HERMÈS - 2020 Universal registration document

CONSOLIDATED FINANCIAL STATEMENTS STATUTORY AUDITORS’ REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS

Valuation of inventories and work-in-progress – Notes 1.12 and 20 of the notes to the consolidated financial statements

Description of risk The Group’s inventories and work-in-progress are shown in the balance sheet in the amounts of €2,104 million in gross value and €1,289 million in net value at 31 December 2020, representing 12% of the Group's total consolidated assets. The Management of Hermès International is responsible for determining the amount of the impairment required to reduce the inventory value to its probable sale value if this value is lower. These impairments are calculated for each category of inventories based in particular on: the condition of the inventories and their obsolescence (notably finished seasons or collections); and s an estimation of the prospects for distributing of the inventories on the different markets, taking into account the slower turnover of certain seasonal s products due to the health crisis. We considered this to be a key audit matter due to the nature of the inventories and the fact that the above criteria and the potential impairment resulting from them are by nature dependent on the assumptions, estimates and assessments made by the management. Furthermore, inventories are present in a large number of subsidiaries, elimination of the internal margins in the consolidated financial statements is of particular importance because of their impact on the gross value of the inventories and the impairment to be recorded. How our audit addressed this risk During our work we: examined the procedures for the valuation and impairment of inventories and we ensured that these methods were permanent; s carried out a critical review of the methodology used by the management to impair inventories given our knowledge of the Group’s business sectors s and the distribution history of the said inventories; examined the analyses carried out by the Group on the consequences of the health crisis on inventory sales; s assessed the level of impairment compared to the prospects for sale and the age of the inventories. s Our work also involved taking samples to check the consistency of the levels of cancelled internal margins in the consolidated financial statements by examining the margin made with the distribution subsidiaries. Description of risk Hermès International is naturally exposed to foreign exchange risk because the bulk of its production is located in the Eurozone, but receives the majority of its sales revenue in foreign currencies (US dollar, yen, yuan, and other currencies). The manufacturing subsidiaries invoice the distribution subsidiaries in their local currency, which apply an annual exchange rate on the scales established in euros. To hedge this risk and minimise the impact of currency fluctuations on its earnings, Hermès International uses firm or optional foreign exchange hedges, with the objective of hedging its net internal exposure on an annual basis. The foreign exchange derivatives portfolio has been adjusted to take into account the most recent budget forecasts. At 31 December 2020, the hedging of internal transactions in currencies for the next following year was close to 100%. We considered this to be a key audit matter due to the impacts of exchange rate fluctuations on the Group’s operating margin, which is the indicator the Group uses in its financial communication. How our audit addressed this risk As part of our work, assisted by our financial instrument experts, we: checked the existence, completeness and accuracy of the Group’s financial instrument portfolio by making confirmation requests to banks; s recalculated the fair value of a representative sample of instruments in order to assess the accuracy of their value; s verified the relationship between the hedges and commercial transactions for a selection of hedging operations, carried out a critical review of the s documentation of associated effectiveness tests in order to assess their eligibility for hedge accounting within the meaning of IFRS 9, particularly with regard to the impacts of the health crisis; examined the appropriateness of the information concerning these transactions presented in the notes to the consolidated financial statements. s Recognition of foreign exchange hedges – Notes 1.11.1 and 25 of the notes to the consolidated financial statements

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2020 UNIVERSAL REGISTRATION DOCUMENT HERMÈS INTERNATIONAL

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