Loreal 2011 Annual Report Download - page 19

17REGISTRATION DOCUMENT − L’ORÉAL 2011
Presentation oftheGroup
1
Risk factors
1.7. Investment policy
L’Oréal’s investment policy responds to long-term objectives.
L’Oréal is an industrial company whose development is
governed by two types of investment in particular:
1. scientific investments and investments in equipment which
are explained at length in several sections of this document
(see, in particular, the section1.5. on page12 and the
section1.6. on page14 );
2. marketing investments which are made on an ongoing
basis and are inherent to the Group’s activities, particularly
in the cosmetics industry. Indeed, in order to win new
market share, thorough research has to be conducted all
over the world, and advertising and promotional expenses
need to be modulated depending on the familiarity of the
brands and their competitive position; finally, investments
in point-of sale (POS) advertising materials ensure optimal
presence for our brands in points of sale.
For reasons relating to strategy and competition, L'Oréal cannot
therefore answer questions regarding future investments.
In2011, the Group’s investments amounted to 866 million euros
i. e 4.3% of its sales, a very similar percentage to the level before
the financial crisis. This evolution reflects the constant efforts
made by the Group, in particular in the fields of improvement
of industrial efficiency, the performance of research teams and
enhancement of the value of brands.
The 866million euros that were invested in2011 can be broken
down as follows:
♦production and physical distribution represent 37.6% of the
total investments;
♦marketing investments, including moulds, POS and stores
account for 41%;
♦the balance relates to Research and the headquarters in
different countries;
♦IT investments spread over all these categories represented
12% of total investments (see note12 on page114 and
note14 on page117 of the chapter 2011 Consolidated
Financial Statements
).
1.8. Risk factors
The Group operates in a changing environment. Like any
company, it is necessarily exposed to risks which, if they were
to materialise, could have a negative impact on its business
activities, its financial situation and its assets. This chapter
presents the significant risks to which the Group considers that
it is exposed: those specific to the business activities of L’Oréal,
then the legal, industrial and environmental risks, and finally the
risks of an economic and financial nature.
Faced with these risks, L’Oréal has set up an Internal Control
s ystem to prevent and control them better. The Internal Control
and risk management procedures are thus described in the
section2.5., as provided for by ArticleL.225.37 of the French
Commercial Code (pages59
et seq ).
However, it is not possible to guarantee total absence of risk.
Furthermore, other risks of which the Group is not currently aware
or which it does not consider as material at the date of this
report could have a similar negative effect.
1.8.1. Business risks
1.8.1.1. Image and reputation
The Company’s reputation and its brand image may be
compromised at any time in a globalised world where
information is disseminated rapidly. No company is safe from
an undesirable event whether this involves the use or misuse of
a product or reprehensible individual conduct.
In order to reduce the risks that may arise from events of this
kind, L’Oréal has set up a crisis management procedure, whose
global task is to prevent, manage and limit the consequences
of undesirable events on the Company. The Group crisis
management officer reports directly to the Chief Executive
Officer. Furthermore, the deployment of the Ethics Charter
throughout the whole Group aims at reinforcing the spreading
of the rules of good conduct which ensure L’Oréal’s integrity
and strengthen its ethics. The purpose of these rules of good
conduct is to guide actions and behaviour, inspire choices and
make sure that the Group’s values are reflected in the everyday
acts of each employee.