GLOBAL COLOR COSMETICS MARKET ASSESSMENT

A presentation at the

June 8, 2006

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AGENDA

Kline’s Coverage and Methodology

Market Overview

Outlook to 2010

Q&A

– Sales and growth– Categories– Trends and innovations– Competitive landscape– Regional breakdowns

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KLINE’S COVERAGE AND METHODOLOGY

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Global Cosmetics & Toiletries

Specialty Raw Materials for Cosmetics & Toiletries

Specialty Actives & Active Delivery Systems

Professional Skin Care

Beauty Retailing

Salon Hair Care

Home Fragrances

Household Cleaning Products

Kline Research has world class expertise in cosmetics and toiletries . . .

SYNDICATED STUDIESSYNDICATED STUDIESExtensive series of syndicated research studies

Global management team, who are known to the industry

– Often sought after to present papers at leading industry conferences

Global network of industry experts

Commitment to the personal care industry

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AntimicrobialsConditioning polymersEmollientsHair fixative polymersRheology control agentsSkin whitening agentsSpecialty activesSpecialty delivery systemsSpecialty surfactantsUV absorbers

RAW MATERIALS

FINISHED GOODS

RETAIL OUTLETS

FragrancesHair careMakeupNail careOral careSkin careToiletries

Department storesDirect sales Drug outletsFood stores Mass merchandisers SalonsSpecialty storesPharmacies/perfumeries

Kline covers the entire personal care value chain . . .

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Unstructured interviews with: Marketers/manufacturers

Retailers DistributorsSuppliers

Trade organizationsGovernment agencies

Trade journalsAnalysis of public data

Corporate financial reports and literature Non-confidential data from Kline’s databases

SECONDARY RESEARCH

PRIMARY RESEARCH

RIGOROUS ANAYSIS/CROSS CHECK

Insightful and comprehensive

coverage

Insightful and comprehensive

coverage

Kline’s rigorous research methodology results in high quality and insightful reports . . .

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MARKET OVERVIEW

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0

40

80

120

160

200

2002 2003 2004 2005

$ Billion mfr.

The global cosmetics and toiletries market reached $155 billion in 2005 . . .

$135 $141$148 $155

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Skin care, 27%

Color cosmetics, 15%

Fragrances, 11%

Other toiletries, 16%

Oral care, 9%

Hair care, 21%

Color cosmetics accounts for 15% of industry sales . . .

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0

5

10

15

20

25

30

2002 2003 2004 2005

$ Billion mfr.

Sales of color cosmetics totaled nearly $24 billion in 2005 . . .

$20.6$21.7 $22.6

$23.8

10

0

1

2

3

4

5

6

2003 2004 2005

Makeup Total C&T industry

Change, %

Growth in color cosmetics has been consistent and healthy . . .

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1960’sUsage on rise

Working women

Increase in teens

1970’sDisco era

Heavier usage

More shades

Working women+

1980’sHeavy made-up look

Product forms (oily, long wearing)

Demographic segmentation

1990’sNatural look early onMakeup artist brandsLong lastingLip glossesOne-coat polishes

2000’sLip gloss early on

Transfer-resistant

Shift to eyes

Skin matching

The color cosmetics market has dramatically changed over time . . .

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MAKEUPGROWTH

New shadesMetallicsFashion BoldNaturalColor matchingShimmer

Improved deliveryTransfer-resistantLong lastingNew formsMulti-use One-coatCurl/thicken lashes

The market is driven by color trends and innovation . . .

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Asia is the largest market . . .

Asia, 33%

Europe, 31%

North America, 26%

Latin America, 5%

All other, 4%

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Asia skews stronger in face makeup, while Europe and the Americas are more about color . . .

25.042.7

30.121.2

34.5

25.2

32.041.6

4.47.7

15.3

31.9 24.7 25.917.9

4.2 4.8 4.3

2.6

4.0

0%

20%

40%

60%

80%

100%

Eye makeup Face makeup Lipsticks Nail polishes

Asia Europe Latin America North America All other

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The top five players control 40% of the market; L’Oréal has a distant lead . . .

16%7%7%

6%

4%

Other 60%

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The leaders have achieved their positions through strategic acquisitions . . .

LancômeMaybellineYuesaeMininurseMiss Ylang

MACBobbi Brown

Cover GirlMax Factor

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Marketers are increasingly using celebrity spokesmodels . . .

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Face makeup is the largest category . . .

Face makeup, 40%

Eye makeup,27% Lip makeup, 25%

Nailpolishes, 8%

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-1 0 1 2 3 4 5 6 7

Nail polishes

Lipsticks

Face makeup

Eye makeup

Growth, %

Eye makeup registers the highest growth . . .

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FACE MAKEUPSkin matching and skin care claims drive sales . . .

Skin matching technology

Bronzers popular

More skin care properties

(anti-aging, acne, SPF)

Whitening important in Asia

Luxury slightly larger than

mass

KEY TRENDS

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LEADING PLAYERS

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EYE MAKEUPInnovation and marketer focus propels the category . . .

Current area of focus for most marketers

Simplified merchandising

Technologically advanced mascaras

High growth in developing countries (China, Brazil)

Mass brands 54% of sales

Multifunctional products

New forms of shadow

KEY TRENDS

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LEADING PLAYERS

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EYE MAKEUPAlmay has rolled out a simplified, customized system . . .

Buy based on your eye colorIntroduced first in eye makeupOther marketers responding with products addressing individual needs (e.g., Cover Girl Custom Compacts)

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EYE MAKEUPEvery year, more high-tech mascaras hit shelves . . .

More volumeLash lengtheningNo flaking, clumping, smudgingCurl lashesSubtle to dramaticShaping polymer

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EYE MAKEUPShadows now come in a variety of forms . . .

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EYE MAKEUPFalse eyelashes are back en vogue . . .

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LIPSTICKS AND LIP GLOSSES High gloss and shine; additional benefits . . .

KEY TRENDS

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Focus shifts away to eye and faceContinues to be about glosses and high shine

Additional benefits like firming, SPF protection, and plumping

Moisturization and comfort

More dual-ended products

LEADING PLAYERS

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LIPSTICKS AND LIP GLOSSES Plumpers are gaining in popularity . . .

Celebrity influenceAlternative to cosmetic procedureCan be irritating; creates need for soothing productsHigher pricesFrom mass to prestige

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NAIL POLISHESSuffering for a variety of reasons . . .

Suffers from low-cost nail salonsTrend towards natural looking nailsCutbacks in retail shelf spaceHealth concerns over phthalatesRegulations an issue, esp. in Europe

KEY TRENDS LEADING PLAYERS

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OUTLOOK

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0

5

10

15

20

25

30

35

2005 2010

$23.8

$29.9$ Billion mfr.

Color cosmetics sales will approach $30 billion by 2010 . . .

CAGR: 4.7%CAGR: 4.7%

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0 1 2 3 4 5 6

Nail polishes

Face makeup

Eye makeup

Lipsticks

Projected CAGR, %, 2005-2010

Lipsticks are projected to advance at the fastest pace . . .

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0 1 2 3 4 5 6 7 8

North America

Asia

Europe

Latin America

Projected CAGR, %, 2005-2010

Latin America will be the fastest growing region . . .

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ModerateGrowth

InnovationHigher price pointsAnti-aging claimsMarketing investmentIncreased penetrationFashion and color trends

Rise in cost of livingStricter legislation on claims and ingredientsMarket saturationFocus on other categories

Growth will depend on various market forces, both positive and negative . . .

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Efforts will focus on two sides of the consumer spectrum . . .

Bold and trendyEmphasis on colorNewness

Anti-agingMoisturizingProducts that don’t settle in creases

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Technologically-advanced mascaras

The market shows no signs of slowing down . . .

Dry Enamel Strips (Avon

Instant Manicure)

High pigment (L’Oréal HIP)

Eyebrow products

Mineral lines

Anti-aging lines

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If you require additional information about the content of this analysis or the services that Kline provides, please contact:

Carrie MellageIndustry Manager, Consumer ProductsPhone: 973-435-3412E-mail: Carrie_Bonner@klinegroup.com

For more information . . .

Discounts available for conference

attendees!

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Questions& Answers