HERMÈS - 2018 Registration document

Overview of the group

Risk factors

Risk management The Group’s approach is based upon knowledge of the supply channels. Supplier risk is addressed cross-functionally by the Direct Purchasing Manager on the one hand, and the Indirect Purchasing Manager on the other hand. Their roles notably involve managing the community of pur- chasers and supporting themon a day-to-day basis inmanaging supplier risk using a range of complementary tools, as described on pages 113 to 119. Hermès has developed long-term relationships with its partners and suppliers, thereby better protecting its supplies and critical know-how. Hermès is committed to providing long-term support for all our partners, and maintaining balanced relationships characterised by goodwill and high standards, and we ensure that our partners share and respect our social, environmental and ethical ambitions. Supplier audits, conducted using internal resources as well as independent external firms, serve notably to ensure that their operations meet the Group’s expectations. Drawing up Métier risk mapping enables action plans to be identified, assessed and prepared in response to the risks identified wherever necessary. Significant work has also been carried out to optimise and secure the supply chain. The Group is strengthening supply protec- tion, implementing a policy of diversification and limitation of supplier dependence, and building up strategic inventories. In some cases, it will buy into carefully selected companies to ensure the stability of these relationships. Description of the risk The Group operates 310 points of sale under the Hermès banner, inclu- ding 219 branches generating over 85% of revenue. A list of stores owned by the Group can be found on page 35. Certain Hermès products are also distributed through a network of multi-brand sales outlets care- fully selected on the basis of qualitative and/or quantitative criteria. This is especially so of perfumes and watches, as well as some products from the Home universe. Lastly, the Group also owns other brands that distri- bute their products under their own name or through their own selective network. The details of these brands are presented on page 32. Risk management 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. Sales are also slightly exposed to seasonal trends, with the second half of 2018 accounting for 52% of total sales (51% in 2017). 1.9.1.3 Balancing and safeguarding our distribution

RISKS RELATED TO STRATEGY AND OPERATIONS

1.9.1

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Limiting industrial and environment risks

1.9.1.1

Description of the risk The control of industrial and environmental risks is built on a joint approach developed by the sustainable development department and the industrial affairs department. It relies on a specific “HSE” network and the local Sustainable Development Committees as described in chapter 2.1.2. Risk management 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 Métiers ’ industrial departments 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 Group manufactures the majority of its products internally, prin- cipally in France, and does not adopt a cost optimisation approach, par- ticularly with regards to labour and the location of production units. It is not therefore seeking suppliers established in countries at risk. Finally, Hermès Group has long been committed to a responsible partnership approach with its suppliers. It enters into special partnerships with sup- pliers and producers based on ADVICE and trust, notably by promoting long-term relationships with them (see section 2.6 The communities: suppliers and partners). Hermès’ actions and achievements in the fields of social, societal and environmental responsibility are described in the sustainable develop- ment section (chapter 2) of this report. Description of the risk Most of Hermès’ production is integrated, in line with its strategy of pre- serving unique savoir-faire and securing supplies. However, the ability of the Hermès Group to grow is also linked to the development of its sup- pliers, whose exceptional savoir-faire and future successes will contri- bute to those of the Group. Most of our subcontractors and suppliers have been partners for many years, and these stable relationshipsmean that we can work closely and sustainably with our partners on a wide range of matters. 1.9.1.2 Controlling and securing supplies

2018 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL

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