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L'Oréal S.A.
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== '''Risk Analysis''' == {| class="wikitable" |+ !Identified Risk !Risk Management |- |Due to its international presence, L’Oréal is naturally exposed to currency fluctuations. In addition, commercial flows resulting from purchases and sales of items, products, royalties and services arise between subsidiaries in different countries. Procurement by subsidiaries is mainly in the currency of the supplier’s country. Fluctuations between the main currencies may therefore have an impact on the results of the subsidiaries, but also on the Group’s results during the conversion of non-euro subsidiaries’ accounts into euros and, as a result, make it difficult to compare performances between two financial years. Furthermore, as a result of the inflation situation, the Group is exposed to increased volatility in global currencies and to an increase in the cost of its supplies, in particular. |The Treasury and Finance Charter outlines the guiding principles that Group entities must adhere to ensure a prudent and centralized approach to managing currency risk. L'Oreal employs a pre-established strategy to mitigate currency risk, involving hedging a significant portion of next year's anticipated needs through currency forward contracts or options. These hedging requirements are determined based on operating budgets of individual subsidiaries for the upcoming year. Adjustments to the hedging approach are made throughout the year as the requirements evolve. To enhance clarity in monitoring generated flows, currency risk management is centralized under the Treasury and Finance Department at the headquarters, utilizing a dedicated tool for aggregating subsidiary requirements by currency (FX report). |- |The main equity risk for L’Oréal is the 9.38% stake it held in Sanofi at 31 December 2022 ,the value of which fluctuates primarily as a function of global market trends, Sanofi’s results and, more generally, economic and financial data from Sanofi and its sector. A significant decrease in the amount of the dividend paid by Sanofi, or a significant or extended decline in its market price, could have an impact on L’Oréal’s share price. |This interest and changes in the market in which Sanofi operates are monitored on a regular basis. As at 31 December 2022, the market value of the Sanofi share was significantly higher than the value recorded on the L’Oréal balance sheet. |- |L’Oréal’s intangible assets, which are primarily its 36 major international brands, and the goodwill recognised at the time of external growth transactions, are susceptible to impairment. |“Intangible assets” of the Consolidated Financial Statements, brands with an indefinite useful life and goodwill are not amortised but are tested for periodic impairment at least once a year. Where the recoverable amount of a brand is lower than its net book value, an impairment loss is recognised. Similarly, any difference between the recoverable amount of each cash-generating unit and the net book value of the assets including goodwill would lead to an impairment loss in respect of the asset, recorded in the income statement. |- ! colspan="2" |Business Risks |- |L'Oréal's global presence exposes it to risks from epidemics in its 80 operating countries. These include: 1. Employee Health and Safety: Risks to employees' well-being during work and travel, and limitations due to confinement. 2. Operational Challenges: Government measures and supply shortages affecting normal operations. 3. Supply Chain Issues: Disruptions in material availability and production due to health-related restrictions. 4. Demand Reduction: Reduced product demand from restricted movement and access to retail locations. 5. Financial Struggles: Suppliers and clients facing financial strain due to decreased business. The Covid-19 pandemic's impact in 2022, particularly in China, highlighted these risks. Depending on its scope and duration, a health crisis can significantly affect L'Oréal's operations, performance, and reputation. |L'Oréal has established a crisis management unit at the Group level to address adverse events and minimize their impact across its entities. During health crises, safeguarding employee health and adhering to local authorities' directives are paramount. The Group maintains high health and safety standards globally and adapts them as needed. The company's flexible information systems enable remote work, bolstered by security measures. Supply chain and inventory management policies, along with business continuity plans, help anticipate and manage disruptions. Long-standing relationships with key suppliers and diversification efforts mitigate impacts. L'Oréal's wide distribution channels, strong online sales capabilities, and digital consumer relations expertise facilitate growth even in challenging circumstances. With a balanced global presence, versatile product categories, and diversified distribution channels, along with an adaptable organizational model and solid financial position, L'Oréal is well-equipped to navigate economic consequences stemming from such crises. |- |In a context of digital transformation and constant development of the Information Technologies and their uses, the Group’s business activities, expertise and, more generally, its relations with all stakeholders in its social and economic environment, depend on an increasingly virtual and digital operation. As a result, the malfunction or shutdown of these systems, the leakage or destruction of data for exogenous or endogenous reasons (including cyberattacks, malicious acts, hacks, etc.) internally or at a third-party of the Group could have a material impact on the Group’s business activities. |L'Oréal's IT Department has implemented stringent security rules for infrastructures, devices, and applications. A Code of Practice for Information and Communication Technologies has been introduced to adapt to evolving communication methods. To counter the increasing cyber-threats, the company is bolstering its information system security resources through a multi-year plan. This plan involves anti-intrusion measures, security audits, asset protection, and global monitoring to detect malicious activities. L'Oréal's cybersecurity approach is adapted to emerging threats, investing in incident detection and response systems. Over 73% of eligible employees have received online cybersecurity training, and the Group conducts an annual global awareness campaign called Cyberweek. |- |L'Oréal operates across 76 countries and strategically focuses on regions such as North Asia (29.6%), SAPMENA-SSA (7.7%), and Latin America (6.2%), driven by the global cosmetics market. This international presence exposes the company to potential disruptions from geopolitical tensions, high inflation, trade conflicts, and debt crises in key markets. The Russia-Ukraine conflict in 2022 could also impact global economic growth and affect L'Oréal's operating markets. |L’Oréal’s global presence and its portfolio of 36 major international brands helps to maintain a balance in sales and offsetting between the geographic zones, product categories and distribution channels. With regard to the crisis in Ukraine and Russia, L’Oréal is closely monitoring the situation and its potential for adversely impacting the global economy and, in particular, its business activity. |- |Prejudicial events or information mainly related to the use or misuse of a product, or an inappropriate individual behaviour, whether proven or not, could affect the reputation of L’Oréal, its 36 major international brands and its products and, as a result, affect sales and, more generally, its financial position. The impact of the risk could be amplified, notably, by the explosion of digital and social media all around the world; andsocietal movements and enquiries by the civil society, consumers, etc. to the Group or the brands |L'Oréal has established a comprehensive crisis management framework, including crisis communication training, risk management at corporate and local levels, and continuous online monitoring. Subsidiaries employ their own monitoring systems and report media risks to the Corporate Communications Department. A dedicated crisis management procedure prevents and mitigates global undesirable events, overseen by the Group crisis management officer reporting to General Management. The Code of Ethics is widely disseminated to reinforce ethical conduct and values across the organization, supported by a "Code of Good Practice for the Use of Social Media" for employees. |- |L’Oréal is subject to constant pressure from many competitors in all countries due to its size and the positioning of its brands in various markets in which major international groups operate; local brands and new players coming from the digital economy; rapid technological changes in emerging fields of research by new operators. If the Group fails to anticipate or respond to changes in consumer expectations, especially in the areas of natural beauty, health, personalised services, connected things and environmental commitments, with innovative and adapted product offerings, its sales and growth could be affected. |L'Oréal's innovation model evolves continually with increased investments in research and digital services. Research teams focus on diverse global beauty aspirations, while the Consumer & Market Insights Department monitors consumer expectations. These efforts, aligned with a long-term vision, address innovation challenges. The Digital and Marketing Department accelerates digital transformation to enhance consumer-brand relationships. Sustainability expectations are integral to the L’Oréal for the Future program, shaping brand and product development. The acquisition strategy remains responsive to shifts in the competitive landscape. |}
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