HERMES_REGISTRATION_DOCUMENT_2017

OVERVIEW OF THE GROUP

RISK FACTORS

The Group’s foreign exchange risk is hedged annually by Hermès International in accordance with the policy described below, based on highly probable future cash flows derived from budget projections. In practical terms, at 31 December, the hedging of internal transactions in currencies for the next following year is close to 100%. As such, the Group uses purchases and sales of put and call options as well as currency swaps and forward currency agreements. Quantitative information on foreign exchange risk impacts is provided in Note 22.2 to the consolidated financial statements. The treasury management department constantly monitors changes in legal regulations with regard to derivative transactions to ensure that the Group conforms to current regulations. Furthermore, the finance depart- ment adjusts its procedures and tools on an ongoing basis to accommo- date changes in its environment. Description of the risk As the Group has a positive cash flow and because of its other tran- sactions with banks (exchange rate hedging), the Group is exposed to counterparty risk that is mainly banking-related and is appropriately monitored. Risk management Pursuant to the applicable internal control procedures, the Group only deals with leading banks and financial institutions that have signed FBF and ISDA agreements on trading in forward financial instruments, and it is not exposed to any material counterparty risk. In addition, counter- party risks on financial transactions are monitored on an ongoing basis by Hermès International’s treasurymanagement department. Lastly, the Group has no exposure to any material risk of dependence on a single counterparty. Moreover, the impact of the credit risk as recommended by IFRS 13 in the fair value of derivatives is close to 0 for the Group, given that all of the derivatives have a maturity of less than 12 months. Financial risks related to climate change Hermès believes that the financial risks to its business related to climate change are not currently significant (Article L. 225-100-1 of the French Commercial Code ( Code de commerce )). 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, manufac- turing 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). 1.8.3.3 Control over counterparty risk 1.8.3.4

Quantitative information on interest rate risk impacts is provided in Note 22.3 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 Description of the risk The Group is naturally exposed to exchange rate risk. Nearly all of its production is in the eurozone and it carries out the majority of its sales in currencies other than the euro (American dollars, Japanese yen and other Asian currencies). It hedges this exposure in order to minimise the impact of currency fluctuations on the Group’s profits. Risk management TheGroup’s foreign exchange risk exposuremanagement policy is based on the following principles: s the manufacturing subsidiaries invoice the distribution subsidiaries in their local currency, which automatically concentrates the foreign exchange risk on the manufacturing subsidiaries; s theGroup’s foreignexchange risk is systematically hedgedbyHermès International on an annual basis, based on future internal operating cash flows between the companies in the Group; s no speculative transactions in the economic meaning of the term are authorised; s these hedges are provided through firm foreign exchange transac- tions and/or optional transactions eligible for hedge accounting; s other non-operating transactions are hedged against foreign exchange risk as soon as the commitment is firm and final. It corres- ponds to financial risks arising from intra-group loans and dividends in foreign currencies. These management rules have been validated by the Executive Committee and have also been endorsed by the Supervisory Board. The administrative management and control of these transactions are provided by themiddle & back office department, notably bymeans of an integrated cash software program. In addition, Hermès International’s Internal Audit department ascertains compliance with the risk control and management procedures. Within this set of rules, management’s decisions are validated by the Executive Committee, via a Treasury Security Committee that meets on a regular basis. 1.8.3.2 Control over exchange rate risk

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2017 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL

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