Fitch reaffirms L’Oreal’s F1+ rating

According to Fitch, this, L'Oreal's highest possible rating, reflects factors such as the company’s “strong business profile and financial flexibility,”​ and its comprehensive market coverage.

The F1+ rating was reaffirmed from 2012, which the company previously achieved on the basis of its leading position in the global cosmetics industry.

A leading position​

Key factors pointed to by Fitch included L’Oreal’s leading position in the cosmetics industry, with its sales growing faster than local cosmetics markets in all geographical areas.

The company posted overall sales growth of 5.5 per cent, compared to an industry average of 4.6 per cent.

Fitch also noted that the cosmetics giant’s good economic diversification and adaption to local consumer tastes plays a big role in their success, with emerging markets now making up 38 per cent of the company’s total revenue.

A tough consumer environment​

Another point of interest was L’Oreal’s ability to continue growing even in a tough consumer environment, with an ageing global population in Europe and developed countries.

The key reason for this included the organization’s impressive control of pricing, strong innovation and good marketing capability.

The firm was also lauded for its strong increase in free cash flow generation capability, which was €1.4bn compared to €0.9bn in 2011, and its high net cash position of €1.6bn.

Fitch state: “the company's short-term IDR should remain comfortably at 'F1+'.”​

Innovation-driven dominance​

Oru Mohiuddin, Senior Beauty & Personal Care Analyst for Euromonitor PLC, told CosmeticsDesign-Europe.com that what sets L'Oreal's performance apart from other companies is their commitment to deep industry coverage combined with their focus on science-based innovation.

She gave the example of BB creams, which L'Oreal helped to introduce into Western markets and which has since become "a phenomenon​."

She said: "Now that the industry is becoming more specialized you need more focus on R & D and aligning your products with science, particularly in fields like colour cosmetics and skincare." ​

"Their (L'Oreal's) products have scientific claims about their active ingredients which set the industry standard. That is the model which you need to drive growth in the beauty industry at the moment."​

"L'Oreal is well placed to dictate the course of industry trends."  ​

Exposure to cyclic markets​

Fitch points out L’Oreal’s exposure to cyclic markets in its Professional and Luxury divisions. The ratings agency suggests that the economic slowdown in emerging economies like China and Brazil will slow the company’s sales growth from 10.4 percent in 2012 to the low single digits.

Potential future points of future rating sensitivity which were noted include deterioration in the group’s FCF profile, a total number of CP back-up lines below 100 percent of the total drawn under the CP programs and a Funds From Operations (FFO) leverage above 2.0x.