Welcome to the Conference Call regarding L'Oréal Half Year 2019 Results. [Operator Instructions]. The conference is about to begin. I now handover to Françoise Lauvin. Madam, please go ahead. Françoise Lauvin: 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. Jean-Paul Agon: Good morning. Françoise Lauvin: Chief Financial Officer, Christophe Babule.

Good morning. Françoise Lauvin: And Group General Manager, Financial Communication & Strategic Prospective, Mark Prestwich.

Good morning. Françoise Lauvin: The press release detailing our results was sent out yesterday at 6 PM. 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 you his strategic perspectives. After this presentation, we will of course be available for your questions. The presentation materials shown during the call can be found on our Web site, loreal-finance.com where they can be downloaded. There are also available on L'Oréal Finance app. A replay of this call will be accessible later today on the same Web site 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 handover to Christophe for the presentation of the financial results.

Good morning, ladies and gentlemen. The presentation of L'Oréal 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 €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. Currency 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 US$1.14 until year end will have a positive currency impact of 1.5% on full year sales. Let’s move to the currency. This table shows the invoicing currencies of the Group’s main countries. Most currencies are 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 adds 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 remain 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 turns out to be more difficult. Western Europe improved especially because of a good performance in Germany. L’Oréal Luxe of plus 13.2% achieved sustained growth in a very lively market. Here too the two good performances in the new market especially in Asia and in travel retail. Last, Active Cosmetics of plus 13.6% posted very dynamic performances across all geographies. By region; Western Europe came out at plus 1% like-for-like with the second quarter that was similar to the first one. North America is at zero 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 €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 impact, 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 spend 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 €2.9 billion with a 30 basis points improvement to 19.5% of sales. This profit included a positive €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 division’s 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 remains stable at 26.5%. Non-allocated expenses consisting mainly of corporate and the 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 non-recurring items. First, the net financial result was an expense of €30 million. The application of IFRS 16 as from January 1 this year generated €26.8 million financial expenses. For the full year 2019, the net financial expenses can be anticipated at around €70 million all other things being equal. Sanofi dividends amounted this year to €363 million. Income tax amounted to €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 non-recurring items, amounted to €2.5 billion. And the corresponding earnings per share came out at €4.38, up by 7.2%. For the full year I can confirm that our objective is to achieve growth in sales, in profit 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 563 million after taking account of the €750 million share buyback program announced yesterday. We will now complete the review of the profit and loss account. Non-recurring items amounted to a negative €139 million in the first half of 2019. They include mainly the depreciation of the brand and of the goodwill of Clarisonic for €80 million before tax and restructuring charges of €90 million related primarily to the reorganization of the distribution of NYX Professional Makeup. After taking into account the non-recurring items, net profit after non-controlling interest came out at €2.3 million, an increase of 2.3% compared with the first half of 2018. Cash flow statement. The gross cash flow amounted to €3.3 billion, up by 18.9%. It includes this year an amount of €209 million for the right-of-use related to a leasing contract 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 €200 million compared with 2018. Investments at €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 €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 €248 million. Regarding the balance sheet, we can say that the consolidated balance sheet is particularly robust with shareholders’ equity of €27.1 billion. The financial situation is also very solid after payment of the dividend of €2.2 billion in April, net cash came out at €200 million. Now excluding the financial lease debt under IFRS 16, net cash amounted to €2.35 billion. Thank you very much for your attention. Jean-Paul Agon: 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 pace 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 contrast. Demand growth driver remained exactly the same. The same two sectors are leading the market; luxury is growing double digit with particularly strong demand in Asia and travel retail and dermo-cosmetics dynamic in all zones fueled by a global trend towards health and wellness. In contrast, mass market is relatively subdued and 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 because it’s 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 drivers. 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 divisions posted double digit growth getting 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 and Vietnam. Elsewhere in the new markets Eastern Europe delivered another semester of 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 and 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 a market leader, although we are getting 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 also contributing well and growing in line with the market. Hair care 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 two booming channels. Our business in travel retail is growing very fast at plus 21%. If our 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 there are more cosmetic sales. We are now clearly a digital-first company and our digital lead is staying 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 three quarters 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 Web site 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 shares in all of the major categories; makeup, skincare and fragrances. It’s four flagship brands; Lancôme, Giorgio Armani, Yves Saint Laurent and Kiehl’s are growing at the very high combined speed of plus 16%, proving once again that big brands, the most loved brands are winning in this new digital world. The division has a very strong second half ahead with the launch of three new fragrances which never happened before; Idole by Lancôme, Libre by Yves Saint Laurent and Born in Roma, the first creation from Valentino since we acquired the license. Active Cosmetics recorded another semester of double digit growth and is getting share in every region of the world, powered by the relevance of a business model based on recommendation by a 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, UK, Italy and Spain. It’s recorded a strong acceleration in Asia, particularly in China where L'Oréal Paris was the number one brand during 618, the largest e-commerce festival after 11.11. In North America, the performance has been weaker due mainly to the slowdown of makeup. L'Oréal Paris, the world’s number one beauty brand, grew well ahead of the market. Garnier is back to solid growth and Maybelline New York, the world’s number one makeup brand is getting share especially in emerging countries. The division is also spotting and scaling new beauty trends. Garnier Bio is 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 continued to be difficult. Kérastase has confirmed its turnaround and led the growth across the world with double digit progression in all zones. The brand successfully combined expert internal services with powerful innovations like Blond Absolu. Kérastase is more than ever the referenced brand into booming professional luxury hair care markets. 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 the record year for growth and the first semester of 2019 confirmed the same pace. The same underlying trends and growth driver persist and remains 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 eight billionaire brands driving growth of plus 8% in the first semester. We’ll 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 of 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. We are now ready for your questions.

[Operator Instructions]. So we have our first question from Celine Pannuti from JPMorgan. Please go ahead.

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 could you give us a bit of flavor in terms of the luxury market. And it seems that you have underperformed in 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 just to rebound on 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 felt like the comparative base was earlier in Western Europe and will get in fact tougher as a total in the second half. So why is it that we had failed to see an acceleration and hence why would you believe that there should be one in the second half? Thank you. Jean-Paul Agon: 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 can see. Because I want to remind you that compared to the second quarter of 2019 was stronger than the second quarter of – the first semester, sorry, of 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 have seen that the market globally was around plus 3%. We had in fact a good performance in two divisions and a weak performance in two other divisions. A good performance in two 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 mostly because we are really over-relying on makeup. 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 the 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 over-performing the market. So on these two divisions we particularly acknowledge that we didn’t gain market share as we should have. That’s why we are strengthening very clearly our 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 talked about Western Europe. In fact, in Western Europe we see globally a difficult market, flat market and 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 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 the front initiative that we’re pretty successful. So that’s why we are pretty confident also for the year.

And are there any initiatives in the second half that would help this region specifically? Jean-Paul Agon: 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 three new fragrances. As we said, Idole from Lancôme. We launch a new Lancôme fragrance every 20 years or 15 years. So this will be a major. The new launch of 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 three fragrance initiatives will definitely be very important. There will be also initiatives in all divisions.

Thank you.

So we have another question from Javier Escalante from Evercore. Please go ahead.

Good morning, Jean-Paul, Christophe. Jean-Paul Agon: Good morning, Javier.

How are you guys? 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 618 shopping festival? If you can give us a sense of e-commerce growth by country and division and category actually makeup versus fragrances versus the skincare? Jean-Paul Agon: Why not brands?

No, not brands. And basically the other is the impact on margins, right. To what extent – where in the investment curve you are, given the very high return on investment that you are getting in digital in advertising. And your decision of partnering up with Amazon with some of the augmented reality technologies from ModiFace, if you can give us your perspective why Amazon and what are you expecting from that partnership? Thank you. Jean-Paul Agon: So that’s many questions. So, first --

Yes, I’m sorry for that. Jean-Paul Agon: No, no problem. It’s a pleasure. So e-commerce – but you’re right to ask this 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 in terms of digital and e-commerce activity. And this is really paying back now. When you see that we are growing at almost 50% on e-commerce when the market grows at 25%, it really means that we are going twice the speed of the market and accelerating even from one year to the other. What’s interesting – I cannot give you all the details and the numbers, but what I can tell you is that the growth of the e-commerce is really completely homogenous across divisions and almost across regions. For example, the growth in e-commerce is almost the same for our four divisions. 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 homogenous acceleration of the growth for all divisions and same also by the way for regions. It’s not only a Chinese game, 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 11.11 and this has been very successful – we have been very successful at 11.11. And in fact for the 618, we have been very successful too. L’Oréal Paris was the number one brand, as I said before, in this festival. All our brands are really I would say mastering new 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 channels but we always say that e-commerce for us was more relutive than dilutive. So the development of the percentage of the business in e-commerce is a 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 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.

Yes. Can I just squeeze another one and that’s going to be short? Jean-Paul Agon: A quick one.

Yes, a big one because it’s also related or was related to online. I do remember when you bought NYX that one of the reasons why you bought it was the strength online and understanding how they were dealing with social media. And if you can explain what is that you’re 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 or is it – could you explain a little bit more what you are doing with NYX please? Jean-Paul Agon: Yes, you’re right to say that it’s pretty related or so 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 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 stores network to order to reduce the number of stores and to maximize the sales on e-commerce so that that’s absolutely consistent with what we said before.

Thank you so much. Jean-Paul Agon: Thank you, Javier.

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

Good morning, Jean-Paul, Christophe. Jean-Paul Agon: Hi, Guillaume.

Two questions from me, the first one is on your mass market hair care business, because we had 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 hair care 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 a 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 spent that once again grew faster themselves 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 €1.1 billion at a 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 you make sure that you maintain a strong return on investments? Jean-Paul Agon: All right. So regarding hair care, our Consumer division operates mostly in four categories; makeup, skincare, hair care and hair color. Clearly for a few years, makeup has been a very, very strongly growing category and it was clearly the priority because we always want to maximize the growth of the market where it is. And by the way 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 Elseve by the way, we reached some very high market shares, for example, in the U.S. where we are close to 14%. We never had that before. So that was one. Now since two years or one year and a half, 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 high valued 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 hair care has not been the priority for us in the past five years because of that. Our market share is globally stable, I would say, for hair care around the world. We have a strong market share in Western Europe where we are number one and we are – we don’t have strong market share in North America, 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, 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 that’s pretty well worked in the past two years where our growth has clearly accelerated. And to be also very frank and you would not surprised, one region in the world where we 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 we’re – the growth that we have in China or Asia is so strong. It’s clearly a very good investment that we can do.

Okay. If I may add just some color. We were speaking before about the media that we spend in digital and 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 Web site 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 spent in advertising and promotion. Jean-Paul Agon: But overall I think the pretty reasonable increase that we have made in A&P during the past two 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.

Thank you very much. Jean-Paul Agon: Thank you. Another question?

Yes, we have another question from Marion Boucheron from MainFirst. Please go ahead.

Hi. Good morning, everyone. Jean-Paul Agon: Good morning.

First question on China which accelerates in H1 versus last year, so what have you seen further accelerating anywhere mentioning even Q2? So what is behind this? Is it a specific category or your outperformance of the market on your regions with e-commerce? And the second question would be brands because it was the back 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? Jean-Paul Agon: All right. So first, China, it’s true that you know 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. 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 accelerating quarter-after-quarter, but at least it means that we are very far from a slow down. Why? Because in fact I think there are many factors today in China that drives 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 consumers who buy our brands on the Chinese market, but we see it also from Chinese consumers buying our brands in travel retail, in other countries, so there is a growing appetite of Chinese consumers for beauty products. 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 but we see a strong increase of consumption of young consumers in China. The most amazing and I have said that already on different calls, 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, Yves Saint Laurent, Giorgio Armani and going directly to these kind of brands. So this is clearly a very good sign. And we see again new signs of slowing down. And this is good for the four 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 Cosmetics 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 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 59% is definitely the amazing capacity that our teams have right now to gain market share and this is not over. Regarding France, it’s somewhat 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 you 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 two difficulties in this first half. One is definitely Professional, because the Professional channel in France is really not easy and we are also in the middle of 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 would be very strong because of the three fragrance launches that will arrive very soon. And regarding the pipeline question that you asked, there was absolutely no piping in the first half. These launches are coming now and they will completely positively impact the second half.

All right. Jean-Paul Agon: Thank you.

So we have another question from Stephanie Wissink from Jefferies. Please go ahead.

Thank you. Good morning, everyone. Jean-Paul Agon: Good morning.

Two questions. 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-comm, but anything else across your key channels of distribution, mass, drugs, specialty and even department stores for your Luxe business? And then on China, also a point 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? Thank you. Jean-Paul Agon: We don’t disclose units per country. 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 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 understand your question it’s about the different channels for luxury. What’s happening to us is the same that 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 this retailers we are a very important partner of Ulta, a very important partner too of Sephora. But it’s clear that our footprint compared to – that’s basically another reason of let’s say the changing situation for us compared to other new players that are completely 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.

Yes, thank you. Jean, could you do the same for consumer in North America, just reflect on the different channel dynamics? Jean-Paul Agon: The channel for consumers are a bit more simple. You have the famous retailers, the Walmart, Target, CVS and Walgreens. Depending on the years, 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 [indiscernible] 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 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 a tailwind. When the makeup market is more difficult, like it is today after these four or five 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.

Thank you. Very helpful. Jean-Paul Agon: Okay. Thanks.

So we have another question from Iain Simpson from Barclays. Please go ahead.

Thank you very much. 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 natural organic space, so thinking about things like Logona, the products held by Garnier Bio. How are those going please? And what are the sort of learnings for the rest of your portfolio? And then secondly thinking about your two 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? Thank you very much. Jean-Paul Agon: 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 purely skincare and they are ready for healthier skin, so this is a very precise type of motivation. Where luxury consumers have very different motivation, it’s more about buying something premium. It’s about skincare but also makeup or fragrances. So it’s very clearly different consumers. And by the way it’s also different networks. It’s true that you can find a few Active Cosmetics brands in some department stores in China but mostly different. I would say that luxury is clearly – luxury department stores and of course e-commerce with special sites, for example, on Tmall where our luxury brands have their own sites. And for Active Cosmetics it’s more Watson, pharmacies and also some different sites for consumers on e-commerce. So I think it’s very, very different. It doesn’t mean that there can be no moves 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 initiative that we took. I’ll remind everyone that we took three initiatives under BIO [ph] skincare segment. One was the launch of La Provençale Bio in France and we are pretty happy with the results. That’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 this 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 very positive move.

Thank you. Jean-Paul Agon: Thank you.

So we have another question from Jeremy Fialko from HSBC. Please go ahead.

Hi. Good morning. It’s Jeremy Fialko, HSBC here. A couple of questions. So the first one is on gross margin. Clearly, you had a very strong underlying gross margin expansion except that was offset by the FX and scope effects. Can 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 sort of the Asian business and particularly e-commerce. Can you talk about the visibility you have in terms of sellout within some of the channels within the Asian business and your comfort that the sell-in and the sell-outs are matching one another pretty closely? Thanks. Jean-Paul Agon: On gross margin, Christophe you want to say something about that?

Yes. As you know, you have the impact of the FX change again of June. When you project at the end of 2019, there will not be a big change. So we expect the impact that we have seen in H1 should not be very different from the one that we’ll see in H2. Jean-Paul Agon: I didn’t understand your question regarding the Asian business. What did you say?

Just more about your visibility on the sell-out versus sell-in within your Asian business? Jean-Paul Agon: That’s very simple. The visibility is pretty good because as more and more of the business is made online. In e-commerce, you 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 are really matching pretty precisely the numbers in sell-out that we can be pretty sure of that.

Okay, very helpful. Thanks a lot. Jean-Paul Agon: Thank you.

So we have another question from Mark Astrachan from Stifel. Please go ahead.

Thanks and good morning, everybody. Three quick questions. I 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 weakness that you saw in the second quarter? Is it just that makeup trends are noticeably worse as you mentioned? Was there some impact to inventories given just continued weakness in department stores, et cetera? What kind of drove that seemingly worsening of trends there? And then two quick other questions. One, curious about the change in management in China. Why now given how dynamic the category growth or country growth is? And are you seeing any impact from any of the social unrest in Hong Kong? Thank you. Jean-Paul Agon: Those are very different questions. So North America, honestly you cannot any draw any conclusion from one quarter to the other. I think that what we are seeing in luxury in North America is what I had said before is that definitely I’m not surprised that we are – you are seeing the same type of evolution 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 we have the same type of situation. So there is no big change between our Q1 and Q2. And we are pretty hopeful, it’s not the guidance, it’s just a personal hope that the second half for luxury in the states would 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’ll see together at the end of the year. But I think it should help. Then, change of what management in China was your question?

Yes. Jean-Paul Agon: At L'Oréal, we always give a good – carry our evolution to our top managers. You’ve seen the recent promotion of Christophe who was Asia CFO becoming Group CFO and we keep moving our great talents around the world and we thought it was a good time 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 know very well and I’m very confident that the new General Manager of China, Fabrice Megarbane 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 we know – we read the press you and us. It’s clear that what happens in Hong Kong doesn’t facilitate the sell-out of the business. The only I would say good news in there is that if there are less Chinese tourists in Hong Kong, they buy our brands on their local market. And as we are – in a way it could even be seen positively if you want to be optimist because the market share that we have, I think I’m not mistaken in China in luxury is higher than the market share that we have in Hong Kong. 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.

Okay. Thank you. Jean-Paul Agon: Okay. Thank you.

So we have another question from Nico von Stackelberg from Liberum. Please go ahead.

Hi, gentlemen. Good morning. Jean-Paul Agon: Good morning.

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? 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. I’m just wondering out of a pool of say 100 men, how many men buy your products each year out of a 100? And if you were to fast forward 10 years from now, what are your projections in terms of how many men will buy your products each year out of a 100? Jean-Paul Agon: 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 is 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. 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? It’s fragrances, it’s skincare. The only thing we can tell you is that this market of specific product for men 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. For example, for skincare, men’s skincare is definitely growing very well in Asia, especially China and India. We are by the way the leader of men’s skincare, for example, in China. We have a brand called Men Expert which is extremely strong and growing very fast. It’s one of our engine of growth for China. But honestly I don’t know how many men are using and will be using our products. We’ll do our best to stimulate them, but it’s not always easy. Regarding makeup, I think very simply that after five years of huge makeup boom, everyone expected that at one moment the market would cool down for a different reason because as you said it could [indiscernible], maybe there is a change of type of makeup that people want to use, the makeup looks that were really in fashion four or five years ago have changed. Now it’s more kind of natural makeup where you still need the makeup but nothing exactly in the same type of product 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 with 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 – and I said it’s a little bit a headwind, especially in Consumer division because we are the number one makeup manufacturer in the world. But it’s okay. And the good thing is that we are also the number one skincare manufacturer in the world. So all-in-all, it’s fine.

Thank you. Jean-Paul Agon: All right. Thank you.

We have another question from Fulvio Cazzol from Berenberg. Please go ahead.

Yes. Good morning. Thank you for taking my questions. Most of them have been answered, 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-like for the half year please? Françoise Lauvin: Good morning, Fulvio. So overall on the 7.2% like-for-like gross, the unit component was pretty flat, so close zero overall. So the enhancement was mainly through a premiumization across all divisions.

Okay, great. Thank you very much. Jean-Paul Agon: It’s also just leading to the fact that the mix effect between luxury and mass is really in favor of luxury, so there is clearly a mix effect of value for forward value and less for unit, 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.

Great. Thank you. Jean-Paul Agon: All right. Any other questions?

Yes. We have another question from [indiscernible]. Please go ahead.

Good morning. I have two questions. The first one is concerning the makeup in China. What has been the change in H1 because we spoke of a tough market to makeup in U.S. and Western Europe, but what has been contained in China for makeup? And also for fragrance in China, do you see a kind of breakup of that business? Thanks. Jean-Paul Agon: Thank you, Ruiz [ph]. 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 the part of the world where makeup is by far the 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 and the market. 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 the total growth of the category, makeup is still a plus 5 which is not bad. We all say, oh my God, 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 a 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 will go to China, for Lancôme, Yves Saint Laurent, Giorgio Armani, [indiscernible] and all this. And it’s a little bit the same by the way for fragrances. We keep saying also that 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 fragrance market has grown by 30% in China. So it starts 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 the day when Chinese will wake us, as we say, to fragrance is 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.

Okay. Thank you. Jean-Paul Agon: Thank you, Ruiz.

So we have another question from Eva Quiroga from Deutsche Bank. Please go ahead.

Yes. Good morning. Jean-Paul Agon: Eva, I’m happy that you raised a question because I thought that you weren’t there.

I’m always there, Jean-Paul. 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 gross 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? Jean-Paul Agon: 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, it is a very mixed bag of contrasted market, if you will. In total, Brazil is positive. If I remember well, we are growing plus 2% in Brazil globally speaking at the end of June which on the market that is not much more than that is not bad, but it’s very contrasted. It’s growing very well on Active Cosmetics. Active Cosmetics we have 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 [indiscernible] agreement, I hope that this will change. I don’t know yet, but we’ll see. Professional, we are positive too. And the difficulty that we have is still on CPD. In fact, at the same time it’s a difficulty and a decision that we made, because we made as I said several times 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 a reduction of our business there. I think that we again we’ll finish by turning around the business, so 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 market 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 two weak spots that make that clearly handicap consumer division in the 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 two regions of the world, the division will definitely be able to get back on track and over-perform the market.

Thank you very much. Jean-Paul Agon: Thank you, Eva.

So we have a last question from Nico von Stackelberg from Liberum. Please go ahead.

Hi, guys. 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 do you see it developing over five years? Jean-Paul Agon: Thanks 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 biasness. 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 is very diverse, a brand like Garnier is very diverse. I know that our American teams are doing everything they can to make their brand accessible and attractive to 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.

Okay. All right. Thank you. Jean-Paul Agon: All right. So I think it was the last question, so thank you very much. We wish you all great holidays and we’ll see you with pleasure at the publication of the third quarter. Thank you. Bye-bye.

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