HERMÈS - 2019 Universal Registration Document

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CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Through non-recyclable equity Financial assets at fair value through non-recyclable equity include investments securities in non-consolidated companies that are not held for trading. This classification is determined irreversibly at origin for each security in question. They are recognised at the date of closing at their fair value and unrealised gains or losses on these financial assets are recorded in other comprehensive income in “Revaluation adjustments”. Only any dividends received are recognised in the statement of profit or loss. D. Financial liabilities Financial liabilities are initially accounted for at fair value (excluding any transaction cost), then according to the amortised cost method with separation of any embedded derivatives. Interest is calculated at the effective interest rate and recorded in the statement of profit or loss under “Cost of gross financial debt” over the duration of the financial debt. The Group defines the scope of financial derivatives in accordance with the provisions and principles introduced by IFRS 9 Financial Instruments. In this respect, the Group analyses all its contracts, focusing on both financial and non-financial liabilities, to identify the existence of any “embedded” derivatives. Any component of a contract that affects the cash flows of a given contract in the same way as a stand-alone derivative corresponds to the definition of an embedded derivative. If they meet the conditions set out by IFRS 9, embedded derivatives are accounted for separately from the “host” contract at the inception date. According to Group rules, consolidated subsidiaries may not take any speculative financial positions. Changes in the fair value of these derivatives are recorded in the statement of profit or loss, unless they are classified as cash flow hedges, as described below. In this latter case, the effective portion of the changes in fair value of derivative instruments is recognised directly in other comprehensive income in the item “Revaluation adjustments”. These changes in fair value include the portion linked to forward points of forward currency agreements as well as the time value (premium) of currency options qualified as cash flow hedges. The ineffective portion of the changes in the fair value corresponds to the excess of changes in fair value of the hedging instrument compared with the changes in fair value of the hedged item. When the hedged cash flow materialise, the amounts previously recorded in equity flows in the statement of profit or loss symmetrically with the flows of the hedged element, in the statement of operating profit or loss for the effective portion and in the statement of financial profit or loss for the forward points and the time value in the item “Other financial income and expenses”. E. Financial derivatives Scope Recognition and Measurement Financial derivatives are initially recorded at fair value.

Financial derivatives classified as hedges The Group uses derivatives to hedge its foreign exchange risks. Hedge accounting is applicable when the following conditions are met: the hedge transaction must be supported by appropriate 1) documentation of the hedging relationship from the time of its implementation; an economic relationship exists between the hedged element and the 2) hedging instrument; the constraints of effectiveness of the hedging relationship are met: 3) the hedging ratio does not show any imbalance between the hedged element and the hedging instrument generating an ineffective hedge. F. Cash and cash equivalents Cash and cash equivalents consist of immediately available cash and short-term investments that can be divested within a maximum of three months at the investment date, with minimal risk of any change in value. Thus, investments in listed shares, investments for a term of over three months that are not redeemable before the maturity date and bank accounts covered by restrictions (frozen accounts) other than restrictions due to country- or sector-specific regulations (e.g. currency controls) are excluded from cash in the statement of cash flows. Bank overdrafts that are deemed to be financing arrangements are also excluded from the cash position. Shares in funds held for the short term and classified as “Cash equivalents” are recorded at fair value, with changes in fair value recorded in the statement of profit or loss. 1.10.2 IMPAIRMENT OF FINANCIAL ASSETS Non-recyclable financial assets at fair value through equity are not subject to impairment, in accordance with IFRS 9. Financial assets valued at amortised cost or at fair value through recyclable equity, as well as trade receivables, are impaired using an impairment model based on expected losses. The Group applies the provisions of IFRS 9 relating to the simplified model of the original provision over the maturity of the instrument. Credit risk is assessed upon recognition in the balance sheet at each closing date taking into account reasonable and justifiable information available as well as the insurance policy coverage put in place by the Group for the “Wholesale” activity. Due to the nature of the financial assets concerned, the Group determines that the rate of impairment on the receivables is a reasonable approximation of the rate of expected loss. Changes in impairments losses are recognised according to the category of the asset. A. Financial assets recorded at amortised cost Any impairment loss is included in the statement of profit or loss under “Other financial income and expenses”. If the impairment loss decreases in a subsequent period, it is reversed and recorded as income.

2019 UNIVERSAL REGISTRATION DOCUMENT HERMÈS INTERNATIONAL

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