LOREAL_Registration_Document_2017

Corporate governance * RISK FACTORS AND CONTROL ENVIRONMENT

Counterparty risk 2.8.5.3.4.

COUNTERPARTY RISK Risk identification

Risk management

The Group deals primarily with international banks and insurance companies which have the best ratings from the three main specialised rating agencies. When the Group makes financial investments, in the form of either bank deposits or marketable securities (see note 8.2. Cash and cash equivalents of the Consolidated Financial Statements), it gives priority to short-term transferable instruments from first-rate financial institutions.

The Group is exposed to the counterparty risk of financial institutions which it uses within the scope of its business activities. However, the Group considers that its exposure to this risk is low (see note 9.5. Counterparty risk of the Consolidated Financial Statements) in light of its management system.

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Customer risk 2.8.5.3.5.

CUSTOMER RISK Risk identification

Risk management

However, this risk is limited by the Group’s policy of taking out receivables insurance cover as far as this is permitted by local conditions. The risk associated with credit insurance is mentioned in paragraph 2.8.5.3.8. Insurance below). Due to the large number and variety of distribution channels worldwide, the likelihood of a significant impact on the Group as a whole remains limited. The ten largest distributor customers represent 21% of the Group’s sales. The amount considered at risk of non-collection and set aside as a provision is set out in note 3.3.2. Trade accounts receivable of the Consolidated Financial Statements. This amount does not exceed 2% of gross accounts receivable.

Customer risk may result from a failure to collect receivables due to cash problems encountered by customers or to customers no longer being in business.

Liquidity risk 2.8.5.3.6.

LIQUIDITY RISK Risk identification

Risk management

The Group’ s Corporate Finance Department centralises all of the subsidiaries’ financing needs and negotiations with financial institutions so as to have better control over borrowing conditions. Any transactions that may be carried out directly by subsidiaries are closely supervised. To this effect, the Group has unused confirmed credit lines from several first-rate banks totalling €3,675 million, including 450 million in USD facilities (€375 million). None of the lines of credit have a maturity under one year and all of them have maturities staggered from 2019 to 2022. (see note 8.1.10. Confirmed credit lines of the Consolidated Financial Statements The availability of these credit lines is not dependent on financial covenants. The Group also regularly uses the financial markets through the use of short-term marketable instruments in France and commercial paper in the United States . None of this debt includes an early repayment clause linked to financial ratios (see Notes 8.1.1. Analysis of debt by type and 8.1.3. Analysis of debt by maturity and note 9.6. Liquidity risk of the Consolidated Financial Statements). When the Group makes financial investments, in the form of either bank deposits or marketable securities, it gives priority to short-term transferable instruments from first-rate financial institutions. The L’Oréal Group benefits from the following short-term credit ratings: A-1+, awarded in September 2017 by Standard & Poor’s; s Prime 1, awarded in May 2017 by Moody’s; s F1+, awarded in September 2017 by FitchRatings. s These ratings are unchanged compared to those assigned in 2016.

The L’Oréal Group’s liquidity risk is managed with the primary aim of ensuring continued financing and optimising the financial cost of debt.

REGISTRATION DOCUMENT / L'ORÉAL 2017

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