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Edited Transcript of OR.PA earnings conference call or presentation 31-Jul-19 7:00am GMT

Half Year 2019 L'Oreal SA Earnings Call

Clichy Aug 2, 2019 (Thomson StreetEvents) -- Edited Transcript of L'Oreal SA earnings conference call or presentation Wednesday, July 31, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Christophe Babule

L'Oréal S.A. - Executive VP & CFO

* Françoise Lauvin

L'Oréal S.A. - Head of IR

* Jean-Paul Agon

L'Oréal S.A. - Chairman & CEO

* Mark Prestwich

L'Oréal S.A. - Group General Manager of Financial Communications and Strategic Prospective

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Conference Call Participants

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* Celine A.H. Pannuti

JP Morgan Chase & Co, Research Division - Head of European Food, Home & Personal Care and Tobacco and Senior Analyst

* Eva Quiroga-Thiele

Deutsche Bank AG, Research Division - Research Analyst

* Fulvio Cazzol

* Guillaume Gerard Vincent Delmas

BofA Merrill Lynch, Research Division - Director

* Iain Simpson

Barclays Bank PLC, Research Division - Former Research Analyst

* Javier T. Escalante Manzo

Evercore ISI Institutional Equities, Research Division - Research Analyst

* Jeremy David Fialko

HSBC, Research Division - Head of Consumer Staples Research of Europe

* Loïc Morvan

Bryan Garnier & Co Ltd, Research Division - Research Analyst

* Marion Boucheron

MainFirst Bank AG, Research Division - Research Analyst

* Mark Stiefel Astrachan

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

* Nico Von Stackelberg

Liberum Capital Limited, Research Division - Research Analyst

* Stephanie Marie Schiller Wissink

Jefferies LLC, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Welcome to the conference call regarding Loreal's Half Year 2019 Results. (Operator Instructions)

I now hand over to Françoise Lauvin. Madam, please go ahead.

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Françoise Lauvin, L'Oréal S.A. - Head of IR [2]

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Merci, Laurent. Bonjour à tous. Good morning to all. Welcome to this conference call for the release of L'Oréal First Half 2019 Sales and Results. Hosting this conference today are Chairman and Chief Executive Officer Jean-Paul Agon.

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [3]

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Good morning.

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Françoise Lauvin, L'Oréal S.A. - Head of IR [4]

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Chief Financial Officer Christophe Babule.

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Christophe Babule, L'Oréal S.A. - Executive VP & CFO [5]

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Good morning.

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Françoise Lauvin, L'Oréal S.A. - Head of IR [6]

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And Group General Manager, Financial Communication and Strategic Prospective Mark Prestwich.

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Mark Prestwich, L'Oréal S.A. - Group General Manager of Financial Communications and Strategic Prospective [7]

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Good morning.

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Françoise Lauvin, L'Oréal S.A. - Head of IR [8]

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The press release detailing our results was sent out yesterday at 6 p.m.

To start the call this morning, Christophe Babule will present the financial highlights of the past semester. After this financial introduction, Jean-Paul Agon will review the main developments of the first half and share with his strategic perspective. After this presentation, we will, of course, be available for your questions.

The presentation materials shown during the call can be found on our website, loreal-finance.com, where they can be downloaded. They are also available on Loreal's Finance app. A replay of this call will be accessible later today on the same website and app. The French and English versions of the half year financial report will be available in the next few days.

I wish you a very good conference. Let me now hand over to Christophe for the presentation of the financial results.

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Christophe Babule, L'Oréal S.A. - Executive VP & CFO [9]

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Good morning, ladies and gentlemen. The presentation of L'Oreal's financial results for the first half of 2019 will include information about sales, profit, cash flow and cash situation.

Let's start with the sales. Consolidated sales amounted to EUR 14.8 billion, up by 7.3% like-for-like, by 8.4% at constant exchange rate and by 10.6% reported. Changes in the scope of consolidation were positive at 1.1%. This comes mainly from the acquisition in 2018 of Pulp Riot in the U.S., of Stylenanda in Korea and of Logocos in Germany. Currencies had a positive 2.2% impact. Note that extrapolating from the end of June currency rates against the euro, that is with the euro at around USD 1.14 until year-end, will have a positive currency impact of 1.5% on full year sales.

Let's move to the currencies. This table shows the invoicing currencies of the group's main countries. Most currencies appreciated against the euro in the first half of 2019 compared with the first half of 2018. Among the main changes, the U.S. dollar appreciated by 7.1%. The Chinese yuan edged up plus 0.5%, and the Sterling pound rose plus 0.7%.

Let's move to the like-for-like sales by division. First, sales of the Professional Products Division have increased by 2.5%. Markets remained difficult in Western Europe, but sales improved in the U.S. and in Asia. The Consumer Products Division posted growth of 3.1% in the first half. New markets accelerated, especially Asia, while North America turned out to be more difficult. Western Europe improved, especially because of a good performance in Germany. L'Oréal Luxe at plus 13.2%, achieved a sustained growth in a very lively market. Here, too, the 2 good performances in the new markets, especially in Asia and in Travel Retail. Last, Active Cosmetics at plus 13.6% posted very dynamic performances across all geographies.

By region. Western Europe came out at plus 1% like-for-like, with a second quarter that was similar to the first one. North America is at 0 growth, with a difficult second quarter that was down 1.1%. The new markets are maintaining their very strong pace of growth of plus 16.6%, similar to that of the first quarter. Note, once again, the very strong growth in Asia at plus 24.3% as well as the Eastern Europe of plus 7.5%.

Let's move to the consolidated profit and loss account. We'll begin by analyzing the gross profit. Gross profit at EUR 10.8 billion was 73% of sales, stable as a percentage compared with the first half of last year. Changes in the scope of consolidation had a negative 20 basis points impact. Foreign exchange impacts, including both translation and transaction, came out negative at 80 basis points. Overall, gross margin, excluding scope and currency effects, improved by 100 basis points. This improvement stems primarily from mix effects as well as from premiumization. Research and development expenses have increased by 2.8%. The relative weight has decreased slightly at 3.1% of sales. Advertising and promotion expenses were 30.2% of sales, slightly above last year's figure of 30%. We have, therefore, continued to invest in supporting our brands, especially in Asia. Note that digital media represented 47% of our total media spending versus 42% in the first half of last year.

Selling, general and admin expenses at 20.3% of sales were 20 basis points below that of the first half of 2018. The improvement is due for 10 basis points to the application of the IFRS 16 accounting standard and for 10 basis points to the decrease of certain commercial costs, illustrating the constant productivity efforts in our organization. Overall, operating profit has grown 12.1% to EUR 2.9 billion, with a 30 basis points improvement to 19.5% of sales. This profit included a positive EUR 20.8 million impact of the application of IFRS 16.

Profitability by division. At this stage, every year, we point out that the L'Oréal group is managed on an annual basis and that half year divisions' operating profitability cannot, therefore, be extrapolated for the full year. I shall, therefore, limit my comments to the following.

In the first half of 2019, the profitability of Professional Products has changed to 19.1% from 19.2% in the first half of 2018. Consumer Products posted a profitability of 20.7% compared with 20.8%. The profitability of L'Oréal Luxe improved from 23.4% to 23.8%. And lastly, the profitability of Active Cosmetics remained stable at 26.5%. Non-allocated expenses, consisting mainly of corporate and fundamental research expenses, were stable at 2.7% of sales. For the group as a whole, 19.5% in the first half of 2019, an improvement of 30 basis points versus the first half of last year.

From operating profit to net profit, excluding nonrecurring items. First, the net financial results was an expense of EUR 30 million. The application of IFRS 16 as from January 1 this year, generated EUR 26.8 million in financial expenses. For the full year of 2019, the net financial expenses can be anticipated at around EUR 70 million, all other things being equal.

Sanofi dividends amounted this year to EUR 363 million. Income tax amounted to EUR 748 million, representing a tax rate of 23.2%, above the rate of the first half of 2018, which was 21.9%, because of an increase in the tax charge in France. For the full year 2019, we can confirm a tax rate slightly above 25%, all other things being equal. Net profit, excluding nonrecurring items, amounted to EUR 2.5 billion, and the corresponding earnings per share came out at EUR 4.38, up by 7.2%. For the full year, I can confirm that our objective is to achieve growth in sales and profits as well as an increase in profitability.

Lastly, to help you in estimating earnings per share for the full year, I will recommend that you base your calculation on a diluted number of shares of EUR 563 million after taking account of the EUR 750 million share buyback program announced yesterday.

We will now complete the review of the profit and loss account. Nonrecurring items amounted to a negative EUR 139 million in the first half of 2019. They include mainly the depreciation of the brand and of the goodwill of Clarisonic for EUR 80 million before tax and restructuring charges of EUR 90 million related primarily to the reorganization of the distribution of NYX Professional Makeup. After taking into account the nonrecurring items, net profit after noncontrolling interest came out at EUR 2.3 billion, an increase of 2.3% compared with the first half of 2018.

Cash flow statement. The gross cash flow amounted to EUR 3.3 billion, up by 18.9%. It includes, this year, an amount of EUR 209 million for the rights of use related to leasing contracts in application of IFRS 16. The change in working capital increased significantly, which happens every year in the first half. Over the full year 2019, the change in working capital should increase by around EUR 200 million compared with 2018. Investments at EUR 559 million represented 3.8% of sales. For the full year, they should reach a bit less than 5% of sales. Net operating cash flow came out at EUR 1.9 billion, up by a strong plus 23.2% compared with the first half of last year. Lastly, after payment of the dividend, the residual cash flow amounted to minus EUR 248 million.

Regarding the balance sheet, we can say that the consolidated balance sheet is particularly robust, with shareholders' equity of EUR 27.1 billion. The financial situation is also very solid. After payment of the dividend of EUR 2.2 billion in April. Net cash came out at EUR 200 million. Now excluding the financial lease debt under IFRS 16, net cash amounted to EUR 2.35 billion.

Thank you very much for your attention.

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [10]

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Thank you, Christophe. Hello, everyone. As you have heard, L'Oréal has delivered its strongest first half like-for-like growth in more than a decade at plus 7.3%, accelerating compared to the first half of 2018, as well as a very good set of financial results with growth in operating profit of plus 12.1%, leading to a new record level of operating margin of 19.5%. Earnings per share grew 7.2%, and net cash flow was up by 23.2%.

I would like to share some insights on the dynamics of the market, the performance of our divisions and zones and, finally, our perspective on the rest of the year.

First, as anticipated, the market continues to grow at a very healthy base of around plus 5.5%, the best in 10 years or more, according to our estimates, maintaining the rhythm of 2018 but, again, with some very strong contracts. The main growth driver remains exactly the same. The same 2 sectors are leading the market. Luxury is growing double digit, with particularly strong demand in Asia and Travel Retail, and dermocosmetic is dynamic in all zones, fueled by a global trend towards health and wellness. In contrast, mass market is relatively subdued, and the professional sector remains slow.

In terms of channel, Travel Retail is still very dynamic, particularly for luxury brands in Asia, and e-commerce is growing double-digit in every zone and every sector, accounting for roughly half of the global growth in the beauty market.

In emerging countries, such as India, Indonesia, Philippines, access to e-commerce is leapfrogging the development of traditional distribution, reaching new consumers even in the most remote corners.

By region, Asia continues to grow very fast. China is, of course, the main contributor and has shown no sign of a slowdown. The growth of the beauty market even accelerated in the second quarter compared to the first one.

Western Europe continues to be flattish but has recovered slightly in the South since our last call. North America is still growing but at a slower pace largely due to the slowdown in makeup, which is now flat in the U.S. at best.

By category, skincare is leading in every region of the world and in every sector of the market, balancing the slowdown in makeup, particularly in the U.S. and Western Europe.

L'Oréal is, once again, outperforming this dynamic market globally and on each of its main growth driver. The new markets are clearly fueling our growth. Our Asia Pacific zone has even accelerated to plus 25.5% in the second quarter, growing more than twice the speed of the market and maintaining the very high rhythm of 2018. All division posted double-digit growth, gaining share without exception. China is the main contributor, but we are also growing double-digit in very strategic markets, such as India, Indonesia, Malaysia, Philippines, Vietnam. Elsewhere in the new markets, Eastern Europe delivered another semester substantially ahead of the market.

Latin America remains contrasted with a much stronger quarter in Mexico and Chile but a disappointing first half in Brazil, again, where the mass market remains challenging. Africa, Middle East delivered a poor quarter with some good performances in Egypt, Pakistan and Sub-Saharan Africa, offset by difficulties in the Middle East that should be resolved in the second half. In Western Europe, we are gaining market share despite difficult conditions in France.

The U.S. has been more challenging as the market has decelerated in makeup, where we are market leader. Although, we are gaining share in skincare, where the market is more dynamic. We have strong initiatives in the second half, particularly in Luxury, but the U.S. will probably remain soft this year.

The other key drivers are still boosting our growth. Our Luxury division is outperforming a very dynamic selective market with outstanding growth in Asia and Travel Retail. Our skincare sales are growing 2x faster than the market, double-digit with Active Cosmetics and Consumer Products Division and growing very fast with Luxe. Skincare is, of course, a very important driver of our growth, but makeup is also contributing well and growing in line with the market. Haircare has been a bit more difficult, flat on the semester and a bit slower than the market, particularly in the U.S. and Western Europe.

And we keep reinforcing our very important leadership in the 2 booming channels, our business in Travel Retail is growing very fast at plus 21%. If Travel Retail were a country today, it would be our third country behind the U.S. and China. And finally, e-commerce for us is on fire. Sales in the first semester accelerated to plus 49%, twice the speed of the market and now represents 13.2% of our total turnover. All zones and all divisions are growing strongly in this channel. In China, e-commerce now accounts for more than half of our mass market and dermocosmetic sales.

We are now clearly a digital-first company. And our digital lead is paying back. But digital is not only about e-commerce. Digital enhances our ROI on media with sharper targeting. 47% of our media is now digital, and 3/4 of that is spent on precision advertising. Digital is also about more relevant content. We produce more than 1 million pieces of content a year. 80% of that is developed for digital platforms. And digital is connecting us with 1.2 billion consumers every year on our website, opening a more personalized discussion with them. And now with new technologies, like AI and AR, digital is creating new services and amazing consumer experiences, such as virtual makeup trials with ModiFace now deployed by 20 brands in 65 countries.

The performance by division reflects these underlying trends and growth drivers. L'Oréal Luxe is a big engine for growth, particularly in Asia and Travel Retail. The division is gaining share in all of the major categories: makeup, skincare, fragrances. Its 4 flagship brands, Lancôme, Giorgio Armani, Yves Saint Laurent and Kiehl's, are growing at a very high combined speed of plus 16%, proving once again that big brand, the most loved brands are winning in this new digital world. The division has a very strong second half ahead with the launch of 3 new fragrances, which never happened before, Idôle by Lancôme, Libre by Yves Saint Laurent and Born in Roma, the first creation from Valentino since we acquired license.

Active Cosmetics recorded another semester of double-digit growth and is gaining share in every region of the world, powered by the relevance of the business model based on recommendation by medical professional and a global aspiration for healthy-looking skin. The big growth driver were La Roche-Posay, which grew double digit; SkinCeuticals, which recorded fantastic growth in all geographic zones; and CeraVe, which continues to capture market share in the United States, also has been successfully launched in China and is now being rolled out to many markets.

The Consumer Products Division is accelerating slowly but surely and winning share in many regions even if overall growth is slightly below the market. The division performed well in Western Europe with good share gains in makeup and skincare and growth in all the major markets, France, Germany, U.K., Italy and Spain. It recorded a strong acceleration in Asia, particularly in China, where L'Oréal Paris was the #1 brand during 6.18, the largest e-commerce festival after 11.11. In North America, performance has been weaker due mainly to the slowdown of makeup. L'Oréal Paris, the world's #1 beauty brand, grew well ahead with the market. Garnier is back to solid growth. And Maybelline New York, the world's #1 makeup brand is gaining share, especially in emerging countries.

The division is also spotting and scaling new beauty trends, Garnier BiO bringing organic beauty to a wider audience in Western Europe, and Stylenanda, a newly acquired Korean beauty brand is booming in its home market and now starting also very fast in China.

Finally, the Professional Products Division grew in line with the market, beating the market in the U.S. and growing fast in Asia, especially in India and China. Western Europe and Latin America continue to be difficult.

Kérastase confirmed its turnaround and led the growth across the world with double-digit progression in all zones. The brand successfully combined expert in-salon services with powerful innovations like Blond Absolu. Kérastase is more than ever the reference brand in the booming professional luxury haircare market.

All in all, after this first good half, we are looking ahead with great confidence. First of all, the market is in a very good shape. 2018 was a record year for growth, and the first semester of 2019 confirmed the same pace. The same underlying trends and growth driver persist and remain strong. We are confident that Asia, Luxury, skincare, Travel Retail and e-commerce will continue to drive the growth at a strong pace in the second semester. Secondly, as you've seen, our big brands are very dynamic with the 8 billionaire brands driving growth of plus 8% in the first semester. We expect these big brands to remain strong. The launch plans for the second semester are everywhere very solid, and we have some very important initiatives to come.

Thirdly, we are confident that our performance in some divisions and some regions should improve in the second half. The consumer division and the professional division should keep accelerating, as will Western Europe. And Latin America and Africa and Middle East should also deliver better growth than in the first semester. Therefore, despite a volatile and contrasted environment, we start the second half with optimism and confidence in our ability to once again outperform the beauty market and achieve another year of growth in both sales and profit.

Thank you very much, and we are now ready for your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) So we have our first question from Celine Pannuti from JPMorgan.

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Celine A.H. Pannuti, JP Morgan Chase & Co, Research Division - Head of European Food, Home & Personal Care and Tobacco and Senior Analyst [2]

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So my first question would be on North America. So you had a negative growth in the second quarter. Could you give us a bit more flavor of what has happened in consumer and Luxury? I know you mentioned makeup, but in -- could you give us a bit of flavor in terms of the luxury market? It seems that you have underperformed this market, so was that the case? And likewise, in consumer beyond makeup, could you talk about what has happened from a market standpoint, competitive standpoint?

My second question, I just rebound what you said in terms of improvement in the second half. You talk about consumer accelerating in Western Europe. Could you come back to what has happened in Q2 in Western Europe consumer? I feel that the competitive base was easier in Western Europe, and we'll get, in fact, [prefer] the total in the second half. So why is it that we had, had -- we had failed to see an acceleration? And hence, why would you believe that there should be one in the second half?

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [3]

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Good morning, Celine, I see with pleasure that you're always the first to raise a question. So regarding North America, it's obviously and clearly the weak point of this first semester, which, by the way, on all other regions was very strong, as you could see, because I want to remind you that, compared to the first, the second quarter of 2019 was stronger than the second quarter -- no, the first semester, sorry, for 2019 was stronger than the first semester of 2018.

So in North America, it was clearly the weak point. The market slowdown, first, clearly, globally, we estimate that the market globally was around plus 3%. We had, in fact, a good performance in 2 divisions and a weak performance in 2 other divisions. Good performance in 2 divisions, that were professional and Active Cosmetics. Active Cosmetics is really on fire in North America, and professional is gaining momentum quarter after quarter.

But we were disappointed with our performance, clearly, in consumer and Luxury. On consumer, clearly, the market was down, but we were also below market. And that is, I would say, mostly because we are really overrelying on makeup. You know that in the U.S., we have 40% of the market share in makeup. Makeup is more than 50% of our sales. And obviously, when we are in a cycle of weak makeup growth, this is definitely a headwind against us. And honestly, we lost also a little bit of market share globally so we are definitely not happy with this performance.

In terms of Luxury, the market was a bit also slower. Here, again, we are pretty strong in makeup, and the makeup market in Luxury got really slow. So that played against us, but all in all, also, we were not also overperforming the market. So on these 2 divisions, we perfectly acknowledge that we didn't gain market share as we should have. That's why we are strengthening very clearly our plans, plans for the second half, plans for next year. And we really intend to bounce back in the U.S., but it may take some time. It probably will not happen before the end of the year.

Regarding the improvement in the second half, you talk about Western Europe. In fact, in Western Europe, we see globally a difficult market. Flat market but not very different from what we saw before. Regarding CPD, consumer division, in Western Europe, we had, as you said, a good evolution on the second quarter. And that was mainly due to good market share gains. In fact, we are -- even if the market is not very dynamic, we are gaining market share almost on all categories. And so this is pretty positive. Also, that the -- for us, the comparative base of the year before is not that relevant. What is really relevant year after year is the initiative that we have, how good they are, how strong they penetrate the market. And this was the case in Western Europe in the second quarter for consumer division with a good performance of, for example, Garnier BiO, and different initiatives that were pretty successful. So that's why we are pretty confident for, also, for the year.

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Celine A.H. Pannuti, JP Morgan Chase & Co, Research Division - Head of European Food, Home & Personal Care and Tobacco and Senior Analyst [4]

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And are there any initiative in the second half that would help this region specifically?

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [5]

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Yes, there are several. There are many initiatives coming on all divisions. I would say that maybe the most important one are the launches of the 3 new fragrances. As we said, Idôle from Lancôme. We launch a new Lancôme fragrance every 20 years or 15 years. So this will be a major. The new launch of an Yves Saint Laurent, also, fragrance, which doesn't happen often, and the launch of the first Valentino initiative called Born in Roma.

And you know that of all zones, the one that is the most important in terms of fragrance is Western Europe. So we really believe that for the Luxury division, for example, the launch of these 3 fragrance initiative will definitely be very important.

There will be also initiatives in all divisions.

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Operator [6]

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So we have another question from Javier Escalante from Evercore.

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Javier T. Escalante Manzo, Evercore ISI Institutional Equities, Research Division - Research Analyst [7]

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My question has my question has to do with e-commerce, incredibly strong, an acceleration given comps, so wondering if you can give us some color. How much of that has to do with the promotional activities in China? This new 6.18 festival, shopping festival, if you can give us a sense of e-commerce growth by country and division and category, actually, makeup versus fragrances versus skincare...

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [8]

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Why not brand?

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Javier T. Escalante Manzo, Evercore ISI Institutional Equities, Research Division - Research Analyst [9]

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No, no, no, not brands. And then basically, the other is the impact on margins, right? To what extent -- where in the curve -- in the investment curve you are given the very high return on investment that you're getting in digital in advertising. And your decision of partnering up with Amazon with some of the augmented reality technologies for ModiFace, if you can give us your perspective, why Amazon and what you're expecting from that partnership?

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [10]

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So that's many questions. So first...

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Javier T. Escalante Manzo, Evercore ISI Institutional Equities, Research Division - Research Analyst [11]

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Yes, I'm sorry for that.

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [12]

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No, no. No problem. It's a pleasure. So e-commerce, I think -- but you're right to ask the question because I think that e-commerce is clearly one of the key booster of the growth of L'Oréal and, very clearly, because we have been probably the first to enter in this game and to master it on -- in terms of digital and e-commerce activity. So -- and this is really paying back now. When you see that we are growing at almost plus 50% on e-commerce when the market grows at 25%, it really means that we are growing twice the speed of the market and accelerating even from 1 year to the other.

What's interesting, I cannot give you all the details on the numbers, but what I can tell you is that the growth of e-commerce is really completely homogeneous across division and almost across regions. For example, the growth in e-commerce is almost the same for our 4 division. It's around 35%, 40% for professional, 45% for mass, 50% for Luxury, 50% for Active Cosmetics. So you see that it's really a completely homogeneous acceleration of the growth for all divisions. And same also, by the way, for regions, it's not only a Chinese gain. It's really everywhere where we are seeing this acceleration of the e-commerce business.

It's clear also that we are playing pretty well or even very well with this new festival that China is organizing. We all knew about the 11.11, and this has been very successful. We have been very successful at 11.11. And in fact, for the year, 6.18, we have been very successful, too. L'Oréal Paris was the #1 brand, as I said before, in this festival. All our brands are really, I would say, mastering this game. But it's one element among many others in terms of the e-commerce growth.

In terms of profitability, we don't disclose profitability by channel. So -- but we always said that e-commerce for us was more relutive than dilutive. So the development of the percentage of the business in e-commerce is favorable for the profitability.

And regarding ModiFace and Amazon, the idea is pretty simple. We bought ModiFace in order to boost the sales of our brands and our categories on different -- with different partners. Amazon is a very important partner. And we thought that it makes sense for them and for us to partner on this. So they will have access to our technology. It will be exclusive to our brands for a while and then will be used for the category of makeup. But it's also good because the more Amazon sells makeup, the more they will sell our brands because our brands are, by definition, the leaders in the makeup category. So we think it's a win-win that we want to play with Amazon as we have played also with many other e-retailers around the world. All right?

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Javier T. Escalante Manzo, Evercore ISI Institutional Equities, Research Division - Research Analyst [13]

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Yes. And can I squeeze another one? And that's going to be short.

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [14]

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A quick one.

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Javier T. Escalante Manzo, Evercore ISI Institutional Equities, Research Division - Research Analyst [15]

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Yes. A big one because it's also related or was related to online. I do remember when you when you bought NYX that one of the reasons why you bought it, it was their strength online and understanding how they were dealing with social media. And if you can explain what is that you are doing in terms of the restructuring of the brand that it has to do with distribution, does it have to do that at the stores that you decided to open? What is it -- could you explain a little bit a bit more what you are doing with NYX, please?

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [16]

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Yes. It's -- you're right to say that it's pretty related also to this evolution of e-commerce because, in fact, what we are seeing is that in many countries, the sales of makeup are really shifting a lot to e-commerce and shifting away from stores. So when we started NYX makeup a few years ago, the store distribution was a critical element for makeup. Definitely, we see that year after year that e-commerce is taking a more important role. So we don't want to be late in this transformation. We always, as you know, want to transform the business quickly in order to adapt it to the evolution of the trends and where consumers want to find our products. And so we have decided to do this restructuration of our store network in order to reduce the number of stores and to maximize the sales on e-commerce. So that's absolutely consistent with what we said before.

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Operator [17]

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So we have another question from Guillaume Delmas from Bank of America Merrill Lynch.

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Guillaume Gerard Vincent Delmas, BofA Merrill Lynch, Research Division - Director [18]

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Two questions for me. The first one is on your mass market haircare business because we had a soft growth in the first half. You also mentioned, Jean-Paul, some share losses in North America and Western Europe. To me, it seems that mass market haircare has been, for quite some time now, lagging behind some of your other categories in CPD. So my question here is, do you think the challenges you're facing are more structural, a bit lack of category growth, deflationary pressures? Or do you have a plan in place that could drive a rapid improvement in that part of your business?

And then my second question is on your advertising and promotion spend. That, once again, grew faster than sales in the first half. Now if I look at the past couple of years, you've been increasing A&P spend by more than 100 basis points. That's roughly an incremental EUR 1.1 billion at the time when we're hearing a lot about media efficiency gains with less waste, precision advertising. So maybe could you help us understand the main areas where you've been investing this incremental money? And how do you make sure that you maintain a strong return on investments.

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [19]

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All right. So regarding haircare, in -- our consumer division operates mostly in 4 categories: makeup, skincare, haircare and hair color. Clearly, for a few years, makeup has been a very, very strongly growing category, and this -- it was clearly the priority because we always want to maximize the growth of the market where it is. And we -- by the way, we -- it was good for us because we enjoy a strong growth on makeup and we also increased our market share very strongly on makeup.

Now with Maybelline, L'Oréal Paris and NYX, and Essie, by the way, we reached some very high market shares, for example, in the U.S., where we are close to 40%. We never had that before. So that's with one. Now since the 2 years, 1.5 years, skincare is really the star of the category, and skincare is a very important category because it's a category where consumers are loyal. It's a very added value category, less promotional, so we think that it's very strategic, and that's why also we are focusing on skincare. And again, gaining market share, accelerating the growth.

And on the total, as you could see, we are growing on skincare twice the speed of the market. And so haircare has not been the priority for us in the past 5 years because of that. Our market share is globally stable, I would say, for haircare around the world. We have a strong market share in Western Europe where we are #1. And we are -- we don't have a strong market share in North America. And -- but we have some very good brands, and we keep investing on them, but we try also to find a good return on investment. So that's not more complicated than that.

Regarding the A&P investment, we -- it's very clear that we invest in A&P in order to strengthen our brands and to maximize our growth. And by the way, it has pretty well worked in the past 2 years where our growth has clearly accelerated. And to be also very frank, and you will not be surprised, one region in the world where we've increased our spending in A&P is clearly Asia and China. And not only in order to sustain the very strong growth that we have there, which is very important, of course, but also to prepare the future in order to convince and seduce these hundreds of millions of consumers that are becoming new consumers for our brands in these countries. So this is honestly the best investment we can do. And at the moment, where the growth that we have in China or Asia is so strong, it's clearly a very good investment that we can do.

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Christophe Babule, L'Oréal S.A. - Executive VP & CFO [20]

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Okay. If I may add, Jean-Paul. We're speaking before about the media that we spend in digital, that's for the purchasing of the space. But as you can imagine, we are also investing in other kind of expenses being the production of digital media, being all the website costs that are generating our e-commerce sales as well as the consumer relation marketing and influencer management. So there is a shift also in the way we spend or -- in advertising and promotion.

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [21]

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But all in all, I think that the pretty reasonable increase that we have made in A&P during this past 2 years has proven pretty effective in terms of acceleration of the growth, in terms of strengthening of our brands, in terms of boosting our business in Asia and China. So honestly, I think it's the best management decision we could take.

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Operator [22]

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Yes. We have another question from Marion Boucheron from MainFirst.

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Marion Boucheron, MainFirst Bank AG, Research Division - Research Analyst [23]

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First question on China, which accelerated in H1 versus last year. So what have you seen further accelerating? And you were mentioning even Q2, so what is behind this? Is it specific categories or your outperformance at the market -- or new regions with e-commerce?

Second question would be France, like it was the black point of Western Europe in your commentaries, what -- we thought we were maybe at the end of the tunnel. So what happened there?

And then you were mentioning the innovation pipeline for H2. Are there any phasing between Q3, Q4 we should be aware of, of all these initiatives?

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [24]

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All right. So first, China, it's true that everyone talks to us about slowdown. But for the moment, on this first half, what we have seen is more an acceleration than a slowdown. While it's not a huge one for the market, but it's an acceleration. We think that the market accelerated between Q2 and Q1. And on our side, we also accelerated pretty nicely. So it doesn't mean that we're going to keep accelerating quarter-after-quarter, but at least it means that we are very far from the slowdown.

Why? Because, in fact, I think there are many factors today in China that drive this growth. Number one, there is a clear, strong appetite of consumers. All this growth comes from consumer desire, and this is clearly increasing period-after-period. We saw it from the consumers who buy our brands on the Chinese market, but we saw it also -- we see also from consumers -- Chinese consumers buying our brands in Travel Retail, in other countries. So there is a growing appetite of Chinese consumers for beauty products, number one.

Number two, you know that the global economy of China is more and more towards consumption. So probably that helps also. And more importantly or most importantly, what we see is a strong increase of the consumption of young consumers in China. The most amazing -- I've said that already in different call, but what's most amazing in China is that you see very young consumers going directly to a very established brand and big brands, like, of course, L'Oréal, but also Lancôme or Yves Saint Laurent or Giorgio Armani and going directly to these kind of brands. And so this is clearly a very good sign. And we see, again, no signs of slowing down.

And this is good for the 4 divisions. That's also a very important point. Of course, Luxury is really enjoying a very strong growth on a very strongly growing market. But it's also true for mass market, where we are growing in China twice the speed of the market. It's also true for Active Cosmetic, and it's also beginning to be true also for Professional where, for many years, Professional didn't really start in China. And now it's really starting very strongly. So we are very confident and very satisfied with the true performance, which is an amazing one, I have to say, of our teams in China that are really gaining market share. The growth that we have in China is not only because of the growth of the market. That's 50%. The other 50% is definitely the amazing capacity that our team have right now to gain market share. And this is not over.

Regarding France, it's always difficult in France to know exactly when will be the end of the tunnel. But the market is still slightly negative, something probably around minus 1%, and we are more or less at this level with some improvement that makes us happy. We are improving in mass market. We are gaining share again in mass market, which is a good performance because we have very high market share in France. And so to gain market share again is a very good sign. We are doing very well in Active Cosmetics. And we have, I would say, 2 difficulties in this first half. One is definitely Professional because the Professional channel in France is really not easy. And we're also in the middle of the restructuring of our sales team, which is always a turbulence. And also Luxury is not very easy. But as I said before to another question, we think that the second half in France, like in many countries of Europe, for Luxury will be very strong because of the 3 fragrance launches that will arrive very soon.

And regarding the phase question -- phasing question that you asked, there was absolutely no phasing in the first half. These launches are coming now, and they will completely positively impact the second half.

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Operator [25]

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So we have another question from Stephanie Wissink from Jefferies.

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Stephanie Marie Schiller Wissink, Jefferies LLC, Research Division - Equity Analyst [26]

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The first, Jean, is on the North American business, can you give us some incremental insights on the channel performance? I know you talked about e-com, but anything else across your key channels of distribution, the mass, drugs, specialty and even into department stores for your Luxe business?

And then on China, also kind of clarification. If you could just help us think about the unit level consumption versus pricing. And when we were together last fall, you talked about the premiumization effect in that market. It would be helpful just to understand a little bit about the unit growth dynamics versus the pricing that you're seeing in the China market.

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [27]

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We don't disclose units per country. So this is not something we're going to do, but what you're saying is true. What we are seeing in China, but not only in China, is a premiumization of the market. And what's interesting is that it's happening in all the channels. So we are seeing that in China. We are seeing that in Asia, but we are seeing that also in North America, almost everywhere. So definitely, the value component is much bigger than the units.

In North America, if I understood what your -- your question, it's about the different channels for Luxury. What's happening to us is the same as what's happening to the market in general. Department stores are pretty tough and specialty retailers like Sephora and Ulta are growing very well. And so we are -- with these retailers, we are a very important partner for Ulta, we are a very important partner to Sephora.

And -- but it's clear that our footprint compared to -- that's basically another reason of the, let's say, the challenging situation for us is that compared to other new players that are completely in -- only in the specialty doors or in e-commerce, the fact that we have an important footprint also in department store is a headwind clearly. But we are trying to manage that pretty well. Okay?

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Stephanie Marie Schiller Wissink, Jefferies LLC, Research Division - Equity Analyst [28]

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Yes. Jean, could you do the same for Consumer in North America? Just reflect on the different channel dynamics.

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [29]

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Well, yes, as you know, the channel dynamics for consumers are a bit more simple. You have the famous retailers, the Walmart, Target, CVS and Walgreens. Depending on the year, some are growing faster than the others. We are very strong partners with each of them. We are developing our partnership also with Amazon. But doing so, we're also respecting all the retailers. That's why I said before that Modiface is an interesting element of the partnership with Amazon.

And in fact, globally speaking, we are doing pretty well in terms of market share. The problem is our footprint because the really -- the difficulty that we have in the U.S. is our very strong dependence on makeup. So when the makeup market is strongly growing, really it's tailwind. When the makeup market is more difficult, like it is today, after these 4 or 5 years of boom of the makeup, it's more a headwind. But for example on the cosmetic category, we are more growing our market share than anything else.

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Operator [30]

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So we have another question from Iain Simpson from Barclays.

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Iain Simpson, Barclays Bank PLC, Research Division - Former Research Analyst [31]

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Two quick questions from me, please. Firstly, you've had a number of launches or acquisitions in Europe of late that are trying to tap into the naturals, organic space. So thinking about things like Logona, the products held by Garnier, how are those going, please? And what are the sort of learnings for the rest of your portfolio?

And then secondly, thinking about your 2 main growth engines at the moment, Luxury and Active, how do the Luxury and Active consumers differ from each other, especially in Asia? Are these just the same people buying things in different channels? Or are there age or income differences between the consumers?

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [32]

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All right. So first, I'll start with the second question. We think that the consumers of Luxury and Active are pretty different because it's not at all the same psychographics or motives for consumption. Active Cosmetics brands are definitely doctor-recommended brands for La Roche-Posay, for SkinCeuticals, for CeraVe, even for Vichy. They are very -- -- they are purely skincare, and they are really for healthy skin. So this is a very precise type of motivation, where Luxury consumers are very different motivation. It's more about buying something premium. It's about skin care, but also makeup or fragrances. So it's very clearly different, different consumers.

And by the way, it's also different networks. It's true that you can find a few Active Cosmetic brands in some department stores in China, but mostly different. I would say that Luxury is clearly department -- luxury development stores and, of course, e-commerce with special sites like, for example, on Tmall, where our Luxury brands, have their own site. And for Active Cosmetics, it's more Watsons, in pharmacies and also some different sites for consumers on e-commerce.

So it's -- I think it's very, very different. It doesn't mean that there can be no move from one to the other. But I would say, the motivations of consumers are very different.

Regarding the natural initiatives, we are pretty happy with the initiatives that we took. I remind everyone that we took 3 initiatives on the bio skincare segment. One was the launch of La Provençale Bio in France, and we are pretty happy with the results. It's part of the satisfaction that we have in the consumer division in France. We are also happy with the launch of Garnier BiO in Western Europe. Apparently, it's totally additional to the sales of Garnier and apparently starting pretty well. And Logona, it's a bit early because we just did the acquisition. We are doing the integration. We're also learning about the special business and brand. And so it will more be something for the second half of next year. But all in all, this allows us to have a good presence on this segment and also a good understanding of what consumers want. And so we think it's a positive -- a very positive move.

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Operator [33]

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So we have another question from Jeremy Fialko from HSBC.

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Jeremy David Fialko, HSBC, Research Division - Head of Consumer Staples Research of Europe [34]

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It's Jeremy Fialko, HSBC. A couple of questions. So the first one is on gross margin. Clearly, you had very strong underlying gross margin expansion, except that was offset by the FX and scope effects. Could you just say, assuming that the June 30 rates were to prevail, what the scope and FX negatives would be on the gross margin in the second half?

And then the second question is on the sort of Asian business and particularly in e-commerce. Can you talk about the visibility you have in terms of sell-out within some of the channels within the Asian business and your comfort that the sell-in and the sell-out are matching one another pretty closely?

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [35]

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On gross margin, Christophe, you want to say something about that?

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Christophe Babule, L'Oréal S.A. - Executive VP & CFO [36]

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Yes. As you know, you have the impact of the FX change at the end of June. When you project at the end of the 2019 and there will not be a big change, so we expect that the impact that we have seen in H1 should not be very different from the one that we'll see in the second half.

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [37]

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I didn't understand your question regarding the Asian business, what did you say?

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Jeremy David Fialko, HSBC, Research Division - Head of Consumer Staples Research of Europe [38]

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Just more about your visibility on the sell-out versus sell-in within your Asian business.

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [39]

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Oh, yes, that's very simple. You know that visibility is pretty good because as more and more of the business is made online, e-commerce -- in e-commerce, you know don't have inventories. So what you sell out is what you sell in. So in fact, this is, by the way, pretty healthy because it evacuates completely the issue of building inventories or reducing inventories. We are pretty sure that the numbers of sell-in that we have delivered in this first half in Asia were really matching pretty precisely the numbers in sell-out that we can be pretty sure of that.

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Operator [40]

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So we have another question from Mark Astrachan from Stifel.

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Mark Stiefel Astrachan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [41]

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Three quick questions. Wanted to go back to North America and explore a little bit more. So in Luxury, you've been doing a bit better than at least one of your large U.S. peers. I'm curious what drove more of the weaknesses you saw in the second quarter. Is It just the makeup trends will be worsened, as you mentioned? Was there some impact to inventories given just continued weakness in department stores, et cetera? What would kind of drove that seemingly worsening of trends there?

And then 2 quick other questions. One, curious about the change in management in China. Why now given how dynamic the category growth -- the country growth is? And are you seeing any impact from any of the social unrest in Hong Kong?

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [42]

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No, that's very different question. So North America, honestly, you cannot draw any conclusion from one quarter to the other. I think that what we are seeing in Luxury in North America is what I said before is that definitely I'm not surprised that we are -- you are seeing the same type of evolution of that of one of our big competitors because we have the same type of footprint. We are a bit less in department stores and a bit more in specialty or e-commerce. But I mean, we are -- we have the same type of situation. So -- but there is no big change between Q1 and Q2.

And we are pretty hopeful. It's not a guidance. It's just a personal hope that the second half for Luxury in the States would be -- could be a bit stronger, also because we have some very strong fragrance launches. Again, you don't launch a fragrance every quarter. It happens not even every year. So the initiatives that we have on these brands should help how much we've seen together at the end of the year, but I think it should help.

Then change of what management in China, that's what the question is?

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Mark Stiefel Astrachan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [43]

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Yes.

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [44]

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Well, it's L'Oréal. We always give a good carrier or our evolution to our top managers. You've seen the recent promotion of Christophe who was Asia CFO becoming a group CFO. And we keep moving our great talents around the world, and we thought it was a good timing to move Stéphane Rinderknech who has done an amazing job in China to a new position, which is not yet disclosed. And at the same time, I can tell you that I'm very -- I know very well and I'm very confident that the new General Manager of China, Fabrice Megarbane who was before the Head of Germany and has done a very good job. So I'm pretty confident. And I think it's also -- for us, it's a great way to prepare our top managers for important responsibilities. So no worry on this one.

And the third one was Hong Kong. Hong Kong, you've -- we know -- we read the press, you and us. It's clear that what happens in Hong Kong doesn't facilitate the sellout of the business. The only, I would say, good news there is that if there are less Chinese tourists in Hong Kong, thereby our brands are in their -- on their local market. And as we are -- in a way could even be seen positively, if you want to be an optimist, because the market share that we have, if I'm not mistaken, in China in Luxury is higher than the market share that we have in Hong Kong. So -- and the presence, the visibility, the power of our brands on the China local market is much stronger than the one that we have in Hong Kong. So if there are less Chinese tourists coming to Hong Kong and if they stay in China and do their purchase in China, I think it will be more a tailwind than a headwind.

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Operator [45]

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So we have another question from Nico Von Stackelberg from Liberum.

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Nico Von Stackelberg, Liberum Capital Limited, Research Division - Research Analyst [46]

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Just a quick question on makeup in North America. I'm trying to get a little bit behind the softness. Do you have a feel for whether or not she has too much makeup already in the cupboard? Is it a cupboard issue? Or -- and also, I guess, another sort of similar question is, if consumers are going online to buy makeup, surely, there's a fragmentation issue at play here given the infinite shelf, so it is maybe a bit harder to win? Is that fair? Or can you get underneath that?

And then the second question is on men. Just wondering, out of a pool of, say, 100 men, how many men buy your products each year out of 100? And if you were to fast-forward to 10 years from now, what are your projections in terms of how many men will buy your products each year out of 100?

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [47]

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Thank you for this interesting question. If I knew, I would be very happy how many men are buying our products and how many men in 10 years will buy our products. What I can tell you -- it's very difficult to know because, as you can imagine, also men share their products with their family or their wives, et cetera. I don't know what type of shampoo you use personally, but probably, you use a shampoo that you share with someone else. So -- and it's true for shower gels, for many categories where it's not specifically for men.

So the question is more for specific categories, so what is -- it's fragrances, it's skincare. The only thing we can tell you is that this market of specific product format is around, I think, 10% of the total market, and it's more or less the same for us. And as I have said several times, it's not really growing in the Western world. The good news is that it is growing in the Asian world. And for example, for skincare, men skincare is definitely growing very well in Asia, especially in China and India. We are, by the way, the leader of men skincare. For example, in China, we have a brand called Men Expert, which is extremely strong and growing very fast. And it's one of our engines of growth for China. But honestly, I don't know how many men are using and will be using our products. We do our best to stimulate them, but it's not always easy.

Regarding makeup, I think very simply that after 5 years of a huge makeup boom, everyone expected that, at one moment, the market would cool down for different reasons because, as you said, the [cupboards are maybe a bit full, maybe there is a change of type of makeup that people want to use. The makeup looks that were really in fashion 4 or 5 years ago have changed. Now it's more a kind of natural makeup where you still need makeup but not exactly the same type of products and not the same type of the way you use it.

So I think it's pretty normal, and it's okay. I think it will bounce back. We have seen that already in the past. There are cycles in this business. The very good news, as you know, is that when the makeup was softening, the skincare was accelerating. And that's really the magic of this fantastic beauty market is that when a category is slowing down, another one is rising, which is happening today. And you have seen the amazing growth that we have on skincare. So of course, for us, it's -- as I've said, it's a little bit of headwind, especially in consumer division because we are the #1 makeup manufacturer in the world. But it's okay. And the good thing is that we are also the #1 skincare manufacturer in the world. So all in all, it's fine.

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Operator [48]

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We have another question from Fulvio Cazzol from Berenberg.

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Fulvio Cazzol, [49]

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So I was just hoping I could get a housekeeping one. Could you give us the price/mix versus volume component for your like-for-likes for the half year, please?

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Françoise Lauvin, L'Oréal S.A. - Head of IR [50]

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Yes. So overall, on the 7.3% like-for-like growth, the unit component was pretty flat, so close to 0 overall. So the enhancement was mainly to premiumization in -- across all divisions.

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [51]

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It's also just leading to the fact that the mix effect between Luxury and mass in the -- really in favor of Luxury. So there's clearly a mix effect of value for more value and less for units because unit is more something generated by the Consumer division. But I think the positive news there is that the market, again, is premiumizing everywhere, which is very good for the future and for the margins.

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Operator [52]

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We have another question from Loïc Morvan from Bryan Garnier.

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Loïc Morvan, Bryan Garnier & Co Ltd, Research Division - Research Analyst [53]

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Yes. I have 2 questions. The first one is concerning the makeup in China, what has been the change in H1? Because we talk about makeup in U.S. and Western Europe, but what has been the trend in China for makeup? And also for fragrance in China, do you see a kind of wake-up of that business?

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [54]

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Thank you, Loïc. No, it's a good question. Thank you. Because it's true that we keep saying that makeup is slowing down, but it's not true everywhere. And it's true in the big makeup markets. And you know that the part of the world where makeup is by far that most penetrated is North America, so that's why it's important. But Asia and especially China is a part of the world where makeup is underpenetrated. And what we see is a nice growth of the penetration and of the business, so -- and the markets. So we think that this will definitely, on the middle or long term, have a very positive impact on the evolution of the makeup category.

And by the way, if you look at -- I think that if you look at the total growth of the category because it's still at plus 5, which is not done. We all say, oh, my God, the makeup is slowing, but after all, worldwide, it's slowing down more acutely in some part of the world. But globally speaking, for the world, it's not that slow. It's keeping at 5%. Also because again, and it's the most important factor, penetration is still very low in some countries. We have to remember that in China, makeup was not authorized 25 years ago. So there is still a rise of penetration year-after-year, which is going to be very good for our brands, for Maybelline, maybe for NYX one day when NYX go to China, for Lancôme, Yves Saint Laurent, Giorgio Armani, Shu Uemura and all this.

And it's a little bit the same, by the way, for fragrances. We keep saying also, we know that fragrance is not a big market in Asia and especially in China. We know that Europe is more the traditional big market for fragrances, but we are seeing some interesting evolution in China. Recently, the Chinese -- the fragrance market has grown by 30% in China. So it started from a small business, but it indicates that there is a growing interest and taste and appetite for fragrances on the big Chinese market. And you know the day when the Chinese will wake up, as we say, to fragrance, it's going to be a very, very, very interesting opportunity. And that's why we think that reinforcing, strengthening our fragrance portfolio with the launches that we are making with the future acquisition of Mugler and Azzaro is pretty strategic because we could see some good news on this front.

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Operator [55]

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So we have another question from Eva Quiroga from Deutsche.

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Eva Quiroga-Thiele, Deutsche Bank AG, Research Division - Research Analyst [56]

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I have 2 questions, please. Two questions, please. First of all, how do we have to think about the margin from a regional point of view? Obviously, last year, we've seen quite a heavy step-up in marketing in Western Europe, which hasn't exactly translated into the growth we had been hoping for. Given what we are talking about in terms of new product launches, is this year going to be very similar to last in terms of regional margins?

And then secondly, on Brazil, you've called that out as one of your weak spots in Latin America. Can you maybe talk a little bit why? And can you contrast how your local brand, Niely, is doing compared to the more global brands?

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [57]

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Eva, I wish I could answer your first question, and I'm really sorry that I cannot because, as you know, we don't publish our profitability per region in the middle of the year. And so you will, unfortunately, have to wait until the beginning of next year to know that. But honestly, we are not worried. We think that things are going okay. So it's not a worry for us.

Brazil is a very mixed bag or contrasted market, if you want. Brazil -- in total, Brazil is positive. If I remember well, we are growing plus 2% in Brazil globally speaking at the end of June, which is a market that is not much more than that, not bad. But it's very contrasted. It's growing very well on Active Cosmetics. Active Cosmetics, we have a fantastic growth between 20% and 30%, so that's pretty good. We are growing also pretty well on Luxury. Unfortunately, Luxury is a small business in Brazil, but maybe one day. I don't know with the Mercosur agreement. I hope that this will change. I don't know yet, but we'll see. Professionals, we are positive, too. And the difficulty that we have is still in -- on CPD. In fact, it's -- at the same time, it's a difficulty and a decision that we made because we made this, as I've said several times, it's to get out of some dilutive businesses that we had for CPD in Brazil that were not worth it. And so we are paying that with reduction of our business there. I think that we -- at the end, we'd finish by turning around the business. So it's -- I hope that we will see a better performance. But it's true that it's still our weak point.

And by the way, if you look at the consumer division performance in total, it's still below market, but it is above markets in many parts of the world. It is above market in Western Europe. It is above market in Eastern Europe. It is above market in Asia. And even in Hispanic America, it's on market. And the 2 weak spots that make -- that clearly handicap the consumer division in this first half are only -- of course, they are big, only Brazil and the U.S. So when the division will be able to fix these 2 regions of the world, the division will definitely be able to get back on track and overperform the market.

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Operator [58]

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So we have the last question from the Nico Von Stackelberg from Liberum.

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Nico Von Stackelberg, Liberum Capital Limited, Research Division - Research Analyst [59]

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One more question, please. Just thinking about the Western world, if you could grade your performance on ethnic minority groups, especially black and mixed race ladies, I suppose, how is your team doing? And do you have any stats around penetration among black and mixed race and where you see it developing over 5 years?

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Jean-Paul Agon, L'Oréal S.A. - Chairman & CEO [60]

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That's an interesting last question. You know that we can't do that, for example, in Western Europe, because you are not allowed in Western Europe to do any statistic by ethnicity. So it's just impossible. And honestly, we have no idea. What we know is that many of our brands are pretty diverse. In the U.S., for example, a brand like Maybelline, it's very diverse, a brand like Garnier is very diverse. So I know that our American teams are doing everything they can to make their brands accessible and attractive to all -- absolutely all type of ethnicity because they want to be absolutely diverse and inclusive, but I don't have any more precise statistic on this.

All right. So I think it was the last question. So thank you very much. We wish you all a great holiday, and we'll see you with pleasure at the publication of the third quarter. (foreign language) Thank you, and bye-bye.

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Christophe Babule, L'Oréal S.A. - Executive VP & CFO [61]

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Thank you. Bye-bye.

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Operator [62]

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Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now

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