Hermès - Registration Document 2016

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CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The diluted earnings per share are restated for the shares that are to be created as part of the share subscription plans decided upon by the Executive Management.

Foreign currency differences arising from the conversion of deferred tax income or expenses are recognised in the statement of profit or loss in deferred tax income or expenses. Discounting is not applied to deferred tax. 1.18.2 Tax consolidation Since 1 January 1988, Hermès International has opted for a group tax consolidation under French tax law. Under the terms of an agreement between the parent company and the subsidiaries included in the Group tax consolidation, projected and actual tax savings or liabilities gene- rated by the Group are recognised in the statement of profit or loss in the year in which they arise. 1.19 Adjustment of depreciation, amortisation and impairment The impact of accounting entries booked net of deferred tax solely to comply with tax legislation is eliminated from the consolidated financial statements. Theseadjustmentsmainly relate to restrictedprovisionsandaccelerated depreciation in French companies, and to impairment of inventories and doubtful receivables in foreign companies. 1.20 Earnings per share In accordance with IAS 33 Earnings per Share, basic earnings per share is calculated by dividing the net income attributable to owners of the parent by the average number of ordinary shares outstanding during the period. The net earnings per share are calculated on the basis of the weighted average number of shares outstanding during the financial year. The weighted average number of ordinary shares outstanding during the period is the number of ordinary shares outstanding at the begin- ning of the period, less the treasury shares, adjusted by the number of ordinary shares bought back or issued during the period multiplied by a time-weighting factor. The weighted average number of shares outstanding during the financial year as well as those from previous financial years are adjusted in order to account, if relevant, for operations involving the free distribution of shares and the reduction of the share’s par value occurring during the financial year, as well as of treasury shares. Diluted earnings per share is adjusted for the effects of all potentially dilutive shares. The calculation is based on assumptions regarding the conversion of convertible instruments, exercise of options or equity war- rants and issues of new shares.

1.21 Option plans and similar Stock subscription or purchase option plans or bonus share allocation plans are recognised as expenses at fair value in the “Other income and expenses” section, with a corresponding increase in equity. This fair value is spread over the vesting period. For the bonus share allocation plans, the estimate of the fair value is calculated on the basis of the share price on the date that the corres- ponding management decision is made and subject to the deduction of the amount of the advance dividends over the vesting period, as well as a non-assignability discount, where relevant. 1.22 Use of estimates The preparation of the consolidated financial statements under IFRS sometimes requires the Group to make estimates in valuing assets and liabilities and income and expenses recognised during the year. The Group bases these estimates on historical experience and on a variety of assumptions, which it deems to be the most reasonable and probable in the current economic environment. The main items that require the use of assessments and estimates are as follows: s depreciation and amortisation periods for property, plant and equip- ment and intangible assets (see Notes 1.7, 11 and 12);

s impairment of inventories (see Notes 1.10 and 17);

s provisions (see Notes 1.16 and 23);

s post employment and other employee benefit obligations (see Notes 1.17 and 25);

s income taxes (see Notes 1.18 and 8);

s share-based payments (see Notes 1.21 and 30).

1.23 Events after the closing

No significant event has occurred since the closing as at 31 December 2016.

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2016 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL