These expenses consist mainly of expenses relating to the advertisement and promotion of products to customers and consumers. They are charged to the income statement for the financial year in which they are incurred.
These expenses relate mainly to sales teams and sales team management, marketing teams and administrative services, as well as general expenses and the costs and expenses of free shares.
Operating profit consists of gross profit less research and innovation expenses, advertising and promotion expenses, and selling, general and administrative expenses.
Property, plant and equipment are recorded on the balance sheet at their purchase price. They are not remeasured.
Assets financed by lease contracts are recognised as assets on the balance sheet under Right-of-use assets. The corresponding debt is recognised as a liability under Lease debt.
Investment subsidies are recorded as liabilities under Other current liabilities.
The components of property, plant and equipment are recorded separately if their estimated useful lives, and therefore their depreciation periods, are materially different.
Property, plant and equipment are depreciated using the straight-line method, over the following useful lives:
| Buildings | 10–40 years |
|---|---|
| Industrial machinery and equipment | 5–15 years |
| Point-of-sales advertising: stands and displays | 3 years |
| Other property, plant and equipment | 3–10 years |
Depreciation and impairment losses are recorded in the income statement according to the use of the asset.
In view of their nature, property, plant and equipment are considered to have a value of zero at the end of the useful lives indicated above.
All leases are recognised using a single model consisting of recording lease liabilities as liabilities (amount of discounted future payments) and rights of use as assets.
The lease term corresponds to the non-cancellable term of each contract and includes any renewal options that the Group is reasonably certain to exercise, particularly if the estimated useful life of the fittings in which the Group invested initially or during the lifetime of the contract exceeds the initial contractual life. In the case of termination options subject to a short notice period, these options have not been taken into account in the assessment of the lease terms.
The right of use is amortised over the expected lease term. French lease rights are not amortised.
The discount rate used to value the lease liability corresponds to the annual rate for each contract calculated using zero-coupon rates obtained by currency and by maturity tranche, increased by the Group’s credit spread.
Deferred taxes are recorded during the initial recognition.
Inventories are valued at the lower of cost or net realisable value. Cost is calculated using the weighted average cost method.
A provision is made for obsolete and slow-moving inventories on the basis of their probable net realisable value, estimated on the basis of historic and projected data.
Accounts receivable from customers are recorded at their nominal value, which corresponds to their fair value.
The current trade accounts receivable impairment methodology at L’Oréal reflects the level of expected losses on the customer portfolio, calculated on the basis of past statistics from the outset of the receivable. Moreover, this risk is contained thanks to the credit insurance policy applied by the Group.
Except when local conditions do not allow it, the Group has insurance cover for the subsidiaries.
The Group’s business activities are organised into four Divisions. In its markets, each Division develops and enhances a range of its own brand of consumer products:
the Professional Products Division aims to offer professional beauty to all. For
over 100 years, this Division has acquired extensive knowledge of, and provided tailored support solutions for, the hairdressing sector. It has built up a unique brand portfolio which currently includes L’Oréal Professionnel, Kérastase, Redken, Matrix and PureOlogy;
the Consumer Products Division’s goal is to democratise access to the best that the world of beauty has to offer. The
Division is underpinned by four major global brands (L’Oréal Paris, Garnier, Maybelline New York and NYX Professional Makeup), and by the deployment of its specialised and regional brands (Stylenanda, Essie, Mixa, etc.);
the Luxe Division creates the best in luxury beauty via breakthrough innovations, meaningful commitments and memorable experiences. The
Division has built a unique portfolio of prestigious brands including iconic mainstream, aspirational, alternative and specialist brands (Lancôme, Yves Saint Laurent, Beauté, Armani Beauty, Kiehl's, Helena Rubinstein, Aēsop, Biotherm, Valentino, Prada, Shu Uemura, IT Cosmetics, Mugler, Ralph Lauren, Urban Decay, Azzaro, Maison Margiela, Viktor&Rolf, Takami, etc.);
the Dermatological Beauty Division, whose goal is to provide sustainable and life-changing dermatological solutions. Its
portfolio of highly complementary brands (La Roche- Posay, CeraVe, Vichy, SkinCeuticals, Skinbetter Science, etc.) is designed to keep pace with major skincare trends and recommendations of healthcare professionals.
