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Executives

Jean-Régis Carof - Director of Shareholder and Market Authority Relations

Caroline Millot - Head of Investor Relations

Jean-Paul Agon - Chairman, Chief Executive Officer and Chairman of Strategy & Sustainable Development Committee

Christian Mulliez - Executive Vice President of Administration and Finance

Jean-Jacques Lebel - President of Consumer Products Division

Nicolas Hieronimus - President of L'oréal Luxury

An Verhulst-Santos - President of Professional Products Division

Brigitte Liberman - President of Active Cosmetics Division

Frederic Roze - Chief Executive Officer and President

Laurent Attal - Director

Analysts

Jean-Christophe Dourret - Oddo Securities, Research Division

Celine A.H. Pannuti - JP Morgan Chase & Co, Research Division

Harold Thompson - Deutsche Bank AG, Research Division

Pablo E. Zuanic - Liberum Capital Limited, Research Division

Iain Galloway Simpson - Barclays Capital, Research Division

Eva Quiroga - UBS Investment Bank, Research Division

L'Oreal SA (OTCPK:LRLCY) 2012 Earnings Call February 12, 2013 3:00 AM ET

Unknown Executive

It's exactly 9:00, a typical French punctuality. So good morning all. Welcome to this presentation of the 2012 financials. Delighted to be able to see you again here this morning. We're going to start as usual by asking Jean-Regis to give us some organizational details even though it's pretty much always the same every year. But nonetheless, like every year, we'll ask you to explain it. It's true there could be some newcomers in the room. So Jean-Regis, tell us how this is going to work.

Jean-Régis Carof

Good morning, ladies and gentlemen. So before we start the presentations, I'd just like to give you brief reminder about the information and comments that you will hear during this meeting. And I would invite you to read the disclaimer that's on the last page of the booklet you were given.

And now I'm going to give you some housekeeping information about the meeting. Firstly, you found the headphones for translation. Outside, you can see the channels available on the screen, so please now choose your channel. The lobby outside this room is equipped with WiFi, which means if you wish, you will be able to have Internet connection. I would, therefore, ask you while you're in the room to keep your mobile phones and smartphones off. WiFi access uses this username and password, that's on the screen now.

As you came into the room, you were given a booklet with the tables from Mr. Mulliez's presentation. The booklet from Mr. Agon's presentation will be handed out at the break. Now, as there are a lot of people here at the meeting, some of you have to be in the second room, which will, however, get exactly the same treatment as those here for the Q&A session. So I'll just check with Caroline Millot [ph] in the other room to confirm that she can hear us loud and clear. Yes, good morning. Loud and clear?

Caroline Millot

Yes, perfect.

Jean-Régis Carof

Fine, thank you very much, we'll see you later, Caroline. Now on your seats, you found a card for written questions, so do use it. You will be able to hand in your questions to the hostesses at any time during the presentations. Of course, after the break, you will also be able to ask your questions during the Q&A session. However, we would ask you if you do so to announce your name and company before you ask your question.

As you know, the meeting is going out on webcast on the dedicated Internet site, www.loreal-finance.com, and it will be available as a recording this afternoon. And you'll also be able to download the presentations. And then of course, the usual cocktail and buffet lunch will be served on the first floor. We look forward to seeing you there at the end of this meeting. Mr. Agon and the Vice Presidents will be available for you to meet, and you'll also be able to find out more about display of one of our luxury brands. So, good meeting.

Jean-Paul Agon

Thank you very much, Jean-Regis. Down to a T, now, I don't think I need to introduce the people left and right, but I'll do it anyway. I'm sure you know them. So on my left, Brigitte Liberman, who is Head of Active Cosmetics; Nicolas Hieronimus, who is Head of L'Oréal Luxe. Jean-Jacques Lebel for Consumer division; Christian Mulliez, of Finance Administration; and for Professional, we have An Verhulst-Santos. But we'll still have a guest star, Frederic Rozé, Head of the U.S. business, who will tell us how L'Oréal is doing there -- doing very well to be honest. So we will get straight down to business, and I'll ask Christian to go first with the 2012 financials.

Christian Mulliez

Good morning to all. This presentation of the 2012 financial results will cover as per usual the items concerning sales, profit, cash flow, balance sheet, situation and dividend growth. Consolidated sales amounted to EUR 22.463 billion, an increase of 6.2% in constant exchange rates. Like-for-like sales, increased by 5.5%. The structure effect is slightly positive at plus 0.7%. It mainly reflects the acquisition of Clarisonic in December 2012; and of the French company, Cadum in April 2012.

Urban Decay, the American makeup brand acquired in December 2012, has not had any impact on our 2012 sales. To assist you in your forecast, I can tell you that all other things being equal, the effect of acquisitions on our sales in 2013 should be of the order of plus 0.6%. After currency impact amounting to 4.2% in 2012, growth based on reported figures comes out to 10.4%, that's double-digit growth. As far as the currency impact is concerned, it is, of course, too early to forecast what it will be in 2013. And so we don't wish to a set a figure on it at this time. However, I can indicate that at current exchange rates, the impact in 2013 should be negative.

The main contributors to the positive exchange rate effect in 2012 were the U.S. dollar, which accounted for 23.7% of our sales and which strengthened by 8.2% against the euro. The Chinese yuan, 6.6% of our sales, which strengthened by 10.8% against the euro; and the pound sterling, 6.3% of our sales, which strengthened by 7% relative to the euro. It's worth noting, and this is a question we're often asked, is that the euro accounted for 26.9% of consolidated sales compared with 29.5% in 2011. For the record, in 2005, not so long ago, 38% of sales, the relative weight of the Eurozone in our sales is steadily decreasing.

Consolidated sales like-for-like by branch and division, professional product sales increased by 2.1%. Consumer product sales grew by 5%. L'Oréal Luxe, up 8.3% and even up 16% based on reported figures; and Active Cosmetics is up 5.8%. The Body Shop continued its recovery, up 4.9%. And lastly, Dermatology, that is Galderma, up 5.9% and 12.9% based on reported figures. As we announced early in November, Galderma was affected in 2012 notably in Q4 by competition from generic products in its prescription products business. By geographic zone, all zones achieved sales growth with Western Europe up 0.6%; North America up 7.2%; and the New Markets up 9.2%.

Within the New Markets, Asia Pacific recorded strong growth at 9.6% with a figure of 10.3%, excluding Japan. Sales in Latin America grew by 10.4%. 2012 was a better year than 2011 for Eastern Europe, which came out at up 3.9%. Finally, Africa, Middle East posted growth of 14.7%. New Markets has announced in February 2012, the New Markets became the #1 geographic zone for the group and accounted for more than 39% of sales. This is more than double the level in 2000, which stood at 19%. This dynamic trend should continue in 2013.

Sales by business segment. There was growth across all our business segments. This year, once again, saw an outstanding performance from skin care, up 8%. Also the good performance of makeup, fragrances and haircare is worth noting.

Consolidated profit and loss account. Let's start by analyzing gross profit. Gross profit grew by 9.5%, increased by 9.5% and comes out at 70.7% compared with 71.2% in 2011. This is due to several factors, including as in the first half, 2 unfavorable technical factors, a negative currency effect of about 20 basis points and the first-time consolidation of the American company, Clarisonic, representing 10 basis points.

This is also the result of the decision to slightly increase, where appropriate, customer allowances, which as you know, are deducted from sales, and thus, have an impact on gross profit. In the second half of 2012, this effect remained close to what it was in the first half as announced during the 9-month sales conference call. And this resource allocation decision has been made possible by the lower level of marketing expenses as we shall see shortly.

Research and development expenses, which rose strongly at 9.7%, have remained stable at 3.5% of sales. And advertising and promotional expenses came out at 30.2% of sales. Media cost inflation remained very modest in 2012. Our purchasing teams took advantage of the high level of our media-buying volumes and in many zones of the increase in our share of voice to obtain extremely competitive prices. Furthermore, the continued growth of the share of digital in our total media spending has contributed to this reduction. For the record, the cost of digital represented 9.5% of our net media expenses in 2012 compared with 8% in 2011 and about 5% in 2010. We continue transforming the ways we communicate.

Selling, general and administrative expenses at 20.5% of sales have declined once again by 10 basis points compared with 2011. And in total operating profit came out at EUR 3.697 billion, representing the growth of 12.3%, reflecting a significant improvement in profitability with 2011 at plus 30 basis points. Profitability by half year was better balanced in 2012 than in 2011 or 2010. Profitability in the second half improved by 40 basis points going from 15.6% to 16%. This improved balance of profitability by half year will steadily continue in 2013.

Operating profitability of divisions. The profitability of the Professional Products division at 20.5% is in line with the figures for 2011 and 2010. The profitability of the Consumer Products division has improved once again at 19.1%. The profitability of L'Oréal Luxe in 2012 has remained stable. There are 2 points worth noting here: a slightly dilutive effect due to Clarisonic in its first post-acquisition year, without which the profitability of L'Oréal Luxe would have advanced by 20 basis points at 19.5% that is. And let's keep absolute values in mind.

The operating profit of L'Oréal Luxe this year is up by 16.3%. At Active Cosmetics, there was once again an increase in profitability at 20.4%. The Body Shop continued to improve its profitability by 20 basis points in 2012 to reach 9.1%. Finally, profitability at Dermatology, Galderma, 17.9% of sales. That's an increase of 90 basis points in 2012.

Operating profit of geographic zones. Profitability in Western Europe improved by 40 basis points to reach 21.3%. North America, profitability has remained stable at 18.4% of sales. And the operating profit of North America grew by over 18%. Situation is similar in the New Markets, whose profitability is advanced by 10 basis points with their operating profit rising by over 14%. The profitability of New Markets exceeded that of North America. The race continues. The contribution of New Markets to total group operating profit has increased further, as you can see, exceeding 37%, which is twice what it represented 7 years ago.

Let's look further at the profit and loss account. The total financial expenses comes out at EUR 11 million. As there's no financial debt, this consists mainly of commissions on standby lines and the financial cost of capital leases.

As you know, the IAS 19 standard, which concerns the calculation of employee benefits, has been amended effective 2013. The alignment at the same level of the discount rate and the expected rate of return of investments intended to finance pension funds will lead to an additional expense in 2013. Its pro forma impact on 2012 would have been EUR 17 million. This is a relatively insignificant amount, which we are reporting to you.

In 2012, we're also going to restate part of the retirement expense, which up to now was fully recognized as an operating cost. This restatement will divide the expend [ph] into an operating component, which will remain recognized in operating profit. And a financial component, which will now be recognized as a financial expense. To be quite specific, the total retirement expense in 2012 amounted to EUR 143 million. With this restatement, EUR 122 million would have remained as an operating cost and EUR 21 million would have been recognized as a financial expense.

In the end for 2013, after allowing for this restatement, the EUR 21 million, and for the IAS 19 effect, the EUR 17 million, we can expect to have a financial expense of the order of EUR 60 million.

Let's look back at 2012. Sanofi dividends amounted to EUR 313 million. As for 2013, you'll have noted that Sanofi last year -- last week, announced a dividend up by 4.5%. Tax. Tax amounted to EUR 1.025 billion, representing a rate of 25.6%, lower than the 2011 rate at 27.4% and lower than we'd expected. This significant decline results, in particular, for 1 point from reimbursements of taxes in China for the tax years 20 -- 2008 to 2011, following a change in tax law relating to the deductibility of marketing expenses for 2013.

On the tax front, we will not benefit from the nonrecurring tax catch-up effect in China. And in addition, like all French companies, we will have to pay the tax of 3% on dividend, a distribution tax, which accounting rules, unfortunately, compel us to recognize as a tax on earnings. The impact of this tax on dividends will contribute to an increase of our tax rate by about 1 point. At this stage of the year, we can anticipate, even if it's too soon to give a view on this item, a tax rate slightly above 27%.

Net profit, excluding nonrecurring items, amounted to EUR 2.971 billion, up by 15.1%. Net earnings per share at EUR 4.91 is up 13.6%. For those of you who may wish to perform a simulation for 2013, it would be relevant at this stage of the year to factor in an average dilutive number of shares of around 607 million.

Nonrecurring items, after allowing for nonrecurring items, that is in 2012 a charge net of tax of EUR 104 million. Net profit was EUR 2.867 billion, an increase of 7.6%. Nonrecurring items consist of restructuring costs corresponding, particularly to industrial and logistics restructuring of our Professional Products division in the U.S. for EUR 63 million, the closure of a plant and the reorganization of the whole supply chain of SalonCentric; and secondly, the effect of the change of rate on Sanofi's deferred tax liabilities amounting to EUR 25 million.

Cash flow. Gross cash flow totaled EUR 3.661 billion, an increase of EUR 13.5 million. Depreciation and amortization at EUR 840 million, increased with 2011, EUR 742 million. Provisions amounted in 2012 to a net reversal of EUR 149 million compared to a net reversal of EUR 108 million in 2011. This increase in the net reversal is mainly the result in the increase of the financing of our social liabilities, which results in a decline in the corresponding provisions.

Working capital requirement in 2012 increased by modest EUR 129 million for 2013. It's never easy to forecast this item, but you can expect an increase of the order of EUR 150 million to EUR 200 million. Inventories decreased significantly as a percentage of sales, going from 10.1% at the end of 2011 to 9.1% at the end of 2012. That's a significant reduction.

Trade accounts receivables declined, going from 14.7% of sales to 14.3% at the end of 2012. Investments amounted to 4.3% of sales, which is a stable level compared with 2011. The 2013 level of investment of around 4.5% of sales can be expected.

Operating cash flow increased by 26.4%. That's a solid performance. And finally, after dividend payment and acquisitions, which consisted mainly, I would remind you, the acquisition of Cadum and Urban Decay and after allowing for the exercise of stock options and buybacks of treasury stock, the residual cash flow comes out at EUR 1.107 billion.

Balance sheet, particularly solid. The reinforcement of shareholders equity compared with the end of 2011 is mainly the result of profit allocated to reserves and the net increase in value of Sanofi shares mark to market.

Gearing. We no longer have any net debt as we have a net cash surplus of EUR 1.575 billion. Our cash is solely invested in bank deposits held with top-tier banks and short-term money market funds.

The dividend. The quality of the balance sheet is such that the Board of Directors will propose to the Shareholders Meeting a further significant increase in the dividend to EUR 2.30 per share, that is up 15%. This increase in dividend means a further increase in the payout ratio, which this year, comes out to 46.8%, demonstrating L'Oréal's commitment to a dynamic policy in terms of shareholder return.

Thank you for your attention.

Jean-Paul Agon

Thank you very much, Christian. So as you can see, we have series of very strong figures, be it growth in sales, operating profit and net profit. Cash flow, which was outstanding. And therefore, the proposals will be made at the next Shareholders Meeting to increase the dividend.

So in order to give you sort of background information behind the figures, as we do each year, we've asked the division heads to come and talk to you about the major successes and achievements of 2012 and give you an update on how the division is doing around the world. And we will start, of course, with Jean-Jacques Lebel, who will be talking about the Consumer Products division.

Jean-Jacques Lebel

Good morning, everyone. In 2012, the Consumer Products division grew 5% on a worldwide market that grew at about 4%. So overall, we did better than the market, which remained very positive. Let's look at the different regions.

In Western Europe and North America, we gained market share quite spectacularly. You can see that in Western Europe, our sell-through was up 2.3% on a market at plus 0.4%, whilst many of our competitors were going backwards. And we reached record market share across all categories combined of 27.9%, and this was the main goal for the year.

In the United States, we boosted sell-through by 6.1% against the market at 2.9%. And there too, we have record market share of 90.2%. For the first time, we are #1 in our categories. So this was a year of new records set of our most mature markets: Western Europe, North America.

In invoicing, this gives us Western Europe, up 1%; U.K., up 4.6%; and France, up 3.3%; North America, 7.9%. And on the growth markets, it's not been our best year, but there are reasons to be satisfied. Russia is back on track. And good performance in India, Indonesia and Turkey.

As far as China is concerned, I'm telling you we have a 3-point attack ongoing. Argan nourish on haircare, which already has good scores in panel sell-through. The skin-deep range, L'Oréal, which targets young customers buying in drugstores with already very good results; and Maybelline Baby Skin instant pink transformer. These 3 initiatives make me very confident about 2013 in China.

What are the other key features of the year then? Firstly, the growth in our hair care category, where we grew in 2012 by 8.7% worldwide. It's above all, thanks to Elsève, just launched at the end of 2011. And it grew by 0.4% in Western Europe and gained 1% market share in 2012.

The Argan [ph] resist module. Major innovation for hair, which is fragile, has a tendency to fall, has been one of the drivers of the relaunch. Now outside Europe, I would mention the success of the launch in India where Elsève captured over 6% of the bottle market. And this success has been driven, firstly, by Total Repair 5 and then Argan.

Here's an Indian advert.

[Presentation]

Jean-Jacques Lebel

You won't be surprised if I now show you the U.S. launch of the range called, L'Oréal Advanced Hair Care. It's been on the market since early January. We can already say, the results are promising. Frederic Rozé will give you more details later on.

What's important also in haircare market is our leadership in treatment and in the high premium segment. You know our hair expertise range now sold in the U.S. and in Europe. And this year, we launched hair oils and created a new haircare option on the mass market around the world from Brazil to Japan with a retail price between EUR 6 and EUR 9.

Let's now move to skincare, which grew overall 6.8%. It was a success for our 2 brands, L'Oréal Paris and Garnier. L'Oréal Paris achieved worldwide success with Revitalift Laser, an antiaging cream so effective that we compared it to a laser session. And here's the film.

[Presentation]

Jean-Jacques Lebel

At the beginning of this year, we'll be launching Age Perfect Renaissance Cellulaire, big innovation for the senior market. Garnier has internationalized our spot corrector, the first anti-spot treatment on the mass market. Garnier has also internationalized the BB Cream that I presented to you last year, which is now being extended to greasy skins, sensitive skins and lately, antiaging. It's a product that's emblematic of the renewal of Garnier in many countries. BB Cream, in 1 year has become a category in its own right. It's now gone around the world with our brands: Garnier, L'Oréal Paris and Maybelline.

After haircare and skincare, here's makeup. Maybelline was up 6.3%, with very good growth in the U.S.A. and China. And now I'll show you the latest film of our mascara, Volum' Express Mega Plush launched at the end of last year.

[Presentation]

Jean-Régis Carof

And finally, Essie has confirmed its success in the U.S.A. and Europe, with sales up 118%. In hair color, few months ago, we launched Olia by Garnier, the first mass market hair color with ODS technology. And here's the film.

[Presentation]

Jean-Jacques Lebel

Since January, there's Préférence Mousse Absolue by L'Oréal Paris, hair color mousse with non-mixing and reusable. When it comes down to it, across all categories in 2012, it's L'Oréal that had the most relevant innovation along with ad, because we don't often talk about it. The SoftSheen-Carson brand, launched in South Africa a new hair color, Dark and Lovely Color Intensity got off to a very good start. And SoftSheen-Carson grew 8% in 2012, and here's the film, too.

[Presentation]

Jean-Jacques Lebel

And our brands targeting men with skincare where L'Oréal Men Expert, which was up 13%; and Garnier Men, up 38 -- 37%.

I would now like to say something about Digital. First, it's become a media in its own right with a very attractive turn on investment. There are more and more examples that show this. Here's an Indian one with Maybelline where 2 products, BB Cream and Cacharel [ph], have been shown on social networks with a very good ROI. Then there's e-commerce. E-commerce is already 3% of our sales in China, which has a lead in this area. And we have prioritized 6 markets where we're aiming between 3% and 5% of our sales between now and 2015 combining our retailer sites pure players [ph], and in some cases, our own sites.

So in conclusion, 2013, we are stressing the following points: continuing market share gains in Western Europe and North America. And I am confident, thanks to our innovation program and our premium products, which work very well in 2012, which are very strong for 2013. We need to continue to push into new markets. Good reasons to believe that this is possible plan of attack in China, the acceleration in sell-through in Brazil, our range of targeted projects. The gearing up of our development teams and laboratories located in the large, strategic countries and the sizing with our supply chain and the sales and marketing in these countries. We need to continue the appropriate allocation of our business drivers by category, by geographic zone and the rollout of ROI measures of boosting efficiency driving profitable growth. We are therefore very confident for 2013.

Jean-Paul Agon

Thank you, Jean-Jacques. As you've seen, a collection of great products at the Consumer Product division as another division exceptional year in terms of great new products that were very well received by the public and very spectacular market share gains in most competitive markets. So now, let's move to the other universe. The Luxe universe with Nicolas Hieronimus.

Nicolas Hieronimus

Good morning to you. For L'Oréal Luxe 2012 was truly a vintage year in the selective market, which in spite of a slowdown in H2, posted reported growth for the third year running up 6.3%, L'Oréal Luxe clearly outperformed the market with growth of 8.3% on a like-for-like basis then topped revenue of EUR 5.568 billion.

Our growth rate for sellout was similar and grew at 1.3x the market figure, a strong and regular market share gain, which was even stronger over the Christmas period. Geographically, we posted strong growth in revenue in North America, in the New Markets and also reported gains in market share in Europe in a quieter business environment. L'Oréal Luxe experienced a year of double-digit growth in China, in Travel Retail sector, where we strengthened our leadership. Also in e-commerce, 3 key stakes [ph] for our development.

In terms of brands, 2 highlights. Firstly, a very great year for Lancôme, the world's leading luxury brand for women, which achieved growth of in excess of 10%. The brand has grown everywhere in the world at a remarkable pace, backed up by innovation leadership, the power of its business drivers and a striking rise in levels of luxury and service.

Secondly, the change of status for Yves Saint Laurent voted Brand of the Year by the American magazine, Women's Wear Daily. Yves Saint Laurent has moved up from a still rather Western brand of fragrance and makeup to a world class multi-category brand also present in the skincare sector. The brand's conquest of Asia is ongoing. We'll continue in China in 2013.

This morning, I'd like to underline with you the growth levers for L'Oréal Luxe in 2012 and address the outlook for 2013. First growth levers that confirm power of our skincare brand. Lancôme recorded once again a great year for skincare closing in on worldwide leadership in this category. Thanks to its lead in terms of scientific innovation, Lancôme continues to accumulate real breakthrough product, such as Genifique Light Pearl Yeux and its revolutionary applicator rewarded by the Marie Claire, Prix D'Excellence, it joins a long list of great iconic products from Lancôme in the antiaging area. The brand continuing to climb the luxury scale and broken through in the premium segment with its Absolue range, whose flagship products, Absolue L'Extrait has won acclaim from Asian users.

Kiehl's, now a major world player, has continued its rapid growth in the facial skin care sector. With, in particular, it's new brightening serum, Clearly Corrective, which has just taken over the #1 spot in the U.S. for men's selective skincare. Kiehl's has opened 188 door openings worldwide in 2012, including the Travel Retail area and growth areas, such as Brazil.

Skincare performance, the result of growth of 47% for Clarisonic in 2012. The name we acquired a year ago, which has been seamly [ph] integrated with full respect for the brand's originality. It's a little branch on the up-and-up, Clarisonic, once again, the brand with the strongest growth in the selected skincare market in the U.S.

France successfully launched the brand last September at Sephora, but Clarisonic is also already #1 skincare. And in China, the beginning of the year on a wave of euphoria, Biotherm, the Skincare Specialist has clarified it's beauty from the deep positioning based on aquatic biodiversity, came back at the end of 2012 with Blue Therapy, which has made a spectacular start. Finally, Yves Saint Laurent brilliantly attacked the strategic skincare segment in 2012 placed the serum, Forever Youth Liberator, a technological breakthrough focused on glycobiology right up there with the year's best products. In 2012, skincare was, once again, the #1 driver for our growth.

Second growth lever in 2012, female -- feminine fragrance. It was a high-stake challenge in 2012. L'Oréal Luxe reinforced its #1 position in the world fragrance market with a strong year for men's fragrance, thanks to Acqua di Gio Essenza, also Diesel. Only the brave [ph] to two [ph] with the wonderful surprise from Spicebomb by Viktor & Rolf. But above all, a strategic breakthrough in women's fragrance. Indeed for Lancôme, La Vie Est Belle, embodied by Julia Roberts. This delectable iris was quite simply the greatest worldwide launch in 2012 in the fragrance market. With Yves Saint Laurent, they invent -- was manifest a very sensual fragrance, embodied by the new star, Jessica Chastain, introduced in Europe at the end of 2012, a success in France. It rose to #7 over first months of the launch with Ralph Lauren, big pony collection. Women successfully won over a young customer base in Latin America, North America.

Lastly, Viktor & Rolf joined the very select club of great brands of perfume. Seven years of its introduction, Flowerbomb has risen to sixth place in the total market for women's fragrance in the U.S. and up to #1 in prestige department stores.

Thirdly, the -- of our growth is huge progress achieved in the quality of the retail experience offered to customers. It began with the expression of our brands all around the world. We've implemented new and high-quality sales outlook identities for Lancôme, ISM [ph], Yves Saint Laurent, which in qualitative terms, has made a huge leap forward, and again, for Armani with spaces reserved for [indiscernible] exceptional fragrance. We've also worked very hard on the theatricalization of our brands and our product launches. This upturn [ph] in quality of sales outlets is also evident in our Travel Retail business, a privileged channel in selective retailing. Today, airports have become real luxury shopping malls and our brands have been showing what they do best to global shoppers from China, Russia, Brazil or the Emirates.

Great care has been taken over actual service adapting it to the diversity of customers, creating specific hospitality for our most luxurious ranges, such as Absolue de Lancôme. Lastly, our Digital experience features increasingly rich creative content. Our brands vie with one another to achieve the highest standards of creativity and CRM and social networks with the 60 successfully boutiques. Wonderland, the virtual visit of the house of Lancôme that you can discover in the cocktail area, is a perfect demonstration of the meeting of the digital and the live experience.

Now what are the prospects for 2013? I can confirm to you that they're good for L'Oréal Luxe. For fragrance, their division should be riding high on the momentum, a very successful 2012 with several quality initiatives at the start of this year and a new highlight moment in women's fragrance in the second half. Skincare will once again be the powerhouse driving our growth. From the first quarter, we're launching major initiatives across our brands shown here on the screen.

Makeup. After a speedup in revenue in 2012, thanks to real breakthrough and breakaway products, such as the lip varnish from YSL and [indiscernible] from Armani should be even higher in growth terms in 2013, but [ph] in particular, a new vintage of launches from our major brands, but also thanks to our latest acquisition, the Californian makeup specialist, Urban Decay.

Urban Decay reported revenue of over EUR 100 million in 2012 and it's above all the link that was missing in L'Oréal Luxe beauty, this young outspoken and affordable brand in selective retailing completes the division's front-line signatures. As you can see, L'Oréal Luxe now boasts a very high-performing portfolio of brands. Global multi-expert brands complemented by [indiscernible] skincare specialist, such as Kiehl’s and Clarisonic or makeup experts, such as Urban Decay, Shu Uemura and fragrance with our top designer brands. So L'Oréal is heading into 2013 with the ideal portfolio of brands. An innovation plan that's always been our strength and expertise in luxury that is constantly moving forward.

I now propose to conclude with an illustration and pictures of the new luxury at L'Oréal, and thank you for your attention.

[Presentation]

Jean-Paul Agon

Well done. Only Nicolas could end on a note of opera. I have 2 things to add to the presentation. Firstly, that we're -- we have the satisfaction in 2012 of achieved a very fine year for the Luxury segment. For those who sometimes say L'Oréal was #1 in Luxury. Well, we were #1 in Luxury. The Luxe division at L'Oréal put in the finest performance of all the major luxury cosmetics companies in 2012. And that really does demonstrate our know-how.

Second more important idea is I hope that you see through these presentations to what extent the 4 L'Oréal divisions represent 4 separate business segments, 4 different universes. Of course, the point they all have in common is beauty, which is the world in common and driven by research that drives the breakthrough developments and innovation. But our strategy is really to differentiate fully each of our divisions, so that each division really is the champion in its business segment.

So there isn't the idea of have one big common part, L'Oréal is 4, possibly 5 with The Body Shop. Five very different businesses where each division seeks to be the best in its business segment. So that's a good introduction to discuss Professional Products, which is a very different business. And An is going to present that to us.

An Verhulst-Santos

Ladies and gentlemen, good morning. Our Professional Market showing only small growth. Our division closed 2012 at plus 2.1% like-for-like and plus 6.7% on a reported figures. 2012 was a year with moderate growth for 3 main reasons:

Firstly, the economic difficulties facing western countries resulted lower frequency of visits to hair salons. Secondly, our business is cyclical. And a current trend of long hair, well, naturally means that there is a low cycle in hairdressing sector. And finally, 2012 was the year in which our first generation, INOA, was successfully upgraded to INOA 2, but the -- a big [ph] transition, required major efforts from our sales and training teams. And therefore, our expansion into new salons started later in the year.

In addition to [ph] 2013, [indiscernible] growth rate, and we are confident that we can meet this objective. To this end, we will be rolling out a 5-point strategy: Firstly, expansion of our distribution; full exploitation of the luxury haircare opportunity; gain market share in hair coloring, thanks to our superior ODS technology; speed up the growth of our international footprint and seize emerging opportunity, that's to say, Professional Market.

Let me first talk about our conquest of distribution. At the beginning of the year, I shared a major challenge with our teams. That's to say, winning over 1 million new hairdressers. And it has taken us more than 100 years to reach global distribution that we currently estimate are at 1.5 million hairdressers now. The goal now is to capture the next million hairdressers in 10 to 15 years. This is an ambitious project. And this means, in particular, doubling our current rate of recruitment of hair salons starting this year 2013.

The second growth lever is capitalizing on the continued success of our luxury haircare brands. In 2012, Kérastase, Shu Uemura, Art of Hair and Pureology all recorded growth comparable to the major luxury brands in the beauty sector.

Kérastase, for example, is attracting luxury consumers, especially young ones, thanks to Cristalliste and its social media campaign with more than 2 million views on YouTube. In France, 47% of Cristalliste users are new to Kérastase and their repeat purchase rates are excellent. The brand also attracts these new consumers via additional channels, such as e-commerce in the United States, which already accounts for 9% of Kérastase's U.S. turnover. And in China, with the first Kérastase counter in a department store in Shanghai with 97% of customers discover the brand for the first time. There are also cutting-edge technological innovations, such as INITIALISTE, the first-ever haircare serum inspired by skincare. With its native cells from plants, INITIALISTE uses a breakthrough technology, developed by our laboratories, that's totally new in haircare. Following its introduction in Europe, the end of 2012, Kérastase will launch this new haircare product in Asia and the United States in the early part of this year.

And finally, we're capitalizing on oil treatments for hair as this new haircare category, used by Kérastase and all our brands, is now a universal phenomenon. Oils will continue to boost our growth on the professional haircare market.

The third major asset in our growth strategy is our Oil Delivery System or ODS hair color technology. ODS is now a proven tool for capturing hairdressers, ensuring their loyalty. It's now become a vital business pillar whether L'Oréal Professionnel or Chromatics by Redken or COLORINSIDER by Matrix, currently launching in the United States. Since the launch of ODS, we have recorded more than 86 million applications of this technology, up 53% in 2012. The technological superiority of ODS is definitely encouraging more women to have their hair colored in salons as in the U.K., where our INOA mobile application has enabled our hairdressers to acquire 115,000 new clients. In 2013, we will be further leveraging the extraordinary properties of ODS, both in terms of color results, of course, but also respect the hair and scalp through the launch of INOA ultra blonde, which is a breakthrough innovation from our laboratories for blonde and highlight services, will be exclusive to salons.

Fourth, we are accelerating our international footprint. New Markets only account for 30% of our business today and are therefore a major opportunity for the division. Asia is our #1 contributor to growth with India in the lead, where we have doubled our Professional business in 3 years. Its development is above all come through education. And marketing that is attentive to the local needs of the market with, for example, the launch at the end of 2012 of the first fair cost [ph] coloring wonder black by Matrix.

In India, Matrix is enjoying very strong growth, and this business models serves as inspiration for the rest of the world. Again in India, L'Oréal Professionnel with a very premium approach, leverages local rituals, such as with this wedding collection as well as with particularly innovative services, such as steam pot [ph], a steam-activated hair smoothing service. Steam pot [ph] is a resounding success in India, and indeed throughout the world.

Our growth rate in China increased twofold, in 2012, and we're also counting on Korea and Indonesia, which are both very dynamic markets, for more rapid penetration across Asia. Beyond Asia, potential obviously exists in all emerging markets. Our strategy is to invest in education first to develop hairdressing businesses, which needs professionalizing in all areas, in particularly, in these New Markets. So every year, we train close to 2 million hairdressers at trade conventions and within our academies or by e-learning that can be accessed via smartphones. Furthermore, thanks to our training institutes, we educate thousands of young people in the hairdressing craft, which contributes to the development of local economies while raising the standard of living. In line with this strategy in 2013, we will be opening training institutes on the Brazilian model in South Africa and Saudi Arabia.

And finally, the fifth pillar of our growth strategy is about grasping new opportunities soon as they arise. And here, we want to capitalize on the dynamic growth of nail bars, which offer professional nail care and nail color services. And to do this, we have just launched Essie professional in Europe and will roll out the brand in the near future. In New Markets, the professional nail polish market is growing rapidly, and this will bring additional sales to our professional hair business.

And to conclude therefore, we are confident and determined to accelerate our growth. The hairdressing business has always existed and always will exist. We are committed to bringing a new growth dynamic to the professional market and to providing innovation, services and training that can be game changers and generate additional revenues.

Thank you for your attention.

Jean-Paul Agon

Well done, and thank you for that. So you've seen that even if the professional product markets in developed countries has been rather weak these past few years, perhaps because of the crisis. We're not in any way resigned in the face of this situation. I mean, it's L'Oréal, which really is there in the hairdressing business. We're not going to discard this business. We'll find a way of rejuvenating it, reviving it. And as An says, as long as hair grows, there'll be hairdressers. As long as people go to hairdressers, we'll develop products for their business.

So we're extremely determined to kickstart our Professional business next year. Don't forget that for the -- all [ph] business segments, it has the smallest international footprint, so that best is yet to come. So to conclude on a high note before we hear from our guest up, Brigitte Liberman on Active Cosmetics that has shown great acceleration in 2012.

Brigitte Liberman

Good morning, all. The turnover up by 5.8% 2012 was a year of accelerated growth for Active Cosmetics. But above all, it was a really historic year from several viewpoints. Division grew its business nearly twice as fast as the market, winning market share in the main geographical areas in Western Europe. Active Cosmetics are back up to a growth curve, up 1.8%. On a market that remained flat, in market share in both Northern and Southern Europe. In France, there was remarkable performance with 8% growth driven by the success of new innovative products, a big increase in doctors prescribing of La Roche Posay and the active support of pharmacists.

In America, we made a spectacular breakthrough with 17% growth in 2012. And this was the result of our rollout strategy of both Vichy and La Roche Posay in nearly 7,500 American drugstores. Now of particular importance here was the role played by the setting up of dermatological skincare centers where advisors, trained by our teams, give expert advice to consumers.

The New Markets grew by 9%, with Latin America once again having a very strong year, up 18%. All our brands contributed to this performance. And in Asia, La Roche-Posay continued its market penetration with 19% growth, very strong. For the first time ever, the turnover outside of Western Europe, which is the division's historical market, accounted for more than 50% of total sales. Add in our top 6, we now have countries like Brazil, China and the U.S.A.

The division is well set for this change with its unique portfolio, global and competitive brands. In 2012, witnessed the recovery of Vichy, the fruit of the renewal of every aspect of the brand. Vichy has strengthened its presence in pharmacies and drug stores and gives up [ph] a new identity. Communication is based on new concept, now ideal skin. This is positive and optimistic. And the packaging is also more attractive, and the brand now expresses itself in a completely new way, at point of sale with a more premium merchandising approach adapted to product testing. And Vichy accompanies consumers on a daily basis with a new interactive digital platform called, the Ideal Skin Blog, which offers expert opinion on video together with live chats and advice.

This new brand personality has been driven by 2 major innovations: Firstly, Idealia, the first skincare products for creating ideal skin was immediately ranked in the top 5 main antiaging products in European pharmacies; and Dercos Neogenic, a revolutionary product containing stemoxidine, a new patented molecule, which helps new hair producing stem cells to function better. At the same time, Vichy launched the first online alopecia observatory, and thanks to the quality of its content, developed groundbreaking partnerships with French benchmark sites, such as [indiscernible] or [indiscernible]. At the end of the year, Neogenic became the best selling anti-hair loss product in Europe.

Alongside [ph], Vichy is a leader. La Roche-Posay again achieved double-digit growth. This was driven by the combined success of its whole catalog and recent product launches. Aera [ph] and BB, the first BB Cream for sensitive skin and Redermic R, which has been awarded several prizes around the world, thanks to its formula, enabling extended release of retinol to avoid skin intolerance.

La Roche-Posay confirmed that its business model, based on medical prescription, is very robust, did so by moving onto the next stage of its international development as the brand has now become the #1 in derma cosmetics in Brazil, which is its second-largest market after France and a real reference in terms of health and beauty. Then finally, the division's newer brands have together also produced double-digit growth.

SkinCeuticals, the premium medical and professional brand, continued its upward trend, for example, with over 16% based on the development of the aesthetic procedures and medi-spas [ph]. And the key to this success was integrated skincare, which means skincare that can be used before, during and after procedures to prolong the effect through daily use at home. And this way, the brand succeeded in developing a medi-spa concept, not only in Europe, also in Canada, Asia and the Middle East, while still remaining a stronger dynamic in the U.S.A., which is its home country.

As you can see 2012 has been a crucial turning point for Active Cosmetics. The result of a fundamental change in the divisions, such as the diversification of distribution channels outside pharmacies, the strengthening of partnerships with all players in the medical field, the extension of our business models to provide more advice and services and speeding up of our internationalization.

In 2013, the prospects look good around the world. This will be driven by new initiatives across all brands with new product launches such as LiftActiv Sérum 10 eyes and lashes from Vichy, the first serum smoothing out the area of around the eyes while reinforcing lashes to open up the eyes. NUTRITIC INTENSE from La Roche-Posay, which is a formula produced from research on atopy to relieve the painful sensation of dry skin. Fleur de fige [ph], the new range of perfume fresh water and body care from Roger&Gallet [ph]. Diet partner from Innéov. The first range used as an integral part of a diet based on a new Lactobacillus coming from Nestlé research. And finally, body correct by SkinCeuticals, a range of body care products designed to accompany aesthetic procedures. So for these reasons, we are approaching 2013 with a lot of optimism, especially since because in the years to come, skincare should become the main category in a worldwide beauty market. Thank you very much.

Jean-Paul Agon

Well done, Brigitte. Thank you for that. So Active Cosmetics division really accelerating once again. So to end, we've asked Frederic Roze, who many of you know because you met him in New York last year during the analysts trip, to come and tell us about the latest developments on the U.S. market and the latest battles that are underway on this fascinating highly competitive market.

Frederic Roze

Thank you, Jean-Paul. Good morning, everyone. I'm very happy to represent the U.S. teams and presenting to our 2012 results. I hope to be able to show you how L'Oréal U.S.A. is an important growth opportunity for L'Oréal. First, the U.S. presents a growth opportunity because our market share in the region is still lower than that of Western Europe across division. We have 14% market shares against 20% in Europe. The U.S. also a growth opportunity because the American market was very dynamic in 2012. All categories and distribution channels combined, it grew by 4.6%. All categories are up. Note that the 2 most important, facial, skincare and makeup are extremely dynamic. All distribution channels are up. The selective was extremely positive, in particular, in the first half of the year. This U.S. market will remain very dynamic structurally because the U.S. population is growing. 27 million more inhabitants in 10 years and this will continue. Gradually, the percentage of Hispanics, Asians and African-Americans keeps growing. They contribute to winning elections but more importantly, they're over consumers of beauty products, which is very favorable for our brands. Finally, the digital revolution drives the market by facilitating access to brands. In this new area, e-commerce is growing and we're growing actually even faster, up 36% in 2012 versus 10% at digital beauty. Let's look at the acceleration of our growth after plus 5.6% in 2012. The U.S. teams achieved plus 7.4% for 2012. It's much higher than market growth, very different from the results of our main competitor. This growth is sustained by our capacity to improve our media investments. In 5 years, we've gone from #25 to #5 of media investors in the U.S., all industries combined. In digital, we're investing far more than our competitors. We've taken leadership in search, which means that we are by far #1 when U.S. consumers are searching for keywords beauty on the web.

Let's look at results by division. First, the largest, CPD. In 2012, CPD significantly beat its market, strengthening its #1 position on the U.S. market acquired at 2011 [ph]. It managed to grow faster than market across categories, more specifically for makeup and facial skin care. In makeup, Maybelline reinforce its #1 slot and increased the gap with the second. Garnier performed extremely well in all categories, particularly facial skincare with the launch of Dark Spot Corrector and BB cream, but also in hair color with very strong growth for Nutrix. And in 2013, Garnier is launching Olia, the ODS technology accessible to everyone. The first launch results are very promising. Our acquisition Essie performed extremely well, up 49%, has now captured 12% in the very dynamic nail market in the U.S. Finally, L'Oréal Paris performed -- very good performance in facial skincare, makeup and haircare with our ever brand and it's no sulfate formula.

Let's say a few words about our biggest launch in 2013. On the North American haircare market, L'Oréal Paris was underrepresented versus Western Europe, 3.4% versus 13.9%. In Europe after 3 years work on concepts, formulas, packaging and advertising, we're currently launching L'Oréal Paris Advanced Hair Care. 5 modules which cover all the needs in all hair types of American women with shampoo, conditioner and specific treatment for each module or category that's quite underdeveloped in the U.S. Here are a few examples of the print advertising with the principal spokespersons Lea Michele, Jennifer Lopez, Julianne Moore, Eva Longoria. Let's look at the clip.

[Presentation]

Frederic Roze

So the launch is, of course, supported by unprecedented digital activity. Finally, a few examples of the in-store launch, where the impact is very strong. Initial results exceed our forecast. Some of our customers have received [ph] the latest market share, we're even above 5% market share. We're very confident in achieving a great year 2013 with this fine launch.

The luxury division now. This division also significantly beat its market. Thanks to strong innovations in key brand. Lancôme with La Vie Est Belle and Visionnaire, for example. Armani with Maestro foundation, YSL with the lipstick. American brands are generating double-digit growth, with Clarisonic achieving almost 50% on the U.S. market.

We're now very happy to welcome Urban Decay, which is an ideal complement to our makeup portfolio and strengthens our position at Sephora and e-commerce.

Moving now to Professional Products. In a sluggish market, the hair continues to grow, but the divisions brand grew [ph] faster and we strengthened our market share at the very strong #1 position. The ODS technology launched first with INOA, with L'Oreal Professionnel was extended to Redken, #1 in the U.S. Important haircare initiatives launched in Matrix with exquisite oil and Kérastase, Pureology posted double-digit growth.

A few words about SalonCentric, where our brands showed good growth higher than the market, the modernization and simplification of SalonCentric are major projects synergies moving along. We started the project at the end of 2011 going from 14 to 6 distribution centers, from 9 head offices to 1 head office and from 9 to 1 SAP IS system. The major project will be completed at the end of December 2013, and it will be even more efficient in the future.

Finally, Active Cosmetics. The division beats the market, 4 brands posting impressive growth. All pretty much in double digits done with the launch of great products such as SkinCeuticals, Redness Neutralizer, Vichy Serum 10 or La Roche-Posay daily [ph] primer. 2012 was also the year of the expanding distribution for La Roche-Posay and Vichy at Walgreens and Alta, in addition to CVS [ph]. It's very important for the growth of Active Cosmetics in 2013.

In conclusion, on the great dynamic U.S. market and whose growth potential for L'Oréal is very significant and, indeed, more significant than most emerging markets, it was a good year of conquest in all our divisions. For 2013, I can assure you the full motivation of the U.S. teams in order to beat the market once again significantly. Thank you.

Jean-Paul Agon

Thank you, Frederic. Well done. Now those of you [indiscernible] I can tell you that since the U.S. is an emerging market, not in terms of consumer sophistication, but growth potential for L'Oréal and it has to be said that you might be right. And not uncommon [ph], it seems important to me is the outstanding performance of our U.S. business, which shows our ability to win market share head-to-head against any market competitor even on their home patch, if I can put it that way. And as they say in New York, if you can make it there, you can make it anywhere or everywhere. So it's a wonderful proof of our ability to win market share around the world.

All right. Let me now give you an overview of what you've heard and explain why we are satisfied about 2012. We'll be talking about the changes that the company has gone through in this past year and the reasons of why we are optimistic for the future, in general, in 2013 in particular. I hope you've realized listening to my colleagues' reports that everyone is full of vim and vigor. Now first positive point in 2012, I usually mentioned this [ph] -- the market for cosmetics remains solid and dynamic. Market was up around 4.6%, in line with 2011. And with historic average, this average [ph] growth rate is, in fact, once again the result of extremely contrasting rates of growth across the different regions and distribution channels.

So EMEA [ph] regions first. Western Europe remained flat, where [ph] the situation that is still very different in northern Europe, where the trend is positive, and the situation in Southern Europe. Sorry, Southern Europe -- I said is negative, but its relative shares declined considerably, so it only accounts for 6% of the world market now. Positive dynamic in North America continues, as you just heard from Frederic, and New Markets including Japan have continued to grow -- to drive the growth of the worldwide market. For example, Asia Pacific slowed slightly because of the sharp downturn in South Korea and to one [ph] temporary dip in China. South America recorded strong double-digit growth. Eastern Europe was down slightly on its 2011 growth and Africa, Middle East has been growing quickly.

There was a very striking contrast between distribution channels. Luxury channel, I mean, buoyant and lucrative even though it slowed slightly in the second half over the first. Mass Market conversely accelerated for third year running, mainly because of the increasing relative share of New Markets. The hair salon channel remained fairly sluggish in developing countries because women are visiting salons less frequently. And finally, dynamics of pharmacy channel, pretty much the same as in previous years. Against this background, the L'Oréal group delivered exceptionally [ph] strong performance in 2012. So let me share with you 5 reasons for satisfaction: Firstly, L'Oréal once again demonstrated in 2012 its ability to outperform the market, strengthened its leadership and expand its position even on the most difficult and competitive market such as Western Europe and United States, or North America. In North America, as Frederic has just shown you, we've been progressing twice as fast as the market. And in Western Europe we're already easily market leader, and we're continuing to strengthen our positions. Thanks to very substantial advances in strategic countries, such as France, Germany and the U.K. Whereas at the same time as Christian has shown, we are still improving our profitability. As for the rest of the world, 2012, we continued winning New Markets around the world, growing 1.4x as fast as the market with high-growth rates in countries that are strategic for the future, China, India, Indonesia, Latin America, Gulf states and Turkey.

The second reason for satisfaction, I would say, is probably, in my view, one of the most important and that's that 2012 was an excellent vintage for innovation and new products across all divisions and categories. So, it should never be forgotten that in our business, beauty and, in fact, many others, what makes a company a winner is primarily its ability to innovate and make high-quality products. It's through innovation and the extra quality premium performance that you provide that you win more and more consumers and ensure their loyalty and that you beat your competitors on global markets. And in a sense, 2012 was a great vintage for L'Oréal, which in all channels and categories successfully, whether we're talking about the fragrances, haircare, skincare, across all these categories created what I consider to be the finest products in the industry, stimulating supply and driving the market forward.

Third reason for satisfaction. 2012 saw the implementation of a major renewal effort to some of our top brands. As you've seen, with the success of Génifique, Visionnaire, Rouge In Love, La Vie Est Belle, Lancôme is once again a dazzling star in the firmament of luxury beauty with its new territory, ideal skin, its new packaging and new advertising campaign. Vichy is having a real renaissance and getting back to growth on market share gains even in Western Europe. With its innovation, with worldwide potential such as BB cream and the new Olia hair color and its new look ad campaign Garnier has reinvented itself as a modern, engaging cosmetic [ph] brand or the best friend of women consumers. And finally, thanks to its new launches such as Chocomania Drops of Youth and its new continue [ph] and temporary store format and its rapid e-commerce growth, The Body Shop brand is gradually getting back to modernity and appeal and it's accelerating its growth. At the same time, our catalog of brands was enriched in 2012, the new acquisitions and the continued to further intensify our coverage of the beauty market with Cadum in France, we are strengthening our position on the hygiene market. The brand has been growing strongly since its acquisition. Colombia with Vogue, we've captured leadership in Mass Market makeup and doubled the size of our Consumer Products business. And with Urban Decay, we have at last, the hip professional makeup brand that will enable us to expand in an important segment of the selective channel where we were previously absent.

Fourth reason, satisfaction is the acceleration of internationalization. 2012, as you saw in the release, some major step forward as for the first time ever the New Markets have became the #1 sale zone for L'Oréal, accounting for some 40% of the group's cosmetic sales. We have continued winning in Asia, solid growth in China, strong growth rates in India and the strategic countries of Asia such as Indonesia and Thailand, with our strengthened positions in many Latin American countries, such as Mexico, Chile and Argentina and built a launch pad for rapid growth in Colombia and Peru and prepared acceleration of growth in Brazil.

As announced, growth has started climbing again in Eastern Europe, particularly in Russia, where it should increase further in 2013. And finally, in Africa and Middle East, we have recorded strong growth in Turkey and in the Gulf states. We started a subsidiary in Saudi Arabia and established the base for our future development in Sub-Saharan Africa. And last but really not least, under fifth reason for satisfaction is that for the group, 2012 was a year of strong value creation and improved financial results.

For once, assisted by monetary tailwinds, we achieve double-digit sales growth and sales reached almost EUR 22.5 billion. Operating profit as you saw grew faster than sales, up 12.3%. Net profit of noncontrolling interest also set a new record, almost EUR 2.9 billion, up 17.6%, and net earnings per share was EUR 4.91, up 13%. And finally, this was one of our targets in 2012. Thanks to strict management of inventory and customer credit, cash flow improved spectacularly, up more than -- up 26.4% to reaching a figure of EUR 2.58 billion, a new record.

Now these figures illustrate the power and efficiency of L'Oréal's business model there [indiscernible] and quality have meant that the Board of Directors is going to put a proposal to the next AGM, increasing the dividend by 15% to EUR 2.3. 2012 was also a great year of change and progress in L'Oréal, further adjusting to a rapidly changing world and preparing a success for going forward. And the first fundamental change is that of our research and innovation, which under the leadership of Laurent Attal has been spectacularly transformed over the last 3 years, becoming more modern, more open, better aligned, more efficient and more productive. The research and innovation arm of L'Oréal is unquestionably the most technologically advanced and powerful in the industry. And this was reflected in the official opening last March of our new worldwide hair research center in the Paris suburbs of Saint-Ouen. EUR 100 million investment, undoubtedly the largest hair expertise and research center in the world in any industry. At the same time, we continued developing our regional research innovation hubs, which are crucial for our universalization strategy. In Europe, Rio, Tokyo and Shanghai, 3 weeks ago with Laurent Attal and the Prime Minister of Maharashtra. You can see on the photograph [ph]. We opened our fifth hub in Mumbai. The second major transformation was the development of our production facilities to back up our conquest of new markets and the next 1 billion consumers. In November of last year, we opened our new Jababeka plant in Indonesia, which will be the group's largest with the capacity of -- in the future of 600 million units. And in December, we also opened our new plant at San Luis Potosí, in the presence of the Mexican President. This will be the largest hair color plant in the world. 2013, we will soon be opening a new plant in Egypt, enabling us to supply all the Middle East markets and this is an area where we're accelerating very fast. And at the same time in 2012, L'Oréal's industrial operations continue to modernize, making major advances in all areas, specialization of plants, widespread introduction of [indiscernible], optimization of purchasing, productivity improvement and greater efficiency, et cetera. And advances in the supply chain have enabled major progress in terms of service ratio and inventory levels. And we still have quite clearly large potential sources of cost savings going forward. Third transformation -- third major change is the group's digital revolution. You heard about this last year from Anniston [ph], and this is something that is continuing to move forward fast. It's a major and priority area. It's potential lever or leverage effect is immense on all fronts, whether be it sales growth, consumer communication, productivity of growth drivers and we are making fast and determined progress on all of these areas, so we are recruiting talented digital media people around the world. We're developing digital communications across all divisions and brands. And as you've seen, this is now amounts to some 10% of our media spend. And our businesses are launching a differentiated range of initiatives in e-commerce, which saw sales grow by over 30% in the group in 2012. And in fact, even 40% for Body Shop.

Fourthly, and it's something very important. We are also advancing with the same determination in the optimization of growth driver profitability, which is a major economic opportunity for the group. By making the most of space purchasing and negotiations, systematic introduction of advertising efficiency test and econometric models of impact on sales. In 2012, we continued increasing the power of our growth drivers while slightly reducing relative cost. This opens up very attractive prospects for the future.

Fifth, finally, in 2012, we made major advances, in all areas of social responsibility, where a leading company like ours has a duty to excel in social and ethical matters, diversity and environment. And for example, the fact that L'Oréal was named by Vigeo, as the leading French company in social responsibility over the last 10 years is a fitting recognition of our efforts and achievements in this area. So I think we can say that strengthened by these successes and advances in 2012, we are looking to the future 2013, in particular, as I was saying, with optimism and confidence. Firstly, confidence in a positive dynamic of our business and market. We believe that the cosmetics market should remain buoyant in 2013 with growth similar probably to the 2012 level. And probably with the same contrast between channels and regions. Beauty is an eternal -- an universal need. It's a constant quest by women and men around the world for better and new different products that meet their dreams and needs more and better. Cosmetics is like [ph] a supply-driven market and, therefore, by innovation and demand and driven one, particularly [ph] by the powerful French and middle classes around the world. It's, therefore, structurally a buoyant market and will remain so. Secondly, confidence in the strength of our mission statement, which is, of course, a very aspirational one. Offering the best in beauty to all men and women on the planet in terms of quality, efficiency, efficacy and safety to meet all their beauty needs and desires in their infinite diversity. We also have confidence in our unique universalization strategy, which, in fact, means putting our mission into practice, offering the best in beauty to all, whilst respecting differences with an objective and we're expecting [ph] the whole company winning 1 billion new consumers over the next 10 years. Third, finally, even for confidence in the fundamentals strengths with L'Oréal, research and innovation. As I said, this is most powerful in the industry. It's ability to innovate and make high-quality products. It's unique catalog of brands, the richest and most comprehensive in the industry, and the strength of its business model creating value and cash flow and, of course, the exceptional strength of its people, talented and committed to the group around the world. So with all these grounds for optimism and confidence, we are going forward in 2013 with a firm ambition of continuing our conquest of the worldwide cosmetics market, outperforming market growth once again, strengthening our leadership and improving our earnings. The great L'Oréal adventure is continuing. The future is in our hands. Thank you for your attention.

Unknown Executive

So I think you all deserve the break. Coffee outside and then back for questions and answers.

[Break]

Question-and-Answer Session

Jean-Paul Agon

I see that you've -- the questions can't be too worrying. It's difficult to get people back into the room after coffee. Let's move to Q&A.

I'd like to kindly ask, first of all, the analysts to put their questions. And then in the second stage, we'll open it up more broadly to the press, to journalists. And of course, we'll answer all your questions. We have the cocktail reception afterwards. Don't worry. No question will go unanswered. Who would like to ask the first question?

Jean-Christophe Dourret - Oddo Securities, Research Division

I'm from Oddo. Just a quick question on Asia, in particular, China and the momentum you've seen. It hasn't performed quite so well in 2012. If you've seen of the impact of the Chinese New Year in terms of deliveries in Q4, word [ph] on inventories relatively low, what can we extrapolate going forward in percentage of sales and possibly on L'Oréal Paris. I understand that the e-commerce platform being launched for France. What are your expectations there, and what initiatives might stem from that launch?

Jean-Paul Agon

So, I'll perhaps answer for inventories and give the floor to Christian because inventories -- I was asked whether we were surprised by our inventories result, and if we had anything to do with that. I can say that yes, I can indeed confirm that we worked long and hard on that. The cash flow performance and, of course, you can put the question to all members of the executive committee that I regularly chivied and chased up during the year in terms of cash flow and inventory performance. And it was a deliberate decision on our part to stringently and actively work on our working capital requirement. And the progress in the supply chain made it possible to reduce our inventory levels down to a level -- I don't know if it's low, but at least it's good at any rate because we're at 9.1% of sales in terms of balance sheet inventories, which is good level for a company that produces products such as ours. Also given the category differences, with all the various differences, so good inventory level. And once again, next year, we'll seek to work on that further to put in a fine performance. Because we consider that cash flow is one of the key targets. Cash flow generation is one of the key objectives of our company and what we've managed to achieve in 2012, in fact.

Unknown Analyst

So L'Oréal Paris. Perhaps [indiscernible] Jean-Jacques, could you tell us a bit about the objective for this L'Oréal Paris sites?

Jean-Jacques Lebel

Yes, well, very briefly, e-commerce. I mean we think it's an interesting opportunity for Consumer Products. I set objectives of between 3.5% in sales in certain countries. In France, what we seek is to develop our sales, of course, with the customers. I mean you're familiar with the drive effort. As France, there's a big potential for growth. And L'Oréal Paris, in addition to the plans to work through a merchant site that is to extend its information to allow the customer to buy products directly online. I mean you must see a revolution there or a substantial change in the L'Oréal Paris development model. It really just enriched experience for the loyal customers and consumers. When they're on the site, they're interested in a lot new makeup, Christmas makeup or some fashion makeup, shown by one of the spokespersons, which is to have the right shade. The goal is to attract our most loyal customers, really allowing them to buy immediately online the products of their choice.

Jean-Paul Agon

The U.S. experience, in fact, shows that the more we expand and develop the online experience, the more consumers acquire the products in the sales outlet. So it's an outright win-win proposition. It's part of the modernity of the brand such as L'Oréal Paris to offer these services to its consumers that can thereby have access to the full catalog of the brand. So thank you, Jean-Jacques. China, turning now perhaps to Nicolas because the Chinese New Year is really a boost above all for Luxury. So how did your New Year of the Snake go, Nicolas?

Nicolas Hieronimus

Let me say, first of all, that 2012 in China was a very fine year for L'Oréal Luxe. We had sell-throughs and sales that exceed 20% growth. So L'Oréal Luxe remains the leading cosmetic beauty group in China, success of Lancôme. And you cite Chinese brand [ph] -- this regards the Chinese New Year, there was no specific impact on sales at the end of last year. I mean sell-throughs, the first weekend prior to the new year, we're very satisfied with the sell-through of our brands. In fact, above what we ourselves planned. We'll of course take stock in a week, but it's off to a good start.

Jean-Paul Agon

Yes, Celine?

Celine A.H. Pannuti - JP Morgan Chase & Co, Research Division

Celine Pannuti. I'm from JP Morgan. Three questions. My first -- New Markets, yes. So minus 10% growth this year, we're pretty much used to double-digit growth in previous year, you said 1.4x market growth, I mean is that a new figure that we'll have to look for emerging markets and bank more on 9% in the New Markets? Second question on A&P business drivers and -- actually, there are 2 parts. First, A&P did a bit more promotion in 2012. It was offset by less A&P. I mean how can we view 2013? Generally, you have very confident message on your ability to improve the efficiency of your drivers. Could you give us some short-term guidance 2013, also for midterm? Share buyback, you announced EUR 500 million today, very attractive. You also announced EUR 500 million last year in August. But I recall, there were periods where you're announcing EUR 1.25 billion for the year. So why are we doing that in small slices instead of in one fell swoop given the good cash flow position in 2011?

Jean-Paul Agon

That's a very good question. I'll keep the third for Christian of course. First off, as regards the New Markets. It's true that in 2012, we achieved growth of 1.4x the market in 2012. There were some countries that performed less well than usually. Korea for us is an important country because -- for Luxury. And Korea, that was a country that posted market growth of the order of 20%. Market was up 10% last year, and it was up 3% this year, so very sharp swings year-on-year. So Korea, sharply down last year. Taiwan also slowed sharply last year. Ourselves, we had a couple of setbacks in a couple of countries where we slowed I mean in countries such as Australia and the Philippines. I mean we must view 2012 really as something of an exception in terms of growth in New Markets, and we're very determined to return to growth, double-digit growth across the New Markets in 2013 and beyond. And latest news is pretty encouraging and contribute to that. We're really seeing a real acceleration in Eastern Europe, where we suffered a slowdown. We've emerged from that in 2012. Things are picking up. We sense real growth towards the end of 2012 in Brazil, Latin America, and that should pay off in 2013. We've really overcome our concerns and worries in certain Asian economies. So I think we're really starting the year -- Africa, Middle East, not to forget that geography's continuing at a very fine pace. And we're starting 2013 with the intention of returning to double-digit growth in New Markets. Christian, tell us a bit about the share buyback, and then I'll close with A&P.

Christian Mulliez

France [ph] share buyback, I mean it's simple. You'll recall, we had EUR 500 million last year, end of the year in the autumn. Considering the robustness of the balance sheet, the board decided to repeat EUR 500 million to boost the total return to shareholders, which as things stand, would be close to EUR 2 billion in 2013, when you add up the dividends and the share buybacks. And we'll see in a few months' time or in a few quarters whether we can do more. It's always opportunistic and pragmatic.

Jean-Paul Agon

Absolutely [says Mr. Agon]. I'm sure you're very happy with that answer. So, A&P now. Well, there were 2 separate questions. The first was promotion versus advertising or other A&P. I have to say, we consider that, that really is entirely within our right to be sort of pragmatic and make judicious use according to the markets and depending on the time. I mean the variability is very low because I mean increase in promotion in 2012 was very minor. It's in the order of 30 basis points, not a lot really. But I mean I do lay claim to that right for our business to determine whether or not in a given market, be it the North American market, or if say, for example, Frederic, in a sense [ph], with his head-to-head clash with major competitors on the U.S. market. He feels it's smarter to have a promotion at Walmart than to overinvest in [indiscernible] or elsewhere or the reverse. I mean he's fully entitled to do that, to take the right decision and to be pragmatic. Ditto in Southern Europe, where, in a more challenging economic situation, we did push promotions a bit more, et cetera. So you mustn't see any major shift there. It's really just the resolve to be pragmatic, not at all dogmatic, and to support where it will be the most effective.

Now the other point is more fundamental. Personally, I believe we're witnessing a pivotal moment in terms of investment in business drivers in A&P that there was kind of an automatic effect of these business drivers. And the market share was sort of mathematically correlated to the share of voice or share of investment. And things are now rather more subtle than that. And there's first of all, the fact that as third largest advertiser, we do have strong buying power with the large major agencies. And we can get better tariffs than previously and better than some of our peers. That's the first point. And through the widespread rollout, a very stringent test of advertising, the impact on sales, et cetera, we're really driving our investment in terms of A&P that's very rigorous, stringent, accurately. And I would say when investments are not delivering, we cut them. We change them. And thirdly, the ramp-up of the Digital. I mean Digital, that's interesting because Digital really -- the qualitative is more important than the quantitative. Of course, there is share upsurge as Frédéric told us. But all in all, a great digital idea can have an impact on brand awareness, on sales that's disproportionate to its cost. So for all those reasons, I think, really the rules, the ground rules are changing. It opens up new prospects where we can say that we'll be able to continue to boost the power of our A&P worldwide without necessarily having to, year-on-year, increase the spend of that A&P as a percentage of sales. Okay? So does that mean next year, we're going to reduce our A&P then? No, because we really have the possibility of deciding, depending on the competitive landscape, depending on the markets, depending on categories, divisions, whether we believe it's more relevant or not to boost or not or to limit that somewhat. But in any event, I think that the big news here is that it does give us greater leeway and freedom. That's very important to have the leeway to adjust these options. Yes? Harold?

Harold Thompson - Deutsche Bank AG, Research Division

Harold Thompson from Deutsche Bank. I still have the questions to ask. [indiscernible] on New Markets. My question, too, is that for a few years now, it's been the hope that the New Markets division will improve performance. And every year, there are a few downsides. Eastern Europe, Brazil, sometimes this year seems to be Korea. And so you have a lot of resources available. Don't you think you should put more behind those regions? Or do you think that would be spending too much?

Then about cash. If you think about medium to long term here, you have built up stocks of billions of euros now. As a business manager, are you more interested long term about buying in business, bands [ph], for example? Or are you more interested in investors, the financial return? And so as CEO, what's your top priority, creating or delivering? Then something that raised an eyebrow? Raised an ear? I can't remember exactly what I was trying to say, anything. Africa, a lot of consumer groups say it's the new frontier. You've got to be there. Could you give a quick overview of Africa for L'Oréal? With China, you came in through Luxury elsewhere, mass market. What can you say about Africa?

Jean-Paul Agon

Okay, Harold, quite a raft of question there. Firstly, on New Markets. Well, I already told you my view there. I think we need to aim for growth over 10%. But specifically, about whether more investment, more resources would mean more performance delivery, well I don't know. But the examples that I gave you, the answer is no. in Korea, we could've put twice as much money in. And because there was there was this huge slump, we wouldn't have boosted growth by 1% with all these resources. So for the shareholders, no point overspending when there's no potential sales leverage. And in general terms, as you've seen through what I was saying this morning, our 4 divisions are in 4 different businesses. They have A&P models that are very different. There's no A&P really in Professionnel, very little in Active Cosmetics. In other areas [indiscernible] more is less. So the A&P world is much more complex than you might think. It is not just advertising and promotion. There's a lot in it. And sometimes it's not just about adding in an extra layer that is going to drive growth. And of course, we're trying to run the company efficiently here. But as far as New Markets are concerned, I'm confident. Like I said it was something of a joke, but something serious behind it, namely that our current performance are the most competitive market in the world, namely the United States, does show that if in the United States we can hand out serious defeats to our top competitors, you can do it anywhere. As they say, if you make it there, you make it everywhere. So this is the recipe for success that we're going to apply around the world, and that we think will bring success on those markets. Cash, Christian has already mentioned that, but I think your question requires a clear answer.

Create or deliver? Well I would say it's create and deliver. This is what we do. You said we've built up stocks of billions. Okay, well, not quite yet. We'll see. But over recent years, we generated high cash flow. But we always manage to find uses for the money, which involved both creating and delivering because we had strategic acquisitions. Every time people say, well, it's not that much money. Yes. But when you touch it all up, it comes to quite a total. And we are always open minded to bigger acquisitions if they present themselves. We didn't hesitate to buy [indiscernible] which was a larger acquisition. If there's a serious one on the market that makes sense for L'Oréal, we will have both the wherewithal and the guts, if I could put it that way, to go and do it. But it's about delivering as well. Because as Christian said, we're increasing the payout of the share buyback. So I think it's not one or the other. We try to have a balanced and pragmatic approach, so not one or the other. It can be both.

And Africa. Don't want to keep -- make this too long, but we're really early days there at the moment. We've had a position in South Africa for some time. A strong position too because we are #1 in 2000. Since then, we bought in Carson and Softsheen. So now with that and Dark and Lovely, we are #1 in South Africa. And the idea now is to rollout across the rest of the continent, but we're starting from a very low level. Geoff Skingsley, in charge of that region, is laying the foundations in Kenya, Nigeria, Ghana. We believe in Africa, and we believe that the African market will grow gradually. It's very small at the moment, and we want to be reasonable and not spend shareholders money without reasonable prospects of ROI, but we do want to lay foundations for future years. And the same for the Middle East, where acceleration is faster. We lagged behind a bit there, and now we've got Saudi Arabia, Egypt where we set up our businesses, and we're moving forward well. Next question? Gentleman here?

Unknown Analyst

[indiscernible]. I have 2 questions I'd like to ask you, if I may. The first, is about something that came up 2, 3 years ago, and now seems to have disappeared a bit certainly from today's presentation. It was when we're in a recession. And the question was, how your products could have different price positioning. And I think you then started implementing a policy for more moderately priced products for certain category of customers, and because of the recession, and you said profitability will be similar to that of other products. And so what's happened to that policy now? And it's something I think we see in other businesses, a low-cost branch. Now I don't know exactly how L'Oréal could fit in to such a price range, given the diversity, but have you prioritized that? Have you implemented that sort of policy, and if so, what's the result?

Second question, a number of times, you talked about research. Could you give us more detail about that? Now your research is focused in a particular area, but there is a lot behind that. Upstream, for example, in the pharmaceuticals chemicals industry. I know you set up a new R&D center. How have you set your particular research goals, and how does it fit in with the surrounding context? And since you say this is important for your strategy, do you have any kind of metrics for gauging what research actually delivers into the business? What sort of benefits could you tell us about?

Jean-Paul Agon

Okay, the first question. On more moderately priced, more affordable products, let me put it that way, you have to [ph] stay in context. In 2008 and '09, early 2009, the world was in a recession, and a lot of people were asking about whether consumer behavior would change radically. And it's our job, when there's a recession and major misgivings of this sort, to prepare the future as best we can. So that if ever there is a sea change in consumer behavior, we are ready with the product ranges that will meet those new requirements. In Vichy, for example, there was a range of affordable products developed. Garnier also produced more affordable products. And, again, to the day, 2, 3 years down the road, the answer is that in Cosmetics, there was no change in consumer behavior attitudes. And this is big news. In fact, it's true in France and -- I mean it's true around the world with perhaps one slight difference, Southern Europe. Because given how hard the recession has hit them, there's a small change. And even then, I have to say, because I've been to Greece and Portugal recently last year, I've seen that these were countries where the biggest market share was the most expensive brands. And so it's not always what you would imagine. So no consumer behavior changed, and therefore we're not stupid [ph], we're practical about this. We look around and see what's happening. We didn't change our policy. And our various projects that were specifically focusing on what we call low-cost or affordable product ranges didn't really get developed. However, something is very important for our businesses, probably others. Because if I were to compare our business with another, I would say it's a bit similar to smartphones, computers. We're in a line of business, which is constantly searching for performance, innovation, extra quality. You've seen the kind of innovations we implemented in 2012, all successful. This is innovation top down, so an extra bit of performance technology. So we're talking about a premium focus. And the consumers buy into this because we're talking about part of the household budget that is restricted, but people are always looking for better, more effective, different beauty products that give them extra satisfaction. I think this is good news for our industry.

Research. Well, research is obviously very important. Laurent, do you want to say something maybe about that, just a few sentences? Because we're lucky enough to have Laurent Attal with us and give the gentleman a direct answer.

Laurent Attal

Metrics, how do we measure the input? Who asked the question? Gentlemen, in front of you. Okay. Well, 2 questions, believe you asked, are very different. The first was about the hair research center, which is the biggest one in the world. This is fully dedicated to applied research and development. And it supplements our fundamental research center at Onlay [ph], which includes the chemistry side that you mentioned. The task of this center is to develop high-value products in hair care, coloring and shaping. That is the worldwide haircare center.

And as for how you measure the input, okay. How do you measure what research delivers? We're always trying to be ahead of the game. We measure the input, the performance of research in terms of consumer perception of the major innovations that we bring to the market. And as long as that performance is ahead of the state-of-the-art, we know it will be rewarded. And higher [ph] value innovations have long life cycles. As in pharmaceutical industry, they can last decades. Today, the -- in hair coloring, there's a proprietary molecule, involved in oxygenation, which is -- since they've been around for about [indiscernible] we're doing in coloring oxidation with our molecule, the LR 2412, or [indiscernible] that we heard about this morning. There, we're talking about life cycles that will be counted in decades. So growth sustained over time, and at the end of the day become very profitable given, as I say, how long the life cycles are.

Jean-Paul Agon

No, I'll answer that point. It's not about -- sales argument. What's the difference between a successful and an unsuccessful company? Successful ones are innovative and produce quality. We went out on the world market because of the extra quality we deliver. And in fact, I would say at a push that it's not about competitiveness. It's about quality and innovation. It's about your ability to show consumers around the world that you have extra quality and innovation. That's what will attract them. And obviously, your business model has to be competitive, otherwise you'd go under. This is basic in L'Oréal now and has always been the case because it's in the DNA of the company from 1909. We believe in quality and innovation, and this is why we are the cosmetics company that invests most in research. And when the others tend to cut back their R&D budget, we go the other way. We'll increase it because that is how we will strengthen our leadership against the competition. Next question? Monsieur Pablo?

Pablo E. Zuanic - Liberum Capital Limited, Research Division

I want to ask the questions in English if you don't mind.

Jean-Paul Agon

No problem.

Pablo E. Zuanic - Liberum Capital Limited, Research Division

Pablo Zuanic of Liberum Capital. Four brief questions. One, when I think of April 2014 when the right of first refusal to sell expires between Nestle and the Bettencourt family, how should we think about that in the event that Nestlé wanted to, for example, dividend out their shares to their shareholders, or if they want to just to sell it to a third party, is there a gentleman's agreement with Nestlé that you would buy back their stock over time? If you can just give us any insights there? And of course I understand it's more a question for Nestlé than for you, but just what clout do you have there?

The second question, I don't want to belabor the point of the growth in New Markets, but in New Markets, in the Luxury business, Europe 21%, the underlying market I think you said grew at 7%. But on the other hand, in Consumer, you didn't give a number, but I assume in Consumer, you grew about 7% in New Markets, and the market growth was about 7%. So I would say that's a bit of a disappointment. And If you can just explain, is there an issue about distribution or is it that you cannot compete in the lower end like maybe Unilever or Proctor could in emerging markets?

And the third and last one. Now the question about direct selling always comes up, right? And a -- I mean Coty tried to buy Avon. I was in Brazil recently, and I hear that Natura is going to start selling also in the brick-and-mortar channel. So just give us your thoughts. Given these somewhat disappointing growth versus the market in Consumer, in New Markets, is direct selling still an option that you would consider?

Jean-Paul Agon

All right, Pablo. So, Jacques, why don't you take the question about the performance of the Consumer Product Division in the New Markets?

Jean-Jacques Lebel

I think the first thing I would say is that, well, it's no secret that we're not yet distributed in, say, 90% of all the stores where we could be or should be. And we're investing to get there in China, in India, in Brazil and in Russia. And it's quite important actually because you know that some of the growth or a big chunk of the growth in a country like China is happening in Tier 3, Tier 4, Tier 5 cities, where we're not yet fully potentialized. So this is happening. And it's, of course, a great potential ahead of us.

The other thing probably is that we're not yet able to launch new -- the big new initiatives of the division in new markets at the same speed as we do in Europe or in the States. So take an example, the new Elsève, for instance, is just starting now in China and in Brazil. BB cream is just launching now and only now in India and still some countries to come. Bigger countries for hair color, for instance, like Russia. We did a great year on hair color in 2012. But Olia, our new technology, will only be launched later on and many examples like that. Of course we want them to be able to launch these big initiatives quicker but -- and we're gradually getting there.

The last thing I would way is that we are able also to invent new products in New Markets. The Total Repair 5 Elseve shampoo is a great example a few years ago of a product created in Brazil, and we're now seeing in China, specific products created by our Chinese teams like the Argan Nourish that I showed a bit earlier on my slide when I talked about the China plan. Like the new range we're going to launch for younger consumers under L'Oréal in drugstores, extending that for a big skincare franchise in China to drugstores and for younger clients like the new Maybelline face products that we're creating in China for the Chinese consumers. So I'm very confident that we're able to accelerate the growth in New Markets.

Jean-Paul Agon

Thank you, Jean-Jacques. Christian, what about April 2014?

Christian Mulliez

Well, it's not the easiest question. Well, in fact, it's very easy to answer this question at this stage because we don't know what happens in 2014. If anything happens, because you know that in 2014 is not the end of the agreement between Nestlé and the Bettencourt family. It's only the end of the [indiscernible] right [ph], so we'll see. But to be precise with your question, there is no hidden or secret agreement between L'Oréal and Nestlé. Everything is public.

Jean-Paul Agon

As it should be.

Christian Mulliez

As it should be.

Jean-Paul Agon

All right, so direct selling. Direct selling, Pablo, it's -- we call this kind of subject in French, [French]. It's a type of question that comes back every year. What do you do? What should you do? You should do direct selling. So a few years ago, people said, "Wow, look at the direct selling business. It's growing so fast. Why are you not there?" Since some companies, direct selling business have had some big troubles, you talk, I didn't talk, you talk about Avon or the other ones, and so we are glad that we were not in this business. And even Natura in Brazil, it's not growing faster than the total Brazilian market. So we have no specific plans in this category. And we are fighting with our own weapons. And for example, I think the development of our business in Russia in normal retail will contribute to the increase of the market in normal retail and would probably compete directly against direct selling business there. So no new news on this front regarding direct selling. Okay?

Unknown Analyst

I'm Auro Mojide [ph] from Euromonitor International, and my question is regarding any possible brand cannibalizations you may face? For example, you have some interesting launches under your premium brands, and also you have equally interesting antiaging launches under Vichy and La Roche Posay. So do you face any cannibalization across these brands? And if so how do you intend to tackle them?

Jean-Paul Agon

It's a good question. It's a -- it has been always a very important topic for us because we, as you say, we have different brands in different channels and we do our best to separate clearly the brand territories and the brand innovations in every brand and every channel. And I think by the way that we have been able to do it quite well in 2012. When you look before at the presentations of the divisions, if you take the skin care, for example, you see that the innovation in skin care have been very different in Lancôme, in Yves Saint Laurent, in Vichy, with this territory of the ideal skin in La Roche Posay, which is a very dermatologist-inspired brand, with Garnier, which is really the accessible friendly brand with the BB cream or L'Oréal Paris, which is more on the science and technology front. So I think that more than ever, we are really able to differentiate clearly our brands. And from what we know, the cannibalization between brands is very limited. The real cannibalization we want is the cannibalization with our competitors. And this, we really do our best to make it to maximum. And I think we were quite able to do it in 2012. And by the way, skin care was the category on which we grew the most in 2012, which is also very good for the company because it's a very important category. It's a category where consumers are loyal, and it's also the best category for gross margin, which is another good argument. Okay? A question here at the front. Next question please. Question in the front and then Eva after you.

Iain Galloway Simpson - Barclays Capital, Research Division

Iain Simpson, Barclays. Just on Clarisonic, if I could quickly. Could you give us sort of indication as to the run rate of sales in that in the fourth quarter and also perhaps give some sort of indication of your globalization plans for that as it's currently predominately U.S. if I understand? And more generally, do you see the devices category as something that perhaps strategically you could do more in longer term? And just quickly on China, I think a few years ago in your trip out there, you talked about how Shanghai and Beijing together accounted for about 30% of your China sales. I think that was about 3 years ago, just on the mix point you made, can you give us any indication of where your exposure in China is by sort of Tier 1, Tier 2, Tier 3 cities?

Jean-Paul Agon

All right. So I will let Nicolas answer on Clarisonic. On the Chinese business, it's clear that at the beginning the development of the installation of our business started with Shanghai, Beijing and Guangzhou, by the way, which were the 3 key cities of the country. And year after year, in fact, what we are seeing for all our divisions, luxury but especially mass, but also for the others, what we are seeing is going deep in the country, which is a fantastic opportunity by the way because the -- it means that the development of our business in China is here for a long time because it's not just related to the economic development of the country, it's related also to our capacity to go deeper in the cities layer after layer. And I can tell you that now, we are very solidly established in tier 1, tier 2, tier 3 cities. And we are going now really conquering the tier 4 and tier 5 for the consumer division, and that gives us a huge reservoir of growth for the years to come. And definitely now, for the consumer division, Shanghai and Beijing would be much less than in terms of proportion of what it was 3 years ago. Clarisonic, Nicolas?

Nicolas Hieronimus

Well, as I mentioned earlier, Clarisonic first of all is doing extremely well. You saw the growth is plus 47 this year. You're asking specifically about the months of December or the year end, in the U.S. the sellout of Clarisonic in the NPD environment was plus 41, so you see there's absolutely no slowdown of the growth of this brand, which is coming both from new introductions in terms of skin solutions. We launched an acne kit last year. We're just launching a deep-pore solution kit early this year. So there are new tailor-made solution that makes the technology of Clarisonic, with the know-how of L'Oréal in terms of formulae. There's also the replenishments in terms of brush heads, which is a significant part of the business that is getting more significant. So we're extremely positive about Clarisonic in the U.S.A. Now if you talk about internationally, the brand was in Japan and the U.K. where we just relaunched it after integration in our teams. And it's just the beginning of the rollout. We've -- as we mentioned, we launched it in France in October, in Sephora, fantastic success, #1 skin care brand in Sephora with a reduced distribution. And we launched in China in January where Chinese consumers were queuing in front of the stores, so it's pretty positive so far. And regarding the device, it is a booming segment. Other brands seem to be interested but the good thing is that we have great patents with Clarisonic. And hopefully, we'll be and remain the leaders of the category.

Jean-Paul Agon

We believe it's going to be a great business. So Eva, your question and then we'll open the question to everyone.

Eva Quiroga - UBS Investment Bank, Research Division

A question about professional because you talked about recruiting, getting 1 million new hairdressers over the next 10 to 15 years. Not quite the same rate as in the past, but can you say a bit more about that? You said new products, new markets, and what have you seen in terms of the trends, because on developed markets being sluggish, if you've been around the salons? Things are getting better or worse? What about Kiehl's? There the growth is to be good, new stores have been opened. Could you talk about the sales force there and where you think the big white patches are going to be, white screens again [ph]?

An Verhulst-Santos

Okay, as for the next million, this is -- can be meant in [ph] coming from around the world because at the moment we feel we have, what, 540,000 salons around the world whereas there are 2.4 million -- no, so our market share is 23% against total salon number. So it's going to come from anywhere. It's not just in the emerging countries, it is going to relate to all the countries around the world where we've got market share to win, share of voice and hairdressers to win over along with our innovations. But this is a market of professionals, so they go for quality above all. Second question, which was more about things being sluggish, it's true but it's in Southern Europe that the markets have been hit hardest most that's where you have most hairdressers closing their business, it's true. But the most important thing is that women are going to the hairdressers less often. That is the big problem when you have a sluggish market. What we've seen in recent years is that per consumer, there have been one visit fewer to the hairdressers. Remember, I explained my 5-point strategy and most important thing is to explain to women around the world, especially in those countries that are in difficulty, is we need to explain to them that there are wonderful things that they can get from a hairdressing salon they can't do at home. That's our target. We're very confident, and going forward we have the means to make that case.

Jean-Paul Agon

Okay. There's another important thing, too. Are you aware where we grew most in Europe in Professional last year? It was Germany. Firstly, as we said that that's the home country of our main historic competitor and it's where we won most market share, where our L'Oréal teams won over the largest number of the salons. We, on a fairly sluggish market, have 5% growth there because we went looking for new hairdressers, got them on board with L'Oréal, Redken, Kérastase, and we feel that this is something that could work in all countries, including developed countries and United States, North America. Frédéric explained his SalonCentric plan, bringing together all the American distributors that we've brought in. And that really now constitute a major weapon for winning over salons, and we're going to go ahead with that and see what the results are. A question on Kiehl's, Nicolas?

Nicolas Hieronimus

Yes, indeed. Kiehl's did very well, up 22%. In terms of growth, we opened 188 points of sale. Globally we have about 1,000, which means there's still a lot of headroom because that was your question about the white screens or the white spaces. There's a lot of potential if you compare with other brand shops. And when you look at like-for-like growth, this is obviously one of our big obsessions with Kiehl's. And leaving aside what happened in Korea, Kiehl's is very important. Like-for-like, Kiehl's globally was 15% last year, excluding Korea as I said. So we can see that the brand remains very strong on its fundamentals with increased skin care in the Kiehl's point of sale. As Jean-Paul was saying, this is very important in terms of brand loyalty, so we have like-for-like potential. In Europe, the market is fairly weak, in Travel Retail too. And looked at men's brands, the brand is now top skin care brand in United States and there's a lot of potential in other nations [ph], so we're very, very optimistic about this brand.

Jean-Paul Agon

Okay, I think you were saying that in the U.S., I think was it Frédéric, that the 3 fastest-growing brands in luxury was Clarisonic, Urban Decay and Kiehl's, in that order. Not bad, top 3. So I'm pleased with that treble.

Any other questions or is that it? So ladies and gentlemen, journalists, now it's your turn. Go ahead, yes. Yes, down here, please?

Unknown Attendee

Janice Good [ph] from Financial Times. I'd like your opinion about the euro rate and its impact on the business. And what are you going to do in terms of addressing problem of a strong euro?

Jean-Paul Agon

Okay, maybe we'll split this with you, Christian, I'm not quite sure how we can answer. But anyway, we feel that the euro is overvalued, and I believe there was a report in a business magazine using the Big Mac scale showing that euro was, what, 12-odd-percent overrated against the dollar, so that is a problem. And I was telling, this publication, it's the [ph] -- this is obviously a problem for European industries and it would be a fairly easy fix in terms of competitiveness if the euro were not as strongly as a valid [ph]. For L'Oréal, the situation is bit different in as much as we ourselves don't have that much exposure to euro-based transactions, in that all the consumer division. Plants, for example, are located in the markets where they sell. So it's not the [ph] location. We produce in China for the Chinese, in Brazil for Brazilians, in India for the Indians, et cetera. So there aren't that many transactions [indiscernible] from the euro and other currencies. There is an impact though of course because in other divisions, such as L'Oréal Luxe, 80% of the global production in that division comes from France and then exported around the world, which means that there is an impact. But at the end of the day, a strong euro is not that advantageous to us. It's not going to stand in the way of our success though. It's not actually helping us, of course, and the impact may be above all be in terms of consolidation. Because when you consolidate in from all countries around the world, the euro is weaker [ph]. FX [ph] in 2012 we saw there were 4% positive currency effects and it would go the other way if the euro get stronger of course. But in any case, my point is that this is not going to stand in the way of this basic momentum of L'Oréal, it's not behind pushing us but it's not going to be a big problem.

I believe there is a question at the back. I saw someone.

Pascale Denis

Yes, Pascale Denis from Reuters. Going back to your cash position and Nestlé. You said that we have half [ph] in 2014. But is L'Oréal sitting on its cash just in case, so there's the possibility of buying out Nestlé? Or do you think there could be some major acquisition that will change the company before then?

Jean-Paul Agon

Well, everything is possible. As I was saying in the same interview, if you have a treasure chest stuffed with cash, so that is a good thing. Today, of course, in the light of all the options that are there, obviously, if tomorrow we were able to make a major acquisition, to be honest, I don't really know whether we need something to change the company. I think we're doing pretty well as it is. But if there were an opportunity for a major significant strategic acquisition, we would have the wherewithal to afford it.

Pascale Denis

Okay, on the same thing, are you also looking at the possibility of making acquisitions on emerging markets. We've seen you have one with Vogue, and you have a very impressive portfolio across these different markets. You have also made interesting acquisitions. Looking at what's on recently, you seem to brought in mainly strong local brands on certain markets. Is that really your approach, your philosophy that you'll continue to implement when it comes to acquisitions, buying local brands, say on a emerging market, that immediately gives you a strong foothold and a springboard for growth in the region?

So what's your M&A philosophy going forward? And then you talked about growth in 2013 being close to 2012. 2012, I think it was 4.6%. 2013, are you aiming for 4% to 5%, 5% to 6%? Give us a range for your target rather than saying it will be similar to 2012.

Jean-Paul Agon

Okay, to be perfectly honest, I can't be more accurate or precise, even close to. That's it. It's going to be close to. To be honest, we have no idea. All I can say is that we've never been that wrong. Now, we don't usually pat ourselves on the back, but if there's an area where over the past 4, 5 years we haven't been wrong, it's the forecast on the cosmetics market, and we've been pretty amazingly accurate. All I can say is it's middle of February, we don't know what 2013 will be like. There are all sorts of events day in, day out. And committing myself to something that we can't control, I don't think that's a good idea, so no guidance. But looking around at what's happening on the luxury market, on the mass-market, given what's happening in the various regions, I think market growth will be between 4% and 5%. We'll know a bit more by the middle of the year, of course. Acquisitions next. No change in our philosophy there. That's still the same. I can say a few things. Firstly, all the acquisitions in cosmetics are looked at. We look at all, well [ph] maybe far from -- the odd exception over the last 2, 3, 4, 5 years, we look at all of them. And when we don't do, it is because we didn't want to. And obviously, this means that our eyes are open to everything. But we're very selective because we have fairly specific criteria. We only want to make acquisitions when we feel that there's a strategic reason for it in the medium or long term, when we are making good use of the shareholders' money. It's true what you said 2012 shows that there are things we can do. Clarisonic, for example, that tacks [ph] on to an area of cosmetics likely very buoyant. I was talking about EUR 1 billion coming from that business, so I think there's huge growth headroom than Cadum France, that was different. Just reinforcing our position on the hygiene market, which is potential growth [ph] in the future. Then Vogue in Colombia, which enabled us to get a strong foothold on the South American make-up market, firstly Colombian then South American. And fourthly, Urban Decay, which is a very strategic acquisition, more than you might imagine. Because it means that we then get involved in the makeup artist, hip, affordable luxury area with our strong competitors who've been having a great time because they had it themselves and now they don't. We're in the mix with them. So we're very open. You're right on emerging markets, we look at everything that's going down. And we've got an eye open for anything that makes sense. That's pretty much all we can do. Yes, next one?

Unknown Attendee

Floch Aviemere [ph] from Mergermarket. I'd like to ask you if you could tell us about India, your ambitions in India, both in terms of market penetration, growth, acquisitions and what sector -- and what's the place of India in this New Markets strategy that you have?

Jean-Paul Agon

Very good, with pleasure. We're just back from India with Jean-Jacques. Maybe Jean-Jacques, you could tell us about our performance in India? It so happens that given that there's not a lot of distribution available, the only division for the time that's really well, there are our 2, sorry, first, the Consumer Products and Professional Products division. And it's one of the finest successes in the Professional Products division, I'll ask An to tell you what we're doing in India, subject to pride in India, Jean-Jacques. And then I'll tell you what we can -- how it fits into the overall emerging market strategy. An?

An Verhulst-Santos

Yes, as I indicated in my presentation, India is the #1 contributor to the division's growth in 2011 -- 2012, in fact. And so it's a key strategic country for us, very important, and we're approaching it by focusing on education above all. There are many hairdressers to train, to educate in India. So we've trebled the number over the past 3 years with increases of 35% year-on-year. So it's very important for our division.

Jean-Paul Agon

Well done.

Jean-Jacques Lebel

Well, India we start -- I don't know if you recall, we started a few years back with great conquest with the Garnier brand, and we established Garnier skin care, haircare and hair color. We're far and away market leader in India. With the many kits, hair color, color naturals product, which is far and away the #1 hair color sold in India. Recently, we attacked with L'Oréal Paris with the launch that I showed you earlier of hair care products that is expanding successfully in India. So we have high ambitions for hair care in India and also make up. Maybelline, which is established in a smaller distribution network with major successes, major increase, huge increase this year. We invented a very original product, Colossal Kajal. We know the Indians put kajal around the eyes, and our product is not only smudge-proof, it doesn't run and it's presented like an automatic pencil, easy to apply. And this product is a big hit in India. So Maybelline, I would say, is growing well and already profitable. So high hopes for us in India, hair care, color and make up.

Jean-Paul Agon

So about -- why not ask Nicolas on Brigette [ph] because unfortunately very little luxury and active cosmetics in India. No perfume stores, no department stores and only just very, very small pharmacies where Vichy La Roche was [ph] more difficult to introduce. So India, for us, is a strategic country in terms of weight of sales. It remains small, just over 1% of group sales, has the potential to become very big because of the huge demographics and the beauty culture is very strong. That's why we inaugurated with La Roche, you saw on the fine [ph] photograph, and the Prime Minister of Maharashtra R&D hub in Mumbai in January plan through a better understanding of consumer needs in India and the ability to formulate locally to assume leadership in this market in consumer products and professional products. Yes?

Unknown Attendee

[indiscernible] Just a quick question on margin. The expansion in North America and the New Markets was slightly lower than I had expected. I'm assuming that Clarisonic held back North America and that you didn't see a reduction in A&P in the New Markets as we did in some other regions? Are there any other additional factors that we should be aware of? And secondly, further to the Clarisonic consolidation in 2012, would we expect to see any financial impact from the Urban Decay consolidation in 2013?

Jean-Paul Agon

These are great questions for Christian.

Christian Mulliez

Yes. It's very easy to answer. The increasing profit of both North America and New Markets were plus 18% for North America and 14% for the New Markets. It was not the year for seeking for an increase in profitability, so better to allocate resources to invest in growth and share of voice and increase in market share. And as far as 2013 is concerned, Urban Decay will have a very slight dilutive impact in terms of -- not in terms of absolute terms, but in terms of profitability, but it is not very significant.

Jean-Paul Agon

Okay? Christian's answers are always brief, which tends to average out my own. Next question at the back of the room, please?

Unknown Attendee

[indiscernible] You said the innovation was very important for cosmetics. As of next July, there'll be new regulation in Europe that will ban animal testing outright. Now the prime argument of opponents to this law in Brussels was that it was going to penalize the market in terms of innovations, so how do you assess, how do you measure this impact in Europe in the next 2, 3 years?

Jean-Paul Agon

Yes, well, to my knowledge it's not in July but in March because the change in regulation kicks in as of March, 11th of March, I'm informed. So it's the day after tomorrow. We, for several years now, have been preparing for this. And you know that we're world leader in alternative methods. So we have rolled out and discovered new processes to replace tests that were mandatory on ingredients using our alternative methods. And we've also organized ourselves upstream in order to meet this regulatory change. So that change will come about. Of course, we will abide by that as is the case for all other companies. And we consider that we are equipped, we're organized, we've anticipated so that it doesn't weigh, harm our innovation capability. As to the others, I can't answer. But it will be possibly a new competitive edge. Next question, please?

Unknown Attendee

Marcus Somaniere [ph] Voleon Capital [ph]. I have a question of a more specific nature, regarding the currency impact. What was the impact on operating profit for 2012? Do you plan currency hedges for 2013, possibly for certain divisions, such as the Luxe division has a more significant impact?

Jean-Paul Agon

Yes, Christian?

Christian Mulliez

Well, the impact is pretty much the same in sales and in operating profit. And EBIT, you recall, that we showed you earlier that the impact on sales was positive to the tune of 4%. And for operating profit, the growth was 12.3%. Excluding currency effect, it would have been at the order of 8.2%, 8.3%, so it's pretty much the same. And as to the second part of your question regarding currency hedges, we have pretty much fully hedged, let's say, 80% of our 2013 transactions. And I'll just give you the euro dollar rate at a rate of 1.26, whereas for 2012, the hedge rate was 1.36. So that will, of course, be an upside, a positive factor for our results margins and of course gross margin. There are a number of positive factors. There may be some negative factors, factors that we can't quantify today. That's why it's too soon to give guidance on gross margin, but we know that we have at least one positive upside, which is that of the currency hedges. The second upside which, as Jean-Paul Agon said earlier, the company will grow in 2013. So volumes and quite probably the value will trend upward.

Jean-Paul Agon

So we have good hedges for this year, which is good news to start the year. Next question, please?

Unknown Attendee

The need for beauty isn't just for women, but also for men. In terms of your total sales, what's the percentage from men's care?

Jean-Paul Agon

According to date, it's rather difficult to answer because there are products that are used by both men and women, shampoo, shower gel, et cetera. But there also products that are used specifically. So I'm sure that Tiri [ph], who can always answer any question, will send us a chart. He's got a chart on that if he can find it.

Unknown Executive

Here you go. So weight of specific products for men in cosmetic sales, 8%. And you see the -- what it's made up of, men's fragrances, perfumes, so that's clearly segmented. We're #1 far and away in perfumes for men, with strong positions for Giorgio Armani. We have great expansion for mass-market, thanks to L'Oréal Men Expert for skin care and Garnier for Men, Garnier Men and also that's limited growth in professional product. You might like to say a word about the big success of Men Expert and Garnier Men, Jean-Jacques?

Jean-Jacques Lebel

Because the salvation of the men's market will come from Asia for men's care. So I gave you the sales figure earlier. The Men Expert L'Oréal range, which was up 17% and I'm looking for the number that comes specifically from Asia, and it's higher, 20% Garnier Men, up 37%, is exclusively an Asian sales figure. In fact, Garnier Men was created in India, and it's subsequently extended to Thailand, Malaysia, China now. So Garnier Men is the outright leader. L'Oréal Men Expert, spectacular growth in China year-on-year. Substantial growth rates. We're far and away the leader for men's care in China. When we address the surprises in the cosmetics markets, I would tend to say the interest shown by men in Asia, and I would say almost their lack of inhibition when it comes to using products that are designed for them, skin care, skin cleansing products, is quite extraordinary. There's no limits to it.

Jean-Paul Agon

So, high potential markets [says Mr. Agon], especially in Asia. Do we have any further questions? Yes? We'll perhaps call it a day after that.

Unknown Attendee

I have another question about tax, in particular French taxes. With the new tax legislation, meaning that there's about 20% employers' tax on the success sharing schemes you have, which is quite significant. And then tax credit, 4% on wages and up to 2.5x the minimum wage. So my question is, what overall impact you think these various tax measures will have on the group? So that was as regards French tax. And in general, what do you think the tax situation in 2013 will be compared to 2012, given the various changes in rates between different countries?

Jean-Paul Agon

Christian?

Christian Mulliez

Okay, as we pointed out just now, the tax rate for the group in 2012 was exceptionally low because of what we call the catch-up in the Chinese tax. So it's 25.6%. And we have reported that for 2013, it should be slightly over 27%, specifically because of the measure taken by the French government that say [ph] 3% on dividends. And I would remind you that I'm surprised to see how this is to be booked. It's a distribution tax that is being taxed against the profits. Now as for the tax credit you talked about, the competitive tax, that of course will depend on wage structures in France. And you can imagine that L'Oréal is not one of the first affected because we have very highly qualified staff.

Jean-Paul Agon

Right then. I think that's it. We've covered all the angles. Thank you very much for being here. And we now look forward to seeing you upstairs for the cocktail and buffet lunch. Thank you very much.

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