HERMES_REGISTRATION_DOCUMENT_2017

5

CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NON-CONTROLLING INTERESTS

NOTE 21

2017

2016

In millions of euros

Balance as at 1st January

2.2 4.3

6.7 3.9

Net income attributable to non-controlling interests

Dividends paid to non-controlling interests

(2.6) (0.1)

(4.1) (0.2) (4.2)

Foreign currency translation adjustments on foreign entities

Other changes

2.8 6.6

Balance as at 31 December

2.2

EXPOSURE TO MARKET RISKS

NOTE 22

22.1 Counterparty risk Pursuant to the applicable internal control procedures, the Group only deals with leading banks and financial institutions that have signed FBF and ISDA agreements on trading in forward financial instruments, and it is not exposed to any material counterparty risk. In addition, counter- party risks on financial transactions are monitored on an ongoing basis by Hermès International’s Treasury Management department. Lastly, theGroup has no exposure to anymaterial risk of dependence on a single counterparty. Moreover, the impact of the credit risk as recommended by IFRS 13 in the fair value of derivatives is close to 0 for the Group, given that all of the derivatives have a maturity of less than 12 months. 22.2 Foreign exchange risk The Group is naturally exposed to foreign exchange risk because the bulk of its production is located in the eurozone, but receives the majority of its sales revenue in currencies other than the euro (American dollars, Japanese yen and other Asian currencies, etc.). It hedges this exposure in order to minimise the impact of currency fluctuations on the Group’s profits. TheGroup’s foreign exchange risk exposuremanagement policy is based on the following principles: s the manufacturing subsidiaries invoice the distribution subsidiaries in their local currency, which automatically concentrates the foreign exchange risk on the manufacturing subsidiaries; s theGroup’s foreignexchange risk is systematically hedgedbyHermès International on an annual basis, based on future internal operating cash flows between the companies in the Group;

s no speculative transactions in the economic meaning of the term are authorised; s these hedges are provided through firm foreign exchange transac- tions and/or optional transactions eligible for hedge accounting; s other non-operating transactions are hedged against foreign exchange risk as soon as the commitment is firm and final. It corres- ponds to financial risks arising from intra-group loans and dividends in foreign currencies. These management rules have been validated by the Executive Committee and have also been endorsed by the Supervisory Board. The administrative management and control of these transactions are provided by the Middle & Back Office department, notably by means of an integratedcashsoftwareprogram.Inaddition,HermèsInternational’s Internal Audit department ascertains compliance with the risk control and management procedures. Within this set of rules, management’s decisions are validated by the Executive Committee, via a Treasury Security Committee that meets on a regular basis. The Group’s foreign exchange risk is hedged annually by Hermès International, based on highly probable future cash flows derived from budget projections. In practical terms, at 31 December, the hedging of internal transactions in currencies for the next following year is close to 100%. As such, the Group uses purchases and sales of put and call options as well as currency swaps and forward currency agreements.

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2017 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL