L'oreal's CEO Discusses Q4 2011 Results - Earnings Call Transcript
L’oreal Co Adr (
)
Q4 2011 Earnings Call
February 15, 2012 3:00 AM ET
Executives
Jean-Paul Agon – Chairman and CEO
Jean-Régis Carof – Shareholders Relations Contact
Sylvie Barbosa – Director, Financial and Strategic Foresight
Christian Mulliez – EVP, Administration & Finance
Jean-Jacques Lebel – President, Worldwide Consumer Products Division
Nicolas Hieronimus – Managing Director, Luxury Products Division
An Verhulst-Santos – General Manager, Professional Products Division
Brigitte Liberman – President, Worldwide Active Cosmetics Division
Marc Menesguen – Managing Director, Strategic Marketing Department
Jochen Zaumseil – Managing Director, Asia Pacific Zone
Analysts
Celine Pannuti – JP Morgan
Simon Marshall-Lockyer – Jefferies
Emmanuel Bruley des Varannes – Societe Generale
Pierre – Natixis
Jean-Philippe Muge – SwissLife Gestion
Christian Muge – Journalist
Juliet Ghanni – La Tribune
Presentation
Jean-Paul Agon
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Good morning, everybody. Welcome to this presentation – this Annual Presentation of our 2011 performance. I’d like to introduce to you the people sitting with me at the rostrum all the way to the right.
The new kid on the block, An Verhulst, she’s the new head of Professional Products. She took office on January 1, 2011, taking over from Nicolas Hieronimus. Welcome An to this very first presentation. Christian, everybody knows him. Everybody knows Jean-Jacques Lebel, who is the Head of the Consumer Products Division. Nicolas Hieronimus is now in charge of Luxury Products. And also Brigitte Liberman, whom you know very well, she’s in charge of Active Cosmetics.
As usual, we will hear a presentation by Christian Mulliez and presentations from the four division heads. The presentations will be shorter than usual. We wanted to make time for two additional presentations, which in my opinion would be of most interest to you. We’ll have a presentation about the digital revolution, which is currently underway at L’Oréal. Marc Menesguen is in charge of Strategic Marketing for the Group and he will explain to you the advances made by the Group at a digital level and the reason which the digital revolution is impacting our entire marketing model as well as communication with consumers and obviously, honor – to whom honor is due. We will also hear from Jochen Zaumseil who’s in charge of the Asia-Pacific region. The Asia-Pacific region is a pillar of our strategy for the Group’s future and also for the future of the entire market.
Jean-Régis, a few housekeeping announcements as usual.
Jean-Régis Carof
Good morning, ladies and gentlemen. Before we get started with the presentation, a quick reminder regarding the information and comments that you will hear today. Please read the disclaimer on the last page of the documents which you have received.
A few housekeeping announcements now with regard to today’s meeting. Item one, translation headsets are available at the entrance to this room. Please turn on the desired channel depending on which channel – depending on which language you wish to hear. You should be able to see the different channels available on the central screen.
The access hall to this room is equipped with WiFi in case you’d like to get an online connection. But as long as you are in this auditorium as well as in the adjacent room, please turn off or mute your cell phones now. WiFi access, please use the ID and password which you can now see on the screen.
At the entrance to this room, you’ll receive the copy of the charts that Mr. Mulliez will discuss. The information pertaining to Mr. Agon’s presentation will be made available at the break. Many of you – there are many of you in attendance and so there’s a second room where the rest of the audience is sitting. Sylvie Barbosa, please confirm that they can hear us okay. Sylvie, is everything in place?
Sylvie Barbosa
Yes, absolutely. Good morning, everybody. We can hear you loud and clear.
Jean-Régis Carof
Excellent. Thank you, Sylvie. You must have found cards on your seats. Those cards were designed for you to ask questions. Please do it in writing as a first step, don’t hesitate, and hand them over to the hostesses when you’re ready. And of course, after the break, you’ll have an opportunity to ask questions directly. However, please state your name and company name before you ask questions.
The entire meeting is being webcast on a special website that is dedicated to you, loreal-finance.com. And the entire meeting broadcast will be available as early as this afternoon. You will also be able to download the presentations by Mr. Milliez and Mr. Agon.
As usual, cocktails will be served at the end of the meeting. However, because we are doing renovation work at the headquarters, I’m sure you saw that this morning, the cocktails will be served in what we call the (inaudible) right outside this room. Enjoy today’s meeting. Thank you for your attention.
The place right outside this room where everybody had coffee this morning. We are renovating the headquarters so there’s a little bit of work going on.
Without further ado, let’s get started with Christian Mulliez’s presentation about L’Oréal’s performance in 2011.
Christian Mulliez
Good morning, all. The presentation of L’Oréal’s 2011 financial performance will include information pertaining to sales, income, cash flow, the balance sheet, and of course dividend. Consolidated sales came to EUR20,343 million, up 5.7% on a like-for-like ForEx basis. Like-for-like sales grew by 5.1%. The scope difference is slightly positive, up 0.6%. It is mostly due to the acquisition of a company called Q-Med, which was consolidated by Galderma on March 1, 2011; and also due to the acquisition of Essie, a nail polish brand on July 1, 2010; as well as consolidation starting December 15, 2011 of an American company, Clarisonic.
Taking into account the ForEx difference – the negative ForEx difference of 1.4%, the increase on reported basis comes to 4.3%. Regarding the ForEx difference, of course, it is premature to foretell what things will be like in 2012 so we do not wish to quantify this figure at this particular juncture. But I can already tell you that considering the current rates, the impact in 2012 is expected to be a positive one.
Regarding currencies, the main negative contribution to ForEx in 2011 were the US dollar, the Sterling pound, and the Russian rouble. However, the Brazilian real as well as the Japanese yen have risen against the euro. Please note, this is important, in 2011 the euro accounted for 29.5% – only 29.5% of sales compared with 30.7% in 2010 and 38% in 2005.
Our business in the eurozone, you’re seeing its relative weight waning on a regular basis. Now sales per branch and per division on a like-for-like basis. Professional Products up 2.5%. Consumer Products up 4.5%. L’Oréal Luxury has further fast tracked its growth compared with 2010, up 8.2%; Active Cosmetics up 3.2%. The Body Shop is recovering, up 4.2%. And lastly Dermatology, Galderma is posting yet a new year of solid growth, up 8.4% and even 17.1% on a reported basis, i.e. absorbing the impact of consolidating Q-Med. All-in-all, for the very first time, the Group has cleared the EUR20 billion mark in sales.
Every region is growing. Western Europe is up 0.6%, not forgetting North America which is up 5.5% and new markets which are up 9.5%. Please note the new markets are right on the heels – and I’m talking absolute terms here, right on the heels of Western Europe. The difference was only EUR30 million in 2011.
Now new markets. Asia-Pacific enjoyed strong growth up 13%, even more so if we exclude Japan, up 16.1%. The same is true for Latin America, which is up 13.2%. 2011 was not a good year for Eastern Europe, which enjoys negative growth, down 2.8%. Lastly, Africa and the Middle East enjoys growth of 10.5%.
Let’s zoom in on BRIMC countries, which are enjoying double-digit growth, 10.6%. Except for Russia, all of these countries are enjoying strong growth. China is up 18%, Brazil is up 10.1%, Mexico up 11.7%, and India is up 24.5%. Please note that China has EUR1.2 billion and therefore is asserting its status as the Group’s third largest subsidiary after the US and France with Germany in fourth position. In total, the new markets accounted for more than 38% of the cosmetic sales in 2011. As you can see on the chart, this means double the 2000 level, which was 19%. This buoyant trend means that the new markets as they reach 2012 are expected to become the leading region within the L’Oréal Group.
Let’s take a look at our P&L. Gross profit comes to 71.2% of sales, which is up 40 basis points compared with 2010. This is in line with what we indicated as early as mid-2011. Research costs have increased by 8.4% accounting for 3.5% of sales compared with 3.4% the previous year. This further growth, both in absolute and relative terms, reflects the Group’s strategic decision to make significant investments into research. A&P costs come to 30.9% of sales. Again, this is in line with what we indicated throughout 2011.
I would like to take this opportunity to remind you that A&P costs don’t just include media costs. Depending on the division, depending on the commercial channel, they cover different realities. Professional Products; costs include technical training for stylists, salon merchandising. For Consumer Products; we’re talking media expenses, merchandising costs, point-of-sale drives. L’Oréal Luxury; we’re talking media expenses, beauty adviser related costs, merchandising and samples. And lastly for Active Cosmetics; costs include visits to doctors by sales reps, media expenses, merchandising and pharmacies, et cetera.
Sales and admin costs, again this year, these costs grew – did not grow as fast as sales. They stand at 20.6%, which is a 20 basis point increase compared with 2010. All-in-all, operating income comes to EUR3,293 million, that is up 7.7%. Profitability is also – has also improved significantly compared with 2010, up 50 basis points.
As announced at the end of August, quarterly profitability was better balanced in 2011 than in the year before. In H1 2011, operating profitability was down by 50 basis points. But in H2, it improved by 150 basis points compared with H2 2010. Again, this shows that at L’Oréal, divisions and zones are managed on a yearly basis. As a result, the performance of one half year can never be extrapolated. This year again, every division, and that was also the case in 2010, each division has grown its operating profitability.
Professional Products is up 30 basis points. There’s work being done next door, no wonder. The show must go on. Now for those of you listening to us online, there’s work going on which explains the funny noises.
Consumer Products are up 40 basis points. L’Oréal Luxury is up 180 basis points. And Active Cosmetics is up 10 basis points. The Body Shop continues to further improve its profitability by 20 basis points. Lastly Dermatology, as announced during the H1 performance presentation, Galderma was impacted by competition from two generic products, Differin 0.1% and Loceryl.
Operating income per geographic area. Profitability for Western Europe is slightly down to 20.9%, which is the 2009 level. However, profitability for North America and new markets have again surged forward coming to 18.4% of their respective sales figures.
In addition to the chart on the weight of new markets in cosmetic sales, which we presented a couple of minutes ago, here you can see the weight of new markets in the Group’s operating income before non-allocated costs. With 36.4% of the total, the weight of the new markets is very close to their contribution to sales, which comes to 38%. L’Oréal’s growth in the new markets is therefore extremely profitable.
Part two. Our financial costs were down significantly this year coming to EUR25 million. This further decline is a result of a strong reduction in our average debt. For 2012, all other things being equal, we should expect very limited financial costs probably in the order of EUR15 million. Sanofi dividends came to EUR295 million. You probably remember that last week, Sanofi announced for 2012 that dividends would grow by 6%.
Taxes came to EUR977 million, i.e. a rate of 27.4%, which is slightly under the tax rate for 2010. As far as 2012 is concerned, at this juncture even though it’s a bit early to tell, the tax rate is expected to come to 28%. Net income, excluding non-recurring items, comes to EUR2,582 million, up 8.9%. Net earnings per share come to EUR4.32, up 7.8%.
For those of you who wish to run a simulation for 2012, it might be relevant to remember that the number of shares is slightly higher than 600 million, about 602 million to be a little specific. This is a conversation that we have every year.
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