Hermès - Registration Document 2016

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OVERVIEW OF THE GROUP

RISK FACTORS

1.8.1.5 IT risk monitoring and prevention Hermès’ expenditure on IT systems (equipment and maintenance) is comparable with that of its peers in the sector. The aim is to bring the technology infrastructure and systems in line with the increasing needs of users and the Group’s sectors, to guarantee good operational perfor- mance, to keep IT-related risks under control and to prepare systems for the future, especially for new digital services. The Group’s IT systems department works under an information tech- nology governance charter and has drawn up a corpus of procedures that apply to all Group companies. IT security and Group procedure compliance audits were carried out at the Group information systems department (DSI) and within major subsidiaries. Work to further enhance the security of IT systems also entailed conti- nuing to harmonise the different systems in use using a standard ERP system. As regards IT risk prevention, work carried out in 2016 focusedmainly on enhancing the security of central systems, the centralisation of access rights to facilitate their management, ensuring the security of internal and external access, protecting workstations, preventing leaks of confi- dential data and improving backup and breakdown tolerance mecha- nisms for critical systems to ensure continued operation in the event of an incident. As is the case each year, internal, Wifi and external network intrusion testing and computer crash simulations were carried out. Compliance with applicable laws in all areas The Group keeps abreast of changes in legislation and case law in all relevant areas to ensure that it complieswithFrenchand foreign laws and regulations. Thismonitoring is carried out by in-house and external firms. Internally, given the increasing complexity of each legal matter, the legal department is organised into skill divisions with specialists from the various main legal fields: intellectual property law, company law and stock market law, property law, business law (contracts of all kinds, com- petition, distribution, consumer). Employment and tax matters are res- pectively handled by the Group’s human resources and finance depart- ments, which work in conjunction with the legal department. Externally, in each region where the Group operates, Hermès is advised by leading local independent law firms, renowned and specialised in each of the numerous areas covered. The Group continues to be invol- ved in ongoing litigation, but there are no pending settlements that are expected to have an impact on its business or on its financial results. The Company is not aware of any other pending or potential governmen- tal, legal or arbitration proceedings that may have, or that over the last twelvemonths have had, a significant impact on its financial condition or profitability and/or on the financial position or profitability of the Group. 1.8.1.6

1.8.1.7 Protecting the health and safety of consumers Hermès’ products are regularly testedby laboratories inEurope, Asiaand theUnited States, in order to verify that they conform to themost exacting regulations in the world, as well as to ensure their safety. Monitoring is carried out to analyse the development of regulations before drawing up product specifications.

Protecting and defending intellectual property rights

1.8.1.8

The Group places great importance on the protection and defence of its intellectual property rights. It owns a particularly large number of brands and domain names which is regularly growing to include new classes of products and services, for example, and new geographical areas. For this reason a specific team within the legal department is dedicated to these issues. TheGroup also ensures that all its newand existing crea- tions are properly protected, with numerous design patents filed both in France and elsewhere. Finally, the Group ensures that its rights are respected and pursues an active anti-counterfeiting policy involving both preventive measures (training and lobbying) and coercive measures (administrative, civil and criminal proceedings) across the world and particularly on the Internet. Thesemeasures are initiated by the legal department with the support of external advisers and in collaboration with the competent local authori- ties as regards intellectual property and the fight against counterfeiting. They enable several hundreds of thousands of counterfeit products to be seized and destroyed every year, and the source of these products to be identified, the Group’s rights to be recognised, and the payment of damages to redress the loss suffered. Conservative cash and currency management As the Group has a positive cash flow, it is not exposed to liquidity risk and applies a conservative policy in managing market risks, such as exchange rates, interest rates and counterparty risks. Because the bulk of its production is in the eurozone but receives a significant percen- tage of its sales revenue in American dollars, Japanese yen and other Asian currencies, theGroup is naturally exposed to foreign exchange risk. Exposure to operational foreign exchange risk is systematically hedged on an annual basis, based on projected cash flows. In parallel, exposure to non-operational foreign exchange risk is hedged as soon as the com- mitment is firm and definitive. In this respect, treasury and currency management is centralised by the Group’s treasury management department and adheres to strict mana- 1.8.2 FINANCIAL RISKS

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2016 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL