Hermès - Registration Document 2016

OVERVIEW OF THE GROUP

RISK FACTORS

RISK FACTORS

1.8

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tions meet the Group’s expectations. In some cases, it will buy into care- fully selected companies to ensure the stability of these relationships. Significant work has also been carried out to optimise and secure the supply chain. Finally, theGroup is strengthening supply protection, imple- menting a policy of diversification and limitation of supplier dependence, and building up strategic inventories. Balancing and safeguarding our distribution 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. The Group has 307 points of sale with the Hermès brand, including 210brancheswhich generateover 80%of revenue. A list of stores owned by the Group can be found on page 32. In addition to this, the exposure of sales to seasonal phenomena is limited: 53% of total sales were generated in the second semester of 2016 (compared with 53% in 2015, and 54% in 2014). 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. Minimising risks to property assets All property-related transactions are handled and centralised by the pro- perty development department. This contributes to the judicious control of critical issues: s identifying and assessing the viability of locations for distribution and production facilities and administrative offices based on qualitative and technical criteria; s directly or indirectly overseeing key construction projects to ensure the work is properly carried out; s supervising inspection plans for the Group’s main sites, to ensure they conform to structural and fire safety regulations. These inspec- tions are supplemented by prevention system reviews carried out by the Group’s insurers. In addition, the Property Safety Committee is responsible for overseeing potential risks and for ascertaining that Group safety rules are duly applied. It also systematically follows up on all action plans. 1.8.1.3 1.8.1.4

The Group has implemented a system to anticipate and control risk. This system is constantly updated to allow for regulatory, legislative, econo- mic, corporate, geopolitical and competitive developments. The main risk factors for the Group, taking its business model into account, are described in this chapter. A detailed description of the Group’s risk management system is set out in the Chairman’s report on internal control and risk management procedures on page 125.

RISKS LINKED TO THE OPERATIONAL STRATEGY

1.8.1

Limiting industrial risks and respecting the environment

1.8.1.1

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 indus- trial departments sector 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 believes that the financial risks to its business linked to climate change are not currently significant (Article L. 225-37 amended of the French Commercial Code). 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, manufacturing 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). The Hermès environmental initiatives are detailed in the sustainable development section (chapter 2) of this report. Control over sourcing 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’ opera- 1.8.1.2

2016 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL

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