Spread Research assigns its SR1 short-term rating to the NEU CP instrument of Clarins with a stable outlook

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1 PRESS RELEASE Spread Research assigns its SR1 short-term rating to the NEU CP instrument of Clarins with a stable outlook Lyon, March 2 nd, 2018 Credit rating agency Spread Research assigns its SR1 short-term rating to the NEU CP instrument of Clarins with a stable outlook. The short-term instrument rating is part of the financial documentation of the planned NEU CP issuance by Clarins for up to 200m. Rating rationale Spread Research has analysed Clarins credit profile and liquidity in order to assign its shortterm rating. The methodology for short-term ratings, published in May 2016, is available at The outcome is an SR1 short-term rating, the second-highest grade in Spread Research s rating scale. Credit profile Clarins benefits from strong sales diversification both in terms of geographies and clients, in spite of its relatively small scale compared to main peers. Clarins has a narrower positioning than most, but it benefits from a leading position in its core skincare segment, which represents 60% of its sales, and strong brand awareness in many countries. Consumers value the quality of Clarins product offering, which is generally positioned in the premium price points. We see skincare, and more generally the cosmetics industry, as a relatively attractive market with positive long-term trends. This offers growth prospects for Clarins, provided that the group manages well the ongoing structural changes in distribution, with the rise of e-commerce and omnichannel at the expense of traditional retail outlets such as department stores, which have been important clients for Clarins. Our rating factors in the high level of consistent cash generation, which has driven deleveraging over recent years, along with earnings improvement. At YE17, net adjusted leverage stood at a very low 0.7x. Looking ahead, we expect continued strong free cash flow and credit metrics, while we assess the financial policy of the group as relatively conservative. Liquidity profile Liquidity is excellent. Existing cash on balance sheet more than covers reported debt, and is further supported by the 100m undrawn RCF due December 2022 along with our expectation of continued strong free cash flow.

2 Credit outlook Our Stable outlook reflects our expectation that credit metrics will slightly improve over the next twelve months on the back of moderate margin improvement and continued high free cash flow. Clarins Headquartered in Paris and founded by Jacques Courtin-Clarins in 1954, Clarins is a manufacturer and distributor of cosmetics products worldwide. It is fully-owned and controlled by the Courtin family. In 2016, sales and EBITDA amounted to 1.5bn and 0.2bn respectively. Skincare and make-up are primarily sold under the Clarins brand while perfumes are marketed under the company-owned brands Mugler and Azzaro. Essentially all products are made in France at the group s two plants. Clarins is strongly committed to promote responsible beauty. As such, the company supports several social and environmental projects. Spread Ratings Spread Ratings is the trademark under which Spread Research operates as a Credit Rating Agency, registered and regulated by the European Securities and Markets Authority (ESMA). Spread Research itself is a pioneer in European credit research. Founded by Julien Rerolle in 2004 and based in Lyon, Spread Research capitalizes on over thirteen years experience in assessing corporate debt financial instruments. Our analysts are sector specialists and the team produces credit opinions for investors as well as private and public credit ratings. Our ratings are recognized by the banking regulator (EBA) and insurance regulator (EIOPA). Spread Research is one of the few rating agencies approved by the Bank of France to provide financial ratings for the NEU CP (short-term), and NEU MTN (medium-term) programs. Press contact Emmanuel Dovergne / Keima - Tel.: / emmanuel.dovergne@keima.fr

3 Lead Analyst Anthony Giret +33 (0) anthony.giret@spreadresearch.com Analyst Marc Pierron +33 (0) marc.pierron@spreadresearch.com Issued on 2 March 2018 NEU CP Instrument rating Initiation report Rated Entity: Clarins S.A. Sector: Cosmetics Short-term rating: SR1 Credit outlook: Stable Rating rationale We initiate coverage on Clarins and assign our SR1 short-term rating, the second-highest grade in our rating scale, to its planned NEU CP instrument issuance for up to 200m. This reflects strong credit metrics and excellent liquidity. Headquartered in Paris and founded by Jacques Courtin-Clarins in 1954, Clarins is a manufacturer and distributor of cosmetics products worldwide. It is fully-owned and controlled by the Courtin family. In 2016, sales and EBITDA amounted to 1.5bn and 0.2bn respectively (2017 financial statements have not yet been audited). Skincare and make-up are primarily sold under the Clarins brand while perfumes are marketed under the company-owned brands Mugler and Azzaro. Essentially all products are made in France at the group s two plants. We understand that there is no significant exposure to a specific supplier or raw materials. Clarins claims to be strongly committed to promote responsible beauty, and the company supports several social and environmental projects. The cosmetics industry is fairly concentrated, with the top fifteen players accounting for roughly two-thirds of the market. Clarins has a narrower positioning than most which weighs on its global market share, but it benefits from a leading position in its core skincare segment, which represents 60% of its sales, and strong brand awareness in many countries. This differentiates the group from most peers, which tend to have greater emphasis on other beauty and cosmetics sub-segments. Consumers value the quality of Clarins product offering, which is generally positioned in the premium price points. In spite of its relatively small scale compared to main peers, Clarins benefits from strong sales diversification both in terms of geographies and clients. 90% of sales are generated outside France in about 130 countries, with emerging markets representing a fair share. The ten largest clients accounted for a moderate 33% of sales in 2017 (top 1: 6%). They are large beauty specialty retailers (such as Douglas, Sephora, Marionnaud, L Etoile), department stores (such as Macys, Debenhams), travel retailers (Dufry, Gebr. Heinemann), and pharmacy chains (Boots, Shoppers Drug). Operating margin is improving even though Clarins still lags most peers. There is room to implement efficiency measures in the coming years, which provides grounds for expecting continued moderate margin enhancement. We see skincare, and more generally the cosmetics industry, as a relatively attractive market with positive long-term trends driven by rising middle classes in emerging markets and still favourable prospects for the top-performing brands in mature economies. This offers growth prospects for Clarins, provided that the group manages well the ongoing structural changes in distribution, with the rise of e-commerce and omnichannel at the expense of traditional retail outlets such as department stores, which have been important clients for Clarins in the US and the UK. As a result, we view positively the management s strategy to further develop its direct access to end-customers by expanding online sales while selectively growing its own retail network, although these activities remain small for the time being. Our rating factors in the high level of consistent cash generation, which has driven deleveraging over recent years, along with earnings improvement. At YE17, net adjusted leverage stood at a very low 0.7x. Looking ahead, we expect continued strong free cash flow and credit metrics, while we assess the financial policy of the group as relatively conservative.

4 Clarins Page 2 Capital structure - Net cash position Clarins benefits from a net cash position, with more cash in hand than the reported debt of 120m. Debt primarily consists in short-term credit lines and bank loans issued by its Russian and Australian subsidiaries. Clarins has also secured a 100m committed RCF due 2022, which is fully available. The RCF has one financial covenant providing for a maximum net leverage ratio, within which Clarins has substantial headroom. Low leverage supported by consistent cash generation and conservative financial policy 3.0x x 2.0x 1.5x 1.0x 0.5x 0.0x -0.5x FY12 FY13 FY14 FY15 FY16 FY17 Net reported debt ( m) Net reported debt / Rep EBITDA Net adjusted debt / Adj EBITDAR ( 50) FY12 FY13 FY14 FY15 FY16 Free Cash Flow before dividends ( m) Dividends ( m) Large liquidity headroom Liquidity is excellent. Existing cash on balance sheet more than covers reported debt, and is further supported by the 100m undrawn RCF due December 2022 along with our expectation of continued strong free cash flow. Credit outlook: Stable Our Stable outlook reflects our expectation that credit metrics will slightly improve over the next twelve months on the back of moderate margin improvement and continued high free cash flow. Rating sensitivity At this stage, an upgrade to SR0 is unlikely as it would require substantial improvement in the business risk profile, including greater scale and market share. Conversely, we could downgrade our rating to SR2 if Clarins financial risk profile deteriorated significantly. This could result from increased leverage due to large debt-funded M&A and/or margins/free cash flow falling down, although this is not our base case.

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