Hermès // 2021 Universal Registration Document

CONSOLIDATED FINANCIAL STATEMENTS STATUTORY AUDITORS’ REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS

Measurement of inventories and work-in-progress – Note 4.5 to the consolidated financial statements

Description of risk At 31 December 2021, the Group’s inventories and work-in-progress were recognised in the balance sheet at a gross value of €2,246 million and a net value of €1,449 million. It is the responsibility of Hermès International’s management to determine the amount of any impairment required to reduce inventories to net realisable value if the latter is lower than their carrying amount. Impairment is calculated for each category of inventory according to: the condition of the inventories and their obsolescence (for example, past seasons or collections); s the estimated projected turnover of the inventories on the various markets. s We deemed the measurement of inventories and work-in-progress to be a key audit matter given the materiality of inventories and because the aforementioned criteria and the resulting impairment are dependent on assumptions, estimates and assessments made by management. In addition, as a large number of subsidiaries hold inventories, the elimination of internal margins in the consolidated financial statements is particularly important since it has an impact on the gross value of the Group’s inventories and the resulting impairment. How our audit addressed this risk Our work consisted in: examining the inventory measurement and impairment methods and ensuring that those methods were applied consistently; s performing a critical review of management’s methodology for recognising inventory impairment based on our knowledge of the Group’s business s segments and historical inventory turnover; assessing the level of impairment with regard to projected turnover and the age of the inventories. s Our work also consisted in verifying, on a sample basis, the consistency between the internal margins eliminated in the consolidated financial statements, in particular by examining the margin levels generated by production subsidiaries with the different distribution subsidiaries. Description of risk Hermès International is naturally exposed to currency risks because almost all of its production is located in the euro zone, while the majority of its sales are denominated in foreign currencies (US dollars, Japanese yen, Chinese yuan and other currencies). The production subsidiaries apply an annual exchange rate to scales established in euros and invoice the distribution subsidiaries in their local currency. As a result, the distribution subsidiaries bear most of the exchange rate risk. To hedge the risk and minimise the impact of currency fluctuations on its earnings, Hermès International uses fixed and optional currency hedges, with the objective of hedging its net internal exposure on an annual basis. At 31 December 2021, close to 100% of internal currency transactions for the following year were hedged. We deemed the recognition of currency hedges to be a key audit matter given the impact of currency fluctuations on the Group’s operating margin, which is an indicator used by the Group in its financial communication. How our audit addressed this risk As part of our work, with the assistance of our financial instruments experts, we: verified the existence, completeness and accuracy of the Group’s portfolio of financial instruments by making confirmation requests to banking s institutions; recalculated the fair value of a representative sample of instruments to assess the accuracy of their measurement; s verified the relationship between hedges and the related commercial transactions on a selection of hedging operations and performed a critical s review of the documentation for the associated effectiveness tests to assess their eligibility for hedge accounting under IFRS 9; examined the appropriateness of the disclosures relating to the hedging operations provided in the notes to the consolidated financial statements. s Recognition of currency hedges – Note 10 to the consolidated financial statements

5

2021 UNIVERSAL REGISTRATION DOCUMENT HERMÈS INTERNATIONAL

405