i. half-year review of operations · i. half-year review of operations highlights fluctuations in...

HERMES INTERNATIONAL Condensed interim consolidated financial statements for the six months to 30 June 2008

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I. HALF-YEAR REVIEW OF OPERATIONS

Highlights Fluctuations in exchange rates, and more particularly in the US dollar and currencies tied to the dollar,

continued to affect the Group's business severely, with a negative impact of €37 million on sales and €30 million on operating income in the first half. There were no other significant events that produced a material impact on the Hermès Group's business and results during the period.

Another highlight of the first half was the creation of La Fondation Hermès. The purpose of this

foundation is to promote fine craftsmanship and design, to foster creativity and training in the fields of design, the fine arts, music and dance, to support organisations that work for humanitarian and educational causes, and to sponsor environmental research. The Foundation has an operating budget of €18.5 million for the first five years.

Lastly, in accordance with the resolutions adopted by the shareholders at the last General Meeting,

Hermès continued its share buyback programme. During the first half of 2008, the Hermès Group bought back a total of 670,702 shares at an average price of €74.5 per share for a total of €50 million (excluding shares traded under the liquidity contract).

First-half sales

Hermès Group sales rose to €813.2 million in the first half of 2008, an increase of 17.9% at constant exchange rates. Due to the adverse currency impact, growth at current exchange rates was 12.8%.

Restated for the July 2007 acquisition of Soficuir, a group specialised in selecting, buying and tanning

exotic skins, like-for-like sales at constant exchange rates were up 13.4% on the first half of 2007. During the first half, sales remained on a strong uptrend in France (up 11%), benefiting from the

expanded 24 Faubourg Saint-Honoré store inaugurated in October 2007, and in the other European countries (up 13%).

In the Americas, sales momentum remained vibrant, with an increase of 24% in the first half. The new

store on Wall Street in New York, opened in June 2007, is an unqualified success. In Asia, outside Japan, sales again registered impressive growth (22%) fuelled primarily by significant

development in China. The distribution network was expanded, with the addition of a new branch in New Delhi. In Japan, where business was less buoyant, sales edged up by only 2% in the first half.

Silks & Textiles registered a solid 17% increase, driven by the success encountered by the new

women's silk collections. Leather Goods and Saddlery delivered a handsome performance, with growth of 17% propelled by

sales of leather bags. Perfumes (up 22%) benefited from the recent launches of Kelly Calèche and Un Jardin après la

mousson and the continued success of Terre d’Hermès. Sales for the Ready to Wear & Fashion Accessories division rose by 14% while "Other Hermès

Sectors" (Jewellery & Art of Living) and Watches dipped by 5% and 4% respectively due to a high basis of comparison. Lastly, in Tableware, sales expanded by 8%.


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First-half results The gross margin was 64.3%, a 0.8 percentage point contraction compared with the first half of 2007,

owing to the consolidation of the Soficuir group as from 1 July 2007. Selling, marketing and administrative expenses amounted to €286.6 million compared with €265.6

million for the 6 months to 30 June 2007. They mainly include advertising expenses, which advanced by nearly 15% at constant exchange rates to €45 million.

Other income and expense came to €32.8 million. The increase in net expense, which primarily

includes €29.3 million of depreciation and amortisation charges, was due to significantly higher investments, with a large number of newly opened and renovated branches over the past two years.

Recurring operating income rose by 14.1% (30.4% at constant exchange rates) to €203.8 million from

€178.6 million in the first half of 2007. The operating margin widened to 25.1% from 24.8% at 30 June 2007.

Operating income advanced by 9.7% (25.3% at constant exchange rates) including a €7.2 million gain

on the sale of the remaining Leica Camera AG bonds during the first half of 2007. Net financial income was €5.7 million compared with €6.7 million in the six months to 30 June 2007.

The change was due primarily to the impact arising from the revaluation of hedging instruments. The tax charge amounted to €72.3 million in the first half of 2008 compared with €64.5 million in the

same year-ago period. Minority interests' share of net income was €2.3 million against €2.9 million in the first half of 2007.

The share of net income of affiliated companies was zero in the first half of 2008 compared with €2.9

million in the same year-ago period. This fall was due mainly to the share of net income for the Soficuir group, which was included under this heading in the first half of 2007 and fully consolidated as of 1 July 2007.

Consolidated net income advanced by 5.3% (19.9% at constant exchange rates) to €134.9 million from

€128.1 million in the first half of 2007. Earnings per share advanced by 6.8% year-on-year in the first half of 2008. Operating cash flow rose by 13% to €169.8 million from €150.3 million in the six months to end-June

2007.

Investments Hermès continued to make substantial investments during the first half of 2008. These came to €89.9

million over the period and were entirely financed from cash flow. The distribution network continued to expand, with eleven stores opened or renovated during the

period.


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Breakdown of investments (in millions of euros) H1 2008 H1 2007

Operating investments 82.2 42.3

Financial investments 7.7 5.6

Term investments - 25.0

Total investments 89.9 72.9 Hermès International increased its stake in the Jean-Paul Gaultier group to 45% after acquiring an

additional 10% of the shares in the company. The Hermès Group acquired a building at 39, rue du Rhône in Geneva for €45 million, to which the

existing store will be relocated and enlarged.

Financial position Operating cash flow (€169.8 million) was used to finance investments (€89.9 million) and dividends

(€108.4 million).

After buying back €50 million of shares (excluding those covered by the liquidity contract) and after the change in working capital requirements, cash amounted to €329.5 million at 30 June 2008 compared with €480.5 million at 31 December 2007.

Restated net cash (after factoring in non-liquid financial investments and borrowings) totalled €327.0

million at 30 June 2008, compared with €485.5 million at 31 December 2007. Shareholders' equity increased again owing to the profits generated by the Group. It rose from

€1,342.1 million (Group share) at 30 June 2007 to €1,432 million at 30 June 2008. Events occurring after 30 June 2008

Hermès and Wally entered into a joint venture partnership that will combine the two companies'

creativity and know-how to conceive and develop innovative projects in the yachting world. Hermès and Wally will work hand in hand to create, design and build products based on leading-edge technologies that combine the universes of luxury and yachting. The content of these projects will be unveiled during 2009. The shareholders' agreement was signed on 18 July 2008.

No other significant event has occurred since 30 June 2008. Outlook for the second half

During the second half, Hermès will continue to invest in expanding its distribution network with

plans to open or renovate some fifteen branches. The Group will open one new store in the United States, in San Diego, and it has several projects in Asia, particularly in China, Hong Kong and Macao. The store renovation and expansion programme will focus mainly on Europe and Asia.

Risks and uncertainties

The Hermès Group's results are exposed to the risks and uncertainties described in the 2007 registration document. The assessment of these risks did not change during the first half of 2008 and no new risk had been identified as of the publication date of this report. The main risk is exposure to currency fluctuations.


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Related-party transactions

During the first half of 2008, Hermès did not enter into any related-party transactions other than those described in the 2007 registration document.


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II. CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEM ENTS CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS TO 30 JUNE 2008

Note juin-08 juin-07

Sales 3-5 813,2 721,1 Cost of sales (290,1) (252,0)Gross profit 523,1 469,1 Selling, marketing and administrative expenses 6 (286,5) (265,6)Other income and expense 8 (32,8) (24,9)Recurring operating income 4 203,8 178,6 Other non-current income and expense 9 7,2 Operating income 203,8 185,8 Net financial income 10 5,7 6,7 Pre-tax income 209,5 192,6 Corporate income tax 11 (72,3) (64,5)Share of net income of associates 12 - 2,9 CONSOLIDATED NET INCOME 137,2 131,0 Minority interests 13 (2,3) (2,9)NET INCOME - GROUP'S SHARE 134,9 128,1 Earnings per share (in euros) 14 1,28 1,20 Diluted earnings per share (in euros) 14 1,28 1,20

in millions of euros


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CONSOLIDATED BALANCE SHEET ASSETS

31/12/2007

Note GrossDepreciat. amort. & impair.

Net value Net value

Non-current assets 1,420.3 530.9 889.4 844.5 Goodwill 15 62.0 30.4 31.6 32.4 Intangibles 16 106.4 64.4 42.0 40.3 Property, plant and equipment 17 1,032.9 431.2 601.7 569.5 Investment property 18 13.0 1.3 11.7 11.9 Available-for-sale securities 19 39.3 2.3 37.0 9.9 Held-to-maturity securities 19 11.2 (0.1) 11.3 35.0 Investments in associates 12 26.2 - 26.2 21.8 Loans and deposits 20 17.4 1.2 16.2 15.2 Deferred tax assets 21 111.4 - 111.4 108.4 Other non-current assets 23 0.5 0.2 0.3 0.1 Current assets 1,261.2 164.6 1,096.6 1,220.6 Inventories and work in progress 22 641.4 159.2 482.2 432.1 Trade receivables 23 134.4 5.2 129.2 135.4 Current tax receivables 23 7.3 - 7.3 2.5 Other receivables 23 59.4 0.2 59.2 61.8 Financial instruments at fair value 64.3 - 64.3 58.9 Cash and cash equivalents 24 354.4 - 354.4 529.9 TOTAL ASSETS 2,681.5 695.5 1,986.0 2,065.1

in millions of euros30/06/2008

EQUITY & LIABILITIES

Note 30/06/2008 31/12/2007Shareholders' equity 1,445.4 1,475.1 Share capital 54.1 54.1 Share premium 45.2 43.5 Treasury shares (82.2) (33.8)Reserves 1,322.4 1,138.8 Translation adjustments (62.2) (45.2)Derivatives included in equity 19.8 17.0 Net income for the year 134.9 288.0 Minority interests 13 13.4 12.7 Non-current liabilities 106.7 99.6 Borrowings and debt 33.2 25.3 Provisions 25 1.0 1.5 Pension and other employee benefit obligations 26 42.9 39.8 Deferred tax liabilities 21 9.5 8.1 Other non-current liabilities 27 20.1 24.9 Current liabilities 433.9 490.4 Borrowings and debt 38.1 60.7 Provisions 25 9.4 15.1 Pension and other employee benefit obligations 26 4.0 4.0 Trade payables 27 177.8 204.7 Financial instruments at fair value 33.0 32.6 Current tax liabilities 27 38.9 34.6 Other current liabilities 27 132.7 138.7 TOTAL EQUITY AND LIABILITIES 1,986.0 2,065.1



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STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY

Share capitalShare

premiumTreasury shares

Consolidated reserves

Net income for the period

(Group's share)Derivatives

Translation differences

Actuarial gains and

losses

Equity - Group's share

Minority interests

Shareholders' equity

Number of shares outstanding

At 31 December 2006 54,5 41,6 (6,6) 1 060,8 268,4 15,9 (14,7) (10,9) 1 409,0 15,2 1 424,2 106 874 814- Change Change in share capital and share premium - 1,3 - - - - - - 1,3 - 1,3 28 600 Purchase or sale of treasury shares - - (80,9) - - - - - (80,9) - (80,9)Appropriation of net income for previous year - - - 268,4 (268,4) - - - - - -Consolidated net income for the period - - - - 128,1 - - - 128,1 2,9 131,0 Dividends paid - - - (102,9) - - - - (102,9) (1,7) (104,6)Change in foreign exchange adjustments - - - - - - (12,0) - (12,0) 0,1 (11,9)Derivatives included in equity - - - - - (0,3) - - (0,3) - (0,3)Actuarial gains or losses on employee benefit obligations - - - - - - 0,1 0,1 - 0,1 Cancellation of treasury shares - - - - - - - - - - -Other - - - (0,3) - - - - (0,3) (3,1) (3,4)At 30 June 2007 54,5 42,9 (87,5) 1 226,0 128,1 15,6 (26,7) (10,8) 1 342,1 13,4 1 355,5 106 903 414

At 31 December 2007 54,1 43,5 (33,8) 1 148,5 288,0 17,0 (45,2) (9,7) 1 462,4 12,7 1 475,1 106 089 214- MovementsChange in share capital and share premium - 1,7 - - - - - - 1,7 - 1,7 36 000 Purchase or sale of treasury shares - - (48,4) - - - - - (48,4) - (48,4)Appropriation of net income for previous year - - - 288,0 (288,0) - - - - - -Consolidated net income for the period - - - - 134,9 - - - 134,9 2,3 137,2 Dividends paid - - - (106,2) - - - - (106,2) (2,3) (108,5)Change in foreign exchange adjustments - - - - - - (17,0) - (17,0) (1,4) (18,4)Derivatives included in equity - - - - - 2,8 - - 2,8 - 2,8 Actuarial gains or losses on employee benefit obligations - - - - - - - (0,9) (0,9) - (0,9)Charges in connection with stock option plans - - - 2,2 - - - - 2,2 - 2,2 Cancellation of treasury shares - - - - - - - - - - -Other - - - 0,5 - - - - 0,5 2,1 2,6 At 30 June 2008 54,1 45,2 (82,2) 1 333,0 134,9 19,8 (62,2) (10,6) 1 432,0 13,4 1 445,4 106 125 214



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At 30 June 2008, the share capital of Hermès International consisted of 106,125,214 fully-paid shares with a par value of €0.51 each. Of these, 1,117,702 are treasury shares. During the first half of 2008, changes in the share capital included a €18k capital increase (36,000 shares) resulting from the exercise of options to subscribe for new shares reserved for employees of the Hermès Group. It is specified that no shares are reserved for issuance under stock option or sale contracts. For management purposes, the Hermès Group uses the notion of "shareholders' equity, Group's share" as shown in the table above. More specifically, shareholders' equity includes the part of financial instruments that has been transferred to equity as well as actuarial gains and losses. The Group's goals, policies and procedures in the area of capital management are in keeping with the sound management principles designed to ensure that operations are well-balanced financially and to minimise the use of debt. As its surplus cash position gives it some flexibility, the Group does not use prudential ratios such as "return on equity" in its capital management. In 2008, the Group's capital management policy and goals were the same as in the previous year. During the first half of 2008, changes in derivatives (after tax) were broken down as follows:

in millions of euros Balance at 31 December 2007 17.0 Amount transferred to equity during the first half (15.9) Value adjustments on derivatives as of 30 June 2008 20.2 Fair value adjustments of financial investments (1.5) Balance at 30 June 2008 19.8


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CONSOLIDATED CASH FLOW STATEMENT Before appropriation

Jun-08 Jun-07OPERATING CASH FLOW * 169.8 150.3 OPERATING CASH FLOW before cost of debt and corporate income tax

242.2 215.3

Inventories and work in progress (55.5) (55.1)Trade receivables 19.1 20.0 Other receivables and miscellaneous items (excluding current tax charge) (7.1) (18.3)Accounts payable (8.7) (17.3)Other liabilities and miscellaneous items (excluding current tax charge) (12.8) (3.8)Change in fair value of derivatives (1.8) 0.3 Change in operating working capital requirement (66.8) (74.2)CASH FLOW FROM OPERATING ACTIVITIES 175.4 141.1 Cost of net debt 6.5 6.3 Corporate income tax paid (78.6) (85.7)NET CASH FLOW FROM OPERATING ACTIVITIES 103.3 61.7 Acquisitions of intangibles (3.5) (2.6)Acquisitions of property, plant and equipment (78.8) (39.7)Acquisitions of investments in associates (4.9) (5.6)Acquisitions of other long-term investments (2.8) (25.0)Amounts payable relating to non-current assets (17.6) (6.7)Disposals 0.1 11.4 CASH USED IN INVESTING ACTIVITIES (107.5) (68.2)Dividends paid (108.5) (104.6)Purchases of treasury stock (48.3) (80.9)Borrowings 19.2 2.2 Loan reimbursements (7.8) (3.4)Other increases/(decreases) in equity 2.5 1.3 CASH FLOW (142.9) (185.4)Effect of changes in scope of consolidation 0.1 0.1 Effect of foreign exchange differences (4.0) (2.7)CHANGE IN NET CASH POSITION (151.0) (194.5)

Net cash position at beginning of period** 480.5 538.2 Net cash position at end of period** 329.5 343.7 CHANGE IN NET CASH POSITION (151.0) (194.5)


* Calculation of operating cash flow

juin-08 juin-07Net income - Group's share 134,9 128,1 Depreciation and amortisation 34,1 30,1 Impairment losses 0,6 0,8 Mark-to-market (2,3) (1,9)Expenses and income related to share-based payments 2,0 -Change in reserves (4,5) (6,1)Share in net income/(losses) of associates - (2,9)Minority interests 2,3 2,9 Capital gains/(losses) on disposals 0,3 (2,6)Deferred tax 2,2 1,2 Other 0,2 0,7 OPERATING CASH FLOW 169,8 150,3 Cost of net debt (6,5) (6,3)Current tax charge 78,9 71,3 OPERATING CASH FLOW before net cost of debt and current tax charge

242,2 215,3



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**Reconciliation of net cash position at 30 June in millions of euros

Jun-08 Jun-07Cash and cash equivalents 354.4 366.4 Bank overdrafts and current accounts in debit (24.9) (22.7)NET CASH AND CASH EQUIVALENTS 329.5 343.7

NOTE 1 - ACCOUNTING POLICIES The interim condensed consolidated financial statements of the Hermès Group have been prepared in accordance with IAS 34, Interim Financial Reporting. The accounting principles and calculation methods used to prepare these condensed interim financial statements are the same as those used to prepare the consolidated financial statements for the year ended 31 December 2007 and described therein, with the exception of the estimated tax charge for the first half, which is measured in accordance with IAS 34. It is specified that those standards, amendments and interpretations, the application of which will be compulsory as from 1 January 2009 or thereafter, have not been applied to the financial statements for the first half of 2008. The potential impact of these standards, amendments and interpretations, and more specifically of IFRS 8 on segment reporting and the IFRS Improvement standard on the Group's consolidated financial statements, is under review. The interim consolidated financial statements as presented were approved by the Executive Management on 29 August 2008 after review by the Audit Committee at its meeting of 26 August 2008. NOTE 2 - CHANGES IN THE SCOPE OF CONSOLIDATION

30/06/2008 31/12/2007 30/06/2008 31/12/2007Additions: Hermès Inde 51.00% - FC -Thierry Clerc 100.00% - FC -Hermès Immobilier Genève 100.00% - FC -

Change in ownership interest: Gaulme 45.00% 35.00% EA EA

Interest Method

The main changes in the scope of consolidation during the first half of 2008 were the following: Consolidation of Hermès Inde for the first time To promote development of the Group's business operations in India, an entity dedicated to furthering this purpose was created in the first half of 2008. The company's share capital is made up of 10,000,000 shares. Of these, 51% or 5,100,000 shares are owned by Hermès International. Consolidation of Thierry Clerc for the first time On 23 May 2008, as part of its strategy to control its know-how, the Group acquired 100% of SARL Thierry Clerc, a company specialising in watch prototypes. As of the date of the acquisition, the share capital was made up of 2 shares. La Montre Hermès acquired 100% of the shares, thereby giving it 100% of the voting rights. The shares were sold to the Hermès Group for €0.6m, it being noted that incidental acquisition costs were not material.


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At the acquisition date, the assets and liabilities consolidated into the Hermès Group's accounts were not material. In accordance with IFRS 3, this business combination was accounted for by use of the purchase method. As a result, the assets and liabilities of the acquired company were measured at fair value, in accordance with IFRS rules and with the valuation principles applicable within the Hermès Group. This fair value may be adjusted within a maximum of one year as from the acquisition date. Based on the difference between the cost of the business combination and the value of the assets and liabilities acquired, residual goodwill of €0.4 million was recognised. In the first half of 2008, Thierry Clerc's net income was at break-even. Consolidation of Hermès Immobilier Genève for the first time The Group acquired a building located in Geneva where it plans to relocate and expand its existing store and created a dedicated entity for the purpose of this acquisition. The company's share capital of CHF100k is made up of 100 shares. It is wholly-owned by Financière Saint-Honoré. Increase in ownership interest in Gaulme On 30 April 2008, the Hermès Group acquired 13,366 shares of Gaulme, thereby increasing its interest in the Jean-Paul Gaultier group from 35% to 45%. The transaction was carried out following the exercise of the option to purchase the shares from Jean-Paul Gaultier, pursuant to the agreements signed on 15 July 2005. The transaction was effected in consideration for payment of €4.3 million, in accordance with the contract price stipulated in the aforesaid agreements. Based on the difference between the acquisition cost and the net assets acquired, goodwill of €2.7 million was recognised on the transaction. NOTE: 3 - SEASONAL NATURE OF BUSINESS The Group's business is balanced over the full year: in 2007, the Group generated 44% of its sales during the first half and 56% during the second half. The breakdown over the full year 2008 is expected to be approximately the same. Hence, the Group's business and results are not exposed to significant seasonal exposure. NOTE 4 - SEGMENT INFORMATION The Hermès Group's business comprises two main segments: distribution through the Hermès exclusive network and distribution via specialist outlets. These two main business segments have separate strategies and structures and are exposed to different risks and rates of return. Distribution through the Hermès exclusive network encompasses the following business lines:

- Silk and textiles; - Leather Goods and Saddlery, which includes bags and luggage, saddlery and riding gear, diaries and

small leather goods; - Ready to wear and Fashion Accessories, which includes men's and women's clothing, belts,

jewellery accessories, gloves, hats and Hermès shoes; - Other Hermès Sectors, which include Jewellery and Art of Living products.

Distribution via specialist outlets comprises the following business lines: - Perfumes; - Watches; - Tableware.

"Miscellaneous" products not included in these two sectors include John Lobb shoes and products manufactured for brands outside the Group (textile printing, perfumes, tanning etc.).


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a - Sales by business sector

Jun-08 Jun-07Reported change

Change at constant

exchange rates

Change on a like-for-like

basis*

Silk and textiles 91.0 82.6 10.3% 16.5% 16.5%Leather goods-Saddlery 340.0 305.5 11.3% 16.7% 16.7%Clothing and Accessories 155.4 144.8 7.3% 14.0% 14.0%Other Hermès Sectors 34.8 37.7 (8.0%) (4.7%) (4.7%)Distribution via the Hermès exclusive network 621.2 570.6 8.9% 14.6% 14.6%Perfumes 63.5 52.8 20.1% 21.8% 21.8%Watches 42.0 45.6 (8.0%) (3.6%) (3.6%)Tableware 24.5 23.6 4.0% 7.5% 7.5%Distribution via specialised outlets 130.0 122.0 6.5% 9.5% 9.5%Other 62.0 28.5 117.5% 120.0% 5.9%TOTAL 813.2 721.1 12.8% 17.9% 13.4%


* Change at constant exchange rates and on a like-for-like basis, i.e. excluding Soficuir group sales, which were consolidated as from July 2007 The bulk of sales is derived from sales of goods. Sales of services do not make up a material percentage of total sales. b – Operating income by business sector

SalesRecurring operatingincome

Operating margin

SalesRecurring operatingincome

Operating margin

Distribution via theHermès exclusive network

621.2 194.8 31.4% 570.6 173.2 30.4%

Distribution via specialised outlets

130.0 31.9 24.5% 122.0 29.0 23.8%

Other * 62.0 (22.9) 28.5 (23.6)TOTAL 813.2 203.8 25.1% 721.1 178.6 24.8%

Jun-08in millions of euros

Jun-07

* Including items that cannot be allocated to a specific business segment but meet the definitions of segment assets and liabilities.

NOTE 5 – SALES BY REGION

Jun-08 Jun-07Reported change

Change at constantexchange

rates

Change on a like-for-like

basis **

France 167.7 143.5 16.9% 16.9% 10.9%Rest of Europe 181.8 142.2 27.8% 29.5% 13.4%Total - Europe 349.5 285.7 22.3% 23.2% 12.1%Japan 174.8 172.3 1.5% 2.2% 2.2%Rest of Asia-Pacific region 147.7 134.9 9.5% 22.5% 22.3%Total - Asia 322.5 307.2 5.0% 11.1% 11.0%Americas 118.3 107.9 9.7% 24.3% 23.9%Other* 22.9 20.3 12.3% 12.0% 10.7%TOTAL 813.2 721.1 12.8% 17.9% 13.4%



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NOTE 6 - SELLING , MARKETING AND ADMINISTRATIVE EXPENSES

Jun-08 Jun-07Advertising (45.0) (40.6)Other selling, marketing and administrative expenses (241.5) (225.0)TOTAL (286.5) (265.6)


NOTE 7 - EMPLOYEES The geographical breakdown of the total number of employees is as follows:

30/06/2008 31/12/2007France 4 915 4 741 Europe (excl. France) 773 753 Other geographical area 2 032 1 961 TOTAL 7 720 7 455

Breakdown by category:

30/06/2008 31/12/2007Production 3,458 3,367 Sales 2,936 2,804 Sales (design, marketing, administration) 1,326 1,284 TOTAL 7,720 7,455

NOTE 8 - OTHER INCOME AND EXPENSE

juin-08 juin-07Depreciation and amortisation (29,3) (26,0)Net change in reserves 1,4 2,3 Net change in post-employment and similar benefit obligations (3,6) (3,4)Impairment losses on non-current assets (0,6) (0,8)Other income and expense (0,7) 3,0 TOTAL (32,8) (24,9)


The change in other income and expense is due to the sale of a building during the first half of 2007, which generated a €3.2 million gain on disposal. NOTE 9 - OTHER NON-CURRENT INCOME AND EXPENSE During the first half of 2007, the Group sold the remaining Leica Camera convertible bonds it owned to ACM Projektentwicklung GmbH, the core shareholder of the Leica group. The transaction generated a €7.2 million gain.


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NOTE 10 - FINANCIAL INCOME

Jun-08 Jun-07Income from cash and cash equivalents 7.8 9.3 Gross cost of debt 2.9 0.7 - of which: income from hedging instruments 2.6 1.6 Net financial income/(expense) 10.7 10.0 Other financial income and expense (5.0) (3.3)- of which: gains/ (losses) on trading derivatives - -- of which: changes in the value of trading assets and liabilities (4.5) (3.6)TOTAL 5.7 6.7


NOTE 11 - CORPORATE INCOME TAX In accordance with IAS 34, the tax charge for the first half is calculated based on an estimated average annual rate. The Group estimates that its tax rate will be 34.5% in 2008 compared with 33% in 2007. The increase in the average annual tax rate is due primarily to the recognition of exceptional profits that were not taxed in 2007. NOTE 12 - INVESTMENTS IN ASSOCIATES a – Value of shares in affiliated companies

30/06/2008 31/12/2007Gaulme 9.6 5.2 Groupe Perrin 6.6 6.2 Leica Camera Japon Co. 0.9 1.1 Maroquinerie Thierry - -Vaucher Manufacture Fleurier 9.1 9.3 TOTAL 26.2 21.8


b - Change in investments in associates

Investments in associates at 31 December 2007 21.8 Change in goodwill recognised on affiliated companies 2.7 Dividends paid (0.1)Impact of changes in scope of consolidation 1.6 Share of net income for the 6 months to 30 June 2008 -Other 0.2 Investments in associates at 30 June 2008 26.2


Changes in goodwill and the changes in scope of consolidation were due to the increase in the stake in the Gaulme group (see note 2). NOTE 13 – CHANGE IN MINORITY INTERESTS

Minority interests at 31 December 2007 12.7 Translation adjustment on foreign companies (1.4)Minority interests in dividends distributed (2.3)Minority interests in net income 2.3 Other changes 2.1 Minority interests at 30 June 2008 13.4


NOTE 14 - EARNINGS PER SHARE


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Jun-08 Jun-07Numerator (in millions of euros) Basic net income 134.9 128.1Adjustments - -Diluted net income 134.9 128.1

Denominator (number of shares)Weighted average number of ordinary shares 105,111,525 106,588,246Basic earnings per share 1.28 1.20

Weighted average number of ordinary shares under option 371,675 277,983Weighted average number of shares that would have been issued at fair value (284,368) (131,579)Weighted average number of diluted ordinary shares 105,198,832 106,734,650Diluted earnings per share 1.28 1.20

NOTE 15 –GOODWILL

31/12/2007 Increases Decreases Currency impact

Other 30/06/2008

Goodwill 63.4 0.4 - (0.9) (0.9) 62.0Total gross amount 63.4 0.4 - (0.9) (0.9) 62.0Impairment - goodwill 29.8 - - (0.6) - 29.2Impairment losses 1.2 - - - - 1.2Total amortisation and impairment losses

31.0 - - (0.6) - 30.4 Total non-current assets - Net value 32.4 0.4 - (0.3) (0.9) 31.6


NOTE 16- INTANGIBLE ASSETS


Other 30/06/2008

Leasehold rights 44.6 0.1 - (0.5) 44.2Concessions, patents, licences and software 19.6 0.5 (0.1) (0.1) 0.7 20.6Other intangible assets 36.3 2.8 - - 2.5 41.6Total gross amount 100.5 3.4 (0.1) (0.6) 3.2 106.4Amortisation of leasehold rights 17.6 0.7 - (0.1) - 18.2Amortisation of concessions, patents, licences and software16.1 0.9 (0.1) (0.1) 0.5 17.3Amortisation of other intangible assets 25.6 2.5 (0.1) 28.0Impairment losses 0.9 - - - - 0.9Total amortisation and impairment losses 60.2 4.1 (0.1) (0.3) 0.5 64.4Total net value 40.3 (0.7) - (0.3) 2.7 42.0



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NOTE 17 - PROPERTY, PLANT AND EQUIPMENT


Other 30/06/2008

Land 114.5 0.5 - (2.0) 0.1 113.1Buildings 314.7 45.9 (0.1) (7.7) (0.8) 352.0Machinery, plant amd equipment 126.1 3.1 (0.9) (1.5) 1.6 128.4Other property, plant and equipment 408.2 14.9 (2.1) (8.8) 2.1 414.3Construction in progress 21.0 14.4 - (0.3) (10.0) 25.1Total gross amount 984.5 78.8 (3.1) (20.3) (7.0) 1,032.9Depreciation of buildings 97.0 7.6 - (0.6) (2.2) 101.8Depreciation of machinery, plant amd equipment 82.5 4.5 (0.8) (0.6) 0.2 85.8

Depreciation of other property, plant and equipment 219.0 18.8 (1.7) (4.6) (3.6) 227.9

Impairment losses 16.5 0.9 (1.5) (0.2) - 15.7Total depreciation and impairment losses

415.0 31.8 (4.0) (6.0) (5.6) 431.2Total net value 569.5 47.0 0.9 (14.3) (1.4) 601.7


The change in the value of buildings is due mainly to the acquisition of a building in Geneva (see note 2). Other investments during the first half of 2008 were in connection with the opening and renovation of stores and the expansion of production capacity. NOTE 18 - INVESTMENT PROPERTY


Other 30/06/2008

Land 3.1 - - - - 3.1Buildings 10.0 - - (0.1) - 9.9Total gross amount 13.1 0.0 - (0.1) - 13.0Depreciation and amortisation 1.2 0.1 - - - 1.3Total depreciation and amortisation 1.2 0.1 - 0.0 - 1.3Total net value 11.9 (0.1) - (0.1) - 11.7


\ NOTE: 19 – AVAILABLE -FOR-SALE SECURITIES AND SECURITIES HELD TO MATURITY


Other 30/06/2008

Other non-consolidated investments 1.2 - - - - 1.2Liquidity agreement 5.1 2.8 - - - 7.9Other term investments 24.6 24.6Other long-term investments 5.9 0.2 (0.4) (0.1) - 5.6Total gross amount 12.2 3.0 (0.4) (0.1) 24.6 39.3Impairment 2.3 - - - - 2.3Total available-for-sale securities 9.9 3.0 (0.4) (0.1) 24.6 37.0


Term investments, which are not liquid, include term deposits with banks held for more than 3 months. At 30 June 2008, term investments were equivalent to senior notes. At end-2007, these investments were recognised under assets held to maturity, in the amount of €26.1 million. The €1.5 million decrease is due to the change in the fair value, which is recognised under shareholders' equity. Other long-term investments primarily include €3.6 million in life insurance in Japan. Other non-consolidated investments do not include any listed securities.


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Other 30/06/2008

Gaulme convertible bonds and accrued interest 8.3 0.1 (0.3) - - 8.1Vaucher participating loan 0.6 2.5 - - - 3.1Other term investments 26.1 - - - (26.1) -Total gross amount 35.0 2.6 (0.3) - (26.1) 11.2Impairment - - - - - -Total held-to-maturity securities 35.0 2.6 (0.3) - (26.1) 11.2


NOTE 20 - LOANS AND DEPOSITS


Other 30/06/2008

Loans and deposits 16.4 1.6 (0.3) (0.3) - 17.4Impairment 1.2 - - - - 1.2Total loans and deposits 15.2 1.6 (0.3) (0.3) - 16.2


Security deposits amounted to €13.4 million at 30 June 2008 compared with €10.7 million at 31 June 2007. NOTE: 21 – DEFERRED TAX

Deferred tax assets at 31 December 2007 108.4Deferred tax liabilities at 31 December 2007 8.1Net deferred tax assets at 31 December 2007 100.3Impact on the income statement 6.5Impact on the scope of consolidation -Other * (1.8)Impact of foreign exchange movements (3.1)Deferred tax assets at 30 June 2008 111.4Deferred tax liabilities at 30 June 2008 9.5Net deferred tax at 30 June 2008 101.9


* Other items relate to deferred taxes resulting from the reversal of the portion of revaluation of financial instruments recorded under equity (transferable portion) and on actuarial gains and losses on employee benefit obligations recognised during the year. These changes produced no impact on net income for the year. At 30 June 2008, deferred tax assets related mainly to restatements of internal profits as inventories and on charges to reserves for inventories (€79.7 million), restricted reserves (€-11.8 million) and other timing differences (€34 million). NOTE 22 - INVENTORIES AND WORK IN PROGRESS

31/12/2007Gross Impairment Net Net

Purchased goods, semi-finished and finished goods419.1 117.7 301.4 263.3

Raw materials and work in progress 222.3 41.5 180.8 168.8Total inventories and work in progress 641.4 159.2 482.2 432.1

30/06/2008in millions of euros

The net charge to reserves for inventories was €-8.2 million for the first half 2008 compared with €-8.1 million in the same year-ago period. NOTE 23- TRADE RECEIVABLES AND OTHER RECEIVABLES


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31/12/2007Gross Impairment Net Net

Trade receivables 134.4 5.2 129.2 135.4Current tax receivables 7.3 - 7.3 2.5Other receivables 59.4 0.2 59.2 61.8Other non-current assets 0.5 0.2 0.3 0.1Total other receivables 201.6 5.6 196.0 199.8

30/06/2008in millions of euros

All accounts receivable are due within one year, with the exception of those included under other non-current assets. There were no receivables for which payment had been materially deferred and to which a discount was applied. Charges set aside for trade receivables amount to a small percentage of the Group's overall sales. They amounted to approximately 4% of the gross amount at 30 June 2008, about the same as at the end of 2007. There is no significant concentration of credit risk. NOTE 24 - CASH AND CASH EQUIVALENTS

30/06/2008 31/12/2007Cash and cash equivalents 98.5 155.7 Marketable securities 255.9 374.2 Cash and cash equivalents 354.4 529.9


The majority of marketable securities consists of investments in the euro money market. All cash and equivalents mature in less than three months and have a sensitivity of less than 0.5 %. NOTE 25 – RESERVES

31/12/2007 Charges Amounts released*

Currency impact

Other 30/06/2008

Current reserves 15,1 2,5 (7,2) (0,1) (0,9) 9,4Non-current reserves 1,5 0,1 (1,5) - 0,9 1,0TOTAL 16,6 2,6 (8,7) (0,1) - 10,4


* Of which: Amounts released - used 5.6Amounts released - unused 3.1Total 8.7 NOTE 26 - POST-EMPLOYMENT AND OTHER EMPLOYEE BENEFITS

30/06/2008 31/12/2007Non-current pension and similar employee benefit obligations 42.9 39.8Current pension and similar employee benefit obligations 4.0 4.0TOTAL 46.9 43.8



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a – Change in reserves recognised on the balance sheet

Defined benefit

pension plans

Other defined

benefit plans 30/06/2008 31/12/2007

Provisions at beginning of period 42.7 1.1 43.8 40.6Translation differences (0.1) - (0.1) (0.6)Actuarial costs 3.6 - 3.6 7.0Benefits paid (2.0) - (2.0) (2.7)Actuarial gains and losses 1.3 - 1.3 (1.8)Effect of changes in scope of consolidation - - - 0.7Adjustment to opening equity - - - 0.5Other 0.3 - 0.3 0.1Provisions at end of period 45.8 1.1 46.9 43.8


b – Change in actuarial gains and losses

Actuarial gains and losses recognised in equity at 31 December 2006 16.7Actuarial gains and losses experienced 2.4Actuarial gains and losses arising from change in discount rate (2.6)Other actuarial gains and losses -Actuarial gains and losses recognised in equity at 30 June 2007 16.5

Actuarial gains and losses recognised in equity at 31 December 2007 14.9Actuarial gains and losses experienced 1.3Actuarial gains and losses arising from change in discount rate -Other actuarial gains and losses -Actuarial gains and losses recognised in equity at 30 June 2008 16.2


d. - Analysis of charges recognised in the income statement in millions of euros

Defined benefit pension plans

Other defined benefit plans

30/06/2008 31/12/2007

Past service costs 2.6 - 2.6 2.6

Interest costs 1.1 - 1.1 0.9

Expected return on plan assets (0.2) - (0.2) (0.2)

Amortisation of past service costs 0.1 - 0.1 0.1

Other - - - -

Cost of defined-benefit plans 3.6 - 3.6 3.4

NOTE 27 - SUPPLIERS AND OTHER TRADE PAYABLES

30-Jun-08 31-Dec-07Suppliers 165.0 174.2 Amounts payable relating to non-current assets 12.8 30.5 Trade payables 177.8 204.7 Current tax liabilities 38.9 34.6 Other current liabilities 132.7 138.7 Other non-current liabilities 20.1 24.9 Total suppliers and other trade payables 369.5 402.9



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NOTE 28 – DIVIDENDS During the first half of 2008, a dividend of €1.00 per share was paid after approval by the shareholders at the Annual General Meeting of 3 June 2008 convened to vote on the parent company financial statements for the year ended 31 December 2007. NOTE 29 - SHARE-BASED PAYMENTS New plan during the year: On 2 January 2008, the Executive Management set up a stock option plan, pursuant to the authorisations granted by the General Meetings of 6 June 2006 and 5 June 2007. The vesting period under this plan is four years and the shares will be allotted only to those beneficiaries who are still employed by the Group at the end of this period. Furthermore, the grant of options under this plan is subject to meeting criteria based primarily on the Group's performance in 2008. The main attributes of the plan are as follows: - share price on allotment date: 86.00€

- average exercise price : 82.40€

- average fair value per share (based on binomial model) : 25.79€

(assuming a dividend rate of 1.2% per year)- employee turnover rate discounted over the vesting period: 7.62%- implicit volatility: 21.79%- Risk-free rate: 4.04%- Number of options granted (base 100% of targets attained) : 222,200- Maximum number of options granted: 333,300

The IFRS charge incurred in the first half of 2008 for stock option plans or bonus share issues was €2 million, compared with zero in the first half of 2007. NOTE 30 - EVENTS OCCURRING AFTER 30 JUNE No significant event has occurred since 30 June 2008.


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III. STATUTORY AUDITORS' REPORT ON THE INTERIM FINA NCIAL INFORMATION FOR THE FIRST HALF OF 2008

To the Shareholders In compliance with the assignment entrusted to us by your Shareholders’ Meeting and pursuant to articles L. 232-7 of the Code de Commerce and L. 451-1-2 III of the Code Monétaire and Financier: - we carried out a partial audit of the condensed interim consolidated financial statements of Hermès

International for the six months from 1 January to 30 June 2008, as appended to this report;

- we reviewed the information provided in the first-half management report.

These condensed interim consolidated financial statements have been prepared under the Board of Directors' responsibility. Our role is to express an opinion on these consolidated financial statements, based on our limited audit. 1. Opinion on the consolidated financial statements We have conducted our partial audit in accordance with professional standards applicable in France. A partial audit is mainly confined to obtaining information from the senior managers responsible for financial and accounting matters, and to conducting analyses. An audit of this type does not include performing all the examinations required for a full audit in accordance with the professional auditing standards applicable in France. It therefore does not provide the same assurance that all material items that might have been identified under a full audit have been identified. Based on our partial audit, we have identified no material misstatements that raise questions over the consistency of the condensed interim consolidated financial statements with standard IAS 34 – an International Financial Reporting Standard (IFRS) as endorsed by the European Union pertaining to interim financial information. 2. Specific procedures We have also verified the information given in the Group management report containing comments on the condensed interim consolidated financial statements on which we conducted our partial audit. We have no matters to report as to its fair presentation and consistency with the condensed interim consolidated financial statements.

Paris and Neuilly-sur-Seine, 29 August 2008

The Statutory Auditors

Didier Kling & Associés

Didier Kling – Christophe Bonte

Deloitte & Associés

David Dupont-Noel


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IV. STATEMENT BY PERSONS RESPONSIBLE FOR THE FINANC IAL REPORT We certify that, to the best of our knowledge, the condensed financial statements for the first six months of 2008 have been prepared in accordance with the applicable accounting standards and give a fair view of the assets and liabilities and of the financial position of the Group as at 30 June 2008, and of the results of its operations for the six months then ended and that the review of operations for the first half appearing on pages 1 to 3 gives a fair view of significant events that occurred during the first six months of the year, of their impact on the financial statements, of the main related-party transactions, as well as a description of the main risks and uncertainties for the last six months of the year.

Paris, 29 August 2008 The Executive Management,

Patrick Thomas / Emile Hermès SARL Statement by person responsible for half-year financial report

i. half-year review of operations · i. half-year review of operations highlights fluctuations in...

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