.49 billion euros, or $9.34 billion; luxury products’ sales gained 3.9 percent to 3.58 billion euros, or $4.46 billion, and active cosmetics’ sales were up 17.2 percent to 986 million, or $1.23 billion. The company’s dermatology business posted an 8.3 percent rise to 318 million euros, or $396 million.

For the first quarter of 2006, Owen-Jones said sales should be “about the same” as in the last quarter of 2005, when they rose 12.2 percent.

L’Oréal shares closed up 1 percent at 69.60 euros, or $82.13 at current exchange, on the Paris Bourse Thursday.

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