The L'Oreal Presentation, AVPatel, MBA, Fall 2012

Anika PatelAVP Consultant Group, LLC

Presentation Outline

I. Introduction

II. Mission/Vision

III. Internal Assessmenta. Financial Ratiosb. Organizational Chartc. Market Positioning Mapd. Marketing Strategye. Value of the Firmf. Strengths/Weaknessesg. IFE

IV. External Assessmenta. Competitor Analysisb. CPMc. Opportunities/Threatsd. EFE

V. Strategy Formulation

a. SWOT

b. SPACE

c. BCG

d. IE

e. GSM

f. QSPM

g. Recommendations

VI. Strategy Implementation

a. EPS/EBIT Analysis

b. Projected Statements and

Ratios

VII. Conclusion

HISTORY OF L’Oreal:

- L’Oreal was founded in France in 1909.

- One century of expertise in cosmetics.

Group Profile:

- $ 26.2 billion consolidated sales in 2011

- 27 global brands

- 613 patents filed in 2011

- Present in 130 countries in 5 continents.

COMPANY OVERVIEW

Headquarters: Clichy, Hauts-de-Seine, France

Chairman and Chief Executive Officer:

Jean-Paul Agon

Employees: 68,900

Operational Groups: 6 Divisions

Non-executive Director & Major Shareholder:

Natalia Streignard

Area Served: Worldwide

COMPANY OVERVIEW

Consumer Products ($12,687.4, 48%)

Luxury Products ($ 6,192.1, 24%)

Professional Products ($ 3,629.4, 14%)

Active Cosmetics ($ 1,833.9, 7%)

Dermatology Branch ($ 909.1, 3%)

The Body Shop ($ 990.2, 4%)

Total ($26,242.6, 100%)

PRODUCTS and SERVICESIn $ millions except percentages

Products and Services

Western Europe $ 9,348.1 (36%)

North America $ 5,683.9 (22%)

New Markets: $ 9,311.3 (35%)

Asia-Pacific ($ 4,669.2, 18%)

Latin America ($ 2,168.4, 8%)

Eastern Europe ($ 1,724.6, 6%)

Africa, Middle East ($ 749.1, 3%)

Dermatology Branch $ 909.1 (3%)

The Body Shop $ 990.2 (4%)

Total Revenues $ 26,242.6(100%)

2011 Revenues by Geo Divisions

In $ millions except percentages

2011 Sales by Division ($ Millions)

Western

Europe,

$9,348.10 North

America,

$5,683.90

Asia-Pacific,

$4,669.20

Latin America,

$2,168.40

Eastern Europe,

$1,724.60

Africa & Middle

East, $749.10

Dermatology

Branch,

$909.10

The Body Shop,

$990.20

Total 2011 Sales = $26,242.6 million

BEAUTY FOR ALLFor more than a century, L’Oréal has devoted itself solely to one business: beauty (2). It is a business rich in meaning, as it enables all individuals (1) to express their personalities, gain self-confidence and open up to others (7).

Beauty is a language. (6).L’Oréal has set itself the mission of offering all women and men worldwide (3) the best of cosmetics (2) innovation (4) in terms of quality, efficacy and safety (8). It pursues this goal by meeting the infinite diversity of beauty needs and desires all over the world (3).

Beauty is universal. (6)Since its creation by a researcher (4) the group has been pushing back the frontiers (7) of knowledge (4). Its unique Research arm enables it to continually explore new territories and invent the products of the future, while drawing inspiration from beauty rituals the world over (6).

Beauty is a science. (6)Providing access to products that enhance well-being, mobilizing its innovative strength (4) to preserve the beauty of the planet and supporting local communities (8). These are exacting challenges, which are a source of inspiration and creativity for L’Oréal.

Beauty is a commitment. (6)By drawing on the diversity of its teams (9), and the richness and the complementarity of its brand portfolio (2), L’Oréal has made the universalization of beauty its project for the years to come.

L’Oréal, offering beauty for all. (6)

Current Vision & Mission Statement:

At L’Oreal, we believe beauty is language, science, commitment, universal, and permeates all (6). Our mission is to empower our highly creative team of researchers to design innovative (4, 7), healthy products (2), and our attentive employees (9) to remain responsive to the diverse tastes of our radiant customers (1) who confidently express their inner and outer beauty in our continuously expanding markets around the world (3, 5). Our shareholders can take pride in their investment knowing they contribute to one of the most socially responsible (8) and profitable (5) providers of magnificence (7).

Beauty for all.

Improved Vision & Mission Statement:

Revlon Inc. mission is to emerge as the leader (5) in cosmetic and personal care (2) throughout the world (3). Revlon takes pride (7) in manufacturing (4) the top skin care (2) and strives to please young and older women (1) alike. Revlon Inc. Vision is to satisfy the needs of their customers (1) with glamour and excitement (7) that they provide at an affordable price (8).

Competitor’s Vision & Mission Statement:

Internal Assessment

(2011) L’Oreal Revlon IndustryGrowth Rate (2010-2011) % 0.0435 0.0454 0.044

Revenues $ 26,242.6 1,381.4 202,535

Gross Profit Margin % 0.7124 0.6434 0.4931

OPS Profit Margin % 0.1704 0.1472 0.1368

Net Profit Margin % 0.1200 0.0387 0.1067

Current Ratio % 1.0831 1.5469 0.52

Quick Ratio % 0.7953 1.2161 0.40

Return on Assets % 0.0909 0.0461 0.0185

Financial Ratio Analysis: Revenues in $ millions except per share data

(2011) L’Oreal Revlon IndustryDebt-to-Equity Ratio % 0.1185 (1.7518) 0.5980

Return on SH Equity % 0.1384 (0.0771) 0.3180

Price/Earnings Ratio % 0.1268 0.1800 0.5934

Earnings per share $ 9.64 81.26 14.40

Inventory Turnover % 9.900 12.4 1.19

Total Asset Turnover % 0.800 1.2 0.28

Accounts Receivable Turnover

% 6.7896 6.5160 3.16

Average Collection Period days 53.8 56.0 -

Financial Ratio Analysis: Revenues in $ millions except per share data

Current Organizational Chart:Chairman of the Board &

CEO

EVP, Admin & Finance

Managing Director

Operations

EVP Research & Innovation

Managing Director Strategic Marketing

Department

Managing Director of

Human Resources

Managing Director of Corporate

Communications, Sustainable

Development& Public Affairs

President, Consumer Products Division


Luxury Products Division


Active Cosmetics Division

General Manager of Professional

Products Division


Asia –Pacific Zone


Latin America


North America

Managing Director

Africa, Middle East Zone

Problems with Current Organizational Chart CEO and Chairperson titles assigned to

same person.

There is no Chief Operating Officer (COO) instead has Managing Director of Operations.

Executive Vice President of Administration & Finance titles assigned to same person.

Managing Director of Corporate Communications, sustainable Development and Public Affairs title is ambiguous.

Recommended Organizational Chart

Chief Finance Officer

Chief Marketing

Officer

Chief Human

Resources

Chief Info Officer

Chief R&D Officer

Chief Technology

Officer

President Africa & Middle

East

President Europe

Chief Operating

Officer

CEO

President Latin

America

President Asia-

Pacific

President North

America

By Geographic Regions

VP of Consumer Products

VP of L’Oreal Luxury

VP of Active Cosmetics

VP of Professional

Products

President Body Shop

President Derma Branch

Chairman of the Board

Chief Legal

Officer

Organizational Chart Improvements

Added Chief Legal Officer, Chief

Information Officer, Chief Technology

Officer.

Presidents report to COO.

Gave officers only one title.

Divisional Vice Presidents report to their

respecting Geographic Zone President.

Assign Presidents to The Body Shop and

The Dermatology Branch.

Countries of Operation

Higher

Quality

Lower

Quality

Lower Breadth

of Products

Higher Breadth

of Products

MARKET POSITIONING MAP

L’Oreal

Revlon

Avon

Higher

Breadth

of Products

Lower

Breadth

of Products

Higher

Quality

Lower

Quality

MARKET REPOSITIONING STRATEGIES

Revlon

Avon

L’Oreal

CURRENT MARKETING STRATEGIES

L’Oreal has nearly 1 billion consumers

globally (representing around 15% of

population), and plans to conquer a billion

new consumers over next 10 to 15 years.

L’Oreal has 41 production plants across

current market and invested to add new

sites in Mexico, Indonesia, and Egypt.

L’Oreal has presence in 130 countries and

plans to expand in other developing

markets.

$9,348.6

$5,683.7

$2,168.5

$1,724.7

$749.5$4,668.5

CURRENT OPERATIONS

L’Oreal Sales 2011 by Zone ($mil)

$757.4

$107.2

$74.7

$233.4

$208.7$9,348.6

$5,683.7

$2,168.5

$1,724.7

$749.5$4,668.5

CURRENT OPERATIONS

L’Oreal Sales 2011 by Zone ($millions)

Revlon Sales 2011 by Zone ($millions)

RESEARCH & EVALUATION CENTERS

WEB SITE AND eCOMMERCE


STRENGTHS

Uses attractive colors such as black where beauty glows

in dark

Easy to maneuver through the site and straight forward

about their product offerings and company overview.

WEAKNESSES

Fonts are too small to read and goes out of allotted area

(page).

Navigation doesn’t work properly - when selecting Country didn’t take directly to the country instead shows page error

or didn’t load up at all

Needs to add Face book Logo on main page of website


Have to find L’Oreal on Facebook.

L’Oreal already had registered for Facebook application and is paying

for service.

L’Oreal must put Facebook logo on its website which directly

navigates customers to facebook to share their thoughts for L’Oreal.


STRENGTHS Enclose Face book and Twitter Logo on its main page

Big screen grabs one’s attention and encourage to

have a look at their product offerings

Good navigation as it directly takes you to where you

want to in couple seconds Logo is big

WEAKNESSES None

Shareholder’s Equity

Net Income x 5 years

(Stock Price/EPS) x Net Income

# of Shares Outstanding x Stock Price

Four Method Average:

11,549

15,744

39,938

73,727

$35,239.5 million

$ Goodwill/$ Total Assets 0.23

In millions of $US except for per share data

(using a 1.29 dollar/euro exchange rate)

VALUE OF THE FIRM ANALYSIS

L’OREAL’S STRENGTHS AND WEAKNESSES

StrengthsWei

ght

Rating Wtd

Score

1 27 international brands distributed in over 130 countries. L’Oreal has 5 regional hubs

worldwide.0.04 3 0.12

2 The Body Shops total sales were $990.204 million (4% total sales). The Body Shop has

over 70 brands in 60 countries (presence in global travel retail outlets across 44

markets).

0.05 3 0.15

3 L’Oreal has $930 million invested in R&D. 3,676 researchers throughout 19 research and

16 evaluation centers filed 613 patents in 2011.0.06 4 0.24

4 L’Oreal achieved 9.5% sales growth in New Markets ($9,311.3 million in sales; 35% total

sales; $1,713.12 million ops profit); added 4 subsidiaries in Africa and Middle East.0.14 4 0.56

5 L’Oreal achieved 0.6% sales growth in Western Europe ($9,348.1 million; 36% total sales;

$1,951.8 million ops profits); acquired Sanaflore in France.0.06 3 0.18

6 L’Oreal has positioned 41 production plants across current markets including a new

one in Russia; opening new sites in Mexico, Indonesia and Egypt.0.08 4 0.32

7 L’Oreal’s achieved 5.5% sales growth in North America (ops profit = $1,044.9 million).

L’Oreal acquired Maybelline and Essie. 0.07 3 0.21

8 Global predictive center (Lyon) reconstructs 130,000 units of biological tissues for

predictive evaluation of ingredients and products. 9 reconstructive skin and cornea

models developed. Reduces time to market.

0.03 4 0.12

9 The Dermatology Branch (Galderma) total sales were $909.13 million (Western Europe;

$242.8 million; North America: $450.8 million; New Markets: $215.55 million).0.04 3 0.12

10 L’Oreal conducts in-house packaging of products at their plants through the Wall-to-

wall program; reduces transportation costs and waste generation.0.02 3 0.06

Sub-Total for Strengths 0.59 2.08

INTERNAL FACTOR EVALUATION (IFE) MATRIX

WeaknessesWeight Rating Wtd

Score

1 L’Oreal suffered -2.8% sales loss in its Eastern European Market in 2011,

despite a 3.9% market growth (Ops profit: -$734.79 million)0.08 2 0.16

2 L’Oreal lacks a Beauty Tools division which its chief competitor, Revlon,

does have.0.05 2 0.10

3 L'Oreal's organizational structure limits its ability to create integrated

brand promotion strategies for its distinctive SBU’s.0.03 1 0.03

4 L’Oreal has a limited number of perfume, bath, and baby products in

its portfolio compared to competitors.0.02 1 0.02

5 L’Oreal lacks energy efficient production facilities in North America

similar to ones in Belgium, Spain, India and France.0.02 1 0.02

6 L’Oreal does not practice direct selling strategies in their marketing

initiatives as compared to competitors (Avon and Mary Kay).0.06 2 0.12

7 L’Oreal has consolidated key market segments under “New Markets”;

limits managerial response to changes in major geographic SBU’s.0.06 2 0.12

8 L’Oreal’s Total Asset Turnover ratio (0.8) is lower than its chief

competitor, Revlon’s (1.2).0.02 1 0.02

9 L’Oreal’s cost of operations (55.05%) is higher than its chief competitor,

Revlon’s (49.42%).0.03 1 0.03

10 When selecting different country options, L’Oreal’s website has

defective or nonexistent navigation and translation capabilities.0.04 2 0.08

Sub-Total for Weaknesses 0.41 0.70

Total IFE Score 1.00 2.78

INTERNAL FACTOR EVALUATION (IFE) MATRIX

EXTERNAL ASSESSMENT

MAJOR COMPETITORS IN THE INDUSTRY

COMPANY SALES ($Mil) NET INCOME ($Mil)

Procter & Gamble 82,559 11,797

Unilever 64,701 6,437

L’Oreal 28,263 3,399

Kimberly-Clark 20,846 1,591

Colgate-Palmolive 16,734 2,431

Kao 14,273 562

Reckitt Benckiser 15,213 2,813

Avon 11,292 514

Estee Lauder 8,810 701

Shiseido 8,095 154

Clorox 5,231 545

Energizer Holdings 4,646 261

Church & Dwight 2,749 310

Revlon 1,381 53

COMPETITIVE PROFILE MATRIX (CPM)

L’Oreal Revlon Avon

Critical Success Factor Weight Rating Score Rating Score Rating Score

Brand Recognition & Reputation 0.08 3 0.24 4 0.32 2 0.16

Price and Quality Perception 0.09 3 0.27 4 0.36 2 0.18

Breadth and Depth of Product

Lines0.15 3 0.45 4 0.60 2 0.30

Market Share 0.12 4 0.48 2 0.24 3 0.36

Production Efficiency 0.08 4 0.32 3 0.24 2 0.16

Growth in Mature Markets 0.06 4 0.24 3 0.18 2 0.12

Growth in Emerging Markets 0.06 4 0.24 3 0.18 2 0.12

Product Innovation 0.07 4 0.28 3 0.21 2 0.14

Direct Sales 0.04 2 0.08 1 0.04 4 0.16

eCommerce & Web Marketing 0.08 4 0.32 2 0.16 3 0.24

Celebrity Spokes Models 0.12 3 0.36 4 0.48 1 0.12

Creative Packaging 0.05 3 0.15 4 0.20 2 0.10

Totals 1.00 3.43 3.21 2.16

KEY INDUSTRY TRENDS

EXTERNAL FACTOR EVALUATION (EFE) MATRIX

OpportunitiesWeight Rating Wtd

Score

1 The worldwide cosmetics market grew 4.4% in 2011 representing $197.4 billion with

no devaluation, bannalization, or massificaation.0.02 2 0.04

2 Major BRIMC and minor growth countries have several million middle class

inhabitants and are projected to account for 5 of the 10 largest economies by GDP

by 2020.

0.08 2 0.16

3 BCG reports the Chinese middle class is expected to increase from 150 million to

+400 million over the next decade. 340+ urban locations projected to increase to

550 million in 10 years.

0.06 2 0.12

4 Direct retail sales in the US increased 4.6% to $29.9 billion in 2011 of which 78% were

women and 89% worked part time. 0.06 1 0.06

5 Google Offers, Living Social, and Groupon have launched apps for Android phones

to alert consumers to deals through mobile devices.0.04 4 0.16

6 91% of new products pacesetters were brand extensions that either expanded

effectiveness, new technologies, improved processes, new or unique formulas,

varieties, designs or patterns.

0.05 4 0.20

7 Federal Aviation Safety requirements restrict passengers from carrying more than 4

oz. of personal products aboard aircraft. 0.06 4 0.24

8 Latino and Asian population is expected to nearly triple (Hispanics, with the highest

consumption of personal care products in 2009, are expected to grow from 16.7% in

2012 to 21.2 in 2025.

0.08 4 0.32

9 29% of consumers made at least one consumer packaged good purchase online in

12 months. OTC drugs and health & beauty supplies ranked highest in respondents

buying the brand they want the most.

0.05 2 0.10

10 To reduce currency volatility, companies can hedge their exposure with futures

contracts (an 8.8% annual increase of dollar index).0.07 3 0.21

Sub-Total for Opportunities 0.57 1.61

EXTERNAL FACTOR EVALUATION (EFE) MATRIX

ThreatsWeight Rating Wtd

Score

1 Federal Aviation Safety requirements restrict passengers from carrying more

than 4 oz. of personal products aboard aircraft.0.03 4 0.12

2 Consumption of cosmetic products per inhabitant is 10 to 20 times lower in

immature countries than in mature BRIMC countries.0.05 2 0.10

3 China’s GDP growth target is 7.5%, which is well below the range recorded in

5 years; India slowed growing 5.3% in 1st Qtr 2012.0.05 2 0.10

4 Shiseido Co (Japanese cosmetics) acquired Bare Essentials (US) for $1.7 billion;

Coty agreed to acquire OPI Products (nail salon products) for $1 billion.0.04 3 0.12

5 P&G is a global leader in personal and beauty care products 20% in Western

Europe; $14 billion net in restructuring, cost reduction, & marketing reduction

over next five years.

0.06 2 0.12

6 Avon markets Regenerist and Anew skin products to baby boomers; Johnson

& Johnson launched a line of E-Pulse, Skin-Electro-Stimulation technology (skin

rejuvenation/anti-aging)

0.03 2 0.06

7 54% of the female respondents in 2008 said they would “buy the brand they

want the most”’ (down to 45% in 2010 and 43% in 2011).0.04 3 0.12

8 Avon sales in India increased 57.4: due to direct sales in 2011. 0.07 1 0.07

9 Due to weak US economic environment and higher pricing of green products,

consumers may be deterred from buying green products.0.04 2 0.08

10 Avon and Revlon both offer perfume products in their portfolio. 0.02 1 0.02

Sub-Total for Threats 0.43 0.91

Total EFE Score 1.00 2.52

STRATEGY FORMULATION

SO Strategies WO Strategies

SWOT MATRIX

SO Strategies WO Strategies

1 Establish JV with Parlain Co Ltd or Sa Sa Intl Holdings

Ltd (China); BK Corporation (Mumbai); Natura

and/or O Boticario (Brazil).

(S4, O2, O3)

Decentralize by establishing separate geographic

profit centers to achieve 20% growth over 3 years in

New Markets and 6% in Eastern Europe over 3 years.

(W1, W3 W7, W8, O1)

2 Increase North American Sales by 15% over 3 years

through IBP, direct selling, and e/mMarketing by

targeting the growing population of Hispanic and

Asians .

(S7, O4, O8)

Develop IBP marketing campaign with direct selling

to achieve 15% sales growth in the US, and 20% in

BRIMC.

(W3, W6, O2, O3, O4, O8)

3 Increase sale of Body Shop, Dermatology Branch

products 12% over 3 years through m/eMarketing

and global travel retail outlets.

(S2, S9, S10, O5, O7, O9)

Improve Web site design and e/mCommerce as part

of IPB marketing campaign to increase online sales

25% over 3 years.

(W10, O5, O9)

ST Strategies WT Strategies

SWOT MATRIX

ST Strategies WT Strategies

1 Body Shop will increase sales 9% over 3 years in its

global travel retail outlets through 5 new perfume

and brand extensions of existing products.

(S2, T1, T10)

Develop 5 perfume, increase portfolio of affordable

bath and body products to introduce into all markets.

(W4, T10)

2 Achieve 20% sales growth in New Markets by

increasing production to 100% in 16 existing and 3

new plants and incorporating direct sales methods

and acquiring/JV’s with three distributors.

(S4, S6, T2, T3, T8)

Invest $20 million to improve its Website design and

eCommerce capabilities to increase online sales 25%

over 3 years. (W10, T 8)

3 Increase sales of current products in North America

15% over 3 years by increasing production and

distribution to 100% at 9 existing facilities and a new

one in Mexico. (S6, S7, T4, T6, T7, T9)

4 Increase sales 15% over three years of more

affordable green and specialty products in all

markets using its efficiencies in R&D, production,

packaging to control costs. (S3, S6, S8, S10, T6, T9)

5 Increase sales 6% over 3 years in Western Europe

through sales of current products (Sanaflore).

(S5, S6, T5, T6)

SPACE MATRIXFinancial Position (FP)

Return on Investment 7

Leverage 4

Liquidity 3

Working Capital 6

Net Profit Margin 4

Inventory Turnover 5

Return on Assets 6

Price-Earnings Ratio 4

4.875

Stability Position (SP)

Technological Changes -5

Rate of Inflation -3

Demand Variability -4

Price Range of Competing Products -5

Barriers to Entry in Market -2

Competitive Pressure -6

Ease of Exit from Market -6

Price Elasticity of Demand -2

-4.125

Competitive Position (CP)

Market Share -3

Product Quality -4

Product Life Cycle -3

Customer Loyalty -4

Capacity Utilization -2

Technological Know-how -1

Control Over Suppliers & Distributors -3

-2.857

Industry Position (IP)

Growth Potential 5

Profit Potential 4

Financial Stability 3

Extent Leveraged 3

Resource Utilization 4

Ease of Entry into Market 1

Productivity, Capacity Utilization 4

3.428

SPACE MATRIX

CP

SP

FP

IP-7 -6 -5 -4 -3 -2 -1

1 2 3 4 5 6 71

2

3

4

5

6

7

-7

-6

-5

-4

-3

-2

-1

Conservative

Defensive

Aggressive

Competitive

(0.57, 0.75)

BOSTON CONSULTING GROUP MATRIX

Geographic

Division

Sales ($)

mil

Sales

%

Profits

($) mil

Profits

%

RMSP ISGR

%

1 North America 5,683.74 23.3 1,044.90 21.09 0.4002 + 2.7%

2 New Markets 9,311.22 38.3 1,713.12 34.59 0.6556 + 8.3%

3 Western Europe 9,348.63 38.4 1,951.77 39.42 0.6583 + 0.9%

4 The Body Shop 990.2 4.0 87.72 1.77 0.0697 + 1.7%

5 Dermatology

Branch

909.1 3.0 154.80 3.13 0.0640 + 17%

Total 26,242.6 100.0 4,952.31 100.0

STARS

II

BOSTON CONSULTING GROUP MATRIX

CASH COWS

III

DOGS

IV

QUESTION

MARKS

I

Relative Market Share Position

Ind

ust

ry S

ale

s G

row

th R

ate

(%

) .50 0.01.0

+20

0

-20

Hig

hM

ed

ium

Low

High Medium Low

2

3 4

5

1

INTERNAL-EXTERNAL (IE) MATRIX

Geographic

Division

Sales ($)

mil

Sales

%

Profits

($) mil

Profits

%

IFE

Score

EFE

Score

1 North America 5,683.74 23.3 1,044.90 21.09 3.04 3.47

2 New Markets 9,311.22 38.3 1,713.12 34.59 2.76 3.29

3 Western Europe 9,348.63 38.4 1,951.77 39.42 3.19 3.24

4 The Body Shop 990.2 4.0 87.72 1.77 3.29 3.09

5 Dermatology

Branch

909.1 3.0 154.80 3.13 3.35 3.05

Total 26,242.6 100.0 4,952.31 100.0

INTERNAL-EXTERNAL (IE) MATRIX

II

V VI

III

2.0 1.04.0

4.0

2.0

1.0

High

3.0 to 4.0

Medium

2.0 to 2.99

Low

1.0 to 1.99 VIII XI

I

IV

VII

3.0

3.0

Strong

3.0 to 4.0Average

2.0 to 2.99

Weak

1.0 to 1.99

EFE T

OTA

L W

EIG

HTE

D S

CO

RES

IFE TOTAL WEIGHTED SCORES

2345

1

GRAND STRATEGY MATRIX (GSM)

Quadrant

II

Quadrant

III

Quadrant

IV

Quadrant

I

Rapid Market Growth

Weak

Competitive

Position

Slow Market Growth

Strong

Competitive

Position

L’Oreal

QUANTITATIVE STRATEGIC PLANNING MATRIX (QPSM)

KEY EXTERNAL FACTORS Increase North America Sales by 15% over 3 years

Increase New Markets Sales by 20% over 3 years

Opportunities Wgt AS TAS AS TAS

The worldwide cosmetics market grew 4.4% in 2011 0.02 3 0.06 4 0.08

Major BRIMC and minor growth countries are projected to

account for 5 of the 10 largest economies by GDP by 2020.

0.08 2 0.16 4 0.32

BCG reports the Chinese middle class is expected to

increase from 150 million to +400 million over the next

decade.

0.06 2 0.12 4 0.24

Direct retail sales in the US increased 4.6% in 2011 0.06 - - - -

Google Offers, Living Social, and Groupon have launched

apps for Android phones to alert consumers to deals

through mobile devices.

0.04 4 0.16 2 0.08

91% of new products pacesetters were brand extensions 0.05 4 0.20 3 0.15

Federal Aviation Safety requirements restrict passengers

from carrying more than 4 oz. of personal products aboard

aircraft.

0.06 3 0.18 4 0.24

US Latino and Asian population is expected to nearly triple 0.08 - - - -

29% of consumers made at least one consumer packaged

good purchase online in 12 months.

0.05 4 0.20 2 0.10

To reduce currency volatility, companies can hedge their

exposure with futures contracts (an 8.8% annual increase of

dollar index).

0.07 2 0.14 4 0.28


KEY EXTERNAL FACTORS Increase North America Sales

Increase New Markets Sales

Threats Wgt AS TAS AS TAS

Federal Aviation Safety requirements restrict passengers from

carrying more than 4 oz. of personal products aboard aircraft.

0.03 3 0.09 4 0.12

Consumption of cosmetic products per inhabitant is 10 to 20

times lower in immature BRIMC countries

0.05 2 0.10 4 0.20

China’s GDP growth target is 7.5%, which is well below the

range of 9.2% to 14.2% recorded in the past five years.

0.05 1 0.05 4 0.20

Shiseido Co (Japanese) acquired Bare Essentials (US) Coty

agreed to acquire OPI Products (nail salon products).

0.04 3 0.12 1 0.04

P&G is a global leader in personal and beauty care products

20% in Western Europe; $14 billion net in cost, restructuring, &

marketing reduction over next 5 years.

0.06 4 0.24 2 0.12

Avon markets Regenerist and Anew skin products to baby

boomers; Johnson & Johnson launched a line of E-Pulse, Skin-

Electro-Stimulation technology

0.03 - - - -

54% of female respondents (2008) said they would “buy brand

they want the most”’ (down to 45% (2010) & 43% in 2011).

0.04 4 0.16 3 0.12

Avon sales in India increased 57.4 (in direct sales in 2011). 0.07 - - - -

Due to weak US economic environment and higher pricing of

green products, consumers may be deterred from buying

green products.

0.04 3 0.12 1 0.04

Avon and Revlon both offer perfume products 0.02 3 0.06 4 0.08

1.00


KEY INTERNAL FACTORS Increase North America Sales


Strengths Wgt AS TAS AS TAS

27 international brands distributed in over 130 countries. 0.04 3 0.12 4 0.16

The Body Shops total sales were $990.204 million (4% total sales).

The Body Shop has over 70 brands in 60 countries

0.05 2 0.10 3 0.15

L’Oreal has invested $930 million in R&D in 2011. 3,676 researchers

throughout 35 research and evaluation centers filed 613 patents

0.06 2 0.12 3 0.18

L’Oreal achieved 9.5% sales growth in New Markets ($9,311.3 mil. in

sales (35% total sales)); added 4 subsidiaries in Africa & Middle East.

0.14 - - - -

L’Oreal achieved 0.6% sales growth in Western Europe ($9,348.1

million; 36% total sales); acquired Sanaflore in France.

0.06 - - - -

Positioned 41 plants across current markets including a new one in

Russia; opening new sites in Mexico, Indonesia and Egypt.

0.08 2 0.16 4 0.32

L’Oreal’s achieved 5.5% sales growth; 4.3% market growth in North

America . L’Oreal acquired Maybelline and Essie.

0.07 - - - -

Global predictive center (Lyon) reconstructs 130,000 units of

biological tissues for predictive evaluation of ingredients and

products. 9 reconstructive skin and cornea models developed.

Reduces time to market.

0.03 3 0.09 2 0.06

The Dermatology Branch (Galderma) total sales were $909.13

million (Western Europe; $242.8 million; North America: $450.8

million; New Markets: $215.55 million).

0.04 3 0.12 2 0.08

L’Oreal conducts in-house packaging of products at their plants

through the “Wall-to-Wall” program reduces transportation costs &

waste generation.

0.02 3 0.06 4 0.08


KEY INTERNAL FACTORS Increase North America Sales


Weaknesses Wgt AS TAS AS TAS

L’Oreal suffered -2.8% sales loss in its Eastern European Market in

2011, despite a 3.9% market growth.

0.08 - - - -

L’Oreal lacks a Beauty Tools division which its chief competitor,

Revlon, does have.

0.05 3 0.15 4 0.20

L'Oreal's organizational structure limits its ability to create

integrated brand promotion strategies for its distinctive SBU’s.

0.03 3 0.09 4 0.12

L’Oreal has a limited number of perfume, bath, and baby

products in its portfolio compared to competitors.

0.02 4 0.08 3 0.06

L’Oreal lacks energy efficient production facilities in North

America similar to ones in Belgium, Spain, India and France.

0.02 - - - -

L’Oreal does not practice direct selling strategies in their

marketing initiatives as compared to competitors .

0.06 2 0.12 4 0.24

L’Oreal has consolidated key market segments under “New

Markets”; limits managerial response to changes in major

geographic SBU’s.

0.06 - - - -

L’Oreal’s Total Asset Turnover ratio (0.8) is lower than its chief

competitor, Revlon’s (1.2).

0.02 2 0.04 4 0.08

L’Oreal’s cost of operations (55.05%) is higher than its chief

competitor, Revlon’s (49.42%).

0.03 2 0.06 4 0.12

When selecting different country options, L’Oreal’s website has

defective or nonexistent navigation and translation capabilities.

0.04 2 0.08 4 0.16

1.00 3.55 4.42

1 billion new customers over next 10-15 years.

Sustainability initiatives (2005-2015):

(1) reducing greenhouse gas emission by 50%.

(2) reducing waste generated per finished goods by 50%.

(3) reducing water consumption per finished goods by 50%.

EXISTING STRATEGIES TO BE CONTINUED

NEW STRATEGIES TO BE IMPLEMENTED

Establish Joint Ventures with: ($2 Billion)› Parlain Co. Ltd or Sa. Sa. Intl. Holdings Ltd (China);

› BK Corporation (India);

› Natura or O Boticario (Brazil).

Hire key executives (CIO, CLO, CTO, Presidents) ($24 Million)

Establish 10,000 direct sales force in BRIMC. ($225 Million)

Improve website design & e/m Commerce. ($20 million)

Initiate an Integrated Brand Promotion marketing campaign to increase global sales over next 3 years. ($231 million)

Total Cost of New Strategies to be Implemented: ($2.5 Billion)

STRATEGY IMPLEMENTATION

EPS/EBIT ANALYSIS

100% Debt 100% Stock

Recession Normal Boom Recession Normal Boom

EBIT ($) 2,500,000,000 4,500,000,000 6,500,000,000 2,500,000,000 4,500,000,000 6,500,000,000

Interest($) 39,750,000 39,750,000 39,750,000 0 0 0

EBT ($) 2,460,250,000 4,460,250,000 6,460,250,000 2,500,000,000 4,500,000,000 6,500,000,000

Taxes ($) 727,987,975 1,319,787,975 1,911,587,975 739,750,000 1,331,550,000 1,923,350,000

EAT ($) 1,732,262,025 3,140,462,025 4,548,662,025 1,760,250,000 3,168,450,000 4,576,650,000

# Shares 602,984,082 602,984,082 602,984,082 623,430,635 623,430,635 623,430,635

EPS ($) 2.87 5.21 7.54 2.82 5.08 7.34

Amount of Capital Needed: $2,500,000,000

Interest Rate: 3.25%

Tax Rate: 29.59%

Stock Price: $122.27

# of Shares Outstanding: 602,984,082

EPS/EBIT ANALYSISDebt/Stock 30/70 Debt/Stock 70/30

Recession Normal Boom Recession Normal Boom

EBIT ($) 2,500,000000 4,500,000,000 6,500,000,000 2,500,000,000 4,500,000,000 6,500,000,000

Interest ($) 11,925,000 11,925,000 11,925,000 27,825,000 27,825,000 27,825,000

EBT ($) 2,488,075,000 4,488,075,000 6,488,075,000 2,472,175,000 4,472,175,000 6,472,175,000

Taxes ($) 736,221,393 1,328,021,393 1,919,821,393 731,516,583 1,323,316,583 1,915,116,583

EAT ($) 1,751,853,608 3,160,053,608 4,568,253,608 1,740,658,418 3,148,858,418 4,557,058,418

# Shares 617,296,669 617,296,669 617,296,669 609,118,048 609,118,048 609,118,048

EPS ($) 2.84 5.12 7.40 2.86 5.17 7.48

Amount of Capital Needed: $2,500,000,000

Interest Rate: 3.25%

Tax Rate: 29.59%

Stock Price: $122.27

# of Shares Outstanding: 602,984,082

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

$2,500,000,000 $4,500,000,000 $6,500,000,000

EPS-EBIT Chart

Common Stock Financing Debt Financing

EPS/EBIT ANALYSIS

PROJECTED INCOME STATEMENTIn $ millions % Sales 2011 2012 2013 2014 Note

Net Sales 100% 26,242.6 38,609.5 40,851.3 43,268.0 1

Cost of Sales (28.8%) (7,548.4) (11,786.5) (12,432.2) (13,128.2)

Gross Profit 71.2% 18,694.2 26,822.9 28,419.1 30,139.8

R&D (3.5%) (929.5) (1,351.3) (1,429.8) (1,514.4)

Adv/Promo (30.9%) (8,116.2) (12,014.0) (12,706.8) (13,453.5) 2

SGA (20.6%) (5,401.1) (8,036.6) (8,498.4) (8,996.2) 3

Ops Profit 16.2% 4,247.5 5,421.0 5,784.2 6,175.7

Other Income(Exp) ( 0.47%) (124.2) (86.9) (60.9) (51.1) 4

EBIT 15.73% 4,123.2 5,334.1 5,723.4 6,124.6

Interest (1.5%) (0.24%) (62.1) (131.4) (134.3) (137.7) 5

Capital Gain 0.14% 36.8 50.0 68.0 92.5 6

Net Finance Cost (0.1%) (25.3) (81.4) (66.3) (45.3)

Other Fin. income (exp) (0.03%) (7.2) (6.7) (6.2) (5.8) 7

Sanofi Dividends 1.45% 381.3 559.8 592.3 627.4

EBT 17.05% 4,472.0 5,805.9 6,243.1 6,700.9

Income Tax (5.04%) (1,323.3) (1,945.9) (2,058.9) (2,180.7)

Net Income 12.01% 3,148.8 3,859.9 4,184.2 4,520.2

PROJECTED INCOME STATEMENT

Dividend Payout (in $ millions)

(2011) - $ 1,521.17 million

(2012) - $ 1,864.74 million

(2013) - $ 2,021.40 million

(2014) - $ 2,183.71 million

Retained Earnings (In $ millions)

(2011) - $ 1,627.59 million

(2012) - $ 1,995.21 million

(2013) - $ 2,162.82 million

(2014) - $ 2,336.48 million

PROJECTED BALANCE SHEET

Assets (in $ mil) 2011 2012 2013 2014 Note

Noncurrent Assets 24,684.2 25,791.5 27,550.6 29,911.5

Goodwill 8,003.9 8,003.9 8,003.9 8,003.9

Intangibles 3,195.7 3,291.6 3,818.2 4,581.9 1

PPE 3,716.2 3,716.2 3,716.2 3,716.2

LT Assets 8,902.2 9,792.4 10,967.5 12,502.9

Deferred Tax Assets 866.1 987.4 1,044.7 1,106.5

Current Assets 9,962.2 15,428.8 19,346.1 22,732.8

Inventory 2,647.2 3,681.5 5,154.1 7,215.7 2

Acct Receive 3,865.1 7,721.9 8,170.3 8,653.6

Other Current Assets 1,166.3 1,306.2 1,489.1 1,727.4

Current Tax Assets 152.2 158.3 167.8 181.2

Cash and Cash

Equivalents

2,131.3 2,560.9 4,364.9 4,954.9 *

Total Assets 34,646.3 41,220.3 46,896.7 52,644.3


Shareholders Equity 2011 2012 2013 2014 Note

Equity 22,752.4 26,115.1 29,010.7 32,205.0

Share capital 155.6 155.6 155.6 155.6

Additional PIC 1,640.1 1640.1 1640.1 1640.1

Other reserves 15,955.8 17,950.9 20,113.8 22,450.3 *

Direct equity 2,650.6 2,915.6 3,207.2 3,527.9

Cumulative Translation

Adjustments

32.1 48.2 72.3 108.4

Treasury Stocks (831.3) (581.9) (366.6) (201.6) 1

Net profit to Owners 3,145.5 3,982.5 4,184.2 4,520.2

SH Equity 22,748.4 26,111.1 29,006.5 32,200.8

Noncontrolling Interest 4.0 4.05 4.12 4.23

In $ millions


Liabilities (in $ mil) 2011 2012 2013 2014 Note

Noncurrent Liabilities 2,696.4 4,114.7 5,656.9 7,234.6

Provs for Retirement Ben 1,456.3 1,531.3 1,606.3 1,681.3

Provs for Liabs & Charges 291.7 364.6 473.9 592.5

Deferred Tax Liabilities 874.2 1,311.4 1,835.9 2,386.7

Noncurrent borrow & debts 74.2 907.5 1,740.8 2,574.2 2

Current Liabilities 9,197.6 10,990.4 12,229.1 13,204.7

Trade Accts Payable 4,189.5 4,608.5 5,069.3 5,576.3

Provs for Liabs & Charges 645.9 658.8 672.0 685.4

Other Current Liabilities 2,666.0 2,905.9 3,167.5 3,452.6

Income Tax 288.9 424.9 449.7 476.3 3

Current Borrows & Debt 1,407.1 2,392.1 2,870.6 3,014.1

Total SH Equity & Liabilities 34,646.3 41,220.3 46,896.7 52,644.3

Retained Earnings

Balance Sheet

Retained Earnings

2013 20142012In $ millions except per share data

20,113.8 22,450.317,950.9

2,162.8 2,336.51,995.2

Income Statement

2011

15,955.8

1,627.6

+ + +===

Comparing Retained Earnings

=

Cash & Cash Equivalent 2,131.3 2,560.9 3,800.8 4,178.2

14,328.2

+2010

L’Oreal 2011 2012 2013 2014Growth Rate % 0.0435 0.47 0.05 0.05

Revenues $ 26,242.6 38,609.5 40,851.3 43,268.0

Gross Profit

Margin

% 0.7124 0.6947 0.6957 0.6966

Net Profit Margin % 0.1200 0.1000 0.1024 0.1045

Current Ratio % 1.0831 1.4038 1.5820 1.7216

Quick Ratio % 0.7953 1.0689 1.1605 1.1751

Return on Assets % 0.0909 0.0936 0.0892 0.0859

PROJECTED FINANCIAL RATIOS: Revenues in $ millions except per share data

PROJECTED FINANCIAL RATIOS: Revenues in $ millions except per share data

L’Oreal 2011 2012 2013 2014

Debt-to-Equity Ratio % 0.1 0.2 0.2 0.2

Return on SH Equity % 0.1 0.1 0.1 0.1

Inventory Turnover % 9.9 10.5 7.9 6.0

Total Asset Turnover % 0.8 0.9 0.9 0.8

Accounts Receivable Turnover

% 6.8 5.0 5.0 5.0

Average Collection Period days 53.8 73.0 73.0 73.0

STRATEGY EVALUATION

BALANCED SCORECARD# Area of Objective Measure / Target

TimeExpectation

Primary Responsibility

1 Hire key executives (CIO, CLO, CTO, Presidents, Vice Presidents).

Identify, recruit, and orient new executives into their respective positions.

By end of 1st Qtr, 2012

CEO, CHR

2 Establish Joint Ventures with: Parlain Co. Ltd or Sa. Sa. Intl. Holdings Ltd(China); BK Corp. (India); Natura or O Boticario (Brazil).

Achieve annual sales growth of 20% :9% in China, 6% in Brazil, and 5% in India.

2012 - 2014 CEO, DivisionalPresidents

3a Initiate an IBP marketing campaign to improve global sales in conjunction with direct sales in #3b.

Achieve Annual Customer increases of 7%-5%-3% in U.S.; Achieve 10%-6%-4% annual customer increase in BRIMCs.

2012 - 2014 CEO and CMO

3b Establish direct sales force of 10,000 in BRIMC.B = 600; R = 500; I = 3,700; M = 400; C = 4,800.

Recruit, train and orient 25% direct sales representatives each quarter per country. Continue to recruit over 2 yrs.

2012 - 2014 CMO, CHR, Divisional Presidents.

4a Increase e/m Commerce Sales Performance through coupon apps and CRM.

Develop and add two coupon apps; increase annual online sales 10%-8%-7%.

2012 - 2014 CMO, CIO, CTO

4b Improve website design by: Enhance fonts, ease of navigation; translate site into Spanish, Chinese, & Hindi; link to Facebook, Twitter, and YouTube.

Employ the latest software and hardware to enhance web site.

2012 - 2014 CMO, CIO, CTO

CONCLUSION

The strategies presented helps L’Oreal to achieve its long-term goal

of acquiring 1 billion new customers over the next 10-15 years.

L’Oreal is in an optimal position to build its reputation and brand

image by reaching new and diverse populations of beautiful people

in growing markets targeted in these strategies.

Utilizing only 7% of L’Oreal’s assets, the supporting objectives are

clearly specified, obtainable, verifiable, measureable, timely and in

keeping with L’Oreal’s core vision and mission to provide…

These strategies align L’Oreal’s distinctive competencies in R & D

and Sustainability, as well as demonstrates L’Oreal’s sense of Social

Responsibility by bringing economic growth opportunities into

developing economies.

BEAUTY FOR ALL!!!

Anika PatelAVP Consultant Group, LLC

QUESTIONS?

The L'Oreal Presentation, AVPatel, MBA, Fall 2012

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