Hermès - Registration Document 2016

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CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

s the discount rate is determined based on WACC of the Group (7.71% in 2016) adjusted for local inflation and any country risks; s the recoverable amount is calculated as the sum of cash flows gene- rated each year and the terminal value, which is determined based on normative cash flows by applying a zero growth rate to infinity. The Hermès Group has defined the following CGUs or groups of CGUs: s sales units (branches), distribution, which are treated independently from one another; s separate production activities (Leather production, Silk production); s businesses centred on production or distribution of one type of pro- duct (including Perfumes, Watches, Hermès Cuirs Précieux, etc.); 1.9 Financial assets and liabilities In accordance with IFRS standards, financial assets include non-conso- lidated and other investment securities, loans and financial receivables, and the positive fair value of financial derivatives. Financial liabilities include borrowings and debt, bank lines of credit and the negative fair value of financial derivatives. Financial assets and liabilities are presented in the statement of finan- cial position under current or non-current assets or liabilities, depending on whether they come due within one year or more, with the exception of tradingderivatives,whicharerecordedundercurrentassetsor liabilities. Operating payables and receivables and cash and cash equivalents fall within the scope of IAS 39 Financial Instruments: Recognition and Measurement, and are presented separately on the statement of finan- cial position. s investment property; s associates.

1.7.4 Investment property In accordance with IAS 40 Investment Property, property held by the Group to earn rental income is recognised under “Investment property”. This revenue and the associated expenses are recognised in “Other income and expenses”. For property that is held for use both for the supply of goods and services and as investment property, the two com- ponents are identified separately and recognised in accordance with IAS 16 Property, Plant and Equipment, and IAS 40, respectively. As in the case of property, plant and equipment, investment property is recognised at historical acquisition cost less accumulated depreciation and recognised impairment losses, over the same depreciation periods as those applicable to other property, plant and equipment.

1.8 Impairment of fixed assets – impairment losses

Inaccordancewith IAS36 Impairment of Assets, when events or changes in themarket environment indicate that there is the risk of an impairment loss on:

intangible assets;

s

property, plant and equipment;

s

investment property;

s

s goodwill. These assets are required to undergo a detailed review in order to deter- mine whether their net carrying amount is lower than their recoverable amount, which is defined as the higher of fair value (less disposal cost) or value in use. Value in use is the present value of the future cash flows expected to be derived from an asset and from its disposal. If the recoverable amount is lower than the net carrying amount, an impairment loss equal to the difference between these two amounts is recognised. Impairment losses on tangible and intangible assets with a finite life may subsequently be reversed if the recoverable amount rises above the net carrying amount (up to the amount of the impairment loss initially recognised). The Group tests for impairment of assets with an indefinite life every year during the budget preparation period in order to take the most recent data into account. If internal or external events or circumstances indicate impairment losses, the frequency of impairment testing may be revised. In determining the value in use of assets, assets to which independent cash flows cannot be directly allocated are grouped within a cash-gene- rating unit (CGU) to which they are attached. The recoverable amount of the CGU is measured using the discounted cash flow (DCF) method, applying the following principles: s cash flows (after tax) figures are derived from a medium-term (five- year) business plan developed by the relevant entity;

1.9.1

Classification of financial assets and liabilities and valuation methods Financial assets and liabilities stated at fair value with changes in fair value recorded in the statement of profit or loss

A.

These assets are initially recognised at acquisition cost excluding inci- dental acquisition expenses. At each closing period, they are measured at fair value. Changes in fair value are recorded in the statement of profit or loss under “Other financial income and expenses”. Dividends and interest received on these assets are also recognised in the statement of profit or loss under “Other financial income and expenses”.

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2016 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL