Hermès // 2022 UNIVERSAL REGISTRATION DOCUMENT

CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MANAGEMENT OF MARKET RISKS AND DERIVATIVES

NOTE 10

Accounting principles Scope

The ineffective portion of the changes in the fair value corresponds to the excess of changes in fair value of the hedging instrument compared with the changes in fair value of the hedged item. When the hedged cash flows materialise, the amounts previously recorded in equity are reclassified to the income statement symmetrically with the flows of the related hedged item. The reversal of the effective portion of the hedge is recognised in the operating income statement. The forward points and the time value of the options that make up the cost of hedging are recognised under “Other financial income and expenses” with, where applicable, the ineffective portion of hedges. Financial derivatives classified as hedges The Group uses derivatives to hedge its foreign exchange risks. Hedge accounting is applicable when the following conditions are met: the hedging transaction must be supported by appropriate documentation of the hedging relationship from the time of its implementation; s an economic relationship exists between the hedged item and the hedging instrument; s the constraints of effectiveness of the hedging relationship are met: the hedge ratio does not show any imbalance between the hedged element and the hedging instrument generating an hedge ineffectiveness. s (American dollar, Japanese yen and other Asian currencies, etc.). This exposure is hedged in order to minimise and anticipate the impact of currency fluctuations on the Group’s profits. The Group’s foreign exchange risk exposure management policy is based on the following principles: the production subsidiaries apply an annual exchange rate to the grid established in euros and invoice the distribution subsidiaries in their currency. So, the distribution subsidiaries concentrate most of the foreign exchange risk; s the Group’s foreign exchange risk is systematically hedged by Hermès International on an annual basis, based on budget forecasts of future internal operating cash flows between the companies in the Group. In practical terms, as at 31December, the hedging of internal transactions in currencies for the following year is close to 100%; s no speculative transactions in the economic meaning of the term are authorised; s Hermès International’s treasury department carries out these hedges with firm foreign exchange transactions (currency swaps and forward currency contracts) and/or purchases and sales of options eligible for hedge accounting (call and put options); s

The Group defines the scope of financial derivatives in accordance with the provisions and principles introduced by IFRS9 Financial Instruments . In this respect, the Group analyses all its contracts, focusing on both financial and non‑financial liabilities, to identify the existence of any “embedded” derivatives. Any component of a contract that affects the cash flows of a given contract in the same way as a stand‑alone derivative corresponds to the definition of an embedded derivative. If they meet the conditions set out by IFRS9, embedded derivatives are accounted for separately from the “host” contract at the inception date. According to Group rules, consolidated subsidiaries may not take any speculative financial positions. Recognition and measurement Financial derivatives are initially recorded at fair value. Changes in the fair value of these derivatives are recorded in the income statement, unless they are classified as cash flow hedges, as described below. In this latter case, the effective portion of the changes in fair value of derivative instruments is recognised directly in other comprehensive income in the item “Revaluation adjustments”. These changes in fair value include the portion linked to forward points of forward currency agreements as well as the time value (premium) of currency options qualified as cash flow hedges. In accordance with its internal control procedures, the Group only deals with leading banks and financial institutions that have signed FBF and ISDA agreements related to transactions on forward financial instruments. Counterparty risks on financial transactions are monitored on an ongoing basis by Hermès International’s treasury department. The Group breaks down its investment transactions, foreign exchange risk hedging transactions and deposit transactions with the selected banks within defined limits of amount and maturity. 10.1 Counterparty risk The Group does not incur any significant counterparty risk. 10.2 The impact of the credit risk as recommended by IFRS13 in the fair value of derivatives is close to 0, given that all of the derivatives have a maturity of less than 12 months. Foreign exchange risk 10.2.1 FOREIGN EXCHANGE POLICY The Group is naturally exposed to foreign exchange risk because the bulk of its production is located in the Eurozone, while the majority of its sales revenue is received in currencies other than the euro

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2022 UNIVERSAL REGISTRATION DOCUMENT HERMÈS INTERNATIONAL

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