HERMÈS - 2020 Universal registration document

CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Inventories and work-in-progress 1.12 Inventories and work-in-progress held by Group companies are valued at the lower of cost (including indirect production costs) or net realisable value. Cost is generally calculated at weighted average cost or standard cost adjusted for variances, according to each category of inventory. The cost of inventories includes all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition, as specified by IAS 2 Inventories . In particular, discounts and collection costs are included in the measurement of inventories. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Impairment is booked to reduce inventories to net realisable value if this is lower than the carrying amount. Impairment is established for each category of inventory (raw materials, work-in-progress, intermediate products, finished products and merchandise), if the products concerned are damaged or obsolete (season or collection terminated, for example) or based on expected turnover. These impairments are included in the cost of sales. Treasury shares 1.13 Treasury shares are recorded at acquisition cost and deducted from equity. Gains or losses on the disposal of these shares are recognised directly in equity, with no impact on profit or loss. Revenue and trade receivables 1.14 Revenue consists essentially of sales of goods and services produced by the Group’s main business operations. Revenue includes mainly retail sales in the Group’s stores and, to a lesser extent, sales to wholesalers (mainly concessionaires of stores and distributors in the Perfumes activity) and sales to producers (textile printing, tanning, etc.) Retail sales are recorded at the time of purchase by customers. Wholesale and production sales are recorded when control of the goods is transferred, which occurs at the time of delivery. Distributors and concessionaires therefore take control of products until sale to the final customer and thus act as the principal under the provisions of IFRS 15. Contractual or implicit reversals of inventories are recorded as a deduction from revenue. Credit risk arises from the potential inability of clients to meet their payment obligations. Expected losses linked to credit risk on trade receivables are assessed as soon as they arise and reviewed at each closing (see Note 1.11.2). They are recognized in “Other income and expenses”.

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 and cash equivalents. 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 income statement. 1.11.2 IMPAIRMENT OF FINANCIAL ASSETS Financial assets at fair value through non-recyclable 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 historical rate of loss 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 recognized at amortised cost Any impairment loss is included in the income statement under “Other financial income and expenses”. If the impairment loss decreases in a subsequent period, it is reversed and recorded as income. B. Financial assets at fair value through recyclable equity For these instruments, the gains or losses recorded for expected losses are recognised in the income statement.

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2020 UNIVERSAL REGISTRATION DOCUMENT HERMÈS INTERNATIONAL

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