L'Oreal reports booming profit margins

By Louise Prance

- Last updated on GMT

L'Oreal has yet again reported booming operating profits, driven by
lucrative acquisitions such as natural cosmetics company, The Body
Shop and product innovations – but despite the continued rise, net
earnings came in below expectations.

Despite net profits rising 11 per cent to €1.83bn from €1.64bn in 2005, the increase fell below industry expectations, falling short of the estimated €1.85bn average –possibly attributed to costs incurred from increased advertising campaigns for hair products and fragrances in the US.

Group sales enjoyed strong growth, despite a slightly negative impact from currency fluctuations, up 8.7 per cent to €15.79bn, boosted mainly by the Body Shop acquisition However, the largest cosmetics manufacturer in the world reported that operating profits rose by 12 per cent in 2006 to reach €2.541m, prompted by sales of the best selling brands such as Lancôme and the Armani fragrances.

Mr Jean-Paul Agon, chief executive officer of L'Oreal, said, " The success of product innovations, the strength of our brands and the rapid pace of our geographic expansion have once again enabled us to improve our worldwide positions".

The company enjoyed strong sales results in all divisional sectors, with the active cosmetics segment once again surging ahead as the main growth driver, rising by 9 per cent to €233m for the fourth quarter and a massive 14 per cent for the year, to €1.13m, on a reported basis.

The active cosmetic division includes the Dermablend, La Roche-Posay, SkinCeuticals, Vichy Laboratories, Innéov and Ombrelle, together with the most recent addition of the Sanoflore brand.

The division concentrates on functional skin care brands that primarily focus on one of the fastest growing categories in the business – anti-ageing products.

Consumer products also saw significant growth, rising overall by 5.4 per cent to €7.90bn, followed by luxury products which rose by 5 per cent, with professional products bringing up the rear with a 3 per cent sales growth.

On a geographical basis the highest climb in sales came from Western Europe, where the company achieved an annual turn over of €6,99bn on a reported basis, up 3.7 per cent from the previous year.

North America saw reported sales jump 2 per cent to reach €3.95bn, with the rest of the world, including Asia, Latin America and Eastern Europe, reporting a growth of 12 per cent reaching €4.06bn.

This growth was led by the Asian market, which reached €1.47, an increase of 7 per cent.

However, it was the Eastern European segment that increased most significantly from last year, enjoying a massive growth spurt of 24 per cent, reaching €850m.

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