L'Oréal - 2018 Registration Document

Corporate Governance FACTORS AND CONTROL ENVIRONMENT

BUSINESS RISKS \ SEASONAL NATURE OF BUSINESS Risk identification In certain cases and for specific products, the timing of sales can be linked to climate conditions, such as for example sun care products. Products and brands sought after by consumers as gifts see particularly strong sales at year-end and during holiday periods. This is the case for fragrances. A major disruption in any of these factors could affect L’Oréal’s sales.

Risk management

L’Oréal endeavours to mitigate these risks through the diversity and enrichment of its range of products and by organising product launches and special product promotional events throughout the entire year.

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BUSINESS RISKS \ GEOGRAPHIC PRESENCE AND ECONOMIC AND POLITICAL ENVIRONMENT Risk identification Risk management

However, its broad global presence helps to maintain a balance in sales and enables results to be offset between countries and geographic zones. In periods of major economic slowdown or sovereign debt crises in certain countries, the Group’s sales growth could however be affected.

L’Oréal has subsidiaries in 68 countries and 70.1% of its sales are generated outside Western Europe. Global growth in the cosmetics market has led L’Oréal to develop its activities in countries within the “New Markets” Zone, which represented over 43.2% of its cosmetics sales in 2018. The breakdown of L’Oréal’s sales and sales growth are set out in chapter 1 of this Document. Besides the currency risks mentioned in note 10.1. in chapter 4, Hedging of currency risk and in the Currency risk section below, political or economic disturbances in countries where the Group generates a significant portion of its sales could have an impact on its business activities. Whilst the business in the United Kingdom is limited on a Group scale, the change in the situation with regard to Brexit is subject to specific monitoring.

The subsidiary in the United Kingdom has put in place a remedial plan to deal with the potential consequences of the Brexit in the short- to medium-term.

BUSINESS RISKS \ DISTRIBUTION NETWORK Risk identification

Risk management

The presence of the Group’s brands in all types of distribution networks helps mitigate any potential negative impact.

To sell its products, L’Oréal uses independent distribution channels, and may develop direct distribution to the consumer for certain brands (branded retail and e-commerce). The combination or disappearance of distribution chains and changes in regulations with regard to selective distribution could impact the development of the Group’s brands in the country or countries concerned.

BUSINESS RISKS \ COMPETITION Risk identification

Risk management

With a view to the roll-out of its “Universalisation” strategy, the Group has rethought its innovation model and is constantly increasing its investments in research and digital services. L’Oréal’s research teams innovate to respond to the infinite diversity of beauty aspirations all over the world. Thanks to this ability to implement long-term research programmes, L’Oréal can maintain its lead over its competitors (see chapter 1 “Open and sustainable Research and Innovation”, 1.2.7.). At the same time, the Group’s acquisition strategy always takes into account changes in the competitive environment.

Due to its size and brand positioning, L’Oréal is subject to constant pressure from local and international competitors across the globe. Competition is healthy: it drives the Group’s teams around the world to always do their utmost to serve the interests of consumers and the Group’s brands. Winning market share, improving operating profitability and thereby ensuring growth are a permanent challenge in a context of the increased digitisation of consumer relationships, where companies constantly strive to obtain the best positions for their products and launch the most attractive and effective product ranges offering an optimal price/quality ratio.

REGISTRATION DOCUMENT / L'ORÉAL 2018

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