REGISTRATION DOCUMENT 2013 ANNUAL FINANCIAL REPORT

Transcription

1 REGISTRATION DOCUMENT 2013 ANNUAL FINANCIAL REPORT

2 Table of content Page PRESENTATION OF THE GROUP / Miion Hitory Buine activitie and trategic orientation Internationalization and cometic market RESEARCH & INNOVATION: an objective of excellence Operation Invetment policy Rik factor 20 CORPORATE GOVERNANCE * / Summary of the principle The Board compoition and the way in which the Board work i prepared and organied Remuneration of the Director and the executive officer Summary of trading by Director and executive officer in L Oréal hare in Internal Control and Rik Management procedure (report of the Chairman of the Board of Director on Internal Control) Statutory Auditor Report, prepared in accordance with Article L of the French Commercial Code on the report prepared by the Chairman of the Board of Director Statutory Auditor Special Report on regulated agreement and commitment with third partie 84 KEY FIGURES AND COMMENTS ON THE 2013 FINANCIAL YEAR / The Group buine activitie in 2013* Financial highlight Significant, recent event and propect CONSOLIDATED FINANCIAL STATEMENTS * / Compared conolidated income tatement Conolidated tatement of comprehenive income Compared conolidated balance heet Conolidated tatement of change in equity Compared conolidated tatement of cah flow Note to the conolidated financial tatement Conolidated companie at December 31 t, S tatutory auditor report on the conolidated financial tatement 163 PARENT COMPANY FINANCIAL STATEMENTS * / Compared income tatement Compared balance heet Change in hareholder equity Statement of cah flow Note to the parent company financial tatement Table of ubidiarie and holding at December 31t, Page 5.7. Other information relating to the financial tatement of L Oréal parent company Five-year financial ummary Invetment (main change including hareholding threhold change) Statutory auditor report on the financial tatement 192 CORPORATE SOCIAL, ENVIRONMENTAL AND SOCIETAL RESPONSIBILITY * / Highlight for Social information Environmental Information Societal information Table of concordance with the reporting tandard with regard to ocial, environmental and ocietal matter Report by the Statutory Auditor, deignated a independent third partie, on the conolidated ocial, environmental and ocietal information included in the Management Report 232 STOCK MARKET INFORMATION SHARE CAPITAL / Information relating to the Company Information concerning the hare capital* Shareholder tructure* Long-Term Incentive Plan* The L Oréal hare / L Oréal hare market Information policy 257 ANNUAL GENERAL MEETING / Draft reolution and Report of the Board of Director to the Annual General Meeting to be held on April 17 th, 2014 (a of February 10 th, 2014) Statutory Auditor Special Report on the cancellation of hare purchaed by the company 276 APPENDIX / Statutory Auditor Hitorical financial information included by reference Peron reponible for the Regitration Document and the Annual Financial Report Declaration by the peron reponible for the Regitration Document and the Annual Financial Report Regitration Document table of concordance Annual Financial Report table of concordance Table of concordance with the AMF Table on the remuneration of executive officer and Director Table of concordance of the Management Report 283 Detailed chapter content can be found at the beginning of each chapter. * Thi information form an integral part of the Annual Financial Report a provided for in Article L of the French Monetary and Financial Code.

3 REGISTRATION DOCUMENT 2013 ANNUAL FINANCIAL REPORT In application of Article of the General Regulation of the Autorité de Marché Financier (AMF), thi Regitration Document wa filed with the AMF on March 12 th, Thi Regitration Document may be ued in connection with a financial tranaction if it i accompanied by an information memorandum approved by the AMF. The document ha been prepared by the iuer and it ignatorie incur liability in thi regard. Thi i a free tranlation into Englih of the L Oréal 2013 Regitration Document iued in the French language and i provided olely for the convenience of Englih peaking reader. In cae of dicrepancy the French verion prevail. PEFC/ Thi document wa printed in France by an imprim Vert-certifi ed printing company, on recyclable, chlorine-free, PEFC-certifi ed paper uing pulp from foret managed according to utainable environmental, economic and ocial principle. Thi label recogni e the mot tranparent Regitration Document according to the criteria of the Annual Tranparency Ranking.

4 INTERVIEW / A THRILLING STAGE IN BUILDING THE NEW L ORÉAL 2 REGISTRATION DOCUMENT / L ORÉAL 2013

5 MESSAGE FROM THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER Jean-Paul AGON CHAIRMAN AND CEO OF L ORÉAL What concluion can you draw from 2013? 2013 wa another good year for L Oréal. The group outperformed the market acro all diviion and geographic zone, poting ignificant growth in both reult and profitability wa alo another year of progre in adapting the company to a changing world, and driving it efficiency, modernity and performance, o a to continue to build dynamic, utainable and profitable growth. Today more than ever, our brand portfolio i the mot varied, richet and mot powerful in the indutry. It i thi richne that enable u to meet the whole world beauty expectation o effectively. Through globaliation, our brand have trengthened their poition acro all geographic zone. Moreover, the group growth i well-balanced: Wetern Europe remain very olid, North America recorded another year of growth and market hare gain in a le buoyant context, and the New Market excluding Japan poted double-digit growth. I governance one of the factor in L Oréal ucce? There i no doubt about it. The quality of governance i underpinned by highly committed director endowed with complementary expertie. They enure that all deciion ait in the implementation of the trategic orientation they have approved. The Board draw on the quality of the contribution made by it pecialied committee, whoe remit have been What were the reaon behind thi good performance? Above all, thank to our product and our launche. It i eential in our buine: cometic i a upply-driven market where leaderhip i built up primarily through the attractivene and uperiority of product. Thi trong commitment to innovation i at the heart of L Oréal and enable u to tay one tep ahead. To rie to it, we have once again increaed our Reearch and Innovation budget, which have rien fater than our ale. We are inveting in all area: in Advanced Reearch and in formulation; in France and in our five regional hub, anchored in the planet major cometic market. Another reaon i the vitality of our brand. They play a key role in thee uccee. The brand are alway reinventing themelve, to tay perfectly attuned to conumer who are contantly changing. WE HAVE OUTPERFORMED THE MARKET ACROSS ALL DIVISIONS AND GEOGRAPHIC ZONES. And in term of reult? 2013 wa alo a good year for progre in reult and in profitability, which reached a record level. Thee reult once again confirm the trength of L Oréal buine model, which create value and generate cah flow. They illutrate the group ability to continue to deliver utainable and profitable growth. Their olidity, together with the company very favourable propect, have led the Board of Director to propoe to the next Annual General Meeting a further ignificant increae in dividend of +8.7% to 2.50 euro. expanded ince their creation. In 2014, the Board will propoe to the Annual General Meeting the appointment a new Board Director of Mr Belén Garijo, of Spanih nationality, Preident and CEO of Merck Serono, the pharmaceutical ubidiary of the German group Merck. Out of a total of fourteen director, five women will have a eat on the Board, and there will be a ubtantial proportion of independent director. In governance matter, L Oréal want it behavior to be exemplary too. REGISTRATION DOCUMENT / L ORÉAL

6 UNIVERSALISATION, THE STRATEGY WE HAVE CHOSEN, IS GLOBALISATION THAT RESPECTS DIFFERENCES. You have made everal acquiition. Can you explain the reaoning behind them? On one hand there are acquiition that complement our portfolio of brand with a global vocation, like the American make-up brand Urban Decay, which i a tremendou addition to our luxury brand. The ame applie to Decléor and Carita, which will take u into a new buine, profeional kincare, broadening the growth potential of Profeional Product. On the other hand, there are acquiition with a local or regional vocation that will reinforce our geographic coverage: in Colombia with the make-up brand Vogue, in Kenya with Interbeauty and in Brazil with Emporio Body Store. Thee companie are accelerating our penetration of thee market tremendouly. All thee acquiition will make contribution to our organic growth in the future. You have continued the group tranformation proce. I a new L Oréal now emerging? Ye definitely. Over the lat few year, we have been adapting the group in all area, to make ure it i keeping pace with the major economic, digital and ocial change taking place in the world, and ready to grap all the opportunitie of the 21 t century. Adaptability i one of the group great trength. A New L Oréal i emerging, and it i well equipped to continue it miion beauty for all by applying it univeraliation trategy, and to purue it quet for one billion new conumer. In 2013, we added everal new cornertone to help build the New L Oréal: we changed our organiation, continued to rethink our marketing model, and made ambitiou new commitment in term of corporate reponibility. Why did you decide to further develop the group organiation? To make the group more agile, more efficient and better adapted to our univeraliation trategy. We have thu grouped together the elective diviion L Oréal Luxe, Active Cometic, Profeional Product and The Body Shop under the ame leaderhip, o they can hare their expertie and their bet practice more effectively. At the ame time, we have organied the global market into eight major homogeneou trategic region and localized the management of ditant region. Thi mean we can be even more attentive to our conumer and cloer to their apiration. And I am certain thi will really boot our univeraliation trategy. Univeraliation, the trategy we have choen for the group, i globaliation that repect difference. Where do you tand regarding the digital revolution? We have continued to tranform our marketing model to take advantage of the incredible opportunitie provided by digital media. Our viion of digital and traditional media i now totally integrated. All our brand acro all region have witched to digital. They have worked intenively to offer their conumer the very bet not only in information content but alo in ervice quality on the Internet, which i alo an additional ditribution channel for our brand. / STRATEGIC TRANSACTION BETWEEN L ORÉAL AND NESTLÉ In February 2014 you announced a trategic tranaction under which L Oréal will buy 48.5 million of it own hare from Netlé. What doe thi deal involve? Thi tranaction repreent a very poitive trategic move for L Oréal, it employee and it hareholder. The buyback of 48.5 million of our own hare, that i 8% of hare capital, will be partially financed through the dipoal to Netlé of our 50% take in Galderma for an enterprie value of 3.1 billion euro, and for the remainder in cah for an amount of 3.4 billion euro. L Oréal i thu focuing excluively on it cometic buine. L Oréal will benefit from the very ignificant and reinforced preence of the founding Bettencourt Meyer family, who will continue to fully upport the company a it alway did in the pat. Furthermore, Netlé, which ha alway been a loyal and contructive hareholder, will continue to provide it active upport. Latly, all of L Oréal hareholder will benefit from thi tranaction, with an accretive impact on the company earning, reulting from the buyback and ubequent cancellation of L Oréal hare held by Netlé. 4 REGISTRATION DOCUMENT / L ORÉAL 2013

7 1 PRESENTATION OF THE GROUP 1.1. MISSION HISTORY BUSINESS ACTIVITIES AND STRATEGIC ORIENTATIONS The foundation of a winning trategy An organiation that erve the Group development INTERNATIONALIZATION AND COSMETICS MARKET A hitorical preence in developed market Rapid development outide Wetern Europe A commitment to hared, utainable growth Immene development potential RESEARCH & INNOVATION: AN OBJECTIVE OF EXCELLENCE Reearch, in the Group gene One tep ahead in active principle Animal teting: balancing ethic and innovation A global governance for Reearch Reearch in tune with the market A new Reearch Hub in India OPERATIONS From ourcing to delivery, continuou improvement of indutrial efficiency A well-oiled indutrial model Continuou improvement and optimiation of production Long-term partnerhip with upplier L Oréal and it partner: working together to innovate Strong commitment with regard to ocial reponibility and afety Environmental protection at the heart of production INVESTMENT POLICY RISK FACTORS Buine rik Legal rik Indutrial and environmental rik Counterparty rik Cutomer rik Liquidity rik Financial and market rik Inurance 27 REGISTRATION DOCUMENT / L ORÉAL

8 PRESENTATION OF THE GROUP 1 MISSION 1.1. MISSION Beauty for all For more than a century, L Oréal ha devoted itelf olely to one buine: beauty. It i a buine rich in meaning, a it enable all individual to expre their peronalitie, gain elf-confidence and open up to other. Beauty i a language L Oréal ha et itelf the miion of offering all women and men worldwide the bet of cometic innovation in term of quality, efficacy and afety. It purue thi goal by meeting the infinite diverity of beauty need and deire all over the world. Beauty i univeral Since it creation by a reearcher, the Group ha been puhing back the frontier of knowledge. It unique Reearch arm enable it to continually explore new territorie and invent the product of the future, while drawing inpiration from beauty ritual the world over. Beauty i a cience Providing acce to product that enhance well-being, mobiliing it innovative trength to preerve the beauty of the planet and upporting local communitie are exacting challenge, which are a ource of inpiration and creativity for L Oréal. Beauty i a commitment By drawing on the diverity of it team, and the richne and the complementarity of it brand portfolio, L Oréal ha made the univeraliation of beauty it project for the year to come. L Oréal, offering beauty for all 6 REGISTRATION DOCUMENT / L ORÉAL 2013

9 PRESENTATION OF THE GROUP BUSINESS ACTIVITIES AND STRATEGIC ORIENTATIONS 1.2. HISTORY Creation of Société Françaie de Teinture Inoffenive pour Cheveux by Eugène Schueller Imédia, the firt quick oxidation hair colour Ambre olaire, the firt un protection oil with filtering Comair i named a L Oréal agent in the United State Launch of Elnett hair lacquer L Oréal enter the Pari Stock Market Acquiition of Lancôme Acquiition of Laboratoire Garnier Acquiition of Biotherm Acquiition of Gemey, an open door to the conumer make-up market The firt model of a recontructed epidermi from L Oréal Reearch Creation of Laboratoire dermatologique Galderma Acquiition of La Roche-Poay Acquiition of Redken 5 th avenue in the United State Acquiition of American agent Comair Acquiition of Maybelline in the United State Acquiition of Softheen and Caron in the United State and in South Africa Acquiition of Matrix and Kiehl ince 1851 in the United State L Oréal become the majority hareholder in Shu Uemura in Japan Takeover of the Geparal holding company Acquiition of The Body Shop Creation of the L Oréal Corporate Foundation Acquiition of YSL Beauté L Oréal celebrated it centenary and et itelf the target of winning over one billion new conumer Acquiition of Eie Cometic in the United State Acquiition of Q-Med by Galderma, and of Clarionic Acquiition of Urban Decay in the United State Acquiition by The Body Shop of 51% of Emporio Body Store in Brazil BUSINESS ACTIVITIES AND STRATEGIC ORIENTATIONS The foundation of a winning trategy A GROWTH MARKET: AN IMMENSE POTENTIAL The world cometic market i worth approximately 175 billion in net manufacturer price. Over the lat fifteen year, it average annual growth i etimated at approximately +4.1%. Thi market, which ha experienced trong, regular growth, i alo particularly olid and reilient: at the peak of the world economic crii in , it continued to progre by nearly +3% in 2008 and +1% in 2009 before picking up again in Thi market grew +4.6% in 2012 and +3.8% in 2013 (1). Becaue the world will alway need beauty, the world cometic market ha a glowing future. Under the combined effect of population growth, urbaniation, progre in infratructure and growth in world GDP, the population with acce to modern cometic could grow by 50% over the next twenty year, booted by the rapid rie of the urban middle cla in the New Market ONE PURPOSE: BEAUTY For more than a century, L Oréal ha been puhing back the boundarie of cience to invent beauty and to offer men and women all over the world the bet of cometic in term of quality, efficacy and afety. Giving everyone acce to beauty by offering (1) Source: L Oréal etimate of worldwide cometic market baed on net manufacturer price excluding oap, toothpate, razor and blade. Excluding currency fluctuation. REGISTRATION DOCUMENT / L ORÉAL

10 1 BUSINESS PRESENTATION OF THE GROUP ACTIVITIES AND STRATEGIC ORIENTATIONS product in harmony with their need, culture and expectation in their infinite diverity. Thi i the true meaning of our activity RESEARCH AND INNOVATION: INVENTING THE FUTURE OF BEAUTY L Oréal place reearch and innovation at the centre of it development model. With 23 reearch and 16 evaluation centre on all continent, the Group ha developed more than 130 molecule during the lat 40 year. More than 4,000 reearcher play their part in developing new formula and filed 624 patent in L Oréal i now entering the era of univeraliation and beauty for everyone. The exploration of new cientific and technological territorie i being enriched by thi global dimenion: with it in-depth knowledge of kin and hair in all latitude, L Oréal reearch create cometic product adapted to the world diverity THE PORTFOLIO OF COSMETICS BRANDS: OFFERING THE BEST OF BEAUTY IN EACH DISTRIBUTION CHANNEL With 28 international brand with divere cultural background preent in all ditribution channel, L Oréal i able to meet the apiration of all conumer whatever their origin, beauty habit or revenue level. The L Oréal team deign new product in all area of cometic: hair care, hair colour, kin care, make-up and perfume THE INTERNATIONALISATION OF DEVELOPMENT: ATTRACTING A BILLION NEW CONSUMERS Preent in 130 countrie, the Group ha hown it ability over the firt 100 year of it exitence to attract nearly 1 billion conumer, repreenting around 15% of the population of the planet. With accelerating globaliation, L Oréal miion i being enlarged: baed on it international poition and it power of innovation, the Group ambition i to conquer a billion new conumer by 2020 to An organiation that erve the Group development L ORÉAL S.A. L Oréal S.A. i a French company with it regitered office in France and which carrie out a commercial buine pecific to that country. In parallel, L Oréal S.A. act a a holding company and ha a role firtly of trategic coordination and econdly of cientific, indutrial and marketing coordination of the L Oréal Group on a global bai. The ubidiarie develop the Group buine activitie in the country or area in which they are located. In thi connection, they manufacture or have produced and commercialie the product that they decide to ell on their market. The L Oréal Group own the entire hare capital of the vat majority of it ubidiarie. It alo hold 50% of the hare capital of Galderma and Innéov developed in a joint venture with Netlé BRANCHES AND DIVISIONS The Cometic Branch, which repreent mot of the Group activitie (nearly 93% of it conolidated ale in 2013), i made up of 4 Operational Diviion which each correpond to a pecific marketing channel: the Profeional Product Diviion market product ued but alo old in hair alon. Privileged partner of hairdreer all around the world, it upport them in every facet of their development and offer them high-level training. It portfolio of differentiated brand meet the need of all type of alon. Profeional Product Diviion brand: L Oréal Profeionnel, Redken, Kératae and Matrix; the Conumer Product Diviion offer the bet in cometic innovation at acceible price in all ma-market retail channel (hypermarket, upermarket, drugtore and traditional tore) on every continent. Conumer Product Diviion brand: L Oréal Pari, Garnier, Maybelline, Softheen Caron and Eie; A COMMITMENT TO RESPONSIBLE, SHARED AND SUSTAINABLE GROWTH With a particularly robut balance heet and a olid financial ituation, the Group can look forward to the future with confidence. Supported by loyal hareholder, vigilant governance and table management, L Oréal ha alway targeted contant, utainable growth. A a company which eek to be exemplary, and et itelf demanding tandard in order to limit it footprint on the planet, in October 2013, L Oréal launched it new commitment to utainability by 2020: Sharing beauty with all. Thi programme concern all the Group impact, and cover four area: innovating utainably, producing utainably, conuming utainably and haring growth. Detail of thi programme are et out in chapter 6, on page 196 to 198. L Oréal Luxe bring together a unique et of pretigiou brand. Thee brand are old through elective ditribution, broken down between department tore, perfumerie, travel retail outlet, but alo it own tore and through e-commerce webite. L Oréal Luxe Diviion brand: Lancôme, Giorgio Armani, Yve Saint Laurent, Biotherm, Kiehl, Ralph Lauren, Shu Uemura, Cacharel, Helena Rubintein, Dieel, Clarionic, Viktor & Rolf, and Urban Decay; the Active Cometic Diviion ditribute it product worldwide in healthcare product ditribution channel, primarily through pharmacie, drugtore, medipa and, in ome countrie, dermatologit. It unique portfolio of brand, which meet all the need of conumer in term of health-beauty, and it privileged partnerhip with healthcare profeional have made thi Diviion the world No. 1 in dermocometic. Active Cometic Diviion brand: Vichy, La Roche-Poay, SkinCeutical, Innéov and Roger & Gallet. 8 REGISTRATION DOCUMENT / L ORÉAL 2013

11 PRESENTATION OF THE GROUP BUSINESS ACTIVITIES AND STRATEGIC ORIENTATIONS Through it deciion, announced on May 17 th, 2013, to create a Group leaderhip role uperviing the Selective Diviion (L Oréal Luxe, Active Cometic, Profeional Product, The Body Shop), the Group ha affirmed it intent to further accelerate it development in all ditribution channel, by drawing on it know-how in each of it elective ale network. The hitoric market leader in the Travel Retail beauty egment, the Group announced on November 21, 2013 the creation of a Group Travel Retail Diviion which include, a well a the L Oréal Luxe brand, the brand of the other diviion: Active Cometic, Profeional Product, Conumer Product and The Body Shop. The Body Shop Branch repreent nearly 4% of conolidated ale in Founded in 1976 in the United Kingdom by Dame Anita Roddick, The Body Shop i known for it ethical commitment and it product with natural ingredient. More than 87% of it product contain ingredient from it Community Fair Trade programme. With a preence in 66 countrie, the brand ditribute it product and expree it value through a network of excluive tore but alo complementary ditribution channel: Internet ale and airport hop. The Dermatology Branch which repreent approximately 3% of conolidated Group ale (hare attributable to L Oréal), conit of Galderma, a joint venture et up by L Oréal and Netlé over 30 year ago. After poting regular growth for many year, the Galderma laboratory i puruing it development and ha made it mark a one of the leader in dermatology. A joint new releae, iued on February 11 th, 2014 by L Oréal and Netlé pecifie the term and condition of the propoed ale by L Oréal to Netlé of it take in Galderma (ee chapter 3, paragraph on page 103 and 104). 1 (1) The Body Shop Cometic Branch Dermatology Branch Profeional Product Diviion Conumer Product Diviion Galderma (Joint-Venture Netlé / L Oréal) L Oréal Luxe Diviion Active Cometic Diviion SUPPORT DIVISIONS Several pecialit Diviion provide their expertie and upport to the Branche and Operational Diviion: the Reearch and Innovation Diviion, in charge of fundamental and applied reearch; the Operation Diviion, in charge of coordination of production and the upply chain; the Human Relation Diviion, in charge of recruitment, training and talent development policie and co-ordination of ocial policy; GEOGRAPHIC ZONES The Group international development ha naturally meant that L Oréal ha had to adapt it organiation to the need to co-ordinate the etablihment and development of it brand on every continent. Thu, variou geographical zone have been created, each with operational reponibility for the ubidiarie in the countrie of it region: Wetern Europe Zone; America Zone; the Adminitration and Finance Diviion, in charge of the Group financial policy, controlling and conolidation, information ytem, legal and tax co-ordination a well a financial communication and relation with hareholder and invetor; Aia, Pacific Zone; Eatern Europe Zone; Africa, Middle Eat Zone. the Communication, Sutainability and Public Affair Diviion, in charge of co-ordination of corporate communication, coordination of communication by the Operational Diviion and brand and Sutainable Development. (1) Almot all ubidiarie are directly attached to L Oréal parent company with a holding or control percentage equal to or cloe to 100%. The detailed lit of thee ubidiarie i et out in the note to the conolidated and parent company financial tatement on page 159 to 162 and page 186 to 188. REGISTRATION DOCUMENT / L ORÉAL

12 1 INTERNATIONALIZATION PRESENTATION OF THE GROUP AND COSMETICS MARKET EXECUTIVE COMMITTEE Member of L Oréal Executive Committee Firt name/lat name Jean-Paul Agon Laurent Attal Jean-Philippe Blanpain Nicola Hieronimu Brigitte Liberman Marc Meneguen Chritian Mulliez Alexi Peraki-Valat Alexandre Popoff Sara Ravella Frédéric Rozé Geoff Skingley Jérôme Tixier An Verhult-Santo Jochen Zaumeil Poition Chairman and Chief Executive Officer Executive Vice-Preident Reearch and Innovation Executive Vice-Preident Operation Executive Vice-Preident Preident Selective Diviion Preident Active Cometic Diviion Preident Conumer Product Diviion Executive Vice-Preident Adminitration & Finance Executive Vice-Preident Aia, Pacific Zone Executive Vice-Preident Eatern Europe Zone Executive Vice-Preident Communication, Sutainability and Public Affair Executive Vice-Preident America Zone Executive Vice-Preident Africa, Middle Eat Zone Executive Vice-Preident Human Reource and Advior to the Chairman Preident Profeional Product Diviion Executive Vice-Preident Wetern Europe Zone 1.4. INTERNATIONALIZATION AND COSMETICS MARKET A hitorical preence in developed market L Oréal i preent in 130 countrie in all 5 continent. Founded in France in 1909, the Group developed rapidly in Wetern Europe. In 2013, it made 35.1% of it cometic ale in thi territory in which the Group i long etablihed. In the firt half of the 20 th century, L Oréal gained a foothold in North America. Initially, the Group entruted ditribution companie with commercializing it product, thee companie being united in 1953 around an excluive agent, Comair. Following the Company takeover in 1994, it enured the Group development on the North American continent with the tatu of ubidiary. The acquiition of brand like Maybelline (1996), Matrix and Kiehl (2000), or more recently Clarionic (2011) and Urban Decay (2012) have firmly anchored the Group in North America. In 2013, it ale on that continent increaed by 3.8% like-for-like to reach 25.1% of world cometic ale Rapid development outide Wetern Europe Beginning in the 1970, the Latin America Zone developed with a multi-diviional organiation that the Group ha reproduced in the other major region of the world. Preent in Japan for nearly 50 year, L Oréal ha developed it preence in that country by chooing the brand to be given priority for thi extremely pecific market: Kératae in hair alon, Lancôme in Luxury product and Maybelline and L Oréal Pari in ma-market product. The 1990 witneed the opening up of New Market with the fall of the Berlin wall which gave the brand acce to the market in Eatern European countrie. L Oréal wa among the firt foreign group to obtain an authoriation from the Indian government in 1994 for the creation of a wholly-owned ubidiary with it regitered office in Mumbai. 10 REGISTRATION DOCUMENT / L ORÉAL 2013

13 PRESENTATION OF THE GROUP INTERNATIONALIZATION AND COSMETICS MARKET In 1997, the Group created a large multi-diviional zone in Aia and opened new ubidiarie, particularly in China where L Oréal hold 100% of the capital of it entity. Africa and the Middle Eat where the Group had a weak preence i a new frontier for development in the New Market: the number of ubidiarie in that region ha increaed from 7 to 12 over the lat five year. The mid 2000 wa the turning point: the trong acceleration of the development of the New Market i leading to a hift of the point of gravity in the economic world. In all, the percentage of cometic ale generated by the Group in the New Market wa 15.5% in 1995, 27.1% in 2006 and 39.8% in Thi progre i expected to continue A commitment to hared, utainable growth Anxiou to protect the future and to lay the foundation for lating growth, the Group i triving to develop it preence in all region of the world by applying the fundamental rule of a good corporate citizen: the product offered to conumer meet the highet quality tandard; the Group commitment in ocial matter are the ame in all it ubidiarie; all production centre comply with the ame rule aimed at a reduction in the environmental footprint. Social audit are carried out at upplier of factorie and logitic centre; each ubidiary participate, a far a it reource permit, in the large corporate philanthropy programme of the L Oréal Foundation uch a For Women In Science, Hairdreer againt AIDS and Beauty for a Better Life. In the autumn of 2013, the Group preented it programme on Sharing beauty with all and et out it commitment for 2020 to reduce it impact while fulfilling it ambition of growth (detail of thee commitment are et out in chapter 6, on page 196 to 198 ) Immene development potential Beide the major countrie known a the BRIMC countrie (Brazil, Ruia, India, Mexico and China), L Oréal ha notably identified among it growth market the following countrie: Poland, Ukraine, Turkey, Argentina, Colombia, Indoneia, Thailand, Vietnam, Philippine, Egypt, Saudi Arabia, Pakitan, Kazakhtan, South Africa and Nigeria. In ome of thee countrie, the conumption of cometic product per inhabitant i 10 to 20 time lower than in mature countrie. Several ten of million of inhabitant have acce every year throughout the world to level of revenue which make them part of the middle clae and allow them to conume modern cometic product. The marketing team, in particular in large countrie, pay heed to thee new conumer. The laboratorie on all continent tudy their pecificitie. The Group innovation policy i baed on the acceibility and adaptation of product to the beauty habit and ritual of all men and women in their infinite diverity. Thee form the bai for the univeraliation of beauty. 1 REGISTRATION DOCUMENT / L ORÉAL

14 1 INTERNATIONALIZATION PRESENTATION OF THE GROUP AND COSMETICS MARKET NORTH AMERICA 25.1% OF GROUP COSMETICS SALES +3.8% Sale growth in 2013 (1) +2.6% Market growth in 2013 (2) SALES: 5,356 M OPERATING PROFIT (3) : 18.7% (% of ale) WESTERN EUROPE 35.1% OF GROUP COSMETICS SALES +1.9% Sale growth in 2013 (1) +0.3% Market growth in 2013 (2) SALES: 7,483 M OPERATING PROFIT (3) : 22.2% (% of ale) LATIN AMERICA AFRICA, MIDDLE EAST EASTERN EUROPE ASIA, PACIFIC 8.9% OF GROUP COSMETICS SALES +11.5% Sale growth in 2013 (1) +11.0% Market growth in 2013 (2) SALES: 1,895 M 2.4% OF GROUP COSMETICS SALES +14.3% Sale growth in 2013 (1) +6.5% Market growth in 2013 (2) SALES: 505 M 7.9% OF GROUP COSMETICS SALES +8.2% Sale growth in 2013 (1) +2.3% Market growth in 2013 (2) SALES: 1,693 M 20.6% OF GROUP COSMETICS SALES +8.4% Sale growth in 2013 (1) +4.5% Market growth in 2013 (2) SALES: 4,382 M NEW MARKETS 39.8% OF GROUP COSMETICS SALES +9.4% Sale growth in 2013 (1) +5.7% Market growth in 2013 (2) Sale: 8,475 M Operating profit: 19.2% (% of ale) (3) (1) Like-for-like. (2) Source: L Oréal etimate of worldwide cometic market baed on net manufacturer price excluding oap, toothpate, razor and blade. Excluding currency fluctuation. (3) Operating profit before non-allocated. See note 3, page REGISTRATION DOCUMENT / L ORÉAL 2013

15 PRESENTATION OF THE GROUP INTERNATIONALIZATION AND COSMETICS MARKET WORLDWIDE COSMETICS MARKET FROM 2004 TO 2013 (1) (Annual growth rate a %) +4.9% +5.0% +4.6% +4.6% +4.2% +3.8% +3.8% +3.4% +2.9% +1.0% The worldwide cometic market repreent approximately 175 billion, and in 2013 it grew by an etimated +3.8% (1). It i a particularly robut market, which i teadily expanding, while proving very reilient when economic condition are at their mot difficult. The cometic conumer behaviour ha not changed ince the crii. There ha been no devaluation, banaliation or maification of the market. On the contrary, conumer apiration for quality are higher than ever, and they are alway eager for technology and new idea. The cometic market remain a upply-led market, driven by innovation, and conumer are alway looking for quality, performance and perceived reult BREAKDOWN OF THE WORLD COSMETICS MARKET IN 2013 (1) (A %) BY GEOGRAPHIC ZONE BY PRODUCT CATEGORY 32.8% Aia, Pacific 2.8% Africa, Middle Eat 8.2% Eatern Europe 22.1% Wetern Europe 21.4% North America 12.7% Latin America 34.1% 24.1% 1.3% 11.2% 16.6% 12.7% Skincare Haircare Oral cometic Toiletrie, deodorant Make-up Perfume MAIN WORLDWIDE PLAYERS (2) (Sale in billion of US$) In 2013, the dermo-cometic market wa the mot dynamic with growth of +5.0%. The market wa buoyant on all continent, even in Wetern Europe with growth of nearly +3%. With growth of +4.6%, the elective market continued to grow at a teady pace in 2013; boltered by Aia and Travel Retail, it contribute 24% of global growth (1). With growth of +3.9%, ma market ale tailed off particularly due to the United State and Aia From a geographic viewpoint, the New Market continue to attain increaing level of growth: excluding Japan, they repreented 80% of worldwide market growth thi year (1), due in equal hare to Aia-Pacific and Latin America L Oréal Unilever Procter & Gamble Etée Lauder Shieido Competitive poition and market hare held by the Group Diviion and brand mentioned in thi report are baed on tudie, panel and poll obtained from pecialied organiation and companie, or, in the abence of comprehenive tudie, are the reult of etimate made by L Oréal on the bai of available tatitical data. (1) L Oréal etimate of worldwide cometic market baed on net manufacturer price excluding oap, toothpate, razor and blade. Excluding currency fluctuation. (2) Source: Beauty Top 100 WWD, Augut 2013, 2012 ale. REGISTRATION DOCUMENT / L ORÉAL

16 1 RESEARCH PRESENTATION OF THE GROUP & INNOVATION: AN OBJECTIVE OF EXCELLENCE 1.5. RESEARCH & INNOVATION: AN OBJECTIVE OF EXCELLENCE Reearch, in the Group gene Over a century ago, a cientit called Eugène Schueller founded L Oréal by launching a major innovation: a harmle hair dye. Reearch immediately became one of the component of the Group DNA and very quickly one of the key to it ucce. By alway keeping one tep ahead in thi area, L Oréal ha integrated reearch into a Sutainable Development proce. The ingredient ued and the work carried out repect conumer, the environment and biodiverity. Today, to engage in the conquet of a billion new conumer, the Group ha rethought it innovation model and contantly increae it invetment. With a budget of 857 million in 2013, up by +8.4% a compared to the previou year, L Oréal reearch team innovate to meet beauty apiration all over the world in their infinite diverity. L ORÉAL CREATES A HIGH-LEVEL SCIENTIFIC ADVISORY BOARD The endle quet for beauty require cientific reearch open to the world. At a time when L Oréal trategy i one of univeraliation of beauty, the creation of a Scientific Adviory Board in 2013 wa conidered to be neceary in order to nourih the interaction between cience and beauty. Jacque Leclaire, global Scientific Director, ha the reponibility of chairing thi Board and coordinate it reflection. It miion i to guide the cientific and technological reearch focue to explore the next beauty frontier. Compoed of 9 eminent cientit from different dicipline and background, the Scientific Adviory Board alo repect equality ince important dicoverie and innovation often come from exchanging idea. The Board will meet twice a year and it work will include dramatic development of cience and technology throughout the world, the power of the digital revolution but alo changing mode of conumption and ocial iue. It will bring unexpected idea and define the contour of beauty cience for the next ten year with L Oréal own reearch team One tep ahead in active principle L Oréal Fundamental Reearch Department wa et up in It conviction: extend the knowledge of kin and hair in order to think up new concept which lead to the ynthei of new molecule. The Group ubequently multiplied the number of patent filing (624 in 2013) and developed a large number of active principle, the main one being at the ource of the Group flaghip product. Among thee major molecule, it i poible to cite Ionène G, launched in 1978 in hair colour with Majirel to enure real repect for the integrity of hair; Mexoryl SX, a un filter launched in 1993 in the Vichy Capital Soleil range; Pro-Xylane, which, launched for the firt time in 2006, became part of the Lancôme Abolue range to treat deep wrinkle; and more recently, LR2412, ued in Lancôme Viionnaire, launched in 2011, which reduce wrinkle while offering a more even kin tone; Stemoxydine launched in 2012 in the Vichy Neogenic product range, which favour follicular regrowth and finally Filloxane, an effective hair thickener, launched in 2013 in the L Oréal Pari Fibralogy range. Thi capacity to implement long-term reearch programme now enable L Oréal to remain ahead of it competitor Animal teting: balancing ethic and innovation The harmlene and efficacy of L Oréal technological innovation are eential. To meet thee requirement, the reearch team embarked in the 1980 on developing alternative method to animal teting for the evaluation of the afety of it product and active principle. Much progre ha been made thank to tiue engineering, which made it poible to recontruct the firt human epidermi in 1979 and then the firt complete kin (epidermi and dermi) in In three decade, thank to it invetment in reearch and cientific partnerhip, the Group ha created genuine expertie in thi area. In 2011, L Oréal inaugurated in Gerland (Lyon, France) it global predictive evaluation centre dedicated to evaluation of the afety and efficacy of ingredient and product, the firt cometic indutry ite to produce recontructed biological tiue (around 130,000 unit per year). 12 recontructed kin and corneal tiue model have been developed to date. Thee model are fabulou tool to predict the afety and efficacy of product and make it poible to reduce the time-to-market. Thank to thee model, L Oréal wa able to top teting finihed product on animal in 1989 (14 year before it became a legal obligation in Europe) and develop predictive evaluation trategie to atify the recent European regulation which prohibit the offering for ale of product containing any ingredient that ha been teted on animal after March 11 th, Thi law ha not had any impact on the Group innovation effort. 14 REGISTRATION DOCUMENT / L ORÉAL 2013

17 PRESENTATION OF THE GROUP RESEARCH & INNOVATION: AN OBJECTIVE OF EXCELLENCE Outide Europe, in all the countrie which continue to require or conduct animal teting to evaluate product and cometic ingredient afety, L Oréal hare it breakthrough and make available both it model and it ubtitute method. L Oréal ha no longer conducted animal teting anywhere in the world ince March 2013 and doe not delegate reponibility for doing o to anyone ele. 1 Reearch and innovation budget ( million, including 50% of Galderma reearch expene) Reearch employee (including 50% of Galderma reearch employee) , , ,009 Number of patent (cometic and dermatological reearch) A global governance for Reearch Applied Reearch optimie the principle of cometic formulation to get the bet out of the active ingredient. It tranform knowledge and module into innovative prototype to create powerful platform in each product category. The deployment of it team in three major geographic zone (America, Europe, Aia) upport the international expanion of the Buinee by booting the Group innovation potential Reearch in tune with the market All tage of reearch which lead up to the launch of an innovative product are connected to the market. There i a veritable interaction between reearch and marketing. Thi approach i cloely related to the Group development trategy in the New Market. Conumer in India are not the ame a thoe in China or in Europe: their cometic need and apiration differ. To pay heed to the need of it cutomer in their diverity, L Oréal ha created a Conumer & Market Inight Department in the Innovation Diviion to build up a global conumer data bank per product category and per major region of the world. The cometic need and expectation of conumer all over the world in priority market for the Group are identified through thee tudie A new Reearch Hub in India L Oréal ha five regional Applied Reearch hub. In 2013, a new hub opened in Bangalore. India i a country of innovation, and ha a cientific fabric in tune with L Oréal reearch field, with well-trained talent and high-level reearch intitution. Thi i why the Group inaugurated the Indian reearch hub in 2013, coniting of two centre, one in Mumbai for Applied Reearch and Development, the other in Bangalore dedicated to Advanced Reearch. Thi hub ha a two fold miion: adapting the technologie developed in the global centre to the behaviour of Indian conumer and inventing cutomer-pecific product for the Indian market. Mumbai i the bae for the team involved in developing new kin or hair care beauty product. The Conumer Inight Department enhance the knowledge of beauty habit and behaviour of Indian conumer, the development team tranlate thee need into product and the evaluation team tudy their technical, functional and enorial performance. In Bangalore, the miion of the Advanced Reearch centre conit of deciphering Indian knowledge in the field of traditional medicine and aromatic plant, uing advanced method in biology, phyic and chemitry. The aim i to elect high-performing active principle, to become a centre for excellence for the evaluation of complex mixture and to enable local ourcing for acceible innovation. In order to fulfil thee target, the team have et up partnerhip with major reearch intitution and univeritie in the region. REGISTRATION DOCUMENT / L ORÉAL

18 1 OPERATIONS PRESENTATION OF THE GROUP Reearch ite worldwide 3 Global centre (France) 5 Regional hub 23 Reearch centre 16 Evaluation centre LOCAL RESEARCH AND ADAPTATION OF PRODUCTS To adapt to conumer all over the world, L Oréal Reearch team are preent in all geographic zone through it 23 cometic and dermatological reearch centre and 16 evaluation centre. The reearch centre are grouped together in 3 global centre in France (Advanced Reearch, Hair métier and Cometic métier) and 5 regional hub: in the United State, China, Japan, Brazil and India. Thee regional hub identify need, cientific expertie and cometic practice. The richne of their cience ecoytem promote cooperation and partnerhip for excellence. The data collected then enable the reearcher to develop new product that are perfectly in tune with local need. The innovation developed will then be hared with the other reearch centre in a coordinated manner, and need identified in one country may ubequently lead to ucce on a global cale OPERATIONS From ourcing to delivery, continuou improvement of indutrial efficiency L Oréal offer Men and Women worldwide the bet of cometic. Operation develop, produce on an indutrial cale and ditribute the product and ervice correponding to thi offering, by guaranteeing the mot effective and the mot reponible olution and thoe mot uited to the pecific nature of our brand and market. The Operation Diviion comprie even area of expertie with regard to indutrial production and logitic: procurement, packaging, production, quality, upply chain, environment, health and afety, and real etate. Three upport function complete the Diviion reource: Information Sytem, Finance and Human Reource. 16 REGISTRATION DOCUMENT / L ORÉAL 2013

19 PRESENTATION OF THE GROUP OPERATIONS A well-oiled indutrial model With location all over the world, the Group factorie produce 87% of cometic unit old. Thi choice of eentially in-houe production offer a guarantee of quality, traceability and corporate ocial reponibility, which reduce rik. Plant are generally dedicated to the production of one Operational Diviion and pecialied in major indutrial technologie located cloe to the market that they erve. The rotation of brand on the packaging line i furthermore aited by an increaed tandardiation of indutrial procee. Thi indutrial model help to improve output year on year and guarantee continuou activity on each ite Continuou improvement and optimiation of production L Oréal ha et itelf the target of continually improving output and optimiing production cot. Thi ambition i accompanied by a demanding quality ytem that extend from deign to cutomer. It aim to guarantee the integrity of the formulation of product all over the world and enure compliance with ocial and environmental reponibility tandard on each production ite in accordance with national regulation. In 2013, L Oréal obtained the Bet Practice award from the AFQP (Aociation France Qualité Performance). L Oréal ha uccefully et up on it indutrial ite the Total Productive Maintenance ytem, baed on the cloe involvement of it employee in continuou improvement initiative, which make it poible to improve performance in a number of area uch a afety, environmental impact, ergonomic and production quality and capacity at the indutrial ite, while enuring cot improvement. L Oréal i puruing it programme to improve the efficiency of it production facilitie, baed on a whole et of bet practice, at all it indutrial ite throughout the world. Thi triggered, for example, the haring of the upport and procurement function in the major geographic zone. Efficiency ha been improved while the pecificitie of each region have been maintained. Thi productive, highly reponive organiation model i particularly adapted to L Oréal objective of accelerated growth in the New Market Long-term partnerhip with upplier L Oréal indutrial ucce can alo be accounted for by the Group exacting tandard in the choice of it upplier and the utainable relationhip that it et up with them. The Group organied it firt World Supplier Day in 2012 in order to hare the Group viion and trategy with L Oréal mot trategic upplier. Durable link with upplier alo require the development of local procurement in trong growth zone. In 2010, the Group initiated the wall-to-wall programme which conit in etting up a production unit for packaging item operated by a upplier within the plant itelf. Thi partnerhip develop reponivene and indutrial flexibility, while reducing the tranportation of packaging item and the generation of wate related to their packaging. It i aimed at plant with highly pecialied technologie that produce very large volume and have ongoing need for external reource L Oréal and it partner: working together to innovate Innovation i a major challenge for L Oréal. In order to peed up thi proce, the Group created an internal trade fair dedicated to innovation called Cherrypack in The third edition of thi fair wa held in November 2013, enabling ten trategic upplier from Aia, Europe and America, to unveil their latet innovation with regard to product packaging and POS to all the Group brand and to the Reearch & Innovation team. Thi event demontrate L Oréal intention to reinforce it link with it upplier by gambling on collaborative intelligence. Thi event, which wa organied in the preence of Jean-Paul Agon and Executive Committee member, wa attended by around 800 of the Company employee who were able to dicover thee innovation. External innovation i alo booted through partnerhip et up in Europe and Aia with highly creative and innovative chool Strong commitment with regard to ocial reponibility and afety The Operation Diviion, like the Group a a whole, play a predominant role in the field of ocial reponibility and afety. L Oréal incite it upplier to be more reponible and carrie out rigorou monitoring of their commitment through a large number of ocial audit carried out on upplier throughout the world; 5,295 ocial audit have been carried out ince The objective i not to impoe anction on upplier but to help them to improve their afety tandard and their environmental and ocial performance. The Group received a prize from VIGEO (1) in 2012 for the prevention of ocial dumping in the upply chain. By creating the Solidarity Sourcing programme in 2010, the Group took the initiative of uing local upplier who make commitment in favour of minoritie: diabled worker or worker from deprived communitie. It may alo involve very mall upplier or fair trade player that L Oréal call on to contribute with the help of it upplier. Thi programme wa officially launched in 2012 to the Group upplier in order to encourage them to develop the ame approach with their own upplier. In 2013, the Solidarity Sourcing programme provided acce to employment to over 22,000 people. With regard to afety, the Operation Diviion pay particular attention to employee who work on production ite. They are trained in compliance with afety rule and oberve a afety minute every day in order to prevent and avoid accident. 1 (1) European extra-financial rating agency. REGISTRATION DOCUMENT / L ORÉAL

20 1 OPERATIONS PRESENTATION OF THE GROUP Environmental protection at the heart of production Throughout the whole of the production chain, innovative meaure with regard to Sutainable Development are implemented all over the world, from project with regard to efficient everyday ue of reource to breakthrough project. Many initiative that are mot uited to the local ecoytem are being introduced at the Group ite (geothermal energy in Vichy, photovoltaic panel in Mexico, biomethanation in Belgium, phytoretoration in Mourenx (France), and o on). Through Commitment for 2020, the Group carrie on with the approach initiated in 2009 aiming at reducing the environmental footprint of it factorie and logitic centre. The pledge to reduce by 50% carbon emiion in abolute term (both direct and indirect) water conumption and wate generation per finihed product unit, by 2015 from a 2005 baeline, i now a pledge to reduce by 60% by 2020 from a 2005 baeline (ee chapter 6, paragraph 6.3.1, page 212). Furthermore, the environmental impact related to packaging, tranport and building are alo taken into conideration. 45 INDUSTRIAL SITES WORLDWIDE EUROPE NORTH AMERICA LATIN AMERICA AFRICA, MIDDLE EAST ASIA, PACIFIC Active Cometic: 2 factorie Profeional Product: 3 factorie L'Oréal Luxe: 5 factorie Conumer Product: 26 factorie Raw Material: 3 factorie Device: 1 factory Dermatology: 5 factorie 18 REGISTRATION DOCUMENT / L ORÉAL 2013