HERMES_REGISTRATION_DOCUMENT_2017

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OVERVIEW OF THE GROUP

RISK FACTORS

1.8.4 INSURANCE POLICY The Hermès Group’s policy regarding insurance is to transfer any expo- sure that is liable to produce amaterial impact on profits to the insurance market. The Group insurance programmes represent most of the insu- rance coverage for the subsidiaries. They are placed via the intermediary of brokers who are amongst the ten largest French brokers and with first-rate insurance companies. The main international insurance pro- grammes favour an “all risks except” approach and cover: 1) property damage and operating losses that may affect production sites, logistics centres, distribution centres or premises in France and in other countries. The policy underwritten by FM Global was renewed for a one-year term. The upper cover limit is €500 million. The deductibles for direct damage vary from €15,000 to €250,000 and from €70,000 to three days’ gross profit for operating losses. In Japan, the Group has had an earthquake insurance policy for seve- ral years covering €40million in direct damage and operating losses. This insurance coverage is supplemented by a prevention/enginee- ring programme: prevention inspections were carried out at 90 pro- duction and distribution sites in 2017. The recommendations issued are monitored using a stringent, formally documented system; 2) civil liability for damages to persons, property and intangibles caused to third parties in the conduct of business operations or by products. These policies were taken out for three years at 1 January 2016 with AIG Europe and Zurich Insurance for cover amounts which take into account the nature of the Group’s operations; the maximum cover per event is €70 million, and the deductibles vary from €1,000 to €10,000; 3) the transport of products between the production sites and to the distribution network. A policy has been taken out with Chubb; 4) responsibilities in relation to the environment. This policy was renewed with AIG Europe on 1 January 2017 for a period of 24 mon- ths. The coverage limit is €10million per claimand €20million for the period, and the deductible thresholds are €25,000; 5) cyber risks. Like each year since 1 January 2013, the policy with Zurich Insurance was renewed for a period of one year, covering the reconstruction of data, operating losses following a security incident, civil liability, and costs, notably defence and notification costs. Other contracts had been subscribed to fulfil specific requirements, par- ticularly in the context of building operations (new work or renovation) carried out as project managers. In 2017, these policies were not the subject of significant claims.

INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS ESTABLISHED BY THE COMPANY

1.8.5

The internal control and risk management systems relating to the pre- paration and processing of accounting and financial information are described in chapter 1.9.

Objectives of risk management at Hermès International

1.8.5.1

Riskmanagement systems are designed to frequently examine themajor risks. This includes methods for identifying and prioritising risks and for handling themain internal andexternal risks at theappropriateoperating level in order to reduce the Company’s exposure. Control environment While Hermès has attained the stature of an international group, it has also retained its human dimension, with family ideals. The Company is dedicated to a culture and spirit of craftsmanship and seeks to cultivate strong values among its employees. Among these values, quality is paramount – the very essence of Hermès’ business. The Group’s commitment to quality applies not only to its products and services, but also to its management methods. Hermès attaches great importance to its Senior Executives’ Managerial skills. The Hermès culture, which is propagated mainly through integration programmes for new managers and special training, imparts to each individual a thorough understanding of their role in the organisation and the need to abide by the Group’s code of conduct and rules of beha- viour. The quality-oriented values and mentality shared by all employees serve as a solid foundation to underpin behaviours and observance of stringent internal control policies and procedures. The way in which these values work together and their balance are contingent on the control environment which forms their common base, and more specifi- cally, on the Company’s ingrained risk management and internal control culture, management style and corporate values. With this in mind, to underpin the risk management culture promoted by the Group, a formal ethics charter was adopted and disseminated to its employees in 2009. In 2013, it was completed by the business code of conduct, that sets out the behaviour expected from Group employees. Both documents were updated in 2016. They are available on the Company intranet and have been subject to formal acknowledgement of receipt when given to employees.Additionaltrainingsessionsonanti-corruptionlawshavealso been organised for operational staff. However, no risk management and internal control system, no matter how well-designed and applied, can provide absolute certainty that the Company will achieve its objectives. 1.8.5.2

Scope of the risk management and internal control system

1.8.5.3

The Group’s risk management and internal control mechanisms are applicable to the parent company and to the controlled subsidiaries, as they are presented in the notes to the consolidated financial statements.

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2017 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL