The world cosmetics market of relevance to us was characterized in 2011 by intense displacement competition and predominantly declining demand. Despite the persistently difficult and highly competitive environment, we were able to globally expand our market shares and therefore further strengthen our leading position in our relevant markets across the world.

Our core markets in Western Europe and North America remained weak as a result of the difficult economic conditions and low consumer confidence prevailing. Increased promotional activities, growing price pressure and a decline in the pricing level were particularly noticeable in the Western European branded goods market for hair cosmetics and the US body care market. In numerous segments, volume expansion failed to compensate for these developments. Despite this challenging market background, however, we succeeded in maintaining our growth trend of recent years, again outstripping the market overall. As a result, we were able to further expand our market shares in Western Europe and extend our leading position in the hair cosmetics business. We also consolidated our position in our core segments in North America. The emerging markets of Africa/Middle East, Latin America and Asia (excluding Japan) continued their positive development. By contrast, our market in Eastern Europe failed for the first time to show any growth against the background of increasing displacement competition. Nevertheless, we were able to further expand our business in the emerging markets in general, generating disproportionate growth and, as a result, gaining significant market share.

In the hair salon market, persistent customer reluctance led to a decline in overall demand. However, we were able to buck this trend, growing our Schwarzkopf Professional Hair Salon business and thus further consolidating our position as the world number three in this segment.

Business activity and strategy

The Cosmetics/Toiletries business sector is active in the Branded Consumer Goods business area with Hair Cosmetics, Body Care, Skin Care and Oral Care, as well as in the professional Hair Salon business.

Expansion in the Branded Consumer Goods business in Western Europe and North America is focused on further increasing market share. The objective of our growth strategy is to extend our innovation leadership. To this end, we pursue a consistent, pro-active innovation strategy accompanied by strict cost management to allow us to step up our market investments and increase profitability. In Asia, the Middle East and other emerging markets, we further drive business development through the rapid expansion of our portfolio. In the Hair Salon business, we continue our strategy of globalization, generating growth momentum particularly in Asia, Latin America and the Middle East.

Organic development is at the center of our growth strategy. In a market environment characterized by strong competition, we pursue this by focusing on our top brands, ensuring the rapid international launch of innovations with above-average profitability, and by selectively driving regional expansion. Further key success factors include strong support for our top brands through media advertising and promotional activities. We regularly analyze our businesses and brands as part of our pro-active portfolio management approach. In our Branded Consumer Goods business area, our focus is on the international expansion of our core businesses of Hair Cosmetics, Body Care, Oral Care and Skin Care. Through targeted portfolio management and the associated marketing measures aimed at strengthening our top brands, our ten largest brands again grew substantially faster than the overall portfolio in 2011. They now contribute more than 90 percent to the business sector’s sales revenues. In addition to strengthening our brand equities, we focus particularly on the growth potential available in our key accounts.

We also endeavor to drive forward our Hair Salon business on the basis of efficient sales and distribution structures backed up by a steady flow of innovations. And we are constantly looking to develop new regional potential on a selective basis.

Through our pro-active innovation strategy and the consistent further strengthening of our brand equities, we expect to continue generating dynamic, profitable growth. In 2011, we further increased our innovation rate¹⁾ to 43 percent. And we are developing additional growth potential through expansion of strategic partnerships with our customers.

¹⁾ Percentage share of sales generated with new products launched onto the market within the last three years.