HERMÈS - 2018 Registration document

Consolidated financial statements Notes to the consolidated financial statements

1.6 Business combinations

1.6.2 Associates Upon the acquisition of securities of equity-accounted companies, good- will of associates is included in the carrying amount of securities reco- gnised in “Investments in associates”. The Group reviews the value of its equity-accounted securities when events and circumstances indicate that loss in value may have occur- red. An impairment is recognised when the recoverable amount of the investment becomes less than the net carrying amount in “Net income from associates”. Impairment of associates’ goodwill is reversible. In accordance with IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets , only those items whose cost can be reliably deter- mined and from which it is probable that future economic benefits will flow to the Group are recognised as fixed assets. 1.7.1 Intangible assets Intangible assets, valued at amortised historical cost, consist primarily of: s s leasehold rights; s s patents, models and brands other than internally generated brands; s s computer software. Leasehold rights are deemed to be fixed assets with a finite life, amor- tised over the term of the lease. It is specified that internally generated brands and items that are similar in substance are not recognised under intangible assets, in accordance with IAS38. All costs incurred in this respect are recognisedas expenses. Other software, either acquired or developed internally, is amortised on a straight-line basis over periods ranging from three to eight years maxi- mum and deemed to be fixed assets with a finite life. 1.7.2 Property, plant and equipment Property, plant and equipment is recorded at historical acquisition cost, less accumulated depreciation and recognised impairment losses. They are depreciated, generally using the straight-line method, over the fol- lowing average estimated useful lives: s s buildings: 20 to 50 years; s s fixtures and furnishings: 10 and 20 years depending on the expected useful life of the asset considered and the term of the lease (in parti- cular in the case of store fixtures); s s machinery, plant and equipment: 10 to 20 years; s s other: 3 to 10 years maximum. 1.7 Intangible assets and property, plant and equipment

1.6.1 Subsidiaries Business combinations, in the event that the Group gains control over one or several other activities, are accounted for using the purchase method. Business combinations completed on or after 1 January 2010 are mea- sured and recognised in accordance with revised IFRS 3: the conside- ration transferred (acquisition cost) is measured at the fair value of the assets delivered, the equity issued and the liabilities incurred on the date of the transfer. The identifiable assets and liabilities of theCompany that are acquired are measured at fair value on the acquisition date. The costs that can be directly attributed to the acquisition are recorded as an expense. The resulting valuation adjustments are recognised under the related assets and liabilities, including the share attributable to non-controlling interests, and not just the share of net assets acquired. The residual difference, which is the difference between the transferred counterparty and the share of net assets and liabilities measured at fair value, is recognised under goodwill. This valuation is carried out within no more than a year following the date of acquisition and in the currency of the acquired entity. This period is applicable to the valuation of identifiable assets and liabilities, to the transferred counterparty and to the non-controlling interests. Purchases or sales of non-controlling interests that do not lead to a change in control are recorded as equity transactions among sharehol- ders. Consequently, any difference between the fair value of the coun- terparty paid or received and the corresponding book value of the equity interest acquired or sold (without resulting in a loss of control), but that does not provide control, is directly recorded in equity. The valuation of identifiable intangible assets recognised at the time of abusiness combinationis based mainly on the work of independent experts, taking into account sector-specific criteria that enable such valuations to be subsequently monitored. In accordance with IFRS 3 revised, goodwillis not amortised. Goodwill is reviewed annually, when the budget is drawn up, to ensure that the residual net value does not exceed the recoverable amount in respect of the expected return on the investment in the related subsidiary (deter- minedon thebasis of discounted future cash flows). If internal or external events or circumstances bring to light indications of lost value, the fre- quency of the impairment tests may be revised (see Note 1.8). Impairment of the goodwillof subsidiaries is not reversible. Any impair- ment charge is included in “Other incomeandexpenses” of the operating income.

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2018 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL

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