HERMÈS - 2020 Universal registration document

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CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Property, plant and equipment and intangible 1.9 assets 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. 1.9.1 INTANGIBLE ASSETS Intangible assets, valued at amortised cost, consist primarily of: software, ERP and implementation and/or development costs; s patents, models and brands other than internally generated brands. s Other software and ERP, either acquired or developed internally, and the associated implementation costs, are amortised on a straight-line basis over periods ranging from three to eight years maximum and deemed to be fixed assets with a finite life. It is specified that internally generated brands and items that are similar in substance are not recognised under intangible assets, in accordance with IAS 38. All costs incurred in this respect are recognised as expenses. 1.9.2 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recorded at historical acquisition cost, less accumulated depreciation and recognised impairment losses. They are depreciated, generally using the straight-line method, over the following average estimated useful lives: buildings: 20 to 50 years; s fixtures and furnishings: 10 to 20 years depending on the expected s useful life of the asset considered and the term of the lease (in particular in the case of store fixtures); industrial machinery, plant and equipment: 10 to 20 years; s other: 3 to 10 years maximum. s Total depreciation of property, plant and equipment are presented in “Other income and expenses”, except for allocations relative to fixed assets used for production, which are included in “Cost of sales”. Where property, plant and equipment is made up of components with different useful lives, these components are recorded as separate items under “Property, plant & equipment”. Gains or losses on disposals of property, plant and equipment represent the difference between the sale proceeds and the net carrying amount of the divested asset, and are included in “Other income and expenses”. 1.9.3 INVESTMENT PROPERTY Real estate held by the Group to earn rental income is recognised under “Investment property”. This revenue and the associated expenses are recognised in “Other income and expenses”. For real estate that is held for use both for the supply of goods and services and as investment property, the two components are identified separately and recognised in accordance with IAS 16 Property, Plant and Equipment , and IAS 40, respectively.

The lease term is determined contract by contract. Given that most of its commercial leases are contracted for long periods, the Group does not take into account any options to extend at the date the contract comes into effect, with some exceptions. When negotiations are started with the lessor in order to exercise an option to extend, the lease term is adjusted accordingly. In France, in the case of 3-6-9-type commercial leases, the lease term used is nine years, except in special cases. In the event that only Hermès has an option to terminate a lease, the Group assesses, at the date the contract comes into effect, all the facts and circumstances providing economic incentives not to exercise this option, taking into account criteria such as the actual nature of the asset, all costs related to termination, and the duration of the business plan. The amortisation of leasehold improvements made at the commencement of the contract is limited to the lease term. Rights-of-use are amortised over the term 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 income statement, 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, or the rates and indices on which rents are based. Leases corresponding to assets with a low unit value or to leases with a 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”. The Group has chosen to record the deferred taxes generated by the recognition of a right-of-use asset and a lease liability. In the statement of cash flows, repayments of principal and payment of interest on lease liabilities are presented under the same heading “Repayment of lease liabilities” in cash flows related to financing activities.

362 2020 UNIVERSAL REGISTRATION DOCUMENT HERMÈS INTERNATIONAL