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2009 Annual Financial Report This Document Is a Free Translation Into TRANSLATION OF THE FRENCH “RAPPORT ANNUEL” FISCAL YEAR ENDED DECEMBER 31, 2009 COMBINED SHAREHOLDERS’ MEETING A PRIL 15, 2010 This document is a free translation into English of the original French “Rapport Annuel”, hereafter referred to as the “Annual Report”. It is not a binding document. In the event of a confl ict in interpretation, reference should be made to the French version, which is the authentic text. Chairman’s message 2 Consolidated fi nancial statements 93 Executive and Supervisory Bodies - Statutory Auditors 4 1. Consolidated income statement 94 Simplifi ed organizational chart of the Group 5 2. Consolidated statement of comprehensive gains and losses 95 Financial highlights 6 3. Consolidated balance sheet 96 4. Consolidated statement of changes in equity 97 Management Report 5. Consolidated cash fl ow statement 98 of the Board of Directors 9 6. Notes to the consolidated fi nancial statements 100 7. Statutory Auditors’ report 161 1. Consolidated results 10 2. Results by business group 12 Parent company fi nancial statements 163 3. Operational risk factors and insurance policy 20 1. Balance sheet 164 4. Financial policy 25 2. Income statement 166 5. Results of Christian Dior 28 3. Cash fl ow statement 167 6. Company shareholders 29 4. Notes to the parent company fi nancial statements 168 7. Administrative matters 30 5. Subsidiaries and investments 177 8. Financial authorizations 31 6. Investment portfolio, other investment securities and short term investments 177 9. Compensation of company offi cers 33 7. Company results over the last fi ve fi scal years 178 10. List of offi ces or positions exercised 8. Statutory Auditors’ reports 179 in all companies by company offi cers 36 11. Stock option and bonus share plans 44 Resolutions 183 12. Information that could have a bearing Resolutions for the approval of the Combined on a takeover bid or exchange offer 51 Shareholders’ Meeting of April 15, 2010 184 13. Group reporting on employee-related issues 52 Statutory Auditors’ report 187 14. Effects of operations on the environment 67 15. Litigation and exceptional events 78 General information 189 16. Subsequent events 79 1. History of the Group 190 2. General information regarding 17. Recent developments and prospects 79 the parent company and its share capital 192 3. Corporate governance 196 Report of the Chairman of 4. Market for fi nancial instruments issued the Board of Directors 81 by Christian Dior 209 5. Main locations and properties 213 1. Corporate governance 82 6. Supply sources and subcontracting 216 2. Implementation of internal control procedures 7. Statutory Auditors 219 and risk management 86 8. Statement of the Company Offi cer responsible 3. Statutory Auditors’ report 90 for the A nnual F inancial R eport 220 2009 Annual Report 2009 Annual Report 1 Chairman’s message With talent and discipline, our teams have responded to the challenge. We took advantage of this turbulent period, during which our customers sought a return to core values, to recall our heritage of excellence, and the values of creativity and durability which are embodied by the Group’s brands. The future holds excellent potential, in historic markets as well as in emerging markets, for brands which know how to continually inspire their contemporaries, regardless of where they are in the world, and are committed to quality, beauty and authenticity. At the end of a year marked by an unprecedented global crisis, our Group responded to the challenge set and increased its market share. We owe this performance primarily to the talent of our teams and their perfect execution of Group strategy. The commitment of the men and women in the Group allowed us to combine the disciplined management approach called for by market conditions, with proactivity and effi ciency, underpinned by targeted investments and a tradition of high quality creativity. As in previous diffi cult periods, our Group demonstrated the soundness of its growth model in 2009 and found the necessary resources to meet new challenges and further its development. Our strategy of focusing our efforts on our star brands, key markets and opportunities offering the best return on investment, bore its fruit. Finally, the reactivity of our organization and the extremely rigorous management of costs and stocks throughout all our businesses, enabled us to preserve an excellent level of profi tability at Group level. This has resulted in a current operating margin of nearly 19% and signifi cantly improved cash fl ow. In 2009, Christian Dior Couture was fortifi ed by the strength of its brand and its judicious strategy. Its resolutely upscale positioning – further reinforced this year – is built upon an exceptional reservoir of know-how, dedicated to the service of excellent creative talents, and is rooted in the brand’s long standing role as one of the highest-ranking luxury industry leaders. This year’s haute couture collections, reconnecting with the origins of the House of Dior, were unveiled in the original setting of 30 Avenue Montaigne, and have been remarkably successful. 2 2009 Annual Report Chairman’s message This approach has continued to attract a very demanding clientele, passionate about creativity and increasingly sensitive to enduring product quality. In 2009, it resulted in strong sales growth for star categories such as leather goods, where the exceptional success of the Lady Dior handbag was reinforced by similarly inspired new lines such as Le Granville or Le Trente. Ready-to-wear consolidated its performance, while Dior Homme achieved remarkable growth on all continents. Dior’s time-honored upscale positioning represents a decisive advantage for the brand’s international development, which was the focus of ongoing efforts during the year. A number of high-impact boutiques were opened, including the Dubai Mall and several new locations in China, all of which achieved instant commercial success, raising the brand’s image to the very highest level in these markets. Operating profi t has been improved thanks to the modern supply chain that is now in place following the investments made in previous years, lower inventory levels, and measures to rein in operating costs. These efforts, and the initial results for 2010, are encouraging signs for the future. At LVMH, the diversity of our businesses helped boost our resilience: while our Wines & Spirits and Watches & Jewelry brands, which are exposed to the impacts of destocking by distributors and retailers, were hit particularly hard by the crisis, businesses where we are in direct contact with our customers through our own store networks show a more favorable trend. It is worth highlighting that the teams across all our businesses have registered some real successes: Louis Vuitton had an exceptional year, achieving double-digit global growth and progress in all of its product categories. Sephora continued to forge its unique approach in the world of beauty products and to expand in different regions of the world. Thanks to the success of its innovation strategy (Hennessy Black and Hennessy VS 44 in honor of Barack Obama…) and through intense ground work, Hennessy returned to growth in the United States during the year and strengthened its position in a market which had a particularly diffi cult 2009. Parfums Christian Dior continued to illustrate its roots in the world of couture with power and modernity, drawing on both the extraordinary vitality of its iconic lines (Miss Dior, J’adore, Eau Sauvage…) and the quality of its innovations in skincare and make-up. TAG Heuer confi rmed its technological advance and succeeded in marketing, among other products, the Monaco V4, a watch whose concept is revolutionizing the watch-making industry. Hublot, which recently joined the Group, won a fi rst prize in Geneva for the third time in fi ve years. Make Up For Ever continued its remarkable growth in the United States, France and China. Marc Jacobs and Benefi t, two of our youngest brands, have continued to shine and to grow despite the diffi cult environment in 2009. There is one other point which I think is essential to highlight: we have consistently adhered to a strategy of value and long-term vision which is the lifeblood of our Group. We took advantage of this turbulent period to recall our fundamental strengths, our heritage of excellence, and the values of creativity and durability which are embodied by the Group’s brands – brands whose stature and image never cease to grow. As witnessed by the rebound registered by all our businesses at the end of the year, this strategy has not been compromised within the Group and has put us in an ideal position to prepare for the future. We will approach 2010 with confi dence and determination but will not abandon the prudence demanded by the continuing uncertain environment. If worldwide economies manage to exit from the crisis, it is more than likely that their recovery will be progressive and staggered. It would be rash to forecast a date for a solid global recovery. For this reason, we will not relax our management efforts and will continue to focus on only truly profi table, strategic opportunities with an extremely selective allocation of our resources. Once this cyclical slowdown is behind us, I am convinced that the future holds excellent potential, in historic markets as well as in emerging markets, for brands which know how to continually inspire their contemporaries, regardless of where they are in the world, and are committed to quality, beauty and authenticity. This is our ambition, upheld by the Group’s
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