TRANSLATION OF THE FRENCH “RAPPORT ANNUEL” FISCAL YEAR ENDED DECEMBER 31, 2009 COMBINED SHAREHOLDERS’ MEETING APRIL 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 employees, and each year this enables us to build and strengthen the global leadership of our Group.
Bernard ARNAULT
2009 Annual Report 3
Executive and Supervisory Bodies Statutory Auditors
BOARD OF DIRECTORS PERFORMANCE AUDIT COMMITTEE
Bernard ARNAULT Eric GUERLAIN (1) Chairman Chairman
Eric GUERLAIN (1) (2) Renaud DONNEDIEU de VABRES (1) Vice-Chairman Christian de LABRIFFE (1) Sidney TOLEDANO Chief Executive Offi cer
Antoine BERNHEIM (1) NOMINATIONS AND COMPENSATION COMMITTEE Denis DALIBOT Antoine BERNHEIM (1) Renaud DONNEDIEU de VABRES (1) (2) Chairman Ségolène GALLIENNE (1) (3) Pierre GODÉ Pierre GODÉ Eric GUERLAIN (1) Christian de LABRIFFE (1) (2)
Jaime de MARICHALAR y SÁENZ de TEJADA (1)
Alessandro VALLARINO GANCIA
Directors
EXECUTIVE MANAGEMENT STATUTORY AUDITORS
Sidney TOLEDANO ERNST & YOUNG et Autres Chief Executive Offi cer represented by Jeanne Boillet
MAZARS represented by Simon Beillevaire
(1) Independent Director. (2) Renewal proposed at the Shareholders’ Meeting of April 15, 2010. (3) Appointment proposed at the Shareholders’ Meeting of April 15, 2010.
4 2009 Annual Report
Simplified organizational chart of the Group as of December 31, 2009
*
100%
Christian Dior Couture
100%
Financière Jean Goujon
42.4%
LVMH *
* Listed company.
2009 Annual Report 5
Financial highlights
CONSOLIDATED REVENUE CONSOLIDATED REVENUE BY BUSINESS GROUP BY GEOGRAPHIC REGION OF DELIVERY (EUR millions) (EUR millions)
8,333502 4 % 4 % Christian Dior Couture 717 15 % 15 % France 2,597 17 % 15 % Wines and Spirits 2,740
6,666801 Europe 24 % 22 % (excluding France) 3,918 Fashion and 34 % 36 % Leather Goods 6,302 5,000101
22 % 22 % United States 3,913
16 % 15 % Perfumes and Cosmetics 2,741 3,333401 10 % Japan 1,752 5 % 4 % Watches and Jewelry 764 10 %
Asia ,666700 24 % 26 % Selective Retailing 4,533 4,012 20 % 23 % (excluding Japan)
Other activities (52) and eliminations 9 % 8 % Other markets 1,553 0,000000 2008 2009 17,745 2008 2009 17,745
CONSOLIDATED REVENUE BY CURRENCY (EUR millions) (en millions d’euros)
32 % 30 % Euro 5,351
26 % US dollar 4,662 27 %
10 % Yen 1,761 10 % 5 % Hong Kong dollar 833 4 %
27 % 29 % Other currencies 5,138
2008 2009 17,745
6 2009 Annual Report
Financial highlights Key consolidated data (EUR millions and percentage) 2009 2008 2007 Revenue 17,745 17,933 17,245 Profi t from recurring operations 3,356 3,621 3,610 Net profi t 1,902 2,224 2,328 Group share of net profi t 695 796 880 Cash from operations before changes in working capital (1) 3,964 4,141 4,145 Operating investments (2) 763 980 988 Equity 16,121 15,171 (3) 13,846 (3) Net fi nancial debt (4) 4,460 5,370 4,479 Net fi nancial debt/Total equity ratio 28% 35% 32%
Data per share (EUR) 2009 2008 2007 Earnings per share Basic Group share of net profi t 3.90 4.46 4.94 Diluted Group share of net profi t 3.89 4.43 4.86 Dividend per share Interim 0.44 0.44 0.44 Final 1.22 1.17 1.17 Gross amount paid in respect of the fi scal year (5) (6) 1.66 1.61 1.61
Information by business group (EUR millions) 2009 2008 2007 (7) Revenue by business group Christian Dior Couture 717 765 787 Wines and Spirits 2,740 3,126 3,226 Fashion and Leather Goods 6,302 6,010 5,628 Perfumes and Cosmetics 2,741 2,868 2,731 Watches and Jewelry 764 879 833 Selective Retailing 4,533 4,376 4,164 Other activities and eliminations (52) (91) (124)
TOTAL 17,745 17,933 17,245 Profi t from recurring operations by business group Christian Dior Couture 13 9 74 Wines and Spirits 760 1,060 1,058 Fashion and Leather Goods 1,986 1,927 1,829 Perfumes and Cosmetics 291 290 256 Watches and Jewelry 63 118 141 Selective Retailing 388 388 426 Other activities and eliminations (145) (171) (174)
TOTAL 3,356 3,621 3,610 (1) Before tax and interest paid. (2) Amounts presented in the consolidated cash fl ow statement . (3) Restated to refl ect the retrospective application as of January 1, 2007 of IAS 38 Intangible assets as amended. See Note 1.2 to the consolidated fi nancial statements. (4) Net fi nancial debt does not take into consideration purchase commitments for minority interests in Other non-current liabilities. See Note 17.1 to the consolidated fi nancial statements for the defi nition of the net fi nancial debt. (5) Excludes the impact of tax regulations applicable to the benefi ciaries. (6) For fi scal year 2009, amount proposed at the Shareholders’ Meeting of April 15, 2010. (7) Restated after reclassifying La Samaritaine from Selective Retailing to Other activities. 2009 Annual Report 7
8 2009 Annual Report Management Report of the Board of Directors
1. Consolidated results 10 11. Stock option and bonus share plans 44 11.1 Options granted by the parent company, 2. Results by business group 12 Christian Dior 44 2.1 Christian Dior Couture 12 11.2 Options granted by the subsidiary, LVMH 46 2.2 Wines and Spirits 14 11.3 Options granted to and exercised by the Group’s 2.3 Fashion and Leather Goods 15 company offi cers and the Group’s fi rst ten 2.4 Perfumes and Cosmetics 16 employees during the fi scal year 48 2.5 Watches and Jewelry 17 11.4 Bonus shares granted by the subsidiary, LVMH 50 2.6 Selective Retailing 18 12. Information that could have a bearing 3. Operational risk factors and insurance policy 20 on a takeover bid or exchange offer 51 3.1 Strategic and operational risks 20 3.2 Insurance policy 22 13. Group reporting on employee-related issues 52 3.3 Financial risks 23 13.1 Analysis and development of the workforce 52 13.2 Work time 58 4. Financial policy 25 13.3 Compensation 59 4.1 Consolidated cash fl ow 26 13.4 Equality and diversity 60 4.2 Financial structure 27 13.5 Career development and training 62 5. Results of Christian Dior 28 13.6 Health and safety 64 13.7 Employee relations 65 6. Company shareholders 29 13.8 Relations with third parties 65 6.1 Main shareholders 29 13.9 Compliance with international conventions 67 6.2 Shares held by members of the management and 14. Effects of operations on the environment 67 supervisory bodies 29 14.1 Water, energy and raw material 6.3 Information on purchases and sales of shares 29 consumption requirements 68 6.4 Summary of transactions in Christian Dior 14.2 Soil use conditions, emissions into the air, securities during the fi scal year by senior executive water and soil 71 offi cers and related persons 30 14.3 Limitation of damage to ecosystem balance, 7. Administrative matters 30 natural habitats and protected animal 7.1 List of positions and offi ces held by Directors 30 and plant species 74 7.2 Composition of the Board of Directors 30 14.4 Environmental protection methods within the Group 75 8. Financial authorizations 31 15. Litigation and exceptional events 78 8.1 Status of current delegations and authorizations 31 8.2 Authorizations to be renewed 32 16. Subsequent events 79
9. Compensation of company offi cers 33 17. Recent developments and prospects 79 10. List of positions or offi ces exercised in all companies by company offi cers 36 10.1 Current offi ces of Directors 36 10.2 Offi ces of current Directors to be renewed 41 10.3 New appointment as Director 43
2009 Annual Report 9 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Consolidated results
1. Consolidated results
In 2009, revenue for the Christian Dior Group amounted The Group’s profi t from recurring operations was 3,356 million to 17,745 million euros, down 1% from the previous year at euros, down 7% from 2008. The current operating margin as actual rates. a percentage of revenue fell by 1 point from the previous year to 19%. Since January 1, 2008, the following changes were made in the Group’s scope of consolidation: in Wines and Spirits, a 50% Operating profi t, after other operating income and expenses stake was acquired in Château Cheval Blanc (consolidated (-192 million euros in 2009 compared to -153 million euros in on a proportional basis for the fi rst time in August 2009); in 2008) was 3,164 million euros, representing a decrease of 9% Watches and Jewelry, the Hublot brand was consolidated for from its level in 2008. the fi rst time in the second half of 2008; in Other activities, Consolidated net profi t amounted to 1,902 million euros, the Dutch yacht builder Royal Van Lent was consolidated for compared to 2,224 million euros in 2008. The Group share the fi rst time in the fourth quarter of 2008. These changes in of consolidated net profi t was 695 million euros compared to the scope of consolidation contributed 0.4 points to revenue 796 million euros in 2008. growth for the year. On a constant consolidation and currency basis, revenue declined by 4%.
The main fi nancial items were as follows:
(EUR millions) 2009 2008 2007 Revenue 17,745 17,933 17,245 Profi t from recurring operations 3,356 3,621 3,610 Operating profi t 3,164 3,468 3,493 Net profi t 1,902 2,224 2,328 Of which Group share 695 796 880
Revenue growth in 2009 by business group was as follows: and Marc Jacobs also confi rmed their potential, showing a good level of resilience to the economic slowdown in Europe • Revenue from Christian Dior Couture was down by 6% at and reporting strong revenue increases in Asia. actual exchange rates and totaled 717 million euros. Revenue decreased 8% at constant exchange rates . • Revenue from Perfumes and Cosmetics was 2,741 million euros, down 4% based on published fi gures. On a constant • Revenue from Wines and Spirits totaled 2,740 million euros, down 12% based on published fi gures. On a constant consolidation scope and currency basis, revenue decreased by consolidation scope and currency basis, revenue decreased by 5%, with the favorable impact of exchange rate fl uctuations 14%, with the favorable impact of exchange rate fl uctuations increasing revenue by nearly 1 point. All of this business increasing revenue by nearly 2 points. The economic crisis group’s brands reinforced their rigorous management control, and substantial destocking at retailers weighed heavily on meticulously targeting their investments so as to limit the revenue in the United States, Japan and Europe. Demand impact of the economic crisis. Despite the diffi cult economic remained more robust in the Asian markets, especially in environment, the Perfumes and Cosmetics business group Vietnam. China is still the second largest market for the Wines reported revenue increases across Asia and especially in China. and Spirits business group. • Revenue from Watches and Jewelry was 764 million euros, • Revenue from Fashion and Leather Goods was 6,302 million declining by 19% on a constant consolidation scope and euros, refl ecting organic growth of 2%, and 5% based on currency basis, and 13% based on published fi gures (favorable published fi gures. Louis Vuitton turned in a remarkable impact of exchange rate fl uctuations and changes in the scope performance for the year, again recording double-digit of consolidation increasing revenue by 3 points each). This revenue growth based on published fi gures. The brand has business group’s performance in all regions was affected by made spectacular headway in Asia (especially in China), and the economic crisis, particularly in its traditional markets, continues to benefi t from strong momentum in Europe. Fendi including the United States and Japan.
10 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Consolidated results
• Revenue from Selective Retailing was 4,533 million euros. Despite weaker performance in tourist regions popular Organic revenue growth was 1%, and 4% based on published with Japanese travelers, DFS was able to record revenue fi gures. This growth was driven by Sephora, whose sales growth based on published fi gures thanks to the strong rise increased strongly due to the expansion of its retail network in business generated with customers from other parts of in Europe, North America, and Asia, particularly in China. Asia, and especially Chinese tourists.
Revenue Profi t from recurring operations (EUR millions) 2009 2008 2007 (1) 2009 2008 2007 (1) Christian Dior Couture 717 765 787 13 9 74 Wines and Spirits 2,740 3,126 3,226 760 1,060 1,058 Fashion and Leather Goods 6,302 6,010 5,628 1,986 1,927 1,829 Perfumes and Cosmetics 2,741 2,868 2,731 291 290 256 Watches and Jewelry 764 879 833 63 118 141 Selective Retailing 4,533 4,376 4,164 388 388 426 Other activities and eliminations (52) (91) (124) (145) (171) (174) TOTAL 17,745 17,933 17,245 3,356 3,621 3,610
(1) After the reclassifi cation of La Samaritaine from Selective Retailing to Other activities.
By business group, the breakdown of Group revenue changed Investments appreciably. The contribution of Wines and Spirits fell by 2 points to 15%, while the contribution of Perfumes and Cosmetics as The net balance from investing activities (purchases and sales) well as that of Watches and Jewelry both fell by 1 point, to was a disbursement of 1,084 million euros. This includes, on 15% and 4%, respectively. The contribution of Fashion and the one hand, net operating investments totaling 763 million Leather Goods as well as that of Selective Retailing both rose euros, and on the other hand, net fi nancial investments totaling by 2 points, to 36% and 26%, respectively. The contribution of 321 million euros. Christian Dior Couture remained unchanged at 4%. On fi rst consolidation of LVMH in 1988, all brands then owned Research and development by LVMH were revalued in the accounts of the Christian Dior Group. Research and development expenses posted during the year totaled 45 million euros in 2009 (compared to 43 million in 2008 In the Christian Dior consolidated fi nancial statements, LVMH’s and 46 million in 2007). These amounts cover mainly scientifi c accounts are restated to account for valuation differences in research and development costs of skincare and make-up products brands recorded prior to 1988 in the consolidated accounts of in the Perfumes and Cosmetics business group. each of these companies. Consequently, LVMH’s net profi t was consolidated in the amount of 1,982 million euros, compared to 1,973 million euros before restatement and intra-group eliminations, and is included in the Group share of net profi t of Christian Dior for 777 million euros.
2009 Annual Report 11 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Results by business group
2. Results by business group
Profi ts by business group as shown below are those published by Christian Dior Couture and LVMH, which have therefore not been restated.
2.1 CHRISTIAN DIOR COUTURE
2.1.1 Highlights Development of an innovative advertising campaign 2009 was marked by the following: This new campaign associates the brand’s iconic products, particularly the Lady Dior handbag, with the image of Marion Cotillard, the world-renowned Academy Award-winning French Improvement in profi t from recurring operations actress. The series of short fi lms screened over the Internet In an economic environment that continued to be challenging, have generated a strong following and considerable excitement profi t from recurring operations amounted to 13 million euros in for this line. 2009, an increase of 4 million euros compared to 2008, thanks to gross margin improvements and reductions in operating expenses. 2.1.2 Results of Christian Dior Couture Good resilience for second-half sales in the network Consolidated revenue amounted to 717 million euros, down of directly owned retail boutiques 6% at actual exchange rates and 8% at constant exchange rates. Revenue held up particularly well in the second half of the year. Following a fi rst half hit hard by the worldwide economic Profi t from recurring operations was 13 million euros, rising downturn, the Group’s retail activities saw a trend reversal by 4 million euros. Margin improvements due in particular to in the third quarter and recovered growth momentum in the lower inventory levels, together with signifi cant reductions in fourth quarter with a revenue improvement of 6% at constant operating expenses, contributed to this increase. exchange rates. Operating profi t amounted to 2 million euros following the Investments focused on high-growth markets recognition of non-recurring expenses totaling 11 million euros, mainly incurred in connection with exceptional impairment Dior’s retail network comprised 237 points of sale as charges and provisions. of December 31, 2009, remaining stable compared to The net fi nancial expense was 13 million euros, down from December 31, 2008. 18 million euros in 2008, an improvement that refl ects both The Group continued its expansion in China with the opening of lower interest rates and the reduction in debt. four new boutiques, in Nanjing, Harbin, Shenzhen and Ningbo. The tax expense totaled 17 million euros. It was generated by Dior’s presence in the Middle East was reinforced with the the benefi ciary subsidiaries, the non-recognition of tax credits opening of a boutique in the Dubai Mall. by loss-making subsidiaries and changes in deferred taxes. Other new boutiques were opened in Singapore (Ion Orchard), The Group share of net profi t was a negative result of 29 million Macao (One Central), and Saint-Petersburg (Ekaterinburg). euros, with the loss attributable to minority interests amounting to 0.7 million euros. Success of the Group’s strategy targeting the highest end of the market The continued revenue growth generated by the Group’s resolutely upscale products, particularly luxury leather goods, confi rmed the legitimacy of its strategy targeting this segment.
12 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Results by business group
2.1.3 Analysis of growth by business group
(EUR millions) 2009 2008 Change at actual exchange rates Change at constant exchange rates License royalties 35 36 -2% -3% Wholesale revenue 134 164 -18% -18% Retail revenue and other 548 565 -3% -5% TOTAL 717 765 -6% -8%
License concessions by a network meeting the highest quality standards, better refl ecting the brand’s position and values. Christian Dior Couture Group’s license royalties declined by 2% at actual exchange rates. Wholesale activities Growth in mobile handset sales refl ects the success of this activity launched in 2008. Wholesale activities were affected by a signifi cant decline in orders from multi-label customers, especially US department stores. For eyewear, the application of a more selective policy in relation The Group continues to observe very prudent shipping terms. to licensees has refocused this activity so that it is now handled
Retail sales and other
(EUR millions) 2009 2008 Change at actual exchange rates Change at constant exchange rates Europe and Middle East 279 292 -5% -2% Americas 59 74 -20% -24% Asia Pacifi c 210 199 +6% -2% TOTAL 548 565 -3% -5%
• After a weaker fi rst half compared to 2008, retail sales bounced Sales at the four boutiques opened in 2009 rapidly gathered back remarkably in the fourth quarter, increasing by 6% at real momentum. In Macao, Singapore, South Korea and constant exchange rates, enabling the second half to reach the Australia, sales grew signifi cantly. level of sales recorded in the second half of 2008 (at constant exchange rates). • Sales of leather goods and men’s ready-to-wear were major 2.1.4 Outlook for 2010 contributors to this trend reversal in the second half, reaffi rming Christian Dior Couture’s objective for 2010, against the the enduring appeal of the Dior style. backdrop of an economic climate remaining relatively fragile, • Within the retail network, Europe and the Middle East is to promote the growth of its iconic and upscale products while both showed excellent resistance in the face of the economic continuing its cost-control measures. downturn, with a decline in revenue of only 2% at constant Network investments will be concentrated in Asia, mainly in exchange rates. Russia, the United Arab Emirates, Qatar, China and in Singapore (Marina Bay). and especially the United Kingdom recorded positive growth. The Group’s advertising campaigns will continue to focus Retail business volumes in the United States and Japan on strengthening the brand’s image of timeless elegance and declined considerably. longevity. A major international event in Shanghai will celebrate In the Asia-Pacifi c region, most countries saw sustained growth Dior’s presence in China. Christian Dior Couture will maintain at a steady pace over the course of the year. In China, Christian its objectives of revenue growth and further profi tability Dior Couture turned in a remarkably strong performance. improvements.
2009 Annual Report 13 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Results by business group
2.2 WINES AND SPIRITS
2.2.1 Highlights In 2009, Wines and Spirits revenue amounted to 2,740 million The enthusiasm generated by the Premier Cru Supérieur euros, representing a decline of 12% based on published fi gures. Château d’Yquem was maintained with the sale of its Primeur 2008. Profi t from recurring operations was 760 million euros, down 28% from 2008. Better control of costs and the careful targeting Cognac and Spirits of advertising and promotional expenditure were not able to In 2009, Hennessy consolidated its market share both in terms offset the impact of lower sales volumes. Operating margin as of volume and value, remaining the undisputed leader in cognac. a percentage of revenue for this business group decreased by After a diffi cult fi rst half related to inventory reductions by its 6 points to 28%. partners and an unfavorable comparison with an excellent fi rst half in 2008, the main key markets began to stabilize and the 2.2.2 Principal developments brand continued to invest in preparation for the future. In China, its largest contributing market for the second Champagnes and Wines consecutive year, Hennessy was able to react, when faced with a downturn in revenue early in the year, by implementing Moët & Chandon pursued two objectives in 2009 – to consolidate effective support programs. Sustained growth returned in the its positions in traditional markets and win market share in the last quarter, and the brand is anticipating a rebound for the emerging countries. Chinese New Year in 2010. The company continued to grow in In order to enhance its visibility in a particularly diffi cult market the other Asian markets, strengthened its positions in Taiwan, context, the brand launched several new offers, including an and continued its outstanding expansion in Vietnam thanks to elegant gift case, the “Moët Chiller” and a luxurious limited the in-depth work completed in the last several years. edition “Celebration Case”. In the United States, its second largest market, Hennessy Moët & Chandon thus reasserted its leadership position and strengthened its leadership position and returned to a positive its status as a benchmark in champagne, embodying the spirit trend in the second half. of celebration. In Russia, the magnitude of the economic crisis affected all By emphasizing its fundamental values tied to the vision of its cognac sales. In other European countries like Germany and creator, Dom Pérignon reinforced its leadership position in the the United Kingdom, volumes withstood better and stabilized luxury champagne category and made sure it approached the in the second half. In Ireland, its historical market, Hennessy end of the crisis under optimal conditions. maintained its exceptional market share. In line with its value strategy and sales policy, Ruinart maintained In a diffi cult environment, Hennessy relied more than ever on an its prices while expanding its promotional events in the fi eld. aggressive strategy in which innovation was a key component. The brand benefi ted from the loyalty of its distributor partners Glenmorangie continued to deploy the components of its strategy and consumers. aimed at becoming the leader in single malt Scotch whiskies Veuve Clicquot Ponsardin invested more heavily than ever in and making the Ardbeg brand the absolute reference for malts the fundamentals upon which its success was built: the quality produced on the island of Islay. of its wines, enhanced by two excellent harvests in succession, Glenmorangie posted an encouraging performance in the United and innovation geared toward the creation of value. States and Continental Europe and won market share in the In order to support sales in its strategic markets, throughout the emerging countries of the Asia-Pacifi c region. year Krug increased the number of tasting offers for Grande Belvedere vodka had a good year with stable revenue in the Cuvée, the emblem of the brand and the vehicle for its values United States, where it increased market share, and strong of expertise, authenticity and excellence. growth in Canada, Europe and Asia. Sales were revitalized with Estates & Wines, the entity that holds the sparkling and still an aggressive and effective policy of innovation. wines of Moët Hennessy, generally performed well in the economic crisis. The Chandon sparkling wines consolidated their leadership position in the super premium category in their 2.2.3 Outlook for 2010 domestic markets. They simultaneously pursued their strategy The improvement in the trend which began at the end of 2009 of international expansion. suggests progressive recovery in 2010, but the environment over The still wines from Cloudy Bay (New Zealand) and Terrazas the next few months remains very uncertain. For the Wines de los Andes (Argentina) generated solid performances, and Spirits companies, the optimal inventory level within the while the Australian wines were penalized by a decline in distribution chain is a positive element as the year begins. In demand. Numanthia, acquired by Moët Hennessy in 2008, has addition to this economic factor, the Group’s brands hold the best progressively been recognized as one of the best wines from Spain. cards: a clear strategy, solid positions in traditional markets and
14 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Results by business group
the emerging countries, a reputation for excellence backed by in the fi eld. All these assets will allow the brands to seize every a zero tolerance image policy, a strong capacity for innovation, opportunity for short term growth and to continue to build and strong reactivity, and the contribution of expanded resources strengthen their leadership in the longer term.
2.3 FASHION AND LEATHER GOODS
2.3.1 Highlights Revenue refl ected the impact of weak demand at department stores in the United States and Japan, but was stronger in In 2009, the Fashion and Leather Goods group posted sales of Europe, the Middle East and Asia, with improvement in the 6,302 million euros, representing organic growth of 2%. second half. Profi t from recurring operations of 1,986 million euros was up 3%. Fendi selectively expanded its distribution network by focusing Exchange rate fl uctuations had a favorable impact on this on the Middle East and Asia. As of December 31, 2009, the Fendi business group’s earnings. Louis Vuitton once again performed network consisted of 187 stores around the world. remarkably well, while performance by the other brands was more mixed. Nevertheless, operating margin as a percentage of Other brands revenue for this business group remained stable at 32%. Demonstrating remarkable responsiveness, Donna Karan successfully met the challenge of particularly diffi cult economic 2.3.2 Principal developments conditions in the American market and, despite lower demand, posted a record year for profi ts. This performance was achieved by reducing operating costs which the team accomplished at the Louis Vuitton same time as it launched new successful products. 2009 was another year of double-digit growth for Louis Vuitton. Marc Jacobs continued its rapid international growth, driven The world’s leading luxury brand both confi rmed its exceptional by the enthusiasm generated by its fashion shows and by the appeal and reinforced its leadership position. It recorded excellent success of its major lines. The brand remained very steady in the performances in both Europe and the Middle East, and weathered face of a diffi cult economic environment in Europe, recorded a particularly diffi cult economic context in the United States. In strong growth in Asia, and posted a very good end of year in the Asian markets, which continued to be very dynamic (Greater all its distribution channels. China, South Korea), Louis Vuitton reaped all the benefi ts of the qualitative work performed over time to establish its legitimacy Loewe focused on its area of excellence, leather working, of and its presence and continued its very strong growth. which it is an absolute master in terms of style and quality, and on the development of accessories. In 2009, the Spanish The revenue increase was generated both by the growth in company continued to expand in Asia. purchases made by local customers of Louis Vuitton and purchases by tourists; this latter category confi rmed the increase in new The relaunch of Céline took a major step forward with the travelers from China, Eastern Europe, and the Middle East. presentation of Phoebe Philo’s fi rst collection in October 2009. This new style direction with its suggestions of great modernity was New stores were opened in all regions of the world, particularly greeted enthusiastically by the media and at the commercial level. in the cities of Ekaterinburg (Russia), Las Vegas (City Center), Macao (One Central), Hong Kong (Elements), Seoul and Ulan- Kenzo continued to strengthen its specifi c positioning and Bator, the brand’s fi rst location in Mongolia. All the businesses, improve the consistency of its collections under the artistic from leather goods to ready-to-wear to footwear, contributed direction of Antonio Marras, who is now responsible for design to the overall growth of Louis Vuitton in 2009. for all the lines. The company initiated a reorganization of its retail network and, along with the renovation of its fl agship stores, increased the number of its franchise boutiques which Fendi are a priority distribution channel for the company. Kenzo also In 2009, Fendi continued to strengthen all the elements that help launched an online sales site which served all European countries to highlight its identity and confi rm its positioning, particularly in 2009, and will be expanded to other countries in 2010. the consistency of its different collections and product lines. The brand also used the year to conduct an in-depth reorganization of its logistics chain, which improved product availability for customers and optimized working capital requirements.
2009 Annual Report 15 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Results by business group
Givenchy continued to benefi t from the success of its creative A number of creative developments are also being planned: renewal and its signifi cant greeting at a commercial level. The product launches will animate the major lines from Louis Vuitton. women’s ready-to-wear line in particular recorded solid results. Fendi will concentrate on the development of its iconic products Givenchy continued to expand its distribution, with a focus on to strengthen the cornerstones of its leather goods offer. The China, a market where the brand holds solid positions and has brand will very selectively continue to expand its retail network strong potential. in Europe and Asia while it pursues its efforts to boost the productivity of the existing stores. 2.3.3 Outlook for 2010 As the time line for solid economic recovery is still uncertain, In 2010, Louis Vuitton will implement a dynamic program of all the fashion brands will maintain a policy of very targeted new store openings. Future developments include new countries investments and extremely rigorous management of costs and and the company will expand in China with the opening of two inventories. They will also continue to rely on the quality of stores timed to coincide with its participation in the Shanghai their creative and managerial teams, and to focus on their areas World Expo. A new Louis Vuitton Maison in London is in the of excellence and develop their best-sellers. preparation stage.
2.4 PERFUMES AND COSMETICS
2.4.1 Highlights The make-up segment posted outstanding growth, driven by the strength of its core products and many successful new products. The Perfume and Cosmetics business group recorded revenue for Dior recorded signifi cant growth in the strategic foundation 2009 of 2,741 million euros. At constant structure and exchange segment with the international success of Diorskin Nude, which rates, revenue declined by 5%. ranks fi rst in its category in most markets. Two new products in Profi t from recurring operations for this business group was 2009 stand out in particular: Dior Sérum de Rouge was extremely 291 million euros, remaining stable compared to 2008. popular in all markets, and 5 Couleurs Designer, an eye shadow line that incorporates a technological innovation in the way Tight control over product costs and other operating expenses powder is manufactured. once again improved profi tability. Operating margin as a percentage of revenue for this business group thus increased In the skincare segment, Capture Totale recorded strong growth by 1 point to 11%. in Europe, Asia and the United States. The line was particularly enhanced by the brand new and extremely innovative Instant Rescue Eye Treatment as well as XP Nuit, a skincare product that 2.4.2 Principal developments uses advanced stem cell technology.
Parfums Christian Dior Guerlain Parfums Christian Dior recorded better than market Guerlain worked to reinforce its sound values while deploying a performance in all its key countries. In a tremendously diffi cult high-end policy of innovation. The brand succeeded in winning environment, the brand maintained a consistent and aggressive market share in its strategic lines. It confi rmed its vitality in its strategy, highlighting the quality of its products and its vibrant priority countries, particularly in France and China, a high- and creative image rooted in the fashion universe. By doing potential market where it improved its position signifi cantly. so, Parfums Christian Dior continued to expand its positions. The lipstick Rouge G was extremely successful. The company’s core perfumes Shalimar and Habit Rouge recorded very solid In the perfume segment, Dior benefi ts from the exceptional performances in the French market. The premium skincare strength of its traditional product lines, true icons, and from its line Orchidée Impériale recorded its third year of strong growth, ability to reinvent them so they continue to offer timeless appeal. and its success makes it the leader of Guerlain franchises in One of the greatest successes of the year was the launch of L’Eau terms of net sales. de Miss Dior Chérie. J’adore, another star perfume, represented by Charlize Theron, recorded remarkable performances and gained Guerlain strengthened its highly selective retailing network market share in all regions. 2009 also saw the highly successful by opening its twelfth boutique in the Marais district in Paris, portrayal of the legendary men’s fragrance Eau Sauvage. thereby allowing it to attract and win over new customers.
16 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Results by business group
Other brands growth in 2010, regardless of the date or magnitude of the expected economic recovery. To meet this objective, they will Parfums Givenchy increased its sales to end customers in its continue to illustrate their commitment to quality and creativity key markets (France, United States and Russia). Its progress and maintain an offensive position in terms of innovations and was driven by the success of its new products, particularly the advertising expenditures. fragrance Play for men, represented by Justin Timberlake, which posted exceptional scores in the United States, and Ange Parfums Christian Dior will concentrate its efforts on its ou Démon Le Secret represented by Uma Thurman, coupled with priority markets and the development of its exceptional image. recent cosmetic innovations such as the mascara Phenomen’Eyes Continuing its efforts to showcase its capacity for innovation, and the anti-aging cream Le Soin Noir. the brand will keep on supporting and strengthening its star product lines of perfumes and make-up. The revolutionary Thanks to the solid performance of its principal product lines launch of Capture Totale One Essential, a cutting edge product in and the success of the new products launched to expand the terms of technology, will strengthen its position in a skincare lines, Parfums Kenzo maintained its market share in 2009. segment, that of the high growth new generation serums. The new cologne FlowerbyKenzo Essentielle, the KenzoAmour fl oral eau de toilette and Eaux par Kenzo Indigo were blended Guerlain will continue its expansion, primarily in France and with beautifully sensual materials, in harmony with the image China. The House will continue to assert its luxury-brand status and the olfactory identity of the brand. through its creations, exclusive boutiques and Institutes. It will support its strategic core products Shalimar, Orchidée Impériale Benefi t continued to grow through international expansion. and Terracotta as well as its new Idylle perfume which offers The brand achieved a promising start in Russia and continued huge potential. its successes in the Asian and Continental European markets. As a result, Benefi t maintained excellent profi tability. Parfums Givenchy will develop an ongoing program of innovation supported by its three product segments. A major Make Up For Ever continued to record exceptional growth initiative will be launched to develop the Play line, and a and improve profi tability. Its momentum was particularly totally revolutionary anti-aging product, both in concept and outstanding in the United States and France, as well as in China in formulation, will also be launched. where it resumed direct sales in 2008. The year 2009 confi rmed the enormous consumer success of the HD foundation line and In 2010, Parfums Kenzo will celebrate the 10th anniversary of the Aqua line. Make Up For Ever celebrated its 25th birthday FlowerbyKenzo, which has become a perfume classic. Two new in 2009. products and an original fi lm shot on the roofs of Paris will promote this major line. A new communication campaign will highlight the KenzoAmour and Eaux par Kenzo lines. 2.4.3 Outlook for 2010 Make Up For Ever will drive its growth in 2010 primarily After succeeding in taking advantage of a diffi cult period to with the expansion of its two fl agship lines HD and Aqua, the become stronger, the brands of the Perfumes and Cosmetics launch of new lip gloss and lipstick products, and sustained business group have set a new objective for greater than market promotional expenditures.
2.5 WATCHES AND JEWELRY
2.5.1 Highlights 2.5.2 Principal developments TAG Heuer In 2009, Watches and Jewelry saw a decline in revenue of 19%, In 2009, penalized by its exposure in the United States, a market, at constant structure and exchange rates, to 764 million euros, like Japan, that was particularly impacted by the economic representing a decline of 13% based on published fi gures (a crisis, TAG Heuer withstood the economic conditions in Europe 3-point positive impact of exchange rate fl uctuations and a 3-point well and continued to expand in China. By concentrating on its positive impact due to changes in the scope of consolidation). iconic lines and implementing programs to stimulate demand in retailers, the brand increased its market share in all countries in Profi t from recurring operations for Watches and Jewelry the segment of watches and chronographs sold between 1,000 decreased to 63 million euros. Against the backdrop of a slowdown to 5,000 euros. A trend toward renewed growth in sales to end in sales, the operating profi tability for this business group was 8%. users at retailers began in the fourth quarter, including in the United States.
2009 Annual Report 17 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Results by business group
TAG Heuer selectively expanded its presence in strategic In jewelry, the brand benefi ted from the confi rmed success markets, opening boutiques and franchises in Tokyo, Osaka, of its Liens and Attrape-Moi si tu m’aimes lines. The company Hong Kong, Beijing, Shanghai, Singapore, Seoul, Sofi a, Moscow, boldly expanded the lines with the launch of a new Lune de Ekaterinburg and Abu Dhabi. Miel collection which melds diamonds and colored stones. In watches, the jewelry watches from Chaumet and the Dandy Hublot Arty model introduced during the year also performed well. Montres Dior continued to transition to high-end products and Hublot withstood the economic conditions extremely well. strengthen its positioning by combining a Swiss watchmaking Its unique positioning, coupled with a very strict control of tradition, a “couture” spirit, and strong creativity. its inventories at retailers, were the two main factors driving its performance. The Christal line was enhanced with several automatic versions and the creation of the Dior Christal Mystérieuse watch. A small, 2009 saw the inauguration of the Hublot manufacturing facility jeweled version, the Mini D, was added to the D de Dior collection. in Nyon, a decisive step in the future development of this high Development of the Chiffre Rouge men’s line continued with the growth brand. The integration of the various production steps introduction of two diving watches, guaranteed waterproof up will give greater autonomy to the manufacturing facility. to 300 meters. For the third time in fi ve years, Hublot won a fi rst prize in the Fred posted a very good year in France. The growth achieved Geneva Watchmaking Grand Prix with the Big Bang One Million in this market is due to the success of the recent re-issue of Dollar Black Caviar model. its legendary Force 10 line, inspired by the world of sailing and enhanced with jewelry versions in 2009. Zenith In the crisis experienced by the watchmaking industry, 2.5.3 Outlook for 2010 Manufacture Zenith implemented a major program to cut costs and investments and initiated industrial restructuring to After the impact on revenue from the inventory reductions made lower its breakeven point. by distributors and multi-brand retailers in 2009, the year 2010 should bring progressive recovery, a prospect reinforced by the In 2009, the company celebrated the 40th anniversary of its El positive signals given by consumption in recent months. As the Primero chronograph movement. A symbol of innovation and Watches and Jewelry brands have strictly controlled the level of the watchmaking precision embodied by Zenith, the El Primero their inventories with retailers, they are well positioned to take is the only chronograph movement capable of measuring time advantage of improved market conditions. The global economic to a tenth of a second. In order to build on its strong points and context is still uncertain, however, so they will continue to rely its watchmaking values, Zenith began to refocus its collections primarily on the expansion of their iconic product lines and and marketing campaigns on its traditional models and its El maintain rigorous control of costs and inventories. Investments Primero movement, which was once again placed at the center will remain highly targeted. They will be primarily devoted to of its product offer. the development of industrial watchmaking capacities for the production of movements and to the opening of a few monobrand Other brands boutiques in strategic locations. For retail, ongoing improvement in the network of existing boutiques will remain a priority. Chaumet’s revenue was impacted by retailer’s inventory reductions, but remained solid within its own network of boutiques.
2.6 SELECTIVE RETAILING
2.6.1 Highlights 2.6.2 Principal developments In 2009, Selective Retailing revenue amounted to 4,533 million DFS euros, representing organic growth of 1%. Profi t from recurring After a fi rst half- year penalized both by the consequences of the operations for this business group was 388 million euros, economic crisis and by concerns related to the H1N1 virus, the remaining stable compared to 2008. second half of the year showed a trend toward improvement for Sephora continued to improve its operating margin, despite the players in “travel retail”. expenses resulting from its rapid expansion in Europe, North In a diffi cult context worldwide, DFS posted a solid sales America and China, thus confi rming its growth momentum. performance and contained its profi tability through rigorous Operating margin as a percentage of revenue for the Selective control of all operating costs. Excellent inventory management Retailing business group as a whole remained stable at 9%. generated cash fl ow that was signifi cantly improved from 2008.
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At the destinations traditionally popular with Japanese travelers, This entire strategy signifi cantly accelerated the gains in market business was impacted by a decline in traffi c and the change in share achieved around the world. In France, where its concept DFS revenue was in line with the market. On the other hand, fi rst began, Sephora ranked number one in the selective retail the travel retail leader took advantage of the growth in Chinese market in 2009. tourism, a phenomenon that had long been anticipated and that had been placed at the center of its growth strategy. The stores Le Bon Marché serving this customer base showed strong improvement. The Galleria in Macao, which opened in 2008 at the Four Seasons After a diffi cult period early in 2009, Le Bon Marché gradually Shopping Mall, was an outstanding success. The renovation of returned to moderate growth. The department store ended the the Chinachem Galleria in Hong Kong also had a very positive year with revenue little changed from 2008, a true performance. impact on the appeal and business of the store. This achievement was coupled with a perfectly controlled margin and strong results generated by rigorous management DFS also recorded very strong results for its fi rst full year of and a consistent policy of offering value. operation in Abu Dhabi. It should be noted that this promising store represents the fi rst luxury site in a Middle East airport. Signifi cant events in 2009 included the completion of the Business at the Mumbai airport (Bombay), the fi rst concession department store’s major renovation project with the aim of in India, which was still modest, grew slowly but steadily. highlighting the architectural heritage of the building, while unveiling the magnifi cent second-fl oor windows. The success of the new locations and stores which had been expanded and redecorated confi rmed the relevance of the investments made by DFS in recent years and reinforces its 2.6.3 Outlook for 2010 prospects for future growth. Based on the improved trend seen in the second half of 2009, DFS is facing the year 2010 with confi dence. The leader Miami Cruiseline in “travel retail” will continue to implement its strategy to strengthen its presence at the favorite destinations of Asian In 2009, the business of Miami Cruiseline suffered from the travelers. Among other positive elements, DFS will benefi t economic slowdown in the cruise market and the decline in from the completion of the work on its fl agship store in Hong purchases made by primarily American customers. Cost-cutting Kong Sun Plaza, where the Beauty department has already efforts did not totally offset the decline in revenue. been renovated, and from the progressive opening of City of Despite the current diffi culties, the cruise market offers excellent Dreams, the second Galleria in Macao. prospects over the longer term, driven by an increase in new As economic recovery in the United States promises to be gradual, customers. Miami Cruiseline will maintain drastic cost management in 2010, while focusing on seizing the best opportunities for growth. Sephora Those opportunities include a new, very large ship operated by Royal Caribbean, where Miami Cruiseline has opened more Sephora turned in an excellent performance worldwide, attractive stores in which it can ideally express its expertise. with revenue growth and an increase in profi t from recurring In order to maintain its global leadership and its positioning operations, resulting in market share gains in all its operating as a trend-setting beauty expert, Sephora will continue to regions. Sephora’s exceptional commercial vitality was driven expand its presence with new openings in profi table markets by the expansion of its store network in the most profi table and will accelerate the rate of its innovations. A major project markets and by a product offer that is increasingly innovative and to develop online sales in Europe will also be initiated in 2010. unique. Tighter control of operating costs, positive changes in the An increasingly exclusive offer (new brands carried in the product mix and ongoing efforts to improve store productivity stores, previews launched in partnership with selective brands, contributed to the growth in profi t from recurring operations. the development of Sephora product lines), the roll-out of new As of December 31, 2009, Sephora’s global network consisted merchandising and service initiatives and the expansion of of 986 stores located in 23 countries. customer loyalty programs, etc. are all efforts that will contribute to a new year of growth and win new gains in market share. The online store sites sephora.com (United States and Canada), sephora.fr (France) and sephora.cn (China) continued to In 2010, Le Bon Marché will implement a strong and dynamic grow rapidly, driven by a very dynamic promotional policy, sales offensive. The store will begin modifi cations to its sales increased interactivity, and the attention paid to the quality areas to give greater space to sectors with high profi t potential. of customer service. This change will result in two major events. In the spring, the regrouping of the Home and Leisure departments on the store’s Sephora continued to implement its differentiation policy second fl oor will reinforce the unique and inspired character based on the creativity of its product offer, the large number of Le Bon Marché. In the second half of the year, the store will of events conducted for the selective brands in its stores, and inaugurate a new expanded Balthazar space for men, offering the development of innovative services. notably a Shoe department that is unique in Paris.
2009 Annual Report 19 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Operational risk factors and insurance policy
3. Operational risk factors and insurance policy
3.1 STRATEGIC AND OPERATIONAL RISKS
3.1.1 Brand image and reputation Furthermore, action plans have been specifi cally drawn up to address the counterfeiting of products. This involves close Around the world, the Group is known for its brands, unrivalled cooperation with governmental authorities, customs offi cials expertise and production methods unique to its products. and lawyers specializing in these matters in the countries The reputation of the Group’s brands rests on the quality concerned. The Group also plays a key role in all of the trade and exclusiveness of its products, their distribution networks, bodies representing the major names in the luxury goods industry, as well as the promotional and marketing strategies applied. in order to promote cooperation and a consistent global message Products or marketing strategies not in line with brand image against counterfeiting, all of which are essential in successfully objectives, inappropriate behavior by brand ambassadors, as combating the problem. well as detrimental information circulating in the media might endanger the reputation of the Group’s brands and adversely In addition, the Group takes various measures to fi ght the sale impact sales. The net value of brands, trade names and goodwill of its products through parallel retail networks, in particular recorded in the Group’s balance sheet as of December 31, 2009 by developing product traceability, prohibiting direct sales to amounted to 15.9 billion euros. those networks, and taking specifi c initiatives aimed at better controlling retail channels. In 2009, the cost of these initiatives The Group supports and develops the reputations of its brands by working with seasoned and innovative professionals in was 13 million euros. various fi elds (creative directors, oenologists, cosmetics research specialists, etc.), with the involvement of the most senior 3.1.3 executives in strategic decision-making processes (collections, Contractual commitments distribution and communication). In this regard, the Group’s key In the context of its business activities, the Group enters into priority is to respect and bring to the fore each brand’s unique multi-year agreements with its partners and some of its suppliers personality. Furthermore, all employees are conscious of the (especially lease, distribution and procurement agreements). importance of acting at all times in accordance with the ethical Should any of these agreements be terminated before its expiration guidelines established by the Group. Finally, in order to protect date, compensation is usually provided for under the agreement against risks related to an eventual public campaign against the in question, which would represent an expense without any Group or one of its brands, the Group monitors developments in immediate offsetting income item. As of December 31, 2009, the media on a constant basis and maintains a permanent crisis the total amount of minimum commitments undertaken by the management procedure at most of its subsidiaries. Group in respect of multi-year lease and procurement agreements amounted to 5.4 billion euros. Detailed descriptions of these commitments may be found in Notes 29.1 and 29.2 to the 3.1.2 Counterfeit and parallel retail consolidated fi nancial statements. Considered on an individual networks basis, no agreement exists whose termination would be likely to The Group’s brands, expertise and production methods can result in material liability at the level of the Group. be counterfeited or copied. Its products, in particular leather Any potential agreement that would result in a commitment by goods, perfumes and cosmetics, may be distributed in parallel the Group over a multi-year period is subjected to an approval retail networks, including Web-based sales networks, without process at the Group company involved. The approval and review the Group’s consent. process implemented prior to engaging any particular agreement Counterfeiting and parallel distribution have an immediate is adjusted depending on the related fi nancial and operational adverse effect on revenue and profi t and may damage the brand risk factors. All agreements are also reviewed by the Group’s image of the relevant products over time. The Group takes all in-house legal counsel, together with its insurance brokers. possible measures to protect itself against these risks. In addition, the Group has entered into commitments to its As a result, the legal protection of its trademarks and brands is an partners in some of its business activities to acquire the stakes absolute necessity. Thus, brands, product names, trademarks, etc. held by the latter in the activities in question should they express are always fi led or registered to guarantee legal protection an interest in such a sale, according to a contractual pricing both in France and in other countries. In general, the Group formula. As of December 31, 2009, this commitment is valued takes all measures at the international level to ensure such legal at 2.8 billion euros and is recognized under Other non-current protection is complete. liabilities (see Note 19 to the consolidated fi nancial statements).
20 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Operational risk factors and insurance policy
3.1.4 Worldwide operations of the Group as leathers, canvases and furs in connection with the activities of the Fashion and Leather Goods business group. In order The Group conducts business internationally and as a result to guarantee sources of supply corresponding to its demands, is subject to various types of risks and uncertainties. These the Group sets up preferred partnerships with the suppliers in include customer purchasing power and the value of operating question. Although the Group enters into these partnerships in assets located abroad, economic changes that are not necessarily the context of long term commitments, it is constantly on the simultaneous from one country to another, and provisions of lookout for new suppliers able to meet its requirements. corporate or tax law, customs regulations or import restrictions imposed by some countries that may, under certain circumstances, penalize the Group. 3.1.8 Information systems The Group maintains very few operations in politically unstable The Group is exposed to the risk of information systems failure, regions. The legal and regulatory frameworks governing the as a result of a malfunction or malicious intent. The occurrence countries where the Group operates are well established. of this type of risk event may result in the loss or corruption Furthermore, it is important to note that the Group’s activity of sensitive data, including information relating to products, is spread for the most part between three geographical and customers or fi nancial data. Such an event may also involve monetary regions: Asia, Western Europe and the United States. the partial or total unavailability of some systems, impeding This geographic balance helps to offset the abovementioned risks. the normal operation of the processes concerned. In order to protect against this risk, at each of its companies, the Group 3.1.5 The Group’s products puts in place business continuity plans as well as a full set of measures designed to protect sensitive data. In France, the European Union and all other countries in which the Group operates, many of its products are subject to specifi c regulations. Regulations apply to production and manufacturing 3.1.9 Industrial and environmental risks conditions, as well as to sales, consumer safety, product labeling In the context of its production and storage activities, the Group and composition. is exposed to the occurrence of losses such as fi res, water damage, In addition to industrial safety, the Group’s companies also or natural catastrophes. work to ensure greater product safety and traceability. The HACCP method (Hazard Analysis Critical Control Point) is A detailed presentation of the Group’s environmental risk factors used by companies in the Wines and Spirits and Perfumes and and of the measures taken to ensure compliance by its business Cosmetics business groups. This approach aims notably to activities with legal and regulatory provisions is provided in the reinforce the Group’s anticipation and responsiveness in the section entitled “Effects of operations on the environment” of event of a product recall. the Management Report of the Board of Directors. A legal intelligence team has also been set up in order to better To identify, analyze and provide protection against industrial manage the heightened risk of liability litigation, notably that and environmental risks, the Group relies on a combination to which the Group’s brands are particularly exposed. of independent experts and qualified professionals from various Group companies, and in particular safety, quality and environmental managers. The defi nition and implementation 3.1.6 Seasonality of the Group’s risk management policy are handled by the Finance Department. Nearly all of the Group’s activities are subject to seasonal variations in demand. Historically, a signifi cant proportion of The Group consistently applies the highest safety standards as the Group’s sales – approximately 30% of the annual total – has part of its policy on industrial risk prevention (NFPA standard). been generated during the peak holiday season in the fourth Working with its insurers, LVMH applies HPR (Highly Protected quarter of the year. Unexpected events in the fi nal months of Risks) standards, the objective of which is to signifi cantly reduce the year may signifi cantly affect the Group’s business volume fi re risk and associated operating losses, and has established and earnings. an incentive program for risk prevention investments which is taken into account by insurance companies in their risk assessment process. 3.1.7 Strategic procurement This approach is combined with an industrial and environmental The attractiveness of the Group’s products depends on the risk monitoring program. In 2009, engineering consultants availability, in suffi cient quantity, of certain raw materials devoted about 120 audit days to the program at LVMH. meeting the quality criteria demanded by the Group. This mainly involves the supply of grapes and eaux-de-vie in connection with In addition, prevention and protection schemes include the activities of the Wines and Spirits business group, as well contingency planning and business continuity.
2009 Annual Report 21 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Operational risk factors and insurance policy
3.2 INSURANCE POLICY
The Group has a dynamic global risk management policy based Coverage for “natural events” provided under the Group’s primarily on the following: international damage insurance program is limited to: 75 million euros per claim and 150 million euros per year for LVMH and • systematic identifi cation and documentation of risks; 200 million euros per claim in France (10 million euros outside • procedures for risk prevention, occupational safety and of France) for Christian Dior Couture. As a result of a Japanese protection of persons and industrial assets; earthquake risk modeling study performed in 2009 by the LVMH Group, specifi c coverage in the amount of 150 million euros • implementation of international contingency plans; was taken out against this risk. These limits are in line with the • a comprehensive risk financing program to limit the Group companies’ risk exposures. consequences of major events on the Group’s fi nancial position; • worldwide optimization and coordination of ‘‘master” and 3.2.2 Transportation insurance centralized insurance programs. All Group operating entities are covered by an “Inventory The Group’s global approach is primarily based on transferring and Transit” transportation insurance contract. The coverage its risks to the insurance markets under reasonable fi nancial limit of this program for LVMH and Christian Dior Couture terms, within the limits of the conditions available in those is respectively some 60 million euros and 2 million euros and markets both in terms of scope of coverage and limits. The corresponds to the maximum transportation liability. extent of insurance coverage is directly related either to a quantifi cation of the maximum possible loss, or to the constraints of the insurance market. 3.2.3 Third-party liability Compared with the Group’s fi nancial capacity, the level of self- The Group has implemented a third-party liability and worldwide insurance does not seem signifi cant. The deductibles payable product recall insurance program for all its subsidiaries by Group companies in the event of a claim refl ect an optimal throughout the world. This program is designed to provide the balance between coverage and the total cost of risk. Insurance most comprehensive coverage for the Group’s known risks, given costs borne by LVMH and Christian Dior Couture are less the insurance capacity and coverage available internationally. than 0.30% and 0.20%, respectively, of consolidated revenue. Coverage levels are in line with those of companies with The fi nancial ratings of the Group’s main insurance partners comparable business operations. are reviewed on a regular basis, and if necessary one insurer may be replaced by another. Both environmental losses arising from gradual as well as sudden, accidental pollution and environmental liability The main insurance programs coordinated by the Group are (Directive 2004/35/EC) are covered under this program. designed to cover property damage and business interruption, transportation, credit, third party liability and product recall. Specifi c insurance policies have been implemented for countries where work-related accidents are not covered by state insurance schemes, such as the United States. Coverage levels are in line 3.2.1 Property and business interruption with the various legal requirements imposed by the different insurance states. Most of the Group’s manufacturing operations are covered under a consolidated international insurance program for property 3.2.4 Coverage for special risks damage and associated operating losses. Insurance coverage for political risks, company offi cers’ liability, Property damage insurance limits are provided in line with the fraud and malicious intent, acts of terrorism, data corruption or values of assets insured. Business interruption insurance limits data loss or environmental risks, is obtained through specifi c refl ect gross margin exposures of the Group companies for a worldwide or local policies. period of indemnity extending from 12 to 24 months based on actual risk exposures. The coverage limit of this program is 1.1 billion euros, an amount determined on the basis of the Group’s maximum possible loss.
22 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Operational risk factors and insurance policy
3.3 FINANCIAL RISKS
3.3.1 Credit risk 3.3.4 Interest rate risk Because of the nature of its activities, the majority of the Group’s The Group’s exposure to interest rate risk may be assessed with sales are not affected by customer risk. Sales are made directly respect to the amount of its consolidated net fi nancial debt, to customers through Christian Dior Couture, the Selective which totaled 4.5 billion euros as of December 31, 2009. After Retailing network, the Fashion and Leather Goods stores and, hedging, 55% of gross debt was subject to a fi xed rate of interest to a lesser extent, the Perfumes and Cosmetics stores. Together, and 45% was subject to a fl oating interest rate. An analysis of these sales accounted for approximately 76% and 59% of total borrowings by maturity and type of rate applicable as well as revenue, respectively for Christian Dior Couture and LVMH, an analysis of the sensitivity of the cost of net fi nancial debt to in 2009. changes in interest rates are presented in Notes 17.4 and 17.6 Furthermore, for revenue not included in this fi gure, the Group’s to the consolidated fi nancial statements. businesses are in no way dependent on a limited number of Since the Group’s debt is denominated in various different customers whose default would have a signifi cant impact on currencies, the Group’s exposure to fl uctuations in interest rates Group activity level or earnings. About 78% of requests for underlying the main currency-denominated borrowings (euro, credit insurance coverage were fulfi lled as of December 31, 2009. US dollar, Swiss franc and Japanese yen) varies accordingly. This risk is managed using interest rate swaps and purchases 3.3.2 Counterparty risk of interest rate caps (protections against an increase in interest Banking counterparties are selected based on their ratings and rate) designed to limit the adverse impact of unfavorable interest in accordance with the Group’s risk diversifi cation strategy. rate fl uctuations. Banking counterparty risk is monitored on a regular and comprehensive basis, a task facilitated by the centralization 3.3.5 Equity market risk of risk management. Whenever possible, the compensation of exposures between banks and certain Group entities is organized The Group’s exposure to equity market risk relates mainly to through legal means. Christian Dior’s ownership interest in LVMH as well as Christian Dior and LVMH treasury shares, which are held primarily for stock option plans and bonus share plans. The Group also holds 3.3.3 Foreign exchange risk LVMH share-settled calls to cover these commitments. Christian Dior treasury shares, as well as Christian Dior share purchase A substantial portion of the Group’s sales is denominated in options , are considered as equity instruments under IFRS, and currencies other than the euro, particularly the US dollar and as such have no impact on the consolidated income statement. the Japanese yen, while most of its manufacturing expenses are euro-denominated. Shares other than Christian Dior and LVMH treasury shares may be held by some of the funds in which the Group has invested, Exchange rate fl uctuations between the euro and the main or even directly within non-current or current available for currencies in which the Group’s sales are denominated can sale fi nancial assets. therefore signifi cantly impact its revenue and earnings reported in euros, and complicate comparisons of its year-on-year performance. The Group may use derivatives in order to reduce its exposure The Group actively manages its exposure to foreign exchange to risk. Derivatives may serve as a hedge against fl uctuations in risk in order to reduce its sensitivity to unfavorable currency share prices. For instance, equity swaps in LVMH shares allow fl uctuations by implementing hedges such as forward sales and cash-settled compensation plans index-linked to the change in options. An analysis of the sensitivity of the Group’s net profi t the LVMH share price to be covered. Derivatives may also be to fl uctuations in the main currencies to which the Group is used to build a synthetic long position. exposed, as well as a description of the extent of cash fl ow hedging for 2010 relating to the main invoicing currencies are provided in Note 21.5 to the consolidated fi nancial statements. 3.3.6 Liquidity risk Owning substantial assets denominated in currencies other The Group’s local liquidity risks are generally not signifi cant. than euros (primarily the US dollar and Swiss franc) is also a Its overall exposure to liquidity risk can be assessed (a) with source of foreign exchange risk with respect to the Group’s net regard to outstanding amounts in respect of its commercial assets. This risk is managed via total or partial funding of these paper program (0.2 billion euros) or (b) by comparing the assets with borrowings denominated in the same currency as amount of the short term portion of its net fi nancial debt before the corresponding asset. An analysis of the Group’s exposure hedging (2.2 billion euros) and net of cash and cash equivalents to foreign exchange risk related to its net assets for the main (2.5 billion euros). Should any of these borrowing facilities not currencies involved is presented in Note 21.5 to the consolidated be renewed, the Group has access to undrawn confi rmed credit fi nancial statements. lines totaling 4.2 billion euros.
2009 Annual Report 23 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Operational risk factors and insurance policy
Therefore, the Group’s liquidity is based on the large amount 3.3.7 Organization of foreign exchange, of its investments and long term borrowings, the diversity of its investor base (bonds and commercial paper), and the interest rate and equity market risk quality of its banking relationships, whether evidenced or not management by confi rmed credit lines. The Group applies an exchange rate and interest rate management The Group has undertaken, in accordance with the terms of strategy designed primarily to reduce any negative impacts of certain credit agreements, to comply with certain fi nancial ratios foreign currency or interest rate fl uctuations on its business (net fi nancial debt to equity; coverage of fi nancial debt by assets). and investments. The current level of these ratios ensures that the Group has genuine fi nancial fl exibility with regard to these commitments. The Group has implemented a stringent policy, as well as strict management guidelines to measure, manage and monitor these In addition, as is customary, the applicable margin on drawdowns market risks. of certain long term credit lines depends on LVMH Group’s rating (by Standard & Poor’s). As of December 31, 2009, no drawdown These activities are organized based on a segregation of duties had been performed under these schemes. Furthermore, should between risk measurement, hedging (front offi ce), administration these clauses be triggered, this would not have a material impact (back offi ce) and fi nancial control. on the Group’s cash fl ow. The backbone of this organization is an integrated information Agreements governing fi nancial debt and liabilities are not system which allows transactions to be monitored in real time. associated with any specifi c clause likely to signifi cantly modify Hedging decisions are made according to a clearly established their terms and conditions. process that includes regular presentations to the Group’s The breakdown of fi nancial liabilities by contractual maturity is various executive bodies and involves the gathering of detailed presented in Note 21.7 to the consolidated fi nancial statements. supporting documentation.
24 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Financial policy
4. Financial policy
During the year, the Group’s fi nancial policy focused on: • Greater use of long term fi nancing and an increase in cash and cash equivalents. • Improving the Group’s fi nancial structure, as evidenced by the key indicators listed below: Apart from its cash and cash equivalents, the Group applies a diversifi ed short and long term investment policy. In - substantial growth in equity; 2009, available for sale fi nancial assets benefi ted from the - lower net debt; improvement in fi nancial markets, although without necessarily recovering their original levels. - reinforcement of the fi nancial structure thanks to the increase in the long term portion of net fi nancial debt; • The decrease in the cost of net fi nancial debt, which was 242 million euros as of December 31, 2009, down from - a substantial increase in the amount of cash and cash 322 million euros the previous year. equivalents; This change is the result of lower short term interest rates and - the Group’s fi nancial fl exibility, based on a signifi cant the decline in the average net fi nancial debt during the year, reserve of confi rmed credit lines. whose impact was limited by widening credit and lending Thanks to substantial cash flow from operations, net margins. In 2009, the Group benefi ted from lower interest fi nancial debt was reduced from 5,370 million euros as of rates in euros, Swiss francs and US dollars owing to the extent December 31, 2008 to 4,460 million euros at year-end 2009. of its fl oating rate loans denominated in these currencies. Equity before appropriation of profi t increased by 6.3% to The net financial result was adversely affected by the 16,121 million euros as of December 31, 2009, compared to recognition of changes in the fair value of the ineffective portion 15,171 million euros a year earlier. This improvement is mainly of foreign currency hedges and by losses relating to available attributable to net profi t growth in 2009 despite the negative for sale fi nancial assets and other fi nancial instruments, but change in the translation adjustment due to the depreciation of partially offset by the amount of dividends received with the US dollar and the Japanese yen against the euro between respect to non-current available for sale fi nancial assets. year-end 2008 and year-end 2009 and 891 million euros of • Pursuing a dynamic dividend payout policy to shareholders, dividend payments. to enable them to benefi t from the company’s excellent • Maintaining a prudent foreign exchange and interest rate performances over the year: risk management policy designed primarily to hedge the risks - an interim dividend for 2009 of 0.44 euros was paid in generated directly and indirectly by the Group’s operations December 2009; and investments. - proposal of a total gross dividend of 1.66 euros per share for With regard to foreign exchange risks, the Group continued the period (fi nal dividend of 1.22 euros). As a result, total to hedge the risks of exporting companies using call options dividend payments to shareholders by Christian Dior in or ranges to limit the negative impact of currency depreciation respect of 2009 would amount to 302 million euros, before while retaining most of the gains in the event of currency the impact of treasury shares. appreciation. This strategy enabled the Group to obtain a better hedging rate than the average annual exchange rate for the US dollar in addition to a signifi cantly better hedging rate for the Japanese yen than 2008 and comparable to its average annual exchange rate.
2009 Annual Report 25 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Financial policy
4.1 CONSOLIDATED CASH FLOW
The consolidated cash fl ow statement, which is shown in the Transactions relating to equity generated an outfl ow of 828 million consolidated fi nancial statements, details the main cash fl ows euros over the year. for the 2009 fi scal year. Share subscription options exercised by LVMH employees during Cash from operations before changes in working capital decreased the year raised a total of 30 million euros. LVMH intends to by 4.3%, to 3,964 million euros in 2009 from 4,141 million euros proceed with the cancellation of a number of shares equivalent a year earlier. to the total issued. Net cash from operations before changes in working capital Disposals of Christian Dior and LVMH shares and related (i.e. after interest and income tax) amounted to 2,808 million derivatives by the Group, net of acquisitions, generated an euros compared to the amount of 2,993 million euros recorded infl ow of 21 million euros. in 2008. In the year ended December 31, 2009, Christian Dior paid Interest paid in 2009 amounted to 250 million euros, down from 287 million euros in dividends, excluding the amount attributable 271 million euros in 2008, a decrease due mainly to lower interest to treasury shares, of which 209 million euros were distributed in rates on average over the year and the decline in the average May in respect of the fi nal dividend on 2008 profi t and 78 million net fi nancial debt outstanding, despite the increase in corporate euros in December in respect of the interim dividend for the loan and bond spreads and the Group’s recourse to longer term 2009 fi scal year. Furthermore, the minority shareholders of borrowings intended to solidify its fi nancial structure. consolidated subsidiaries received 604 million euros in dividends. These mainly relate to minority interests in LVMH SA, those Income tax paid in 2009 amounted to 906 million euros, as in Diageo related to its 34% equity interest in Moët Hennessy, against 877 million euros in 2008. and minority interests in DFS. Working capital requirements decreased by 149 million euros, After all operating, investment and equity-related activities, a remarkable performance in both absolute and relative terms including the dividend payment, the total cash surplus amounted compared to 2008, when they increased by 737 million euros. to 1,045 million euros. In particular, changes in inventories generated cash resources amounting to 115 million euros, mainly as a result of the reduction Among other cash resources, 321 million euros were divested in purchases of distilled alcohol for cognac and progress made from current available for sale fi nancial assets and 2,826 million by all brands, especially Louis Vuitton and Christian Dior euros were raised through bond issues and new borrowings. In Couture. The change in trade accounts receivable generated May 2009, LVMH SA issued a fi ve-year public bond in a nominal cash resources of 216 million euros over the year, notably at amount of 1 billion euros. In September 2009, Christian Dior Louis Vuitton, Parfums Christian Dior and Moët & Chandon. carried out a fi ve-year public bond issue in a nominal amount of Reduced trade accounts payable balances consumed 373 million 350 million euros. Furthermore, the Group made use of its Euro euros, mainly at Sephora, Hennessy, Moët & Chandon and Medium Term Notes program in June to conclude long term Parfums Christian Dior, due to lower purchasing volumes and, private placements through two issues, the fi rst in the amount for the French brands, as a result of the entry into effect of the of 250 million euros with a maturity of 6 years and the second Law on the Modernization of the Economy. in the amount of 150 million euros with a maturity of 8 years and, at other times during the year, to diversify its investor base Overall, net cash from operating activities posted a surplus of and seize opportunities for private placements. 2,957 million euros, representing a 31% increase compared to the 2,256 million euros recorded in 2008. In 2009, these resources allowed the Group to increase its cash position and to pay down borrowings for an amount of Group operating investments for the year, net of disposals, 2,496 million euros. In particular, the Group decreased its resulted in net cash outfl ows of 763 million euros. This amount recourse to its French commercial paper program by 517 million refl ects the Group’s growth strategy and that of its fl agship euros, thus making greater use of long term fi nancial resources. brands such as Louis Vuitton, Sephora and Christian Dior. As of December 31, 2009, cash and cash equivalents net of bank Net cash from operating activities and operating investments overdrafts amounted to 2,235 million euros. thus amounted to 2,194 million euros. Acquisitions of non-current available for sale fi nancial assets, net of disposals, together with the net impact of the purchase and sale of consolidated investments, resulted in an outfl ow of 321 million euros in 2009, compared to 638 million one year earlier.
26 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Financial policy
4.2 FINANCIAL STRUCTURE
The Christian Dior Group’s consolidated balance sheet, which is The Group share of equity before appropriation of profi t increased shown in the consolidated fi nancial statements, totaled 36.1 billion to 6.3 billion euros from 5.9 billion euros at year-end 2008. This euros as of December 31, 2009, representing a year-on-year improvement is due to the signifi cant amount of the Group’s increase of 1.6%. share of net profi t for the year, despite the negative change in the cumulative translation adjustment resulting from the fall in Non-current assets amounted to 24.7 billion euros, equivalent to the US dollar against the euro, and the payment of dividends the level recorded as of December 31, 2008, thus corresponding in the amount of 0.3 billion euros in 2009. to 69% of total assets, slightly lower than the proportion a year earlier. Minority interests amounted to 9.9 billion euros, compared to 9.3 billion euros in 2008. Tangible and intangible fi xed assets (including goodwill) increased slightly to 22.7 billion euros from 22.6 billion euros at year-end Total equity thus amounted to 16.1 billion euros and represented 2008. Brands and other intangible assets amounted to 11.4 billion 45% of the balance sheet total, compared to 43% a year earlier. euros, up from 11.2 billion euros as of December 31, 2008. Non-current liabilities amounted to 13.3 billion euros as of This increase is primarily attributable to the acquisition of a December 31, 2009, including 5.2 billion euros in long term 50% stake in the prestigious winery Château Cheval Blanc, borrowings. This compares to 12.9 billion euros at year-end the valuation of the Royal Van Lent brand, and the impact of 2008, including 4.6 billion euros in long term borrowings. exchange rate fl uctuations on brands and other intangible assets This increase was primarily due to the increase in long term recognized in US dollars, such as the DFS trade name and the borrowings, partially offset by the decrease in share purchase Donna Karan brand. commitments, which comprise the bulk of Other non-current Goodwill decreased to 4.9 billion euros, from 5.1 billion liabilities. The proportion of non-current liabilities in the balance euros a year earlier. The goodwill recognized on the initial sheet was 37%, up from 36% in 2008. consolidation during the year of Château Cheval Blanc and the Equity and non-current liabilities thus amounted to 29.4 billion Montaudon champagne house did not fully offset the decline in euros, and exceeded total non-current assets. goodwill recognized in relation to purchase commitments for minority interests. Current liabilities amounted to 6.7 billion euros as of December 31, 2009, compared to 7.5 billion euros at year-end 2008, owing to Property, plant and equipment increased slightly to 6.4 billion reductions in trade accounts payable resulting from the entry into euros. This growth is chiefl y attributable to the levels of the effect of the French Law on the Modernization of the Economy Group’s operating investments made by Louis Vuitton, Sephora, and a decrease in short term borrowings. Their relative weight DFS and Christian Dior Couture in their retail networks as in the balance sheet total decreased to 18%. well as those made by Parfums Christian Dior in new display counters and production facilities, together with those made Long term and short term borrowings, including the market value by Hennessy and Veuve Clicquot in their production facilities, of interest rate derivatives, and net of cash, cash equivalents and and to changes in the scope of consolidation, which exceeded current available for sale fi nancial assets, amounted to 4.5 billion the depreciation charge for the year and the effects of foreign euros as of December 31, 2009, compared to 5.4 billion euros a currency fl uctuations. year earlier, representing a gearing of 28%, compared to 35% at year-end 2008. Investments in associates, non-current available for sale fi nancial assets, other non-current assets and deferred tax amounted to Cash and cash equivalents exceeded short term borrowings. 2.1 billion euros and were thus stable compared to 2008. As of December 31, 2009, confi rmed credit facilities amounted Inventories and work in progress amounted to 5.8 billion euros, to 5.2 billion euros, of which only 1.0 billion euros were compared to 6.0 billion euros at year-end 2008, refl ecting drawn, which means that the undrawn amount available was inventory reduction efforts undertaken in 2009 and the impact 4.2 billion euros. The Group’s undrawn confi rmed credit lines of exchange rate fl uctuations, despite the acquisitions made or substantially exceeded the outstanding portion of its commercial initially consolidated in 2009. paper program, which amounted to 0.2 billion euros as of December 31, 2009. Trade accounts receivable amounted to 1.5 billion euros, down from 1.7 billion euros at year-end 2008. Cash and cash equivalents, excluding current available for sale fi nancial assets, increased signifi cantly from 1.1 billion euros as of December 31, 2008 to 2.5 billion euros.
2009 Annual Report 27 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Results of Christian Dior
5. Results of Christian Dior
The results of Christian Dior consist primarily of dividend 45 million euros and net reversals of provisions on treasury revenue related to its indirect investment in LVMH, less fi nancial shares for 62 million euros. expenses corresponding to the fi nancing of the Company. Tax savings recognized under the tax consolidation agreement Financial income totaled 347 million euros, compared to totaled 2 million euros in 2009, compared to 4 million euros 312 million euros in 2008. in 2008. This consists, on the one hand, of dividends received from Net profi t totaled 343 million euros, compared to 310 million subsidiaries, investments and other property totaling 330 million euros in 2008. euros and, on the other hand, of net interest expenses totaling
The proposal to allocate the distributable profi t for the fi scal year ended December 31, 2009 is as follows:
Amount available for distribution (EUR) • net profi t 342,583,800.31 plus • retained earnings before appropriation 51,363,830.42 amount available for distribution 393,947,630.73 Proposed appropriation • distribution of a gross dividend of 1.66 euros per share 301,666,899.68 • allocation to retained earnings 92,280,731.05 TOTAL 393,947,630.73
Should this appropriation be approved, the gross dividend With respect to this dividend distribution, individuals whose tax would be 1.66 euros per share. residence is in France will be entitled to the 40% tax deduction provided under Article 158 of the French Tax Code. As an interim dividend of 0.44 euros per share was paid on December 2, 2009, the balance of 1.22 euros will be paid out Finally, should the Company hold any treasury shares at the on May 25, 2010. time of the payment of this balance, the amount corresponding to the dividend not paid on these shares will be allocated to retained earnings.
Distribution of dividends As required by law, we remind you of the gross dividends per share allocated for distribution over the past three fi scal years, and the corresponding tax allowance:
(EUR) Gross dividend (1) Tax allowance (2) 2008 1.61 0.644 2007 1.61 0.644 2006 1.41 0.564
(1) Excludes the impact of tax regulations applicable to the benefi ciaries. (2) For individuals with tax residence in France.
As of December 31, 2009, trade accounts payable amounted to 623 thousand euros. They comprise accrued expenses in the amount of 519 thousand euros and outstanding invoices in the amount of 104 thousand euros.
28 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Company shareholders
6. Company shareholders
6.1 MAIN SHAREHOLDERS
Pursuant to Article L. 233-13 of the French Commercial Code, holding over 5% of the share capital or voting rights, to the best based on information received pursuant to Articles L. 233-7 and of the Company’s knowledge: L. 233-12 of that Code, the following is a list of shareholders
December 31, 2009 December 31, 2008 Number % of share % of voting Number % of share % of voting Shareholders of shares capital rights (1) of shares capital rights (1) Groupe Arnault (2) 126,177,295 69.43 82.71 126,174,170 69.43 82.27
(1) Voting rights exercisable in Shareholders’ Meetings. (2) Groupe Arnault SAS, which is controlled by the family of Mr. Bernard Arnault, is the ultimate holding company of Christian Dior.
6.2 SHARES HELD BY MEMBERS OF THE MANAGEMENT AND SUPERVISORY BODIES
As of December 31, 2009, the members of the Board of Directors held directly, in a personal capacity and in the form of registered shares, less than 0.2% of the share capital.
6.3 INFORMATION ON PURCHASES AND SALES OF SHARES
Pursuant to Article L. 225-211 of the French Commercial Code, They were purchased at an average price of 59.07 euros. it is specifi cally stated that the Company: Their par value was 2 euros. These shares represented 1.97% of the share capital; • over the past fi scal year, purchased 332,000 of its treasury shares, at an average price of 52.10 euros. Total trading • at fi scal year-end, also held 19,532 treasury shares, with a net expenses amounted to 25,945.27 euros. value of 1,133,197.81 euros. These shares were purchased pursuant to Article L. 225- These shares had been purchased with a view to stabilizing 208 of the French Commercial Code for allocation to share the share price at an average price of 58.02 euros. These purchase option plans. shares have a par value of 2 euros and represent 0.01% of the share capital. At the close of the fi scal year, the number of shares thus held, allocated to current or future share purchase option plans, In accordance with legal requirements, these shares are stripped totaled 3,581,348, with a net value of 202,418,252.02 euros. of their voting rights.
2009 Annual Report 29 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Administrative matters
6.4 SUMMARY OF TRANSACTIONS IN CHRISTIAN DIOR SECURITIES DURING THE FISCAL YEAR BY SENIOR EXECUTIVE OFFIC ERS AND RELATED PERSONS AS DEFINED IN ARTICLE R. 621-43-1 OF THE FRENCH MONETARY AND FINANCIAL CODE
Directors Type of transaction Number of shares Average price (EUR) Purchase (1) 14,000 56.70 Denis Dalibot Sale 14,000 71.21 Purchase (1) 28,000 56.70 Sidney Toledano Sale 23,000 71.26
(1) Exercise of share purchase options.
7. Administrative matters
7.1 LIST OF POSITIONS AND OFFICES HELD BY DIRECTORS
The list of positions and offi ces held by each Director during the last fi ve years is provided in § 10 below.
7.2 COMPOSITION OF THE BOARD OF DIRECTORS
It is proposed that: • the Shareholders’ Meeting renew the appointment as Director • the Shareholders’ Meeting appoint Mrs. Ségolène Gallienne of Mr. Renaud Donnedieu de Vabres, whose term in offi ce as Director; is due to expire at the close of the Shareholders’ Meeting for a period of three years, as specifi ed in the Bylaws. and, in order to preserve balance in the eventual renewals of all currently serving Directors, that it also proceed with the early renewal of the appointments as Directors of Messrs. Eric Guerlain and Christian de Labriffe;
30 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Financial authorizations
8. Financial authorizations
8.1 STATUS OF CURRENT DELEGATIONS AND AUTHORIZATIONS
8.1.1 Share repurchase program
Authorization Use as of Type date Expiry/Duration Amount authorized December 31, 2009 Share repurchase program May 14, 2009 November 13, 2010 10% of share capital None Maximum purchase price (16th resolution) (18 months) (1) 18,172,704 shares per share: 130 euros Reduction of capital through May 14, 2009 November 13, 2010 10% of share capital None the retirement of shares purchased (17th resolution) (18 months) (1) per 24-month period under the repurchase program 18,172,704 shares
(1) A resolution renewing this authorization will be presented to the Shareholders’ Meeting of April 15, 2010. See § 8.2 below.
8.1.2 Authorizations to increase share capital
Issue price Use as of Authorization Expiry/ Amount determination December 31, Type date Duration authorized method 2009 Capital increase with preferential May 14, 2009 July 13, 2011 80 million euros Free None subscription rights (18th resolution) (26 months) 40,000,000 shares (1) (2) (ordinary shares, investment securities giving access to the share capital, and incorporation of reserves) Capital increase without preferential May 14, 2009 July 13, 2011 80 million euros Based on None subscription rights (19th resolution) (26 months) 40,000,000 shares (1) (2) regulations (ordinary shares and investment securities in force giving access to the share capital) Capital increase in connection May 14, 2009 July 13, 2011 80 million euros Free None with a public exchange offer (21st resolution) (26 months) 40,000,000 shares (1) Capital increase in connection May 14, 2009 July 13, 2011 10% of share capital Free None with a contribution in kind (22nd resolution) (26 months) 18,172,704 shares (1)
(1) Maximum nominal amount. The nominal amount of any capital increase decided in application of other delegations of authority would be offset against this amount. (2) Amount may be increased subject to the limit of 15% of the initial issue in the event that the issue is oversubscribed (Shareholders’ Meeting of May 14, 2009, 20th resolution).
2009 Annual Report 31 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Financial authorizations
8.1.3 Employee share ownership
Exercise price Use as of Authorization Expiry/ Amount determination December 31, Type date Duration authorized method 2009 Share subscription or purchase May 14, 2009 July 13, 2012 3% of share capital Average share price None options (23rd resolution) (38 months) 5,451,811 shares over the 20 trading days preceding the grant date Allocation of bonus shares May 15, 2008 July 14, 2011 1% of share capital Not applicable None (11th resolution) (38 months) 1,817,270 shares Capital increase reserved for May 15, 2008 July 14, 2010 3% of share capital Average share price None employees who are members of (12th resolution) (26 months) (1) 5,451,811 shares over the 20 trading days a Corporate Savings Plan preceding the grant date - maximum discount: 30%
(1) In accordance with Article L. 225-129-6, paragraph 2 of the French Commercial Code, these plans must be re-ratifi ed by the shareholders every three years, the next such occasion being in 2011.
8.2 AUTHORIZATIONS TO BE RENEWED
8.2.1 Authorization to engage in stock 8.2.2 Authorization to reduce the share market transactions capital The Combined Shareholders’ Meeting of May 14, 2009 authorized Pursuant to Article L. 225-209 of the French Commercial Code, the Board of Directors to implement a program to repurchase the Combined Shareholders’ Meeting of May 14, 2009 authorized the Company’s shares. This authorization was not implemented the Board of Directors, should it consider that such an action in 2009. serves the shareholders’ interests, to reduce the Company’s share capital through cancellation of shares acquired in connection The Board proposes to this Meeting that this authorization with the share buy-back programs. be renewed for a term of eighteen months. Such shares may be acquired, in particular, to provide market liquidity services The Board proposes that this authorization be renewed for a (purchases/sales) under a liquidity contract, to cover stock option period of eighteen months. plans, bonus share plans, employee stock ownership plans or any other form of share allocation or share-based payment, to cover securities giving access to the Company’s shares, to be retired, or to be held so as to be exchanged or presented as consideration at a later date for external growth operations. The total number of shares that may be acquired by the Company would be limited to 10% of the share capital. The maximum purchase price per share would be 130 euros.
32 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Compensation of company offi cers
9. Compensation of company offi cers
• Summary of the remuneration, options and bonus shares granted to senior executive officers (1)
Valuation of options Valuation of bonus Remuneration due in respect granted during share granted during of the fi scal year the fi scal year (2) the fi scal year Senior executive offi cers (EUR) 2009 2008 2009 2008 2009 2008 Bernard Arnault 3,879,396 3,879,396 5,152,000 12,516,000 - - Sidney Toledano 1,431,810 1,431,810 866,000 1,085,000 - -
(1) Gross remuneration and benefi ts in kind paid or borne by the Company and the companies controlled by it, subject to the provisions of Article L. 225- 102-1 of the French Commercial Code, excluding Directors’ fees. No remuneration is paid to senior executive offi cers by Christian Dior. Remuneration is paid, for Bernard Arnault, by the LVMH Group and, for Sidney Toledano, by Christian Dior Couture. (2) The breakdown of equity securities or securities giving access to the share capital granted to members of the Board of Directors during the fi scal year is presented in § 11.3.
• Summary of the remuneration of each senior executive officer (1)
Bernard Arnault
Amounts due for the fi scal year Amounts paid in the fi scal year Compensation (EUR) 2009 2008 2009 2008 Fixed compensation 1,679,396 1,679,396 1,704,672 1,679,396 Variable compensation 2,200,000 (2) 2,200,000 2,200,000 (3) 2,300,000 (3) Exceptional compensation - - - - Directors’ fees 119,695 119,060 119,060 119,060 Benefi ts in kind Company car Company car Company car Company car TOTAL 3,999,091 3,998,456 4,023,732 4,098,456
Sidney Toledano
Amounts due for the fi scal year Amounts paid in the fi scal year Compensation (EUR) 2009 2008 2009 2008 Fixed compensation 881,810 881,810 881,810 881,810 Variable compensation 550,000 (4) 550,000 550,000 (3) 650,000 (3) Exceptional compensation - - - - Directors’ fees 36,848 36,530 36,530 36,530 Benefi ts in kind Company car Company car Company car Company car TOTAL 1,468,658 1,468,340 1,468,340 1,568,340
(1) Gross remuneration and benefi ts in kind paid or borne by the Company and the companies controlled, subject to the provisions of Article L. 225-102-1 of the French Commercial Code. The differences between the amounts due and the amounts paid are attributable to changes in foreign exchange rates. (2) Half of which is based on the achievement of qualitative objectives, with the remainder based on the following three equally weighted quantitative criteria: revenue, operating profi t and cash fl ow. (3) Amounts paid in respect of the prior fi scal year. (4) One-third of which is based on the achievement of qualitative objectives, with the remainder based on the following three equally weighted quantitative criteria: revenue, operating profi t and cash fl ow.
2009 Annual Report 33 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Compensation of company offi cers
• Work contract, specific pension, leaving indemnities and non-compete clause in favor of senior executive officers
Indemnities or benefi ts due or likely to become due Indemnities Supplementary on the cessation or change relating to a non- Senior executive offi cers Work contract pension of functions compete clause Yes No Yes No Yes No Yes No Bernard Arnault -XX (1) --X-X Chairman of the Board of Directors Sidney Toledano X (2) -- X - XX (2) - Chief Executive Offi cer
(1) This supplementary pension, set up by LVMH, is only acquired if the potential benefi ciary has been present for at least six years on the Executive Committee of the LVMH Group and simultaneously asserts his rights to his standard legal pension entitlement. It is determined on the basis of a reference remuneration that is equal to the annual remuneration received over the last three calendar years preceding the retirement year, subject to a maximum of thirty-fi ve times the annual social security ceiling. The annual supplementary pension is equal to the difference between 60% of the reference remuneration and all pension amounts paid by the general social security regime and the additional ARRCO and AGIRC regimes. Amount of the commitment by LVMH as of December 31, 2009 for Mr. Bernard Arnault: 17,339,603 euros. (2) Covenant not to compete for a twenty-four-month period included in the employment contract of Mr. Sidney Toledano – suspended during his term of offi ce as Chairman and Chief Executive Offi cer of Christian Dior Couture – giving rise to the payment of a monthly compensation equal to the monthly average of the gross salary received over the twelve months preceding his departure.
• Summary of compensation, benefits in kind and commitments given to other company officers (1)
Fixed compensation paid Variable compensation paid in the fi scal year in the fi scal year Members of the Board of Directors (EUR) 2009 2008 2009 2008 Antoine Bernheim - - - - Denis Dalibot 580,000 (4) 515,262 (3) (4) - 521,000 Renaud Donnedieu de Vabres (5) -- - - Pierre Godé (2) 1,500,000 1,155,000 2,000,000 200,000 Eric Guerlain - - - - Christian de Labriffe - - - - Jaime de Marichalar y Sáenz de Tejada - - - - Alessandro Vallarino Gancia - - - - Raymond Wibaux (6) -- - -
(1) Gross remuneration and/or fees and benefi ts in kind paid or borne by the Company and the companies controlled by it, subject to the provisions of Article L. 225-102 1 of the French Commercial Code and received by the company offi cer or a company controlled by the latter. (2) The breakdown of equity securities or securities giving access to the share capital granted to members of the Board of Directors during the fi scal year is presented in § 11.3. (3) Excluding retirement indemnity paid in 2008: 1,567,359 euros. (4) Contract as a consultant. (5) Date of fi rst appointment: February 5, 2009. (6) Deceased in late 2008.
34 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Compensation of company offi cers
• Breakdown of equity shares or securities giving access to the share capital granted to members of the Board of Directors during the fiscal year This breakdown is presented in § 11.3 below.
• Directors’ fees paid to company officers (1)
Members of the Board of Directors Directors’ fees paid in (EUR) 2009 2008 Bernard Arnault 119,060 119,060 Antoine Bernheim 930,060 279,530 Denis Dalibot 30,458 29,632 Renaud Donnedieu de Vabres (2) -- Pierre Godé 146,414 127,144 Eric Guerlain 23,825 9,530 Christian de Labriffe 14,295 9,530 Jaime De Marichalar y Sáenz de Tejada 24,915 24,915 Sidney Toledano 36,530 36,530 Alessandro Vallarino Gancia 9,530 9,530 Raymond Wibaux (3) 14,295 9,530
(1) Directors’ fees paid by the Company and the companies controlled by it, subject to the provisions of Article L. 225-102-1 of the French Commercial Code. (2) Date of fi rst appointment: February 5, 2009. (3) Deceased in late 2008.
2009 Annual Report 35 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS List of positions or offi ces exercised in all companies by company offi cers
10. List of positions or offi ces exercised in all companies by company offi cers
Pursuant to Article L. 225-102-1 of the French Commercial Code, the following are all offi ces and positions exercised in all companies by each company offi cer as well as the positions and offi ces they have exercised since January 1, 2005.
10.1 CURRENT OFFICES OF DIRECTORS
Mr. Bernard ARNAULT - Société Civile du Cheval Blanc: Director; Chairman of the Board of Directors - Louis Vuitton pour la Création, Fondation d’Entreprise: Chairman of the Board of Directors. Date of birth: March 5, 1949. French. • International: Business address: LVMH – 22, avenue Montaigne – 75008 Paris (France). - LVMH Moët Hennessy - Louis Vuitton Inc. (United States): Director; Date of fi rst appointment: March 20, 1985. - LVMH Moët Hennessy - Louis Vuitton Japan KK (Japan): Expiration of term: Annual General Meeting held in 2011. Director. Number of Christian Dior shares held in a personal capacity: 42,997 shares. Other Mr. Bernard Arnault began his career as an engineer with Ferret- • France: Savinel, where he became Senior Vice President for Construction in 1974, Chief Executive Offi cer in 1977 and fi nally Chairman - Carrefour SA: Director; and Chief Executive Offi cer in 1978. - Lagardère SCA: Member of the Supervisory Board. He remained with this company until 1984, when he became Chairman and Chief Executive Offi cer of Financière Agache and of Christian Dior. Shortly thereafter he spearheaded a Positions and offices that have terminated reorganization of Financière Agache following a development after January 1, 2005 strategy focusing on luxury brands. Christian Dior was to • France: become the cornerstone of this new structure. - Métropole Télévision “M6” SA: Member of the Supervisory In 1989, he became the leading shareholder of LVMH Moët Board; Hennessy - Louis Vuitton, and thus created the world’s leading luxury products group. He assumed the position of Chairman - Raspail Investissements SA: Director. and Chief Executive Offi cer in January 1989. Mr. Antoine BERNHEIM Current positions and offices Date of birth: September 4, 1924. French. Christian Dior Group/Groupe Arnault Business address: Assicurazioni Generali SpA c/o Generali • France: France – 7, boulevard Haussmann – 75009 Paris (France). - Christian Dior SA: Chairman of the Board of Directors; Date of fi rst appointment: May 14, 2001. - Christian Dior Couture SA: Director; Expiration of term: Annual General Meeting held in 2012 . - Groupe Arnault SAS: Chairman; Number of Christian Dior shares held in a personal capacity: 36,448 shares. - LVMH Moët Hennessy - Louis Vuitton SA: Chairman and Chief Executive Offi cer;
36 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS List of positions or offi ces exercised in all companies by company offi cers
Mr. Antoine Bernheim was Managing Partner of Lazard Frères • International: & Cie from 1967 to 2000 and Partner of Lazard LLC from 2000 - Intesa Sanpaolo (Italy): Vice-Chairman of the Supervisory to 2005. He served as Chairman and Chief Executive Offi cer Board; of La France SA from 1974 to 1997 and of Euromarché from 1981 to 1991. Chairman of Generali SpA between 1995 and - Mediobanca (Italy): Director. 1999; he was reappointed to this post in 2002. Positions and offices that have terminated Current positions and offices after January 1, 2005 Generali Group • France: • France: - Bolloré Investissement SA: Vice-Chairman and Director; - Generali France SA: Director. - Partena: Managing Partner. • International: • International: - Alleanza Toro (Italy): Vice-Chairman and Director; - Banca Intesa SpA (Italy): Director; - Generali Deutschland Holding AG (Germany): Director; - Compagnie Monégasque de Banque (Principality of Monaco): Director; - Assicurazioni Generali SpA (Italy): Chairman; - Lazard LLC (United States): Partner. - BSI: Banca della Svizzera Italiana (Switzerland): Director; - Generali España Holding SA (Spain): Director; Mr. Denis DALIBOT - Generali Holding Vienna AG (Austria): Director; Date of birth: November 15, 1945. French. - Graafschap Holland (Netherlands): Director. Business address: Financière Agache – 11, rue François-1er – 75008 Paris (France). Christian Dior Group/Groupe Arnault Date of fi rst appointment: May 17, 2000. • France: Expiration of term: Annual General Meeting held in 2012 . - Christian Dior SA: Director; Number of Christian Dior shares held in a personal capacity: - Christian Dior Couture SA: Director; 200 shares. - Financière Jean Goujon SAS: Vice-Chairman and Member Mr. Denis Dalibot began his career with the ITT Group. From of the Supervisory Committee; 1984 to 1987 he served as Deputy Administration and Finance - LVMH Fashion Group SA: Vice-Chairman and Director; Director for Sagem. He joined Groupe Arnault in 1987 as Group Finance Director, a position he held until 2007. He is currently - LVMH Finance SA: Vice-Chairman and Director; the Managing Director of Financière Agache. - LVMH Moët Hennessy - Louis Vuitton SA: Vice-Chairman and Director. Current positions and offices • International: - LVMH Moët Hennessy - Louis Vuitton Inc. (United States): Christian Dior Group/Groupe Arnault Director. • France: - Christian Dior SA: Director; Other - Agache Développement SA: Chairman and Chief Executive • France: Offi cer; - Bolloré SA: Vice-Chairman and Director; - Ateliers AS SA, Permanent representative of Christian Dior - Ciments Français SA: Director; Couture SA: Director; - Eurazeo SA: Member of the Supervisory Board; - Belle Jardinière SA: Director; - Havas SA: Director; - Christian Dior Couture SA: Director; - Société Française Générale Immobilière SA: Managing - Europatweb SA: Chairman and Chief Executive Offi cer; Director. - Europatweb Placements SAS: Legal representative of Europatweb, Chairman;
2009 Annual Report 37 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS List of positions or offi ces exercised in all companies by company offi cers
- Financière Agache SA: Director – Managing Director; Mr. Pierre GODÉ - Financière Agache Private Equity SA: Director; Advisor to the Chairman
- Financière Jean Goujon SAS: Member of the Supervisory Date of birth: December 4, 1944. French. Committee; Business address: LVMH – 22, avenue Montaigne – 75008 - Franck & Fils SA: Permanent representative of Le Bon Paris (France). Marché – Maison Aristide Boucicaut, Director; Date of fi rst appointment: May 14, 2001. - GA Placements SA: Permanent representative of Europatweb, Director; Expiration of term: Annual General Meeting held in 2011 . - Groupe Arnault SAS: Member of the Management Committee; Number of Christian Dior shares held in a personal capacity: 400 shares. - Kléber Participations SARL: Manager; Mr. Pierre Godé began his career as a lawyer admitted to the Lille - Le Jardin d’Acclimatation SA, Permanent representative of bar and has taught at the Lille and Nice university law faculties. Ufi par, Director; He has been Advisor to the Chairman of Groupe Arnault since 1986. - Montaigne Finance SAS: Chairman; - Montaigne Investissements SCI: Manager; Current positions and offices - Montaigne Services SNC: Manager; - Raspail Investissements SA: Permanent representative of Christian Dior Group/Groupe Arnault Financière Agache, Director; • France: - Semyrhamis SAS: Member of the Supervisory Committee; - Christian Dior SA: Director; - Sevrilux SNC: Legal representative of Financière Agache, - Christian Dior Couture SA: Director; Manager. - Financière Agache SA: Chairman and Chief Executive Offi cer; • International: - Financière Jean Goujon SAS: Chairman; - Aurea Finance, (Luxembourg): Chairman; - Groupe Arnault SAS: Managing Director; - GO Invest SA, (Belgium): Chairman. - Les Echos SAS: Member of the Supervisory Board; Other - LVMH Moët Hennessy - Louis Vuitton SA: Vice-Chairman and Director; • France: - Louis Vuitton Malletier: Director; - Groupement Foncier Agricole Dalibot: Manager. - Raspail Investissements SA: Chairman and Chief Executive Offi cer; Positions and offices that have terminated - SA du Château d’Yquem: Director; after January 1, 2005 - Semyrhamis SAS: Member of the Supervisory Committee; • France: - Sevrilux SNC: Legal representative of Financière Agache, - FA Investissement SAS: Chairman; Manager; - Lyparis SAS: Member of the Supervisory Committee; - Sofi div SAS: Member of the Management Committee; - Sifanor SAS: Chairman; - Société Civile du Cheval Blanc: Director; - Société d’Exploitation de l’Hôtel Cheval Blanc SAS: Member - Association du Musée Louis Vuitton: Permanent representative of the Supervisory Committee. of LVMH Fashion Group, Director. • International: • International: - Publications Professionnelles SAS, (Luxembourg): Member - LVMH Moët Hennessy - Louis Vuitton Inc. (United States): Director; of the Supervisory Committee. - LVMH Publica (Belgium): Director; - Sofi div UK Limited (United Kingdom): Director.
38 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS List of positions or offi ces exercised in all companies by company offi cers
Other Current positions and offices • France: Crédit Suisse - Havas SA: Director; • International: - Redeg SARL: Manager. - Crédit Suisse (Spain): Chief Executive Offi cer and Advisor.
Positions and offices that have terminated Christian Dior Group/Groupe Arnault after January 1, 2005 • France: • France: - Christian Dior SA: Director. - Groupe Les Echos SA: Permanent representative of LVMH, • International: Director; - Groupe LVMH: Advisor to the Chairman for Spain; - Le Bon Marché, Maison Aristide Boucicaut SA: Director, Managing Director; - Loewe SA (Spain): Director. - LVMH Fashion Group SA: Member of the Executive Board and Managing Director; Other - Montaigne Finance SAS: Member of the Supervisory • International: Committee; - Art+Auction Editorial (United States and United Kingdom): - Parfums Christian Dior SA: Permanent representative of Member of the Supervisory Board; Financière Agache SA, Director; - Axa Mediterranean Holding SA, Axa Aurora Ibérica SA de - Sifanor SAS: Member of the Supervisory Committee; Seguros y Reaseguros, y Axa Aurora Vida SA de Seguros y Reaseguros (Spain): Director; - GIE LVMH Services: Member of the College of Directors. - Sociedad General Immobiliaria de España SA (Spain): • International: Director; - Fendi SA (Luxembourg): Director; - Waste Recycling Group (UK): Director. - LVMH Moët Hennessy - Louis Vuitton Japan KK (Japan): Director; Positions and offices that have terminated - LVMH Services Limited (United Kingdom): Director. after January 1, 2005 Mr. Jaime de MARICHALAR y SÁENZ de • France: TEJADA (Duke of Lugo) - Credit Suisse Hottinguer: Member of the Supervisory Board. • International: Date of birth: April 7, 1963. Spanish. - Portland Valderrivas (Spain): Director. Business address: Crédit Suisse – Ayala, 42 – 28001 Madrid (Spain). Mr. Sidney TOLEDANO Date of fi rst appointment: May 11, 2006. Chief Executive Offi cer Expiration of term: Annual General Meeting held in 2012 . Date of birth: July 25, 1951. French. Number of Christian Dior shares held in a personal capacity: 200 shares. Business address: Christian Dior Couture – 11, rue François- 1er – 75008 Paris (France). Mr. Jaime de Marichalar y Sáenz de Tejada began his career in 1986 in Paris where he worked for Banque Indosuez on the Date of fi rst appointment: September 11, 2002. MATIF Futures Market. He then joined Crédit Suisse and worked for the Investment Bank and in Private Banking. In Expiration of term: Annual General Meeting held in 2011 . January 1998, he was appointed Chief Executive Offi cer of Number of Christian Dior shares held in a personal capacity: Crédit Suisse in Madrid. 25,200 shares.
2009 Annual Report 39 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS List of positions or offi ces exercised in all companies by company offi cers
Mr. Sidney Toledano began his career in 1977 as a marketing - Christian Dior Sa ipan Ltd (Saipan): Director; consultant with Nielsen International. He then served as - Christian Dior Singapore Pte Ltd (Singapore): Director; Company Secretary of Kickers before joining the Executive Management of Lancel in 1984. In 1994, he joined Christian - Christian Dior Taiwan Ltd (Taiwan): Director (Director A); Dior Couture as Deputy Chief Executive Offi cer. He has been - Fendi Adele Srl (Italy): Director; its Chairman since 1998. - Fendi Asia Pacifi c Limited (Hong Kong): Director; Current positions and offices - Fendi International BV (Netherlands): Director A and Chairman; Christian Dior Group/Groupe Arnault - Fendi Italia Srl (Italy): Director; • France: - Fendi North America Inc. (United States): Director; - Christian Dior SA: Chief Executive Offi cer and Director; - Fendi SA (Luxembourg): Director; - Christian Dior Couture SA: Chairman and Chief Executive - Fendi Srl (Italy): Director; Offi cer; - Les Ateliers Horlogers Dior SA (Switzerland): Director; - Fendi International SA: Chairman of the Board of Directors; - Les Jardins d’Avron LLC (United States): Chairman; - John Galliano SA: Chairman of the Board of Directors. - Lucilla Srl (Italy): Chairman; • International: - Manifatturauno Srl (Italy): Chairman of the Board of Directors; - Bopel Srl (Italy): Chairman; - Mardi SpA (Italy): Chairman and Managing Director. - Calto Srl (Italy): Chairman of the Board of Directors; - CDCH SA (Luxembourg): Director; Positions and offices that have terminated - Christian Dior (Fashion) Malaysia Sdn (Malaysia): Director; after January 1, 2005 - Christian Dior Australia Pty Ltd (Australia): Director; • France: - Christian Dior Belgique SA (Belgium): Permanent - John Galliano SA: Managing Director; representative of Christian Dior Couture SA, Managing Director; - Fendi France SAS: Chairman. - Christian Dior Commercial Shanghai Co. Ltd (China): • International: Chairman; - Calto Srl (Italy): Manager; - Christian Dior Couture Korea Ltd. (South Korea): Director - Christian Dior Couture Maroc (Morocco): Manager; (Joint Representative Director); - Christian Dior Couture Rus LLC (Russia): General Director; - Christian Dior Couture Maroc SA (Morocco): Chairman of the Board of Directors and Director A; - Christian Dior Couture S. de RL de CV (Mexico): General Director; - Christian Dior Couture CZ (Czech Republic): Manager; - Christian Dior Couture Stoleshnikov LLC (Russia): General - Christian Dior Far East Ltd (Hong Kong): Director; Director; - Christian Dior GmbH (Germany): Manager; - Christian Dior Espanola SL (Spain): Manager (Administrador - Christian Dior Guam Ltd (Guam): Director; solidario); - Christian Dior Hong Kong Ltd (Hong Kong): Director; - Christian Dior Guam Ltd (Guam): Chairman; - Christian Dior Inc. (United States): Chairman and Director; - Christian Dior Puerto Banus SL (Spain): Manager (Administrador solidario); - Christian Dior Italia Srl (Italy): Chairman; - Christian Dior Sa ipan Ltd (Saipan): Chairman; - Christian Dior KK (Japan): Representative Director; - Christian Dior UK Ltd (United Kingdom): Chairman and - Christian Dior Macau Single Shareholder Company Limited Director; (Macao): Director; - Fendi Immobili Industriali Srl (Italy): Director; - Christian Dior New Zealand Ltd (New Zealand): Director; - Les Jardins d’Avron SAS: Permanent representative of - Christian Dior S. de RL de CV (Mexico): Chairman et Christian Dior Couture SA, Chairman. Director;
40 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS List of positions or offi ces exercised in all companies by company offi cers
Mr. Alessandro VALLARINO GANCIA director of AAP SA, a company specializing in alternative fund advisory services and asset management, since 2001. Date of birth: October 15, 1967. Swiss. Business address: AAP SA – 15, rue du Jeu-de l’Arc – Current positions and offices 1211 Geneva (Switzerland). Date of fi rst appointment: May 11, 2006. Christian Dior Group/Groupe Arnault Expiration of term: Annual General Meeting held in 2012 . • France: Number of Christian Dior shares held in a personal capacity: - Christian Dior SA: Director. 200 shares. From 1992 to 1993, Mr. Alessandro Vallarino Gancia worked Other as a junior management consultant in the Consumer Goods • International: department of Roland Berger & Partners in Munich. In 1993, he joined the investment bank Alex. Brown & Sons Inc. in the - AAP SA (Switzerland): Managing Director. United States, for whom he worked as an investment banking consultant . Positions and offices that have terminated From 1996 to 2001, he worked as an investment banker for after January 1, 2005 institutional clients at Donaldson Lufkin & Jenrette International Inc. (DLJ) in New York and Geneva. Following the acquisition • None of DLJ by Crédit Suisse First Boston in 2002 he became founder
10.2 OFFICES OF CURRENT DIRECTORS TO BE RENEWED
Mr. Renaud DONNEDIEU DE VABRES Current positions and offices
Date of birth: March 13, 1954. French. Christian Dior Group/Groupe Arnault Business address: Groupe Allard – 54-56, avenue Hoche – 75008 • France: Paris (France). - Christian Dior SA: Director; Date of fi rst appointment: February 5, 2009. - Louis Vuitton pour la Création, Fondation d’Entreprise: Number of Christian Dior shares held in a personal capacity: Director. 200 shares. After serving in the prefectoral administration as a sub-prefect, Other Mr. Renaud Donnedieu de Vabres was appointed as a member of France’s highest administrative body, the Council of State, and - Groupe Allard: Advisor for Strategy, Development and Culture embarked on a political career in 1986, notably serving as an aide to Mr. Alexandre Allard; to the Minister of Defense. He was elected as a deputy to the - Atout France, GIE: Chairman of the Board of Directors. National Assembly representing the Indre-et-Loire département in 1997 and remained in this post until 2007. In 2002, he was appointed as Minister Delegate for European Affairs and then Positions and offices that have terminated as Minister of Culture and Communication, from 2004 to 2007. after January 1, 2005 In 2008, he was named the Ambassador for Culture during the French presidency of the European Union. Since early 2009, he Other has served as Advisor for Strategy, Development and Culture to Mr. Alexandre Allard (Groupe Allard). • France: - Ambassador for Culture during the French presidency of the European Union; - Minister of Culture and Communication.
2009 Annual Report 41 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS List of positions or offi ces exercised in all companies by company offi cers
Mr. Eric GUERLAIN Mr. Christian de LABRIFFE Vice-Chairman Date of birth: March 13, 1947. French. Date of birth: May 2, 1940. French. Business address: Rothschild et Compagnie Banque – 29, avenue Correspondence address: c/o Christian Dior – 30, avenue de Messine – 75008 Paris (France). Montaigne – 75008 Paris (France). Date of fi rst appointment: May 14, 1986. Date of fi rst appointment: June 29, 1994. Number of Christian Dior shares held in a personal capacity: Number of Christian Dior shares held in a personal capacity: 204 shares. 97,836 shares. Mr. Christian de Labriffe began his career with Lazard Mr. Eric Guerlain began his career as a fi nancial analyst and Frères & Cie, where he was Managing Partner from 1987 served in various roles with the Morgan Stanley group between to 1994. Since 1994, he has been Managing Partner of 1968 and 1974, in New York and Paris. Rothschild & Cie Banque. In 1974, he joined J.P. Morgan as director of the international fi nancial affairs department. In 1979, the bank assigned him Current positions and offices to co-lead J.P. Morgan Ltd. Investment Bank in London as Vice-Chairman. He then worked at Lazard Brothers Ltd as a Rothschild Group consultant until 1989. • France: At the same time, since 1970 he has been a Director of Guerlain SA and, in 1990, assumed the chairmanship of the Supervisory Board - Financière Rabelais SAS: Chairman; of the controlling holding company of the Guerlain Group. He - Montaigne Rabelais SA: Chairman of the Board of Directors; served in that position until 1994. - Parc Monceau SARL: Manager; Current positions and offices - Rothschild & Cie SCS: Managing Partner; - Rothschild & Cie Banque SCS: Managing Partner; Christian Dior Group/Groupe Arnault - Transaction R SAS: Chairman. • France: - Christian Dior SA: Vice-Chairman and Director; Christian Dior Group/Groupe Arnault - Guerlain SA, Permanent representative of LVMH Fashion • France: Group: Director. - Christian Dior SA: Director;
Other - Christian Dior Couture SA: Director. • France: Other - Société Hydroélectrique d’Énergie SA: Chairman of the • France: Board of Directors. - Bénéteau SA: Member of the Supervisory Board; Positions and offices that have terminated - Paris Orléans SA: Member of the Supervisory Board. after January 1, 2005 • None Positions and offices that have terminated after January 1, 2005 • France: - Holding Financier Jean Goujon SAS: Director; - Nexity France SA: Director; - Rothschild Conseil International SCS: Director. • International: - Investec Asset Management Inc. (United Kingdom): Director.
42 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS List of positions or offi ces exercised in all companies by company offi cers
10.3 NEW APPOINTMENT AS DIRECTOR
Mrs. Ségolène GALLIENNE Christian Dior Group/Groupe Arnault • France: Date of birth: June 7, 1977. Belgian. - Société Civile du Cheval Blanc: Director. Business address: 22, rue J.-B.-Meunier – 1050 Brussels (Belgium). Other Mrs. Ségolène Gallienne holds a Bachelor of Arts in Business and Economics from Collège Vesalius in Brussels. She has worked as • International: Public Relations Manager at Belgacom and as Communication - Pargesa Holding SA (Switzerland): Director. Director for Dior Fine Jewelry. Mrs. Gallienne currently serves on the Boards of Directors of various companies, in France and abroad, and is Chairman of Positions and offices that have terminated the Board of Directors of Diane, a company specializing in the after January 1, 2005 purchase, sale and rental of art objects. Other Current positions and offices • France: Frère-Bourgeois Group - Taittinger SA: Director. • International: - Compagnie Nationale à Portefeuille SA (Belgium): Director; - Diane SA (Switzerland): Chairman of the Board of Directors; - Erbé SA (Belgium): Director; - Stichting Administratie Kantoor Peupleraie (Netherlands): Chairman of the Board of Directors.
2009 Annual Report 43 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Stock option and bonus share plans
11. Stock option and bonus share plans
11.1 OPTIONS GRANTED BY THE PARENT COMPANY, CHRISTIAN DIOR
Eleven share purchase option plans set up by Christian Dior to 2012, either profi t from recurring operations, net cash from were in force as of December 31, 2009. The benefi ciaries operating activities and operating investments, or the Group’s of these option plans are selected in accordance with the current operating margin rate shows a positive change compared following criteria: performance, development potential, and to 2008. The performance condition was met with respect to contribution to a key position. The exercise price of options is the 2009 fi scal year. calculated in accordance with applicable laws. Each plan has Both senior executive offi cers and other company offi cers must a term of ten years. Share purchase options may be exercised also comply with operating restrictions relating to the exercise after the end of a period of three to fi ve years from the plan’s period for their options. commencement date. In relation to options granted under plans set up since 2008, For all plans, one option gives the right to one share. if either the Chairman of the Board of Directors and Chief Apart from conditions relating to attendance within the Group, the Executive Offi cer decides to exercise his options, he must exercise of options granted in 2009 is contingent on performance retain possession, until the conclusion of his term of offi ce, of a conditions. Options granted to senior executive offi cers may number of shares determined on the basis of the exercise date and only be exercised if, in three of the four fi scal years from 2009 corresponding to a percentage of his total gross compensation.
11.1.1 Share purchase option plans Exercise of existing share purchase options does not entail any dilution for shareholders.
Under the authorization granted by the Meeting held on May 30, 1996
Number of options granted Number Number of which of which Exercise of options of options Plan commencement Number of company fi rst ten price (2) exercised outstanding as date benefi ciaries Total offi cers (1) employees (1) (EUR) in 2009 (2) of 12/31/2009 (2) January 26, 1999 (3) 14 89,500 50,000 38,000 25.36 25,500 - February 15, 2000 20 100,200 65,000 31,000 56.70 54,000 296,000 February 21, 2001 17 437,500 308,000 121,000 45.95 - 362,500 TOTAL 627,200 423,000 190,000 - 79,500 658,500
(1) Number of options as of the plan’s commencement date, without any restatement for the adjustments related to the July 2000 four-for-one stock split. Options granted to active company offi cers/employees as of the plan’s commencement date. (2) Adjusted for the transaction referred to under (1). (3) Plan expired on January 25, 2009.
Number of options granted to company offi cers (1) Plan commencement date Bernard Arnault Denis Dalibot Pierre Godé Sidney Toledano January 26, 1999 (2) 50,000 3,500 15,000 7,000 February 15, 2000 50,000 3,500 15,000 7,000 February 21, 2001 220,000 15,000 65,000 30,000 TOTAL 320,000 22,000 95,000 44,000
(1) Number of options as of the plan’s commencement date, without any restatement for the adjustments related to the July 2000 four-for-one stock split. Options granted to company offi cers as of December 31, 2009. (2) Plan expired on January 25, 2009.
44 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Stock option and bonus share plans
Under the authorization granted by the Meeting held on May 14, 2001
Number of options granted Number Number of which of which Exercise of options of options Plan commencement Number of company fi rst ten price exercised outstanding as date benefi ciaries Total offi cers (1) employees (1) (EUR) in 2009 of 12/31/2009 February 18, 2002 24 504,000 310,000 153,000 33.53 - 92,502 February 18, 2003 25 527,000 350,000 143,000 29.04 9,000 112,002 February 17, 2004 26 527,000 355,000 128,000 49.79 4,000 424,000 May 12, 2005 27 493,000 315,000 124,000 52.21 5,000 433,000 February 15, 2006 24 475,000 305,000 144,000 72.85 (2) - 433,000 TOTAL 2,526,000 1,635,000 692,000 18,000 1,494,504
(1) Options granted to active company offi cers/employees as of the plan’s commencement date. (2) The exercise price for Italian residents is: 77.16 euros.
Number of options granted to company offi cers (1)
Plan commencement date Bernard Arnault Denis Dalibot Pierre Godé Sidney Toledano February 18, 2002 220,000 20,000 65,000 35,000 February 18, 2003 220,000 25,000 65,000 40,000 February 17, 2004 220,000 25,000 65,000 45,000 May 12, 2005 220,000 25,000 20,000 50,000 February 15, 2006 220,000 35,000 - 50,000 TOTAL 1,100,000 130,000 215,000 220,000
(1) Options granted to active company offi cers as of December 31, 2009.
Under the authorization granted by the Meeting held on May 11, 2006
Number of options granted Number Number of which of which Exercise of options of options Plan commencement Number of company fi rst ten price exercised outstanding as date benefi ciaries Total offi cers (1) employees (1) (EUR) in 2009 of 12/31/2009 September 6, 2006 1 20,000 - 20,000 74.93 - 20,000 January 31, 2007 28 480,000 285,000 133,000 85.00 - 445,000 May 15, 2008 25 484,000 320,000 147,000 73.24 (2) - 484,000 May 14, 2009 26 332,000 150,000 159,000 52.10 - 332,000 TOTAL 1,316,000 755,000 459,000 1,281,000
(1) Options granted to active company offi cers/employees as of the plan’s commencement date. (2) The exercise price for Italian residents is: 73.47 euros.
Number of options granted to company offi cers (1)
Plan commencement date Bernard Arnault Denis Dalibot Pierre Godé Sidney Toledano September 6, 2006 - - - - January 31, 2007 200,000 35,000 - 50,000 May 15, 2008 200,000 70,000 - 50,000 May 14, 2009 100,000 - - 50,000 TOTAL 500,000 105,000 - 150,000
(1) Options granted to active company offi cers as of December 31, 2009.
2009 Annual Report 45 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Stock option and bonus share plans
Under the authorization granted by the Meeting held on May 14, 2009: None
11.1.2 Share subscription option plans 11.1.3 Allocation of bonus shares None None
11.1.4 Movements during the fi scal year
Share purchase option plans
(Number of options) 2009 2008 2007 Options outstanding as of January 1 3,229,504 2,926,004 4,016,700 Options granted 332,000 484,000 480,000 Options exercised (97,500) (120,500) (1,535,696) Expired options (30,000) (60,000) (35,000) Options outstanding as of December 31 3,434,004 3,229,504 2,926,004
11.2 OPTIONS GRANTED BY THE SUBSIDIARY, LVMH
11.2.1 Share purchase option plans
Under the authorization granted by the Meeting held on June 8, 1995
Number of options granted Number Number of which of which Exercise of options of options Plan commencement Number of company fi rst ten price (2) exercised outstanding as date benefi ciaries Total offi cers (1) employees (1) (EUR) in 2009 (2) of 12/31/2009 (2) January 20, 1999 (3) 364 320,059 97,000 99,000 32.10 70,385 - September 16, 1999 (3) 9 44,000 5,000 39,000 54.65 150,000 - January 19, 2000 552 376,110 122,500 81,000 80.10 - 1,564,450 TOTAL 740,169 224,500 219,000 220,385 1,564,450
(1) Number of options as of the plan’s commencement date, without any restatement for the adjustments related to the June 1999 grant of bonus shares or the July 2000 fi ve-for-one stock split. Options granted to active company offi cers/employees as of the plan’s commencement date. (2) Adjusted for the transactions referred to under (1). (3) Plans expired respectively on January 19 and September 15, 2009.
46 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Stock option and bonus share plans
Under the authorization granted by the Meeting held on May 17, 2000
Number of options granted Number Number of which of which Exercise of options of options Plan commencement Number of company fi rst ten price exercised outstanding as date benefi ciaries Total offi cers (1) employees (1) (EUR) in 2009 of 12/31/2009 January 23, 2001 786 2,649,075 987,500 445,000 65.12 120,550 1,684,615 March 6, 2001 1 40,000 - 40,000 63.53 10,000 20,000 May 14, 2001 (2) 44,669 1,105,877 - - 66.00 - - May 14, 2001 4 552,500 450,000 102,500 61.77 100,000 452,500 September 12, 2001 1 50,000 - 50,000 52.48 - 50,000 January 22, 2002 993 3,284,100 1,215,000 505,000 43.30 (3) 41,520 1,827,574 May 15, 2002 2 8,560 - 8,560 54.83 - 5,560 January 22, 2003 979 3,213,725 1,220,000 495,000 37.00 (4) 198,047 998,413 TOTAL 10,903,837 3,872,500 1,646,060 470,117 5,038,662
(1) Options granted to active company offi cers/employees as of the plan’s commencement date. (2) Plan expired on May 13, 2009. (3) The exercise price is 45.70 euros for Italian residents and 43.86 euros for US residents. (4) The exercise price for Italian residents is 38.73 euros.
Exercise of existing share purchase options does not entail any dilution for shareholders.
11.2.2 Share subscription options
Under the authorization granted by the Meeting held on May 15, 2003
Number of options granted Number Number of which of which Exercise of options of options Number of company fi rst ten price exercised outstanding as Plan commencement date benefi ciaries Total offi cers (1) employees (1) (EUR) in 2009 of 12/31/2009 January 21, 2004 906 2,747,475 972,500 457,500 55.70 (2) 288,525 2,265,400 May 12, 2005 495 1,924,400 862,500 342,375 52.82 (2) 268,679 1,591,446 TOTAL 4,671,875 1,835,000 799,875 557,204 3,856,846
(1) Options granted to active company offi cers/employees as of the plan’s commencement date. (2) Exercise prices for Italian residents for plans commencing on January 21, 2004 and May 12, 2005 are 58.90 euros and 55.83 euros respectively.
2009 Annual Report 47 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Stock option and bonus share plans
Under the authorization granted by the Meeting held on May 11, 2006
Number of options granted Number Number of which of which Exercise of options of options Plan commencement Number of company fi rst ten price exercised outstanding as date benefi ciaries Total offi cers (1) employees (1) (EUR) in 2009 of 12/31/2009 May 11, 2006 520 1,789,359 852,500 339,875 78.84 (2) - 1,740,109 May 10, 2007 524 1,679,988 805,875 311,544 86.12 - 1,643,555 May 15, 2008 545 1,698,320 766,000 346,138 72.50 (2) - 1,671,245 May 14, 2009 653 1,301,770 541,000 327,013 56.50 (2) - 1,300,245 TOTAL 6,469,437 2,965,375 1,324,570 - 6,355,154
(1) Options granted to active company offi cers/employees as of the plan’s commencement date. (2) Exercise prices for Italian residents for plans commencing on May 11, 2006, May 15, 2008 and May 14, 2009 are 82.41 euros, 72.40 euros and 56.52 euros respectively.
Under the authorization granted by the Meeting held on May 14, 2009
Number of options granted Number Number of which of which Exercise of options of options Plan commencement Number of company fi rst ten price exercised outstanding as date benefi ciaries Total offi cers (1) employees (1) (EUR) in 2009 of 12/31/2009 July 29, 2009 1 2,500 - 2,500 57.10 - 2,500 TOTAL 2,500 - 2,500 - 2,500
(1) Options granted to active company offi cers/employees as of the plan’s commencement date.
11.3 OPTIONS GRANTED TO AND EXERCISED BY THE GROUP’S COMPANY OFFICERS AND THE GROUP’S FIRST TEN EMPLOYEES DURING THE FISCAL YEAR
11.3.1 Options granted during the year to senior executive offi cers of the Company
Valuation of Exercise Company granting options Number of price Exercise Benefi ciaries the options Plan date Option type (EUR) options (EUR) period May 14, 2013 - Christian Dior May 14, 2009 Purchase 1,732,000 100,000 52.10 Bernard Arnault May 13, 2019 May 14, 2013 - LVMH May 14, 2009 Subscription 3,420,000 200,000 56.50 May 13, 2019 May 14, 2013 - Sidney Toledano Christian Dior May 14, 2009 Purchase 866,000 50,000 52.10 May 13, 2019
Options granted to senior executive offi cers may only be exercised operating investments, or the Group’s current operating margin if, in three of the four fi scal years from 2009 to 2012, either profi t rate shows a positive change compared to 2008. The performance from recurring operations, net cash from operating activities and condition was met with respect to the 2009 fi scal year.
48 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Stock option and bonus share plans
11.3.2 Options granted to other company offi cers of the Company during the year
Company granting Number of Exercise price Benefi ciary the options Plan date options (EUR) Exercise period May 14, 2013 - Pierre Godé LVMH May 14, 2009 100,000 56.50 May 13, 2019
11.3.3 Options exercised during the year by senior executive offi cers of the Company
Company granting Number of Exercise price Benefi ciary the options Plan date Option type options exercised (EUR) Sidney Toledano Christian Dior February 15, 2000 Purchase 28,000 56.70
11.3.4 Options exercised during the fi scal year by other company offi cers
Company granting Number of Exercise price Benefi ciary the options Plan date Option type options exercised (EUR) Denis Dalibot Christian Dior February 15, 2000 Purchase 14,000 56.70
11.3.5 Options granted during the fi scal year by the Company and any Group company to the Group’s fi rst ten employees (1), other than company offi cers, holding the largest number of options
Number of Exercise price Company granting options Plan date options (EUR) Christian Dior May 14, 2009 159,000 52.10 LVMH May 14, 2009 327,013 56.50 (2)
(1) Active employees as of the grant date. (2) Exercise price applicable to French residents.
11.3.6 Options exercised during the fi scal year by the fi rst ten employees (1) of the Group, other than company offi cers, having exercised the largest number of options
Number of Exercise price Company granting the options Date of the plan options (EUR) Christian Dior January 26, 1999 24,000 25.36 Christian Dior February 18, 2003 9,000 29.04 Christian Dior February 17, 2004 4,000 49.79 Christian Dior May 12, 2005 5,000 52.21 LVMH January 20, 1999 20,430 32.10 LVMH September 16, 1999 90,000 54.65 LVMH January 23, 2001 9,500 65.12 LVMH March 6, 2001 10,000 63.53 LVMH January 22, 2002 2,750 43.30 LVMH January 22, 2003 101,600 37.00 LVMH January 21, 2004 43,000 55.70 LVMH May 12, 2005 31,000 52.82
(1) Active employees as of December 31, 2009.
2009 Annual Report 49 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Stock option and bonus share plans
11.4 BONUS SHARES GRANTED BY THE SUBSIDIARY, LVMH
11.4.1 Shares granted to employees Benefi ciaries of bonus shares are selected among the active employees of the Group’s subsidiaries on the basis of their level of responsibility and their individual performance. The allocation of bonus shares to their benefi ciaries shall only be defi nitive after a two-year vesting period, which is followed by a two-year holding period, after which benefi ciaries are free to sell them. Bonus shares allocated in 2009 to benefi ciaries who are not French residents for tax purposes shall be defi nitive after a vesting period of four years and shall be freely transferable at that time. Bonus shares vested do not involve any dilution for the shareholders, since existing shares are remitted for the settlement.
Number of shares granted of which o f which Number of Initial company fi rst ten Shares Balance as of Plan commencement date benefi ciaries allocation offi cers employees (1) vested 12/31/2009 Under the authorization granted by the Meeting held on May 12, 2005 May 10, 2007 (2) 348 152,076 - 34,805 144,995 - Under the authorization granted by the Meeting held on May 15, 2008 May 15, 2008 347 162,972 - 32,415 2,284 (3) 156,446 May 14, 2009 642 311,209 - 48,165 2,333 (3) 307,351 July 29, 2009 1 833 - 833 - 833
(1) Active employees as of the grant date. (2) Defi nitive allocation on May 10, 2009. (3) Anticipated allocation following the death of the benefi ciary.
11.4.2 Shares granted during the fi scal year to senior executive offi cers and other company offi cers Senior executive offi cers and other company offi cers do not benefi t from any bonus share allocations.
11.4.3 Shares vested during the year to the Group’s ten employees (1) other than company offi cers, having received the largest number of shares
Company granting shares Plan commencement date Number of shares LVMH May 10, 2007 32,810
(1) Active employees as of December 31, 2009.
50 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Information that could have a bearing on a takeover bid or exchange offer
12. Information that could have a bearing on a takeover bid or exchange offer
Pursuant to the provisions of Article L. 225-100-3 of the French - grant share subscription options, within the limit of 3% of Commercial Code, the capital structure and other information the share capital; that could have a bearing on a takeover bid or exchange offer - allocate bonus shares, to be issued, within the limit of 1% are presented below: of the share capital; • capital structure of the Company: the Company is controlled - acquire the Company’s own shares, in an amount not to by Groupe Arnault SAS, which controlled 69.43% of the exceed 10% of the share capital. share capital and 82.71% of the voting rights exercisable in Shareholders’ Meetings as of December 31, 2009; Any delegation whose application would be likely to cause the operation to fail is suspended during the period of a takeover • share issuance and buybacks: under various resolutions, bid or exchange offer. the Shareholders’ Meeting has delegated to the Board of Directors the power to: - increase the share capital, with or without shareholders’ pre-emption rights, in a total nominal amount not to exceed 80 million euros, or 22% of the Company’s current share capital;
2009 Annual Report 51 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Group reporting on employee-related issues
13. Group reporting on employee-related issues
In 2009, the Human Resources Division continued its efforts system controls are in place throughout reporting procedures aimed at reinforcing the quality and reliability of social reporting in order to verify the reliability and consistency of data entered. within the Group. Workforce information provided below relates to all consolidated The close relationship between organizational and legal entities companies, including the Group’s share in joint ventures. ensures consistency between the social and fi nancial reporting systems. Accordingly, the scope of social reporting covers all Other social indicators were calculated for a scope of 562 staff employed by Group companies consolidated on a full organizational entities covering more than 99% of the worldwide or proportional basis, but does not include equity-accounted workforce and encompass all staff employed during the year, associates. including those employed by joint ventures. A descriptive sheet is produced for each social indicator specifying Since the 2007 fi scal year, the Group’s employee-related its relevance, the elements of information tracked, the procedure disclosures have been audited each year, on the basis of data to be applied to gather information, and the various controls provided by LVMH, by Deloitte & Associés, one of LVMH’s to be performed when entering data. In addition, information statutory auditors, assisted by its Sustainable Development team.
13.1 ANALYSIS AND DEVELOPMENT OF THE WORKFORCE
13.1.1 Breakdown of the workforce The main changes are due to expansion in emerging markets with the opening of new stores, mainly in China, Macao, India The Group’s total workforce as of December 31, 2009 amounted and Turkey. The Fashion and Leather Goods and Perfumes and to 80,510 employees. Of this total, 72,826 employees worked Cosmetics business groups thus saw average workforce increases under permanent contracts (CDI) and 7,684 worked under fi xed of between 2% and 3%. Wines and Spirits and Watches and term contracts (CDD). Part-time employees represented 17% of Jewelry were hit harder by the economic crisis, with average the total workforce, or 13,396 individuals. The portion of staff workforce decreases of 4% and 1%, respectively. Among the outside France remains at 75% of the workforce worldwide. changes in the scope of consolidation in 2009, we should note The Group’s average Full Time Equivalent (FTE) workforce in the acquisition of the Montaudon champagne house. 2009 comprised 73,148 employees, a slight rise of 0.7% on 2008.
52 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Group reporting on employee-related issues
The tables below show the breakdown of the workforce, by business group, geographic region and professional category.
Breakdown by business group
Total headcount as of December 31 (1) 2009 % 2008 % 2007 % Christian Dior Couture 3,208 4 3,256 4 2,949 4 Wines and Spirits 6,032 7 6,438 8 6,313 8 Fashion and Leather Goods 23,012 28 22,467 28 20,803 28 Perfumes and Cosmetics 17,374 22 17,163 21 15,719 21 Watches and Jewelry 2,091 3 2,261 3 2,014 3 Selective Retailing 27,389 34 27,347 34 26,323 35 Other 1,404 2 1,411 2 713 1 TOTAL 80,510 100 80,343 100 74,834 100 Average headcount during the period (2) Christian Dior Couture 3,145 4 3,140 4 2,777 4 Wines and Spirits 6,230 9 6,470 9 6,780 10 Fashion and Leather Goods 21,414 29 20,793 29 19,028 29 Perfumes and Cosmetics 16,269 22 15,908 22 14,275 22 Watches and Jewelry 2,133 3 2,161 3 1,994 3 Selective Retailing 22,587 31 22,945 31 20,494 31 Other 1,370 2 1,202 2 893 1 TOTAL 73,148 100 72,619 100 66,241 100
(1) Total permanent and fi xed-term headcount. (2) Average permanent and fi xed-term headcount on a full-time equivalent basis.
Breakdown by geographic region
Total headcount as of December 31 (1) 2009 % 2008 % 2007 % France 20,289 25 20,818 26 20,063 27 Europe (excluding France) 17,459 22 17,749 22 16,777 23 United States 16,817 21 17,020 21 16,469 22 Japan 5,129 6 5,301 7 5,302 7 Asia (excluding Japan) 16,875 21 15,713 19 13,751 18 Other 3,941 5 3,742 5 2,472 3 TOTAL 80,510 100 80,343 100 74,834 100 Average headcount during the period (2) France 19,575 27 20,031 28 19,530 29 Europe (excluding France) 15,996 22 15,551 22 14,250 22 United States 13,252 18 13,966 19 12,512 19 Japan 5,199 7 5,319 7 5,383 8 Asia (excluding Japan) 15,477 21 14,546 20 12,371 19 Other 3,649 5 3,206 4 2,195 3 TOTAL 73,148 100 72,619 100 66,241 100
(1) Total permanent and fi xed-term headcount. (2) Average permanent and fi xed-term headcount on a full-time equivalent basis.
2009 Annual Report 53 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Group reporting on employee-related issues
Breakdown by professional category
Total headcount as of December 31 (1) 2009 % 2008 % 2007 % Managers 13,794 17 13,593 17 11,920 16 Technicians – Team leaders 8,348 11 8,306 10 7,293 10 Offi ce and sales personnel 46,851 58 46,498 58 45,515 61 Labor and production workers 11,517 14 11,946 15 10,106 13
TOTAL 80,510 100 80,343 100 74,834 100 Average headcount during the period (2) Managers 13,679 19 12,987 18 11,909 18 Technicians – Team leaders 8,250 11 7,935 11 8,399 13 Offi ce and sales personnel 39,899 55 40,424 56 36,090 54 Labor and production workers 11,320 15 11,273 15 9,843 15 TOTAL 73,148 100 72,619 100 66,241 100
(1) Total permanent and fi xed-term headcount. (2) Average permanent and fi xed-term headcount on a full-time equivalent basis.
Average age and breakdown by age The average age of staff employed under permanent contracts worldwide is 36 years and the median age is 34 years. The youngest age ranges are found among sales personnel, mainly in the Asia-Pacifi c region and the United States.
Global Other (%) workforce France Europe (1) United States Japan Asia (2) markets Age: l ess than 25 years 12.2 6.3 10.0 16.6 7.3 18.4 15.4 25 - 29 years 20.2 14.4 18.1 20.6 21.4 27.8 23.0 30 - 34 years 18.7 16.4 20.4 15.4 30.7 18.9 21.3 35 - 39 years 15.2 16.0 18.2 12.4 19.3 12.9 14.6 40 - 44 years 11.7 14.4 13.1 10.0 10.2 9.1 10.8 45 - 49 years 9.1 13.0 8.9 8.5 6.1 6.4 6.7 50 - 54 years 6.6 10.6 5.9 6.6 3.2 3.7 4.4 55 - 59 years 4.4 7.5 3.7 5.1 1.6 1.9 2.6 60 years and over 1.9 1.4 1.7 4.8 0.2 0.9 1.2 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Average age 36 39 37 37 34 33 34
(1) Excluding France. (2) Excluding Japan.
Average length of service and breakdown by length of service The average length of service within the Group is 11 years turnover rate. It is also the result of recent expansion by Group in France and about fi ve to six years in the other geographic companies into emerging markets, where there is a greater regions. This difference is mainly due to the predominance in fl uidity of employment. these other regions of retail activities characterized by a high
54 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Group reporting on employee-related issues
Global Other (%) workforce France Europe (1) United States Japan Asia (2) markets Length of service: less than 5 years 57.7 36.2 57.7 70.9 48.7 71.5 74. 6 5 - 9 years 20.7 24.0 24.5 17.6 33.7 13.9 12.9 10 - 14 years 8.7 11.6 8.9 5.7 9.9 7.5 6.7 15 - 19 years 4.9 8.6 4.3 2.5 4.4 3.9 2.0 20 - 24 years 3.8 8.5 2.1 1.9 2.3 2.1 2.0 25 - 29 years 2.0 5.2 1.0 0.8 0.6 0.6 0.8 30 years and over 2.2 5.9 1.5 0.6 0.4 0.5 1.0 100.0 100.0100.0 100.0 100.0 100.0 100.0 Average length of service 7 11 6 5 6 5 5
(1) Excluding France. (2) Excluding Japan.
13.1.2 Recruitment policy Identifying and attracting talent is a key strategic objective of acquire hands-on experience through fi eld projects, or complete Christian Dior Group’s recruitment policy. In this connection, internships at Group companies. LVMH decided to promote its “employer brand” in 2009, thus In order to communicate better about the management of its taking its human resources communications strategy in a new brands, its values and its professions, LVMH organized “LVMH direction. The aim of this new approach is to emphasize, in all Rendez-Vous” events in 2009 with a number of its partner MBA regions where the Group has operations, the ways in which the programs, including those of IMD in Lausanne, the London Group’s unparalleled portfolio of brands in the luxury sector and Business School and the Harvard Business School. Privileged the wide variety of professions represented make it a truly unique relationships are also maintained with many other prestigious environment for career development. Comprising more than 60 MBA programs in Europe (INSEAD, HEC, IESE), the United prestigious Group companies, the Group offers opportunities not States (Stanford, Columbia, Northwestern, Wharton), and found with any other employer. This determination to give the Japan (Waseda, Keio, Tokyo). Additional partnerships in the Group the means to continually reinforce its image as an ideal Asia-Pacifi c region gave rise to more than 30 presentations and employer is already very widely recognized in France. In 2009, seminars during the year, in conjunction with “LVMH Days” LVMH once again was voted as the most preferred employer organized for MBA students: Tsinghua University in Beijing, by upcoming graduates of leading French business schools in National University of Singapore, INSEAD, Beijing University’s two major surveys: Universum and Trendence. Beijing International MBA (BiMBA), Hong Kong University. The Christian Dior Group has developed solid partnerships The Group’s FuturA program, an international initiative to nurture overseas with a view to building awareness of the Group’s and recruit talented individuals following a fi rst substantial and brands, its professions, and the types of profi les most in demand successful career experience, offered a number of innovative events for prospective employees. More than a hundred events were in 2009 designed to communicate LVMH’s creative passion to the organized along these lines in 2009, together with schools and world’s MBA graduates. FuturA had an especially successful year universities across various professions, regions, and levels of in 2009, as some 90 individuals were recruited worldwide by the qualifi cation. Furthermore, the Group nurtures close ties with Group based on their potential for serving as senior executives the world’s leading specialized institutions grooming the next in the medium term. The desired profi les were identifi ed and generation of top designers, such as the Institut Français de la Mode selections were based on the outcome of the “Recruitment Days”, in Paris, Central Saint Martins College of Arts and Design in using evaluation techniques designed to be as objective as possible, London, Parsons the New School for Design in New York, or consisting in large part of simulation exercises. The integration The Hong Kong Polytechnic University School of Design, as of these new management-level staff members is the focus of much in the area of continuous training for its employees as in special efforts so that these individuals, in joining other young, the recruitment of graduates from these institutions. In order high-potential managers already identifi ed within the Group, are to attract the brightest young talent in all countries, the Group entrusted with assignments permitting them to demonstrate and is also a privileged partner of CEMS, a strategic global alliance develop their talents and enjoy good visibility at LVMH. In this of leading business schools and multinational companies, and way, the Group strives on a constant basis to serve as a breeding takes part in this network’s many actions targeting students ground for talent of the highest quality, of exemplary diversity at these top educational institutions in over twenty countries in terms of nationalities, skills and professions, in order to create worldwide. The LVMH Chair in Luxury Brand Marketing at the senior management teams of the future. ESSEC, whose aim is to transmit and develop practical and theoretical knowledge in the area of luxury brand management, The Christian Dior Group aims to serve as a model corporate is another key initiative. In 2009, the students participating in citizen in terms of its human resources practices, especially this program had the opportunity to meet Group managers, with regard to the recruitment of future staff members. The
2009 Annual Report 55 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Group reporting on employee-related issues
Group’s recruitment practices must refl ect its values and the 4,722 people were recruited in France under fi xed-term contracts. highest standards of responsibility and respect for all, on a daily The seasonal sales peaks, at the end of year holiday season and basis everywhere in the world. To this end, the Group’s human the harvest season, are the two main reasons for using fi xed- resources teams developed a code of conduct for recruitment term contracts. in 2009. Intended to be applied by all recruitment process participants, this charter refl ects the goals, standards and best Departures from Group companies in 2009 (all causes combined) practices to be observed by each company in terms of the respect affected a total of 13,328 employees working under permanent for applicants and the effectiveness of methods, regardless of contracts, of which almost 42% were employed within the Selective the type of position, the profession or the country involved. Retailing business group, which traditionally experiences a high Various initiatives have also been implemented to foster greater turnover rate. The leading causes for departure were resignations professionalism in terms of the identifi cation and selection of (62.6% of total departures), individual layoffs (18.9% of total future staff members: for example, reinforcement of the offer departures) and layoffs due to economic conditions (9.9% of of training in the context of recruitment, sharing of evaluation total departures). The unprecedented sweep of the worldwide tools and methods to be used in interviews in order to ensure the objectivity of the evaluation to the greatest extent possible, economic crisis signifi cantly reduced movements by personnel and the development of recruitment days. in 2009. Compared to 2008, volumes of joiners and leavers dropped by 47% and 28%, respectively.
13.1.3 Movements during the year: joiners, The overall turnover rate as of December 31, 2009 thus decreased by 27% from its level a year earlier and continues to show leavers and internal mobility marked differences across geographic regions: the highest rates Worldwide in 2009, nearly 12,622 individuals were hired under are recorded in North America and Asia, where labor markets permanent contracts, including 1,479 in France. A total of are more fl uid.
Turnover by geographic region
Other (%) 2009 France Europe (4) United States Japan Asia (5) markets 2008 2007 Total turnover (1) 18.3 9.2 17.7 29.0 12.2 22.4 19.6 25.1 22.5 Of which: voluntary turnover (2) 11.5 4.0 9.9 18.9 10.0 15.9 13.4 18.6 17.4 i nvoluntary turnover (3) 6.4 4.2 7.3 9.8 2.0 6.4 6.0 5.9 4.4
(1) All reasons. (2) Resignations. (3) Redundancies / end of trial period. (4) Excluding France. (5) Excluding Japan.
56 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Group reporting on employee-related issues
Breakdown of movements (1) of employees working under permanent contracts by business group and geographic region
Joiners Leavers (number) 2009 2008 2007 2009 2008 2007 By business group Christian Dior Couture 491 1,038 733 657 812 606 Wines and Spirits 242 868 983 623 750 742 Fashion and Leather Goods 3,267 5,427 4,811 3,221 3,693 3,512 Perfumes and Cosmetics 2,709 4,283 3,064 2,665 2,812 2,635 Watches and Jewelry 294 459 440 482 339 295 Selective Retailing 5,509 11,607 9,420 5,557 9,713 7,071 Other 110 151 106 123 376 79 TOTAL 12,622 23,833 19,557 13,328 18,495 14,940 By geographic region France 1,479 3,001 2,872 1,793 2,554 2,158 Europe (excluding France) 2,194 4,282 3,760 2,748 2,973 2,834 United States 3,233 8,535 6,266 3,950 7,243 5,201 Japan 387 831 680 542 582 629 Asia (excluding Japan) 4,507 6,323 5,223 3,580 4,643 3,689 Other 822 861 756 715 500 429 TOTAL 12,622 23,833 19,557 13,328 18,495 14,940
(1) Under permanent contract, including conversions of fi xed-term contracts to permanent contracts and excluding internal mobility within the Group.
The Group encourages mobility among its staff, from one The Group also fosters mobility between professional categories geographic region to another, or from one Group company to by encouraging its employees to acquire new skills, especially another. The wide range of companies making up the Group, by pursuing qualifying training or degree programs. A total of their unique corporate identities as well as their expertise in 3,389 staff members were promoted in 2009, representing about a variety of business segments, lend favor to these two forms 4.7% of the workforce employed under permanent contract. of mobility. Around 40% of all managerial positions are fi lled by means of internal mobility and in 2009 about 650 of these movements were from one Group company to another.
2009 Annual Report 57 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Group reporting on employee-related issues
13.2 WORK TIME
13.2.1 Work time organization Worldwide, 15% of employees benefi t from variable or adjusted working hours and 38% work as a team or alternate their working hours.
Global workforce affected by various forms of working hours’ adjustment: breakdown by geographic region
Global Other Employees affected (1) (%) workforce France Europe (2) United States Japan Asia (3) markets Variable or adjusted schedules 15 36 13 5 16 2 2 Part-time 17 11 21 36 1 6 16 Teamwork or alternating hours 38 15 11 67 85 57 35
(1) Percentages are calculated on the basis of the total headcount in France (employees under both permanent and fi xed-term contracts). For the other regions, they are calculated in relation to the number of employees under permanent contracts, except for part-time workers, in which case the percentages are calculated with respect to the total headcount. (2) Excluding France. (3) Excluding Japan.
Global workforce in France affected by various forms of working hours’ adjustment: breakdown by professional category
Labor and Workforce Technicians and Offi ce and sales production Employees affected (1) (%) France Managers team leaders personnel workers Variable or adjusted schedules 36 31 57 53 4 Part-time 11 3 6 22 7 Teamwork or alternating hours 15 10 9 16 22 Employees benefi ting from time off in lieu 19 0 24 18 38
(1) Percentages are calculated on the basis of the total headcount (employees under both permanent and fi xed-term contracts).
13.2.2 Overtime The cost of the volume of overtime is 33.4 million euros, or an average of 1.4% of the worldwide payroll. This cost varies between 1.1% and 1.7% of the payroll depending on the geographic region.
Percentage of overtime by geographic region
Global Other (% of payroll) workforce France Europe (1) United States Japan Asia (2) markets Overtime 1.4 1.3 1.5 1.2 1.7 1.7 1.1
(1) Excluding France. (2) Excluding Japan.
58 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Group reporting on employee-related issues
13.2.3 Absenteeism
The worldwide absentee rate of the Group for employees working and maternity leave (1.6%). The overall absentee rate of the under permanent and fi xed-term contracts is 5.2%. It increased European entities is twice as high as that recorded in other by 13% compared with previous years (4.5% in 2008 and 4.6% geographic regions. in 2007). The two main causes of absence are illness (2.5%)
Absentee rate (1) by geographic region and by reason
Global Other (%) workforce France Europe (2) United States Japan Asia (3) markets Illness 2.5 3.8 3.4 1.3 0.4 1.3 1.2 Work/work-travel accidents 0.2 0.4 0.2 0.2 0.0 0.0 0.2 Maternity 1.6 1.6 2.9 0.7 2.6 1.0 0.7 Paid absences (family events) 0.5 0.3 0.4 0.2 0.4 1.2 0.9 Unpaid absences 0.4 0.5 0.4 0.3 0.2 0.7 0.5 OVERALL ABSENTEE RATE 5.2 6.6 7.3 2.7 3.6 4.2 3.5
(1) Number of days absent divided by the theoretical number of days worked. (2) Excluding France. (3) Excluding Japan.
13.3 COMPENSATION
Group companies seek at all times to offer attractive and components based on both individual performance and that of motivating compensation packages. International salary surveys, the Group, managers have a vested interest in the success of its carried out in relation to specifi c professions and sectors, are used companies. Finally, in 2009 the Group maintained its program to ensure that the Group maintains a favorable position against for granting stock options and bonus shares, to encourage the the market on a permanent basis. Most of the Group’s French loyalty of staff members making the greatest contribution to companies pay all of their employees very substantial amounts its performance. in profi t sharing and/or incentives. By means of variable pay
13.3.1 Average salary The table below shows the gross average monthly compensation paid to Group employees in France under permanent contracts who were employed throughout the year:
Employees concerned (%) 2009 2008 2007 Less than 1,500 euros 7.6 10.4 12.5 1,501 to 2,250 euros 32.9 28.9 37.8 2,251 to 3,000 euros 22.1 24.1 18.7 Over 3,000 euros 37.4 36.6 31.0 TOTAL 100.0 100.0 100.0
2009 Annual Report 59 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Group reporting on employee-related issues
13.3.2 Personnel costs Worldwide personnel costs break down as follows:
(EUR millions) 2009 2008 2007 Gross payroll - Fixed term or permanent contracts 2,422.1 2,331.5 2,186.7 Employers’ social security contributions 630.2 609.6 582.4 Temporary staffi ng costs 89.1 135.2 109.0 TOTAL PERSONNEL COSTS 3,141.4 3,076.3 2,878.1
Outsourcing and temporary staffi ng costs decreased appreciably compared to previous years, accounting for 5.7% of the total payroll worldwide, including employer’s social security contributions.
13.3.3 Incentive schemes, profi t sharing and company savings plans All companies in France with at least 50 employees have an incentive scheme, profi t sharing or company savings plan. These plans accounted for a total expense of 105.3 million euros in 2009, remaining stable compared to 2008.
(EUR millions) 2009 2008 2007 Profi t sharing 68.2 62.9 51.3 Incentive 31.6 39.2 36.2 Employer’s contribution to company savings plans 5.5 5.6 5.4 TOTAL 105.3 107.7 92.9
13.4 EQUALITY AND DIVERSITY
LVMH is a signatory of the United Nations Global Compact 13.4.1 Equality of opportunity and, in France, of the Diversity Charter and the Enterprise Charter for Equal Opportunity in Education. for men and women The proportion of women within the Group workforce has These commitments were concretely expressed by human remained broadly unchanged for several years and now amounts resources teams across the Group’s companies through a to 73%. This proportion is also refl ected in new hires, 77% of systematic review of hiring practices so as to reinforce their whom were women in 2009. The signifi cant percentage of female objectivity. As a complement to the efforts of human resources employees is explained in part by the nature and attractiveness personnel, special training sessions are organized in order to of the Group’s business segments. Women are particularly raise the awareness of executive-level staff in relation to these prominent in Perfumes and Cosmetics (82%), Selective Retailing issues and encourage vigilance against all forms of discrimination. (80%) and Fashion and Leather Goods (73%). Conversely, the In this regard, since 2008 the Group has employed the services of majority of staff in Wines and Spirits are men, representing 65% an independent fi rm to test the responses of the Group’s human of the workforce in this business group. resources personnel. This fi rm submits applications designed to appear legitimate to the Group’s personnel on the basis of job opportunities posted on its Web site, including specifi c characteristics in the applicants’ profi les that might tend to result in discrimination. In the context of this operation, an internal committee comprising the Group’s human resources Directors monitors compliance with ethical principles.
60 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Group reporting on employee-related issues
Proportion of female employees in new joiners (1) and in the Group’s active workforce
Joiners Group employees (% women) 2009 2008 2007 2009 2008 2007 Breakdown by business group Christian Dior Couture 75 77 71 74 75 75 Wines and Spirits 40 44 45 35 35 34 Fashion and Leather Goods 67 70 71 73 73 74 Perfumes and Cosmetics 87 83 83 82 82 81 Watches and Jewelry 64 57 57 57 55 56 Selective Retailing 82 70 77 80 80 79 Other 45 60 54 47 57 53 Breakdown of personnel by professional category Managers 59 57 59 60 59 58 Technicians and team leaders 71 68 67 69 69 70 Offi ce and sales personnel 82 76 79 81 81 80 Labor and production workers 56 61 58 63 64 62 Breakdown by geographic region France 71 70 71 68 68 68 Europe (excluding France) 75 79 76 75 76 76 United States 80 66 72 76 74 73 Japan 77 79 79 77 77 77 Asia (excluding Japan) 78 74 76 76 76 76 Other markets 77 73 69 63 62 61 TOTAL 77 72 74 73 73 72
(1) Under permanent contracts, including internal mobility and transfers from fi xed-term to permanent contracts.
An increasing number of management positions are also being companies: Parfums Givenchy, Moët & Chandon and Veuve fi lled by women, who make up 60% of managers. Equality of Clicquot have signed agreements relating to the anticipatory opportunity also prevails in career advancement. Accordingly, management of jobs and skills with union representatives in order 70% of staff promoted in 2009 were women. to organize and develop the career prospects of older employees. In addition, 30% of management committee members are women Givenchy Couture has introduced a mentor system to facilitate and seven Group companies are chaired by women: Krug, the transfer of know-how, pairing the premier d’atelier (the head Fred, Loewe, Montres Dior, Kenzo Parfums, Parfums Luxe of the design studio) or the second d’atelier (the former’s deputy) International and Acqua di Parma. with a tutor or an apprentice. Christian Dior Couture and Kenzo have adopted the use of systematic career development interviews for employees over the age of 50, as well as a procedure 13.4.2 Management of older staff for preventing discrimination on the basis of age during the recruitment process. Since 2007, Moët Hennessy has been Access to employment by older staff and their retention are working with a recruitment consultancy specializing in the areas of constant concern for the Group. All references to the placement of older employees. All Group companies have age of employees have been eliminated, notably in the employee developed specifi c plans in relation to older staff. replacement chart for succession planning, on the pages of the Group’s Web site where job opportunities are posted, and in the Worldwide, 12.9% of the Group’s active workforce are over career development documents circulated by Group companies. the age of 50. In France, this population accounts for 19.5% A workgroup has been formed in order to help Group companies of employees. anticipate changes related to older staff in their workforces and a training module is in the process of being developed to provide human resources Directors with a better understanding of the new 13.4.3 Employment of disabled persons methods and best practices for the conduct of mid-career interviews. Mission Handicap LVMH, a joint initiative by 31 Group By way of example, measures in favor of the employment of companies, has provided added impetus for the promotion of older staff have already been implemented in several Group policies facilitating the employment of disabled persons. In 2009,
2009 Annual Report 61 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Group reporting on employee-related issues
LVMH signed a partnership agreement with Agefi ph, a private In anticipation of recruitment needs, the Group conducted organization commissioned by the French government to help the several actions designed to enhance the qualifi cations of disabled disabled attain access to private sector employment, and human persons: the creation of two professionalization programs tailored resources personnel have been trained in the recruitment and for these job seekers targeting skills used in sales and offi ce management of disabled employees. Special training sessions positions, and the creation of ARPEJEH, founded in part by are organized on a regular basis, to facilitate the utilization of LVMH, whose aim is to offer advice and guidance to disabled these staff members in all areas of activity. By way of example, junior and senior high school students. Hennessy has trained its executive-level staff in the integration The Group is particularly attentive to the need to ensure that of disabled employees and DFS Group has developed a program employees who become disabled are able to continue working, intended to guarantee equality of opportunity. All employees of as illustrated by the specially designed facilities at Moët & the Guerlain SpA on the Champs-Elysées in Paris have been Chandon and Parfums Christian Dior, which allow staff members trained to address the special needs of disabled customers. with medical limitations to continue to work in their jobs under This action was recognized by OCIRP, a French association of appropriate conditions. pension funds, in the 2009 edition of its “Acteurs économiques et Handicap” prizes, awarding Guerlain top honors in the “Coup In keeping with the international reach of its business activities, de coeur” category. the Group sees to it that its policies with respect to the employment of persons with disabilities are consistently applied outside In the area of recruitment, 20 Group companies took part this France as well: in Brazil, the entities of the Wines and Spirits year in operations targeting disabled applicants: speed recruitment and Perfumes and Cosmetics business groups make determined events, events organized by the French association for the social efforts to recruit disabled persons to positions in both support and professional integration of disabled people (ADAPT), and production functions. In Spain, Loewe has forged three HandiChat, use of video CVs, etc. Several partnerships with alliances with protected workshops, for the manufacture of its specialized institutions have been developed with a view to professional work clothes and the supply of consumable items. facilitating access for disabled applicants to the Group’s professions. Notable examples in 2009 included: the “Vis Ma Vie!” event, in Disabled staff represent 1.0% of the Group’s global workforce. which Sephora, Parfums Givenchy and Guerlain participated In 2009, this rate was 2.4% for France, with a total of 4.4 million alongside the Cap Emploi disabled employment agency for euros in services sub-contracted to ESATs (assisted employment the Paris region; “Les métiers insolites”, a presentation for centers) or disabled-friendly companies, nearly identical to the disabled junior high school students by Louis Vuitton; and “Delta rate the previous year. The Group thus helps provide support Insertion”, a program that helps persons with mental disabilities to disabled people who wish to be oriented to these institutions fi nd employment and successfully perform in the workplace. thanks to its involvement in the Delta Insertion project.
13.5 CAREER DEVELOPMENT AND TRAINING
Group companies offer a broad range of training programs Training serves as a powerful career-building driver, enabling intended to develop the professional skills of their employees, the acquisition or enhancement of skills and favoring exchanges perpetuate traditions and know-how built by generations of both inside and outside the Group. In this regard, the Forums artisans and creators, and share a common cultural heritage. held at LVMH House in London make a novel contribution Consistent with the Group’s organizational philosophy, each to the sharing of knowledge across the Group in terms of the management of brands, product creativity and innovation as company is given complete latitude to develop its own initiatives well as customer relations in the luxury goods industry. Over in this area, specifi cally tailored to its professions. the last several months, special emphasis has been given to the The Group offers an environment particularly conducive to development of leadership qualities. In order to better refl ect the career development. The Group’s breadth and size make possible Group’s international diversity, LVMH House Forums are now organized in the United States and in Asia. Many orientation a wide range of career trajectories, across varied sectors and seminars organized by the Group are also offered to new hires professions, a broad spectrum of brands and companies, and a in their destination country or region. In 2009, the Group multitude of geographical locations. Thanks to internal mobility, introduced a new international orientation seminar targeting the Group’s managers take on new responsibilities, enhance high-potential managers and involving the participation of a their professional skill sets, develop their personalities and number of LVMH’s senior executives and creative Directors fulfi ll their aspirations. In order to facilitate mobility within as trainers. the Group, systematic and regular reviews are organized in Furthermore, the Group continues to offer a wide range of order to align opportunities for new positions with individuals both internal and external training programs to its employees in interested in developing their careers. To this end, committees order to fi ne-tune their managerial skills. In 2009, nearly 1,800 meet on a monthly, and sometimes bimonthly, basis at all levels management-level staff participated in internships and in-house of the organization with a view to optimizing the allocation of seminars offered at the Group’s four main training centers in managerial resources. France, Asia, Japan and the United States.
62 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Group reporting on employee-related issues
A substantial portion of training also takes place on the job on a daily basis and is not factored into the indicators presented below:
Global workforce 2009 2008 (1) 2007 Training investment (EUR millions) 55.6 60.1 57.1 Portion of total payroll (%) 2.3 2.6 2.7 Number of days training per employee 2.3 2.7 3.7 Average cost of training per employee (EUR) 685 748 762 Employees trained during the year (%) 58.9 63.4 69.6
(1) In 2008, a new more restrictive defi nition of training initiatives was applied for global social reporting purposes. Note: Indicators are calculated on the basis of the total headcount (employees under both permanent and fi xed-term contracts) present at the workplace during the year, with the exception of the percentage of employees trained during the year, which is calculated on the basis of those employed under permanent contracts and present at the workplace as of December 31 of the fi scal year.
In 2009, training expenses incurred by the Group’s companies Other indicators, such as the training penetration date and throughout the world represented a total of 55.6 million euros, the average number of days training per employee were also or 2.3% of total payroll. Indicators relating to the overall training impacted. Thus a total of 58.9% of employees received at least effort register the impact of the economic climate, with an average one day of training during the year and the average number decline of 10% compared to 2008. of days training came to 2.3 days per employee. The training investment is spread across all professional categories and The average training investment per full-time equivalent person geographic regions in accordance with the table below. amounts to nearly 685 euros. In 2009, the total number of training days amounted to 189,842 days, representing an equivalent of around 860 people receiving full-time training for the entire year.
Breakdown of training investment by geographic region and professional category
Other France Europe (1) United States Japan Asia (2) markets Training investment (EUR millions) 24.4 8.0 10.7 5.0 6.4 1.1 Portion of total payroll (%) 3.0 1.6 2.0 2.5 2.1 1.7 Employees trained during the year (%) 63.7 54.7 41.2 83.4 66.2 56.2 Of which: Executives and managers 68 60 55 70 68 54 Technicians and team leaders 66 51 30 81 60 64 Offi ce and sales personnel 58 51 38 86 67 53 Labor and production workers 65 63 37 74 64 75
(1) Excluding France. (2) Excluding Japan. Note: Indicators are calculated on the basis of the total headcount (employees under both permanent and fi xed-term contracts) present at the workplace during the year, with the exception of the percentage of employees trained during the year, which is calculated on the basis of those employed under permanent contracts and present at the workplace as of December 31 of the fi scal year.
Moreover, the Group organizes integration and awareness seminars for new hires focusing on the culture of the Group, its brands, its values as well as its key management principles. Over 14,100 employees attended seminars of this type in 2009.
2009 Annual Report 63 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Group reporting on employee-related issues
13.6 HEALTH AND SAFETY
In 2009, there were a total of 839 work accidents resulting in leave of absence which resulted in 18,512 lost working days. A total of 311 work-travel related accidents were also noted, leading to 7,957 lost working days. Lost time accidents by business group and geographic region break down as follows:
Number of Frequency Severity accidents rate (1) rate (2) Breakdown by business group Christian Dior Couture 28 4.40 0.04 Wines and Spirits 189 14.63 0.35 Fashion and Leather Goods 140 3.23 0.07 Perfumes and Cosmetics 136 4.12 0.08 Watches and Jewelry 16 3.67 0.10 Selective Retailing 321 6.71 0.15 Other 9 3.17 0.05 Breakdown by geographic region France 385 12.50 0.32 Europe (excluding France) 135 4.14 0.07 United States 113 4.11 0.13 Japan 8 0.80 0.00 Asia (excluding Japan) 143 4.30 0.05 Other 55 7.38 0.17 2009 839 5.92 0.13 Group 2008 1,023 6.81 0.13 2007 (4) 1,026 9.13 0.22
(1) The Frequency rate is equal to the number of accidents resulting in leave of absence, multiplied by 1,000,000 and divided by the total number of hours worked (3). (2) The Severity rate is equal to the number of workdays lost, multiplied by 1,000 and divided by the total number of hours worked (3). (3) For companies located outside France, the total number of hours worked per employee is estimated at 2,000 on a full-time equivalent basis. (4) 2007 data combines workplace accidents and work-travel accidents without distinction. Note: Health and safety data for Starboard Cruise Services’ employees under fi xed-term contracts (900 persons) are not able to be collected to a satisfactory extent, given the nature of the work performed by these individuals. For this reason, they are excluded from the summary table shown above.
The Group invested over 12.2 million euros in Health and Safety addressing the causes of workplace stress. These workgroups in 2009. This includes expenses for occupational medical services, benefi ted considerably from the contributions of invited experts: small protective equipment as well as programs for improving psychologists, victimologists, and other specialized medical personal safety and health, such as compliance, the posting of practitioners. By way of example, in collaboration with IFAS warnings, replacement of protective devices, fi re prevention (Institut Français d’Action sur le Stress) and OMSAD (Observatoire training, noise reduction. Médical du Stress de l’Anxiété et de la Dépression), Hennessy introduced a procedure that aims to measure the overall level of excess The total amount of expenditure and investments promoting stress in the company and to involve the entire workforce in the health and safety in the workplace and improvements in identifi cation of sectors and populations most prone to stress so working conditions amounted to almost 48 million euros in as to implement preventive actions. 2009, representing 2.0% of the Group’s gross payroll worldwide. Additionally, training modules relating to the prevention of Almost 16,240 Group company employees received safety harassment in the workplace are offered to human resources training worldwide. staff and to operational managers at Group companies. Some Workgroups bringing together human resources managers from fi fty staff members have already taken part in these training all Group companies have built and implemented training modules programs.
64 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Group reporting on employee-related issues
13.7 EMPLOYEE RELATIONS
13.7.1 Status of collective agreements In France, Group companies have works councils, employee representatives, as well as health and safety committees. The Group Committee was formed in 1985. In 2009, employee representatives attended 1,736 meetings:
Nature of the meetings Number Works council 649 Employee representatives 485 Health and safety committee 140 Other 462 TOTAL 1,736
As a result of these meetings, 122 company-wide agreements 13.7.2 Social and cultural activities were signed (such as annual negotiations on wages and work schedules, incentive and profi t sharing agreements and company In 2009, in France, the Group allocated a budget of over savings plans). Specifi c agreements related to the employment 15.6 million euros, or 1.9% of total payroll expenses, to social and cultural activities in France via contributions to works councils. of disabled persons, professional equality between women and men, anticipatory management of jobs and skills, and labor- Total catering costs for all Group employees represent a budget management dialogue have been signed at Group companies. of 11.7 million euros.
13.8 RELATIONS WITH THIRD PARTIES
13.8.1 Relations with suppliers and treatment, working time policy, and the protection of the environment. Louis Vuitton has put in place an ethical system of The Group places a priority on promoting and maintaining preliminary audits founded on compliance with local regulations stable relations with ethical and responsible partners (suppliers, as well as the SA 8000 social accountability standard, which is distributors, sub-contractors, etc.). based on international workplace norms included in the ILO Since 2008, all of the Group’s brands have adopted and conventions: no child labor, no forced labor, providing a safe and promulgated the Supplier Code of Conduct which sets forth healthy work environment, freedom of association and the right the Group’s requirements in terms of social responsibility (forced to collective bargaining, no discrimination, disciplinary practices, labor, discrimination, harassment, child labor, compensation, compliance with working hour and wage regulations. To ensure hours of work, freedom of association and collective bargaining, that they will be able to perform preliminary audits independently, health and safety, etc.), the environment (impact reduction, Louis Vuitton’s buyers receive theoretical training covering the use of green technologies, waste reduction, compliance with approach and criteria as well as practical training in the fi eld in regulations and standards), and the fi ght against corruption. the company of an SA 8000 auditor. Donna Karan International Relations with any partner necessitate the latter’s commitment to has developed a Vendor Code of Conduct designed to ensure comply with all ethical principles enunciated in this Code. This respect for fundamental principles of industrial relations and labor Code of Conduct also sets forth the principle and procedures law and for the highest ethical standards. It has also developed for the control and audit of compliance with these guidelines. a Vendor Profi le Questionnaire, a document signed by the subcontractor when the pre-approval request is submitted. The Among many initiatives by Group companies illustrating company has also introduced a Vendor Compliance Agreement, this commitment, Moët & Chandon, for example, establishes which calls for independent audits of suppliers to ensure that a specifications document presented for signature to its commitments have been observed. Similarly, TAG Heuer requires subcontractors that addresses respect for the environment and that all new foreign suppliers submit a written pledge indicating fundamental labor law compliance, among other issues. Audits their compliance with the SA 8000 standard. The same is true for are also carried out on suppliers. In its supplier specifi cations Parfums Christian Dior, Parfums Givenchy, and Guerlain, who documents, Sephora includes clauses dealing with the individual have introduced specifi cations documents including compliance rights of employees, child labor prevention, equality of opportunity with the SA 8000 standard among their provisions.
2009 Annual Report 65 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Group reporting on employee-related issues
As a result of heightened controls on compliance with the Supplier As a signatory of the Apprenticeship Charter, the Group devotes Code of Conduct, 2009 saw an increase in the number of social considerable efforts to the development of apprenticeship and environmental audits conducted at the Group’s suppliers. opportunities, which facilitate young people’s access to A quick survey of the fi ve largest Group companies highlighted qualifi cations. As of December 31, 2009, there were 545 young the fact that more than 200 social audits were conducted at their people working under apprenticeship or professionalization suppliers in 2009. contracts in all the Group’s French companies. Among the various events scheduled throughout the year, “open door” days In the interest of continued improvement in this area, the or orientation programs are often offered to young apprentices by Group’s procurement managers, with the encouragement of the Group companies (notably Hennessy, Parfums Givenchy, Louis executive management team, have taken on ambitious goals, Vuitton, Le Bon Marché and TAG Heuer) so as to introduce particularly with regard to verifying proper compliance with them to their professions and products. Mentors are also prized these fundamental requirements. by companies such as Givenchy Couture and Le Bon Marché for their involvement in the transfer of know-how. Similar 13.8.2 Impact of the business on local initiatives are undertaken abroad, particularly in Brazil, where young people from disadvantaged backgrounds are recruited communities in terms of employment through the “Menor Aprendiz” program. and regional development Illustrating the Group’s partnership with the Institut d’Etudes The Group follows a policy of maintaining and developing Politiques de Paris in conjunction with its affi rmative-action employment. Thanks to the strong and consistent growth achieved program “Conventions d’Education Prioritaire”, LVMH managers by its brands, many sales positions are created in all countries served on the admissions jury for youths from schools located where the Group is present, particularly as a result of the in underprivileged areas and the Group funds second-year expansion of the brands’ retail networks. internships abroad for disadvantaged youths from the outlying areas of French cities through the apprenticeship tax. Always Non-disciplinary layoffs, including those due to economic with the aim of furthering access to employment based only on conditions, represent 9.6% of total departures. merit and commitment, LVMH is a participating member of A number of the Group’s companies have been established for the French corporate-sponsored equal educational opportunity many years in specifi c regions of France and play a major role network (Réseau national des entreprises pour l’égalité des chances dans in creating jobs in their respective regions: Parfums Christian l’éducation). This association arranges actions by companies in Dior in Saint-Jean de Braye (near Orléans), Veuve Clicquot schools located in underprivileged areas and welcomes their Ponsardin and Moët & Chandon in the Champagne region, graduates as interns. and Hennessy in the Cognac region have developed long- Contacts and partnerships with training institutions as well standing relationships with local authorities, covering cultural as local actions in secondary schools have been developed and educational aspects as well as employment. Sephora, which further, particular with middle schools singled out for the has stores throughout France (two-thirds of its workforce is “Ambition Réussite” priority education program (Céline) and employed outside the Paris region), regularly carries out a range other companies are also spearheading the creation of curricula of measures encouraging the development of job opportunities in the regions where they maintain operations. at the local level. In partnership with “Nos Quartiers ont des Talents”, Christian Dior Couture, Guerlain, Parfums Givenchy and La Grande 13.8.3 Relations with educational Épicerie de Paris, together with other Group companies stepped institutions and apprenticeship up their operation to assist young graduates from disadvantaged backgrounds in fi nding their fi rst jobs. Experienced senior-level associations staff or senior executives at these companies participating as Throughout the world, Group companies have developed sponsors in this program provide individualized assistance to a number of partnerships with management schools and job seekers and help them crystallize their career plans. engineering schools, but also with fashion design schools and Finally, in order to promote the integration of young people schools specializing in areas specifi c to the businesses of the through education regardless of their background or origin, Group. Key companies give presentations on the campuses of LVMH funds ten scholarships offered by the association these schools several times a year. A number of the classes taught “Promotion des Talents”. feature lectures by the Group’s senior executives. Many initiatives to promote the occupational integration of young people are undertaken to allow all employees to participate actively in the Group’s commitment to society.
66 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Effects of operations on the environment
13.9 COMPLIANCE WITH INTERNATIONAL CONVENTIONS
Taking each individual, his or her freedom and dignity, personal and political opinion, etc. as defi ned in the standards of the growth and health into consideration in each decision is the International Labor Organization. This culture and these practices foundation of a doctrine of responsibility to which all Group also generate respect for freedom of association, respect for the companies adhere. individual, and the prohibition of child and forced labor. Accordingly, all Group companies have policies for equal opportunity and treatment irrespective of gender, race, religion
14. Effects of operations on the environment
The reporting scope for environmental indicators included the Spanish stores of Loewe, the French, US and Canadian following sites in 2009: stores of Sephora, and the stores of Louis Vuitton (with the exception of certain Japanese stores) are not covered; • production facilities, warehouses and administrative sites: 177 of the 200 sites owned and/or operated by companies - for stores, no other environmental indicator is concerned. controlled by the Group are covered. The 23 sites that are not The reporting scope of the stores does not cover the stores covered correspond primarily to the production facilities of operated under franchise by the Group’s Perfumes and Cosmetics Christian Dior Couture, Hublot, StefanoBi, Royal Van Lent and its Fashion and Leather Goods companies. and Wen Jun Distillery, in addition to the administrative sites of Benefi t, Berluti, Donna Karan, Emilio Pucci, Fresh, Marc The changes in the reporting scope with respect to 2008 relate Jacobs, and Thomas Pink. to the integration of Les Echos, of two production sites of Christian Dior Couture, of new Sephora and DFS stores, of • s tores : t he French stores of Christian Dior Couture, Céline the Spanish stores of Loewe, of the new administrative sites of and Guerlain, the French stores and certain international Moët Hennessy, of a manufacturing shop and administrative stores of Louis Vuitton and Le Bon Marché, DFS stores, sites of Louis Vuitton, and the disposal of Glen Moray. the Spanish stores of Loewe, the French, US and Canadian stores of Sephora and the main stores of Fendi are covered. Pursuant to Decree No. 2002-221 of February 20, 2002, known The reporting scope concerned can vary signifi cantly for the as the “NRE decree” (Nouvelles Régulations Économiques) , the various environmental indicators: following sections provide information concerning the nature and importance of the elements that have a relevant and signifi cant - energy consumption and greenhouse gas emissions: the impact on operations. The indicators retained were selected reporting scope covered is the same as that described above; by the Group’s environmental department and validated by - water consumption: the US and Canadian stores of Sephora the Environment and Sustainable Development Department are not covered; of Ernst & Young. Since fi scal year 2002, the Group’s annual environmental data reporting has been verifi ed each year, on - waste production: the French stores of Christian Dior the basis of data provided by LVMH, by Ernst & Young, one Couture (with the exception of the boutique on the Avenue of the Group’s statutory auditors, assisted by its Environment Montaigne in Paris), the stores of Céline and Fendi, the and Sustainable Development Department.
2009 Annual Report 67 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Effects of operations on the environment
14.1 WATER, ENERGY AND RAW MATERIAL CONSUMPTION REQUIREMENTS
14.1.1 Water consumption • agricultural requirements: water consumption for vine irrigation outside France, as irrigation is not practiced in France. As Water consumption analyzed based on the following: such, water is taken directly from its natural environment for • process requirements: use of water for cleaning purposes (tanks, irrigation purposes. Its consumption varies each year according products, equipment, fl oors), air conditioning, employees, to changes in weather conditions. However, it is worth noting product manufacturing, etc.; such water consumption generates that water consumption for agricultural purposes is measured waste water; by the sites, producing less precise estimates than for process water consumption.
Change (in m3) 2009 2008 (%) Process requirements 2,089,582 2,373,628 -12 (1) Agricultural requirements (vine irrigation) 6,539,212 6,813,268 -4
(1) Decline due to the decrease in business volumes.
Water consumption used for the process requirements of the Group’s companies decreased 12% in absolute terms between 2008 and 2009 and amounted to approximately 2.09 million cubic meters. By way of comparison, for the manufacturing sector in France, water consumption amounts to about 2.9 billion cubic meters (IFEN, 2006).
Water consumption by business group
Change Process requirements (in m3) 2009 2008 (%) Christian Dior Couture 15,213 15,361 -1 Wines and Spirits 1,141,986 1,384,662 -18 (1) Fashion and Leather Goods 253,682 192,282 +32 (2) Perfumes and Cosmetics 283,711 364,483 -22 (1) Watches and Jewelry 8,687 12,895 -33 (1) Selective Retailing 366,516 386,080 -5 Other activities 19,787 17,865 +11 (3) TOTAL 2,089,582 2,373,628 -12
(1) Decline due to the decrease in business volumes and to the disposal of Glen Moray for the Wines and Spirits business group. (2) Change due to the increase in business volumes and the integration of new Loewe and Louis Vuitton sites. (3) Change related to the integration of Les Echos and new Moët Hennessy buildings.
Water consumption for vineyard irrigation purposes is • standardized drip method of irrigation: between 73% and 100% essential for the preservation of vines in California, Argentina, of wine-producing regions have now adopted this method; Australia and New Zealand due to the climate in these areas. • weather forecasts for optimized irrigation (weather stations This practice is closely supervised by the local authorities that at Domaine Chandon California); deliver authorizations. The Group has also taken measures to limit consumption: • periodical inspections of irrigation systems to avoid the risk of leakage; • recovery of rain water by Domaine Chandon California, Domaine Chandon Australia, Bodegas Chandon Argentina; • adoption of the “reduced loss irrigation” technique, which reuse of treated waste water by Domaine Chandon Carneros, reduces water consumption and actually improves the quality California; recovery of water run-off by the creation of artifi cial of the grapes, the size of the vine, yielding an enhanced lakes by Newton and Cape Mentelle; concentration of aroma and color. • drafting of agreements on measures and specifi cations with respect to water requirements: analyses of ground humidity, leaves, visual vine inspections, adaptation of supplies according to the requirements of each land plot (Domaine Chandon Australia);
68 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Effects of operations on the environment
14.1.2 Energy consumption Energy consumption corresponds to the combined internal This consumption corresponds, in decreasing order of use to (combustion on a Group site, such as fuel oil for electricity Selective Retailing (36%), Wines and Spirits (31%), Fashion generators, butane, propane and natural gas) and external and Leather Goods (15%), and Perfumes and Cosmetics (12%). (combustion does not occur on site) energy sources. The remaining 6% is generated by Watches and Jewelry, Christian Dior Couture and the administrative activities of the In 2009, the subsidiaries included in the reporting scope consumed holding structure. 543,399 MWh provided by the following sources: 64% electricity, 19% natural gas, 8% heavy fuel oil, 6% fuel, 2% butane-propane, By way of comparison, for the manufacturing sector in 1% steam, and less than 1% renewable energies. This represents France, electricity and natural gas consumption amount an increase of 7% compared to 2008. to 123,000,000 MWh and 154,000,000 MWh, respectively (French Ministry of Finance, 2007).
Energy consumption by business group
Change (in MWh) 2009 2008 (%) Christian Dior Couture 7,461 6,394 +17 (1) Wines and Spirits 167,769 193,318 -13 (2) Fashion and Leather Goods 83,180 77,473 +7 (3) Perfumes and Cosmetics 67,167 74,177 -9 (2) Watches and Jewelry 7,546 7,661 -2 Selective Retailing 197,841 144,432 +37 (4) Other activities 12,435 5,735 +117 (5) TOTAL 543,399 509,190 +7
(1) Change due to the integration of two production sites. (2) Decline due to the decrease in business volumes and to the disposal of Glen Moray for the Wines and Spirits business group. (3) Change due to the increase in business volumes and the integration of new Loewe and Louis Vuitton sites. (4) Change due to the integration of new DFS stores and new Sephora North America stores. (5) Change due to the integration of Les Echos and new Moët Hennessy buildings.
Consumption by energy source in 2009
Solar Natural Heavy Butane thermal (in MWh) Electricity gas fuel oil Fuel oil Propane Steam energy Christian Dior Couture 5,598 1,162 - - - 701 - Wines and Spirits 62,493 39,654 42,416 15,636 7,570 - - Fashion and Leather Goods 61,327 17,050 - 1,114 2,837 852 - Perfumes and Cosmetics 36,020 29,757 37 223 - 680 450 Watches and Jewelry 4,057 2,777 - 712 - - - Selective Retailing 167,943 10,118 - 14,952 - 4,828 - Other 11,134 383 3 34 - 881 - TOTAL 348,572 100,901 42,456 32,671 10,407 7,942 450
2009 Annual Report 69 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Effects of operations on the environment
Two key areas are targeted in particular by the Group: the energy savings to be achieved through modifi cations in staff transportation of both raw materials and fi nished products as behavior and presented a set of best practices, with indications well as the buildings used by the Group. For example, Sephora of the range of achievable energy savings. has decided to progressively adopt the use of electric-powered vehicles for deliveries to all of its 250 stores in France. By December 2009, 80% of its stores were already receiving their 14.1.3 Raw material consumption deliveries via this type of transport. Given the variety of the Group’s operations and the multiplicity Following in the footsteps of Louis Vuitton, which expanded of the raw materials used, the only signifi cant, relevant criterion its inland waterway shipments in 2008, and Guerlain, which used by all of the Group’s brands retained for the analysis of continues to increase its maritime ratio (61.7% in 2009 compared raw material consumption is the quantity, measured in metric to 50% in 2008), Hennessy has switched to piggyback shipping, tons, of primary and secondary packaging used for consumer using a combination of rail and road transport, for goods leaving goods placed on the market: Cognac in May. This method will eventually be used for 50% of shipped goods, which will allow Hennessy to decrease its • Christian Dior Couture: boutique bags, pouches, cases, etc.; carbon footprint related to shipments by one third. • Wines and Spirits: bottles, boxes, caps, etc.; Buildings are an important driver of energy savings. At Le • Fashion and Leather Goods: boutique bags, pouches, cases, etc.; Bon Marché, efforts made in the area of lighting and other energy consumption items resulted in savings of 6% for the • Perfumes and Cosmetics: bottles, cases, etc.; three buildings in Paris (Le Bon Marché, La Grande Épicerie, • Watches and Jewelry: cases and boxes, etc.; Franck & Fils) and 9% for Le Bon Marché alone. • Selective Retailing: boutique bags, pouches, cases, etc. Lastly, at Christian Dior Couture, an energy audit was conducted at the brand’s historic headquarters, which identifi ed potential The packaging used for transport is excluded from this analysis.
Packaging placed on the market
Change (in metric tons) 2009 2008 (%) Christian Dior Couture 74 90 -18 Wines and Spirits 115,950 147,728 -22 Fashion and Leather Goods 4,764 5,266 -10 Perfumes and Cosmetics 20,800 23,887 -13 Watches and Jewelry 386 421 -8 Selective Retailing 1,327 1,538 -14 TOTAL 143,301 178,930 -20 (1)
(1) Decline due to eco-design approaches applied by all business groups and the decrease in business volumes.
Breakdown of the total weight of packaging placed on the market, by type of material, in 2009
Paper- Other packaging (in metric tons) Glass cardboard Plastic Metal material Christian Dior Couture - 70 3 - 1 Wines and Spirits 98,905 13,159 1,468 1,449 969 Fashion and Leather Goods - 4,082 6 16 660 Perfumes and Cosmetics 9,750 4,498 4,933 426 1,193 Watches and Jewelry - 156 - - 230 Selective Retailing 232 140 871 49 35 TOTAL 108,887 22,105 7,281 1,940 3,088
70 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Effects of operations on the environment
The Group takes an active part in the development of of packaging, this indicator takes into account, from the very environmental product labeling, both in France and worldwide. outset of the development process, the separability of materials, Intended to provide information to the public about the volume, weight, the use of refi lls, and the preference for materials environmental impact of products, the data included, such as that are more respectful of the environment. A score is given to the greenhouse gas emissions generated during the product’s life each product’s packaging, which may cause some decisions to cycle, will eventually play a greater role in consumer decision- be reconsidered. Remarkable eco-designed packaging initiatives making processes. Group companies have steadily made advances this year include Hennessy’s Fine Cognac H2O project and in the area of eco-design, with specifi c tools and methodologies Bodegas Chandon Argentina’s switch to lighter-weight bottles, to integrate environmental aspects in the product development each using 5-20% less glass. Lastly, Parfums Christian Dior process. This involves reductions in packaging weight and now offers refi lls for the products in its Or de Vie range. Lastly, volume, the selection of ingredients and raw materials, the at Christian Dior Couture, an optimization study focusing on use of more energy-effi cient production processes, and efforts product packaging resulted in 20% reductions in the carbon to ensure compliance with the European Union’s REACH footprint of paper and paperboard containers. Moreover, the Regulation. At the companies of the Perfumes and Cosmetics entire range is now manufactured using FSC-certifi ed paper business group, the use of an environmental performance (guaranteed by the Forest Stewardship Council to be supplied indicator (EPI) developed in-house is gaining ground. Created by paper mills demonstrating a commitment to sustainable to assess, compare and improve the environmental performance forest management).
14.2 SOIL USE CONDITIONS, EMISSIONS INTO THE AIR, WATER AND SOIL
14.2.1 Soil use Integrated grape-growing practices are increasingly being used by all of the Group’s Estate & Wines businesses. Cloudy Bay Soil pollution from old manufacturing facilities (cognac and has focused in particular on the area of soil management and champagne production; trunk production) is insignifi cant. protection and is testing new solutions to boost disease resistance. The more recent production facilities are generally located Four hectares have already received organic certifi cation for grape on farmland with no history of pollution. Finally, the Group’s growing and the Australian winery allows sheep to graze in its manufacturing operations require very little soil use, except vineyards during the winter to reduce the use of herbicides. This for wine production. year, Domaine Chandon California and Newton applied their Integrated grape growing (viticulture raisonnée) is an advanced “Mow & Blow” program to 60 hectares, in order to signifi cantly method that combines cutting-edge technology with traditional reduce their use of pesticides and insecticides. This program methods, covering all stages of the wine producing process. involved the installation of new nest boxes for owls and birds This method, used for several years by Wines and Spirits, was of prey in 2009, thus enhancing natural protection against developed further this year. Thanks to equipment allowing for undesirable species. highly localized application, Moët & Chandon continues to reduce the use of plant protection products and cover planting is now employed for a third of vineyard land, with special emphasis on 14.2.2 Greenhouse gas emissions resource protection areas. Reductions in the use of fungicides Given the nature of the Group’s operations, the only emissions are being made gradually, by assessing qualitative indicators and that have a signifi cant impact on the environment are greenhouse delivering innovative solutions using new materials. gas emissions.
For Veuve Clicquot in 2009, partial or controlled cover planting is Estimated greenhouse gas emissions in tons of CO2 (carbon being used for 80% of its total vineyard surface area. Pheromone dioxide) equivalent correspond to the site energy consumption confusion (an alternative to the use of insecticides) has also emissions, as defi ned in section 14.1.2. These include direct been implemented for 70% of the total surface area. The Group emissions (on-site combustion) and indirect emissions (from continues to promote sustainable grape-growing practices the generation of electricity and vapor used by the sites). CO2 among its grape suppliers, which now account for 90% of emission factors are updated every year for each energy source, grape supplies. notably for electricity. This update may lead to signifi cant changes.
2009 Annual Report 71 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Effects of operations on the environment
Breakdown of emissions by business group in 2009
of which:
CO2 emissions Direct CO2 Indirect CO2 CO2 emissions Change
(in metric tons of CO2 equivalent) in 2009 emissions emissions in 2008 (%) Christian Dior Couture 912 239 673 787 +16 (1) Wines and Spirits 46,226 29,161 17,065 49,087 -6 Fashion and Leather Goods 20,222 4,935 15,287 17,463 +16 (2) Perfumes and Cosmetics 11,432 6,953 4,479 12,023 -5 Watches and Jewelry 887 736 151 879 +1 Selective Retailing 76,186 6,838 69,348 45,992 +66 (3) Other activities 1,318 100 1,218 676 +95 (4) TOTAL 157,183 48,962 108,221 126,907 +24
(1) Change due to the integration of two production sites. (2) Change due to the increase in business volumes and the integration of new Loewe and Louis Vuitton sites. (3) Change due to the integration of new DFS stores and new Sephora North America stores. (4) Change due to the integration of Les Echos and new Moët Hennessy buildings.
The Group has long stressed the importance of addressing climate particular: the transportation of both raw materials and fi nished change in its business activities. A true pioneer in this area, the products as well as the buildings used by the Group (see §14.1.2 Group carried out its fi rst Bilan Carbone® assessments in 2002. Energy consumption). For example, Sephora has decided to Today, all of the Group’s main brands have used this method progressively adopt the use of electric-powered vehicles for to assess their environmental performance and are putting in deliveries to all of its 250 stores in France. By December 2009, place priority measures relating to the production of packaging, 80% of its stores were already receiving their deliveries via this the shipment of products, and energy consumption by stores. type of transport. Following in the footsteps of Louis Vuitton, which expanded its inland waterway shipments in 2008, and The Carbon Disclosure Project, an independent nonprofi t Guerlain, which continues to increase its maritime ratio (61.7% organization, sends companies a questionnaire each year on the in September compared to 50% in 2008), Hennessy switched integration of climate change awareness within their strategies and to piggyback shipping for goods leaving Cognac in May. This their progress in limiting greenhouse gas emissions. Its Carbon method will eventually be used for 50% of shipped goods, which Disclosure Leadership Index brings together companies having will allow Hennessy to decrease its carbon footprint related to demonstrated the greatest transparency and the highest quality shipments by one third. response to this annual questionnaire: LVMH received a score of 72/100 and is listed in the Carbon Disclosure Leadership Index for France (the average score obtained by SBF 120 14.2.3 Discharges to water companies is 56/100). The most signifi cant and relevant emissions of note are the Veuve Clicquot, Moët & Chandon and Hennessy have nearly discharges of substances causing eutrophization by Wines and completed their updated Bilan Carbone® assessments, while Le Spirits and Perfumes and Cosmetics operations. The Group’s Bon Marché, DFS and Sephora completed theirs this year. Le other business groups have a very limited impact on water quality. Bon Marché has set itself specifi c objectives for the next few Eutrophization is the excessive build-up of algae and aquatic years and plans to monitor its emissions on a nearly continuous plants caused by excess nutrients in the water (particularly basis using a software tool. Make Up For Ever launched a similar phosphorus), which reduces water oxygenation and adversely initiative in September 2009. In the same vein, Domaine Chandon impacts the environment. The parameter used is the Chemical Australia is calculating its greenhouse gas emissions with the Oxygen Demand (COD) calculated after treatment of the aim of offering carbon-neutral products. As a reminder, it is discharges in the Group’s own plants or external plants with worth noting that Guerlain, Parfums Christian Dior, Parfums which the Group has partnership agreements. The following Kenzo, Parfums Givenchy and Louis Vuitton have all already operations are considered as treatment: city and county waste carried out their Bilan Carbone® assessments. water collection and treatment, independent collection and As stated above, the Group remains committed to reducing treatment (aeration basin) and land application. In 2009, COD its energy consumption and two key areas are targeted in discharges increased by 134%.
72 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Effects of operations on the environment
Change COD after treatment (in metric tons) 2009 2008 (%) Wines and Spirits 3,291 1,396 +136 (1) Perfumes and Cosmetics 14 16 -12 (2) TOTAL 3,305 1,412 +134
(1) Change due to the increase in business volumes and the improvement in the measurement of discharges at a Glenmorangie site. (2) Change due to the decrease in business volumes and the improvement in the monitoring of discharges.
As a particularly precious resource for the Group’s businesses, be employed, whether in relation to water reuse systems, more and especially for the activities of its Wines and Spirits and economical processes and/or closed-loop cycle technologies, or Perfumes and Cosmetics business groups, water is the focus of even zero-discharge systems. For instance, Bodegas Chandon considerable attention: each year, ambitious goals are set to limit in Argentina has installed a new wastewater treatment facility, consumption and renewed efforts are made to curtail discharges reclaiming water to be used for irrigation. Thanks to this new into water. All of this requires that the best technologies available technology, water consumption was reduced by 54% in 2009.
14.2.4 Waste Group companies continued their efforts with respect to the • incineration for energy production, i.e. the recovery of the sorting and recovery of waste. On average, 93% of the waste energy in the form of electricity or heat by burning the waste. was recovered in 2009 compared to 88% in 2008. In parallel, In order to decrease the need for incineration, whose costs are waste production fell 26% in 2009. rising, the Group’s Perfumes and Cosmetics companies have set Recovered waste is waste for which the fi nal use corresponds up a recycling program for waste consisting of spent perfume to one of the following channels: testers as well as unsold goods and those rejected for quality reasons, at a shared facility located at the heart of Cosmetic • reuse, i.e. the waste is used for the same purpose for which Valley. A fi rst in the luxury sector, this recycling program is part the product was initially designed; of the environmental and societal commitments undertaken by • recycling, i.e. the direct reintroduction of waste into its original the Group at the signing of the Charter for an Eco-Responsible manufacturing cycle resulting in the total or partial replacement Cosmetic Valley in October 2009. of an unused raw material, controlled composting or land treatment of organic waste to be used as fertilizer;
Waste produced
Waste Of which: Waste Change in waste produced hazardous produced produced (in metric tons) in 2009 waste in 2009 (1) in 2008 (%) Christian Dior Couture 273 3 236 +16 (3) Wines and Spirits 38,482 146 57,446 -33 (4) Fashion and Leather Goods 6,391 61 6,304 +1 Perfumes and Cosmetics 6,301 767 (2) 7,143 -12 (4) Watches and Jewelry 214 14 222 -4 Selective Retailing 3,978 17 4,266 -7 Other activities 647 - 706 -8 TOTAL 56,286 1,008 76,323 -26
(1) Waste to be sorted and treated separately from other “common” waste (boxes, plastic, wood, paper, etc.). (2) Some products that are removed from the manufacturing cycle are treated in the same way as hazardous waste to prevent counterfeiting attempts. (3) Change due to the integration of two production sites. (4) Decline due to the decrease in business volumes and to the disposal of Glen Moray for the Wines and Spirits business group.
2009 Annual Report 73 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Effects of operations on the environment
Waste recovery in 2009
Material Energy Total (%) Re-used recovery recovery recovery Christian Dior Couture 10 42 45 98 Wines and Spirits 40 55 3 98 Fashion and Leather Goods 2 42 20 64 Perfumes and Cosmetics 5 56 33 94 Watches and Jewelry - 37 37 74 Selective Retailing 6 42 35 83 Other activities - 7 93 100 TOTAL 29 52 12 93
14.3 LIMITATION OF DAMAGE TO ECOSYSTEM BALANCE, NATURAL HABITATS AND PROTECTED ANIMAL AND PLANT SPECIES
Fashion and Leather Goods, and Watches and Jewelry ingredients in the eye care product Capture Totale, continues apace: implemented procedures to improve compliance with the a portion of the profi ts are used to fi nance large-scale initiatives, convention on international trade in endangered species (CITES). such as the creation of a Maison du Riz and improvements Through a system of import-export permits, this convention was in school facilities. Through the Orchidarium, its worldwide set up to prevent certain species of endangered fauna and fl ora orchid research platform, Guerlain participates in a reforestation against overexploitation in the course of international trade. program in Laos, as tropical forests are the preferred habitat Perfumes and Cosmetics’ laboratories request that their partners of these fl owers. In this connection, Guerlain is behind the provide information on the bio-diversity and bio-availability creation of a nature preserve supplemented by a research facility of every new plant studied. Companies in this business group and cultural center called the Réserve Exploratoire. In 2009, the have undertaken not to use any protected, rare or endangered protection of wild populations of Vanda coerulae was the focus plants in their operations. They favor plants that are commonly of special efforts. Hundreds of young plants were reintroduced used or grown specifi cally to meet their activity’s requirements. and will be followed by thousands more. Guerlain also strives to ensure that it can continue to gather the orchids used in its Recent efforts by LVMH in the fi eld of ethnobotany and the products in their natural environment. conservation of biocultural diversity are in keeping with a longstanding commitment, since the R&D teams of the Perfumes Lastly, following the example of Parfums Christian Dior, which and Cosmetics business group have been working in this area publicly announced its decision to refrain from testing the for several years. For example, in Madagascar, the partnership safety of its cosmetic products on animals in 1989, all other forged in 2006 with an association representing individuals companies in the Perfumes and Cosmetics business group have who gather longoza, a species of wild ginger used as one of the also discontinued this practice.
74 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Effects of operations on the environment
14.4 ENVIRONMENTAL PROTECTION METHODS WITHIN THE GROUP
14.4.1 Organization The Group has had an environment management team since training hours, a 7% decrease compared to 2008 (18,489 hours). 1992. In 2001 it established an “Environment Charter” signed by This decrease is explained by the large number of ISO 14001 the Chairman of the Group, which requires that each company certifi cations attained in 2008, necessitating an increase in undertakes to set up an effective environment management awareness campaigns. system, create think-tanks to assess the environmental impacts New executives are briefed in the Group’s environmental policy, of the Group’s products, manage risks and adopt the best the available tools and its environmental safety network as part environmental practices. In 2003, Bernard Arnault joined the of their orientation seminar. United Nations’ Global Compact program. In 2007, he also endorsed Gordon Brown’s Millennium Development Goals. Apart from these initiatives, the Group’s companies also disseminate written information concerning the environment. The Group undertakes to adopt the following environmental Over the years, awareness of the relevant issues has been raised measures: successfully among most of the Group’s employees. In 2009, • apply precaution to all issues impacting the environment; Guerlain conducted a vast operation across its entire workforce, at its production sites as well as its headquarters. Five conferences • undertake initiatives to promote greater environmental were organized, during which the Company’s Chairman presented responsibility; the key environmental and sustainable development challenges • favor the development and distribution of environmentally as well as Guerlain’s ongoing objectives, which include a 12% friendly technologies. reduction in greenhouse gas emissions between 2007 and 2012. The Group’s environment management team was set up with At Le Bon Marché, the Cosmos environmental committee set the following objectives: itself twelve objectives in three main areas: people- and planet- friendly lifestyles, the environment, and sustainable economic • implement the environmental policies of the Group companies, development. These objectives have resulted in concrete actions, based on the Group’s Charter; including the organization of donation programs—clothing for • conduct audits to assess Group companies’ environmental the charity Emmaüs, eyeglasses for African countries—and performance; assistance provided to a dispensary in Vietnam. • monitor regulatory and technical issues; Louis Vuitton has raised the awareness of its employees through various communication campaigns focusing on national or • create management tools; international events. During the nationwide Sustainable • help companies anticipate risks; Development Week, all personnel at the Paris headquarters participated in a Sustainable Development Challenge. In honor • train employees and increase environmental awareness at all of European Mobility Week, the Group issued 900 copies of the management levels; fi rst Green Transport Guide for Paris. From a wider perspective, • defi ne and consolidate the environmental indicators; 2009 saw updates and enhancements to existing systems, the launch of new awareness campaigns (waste sorting, ISO 14001 • work alongside the various key players (associations, rating certifi cation, etc.) and the posting of water, energy and waste agencies, government authorities, etc.). indicators in workshops. The Group’s Environmental Charter requires that all Group In conjunction with Sustainable Development Week, apart from companies adapt this document for their internal purposes so the inauguration of its Intranet site on the environment and food as to refl ect the nature of their own operations. Not only have safety, Hennessy invited 140 of its employees, together with all the companies begun implementing their own environmental their children, to attend a special fi lm screening. They viewed management systems, but an ever increasing number of them the feature-length documentary Nous resterons sur Terre (Here have established their own environmental committees to supervise to Stay), which was followed for the adults by a discussion on the deployment of this approach across their organizations. water management and eco-citizenship principles and for the Each Group company has appointed an environmental children by the projection of animated short features entitled management representative. They meet as part of the LVMH Ma petite planète chérie (My Little Planet). In association with Environment Commission coordinated by the Group’s the Cognac mayor’s offi ce, Hennessy extended this operation, environment management team once every three months and organizing screenings open to the town’s entire population. post their conclusions on the Group’s Environment Extranet At Christian Dior Couture, presentations on the issues involved page, LVMH Mind, which is accessible to all employees. in sustainable development were made to a number of teams, Almost all of the companies, in all of the Group’s business tailored to their specifi c activities. Information on energy savings groups, stepped up their employee training and awareness and materials respecting eco-design principles was presented programs this year. In 2009, these programs resulted in 17,280 to architects. Issues affecting the supply of precious stones and
2009 Annual Report 75 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Effects of operations on the environment
the new availability of ethically traded and responsibly mined This fi gure does not include the numerous compliance controls gold were the subject of an in-house conference for Jewelry that may be performed on a specifi c environmental regulation staff. Finally, Division Directors were made aware of the ethical topic, i.e. a waste sorting inspection, performed periodically issues related to their supply chains. by the Group companies on their sites. Since 2003, a review of environmental regulatory compliance is also performed by the insurance companies, which now includes an environmental 14.4.2 Evaluation and certifi cation programs inspection during their fi re safety visits to Group company sites. A total of 30 visits were performed in 2009. In accordance with the Group Environment Charter, each company is responsible for designing and implementing its own The main environmental legal and regulatory measures introduced environment management system, in particular for defi ning by the Group during 2009 include the implementation of the goals, and more precisely for drafting its own environmental European Union’s new REACH Regulation for all of the Group’s policy. Each company has access to an LVMH self-assessment businesses as well as the establishment of fi nancial contributions guide and can, if it wishes, apply for ISO 14001 or EMAS to authorized bodies for the funding of recovery systems for certifi cation for its system. textile products placed on the French market and for unsolicited advertising materials in France. The Group continues to put in The Group requires all companies to put in place environmental place its action plans and makes every effort to anticipate future management systems. All of the Group’s cognac, champagne and developments in the REACH Regulation. The workgroup set vodka producers have now attained ISO 14001 certifi cation. up by the Group’s environmental department promotes the In Perfumes and Cosmetics, Guerlain began the process for collection of feedback and exchanges on best practices between acquiring this certifi cation at its two sites and Parfums Christian all parties. With respect to this regulation, all Group entities Dior has attained certifi cation for its logistics facility in Saint- have prepared and/or made the necessary changes to contractual Jean de Braye. Eole, Louis Vuitton’s worldwide logistics site, and commercial documents and have sent questionnaires to their was granted certifi cation in July and the results of the follow-up suppliers. Each company has established a REACH committee audits conducted at its Barbera workshop in Spain, its Paris to raise awareness among staff members so that they are able headquarters, and its European warehouse were all positive. The to give precise answers to any questions that may be posed. Company is also developing an ISO 14001 project encompassing all of its production workshops. The Group is particularly proactive in terms of the management of 14.4.4 Expenses incurred to anticipate environmental risks: systematic identifi cation, prevention efforts, the effects of operations on the protection of people and property, and a crisis management system are the four mainstays of its policy in this area. The environment storage and transport of raw materials are targeted in particular. Amounts were recognized under the relevant environmental After Veuve Clicquot and Moët & Chandon in 2008, Krug expense headings in accordance with the recommendations of was granted ISO 22000 certifi cation in June and Belvedere’s the CNC (French National Accounting Council). Operating distillery in Zyrardow, already OSHAS certifi ed, adjusted its expenses and capital expenditure were recognized for each of system in 2009 so as to be in compliance with the latest version the following headings: of the standard. • air and climate protection; Since fi scal year 2002, the Group’s annual environmental data • waste water management; reporting has been verifi ed each year, on the basis of data provided by LVMH, by the Environment and Sustainable • waste management; Development Department of Ernst & Young, one of the Group’s statutory auditors. • protection and purifi cation of the ground, underground water and surface water; • noise and vibration reduction; 14.4.3 Measures to ensure compliance with applicable laws and regulations • biodiversity and landscape protection; • radiation protection; Group companies are audited on a regular basis, either by third parties, insurers or internal auditors, which enables them • research and development; to keep their compliance monitoring plan up-to-date. In 2009, • other environmental protection measures. 42 external environment audits and 71 internal environment audits were performed on-site. These audits correspond to an Environmental protection expenses in 2009 break down as inspection of one or more sites of the same company based on follows: all relevant environmental issues – waste, water, energy, and • operating expenses: 5.7 million euros; environmental management – and are documented in a written report including recommendations. • capital expenditure: 2.3 million euros.
76 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Effects of operations on the environment
14.4.5 Provisions and guarantees given and the recommendations of professional associations. Apart for environmental risks, and from their attention to these texts, the Group’s toxicologists, who assume responsibility for product safety, determine the necessary compensation paid during the year guidelines for Group suppliers and the development teams. pursuant to a court decision The Group’s experts participate regularly in the workgroups No provision was established for environmental risks in fi scal of national and European authorities and are very active in year 2009. professional organizations. The Group cosmetics products give customers unbeatable safety 14.4.6 Objectives assigned by the Group guarantees. The Group prohibits the use of any ingredient whose safety is not completely assured. Beyond applying the strictest to its subsidiaries abroad international regulations in force, all the Group’s Perfumes and The Group requests that each subsidiary, regardless of its Cosmetics brands anticipate and implement future regulations geographic location, applies the Group’s environmental policy before being required to do so. For example, the Group’s Perfumes as set forth in the Charter, which stipulates that each subsidiary and Cosmetics companies do not develop products containing defi nes its own environmental objectives and communicates the triclosan, phthalates or formaldehyde-releasing preservatives. annual indicators included in this section. Moreover, the Group’s various Perfumes and Cosmetics brands no longer conduct tests on animals for the purpose of assessing the safety of cosmetics products and are making dynamic investments 14.4.7 Consumer safety together in alternative test research, particularly in the area of allergies with fundamental research partners, and in the area Protecting human health by carefully selecting the ingredients of systemic toxicity under the auspices of Colipa, the European used in manufacturing products and by determining alternative federation of cosmetic product manufacturers. production methods where required is a priority for the Group. With respect to its activities in the area of Wines and Spirits, the Cosmetics manufactured or sold in Europe are regulated by Group promotes the responsible consumption of alcohol: drink Council Directive 76/768/EEC. Considered by experts as one less but better. The Group’s Wines and Spirits brands continue of the most stringent texts throughout the world, this directive to raise awareness among visitors to their business premises. governs all substances used by the cosmetics industry and In particular, the display of a responsible consumption message requires that a risk assessment be performed before any product will be made more visible in areas accessible to these individuals may be marketed taking into consideration their conditions so as to prompt them to follow the recommendations of public of use. Furthermore, the European Commission’s Scientifi c health authorities. This encouragement is also conveyed through Committee on Consumer Products (SCCP) evaluates risks related the Web sites of Moët Hennessy’s brands, nearly all of which to substances used in cosmetic products on an ongoing basis. incorporate a minimum age requirement for the viewing of their The Group is particularly vigilant in enforcing compliance with pages, as well as a responsible consumption message and links regulations, and also monitors the opinions of scientifi c committees to sites providing information on health issues.
2009 Annual Report 77 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Litigation and exceptional events
15. Litigation and exceptional events
As part of its day-to-day management, the Group is party to compensation for losses caused by eBay’s participation in the various legal proceedings concerning trademark rights, the commercialization of counterfeit products and its refusal to protection of intellectual property rights, the protection of implement appropriate procedures to prevent the sale of such Selective Retailing networks, licensing agreements, employee goods on its site. The Perfumes and Cosmetics brands sued relations, tax audits, and any other matters inherent to its eBay for undermining their selective retailing networks. In business. The Group believes that the provisions recorded in a decision delivered on June 30, 2008, the Paris Commercial the balance sheet in respect of these risks, litigation proceedings Court validated the claims submitted, ordering eBay to pay and disputes that are in progress and any others of which it is 19.3 million euros to Louis Vuitton Malletier, 16.4 million euros aware at the year-end, are suffi cient to avoid its consolidated to Christian Dior Couture, and 3.2 million euros to the Group’s fi nancial net worth being materially impacted in the event of Perfumes and Cosmetics brands. The court also barred eBay an unfavorable outcome. from running listings for perfumes and cosmetics under the Dior, Guerlain, Givenchy and Kenzo brands, failing which it Following the decision delivered in March 2006 by the Conseil would incur a fi ne of 50,000 euros per day. eBay fi led a petition de la Concurrence (the French antitrust authority) regarding the with the Paris Court of Appeal. On July 11, 2008, the President luxury perfume sector in France, and the judgment rendered on of the Paris Court of Appeal denied eBay’s petition to stay the June 26, 2007 by the Paris Court of Appeal, the Group companies provisional execution order delivered by the Paris Commercial concerned took their case to the Cour de Cassation, the highest Court. The case is pending before the Paris Court of Appeal. court in France. In July 2008, the Cour de Cassation overturned On November 30, 2009, determining that the systems put in the decision of the Paris Court of Appeal and referred the case place by eBay to prevent French consumers from accessing to the same jurisdiction, formed differently. In November 2009, listings for the Group’s perfumes and cosmetics were insuffi cient, the Paris Court of Appeal set aside the judgment of the Conseil the Paris Commercial Court ordered eBay to pay 1.7 million de la Concurrence due to the excessive length of the proceedings. euros to the Group as a fi ne for failing to comply fully with its This new decision has been appealed on points of law by the earlier decision. French antitrust authority and the Ministry of Finance. To the best of the Company’s knowledge, there are no pending In 2006, Louis Vuitton Malletier, Christian Dior Couture and or impending governmental, judicial or arbitration procedures the French companies of the Perfumes and Cosmetics business that are likely to have, or have had over the twelve-month period group fi led lawsuits against eBay in the Paris Commercial Court. under review, any signifi cant impact on the fi nancial position Louis Vuitton Malletier and Christian Dior Couture demanded or profi tability of the Company and/or the Group.
78 2009 Annual Report MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Recent developments and prospects
16. Subsequent events
No signifi cant subsequent events occurred between December 31, 2009 and February 4, 2010, the date on which the fi nancial statements were approved for publication by the Board of Directors, as well as between February 4, 2010 and the date of preparation of this document.
17. Recent developments and prospects
Given the uncertainty over the strength of the economic recovery, Bolstered by the fl exibility of its organization and the good in 2010 the Christian Dior Group plans to maintain an extremely balance between its different businesses and geographical rigorous approach to the management of all of its businesses. presence, the Christian Dior Group enters 2010 with confi dence Persevering in its efforts to build the potential of its competitive and has set itself the goal of further increasing its leadership of advantages, the Group will deliver strong innovative momentum the worldwide luxury goods market. while strengthening its presence in the most promising markets.
2009 Annual Report 79 80 2009 Annual Report Report of the Chairman of the Board of Directors
This report, which has been drawn up in accordance with the provisions of Article L. 225-37 of the French Commercial Code, was approved by the Board of Directors at its Meeting on February 4, 2010. Its purpose is to give an account of the membership of the Board of Directors of Christian Dior, the preparation and organization of its work, as well as the compensation policy applied and the internal control procedures established by the Board.
2009 Annual Report 81 REPORT OF THE CHAIRMAN OF THE BOARD OF DIRECTORS Corporate governance
1. Corporate governance
1.1 BOARD OF DIRECTORS
The Board of Directors is the strategic body of the Company roles and missions are defi ned by internal rules, have been which is primarily responsible for enhancing the Company’s established by the Board of Directors. value and for defending the corporate interests. Its main missions Any candidate for appointment as Director as well as any involve ensuring that the underlying strategy of the Company permanent representative of a legal entity shall receive a copy and the Group is adopted and overseeing its implementation, of the Board of Directors’ Charter and of the internal rules verifying the truth and fairness of information concerning the governing the Committees prior to assuming his or her duties. Company and the Group and protecting its assets. Pursuant to the provisions of the Board of Directors’ Charter, The Board of Directors of Christian Dior acts as guarantor of its Directors must bring to the attention of the Chairman any rights of each of the shareholders and ensures that shareholders instance, even potential, of a confl ict of interest between their fulfi ll all their duties. duties and responsibilities to the Company and their private The AFEP/MEDEF Code of Corporate Governance for Listed interests and/or other duties and responsibilities. They must Companies is applied by the Company. This document may be also provide him with details of any conviction in relation to viewed on the MEDEF Web site www.code-afep-medef.com. fraudulent offenses, any offi cial public incrimination and/or sanctions, any disqualifi cations from acting as a member of an The Board of Directors has adopted a Charter that sets forth, administrative or management body imposed by a court as well in particular, rules governing its membership, its missions, its as of any bankruptcy, receivership or liquidation proceedings procedures, and its responsibilities. to which they have been a party. No information has been Two Committees, the Performance Audit Committee and the communicated to the Chairman with respect to this obligation. Nominations and Compensation Committee, whose membership,
1.2 MEMBERSHIP AND MISSIONS
• The Board of Directors consisted of ten members as (i) Mrs. Ségolène Galliene, whose appointment is submitted December 31, 2009: Messrs. Bernard Arnault, Antoine for the approval of the Shareholders’ Meeting held on April 15, Bernheim, Denis Dalibot, Renaud Donnedieu de Vabres, 2010, is to be considered, given her personal situation, as an Pierre Godé, Eric Guerlain, Christian de Labriffe, Jaime de independent Director, despite serving as a member of the Marichalar y Sáenz de Tejada, Sidney Toledano, Alessandro Board of Directors of a subsidiary of the LVMH Group; Vallarino Gancia; fi ve of whom: Messrs. Antoine Bernheim, (ii) Mr. Antoine Bernheim is to be considered, given his Renaud Donnedieu de Vabres, Eric Guerlain, Christian de personal situation, as an independent Director, despite having Labriffe and Jaime de Marichalar y Sáenz de Tejada are served as a member of the Company’s Board of Directors considered as an independent and hold no interests in the for more than twelve years and of the Boards of Directors Company. of other companies that are subsidiaries of Groupe Arnault During its Meeting of February 4, 2010, the Board of Directors and the LVMH Group; proposed the renewal of the appointment as Director of (iii) Mr. Renaud Donnedieu de Vabres is to be considered, Mr. Renaud Donnedieu de Vabres, whose term of offi ce is to given his personal situation, as an independent Director, expire at the close of the Shareholders’ Meeting and, in order despite having served as a member of the Board of Directors to preserve balance in the eventual renewals of all currently of La Fondation Louis Vuitton pour la Création; serving Directors, the early renewal of the appointments of Messrs. Eric Guerlain and Christian de Labriffe as Directors. (iv) Mr. Eric Guerlain is to be considered, given his personal The Board also proposed the appointment of Mrs. Ségolène situation, as an independent Director, despite having served Gallienne as Director. as a member of the Company’s Board of Directors for more than twelve years and of the Board of Directors of a subsidiary The Board of Directors reviewed the status of each Director of the LVMH Group; currently in offi ce as well as that of the proposed appointee, in particular with respect to the independence criteria set (v) Mr. Christian de Labriffe is to be considered, given his forth in the AFEP/MEDEF Code of Governance of Listed personal situation, as an independent Director, despite having Companies, and made the following determinations: served as a member of the Company’s Board of Directors for
82 2009 Annual Report REPORT OF THE CHAIRMAN OF THE BOARD OF DIRECTORS Corporate governance
more than twelve years and of the Boards of Directors of a In its Meeting of February 4, 2010, the Board of Directors subsidiary of Christian Dior; reviewed its membership, organization and procedures, amending the Charter of the Board of Directors and the internal (vi) Mr. Jaime de Marichalar y Sáenz de Tejada is to be rules and regulations of the Performance Audit Committee considered, given his personal situation, as an independent accordingly. It determined the order for the expiration of the Director, despite having served as a member of the Board of terms of offi ce for currently serving Directors, so as to preserve Directors of a subsidiary of the LVMH Group and his capacity balance in the renewals of their appointments over time. of Advisor to the Chairman of the LVMH Group for Spain; The Board came to the conclusion that its membership may The Company’s bylaws require that each Director hold, be considered as balanced, with regard to its percentage of directly and personally, at least 200 of its shares. external Directors, the breakdown of share capital, and with • Over the course of the 2009 fi scal year, the Board of Directors respect to the diversity and the complementarity of the skills met three times as convened by its Chairman, by written notice and experiences of its members. sent to each of the Directors at least one week in advance The Board noted that it had received the information required of the Meeting. The average attendance rate of Directors at for the fulfi llment of its missions in timely fashion and that each these Meetings was 90%. Director had been able, in addition to any discussions during The Board approved the annual and half-yearly fi nancial Board Meetings, to ask questions of executive management statements and notably delivered its conclusions on the issuance and obtain the requested details and explanations. of bonds, the adoption of the Christian Dior Code of Conduct, The Group’s fi nancial position was presented in a clear and the implementation of a share purchase option plan and the detailed manner when the annual and half-yearly consolidated authorization of fi rst-demand guarantees issued in favor of fi nancial statements were submitted for the Board’s approval. third parties. It also conducted an evaluation of its capacity to meet the expectations of shareholders by reviewing its The ways in which the Group may respond to changes in the membership, its organization, and its procedures, making the economic and fi nancial environment gave rise to exchanges necessary changes to its Charter as well as the internal rules between Directors and Executive Management. and regulations for its various Committees.
1.3 EXECUTIVE MANAGEMENT
The Board of Directors decided to assign the roles of Chairman and Chief Executive Offi cer to different persons. It did not limit in any way the powers vested in the Chief Executive Offi cer.
1.4 PERFORMANCE AUDIT COMMITTEE
The main tasks of the Performance Audit Committee are to These meetings were also attended by a member of the Board ensure that the Company and the Group’s accounting policies of Directors, by the Statutory Auditors, Chief Financial Offi cer, comply with generally accepted accounting principles, to review the Company Accounting Director and the Accounting Director the individual company and consolidated fi nancial statements of LVMH. The Internal Audit Director of the LVMH Group as well as the Chief Financial Offi cer and the Management before they are submitted to the Board of Directors, and to ensure and Internal Control Director of the Christian Dior Couture the effective implementation of the Group’s internal controls. Group also attended those meetings of the Performance Audit It currently consists of three members, all of whom are Committee during which internal audit and control within the independent, appointed by the Board of Directors. The current Group were reviewed. members of the Performance Audit Committee are Messrs. Eric In addition to reviewing the annual and half-yearly parent Guerlain (Chairman), Renaud Donnedieu de Vabres and company and consolidated fi nancial statements, the Committee’s Christian de Labriffe. work focused on examining the internal audit and internal control assignments carried out during the year, the accounting options The Performance Audit Committee met three times in 2009. applied by the Company, together with the Company’s exposure to All of these meetings were attended by all of the members of risk and the procedures used to manage risk, its off balance sheet the Committee, with the exception of one meeting where one commitments, and its tax position. In addition, the Committee of the members of the Committee was unable to participate. kept abreast of developments in regulatory frameworks.
2009 Annual Report 83 REPORT OF THE CHAIRMAN OF THE BOARD OF DIRECTORS Corporate governance
1.5 NOMINATIONS AND COMPENSATION COMMITTEE
The main responsibilities of the Nominations and Compensation at Christian Dior. It also issued an opinion on the proposed Committee are to issue: appointment of Mr. Renaud Donnedieu de Vabres as Director and on the Directors whose terms in offi ce were due to expire in • proposals on compensation, benefi ts in kind and subscription or 2009. Lastly, it examined the situation of Mr. Sidney Toledano purchase options for the Chairman of the Board of Directors, with respect to his employment contract with Christian Dior the Chief Executive Officer and the Group Managing Couture and declared itself in favor of implementing a profi t- Director(s) of the Company, as well as on the allocation of sharing mechanism based on the medium term performance of Directors’ fees paid by the Company; Christian Dior Couture. • opinions on candidates for the positions of Director, Advisory In addition, the Committee issued an opinion on the status of Board member, Group Executive Committee member or member all members with regard to the independence criteria set forth of Executive Management of the Company’s main subsidiaries. within the AFEP/MEDEF Code, in particular. It currently consists of three members, two of whom are Prior to the Board of Directors’ Meeting of February 4, 2010, independent, appointed by the Board of Directors. The current the Committee issued recommendations, among others on: members of the Nominations and Compensation Committee are Messrs. Antoine Bernheim (Chairman), Pierre Godé and • the variable compensation for 2009 of Mr. Sidney Toledano, Eric Guerlain. which was paid by Christian Dior Couture, in addition to his compensation and benefi ts in kind for 2010; The Committee met twice during the 2009 fi scal year, with all members in attendance. It issued proposals on the allocation • the rules for determining the amount of Directors’ fees; of share purchase options to the Chairman of the Board of • the setting of “blackout periods” during which no transactions Directors and Chief Executive Offi cer and the compensation involving the Company’s shares by members of the Board of and benefi ts in kind of the Chief Executive Offi cer in respect of Directors are permitted. his functions at Christian Dior Couture, as well as the allocation of Directors’ fees. It examined the recommendations made by It reviewed all of the terms of offi ce due to expire in 2010 the Nominations and Compensation Committee of LVMH and expressed a favorable opinion on the appointment of in favor of the directors of LVMH that are company offi cers Mrs. Ségolène Gallienne as Director.
1.6 ADVISORY BOARD
Advisory Board members are invited to Meetings of the Board They are appointed by the Shareholders’ Meeting on the proposal of Directors and are consulted for decision-making purposes, of the Board of Directors. although their absence cannot undermine the validity of the The Company does not have any Advisory Board members. Board of Directors’ deliberations.
1.7 PARTICIPATION IN SHAREHOLDERS’ MEETINGS
The terms and conditions of participation by shareholders in defi ned in Articles 17 to 23 of the bylaws (see the “Corporate Shareholders’ Meetings, and in particular the conditions for Governance” section of the Annual Report). the attribution of double voting rights to registered shares, are
1.8 INFORMATION THAT MIGHT HAVE AN IMPACT ON A TAKEOVER BID OR EXCHANGE OFFER
Information that might have an impact on a takeover bid or exchange offer, as required by Article L. 225-100-3 of the French Commercial Code, is published in the “Management Report of the Board of Directors”.
84 2009 Annual Report REPORT OF THE CHAIRMAN OF THE BOARD OF DIRECTORS Corporate governance
1.9 COMPENSATION POLICY FOR COMPANY OFFICERS
Directors’ fees paid to the members as the Group’s performance and the attainment of targets. This of the Board of Directors determination also takes into account compensation paid by similar companies with respect to their size, industry segment The Shareholders’ Meeting sets the total amount of Directors’ and extent of international operations. fees to be paid to the members of the Board of Directors. A portion of the compensation paid to executive management This amount is divided among the members of the Board of of the Company and the executive management of the principal Directors, in accordance with the rule defi ned by the Board of subsidiaries and operating units is based on the attainment of Directors, based on the proposal of the Directors’ Nominations both fi nancial and qualitative targets. The fi nancial criteria are and Compensation Committee, namely: growth in revenue, operating profi t and cash fl ow, with each of these items representing one-third of the total determination. (i) two units for each Director; The variable portion is capped at 120% of the fi xed portion for (ii) one additional unit for serving as a Committee member; the Chief Executive Offi cer. (iii) two additional units for serving as both a Committee member A non-competition indemnity, authorized by the Board of and a Committee Chairman; Directors on February 8, 2008, pursuant to Article L. 225-42-1 of the French Commercial Code, is stipulated in favor of the (iv) two additional units for serving as Chairman of the Chief Executive Offi cer, Mr. Sidney Toledano, in respect of his Company’s Board of Directors; employment contract with Christian Dior Couture, and under the with the understanding that the amount corresponding to one unit terms of which, in the event of his departure, he would receive is obtained by dividing the overall amount allocated to be paid an indemnity for twenty-four months equal to the gross average as Directors’ fees by the total number of units to be distributed. monthly salary received over the previous twelve months. At its Meeting of February 4, 2010, the Board of Directors Notwithstanding this clause, no other senior executive offi cer decided that a portion of Directors’ fees to be paid to its members of the Company would benefi t from provisions granting them would be contingent upon their attendance at Meetings of a specifi c compensation payment or derogating from the option the Board of Directors and, where applicable, at those of the plan rules governing the exercise of options should they leave Committees to which they belong. A reduction in the amount the Company. to be paid is applied to two-thirds of the units described under Upon their retirement, Group senior executive offi cers and, (i) above, proportional to the number of Board Meetings the where applicable, company offi cers may receive a supplemental Director in question does not attend. In addition, for committee retirement benefi t provided that they assert at the same time their members, a reduction in the amount to be paid is applied to the entitlement to their basic retirement benefi ts under compulsory additional fees mentioned under (ii) and (iii) above, proportional pension schemes. This supplemental payment corresponds to a to the number of meetings by Committee including the Director specifi c percentage of the benefi ciary’s salary, to which a ceiling in question as a member which he or she does not attend. is applied on the basis of the reference salary determined by the In respect of the 2009 fi scal year, Christian Dior paid a total of French social security scheme. Provisions recognized in 2009 147,715 euros in Directors’ fees to the members of its Board for these supplemental retirement benefi ts are included in the of Directors. amount shown for post-employment benefi ts under Note 30.3 of the consolidated fi nancial statements. Other compensation An exceptional bonus may be awarded to certain Directors with respect to any specifi c mission with which they have been Compensation and benefi ts awarded to company offi cers are entrusted. The amount of this bonus shall be determined by the mainly determined on the basis of the degree of responsibility Board of Directors and reported to the Company’s Statutory ascribed to their missions, their individual performance, as well Auditors.
2009 Annual Report 85 REPORT OF THE CHAIRMAN OF THE BOARD OF DIRECTORS Implementation of internal control procedures and risk management
2. Implementation of internal control procedures and risk management
The Christian Dior Group uses an internal reference guide which One of the objectives of the internal control system is to prevent is consistent with COSO principles (Committee of Sponsoring and control risks resulting from the Company’s activity and the Organizations of the Treadway Commission) and which the risk of error or fraud, particularly in the areas of accounting and Autorité des Marchés Financiers (French market regulator – AMF) fi nance. As with any control system, however, it cannot provide has taken as the basis for its Reference Framework. an absolute guarantee that these risks are completely eliminated. Under the impetus of the Board of Directors, the Performance Christian Dior’s internal control takes into consideration the Audit Committee and Executive Management, the purpose Group’s specifi c structure. Christian Dior is a holding company of the internal control procedures that are applied within the that controls two main assets: a 42.4% equity stake in LVMH, Group is to provide reasonable assurance that the following and a 100% equity stake in Christian Dior Couture. LVMH is a objectives will be achieved: listed company, whose Chairman is also Chairman of Christian Dior, with several directors serving at both companies. Christian • to ensure that management and operations-related measures, Dior Couture has a Board of Directors whose composition is as well as the conduct of personnel, are consistent with similar to that of Christian Dior. The sections below on internal the defi nitions contained in the guidelines applying to the control deal with procedures relating to Christian Dior Couture, Company’s activities by its management bodies, applicable followed by those relating to the holding company, Christian laws and regulations, and the Company’s internal values, Dior SA. Procedures relating to LVMH are described in the rules, and regulations; report fi led by that company, which may be consulted as a • to ensure that the accounting, fi nancial, and management supplement to this report. information communicated to the management bodies of Group companies refl ect a fair view of these companies’ activity and fi nancial position.
2.1 CHRISTIAN DIOR COUTURE
Christian Dior Couture (hereafter the Company) creates, are consistent with the defi nitions contained in the guidelines produces and distributes all of the brand’s products internationally. applying to the Company’s activities by its management bodies, It also engages in retail activities in the various markets through applicable laws and regulations, and the Company’s internal its 53 subsidiaries. values, rules, and regulations. Given this dual role, internal control is applied directly to It also involves ensuring that the accounting, fi nancial, and Christian Dior Couture , and in an oversight capacity to all management information communicated to the Company’s subsidiaries. management bodies refl ect a fair view of the Company’s activity and fi nancial position. 2.1.1 Defi nition Moreover, the Company has defi ned as an additional objective the protection of assets (with a particular emphasis on The purpose of the internal control procedures that are applied, the brand). in line with the COSO framework, is to provide reasonable assurance that the following objectives will be achieved: • the control of activities and processes, the effi ciency of 2.1.2 Limits of internal control operations and the effi cient utilization of resources; No matter how well designed and applied, the internal control • the reliability of fi nancial and accounting information; mechanism cannot provide an absolute guarantee that the Company’s objectives will be achieved. All internal control • compliance with applicable laws and regulations. systems have their limits due notably to the uncertainties of the This involves, therefore, ensuring that management-related and outside world, individual judgment or malfunctions resulting operations-related measures, as well as the conduct of personnel, from human or other errors.
86 2009 Annual Report REPORT OF THE CHAIRMAN OF THE BOARD OF DIRECTORS Implementation of internal control procedures and risk management
2.1.3 Internal control components - monthly reports on actual data compared with budget with in-depth and formalized analyses of any discrepancies. The internal control system is based on the defi nition and identifi cation of the following components: • Executive Management and the Finance Department are also responsible for training all fi nancial personnel worldwide • a general control environment; (internal or external administrative departments) in order to • a risk assessment system; ensure the strict application of IAS and Group rules. • appropriate controls; • Senior e xecutive o ffi c ers maintain a regular presence at subsidiaries and on their management bodies, in particular • an information and communications system that enables at board level. responsibilities to be exercised effi ciently and effectively. The risk management system identifi es and assesses the main risks • Store Committees have been set up to formally authorize likely to affect the achievement of the operational and fi nancial the signature of commercial leases and investments in the objectives, as well as the objectives relating to compliance distribution network. They are made up of the Chairman, with the laws and regulations in force. the Chief Executive Offi cer in charge of the network, the Chief Financial Offi cer, the Management Control Director, Risks are classifi ed by category (strategic, operational, fi nancial, the Chief Legal Offi cer and the architects. legal and intangible) and key process. • Lastly, internal audit covers the following main areas: Risks are mapped according to their frequency and intensity and controls devised for identifi ed risks are put in place in - points of sale: review of the main processes of store order to limit the impact of such risks, although their absolute management (sales, pricing, cash flow, inventories, elimination cannot be guaranteed. administration and security, personnel, external purchases, supplies); Controls rely on the following resources: - country headquarters: review of main cycles (purchases • a consolidation standards manual fully updated to take account of goods, external purchases and expense claims, human of the new tools for reporting consolidated fi nancial data resources, inventories and logistics, information systems, and the transition to presentation formats by type of income investments, accounting and fi nance); statement; - the accounts departments of countries responsible for • communication of all the operational procedures applicable producing subsidiaries’ fi nancial reports: audit of fi nancial to head offi ce and point-of-sale operations combined in a reports prepared by back offi ces and monitoring of the specifi c, regularly updated manual; application of the Christian Dior Couture Group’s accounting • integrated point-of-sale management software (deployed principles. across the whole distribution network) which standardizes On completion of audit assignments, reports containing store control rules and provides head offi ce with detailed sales recommendations are presented to the Chairman and sent to information on each store in the network; each subsidiary. Implementation of the recommendations made • delegations of powers that are limited, precise, managed and is closely monitored. known to the actors involved in terms of both expenditure commitments and rules; 2.1.5 Internal controls related to fi nancial • a separation of the scheduling of expenditures and payments. and accounting information
2.1.4 Departments involved Organization in internal control Internal controls of accounting and fi nancial information are • The Legal Department conducts upstream checks: organized based on the cooperation and control of the following departments: Accounting and Consolidation, Management - prior to the signing of any substantial agreement negotiated Control, Information Systems. by the head offi ce or subsidiaries; • Accounting and Consolidation is responsible for updating and - on the length of time third-party designs and brands have distributing group-wide accounting standards and procedures. been in existence. It oversees their application and establishes appropriate training programs. It is in charge of producing consolidated • Executive Management and the Finance Department closely and individual company fi nancial statements on a quarterly, monitors management information so that it can intervene in half-yearly and annual basis. the process of defi ning objectives then oversee their realization through: • Management Control is responsible for coordinating the budget process and its revisions during the year as well as for - three-year strategic plans; the three-year strategic plan. It produces the monthly operating - the annual budget; report and all reviews required by Executive Management;
2009 Annual Report 87 REPORT OF THE CHAIRMAN OF THE BOARD OF DIRECTORS Implementation of internal control procedures and risk management
it also tracks capital expenditures and cash fl ow, as well as These key steps represent opportunities to perform detailed producing statistics and specifi c operational indicators. analyses of actual data compared with budget, and to foster ongoing communication between companies and the Group – • Information Systems disseminates the Group’s technical an essential feature of the fi nancial internal control mechanism. standards, which are indispensable given the decentralized A team of controllers at the parent company, specialized by structure of the Group’s equipment, applications, networks, etc., geographic region and product category, is in permanent and identifi es any potential synergies. It develops and maintains contact with the subsidiaries, thus ensuring better knowledge a telecommunications system shared by the Group. Finally, it of performance and management decisions as well as coordinates policy for system and data security and preparation appropriate control. of emergency contingency plans.
2.1.6 Outlook for 2010 Accounting and management policies • Ongoing program of internal audits, focusing in particular on Subsidiaries adopt the accounting and management policies distribution subsidiaries in India, Russia, and the Middle East. considered by the Group as appropriate for the individual company and consolidated fi nancial statements. A consistent • Migration of accounting applications to SAP, which will facilitate the monitoring of cost commitments, while also set of accounting standards is applied throughout, together with making the year-end closing process more effi cient, among consistent formats and tools to submit data to be consolidated. other benefi ts. • Completion of the rollout across all product divisions of the Management reporting new production and invoicing management system (Movex), Each year, all of the Group’s consolidated entities produce a with a view to replacing the wholesale divisions’ production and invoicing system (Synergie) at headquarters. three-year plan, a complete budget and annual forecasts. Detailed instructions are sent to the companies for each process. • Final steps in the outsourcing of the IT equipment room.
2.2 CHRISTIAN DIOR
2.2.1 Control environment • providing accurate fi nancial information, in line with applicable laws, given its status as a listed company. Given the limited As noted above, Christian Dior is a holding company whose number of tasks described above, and its membership of a assets are essentially limited to two equity holdings: Christian Group with the necessary administrative skills, Christian Dior Dior Couture and LVMH. uses the Group’s specialized services in the areas specifi c to The business of Christian Dior SA is therefore essentially a holding company, namely legal, fi nancial and accounting dedicated to: matters. An assistance agreement has been entered into with Groupe Arnault SAS. • protecting the legal title of these two equity holdings; Regarding the Group’s external services, the Shareholders’ • exercising the rights and authority of a majority shareholder, Meeting of Christian Dior appointed two fi rst-tier accounting notably by its: fi rms as Statutory Auditors, one of which also serves in the same - presence at the Board Meetings and Shareholders’ Meetings role at Christian Dior Couture and LVMH. of the subsidiaries, - monitoring of dividends paid by the subsidiaries, 2.2.2 Risk control - control of the subsidiaries’ fi nancial performance; Risk control is based fi rst and foremost on a regular review of the risks incurred by the Company so that internal control procedures can be adapted.
88 2009 Annual Report REPORT OF THE CHAIRMAN OF THE BOARD OF DIRECTORS Implementation of internal control procedures and risk management
2.2.3 Control activities 2.2.4 Information and communication systems Key elements of internal control procedures The strategic plans in terms of information and communication Given the nature of the Company’s activity, the primary objective systems of the parent company Christian Dior are coordinated of internal control systems is to mitigate risks of error and fraud by the Group Finance Department. in accounting and fi nance. The following principles form the Aspects of internal control such as the segregation of duties basis of the Company’s organization: and access rights are integrated at the time of implementation • very limited, very precise delegation of powers, which are of new information systems. known by the counterparties involved, with sub-delegations reduced to a minimum; 2.2.5 Internal controls relating to the • upstream legal control before signing agreements; preparation of the parent company’s • separation of the expense and payment functions; fi nancial and accounting information • secured payments; The individual company and consolidated fi nancial statements • procedural rules known by potential users; are subject to a detailed set of instructions and a specially adapted data submission system designed to facilitate complete • integrated databases (single entry for all users); and accurate data processing within suitable timeframes. The • frequent audits (internal and external). exhaustive controls performed at the sub-consolidation levels (LVMH and Christian Dior Couture) guarantee the integrity of the information. Legal and operational control exercised by the parent company over the subsidiaries Financial information intended for the fi nancial markets (fi nancial analysts, investors, individual shareholders, market authorities) is provided under the supervision of the Finance Department. Asset control This information is strictly defi ned by current market rules, Securities held by the subsidiaries are subject to a quarterly specifi cally the principle of equal treatment of investors. reconciliation between the Company’s Accounting Department This report, based on the contribution of the abovementioned and the Securities departments of the companies concerned. internal control and risk management stakeholders, was conveyed in its draft form to the Performance Audit Committee for its Operational control opinion and approved by the Board of Directors at its Meeting Christian Dior exercises operational control over its subsidiaries of February 4, 2010. through the following: • legal bodies, Boards of Directors and Shareholders’ Meetings, Conclusion at which the Company is systematically represented; Over and above its existing internal control mechanism, in • management information used by managers of Christian 2009 the Christian Dior Group reinforced continuing efforts Dior in the process of defi ning objectives and monitoring to improve its internal control. their fulfi llment: - three-year and annual budget plans, - monthly reporting presenting results compared to budget and variance analysis, - quarterly meetings to analyze performance.
2009 Annual Report 89 REPORT OF THE CHAIRMAN OF THE BOARD OF DIRECTORS Statutory Auditors’ report
3. Statutory Auditors’ report
STATUTORY AUDITORS’ REPORT, PREPARED IN ACCORDANCE WITH ARTICLE L. 225-235 OF THE FRENCH COMMERCIAL CODE (CODE DE COMMERCE), ON THE REPORT PREPARED BY THE CHAIRMAN OF THE BOARD OF DIRECTORS OF CHRISTIAN DIOR
MAZARS ERNST & YOUNG et Autres 61, rue Henri-Regnault 41, rue Ybry 92400 Courbevoie 92576 Neuilly-sur-Seine Cedex SA with share capital of €8,320,000 SAS with variable share capital Statutory Auditors Statutory Auditors Member of the Versailles Member of the Versailles regional organization regional organization
To the Shareholders, In our capacity as Statutory Auditors of Christian Dior SA and in accordance with Article L. 225-235 of the French Commercial Code (Code de commerce), we hereby report to you on the report prepared by the Chairman of your Company in accordance with Article L. 225-37 of the French Commercial Code for the year ended December 31, 2009. It is the Chairman’s responsibility to prepare and to submit for the Board of Directors’ approval a report on internal control and risk management procedures implemented by the Company and to provide the other information required by Article L. 225-37 of the French Commercial Code relating to matters such as corporate governance. Our role is to: • report on the information set out in the Chairman’s report in respect of the internal control and risk management procedures relating to the preparation and processing of accounting and fi nancial information, and • confi rm that the report also includes the other information required by Article L. 225-37 of the French Commercial Code. It should be noted that our role is not to verify the fairness of this other information. We conducted our work in accordance with professional standards applicable in France.
90 2009 Annual Report REPORT OF THE CHAIRMAN OF THE BOARD OF DIRECTORS Statutory Auditors’ report
Information on the internal control and risk management procedures relating to the preparation and processing of accounting and fi nancial information
P rofessional standards require that we perform the necessary procedures to assess the fairness of the information provided in the Chairman’s report in respect of the internal control and risk management procedures relating to the preparation and processing of accounting and fi nancial information. These procedures consist mainly in: • obtaining an understanding of the internal control and risk management procedures relating to the preparation and processing of the accounting and fi nancial information, on which the information presented in the Chairman’s Report is based and of the existing documentation; • obtaining an understanding of the work involved in the preparation of this information and of the existing documentation; • determining if any material weaknesses in the internal control procedures relating to the preparation and processing of the accounting and fi nancial information that we would have noted in the course of our work are properly disclosed in the Chairman’s report. On the basis of our work, we have nothing to report on the information in respect of the Company’s internal control and risk management procedures relating to the preparation and processing of the accounting and fi nancial information contained in the report prepared by the Chairman of the Board of Directors in accordance with Article L. 225-37 of the French Commercial Code.
Other information
We confi rm that the report prepared by the Chairman of the Board of Directors also contains the other information required by Article L. 225-37 of the French Commercial Code.
Courbevoie and Neuilly-sur-Seine, March 11, 2010 The Statutory Auditors
MAZARS ERNST & YOUNG et Autres Simon Beillevaire Jeanne Boillet
This is a free translation of the original French text for information purposes only.
2009 Annual Report 91 92 2009 Annual Report Consolidated fi nancial statements
1. Consolidated income statement 94
2. Consolidated statement of comprehensive gains and losses 95
3. Consolidated balance sheet 96
4. Consolidated statement of changes in equity 97
5. Consolidated cash fl ow statement 98
6. Notes to the consolidated fi nancial statements 100
7. Statutory Auditors’ report 161
2009 Annual Report 93 CONSOLIDATED FINANCIAL STATEMENTS Consolidated income statement
1. Consolidated income statement
(EUR millions, except for earnings per share) Notes 2009 2008 2007
Revenue 22-23 17,745 17,933 17,245
Cost of sales (6,422) (6,305) (6,060)
Gross margin 11,323 11,628 11,185
Marketing and selling expenses (6,422) (6,490) (6,118)
General and administrative expenses (1,545) (1,517) (1,457)
Profi t from recurring operations 22-23 3,356 3,621 3,610
Other operating income and expenses 24 (192) (153) (117)
Operating profi t 3,164 3,468 3,493
Cost of net fi nancial debt (242) (322) (272)
Other fi nancial income and expenses (155) (26) (45)
Net fi nancial income (expense) 25 (397) (348) (317)
Income taxes 26 (867) (904) (855)
Income (loss) from investments in associates 7 287
Net profi t before minority interests 1,902 2,224 2,328
Minority interests 1,207 1,428 1,448
Net profi t – Group share 695 796 880
Basic Group share of net earnings per share (EUR) 27 3.90 4.46 4.94
Number of shares on which the calculation is based 178,243,418 178,304,484 178,147,605
Diluted Group share of net earnings per share (EUR) 27 3.89 4.43 4.86
Number of shares on which the calculation is based 178,475,792 178,932,178 179,109,815
94 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of comprehensive gains and losses
2. Consolidated statement of comprehensive gains and losses
(EUR millions) 2009 2008 2007
Net profi t before minority interests 1,902 2,224 2,328
Translation adjustments (127) 250 (570)
Tax impact (20) 25 -
(147) 275 (570)
Change in value of available for sale fi nancial assets 114 (186) 8
Amounts transferred to income statement (11) (66) (29)
Tax impact (26) 21 18
77 (231) (3)
Change in value of hedges of future foreign currency cash fl ows 128 128 234
Amounts transferred to income statement (118) (211) (173)
Tax impact (2) 47 (43)
8 (36) 18
Change in value of vineyard land (53) 172 80
Tax impact 18 (59) (26)
(35) 113 54
Gains and losses recognized in equity (97) 121 (501)
Comprehensive gains and losses 1,805 2,345 1,827
Minority interests 1,138 1,532 1,142
COMPREHENSIVE GAINS AND LOSSES, GROUP SHARE 667 813 685
2009 Annual Report 95 CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheet
3. Consolidated balance sheet Assets (EUR millions) Notes 2009 2008 (1) 2007 (1) Brands and other intangible assets – net 3 11,370 11,199 10,641 Goodwill net 4 4,901 5,054 5,404 Property, plant and equipment – net 6 6,395 6,345 5,664 Investments in associates 7 215 219 132 Non-current available for sale fi nancial assets 8 540 375 823 Other non-current assets 766 858 614 Deferred tax 26 555 714 596 Non-current assets 24,742 24,764 23,874 Inventories and work in progress 9 5,802 5,963 5,000 Trade accounts receivable 10 1,515 1,721 1,675 Income taxes (2) 224 235 156 Other current assets 11 1,237 1,734 1,920 Cash and cash equivalents 13 2,533 1,077 1,615 Current assets 11,311 10,730 10,366 TOTAL ASSETS 36,053 35,494 34,240
Liabilities and equity (EUR millions) Notes 2009 2008 (1) 2007 (1) Share capital 363 363 363 Share premium account 2,205 2,205 2,205 Treasury shares and related derivatives (265) (256) (240) Revaluation reserves 378 354 433 Other reserves 3,107 2,595 1,958 Cumulative translation adjustment (219) (167) (263) Group share of net profi t 695 796 880 Equity – Group share 14 6,264 5,890 5,336 Minority interests 16 9,857 9,281 8,510 Total equity 16,121 15,171 13,846 Long term borrowings 17 5,163 4,615 3,387 Provisions 18 995 977 981 Deferred tax 26 4,023 4,016 3,761 Other non-current liabilities 19 3,086 3,254 4,147 Non-current liabilities 13,267 12,862 12,276 Short term borrowings 17 2,164 2,522 3,678 Trade accounts payable 1,956 2,348 2,167 Income taxes (2) 224 308 339 Provisions 18 354 326 298 Other current liabilities 20 1,967 1,957 1,636 Current liabilities 6,665 7,461 8,118 TOTAL LIABILITIES AND EQUITY 36,053 35,494 34,240
(1) The balance sheets as of December 31, 2008 and 2007 have been restated to refl ect the retrospective application as of January 1, 2007 of IAS 38 Intangible assets as amended. See Note 1.2. (2) Since December 31, 2008, the Group’s income tax liability with respect to the French tax consolidation structure is presented after offsetting advance tax payments. The balance sheet for the year ended December 31, 2007 was restated for comparability purposes.
96 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of changes in equity
4. Consolidated statement of changes in equity
Translation and revaluation reserves Total equity Hedges Net Treasury Available of future profi t Share shares and Cumulative for sale foreign and Number of Share premium related translation fi nancial currency Vineyard other Group Minority (EUR millions) shares capital account derivatives adjustment assets cash fl ows land Total reserves share interests Total
Notes 14.1 14.2 14.4 16 As of December 31, 2006 181,727,048 363 2,205 (229) (53) 164 38 216 365 2,244 4,948 8,026 12,974 Impact of application of IAS 38 as amended. See Note 1.2 (41) (41) (53) (94) As of December 31, 2006, after restatement 181,727,048 363 2,205 (229) (53) 164 38 216 365 2,203 4,907 7,973 12,880 Gains and losses recognized in equity (210) (1) (2) 18 (195) (195) (306) (501) Net profi t 880 880 1,448 2,328 Comprehensive gains and losses (210) (1) (2) 18 (195) 880 685 1,142 1,827 Stock option plan and similar expenses 27 27 26 53 (Acquisition)/disposal of treasury shares and related derivatives (11) (11) (22) 53 31 Capital increase in subsidiaries -11 Interim and fi nal dividends paid (261) (261) (544) (805) Changes in consolidation scope - (15) (15) Effects of purchase commitments for minority interests - (126) (126) As of December 31, 2007 181,727,048 363 2,205 (240) (263) 163 36 234 170 2,838 5,336 8,510 13,846 Income and expenses recognized directly in equity 96 (102) (18) 41 17 17 104 121 Net profi t 796 796 1,428 2,224 Comprehensive gains and losses 96 (102) (18) 41 17 796 813 1,532 2,345 Stock option plan and similar expenses 27 27 27 54 (Acquisition)/disposal of treasury shares and related derivatives (16) 25 9 (64) (55) Capital increase in subsidiaries -55 Interim and fi nal dividends paid (287) (287) (618) (905) Changes in consolidation scope -2020 Effects of purchase commitments for minority interests - (139) (139) Other (8) (8) 8 - As of December 31, 2008 181,727,048 363 2,205 (256) (167) 61 18 275 187 3,391 5,890 9,281 15,171 Income and expenses recognized directly in equity (52) 34 3 (13) (28) (28) (69) (97) Net profi t 695 695 1,207 1,902 Comprehensive gains and losses (52) 34 3 (13) (28) 695 667 1,138 1,805 Stock option plan and similar expenses 25 25 27 52 (Acquisition)/disposal of treasury shares and related derivatives (9) (22) (31) 11 (20) Capital increase in subsidiaries - - 29 29 Interim and fi nal dividends paid (287) (287) (603) (890) Changes in consolidation scope -33 Effects of purchase commitments for minority interests - (29) (29) As of December 31, 2009 181,727,048 363 2,205 (265) (219) 95 21 262 159 3,802 6,264 9,857 16,121
2009 Annual Report 97 CONSOLIDATED FINANCIAL STATEMENTS Consolidated cash fl ow statement
5. Consolidated cash fl ow statement
(EUR millions) Notes 2009 2008 2007 I - OPERATING ACTIVITIES AND OPERATING INVESTMENTS Operating profi t 3,164 3,468 3,493 Net increase in depreciation, amortization and provisions, excluding tax and fi nancial items 863 749 680 Other unrealized gains and losses, excluding fi nancial items (41) (34) (39) Dividends received 21 17 33 Other adjustments (43) (59) (22) Cash from operations before changes in working capital 3,964 4,141 4,145 Cost of net fi nancial debt: interest paid (250) (271) (252) Income taxes paid (906) (877) (925) Net cash from operations before changes in working capital 2,808 2,993 2,968 Change in inventories and work in progress 115 (829) (626) Change in trade accounts receivable 216 (19) (203) Change in trade accounts payable (373) 122 223 Change in other receivables and payables 191 (11) 82 Total change in working capital 149 (737) (524) Net cash from operating activities 2,957 2,256 2,444 Purchase of tangible and intangible fi xed assets (783) (1,071) (1,025) Proceeds from sale of tangible and intangible fi xed assets 26 100 58 Guarantee deposits paid and other operating investments (6) (9) (21) Operating investments (763) (980) (988) Net cash from (used in) operating activities and operating investments 2,194 1,276 1,456 II - INVESTING ACTIVITIES Purchase of non-current available for sale fi nancial assets (93) (155) (45) Proceeds from sale of non-current available for sale fi nancial assets 49 185 33 Impact of purchase and sale of consolidated investments 2.4 (277) (668) (329) Net cash from (used in) investing activities (321) (638) (341) III - TRANSACTIONS RELATING TO EQUITY Capital increases subscribed by minority interests 42 11 1 Purchase and proceeds from sale of treasury shares and related derivatives by the Group 21 (146) (3) Interim and fi nal dividends paid by Christian Dior SA 14.3 (287) (287) (261) Interim and fi nal dividends paid to minority interests in consolidated subsidiaries 16 (604) (618) (544) Net cash from (used in) transactions relating to equity (828) (1,040) (807) IV - FINANCING ACTIVITIES Proceeds from borrowings 2,826 2,555 2,209 Repayment of borrowings (2,496) (2,549) (1,956) Purchase and proceeds from sale of current available for sale fi nancial assets 321 (47) (278) Net cash from (used in) fi nancing activities 651 (41) (25) V - EFFECT OF EXCHANGE RATE CHANGES (114) 59 (45) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (I+II+III+IV+V) 1,582 (384) 238 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13 653 1,037 799 CASH AND CASH EQUIVALENTS AT END OF PERIOD 13 2,235 653 1,037 Transactions generating no change in cash: - acquisition of assets by means of fi nance leases 12 11 6
98 2009 Annual Report Notes to the consolidated financial statements
NOTE 1 ACCOUNTING POLICIES 100 NOTE 2 CHANGES IN CONSOLIDATION SCOPE 107 NOTE 3 BRANDS, TRADE NAMES AND OTHER INTANGIBLE ASSETS 111 NOTE 4 GOODWILL 113 NOTE 5 IMPAIRMENT TESTING OF INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIVES 114 NOTE 6 PROPERTY, PLANT AND EQUIPMENT 115 NOTE 7 INVESTMENTS IN ASSOCIATES 117 NOTE 8 NON-CURRENT AVAILABLE FOR SALE FINANCIAL ASSETS 117 NOTE 9 INVENTORIES AND WORK IN PROGRESS 118 NOTE 10 TRADE ACCOUNTS RECEIVABLE 119 NOTE 11 OTHER CURRENT ASSETS 120 NOTE 12 CURRENT AVAILABLE FOR SALE ASSETS 121 NOTE 13 CASH AND CASH EQUIVALENTS 121 NOTE 14 EQUITY 122 NOTE 15 SHARE PURCHASE OPTION PLANS 124 NOTE 16 MINORITY INTERESTS 127 NOTE 17 BORROWINGS 128 NOTE 18 PROVISIONS 130 NOTE 19 OTHER NON-CURRENT LIABILITIES 131 NOTE 20 OTHER CURRENT LIABILITIES 132 NOTE 21 FINANCIAL INSTRUMENTS AND MARKET RISK MANAGEMENT 132 NOTE 22 SEGMENT INFORMATION 138 NOTE 23 REVENUE AND EXPENSES BY NATURE 143 NOTE 24 OTHER OPERATING INCOME AND EXPENSES 144 NOTE 25 NET FINANCIAL INCOME/EXPENSE 144 NOTE 26 INCOME TAXES 145 NOTE 27 EARNINGS PER SHARE 148 NOTE 28 PROVISIONS FOR PENSIONS, MEDICAL COSTS AND SIMILAR COMMITMENTS 148 NOTE 29 OFF BALANCE SHEET COMMITMENTS 150 NOTE 30 RELATED PARTY TRANSACTIONS 153 NOTE 31 SUBSEQUENT EVENTS 154
2009 Annual Report 99 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
6. Notes to the consolidated fi nancial statements
NOTE 1 - ACCOUNTING POLICIES
1.1 General framework and environment These standards, amendments and interpretations do not have a material impact on the Group’s consolidated fi nancial statements. The consolidated fi nancial statements for the year ended The application of IFRS 8 does not alter the structure of published December 31, 2009 were established in accordance with fi gures nor the amount of goodwill allocated to each business international accounting standards and interpretations (IAS/ segment. The IAS 23 standard as amended has no impact on IFRS) adopted by the European Union and applicable on the determination of Wines and Spirits’ inventories’ production December 31, 2009. These standards and interpretations have cost, given that assets produced in large quantities on a repetitive been applied consistently to the fi scal years presented. The basis are outside its application scope. The impacts of IAS 38 consolidated fi nancial statements were approved for publication as amended are described below. by the Board of Directors on February 4, 2010. Fiscal year 2009 was affected by the consequences of the Impacts of the amendment to IAS 38 Intangible assets economic and fi nancial crisis which started in 2008. The Group’s consolidated fi nancial statements for the year ended As of fi scal year 2009, advertising and promotion expenses December 31, 2009 were prepared taking into consideration are recorded upon the receipt or production of goods or upon this context, particularly with respect to the valuation of current completion of services rendered. Previously, such costs were and non-current available for sale fi nancial assets and fi nancial recognized as expenses for the period in which they were instruments, the expected level of inventory turnover and the incurred, the cost of media campaigns in particular was time- recoverability of trade receivables. Assets whose value is assessed apportioned over the duration of these campaigns and the cost with reference to longer term prospects, especially intangible or of samples and catalogs was recognized when they were made real estate assets, have been valued using assumptions taking available to customers. The impact of this change in accounting into account a progressive recovery of economic activity in 2010, policy on consolidated equity amounts to 94 million euros as of and moderate growth rates in the following years. January 1, 2007; this amount breaks down as follows:
(EUR millions) Impact as of January 1, 2007 1.2 C hanges in the accounting framework Intangible assets (13) in 2009 Goodwill 6 Property, plant and equipment (7) Standards, amendments and interpretations for Deferred tax 40 which application is mandatory in 2009 Inventories and work in progress (3) The standards, amendments and interpretations applicable to Other current assets (117) the Group that have been implemented since January 1, 2009 Consolidated equity (94) relate to: of which: • IFRS 8 Operating segments; Group share (41) • amendments to IAS 1 Presentation of fi nancial statements; minority interests (53)
• amendment to IAS 38 Intangible assets, relating to the Other current assets relate to prepaid expenses recognized recognition of advertising and promotion expenses; in respect of samples and advertising materials (primarily for • amendments to IAS 23 on the capitalization of borrowing costs; Perfumes and Cosmetics). • amendments to IFRS 2 relating to the vesting conditions of Net profi t for fi scal years 2007 and 2008 was not restated, as share-based payments and the treatment of cancellations; the impact of applying IAS 38 as amended was considered not signifi cant, when compared to the impact as of January 1, 2007. • interpretation IFRIC 14 IAS 19 on the minimum funding requirements of defi ned benefi t plans and their interaction with the limit on a defi ned benefi t asset; • amendments to IFRS 7 relating to disclosures of fi nancial instruments.
100 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
Standards, amendments and interpretations for or other forms of judgment. This is particularly true of the which application is optional in 2009 valuation of intangible assets, purchase commitments for minority interests and of the determination of the amount of provisions for The following standards, amendments and interpretations contingencies and losses or for impairment of inventories and, applicable to the Group, whose mandatory application date is if applicable, deferred tax assets. Such hypotheses, estimates January 1, 2010, were not applied early in 2009; they relate to: or other forms of judgment which are undertaken on the basis • IFRS 3 (Revised) on business combinations; of the information available, or situations prevalent at the date of preparation of the accounts, may prove different from the • IAS 27 (Revised) on consolidated and separate fi nancial subsequent actual events. statements; • amendment to IAS 17 relating to land leases. 1.5 Methods of consolidation The application of these standards, amendments and The subsidiaries in which the Group holds a direct or indirect interpretations in 2010 is not expected to have a material impact de facto or de jure controlling interest are fully consolidated. on the Group’s consolidated fi nancial statements. In particular, since IAS 27 (Revised) and IFRS 3 (Revised) will be applied Jointly controlled companies are consolidated on a proportionate prospectively, goodwill recognized as of December 31, 2009 in basis. relation to purchase commitments for minority interests will be For distribution subsidiaries operating in accordance with the maintained in the balance sheet assets. See Note 1.10. contractual distribution arrangements with the Diageo Group, only the portion of assets and liabilities and results of operations 1.3 First-time adoption of IFRS relating to Group activities is included in the consolidated fi nancial statements (see Note 1.23). The fi rst accounts prepared by the Group in accordance with IFRS were the fi nancial statements for the year ended Companies where the Group has signifi cant infl uence but no December 31, 2005, with a transition date of January 1, 2004. controlling interest are accounted for using the equity method. IFRS 1 allowed for exceptions to the retrospective application of IFRS at the transition date. The procedures implemented 1.6 F oreign currency translation of the by the Group with respect to these exceptions are listed below: financial statements of foreign • business combinations: the exemption from retrospective application was not applied. The Christian Dior Group subsidiaries has retrospectively restated acquisitions made since 1988, The consolidated fi nancial statements are stated in euros; the the date of the initial consolidation of LVMH. IAS 36 fi nancial statements of subsidiaries stated in a different functional Impairment of Assets and IAS 38 Intangible Assets were currency are translated into euros: applied retrospectively as of this date; • at the period-end exchange rates for balance sheet items; • measurement of property, plant and equipment and intangible assets: the option to measure these assets at fair value at the • at the average rates for the period for income statement items. date of transition was not applied with the exception of the Translation adjustments arising from the application of these rates entire real estate holdings of Christian Dior Couture; are recorded in equity under “Cumulative translation adjustment”. • employee benefi ts: actuarial gains and losses previously deferred under French GAAP at the date of transition were recognized; 1.7 F oreign currency transactions and • foreign currency translation of the fi nancial statements of hedging of exchange rate risks foreign subsidiaries: translation reserves relating to the consolidation of subsidiaries that prepare their accounts in Foreign currency transactions of consolidated companies are foreign currency were reset to zero as of January 1, 2004 and translated to their functional currencies at the exchange rates offset against “Other reserves”; prevailing at the transaction dates. • share-based payment: IFRS 2 Share-Based Payment was Accounts receivable, accounts payable and debts denominated applied to all share subscription and share purchase option in foreign currencies are translated at the applicable exchange plans that were open at the date of transition, including those rates at the balance sheet date. Unrealized gains and losses created before November 7, 2002, the date before which resulting from this translation are recognized: application is not mandatory. • within cost of sales in the case of commercial transactions; • within net fi nancial income/expense in the case of fi nancial 1.4 Use of estimates transactions. For the purpose of preparing the consolidated financial Foreign exchange gains and losses arising from the translation statements, measurement of certain balance sheet and income of inter-company transactions or receivables and payables statement items requires the use of hypotheses, estimates denominated in foreign currencies, or from their elimination,
2009 Annual Report 101 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
are recorded in the income statement unless they relate to Amortization and any impairment expense of brands and trade long term inter-company fi nancing transactions which can be names are recognized within “Other operating income and considered as transactions relating to equity. In the latter case, expenses”. translation adjustments are recorded in equity under “Cumulative Impairment tests are carried out for brands, trade names and other translation adjustment”. intangible assets using the methodology described in Note 1.12. Derivatives which are designated as hedges of commercial Research expenditure is not capitalized. New product foreign currency transactions are recognized in the balance development expenditure is not capitalized unless the fi nal sheet at their market value at the balance sheet date and any decision to launch the product has been taken. change in the market value of such derivatives is recognized: Intangible assets other than brands and trade names are amortized • within cost of sales for the effective portion of hedges of over the following periods: receivables and payables recognized in the balance sheet at the end of the period; • leasehold rights, key money: based on market conditions generally between 100% and 200% of the lease period; • within equity (as a revaluation reserve) for the effective portion of hedges of future cash fl ows (this part is transferred • development expenditure: 3 years at most; to cost of sales at the time of recognition of the hedged assets • software: 1 to 5 years. and liabilities); • within net fi nancial income/expense for the ineffective portion of hedges; changes in the value of discount and premium 1.9 Goodwill associated with forward contracts, as well as the time value When the Group takes de jure or de facto control of an enterprise, component of options, are systematically considered as its assets, liabilities and contingent liabilities are estimated at their ineffective portions. fair value and the difference between the cost of taking exclusive When derivatives are designated as hedges of subsidiaries’ control and the Group’s share of the fair value of those assets, equity in foreign currency (net investment hedge), any change in liabilities and contingent liabilities is recognized as goodwill. market value of the derivatives is recognized within equity under The cost of taking control is the price paid by the Group in “Cumulative translation adjustment” for the effective portion and the context of an acquisition, or an estimate of this price if the within net fi nancial income/expense for the ineffective portion. transaction is carried out without any payment of cash. Market value changes of derivatives not designated as hedges Pending specifi c guidance from standards applicable as of are recorded within net fi nancial income/expense. December 31, 2009, the difference between the cost and carrying amount of minority interests purchased after control is acquired is recognized as goodwill. Starting January 1, 2010, in accordance 1.8 B rands, trade names and other with IAS 27 (Revised), this difference will be deducted from intangible assets equity. Only acquired brands and trade names that are well known and Goodwill is accounted for in the functional currency of the individually identifi able are recorded as assets at their values acquired entity. calculated on their dates of acquisition. Goodwill is not amortized but is subject to annual impairment Costs incurred in creating a new brand or developing an existing testing using the methodology described in Note 1.12. Any brand are expensed. impairment expense recognized is included within “Other operating income and expenses”. Brands, trade names and other intangible assets with fi nite useful lives are amortized over their useful lives. The classifi cation of a brand or trade name as an asset of defi nite or indefi nite useful 1.10 Purchase commitments for minority life is generally based on the following criteria: interests • the brand or trade name’s positioning in its market expressed in terms of volume of activity; international presence and The Group has granted put options to minority shareholders of certain fully consolidated subsidiaries. notoriety; Since IFRSs do not specifi cally address this issue, the Group • its expected long term profi tability; recognizes such commitments as follows: • its degree of exposure to changes in the economic environment; • the contractual value of the commitment at closing date appears • any major event within its business segment liable to compromise in “Other non-current liabilities”; its future development; • the corresponding minority interests are reclassifi ed and • its age. included in the above amount; Amortizable lives of brands and trade names, depending on their • the difference between the amount of the commitment and estimated longevity, range from 15 to 40 years. the reclassifi ed minority interests is recorded as goodwill.
102 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
This accounting policy has no effect on the presentation of 1.12 Impairment testing of fixed assets minority interests within the income statement. Intangible and tangible fi xed assets are subject to impairment Pursuant to IAS 27 (Revised), as of January 1, 2010, fl uctuations testing whenever there is any indication that an asset may between the amount of the commitment and that of minority be impaired, and in any event at least annually in the case of interests will be recognized as a deduction from equity. Since intangible assets with indefi nite useful lives (mainly brands, this provision will be applied prospectively, goodwill recognized trade names and goodwill). When the carrying amount of such as of December 31, 2009 for commitments existing at that date assets is greater than the higher of their value in use or net will be maintained as assets on the balance sheet and the impact selling price, the resulting impairment loss is recognized within of any subsequent fl uctuations in such commitments, net of “Other operating income and expenses”, allocated in priority minority interests, will continue to be recorded as goodwill. to any existing goodwill. Value in use is based on the present value of the cash fl ows 1.11 Property, plant and equipment expected to be generated by these assets. Net selling price is estimated by comparison with recent similar transactions or With the exception of vineyard land and the entire real estate on the basis of valuations performed by independent experts. holding of Christian Dior Couture, the gross value of property, plant and equipment is stated at acquisition cost. Any borrowing Cash fl ows are forecast for each business segment defi ned as costs incurred prior to the placed-in-service date or during the one or several brands or trade names under the responsibility construction period of assets are capitalized. of a specifi c management team. Smaller scale cash generating units, e.g. a group of stores, may be distinguished within a Vineyard land is recognized at the market value at the balance particular business segment. sheet date. This valuation is based on offi cial published data for recent transactions in the same region, or on independent Brands and goodwill are chiefl y valued on the basis of the present appraisals. Any difference compared to historical cost is value of forecast cash fl ows, or of comparable transactions recognized within equity in “Revaluation reserves”. If market (i.e. using the revenue and net profi t coeffi cients employed for value falls below acquisition cost the resulting impairment is recent transactions involving similar brands), or of stock market charged to the income statement. multiples observed for related businesses. Other complementary methods may also be employed: the royalty method, involving Vines for champagnes, cognacs and other wines produced by equating a brand’s value with the present value of the royalties the Group, are considered as biological assets as defi ned in required to be paid for its use; the margin differential method, IAS 41 Agriculture. As their valuation at market value differs applicable when a measurable difference can be identifi ed little from that recognized at historical cost, no revaluation is between the amount of revenue generated by a branded product undertaken for these assets. in comparison with an unbranded product; and fi nally the Investment property is measured at cost. equivalent brand reconstitution method involving, in particular, estimation of the amount of advertising required to generate a Assets acquired under fi nance leases are capitalized on the similar brand. basis of the lower of their market value and the present value of future lease payments. The forecast data required for the cash fl ow methods is based on budgets and business plans prepared by management of Property, plant and equipment is depreciated on a straight-line the related business segments. Detailed forecasts cover a fi ve- basis over its estimated useful life: year period (with the exception of Christian Dior Couture, • Buildings including investment property 20 to 50 years; which prepares three-year forecasts), a period which may be extended in the case of certain brands undergoing strategic • Machinery and equipment 3 to 25 years; repositioning, or which have a production cycle exceeding fi ve years. Moreover, a fi nal value is also estimated, which • Store improvements 3 to 10 years; corresponds to the capitalization in perpetuity of cash fl ows • Producing vineyards 18 to 25 years. most often arising from the last year of the plan. When several forecast scenarios are developed, the probability of occurrence The depreciable amount of property, plant and equipment of each scenario is assessed. Forecast cash fl ows are discounted comprises its acquisition cost less estimated residual value. on the basis of the rate of return to be expected by an investor Expenses for maintenance and repairs are charged to the income in the applicable business and include assessment of the risk statement as incurred. factor associated with each business.
2009 Annual Report 103 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
1.13 Available for sale financial assets 1.15 Trade accounts receivable, loans and Available for sale fi nancial assets are classifi ed as current or other receivables non current based on their nature and the estimated period for Trade accounts receivable, loans and other receivables are which they will be held. recorded at their face value. A provision for impairment is Non-current available for sale fi nancial assets mainly include recorded if their net realizable value, based on the probability participating investments (strategic and non-strategic). of their collection, is less than their carrying amount. Current available for sale fi nancial assets include temporary The amount of long term loans and receivables (i.e. those falling investments in shares, shares of “SICAV”, “FCP” and other due in more than one year) is subject to discounting, the effects mutual funds, excluding investments made as part of the daily of which are recognized under net fi nancial income/expense cash management, which are accounted for as cash and cash using the effective interest rate method. equivalents (see Note 1.16). Available for sale fi nancial assets are measured at their listed 1.16 Cash and cash equivalents value at balance sheet date in the case of quoted investments, and at their net realizable value at that date in the case of Cash and cash equivalents comprise cash on hand and highly unquoted investments. liquid monetary investments subject to an insignifi cant risk of changes in value. Positive or negative changes in value are taken to equity within “Revaluation reserves”. If an impairment loss is judged to be Monetary investments are measured at their market value defi nitive, an impairment is recognized and charged to net and at the exchange rate prevailing at the balance sheet date, fi nancial income/expense; the impairment is only reversed through with any changes in value recognized as part of net fi nancial the income statement at the time of sale of the corresponding income/expense. available for sale fi nancial assets. 1.17 Provisions 1.14 Inventories and work in progress A provision is recognized whenever an obligation exists towards Inventories other than wine produced by the Group are recorded a third party resulting in a probable disbursement for the Group, at the lower of cost (excluding interest expense) and net realizable the amount of which may be reliably estimated. value; cost comprises manufacturing cost (fi nished goods) or When execution of its obligation is expected to be deferred by purchase price, plus incidental costs (raw materials, merchandise). more than one year, the provision amount is discounted, the Wine produced by the Group, especially champagne, is measured effects of which are recognized in net fi nancial income/expense at the applicable harvest market value, as if the harvested grapes using the effective interest rate method. had been purchased from third parties. Until the date of the harvest, the value of grapes is calculated pro rata temporis on the basis of the estimated yield and market value. 1.18 Borrowings Inventories are valued using the weighted average cost or Borrowings are measured at amortized cost, i.e. nominal value net FIFO methods. of premium and issue expenses, which are charged progressively to net fi nancial income/expense using the effective interest Due to the length of the aging process required for champagne method. and cognac, the holding period for these inventories generally exceeds one year. However, in accordance with industry practices, In the case of hedging against fl uctuations in the capital amount these inventories are nevertheless classifi ed as current assets. of borrowings resulting from changes in interest rates, both the hedged amount of borrowings and the related hedges are Provisions for impairment of inventories are chiefl y recognized measured at their market value at the balance sheet date, with any for businesses other than Wines and Spirits. They are generally changes in those values recognized within net fi nancial income/ required because of product obsolescence (date of expiry, end expense for the period. Market value of hedged borrowings is of season or collection, etc.) or lack of sales prospects. determined using similar methods as those described hereafter in Note 1.19. In the case of hedging against fl uctuations in future interest payments, the related borrowings remain measured at their amortized cost whilst any changes in value of the effective hedge portions are taken to equity as part of revaluation reserves.
104 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
Changes in value of non-hedge derivatives, and of the ineffective LVMH treasury shares and related derivatives portions of hedges, are recognized within net fi nancial income/ Purchases and sales by LVMH of its own shares, resulting in expense. changes in percentage holdings of the Christian Dior Group in Financial debt bearing embedded derivatives is measured at LVMH, are treated in the consolidated accounts of the Christian market value; changes in market value are recognized within Dior Group as acquisitions and disposals of minority interests. net fi nancial income/expense. For the sake of simplicity of presentation, the treatment of these Net fi nancial debt comprises short and long term borrowings, the minority interests was modifi ed in 2007 and they have been market value at the balance sheet date of interest rate derivatives, recognized as a group over the period since that date. less the value of current available for sale fi nancial assets, other From January 1, 2010, in accordance with the amendment to current fi nancial assets, in addition to the market value at the IFRS 3, changes in the percentage of the Christian Dior Group’s balance sheet date of related foreign exchange derivatives, and ownership interest in LVMH will be taken to equity. As the cash and cash equivalents at that date. provisions of this amendment will be applied prospectively, goodwill recognized as of December 31, 2009 will be maintained as assets on the balance sheet. 1.19 Derivatives Options to purchase LVMH shares that are held by the Group The Group enters into derivative transactions as part of its are measured at their acquisition cost and recognized as a strategy for hedging foreign exchange and interest rate risks. deduction from consolidated equity. IAS 39 subordinates the use of hedge accounting to demonstration and documentation of the effectiveness of hedging relationships 1.21 Pensions, medical costs and other when hedges are implemented and subsequently throughout their existence. A hedge is considered to be effective if the ratio employee or retired employee of changes in the value of the derivative to changes in the value commitments of the hedged underlying remains within a range of 80 to 125%. When payments are made by the Group in respect of retirement Derivatives are recognized in the balance sheet at their market benefi ts, pensions, medical costs and other commitments to value at the balance sheet date. Changes in their value are third party organizations which assume the payment of benefi ts accounted for as described in Note 1.7 in the case of foreign or medical expense reimbursements, these contributions are exchange hedges, and as described in Note 1.18 in the case of expensed in the period in which they fall due with no liability interest rate hedges. recorded on the balance sheet. Market value is based on market data and on commonly used When retirement benefi ts, pensions, medical costs and other commitments are to be borne by the Group, a provision is valuation models, and may be confi rmed in the case of complex recorded in the balance sheet in the amount of the corresponding instruments by reference to values quoted by independent actuarial commitment, and any changes in this commitment fi nancial institutions. are expensed within profi t from recurring operations over the Derivatives with maturities in excess of twelve months are period, including effects of discounting. disclosed as non-current assets and liabilities. When this commitment is either partially or wholly funded by payments made by the Group to external fi nancial organizations, these payments are deducted from the actuarial commitment 1.20 Christian Dior and LVMH treasury recorded in the balance sheet. shares and related derivatives The actuarial commitment is calculated based on assessments Christian Dior treasury shares that are specifi cally designed for the country and the Group company concerned. In particular, these assessments include Christian Dior shares that are held by the Group are measured assumptions regarding salary increases, infl ation, life expectancy, at their acquisition cost and recognized as a deduction from staff turnover and the return on plan assets. consolidated equity, irrespective of the purpose for which they are held. Cumulative actuarial gains or losses are amortized if, at the year-end, they exceed 10% of the higher of the total commitment The cost of disposals of shares is determined by allocation category or the market value of the funded plan assets. These gains or (see Note 14.2) using the FIFO method. Gains and losses on losses are amortized in the period following their recognition disposal, net of income taxes, are taken directly to equity. over the average residual active life of the relevant employees.
2009 Annual Report 105 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
1.22 Current and deferred tax Where this practice is applied, revenue and the corresponding trade receivables are reduced by the estimated amount of such Deferred tax is recognized in respect of temporary differences returns, and a corresponding entry is made to inventories. The arising between the amounts of assets and liabilities for purposes estimated rate of returns is based on statistics of historical returns. of consolidation and the amounts resulting from application of tax regulations. Businesses undertaken in partnership with Diageo Deferred tax is measured on the basis of the income tax rates enacted at the balance sheet date; the effect of changes in rates A signifi cant proportion of revenue for the Group’s Wines is recognized during the periods in which changes are enacted. and Spirits businesses are achieved within the framework of distribution agreements with Diageo generally taking the form Future tax savings from tax losses carried forward are recorded of shared entities which sell and deliver both groups’ brands to as deferred tax assets on the balance sheet and impaired where customers. On the basis of the distribution agreements, which appropriate; only amounts for which future use is deemed provide specifi c rules for allocating these entities’ net profi t and probable are recognized. assets and liabilities between LVMH and Diageo, the Group Deferred tax assets and liabilities are not discounted. only recognizes the portion of their revenue and expenses attributable to its own brands. Taxes payable in respect of the distribution of retained earnings of subsidiaries are provided for if distribution is deemed probable. 1.24 Advertising and promotion expenses 1.23 Revenue recognition Advertising and promotion expenses include the costs of producing advertising media, purchasing media space, manufacturing samples and publishing catalogs, and in general, the cost of all Revenue activities designed to promote the Group’s brands and products. Revenue mainly comprises direct sales to customers and sales Advertising and promotion expenses are recorded upon receipt through distributors. Sales made in stores owned by third parties or production of goods or upon completion of services rendered. are treated as retail transactions if the risks and rewards of ownership of the inventories are retained by the Group. Direct sales to customers are made through retail stores for 1.25 Stock option and similar plans Fashion and Leather Goods, certain Perfumes and Cosmetics, Share purchase and subscription option plans give rise to certain Watches and Jewelry brands and Selective Retailing. recognition of an expense based on the expected benefi t granted These sales are recognized at the time of purchase by retail to benefi ciaries calculated, using the Black & Scholes method, customers. at the date of the Board Meeting that granted the options. Wholesale sales through distributors are made for Wines and For bonus share plans, the expected benefi t is calculated on Spirits, and certain Perfumes and Cosmetics and Watches and the basis of the closing share price on the day before the Board Jewelry brands. The Group recognizes revenue when title Meeting at which the plan is instituted, and dividends expected transfers to third party customers. to accrue during the vesting period. Revenue includes shipment and transportation costs re-billed For cash-settled compensation plans index-linked to the change in to customers only when these costs are included in products’ LVMH share price, the gain over the vesting period is estimated selling prices as a lump sum. based on the type of plan as described above. Revenue is presented net of all forms of discount. In particular, For all plans, the expense is apportioned on a straight-line payments made in order to have products referenced or, in basis over the vesting period, with a corresponding impact on accordance with agreements, to participate in advertising reserves for share purchase and subscription option plans, and campaigns with the distributors, are deducted from revenue. on provisions for cash-settled plans. After the vesting period has expired, only cash-settled plans Provision for product returns have an impact on the income statement, in the amount of the Perfumes and Cosmetics and, to a lesser extent, Fashion and change in the LVMH share price. Leather Goods and Watches and Jewelry companies may accept the return of unsold or outdated products from their customers and distributors.
106 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
1.26 Definition of Profit from recurring 1.27 Earnings per share operations and Other operating Earnings per share are calculated based on the weighted average income and expenses number of shares outstanding during the period, excluding treasury shares. The Group’s main business is the management and development of its brands and trade names. Profi t from recurring operations Diluted earnings per share are calculated based on the weighted is derived from these activities, whether they are recurring or average number of shares before dilution and adding the weighted non-recurring, core or incidental transactions. average number of shares that would result from the exercise of all existing purchase options during the period or any other diluting Other operating income and expenses comprises income statement instrument. It is assumed for the purposes of this calculation that items which, due to their nature, amount or frequency, may not be the funds received from the exercise of options, supplemented by considered as inherent to the Group’s recurring operations. This the expense to be recognized for stock option and similar plans caption refl ects in particular the impact of changes in the scope (see Note 1.25), would be employed to re-purchase Christian of consolidation and the impairment of brands and goodwill, as Dior shares at a price corresponding to their average trading well as any signifi cant amount of gains or losses arising on the price over the period. Diluting instruments issued by subsidiaries disposal of fi xed assets, restructuring costs, costs in respect of are also taken into account in the determination of the Group disputes, or any other non-recurring income or expense which share of net profi t. may otherwise distort the comparability of profi t from recurring operations from one period to the next.
NOTE 2 - CHANGES IN CONSOLIDATION SCOPE
2.1 Fiscal year 2009
Wines and Spirits In August 2009, the Group acquired from Groupe Arnault for Cheval Blanc has been consolidated on a proportionate basis 238 million euros a 50% stake in the wine estate Château Cheval since August 2009. The table below summarizes the provisional Blanc (Gironde, France), producer of the eponymous premium purchase price allocation, on the basis of Château Cheval Blanc’s Saint-Emilion wine classifi ed as Grand Cru classé A. Château balance sheet as of August 12, 2009:
(EUR millions) Allocation of purchase price Carrying amount Brand 183 - Vines and vineyard land 35 - Other tangible assets 34 Inventories 94 Working capital, excluding inventories (11) (8) Net fi nancial debt 88 Deferred tax (76) - Net assets acquired (50%) 151 8 Goodwill 87 TOTAL COST OF ACQUISITION 238
Goodwill corresponds to Château Cheval Blanc’s winemaking know-how, together with the synergies generated by its integration within the Wines and Spirits business group.
2009 Annual Report 107 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
2.2 Fiscal year 2008
Wines and Spirits Watches and Jewelry In February 2008, the Group acquired the entire share capital In April 2008, the Group acquired the entire share capital of the Spanish winery Bodega Numanthia Termes, a producer of the Swiss watchmaker Hublot for total consideration of of wines from the Toro region, for total consideration of 306 million euros (486 million Swiss francs), including 2 million 27 million euros. This acquisition was consolidated with effect euros in acquisition costs. Hublot was fully consolidated with from March 2008. effect from May 2008. The table below summarizes the fi nal purchase price allocation, on the basis of Hublot’s balance sheet In December 2008, the Group acquired the entire share capital as of May 1, 2008: of the Montaudon champagne house, owner of its eponymous brand, for total consideration of 30 million euros, including earnout payments estimated at 4 million euros. This acquisition has been consolidated with effect from January 1, 2009.
(EUR millions) Allocation of purchase price Carrying amount Brand 219 - Property, plant and equipment 77 Other non-current assets 12 Inventories 39 43 Working capital, excluding inventories (3) (5) Net fi nancial debt (3) (3) Deferred tax (54) (6) Provisions (22) - Net assets acquired 184 38 Goodwill 122 TOTAL COST OF ACQUISITION 306
The goodwill mainly represents the company’s expertise in designing and manufacturing timepieces, and the synergies arising from the brand’s integration into the distribution network of the Watches and Jewelry business group.
Other activities • The equity stake in the Les Echos media group, acquired in was 244 million euros, including 4 million euros in acquisition December 2007 and recognized under non-current available costs and excluding the assumption by the Group of Pearson’s for sale fi nancial assets as of December 31, 2007, was fully fi nancial debt with respect to the Les Echos group, which consolidated with effect from January 1, 2008. The total amounted to 107 million euros. consideration paid in 2007 for 100 percent of the share capital
The table below summarizes the purchase price allocation, on the basis of the balance sheet for the Les Echos group as of January 1, 2008:
(EUR millions) Allocation of purchase price Carrying amount Brands and other intangible assets 147 5 Property, plant and equipment 44 Other non-current assets 22 Working capital (29) (26) Receivable vis-à-vis Pearson, assigned to the Group 107 107 Cash and cash equivalents 21 21 Deferred tax (48) (1) Provisions (14) (8) Net assets acquired 190 104 Goodwill 161 TOTAL COST OF ACQUISITION 351
108 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
Brands and other intangible assets essentially comprise the In October 2008, the Group acquired a 90% equity stake in fi nancial daily Les Echos and subscriber databases. These intangible Royal Van Lent, the Dutch designer and builder of yachts sold assets are amortized over periods of no more than fi fteen years. under the Royal Van Lent-Feadship brand, with the remaining The amount recognized for goodwill mainly represents the human 10% stake of the share capital being subject to a purchase capital formed by the editorial teams of the Les Echos group, commitment. Royal Van Lent was fully consolidated with which cannot be isolated on the balance sheet. effect from October 2008. The table below summarizes the fi nal allocation of the purchase price of 362 million euros, including The business of the financial daily La Tribune, sold in acquisition costs in the amount of 3 million euros, on the basis February 2008, was deconsolidated with effect from this date. of Royal Van Lent’s balance sheet as of October 1, 2008:
(EUR millions) Allocation of purchase price Carrying amount Brands and other intangible assets 92 - Non-current assets 55 Inventories and work in progress 47 47 Other current assets 18 18 Non-current liabilities (11) (9) Current liabilities (15) (16) Deferred tax (23) - Minority interests (14) (14)
Net assets acquired 99 31 Goodwill 263
TOTAL COST OF ACQUISITION 362
Goodwill represents the company’s know-how in the design and In May 2007, the Group increased its investment in Newton building of luxury yachts, as well as its relations with customers Vineyards from 80% to 90%, for a total amount of 5 million forged over time. US dollars.
Christian Dior Couture Fashion and Leather Goods In January 2008, Christian Dior Couture acquired 87% of In May 2007, the Group increased its investment in Fendi from the capital of John Galliano SA, a company specializing in the 94% to 100%, for an amount of 66 million euros. creation and concession under license of fashion items and luxury products, for total consideration of 17 million euros. Watches and Jewelry 2.3 Fiscal year 2007 Omas was divested in October 2007.
Wines and Spirits Selective Retailing In May 2007, the Group acquired for 25 million euros 55% of In September 2007, the Group acquired a distribution license in the share capital of Wen Jun Spirits and Wen Jun Spirits Sales, Vietnam for local duty free operators on a joint-venture basis; which produce and distribute white liquor in China. Wen Jun the acquisition price, 52 million US dollars, represents the value group was fully consolidated as of the second half of the year. of the distribution rights and inventories.
2009 Annual Report 109 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
2.4 Impact of changes in the scope of consolidation on cash and cash equivalents
(EUR millions) 2009 2008 2007 Purchase price of consolidated investments (287) (778) (352) Positive cash balance/(net overdraft) of companies acquired 9 153 16 Proceeds from sale of consolidated investments 1 - 9 (Positive cash balance)/net overdraft of companies sold - (43) (2) IMPACT OF CHANGES IN THE SCOPE OF CONSOLIDATION ON CASH AND CASH EQUIVALENTS (277) (668) (329)
• In 2009, the main impacts of acquisitions of consolidated - cash and cash equivalents of the Les Echos group in the investments on the Group’s cash and cash equivalents break amount of 21 million euros. down as follows: - lastly, 17 million euros for the acquisition of John Galliano SA. - 238 million euros for the acquisition of 50% of Cheval Blanc; Amounts in respect of the sale of consolidated investments - 24 million euros for the acquisition of minority interests in mainly correspond to impacts of the disposal of La Tribune. certain subsidiaries of Sephora Europe. • In 2007, the impact on the Group’s cash and cash equivalents of acquisitions of consolidated investments was related to: • In 2008, the main impacts of acquisitions of consolidated investments on the Group’s cash and cash equivalents broke - the acquisition of Les Echos group for 240 million euros, down as: not consolidated as of this date; - 303 million euros for the acquisition of Hublot group; - the acquisition of minority interests in Fendi for 66 million euros; - 236 million euros for the acquisition of Royal Van Lent; - 20 million euros paid during the year for the acquisition in - 29 million euros for the acquisition of Montaudon; Vietnam of a local duty-free operator’s distribution license; - 27 million euros for the acquisition of Bodega Numanthia - and fi nally to the acquisition of 55% of the Wen Jun group Termes; for 8 million euros.
2.5 Impact of acquisitions on net profit for the year Acquisitions had no material impact on net profi t for the years 2009 and 2007. If the 2008 acquisitions had been carried out as of January 1, the impact on the consolidated income statement would have been as follows:
2008 2008 Published Pro forma consolidated Pro forma consolidated income (EUR millions) income statement restatements statement Revenue 17,933 100 18,033 Profi t from recurring operations 3,621 9 3,630 Net profi t, Group share 796 4 800
110 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
NOTE 3 - BRANDS, TRADE NAMES AND OTHER INTANGIBLE ASSETS
2009 2008 (1) 2007 (1) Amortization and (EUR millions) Gross impairment Net Net Net Brands 9,538 (386) 9,152 8,920 8,519 Trade names 3,119 (1,266) 1,853 1,909 1,819 License rights 40 (25) 15 15 15 Leasehold rights 338 (221) 117 121 123 Software 406 (295) 111 110 85 Other 259 (137) 122 124 80 TOTAL 13,700 (2,330) 11,370 11,199 10,641 of which: assets held under fi nance leases 14 (14) - - -
(1) See Note 1.2 Application IAS 38 as amended.
3.1 Movements in the year Movements during the year ended December 31, 2009 in the net amounts of brands, trade names and other intangible assets were as follows:
Gross value Other (EUR millions) Brands Trade names intangible assets Total As of December 31, 2008 (1) 9,275 3,218 982 13,475 Acquisitions - - 83 83 Disposals and retirements - - (25) (25) Changes in the scope of consolidation 277 - (4) 273 Translation adjustment (2) (99) (5) (106) Other movements (12) - 12 - AS OF DECEMBER 31, 2009 9,538 3,119 1,043 13,700
(1) See Note 1.2 Application IAS 38 as amended.
Accumulated amortization and impairment Other (EUR millions) Brands Trade names intangible assets Total As of December 31, 2008 (1) (355) (1,309) (613) (2,277) Amortization expense (32) - (101) (133) Impairment expense - - - - Disposals and retirements - - 24 24 Changes in the scope of consolidation - - 6 6 Translation adjustment 1 43 6 50 As of December 31, 2009 (386) (1,266) (678) (2,330) NET CARRYING AMOUNT AS OF DECEMBER 31, 2009 9,152 1,853 365 11,370
(1) See Note 1.2 Application IAS 38 as amended.
Changes in the scope of consolidation are mainly attributable to the acquisition of a 50% stake in Château Cheval Blanc in the amount of 183 million euros, and the recognition of the Royal Van Lent-Feadship brand in the amount of 92 million euros.
2009 Annual Report 111 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
The translation adjustment is mainly attributable to intangible The gross value of amortized brands was 752 million euros as assets recognized in US dollars, following the change in the of December 31, 2009. exchange rate of this currency with respect to the euro during the fi scal year. The DFS trade name and the Donna Karan brand were particularly affected.
3.2 Movements in prior years
Other Net carrying amount Trade intangible (EUR millions) Brands names assets Total As of December 31, 2006 (1) 8,422 2,003 447 10,872 Acquisitions 60 - 109 169 Disposals and retirements - - (6) (6) Changes in the scope of consolidation (18) - 15 (3) Amortization expense (6) - (85) (91) Impairment expense (10) - (1) (11) Translation adjustment (103) (184) (14) (301) Other movements 174 - (162) 12 As of December 31, 2007 8,519 1,819 303 10,641 Acquisitions - - 119 119 Disposals and retirements (3) - (3) (6) Changes in the scope of consolidation 360 - 35 395 Amortization expense (21) - (102) (123) Impairment expense - - - - Translation adjustment 64 90 9 163 Other movements 1 - 9 10 AS OF DECEMBER 31, 2008 8,920 1,909 370 11,199
(1) See Note 1.2 Application IAS 38 as amended.
Changes in the scope of consolidation for the year ended December 31, 2008 were mainly attributable to the acquisition of Hublot in the amount of 219 million euros and the acquisition of the Les Echos media group for 147 million euros. See also Note 2.
In June 2007, the Group acquired ownership of the Belvedere to the license, amounting to 244 million US dollars, which were brand in the United States for 83 million US dollars; until that recognized under “Other intangible assets”, were reclassifi ed date, the Group owned the brand in the rest of the world but under “Brands”. held it under license in the United States. The rights attached
112 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
3.3 Brands and trade names The breakdown of brands and trade names by business group is as follows:
2009 2008 2007 Amortization (EUR millions) Gross and impairment Net Net Net Christian Dior Couture 34 - 34 47 25 Wines and Spirits 2,958 (21) 2,937 2,755 2,813 Fashion and Leather Goods 3,866 (323) 3,543 3,565 3,563 Perfumes and Cosmetics 1,282 (20) 1,262 1,264 1,263 Watches and Jewelry 1,173 (6) 1,167 1,166 835 Selective Retailing 3,072 (1,219) 1,853 1,909 1,820 Other activities 272 (63) 209 123 19 BRANDS AND TRADE NAMES 12,657 (1,652) 11,005 10,829 10,338
The brands and trade names recognized in the table above are • Other activities: the publications of the media group Les Echos- those that the Group has acquired. The principal acquired brands Investir and the Royal Van Lent-Feadship brand. and trade names as of December 31, 2009 are: These brands and trade names are recognized in the balance • Wines and Spirits: Hennessy, Moët & Chandon, Veuve sheet at their value determined as of the date of their acquisition Clicquot, Krug, Château d’Yquem, Château Cheval Blanc, by the Group, which may be much less than their value in use or Belvedere, Glenmorangie, Newton Vineyards and Numanthia their net selling price as of the closing date for the consolidated Termes; fi nancial statements. This is notably the case for the brands Louis Vuitton, Christian Dior Couture, Veuve Clicquot, and • Fashion and Leather Goods: Louis Vuitton, Fendi, Donna Parfums Christian Dior, or the trade name Sephora, with the Karan New York, Céline, Loewe, Givenchy, Kenzo, Thomas understanding that this list must not be considered as exhaustive. Pink, Berluti, and Pucci; Brands developed by the Group, notably Hennessy, Moët & • Perfumes and Cosmetics: Parfums Christian Dior, Guerlain, Chandon, Dom Pérignon, Mercier and Ruinart champagnes, Parfums Givenchy, Make Up for Ever, Benefi t Cosmetics, as well as the De Beers jewelry trade name developed as a Fresh and Acqua di Parma; joint venture with the De Beers group, are not capitalized in • Watches and Jewelry: TAG Heuer, Zenith, Hublot, Chaumet the balance sheet. and Fred; Please refer also to Note 5 for the impairment testing of brands, • Selective Retailing: DFS Galleria, Sephora and Le Bon Marché; trade names and other intangible assets with indefi nite useful lives.
NOTE 4 - GOODWILL
(EUR millions) 2009 2008 (1) 2007 (1) Gross Impairment Net Net Net Goodwill arising on consolidated investments 5,057 (1,095) 3,962 3,968 3,322 Goodwill arising on purchase commitments for minority interests 942 (3) 939 1,086 2,082 TOTAL 5,999 (1,098) 4,901 5,054 5,404
(1) See Note 1.2 Application IAS 38 as amended.
Please refer also to Note 19 for goodwill arising on purchase commitments for minority interests.
2009 Annual Report 113 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
Changes in net goodwill during the fi scal years presented break down as follows:
(EUR millions) 2009 2008 (1) 2007 (1) Gross Impairment Net Net Net As of January 1 6,143 (1,089) 5,054 5,404 5,126 Changes in the scope of consolidation (8) 27 19 687 66 Changes in purchase commitments for minority interests (95) - (95) (1,060) 272 Change in impairment - (56) (56) (31) - Translation adjustment (41) 20 (21) 54 (60) AS OF DECEMBER 31 5,999 (1,098) 4,901 5,054 5,404
(1) See Note 1.2 Application IAS 38 as amended.
Changes in the scope of consolidation for 2009 were attributable for 161 million euros, the Royal Van Lent acquisition in the to the acquisition of a 50% stake in Château Cheval Blanc for amount of 331 million euros, and the Hublot acquisition for 87 million euros, the allocation of purchase price of Royal Van 109 million euros. See also Note 2. Lent to the brand, generating a negative impact of 67 million Changes in the scope of consolidation for 2007 included euros, and the fi nalization of the purchase price allocations of 39 million euros for the increase in the Group’s investment in Montaudon and Hublot for 26 million euros. Fendi and 14 million euros for the impact of the consolidation Changes in the scope of consolidation for 2008 were attributable of Wen Jun. to the impact of the consolidation of the Les Echos media group
NOTE 5 - IMPAIRMENT TESTING OF INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIVES
Brands, trade names, and other intangible assets with indefi nite assets are generally valued on the basis of the present value useful lives as well as the goodwill arising on acquisition have been of forecast cash fl ows determined in the context of multi-year subject to annual impairment testing. No signifi cant impairment business plans drawn up over the course of each fi scal year. expense has been recognized in respect of these items during The main assumptions retained in the periods presented for the course of fi scal year 2009. As described in Note 1.12, these the determination of these forecast cash fl ows are as follows:
2009 2008 2007 Growth rate Growth rate Growth rate Post-tax for the period Post-tax for the period Post-tax for the period Business group discount rate after the plan discount rate after the plan discount rate after the plan Christian Dior Couture 8.2% 2% 10.6% 2% 8% 2% Wines and Spirits 7.5 to 11.6% 2% 7.3 to 11.4% 2% 7.3 to 10.2% 2% Fashion and Leather Goods 8.7 to 12.8% 2% 8.9 to 13% 2% 8.9 to 13% 2% Perfumes and Cosmetics 8% 2% 9.1 to 11.5% 2% 9.1 to 11.5% 2% Watches and Jewelry 9.5 to 10.8% 2% 11 to 12.3% 2% 11 to 12.3% 2% Selective Retailing 7.5 to 8.6% 2% 8 to 9.1% 2% 8 to 9.1% 2% Other 7.5% 2% 6.7 to 8% 2% N/A 2%
Plans generally cover a fi ve-year period, with the exception of The change in discount rates as of December 31, 2009 compared Christian Dior Couture where they cover a three-year period, to those used as of December 31, 2008 mainly results from the but this period may be prolonged up to ten years in case of decline in interest rates. Growth rates applied for the period brands with a production cycle longer than fi ve years or brands not covered by the plans are based on market estimates for the undergoing strategic repositioning. business groups concerned. See also Note 1.1 for details concerning the adjustments made in valuation assumptions for intangible assets to take into account the economic crisis.
114 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
As of December 31, 2009 the carrying amount of seven business rate for the period not covered by the plans, compared to rates segments (see Note 1.12) is close to their net realizable value. A retained as of December 31, 2009, would give rise to impairment change of 0.5% in the post-tax discount rate, or in the growth charges as detailed below:
Sensitivity Intangible assets with Post-tax discount Growth rate (EUR millions) indefi nite lives as of 12/31/2009 rate + 0.5% - 0.5% Wines and Spirits 491 (53) (36) Fashion and Leather Goods 101 (18) (9) Selective Retailing 176 (16) (12) Other business groups 140 (19) (16) TOTAL 908 (106) (73)
A change of 0.5% in post-tax discount rate or in the growth rate for the period not covered by the plans, compared to rates retained as of December 31, 2009 would not induce any risk of impairment for the other business segments of the Group.
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
2009 2008 (1) 2007 (1) Depreciation (EUR millions) Gross and impairment Net Net Net Land 940 - 940 944 898 Vineyard land and producing vineyards 1,695 (84) 1,611 1,613 1,426 Buildings 1,772 (799) 973 969 949 Investment property 343 (56) 287 293 286 Machinery and equipment 4,473 (2,815) 1,658 1,641 1,433 Other tangible fi xed assets (including assets in progress) 1,495 (569) 926 885 672 TOTAL 10,718 (4,323) 6,395 6,345 5,664 o/w: assets held under fi nance leases 262 (122) 140 150 163 historical cost of vineyard land and producing vineyards 615 (84) 531 480 464
(1) See Note 1.2 Application IAS 38 as amended.
6.1 Movements in the year Movements in property, plant and equipment during 2009 break down as follows:
Other tangible Vineyard land fi xed assets Gross value and producing Land and Investment Machinery (including assets (EUR millions) vineyards buildings property and equipment in progress) TOTAL As of December 31, 2008 (1) 1,690 2,653 345 4,182 1,410 10,280 Acquisitions 4 51 3 322 346 726 Change in the market value of vineyard land (53) - - - - (53) Disposals and retirements (3) (21) - (146) (47) (217) Changes in the scope of consolidation 43 18 - (5) (4) 52 Translation adjustment 4 (27) (3) (25) (11) (62) Other movements, including transfers 10 38 (2) 145 (199) (8) AS OF DECEMBER 31, 2009 1,695 2,712 343 4,473 1,495 10,718
(1) See Note 1.2 Application IAS 38 as amended. 2009 Annual Report 115 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
Other tangible Accumulated depreciation Vineyard land fi xed assets and impairment and producing Land and Investment Machinery (including assets (EUR millions) vineyards buildings property and equipment in progress) TOTAL As of December 31, 2008 (1) (77) (740) (52) (2,541) (525) (3,935) Depreciation expense (6) (69) (4) (437) (97) (613) Impairment expense ------Disposals and retirements 2 18 - 138 37 195 Changes in the scope of consolidation - (2) - 6 3 7 Translation adjustment (1) 3 - 14 6 22 Other movements, including transfers (2) (9) - 5 7 1 AS OF DECEMBER 31, 2009 (84) (799) (56) (2,815) (569) (4,323) NET CARRYING AMOUNT AS OF DECEMBER 31, 2009 1,611 1,913 287 1,658 926 6,395 (1) See Note 1.2 Application IAS 38 as amended.
Acquisitions of property, plant and equipment are attributable to the levels of investments made by Louis Vuitton, Christian Dior Couture, Sephora and DFS in their retail networks as well as those made by Parfums Christian Dior in new display counters and production facilities, together with those made by Hennessy and Veuve Clicquot in their production facilities.
6.2 Movements in prior years
Other tangible Vineyard land fi xed assets Net carrying amount and producing Land and Investment Machinery (including assets (EUR millions) vineyards buildings property and equipment in progress) TOTAL As of December 31, 2006 (1) 1,348 1,858 298 1,368 553 5,425 Acquisitions 15 98 1 343 413 870 Disposals and retirements (8) (4) - (40) - (52) Depreciation expense (5) (66) (5) (350) (80) (506) Impairment expense ------Change in the market value of vineyard land 81 - - - - 81 Changes in the scope of consolidation ------Translation adjustment (6) (62) (8) (48) (31) (155) Other, including transfers 1 23 - 160 (183) 1 As of December 31, 2007 1,426 1,847 286 1,433 672 5,664 Acquisitions 24 50 - 429 487 990 Disposals and retirements (3) (32) - (17) (15) (67) Depreciation expense (6) (58) (5) (393) (88) (550) Impairment expense ------Change in the market value of vineyard land 173 - - - - 173 Changes in the scope of consolidation 1 13 - 7 1 22 Translation adjustment (6) 82 7 31 14 128 Other, including transfers 4 11 5 151 (186) (15) As of December 31, 2008 1,613 1,913 293 1,641 885 6,345 (1) See Note 1.2 Application IAS 38 as amended.
Property, plant and equipment acquisitions in 2008 and 2007 consisted mainly of investments by Louis Vuitton, Sephora and DFS in their retail networks in addition to investments by Hennessy and Moët & Chandon in their production equipment.
116 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
NOTE 7 - INVESTMENTS IN ASSOCIATES
2009 2008 2007 (EUR millions) Gross Impairment Net Net Net Share of net assets of associates as of January 1 219 - 219 132 128 Share of net profi t (loss) for the period 2 -287 Dividends paid (9) - (9) (7) (4) Changes in the scope of consolidation 8 - 8 84 1 Translation adjustment (5) - (5) 2 - SHARE OF NET ASSETS OF ASSOCIATES AS OF DECEMBER 31 215 - 215 219 132
As of December 31, 2009, investments in associates consisted Russia, acquired in October 2008; sales by the Perfumes primarily of: and Cosmetics business group to Ile de Beauté amounted to 22 million euros in 2009 (11 million euros from October to • a 40% equity stake in Mongoual SA, a real estate company December 2008); which owns a property held for rental in Paris (France), which is the head offi ce of LVMH Moët Hennessy - Louis Vuitton SA; • a 49% equity stake in Edun, a fashion clothing company total rents invoiced by Mongoual SA to the Group amounted focused on ethical trade and sustainable development, acquired to 16 million euros in 2009 (15 million euros in 2008 and 2007); during the fi rst half of 2009. • a 45% equity stake in the group owning Ile de Beauté stores, The 23.1% equity stake in the French retailer of video games one of the leading perfume and cosmetics retail chains in Micromania was sold in 2008.
NOTE 8 - NON-CURRENT AVAILABLE FOR SALE FINANCIAL ASSETS
2009 2008 2007 (EUR millions) Gross Impairment Net Net Net TOTAL 597 (57) 540 375 823
Non-current available for sale fi nancial assets changed as follows during the fi scal years presented:
(EUR millions) 2009 2008 2007 As of January 1 375 823 505 Acquisitions 89 62 374 Disposals at net realized value (38) (114) (33) Changes in market value 93 (14) (8) Reclassifi cations as consolidated investments, see Note 2 (30) (352) (1) Reclassifi cations from current available for sale assets 59 - - Changes in impairment (1) (34) - Changes in the scope of consolidation (2) - - Translation adjustment (5) 4 (14) AS OF DECEMBER 31 540 375 823
Certain current available for sale fi nancial assets, whose liquidity levels have evolved in the current economic environment to the extent that such assets can no longer be regarded as rapidly realizable, have been reclassifi ed as non-current available for sale fi nancial assets.
2009 Annual Report 117 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
Acquisitions in 2008 included the Montaudon champagne Disposals in 2008 include in particular the Group’s share in the house in the amount of 29 million euros; this acquisition has transactions carried out by the investment fund L Capital, notably been consolidated in fi scal year 2009. See Note 2 Changes in the sale of its stake in the French video game retailer Micromania. the scope of consolidation. The net gain/loss on disposal is analyzed in Note 25 Net fi nancial Acquisitions in fi scal year 2007 mainly comprised Les Echos income/expense. group in the amount of 350 million euros; this acquisition has Impairment is determined on the basis of the accounting policies been consolidated in fi scal year 2008. described in Note 1.13.
Non-current available for sale fi nancial assets held by the Group as of December 31, 2009 include the following:
Percentage Revaluation Dividends (EUR millions) of interest Net value reserve received Equity (3) Net profi t (3) Sociedad Textil Lonia (Spain) (2) 25.0% 22 13 1 85 (4) 9 (4) Tod’s Spa (Italy) (1) 3.5% 55 8 1 606 (4) 83 (4) Hengdeli Holdings Ltd (China) (1) 6.8% 73 55 1 209 (4) 43 (4) L Capital 2 FCPR (France) (2) 18.5% 66 5 - 231 (5) (7) (5) L Real Estate (Luxembourg) (2) 49.0% 65 (2) - 133 (5) (4) (5) Other investments 259 8 8 TOTAL 540 87 11
(1) Market value of securities as of the close of trading on December 31, 2009. (2) Valuation at estimated net realizable value. (3) Figures provided refl ect company information prior to December 31, 2009, as year-end accounting data was not available at the date of preparation of the consolidated fi nancial statements. (4) Consolidated data. (5) Company data.
NOTE 9 - INVENTORIES AND WORK IN PROGRESS
(EUR millions) 2009 2008 (1) 2007 (1) Wines and distilled alcohol in the process of aging 3,189 2,928 2,683 Other raw materials and work in progress 741 727 473 3,930 3,655 3,156 Goods purchased for resale 537 591 486 Finished products 2,007 2,325 1,925 2,544 2,916 2,411 Gross amount 6,474 6,571 5,567 Impairment (672) (608) (567) Net amount 5,802 5,963 5,000
(1) See Note 1.2 Application IAS 38 as amended.
118 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
The net change in inventories for the periods presented breaks down as follows:
2009 2008 (1) 2007 (1) (EUR millions) Gross Impairment Net Net Net As of January 1 6,571 (608) 5,963 5,000 4,521 Change in gross inventories (114) - (114) 832 625 Fair value adjustment for the harvest of the period 13 - 13 24 35 Changes in impairment - (56) (56) (70) (47) Changes in the scope of consolidation 38 - 38 88 25 Translation adjustment (35) 4 (31) 95 (159) Reclassifi cations 1 (12) (11) (6) - AS OF DECEMBER 31 6,474 (672) 5,802 5,963 5,000
(1) See Note 1.2 Application IAS 38 as amended.
The effects on Wines and Spirits’ cost of sales of marking harvests to market are as follows:
(EUR millions) 2009 2008 2007 Fair value adjustment for the harvest of the period 43 53 50 Adjustment for inventory consumed (30) (29) (15) NET EFFECT ON COST OF SALES OF THE PERIOD 13 24 35
NOTE 10 - TRADE ACCOUNTS RECEIVABLE
(EUR millions) 2009 2008 2007 Trade accounts receivable – nominal amount 1,737 1,919 1,865 Provision for impairment (68) (62) (58) Provision for product returns (154) (136) (132) NET AMOUNT 1,515 1,721 1,675
The amount of the impairment expense in 2009 was 22 million Approximately 58% of the Group’s sales is generated through euros (compared to 12 million euros in 2008 and 9 million its own stores. The receivable auxiliary balance is comprised euros in 2007). primarily of amounts receivable from wholesalers or agents, who are limited in number and with whom the Group maintains There is no difference between the market value of trade accounts ongoing relationships for the most part. Credit insurance is receivable and their carrying amount. taken out whenever the likelihood that receivables may not be recoverable is justifi ed on reasonable grounds.
2009 Annual Report 119 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
As of December 31, 2009, the breakdown of the nominal amount of trade receivables and of provisions for impairment by age was as follows:
Nominal amount Provision for Net amount of (EUR millions) of receivables impairment receivables Not due less than 3 months 1,424 (10) 1,414 more than 3 months 57 (4) 53 1,481 (14) 1,467 Overdue less than 3 months 154 (8) 146 more than 3 months 102 (46) 56 256 (54) 202 TOTAL 1,737 (68) 1,669
NOTE 11 - OTHER CURRENT ASSETS
(EUR millions) 2009 2008 2007 Current available for sale fi nancial assets 218 590 879 Market value of derivatives 302 265 314 Tax accounts receivable, excluding income taxes 208 296 260 Advances and payments on account to vendors 117 146 113 Prepaid expenses (1) 184 198 126 Other receivables, net 208 239 228 TOTAL 1,237 1,734 1,920
(1) See Note 1.2 Application IAS 38 as amended.
Please also refer to Note 12 Current available for sale fi nancial assets and Note 21 Financial instruments and market risk management.
120 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
NOTE 12 - CURRENT AVAILABLE FOR SALE ASSETS
(EUR millions) 2009 2008 2007 Unlisted securities, shares in non-money market SICAV and funds 71 471 601 Listed securities 147 119 278 TOTAL 218 590 879 Of which: historical cost of current available for sale fi nancial assets 336 679 741
Net value of current available for sale fi nancial assets changed as follows during the fi scal years presented:
(EUR millions) 2009 2008 2007 As of January 1 590 879 607 Acquisitions 15 107 370 Disposals at net realized value (343) (115) (92) Changes in market value 50 (233) 58 Changes in impairment (31) (92) - Reclassifi cations as non-current available for sale fi nancial assets, see Note 8 (59) - - Changes in the scope of consolidation (1) 1 - Translation adjustment (3) 43 (64) AS OF DECEMBER 31 218 590 879
The results on disposal are analyzed in Note 25 Net fi nancial income/expense. See also Note 1.13 for the method used to determine impairment losses on current available for sale fi nancial assets.
NOTE 13 - CASH AND CASH EQUIVALENTS
(EUR millions) 2009 2008 2007 Fixed term deposits (less than 3 months) 153 68 430 SICAV and FCP money market funds 103 75 99 Ordinary bank accounts 2,277 934 1,086 CASH AND CASH EQUIVALENTS PER BALANCE SHEET 2,533 1,077 1,615
As of December 31, 2007, cash and cash equivalents included an amount of 28 million euros which guaranteed borrowings of same amount. The reconciliation between cash and cash equivalents as shown in the balance sheet and net cash and cash equivalents appearing in the cash fl ow statement is as follows:
(EUR millions) 2009 2008 2007 Cash and cash equivalents 2,533 1,077 1,615 Bank overdrafts (298) (424) (578) NET CASH AND CASH EQUIVALENTS PER CASH FLOW STATEMENT 2,235 653 1,037
2009 Annual Report 121 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
NOTE 14 - EQUITY
14.1 Share capital As of December 31, 2009, issued and fully paid-up shares totaled with double voting rights. Double voting rights are granted to 181,727,048 (181,727,048 shares as of December 31, 2008 and 2007), registered shares held for at least three years (126,483,627 as with a par value of 2 euros per share, including 125,095,619 shares of December 31, 2008, 126,482,210 as of December 31, 2007).
14.2 Treasury shares and related derivatives The impact on the net assets of the Group of the Christian Dior shares and LVMH share purchase options held within the framework of the share purchase option plans breaks down as follows:
(EUR millions) 2009 2008 2007 Christian Dior treasury shares 213 200 198 Christian Dior portion in LVMH share-based calls (1) 52 56 42 TREASURY SHARES AND RELATED DERIVATIVES 265 256 240
(1) When the calls are exercised and securities are provided in close succession, the settlement of these transactions has no impact on the percentage interest.
The portfolio of Christian Dior shares is allocated as follows:
2009 2008 2007 (EUR millions) Number Value Value Value Share purchase option plans (including expired options) 3,581,348 212 199 197 Other 19,532 1 1 1 CHRISTIAN DIOR TREASURY SHARES 3,600,880 213 200 198
As of December 31, 2009, the market value of other Christian Dior shares held was 1.4 million euros. The portfolio movements relating to Christian Dior’s treasury shares in 2009 were as follows:
(EUR millions) Number of shares Value As of December 31, 2008 3,366,380 200 Purchase 332,000 17 Options exercised (97,500) (4) Proceeds from disposals -- Gross capital gain (loss) on disposal -- AS OF DECEMBER 31, 2009 3,600,880 213
122 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
14.3 Dividends paid by the parent company Christian Dior In accordance with French regulations, dividends are deducted the amount available for distribution was 2,601 million euros; from the profi t for the year and reserves available for distribution after taking into account the proposed dividend distribution of the parent company, after deducting applicable withholding in respect of the 2009 fi scal year, the amount available for tax and the value of treasury shares. As of December 31, 2009, distribution is 2,379 million euros.
(EUR millions, except for data per share in EUR) 2009 2008 2007 Interim dividend for the current year (2009: 0.44 euros; 2008: 0.44 euros and 2007: 0.44 euros) 80 80 80 Impact of treasury shares (2) (2) (2) 78 78 78 Final dividend for the previous year (2008: 1.17 euros; 2007: 1.17 euros; 2006: 1.03 euros) 213 213 187 Impact of treasury shares (4) (4) (4) 209 209 183 TOTAL GROSS AMOUNT DISBURSED DURING THE PERIOD (1) 287 287 261
(1) Excludes the impact of tax regulations applicable to the benefi ciaries.
The fi nal dividend for 2009, as proposed to the Shareholders’ Meeting of April 15, 2010 is 1.22 euros per share, representing a total amount of 222 million euros excluding the effects of treasury shares.
14.4 Cumulative translation adjustment The change in the translation adjustment recognized under equity (Group share) and the closing balance, net of hedging effects of net assets denominated in foreign currency, break down as follows by currency:
(EUR millions) 2009 Change 2008 2007 US dollar (212) (62) (150) (234) Japanese yen 14 (12) 26 - Hong Kong dollar (7) (11) 4 (27) Pound sterling (37) 13 (50) (3) Other currencies 24 7 17 (17) Hedges of foreign currency net assets (1) 13 (14) 18 TOTAL, GROUP SHARE (219) (52) (167) (263)
14.5 Strategy relating to the Group’s To this end, the Group monitors a certain number of fi nancial financial structure ratios and aggregate measures of fi nancial risk, including: • net fi nancial debt (see Note 17) to equity; The Group fi rmly believes that the management of its fi nancial structure contributes, together with the development of the • net fi nancial debt to cash from operations before changes in companies it owns and the management of its brand portfolio, working capital; to its objective of driving value creation for its shareholders. • long term resources to fi xed assets; Furthermore, maintaining a strong credit rating and providing • net cash from operations before changes in working capital; adequate security to the Group’s bondholders and bank creditors are regarded as objectives in their own right. • net cash fl ow from operating activities and investments; The Group manages its fi nancial structure so as to ensure • proportion of long term debt in net fi nancial debt. genuine fl exibility, allowing it both to seize opportunities and Long term resources are understood to correspond to the sum enjoy signifi cant access to markets offering favorable conditions. of equity and non-current liabilities.
2009 Annual Report 123 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
Where applicable, these indicators are adjusted to refl ect the recourse to several negotiable debt markets (both short and long Group’s off-balance sheet fi nancial commitments. term), by holding a large amount of cash and cash equivalents, and through the existence of sizable amounts in undrawn With respect to these indicators, the Group seeks to maintain confi rmed credit lines. levels allowing for signifi cant fi nancial fl exibility. In particular, the Group’s undrawn confi rmed credit lines often The Group also promotes fi nancial fl exibility by maintaining largely exceed the outstanding portion of its commercial paper numerous and varied banking relationships, through the frequent program.
NOTE 15 - SHARE PURCHASE OPTION PLANS
The Shareholders’ Meeting of May 14, 2009 authorized the Each purchase option plan is valid for 10 years and the options Board of Directors, for a period of thirty-eight months expiring may be exercised after a three- or fi ve-year period, depending in July 2012, to grant share subscription or purchase options on the plan. to Group company employees or senior executive offi cers , on In certain circumstances, the period of three or fi ve years before one or more occasions, in an amount not to exceed 3% of the options may be exercised is not applicable. Company’s share capital. For all plans, one option entitles the holder to purchase one share. As of December 31, 2009, no subscription plan had been allocated by Christian Dior SA.
Share purchase option plans The main characteristics of share purchase option plans and changes having occurred during the year are as follows:
Number of Number of Exercise Vesting Number of Number of options to be options price period of options exercised options expired exercised Plan commencement date granted (1) (EUR) (2) rights in 2009 (2) in 2009 (2) as of 12/31/2009 (2) January 26, 1999 (3) 89,500 25.36 5 years 25,500 - - February 15, 2000 100,200 56.70 5 years 54,000 2,000 296,000 February 21, 2001 437,500 45.95 3 years - - 362,500 February 18, 2002 504,000 33.53 3 years - - 92,502 February 18, 2003 527,000 29.04 3 years 9,000 - 112,002 February 17, 2004 527,000 49.79 3 years 4,000 8,000 424,000 May 12, 2005 493,000 52.21 3 years 5,000 433,000 February 15, 2006 475,000 72.85 (4) 3 years - 10,000 433,000 September 6, 2006 20,000 74.93 3 years - - 20,000 January 31, 2007 480,000 85.00 4 years - 10,000 445,000 May 15, 2008 484,000 73.24 (5) 4 years - - 484,000 May 14, 2009 332,000 52.10 4 years - - 332,000 TOTAL 97,500 30,000 3,434,004
(1) Number of options at the commencement of the plan, without any restatement for the adjustments linked to the four-for-one stock split in July 2000 at Christian Dior. (2) Restated following the operations referred to in (1) above. (3) Plan expired January 25, 2009. (4) Exercise price for residents of Italy: 77.16 euros. (5) Exercise price for residents of Italy: 73.47 euros.
124 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
The number of purchase options not exercised and the weighted average exercise prices changed as follows over the course of the fi scal years included below:
2009 2008 2007 Weighted average Weighted average Weighted average exercise price exercise price exercise price (EUR millions) Number (EUR) Number (EUR) Number (EUR) Share purchase options outstanding as of January 1 3,229,504 60.81 2,926,004 57.83 4,016,700 43.88 Options granted during the period 332,000 52.10 484,000 73.24 480,000 85.00 Expired options (30,000) 69.67 (60,000) 70.02 (35,000) 49.58 Options exercised during the period (97,500) 45.44 (120,500) 33.86 (1,535,696) 30.01 SHARE PURCHASE OPTIONS OUTSTANDING AS OF DECEMBER 31 3,434,004 60.33 3,229,504 60.81 2,926,004 57.83
Share purchase options granted under the plan dated May 14, or the Group’s current operating margin rate shows a positive 2009 may only be exercised if, in fi scal years 2009 and 2010 (or, change compared to 2008. The performance condition, which for senior executive offi cers, in three of the four fi scal years from was met for fi scal year 2009, was also considered to have been 2009 to 2012), either profi t from recurring operations, net cash met for the future fi scal years, for the purpose of determining from (used in) operating activities and operating investments, the expense for 2009.
Expense for the period The unit value of each option plan is determined on the basis of the Black & Scholes method, as described in Note 1.25. The assumptions and criteria retained for this calculation are as follows:
LVMH
2009 Plans 2008 Plans 2007 Plans LVMH share price on the grant date (EUR) 57.28 75.01 86.67 Average exercise price (EUR) 56.50 72.51 86.12 Volatility of LVMH shares (%) 37.0 27.5 24.0 Dividend distribution rate (%) 2.8 2.4 2.0 Risk-free investment rate (%) 2.7 4.1 4.4 Vesting period 4 years 4 years 4 years Performance conditions fulfi lled at end of vesting period Yes N/A N/A
The volatility of LVMH shares is determined on the basis of their implicit volatility. The average unit values of share subscription options and bonus shares allocated in 2009 are 17.10 euros and 54.12 euros, respectively.
2009 Annual Report 125 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
Christian Dior
May 2009 May 2008 January 2007 Plan Plan Plan Christian Dior share price on the grant date (EUR) 49.67 76.15 84.40 Average exercise price (EUR) 52.10 73.24 85.00 Volatility of Christian Dior shares (%) 45.6 25.0 24.0 Dividend distribution rate (%) 3.2 2.1 2.0 Risk-free investment rate (%) 3.0 4.2 4.4 Vesting period 4 years 4 years 4 years Performance conditions fulfi lled at end of vesting period Yes N/A N/A
The volatility of Christian Dior shares is determined on the The expense for the period recognized for the Christian Dior basis of their implicit volatility. share purchase plans in 2009 was 6 million euros (9 million euros in 2008 and 10 million euros in 2007). Based on the above assumptions and parameters, the average unit value of the share purchase options allocated on May 14, 2009 was 17.32 euros.
Consolidated stock option expense The total expense recognized in fi scal year 2009 is presented below; all plans which had not yet vested as of January 1, 2004, the date of transition to IFRS, are taken into account.
(EUR millions) 2009 2008 2007 Christian Dior share purchase option plans 6 9 10 LVMH share subscription and purchase option plans, bonus share plans 46 44 43 Cash-settled LVMH-share based incentive plans 7 (6) 3 EXPENSE FOR THE YEAR 59 47 56
126 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
NOTE 16 - MINORITY INTERESTS
(EUR millions) 2009 2008 (1) 2007 (1) As of January 1 9,281 8,510 8,026 Impact of application of IAS 38 as amended. See Note 1.2 (53) As of January 1, restated 9,281 8,510 7,973 Minority interests’ share of net profi t 1,207 1,428 1,448 Dividends paid to minority interests (603) (618) (544) Changes in the scope of consolidation: impact of LVMH treasury shares 11 (64) 53 consolidation of Royal Van Lent - 14 - acquisition of minority interests in Fendi - - (27) consolidation of Wen Jun -- 9 other changes in the scope of consolidation 3 6 3 Total changes in the scope of consolidation 14 (44) 38 Capital increases subscribed by minority interests 29 5 1 Minority interests’ share in gains and losses recognized in equity (see below for details) (69) 104 (306) Minority interests’ share in stock option plan expenses 27 27 26 Effects of purchase commitments for minority interests (29) (139) (126) Other -8 - AS OF DECEMBER 31 9,857 9,281 8,510
(1) See Note 1.2 Application IAS 38 as amended.
The change in minority interests’ share in gains and losses recognized in equity, including the tax impact, is as follows:
Cumulative Available Hedges of Total share translation for sale future foreign Vineyard of minority (EUR millions) adjustment fi nancial assets currency cash fl ows land interests As of December 31, 2006 (112) 207 40 366 501 Changes for the year (360) (2) 20 36 (306) As of December 31, 2007 (472) 205 60 402 195 Changes for the year 179 (129) (18) 72 104 As of December 31, 2008 (293) 76 42 474 299 Changes for the year (95) 43 5 (22) (69) AS OF DECEMBER 31, 2009 (388) 119 47 452 230
2009 Annual Report 127 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
NOTE 17 - BORROWINGS
17.1 Net financial debt
(EUR millions) 2009 2008 2007 Long term borrowings 5,163 4,615 3,387 Short term borrowings 2,164 2,522 3,678 Gross amount of borrowings 7,327 7,137 7,065 Interest rate risk derivatives (87) (66) (60) Other derivatives 6 (4) - Borrowings net of derivatives 7,246 7,067 7,005 Current available for sale fi nancial assets (218) (590) (879) Other current fi nancial assets (35) (30) (32) Cash and cash equivalents (2,533) (1,077) (1,615) NET FINANCIAL DEBT 4,460 5,370 4,479
Net fi nancial debt does not take into consideration purchase commitments for minority interests included in “Other non-current liabilities” (see Note 19). The impact of interest rate derivatives is detailed in Note 21.
17.2 Breakdown of gross borrowings by nature
(EUR millions) 2009 2008 2007 Bonds and EMTNs 3,971 2,934 2,318 Finance and other long term leases 122 129 118 Bank borrowings 1,070 1,552 951 Long term borrowings 5,163 4,615 3,387 Bonds and EMTNs 723 127 907 Finance and other long term leases 23 23 18 Bank borrowings 274 436 207 Commercial paper 200 717 1,086 Other borrowings and credit facilities 537 714 806 Bank overdrafts 298 424 578 Accrued interest 109 81 76 SHORT TERM BORROWINGS 2,164 2,522 3,678 TOTAL GROSS BORROWINGS 7,327 7,137 7,065 FAIR VALUE OF GROSS BORROWINGS 7,528 7,239 7,052
No amount of fi nancial debt had been recognized in accordance with the fair value option as of December 31, 2009 and 2008 (amount of 407 million euros as of December 31, 2007). See Note 1.18.
128 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
17.3 Bonds and EMTNs
Initial effective (EUR millions) Maturity interest rate (1) (%) 2009 2008 2007 EUR 1,000,000,000; 2009 2014 4.52 998 - - EUR 350,000,000; 2009 2014 4.02 347 - - CHF 200,000,000; 2008 2015 4.04 135 135 - CHF 200,000,000; 2008 2011 3.69 135 135 - EUR 50,000,000; 2008 2011 6.12 50 50 - EUR 760,000,000; 2005 and 2008 (2) 2012 3.76 752 749 598 CHF 300,000,000; 2007 2013 3.46 206 206 185 EUR 150,000,000; 2006 2011 4.37 149 149 149 EUR 600,000,000; 2004 2011 4.74 611 609 604 EUR 750,000,000; 2003 (3) 2010 5.05 723 742 742 EUR 500,000,000; 2001 2008 6.27 - - 502 Public bond issues 4,106 2,775 2,780 EUR 250,000,000; 2009 2015 4.59 251 - - EUR 150,000,000; 2009 2017 4.81 149 - - Other private placements in euros - - 405 Private placements in foreign currencies 188 286 40 Private placements (EMTN) 588 286 445 TOTAL BONDS AND EMTNs 4,694 3,061 3,225
(1) Before impact of interest rate hedges set up at the time of, or subsequent to, each issuance. (2) Accumulated amounts and weighted average initial effective interest rate for a 600 million euros bond issued in 2005 at an initial effective interest rate of 3.43%, which was supplemented in 2008 by an amount of 160 million euros issued at an effective rate of 4.99%. (3) The nominal amount of this bond issue was reduced by 35 million euros thanks to buy-backs and subsequent cancellations.
17.4 Analysis of gross borrowings by payment date and by type of interest rate
Gross borrowings Gross borrowings Effects of derivatives after derivatives Fixed Floating Fixed Floating Fixed Floating (EUR millions) rate rate Total rate rate Total rate rate Total Maturity 2010 1,572 592 2,164 (272) 253 (19) 1,300 845 2,146 2011 1,012 199 1,211 (81) 58 (23) 931 257 1,187 2012 787 104 891 9 4 13 796 108 904 2013 381 612 993 91 (130) (39) 472 482 954 2014 1,509 1 1,510 (1,152) 1,143 (9) 357 1,144 1,501 Thereafter 557 1 558 (400) 396 (4) 157 397 554 TOTAL 5,818 1,509 7,327 (1,805) 1,724 (81) 4,013 3,233 7,246
See Note 21.4 regarding fair value of interest rate risk derivatives. The breakdown by quarter of the amount falling due in 2010 is as follows:
(EUR millions) Maturity First quarter 985 Second quarter 851 Third quarter 85 Fourth quarter 243 TOTAL 2,164
2009 Annual Report 129 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
17.5 Analysis of gross borrowings by currency after hedging
(EUR millions) 2009 2008 2007 Euro 5,532 5,160 5,248 US dollar 294 274 332 Swiss franc 797 820 668 Japanese yen 340 503 395 Other currencies 283 310 362 TOTAL 7,246 7,067 7,005
In general, the purpose of foreign currency borrowings is to hedge net foreign currency-denominated assets of consolidated companies located outside of the euro zone.
17.6 Sensitivity and voting rights for certain of its subsidiaries, and to maintain a normal fi nancing ratio in this regard. On the basis of debt as of December 31, 2009: Under the terms of certain credit agreements, the Group has • an instantaneous increase of 1 point in the yield curves of the undertaken to comply with certain fi nancial ratios (net fi nancial Group’s debt currencies would raise the cost of net fi nancial debt to equity; coverage of fi nancial debt by assets). debt by 32 million euros after hedging, and would lower the The current level of these ratios ensures that the Group has fair value of gross fi xed-rate borrowings by 61 million euros a real fi nancial fl exibility with regard to these commitments. after hedging; • an instantaneous decline of 1 point in these same yield curves would lower the cost of net fi nancial debt by 32 million euros 17.8 Undrawn confirmed credit lines after hedging, and would raise the fair value of gross fi xed-rate As of December 31, 2009, unused confi rmed credit lines totaled borrowings by 61 million euros after hedging. 4.2 billion euros.
17.7 Covenants 17.9 Guarantees and collateral As is normal practice for syndicated loans, the Christian Dior As of December 31, 2009, borrowings hedged by collateral were Group has signed commitments to maintain a percentage interest less than 200 million euros.
NOTE 18 - PROVISIONS
(EUR millions) 2009 2008 2007 Provisions for pensions, medical costs and similar commitments 245 235 242 Provisions for contingencies and losses 725 708 712 Provisions for reorganization 25 34 27 Non-current provisions 995 977 981 Provisions for pensions, medical costs and similar commitments 9 7 5 Provisions for contingencies and losses 261 247 230 Provisions for reorganization 84 72 63 Current provisions 354 326 298 TOTAL 1,349 1,303 1,279
130 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
In 2009, the changes in provisions were as follows:
Other items Changes in (including December 31, Amounts Amounts consolidation translation December 31, (EUR millions) 2008 Increases used released scope adjustment) 2009 Provisions for pensions, medical costs and similar commitments 242 62 (59) (1) - 10 254 Provisions for contingencies and losses 955 178 (87) (59) 10 (11) 986 Provisions for reorganization 106 61 (45) (4) - (9) 109 TOTAL 1,303 301 (191) (64) 10 (10) 1,349 of which: profi t from recurring operations - 155 (127) (32) net fi nancial income (expense) - - - - other - 146 (64) (32)
Provisions for pensions, medical costs and similar commitments or probable litigation arising from the Group’s activities; such are examined in Note 28. activities are carried out worldwide, within what is often an imprecise regulatory framework that is different for each country, Provisions for contingencies and losses correspond to the estimate changes over time, and applies to areas ranging from product of the impact on assets and liabilities of risks, disputes, or actual composition to the tax computation.
NOTE 19 - OTHER NON-CURRENT LIABILITIES
(EUR millions) 2009 2008 2007 Purchase commitments for minority interests 2,843 2,965 3,862 Market value of derivatives 22 31 20 Employee profi t sharing (1) 81 89 109 Other liabilities 140 169 156 TOTAL 3,086 3,254 4,147
(1) French companies only, pursuant to legal provisions.
As of December 31, 2009, 2008 and 2007 purchase commitments Purchase commitments for minority interests also include for minority interests mainly include the put option granted to commitments relating to minority shareholders in Benefi t (20%), Diageo plc for its 34% share in Moët Hennessy, with six-month’s Royal Van Lent (10%) and subsidiaries of Sephora in various advance notice and for 80% of its market value at the exercise date countries. of the commitment. With regard to this commitment valuation, the market value was determined by applying the share price multiples of comparable fi rms to Moët Hennessy’s consolidated operating results.
2009 Annual Report 131 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
NOTE 20 - OTHER CURRENT LIABILITIES
(EUR millions) 2009 2008 2007 Market value of derivatives 95 166 31 Employees and social institutions 608 589 543 Employee profi t sharing (1) 67 67 39 Taxes other than income taxes 258 250 240 Advances and payments on account from customers 234 208 81 Deferred payment for tangible and fi nancial non-current assets 190 174 273 Deferred income 61 69 49 Other 454 434 380 TOTAL 1,967 1,957 1,636
(1) French companies only, pursuant to legal provisions.
Derivatives are analyzed in Note 21.
NOTE 21 - FINANCIAL INSTRUMENTS AND MARKET RISK MANAGEMENT
Financial instruments are mainly used by the Group to hedge These activities are organized based on a strict segregation risks arising from Group activity and protect its assets. of duties between risk measurement, hedging (front offi ce), administration (back offi ce) and fi nancial control. 21.1 Foreign exchange, interest rate and The backbone of this organization is an information system which allows hedging transactions to be monitored quickly. equity market risk management Hedging decisions are made according to an established process The management of foreign exchange, interest rate and equity that includes regular presentations to the Group’s executive market risks as well as transactions involving fi nancial instruments bodies and detailed documentation. is centralized. Counterparties are selected based on their rating and in The Group has implemented a stringent policy, as well as rigorous accordance with the Group’s risk diversifi cation strategy. management guidelines to measure, manage and monitor these market risks.
132 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
21.2 Presentation of financial instruments in the balance sheet
Breakdown of financial assets and liabilities according to the measurement categories defined by IAS 39, and fair value
2009 2008 2007 Balance Balance Balance (EUR millions) Notes sheet value Fair value sheet value Fair value sheet value Fair value Non-current available for sale fi nancial assets 8 540 540 375 375 823 823 Current available for sale fi nancial assets 11 218 218 590 590 879 879 Available for sale fi nancial assets (see Note 1.13) 758 758 965 965 1,702 1,702 Other non-current assets, excluding derivatives 640 640 664 664 580 580 Trade accounts receivable 10 1,515 1,515 1,721 1,721 1,675 1,675 Other current assets, excluding derivatives, available for sale fi nancial assets and prepaid expenses 11 533 533 681 681 601 601 Loans and receivables (see Note 1.15) 2,688 2,688 3,066 3,066 2,856 2,856 Cash and cash equivalents (see Note 1.16) 13 2,533 2,533 1,077 1,077 1,615 1,615 Financial assets, excluding derivatives 5,979 5,979 5,109 5,109 6,173 6,173 Long term borrowings 17 5,163 5,362 4,615 4,715 3,387 3,374 Short term borrowings 17 2,164 2,166 2,522 2,524 3,678 3,679 Trade accounts payable 1,956 1,956 2,348 2,348 2,167 2,167 Other non-current liabilities, excluding derivatives and purchase commitments for minority interests 19 221 221 258 258 265 265 Other current liabilities, excluding derivatives and deferred income 20 1,811 1,811 1,722 1,722 1,556 1,556 Financial liabilities, excluding derivatives (see Note 1.18) 11,315 11,516 11,465 11,567 11,053 11,041 Derivatives (see Note 1.19) 21.3 311 311 261 261 297 297
Fair value may be considered as nearly equivalent to market value, the latter being defi ned as the price that an informed third party acting freely would be willing to pay or receive for the asset or liability in question.
2009 Annual Report 133 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
Breakdown of financial assets and liabilities measured at fair value by measurement method
2009 2008 2007 Available Available Available for sale Cash for sale Cash for sale Cash fi nancial and cash fi nancial and cash fi nancial and cash (EUR millions) assets Derivatives equivalents assets Derivatives equivalents assets Derivatives equivalents Valuation based on: Published price quotations 356 - 2,533 266 1,077 517 1,615 Formula based on market data 212 428 471 458 601 348 Private quotations 190 - 199 234 Other (1) - - 29 350 ASSETS 758 428 2,533 965 458 1,077 1,702 348 1,615 Valuation based on: Published price quotations Formula based on market data 117 197 51 Private quotations LIABILITIES 117 197 51
(1) Those amounts correspond to the acquisition price of Montaudon as of December 31, 2008 and to the acquisition price of the Les Echos group as of December 31, 2007.
The amount of fi nancial assets valued on the basis on non-observable market data changed as follows in 2009:
(EUR millions) 2009 As of January 1 199 Acquisitions 10 Proceeds from disposals (at net realized values) (33) Gains and losses recognized in income statement 18 Gains and losses recognized in equity (4) AS OF DECEMBER 31 190
134 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
21.3 Summary of derivatives Derivatives are recorded in the balance sheet for the amounts and in the captions detailed as follows:
(EUR millions) Notes 2009 2008 2007 Interest rate risk Assets: non-current 46 36 28 current 90 80 73 Liabilities: non-current (21) (29) (20) current (28) (21) (21) 21.4 87 66 60 Foreign exchange risk Assets: non-current 6176 current 211 185 241 Liabilities: non-current (1) (2) - current (57) (70) (10) 21.5 159 130 237 Other risks Assets: non-current 74 140 - current 1-- Liabilities: non-current --- current (10) (75) - 65 65 - TOTAL Assets: non-current 126 193 34 current 11 302 265 314 Liabilities: non-current 19 (22) (31) (20) current 20 (95) (166) (31) 311 261 297
21.4 Derivatives used to manage interest rate risk The Group manages its interest rate exposure on the basis of total net fi nancial debt. The objective of its management policy is to protect profi t against a sharp rise in interest rates. As such, the Group uses interest rate swaps and options (caps and fl oors). Derivatives used to manage interest rate risk outstanding as of December 31, 2009 break down as follows:
Nominal amounts by maturity Fair value (1) 2011 to Beyond Fair value Unallocated (EUR millions) 2010 2014 2014 TOTAL hedges amounts TOTAL Interest rate swaps in euros: - fi xed rate payer 670 591 - 1,261 (21) (11) (32) - fl oating rate payer 950 1,752 400 3,102 119 - 119 Foreign currency swaps 100 217 - 317 - - - TOTAL 98 (11) 87
(1) Gain/(Loss).
2009 Annual Report 135 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
21.5 Derivatives used to manage foreign exchange risk
A signifi cant part of both Group companies’ sales to customers Future foreign currency-denominated cash fl ows are broken and their own retail subsidiaries and certain purchases are down as part of the budget preparation process and are hedged denominated in currencies other than their functional currency; progressively over a period not exceeding one year unless a the majority of these foreign currency-denominated cash fl ows longer period is justifi ed by probable commitments. As such, are inter-company cash fl ows. Hedging instruments are used and according to market trends, identifi ed foreign exchange to reduce the risks arising from foreign currency fl uctuations risks are hedged using forward contracts or options. against the various companies’ functional currencies and are The Group may also use appropriate fi nancial instruments to allocated to either accounts receivable or accounts payable hedge the net worth of subsidiaries outside the euro zone, in for the fi scal year, or, under certain conditions, to transactions order to limit the impact of foreign currency fl uctuations against anticipated for future periods. the euro on consolidated equity.
Derivatives used to manage foreign exchange risk outstanding as of December 31, 2009 break down as follows:
Nominal amounts by fi scal year of allocation Fair value (1) Foreign Future cash Fair value currency Not (EUR millions) 2009 2010 TOTAL fl ow hedges hedges net hedges allocated TOTAL Options purchased Put USD 18 239 257 6 1 - 1 8 Put JPY 3 1 4 - (1) - - (1) Other 21 39 60 1 - - 1 2 42 279 321 7 - - 2 9 Ranges Written USD 216 1,435 1,651 103 7 - 11 121 Written JPY 3 446 449 30 - - 1 31 219 1,881 2,100 133 7 - 12 152 Forward exchange contracts (2) USD 222 (6) 216 2 (3) - 1 - JPY 42 - 42 - 1 - 3 4 GBP (3) (6) (9) - - - - - Other 11 51 62 - - - - - 272 39 311 2 (2) - 4 4 Foreign exchange swaps (2) CHF 247 - 247 - - - (6) (6) USD 11 - 11 - - (40) 42 2 JPY 94 - 94 - - (1) 2 1 Other 115 - 115 - - - (3) (3) 467 - 467 - - (41) 35 (6) TOTAL 142 5 (41) 53 159
(1) Gain/(Loss). (2) Sale/(Purchase).
The impact on the income statement of gains and losses on hedges of future cash fl ows as well as the future cash fl ows hedged, using these instruments, will be recognized in 2010.
136 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
The impact of a positive or negative change of 10% in the value of the US dollar and the Japanese yen against the euro on the net profi t for the year, equity (excluding net profi t), and the market value of derivatives as of December 31, 2009, including the current hedging effects, would be as follows:
US dollar Japanese yen (EUR millions) +10% -10% +10% -10% Impact on net profi t 65 (47) 9 (21) Impact on equity, excluding net profi t 375 (406) 38 (40) Impact on market value of derivatives (162) 133 (9) 7
As of December 31, 2009, at LVMH, forecast cash collections for 2010 in US dollars and Japanese yen were hedged in the proportion of 79% and 85%, respectively.
21.6 Financial instruments used to manage those derivatives, a uniform variation of 1% in their underlying assets’ share prices as of December 31, 2009 would induce a equity risk net impact on the Group’s profi t for an amount of 11 million The Group’s investment policy is designed to take advantage of euros. Derivatives used to manage equity risk outstanding as of a long term investment horizon. Occasionally, the Group may December 31, 2009 had a positive fair value of 65 million euros. invest in equity-based fi nancial instruments with the aim of Most of these instruments mature in 2010 and 2011. enhancing the dynamic management of its investment portfolio. The Group is exposed to risks of share price changes either 21.7 Liquidity risk directly, as a result of its holding of equity investments and current available for sale fi nancial assets, or indirectly, as a In addition to local liquidity risks, which are generally immaterial, result of its holding of funds which are themselves partially the Group’s exposure to liquidity risk can be assessed in relation invested in shares. to the amount of its short-term borrowings excluding derivatives, net of cash and cash equivalents, which is zero as of December 31, The Group may also use equity-based derivatives to create 2009, or through the outstanding amount of its commercial paper synthetically an economic exposure to certain assets, or to hedge program (0.2 billion euros). Should any of these instruments cash-settled compensation plans index-linked to the LVMH share not be renewed, the Group has access to undrawn confi rmed price. The carrying amount of these unlisted fi nancial instruments credit lines total ing 4.2 billion euros. corresponds to the estimate of the amount, provided by the counterparty, of the valuation at the balance sheet date. The The Group’s liquidity is based on the amount of its investments valuation of fi nancial instruments thus takes into consideration and long term borrowings, the diversity of its investor base (bonds market parameters such as interest rates, share prices and and short term paper), and the quality of its banking relationships, volatility. Considering nominal values of 1 billion euros for whether evidenced or not by confi rmed lines of credit.
2009 Annual Report 137 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
The following table presents the contractual schedule of disbursements for fi nancial liabilities (excluding derivatives) recognized as of December 31, 2009, at nominal value and with interest, excluding discounting effects:
Beyond (EUR millions) 2010 2011 2012 2013 2014 5 years TOTAL Bonds and EMTNs 893 1,111 870 450 1,058 919 5,301 Bank borrowings 295 241 149 574 165 6 1,430 Other borrowings and credit facilities 544 - - - - - 544 Finance and other long term leases 29 21 18 17 16 336 437 Commercial paper 200 - - - - - 200 Bank overdrafts 298 - - - - - 298 Gross fi nancial debt 2,259 1,373 1,037 1,041 1,239 1,261 8,210 Other fi nancial liabilities (1) 1,824 14 13 18 20 143 2,032 Trade accounts payable 1,956 - - - - - 1,956 Other fi nancial liabilities 3,780 14 13 18 20 143 3,988 TOTAL FINANCIAL LIABILITIES 6,039 1,387 1,050 1,059 1,259 1,404 12,198
(1) Corresponds to Other non-current liabilities (excluding derivatives and purchase commitments for minority interests) for 221 million euros and to Other current liabilities (excluding derivatives and deferred income) for 1,811 million euros, see Note 21.2.
See Note 29.3 regarding contractual maturity dates of collateral and other guarantees commitments. See Notes 21.4 and 21.5 regarding foreign exchange derivatives and Notes 17.4 and 21.4 regarding interest rate risk derivatives.
NOTE 22 - SEGMENT INFORMATION
The Group’s brands and trade names are organized into seven The Selective Retailing business group comprises the Group’s business groups. Five business groups – Christian Dior Couture, own-label retailing activities. Other and holding companies Wines and Spirits, Fashion and Leather Goods, Perfumes and comprise brands and other activities that are not associated with Cosmetics, Watches and Jewelry – comprise brands relating any of the abovementioned groups, most often relating to the to the same category of products that use similar production Group’s new businesses and holding or real estate companies. and distribution processes, with each group headed by its own management team.
138 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
22.1 Information by business group
Fiscal year 2009
Christian Wines Fashion Perfumes Watches Other and Not Dior and and Leather and and Selective holding allocated and (EUR millions) Couture Spirits Goods Cosmetics Jewelry Retailing companies eliminations (1) TOTAL Sales outside the Group 701 2,732 6,273 2,519 747 4,517 256 - 17,745 Sales between business groups 16 8 29 222 17 16 22 (330) - TOTAL REVENUE 717 2,740 6,302 2,741 764 4,533 278 (330) 17,745 Profi t from recurring operations 13 760 1,986 291 63 388 (144) (1) 3,356 Other operating income and expenses (11) (41) (71) (17) (32) (19) (3) 2 (192) Operating investments (2) 34 96 284 96 26 182 91 - 809 Depreciation and amortization expenses 45 90 268 99 27 175 42 - 746 Impairment expense - - 20 20 - 5 11 - 56 Brands, trade names, licenses and goodwill (3) 74 4,278 4,683 1,637 1,450 2,522 1,277 - 15,921 Inventories 158 3,548 701 226 369 738 128 (66) 5,802 Other operating assets 410 2,540 1,855 644 257 1,342 2,243 5,039 (4) 14,330 TOTAL ASSETS 642 10,366 7,239 2,507 2,076 4,602 3,648 4,973 36,053 Equity ------16,121 16,121 Operating liabilities 171 1,013 1,137 805 176 1,001 497 15,132 (5) 19,932 TOTAL LIABILITIES AND EQUITY 171 1,013 1,137 805 176 1,001 497 31,253 36,053
2009 Annual Report 139 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
Fiscal year 2008
Christian Wines Fashion Perfumes Watches Other and Not Dior and and Leather and and Selective holding allocated and (EUR millions) Couture Spirits Goods Cosmetics Jewelry Retailing companies eliminations (1) TOTAL Sales outside the Group 749 3,117 5,975 2,664 856 4,361 211 - 17,933 Sales between business groups 16 9 35 204 23 15 17 (319) - TOTAL REVENUE 765 3,126 6,010 2,868 879 4,376 228 (319) 17,933 Profi t from recurring operations 9 1,060 1,927 290 118 388 (150) (21) 3,621 Other operating income and expenses (7) 13 (61) (28) (1) (28) (38) (3) (153) Operating investments (2) 41 157 338 146 39 228 160 - 1,109 Depreciation and amortization expenses 46 73 236 111 23 148 36 - 673 Impairment expense - - 20 - - - 11 - 31 Brands, trade names, licenses and goodwill (3) (6) 87 4,092 4,722 1,650 1,434 2,630 1,283 - 15,898 Inventories (6) 209 3,406 850 292 400 776 109 (79) 5,963 Other operating assets (6) 444 2,564 1,945 725 317 1,390 2,256 3,992 (4) 13,633 TOTAL ASSETS 740 10,062 7,517 2,667 2,151 4,796 3,648 3,913 35,494 Equity (6) ------15,171 15,171 Operating liabilities 182 1,069 1,141 883 189 1,111 551 15,197 (5) 20,323 TOTAL LIABILITIES AND EQUITY 182 1,069 1,141 883 189 1,111 551 30,368 35,494
140 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
Fiscal year 2007 Since the Samaritaine department store was reclassifi ed in 2008 from Selective Retailing to Other activities and holding companies, 2007 data was restated in order to facilitate comparison with 2008 data.
Christian Wines Fashion Perfumes Watches Other and Not Dior and and Leather and and Selective holding allocated and (EUR millions) Couture Spirits Goods Cosmetics Jewelry Retailing companies eliminations (1) TOTAL Sales outside the Group 776 3,220 5,591 2,561 808 4,152 137 - 17,245 Sales between business groups 11 6 37 170 25 12 6 (267) - TOTAL REVENUE 787 3,226 5,628 2,731 833 4,164 143 (267) 17,245 Profi t from recurring operations 74 1,058 1,829 256 141 426 (141) (33) 3,610 Other operating income and expenses - (4) (18) (17) (3) (12) (72) 9 (117) Operating investments (2) 38 199 241 116 28 242 174 - 1,038 Depreciation and amortization expenses 43 69 210 103 21 122 27 - 595 Impairment expense - - - - 1 - 10 - 11 Brands, trade names, licenses and goodwill (3) (6) 42 5,212 4,956 1,646 979 2,525 398 - 15,758 Inventories (6) 191 3,034 622 262 268 626 45 (48) 5,000 Other operating assets (6) (7) 426 2,415 1,737 629 265 1,329 1,906 4,775 (4) 13,482 TOTAL ASSETS 659 10,661 7,315 2,537 1,512 4,480 2,349 4,727 34,240 Equity (6) ------13,846 13,846 Operating liabilities (7) 171 1,064 977 833 155 1,010 379 15,805 (5) 20,394 TOTAL LIABILITIES AND EQUITY 171 1,064 977 833 155 1,010 379 29,651 34,240
(1) Eliminations correspond to sales between business groups; these generally consist of sales from business groups other than Selective Retailing to Selective Retailing. Selling prices between the different business groups correspond to the prices applied in the normal course of business for transactions involving wholesalers or distributors outside the Group. (2) Operating investments correspond to amounts capitalized during the fi scal year rather than payments made during the fi scal year with respect to these investments. (3) Brands, trade names, licenses, and goodwill correspond to the net carrying amounts shown under Notes 3 and 4. (4) Assets not allocated include investments in associates, available for sale fi nancial assets, other fi nancial assets, and income tax receivables. (5) Liabilities not allocated include borrowings and both current and deferred tax liabilities. (6) See Note 1.2 Application IAS 38 as amended. (7) As of December 31, 2008, the fi gure shown for the Group’s income tax liability with respect to the French tax consolidation structure was offset by advance payments made. Other operating assets and liabilities as of December 31, 2007 were restated to facilitate comparison.
22.2 Information by geographic region Revenue by geographic region of delivery breaks down as follows:
(EUR millions) 2009 2008 2007 France 2,597 2,747 2,457 Europe (excluding France) 3,918 4,256 4,064 United States 3,913 4,018 4,244 Japan 1,752 1,855 1,949 Asia (excluding Japan) 4,012 3,519 3,199 Other markets 1,553 1,538 1,332 REVENUE 17,745 17,933 17,245
2009 Annual Report 141 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
Operating investments by geographic region are as follows:
(EUR millions) 2009 2008 2007 France 325 509 415 Europe (excluding France) 143 195 241 United States 106 169 203 Japan 18 19 37 Asia (excluding Japan) 165 158 97 Other markets 52 59 45 OPERATING INVESTMENTS 809 1,109 1,038
Operating investments in this table correspond to the amounts capitalized during the fi scal year rather than payments made during the fi scal year. No geographic breakdown of segment assets is provided since a signifi cant portion of these assets consists of brands and goodwill, which must be analyzed on the basis of the revenue generated by these assets in each region, and not in relation to the region of their legal ownership.
22.3 Quarterly information Quarterly sales by business group break down as follows:
Fiscal year 2009
Christian Wines Fashion and Perfumes Watches Other and Dior and Leather and and Selective holding (EUR millions) Couture Spirits Goods Cosmetics Jewelry Retailing companies Eliminations TOTAL First quarter 169 540 1,598 663 154 1,085 62 (89) 4,182 Second quarter 171 539 1,390 622 192 1,042 68 (69) 3,955 Third quarter 178 682 1,549 686 187 1,040 68 (81) 4,309 Fourth quarter 199 979 1,765 770 231 1,366 80 (91) 5,299 TOTAL 2009 717 2,740 6,302 2,741 764 4,533 278 (330) 17,745
Fiscal year 2008
Christian Wines Fashion and Perfumes Watches Other and Dior and Leather and and Selective holding (EUR millions) Couture Spirits Goods Cosmetics Jewelry Retailing companies Eliminations TOTAL First quarter 184 640 1,445 717 211 1,011 56 (84) 4,180 Second quarter 182 652 1,323 645 206 979 54 (69) 3,972 Third quarter 197 746 1,471 719 239 1,015 43 (78) 4,352 Fourth quarter 202 1,088 1,771 787 223 1,371 75 (88) 5,429 TOTAL 2008 765 3,126 6,010 2,868 879 4,376 228 (319) 17,933
Fiscal year 2007
Christian Wines Fashion and Perfumes Watches Other and Dior and Leather and and Selective holding (EUR millions) Couture Spirits Goods Cosmetics Jewelry Retailing companies Eliminations TOTAL First quarter 184 689 1,347 663 189 937 41 (66) 3,984 Second quarter 184 625 1,254 601 201 947 35 (63) 3,784 Third quarter 202 759 1,420 697 199 987 30 (67) 4,227 Fourth quarter 217 1,153 1,607 770 244 1,293 37 (71) 5,250 TOTAL 2007 787 3,226 5,628 2,731 833 4,164 143 (267) 17,245
142 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
NOTE 23 - REVENUE AND EXPENSES BY NATURE
23.1 Revenue Revenue consists of the following:
(EUR millions) 2009 2008 2007 Revenue generated by brands and trade names 17,394 17,554 16,886 Royalties and license revenue 124 130 140 Income from investment property 75 66 39 Other 152 183 180 TOTAL 17,745 17,933 17,245
23.2 Expenses by nature Profi t from recurring operations includes the following expenses:
(EUR millions) 2009 2008 2007 Advertising and promotion expenses 1,885 2,125 2,038 Commercial lease expenses 1,145 1,063 1,064 Personnel costs 3,318 3,198 2,830 Research and development expenses 45 43 46
Advertising and promotion expenses mainly consist of the cost As of December 31, 2009, a total of 2,660 stores were operated by of media campaigns and point-of-sale advertising, and also the Group worldwide (2,551 in 2008, 2,269 in 2007), particularly include personnel costs dedicated to this function. by Fashion and Leather Goods and Selective Retailing.
In certain countries, leases for stores are contingent on the payment of minimum amounts in addition to a variable amount, especially for stores with lease payments indexed to revenue. The total lease expense for the Group’s stores breaks down as follows:
(EUR millions) 2009 2008 2007 Fixed or minimum lease payments 551 504 488 Variable portion of indexed leases 202 175 176 Airport concession fees – fi xed portion or minimum amount 246 221 204 Airport concession fees – variable portion 146 163 196 COMMERCIAL LEASE EXPENSES FOR THE PERIOD 1,145 1,063 1,064
Personnel costs consist of the following elements:
(EUR millions) 2009 2008 2007 Salaries and social charges 3,195 3,120 2,732 Pensions, medical costs and similar expenses in respect of defi ned benefi t plans 64 31 42 Stock option plan and related expenses 59 47 56 TOTAL 3,318 3,198 2,830
2009 Annual Report 143 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
NOTE 24 - OTHER OPERATING INCOME AND EXPENSES
(EUR millions) 2009 2008 2007 Net gains (losses) on disposals of fi xed assets 12 11 (72) Restructuring costs (100) (90) (25) Amortization or impairment of brands, trade names, goodwill and other property (91) (57) (16) Other, net (13) (17) (4) OTHER OPERATING INCOME AND EXPENSES (192) (153) (117)
In 2009, restructuring costs comprised the cost of various and the reorganization of the operations of Glenmorangie. The industrial and commercial restructuring plans, relating mainly latter notably included the gradual withdrawal from activities to the Fashion and Leather Goods and Watches and Jewelry performed on behalf of third parties and the disposal of certain business groups. assets, notably the industrial facility in Broxburn (United Kingdom) as well as the Glen Moray brand and distillery. In 2008, other operating income and expenses comprised capital gains realized on the sale of various assets in the amount of In 2007, other operating income and expenses mainly comprised 11 million euros and costs for the restructuring of industrial and the net loss on the sale of La Tribune group, the logistics commercial processes in the amount of 90 million euros. These company Kami (Fashion and Leather Goods) and Omas writing amounts related to the discontinuation of certain product lines, instruments. the closure of retail stores considered as insuffi ciently profi table
NOTE 25 - NET FINANCIAL INCOME/EXPENSE
(EUR millions) 2009 2008 2007 Borrowing costs (264) (316) (308) Income from cash, cash equivalents and current available for sale 21 18 32 Fair value adjustment of borrowings and hedges, excluding perpetual bonds 1 (24) 2 Impact of perpetual bonds --2 Cost of net financial debt (242) (322) (272) Dividends received from non-current available for sale fi nancial assets 11 11 29 Ineffective portion of foreign currency hedges (46) (64) (97) Net gain/(loss) related to available for sale fi nancial assets and other fi nancial instruments (94) 53 44 Other items - net (26) (26) (21) Other financial income and expenses (155) (26) (45) NET FINANCIAL INCOME/(EXPENSE) (397) (348) (317)
In 2007, proceeds relating to available for sale fi nancial assets impairment losses on available for sale fi nancial assets. In 2009, and other fi nancial instruments included capital gains in the this change was due both to the evolution of market conditions amounts of 44 million euros. In 2008, this item notably included and the recognition of impairment losses on current and non- the LVMH share in the capital gains arising on the sale of the current available for sale fi nancial assets. French video game retailer Micromania as well as various
144 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
Income from cash, cash equivalents and current available for sale fi nancial assets comprises the following items:
(EUR millions) 2009 2008 2007 Income from cash and cash equivalents 11 15 21 Interest from current available for sale and other fi nancial assets 10 3 11 INCOME FROM CASH, CASH EQUIVALENTS AND CURRENT AVAILABLE 21 18 32 FOR SALE AND OTHER FINANCIAL ASSETS
The revaluation effects of fi nancial debt and interest rate derivatives, excluding perpetual bonds, are attributable to the following items:
(EUR millions) 2009 2008 2007 Hedged fi nancial debt, excluding perpetual bonds (20) (12) 16 Hedging instruments 20 11 (15) Unallocated derivatives 1 (15) (2) Debt recognized in accordance with the fair value option - (8) 3 EFFECTS OF REVALUATION OF FINANCIAL DEBT AND RATE INSTRUMENTS, EXCLUDING PERPETUAL BONDS 1 (24) 2
The ineffective portion of exchange rate derivatives breaks down as follows:
(EUR millions) 2009 2008 2007 Financial cost of commercial foreign exchange hedges (55) (71) (97) Financial cost of foreign-currency denominated net asset hedges 13 11 (1) Change in the fair value of unallocated derivatives (4) (4) 1 INEFFECTIVE PORTION OF FOREIGN EXCHANGE DERIVATIVES (46) (64) (97)
NOTE 26 - INCOME TAXES
26.1 Analysis of the income tax expense
(EUR millions) 2009 2008 2007 Current income taxes for the period (789) (917) (991) Current income taxes relating to previous periods 3 5 6 Current income taxes (786) (912) (985) Change in deferred income taxes (81) 8 83 Impact of changes in tax rates on deferred taxes - - 47 Deferred income taxes (81) 8 130 TOTAL TAX EXPENSE PER INCOME STATEMENT (867) (904) (855) Tax on items recognized in equity (30) 34 (51)
The effective tax rate is as follows:
(EUR millions) 2009 2008 2007 Profi t before tax 2,767 3,120 3,176 Total income tax expense (867) (904) (855) Effective tax rate 31.4% 29.0% 26.9%
2009 Annual Report 145 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
26.2 Analysis of the difference between the theoretical and effective income tax rates The theoretical income tax rate, defi ned as the rate applicable in law to the Group’s French companies, may be reconciled as follows to the effective income tax rate disclosed in the consolidated fi nancial statements:
(as % of income before tax) 2009 2008 2007 French statutory tax rate 34.4 34.4 34.4 Changes in tax rate - - (1.5) Differences in tax rates for foreign companies (6.6) (6.1) (4.4) Tax losses and tax loss carry forwards 0.3 (0.2) (3.6) Difference between consolidated and taxable income, income taxable at reduced rates 2.8 0.6 1.6 Withholding tax 0.5 0.3 0.4 EFFECTIVE TAX RATE OF THE GROUP 31.4 29.0 26.9
Since 2000, French companies have been subject to additional income tax, at a rate of 3.3% for 2007, 2008 and 2009, bringing the theoretical tax rate to 34.4% in each fi scal year.
26.3 Sources of deferred taxes
In the income statement:
(EUR millions) 2009 2008 2007 Valuation of brands (9) (38) 16 Fair value adjustment of vineyard land - - 2 Other revaluation adjustments (11) 3 - Gains and losses on available for sale fi nancial assets (5) - 10 Gains and losses on hedges of future foreign currency cash fl ows (4) (3) 8 Provisions for contingencies and losses (1) 10 (12) 28 Intercompany margin included in inventories (23) 80 11 Other consolidation adjustments (1) 31163 Losses carried forward (42) (33) (8) TOTAL (81) 8 130
In equity:
(EUR millions) 2009 2008 2007 Fair value adjustment of vineyard land 18 (59) (26) Gains and losses on available for sale fi nancial assets - (7) 18 Gains and losses on hedges of future foreign currency cash fl ows (2) 23 (33) TOTAL 16 (43) (41)
146 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
In the balance sheet:
(EUR millions) 2009 2008 (2) 2007 (2) Valuation of brands (3,298) (3,213) (3,015) Fair value adjustment of vineyard land (496) (503) (443) Other revaluation adjustments (321) (305) (318) Gains and losses on available for sale fi nancial assets (21) (23) (7) Gains and losses on hedges of future foreign currency cash fl ows (22) (14) (27) Provisions for contingencies and losses (1) 153 143 78 Intercompany margin included in inventories 275 301 223 Other consolidation adjustments (1) 183 188 200 Losses carried forward 79 124 144 TOTAL (3,468) (3,302) (3,165)
(1) Mainly tax-driven provisions, accelerated tax depreciation and fi nance leases.
Net deferred taxes on the balance sheet include the following assets and liabilities:
(EUR millions) 2009 2008 (2) 2007 (2) Deferred tax assets 555 714 596 Deferred tax liabilities (4,023) (4,016) (3,761) NET DEFERRED TAX ASSET (LIABILITY) (3,468) (3,302) (3,165)
(2) See Note 1.2 Application IAS 38 as amended.
26.4 Tax loss carry forwards 26.5 Tax consolidation As of December 31, 2009, for LVMH SA unused tax loss carry • Tax consolidation agreements in France allow certain French forwards and tax credits, for which no deferred tax assets were companies of the Group to combine their taxable profi ts to recognized, had a potential impact on the future tax expense calculate the overall tax expense for which only the parent of 321 million euros (307 million euros in 2008, 360 million company is liable. euros in 2007). This tax consolidation agreement generated for the Group As of December 31, 2009, for Christian Dior, ordinary tax loss a decrease in the current tax expense of 106 million euros carry forwards amounted to 196 million euros (199 million euros in 2009, of which 104 million euros were for LVMH and in 2008, 87 million euros in 2007). 2 million euros for Christian Dior (121 million euros in 2008, 103 million euros in 2007 for the Group). On the basis of the prospects for the use of these tax loss carry forwards, deferred tax assets were recognized in the amount • The application of other tax consolidation agreements in of 29 million euros as of December 31, 2009, (compared to certain foreign countries, notably in the United States and 30 million euros as of December 31, 2008 and 2007). Unused Italy, generated current tax savings of 96 million euros in tax loss carry forwards for which no deferred tax assets were 2009 (96 million euros in 2008, 119 million euros in 2007). recognized had a potential impact on the future tax expense of 38 million euros.
2009 Annual Report 147 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
NOTE 27 - EARNINGS PER SHARE
2009 2008 2007 GROUP SHARE OF NET EARNINGS (EUR millions) 695 796 880 Impact of diluting instruments on subsidiaries (1) (4) (10) GROUP SHARE OF NET EARNINGS, DILUTED 694 792 870 Average number of shares in circulation during the period 181,727,048 181,727,048 181,727,048 Average number of Christian Dior treasury shares owned during the period (3,483,630) (3,422,564) (3,579,443) Average number of shares on which the calculation before dilution is based 178,243,418 178,304,484 178,147,605 BASIC GROUP SHARE OF NET EARNINGS PER SHARE (EUR) 3.90 4.46 4.94 Average number of shares on which the above calculation is based 178,243,418 178,304,484 178,147,605 Dilution effect of stock option plans 232,374 627,694 962,210 AVERAGE NUMBER OF SHARES IN CIRCULATION AFTER DILUTION 178,475,792 178,932,178 179,109,815 DILUTED GROUP SHARE OF NET EARNINGS PER SHARE (EUR) 3.89 4.43 4.86
NOTE 28 - PROVISIONS FOR PENSIONS, MEDICAL COSTS AND SIMILAR COMMITMENTS
28.1 Expense for the year
(EUR millions) 2009 2008 2007 Current service cost 44 37 38 Impact of discounting 30 23 22 Expected return on plan assets (16) (18) (18) Amortization of actuarial gains and losses 4 (11) (2) Past service cost 222 Changes in regime - (2) - TOTAL EXPENSE FOR THE PERIOD FOR DEFINED BENEFIT PLANS 64 31 42 Effective returns on/(cost of) plan assets 46 (77) 17
28.2 Net recognized commitment
(EUR millions) 2009 2008 2007 Benefi ts covered by plan assets 573 549 503 Benefi ts not covered by plan assets 148 118 116 Defined benefit obligation 721 667 619 Fair value of plan assets (420) (351) (403) Actuarial differences not recognized in the balance sheet (58) (79) 27 Past service cost not yet recognized (8) (17) (8) Unrecognized items (66) (96) 19 NET RECOGNIZED COMMITMENT 235 220 235 Of which: Non-current provisions 245 235 242 Current provisions 975 Other assets (19) (22) (12) TOTAL 235 220 235
148 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
28.3 Breakdown of the change in net recognized commitment
Defi ned benefi t Fair value Unrecognized Net recognized (EUR millions) obligation of plan assets amounts commitment As of December 31, 2008 667 (351) (96) 220 Net expense for the period 74 (16) 6 64 Payments to benefi ciaries (40) 27 - (13) Contributions to plan assets - (46) - (46) Contributions of employees 3 (3) - - Changes in consolidation scope and reclassifi cations 5 (4) - 1 Changes in regime 11 3 (4) 10 Actuarial differences: experience impacts (16) (29) 45 - Actuarial differences: change in assumptions 18 - (18) - Translation adjustment (1) (1) 1 (1) AS OF DECEMBER 31, 2009 721 (420) (66) 235
The actuarial assumptions applied to estimate commitments as of December 31, 2008 in the main countries where such commitments have been undertaken, were as follows:
2009 2008 2007 United United United United United United (percentage) France States Kingdom Japan France States Kingdom Japan France States Kingdom Japan Discount rate (1) 5.25 5.5 5.75 2.25 5.5 6.0 6.0 2.25 5.0 6.0 5.5 2.25 Expected return on investments 4.0 7.75 5.75 4.0 4.5 7.75 5.75 4.0 4.75 7.75 6.0 4.0 Future rate of increase in salaries 3.0 4.0 4.25 2.0 3.5 4.5 3.75 2.5 3.25 4.5 4.0 2.5
(1) Discount rates were determined with reference to market yields of AA-rated corporate bonds at the year-end in the countries concerned. Only bonds with maturities comparable to those of the commitments were used.
The expected rate of return on investments is an overall rate A rise of 0.5% in the discount rate would result in a reduction of refl ecting the structure of the fi nancial assets mentioned in 37 million euros in the amount of the defi ned benefi t obligation Note 28.5. as of December 31, 2009. A decrease of 0.5% in the discount rate would result in a rise of 40 million euros in the amount of The assumed rate of increase of medical expenses in the United the defi ned benefi t obligation as of December 31, 2009. States is 8% for 2010, then it is assumed to decline progressively as of 2011 to reach a rate of 6% in 2020.
28.4 Analysis of benefits The breakdown of the defi ned benefi t obligation by type of benefi t plan is as follows:
(EUR millions) 2009 2008 2007 Retirement and other indemnities 120 116 95 Medical cost of retirees 54 42 36 Jubilee awards 11 11 11 Supplementary pensions 517 478 453 Early retirement indemnities 4912 Other 15 11 12 DEFINED BENEFIT OBLIGATION 721 667 619
2009 Annual Report 149 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
The geographic breakdown of defi ned benefi t obligation is as follows:
(EUR millions) 2009 2008 2007 France 281 299 279 Europe (excluding France) 220 159 178 United States 144 126 100 Japan 65 74 53 Asia (excluding Japan) 1199 DEFINED BENEFIT OBLIGATION 721 667 619
The main components of the Group’s net commitment for • in Europe (excluding France), the main commitments concern retirement and other benefi t obligations as of December 31, pension schemes and schemes for the reimbursement of the 2009 are as follows: medical expenses of retirees, set up in the United Kingdom by certain Group companies, as well as the TFR (Trattamento • in France, these commitments mainly include jubilee awards and di Fine Rapporto) in Italy, a legally required end-of-service retirement indemnities, the payment of which is determined by allowance, paid regardless of the reason for the employee’s French law and collective bargaining agreements, respectively departure from the Company, and in Switzerland, participation after a certain number of years of service or upon retirement; by Group companies in the mandatory Swiss occupational they also include the commitment to members of the Group’s pension scheme, the LPP (Loi pour la Prévoyance Professionnelle); executive bodies, who are covered by an additional pension • in the United States, the commitment relates to defi ned benefi t plan after a certain number of years’ service, the amount of plans or schemes for the reimbursement of medical expenses which is linked to their last year’s remuneration; of retirees set up by certain Group companies.
28.5 Analysis of related plan assets Market value of the underlying investments in plan assets is as follows:
(percentage) 2009 2008 2007 Shares 42 43 51 Bonds - private issues 27 36 33 - public issues 19 13 11 Real estate, cash and other assets 12 8 5 FAIR VALUE OF RELATED PLAN ASSETS 100 100 100
Plan assets do not include any real estate assets operated by the Group or any LVMH or Christian Dior shares for signifi cant amounts. The sums that will be paid to the funds in 2010 are estimated at 42 million euros.
NOTE 29 - OFF BALANCE SHEET COMMITMENTS
29.1 Purchase commitments
(EUR millions) 2009 2008 2007 Grapes, wines and distilled alcohol 1,336 1,671 1,690 Other purchase commitments for raw materials 68 64 24 Industrial and commercial fi xed assets 109 180 105 Investments in joint venture shares and non-current available for sale fi nancial assets 56 63 55
Some Wines and Spirits companies have contractual purchase arrangements with various local producers for the future supply of grapes, still wines and distilled alcohol. These commitments are valued, depending on the nature of the purchases, on the basis of the contractual terms or known year-end prices and estimated production yields.
150 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
As of December 31, 2009, the maturity dates of these commitments break down as follows:
Less than One to More than (EUR millions) one year fi ve years fi ve years TOTAL Grapes, wines and distilled alcohol 587 652 97 1,336 Other purchase commitments for raw materials 57 11 - 68 Industrial and commercial fi xed assets 53 56 - 109 Investments in joint venture shares and non-current available for sale fi nancial assets 3 38 15 56
29.2 Lease and similar commitments In addition to leasing its stores, the Group also fi nances some of its equipment through long term operating leases. Some fi xed assets and equipment were also purchased or refi nanced under fi nance leases.
Operating leases and concession fees The fi xed or minimum portion of commitments in respect of operating lease or concession contracts over the irrevocable period of the contracts were as follows as of December 31, 2009:
(EUR millions) 2009 2008 2007 Less than one year 907 836 722 One to fi ve years 2,162 2,129 1,928 More than fi ve years 967 1,062 979 COMITMENTS GIVEN FOR OPERATING LEASES AND CONCESSION FEES 4,036 4,027 3,629 Less than one year 20 24 21 One to fi ve years 32 50 42 More than fi ve years 684 COMMITMENTS RECEIVED FOR SUB-LEASES 58 82 67
Finance leases The amount of the Group’s irrevocable commitments under fi nance lease agreements as of December 31, 2009 breaks down as follows:
2009 2008 2007 Minimum Present Minimum Present Minimum Present future value of future value of future value of (EUR millions) payments payments payments payments payments payments Less than one year 29 31 25 25 22 21 One to fi ve years 72 51 80 61 69 45 More than fi ve years 336 63 364 66 344 70 Total future minimum payments 437 469 435 Of which: fi nancial interest (292) (317) (299) PRESENT VALUE OF MINIMUM FUTURE PAYMENTS 145 145 152 152 136 136
2009 Annual Report 151 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
29.3 Collateral and other guarantees As of December 31, 2009, these commitments break down as follows:
(EUR millions) 2009 2008 2007 Securities and deposits 69 59 61 Other guarantees 66 48 28 GUARANTEES GIVEN 135 107 89 GUARANTEES RECEIVED 33 25 32
Maturity dates of these commitments are as follows:
Less than One to More than (EUR millions) one year fi ve years fi ve years TOTAL Securities and deposits 18 44 7 69 Other guarantees 32 30 4 66 GUARANTEES GIVEN 50 74 11 135 GUARANTEES RECEIVED 12 17 4 33
29.4 Contingent liabilities and outstanding litigation
As part of its day-to-day management, the Group is party to the provisions recorded in the balance sheet in respect of these various legal proceedings concerning brand rights, the protection risks, litigation or disputes, known or outstanding at year-end, of intellectual property rights, the set-up of selective retailing are suffi cient to avoid its consolidated fi nancial net worth being networks, licensing agreements, employee relations, tax audits materially impacted in the event of an unfavorable outcome. and other areas relating to its business. The Group believes that
29.5 Other commitments The Group is not aware of any signifi cant off balance sheet commitments other than those described above.
152 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
NOTE 30 - RELATED PARTY TRANSACTIONS
30.1 Relations of the Christian Dior Group with the Groupe Arnault and Financière Agache Groups The parent company of the Christian Dior Group is Financière Agache SA, which is controlled by Groupe Arnault SAS.
Relations of the Christian Dior Group with the Groupe Arnault Group Groupe Arnault SAS provides assistance to the Christian Dior Group in the areas of development, engineering, corporate and real estate law. In addition, Groupe Arnault SAS leases offi ce premises to LVMH. The Christian Dior Group leases offi ce space to the Groupe Arnault Group and also provides it with various forms of administrative assistance. Transactions between the Christian Dior Group and the Groupe Arnault Group may be summarized as follows:
(EUR millions) 2009 2008 2007 • Christian Dior Group purchases from the Groupe Arnault Group (10) (10) (10) Amount payable outstanding as of December 31 (2) (1) (1) • Christian Dior Group sales to the Groupe Arnault Group 2 3 3 Amount receivable outstanding as of December 31 - 2 1
L Real Estate, a real estate investment fund targeted on Asia, 49% owned by LVMH and 51% by Groupe Arnault, acquired minority and majority stakes in various investments from Groupe Arnault in May and July 2009 for 137 million euros.
Relations of the Christian Dior Group with the Financière Agache Group Transactions between the Christian Dior Group and the Financière Agache Group may be summarized as follows:
(EUR millions) 2009 2008 2007 • Amounts billed by the Financière Agache Group to the Christian Dior Group - - (10) Amount payable outstanding as of December 31 - - (2) • Amounts billed for fi nancial interest to the Christian Dior Group - (1) (3) Amount payable outstanding as of December 31 - - (28) • Amounts billed by the Christian Dior Group to the Financière Agache Group - - 1 Amount receivable outstanding as of December 31 - - - • Amounts billed for fi nancial interest to the Financière Agache Group - - 1 Amount receivable outstanding as of December 31 ---
Lastly, in August 2009, the Group acquired a 50%-stake in the wine estate Château Cheval Blanc from a subsidiary of Financière Agache for 238 million euros.
30.2 Relations of the Christian Dior Group with Diageo
Moët Hennessy SNC and MH International SAS (hereafter Under this agreement, Moët Hennessy assumed 20% of shared “Moët Hennessy”) hold stakes in LVMH Group’s Wines and expenses in 2009 (23% in 2008, 24% in 2007) representing an Spirits businesses, with the exception of Château d’Yquem, amount of 19 million euros in 2009 (32 million euros in 2008, Château Cheval Blanc and certain champagne vineyards. Diageo 28 million euros in 2007). holds a 34% stake in Moët Hennessy. In 1994, at the time when Diageo acquired this 34% stake, an agreement was concluded between Diageo and LVMH for the apportionment of common holding company expenses between Moët Hennessy and the other holding companies of the LVMH Group.
2009 Annual Report 153 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
30.3 Executive bodies The total compensation paid to the members of the Board of Directors, in respect of their functions within the Group, breaks down as follows:
(EUR millions) 2009 2008 2007 Gross compensation, employers’ charges and benefi ts in kind 14 13 10 Post-employment benefi ts 211 Other long term benefi ts --- End of contract indemnities --- Stock option and similar plans 12 14 15 TOTAL 28 28 26
The net commitment recognized as of December 31, 2009 for post-employment benefi ts, net of related fi nancial assets was 1 million euros (1 million euros as of December 31, 2008 and as of December 31, 2007 ).
NOTE 31 - SUBSEQUENT EVENTS
No signifi cant subsequent events occurred between December 31, 2009 and February 4, 2010, the date on which the accounts were approved for publication by the Board of Directors.
154 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
Consolidated companies
COMPANIES REGISTERED OFFICE PERCENTAGE COMPANIES REGISTERED OFFICE PERCENTAGE Consolidation Interest Consolidation Interest method method Christian Dior SA Paris, France Les Ateliers Horlogers Dior SA La Chaux-de-Fonds, Switzerland (3) FC 72% Financière Jean Goujon Paris, France FC 100% Dior Montres SARL Paris, France (3) FC 72% Sadifa Paris, France FC 100% Christian Dior Couture Qatar LLC Doha, Qatar (2) (2) Lakenbleker Amsterdam, Netherlands FC 100% Le Gosse S.A. Geneva, Switzerland FC 100% Vanity Srl Vigonovo (Venice), Italy FC 100% CHRISTIAN DIOR COUTURE Christian Dior Couture S.A. Paris, France FC 100% WINES AND SPIRITS Christian Dior Fourrure M.C. S.A.M Monaco, Principality of Monaco FC 100% MHCS SCS Epernay, France FC 29% Christian Dior GmbH Dusseldorf, Germany FC 100% Moët Hennessy UK Ltd London, United Kingdom FC 29% Christian Dior Inc. New York, USA FC 100% Moët Hennessy España SA Barcelona, Spain FC 29% Christian Dior UK Ltd London, United Kingdom FC 100% Moët Hennessy (Suisse) SA Geneva, Switzerland FC 29% Christian Dior Suisse S.A. Geneva, Switzerland FC 100% Champagne Des Moutiers SA Epernay, France FC 29% Les Jardins d’Avron S.A.S. Paris, France FC 100% Moët Hennessy de Mexico, SA Mexico City, Mexico FC 29% Mardi Spa Badia a Settimo-Scandicci, Italy FC 75% de C.V. Ateliers AS Pierre Bénite, France EM 25% Chamfi par SA Epernay, France FC 29% Christian Dior Far East Ltd Hong Kong, China FC 100% Société Viticole de Reims SA Epernay, France FC 29% Christian Dior Fashion (Malaysia) Kuala Lumpur, Malaysia FC 100% Cie Française du Champagne et Epernay, France FC 29% Sdn. Bhd. du Luxe SA Christian Dior Hong Kong Ltd Hong Kong, China FC 100% Moët Hennessy Belux SA Brussels, Belgium FC 29% Christian Dior Taiwan Limited Hong Kong, China FC 90% Champagne de Mansin SAS Gye sur Seine, France FC 29% Christian Dior Singapore Pte Ltd Singapore, Republic of Singapore FC 100% Moët Hennessy Osterreich GmbH Vienna, Austria FC 29% Christian Dior Saipan Ltd Saipan, Saipan FC 100% Moët Hennessy Polska SP Z.O.O. Warsaw, Poland FC 29% Christian Dior Australia PTY Ltd Sydney, Australia FC 100% Moët Hennessy Czech Republic Sro Prague, Czech Republic FC 29% Christian Dior New Zealand Ltd Auckland, New Zealand FC 100% Moët Hennessy România Srl Bucharest, Romania FC 29% Christian Dior (Thailand) Co. Ltd Bangkok, Thailand FC 100% STM Vignes SAS Epernay, France FC 29% Christian Dior K.K. (Kabushiki Kaisha) Tokyo, Japan FC 100% Champagne Montaudon SA Reims, France FC 29% Christian Dior Couture Korea Ltd Seoul, South Korea FC 100% Moët Hennessy Nederland BV Baarn, Netherlands FC 29% Christian Dior Guam Ltd Tumon Bay Guam, Guam FC 100% Moët Hennessy USA, Inc. New York, USA FC 29% Christian Dior Espanola S.L. Madrid, Spain FC 100% MHD Moët Hennessy Diageo SAS Courbevoie, France (1) FC 29% Christian Dior do Brasil Ltda Sao Paulo, Brazil FC 100% Opera Vineyards SA Buenos Aires, Argentina PC 14% Christian Dior Italia Srl Milan, Italy FC 100% Domaine Chandon, Inc. Yountville (California), USA FC 29% Christian Dior Belgique S.A. Brussels, Belgium FC 100% Cape Mentelle Vineyards Ltd Margaret River, Australia FC 29% Bopel Srl Lugagnano Val d’Arda, Italy FC 70% Veuve Clicquot Properties, Pty Ltd Sydney, Australia FC 29% Christian Dior Puerto Banus S.L. Marbella-Puerto Banus, Spain FC 75% Moët Hennessy do Brasil Vinhos E Sao Paulo, Brazil FC 29% Les Jardins d’Avron LLC New York, USA FC 100% Destilados Ltda Lucilla Srl Sieci-Pontassieve, Italy FC 51% Cloudy Bay Vineyards Ltd Blenheim, New Zealand FC 29% Christian Dior Couture CZ s.r.o. Prague, Czech Republic FC 100% Bodegas Chandon Argentina SA Buenos Aires, Argentina FC 29% Christian Dior Couture Maroc SA Casablanca, Morocco FC 51% Domaine Chandon Australia Pty Ltd Coldstream Victoria, Australia FC 29% Christian Dior Couture FZE Dubai, United Arab Emirates FC 100% Newton Vineyards LLC St Helena (California), USA FC 26% Christian Dior Macau Single Macao, Macao FC 100% Société Civile des Crus Reims, France FC 29% Shareholder Company Limited de Champagne SA Les Ateliers Bijoux GmbH Pforzheim, Germany FC 100% Veuve Clicquot UK Ltd London, United Kingdom FC 29% ( ) Christian Dior S. de R.L. de C.V. Lomas, Mexico FC 100% Clicquot, Inc. New York, USA * FC 29% Christian Dior Commercial Shanghai, China FC 100% Veuve Clicquot Japan KK Tokyo, Japan FC 29% (Shanghai) Co.Ltd Moët Hennessy Suomi OY Helsinki, Finland FC 29% Ateliers Modèles S.A.S. Paris, France FC 100% Moët Hennessy Sverige AB Stockholm, Sweden FC 29% Baby Siam Couture Company Ltd Bangkok, Thailand FC 100% Moët Hennessy Norge AS Hoevik, Norway FC 29% CDC Abu-Dhabi LLC Abu Dhabi, United Arab Emirates (2) (2) Moët Hennessy Danmark A/S Copenhag en, Denmark FC 29% CDCH SA Luxembourg, Luxembourg FC 75% Moët Hennessy Deutschland GmbH Munich, Germany FC 29% Dior Grèce S.A. Athens, Greece FC 51% Moët Hennessy Italia S.p.a. Milan, Italy FC 29% Christian Dior Couture RUS LLC Moscow, Russia FC 100% Ruinart UK Ltd London, United Kingdom FC 29% Christian Dior Couture Moscow, Russia FC 100% Ruinart España S.L. Madrid, Spain FC 29% Stoleshnikov LLC Château d’Yquem SA Sauternes, France FC 28% Calto Srl Milan, Italy FC 100% Château d’Yquem SC Sauternes, France FC 28% CDC General Trading LLC Dubai, United Arab Emirates (2) (2) Société Civile Cheval Blanc (SCCB) Saint Emilion, France PC 22% Christian Dior Istanbul Maslak-Istanbul, Turkey FC 51% La Tour du Pin SAS Saint Emilion, France PC 22% Magazacilik Anonim Sirketi Jas Hennessy & Co. SCS Cognac, France FC 28% Christian Dior Trading India Mumbai, India FC 51% Diageo Moët Hennessy BV Amsterdam, Netherlands (1) FC 29% Private Limited Hennessy Dublin Ltd Dublin, Ireland FC 29% Manifatturauno Srl Fosso (Venice), Italy FC 80% Edward Dillon & Co. Ltd Dublin, Ireland EM 11% John Galliano SA Paris, France FC 91%
2009 Annual Report 155 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
COMPANIES REGISTERED OFFICE PERCENTAGE COMPANIES REGISTERED OFFICE PERCENTAGE Consolidation Interest Consolidation Interest method method Hennessy Far East Ltd Hong Kong, China FC 28% Louis Vuitton Hellas SA Athens, Greece FC 44% Moët Hennessy Diageo Hong Kong Ltd Hong Kong, China (1) FC 29% Louis Vuitton Cyprus Limited Nicosia, Cyprus FC 44% Riche Monde (China) Ltd Shanghai, China (1) FC 29% Louis Vuitton Portugal Maleiro, Ltda. Lisbon, Portugal FC 44% Moët Hennessy Diageo Singapore Singapore (1) FC 29% Louis Vuitton Ltd Tel Aviv, Israel FC 44% Pte Ltd Louis Vuitton Danmark A/S Copenhagen, Denmark FC 44% Riche Monde Malaisie SDN BI ID Petaling Jaya, Malaysia (1) FC 14% Louis Vuitton Aktiebolag SA Stockholm, Sweden FC 44% Riche Monde Taïpei Ltd Taipei, Taiwan (1) FC 29% Louis Vuitton Suisse SA Geneva, Switzerland FC 44% Diageo Moët Hennessy Thailand Ltd Bangkok, Thailand (1) FC 29% Louis Vuitton Ceska s.r.o. Prague, Czech Republic FC 44% Moët Hennessy Korea Ltd Seoul, South Korea FC 29% Louis Vuitton Osterreich G.m.b.H Vienna, Austria FC 44% Moët Hennessy Shanghai Ltd Shanghai, China FC 29% LV US Manufacturing, Inc. New York, USA FC 44% Moët Hennessy India Pvt. Ltd New Delhi, India FC 29% Somarest SARL Sibiu, Romania FC 44% Moët Hennessy Taiwan Ltd Taipei, Taiwan FC 28% Louis Vuitton Hawaii, Inc. Honolulu (Hawaii), USA FC 44% MHD Chine Co. Ltd Shanghai, China (1) FC 29% Atlantic Luggage Company Ltd Hamilton, Bermuda FC 18% MHWH Limited Limassol, Cyprus FC 14% Louis Vuitton Guam, Inc. Guam FC 44% Moët Hennessy Whitehall Russia SA Moscow, Russia FC 14% Louis Vuitton Saipan, Inc. Saipan, Mariana Islands FC 44% Moët Hennessy Vietnam Ho Chi Minh City, Vietnam FC 29% Louis Vuitton Norge AS Oslo, Norway FC 44% Importation Co. Ltd San Dimas Luggage Company New York, USA FC 44% Moët Hennessy Vietnam Distribution Ho Chi Minh City, Vietnam FC 28% Louis Vuitton Vietnam Company Ltd Hanoi, Vietnam FC 44% Moët Hennessy Rus LLC Moscow, Russia FC 28% Louis Vuitton Suomy Oy Helsinki, Finland FC 44% (1) Moët Hennessy Diageo KK Tokyo, Japan FC 29% Louis Vuitton România Srl Bucharest, Romania FC 44% Moët Hennessy Asia Pacifi c Pte Ltd Singapore FC 28% LVMH FG Brasil Ltda Sao Paulo, Brazil FC 44% Moët Hennessy Australia Ltd Rosebury, Australia FC 28% Louis Vuitton Panama Panama City, Panama FC 44% Millennium Import LLC Minneapolis, Minnesota, USA FC 29% Louis Vuitton Mexico S de RL de CV Mexico City, Mexico FC 44% Millennium Brands Ltd Dublin, Ireland FC 29% Louis Vuitton Uruguay S.A. Montevideo, Uruguay FC 44% Polmos Zyrardow Zyrardow, Poland FC 29% Louis Vuitton Chile Ltda Santiago de Chile, Chile FC 44% Moët Hennessy VR Ltd London, United Kingdom FC 29% Louis Vuitton (Aruba) N. V Oranjestad, Aruba FC 44% The Glenmorangie Company Ltd Edinburgh, United Kingdom FC 29% LVMH Fashion Group Pacifi c Ltd Hong Kong, China FC 44% Macdonald & Muir Ltd Edinburgh, United Kingdom FC 29% LV Trading Hong Kong Ltd Hong Kong, China FC 44% Glenaird Ltd Edinburgh, United Kingdom FC 14% Louis Vuitton Hong Kong Ltd Hong Kong, China FC 44% The Scotch Malt Whisky Society Ltd Edinburgh, United Kingdom FC 29% Louis Vuitton (Philippines), Inc. Makati, Philippines FC 44% Wenjun Spirits Company Ltd Chengdu, China FC 16% LVMH Fashion (Singapore) Pte Ltd Singapore FC 44% Wen jun Spirits Sales Company Ltd Chengdu, China FC 16% PT Louis Vuitton Indonesia Jakarta, Indonesia FC 43% Louis Vuitton (Malaysia) SDN BHD Kuala Lumpur, Malaysia FC 44% FASHION AND LEATHER GOODS Louis Vuitton (Thailand) SA Bangkok, Thailand FC 44% Louis Vuitton Malletier SA Paris, France FC 44% Louis Vuitton Taïwan, Ltd Taipei, Taiwan FC 43% Manufacture de Souliers Louis Fiesso d’Artico, Italy FC 44% Louis Vuitton Australia, PTY Ltd Sydney, Australia FC 44% Vuitton S.r.l. Louis Vuitton (China) Co. Ltd Shanghai, China FC 44% Louis Vuitton Saint Barthélémy SNC Saint Bartholomew, French Antilles FC 44% Louis Vuitton Mongolia LLC Ulaan Baatar, Mongolia FC 44% Louis Vuitton Cantacilik Ticaret AS Istanbul, Turkey FC 43% LV New Zealand Limited Auckland, New Zealand FC 44% Louis Vuitton Editeur Paris, France FC 44% Louis Vuitton Trading India Private Ltd New Delhi, India FC 22% Les Ateliers de Pondichery Private Ltd Pondichéry, India FC 44% Louis Vuitton EAU LLC Dubai, United Arab Emirates (2) (2) Louis Vuitton International SNC Paris, France FC 44% Louis Vuitton FZCO Dubai, United Arab Emirates FC 28% Louis Vuitton India Holding Private Ltd Bangalore, India FC 44% Louis Vuitton Korea Ltd Seoul, South Korea FC 44% Société des Ateliers Louis Vuitton SNC Paris, France FC 44% LVMH Fashion Group Trading Seoul, South Korea FC 44% Les Tanneries de la Comète Estaimpuis, Belgium FC 26% Korea Ltd (2) (2) Louis Vuitton Bahrein Manama, Bahrain Louis Vuitton Hungaria Sarl Budapest, Hungary FC 44% Société Louis Vuitton Services SNC Paris, France FC 44% Louis Vuitton Argentina SA Buenos Aires, Argentina FC 44% (2) (2) Louis Vuitton Qatar LLC Doha, Qatar Louis Vuitton Vostock LLC Moscow, Russia FC 44% Société des Magasins Louis Vuitton Paris, France FC 44% LV Colombia SA Santafe de Bogota, Colombia FC 44% France SNC Louis Vuitton Maroc Sarl Casablanca, Morocco FC 44% Belle Jardinière SA Paris, France FC 44% Louis Vuitton Venezuela SA Caracas, Venezuela FC 44% Belle Jardinière Immo SAS Paris, France FC 44% Louis Vuitton South Africa Ltd Johannesburg, South Africa FC 44% Sedivem SNC Paris, France FC 44% Louis Vuitton Macau Company Ltd Macao, China FC 44% Les Ateliers Horlogers Louis Vuitton SA La Chaux-de-Fonds, Switzerland FC 44% LVMH Fashion Group (Shanghai) Shanghai, China FC 44% Louis Vuitton Monaco SA Monte Carlo, Monaco FC 44% Trading Co. Ltd ELV SNC Paris, France FC 44% LVJ Group KK Tokyo, Japan FC 43% Louis Vuitton UK Ltd London, United Kingdom FC 44% Louis Vuitton North America Inc. New York, USA (*) FC 44% Louis Vuitton Deutschland GmbH Düsseldorf, Germany FC 44% Louis Vuitton Canada, Inc. Toronto, Canada FC 44% Louis Vuitton Ukraine LLC Kiev, Ukraine FC 44% Marc Jacobs International, LLC New York, USA (*) FC 42% Sociedad Catalana Talleres Barcelona, Spain FC 44% Marc Jacobs International (UK) Ltd London, United Kingdom FC 44% Artesanos Louis Vuitton SA Marc Jacobs Trademark, LLC New York, USA (*) FC 14% Louis Vuitton BV Amsterdam, Netherlands FC 44% Marc Jacobs Japon KK Tokyo, Japan FC 21% Louis Vuitton Belgium SA Brussels, Belgium FC 44%
156 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
COMPANIES REGISTERED OFFICE PERCENTAGE COMPANIES REGISTERED OFFICE PERCENTAGE Consolidation Interest Consolidation Interest method method Marc Jacobs International Japan Tokyo, Japan FC 43% Donna Karan Company Store Dublin, Ireland FC 44% Co. Ltd Ireland Ltd Loewe SA Madrid, Spain FC 44% Donna Karan Studio LLC New York, USA FC 44% Loewe Hermanos SA Madrid, Spain FC 44% The Donna Karan Company Store LLC New York, USA FC 44% Manufacturas Loewe SL Madrid, Spain FC 44% Donna Karan Company Store UK London, United Kingdom FC 44% LVMH Fashion Group France SNC Paris, France FC 44% Holdings Ltd Loewe Hermanos UK Ltd London, United Kingdom FC 44% Donna Karan Management London, United Kingdom FC 44% Loewe Saipan, Inc. Saipan, Mariana Islands FC 44% Company UK Ltd Loewe Guam, Inc. Guam FC 44% Donna Karan Company Stores UK London, United Kingdom FC 44% Retail Ltd Loewe Hong Kong Ltd Hong Kong, China FC 44% Donna Karan Company Store (UK) Ltd London, United Kingdom FC 44% Loewe Commercial & Trading Co., Ltd Shanghai, China FC 44% Donna Karan H. K. Ltd Hong Kong, China FC 44% Loewe Fashion Pte Ltd Singapore FC 44% Donna Karan (Italy) S.r.l. Milan, Italy FC 44% Loewe Fashion (M.) SDN BHD Kuala Lumpur, Malaysia FC 44% Donna Karan (Italy) Production Milan, Italy FC 44% Loewe Taïwan Ltd Taipei, Taiwan FC 43% Services S.r.l. Loewe Korea Ltd Seoul, South Korea FC 44% Fendi International BV Baarn, Netherlands FC 44% Loewe Macao Ltd Macao, China FC 44% Fun Fashion Qatar Doha, Qatar (2) (2) Berluti SA Paris, France FC 44% Fendi International SA Paris, France FC 44% Société de Distribution Robert Paris, France FC 44% Fun Fashion Emirates LLC Dubai, United Arab Emirates (2) (2) Estienne SNC Fendi SA Luxembourg, Luxembourg FC 44% Manufattura Ferrarese S.r.l. Ferrara, Italy FC 44% Fun Fashion Bahrain WLL Manama, Bahrain (2) (2) Berluti LLC New York, USA FC 44% Fendi S.r.l. Rome, Italy FC 44% Rossimoda SpA Vigonza, Italy FC 42% Fendi Dis Ticaret LSi Istanbul, Turkey FC 44% Rossimoda USA Ltd New York, USA FC 42% Fendi Adele S.r.l. Rome, Italy FC 44% Rossimoda France SARL Paris, France FC 42% Fendi Italia S.r.l. Rome, Italy FC 44% Brenta Suole S.r.l. Vigonza, Italy FC 28% Fendi UK. Ltd London, United Kingdom FC 44% LVMH Fashion Group Services SAS Paris, France FC 44% Fendi France SAS Paris, France FC 44% Montaigne KK Tokyo, Japan FC 43% Fen Fashion Hellas SA Athens, Greece FC 22% Interlux Company Ltd Hong Kong, China FC 44% Fendi North America Inc. New York, USA (*) FC 44% Céline SA Paris, France FC 44% Fendi Australia Pty Ltd Sydney, Australia FC 44% Avenue M. International SCA Paris, France FC 44% Fendi Guam Inc. Tumon, Guam FC 44% Enilec Gestion SARL Paris, France FC 44% Fendi (Thailand) Company Ltd Bangkok, Thailand FC 44% Céline Montaigne SA Paris, France FC 44% Fendi Asia Pacifi c Ltd Hong Kong, China FC 44% Céline Monte-Carlo SA Monte Carlo, Monaco FC 44% Fendi Korea Ltd Seoul, South Korea FC 44% Céline Production S.r.l. Florence, Italy FC 44% Fendi Taiwan Ltd Taipei, Taiwan FC 44% Céline Suisse SA Geneva, Switzerland FC 44% Fendi Hong Kong Ltd Hong Kong, China FC 44% Céline UK Ltd London, United Kingdom FC 44% Fendi China Boutiques Ltd Hong Kong, China FC 44% Céline Inc. New York, USA (*) FC 44% Fendi (Singapore) Pte Ltd Singapore FC 44% Céline Hong Kong Ltd Hong Kong, China FC 44% Fendi Fashion (Malaysia) Snd. Bhd. Kuala Lumpur, Malaysia FC 44% Céline Commercial & Trading Shanghai, China FC 44% (Shanghai) Co. Ltd Fendi Switzerland SA Geneva, Switzerland FC 44% Céline (Singapour) Pte Ltd Singapore FC 44% Fun Fashion FZCO LLC Dubai, United Arab Emirates FC 26% Céline Guam Inc. Tumon, Guam FC 44% Fendi Marianas, Inc. Tumon, Guam FC 44% Céline Korea Ltd Seoul, South Korea FC 44% Fun Fashion Kuwait Co. WLL Kuwait City, Kuwait (2) (2) Céline Taïwan Ltd Taipei, Taiwan FC 43% Fun Fashion Germany GmbH Stuttgart, Germany FC 22% & Co. KG CPC International Ltd Hong Kong, China FC 44% Fendi Macau Company Ltd Macao, China FC 44% CPC Macau Ltd Macao, China FC 44% Fendi Germany GmbH Stuttgart, Germany FC 44% LVMH FG Services UK Ltd London, United Kingdom FC 44% Fun Fashion Napoli Srl Rome, Italy FC 22% Kenzo SA Paris, France FC 44% Fendi (Shanghai) Co. Ltd Shanghai, China FC 44% E-Kenzo SAS Paris, France FC 26% Outshine Corporation, SL Marbella, Spain FC 31% Kenzo Belgique SA Brussels, Belgium FC 44% Fun Fashion India Pte Ltd Mumbai, India (2) (2) Kenzo Homme UK Ltd London, United Kingdom FC 44% Interservices & Trading SA Lugano, Switzerland FC 44% Kenzo Japan KK Tokyo, Japan FC 44% Fendi Silk SA Lugano, Switzerland FC 22% Givenchy SA Paris, France FC 44% Outshine Mexico, S. de RL de C.V. Mexico City, Mexico FC 44% Givenchy Corporation New York, USA FC 44% Maxelle SA Neuchâtel, Switzerland FC 22% Givenchy Co. Ltd Tokyo, Japan FC 44% Taramax USA Inc. New Jersey, USA FC 22% Givenchy China Co. Ltd Hong Kong, China FC 44% Primetime Inc. New Jersey, USA FC 22% Givenchy Shanghai Commercial Shanghai, China FC 44% and Trading Co., Ltd Taramax SA Neuchâtel, Switzerland FC 22% GCCL Macau Co. Ltd Macao, China FC 44% Taramax Japan KK Tokyo, Japan FC 22% Gabrielle Studio, Inc. New York, USA FC 44% Support Retail Mexico, S. de RL de C.V. Mexico City, Mexico FC 44% Donna Karan International Inc. New York, USA(*) FC 44% Emilio Pucci S.r.l. Florence, Italy FC 44% The Donna Karan Company LLC New York, USA FC 44% Emilio Pucci International BV Baarn, Netherlands FC 29% Donna Karan Service Company BV Oldenzaal, Netherlands FC 44% Emilio Pucci, Ltd New York, USA FC 44%
2009 Annual Report 157 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
COMPANIES REGISTERED OFFICE PERCENTAGE COMPANIES REGISTERED OFFICE PERCENTAGE Consolidation Interest Consolidation Interest method method Emilio Pucci Hong Kong Co. Ltd Hong Kong, China FC 44% Perfumes Loewe SA Madrid, Spain FC 44% EP (Shanghai) Commercial Ltd Shanghai, China FC 44% Acqua Di Parma S.r.l. Milan, Italy FC 44% Thomas Pink Holdings Ltd London, United Kingdom FC 44% Acqua Di Parma LLC New York, USA FC 44% Thomas Pink Ltd London, United Kingdom FC 44% Guerlain SA Paris, France FC 44% Thomas Pink BV Rotterdam, Netherlands FC 44% LVMH Parfums & Kosmetik Düsseldorf, Germany FC 44% Thomas Pink Inc. New York, USA (*) FC 44% Deutschland GmbH Thomas Pink Ireland Ltd Dublin, Ireland FC 44% Guerlain GesmbH Vienna, Austria FC 44% Thomas Pink Belgium SA Brussels, Belgium FC 44% Guerlain SA (Belgique) Fleurus, Belgium FC 44% Thomas Pink France SAS Paris, France FC 44% Guerlain Ltd London, United Kingdom FC 44% Thomas Pink Canada Inc. Toronto, Canada FC 44% LVMH Perfumes e Cosmetica Lda Lisbon, Portugal FC 44% Edun Apparel Ltd Dublin, Ireland EM 21% Guerlain SA (Suisse) Geneva, Switzerland FC 44% Nowness, LLC New York, USA (*) FC 44% Guerlain Inc. New York, USA FC 44% Guerlain Canada Ltd Montreal, Canada FC 44% PERFUMES AND Guerlain De Mexico SA Mexico City, Mexico FC 44% COSMETICS Guerlain Asia Pacifi c Ltd (Hong Kong) Hong Kong, China FC 44% Parfums Christian Dior SA Paris, France FC 44% Guerlain KK Tokyo, Japan FC 44% LVMH P&C Thailand Co. Ltd Bangkok, Thailand FC 21% Guerlain Oceania Australia Pty Ltd Melbourne, Australia FC 44% LVMH Parfums & Cosmétiques do Sao Paulo, Brazil FC 44% Make Up For Ever SA Paris, France FC 44% Brasil Ltda Make Up For Ever UK Ltd London, United Kingdom FC 44% France Argentine Cosmetics SA Buenos Aires, Argentina FC 44% Make Up For Ever LLC New York, USA (*) FC 44% LVMH P&C Shanghai Co. Ltd Shanghai, China FC 44% Parfums Givenchy SA Levallois Perret, France FC 44% Parfums Christian Dior Finland Oy Helsinki, Finland FC 44% Parfums Givenchy Ltd London, United Kingdom FC 44% LVMH P & C Inc. New York, USA FC 44% Parfums Givenchy GmbH Düsseldorf, Germany FC 44% SNC du 33 avenue Hoche Paris, France FC 44% Parfums Givenchy LLC New York, USA (*) FC 44% LVMH Fragrances & Cosmetics Singapore FC 44% Parfums Givenchy Canada Ltd Toronto, Canada FC 44% (Sinpagore) Pte Ltd Parfums Givenchy KK Tokyo, Japan FC 44% Parfums Christian Dior Orient Co. Dubai, United Arab Emirates FC 26% Parfums Givenchy WHD, Inc. New York, USA (*) FC 44% Parfums Christian Dior Emirates Dubai, United Arab Emirates FC 14% LVMH P & K GmbH Düsseldorf, Germany FC 44% EPCD SP. ZO.O Warsaw, Poland EM 9% Kenzo Parfums France SA Paris, France FC 44% Parfums Christian Dior (UK) Ltd London, United Kingdom FC 44% Kenzo Parfums NA LLC New York, USA (*) FC 44% Parfums Christian Dior BV Rotterdam, Netherlands FC 44% Kenzo Parfums Singapore Singapore FC 44% Iparkos BV Rotterdam, Netherlands FC 44% La Brosse et Dupont SAS Villepinte, France FC 44% Parfums Christian Dior S.A.B. Brussels, Belgium FC 44% La Brosse et Dupont Portugal SA S. Domingos de Rana, Portugal FC 44% Parfums Christian Dior (Ireland) Ltd Dublin, Ireland FC 44% Mitsie SAS Tarare, France FC 44% Parfums Christian Dior Hellas SA Athens, Greece FC 44% Labrosse et Dupont Iberica SA Madrid, Spain FC 44% Parfums Christian Dior A.G. Zurich, Switzerland FC 44% LBD Ménage SAS Villepinte, France FC 44% Christian Dior Perfumes LLC New York, USA FC 44% LBD Belux SA Brussels, Belgium FC 44% Parfums Christian Dior Canada Inc. Montreal, Canada FC 44% SCI Masurel Hermes, France FC 44% LVMH P & C de Mexico SA de CV Mexico City, Mexico FC 44% SCI Sageda Bethisy Saint Pierre, France FC 44% Parfums Christian Dior Japon K.K. Tokyo, Japan FC 44% LBD Italia S.r.l. Stezzano, Italy FC 44% Parfums Christian Dior Singapore FC 44% Inter-Vion Spolka Akeyjna SA Warsaw, Poland FC 22% (Singapore) Pte Ltd Europa Distribution SAS Saint Etienne, France FC 44% Inalux SA Luxembourg, Luxembourg FC 44% LBD Hong Kong Hong Kong, China FC 44% LVMH P & C Asia Pacifi c Ltd Hong Kong, China FC 44% LBD Antilles SAS Ducos, Martinique, France FC 44% Fa Hua Fragrance & Cosmetic Co. Ltd Hong Kong, China FC 44% LBD Canada Inc. St Augustin de Desmaures, Quebec FC 22% Parfums Christian Dior China Shanghai, China FC 44% Benefi t Cosmetics LLC San Francisco (California), USA FC 35% LVMH P & C Korea Ltd Seoul, South Korea FC 44% Benefi t Cosmetics UK Ltd London, United Kingdom FC 35% Parfums Christian Dior Hong Kong Ltd Hong Kong, China FC 44% Benefi t Cosmetics Korea Seoul, South Korea FC 35% LVMH P & C Malaysia Sdn berhad Inc. Kuala Lumpur, Malaysia FC 44% Benefi t Cosmetics SAS Boulogne Billancourt, France FC 35% Fa Hua Hong Kong Co., Ltd Hong Kong, China FC 44% Benefi t Cosmetics Hong Kong Hong Kong, China FC 35% Pardior SA de CV Mexico City, Mexico FC 44% Benefi t Cosmetics Ireland Ltd Dublin, Ireland FC 35% Parfums Christian Dior A/S Ltd Copenhagen, Denmark FC 44% Benefi t Cosmetics Services Canada Inc. Vancouver, Canada FC 35% LVMH Perfumes & Cosmetics Sydney, Australia FC 44% Fresh Inc. Boston (Massachusetts), USA FC 35% Group Pty Ltd Fresh Cosmetics Ltd London, United Kingdom FC 35% Parfums Christian Dior AS Ltd Hoevik, Norway FC 44% LVMH Cosmetics Services KK Tokyo, Japan FC 44% Parfums Christian Dior AB Stockholm, Sweden FC 44% Parfums Luxe International SA Boulogne Billancourt, France FC 44% Parfums Christian Dior Auckland, New Zealand FC 44% (New Zealand) Ltd Parfums Christian Dior GmbH Austria Vienna, Austria FC 44% WATCHES AND JEWELRY Cosmetic of France Inc. Miami (Florida), USA FC 44% TAG Heuer International SA Luxembourg, Luxembourg FC 44% GIE LVMH Recherche Saint-Jean de Braye, France FC 44% LVMH Swiss Manufactures SA La Chaux-de-Fonds, Switzerland FC 44% GIE Parfums et Cosmétiques Levallois Perret, France FC 44% LVMH Relojeria & Joyeria España SA Madrid, Spain FC 44% Information Services - PCIS LVMH Montres & Joaillerie France SA Paris, France FC 44%
158 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
COMPANIES REGISTERED OFFICE PERCENTAGE COMPANIES REGISTERED OFFICE PERCENTAGE Consolidation Interest Consolidation Interest method method LVMH Watch & Jewelry Italy SpA Milan, Italy FC 44% Sephora Middle East FZE Dubai, United Arab Emirates FC 60% LVMH Watch & Jewelry Central Bad Homburg, Germany FC 44% Sephora Holding Asia Shanghai, China FC 44% Europe GmbH Sephora (Shanghai) Cosmetics Shanghai, China FC 35% LVMH Watch & Jewelry UK Ltd Manchester, United Kingdom FC 44% Co. Ltd LVMH Watch & Jewelry USA (Inc.) Springfi eld (New Jersey), USA FC 44% Sephora (Beijing) Cosmetics Co. Ltd Beijing, China FC 36% LVMH Watch & Jewelry Canada Ltd Toronto, Canada FC 44% Sephora Hong Kong Hong Kong, China FC 44% LVMH Watch & Jewelry Far East Ltd Hong Kong, China FC 44% Sephora Singapore Pte Ltd Singapore FC 26% LVMH Watch & Jewelry Singapore FC 44% Sephora USA, Inc. San Francisco (California), USA (*) FC 44% Singapore Pte Ltd Sephora Beauty Canada, Inc. San Francisco (California), USA FC 44% LVMH Watch & Jewelry Malaysia Kuala Lumpur, Malaysia FC 44% Sephora Puerto Rico, LLC San Francisco (California), USA FC 44% Sdn Bhd United Europe S.B. Moscow, Russia EM 20% LVMH Watch & Jewelry Capital Singapore FC 44% Le Bon Marché SA Paris, France FC 44% Pte Ltd SEGEP SNC Paris, France FC 43% LVMH Watch & Jewelry Japan K.K. Tokyo, Japan FC 44% Franck & Fils SA Paris, France FC 44% LVMH Watch & Jewelry Australia Melbourne, Australia FC 44% Pty Ltd DFS Holdings Ltd Hamilton, Bermuda FC 27% LVMH Watch & Jewelry Hong Kong, China FC 44% DFS Australia Pty Ltd Sydney, Australia FC 27% Hong Kong Ltd Travel Retail Shops Pte Ltd Sydney, Australia EM 12% LVMH Watch & Jewelry Taiwan Ltd Hong Kong, China FC 44% DFS European Logistics Ltd Hamilton, Bermuda FC 27% LVMH Watch & Jewelry India Pvt Ltd New Delhi, India FC 44% DFS Group Ltd Delaware, USA FC 27% LVMH Watch & Jewelry (Shanghai) Shanghai, China FC 44% DFS China Partners Ltd Hong Kong, China FC 27% Commercial Co. Ltd DFS Hong Kong Ltd Hong Kong, China FC 27% Chaumet International SA Paris, France FC 44% Hong Kong International Boutique Hong Kong, China EM 14% Chaumet London Ltd London, United Kingdom FC 44% Partners Chaumet Horlogerie SA Bienne, Switzerland FC 44% TRS Hong Kong Ltd Hong Kong, China EM 12% Chaumet Monte-Carlo SAM Monte Carlo, Monaco FC 44% DFS Okinawa K.K. Okinawa, Japan FC 27% Chaumet Korea Chusik Hoesa Seoul, South Korea FC 44% TRS Okinawa Okinawa, Japan EM 12% Zenith Time Co. Ltd Manchester, United Kingdom FC 44% JAL/DFS Co., Ltd Chiba, Japan EM 11% LVMH Watch & Jewelry Italy SpA Milan, Italy FC 44% DFS Korea Ltd Seoul, South Korea FC 27% Delano SA La Chaux-de-Fonds, Switzerland FC 44% DFS Seoul Ltd Seoul, South Korea FC 27% LVMH W & J Services (Suisse) SA La Chaux-de-Fonds, Switzerland FC 44% DFS Cotai Limitada Macao, China FC 27% Fred Paris SA Paris, France FC 44% DFS Sdn. Bhd. Kuala Lumpur, Malaysia FC 27% Joaillerie de Monaco SA Monte Carlo, Monaco FC 44% Gateshire Marketing Sdn Bhd. Kuala Lumpur, Malaysia FC 27% Fred Inc. Beverly Hills (California), USA (*) FC 44% DFS Merchandising Ltd Delaware, USA FC 27% Fred Londres Ltd London, United Kingdom FC 44% DFS New Caledonia Sarl Nouméa, New Caledonia FC 27% Hublot SA Nyon, Switzerland FC 44% DFS New Zealand Ltd Auckland, New Zealand FC 27% Hublot SA Genève Geneva, Switzerland FC 44% TRS New Zealand Ltd Auckland, New Zealand EM 12% MDM Conseil et Gestion SA Nyon, Switzerland FC 44% Commonwealth Investment Saipan, Mariana Islands FC 26% Hublot of America, Inc. Ft Lauderdale, USA FC 44% Company, Inc. Hublot Japan KK Ltd Tokyo, Japan FC 44% DFS Saipan Ltd Saipan, Mariana Islands FC 27% Bentim International SA Luxembourg, Luxembourg FC 44% Kinkaï Saipan L.P. Saipan, Mariana Islands FC 27% De Beers LV Ltd London, United Kingdom PC 22% Saipan International Boutique Partners Saipan, Mariana Islands EM 14% DFS Palau Ltd Koror, Palau FC 27% Difusi Information Technology & Shanghai, China FC 27% SELECTIVE RETAILING Development Co. Ltd Sephora SA Boulogne Billancourt, France FC 44% DFS Information Technology Shanghai, China FC 27% Sephora Luxembourg SARL Luxembourg, Luxembourg FC 44% (Shanghai) Company Limited LVMH Iberia SL Madrid, Spain FC 44% Hainan DFS Retail Company Limited Hainan, China FC 27% LVMH Italia SpA Milan, Italy FC 44% DFS Galleria Taiwan Ltd Taipei, Taiwan FC 27% Sephora Portugal Perfumaria Lda Lisbon, Portugal FC 44% DFS Taiwan Ltd Taipei, Taiwan FC 27% Sephora Pologne Spzoo Warsaw, Poland FC 44% Tou You Duty Free Shop Co. Ltd Taipei, Taiwan FC 27% Sephora Marinopoulos SA Alimos, Greece PC 22% DFS Singapore (Pte) Ltd Singapore FC 27% Sephora Marinopulos Romania SA Bucharest, Romania PC 22% DFS Trading Singapore (Pte) Ltd Singapore FC 27% Sephora S.R.O. Prague, Czech Republic FC 44% DFS Venture Singapore (Pte) Ltd Singapore FC 27% Sephora Monaco SAM Monaco FC 43% TRS Singapore Pte Ltd Singapore EM 12% Sephora Patras Alimos, Greece PC 14% Singapore International Boutique Singapore EM 14% Sephora Cosmeticos España Madrid, Spain PC 22% Partners S+ Boulogne Billancourt, France FC 44% DFS India Private Ltd Mumbai, India FC 19% Sephora Marinopoulos Cyprus Ltd Nicosia, Cyprus PC 22% DFS Vietnam (S) Pte Ltd Singapore FC 19% Sephora Unitim Kozmetik AS Istanbul, Turkey FC 44% New Asia Wave International (S) Singapore FC 19% Sephora Marinopoulos D.O.O. Zagreb, Croatia PC 22% Pte Ltd Sephora Marinopoulos Cosmetics Belgrade, Serbia PC 22% IPP Group (S) Pte Ltd Singapore FC 19% D.O.O. Stempar Pte Ltd Singapore EM 14% Sephora Nederland BV Amsterdam, Netherlands FC 44% L Development & Management Ltd Hong Kong, China EM 24% Sephora Moyen-Orient SA Fribourg, Switzerland FC 26% DFS Group L.P. Delaware, USA FC 27%
2009 Annual Report 159 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated fi nancial statements
COMPANIES REGISTERED OFFICE PERCENTAGE COMPANIES REGISTERED OFFICE PERCENTAGE Consolidation Interest Consolidation Interest method method LAX Duty Free Joint Venture 2000 Los Angeles (California), USA FC 21% Moët Hennessy SNC Boulogne Billancourt, France FC 29% Royal Hawaiian Insurance Hawaii, USA FC 27% LVMH Services Ltd London, United Kingdom FC 44% Company Ltd UFIP (Ireland) Dublin, Ireland FC 44% Hawaii International Boutique Partners Honolulu (Hawaii), USA EM 14% Moët Hennessy Investissements SA Boulogne Billancourt, France FC 29% JFK Terminal 4 Joint Venture 2001 New York, USA FC 22% LVMH Fashion Group SA Paris, France FC 44% DFS Guam L.P. Tamuning, Guam FC 27% Moët Hennessy International SA Boulogne Billancourt, France FC 29% Guam International Boutique Partners Tamuning, Guam EM 14% Creare Luxembourg, Luxembourg FC 38% DFS Liquor Retailing Ltd Delaware, USA FC 27% Creare Pte Ltd Singapore FC 38% Twenty – Seven - Twenty Eight Corp. Delaware, USA FC 27% Société Montaigne Jean Goujon SAS Paris, France FC 44% TRS Hawaii LLC Honolulu (Hawaii), USA EM 12% Delphine SAS Boulogne Billancourt, France FC 44% TRS Saipan Saipan, Mariana Islands EM 12% LVMH Finance SA Boulogne Billancourt, France FC 44% TRS Guam Tumon, Guam EM 12% Primae SA Boulogne Billancourt, France FC 44% Tumon Entertainment LLC Tamuning, Guam FC 44% Eutrope SAS Boulogne Billancourt, France FC 44% Comete Guam Inc. Tamuning, Guam FC 44% Flavius Investissements SA Paris, France FC 44% Tumon Aquarium LLC Tamuning, Guam FC 42% LBD HOLDING SA Boulogne Billancourt, France FC 44% Comete Saipan Inc. Saipan, Mariana Islands FC 44% LVMH Hotel Management SAS Boulogne Billancourt, France FC 44% Tumon Games LLC Tamuning, Guam FC 44% LV Capital SA Paris, France FC 44% Cruise Line Holdings Co. Delaware, USA FC 44% Moët Hennessy Inc. New York, USA (*) FC 29% On Board Media, Inc. Delaware, USA FC 44% One East 57th Street LLC New York, USA (*) FC 44% Starboard Cruise Services, Inc. Delaware, USA FC 44% LVMH Moët Hennessy - Louis New York, USA (*) FC 44% Starboard Holdings Ltd Delaware, USA FC 44% Vuitton Inc. International Cruise Shops, Ltd Cayman Islands FC 44% 598 Madison Leasing Corp New York, USA (*) FC 44% Vacation Media Ltd Kingston, Jamaica FC 44% 1896 Corp New York, USA (*) FC 44% STB S.r.l Florence, Italy FC 44% LVMH Participations BV Naarden, Netherlands FC 44% Parazul LLC Delaware, USA FC 44% LVMH Moët Hennessy - Naarden, Netherlands FC 44% Y.E.S. Your Extended Services LLC Delaware, USA PC 14% Louis Vuitton BV LVP Holding BV Naarden, Netherlands FC 44% OTHER AND HOLDING COMPANIES LVMH Finance Belgique Brussels, Belgium FC 44% Groupe Les Echos SA Paris, France FC 44% L Real Estate SA Luxembourg, Luxembourg EM 21% Les Echos Services SAS Paris, France FC 44% Ufi lug SA Luxembourg, Luxembourg FC 44% Radio Classique SAS Paris, France FC 44% Delphilug SA Luxembourg, Luxembourg FC 44% Prélude & Fugue Paris, France EM 21% Hanninvest SA Brussels, Belgium FC 44% DI Régie SAS Paris, France FC 44% Sofi div UK Ltd London, United Kingdom FC 44% SFPA SARL Paris, France FC 44% LVMH Moët Hennessy - Tokyo, Japan FC 44% Louis Vuitton KK La Fugue SAS Paris, France FC 33% Osaka Fudosan Company Ltd Tokyo, Japan FC 44% Les Echos SAS Paris, France FC 44% LVMH Asia Pacifi c Ltd Hong Kong, China FC 44% Les Echos Formation SAS Paris, France FC 44% LVMH Shanghai Management and Shanghai, China FC 44% Hera SAS Paris, France FC 44% Consultancy Co., Ltd Les Echos Médias SNC Paris, France FC 44% LVMH South & South East Asia Pte Ltd Singapore FC 44% Percier Publications SNC Paris, France FC 44% LVMH Moët Hennessy - Paris, France FC 44% EUROSTAF - Europe Stratégie Paris, France FC 44% Louis Vuitton SA Analyse Financière SAS Investir Publications SAS Paris, France FC 44% (*) The address given corresponds to the company’s administrative headquarters; SID Développement SAS Paris, France FC 44% the corporate registered offi ce is located in the state of Delaware. SID Editions SAS Paris, France FC 44% (1) Joint venture companies with Diageo: only the Moët Hennessy activity Magasins de la Samaritaine SA Paris, France FC 25% is consolidated. Royal Van Lent Shipyard BV Kaag, Netherlands FC 39% (2) The Group’s percentages of control and/or interest, (if and where applicable), RVL Holding BV Baarn, Netherlands FC 39% are not disclosed, the results of these companies being consolidated on the basis Probinvest SAS Boulogne Billancourt, France FC 44% of the Group’s contractual share of their business. Ufi par SAS Boulogne Billancourt, France FC 44% (3) Joint venture companies with LVMH. FC: Full Consolidation L Capital Management SAS Paris, France FC 44% PC: Proportional Consolidation Sofi div SAS Boulogne Billancourt, France FC 44% EM: Equity Method GIE LVMH Services Boulogne Billancourt, France FC 37%
160 2009 Annual Report CONSOLIDATED FINANCIAL STATEMENTS Statutory Auditors’ report
7. Statutory Auditors’ report
STATUTORY AUDITORS’ REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS
MAZARS ERNST & YOUNG et Autres 61, rue Henri-Regnault 41, rue Ybry 92400 Courbevoie 92576 Neuilly-sur-Seine Cedex SA with share capital of €8,320,000 SAS with variable share capital Statutory Auditors Statutory Auditors Member of the Versailles Member of the Versailles regional organization regional organization
To the Shareholders, In compliance with the assignment entrusted to us by your Annual General Meeting, we hereby report to you, for the year ended December 31, 2009, on: • the audit of the accompanying consolidated fi nancial statements of Christian Dior; • the justifi cation of our assessments; • the specifi c verifi cation required by French law. The consolidated fi nancial statements have been approved by the Board of Directors. Our role is to express an opinion on these fi nancial statements based on our audit.
1. Opinion on the consolidated fi nancial statements
We conducted our audit in accordance with the professional standards applicable in France; those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated fi nancial statements are free of material misstatement. An audit includes verifying, by audit sampling and other selective testing procedures, evidence supporting the amounts and disclosures in the consolidated fi nancial statements. An audit also includes assessing the accounting principles used, the signifi cant estimates made by the management, and the overall fi nancial statements presentation. We believe that the evidence we have gathered in order to form our opinion is adequate and relevant. In our opinion, the consolidated fi nancial statements give a true and fair view of the assets, liabilities, fi nancial position and results of the consolidated group in accordance with IFRS as adopted by the European Union. Without qualifying our opinion, we draw your attention to the matter set out in Note 1.2 to the consolidated fi nancial statements relating to changes in accounts in accordance with accounting standards, amendments and interpretations implemented by your Company.
2009 Annual Report 161 CONSOLIDATED FINANCIAL STATEMENTS Statutory Auditors’ report
2. Justifi cation of assessments
In accordance with the requirements of Article L. 823-9 of the French Commercial Code (Code de Commerce) relating to the justifi cation of our assessments, we bring to your attention the following matters: • The valuation of brands and goodwill has been tested under the method described in Note 1.12 and in the general context described in Note 1.1. of section 1 “Accounting policies” of the notes to the consolidated fi nancial statements. Based on the aforementioned, we have assessed the appropriateness of the methodology applied based on all estimates and reviewed the data and assumptions used by the Group to perform these valuations. • We have verifi ed that Note 1.10 to the consolidated fi nancial statements provides an appropriate disclosure on the accounting treatment of commitments to purchase minority interests as such treatment is not provided for by the IFRS framework as adopted by the European Union. These assessments were made as part of our audit of the consolidated fi nancial statements taken as a whole and, therefore, served in forming our audit opinion expressed in the fi rst part of this report.
3. Specifi c verifi cation
As required by law we have also verifi ed in accordance with professional standards applicable in France the information related to the Group presented in the management report.
We have no matters to report regarding its fair presentation and consistency with the consolidated fi nancial statements.
Courbevoie and Neuilly-sur-Seine, March 11, 2010 The Statutory Auditors
MAZARS ERNST & YOUNG et Autres Simon Beillevaire Jeanne Boillet
This is a free translation of the original French text for information purposes only.
162 2009 Annual Report Parent company fi nancial statements
1. Balance sheet 164 6. Investment portfolio, other investment securities and short term investments 177 2. Income statement 166 7. Company results over the last fi ve fi scal years 178 3. Cash fl ow statement 167 8. Statutory Auditors’ reports 179 4. Notes to the parent company Statutory Auditors’ report fi nancial statements 168 on the parent company fi nancial statements 179 Statutory Auditors’ special report 5. Subsidiaries and investments 177 on related party agreements and commitments 181
2009 Annual Report 163 PARENT COMPANY FINANCIAL STATEMENTS Balance sheet
1. Balance sheet
Assets
2009 2008 2007 Depreciation, amortization (EUR thousands) Notes Gross and impairment Net Net Net
Intangible assets 2.1/2.2 57 57 - - -
Property, plant and equipment 2.1/2.2 368 368 - - 6
Investments 2.9 3,981,750 - 3,981,750 3,981,750 3,841,876
Other investment securities - - - - 6,066
Loans 5 - 5 5 5
Other non-current fi nancial assets 3 - 3 - -
Non-current fi nancial assets 2.1/2.2/2.9 3,981,758 - 3,981,758 3,981,755 3,847,947
NON-CURRENT ASSETS 3,982,183 425 3,981,758 3,981,755 3,847,953
Trade accounts receivable 13 - 13 5 14
Financial accounts receivable 8,357 - 8,357 8,172 -
Other receivables 890 - 890 613 4,703
Short term investments 212,690 9,139 203,551 126,874 193,301
Cash and cash equivalents 1,082 - 1,082 159 396
CURRENT ASSETS 2.3/2.8/2.9 223,033 9,139 213,894 135,823 198,414
Prepaid expenses 2.3 956 - 956 1,066 1,659
Bond redemption premiums 2.3 2,547 - 2,547 305 386
TOTAL ASSETS 4,208,718 9,563 4,199,155 4,118,949 4,048,412
164 2009 Annual Report PARENT COMPANY FINANCIAL STATEMENTS Balance sheet
Liabilities and equity
2009 2008 2007 Prior to Prior to Prior to (EUR thousands) Notes appropriation appropriation appropriation Share capital (fully paid up) 363,454 363,454 363,454 Share premium account 2,204,623 2,204,623 2,204,623 Revaluation adjustment 16 16 16 Legal reserve 36,345 36,345 36,345 Regulated reserves - - - Optional reserves 80,630 80,630 51,872 Retained earnings (1) 51,364 28,183 5,785 Profi t for the year 342,584 309,976 337,626 Interim dividends 1.6 (79,960) (79,960) (79,960) Equity 2.4 2,999,056 2,943,267 2,919,761 Provisions for contingencies and losses 2.5 2,539 611 227 Other bonds 2.7 554,770 201,176 274,908 Bank loans and borrowings 638,128 960,871 848,644 Miscellaneous loans and borrowings - - 1,570 Borrowings 1,192,898 1,162,047 1,125,122 Trade accounts payable 623 1,216 707 Tax and social security liabilities 269 57 43 Other operating liabilities (1) 1,624 1,534 1,523 Operating liabilities 2,516 2,807 2,273 Other liabilities 2,146 10,217 1,029 Liabilities 2.6/2.7/2.8/2.9 1,197,560 1,175,071 1,128,424 Prepaid income - - - TOTAL LIABILITIES AND EQUITY 4,199,155 4,118,949 4,048,412
(1) Dividends attributable to treasury shares were reclassifi ed under retained earnings in 2007, 2008 and 2009.
2009 Annual Report 165 PARENT COMPANY FINANCIAL STATEMENTS Income statement
2. Income statement
(EUR thousands) Notes 2009 2008 2007
Services provided, other revenue 27 5 14
Net revenue 27 5 14
Other income and expense transfers 2,154 384 -
Operating income 2,181 389 14
Other purchases and external expenses 5,735 5,760 6,972
Taxes, duties and similar levies 41 35 57
Wages and salaries 2,154 384 -
Social security expenses 132 387 6
Depreciation and amortization - 5 25
Other expenses 148 148 105
Operating expenses 8,210 6,719 7,165
OPERATING PROFIT (LOSS) (6,029) (6,330) (7,151)
NET FINANCIAL INCOME (EXPENSE) 2.10 346,833 312,151 327,429
PROFIT FROM RECURRING OPERATIONS 340,804 305,821 320,278
EXCEPTIONAL INCOME (EXPENSE) 2.11 (100) (91) (827)
Income taxes 2.12/2.13 1,880 4,246 18,175
NET PROFIT 342,584 309,976 337,626
166 2009 Annual Report PARENT COMPANY FINANCIAL STATEMENTS Cash fl ow statement
3. Cash fl ow statement
(EUR millions) 2009 2008 2007
I - OPERATING ACTIVITIES Net profi t 343 310 337 Depreciation and amortization of fi xed assets - (17) 5 Gain (loss) on sale of fi xed assets - 22 - Cash from operations before changes in working capital 343 315 342 Change in current assets (3) (3) - Change in current liabilities (6) 10 (4) Changes in working capital (9) 7 (4) Net cash from operating activities I 334 322 338
II - INVESTING ACTIVITIES Purchase of tangible and intangible fi xed assets - - - Purchase of equity investments - (140) - Purchase of other non-current investments - - - Proceeds from sale of non-current fi nancial assets - 1 - Net cash from (used in) investing activities II - (139) -
III - FINANCING ACTIVITIES Capital increase --- Changes in other equity -1 - Proceeds from fi nancial debt 343 160 - Repayments in respect of fi nancial debt (312) (123) (59) Change in inter-company current accounts - - - Net cash from (used in) financing activities III 31 38 (59)
IV - DIVIDENDS PAID DURING THE YEAR IV (287) (287) (261) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS I + II + III + IV 77 (66) 18 Cash and cash equivalents at beginning of year 127 193 175 Cash and cash equivalents at end of year 204 127 193 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 77 (66) 18
The net increase in cash and cash equivalents analyzes the changes in cash from one year to the next (after deducting bank overdrafts) as well as cash equivalents comprised of short term investments, net of provisions for impairment.
2009 Annual Report 167 PARENT COMPANY FINANCIAL STATEMENTS Notes to the parent company fi nancial statements
4. Notes to the parent company fi nancial statements
Amounts are expressed in thousands of euros unless otherwise indicated. The balance sheet total as of December 31, 2009 was 4,199,155 thousand euros. These parent company fi nancial statements were approved for publication on February 4, 2010 by the Board of Directors.
NOTE 1 - ACCOUNTING POLICIES AND METHODS
The parent company fi nancial statements have been prepared in 1.4 Accounts receivable and liabilities accordance with Regulation 99-03 dated April 29, 1999 of the Comité de la Réglementation Comptable (Accounting Regulations Accounts receivable and liabilities are recorded at their face Committee). value. An impairment provision is recorded if their net realizable value, based on probability of their collection, is lower than General accounting conventions have been applied observing their carrying amount. the principle of prudence in conformity with the following basic assumptions: going concern, consistency of accounting methods, non-overlap of fi nancial periods, and in conformity 1.5 Short term investments with the general rules for preparation and presentation of parent company fi nancial statements. Short term investments are valued at their acquisition cost. An impairment provision is recorded if their acquisition value is The accounting items recorded have been evaluated using the greater than their market value determined as follows: historical cost method. • listed securities: average listed share price during the last month of the year; 1.1 Intangible assets • other securities: estimated realizable value or liquidation value. Software is amortized using the straight-line method over one year. In the event of partial investment sales, any gains or losses are calculated based on the FIFO method. 1.2 Property, plant and equipment With respect to Dior shares allocated to share purchase option plans: Property, plant and equipment are depreciated on a straight-line basis over the following estimated useful lives: • if the plan is non-exercisable (market value of the Christian Dior share lower than the exercise price of the option), the • miscellaneous general installations: 5 years; calculation of the impairment, charged to net fi nancial income/ • offi ce and computer equipment: 3 years; expense, is made in relation to the weighted average price of the plan in question; • furniture: 10 years. • if the plan is exercisable (market value of the Christian Dior share greater than the exercise price of the option), a 1.3 Non-current financial assets provision for losses is recorded on the balance sheet under liabilities whenever the expected exercise price is lower Equity investments as well as other non-current fi nancial assets than the purchase price of the shares. Where applicable, this are recorded at the lower of their acquisition cost or their value provision is apportioned using the straight-line method over in use. Impairment is recorded if their value in use is lower than the vesting period of the options and is then recognized in the their acquisition cost. income statement under the heading “Wages and salaries”. The value in use of the equity investments is based on criteria Upon disposals of treasury shares, the cost of the shares sold is such as the value of the portion of the in the net asset value of calculated for each plan individually using the weighted average the companies involved, taking into account the stock market cost method. Gains or losses on the sale of treasury shares are value of the listed securities that they hold. recorded within exceptional income/expense. In the event of partial investment sale, any gains or losses are recognized within net fi nancial income/expense and calculated according to the weighted average cost method.
168 2009 Annual Report PARENT COMPANY FINANCIAL STATEMENTS Notes to the parent company fi nancial statements
1.6 Equity Liabilities, accounts receivable and liquid funds in foreign currencies are revalued on the balance sheet at year-end exchange In conformity with the recommendations of the Compagnie rates. The difference resulting from the revaluation of liabilities Nationale des Commissaires aux Comptes (National Board of and accounts receivable in foreign currencies at the latter rate is Auditors), interim dividends are recorded as a deduction from recorded in the “Translation adjustment”; it is recorded under equity. “Foreign exchange gains and losses” when it originates from the revaluation of liquid funds, except in the case of bank accounts 1.7 Provisions for contingencies and losses matched with a loan in the same currency. In the latter case, the revaluation follows the same procedure as for accounts The Company establishes a provision for defi nite and likely receivable and liabilities. contingencies and losses at the end of each fi nancial period, observing the principle of prudence. Provisions are recorded for unrealized losses unless hedged.
1.8 Foreign currency transactions 1.9 Net financial income (expense) During the period, foreign currency transactions are recorded Net gains and losses on sales of short term investments comprise at the rates of exchange prevailing on the date of transactions. expenses and income associated with sales.
NOTE 2 - ADDITIONAL INFORMATION RELATING TO THE BALANCE SHEET AND INCOME STATEMENT
2.1 Non-current assets
Increases Decreases Gross value as Acquisitions, creations, Gross value as (EUR thousands) of 01/01/2009 contributions, transfers Disposals of 12/31/2009 Concessions, patents, and similar rights (software) 57 - - 57 Intangible assets 57 - - 57 Property, plant and equipment: • miscellaneous general installations 59 - - 59 • offi ce and computing equipment 24 - - 24 • furniture 285 - - 285 Property, plant and equipment 368 - - 368 Investments 3,981,750 - - 3,981,750 Loans 5 - - 5 Other non-current fi nancial assets - 3 - 3 Non-current financial assets 3,981,755 3 - 3,981,758 TOTAL 3,982,180 3 - 3,982,183
2009 Annual Report 169 PARENT COMPANY FINANCIAL STATEMENTS Notes to the parent company fi nancial statements
2.2 Depreciation and a mortization on fixed assets
(EUR thousands) Positions and changes in the period Depreciation Depreciation and a mortization Appropriation and a mortization as of 01/01/2009 I ncreases Decreases as of 12/31/2009 Concessions, patents, and similar rights (software) 57 - - 57 Intangible assets 57 - - 57 Property, plant and equipment: • miscellaneous general installations 59 - - 59 • offi ce and computing equipment 24 - - 24 • furniture 285 - - 285 Property, plant and equipment 368 - - 368 TOTAL 425 - - 425
2.3 Analysis of accounts receivables by payment date
(EUR thousands) Gross amount Up to 1 year More than 1 year Current assets Trade accounts receivable 13 13 - Financial accounts receivable 8,357 8,357 - State and other public authorities: • income taxes 800 800 - • value-added tax 18 18 - Other receivables 72 72 - Prepaid expenses 956 956 - Bond redemption premiums (1) 2,547 604 1,943 TOTAL 12,763 10,820 1,943
(1) Bond redemption premiums are amortized on a straight-line basis over the life of the bonds.
170 2009 Annual Report PARENT COMPANY FINANCIAL STATEMENTS Notes to the parent company fi nancial statements
2.4 Equity
2.4.1 Share capital The share capital comprises 181,727,048 fully paid-up shares, each with a par value of 2 euros. 125,095,619 shares carry double voting rights.
2.4.2 Changes in equity
(EUR thousands) Equity as of 12/31/2008 (prior to appropriation of net profi t) 2,943,267 Net profi t for 2009 342,584 Dividends paid (balance for fi scal year 2008) (206,835) Interim dividends for fi scal year 2009 (79,960) Changes in other equity Equity as of 12/31/2009 (prior to appropriation of net profi t) 2,999,056
Acquisition of treasury shares
Year 2009 2008 2007 Number of shares purchased 332,000 76,132 764,815 Number of shares sold (97,500) (120,500) (1,535,696)
Purchase options granted by the Board of Directors to managers of the Company and its direct and indirect subsidiaries
Number of options granted Number Authorization Number of options from Plan Of which Of which Exercise of options outstanding Shareholders’ commencement Number of company the fi rst ten price (2) exercised as of Meeting date benefi ciaries Total offi cers (1) employees (1) (EUR) i n 2009 (2) 12/31/2009 (2) 05/30/1996 01/26/1999 (3) 14 89,500 50,000 38,000 25.36 25,500 - 05/30/1996 02/15/2000 20 100,200 65,000 31,000 56.70 54,000 296,000 05/30/1996 02/21/2001 17 437,500 308,000 121,000 45.95 - 362,500 05/14/2001 02/18/2002 24 504,000 310,000 153,000 33.53 - 92,502 05/14/2001 02/18/2003 25 527,000 350,000 143,000 29.04 9,000 112,002 05/14/2001 02/17/2004 26 527,000 355,000 128,000 49.79 4,000 424,000 05/14/2001 05/12/2005 27 493,000 315,000 124,000 52.21 5,000 433,000 05/14/2001 02/15/2006 24 475,000 305,000 144,000 72.85 (4) - 433,000 05/11/2006 09/06/2006 1 20,000 - 20,000 74.93 - 20,000 05/11/2006 01/31/2007 28 480,000 285,000 133,000 85.00 - 445,000 05/11/2006 05/15/2008 (6) 25 484,000 320,000 147,000 73.24 (5) - 484,000 05/11/2006 05/14/2009 (7) 26 332,000 150,000 159,000 52.10 - 332,000
(1) Number of options at the plan commencement date, not restated for adjustments relating to the 4-to-1 stock split in July 2000, allocated to active company offi cers/employees as of December 31, 2009. (2) Adjusted to refl ect the transaction mentioned in (1) above. (3) Plan expired on January 25, 2009. (4) Exercise price for Italian residents: €77.16. (5) Exercise price for Italian residents: €73.47. (6) The value serving as the basis for the calculation of the mandatory 10% social security contribution, for the plan commencing on May 15, 2008, was €19.025 per share, equivalent to 25% of the opening price of the Christian Dior share on May 15, 2008, the grant date for the options (€76.10). (7) The value serving as the basis for the calculation of the mandatory 10% social security contribution, for the plan commencing on May 14, 2009, was €12.55 per share, equivalent to 25% of the opening price of the Christian Dior share on May 14, 2009, the grant date for the options (€50.20).
2009 Annual Report 171 PARENT COMPANY FINANCIAL STATEMENTS Notes to the parent company fi nancial statements
Each plan has a term of ten years. Share purchase options may Apart from conditions relating to attendance within the Group, the be exercised, depending on the plan, after the end of a period exercise of options granted in 2009 is contingent on performance of three to fi ve years from the plan’s commencement date. The conditions. Options granted to senior executive offi cers may only exercise price of the options is calculated in accordance with be exercised if, in three of the four fi scal years from 2009 to 2012, legal provisions. either profi t from recurring operations, net cash from operating activities and operating investments, or the Group’s current For all plans, one option gives the right to one share. operating margin rate shows a positive change compared to 2008.
Breakdown of treasury shares
As of December 31, 2009 Number of Gross carrying (EUR thousands) securities amount Impairment Net book value 502-1 Shares available to be granted to employees and allocated to specifi c plans 1,287,004 63,442 - 63,442 502-2 Shares available to be granted to employees 2,313,876 149,248 9,139 140,110 TOTAL TREASURY SHARES 3,600,880 212,690 9,139 203,551
2.5 Provisions for contingencies and losses
Amount as of Provisions Reversals Amount as of (EUR thousands) 01/01/2009 of period of period 12/31/2009 Provision for specifi c contingencies 227 - 227 - Provision for losses (1) 384 2,155 - 2,539 TOTAL 611 2,155 227 2,539
(1) Provision for losses with respect to share purchase option plans presumed to be exercisable as of December 31, 2009 (market value of the Christian Dior share greater than the exercise price of the option), corresponding to the amount of the difference between the purchase price of shares and the exercise price of options for the benefi ciaries (see Note 1.5 “Accounting policies”).
2.6 Breakdown of other liabilities
(EUR thousands) Gross value Up to 1 year From 1 to 5 years More than 5 years Other bonds 554,770 4,770 550,000 - Bank loans and borrowings 638,128 101,128 537,000 - Trade payables 623 623 - - Tax and social liabilities 269 269 - - Other operating liabilities 1,624 1,624 - - Other liabilities 2,146 2,146 - - TOTAL 1,197,560 110,560 1,087,000 -
172 2009 Annual Report PARENT COMPANY FINANCIAL STATEMENTS Notes to the parent company fi nancial statements
2.7 Bonds
Nominal Nominal interest Issuance rate value as of Accrued (EUR thousands) rate (in % of par value) Maturity 12/31/09 interest Total EUR 150,000,000 - 2006 4,250% 101,290% 2011 150,000 1,013 151,013 EUR 50,000,000 - 2008 5,875% 101,335% 2011 50,000 161 50,161 EUR 350,000,000 - 2009 3,750% 99,290% 2014 350,000 3,596 353,596 TOTAL 550,000 4,770 554,770
2.8 Accrued expenses and deferred income
(EUR thousands) Accrued expenses Deferred income Accounts receivables Other receivables -72 Liabilities Other bonds 4,770 - Bank loans and borrowings 1,123 - Trade accounts payable 519 - Tax and social security liabilities 36 - Other liabilities 573 -
2.9 Items involving related companies
Balance sheet items
Items involving the companies connected to equity (EUR thousands) related (1) investments (2) Fixed assets Investments 3,981,750 - Current assets Trade accounts receivable 13 - Financial accounts receivable 8,357 - Other receivables 3- Liabilities Trade accounts payable 455 - Other liabilities 1,574 -
(1) Companies that can be fully consolidated into one consolidated unit (eg: parent company, subsidiary, affi liate in consolidated group). (2) Percentage control between 10 and 50%.
Income statement items
(EUR thousands) Income Expenses Dividends received 329,862 - Interest and similar expenses 80 638
2009 Annual Report 173 PARENT COMPANY FINANCIAL STATEMENTS Notes to the parent company fi nancial statements
2.10 Financial income and expenses
(EUR thousands) 2009 2008 Income from subsidiaries 329,862 430,546 Income from other securities and non-current investments - 5,123 Other interest and similar income (292) 9,429 Reversals and expenses transferred 63,912 3,928 Net gains on sales of short term investments 35 Financial income 393,485 449,031 Allowances to amortization and provisions 2,398 78,398 Interest and similar expenses 44,255 58,482 Financial expenses 46,652 136,880 NET FINANCIAL INCOME (EXPENSE) 346,833 312,151
2.11 Exceptional income and expenses
(EUR thousands) 2009 2008 Income from management transactions -- Other exceptional capital transactions 78 1,371 Income from capital transactions 78 1,371 Reversals and expenses transferred 227 22,281 Exceptional income 305 23,652 Exceptional expenses from management transactions 227 4 Expenses from management transactions 227 4 Other non-recurring expenses on capital transactions 178 255 Net carrying amount of securities sold - 23,484 Expenses from capital transactions 178 23,739 Exceptional expenses 405 23,743 EXCEPTIONAL INCOME (EXPENSE) (100) (91)
2.12 Income tax
2009 2008 (EUR thousands) Before tax Tax After tax Before tax Tax After tax Profi t from recurring operations 340,804 - 340,804 305,821 - 305,821 Exceptional income (expense) (100) 1,880 (*) 1,780 (91) 4,246 4,155 TOTAL 340,704 1,880 342,584 305,730 4,246 309,976
(*) Of which, income from subsidiaries under the tax consolidation agreement: 1,880 thousand euros.
174 2009 Annual Report PARENT COMPANY FINANCIAL STATEMENTS Notes to the parent company fi nancial statements
2.13 Tax position Christian Dior is the parent company of a tax consolidation The additional tax saving or expense, in the amount of the group comprising certain of its subsidiaries. difference between the tax recognized by each of the companies and the tax resulting from the determination of the taxable profi t For 2009, the tax consolidation group included Christian Dior, of the group, is recognized by Christian Dior SA. Christian Dior Couture, Financière Jean Goujon, Sadifa, CD Investissements and Ateliers Modèles. The tax consolidation The tax savings made in 2009 amounted to 1,880 thousand euros; group was modifi ed this year, following the removal from the the amount of the savings in 2008 came to 4,246 thousand euros. tax consolidation group as of January 1, 2009 of Les Jardins As of December 31, 2009, the ordinary loss of the Group d’Avron. amounted to 195,518 thousand euros, and can be carried forward The tax consolidation agreement currently in force does not indefi nitely. change the tax position of the subsidiaries concerned, which remains identical to that which would have been reported if the subsidiaries had been taxed individually.
NOTE 3 - OTHER INFORMATION
3.1 Tax litigation 3.2 Financial commitments A provision of 570 thousand euros has been kept in order to cover the litigation risks following the tax audit for the years Hedging instruments 1993 and 1994. Christian Dior SA uses various interest-rate hedge instruments on A bank guarantee, amounting to 570 thousand euros, was set its own behalf that comply with its management policy. The aim up in 1999. of this policy is to hedge against the interest rate risks on existing debt, while ensuring that speculative positions are not taken. This provision was partially reversed in 2007, by the amount of the tax relief granted, i.e . 343 thousand euros. The balance of this provision was reversed in full this year, thus an amount of 227 thousand euros.
The types of instruments outstanding as of December 31, 2009, the underlying amounts (excluding short term amounts) are broken down as follows:
Notional amount of underlyings Maturity Fair value (1) (EUR thousands) 2010 2011 2012 2013 2014 12/31/2009 Fixed rate payer swaps 360,000 - - - - (2,338)
(1) Gain/Loss.
Covenants 3.3 Lease commitments Under the terms of certain loan agreements or bond issues, the The Company has not made any commitments in the area of Company has made commitments to hold specifi c percentages of leasing transactions. interest and voting rights in certain subsidiaries and to respect certain fi nancial covenants. 3.4 Compensation of management bodies Direct and indirect subsidiaries The gross amount of compensation of management bodies paid to members of the management bodies for the 2009 fi scal year In 2009, Christian Dior provided guarantees in respect of: was 148 thousand euros. • the renewal of a credit line set up in favor of Christian Dior Hong Kong for 80 million Hong Kong dollars; • two credit lines set up in favor of Christian Dior Commercial Shanghai for 50 million and 134 million Yuan renminbi.
2009 Annual Report 175 PARENT COMPANY FINANCIAL STATEMENTS Notes to the parent company fi nancial statements
3.5 Statutory Auditors’ fees
(EUR thousands) 2009 2008 Ernst & Young et Mazars Ernst & Young Mazars Autres Audit Statutory Audit 86 82 98 141 Other services relating directly to the Statutory Audit assignment 8 8 4 4 TOTAL 94 90 102 145
3.6 Identity of the companies consolidating the accounts of Christian Dior
Company name Registered offi ce Financière Agache 11, rue François 1er 75008 PARIS Groupe Arnault (p arent company of Financière Agache) 41, avenue Montaigne 75008 PARIS
176 2009 Annual Report PARENT COMPANY FINANCIAL STATEMENTS Investment portfolio, other investment securities and short term investments
5. Subsidiaries and investments
Equity other than Deposits Carrying amount share capital and % share Loans and and Revenue Net Dividends of share held Share excluding net capital advances sureties excluding profi t received (EUR thousands) capital profi t held Gross Net provided granted taxes (loss) in 2009 A. Details involving the subsidiaries and investments below Subsidiaries • Financière Jean Goujon 1,005,294 1,979,165 100,00% 3,478,680 3,478,680 8,347 - - 330,929 329,862 • Sadifa 81 1,417 99,66% 836 836 - - 68 (2) - • Christian Dior Couture 160,056 348,198 99,99% 502,159 502,159 - - 410,400 (3,789) - • CD Investissements 50 (4) 100,00% 75 75 - - - (4) - B. General information involving the other subsidiaries and investments None
6. Investment portfolio, other investment securities and short term investments
As of December 31, 2009 Number of Net book (EUR thousands) securities value French investments Financière Jean Goujon shares 62,830,900 3,478,680 Christian Dior Couture shares 10,003,482 502,159 Sadifa shares 5,019 836 CD Investissements shares 5,000 75 Equity investments (shares and partnership shares) 3,981,750
As of December 31, 2009 Number of (EUR thousands) securities Net book value Treasury shares 3,600,880 203,551 Short term investments 3,600,880 203,551 TOTAL INVESTMENTS AND SHORT TERM INVESTMENTS 4,185,301
At beginning At end Number of treasury shares of period Increase Decrease of period 3,366,380 332,000 (97,500) 3,600,880 TOTAL 3,366,380 332,000 (97,500) 3,600,880
2009 Annual Report 177 PARENT COMPANY FINANCIAL STATEMENTS Company results over the last fi ve fi scal years
7. Company results over the last fi ve fi scal years
(EUR thousands) 2005 2006 2007 2008 2009 Share capital Share capital 363,454 363,454 363,454 363,454 363,454 Number of ordinary shares outstanding 181,727,048 181,727,048 181,727,048 181,727,048 181,727,048 Maximum number of future shares to be created: • through exercise of equity warrants - - - - - • through exercise of share subscription options - - - - - Operations and profi t for the year Revenue 14 14 14 5 27 Profi t before taxes, depreciation, amortization and movements in provisions 148,653 172,742 321,833 357,925 278,963 Income tax (income)/expense (17,943) (17,356) (18,175) (4,246) (1,880) Profi t after taxes, depreciation, amortization and movements in provisions 166,439 184,250 337,626 309,976 342,584 Profi t distributed as dividends (1) 210,803 256,235 292,581 292,581 301,667 Earnings per share (EUR) EPS after taxes but before depreciation, amortization and movements in provisions 0.92 1.05 1.87 1.99 1.55 EPS after taxes, depreciation, amortization and movements in provisions 0.92 1.01 1.86 1.71 1.89 Gross dividend distributed per share (1) (2) 1.16 1.41 1.61 1.61 1.66 Employees Average number of employees ----- Total payroll (EUR thousands) ----- Amount paid in respect of social security (EUR thousands) 6 6 6 771 2,286
(1) Amount of the distribution resulting from the resolution of the Shareholders’ Meeting, before the effect of Dior treasury shares as of the date of distribution. Board of Directors’ proposal for 2009. (2) Excludes the impact of tax regulations applicable to the benefi ciaries.
178 2009 Annual Report PARENT COMPANY FINANCIAL STATEMENTS Statutory Auditors’ reports
8. Statutory Auditors’ reports
STATUTORY AUDITORS’ REPORT ON THE PARENT COMPANY FINANCIAL STATEMENTS
MAZARS ERNST & YOUNG et Autres 61, rue Henri-Regnault 41, rue Ybry 92400 Courbevoie 92576 Neuilly-sur-Seine Cedex SA with share capital of €8,320,000 SAS with variable share capital Statutory Auditors Statutory Auditors Member of the Versailles Member of the Versailles regional organization regional organization
To the Shareholders, In accordance with our appointment as Statutory Auditors by your Annual General Meeting, we hereby report to you for the year ended December 31, 2009 on: • the audit of the accompanying fi nancial statements of Christian Dior; • the justifi cation of our assessments; • the specifi c procedures and disclosures required by law. These fi nancial statements have been approved by the Board of Directors. Our role is to express an opinion on these fi nancial statements, based on our audit.
1. Opinion on the fi nancial statements
We conducted our audit in accordance with professional standards applicable in France. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the fi nancial statements are free of material misstatement. An audit includes examining, on a test basis or by other sampling methods, evidence supporting the amounts and disclosures in the fi nancial statements. An audit also includes assessing the accounting principles used and signifi cant estimates made by the management, as well as evaluating the overall fi nancial statements presentation. We believe that the data we have collected is suffi cient and appropriate to be used as a basis for our opinion. In our opinion, the fi nancial statements give a true and fair view of the fi nancial position and the assets and liabilities of the Company as of December 31, 2009 and of the results of its operations for the year then ended, in accordance with French accounting regulations.
2009 Annual Report 179 PARENT COMPANY FINANCIAL STATEMENTS Statutory Auditors’ reports
2. Justifi cation of our assessments
In accordance with the requirements of Article L. 823-9 of the French Commercial Code (Code de Commerce) relating to the justifi cation of our assessments, we hereby report on the following matter: Note 1.3 to the fi nancial statements describes the accounting principles and methods applicable to long-term investments. As part of our assessment of the accounting principles used by your Company, we have verifi ed the appropriateness of the above- mentioned accounting methods and that of the disclosures in the notes to the fi nancial statements and have ascertained that they were properly applied. The assessments on these matters were made in the context of our audit approach to the fi nancial statements taken as a whole and therefore contributed to the opinion expressed in the fi rst part of this report.
3. Specifi c procedures and disclosures
In accordance with professional standards applicable in France, we have also performed the specifi c procedures required by law. We have no matters to report regarding the fair presentation and consistency with the fi nancial statements of the information given in the management report of the Board of Directors and in the documents addressed to shareholders with respect to the fi nancial position and the fi nancial statements. Concerning the information given in accordance with the requirements of Article L. 225-102-1 of the French Commercial Code relating to remuneration and benefi ts granted by the company offi cers and any other commitments made in their favor, we have verifi ed its consistency with the fi nancial statements, or with the underlying information used to prepare these fi nancial statements and, where applicable, with the information obtained by your Company, from companies controlling your Company or controlled by it. Based on this work, we attest that such information is accurate and fair. It being specifi ed that, as indicated in the management report, this information relates to the remuneration and benefi ts in kind paid or incurred by your Company and the companies which it controls as well as the remuneration and benefi ts paid or incurred by your Company or the companies that it controls. Pursuant to the law, we have verifi ed that the management report contains the appropriate disclosures as to the identity of shareholders.
Courbevoie and Neuilly-sur-Seine, March 11, 2010 The Statutory Auditors
MAZARS ERNST & YOUNG et Autres Simon Beillevaire Jeanne Boillet
This is a free translation of the original French text for information purposes only.
180 2009 Annual Report PARENT COMPANY FINANCIAL STATEMENTS Statutory Auditors’ reports
STATUTORY AUDITORS’ SPECIAL REPORT ON RELATED PARTY AGREEMENTS AND COMMITMENTS
MAZARS ERNST & YOUNG et Autres 61, rue Henri-Regnault 41, rue Ybry 92400 Courbevoie 92576 Neuilly-sur-Seine Cedex SA with share capital of €8,320,000 SAS with variable share capital Statutory Auditors Statutory Auditors Member of the Versailles Member of the Versailles regional organization regional organization
To the Shareholders, In our capacity as Statutory Auditors of your Company, we hereby report on certain related party agreements and commitments. We are not required to ascertain the existence of any other agreements and commitments but to inform you, on the basis of the information provided to us, of the terms and conditions of those agreements and commitments indicated to us. We are not required to comment as to whether they are benefi cial or appropriate. It is your responsibility, in accordance with Article R. 225-31 of the French Commercial Code, to evaluate the benefi ts resulting from these agreements and commitments prior to their approval.
Absence of notification of new agreements or commitments We hereby inform you that we were not informed of any agreements or commitments concluded during the fi scal year subject to the provisions of Article L. 225-38 of the French Commercial Code.
Agreements and commitments authorized in prior years and which remain current during the year Moreover, in accordance with the French Commercial Code, we have been advised that the following agreements and commitments which were approved in prior years remained current during the year.
1. Agreement entered into with Groupe Arnault SAS a. Nature and purpose Sub-lease agreement for a work of art.
Conditions This agreement, authorized on May 15, 2008 by your Company’s Board of Directors, covers the lease of a work of art for an annual lease payment of 540,000 euros exclusive of taxes, adjustable annually in line with movements in the 1-month Euribor rate, with effect from January 1, 2008. The lease payment made by your Company for 2009, including insurance costs, amounted to 285,366.73 euros, including all taxes.
2009 Annual Report 181 PARENT COMPANY FINANCIAL STATEMENTS Statutory Auditors’ reports
b. Nature and purpose Assistance agreement.
Conditions A service agreement concerning fi nancial services, the management of cash requirements and surpluses, accounting methods, tax, fi nancial engineering, and human resources and personnel management assistance has been concluded between your Company and Groupe Arnault SAS. In this respect, your Company paid a total of 3,604,703.92 euros including taxes to Groupe Arnault SAS for the fi scal year ended December 31, 2009.
2. Agreement entered into with LVMH SA
Nature and purpose Service agreement.
Conditions This service agreement entered into with LVMH for the provision of legal services, particularly for corporate law issues and the management of Christian Dior’s Securities Department, was maintained in 2009. Under this agreement, the compensation paid by your Company in 2009 was 54,717 euros including taxes.
3. Agreement entered into with Mr. Sidney Toledano
Nature, purpose and conditions Agreement specifying the consideration to be awarded to Mr. Sidney Toledano conditioned upon his observance of the non-compete clause contained within his employment contract. In the event of his departure, he would receive, for a period of twenty-four months, a payment equivalent to the monthly average of the gross salary he earned over the twelve months preceding his departure.
We conducted all of the work that we considered to be necessary having regard to the professional doctrine of the Compagnie nationale des Commissaires aux Comptes. This work involved verifying the consistency of the information that we were given with the source documents from which they were extracted.
Courbevoie and Neuilly-sur-Seine, March 11, 2010 The Statutory Auditors
MAZARS ERNST & YOUNG et Autres Simon Beillevaire Jeanne Boillet
This is a free translation of the original French text for information purposes only.
182 2009 Annual Report Resolutions for the approval of the Combined Shareholders’ Meeting of April 15, 2010
• Ordinary resolutions 184 • Extraordinary resolution 186 • Statutory Auditors’ report on the proposed decrease in share capital by the cancellation of shares purchased 187
2009 Annual Report 183 RESOLUTIONS Text of the resolutions
Resolutions for the approval of the Combined Shareholders’ Meeting of April 15, 2010
ORDINARY RESOLUTIONS First resolution as well as the transactions refl ected in these statements and summarized in these reports. (Approval of the fi nancial statements of the parent company) The Shareholders’ Meeting, after examining the report of the Board of Directors, the report of the Chairman of the Board and Third resolution the report of the Statutory Auditors, hereby approves the fi nancial (Approval of related party agreements covered by statements of the parent company for the fi scal year ended Article L. 225-38 of the French Commercial Code) December 31, 2009, including the balance sheet, income statement and notes, as presented to the meeting, as well as the transactions The Shareholders’ Meeting, after examining the special report of refl ected in these statements and summarized in these reports. the Statutory Auditors on the related party agreements described in Article L. 225-38 of the French Commercial Code, hereby declares that it approves said agreements. Second resolution (Approval of the consolidated fi nancial statements) Fourth resolution The Shareholders’ Meeting, after examining the report of the (Allocation of net profi t – Determination of dividend) Board of Directors and the report of the Statutory Auditors, hereby approves the consolidated fi nancial statements for the The Shareholders’ Meeting, on the recommendation of the Board fi scal year ended December 31, 2009, including the balance of Directors, decides to allocate and appropriate the distributable sheet, income statement and notes, as presented to the meeting, profi t for the fi scal year ended December 31, 2009 as follows:
Amount available for distribution (EUR) • Net profi t 342,583,800.31 plus • Retained earnings before appropriation 51,363,830.42 Amount available for distribution 393,947,630.73 Proposed appropriation • Gross dividend distribution of 1.66 euros per share 301,666,899.68 • Retained earnings 92,280,731.05 TOTAL 393,947,630.73
The total gross dividend amounts to 1.66 euros per share. Taking Finally, should the Company hold any treasury shares at the into account the interim dividend of 0.44 euros per share paid time of payment of this balance, the corresponding amount of on December 2, 2009, the balance of 1.22 euros will be paid unpaid dividends shall be allocated to retained earnings. out on May 25, 2010. As required by law, the Shareholders’ Meeting observes that the With respect to this dividend distribution, individuals whose gross dividends per share paid out in respect of the past three tax residence is in France will be entitled to the 40% deduction fi scal years were as follows: provided under Article 158 of the French Tax Code.
(EUR) Gross dividend (1) Allowance (2) 2008 1.61 0.644 2007 1.61 0.644 2006 1.41 0.564 (1) Excludes the impact of tax regulations applicable to the benefi ciaries. (2) For individuals with tax residence in France. 184 2009 Annual Report RESOLUTIONS Text of the resolutions
Fifth resolution (Renewal of the term of offi ce of Mr. Renaud Donnedieu de In particular, the shares may be acquired in order (i) to provide Vabres as Director) market liquidity services (purchases/sales) under a liquidity contract set up by the Company, (ii) to cover stock option The Shareholders’ Meeting, noting that Mr. Renaud Donnedieu plans, the granting of bonus shares or any other form of share de Vabres’ term of offi ce expires on this date, hereby reappoints allocation or share-based payment, in favor of employees or him as a Director for a three-year term that shall expire at the offi cers either of the Company or of an affi liated company as end of the Ordinary Shareholders’ Meeting convened in 2013 defi ned under Article L. 225-180 of the French Commercial to approve the fi nancial statements for the previous fi scal year. Code, (iii) to cover securities giving access to the Company’s shares, notably by way of conversion, tendering of a coupon, reimbursement or exchange, or (iv) to be retired or (v) held so Sixth resolution as to be exchanged or presented as consideration at a later date (Renewal of the term of offi ce of Mr. Eric Guerlain as Director) for external growth operations. The Shareholders’ Meeting, noting that Mr. Eric Guerlain’s The purchase price per share may not exceed 130 euros. In the term of offi ce expires on this date, hereby reappoints him as a event of a capital increase through the capitalization of reserves Director for a three-year term that shall expire at the end of the and the granting of bonus shares as well as in cases of a stock Ordinary Shareholders’ Meeting convened in 2013 to approve split or reverse stock split, the purchase price indicated above the fi nancial statements for the previous fi scal year. will be adjusted by a multiplying coeffi cient equal to the ratio of the number of shares making up the Company’s share capital before and after the operation. Seventh resolution The maximum number of shares that may be purchased shall not (Renewal of the term of offi ce of Mr. Christian de Labriffe exceed 10% of the share capital, adjusted to refl ect operations as Director) affecting the share capital occurring after this meeting, with the understanding that (i) if this authorization is used, the number The Shareholders’ Meeting, noting that Mr. Christian de Labriffe’s of treasury shares in the Company’s possession will need to be term of offi ce expires on this date, hereby reappoints him as a taken into consideration so that the Company remains at all times Director for a three-year term that shall expire at the end of the within the limit for the number of treasury shares held, which Ordinary Shareholders’ Meeting convened in 2013 to approve must not exceed 10% of the share capital and that (ii) the number the fi nancial statements for the previous fi scal year. of treasury shares provided as consideration or exchanged in the context of a merger, spin-off or contribution operation may not exceed 5% of the share capital. As of December 31, 2009, Eighth resolution this limit corresponds to 18,172,704 shares. The maximum total (Appointment of Mrs. Ségolène Gallienne as Director) amount dedicated to these purchases may not exceed 2.4 billion euros. The shares may be acquired by any appropriate method on The Shareholders’ Meeting decides to appoint Mrs. Ségolène the market or over the counter, including the use of derivatives, Gallienne as Director for a three-year term that shall expire at as well as through block purchases or as part of an exchange. the end of the Ordinary Shareholders’ Meeting convened in 2013 Pursuant to the provisions of Articles L. 225-209 et seq. of the to approve the fi nancial statements for the previous fi scal year. French Commercial Code, the shares thus acquired may be resold by the Company by any means, including block sales. Ninth resolution All powers are granted to the Board of Directors to implement this authorization. The Board may delegate such powers in (Authorization to trade in the Company’s shares) order to place any and all buy and sell orders, enter into any and all agreements, sign any document, fi le all declarations, carry The Shareholders’ Meeting, having examined the report of the out all formalities and generally take any and all other actions Board of Directors, authorizes the latter to acquire Company required in the implementation of this authorization. shares, pursuant to the provisions of Articles L. 225-209 et seq. of the French Commercial Code and of Commission Regulation This authorization, which replaces the authorization granted (EC) 2273/2003 of December 22, 2003. It thus authorizes the by the Combined Shareholders’ Meeting of May 14, 2009, is implementation of a share repurchase program. hereby granted for a term of eighteen months as of this date.
2009 Annual Report 185 RESOLUTIONS Text of the resolutions
EXTRAORDINARY RESOLUTION
Tenth resolution (Authorization to reduce the share capital by cancelling 3. grants all powers to the Board of Directors to perform treasury shares) and record the capital reduction transactions, carry out all required acts and formalities, amend the Bylaws accordingly The Shareholders’ Meeting, having examined the report prepared and generally take any and all other actions required in the by the Board of Directors and the special report prepared by implementation of this authorization; the Statutory Auditors, 4. grants this authorization for a period of eighteen months as 1. authorizes the Board of Directors to reduce the share capital of the date of this meeting; of the Company, on one or more occasions, by cancelling the shares acquired pursuant to the provisions of Article L. 225- 5. decides that this authorization shall replace that granted by 209 of the French Commercial Code; the Combined Shareholders’ Meeting of May 14, 2009. 2. sets the maximum amount of the capital reduction that may be performed under this authorization over a twenty-four month period to 10% of company’s current capital;
186 2009 Annual Report RESOLUTIONS Statutory Auditors’ report
Statutory Auditors’ report
STATUTORY AUDITORS’ REPORT ON THE PROPOSED DECREASE IN SHARE CAPITAL BY THE CANCELLATION OF SHARES PURCHASED (TENTH RESOLUTION)
MAZARS ERNST & YOUNG et Autres 61, rue Henri-Regnault 41, rue Ybry 92400 Courbevoie 92576 Neuilly-sur-Seine Cedex SA with share capital of €8,320,000 SAS with variable share capital Statutory Auditors Statutory Auditors Member of the Versailles Member of the Versailles regional organization regional organization
To the Shareholders, As Statutory Auditors of Christian Dior and pursuant to paragraph 7 of Article L. 225-209, of the French Commercial Code (Code de Commerce) on the decrease in share capital by the cancellation of a company’s own shares, we hereby report on our assessment of the reasons for and conditions of the proposed decrease in share capital. We performed the procedures that we deemed necessary in accordance with the professional guidelines of the French Institute of Statutory Auditors (Compagnie Nationale des Commissaires aux Comptes) relating to this type of engagement. These procedures consisted in reviewing the fairness of the reasons for and conditions of the proposed decrease in share capital. This transaction is part of the purchase by your Company of its own shares, within a limit of 10% of its share capital, in accordance with Article L. 225-209 of the French Commercial Code. Furthermore, this purchase authorization is proposed for approval at your Shareholders’ Meeting in its 9th resolution and would be effective for a period of 18 months. Your Board of Directors requests the delegation of all powers, for a period of 18 months, to cancel the shares purchased following the granting of authority by your Company to purchase its own shares, up to a maximum of 10% of its share capital and by 24-month periods starting from the date of this Shareholders’ Meeting. We have no comments on the reasons for and conditions of the proposed decrease in share capital, it being indicated that prior approval of the purchase by your Company of its own shares by your Shareholders’ Meeting, as proposed in the 9th resolution thereof, is required.
Courbevoie and Neuilly-sur-Seine, March 11, 2010 The Statutory Auditors
MAZARS ERNST & YOUNG et Autres Simon Beillevaire Jeanne Boillet
This is a free translation of the original French text for information purposes only.
2009 Annual Report 187 188 2009 Annual Report General information
1. History of the Group 190 5. Main locations and properties 213 5.1 Production 213 2. General information regarding 5.2 Distribution 214 the parent company and its share capital 192 5.3 Administrative sites and investment property 215 2.1 General information regarding the parent company 192 2.2 Information regarding the capital 193 6. Supply sources and subcontracting 216 2.3 Analysis of share capital and voting rights 194 6.1 Champagnes and Wines 216 6.2 Cognac and Spirits 216 3. Corporate governance 196 6.3 Fashion and Leather Goods 217 3.1 Charter of the Board of Directors 196 6.4 Perfumes and Cosmetics 217 3.2 Internal rules of the Performance Audit Committee 197 6.5 Watches and Jewelry 218 3.3 Internal rules of the Nominations and 6.6 Christian Dior Couture 218 Compensation Committee 199 7. Statutory Auditors 219 3.4 Bylaws 200 7.1 Name and term 219 4. Market for fi nancial instruments issued 7.2 Fees paid in 2009 219 by Christian Dior 209 8. Statement of the Company Offi cer 4.1 Market for Christian Dior shares 209 responsible for the annual fi nancial report 220 4.2 Bonds issued by Christian Dior 210 4.3 Dividend 211 4.4 Change in share capital 212 4.5 Performance per share 212
2009 Annual Report 189 GENERAL INFORMATION History of the Group
1. History of the Group
1905 Birth of Christian Dior in Granville (Normandy, France), on January 21. 1946 Backed by Marcel Boussac, Christian Dior founds his own couture house, in a private house at 30, avenue Montaigne in Paris. 1947 On February 12, Christian Dior presents the 90 models of his fi rst collection on six mannequins. The “Corolle” and “Huit” lines are very quickly rechristened “New Look”. Parfums Christian Dior is founded, headed by Serge Heftler Louiche. Dior names the fi rst “Miss Dior” in honor of his sister Catherine. Pierre Cardin begins at Christian Dior, as the “leading man” in the workshop. He remains there until 1950. 1948 In November, a luxury ready-to-wear house is established in New York at the corner of 5th Avenue and 57th Street, the fi rst of its kind. Creation of Christian Dior Parfums New York. 1949 Launch of the perfume “Diorama”. By marketing Dior stockings in the United States, the brand creates the licensing system. 1950 License for neckties. All accessories follow. Within three years, this system will be copied by all the couture houses. 1952 The Christian Dior brand consolidates its presence in Europe by creating Christian Dior Models Limited in London. Agreement with the House of Youth in Sydney for exclusive Christian Dior New York models. Exclusive agreement with Los Gobelinos of Santiago, Chile for the Christian Dior Paris Haute Couture collections. 1955 At age 19, Yves Saint Laurent becomes Christian Dior’s fi rst and only assistant. Opening of the Grande Boutique at the corner of avenue Montaigne and rue François 1er. Launch of Dior lipstick. A line of beauty products will follow. 1957 Christian Dior succumbs to a heart attack while convalescing at Montecatini on October 24. Yves Saint Laurent is named to provide artistic direction for the brand. 1960 Called up for National Service, Yves Saint Laurent leaves Dior after completing six collections. Marc Bohan succeeds him. He is 34 years old. 1961 Marc Bohan presents his fi rst collection, “Slim Look” under the Dior label. 1962 Yves Saint Laurent opens his own couture house. 1963 Launch of the perfume “Diorling”. 1966 Launch of the men’s fragrance “Eau Sauvage”. 1967 Philippe Guibourgé, assistant to Marc Bohan, creates the “Miss Dior” line, the fi rst Dior women’s ready-to-wear line in France. Opening of the “Baby Dior” boutique. 1968 Launch of the Christian Dior Coordinated Knits line. The Dior perfume company is sold to Moët Hennessy. Frédéric Castet assumes management of the Fashion Furs Department - Christian Dior Paris. 1970 Creation of the Christian Dior Monsieur line. At Parly II, a new Christian Dior boutique is decorated by Gae Aulenti. 1972 Launch of the perfume “Diorella”. 1973 Creation in France of the ready-to-wear fur collection, which will then be manufactured under license in the United States, Canada, and Japan. 1978 Bankruptcy of the Marcel Boussac group, whose assets, under the authorization of the Paris Trade Court, are purchased by the Willot Group. 1979 Launch of the perfume “Dioressence”. 1980 Launch of the men’s fragrance “Jules”. 1981 The Willot group declares bankruptcy. 1984 A group of investors, led by Bernard Arnault, takes control of the former Willot Group.
190 2009 Annual Report GENERAL INFORMATION History of the Group
1985 Bernard Arnault becomes Chairman and Chief Executive Offi cer of Christian Dior. Launch of the perfume “Poison”. 1987 The Paris Fashion Museum dedicates an exhibition to Christian Dior, on the fortieth anniversary of his fi rst collection. 1988 Through its subsidiary Jacques Rober, held jointly with the Guinness group, Christian Dior takes a 32% equity stake in the share capital of LVMH. The share capital of Christian Dior is offered to French and foreign institutional investors who subscribe to a capital increase of 3.3 billion francs in a private placement. 1989 Gianfranco Ferré joins Christian Dior as creator of the Haute Couture, Fashion Furs, and Women’s ready-to-wear collections. His fi rst Haute Couture collection is awarded the Dé d’Or. Opening of a boutique in Hawaii. Jacques Rober’s stake in LVMH is increased to 44%. 1990 Opening of boutiques in Los Angeles and New York. LVMH’s stake is increased to 46%. 1991 Listing of Christian Dior on the spot market, and then the monthly settlement market of the Paris stock exchange. Launch of the perfume “Dune”. 1992 Patrick Lavoix is named Creative Director of “Christian Dior Monsieur”. Relaunch of “Miss Dior” perfume. 1994 A revision of agreements with Guinness has the effect of increasing Christian Dior’s consolidated stake in LVMH from 24.5% to 41.6%. 1995 The Couture line is transferred to a wholly-owned subsidiary that takes the corporate name “Christian Dior Couture”. 1996 John Galliano is named Creative Director of Christian Dior Couture. 1997 Christian Dior Couture takes over the network of 13 boutiques operated under franchise by its Japanese licensee, Kanebo. 1998 Christian Dior Couture takes over the direct marketing of ready-to-wear and women’s accessories in Japan after terminating its licensing agreement with Kanebo. 1999 Launch of the perfume “J’adore”. Creation of a new business group, Fine Jewelry, whose collections are created by Victoire de Castellane. 2001 In January 2001, Hedi Slimane, new creator of the “Dior Homme” line, presents his fi rst collection based on a new contemporary masculine concept. Launch of the men’s fragrance “Higher”. Opening of the Fine Jewelry boutique at Place Vendôme, created under the supervision of Victoire de Castellane. 2002 Launch of the perfume “Addict”. 2003 Opening of a fl agship boutique in the Omotesando district (Tokyo). 2004 Opening of a fl agship boutique in the Ginza district (Tokyo). 2005 Celebration of the centennial of Christian Dior’s birth. Launch of the perfumes “Miss Dior Chérie” and “Dior Homme”. 2006 Christian Dior Couture directly takes over the activity of its Moscow agent and opens a boutique in the GUM department store. 2007 Celebration of the 60th anniversary of the creation of Maison Dior (1947). Kris Van Assche, the new creator of the menswear line, presents his fi rst collections. 2008 Major exhibition organized in Beijing, in association with Chinese artists, to celebrate the brand’s entrance into the Chinese marketplace. 2009 New online advertising campaign for “Lady Dior” handbags featuring Marion Cotillard.
2009 Annual Report 191 GENERAL INFORMATION General information regarding the parent company and its share capital
2. General information regarding the parent company and its share capital
2.1 GENERAL INFORMATION REGARDING THE PARENT COMPANY
2.1.1 Role of the parent company within the Group Fiscal year (Article 24 of the Bylaws): from January 1 until December 31. Christian Dior SA is a holding company whose assets consist primarily of investments in Christian Dior Couture (wholly Statutory distribution of profi ts (Article 26 of the Bylaws): and directly owned) and in LVMH (42.4% ownership interest) the Shareholders’ Meeting then has the authority to deduct such via Financière Jean Goujon SAS, a wholly owned subsidiary sums as it deems appropriate, either to be carried forward to of Christian Dior. the following fi scal year, or to be applied to one or more general or special reserve funds, whose allocation or use it will freely determine. Any remaining balance is to be distributed among all 2.1.2 General information shareholders in the form of a dividend, prorated in accordance with the share capital represented by each share. The complete text of the Bylaws is presented in §3 “Corporate Governance” below. Shareholders’ Meetings (Articles 17 to 23 of the Bylaws): Shareholders’ Meetings are convened and held under the Corporate name (Article 3 of the Bylaws): Christian Dior conditions provided by the laws and decrees in effect. Registered offi ce (Article 4 of the Bylaws): 30, avenue Montaigne Rights, preferences and restrictions attached to shares 75008 Paris. Telephone: +33 1 44 13 22 22 (Articles 6, 8, 17 and 30 of the Bylaws): all shares belong to Legal form (Article 1 of the Bylaws): Société anonyme (limited the same category, whether issued in registered or bearer form. liability company) Each share gives the right to a proportional stake in the ownership Jurisdiction (Article 1 of the Bylaws): the Company is governed of the Company’s assets, as well as in the sharing of profi ts and by French law. of any liquidation surplus. Register of Commerce and Companies: the Company is A voting right equal to twice the voting right attached to other registered in the Paris Register of Commerce and Companies under shares is granted to all fully paid up registered shares for which number 582 110 987. APE code (company activity code): 7010Z. evidence of registration under the name of the same shareholder during at least three years will be brought, as well as to registered Date of incorporation - Term (Article 5 of the Bylaws): Christian shares allocated to a shareholder, in case of increase of the capital Dior was incorporated on October 8, 1946 for a term of 99 years, by capitalization of reserves, or of profi ts carried forward or of which expires on October 7, 2045, unless the Company is issue premiums due to existing shares for which it was entitled to dissolved early or extended by a resolution of the Extraordinary benefi t from this right. This right was granted by the Extraordinary Shareholders’ Meeting. Shareholders’ Meeting of June 14, 1991 and may be removed by a decision of the Extraordinary Shareholders’ Meeting, after Location where documents concerning the Company may be ratifi cation by a Special Meeting of benefi ciaries of this right. consulted: the Bylaws, fi nancial statements and reports, and the minutes of Shareholders’ Meetings may be consulted at the Declaration of thresholds (Article 8 of the Bylaws): registered offi ce at the address indicated above. independently of legal obligations, the Bylaws stipulate that any individual or legal entity that becomes the owner of a fraction of capital greater than or equal to 1% shall notify the 2.1.3 Additional information total number of shares held to the Company. This obligation applies each time the portion of capital owned increases by at The complete text of the Bylaws is presented in §3 “Corporate least 1%. It ceases to apply when the shareholder in question Governance” below. reaches the threshold of 60% of the share capital. Corporate purpose (Article 2 of the Bylaws): the taking and Shares required to modify the rights of shareholders: the management of interests in any company or entity, whether Bylaws do not contain any stricter provision governing changes commercial, industrial, or fi nancial, whose direct or indirect in shareholders’ rights than those required by the law. activity involves the manufacture and/or dissemination of prestige products, through the acquisition, in any form whatsoever, Provisions governing changes in the share capital: the Bylaws of shares, corporate interests, bonds, or other securities or do not contain any stricter provision governing changes in the investment rights. share capital than those required by the law.
192 2009 Annual Report GENERAL INFORMATION General information regarding the parent company and its share capital
2.2 INFORMATION REGARDING THE CAPITAL
2.2.1 Share capital - Classes of shares 2.2.4 Shareholder identifi cation As of December 31, 2009, the Company’s share capital was Article 8 of the Bylaws authorizes the Company to set up a 363,454,096 euros, consisting of 181,727,048 fully paid-up shareholder identifi cation procedure. shares with a par value of 2 euros each. The shares issued by the Company are all of the same class. 2.2.5 Non-capital securities Among these 181,727,048 shares, 125,095,619 conferred double The Company has not issued any non-capital securities. voting rights as of December 31, 2009.
2.2.6 Securities giving access to 2.2.2 Authorized share capital the Company’s capital As of December 31, 2009, the Company had 227,178,859 shares of authorized share capital with a par value of 2 euros each. No securities giving access to the Company’s capital are outstanding as of December 31, 2009.
2.2.3 Status of delegations and authorizations granted to the Board of Directors This statement is included under paragraph 8.1 “Status of current delegations and authorizations” in the “Management Report of the Board of Directors” of the Annual Report.
2.2.7 Three-year summary of changes in the Company’s share capital
Issuance Par value issued premium Successive amounts Cumulative number Par value per Type of transaction (EUR) (EUR) of share capital (EUR) of company shares share (EUR) 2007 No shares created - - 363,454,096 181,727,048 2.00 2008 No shares created - - 363,454,096 181,727,048 2.00 2009 No shares created - - 363,454,096 181,727,048 2.00
2009 Annual Report 193 GENERAL INFORMATION General information regarding the parent company and its share capital
2.3 ANALYSIS OF SHARE CAPITAL AND VOTING RIGHTS
2.3.1 Company shareholders As of December 31, 2009, the Company’s share capital comprised • 19,654,237 shares were in administered registered form; 181,727,048 shares. Of this total, taking into account shares held as • 52,733,611 shares were bearer shares. treasury shares, voting rights were attached to 178,126,168 shares, including 125,095,619 with double voting rights. As of December 31, 2009, 222 registered shareholders held at least 100 shares. • 109,339,200 shares were in pure registered form (of which 3,600,880 were treasury shares);
Number of Number of % of % of voting Shareholders shares voting right (2) capital rights (2) Groupe Arnault (1) 126,177,295 250,803,005 69.43 82.71 Other 55,549,753 52,418,782 30.57 17.29 TOTAL 181,727,048 303,221,787 100.00 100.00
(1) Groupe Arnault SAS, which is controlled by the family of Mr. Bernard Arnault, is the ultimate holding company of Christian Dior. (2) Voting rights exercisable in Shareholders’ Meetings.
The Company’s main shareholders have voting rights identical personally and in the form of registered shares less than 0.2% to those of other shareholders. of the Company’s share capital and voting rights. To the Company’s knowledge: During the 2009 fi scal year, Crédit Suisse informed the Company on several occasions that it had exceeded or fallen below statutory • no other shareholder held 5% or more of the Company’s shareholding thresholds of the Company’s capital stock by less share capital or voting rights, either directly, indirectly, or than 1%. According to the last notifi cation received in 2009, acting in concert; Crédit Suisse owned 1.15% of the Company’s share capital. • no shareholders’ agreement or any other agreement constituting During the fi scal year ended December 31, 2009 and as of an action in concert existed involving at least 0.5% of the March 11, 2010, no public tender or exchange offer nor price Company’s share capital or voting rights. guarantee was made by a third party involving the Company’s As of December 31, 2009, members of the Executive management shares. of the Company and of the Board of Directors held directly,
2.3.2 Changes in share ownership during the last three fi scal years
December 31, 2009 December 31, 2008 December 31, 2007 % of % of % of Number % of voting Number % of voting Number % of voting Shareholders of shares capital rights (1) of shares capital rights (1) of shares capital rights (1) Groupe Arnault 126,177,295 69.43 82.71 126,174,170 69.43 82.27 126,023,237 69.35 82.23 Of which: - Semyrhamis 107,985,125 59.42 71.22 107,982,000 59.42 70.84 107,982,000 59.42 70.85 - Financière Agache and related companies 18,192,170 10.01 11.49 18,192,170 10.01 11.43 18,041,237 9.93 11.38 Treasury shares 3,600,880 1.98 - 3,366,380 1.85 - 3,410,748 1.88 - Free fl oat – registered shares 540,789 0.30 0.33 1,968,175 1.08 1.26 1,902,040 1.04 1.24 Free fl oat – bearer shares 51,408,084 28.29 16.96 50,218,323 27.64 16.47 50,391,023 27.73 16.53 TOTAL 181,727,048 100.00 100.00 181,727,048 100.00 100.00 181,727,048 100.00 100.00
(1) Voting rights exercisable in Shareholders’ Meetings.
194 2009 Annual Report GENERAL INFORMATION General information regarding the parent company and its share capital
2.3.3 Pledges of pure registered shares 2.3.4 Natural persons or legal entities by main shareholders that may exercise control over The Company is not aware of any pledge of pure registered the Company shares by the main shareholders. As of December 31, 2009, Groupe Arnault controlled 69.43% of share capital and 82.71% of voting rights exercisable in Shareholders’ Meetings. Groupe Arnault SAS, which is controlled by the family of Mr. Bernard Arnault, is the ultimate holding company of Christian Dior. Mr. Bernard Arnault is Chairman of the Board of Directors of Christian Dior. In order to protect the rights of each and every shareholder, the Charter of the Board of Directors requires that at least one-third of its appointed members be Independent Directors. In addition, at least two-thirds of the members of the Performance Audit Committee must be Independent Directors. A majority of the members of the Nominations and Compensation Committee must also be Independent Directors.
2009 Annual Report 195 GENERAL INFORMATION Corporate governance
3. Corporate governance
3.1 CHARTER OF THE BOARD OF DIRECTORS
The Board of Directors is the strategy body of the Company • control the Company’s management; Christian Dior. The competence, integrity and responsibility of its members, clear and fair decisions reached collectively, • approve the Company’s annual and half-yearly fi nancial and effective and secure controls are the ethical principles that statements; govern the Board. • verify the quality, reliability and accuracy of the information The key priorities pursued by Christian Dior’s Board of Directors about the Company and the Group provided to shareholders; are enterprise value creation and the defense of the Company’s • disseminate the collective values that guide the Company and interests. its employees and that govern relationships with consumers and Christian Dior’s Board of Directors acts as guarantor of the with partners and suppliers of the Company and the Group; rights of each of its shareholders and ensures that shareholders fulfi ll all of their duties. • promote a policy of economic development consistent with a social and citizenship policy based on concepts that The Company adheres to the Code of Corporate Governance include respect for human beings and the preservation of the for Listed Companies published by AFEP and MEDEF. environment in which it operates. Each of these elements contributes to preserving the level of enterprise performance and transparency required to retain the confi dence of shareholders and partners in the Group. 3.1.3 Operations of the Board of Directors The Board of Directors shall hold at least three meetings a year. 3.1.1 Structure of the Board of Directors Any individual who accepts the position of Director or The Board of Directors shall have a maximum of 12 members, a permanent representative of a legal entity appointed as Director third of whom are appointed from among prominent independent of the Company shall agree to attend Board of Directors’ and persons with no interests in the Company. Shareholders’ Meetings regularly. In determining whether a Director may be considered as On the recommendation of the Board’s Nominations and independent, the Board of Directors refers to the criteria set Compensation Committee, repeated unjustifi ed absenteeism forth in the AFEP/MEDEF Code of Corporate Governance by a Director may cause the Board of Directors to reconsider for Listed Companies. his appointment. The number of Directors or permanent representatives of legal So that members can fully perform their duties, the Chairman entities from outside companies, in which the Chairman of the of the Board of Directors, the Directors holding the positions Board of Directors or any Director serving as Chief Executive of Chief Executive Offi cer or Managing Director, and the Offi cer or Managing Director holds an offi ce, shall be limited to two. other Directors must report to the Board of Directors any and all signifi cant information they need to perform their duties as members of the Board. 3.1.2 Missions of the Board of Directors Decisions by the Board of Directors shall be made by simple The principal missions of the Board of Directors are to: majority vote and are adopted as a board. • ensure that the Company’s interests and assets are protected; If they deem appropriate, the independent Directors may meet • defi ne the broad strategic orientations of the Company and without the other members of the Board of Directors. the Group and ensure that their implementation is monitored; For special or important issues, the Board of Directors may • select the Company’s management structure; appoint several Directors to form one or more committees. • appoint the Chairman of the Board of Directors, Chief Each member of the Board of Directors shall act in the interests Executive Offi cer and Managing Directors; and on behalf of all shareholders.
196 2009 Annual Report GENERAL INFORMATION Corporate governance
Once each year, the Board of Directors evaluates its procedures • provide details to the Chairman of the Board of Directors of and informs shareholders as to its conclusions in a report any formal investigation, conviction in relation to fraudulent presented to the Shareholders’ Meeting. In addition, at least offenses, any offi cial public incrimination and/or sanctions, any once every three years, a fully documented review of the work disqualifi cations from acting as a member of an administrative, of the Board, its organization and its procedures is conducted. management or supervisory body imposed by a court as well as of any bankruptcy, receivership or liquidation proceedings to which they have been a party. 3.1.4 Responsibilities The Chairman of the Board of Directors shall apprize the Audit The members of the Board of Directors shall be required to and Performance Committee upon receiving any information familiarize themselves with the general and specifi c obligations of this type. of their offi ce, and with all applicable laws and regulations. The members of the Board of Directors shall be required to 3.1.5 Compensation respect the confi dentiality of any information of which they may become aware in the course of their duties concerning the The Shareholders’ Meeting shall set the total amount of Directors’ Company or the Group, until such information is made public fees to be paid to the members of the Board of Directors. by the Company. This amount shall be distributed among all members of the Board The members of the Board of Directors agree not to trade in of Directors and the advisors, if any, on the recommendation of the Company’s shares, either directly or indirectly, for their own the members of the Directors’ Nominations and Compensation account or on behalf of any third parties, based on information Committee, taking into account their specifi c responsibilities on disclosed to them in the course of their duties that is not known the Board (e.g. chairman participation on committees created to the public. Moreover, the Directors shall refrain from engaging within the Board). in any stock market transactions involving the Company’s shares The Directors’ Nominations and Compensation Committee also and from any exercise of options during the following periods: have the capacity to recommend that all or part of the Directors’ • four weeks preceding the publication of the Company’s annual fees be allocated based on the attendance rate of the members and half-yearly consolidated fi nancial statements; at the Meetings of the Board of Directors. • two weeks preceding the publication of the Company’s Exceptional compensation may be paid to some Directors for quarterly consolidated revenue fi gures. any special assignments and on the basis of the leadership role they assume. The amount shall be determined by the Board of The Directors agree to: Directors and reported to the Company’s Statutory Auditors. • warn the Chairman of the Board of Directors of any instance, even potential, of a confl ict of interest between their duties and responsibilities to the Company and their private interests 3.1.6 Scope of application and/or other duties and responsibilities; This Charter shall apply to all members of the Board of Directors • abstain from voting on any issue that concerns them directly and the Advisory Board. It must be given to each candidate for or indirectly; the position of Director and to each permanent representative of a legal entity before they take offi ce. • inform the Chairman of the Board of Directors of any operation or agreement entered into with any Christian Dior Group company to which they are a party;
3.2 INTERNAL RULES OF THE PERFORMANCE AUDIT COMMITTEE
A specialized committee responsible for auditing performance The Board of Directors shall appoint a Chairman of the operates within the Board of Directors, acting under the exclusive, Committee from among its members. The maximum term of collective responsibility of the Board of Directors. the Chairman of the Committee is fi ve years. Neither the Chairman of the Board of Directors nor any Director performing the duties of Chief Executive Offi cer or Managing 3.2.1 Structure of the Committee Director of Christian Dior may be a member of the Committee. The Performance Audit Committee shall be made up of at A Director may not be appointed as a member of the Committee least three Directors, two thirds of whom shall be independent if he or she comes from a company for which a Christian Dior Directors. Its members shall be appointed by the Board of Director serves as a member of a committee comparable in Directors. function.
2009 Annual Report 197 GENERAL INFORMATION Corporate governance
3.2.2 Role of the Committee 3.2.3 Operating procedures of The principal missions of the Committee are to: the Committee • review the parent company and consolidated financial A Director’s agreement to serve on the Committee shall imply statements, before they are submitted to the Board of Directors; that he will devote the necessary time and attention to his duties on the Committee. • verify the relevance and permanence of the accounting policies and principles adopted by the Company and the transparent The Committee shall meet at least twice a year, without the application of such policies and principles; Chairman of the Board of Directors or any Directors serving as Chief Executive Offi cer or Managing Director, before the • verify the existence, pertinence, application, effi ciency and Board of Directors’ Meetings in which the agenda includes effectiveness of internal procedures in this area; a review of the annual and half-yearly parent company and • analyze the risks incurred by the Company and the Group and consolidated fi nancial statements. signifi cant off-balance sheet commitments of the Company If necessary, the Committee may be required to hold special and the Group; meetings, when an event occurs that may have a signifi cant effect • analyze changes in consolidation scope, debt, and foreign on the parent company or consolidated fi nancial statements. exchange or interest rate hedging; Any document submitted to the Committee in connection with • review the fi ndings and recommendations of the Statutory its responsibilities shall be considered confi dential as long as it Auditors; has not been made public by the Company. • be aware of major agreements entered into by any Group The proceedings of the Committee are confi dential and shall companies and any agreements involving one or more Group not be discussed outside the Board of Directors. companies with one or more third-party companies in which Decisions of the Committee shall be made by simple majority a Director of the Christian Dior parent company is also a vote and shall be deemed to have been reached as a board. senior executive or principal shareholder; The proceedings of each Committee Meeting shall be recorded • assess any instances of confl ict of interest that may affect a in minutes of the meeting. Director and recommend suitable measures to prevent or correct them; • monitor the process for preparing fi nancial information and 3.2.4 Prerogatives of the Committee verify the quality of this information. The Committee shall report on its work to the Board of Directors. The Committee oversees the procedure for the selection of the It shall submit to the Board its fi ndings, recommendations and Company’s Statutory Auditors and submits its recommendations suggestions. to the Board of Directors. The Committee may request any and all accounting, legal The Committee issues an opinion on the fees paid to Statutory or fi nancial documents it deems necessary to carry out its Auditors, as well as those paid to the network to which they responsibilities. belong, by the Company and the companies it controls or At its request, and without the Chairman of the Board, the Chief is controlled by, whether in relation to their statutory audit Executive Offi cer or any Managing Director of Christian Dior mission or other related assignments. It examines the risks to being present, the Committee may interview the executives the independence of Statutory Auditors. and managers in the Company responsible for preparing the The Committee may also make recommendations to the fi nancial statements and for conducting the internal audit, as management on general priorities and guidelines for Internal well as the Statutory Auditors. Audit. 3.2.5 Compensation of Committee members The Committee members and its Chairman may receive a special Director’s fee, the amount of which shall be determined by the Board of Directors and charged to the total fi nancial package allocated by the Shareholders’ Meeting.
198 2009 Annual Report GENERAL INFORMATION Corporate governance
3.3 INTERNAL RULES OF THE NOMINATIONS AND COMPENSATION COMMITTEE
A specialized committee responsible for the nomination and might be paid to a particular executive offi cer upon leaving compensation of Directors operates within the Board of Directors, the Company. acting under the exclusive, collective authority of the Board The Committee shall issue an opinion on the compensation of Directors. and benefi ts in kind granted to the Company’s Directors and advisors by the Group or its subsidiaries, and on the fi xed or 3.3.1 Structure of the Committee variable, immediate or deferred compensation and incentive plans for the Group’s senior executives. It expresses its opinion The Board’s Nominations and Compensation Committee shall on the general policy for the allocation of options and bonus be made up of at least three Directors and/or Advisors. The shares within the Group. majority of its members shall be independent. Its members shall be appointed by the Board of Directors. The Committee shall prepare a statement summarizing the Directors’ fees actually paid to each Director. The Board of Directors shall appoint a Chairman of the Committee from among its members. The Committee shall prepare a draft report every year for the Shareholders’ Meeting, which it shall submit to the Board of Neither the Chairman of the Board of Directors, nor any Director Directors, on the compensation of senior executive offi cers, any serving as Chief Executive Offi cer or Managing Director of bonus shares granted to them in the previous year as well as Christian Dior, or who are compensated by any Christian Dior any stock options granted or exercised by said offi cers in the subsidiary, may be a member of the Committee. same period. The report shall also list the ten employees of the Company that received and exercised the most options. A Director may not be appointed as a member of the Committee if he or she comes from a company for which an Christian Dior Director serves as a member of a committee comparable 3.3.3 Operating procedures of the Committee in function. A Director’s agreement to serve on the Committee implies that he will devote the necessary time and energy to his duties on 3.3.2 Role of the Committee the Committee. After undertaking its own review, the Committee is responsible for The Committee shall meet whenever necessary, either at the issuing opinions on applications and renewals for the positions of initiative of the Chairman of the Board of Directors, or the Director and Advisor, making certain that the Company’s Board Director serving as Chief Executive Offi cer, or of two Committee of Directors includes prominent independent persons outside members. the Company. In particular, it discusses the independence of Board members with respect to applicable criteria. The proceedings of the Committee are confi dential and shall not be discussed outside the Board of Directors. The Committee’s opinion may also be sought by the Chairman of the Board of Directors or by any Directors serving as Chief Decisions by the Committee shall be made by simple majority Executive Offi cer or Managing Director, on potential members vote and shall be deemed to have been reached as a board. of the Group’s Executive Committee or candidates for senior management positions at the Company or Christian Dior Couture. 3.3.4 It is the consultative body responsible for defi ning the measures to Prerogatives of the Committee be taken in the event that such an offi ce falls prematurely vacant. The Committee shall report on its work to the Board of Directors. It shall submit to the Board its fi ndings, recommendations and After review, the Committee shall make recommendations on suggestions. the distribution of Directors’ fees paid by the Company. Members of the Committee may request any and all available The Committee shall make recommendations on the compensation, information that they deem necessary for the purposes of carrying benefi ts in kind, bonus shares and share purchase and subscription out their responsibilities. options granted to the Company’s Chairman of the Board of Directors, Chief Executive Offi cer and Managing Director(s). In Any unfavorable opinion issued by the Committee on any this capacity, it issues recommendations regarding the qualitative proposal must be substantiated. and quantitative criteria on the basis of which the variable portion of compensation for executive offi cers shall be determined as well as the performance conditions applicable to the exercise of 3.3.5 Compensation of Committee members options and the defi nitive allocation of bonus shares. The members and Chairman of the Committee may receive a It adopts positions on any supplemental pension schemes special Director’s fee, the amount of which shall be determined established by the Company in favor of its senior executives by the Board of Directors and charged to the total fi nancial and issues recommendations on any retirement benefi ts that package allocated by the Shareholders’ Meeting.
2009 Annual Report 199 GENERAL INFORMATION Corporate governance
3.4 BYLAWS
Part I Ordinary Shareholders’ Meeting, and to any other place pursuant to a resolution of the Extraordinary Shareholders’ Meeting. Legal form, Corporate name, Corporate purpose, Agencies, branch offi ces, warehouses and retail outlets may be Registered offi ce and Duration established in any place and in any country, by simple resolution of the Board of Directors, which may later relocate or close these entities at its discretion. Article 1 - Legal form Christian Dior SA, fi rst established in the form of a limited liability Article 5 - Duration partnership under the terms of a private agreement concluded on October 8, 1946 in Paris, fi led on October 18, 1946 with the The duration of the Company is ninety-nine years, starting from clerk of the Paris commercial court and published in the Journal its date of incorporation, on the eighth day of October, in the Spécial des Sociétés Françaises par Actions of October 18, 1946, year one thousand nine hundred and forty-six. was transformed into a joint-stock corporation (société anonyme) without creating a new legal entity, following a decision of the Extraordinary Meeting of Partners held on December 21, 1979. Part II It is governed by all applicable laws as well as the regulations established hereinafter and it shall also be governed by any laws Share capital and company shares and regulations that may enter into effect in future. Article 6 - Share capital Article 2 - Corporate purpose The share capital of the Company is 363,454,096 euros, consisting The Company’s purpose, in France and in any other country, of 181,727,048 fully paid-up shares with a par value of 2 euros is the taking and management of interests in any company or each, all of which belong to the same category. entity, whether commercial, industrial, or fi nancial, whose The Company issued 4,351,808 shares further to the direct or indirect activity involves the manufacture and/or contribution by the various shareholders of Djedi Holding SA dissemination of prestige products, through the acquisition, in of 5,159,349 shares held in absolute ownership and 206,374 shares any form whatsoever, of shares, corporate interests, bonds, or held in bare ownership in the said company, valued at other securities or investment rights. 1,958,313,600 French francs. It may also pursue direct or indirect equity investment in any industrial or commercial operations by creating new companies, Article 7 - Changes in the share capital contributions, subscriptions, or purchases of shares or corporate The share capital may be increased or decreased by a resolution interests, merger, takeover, joint venture, or other method. of the Extraordinary Shareholders’ Meeting, as provided by law. More generally, it may also engage in any commercial, fi nancial, The Shareholders’ Meeting may delegate the authority or powers and industrial activities and those involving real and moveable necessary to effect such a change to the Board of Directors. assets, in such a way as to facilitate, favor, or develop the Company’s activity. Article 8 - Company shares
Article 3 - Corporate name PAYMENT FOR THE SHARES The name of the Company is: Christian Dior Shares subscribed in cash must be paid up, upon subscription, in an amount equivalent to at least one-quarter of their par value, In all legal instruments or documents issued by the Company and plus, where applicable, the entirety of the issue premium. The addressed to third parties, this name must always be immediately remainder shall be called by the Board of Directors within a preceded or followed by the words “société anonyme” or the initials maximum period of fi ve years. “SA”, which should appear legibly, and by the disclosure of the amount of the share capital. Payment for shares may be made by offsetting against liquid and demandable receivables due from the Company. Article 4 - Registered offi ce Shareholders shall be informed of calls for funds at least fi fteen The address of the Company’s registered offi ce is: 22, avenue days in advance, either by a notice inserted in a legal gazette Montaigne, F-75008 Paris, FRANCE. published where the registered offi ce is located or by registered letter with acknowledgment of receipt sent to each shareholder. It may be transferred to any other place within the same French administrative district (département) or any neighboring Shares allocated in the form of a contribution in kind or by administrative district pursuant to a decision of the Board of way of the capitalization of unappropriated retained earnings, Directors subject to the ratifi cation of said decision by the next reserves or issue premiums as well as shares the amount of which
200 2009 Annual Report GENERAL INFORMATION Corporate governance
results, in part, from an incorporation of reserves, unappropriated The liability of shareholders is limited to the amount of their retained earnings or issue premiums and in part, from a cash contribution to the Company’s share capital. payment, must be fully paid up upon issue. Under no circumstances may a shareholder’s heirs, representatives Any late payment for shares incurs, automatically and without or creditors apply for seals to be placed on or initiate proceedings prior formal notice, an interest charge due to the Company, against the Company’s property and assets, request the division calculated at the legal rate in commercial matters as of the or public sale by auction of the same, nor interfere in any way payment date, plus three percentage points. with the actions of the Company’s management. These individuals must refer to the Company’s schedules of assets and liabilities FORM and must respect the decisions of Shareholders’ Meetings. Fully paid-up shares may be in registered or bearer form, at the discretion of the shareholder. CROSSING OF SHAREHOLDER THRESHOLD Any legal entity or natural person who comes to possess a When the owner of the shares is not a French resident, as defi ned number of shares representing more than 1% of the Company’s in Article 102 of the French Civil Code, any intermediary may share capital shall notify the Company no later than eight days be registered on behalf of such owner. Such registration may after the crossing of this threshold and each time that a further be made in the form of a joint account or several individual threshold of 1% is crossed. However, this obligation shall cease accounts, each corresponding to one owner. to be applicable when the portion of capital held is equal to or At the time such account is opened through either the issuing greater than 60% of the Company’s share capital. company or the fi nancial intermediary authorized as account In the event of a failure to comply with this disclosure holder, the registered intermediary shall be required to declare, obligation, the shares in excess of the percentage that should under the terms and conditions laid down by decree, its capacity have been declared shall be deprived of their voting rights at as intermediary holding shares on behalf of another party. any Shareholders’ Meeting to be held within a period of three months following the date on which proper notifi cation is TRANSFER OF THE SHARES made, provided that a request to this effect has been recorded Shares are freely negotiable, unless as prohibited by applicable in the minutes of the Shareholders’ Meeting by one or more laws or regulations, in particular as regards shares with payments shareholders holding at least 5% of the Company’s share capital. in arrears and contributing shares. Registered shares are transferred via inter-account transfer IDENTIFIABLE BEARER SHARES based on the instructions of the account holder or his or her In order to identify the holders of securities, the Company is legal representative. entitled to request, at any time, at its own expense, that the central custodian of fi nancial instruments provide the name, or in the INDIVISIBILITY case of a legal entity, the Company name, the nationality, the Shares are indivisible as far as the Company is concerned. Joint year of birth or incorporation, and the address of the holders of holders of shares shall be required to be represented vis-à-vis shares conferring the right to vote, immediately or at some point the Company by only one of the joint holders or by a mutually in the future, at its own Shareholders’ Meetings, as well as the agreed permanent representative. number of shares held by such natural persons or legal entities and the restrictions, if any, which may exist upon the shares. RIGHTS ATTACHED TO THE SHARES In light of the list sent by the aforementioned body, the Company Ownership of a share automatically implies acceptance of these shall be entitled to request information concerning the owners Bylaws and of all resolutions passed by Shareholders’ Meetings. of the shares listed above, either through the intervention of Each share entails the right to take part, as provided by law that body, or directly, under the same terms and conditions and these Bylaws, in Shareholders’ Meetings and in votes on and subject to the penalties stipulated in Article L. 228-3-2 of resolutions. the French Commercial Code, of the persons appearing on that list and who might be, in the Company’s opinion, registered on Each share entitles the holder to a share of corporate profi ts behalf of third parties. and assets proportional to the number of outstanding shares, in consideration of the par value of the shares. When they act as intermediaries, such persons shall be required to disclose the identity of the owners of such shares. This information All shares currently comprising, or that shall comprise in future, shall be provided directly to the authorized fi nancial intermediary the Company’s share capital are equivalent for tax purposes. holding the account, who shall, in turn, be responsible for Accordingly, each share shall entitle the holder, as much during communicating it to the issuing company or the aforementioned the active existence of the Company as in the event of liquidation, body, as applicable. to the payment of the same net amount at the time of any distribution or redemption, such that all taxes or tax exemptions relating to said distribution or redemption shall be consolidated, without distinction between the shares.
2009 Annual Report 201 GENERAL INFORMATION Corporate governance
Part III A Director appointed to replace another Director shall serve as Director only for the remainder of the predecessor’s term of offi ce.
Chapter I: Corporate governance Article 10 - Shares held by Directors Article 9 - Composition of the Board of Directors Each member of the Board of Directors must own at least two hundred (200) shares of the Company for the entire duration Subject to the exceptions provided by law, the Company is of his, her or its term of offi ce. administered by a Board of Directors composed of at least three and no more than twelve members, appointed by the If, when appointed, a member of the Board of Directors does Shareholders’ Meeting for a term of offi ce lasting three years. not own the required number of shares, or if the member ceases to own this required number at any point in his, her or its term A legal entity may be appointed as a Director but is required, at of offi ce, the member shall be allowed a period of six months to the time of its appointment, to designate an individual who shall purchase a suffi cient number of shares, failing which he, she or serve as its permanent representative on the Board of Directors. it shall be automatically considered to have resigned. The term of offi ce of a permanent representative is the same as that of the legal entity Director he or she represents and must Article 11 - Organization of the Board of Directors be reconfi rmed at each renewal of the latter’s term of offi ce. The Board of Directors shall elect a Chairman, who must be When the legal entity dismisses its permanent representative, it an individual, from among its members. It shall determine his must at the same time provide for its replacement, and must send term of offi ce, which cannot exceed that of his offi ce as Director. notifi cation to the Company, by registered letter, of this dismissal as well as the identity of the new permanent representative. The Chairman of the Board of Directors cannot be more than The same provision applies in case of death or resignation of seventy-fi ve years old. Should the Chairman reach this age limit the permanent representative. during his term of offi ce, his appointment shall be deemed to have expired at the close of the Ordinary Shareholders’ Meeting A Director’s appointment shall terminate at the close of the convened to approve the fi nancial statements of the fi scal year Ordinary Shareholders’ Meeting convened to approve the during which the limit was reached. Subject to this provision, accounts of the preceding fi scal year and held in the year during the Chairman of the Board may always be re-elected. which the term of offi ce of said Director comes to an end. In case of temporary disability or death of the Chairman, the However, in order to allow a renewal of the terms which is as Board may temporarily delegate a Director to perform the duties egalitarian as possible and in any case complete for each period of the Chairman. In case of temporary disability this delegation of three years, the Board of Directors will have the option to is granted for a limited duration and is renewable. In case of determine the order of retirement of the Directors by the impartial death it is granted until the election of the new Chairman. selection in a Board Meeting of one-third of the Directors each year. Once the rotation has been established, renewals will take The Board of Directors may also appoint a secretary, who may place according to seniority. or may not be chosen from among the members of the Board. Nobody being more than eighty-fi ve years old shall be appointed Article 12 - Operation of the Board of Directors Director if, as a result of his or her appointment, the number of Directors who are more than eighty-fi ve years old would 1. The Board meets as often as required by the interests of exceed one-third of the members of the Board. The number of the Company and is convened by its Chairman on his own members of the Board of Directors who are more than eighty-fi ve initiative, or if he is not also the Chief Executive Offi cer, at years old may not exceed one-third, rounded to the next higher the request of the Chief Executive Offi cer or the Director number if this total is not a whole number, of the Directors in temporarily delegated to perform the duties of Chairman. offi ce. Whenever this limit is exceeded, the term in offi ce of the If the Board of Directors has not met for more than two oldest appointed member shall be deemed to have expired at months, a meeting may also be convened by any group of the close of the Ordinary Shareholders’ Meeting convened to Directors, representing at least one-third of the members approve the fi nancial statements of the fi scal year during which of the Board, who shall indicate the agenda of the meeting. the limit was exceeded. Meetings are held at the registered offi ce or at any other Directors may be re-elected indefi nitely. They may be revoked location specifi ed in the convening notice. Meetings of the at any time by decision of the Ordinary Shareholders’ Meeting. Board are chaired by the Chairman of the Board of Directors, In case of death or resignation of one or more Advisors, the or by the Director temporarily designated to perform the Board of Directors may, between two Shareholders’ Meetings, duties of Chairman or, if unavailable, by another Director make provisional appointments, subject to their ratifi cation by selected by the Board of Directors. the next Ordinary Shareholders’ Meeting. Notice is served in the form of a letter sent to each Director, When the number of members of the Board of Directors falls at least eight days prior to the meeting; it shall mention the below the statutory minimum, the remaining Directors must agenda of the meeting as set by the person(s) convening the immediately convene an Ordinary Shareholders’ Meeting in meeting. However, the Board may meet without notice upon order to supplement the membership of the Board of Directors. verbal notice and the agenda may be set at the opening of the
202 2009 Annual Report GENERAL INFORMATION Corporate governance
meeting if all Directors in offi ce are present or represented or In its relations with third parties, the Company is bound even when it is convened by the Chairman during a Shareholders’ by acts of the Board of Directors falling outside the scope of the Meeting. corporate purpose, unless it demonstrates that the third party knew that the act exceeded such purpose or that it could not Any Director may give a proxy to another Director, even have ignored it given the circumstances, it being specifi ed that by letter or cable, to represent him and vote on his behalf on mere publication of the Bylaws is not suffi cient proof thereof. resolutions of the Board of Directors, for a specifi c meeting. However, each Director may only dispose of one proxy The Board of Directors performs such monitoring and during the meeting. verifi cations as it deems appropriate. Each Director receives all necessary information for completing his assignment and An attendance register shall be kept and signed by all the may request any documents he deems useful. Directors attending each meeting. The Board of Directors distributes among its members the total 2. The Board may validly act only if at least one-half of its amount of attendance fees voted by the Shareholders’ Meeting. members are present. The decisions of the Board of Directors shall be carried out either Directors who participate in Board Meetings by means of by the Chief Executive Offi cer or by any person specifi cally videoconferencing or other telecommunication methods under appointed by the Board for that purpose. the conditions defi ned by the internal rules and regulations of the Board of Directors shall be deemed to be present for the Furthermore, the Board may grant one of its members or any purposes of calculating the quorum and majority. However, third parties, whether shareholders or not, any special offi ces actual presence or representation shall be necessary for any for one or more specifi c purposes, with or without the option, Board resolutions relating to the preparation of the parent for the persons so appointed, to themselves delegate, whether company fi nancial statements and consolidated fi nancial in full or in part, the performance of these duties. statements, and to the drafting of the management report It may also resolve to create committees responsible for studying and the report on the Group’s management. such issues as it may submit thereto for examination. Decisions are made by a majority of the votes of members present or represented. In the event of a tie vote, the Chairman’s Article 14 - Remuneration of the Directors vote is the deciding vote. The Shareholders’ Meeting may allocate to the Directors in 3. Proceedings of the Board of Directors shall be offi cially remuneration for their services a fi xed sum as attendance fees, recorded in the form of minutes in a special numbered and the amount of which is to be included in the overhead expenses initialed minute book kept at the registered offi ce, or on of the Company. separate sheets, consecutively numbered and initialed. The Board shall divide the amount of these attendance fees These minutes shall be signed by the Chairman of the meeting among its members as it deems fi t. In particular, it may decide and by a Director. If the Chairman of the meeting is unavailable, to allow Directors who serve on committees a greater portion they may be signed by two Directors. of these fees. The production of abstracts or copies of the minutes to a It may also allow exceptional remuneration for specifi c duties meeting shall serve as suffi cient justifi cation of the number or offi ces assigned to Directors. of Directors in offi ce and their presence or representation by These payments shall be subject to the legal provisions applicable proxy at the meeting. to agreements requiring the prior authorization of the Board To be valid, copies or abstracts of the minutes of the meeting of Directors. shall be certifi ed by the Chairman of the Board of Directors, the Chief Executive Offi cer, the Secretary, the Director Article 14a - Advisors temporarily delegated to perform the duties of Chairman, or by a representative duly authorized to that effect. Between one and three Advisors may be appointed, each for a term of no longer than three years, although they may be In the event of the liquidation of the Company, these copies re-elected. Their appointment or dismissal is subject to the or abstracts shall be validly certifi ed by a single liquidator. same rules as those applying to Directors. However, Advisors need not be shareholders and as such are not subject to rules Article 13 - Powers of the Board of Directors relating to the holding of multiple appointments as Directors or to similar positions. The Board of Directors sets guidelines for the Company’s activities and shall ensure their implementation. Subject to the Advisors are convened to the Meetings of the Board of Directors, powers expressly granted to the Shareholders’ Meetings and in which they have a consultative vote. The remuneration paid within the limits of the corporate purpose, it addresses any to Advisors is determined each year by the Board of Directors issue relating to the Company’s proper operation and settles the and is set off from the total attendance fees allocated by the affairs concerning it through its resolutions. Shareholders’ Meeting to the members of the Board of Directors.
2009 Annual Report 203 GENERAL INFORMATION Corporate governance
Chapter II: Management of the Company The provisions of the Bylaws or decisions of the Board of Directors limiting the powers of the Chief Executive Offi cer Article 15 - Chairman of the Board of Directors are not binding on third parties. and General Management 3 - Managing Directors Upon the proposal of the Chief Executive Offi cer, the Board of I - CHAIRMAN OF THE BOARD OF DIRECTORS Directors may appoint one or more individuals responsible for The Chairman of the Board of Directors chairs the Meetings assisting the Chief Executive Offi cer, with the title of Managing of the Board, and organizes and directs its work, for which he Director, for whom it shall set the compensation. reports to the Shareholders’ Meeting. He ensures the proper operation of the corporate bodies and verifi es, in particular, The number of Managing Directors may not exceed fi ve. that the Directors are capable of fulfi lling their assignments. Managing Directors may be dismissed at any time by the Board The Board shall determine the compensation to be paid to the of Directors, upon the proposal of the Chief Executive Offi cer. Chairman. If the dismissal is decided without just cause, it may give rise to damages. II - GENERAL MANAGEMENT When the Chief Executive Offi cer ceases to exercise his duties 1 - Choice between the two methods of General or is prevented from doing so, the Managing Directors remain Management in offi ce with the same powers until the appointment of the new The Company’s General Management is performed, under his Chief Executive Offi cer, unless resolved otherwise by the Board. responsibility, either by the Chairman of the Board of Directors, In agreement with the Chief Executive Offi cer, the Board of or by another individual appointed by the Board of Directors Directors sets the scope and duration of the powers granted to and bearing the title of Chief Executive Offi cer, depending upon Managing Directors. With regard to third parties, they shall the decision of the Board of Directors choosing between the have the same powers as the Chief Executive Offi cer. two methods of exercising the General Management function. It shall inform the shareholders thereof in accordance with the The age limit for eligibility to perform the duties of Managing regulatory conditions. Director is sixty-fi ve years. Should a Managing Director reach this age limit during his term of offi ce, his appointment shall be When the Company’s General Management is assumed by the deemed to have expired at the close of the Ordinary Shareholders’ Chairman of the Board of Directors, the following provisions Meeting convened to approve the fi nancial statements of the relating to the Chief Executive Offi cer shall apply to him. fi scal year during which the limit was reached. 2 - Chief Executive Offi cer The Chief Executive Offi cer may or may not be chosen from Chapter III: Company audit among the Directors. The Board sets his term of offi ce as well as his compensation. The age limit for serving as Chief Executive Article 16 - Statutory Auditors Offi cer is sixty-fi ve years. Should the Chief Executive Offi cer reach this age limit, his term of offi ce shall be deemed to have The Company shall be audited by one or more Statutory Auditors expired at the close of the Ordinary Shareholders’ Meeting appointed by the Ordinary Shareholders’ Meeting. convened to approve the fi nancial statements of the fi scal year One or more alternate Statutory Auditors shall also be appointed. during which the limit was reached. The term of offi ce for a Statutory Auditor is six years, expiring The Chief Executive Offi cer may be dismissed at any time by following the Ordinary Shareholders’ Meeting convened to the Board of Directors. If the dismissal is decided without just approve the fi nancial statements for the sixth fi scal year. cause, it may give rise to damages, unless the Chief Executive Offi cer assumes the duties of Chairman of the Board of Directors. Statutory Auditors may be removed from office by the Shareholders’ Meeting in the event of negligence or inability. The Chief Executive Offi cer is vested with the most extensive powers to act under any circumstances on behalf of the Company. They are required to attend Meetings of the Board of Directors He exercises such powers within the limits of the corporate convened to approve the annual or interim fi nancial statements purpose, and subject to the powers expressly granted by law of the preceding fi scal year as well as all Shareholders’ Meetings. to the Shareholders’ Meeting and to the Board of Directors. The remuneration paid to Statutory Auditors is determined in He shall represent the Company in its relations with third parties. accordance with applicable regulatory procedures. The Company is bound even by acts of the Chief Executive A Statutory Auditor appointed to replace another shall remain Offi cer falling outside the scope of the corporate purpose, in offi ce only until the expiration of the term of offi ce of his or unless it demonstrates that the third party knew that the act her predecessor. exceeded such purpose or could not have ignored it given the circumstances, it being specifi ed that mere publication of the Bylaws is not suffi cient to establish such proof.
204 2009 Annual Report GENERAL INFORMATION Corporate governance
Part IV maintained by the Company or in the accounts of bearer shares maintained by the offi cially authorized fi nancial intermediary. The recording or registration of bearer shares is certifi ed by a Shareholders’ Meetings statement delivered by the fi nancial intermediary authorized as account holder. Chapter I: General provisions Holders of shares shall not be admitted to Shareholders’ Meetings with respect to the shares not paid up within a period of thirty Article 17 calendar days from the notice issued by the Company. These shares shall be subtracted when calculating the quorum. IMPACT OF DECISIONS A shareholder can always be represented by another shareholder Shareholders’ Meetings deemed to be duly convened and held who is not deprived of voting rights or by his or her spouse; for represent all shareholders. Decisions taken during Shareholders’ this purpose, the proxy must demonstrate his or her authorization. Meetings, in accordance with the law and the provisions of these Shareholders may address their proxy form and/or their voting Bylaws, shall be binding for all shareholders, even those who form for any meeting, in accordance with applicable laws and are absent, indisposed or dissenting. regulations, either by mail or, if decided by the Board of Directors, by electronic transmission. Pursuant to the provisions of CONVENING NOTICES Article 1316-4, paragraph 2 of the French Civil Code, in the event Shareholders meet each year, within six months of the account of the use of an electronically submitted form, the shareholder’s closing, in an Ordinary Shareholders’ Meeting. signature shall make use of a reliable identifi cation process that Other Shareholders’ Meetings, either Ordinary Shareholders’ ensures the link with the document to which it is attached. Meetings held on an extraordinary basis or Extraordinary A shareholder having voted by mail or by electronic transmission, Shareholders’ Meetings, may be convened at any time during the year. sent a proxy or requested an admittance card or certifi cate Convening notices are sent to shareholders at least fi fteen days stating the ownership of shares may not select another means prior to the planned date of the Shareholders’ Meeting. This of taking part in the meeting. period is reduced to six days for Shareholders’ Meetings convened Any shareholder not deprived of voting rights may be appointed on second notice and for postponed meetings. as a proxy by another shareholder in order to be represented Meetings are convened by way of a notice inserted in a newspaper at a meeting. authorized to publish legal announcements in the administrative Any intermediary who meets the requirements set forth in district where the registered offi ce is located and, in addition, paragraphs seven and eight of Article L. 228-1 of the French if the Company’s shares are publicly traded, in the Bulletin Commercial Code may, pursuant to a general securities d’Annonces Légales Obligatoires. Shareholders who have held management agreement, transmit to a Shareholders’ Meeting registered shares for at least one month on the date a convening the vote or proxy of a shareholder, as defi ned in paragraph notice is published shall be invited to attend the Shareholders’ seven of that same article. Meeting by letter. Before transmitting any proxies or votes to a Shareholders’ If all shares are held in registered form, the publication of a Meeting, the intermediary registered pursuant to Article L. 228-1 convening notice may be replaced by an invitation, sent at the of the French Commercial Code shall be required, at the request Company’s expense, in the form of a simple letter addressed to of the issuing company or its agent, to provide a list of the each shareholder. non-resident owners of the shares to which such voting rights are attached. Such list shall be supplied as provided by either Procedures followed for convening notices are independent of Article L. 228-2 or Article L. 228-3 of the French Commercial any preliminary notices sent to shareholders, in the form and Code, whichever is appropriate. within the deadlines laid down by law, relating to any requests they may have fi led for the inclusion of proposed resolutions A vote or proxy issued by an intermediary who either is in the agenda of a Shareholders’ Meeting. not declared as such, or does not disclose the identity of the shareholders, may not be counted. ATTENDANCE AT SHAREHOLDERS’ MEETINGS Legal representatives of legally incapacitated shareholders, and The Shareholders’ Meeting is made up of all shareholders, natural persons representing shareholders that are legal entities, irrespective of the number of shares they own. shall take part in meetings regardless of whether or not they The right to attend and vote at Shareholders’ Meetings is personally are shareholders. subject to the registration of the shareholder in the Company’s Shareholders have as many votes as they hold shares. However, share register. a voting right equal to twice the voting right attached to other shares with respect to the portion of the share capital that they A shareholder is entitled to attend and vote at any meeting represent, is granted: provided that the shares held are registered in the name of the shareholder or intermediary authorized to act on his or her • to all fully paid-up registered shares for which evidence of behalf as of the fourth business day preceding the meeting at registration under the name of the same shareholder, over a midnight, Paris time, either in the accounts of registered shares period of least three years, may be demonstrated;
2009 Annual Report 205 GENERAL INFORMATION Corporate governance
• to registered shares allocated to a shareholder in event of Chapter II: Ordinary Shareholders’ Meetings increase of the capital through the capitalization of reserves, or unappropriated retained earnings, or issue premiums, by Article 19 - Powers virtue of this shareholder’s entitlement to benefi t from this right in respect of existing shares. The Ordinary Shareholders’ Meeting shall hear the reports prepared by the Board of Directors, its Chairman, and the This double voting right shall automatically lapse in the case of Statutory Auditors. It also reviews the fi nancial statements registered shares being converted into bearer shares or conveyed prepared by the Company. in property. However, any transfer by right of inheritance, by way of liquidation of community property between spouses or deed of The meeting discusses, approves, amends or rejects the fi nancial gift inter vivos to the benefi t of a spouse or an heir shall neither cause statements submitted. It decides upon the distribution and the acquired right to be lost nor interrupt the abovementioned appropriation of profi ts. three-year qualifying period. This is also the case for any It decides upon any amounts to be allocated to reserve funds. transfer due to a merger or spin-off of a shareholding company. It also determines the amounts to be withdrawn from reserves When a Works Council exists within the Company, two of its and decides upon their distribution. members, appointed by the Council, may attend Shareholders’ It determines the total amount of attendance fees to be allocated Meetings. At their request, their opinions must be heard on to the members of the Board of Directors. the occasion of any vote requiring the unanimous approval of shareholders. It appoints, replaces, re-elects or dismisses Directors. It ratifi es any appointments of Directors made on a provisional Article 18 - Convening and conduct of Shareholders’ basis by the Board of Directors. Meetings It appoints the Statutory Auditors and examines their special Shareholders’ Meetings shall be convened as provided by law. report. Meetings are held at the registered offi ce or at any other place It hears all proposals that do not fall within the exclusive remit mentioned in the convening notice. of the Extraordinary Shareholders’ Meeting. In accordance with the conditions set by applicable legal and regulatory provisions, and pursuant to a decision of the Board of Article 20 - Quorum and majority Directors, Shareholders’ Meetings may also be held by means of In order to pass valid resolutions, the Ordinary Shareholders’ videoconference or through the use of any telecommunications Meeting, convened upon fi rst notice, must consist of shareholders, media allowing the identifi cation of shareholders. present or represented, holding at least one-fi fth of total voting A Shareholders’ Meeting is chaired by the Chairman of the shares. Board of Directors or, in his absence, by the Vice Chairman When convened upon second notice, the deliberations of an of the Board of Directors or, in the absence of both of these Ordinary Shareholders’ Meeting shall be valid regardless of individuals, by a member of the Board of Directors appointed the number of shares represented. by the Board for that purpose. If no such person has been appointed, the meeting elects its Chairman. The resolutions of the Ordinary Shareholders’ Meeting are approved by a majority of the votes held by the shareholders The agenda of the meeting shall be set, in the usual course of present or represented. events, by the person(s) convening the meeting. The two Members of the meeting present, having the greatest Chapter III: Extraordinary Shareholders’ Meetings number of votes, and accepting that role, are appointed as Scrutineers. Article 21 - Powers The Offi cers of the meeting appoint a Secretary, who may but The Extraordinary Shareholders’ Meeting may amend the need not be a shareholder. Bylaws in any of its provisions and it may also decide upon the An attendance sheet is drawn up and initialed by the shareholders transformation of the Company into a company having any present, and certifi ed as accurate by the Offi cers of the meeting. other legal form. Proceedings of the Shareholders’ Meeting shall be offi cially However, in no event, unless by unanimous decision of the recorded in the form of minutes in a special numbered and shareholders, may it increase the duties of the latter, nor may initialed minute book kept at the registered offi ce, or on separate it violate the principle of equal treatment of all shareholders, sheets, consecutively numbered and initialed. except in the case of transactions resulting from a duly completed regrouping of shares. These minutes shall be signed by the Offi cers of the meeting. Copies or abstracts of the minutes shall be validly certifi ed by the Article 22 - Quorum and majority Chairman of the Board of Directors, by a Director temporarily delegated to perform the duties of the Chief Executive Offi cer, 1. In order to pass valid resolutions, the Extraordinary or by the Secretary of the meeting. Shareholders’ Meeting, convened upon fi rst notice, must
206 2009 Annual Report GENERAL INFORMATION Corporate governance
consist of shareholders, present or represented, holding at Article 26 - Distributable earnings least one-fourth of total voting shares. The deliberations of an Extraordinary Shareholders’ Meeting convened upon 1. The net proceeds of each fi scal year, minus general expenses second notice or held as a result of the postponement of the and other expenses incurred by the Company, including all meeting convened upon second notice shall be valid provided amortization, depreciation and provisions, represents the net it consists of shareholders holding at least one-fi fth of total profi t or loss of the fi scal year. voting shares. 2. From the net profi t for each fi scal year, minus prior losses, The resolutions of the Extraordinary Shareholders’ Meeting if any, an amount equal to at least one-twentieth must be shall be adopted by a two-thirds majority of the votes of the deducted and allocated to the formation of a “legal reserve” shareholders present or represented. fund. This deduction is no longer required when the amount of the legal reserve has reached one-tenth of the share capital 2. When deciding upon or authorizing the Board of Directors of the Company. It is resumed when, for any reason, the legal to effect a capital increase through the incorporation of reserve falls below this fraction. reserves, unappropriated retained earnings, or issue premiums, resolutions are passed subject to the quorum and majority 3. Distributable earnings consist of the remaining balance, plus conditions of Ordinary Shareholders’ Meetings. any profi ts carried forward. 3. A capital increase effected by way of an increase in the From these distributable earnings: par value of shares to be paid up in cash, or through the offsetting of receivables, requires the unanimous approval The Shareholders’ Meeting may deduct the necessary amounts of shareholders, representing the entirety of shares making for allocation to the special reserve for long-term capital gains, up the share capital. as provided for by current tax provisions, if other legal or optional reserves do not allow such contribution at the time the allocation is taxable in order to defer payment at the full Chapter IV: Constitutive Shareholders’ Meetings corporate income tax rate applicable to long-term capital gains realized during the year. Article 23 - Quorum and majority The Shareholders’ Meeting may then deduct from the balance Constitutive Shareholders’ Meetings, which are those convened such sums as it deems appropriate, either to be carried forward to approve contributions in kind or benefi ts in kind, shall pass to the following fi scal year, or to be applied to one or more valid resolutions subject to the quorum and majority conditions general or special reserve funds, whose allocation or use it of Extraordinary Shareholders’ Meetings. shall freely determine. At these meetings, neither the contributor nor the benefi ciary Any remaining balance shall be distributed among all may vote, on his or her own behalf or as a proxy. His or her shareholders in the form of a dividend, prorated in accordance shares shall not be taken into account when calculating the with the share capital represented by each share. quorum and majority. The Shareholders’ Meeting convened to approve the year’s fi nancial statements may grant each shareholder, upon the Part V proposal of the Board of Directors, in relation to all or part of the dividend distributed, a choice between payment of the Parent company fi nancial statements dividend in cash or in shares. The Board of Directors has the same authority for the distribution of interim dividends. Article 24 - Fiscal year 4. Except in the case of a capital reduction, no distribution may Each fi scal year has a duration of twelve months beginning on be made to shareholders when equity is or would subsequently January 1 and ending on December 31. become less than the total share capital.
Article 25 - Company accounts Part VI Regular accounts shall be kept of the Company’s operations in conformity with the law and normal commercial practice. Transformation, Dissolution, Extension, At the end of each fi scal year, the Board of Directors shall draw Liquidation and Litigation up the schedule of the assets and liabilities existing as of the balance sheet date as well as the annual accounts. The amount Article 27 - Transformation of commitments in the form of sureties, guarantees or collateral shall be mentioned in the balance sheet. The Company may be transformed into a company having a different legal form provided that, at the time of the The Board of Directors shall also draw up a management report. transformation, it has been in existence for at least two years All of these documents shall be made available to the Statutory and the balance sheets of its fi rst two years of existence have Auditors in accordance with applicable laws and regulations. been approved by the shareholders.
2009 Annual Report 207 GENERAL INFORMATION Corporate governance
Any transformation of the Company must be decided upon and The appointment of the liquidator(s) terminates the offi ce of published as provided by law. the Directors and that of the Statutory Auditors. During the period of the liquidation, the Shareholders’ Meeting Article 28 - Net assets amounting to less than one-half shall retain the same powers as those it exercised during the of the share capital existence of the Company. If, as a consequence of losses showed by the Company’s accounts, The net proceeds of the liquidation, after payment of liabilities, the equity of the Company is reduced to below one-half of the shall be used fi rst for the repayment of the amount paid up on share capital of the Company, the Board of Directors shall, shares that has not already been repaid to shareholders by the within four months from the approval of the accounts showing Company, with the balance divided among all the shares. such loss, convene an Extraordinary Shareholders’ Meeting in order to decide whether the Company ought to be dissolved The shareholders are convened at the end of the liquidation in before its statutory term. order to decide on the fi nal accounts, to discharge the liquidators from liability for their acts of management and the performance If the dissolution is not resolved, the Company must, no later of their offi ce, and to formally acknowledge the termination of than the end of the second fi scal year following the fi scal year the liquidation process. The conclusion of the liquidation shall during which the losses were established, reduce its share capital be published as provided by law. by an amount at least equal to the losses which could not be charged to reserves if, by the conclusion of the aforementioned Article 31 - Litigation and election of domicile period, the net assets have not been replenished to an amount at least equal to one-half of the share capital. Any litigation that may arise, during the term of existence of the Company or its liquidation, either between the shareholders In either case, the resolution adopted by the Shareholders’ and the Company, or among the shareholders themselves, with Meeting shall be published, in accordance with the law. respect to company activities, shall be heard by the competent courts with jurisdiction over the location of the Company’s Article 29 - Premature dissolution and extension registered offi ce. An Extraordinary Shareholders’ Meeting may at any time declare To this end, all shareholders must elect domicile within the same the premature dissolution of the Company or, at the expiration area of jurisdiction as the registered offi ce and all summons or of the Company’s term of existence, its extension. notices shall be validly served at this domicile. At least one year prior to the expiration of the Company’s term of Where no such domicile is elected, summons and notices shall be existence, the Board of Directors shall convene an Extraordinary validly served before the Procureur de la République (French public Shareholders’ Meeting, in order to decide whether the Company’s prosecutor) at the Tribunal de Grande Instance (French civil term ought to be extended. court) that has jurisdiction over the location of the registered offi ce. Article 30 - Liquidation Upon the expiration of the Company’s term of existence or in the event of its premature dissolution, the Shareholders’ Meeting shall decide the methods of liquidation and appoint one or several liquidators whose powers it shall determine.
208 2009 Annual Report GENERAL INFORMATION Market for fi nancial instruments issued by Christian Dior
4. Market for fi nancial instruments issued by Christian Dior
4.1 MARKET FOR CHRISTIAN DIOR SHARES
In a particularly uncertain economic environment, equity markets Christian Dior’s closing share price on December 31, 2009 experienced dramatic price fl uctuations in 2009. Responding was 71.76 euros. As of the same date, Christian Dior’s market early in the year to the very evident worsening in economic capitalization was 13.04 billion euros. conditions worldwide, the market decline that had begun in Christian Dior is a component of the Euronext 100 and DJ mid-2007 deepened further. However, optimism re-emerged Euro Stoxx stock exchange indexes. Christian Dior’s shares are gradually, beginning in March with the fi rst signs of a slower listed on Compartment A of Euronext Paris (Reuters: DIOR. pace of recession together with indications of a recovery in PA, Bloomberg: CD i-FP, ISIN: FR0000130403). economic activity, which would gain strength in the following months. The major stock indexes thus ended the year about 60% In addition, negotiable options based on the Christian Dior higher than their lowest levels recorded in the spring. share are traded on Euronext-Liffe. In this diffi cult context, the Christian Dior share price, which had declined by 55% in 2008, climbed back up by 78% as of Market for issuer’s shares December 31, 2009. In comparison, over the same period, the European indexes DJ Euro Stoxx and Euronext 100 rose by The Company’s shares are listed on Eurolist (Compartment A) 23% and 25%, respectively, while the Dow Jones Industrial of Euronext Paris. Average gained 19%.
Trading volumes and amounts on the Paris bourse, and price trend over the last 18 months
Opening price Closing price Highest Lowest Value of share 1st day (*) last day share price share price Trading capital traded (EUR) (EUR) (EUR) (EUR) volume (EUR) September 2008 72.37 53.07 75.46 51.48 5,198,337 336,367,607 October 2008 54.02 47.23 54.14 37.78 11,090,893 504,258,718 November 2008 48.20 36.10 51.50 30.18 7,851,626 296,588,719 December 2008 36.22 40.25 41.85 33.63 6,025,671 231,339,881 January 2009 40.50 39.06 44.285 34.60 5,383,332 208,969,836 February 2009 39.08 39.785 45.065 37.315 4,433,542 183,015,516 March 2009 38.82 41.275 43.90 37.355 4,119,282 168,789,667 April 2009 40.835 51.175 53.49 40.45 5,411,047 259,461,177 May 2009 51.975 53.90 55.20 49.10 4,961,034 262,361,372 June 2009 54.73 53.17 58.99 52.19 5,463,359 303,180,769 July 2009 53.61 60.90 61.61 50.21 3,841,142 210,143,708 August 2009 60.93 64.64 65.75 59.75 2,796,771 174,110,810 September 2009 64.52 67.50 68.23 61.39 2,813,437 185,459,658 October 2009 67.38 67.98 72.78 60.00 2,697,726 186,958,719 November 2009 67.49 67.50 72.99 65.30 2,052,707 142,493,804 December 2009 67.86 71.76 73.22 66.86 2,265,556 158,791,611 January 2010 71.59 73.20 76.50 70.85 2,528,568 187,508,054 February 2010 72.92 71.96 75.37 67.64 2,733,887 194,610,597 Source: Euronext (*) Share price during market trading.
2009 Annual Report 209 GENERAL INFORMATION Market for fi nancial instruments issued by Christian Dior
Price trend of the Christian Dior share and volume of stock traded in Paris
€ / share 90
80
70
60
50
40 1,000,000 30
20 500,000 10 0 0 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.
Volume Closing price
Stock market capitalization
As of December 31 (EUR millions) 2007 16,337 2008 7,315 2009 13,041
4.2 BONDS ISSUED BY CHRISTIAN DIOR
Bonds issued by Christian Dior that were outstanding on December 31, 2009 are listed for trading as shown below:
Bonds listed in Brussels
Amount outstanding Interest rate Currency (in currency) Year of issues Year of maturity (in %) EUR 150,000,000 2006 2011 4.25 EUR 50,000,000 2008 2011 5.875
Bonds listed in Luxembourg
Amount outstanding Interest rate Currency (in currency) Year of issues Year of maturity (in %) EUR 350,000,000 2009 2014 3,75
210 2009 Annual Report GENERAL INFORMATION Market for fi nancial instruments issued by Christian Dior
4.3 DIVIDEND
A gross dividend of 1.66 euros per share is being proposed for fi scal year 2009, an increase of 0.05 euros compared to the dividend paid for fi scal year 2008. The total Christian Dior distribution will amount to 302 million euros for fi scal year 2009, before the effect of treasury shares.
Dividend distribution in respect of fiscal years 2005 to 2009
Gross dividend Dividend per share (1) distribution Year (EUR) (EUR millions) 2009 (2) 1.66 302 2008 1.61 293 2007 1.61 293 2006 1.41 256 2005 1.16 211 (1) Excludes the impact of tax regulations applicable to the benefi ciaries. (2) Proposed to the Shareholders’ Meeting of April 15, 2010.
The Company has a steady dividend distribution policy, designed to ensure a stable return to shareholders, while making them partners in the growth of the Group. Pursuant to current laws in France, dividends and interim dividends uncollected within fi ve years become void and are paid to the French state.
1.61 1.61 1.66 1.41 1.16
2005 2006 2007 2008 2009*
Gross dividend per share (EUR)
* Proposed to the Shareholders’ Meeting of April 15, 2010.
2009 Annual Report 211 GENERAL INFORMATION Market for fi nancial instruments issued by Christian Dior
4.4 CHANGE IN SHARE CAPITAL
As of December 31, 2009, Christian Dior’s share capital amounted to 363,454,096 euros, consisting of 181,727,048 shares with a par value of 2 euros. The number of shares remained unchanged during fi scal year 2009.
4.5 PERFORMANCE PER SHARE
(EUR) 2009 2008 2007 Diluted Group share of net earnings 3.89 4.43 4.86 Dividend 1.66 1.61 1.61 Change compared to previous year +3% - +14% Highest share price (during market trading) 73.22 89.99 97.97 Lowest share price (during market trading) 34.60 30.18 79.10 Share price as of December 31 (closing share price) 71.76 40.25 89.90 Change compared to previous year +78% -55% +11%
212 2009 Annual Report GENERAL INFORMATION Main locations and properties
5. Main locations and properties
5.1 PRODUCTION
5.1.1 Wines and Spirits The vineyards in France and abroad owned by the Group are as follows:
2009 2008 of which under of which under (in hectares) Total production Total production France: Champagne name 1,809 1,675 1,805 1,684 Cognac name 245 177 246 179 Vineyards in Bordeaux 244 148 190 98 International: California (United States) 469 361 473 364 Argentina 1,390 891 1,369 903 Australia, New Zealand 610 520 594 475 Brazil 232 57 232 59 Spain 52 47 51 41
In the table above, the number of hectares owned is determined Céline also owns manufacturing and logistics facilities near exclusive of surfaces not used for viticulture. The difference Florence in Italy. between the total number of hectares owned and the number Berluti’s shoe production factory in Ferrare in Italy is owned of hectares under production represents areas that are planted, but not yet productive, and areas that are not yet planted. by the Group. The Group also owns industrial and offi ce buildings, wineries, Rossimoda owns its offi ce premises and its production facility cellars, warehouses, and visitor and customer centers for in Stra and Vigonza in Italy. each of its main Champagne brands or production operations The other facilities utilized by this business group are either leased in France, California, Argentina, Australia, Spain, Brazil or included within manufacturing subcontracting agreements. and New Zealand, as well as distilleries and warehouses in Cognac, the United Kingdom and Poland. The total surface area is approximately 810,000 square meters in France and 5.1.3 Perfumes and Cosmetics 250,000 square meters abroad. Buildings located near Orléans in France housing the Research and Development operations of Perfumes and Cosmetics as well 5.1.2 Fashion and Leather Goods as the manufacturing and distribution of Parfums Christian Dior are owned by Parfums Christian Dior and occupy a surface area Louis Vuitton owns eighteen leather goods production facilities of 122,000 square meters. located primarily in France; some signifi cant workshops are also located near Barcelona in Spain and in San Dimas, California. Guerlain owns its two manufacturing centers in Chartres and The Company owns its warehouses and logistics centers in France Orphin (France), for a total surface area of approximately but leases warehouse space abroad. The total surface area of 27,000 square meters. production facilities and warehouses owned is approximately Parfums Givenchy owns its two plants in France, one in Beauvais 190,000 square meters. and the other in Vervins, which also handles the production of Fendi owns its own manufacturing facility near Florence in Givenchy and Kenzo product lines, corresponding to a total Italy, as well as its company headquarters, the Fendi Palazzo, surface area of 19,000 square meters. The Company also owns in Rome, Italy. distribution facilities in Hersham, England.
2009 Annual Report 213 GENERAL INFORMATION Main locations and properties
La Brosse et Dupont owns production facilities, warehouses, The facilities operated by this business group’s remaining brands and offi ce space in France and Poland, for a total surface area – Chaumet, Fred, De Beers and Montres Dior – are leased. of about 50,000 square meters. 5.1.5 Christian Dior Couture 5.1.4 Watches and Jewelry In association with its Italian partners, Christian Dior Couture TAG Heuer leases all of its manufacturing facilities in La Chaux- operates fi ve production units for leather goods and footwear de-Fonds and the Jura region of Switzerland. in Florence, Milan, and Padua. Zenith owns the Manufacture, which houses its movement and For costume jewelry, Christian Dior Couture has a state-of-the- watch manufacturing facilities in Le Locle, Switzerland. All of art production workshop at Pforzheim, Germany. its European warehouses are leased. Baby Dior, reacquired by the Group in 2006, operates production Hublot owns its production facilities and its offi ce premises. facilities at Redon (in France ) and in Thailand.
5.2 DISTRIBUTION
Retail distribution of the Group’s products is most often carried Except avenue Montaigne, Madrid, Saint-Tropez, Tokyo out through exclusive boutiques. Most of the stores in the Group’s (Omotesando district), the stores wholly operated by Christian retail network are leased and only in exceptional cases does the Dior Couture and located in prime areas in most of the world’s Group own the buildings that house its stores. major cities are leased from independent owners. Christian Dior owns a logistics center in Blois. Louis Vuitton owns certain buildings that house its stores in Tokyo, Guam, Hawaii, Seoul, Taipei, Sydney, Rome, Genoa, In the Selective Retailing business group: Cannes and Saint-Tropez, for a total surface area of approximately • Le Bon Marché and Franck et Fils own the buildings in Paris 10,000 square meters. that house their department stores, corresponding to a total sales area of about 70,000 square meters; Céline and Loewe also own the buildings housing some of their stores in Paris and Spain. • DFS owns its stores in Guam and Saipan.
As of December 31, 2009 the Group’s store network breaks down as follows:
(in number of stores) 2009 2008 2007 France 376 355 329 Europe (excluding France) 665 650 565 United States 569 576 502 Japan 346 296 292 Asia (excluding Japan) 536 555 471 Other 168 119 110 TOTAL 2,660 2,551 2,269
214 2009 Annual Report GENERAL INFORMATION Main locations and properties
(in number of stores) 2009 2008 2007 Christian Dior Couture 237 237 221 Fashion and Leather Goods: Louis Vuitton 446 425 390 Other brands 718 665 599 Sub-total Fashion and Leather Goods 1,164 1,090 989 Perfumes and Cosmetics 65 62 55 Watches and Jewelry 114 104 90 Selective Retailing: Sephora 986 898 756 Other, including DFS 89 155 153 Sub-total Selective Retailing 1,075 1,053 909 Other 555 TOTAL 2,660 2,551 2,269
As of December 31, 2009, DFS harmonized its methodology for counting its stores across all geographic regions, now including only the number of concessions rather than the number of points of sale per concession. If the methodology introduced in 2009 were applied to 2008, the total number of stores would have amounted to 2,476 rather than 2,551.
5.3 ADMINISTRATIVE SITES AND INVESTMENT PROPERTY
The Group owns its headquarters located at 11-17, rue François Lastly, the Group owns investment property, for the most part 1er, and 28-30, avenue Montaigne. located in Paris and mainly in the vicinity of the Samaritaine and Le Bon Marché department stores, for a total surface area The headquarters of the main Christian Dior Couture subsidiaries of approximately 50,000 square meters. outside France are leased. A redevelopment project encompassing the group of properties Most of the Group’s administrative buildings are leased, with previously used for the business operations of the Samaritaine the exception of the headquarters of certain brands, particularly department store has been submitted for approval. those of Louis Vuitton, Parfums Christian Dior and Zenith. The Group holds a 40% stake in the Company owning the building housing the headquarters of LVMH on avenue Montaigne in Paris. The Group also owns three buildings in New York (total surface area of about 26,000 square meters) and a building in Osaka (about 5,000 square meters) that house the offi ces of subsidiaries.
2009 Annual Report 215 GENERAL INFORMATION Supply sources and subcontracting
6. Supply sources and subcontracting
6.1 CHAMPAGNES AND WINES
The Group owns 1,675 hectares of champagne under production, For the 2009 harvest, the Institut National des Appellations d’Origine which provide a little more than one-fourth of its annual needs. (INAO – French organization charged with regulating controlled In addition, the Group companies purchase grapes and wines place names) set the maximum yield for the Champagne from wine growers and cooperatives on the basis of multi-year appellation at 9,700 kg/ha. This maximum yield represents the agreements; the largest supplier of grapes and wines represents maximum harvest level that can be made into wine and sold less than 15% of total supplies for the Group’s brands. Until under the Champagne appellation. In 2006, the INAO redefi ned 1996, a theoretical price was published by the industry; to this the legal framework for the “stockpiled” reserves previously were added specifi c premiums negotiated individually between mentioned. It is now possible to harvest grapes beyond the the wine growers and the merchants. After the fi rst four-year marketable yield within the limits of a ceiling called “plafond limite agreement signed in 1996, another industry agreement was signed de classement (PLC)”, the highest permitted yield-per-hectare. between the Companies and the wine growers of Champagne in This ceiling is determined every year within the limits of the the spring of 2000 covering the four harvests from 2000 through maximum total yield. It was set at 14,000 kg/ha for the 2009 2003, which confi rmed the desire to limit upward or downward harvest. This additional harvest is stockpiled in reserve, kept in fl uctuations in grape prices. A new industry agreement was vats and used to complement poorer harvests. The maximum signed in the spring of 2004 by the Companies and the wine level of this stockpiled reserve is set at 8,000 kg/ha. growers of Champagne covering the fi ve harvests from 2004 to The price paid for each kilogram of grapes in the 2009 harvest 2009. This agreement sets new rules in order to ensure greater ranged between 4.60 euros and 5.55 euros depending on the security for the payment to the wine growers and to achieve vineyard, a 4% decrease compared to 2008. better control of price speculations. Dry materials (bottles, corks, etc.) and all other elements For about ten years, the wine growers and the merchants have representing containers or packaging are purchased from non- established a qualitative reserve that will allow them to cope Group suppliers. with variable harvests. The surplus inventories “stockpiled” this way can be sold in years with a poor harvest. These wines The Champagne Houses used subcontractors primarily for bottle “stockpiled” in the qualitative reserve provide a certain security handling and storing operations; these operations represented for future years with smaller harvests. approximately 28 million euros.
6.2 COGNAC AND SPIRITS
Hennessy owns 179 hectares. The Group’s vineyard has remained With an optimal inventory of eaux-de-vie, the Group can manage virtually stable since 2000, after 60 hectares of vines were cleared the impact of price changes by adjusting its purchases from in 1999 as part of the industry plan implemented in 1998. The year to year. objective of the plan was to reduce the production area through Hennessy continued to control its purchase commitments for premiums offered for clearing and assistance given to wine the year’s harvest, and diversify its partnerships to prepare its growers to encourage them to produce wines other than those future growth in various qualities. used in the preparation of cognac. Like the Champagne and Wine businesses, Hennessy obtains Most of the wines and eaux-de-vie that Hennessy needs for its its dry materials (bottles, corks and other packaging) from non- production are purchased from a network of approximately Group suppliers. The barrels and casks used to age the cognac 2,500 independent producers, with whom the Company ensures are also obtained from non-Group suppliers. the preservation of exceptional quality. Purchase prices for wine and eaux-de-vie are established between the Company and each Hennessy makes only very limited use of subcontractors for producer based on supply and demand. In 2009, the price of its core business. wines from the harvest remained stable compared to the 2008 and 2007 harvests.
216 2009 Annual Report GENERAL INFORMATION Supply sources and subcontracting
6.3 FASHION AND LEATHER GOODS
In Fashion and Leather Goods, manufacturing capacities and the Louis Vuitton believes that these supplies could be obtained use of subcontracting vary signifi cantly, depending on the brand. from other sources, if necessary. In 2004, recourse to a balanced portfolio of suppliers also limited dependence on specifi c The fi fteen leather goods manufacturing shops of Louis Vuitton suppliers. After a diversifi cation program launched in 1998 to Malletier, eleven in France, three in Spain and one in the United Norway and Spain, the portfolio of suppliers was expanded States, provide most of the brand’s production. All development and production processes for Louis Vuitton’s entire footwear to include Italy in 2000. In 2009, as part of a continued effort line are handled at its site in Fiesso d’Artico, Italy. Louis Vuitton to bolster this strategic supply source, Louis Vuitton formed a uses third parties only to supplement its manufacturing and joint venture with Tannerie Masure, which has been providing achieve production fl exibility. the company with premium-quality leathers for many years. This partnership will result in the creation of Tanneries de Fendi and Loewe also have leather workshops in their country la Comète, where hides will be tanned exclusively for Louis of origin and in Italy for Céline, which cover only a portion Vuitton using vegetal extracts. For Louis Vuitton, the leading of their production needs. Generally, the subcontracting used supplier of hides and leathers represents about 20% of its total by the business group is diversifi ed in terms of the number of supplies of these products. subcontractors and is located primarily in the country of origin of the brand: France, Italy and Spain. Fendi is in a similar situation, except for some exotic leathers for which suppliers are rare. Overall, the use of subcontractors for Fashion and Leather Goods operations represented about 32% of the cost of sales in 2009. Finally, for the various companies, the fabric suppliers are often Italian, but on a non-exclusive basis. Louis Vuitton Malletier depends on outside suppliers for most of the leather and raw materials used in manufacturing The designers and style departments of each company ensure its products. Even though a signifi cant percentage of the raw that manufacturing does not generally depend on patents or materials is purchased from a fairly small number of suppliers, exclusive expertise owned by third parties.
6.4 PERFUMES AND COSMETICS
The fi ve French production centers of Guerlain, Givenchy and Dry materials, such as bottles, stoppers and any other items that Christian Dior provide almost all the production for the four form the containers or packaging, are acquired from suppliers major French brands, including Kenzo, both in fragrances, and outside the Group, as are the raw materials used in the fi nished in make-up and beauty products. Make Up For Ever also has products. In certain cases, these materials are available only from suffi cient manufacturing capacities in France to cover its own a limited number of French or foreign suppliers. needs. Only the newer American companies, Loewe perfumes The product formulas are developed primarily in the Saint- and Acqua di Parma subcontract most of the manufacturing Jean de Braye laboratories, but the Group can also acquire or of their products. develop formulas from specialized companies, particularly for In 2009, manufacturing subcontracting represented overall perfume essences. about 5% of the cost of sales for this activity, plus approximately 10 million euros for logistical subcontracting.
2009 Annual Report 217 GENERAL INFORMATION Supply sources and subcontracting
6.5 WATCHES AND JEWELRY
With its fi ve Swiss workshops or manufactures, located in Le Because of the very high quality requirements, the components Locle, in La Chaux de Fonds and in Nyon, the Group provides assembled are obtained from a limited number of suppliers, almost the entire assembly of the watches and chronographs primarily Swiss, with the exception of the leather for the watch sold under the TAG Heuer, Hublot, Zenith, Christian Dior, bands. In 2009, the industrial subsidiary Cortech in Switzerland Chaumet and Fred brands. In its watchmaking shop, Zenith manufactured a signifi cant portion of the cases meeting the also designs and manufactures the mechanical movements El production needs of TAG Heuer and Zenith. Primero and Elite. In 2009, Hublot celebrated the grand opening Even though the Group can, in certain cases, use third parties to of its new site in Nyon bringing together all of its activities under design its models, they are most often designed in its own studios. one roof, while TAG Heuer inaugurated a new workshop for the manufacture of watch movements in La Chaux de Fonds. In this business, subcontracting represented overall only 4% of the cost of sales in 2009.
6.6 CHRISTIAN DIOR COUTURE
Production capacities and the use of subcontracting vary Overall for this business, subcontracting represented about signifi cantly, depending on the products involved. 48% of the cost of sales. In Leather Goods, Christian Dior Couture may enlist the services In the ready-to-wear and fi ne jewelry sectors, the Company is of companies outside the Group to increase its production capacity supplied solely through outside companies. and ensure greater fl exibility in its manufacturing processes.
218 2009 Annual Report GENERAL INFORMATION Statutory Auditors
7. Statutory Auditors
7.1 NAME AND TERM
Start Current terms of offi ce date of Statutory Auditors fi rst term Date appointed End of term ERNST & YOUNG et Autres 41, rue Ybry May 14, 2009 May 14, 2009 fi scal year 2014 92576 Neuilly-sur-Seine Cedex represented by Mrs. Jeanne Boillet MAZARS Tour Exaltis 61, rue Henri Regnault May 15, 2003 May 14, 2009 fi scal year 2014 92400 Courbevoie represented by Mr. Simon Beillevaire Alternate Statutory Auditors Auditex 11, allée de l’Arche May 14, 2009 May 14, 2009 fi scal year 2014 92400 Courbevoie Mr. Guillaume Potel Tour Exaltis May 15, 2003 May 14, 2009 fi scal year 2014 61, rue Henri Regnault 92400 Courbevoie
7.2 FEES PAID IN 2009
Ernst & Young et Autres Mazars 2009 2008 2009 2008 (EUR thousands, excluding VAT) Amount % Amount % Amount % Amount % Audit Statutory audit, certifi cation, audit of the individual company and consolidated fi nancial statements • Christian Dior 86 1 98 1 82 9 141 15 • Fully-consolidated subsidiaries 10,870 83 10,732 82 824 90 776 85 Other services relating directly to the statutory audit assignment: • Christian Dior 8 - 4 - 8 1 4 - • Fully-consolidated subsidiaries 468 4 873 7 ---- Sub-total 11,432 88 11,707 90 914 100 921 100 Other services provided by the fi rms to fully-consolidated subsidiaries • Legal, tax, employee-related 1,322 10 1,159 9 ---- • Other 262 2 207 1 ---- Sub-total 1,584 12 1,366 10 ---- TOTAL 13,016 100 13,073 100 914 100 921 100
2009 Annual Report 219 GENERAL INFORMATION Statement of the Company Offi cer responsible for the annual fi nancial report
8. Statement of the Company Offi cer responsible for the annual fi nancial report
We declare that, to the best of our knowledge, the fi nancial statements have been prepared in accordance with applicable accounting standards and provide a true and fair view of the assets, liabilities, fi nancial position and profi t or loss of the parent company and of all consolidated companies, and that the management report presented on page 9 gives a true and fair picture of the business performance, profi t or loss and fi nancial position of the parent company and of all consolidated companies as well as a description of the main risks and uncertainties faced by all of these entities. In their report on the 2009 consolidated fi nancial statements, the Statutory Auditors highlighted Note 1.2 of the notes to the consolidated fi nancial statements, relating to changes in accounting policies resulting from standards, amendments and interpretations implemented by the Company.
Paris, March 23, 2010
Under delegation from the Chief Executive Offi cer Florian OLLIVIER Chief Financial Offi cer
For further information: Tel.: +33 1 44 13 24 98 Fax: +33 1 44 13 27 86 Website: www.dior-fi nance.com
220 2009 Annual Report Copyright: Karl LAGERFELD
This report was printed in France by a printer awarded the Imprim’Vert® eco-label on recycled, elemental chlorine-free paper made from pulp certifi ed by the Forest Stewardship Council as having been obtained from forests managed sustainably in accordance with strict environmental, social and economic standards. 30, avenue Montaigne – Paris 8e TRANSLATION OF THE FRENCH “RAPPORT ANNUEL” FISCAL YEAR ENDED DECEMBER 31, 2009