Hermès // 2021 Universal Registration Document

CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Leases 7.3

Accounting principles Balance sheet

Lease term The lease term is determined contract by contract.

The Hermès Group owns almost all of its manufacturing facilities and is tenant of most of the stores and offices in the cities where it operates. Real estate leases with fixed rents are recognised in assets through a right-of-use and in liabilities through a lease liability corresponding to the present value of future payments. Right-of-use assets are equal to the amount of the lease liability adjusted for the amount of prepaid rent, incentives received from the lessors, initial direct costs incurred in securing the lease and, where applicable, restoration costs, at the contract’s commencement date. Rights-of-use are amortised on a straight-line basis over the term of the lease. The lease liability is increased by the amount of interest expenses determined by applying the discount rate and reduced by the amount of payments made. Furthermore, the liability may be re-assessed in the event of a review of the lease term, or the rates and indices on which rents are based. Income statement Amortisation of right-of-use assets is presented in “Other income and expenses”, except for any allocations relative to right-of-use assets used for production, which are included in “Cost of sales”. Interest expense is recognised in net financial income (see Note 9.1). The gain or loss resulting from the early termination of a contract is determined by the difference between the net carrying amount of the right-of-use and the value of the lease liability and included in “Other income and expenses”. Statement of cash flows In the statement of cash flows, repayments of principal and payment of interest on lease liabilities are presented under the same heading “Repayment of lease liabilities” in cash flows related to financing activities.

The Group takes into account the renewal options on the effective date of the contract, provided that the total duration of the contract thus calculated is consistent with the duration of the investment plan. In France, in the case of 3-6-9-type commercial leases, the lease term used is nine years, except in special cases. In the event that only Hermès has an option to terminate a lease, the Group assesses, at the date the contract comes into effect, all the facts and circumstances providing economic incentives not to exercise this option, taking into account criteria such as the actual nature of the asset, all costs related to termination, and the duration of the investment plan. Discount rate The standard provides that the discount rate for each contract is determined by reference to the incremental borrowing rate of the contracting subsidiary. In practice, given the Group’s financing structure, this rate is determined on the basis of the local currency swap interest rate, with a maturity in line with the average duration of the contracts in the country. It is adjusted for credit risk by taking into account the Group’s credit default swap. The rates thus determined apply on the start date of each contract. Simplification measure Leases corresponding to assets with a low unit value or to leases with a term of less than 12 months are recognised directly as expenses. The variable portion of rents is recognised as an expense over the period in which the conditions triggering payment are achieved. At Hermès, this variable portion mainly concerns rents indexed to revenue.

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2021 UNIVERSAL REGISTRATION DOCUMENT HERMÈS INTERNATIONAL

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