Business Recovery » L’Oréal CFO on driving growth during crisis

L'Oréal CFO on driving growth during crisis

Christophe Babule, CFO of the world’s biggest cosmetics group, reveals in an exclusive interview how finance is key to sustainable growth through the pandemic

“I’m not a guy that grew up in corporate ville, I’ve been on the battlefield for 24 years,” says Christophe Babule, CFO of L’Oréal, the producer of some of the world’s biggest cosmetics brands including Maybelline and Garnier.

Before stepping up in 2018 to the top finance role at France’s second biggest company in terms of market cap, after luxury giant LVMH, Babule held several regional CFO roles across three decades at L’Oréal, including most recently finance head of the group’s Asia-Pacific business.

There Babule says he witnessed challenging times in emerging markets, that “can be a rocky experience,” he tells Financial Director. He started in Italy in the 1990s when the lira suffered a major devaluation, and he says this and the global financial crisis were important personal moments, but he was also in locations (12 years as China CFO) where previous pandemics broke out.

“I was in China when SARS broke out, and I was also in Mexico when there was also the same kind of crisis a few years ago, so I have had to wear a mask several times already,” he says.

Babule says these close hand experiences of the dangers of a pandemic helped frame the rapid response to coronavirus that L’Oréal undertook as early as January. “Those personal experiences were very helpful. Having spent so many years in China, it helped to understand right from the beginning what the impact could be- first in the region and then outside of Asia,” he adds.

A lengthy period spent in the group that Babule shares with other members of the group’s  executive team “helped us be sharp in planning what was urgent,” says Babule.

The first priority was ensuring safety of the group’s 87,000 staff, by switching to remote working “as early as January in China”. The next step was executing a business continuity plan for global operations, by ensuring plants could keep running.

“In a big corporation like L’Oréal where you have a lot of flows in terms of sourcing, and in terms of delivering finished products into the different markets, we needed to make sure that for example in India, where we have several factories, we could avoid a lot of disruption and still deliver products,” says Babule.

The third leg of managing the crisis was protecting the group’s financial position, where Babule says his function played a big part in “addressing the cost impact and making sure that all the right decisions were taken.”

That meant cutting point of sale costs, given it was “a crisis in terms of offer,” says Babule.  People were willing to buy but for the first time ever we saw salons closing up everywhere in the world at the same time-which was incredible,” he adds.

Babule says that L’Oréal’s strong balance sheet, with operating cashflow of €5.03bn and zero debt at the moment the coronavirus struck meant “we had the means to get through this big tempest. Even if we had not the cash available, with the balance sheet we have, we knew we had the ability to raise finance,” he says.

In the weeks and months after the initial pandemic  impact, Babule says L’Oréal used its healthy financial position to “protect the ecosystem around the company because we knew that many suppliers would suffer a lot. The instruction was given to pay suppliers in cash as soon as they were able to send invoices because we knew that would be critical to helping them,” he adds.


That approach reflects the way in which L’Oréal has sought to take a leadership role on global issues in sustainability and other areas that are at the heart of environmental, social and corporate governance (ESG).

Founded in 1909 by French chemist Eugène Schueller who developed a hair dye formula called Oréale, the group branched out into a global empire encompassing products in the skin care, sun protection, make up and perfume markets.

In that time the group has continued to create value consistently over time, through bolt-on acquisitions, that have resulted in the group’s stock price reaching €306 by the end of November- giving it a market cap of €172bn- up from €255 a year before.

In its last full year results published in February L’Oréal delivered operating profit of €5.54bn, an increase of 12.7 percent on the previous year from sales up eight percent to €29.87bn over the period.

Key to driving growth has been a digital transformation of the group, but also of the finance function that Babule has undertaken. “Digital is becoming a key driver of transformation as we try to become more efficient, and bring more value. The message I try to convey is, let’s try and transform ourselves within the different functions in finance.

“I’m pretty much convinced that we’re going to go through many transformations in the 10 years to come. And those transformations will have an impact on the way we run finance within big corporations.”

Babule says that he sees the role of CFO moving to become “chief value creation officer” through the harnessing insights from data. “Data and technology is becoming in our industry a true source of value creation, so it means that I have to make sure that the energy, the effort collectively with teams is addressing all those sources of value creation,” he says.

But Babule believes the biggest transformation in finance is ensuring it can support the group to deliver on its aims for corporate social responsibility (CSR). “We have huge ambition in the area of sustainability, so we want to make sure finance will be an  enabler in making a true leader in this area.

“In the past brand equity was definitely the main source of value creation, and in the future there will be more sources of value creation, with sustainability being one of them.

“Analysts and investors are following with much more attention non-financial performance as much as financial numbers, and are already adapting their metrics to value companies in this respect. I am convinced the high share price of L’Oréal is partly linked to CSR” says Babule, a product of the HEC business school in Paris.

Upward trend

Having ridden out the first wave of the pandemic, Babule says the group is determined not to lose sight of its long-term goals. “We have had to take immediate action to face the new reality, but losing the focus of the vision where we have the chance to be leader in areas of the resilient beauty market would be a mistake,” he says.

“This market has been growing on average four to five percent every year for the last 25 years. Even in the financial crisis of 2008-09 the beauty market continued growing.

“2020 will probably be the exception, but there is a balancing act of not losing the big picture where sooner or later consumers will be coming to our products, especially as the pandemic will be over some day if there is a vaccine,” says Babule.

“In May, the message was let’s reignite growth, as soon as we were able to cope with the most urgent things. It was a big bet, with all the recent uncertainties,” but he says there have been some strong returns to growth in some regions and sectors.

“The Chinese market is growing by a staggering 20 percent and in skincare products we’re growing very fast,” but he added worldwide lipstick sales had been hit by mask wearing.

Third quarter results released on 23 October revealed third quarter sales over the period rose 1.6 percent to €7.03bn. signalling return to a growth trajectory, “which was not very obvious six months ago” says Babule. Although nine-month revenues fell 7.4 percent to €20.1bn.

Looking ahead, Babule says L’Oréal’s ability to be agile will determine how well the group prospers in a fractured global market. “Some countries are still doing extremely well and others are shut down. Some distribution channels are absolutely booming. E-commerce sales at L’Oreal are  growing by 60 percent this year and at the same time you have retail in airports that were down 80 percent,” he says.

L’Oréal cut investment on point of sales and boosted investments on digital, “because a big part of the business is shifting into this area,” says Babule. Given the group is the world’s third biggest spender on advertising, being able to react immediately and switch into more valuable areas has been critical, he adds.

In the current environment, Babule says L’Oréal will use the strength of its balance sheet to continue a long tradition of opportunistic acquisitions, developing acquired firms into global brands within the group. “With the strength and the coverage of L’Oréal worldwide, it’s very easy for us then to roll out the brand across the geographies.

“That’s what we’ve been doing with many brands like US business Kiehl’s. When we bought it, it was just a small business of $10m and today it’s worth $1.5bn in sales. So that’s where we believe we can really create value for our shareholders and stakeholders,” says Babule.

L’Oréal benefits from a corporate structure that is underpinned by the Bettencourt family owning a third of the group and almost a quarter of shares held by Swiss food giant Nestlé. “Having such stable investors for many, many years supporting our vision and key strategic initiatives brings a lot of trust and security in the way we can manage such a big crisis,” he says.

Another major asset is the “L’Oréal Paris” brand that is so intrinsically tied through the group logo to its home city of Paris, still for many the global centre of style. “Paris resonates with a lot of things, when we speak about beauty, the city is an important symbol- it is an asset for a luxury brand,” says Babule.

In moments of crisis, such as the world has experienced, that brand has even greater value, he says. “Big brands that have been in the market for many years, that offer a trustful product, have always had a strong advantage,” says Babule.

“But big brands become bigger in times of crisis, and the smaller brands that are not solid fade faster, it’s a very Darwinian market- because what we see is consumers moving to something that is safe and brings trust and security,” he adds.

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