North America it can also be a carrier market

Jean-Paul Agon, just replace Lindsay Owen-Jones Branch of l ' Oréal, takes office with a challenge: find a strong growth. Indeed, these past four years, the progress of the sales of the number one world of cosmetics, in structure and constant exchange rates, followed a worrying slope: 8.9 in 2002, 7.1 in 2003, 6.2 in 2004 and, especially, only 4.8 in 2005. He is not innocent, in his first public speech in February, the new Director-General had indicated that "internal growth, is the vital energy of our company, this is the number one priority" and that his ambition was to return to an objective of growth between 6 to 8 a year in structure and comparable exchange rates.

The group is also almost succeeded in the last quarter of last year ( 5.7), before returning in nails during the first three months of this year ( 6). Result: the course of stock exchange, down about 50 euros end of 2004, is reproduced and is now around 70 euros. However, he found not the summits of more than 90 euros affected in 2000. Above all, there is no indication that this growth in sales will be sufficient to turn the mechanics of progression to double-digit net profit, excluding items not recurring, which the company had used the market over the past twenty-one years.

With these signs of slowing down, the ex-PDG Lindsay Owen-Jones, now President of the Board of Directors, has itself abandoned the creed of pure internal growth. He gave the signal to a policy of acquisitions further by purchasing Body Shop (read below).

The sacrosanct increase in two-digit profit excluding non-recurring items could therefore find themselves exceptionally set aside some years, leaving more latitude to the policy of expansion.

Increased competition

The Group has yet little busy over the past years. While preparing his succession, Lindsay Owen-Jones has notably completed the reform of the financial structures of society. End of 2003, the shareholders Pact between l ' Oréal in Total in the capital of Sanofi-Synthelabo was unlocked, paving the way for a greater flexibility in this key, the laboratory significantly raised participation by taking control of Aventis. In early 2004, Lindsay Owen-Jones has also launched the modification of the control structure of l ' Oréal, now held by Bettencourt and Nestlé (read box) family.

But the Group seems required to still evolve both its environment has been transformed in recent years. The Moody's rating agency, which is certainly the position of leadership of the group "with an international portfolio of marks unparalleled", don't forget to add that it must face "increased competition" in the world of cosmetics and pressure on margins related to the current concentration of the distribution. Indeed, l ' Oréal must now face of mastodons in the world of consumer goods.

By sales, the Procter & Gamble American weighs about 53 billion euros and anglo-néerlandais Unilever 40 billion while French sales exceed hardly 15 billion.

L ' Oréal must also cope with the rising power of brands in the large distribution (DSD), although it is difficult to copy its products in terms of quality and width of the range. In France, where the group performs approximately 14 of its turnover, the market share in hygiene-beauty brands are also passed to 5 to 5.4 between 2003 and 2005. Finally, the hexagonal champion suffers success growing hard-discount signs, which divert a growing customer base of supermarkets and hypermarkets.

Already high productivity

Or l ' Oréal conducts much of its sales through these two channels of distribution. Goldman Sachs believes that consumers have clearly polarized their purchases in recent years, the segments winner of the land being cheap products and, at the other extreme, those who sell at high prices. "We believe that the bulk of the portfolio of l ' Oréal is positioned on the average range, hence the perception of a deterioration in fundamentals", explained the business bank end of April.

For nothing arrange, conditions in the West, its main market with still about half of its sales, is not good. Even if it is restated in the first quarter of 2006 ( 4.2), the Group achieved last year growth almost zero in this area. Moreover, according to Credit Switzerland, l ' Oréal already has the highest industrial productivity Clarins and Beiersdorf, its direct European competitors. There is therefore only little room for manoeuvre in reducing costs.

Worldwide, l ' Oréal could suffer from the price increases of the cost of some of its raw materials, plastic PET and paper, because such as soaring oil prices, as noted recently Lehman Brothers. Not to mention the ever present risk of terrorist attacks reduced tourism and sales of luxury goods, which constitute one-fourth of the turnover of the French group.

These multiple challenges the global cosmetics leader highlights again the "business model" has made its successful: internal growth, innovation, and relay of a new customer (men, youth, seniors) in Western countries and rise in power of the emerging markets where growth is strong ( 12.6).

Stock wait

A quarter of sales of l ' Oréal is carried out outside Europe and Western North America a proportion that the French group plans to bring to the half in a few years. Only problem, the operating margin was lower (13.5) and in North America (18.3) and Western (21). It may need also a few years delay to be caught. North America, it can also be a carrier market. "The group is number one on the US market for cosmetics, Procter & Gamble and Estée Lauder." "It has strengthened this year its positions in care of the skin via lines proposed in April by Vichy and then by Garnier", says Françoise Etienne, CM - CIC securities.

Meanwhile, a strong catalyst seems however necessary to motivate more frankly analysts whose recommendations are shared between acquisition of the title and a position neutral or salesperson. They now expect sustainable confirmation of strong growth was found.