HERMÈS - 2020 Universal registration document

CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For 2019:

Gross impact

Tax impact

Net impact

Note

In millions of euros

Actuarial gains and losses Foreign currency adjustments Revaluation adjustments Balance as at 31 December 2019

28.3.4

(47.8)

11.8

(36.0)

23.2 23.3

50.1

-

50.1

6.8

(4.0)

2.8

-

-

-

16.9

NON-CONTROLLING INTERESTS

NOTE 24

31/12/2020

31/12/2019

In millions of euros

Balance as at 1 January

7.8 4.1

4.9 7.0

Net income attributable to non-controlling interests

Dividends paid to non-controlling interests

(4.5) (1.9)

(4.0)

Foreign currency translation adjustments on foreign entities

0.7

Other changes

5.4

(0.8)

BALANCE AT END OF PERIOD

10.9

7.8

EXPOSURE TO MARKET RISKS

NOTE 25 Counterparty risk 25.1

the Group’s foreign exchange risk is systematically hedged by Hermès s International on an annual basis, based on future internal operating cash flows between the companies in the Group; no speculative transactions in the economic meaning of the term are s authorised; these hedges are provided through firm foreign exchange s transactions and/or optional transactions eligible for hedge accounting; other non-operating transactions are hedged against foreign s exchange risk as soon as their commitment is firm and final. They include financial risks arising from intragroup loans and dividends in foreign currencies. These management rules have been validated by the Executive Committee and have also been endorsed by the Supervisory Board. The administrative management and control of these transactions are provided by the middle & back office department, notably by means of an integrated treasury software program. In addition, the audit and risk management department ensures compliance with the risk control and management procedures. Within this set of rules, management’s decisions are validated by the Executive Committee, via a Treasury Security Committee that meets on a regular basis. According to the above policy, the Group’s foreign exchange risk is hedged annually by Hermès International, based on highly probable future cash flows derived from budget projections. In practical terms, at 31 December, the hedging of internal transactions in currencies for the following year is close to 100%. As such, the Group uses purchases and sales of put and call options as well as currency swaps and forward currency agreements.

Pursuant to the applicable internal control procedures, the Group only deals with leading banks and financial institutions that have signed FBF and ISDA agreements on trading in forward financial instruments, and it is not exposed to any material counterparty risk. In addition, counterparty risks on financial transactions are monitored on an ongoing basis by Hermès International’s treasury department. Finally, the Group breaks down investment transactions, foreign exchange risk hedge transactions and deposits transactions in the selected banks within defined limits of amount and maturity. Moreover, the impact of the credit risk as recommended by IFRS 13 in the fair value of derivatives is close to 0 for the Group, given that all of the derivatives have a maturity of less than 12 months. Foreign exchange risk 25.2 The Group is naturally exposed to foreign exchange risk because the bulk of its production is located in the Eurozone, while the majority of its sales revenue is received in currencies other than the euro (American dollar, Japanese yen and other Asian currencies, etc .). This exposure is hedged in order to minimise and anticipate the impact of currency fluctuations on the Group’s profits. The Group’s foreign exchange risk exposure management policy is based on the following principles: the manufacturing subsidiaries invoice the distribution subsidiaries in s their local currency, applying an annual exchange rate to a price grid established in euros. So, the distribution subsidiaries concentrate most of the foreign exchange risk;

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2020 UNIVERSAL REGISTRATION DOCUMENT HERMÈS INTERNATIONAL

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