L'Oreal's (LRLCF) CEO Jean-Paul Agon on 2018 Annual Results - Earnings Call Transcript

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About: L'Oreal Co. (LRLCF)
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Earning Call Audio

L'Oreal Co. (OTCPK:LRLCF) 2018 Annual Results Earnings Conference Call February 8, 2019 3:00 AM ET

Company Participants

Jean-Paul Agon – Chairman and Chief Executive Officer

Jean Régis – Director-Individual Shareholder and Market Authority Relation

Christian Mulliez – Executive Vice-President Administration & Finance

Nicolas Hieronimus – Managing Director L'Oreal Luxe

Brigitte Liberman – President-Active Cosmetics Division

Nathalie Roos – President-Professional Products Division

Alexis Perakis-Valat – President-Consumer Products Division

Conference Call Participants

Celine Pannuti – JPMorgan

Eva Quiroga-Thiele – Deutsche Bank AG

Guillaume Delmas – Bank of America

Astrid Wendlandt – Journalist

Richard Taylor – Morgan Stanley

Fulvio Cazzol – Goldman Sachs

Emma Letheren – RBC

Marco Sormani – Varenne Capital Partners

Sarah White – Reuters

Jean-Paul Agon

All right, it’s 9 o'clock sharp. Good morning to everyone. We are very pleased to welcome you to this presentation of our Annual Result. So let me start by introducing the team. On my left, Nicolas Hieronimus, Deputy CEO in charge of the four divisions. Nicolas will also present the results of the Luxury Division today because as announced in November, the leadership of the Luxury products Division has now passed to Cyril Chapuy. Could you please stand up Mr. Cyril Chapuy, so that everyone can see you. Thank you. And you will present next time, but not this one, on – except if you really insist, but probably not.

So on Nicolas’ left, we have a Nathalie Roos, who you know very well, the President of the Professional Products Division on the far right, nothing political here; Brigitte Liberman, President of the Active Cosmetics Division. Next to Brigitte, you all recognize Mr. Alexis Perakis, President of the Consumer Products Division; and on my right, of course, Christian Mulliez. You all know Mr. Christian Mulliez and you all know that Christian will be leaving us that sounds unbelievable, but it is a true reality and Christian will be leaving us at the end of April after 17 years as a CFO of L'Oreal and many more years of professional experience with the group. That will be of course a very big moment for me, for the group and for many of you, who worked very closely with Christian over the years and of course I suppose a big moment for Christian himself.

Christian as you know as always championed the importance of building long-term relationships with you the financial community and I'm sure that you have recognized always in him natural authority, deeper expertise and unwavering commitment, very strong commitment to L'Oreal always. So on behalf of everyone in this room, I want to take this opportunity to really thank warmly Christian for his great contribution to the development of this beautiful company during this 17 years. And wish him of course a lot of happiness in his next and new life. So, thank you and concentration Christian and you will have the opportunities for those who are here and not on the Internet to have a drink with Christian at the cocktail.

To succeed Christian, we have appointed as you know, Mr. Christophe Babule, who is going to stand up right now in front of you now and who will have the important and heavy responsibility to succeed the Christian, big shoes to fill, but he will fill them very well. Christophe joined the group in 1988 and since then he has had a brilliant career in finance at L'Oreal. He has worked in many markets, in western Europe and some – in some of the most challenging and strategic new markets like Mexico, China as CFO along the way he was also Director of Internal Audit for L'Oreal. And most recently Christophe has been CFO for Asia, interesting position, in Shanghai then in Hong Kong. So nobody we think is better prepared and equipped than Christophe to succeed Christian and I know that you will join me in wishing him every success in his important and very, very strategic new role. So congratulation Christophe and good luck to you and to all of us.

so, as we announced in November, Christian will handover his operational responsibilities, tonight by the way, but will remain with us. He wanted to be with you today of course. So that's the – his last day and, but will remain with us to support Christophe until the end of April. So that's it with the introduction. You know me. So, now let's ask Jean Régis for a few housekeeping details please.

Jean Régis

Okay, good morning, ladies and gentlemen. We are very happy to welcome you to this presentation of our annual results. Let's have a quick look at the agenda of this meeting. As usual Christian Mulliez, our CFO, will kick off with a presentation of the financial statements for 2018 then Nicolas Hieronimus and each head of division will summarize the highlights of his or her division for 2018 as well as prospects for 2019. After the division's presentation, Jean-Paul Agon, our Chairman and CEO, will share with you his perspectives regarding L'Oreal business and prospects. Then we will move directly to the Q&A session up to the end of the meeting. That's until around 11. Afterwards light cocktail reception will be served in the clubs salon in the first floor, its left when you leave this room. Now I require one more minute of your time as I would like to draw your attention onto few practical points.

First, a reminder of the safety instructions, which you need to be familiar with. Second point, I would ask you to read the disclaimer on the last page of the booklet you have been given at the entrance of this room. Third point, there is a WiFi coverage over the campus, so that you can connect through the Internet. Please use the login and password shown on the screen behind me. As this meeting is held in English with simultaneous interpretation into French, headsets are available at the entrance to the room. French can be found on Channel 1. If you so wish you may connect to it right now. Of course, if you feel more comfortable in French, you can ask your questions in French and we will answer in the same language. Point number four, during the Q&A session after Mr. Agon’s speech, we kindly ask you to state your name and company name as clearly as possible before you ask your question. In addition to your questions, we will take some questions send by email.

We ask our fellows journalists to be so kind as to raise their question during the second part of this Q&A session. And finally last point, the entire meeting is broadcasted live on our dedicated website, www.loreal-finance.com. The recorded webcast of the meeting will be available in the Presentation and Webcast section of the same site from this afternoon. So I thank you for your attention and I wish you a pleasant meeting.

Jean-Paul Agon

Thank you very much, Jean Régis. Christian, the floor is yours.

Christian Mulliez

Good morning, ladies and gentlemen. The presentations of L'Oreal’s financial results for 2018 will include information about sales profits, cash flow, balance sheet and dividend, dividend growth. Sales, sales amounted to EUR 26.9 billion, up 7.1% like-for-like, with a volume effect of around plus 1% and the value effect of around plus 6%, at constant exchange rates, sales grew by 8%. Acquisitions had a positive impact of plus 0.9% mainly due to the acquisition of Pulp Riot in May of the Korean brand Stylenanda, in July, and of the German company, Logocos, in October. After a currency impact of minus 4.5%, reported sales grew by 3.5%.

Note that currency impact gradually reduced from minus 8% in Q1 to close to zero in Q4. It's of course too early to forecast precisely what the currency impact will be in 2019. However, I can tell you that extrapolating current rates of EUR 1 equals US$1.14 would have a slightly positive impact on 2019 full year sales in the order of plus 1%. Currencies, the euro represented 23% of consolidated sales. Note that 10 years ago in 2008, the euro represented 35% of sales. Sales in dollars, 25% of the total exceeded sales realized in euros. In 2018, the evolution of our main currencies was as follows: the U.S. dollar weakened by 4.5% against the euro, so Chinese yuan declined by 2% upon selling by 1%, Brazilian real lost 16%, and the Russian ruble 11%. I would remind you that this table may be useful to you to update your currency impact estimates for the current year and all over the year. It's a pretty – it's a very useful tool.

Sales by division. All our divisions are growing on a like-for-like basis. Professional Products ended the year at plus 2% with the second half at plus 2.5%, better than the first. Consumer Products grew by 2.5%. With the fourth quarter at plus 2.8%. Growth was driven by the New Markets, particularly in Asia with a strong increase in China and in India.

Western Europe remained difficult and we've gained market share in the U.S. L'Oreal Luxe at plus 14.0% is growing strongly, posting the highest increase among our four divisions in a market that is also very dynamic. Here also, a great performance in Asia, also in Eastern Europe, in contrast with Western Europe and the United States where growth has been modest.

And finally, Active Cosmetics grew by 11.9% with strong growth across all markets. By geographic zone, growth was contrasted. Western Europe at minus 0.3% like-for-like, was held back by some countries, in particular, France, Italy and the U.K. North America at plus 2.7% was slightly below the market.

And the New Markets posted an increase of plus 16%, twice that of last year and significantly outperforming the market. Note that for the first time in L'Oreal’s history, sales in Asia-Pacific, overtook North America in value. Within the New Markets, Asia-Pacific grew by 24%, with the strong acceleration and good pace maintained also in Asia.

Latin America is at minus 0.4%, with Hispanic America growing despite the restatement for high penetration in Argentina in the second half and Brazil still difficult but improving in second semester. Eastern Europe grew by 9% and finally Africa, Middle East by close to 5%.

So P&L. We've further increased in operating margin of 30 basis points to 18.3% of sales compared with 18% last year. This is a new record. Let's start by analyzing gross profit. Gross profit came at EUR 19.6 billion at 72.8% of sales compared with 71.7% in 2017, showing an increase of 110 basis points.

72.8% is also a new record. Currency translation and transaction impacts were positive by 20 basis points. Changes in the scope of consolidation have had a slightly negative impact of minus 10 basis points on gross margin.

Improvements in the cost of sales mainly due to productivity, mix effects and increased volumes contributed to 100 basis points to the improvement in gross margin. R&D expenses were unchanged in related value at 3.4% of sales. A&P at 30.2% of sales was up by 80 basis points compared with 2017 as announced in the first half.

We have further accelerated reports in digital, which now accounts for 43% of our media spend compared with 38% in 2017 and we have of course continued to take advantage of the improvement in our media purchasing conditions. SG&A at 20.9% of sales is slightly below 2017 by 10 basis points. We made deliberate and managed choice which had a negative impact on SG&A in the order of 20 bps.

Growth in spending on digital and IT and growth in the brands whose business model includes stores. Other selling expenses have once again decreased, which illustrates our policy of continuous productivity improvement of all operating profit at EUR 4.9 billion amounted to 18.3% of sales.

Profitability by division. The profitability of the professional products division in 2018 which was a year of transformation remains identical to that of 2017 at 20% of sales. So profitability of the Consumer Product Division came out at 20.2% up slightly by 20 basis points compared with last year. So, profitability of L'Oreal Luxe at 22.1% also increased by 20 basis points compared with 2017.

And lastly, Active Cosmetics, with an increase in profitability of 40 basis points at 23% continues to be the No. 1 division in terms of profitability. Non-allocated expenses were maintained at 2.8% of sales.

By geography. Profitability in Western Europe came out at 20.9% in 2018, 200 basis points below that of 2017. We made the choice to raise our advertising and promotional investment as well as our digital expenses in a difficult market in 2018 in order to prepare for the future.

In North America, profitability increased by 60 basis points at 19.8%. And in the New Markets, profitability increased again, sharply this year, at 22%. You will note once again this year, the robustness of the L'Oreal business model, with the very consistent profitability across all three regions and our four divisions.

Let's continue with the P&L. Financial expenses were reduced from EUR 23 million to EUR 2 million. For 2019, finance expenses are likely will be higher due to the implementation of IFRS 16, which as you know, splits rental expenses in depreciation and financial charges, generating around EUR 40 million of additional financial expenses.

So counterpart also due to this new norm will be a favorable impact of the same amount, EUR 40 million, on the operating profit. Sanofi dividends amounted to EUR 358 million. For 2019, you will have noted that Sanofi this week announced a plus 1.3% increase in their dividend.

Income tax amounted to around EUR 1.3 billion. The tax rate at 24.4% is lower than in 2017, thanks to the U.S. tax reform and in line with the indication given at the beginning of last year. For 2019, at this stage in the year and knowing that this item is quite volatile by nature, we estimate that the tax rate should be above that of 2018, probably slightly above 25%, which allows in particular for the change in the French tax regulation with regard to the taxation of royalties on patents.

Net profit excluding non-recurring items amounted to almost EUR 4 billion. And net earnings per share, EPS, at EUR 7.08, is up by 6.5%. For those of you who would like to carry out a simulation for 2019, I guess all of you, it would be best at this stage of the year to factor in an average diluted number of shares in the order of 564 million.

Change in currency conversion rates have, had as you know, a significant impact, negative impact on our 2018 performance indicator. You will find the detail here line by line. You will know that once again this year, the impact is in the same order of magnitude at the different levels of the P&L on the right-hand column. You will also note that at constant currencies, the EPS would have increased by a bit more than 10%.

Non-recurring items in 2018 were negative by EUR 92 million and lower than in 2017. They include mainly the impact of restructuring cost in certain markets, in Brazil and in Western Europe. After taking account all non-recurring items, net income increased by 8.8% to EUR 3.9 billion.

The cash flow. Cash flow amounted to EUR 5.1 billion, up by 4.1%. Working capital decreased once again this year by EUR 140 million. For 2019, an increase in the order of EUR 100 million to EUR 200 million can be expected on working capital.

CapEx amounted to 5.3% of sales, slightly above the level of 4.9% recorded in 2017. For 2019, a slightly lower level of CapEx in the order of 5% of sales may be expected.

Operating cash flow at EUR 3.8 billion decreased very slightly by 2% against a very high comparative last year. Last year growth was plus 20%.

Finally, after payment of dividend, the acquisition of Stylenanda, Logocos, ModiFace, Pulp Riot and share buybacks, the regular cash flow is positive, close to EUR 850 million. The balance sheet is particularly solid with shareholders equity amounting to close to EUR 27 million. And we are once again in a cash positive situation at the end of the year, with EUR 2.7 billion net.

Dividend, the Board of Directors has proposed at the AGM an increase of 8.5% and dividend at EUR 3.85 per share. This strong increase in the dividends leads to a payout ratio of 54.4%. As you can see, this ratio is increasing consistently. This is in line with L'Oreal's ongoing policy dynamic and well balanced.

Thank you for your attention.

Jean-Paul Agon

Thank you, Christian. Thank you very much. So we will ask Nicolas to give us an introduction to the four divisions, please.

Nicolas Hieronimus

Good morning. As you just heard, 2018 has been a very good year for L'Oreal at plus 7.1%, beating the beauty market that confirms its relentless dynamism at around plus 5.5% all channels included. The overperformance of L'Oreal stands from contrasted results of each division on much contrasted markets, as you can see on the screen.

Five overarching growth drivers have boosted L'Oreal's performance. To begin with, big brands have gotten bigger and stronger. Our top eight brands all billionaire, have represented more than three fourth of our growth with an average growth of plus 8.4%. And five out of eight have grown double digits. These big brands benefit from a long established trust among consumers, from power products boosted by e-commerce, algorithms and global consumer recognition such as La Vie est Belle from Lancôme or Revitalift from L'Oreal Paris, but also from their unique adaptation capabilities. Our big brands have learned to combine the recipes of the New World, levering social and digital for instance with their scale and their media muscle, which were reinforced in 2018.

Our second driver has been innovation, of course, with unique products that combine cutting-edge formula and disruptive marketing. Whether to nurture our big pillar franchises or on totally new products, our capacity to surprise and seduce new consumers has proven to be strong this year. You see several examples on the screen. But I would highlight Fructis Hair Food from Garnier as a particularly creative and successful launch and one of the many examples of L'Oreal answering the natural trend. Our innovation capacity goes also beyond products with the augmented reality, virtual try-ons of ModiFace. This acquisition truly positions L'Oreal as a beauty tech champion.

Our third driver has obviously been China. And our ability to win the hearts of Chinese consumers. Thanks to years of strong investments and to the fantastic work of our teams over there, our brands are true loved brands in China. Lancôme and L'Oreal Paris are number one of their respective markets. But I should also quote Kérastase, La Roche-Posay, Kiehl's or YSL as China's darlings. This is a major growth driver, considering the size of the domestic market and its potential as well as the purchases made abroad and in Travel Retail.

Our fourth growth driver has been skincare. Boosted by millennials entering the category and increased boomers consumption, the global market has accelerated to an estimated plus 9% in 2018. L'Oreal has strongly overperformed with a plus 16% growth. And skincare is the category where the combination of trusted brands, power franchises, such as Revitalift or Lipikar and the innovation capability offered by the L'Oreal R&I is a winning equation, building loyalty and profitability.

Our fifth and last growth enabler has been the adaptation of each division to the channel shifts of the beauty market. In all divisions, O+O, online plus offline, is now the new norm. More than ever, our digital activations drive to physical stores but also to e-commerce with links to our e-retailers or our own sites. E-commerce is the number one growth driver for all divisions. It has grown at plus 41% now representing 11% of the group's sales.

Travel Retail, where we are global leaders with our four divisions, continues to boom. It is both a business driver, up plus 27% and an image driver, with spectacular expressions of our brands as illustrated on the screen.

But our divisions are also reinventing their go-to-market, exploring new opportunities in an agile, test and learn mode. Kérastase connects with millennials at Sephora in the U.S.A. CeraVe is a leading brand in body and face care on Amazon. And at the same time, SkinCeuticals is opening successful luxury boutiques in China. CPD is creating new mass retail concepts with Le drugstore Parisien and leverages a flagship model on e-commerce with Stylenanda. And L'Oreal Luxe continues its branded retail experimentations with new boutiques or pop-ups. This agility will give us much more flexibility to seize opportunities in an omnichannel world. These have been the five drivers of L'Oreal growth in 2018. They were all digitally powered more than ever, strength of L'Oreal, but even more so powered by the entrepreneurship and passion of the L'Oreal teams around the world.

I thank you for your attention. And I'll now leave you with the divisions, starting with Active Cosmetics and Brigitte Liberman.

Jean-Paul Agon

Thank you, Nicolas. Brigitte?

Brigitte Liberman

Good morning. 2018 was a clear turning point for the division. Growth was accelerated with the plus 11.9% like-for-like. Our strongest growth since 2006. On a dynamic market, reporting a growth of around 6%, we managed to grow twice as fast, significantly reinforcing our global leadership. In 2018, the division took on a new dimension, shifting definitively from a European division to a global one.

The U.S. has confirmed its number one position, with a very strong growth of plus 21%. China continues to accelerate at plus 27%, ranking third. Brazil remains dynamic and lands in fourth position with plus 12% and Russia is accelerating at plus 18%. What is remarkable is that every single region contributed to this performance. North America being the number one contributor with 30%, followed by Asia with 25% and Western Europe with 16%.

Second turning point. Brands, all our skincare brands are growing beyond the CeraVe's acquisition. CeraVe has broken new records in its domestic market, becoming the number one dermatologist-recommended skincare brand in the U.S. CeraVe has been launched in more than 30 countries in less than one year, with the business model rooted in medical.

La Roche-Posay once again delivered double-digit growth, reinforcing its number one position on the dermocosmetic market. The brand went further in its dermatological entourage with the acquisition of the La Roche-Posay Thermal Center and with new breakthrough innovations: Hyalu B5, the anti-aging correction for sensitive skin; and My Skin Track UV, a beauty tech device sold exclusively at Apple in the U.S.

SkinCeuticals had confirmed its leadership with an exceptional growth of plus 33%, boosted by outstanding result in the U.S.A. and China and pioneering a personalized anti-aging serum, Custom D.O.S.E, dispensed by physicians. After the worldwide success of Minéral 89, Vichy is establishing its positioning in natural healthy beauty with the launch of LiftActiv Collagen Specialist.

And finally, Sanoflore, our pioneer organic brand, continued to outperform the market, being the number one contributor to the French organic pharmacy markets.

Third turning point, the division is taking digital to the next level. E-commerce has reached over 13% of L'Oreal Active Cosmetics turnover. Each brand is pushing advocacy, recruiting new communities of consumers through social networks. We also spread dermatological expertise with consumers via La Roche-Posay's DERM classes, online training by dermatologists on skin problems. The best example being in China, reaching over 40 million consumers last year.

Finally, we widely expanded our medical footprint. We have increased the reach of doctors, visiting more than 115,000 worldwide, thanks to more medical representatives since the acquisition of CeraVe and with new digital apps and platforms dedicated to physicians.

Now looking ahead, we are very confident for 2019. We believe that the markets will remain dynamic, driven by the same health trend. We think that we have the right brand portfolio and the right business models to continue accelerating. Thank you.

Jean-Paul Agon

Thank you very much, Brigitte. Nathalie for the Professional Products Division, please?

Nathalie Roos

Good morning, ladies and gentlemen. In 2018, the global professional market has confirmed its growth at plus 2% with some very encouraging signs for the future, both in terms of geographies and product categories, particularly in hair color. At plus 2%, the division confirms it's very solid leadership. And our significant acceleration in the fourth quarter at plus 3.5% demonstrates that our transformation strategy adapting to constantly changing digital world has started to bear fruit.

The USA, our number one market at plus 3.7%, accelerated at plus 4.8% in the fourth quarter. 2018 also saw a return to growth from Brazil at plus 8.6% and the acceleration of Asia-Pacific at plus 6.5%, with India at plus 19% and China at plus 35%. With the fourth quarter at plus 9%, Asia-Pacific is now playing its role as the growth driver for the division.

Eastern Europe pursued its momentum at plus 6.2%. As for Western Europe, where the markets are sluggish, the division recorded good results in some key markets like the UK at plus 2.5% and Spain at plus 2.8%. 2018 was also highlighted by the turnaround of Kerastase at plus 7.6%. The brand successfully combined powerful innovations like Resistance Extentioniste with in-salon services based on personalization such as Fusio-Dose.

Kerastase is asserting itself more than ever as the reference brand in professional luxury haircare. Haircolor continues to be dynamic, boosted by the multi-tone trend which L'Oreal leads with its unique technologies. Redken's iconic Shades EQ grew by an impressive plus 21%. L'Oreal Professionnel’s DIA Light performed at plus 8%. And Matrix innovated with SoColor Cult, the first range of bright colors purposed in all three technologies, temporary, semi-permanent and permanent.

Also in 2018, we broke boundaries in natural beauty with Botanea, the 100% herbal haircolor by L'Oreal Professionnel, coming together with Source Essentielle, the first natural haircare that you can refill in-salon, illustrating the division's commitment to naturality and sustainability.

Lastly, the acquisition of the digital native brand, Pulp Riot, brings an inspirational model and edgy modernity to the division. In 2019, we continue our transformation in order to boost the growth of the division. With the obsession to always drive more consumers to salons and to provide them with the best experience, we are accelerating our Salon Emotion program, which has proven to increase traffic and sell-out by 10% to 30% depending on the salon.

So we have doubled the number of doors in 2018, and we will reach 42,000 salons in 2019. We will roll out L'Oreal Access in 46 countries. L'Oreal Access is our e-learning platform, embracing all our brands. It offers 24/7 support and real-time training and is wider reaching than the classic formats of education.

In 2019, we are also fueling the market with major product innovations. As we speak, we are launching a tailor-made INOA for Japan, the first ever ammonia-free permanent hair color in this market. We've just released Blond Absolu, the first inclusive range to care for all types and tones of long hair, and the enthusiasm in every country is unanimous.

Finally, we are accelerating e-commerce that has proven crucial for our success. And we are developing a selective omni-channel approach with systematic drive-to-salon mechanisms. As you can see, with our robust strategic plan, we are clearly positioned to accelerate our growth in 2019.

Thank you for your attention.

Jean-Paul Agon

Thank you, Nathalie. Alexis for the Consumer Products Division, please.

Alexis Perakis-Valat

So good morning, everyone. In 2018, the worldwide beauty mass market grew around 4% but with sharp contrasts by region, dynamic in China and the emerging world; subdued in Western Europe and North America. Our division finished up 2.5% with an encouraging acceleration or a sell-out in Q4 where we started regaining market share. 2018 has been a pivotal year with some strategic wins that make us very confident for the future.

The first highlight of 2018 was outperformance in the dynamic newer markets. We were up 12.6% in Asia-Pacific, with strong growth in China, India and the Philippines. We also had a good year in Eastern Europe and Africa, Middle East.

In the U.S., our overall sell-out performance was slightly above the market, thanks to market share gains in makeup, haircare and hair color. Brazil and challenging conditions in some Western European countries were a drag on our growth but the situation is gradually improving there.

The second highlight, and as Nicolas said, the greatest piece of news in 2018, has been the acceleration of our leading brands. L'Oreal Paris had its best performance since 2013. And Maybelline had a great year as well.

The third highlight was the very promising face care category. There, we grew double-digit, thanks to L'Oreal Paris championing anti-aging on all continents. While Garnier took the tissue mask phenomenon global. We also clearly outperformed in makeup, gaining market share all around the world. Last but not least, we made great progress on e-commerce, up an overall 38%. So building on these strengths, together with our teams, our great teams all around the world, we are confident we will achieve a sustainable growth momentum.

We have four engines that will get us there. The first engine, more than ever, it's the power of innovation. We've built our innovation plan around two objectives. First, constantly renewing our core. That means fueling the key properties our brands are famous for with new and disruptive products.

One example, Revitalift from L'Oreal Paris. It's been the world's anti-aging champion for 25 years, now offering the first ever skincare in ampules. But the other objective of the innovation plan is to recruit new consumers to our brands, recruit millennials on haircare with Elseve Dream Lengths, already a blockbuster. Recruit Gen Z on makeup with the new Maybelline Snapscara and recruit men with Men Experts, growing double digits everywhere, thanks to innovations like Barber Club.

The second engine is what we call marketing 3.0. This is the total reengineering of how we connect with consumers. We offer them better services thanks to augmented reality. Today, our makeup websites are equipped with state-of-the-art virtual try-ons, and we have proven that it really boosts engagement, time spent and ultimately, sales. We've also taken eventing to a new level.

Last September, L’Oreal Paris organized the first ever Défilé on the Seine River. This generated more than 4 billion impressions around the world, showcasing at scale the best of Parisian beauty. Similarly, we've been pioneering AI-powered ROI in China and in the U.S. where our content is now customized thanks to machine learning, maximizing conversion rates.

The third engine is our acceleration in e-commerce. In China, we were e-commerce pioneers in beauty. And we've kept this advance, consistently outperforming a very dynamic market. And today, e-commerce represents almost half of our Chinese business. So thanks to this unique know-how, we also achieved strong growth in the U.S. and in places like India, Indonesia, Russia and the UK. Online is key. But nothing replaces the in-store experience. That's why we are partnering with retailers to create the beauty aisle of the future. For example, with Watsons in Asia and with Casino in France.

The fourth and last engine is our unique ability to seize what's starting, [Foreign Language], spotting the beauty trends of the future and making them really big. That's why we are launching a major organic offensive in Western Europe with three bold moves in only six months. Last summer, we acquired Logocos, a German organic beauty pioneer.

In September, we created from scratch a new organic brand, La Provençale Bio, already off to a strong start in France. And as we speak, we're launching across Western Europe, Garnier BiO, a new skincare range, certified organic and 100% vegan. Another example of seizing the next decade's growth trends is in Asia. There, we've now integrated Stylenanda, one of the hottest Korean makeup brands, off to a great start in China.

So in conclusion, we are looking into the future with confidence for two big reasons. Firstly, because our business is gradually improving in Brazil, as well as in those Western European countries that proved challenging last year; and secondly, because we are powering ahead with a very strong plan around those four growth engines that I just shared with you.

Thank you.

Jean-Paul Agon

Thank you, Alexis. Nicolas again for luxury this time, please.

Nicolas Hieronimus

Hello, again. So 2018 has been a historical year for L’Oreal Luxe. L’Oreal Luxe sales stand at EUR 9.4 billion plus 14.4% like-for-like, the strongest growth ever for L’Oreal Luxe with a very dynamic second half at plus 15.1% like-for-like. This performance has benefited from a dynamic luxury market which has recorded this year a double-digit growth and which L’Oreal Luxe outperformed for the eighth consecutive year. We are winning market share in nearly every region, thanks to our country's teams which played a decisive role.

In 2018, we have gained significant market shares in Asia-Pacific, with a spectacular double-digit growth and reinforced our leadership in China. The division has taken full advantage of the Chinese consumption boom on the domestic market, abroad and in Travel Retail. Travel Retail delivered a fantastic year at plus 28%, notwithstanding a good control of the selectivity of our brands.

Two other regions have been very dynamic, Eastern Europe with a recorded growth of plus 14% and Latin America at plus 10%. In Western Europe, we have beaten a more difficult market and in North America where the market dynamism is driven by churning indie brands, we are beating most of our major international competitors with a particularly good year in fragrances.

L’Oreal Luxe has managed to outperform the market once again thanks to a strong and balanced brand portfolio, an ideal blend of big brands and future growth relays. 2018 has been a milestone year for our big brands, our four billionaire brands have recorded double-digit growth.

Lancôme, our largest brand, has had one of its best years ever, breaking the EUR 3 billion, demonstrating once again its ability to reinvent itself and seduce all generations of consumers. Our two main culture brands achieved a great performance with a spectacular plus 20% for Giorgio Armani. And we are happy that Mr. Armani renewed our license for his brand until 2050 as it is bound to be a leading luxury brand in the years to come. Kiehl's, which means the naturalness and efficacy expectations has broken new records not only in Asia but also in its country of origin, the U.S.A. At the same time, other historical brands have regained momentum.

Helena Rubinstein has recorded an exceptional growth, benefiting from its repositioning on ultra premium skincare. After difficult years, Biotherm is back on track, thanks to its healing skincare platform. Cacharel is fully benefiting from the success of Yes I Am amongst millennials. And Clarisonic, now mainly an online brand, is just relaunching its full tech-enhanced product line.

Our two most recent acquisitions, Atelier Cologne and IT Cosmetics had great consumer success and are continuing their international rollout. IT Cosmetics has become the number two makeup brand on the U.S. luxury market. Finally, we also benefited from a dynamic Asian brand portfolio with Shu Uemura from Japan and Yue Sai from China, both growing double digits.

Our complete portfolio allows us to answer any consumers strives needs at any price point from accessible to ultra premium. The L’Oreal Luxe magic recipes to combine on the one hand, long-standing power franchises trusted by consumers such as Génifique by Lancôme, Powerful-Strength Line-Reducing Concentrate by Kiehl's in skincare, the Urban Decay Naked Palette in makeup or Acqua Di Gio and Flowerbomb in fragrance, constantly animated or renovated.

And on the other hand, breakthrough innovations to boost consumer demand with superior L’Oreal Research formula and innovative packaging like the Armani Cushion, the Slim Lipstick by YSL or Life Plankton Clear Essence by Biotherm. This magic recipe allowed us to grow strongly on our three categories with a specific mention for skincare at plus 24%.

In fragrance, despite intense competitive activity, we have strengthened our positions with three fragrances in the top six in Europe and La Vie est Belle still number one. In 2018, we also continued to adapt to win in this new luxury world where the distribution shifts continued. E-commerce has reached 16% of L’Oreal Luxe global sales growing at 42% including stunning results on Tmall, where Lancôme was the number one beauty brand at 11.11 Singles' Day. L’Oreal Luxe is continuing its acceleration in the very strategic D2C brand websites and freestanding stores, recording growth at plus 39%.

Stores have become a new media, a way to propose unique experiences and to enhance our direct and privileged relationship with our consumers. Through D2C, the brands can gather rich data on their consumers, and data is the key to measure engagement, through data-driven marketing, to best-in-class loyalty programs, such as Kiehl's, and also to greater personalizations of our products or offers.

There are already several initiatives from our brands such as the personalization of Flowerbomb, with multiple accessories and engraving, or the Rouge Pur Couture by YSL as well as the rollout of Le Teint Particulier by Lancôme. And in this new luxury world where CSR is an increasingly important criteria of choice for the consumers, all our brands have improved their sustainability scores, whether on formula or in packagings, with initiatives such as skincare refills for Lancôme Absolue or YSL Or Rouge but also in e-commerce with recycled and plastic-free shipping boxes.

To conclude on the 2019 outlook, we believe that the market will remain dynamic, driven by the same upward trends as in 2018. There is a global aspiration for quality and indulgence. The skincare trend will continue, and we remain confident in the Chinese growth because it is driven by the structural development of the upper-middle-class who aspires to affordable luxury.

In any case, our 2019 launch plan is actually stronger than last year's. We will have big initiatives in fragrances on the second half that I cannot unfortunately reveal today. And to end, 2019 will also be the first year for our new license, Valentino. So I can foresee another good year for L’Oreal Luxe, under the leadership of Cyril Chapuy, whom you'll get to know at the cocktail.

Thank you for your attention.

Jean-Paul Agon

Thank you, Nicolas. So I would now like to highlight the main takeaways of 2018 and share with you our excellent prospects for the future. Despite a turbulent economic and political environment and a beauty market incredibly contrasted by country, channel and category, 2018 was actually a year of acceleration, as you’ve seen for the beauty market and for L'Oreal.

Indeed, first, the market has been particularly buoyant. We believe it grew around plus 5.5%, which makes 2018 the best in – the best year in 20 years. And this acceleration, we believe, is due to a number of key boosters. Number one, of course, in terms of regions, growth was driven by Asia and especially China, which enjoyed another exceptional year with double-digit growth. I can confirm, and I know it’s a question that you have in mind, that we saw no slowdown in China in Q4 or in January of this year.

In terms of sectors, luxury was again the engine of growth, led by Asia and Travel Retail. No signs of slowdown also in this decisive market. Dermocosmetics, as you’ve seen, has also grown at a healthy pace. E-commerce and Travel Retail have again been fueling the acceleration of the beauty market across the board.

In terms of categories, as you’ve seen also, 2018 was the year of skincare, which is not only the biggest category of the market, but also the most dynamic. Skincare totally encapsulates current market trends, a focus on health and well-being, authenticity and a desire for naturality.

In addition to these boosters, the beauty market has also accelerated in recent years, thanks to some strong underlying trends. First, the market is underpinned by a very strong desire for beauty, which we see exploding in all countries and in all cultures because beauty is a vital human quest. Beauty answers very fundamental needs. It confirms not just pleasure, well-being and happiness but also confidence, self-esteem at all stages in life.

Secondly, premiumization. At its core, beauty is an aspiration, it’s not a commodity. As a result, consumers are ready to pay more and trade up to new and innovative products that inspire them with exciting new benefits, better performance and superior quality, more than in any other consumer goods category.

Thirdly, the market is also accelerating, thanks to digitalization as beauty and digital are really a perfect match. Beauty, as you know, is a very visual and socially shareable category, which thrives on digital platforms. It is one of the most engaging categories online. Digital has opened the door to boundless and mesmerizing world of inspiration. It’s the combination of beauty and digital that has led to the explosion of sharing and self-expression we see today on social media. It has never been easier to discover beauty, share it and shop it. Digital is and will remain a terrific booster for beauty.

Finally, our market is also fueled by increased penetration of beauty all over the world, which will secure the growth of the market for many years. Because of e-commerce, which is extending our reach far beyond the limits of traditional distribution in emerging economies where access to beauty product has been limited, digital has the power to connect consumers with beauty products in even the remotest corners of the world.

Also because the market has many white spaces, in terms of categories and countries, and because there are also new consumer targets that you know well, linked to key economic, sociological or demographic shifts, the rise of the middle classes, the aging of the population, men’s consumption, urbanization, et cetera. So we are very confident and we have every reason to believe that the market will continue to grow at a good pace in 2019 despite an economic context that probably will be still volatile and unpredictable.

Secondly, 2018 was also a very strong year for L'Oreal as you’ve seen. Growth accelerated to produce the best year in a decade, and we achieved a new record of operating margin at 18.3%. Furthermore, we significantly outperformed the market, generating strong share gains in the most promising and strategic areas for the future. By sector, we outpaced the market in both luxury, the most dynamic sector of the market today, and in dermocosmetics, a sector which completely meets the health and well-being trends booming across the world.

In terms of geographies, we strongly reinforced our position in the most dynamic and strategic zone of the future, Asia-Pacific, where we enjoyed our highest growth. Thanks to China of course, but not only also India, Malaysia, Philippines and others. Asia-Pacific, overtook North America, as you’ve seen, to become our second zone this year and its milestone in the history of L'Oreal. And will become our number one region ahead of Western Europe, probably very soon. With 8.7% market share only in Asia, even if we are already the leader, we are just at the beginning of our growth in this key region.

We also outperformed the market in skincare, which is not only the fastest-growing category in beauty but also the most interesting in terms of consumer loyalty building. And we strengthened our leadership in two very strong channels, first in e-commerce, the most dynamic channel in beauty where our sales grew by more than 40%, with all divisions and zone showing strong growth. E-commerce as you’ve seen, now accounts for 11% of the group sales. And if it were a country, it would be now already our second worldwide. Secondly, in Travel Retail where we crossed for the first time the EUR 2 billion, with a growth of 27%.

And finally, we strengthened again our leadership in digital, which is a major booster for our growth. It’s very important to understand that digital is boosting our brand power. In the world of the algorithm, bigger is truly better. As you have seen in 2018, it was our biggest brands that led to growth. Strong brands get even stronger.

In China, for example, as you’ve seen, Lancôme and L'Oreal Paris, our two biggest brands, both ranked in the top three on Tmall during 11.11. It is the most famous brands, the most loved, the most searched for that win. Digital is also strengthening our power to connect with consumers. Today, we have more than 1 billion consumers, visitors on our websites. We generate one-third of the global beauty traffic on YouTube and one-fourth of the beauty engagement on Facebook. In the L2 rankings of Digital IQ, four of our brands ranked in the top 10 and 6 in the top 20.

The acquisition of ModiFace has been instrumental in enriching the services we offer our consumers. Digital now amounts to 43% of our media investment, of which 3/4 are spent on precision advertising, which we can optimize in real time with our proprietary digital cockpit, strongly enhancing ROI. We have more now than 2,000 digital experts in-house, including data scientists, social media strategists, digital media specialists. And to date, we have upskilled more than 22,000 employees.

Digital is now totally embedded in our teams, in every brand, every division, every function, every country, infusing every area of the business, with digital excellence. Digital has been and will continue to be a powerful accelerator for growth. And beyond digital, new technologies around data and artificial intelligence are opening new horizons. Beauty is becoming more and more tech, and we are absolutely determined to be the pioneers, the champions and the leaders of this new beauty tech world.

As you can see, as we enter 2019, L'Oreal is stronger than ever with a winning strategy and a pretty unique business model based on five simple but very powerful founding principle. First, our absolute faith in the superior quality of our products and, therefore, a continuous strategic focus on research and innovation.

Innovation is the name of the game in the beauty market because beauty is an ideal, a permanent quest. This is why consumers are always eager to try new products. Our success today and tomorrow will be driven by our permanent obsession with innovation and superior quality, which are, in this world of algorithm, rating and reviews, more important than ever.

Secondly, our belief that top line growth is clearly the best route to value creation for our shareholders. Our results are once again proof of L'Oreal's very powerful business model, which is focused on top line growth plus operational discipline. Hence, our strategic choice in 2018 to sustain our investments in business drivers and in R&I critical for innovation.

Third, our unique conviction that victories are won on the battlefield. The very special thing about L'Oreal is our unique culture organization and, of course, the incredible quality of our people. Some of you in the room experienced that in China in November. The secret of our success in China over the last 20 years has been, of course, the most beautiful brands and great innovations, but what has really tipped the balance has been the commitment, creativity and determination of our teams. That is true everywhere, not only in China, and is more important than ever.

Local teams are critical not only for execution but also to ensure that in every country, we are close and relevant to our consumers. We understand our consumers' desires, and the teams are fully empowered to deploy resources accordingly, like real entrepreneurs. These strategically concentrated yet operationally decentralized model, combined with the empowerment of local teams, is what brings agility and excellence on the field. It allows us also to be simultaneously totally consistent in term of brand expression and absolutely relevant to consumers on every market.

Our fourth distinguishing element is our ability to catch the growth wherever it emerge, thanks to our absolute coverage of the market. The fact that we are covering all channels, all categories, all countries, all prices, all types of consumers allows us to identify, grasp and maximize all opportunities and to seize the growth wherever it is while minimizing our exposure in areas which are slowing down. We spun the entire market yet are agile and flexible enough to move quickly and invest in the most dynamic areas, thanks to this winning model.

And finally, our fifth element of differentiation is our lead in sustainability and ethics. Delivering financial performance was being a committed corporate citizen is probably our biggest source of pride. Once again, in 2018, L'Oreal was recognized by renowned external institution as a global leader across all industries, in environmental protection, gender equality and ethics.

For the first time ever, the CDP, the Carbon Disclosure Project, the most respected authority in sustainability, awarded us, for the third year running, 3 A ratings in – for our actions in fighting climate change, water management and combating forest – deforestation. In terms of diversity, we were ranked as the top gender-balanced company in Europe by Equileap as well as number two worldwide out of 3,000 companies. And in term of ethics, we are very happy and proud that for the first time in 2018, we were ranked as the leading company worldwide across all industries by Covalence EthicalQuote.

So these five founding principles make L'Oreal a very different and very unique company in this industry and perfectly adapted and in tune with the evolution of the world. And our great mission of offering to all women and men on the planet the best of beauty in term of quality, efficacy, safety and responsibility is more relevant and motivating than ever. We have, therefore, all reasons to be more optimistic, confident and determined than ever. And to conclude, as you expect, we are very confident in our ability to outperform the beauty market in 2019 and achieve another year of, I hope, significant growth in sales and a further increase in profit. Thank you.

And now we'll get to your questions. Maybe we'll put more light in the room. Thank you very much.

Question-and-Answer Session

A - Jean-Paul Agon

And we are open. And as usual tradition, Celine will be the first one, maybe Celine and then Eva, if you're online. Sorry, Eva. I saw Celine first because you are behind.

Celine Pannuti

Celine Pannuti, JPMorgan. So my first question, you partly already answered it, to address, as you said, that you expect, hopefully, to be significant growth. So in terms of the outlook, is there – could you give us your best guess of what you think the market will do? And you said that so you expect to hopefully have a significant growth this year. Any maybe first start to the year, how is that…

Jean-Paul Agon

As guidance, for example, something like that?

Celine Pannuti

If you wish to. That's my first question.

Jean-Paul Agon

I'm not really surprised by your first question. So as you heard, in fact, we believe that all the reasons that created a strong market, a strong growth of the market in 2018, are still there, all reasons: digital, Asia, skincare, e-commerce, travel retail, I mean, all – because the strong growth of 2018, which was the best in 20 years, didn't happen by chance. It just happened by – for some reasons. And what we see at this beginning of the year, honestly, is the same reasons are there. So except any big change in the environment or anything, we have, at that moment of the year, reasons to believe that the market should continue to grow very nicely.

And regarding our performance, at this, of course, we don't give guidance. That's why we have this traditional guidance of outperforming the market, which is, by the way, nothing, because when you are the leader and you commit to outperform the market every year, it's still something strong – a strong statement. But we also believe that, again, for the same reason, the same engine of growth that gave us the ability to deliver a strong growth in 2018 are absolutely still there. So I can tell you that all of us here at the table, we are pretty confident and optimistic for 2019.

Celine Pannuti

My second question is on the markets that have done less well in 2018, so North America and Western Europe. There seemed to have been a deceleration in North America in the fourth quarter, if you could comment on that. And should we expect those market to remain quite sluggish in 2019?

Jean-Paul Agon

First, by definition, you cannot have everything doing extremely well. It has to be a balanced act between part of the world that grow faster than others or categories or whatever. So – but I understand your question. So what is true, that we saw – North America was not that bad in 2018. We estimate that, globally, I think it was between 4% and 5% something, 5% growth globally, all categories, all channels. Western Europe was much more difficult.

And there, again, you have reasons. It's not by chance. The market was still difficult in France. The market got more difficult in UK. The markets were not that fantastic, the countries like Italy. So we all know that Western Europe didn't have great growth. We believe – what can I say? We believe that it shouldn't be worse for Western Europe in 2019. I see Vianney Derville, our Head for Western Europe. So I'm sure that he will confirm. We believe that the market shouldn't be worse, but we believe that we're going to do better. Isn't it, Vianney?

So it's management by meeting, you see? So no, we believe that we should be able to do better in 2019. So we are pretty confident. And also, as Christian explained, that's one of the reason why the profitability of Western Europe decreased last year.

It's not really that we raised our investment, but it’s not – because that we didn’t decrease our investment. We kept investing in Western Europe because we – for us, Western Europe is still important. We have reached a point where we represent four times the size of our number two competitor. So honestly, competition around us is, I would say, vanishing. And so for us to keep this strong position or even to be able to strengthen it year after year is also a strategic choice. And in North America, we are also confident. And maybe I can ask each of the President of the division to give you a quick note on North America, on the U.S.A. Nicolas, you want to start?

Nicolas Hieronimus

Yes. First, on the U.S – is it working? Yes. On the U.S. markets, in the luxury world – actually, the Euro has been going up and down. The first quarter was very high. The second was a bit lower. Quarter three was super strong. And quarter four was indeed very much lower. So it’s kind of hard to predict. Overall, there is still a growing luxury market and appetite for new products and new brands. And you saw well with our – the variety of our portfolio to continue to excite U.S. consumers, but they – I don’t see any reason to worry about the U.S. market based on what we’ve seen last year.

Jean-Paul Agon

Alexis, maybe two words, and then we will ask Nathalie and Brigitte.

Alexis Perakis-Valat

Yes. Towards, overall, the market was okay in 2018. What – I think what is interesting is that we saw the difference between the categories is makeup was a tick softer, but while, at the same time, skincare accelerated. And this is maybe the interesting thing. And we slightly over performed the market. And what is important is that we’ve gained market share in makeup and hair color, which is really the backbone of our U.S. business.

Jean-Paul Agon

Nathalie, you had a good year in 2018.

Nathalie Roos

Yes. True, we are particularly happy with our performance in the U.S. The market is quite dynamic, and we are outperforming the market largely with progressive acceleration, as you’ve seen the first quarter at plus 4.8%. It demonstrates that the changes we’ve made in our approach is paying off. We are adapting to the rechange of the environment in the U.S. So you must know that today, almost 50% of stylists in the U.S. are mobile, meaning that they are not attached to 1 particular salon. It means that we had to change the way we approach them, and we reach them with a lot of investment in digitalization of this relationship and also leveraging our fantastic distribution tool, which is salon-centric, because this tough network and the way we have renovated the store progressively is really making them more attractive to these mobile stylists. This, combined with very strong portfolio of American brand, especially the Redken brand, not only, by far, leader of the market, is doing really well with super high development on quotation at plus 8% last year in the U.S.

Jean-Paul Agon

You can’t stop Nathalie when she talks about the U.S.A. So she’s so excited about the success in the U.S.A. But we have to admit that the queen of the U.S.A. last year was Brigitte because...

Brigitte Liberman

Yes.

Jean-Paul Agon

So you finished because you had a fantastic performance with Active Cosmetics.

Brigitte Liberman

The division ended the year at plus 20% in the U.S. and strongly overperforming the market, and the growth is coming from every brand, especially CeraVe that we just acquired one year ago. And I must say that the skincare market is very, very positive and evolving positively. And e-commerce is also a strong driver. So I’m very confident for the year to come.

Jean-Paul Agon

So, Eva, maybe now?

Eva Quiroga-Thiele

Yes, I have two questions, please. I would like to come back to the Consumer Products Division. I mean, you’ve talked about really strong growth for both L’Oreal Paris and Maybelline, and obviously, the division overall is down 2.5%. So the rest doesn’t seem to be doing that well. I was encouraged by the comment in the press release that Garnier is picking up in Q4, but I was wondering if you can talk a little bit about that. And second question is, Jean-Paul, you said a few years ago, you think only 1 out of 100 brand launches that comes from scratch actually succeeds. Yes, you’ve done HOUSE 99, you’ve now done La Provençale Bio. What gives you the confidence that now you can beat the odds?

Jean-Paul Agon

That’s a nice question. We are always trying. We are always trying, and that’s a good challenge for us. I still believe – it’s still a statistic that if you look at all the brands that are launched around us, it’s a Darwinian world, and most of them don’t grow or even die, and that’s the way it is. So but it’s true that we have – we wanted also to a little bit beat the odds and also because for our people and for our teams internally. It’s very often a source of motivation to work not only on developing brands but also creating some. So that’s why we are doing that and taking the risk, and financially, the risks are very limited. So it’s a new type of experiment that we are doing. But I still believe that it’s not easy. So Alexis?

Alexis Perakis-Valat

Yes. So maybe to answer on your question about Garnier. Maybe first tell you that we are extremely determined, confident and optimistic about the prospects of Garnier because it’s a brand that is bang on the new trend that we’re seeing on the market. Everywhere in the world, natural beauty, be it truly natural, organic or natural inspired, is booming, and we want really Garnier to champion this trend of natural beauty. As you said, the beginning of the year was a bit rough also because you have to know that the geographical footprint of Garnier was not ideal, because we’re not in China and Garnier was pretty – is pretty strong in Brazil. So the footprint was not great. But as you noted, we saw very encouraging acceleration in the Q4 of Garnier. We’re confident about 2019. We’re gaining market share in a lot of geographies. And one of the action plan that we have – a significant action plan that we’re having for 2019 is this deployment of Garnier Bio in Western Europe, again, leveraging this trend that we think is sure to last around naturality and beauty.

Jean-Paul Agon

I think a positive note also is that, you remember a few years ago, there was a question mark about all these little brands, local brands. They are taking the power. They are growing. And so it makes impossible for the big established brand to grow. And the great thing in 2018 is that, for the consumer division, we were able to prove that two of our big brands, L’Oreal Paris, number one beauty brand in the world, maybe the number one makeup brand in the world, we’re able to grow faster than the market. So it demonstrates that it’s not a question. There is no fatality, as we say in French. It’s a question of how you play with the brands. If you are connected, if you respond to consumers, if you are digitally relevant, you can absolutely deliver the growth. Okay, Eva? Any other question? Please?

Guillaume Delmas

Good morning. Guillaume Delmas from Bank of America. Couple of questions from me. The first one is on advertising and promotional spend, because if I look at the last couple of years, you’ve increased A&P by almost EUR 1 billion. I don’t think we’ve seen any other consumer staples company increasing A&P that much. So my question would be, in which areas do you invest this incremental A&P? How is it building or further strengthening your competitive advantages? And also, how do you measure your return on investment on this incremental spend?

Jean-Paul Agon

Okay. It’s a very good question. I would first start by answering the question you didn’t ask, but that’s pretty that I have seen and have read on some paper that were written since yesterday evening, because some analysts said maybe the cost of the market, the cost of growing has increased. And the answer is no, not at all. The increase of the investment that we made last year was absolutely not by necessity. It was by choice. As you understood very clearly, we benefited last year, for many reasons, of a very nice increase in our gross margin. And we strategically decided to invest a large part of it in what we call volume at business driver, for example, A&Ps. And that was in perfect agreement with the board of the company in order to fuel our market share gains and, therefore, to fuel our growth. And apparently, it worked. It worked because we saw the acceleration of the growth along the year, and I hope it will keep showing in the beginning of this year. So it's very important to understand that. The cost of doing business in the beauty industry is not increasing, on the contrary, but it is our choice, our purpose to really increase the spending on our brands.

Secondly, it's true that what you said that we are one of the very few companies to increase the investment, but it's also because we are one of the very few companies that has made the strategic choice of top line priority. You know very well that in the consumer goods industry – among consumer good industries, some have made another choice, sometimes under pressure. Our strategic choice, again, with the board is really to make top line a priority because we think, as I said before, that it's also the best route for value creation for our shareholders.

And in our industry, the best way to increase the top line, to accelerate the top line is to invest on our brands. So that's why we do it. And at the same time, we are delivering year after year the nice increase in profitability and results. So now the question, how do we invest? How do we measure? Maybe I can ask Nicolas and Alexis because they are the two most investing divisions in A&P.

Nicolas Hieronimus

You want to start, Alexis?

Alexis Perakis-Valat

Go.

Nicolas Hieronimus

Okay. So – no. I think – and I think maybe if I can add another point is that we also have more brands. We've made acquisitions. We've had several billion of brands. We've made Saint Laurent, La Roche-Posay, Armani [indiscernible] brands, and we are supporting much bigger boats, which also benefit from this investment. We invest obviously in consumer engagements, in media, in – but in media, that's done, I would say, in a much more targeted and effective way. You saw in the – in Jean Paul's presentation that 40% – 43% of our media spend is on digital, and 3/4 of that is in programmatic, which allows us to target, very specifically, consumers.

The interest of having a wide portfolio of brands is that you have different tribes of consumers, and being able to target specifically the right tribe for the right brands is extremely powerful. So that's one of the ways we spend M&A. And obviously, we also invest our money particularly in luxury, in retail. We are creating experiences for consumers. Making them love our brands is extremely important. In this algorithm world, creating love brands is quintessential, and we do this through advertising and through experience. And obviously, sorry, the ROI is measured very specifically. We work with several companies to measure both the short-term ROI of our actions as well as the medium-term and long-term ROI on our brands. So the efficacy of our spend is very much looked after.

Jean-Paul Agon

Alexis for [indiscernible]

Alexis Perakis-Valat

Maybe to build on that and to reaffirm how robust our ROI systems are now, because we have most of our media that is really ROI-tracked. But what – I think what is important to say is that ROIs and tactics are very different by category and by geography, and that's where all the local intelligence – we've got a global understanding of what's going on, but that's also where the savoir faire, the expertise of our local teams to put the right money in the right buckets, on the right categories is absolutely key.

And we've – I think – and because also we're focused on beauty, we have an expertise and knowledge on our categories that is absolutely best-in-class. Maybe last thing to say in the case of CPD, we still have hundreds of millions of consumers to recruit, and media is a way to get rich and to get your brands and your innovations known and to recruit new consumers to our brands, which, at the end, is the alpha and omega of growth.

Jean-Paul Agon

Okay? Yes.

Guillaume Delmas

My second question is, Jean-Paul, you're very confident about the outlook for 2019. You're off to a good start in January, but do you have a plan B in place in the volatile world we're currently in? Should we see a slowdown in category growth over the course of the year? How quickly can you adapt your cost structure to protect your margins?

Jean-Paul Agon

We are very – we are always very paranoid about what can happen. I'll remind you that we were the first to talk about the VUCA world, so we know very well that the environment in which we live today is very volatile, uncertain, complex and ambiguous. But still, we are also very convinced that we can make our way. Of course, we have many plan B, but also, in a way, the business model of L'Oreal is very agile. I mean, the fact – as I explained before, the fact that we cover all channels, all geographies, all categories, all price points, all consumer psychographics, et cetera, allows us to readjust and readapt the way we invest, the way we prioritize, the way we go permanently.

And I can tell you that, for example, that's what also we did during 2018. It was a better problem because the problem was more an acceleration of the market where we had to reallocate our investment. But that's also what we would do if we had some headwinds in 2019. And that's what we have been doing also for many years. So it's – we are not worried about that. I think that among – because we are so much covering all segments of the market, I think that we are, among all companies, probably the most protected against a sudden change in 1 category or 1 geography or – than another. Yes? Madame?

Astrid Wendlandt

Astrid Wendlandt, I'm a journalist. I have...

Jean-Paul Agon

We said we'd keep – sorry, we'd keep the question at the end for journalists, please. We start with the analysts. It's what has been said at the beginning. Thank you very much. Yes, please?

Unidentified Analyst

Hi, good morning. [indiscernible] MainFirst. I have two questions, one on the natural trends, because we've talked about – a lot about it. Could you give us a bit more what are the initiatives for 2018 – 2019, sorry, what it represents already in terms of sales? Is it working? And what's the plan with Logocos? And then second question would be about NYX and Urban Decay. We haven't talked a lot about them today. So what happened in 2018. And, I guess, consolidation a bit, but what's ahead?

Jean-Paul Agon

All right. Good. Okay, good questions. So Alexis?

Alexis Perakis-Valat

Yes, on the natural trend, we estimate that, more or less – if you look at this trend as a whole, which is naturally inspired product, truly natural and organic, that maybe weighs around a little over 15% of the worldwide beauty market. And then if you look at what we could call truly natural and organic, it's about 1/4 of that. In both cases, and especially in the truly natural and organic, so it's not huge. And if you say organic, organic, it's even smaller, depending on the countries. In countries like Germany or in France, it's maybe around mid-single-digit. But what is interesting is to see that they're dynamic.

In almost all the geographies, this segment of the market grows faster than the average, and we believe that it's a trend that is here to stay. And that's why we've taken these three initiatives. Logocos, which are two great brands, Logona and Sante, but – which is also a way to acquire an expertise, because organic beauty, natural beauty is also an expertise. It's a technological challenge, and lower cost brings us also this expertise.

The second thing is La Provençale, and we already have first encouraging results on La Provençale. And La Provençale will be sold in the organic aisle of the hypermarkets. And then you've got the Garnier BiO initiative, which is a more wide initiative, which role is really to democratize organic and which will be sold in the general aisle of the hypermarkets. And it's important to say also that within the buyers of natural beauty, you've got different consumer groups that we're trying to tackle with different brands.

Jean-Paul Agon

And NYX?

Alexis Perakis-Valat

Yes, of course, NYX. But NYX has been a fantastic story for the division because it’s been the most impressive success in terms of runs of the history of the division, which has brought a lot of growth. We opened a lot of countries. We opened a lot of doors. So as you said, 2018 was a year of consolidation and have taken a growth – taking a breath after two years of absolutely explosive growth. We’re extremely confident about the prospects of NYX, first, because it has a very unique positioning at mass, because it’s the only professional makeup artistry brand at mass. Nobody has that.

Second thing is that the social traction of the brand is extremely high. It remains a darling of all the influencers, the makeup artists. Third is you still have a lot of people, even makeup lovers, that don’t know NYX yet. And fourth, wherever in the shops we are, wherever we are, NYX is always within the top brands of the store. So we believe that it’s a breadth before a new phase of development for this very unique brand for the division.

Jean-Paul Agon

Thank you. And Urban Decay?

Nicolas Hieronimus

So yes, Urban Decay, over after years of being a growth driver for the division, has had a disappointing year. Clearly, the number one driver has been the slowdown of the makeup market. And by the way, our ability to benefit from the boom of skincare shows what Jean-Paul was explaining about our – variety of our options. But Urban Decay is the number three brand in – of the U.S. market in makeup, overtaken by It Cosmetics on the market that has slowed down a lot. I think it ended up at plus one or two with lots of new brands, so more competition.

So it’s a tougher battlefield. Overall, Urban Decay has products that are really loved by consumer. The Naked Cherry Palette was the best palette of the year. The setting spray is still an incredibly booming product, but we have to probably balance a bit more our model between the traditional pillar strategy of L’Oreal with great in-house formulas and its capacity to come up with very creative drops to bring this brand back to growth and hopefully have another – a new bounce of the makeup market.

Jean-Paul Agon

Thank you, Nicolas. Yes, question?

Richard Taylor

Good morning, Richard Taylor from Morgan Stanley. Three easy ones from me this morning. I think you said last year that the number of Chinese consumers in the upper and middle class is going to double over the next five years. Obviously, this is a major driver of growth, but I’d like to ask, what are the lead indicators that you look to for the health of this particular Chinese consumer? So that’s the first question.

And then second one, very nice progress on the dividend payout ratio over time. Is there a maximum or an aspiration level that you have in mind for that payout ratio? And then lastly on CeraVe. This has been delivering extraordinary growth since the acquisition. Maybe you can give us just a little bit more insight of the dynamics behind that growth.

Jean-Paul Agon

Okay. So maybe we ask Brigitte on CeraVe; Christian, the dividends, or you prefer to ask Christian on the CeraVe and Brigitte on the dividends?

Christian Mulliez

That could be funny.

Jean-Paul Agon

Brigitte first on CeraVe.

Brigitte Liberman

On CeraVe, we had the new records, first of all, in the U.S.A., thanks to a very strong growth in drugstores and Amazon and a very increased reach of the doctors that we are able to visit in the U.S. And at the same time – so we are very, very positive. And at the same time, we were able to launch the brand in around 30 countries in the world. The business model is really rooted in medical, meaning that we started to visit dermatologists and GPs to build trust on this new brand. And the first initial feedback are very positive coming from both prescribers and consumers for the quality and the efficiency of this formula. So we are very positive for the future.

Jean-Paul Agon

Good. Dividends? Christian?

Christian Mulliez

Yes, not easy. I’m not sure it’s such an easy question, but yes, the payout ratio went up to 54% this year, so one more increase. Are we at the limit? No. Can we do more? Can we do better? Yes, we will do better. Yes, the robustness of our balance sheet, which is, by choice, very under leveraged, so we can do better. And I leave plenty of room for my successor, my dear Christophe.

Jean-Paul Agon

Thank you. Nicolas, about the Chinese consumers?

Nicolas Hieronimus

Yes, on Chinese consumers, you’re right to say that the demographic – the growth of upper middle class, but also the middle class for the group, I was reading yesterday and – that OECD forecast the middle class to move from 300 million to 850 million by 2030, so the sheer numbers are huge. We also look at the penetration of beauty at the spend per capita, which is, today, in health and beauty, one fifth of the spend per capita you would find in western countries such as the U.S.A. or France.

So that’s a huge area of improvement. And if I look at Luxury per se, the weight of selective on the total market is less than 20% in China, when it’s over 30% in other developed parts of the world. So we can see that there’s the number of people, but also the spending power that’s going to be benefiting our industry. And the fact that they’re spending a little bit less on houses and cars is not really necessarily a bad thing for us.

Jean-Paul Agon

Good. Thank you. Other questions? Yes. Can you give the mic, yes? Thank you very much.

Fulvio Cazzol

Fulvio Cazzol from Goldman Sachs. Thank you for taking my questions. Jean-Paul, you mentioned that the battle – you got to win in the battlefield, and I just wanted to ask you a question on how you see these battlefields develop from a competitive standpoint in 2019. Are you preparing for a better, let’s say, performance by your competitors to make life a bit more difficult for you? Or how do you see that developing? Thank you.

Jean-Paul Agon

That’s a nice question. First, I want to – I’m celebrating this year my 40 years at L’Oreal. So, I have 40 years of battlefields. And as you know, I fought on several battlefields in Europe, in Asia, in America, everywhere. And I can tell you something, is that, honestly, the battlefield today is not easier or more difficult than it was 40 years ago. It has been the same for 40 years. The only difference, as you say, is that we don’t have the same guys in front of us because some of the people we used to fight for 30 years ago have disappeared. Some others have come. They come and go. And to be honest, we are not really worried by that. Anyway, we think that competition is healthy. We have seen also that in the different channels or categories, when we have good competitors, it makes us also better.

One of the reason, I’m sorry to say that the professional market has been a bit slow, is that maybe we lack competitors for a while. So it’s great. It’s great to have great competitors. We have great competitors in Luxury, and so we are improving our game. So competition is fantastic. It’s very positive. So we are not – absolutely not worried about next year, because we have also our own strategy. We don’t define our strategy based on competitors. And our strategy, you know it very well, I repeated it before, it’s about innovation, quality, great brands, hero products and the great – and people, of course, as I said, incredible quality of our people. And the great thing also, which is an important message, is that we thought a few years ago that maybe digital would change that. And in fact, it’s the contrary. Digital, in fact, more constitutively [ph] is, in fact, boosting the importance of brands, the importance of hero products, the importance of quality, the importance of consumer satisfaction, of course.

So, in fact, all the key principles that made L’Oreal win during all these years are even more relevant to win in this new world where digital plays an important role. So honestly, we are very confident. We respect our competitors, but we are really confident on our own strength, okay? Another question? Yes, I saw a question behind. Yes. Thank you very much.

Emma Letheren

I’m Emma Letheren from RBC. You listed R&D as one of your priorities, but if I’m remembering correctly, it was unchanged this year as percentage of sales. I was wondering if you expect that to increase going forward.

Jean-Paul Agon

We think that, of course, Dr. Laurent Attal with – the first row here, would probably be – agree with you that maybe we should increase. But I think that we have to be also reasonable in term of investment. We keep it at the same level in percentage of sales every year, which means, by the way, that when the business is good, we invest more, which is also an incentive for the R&I to give us a great formula and great innovations and great product, because the better they are, the more sales we do, and the more sales we do, the more budget they have.

So, we think it’s a virtual cycle and – but we didn’t decrease, contrary to many of our competitors. You know that – or you don’t know, but I will tell you, that we are, by far, the company – the beauty company that invests the most in R&I, much more than many others. And in the past 10 years, I have seen many of our competitors or other companies decrease their investment. And we just keep our investment strong and steady.

So, this is the way we do it. We have no intention for the moment. We don’t think that we need to overinvest to have great teams, great innovations and great formula, okay? Give me one more minute. Is there any question again? I had one question from – because you know that we have also questions from Internet. So there was one question from Mark Astrachan about China. Could you discuss how much growth is being driven by Tier 3, 5 cities versus Tier 1, 2? Maybe we can ask Alexis and Nicolas, is there an increase of penetration of the market in these 3 – Tier 3 and 5 cities?

Nicolas Hieronimus

I mean, for Luxury, clearly, the – one of the growth drivers of our business in China, and it’s true for CBE, too, by the way, has been e-commerce and our success on Tmall. And by definition, Tmall is a fantastic way to reach consumers beyond the cities, where we have counters, so that – which are mainly for brand like Lancôme up to Tier 3 and some Tier 4 cities. But the explosion of e-commerce in China is clearly benefiting these Tier 4, 5 cities.

Jean-Paul Agon

And you, Alexis…

Alexis Perakis-Valat

Yes. Having lived six years in China, it’s – I can tell you that things always almost start in Tier 1 and 2, and then trickle down in Tier 3 and below. And as Nicolas said, e-commerce is a fantastic accelerator of this trickling down. So that’s clearly an opportunity and one market is interesting in that is makeup in the case of mass, because in the case of mass, makeup is still underdeveloped in China. If you look at the share of the makeup category on the total mass beauty, it’s significantly smaller in China versus in other – any other country in the world. And we’re seeing that e-commerce is really playing the role of democratizing mass makeup in China. And it’s mostly in Tier 3 and 5 that it happens. And that’s one of the reasons why we’re doubling down our efforts on makeup in China with L’Oreal Paris, with L’Oreal Paris, beauty from France with Maybelline, New York and now with Stylenanda that we’re just launching as we speak in China.

Jean-Paul Agon

Good. And he had another question also about the improvement in professional products. Was it attributable to share gains versus other category dynamics? So, maybe you can explain that – your share gains in 2018 versus competitors.

Nathalie Roos

So, as you know, we don’t have so accurate and on-time panel. So, I can’t give you precise data. But what is sure is that we have accelerated our growth in the second part of the year and overperformed the market. It’s – of course, as a result, we are gaining shares. But clearly, what’s paying off is the way we adapt to the new changing digital world of professional beauty, having first few of the bigger innovation, transforming our organizations to be better in go-to-market and serve our customers better and also by having this selective new channel approach with systematic drive to salon mechanisms in order to benefit, first, our professionals.

Jean-Paul Agon

Thank you. Yes, there’s a question there.

Marco Sormani

Marco Sormani at Varenne Capital Partners. I have a question concerning the U.S. market. So my question is regarding in the distribution channel. Which evolution do you see between the specialist retailers like Ulta beauty and Sephora by department stores, more of a pharmacy? And also a question concerning Amazon, so which future do you see concerning your distribution through Amazon? It can be possible maybe in the mid, long-term to have Luxury Products. So in Amazon, do you think you will restrain more to mass market products? Thank you.

Jean-Paul Agon

I’m sure it’s a nice question for Nicolas.

Nicolas Hieronimus

So, regarding the evolution of the U.S. market, it’s clearly – today, there is the assisted self-service, and e-commerce channels are growing – are the growth drivers of the market, while traditional department stores are more suffering, with some having deeper difficulty such as Bon-Ton. The good thing, as far as we are concerned, and the same for the market is that the weight of department stores and assisted self-service is kind of equivalent. So now we – I think we are entering in a phase, where we will benefit more from the acceleration of assisted self-service, even though for some of our brands, their share – like Lancôme, their share in department stores is a bit higher. But overall, even in terms of openings, you have about the same number of stores that closed in department stores and then open in Ultas and Sephoras of this world. So it’s kind of evening out.

Regarding Amazon, today, Amazon is obviously one of the group’s important trade partners. We do e-commerce with pure players such as Amazon or Tmall. We do e-commerce with our e-retailers and with our own sites. And on Amazon specifically, first of all, we are growing, and I’ll probably hand over to Alexis, who’s the number one customer – or provider, actually, of Amazon. But you have to know that in the U.S.A., all divisions, to some extent, are working on – with Amazon. The Professional Division has starting – started trials with some of its brands, with Pureology, with Biolage from Matrix with pretty good results. Brigitte with ACD was one of the pioneers with the dermal centers that’s created in Amazon with La Roche-Posay and Vichy.

And as you heard probably in my presentation, CeraVe is the number one body care brand and the number three skincare brand on Amazon, so pretty powerful there. And regarding Luxury today, we only have Clarisonic, because we feel, as we speak today and as we said last year, we never say never. The conditions of expressions of our brands on Amazon do not meet our criteria, but that may change. So, we’ll see if it happens. And I think maybe Alexis can tell you a few words about his fast-growing business on Amazon.

Alexis Perakis-Valat

Yes, in the U.S., Amazon is our number one e-commerce pure player partner. We’re growing very strongly there. We grow – because, of course, we’re benchmarking our growth with the growth of the category in Amazon. And from the information we have, we grow faster than the category on Amazon. It’s important also to note that different categories have different weight on Amazon. Amazon is better at selling some categories versus others.

So, we’re really concentrating on where Amazon can bring growth and complementary growth. And the same thing in Europe, because Amazon is mostly a U.S. play and Europe play. In Europe also, from the indication we have, we’re growing faster than them, faster than the category at Amazon. So we’re really the method of growth of the category with Amazon, who is an important – a very important partner for us today and in the future.

Jean-Paul Agon

Good. Thank you very much. So then I have to give you the mic, my dear.

Astrid Wendlandt

Thank you so much.

Jean-Paul Agon

It’s a pleasure.

Astrid Wendlandt

So I have three quick questions, if you’ll allow me. First of all...

Jean-Paul Agon

Surprise me.

Astrid Wendlandt

No problem. 2018, you won the Valentino license from Puig. Now, I’m sure you’re also aware that Prada has not renewed its license with Puig. Are you bidding for that license? And how likely is it that you’re going to win it? Number one.

Jean-Paul Agon

So this will be quick. No comments. Good. Another one?

Astrid Wendlandt

Okay. Second one is probably going to be the same, but I have to try. You've been in L’Oreal for 40 years. 2018 is a record year, seems the perfect timing to pass the baton. Can you give us some insight as to the timing of...

Jean-Paul Agon

To be frank, I think you are a bit rude with me. But because you want me to go away, I'm surprised my dear, Astrid. So same answer, no comment. Third one.

Astrid Wendlandt

Okay. But you need us people to ask those questions.

Jean-Paul Agon

I'm not sure, to be honest, but anyway...

Astrid Wendlandt

Third question. Now the environment and the preservation of the environment is a growing concern, and I was wondering if you could give us some statistics on the efforts that you're making to reduce the amount of packaging that you're using and also on the recycling of bottles and other containers for your beauty products.

Jean-Paul Agon

That's a nice question. I prefer this question by far. So thank you very much. Well done. So first, as you've noted, we have been recognized as the number one company in the world – in fact, the only company in the history of the Carbon Disclosure Project to win three years in a row the AAA rating for carbon, forest and water, which is a great recognition. But it's true that it's not specifically packaging. So I'm going to ask maybe – especially Alexis to talk about your efforts and because, of course, Consumer Division is the most – had the most impact in term of packaging, and they have taken recently commitments in term of packaging that are pretty interesting.

Alexis Perakis-Valat

Yes. First, I think it's interesting for you to know that when we develop products, in a way, we always develop products under constraint. The first constraint is to do a great product, superior formula to that. Then there's always an economic constraint, which is to do it at the right price. And now our teams have a third but very positive constraint, is that we're looking – every time we're renewing or developing a product, is this product improving our footprint?

So there's really a process in place that puts sustainability at the core of our new product development, our new renovation process. And to come back to your question about plastic, we've taken a pretty strong commitment, which is to move to 100% recycled plastic on all our hair care worldwide, which is, by far, our biggest categories in volume, through new partnerships in terms of recycling plastic because it's also a technological breakthrough, because you have to get the volumes to get the quality.

And already in 2019, we're going to double the share of our recycled – because, first, there's recyclable, but the most important thing is recycled plastic. We're going to double the share of our recycled plastic within our whole hair care bottles worldwide.

Astrid Wendlandt

[indiscernible]

Alexis Perakis-Valat

It's about commitment. So the statistics will come after we deliver it, but the most important thing, I think, is the Consumer Division is committed to make this huge transformation. And by the way, we have the same commitments overall. And the four divisions are absolutely committed to improve their impact. You know that we have also a program called Sharing Beauty With All that is a very strong commitment towards 2020 in term of reduction of carbon, water, waste and this packaging effort will go absolutely in the same direction. So we will share with you, if you want more precise statistics in one year from now when the program will started – will be started.

Okay? There was a question there. And – no? Yes. Yes, please.

Sarah White

Sarah White from Reuters. I was wondering if you could give us, first of all, an update on the situation with Nestle and whether you have a sense of whether they might sell down soon. I mean, a year ago, you also said you were prepared to buy back that stake if they did. I was wondering if you could comment on that. And then I also had a couple of questions on France, if you could just tell us whether you were affected by the French protests and what capacity and whether you are concerned that you might be caught up in a kind of price war or sort of discounting war in France in your mass distribution – in your mass market distribution channels.

Jean-Paul Agon

Okay. So first on Nestlé, I will would say no, two words comments, no comment. And if you want a bit more, you can read the Figaro this morning where I elaborate a little bit more, just a few lines. But as I explained in the Figaro, our relationship with Nestlé are excellent, and there is absolutely no change, number one.

Number two, we are absolutely not impacted by the protest in France, not at all. And number three, as I explained also in the Figaro, you should read the Figaro, it's a good paper, because, in fact, in the Figaro, in the interview that I gave yesterday, I gave all the answers to your question this morning. So the third answer was about the fact that I really believe that price war on beauty products would be a mistake because consumers, in fact, are much more interested by superior quality, superior services, superior experience in stores rather than by crazy promotions.

And we have seen that in many, many places, in many periods. In this category of beauty, consumers are more interested by the improvement of their beauty shopping experience rather than the promotion or price reduction. So we don't think that is the best way for retailers to regain, in fact, more power, in fact, in there or more share in the sales of beauty products. Eva, yes?

Eva Quiroga-Thiele

So I actually don't have a question, but I think as we're getting close to the end, on behalf of all of us analysts, I wanted to say a few words to Christian before he leaves us.

Jean-Paul Agon

You're welcome, of course, my dear, Eva.

Eva Quiroga-Thiele

So Jean-Paul, so when I asked Christian why he decided to retire at the tender age of 58, he said to me, "You know, Eva, L’Oreal is like a beautiful duck. What you see is just that, a beautiful duck that swims across the lake effortlessly and steadily. What you don't see is that under the surface that duck peddles madly. Think of me as the feet of that duck. And I'm starting to feel quite tired, and I think it's time to let somebody else do the peddling."

Now I know it doesn't quite feel that way, but Christian has been managing L’Oreal finances since 2003, when he got himself the most beautiful finance job in France in spite of being quite late to his interview, as he once confessed. Since then, he's presided over 15 full year results presentations and 62 conference calls. No wonder he's ready for a change in scenery.

On behalf of all of us, I would like to thank Christian for never losing his patience however many questions we ask him in a torturous way; for making sure we never got carried away in our margin assumptions, whatever the growth, whatever the mix; for safely navigating us through the treacherous fortress of accounting principles and currency movements; for giving us some of the most beautiful acquisitions in the industry and some not so beautiful ones; and for being a trusted travel companion during numerous capital markets days and road shows.

Little would frazzle Christian, from Arctic temperatures to eventful train rides, to lost luggage, as long as there was a cold glass of beer or a good bottle of Bordeaux at the end of the day. With that, Christian, we wish you all the best as you hang up your flippers and prepare for new adventures, and we look forward to start torturing Christophe Babule, who will, from now on, ensure the beautiful duck continues to effortlessly and steadily continue the journey. Thank you very much.

Jean-Paul Agon

Bravo, bravo. Great conclusion. It's 11:00. Time for the cocktail. So thank you very much.