HERMES_REGISTRATION_DOCUMENT_2017

CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Dividends and interest received on these assets are also recognised in the statement of profit or loss under “Other financial income and expenses”. B. Held-to-maturity financial assets This category covers fixed-term financial assets, bought with the inten- tion and ability of holding them until maturity. These items are recognised at amortised cost. Interest is calculated at the effective interest rate and recorded in the statement of profit or loss under “Other financial income and expenses”. C. Loans and financial receivables Loans and financial receivables are valued and recognised at amortised cost less any impairment. Interest is calculated at the effective interest rate and recorded in the statement of profit or loss under “Other financial income and expenses”. D. Available-for-sale financial assets Available-for-sale financial assets include non-consolidated invest- ments and investment securities. For each closing period, they are stated at fair value. Unrealised gains or losses on available-for-sale financial assets are recorded in other comprehensive income in “Revaluation adjustments”. For available-for-sale financial assets represented by debt securities, interest is calculated at the effective interest rate and credited to the statement of profit or loss under “Other financial income and expenses”. E. Financial debts Financial debts are recorded at amortised cost, with separate reporting of embedded derivatives where applicable. Interest is calculated at the effective interest rate and recorded in the statement of profit or loss under “Gross cost of debt” over the duration of the financial debt. F. Financial derivatives Scope The scope of financial derivatives applied by the Group corresponds to the principles set out in IAS 39 Financial Instruments: Recognition and Measurement . According to Group rules, consolidated subsidiaries may not take any speculative financial positions. In compliance with IAS 39, the Group analyses all its contracts, of both a financial and non-financial nature, to identify the existence of any “embedded” derivatives. Any component of a contract that affects the cash flows of agiven contract in the sameway as a stand-alonederivative corresponds to the definition of an embedded derivative. If they meet the conditions set out by IAS 39, embedded derivatives are accounted for separately from the “host” contract at the inception date.

Recognition and Measurement Financial derivatives are initially recorded at fair value.

Changes in the fair value of these derivatives are recorded in the state- ment of profit or loss, unless they are classified as cash flow hedges, as described below. Changes in the fair value of such hedging instruments are recorded directly in other comprehensive income excluding the inef- fective portion of the hedge, which is recorded in the statement of profit or loss under “Other financial income and expenses”. The ineffective portion of the hedge corresponds to the changes in the fair value of the hedging instrument in excess of changes in the fair value of the hedged item. When the hedged cash flows materialise, the amounts previously recognised in equity are transferred to the statement of profit or loss in the same way as for the hedged item. Financial derivatives classified as hedges The Group uses derivatives to hedge its foreign exchange risks. Hedge accounting is applicable, in accordance with IAS 39 Financial Instruments: recognition and measurement , when the following condi- tions have been met: 1) the hedgemust be supported by appropriate documentation from the time of its implementation; 2) the effectiveness of the hedging relationship must be demonstrated both prospectively and retrospectively. The income obtained in this way must be between 80% and 125%. G. Cash and cash equivalents Cash and cash equivalents consist of immediately available cash and very short-term investments that can be divested within a maximum of three months at the investment date, with minimal risk of any change in value. Thus, investments in listed shares, investments for a term of over three months that are not redeemable before the maturity date and bank accounts covered by restrictions (frozen accounts) other than restrictions due to country- or sector-specific regulations (e.g. currency controls) are excluded from cash in the statement of cash flows. Bank overdrafts that are deemed to be financing arrangements are also excluded from the cash position. Shares in funds held for the short term and classified as “Cash equiva- lents” are recorded at fair value, with changes in fair value recorded in the statement of profit or loss. Impairment of financial assets For each closing period, the Group assesses whether there is any objec- tive evidence of an asset’s impairment. If so, the Group estimates the asset’s recoverable value and records any necessary impairment as appropriate for the category of asset concerned. 1.9.2

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2017 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL

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