L'Oréal

Earnings Release • Aug 25, 2010

First-half 2010 results

STRONG INCREASE IN FIRST-HALF RESULTS

• ¾ High level of operating margin at 17.3% of sales
• ¾ Strong increase in results:
• Operating profit: +21.4%
• EPS* : +15.3% at 2.39 euros
• Cash flow**: +20.9%
• ¾ Good quality results:
• Significant improvement in gross profit
• Good control of selling, general and administrative expenses
• Sustained advertising and promotional investments
• ¾ The group is tackling the second half with confidence

Commenting on the figures, Mr Jean-Paul Agon, Chief Executive Officer of L'Oréal, said:

"The strong organic growth of our four divisions, all geographic zones and all categories, is bearing out our major strategic choices: concentrating on high value-added innovations at accessible prices, opening up new product categories, accelerating international expansion and determined investment in advertising & promotion and in R&D.

The results have also increased strongly, although once again it is important to emphasise that half-year figures are not particularly representative. Operating profit has grown twice as fast as sales, enabling margin to reach a record level. The significant improvement in gross profit and the very strict control of selling, general and administrative expenses reflect the efforts made over the last two years to achieve a thorough transformation, and have enabled increased investments in R&D and in the advertising & promotion business drivers which are paving the way for the future.

The results underpin the group's "virtuous circle" of growth and confirm the vitality of L'Oréal's business model.

We are tackling the second half with confidence, and intend over the full year to keep on strengthening our worldwide positions and the profitability of our businesses."

* diluted net earnings per share, based on net profit excluding non-recurrent items attributable to the group.

^** net cash provided by operating activities.

A – First-half 2010 sales trends

• Based on reported figures, the group's sales, at June 30th, 2010, amounted to 9.67 billion euros, an increase of +10.2%. Like-for-like, i.e. based on a comparable structure and identical exchange rates, the sales growth of the L'Oréal group was +6.3%.The net impact of changes in consolidation was +0.3%. Currency fluctuations had a positive impact of +3.6%.Growth at constant exchange rates was +6.6%.
• If the exchange rates at the end of July, i.e. €1 = \$1.30, are extrapolated up to December 31st, the impact of currency fluctuations on sales would be approximately +5.5% for the whole of 2010.
• The news release of July 12th, 2010 details the activity of the cosmetics divisions and the geographic zones for the first half of 2010. This news release is available and can be downloaded from the www.loreal-finance.com site.

		2nd quarter 2010		1st half 2010
		Growth			Growth
	€m	Like-for-like	Reported	€m	Like-for-like	Reported
By operational division(1)
Professional Products	709.9	4.7%	15.1%	1,362.6	5.3%	11.9%
Consumer Products	2,459.7	4.1%	11.3%	4,822.3	5.6%	9.5%
Luxury Products	1,091.4	7.6%	13.6%	2,104.0	9.7%	12.0%
Active Cosmetics	355.8	6.7%	12.2%	773.1	4.7%	7.9%
Cosmetics total	4,616.8	5.2%	12.5%	9,062.0	6.4%	10.3%
By geographic zone(2)
Western Europe	1,829.6	1.1%	1.9%	3,712.3	2.0%	2.6%
North America	1,120.8	4.2%	14.7%	2,118.8	4.9%	8.8%
New Markets, of which:	1,666.4	11.1%	25.2%	3,230.9	13.0%	22.0%
- Asia, Pacific	768.7	11.0%	25.6%	1,540.2	12.8%	20.0%
- Eastern Europe	354.3	8.9%	19.0%	706.7	11.4%	19.5%
- Latin America	397.2	18.4%	37.5%	704.2	19.7%	35.1%
- Africa, Middle East	146.2	0.0%	10.6%	279.8	3.5%	10.7%
Cosmetics total	4,616.8	5.2%	12.5%	9,062.0	6.4%	10.3%
The Body Shop	170.0	-0.1%	5.5%	334.3	0.2%	3.4%
Dermatology(3)	158.3	11.9%	18.0%	270.5	14.1%	17.4%
Group total	4,945.1	5.2%	12.4%	9,666.8	6.3%	10.2%

Sales by operational division and geographic zone

On January 1st, 2010, the divisions and geographic zones were reclassified as stated below. All figures for earlier periods have been restated to allow for these changes.

(1) The Roger & Gallet activity has been transferred from the Luxury Products Division to the Active Cosmetics Division.

(2) The Travel Retail business of YSL Beauté, which was previously recorded 100% under Western Europe, has now been broken down between the Western Europe, North America and New Markets zones.

Australia, India and New Zealand, which were previously in the Africa, Orient, Pacific zone have been included in the Asia zone which has become the Asia, Pacific zone. The Africa, Orient, Pacific zone has become the Africa, Middle East zone.

(3) Group share, i.e. 50%.

The Rest of the World zone has become the New Markets zone with the following distribution:

B – First-half 2010: Strong increase in results

The half-year results have undergone a limited examination by the Statutory Auditors.

1) Operating profitability at 17.3% of Sales

Consolidated profit and loss account: from sales to operating profit.

In €m	06/30/09	As % of sales	12/31/09	As % of sales	06/30/10	As % of sales	Growth 06/30/09 06/30/10
Sales	8,769.4	100%	17,472.6	100%	9,666.8	100%	+10.2%
Cost of sales	-2,610.1	29.8%	-5,161.6	29.5%	-2,776.3	28.7%	+6.4%
Gross Profit	6,159.3	70.2%	12,311.0	70.5%	6,890.4	71.3%	+11.9%
R&D expenses	-286.9	3.3%	-609.2	3.5%	-308.7	3.2%	+7.6%
Advertising and promotion expenses	-2,634.5	30.0%	-5,388.7	30.8%	-2,950.4	30.5%	+12.0%
Selling, general and administrative expenses	-1,864.1	21.3%	-3,735.5	21.4%	-1,962.8	20.3%	+5.3%
Operating profit	1,373.9	15.7%	2,577.6	14.8%	-1,668.6	17.3%	+ 21.4%

Gross profit amounted to €6,890m. This represents 71.3% of sales, compared with 70.2% in the first half of 2009, representing an improvement of 110 basis points.

Several factors had a favourable impact, particularly the improvement in manufacturing costs, thanks to productivity gains and gains on purchasing, the reduction of inventory costs and physical distribution costs, and a positive mix effect.

Conversely, the increase in promotional offers to customers and currency fluctuations had an unfavourable impact.

Research and Development expenses increased by +7.6%.

Advertising and promotion expenses came out at €2,950m. They accounted for 30.5% of sales, compared with 30% in the first half of 2009. The group is continuing its policy of significant investments in advertising and promotion expenses.

Selling, general and administrative expenses amounted to €1,963m, falling sharply as a proportion of sales to 20.3%, compared with 21.3% in the first half of 2009. All divisions contributed to this improvement.

Operating profit, which increased by +21.4%, amounted to €1,669m, representing 17.3% of sales; this is a record half-year figure.

2) Operating profit by branch and division

	06/30/09		12/31/09		06/30/10
	€m	% of sales	€m	% of sales	€m	% of sales
By operational division*
Professional Products	232.5	19.1%	476.9	20.0%	288.2	21.2%
Consumer Products	911.6	20.7%	1,576.9	18.4%	981.9	20.4%
Luxury Products	224.9	12.0%	612.0	15.1%	377.9	18.0%
Active Cosmetics	195.6	27.3%	255.0	20.0%	208.2	26.9%
Cosmetics divisions total	1,564.6	19.0%	2,920.8	18.0%	1,856.2	20.5%
Non-allocated**	-223.9	-2.7%	-482.0	-3.0%	-234.7	-2.6%
Cosmetics branch	1,340.8	16.3%	2,438.8	15.0%	1,621.5	17.9%
The Body Shop	6.3	1.9%	53.8	7.4%	13.6	4.1%
Dermatology branch***	26.8	11.6%	85.0	17.4%	33.5	12.4%
Group	1,373.9	15.7%	2,577.6	14.8%	1,668.6	17.3%

* On January 1st, 2010, the Roger & Gallet activity has been transferred from the Luxury Products Division to the Active Cosmetics Division. The figures for the first-half 2009 and full-year 2009 have been restated to take into account these changes.

** Non-allocated = Central group expenses, fundamental research expenses, stock option expenses and miscellaneous items. As % of cosmetics sales.

*** Group Share, i.e. 50%.

The profitability of the Professional Products Division increased significantly from 19.1% to 21.2%. The profitability of the Consumer Products Division was virtually stable in the first half: 20.4% compared with 20.7%.

The Luxury Products Division achieved a very strong increase in profitability, which rose from 12.0% to 18.0%.

The profitability of Active Cosmetics remained almost stable at the extremely high level of 26.9%. Non-allocated costs declined from 2.7% to 2.6% of sales.

The profitability of The Body Shop came out at 4.1%, representing a significant increase compared with the first half of 2009, reflecting the sharp reduction in the fixed costs of The Body Shop over the last year.

3) Net earnings per share*: €2.39

Consolidated profit and loss account, from operating profit to net profit excluding non-recurrent items.

In €m	06/30/09	12/31/09	06/30/10	Growth 06/30/09 06/30/10
Operating profit	1,373.9	2,577.6	1,668.6	+ 21.4%
Financial revenues and expenses excluding dividends received	-52.5	-89.0	-17.8
Sanofi-Aventis dividends	260.1	260.1	283.8
Profit before tax excluding non-recurrent items	1,581.5	2,748.6	1,934.5	+ 22.3%
Income tax excluding non-recurrent items	-368.3	-749.3	-521.5
Minority interests	-2.1	-2.7	-1.7
Net profit excluding non-recurrent items after minority interests *	1,211.0 ,	1,996.7 ,	1,411.3	+ 16.5% ,
Net EPS ** (in euros)	2.08	3.42	2.39	+ 15.3%
Net profit after minority interests	1,083.5	1,792.2	1,314.3
Diluted net EPS after minority interests (€)	1.86	3.07	2.23
Diluted average number of shares	583,140,468	583,797,566	589,549,689

* Net profit excluding non-recurrent items after minority interests does not include capital gains and losses on disposals of longterm assets, impairment of assets, restructuring costs, associated tax effects or minority interests. ** Diluted net earnings per share excluding non-recurrent items after minority interests.

Finance costs, at 18 million euros, have fallen sharply compared with the first half of 2009. This large reduction is the result both of the lower average level of debt, and the continuing fall in interest rates. The dividend received from Sanofi-Aventis for 2009 amounted to €284m, an increase of +9.1%. Profit before tax excluding non-recurrent items increased to €1,935m, up by +22.3%. Income tax amounted to 522 million euros.

Net profit excluding non-recurrent items after minority interests amounted to €1,411m, up sharply by +16.5%. EPS amounted to €2.39, up by +15.3% compared with the first half of 2009.

After allowing for non-recurrent items, net profit after minority interests amounted to €1,314m, an increase of +21.3%.

4) Strong improvement in operating cash flow and a robust balance sheet

Gross cash flow amounted to €1,792m, an increase of +15.4% compared with the first half of 2009. The change in working capital has increased by 289 million euros. Total cash flows from operating activities (see cash flow statement in Annexe V) grew strongly to €1,503m, compared with €1,244m at June 30th, 2009, an increase of +20.9%.

Net debt totalled €1.67 billion at June 30th, 2010, some 300 million euros less than at the end of 2009. Gearing amounted to 11.7% of shareholders' equity.

The balance sheet structure is very robust, with shareholders' equity representing 58% of the balance sheet total.

"This news release does not constitute an offer to sell, or a solicitation of an offer to buy L'Oréal shares. If you wish to obtain more comprehensive information about L'Oréal, please refer to the public documents registered in France with the Autorité des Marchés Financiers, also available in English on our Internet site www.loreal-finance.com.

This news release may contain some forward-looking statements. Although the Company considers that these statements are based on reasonable hypotheses at the date of publication of this release, they are by their nature subject to risks and uncertainties which could cause actual results to differ materially from those indicated or projected in these statements."

Contacts at L'ORÉAL (Switchboard: +33 1 47 56 70 00)

Financial analysts and institutional investors	Journalists
	Mrs Stephanie CARSON-PARKER
Tel: +33 1 47 56 86 82	Tel: +33 1 47 56 76 71
cmillot@dgaf.loreal.com	scarsonparker@dgc.loreal.com
	Mrs Caroline MILLOT

For more information, please contact your bank, broker or financial institution (I.S.I.N. code: FR0000120321), and consult your usual newspapers, and the Internet site for shareholders and investors, http://www.loreal-finance.com, or its mobile version on your cell phone, http://loreal-finance.mobi; alternatively, call +33.1.40.14.80.50.

C – Annexes

I - Compared consolidated profit and loss accounts

€ millions	1st half 2010	1st half 2009	2009
Net sales	9,666.8	8,769.4	17,472.6
Cost of sales	-2,776.3	-2,610.1	-5,161.6
Gross profit	6,890.4	6,159.3	12,311.0
Research and development	-308.7	-286.9	-609.2
Advertising and promotion	-2,950.4	-2,634.5	-5,388.7
Selling, general and administrative expenses	-1,962.8	-1,864.1	-3,735.5
Operating profit	1,668.6	1,373.9	2,577.6
Other income and expenses	-107.0	-168.7	-277.6
Operational profit	1,561.5	1,205.2	2,299.9
Finance costs on gross debt	-23.5	-61.0	-92.0
Finance income on cash and cash equivalents	9.2	11.3	16.0
Finance costs	-14.3	-49.7	-76.0
Other financial income (expenses)	-3.5	-2.8	-13.0
Sanofi-Aventis dividends	283.8	260.1	260.1
Profit before tax and non-controlling interests	1,827.5	1,412.8	2,471.0
Income tax	-511.5	-327.2	-676.1
Net profit	1,316.0	1,085.6	1,794.9
attributable to:
- group share	1,314.3	1,083.5	1,792.2
- non-controlling interests	1.7	2.1	2.7
Net profit attributable to the Group per share (euros)	2.24	1.86	3.07
Diluted net profit attributable to the Group per share (euros)	2.23	1.86	3.07
Net profit excluding non-recurrent items attributable to the Group per share (euros)	2.41	2.08	3.42
Diluted net profit excluding non-recurrent items attributable to the Group per share (euros)	2.39	2.08	3.42

II - Consolidated statements of net profit and gains and losses directly recognised in equity

€ millions	1st half 2010	1st half 2009	2009
Consolidated net profit of the period	1,316.0	1,085.6	1,794.9
Financial assets available for sale	-653.8	-417.0	1,142.5
Cash flow hedge	-81.0	-89.9	-154.3
Actuarial gains and losses	-0.4	-6.0	-142.9
Tax effect on items directly recognised in equity (1)	32.8	33.1	61.4
Cumulative translation adjustments	798.4	55.5	6.5
Changes in gains and losses directly recognised in equity	96.0	-424.3	913.2
Total of net profit and gains and losses directly recognised in equity	1,412.0	661.3	2,708.1
Attributable to:
- group share	1,410.3	659.2	2,705.4
- non-controlling interests	1.7	2.1	2.7

	(1) The tax effect is as follows:
--	-----------------------------------	--	--

€ millions	1st half 2010	1st half 2009	2009
Financial assets available for sale	11.3	7.1	-19.8
Cash flow hedge	21.3	24.6	39.6
Actuarial gains and losses	0.2	1.4	41.6
Total	32.8	33.1	61.4

III - Compared consolidated balance sheets

Assets

€ millions	06.30.2010	06.30.2009	12.31.2009
Non-current assets	17,605.6	15,836.8	17,350.4
Goodwill	5,894.9	5,493.7	5,466.0
Other intangible assets	2,297.0	2,054.7	2,042.4
Tangible assets	2,780.0	2,691.4	2,599.0
Non-current financial assets	6,043.9	5,109.4	6,672.2
Deferred tax assets	589.8	487.6	570.8
Current assets	7,160.0	6,139.7	5,941.1
Inventories	1,766.6	1,534.4	1,476.7
Trade accounts receivable	3,077.5	2,842.7	2,443.3
Other current assets	833.8	878.7	732.8
Current tax assets	48.1	120.1	115.2
Cash and cash equivalents	1,434.0	763.8	1,173.1
Total	24,765.6	21,976.5	23,291.5

Liabilities & Equity

€ millions	06.30.2010	06.30.2009	12.31.2009
Shareholders' equity	14,254.3	11,420.7	13,598.3
Share capital	119.9	119.7	119.8
Additional paid-in capital	1,053.9	965.5	996.5
Other reserves	11,052.9	10,107.6	10,141.3
Items directly recognised in equity	1,467.6	783.4	2,169.9
Cumulative translation adjustments	245.4	-503.9	-552.9
Treasury stock	-1,002.5	-1,138.3	-1,071.6
Net profit attributable to the Group	1,314.3	1,083.5	1,792.2
Shareholders' equity excluding non-controlling interests	14,251.5	11,417.5	13,595.2
Non-controlling interests	2.8	3.1	3.1
Non-current liabilities	2,593.5	3,897.7	4,306.6
Provisions for employee retirement obligations and related benefits	1,006.4	912.7	1,021.4
Provisions for liabilities and charges	163.2	99.0	125.6
Deferred tax liabilities	429.4	381.6	418.0
Non-current borrowings and debts	994.5	2,504.4	2,741.6
Current liabilities	7,917.8	6,658.1	5,386.5
Trade accounts payable	2,950.1	2,362.8	2,603.1
Provisions for liabilities and charges	602.8	485.4	510.0
Other current liabilities	2,039.2	1,682.4	1,750.5
Income tax	213.4	209.8	133.2
Current borrowings and debts	2,112.3	1,917.7	389.7
Total	24,765.6	21,976.5	23,291.5

IV - Consolidated statements of changes in shareholders' equity

At 06.30.2010	586,156,310	119.9	1,053.9	12,367.2	1,467.6	-1,002.5	245.4	14,251.5	2.8	14,254.3
Other movements
back				-3.1				-3.1		-3.1
Non-controlling interests buy
Net changes in treasury stock	460,700			0.4		31.2		31.6		31.6
Share-based payment				38.7				38.7		38.7
Dividends paid (not paid on treasury stock)				-878.8				-878.8	-2.0	-880.8
Cancellation of treasury stock		-0.1		-37.8		37.9		-
Capital increase	959,950	0.2	57.4					57.6		57.6
Total of net profit and gains and losses directly recognised in equity				1,314.3	-702.3		798.3	1,410.3	1.7	1,412.0
Change in gains and losses directly recognised in equity					-702.3		798.3	96.0	-	96.0
Cumulative translation adjustments							798.3	798.3	0.1	798.4
Actuarial gains and losses					-0.2			-0.2		-0.2
Cash flows hedging					-59.6			-59.6	-0.1	-59.7
Financial assets available for sale					-642.5			-642.5		-642.5
Consolidated net profit of the period				1,314.3				1,314.3	1.7	1,316.0
At 12.31.2009	584,735,660	119.8	996.5	11,933.5	2,169.9	-1,071.6	-552.9	13,595.2	3.1	13,598.3
Other movements				-2.9				-2.9		-2.9
Net changes in treasury stock	1,067,992			-1.7		66.7		65.0		65.0
Share-based payment				76.7				76.7		76.7
Dividends paid (not paid on treasury stock)				-839.7				-839.7	-2.4	-842.1
Cancellation of treasury stock		-0.8		-271.5		272.3		-
Capital increase	527,200	0.1	31.0					31.1		31.1
directly recognised in equity Total of net profit and gains and losses directly recognised in equity				1,792.2	906.7		6.5	2,705.4	2.7	2,708.1
Change in gains and losses					906.7		6.5	913.2		913.2
Cumulative translation adjustments							6.5	6.5		6.5
Actuarial gains and losses					-101.3			-101.3		-101.3
Cash flows hedging					-114.7			-114.7		-114.7
Financial assets available for sale					1,122.7			1,122.7		1,122.7
Consolidated net profit of the period				1,792.2				1,792.2	2.7	1,794.9
At 12.31.2008	583,140,468	120.5	965.5	11,180.4	1,263.2	-1,410.6	-559.4	11,559.6	2.8	11,562.5
€ millions	outstanding	capital	capital	income	in equity	stock	adjustments	interests	interests	equity
	Shares	Share	paid-in	and net	recognised	Treasury	translation	non-controlling	Non	controlling Shareholders'
	Common		Additionnal	earnings	directly		Cumulative	excluding
				Retained	Items			equity
								Shareholders'

Changes in first-half 2009

								Shareholders'
				Retained	Items			equity
	Common		Additional	earnings	directly		Cumulative	excluding
	shares	Capital	paid-in		and net recognised	Treasury	translation	non controlling	Non controlling	Shareholders'
€ millions	outstanding	stock	capital	income	in equity		stock adjustments	interests	interests	equity
At 12.31.2008	583,140,468	120.5	965.5	11,180.4	1,263.2	-1,410.6	-559.4	11,559.6	2.8	11,562.5
Consolidated net profit of the period				1,083.5				1,083.5	2.1	1,085.6
Financial assets available for sale					-409.9			-409.9		-409.9
Cash flow hedging					-65.2			-65.2		-65.2
Actuarial gains and losses					-4.6			-4.6		-4.6
Cumulative translation adjustments							55.5	55.5		55.5
Changes in gains and losses directly recognised in equity					-479.8		55.5	-424.3		-424.3
Total of net profit and gains and losses directly recognised in equity				1,083.5	-479.8		55.5	659.2	2.1	661.3
Capital increase
Cancellation of treasury stock		-0.8		-271.5		272.3		-
Dividends paid (not paid on treasury stock)				-839.7				-839.7	-2.3	-842.0
Share-based payment				37.6				37.6		37.6
Net changes in treasury stock
Other movements				0.7				0.7	0.5	1.2
At 06.30.2009	583,140,468	119.7	965.5	11,191.1	783.4	-1 138.3	-503.9	11,417.5	3.1	11,420.7

V - Compared consolidated statements of cash flows

€ millions	1st half 2010	1st half 2009	2009
Cash flows from operating activities
Net profit attributable to the Group	1,314.3	1,083.5	1,792.2
Non-controlling interests	1.7	2.1	2.7
Elimination of expenses and income with no impact on cash flows:
• depreciation, amortisation and provisions	398.6	398.3	834.0
• changes in deferred taxes	39.4	32.5	51.7
• share-based payment	38.7	37.6	76.7
• capital gains and losses on sale of assets	-0.4	-0.6	0.9
Gross cash flow	1,792.3	1,553.4	2,758.2
Changes in working capital	-289.2	-309.9	466.3
Net cash provided by operating activities (A)	1,503.1	1,243.5	3,224.5
Cash flows from investing activities
Investments in tangible and intangible assets	-320.9	-303.4	-628.0
Disposal of tangible and intangible assets	6.0	3.7	27.5
Changes in other financial assets (including investments in non consolidated companies)	11.7	30.0	36.7
Effect of changes in the scope of consolidation	-124.3	-83.3	-160.2
Net cash (used in) from investing activities (B)	-427.5	-353.0	-723.9
Cash flows from financing activities
Dividends paid	-896.4	-849.4	-851.5
Capital increase of the parent company	57.6	-	31.1
Disposal (acquisition) of treasury stock	31.6	-	65.0
Non-controlling interests buy-back	-8.4	-	-
Issuance (repayment) of short-term loans	-9.6	-317.9	-1,886.0
Issuance of long-term borrowings	-	0.4	350.3
Repayment of long-term borrowings	-101.6	-15.5	-98.4
Net cash (used in) from financing activities (C)	-926.8	-1,182.4	-2,389.4
Net effect of exchange rate changes and fair value changes (D)	112.1	-21.4	-15.3
Change in cash and cash equivalents (A+B+C+D)	260.9	-313.3	96.0
Cash and cash equivalents at beginning of the year (E)	1,173.1	1,077.1	1,077.1
Cash and cash equivalents at end of the year (A+B+C+D+E)	1,434.0	763.8	1,173.1