L'Oreal keeps profits up despite cost increases

By Guy Montague-Jones

- Last updated on GMT

Related tags Profit Generally accepted accounting principles

L’Oreal protected its margins in the first half of the year in the face of attacks from higher raw material and energy prices.

The world's largest cosmetic company posted a rise in operating profit of 3.9 per cent to €1.49bn and a sales increase of 1.6 per cent to €8.65bn for the six months ending 30 June.

Sales growth dips

Growth was lower than in previous quarters as the weak dollar and the challenging retail environment in developed markets hampered sales.

Meanwhile, operating profit remained bullish despite the impact of higher oil prices on input costs.

L’Oreal CEO Jean-Paul Agon told investors earlier in the year that the company expected to improve margins by cutting the number of its buying offices from seven to four and studying targeted partnerships with suppliers to reduce costs.

Manufacturers are now turning their attention to productivity as higher input costs and falling consumer confidence put profit growth in danger.

Increased productivity

Commenting on the latest results, Agon said: “With an improvement of 40 basis points, operating profitability is once more progressing very strongly, reaching a record level.

“Our continued efforts in product value enhancement and productivity have enabled us to compensate for increases in the prices of raw materials and energy.”

Solid operating growth and slight reduction in the tax rate helped L’Oreal achieve a 6.4 per cent increase in net profit for the first half of the year.

Looking forward to the full year results, Agon said: “We look forward with confidence to achieving double-digit growth in net earnings per share, at constant exchange rates, for 2008.”

The earnings estimate should be easy to achieve given that growth in net earnings per share for the first half of the year at constant exchange rates was 12.3 per cent.

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