HERMÈS - 2020 Universal registration document

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CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.3.4 NEWLY CONSOLIDATED AND DECONSOLIDATED COMPANIES Subsidiaries are included in the consolidation scope from the date on which control is effectively transferred to the Group. Divested subsidiaries are excluded from the scope of consolidation from the date on which the Group ceases to have control.

The amortisation of leasehold improvements made at the commencement of the contract is limited to the lease term.

1.2.2 BENCHMARK INTEREST RATE REFORM As part of the benchmark interest rate reform, in September 2019 the IASB published amendments to IFRS 9 and IFRS 7 relating to financial instruments. These amendments authorise temporary derogations during periods of uncertainty regarding changes to these rates, in particular for entities with hedging relationships affected by this reform, and are applicable early to the financial statements as at 31 December 2020. Interest rate risk is not subject to the implementation of hedging instruments by the Group as at 31 December 2020, and as such, the early application of these amendments has no impact on the Group’s financial statements. Scope and methods of consolidation 1.3 The consolidated financial statements include the financial statements of Hermès International and subsidiaries and associates over which Hermès International directly or indirectly exerts control, joint control or significant influence. 1.3.1 CONTROL Control is presumed to exist when the Group holds more than 50% of the voting rights. Nevertheless, it can be considered that a company is under exclusive control when less than 50% is held, provided that the Group holds the power to govern a company’s financial and operational policies in order to derive benefits from its business activities. The financial statements of companies under control are fully consolidated. Under the full consolidation method, assets, liabilities, income and expenses are combined in full on a line-by-line basis. Equity and net income attributable to non-controlling interests are identified separately as non-controlling interests in the consolidated balance sheet and the consolidated income statement. 1.3.2 JOINT CONTROL Entities owned by the Group in which the power to govern financial and operating policies is contractually shared with one or more other parties, none of which exercises effective control, are recognised using the equity method. At this time, the Group does not jointly control any company. 1.3.3 SIGNIFICANT INFLUENCE The financial statements of associates, or other companies over which the Group has significant influence (which is presumed to exist when the Group’s percentage voting right exceeds 20%, or proven if the percentage voting rights is below 20%), are recognised using the equity method.

Translation methods for foreign 1.4 currency items 1.4.1 TRANSACTIONS IN FOREIGN CURRENCIES

Foreign-currency transactions are recorded on initial recognition in euros, by using the applicable exchange rate at the date of the transaction (historical rate). Monetary assets and liabilities denominated in foreign currencies are converted using the closing rate. Foreign currency adjustments are recognised in income or expenses. Non-monetary assets and liabilities denominated in foreign currencies are converted using the exchange rate at the transaction date. 1.4.2 FINANCIAL STATEMENTS OF FOREIGN ENTITIES Financial statements expressed in foreign currencies are converted in accordance with the following principles: items in the balance sheet are converted at the year-end exchange s rate for each currency; items in the income statement are converted at the average annual s exchange rate for each currency; items in the statement of cash flows are converted at the average s annual exchange rate for each currency; the foreign currency adjustment attributable to owners of the parent s arising from the impact on equity of the difference between historical exchange rates and year-end exchange rates, and from the use of different exchange rates for the income statement and balance sheet, is shown separately in consolidated equity. The same principle is applied to non-controlling interests. Any goodwill and any fair value adjustments arising on the acquisition of a foreign entity are considered to be assets and liabilities of that foreign entity. Therefore, they are expressed in the entity’s functional currency and converted at closing rates. Eliminations of intragroup transactions 1.5 The effect on the income statement of intragroup transactions such as margins on inventories, gains or losses on disposals, impairment of shares in consolidated companies, and impairment of loans to Dividends and interim dividends received by the Group from consolidated companies are eliminated on consolidation. A matching amount is recorded in consolidated reserves. In the case of companies accounted for using the full consolidation method, reciprocal payables and receivables as well as reciprocal income and expenses are fully eliminated. consolidated companies, has been eliminated. These transactions are also subject to income tax.

360 2020 UNIVERSAL REGISTRATION DOCUMENT HERMÈS INTERNATIONAL