HERMÈS - 2020 Universal registration document

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CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A. Financial assets and liabilities at fair value through profit or loss These assets are initially recognised at acquisition cost excluding incidental acquisition expenses. At each closing date, they are measured at fair value. Changes in fair value are recorded in the income statement under “Other financial income and expenses”. Dividends and interest received on these assets are also recognised in the income statement under “Other financial income and expenses”. B. Financial assets at amortised cost Financial assets representing interest or capital repayments at determined dates, which are managed with the intention of collecting cash flows, are classified in this category. These are fixed-term financial assets that the Group acquired with the intention and the capacity to hold until their maturity as well as loans and financial receivables. These instruments are recognised at amortised cost less any impairment. Interest is calculated at the effective interest rate and recorded in the income statement under “Other financial income and expenses”. Financial assets representing interest or capital repayments at determined dates, which are managed with the intention of collecting cash flows and then reselling these assets before their maturity, are classified in this category. The financial assets at fair value through recyclable equity include investment securities. At each closing period, they are stated at fair value. Unrealised gains or losses on these financial assets are recorded in other comprehensive income in “Revaluation adjustments”. The profits and losses linked to the cumulative change in fair value in this item are reclassified in gains or losses on disposal. Only any value impairment losses linked to credit risk are recorded directly in profit or loss and may be reversed in the case of an improvement in this risk component. Interest is calculated at the effective interest rate and recorded in the income statement under “Other financial income and expenses”. As at 31 December 2020, the Group does not have any financial assets at fair value through recyclable equity. Through non-recyclable equity Financial assets at fair value through non-recyclable equity include investment 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 income statement. C. Financial assets at fair value through equity Through recyclable equity

D. Financial liabilities Financial liabilities are initially recorded 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 income statement under “Cost of gross borrowing cost” over the duration of the financial liability. Bank overdrafts, which are treated as financing, are presented under current borrowings and financial liabilities. 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 income statement, 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 flows materialise, the amounts previously recorded in equity are reclassified to the income statement symmetrically with the flows of the hedged element, to the operating income statement for the effective portion and the financial income statement for the forward points and the time value under the item “Other financial income and expenses”. 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; E. Financial derivatives Scope Recognition and Measurement Financial derivatives are initially recorded at fair value.

364 2020 UNIVERSAL REGISTRATION DOCUMENT HERMÈS INTERNATIONAL