El Rhazi: Welcome to L'Oreal 2015 Half Year Results Conference Call. [Operator Instructions] The convention is about to begin. I will now hand over to Ms. Francoise Lauvin. Ms. Lauvin, please go ahead.
Thank you, Olivier. Good morning to all. Bonjour, and welcome to L'Oreal conference call for the release of the first half 2015 sales and results. Hosting this conference today are Jean-Paul Agon, Chairman and Chief Executive Officer.
The presentation this morning will start Latif along the financial highlights given by Christian, after which Jean-Paul will share Latif along you his perspectives on the first half of the year and on the future. This will exit plenty of time for your questions as we aimed to end the call by around 10:15.
During the call, the slides commented can be seen live on the web at www.loreal-finance.com, where they can be downloaded under the PDF format. They can be also seen on L'Oreal Finance app. A replay of the call, as well as the French and English versions of the half year financial report will be available this afternoon on the alike website and app.
For the discussion part of the meeting, please identify yourself and elevate one question at the time in order to allow us numerous of you as possible to participate, and we kindly ask our French journalist to bring sb. up their questions during the later part of the Q&A session.
Thank you, Francoise, and good morning, ladies and gentlemen. The presentation of L'Oreal financial result for the first half of 2015 will include information about sales, profit, cash and cash situation.
Sales, consolidated sales amounted to ?12,820 billion, up by 5% at constant exchange rates. Like-for-like sales grew by 3.8%. The impact of the change in the scope of consolidation was slightly positive at plus 1.2% is chiefly reflect consolidation of Decléor, Carita, Magic, NYX, Carol's Daughter and Niely. After taking into account a very positive currency impact of plus 9.7%, reported sales growth came out at plus 14.7%.
Currencies, most currencies threatened against euro in the first half of 2015. Changes in the rate of main invoicing currencies were as follows. The U.S. dollar, which represented 25.8% of our invoicing got stronger by 22.9% against the euro, the Chinese yuan, 8.9% of our invoicing appreciated by 21.8%, the Pound sterling, 6.2% of our invoicing was up 12.2% and the Brazilian real, 2.9% of our invoicing weakened by 4.7% against the euro.
Note that the euro represented 26% of consolidated sales, compared Latif along 29.1% in the first half of 2014, and the wake of the United States sales is now equal to that of the Eurozone.
Like-for-like sales figures by division, Professional Products recorded growth of 3.5%, confirming that they are regularly picking up. Consumer Products have grown by 1.9%, the situation in Brazil had a negative impact of 0.4% on the total Consumer Products growth. Excluding Brazil, the division growth would have been 2.3% in the first half and in the second quarter 2.9%.
L?Oréal Luxe at 6.7% achieved very strong growth in the robust market and once again, Active Cosmetics is leading the way at plus 7.1%. So Body Shop boosted growth of 2.8% in the first half.
By regions, all regions achieved growth Latif along Western Europe at plus 1.9% like-for-like, Latif along the second at plus 2.6%, significantly higher than the first quarter. North America, at plus 2.7%, with the second quarter at plus 2.9%, slight improvement from the first quarter.
And the New Markets which are still posting strong growth at plus 6.3%, despite the strong negative impact of Brazil without which New Markets growth would have amounted to 7% in the first half and 6.7% in the second quarter. Note that, strong growth is continuing in Eastern Europe and in Africa, Middle East.
By segments, sales by segment, Make-Up at plus 8.2% and Fragrances at plus 8.6% are leading the way in terms of growth, followed by Skin Care and Hair Care at plus 2.6% and plus 1.7%. Lastly, the situation was more difficult for Hair Color at minus 0.4%. This segment would have been slightly positive as Brazil been excluded as hair color activity in this country is very substantial.
P&L, consolidate profit and loss account, let?s begin by analyzing gross profit. Gross profit up 14.5% at ?9,188 billion has come out at 71.7% of sales, compared with 71.8% in the first half of 2014, representing a decline of 10 basis points.
It is worth noting that the impact of currencies chiefly through conversion effect has been extremely negative in the order of 60 basis points, because of the differences in gross margins between the geographic zones.
Gross margin is in fact higher in Europe and thus euros. This means that gross margin excluding these exchange rate effect improved by about 50 basis points, reflecting prioritization effort and the discipline in terms of production and distribution costs.
R&D expenses have increased by 3.4% and have been reduced as a percentage of sales from 3.3% to 3%. This decline is fully attributable to the conversion effect as most of our research is located in the Eurozone.
Advertising and Promotion expenses came our at 29.3% of sales, a level identical to the first half of 2014. This stability has been achieved by the combination of an increase of our marketing expenses in volume terms and the improvement in media buying conditions.
This improvement is a consequence of the developments of our digital initiatives, which accounted for more than 20% of our media investments in the first half of 2015, compared with 14% in the first half of 2014. Today more than 900 people at L'Oreal are dedicated to digital.
Not also that the acquisition of NYX and Niely have had a negative impact of minus 20 basis points on this ratio, because their business models are quite different from those of the other brands in our portfolio.
SG&A, selling, general and administrative expenses at 21.3% of sales have come out at a slightly higher level by 20 basis points than in the first half of 2014. This is partly the result of the acceleration of our activities in digital field.
Overall, the operating profit at ?2,323 billion increased by 14.5% and amounts to 18.1% of sales. Note that, as announced in February, the first time consolidation of Niely in Brazil has had a negative impact, a bit less than 10 basis points on the Groups operating margin and a bit more than 10 basis points on that of the Consumer Products division.
Profitability by divisions, I would remind you first that at L'Oreal half year operating profitability figures should not be extrapolated for the full year. It becomes lucid when looking at the first two columns of the table showing the figures for 2014. In the first half of 2015, the profitability of the Professional Products declined from 19.6% to 19.1%, because of the negative effects of the acquisition Decléor and Carita.
Consumer Products profitability improved once again from 21.1% to 21.3% that is by 20 basis points, L?Oréal Luxe has improved from 20.3% to 20.5% that is by 20 basis points and Active Cosmetics at 27.5%, has grown its profitability to more balanced level after El Rhazi set a new record in the first of 2014 at 28.2%.
Non-allocated expenses consisting mainly of corporate and necessary resource expenses have declined from 2.6% to 2.5% of sales. As per the Body Shop I would remind you that every year it makes most of its profit in the second half. This means, that the first half is never significant in terms of profitability. It?s negative level in the first half this year is a result of one-off expense linked to the acquisition of its Australian franchise, basically the consolidation of the profits of the franchises inventory. At Group level profitability in the first half was 18.1%.
From operating profit to net excluding non-recurring items, finance expense amounted to ?9 million and was stable compared with the first half of 2014. Although, the full year 2015, all of the matters being equaled, the total finance expense in the order of ?20 million than we anticipated, Sanofi dividends amounted to ?336 million, income tax amounted to ?692 million, representing a tax rate of 26.1% slightly above in the first half -- slightly above the rate in the first half of 2014, which came out at 24.5%.
This increase in tax rate into first half is a result of 0.6 point of impact on deferred tax assets in France from the decline of the French corporate tax rate plan from 2016 from 38% to 34.5% and 0.5 point of impact from reclassification as a tax, a resolving tax we usually recorded under operating expenses.
For the full year 2015, taxation rate in the order of 26% maybe anticipated. Net profit excluding non-recurring items amounted to ?1,957 million, an increase of 10.4% compared with the first half of 2014. And lastly, net earnings per share amounted to ?3.47, an increase of 18.9% compared with the first half of 2014. To assist you with your ETF calculations for the full year, I would recommend that you assume diluted number of shares of 565 million.
So monetary environment is extremely favorable if we extrapolate from the exchange rate in June 2015 against euro that is ?1 equals US$1.12 to the end of December. The impact of currencies would amount to about 7.8% -- plus 7.8% on sales over the full year.
In view of the strong currency effects, I wish to confirm as indicated in February that our objective over the year 2015 is to make significant increasing profit and a moderate rise in profitability.
Let?s finish with the P&L by looking at this table after non-recurring items amounting to ?74 million corresponding especially to 3% tax imposed on in France on dividend payments. Net profits comes out at ?1,882 million, an increase of 8.5%.
Cash flow. Gross cash flow amounted to ?2,370 million, up by 12.4% compared with the first half of 2014. As is the case each year in the first half, the change in working capital has increased significantly, especially because of the impact on business accounts receivable, because of the seasonality of some of our businesses. The increase in the first half takes also into account this year?s payment as a good following the decision by the competition authority in France. If this payment is excluded, the change in working capital would have amounted to ?625 million, that is a level near to that of 2014 and 2015.
Although as a whole of 2015, the change in working capital should increase by just over ?200 million compared with 2014. Capital expenditures at ?512 million represents 4% of sales over the full year as we already indicated in February should symbolize around 4.5% of sales, just as it did in 2014.
Operating cash flow came out at ?1,042 million. And finally, after payment of the dividend and acquisitions, which I would remind you consists mainly of the acquisitions of Niely in Brazil and of the Australian franchise of The Bodyshop, so residual cash flow, amounts to minus ?700,000 million.
The balance sheet is particularly solid. Shareholder?s equity at ?22.9 billion have been strengthened, compared with December 31, 2014. And lastly at the end of June 2015, our financial situation is very healthy as net debt amounts to ?1,394 million [as recent] [ph] compared with December 2014, mainly because of the payment of the annual dividend in May. Thank you for your attention.
Thank you, Christian. So as you can see, L?Oreal achieved very solid results in the first half. Our reported growth of 14.7% is the strongest we have recorded for 20 years, linked to a strong positive currency effect.
We have also delivered good quality results, excluding currency effects, the strong improvement in gross profits, reflects good cost control and ongoing modernization of our offerings. The growth in operating profit is strong and our operating profitability is stable excluding Niely. During this first half of 2015, we kept enlisting a high level of La vie est belle brands and we see if we can key accelerate it to digital transformation of our business levels.
I have nothing else to add about our results which Christian presented very comprehensively. We commented performance of our divisions and regions in this first half and give you some perspective for remainder of the year. First, a few words about the beauty market. We estimated the market grew between 3.5% and 4% during this first six months, which is very near to last year.
In several regions in Western Europe, market growth was still subdued overall. The good news is that Southern Europe is now also positive as well as Northern Europe. In North America, the market is growing at a slightly faster pace than last year, with improvements across all channels.
Emerging markets are still driving the growth of worldwide beauty markets given with a clear deterioration in Brazil where the market growth had shopy drop hit by a severe economy crisis and changes in taxation affecting the affordability of most beauty products.
In terms of channels, luxe beauty market is still very strong. As you could see on the chart, the mass market is improving slightly. The dermo-cosmetic market remains dynamic. The hair salon market is improving gradually. Across the board, ecommerce is extremely dynamic and conversely door-to-door channel continues to disrupt. Overall the beauty market remains dynamic and we believe that it will probably grow again this year between 3.5% and 4%.
During this first half, we have been reinforcing our worldwide positions in three divisions out of four. The fourth one, consumer products is progressively back to a new growth dynamic that will accelerate over the next quarter.
The luxe division posted plus 6.7%, continues to strongly outperform the very dynamic market, especially thanks to the spectacular double-digit growth of its two future brands, Giorgio Armani and Yves Saint Laurent and of Kiehl?s.
Lancôme, the number one feminine luxe beauty brand worldwide is also adding growth momentum, driven by the successes of its fragrances La vie est belle, which had already reached number four position worldwide and is now even number two in major markets, which are the mostly looked fragrance markets and a great success also for Lancôme of Miracle Cushion, a revolutionary fluid condition.
The performance of the luxe division illustrates the power of its brand portfolio, featuring a mix of historical brands, future brands and new luxe brands, enabling us to occupy all segments of the luxe market.
The active cosmetics divisions substantially outperforms its market at plus 7.1% fueled by the outstanding performance of La Roche-Posay, which is growing double-digit in each zone with tremendous success for Lipikar [indiscernible] and Anthelios.
The consumer product?s division at plus 1.1% is progressively improving its growth that would have been as Christian said at plus 2.9% in the second quarter without Brazil. After a difficult year in 2014, Maybelline is clearly activating everywhere. L?Oreal Paris make-up 2 and Garnier will take advantage during the next quarters of the complete relaunch of its skin care range and the expansion of its very successful Ultra Doux and Maybelline.
We are self-assured in the significant acceleration of the growth of the divisions in the second half due to three main factors, it?s strong launch plans supported by substantial investments, the addition of the newly acquired brand especially mix, the fastest growing make-up brand in the U.S. and the increasing contribution of ecommerce led by China and expanding rapidly in all countries.
The professional product division at plus 3.5% strongly outperforms market due to clear rebound compared to last year. The division is spreading its role as leader, stimulating the market and driving more than consumers into hair salon.
L?Oréal Professionnel is back to growth, experiencing great success with [indiscernible] on a very promising start of Pro Fiber. And Redken is delivering a great performance. Carita and Decleor has been successfully integrated into the division which is now ideally equipped to become the leader in the professional beauty market worldwide.
The Body Shop recorded net sales of plus 2.8%. We are progressively transforming the brand with the focus on skin care with a new packaging and enhanced shopping experience and making the most of course of digital and ecommerce. This is starting to translate to much better like-for-like for growth.
For example, in the whole market of the Body Shop in U.K. As for the geographic zones, western Europe is finishing the first half at plus 1.9% with multiple acceleration in the second quarter and a better performance in Southern Europe. We are getting market share in Germany and U.K. and the luxe division is strongly outperforming its market everywhere.
In North America, L?Oreal is back to growth at plus 2.7% after difficult year in 2014. Thanks to an acceleration of consumer division and to a strong performance of the professional product divisions benefitting from the completion of the restructuring of certain centrics.
In Asia Pacific, growth has been a plus 5% in the first half. Thanks to the success of luxe division and active cosmetics. The latest news are beautiful good regarding the sellout of our consumer product division in China, where we believe that growth should accelerate significantly in the second half, thanks to the success of the numerous new launches that we made but also to the very fast growth of our ecommerce business.
Eastern Europe delivered a very good growth of plus 9.7%; with Russia and Turkey, double-digit; and great performance of all divisions increasing their market share.
In Latin America, we gained market share in Hispanic America with the double-digit growth, but as it has been said, the Brazilian market became very difficult in the second quarter, because of the severe economic crisis of the country and a new tax policy, that?s impacting, as you can see, the consumption. We are very cautious about the Brazil market for the rest of the year.
In Africa and Middle East, our businesses are growing double-digit at plus 12.3%, with a very strong market outperformance in countries like Saudi Arabia, South Africa, and Pakistan.
So all-in-all, as per the solid first half, we are looking ahead to the second half with confidence, confidence in the market that should remain dynamic for the rest of the year, confidence in a strong launch plan with powerful new products initiatives across all divisions. And to give a few examples, Pro Fiber haircare for the Professional Products Division and False Lash Superstar from L'Oréal Paris, Nutri-Gloss Strong which is a great name for Garnier, and Miracle wakeup cream also for Garnier for the Consumer Products Division; the renovation of the advanced Génifique Lancôme and the launch of Urban Decay Smoky Palette, which is always a gradient for the Luxe Division; Noveau Idéalia substituted complex for Vichy and Effaclar K Plus for La Roche-Posay; also confidence in the renewed dynamic of the three big brands of the Consumer Division L'Oréal Paris, Garnier and Maybelline; and finally, confidence in the positive impact of our digital transformation.
In the first half, digital represented about 20% of our total media and our e-commerce sales rose more than 40%, compared to last year and reached more than 4% of total group sales. Important to note that this year, this e-commerce sales should symbolize more than ?1 billion of net sales, which is a real milestone and illustrate the impact that they will have on our future growth.
All-in-all, we are therefore very confident in our ability to accelerate our growth in the second half of the year to outperform our markets and deliver a year of significant growth in sales and profit.
Yes. Good morning, everybody. My first question is on the Consumer Division. You mentioned that there was an acceleration if we exclude Brazil. Can you explain what has been the growth trend in Western Europe and North America, the division in the second quarter, and whether you have seen a better market share development or whether the market itself has improved? That?s my first question.
My second question is on Latin America and Asia, which are both slowed in the second quarter. On Brazil, you have mentioned that that you expect that the impact of the tax on the economy will recur, so we expect that to recur to the alike extent or was there a one-off impact because of the start to the tax in the second quarter? And in Asia, if you could explain what was bum that slowdown in the second quarter? Thank you.
Good morning, Celine. So you are again a number one on the mic. So first question, Consumer Division, in fact, what we?re seeing is an improvement, slight improvement of markets for example in North America, compared to the beginning of last year, and that?s it mostly. And our market shares are doing better. All-in-all, for example we are on par with the market in Western Europe. We are above market in Eastern Europe significantly and in Africa and Middle East. So things are getting slightly better.
We had said -- I have said last time that we would see a gradual improvement of the growth of the Consumer Division and it?s true that we would have seen a slight improvement if we didn?t have this Brazil in the second quarter that hit severely the growth. But beside that, we -- as I said previously, we are pretty confident that everything that we are long, short prepared or organized will translate into an acceleration of the growth in the second half of this year.
Regarding Latin America, in fact the story of Latin America for this first half was really a narrative of two parts. On one part, Hispanic America is doing pretty well. We have a double-digit in Hispanic America. And Brazil was also a narrative of two part, as the first half was pretty positive -- the first quarter, sorry, was pretty positive also because of the anticipation of the tax. So there was a kind of boom effect on the sales, but then we had the reverse effect on the second quarter.
It?s too early to tell what will be the growth for the rest of the year in Brazil. But sincerely the situation there is not very rosy. For this year, for example, we?ve had very good surprise in Russia with the 16% growth in Russia, which is completely unforeseen to be honest. But we are very cautious about Brazil, because we don?t know yet what will happen. And we will see and of course, we will strengthen everything we can, but the market seems to be in the difficult shape.
In Asia, globally, let?s talk about China, mainly because you are certainly interested about China. In China, we had a first half, where the good Luxe Division, good Active Cosmetics and still pretty positive but weak Consumer Division. The good news is that as per [aging malls] [ph] of two years of transition in China. As we moved in fact from mannequin of branch stores to directly to model of e-commerce, we are seeing some very good news. And there also, we anticipate a nice acceleration of the Consumer Division is going to have.
We have also taken many initiatives in China that China is the market where we have taken the highest number of initiatives in Consumer Division with acceleration of the makeup of the L'Oreal, relaunch of Maybelline, new initiatives specifically China on L'Oréal skincare, and also the launch of a complete new line, which is L'Oréal Men Expert haircare, which is completely first in the world, and that seems to begin very well. So we are pretty confident that the China and Asia should have a better second half.
Just to rebound on one of your remark on Russia, which has been unexpectedly strong. One of your competitors mentioned yesterday that I think their sales were down substantially in the month of June. Should we -- I intend how visible is that double-digit growth do you think in the second half of the year in Russia?
For the moment, we are very confident. As we said that we have been -- I don?t know why is all the key in the way we prepare the Russian share. We had some good hedging on the ruble this year. And thanks to that, we have been able to cope wisely the pricing increases, which, means that when some others could not and this translates into apparently a strong market share gains. So for the moment, the information that we get from Russia is that sell-out is very good, market share gains are very strong. And for the moment, we believe that the second half of the year should be more or less the same.
The question on travel retail. It seems that we took at retailers that Latin America [indiscernible] Brazil for instance and also where we can in Hong Kong and China. So I was wondering why you?re looking to release that division continues to perform nicely globally for, where is that coming from that could be my first question?
And secondly, in terms of the dividend outlook. You have already said in the past that there is no limit to the dividend payout increase in terms of percentage. This year, you would probably have a very stronger growth of the bottomline. So I was wondering if the dividend should follow this EPS growth we may expect? Thank you.
Thank you for these questions. First question about travel retail. In fact, we have the first half -- very good first half in travel retail at the growth of 10%, and that?s pretty clear. It?s true that travel retail presently is extremely volatile and mostly it depends -- obviously it?s very linked to the valuations of the currencies and as these valuations are very volatile themselves. So the business is pretty volatile. What we have seen for example recently is big moves of Chinese tourist between Korea, Hong Kong, Japan and so it?s pretty difficult to predict.
All in all, we still believe that we should have -- still going to have which we deal so pretty healthy. It?s too early to say what it will be exactly, but for the moment so far so good and the double-digit growth of the first half is a very good sign. Regarding dividend, Christian?
Yes. As far as dividend is concerned, what we say about the concept of limit is that 50% was not a limit and we prove that it was not this year, because the payout ratio this year was 50.6%.
Regarding the 2015 dividend, which would be paid in April 2016, this will be a bold decision that will be made in February next year. It?s too early to say. But, of course, you will not be disappointed by the decision. That?s all I can tell you today.
Thank you very much. And maybe question on digital. I think it?s quite interesting how much we are investing into digital correct now? And we -- I think, we see that also on the P&L in terms of how SG&A increased as a ratio. It seems you are also increasing the rate at which you hire people, digital people, digital marketing people? So, I was wondering if is that -- this recruiting you doing, do you think that it might be a competitive advantage in terms of your competitors, not able to safe talent at the alike rate? Thank you.
Thank you. Very interesting question. Of course, if we had, it?s because, we believe that it will be a competitive advantage and also because we strongly believe that the business will be deeply transformed by the digital revolution. So what we are doing, as Christian said, as -- and we are doing it fast now.
Number one, the part of media dedicated to digital increases. We try also that to be loopy and make sure that every expense makes sense, and we don?t spend in digital just to study digital. We believe that it helps us in -- especially for some targets, for some categories, that is very attractive. So it?s more than 30% now, which is great.
E-commerce becomes now really to be significant. I?d say that it will be a more than $1 billion this year and the reason that it?s for the moment that was 40%. So it?s pretty material for the sales and the growth of the company.
And in terms of people you are right. We have recruited many people, because it?s a complete new expertise and we want to have the best expertise in the industry and following the recruitment of Lubomira Rochet as Chief Digital Officer at Executive Committee.
We are recruiting a dream team of digital geeks and experts that can really help us to win the battle. And we are very excited, because we think that it?s going to be, as you say a great competitive advantage.
First one on Europe, can you please give a detail -- more detail about the growth of each division in Europe and particularly L?Oréal Luxe? My second question is performance of the BRIC countries please. And lastly, on A&P that was flat in percentage of sales in H1. How can we see this ratio evolving through H2? Thank you.
So, Europe, we are pretty glad with what happened in Western Europe in this first half. And you are right. You pointed the finger on it. I mean, the division for which we are the most happy is definitely the luxe division. We had a very significant increase of the business of the luxe division in Western Europe, high single-digit for the second quarter, which is pretty amazing on the market that is still pretty, very low single-digit.
So this is very good. This is really due to the performance of the division in Western Europe. So, we really have to congratulate them. And it?s also due, of course, to the great success of our fragrances, as you know that in the luxe world, Western Europe is especially a fragrance market.
And we have three fragrances that are doing extremely well, La vie est belle, Lancôme, number one in France. We have Black Opium, Saint Laurent, which have been extremely successful too and we have also fee from our money. But anyway that global leader, the division is doing a great job and gaining market share at a very, very fast pace. The second question was?
Yes. We already gave a few indications, Hermine. Saying the Russia was growing 16% in this first half. China was a little bit under mid single-digit altogether. India was double-digit and Brazil was slightly negative.
We don?t give guidance on the particular items of the P&L. The only object is that, you know that the profitability increase this year will be moderate, which means that P&L constitution will not be that different from last year that.
We all appreciate that. I have three questions, the first one probably for Christian. On the gross margin you reminded the negative deal mix due to the drop of the euro. But could you elaborate this on the Eurozone gross margin improvements? Are you seeing some gross margin improvements in every big geographical zone?
So that?s the first question. The second question probably for Mr. Agon, could you share a bit with us about what was happening in new weeks on the beauty markets, with one of your big competitors exiting from the beauty? So, we understand that it?s probably a bit early to have a big long-term conclusion, but could you share a bit on that?
And my third question is about luxe in Western Europe? Do you think that the drop of the euro has a bit helped in boosting your luxe business in Western Europe? Thank you.
All right. So, thank you, Pierre for this question, and well done for distributing the questions. I?m glad that you gave the first question to Christian. So, Christian, if you can?
Pierre, our gross margin by -- yes, yes, as I said before, the gross margin in total is about flat. It?s minus 10 basis points, but you have understood that that?s because of the mix, the footprint by regions and the currency impact, which is negative by about minus 60 basis points, which means that excluding this currency impact, gross margin has improved by 50 basis points, which means that by zone, of course, gross margins have improved.
So are you seeing gross margin improvements boosting Western Europe, in North America and in Asia in this three regions?
So regarding your second question, I recommend you to read the interview I gave in the Figaro this morning, where I said that we are extremely happy about the decision of P&G to give up the fight on the beauty business and we have a great respect for this company. But we are happy that they finally realized that it?s not a business for them. And so we are welcoming the new competitor, Coty into game and as I said in the newspaper, [indiscernible].
We don?t think that it will change many things for us. The only object I will add is that I hope that Coty will take a good care of the Professional Hair Care division, because we -- in fact, we need a good competitor.
For the moment, for the last three or five years, we have been the only one to really animate this profession around the world and it?s pretty difficult and so in this case, I think it would be more positive for us to have a good competitor than not. So, we are -- honestly, we are very confident. We always like competition and it is fine.
And third, the luxe markets in Western Europe, I don?t understand exactly what you mean. If you mean that there are because of the weakness of the euro, there are more tourists?
? in Western Europe, probably, yes, but we are still bit early to see if the number of tourist is really increasing coming from America, from Asia. And these tourists are taking advantage of the weak euro to make more shopping, maybe. But honesty, it?s not the reason of the acceleration of the market in the first -- of our business in the first six months.
The market was okay, plus 2%, maybe, but nothing extraordinary. We have not seen a boom. But where we have seen a boom is really the amazing performance of the division. We never had -- performance like that in Western Europe, luxe in the past 10 years and it?s really due to the great performance of the teams with the right portfolio brands I would say. In Western Europe, brands like Lancôme, like La vie est belle, like Giorgio Armani, are pretty strong and the addition of the new brands are helping too. So, pretty good news.
And if I may, Jean-Paul, in Western Europe -- and luxe in Western Europe it?s a tiny home business that is doing well, and travel within Europe that is doing well. I will tell you, Europe is doing okay, but domestic business is doing very well.
Hey. Good morning. Could you say a few words on North American and clearly, it has been a trouble market for you? Could you just take us through how you are doing in market share terms, particularly in the three major Consumer Products, Skincare, Hair Care and Make-Up. And Luxe has been great, but has it been great in North America, so it?s a North American question.
And secondly, probably, naïve question, but could you just sort of give us some concrete examples of how you are exploiting your current advantage to win every [indiscernible] and if it?s been fueled and if its been funneled into brand building, advertising, could you maybe give us some color on your share of voice or your share of buzz whatever, how that moving?
And the third question would be, in Q1 you talked about the sell-in been much slower than the sell-out, which is many good firms have demand pull going forward. And that?s been a little bit of an acceleration, but not that much. Could you say that the sell-in and sell-out have sort of caught each other up or is there more to come there?
Okay. So in North America, maybe, one word over North America, because I think it?s maybe interesting for all. So what we see the market, as I shown you before, is improving slightly, but improving. In fact, we have some good news on several fronts, number one, on Professional Products, very good news, because now that the salon-centric restructuration is completed.
We really see an acceleration of our performance in the Professional markets, so that?s very good news and we think that we are now really equipped to gain market share on this market strongly.
Luxe has been a bit under market in this first half, but the end of the half is better and we are pretty confident for the second half. Active Cosmetics is good and in fact, Consumer division is back to growth after a flat, almost flat, no negative, sorry business last year, so which is a very stronger improvement.
So it?s true that the improvement is not the same in all categories. We have very, very strong improvement acceleration in Make-Up. In fact, to be honest, our Make-Up in the U.S. most market is on fire and I think that is the real right term to use. Maybelline is back, L'Oreal Paris is strong and NYX is growing like crazy, NYX is plus 70% on the first half, which is fantastic.
So Make-Up is on fire. Hair Care is, okay, positive. And in fact, the difficult part for the moment is a Skincare. It comes after many several years of good performance, so we have to fix a few things.
The first one we are fixing is a complete re-launch at the end of this year of the Garnier skincare range, which is a very ambitious re-launch, so we are acknowledging the fact that we have to change things and we are confident on the fact that it should be -- it should have some results and we have also some new initiatives coming on the Skincare market.
So we -- all in all we are still below, we are much better than last year, but we are still below the market at the end of the first half. But we know what we have to do and we will do it.
The second question is regarding what we do with the positive effect of the euro. I remind you that there are always two effects in a situation like this. One is what conversion effect and the other one is what we called the transaction effect.
This year because of the hedging that we have taken last year, this year most of the effect is on the conversion effect, which means the translation into euros of the sales and profit of our subsidiaries across the world. And this is how we achieve the plus 14.5% growth sales and profit. The transaction benefit will happen later.
Will happen next year and so that?s going to be good news. And it?s true that we are -- our intention is to use a big part of this transaction gain into fueling our business, okay.
I think it was a general point you said in Q1 that if the sell-in are equal to sell-out than the organic sales growth would have been something like 4.7% in Q1 much better, which boded well, because normally sell-in follow sell-out, and I?m just wondering whether the two or more balanced now.
What we can say at least is that on this front the situation is very healthy, because its -- or maybe it was just a remark, a global remark indicating that we are definitely not increasing inventories around the world, its more the opposite. And it?s true that you should see for example at this one division, including for example the luxe division.
The sell-out at the end of June based on our estimates and because we don?t cover also 100% of the markets everywhere, but is rather higher than the sell-in and its probably not very different for the CPD, which means that all-in-all the business is very healthy.
We are selling out, our sell-outs progress is growing and definitely, we are rather in destocking mode, not the all stocks, but more in -- sell-out more than sell-in than the other way around.
Good morning. Make sure my calculate is right, 4% of your sales coming from online, its growing more than 40%, so that?s basically driven about half your group growth, which is really quite impressive? And Jean-Paul, you said that the biggest change probably had been China in the last couple of years. So can you just maybe give us just a bit more insights into that? How much our -- the online sales by the channels and maybe how is that two years ago? How is it today? Where do you see it in maybe in a couple of year?s time? And what are the implications for things like provide chain, pricing policies and even the ratios of your business? How does it affect the marketing budget or the SG&A line? Just a bit of color would be of great help given how significant do you think these changes will be for you in the future let see?
Thank you, Harold. Yeah. I know that you always pretty demanding and honestly, this question is, you know we could spend a day on this question. So maybe it?s a point that we could prepare for the next Analyst Meeting by the way in September when we?re organizing by the way you are all welcome I think, digital capital market day. So all these information [Foreign Language] You will have everything. So honestly I can?t answer all this.
So, you?re perfectly right. The plus 40% on 4% means 1.6% which is great, which is big, which means also by the way that some of the growth of the retail is going now in digital. Obviously, it?s not purely additional, that would be too nice. If you take for example, China, China is back to growth in CPD, will accelerate his growth on CPD. Definitely e-commerce is a big part of it because e-commerce now is 15% of the CPD sales, which is amazing.
And you know we don?t know how fast it will grow but it could reach 20% to 25%. I mean there is a definite chance of consumption pattern for the Chinese consumer that?s quite impressive. And obviously, it is not purely additional. The consumption of our products in this e-commerce is not on top of what we sell usually to the retailers. But interesting still is that two elements however interesting, number one is that in this channel in e-commerce in China, for example, our brands are also the leader of the market, which is very important because this could have been a threat but its not.
So L'Oreal Paris is a number one skincare brand. L'Oreal Men Expert is a number one men brand and Maybelline is the number one make-up brand, which is very important. And number two, it?s also positive in terms of profitability, so it?s a good story. But I promise that we?ll give you more details and everything at the capital market day.
If I could just maybe just a follow-ups, is the reason therefore you?re seeing mass market in China is improving is because that mix of online sales is growing effectively in the total part. And then the add-on is we?ve heard a lot about a certain return of local brands, local competition, is that because they were basically earlier and quicker to follow the online trend and kind of groups like you and others that kind of catching up or is it because you usually believe that local brands have somewhat rediscovered themselves?
Yeah. It?s more the second part. I think that there is a new appetite of Chinese consumers for local brands. It doesn?t mean that everyone -- its never black or white. It doesn?t mean also that all Chinese consumers only want local brands but it?s true that there is a new --in the panorama of competition, there is a new elements which is a native brand.
And it means also like it?s more challenging for some international brands if they want to succeed in China. That?s why by the way some of the international brands are having difficulty. And we have acknowledged that and recognized that and what we?re doing is to make sure that our brands and our products are extremely reticent for China. And for example all the new products that we?ve launched for L?Oréal Paris skincare in China are 100% particular to China. They are made for Chinese, Chinese for Malaysian, their performances which mean they really want something that is made for them.
And I think ecommerce is just accompanying the move. And that?s why it?s very important for us to make sure that we keep our leadership position in these two channels and for the moment, it?s pretty good, because many time people say yes digital. We also create L?Oréal Paris for entry in the market. It?s true at the same time, digital is also rewarding big brands with a great reputation, big awareness et cetera. So it?s also for big brands, it can also be a very strong leverage.
Hi. Just a one from me if I may. Just on the margin, I wonder if you could talk about the phasing of margin delivery because at the full year you talked about guidance for moderate margin expansion for the full year and also the need to rebalance or want to rebalance profitability between the two hubs?
Now I guess in the first off, we had margin plus 10 basis points in cosmetics, down in China, the group level including the one time impact to the Body Shop. But could you talk about the phasing through the year and whether we should be thinking about what we?ve seen at the first half. Does that qualify as a moderates or is there any extra guidance you can give on that? Thanks very much.
We have not qualifies what moderate means. So we won?t qualify it the first time it was on moderate and for that, you please remind us there was a slight decrease in our plan, because as a company operating profit decreased by the 10 basis points. That showed in February, we flagged that there could be some rebalancing between F1 and F2. There was a less rebalancing that what we talked at the beginning of the year.
You know that the company is not managed on [indiscernible] basis. Company is managed on a full year basis. So we don?t ask divisions, brand or country to prevent or to refrain from investing when they want to invest. And for the full year, I cannot confirm that the increase of profitability will be moderate. So it?s not very difficult for you to make calculation regarding the DH2.
Good morning, everybody. I just got a follow-up question on Brazil. Just looking at sort of Q2, revenue, sort of, Latin America, I think, grew by 1.5% in Q2? So does that mean that Hispanic market was still growing double digit and Brazil was also down about 10% in Q2, is that correct reading?
And if not it?s the case, then how does that compare with your rapidly growth rates in Brazil. Could you give a little bit more color on exactly what happened and also say what the timing was with the form of the IPI in Brazil? That?s the first question. And then the second question, I?ve just got a quick one on China. Could you just tell us how market has been performing in China in the first half of the year?
Yes. Regarding Brazil, I can confirm your estimation and Brazil grew by close to 8% like-for-like in Q1 and minus 11% in Q2, which leads to a minus 2% for half one. So your calculation is right excluding Brazil, Latin America is doing very well. Mexico is growing also single-digit. Chile, Peru, Colombia are doing well, etcetera, etcetera.
And in terms of categories, as you know the Consumer Division Brazil, mostly haircare and hair color. So definitely this impact will slow the growth of the hair color category globally. In terms of timing, the ITI is started in April.
Beginning of May, and therefore beginning of May. So this is -- but definitely it has an impact on the sales in the second quarter for many reasons also because of course many distributors or retailers anticipated the ITI and created some eventually for the beginning of the ITI. And of course they didn?t buy anything after that.
So we will see during the second half of the year how the situation normalizes itself and what will be the most important it could -- what will be the evolution of the consumption in the country.
Okay. Do you have an estimate of what for the sell-out has been in Brazil in Q2 and sort of how much was the phasing of retailer ordering between Q1 and Q2?
No. It?s really too early. And honestly, I would bet that for the moment we don?t see a lot because even the new prices that will be the consequence of the ITI are not always already implemented.
So it?s -- again it?s -- the second quarter was more a question of selling than the sell-out, but there will be some consequences on the sell-out, that?s why we are cautious on the second half. We will see. We will go to Brazil every September and after a week there I will probably no more and better.
And regarding Magic, Magic is in the complete transformation. This was transformation that had been prepared by the producer team and then we have confirmed this transformation. So they are transitioning to a more contemporary packaging, new line etcetera cetera. And also they are preparing the launch of new products for the second half of the year. So the way to just Magic would be more on the tutorial.
Basically it was 25%, let?s say a quarter in value and three quarters in volume or total 3.8% like-for-like.
Thank you. Thank you for taking my question. My question was actually about your estimate or view about the overall cosmetic market growth in the '15. You don?t see any change versus last year about. You?re saying that we could have some changes by region, i.e., in Eastern Europe last year you had a very hard Q3. Do you think that, thanks to Essie comps, you could have some acceleration in Eastern Europe in 2015? That was my question. Thank you.
Okay. The good news is that I have personally see at the most recent panel, the weekly panel in July to make sure that we wouldn?t be surprised and come back to you early September talking about any Effaclar. And in fact there is no Effaclar in July. On the contrary, it?s more the rebound of the Effaclar. When we see at the panel in Western Europe, what we see is exactly the reverse effect of the Effaclar last year, which is good growth of the market at plus 4, plus 5 in some countries, which his because they decreased by 4 or 5 last year. So it?s just a rebalancing of the business and it seems that the season is not too bad.
So now we are pretty confident that globally speaking Western Europe is not accelerating like crazy, but it?s more strengthening than weakening. And we -- as I told you Luxe Division is doing well. Professional Division is more and more taking advantage of Decléor/Carita and it will have. Consumer Division is also progressively back on market and we hope that maybe in the second half that we will be above market and Active Cosmetic is doing very well too.
So all-in-all, we are pretty confident on the second half for Western Europe for the market and for ourselves. And I would say it?s also maybe and where to conclude this meeting. As we?ve said, we are pretty confident for the second half because as you said the market, we think that with no reason for weakening of the market on the contrary. And on our side, we see some very good perspective on accelerating, especially in the Consumer Division for all the reasons I explained. And we can do some translate and some improvement in the growth.
Thank you very much, Catherine. So thank you to all. I think it was we said many good questions and we look at every subject pretty competitively. So thank you very much and we wish you a very good summer. Thanks.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.
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