L'Oréal - 2018 Registration Document

4 2018 Consolidated Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Hedging of interest rate risk 10.3. The Group did not have any interest rate hedging instruments at 31 December 2018, 2017 and 2016.

Shareholding risk 10.7. No cash has been invested in shares.

Available cash is invested with top-ranking financial institutions in the form of non-speculative instruments which can be drawn in very short periods. At 31 December 2018, marketable securities consist mainly of unit trusts (note 9.2.). At 31 December 2018, the Group held 118,227,307 Sanofi shares for an amount of €8,945.0 million (note 9.3.). A change of plus or minus 10% in the market price of these shares relative to the market price of €75.66 on 31 December 2018 would have an impact of plus or minus €894.5 million before tax on Group equity. If the share price were to fall significantly below €34.12 (the initial cost of the Sanofi shares), or fall below that price for a prolonged length of time, L’Oréal may have to recognise an impairment loss on its asset through profit or loss. At 31 December 2017, the Group held 118,227,307 Sanofi shares for an amount of €8,494.6 million (note 9.3.). A change of plus or minus 10% in the market price of these shares relative to the market price of €71.85 on 31 December 2017 would have an impact of plus or minus €849.5 million before tax on Group equity. At 31 December 2016, the Group held 118,227,307 Sanofi shares for an amount of €9,091.7 million (note 9.3.). A change of plus or minus 10% in the market price of these shares relative to the market price of €76.90 on 31 December 2016 would have an impact of plus or minus €909.2 million before tax on Group equity. Fair value hierarchy 10.8. IFRS 7 as amended in 2009 requires financial assets and liabilities recognised at fair value in the balance sheet to be classified according to three levels: level 1: quoted prices on an active market; s level 2: valuation techniques using observable inputs; s level 3: valuation techniques using unobservable inputs. s

Sensitivity to changes 10.4. in interest rates

An increase of 100 basis points in interest rates would have had a direct positive impact of +€28.3 million on the Group’s net finance costs at 31 December 2018, compared with a direct positive impact of +€19.1 million at 31 December 2017 and a direct positive impact of +€5.4 million at 31 December 2016. This calculation allows for cash, cash equivalents and derivatives, and assumes that total net debt/net cash remains stable and that fixed-rate debt at maturity is replaced by floating-rate debt. The impact of a 100 basis point rise in interest rates on the fair value of the Group’s fixed-rate financial assets and liabilities, after allowing for any interest rate derivatives, can be estimated at -€0.4 million at 31 December 2018 compared with €0.1 million at 31 December 2017 and €0.2 million 31 December 2016. Counterparty risk 10.5. The Group has financial relations with international banks rated investment grade. The Group thus considers that its exposure to counterparty risk is low. Furthermore, the financial instruments used to manage exchange rate and interest rate risk are issued by leading international banking counterparties. Liquidity risk 10.6. The Group’s liquidity risk can be assessed on the basis of its outstanding short-term debt under its paper programme. Should these bank facilities not be renewed, the Group would have confirmed undrawn credit lines of €3,643.6 million at 31 December 2018. These lines were not subject to any covenants.

REGISTRATION DOCUMENT / L'ORÉAL 2018

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