HERMES_REGISTRATION_DOCUMENT_2017

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OVERVIEW OF THE GROUP

RISK FACTORS

RISKS LINKED TO THE OPERATIONAL STRATEGY

1.8.1

Control over and protection of supplies

1.8.1.2

Description of the risk 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. In particular, their roles involve leading the community of buyers and supporting them on a daily basis in managing supplier risk using a range of complementary tools, as described in 2.4.4 Duty of care to suppliers. Risk management 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’ ope- rations meet the Group’s expectations. Drawing up sector 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 has 304 points of sale with the Hermès brand, including 212brancheswhich generateover 85%of revenue. A list of stores owned by the Group can be found on page 34. 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. In addition to this, the exposure of sales to seasonal phenomena is limited: 51% of total sales were generated in the second half of 2017 (compared with 53% in 2015 and 2016). 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. 1.8.1.3 Balancing and safeguarding our distribution

Limiting industrial risks and respecting the environment

1.8.1.1

Description of the risk The management of industrial and environmental risks is based on a common approach by the sustainable development department and the industrial 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. TheGroup industrial affairs department relies on the industrial departments sector and Site Managers to make internal diagnostics, 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. The Hermès environmental initiatives are detailed in the sustainable development section (chapter 2) of this report. Moreover, in order to fulfil the requirements of the law 2017-399 of 37 March 2017 on the duty of care, during the year Hermès Group established the “Compliance Committee”, comprising representatives of the compliance department, sustainable development department, industrial affairs department, audit and risk management department and human resources department, in order to prepare a vigilance plan for all Group subsidiaries. Every year Hermès performs and updates the Group risk mapping. In 2017, this mapping did not reveal any risks of breaches of human rights within the Group (see paragraph 2.3.7 Promotion and compliance with fundamental conventions on human rights). 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 ethics and trust by, in particular, promo- ting long-term relationships with them (see paragraph 2.4.4 Duty of care to suppliers).

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2017 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL