HERMÈS - 2019 Universal Registration Document

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CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Provisions 1.17 A provision is a liability of uncertain timing or amount. It is recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources will be required to settle the obligation. In addition, a reliable estimate of the amount of the obligation is made based on the information available to the Group when the consolidated financial statements are prepared. Pension plans and other long-term benefits 1.18 In accordance with the laws and practices in each country where it operates, the Group participates in post-employment and other retirement benefit plans for employees and in top-up plans for executives and senior managers. 1.18.1 DEFINED-CONTRIBUTION PENSION PLAN For basic post-employment and other defined-contribution plans, the Group recognises contributions to be paid as expenses when they are due and when provision is booked in this respect, as the Group has no obligations other than the contributions paid. 1.18.2 DEFINED-BENEFIT PENSION PLANS For defined-benefit (or post-employment) pension plans, the Group’s obligations are calculated annually by an independent actuary using the projected credit unit method. This method is based on actuarial assumptions and takes into account the employee’s probable future length of service, future salary and life expectancy as well as staff turnover and the inflation rate. Actuarial assumptions are reviewed annually. The present value of the obligation is calculated by applying an appropriate discount rate for each country where the obligations are located. It is recognised on a basis pro-rated to the employee’s years of service. When benefits are partly funded in advance by external funds (insurance companies, foundations or other entities), the assets held are measured at fair value, and taken into account in the assessment of the liabilities. The expense recognised in the consolidated statement of profit or loss is the sum of: the current service cost in the period, which constitutes the increase s in obligations arising from the vesting of one additional year of rights; the past service cost, namely the change in the discounted fair value s of the obligation that originates from the modification of a plan or the reduction of a plan; the profit or the loss resulting from liquidation, if applicable; s the interest expense, which reflects the increase in the present value s of the obligations during the period;

financial income on the hedge assets. s Changes in actuarial assumptions and experience effects give rise to actuarial gains and losses, the total of which is recorded under “Other comprehensive income” over the period during which they were recognised. 1.18.3 OTHER LONG-TERM BENEFITS Certain other post-employment benefits, such as life insurance and health insurance benefits (primarily in Japan), or long-term benefits such as long-service awards (bonuses paid to employees, mainly in France, based on length of service), are also covered by provisions, which are determined using an actuarial calculation that is comparable to that used to calculate provisions for post-employment benefit obligations. The actuarial gains and losses that result from experience adjustments and changes in actuarial assumptions adopted for calculation of these obligations are entered in the consolidated statement of profit or loss for the financial year during which they were recognised. Income tax 1.19 Income tax expense includes: the current tax for the financial year of the consolidated companies; s tax uncertainties recognised in accordance with IFRIC 23; s the deferred tax resulting from timing differences: s between the taxable earnings and accounting income of each • consolidated company, arising from adjustments made to the financial statements of the • consolidated companies to bring them in line with Group accounting principles, arising from consolidation adjustments. • 1.19.1 DEFERRED TAXES Deferred tax is calculated on all timing differences existing at financial year-end (full reserve) at the tax rate in force on that date, or at the enacted tax rate (or nearly enacted rate) for the subsequent financial year. Previous deferred tax is revalued using the same method (liability method). The main categories of deferred tax apply to restatements of internal margins on inventories, impairment on inventories and timing differences. Deferred tax assets are recorded to the extent that their future use is probable given the expected taxable profits. If a recovery risk arises on some or all of a deferred tax asset, an impairment is recorded. Foreign currency differences arising from the conversion of deferred tax income or expenses are recognised in the statement of profit or loss in deferred tax income or expenses. Discounting is not applied to deferred tax.

2019 UNIVERSAL REGISTRATION DOCUMENT HERMÈS INTERNATIONAL

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