2007 Annual Report Annual 2007
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2007 ANNUAL REPORT ANNUAL 2007 Incorporated in France as a “Société Anonyme” with registered capital of e122,157,722 632 012 100 R.C.S. Paris Headquarters: 41, rue Martre 92117 Clichy - France Tel.: +33 1 47 56 70 00 Fax: +33 1 47 56 86 42 Registered Office: 14, rue Royale 75008 Paris - France www.loreal.com www.loreal-finance.com 2007 ANNUAL REPORT 220_305 • L’oréaL 2008 • 62032 CONTENTS Chairman’s message 02 Chief Executive officer’s message 04 Board of Directors 07 Executive Committee 08 COMMITMENT 10 Corporate governance 12 Social and environmental responsibility 14 Shareholder information 18 L’ORÉAL FINANCIAL HIGHLIGHTS 19 MARKET TRENDS 27 BRANDS 32 INTERNATIONAL 36 Western Europe 38 Eastern Europe 40 North america 42 Latin america 44 asia 46 africa, orient, Pacific 48 RESOURCES 50 research and Development 52 operations 56 Human resources 58 administration and Finance 62 BUSINESSES 64 Professional Products 66 Consumer Products 72 Luxury Products 80 active Cosmetics 88 The Body Shop 94 Dermatology 97 Contacts 98 220_305 • L’oréaL 2008 • 62032 world’s NUMBER 1 COSMETICS GROUP 25 INTERNATIONAL BRANDS 130 COUNTRIES 63,000 EMPLOYEES Du Juan is the ambassador of YUE -SAI , the brand that stands for Chinese modern beauty, acquired by L’oréal in 2004. 17 BILLION EUROS OF SALES IN 2007 This is a free translation into English of the L’oréal 2007 annual report issued in the French language and is provided solely for the convenience of English speaking readers. In case of discrepancy the French version prevails. 220_305 • L’oréaL 2008 • 62032 A WORLD of BEAUTY The L’Oréal adventure has been founded from the outset on a fundamental conviction: cosmetics are an expression of a universal dream of well-being and inner harmony. They help everyone to fully express their personality, to be self- assured and open in their relations with others, and to fulfil their potential. They can give vulnerable people the desire and the strength to rebuild their lives or resume their place in society. Beauty is useful and indeed essential. The globalisation of cosmetics consumption is only just beginning. For L’Oréal, this is an opportunity. And a responsibility. As the world leader in beauty, L’Oréal has a duty to satisfy all the desires and all the needs of consumers across the world, by driving the scientific innovation which forges the excellence of its products, and by cultivating the diversity of its brand portfolio and its distribution channels to make beauty accessible to everyone. L’Oréal’s goal is to be one of the exemplary global companies of the 21st century. The group focuses its efforts on fostering the personal and professional fulfilment of its employees, on safeguarding the integrity and quality of the environment, on developing activities for the benefit of the community, and on strengthening its corporate citizenship in the 130 countries in which it operates. Making a contribution to a more beautiful world is L’Oréal’s promise. 220_305 • L’oréaL 2008 • 62032 02 CONTINUITY IN STRATEGY AND VALUES, GROWTH ACCELERATES one year ago, I told you that the transition at the head of the VIGILANT AND DYNAMIC GOVERNANCE group had taken place smoothly, without L’oréal missing a The separation of the roles of Chairman and Chief Executive single heartbeat. 2007 marks an acceleration in the wake of officer, with a clear definition of the responsibilities of each, this transition. Growth has accelerated and the group has leads both to great continuity in strategic vision and a power- achieved, for the twenty-third consecutive year, double-digit ful impetus for our businesses. growth in its results, even though the monetary context has been difficult. The strategy is regularly reviewed by the Board of Directors. The diversity and complementarity of the directors’ experience ACCELERATING GROWTH mean that the debates are extremely rich and enable the Board a new energy, instilled by Jean-Paul agon at the head of a to fully play its role of strategic guidance. young and enthusiastic management team, is making the whole company more dynamic by injecting new blood into an all the acquisitions, of which there have been many, were already highly efficient business model. thoroughly discussed at Board level, as was the recent bid to acquire Yves Saint Laurent Beauté, which represents a new and In 2007, L’oréal significantly strengthened its positions in all attractive development opportunity. They follow a clear stra- its markets. It was a year of energetic growth, right at the top tegic line, strengthen our portfolio of brands in our business, of the medium- to long-term targets. The results increased and anticipate tomorrow’s trends. strongly and were of high quality, and the balance sheet is By selling in 2007 part of its stake in Sanofi-aventis, L’oréal is extremely healthy. on behalf of the Board of Directors, I would optimising its resources for the financing of strategic projects. like to congratulate and thank all L’oréal’s employees. Thanks to their energy and commitment, 2007 was an excellent year Furthermore, the Board is constantly reviewing its modus for the group. operandi. accordingly, it decided to adapt its organisation: the “Management and remuneration” Committee has been This level of performance enables us to propose to the annual split into two separate Committees, one to select future Board General Meeting a further substantial increase in the dividend Members and corporate officers for appointment by the of +16.9%. The payout ratio has grown once again, and now Board, and the other to propose levels of remuneration for stands at more than 41%. This dividend policy is backed up by senior managers. The creation of these two committees successive share buyback programmes, which have a positive strengthens an already vigilant and balanced organisation impact on net earnings per share. designed to ensure the harmonious development of the group for the years to come. In the space of five years the dividend has more than doubled, reflecting L’oréal’s determination to support its shareholders, many of whom have remained loyal to the group over a great number of years. Through the confidence they show in us, they make a major contribution to the success of a business model which has consistently proven its effectiveness. Its success has indeed led to the group receiving the award for the Best Eco- nomic Performance over the last 40 years from the magazine L’Expansion. We also see this recognition for our present and past achievements as a powerful encouragement to continue applying our strategy. 220_305 • L’oréaL 2008 • 62032 chairman’s MESSAGE 03 “The group ensures the continuity not only of its business model, but also of the values it holds.” CONTINUITY OF VALUES The group ensures the continuity not only of its business model, but also of the values it holds. We want to look far beyond economic performance and make sure that the group is increasingly rooted in the heart of countries and of society. respect for the environment, high ethical standards, diversity in our teams and everyday commitment to the communities in which we operate are the cornerstones of L’oréal’s respon- sible development. By creating its Corporate Foundation this year, L’oréal is set- ting out to extend and perpetuate activities in fields where we can make a genuine contribution: education, science and solidarity. The L’oréal Foundation will guarantee the develop- ment of the group’s major philanthropic initiatives, such as the “For Women in Science” awards, and the “Hairdressers against aIDS” awareness raising programme, both conducted in part- nership with Unesco. It will develop new initiatives, particularly to help vulnerable people. Philanthropic initiatives which pro- vide support, convey a message and play a key role in building the future. The reputation of our group, the respect it inspires, and the attraction it exerts throughout the world are a great source of pride, and motivation, for L’oréal’s teams. Driven by this impetus and our tried and tested business model, we are looking forward to 2008 with confidence. Sir Lindsay Owen-Jones Chairman of L’oréal 220_305 • L’oréaL 2008 • 62032 04 THE STRENGTH OF OUR BUSINESS MODEL TO SEIZE ALL THE OPPORTUNITIES OF A NEW COSMETICS WORLD In 2007, L’oréal’s business model—based on innovation, quality ACCELERATED GROWTH and globalisation—once again demonstrated its outstanding In 2007, our group once again demonstrated its ability to grow ability to create value. The acceleration of growth and the strong significantly faster than the market. Like-for like growth, at +8%, improvement in profitability once more proved its efficiency and accelerated strongly compared with the previous two years, and its remarkable modernity. was right at the top of our target range of +6% to +8%. PROFOUND TRANSFORMATION OF Growth was strong and homogeneous across all Divisions, as THE COSMETICS MARKET they each won market share in their respective distribution The growth of the world cosmetics market was confirmed in channels. 2007 at +5%, once more above the average of the last 15 years. The three zones saw their growth accelerate compared with the previous year. In Western Europe, over the last two years This year our market reached a historic milestone: the newer we have returned to solid growth, supported by expanding countries (in areas such as asia, Latin america and Eastern markets and market share gains by our Divisions. In North Europe), which we term the rest of the World zone, became america, we achieved a strong growth rate, twice as fast as for the first time the largest market, on a par with Western the market. Finally, growth in the rest of World accelerated Europe, which they should easily overtake in 2008.