Combating the ageing process

20 February 2004

Strip out Sanofi s contribution, hedging gains and the reintegration of provisions, and the picture looks a lot less rosy. With L Oreal s core business trading at 30 times this year s earnings, the premium to rivals looks too steep.

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L'Oreal said that its net operational profit – the basis of its earnings per share calculation grew by 13.5% in 2003, the 19th year of doubledigit growth. The French cosmetics group said that its net operational profit amounted to E1.7bn, up from E1.5bn the year before.

That figure includes L'Oreal's share of Sanofi's net operational profit. L'Oreal's 20% share in the company last year allowed it to book E420m, up 21% compared to 2002. Should Sanofi merge with rival pharma group Aventis, L'Oreal would be diluted and would no longer be able to consolidate its share of the group's earnings as an equity affiliate. It would however account for dividends from the company as income.

L'Oreal's organic sales were up 7.1% in 2003, although including negative currency impacts they actually fell by 1.8%. The group's reported operating profits grew by 2.3% thanks to cost cuts in personnel and external charges – some twothirds of which are marketing expenditure. Its adjusted operating profits grew by 6.7% as L'Oreal benefited from a E144m hedging gain, up from the E62m it made in 2002.

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