LOREAL_Registration_Document_2017

2017 Consolidated Financial Statements* NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Foreign exchange gains and losses 9.2.

ACCOUNTING PRINCIPLES

on the transaction date and at the exchange rate effective on the settlement date are recognised directly on the appropriate income and expense lines, after allowing for

Foreign exchange gains and losses resulting from the difference between the value of foreign currency operating income and expenses translated at the spot rate effective

hedging derivatives.

Foreign exchange gains and losses break down as follows:

2017 -90.5

2016 -44.8 87.1 42.3

2015 -34.0 -28.6 -62.7

€ millions

Time value

Other foreign exchange gains and losses

-5.0

TOTAL

-95.5

Foreign currency transactions are translated at the spot rate at the transaction date. Assets and liabilities denominated in foreign currencies have been translated using the exchange rates effective at the closing date. Foreign exchange gains and losses also include the following items relating to derivative instruments: changes in market value linked to variations in the time s value;

changes in market value linked to variations in the spot rate s between the inception of the hedge and the date when the hedged transactions are completed; residual ineffectiveness linked to excess hedges and s recognised directly in the income statement under other foreign exchange gains and losses for -€8.4 million, -€10.9 million and €3.9 million in 2017, 2016 and 2015 respectively.

4

These amounts are allocated to the appropriate operating expense items as follows:

2017 -77.8

2016 28.2

2015 -72.7 29.8 -12.9

€ millions

Cost of sales

Research and development Advertising and promotion

3.3

6.9 4.6 2.6

-12.4

Selling, general and administrative expenses Foreign exchange gains and losses

-8.6

-6.8

-95.5

42.3

-62.7

Hedging of interest rate risk 9.3. The Group did not have any interest rate hedging instruments at 31 December 2017, 2016 and 2015. Sensitivity to changes in interest 9.4. rates An increase of 100 basis points in interest rates would have had a direct positive impact of +€19.1 million on the Group’s net finance costs at 31 December 2017, compared with a direct positive impact of +€5.4 million at 31 December 2016 and a direct positive impact of +€6.5 million at 31 December 2015. 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 €0.1 million at 31 December 2017 compared with €0.2 million at 31 December 2016 and 31 December 2015. Counterparty risk 9.5. 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.

REGISTRATION DOCUMENT / L'ORÉAL 2017

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