Hermès - Registration Document 2016

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PARENT COMPANY FINANCIAL STATEMENTS

NOTE TO THE FINANCIAL STATEMENTS

1.8 Post-employment and other employee benefit obligations For basic pension and other defined-contribution plans, Hermès International recognises contributions to be paid as expenses when they come due and no provision is accrued in this respect, as the Company has no obligation other than the contributions paid. For defined-benefit plans, Hermès International’s obligations are cal- culated annually by an independent actuary using the projected credit unit method. This method is based on actuarial assumptions and takes into account the employee’s probable future length of service, future salary and life expectancy as well as staff turnover. The present value of the obligation is calculated by applying an appropriate discount rate. It is recognised on a basis pro-rated to the employee’s years of service. Benefits are partly funded in advance by external funds (insurance com- panies). Assets held in this way are measured at fair value. The expense recognised in the statement of profit or loss is the sum of: s the service cost, which reflects the increase in obligations arising from the vesting of one additional year of benefits; s the interest cost, which reflects the increase in the present value of the obligations during the period. Accrued actuarial gains and losses are amortised when they exceed 10% of the obligation amount, gross of dedicated investments, or of the market value of these investments at year-end (“corridor” method), starting from the year following the year in which they were initially reco- gnised and continuing over the average residual duration of employment of the employee.

1.7 Income tax Since 1 January 1988, the Company has opted for a group tax consolida- tion under French tax law. Under the terms of an agreement between the parent company and the subsidiaries included in the Group tax conso- lidation, projected or actual tax savings or liabilities generated by the Group are recognised in the statement of profit or loss in the year inwhich they arise. The tax expense borne by the subsidiaries is the expense they would have incurred if there had been no Group tax consolidation. The companies included in the Group tax consolidation are Hermès International, Ateliers d’Ennoblissement d’Irigny, Ateliers de Tissage de Bussières et de Challes, Castille Investissements, Compagnie des Arts de la Table et de l’Email, Les Cristalleries de Saint-Louis, Compagnie Hermès de Participations, Compagnie Hermès de Participations 2, Comptoir des Cuirs Précieux, Comptoir Nouveau de la Parfumerie, Créations Métaphores, SCI Edouard VII, Établissements Marcel Gandit, Ganterie de Saint-Junien, Grafton Immobilier, Hermès Cuirs Précieux, Hermès Horizons, Hermès Sellier, Hermès Voyageur, Holding Textile Hermès, Immauger, Immobilière du 5 rue Fürstenberg, Immobilière de Montbéliard, Immobilière de Normandie, Immobilière Textile Honoré, John Lobb, La Manufacture de Seloncourt, La Maroquinerie Nontronnaise, Manufacture de Haute Maroquinerie, Maroquinerie de Belley, Maroquinerie des Ardennes, Maroquinerie de Normandie, Maroquinerie de Sayat, Maroquinerie de Saint-Antoine, Maroquinerie de la Tardoire, Maroquinerie Iséroise, Motsch George V, SC Honossy, Puiforcat, SCI Auger-Hoche, SCI Boissy Les Mûriers, SCI Boissy Nontron, Société d’Impression sur Etoffes du Grand-Lemps, Société Novatrice de Confection, Tannerie d’Annonay, Tannerie de Montereau, Les Tanneries du Puy, Tannerie de Vivoin and Immobilière de la Maroquinerie de Montbéliard.

OPERATING INCOME

NOTE 2

2016

2015

In millions of euros

Revenue

177.6

207.2

Other products

2.1

0.8

Reversals of provisions and expenses reclassified

152.6 332.2

41.2

Operating income

249.2

Inaddition,thefirsttrancheofthefreeshareallocationplansofMay2012 expired on 16 May 2016 for French employees. The cost of the shares issued to employees was invoiced to each subsidiary and recognised as exceptional income giving rise to the cancellation of accrued income recognised in services at the end of December 2015 in the amount of €41.8 million. The variation in reversals of provisions and transfers of expenses is attri- butable chiefly to the removal of free shares delivered in 2016 in the amount of €93.2 million.

The Company’s revenue consists of services and royalties from brands. Royalties are calculated based on the production subsidiaries’ revenue. Their increase results from the increase in the revenue of the companies subject to this royalty. Services are primarily amounts charged back to subsidiaries for adver- tising and public relations services, rent, staff provided on secondment, insurance and professional fees. They also include the accrued income pursuant to a re-invoicing agreement for free share allocation plan expenses concerning the Group’s French companies for €27.4 million in 2016 versus €18.3 million in 2015.

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2016 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL