HERMÈS - 2018 Registration document

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Overview of the group

Risk factors

FINANCIAL RISKS

1.9.4

Preventing the risk of serious violations of human rights, fundamental freedoms, and the health and safety of people

1.9.3.1

Conservative cash management

1.9.4.1

Description of the risk The Group is committed to respecting human rights and fundamental freedoms, the health and safety of people and the environment in rela- tion to its activities and the activities of its subcontractors or suppliers. All of the Group’s Métiers are vigilant, and more specifically our fabrics and raw materials supply chains. Risk management In accordance with French law 2017-399 of 27 March 2017 relating to the duty of care of parent companies and contractors, the Hermès Group has drawn up a vigilance plan to identify risks and prevent serious violations of human rights and fundamental freedoms, and the health and safety of people, resulting from its activities as well as the activi- ties of its subcontractors and suppliers. The mitigation and prevention mechanisms for these risks are addressed specifically on pages 69 to 84 as regards employees and pages 117 to 119 as regards suppliers. Description of the risk The Group seeks to secure quality supplies of renewable materials, obtained with respect for biodiversity and ethics in the treatment of animals. More broadly, it seeks to control the risks associated with its subcontractors and suppliers. Compliance with increasingly stringent environmental regulatory obligations is an ongoing challenge, as is the issue of controlling carbon emissions. Risk management In accordance with the law on the duty of care, under the coordina- tion and active control of the Directorate of Industrial Affairs, the main métiers of the House that are involved have undertaken efforts to (i) improve their understanding of supply chains and to modify operating practices, and (ii) ensure compliance with environmental regulations. Audits are carried out regularly with specialised service providers, or with the WWF on certain channels (alligator, cashmere, wood). Action plans are then implemented. In 2018, the Group strengthened its analysis of the carbon impacts of its activities, took measures to reduce its emissions (property, trans- port, etc.), initiated studies to establish renewable energy supplies, and increased its investment in the Livelihoods fund, which provides carbon credits with high societal value. Mitigation and prevention mechanisms for these risks are addressed specifically on pages 92 to 110. 1.9.3.2 Preventing risks associated with our natural materials, supply chain, regulatory compliance on environmental matters and carbon emissions

Description of the risk The Group has put in place an organisational structure which allows financial risks related to its business to be managed centrally. As the Group has a positive cash flow, it is not exposed to liquidity risk and applies a conservative policy in managing interest rate risks. Risk management Treasury and currency management is centralised by the Group’s trea- sury management department and adheres to strict management and monitoring rules. Administrative management and operational control are ensured by the middle & back office department, notably via the use of integrated cash flow software. Furthermore, the audit and risk management department (A&RMD) oversees proper compliance with risk monitoring and management procedures. The Treasury Security Committee regularly checks that these procedures have been applied and that any risks identified have been addressed. The Group follows a conservative investment policy, designed to avoid the risk of capital loss and maintain liquidity in order to be able to imple- ment rapid and independent strategic changes. The Group deals with leading banks and financial institutions only. In addition, counterparty risks on financial transactions are monitored on an ongoing basis by Hermès International’s Treasury Management department. Most avai- lable cash is invested for the short term, mainly in money-market mutual funds offered by leading financial institutions, in term deposits and in deposit certificates issued by top-rated banks, with very low sensitivity. Quantitative information on interest rate risk impacts is provided in Note 23.3 to the consolidated financial statements. The treasury management department constantly monitors changes in legal regulations with regard to investment transactions to ensure that the Group conforms to current regulations. Furthermore, the finance department adjusts its procedures and tools on an ongoing basis to accommodate changes in its environment. Description of the risk The Group is naturally exposed to foreign exchange risk because the bulk of its production is located in the eurozone, but the majority of its sales revenue is received in currencies other than the euro (American dollars, Japanese yen and other Asian currencies, etc.). It hedges this exposure in order to anticipate and minimise the impact of currency fluctuations on the Group’s profits. 1.9.4.2 Control over exchange rate risk

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2018 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL