Cosmetics

. Corporate Overview

1.1 Corporate History

In 1996, L'Oreal became the second largest cosmetics maker in the US, following the acquisition of Maybelline

1.2 Key Facts

Sales (FY05) - US$18.1 billion, Assets (FY05) - US$ 29.8 billion

1.3 Subsidiaries/Affiliates

One of major subsidiaries - L'Oreal UK Ltd (Revenue Ð'- US$0.92 billion, Employees - 2,450)

1.4 Organizational Chart

Chairman & Chief Executive - Lindsay Owen-Jones

1.5 Profiles of Key People

Lindsay Owen-Jones joined L'Oreal Group in 1969

1.6 Recent Developments

Body Shop, the British natural-based cosmetics retailer was taken over by L'Oreal in a US$ 1.14 billion deal

2. Business Description

2.1 Business Segments

Consumer Products Division

Luxury Products Division

Professional Products Division

Active Cosmetics Division

2.1.1 Products/Services

Major brands - Giorgio Armani, Ralph Lauren, Garnier, Maybelline

2.2 Geographical Segmentation

Western Europe accounts for 47% of the total sales

2.3 Key Partnerships/Alliances

Ð'* Partnered with Italy based company, Diesel for the launch of a new fragrance line

Ð'* Collaborated with Weinstein Company and Dimension Films to promote the latter's promotion of films over the next two years

3. SWOT Analysis

3.1 Strengths

Strong and Focused Brand Portfolio

Presence in Emerging Markets

Strong R&D Capability

3.2 Weaknesses

Dependence on Western European Markets

Late Entry into Japan

3.3 Opportunities

M&A Opportunities

Growth in Adjacent Categories

3.4 Threats

Competition from Private Labels

Price Competition among Branded Manufacturers

Ban on Direct Selling in China

4. Key Business Strategies

Building and Maintaining Strong Brand Portfolio

Global Marketing

Inorganic Growth

5. Financial Performance

5.1 Financial Highlights

In 2005, the company's revenues increased by nearly 6.5% to US$18.1 billion, reflecting like-for-like growth of 4.8%

5.2 Five-Year Financial Summary

Total assets of the company have increased from US$11.9 billion in 2000 to US$25.4 billion in 2004

5.3 Ratio Analysis

Profitability Ratios - Net profit margin increased to 13.6% in 2005, from 10.9% in 2004, mainly due to the restatement of deferred tax assets

Performance Ratios - In FY05, L'Oreal reported 8.4%ROA and 13.7% ROE, improving by 1.3 points and 1.5 points, respectively over FY04.

5.4 Market Indicators

5.4.1 Stock Chart

L'Oreal's share prices increased by over 13% in the period Feb 2005 to Feb 2006, after losing almost two-fifths of their value in the prior four years.

5.4.2 Earnings Estimates

Revenue Estimates - Revenues are expected to increase to US$18.7 billion by 2006 and to US$22.4 billion by 2009

Net Income Estimates - Net income is also expected to increase, with margins expected to move upwards, due to improved efficiency and higher sales

EPS Estimates Ð'- Estimated increase in EPS at a CAGR of over 13% the next three years

6. Competitive Landscape

6.1 Industry Overview

Global cosmetics industry is being driven by increasing demand of natural cosmetics, direct sales model, power brands and shifting focus towards the young consumers.

6.1.1 Industry Definition and Segmentation

6.1.2 Key Drivers

Growing Demand for Anti-Aging Products

Chinese Market Poised for Critical Push

6.1.3 Major Trends

Demand for Natural Cosmetics

Growth of Direct Sales Channel

Shift in Focus to Youth

Changing Consumer Lifestyles

Increasing Role of Media

6.1.4 Issues and Implications

Vulnerability of Human Skin

FDA Warning in Untested Products

Pending EU Regulations

6.1.5 Outlook

Innovations in Cosmetics Segment

Demand for Cosmeceuticals

6.2 Competition

Avon

Estee Lauder

Revlon