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Despite the economic adversity, in the first half year L’Oreal’s has posted a big hike in profits.
Its income rose from €1.09bn last year to reach €1.32bn, an increase of 21 percent – a figure that was driven by a 10 percent rise in sales for the first six months of the year to €9.7bn.

First half operating profit was also positively impacted, driven by reductions for internal costs manufacturing expenses, which helped to increased production volumes by 21 percent to €1.67bn.

Cost cutting initiative and ad investment pay off
L’Oreal introduced a major cost cutting strategy last year in an effort to help stave off a slump in sales caused by the worldwide economic recession.

However, the one area the company chose not to reduce costs was advertising, with investment in this area rising by 0.45 percent to reach 30.5 per cent of total sales for the six month period.

According to Andrew Wood, financial analyst at Sanford Bernstein, this investment has helped to boost growing sales in developing markets and to stave off further declines in the more troubled European markets.

Profits beat expectations sending share prices soaring
The profit figures beat market expectations and share prices jumped by 10 percent on the Paris Bourse following the announcement – the biggest rise in nearly two years.
In a rare statement made to French financial newspaper Les Echos, L’Oreal CEO Jean-Paul Agon stressed his belief that the strong results showed the recent financial scandal implicating L’Oreal heiress Liliane Bettencourt had no bearing on the way the business operated.
However, in a press conference to discuss the results, Agon did also state that he was more cautious about the outlook for the rest of the year by underlining that the strength of the performance in the first half of 2010 was unlikely to be repeated in the second half.

This compares well to the drop in the market that is expected in the US over the same time period but falls short of the compound annual growth rate of 4.5 per cent expected in Asia Pacific.
However, as the European market includes Russia and a number of other developing markets, the growth figures hide a more complicated picture.

“Growth in the Russian market over the time period 2004 – 2014 is expected to be 78 per cent, compared to 4 per cent in France, although this is of course from a low base,” explained analyst Mark Whalley.

Styling products suffering
For the more developed European markets of France, Germany and the UK, growth is slowing and it is styling products in particular that appear to be suffering.
Whalley told CosmeticsDesign-Europe.com that this is likely to be due to the current fashion for a more natural look, rendering products such as hairspray, mousse and gel, less necessary.

Although these products appear to be taking a knock, the analyst said effects such as this are often related to fashion and this class of products may well take off again in the future.

“The nature of this market tends to work in short term, it could be well be the case in five years that everyone goes backs to highly gelled looks,” he said.
Looking at areas of potential growth, Whalley highlighted that, as in many other sectors of the personal care and cosmetics market, it was the natural and organic trend that offers the biggest promise.
According to Datamonitor figures the Europe, Asia Pacific and US hair care markets amounted to $40.1bn in 2009, up from $34.37bn in 2004.
The compound annual growth rate for this period which stands at 3.1 per cent is expected to slow to 2.4 per cent for the period 2009 – 2014.