188 / 330
2016 REGISTRATION DOCUMENT
HERMÈS INTERNATIONAL
188
CONSOLIDATED FINANCIAL STATEMENTS
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21
NON-CONTROLLING INTERESTS
In millions of euros
2016
2015
Balance as at 1 January
6.7
9.5
Net income attributable to non-controlling interests
3.9
4.6
Dividends paid to non-controlling interests
(4.1)
(6.3)
Foreign currency translation adjustments on foreign entities
(0.2)
1.4
Other changes
(4.2)
(2.5)
Balance as at 31 December
2.2
6.7
NOTE 22
EXPOSURE TO MARKET RISKS
22.1
Counterparty risk
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, counter-
party risks on financial transactions are monitored on an ongoing basis
by Hermès International’s Treasury Management Department. Lastly,
theGroup has no exposure to anymaterial risk of dependence on a single
counterparty.
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.
22.2
Foreign exchange risk
Most of the Group’s foreign exchange risk exposure comes from sales
denominated in foreign currencies. It hedges this exposure in order to
minimise the impact of currency fluctuations on the Group’s profits.
TheGroup’s foreign exchange risk exposuremanagement policy is based
on the following principles:
s
the manufacturing subsidiaries invoice the distribution subsidiaries
in their local currency, which automatically concentrates the foreign
exchange risk on the manufacturing subsidiaries;
s
theGroup’s foreignexchange risk is systematically hedgedbyHermès
International according to annual budgets, based on highly probable
future operating cash flows, through firm foreign exchange transac-
tions and/or optional ones eligible for hedge accounting;
s
no speculative transactions in the economic sense of the term are
authorised;
s
all other non-operating transactions are hedged against foreign
exchange risk as soon as the commitment is firm and definitive. It
corresponds to financial risks arising from intra-group loans and divi-
dends in foreign currencies.
These management rules have been validated by the Executive
Committee and have also been endorsed by the Supervisory Board.
The administrative management and control of these transactions are
provided by the Middle & Back Office Department, notably by means of
an integratedcashsoftwareprogram.Inaddition,HermèsInternational’s
Internal Audit department ascertains 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 practice, as at 31 December, nearly 100% of the
Group’s annual requirements for the previous year had been hedged.
As part of its foreign exchange risk management procedure, the Group
uses purchases and sales of put and call options and currency swaps
to hedge future cash flows and firm commitments made in foreign
currencies.