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L'Oréal's Jean-Paul Agon Outlines Beauty Business Overview

L'Oréal's Jean-Paul Agon Outlines Beauty Business Overview
From WWD - February 9, 2018

PARIS There was nothing dull last year about the complexion of the beauty industry, which maintained growth despite contrasting trends in geographic markets and product categories.That was among the main takeaways from the financial analysts meeting hosted by Jean-Paul Agon, LOral chairman and chief executive officer, on Friday at the companys headquarters in the Paris suburb of Clichy. It was held the morning after the maker of Lancme lipsticks and Vichy skin care published its results for 2017.As reported, the worlds largest beauty company posted sales of 6.51 billion euros in the last three months of 2017, up 4.1 percent on a reported basis and 5.5 percent in like-for-like terms versus fourth-quarter 2016. For the full year, revenues came to 26.02 billion euros, gaining 0.7 percent on a reported basis and 4.8 percent in comparable terms.At the opening of his wide-ranging presentation, Agon commemorated Liliane Bettencourt, LOrals founders sole child, who died Sept. 21 at age 94. He called her an exceptional woman, who supported LOral throughout her life.Agon said the company today is what it is thanks to her total commitment, which has ensured our independence, our continuity and our ability to strategize for the long term. We are extremely fortunate to be able to rely on the total loyalty and dedication of her daughter Franoise Bettencourt Meyers and her whole family. They have been taking the torch with the same passion for LOral.With the exception of this very sad event, 2017 was a good year for the beauty market and for LOral, continued Agon. Once again, the beauty market grew at a healthy pace.He noted that with the blurring of channels and rise of e-commerce, its become more complex to assess the beauty business development. However, we believe that the beauty market grew between plus 4 and plus 5 percent, accelerating compared to 2016, he said. But the making of it turned out to be somewhat different from our expectations and pretty contrasted.Category-wise, 2017 proved to be another strong year for makeupespecially luxury color cosmetics, according to Agon. And skin care came back strongly, too, he said. As we had anticipated, this category accelerated throughout the year to become the number-one contributor to the beauty markets growth.By sector, luxury soared, led by China and travel retail, and was the leading sector contributing to the beauty markets growth last year, he said, of the category that registered estimated gains of 8.5 percent to 9.5 percent.LOral estimated that mass-market beauty grew a bit less than in the prior year, at 3 percent to 4 percent, notably in the U.S., Brazil, Japan and Russia. It picked up in China, but the environment remained difficult in the Gulf countries and in France.Dermocosmetics continued to develop at a good pace, and professional products growth was still subdued, said Agon.The beauty markets e-commerce business again accelerated, posting an estimated sales gain of 24 percent.By region, North America experienced a tough start to the year and ended overall with softer growth than in 2016, the executive explained. Western Europe, excluding France, continued to improve steadily, particularly in southern Europe. And new markets accelerated, accounting for more than two-thirds of the beauty markets global growth last year.Agon called 2017 exceptional for Asia, powered by the consumption by Chinese people inside and outside China, while the beauty markets situation in South America was mixedit remained difficult in Brazil, while in other countries boasted good performances.Eastern Europe slowed, driven by Russia, he said.During the question-and-answer session, Agon fielded queries regarding Nestls stake in LOral, sparked by an interview published the prior day by The Financial Times.As reported, March 21 marks the expiration date of the longstanding shareholder agreement between the Swiss conglomerate and the Bettencourt familyLOrals two largest individual shareholders, with stakes of 23.3 percent and 33.05 percent, respectively.The principal terms of the pact outline that neither party could increase its stake in LOral during the lifetime of Bettencourt or the six months after her death.Financial analysts have in the past outlined a few main scenarios that could unfurl, including the companies maintaining their status quo; LOral buying back Nestls stake, which is valued at more than 25 billion eurospartially financed by the sale of its 9.4 percent stake in Sanofi,or Nestl either upping its share in the beauty giant or acquiring the company outright. The first and second hypotheses have been considered the most likely.In the meeting Thursday, a banker suggested that maybe a three-way swap between LOral, Nestl and Sanofi could be a possibility.Agon said whatever happens is in Nestls hands. It starts from Vevey, he said, referring to where the Swiss giant is headquartered. If Nestl one day wants to sell, we are ready.LOral, along with the Sanofi stake, has 1.8 billion euros in net cash that could be put toward the acquisition.Meanwhile, Nestl has felt increasing pressure regarding LOral since last summer, when activist investor Dan Loeb argued that the group should divest its holding, calling it nonstrategic. Then in a quarterly letter to shareholders dated Jan. 22, his hedge fund Third Point, which owns a 1.25 percent share of Nestl, reiterated that the Swiss companys stake in LOral is not aligned with the companys core business.Agon said that LOral will respect whatever choice Nestl makes, and described the company as a great shareholder for 44 years. Its also thanks to themtheir loyalty and supportthat LOral has become what it is today, he continued.The executive said, as well, that LOral is a very serious, loyal and active shareholder in Sanofi.Agon was asked whether the buildup of cash in LOrals coffers could cause it to be more active on the acquisition front.We are as active as we can be on acquisitions, he said. The only limitation to acquisition is that you need things to buy. LOral has a long history of acquisitions; 29 out of the 30 brands at [the company] have been acquired. We are always very picky and choosy in the acquisitions that we make.They have to match exactly what we want to do, what we need and what would be useful for us.LOrals last purchase was of CeraVe, announced last January and finalized in March 2017. Although almost a year has elapsed, Agon is not at all anxious that no other buys have been made since.History shows that in this business of beauty there is a permanent regeneration of markets, segments, brands, etc. And there are always opportunities, he said. Im not afraid of what to do with this cash, and we increase our dividend, which is a good thing, too.Its indeed very rare for LOral to create brands from scratch, but two have just been developed internally. Theres Seed Phytonutrients, composed of natural-origin hair, face and body care packaged in recycled paper bottles, that is due out in April. And House 99, the mens grooming brand created with David Beckham, which just launched exclusively in the U.K. at Harvey Nichols on Feb. 1.I think in this new world, where consumers are very eager to discover new things, where social networks allow you to reach your consumers in maybe a more direct way, its probably a bit easier to launch new brands, said Nicolas Hieronimus, LOral deputy ceo.In todays world its both part of what consumers want, but also what employees want, he added. They want to have this entrepreneurial spirit within LOral, and thats why we give them the frame to be able to bring out their own ideas and make them grow. So yesprobably not every yearbut we will continue to give chances to new brands and acquire other more established success stories.Focusing on the beauty business for 2018, Agon said: We believe that the market is pretty healthy right now. We have seen the way it accelerated through 2017 and finished probably more strongly than it started. The commitment that we have every year is to outperform this market.

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