HERMÈS - 2019 Universal Registration Document

CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Leases 1.7 In accordance with IFRS 16, property leases with fixed rents are recognised in assets through a right-of-use asset and in liabilities through a lease liability corresponding to the present value of future payments. Right-of-use assets are equal to the amount of the lease liability adjusted for the amount of prepaid rent, incentives received from the lessors and, where applicable, restoration costs, at the start date of the lease. Right-of-use assets are amortised on the length of use of the underlying asset, without taking into account early termination or extension options in respect of the lease. They are subject to impairment tests in line with IAS 36 Impairment of assets . Discount rates are determined using the Group’s incremental borrowing rate, depending on the term of the leases, and take into account the economic environment of the subsidiaries (by applying a spread defined per country). The rates thus determined apply on the start date of each contract. In the statement of profit or loss, amortisation of right-of-use assets is presented in “Other income and expenses”, except for allocations relative to right-of-use assets used for production, which are included in “Cost of sales”. The lease liability is increased by the amount of interest expense determined by applying the discount rate and reduced by the amount of payments made. Interest expense is recognised in net financial income. Furthermore, the liability may be re-assessed in the event of a review of the lease term, the amount of fixed rents, or rates and indices on which rents are based. Leases corresponding to assets with a low unit value or to leases with a remaining term of less than 12 months are recognised directly as expenses. Variable rents that are not linked to an index or rate are recognised as expenses over the period for which the conditions that trigger payment are noted. Gains or losses arising due to the early termination of a lease are determined by the difference between the net carrying amount of the right-of-use asset of the leases terminated early, and the value of lease liabilities from leases terminated early, and are included in “Other income and expenses”.

This valuation is carried out within no more than a year following the date of acquisition and in the currency of the acquired entity. This period is applicable to the valuation of identifiable assets and liabilities, to the transferred counterparty and to the non-controlling interests. Purchases or sales of non-controlling interests that do not lead to a change in control are recorded as equity transactions among shareholders. Consequently, any difference between the fair value of the counterparty paid or received and the corresponding carrying amount of the equity interest acquired or sold (without resulting in a loss of control), but that does not provide control, is directly recorded in equity. The valuation of identifiable intangible assets recognised at the time of a business combinations is based mainly on the work of independent experts, taking into account sector-specific criteria that enable such valuations to be subsequently monitored. In accordance with IFRS 3 revised, goodwill is not amortised. Goodwill is reviewed annually, when the budget is drawn up, to ensure that the residual net value does not exceed the recoverable amount in respect of the expected return on the investment in the related subsidiary (determined on the basis of expected discounted future cash flows). If internal or external events or circumstances bring to light indications of lost value, the frequency of the impairment tests may be revised (see Note 1.9). Impairment of the goodwill of subsidiaries is not reversible. Any impairment charge is included in “Other income and expenses” of operating income.

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1.6.2 ASSOCIATES In accordance with IAS 28, the item “Net income from associates” shown

in the statement of profit or loss includes the following: share of the Group’s income in these companies; s income on disposal of shares in these companies; s provisions for risk. s

Upon the acquisition of securities of equity-accounted companies, goodwill of associates is included in the carrying amount of securities recognised in “Investments in associates”. Impairment of associates’ goodwill is reversible. If the Group’s share in the losses of an associate exceeds the carrying amount of its holding in the company, then the Group will no longer recognise its share in subsequent losses. When the share reaches zero, additional losses are only the subject of a provision when the Group has a legal or implicit obligation in this respect, or has made payments on behalf of the associate.

Intangible assets and property, plant 1.8 and equipment

In accordance with IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets, only those items whose cost can be reliably determined and from which it is probable that future economic benefits will flow to the Group are recognised as fixed assets.

2019 UNIVERSAL REGISTRATION DOCUMENT HERMÈS INTERNATIONAL

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