HERMES_REGISTRATION_DOCUMENT_2017

5

CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

to account, if relevant, for operations involving the free distribution of shares and the reduction of the share’s par value occurring during the financial year, as well as of treasury shares. Diluted earnings per share is adjusted for the effects of all potentially dilutive shares. The calculation is based on assumptions regarding the conversion of convertible instruments, exercise of options or equity war- rants and issues of new shares. The diluted earnings per share are restated for the shares that are to be created as part of the share subscription plans decided upon by the Executive Management. 1.21 Option plans and similar Stock subscription or purchase option plans or bonus share allocation plans are recognised as expenses at fair value in the “Other income and expenses” section, with a corresponding increase in equity. This fair value is spread over the vesting period. For the bonus share allocation plans, the estimate of the fair value is calculated on the basis of the share price on the date that the corres- ponding management decision is made and subject to the deduction of the amount of the advance dividends over the vesting period, as well as a non-assignability discount, where relevant. 1.22 Use of estimates The preparation of the consolidated financial statements under IFRS sometimes requires the Group to make estimates in valuing assets and liabilities and income and expenses recognised during the year. The Group bases these estimates on historical experience and on a variety of assumptions, which it deems to be the most reasonable and probable in the current economic environment. The main items that require the use of assessments and estimates are as follows: s depreciation and amortisation periods for property, plant and equip- ment and intangible assets (see Notes 1.7, 11 and 12);

1.18.1 Deferred tax Deferred tax is calculated on all timing differences existing at finan- cial year-end (full reserve) at the tax rate in force on that date, or at the enacted tax rate (or nearly enacted rate) for the subsequent financial year. Previous deferred tax is revalued using the same method (liability method). Themaincategoriesof deferred tax apply to restatementsof internalmar- gins on inventories, impairment on inventories and timing differences. Deferred tax assets are recorded to the extent that their future use is probable given the expected taxable profits. If a recovery risk arises on some or all of a deferred tax asset, an impairment is recorded. Foreign currency differences arising from the conversion of deferred tax income or expenses are recognised in the statement of profit or loss in deferred tax income or expenses. Discounting is not applied to deferred tax. 1.18.2 Tax consolidation Since 1st January 1988, Hermès International has opted for a group tax consolidation under French tax law. Under the terms of an agreement between the parent company and the subsidiaries included in the Group tax consolidation, projected and actual tax savings or liabilities gene- rated by the Group are recognised in the statement of profit or loss in the year in which they arise. 1.19 Adjustment of depreciation, amortisation and impairment The impact of accounting entries booked net of deferred tax solely to comply with tax legislation is eliminated from the consolidated financial statements. Theseadjustmentsmainly relate to restrictedprovisionsandaccelerated depreciation in French companies, and to impairment of inventories and doubtful receivables in foreign companies. 1.20 Earnings per share In accordance with IAS 33 Earnings per Share , basic earnings per share is calculated by dividing the net income attributable to owners of the parent by the average number of ordinary shares outstanding during the period. The net earnings per share are calculated on the basis of the weighted average number of shares outstanding during the financial year. The weighted average number of ordinary shares outstanding during the period is the number of ordinary shares outstanding at the begin- ning of the period, less the treasury shares, adjusted by the number of ordinary shares bought back or issued during the period multiplied by a time-weighting factor. The weighted average number of shares outstanding during the financial year as well as those from previous financial years are adjusted in order

s impairment of inventories (see Notes 1.10 and 17);

s provisions (see Notes 1.16 and 23);

s post employment and other employee benefit obligations (see Notes 1.17 and 25);

s income taxes (see Notes 1.18 and 8);

s share-based payments (see Notes 1.21 and 30).

1.23 Subsequent events TheHermès group, which inaugurated its new flagship store at Landmark Prince’s in Hong Kong on 10 January 2018, signed a promise of sale on February 15 for the premises of its former Galleria store, which it owned. Due to be finalised in April, this transaction could generate a net capital gain of around €50 million in the 2018 financial year.

208

2017 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL