HERMÈS - 2018 Registration document

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Consolidated financial statements Notes to the consolidated financial statements

Total depreciation and amortisation of property, plant and equipment are presented in “Other income and expenses”, except for allocations relative to fixed assets used for production, that are included in “Cost of sales”. The different components of property, plant and equipment are recorded as separate items when their estimated lives, and therefore the periods over which they are depreciated, differ significantly. Where property, plant and equipment is made up of components with different useful lives, these components are recorded as separate items under “Property, plant & equipment”. Gains or losses on disposals of property, plant and equipment represent the difference between the sale proceeds and the net carrying amount of the divested asset, and are included in “Other operating income and expenses”. 1.7.3 Finance lease agreements Property acquired under finance lease agreements is capitalised when the lease effectively transfers to the lessee virtually all risks and rewards incident to ownership of such property. The criteria for evaluating these agreements as provided by IAS 17 Leases are based primarily on: s s the lease term as a proportion of the life of the leased assets; s s the total future minimum payments in proportion to the fair value of the asset financed; s s the transfer of ownership at the end of the lease; s s the existence of an attractive purchase option; s s the specific nature of the leased asset. Finance leases identified in this way, if they are material, are restated in order to show: s s on the asset side of the statement of financial position, the original value of the relevant property and the theoretical depreciation the- reon (wherein the original value is the lower of the present value of the minimum lease payment amounts or the fair value of the leased asset at the inception of the lease); s s on the liabilities side of the statement of financial position, the cor- responding financial liability; s s under financial expenses and depreciation, the minimum lease pay- ments under the agreement, such that the financial expense is allo- cated to periods during the lease term so as to produce a constant periodic interest rate on the remaining balance of the liability for each financial year. Leases that do not meet the criteria of finance leases are treated as operating leases, in which case the rents are recorded in the statement of profit or loss on a straight-line basis over the lease term. 1.7.4 Investment property In accordance with IAS 40 Investment Property , property held by the Group to earn rental income is recognised under “Investment property”. This revenue and the associated expenses are recognised in “Other Income and Expenses”. For property that is held for use both for the supply of goods and services and as investment property, the two com-

ponents are identified separately and recognised in accordance with IAS 16 Property, Plant and Equipment , and IAS 40, respectively. As for property, plant and equipment, investment property is recognised at its historical acquisition cost less accumulated depreciation and impairment losses recorded. The depreciation and amortisation periods are identical to those of other property, plant and equipment. 1.8 Impairment of fixed assets - Impairment losses In accordance with IAS 36 Impairmentof Assets , when events or changes in themarket environment indicate that there is the risk of an impairment loss on: s s intangible assets; s s property, plant and equipment; s s investment property; s s goodwill. These assets are required to undergo a detailed review in order to deter- mine whether their net carrying amount is lower than their recoverable amount, which is defined as the higher of fair value (less disposal cost) or value in use. Value in use is the present value of the future cash flows expected to be derived from an asset and from its disposal. If the recoverable amount is lower than the net carrying amount, an impairment loss equal to the difference between these two amounts is recognised. Impairment losses on tangible and intangible assets with a finite life may subsequently be reversed if the recoverable amount rises above the net carrying amount (up to the amount of the impairment loss initially recognised). The Group tests for impairment of assets with an indefinite life every year during the budget preparation period in order to take the most recent data into account. If internal or external events or circumstances indicate impairment losses, the frequency of impairment testing is revised. In determining the value in use of assets, assets to which independent cash flows cannot be directly allocated are grouped within a cash-gene- rating unit (CGU) to which they are attached. The recoverable amount of the CGU is measured using the Discounted Cash Flow (DCF) method, applying the following principles: s s cash flows (after tax) figures are derived from a medium-term (five- year) business plan developed by the relevant entity; s s the discount rate is determined based on the Group WACC (8.67% in 2018 vs. 7.88% in 2017) adjusted for local inflation and any country risks; s s the recoverable amount is calculated as the sum of cash flows gene- rated each year and the terminal value, which is determined based on normative cash flows by applying a zero growth rate to infinity.

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2018 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL