L’Oreal on lookout for further acquisitions after Aesop, says chief

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French cosmetics group L’Oreal is still on the lookout for deals, hot off the back of its biggest acquisition after it agreed to pay $2.5bn for luxury skincare company Aesop.

Chief executive Nicolas Hieronimus said the world’s largest beauty group had firepower left after buying the Australian maker of $40 soaps in April, pointing out that only three of the company’s 36 global brands had been created in-house.

“We have cash and L’Oreal has always made acquisitions,” Hieronimus said in an interview on Thursday ahead of the release of the company’s first-half results. “Being able to spot brands that have both dimensions — have stood the test of time a little bit and still have growth potential around the world — remains something we really keep our eyes on.”

Cosmetics groups including L’Oreal have driven prices up for a small number of prime acquisition targets. Paris-based luxury group Kering in June purchased perfumer Creed for €3.5bn or about 23 times earnings before interest, tax, depreciation and amortisation, according to people with knowledge of the terms of the deal. Analysts estimate high-end beauty deals at present fetch a purchase price of up to 25 times ebitda.

Hieronimus, a L’Oreal lifer who was appointed chief in 2021, insisted L’Oreal would maintain financial discipline, “When there’s an opportunity, we look at it [but] we are very disciplined in how much we are willing to pay,” he said.

He added that he was pleased with the performance of recent acquisitions including a deal for dermatological skin brand CeraVe, which became so popular in the US in recent years it has often run out of stock.

First-half sales were up 13 per cent on a like-for-like basis to €28.5bn, driven by the consumer division, its biggest by sales thanks to booming demand for make-up.

Operating profits increased 13.7 per cent to €4.26bn in the wake of two consecutive years of post-pandemic rebound.

Growth in Europe, L’Oréal’s biggest market, and North America progressed in the mid-teens. The closely watched post-lockdown recovery in China is under way although sales have not yet reached pre-pandemic levels. After contracting in the first quarter, they grew at 7 per cent in the second quarter.

“The rebound in China has been a bit slower than expected . . . I guess it takes a while to come out of three years of lockdowns. On prices, the middle classes are paying a bit more attention,” Hieronimus said.

L’Oréal’s luxury division drove most of the rebound in China, growing “in the high teens” in the second quarter, he said. However, the lag in the group’s biggest market for luxury sales resulted in slower sales growth compared with other divisions.

He pointed out that luxury growth had accelerated over the past 12 months, and demand for high-quality products remained strong in Europe and North America. But he added: “We have two divisions on hyperdrive, so by comparison the ones at cruising speed look a little bit less dynamic.”

There are early indications from companies including LVMH and Richemont that the breakneck pace of luxury sector growth is abating, particularly in the US. But in beauty — which sells at a lower price point — Hieronimus did not anticipate a slowdown. “We remain an affordable indulgence and I don’t see major threats to that,” he said.

Price increases and new product launches accounted for 38 per cent of growth in the first half, partly in response to inflation input costs. But “cost increases have slowed down, but they have not disappeared . . . they’ve just levelled off”, said Hieronimus.

Input prices are levelling off, he said, adding: “If we are faced with new cost increases, we’ll have to pass some of that to consumers.”