HERMÈS - 2019 Universal Registration Document

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CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NON-CONTROLLING INTERESTS

NOTE 24

31/12/2019

31/12/2018 restated

In millions of euros

Balance as at 1 January

4.9 7.0

6.6 5.1

Net income attributable to non-controlling interests

Dividends paid to non-controlling interests

(4.0)

(4.3)

Foreign currency translation adjustments on foreign entities

0.7

0.4

Other changes

(0.8)

(3.0)

Balance at end of period

7.8

4.9

EXPOSURE TO MARKET RISKS

NOTE 25 Counterparty risk 25.1

no speculative transactions in the economic meaning of the term are s authorised; these hedges are provided through firm foreign exchange s transactions and/or optional transactions eligible for hedge accounting; other non-operating transactions are hedged against foreign s exchange risk as soon as the commitment is firm and final. It corresponds to financial risks arising from intra-group loans and dividends in foreign currencies. These management rules have been validated by the Executive Committee and have also been endorsed by the Supervisory Board. Administrative management and operational control are ensured by the middle & back office department, notably via the use of an integrated cash flow software. In addition, the audit and risk management department ensures compliance with the risk control and management procedures. Within this set of rules, management’s decisions are validated by the Executive Committee, via a Treasury Security Committee that meets on a regular basis. The Group’s foreign exchange risk is hedged annually by Hermès International, based on highly probable future cash flows derived from budget projections. In practical terms, at 31 December, the hedging of internal transactions in currencies for the following year is close to 100%. As such, the Group uses purchases and sales of put and call options as well as currency swaps and forward currency agreements.

Pursuant to the applicable internal control procedures, the Group only deals with leading banks and financial institutions that have signed FBF and ISDA agreements on trading in forward financial instruments, and it is not exposed to any material counterparty risk. In addition, counterparty risks on financial transactions are monitored on an ongoing basis by Hermès International’s Treasury Management department. Finally, the Group breaks down investment transactions, currency risk hedge transactions and transactions involving deposits in selected banks within the defined limits of amount and maturity. Moreover, the impact of the credit risk as recommended by IFRS 13 in the fair value of derivatives is close to 0 for the Group, given that all of the derivatives have a maturity of less than 12 months. Foreign exchange risk 25.2 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 (American dollar, Japanese yen and other Asian currencies, etc.). It hedges this exposure 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 manufacturing subsidiaries invoice the distribution subsidiaries in s their local currency, applying an annual exchange rate on the scales established in euros. This means that the distribution subsidiaries mainly concentrate most of the foreign exchange risk; the Group’s foreign exchange risk is systematically hedged by Hermès s International on an annual basis, based on future internal operating cash flows between the companies in the Group;

2019 UNIVERSAL REGISTRATION DOCUMENT HERMÈS INTERNATIONAL

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