2023 universal registration document

3. Risk factors and risk management

Business risks/Geographic presence and economic and political environment
Risk identification Risk management

L’Oréal is a worldwide corporation that has subsidiaries in 75 countries. More specifically, the global development of the cosmetics market has led L’Oréal to develop its Travel Retail business and its business in countries of North Asia, which represented 25.9% of sales in 2023, SAPMENA-SSA (South Asia Pacific, Middle East, North Africa, Sub-Saharan Africa), 8.4% of sales, and Latin America, 7.1% of sales. Because of this globalisation, political or economic disruption (strong economic slowdown e.g. due to growing geopolitical tensions such as the Ukraine/Russia situation, sustained high inflation, international trade tensions or sovereign debt crises) in countries in which the Group generates a significant portion of its sales could have an impact on its business activity.

The impact and management of inflation risks, currency risks, and those associated with economic sanctions policies, are described in the risk factors entitled “Inflation and currency risk” and “Risk of non conformity” respectively.

 

L’Oréal’s global presence and its portfolio of 37 major international brands helps to maintain a balance in sales and offsetting between the geographic zones, product categories and distribution channels (details on sales from the zones are presented in section 1.3).

With regard to Ukraine Russia, L’Oréal continues to closely monitor the situation and its potential for adversely impacting the worldwide economy and, in particular, its business activity.
Business risks/Sanitary crisis
Risk identification Risk management

Because of its worldwide presence, L’Oréal is exposed to epidemics or other public sanitary crises in the 79 countries in which it operates. The main risks identified cover different segments of the Group’s business activities:

  • impairment of the health, safety and security of employees in the context of their duties and their business travel, and confinement of the population that prevents employees from entering their work site, particularly at the manufacturing and distribution sites;
  • difficulties for the company to operate normally because of the restrictive measures established by the authorities, which restrict employee access to the Group’s sites, or as a result of the unavailability of individual protective equipment necessary to protect them;
  • supply difficulties, unavailability or increased prices of raw materials and components, and limited capacities to produce and distribute products related to the restrictive health measures established by the authorities of the countries in which the Group operates;
  • reductions in product demand related to the impact of the measures to restrict movement on access to physical points of sale, particularly in the Travel Retail network that is particularly sensitive to sanitary crises; and
  • financial difficulties for suppliers and clients as a result of a drastic reduction in their levels of business.

Depending on its duration, geographic expansion and the resulting economic and social consequences, a sanitary crisis may have a material impact on the Group’s activities, its performance and its reputation.

The crisis management system is led by a unit at Group level that can prevent and limit the impacts of undesirable events on all its entities.

Facing a sanitary crisis, the Group’s priority is to protect the health, safety and security of its employees. The Group responds through compliance with the directives of the authorities in the countries in which it operates, the application and adaptation of its worldwide, high management standards for health and safety at its operational sites and in business travel situations.

The Group’s information systems allow large-scale development of flexible and remote work methods and are the subject of adequate safety protection processes (see paragraph 4.3.2.4.).

The policies to manage supply chain and inventories, and the business continuity plans of the administrative, industrial and logistics sites, allow the Group to anticipate the actions necessary to manage disturbances. The long term relations with the Group’s strategic suppliers, the policies to diversify sources, and operational continuity plans, limit the impacts of these crises.

The Group’s presence in all distribution channels, particularly online sales capacities developed with diversified partners (owned sites, e -retailers, pure players), as well as its expertise in digitised consumer relations, help to maximise development opportunities in disturbed contexts.

The Group’s worldwide and balanced presence in terms of geographic areas, product categories and distribution channels, the very high responsiveness and capacity for adaptation of its teams through its strategically centralised and operationally decentralised organisational model with a strong entrepreneurial spirit, as well as its robust financial position, contribute to its ability to face the economic consequences of these crises.e en termes de zones