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2016 REGISTRATION DOCUMENT
HERMÈS INTERNATIONAL
172
CONSOLIDATED FINANCIAL STATEMENTS
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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:
s
intangible assets;
s
property, plant and equipment;
s
investment property;
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;
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.);
s
investment property;
s
associates.
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.
1.9.1
Classification of financial assets and liabilities
and valuation methods
A.
Financial assets and liabilities stated at fair value
with changes in fair value recorded in the statement
of profit or loss
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”.