L'Oreal SA

F:LOR

Good morning to all, and thank you for joining us for the presentation of our first half 2025 results. I'm here with our CEO, Nicolas Hieronimus.

Hello.

Our CFO, Christophe Babule.

Hello.

And our Head of Corporate Finance and Financial Communications, Laurent Schmitt.

Hello, good morning.

As always, Christophe will comment the first half results. Nicolas will then share his key highlights from the first 6 months and tell you why we remain confident in the outlook for the rest of this year and beyond. After that, we'll open for Q&A.

You can find the slides of both presentations on our website already. You will be able to access the replay of this call later today, and the half year report will be available at the beginning of next week.

With that, over to you, Christophe.

Thank you, Eva. Ladies and gentlemen, good morning. L'Oreal delivered an excellent first half. My 4 key highlights are the very robust adjusted like-for-like growth of 6.5%, the strong gross margin of 74.8%, up 10 basis points, the record operating margin of 21.3%, up 20 basis points, and then the operating net cash flow of more than EUR 3 billion, up 13.9%.

Sales increased by 5.8% and foreign exchange had a negative 2.8% impact as the euro appreciated against most of our key currencies. If the exchange rates on the 30th of June were extrapolated until the 31st of December, the full year impact on sales will be a negative 0.6%. This is a clear improvement over the negative 2.5% we had anticipated at the start of the year. The change in scope of consolidation contributed 1.8%. It reflects the acquisitions of Dr. G, Color Wow, Medik8, and Kering Beaute. It also includes the impact of hyperinflation accounting in Argentina and Turkey.

Note that excluding the impact from exchange rate, growth stood at 8.6%. Last, on a like-for-like basis, growth came to 6.8% with a positive contribution from volume and value, especially mix.

As you can see on the left, like-for-like growth adjusted for the impact of our IT transformation amounted to 6.5%, pursuing the gradual acceleration from 3.2% in the first half and 4.9% in the second half of last year.

On the right, you can see that growth was very similar between the first and second quarter of this year despite the softer comparison base in the second quarter. As we are on the subject of our IT transformation, let's have a quick look at where we are in the process.

This year, we continued our IT transformation in 3 additional clusters: Australia, New Zealand and U.K., Ireland went live at the end of March. The U.S. went live in early June. And by the end of the year, we'll have completed around 60% of our total IT transformation.

Let's move on to look at our divisions. Each of them grew on an adjusted basis. Professional Products posted exceptional growth of 11.6%, boosted by the ongoing boom in premium haircare. Consumer Products grew 4.3%. L'Oreal Paris delivered exceptional growth driven by haircare. Luxe advanced 5.1%, boosted by the recovery in China and the continued dynamism of fragrances. And at 10.6%, Dermatological Beauty delivered a third consecutive quarter of double-digit growth with both skincare and haircare contributing.

Let's now move to growth by region. Our 3 developed regions posted solid adjusted like-for-like growth. At 6.1%, Europe remained very robust. All countries grew and all divisions contributed. At 6.7%, North America maintained its strong rhythm, thanks in particular to Professional Products and Dermatological Beauty.

In North Asia, sales grew 4.6% and 6.1% without Travel Retail. The key contributor was the acceleration in China, driven by the continued recovery in Luxe. Emerging markets was the most dynamic region, growing at close to 10%. SAPMENA-SSA advanced at an impressive 13.8% and in a more challenging context, Latin America grew at 5.2%.

And finally, let's look at our categories. Each of them progressed with growth of 15.6%, haircare was the most dynamic. Each division contributed strongly, growing in double digits. Fragrances maintained their double-digit pace at 10.3%, with strong contributions from Prada, Valentino and Aesop.

Skincare accelerated strongly to 5.8% as dermatological beauty maintained its double-digit rhythm and looks gradually improved. Hair color advanced by 3.5%, driven by consumer products. Professional products gradually accelerated. And finally, makeup grew by 2.5%, which was penalized by service levels in the Americas.

Next, I would like to share our e-commerce performance with you. E-commerce grew by 18%, almost twice as fast as the market and reached EUR 7.4 billion in sales. Compared to the first half of last year, that's an increase of over 200 basis points for the group. In emerging markets, the weight of e-commerce rose by more than 400 basis points. Meanwhile, our brick-and-mortar business grew 2.5%, thanks to strong partnerships with key retailers.

Let's now move to the P&L. In the context of ongoing economic and geopolitical tensions, we delivered strong results. Gross profit amounted to almost EUR 18 billion, resulting in a very strong margin of 74.8%. Research and innovation expenses came in at nearly EUR 700 million, broadly stable at 2.9% of sales, in line with the long-term average. Advertising and promotional expenses stood at almost EUR 8 billion or 32.6% of sales, a 70 basis point increase to put fuel behind driving our innovations and supporting our newer brands.

SG&A increased expenses of EUR 4.3 billion, decreased by 70 basis points in relative terms, reflecting our continued focus on cost control and operational efficiencies. Operating profit increased by 6.8% to EUR 5 billion. The operating profit margin advanced by 20 basis points, reaching a new first half record of 21.3%.

First, let me remind you that L'Oreal is managed on an annual basis. Therefore, the profitability of the group and the divisions in the first half cannot be extrapolated to that in the full year. Each of our divisions reported operating margins above 22%. The margin of Professional Products stood at 23.3%, up an impressive 90 basis points.

The Consumer Products margin increased by 20 basis points to 22.7%. The margin of L'Oreal Luxe stood at 22.1%, 20 basis points below last year due the small dilutive impact stemming from the first-time consolidation of Kering Beaute.

The Dermatological Beauty margin increased by 20 basis points to 28.4% and non-allocated expenses consisting mainly of corporate and fundamental research costs were stable at 2.3% of sales.

The net financial charge came in at EUR 187 million. Total dividends received amounted to EUR 366 million. Income tax, excluding non-recurring items, stood at EUR 1.3 billion, an increase of 7.2%, representing a tax rate of 24.5%.

Net profit, excluding non-recurring items, amounted to EUR 4 billion. And therefore, diluted earnings per share came in at EUR 7.40, up 4.8% compared to last year. Non-recurring items amounted to a negative EUR 430 million, in line with the first half of 2025. First, other income and expenses stood at EUR 301 million and included EUR 50 million related to various restructuring projects, EUR 169 million related to product liability lawsuits and EUR 42 million mainly of acquisitions-related costs.

Second, non-recurring tax items came in at EUR 112 million, including the exceptional EUR 188 million, the surcharge approved by French Parliament. Considering all non-recurring items, net profit attributable to owners of the company came out at EUR 3.5 billion, an increase of 5.3% year-on-year.

Gross cash flow of EUR 4.8 billion was up 9.7%. Our working capital amounted to EUR 962 million, up from EUR 861 million last year. Capital expenditures stood at EUR 760 million or 3% of sales. Therefore, operating net cash flow of EUR 3.1 billion, increased by 13.9%.

Following the payment of our 2025 dividend as well as the acquisitions of Kering Beaute and the additional 10% stake in Galderma, receivable cash flow was a negative EUR 9.8 billion.

The balance sheet remained robust with shareholders' equity of EUR 33.9 billion or half of the total balance sheet. Last, at the end of June, net debt amounted to EUR 12.7 billion and to EUR 10.3 billion, excluding financial lease debt. The gearing ratio stood at 37.4% and the financial leverage at 1.2x. The financial situation remains healthy. And all else being equal, we estimate that our leverage will be below 1x at the end of the year.

Thank you for your attention.

Thank you, Christophe, and good morning to you all. I'm now happy to comment on our results for the first half. Our second quarter kept the strong rhythm of the first, and we delivered the promised acceleration versus 2025.

So let me share with you how stepping up our innovation game has led to delivering this strong first half, why we are confident in the second half and why we are stronger than ever to keep winning.

We delivered a strong first half. Since the start of last year, adjusted like-for-like growth has been accelerating semester-after-semester from 3.2% to 4.9% to plus 6.5% in the first half of this year.

Global market growth has been accelerating since the start of last year and stands at around plus 4.5% in the first half of 2026. The grimmer, the economic, and geopolitical headline, the more consumers crave an affordable feel good treat, or as I like to call it, the dopamine effect of beauty.

By region, market growth was well above last year's in North America and North Asia. Europe and SAPMENA kept their rhythm. The only region which growth was below last year was Latin America, and we are starting to see first signs of stabilization there. In that context, we increased our outperformance and expanded our market share.

Let me give you some of my personal highlights. By region, the clear winner was SAPMENA. It delivered broad-based mid-teen growth despite the ongoing crisis in the Middle East. Special shoutout to Vietnam, up over 50%, and to India, which saw a strong acceleration at plus 70%, well ahead of the market.

North Asia accelerated semester-after-semester, driven by the ongoing recovery of the Luxe division in China, which advanced by 10%. By division, PPD maintained its stellar momentum. It grew almost plus 12%, outperforming the professional market more than twofold. And LDB is back in the game, having delivered a third consecutive quarter of double-digit growth led by CeraVe.

When I look at growth by brand, I'm very happy to see that many of our historical brands have kept a spring in their steps. L'Oreal Paris was the #1 growth contributor to the group. Kerastase created by us 60 years ago was up in the high 20s. La Roche-Posay and YSL, both in the L'Oreal family for decades, advanced in mid-teens.

I think that should kill the myth that L'Oreal grows only, thanks to its acquisition. But it doesn't mean that more recently added brands have not been on a roll, take Prada with growth over 30%. By category, haircare continued to grow in double digits on the back of strong launches in all relevant divisions and so did fragrances, driven by a combination of strong pillars like YSL Libre, now the #1 female fragrance worldwide and successful new launches like Prada Paradigme and Armani Power of You.

So what's behind these successes? Number one, of course, our innovation. Since our Beauty stimulus plan kicked into gear at the start of last year, the change in sales contribution from new products has been accelerating each semester from 100 basis points to 200 basis points in '25 to 250 basis points in the first half of 2026. There have been many successes, and you can see a selection of them on this slide.

Second, our e-commerce leadership. Online contributed to be the fastest-growing channel for beauty globally. It is a channel where we over-index and where we outperform. In the first half, we grew plus 18%, almost twice as fast as the market. We continue to win on Amazon and accelerate on TikTok Shop, among many other platforms. At the same time, we grow in brick-and-mortar important as it's the in-store experience that creates the magic in beauty.

Three, our consumer engagement, which is at the heart of what we do and which we are winning, thanks to the unique combination of our scale and agility. In an increasingly fragmented landscape, we master every facet of consumer engagement. From our one-of-a-kind Lorealistar community that brings together thousands of influencers worldwide to AI-based innovations that pioneer the way people experience beauty. We are continuously growing our share of beauty influence, which stands approximately at 29%, and we are building the future of the consumer journey.

Fourth is our multi-division category conquest, and let me give you 2 examples. We continue to double down on haircare as the category becomes more sophisticated. And thanks to our broad-based innovation strategy, our brands are winning in each division, whether Elseve in mass, Kerastase in Professional, or Dercos and CeraVe in Derma, all are growing well into double digits.

And skincare is on its way up, contributing 1/3 of our growth in the first half and confirming last year acceleration, LDB delivered double-digit growth, led by CeraVe. Luxe was boosted by the ongoing recovery in China where Helena Rubinstein is going from strength-to-strength.

In Europe, Mixa delivered another semester of growth well into the 20s. And there is a lot more to come as opportunities abound in this category.

And fifth, our P&L. Christophe has already commented on our very virtuous first half P&L. And as you saw, our finance teams continue to exercise strict control of our SG&A. This allowed us to increase our A&P by 70 basis points, mostly behind the innovation surplus of our Beauty Stimulus Plan as well as the rebound of China. This allowed us to finish the first half strongly and is a good omen for the rest of the year. That's why we are entering the second half with confidence and intend to keep our pace.

In the full year, we expect the global beauty market to grow somewhere between 4.5% and 5%, and we expect to keep outperforming this market. So far, July is off to a very good start, and our teams are confident for the rest of the year.

Why? Well, first, because our Beauty Stimulus Plan will remain in full swing. We continue to roll out our launches over the last 12 months, and we have another strong lineup across all our divisions ahead.

Second, skincare will affirm its comeback, as I just described. In addition, we're rolling out some of our smaller brands. Dr. G, the #1 skincare brand in Korea, will travel to China and the U.S. in the second half. And Medik8, a star performance -- performer since its acquisition, will start its global expansion. The brand is currently present in just 2 countries.

Third, acquisitions will pull their full weight. Creed will be consolidated for the whole of the second half, and the brand is currently growing double digits. And we will, once closed, consolidate Innovist, our acquisition in India.

And fourth, North Asia will continue to support growth. The recovery in China continues. It is driven by Luxe, which clearly plays to our strength. And in addition, we expect a return to normal in Travel Retail Asia over the course of the second half, especially in the fourth quarter.

And we are more ready than ever to keep winning in the long run. First, Beauty runs on 2 engines, dopamine or pleasure and health, feel good and live well. Dopamine is beauty as indulgence, a scent you love, a texture you enjoy and health is beauty as wellness, a quest for longevity and skin rejuvenation. And L'Oreal is well-positioned to fire on both engines, and there is no other company that can do that.

We have decades of olfactory science and texture innovation to fuel the indulgence of beauty at scale. And our best-in-class R&I drives the expansion of beauty into health. With over 15 years dedicated to longevity research, we're uniquely positioned to offer advanced beauty protocols like Lancome Absolue Longevity M.D., or Kerastase Chronologiste, or take GLP-1. Rapid weight loss leads to skin sagging and hair thinning issues we address with launches like SkinCeuticals, A.G.E. Interrupter, Redken Acidic Grow Full, and Kiehl's CollaShot.

Second, we're only scratching the surface of our adjacencies. In body care, where consumers are looking for more performing products, we continue to build on the strength of our neighbor brands -- of our derma brands and Mixa. We leverage Aesop in the selective market of indulgence, and we are launching NYX in mass body oil.

In the first half, body care grew in double digits across all divisions. The entry of Vichy into beauty supplements is off to a promising start, and we will be in the Europe-wide rollout of Vichy Collagen from next year on.

Third, our portfolio is becoming ever stronger. In late June, we announced the anticipation of the Gucci license by 1 year. This means that our teams will kick off the transition in September and launch the first products as early as 2028. And I'm extremely excited about what lies ahead. Gucci is one of the most iconic brands in luxury, and we have an unrivaled track record of turning beauty licenses into success story.

Prada and Valentino went from less than EUR 100 million to over EUR 700 million in sales in just 4 to 6 years. YSL is a EUR 3 billion brand in beauty on par with fashion. So the potential is huge given that for Gucci, sales in beauty are only a fraction of those in fashion.

Fourth, AI. For us, AI is in several things. It means accelerated innovation. R&I is the metier that has been the most augmented by AI. In the last 4 years, the number of molecules we analyze has increased exponentially. This allows us to launch more new products faster every year and to keep outperforming the global beauty market.

And AI also means Augmented Imagination. In our CreAItech studios, we create over 500,000 pieces of content each month to drive social-first engagements across our key platforms. We were an early adopter of AI. And as with every tech disruption, we quickly accelerated its adoption across the entire organization. We better understand and influence consumer journeys. We augment all our metiers and we augment our 90,000 employees.

Earlier this month, I took my full COMEX on a learning expedition to the Silicon Valley, a trip that confirmed our belief in the huge benefits that AI will have for L'Oreal.

I'll stop there on that topic since I know that many of you will come to Paris for an AI deep dive later this year, so I do not want to spoil that.

So let me conclude. The global beauty market is dynamic, boosted by consumers' insatiable appetite for beauty and supported by favorable demographic trends. And we have every intention to keep winning. We are on a roll. Our innovation engine is running at full steam. Our digital moat is further strengthened by our AI transformation.

The breadth of our portfolio allows us not just to seize all growth opportunities, but to amplify them across categories, channels, geographies, and price points. L'Oreal is truly one of a kind to me. We are a unique blend of luxury, of dermatology, of consumer products, of tech, of professional services, and it's all about beauty. But beauty on steroids.

So I thank you for your attention, and we are ready for your questions.

Guillaume, if I'm not mistaken, that's four questions, but we'll try to.

We'll try to indulge you. Well, on Europe, I think you're right to say it's an impressive performance, because this is where, obviously, we have our highest market share above 20%. But let me try to unfold it.

First of all, the great thing about Europe is that the market continues to be impressively dynamic. It's up mid-single digits, which is great considering everything we see around that. And once again, probably demonstrates that beauty is not only essential, but a great way to boost your morale and feel better in this crazy world. And there are different dynamics in markets, South of Europe, U.K., Ireland are more dynamic, but France is positive. Mid-size market, which is more Eastern Europe, are very dynamic, too. So the market is dynamic.

We keep on outperforming it across all divisions quite significantly. And here, it's a mix of category. We are -- Europe is one of the regions of the world where we have the biggest weight in haircare and as haircare is pretty dynamic, that helps us. It is also, as you mentioned it, a good contribution of e-commerce. This is one of the regions where we have the biggest acceleration in e-commerce with the development, particularly of Amazon in this part of the world.

And then probably what you don't see is the fact that over the last 5 years, we've been transforming our organizations, our processes at high speed in Europe, both through clusters, grouping countries, and therefore, freeing some SG&A and adding more resources to fuel our brands. The transformation we've done with our ERP, where Spain, Portugal were the first to go, and it has made them stronger and more agile, and we're seeing the same thing right now in the U.K. and Ireland. So it is good.

And even our sell-in in Europe is slightly below our sell-out. So it's good. And I guess also, I should never forget to mention that we have great teams in Europe, and they're working really hard. It's also a big fragrance region. So fragrance and haircare are really doing good there. So that's the positive thing about Europe.

I'll switch to Greater China before talking about the growth pace, which is the big question. In China, we have seen indeed the market stabilizing at a growth of around 2% over the last quarters. But the good thing is that there's been a shift back to more premium. The mass market has turned negative, slightly negative, whereas whether it's the Dermatological Beauty or the Luxury markets are close to a 7% growth, which is much better than what it used to be.

And clearly, it plays to our strength. Our strengths in Luxury as we are the dominant player, at least depending on the periods, around 30% market share. And we have been winning share as you saw on this 7% growth with a plus 10% in sell-in. And it's true also on Derm Beauty, where we have 2 phenomenons. We have the acceleration, I would say, of in Chinese term, the more affordable brands, which are CeraVe and La Roche-Posay, but really a striking performance of SkinCeuticals, which is a bit like Kerastase, our more premium part of the catalog.

So we have kind of a -- we were in a very negative combination. If you look a year back with mass growing and all the Chinese brands growing, and we were fighting on our -- with our other divisions. And here, it's a reverse. Many Chinese brands are declining steeply. It was very visible in Double 11 and on 6.18, sorry, and the premium brands were growing.

And as you were asking about 6.18, the market, we are trying to compute in net sales because there's a lot of returns happening. So sometimes if you look at the GMVs that are published here and there, you don't have the right picture of the market. But our estimation was that the market was up 10% in 6.18, which is pretty good total market.

And we beat that growth slightly and retained our position. And we have the #1 brand in each of our -- each respective universe: L'Oreal Paris, #1 across all beauty brands; Lancome, #1 in Selectives; SkinCeuticals in Dermal; and Kerastase in Professional.

So we'll see on the second half. As always, we have to be careful. But I would say that Chinese consumer confidence and especially Chinese with savings and money has -- is improving. The stock markets have been better. There's a big tech growth and hype in China, and I feel that at least consumers are a bit more eager to spend their money on premium products. So we bet on a continuation of this over the second part of the year.

A quick word on Yue Sai. Indeed, it has very significantly picked up after, I must say, years of not so great performance. We seem to have found the recipe. And we're happy to have a Chinese brand, whether we'll have more in the future, we'll see. So it's always a question of opportunity and of having the right targets, but there's nothing being planned. And as far as the 6% you were referring to as the pace, should it be the pace? The only thing I can tell you is that we have every intention to keep that pace, then we'll try to do our best to make it happen.

Okay. So yes, so on skincare, indeed, we have seen improvements, and we are back to mid-single-digit growth. As you saw it's close to plus 6%, and it's above the market. It's not true across all our divisions. It's very obviously a very strong performance in LDB, and I'm very happy about that because if you remember, we had a few quarters of doubts on whether this dynamism that we've seen in the previous year was -- had reached a plateau. And as I told you, it just took a bit more innovation on CeraVe to bring the machine back to growth. And CeraVe is in the mid-teens and doing great. First biggest driver of growth to LDB, but La Roche-Posay is not far.

By the way, this is a detail, but we launched CeraVe Sun Care this year, and it's doing great. And if you haven't tried it, I invite you to try the combination of great filters and ceramides. It's fantastic for skin. So LDB is really very, very strong on skincare.

Luxe is improving. And Luxe -- For Luxe, it's a combination of 2 factors. One indeed is that you have a brand like Medik8, which is growing close to 50%. So -- but it's still relatively small, but it is contributing. And I'll get back to your question around CeraVe.

And -- but you also have the fact that China, which is the biggest skincare market in the world going back to growth and us outperforming the Chinese market is clearly a contributor with brands like Lancome, but also Helena Rubinstein doing very good in China. So Luxe is back to positive, above its market, whereas CPD is slightly behind the market. We have, of course, the opposite effect in China because market is not positive in China.

But I would say the Garnier Toque Seco launch is doing well. It was intended initially only for the emerging and it's starting -- we decided to launch it in Europe with great results, and we have a few more initiatives on L'Oreal Paris coming in the second half.

And as you've heard, next to the Mixa performance or Thayers performance, we have decided to accelerate the rollout of Dr. G. We keep on hearing about how Korean beauty is hot and so on and so forth. And we have the #1 skincare brand in Korea. So I really told the team, guys, let's go fast on that one. And typically, Dr. G will be launched in the U.S. at the end of the year. This year, it's already in China, but it's more a relaunch because it was there a bit marginally before. It's doing good in Southeast Asia.

So we have a number of initiatives, but it's fair to say that today or at least in the first half, CPD is not delivering the acceleration yet in a significant way on skincare.

As far as Medik8 compared to CeraVe, you said it yourself. There are very -- 2 very different -- not brands, of course, but also distribution strategies. CeraVe is a mass medical brand. So the idea that you had to -- you could roll it out in mass channels pretty quickly. Medik8 is more selective, but we have a lot of ambition in the U.S. with the support of Sephora. It's a brand that has fantastic formulas that consumers love. And so we'll focus on the big U.S. opportunity, probably also Europe.

It would probably not go as fast as CeraVe, but still, we have a lot of ambition for that brand because it's a unique combination of premiumness and dermatology, which is a -- was a unique gap in our portfolio and the fast-growing subcategory in the world of skincare.

So I would say good progress on skincare overall, not equal across all divisions, so which -- the good news is that, if we fix what's not doing great, it should get even better.

As far as P&L, I will pass the mic to Christophe, and I'll add color to it if necessary.

Yes, Charles, you were mentioning this step-up in our investment finance in a certain way by our SG&A. So first, to answer your question regarding the SG&A, yes, of course, we want to keep working on the productivity of our organization. Of course, 70 basis points first half cannot be projected on the full year, because it depends on the phasing of certain projects. But definitely, as you know, that's why we are investing in our IT transformation. That's why we are investing in AI. It's definitely to look for those synergies that we know where to find.

So probably we could expect on a yearly basis and based on the past experience around 20 to 30 basis points improvement if we keep with the same rhythm of growth. And that's very important because it helps, of course, to finance when there is the opportunity, finance the support of new launches, finance our new brands. And that's what we did in the first half.

70 basis points, it's to help on innovation that are extremely strong this first half. But also, we have also some impact like the regional mix. You know that when China wakes up and SAPMENA, it has an impact on the overall investment that we have. And some other mix like the distribution mix, but it was really to push our new brands and our innovation and some specific issues like the Prime Day that this year was in June and not in July.

Yes. And we have -- sometimes you have to be opportunistic. I still continue to believe that we are getting more productive on our A&P. But in the end, we were -- we had this surge of innovations, which are all doing great. We had a good work and good news on the gross margin at 10 basis points despite 20 basis points of negative impact of the tariffs. And we wanted to deliver 20 basis points of profit increase. So we saw the opportunity and we went for it. And that's also a way to increase our market share and to start the second half of the year launched, as one says, and with a good dynamic.

Okay. So on SAPMENA, it's clearly a priority. As I said, emerging are the new growth relays. This is where most of the new consumers both to the market and to L'Oreal are going to be coming from. And that's why we are doubling down on this region where we have also invested a lot.

It was one of the first regions where we started developing our content factories, boosted with AIs, and new types of organization to boost our e-commerce strength because it's clearly a region where e-commerce is accelerating a lot. We are really having very strong growth in e-commerce there.

I'm not going to give you the weight SAPMENA represents in L'Oreal, but it's true that we have overall in this region, a market share that, if I'm not mistaken, is around 12% to 13%, when our global average is 15%. And of course, Europe, 20%. So we have lots of growth opportunities. And in India, it's even a bit lower. So clearly, it's a focus.

The good news is that e-commerce is really doing great. And we are, I would say, getting better at playing the TikTok Shop game, which was probably a new playground where we had to understand how to make it work profitably. And we see that typically in a country like Indonesia, we are doing much better with both content management and brand support.

The other good news is that all divisions are growing. Of course, it's more a mass and dermatological beauty play because the products need to be more affordable. So CeraVe is a great weapon of growth there. And of course, we don't see SAPMENA today, you were asking about capital allocation. It's not a region that is massively dilutive to the group.

First of all, in this region, you've got Australia and New Zealand, which are very profitable. And overall, because it's mostly e-commerce driven, we managed to make this very sound in terms of economics. So we don't have lack of resources and top line growth really self-fuels the resources they need. So of course, we monitor this on a monthly basis.

I don't know if you want to add something on that, Christophe?

Anyway, we have flagged, of course, India and the whole region as a strategic region for growth. So that's why we are carefully looking at any opportunity, first, and support the organic growth. And that's what we did in India with the launch of both Dermatological Beauty and Luxe division. We are stepping up also our industrial capabilities there. And whenever there is an opportunity, of course, we go for some acquisition. That's what we did with Innovist.

Yes. So just going back to Innovist. First of all, we have -- in India, we have good positions in some categories in India. Typically, we're strong in haircare, strong in makeup with Maybelline, which is a very strong brand there. We're beginning to see a surge in fragrance usage there. And skincare is a category where we have to accelerate, and we have, first of all, a big drive right now on CeraVe. We are opening CeraVe.

I think right now, we're probably around 7 or 8 cities in India and expanding and there's a very good response. We created some specific textures to match the Indian climate, which is hotter, so you need lighter textures. And so we have our own -- our existing international brands are growing because the plus 20 we have in sell-out on the market that plus 10 or 11 year-to-date is made only with our existing portfolio. But it's true that Innovist, and we've been looking at Indian opportunities for a while.

And what we like about Innovist is that, first of all, it's got 2 brands that are very interesting in original, one is more skincare, hygiene and the other one more haircare. And it's also an e-commerce platform, which has been very well developed, well-crafted, with good KPIs, which is both a source of growth for that brand, but also a learning curve for us on how to manage even more dynamic e-commerce in India.

So all-in-all, I think it's a very promising acquisition. You were talking about multiples. I can tell you that compared to the traditional multiples of the Indian market, which is a very expensive market as it relates to M&A and compared to some others that we studied and passed upon, it is a very decent one probably because we came in early enough, and it will be a great addition to our Consumer Products division. The closing should happen in Q3, and then we'll start seeing how we can support them and how they can support us. So that's for India and Innovist.

And to finish on Gucci. Well, the journalist from the FT put words in my mouth that I didn't pronounce. But what I said was that I believe that Gucci has to become. Because she asked me whether Gucci would become a billionaire brand, and I answered it should be a multibillionaire brand. Because it's not only EUR 3 billion. I guess Gucci has to get bigger at some point. It will take time because, first of all, now that we have anticipated the license, our team will be built and set up to start working on the 1st of September, work on new projects that will probably appear in '28. We'll get the products and the turnover back in July '27. So it will probably take time.

But it is -- I am super ambitious for that brand. It's a beautiful brand. It's -- I was happy to see. I was a bit in the know, but that the Gucci numbers are getting a bit better, that the Demna takeover of the license of the couture is appealing to fashion addicts. And it's always good. That's why anticipation was important to synchronize the re-acceleration of beauty with the re-acceleration or rebirth of fashion. So it will take some time.

And as far as your question on the -- on how do I -- how do we manage with the other fashion brands. Well, that's what we do. We make sure that each brand has a different persona, a different target, a different way to express beauty, and that we've developed Saint Laurent next to Armani, and we are now developing Prada and Valentino without any negative impact on the other brands.

Actually, there's a bit of emulation amongst our team. So I guess we'll do the same with Gucci. It's too early to say because we haven't really opened the trunk and/or see what's in the engine, but we love the brand, and we have a very good partnership with Kering. So I guess you should be very positive. But we only start working in September. So you'll see more probably -- you have to wait a couple of quarters to see the first impact.

Okay. So I'll take the clusters and let Christophe think about what he can tell you on the Sanofi stake.

On the clusters, very clearly, we really doubled down on Europe, particularly over the last 5 years because that clearly it's our biggest region, but it's also the region where we had the largest number of countries. And we had -- every Scandinavian country had its P&L. Now we have the Nordics hub, which has one command, one P&L and of course, a bit less high-ranked and high-paid leaders and more people on the ground. We had U.K. and Ireland. We did DACH, which is Germany, Deutschland, Austria, and Switzerland, which was -- some other companies have done that before, but we hadn't. We have Spain, Portugal. We have also a few in Eastern Europe.

And if you cumulate the combination of the recruitment of these products and you have some smaller countries that become satellites of the bigger ones that remain with people on the ground and really focusing on the specifics of their consumers, but they are benefiting from all the backbone, the power, the media know-how, the quality of the teams of the big brothers. It's very effective.

And if you add to that, which is where we see some more of it today is the benefit of having beyond one P&L, one common ERP, which is this SAP S/4HANA that we're moving to, which we've done in the U.K., Ireland, which we've done in Spain and Portugal, and we will be doing in Germany. This is also creating a lot of synergies, money-saving, and more time to focus on the end consumer.

When I visit countries -- recently, I went to visit our Spain, Portugal subsidiary. And for once, I decided not to do the visit in Madrid, but to go to Lisbon to visit stores. And what was great is that our brands were really stronger than ever. We are gaining share, but with less people in the country to some extent. So we have a very strong Portuguese team, but they are entirely focusing only on serving the consumer and the customer. And that's something that has proven very effective. We've done that also a bit in Latin America, with Colombia, the Andean region and Ecuador. We're doing this with Singapore and Malaysia. So and of course, Australia and New Zealand.

So we could say that we're a bit light on these things, but the fact that we're doing it and just right after doing the IT simplification gives us, both free some resources. SG&A in Spain are amongst the lowest I have seen. And therefore, it frees a lot of -- it frees a lot of monies in the P&L to support our brands. So I would say it's been one of the recipes of the capacity of Europe where you had pretty high SG&A and lots of fragmentation to become more lean, agile and effective over the last couple of 4, 5 years.

Okay. On your second question, you are right to say that we are -- there are still plenty of opportunities when it comes to M&A. And believe me, we look at all of them as we usually do. And why? Because we still have a very strong balance sheet. We have a very strong EBITDA. We have a very strong cash flow. And despite the acquisitions of Kering Beaute and Galderma, as I said before, the leverage of L'Oreal by end of 2026 will be already well below 1.

So Sanofi for us, it's -- as you know pretty well, it's a financial asset. And I just want to remind you that it's bringing EUR 365 million of dividend and net of taxes is nearly the same amount. So every time when we look at, first, do I need to transform this asset into cash? Honestly speaking, no need right now. And when I look at what it brings to the P&L, I think it's wise for the time being to keep it like this.

Okay. So maybe I'll start with the technicalities of Galderma. So as you know, when we took another 10% to reach 20%, we had to change the methodology of accounting and apply the equity method. And when an investor holds 20% or more of the voting power of the company, we have to apply IAS 28, which basically requires a purchase price allocation. And therefore, we did our math.

And at the acquisition, we have identified some assets where the fair value exceeds the carrying amount of the balance sheet, and this excess has to be amortized by L'Oreal. So actually, when you look at the way it is done, of course, we keep 20% of the net profit of Galderma. But on top of this expense, there is a PPA allocation or amortization. And this is why it is impacting the net-net amount at L'Oreal.

So on top of that, in the first half, just for your information, there is a one-off, which is the step-up of the cost, and this is happening only in first half. And if you want to project a bit on the long term, what you have to understand is that on the net income of Galderma, there will be roughly USD 450 million that will be netted from this amount. And then, of course, we take the 20% of this net amount. Is it clear?

So A&P and Fragrance, somehow it could be related questions because in the end, it's a question of what are the opportunities, what you can afford. I have said and I continue to say that the weight of A&P in the P&L of L'Oreal could very well go back down to around 31%. But it's true also that our objective is always the same, is to beat the market, increase our market share, and deliver regular improvements in profits of around 20 to 30 basis points.

So then as you know, we have a P&L where with the level of gross margin we have, when top line is very positive, it generates capabilities of investment, all the more when SG&A are under control. So when you have the combination of the dynamism of the business that allows for it, many new brands and new products, and it could be new fragrance launches, then we can decide, and that's how we pilot the company with Christophe and the Head of the divisions to reinvest some of the money generated by the top line growth and the SG&A control into our investment at some point in A&P, which is what we've done at the end of Q2.

It doesn't mean that it's going to happen every time, but we are always very, very pragmatic. And that's why typically, when you see something, a product, a launch, a brand that is starting very well, it's like a rocket. If you think you're going to -- you can take it higher with more fuel, we'll put more fuel in it.

And looking at the fragrances, right now, we are growing at twice the market speed, which is already pretty good. I was not aware of -- thank you for informing me that my Head of Luxe had said 2 times. So I know what to tell him next time he presents me some of his budgets. But right now, we are twice the market speed.

And we have indeed a few launches coming. It's very hard to predict in fragrance, which fragrance is going to do better than the other one. What I know is that all these launches are -- have been crafted with the utmost care, seeking complementarity in terms of olfactory notes between one another.

So we have on this data that's coming with 2 launches, 1 masculine, 1 feminine. We have a number of range extensions in our already very dynamic fragrances, whether on Prada, whether on Valentino.

And I would end by the claim of the new Armani fragrance is, it's not about luck, it's about will. And I think it applies very much to our fragrance strategy. And so we'll do our best to put another of these launches and maybe 2 in the top 10, the same way we did it with Prada and with YSL Libre. So we'll see, but they are -- I think they are well born. So we'll see how they grow.

So, Celine, I will take the market discussion. First of all, we -- indeed, when we commented the first quarter, we said the market was a bit shy of 4%. As you know, every time we speak to you, we have only a partial vision of the quarter because we don't have all the data from all the countries. So it's constantly reassessed. And actually, the first quarter was slightly above 4% rather than shy of 4%. And we see the first half around 4.5%. So it was driven by indeed good -- all regions got -- were more or less at the same rhythm than the end of last year.

North America accelerated. It had accelerated in the first quarter and continued to do so in the second. And the market is around -- and that kind of answers your question on North America.

The U.S. market is mid-single digits. And there are indeed shifts in categories. Makeup is a bit slower. Haircare is more dynamic. Hygiene is also a bit better. So there are fluctuations in this market, which can explain maybe why Ulta sees things with a slightly different perspective.

But overall, the market is -- was, at least until the end of Q2 was pretty dynamic around 5%. As I said, SAPMENA has continued to be strong in double digits as Europe. So it's most countries stable. If you take China, it's the same as Q1, Q2 and not far from Q4 last year, but the beginning of last year was negative in China, so that creates a bit of acceleration.

So as far as the second half is concerned, I don't see an acceleration of the market. I see something that is more in the line of what we saw in Q2. So it's not -- I don't see any major change. But what I see is that people have this appetite for beauty and respond to stimulation, to new ideas, to new products, which we'll try to contribute to. So it's more -- second half, I see it more as a continuation of Q2 than another acceleration.

Just on China, you said 3% -- market is just shy of 2%. So it's not 3%. But it's true that for some parts of the market like luxury, it's closer to 7%. So you have differences amongst channels.

And regarding Creed, it's -- I think it's slightly above plus 10%. It's slightly above plus 10%. And right now, we haven't done anything, but it's -- by the way, it's a big brand in North America, and I think it will be a profitable brand. So we'll be able to invest behind it and hopefully continue to grow it.

So all-in-all, and the good thing is that we are -- going back to the U.S. market is around 5%, we already set out around 7%. So we are -- and we are gaining share in the 4 divisions, which was not always the case, with a particularly strong performance of CPD, say, driven by haircare, which is really flying with Elvive, they call it, really, really strong.

So I'll hand over to Christophe on the...

So a few information first on Kering Beaute. So Kering, as you know, has been consolidated in the accounts since second quarter. So we are still in the process of financing, the step-up of the stores, all cost of integration, et cetera. But if I project for the full year, first on the REX, it will be slightly dilutive of around 10 basis points at group level. And then on top of that, we have, of course, the dilution linked to the financial expenses. So this dilution will probably last until we are investing on the brand. And when it comes to the EPS, it will be slightly negative in 2026 and probably back to a very, very small growth in '27. So that's a bit -- the best estimate that I can provide to you.

And very obviously, when we take back brands, that's why we use Prada and Valentino, you have to relaunch. You have to reignite. And with these brands now are worth EUR 700 million. There were a couple of years where they were -- was a pure operating profit where they were very dilutive to L'Oreal Luxe and other brands compensated until they reach a critical mass when they suddenly start paying off and then we can be extremely accretive. So yes, it's how we work our portfolio. You have to have brands that contribute well to fund the acceleration and takeoff of the new ones.

So to complement on what Nicolas is saying is, priority will be the growth of the brand, because as you can understand, the impact on the rest of the group is very limited. And I think you had two small questions. One was related to the financial interest. So obviously, it's increasing. We have roughly EUR 80 million more compared to last year. And of course, it's due to the payment of both Kering on one side and Galderma on the side.

What I can tell you is that projection for the full year is around EUR 400 million of financial expenses in 2026. And when it comes to taxes, here there is a lot of plus and minus, slightly above last year, but mainly due to a mix of geographies that is slightly impacting the tax rate. And of course, in absolute amount, we have the exceptional taxes the French government.

L'Oreal French government.

Yes, absolutely.

Well, that's a tough one. I'll let Christophe think about the answer. No, frankly, on the outlook, on the semantics, the only thing I could say is that when you start the year, you have 12 months ahead of you. So you are optimistic. When you have 6 months in the bag, you start being confident. And when you know what's ahead and you see what your teams are telling you and their own level of confidence, you can move from one to the other. And hopefully, at the end of the year, I'll tell you that I'm happy.

So looking at the second question. First, just as a reminder, that the weight of the cost of goods in our P&L is quite small because with the gross margin at nearly 75%, I let you guess that what is the impact of the cost of goods. And therefore, increasing the volume by 1%, of course, it has always a marginal benefit on the added value of the factory, but it's not meaningful. So it's always welcome, but it's not critical in the margin of the group. There are many, many other factors that may impact the margin before the increase of volume.

Yes, yes.

I'm not sure I understood your last question, Tom. Can you try to rephrase it?

Okay. Well, I'll take that one first, as we have -- clearly, first of all, the younger generation are shifting massively to using LLMs for their product queries and beauty is probably one of the biggest categories where they have conversations and they're asking and it's longer interactions. Actually, it takes more time.

Search is not over. And by the way, we also have Google added an AI layer to their search bar. So the two are actually emerging. What we see today, and we have clearly several task force, a lot in the U.S., also in Europe on how to constantly analyze and understand where the LLMs are driving their responses from. And what we see is clearly that there is -- aside from the size of the brands, which, of course, famous brands may pop up more, but it's really more about the quality of the data and particularly the science behind the products, the endorsement of products by professionals.

And we see typically that if I take skincare, LLMs are really benefiting our LDB brands because they have both size, the awareness, but also they have lots of publications, endorsements from doctors, through also for professional brands. It's a bit more fragmenting on mass. But overall, we are -- as on everything, we have multiple teams working on that, and we're optimizing every week.

And the simplest answer to your question is, yes, I think it will benefit us, the brands of the group because we have this combination of science, data, professional endorsement, and brand scale that will allow us to prevail.

And that's also why we've signed various partnerships with OpenAI, which we announced at Viva Tech. As I said, I took my whole ExCo to the Silicon Valley, and we had very exciting discussions with the Google teams and NVIDIA to clearly work on that and on this optimization. So even though it's still a moving target, it will be beneficial to us in the years to come. That's something that I find I'm pretty convinced about. And all the experiments we did on our own sites tends to prove that.

On volumes, I don't think we have it per quarter. And I think it's irrelevant because you have these big swings linked to the stocking of our ERP platforms. But volumes are roughly around 20% of our growth, and the rest is a bit of value and some mix too. So volumes around 20%.

And I don't remember what was the third.

Sun care.

Sun care, I don't have the data. I don't have...

Sun care, what I can say is that it's a category that is increasing double-digit growth, likely about 10%. But it's still a few part of the total sale of L'Oreal, so less than 3.5%. So -- but it's doing quite well.

The thing you can say about sun care, you really can assess the sun care season at the end of August, September because you always -- the way it works is that you always and will be more careful, I would say, this year than we had 2 years ago where it kind of hit us. But you place your first orders and then basically depending on the weather and of course, the success of your brand, you got reorders that come in, let's say, August. So we are still in the first part of the season.

The only thing I can say is that, the weather has been pretty sunny. So people have needed protection. And the other thing I can say is that a CeraVe sun care, which is an entirely new brand is starting very, very well. It's piped a little bit on Vichy, which was not great. It was not a big brand.

So overall, you have the combination of La Roche-Posay and CeraVe, which is doing very good. And also, we are celebrating the 90 years anniversary -- 90th anniversary of Ambre Solaire invented by our founder in 1936, which is more a French and Spanish brand, but we have a lot of innovations there. So too soon to tell. The only thing I'd say that the placement was good without being forced and that the weather's been good so far. For the rest, we'll see. The next time we speak, we'll have more information on sun care.

Yes, of course. So in fact, when I was speaking to those USD 450 million, I specified it's U.S. dollars. This is the yearly amount that will be deducted from the net result of Galderma. Okay? And when you deduct those USD 450 million, then of course, I will keep only the 20%. So that's why there is an impact this year because it is on top of that impacted by the onetime cost linked to the step-up.

But starting from next year, and this amount, by the way, will be quite fixed because it's the amortization for different kind of assets. I think the minimum in terms of years of amortization is 7 years. So you can expect this amount of USD 450 million to be deducted from the net result of Galderma every year before applying the 20% share.

Well, that's going to be a tough one for me to answer because, first, I don't master all the way this is computed. We work with a number of companies that are specialized in measuring our share of influence, which is always a combination of the measurement of number of views and engagement, i.e., people who like or who share or who respond.

So what it is, is that it is higher than our share of voice in media, because we have really -- our share of voice in media has always been higher than our market share. It's always in the 20s, low 20s. I think in influence, we've really doubled down because that's where you win the game online against indies on platforms like TikTok, where you have to increase the quantity of content and of course, the quality of content that you share with -- that you push towards the market.

That's why we created this Lorealistar Force where you offer influencers who need revenues to have access to the whole portfolio of L'Oreal brands, not just one. And therefore, they know that they can, at the same time, promote CeraVe or L'Oreal Paris or YSL, which is very attractive to them. And then there are companies that are measuring these influences, these likes and these views.

It is a technology or I say a technique that is getting more and more accurate, but as it's something that you have billions of contents out there. I'm careful about the accuracy of the number. What I can tell you is that it has been increasing for L'Oreal. And you have to be in that game in order to win share in this market. So that's how we do it. But at the same time, and that's very important is that we never give up, and that's also why sometimes we have a little boost in A&P on what I would call more the equity building advertising where you have, I would say, the more traditional or more branded piece of content, which are not necessarily as instantaneous in terms of purchase generation, influencers tend to be often more reactive as do promotions.

But they are the ones that build the brand equity over time, and that creates the capacity of any brand to prevail over decades, which is what we do. We build brands and being -- having L'Oreal Paris being the #1 contributor to the group's growth in the first half is a sign that it's not just about the new fun stuff that appears on the market, it's also about brands that have equity.

So I apologize for not being able to give you the accurate way to calculate. And whilst acknowledging it's not perfect, I can confirm it is improving, and it is important for us to be able to compete in this landscape.

Great. I think that concludes the conference call. Thank you very much, all of you for attending, and we wish you a very good summer.

With good sun care. Have a great one. Thank you so much.