» Roche Holding's CEO Discusses Q3 2011 Results - Earnings Call Transcript
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Differentiation is also very strong between geographic zones. The growth rate was weak, but it was nevertheless positive in Western Europe, which accounts for 25% of the worldwide market at plus 0.9% reflecting contrasting situations encouraging growth in some northern countries – Great Britain and northern countries and in the United Kingdom and as well as clear difficulties in some southern countries such as Portugal and Greece. Encouraging acceleration in North America 20% of the worldwide market at 3.9%. The latest news we got on North America for the July panel was very encouraging at 3.9%. Thanks to the rebound of the luxury segment and a positive trend in mass market.The Japanese market is negative at 3.8%, which was only to be expected into the series events, which have affected the country. And finally in the new markets, which now represent 43% of the worldwide market, we see very strong dynamism at plus 8.8% with very strong growth in particular in Asia-Pacific and also Latin America around 10.5% or 11%, a more moderate growth at plus 6.5% in the Africa-Middle East zone and a weaker growth around 3.9% in Eastern Europe. Overall, therefore, one can say for the first half and as we had expected the cosmetics market remained favorable and three quarters of its growth comes from the new markets. In this context of a positive but contrasting market, L’Oreal has continued to strengthen its positions with like-for-like growth at 5.2%. The growth is outperforming the market more or less at the same rate as in 2010. Consumer Products have gained market share particularly in the United States, where our brands have grown twice as fast as the market, but also in Asia and Latin America, where the division is conquering strategic positions for the future. The Luxury Products division has also strengthened its worldwide positions, particularly in Asia, where it is growing very quickly and strongly. This division is undergoing a real makeover. Its brand portfolio enables it to occupy all the luxury segments and to make 95% of its sales with its 10 main brands. So, it’s very focused, very concentrated. The division is thus ideally equipped to take full advantage of the strong worldwide demand for Luxury Products.
The Professional Products division, despite a difficult market, has steadfastly maintained its efforts and it too has strengthened its global market penetration. It has conquered more than 34,000 hair salons since the start of the year and made market share gains in almost all the regions of the world. The division is continuing to apply its technical focus strategy making it the privileged partner of hairdressers all over the world and it will benefit from the development of salons in new countries. Active Cosmetics has advanced worldwide in line with its market, thanks to the dynamism of La Roche-Posay and the gradual rise in activity of new brands, Roger & Gallet, which is in Europe and SkinCeuticals, which are becoming more international.The Body Shop has regained its growth momentum at plus 4.4% in the second quarter. Thanks to new product launches and its growth in new markets and also in new channels such as travel, retail, and e-commerce. Lastly, as Christian indicated Galderma saw its first half growth was slowed to 5.3% reflecting the impact in the United States and Western Europe of the arrival of generics for two of its products, Differin and Loceryl, but we are very confident about the future particularly because the Q-Med acquisition is enabling Galderma to complement its range of esthetic and corrective procedure products and thus to have a very comprehensive portfolio in this field. In geographic terms to sum up, weak but positive growth at plus 0.8% in line with the market in Western Europe thanks to the good performance of our two most important countries, France and Germany, but we saw difficulties in other countries, in particular, the Southern countries. A fine performance in North America of 5.8% mainly reflecting market share gains in the Consumer Products Division and Luxury Division.
Strong growth in Asia, excluding Japan at 16.1% with good growth figures in all the key countries, where the Group is gaining market share in a region, which will be the priority strategic region for the future with nice growth in all the key countries, China, India, South Korea, Taiwan, Indonesia, Thailand, and the Philippines in all the Asian countries. Growth was strong also in Latin America at plus 17.3% in Brazil, Mexico, Chile and Argentina. Good growth in Africa, Middle East at plus 10.1%. Conversely, the performance in Eastern Europe is disappointing.After many years of strong growth in large market share gain, including in Russia, in all the Eastern European countries, including Russia, the positive growth is the result of a combination of factors, greater competitive pressure, the marketing mix, which is not always optimum and which we need to work on and the unfavorable phasing of launches. That is the reason why we are confident in our ability to pull all these points right and to gradually return to growth in these countries concerned, where we have very good positions. Overall, in the first half the Group not only continued to outperform its market, but above all has reinforced its positions in the strategic markets of the future in Asia, Latin America and North America. As for the results and without wishing to repeat what Christian Mulliez said in his very clear presentation, I think it is fair to say that we have been indeed solid and of good quality. You saw the net profit excluding non-recurred items at €1.506 billion. It is at a historically high level and has advanced by 6.7%. As a result of a reduction in non-recurrent expenses, the net profit after minority interest has grown by 11.6%. This is all the result of the efforts and the progress we have made in a number of areas, in particular in a new area, which is the introduction of what we call wall-to-wall, which was introduced a year ago in our plants. It enables our suppliers of bottles to supply the bottles directly in our factories and this generates large gains on our packaging items. This is one example amongst others. This illustrates our optimization of our production costs.
So, the sum of operating profit plus R&D expenses plus promotion and advertising expenses what we would call the strategic contribution if you allow me to use this new concept is at exactly the same level as the record level posted in the first half last year. So, we wish to increase our R&D investments and boost our growth drivers and this is what explains the reduction in 50 basis points in operating profit. If we hadn't had that, it would have been identical to the record of last year. And we estimate that the annual total of promotion in advertising expenses will in percentage terms be at the same order of magnitude as for the full year 2010. These results illustrate the quality and some liquidity of L’Oreal’s business model and mean that we can confirm our Group’s profitability target for the full year 2011.Read the rest of this transcript for free on seekingalpha.com