L'Oréal - 2018 Registration Document

4 2018 Consolidated Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The plans of 17 April 2012, 26 April 2013 and 17 April 2014 were definitively vested by the allocation of, respectively, 1,230,850 shares on 18 April 2016, 986,220 shares on 27 April 2017 and 993,765 shares on 18 April 2018.

At 31 December 2018, the performance conditions were deemed satisfied, except for the 22 April 2015 plan for which the expense was reviewed on the basis of the predefined scale having regard to the best current estimate of the performance achieved at the end of the plan.

The fair value of free share awards is determined using the following assumptions:

Stock purchase plans

Stock subscription plans

Grant date

April 2012

April 2013

April 2014

April 2015

April 2016

April 2017

April 2018

Risk-free rate of return

1.43%

0.50%

0.65% -0.02% -0.06% -0.35% -0.28%

Discount for post-vesting transfer restrictions for French employees

8.06% 2.14% €93.68

5.75% 1.76%

4.46% 2.06%

1.70% 1.52%

N/A

N/A

N/A

Expected dividends

1.85%

1.82%

1.85%

Share price

€130.45

€121.35

€177.10

€168.10

€181.75

€191.85

Fair value Employees resident in France s Employees not resident in France s

€77.07 €84.62

€112.37 €119.87

€104.58 €109.99

€161.49 €164.50

€154.32 €154.32

€166.90 €166.90

€176.17 €176.17

The expense recorded in 2018, 2017 and 2016 amounted to €120.9 million, €126.7 million and €118.8 million, respectively. Share capital increase reserved for employees c)

In June 2018, Group employees had the opportunity of subscribing to a Shareholding Plan based on a traditional format with discount and matching contribution. The subscription price was set at €162.52, representing 80% of the average share price over the 20 trading sessions prior to the decision by the Chairman and Chief Executive Officer setting the subscription period from 4 June to 18 June 2018 during which 423,916 shares were subscribed. This number does not include the subscription reserved for a Trustee under the laws of England and Wales, as part of a Share Incentive Plan established for Group employees in the UK, with the final number of shares subscribed determined at 4,514 in November 2018. For French employees, free shares were offered upon subscription having regard to their personal contribution to the plan with a maximum of 4 shares offered for every 10 shares subscribed. For employees in other countries, shares were offered under a free share plan with a condition of the continued employment of the employee and having regard to the personal

contribution to the plan with a maximum of 4 shares offered for every 10 shares subscribed. The shares will be allocated to employees on 25 July 2023 provided they are still with the Group on that date. The IFRS 2 expense measuring the benefit offered to employees is calculated with reference to the fair value of the discount offered on the non-transferable shares. The capital was increased on 24 July 2018 by 455,613 shares and on 15 November 2018 by 6,524 shares. The IFRS 2 expense for free shares granted amounted to: €5.1 million for French employees on the basis of a s subscription price of €162.52 per share; and €7.1 million for employees outside France. This cost is s amortised over the vesting period and corresponds to the share reference value adjusted for the expected dividends over the vesting period namely €180.94 per share, except for the Share Incentive Plan for which the acquisition cost is €205.66 per share.

REGISTRATION DOCUMENT / L'ORÉAL 2018

264