HERMÈS - 2020 Universal registration document

PARENT COMPANY FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS

For defined-benefit plans, Hermès International’s obligations are calculated annually by an independent actuary using the projected unit credit method. This method is based on actuarial assumptions and takes into account the employee’s probable future length of service, future salary and life expectancy as well as staff turnover. The present value of the obligation is calculated by applying an appropriate discount rate. It is recognised on a basis pro-rated to the employee’s years of service. Benefits are partly funded in advance by external funds (insurance companies). Assets held in this way are measured at fair value. The expense recognised in the income statement is the sum of: the service cost, which reflects the increase in obligations arising s from the vesting of one additional year of benefits; and the interest cost, which reflects the increase in the present value of s the obligations during the period. Accrued actuarial gains and losses are amortised when they exceed 10% of the obligation amount, gross of dedicated investments, or of the market value of these investments at year-end (“corridor” method). Amortisation of these gains and losses starts from the year following the year in which they were initially recognised and continuing over the average residual duration of employment of the employee.

A provision for contingencies is established for the entire value of unrealised foreign exchange losses. Premiums on foreign currency options are recorded through profit or loss on the maturity date. In addition, financial instruments are used in connection with the management of the Company’s treasury investments. Gains and losses on interest rate differentials and any corresponding premiums are recognised on an accrual basis. Income tax 1.8 Since 1 January 1988, the Company has opted for group tax consolidation under French tax law. Under the terms of an agreement between the parent company and the subsidiaries included in the tax consolidation group, the French subsidiaries included in the tax consolidation scope recognise, in their financial statements, an income tax expense on the basis of their own tax results. Hermès International, the head of the tax consolidation group, recognises the difference between the sum of the taxes of subsidiaries and the tax due on the overall income as a tax credit due to tax consolidation. The tax consolidation scope includes 53 companies. Pensions and other employee benefits 1.9 For basic pension and other defined-contribution plans, Hermès International recognises contributions to be paid as expenses when they come due and no provision is accrued in this respect, as the Company has no obligation other than the contributions paid.

OPERATING INCOME

NOTE 2

2020

2019

In millions of euros

Revenue

317.7

315.0

Other products

3.7

0.7

6

Reversals of provisions and expenses reclassified

83.6

87.4

OPERATING INCOME

405.0

403.1

Provision reversals and expense transfers amounting to €83.6 million comprised reversals of provisions for €13.5 million and transfers of expenses for €70.1 million, mainly linked to free shares plans granted to employees of subsidiaries. In 2019, the €87.4 million in provision reversals and expense transfers included provision reversals for €4.0 million and expense transfers for €83.4 million linked to the cost of free share plans.

The Company’s revenue consists of services and royalties from brands. Royalties are calculated based on the production subsidiaries’ revenue. Services are primarily amounts charged back to subsidiaries for advertising and public relations services, rent, staff provided on secondment, insurance and professional fees.

2020 UNIVERSAL REGISTRATION DOCUMENT HERMÈS INTERNATIONAL

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