Hermès // 2021 Universal Registration Document

5

CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Cash and cash equivalents consist of highly liquid investments and short term investments readily convertible to a known amount of cash, with maturity of three months or less from the date of acquisition and subject to an insignificant risk of changes in value. Thus, investments in listed shares, investments for a term of over three months that are not redeemable before the maturity date and bank accounts covered by restrictions (frozen accounts) other than restrictions due to country- or sector-specific regulations (e.g. currency controls) are excluded from cash and cash equivalents. Shares in funds held for the short term and classified as “Cash equivalents” are recorded at fair value, with changes in fair value recorded in the income statement. Impairment of financial assets Financial assets at fair value through non-recyclable equity are not subject to impairment, in accordance with IFRS 9. Financial assets measured at amortised cost as well as trade receivables are impaired according to an impairment model based on expected losses. The Group applies the provisions of IFRS 9 relating to the simplified model of the original provision over the maturity of the instrument. Credit risk is assessed upon recognition in the balance sheet at each closing date taking into account reasonable and justifiable information available as well as the insurance policy coverage put in place by the Group for the “Wholesale” activity. Due to the nature of the financial assets concerned, the Group determines that the historical rate of loss on the receivables is a reasonable approximation of the rate of expected loss. Changes in impairment losses are recognised according to the category of the asset. For financial assets recognised at amortised cost, any impairment loss is included in the income statement under “Other financial income and expenses”. If the impairment loss decreases in a subsequent period, it is reversed and recorded as income.

Financial assets at amortised cost Financial assets representing interest or capital repayments at determined dates, which are managed with the intention of collecting cash flows, are classified in this category. These are fixed-term financial assets that the Group acquired with the intention and the capacity to hold until their maturity as well as loans and financial receivables. These instruments are recognised at amortised cost less any impairment. Interest is calculated at the effective interest rate and recorded in the income statement under “Other financial income and expenses”. Financial assets at fair value through non-recyclable equity Financial assets at fair value through non-recyclable equity include investment securities in non-consolidated companies that are not held for trading. This classification is determined irreversibly at origin for each security in question. They are recognised at the date of closing at their fair value and unrealised gains or losses on these financial assets are recorded in other comprehensive income in “Revaluation adjustments”. Only any dividends received are recognised in the income statement. Financial liabilities Financial liabilities are initially recorded at fair value (excluding any transaction cost), then according to the amortised cost method with separation of any embedded derivatives. Interest is calculated at the effective interest rate and recorded in the income statement under “Gross borrowing cost” over the duration of the financial liability. Bank overdrafts, which are treated as financing, are presented under “Current borrowings and financial liabilities”.

Financial derivatives See Note 10.

Cash and cash equivalents The items recognised by the Group as “Cash and cash equivalents” meet the qualification criteria defined by IAS 7 Statement of cash flows and the AMF recommendations applicable at the closing date.

388 2021 UNIVERSAL REGISTRATION DOCUMENT HERMÈS INTERNATIONAL