HERMES_REGISTRATION_DOCUMENT_2017

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PARENT COMPANY FINANCIAL STATEMENTS

NOTE TO THE FINANCIAL STATEMENTS

1.7 Income tax Since 1 January 1988, the Company has opted for a group tax consolida- tion under French tax law. Under the terms of an agreement between the parent company and the subsidiaries included in the Group tax conso- lidation, projected or actual tax savings or liabilities generated by the Group are recognised in the statement of profit or loss in the year inwhich they arise. The tax expense borne by the subsidiaries is the expense they would have incurred if there had been no Group tax consolidation. The companies included in the Group tax consolidation are Hermès International, Ateliers d’Ennoblissement d’Irigny, Ateliers de Tissage de Bussières et de Challes, Castille Investissements, Compagnie des Arts de la Table et de l’Email, Compagnie des Cristalleries de Saint- Louis, Compagnie Hermès de Participations, CHP2, CHP3, Compagnie des Cuirs Précieux, Comptoir Nouveau de la Parfumerie, Créations Métaphores, Ets Marcel Gandit, Ganterie de Saint-Junien, Grafton Immobilier, Hermès Cuirs Précieux, Hermès Sellier, Holding Textile Hermès, Honossy, Immauger, Immobilière du 5 rue de Furstemberg, Immobilière de la Maroquinerie de Montereau, Immobilière de la Maroquinerie de Guyenne, Immobilière de la Maroquinerie de Normandie, Immobilièrede laMaroquineriedeMontbéliard, Immobilière Textile Honoré, Isamyol 30, John Lobb, La Manufacture de Seloncourt, Maroquinerie Nontronnaise, Manufacture de Haute Maroquinerie, Maroquinerie de Belley, Maroquinerie des Ardennes, Maroquinerie de Guyenne, Maroquinerie de Montereau, Maroquinerie de Normandie, Maroquinerie de Sayat, Maroquinerie de Saint-Antoine, Maroquinerie de la Tardoire, Maroquinerie Iséroise, Motsch George V, Puiforcat, SCI Auger-Hoche, SCI Boissy Les Mûriers, SCI Boissy Nontron, SCI Edouard VII, SCI Les Capucines, Société d’Impression sur Etoffes du Grand- Lemps, Société Novatrice de Confection, Tannerie d’Annonay, Tannerie de Montereau, Tanneries du Puy and Tannerie de Vivoin.

1.8 Post-employment and other employee benefit obligations For basic pension and other defined-contribution plans, Hermès International recognises contributions to be paid as expenses when they come due and no provision is accrued in this respect, as the Company has no obligation-other than the contributions paid. For defined-benefit plans, Hermès International’s obligations are cal- culated annually by an independent actuary using the projected credit unit method. This method is based on actuarial assumptions and takes into account the employee’s probable future length of service, future salary and life expectancy as well as staff turnover. The present value of the obligation is calculated by applying an appropriate discount rate. It is recognised on a basis pro-rated to the employee’s years of service. Benefits are partly funded in advance by external funds (insurance com- panies). Assets held in this way are measured at fair value. The expense recognised in the statement of profit or loss is the sum of: s the service cost, which reflects the increase in obligations arising from the vesting of one additional year of benefits; s and the interest cost, which reflects the increase in the present value of the obligations during the period. Accrued actuarial gains and losses are amortised when they exceed 10% of the obligation amount, gross of dedicated investments, or of the market value of these investments at year-end (“corridor” method), starting from the year following the year in which they were initially reco- gnised and continuing over the average residual duration of employment of the employee.

OPERATING INCOME

NOTE 2

2017

2016

In millions of euros

Revenue

216.6

177.6

Other products

0.7

2.1

Reversals of provisions and expenses reclassified

67.4

152.6 332.2

Operating income

284.7

The €67.4 million comprises reversals of provisions of €2.3 million and expense reclassifications totaling €65.1 million, €8.3 million of which are recorded under staff costs in respect of the Company’s employees, and €56.8 million in net extraordinary income in respect of subsidiaries’ employees. In 2016, the €152.6 billion in reversals of provisions and transfers of expenses included a reversal in connection with the removal of free shares delivered in 2016 in the amount of €93.2 million.

The Company’s revenue consists of services and royalties from brands. Royalties are calculated based on the production subsidiaries’ revenue. Their increase results from the increase in the revenue of the companies subject to this royalty. Services are primarily amounts charged back to subsidiaries for adver- tising and public relations services, rent, staff provided on secondment, insurance and professional fees.

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2017 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL