L'Oréal achieves its best first half for twelve years<

What is your assessment of the first half for L'Oréal?

In a booming market, L'Oréal is outperforming! We are accelerating compared to last year and we have achieved our best first half for twelve years, with growth of 7.3% in a market that is growing by 5.5%. Globally, there is a real appetite for cosmetics. First, because in our new growth areas like Asia, Latin America and even Africa, interest in beauty is very strong. Next, digital is helping to drive the market forward, also thanks to the driving role of social networks. Finally, this market is becoming “premiumised”. It is one of the few in the world where the expectations are not for cheaper products, but for more innovation and added value. This move upmarket concerns all countries and all categories, skincare, haircare or make-up.

What were your growth drivers?

The group has several turbos, several segments in which L'Oréal manages to grow even faster than very buoyant markets. This is the case for e-commerce and Asia in particular. In e-commerce, we grew by 48% in a dynamic market at +25%. And in China, we posted a 38% increase in sales in a buoyant market at +14% over the half-year. In travel retail [airport distribution, Ed], which is another of our driving forces, we are up 21%, like the market. Today, L'Oréal is the world leader in this segment for beauty. Finally, luxury and dermo-cosmetic products also outperformed, with increases of 13.2% and 13.6%.

Can your margin, which has reached 19.5%, continue to improve?

The L'Oréal model is organized to have a regular increase in profitability. We managed to achieve a 30 basis point increase in the first half. This brings our operating margin to a record level of 19.5%. This is the best level of profitability ever achieved by the group over a half-year.

We have the feeling that the digital boom is above all driven by China...

Not only. We are globally the most advanced company in digital. In China, more than a third of our business is done via e-commerce. More and more countries are recording strong growth on this channel, which is becoming increasingly significant, as in Great Britain and Korea for example. Overall, it now represents 13.2% of L'Oréal's turnover. China is indeed ahead, because it benefits from a particular ecosystem, with specific players, such as Alibaba or Tencent. For us, it's a wonderful laboratory for progress. This shift is one of the reasons for the acceleration of the market and the outperformance of the group. The fact that we were the first to master the digital game, which is constantly evolving, has been decisive in our success.

Is travel retail, whose manager has just joined the executive committee, a new strategic axis?

It is clearly a very important circuit, which represents approximately 6% of the world market and weighs between 8 and 9% of our turnover, with very significant profitability. We are the only group in the world to have a multi-divisional approach to it. If luxury is predominant there, we are also developing the presence in airports of our mass market brands, such as L'Oréal Paris and NYX Professional Makeup, as well as that of our dermo-cosmetics brands, with SkinCeuticals counters, La Roche Posay and Vichy.

Even Kérastase, the only luxury hair brand, is now offered there. In addition, travel retail has a showcase role, as several billion travelers pass through airports each year due to the democratization of air travel. It is therefore necessary, in parallel, to diversify the offer to satisfy all desires. This is an approach that we launched eighteen months ago, and which is highly appreciated by operators. This sector is establishing itself as one of the major fully-fledged circuits of tomorrow, whereas there were few of them ten years ago. It is a strategic sector, so it was legitimate to bring the boss of this circuit into the comex.

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Is Asia, now your first outlet, mainly driven by China?

Asia is effectively the first zone of the group. This is a very important event, especially for me, who created this area almost ex nihilo in 1997, by setting up subsidiaries in China, but also in Thailand, Korea, Malaysia... In twenty-two years, L'Oréal has become the leader in this part of the world. This is crucial, because the area is the world's leading beauty market, and will further strengthen its pre-eminence in the years to come. Our growth there is spectacular, with an increase of 24% in the first half (+10% for the market).

Today, we are number one in the sector there with a market share that is still low, at 8.7%, compared to 13% worldwide. In Asia, what is happening to us is what happened in Europe thirty years ago and in the United States fifteen years ago. Starting out as a challenger, we acquired a position of strength there. The development opportunities are still great. China represents 45% of our turnover in the zone, but all our growth in Asia does not come from there alone. There is also India, which is experiencing strong growth (+18%), Indonesia, very strategic with its 300 million inhabitants (+22%), or even Malaysia (+27%) and the Philippines (+16%)

On the other hand, in North America, your third largest market, is business down?

It's not been a good year in North America. The cosmetics market there has slowed down, which may seem paradoxical, while the economy is doing well. Makeup sales, in particular, are stable there. However, this segment has experienced an incredible boom over the past five years, with the emergence of many brands, such as NYX Professional Makeup, Urban Decay, which we have acquired, and others. This created a kind of consumption bubble. Hence this drop. However, make-up is a very important part of the activity in the United States. L'Oréal has a 40% market share in this sector in mass distribution across the Atlantic, with Maybelline, L'Oréal Paris and NYX Professional Makeup. This is the highest rate in the world. When this market is counter-cyclical, we are penalized. But I am confident. It will go away.

You announced the plan to buy Clarins perfumes a month ago? What are your ambitions ?

We want to strengthen the luxury division in perfumes, with the addition of two great brands, Mugler and Azzaro. Size and synergy effects are very important for success in this sector. We are very confident in the medium and long term. Because the Asian populations, in particular the Chinese, are open to perfume. Their purchases have increased by 30%, so it is an area of ​​the future. It is also a positive operation for the group. The corollary effect of this acquisition is that we will quickly once again become the world number one in perfume.

There is growing consumer mistrust of cosmetics, with a proliferation of applications to check their composition. Does this worry you?

I am in favor of good consumer information. It is legitimate to help them make an informed choice. Still, things have to be done right. The problem is that all these applications tend to contradict each other. Which creates confusion. One judges an excellent product, and the other very bad. There is serious progress to be made in terms of methods. We are ready to work with them, to open the list of our ingredients to them. Don't forget that L'Oréal has 4,000 researchers and invests nearly $1 billion a year in R&D. We can play a role in a serious evaluation by offering objective expertise. We have also created a website dedicated to providing full transparency on the composition of our products.

How is L'Oréal preparing for "plastic bashing"?

Phasing out plastic is good for humanity. Even though L'Oréal is a small contributor worldwide, we are determined to reduce its use. The group has made commitments with the Ellen MacArthur Foundation. The goal is for all our packaging to be reusable, recyclable, refillable or compostable by 2025. We are working with various partners, including Carbios, to find replacement technological solutions. It is a fight to be undertaken that is close to our hearts.