HERMES_REGISTRATION_DOCUMENT_2017

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CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A. Financial assets recorded at amortised cost Impairment is equal to the difference between the asset’s net carrying amount and the discounted value of projected future cash flows expec- ted to be generated as determined using the original effective interest rate of the financial instrument. Any impairment loss is included in the statement of profit or loss under “Other financial income and expenses”. If the impairment loss decreases in a subsequent period, it is reversed and recorded as income. B. Available-for-sale financial assets If there is a significant long-term decrease in the fair value of available- for-sale financial assets, the unrealised loss is reclassified fromequity to income. If, in a subsequent period, the fair value of an available-for-sale financial asset increases, the increase in value is recorded in equity for equity instruments, while for debt instruments, the impairment pre- viously recorded is reversed and transferred to the statement of profit or loss. 1.10 Inventories Inventories and work-in-progress held by Group companies are valued at the lower of cost (including indirect production costs) or net realisable value. Cost is generally calculated at weighted average cost or standard cost adjusted for variances, according to each category of inventory. The cost of inventories includes all costs of purchase, costs of conver- sion and other costs incurred in bringing the inventories to their present location and condition, as specified by IAS 2 Inventories . In particular, discounts and collection costs are included in the measurement of inventories. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Impairment is booked to reduce inventories to net realisable value if this is lower than the carrying amount. Impairment is established for each category of inventory (raw materials, work in progress, intermediate pro- ducts, finished products and merchandise), if the products concerned are damaged or obsolete (season or collection terminated, for example) or based on expected turnover. These impairments are included in the cost of sales. 1.11 Treasury shares Treasury shares are recorded at acquisition cost and deducted from equity. Gains or losses on the disposal of these shares are recognised directly in equity, with no impact on profit or loss.

1.12 Revenue and trade receivables Revenue consists of sales of retail goods, sales of goods and services produced by the Group’s main business operations, and income from royalties, licences and operating subsidies. Revenue is recognised: s when the major risks and benefits inherent in the ownership of goods are transferred to the buyer; s when any volume or trade discounts and other benefits on sales are deducted from revenue (separability principle); s when, at the transaction date, it is probable that the amount of the sale will be recovered. In general, sales of goods are accounted for on delivery, sales of services are accounted for on completion. Credit risk arises from the potential inability of clients to meet their pay- ment obligations. When there is objective evidence of impairment, the value of these obligations is adjusted at each closing period. An impair- ment expense is recognised in the statement of profit or loss when the carrying amount of the asset is higher than its recoverable amount. 1.13 Other non-recurring income and expenses “Other non-recurring operating income and expenses” in the statement of profit or loss relates to major events which occurred during the year and produced amaterial financial impact. This item is presented separa- tely from recurring operating income because it could give a misleading view of the Group’s performance. 1.14 Operating segments In accordance with IFRS 8 Operating Segments , the presented seg- ment information is based on internal reporting used by management to assess the performance of the different business segments. The activity of the Hermès Group is monitored by the main operational decision-maker (“Executive Committee”) by geographical area and by sector. Given the Group’s current structure, organised into geographical areas placed under the responsibility of operational Senior Executives in charge of applying the strategy defined by the Executive Committee, the Group has determined that the geographical areas constitute the ope- rating segments with reference to the fundamental principle of IFRS 8. s when the amount of revenue can be measured reliably;

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2017 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL