L'Oréal S.A. (OR) Earnings Call Transcript & Summary

Welcome to the L'Oreal 2026 Half Year Financial Webcast. [indiscernible] .

Thank you very much, Tegna, and 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'Oréal delivered an excellent first half. My 4 key heights are the very robust adjusted like-for-like growth of 6.5%, the strong gross margin of 74.8%, up 10 basis points, a record operating margin of 21.3%, up 20 basis points and 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. 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 acquisition of Dr. Jay, Coleal, Medicaid and Cirinote. 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 bile, 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% in 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 total 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. went live at the end of March. The U.S. went live in early June. And by the end of the year, we 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 hair care. Consumer products grew 4.3% and L'Oréal delivered exceptional growth driven by haircare. Advanced 5.1%, boosted by the recovery in China and the continued dynamism of provinces. And at 10.6%, Dermalogical Beauty delivered a third consecutive quarter of double-digit growth with both skin care and hair care contributing. Let's now move to growth by region. Our 3 developed regions posted solid adjusted like-for-like growth. At 6.1%, Europe remains very robust, all carries and all divisions contributed. At 6.7%, North America maintained its strong written, thanks in particular to personal 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 Lux. 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%, hair care the most dynamic. Each division contributed strongly, growing in double digits. Fragrances maintained the double-digit pace of 10.3% with strong contributions from Prada, Valentino and ESOP. Sincere accelerated strongly 5.8% as dermatological duty maintained its double-digit rhythm and LUX 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 12 as fast as the market and reached EUR 7.4 billion in Fed. 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 grows 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 2.8% 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 us 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 efficiency. 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'Oréal 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 forex stood at 22.1%, 20 basis point below last year due the small dilutive impact stemming from the first time consolidation of Kering. The dermatological Beauty margin increased by 20 basis points to 28.4% and nonallocated 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 nonrecurring items, stood at EUR 1.3 billion, an increase of 7.3% and representing a rate of 24.5%. Net profit, excluding nonrecurring 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. Nonrecurring items amounted to a negative EUR 430 million, in line with the first half of 2025. First, order incoming 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 40 million, mainly of acquisition-related costs. Second, nonrecurring tax items came in at EUR 112 million, including the exceptional EUR 188 million the surcharge approved by French pilot. All nonrecurring items, net profit attributable to all of the company came out at EUR 3.5 billion, an increase of 5.3% year-on-year. Gross cash flow EUR 4.8 billion was up 9.7%. Our working capital amounted to EUR 952 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 Perinorte and the additional 10% stake in Galderma, receivable cash flow was a negative EUR 9.8 billion. The balance sheet remained lost 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 million, 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 estimates that our leverage will be below 1 turn 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 a 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 while 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 32% to 49% to plus 65% in the first half of this year. Global market growth has been accelerating since the start of last year and stand at around plus 4.5% in the first half 2026. The Grimmer, the economic and geopolitical headlines, the more consumers crave and affordable field 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're starting to first sign 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. He delivered broad-based meeting growth despite the ongoing crisis in the Middle East, special shout out 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 to semester driven by the ongoing recovery of the log division in China, which advanced by 10%. By division, PPD maintained its momentum. It grew most plus 12%, outperforming the professional market more than twofold, and LDD is back in the game, having delivered a third consecutive quarter of double-digit growth led by CeraVe. When I look at growth by brands, I'm very happy to see that many of our historical brands have kept a spring in their steps. L'Oréal Paris was the #1 growth contributor to the group. Caraustar created by us 60 years ago, was up in the high 20s, Laroche Jose, ISL, Bonte L'Oréal family for decades have gone in mid-teens. I think that should hear the miss that L'Oréal grows only thanks to its physicians. But it doesn't mean that more recently as this brand have not been on a roll, take Prada with growth over 30%. By category, hair care continued to grow in double digits on the back of strong launches in all relevant divisions. And Sodi fragrances, driven by a combination of strong pillars like YSL Levo, now the #1 female fragrance worldwide and successful new launches like Prada paradigm and Almanara view. So what's behind this success is -- 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 wise as fast as the market. We continue to win on Amazon and accelerate our TikTok shop among many other platforms. At the same time, we grow in brick-and-mortar importance as it's the in-store experience that creates the magic in beauty. Three, are 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 Alvin L'Oréal Star community that brings together thousands of influencers worldwide to AI-based innovations that pioneer of 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 view 2 examples. We continue to double down on hair care as the category becomes more sophisticated. And thanks to our broad-based innovation strategy, our brands are winning in each division, whether Lima, Kérastase and Professional and CeraVe in Irma, all are growing well into double digits. And skin care is on its way up, contributing 1/3 of our growth in the first half and confirming last year acceleration, LDV delivered double-digit growth led by CeraVe. Lux was boosted by the ongoing recovery in China where Hellenic is going from strength to strength. In Europe, MiX delivered another semester of growth well into the [indiscernible] 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 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 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 full swing. We continue to roll out our launches of the last 12 months, and we have another strong lineup across all our divisions ahead. Second, skin care will affirm its come back, as I just described. In addition, we're rolling out some of our smaller brands, DoctorG, the #1 skin care brand in Korea will travel to China and the U.S. in the second half. and Medicaid a star performer since this acquisition will start its global expansion. The brand is currently present in just 2 countries. Third, acquisitions will put their full weight. Creed will be consolidated for the whole of the second half, and the brand is currently growing double digit, and we will once close, consolidate Innovest our acquisition in India. And fourth, North Asia, will continue to support growth. The recovery in China continues, it is driven by Lux, which clearly plays to our strengths. And in addition, we expect a return to normal in Travel Retail Asia for 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 of pleasure and health feel good and live well. Dopamine is beauty as indulgence a sense love, a texture you enjoy and help his beauty as wellness requests for longevity and skin rejuvenation. And L'Oréal is well positioned to fire on both engines and there is no other company that can do that. We have decades of our factory science and texture innovation to fuel the intelligence of beauty and scale and our best-in-class RNI drives the expansion of beauty into health. With over 15 years dedicated to longevity research, we're uniquely positioned to offer advanced protocols like Lancome longevity MD or Caraustar on GLP-1. Rapid weight loss leads to skin sagging and heartening issues we addressed with launches like SkinCeuticals, AG interrupter, rescan acid Growth and Kielcolorshots. 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 Neo brands, of our Derma brands and Mix. We leverage ESOP in the selective market of indulgence, and we're launching mix in MassBio. In the first half, body care grew in double digits across all divisions. The entry of Viento busy supplements is off to a promising staff, and we will be in the Europe-wide rollout of VishiCollagen 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 launched the first product as early as 2028. And I'm extremely excited about what lies ahead. Gucci is 1 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 losing fashion. Fourth, AI. For us, AI in several things. It means accelerated innovation. RNI is the met that has been the most augmented by AI. In the last 4 years, the number of molecules we analyzed 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 Create 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 improve consumer case. We augment all our meters and we augment our 90,000 employees. Earlier this month, I took my full Comex learning expedition to the Silicon Valley, a trip that confirmed our belief in the use benefits that AI will have for L'Oréal. 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 and satiable appetite for beauty and supported by favorable demographic trends. And we have every intention to keep winning. We are on a role. 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'Oréal is truly 1 of a kind to me. We are a unique plant of luxury of dermatology, of consumer products of tech of professional services, and it's all about at beauty on steroids. So I thank you for your attention, and we are ready for your questions.

[Operator Instructions] The first question is from Guillaume Delmas with UBS.

2 questions for me, please. The first 1 on Europe because it seems you keep on very materially outperforming the market there, and it's broad-based. All divisions outperforming. So -- can you maybe shed some light on the L'Oréal winning playbook in the region, particularly if you can touch on online, how big it is now for Europe and how fast it is growing. And then looking ahead, do you see this impressive 6% like-for-like as a sustainable run rate? Or should we anticipate at some point some gradual normalization towards levels we've been more used to, so like more like a 3% to 4%? And then my second question is on Greater China. So strong performance in the first half. Can you maybe help us unpack this performance and particularly what you saw in Q2 around how it played out for the industry as a whole and for L'Oréal in particular. And again, if we think about the second half, you cycle tougher comps do you remain confident about further acceleration or at this stage, just maintaining the current run rate will already be a strong achievement. And maybe just a side question on China, but I saw that you mentioned in the press release, so you start doing quite well. Does the success of Simyo want to own more local brands in China.

If I'm not mistaken, that's 4 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 PC is not only essential, but a great way to boost your moral and feel better in this great world, and there are different dynamics markets, South of Europe, U.K., Ireland are more dynamic. But France is positive, midsized 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 1 of the regions of the world where we have the biggest weight in hair care and shared dynamic that helps us. It is also, as you mentioned it, a good contribution of commerce. This is 1 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 organization, our processes at a high speed in Europe, both through clusters grouping countries and therefore, freeing some SG&A and having 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 -- it is good and even our selling 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 hair care 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 with 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 strengths. Our strength in luxury as we are the dominant player depending on the period around 30% market share 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 in Chinese term, the more affordable brands, which are around Serve and [indiscernible] really a striking performance of stencils which is a bit like Certas are more premium part of the catalog. So we have kind of we were in a very negative combination. If you look a year back, which was mass growing and all the Chinese brands growing, we're fighting on our with our other divisions. And here, it's a reverse. Many Chinese brands are declining steeply. It was very visible in [ 11 and 16, ] and premium brands we are growing. And as you were asking about 618, 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 GMV 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 '16, which is pretty good total market. And we beat the growth slightly and retained our position, and we had the #1 brand in each of our -- each respective Univer L'Oréal #1 across all beauty brands, Norkom, #1 in selective, SkinCeuticals in thermal and care starting Professionals. So -- 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 high in China. And I feel that at least consumers are a bit more eager to spend their money on premium products. So a week we bet on the continuation of this over the second part of the year. A quick word on use. 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 see it. So it's always a question of opportunity and of having the right targets, but there's nothing in -- 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. And we'll try to do our best to make it happen.

The next question is from Charles-Louis Scotti with Kepler Cheuvreux.

I have 2. The first question relates to skin care. You mentioned that the category accelerated in the first half. Could you provide a bit more granularity on the performance across the 3 divisions? And also taper skin care accelerated within L'Oréal Luxe is this acceleration driven primarily by the ramp-up of Medicaid? Or are you also seeing broader strength across the rest of the prestige portfolio and on Medicaid, a quick follow-up question. But if I'm not mistaken, the brand is planning a major launch with Sephora in the U.S. do you believe you have the potential to repeat the success of that brand like Crave achieved, even so, obviously, they are not in the same category? And my second question relates to A&P that increased by 70 bps year-on-year. And at the same time, SG&A declined by roughly the same magnitude. Should we view the reduction of SG&A as structural and how should we think of the increase in the A&P spending going forward because I had initially expected this ratio to stabilize or eventually decline, particularly with the rollout of -- and is the increase primarily driven by the changes in the sales mix with, for example, a greater contribution from fragrances, which tend to be probably a bit more A&P intensive.

So yes, so on skin care, indeed, we have seen improvement, and we are back to mid-single-digit growth, as you saw is close to plus 6% and then it's above the market. It's not true across all our divisions. It's very, obviously, a very strong performance in NBB, and I'm very happy about that because if you remember, we had a few quarters of doubts and whether this dynamism that we'd seen in the previous year was -- has reached a plateau. And as I told you, it just took a bit more innovation on CeraVe to bring the machine back to grow in the mid-teens and doing great first biggest driver of growth to LDV, but Laroche not far -- by the way, so the detail, but we launched Terade SunCare this year and -- it's doing great, and we haven't tried it. I invite you to drive the combination of great filters and services. It's fantastic for skin. So LVD is really very, very strong on of skin care. Lux is improving. And for Lux it's a combination of 2 factors. One, indeed, is that you have a brand like Medicaid, which is growing close to 5%. So -- but it's still relatively small, but it is contributing. And I'll get back to your question around survey. And -- but you also have the fact that China, which is the biggest skin care market in the world going back to growth and us outperforming the Chinese market is clearly a contributor with brands like Lanco but also Halabitine doing very good in China. So Love is back to positive, above its markets, whereas is slightly behind the market. We have, of course, the opposite effect in China because Matt is not positive in China. But I would say the Garnier Toqueseco launch is doing well. It was in Italy, 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'Oréal Paris coming in the second half. And as you've heard, next to the mix performance of payers performance, we have decided to accelerate the rollout of top 2 G. We keep on hearing about how occurring beauties, had and so on and so forth. And we have the #1 skin care brand in Korea. So I retold the team guys let's go fast on that one. And typically, 2 G will be launched in the U.S. at the end of the year. This year, it's already in China, it's more a relaunch because it per 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 skin care. As far as Medicaid compared to say you said it yourself, there are very -- 2 very different brands, of course, but also distribution strategies. Serve is a mass medical brand. So the idea that you had to -- you could roll it out in mass channels pretty, pretty quickly. Medicaid is more selective, but we have a lot of ambition in the U.S. with the support. Sephora, it's a brand that has fantastic formulas and consumers love. And so we'll focus on the big U.S. opportunity, probably also Europe, this is what you would probably not go as fast as a CeraVe, we have a lot of ambition for that brand because it's a unique combination of premiumness and dermatology, which is -- was a net gap in our portfolio and the fast-growing subcategory in the world of skin care. So I would say, good progress on skin care 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. So Sean, 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're 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 based on the pass experience around 20 to 30 basis points improvement if we keep with regrowth. And that's very important because it helps, of course, to finance when there is the opportunity, finance the support of new launches and finance our new brands. And that's what we did in the first half. 70 basis points. It's to help on innovation but 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 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 optimistic. 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 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 we say, and with a good dynamic. .

The next question is from Warren Ackerman with Barclays.

Yes. Nicolas, Christophe, Eva, its Warren here at Barclays. I've got a few as well. First 1 is on SAPMENA stunning performance in Q1 and again in Q2 Nicolas, you called out Vietnam and India. Can you talk about the sustainability of this growth? Are we at the tipping point in places like Vietnam. And I'm just interested to know not so much in percentage or how big in absolute terms could SAPMENA be you allocating capital to this region? And then related to that, -- can you maybe talk about India specifically and the acquisition of Innovest, it looks interesting. It looks like a very high multiple. Is it worth it? What is it bringing to the party and then finally, on Gucci, this wasn't in the statement, but I saw an interview that you are talking about tripling revenues on Gucci. What are the priorities? And how would you contrast it versus YSL where I think you that business. So just interested to hear the compare and contrast on that when you get the license.

Okay. So on flat SAPMENA, it's clearly a priority. As I said, emerging, all the new growth relays, -- this is where most of the new consumers both to the market and to L'Oréal to be coming from. And that's why we're doubling down on this region, where we have also invested a lot was 1 of the first regions where we started developing our content factories boosted with AI and new types of organization to boost our e-commerce strength because 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 representing L'Oréal, but it's true that we have overall in this region, a market share that if I'm not mistaken, it's 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 been a bit lower. So clearly, it's a focus. The good news is that e-commerce is really new, and we are I would say, getting better at playing the TikTok short game, which was probably a new playground, 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 seen growth there. And of course, we don't we don't see SAPMENA today, we're 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. 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, with money to this monthly basis, do you want to add something on that Christophe.

Anyway, we have flagged, of course, media and the whole vision as a strategic region for growth. So that's why we are carefully looking at any opportunity, first, support the organic growth. And that's what we did in India with the launch of both dermatological Beauty and Lux division. We are setting 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...

Yes. So just going back to Innovest. First of all, we have -- in the end, we have good positions in some categories, in India, particularly were strong in haircare, strong in makeup, is labeling, which is a very strong brand there. We're beginning to see a surge in fragrance usage there. And skin care is a category where we have to accelerate and we have, first of all, a big drive right now on survey. We are opening few -- I think right now, we're probably around 7 or 8 cities in India and expanding and there's very good response. We created some specific textures to match, be it in climate, which is harder, so you need lighter textures. And so we have our own -- our existing international brands are growing because the plus 20% we have in sellout on the market at plus 10% or 11% year-to-date is made only with our existing portfolio. But it's true that vis-a-vis we've been looking at Indian opportunities for a while. And what we liked about Innovus is that, first of all, it's got 2 brands that are very interesting in original 1 is for skin care hygiene and the other 1 on 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 learning 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 into enough and it was a great addition to our Consumer Products division. The closing should happen in Q3. And then we'll start always start seeing how we can support them and how we can support us. So that's for India and Innovus. And to finish on the on Gucci. Well, the turns from the FDA put words in my mouth. I didn't pronounce what I said was that I believe that Gucci has to become -- causes me whether he would become a billionaire brand and I also -- 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 anticipated the license, our teams -- our team will be built and set up to start working on the first of September. We 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 I was happy to see. I was a bit in the now, but that the Gucci numbers are getting a bit better than the takeover of the license of the Gucci is appealing to fashion addicts, and it's always good that my anticipation was important to synchronize the reacceleration of beauty with the reacceleration or reimburse of fashion. So it will take some time. And as far as your question on the -- on how do I be managed 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 Gucci we've deploy next to Harmony. And we are now developing Prada and Valentino without any negative impact on 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 seeing what's in the engine, but we love the brand, and we have a very good partnership carrying. So I guess we should be very positive. But we always start working in September. So you'll see more probably you have to wait a couple of quarters to see the first.

The next question is from Calum Elliott with Bernstein.

So firstly, I wanted to just follow up on something you were talking about earlier, Nicolas, you made some really interesting comments about the organizational changes with the clusters, how that's helped you be more agile and I guess, ultimately, grow faster in Europe -- and I just wanted to push you a bit more, and I would love to hear more about it. I don't think you talk about it very much. Can you help to sort of bring it to life for those of us outside of the business how specifically have those changes driven improvement? And maybe you can share a couple of examples. And then my second question, it feels like a very exciting time for the business, a huge number of opportunities. We see that in terms of how active you've been from an M&A perspective over the course of the past 12, 18 months. I guess, at the same time it's also been 18 months, I think, now since you did anything with the Sanofi stake. A lot of capital tied up there. Leverage has crept up a bit at the same time with all of this dealmaking -- and there are still obviously a number of other potential deals waiting in the sidelines. So I wonder, just in that context, can you give us a bit of a quick update on how you're thinking about the Sanofi stake, please?

So I'll take the clusters and let Christophe think about what I can tell you on the Sanofi. On the clusters, very clearly, we really doubled down on Europe, particularly over the -- for the last 5 years because that clearly is our biggest region. It's also the region we had -- where we had the largest number of countries. And we had every Scandinavian countries have its P&L. Now we have the Nordics hub, which has 1 common, 1 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 need -- which is Germany and Austria, Switzerland, which was some of the companies have found that test we hadn't. Spain, Portugal. We have also a few in Eastern Europe. And if you accumulate the combination of the removement of this product, and we 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 1 P&L, 1 common ERP, which is this Safran that we move into, which we've done in the U.K. Island, which we've done in Spain and Portugal, and we will be winning in Germany. This is also creating a lot of synergies, money saving and more time to focus on the end consumer. I -- 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 very strong Portuguese, but they are nearly focusing only on serving consumer and the customer. And that's something that has proven very effective. We found that also a bit in Latin America, in Colombia, the -- and in 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 late 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 seen -- and therefore, it creates a lot of -- it frees a lot of money in the P&L to support our brands. So I would say it's been 1 of the recipes of capacity of Europe where you have pretty high SG&A and lots of fragmentation to become more lean, agile and effective over the last couple of years.

Okay. On your second question, you are right to say that we are -- there are skipping opportunities when it comes to M&A. And believe me, we look at all of them as a review should 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 the partner the acquisitions of Kering Beauty and Galderma, as I said before, the leverage of L'Oréal by end of 2026 would 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 factors is really the same amount. So every time when we look at first, do I need to transform this asset into cash, honestly speaking, on right now. And when I look at what it brings to the P&L, I think it's wise for attending to keep it a different.

Next question is from Olivier Nicolai with Goldman Sachs.

First, I've got a housekeeping question for Christophe about the [indiscernible] take the 20%. How do you account for it? What does it appear? It doesn't seem to be in the share of associates. And then I got -- 2 questions really. First, on marketing spend, that increased by about a bit more than EUR 0.5 billion incremental in H1, is partially reaching 32.6%, as you get more efficient, how should we think about this ratio going forward? Could you go back towards the 31%, which was kind of the historical run rate? And then question on fragrances. I mean in a recent interview, you head of Lux was expecting L'Oréal to outperform the fragrance category by a factor of 3. What are your expectations for the new fragrances launch in H2 such as Valentino, or Armani well? How will it compare to product pair instance, considering Amernia, Valentino brands are much bigger than PRADA. .

Okay. So maybe I'll start with the technicalities of [indiscernible]. So as you know, when we took another 10% to reach 20%, we had to change the methodology of accounting and applied the equity method and when an investor holds 20% or more of the voting power of the company, we have to apply '28, which basically requires purchase price allocation. And therefore, we did our [indiscernible] at the acquisition, we have identified some assets where the fair value exceeds the carrying amount of the balance sheet, and this success has to be amortized by L'Oréal. So Actually, when you look at the way it is done, of course, we keep 20% of the net profit of Gardena. But on top of this expense, there is PPI allocations or amortization. And this is why it is impacting the net-net amount at L'Oréal. 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 muted from this amount. And then, of course, we take the 20% of business amount. Is it clear? .

Yes. .