3.5.3.4. Financial and market risks
Financial and market risks/Inflation and currency risk 
|
|
|---|---|
| Risk identification | 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 impact of hedging on equity and the analysis of sensitivity to currency fluctuations are detailed in note 11.3. “Other comprehensive income” in the Consolidated Financial Statements. Finally, the impact of foreign exchange gains and losses on the income statement is described in note 10.2. “Foreign exchange gains and losses” of the Consolidated Financial Statements. |
The Treasury and Finance Charter specifies, in particular, the principles to be applied by Group entities to ensure that management of currency risk is both prudent and centralised. To limit currency risk, the Group applies a predetermined strategy whereby it hedges a significant portion of its annual requirements for the following year through currency forward contracts (purchases or sales) or through options. Hedging requirements are established for the following year on the basis of operating budgets of each subsidiary. These requirements are then reviewed regularly throughout the year in progress and the hedging is adjusted. In order to obtain better visibility over the flows generated, the management of currency risk is centralised through the Treasury and Finance Department at head office (part of the Group Corporate Finance Department), which uses a specific tool for centralising the subsidiaries’ requirements by currency (FX report). The system of foreign exchange risk hedging is presented to the Audit Committee. The hedging methodology and the equities involved are described in note 10.1. “Hedging of currency risk” of the Consolidated Financial Statements. It is adjusted according to the economic and financial situation. In addition, the management tools developed can be used to mitigate the impact of inflationary tensions through product recovery strategies and sourcing adaptation strategies. |
Financial and market risks/Financial equity risk  |
|
|---|---|
| Risk identification | Risk management |
|
The main equity risk for L’Oréal is the 9.35% stake it held in Sanofi at 31 December 2023 (see note 9.3. “Non-current financial assets” of the Consolidated Financial Statements), 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 2023, the market value of the Sanofi share was significantly higher than the value recorded on the L’Oréal balance sheet (see note 9.3. “Non-current financial assets” to the Consolidated Financial Statements). |
| Financial and market risks/Risk relating to the impairment of intangible assets |
|
|---|---|
| Risk identification | Risk management |
|
L’Oréal’s intangible assets, which are primarily its 37 major international brands, and the goodwill recognised at the time of external growth transactions, are susceptible to impairment. |
As detailed in note 7. “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 carrying amount, an impairment loss is recognised. Similarly, any difference between the recoverable amount of each cash-generating unit and the net carrying amount of the assets including goodwill would lead to an impairment loss in respect of the asset, recorded in the income statement. This is reported to the Audit Committee. The amounts for the last three financial years are provided in note 4. “Other operational income and expenses” of the Consolidated Financial Statements. The data and assumptions used in impairment tests carried out on Cash‑Generating Units for which the goodwill and non-amortisable brands are significant, are presented in note 7.3. “Impairment tests on intangible assets” of the Consolidated Financial Statements. |