LOREAL_Registration_Document_2017

Corporate governance * RISK FACTORS AND CONTROL ENVIRONMENT

FINANCIAL AND MARKET RISKS \ RISKS WITH REGARD TO ASSETS FINANCING EMPLOYEE BENEFIT COMMITMENTS Risk identification Risk management

Pursuant to the provisions of the Group’s Internal Charter on the Management of Plan Assets, the allocation by category of assets is subject to limits aimed in particular at reducing volatility and correlation risks between these different asset categories. A Supervisory Committee for the pension and employee benefit schemes offered to the Group’s employees ensures that these principles are implemented and monitored, as described in the Employee benefit and pension schemes section in the Social information section (see chapter 3). Moreover, the Group chooses insurers and custodians with robust ratings from the three main specialist rating agencies.

By nature, assets used to finance employee benefit commitments are exposed to fluctuations on the markets in which such assets are invested. A sharp, prolonged downturn in the financial markets may have an impact on the value of the portfolios created (see note 5.4. Post - employment benefits, termination benefits and other long-term employee benefits of the Consolidated Financial Statements).

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FINANCIAL AND MARKET RISKS \ RISK RELATING TO CHANGES IN TAX REGULATIONS Risk identification Risk management

The Tax Department and the Operational Finance Department, assisted where applicable by external advisors, monitor these changes to ensure that the Group complies with these regulations. In the event of a dispute or a difference in interpretation with the tax authorities, L’Oréal may defend its position by taking legal action.

The Group is exposed to risks arising from changes in tax regulations or from their interpretation. An increase in existing taxes, the introduction of new taxes, or double taxation concerning in particular corporate income tax, customs duties, import taxes, the repatriation of dividends or social levies, could have an adverse impact on the Company’s results. FINANCIAL AND MARKET RISKS \ CORE COMMODITY RISK Risk identification The production of cosmetics depends on the purchase of raw materials whose prices vary. These raw materials or components are used in the manufacture of products or in their packaging. The main core raw materials are polyethylene, polypropylene, aluminium and vegetable oils and their by-products. An exceptionally sharp increase in the price of these raw materials or energy prices on the world market could have a direct effect on the manufacturing cost of the cosmetics. However, it is estimated that the impact of this rise on gross margin would remain limited.

Risk management

In order to anticipate the impact of these fluctuations and as a preventive measure, L’Oréal negotiates price indices with its main suppliers of raw materials and packaging items. Also in order to offset market volatility, L’Oréal rolls out ongoing efforts in terms of cost-cutting projects and actions to improve industrial productivity. Pooled responsibility for purchases has made it possible to reinforce these measures.

at local level, subsidiaries have to put in place mandatory s insurance cover in order to meet their local regulatory obligations. The financial solvency of the insurers chosen is an important criterion in the Group’s insurer selection process. Most of the insurance programmes subscribed by the Group involve co-insurance. Globally, the world’s main insurance companies are involved in one or more of these Group programmes. General third-party liability includes operating liability, third-party liability related to products, and sudden and accidental environmental damage. The Group has had a programme in place for all of its subsidiaries across the globe for several years (except where restrictions apply). The programme covers the monetary consequences of the civil liability of Group entities, when they are liable. Integrated worldwide programmes General third party liability

Insurance 2.8.5.3.8. The Group’s overall insurance policy

The objective of the Group’s policy on insurance is to protect the Group’s assets and people from the occurrence of identified material and insurable risks that could adversely affect it. For that purpose, the Group has implemented global insurance programmes (in particular for the Property Damage & Interruption of Operations, Third-Party Liability and Transport risks) which make it possible to manage the insurance cover and provide for uniform insurance cover for all its subsidiaries throughout the world, except in countries where this type of arrangement is not permitted (see Restrictions below). National programmes have been set up in the countries in which global programmes cannot be deployed. This policy is applied as follows: at parent company level, the Group has negotiated s insurance programmes on a worldwide basis with first-rate insurance companies to cover its main risks on the basis of the cover available;

REGISTRATION DOCUMENT / L'ORÉAL 2017

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