Financial analysis on beauty and personal care industry

Dissertation submitted in partial fulfillment of the Requirement for the MSc in Finance FINANCE DISSERTATION ON FINANCIAL ANALYSIS ON BEAUTY AND PERSONAL CARE INDUSTRY BAO-CHAU NGUYEN ID No: 19046145 Intake Supervisor: Prof Dr PHAM DUC CUONG September 2020 Tai ngay!!! Ban co the xoa dong chu nay!!! 17014126221051000000 ACKNOWLEDGEMENT On completing this dissertation paper on the beauty and personal care industry, I’d like to extend my appreciation to Dr Pham Duc Cuong, who has been supervising me and giving me guidance on my research Dr Pham Duc Cuong has helped me tremendously in delivering a comprehensive layout for my dissertation Without his help, the process of completing this dissertation wouldn’t be as educative as it has been Moreover, though he has been guiding me, Dr Pham Duc Cuong still allowed me to have the freedom to develop my original research idea and interest This freedom has kept me interested and motivated during the entire research process, which is undeniably important Besides my direct supervisor, I’m also thankful for my supporting family and friends, especially my peers who are also enrolled in MSc Finance 2019-2020 Without their support, the time spent at Banking Academy Vietnam and the courses taken would have not been as meaningful At the end of the day, it’s the journey that counts TABLE OF CONTENT ACKNOWLEDGEMENT………………………………………………………… TABLE OF CONTENT………………………………………………………………3 EXECUTIVE SUMMARY………………………………………………………… CHAPTER INTRODUCTION TO THE RESEARCH……………………… 1.1 Necessity of the research topic………………………………………………….7 1.2 Literature review……………………………………………………………… 1.3 Objective of the study and research question……………………………………9 1.4 Scope and Area of the study……………………………………………………10 1.5 Research methodology…………………………………………………………11 1.6 Structure of the thesis………………………………………………………… 11 CHAPTER GENERAL ANALYSIS OF BEAUTY AND PERSONAL CARE INDUSTRY……………………………………………………………………… 12 2.1 Introduction to industry……………………………………………………… 13 2.2 PEST analysis………………………………………………………………….13 2.3 PORTER FORCES FRAMEWORK……………………………………… 22 CHAPTER COMPANY ANALYSIS 3.1 L’Oreal…………………………………………………………………………24 3.1.1 Introduction to Loreal………………………………………………………25 3.1.2 Growth trend and SWOT analysis……………………………………………25 3.1.3 Financial health………………………………………………………………29 3.1.3.1 Profitability……………………………………………………… 31 3.1.3.2 Efficiency………………………………………………………… 31 3.1.3.3 Investment…………………………………………………………32 3.1.3.4.Valuation…………………………………………………………….32 3.2 Estee Lauder…………………………………………………………………32 3.2.1 Introduction to Estee Lauder…………………………………………………32 3.2.2 Growth trend and SWOT analysis……………………………………………33 3.2.3 Financial health………………………………………………………………34 3.2.3.1 Profitability……………………………………………………… 36 3.2.3.2 Efficiency………………………………………………………… 37 3.2.3.3 Investment………………………………………………………… 38 3.2.3.4 Valuation………………………………………………………… 38 3.3 LVMH…………………………………………………………………………38 3.3.1 Introduction to LVMH………………………………………………………38 3.3.2 Growth trend and SWOT analysis……………………………………………39 3.3.3 Financial health……………………………………………………………….40 3.3.3.1 Profitability…………………………………………………………40 3.3.3.2 Efficiency………………………………………………………… 41 3.3.3.3 Investment………………………………………………………… 42 3.3.3.4 Valuation………………………………………………………… 42 3.4 Unilever………………………………………………………………………43 3.4.1 Introduction to Unilever…………………………………………………… 43 3.4.2 Growth trend and SWOT analysis………………………………………… 44 3.4.3 Financial health………………………………………………………………44 3.4.3.1 Profitability…………………………………………………………45 3.4.3.2 Efficiency…………………………………………………………46 3.4.3.3 Investment…………………………………………………………47 3.4.3.4 Valuation………………………………………………………… 47 CHAPTER DISCUSSIONS, RECOMMENDATIONS AND CONCLUSION…………………………………………………………………….48 APPENDIX 1……………………………………………………………………….50 APPENDIX 2……………………………………………………………………….54 APPENDIX 3……………………………………………………………………….58 APPENDIX 4……………………………………………………………………….60 REFERENCES…………………………………………………………………….63 EXECUTIVE SUMMARY The dissertation provides insights into the promising beauty and personal care industry The first chapter explains the reason why the industry has been growing at a remarkable pace, which is nothing surprising but the fact that humans are a visual creature and social standards originate from people’s perception of beauty The dissertation studies big players in the beauty and personal care industry which includes: L’Oreal, Estee Lauder, LVMH, and Unilever These four companies have been dominating global markets and creating consumer trends for the entire industry Despite their economy of scale, they still undergo competition with other small but innovative young companies and macro-economic factors that either directly or indirectly affect the sales of beauty and personal care products Some biggest highlights that will be analyzed deeper in the dissertation includes: Asia-Pacific is the most potential geographic market for this industry, how some major global events such as trade war or COVID 19 affect consumers’ purchasing behaviors, and how well the beauty and personal care industry responses to such changes The purpose of the dissertation is to provide convincing analysis on the beauty and personal care industry, thus to provide investment recommendations on the industry as a whole CHAPTER INTRODUCTION TO THE RESEARCH 1.1 Necessity of the research topic According to the article “A History of Cosmetics from Ancient Times,” civilization has used cosmetics in the ancient time starting from 10,000 BCE when Egyptian men and women used oil and oils and ointments to clean and soften their skin In 4000 BCE, Egyptians used mesdemet and malachite to add definition to their faces; and in 3000 BCE, Chinese women started to stain their nails and apply fake eyebrows or paint their faces with white lead in order to look trendy according to the time’s standards Thus it’s safe to say humans are visual and social creatures: we pay close attention to how we look and we gain social acceptance sometimes via our physical appearance As humans always have a strong demand for beauty and personal care products, the industry has been developing at a fast pace and constantly releasing new products to cater for consumers’ dynamic needs and wants The beauty and personal care industry, being one of the most dynamic and innovative industry, has contributed significantly to world’s economy: ● According to the Personal Care and Products Council, the industry accounts for nearly $237 billion of U.S GDP and supports 3.6 million domestic jobs that generate $144.3 billion in wages and incomes ● According to the Cosmetic Europe - The Personal Care Association, the industry supports over million jobs across Europe, which helps contribute to the total exports of 21.5 billion of cosmetic products from Europe up until 2018 ● For Asia-Pacific market, the beauty and personal care industry is expected to garner $126.8 billion by 2020 thanks to the growth of the middle class in big market countries like China, Indonesia, and Vietnam The industry is shining a spotlight on Korean beauty products thanks to their high functionality (Statista) Thanks to the industry’s extensive range of products and dynamic functions, some of the products have become a default for global consumers Therefore, it is essential to conduct research on the social and economic impacts that the industry has carried as well as the potential development that the industry is expected to reach Moreover, it’s also necessary to analyze how well the industry responds to changes in global economies and politics 1.2 Literature review Though it’s hard to believe, humans started to have the idea of using external help to enhance their beauty as early as 10,000 BCE Cosmetics info provides a thorough timeline of how cosmetics were used during ancient times Egyptians were amongst the very first to apply scented oil to their skin and hair Following were Chinese and Japanese people who applied rice powder to whiten their complexion during 1500 BCE The Early Common Era recorded the use of Henna by Indian people to draw tattoos on their hands and feet The Middle Ages marked the first use of perfumes in Europe and the Renaissance featured a very popular period of cosmetics use in Europe - especially in France and Italy (A History of Cosmetics from Ancient Times, Cosmetics Info) Many researches have then been conducted to study the potential of the beauty and cosmetics industry Global Insight published “A Study of the European Cosmetics Industry” in 2007 which analyzes the market size and market potential of major areas: Europe, the United States, Japan, and China The study claims that Europe and China were amongst the most dynamic markets for beauty products - with skincare being the most potential product segment Other studies are also conducted to study the financial aspects of major players within the industry Big global players such as L’Oreal or LVMH who have successfully built themselves a big global customer base are especially often chosen for case studies For example, L’Oreal is often being studied for its global management and brand marketing strategies Thus, such studies are great resources for the conduction of this dissertation 1.3 Objective of the study and research question This research is conducted in order to reach the following objectives: ● To provide insightful analysis on the beauty and personal care industry, its challenges as well as opportunities ● To analyze macroeconomic factors influencing consumption of cosmetic products in some key markets, including the U.S, Europe, and Asia Pacific ● To provide insights about cosmetics production and consumption in the U.S, Europe, and Asia Pacific ● To analyze financial ratios (profitability ratio, gearing ratio, and investment ratios) of four selected companies, namely L’Oreal, Estee Lauder, LVMH, and Unilever ● To make investment recommendations for the four selectec companies as well as for the industry as a whole after considering financial ratios and analysis mentioned previously 1.4 Scope and Area of the study This research will dig deeper into the promising beauty and personal care industry through analyzing the profile of four companies which include: L’Oréal, Estee Lauder, Louis Vuitton Moet Hennessy, and Unilever The research will analyze how external and internal factors affect these companies’ performances, from there draw investment recommendations on them The reason why the four companies mentioned above are chosen for the purpose of this research is their similarities L’Oréal and LVMH are France-based companies while Estee Lauder is established in the U.S and Unilever is a British-Dutch transnational company; and all these four companies have successfully gone global with big portfolios of product ranges Operation of L’Oréal and LVMH will be under France’s regulations and Unilever is still a Europe-based company so all these three companies will share certain favors as well as difficulties that politics and macroeconomy bring to them Also, their primary customer base will have similar 10