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2016 REGISTRATION DOCUMENT
HERMÈS INTERNATIONAL
33
OVERVIEW OF THE GROUP
1
RISK FACTORS
The Group has implemented a system to anticipate and control risk. This
system is constantly updated to allow for regulatory, legislative, econo-
mic, corporate, geopolitical and competitive developments.
The main risk factors for the Group, taking its business model into
account, are described in this chapter.
A detailed description of the Group’s risk management system is set
out in the Chairman’s report on internal control and risk management
procedures on page 125.
1.8.1
RISKS LINKED TO THE OPERATIONAL
STRATEGY
1.8.1.1
Limiting industrial risks and respecting
the environment
Hermès implements initiatives designed to protect our manufacturing
assets, our employees and the environment on all of the house’s produc-
tion sites. The Group Industrial Affairs Department relies on the indus-
trial departments sector and Site Managers to make internal diagnos-
tics, audits conducted by external specialists and establish operational
improvement plans. The recommendations resulting from these ana-
lyses in the areas of organisation, procedures, training or investment are
subject to careful follow-up. Safety-related expenditure and investment
are considered to be a priority when making budget choices.
Hermès believes that the financial risks to its business linked to climate
change are not currently significant (Article L. 225-37 amended of the
French Commercial Code). The Group is implementing a low carbon
strategy and is applying a certain number of measures to reduce its
energy consumption and emissions, from supplies, manufacturing sites
and its stores. In addition to these in-house efforts, Hermès has been
implementing since 2012 a voluntary Group carbon offsetting scheme
(Fonds Livelihoods).
The Hermès environmental initiatives are detailed in the sustainable
development section (chapter 2) of this report.
1.8.1.2
Control over sourcing
Hermès retains control of its production, with the majority of its products
being manufactured in-house.
Hermès has developed long-term relationships with its partners and
suppliers, thereby better protecting its supplies and critical know-how.
Hermès carries out targeted audits to ascertain that its suppliers’ opera-
tions meet the Group’s expectations. In some cases, it will buy into care-
fully selected companies to ensure the stability of these relationships.
Significant work has also been carried out to optimise and secure the
supply chain. Finally, theGroup is strengthening supply protection, imple-
menting a policy of diversification and limitation of supplier dependence,
and building up strategic inventories.
1.8.1.3
Balancing and safeguarding our distribution
Hermès holds a unique position in the luxury market. Its broad portfolio
of products reduces the risk of dependence on any particular range and
its distribution is well balanced geographically.
Hermès relies on a distribution structure that significantly reduces client
risk.
The Group has 307 points of sale with the Hermès brand, including
210brancheswhich generateover 80%of revenue. A list of stores owned
by the Group can be found on page 32.
In addition to this, the exposure of sales to seasonal phenomena is
limited: 53% of total sales were generated in the second semester
of 2016 (compared with 53% in 2015, and 54% in 2014).
The balance of the geographical portfolio reduces risks related to geo-
graphical areas, with results obtained throughout all the Group’s areas
and a controlled investment policy.
1.8.1.4
Minimising risks to property assets
All property-related transactions are handled and centralised by the pro-
perty development department. This contributes to the judicious control
of critical issues:
s
identifying and assessing the viability of locations for distribution and
production facilities and administrative offices based on qualitative
and technical criteria;
s
directly or indirectly overseeing key construction projects to ensure
the work is properly carried out;
s
supervising inspection plans for the Group’s main sites, to ensure
they conform to structural and fire safety regulations. These inspec-
tions are supplemented by prevention system reviews carried out by
the Group’s insurers. In addition, the Property Safety Committee is
responsible for overseeing potential risks and for ascertaining that
Group safety rules are duly applied. It also systematically follows up
on all action plans.
1.8
RISK FACTORS