L'Oreal Co Eur Ord

Good morning, and welcome to the L'Oréal 2024 Half-Year Results Conference Call. The conference is about to begin. I now hand over to Eva Quiroga. Ms. Quiroga, please go ahead.

Thank you, Judith. Good morning to all, and thank you for joining us for the presentation of our first half 2024 results. I'm here with our CEO, Nicolas Hieronymus.

Good morning.

Our CFO, Christophe Bavule. Hello, good morning. and the Global Head of Corporate Finance and Financial Communications, Laurent Schmitt.

Good morning.

As always, Christophe will comment the first half results. Nicolas will then share his takeaways from the first six months and tell you why we remain confident in the outlook for the rest of this year and beyond. After that, we will open up to Q&A. You can already find the slides of both presentations on our website. 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. And with that, over to you, Christophe.

Thank you, Elisa. So, ladies and gentlemen, good morning. L'Oréal delivered another strong performance in the first half in a beauty market that remains dynamic. If I have to summarize the past first half in four key figures, I will highlight first the continued strong life-for-life growth of 7.3%. Remember that we were lapping pretty tough comps of plus 13.3%. The gross margin of 74.8% up 50 basis points and a first-half record. The operating margin of 20.8% up 10 basis points and also first-half best. And the net profit of 3.65 billion euros, an increase of 8.8% versus the first-half of last year. So sales increased by 7.5%. Foreign exchange had a negative 2.3% impact as the euro appreciated against most of our key currencies except the British pound and the Mexican peso. You can find more detail on our invoicing currencies in the appendix of this presentation. The change in scope of consolidation contributed a positive 2.5%. It reflects the acquisition of ETH of last August and the impact of hyperinflation accounting in Argentina and Turkey. On a like-for-like basis, growth came to a strong 7.3%. Adjusted for the phasing related to the implementation of new IT systems in North America, like-for-like growth in the second quarter was above 6%. On this chart, you can see the different components of growth. Units increased by 2.6%, contributing slightly more than one-third of growth. Value grew by 4.7%, of which 3.3% price and 1.4% mix. Increasing volume is all the more remarkable as it follows an increase of nearly 4.9% in the first half of last year, a pretty unique position amongst our peers. Let's take a look at the divisions. They all grew on a like-for-like basis. Professional products advanced 5.7%. All three key regions contributed. At 8.9%, consumer products continued to grow at a high pace. Volume and value were well balanced. Lux progressed 2.3%, momentum accelerated in the second quarter, and dermatological duty grew 16.4% with all regions contributing. Let me remind you that in the third quarter of last year, sales in our LDB division included a 57 million euro insurance benefit related to the natural disaster that severely disrupted the Vichy plant back in 2022. Momentum remained dynamic in our developed and emerging markets, more than offsetting the ongoing weakness in North Asia. Europe, our largest region, continued to deliver remarkable growth at plus 11.1%. The group strengthened its position in the majority of markets, especially in the DACH and Iberia clusters, as well as in many of the mid-sized countries. In North America, momentum remained strong at plus 7.8%. It was positive in all categories and divisions. In North Asia, sales declined by 1.7%. This was due to the renewed weakness in the mainland Chinese market, where we gained share in three of our four divisions. Travel retail still weighed on growth in the first half, but momentum has been improving sequentially. In emerging markets, L'Oréal maintained a very dynamic pace at plus 14.7%. Sapmina, SSA, and Latin America both contributed. Let's now look at the categories. Skincare grew plus 5.4%. All regions advanced with the exception of North Asia. Makeup continued to rebound at plus 8.8% with Europe and emerging markets particularly strong. Haircare was the most dynamic category at plus 14.9% driven by premiumization in both mass and professional. Growth of perfumes remained remarkable at plus 14% and hair coloring advanced by 4%. Let's move to the profit and loss account. Gross profit increased by 8.3% to more than 16 billion euros. Gross margin improved by 50 basis points to 74.8% of sales. The change in scope of consolidation had a negative 40 basis points impact on gross margins. Currency effects from transaction and translation were positive to the tune of 20 basis points. The underlying growth margin improvement, therefore, stood at plus 70 basis points, reflecting a more favorable input cost environment and the continued valorization of our portfolio. Research and innovation expenses increased 7.1% to 667 million euros as a percentage of sales. They were stable at 3%. Advertising and promotional expenses increased 6.4%. That's an additional 427 million euros spent on our brand. As a percentage of sales, ANP came in at 32.1%, 40 basis points below last year, half of which was due to the acquisition of ESOP and the impact of hyperinflation. With the exception of North Asia, we increased our ANP in relative terms across all regions. SG&A expenses increased 12.3% in absolute and 80% points in relative terms. About half of the increase was due to the consolidation of ESOP and another 10 basis points due to the impact from conversion. Part of the remainder was related to the acceleration in our investment in tech and data aimed at improving our long-term productivity and competitiveness. Operating profit increased by 8% to more than 4.5 billion euros. The operating profit margin advanced by 10 basis points, reaching a new first-half record of 20.8%. As you know, our margin improvement in 2024 will be slightly back-end weighted due to the consolidation of ESOP and the phasing of travel retail sales. As I do in my first half presentation every year, let me remind you that L'Oréal is managed on an annual basis. Therefore, the division's profitability in the first half cannot be extrapolated to that in the full year. Three of our divisions reported record first half margins driven by strong gross margin expansion which more than offset the increased investment behind our brand. Consumer products improved their profitability by 100 basis points to 22%. The profitability of professional products came in at 22.1%, up 90 basis points. Dermatological beauty further increased its margin by another 50 basis points to 28.9%, and the margin of L'Oreal Luxe stood at 21.9%, 130 basis points below last year. Apart from the weakness in travel retail, you should be aware that the consolidation of ESOP had a negative impact of 100 basis points at divisional and 35 basis points at group level. Non-allocated expenses, consisting mainly of corporate and fundamental reserves cost, were up by 10 basis points at 2.4% of sales. From operating profit to net profit, excluding non-recurring items, the net financial result came in at a negative 131 million euros The increase versus last year was related to two main factors. First, the acquisition of ESOP, and second, the cost of servicing our foreign currency debt in Argentina. For the full year, you should expect net financial expenses to the tune of around 230 million euros, all other things being equal. Standoffish dividend amounted to 444 million euros, up 5.6% compared to last year. Income tax amounted to 1.2 billion euros, representing a tax rate of 23.7% higher than first semester 2023, which stood at 21.9%. For a full year, you should anticipate a tax rate likely below 25%, all other things being equal. Net profit, excluding non-recurring items, amounted to 3.7 billion euros. We now complete the review of the P&L account. Non-recurring items, net of tax, amounted to a negative 89 million euros compared to a negative 257 million euros in the first half of last year. This year, the other income and expenses of 103 million euros mainly included first restructuring costs of 41 million euros related to reorganization projects in Europe and North America, and other non-recurring costs of 40 million euros comprising a number of different items. After taking into account all non-recurring items, net profit after non-controlling interest came out at 3.6 billion euros and 8.8% increases. Growth cash flow increased by 3.1% to 4.5 billion euros as every year during the first half, the working capital requirements increased this year due to the phasing of our net sales. Capital expenditure of 781 million euros represented 3.5% of sales and for the full year it should reach around 3.7% of sales. Net operating cash flow exceeded €1.9 billion compared to €2 billion in June 2023. After payment of dividends, acquisitions and redemption of lease debt, residual cash flow was negative to the tune of €2 billion. The balance sheet remained robust with shareholders' equity of €29.6 billion, or more than half of the total balance sheet. Last, at the end of June, net debt amounted to 6.4 billion euros and to 4.5 billion, excluding financial lease debt. The gearing ratios stood at 21.8% and the financial leverage at 1.2 times. As you can see, the financial situation remains very healthy. I thank you for your attention.

So, it's me now. Good morning, everyone. We delivered a strong first half, and I would like to thank first all our employees around the world for their dedication and hard work. In the next 15 minutes, I will show you my takeaways from this first six months and tell you why I'm confident in the outlook for the rest of this year and beyond. Our sales increased by 7.3% on a like-for-like basis. We estimate that the global beauty market grew between 5% and 6% in the first half, which means that we outperformed once again. and that is after three consecutive years of exceptionally strong share gains. One of the things that I'm very pleased with is that our growth is balanced between value and volume, not just in this first half, but since the beginning of the inflationary crisis in 2021. When we look at the last 12 quarters, we see on average an almost perfect mix of volume at plus 3.4, price at plus 4.1, and mix at 3.3. In terms of channels, online at plus 7.8% has grown a little faster than offline at plus 7.2%. One region that really stood out to me is the emerging markets, where online has been a real game changer and is growing three times faster than offline. When I look at our divisions, all of which have been growing, I'm really pleased about the ongoing dynamism of consumer products, the sequential acceleration in lux, and the continued share gains in dermatological beauty and professional products. Consumer products grew 9% and continued to slightly outperform the dynamic mass market. The strategy to democratize and premiumize mass beauty is clearly working. Growth was a healthy combination of volume at plus 2 and value at plus 7 with a strong dose of mix. And all of the major brands progressed strongly, with a special shout-out to L'Oreal Paris. In spite of having been around for over 100 years and weighing more than 7 billion euros, The brand grew plus 13% in the first half. L'Oreal Luxe was up over 2%, accelerating in the second quarter of the year. Fragrances were once again the fastest-growing category, and we gained share in what remains a very dynamic market. Couture brands and men's fragrances were particularly strong. I'm also pleased that our work on our luxury makeup brands has been paying off. The category is seeing a real rebound, driven in particular by Yves Saint Laurent, Armani, and Urban Decay. Dermatological beauty was once again the fastest-growing division, outperforming the global dermocosmetics market. We grew 16%, despite the second quarter being impacted by a lower suncare season, I think you all saw the weather, and the slowdown in the U.S. market. What most impressed me was how broad-based the growth was. Every region was up in double digits, whether developed markets, emerging markets, or North Asia, including mainland China. And every brand grew rapidly. with the two billionaire brands being the most dynamic. Professional products grew 6%, cruising ahead of the market at 4%. Most remarkable to me was the strong performance of each of the top three brands, especially Kerastase, as their innovations really resonated with consumers. The division grew in all regions. It continued to pursue its omnichannel strategy in developed markets and to expand its footprint in emerging markets and North Asia. Our performance by region is a clear illustration that our multipolar model is working. In spite of the continuous weakness in North Asia, to which I will come back shortly, we delivered a strong first half as each and every one of the other regions advanced strongly. In fact, the top three contributors to Group's growth each represented a different region. Number one, the U.S. Number two, our incredible Mexican business, And three, the dark cluster, Germany, Austria, Switzerland. So let's start our World Tour right here in Europe, which had another very strong performance with growth of plus 11%, more than two points ahead of the market that has remained very dynamic. Momentum continued to be broad-based, with the majority of countries up in double digits. Our emerging markets grew in the mid-teens, well ahead of the market. Satmina was slightly ahead of Latin America, which was impacted by the situation in Argentina. In the first half, emerging markets accounted for 16% of our sales and 30% of our growth. In North America, we grew 8% well ahead of the market, thanks to the dermatological beauty, luxe, and professional businesses. Adjusted for the impact of phasing, momentum was broadly the same in each of the two quarters. Now let's go to North Asia. which declined minus 1.7%, so let me help you unpack that number. And let's start with mainland China, which accounts for two-thirds of sales in the region. After a very slight recovery at the start of the year, market growth turned negative in the second quarter, as the comparison best was very high, and we are not seeing any pickup in consumer confidence, which is critical to growth in beauty. Overall, we estimate that the market was down between 2% and 3% in the first half. Within that, There was a huge divergence in trends. Mass was up slightly, while luxury was down in high single digits. In that context, we grew plus 0.8% and continue to outperform the market. We gained share in three of our divisions, especially Lux, where we outpaced the market by six points. I'm very impressed by the performance of Dermatological Beauty, thanks to the triple engine of SkinCeuticals, La Roche-Posay, and increasingly CeraVe. The division has grown three-fold in size and now accounts for 11% of sales. That's mainland China. Let's now move to Hainan. The market was down minus 30% in the first half. We are seeing a steady increase in arrival numbers, but the conversion rate remains soft. We slightly outperformed the market in sell-outs and continue to gain share. I told you in April that our inventory levels were broadly at the right level, and as a result, our sell-in is progressively improving quarter after quarter. In the rest of North Asia, growth was up in the mid-teens, driven by the dynamic trends in travel retail and robust growth in markets like Japan, which saw a surge in tourism. That concludes our global tour. Christophe already showed you that we had a strong financial performance, and I'd like to also highlight our extra financial achievements. Moody's recognized L'Oréal for its sustainability performance with an advanced ESG assessment well above sector average. The new objectives? For our 2030 and 2050 decarbonization trajectory, we are validated by the Science-Based Target Initiative in April. To me, both are a great reflection of our sustainability transformation. Let us now turn to the future and why we are confident that we will continue to grow and outperform the global beauty market. As you know, we expect the global beauty market to remain dynamic and grow by about 4.5% this year, slightly above the 4% long-term average. In North Asia, we don't see really much change in the second half. We expect growth in mainland China to remain slightly negative and travel retail sell-in to gradually improve. Outside North Asia, emerging markets should maintain the double-digit rhythm. Growth in Europe should continue to normalize with less value as it already has in the U.S. By the way, and to put things in perspective, if the global beauty market grew 4.5% every year, that would add an extra 100 billion euros by 2030, which we would be more than happy to take an even more significant share of. As you know, we have a long history of outperforming the global beauty market. At the heart of everything we do lies the consumer, and an important part of our growth story is the recruitment of new consumers to our roster, and there is still plenty to do. We estimate that our total addressable market currently consists of approximately 4 billion consumers, or around half of the world's population. Of those, we currently touch only around 30%. It will not surprise you that this number is a lot higher in developed markets at close to 60 than in emerging markets at around 25%, and even more so North Asia at less than 15%. I believe we can reach 2 billion consumers in the next decade. Key to recruiting new consumers are emerging markets where our share is below average and when we are only at the beginning of our conquest. One of our engines will be the introduction of new brands in new geographies. Take the example of India. For years, we focused exclusively on professional products and consumer products. It was not until last year that we launched CeraVe as our first LDB brand, and we are only just introducing some of our Luxe brands. I could make similar observations about many other countries in South MENA. Our market share gains in China, which continues to be a penetration opportunity, are driven by the introduction of new luxury brands, such as ESOP or Prada, but also the acceleration of survey and the opening of new doors in lower tier cities. In North America, our market share of 14% is well below that of Europe at 20%. In a market in which growth will be driven by a strong economy, and by an increasingly multi-ethnic population that is obsessed with beauty. And we are already seeing this with Gen Z and Gen Alpha. Take the example of Valentino. In only a few years, Born in Roma has moved into the top three in both the men's and women's fragrances, driven by exactly that consumer. And even in Europe, our historical home, we see opportunities for expansion. As consumers' purchasing power and beauty sophistication increases in Central and Eastern Europe, these countries are becoming an attractive growth engine. In Poland, where our market share is around half that of France, we expect our business to double in the next four to five years. Another recruitment opportunity lies within different consumer clusters. By 2030, there will be an additional 200 million boomers. Already today, they make up 21% of the population in North America and 18% in Europe. and they are great consumers for us. They use beauty products regularly, they tend to spend more on them as they grow older, and they don't like indie brands. There will be 100 million more Gen Z consumers by the end of the decade. They are notoriously keen to splurge on beauty products and will account for around 12% of global beauty spending by 2030. Interestingly, one-third of our global Gen Z beauty spending will be in Sapmina, once again highlighting the region's key role. are another interesting opportunity, especially in areas like dermal cosmetics, the most unisex category of products. In the US, 50% of all CeraVe consumers are men. In fragrances, they account for one-third of total sales, and we have a portfolio that is well-positioned. In mass, L'Oreal Men Expert has been growing in double digits in Europe for the first half of this year. So how do we actually recruit and importantly, loyalize these consumers? First of all, thanks to our wide-priced piano, we offer superior products to all purchasing power levels around the world. And that is true even within our consumer products division. In an offer-driven market, innovation allows us to bring consumers better products and continuously valorize our brands. Many of the products we launched in the last 18 months have been consolidating their position. Elvive Bond Repair and Glycolic Gloss contribute to around 10% of the total brand sales. And we have more to come in the second half, especially in mass makeup. The recently launched Sankisa Blush and Fireworks Mascara from Maybelline are off to a great start. We also continue to strengthen our device lineup with the introduction of Coloration Tool ColorSonic and the much-anticipated AirLight Pro. Our innovation is supported by best-in-class RNA, where we spend more than our next three competitors combined. This allows us to regularly disrupt the market with new molecules. And what makes this particularly powerful is our ability to cascade them across several of our 37 global brands. Take Melazil, the revolutionary anti-pigmentation molecule. We initially launched it under La Roche-Posay, our most scientific brand at the beginning of this year, and we are progressively rolling it out to other brands such as L'Oréal Paris with glycolic Braque serum, and there will be more to come. Our innovation is also underpinned by our continued brand support and unique creativity. Providing fuel to our brands is a non-negotiable. Their health is crucial to securing a long-term growth model. Last year, we spent over 13 billion euros, almost a third of our sales, on ANP. That said, BetIQ, our AI-powered internal tool to measure and improve the return on our investment, is yielding productivity increases to 10% to 15%. Over time, this will enable us to continue growing ANP at an absolute, not relative basis. We also use AI to boost our team's creativity with the launch of our Createc Beauty Content Lab. Both are a clear illustration of our leadership in beauty tech and digital, which I won't elaborate on today. So to conclude, I have shared with you the reasons why I'm convinced that we will continue to thrive in the global beauty market this year, and more importantly, beyond. The market will remain dynamic in the long term, powered by demographics and beauty routine sophistication. We are the global number one player in beauty. We are 1.6 times bigger than our nearest competitor, and size matters in beauty. Barriers to entry may be coming down, but barriers to scale are only going up. We are a truly multipolar company, and once again, the robustness of our model has been proven. Our 37 global brands cover all categories, channels, price point, and region, and our agility allows us to constantly offset any pockets of weakness with areas of strength. and we are becoming a more balanced company. In the first half, the size of our business in emerging markets equaled that of mainland China, which means that they now have a real impact. Just think about Mexico being the second contributor to growth at group level. We will pursue our selective M&A strategy to cover our consumer targets and categories and see the ascending trends. All these things make me confident that L'Oréal has what it takes to win in beauty for another 115 years and reach 2 billion consumers in the next decade. I thank you very much for your attention, and we will now open up for questions.

Thank you, ladies and gentlemen. If you wish to ask a question, please press star and 1 on your telephone keypad. Please use your handset before asking your question and set your microphone on mute once you ask your questions. The first question is from Ian Simpson Barclays. Please go ahead. Mr Simpson, your line is open.

Thank you very much. Good morning and two questions from me, please. Firstly, you're guiding for 4.5% market growth this year after 5% to 6% growth in H1, which I guess implies 3% to 4% market growth in H2. But I'm also conscious that you're lapping all the Asia travel restock, destock in H2. So given that, would it be reasonable to assume that L'Oreal's growth will be fairly evenly balanced between H1 and H2 this year? And then secondly, I wondered if we could talk a little bit about the sustainability of hair care and fragrance premiumization. They've clearly been pretty big growth drivers to you in recent quarters. I'm just wondering, you know, how much runway we should expect with that and whether that's something that's showing any signs of slowing down. Thank you very much.

Okay, so first of all, on the yearly growth, we highlighted the fact that we thought that this year's would be around 4.5%, which again, as a reminder, is above the growth rhythm we had pre-COVID. So I would call that, you know, after the post-COVID euphoria and the inflation boom kind of normalization of the beauty market growth. And as I said, it remains a pretty strong growth rhythm on the market that has gained size in the meantime. And, you know, from 280 billion euros in 2023, as I said, this growth rhythm would take us to 380 billion euros in 2030. So overall, it's a very nice growth rhythm. As far as the... the second part of the year is concerned. You're right in your assumption. In our own calculation, we see like around 4% growth with all the uncertainties on the second half. And for me, it's a minimum. And then, of course, we want to continue to beat that market. I will not give specific guidance on first and second half, but you have to assume that we will want to continue to have growth decent multipliers on the market growth itself. As far as hair and fragrance growth, I'm pretty confident and bullish about the development of these two categories because they are driven by by very structural factors. Of course is the fact that you have on the one hand younger consumers plus new parts of the world that are indulging in fragrances. So young consumers use fragrances sooner and more importantly they use more fragrances than before than their parents and they change fragrance from one occasion to another. We see China also growing and entering the fragrance market. And as you say, the premiumization of sophistication of this market is a natural phenomenon that we've observed in many, I would say, luxury categories, that when you have a large number of people that are wearing a blockbuster fragrance, the most sophisticated consumers want to smell different, so they are going for the very unique fragrance collection, private, and more expensive fragrances, which is why, by the way, in the second half of this year, we are launching or relaunching several of our brands' fragrance collections, be it Valentino, Lancome, and a few others that have not been presented yet. Saint Laurent is also relaunching that part of their business. So I think it will continue to grow. And there's another factor that is also impacting hair care as well as fragrance, is the increase in the population's diversity. We see that emerging market consumers, black consumers, Latino consumers, are more fragrance lovers and users than the traditional European consumers. They wear more of them more often. They also like different types of notes, which is why it's important to have several brands and to be able to satisfy them. And that is the part of this population in the world's population and particularly in the U.S. population is increasing. I think this is a strong driving force both for fragrance but also for hair care because very clearly this population has longer and more demanding hair. And we see the rise and strength of all the modules that are addressed to curly hair that are nourishing hair. black hair, they have very strong dynamism. So all in all, I think there are people that just wash their hair, but there are more and more people that need to care for their hair, and we see it in the growth of Kerastase as well as the most expensive Elcev brands. And just to finish, because it's true everywhere, we're very proud that Kerastase Elviv or Elsev became, after many years of fight, the number one hair care brand in Brazil. And that's typically, for me, Brazil, the most demanding hair care market in the world because this is where you have the most diverse hair. And so we see that they want greater quality, not just things that cleanses and leaves the hair in bad state.

Thank you very much.

You're welcome, Ian.

The next question is from Selim Panouti, JP Morgan. Please go ahead.

Good morning. Good morning. So my first question is on China. So if I understand correctly, you do expect mainland China to be slightly up for the year, or at least slightly up in the second half. Maybe that's what I understood. You can hear me?

Yes, yes. I let you follow up your question, but I said that I think that the Chinese market, mainland China, would remain slightly negative in the second half. So then we have to overcome it. All right.

So anyway, my question was more about, you know, maybe your... First of all, you know, your assessment of what's going on in the Chinese market, obviously, about consumer confidence, but as well, you know, the shift from... maybe in price point shift to maybe more mass price point than luxury price point but more importantly how you see the market whether you have a change of view on market opportunity for China as you look into More in the mid-term, I think other companies have taken a bit more of a bleaker view on this market. So I wanted to hear about your thoughts on this as we look into 2025 probably because I presume that we'll have an impact on the global market expectation. And then my second question is on DERMA. So I think you did say because of the low big number, it's going to be harder to sustain the growth rate. And you mentioned 1 billion additional euro per annum for that division. Is that still the case? And can you flesh out what's going on in terms of the slowdown in the market, which I think you refer to be in the U.S.? Thank you.

Yes. So in China, I will take the several sub-questions of your question, Céline. First of all, do we see China still as a mid-term or mid-to-long-term opportunity? Yes, absolutely. There's no other market that has the size of this population, the size of this middle class that is growing. With consumers that are aging, yes, but the consumers that are aging are consumers that started using our brands a few 25 years ago, and we have... new Gen Z, both men and women who are very much into beauty. So I think we have a market that is going to grow. We only touch 25% of our target in China, 100 million Chinese, about 400. So we believe in the future. We are investing. We just opened a new distribution center, and we are opening doors. We are opening Prada doors or is up doors, but also we are accelerating with CeraVe because there's a strong health demand in China, and the fact that CeraVe is both affordable and recommended by them is a strong asset. We also open doors in two, three, and four cities on our brand, including L'Oréal Paris, which remains, by the way, by far the number one beauty brand en masse in China, despite the success of some of the Chinese brands. All in all, mid-term, and I'm still very ambitious on China. Short-term, the answer to your question is that I do not see much change, and that's why I said I think the market will remain slightly negative in the second half, because everything is driven by the Chinese consumers' confidence. You know, I have in front of my eyes the curves from OECD from June 24, which shows the the confidence level of different parts of the world, and you see Europe going back up, you see emerging markets very positive, and the only part of the world where consumer confidence remains very low is China, because there are obvious reasons to that. A job market that is not healthy, and many of the Chinese have put their savings into real estate, which has lost a lot of its value. So the pattern we see in China in Chinese consumers right now is that they are indeed buying less and looking more for value for money, which doesn't mean that we can't sell luxury products. Saint Laurent is double-digit in China. Why? Because we have great innovation and the brand is super aspirational, and so is Elena Rubinstein in terms of growth. But overall, I would say the average Chinese consumer today is more into value for money, which gives us, I think, a lot of opportunities to recruit new consumers with L'Oréal Paris. So that's why short-term, I'm not betting for this year on China, but the good thing is that we've seen, and the fact that emerging markets are not the same size as made in China tells me that we love to have a growing China, but we are not dependent upon a growing China. As far as Derma, I hope that answers your question on China. As far as Derma is concerned, first of all, I must say that I'm very happy to be growing at plus 16%. La Roche-Posay, both brands, by the way, CeraVe and La Roche-Posay are growing in double digits. La Roche-Posay will probably be this year the number three skincare brand globally, all channels included. This channel remains very dynamic, and it's true, it's very strong. For us, it's been double-digit in every part of the world. So we continue to be extremely both confident and ambitious for this division. What is true is that our growth in the second quarter has been lower, and it's been impacted by two different factors. One, which is non-negligible, is that it is really the sun care season. Whether in North America or in Western Europe, the sun season has been very bad. And for those who, like me, have attended the opening ceremony of the Olympic Games, we know what rain means in July. And it has had an impact on our quarter balance because last year, We had a bigger part of our invoicing on the second quarter because we had availability issues. And this year we had a big sell-in in Q1, which of course made our Q1 bigger. And replenishment in Q2 was very significantly below expectations. So that's part of the explanation, but that's not all. The other part, as I think several people mentioned, is the slowdown of the U.S. market, which is, I think, can be, first of all, has to be confirmed over several periods, but can be linked to a couple of factors. One is Sun 2. Second, it's true that the drug channels, and I'm not going to name retailers, but the drug retailers in America are suffering whether versus e-commerce or selective retailing. And that is clearly something that, I mean, they are part of an important part of the dermatological beauty brands distribution. And probably a third phenomenon is that there is more competition outside the beauty. Everybody's observed and learned from the dermatological beauty and started launching products that are inspired. And we've done it ourselves, you know. I often mention that Kiehl's was struggling for a while because of the rise of tone beauty brands, and Kiehl's, like a few other brands, started launching a skin better sunscreen product, auto-tone anti-pigmentation, and if I look at the numbers of Kiehl's in July, they're up double digits. So I guess there would be some transfers from... from the Derm market to other channels and what's important to me is that my other brands get that part of the consumer transfer. All in all, first of all, dermatological beauty in the U.S., even though we had this slowdown of the market, has very significantly increased this market share. And we also have a few initiatives that are coming. Another part of the market that was slower was, you know, prescribing doctors, sorry, retailing doctors with and we have a big launch coming in the second part of the year. It's probably our biggest launch in the last two years. Overall, in DERM, we continue to see this as a fantastic opportunity. In emerging, emerging are a very slow part of CeraVe's business. It's around 15%. North Asia is 6% of CeraVe. So all in all, we continue to be very ambitious about dermatological beauty. Regarding the $1 billion, I guess it's been a bit less sunny than we wanted, so we may be below that this year, but it continues to be I think a good growth rhythm in the mid-term, and we have a number of big initiatives, including, by the way, a big launch of anti-dandruff in Cerave at the end of the year, which is a big foray into hair care, once again a dynamic channel. So, yeah, it's been a bit lower than we wanted, but we are ready to continue to fight and accelerate.

Thank you. The next question is from Bruno Montaigne, Bernstein. Please go ahead.

Hi, good morning. My question is on the emerging market, ex-China. A few quarters ago, you were sort of growing at about 23% or 22%. Today, more around 13%. A sizable slowdown. Could you just leave a comment, you know, what's happening there, and maybe highlight if there's any impact from some of the boycotts you might have seen in Indonesia and other places? How much of that is the effect in Argentina, devaluation, and any other kind of structural or short-term impact on the level of growth? Thank you.

Okay, so on emerging markets overall, there are clearly a few external factors that are impacting our growth. You mentioned two. On Latin America, it's true that the Argentina market has an impact. I will hand over to Christophe on that. But when we publish a growth on Latin America of 14%, if you take out Argentina, it's plus 19%. So as you can see, it has a significant impact, and we've been very cautious, Christophe, on the way we handle Argentina.

Yeah, because the country is suffering, you know, from the issues of inflation, and therefore We try to keep our business there healthy, and therefore we've been delaying some invoicing. It's difficult sometimes to import goods there, so that's why we have a country that's negative. It's important for us to get back the cash at home, and therefore we are managing the country more on the financial way than on the consumer way.

On Sapmina, the market remains quite dynamic with fluctuations here and there. We continue to gain market share almost everywhere and in most regions and divisions and categories, so it remains a strong growth engine. The only specific elements that I can mention and which you mentioned are the impact of boycott calls, which are not huge but they still have an impact. We estimate that on the first half it has costed the regions around two points of growth. So you see four points of growth on Argentina for LATAM and two points of growth on SAP MENA which are more or less explains some of the differences you saw. Overall we continue to have very strong progress not only on our consumer products, but what's interesting is that we see the rise of LDB and Lux, which is beginning to have significant shares, and we see the fragrance market again developing in these parts of the world. So, yeah, a few geopolitical bumps, but an overall global trend of LDB of recruitment, and as I said, first of all, units are growing in that region, and as I said, we have an e-commerce growth that is three times the growth of brick and mortar, which is for us a very strong sign of recruitment and of potential growth for the future.

The next question is from Guillaume Delma, UBS. Please go ahead.

Thank you very much, and good morning all. Good morning. I have a couple of questions. The first one is on Europe, because the region keeps on posting absolutely remarkable performances. Now, Nicolas, you mentioned, and this is not the first time, some price normalization happening going forward. So maybe to help us understand the magnitude of this potential deceleration in the coming quarters, could you set some light on how much pricing contributed to in Europe in the first half, and also whether you took some incremental pricing actions at the start of the year. And still on Europe, bigger picture, what do you think is a sustainable run rate for Europe? Because if I look at the past decade, for L'Oréal, Europe was a 2% to 3% like-for-like sales growth region. It seems now that the market is more dynamic. Your level of outperformance has structurally increased. So what would be your expectations for the medium term for Europe? And then the second question, much shorter, going back to Asia travel retail, what was the impact of that business on your Q2 like-for-like? Because I think in Q1 it was around 230 basis points. So what was the impact on Q2? And what was the exit rate? Because I'm all right to assume that June... you were going against a clean, normalized basis of comparison. So what you saw in June could be a good indication of what's to come over the coming quarters. Thank you very much.

I'm not going to give you my June sales invoice on travel retail, but I see the overall meaning of the question. First, on Europe, I think that's – Of course, there is price and there has been price increases in Europe over the last year and the first part of this year. We've been in meetings for price, for value in mid-single digits, sorry, for the value in Europe for the first half of this year. and it's going to slow down progressively on the second half because last year most of our price increases were on the first part of this year and last part of last year. So we have little price increases coming in the second part of the year, so there will be less value, and I think it will be the case for the whole market. So, what would be the impact on the market growth? I don't know exactly because there's so much, you know, category mix effect. I don't know if somebody wants to help me on that around the table.

What we can say that while we see, in fact, a slowdown in the pure value driven by prices, at the same time, you know, in Q2, we had volumes that were increasing because, of and therefore that's why we keep a very healthy and strong growth in Europe. So we are compensating with our investment and a higher volume.

Yeah, I think that's an interesting element because even if we lose a couple of points in value, we've seen volumes increasing in Europe for the second quarter. And I think what's striking, there are a few things that I want to highlight about the performance of Europe. First of all, again, I was referring to consumer confidence. Consumer confidence in the big European country, as strange as it may seem when you look at some of the political situation, consumer confidence is picking up because they have been really hit hard with both the impact of energy prices, the Ukraine war, and now as the situation is somehow normalizing, The consumer confidence is really picking up, and that's always good for consumption and for beauty consumption. Second, Europe is where we are the strongest, so we make the markets, if I may say so. And we are strong in all categories. We have very strong launch plans. And, by the way, all our divisions have been growing very strongly in the first half. So we believe we can continue to grow. have growth levels in Europe, which will not be double-digit, but which will be significantly above the historical numbers you were referring to. All the more, as I mentioned, we see a consumer sophistication. I was in Poland a couple of weeks ago, where we have one of our lowest market shares in Europe, and I hadn't gone to Poland, I must admit, for half a decade, and I've seen incredible consumer sophistication, retail sophistication, the impact of social networks which have educated consumers to all sorts of, you know, small segments of beauty such as primers and liners and the multiplication of beauty products, we see consumption increase. And so we think we can in this type of countries significantly accelerate. And by the way, Poland is doing a great deal this year. So, yes, I think that Europe will not remain a double digit for L'Oréal, but we don't want to go back to the two and three, the historical numbers. And we have, I think, both the means, because we've reorganized quite a bit in Europe with the creation of country clusters that limits our SGNAs and generates more fuel for our PNL. So we are, yeah, we remain ambitious for Europe. And as far as travel retail is concerned, you're right to say that the first quarter was very negative. The second quarter was just a bit negative. And we are going to enter into positive territories in selling from Q3 onwards. And I don't have anyway the June number on top of my mind, and even if I had, I probably wouldn't tell you. But we see the trend. The only point that I highlighted on travel retail is that right now the sell-out run rates in Hainan are lower than what everybody would like. So it's still very good for our selling because of comp basis. But today in sell-outs, we see more traction in Japan or Korea, and Japan in particular, with the yen price than in Hainan, where consumers travel but shop less.

Thank you very much.

The next question is from Charles Scotti, Kepler. Please go ahead.

Good morning. Thank you for taking my questions. I have two. The first one is on your gross margin development, which was up 50 basis points in H1. Should we consider it as a good indication of your full year margin trajectory, or are there some elements we should be aware of in H2 that could limit gross margin expansion. Also on the EBIT margin, which improved 10 basis points in H1, do you stick to your guidance for more visible operating leverage in the second half of the year? And my second question is on your ANP spendings that have been consistently rising as a percentage of sales in recent years but declined 40 basis points in H1. Do you see room to lower your NP intensity going forward, or have you simply lowered NP spending because, I don't know, maybe clients were a little bit less responsive, notably in China, and I guess also the consideration of ASOP, which is DC-oriented, is also impacting this ratio to a smaller extent as well. Thank you.

Okay, so I will go one by one and start with the growth margin. As I said, you know, in the Underlying gross margin was a plus 70 basis point. Through that, we were helping with the input costs that have been decreasing, and also with the strong valorization. When I look at the second half, we saw already this decrease of input cost in the second half, so the cerebral impact will be less. And also probably, as Nicola was saying, the valorization will little by little be decreasing, and therefore the impact also will be less strong in the second half. But overall in the year, we are very confident about the fact that growth margin will still be increasing compared to last year. And regarding the EBITDA, yes, I confirm, the second half will be improving. Main factor is, of course, because of travel retail. Definitely, the comps will help a lot. And also, as you know, we completed the ESOP last year in August. And therefore, in published terms, the comps will be also in our favor. Maybe for the ENT?

Well, still, ESOP will have a dilution effect of 26 basis points on the full year basis, which we'll have to take into account. On the ANP, I think the strategy is very clear, is that we want to continuously increase our ANP spending, our advertising spend, our reach to consumers. I mean, I want to reach 2 billion consumers in the next decade. It means recruitment. It means promoting the quality of our products towards consumers. So in absolute value, the number is bound to continue to increase, as it did here. And while you're right, it probably would have increased even more hadn't we taken, I think, the wise decision not to over-invest in China. China was the country of the world where we had the highest proportion of A&P because of the purchases outside the market in travel retail. And considering the consumption mood in China, we've lowered our investment versus the initial plan. It has increased in percentage points everywhere else. This being said... As I said numerous times, including in my opening speech, we believe that now we are at a size and an amount of ANP where we can leverage our investment into AI-powered optimization tool, BetIQ, to gain productivity. And therefore, I'm absolutely not stuck to the idea that ANPs will increase in percentage points. I'm stuck with the idea and the determination that ANP will increase in absolute value. So you may see stabilization in percentage, but an increase in absolute value. Anyway, we always adapt. That's everything about the agility I was talking about. When we see an area where we feel we need to add fuel to accelerate, we do it. And when we see an area like we did with China just before summer where the market is not responding enough, we keep our ammunition for more productive areas. So that's the spirit in the end. It's a growth model. As you said, high growth margins. So it's all about growth, and A&P is one of the elements that – that fuel the growth. And to finish, you're right to say that ESOP has an impact on the structure of our P&L as it's a business model that is with little media and high SG&A because it stores stuff in over 400 stores around the world.

Thank you very much.

The next question is from Olivier Nicolai Goldman Sachs. Please go ahead.

Hi, good morning, Nicolas, Christophe, Laurent, Eva. I've got two questions, please. First, it's been almost a year since you've bought ESOP. What are the key changes you've made since the acquisition, and what is the current growth run rate for the brand? And secondly, I know you're going to give us a bit more details about India at the end of the year, but I can't resist asking, since you launched Sierra Vee, last year in India. Can you give us a bit more details of the progress you've made and how do you manage to compete against a much more established competitor which has bigger scale and a better route to market in India? Thank you.

So, ease up. Everything is going well according to plan. I must say that the first, as Christophe reminded, we've onboarded them from September last year. So the first part is to... integrate everybody to know the teams, to see who's great and not so great. It's about knowing and protecting a model that we acquired because it was and still is working very well. Nevertheless, we have started working on a few things. First of all, we've continued, they have continued to open doors, and since the acquisition, 38 doors opened. have been open for ESOPs, some of them in China, where when we made the acquisition, there were four or five stores, four stores, and now we're at 10. So we continue to increase. There are plans to go to 15, with good response, by the way, from the Chinese consumers, which shows that when you have a differentiated offer, you are very attractive even in the context and the environment. And as far as what we've changed or what we will be changing for the brand, the first product that would be developed by L'Oreal or with L'Oreal will be launched on the market by summer 25. And we have a number of initiatives in face care because L'Oreal As you know, ESOP is very strong in body and washes, but their face skin care offer is not as competitive as what the market requires, and that's clearly an area where we can bring some technology. And I remember I visited the regional manager in Canada a couple of weeks ago, and I asked her what she expected from L'Oreal, and exactly what she answered is that we want more competitive products ingredient power and more efficacious skincare for our ease-of-consumer, so that's what you're going to see coming on the market next summer. On CeraVe and India, I would say it's both very exciting and, frankly, too soon to have an impact because, as you know, our model on dermatological beauty, and that's the winning model, that's what allows us whatever the copycats that appear here and there to continue to significantly outperform the market, including in North America, is that we have to build the roots with the medical community before anything else. So right now, we have a strategy that's focused on a couple of cities where our teams are visiting derms, presenting the test results and the clinical test of CeraVe, leaving samples. So we're building the credibility of CeraVe It's working well. The first results of sell-out in this city is very positive, of course. So right now the plan is to continue to do that job, to expand to a few other big cities, as there are many in India. And the true impact in terms of actual sales number will be probably materializing at the back end of 2025 and 2026. For us, the importance is not to hurry. It's to do the things well so that we establish a brand that precisely to your question about how do you work facing other competitors, the endorsement of the Indian medical community is very important. And the fact that, for example, we test our products on Indian skin and have localized test results is a very powerful engine, but not immediate short-term. We will not go on TV for CERAVE immediately in India.

Christophe, you wanted to add something, apparently. No, in fact, it's pretty linked to the model of the division, so it will take some time. It's work with dermatologists for attending, and offline we are just in Mumbai, Delhi, Pune, two cities, and but the first result seems to be pretty good.

Perfect. Thank you very much.

The next question is from Rogerio Fujimori, Stifel. Please go ahead.

Hi. Good morning, everyone. I have two questions. One is a follow-up on the Lux division, and China was hoping if you could elaborate on how your Thinking about the balance between growing share and stimulating the market as the market leader in Lux in H2 and defend your profitability. Do you have enough P&L flexibility to keep growing share and protect your best-in-class margins? Put differently, should we see better margin momentum in H2 for Lux? And the second question is about your confidence level and the group's ability to drive the same pace of premiumization given... the environment where perhaps the upper middle class is feeling the impact from inflation and perhaps not in the mood to spend as they were in 21, 23 in key markets like the U.S. Thank you.

Okay. So as far as share is in China, first of all, it's true that one of the highlights of our first half in China, despite the lackluster markets and is the capacity of our teams to continue to gain share. We've again increased our share in Lux in China, which has reached a 34% market share, which is huge, despite some brands struggling more than others. So in the end, stimulating the market is really about innovation, and it's about justifying why consumers would pay that price. And it's not, you know, by magic, when I look at the brands and the products that do overperform and increase, including having very strong growth in China, there are brands that have products that are truly unique and different. When I look at Yves Saint Laurent, there's, of course, the aspiration of the couture brand. like we have in Prada and Valentino, but there are products that are very unique in makeup. YSL Love Shine is a fantastic success. We have the same type of things in Prada makeup. Fragrances are beginning to grow. If I take Helena Rubinstein, which is impacted in selling by the travel retail stocking, but in sell-out in China, it continues to perform very well. For those amongst you who, if you ever want to try a very unique night's cream with a replasty night, these are incredible textures. So what this tells us is that we need to come into the Chinese market with ever more innovative products. That is what will stimulate consumption. Typically, on Lancome, we are launching now for the second part of the year, the renovation and extension of what has been our most successful franchise in China, which is Genifique, which hadn't had real big innovation for years. So we have to come up with innovations, and to do it at every price point, which will be a link to the second part of your question, which is not just It's a global phenomenon is that you have, in times of uncertainty, a certain part of the consumer roster who is paying more attention to price. It has happened many times over history. And right now, we are protected somehow by the fact that the L'Oreal consumer in general is more on the higher end of the spectrum than the lower end of the spectrum, those who are shifting to L'Oreal. who are shifting sometimes to private labels. They are not so much the loyal consumers. But where you're right is right now, probably more than in the last two years where inflation was for everybody, we have to put every product at the right price and use our price piano even more than we've been doing in the last couple of years. And that's what we are doing. We are We have invested in revenue growth management tools which help us position our products at the best price. We are in some instances when some products have a high price, we're investing in a smaller format or recharges which are both good for the planet and good for the wallet in fragrance or in skin care. We see, for example, in China that our recharges, our refills of skin care are successful because They are the great product people know, but they can make a saving on it, so we have to be astute there. And as I said, use the price piano, and I think the examples I showed in my presentation, the fact that even at CPD, which is our mass market, we're able to launch at the same time a hair color device at around $125 plus a few cartridges, which is the high-tech version and the upper-end version of hair color, and at the same time, a hair color sachet at 3 euros on Garnier which doesn't deliver the same exact same performance and quality but we'll speak to the people who want to spend 3 dollars or 3 euros on hair color so we have to be we continue to valorize through innovation whilst making sure we protect we keep entry prices in all our ranges including in makeup where we see that some young consumers want to one entry product. So we have valorized innovations and protected catalog in terms of price.

Just to complement, I want to reassure you that we have all what it takes in terms of means to support our shares in China. And when I look at the profit at the end of June, we have a very healthy situation there. And as you know, this is a market where we can react immediately. So we don't want to go into battles of pricing or over-investing just because of one promotion. This is long-term management, and the teams have been very good at protecting the shares, and even getting shares, and not at the expense of the P&L.

That's a very important point, you know, because everybody's looking at the events, at the promotional events, the 618 or the 111, and rankings and everything. And our policy is that we're happy to gain share, but we don't want to gain share at any cost. So when the conditions of the market or platform or some of the competitors are overkilling, we make the decisions. We have limitations, thresholds, ceilings, and we tell the team, okay, we don't play that game. So we It's market share, but not market share. Market share through superior product quality, not through crazy discounts.

Thank you.

The next question is from Ton Seid, Deutsche Bank. Please go ahead.

Thank you. Good morning. Just a few smaller ones to tidy things up, please. I wondered, if you could give or maybe send around afterwards just the underlying depreciation or DNA to sales, because it's not clear from the note in the cash flow, please. Then just on the interest charge, could you just repeat what you'd said there and is H2 the correct run rate for the interest charge or just what the breakup of that is, please? And just finally, I mean, on Mexico and perhaps other EMs, you obviously hedge forward quite a lot your exposures. And when you get big changes in FX like you've had in Mexico, do you get sudden moves in the market when that happens? And is that something that in the EM businesses ex-China has been a factor in Q2 at all, please?

Okay, so one by one. I come back first on the financial charge. So what I said before is that we expect everything being equal in an amount of $230 million for the full year. That's one thing. And regarding the H1, it was... linked to the situation of Argentina. So the local entity had to borrow money to bring back the cash here at home. And that's what is impacting the financial charges. Regarding Mexico, and it's true for all emerging markets, we hedge the transactions for the full year. So at the end of last year, we had fully edged at least 80% of the transaction for each of our countries. This is to give security for the local management. They are not impacted by the ups and downs in each of those sometimes very volatile countries, so there is no impact on the P&L, at least for the current year, neither for those countries where the currency is appreciating or depreciating. The first question, I think, was more linked to the cash flow. You know, cash flow situation at the end of first semester is quite volatile because it depends on some situation, mainly the phasing of our net sales, and also, I have to say, the level of our inventory. So we are still confident for our target for the full year, and what I said in my speech before is that main impact on the working capital was mainly due to the phasing of the net sales this year.

The next question is from Ashley Wallace, Bank of America. Please go ahead.

Good morning. Thank you for picking my questions. I have two and then one just for clarification. The first one is on Amazon in the U.S. If I remember correctly, initially there was a view that working directly with Amazon was a little bit of a growth accelerator in helping you to recruit new customers and take a little bit of share. I was wondering if a few quarters on, that's still the case, or do you see it more as channel shifts? And if you could remind us if there are any other brands to join the platform soon. My second question is on Asia travel retail. As you all know, last year, both Korea and Hainan put more restrictive measures in place to restrict Daegu activity. But I was wondering... if you think that product availability through Daigo in China has actually shrunk, or do you think that perhaps now they're sourcing product from other markets, like Japan, for example, where the currency situation is quite attractive? And then my follow-up was just on the Sun business, which you've mentioned quite a few times has impacted derma revenues in Q2. I was wondering if maybe you could help us understand the impact of that. So, like, what is the derma growth ex-Sun in Q2?

I don't have the number on the last question. As I said, you know, sun has had an impact, but it's not the sole explanation. It has an impact of phasing. It had an impact of phasing. It had an impact of little drop itself, but overall it's a phasing because last year it was much more Q2-based and this year much more Q1-based. The rest of the slowdown in Q2 on Burma was, as we said, a slowdown in the U.S. market, which, again, we overperformed very strongly. And, by the way, La Roche-Posay was plus 20-something in the U.S. in Q2. On Amazon, to go back to your first question on Amazon, it is clearly a share gain, and it's both a share gain and a healthier market, because many of the brands that we do list on Amazon I would say now, excellent relationship and great work on the expression of our brands. But most of these brands were already sold on Amazon on gray markets. So, you know, price cuts and everything. So it's not only creating a good business, recruiting new consumers, and typically a brand like Lancome has really benefited from it with the opening of Amazon. But it's also, I would say, cleaning the market from things that can undermine the long-term value of brands. And it's also, I would say, an environment where big brands like Lancôme can express themselves probably better than in a very cluttered Sephora environment, for example, which is more the home of indie brands. So we are still very happy with the performance. The growth is there. It's a model where we do really control the image and we manage our own sites. As far as new brand, we've just opened Kiehl's in North America and it's off to a great start. We are moving progressively and every time making sure that the KPIs we set and the objectives we set ourselves are met before going to the next one. The new kid on the Amazon block is Kiehl's and so far so good. As far as the Asia travel retail and its impact on the Chinese domestic market, I think the best guesstimate we can say is that the quantities of products available on the local market coming from Daegu may have shrunk a little bit, but I don't think it has had yet a major impact. First of all, because as you said, the Daegus haven't disappeared. They've moved. Hong Kong, Japan, Korea, and we are monitoring this very closely. So in the end, it's the same story. It will be different by brand and by group. It's all about controlling the pricing activity and discounts between the two territories to avoid, to create unnecessary opportunities that can undermine the equity of our brands in the local market. And I'm tempted to say that part of the reasons why we are constantly gaining share on the Chinese market is that we've done, I would say, a decent job. It's never perfect, but a decent job at protecting the local market versus the impact of travel retail daigus. At least that's what our retail partners in China tell me, and I'm happy to hear it.

Can I actually just ask a very small follow-up on this? I guess like Japan, because this is a market where currencies have meant that the price cap has become quite big, is this now a market that you've then progressed to pricing to make sure that that incentive to divert the source from that region is not as big anymore, or is maybe the pricing situation still something to come?

Well, there's no, I mean, it's true that the yen is lower, but We don't have any specific measures to take because there are no big discounts played in Japan. It's not a huge travel retail operator, so there might be individual daigus and consumers that use the opportunity. But I don't see this as a huge pocket of, I would say, gray market opportunities. And as everything, we are controlling it, and it's easier to control in Japan.

Okay, perfect. Thank you so much for the wonderful talk.

Great. That was our last question. Thank you very much for all your questions, and we all wish you a happy summer and speak to you in October.

Thank you very much. Thank you. Bye.

Ladies and gentlemen, this concludes the conference call. Thank you all for your participation, and you may now disconnect.