HERMES_REGISTRATION_DOCUMENT_2017

5

CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.3 Translation methods of foreign currency items

1.5 Structure of the consolidated statement of financial position InaccordancewithIAS1 PresentationofFinancialStatements ,theGroup classifies its assets and liabilities on its statement of financial position as current and non-current. An asset or liability is classified as current: s when the Group plans to realise its assets or pay its liabilities within twelve months or within the Group’s normal operating cycle; s when the relevant assets or liabilities are held for the purpose of being traded. In particular, IAS 12 Income Taxes specifies that deferred tax balances shall be classified as non-current. 1.6.1 Subsidiaries Business combinations, in the event that the Group gains control over one or several other activities, are accounted for using the purchase method. Business combinations completed on or after 1st January 2010 are measured and recognised in accordance with revised IFRS 3: the consi- deration transferred (acquisition cost) is measured at the fair value of the assets delivered, the equity issued and the liabilities incurred on the date of the transfer. The identifiable assets and liabilities of theCompany that are acquired are measured at fair value on the acquisition date. The costs that can be directly attributed to the acquisition are recorded as an expense. The resulting valuation adjustments are recognised under the related assets and liabilities, including the share attributable to non-controlling interests, and not just the share of net assets acquired. The residual difference, which is the difference between the transferred counterparty and the share of net assets and liabilities measured at fair value, is recognised under goodwill. This valuation is carried out within no more than a year following the date of acquisition and in the currency of the acquired entity. This period is applicable to the valuation of identifiable assets and liabilities, to the transferred counterparty and to the non-controlling interests. Purchases or sales of non-controlling interests that do not lead to a change in control are recorded as equity transactions among sharehol- ders. Consequently, any difference between the fair value of the coun- terparty paid or received and the corresponding book value of the equity interest acquired or sold (without resulting in a loss of control), but that does not provide control, is directly recorded in equity. The valuation of identifiable intangible assets recognised upon first-time consolidation is basedmainly on thework of independent experts, taking into account sector-specific criteria that enable such valuations to be subsequently monitored. 1.6 First-time consolidation and goodwill

1.3.1 Conversion of foreign-currency transactions Foreign-currency transactions are recorded on initial recognition in euros, by using the applicable exchange rate at the date of the tran- saction (historical rate). Monetary assets and liabilities denominated in foreign currencies are converted using the closing exchange rate. Foreign currency adjustments are recognised in income or expenses. Non-monetary assets and liabilities denominated in foreign currencies are converted using the exchange rate at the transaction date. Foreign companies’ financial statements Financial statements expressed in foreign currencies are converted in accordance with the following principles: s items in the statement of financial position are converted at the year- end exchange rate for each currency; s items in the statement of profit or loss are converted at the average annual exchange rate for each currency; s items in the statement of cash flows are converted at the average annual exchange rate for each currency; s the foreign currency adjustment attributable to owners of the parent arising from the impact on equity of the difference between historical exchange rates and year-end exchange rates, and from the use of different exchange rates for the statement of profit or loss and state- ment of financial position, is shown separately in consolidated equity. The same principle is applied to non-controlling interests. Any goodwill and any fair value adjustments arising on the acquisition of a foreign entity are considered to be assets and liabilities of that foreign entity. Therefore, they are expressed in the entity’s functional currency and converted at closing rates. 1.4 Eliminations of intra-group transactions The effect on the statement of profit or loss of intra-group transactions suchasmargins on inventories, gains or losses ondisposals, impairment of shares in consolidated companies, and impairment of loans to conso- lidated companies, has been eliminated. These transactions are also subject to income tax. Dividends and interim dividends received by the Group from consoli- dated companies are eliminated on consolidation. A matching amount is recorded in consolidated reserves. In the case of companies accounted for using the full consolidation method, reciprocal payables and receivables as well as reciprocal income and expenses are fully eliminated. 1.3.2

202

2017 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL